Chapter XV…

Chapter XV

THE ELKINS AMENDMENTS (1903): THE HEPBURN ACT OF 1906

New causes of unrest in 1899, 487.--The spread of consolidation, 487.--The rise of freight rates, 488.--Concentration of financial power, 490.--The new "trusts," 491.--The Elkins amendments concerning rebates, 492.--Five provisions enumerated, 493.

More general legislation demanded, 494.--Congressional history 1903-1905, 495.--Railway publicity campaign, 496.--President Roosevelt's leadership, 498.--The Hepburn law, 499.--Widened scope, 499.--Rate-making power increased, 500.--Administrative v. judicial regulation, 501.--Objection to judicial control, 503.--Final form of the law, 505.--Broad v. narrow court review, 506.--An unfortunate compromise, 507.--Old rates effective pending review, 508.--Provisions for expedition, 511.--Details concerning rebates, 512.--The commodity clause, 513.--History of its provisions, 514.--Publicity of accounts, 515.--Extreme importance of accounting supervision, 516.--The Hepburn law summarized, 520.

The new incentives to rehabilitation of the Interstate Commerce law by Congress, becoming year by year more insistent after 1899, were four in number. Most of the old long-standing grievances were still on the docket. New sources of dissatisfaction and danger were now added in plenty as a result of important industrial changes. The most far-reaching of these was the spread of consolidation among railroads. This, as we shall see,[585] led within a few years to a partition of the entire railway net of the country into a few large systems, each controlled financially, although seldom by actual majority investment, by powerful individuals or banking groups, mainly located in New York. Many small local roads, long closely identified with the welfare of particular communities, were now merged in great systems under entirely different and probably absentee ownership and management. Boston, Baltimore, New Orleans, St. Paul, Cincinnati, not to mention a host of other smaller places, seemed commercially cast adrift. The welfare of railroads and of the particular communities in which they lay,--long supposed to be indissolubly linked together,--was now seen by concrete experience to be separable, often into conflicting parts. The New Haven monopoly in New England might be managed rather in the interest of New York than of the port of Boston. The Illinois Central, once devoted whole-heartedly to the upbuilding of New Orleans, must now, as a part of the Union Pacific system, comprehend San Francisco and even Savannah within the scope of its plans. New systems implied new traffic arrangements. Railroad policy must of necessity involve a choice, not between two evils, perhaps, but between a resultant good and a necessarily attendant evil. All these corporate changes made inevitably for much commercial readjustment. And each readjustment left a trail of real or alleged grievances; for the settlement of which no competent tribunal existed. There can be no doubt, therefore, that the significant changes in the railroad map after 1899 had much to do with the demand for new legislation.

The second new and general cause of dissatisfaction among the public was the great and almost continuous rise of freight rates which began about 1900. This was of course a direct outcome of the spread of railroad consolidation. The movement of freight rates has been elsewhere described in detail.[586] It has appeared that the steady decline which ensued for almost a generation after the panic of 1873, was sharply reversed when combination succeeded competition as a fundamental policy of railroading. This striking reversal of the course of railway charges was not, of course, an isolated phenomenon. It took place in a period of marked and general rise of prices, not unconnected with changes in the value of gold. The upward trend was at first more striking, and apparently more irresistible, in the charges for transportation than in the prices of commodities. Prior to 1899, not even the most astute railroad managers ever anticipated any such change. The Boston & Maine Railroad even permitted the inclusion of a prohibition of any higher rates in future than were then in force, to be incorporated in the acts of the New Hampshire legislature authorizing its leases of important lines. Attorneys sought to prove that railroads were not subject to the law of increasing returns, because it was inevitable as an economic law that with growth in the volume of business, rates should progressively decline.[587] If there was often public dissatisfaction at the scale of charges under these conditions, how irresistible might the unrest among shippers become when rates actually began to move so strongly upwards!

A single illustration of the class of complaints thus engendered may not be out of place.[588] It concerned the reasonableness of an increase of two cents per hundred pounds on lumber from Georgia points to the Ohio river. From 1894 to 1903 these rates had been already raised by three or four cents, to a level of thirteen or fourteen cents; so that prosperity had been already discounted by a rise of thirty or forty per cent. On top of this, and despite an enormous increase in the tonnage, came a further raise of two cents per hundred pounds in April, 1903. This was too much. To this exaction, involving not less than $132,000 per year additional freight rates, the lumbermen of Georgia objected. The Interstate Commerce Commission upheld their contention; and in July, 1905, more than two years afterward, the Circuit Court sustained the Commission. Appeal was then taken to the Supreme Court which rendered a decision in 1907, more than four years after the increase had occurred; and during which time the railroads had been collecting the added charge. The shippers had naturally at once shifted the burden upon the public so far as the competition of other lumber-producing centres, each championed by its own railroad or set of roads, would permit. No recovery of this tax, now held to be unjust by the highest court in the land, could possibly be had. The loss was irreparable. The frequency of complaints of this sort, involving the absolute reasonableness of rates, proves conclusively how potent a factor in furthering legislation the rise of the scale of charges had become.

The demonstration of the menace to public welfare of an inordinate concentration of financial power in the hands of a few privileged individuals, served a useful end in bringing about new legislation. The general rise of rates had been a direct outcome of the substitution of combination for competition among railroads. The danger of absolute dominion over all trade, commerce and finance without accountability to the law, was a concomitant of the growth of great railroad systems.[589] A special investigation in 1905 showed, for example, that the majorities of the boards of directors of practically all of the roads east of the Mississippi river might be selected from a group of only thirty-nine persons. The spectacular career of Edward H. Harriman with the Union Pacific and other companies was a convincing argument in itself. The disclosures in the New York insurance investigation of 1905 as to the intricate ramifications of financial power came, as will shortly appear, at a most opportune time for promoting congressional activity. The need of it was, perhaps, never more clearly shown than in the following frank admission by Mr. Harriman in December, 1906,--only a few months after the law had been amended,--made in the course of a general investigation of railroad consolidations by the Interstate Commerce Commission.[590]

Questioned as to where his policy of acquisition was to end, the following colloquy ensued:

"A. I would go on with it. If I thought we could realize something more than we have got from these investments I would go on and buy some more things.

* * * * *

"Q. Supposing that you got the Santa Fe?

"A. You would not let us get it.

"Q. How could we help it?

"A. How could you help it? I think you would bring out your power to enforce the conditions of the Sherman anti-trust act pretty quick. If you will let us, I will go and take the Santa Fe to-morrow.

"Q. You would take it to-morrow?

"A. Why, certainly I would; I would not have any hesitation; it is a pretty good property.

"Q. Then it is only the restriction of the law that keeps you from taking it?

"A. I would go on as long as I live.

"Q. Then after you had gotten through with the Santa Fe and had taken it, you would also take the Northern Pacific and Great Northern, if you could get them?

"A. If you would let me.

"Q. And your power, which you have, would gradually increase as you took one road after another, so that you might spread not only over the Pacific coast, but spread out over the Atlantic coast?

"A. Yes."

Was there ever a clearer case of megalomania, menacing the welfare of a great people?

But it was not alone the dangers incident to monopoly in transportation which excited popular alarm. There was the ever increasing danger of abuse of monopolistic power by the newly created industrial combinations. Most of these had sprung up overnight in the great promotion movement of 1899-1901. The general public had long been aware of the gross favoritism in transportation, which had created the Standard Oil Company. It knew something of the power of the beef packers' monopoly, built up by the use of private car lines. But with the publication of Miss Tarbell's History of the Standard Oil Company in 1903-1904, followed by the reports of the United States Commissioner of Corporations in 1906, its attention was newly directed to the evil.[591] Even the carriers themselves were now roused to protest by the pressure for secret favors by large shippers. The Elkins amendments to the law in 1903, as we shall see, enabled the government to convict many offenders. But even this new law was not enough. The rebating still went on, under new and ingenious forms. If the United States Steel Corporation, the "Sugar Trust," the International Harvester Company, the Colorado Fuel and Iron Company and a host of others were not restrained, monopoly in transportation would soon be followed by monopoly in manufacture. Each new disclosure verified the suspicions of the public as to the magnitude of these abuses. The necessity of a special corrective was first applied to rebating; but this action in turn only served to reënforce the popular conviction that more general legislation was necessary. The Elkins amendments of 1903 surely paved the way for the Hepburn law three years thereafter.

* * * * *

The so-called Elkins amendments to the Act of 1887,--the first changes of importance in its substantive clauses,--were made in 1903, in response to a demand of the carriers. Educated to a sense of the grave losses of revenue incident to rebating and general rate cutting, prominent railroad men united in urging Congress to act. The ease and decorum with which this legislation was passed is, in itself, eloquent testimony to the organized influence of the railroads over Congress, which made itself felt during the next few years in opposition to further changes in the law for the benefit of the public. The entire inadequacy of the original act to prevent rebating had been proven time and again. The Interstate Commerce Commission had done its best. The Department of Justice had attempted to apply the equity processes of injunction without much result. Other Federal laws had been invoked in vain. When the carriers themselves asked for more stringent legislation, it was accorded by Congress with commendable despatch. No opposition whatever appeared. Nor was there much debate. The machinery of legislation moved expeditiously and almost without noise to the desired end.

These Elkins amendments dealt solely with the provisions of law concerning observance of published tariffs. They in no wise affected the determination of what those tariffs should be. That problem of reasonableness was the bone of contention in the great struggle in Congress, hardly as yet under way but soon to follow. The changes in 1903, therefore, had mainly to do with penalties and legal procedure. They were, as elsewhere outlined, five in number. The railroad corporation itself,--and not merely its officers and agents as heretofore,--was made liable to prosecution and penalty. This put an end to the anomalous immunity hitherto enjoyed by the principal and beneficiary of a guilty transaction. Secondly, the penalty of imprisonment for departure from the published tariff,--added to the law in 1889 in the hope of rendering it more effective,--was removed. It had been hoped that the reluctance of witnesses to become parties to such condign punishment of associates might thus be somewhat overcome; especially since the liability to fines now ran to the corporation rather than to the individual. The third change in the law was of great importance, as it had been construed by the courts. Preferential treatment of shippers had been made to depend upon proof; first, that rates lower than as published in the tariff had actually been allowed; and, in the second place, that these full tariff rates, or, at least, higher rates, had been paid by others on like shipments at the same time. Such proof had turned out to be practically impossible in any general rate war; inasmuch as, at such times, rates were cut more or less substantially for all shippers alike. In other words, there might well be departure from the published rates, without preferential treatment. And it was the object of the law to put a stop to both of these abuses. The Elkins law, therefore, explicitly made the published tariff the standard of lawfulness. Any departure from it, proven by itself alone, was declared a misdemeanor. In the fourth place, the new law made shippers or any other interested parties defendants; whereas formerly only the giver of rebates, not the recipient, could be prosecuted. This change rendering the guilty shipper liable, was an eminently proper one. And then, finally, the new law provided for the issuance of injunctions,--viz., peremptory orders punishable by contempt of court,--by any Federal judge whenever the Interstate Commerce Commission had reasonable ground for belief that any common carrier was deviating from the published tariff, "or is committing any discrimination forbidden by law." A summary prohibition from this judicial source, it was hoped, would act as a powerful deterrent.

* * * * *

The enactment of more general remedial legislation than the Elkins amendments was a far more serious matter. That statute has not inaptly been described as "not even a preliminary skirmish. It was a truce of the principals to abolish piracy." The original law of 1887 was avowedly experimental and imperfect. With this in view the statute had specifically directed that there should be transmitted to Congress in its annual reports "such recommendations as to additional legislation ... as the Interstate Commerce Commission may deem necessary." This duty was conscientiously performed year by year. One may find, therefore, in these documents, especially after 1896, the most convincing presentation of the need for amendment of the law. Yet despite its importance, Congress was for some years so intent upon more pressing public business, that no action was taken in the matter. Currency legislation, the Spanish War and the Philippines, the Isthmian Canal, pure food and the trusts quite engrossed public attention. And, oddly enough, when the campaign opened seriously in 1899, activity was for a time confined mainly to the Senate. This was in sharp contrast with the situation both before 1887 and after 1905, when the upper house was the obstructive member.

As early as 1894 the Senate Committee on Interstate Commerce had reported favorably a bill; but nothing came of it. Five years later, both Senators Cullom of Illinois,--sponsor for the original law,--and Chandler of New Hampshire introduced bills. All these measures aimed to confer rate-making power upon the commission and to expedite judicial procedure upon appeal. In the meantime important organizations, especially in the West, such as the National Board of Trade and the Conventions of State Railroad Commissioners, had taken the matter up. Much evidence was heard by the United States Industrial Commission which dealt with it in an elaborate report in 1901.[592] The chances seemed favorable for action. The Senate Committee on Interstate Commerce in that year added several progressively inclined members. The general freight rate increases of 1900 had greatly stirred the people. But at this juncture the powerful new financial influences, concerned with the formation of the great transportation systems, came into play. Effective regulation might interfere with some of these plans. The matter was becoming serious. Railroad opposition began to organize. It became clear that a bitter contest would be needed to secure legislation.

Renewed pressure from the public came in 1902. Senator Chandler had been retired by direct railroad influence in New Hampshire. But Senator Cullom again brought in a bill,[593] which was consolidated with another by Senator Nelson of Minnesota. Public interest was plainly rising; yet these measures all died in committee. And the House of Representatives was too busy with other concerns. But in 1903, for the first time, the lower house devoted some attention to the so-called Cooper-Quarles bill;[594] although no vote was taken. It did, however, with little debate, as we have seen, grant what the railroads asked for the suppression of rebating in the passage of the Elkins amendments. The necessity of general legislation on the subject was not yet strongly felt. The trusts, floundering in the panic of 1903, seemed more threatening to public order than the railroads. Only in a few communities like Wisconsin under the able leadership of Governor La Follette, had public opinion become sufficiently aroused to achieve definite results.

Matters were finally brought to a head by the determined attitude of President Roosevelt. In his annual message to Congress in 1904 he made railroad regulation "a paramount issue." The remedies proposed differed little from those of the bills above mentioned. The cardinal point was that the Interstate Commerce Commission was to be given power to prescribe actual rates, to be effective until reversed by the courts. Under this spur, the House of Representatives passed the so-called Esch-Townshend bill--an administration measure--by the impressive majority of 326 to 17. It was now the Senate's turn to delay. It, however, authorized its Interstate Commerce Committee to sit during the spring and summer, and to report in December.[595] A mass of testimony was taken, which despite the activity of a powerful body of paid railroad attorneys, proved to be most convincing. But even more cogent proof of the need of control was the outrageous attempt of the carriers to influence popular opinion through so-called publicity bureaus.[596] An extensive service, regardless of cost, was set up with headquarters at Washington and with branches in all the leading cities, headed by the President of the Southern Railway. Bogus conventions, packed for the purpose,--such as the "Alabama Commercial and Industrial Association,"--passed resolutions unanimously, to be scattered broadcast by free telegraphic despatches all over the country. "Associations for the Maintenance of Property" held conventions; the fact being duly advertised. Palpably garbled news items from Washington were distributed without cost, especially during the hearings of the Senate Committee. Even more insidious and misleading methods were employed. An elaborate card catalogue of small newspapers throughout the United States was made; in which was noted all of the hobbies, prejudices, and even the personal weaknesses of the editors. One of the cards is reproduced on this page. Magazine sections or "ready to print" insides were also made up, in which appropriate and subtle references to railroad issues were concealed in a mass of general reading matter. Two or three weekly letters were sent gratis to minor newspapers without regular Washington correspondents, containing "good railroad doctrine," together with spicy local news items. Dakota farmers got suggestions as to the danger of the proposed legislation affecting their rates. Kentucky planters were warned of the probable effect upon tobacco prices. As an indication of the formidable proportions of this campaign of education, the Chicago office, alone, employed some forty highly paid experts. Regular reports were rendered by this news service to the railroads' committee, as to the results achieved; setting forth the number of columns of news matter distributed and the changes effected in the proportion of "pro" and "con" items published. It was indeed a most astounding demonstration of the lengths to which organized corporate power would go to defeat regulative legislation. That it proved upon exposure to be a boomerang for the railroad cause, is to be inferred from the entire absence of all such political methods from the succeeding campaigns dealing with further amendment of the law.

The President again insisted upon action in the annual message of 1905, this time recommending control over maximum, not absolute, rates.[597] Executive pressure was brought to bear heavily upon Congress. The public was plainly becoming insistent; with the result that the so-called Hepburn bill was passed by 346 votes to 7. Whether the Senate, under the influence of one of the most powerful lobbies ever let loose upon a legislative body, would have yielded even then, had it not been for an extraordinary conjuncture of economic events, one dare not surmise. The general causes of dissatisfaction, already described, such as the spread of combination, the growth of autocratic power, the steady rise of freight rates and the abuses of personal favoritism had been long at work. But now at the psychological moment came the general breakdown and congestion of railroad service all over the country;[598] the insurance investigation in New York; the Pennsylvania Railroad coal car scandal;[599] the Atchison rebate disclosures, with "barefaced disregard of the law," besmirching a member of the President's cabinet;[600] and the exposure of the outrageous publicity campaign methods of the carriers. The evidence was cumulative and overwhelming as to the need of action. The Senate was forced to acquiesce in a conference committee bill, passing it at the end with only three dissenting votes.[601] On June 29, 1906, the Hepburn bill became law. The fundamental principle of governmental control over the most powerful corporations in the country had been fully affirmed. It was an historic event,--the most important, perhaps, in Theodore Roosevelt's public career,--and a not insignificant one in our national history.

* * * * *

The Hepburn law of 1906, in the first place, greatly broadened the field of Federal regulation.[602] This was now extended to cover both express and sleeping-car companies. Pipe lines,--such powerful factors in the creation of monopoly in the oil business as opportunely showed by the Report of the Commissioner of Corporations in 1906,--were expressly included. "Transportation" was now broadly defined as comprehending among other things, "all services in connection with the receipt, delivery, elevation, and transfer in transit, ventilation, refrigeration or icing, storage, and handling of property transported." Whether certain of these powers, especially over pipe lines, are practically enforcible as well as legally sound, remains yet to be seen. The inclusion of all switches, spurs, and terminal facilities, with appurtenances of all sorts, was an added detail of importance, in view of the complicated uses made of them in connection with rebating, as elsewhere described. And the express power to require facilities for shipment, as well as to regulate joint rates and services in every detail, was yet another notable extension of Federal authority. Part-rail and part-water transportation was included; but coastwise and inland traffic exclusively by water, was left out. In view of its intimate relation to rates and services by rail, this omission was unfortunate. The notorious instability of water rates and the difficulties incident to the enforcement of the long and short haul clause, render such water-borne traffic of great importance in the proper regulation of carriers on land.

The significance of the Hepburn law, however, was not primarily in the wider scope of Federal control. The heart of it consisted of its more intensive character. The rate-making power of the Commission was greatly increased. Two other points were contested with equal vigor, viz., the scope of judicial review of decisions of the Commission, and the question as to whether its orders in cases appealed should take effect at once, or only upon final judgment by the Federal court. Viewed in a large way, however, all three of these propositions depended upon the determination of a basic issue. A clear separation of powers between the legislative, executive and judicial branches of government was a fundamental principle in our Federal Constitution. It was generally agreed that a considerable confusion of functions, laid upon the Commission by the original law, must in future be avoided. Here, it was said, was a body which, if empowered to make rates, would be exercising a legislative function; if applying and enforcing them, would be acting administratively; and if hearing complaints, would be serving as a court. It was generally conceded, nevertheless, except by a few extremists, that the time had now come when some competent tribunal must be provided for the effective and prompt settlement of transportation disputes. To which one of these three branches of the government should this important duty be assigned? In other words, disregarding mere matters of detail, should the Interstate Commerce Commission or the Federal courts be charged with the real control of the common carriers of the country?

The alignment upon this question was clearly defined. The administration and the representatives of the shippers and the general public, were unanimously agreed that control of rates and regulations, to be effective must be through an administrative agency,--a body, that is to say, attached to the executive branch of the government. Their reasons will be set forth in due time. On the other hand every railroad proposition was based upon the exercise of real control by the judiciary. The Commission, as an administrative body, was not to be abolished; but in all matters of rate regulation it was to be subordinated to the courts. The motives for this policy will also appear shortly. Senator Foraker of Ohio,--soon retired because of his uncompromisingly pro-railroad attitude,--proposed to strip the Commission of all rate-making power whatsoever; and to reduce it to an initiating body which should merely certify all complaints to the Federal courts for settlement. Senator Elkins of West Virginia,--an equally ardent railroad representative,--introduced a bill to create a special transportation court, subordinate only to the Supreme Court of the United States on questions of law. Until this tribunal had heard the cause, and had sanctioned interference on the ground of unreasonableness, the Interstate Commerce Commission might not intervene.[603] And in any event its functions were to be mainly connected with the enforcement, not the promulgation, of orders as to rates or service. These plans favoring the carriers' interests, as we shall see, were all based upon the proposition that Congress could not constitutionally delegate general rate making, that is to say, legislative power to an administrative body.

The constitutionality of clothing an administrative body with large regulative power by act of Congress, was, of course, essential to the administration's plan. It was urged that there was one exception to the general rule that power delegated to Congress to legislate under the Constitution could not be further delegated. "There may be such delegation where the purpose in the original conferring of the power can be subserved only by its delegation to an agent. Obviously Congress cannot spend time and labor upon rate making, even were it economically competent to do so. If the power is to be exercised at all, practically, it can be done only through an agency like the Commission." Congress certainly could not delegate such legislative power, viz., power to make rates, to the courts. That would even more flagrantly transgress the constitutional rule. In brief, any plan for judicial control meant the exclusion of rate regulation in any thoroughgoing way. And that, of course, was the reason why the "railroad Senators" all insisted upon such a plan. Other support for the administration plan was found in the dictum of the court in the Maximum Rate case;[604] and in opinions cited by the Attorney-General in a special message on the subject to the Senate.[605] These and other points, such as the bearing of the so-called "preference clause" of the Federal Constitution requiring equality of treatment in commerce between all ports of the United States, need not detain us further. The constitutionality of the amendments have now been duly upheld. But, inasmuch as the particular form which the law assumed was the outcome of these debates, it is essential that they be reviewed. Other questions of interpretation at a later time, also follow the same line of cleavage in debate.

Judicial regulation of common carriers, as proposed by the railroad advocates, was open to many objections; so controlling that they fortunately turned the scales in favor of the administration plan. The first of these was in itself so fatal that it is almost a work of supererogation to state the others. Judicial control, as we have seen, had been the outcome under the old law. It was the desperate plight from which escape was sought. No decisions could be rendered until the rate or practice had been put into effect. The denial of power to make rates for the future had broken down the old law. The stable door might indeed be closed, but only some years after the horse had been stolen. Therein lay the primary defect of all judicial processes. When the bituminous coal-carrying roads and water lines were collecting fifty cents a ton additional on 10,000,000 tons of coal annually, destined for New England alone, as a result of the practical elimination of monopoly since 1904, the only effective way to prevent irreparable loss to consumers, would be to veto the increase before it went into effect. For a Federal judge to hold it an unreasonable exaction, four years or even six months after it had been paid, would be of no benefit to the coal-consuming public, upon which the incidence of the tax really fell.

The entire futility of judicial control was well exemplified in the Colorado Fuel and Iron Company case of 1895. This corporation complained of excessive rates from Pueblo, Colorado, to San Francisco on iron and steel. The Interstate Commerce Commission ordered the rates on steel rails not to exceed forty-five cents per one hundred pounds, or seventy-five per cent. of the Chicago-San Francisco rate on the same commodity, whatever that might be. The Southern Pacific, under pressure, complied with this order for about two years; and then in 1898 advanced the rate one-third, to sixty cents per one hundred pounds. Thereupon the Iron Company obtained an injunction from the United States Circuit Court prohibiting the violation of the Commission's order. The case went to the Circuit Court of Appeals, which reversed this decree. Meantime, proceedings before a master had fixed the amount of damages under the rate increase at $35,300. The court held that these damages, if due, could be recovered before a jury which should establish the unreasonableness of the rates in force. But while this was being done, what became of the California business of the Colorado Fuel and Iron Company? The Pacific coast was one of its most important markets. The price of steel rails for competitors from Pittsburg or Europe, who ship by water, would remain quite undisturbed. It would be difficult to recover trade when once lost. No damages, based upon mere increased freight rates, actually paid, would begin to measure the possible loss. And, moreover, even if this sum were recovered after prolonged litigation, the situation would not be remedied. Precisely the same rates which gave rise to the damages would still be in effect. An indefinite series of litigations might result, which would harass the company and perhaps drive it from the field altogether. The outcome of this Southern Pacific case sufficiently proves, even where the shipper is a powerful corporation, the futility of seeking redress through judicial proceedings. Again and again one is forced back to the same conclusion: that the only remedy for an unjust rate is not to continue an unfair one and pay damages, but as speedily as possible to substitute a reasonable charge. How much greater force has this conclusion for the small shipper, if the remedy fails even for an industrial combination, powerful enough to extort secret rebates of $1,000 a day from the Atchison railroad, as proved in the now celebrated Morton case of 1906!

Other serious objections to judicial control may be briefly stated. The functions of a court, acting judicially, permit of reliance as to reasonableness upon only one standard, viz., that the rate or practice under consideration will lead to confiscation of property. The courts can set this maximum limit to charges; but above that point they are powerless to intervene. Rates for the future must be judged with the same freedom exercised by the traffic officials who promulgated them in first instance. Correction can be applied only by an expert tribunal, possessed of the same sort of knowledge had by those who issued the tariff or ordered the practice at the outset. Of course, the objection of lack of technical knowledge on the part of judges, might be readily enough overcome by means of a specialized professional personnel. But the objection that judicial control, in contradistinction to administrative regulation, is necessarily intermittent rather than steady and constant is one not so easily met. As has been recently well said of our Federal policy toward the trusts, "Government by a series of explosions is rarely effective." There are too many and too long intervals between decisions. And then again, there is the slowness of formal court proceedings and the necessarily conservative attitude of judges, in matters concerning vested property rights. These arguments were all unanswerable in the end. It was inevitable that control should be exercised by a distinct enlargement of the powers of the Interstate Commerce Commission, as an adjunct of the executive arm of the government.

The law of 1906[606] authorized the Commission upon complaint to "determine and prescribe" just and reasonable maximum rates, regulations or practices to be thereafter observed; and to order conformity thereto. Such orders, except for money payments, were to become effective after thirty days; and were to remain in force for two years, unless suspended, modified, or set aside by a court of competent jurisdiction. In addition the Commission might order an apportionment of joint rates, when the carriers are unable to agree upon a division; establish through routes; and fix reasonable charges for services or instrumentalities rendered or provided by shippers. This covers the case of charges for icing refrigerator cars or for the use of special equipment.

Fairly general rate-making power was thus conferred upon the Commission; limited, however, to the adjudication of specific complaints. But the carriers being routed at this point, promptly fell back upon a second line of defences. Their representatives took a stand upon the directly consequent point of broad review by the Federal courts of the Commission's orders. It was yet possible to practically nullify administrative control by according indefinite limits to the appellate jurisdiction of these courts. Might they pass upon law points alone; or were they to be empowered to review the entire order of the Commission? A most brilliant constitutional debate again took place in the Senate.[607] The first detail concerned the power of Congress to restrict the right of the lower Federal Courts to suspend the Commission's orders by writ of injunction. Any limitation upon this power would, of course, lessen interference with the Commission's mandates, and greatly promote a speedy settlement of transportation disputes. Were these injunctions to be freely issued, holding up the Commission's orders and thereby leaving the old rate or practice in effect pending final adjudication, the carriers would, of course, then have everything to gain and nothing to lose by their issuance. Every order might be attacked, not with any serious expectation of final success, but merely to secure the benefit of the delay. And if, after this delay, the widest possible scope of review were allowed in the formal trial of the case, judicial instead of administrative regulation might still be brought about.

The first essential in the conservative programme, then, was to ensure the most comprehensive right of review for all cases appealed. But could Congress by statute limit or define the exercise of this judicial power on the equity side? There was no doubt as to its right under the Constitution to create or abolish Federal courts, other than the Supreme Court. But could it restrict their judicial functions, legal or equitable, including primarily the power to issue injunctions? Practically, the alternative lay either in omitting all reference to the subject in the amended act, leaving the scope of the courts' powers to be determined by judicial construction of the statute; or in attempting to define it specifically, item by item. The carriers' representatives would not agree to the former course, lest silence upon this matter, as they averred, might imperil the constitutionality of the law. Nor could the progressive reformers refuse a definition of the matter, under suspicion of bad faith. For if, as they had so stoutly maintained, the constitution amply safeguarded the rights of appellants without further prescription, a mere re-affirmation of these rights could do no harm. The result was a clause so worded as virtually to satisfy the conservatives; while ostensibly being a compromise. Power is expressly conferred upon the Circuit Courts,[608] by suit to "enjoin, set aside, annul or suspend" orders or requirements of the Commission. But this power is limited by the condition that five days' notice must be given to enable the Commission to prepare its case for protest. And the hearing must be had before three Federal judges instead of one. These details were intended to prevent the issuance of restraining orders for frivolous or merely obstructive reasons.

The unfortunate feature of this compromise, arrived at only after weeks of bitter controversy, was its entire indefiniteness as to the grounds upon which the courts might base their review of the Commission's orders. It thus stopped short of conferring more liberal powers of review for railroads than those enjoyed under the constitution by all other classes of persons and property.[609] In so far the railroads lost their case. It is evident that Congress intended to create a really competent administrative board, with whose orders the courts might interfere only when those orders were ultra vires, or unconstitutional. The courts under the law must accord the same consideration to such decisions, "if regularly made and duly served," as to an act of Congress, with the presumption always in favor of validity. Judicial interference might be expected only when the railroads had a good case. This, at least, was a clear gain. There was yet another even more important one. Under the old law the burden of initiative or proof on all cases appealed, rested upon the Commission. This might now be reversed. Penalties formerly did not begin to run until the final decision of the highest court to which appeal was taken, had affirmed the validity of the Commission's order. Carriers might continue to disobey with impunity throughout the period of protracted litigation. But now a penalty of $5,000 a day for each day's violation of the order, began at the expiration of thirty days. The initiative to secure relief from this order must now come from the carrier. It, and not the Commission, became the petitioner before the courts. A speedier adjudication of contested cases might far more confidently be expected under such conditions. But the grounds, legal or economic, upon which such determination of the reasonableness of the Commission's orders must rest, were, unfortunately, as we have seen, left open for judicial interpretation in the course of time.

The railroads won a decided victory in one other bitterly contested detail of the relation of the Commission to the courts. The new law still left the old rate or practice of which complaint had been made, in effect without penalty pending the review of the case. The administration bill would not have permitted restraining orders to issue until the Commission's decision had been held unreasonable in formal review. The point appears to have been decided by Congress upon economically unjustifiable grounds. The interval of time between the Commission's decision and the final settlement of the case might be considerable. Under the old conditions, the carriers had imposed the burden of disputed rates upon the public. The importance of this point may be illustrated by the fact that during the protracted litigation in the Chicago Terminal Charge case, finally settled in 1909, the sum involved for this period alone amounted to $3,000,000. Was this fair? The real disputants after all were not the government and the railway company. The Commission was supposedly acting impartially as an umpire. Such being the case, unless it were shown that greater injustice would result from the change, the natural condition would seem to be this; that in cases of dispute the decision of the umpire, and not of the bigger contestant, should prevail until final settlement of the cause. This would seem to be the obvious, the natural and the just conclusion from the premises.

But, the railroads contended, suppose the Commission should order a rate reduced, as in the Maximum Freight Rate case; put a lower tariff into effect; and then the courts should ultimately decide that the original rate ought not to have been disturbed at all. The railroad meantime would have suffered a corresponding loss of revenue on all traffic carried at the low rate. This would certainly be a hardship, and incontrovertibly unjust. But would it be more so than that the shipper should unjustly have borne the burden in the contrary case? As matters then stood, the public was compelled to pay the high rate, even if the courts afterward decided it to have been unreasonable. The railway as an interested party enjoyed the benefit of the doubt, and imposed the burden of proof upon the public at all times. Would it not have been more in consonance with justice, that the government, an impartial umpire, should temporarily lay the burden upon that party against whose contention the greatest reasonable doubt existed?

The only just remedy would seem to be one which would insure final recovery for unreasonable rates, by whichever party paid, during the uncertain period of adjudication. One of the principal objections of the railways to the proposed change arose at this point. Large corporations are more responsible parties at law than most individual shippers. Suppose, through an unjustly low rate, a railway had suffered loss of revenue; could it as readily recoup itself by suits for damages against scores of shippers, large and small, as could the latter, in the contrary case, recover back from the railway company? This cogent argument suggested a compromise measure. Why not permit the original railroad rate to continue in force, as before, pending final adjudication; but require the carriers to give bond for prompt repayment of any surplus charges over those finally sanctioned by the courts?[610] This would have left the business of rate making in railway hands; and yet have afforded a substantial remedy for the disputatious shipper.

The railways would not accede to such a compromise measure, with all the financial burdens thereby entailed. Unfortunately even this scheme is woefully short of a just solution. The whole matter looms up larger at this point. Enter again the interests of the real consumer! In most cases freight rates to some degree affect the price of commodities. Has the shipper, having paid a freight bill afterward adjudged unreasonably high, any right to sue for recovery of the amount? Has he not, with his fellow merchants, probably shifted the burden upon the public? Evidence shows that carload rates on cattle from Texas to South Dakota have been increased within ten years after 1898, from sixty-five dollars to one hundred dollars. Probably part of this thirty-five dollars increase has been taken from the profits of the cattlemen; but can there be doubt that a part of it has been added to the price of beef?[611] No, tackle it as you will, from whatever point of view, you return to the same proposition: that the damage of an unreasonable freight rate, once paid, is irreparable. Particular shippers may recover what seem to be damages; but which are likely not to have been so to them individually at all.[612] By standards of abstract justice, the real solution should distribute the temporary burdens incident to the delays of legal procedure, as nearly evenly as the laws of chance will permit. A compilation in 1905 showed that, of 316 freight rate cases decided by the Interstate Commerce Commission, fifty-four per cent.--practically one half--turned in favor of the complainant. Inasmuch as these complaints were practically all brought on behalf of shippers against the railroads, this shows how evenly balanced the issues have been. Were the orders of the Commission to become effective at once, the losses incident to errors afterward corrected by the courts, would be distributed in about equal proportions. Under the law even as amended in 1906, all the penalty of a mistake falls upon the shipper and the public; the railway always goes scot free. An impartial commission should be clothed with power to distribute these onerous burdens by prescribing the temporary rate. Quite possibly the limitation of the equity power of Federal judges to protect the railroads in their constitutional rights, might have been overthrown by the Supreme Court; but the advantage in the contrary case would have been well worth the risk.

The only remedy left for the public under the circumstances of compromise above outlined, was to forward the course of judicial procedure in every way. The Expedition Act of 1903 had done much. The new amendments went still further, by providing for appeal directly to the Supreme Court with the privilege of precedence upon its docket. Other details served the same purpose. Formerly it had taken much time for the Commission to prepare its formal orders and its prima facie case for the courts. All the evidence had to be duly set forth.[613] Except for damage suits, all this was now changed. The Commission in its orders need only state its conclusions in the premises, without the delays, labor and expense incident to formal re-examination of witnesses and the preparation of extended records of evidence. This has materially expedited the settlement of contested cases. It has yet another advantage. The Commission was stripped of one of its semi-judicial functions; always an anomaly under our plan of government. And the assignment of the duty of formal prosecution of cases on appeal to the Attorney-General of the United States, was yet another improvement along the same line.

In the matter of personal discrimination, the disheartening persistence of illegal practices, despite the provisions of the Elkins law of 1903, rendered it necessary to specifically extend jurisdiction of the Commission over private car lines; and to confer authority over all incidental services at terminals. Separate publication of storage, icing and other charges was called for; and railroads were held responsible for the provision of special equipment when requested. Industrial railroads, "tap lines," spurs and sidings, so ingeniously employed in discrimination,[614] were expressly included under the Commission's authority. Passes for individuals, a fruitful source of favoritism and political corruption in the past, were even more particularly prohibited. The only exceptions were for employees and their families, the poor or unfortunate, and persons engaged in religious or philanthropic work. In this connection, it may be added that the law of 1910 somewhat modified this rule by enlarging the meaning of "employees" to include caretakers of milk and other commodities. It also dealt with the issuance of franks by express, telegraph and telephone companies in some detail. Superannuated or pensioned employees and the bodies of persons killed in service might also be carried free. Such details are significant as illustrating the extreme nicety of definition required by the drastic character of the prohibitions.

An important change was also made by the law of 1906 in re-imposing the penalty of imprisonment, as well as of fine, for departure from the published tariff. Its removal from the original law of 1887, in the interest of effective enforcement, was recognized as a mistake. With the complete affirmance by the courts of power to compel the production of evidence, recalcitrant witnesses were now under control. It was hoped that vigorous prosecution with this criminal punishment added, might put an end to the abuse.

An entirely new feature was added to the law by the so-called "Commodity Clause." This sought to divorce transportation entirely from all other lines of business. The experience of years had shown that corporations, especially in the coal-fields, by combining both the service of carrier and shipper, might most effectively stifle competition of independent producers. Rank discrimination might be concealed by means of ingeniously framed systems of inter-company accounts. And denial of equal facilities such as cars or sidings might operate to drive competitors out of the business. While the Hepburn law was before Congress, several events drew attention forcibly to the existence of such abuses. The Interstate Commerce Commission in April, acting under the Tillman-Gillespie resolution, uncovered flagrant violations of law on the Pennsylvania system.[615] Equally important was the decision handed down in February by the Supreme Court in the Chesapeake and Ohio Railroad case.[616] This dealt with discriminatory rates on soft coal for the New Haven road, given by means of manipulation of the pro-rating division between the various companies interested. The general public was also greatly concerned over the growth of monopoly in the anthracite fields and the coincident rise in the price of coal. The independent producers in the soft coal regions were at the same time roused over the grievous discriminations practised against them, especially in West Virginia.[617] Senator Elkins of that state,--usually a strong railroad partisan,--introduced the amendment under pressure from his constituents. It was warmly supported by the most radical administration representatives. For it was apparent at once that a withdrawal of railroads from all such correlated businesses was not only proper in itself, but would also greatly promote the enforcement of many other provisions of the law. Yet the radical character of the proposition was perhaps scarcely appreciated. Some railroads, like the Lackawanna, were dependent for nearly three-fourths of their tonnage upon the anthracite coal traffic; much of it from their own mines. The Chesapeake and Ohio in the eastern fields and the 'Frisco in the Middle West, relied upon soft coal for more than half of their tonnage. A great many other carriers were interested to a lesser degree. To compel them all to give up their coal properties was indeed a serious matter.

The "commodity clause" provided that "after May 1, 1908, it shall be unlawful for any railroad company to transport from any state ... to any other state ... any article or commodity other than timber and the manufactured products thereof, manufactured, mined, or produced by it, or under its authority, or which it may own in whole or in part, or in which it may have any interest, direct or indirect, except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier."

The original proposition was even more drastic. It was to apply to all common carriers, such as the pipe lines in the oil business. But it was soon considerably modified in the course of passage.[618] First, it was limited to railroads. Then the western senators, on behalf of the lumber industry, secured its special exception. And, finally, an attempt to prohibit specifically the control of subsidiary industrial companies through stock ownership was defeated. But, as thus limited, the clause finally passed the Senate,--the stronghold of the railroad interests,--by a vote of 67 to 6. This affords a good indication of the extent of popular feeling on the subject. It was fortunate indeed that the prohibition was not to take effect for two years, in view of the litigation necessary for its precise interpretation. For in any event it was bound to lead to much corporate readjustment. The course of these proceedings will be considered in the next chapter.

* * * * *

There remains for consideration one of the most important provisions of the Hepburn law, namely that dealing with publicity of accounts.[619] Section twenty of the law of 1887 called for the filing by all carriers of annual reports with the Interstate Commerce Commission. These reports were to be standardized; and the Commission was empowered, in addition, to demand specific information whenever it was so desired. But the absence of express authority to enforce these orders, except by means of tedious equity proceedings in the courts, made improvements in accounting almost entirely dependent upon the tact and resourcefulness of the statistician. The Commission was most fortunate in the services of Prof. Henry C. Adams, who succeeded in bringing about cordial coöperation between the accounting officials of the railroads and the government. Great improvements in the line of uniformity resulted; but the need of positive control became increasingly apparent.

Many officials were unwilling to certify by oath to the correctness of their returns. With the increasing size of the roads, it became more and more difficult to secure promptness. The annual Statistics of Railways had almost to await the pleasure of the carriers in filing their statements. And vitally important information was often withheld. In the case of the Lake Shore road, for example, which for years had charged all its improvements to operating expenses, it positively declined to state what portion of those improvements were permanent additions to the property, properly chargeable to capital account, and what were in the nature of renewals and repairs. And the Supreme Court had found no authority in the law to compel the furnishing of this information.[620] With the growth of extended systems of railroads, characterized by the most involved methods of inter-corporate accounting, the need of precise data became ever more imperative. Something more was evidently necessary than a mere expression by Congress of an opinion favorable to publicity. The mandatory provisions added in 1906 to the Twentieth Section are, therefore, vital, not only in themselves; they are essential to the administrative enforcement of nearly every other part of the regulative law. A determined effort was made in 1908 to defeat the purpose of this clause by restricting appropriations for carrying it into effect.[621] But it emerged unscathed--thanks to President Roosevelt--and stands today as one of the best features of the new statute.

One may readily distinguish no less than five distinct and important special services to be rendered by full publicity of accounts. The earliest to be fully appreciated was its serviceableness in securing equality of treatment of all shippers. In the good old freebooters' days, rebates were probably openly entered as such on the books. But with the need of concealment, they came to be covered up in all sorts of ways; oftentimes under such guises, as in the notable Atchison case, in such manner that not even the directors knew what they meant. With full standardization of accounts, such abuses may readily be detected and the offenders traced and punished. In the second place, open standardization of the books makes strongly for more efficient and honest operation.[622] The comparative method in statistics may be readily applied; so that the president of a railroad may have at command a complete statement of operations in detail, which is comparable not only with his own results in preceding years but with other roads similarly circumstanced. The haphazard and unscientific methods of operation in the British Isles are largely a resultant of the absence of any logical and uniform system of public accounts.[623]

Detailed cost keeping in the management of great systems of inter-related railroads, being absolutely essential to efficiency, makes also for honesty in operation. Such gross frauds as developed upon the Illinois Central in 1910, variously estimated to have cost the road from $2,500,000 to $5,000,000 through overcharges for equipment repairs, might readily enough have been detected under an efficient and honest management. This instance immediately suggests a third advantage of full publicity of accounts, namely the protection of investors. Flagrant manipulation of maintenance accounts, "skinning" or "fattening" roads in the interest of inside speculators, has always been dependent upon secrecy. Assurance of a stable market for railroad securities, based upon entire frankness as to the degree to which these properties are being kept whole or improved, is one of the prime advantages which may be expected to flow from such governmental prescription of accounts. And general public confidence in railway investments cannot conceivably be better encouraged than by such publicity. In no other detail than this, does the Act to Regulate Commerce more directly benefit the general body of stockholders in railroads, as well as the corporations themselves.

The three foregoing advantages of publicity had been long appreciated. These recent changes introduced in the Federal law brought two others into special prominence. One is the newly assumed responsibility by the government in the matter of rate making. The other is its intervention in cases of dispute between the carriers and their employees. In both cases it is imperative that there should be available data for a just determination of the issues at stake. There must be assurance that every essential feature of the situation is fully and fairly set forth upon the books. Otherwise, as in disputed rate cases, every fact as to cost of service,--a primary basis of measurement,--is vitiated. Absurd and misleading calculations may be presented in evidence, which greatly hamper the government in deciding the case.[624] And now with the projected physical valuation of properties as an element in rate making, all of the factors of maintenance, betterment and depreciation, of joint facilities, rentals and sinking funds must be taken into account. In labor disputes, the same considerations apply.[625] Under the requirements of the Erdman Act, every mediation,--and the need for it is more frequent every year,--calls for critical analysis by the chairman of the Commission and the Federal commissioner of labor of the statements from both sides as to the reasonableness of the action to be taken respecting wages or conditions of employment.[626] The notable arbitration in 1912 is the most important instance as yet. Having all of these services in mind, it seems likely that the accounting provisions added to the law in 1906 will be second to none in bringing about the elimination of existing evils, and in standardizing and improving operation, finance and traffic practice.

Under the new law monthly and special as well as annual reports, might be required under oath; with appropriate penalties of fine and imprisonment for delay or mis-statement. All accounts must be kept according to forms, general and detailed, prescribed by the Interstate Commerce Commission. Such rules applied of course to all carriers subject to the law, such as express and sleeping-car companies, pipe lines and even water carriers where operated in connection with railroads. Moreover, the Commission was to have access to the books at all times. For this purpose, it might employ special examiners.[627] In other words, the system employed for years in connection with the regulation of national banks, was now extended to the interstate carriers. An additional safeguard was provided in the clause which made it unlawful to keep any other accounts books or memoranda than those approved; with the same penalties for violation. In brief, the policy was now perfectly definite. Carriers were rendered public service companies in every sense of the word. Mere indefinite publicity was replaced by specific regulation. This policy was not only clearly written in the law; but the Commission in promulgating its orders relative to accounting, laid upon every officer concerned, full personal responsibility for the statements rendered. Minor officials, made scapegoats for chief offenders, were no longer to be tolerated. The relation between agent and principal was clearly defined. It was assumed that so far as accounts were concerned, such officials were representatives of the Commission in carrying out the law. A new principle was introduced in the regulation of carriers which could not fail to be productive of great good. In this respect the Hepburn amendments granted all that the most ardent advocates of publicity demanded.[628]

* * * * *

A summary view of this important legislation,--in form merely an amendment of the original law of 1887, but in reality constituting an entirely new departure,--may now be had. The gains for effective regulation were considerable. Among them may be noted its enlarged field, the separation of transportation from other businesses, elimination of the iniquitous railroad passes, control over joint rates and pro-rating, the expedition of judicial procedure, full publicity of accounts, enhancement of the dignity and compensation of the Commission, and, most important of all, the grant in so many words of administrative rate-making power. The carriers--and the administration also--failed to obtain the much-desired repeal of the prohibition of pooling. On the other hand, as against these gains for reform should be set the following concessions to the railroads. Rate-making control was still subject to broad court review. No one as yet knew what this might bring forth. Maximum rates only might be prescribed. And much as to the proper relativity of rates, involved both in matters of freight classification and of enforcement of the long and short haul clause, was left untouched. Rate advances were still possible without determination of their reasonableness in advance. Suspension of orders pending judicial review, still remained. There was as yet no control over physical operation, such as furnishing cars, although switches might be ordered. Many of the states had long since undertaken this work. And the great body of independent carriers on our inland waters were still left beyond the reach of the Federal law. In the main, the administration had won a notable victory, although at some considerable cost. The principle of effective regulation of public-service carriers had been, indeed, vigorously affirmed in no mistakable terms. But the task was not yet completed. Many details of law were needed to "Clinch the Roosevelt policies." Nevertheless, it was probably better that a brief experience with the new law, both among the people and in the courts, should precede further legislation. Great reforms should not be too suddenly effected, else reaction is certain to take place. For the time being a positive step forward had been taken.

FOOTNOTES:

[585] Exhaustively described in volume II.

[586] Chapter XII, supra, and chap. XVIII, infra.

[587] Journal of Political Economy, VI, 1898, pp. 457-475.

[588] Central Yellow Pine Association, etc., 10 I.C.C. Rep., 505 and 549; 206 U. S., 428. Other cases dating from this time are given in chap. XVI as they reached the Supreme Court.

[589] Cf. data on concentration of railway control in the United States App. VI, Digest of Hearings before Senate (Elkins) Committee on Interstate Commerce, 1905, pp. 1-56.

[590] 12 I.C.C. Rep., 1.

[591] Chapter VI gives details as to these events.

[592] The evidence is in vols. IV and IX. Our final report on the subject is in vol. XIX.

[593] B. H. Meyer, Railway Legislation in the United States, 1903, is best on this period.

[594] Fully discussed in Haines, Restrictive Railroad Legislation, 1905, p. 265 et seq.

[595] Hearings before the Committee on Interstate Commerce, Senate of the United States, Dec. 16, 1904 to May 23, 1905; 5 vols., appendices, digests, etc.; commonly known as the Elkins Committee.

[596] The Chicago Tribune and the Record-Herald effectively exposed the affair. Cf. Colliers Weekly, May 4, 1907, for a good résumé.

[597] Senator La Follette in his Autobiography, American Magazine, June, 1912, p. 185, avers that the president's main insistence at first was upon discriminations, not absolutely unreasonable charges; but the consumer is mainly interested in the latter point. The claim is made that the suggestion of thorough going control came from this personal source. La Follette's three-day speech on April 19-21 was certainly the ablest presentation made of the progressive policy of regulation.

[598] Chapter II, pp. 62 and 80, supra.

[599] Chapter VI, p. 199, supra.

[600] P. 195, supra.

[601] Munsey's Magazine for March, 1912, has a good review of the Congressional battle; with details of the defeat of the Aldrich-Cannon contingent.

[602] The best references on the Hepburn Act are as follows: Dixon, F. H., Quarterly Journal of Economics, XXI, 1906, pp. 22-51; Smalley, H. S., Annals American Academy of Political Science, 1907, pp. 292-309. The course of events is currently well reported in the file of the Railway Age Gazette. Cf. also, Review of Reviews, May and July, 1906; and the magazine references in the Bibliography on Railroads of the Library of Congress.

[603] Compare this with the plans proposed by W. C. Noyes, American Railroad Rates, 1905, p. 255; and A. N. Merritt, Federal Regulation of Railway Rates, 1907, p. 193.

[604] Chapter XIV, p. 468, supra.

[605] Hearings, Senate Committee on Interstate Commerce, 1905, II, pp. 1662-1674. Cf. also Digest, pp. 84-87; and Review of Reviews, May, 1906.

[606] Amendment of Section 15 of the law of 1887; see p. 453, supra.

[607] Professor Dixon in the Quarterly Journal of Economics, XXI, 1906, p. 544, has succinctly reviewed this. Cf. American Political Science Review, IV, 1910, p. 547.

[608] By Amendment of Section 16; see p. 453, supra. The attempt to insert the words "fairly remunerative" in place of "reasonable" so as to invoke new judicial tests is discussed by Smalley, op. cit., 1906, p. 59.

[609] Annals, American Academy of Political Science, March, 1907, p. 302, deals with this point. Also, the able discussion by Professor Smalley, reprinted in our Railway Problems, chapter XXIV.

[610] This procedure has been actually adopted in several cases, Ann. Rep., I.C.C., 1908, 61.

[611] 17 I.C.C. Rep., 317, is a case in point where cotton-oil mills refused to protect an advance in rates.

[612] Cf. 13 Int. Com. Com. Rep., 668; 190 Fed. Rep. 659; and U. S. Commerce Court, 1911, 193 Fed. Rep., 667.

[613] Cf. conditions under the old law; p. 461, supra.

[614] See pp. 195 and 213, supra.

[615] Cf. p. 199, supra.

[616] 200 U. S., 613: 20th Ann. Rep. I.C.C., p. 42.

[617] Cf. 10 I.C.C. Rep., 473 and p. 640; 11 Idem Rep., 538; 13 Idem Rep., p. 70; 19 Idem Rep., 356.

[618] An excellent account of the debates and early litigation is in the Journal of Political Economy, vol. XVII, 1909, pp. 448-460.

[619] Fully described in Quarterly Journal of Economics, vol. XXII, 1908, pp. 364-383. For comparison with foreign countries; ibid., vol. XXIV, 1910, pp. 471-500.

[620] 197 U. S., 536.

[621] Munsey's Magazine, March, 1912, well outlines it.

[622] Cf. Scientific Management in Railroad Operation; Quarterly Journal of Economics, vol. XXV, 1911, pp. 539-562. Our second volume, it is hoped, will afford some idea of this comparative method.

[623] Quarterly Journal of Economics, 1912, p. 536, outlines the new law.

[624] The Meeker case in 1911, concerning the cost of transporting coal to tidewater by the Lehigh Valley, is a good illustration. 21 I.C.C. Rep., 144.

[625] Cf. Bulletin U. S. Bureau of Labor, No. 98, 1912.

[626] Cf. Standardization of Wages of Railroad Trainmen; Quarterly Journal of Economics, XXV, 1910, pp. 139-160.

[627] Munsey's Magazine, March, 1912, p. 7, outlines the attempt in 1908 to defeat this provision by withholding appropriations.

[628] The affirmance of these powers by the Supreme Court in 1912 is described at p. 586, infra.

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Chapter XVI

EFFECTS OF THE LAW OF 1906; JUDICIAL INTERPRETATION, 1905-'10

Large number of complaints filed, 522.--Settlement of many claims, 524.--Fewer new tariffs, 525.--Nature of complaints analyzed, 526.--Misrouting of freight, 527.--Car supply and classification rules, 527.--Exclusion from through shipments, 529.--Opening new routes, 530.--Petty grievances considered, 530.--Decisions evenly balanced, 532.--The banana and lumber loading cases, 532.--Freight rate advances, 534.--General investigations, 536.

Supreme Court definition of Commission's authority, 538.--The Illinois Central car supply case, 538.--Economic v. legal aspects considered, 540.--The Baltimore and Ohio decision, 541.--The Burnham, Hanna, Munger case, 542.--The Pacific Coast lumber cases, 543.--Decisions revealing legislative defects, 546.--The Orange Routing case, 546.--The Portland Gateway order, 547.--The Commission's power to require testimony affirmed, 549.--The Baird case, 549.--The "Immunity Bath" decision and the Harriman case, 550.--Interpretation of the "commodity clause," 552.--Means of evasion described, 553.

The first direct effect of the new law was a great increase in the volume of business of the Interstate Commerce Commission. Within two years over nine thousand appeals were made to it in one form or another for the adjustment of transportation disputes. The overwhelming majority of these complaints were settled informally out of court; and in this work of conciliation one of the most conspicuous and beneficial functions of the new commission appears. But, nevertheless, an increasing number of grievances seem to have required a formal hearing and decision of record. Some indication of the public relief sought is afforded by the fact that within approximately the first two years and a half,--up to August 28, 1908,--1053 cases on the formal docket were disposed of, leaving over five hundred issues still undecided. As compared with this total of over fifteen hundred formal complaints under the new law, the number filed under the old statute amounted to only 878 throughout the long period of eighteen years.[629] Moreover, the number of complaints filed, steadily increased for several years. The accompanying diagram well illustrates the great revival of interest which took place. The two curves show respectively the number of formal complaints by administrative years since 1892, and the total of both formal and informal ones since 1903. The sudden increase after the new law went into effect in 1906, is, of course, presaged by some accession of business during the preceding two years of public discussion. But the results for the year 1907 first fully reflect the new conditions. From 65 formal complaints and 568 informal ones filed in 1905, the numbers in each class rose within two years to 415 and 5,156, respectively. It appears, however, that the climax was soon attained. Since 1908, the number of formal complaints considerably declined; and the informal ones seemed to be about stationary in number. This was of course to be expected. The accumulated grievances of past years had been largely cared for. And the improved conditions brought about were less productive of new sources of trouble.

Delay in settlement of claims for damages by shippers has long been a great source of discontent. The Commission has grappled with this problem vigorously. The following table shows what has already been accomplished. The figures are for administrative years, as covered by the annual reports to Congress.

====================================================================== | Number of claims filed | Number denied | Reparation awarded --------+------------------------+---------------+-------------------- 1907 | 561 | -- | $104,700 1908 | 3789 | 1486 | 154,703 1909 | 4406 | 1199 | 311,978 1910 | 5103 | 1463 | 404,976 1911 | 5653 | 739 | 329,388 ======================================================================

Here, again, it appears as if the maximum load had been reached, so far as the Commission is concerned. Testimony of shippers is emphatic upon this point.[630] One railroad traffic manager stated that the number of overcharge claims against his line,--one of the most important in the country,--was twenty-five per cent. less in 1909 than two years earlier; and that loss and damage claims were reduced approximately one-third. A very large shipper compared his former "claims suspense account," sometimes amounting to $100,000, with $7,500 for 1909. The number of such overcharge claims was 1,008 in 1905. For nine months of 1909 it was 205. And yet these damages paid are but a trifle, as compared with the aggregate of claim settlements made by the roads directly. For the fiscal year to June 30, 1910, such settlements made to shippers directly by steam roads amounted to $21,941,232. How much of this sum was a legitimate allowance for loss or damage incurred in transit, one cannot discover. But it appears likely that an appreciable fraction served as a cover for personal discrimination. Compulsory reference to the government of all such claims would speedily determine the true facts. In the meantime it is a satisfaction to know that a competent tribunal now exists, to which appeal with a minimum of expense may be made by aggrieved shippers. Furthermore, it should also be noted in this connection, that the situation as respects claims has been benefited by a detail of the law of 1906, not heretofore mentioned. The so-called Carmack amendment provided that carriers must issue a through receipt or bill of lading, and thereby become liable for the shipment throughout its entire journey; that is to say, whether upon the initial road or a later connection. The legal principles accepted in England since 1841 are thus adopted. There is no doubt that great improvement in the relation between the roads and the shipping public may be anticipated as a result.

The great improvement in respect of standardization of rates, evidenced primarily through reduction in the number of separate tariffs issued by the railroads, has been elsewhere described[631] in connection with classification. From 193,900 separate schedules in 1906 to less than half that number five years later is a notable achievement,--so notable indeed that it merits repetition in this connection. The course of complaints, of claims and of new rates filed at Washington, affords cumulative evidence of the great improvement in conditions which the new legislation has brought about.

This activity of the Interstate Commerce Commission, it is almost needless to mention, affords no true measure of the benefits resulting from the law. Like every other sound piece of legislation, it was intended to be preventive, not punitive. The number of arrests by the police affords no indication of the effectiveness of a criminal statute. Not the violations of law, but the breaches forestalled, are of real significance. And similarly in this instance, one surely finds the primary benefit of legislation, not in the complaints preferred, but in the fact that, under the improved relationship between the principals concerned, many long-standing causes of irritation and misunderstanding are being removed. The real gain, not to be measured by figures, is to be found in the improved spirit of the intercourse now prevalent between railway officials and their customers. The shipper--especially if he be a small one--having business to transact, may now be sure of courteous treatment and a prompt and probably just outcome. In the old days he was too often made to feel his utter economic dependence. As a high traffic official recently put it: "One reason we do not like this law is because we have to stop and think twice what we are about. We must be ready to explain and show a warrant for every act. An attack of indigestion cannot any longer serve as an excuse for an arbitrary, off-hand ruling." This improved spirit has permeated the whole staff of railway officials who have seen a new light on the public aspect of their calling.[632]

The nature of the complaints before the Interstate Commerce Commission, with its amplified powers under the new law, affords the best indication of the most important feature of its work, namely the settlement of disputes between the railroads and their clients.[633] And it will be apparent that a large number of these only indirectly raise the issue of the actual freight rate. Oftentimes they concern rather the manner of conducting business. An attentive perusal of these decisions of the Commission offers interesting evidence of the range of a carrier's activities. Every little station all over the country between Aaron and Zuwash, and every conceivable commodity, from "mole-traps in crates" to "jewelers' sweepings," is comprehended. The fact that these disputes, often pecuniarily insignificant, could not be amicably adjusted by the good offices of the Commission informally, but necessitated formal hearing and decision, is the strongest possible proof that some competent tribunal of this sort was greatly needed in the interest of industrial peace.

One of the commonest petty complaints is of misrouting of freight. Goods are carried by a roundabout way, or by one not enjoying the lowest through rate. Thus, to be specific, in 1908 six carloads of print-paper were shipped from Little Falls, Minnesota, to Boise, Idaho.[634] Three routes were open, the rates being respectively $1.30, $1.36, and $2.17 per hundred pounds. The Northern Pacific road, in absence of instructions, sent the goods by the third route,--presumably the one most profitable to itself,--the result being a freight rate $1,760.62 greater than it otherwise might have been. Reparation to this amount was granted within three months by order of the Commission.

Another frequent difficulty concerns the supply of suitable cars for the needs of the shipper. Carload rates are always proportionately lower than charges for package shipment.[635] The carriers very properly prescribe a certain minimum lading as a requisite for the grant of these proportionately lower wholesale rates. The shipper at carload rates must, however, pay for the full capacity of the car, whether his shipment fills it or not. No exception can be taken to this practice, unless the carrier is unable or unwilling to supply cars of a suitable size. This sometimes happens. For instance, in 1908 a lumber-man in Oregon, having a shipment of 39,500 pounds to make to a point in Pennsylvania, requested of the Southern Pacific a car of 40,000 pounds capacity.[636] Not having one at hand, a much larger car was furnished, having a minimum capacity of 60,000 pounds. Following the standing rule as to carload rates, the shipper was compelled to pay sixty-two and one-half cents per hundred pounds on the marked capacity of the car, that is to say, on 20,000 pounds more freight than he actually shipped. This made a difference of $128.12 in the freight bill--nearly fifty per cent. in excess of the charge based upon the actual shipment. The Commission issued its order for reparation within five weeks of the filing of the complaint.

A flagrant case of the misapplication of similar rules was recently decided.[637] A retail druggist at Douglas, North Dakota, bought a sheet of plate glass eight feet square at St. Paul for forty-six dollars. Usually such large sheets have to lie flat on the car floor; and, occupying so much space, are properly assessed at a minimum weight of five thousand pounds, regardless of the actual lading. But in this instance the glass was carried upright, screwed to the end of the car, along with a lot of miscellaneous freight. Applying the standard rule made the freight bill for a distance of 587 miles, $9.50 more than the entire cost of the glass at St. Paul. It appears strange that the carrier should have permitted so clear a case to come to a formal hearing at all. Presumably it contested it as much for the protection of its standard rules as for the sake of the actual revenue involved. No exception can be taken to these shipping rules as a whole; but these cases make it evident that their application may be at times too harsh and rigid. The tribunal established by the new law performs a much-needed service to the community in tempering their application in exceptional instances.

Attempts at arbitrary exclusion from participation in through shipments, in order to stifle competition, not infrequently crop out in these decisions. In 1905 the Enterprise line, capitalized at four hundred thousand dollars, put three steamers into commission from Fall River to New York.[638] This independent line was of the utmost importance to the cotton manufacturers, as it was expected that at New York connection could be made with competing rail and water lines to every part of the United States. But all these lines, presumably at the behest of the New York, New Haven and Hartford Railroad, which had hitherto enjoyed a monopoly of the business and which, with its enormous tonnage of high-grade freight to be parcelled out among connecting lines at New York, was a formidable factor, promptly declined to join in making any through rates. All their local rates from New York on, were, of course, prohibitory. In one instance, while the through rate accorded to the shipper over the New Haven road was sixteen and five-eighths cents per hundredweight from New York on, the patron of the Enterprise line was charged twenty-five and one-half cents for the same service.

This case recalls a similar one in 1897, when the independent Miami line of steamers from New York tried to break the monopoly held by the steamship lines owned by the railroads out of Galveston, Texas. The roads not only refused to pro-rate, but actually demanded prepayment of freights from Galveston on, as local rates. The Federal courts tinkered with the subject for a while, until the Circuit Court of Appeals, while recognizing a probable violation of law, affirmed that suit could be legally instituted only by the United States.[639] Meantime, of course, the company was forced out of that business; and rates have steadily risen ever since. In this later instance of the Enterprise line, the Commission promptly ordered an extension of the same privileges to the independent line that were enjoyed by its powerful rival.[640]

The frequency of complaints as to the supply of equipment needed for the regular operation of mills or mines, has already been noted. There may be enough cars; but they may be supplied too irregularly.[641] And petitions for the issuance of through rates or the opening of new routes became so common that a substantial amplification of the law in 1910, as we shall see, was effected in this regard. The carriers, of course, always prefer in case of a choice of routes, to take the longest possible haul over their own lines. This operates to close the more direct way. The northern transcontinental lines got more revenue from traffic which went east over their lines a thousand miles by way of Spokane, than when it was turned over to a rival line at Portland, Oregon, after a haul by them of only one hundred and fifty miles.[642] Even in 1907, at the time of extreme congestion of the Northern Pacific main line, when it was literally overwhelmed with business, the lumbermen complained that they could find no relief by these other routes.[643] Much the same question was raised in another way in 1909, by a complaint from growers and shippers of grain against the rate adjustment which forced or attracted Kansas grain to the Kansas City market, instead of permitting it to move on lower rates directly from the point of origin to the Gulf ports for export, and to Texas milling and consuming points.[644] In this instance, however, the shippers failed to make out a good case; so that the complaint was dismissed.

No grievance is too petty to receive consideration. A peachcanner in Martinsdale, Georgia, is awarded reparation of $8.91 on a shipment of three cars of his wares.[645] The sum of $11.84 is awarded to a complainant for an overcharge on eleven rolls of old worn-out canvas, assessed for freight rates as cotton goods instead of junk, which it properly was.[646] Or in another case, where a small boiler was shipped from Kalamazoo to Blue Mounds, Michigan, on a combination of local rates, when it was properly entitled to a joint through rate, an award of $6.87 to the shipper followed.[647] It makes no difference whether the welfare of a great territory or the smallest dealer is concerned. It is all one to the government. The Hope Cotton Seed Oil Company[648] in the South, shipped seventeen carloads of one season's product in 1907 out over a certain road, on a low through rate. The railroad agent was then informed that these shipments interfered with the policy of establishing new industries of this sort on another line; and the through rate was cancelled. This jumped the charges from seventeen and one-half cents per hundredweight to sixty-seven cents,--almost the entire worth of the cotton-seed. Since the new law went into effect, the Commission has prescribed a new rate of thirty cents; and industrial peace is the result.

Thus has the work of this tribunal gone on, with its daily grist of opinions on almost every conceivable phase of the transportation business. It might be to prescribe that, even though inflammable, small-lot shipments of petroleum must be accepted by a carrier at least twice every week, instead of on only one day; that structural iron might be stopped off en route at Indianapolis,[649] as it is at Chicago and St. Louis, to be sheared, fitted and punched, without losing the benefit of a low through rate, just as cotton is halted at the compressor, or grain is milled in transit; that a definite rate must be quoted on jewelers' sweepings,[650]--the dirt and waste laden with particles of gold destined to the smelter,--even though it expose the carrier to the risk of exorbitant claims for damage in case of accident; that the railroad was properly entitled to charge storage after six months on brewer's rice left on a wharf pending piecemeal shipment to purchasers;[651] or that two different rates were contemporaneously charged on nitrate of soda, according to whether it was to be used in the manufacture of fertilizer or gunpowder.[652] But whatever the issue, one has the satisfying conviction, after reading the pros and cons in the decisions, not only that the matter has been settled by a disinterested and supposedly impartial third party, but that the decision is endowed with the beneficent force of public authority. As one reads these decisions, there is no evidence of political log-rolling, or of legal quibbling. They go straight to the point on the economic and common-sense issues involved. It is gratifying, moreover, to note occasionally that the dispute has already been informally settled before the Commission has time to render its opinion.

By no means are all these decisions in favor of the shipper. In fact, during the first fourteen months, only forty-six out of one hundred and seven formal cases were thus settled. The railroads enjoy no monopoly of unfair practices. Indeed, many of the rules, the exceptional application of which works hardship, were originally provided to meet some attempt at fraud by shippers. They might be under-classifying; seeking free storage on wheels pending sale of their goods; claiming exorbitant damages; or perpetrating any one of a thousand petty meannesses to which human nature is liable. One or two instances of shippers' complaints set aside as unreasonable may not be out of place.

The Topeka banana dealers in 1908 complained that bananas en route from New Orleans were subject to an appreciable shrinkage in weight, amounting to about six hundred pounds per car.[653] Inasmuch as about fourteen thousand cars were being moved annually, it is clear that the aggregate loss of weight was considerable. The practice had been to weigh the bananas when transferred from the steamers at New Orleans to the cars, and to levy the freight rate upon this weight. To this the dealers objected, instancing among other things the practice, long prevalent in the cattle business where a similar loss of weight in transit occurs, of charging according to the weight of the shipments, not at the initial point, but at the point of delivery. At first sight the complaint appears to be well founded. Surely one should not be compelled to pay freight on a greater lading than is carried. But the Commission on examination decided in favor of the roads. It was shown that the service was most exceptional as to the shipment, handling and speed; and it was held that the charges were on the whole reasonable and just.

One of the most important issues in which the railroads have won their contention concerned the loading of lumber on flat cars.[654] For half a century the practice has been that the shipper should provide his own lumber-stakes and pay freight on them as on the lumber itself. In 1905 the National Lumbermen's Association tried to change all this, and to impose upon the carriers the legal duty of securing the loads in place as they do with many other commodities. The carriers offered a compromise, agreeing to allow five hundred pounds per car free for the weight of the stakes; but refused to accept responsibility for safely stowing the goods. The Commission, finally, after prolonged inquiry by experts, relieved the carriers of this care and expense.

It is undeniable also that the carriers have found solace in certain unforeseen ways under the amended law. The rigid prohibition of all favors and rebates has substantially raised the general level of charges, so general was the practice of cutting rates a few years ago. To be sure, this increase has affected principally the large shippers, thus tending to equalize opportunity between all grades of competitors. But over and above this, the prohibition of any act tainted with favoritism has enabled the carriers successfully to withstand many leakages of revenue. Claims for damages can be plausibly denied on the ground that their settlement might arouse suspicion, and possibly lead to prosecution for the grant of individual favors. Many roads have also actually augmented their revenues by this same line of argument. The custom of charging a merely nominal rental of one dollar for freight-sheds, other buildings or land used for side-tracks or elevators, was formerly general. It would have been awkward to place these contracts on a strictly commercial basis, especially where the tenants were shippers with the option of resorting to a rival line. But on the plea that a continuance of these nominal rentals might be considered a criminal act of favoritism, substantial increases of revenue have been obtained. On one road alone over three thousand of these nominal rentals have been raised to strictly commercial figures. The aggregate increase of revenue from this source has been by no means inconsiderable.

A very important group of cases brought before the Interstate Commerce Commission under the new law concerned the reasonableness of the various freight-rate advances which were occurring all along the line.[655] This raised a question as to the absolute fairness of the new rates as against the interest of the general public. One conclusion is certain. The new law did not prevent the carriers from persisting in a policy, adopted nearly ten years earlier, after a generation of steadily declining rates, of quite generally putting up their charges. Unfortunately, the law of 1906 was defective in making no provision for dealing adequately with such cases. The Interstate Commerce Commission was limited in its scope to the consideration only of specific complaints. It could not on its own initiative pass upon the reasonableness of an entire new schedule of rates in advance of its taking effect. It must take the matter up, if at all, bit by bit, as individual shippers chanced to complain, after the rates have become operative. This abridgment of its power to pass upon the reasonableness of tariffs as a whole was effected in the Senate. It was not contemplated either by President Roosevelt or by the House of Representatives. The result, as predicted, was that little protection was afforded to the public in any large way. Judging by results, the railroads were as free as they ever were, to increase their tariffs whenever they saw fit so to do.

The imperative need of amending the law, and of granting power to suspend such rate advances, not merely in particular cases on complaint, but as to entire schedules of rates prior to their taking effect, was in fact met by the next set of amendments in 1910. The experience of the intervening years amply proved the need of some such amendment.

The extent of the changes after the new law went into effect may be indicated by a few typical instances. Few commodities are of greater importance to the United States than chemical fertilizers, used in enormous quantities all over the country. The basis of these is phosphate rock. The freight rate on this from Tennessee to Chicago in 1907 was $3.40 per ton. It was increased to $3.95, until the Commission ordered its reduction to the old figure.[656] At the same time the Oregon lumbermen had their rates to the East increased about one quarter, after a period of quiescence of six years. From the Willamette valley to San Francisco--a test case soon to run a long course before the courts[657]--lumber rates were $3.10. In 1907 they were put up to five dollars. The Commission held that $3.40 was an adequate rate. The last general increase had occurred in January, 1909, particularly in transcontinental rates, where the fruit of the Harriman monopoly made itself felt. Not unduly great in the East, considering the increased cost of operation,--twenty-five cents per ton on pig iron and iron pipe, for instance,--the Pacific Coast rates from New York rose often as high as fifty per cent. The rate on dry goods went up by one-third. Therein lay a part of the motive power for Union Pacific speculative finance.[658] Among the most persistently contested schedules was that concerning rates from the southwestern cattle ranges to the markets of the Middle West.[659] In 1897 the rate on steers was twenty-seven cents per hundredweight. Step by step it went up to the level of thirty-six and one-half cents in 1903,--a rise of more than one-third within six years.

Occasionally one strikes an exorbitant rise in the East, however, as in one instance where on imported iron pyrites used in making sulphuric acid, the rate, which in 1903 was $1.56, became $2.72 four years later.[660] And the hardship often lay in the fact that these increases were most marked in the case of the small shipper,--the very one who, in these days of large enterprises, we can least afford to spare. The rate on cotton goods from the South to the Pacific Coast rose only fifteen per cent, between 1896 and 1907 by the carload; for smaller lots it rose sixty-five per cent.[661] In 1907, 38,000,000 pounds of cheese were produced in southwestern Wisconsin. The shipper to Chicago by carload paid only about ten per cent, more in 1907 than eight years earlier; but the shipper in smaller lots was compelled to pay forty per cent. more.[662] As always, the change was along the line of least resistance. Such a policy made for larger dividends; but did it tend to the perpetuation of equality of opportunity as between great and small concerns? That was a social question of the very first importance, which had much to do with the demand for still further increase of the regulative power of the Federal government in 1910.

Under the new powers conferred by law, it was now possible to investigate scientifically many matters which heretofore had been privately governed by rule of thumb. For instance the reasonableness of the charges for refrigeration in the movement of citrus fruit is dependent in practice upon the methods employed in gathering and packing them for market.[663] Was it better business practice to ship oranges and lemons in ice-cooled refrigerator cars, or was it better to adopt the so-called pre-cooling process, combined with great care in handling? The former was the long-standing practice of the fruit-growers, while the latter, substantially supported by the investment of more than a million dollars in plant, was advocated by the carriers. One had been tested in practice, the other was yet in the experimental stage. But aside from rivalry of method, were not the shippers entitled to pre-cool or refrigerate their fruit privately if they so desired? The determination of this question meant an elaborate investigation with careful records in detail as to the results obtained in either case. The decision upheld the carriers in their charges for the older methods of treatment; but pre-cooling charges had to be reduced by seventy-five per cent. It appears, therefore, that authority to deal with one of the most serious grievances voiced before the Elkins Committee in 1905, may now be fairly and scientifically exercised for the public benefit.

A similar technical investigation concerned the methods of transporting the products of "creameries."[664] Shall dairy products be centralized at favored points, possessed of a sufficient supply from the surrounding territory to permit of large-scale manufacture; or shall the older local creamery method prevail, whereby the product is taken directly from country stations to the great centres of consumption like Chicago? The particular rate adjustment makes all the difference between creameries scattered throughout the countryside or, on the other hand, located in the great cities. One of the prime difficulties is in the sparsity and uneven distribution of the cow population. Here was an order requiring a very careful investigation of the entire business, followed by a nice judgment as to the economic merits of the case. The history and development of the dairy business in the West had to be thoroughly looked into. Quite irrespective of the resulting order, it is apparent that the public is certain to benefit from an exhaustive inquiry. Yet other general investigations of the same sort might be cited to the same end. The wool business was examined thoroughly in 1911.[665] The entire New England rate system as well as the conditions of operation were overhauled in the following year, and a general inquiry into the hard coal situation is just now under way. A general improvement of conditions is bound to flow from the free exercise of such general powers.

* * * * *

The leading Supreme Court decision construing the Hepburn law,--and, constitutionally, one of the most important in recent years,--was rendered in 1910 with reference to the relation between the exercise of power over transportation by the Interstate Commerce Commission and the right of review of such action by the courts.[666] The details of the controversy are indicative of the nicety of economic adjustment required in such cases. There was a shortage of equipment for the carriage of soft coal on the lines of the Illinois Central Railroad. This commodity, practically speaking; cannot be stored. It must be disposed of at once, so that the available supply of cars determines the output of each mine. If, in this case, all the cars had belonged to the Illinois Central Railroad to be used indiscriminately by the mine owners, it would have been a simple matter to have allotted the equipment among all the operators along its lines upon the basis of the established capacity of each. Unfortunately, diversity of ownership of these cars had brought about, all over the country, special rules for effecting the allotments. Some cars belonged to the railroad; others to the mine company, to other private parties, or to foreign railways. Certain railroads first deducted all fuel carried by other equipment than their own from the estimated capacity of each mine, and then divided up their own available cars pro rata among all the mines according to the net capacity thus fixed. Others allotted their cars according to the gross mine capacity, taking no account of the private or outside equipment which any particular coal mine possessed or might obtain. This second practice evidently favored the larger concerns, supplied with abundant capital for investment in cars or for renting equipment. For, in addition to their own cars, they could still demand as many more from the railroad on daily allotment as if they were entirely dependent upon it for the movement of all their coal. Which was the fairer practice? A nice economic question was thus raised. Has a shipper the right to exclusive use of all his own fuel cars, and, in addition thereto, a full share of the system cars of the railroad? Disputes of this sort have been before the Commission and the courts for years.

In this Illinois Central case, a colliery company complained of even a more minute detail of the rule employed by the railroad in making its daily allotment, affirming it to be discriminatory in effect. There was a shortage of cars and of coal. The railroad was employing many of its own cars in the special service of carrying fuel for its own use. The particular grievance was its insistence upon treating these special Illinois Central cars, for the purposes of allotment, as if they were merely ordinary private cars; that is to say, by supplying them in practice regardless of and outside of the daily allotment, otherwise agreed upon. It thus appears that the economic issue was highly technical in character. Similar complaints had been already variously decided by other tribunals. The Commission, moreover, was bound to consider this complaint with several others of a like sort. Exercising its best business judgment under all the circumstances, it decided against the practice, ordering the Illinois Central, under the powers conferred by the new law of 1906, to include all cars, however owned or for whatever purpose used, in figuring its daily allotments in time of shortage of equipment. The case went to the Supreme Court upon petition of the railroad to set aside the order of the Commission.

By contrast with the economic intricacy of this case, the fundamental legal question was simple. How broad was the right of review of the Commission's order, as conferred by the amendments adopted in 1906? Were the courts to rest content merely to pass upon the regularity and lawfulness of the forms of procedure adopted by the Commission, or might they go further, and, hearing all the evidence as to fact, proceed to settle the economic controversy as well as the law points, in entire independence of the Commission? In the former case administrative control would result. In the latter, regulative power would really reside in the judicial branch of the government. It was the same old controversy which by adoption of the second alternative had practically emasculated the law of 1887, and had necessitated its amplification by amendment in 1906.[667] A momentous issue was presented. To go forward would make for logical definition and separation of the powers of the Federal government; to retreat would be to precipitate anew the inevitable conflict in Congress, from which, it was hoped, we had emerged for good!

The importance of the Illinois Central decision is such that the conclusion should be stated by direct quotation, with our italics as to the main point.

"Beyond controversy, in determining whether an order of the Commission shall be suspended or set aside, we must consider, a, all relevant questions of constitutional power or right; b, all pertinent questions as to whether the administrative order is within the scope of the delegated authority under which it purports to have been made; and, c, a proposition which we state independently, although in its essence it may be contained in the previous one, viz., whether, even although the order be in form within the delegated power, nevertheless it must be treated as not embraced therein, because the exertion of authority which is questioned has been manifested in such an unreasonable manner as to cause it, in truth, to be within the elementary rule that the substance, and not the shadow, determines the validity of the exercise of the power. Postal Telegraph Cable Co. v. Adams, 155 U. S., 688, 698. Plain as it is that the powers just stated are of the essence of judicial authority, and which, therefore, may not be curtailed, and whose discharge may not be by us in a proper case avoided,[668] it is equally plain that such perennial powers lend no support whatever to the proposition that we may, under the guise of exerting judicial power, usurp merely administrative functions by setting aside a lawful administrative order upon our conception as to whether the administrative power has been wisely exercised. Power to make the order and not the mere expediency or wisdom of having made it, is the question."

On this cogent reasoning the Supreme Court, therefore, quite independently of its opinion upon the economic merits, declined to permit interference with the order of the Commission.

Immediately following the Illinois Central decision another was rendered concerning somewhat the same economic issue, namely methods of supplying coal cars on the Baltimore and Ohio.[669] The following quotation is significant of what promises to be the line of reasoning in future.

"In ... the ... case just decided, it was pointed out that the effect of the section was to cause it to come to pass that courts, in determining whether an order of the Commission should be suspended or enjoined, were without power to invade the administrative functions vested in the Commission, and, therefore, could not set aside an order duly made on a mere exercise of judgment as to its wisdom or expediency. Under these circumstances it is apparent, as we have said, that these amendments of 1906 add to the cogency of the reasoning which led to the conclusion in the Abilene Case, that the primary interference of the courts with the administrative functions of the Commission was wholly incompatible with the act to regulate commerce. This result is easily illustrated. A particular regulation of a carrier engaged in interstate commerce is assailed in the courts as unjustly preferential and discriminatory. Upon the facts found, the complaint is declared to be well founded. The administrative powers of the Commission are invoked concerning a regulation of like character upon a similar complaint. The Commission finds, from the evidence before it, that the regulation is not unjustly discriminatory. Which would prevail? If both, then discrimination and preference would result from the very prevalence of the two methods of procedure. If, on the contrary, the Commission was bound to follow the previous action of the courts, then it is apparent that its power to perform its administrative functions would be curtailed, if not destroyed. On the other hand, if the action of the Commission were to prevail, then the function exercised by the court would not have been judicial in character, since its final conclusion would be susceptible of being set aside by the action of a mere administrative body. That these illustrations are not imaginary is established not only by this record, but by the record in the case of the Illinois C. R. Co. v. Interstate Commerce Commission."

These opinions, expressly recognizing the constitutionality of the free and full exercise of legislative power delegated by Congress beyond the power of the courts to review, are of fundamental importance. Had they been rendered a few days earlier, as we shall see, they might have prevented the supposed necessity of setting up a new commerce court by law in 1910. They would certainly have abridged the Congressional debates over points of law. Under these decisions, only authority and constitutional rights may be reviewed. The same issues were raised in the Portland Gateway opinion in 1910, soon to engage our attention, concerning the Commission's right to designate through routes for passenger travel. Over-ruling the Commission in this instance, however, the narrow right of review by the courts, as laid down in the Illinois Central case, is somewhat widened by an apparent refusal to treat the Commission's findings as to fact as conclusive in determining its jurisdiction; however conclusive it may regard them in other respects. A shady byway of judicial encroachment is thus rather surreptitiously indicated.

A more satisfactory re-affirmation of the disposition of the Supreme Court to allow a wide field and a free hand to the Commission in the exercise of its offices, is to be found in a third opinion, the so-called Burnham, Hanna, Munger case, also rendered in 1910.[670] Certain Missouri river cities complained that rates from the Atlantic seaboard were unduly high by comparison with those to cities in Central Traffic territory, namely between the Mississippi river and Buffalo. The Commission held the complaint well founded; and ordered a readjustment, by reduction of that portion of the rate west of the Mississippi. Thus, by leaving the rates to the Central Traffic Association cities unchanged, it materially benefited those along the Missouri river by comparison. Omaha and Kansas City were brought substantially closer to the seaboard as compared with Chicago and similar trade centres. The western roads, alone affected by this order, attacked it in the courts as an assertion by the Commission of power "artificially to apportion out the country into zones tributary to given trade centres to be pre-determined by the Commission, and non-tributary to others." The Supreme Court, in upholding the order, held that it would indeed be an abuse of power to raise or lower rates for the sole purpose above-outlined. Nevertheless, if the Commission were seeking primarily to correct rates inherently unreasonable, such action would not be invalidated by incidental effects upon trade conditions. The Supreme Court found, therefore, that the order in question was within its power, as thus defined, and, governed by the reasoning in the Illinois Central case, held that the Commission's decision could not be judicially reviewed upon the merits.

The line of judicial interpretation preceding the Mann-Elkins law of 1910 has been even more rigidly followed by the Supreme Court since that time. The most important decision, perhaps, was rendered in 1912. This concerned the absolute reasonableness of rates on fir lumber from the northern Pacific forests to the Middle West.[671] But it involved the additional consideration that the transcontinental roads had in a measure guaranteed an economic status to lumbermen under which they had made large investments, which, as they claimed, were jeopardized by an increase of freight rates in 1907. Two points were raised. One concerned the reasonableness of the new rates per se; the other their reasonableness in the light of their effects upon an established yet dependent industry. It was the old issue, in brief, between cost of service and value of service. A decision upon the latter basis alone might have resulted, as in a similar action, in the Burnham, Hanna, Munger case, just outlined, in decreeing an extension of authority over commerce by the Commission. Fortunately the court found otherwise in these lumber cases. It was able to uphold the order of the Commission, without deviation from the path of reasoning laid down in the Illinois Central opinion. The decision concludes as follows:

"Considering the case as a whole, we cannot say that the order was made because of the effect of the advance on the lumber industry, nor because of a mistake of law as to presumptions arising from the long continuance of the low rate when the carrier was earning dividends, nor that there was no evidence to support the finding. If so, the Commission acted within its power, and, in view of the statute, its lawful orders cannot be enjoined."

The unsatisfactory element in this decision is its implication that the Commission must be governed by cost of service principles in fixing reasonable rates. For to admit the plea of the lumbermen, that their industry could not stand the increase, would obviously lend an ear to the principle of value of service. May the railroads properly adopt either of the two principles in fixing their tariffs, while the Commission is confined to cost of service alone? Any such conclusion would tend to paralyze regulation. And Congress would certainly in a moment fly to the rescue with amplification of the statute.

This Pacific coast lumber opinion also contains the following succinct statement of the grounds upon which alone the Federal courts may review the orders of the Commission:

"There has been no attempt to make an exhaustive statement of the principle involved, but in cases thus far decided, it has been settled that the orders of the Commission are final unless (1) beyond the power which it could constitutionally exercise; or (2) beyond its statutory power; or (3) based upon a mistake of law. But questions of fact may be involved in the determination of questions of law, so that an order, regular on its face, may be set aside if it appears that (4) the rate is so low as to be confiscatory and in violation of the constitutional prohibition against taking property without due process of law; or (5) if the Commission acted so arbitrarily and unjustly as to fix rates contrary to evidence, or without evidence to support it; or (6) if the authority therein involved has been exercised in such an unreasonable manner as to cause it to be within the elementary rule that the substance, and not the shadow, determines the validity of the exercise of the power."

Quite like the preceding case was another concerning the reasonableness of advances of rates upon fir lumber from the Willamette valley to San Francisco. The Commission had ordered a reduced rate, from which the Southern Pacific appealed to the Supreme Court.[672] This tribunal set aside the order on the ground that, while seeking to protect an investment in lumber mills, it had not been governed by considerations as to the intrinsic reasonableness of the rates. The lumbermen then went back to the Commission with a new complaint, in response to which a slight advance was permitted to the railroad, apparently as a token of compliance with the opinion of the Supreme Court. But the Southern Pacific, not yet content, promptly appealed a second time under the Mann-Elkins law to the new Commerce Court. On June 4, 1912, this tribunal fully sustained the Commission in a most suggestive declaration of the obligation of a carrier, having once induced capital to embark in a new enterprise under promise of low rates, being subsequently estopped from charging to the full limit of what the traffic will bear.[673] This is a gratifying evidence of acquiescence of this new tribunal in the main line of interpretation laid down by the Supreme Court.

Federal decisions construing the law of 1906 during this period under review, revealed various shortcomings and defects which could be repaired only by additional legislation. They are to be considered among the causes contributing to the passage of the Mann-Elkins Act of 1910, shortly to engage our attention. Two in particular, the Orange Routing case and the Portland Gateway order, merit discussion. Neither directly involved monetary considerations, but a conflict between the rights of shippers and carriers. And both alike went on appeal to the Supreme Court of the United States.

The Orange Routing case against the Southern Pacific Railroad touched the right of the shipper to name the particular railways over which his fruit should reach Eastern markets.[674] Rates were the same by whatever route; but the railways denied the right of the shipper not only to name, but even to know, the route taken by his goods in transit. The same issue came up some years ago, concerning the right of cotton shippers at Memphis to designate the particular connecting railroads which should haul their goods. The purpose of the carriers in seeking to control this matter is obvious, and may be praiseworthy. Secret rebates cannot often be secured by shippers from the initial carriers, especially if, as in California, no railway competition exists. For the Atchison and the Southern Pacific have done away with that by pooling their fruit business. Secret rebates, if secured by shippers at all, must be wrung from the connecting lines, which bid for it at the great junction points, like Kansas City and Chicago. The initial road, by reserving the right to route the freight, is able most effectively to nullify all such pernicious contracts. But, on the other hand, this practice denies to the owner of the goods, control, or even supervision, over his own. Market conditions may easily change while the goods are in transit. It may be desirable to stop them off at Chicago, or divert them to New Orleans. And, moreover, damages for delay on such perishable goods as fruit are refused by the terms of the contract. The routing road exercises power without assuming responsibility. On these grounds, and in consonance with the long-established principles of common law, the Interstate Commerce Commission held that the shippers' rights were jeopardized. It was shown that freight was often diverted from one road to another in order to secure more valuable percentages of the through rate for the initial carrier. The Circuit Court in September, 1904, provisionally sustained the Commission; but its opinion was reversed by the Supreme Court in 1906. The court of last resort failed to find in the law any prohibition of such regulations concerning routes by the railroads. Incidentally it held that the Federal courts might enforce orders of the Commission, even although for reasons differing from those which governed the original order.[675]

The Portland Gateway case in 1910, before the Supreme Court,[676] also disclosed a defect in the law of 1906. It dealt with the right of the Commission to designate through passenger routes. Seattle, Washington, may be reached from the Middle West either by various lines to St. Paul and from thence due west by the "Hill lines," or by various railroads to Kansas City and thence by the Burlington and the Northern Pacific, also "Hill lines." There are also many routes first proceeding westward via the Union Pacific to Portland, Oregon, and from thence up to Seattle. By these latter routes most of the journey would be over the "Harriman lines," whereas by the former it would be by way of their competitors for the control of the northwest. Passengers all the way over the "Hill lines" were afforded every facility for through travel in the way of tickets and baggage; but if they chose the Portland route, great inconvenience followed from the refusal of the Hill lines to coöperate in facilities at the transfer point. In brief the "Hill lines" were working for the long haul over their own rails, as against the merely local haul from Portland to Seattle, which would follow the choice of the Harriman route.

The Commission upon its own motion investigated this situation, and, as a result, ordered the Northern Pacific to join with its rivals in establishing through routes via Portland to Seattle. This was done under authority in the law of 1906 to establish through routes and joint rates, provided "no reasonable or satisfactory through route exists." The Northern Pacific claimed, and was upheld therein by a dissenting opinion from the Commission, that there was already in existence such a route. Quick and comfortable travel via St. Paul already existed. Some eight thousand persons annually for one reason or another preferred, nevertheless, to go through Portland. The Commission held that this preference was reasonable, and that accordingly, with respect to such travellers, there was indeed no reasonable through route in effect. Passenger traffic, involving the element of personal choice, in other words, was different in law from freight business. The Circuit Court set aside this order upon the ground that a satisfactory alternative route over the Northern Pacific did actually exist. This decree was affirmed by the Supreme Court of the United States in 1910. But it was a hard-won victory for the carriers, inasmuch as Congress within six months specifically authorized the Commission to regulate such matters in future, without limitation as to the existence of other satisfactory routes.

The bitter rivalry between the Hill and Harriman systems for the control of the Northwest, as affecting the routing of freight traffic as well as of passengers through Portland, resulted in carrying a second case of the same sort before the Supreme Court. May temporary delay and congestion of business by way of any given line afford the Commission authority to designate another through route! In this instance, the Supreme Court has affirmed the order of the Commission.[677] It would appear, therefore, that this issue, for the present at least, is closed. The regulative power of the Federal government over routes and the division of joint rates is satisfactorily upheld.

* * * * *

Several Supreme Court decisions defining the power of the Commission to require testimony, both oral and documentary, in relation to matters which came before it, were rendered about this time. Its prestige and authority in this regard,--already affirmed in the late nineties,[678]--were considerably enhanced by an opinion delivered in April, 1904.[679] In the course of the proceedings, upon complaint of William R. Hearst against the Reading and other coal roads, certain contracts between the Lehigh Valley Coal Company and independent operators were called for. One Baird and others, including President Baer of the Reading company, declined to produce these coal purchase contracts. Others refused to testify concerning methods of fixing the price for anthracite coal at tidewater. Disregarding certain purely legal details, these refusals were based upon the contention that neither the Commission nor Hearst,--a well-known owner of various newspapers,--had shown any legal interest in the complaint. The court held, however, that the want of direct damage to the complainant was not essential to his standing before the Commission. Moreover, in this case, the Supreme Court overruled the Federal Circuit Court, which had held that the details of the contracts for purchase of coal by railroads from independent operators related wholly to intrastate transactions,--that, in other words, the selling of coal in Pennsylvania had nothing to do with interstate commerce. The Supreme Court adjudged that all the details of these transactions had a bearing upon the general question of the degree of monopoly in the coal business, and could not properly be withheld from examination as evidence by the Commission. In conclusion the court said: "To unreasonably hamper the Commission by narrowing its field of inquiry beyond the requirements of the due protection of rights of citizens, will be to seriously impair its usefulness and prevent a realization of the salutary purposes for which it was established by Congress." This sweeping decision by the court of last resort well buttressed the former decisions of that tribunal in the Brimson and Brown cases.

The so-called "Immunity Bath" Federal Court decision in 1906 materially affected, not so much the scope of authority of the Commission as its mode of procedure in eliciting testimony in railroad cases.[680] A resolution of the House of Representatives in 1904 had directed the Commissioner of Corporations to conduct an investigation into the affairs of the so-called "Beef Trust." In the course of this inquiry, Federal officials from the bureau held interviews in Chicago with prominent members of the beef-packing establishments. Important evidence was obtained, with the understanding that this was merely a general investigation having no relation to the Department of Justice, nor intended to be used in the prosecution of any suits at law. At the same time, agents examined the books of these companies. The accountants, however, in all cases refused to certify to their accuracy under oath. The material thus secured was incorporated in a report of the bureau in the following year. Not long afterward, when the prosecution of this combination was undertaken by the Department of Justice, the attorneys for the government made use of data in this report of the Bureau of Corporations in presenting their case. Consequently, on behalf of the packers under indictment under the provisions of the Sherman Anti-Trust Act, it was urged that the interdictions of this law were inoperative as to them, inasmuch as they had virtually been made to testify against themselves. The District court affirmed this immunity from prosecution under the provision of the Constitution forbidding any person from being compelled in a criminal case to be a witness against himself.[681]

The direct bearing of this decision upon subsequent prosecutions for rebating, as in the notable Chicago and Alton case in the following year, is apparent. No general investigation of any subject, evidently, could be undertaken either by Congress or the Interstate Commerce Commission, in the course of which testimony had been elicited under pressure, if it was intended that criminal prosecution by the Department of Justice was subsequently to take place. The eagerness of witnesses to secure the privileges of the "Immunity Bath" by frank avowal of material facts might otherwise thwart the government in the pursuance of its ends.

Another important decision of the Supreme Court touching the right of the Commission to compel testimony was rendered in 1908 in connection with the investigation of the Union Pacific system.[682] Mr. Harriman, the dominant factor in the management of this system, had caused the Union Pacific to purchase certain stocks of the Atchison and a number of other railroads in different parts of the country. The purchase price being known, the witness was asked whether he had a personal interest in the securities thus acquired by the road under his control. He declined to answer, on the ground that the power to require testimony was limited to the only cases where the sacrifice of privacy was necessary, namely those where the investigation concerned a specific breach of the law. The court, with three justices dissenting, sustained Harriman in his refusal, on the ground that this particular investigation was undertaken, not in pursuance of a complaint of specific violation of the law, but merely for the sake of general information as to the manner and method in which the business of common carriers was being conducted. No question was raised as to the right of the Commission to undertake general investigations of this sort; it was merely held that in the course of such investigations there was a limit to the inquisitorial power of this administrative body.

It may be added in this connection that the amendments added by the Mann-Elkins Act of 1910 most specifically defined the authority of the Commission in this regard.

* * * * *

The "commodity clause" of the Hepburn amendments to the Interstate Commerce Law, because of its unfortunate ambiguity, has already twice been before the Supreme Court.[683] The first interpretation was given in a decision concerning the Delaware and Hudson Railroad, handed down in May, 1909.[684] This affirmed the constitutionality of the statute at all points; but, at the same time, emasculated it most effectually. For, in order to harmonize the opinion with prior ones holding that ownership of stock in a corporation did not constitute legal ownership of the property of the company, it was necessarily held that a railroad by owning the share capital of a coal company did not thereby possess an interest, direct or indirect, in the coal mined. Moreover, a railroad which was the legal owner of coal at the mine might escape the interdiction of the law by selling the coal before transportation began. A handy means of evading the intent of the law could not have been more plainly indicated.

An attempt specifically to prohibit stock ownership in coal mines by railroads,--thus meeting in part the situation arising out of the foregoing decision,--was made in connection with the Mann-Elkins Act in 1910; but to no avail. The Senate, by a vote of twenty-five to thirty-one, rejected an amendment proposed by Senator Bailey of Texas, to prohibit stock ownership so clearly "that not even a judge of the Supreme Court could fail to understand it." The negative votes were all cast by the so-called "regular" Republicans. In the meantime, the clause had been carried to the Supreme Court for further interpretation in a suit against the Lehigh Valley Railroad.[685] The government in the lower court had already been defeated in an attempt to raise questions of fact as to the pecuniary interest of the road in the coal transported, irrespective of the technicalities as to legal ownership. The outcome in this case was more satisfactory. The Circuit Court was held to have erred in ruling out these considerations. It was unanimously decided by the Supreme Court that it was in violation of the law to use stock ownership for the purpose of destroying the entity of a producing corporation, while still so "commingling" its affairs in administration with the affairs of the railroad as to make the two corporations virtually one. This was a distinct gain for the government. It necessitated a compliance with the law in good faith. Upon the basis of this decision the Department of Justice instituted a new action against the Lehigh Valley Road, which was promptly met, however, by a readjustment of its corporate affairs.

The economic results under the "commodity clause" have been quite different from those doubtless anticipated by Congress. A salutary separation of coal mining from transportation is being effected; but in the case of the anthracite properties at least, in such manner as to hold out small hope of any direct benefit to the general public.

Absolute alienation of their coal properties by the railroads was subject to two difficulties. Some roads, like the Reading and the Lehigh Valley, had heavy issues of bonds outstanding, based upon the security, jointly, of both the railroad and the coal properties. The two could not readily be separated without retirement of these general mortgage bonds. In the second place, the operating relations between the railroads and their subsidiary coal companies, had for years been fixed upon the general principle of concentrating all profit from the two conjoined transactions of mining and carriage upon the transportation service alone. In other words, freight rates were established at so high a percentage of the selling price of coal that mining was necessarily conducted at a nominal profit, if any. This made no difference to the carriers, owning both mines and roads, but it had the desired effect of making it impossible for coal operators, independent of the railroads, to engage in the business. Without a modification of this plan the coal companies, already separately organized for the business by most of the railroads, could hardly be disposed of to advantage, either to the general public or even to their own shareholders. The only coal companies controlled by railroads which independently showed a considerable book-keeping profit were those owned by the Jersey Central and the Delaware and Hudson roads. The Lehigh Valley Coal Company had never paid dividends to its railroad corporation, but had contented itself with providing a very profitable tonnage. The Philadelphia and Reading Coal and Iron Company had likewise never been allowed to show a book-keeping profit sufficient to meet the interest upon its bonds and to provide for a sinking fund against exhaustion of its assets under ground.

Despite these practical obstacles, a general legal separation of hard-coal mining from transportation is in a fair way to be effected.[686] The Delaware, Lackawanna, and Western in 1909 was the first to act. With no joint mortgages and a charter right to mine coal directly, it merely organized a separate corporation, the Delaware, Lackawanna and Western Coal Company. The capital stock of this concern was then distributed gratis as a special dividend among its own shareholders. This coal company at once purchased all of the railroad's coal in stock, leased its mining appurtenances, and agreed henceforth to purchase all of its coal at the mine mouth for sixty-five per cent. of the tidewater price. The railroad continued to mine coal, but thus disposed of it before accepting it again for carriage. The Delaware and Hudson likewise entered into a contract with a coal company organized in 1901, which, after June, 1909, agreed to purchase all of its future output. The Lehigh Valley Railroad rearrangement was more complicated. It already had a coal company of the same name, the capital stock of which was pledged under its general railroad mortgage. Ownership was thus indissoluble. So the Lehigh Valley Coal Sales Company was organized in January, 1912. Its capital of $10,000,000 was provided by the railroad, which declared a stock dividend to its own shareholders, sufficient in amount to enable them to subscribe to the capital of the new concern. This company, then, like the others above mentioned, thereupon agreed to purchase all the coal mined by the railroad's subsidiary coal corporation.

At this writing great speculative interest attaches to the probable plan to be adopted by the Reading. Its intricate organization,[687] whereby both the railroad and the coal companies are owned by a purely finance or holding company, renders the problem of dissociation unique. A large volume of joint bonds are outstanding, with complicated provisions for sinking funds. The railroad actually owns no coal lands. The coal company, independently, is not profitable under existing traffic arrangements. Its operating ratio in 1911 was 98.7 per cent. It is "land poor"; carrying vast reserves of coal purchased by bond issues. The only asset sufficiently profitable by itself to make it attractive as a gift to shareholders, is the subsidiary coal company of the Jersey Central Railroad, which is itself controlled by means of stock ownership. The formation of a third coal sales company, whose stock could be distributed to shareholders of the Reading, as was done by the Lehigh Valley, would seem to be the only feasible plan.

But is there not danger, financially, for these and other railroads, that they may place this lucrative traffic in jeopardy by thus distributing their coal properties among shareholders by means of stock dividends? While, for a time, community of interest between railroad and coal mine may be assured through lodgment of stock ownership of both companies in the same persons, is it not likely that the two may become widely dissociated in the course of time? This contingency has been guarded against by an ingenious provision. The contracts providing for purchase and shipment of coal by the coal sales companies are terminable at the will of the railroad. So that if conflict of interest should arise in future, through transfers of stock of the coal sales company to outsiders, the carriers would be free to cancel the arrangement; create another corporation; distribute its shares among their stockholders once more; and thereafter go on as before. Manifold and ingenious, indeed, are the devices of the law for purposes of circumvention!

Whether the "commodity clause" is to bring about a further separation of transportation from activities of carriers in other lines of business remains to be seen. It was doubtless intended to have a general application. Some roads, other than those in the anthracite coal fields, have taken steps to set off their subsidiary concerns. The Louisville & Nashville, for example, has distributed among its stockholders all the shares of the Louisville Properties Company. This is a Kentucky corporation to which the railroad had transferred its holdings of coal and other lands. It was expected at the time that its capital stock of $600,000 would be worth par. The Union Pacific has done even better. It voluntarily reconveyed to the United States considerable tracts of coal lands, where title had been called in question in the course of investigations as to such railroad ownership. While there has been no sign of the Pennsylvania Railroad disposing of its investments in the Cambria and Pennsylvania Steel Companies, made prior to 1906, it is clear that the interdiction of the law will render any further outside operations of this sort difficult if not impossible.

FOOTNOTES:

[629] Cf. the record for 1898-1900 at p. 486, supra.

[630] Annual Report I.C.C., 1909, p. 11.

[631] P. 324, supra.

[632] 16 I.C.C. Rep., 276, is a typical instance of voluntary correction of a maladjustment of rates, as soon as attention was officially called to it. Also, 21 Idem where several railroads being unable to agree upon the classification of live and dead locomotives, appeal to the Commission to decide the matter.

[633] L. G. McPherson, Railroad Freight Rates, 1909, pp. 275-300, examines these topically, but without individual detail.

[634] 12 I.C.C. Rep., 626.

[635] Cf. p. 325, infra, on classification.

[636] 14 I.C.C. Rep., 561. Another case of this sort decided for the railroad is in 15 I.C.C. Rep., 160.

[637] 15 I.C.C. Rep., 301.

[638] 21st Annual Report, I.C.C., p. 71: 12 I.C.C. Rep., 326.

[639] 86 Fed. Rep., 407.

[640] 21 I.C.C. Rep., 651; is an odd instance of a broken deadlock between carriers as to furnishing equipment for completing a shipment.

[641] 15 I.C.C. Rep., 160. Cf. p. 538, infra.

[642] 12 I.C.C. Rep., 21, and 23 Idem, 263.

[643] 14 I. C. C. Rep., 51.

[644] 15 I. C. C. Rep., 491.

[645] 16 I.C.C. Rep., 523.

[646] 15 I.C.C. Rep., 551.

[647] 16 I.C.C. Rep., 41.

[648] 12 I.C.C. Rep., 307.

[649] 15 I.C.C. Rep., 370.

[650] 15 I.C.C. Rep., 7.

[651] 15 I.C.C. Rep., 280.

[652] 13 I.C.C. Rep., 620.

[653] 13 I.C.C. Rep., 651.

[654] 14 I.C.C. Rep., 154.

[655] Economic Review, 1911, pp. 766-789, reviews this whole movement.

[656] 15 I.C.C. Rep., 79.

[657] 219 U. S., 433: Cf. p. 545, infra.

[658] Much data is in U. S. v. Union Pacific, etc., Supreme Court, No. 820, Oct. term, 1911, Appellants Brief of Facts, p. 558 et seq.

[659] All the Cattle Raisers Association of Texas cases, especially 11 I.C.C. Rep., p. 296. Cf., also, pp. 70 and 167, supra, and 567, infra.

[660] 13 I.C.C. Rep., 357.

[661] 12 I.C.C. Rep., 149.

[662] 16 I.C.C. Rep., 85.

[663] 20 I.C.C. Rep., 106.

[664] 15 I.C.C. Rep., 109.

[665] 23 I.C.C. Rep., 151.

[666] 215 U. S., 452; also Ibid., 481. The original order of the Commission is in 13 I.C.C. Rep., 451.

[667] P. 502, supra.

[668] Italics are ours.

[669] 215 U. S., 481.

[670] 218 U. S., 88; 14 I.C.C. Rep., 299. Also, 16 Idem, 56; 21 Idem, 546; and 23 Idem, 195. Ann. Rep. I.C.C., 1909, p. 33, discusses it fully.

[671] 32 Supreme Court Rep., 109. Economic details in chap. V, p. 150, supra.

[672] 219 U. S., 433; 14 I.C.C. Rep., 61. Economic details at p. 150, supra.

[673] U. S. Commerce Court, No. 59, April session, 1912.

[674] 200 U. S., 536.

[675] The resulting change in the law at p. 572, infra.

[676] 216 U. S., 538.

[677] Rendered January, 1912. The Commission's order is in 14 I.C.C. Rep., 51.

[678] Pp. 457-460, supra.

[679] 194 U. S., 25.

[680] 142 Fed. Rep., 808.

[681] This immunity was expressly limited to natural persons. Corporations had been made directly liable by the Act of 1903. This point was brought out in the Henkel and Nelson cases; 201 U. S., 43, 90, 147.

[682] 211 U. S., 407. This decision is critically examined with reference to the policy of the Commission in its Annual Report, 1908, p. 17.

[683] Congressional History at p. 513, supra. The coal combination will be fully described in vol. II.

[684] United States v. Delaware and Hudson Railroad, etc.; 213 U. S., 257.

[685] 220 U. S., 257; decided April, 1911.

[686] A monograph by Mr. Eliot Jones of Harvard University on the anthracite coal business, soon to be published, will afford every detail of these transactions.

[687] Intercorporate Relations of Railways, Special Report, Int. Com. Com., 1906, p. 24.

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Chapter XVII

THE MANN-ELKINS ACT OF 1910

Prompt acquiescence by carriers, 557.--Opposition begins in 1908, 557.--Political developments, 558.--President Taft's bill, 559.--Three main features of the new law, 560.--Suspension of rate changes, 561.--Former defective injunction procedure remedied, 562.--The new long and short haul clause, 564.--Provision for water competition, 566.--The new Commerce Court, 566.--Congressional debates, 567.--Jurisdiction of the new Court, 568.--Its defects, 569.--Prosecution transferred to the Department of Justice, 570.--Liability for rate quotations, 571.--Wider scope of Federal authority, 572.--Its report analyzed, 574.--The Railroad Securities Commission, 573.--The statute summarized, 578.

The course of events after 1906, so far as acquiescence in the law was concerned, was precisely like that of twenty years earlier. For some time the railroads seemed submissive,--in almost a chastened mood. The Commission also exercised its new powers rather timidly. Up to July 1, 1908, only a single appeal to the Federal courts had been taken by the carriers against orders of the Commission. A sudden change of front supervened at this time. During the second half of that year, sixteen suits to set aside orders of the Commission were filed. Nine more were entered in the following year, and thirteen during 1910; with the result that the dockets were greatly congested with proceedings of this sort. No less than thirty-six were before the circuit courts, when in 1910 they were all transferred to the newly constituted Commerce Court, soon to be described. This accumulation of unfinished business, with the consequent delay in settlement of important transportation disputes, contributed greatly to the movement in Congress in favor of further amendment of the law.

There were several reasons for this sudden shift of attitude toward the law in 1908 on the part of the carriers. The political atmosphere had suddenly cleared so far as popular hostility to railroads was concerned. A change of administration had ensued, with a marked preponderance of professional legal talent in the Cabinet. And several important decisions of the Supreme Court, once threatening, had now been rendered in favor of the carriers. Among these may be mentioned the first interpretation of the "commodity clause,"--on the one hand upholding the constitutionality of the law, and on the other, pointing the broad and easy way to its evasion; the Harriman decision, protecting witnesses from disclosure of details as to their personal participation in the finances of companies under their control; and the exculpation of the Standard Oil Company by the aid of eminent counsel and the technicalities of the law, with escape from the extreme penalties of the statutes for rebating and personal favoritism. Things seemed indeed to be going at last the railroads' way.

The brightening financial outlook also gave better heart to the carriers. The panic of 1907, with its forced postponement of ambitiously constructive plans, seemed to have passed. The revival of these projects might be hampered by a further extension of government regulation and publicity. Railroad labor, moreover, was becoming restive. Demands for increased wages were imminent; and the carriers evidently proposed to shift the incidence of these wage increases, if granted, upon the public by means of an advance of rates. Such increases were bound to be disputed. It was deemed important to test the law at every point. This need was the more imperative as the Commission itself was bound to pass upon several questions of fundamental importance, such as the adjustment of transcontinental freight schedules and others soon to be described.

A presidential campaign took place in 1908. Both political parties committed themselves in their platforms to still further amendment of the Interstate Commerce Law. The Republican party, however, modestly confined its recommendations to authorization of traffic agreements and the regulation of stock and bond issues by railroads for the prevention of over-capitalization. The Democrats offered a much broader program providing for real amplification of the power of the Commission over rates. President Taft,--well in advance of his party, controlled as it was by the so-called "regulars,"--offered soon after election a more definite policy. Its main feature was the establishment of a Court of Commerce to which all judicial review of orders of the Commission should be submitted, in lieu of revision by the regularly constituted Federal judiciary. He evidently proposed to seriously amend the law; but, beyond the foregoing proposition, most of the other details of his plan seemed to be either half-way measures or else ill-designed to meet the real difficulties of the case. Thus the proposal to give power over mere rules and regulations in advance of their taking effect, without at the same time conferring a like power to pass upon the reasonableness of rates themselves, seemed to miss the main point. The same criticism was applicable to the plan of conferring authority to postpone the taking effect of a new classification until it had been approved by the Commission. Other excellent details were such as conferred authority to compel through routes and to forbid stockholding by one road in other competing lines, set forth in speeches in the fall of 1909.

A special presidential message of January 7, 1910, contained the specific program recommended for legislation to Congress. It consisted merely of a tentative bill, which was introduced in both houses and properly referred.[688] By this time the influence of the Interstate Commerce Commission in strengthening the proposals was apparent. More positive provisions were added, such as the right to suspend rate increases pending determination of their reasonableness. Serious consideration was given this bill in appropriate committees both of the House and Senate. It was, in fact, with the consent of the Attorney-General, amended out of all semblance to its original form. The most serious changes were made in the Committee on Interstate Commerce of the House of Representatives. The coalition of Democrats and "insurgent" or "progressive" Republicans, succeeded in striking out the authorization of traffic agreements, as well as a proposition permitting a railroad owning a majority of stock in other non-competing lines to purchase the balance of their shares. Several radical amendments of the Commerce Court plan were likewise effected, especially those giving the power of appointment to the Chief Justice instead of the President. The hands of the "progressives" in all this work were considerably strengthened, without doubt, by the course of events during the spring months of 1910, especially the impending general increase of freight rates all over the country.

The strength of political sentiment in favor of the measure appears in the fact that the radical House bill was passed unanimously; while the Senate bill was adopted by a solid Republican vote with the aid of six Democrats,--the total vote being fifty to eleven. Reference to a conference committee, which considered it for ten days, still further modified the original plan. Pooling was dropped entirely; stock-watering and details of inter-corporate finance between non-competing lines were also thrown but as favoring the carriers unduly. Physical valuation, as provided in the House bill, was considerably restricted. Prompt approval of the conference bill followed in both houses. And the signature of the President was added on June 18. Thus did the Mann-Elkins "Amendments" become law.

* * * * *

The three most important features of the Mann-Elkins Act[689] were: the grant of power to suspend changes in rates for examination as to their reasonableness; resuscitation of the long and short haul clause; and the creation of the Commerce Court for review of the Commission's orders. Of these, the first two represent substantial extension of the regulative power of the government; the third being a mere modification of procedure on appeal.

The proposition to so amend Section 15[690] of the Act of 1887 as to confer power upon the Commission to suspend proposed changes in rates, seems to have been a feature added at the behest of the insurgent-Democratic coalition in Congress. It was neither in the President's first unofficial program nor in the formal bill drawn up by the Attorney-General. The intolerable obstructions in the way of prompt determination of transportation disputes incident to the practical working of the law, even since 1906, had created a renewed demand for relief. Great force was added to this demand among shippers by the rate advances which had been occurring all along the line for two years; and particularly by the rumors of a general rate advance by the western and trunk line roads during the progress of the debate upon the bill. The President, to be sure, blocked this advance by means of a clever legal and political move. On May 31 an injunction was issued against twenty-four carriers, temporarily restraining them from putting into effect higher tariffs, as they had planned on June 1. This action was taken upon the allegation that the simultaneous action of all these roads in so doing constituted a violation of the Anti-Trust Law. The injunction, which as a weapon had been turned mainly by the carriers against enforcement of the orders of the Commission, was now invoked against the railroads. Regardless as to whether a bona fide prosecution was contemplated, the effect of these equity proceedings was to secure postponement of the advance in rates; and, of course, at the same time forcibly to attract the attention of Congress to the necessity of control. The carriers withdrew their tariffs in some discomfiture; the injunctions were dissolved; and all proceedings were stopped.

It is unnecessary, perhaps, to repeat the demonstration that a loss by shippers once incurred through payment of an unreasonable rate, is irretrievable. The manner in which transportation costs enter into the profitableness of contracts by the shipper for future delivery is well known.[691] Any change of rates during a period for which shippers have contracted to deliver at fixed prices, must seriously affect the chances of profit. It was recognized as essential, therefore, that adequate protection for the shipper could be given only through suspension of any change in rates until the reasonableness of that change had been determined.

The extent to which the aid of the courts had been invoked by the carriers to set aside orders of the Commission has already been described. Proceedings on the equity side in the courts had also, although in a most unsatisfactory manner, been undertaken to restrain advances in rates. But in all cases the exercise of this power had been bitterly contested, and proved at best to be so cumbersome as to be almost futile. The utmost confusion resulted in some cases. For example, in 1908 the carriers filed notice of an advance in rates on boots and shoes from New England to the South. An injunction was obtained prohibiting such advance, on condition that application be immediately made to the Commission for a ruling upon the reasonableness of the proposed change. This would have left the carriers without choice except to collect one rate while continuing to publish another. They therefore withdrew their schedules, leaving the old rates in effect. As a result no complaint could be filed with the Commission, the new rate not having come into operation. To meet this situation, the court then so modified its injunction that carriers might publish the advanced schedule, but were restrained from collecting it. This was manifestly an absurd situation. Moreover, supposing that the Commission could immediately take up the question, no order could become effective until after thirty days. In the meantime, the whole matter must remain in suspense. Considering that 15,000 tariffs advancing rates in trunk line territory alone, were filed in July, 1910, the necessary delay incident to such roundabout procedure would render it intolerable. Other complications might be mentioned, such as the localization of injunctions within the territorial jurisdiction of the enjoining court; legal technicalities touching the filing of bonds; and the status of non-petitioning shippers. Speedy relief must be had: that was clear beyond question.

Aside from the practical unworkableness of the injunction process as a protection against unreasonable rate advances, reform might well be demanded on grounds of fairness. No reduction of rates ought to be compelled without opportunity for protest by the carrier. Contrariwise, no new burden should be laid upon the shipper without a hearing. The burden of proof against disturbance of a long-standing adjustment ought properly to rest upon the party responsible for the change. Such delay as was requisite for determination of the reasonableness of the change could not constitute a serious burden; and even if it did, it was but just under the attendant circumstances.

The new law yielded to these arguments by a radical extension of the authority of the Commission. It was authorized to suspend the taking effect of any new rate or regulation for not more than one hundred and twenty days, to afford opportunity for hearing and decision as to its reasonableness. If necessary, a further period of six months' suspension might be had. Moreover, the burden of proof that the change was just and reasonable was laid upon the carrier. Beyond the ten months' period thus allowed, postponement might not extend. Thereafter the rates became effective automatically. This control fell short of the demand of the "insurgents" that downright approval of the Commission for all changes should be required; but it was, nevertheless, a substantial increase of power. It remains to be seen what the practical result of this great extension of government control may be. It was predicted that its greatest benefit would come from those suspensions of rate advances which ultimately brought about their withdrawal.[692] This prophecy was fulfilled, as will be seen in the next chapter, in the first great test to which the law was put, almost immediately after its passage.

Resuscitation of the long and short haul clause of the Act of 1887 was the second important feature of the new legislation. The long and tedious process of judicial interpretation, by means of which this section of the statute was nullified for so many years, has already been set forth.[693] Dissatisfaction with the local discrimination prevalent throughout the southern states and in the Rocky mountain region had been steadily increasing for a long time. Public opinion in these districts urgently demanded the relief which the original law sought to afford. Chairman Knapp fairly described the situation in 1905 before the Elkins Committee as follows:[694]--"No one, I think, can read the Fourth section ... and be in doubt that Congress intended to provide some actual and potential restraint upon that particular form of discrimination. And, I may say, it remains today much as it was then, not the greatest evil, but the most irritating and obnoxious form of discrimination that has been encountered." No distributing business could hope to become established in the West or South without vitalizing this section of the law. The larger cities, and particularly the manufacturing districts in the East, on the other hand, viewed with alarm any encroachment upon the far distant markets which they were able to hold by reason of peculiarly low rates. The railroads' coöperation with eastern representatives in Congress had successfully prevented any change in 1906. But four years later it became apparent early in the debates that something would have to be done for the relief of the West and South.

The long and short haul clause was amended by the influence of the Progressive Republicans in the House.[695] Four changes were made. The first was the total elimination of the clause "under substantially similar circumstances and conditions," which had been responsible for almost all of the trouble in the courts. This change made it necessary in all cases in future for permission to be secured in advance from the Commission for any lesser charge for a long haul than for a shorter one, no matter what the local circumstances might be. Secondly, the prohibition was specifically made to cover "routes" as well as "lines." Although the Osborne case[696] had already virtually made it clear that the clause applied to a series of connecting railways as well as to a single company, this addition placed the matter beyond dispute. The third change, practically legalizing a standing rule of the Commission for many years, prohibited a higher through rate than the sum of the local charges over the same line.[697] An addition covering an entirely new point constituted the fourth modification of the section. It is suggestive as an indication of the determined spirit which animated Congress. This last detail was borrowed from the then recently submitted report of the National Waterways Commission, which in turn had borrowed it from the state constitution of California. It was intended to meet the tactics so often adopted by land carriers in competition with water lines, of drastically reducing rates until the competition by water had been killed, after which the losses were recouped by even higher tariffs than before.[698] Under the new law, no railroad, having once reduced its rates in competition with a water route, was permitted to increase those charges until the Interstate Commerce Commission should have found that such proposed increase rested upon changed conditions other than the elimination of water competition.

* * * * *

Improvement of the procedure on appeal, by the establishment of the Commerce Court, was the third important feature of the new law. It was not only the delay of which complaint was made, but the illogical process of review as well. For this permitted the orders of a technically expert commission of seven men to be set aside by the order of a single judge who, in fact, relied upon subordinates for an examination of the evidence as to economic fact. This may be illustrated by two recent cases. In 1907 the transcontinental railroads substantially increased their rates on lumber. The Commission held that this advance was unreasonable; but permitted one half of it to take place. The carriers appealed to the Federal Circuit Court. All the evidence, involving great money and commercial considerations, was taken for the court by a master. Upon the findings of this single individual, without opportunity for the court to critically examine the evidence, the deliberate judgment of the Interstate Commerce Commission was set aside. The same thing happened in the Texas Cattle Raisers' case in 1910, involving rates on live stock from the southwest to northern ranges. In this instance, to be sure, the Circuit Court declined to enjoin the Commission. That did not, however, alter the fact that the decision was based upon hearings by a master, extending over sixty-three days and rolling up a voluminous record which the court did not have time even to peruse cursorily. To standardize procedure, as well as to eliminate delay, was the purpose of the President in the plan for the Commerce Court.

Many objections were advanced in the course of debate in Congress against the creation of a special tribunal. It was urged that such a court with limited jurisdiction would be open to political influence, as well as exposed to the danger of narrowness. It was said to be foreign to our judicial organization, which heretofore had known only courts of general jurisdiction. It was stated that no necessity for a commerce court existed, so small would be the number of cases which might be brought before it. Objection was also raised to it on the ground of expense. The problem of court review was, of course, complicated rather than made more simple by the Hepburn Act of 1906. Prior to that time no administrative orders took effect other than through enforcement by the courts. But this law provided that rates and regulations of the Commission should take effect proprio vigore within thirty days. The contest over broad v. narrow court review has already been described, with the outcome at the time regarded as a victory for broad review. The situation was entirely changed, however, by the Illinois Central decision in 1910,[699] which appeared to put a restraint upon judicial review, except when the order of the Commission was either beyond its legal powers or else unconstitutional. This decision did not, as might have been expected, put an end to the plan for a new transportation court; but it did bring about a specific restriction of the powers of this tribunal to those possessed by the regular circuit courts.

The Commerce Court, as finally constituted in 1910, was composed of five judges, each to serve for five years, designated and assigned thereto by the Chief Justice of the Supreme Court from among the circuit judges of the United States. No member might serve continuously for more than one term, but might be reappointed after an interval of one year. The court was to sit at Washington, and was to be always open for the transaction of business. From it, direct appeal to the Supreme Court might be taken, with as simple a mode of procedure as possible to eliminate delay. The original record, for example, was to be transmitted; and agents of every carrier must be designated at Washington upon whom process might at any time be served. Whatever may be said of other details of this judicial experiment, it certainly sought in good faith to promote promptness in procedure.

The jurisdiction of this Commerce Court was expressly conferred over four kinds of cases:[700]

First, those for enforcement of any order of the Interstate Commerce Commission, other than the payment of money.

Second, cases brought to enjoin, set aside, annul or suspend, in whole or in part, any order of the Commission.

Third, all proceedings on appeal under the Elkins amendments of 1903 with reference to rebates or departure from the published tariffs.

Fourth, all proceedings concerning the enforcement of the law in respect of publicity of accounts, the furnishing of facilities, or compulsion in the movement of traffic.

Proceedings in the first class above mentioned, for enforcement of orders of the Commission, remained practically unchanged in form, except that they were to be prosecuted in the Commerce Court instead of in the ordinary circuit courts. Cases of the second sort, wherein the carrier sought to enjoin or set aside orders of the Commission, were somewhat modified in procedure. The Administration bill provided that the Commerce Court should not issue injunctions, except in cases where irreparable damage would follow. In this regard, the Senate succeeded in somewhat amplifying judicial control. Five days' preliminary notice to the Commission, secured in 1906 after a bitter contest, was now cut down to three days; and the full court might extend the temporary stay of sixty days granted by a single judge, over the entire period necessary for final decision by the Supreme Court. With this exception, the new law held all the ground gained by the Hepburn Act as judicially interpreted in the Illinois Central case.

The principal criticism which may be directed against the Commerce Court, as thus organized, is that, instead of being an unchanging body of judges, becoming expert in the details of transportation by long experience, its membership must change year by year. Fortunately, at the outset the court was favored by the appointment, as presiding justice, of the Chairman of the Interstate Commerce Commission; but it seems likely that the lack of experience and technical knowledge in this ever-changing body may render it an obstruction rather than an assistance in fixing the responsibility for the settlement of these important cases. Specialization ought to be as beneficial here as in all other departments of government. It is a pity that the original plan of a permanent court should finally have been changed, through the insistence of the carriers' representatives, to a tribunal, each of whose members no sooner becomes proficient in the details of his work than he is marked for transfer to other fields of activity.

Next to the creation of the Commerce Court, the most important change in procedure introduced in 1910 was the transfer of the task of prosecuting suits on appeal cases from the Interstate Commerce Commission to the Federal Department of Justice. The confusion of governmental powers in the past, through permitting the Commission to prosecute cases in the Federal courts in which it already had an interest, has already been described. It was obviously illogical that a body having once rendered an opinion should then appear in court in defence of its own order. The jealousy of the Department of Justice in this regard was probably responsible also for the change effected in the law. The amendment of 1910 provides that hereafter all cases and proceedings, either in the Commerce Court or the Supreme Court, shall be brought in the name of the United States under the charge and control of the Attorney-General. It was provided also that the Commission or "any party or parties in interest" might appear of their own motion and as of right, and might be represented by counsel. Communities, associations, or individuals interested in the controversy were authorized to intervene, and the Attorney-General was forbidden to discontinue any proceedings over the objection of such parties in interest.[701] This apparently reasonable procedure was authorized after vehement protest of shippers against the original administration program. The Senate objected to it on the ground that it "would introduce intolerable confusion in legal proceedings and subordinate the general interests of all the people to the selfish concerns of one or more parties." And the Commission insisted throughout that it must participate in such suits, else no competent parties would be at hand to guide the prosecution in complicated proceedings.

Several provisions in the law were aimed at specific abuses which had been revealed in the course of prosecutions under the criminal provisions of the Act. The original law provided for the posting of tariffs in public places, in order that shippers might inform themselves as to the scheduled rates. But the possibilities of concealment of special favors, as well as the mere mechanical difficulty of ascertaining the facts in so complicated a maze of descriptions and rules with all sorts of exceptions, made it necessary that the shipper should rely upon information obtained from the agent. Nor could the shipper recover for losses incurred through misquotation of the rate by this agent inasmuch as the carriers must collect according to the tariff, under severe penalties for departure therefrom. Even a mistake by the agent in quoting the wrong rate did not permit of recovery. The new law met this contingency by the requirement that the railroad should quote the rate upon written request; and should be liable to a penalty of $250 for mis-statement from which loss to the shipper should result. The requirement that both the request and the reply as to rates should be written, it was hoped, would facilitate detection of rebating in the future. Another clause added a penalty of $1000 and made it a misdemeanor for any carrier or its agent to disclose information concerning either the route or destination of any shipment, when such information might be used to the injury of a competing shipper. Solicitation of such information was also penalized. The abuse against which this provision of law was directed is well illustrated in the prosecution of the so-called Powder Trust in 1911. It appeared in one instance that a freight agent had been paid from $15 to $18 a month for furnishing weekly statements of the shipments, with addresses of consignees, made by a competing concern in Chattanooga.[702] Such outrageous espionage, long practised by the Standard Oil Company, it is to be hoped will be eliminated in future by this provision of law.

Certain details of the act may be dismissed with mere mention. The scope of regulation was extended to include telegraph, telephone, and cable companies. The Commission was specifically authorized to establish and enforce reasonable classification of freight. Such authority, to be sure, had been continuously exercised for years; but this clause put it beyond dispute. A leaf was taken from the experience before the Supreme Court in interpretation of the authority over through routes and joint rates in the "Portland Gateway" case, described in the preceding chapter. Other "reasonable or satisfactory routes" were more specifically defined; although the complicated phraseology adopted was of doubtful value. It may well be that the clause, under judicial interpretation, limited rather than amplified the Commission's power as compared with the law of 1906. But the added requirement that every carrier must provide reasonable facilities for the operation of through routes, proper rules for the interchange of cars, etc., was bound to promote the efficiency of through business. The experience in the "Orange Routing" cases, also, brought about a clear affirmation in the new statute of the right of a shipper to designate the route which he preferred for shipment over connecting lines. The shipper might also demand a bill of lading conformable to his instructions. Whether this freedom of choice to the shipper, with the incidental assumption of responsibility for all consequences, regardless of strikes, blockades, or acts of God, will work to his advantage in the long run remains to be seen. He may probably rely upon strict enforcement of the so-called Carmack amendment of 1906, which makes the initial carrier liable for damage, even if it occurs off its own line. And, finally, among the minor changes in 1910 was the authorization of the Commission to institute inquiries upon its own initiative. Such power had frequently been exercised; but in the enactment of the Hepburn Act four years before, certain verbal inconsistencies were introduced into Section 15. It was deemed best to remedy this error by complete authorization to undertake investigations either with or without complaint.[703]

* * * * *

In place of regulation of the issues of stocks and bonds by Federal authority, as pledged in the political platforms, the almost unanimous opposition in the Senate to such a plan, brought about the substitution of a Railroad Securities Commission to investigate the subject. This, after all, was probably wise; inasmuch as many details as to conflicting state and Federal powers in such matters, were yet to be determined judicially. Moreover, the plans proposed, as it appeared, were so complicated that their adoption might result in the validation of all capitalization then outstanding without reference to its real value. The question certainly merited further investigation at the hands of experts.

Under the authority above mentioned, the President appointed an able although distinctly conservative commission, headed by President Hadley of Yale University. This body rendered its report in November, 1911.[704] The document was concise, cogent in reasoning (with the exceptions noted below), wise in its general conclusions and eminently conciliatory in spirit. It was obviously intended to promote good relations between the government and the carriers. The dominant note was complete publicity as a corrective for all financial abuses of the time. The adequacy of this remedy was probably exaggerated. The wise accounting provisions of the Acts of 1906-1910[705] were certainly already far-reaching in effect. The Securities Commission proposed, however, that they be elaborated to cover fully all phases both of promotion and of subsequent finance.

Not less important and wise than the insistence upon financial publicity, was the recommendation that, until the Supreme Court had clearly defined the relations between Federal and state authority, the Federal government should refrain from attempting to regulate the issue of securities. Too many difficult legal complications remained to be cleared up.

There certainly should have been a more enthusiastic commendation of the efforts of states like Massachusetts, Wisconsin, Texas and New York to cope with their local problems of financial control.[706] The apparent absence of a due appreciation of the importance of the work of the various public service commissions all over the country may perhaps be accounted for on the ground that it lay outside the scope of the work of a purely Federal commission. Yet a word of encouragement to these state administrations would have done something to offset the rather negative character of its conclusions. Someone must exercise financial control. If inadvisable for the Federal government to undertake it at this time, as might well be, then it was important to emphasize the fact that the states must do it as best they could. On the other hand, the recommendations concerning physical valuation as an element in rate regulation were sufficiently progressive to impart an aspect of judicial balance and general fairness to the report as a whole.

Two specific conclusions of the securities commission, however, were surely open to debate. One was the contention that little relation obtains between capitalization and rates. The statement is, of course, largely true; but like most generalizations of the sort fails to state the whole truth. It is probably absolutely true as to particular rates. No one would claim for a moment that the heavily capitalized Wabash, operating in trunk line territory alongside the Pennsylvania system, could charge any higher rates because of its financial disabilities.

Rather the reverse. But while true of particular rates, capitalization does exert an indirect but nevertheless a very appreciable influence upon the general level of rates. For this point I have argued elsewhere at some length.[707] Was it surprising that the pressure for advanced rates in 1910-1911 in trunk line territory should come from the heavily capitalized New York Central, with substantial aid and comfort from the Erie? Was it a mere coincidence that the Lackawanna road, with its stock quoted above $500, was a less prominent factor in the agitation than some of its neighbors? True enough, no direct relation between rates and capitalization exists; but that a positive incentive to higher charges in general may be found in the need of supporting a large capitalization seems reasonably clear in the light of experience. This point was certainly neglected or glossed over in the report.

A most debatable and, as I hold it, dangerous proposition in this report was the proposed abolition of the "dollar mark" upon capital stock. However desirable it might be for mining companies and the lesser industrials, as in Germany, to do away with any stated par value for share capital in order to disabuse the public mind of its purely artificial character, the proposition is quite different when applied to an industry like a railroad. There is all the difference in fact between purely private and competitive conditions of a more or less speculative character, and those under which monopoly privileges are conferred by gift of the public. Space does not permit a criticism of this proposition in detail. I have elsewhere discussed it more at length.[708] Many objections occur at once, none of them mentioned in this report which, almost jauntily, as it seems, proposed to revolutionize all of our customary habits of financial thought. Among these objections there is the fact that abolition of par value removes the restraint upon the promoter or management, for liability to creditors in case of part-paid shares. The experience of the Asphalt Company of America is illuminating in this regard. May we trust mere publicity to provide corresponding safeguards for honest promotion with this liability removed? Then again, how about the issue of stock in exchange for property acquired, as had frequently occurred in the course of railway consolidation? Was it immaterial whether the absorbing company put out 500,000 "participating shares," with a market value of $100 each, or twice that number of "certificates of participation" commanding half that figure per unit in exchange for the property acquired? And still further, there is the inevitable effect upon speculation. One of the primary needs of the time was to effect a separation of our common carriers from Wall Street influence. Did it make no difference whether the Southern Railway "participating shares" were traded in around $25; or those of the Louisville & Nashville commanded a price of $150? Low quotations always offer a great stimulus to speculative manipulation--as any student of Rock Island affairs must concede. To do away with par, which means permission to emit, without reproach, at any figure "below par"--how hard it is, indeed, to get rid of that conception of some standard of normality--could not but exert a malign influence. And then, finally, over and above all other considerations there was the need of some general standard of comparison for all sorts of purposes--some base from which to judge of normality. The proposal to wipe out all such standards, with the mere warning to public and investors alike to beware, seemed like a step backward.

This brings us to the insistence of the commission upon the need of the railroads for more capital for development; and the difficulty of financing new enterprises under regulative provisions of law, such as the prohibition of the issue of shares at a discount. Massachusetts had recently passed through an experience of probably excessive regulation. But simple modifications of its anti-stock-watering laws seemed to have solved the difficulty. Of course the developmental problems of the West and South are quite different from those of New England. Yet there was the experience of Texas to fall back upon. Complaint had been made, of course, especially by the Gould roads, of the insufficiency of capital for new work. But the growth of mileage seemed, nevertheless, to compare not unfavorably with progress in other states. Were the Gould roads, for example, any better off in other states where greater liberality of laws prevails? The fact was that much new construction and improvement remained to be done all over the country, as this report duly emphasized; but much of it would probably have to be done by companies already in the field. Not many new steam railroad companies are now needed even in the West. It must be confessed that the recently authorized extension of the Grand Trunk Railway into the heart of New England shows how persistent is the demand for new roads even in the East. But whoever may build, let them learn the lesson, so often forgotten, that honest management and conservative financing, to the end that solid credit be first established, has far more to do with facilitating development than non-interference by law. This was probably a time when encouragement to the railroads in a period of stress should properly be given. But let it not be forgotten that good faith to the public and to stockholders, together with prudent financing, must be the primary source of credit.

Many admirable features of this report deserve mention, did space permit. The clear exposition of the distinction between stocks and bonds, and especially the discussion of inter-corporate financing, occupied a prominent place. The document promised to play a large part in the determination of governmental policy in future. It well merited the most careful perusal by legislators, financiers and economists. In the nature of things so conservative a document could never hope for a popular reception. But many of its financial platitudes were probably in need of reiteration for the good, both of the carriers and the public.

The Hepburn Act of 1906, despite the agitation over its enactment in Congress, "came in like a lion and went out like a lamb," imitating thereby the month of March in which its crucial changes were effected. In the end it proved to be a much less drastic measure than the railroads feared. This Mann-Elkins law, four years later, on the other hand, introduced by the presidential bill as a merely supplementary piece of legislation,[709] "rounding out the Roosevelt policies," emerged from Congress really radical in character. Every change made was "progressive"; and yet there was little public interest manifested on either side. No publicity campaign was carried on by the carriers. No extended discussion took place in the press. There were several reasons for this contrast. It is partly true, as one writer has suggested, that "the marrow had already been extracted from railroad regulation as a political issue; and that it had become merely a bone of contention in a factional strife." Moreover, the fundamental principle of effective governmental regulation had been indisputably affirmed in 1906. The Act of 1910 had for its purpose a firmer intrenchment of the position already occupied. Debate centred largely upon uninteresting technical questions. The broader issues were relegated to second place. Even the carriers on their part were extremely reserved in stating their position. It was conceded on all sides that the less public opinion in general was aroused, the lighter would be the sentence passed upon the prisoners at bar. It is difficult to determine in how far the marked advance made in this statute was due to contemporary happenings, like the general advances of freight rates, the Illinois Central scandals and the like; or to a deep-seated conviction on the part of the progressive element in Congress. But that the law, as a whole, was a surprise in the end even to its proponents is beyond doubt.

A word may be added concerning the omissions in the Mann-Elkins law. The most important was the elimination of the administration plan for authorizing agreements between carriers as to rates, subject to supervision by the Commission. The Republican platform had definitely promised relief of this sort to the railroads. The Democratic party had somewhat equivocally promised an amendment of the law prohibiting pooling "to make it unlawful, unless approved by the Commission." The plan, however, met with persistent opposition on all sides, largely on the ground that it conflicted with the Sherman Anti-Trust law. Other details which fell by the way concerned proposals to extend jurisdiction over water carriers on inland waterways.[710] Whether the Commission might exercise any control over those which formed parties to a through line still remained an open question.[711] And then at the last there was the omission of Congress to deal with the question of fixing minimum rates or differentials between rates. This was responsible, as will shortly appear, for much of the difficulty encountered in the application of the long and short haul clause to the transcontinental rate problem.

FOOTNOTES:

[688] Characterized somewhat heatedly by Senator La Follette in his Autobiography (American Magazine, 1912, p. 189), as "in all the history of railroad legislation, the rankest, boldest betrayal of public interest ever proposed in any legislative body."

[689] The best references are the following:--F. H. Dixon, Quarterly Journal of Economics, vol. XXIII, 1910, pp. 593-633; reprinted in the Railway Age Gazette, vol. XLIX, p. 688 et seq.; American Political Science Review, vol. IV, 1910, pp. 537-554. Our other sources are the files of the Annual Reports of I. C. C.; the Congressional Record, Railway Age Gazette, and daily press reports.

[690] P. 452, supra.

[691] Concrete instance in 17 I. C. C. Rep., p. 317. Also p. 510, supra, and 587, infra.

[692] The suspension of increased rates on Maine potatoes in October, 1912, long enough to permit the entire season's crop to be marketed on the old tariffs is a case in point.

[693] P. 474, supra.

[694] Volume IV, p. 3293.

[695] The following is the form in which the Fourth Section now stands:

"SECTION 4. 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, for a shorter than for a longer distance over the same line or route in the same direction, the shorter being included within the longer distance, or to charge any greater compensation as a through route than the aggregate of the intermediate rates subject to the provisions of this act; but this shall not be construed as authorizing any common carrier within the terms of this act to charge or receive as great compensation for a shorter as for a longer distance: Provided, however That upon application to the Interstate Commerce Commission such common carrier may in special cases, after investigation, be authorized by the Commission 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: Provided, further, That no rates or charges lawfully existing at the time of the passage of this amendatory act shall be required to be changed by reason of the provisions of this section prior to the expiration of six months after the passage of this act, nor in any case where application shall have been filed before the Commission, in accordance with the provisions of this section, until a determination of such application by the Commission.

Whenever a carrier by the railroad shall in competition with a water route or routes reduce the rates on the carriage of any species of freight to or from competitive points, it shall not be permitted to increase such rates unless after hearing by the Interstate Commerce Commission it shall be found that such proposed increase rests upon changed conditions other than the elimination of water competition."

[696] P. 476, supra.

[697] Cf. the example on p. 590, infra.

[698] The following account, by W. M. Acworth in the Railway Age Gazette, of a conversation with the late Collis P. Huntington illustrates the possible abuse:

"The Southern Pacific built two fine steamers to run between San Francisco and Sacramento, Cal. They gave a daily service, each boat running up one day, and down the next, and the passenger fare was $2. A private individual thought he saw his way to compete with advantage, and bought a smaller boat, which only gave a service every other day, but, on the other hand, only charged $1 for this service.

"The Southern Pacific began to lose money, and when Mr. Huntington next came to California the position was put before him. 'Would you like to leave me to run this fight?' said he to the local manager. 'Certainly, sir,' was the reply. 'Is there an old boat you can buy that could give a service?' Being told that there was, Mr. Huntington bought it, ordered the two first-class boats to be laid up, and announced that the new purchase would run alongside the rival boat at a fare of 50 cents. 'Why, sir,' said the local manager. '50 cents won't pay for the coal.' 'No, I do not suppose it will,' was the answer, 'but when you go to war you have got to fight!"

"Before long the owner of the rival boat came to Mr. Huntington and asked him what he was prepared to do about it. Mr. Huntington replied that he would buy his boat for $10,000--I think the sum was. 'But, Mr. Huntington, the boat cost me $20,000, and she is worth it.' 'Very likely, but I am only going to give you $10,000.' So the fight went on for a while longer. When the spring came Mr. Huntington was on the point of returning to New York. He sent word to his rival that he was leaving California the following week, and that if the matter was not settled before he left, his 50-cent boat would continue to run till his return the following winter. Whereupon his competitor at once threw up the sponge and then sold his boat for $10,000. 'Since then,' concluded Mr. Huntington, 'there has been no competition with the Southern Pacific on the Sacramento river.'"

[699] Page 538, supra.

[700] Opinion No. 44, 1911, is the first Commerce Court case to interpret this jurisdiction. Cf., also, p. 587, supra.

[701] 191 Fed. Rep., 37, first interprets this clause. P. 587, infra.

[702] Quarterly Journal of Economics, XXVI, 1912, p. 444.

[703] Cf. p. 537, supra.

[704] Report of the Railroad Securities Commission, Nov. 1, 1911.

[705] Page 515, supra.

[706] These will be fully described in our second volume in connection with stock-watering, valuation and allied financial problems.

[707] Volume II, in the chapter on Valuation.

[708] Volume II, in the chapter on Capital Stock.

[709] Cf. Senator La Follette's characterization of it. Footnote, p. 559, supra.

[710] The National Waterways Commission Report of 1912 urged this strongly. And the attempts in connection with fixing the tolls for the Panama Canal in the same year, to prohibit all railway ownership or interest in coastwise steamships, were significant of legislation yet to come. Cf. pp. 591 and 638, infra.

[711] Cf. the Goodrich Transit Co. case. Page 586, infra.

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