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Title: The heart of the railroad problem: The history of railway discrimination in the United States, the chief efforts at control and the remedies proposed, with hints from other countries
Author: Parsons, Frank
Language: English
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PROBLEM ***
THE HEART
OF THE
RAILROAD PROBLEM
THE HISTORY OF RAILWAY DISCRIMINATION IN THE UNITED STATES, THE CHIEF
EFFORTS AT CONTROL AND THE REMEDIES PROPOSED, WITH HINTS FROM OTHER
COUNTRIES
BY
PROF. FRANK PARSONS, PH.D.
AUTHOR OF “THE STORY OF NEW ZEALAND,” “THE WORLD’S BEST BOOKS,” “THE
CITY FOR THE PEOPLE,” “THE RAILWAYS, THE TRUSTS, AND THE PEOPLE”
BOSTON
LITTLE, BROWN, AND COMPANY
1906
_Copyright, 1906_,
BY FRANK PARSONS.
_All rights reserved_
Published April, 1906
THE UNIVERSITY PRESS, CAMBRIDGE, U. S. A.
PREFACE
This work is one of the consequences of a conversation years ago with
Dr. C. F. Taylor, of Philadelphia, editor and publisher of _The Medical
World_ and of Equity Series. The doctor said that Equity Series should
have a book on the railroad question. The writer replied that there was
room for a book dealing with the political, industrial, and social
effects of different systems of railway ownership and control. A plan
was adopted for a book, to be called “The Railways, the Trusts, and the
People,” which is now on the press of Equity Series. For the preparation
of this work the writer travelled through nine countries of Europe and
over three-fourths of the United States, studying railways, meeting
railroad presidents and managers, ministers of railways, members of
railway commissions, governors, senators, and leading men of every
class, in the effort to get a thorough understanding of the railway
situation. He also made an extensive study of the railroad literature of
leading countries, and examined thoroughly the reports and decisions of
commissions and courts in railroad cases in the United States.
As these studies progressed, the writer became more and more convinced
that the heart of the railroad problem lies in the question of impartial
treatment of shippers. The chief complaint against our railroads is not
that the rates as a whole are unreasonable, but that favoritism is shown
for large shippers or special interests having control of railways or a
special pull with the management. This book consists, in the main, of
the broad study of railway favoritism, which was made as a basis for the
generalizations outlined in the brief chapter on that subject in “The
Railways, the Trusts, and the People,”—one of the thirty chapters of
that book. This study reveals the facts in reference to railway
favoritism or unjust discrimination from the beginning of our railway
history to the present time, discloses the motives and causes of
discrimination, discusses various remedies that have been proposed, and
gathers hints from the railway systems of other countries to clarify and
develop the conclusions indicated by our own railroad history.
Special acknowledgments are due to Dr. Taylor, who paid a part of the
cost of the special investigations on which the book is based and has
taken a keen interest in the progress of the work from its inception,
and also to Mr. Ralph Albertson, who has worked almost constantly with
the writer for the past eight months and more or less for two years
before that, and has rendered great assistance in research, in
consultation and criticism, and in the checking and revision of proof.
FRANK PARSONS.
BOSTON, March, 1906.
CONTENTS
CHAPTER PAGE
I. THE LAW AND THE FACT 1
II. PASSES AND POLITICS 3
III. PASSENGER REBATES AND OTHER FORMS OF DISCRIMINATION IN
PASSENGER TRAFFIC 17
The Deadhead Passenger Car 18
Ticket Scalping 19
IV. FREIGHT DISCRIMINATION 23
V. THE EARLY YEARS, HEPBURN REPORT, ETC. 25
The Granger Laws 26
The Hepburn Investigation 27
VI. THE SENATE INVESTIGATION OF 1885 AND THE INTERSTATE
COMMERCE ACT 37
VII. THE INTERSTATE COMMISSION 43
VIII. EFFECTS OF THE INTERSTATE ACT 49
Direct Rebates 53
IX. SUBSTITUTES FOR REBATES 57
X. DENIAL OF FAIR FACILITIES 66
XI. CLASSIFICATION AND COMMODITY RATES 70
XII. OIL AND BEEF 73
XIII. IMPORTS AND EXPORTS 84
XIV. LOCALITY DISCRIMINATIONS 87
XV. LONG-HAUL DECISIONS OF THE SUPREME COURT 95
XVI. TEN YEARS OF FEDERAL REGULATION 104
XVII. THE ELKINS ACT AND ITS EFFECTS 110
XVIII. THE WISCONSIN REVELATIONS 120
XIX. THE COLORADO FUEL REBATES AND OTHER CASES 124
XX. FREE CARTAGE, STATE TRAFFIC, DEMURRAGE, THE EXPENSE BILL
SYSTEM, GOODS NOT BILLED, MILLING-IN-TRANSIT 142
XXI. MIDNIGHT TARIFFS AND ELEVATOR FEES 147
XXII. COMMODITY DISCRIMINATIONS 150
XXIII. DISCRIMINATION BY CLASSIFICATION 155
XXIV. VARIOUS OTHER METHODS 159
XXV. TERMINAL RAILROADS 166
XXVI. PRIVATE-CAR ABUSES 174
XXVII. THE LONG-HAUL ANOMALY 208
XXVIII. OTHER PLACE DISCRIMINATIONS 216
XXIX. NULLIFYING THE PROTECTIVE TARIFF 221
XXX. SUMMARY OF METHODS AND RESULTS 228
XXXI. DIFFICULTIES OF ABOLISHING DISCRIMINATION 241
XXXII. REMEDIES 252
Pooling 265
Wrestling with the Long-Haul Abuse 270
A Drastic Cure for Rebating 271
XXXIII. FIXING RATES BY PUBLIC AUTHORITY 274
Alleged Errors of the Commission 279
XXXIV. CAN REGULATION SECURE THE NEEDFUL DOMINANCE OF PUBLIC
INTEREST? 306
XXXV. HINTS FROM OTHER COUNTRIES 313
APPENDIX
A. LATEST DECISIONS OF U. S. SUPREME COURT 335
B. PRESIDENT HADLEY AND THE HEPBURN BILL. ENGLISH EXPERIENCE
IN THE REGULATION OF RATES 337
INDEX 345
THE HEART OF
THE RAILROAD PROBLEM
CHAPTER I.
THE LAW AND THE FACT.
It is a principle of the common law that common carriers must be
impartial. “They cannot legally give undue or unjust preferences, or
make unequal or extravagant charges.... They are bound to provide
reasonable and sufficient facilities. They must not refuse to carry any
goods or passengers properly applying for transportation.... They have
no right to grant monopolies or special privileges or unequal
preferences, but are bound to treat all fairly and impartially.”[1] That
is the rule of the common law which represents the crystallized
common-sense and practical conscience of the Anglo-Saxon and every other
civilized race. The legal principle that a common carrier must be
impartial was established long before the Interstate Commerce Act was
passed, or the Granger laws enacted,—yes, before railways or steamboats
were born. They inherited the family character and the family law. It
has been applied to them in innumerable cases. There is a solid line of
decisions from the infancy of the English law to the present time.
Constitutional provisions and State and Federal statutes have been
passed to affirm and enforce the rule. The railroads themselves declare
the rule to be right. And yet, in spite of the railway conscience and
the common law, the universal sense of justice of mankind, and the whole
legislative, executive, and judicial power of the government, the rule
is not obeyed. On the contrary, disregard of it is chronic and
contagious, and constitutes one of the leading characteristics of our
railway system. In spite of law and justice our railway practice is a
tissue of unfair discrimination, denying the small man equal opportunity
with the rich and influential, and breaking the connection between merit
and success.
The railways unjustly favor persons, places, and commodities, and they
do it constantly, systematically, habitually. If every instance of
unjust discrimination that occurs to-day were embodied in human form and
the process were continued for a year,[2] the outlaw host would dwarf
the Moslem hordes that deluged southern Europe in the days of Charles
Martel, outnumber many fold the Grand Army of the Republic in its
palmiest days, and, shoulder to shoulder, the dark and dangerous mob
would reach across the continent, across the ocean, over Europe and
Asia, and around the world.
The railways discriminate partly because they wish to, and partly
because they have to. The managers favor some interests because they are
linked with the interests of the railways or the managers, and they
favor some other interests because they are forced to. The pressure of
private interest is stronger than the pressure of the law, and so the
railroad manager fractures his conscience and breaks the statutes and
common law into fragments.
CHAPTER II.
PASSES AND POLITICS.
One of the most important forms of discrimination is the railroad pass.
Many persons of wealth or influence, legislators, judges, sheriffs,
assessors, representatives of the press, big shippers, and agents of
large concerns, get free transportation, while those less favored must
pay not only for their own transportation, but for that of the railway
favorites also.
A farmer and a lawyer occupied the same seat in a railroad car. When the
conductor came the farmer presented his ticket, and the lawyer a pass.
The farmer did not conceal his disgust when he discovered that his
seat-mate was a deadhead. The lawyer, trying to assuage the indignation
of the farmer, said to him: “My friend, you travel very cheaply on this
road.” “I think so myself,” replied the farmer, “considering the fact
that I have to pay fare for both of us.”
The free-pass system is specially vicious because of its relation to
government. Passes are constantly given to public officials in spite of
the law, and constitute one of the most insidious forms of bribery and
corruption yet invented. I have in my possession some photographs of
annual passes given by the Pennsylvania Railroad in 1903, 1904, and 1905
to members of the State Legislature, and the Common Council of
Philadelphia.
The Constitution of Pennsylvania, Section 8 of Article 8, says: “No
railroad, railway, or other transportation company, shall grant free
passes, or passes at a discount, to any persons except officers or
employees of the company.”
The question is whether the members of the Legislature are employees of
the Pennsylvania Railroad.
Recently the Pennsylvania Railroad gave notice that after January 1,
1906, no free passes would be issued except to employees. As we have
seen reason to believe, this may still include members of the
Legislature, and even if the order should happen to be enforced
according to the common acceptation of the word “employees,” there are
plenty of ways in which free transportation can be given to men the
railroad management deems it desirable to favor. Railroads have made
such orders before, and in every case the fact has proved to be that the
order simply constituted an easy method of lopping off the overgrown
demand for passes, a ready excuse for denying requests the railroad does
not wish to honor, without in the least interfering with its power of
favoring those it really wishes to favor. In cutting off passes under
said order to multitudes of city officials in Pittsburg lately the
Pennsylvania railroad officers stated that the demand had become so
great that those having free rides were actually crowding the paying
passengers on many of the trains. The _Philadelphia North American_
declared that in that city every big and little politician expected free
passage when he requested it, and that there was no ward heeler so
humble that he might not demand transportation for himself and friends
to Atlantic City, Harrisburg, or any other point on the Pennsylvania
line. The _Springfield Republican_ said: “It does not appear to be
recognized, in the praise given to the present action of the railroad
company, how great an impeachment of its management the old order
constituted. We are told that passes were issued literally in bundles
for the use of political workers, big and little.”
We watched with much interest to see what the railroad would really do
when the time for full enforcement of the order came. In Pennsylvania,
as was anticipated, the order has been used as a basis for refusing
passes to the overgrown horde of grafters who have feasted so long at
the Pennsylvania’s tables. The railway does not want anything this year
in Pennsylvania that the grafters can give it, and it is an excellent
opportunity to punish the Pittsburg politicians for allowing the Gould
lines to enter the city. But in Ohio the situation is different, and, in
spite of the recent order, the time-honored free passes have been sent
to every member of the Ohio Legislature. A press despatch from Columbus,
January 1, says: “One of the notable events that marked the opening of
the general assembly to-day was the unexpected arrival of railroad
passes for every member. The Pennsylvania, first to announce that the
time-honored graft would be cut off, was the first to send the little
tickets, and the other lines followed suit.”
The Pennsylvania is not alone in its delicate generosity to legislators
and other persons of influence. The _practice_ is _practically_
universal.[3] From Maine to California there is not a State in which the
railroads refrain from giving passes to legislators, judges, mayors,
assessors, etc. And the roads expect full value for their favors. Some
time ago a member of the Illinois Legislature applied to the president
of a leading railroad for a pass. In reply he received the following:
“Your letter of the 22nd to President ——, requesting an annual over the
railroad of this company, has been referred to me. A couple of years
ago, after you had been furnished with an annual over this line, you
voted against a bill which you knew this company was directly interested
in. Do you know of any particular reason, therefore, why we should favor
you with an annual this year?”
The railroads give passes to legislators and public officials not, as a
rule, in any spirit of philanthropy or respect for public office, but as
a matter of business; and if a legislator does not recognize the
obligation that adheres to the pass, the pass is not likely to adhere to
him in subsequent years.
In many cases the pass is the first step on the road to railroad
servitude. Governor Folk said to me: “The railroads debauch legislators
at the start by the free pass. It is a misdemeanor by the law of this
State to take such a favor.[4] But it seems so ordinary a thing that the
legislator takes it. He may start out with good intentions, but he takes
a pass and then the railroad people have him in their power. He has
broken the law, and if he does not do as they wish they threaten to
publish the number of his pass. He generally ends by taking bribe money.
He’s in the railroad power anyway to a certain extent, and thinks he
might as well make something out of it. In investigating cases of
corruption I have found that in almost every instance the first step of
the legislator toward bribery was the acceptance of a railroad pass.”
At the annual dinner of the Boston Merchants’ Association, January,
1906, Governor Folk said: “One of our greatest evils is the domination
of public affairs by our great corporations, and we will never get rid
of corporation dominance till we get rid of the free pass. That is the
insidious bribe that carries our legislators over the line of probity.
First seduced by the free pass, destruction is easy. No legislator has a
right to accept a free pass; no more right than to accept its equivalent
in money.” Even the laws against the free pass, Governor Folk says,
often play into the hands of the railways and emphasize and fasten
corruption upon the State by putting legislators and officials at the
mercy of the railroads in consequence of the fact that the taking of a
pass is a violation of law, so that the railway has a special hold upon
the donee as soon as the favor is accepted. This is likely to be the
effect unless the law is so thoroughly enforced as to prevent the taking
of passes, which is very difficult and very seldom achieved.
Governor Folk is doing his best to abolish the pass evil. It used to be
a common thing for officials of all grades to ride on passes. And any
influential person in Jefferson City could get a pass by seeing a member
of the House or Senate, who would send a note to Colonel Phelps and a
pass would be forthcoming. Now the legislators decline to accommodate
their friends by making these little requests, for the matter might come
to the ear of Governor Folk. Moreover the government employees in
Missouri have been cut off from these railroad “courtesies.” The statute
does not apply to appointive officers, but the Governor does not intend
that his department shall be honeycombed with railroad influence if he
can help it. One of the officers of a subordinate branch of the
government went to him and asked him about the matter. “I do not want a
pass for myself,” said the interrogator, “but Mr. W. told me that he
would like for me to see you before he accepted a pass and see if you
had any objections. And I want to add, Governor, that it has always been
the custom for the employees in this department to use free passes.”
Governor Folk’s countenance lost its smile for the moment, as he said
very slowly and sternly: “Tell the employees of your department that if
any of my appointees ride upon railway passes they will be instantly
discharged.”
These insidious bribes in the guise of courtesy and honor for
position—these free passes which Governor Folk denounces as the first
steps to corruption—are prevalent in all our States. Even in honest old
Maine, the frosty forest State, I found the railroad pass in full bloom.
Speaking to a joint committee of the House and Senate at Augusta a few
months ago, I exhibited a number of photographs of passes given to
legislators and councilmen by one of our big railroads. The members
examined these photos with much interest and some facetious remarks. On
the way into town a famous lobbyist who has long and close acquaintance
with the legislature of Maine laughed till the tears ran down his cheeks
over the memory of the scene, puffing out between his explosions the
explanation of his merriment: “Every one of those fellows has a railroad
pass in his own pocket.” Inquiry in other directions tends to confirm
his statement.
It is hardly possible to imagine that the ordinary legislator or judge
can be entirely impartial in reference to a railroad bill or suit when
he is under obligation to the railroads for past favors and hopes for
similar courtesies in the future.
When a judge finds that jurors in a railroad case have accepted passes
from the railroad he discharges the jurors as unfit for impartial
service,[5] yet that same judge may have in his pocket an annual pass
over all the lines of the road that is plaintiff or defendant in the
case.
Some railroad presidents and managers have told me that passes are given
as mere courtesies and are not intended to influence the conduct of
officials. This may be true in some cases, but as a rule the railroads
do not give charity; but expect favor for favor, and value for value, or
multiplied value for value. Railroad men have sometimes admitted to me
that the psychology of the pass is closely related to that of the bribe,
and that they sought and obtained political results from the
distribution of transportation favors. And aside from such admissions
the evidence on the facts is overwhelming.
A prominent judge who had been on the bench for years in one of our best
States and had always received passes from various railroad companies,
found at the beginning of a new year that one of the principal railroads
had failed to send him the customary pass. Thinking it an oversight he
called the attention of the railroad’s chief attorney to the fact.
“Judge,” said the lawyer, “did you not recently decide an important case
against our company?” “And was not my decision in accordance with law
and justice?” said the judge. The attorney did not reply to this, but a
few days later the judge got his pass. After some months it again became
the duty of the judge to render a decision against the company. This
second act of judicial independence was not forgiven. The next time he
presented his pass the conductor confiscated it in the presence of many
passengers and required the judge to pay his fare.
The railroad commission in one of our giant States says the fact “that
for the most part passes are given to official persons for the purpose
of influencing official conduct, is made manifest by the fact that they
are not given to such persons except while they hold official
positions.”[6]
The president of an important railroad is stated to have said that he
“saved his company thousands of dollars a year by giving annual passes
to county auditors.” And a man who had been auditor for many years said
that the taxes of the —— railroad company were increased about $20,000 a
year because it was so stingy with its passes.[7]
Members of legislatures and of Congress have told me that after voting
against railroad measures the usual passes were not forthcoming.
A little while before the introduction of the rate legislation now
pending, in pursuance of President Roosevelt’s regulative policy, a
congressman from the Far West was visiting with us. He had free
transportation for himself and family anywhere in the United States any
time he wanted it. A lady in the family asked him if it was the same way
with the rest of the congressmen, and he said “Yes.” I have in my notes
conversations with senators and representatives from eighteen States,
and all of them stated, in reply to my questions, that passes were an
established and regular part of the perquisites of a member of Congress.
But since the Esch-Townsend bill for the fixing of rates by a government
commission came on deck, I understand that the congressmen who supported
it are learning the lesson conveyed in the pass-denying letter above
quoted, as some of the railroads are refusing all the requests of such
congressmen for free transportation. The president of one of these
railroads is reported to have said: “I never was in favor of granting
political transportation, and now I have a good opportunity to cut off
some of these deadheads. Transportation has been given them in the past
on the theory that they were friends, but when we needed friends they
were not there.”
This, however, is only a passing phase—an emergency measure to punish a
few congressmen who have shown so little appreciation of the right of
the railroads to make the laws affecting transportation, that they
actually voted for what they deemed right or for what the people
desired, rather than for what the railroads wanted.
Aside from such little eddies, the great stream of dead-headism flows on
as smooth and deep as ever. The people take the thing so much as a
matter of course that it has been a constant cause of surprise to
passengers on the New York, New Haven, and Hartford Railroad to see
Governor Douglas pay his fare day by day as he travelled to and fro on
an ordinary commutation ticket.
A prominent judge of Chicago tells me that for years the leading
railroads entering that city have sent him annual passes without
request. I found the same thing in Denver, San Francisco, New York,
Boston, and nearly everywhere else I have been in this country. The
mayor of one of our giant cities told me this very morning that the
principal railroads sent him annuals but he returned them. It would be
better if he would turn the next lot over to a publicity league or put
them in a museum.
In many cases the railroads are practically forced to give passes. A. B.
Stickney, President of the Chicago and Great Western Railroad was asked
by the Industrial Commission[8] about the giving of passes to members of
the judiciary of Minnesota and Illinois. President Stickney said, “If
any of them ask for transportation, they get it; we don’t hesitate to
give to men of that class if they ask for passes; we never feel at
liberty to refuse.”
“Is there any good reason why a judge who gets a good salary should have
a pass—any greater reason than why John Smith should have a pass?”
“That depends,” said President Stickney, “on what you call a good
reason.... Twenty-five years ago I had charge of a little bit of a road
that was a sort of subordinate of a larger road.
“I had occasion to visit the president of the superior road about
something, and he said: ‘Mr. Stickney, I see that the sheriff of this
county has a pass over your road. I should like to know on what
principle you gave that sheriff a pass.’
“‘I did it on the principle that he was a power, and I was afraid to
refuse him,’ I said.
“‘Well,’ said he, ‘I refused him.’
“‘You will wish you hadn’t before the year is over,’ I replied.
“Sometime afterwards, and during the year, I went into the office to see
the superintendent, but he was not in; I went into the general freight
agent’s office, and he was not in; I went into the general manager’s
office, and he was not in. So I then went into the office of the
president and said, ‘What kind of a road have you got? Your
superintendent is not here, your general freight agent is not here, and
your general manager is not here.’
“He hung his head down and said: ‘Do you remember that conversation we
had about that sheriff’s pass? He’s got all those men on the jury and
has got them stuck for about two weeks.’”
Q. “That answer seems to indicate that railroads would be afraid to
refuse for fear of the penalties?”
A. “I think the railroads find there is a class of men that it is to
their interest not to refuse if they ask for passes.”
Van Oss says that at one time in this country half the passengers rode
on passes.[9] That seems incredible. There is no doubt, however, that
the pass evil was enormous before it was checked by State and Federal
legislation, and still prevails to an astonishing extent. Six years
after the Interstate Act prohibited all preferences, and twenty years
after the State crusade against passes and other discriminations began,
C. Wood Davis, a railway auditor of large experience, and an executive
officer having authority to issue passes, stated that “ten percent of
the railway travel of this country is free, the result being that the
great mass of railway users are yearly mulcted some $33,000,000 for the
benefit of the favored few. No account of these passes is rendered to
State, nation, or the confiding stockholders.”[10] If ten percent still
ride deadhead, as is quite probable, the resulting tax upon paying
railway users is now over $50,000,000 a year. The effect of legislation
has been to give the railways an excuse for shutting off the less
influential of the former deadheads, while the big people ride free in
spite of the law.[11]
The Hon. Martin A. Knapp, Chairman of the Interstate Commerce
Commission, says: “A gentleman told me that on one occasion he came from
Chicago to Washington along in the latter days of November, and every
passenger in the Pullman car, besides himself, was a member of Congress
or other Government official, with their families, and that he was the
only passenger who paid a cent for transportation from Chicago to
Washington, either for his passage or for his Pullman car.”[12]
Paul Morton says: “Passes are given for many reasons, almost all of
which are bad.... Passes are given for personal, political, and
commercial reasons.”[13]
Big shippers and their agents get them as a premium on or inducement to
shipments over the donating railroad. When we went to the St. Louis
Exposition we had to pay our fare, but the shipping manager of a large
firm I have in mind was given free transportation for himself and
family, though he was abundantly able to pay. In fact, those best able
to pay ride free, while the poor have to pay for the rich as well as for
themselves.
One way in which the railway managers evade the Interstate Commerce Law,
in giving passes to large shippers and others, is to designate the
recipients as employees of their own or other companies.[14]
President Stickney, of the Chicago and Great Western Railroad, said in a
recent address before the Washington Economic Society:
“The law which makes it a misdemeanor for any individual not an officer
of a railway company to use a pass was enacted by Congress and approved
by the President 18 years ago, and as an individual rule of action it
was ignored by the congressmen who passed it and by the President who
approved it; and subsequent congressmen and presidents, with rare
exceptions, have ignored its provisions. Travelling, they present the
evidence of their misdemeanor before the eyes of the public in a way
which indicates no regard for the law. The governors of the States, many
of the judges,—in short, all officialdom from the highest to the
lowest,—the higher clergy, college professors, editors, merchants,
bankers, lawyers, present the evidence of their misdemeanor in the same
manner.”
As we shall see presently, there are other forms of passenger
discrimination, such as the free private car, the rate war, etc.
But neither of these nor the selling of tickets below the normal rates
through scalpers, constitutes so inequitable or dangerous a form of
discrimination as the pass system. As Hadley says: “The really serious
form of passenger discrimination is the free-pass system. It is a
serious thing, not so much on account of the money involved, as on
account of the state of the public morals which it indicates (and
develops). When passes are given as a matter of mere favoritism, it is
bad enough. When they are given as a means of influencing legislation,
it is far worse. Yet this last form of corruption has become so
universal that people cease to regard it as corrupt. Public officials
and other men of influence are ready to expect and claim free
transportation as a right. To all intents and purposes they use their
position to levy blackmail against the railroad companies.”[15]
Other leading countries are not afflicted with this pass disease to any
such extent as we are; some of them do not have the malady at all. In
France and Italy I was offered passes, but the government roads of
Austria, Germany, and Belgium not only did not offer passes, but refused
to grant them even when considerable pressure was brought to bear.[16]
The Minister of Railways in Austria informed me that he had no pass
himself, but paid his fare like any ordinary traveller. No amount of
personal or official pull could secure free transportation. The same
thing I found was true in Germany. Only railway employees whose duty
calls them over the road have passes. The Minister pays when he travels
on his own account. And the Emperor also pays for his railway travel. It
is the settled policy of government roads in all enlightened countries
to treat all customers alike so far as possible, concessions being made,
if at all, to those who cannot afford to pay or who have some claim on
the ground of public policy: as in South Africa where children are
carried free to school; in New Zealand, where men out of work are taken
to places where they may find employment, on credit or contingent
payment; and in Germany and other countries, where tickets are sold at
half price for the working-people’s trains in and out of the cities
morning and night.
Even in England, though the roads are private like ours, the
working-people have cheap trains, and public officials pay full fare.
The King of England pays his fare when travelling, and if he has a
special train he pays regular rates for that too. Members of Parliament
also and minor public officers pay for transportation. Passes are not
given for political reasons. The law against this class of
discriminations is thoroughly enforced. But in this country not only
members of Congress and other public officials, but some of our
presidents even have subjected themselves to severe criticism by
accepting free transportation in disregard of Federal law.
CHAPTER III.
PASSENGER REBATES AND OTHER FORMS OF DISCRIMINATION IN PASSENGER
TRAFFIC.
In addition to the passengers who travel free on passes, there are many
who have free transportation in other forms. One method of favoritism is
the payment of rebates, which are in use in the passenger departments as
well as in the freight departments of our railroads. Passenger rebates
are repayments of a part or the whole of the amounts paid by favored
parties for tickets or mileage. For example, large concerns that employ
travelling men buy ordinary passenger mileage books, and when the
mileage is used the cover of the book is returned to the railroad and a
refund is made.[17] In the investigation of the Wisconsin railroads,
instituted by Governor La Follette in 1903, it was found that every
railroad of importance in the State had been paying passenger rebates in
large amounts every year for the whole six years that were covered by
the search. From 1897 to the end of 1903 the Chicago, Milwaukee and St.
Paul refunded $170,968 in passenger rebates, the Chicago and
Northwestern refunded $614,361; adding the Chicago, St. Paul,
Minneapolis and Omaha, the Wisconsin Central, and the “Soo Line,” the
total passenger rebates paid by the five roads named in the said time
was over $972,000.
In the case of some favored shippers in Wisconsin it was found that the
railroads secretly refunded the entire original cost of the mileage
books bought by the said shippers for themselves or their agents, or $60
per book. So that these favored houses “were able to send out their
entire force of travelling men without paying one cent of railroad fare,
while their competitors paid full fares.”
One of these Wisconsin concerns, the Northern Grain Company, received
from the Northwestern Railroad alone $151,447 rebates in five years, or
over $30,000 a year, partly as refunds on the passenger mileage books of
their travelling men and partly as cash rebates on their business. The
president of the Northern Grain Company is O. W. Mosher, who was a State
senator in 1901 and 1903 and fought the railroad reforms proposed by
Governor La Follette. He vigorously defended “individual liberty” and
the right of the railroads to “control their own property,” and it is
easy to understand his earnest opposition to railroad regulation since
it has come out that “individual liberty” and railroad _laissez faire_
meant $30,000 a year to his company.
_The Deadhead Passenger Car._
Along with the less-than-carload lots of deadheads travelling on trip
passes or annual passes, or transportation with a rebate attachment,
there are carload lots going deadhead in private passenger cars.
In a tour to the Pacific coast and back a score of private cars at
different times were attached to the various trains I was on. A friend
who went a year or so later counted nine private cars on his journey in
California, four of them being attached to the same train at the same
time, and in the whole 9000 miles he travelled the total number of
private cars ran up to 54. Any trust or railroad magnate or governor of
a State may have a private car with his retinue, while the lesser
deadheads ride in the ordinary cars or Pullman coaches; and the common
people pay for it all.
_Ticket Scalping._
For many years the railroads aided and abetted the ticket scalpers,
paying commissions on the sale of tickets,[18] or making arrangements so
that scalpers could get tickets from the railway offices for less than
the regular prices. Railroad offices have been known to sell tickets
systematically to scalpers at 33, 50, and 66 percent off, or ⅔, ½, and ⅓
of the regular rates. The scalper shared the discount with the
passenger, and the railway prevented some other line from getting the
traffic.
In some cases scalpers induced conductors not to cancel tickets taken
up, so that they could be resold in the scalping offices, the profits
being divided with the conductors. In 10 States where statutes were
passed against scalping, the brokers and the railroads practically
nullified the law. And by collusion with these brokers the railroads
secretly violated the Interstate Commerce Act.
A mass of facts upon this subject appears in the expert testimony pro
and con before committees of both Houses of Congress, notably in
January, 1898. It was shown that at that time 346 newspapers,
substantially all the railway and steamship passenger lines of the
United States, the laws of 10 States, the long example of Canada, the
resolutions of numerous national, State, and mercantile associations,
the resolutions of the railway commissioners of 19 States, the insistent
and repeated views of the Interstate Commerce Commission, the lesson
taught by every other railway country of the earth, the due protection
of the large organizations to whom special fares are granted and of the
railways granting them, the due observance of law, and the best moral
sense of all the commercial world, were all arrayed on the honest side
of every phase of this question. Ticket brokerage was defended by not
over 3 railroads and 560 ticket brokers. The two organized bodies of
scalpers, the American Ticket Brokers’ Association and the Guarantee
Ticket Brokers’ Association, stood behind the scalping business.
George R. Blanchard, former commissioner of the Joint Traffic
Association, says in his testimony before the United States Industrial
Commission (IV, 623): “There are two organized bodies of scalpers: the
American Ticket Brokers’ Association and the Guarantee Ticket Brokers’
Association. They have their directors, officers, and agents, rules and
regulations, and they adopt resolutions and discuss and decide questions
of cut fares.”
One railroad president told me that most of the tickets the scalpers
sold they got directly from the railroads. Another railroad president
has given similar testimony before the Industrial Commission, and also
stated that he did not believe the railroads could stop the scalping
trade in unused tickets.[19]
This method of discrimination has, however, received a serious setback
so far as railway collusion is concerned. The presidents of the leading
railroads have agreed with each other to support the law, and scalping
is a more limited profession than it formerly was. In fact, a much
larger claim than this is made by some. In going over this year the
materials I have collected on the subject, I came upon the statement
that “scalping has been practically abolished.” I put up my pen and went
down town to see. I found on Washington Street (Boston), in the
ticket-office district, a man with “Cut Rates” printed in large letters
on his back. The same sign was above a door near by, and on the
stairway. I went up.
“What will it cost me to go to Chicago?” I asked.
“I can give you a ticket for $12 if you are going within a few days.”
“Suppose I don’t go for a month or two?”
“Well, I can give you a $15 rate most any time.”
“First-class?”
“Yes.”
“Over what route?”
“The Boston & Maine and Grand Trunk.”
“What can you do over the Boston & Albany?”
“I’ll give you transportation on that route for $18.”
“Will that be first-class?”
“No.”
“Tourist?”
“Yes.”
“Do you have the $12 tickets often?”
“Sometimes; but I can give you a $15 rate any time.”
I went to the railway ticket offices and learned that the fare from
Boston to Chicago by the Boston & Maine and Grand Trunk was $18
first-class, and $17 tourist; by the Boston & Albany $22 first-class,
and $19 tourist, and through New York $25.
It is clear, therefore, that scalping is not a lost art. The regular
one-price ticket agents say that the cut-rate business is still in
flourishing condition. It may be that railway offices no longer act with
scalpers to evade the law, but when a scalper says he will give you a
first-class ticket (worth $18 at the depot) for $15 any time you want
it, it looks as though he had some pretty certain source of supply. One
scalper here, I am told, is the brother of the advertising manager of a
monthly magazine. Railroads advertising in the magazines pay in tickets
and the manager turns these tickets over to the scalper. The same thing
is done in New York and Chicago, and probably in other places. Scalpers
also get unused portions of excursion and other tickets. And perhaps
some of the railways are still in direct collusion with scalpers. Every
freight pool or agreement to prevent cutting freight rates that was ever
made was broken by some railroad secretly cutting prices, and it may be
that an agreement to maintain fares is not safe against secret cutting
either.
One of the most peculiar things about scalping is that, unlike other
forms of discrimination, its benefits go to the poor man instead of the
rich man. It is the only kind of discrimination that gives the poor man
any comfort or tends to diffuse wealth instead of concentrating it. In
this one case the rich help to pay for the poor man’s transportation; in
all other cases the poor man and the man of moderate wealth help to pay
for the service the rich man gets. Perhaps this partly explains why it
is that many railroads have taken a more decided stand against this
abuse than against any other in the long list of evils that afflict
transportation in this country.
CHAPTER IV.
FREIGHT DISCRIMINATION.
We come now to a kind of discrimination that enables a railway manager
to determine which of the merchants, manufacturers, mine owners, etc.,
on his line shall prosper and which shall not; what cities and towns
shall grow, what States shall thrive, what industries shall be
developed.
The purpose of discrimination may be (1) to keep business from going to
a competing line; (2) to increase revenue by creating new business for
which, if necessary, rates may be dropped very low, as anything above
the cost of handling on new business will add to income; (3) to simplify
and solidify traffic; (4) to favor persons who, through political
influence or other power may aid or injure the road, or who, through
friendship, marriage, business or civic relation, or otherwise, have a
“pull” with the management; (5) to advance the interests or enhance the
value of a business, or property, or place, in which the railway or its
officers or their friends are interested; or (6) to kill or injure a
place or person or business that has incurred the enmity of the railways
or their allies.
As a result of the play of these motives our railroad history is full of
unfair discriminations between persons, places, and industries in the
United States, and between domestic and foreign trade. The methods and
forms are many and have grown more numerous with each succeeding epoch,
but the predominant forms vary in the different strata. We still have
plenty of living specimens of the species that prevailed in earlier
periods, but the leading forms now are comparatively recent evolutions.
The history of discriminations would fill many volumes. The Hepburn
Committee (1879) appointed by the New York Legislature collected about
5000 cases of discrimination. It was shown to be a common thing for
railroads to give favored shippers discounts of 50, 60, 70, and even 80
percent from the regular rates. The special contracts involving favors
in force for one year on a single railroad, the New York Central, were
estimated at 6000. The United States Senate Committee of 1885, the
Congressional Committee of 1888, the Interstate Commerce Commission,
1887–1905, the United States Industrial Commission, 1900–1902, the
Wisconsin investigation in the fall of 1903, the United States Senate
Committee of 1905, the State railroad commissions, the courts, and other
investigating bodies have brought to light additional thousands of
discriminations. We shall select some examples illustrating various
methods of discrimination.
CHAPTER V.
THE EARLY YEARS, HEPBURN REPORT, ETC.
One of the discriminations most complained of in early years was the
charging of lower rates for a long haul than for a short haul on the
same line—less for the whole than for a part.
For example, the rate from New York to Ogden was $4.65 per hundred,
while $2.25 per hundred carried the same freight all the way from New
York to San Francisco. The railroads charged more if the car stopped
part way than if it went on to the Pacific,—more than twice as much, in
fact, for the part haul as for the full distance, so that the extra
charge for not hauling the car on from Ogden to Frisco was greater than
for hauling it the entire distance from ocean to ocean. They seemed to
be willing to take off half for the privilege of hauling the car another
1000 miles. These methods are still in practice.
The C. B. & Q. hauled stock from points beyond the Missouri River to
Chicago for $30 a car, while charging $70 a car on much shorter hauls to
points in Iowa. The Northern Pacific charged twice as much from New York
to points a hundred miles or more east of Portland, as from New York
clear through to Portland. Freight was shipped from New York State to
Council Bluffs and then back to Atlantic, Iowa, 60 miles west of Council
Bluffs on the Rock Island, for less than the charge direct to Atlantic.
From Chicago to Kankakee, 56 miles, the Illinois Central charged 16
cents per cwt. for fourth-class goods, while it carried the same goods
to Mattoon, 116 miles farther on, for 10 cents per cwt. The grain rate
on the Pennsylvania Railroad from Chicago to Pittsburg was 25 cents in
1878, while the same road would carry the grain clear through from
Chicago to New York for 15 cents. Glassware paid 28 cents a hundred from
Pittsburg to Chicago, and only 14 cents from Philadelphia to Chicago,
half the rate for nearly double the distance. A tub of butter from
Elgin, Ill., to New York, 1000 miles, paid 30 cents, while the freight
on the same tub from points 165 miles out of New York City was 75 cents.
The railways put the farmers of Western New York further from market
than their competitors in the West. By such arrangements as this it was
claimed the railroads had caused a depreciation of $400,000,000 in the
value of improved lands in New York, Pennsylvania, New Jersey, Maryland,
and Delaware, while the area of improved lands in those States had
increased 4,500,000 acres.[20]
The evils of unjust rates and railway favoritism for persons and places
were earnestly discussed in the press, and in State legislatures, and in
Congress. One of the examples of discrimination that caused much
discussion in Congress was the Winona case. Cotton paid $1 a bale from
Memphis to New Orleans, 450 miles; from Winona to New Orleans, 275
miles, travelling possibly in the same train with the Memphis bales, the
rate was $3.25 per bale. Another example adduced in Congress was the 75
cent rate from New York to New Orleans, while points half way paid $1.00
for the same service.
_The Granger Laws._
In the early seventies (1872 and following years), Iowa, Nebraska,
Minnesota, Kansas, and other States of the Middle West passed what are
known as the “Granger laws,” fixing maximum rates and forbidding
discriminations. Railroad commissions were also established in these
States to control the roads, and it was hoped that these commissions,
which grew out of the Granger agitation and were to represent the public
interest and the people’s sovereignty in their relations with the
railways, would be able to diminish greatly and perhaps abolish unjust
discriminations. In this hope, however, the people were disappointed.
Speaking of this experience Governor Larrabee of Iowa said in 1893:
“Every year seemed to add to the grievances of the public. Success
greatly emboldened the railway companies. Discriminations seemed to
increase in number and gravity. At many points in the western part of
the State freight rates to Chicago were from 50 to 75 percent higher
than from points in Kansas and Nebraska. A car of wheat hauled only
across the State paid twice as much freight as another hauled twice the
distance from its point of origin to Chicago. Minnesota flour was hauled
a distance of 300 miles for a less rate than Iowa flour was carried 100
miles. Certain merchants received from the railroad companies a discount
of 50 percent on all their freights, and thus were enabled to undersell
all their competitors. The rate on coal in carload lots from Cleveland,
Lucas County, to Glenwood was $1.80 per ton, and from the same point to
Council Bluffs only $1.25, although the latter was about thirty miles
longer haul. Innumerable cases of this kind could be cited. There was
not a town or interest in the State that did not feel the influence of
these unjust practices.”
_The Hepburn Investigation._
This most famous and enlightening investigation of the early period was
that of the Hepburn Committee of New York in 1879. The committee found
that many shippers were paying two or three times, and in some cases
five times, the rates paid by their rivals.
William H. Vanderbilt told the committee that, as a rule, all large
shippers who asked for special rates got them. Among the men his road
had helped to build up by special rates was A. T. Stewart, the great
dry-goods merchant of New York. He had a rate of 13 cents from his
factories over the New York Central to New York, while small concerns
paid 20 to 40 cents for this same service. A big dealer in cotton cloth
had a 20 cent rate, while others paid the regular 35 and 40 cent rate.
Five grocery firms in Syracuse had a flat 9 cent rate instead of the
published tariff of 37, 29, 25, and 18 cents, according to the class of
goods. Four Rochester firms had a special rate of 13 cents against the
regular tariff of 40, 30, 25, and 20 cents. Five firms at Binghamton and
five at Elmira had rates from ⁵⁄₉ to ⅓ of the tariff. Three Utica
dry-goods merchants had a rate of 9 cents and another had a rate of 10
cents, while the regular rates which the outside public paid were 33,
26, and 22 cents, according to class. Soap shipped by B. of New York to
C. of Syracuse cost 12 cents freight per box if the freight was paid by
the shipper in New York, but only 8 cents a box if the freight was paid
by the consignee in Syracuse.
A report of the Erie Railroad showed 34 cases of special cut rates, and
a New York Central report showed 33 examples. The books of the Central
showed 6000 special rates granted during the first 6 months of 1880.
About 90 percent of the Syracuse business and 50 percent of the entire
business of the road was done on special rates.[21] It had given special
rates to individuals and firms at 22 points on its line between Albany
and Buffalo. The specials generally went down to about ⅓ of the
scheduled rates to the same place, but in Syracuse a special agreement
was unearthed in which the rate was so emaciated as to be only ⅕ of the
size of the regular rate on first-class goods to which it applied.
The committee also found the long-haul discrimination in full bloom.
Flour went from Milwaukee to New York for 20 cents, while the charge
from Rochester to New York was 30 cents. On some goods the rate from New
York to Syracuse, 291 miles, was 10 cents; New York to Little Falls, 217
miles, 20 cents; New York to Black Rock, 445 miles, 20 cents also.
Syracuse must have had a strange fascination for the railroad men, to
keep them from making a lower rate from the point 400 miles away than
from the point 200 miles away, for they love long hauls. Goods were
shipped from Rochester to New York and then from New York back over the
same road through Rochester to Cincinnati more cheaply than they could
be sent direct from Rochester to Cincinnati. W. W. Mack, a Rochester
manufacturer, testified that he saved 14 cents a hundred in this way,
and that he saved 18 cents a hundred in his St. Louis business in the
same way. In both these cases the railroad company carried the goods 700
miles farther than the direct course for a charge considerably less than
for the direct haul.
Butter was carried from St. Lawrence Co., N. Y., to Boston for 60 cents
a hundred, while the rate from nearer stations was 70 cents, 80 cents,
and even 90 cents at St. Albans, Vt., increasing as the distance
decreased. The railroads appear to recognize the fact that happiness
consists in the exercise of the faculties, and they wish to exercise
their faculties to the utmost by securing long hauls even though the
long rate may not leave nearly so much profit as the rate for the short
haul.
Some of the worst discriminations of the early years were those
connected with the oil business.[22] In 1872 the Oil Combine (then
called the South Improvement Co.) secured a secret agreement from all
the railroads running into the oil regions, first, to double freight
rates on oil; second, not to charge the S. I. C. the increase; third, to
pay the S. I. C. the increase collected from all other shippers. The
rate to Cleveland was to be raised to 80 cents, except for the S. I. C.,
which continued to pay 40, and would receive 40 of the 80 paid by any
one else. The rate to Boston was raised to $3, and the S. I. C. would
receive $1.32 of it. The Combine was to have 40 cents to $1.32 a barrel
rebate not only on their own oil which constituted only one-tenth of the
business, but on all the oil their competitors shipped, so they would
get $9 in rebates for every dollar they paid in freight. The S. I. C.
were to receive an average of $1 a barrel on the 18,000 barrels produced
daily in the oil regions. The rates were raised as agreed, but the
excitement in the oil regions was so intense that mobs would have torn
up the tracks of the railways if Scott and Vanderbilt and the rest had
not telegraphed that the contracts were cancelled, and put the rates
back. But some of the contracts afterwards came into court, and had not
been cancelled at all. In 1874 the roads began gradually to carry out
the plan that had been stopped by popular excitement in 1872.
In 1874 the Oil Combine had on some lines 10 different transportation
advantages over its competitors, _i. e._, 49 cents direct rebate per
barrel of refined oil, 22 cents rebate on crude-oil pipeage, 8½ percent
of refined oil carried free (due to the method of calculating crude and
refined equivalents), 13 cents a barrel advantage through possession of
the railroad oil terminal facilities, 15 percent of by-products carried
free, a rate to New York 10 cents a barrel less than the published rate
on refined oil, and 15 cents on crude oil, exclusive use of tank cars,
underbilling of carload weights, twenty thousand lbs. often for cars
containing forty thousand or even sixty thousand lbs. of oil, or a lump
sum per car regardless of excess weight, and a mileage payment from the
railroads on the tank cars amounting in itself to a large rebate.
Nearly all the refineries of the oil region and of Pittsburg passed by
sale or lease into the hands of the Combine in 1874–5.
W. H. Vanderbilt, and other prominent railroad men were stockholders in
the Standard.
Frank Rockefeller, brother of John D., testified before a congressional
committee July 7, 1876, that he believed Tom Scott, W. H. Vanderbilt,
and other big railroad men shared in the oil rebates.
The New York Central and the Erie sold their terminal facilities for
handling oil to the Standard Oil Co., thereby making it practically
impossible for the roads to transport oil for the competitors of the
Trust. The Pennsylvania Railroad also, under compulsion of a rate war,
made a deal with the Standard by which the latter acquired the oil cars,
pipe lines, and refineries of the Empire Company, a creature of the
Pennsylvania Railroad.[23]
Vanderbilt told the Hepburn Committee, August 27, 1879, that “if the
thing kept on the oil people would own the roads.”
After the Pennsylvania fought the Standard in 1877 and lost, the Combine
paid 11 cents net freight (after deducting rebate) on each barrel of oil
to New York, while its competitors paid $1.90 per barrel,[24]—a
discrimination of 1600 percent by means of exclusive tank cars and rate
arrangements. The trunk lines would not furnish competitors of the
Standard with tank cars nor give them rates and conditions that would
allow them to use their own tank cars.
The independents had to sell their tank cars or side-track them, because
the Oil Combine prevented the railroads from giving them practical
terms. At times when oil could have been shipped by the independents
they could not get cars, though hundreds were standing idle on the
switches.
So the independents had to ship their oil in barrels, paying a higher
rate than on tank oil, and paying not only on the oil, but on eighty
lbs. of wood in the barrel, making four hundred lbs. per barrel instead
of three hundred twenty lbs. per barrel by tank.
Josiah Lombard of New York, the largest independent refiner of oil at
the seaboard, testified as follows before the Hepburn Committee June 23,
1879:
“Tom Scott, President of the Pennsylvania Railroad Co., was questioned
whether we could have, if there was any means by which we could have,
the same rate of freight as other shippers got, and he said flatly,
‘No.’
“And we asked him then, if we shipped the same amount of oil as the
Standard, and he said, ‘No.’
“We said that ‘if they had not sufficient cars to do the business with
we would put on the cars.’
“Mr. Scott said that they would not allow that, and said that ‘the
Standard Oil Co. were the only parties that could keep peace among the
roads.’”
Cassatt, Vice-President, confirms the above and adds:
“The discrimination would be larger on a high rate of freight than a low
rate of freight;” also admits that the “Standard Oil Co. had some 500
cars full here and at Philadelphia and Baltimore; that he had not
discovered it until recently.”
Mr. Lombard further testified:
“Refineries were thus shut down for want of cars.
“Cassatt threatened, if the independents built the Equitable Pipe Line
or any other lines of pipe [as follows]:
“‘Well, you may lay all the pipe lines you like, and we will buy them up
for old iron.’
“R. C. Vilas, General Freight Agent of the Erie (and brother of Geo. H.
Vilas, Auditor of the Standard Oil Co.), absolutely refused us cars,
saying the Standard Oil Co. had engaged them all.
“J. H. Rutter, General Freight Agent, New York Central, would not
furnish any cars, and also said, ‘We have no terminal facilities now.’”
A. J. Cassatt testified before the New York Committee that in 18 months
the Standard Oil had received rebates amounting to $10,000,000.
In addition to many other advantages enjoyed by the Standard people the
Pennsylvania Railroad in 1878 gave the Combine, through the “American
Transfer Co.,” a “commission” of 20 cents a barrel on all shipments of
petroleum,—not only on their own shipments, but on shipments made by the
independents also. At the same time the New York Central and the Erie
were paying the Standard “commissions” of 20 to 35 cents a barrel on all
the oil shipped over those roads.
At one time the transcontinental lines charged $105 to return an empty
“cylinder” tank car from the Pacific Coast to the Missouri River, while
making no charge to the Standard for returning their “box” tank cars,
each of which contained a cylinder, which, however, was set upright
instead of being placed longitudinally; a distinction without a
difference, but it served to make a discrimination of over $100 a car in
favor of the Trust.
The railroads allowed the Oil Trust to stop its cars and divide up a
tank load at two or more stations, but denied this privilege to the
competitors of the Trust.
The Hepburn Committee reported (1879) that “the Standard Oil Co.
receives rebates from the trunk lines, ranging from 40 cents to $3.07 a
barrel on all oil shipments: That the trunk lines sell their oil-tank
car equipments to the Standard and agree to build no more: That the
Standard controls the terminal facilities for handling oil of the four
trunk lines by purchase or lease from the railroads: That it has frozen
out and gathered in refineries of oil all over the country: That it
dictates terms and rates to the railroads: That the trunk lines have
hauled its oil 300 miles for nothing to enable it to undersell seaboard
refineries not then under its control: That it has succeeded in
practically monopolizing the oil business: That the transactions of the
Standard are of such character that its officers have been indicted, and
that its members decline under oath to give details lest their testimony
should be used to convict them of crime.”[25]
The oily people were able in one way or another to gain ascendency over
all the railroads. “We made our first contract with the Standard Oil
Company,” said Mr. Cassatt, “for the reason that we found that they were
getting very strong, and they had the backing of the other roads, and,
if we wanted to retain our full share of the business and get fair rates
on it, it would be necessary to make arrangements to protect ourselves.”
The Combine used the railroads to ruin its rivals, and did it with a
definiteness and vigor of attack never before attempted, and with a
success that would have been impossible without the use of the railroad
power. An example or two will make the matter clear.
Mr. Corrigan, an oil refiner of Cleveland, became so prosperous in the
seventies that he attracted the attention of the Standard Oil, and in
1877 he began to have trouble. He could not get the crude oil he bought
shipped to Cleveland, nor his product shipped away, with reasonable
promptness. The railroads refused him cars, and delayed his shipments
after they were loaded. And he was driven to lease and finally sell his
works to the Standard, which had no difficulty in getting cars and
securing prompt service.
George Rice became a producer of oil in 1865. A little later he
established a refinery at Marietta, Ohio. In January, 1879, the freight
rates on oil were raised by the railroads leading out of Marietta, and
by their connections. In some cases the rates were doubled, while the
rates from Cleveland, Pittsburg, Wheeling, and other points where the
Combine had refineries, were lowered. The Baltimore & Ohio, the
Pennsylvania, the Lake Shore, and all the other railroads involved, made
the deal in unison, and after a secret conference of railway officials
with the Standard Oil people. The change hurt the railroads, cut off
their business in oil from Marietta entirely, but they obeyed the orders
of the Standard nevertheless.
“What would be the inducement?” the freight agent of the B. & O.
connection was asked.
“That is a matter I am not competent to answer,” he replied.[26]
Rice, finding himself shut off from the West, North, and East, developed
new business in the South, but everywhere he went he was met with new
discriminations, and even refusals in some cases to give him any rates
at all. He could not ship to certain points at any price. In other cases
the oil rates were jumped up for his benefit, and his cars were delayed
or side-tracked by the railroads. Not satisfied with obstructing and in
large part blocking the shipment of refined oil out of Marietta, the
Combine did all it could to cut off Rice’s supply of crude oil from the
wells. It bought up and destroyed the little pipe line through which he
was getting most of his oil. Rice then turned to the Ohio fields and
brought his oil in by rail over the Cleveland and Marietta Railroad.
Under threat of withdrawing its patronage the Combine then compelled the
road to double the rates to Rice and pay over to the Combine
five-sevenths of all the freight the road collected on oil. Rice had
been paying 17 cents a barrel from the oil fields to his refinery. His
rate went up to 35 cents while the Combine paid only 10 and got 25 cents
of each 35 paid by Rice.[27] “Illegal and inexcusable abuse,” said Judge
Baxter when Rice took the case into court; and the Senate Committee was
also emphatic in its condemnation. The case is in line with the whole
history of the railroads in their relations with the Oil Combine, the
remarkable fact in this instance being that the victim had nerve enough
to fight the Combine. He took the facts to the Ohio Legislature, to the
courts, to investigating committees of New York, and Congress, and
rendered a great public service by bringing the ways of the railroads
and the trust to the light of publicity. If all the victims of the Oil
Combine had manifested equal pluck and public spirit, the evil we are
discussing would long since have ceased to exist.[28]
CHAPTER VI.
THE SENATE INVESTIGATION OF 1885 AND THE INTERSTATE COMMERCE ACT.
In 1885 the United States Senate appointed a committee to investigate
railway discriminations, etc., and this committee made one of the ablest
reports that has ever been issued in relation to railway abuses. It
threw a flood of light upon the nature and prevalence of discrimination,
and the reasons for it. On page 7 of this report the committee says that
our efficient service and low rates (low average rates) “have been
attained at the cost of the most unwarranted discriminations, and its
effect has been to build up the strong at the expense of the weak, to
give the large dealer an advantage over the small trader, to make
capital count for more than individual credit and enterprise, to
concentrate business at great commercial centres, to necessitate
combinations and aggregations of capital, to foster monopoly, to
encourage the growth and extend the influence of corporate power, and to
throw the control of the commerce of the country more and more into the
hands of the few.”
On page 40 the committee says: “Railroad companies are not disposed to
regard themselves ‘as holding a public office and bound to the public,’
as expressed in the ancient law. They do not deal with all citizens
alike. They discriminate between persons and between places, and the
States and Congress are consequently called on to in some way enforce
the plain principles of the common law for the protection of the people
against the unlawful conduct of common carriers in carrying on the
commerce of the country.”
On page 188 the following example is given: “One reference to the
testimony must suffice to illustrate the universality of individual
favoritism, the reasons which influence the railroads in favoring one
shipper to the ruin of another, and the injustice of the system. Mr. C.
M. Wicker of Chicago, a former railroad official of many years’
experience, was asked if he knew anything of discrimination upon the
part of the transportation companies as between individuals or
localities, and testified as follows:
“MR. WICKER. Yes; I do. And this discrimination, by reason of rebates,
is a part of the present railroad system. I do not believe the present
railroad system could be conducted without it. Roads coming into this
field to-day and undertaking to do business on a legitimate basis of
billing the property at the agreed rates would simply result in getting
no business in a short time.
“SENATOR HARRIS. Then, regardless of the popularly understood schedule
rates, practically it is a matter of underbidding for business by way of
rebates?
“MR. WICKER. Yes, sir; worse than that. It is individual favoritism, the
building up of one party to the detriment of the other. I will
illustrate. I have been doing it myself for years and had to do it.
“SENATOR HARRIS. Doing it for yourself in your position?
“MR. WICKER. I am speaking now of when I was a railroad man. Here is
quite a grain point in Iowa, where there are 5 or 6 elevators. As a
railroad man I would try and hold all these dealers on a “level keel”
and give them all the same tariff rate. But suppose there was a road of
5 or 6 or 8 miles across the country, and these dealers should begin to
drop in on me every day or two and tell me that the road across the
country was reaching within a mile or two of our station and drawing to
itself all the grain. You might say that it would be the just and right
thing to do to give all the 5 or 6 dealers at this station a special
rate to meet that competition through the country. But as a railroad man
I can accomplish the purpose better by picking out one good, smart, live
man, and giving him a concession of 3 or 4 cents a hundred, let him go
there and scoop the business. I would get the tonnage, and that is what
I want. But if I give it to the five, it is known in a very short
time.... When you take in these people at the station on a private
rebate you might as well make it public and lose what you intend to
accomplish. You can take hold of one man and build him up at the expense
of the others, and the railroad will get the tonnage.
“SENATOR HARRIS. The effect is to build the one man up and destroy the
others?
“MR. WICKER. Yes, sir; but it accomplishes the purposes of the road
better than to build up the 6.
“SENATOR HARRIS. And the road, in seeking its own preservation, has
resorted to that method of concentrating the business into the hands of
one or a few, to the destruction of the many?
“MR. WICKER. Yes, sir; and that is a part and parcel of the system.”
On page 189 the committee says:
“The practice prevails so generally that it has come to be understood
among business men that the published tariffs are made for the smaller
shippers, and those unsophisticated enough to pay the established rates;
that those who can control the largest amounts of business will be
allowed the lowest rates; that those who, even without this advantage,
can get on ‘the inside,’ through the friendship of the officials or by
any other means, can at least secure valuable concessions; and that the
most advantageous rates are to be obtained only through personal
influence or favoritism, or by persistent ‘bulldozing.’
“It is in evidence that this state of affairs is far from satisfactory,
even to those specially favored, who can never be certain that their
competitors do not, or at any time may not, receive even better terms
than themselves. Not a few large shippers who admitted that they were
receiving favorable concessions testified that they would gladly
surrender the special advantages they enjoyed if only the rates could be
made public and alike to all.”
Again, on page 191:
“Universal complaint has been made to the committee as to the
discriminations commonly practised against places, and as to the
conspicuous discrepancies between what are usually termed ‘local’ rates
and what are known as ‘through’ rates.”
In summing up the testimony on pages 180–182 of their report, the
committee presents this tremendous indictment:
“The complaints against the railroad systems of the United States
expressed to the committee are based upon the following charges:
“1. That local rates are unreasonably high, compared with through rates.
“2. That both local and through rates are unreasonably high at
non-competing points, either from absence of competition or in
consequence of pooling agreements that restrict its operation.
“3. That rates are established without apparent regard to the actual
cost of the service performed, and are based largely on what the traffic
will bear.
“4. That unjustifiable discriminations are constantly made between
individuals, in the rates charged for like service under similar
circumstances.
“5. That improper discriminations are made between articles of freight
and branches of business of a like character, and between different
quantities of the same class of freight.
“6. That unreasonable discriminations are made between localities
similarly situated.
“7. That the effect of the prevailing policy of railroad management is,
by an elaborate system of special secret rates, rebates, drawbacks, and
concessions, to foster monopoly, to enrich favored shippers, and to
prevent free competition in many lines of trade in which the item of
transportation is an important factor.
“8. That such favoritism and secrecy introduce an element of uncertainty
into legitimate business that greatly retards the development of our
industries and commerce.
“9. That the secret cutting of rates and the sudden fluctuations that
constantly take place are demoralizing to all business except that of a
purely speculative character, and frequently occasion great injustice
and heavy losses.
* * * * *
“14. That the differences in the classifications in use in various parts
of the country, and sometimes for shipments over the same roads in
different directions are a fruitful source of misunderstandings, and are
often made a means of extortion.
“15. That a privileged class is created by the granting of passes, and
that the cost of the passenger service is largely increased by the
extent of this abuse.
“16. That the capitalization and bonded indebtedness of the roads
largely exceed the actual cost of their construction or their present
value, and that unreasonable rates are charged in the effort to pay
dividends on watered stock, and interest on bonds improperly issued.
* * * * *
“18. That the management of the railroad business is extravagant and
wasteful, and that a needless tax is imposed upon the shipping and
travelling public by the unnecessary expenditure of large sums in the
maintenance of a costly force of agents engaged in the reckless strife
for competitive business.”
The result of this investigation and report was the passage of the
Interstate Commerce Act, in 1887, affirming the common law rule that
carriers’ charges must be reasonable and impartial. Common carriers are
forbidden to give “any undue or unreasonable preference or advantage to
any person, locality, or description of traffic in any respect whatever,
or subject any person, locality or description of traffic to any undue
or unreasonable disadvantage in any respect whatsoever.” “No common
carrier” says Section 2, “shall directly or indirectly, by special rate,
rebate, drawback, or other device, charge or receive from any person
greater or less compensation for any service in the transportation of
passengers or property than it charges or receives from others for a
like and contemporaneous service under substantially similar
circumstances and conditions.” Section 4 makes it “unlawful to receive
more for a shorter than for a longer distance, including the shorter on
the same line, in the same direction, under substantially similar
circumstances and conditions,” except where the Commission created by
the Act shall authorize the carrier to charge less for the longer than
for the shorter distance. Rates must be published and filed with the
Commission, and 10 days’ notice must be given of advances. Any deviation
from the published tariff is unlawful. The Act excepted traffic “wholly
within one State,” and provided that property might be handled free or
at reduced rates for the United States, State, or municipal governments,
or for charitable or exhibition purposes; that preachers might have
reduced rates, and that passes might be given to employees of the road
or by exchange to employees of other roads. The penalty for breach of
the law was made a fine not exceeding $5000 for each offence, and
victims of discrimination, etc., could collect damages.
CHAPTER VII.
THE INTERSTATE COMMISSION.
A strong Commission was appointed, the Chairman being Thomas M. Cooley,
one of the ablest jurists in the country, Chief Justice of the Michigan
Supreme Court, author of “Constitutional Limitations” and other works of
the highest authority. The Commission started with a review of the evils
the Interstate Act was intended to abolish, and entered earnestly upon
the great work of enforcing the law.
The Commission’s statement of the arrangements used by the railways for
discrimination is so admirably clear that a part of it cannot fail to be
useful here.
“These arrangements,” says the Commission, “took the form of special
rates, rebates and drawbacks, underbilling, reduced classification, or
whatever might be best adapted to keep the transaction from the public;
but the public very well understood that private arrangements were to be
had if the proper motives were presented. The memorandum book carried in
the pocket of the general freight agent often contained the only record
of the rates made to the different patrons of the road, and it was in
his power to place a man or a community under an immense obligation by
conceding a special rate on one day, and to nullify the effect of it on
the next by doing even better by a competitor.
“Special favors or rebates to large dealers were not always given
because of any profit which was anticipated from the business obtained
by allowing them; there were other reasons to influence their allowance.
It was early perceived that shares in railroad corporations were an
enticing subject for speculation, and that the ease with which the hopes
and expectations of buyers and holders could be operated upon pointed
out a possible road to speedy wealth for those who should have the
management of the roads. For speculative purposes an increase in the
volume of business might be as useful as an increase in net returns; for
it might easily be made to look to those who knew nothing of its cause
like the beginning of great and increasing prosperity to the road. But a
temporary increase was sometimes worked up for still other reasons, such
as to render plausible some demand for an extension of line or for some
other great expenditure, or to assist in making terms in a
consolidation, or to strengthen the demand for a larger share in a pool.
“Whatever was the motive, the allowance of the special rate or rebate
was essentially unjust and corrupting; it wronged the smaller dealer
oftentimes to an extent that was ruinous, and it was generally
accompanied by an allowance of free personal transportation to the
larger dealer, which had the effect to emphasize its evils. There was
not the least doubt that had the case been properly brought to a
judicial test these transactions would in many cases have been held to
be illegal at the common law; but the proof was in general difficult,
the remedy doubtful or obscure, and the very resort to a remedy against
the party which fixed the rates of transportation at pleasure might
prove more injurious than the rebate itself. Parties affected by it,
therefore, instead of seeking redress in the courts, were more likely to
direct their efforts to the securing of similar favors on their own
behalf. They acquiesced in the supposition that there must or would be a
privileged class in respect to rates, and they endeavored to secure for
themselves a place in it.
“Local discriminations, though not at first so unjust and offensive,
have nevertheless been exceedingly mischievous, and if some towns have
grown, others have withered away under their influence. In some sections
of the country if rates were maintained as they were at the time the
interstate commerce law took effect, it was practically impossible for a
new town, however great its natural advantages, to acquire the
prosperity and the strength which would make it a rival of the towns
which were specially favored in rates; for the rates themselves would
establish for it indefinitely a condition of subordination and
dependence to ‘trade centres.’ The tendency of railroad competition has
been to press the rates down and still further down at these trade
centres, while the depression at intermediate points has been rather
upon business than upon rates.
“The inevitable result was that this management of the business had a
direct and very decided tendency to strengthen unjustly the strong among
the customers and to depress the weak. These were very great evils and
the indirect consequences were even greater and more pernicious than the
direct, for they tended to fix in the public mind a belief that
injustice and inequality in the employment of public agencies were not
condemned by the law, and that success in business was to be sought for
in favoritism rather than in legitimate competition and enterprise.
“The evils of free transportation of persons were not less conspicuous
than those which have been mentioned. This, where it extended beyond
persons engaged in railroad service, was actual favoritism in a most
unjust and offensive form. Free transportation was given not only to
secure business, but to gain the favor of localities and of public
bodies; and while it was often demanded by persons who had, or claimed
to have, influence which was capable of being made use of to the
prejudice of the railroads, it was also accepted by public officers of
all grades and of all varieties of service. In this last case the pass
system was particularly obnoxious and baneful. A ticket entitling one to
free passage by rail was even more effective in enlisting the assistance
and support of the holder than its value in money would have been, and
in a great many cases it would be received and availed of when the offer
of money made to accomplish the same end would have been spurned as a
bribe. Much suspicion of public men resulted, and some deterioration of
the moral sense of the community traceable to this cause was
unavoidable. The parties most frequently and most largely favored were
those possessing large means and having large business interests.
“The general fact came to be that in proportion to the distance they
were carried those able to pay the most paid the least. One without
means had seldom any ground on which to demand free transportation,
while one with wealth was likely to have many grounds on which he could
make it for the interest of the railroad company to favor him; and he
was oftentimes favored with free transportation not only for himself and
family, but for his business agents also, and even sometimes for his
customers. The demand for free transportation was often in the nature of
blackmail, and was yielded to unwillingly and through fear of damaging
consequences from a refusal. But the evils were present as much when it
was extorted as when it was freely given.”[29]
The Commission had plenty to do. Complaints of unreasonable rates and
unjust discriminations between shippers, commodities, and places poured
in upon it, and vigorous decisions against favoritism and excessive
rates poured out upon the railroads. During 1887 and 1888 the Commission
dealt with cases of passes issued in contravention of law,[30]
preferential fares for drummers,[31] commissions on the sale of
tickets,[32] discounts on freight rates to large shippers,[33]
discrimination by combination rates,[34] by preference of tank shipments
of oil,[35] by unfair distribution of cars,[36] by underbilling,[37]
false classifications,[38] commissions to soliciting agents,[39] etc.
Underbilling, false classification, false weighing, and commissions to
soliciting agents were investigated by the Commission in 1888 at New
York, Buffalo, Detroit, Chicago, Omaha, Lincoln, and Washington.[40] All
these methods of discrimination were found widely prevalent, and new
legislation was asked for imposing a penalty on shippers who
fraudulently obtained reduced rates.
When Congress met for the session of 1889 it was believed that the law
had greatly reduced the number of passes issued, straightened out a part
of the long-haul discriminations, and accomplished a good deal in the
way of suppressing rebates, but it was clear that much remained to be
done. In one way or another all over the country secret discriminations
were still being made for the benefit of favored shippers. Congress
therefore in March, 1889, amended the Interstate Commerce Act by adding
to the fine a penalty of two years’ imprisonment in the penitentiary in
case of unlawful discrimination, and pronouncing the same penalties
against shippers and their agents who secure advantage by false billing,
false classification, etc., or by soliciting or otherwise inducing a
railway to discriminate in their favor, or by aiding or abetting any
such discriminations. It was also provided that 3 days’ notice must be
given in case of any reduction of rates, and that homeless and destitute
persons, as well as preachers, might be favored with low fares.
The stringent provision for imprisonment did not prove any more
effective than the milder law that preceded it, less so apparently, for
the following years were flooded with unfair discriminations.[41]
CHAPTER VIII.
EFFECTS OF THE INTERSTATE ACT.
An investigation by the Commission in May, 1889, concerning passes, and
covering 27 railroads, showed that passes were issued freely to
expressmen, telegraph men, press men, managers of excursions, attorneys,
persons contracting with the railroads in consideration of advertising,
shippers, members of legislative bodies, United States, State, and
municipal officers, officials of steamship and steamboat lines, etc.
These passes were chiefly limited to a State, but to some extent were
good for interstate journeys. Of State passes the larger numbers were
issued to members of legislatures and drovers; “complimentaries” came
next, with United States and municipal officers, newspapermen, and
shippers, in the order named.
The Commission said: “The Interstate Commerce Act was intended to end
all the abuses attending free transportation of persons, and to a
considerable extent it has done so. But very largely the carriers,
especially the strong systems, where the abuse has been greatest, have
tried to avoid the law by falling back on State protection, and issuing
passes within the limits of each State. Three of the large railroad
systems, when called on by the Commission to make an exhibit of the
passes issued by them, declined to do so on the ground that the passes
were limited to the bounds of the State, and therefore not within the
jurisdiction of the Commission. If the New York Central and Pennsylvania
railroads can thus issue passes at discretion it is impracticable to
enforce the laws against their competitors.”[42] By issuing to a favored
individual a pass good in Pennsylvania, another good in Ohio, another
for Indiana, another for Illinois, etc., the Pennsylvania Railroad can
give the beneficiary as full freedom of its lines as any interstate pass
could give.
Pass making went merrily on all over the country, with a complaint now
and then to let in the light, but no effective crusade against the
disease. The Boston and Maine, for example, issued passes in Maine, New
Hampshire, Vermont, and Massachusetts, to public officers of the States
and the United States, members of legislatures, and railroad
commissions, agents of ice companies, milk contractors, newspaper men,
etc.[43] The Commission recorded its protest and declared that the
“similar circumstances” of the Interstate Act do not relate to the
social or official position of the passenger;[44] but the pestilence is
beyond the reach of the national board, and after eighteen years of
Federal prohibition our railroad business is still honeycombed with
political and commercial passes, as we have already seen in the second
chapter of this book.
Ticket scalping, “an obvious evasion of the law,” and the payment of
commissions on the sale of tickets in addition to salaries, so that the
brokers were tempted to cut rates dividing their commissions with their
customers, continued in full bloom in spite of the Federal law. The
commissions were $1 from New England points to Chicago; $1 from Chicago
to the Missouri River; and $1 from the river to Denver. In addition to
such definite amounts some roads paid 10 percent on their receipts for
the passage, making a total commission of $4 or $5 or more in some cases
for the sale of a single ticket.[45] “In cases of commissions of only $1
for short distances there may be little or no inducement for the agent
to divide with the passenger, but in cases of cumulative commissions for
long distances the temptation to divide is stronger, and the probability
of abuse is so great that the impropriety of putting the opportunity
before the agent is manifest. It is not unusual for a single company to
pay a sum of $100,000 or even more in a year, and the aggregate entailed
reaches millions of dollars. This money is illegitimately spent; it is
paid in excess of salaries to agents for the purpose of taking business
from competitors, and when competitors all do it, it is difficult to see
how any benefit can accrue from it to any company.”[46]
In 1890 the Commission reported that scalpers were supported by the
railroads. They found 15 scalping offices in Chicago, 9 in Cincinnati,
13 in New York, 7 in Kansas City, etc. In 1895 they found that scalping
“was steadily enlarging in scope and volume.”[47] In 1897 the “vicious
practice” was still in full swing, though New York, New Jersey, and
eight other States had passed stringent laws against it.[48] But it has
now been largely reduced, though by no means abolished, and the
diminution has come, not because the law acquired sufficient vigor to
get itself enforced, but because the railroad presidents combined to
stop the practice, which was recognized to be injurious to railroad
interests.[49]
In respect to other forms of discrimination between passengers the
Commission ordered that rates for groups or parties must not be lower
than the regular fare for one passenger multiplied by the number of
persons in the party,[50] and that although separate cars might be
provided for colored persons, they must have equal accommodations with
white people who pay the same fare.[51]
Turning to freight discriminations, we find that a bewildering mass of
questions and complaints has pressed upon the Commission. It has shown
an earnest desire for justice, and for the most part good judgment, but
it has accomplished comparatively little in the way of stopping unjust
discriminations. Witnesses refused to testify, on the ground that
testimony in respect to rebates and other forms of discrimination might
be used to convict them of crime.
In the Counselman case (142 U. S. 547), Jan., 1892, the U. S. Supreme
Court decided that a witness could not be compelled to testify in regard
to discrimination in which he was involved, since the Federal law made
it a criminal offence to make or benefit by discrimination. Unless the
law exempts the witness from prosecution in consequence of his answers
or in relation to the subject of them, he is not obliged to answer a
question when the answer might tend to incriminate him.[52] Refusal to
answer on such a plea is of course equivalent to confession of guilt. In
this case Counselman, a large grain shipper, had been given rates on
corn some 5 cents less per hundred than the rates paid by others from
Kansas and Nebraska points to Chicago, over the Rock Island, Burlington,
and other railroads. Five cents a hundred is an enormous profit on corn
which the farmer had sold at 18 to 22 cents per hundred, and such a
margin would enable the favored shipper to drive every one else out of
the trade; and on many western roads it has been practically the case
that only the railway officials and their secret partners can do
business. Counselman refused to tell a United States grand jury whether
or no he had had any rebates from the railroads in 1890. He said he had
received none from Stickney’s road, nor from the Santa Fe, had had no
business with the latter, he thought, but as to the Rock Island, C. B. &
Q., etc., he declined to answer on the plea that to do so might
incriminate him.
Some railroad officials testified freely, but neglected to tell the
truth.[53] Discriminations as a rule were secret. Even when it was
clearly known that favoritism was being shown, shippers were generally
afraid to complain, and in the small percent of cases where complaint
and investigation took place it seemed impossible to get at the truth in
any large way, because the railroad men for the most part would not
“cough up” the facts. Still, something was done by the Interstate
Commission, the courts, and the Industrial Commission. Some progress was
made and some light secured. The jets of flame that here and there came
up through the cracks from the under-world showed very clearly what was
going on beneath the surface of railway affairs.
_Direct Rebates._
Direct rebates on interstate traffic appear to have been checked for a
few months after the passage of the Commerce Act, but the railroads
admitted that they still gave rebates on traffic within a State[54] just
as they continued to give passes, making them good within one State,
insisting in respect to both rebates and passes that they had a right to
give them because the law did not reach State traffic. Nevertheless, as
the Commission remarked, such rebates inevitably affect the rates upon
interstate traffic, and a competing road whose traffic is taken a little
further, crossing the state line, may be compelled to give rebates or
surrender important business.
As a matter of fact, discriminating rates and rebates on interstate as
well as State business were soon as much in fashion as ever.[55]
In one small town in the Middle West judgments for nearly $40,000 were
recovered against a railroad for illegal discriminations in that one
town. In some cases the discriminations amount to $40 a car. These cases
were all subsequent to the Interstate Act.
Some years ago the Chief Justice of Kansas declared that the Santa Fe
management preceding the present one was notorious for giving secret
rebates. The president of the road was asked to resign because the
railroad funds were some millions short, due, it is said, to the secret
rebates the company had paid. An expert went over the books and
discovered that some $7,000,000 had been paid in rebates by the Santa Fe
in a few years.
Shippers who would not or could not get rebates or concessions were in
danger of serious loss and perhaps ruin. Mr. H. F. Douseman, for many
years a grain shipper in Chicago, and chairman of the board of trade of
that city, had to go out of business because he would not take the
rebates he might have had. Before 1887 he took rebates of 10 or 15
percent (2 or 3 cents on the cwt.), but after that he refused them.
“Virtue is its own reward,” and Mr. Houseman got his pay in that form.
“I feel that I have been driven out of business because I would not
accept a rebate,” he told the Industrial Commission. “I have never taken
a rebate since the Interstate Law went into effect. I did not propose to
put myself in the shape of a criminal.”[56]
It may be a matter of surprise to many that even one man of this kind
could be found in Chicago. If such virtue were prevalent the enforcement
of law would be easy. Mr. Douseman says that for 6 months after the
Interstate Law was passed no rebates were paid; everybody was on an
equality. “After the first six months, rebates began to be given. At the
end of the first year they were quite frequent, and they have continued
ever since. Prior to 1887 the only time when rates were absolutely
solid, when every one was on the same basis, was when the Vanderbilts
were trying to bankrupt the West Shore road, and rates were down to 12
cents in New York. Everybody then, as I understand, had the same rates.”
The condition of things in 1890 is shown by the reported statement of a
Chicago railroad manager quoted by the Commission. “The situation in the
West is so bad that it could hardly be worse. Rates are absolutely
demoralized, and neither shippers, passengers, railways, nor the public
in general make anything by this state of affairs. Take passenger rates
for instance; they are very low; but who benefits by the reduction? No
one but the scalpers.... In freight matters the case is just the same.
Certain shippers are allowed heavy rebates, while others are made to pay
full rates.... The management is dishonest on all sides, and there is
not a road in the country that can be accused of living up to the
Interstate Law. Of course when some poor devil comes along and wants a
pass to save him from starvation, he has several clauses of the
Interstate Act read to him; but when a rich shipper wants a pass, why,
he gets it at once.”[57]
Complaints and investigations from time to time in subsequent years
showed the continuance of these conditions. For one concern a large
number of cars of corn were carried from Kansas City to St. Louis at 6
cents per hundred lbs. while the tariff was 15 cents.[58] In the traffic
to Chicago one firm shipped all the grain over one road, and another
firm “had the rate” on another line. It was clear that these shippers
had advantages that enabled them to keep other shippers out of the
field.[59]
A wholesale grocery house getting 25 percent rebate on its shipments
established branches in various cities. Through a disagreement with one
of the railroads that thought it was not getting its share of the
business, the rebate enjoyed by one of the branches was withdrawn, and
the branch in that city went out of business. A leading dry-goods firm
declared that so long as it secured a rebate of 25 percent it had no
objection to existing methods of rate-making.[60]
The International Coal Company declared, in a suit against the
Pennsylvania Railroad for damages, that it was driven out of business by
discrimination, its rival receiving rebates of 20 cents per ton in
1898–9 and 10 cents per ton in 1899–1900.
The railroads show a disposition to back each other in disregarding the
law. Mr. McCabe, traffic manager for the Pennsylvania lines west of
Pittsburg, said the Pennsylvania system would stand by any rate made by
its connecting lines.[61]
CHAPTER IX.
SUBSTITUTES FOR REBATES.
Numerous substitutes for the direct rebate were used. In some cases $10
a car was paid on shipments of flour from the Northwest under pretence
of paying for the cost of loading the car above the minimum weight.[62]
Railroads paid 50 cents for the loading of each private stock car, and ¾
of a cent for every mile the car was hauled, loaded or empty. Yardage
was also paid to the car-line for keeping the cattle in its charge in
its own yards, at the rate of 3½ cents per hundred lbs. for all cattle
hauled to its yards. “The amount of these rebates,” said the Commission,
“more than pays the entire cost of the improved stock cars within 2
years, besides covering operating expenses.”[63]
Twenty-six railroad companies operating in the territory extending in
different directions from Chicago, and engaged in the business in which
discriminations by allowances of car-mileage were supposed to exist,
were summoned to make a showing of the allowances paid by each of them
for car-mileage for the different classes of cars furnished by shippers,
car companies, and individuals, or connecting lines. A single railroad
company paid car-mileage to 65 different companies or firms owning cars,
of which number 54 were shippers and the rest fast freights. The
Commission found that the mileage paid on private cars yielded a profit
in many cases of 25 percent, 50 percent, and even more.
“The rates allowed for car-mileage were shown to be as follows: For
ordinary freight cars, a uniform rate of ¾ of a cent a mile; for Pullman
palace cars, 3 cents a mile; for Pullman tourist sleepers, 1 cent a
mile; for ordinary passenger cars exchanged with other companies, 3
cents a mile; for baggage, mail, and express cars exchanged with other
companies, 1½ cents a mile by some roads, and 3 cents a mile by others;
for refrigerator cars used for carrying dressed beef, 1 cent a mile in
some cases, and in other cases ¾ of a cent a mile; for furniture cars,
oil-tank cars, palace live-stock cars, and other cars owned by private
individuals and companies, ¾ of a cent a mile. Some companies pay
mileage on tank cars both loaded and empty, and some only when loaded.
For palace horse-cars no mileage is allowed on some roads, shippers in
such cars paying for the car.
“The cost of the investment in cars, and the amount of mileage allowed
for their use, show that the investment is very profitable. Refrigerator
cars cost from $900 to $1000; private cattle-cars cost about $650;
oil-tank cars about $610; cars used for the transportation of live hogs
about $500; ordinary freight cars from $450 to $500. Repairs on the cars
are made by the railroad company in whose use they are when repairs are
required. The life of a box car averages 15 years, and of a refrigerator
car 8 years.”[64]
“Private cars,” owned by the railroads but chartered for private use,
were the subject of discrimination of another kind. For example, a
commercial salesman travelled with his assistant over the Northern
Pacific in a private car stocked with samples. For the first trip he
paid 15 round-trip fares between St. Paul and Portland, but for
subsequent trips the road charged 15 local fares from point to point
where stoppages were made. As theatrical and other parties in private
cars were usually carried for 15 round-trip fares it was alleged to be
unfair to charge the drummer local rates.[65]
Terminal charges for delivery at certain places were made a means of
discrimination.[66] Free cartage for some shippers and not for
others,[67] or for one town and not for another, gave a decided
advantage to the favored shippers.
To get the business of B., a Pittsburg dealer in beer, the B. & O., with
the approval of Wight, one of its general officers, gave B. 3½ cents per
hundred for hauling his own beer from the station, while K., another
beer dealer there, received no such concession, but paid the same
freight rates and hauled his beer at his own expense. Wight was indicted
and convicted before the district court for violation of Section 2 of
the Interstate Act, and the United States Supreme Court sustained the
decision in 167 U. S. 512, May, 1897, holding that the cartage allowance
in one case and not in the other was a discrimination under the 2d
section of the Commerce Act.
In Grand Rapids, Michigan, free cartage had been in vogue for 25 years,
but in Ionia, near by, no free cartage was afforded by the railroads,
although the station was nearer the centre or main delivery area of the
city than in Grand Rapids. This had the effect of a discrimination
against the merchants of Ionia amounting to about 2 cents per hundred
lbs.[68]
In June, 1889, the Commission asked most of the leading roads, 585 in
number, for information about free cartage delivery. From the answers it
appears “that 65 railroads allowed free cartage delivery or equalizing
cartage allowances, and 389 railroads do neither; 200 companies only
switch cars over to mills and manufacturers. No company furnishes free
cartage delivery at all stations, but as a rule, only at a few stations.
The estimated cost of free cartage delivery will average about 2½ cents
per hundred pounds. Where an allowance is made for switching or for
equalizing distances from shippers, the average cost is about $2 per car
or $2.50.”[69]
Denial of the stoppage-in-transit privilege at one locality while
allowing it to others is unlawful.[70] Differences in the time allowed
for unloading may amount to a substantial preference. At Philadelphia 96
hours was allowed for unloading, against 72 hours at interior points,
for coal, coke, or iron, and 48 hours for other goods. With demurrage
charges of $1 for each day’s delay in unloading beyond the allotted
time, the difference between 48 and 96 hours would mean $2 a car.[71]
Free storage is another method of favoritism, sometimes used
systematically and extensively, as described by the Commission. “A
shipper sends a carload of freight to a specific destination consigned
to his order by arrangement with the carrier. The freight is kept in the
car or freight house or some warehouse which the carrier controls, and
on orders of the shipper or his agent issued from time to time the
freight is delivered in small lots to designated persons. These persons
are the actual consignees, and the shipper is enabled by this means to
avoid paying the higher less-than-carload rate and to reap other
advantages through this privilege of storage. Such special facilities as
storage, handling, cartage, distribution, and reshipment of less
quantities, either without charge or at extremely low compensation for
the character of the service, amounted substantially to providing a
shipper with branch business houses.”[72]
Overbilling and underbilling have been found to be very convenient
substitutes for the rebate. A bill of lading may acknowledge the receipt
of 70 barrels of flour; 65 only are shipped, and the railway pays
damages for the loss of the 5 non-existent barrels. On the other hand
railroads have been known to suggest to millers that they ship flour on
the generous plan of shipping 200 barrels and billing 125.[73] Some
shippers have been allowed to ship only 4 boxes of peaches to the
hundred lbs., while others were permitted to ship 6 boxes to the hundred
lbs. “That is the billing. Sometimes peaches are billed 4 boxes to the
hundred lbs. to one point, and 6 boxes to the hundred lbs. to a point
350 miles farther on.”[74] At another time the cashier of an important
firm is made a nominal agent for the railway company, and under the name
of commission to him an enormous rebate is allowed for all the business
his employers send over the line. Or again, the railway company
purchases from a favored trader its supplies of the goods in which he
deals, at a fancy price.
The “expense bill system” has proved to be an instrument of preference
and fraud. On presentation of an “expense bill” showing payment for
shipments into Kansas City the railroads would allow reshipment of an
equal weight from Kansas City to Chicago at the balance of the through
rate from the point of origin to Chicago.[75] This gave grain from the
West an advantage over grain grown near Kansas City. When the rate from
Kansas City to Chicago was 20 cents on wheat and 17 cents on corn the
grain carried on the balance of the through rate under the expense bill
system was carried 8 to 10 cents less than grain grown in Missouri and
Iowa.[76]
Not satisfied with the discounts obtained on actual expense bills,
shippers altered bills and forged new ones to enlarge their traffic at
the cut rates. In this way “expense bills showing a high balance were
constantly substituted for those showing a low balance.”[77]
Rebate equivalents were given in the form of elevator rebates and
allowances. Elevators owned or controlled by railroad companies were
leased at nominal charges to favored shippers, or secret commissions
were paid to favored parties for all grain consigned to specified
elevators. One railroad for example paid a concern, holding a line of
elevators on the railroad, 1¼ cents per 100 on all grain consigned to
those elevators.[78]
In this case the consignment was 150 cars a day from November to May,
averaging 32,000 to 34,000 lbs. a car. The commissions therefore
amounted to $4 a car, $600 a day, $120,000 a year.
The United States Industrial Commission says, under the head of “Freight
discriminations and allowances to elevators:” “On each of the leading
railways from grain-producing sections to Chicago, allowances, ranging
from one-half to 1½ cents per bushel, are made on grain to one or two
favored firms.... The favored elevators are thus enabled to pay higher
prices for grain. The average profit in handling grain is less than 1½
cents per bushel, and smaller buyers can thus easily be driven out of
business.... The small shipper being driven out of business, the large
dealer is then in a position to depress the price of grain to the
producer.”[79]
The railroads deny equal rights in the building of elevators. A railroad
which had granted the right for two elevators at Elmwood on the
company’s right of way refused to give H. & Co. the same privilege. The
State Board of Transportation ordered the railroad to discontinue the
discrimination against H. & Co., and give them the same privileges as
others. But the United States Supreme Court held that the road could not
be forced to grant its property for private use.[80]
One method of discrimination I learned of in the West a few years ago is
not adequately described in any report.[81]
The head of a road running into Chicago from Missouri River points
formed a grain company to buy grain in Kansas City and sell it in
Chicago. The railway guaranteed the grain company against loss. When
wheat was 50 cents in Kansas City and 60 cents in Chicago, the grain
company paid 51 cents in Kansas City to get the grain. The railroad
charged the regular 10 cent tariff. The grain was sold at 60. The
railroad paid back 1 cent on the guarantee and still made 9 cents. And
the railroad-grain-company-combine was able to drive other buyers out of
the market and other railroads out of the traffic. The Santa Fe, for
example, carried 28 percent of the grain going into Kansas City, but
only hauled 3 percent out to Chicago.
Railroads sometimes seek to evade the law by contracting to deliver
goods at a certain price including the freight and the payment for the
goods in one lump sum, so that the freight charge is merged and cannot
be ascertained. Nine years ago, in 1896, the Chesapeake and Ohio
Railroad contracted with the New York, New Haven and Hartford to deliver
2,000,000 tons of coal at New Haven at $2.75 a ton. The published
freight rate at that time was $1.15 and the price of the coal at the
mines $2 a ton. The Interstate Commerce Commission held that this was a
discrimination by the Chesapeake and Ohio Railroad against every
independent mine owner in its territory, and that the railroad had no
right to contract to sell coal at any price. The Federal Court sustained
this view, and it is stated that the Department of Justice will ask the
Supreme Court for a blanket injunction against the two railroads,
restraining them from carrying freight at less than the published rates.
It is said that J. Pierpont Morgan guaranteed that the Chesapeake and
Ohio would perform the contract.
Action _against_ an individual or company is quite as effective a form
of discrimination as action in favor of a rival. Shippers at a certain
place on the Chicago and Northwestern were handicapped by refusal of
through rates on asbestos, compelling them to pay higher rates than
their competitors.[82] A Southern railroad charged the Bigby Packet
Company a much higher rate on cotton from Mobile to New Orleans than the
established rate on local shipments of cotton, in order to discourage
shipments by way of the Packet Company from the point of origin in
Alabama, and compel the cotton to travel all the way by rail.[83]
CHAPTER X.
DENIAL OF FAIR FACILITIES.
The refusal to furnish cars in fair proportion is a familiar form of
discrimination all through this period, usually in combination with
other forms of preference. In Kansas, on the line of the St. Louis and
San Francisco Railway, were two coal companies whose plants were of
about equal capacity, and several individual shippers. The railway and
its officials became interested in one of the coal companies, and by
rebate and other process it was given rates which averaged only forty
percent of the rates charged other shippers. The result was that all the
other shippers were driven out of business, part of them being
hopelessly ruined before giving up the struggle. In addition to rate
discrimination the railway practised gross favoritism in the
distribution of cars. For example, during one period of 564 days, as was
proven in court, the road delivered to the Pittsburg Coal Company 2,371
empty cars to be loaded with coal, although such company had sale for,
and capacity to produce and load, during the same period, more than
15,000 cars. During the same time this railway company delivered to the
Rogers Coal Company, in which the railway company and C. W. Rogers, its
vice-president and general manager, were interested, no less than 15,483
coal cars, while 466 were delivered to individual shippers. In other
words, the coal company owned in large part by the railway and its
officials, was given 82 percent of all the facilities to get coal to
market, although the other shippers had much greater combined capacity
than the Rogers Coal Company.
During the last four months of the period named, and when the Pittsburg
Coal Company had the plant, force, and capacity to load thirty cars per
day, they received an average of one and one-fourth cars per day,
resulting as was intended, in the utter ruin of a prosperous business
and the involuntary sale of the property, while the railway coal
company, the railway officials, and the accommodating friends who
operated the Rogers Coal Company, made vast sums of money; and when all
other shippers had thus been driven off the line the price of coal was
advanced to the consumer.
Another railway interested in a coal mine furnished cars in abundance to
that mine and to others that would sell their product to the mining
company in which the railway was interested, but systematically failed
to furnish cars to other operators.[84] One operator, after being forced
for years in this way to sell his product to the railway mining company
at a very low price, was obliged to build a railway of his own in order
to reach other lines of railroad and so have a fighting chance for cars.
In Arkansas a coal mine owned by the Gould interests was able to ship
its product to market at very low rates, while the owners of an
adjoining mine were forced to haul their coal to the same market in
wagons because the rates charged them from the coal railway were so high
as to absorb the whole value of the coal at destination.
A big capitalist in the West got hold of great oil fields on the Pacific
slope, wonderful prospects, contracts to supply big cities, etc. Some
one told him he had better see the railroads before he made his
contracts. He thought the transportation question would be all right and
went ahead. When he got his contracts made and wanted to ship the oil,
he asked for cars, and then he found the transportation question was not
all right. He could not get the cars.
Sometimes a railroad has arbitrarily refused to haul goods to certain
consignees. A case of this kind came before the Texas Railway Commission
in the case of the Independent Compress _v._ Chicago, Rock Island and
Texas Railway Company. The Bowie Compress, located at the same station
with the Independent, had some sort of pull which caused the railroad to
refuse to haul cotton to that station unless consigned to the Bowie
Compress. The railway also allowed compression charges out of the
through rate on cotton shipped to the Bowie Compress, refused freight
from points of origin, and reshipped the cotton from the Bowie press at
through rates, while refusing such concessions to others.[85]
The refusal to deliver at a certain place may be as effective sometimes
as the refusal to deliver at all. When in 1890 Mr. Nelson Morris tried
to establish competitive stock yards in Chicago to get rid of the graft
of the Union Stock Yards owned largely by railway interests, the
Vanderbilts being in the lead, his enterprise was loudly applauded by
the stock raisers of the West; but the railroads made short work of
Morris. They simply refused to deliver to his yards the cars shipped
there. They did not recognize any such place as the Morris yards and
calmly hauled all cars to the old terminal. If Mr. Morris wanted them he
must come and get them and pay switching charges. This ruined the
venture.
Big shippers may be given an undue advantage by excessive difference
between the rates on carloads and less than carloads.[86] On June 29,
1898, the Western railroads advanced their less-than-carload rates to
the Pacific Coast to a minimum difference of 50 cents a cwt. above the
carload rate; and “on a great many commodities the difference is greater
than the profit on the goods.”[87] The Interstate Commission regards a
moderate reduction on carload shipments as fair, but will not sanction
lower rates for cargo or train-load quantities than for carloads.[88]
CHAPTER XI.
CLASSIFICATION AND COMMODITY RATES.
Classification and commodity rates afford many examples of
discrimination in the period we are studying. We find furs and fur
scraps classed as double first-class, while hats and fancy products, for
which these commodities constitute raw material, were first-class.[89]
Celery was classed with peaches and grapes, instead of with cauliflower
and asparagus, lettuce and peas.[90] The charge for beans and peas (70
cents) was almost double the charge on tomatoes (44 cents).[91] Flour
for export was carried at much lower rates than wheat. Before 1886 wheat
was carried from Texas, Missouri, and Kansas at 15 cents per hundred
lbs. less than flour, without regard to distance. From 1886 to the end
of this middle period the rates on wheat for export show a difference of
4 to 11 cents per hundred below the rates on flour. As the profit to
American millers on flour for export is from 1 to 3 cents per hundred it
is clear that such discrimination is prohibitive upon American millers
in favor of English and other foreign millers. The public policy and
good railway policy seem to require the same rate on export wheat and
export flour.[92] Corn was carried between Kansas points and Texas
points for 7 cents per hundred less than corn meal,—a strong
discrimination against Kansas millers.[93] The Eastern railways also
carried corn at lower rates than corn meal to Eastern mills, and carried
the meal, hominy, ground corn, etc., back to Indiana. This gave the
railways more traffic, but it was a tremendous waste of industrial force
and injured the Western mills, since a discrimination of 5 percent was
sufficient to eat up three or four times the profit of any miller.
The Southern Railway put soap in the sixth class with a rate of 49 cents
a hundred, or 33 cents when shipped by large manufacturers, while
Pearline was put in the fourth class with a rate of 73 cents a hundred.
Pearline and soap are competitors. There is no appreciable difference in
the cost of transportation. But Pearline commands a higher price, so the
railways charged more than double the rate they got for soap from the
manufacturers. In another case brought before the Commission in 1889,
soap in carload lots was put in class V, while sugar, cerealine, cracked
wheat, starch, rice, coffee, pickles, etc., were in class VI. One make
of soap was put by many railroads in the second class, while other soaps
of similar use and value were in the fourth class.[94]
One of the strangest anomalies of classification is the rating of patent
medicines as first-class, while ale and beer are third class. In a
complaint on the latter score by a prominent manufacturer of patent
medicines against the New York Central and other railroads, it was shown
that the medicines were similar in bulk and intrinsic value to the
liquors, and it is possible that the similarity went much farther than
this.
Blocks intended for wagon-hubs took one rate on the Lake Shore and
Michigan Southern and boards for wagon boxes another rate.
Railroad ties have been charged a higher rate than lumber. A high rate
on railroad ties prevents their being shipped and depreciates their
value at home, so that the discriminating company is able to buy them at
a low price.
The Union Pacific years ago made prohibitory rates on steel rails in
order to hinder or prevent the construction of a road that promised to
become a competitor of one of the Union Pacific’s connecting lines.
Prohibitory rates on rails, ties, etc., have often been maintained to
obstruct the building of competing lines, and to render them more
costly.
CHAPTER XII.
OIL AND BEEF.
Oil in Standard hands continued to receive favorable attention from the
railroads throughout the middle period. The Combine was preferred by an
“unreasonable mileage” payment of ¾ of a cent a mile on its tank cars,
loaded or empty,[95] while others who attempted to ship in tank cars had
to pay mileage to the railroads for the return of their empties; by
practically compelling independents to ship in barrels, and charging for
the weight of the barrel; and by making an arbitrary allowance of 42
gallons for leakage on tank shipments with no allowance for waste in
barrel shipments.[96]
The Commission held it unjust to allow for leakage on tank shipments and
not on barrel shipments; that the weight of the barrel must not be
charged for if the weight of the tank is not, the same quantity of oil
must have the same rate no matter what the package might be, unless the
shippers were offered facilities for shipment by tank as well as barrels
so that the option was theirs. The representative of the oil combination
was questioned by the Interstate Commerce Commissioners, in relation to
the mileage, etc.
“Are you allowed mileage on tank cars?”
“No, sir.”
“Neither way?”
“Neither way.”
But the railroad officials in this case refused to commit oil-perjury.
Asked what mileage they paid the Combine they replied: “Three-quarters
of a cent a mile.”
When Rice asked what the railroads would charge him for bringing back
his empty cars if he shipped in tanks, he was told he would have to pay
1½ cents or more a mile. He found that if he tried to sell his oil in
California it would cost him $95 to get the empty tank car back, while
the railroads paid the Standard for the privilege of hauling its empties
back. Rice saw that from the South he could get return loads of
turpentine, but the railroads absolutely refused to give him rates.[97]
Besides all this the Standard was accorded the privilege of systematic
underbilling. According to the testimony before the Commission in 1898
by the Boston & Albany agent in East Boston, the centre of the Standard
Oil business in New England, the Combine’s tank cars, which usually
weigh from 35,000 to 50,000 lbs., were ordinarily billed at 24,000 lbs.
Out of 14 cars sent over another road from East Boston to Newport, R.
I., at least half were billed and paid for on the basis of 24,000 lbs.
to the car, although their average weight was shown to be 48,550 lbs.
per car. It was claimed that these underbillings were clerical errors.
In considering the motives and reliability of such a claim we must not
forget the curious habit shown by these clerical errors of piling up in
great bunches in the Standard Oil business, and the still more curious
fact that all the errors are in favor of the Trust—none against it. Long
before the Commission had found that the railroads leading from the oil
fields were in the habit of “blind billing” the Standard cars at 20,000
lbs., though the actual weight was frequently 30,000, 40,000, 44,000 or
more.[98] Rice complained of this to the Commission in July, 1887.
Immediately all the old numbers on the 3000 tank cars of the Oil Trust
were painted out and new numbers painted on, so that the cars mentioned
in the railroad accounts could no longer be identified with the cars on
the tracks.[99] The Standard has some very oily ways, and knows how to
use a pot of paint and a brush as well as a rebate.
The Standard desired to fix the rates on oil to New England, the South,
and the West, and as usual the railroads let it have its way. The result
was a practice of adding the Boston rate to the local rate on shipments
of oil into New England, which puts the independent refiners at a great
disadvantage. The rate on corn from Cleveland to Boston is 15 cents per
hundred lbs., and to New Haven the same, but the rate on petroleum from
Cleveland to Boston is 24 cents, and to New Haven it is the Boston rate,
24 cents, plus the local rate, or a total of 36 cents from Cleveland to
New Haven. Now the Standard Oil has got large warehouses in East Boston,
and they bring their oil by boat and store it there, and then they get
the freight rates simply from Boston down to the Connecticut point,
whereas the Western refiner who has no storehouse has to pay first the
Boston rate, and then this local rate also to the other point, even
though the oil may go direct, so that the rates are practically
prohibitive to the Western refiners.[100]
To shut out the oil fields and independent refineries of Colorado and
Wyoming, the Standard resorted to terrific discrimination in rates. The
Chicago and Northwestern Road would bring a carload of cattle from
Wyoming to Chicago for $105, but for a car of 75 barrels of oil the
freight was lifted to $348. The rates from the Western fields to San
Francisco were also put very high, and the Standard built great
storehouses on the Pacific Coast, which it fills from the Eastern
fields, the freight rates from the East being suddenly lowered when it
wishes to refill the said storehouses, and put back again as soon as
they are full. The people of California are compelled to buy Eastern oil
for the profit of the Trust, instead of buying Colorado oil, because the
freight on the latter is prohibitive.
Aside from these sudden fainting spells of the oil tariff at convenient
seasons for the Standard, the ordinary arrangements showed thoughtful
care for its comfort. The regular rate on oil from the Colorado oil
wells to the Pacific Coast was made 96 cents per hundred, while the rate
from Chicago through Colorado is only 78½ cents per hundred.[101]
The Chicago pork-packers generally had things their own way in this
period, but apparently not always. In 1890 the Commission decided that
the railroads were discriminating against the Chicago packers by lower
rates from the Missouri River on hog products than on live hogs.[102]
Even then, however, they were receiving rebates from the railroads which
made questions of tariff rates comparatively insignificant.
In 1891 the Federal Grand Jury indicted Swift & Co., the Chicago
packers, for having received $5,000 a month in rebates from one road
alone, the Nickel Plate. Compared to the train loads of their cars
passing east and west on other lines, their traffic on the Nickel Plate
was light.
In his testimony to the Senate Committee this spring, Mr. Davis said: “A
few years ago one of the Chicago packers was a director on a Western
railroad. He was a large receiver of live-stock from Kansas City, upon
which the freight rate was $54 per car. A rebate of $25 was paid to the
packer at the time of shipment, and it was the custom to file claims for
the remaining $29, which were allowed on the grounds of some imaginary
loss or damage to the stock in transit. The same party paid rebates
amounting to from $30,000 to $50,000 a month for every month in the
year. On putting down on a piece of paper the amount of $10,000, and
after placing this under the eyes of a superior officer, he would leave
and subsequently look for that amount in currency by express, and would
then proceed to divide it among certain favored shippers.”[103]
A few years ago, in proceedings before Judge Grosscup of Chicago, it
appeared that while the published rate on packing-house products was 23½
cents, the favored packers were given a rate as low as 15 cents.
Investigations by the Commission in December, 1901, and January, 1902,
took the lid off of the dressed-meat business and discovered a large
congregation of secret rebates. The Pennsylvania system was cutting the
rate on packing-house products 5 to 7 cents below the published rate,
making it 25 cents and sometimes 22 cents, in place of 30 cents, from
Chicago to New York. Rates from Indianapolis, Cincinnati, and other
points were also cut.[104]
The examination brought out the fact that President Cassatt and other
officers above the traffic manager knew what he was doing and authorized
or permitted the rate cutting.[105]
“COMMISSIONER CLEMENTS. Who takes the responsibility for doing these
things, for making these serious departures and cuts, in regard to the
Pennsylvania Railroad? Is it you? Do you do it without any authority
from the officers of that road above you, or do you have their approval
of it?
“MR. MCCABE. I am in charge of the freight traffic, and I do the best I
can under the circumstances.
“COMMISSIONER CLEMENTS. Do you act independently of them, or do you have
to have their approval?
“MR. MCCABE. I assume to do what I think is proper, being governed by
the competitive conditions.
“COMMISSIONER CLEMENTS. Do you have reason to know that the officers
above you in the management of that company’s affairs knew of it?
“MR. MCCABE. Not in detail.
“COMMISSIONER CLEMENTS. I do not mean the details. I could have answered
that myself. But as to the general fact that the Pennsylvania Railroad
was cutting the rate in this serious way, was it known to the president
of that company and other officers?
“MR. MCCABE. I do not know.
“COMMISSIONER CLEMENTS. Have you ever had any conference with the
officers above you in the management of that company’s affairs in which
you disclosed this condition of things?
“MR. MCCABE. I have said to them from time to time that rate conditions
were so and so; that rates were not being maintained, and that our
competitors were cutting the rates.
“COMMISSIONER CLEMENTS. And that you must cut the rates? Did they
sanction it, or approve it, or tell you to stop it?
“MR. MCCABE. I think they left it to my discretion.”
The Big Four, a Vanderbilt line, cut rates 6 cents below the 30 cent
tariff from St. Louis.[106]
Mr. Mitchell, traffic manager of the Michigan Central, says his road
carried dressed meats at 40 cents, or 5 cents below the published rate.
“CHAIRMAN OF THE COMMISSION. Did you carry any considerable amount of
dressed meats during 1901 that paid the tariff rate?
“MITCHELL. I think not.
“CHAIRMAN. Practically all of it went at some secret rate?
“MITCHELL. Yes, sir.”
This man thought his road paid the four Beef Trust houses $200,000 or
$240,000 a year in rebates.[107]
Mr. Mitchell said rebates were paid indirectly by means of bank drafts.
The railroad makes a deposit in bank. The traffic manager checks against
it, and the bank supplies drafts on New York or cashier’s checks which
are sent to the persons who are to receive rebates.[108]
The railroads try to be good sometimes, make New Year’s resolutions, and
stop the rebates; but some naughty boy breaks his vows in two or three
weeks, and then the rest follow suit. Here is the testimony of a Western
traffic manager on this point.[109]
“COMMISSIONER. What proportion of the traffic (in provisions) have you
carried at the tariff rate?
“TRAFFIC MANAGER. It was a very small proportion of the total, and it
was probably along about the first of last year.
“COMMISSIONER. You are accustomed to indulge in New Year’s resolutions?
“MANAGER. Yes, sir; we all swear off on New Year’s, and begin again.
“COMMISSIONER. Is it a fact that from Jan. 1, 1901, there was a period
when the tariff rate (on provisions) was actually applied by all the
roads?
“MANAGER. Yes, sir; I think it was.
“COMMISSIONER. How long did it last?
“MANAGER. I think it lasted probably two weeks.
“COMMISSIONER. What led you, then, to cut your rate through St. Louis?
“MANAGER. Our agent in Kansas City discovered about January 20 that
provisions were moving through Chicago at less than tariff rate.”
The Commission found that all the railroads made low rates for the Beef
Trust, but they could not find any railroad that led off in the business
of cutting rates. Each one said it cut rates because it found the others
were cutting. They were all followers.[110]
The Chairman of the Commission said to the Vanderbilt traffic man: “I
observed that you spoke of your road as following the others.
“MR. COST. Yes, sir.
“THE CHAIRMAN. I have heard a similar statement from other gentlemen.
Have you any idea who is the leader?
“MR. COST. No; I have not. I could not give you that information.
“THE CHAIRMAN. You have never heard of the leader?
“MR. COST. No, sir.
“THE CHAIRMAN. They are all followers.
“MR. COST. That does really seem to be the case.”
Mr. Grammer, general traffic manager of the Lake Shore, testified in
1902 in respect to “provisions,” cut meats, lard, etc., from Chicago to
New York: “The minimum weight on a car of provisions is 28,000 lbs. The
rate is 25 cents. That is about the maximum rate obtained this last
year, 1901, and that means $70 a car. We pay out of that to the
stockyards $2.40 a car for switching, we pay $15 car-mileage for a round
trip of the car, and at New York we pay 3 cents a hundred lighterage;
that is, $2.40 and $15, $17.40, and $8.40—$25.80 which we pay out of
that rate as absolute arbitraries. That leaves the Lake Shore $16 or $17
net for hauling that car to Buffalo, with the return car empty, and we
have to give practically passenger service to that traffic. I think it
is unremunerative business, and I have always taken the position that we
do not want any provisions on the Lake Shore road at less than the full
tariff rate, whatever that might be. The dressed-beef minimum will
average 22,000 lbs. That car is subject to the same arbitraries and
mileage. The lighterage is 3 cents a hundred, which would be $6.60
instead of $8.40, and it is subject to the same service eastbound and
westbound as to movement; and there is not 1 percent of those cars
loaded east with dressed beef that are loaded with any freight coming
west.” In spite of the unremunerative character of the business Manager
Grammer says they cut the rate 5 cents a hundred.[111]
Mr. Paul Morton, at the head of the traffic department of the Santa Fe,
testified in 1902[112] that his road carried dressed meats and
packing-house products below the published rates in violation of law.
“MR. MORTON. We have carried the business from Kansas City to Chicago
for 5 cents less than the published tariff to Chicago and Chicago
junction points.
“MR. DAY. Domestic as well as export?
“MR. MORTON. Both.”
“The Santa Fe,” he said, “at the beginning of 1901 joined with the other
roads in a general declaration of good faith and intention of an
absolute maintenance of rates. We maintained the rate until about April
1.” The Santa Fe found that they were only carrying 2 percent of the
packing-house business out of Kansas City, although they brought in 33⅓
percent of all the live-stock that entered the city. So “we told one of
the largest shippers in Kansas City that if they would come and ship
with us we would give them 5 cents reduction from the tariff, and in
order to get them we had to promise to do it for a year—I think until
the first of July of this year, 1902.”
Continuing, the witness admitted the illegality of the transaction.
“MR. MORTON. Yes, sir; it is an illegal contract. It was illegal when we
made it, and we knew that.
“COMMISSIONER CLEMENTS. Can you tell how much you paid out in a year?
“MORTON. On this business?
“CLEMENTS. Yes, sir. Have you any idea whether it is $50,000 or $100,000
or $10,000—anything definite? Of course it is a mere guess and you do
not know—
“MORTON. Well, I think there was a great deal more than any sum you
mention paid out.
“CLEMENTS. By your company?
“MORTON. By all the companies. I think we paid out $50,000 a year or
more.
“CLEMENTS. Who would have the direction of that? Who would see that it
was paid? Who would direct it to be done?
“MORTON. I would.
“COMMISSIONER PROUTY. How much does it cost your company on all its
business in any one year to deviate from the published rates?
“MORTON. I should think between $500,000 and $1,000,000 a year.”
By means of private cars, mileage payments, rebates, and control of
rates, the big packers had advantages which enabled them to ruin the
smaller packers all over the country. The Lincoln, Neb., Packing
Company, for example, was “driven out of business,” the manager says,
“by freight discrimination, rebates, and the private car. After doing a
losing business for 5 or 6 years against these odds, the company closed
down with a loss of 75 percent of the investment.” And this is a fair
sample of what has happened to many, many of the competitors of the Beef
Trust.
CHAPTER XIII.
IMPORTS AND EXPORTS.
The low rates in favor of foreign goods and of domestic goods intended
for export amount to a serious discrimination. Paul Morton told the
United States Industrial Commission that goods were carried from Hamburg
to Denver for less than the rates from Chicago to Denver.[113] Complaint
was made many years ago that the Pennsylvania Railroad and other roads
charged lower rates, even 50 percent lower, on goods shipped in from
foreign countries than on domestic traffic of the same sort.
Investigation revealed in some cases a far greater difference than 50
percent.
At one time the rate on tin plate from Liverpool via Philadelphia and
the Pennsylvania Railroad to Chicago was 24 cents a hundred, while the
rate from Philadelphia over the same road was 28 cents.
In the Texas and Pacific Case the record showed that books, buttons,
carpets, clothing, etc., were carried from England, via New Orleans to
San Francisco for $1.07 a hundred, while the same articles of domestic
manufacture paid $2.88 on the same trains from New Orleans to Frisco.
Boots and shoes, cashmere, confectionery, cutlery, gloves, hats and
caps, laces and linens, etc., took the same blanket rate of $1.07 from
Liverpool and London to San Francisco, while similar American goods paid
the railroads $3.70 a hundred from New Orleans to California. In some
cases the railroads received only ⅙ as much for the transportation of
foreign goods as for domestic goods. The Interstate Commission held that
“any difference in charge between foreign and domestic traffic is
unlawful,” and ordered the discrimination to cease, but after long
litigation the United States Supreme Court decided that among the
circumstances and conditions to be considered in judging rates are the
conditions of ocean traffic and water competition to interior ports in
the United States, etc., so that a carrier may be justified in making
low rates to secure foreign freights which would otherwise go by
competitive routes or not go at all.[114] The practical result appears
to be that railroads may nullify the protective tariff and discriminate
in favor of foreign shipments to any extent that is necessary to make
them move, regardless of the question whether or no they ought to move
under such conditions.
Foreign manufacturers cannot only ship their goods across the country
more cheaply than our manufacturers can, or at least such of them as pay
schedule rates, but can also get special rates on all raw materials they
buy here and ship over our lines for export. For example, a Chicago
miller pays 21 cents per one hundred lbs. to get either wheat or flour
to New York, while the English miller can buy wheat in Chicago and take
it to New York for 13 cents. In some cases the rate on flour has been as
much as 11 cents more than the rate on wheat. Since 2 or 3 cents a
hundred lbs. is a good profit, our millers cannot grind for export
against the English millers.[115] The railroads turn down our millers
and establish a protective tariff for free trade England, protecting her
millers against competition.
American shippers take such advantage of the low export rates as they
can, but sometimes these concessions are made to the shippers in one
city and not to those of other cities; for example, the railroads
carrying export flour from Minneapolis at a discount refused similar
concessions to shippers at intermediate points.[116]
CHAPTER XIV.
LOCALITY DISCRIMINATIONS.
Discriminations between localities, though less pronounced in this
period than in the first, were nevertheless multitudinous and vital.
In 1896 the railroads carried Minneapolis flour to New York for 10 cents
a hundred, while charging New York State millers 18 cents a hundred to
New York City.
President Stickney of the Chicago and Great Western Railroad, in a
discussion the same year with the representatives of other western roads
before the I. C. C., said: “You charge the Kansas and Nebraska farmer 13
cents to haul his grain 200 miles while you charge the grain dealer 6
cents to haul that same grain twice as far to Chicago.... I have been
acquainted with this northwestern country for thirty-five years. In all
that time there has never been a year that the corn crop was moved until
after the corn was in the hands of dealers who had the rate. Once the
farmer is compelled to sell his grain, then you fellows cut the rate for
the dealer.” That is, the railroads charge the farmer shipping to the
Missouri River a mileage rate 4 times as high as the rate to the dealers
shipping to Chicago, and freeze out the small dealers from shipping to
Chicago by making secret rates in favor of the big dealers.
Coal was shipped from Chicago to Omaha and then reshipped to Grinnell,
Ia., 225 miles back toward Chicago, more cheaply than it could be got
direct from Chicago.
“A large manufacturing establishment located in the latter town, making
agricultural implements which were sold principally on the Pacific
Coast, found it advantageous to abandon its plant and transfer its
machinery and employees to Chicago on account of the unfavorable rates.
“A large factory for making barbed wire, located in the city of Des
Moines, in like manner abandoned its buildings and transferred its
establishment to Chicago, finding that it saved a large sum on every
carload of wire it shipped, although the wire was mainly carried
directly by or through its old location, 300 miles nearer the Pacific
Coast than Chicago.”[117]
To certain towns in Nebraska and other States the railways have extended
the same rates that apply to Missouri River points, where the rates to
Chicago are very low, while other towns in the same region have to pay
the Missouri River rates to and from Chicago, plus the local rate from
the river point.[118]
The extent to which railroads sometimes go in place discriminations is
shown by cases cited in Cator and Lewis. One of the towns on the route
of the Northern Pacific in Montana incurred the displeasure of the
railway authorities, and they determined to ruin it and build up a new
town. So they refused to stop their trains in the town or have a depot
there. The railroad built a new depot on lands of its own, 3 miles
beyond, and ran its trains through the old town to the new site, thereby
feeding its revenge and enhancing the value of its own land at the same
time, at the cost of ruining the town already established. The courts
sustained the railroad’s claim that it had a right to run through to the
new depot, though some of the judges dissented, regarding such favor as
despotic and destructive of public rights.[119]
“A town in the State of Iowa, which had thriven under reasonable
railroad facilities, was almost depopulated by a change of ownership of
the railroad line upon which it depended.
“As the result of discrimination forty American families were driven out
of this small town in a single year. Their property was rendered almost
worthless, and with great pecuniary loss from no fault of their own they
were obliged to abandon their homes and seek new habitations and new
avocations. Cases like this were abundant throughout the West. This
merely illustrates what was going on in a dozen great States where
cities, towns, and villages were being depopulated or their business
establishments placed at great disadvantage by reason of iniquitous
discriminations.”[120]
Peopled flocked into the towns and cities favored with the low rates,
and when the competitive rates were removed, as they have been in many
cases, the boom towns collapsed, and the inflated building and business
interests shrunk to skin and bone.
Better accommodations are frequently accorded to places in which the
railway or its officers are interested than to other places. When a new
road is projected there are usually town-lot and land companies along
the lines, in which prominent officials of the road may be directly or
indirectly interested. Their knowledge of the future location of the
road is utilized in purchasing tracts of land at low values to be used
for town sites and sold at high prices after the railway is built.
“Sometimes the entire road becomes a land-grabbing scheme with a
town-lot speculation attachment. The western half of one of the
principal roads in Iowa was built mainly on this plan. Its natural route
was along one of the old stage roads running through the county seats of
the counties through which it must pass. About these towns was a
well-settled country, with rich farms well improved for that early day.
The towns were moderate in size, but had been established as trading
points for many years, and stores, schools, and churches had grown up.
“But there was a belt of government land lying between the two belts of
settlement about the respective county seats, which the road coveted,
and if the line passed through the old towns there would be little
chance for the speculative directors to profit by laying out town sites.
So the road was laid out and built through the unsettled lands, avoiding
every old town on its route.”[121]
Sometimes discriminations are made by the use of different
classifications for local and through traffic.[122] The rate on sugar
from San Francisco to Kearney, Neb., was 77 cents per hundred lbs.,
against 50 cents, clear through to Omaha.[123] The rate on lumber from
Wilmington to Philadelphia and Boston was higher than the local rate
from Wilmington to Portsmouth or Norfolk plus the rate from Portsmouth
or Norfolk to Philadelphia or Boston.[124]
The rates from the East to St. Cloud, Minn., were higher than to St.
Paul and other more distant points. The difference against St. Cloud was
7 cents per hundred on flour and 75 to 85 per ton on coal. This
difference was two or three times the profit made by the miller, so that
the price of wheat in St. Cloud was 6 cents below the price in
Minneapolis or Princeton or Elk River, and the value of land about St.
Cloud was thereby greatly lessened.[125]
A canning factory in Emporia, Kansas, had good natural advantages and an
excellent trade in Kansas, Colorado, Texas, etc., when in 1891 the
freight rates were changed on the basis of water and rail competition
via Galveston so that canned goods could be shipped into this territory
from New York at rates that drove the Emporia factory out of business
with a loss of $50,000 and the ruin of the owner who had been the
heaviest tax payer in the county.
The Emporia furniture factory, and the Emporia stockyards have also been
ruined, it is said, by freight discriminations. In the Spokane case the
rate to Portland, 2056 miles from the East, was $30 a ton, while the
rate to Spokane, only 1512 miles, was $52 per ton. The Commission said
this was unreasonable. “If a rate of 1½ cents per ton-mile yielded a
desirable margin over the cost, a rate of 3½ cents pays an unwarranted
return.” In a Georgia case it appeared that the rate from Cincinnati to
a non-competitive town, Marietta, was 6 times as much per ton-mile as
the rate to Atlanta. The business men of Spokane paid 2 or 3 times as
much for haulage as the men of Portland, and the business men of
Marietta paid 6 times as much in proportion as those in Atlanta.
The Spokane merchants combined and put their freight business in the
hands of one agent, who could swing every pound of freight to the
Northern Pacific or to the Oregon Navigation Co., or to the Great
Northern, etc. Then the railways pooled against the merchants. The
latter adopted the policy of tendering a reasonable sum for freight, and
if the railways wouldn’t take it, the merchants replevied the goods and
left the companies to sue for the freight. The companies got tired of
that and made some concessions. But Spokane still suffers from severe
discrimination, as we shall see hereafter. Coal hauled fifty miles to
Leadville sold there for $7 a ton, while in Denver, after an additional
haul of 150 miles, the same coal was sold for $5.50 a ton. The Michigan
Central and other roads charged higher rates on carriages and buggies to
San Bernardino than to Los Angeles, some distance further on.[126]
From Pittsburg to Colorado the rate on rails was $1.60, while the rate
all the way through to San Francisco was only 66 cents. From Pueblo to
San Francisco, 1,559 miles, the rate on bar iron and on rails was $1.60
per hundred, while from Chicago to San Francisco, 2,418 miles, the rates
were 50 cents on bar iron and 60 cents on rails; and even from New York
to San Francisco the same rate of 60 cents was made for rails.[127]
Sometimes the charge is much greater going one way between two given
points than it is going the other way between the same points. For
instance, “Gloves from San Francisco to Denver pay $2 a hundred. You
ship the same packages back from Denver, which has 5,000 feet of
elevation, to San Francisco at the sea level, downhill, like a toboggan
slide, and it is $3 a hundred downhill to $2 up.”[128] The
discriminations against Denver are severe both from Eastern and Western
points. Sugar is carried from San Francisco to Denver at 75 cents; to
Loveland it is 93 cents; but hundreds of miles further on, to Omaha, it
is only 50 cents.[129] “Mr. Kindel has been driven out of the
manufacture of upholstering goods and of spring beds in Denver because
of similar differences. He wished to manufacture albums in Denver, but
was forced to locate in Chicago because the freight rate on books from
Chicago to San Francisco was $1.75 per hundred and from Denver to San
Francisco $3, while the Denver manufacturer had to pay 97 cents freight
on his raw material (paper, etc.) from Chicago to Denver, $3.97 against
$1.75. So too, the freight rate on books from Chicago to New York is 75
cents, from Denver to New York $2.72.”[130]
“The difference in rates on coal oil has been so great that oil has
sometimes been shipped from Chicago to San Francisco and back again to
Denver.”
“Boots and shoes are carried from Chicago to Colorado common points at
$2.05 per hundred, from Chicago to California at $1.50 per hundred. If a
jobber in Colorado wishes to ship boots and shoes to California he must
pay $3, making a total freight rate of $5.05 from Chicago to California
in this way. Cotton-piece goods under commodity rates are shipped from
Boston to the Missouri River for 52 cents per hundred, while the rate
from the Missouri River to Denver is $1.25 for a haul of one-third the
distance. The rate from the Missouri River through Denver to California
is only $1.”[131]
No wonder a Denver manufacturer said to the Industrial Commission: “My
city, Denver, and State, Colorado, and all the territory embraced in the
one hundred and fifth meridian section, are violently discriminated
against by the railroads and express company. We are denied commercial
equality, which forbids the development of our resources. Our freight
rates are anywhere from 100 to 300 percent higher per ton per mile than
those of our Eastern and Western competitors.”[132]
Such conditions tend to force dealers to points on the Missouri River or
east of it. The shipper at St. Joseph on the Missouri River, for
example, can get goods from Chicago at 80 cents and reship to San
Francisco for $1.50, while the Denver shipper must pay $2 from Chicago
to Denver and $3 from Denver to San Francisco,—$5 for the Denver shipper
against $2.30 for the St. Joseph man.[133]
CHAPTER XV.
LONG-HAUL DECISIONS OF THE SUPREME COURT.
The long-haul clause did not realize the intent of its framers. It
received a series of shocks from the United States Supreme Court, which
produced, if not paralysis, at least a bad case of nervous
prostration.[134]
At first, believing that the law would be enforced in accordance with
its purpose and intent to get rid of unjust and needless discrimination
between localities, the Northern and Western roads revised their tariffs
in good faith in reference to long and short haul rates, but, later,
when they found that the Supreme Court did not intend to enforce the 4th
section, they joined the Southern roads in practical disregard of it
wherever they found it convenient to do so, and only in a few cases has
their disregard been checked.
Within 5 days after the Commission was appointed a large number of
railroads applied for relief from the long and short haul clause; and in
many cases, on the ground of water competition, etc., relief was
given.[135] The Commission held that dissimilar circumstances existed
under the 4th section in case of competition with water carriers, or
railroads not under the Act (foreign railroads and railroads lying
wholly within a single State), and in “rare and peculiar cases of
competition between interstate railroads, when a strict application of
the rule would be destructive of legitimate competition,”[136] but
ordinarily competition between interstate roads was not regarded as
sufficient to relieve them from the 4th section.
In November, 1892, the Commission decided the famous Alabama Midland
Case. The complaint was that rates from the East and Northeast to Troy,
Ala., were higher than to Montgomery, a longer haul passing through
Troy. The railroads pleaded competition at Montgomery. The Commission
held that railway competition would not justify departure from the rule
of Section 4 of the Interstate Act. Five years later, in November, 1897,
the United States Supreme Court sustained the judgment of the Circuit
Court and Circuit Appeals Court, overruling the Commission, and held
that the existence of railway competition at Montgomery made a
substantial difference of circumstances within the meaning of the
exception in Section 4.[137]
The Court held that competition even of interstate lines is a
substantial difference of conditions which may justify a greater charge
for a short than for a long haul, but said, “We do not hold that the
mere fact of competition, no matter what its character or extent,
necessarily relieves the carrier from the restraints of the 3rd and 4th
sections.”
In the 2d section, which prohibits any rebate or discrimination and is
intended to enforce equality of shippers over the same line, “‘similar
circumstances and conditions’ refers to matters of carriage, and does
not include competition between rival routes;” but in the 3d and 4th
sections “similar circumstances and conditions” includes competition,
which “is one of the most obvious and effective circumstances that make
the conditions under which a long and short haul is performed, and
substantially dissimilar.” The railroad people think the circumstances
are very dissimilar also when the Oil Trust or the Beef Combine
threatens to take hundreds of thousands of dollars worth of business if
they don’t get the rates and facilities they want, while Messrs. A. B.
C., etc., ship their goods and pay the schedule rates without suggesting
any reduction. This dissimilarity is harder for the railroads to deal
with than the other. They can stop competing among themselves on
long-haul schedule rates more easily than they can enforce equal rates
on the big shippers.
In the Chattanooga Case it appeared that rates from New York and other
points via South Atlantic points to Chattanooga were higher than to
Nashville, 152 miles further on. The Commission in December, 1892,
ordered this discrimination to cease. The order was not obeyed. Suit to
enforce it was brought in the Circuit Court, and a decision sustaining
the Commission was rendered in February, 1898. And in November, 1899,
the Court of Appeals confirmed the decision, holding that the ruling of
the Supreme Court in the Midland Case did not apply, because “normal
competition” would give Chattanooga the same rates as Nashville.[138]
But the Supreme Court in 1901 reversed the lower courts and decided
against the Commission.[139]
The Georgia Railroad Commission Cases, also decided by the Interstate
Commission in 1892, went the same way, the United States Supreme Court
again deciding against the Interstate Commission on the long and short
haul clause, holding that any substantial competition of markets or
railways creates dissimilar conditions within the 4th section.[140]
The result is that dissimilarity of conditions created by the railroads
themselves becomes the means of freeing them from the long-haul rule of
the 4th section of the Interstate Act.
In the South a method called the “basing-point system” is in vogue. The
railroads name certain towns as distributing centres and competing
points, fix the rates to and from these points, and make rates to and
from other localities by adding to such through rates the local charges
in force between the distributing centres, or “basing-points” and the
said other localities.
The Commission says: “Our annual reports to Congress and reported
decisions in cases have uniformly condemned this distributing centre
theory of rate-making, but the Southern carriers have resisted our
efforts to correct the practice.”[141]
A thoughtful writer in the _Popular Science Monthly_ says: “The most
serious class of unjust discriminations includes those which have for
their victims the entire populations of towns, cities, and even
extensive districts, which are made to suffer from the unfair adjustment
of railway rates. Practically the whole region south of the Potomac and
Ohio and east of the Mississippi has continuously suffered from
discriminations of this kind through the system of making charges to a
few selected cities the basis for through rates to all other points.
Through rates are made to and from about two hundred of the larger
towns, including Atlanta, Birmingham, Chattanooga, Vicksburg, New
Orleans, and Mobile, and traffic shipped from or to all other points is
charged the rate to one of these basing-points plus the local rate from
such basing-points to final destination. In practice it is common to
make the combination by the use of rates to and beyond whatever
basing-point will give the lowest total, whether on the line traversed
by the shipment or not. Thus a shipment from Cincinnati to a point on
the line from that city to New Orleans may be charged the full rate to
New Orleans plus that from the latter back to the local point. The
condemnation of such a system cannot be too severe. It not only limits
the commercial activities of the towns unjustly discriminated against
and restricts the sources from which they can directly draw supplies,
but by hindering their growth it retards the development of the entire
section, including the cities supposed to be favored.”[142]
In a case decided in 1894 it was found that hay was being carried from
Memphis through Summerville to Charleston for 19 cents a hundred,
against 28 cents a hundred from Memphis to Summerville, the 9 cents
difference being equal to the local rate from Charleston back to
Summerville. “The difference of $1.80 per ton was sufficient to preclude
the Summerville dealer from selling in neighboring towns in competition
with Charleston dealers. The Summerville dealer was thus practically
confined to Summerville for a market, and even there had to compete with
dealers doing business at Charleston 19 miles away. If $3.80 per ton is
profitable to the carriers for bringing hay in carloads from Memphis to
Charleston, then $5.60 per ton, nearly 50 percent more, from Memphis to
Summerville, which is nearer than Charleston is to Memphis, represents
an extra profit of $1.80, which the carrier did not and could not show
to be equalled by extra cost of transporting a car of hay and delivering
the same at Memphis.” The Commission (June 1894) ordered the carriers
not to charge more from Memphis to Summerville than from Memphis to
Charleston, holding that competition of markets or of railways would not
justify a higher charge for a shorter than for a longer haul. The order
was made in September. In its report to Congress in December the
Commission said, “The order has not been obeyed.”[143]
Social Circle, situated between Atlanta and Augusta in Georgia, was
required to pay a rate from Cincinnati made up of the rate to Atlanta
plus the local rate from Atlanta to Social Circle, while Augusta,
considerably more distant, had rates from Cincinnati no higher than
those to Atlanta. The Commission in June, 1891, ordered the railroad to
cease charging more from Cincinnati to Social Circle than for the longer
distance to Augusta.[144]
Hill and Brother, in the wholesale grain, flour, and hay business at
Cordele, Ga., were in competition with dealers at Albany, Americus, and
Macon, which were made basing-points and had lower rates than Cordele
from the common source of supply. Cordele was shown to be nearer the
coast than the other points, and to have several railway routes from
Nashville, so that it could not be excluded from the low rate list on
competitive grounds. The railroad men said it was excluded because it
was not so large a distributing point as the other places, but admitted
that if it had equally low rates it would largely increase as a
distributing centre; so that the case stood thus: The railroads did not
give Cordele equally low rates because it was not a sufficiently large
distributing centre, and it was not a sufficiently large distributing
centre because it was denied equally low rates; _i. e._, the railroads
sought to excuse themselves for wrongdoing by offering the results of
the wrong in justification. The Commission refused to allow the
railroads to take advantage of their own wrong and condemned the Cordele
rates.[145]
The Louisville and Nashville charged $3.69 per ton on pig iron from
Birmingham, Ala., to Cordele, Ga., 267 miles, and only $1.80 a ton from
Birmingham to Macon, 332 miles. On coal the rate was $2.60 to Cordele
and $1.60 to Macon. The Commission decided that the rates to Cordele
should be no higher than to Macon.[146]
La Grange is 71 miles nearer New Orleans than Atlanta, yet the rates to
La Grange were made so much higher than to Atlanta that an Atlanta
dealer could ship goods from New Orleans through to Atlanta and then
back to La Grange as cheaply as the goods could be shipped direct to La
Grange.[147]
To keep traffic from going to Savannah and make it go to the Northwest
or to Pensacola, the Louisville and Nashville made very high rates on
shipments to Savannah. On Savannah traffic the Nashville haul was short
and the receipts small; on shipments to the Northwest the Nashville
receipts were much larger, and in Pensacola it had a special interest.
So the Savannah cotton rate was advanced from $2.75 to $3.30 a bale, and
the rates on naval stores were also made much higher than to Pensacola
or to the Northwest.[148] The Commission ordered the railroad to
discontinue the discrimination against Savannah, January, 1900, and the
Circuit Court sustained the decision, July, 1902.
The Commission has condemned the rates from New Orleans to Danville,
Va., as excessive in comparison with the rates on the longer haul to
Lynchburg;[149] also the rates on sugar and molasses from New Orleans to
Nashville as higher than on the long haul to Louisville;[150] the rates
from New York, Cincinnati, Chattanooga, Nashville, and New Orleans, as
discriminating against Dawson and in favor of Americus, Eufaula, and
Albany;[151] undue preference to Sioux City against Sioux Falls, in the
rates from Chicago and Duluth;[152] and many other discriminations
between localities, and violations of the long and short haul
clause;[153] yet all the complaints and decisions, numerous as they have
been, are but a cupful from the sea; and the evils removed in pursuance
of orders of the Commission which the Courts neglected to overrule form
an insignificant group compared to the mass that remained untouched.
CHAPTER XVI.
TEN YEARS OF FEDERAL REGULATION.
In “A Decade of Federal Railway Regulation,” after describing various
forms of discrimination, H. T. Newcomb says: “The conditions described
are fairly typical of those existing all over the United States. The
Interstate Commerce Law has mitigated but slightly, if at all, the evil
of unjust discrimination between individuals, has in but few and
relatively insignificant instances moderated unjust discriminations
between articles or classes of traffic, and has almost wholly failed to
remedy the far more serious inequities in rate-making, which operate to
the disadvantage of towns, cities, or districts.”[154]
In 1897 the President of the Big Four Railway said: “Never in the
history of railways have tariffs been so little respected as to-day.
Private arrangements and understandings are more plentiful than regular
rates. The larger shippers, the irresponsible shippers, are obtaining
advantages which must sooner or later prove the ruin of smaller and more
conservative traders, and in the end will break up many of the
commercial houses in this country and ruin the railways. A madness seems
to have seized upon some railway managers, and a large portion of the
freight of the country is being carried at prices far below cost....
There is a much more dangerous view, and that is the demoralization of
the men conducting these numerous enterprises and the want of respect
for the law which is being developed by the present situation.... There
is less faith to-day between railway managers, with reference to their
agreements to maintain tariffs, than was probably ever known on earth in
any other business. Men managing large corporations who would trust
their opponent with their pocket-book with untold thousands in it, will
hardly trust his agreement for the maintenance of tariffs while they are
in the room together. Good faith seems to have departed from the railway
world, so far as traffic agreements are concerned.”[155]
The Texas Railway Commission in 1897 started suits against several
railways for discriminations, and before the end of the year three
railways pleaded guilty in 95 cases and paid fines amounting to $47,500,
promising to “be good.” The next year $20,000 more were paid by the
railways as fines in 20 cases for violation of this law in Texas. Many
other cases pending.[156] In the 1898 Report the Commission says that
express and railway agents do a business as shippers of fruit, etc., and
discriminate against the business of other shippers by underbilling
their own shipments and by delaying the other shipments.
One of the most striking illustrations of the effectiveness of the
Interstate Act is to be found in the results of the Boston and Albany
investigation in 1900, during the consideration of the question of
leasing the road to the New York Central. The Interstate Act made it a
misdemeanor to depart from the published rates, but the railroad
followed the law only when it was convenient to do so, and most of the
rates in actual use constituted misdemeanors.
“Various shippers, merchants, manufacturers, etc., were visited, and it
was found that the local rates were not followed, that shippers were
receiving widely varying discounts from the published rates, and that
shippers did not know at all what rates their competitors and neighbors
were getting. They were not satisfied with the system, but they were
afraid to complain, for if they made complaint they would lose whatever
advantages they possess and become marked men for railway persecution.
The Railroad Commission of Massachusetts advertised for shippers who
were not satisfied to come and make complaint; but they did not do so,
for the reason that any shipper who complained of a railroad would be
apt to fare a good deal worse afterwards than before; his goods would be
delayed, his facilities would be cut off and whatever reductions he was
getting would be stopped, and he would have to pay the full published
rates. He might also be involved in costly litigation, and he did not
dare to say anything.
“The Railroad Commission was asked by the legislature about these
discriminations on the Boston and Albany, and a report was handed in by
the Commission (1900) saying that the reductions from the published
rates averaged 40 percent, and that in different cases they ran from 10
to about 73 percent—fully confirming what the shippers had said. It was
admitted, however, that this report was not written by the Railroad
Commission. They had passed the question over to the Boston and Albany,
and a high official of the road had written the reply. The Railroad
Commission admitted that they did not know anything about it. They,
however, handed in the report of the railroad official as being true,
and it was admitted, both by the railroad, and by the Commission, that
these discounts on local rates were being given. The railroad official
claimed that the special rates were ‘open to all shippers sending
freight under similar circumstances and conditions,’ which may be true
if we understand circumstances and conditions’ to include the relations
of the shipper to the managers, and his pull with the railroad, but
cannot in any other way be made to square with the statements of
shippers and the other evidences in the case.”
While favored shippers were receiving discounts of 10 percent to 73
percent from the published rates, other shippers, and some doing
considerable business, declared that they got no discount at all. During
the legislative investigation the matter was put to Samuel Hoar,
attorney and director of the Boston and Albany, and he said: “I suppose
it is true that no shipper knows what his rival is getting. I suppose it
is true. But what of it? What has that to do with the lease?”
The receipts per ton-mile on all classes of freight were less than
one-half the average of the published rates to the various stations on
the road for the cheapest class of freight, viz., coal. And the lowest
published local rate on coal was higher than the average rate on all
commodities.
“The interstate-commerce law was passed in 1887 and the Interstate
Commerce Commission was established to abolish the evils of unjust
discrimination, but the work has not been accomplished. The Interstate
Commerce Commission has told us year after year that the discriminations
are still going on; and that they cannot be stopped under present laws
at least.”[157]
Mr. George R. Blanchard of New York, former commissioner of the Joint
Traffic Association told the Industrial Commission[158] that
“Discriminations against persons result from secret rebates, combination
of rates on inward material and outward products, so as to affect the
through charges; favoritisms in terminal facilities; quicker time in
transit; unequal or hidden allowances in weights; dissimilar storage
periods in cars or warehouses; preferences in supplying cars;
differences in special charges, such as switching, loading or unloading,
or in cartage allowances; the leasing of elevators to or making elevator
contracts with large handlers of grain, to their exceptional advantage;
the grant of undue allowances under the fictitious guise of commissions,
etc.”
Summing up the evidence gathered in its great investigation, 1900–1901,
the United States Industrial Commission concludes that the main effect
of the Interstate Act has been to concentrate the benefits of
discrimination in fewer hands,[159] which tends to build up trusts and
combines. It found discriminations everywhere prevailing. It says:
“There is a general consensus of opinion among practically all
witnesses, including members of the Interstate Commerce Commission,
representatives of shippers, and railway officers, that the railways
still make discriminations between individuals, and perhaps to as great
an extent as before. In fact, it is stated by numerous witnesses that
discriminations were probably worse during the year 1898 than at any
previous time.
“It is claimed that direct rebates and secret rates are still frequently
granted; commissions are paid for securing freight; goods are billed at
less than the actual weight; traffic within a State not subject to the
Interstate Commerce Act is carried at lower rates; allowances and
advantages are made in handling and storing, etc. Several witnesses
refer to the practice of shipping goods under a false classification.
Sometimes this is done without the knowledge of the railways, but in
other cases they apparently connive. Thus fine hardware may be shipped
as some low-class kind of iron.
“The representatives of the railways declare that so long as competition
exists the attempt to get traffic by secret rates must continue. It is
thought generally that there has been a considerable improvement in the
situation during the year 1899.... In the latter part of 1898, Messrs.
Cowen and Murray, receivers of the Baltimore and Ohio Railroad,
addressed a letter to the Interstate Commerce Commission declaring that
the practice of granting rates below the published tariffs was so
general as seriously to reduce the revenue of the railroads. More than
50 percent of the traffic, at least on certain roads, was affected. The
receivers expressed a determination to coöperate in the enforcement of
the law. Later, conferences were held between the Interstate Commerce
Commission and railway officers, which led to a general attempt to
reduce the extent of the evil. Many witnesses, however, including
representatives of the railroads, think that the improvement is only
temporary, and that when the present rush of traffic has ceased
discriminating rates will be granted more and more.”
The investigations of the last five years show that these witnesses were
right in thinking the cessation of hostilities to be only a temporary
truce.
CHAPTER XVII.
THE ELKINS ACT AND ITS EFFECTS.
The “Elkins Act,” approved Feb. 19, 1903, amended the Interstate Act in
some important particulars. It provides that any failure to publish
rates and charges, or any departure from the published tariffs, or any
offer or grant of any discrimination, rebate, concession, or device of
any kind whereby transportation is obtained at a less rate than the
tariffs published and filed with the Commission, shall be a misdemeanor
of the corporation as well as of the officers or agents concerned. Every
shipper also who solicits or accepts any such rebate, concession, or
discrimination is guilty of a misdemeanor. In each case, whether the
suit is against the railway company, or its officials, or a shipper, the
punishment is a fine of $1,000 to $20,000 for each offence, the
imprisonment clause of the Interstate Act being repealed.
Under these provisions the railroad companies themselves may be
attacked, in addition to the suits against the guilty officials provided
for by the Interstate Act, and shippers may be convicted by showing that
by any device they have obtained a lower rate than the published rate,
without proving that some one else paid more than the defendant, as was
formerly necessary.
The act also expressly authorizes the United States Circuit courts to
restrain by injunction or other appropriate process any departure from
published rates, or any discrimination forbidden by law, without
prejudice to the bringing of suits for damages or other action under the
Commerce Act. And it further declares that “in proceedings under this
act and the acts to regulate commerce, the said courts shall have the
power to compel the attendance of witnesses, both upon the part of the
carrier and the shipper, who shall be required to answer on all subjects
relating directly or indirectly to the matter in controversy, and to
compel the production of all books and papers, both of the carrier and
the shipper, which relate directly or indirectly to such transaction;
the claim that such testimony or evidence may tend to criminate the
person giving such evidence shall not excuse such person from testifying
or such corporation from producing its books and papers, but _no person
shall be prosecuted or subjected to any penalty or forfeiture for or on
account of any transaction, matter, or thing concerning which he may
testify or produce evidence, documentary or otherwise, in such
proceeding_.”
This is considered one of the best railroad measures so far enacted. It
is said by many that direct rebates have practically ceased since its
passage, and some declare that it has stopped all sorts of
discriminations.
While Mr. Bacon, an important witness from Milwaukee, was speaking to
the Senate Committee, 1905, of which Senator Elkins was chairman, the
following conversation took place regarding the Elkins Act.[160]
“SENATOR ELKINS. The Pennsylvania Railroad has not given a rebate since
the act was passed, and they do not want to. It has been a benefit to
the railroads, don’t you think so?
“MR. BACON. It has benefited the railroads, by millions of dollars.
“SENATOR ELKINS. I mean the good railroads.
“MR. BACON. It will undoubtedly effect a saving of upwards of a hundred
million dollars a year.”
Mr. Prouty of the Interstate Commission said to the Boston Economic Club
in March, 1905: “The Elkins Bill is one of the most beneficent measures
touching railway regulation of recent times. I have no words of
commendation too strong for that measure; but this bill, which has very
largely stopped the payment of rebates, as such, was a railroad measure,
conceived by the railroads, passed by the railroads, and in the interest
of the railroads, and no one thing in recent times has put into the
treasuries of railways of this country more money than that same
enactment.”
Senator Elkins who drew the bill is the political “boss” of West
Virginia. He is director of a railroad that belongs to the Pennsylvania
system and is otherwise identified with railroad interests. He acted in
harmony with leading railroads in drawing the bill. In fact, it is said
on high authority that it was framed in the office of A. J. Cassatt,
President of the Pennsylvania Railroad. The law is in many respects a
good one, although there is a clause in it which may protect the
railroads from the consequences of wrongdoing, and it is thought by many
that the real effect of the law has not yet become apparent. Railroad
managers do undoubtedly desire to protect themselves from the
importunities of shippers to whom they do not wish to give concessions,
and to be free from the danger of imprisonment, and so far as possible
from any danger, in case they are caught giving preferences to persons
or companies in whose property they or their railroads have a special
interest. The Elkins Act accomplished all these purposes. It is claimed
that the words italicized in the above quotation from the act will
prevent the prosecution of any officer or road on account of any cause
in respect to which they give evidence or produce books. In other words,
they can only be prosecuted where the discrimination or departure from
schedule rates can be proved without their help. Commissioner Prouty
says: “I have no doubt that rebates to a greater or less extent are paid
in many parts of this country. And if it turns out, as the railroads
contend, that the disclosure by any officer of a railroad gives the
company its exemption under the Elkins Bill your law is good for
nothing. They can resume the payment of rebates whenever they
desire.”[161]
The fact is, apparently, that for some months after the act was passed
the railroads in large measure discontinued rebates and some other
notorious forms of discrimination, just as they did for some months
after the Interstate Act was passed in 1887. The abuses “grew up again
afterwards, and almost every 1st of January, from that time down to
this, these railroad gentlemen get together and make a gentlemen’s
agreement that they will quit and reform and turn a new leaf and not do
it any more. They break down again and make a resolution again. They are
now under a good resolution.”[162]
Some of the sweeping declarations of railway men and others about
discriminations, and especially about rebates, are as follows:[163]
“All stopped.” “Eliminated.” “Almost annihilated since Elkins Law”
(February, 1903). “Almost entirely wiped out.” “Have known of no such
payments for over 12 years.” “Do not know of any in last three years.”
“Have not had any for about 20 years.” “Never had any.” “Know of none.”
“Have been practically abandoned.” “Past issue.” “Have no knowledge of.”
“No complaints of.” “None so far as I know.”
Some of the witnesses give the railways a clean bill of character and
even put a coat of whitewash over the record of the Standard Oil from
1887 on. Mr. Hiland, head of the traffic department of the Chicago,
Milwaukee and St. Paul, says: “Unjust discriminations and rebates have
ceased.”[164]
Mr. Bird, Vice-President of the Gould lines, says: “I believe there are
no rebates paid.”
“CHAIRMAN. And discriminations?
“MR. BIRD. No secret discriminations. There may be discriminations that
are open and published in the tariffs.... I do not believe that the
Standard Oil Company has received a rebate since 1887.... I do not
believe that the beef trusts are getting rebates.”[165]
Mr. Brown, counsel for the Santa Fe, said: “My sole purpose in appearing
here is to put on record a sweeping denial that the A. T. and S. F.
Company has made any discriminatory rates or paid any rebates.”[166]
Mr. Biddle, traffic manager of the Santa Fe, was not quite so sweeping.
He said: “It is true that rebates have been paid, although personally I
have not known of any such payments for over twelve years.”[167]
A more impressive mass of negative evidence could hardly have been
secured, even if the Commission had selected the witnesses with a view
to their ignorance of rebates and kindred manœuvres. It is peculiarly
fortunate, just at this time, to have the statements of so many who seem
to have refrained from associating with rebates or seeing any
discriminations, in view of the vigorous anti-rebate remarks of
President Roosevelt in his recent messages to Congress, asking for
further legislation to check railroad abuses. The President is under the
impression that rebates and other evils still exist, but if the Senate
Committee can report to Congress that this is a mistake it will be clear
that the said new legislation is not needed.
Unfortunately, however, the weight of evidence is against those who
affirm the conversion of the railroads to the ways of virtue. The
cessation of discriminations is denied by a large number of authorities
including railroad men of the highest position.[168]
James J. Hill, President of the Great Northern, says discriminations
still exist and must exist. He thinks discriminations will never cease,
and declares that railroads “have to discriminate.”[169]
Victor Morawetz, Chairman of the Executive Committee of the Santa Fe and
its chief counsel, says that discrimination still exists and is “bound
to exist” under present conditions. Many things the traffic managers do
are not authorized by their superiors and would not be approved by them,
but it is understood that concessions are given and must be given.[170]
President Stickney of the Chicago and Great Western says that prior to
the injunctions against paying rebates “it was understood among business
men that schedules were made for the small shippers and those
unsophisticated enough to pay the established rates,” and since the
injunctions the knowledge of the traffic directors has been exerted in
“the problem of how to pay rebates without paying rebates.” They use
“elevator fees” and “midnight schedules” or sudden changes of tariff
known beforehand to favored shippers. These special tariffs “are of
frequent occurrence and result in greater injustice than secret
rebates.”[171]
Mr. Rich, the general solicitor for the B. & M., said to the Providence
Economic Club, in the spring of 1905, that 75 percent of products is
carried below the published rates. He added that the rates are mostly
open. The published rates no doubt are open, but it is hard to believe
that the cut rates are mostly open. If they were, there would be no
reason for publishing rates other than those in use. Every rate below
the published tariff is a violation of law. And it is not easy to see
why the railroads should risk multitudinous violations of law simply to
establish open rates which might be published without interfering with
any purpose that is honest. I quoted Mr. Rich’s words to an excellent
authority and he said, “Cut rates are not open rates. Can’t make people
believe that.”
Senator Dolliver said:[172] “A famous railway president, speaking in
this city a month ago, stated that the whole railway practice of America
was honeycombed with secret rebates and discriminations as late as last
January.”
Professor Ripley says[173] that discriminations between localities and
between commodities through classification, etc., are still serious
evils.
Governor Cummins of Iowa said:[174] “So long as there is competition
among the railroads in securing business, so long they will find some
way of getting that business through favors.”
Mr. C. W. Robinson, representing the New Orleans Board of Trade, said:
“The direct rebate has been stopped by the Elkins law, but there still
remains the indirect rebate, or the almost innumerable forms of
discrimination, which are difficult to reach by legislation, and in the
practice of which some of the traffic managers are unquestionably
experts.”[175]
The complaints made to the Interstate Commission in the last few
years[176] and the facts brought out in the investigations of the
Interstate Commission from March, 1903, to the present time, and in the
Hearings of the Senate Committee, 1905, abundantly confirm the opinions
of these witnesses.
The Elkins Bill became law in February, 1903. In December of the same
year the Interstate Commerce Commission reported that they believed the
payment of rebates was largely discontinued, but that pressure upon the
companies to maintain published rates had “begotten a new crop of
expedients for the purpose of favoring particular shippers.”[177]
Private-car abuses and terminal-railway abuses especially have “grown up
much more intensely and to an aggravated degree since the Elkins Act
than ever before.”[178] In 1902, in consequence of the exposure of
wholesale rebates in the dressed-meat traffic, etc., temporary
injunctions were issued against 14 leading railroads of the West, and
while the matter was still before the court the Elkins Bill was passed,
settling the injunction question in favor of the Commission. The
railroads, convinced that rebates were dangerous, for the time at least,
turned their attention to methods of discrimination not so subject to
injunction or other judicial disorder. To these they have given their
main allegiance, though they have by no means abandoned the rebate.
CHAPTER XVIII.
THE WISCONSIN REVELATIONS.
In 1903, as stated in a previous chapter, Governor La Follette began an
investigation of the railroads in Wisconsin, in relation to illegal
deductions from the gross earnings returned by them as a basis for
taxation. The investigation covered the period from 1897 to 1903, and it
was found that $10,500,000 of illegal tax deductions had been made in
that time, about $7,000,000 of which was in the form of unlawful rebates
and discriminations. Every railroad of any importance in the State had
paid rebates every year in large amounts both on passenger traffic and
freight business. Here is a table of the rebates paid in violation of
the Interstate Commerce Act and the Elkins Law by the leading railways
in Wisconsin, so far as brought to light by the investigation:[179]
ILLEGAL REBATES PAID TO SHIPPERS IN WISCONSIN, 1897–1903.
FREIGHT. PASSENGER.
Chicago, Milwaukee & St. Paul $1,346,237. $170,968.
Chicago & Northwestern 3,023,810. 614,361.
Chicago, St. Paul, Minneapolis & Omaha 515,323. 64,559.
Wisconsin Central 244,492. 82,475.
“Soo Line” 464,041. 39,807.
Burlington 366,105.
Other Railroads 158,677. 489.
——————————— —————————
$6,118,689. $972,661.
These figures represent only part of the rebates really paid, and do not
touch in any way the vast amount of favoritism which does not take the
rebate form nor appear in any cash item.
Part of the Wisconsin rebates were paid on State business, but far the
larger part was on interstate traffic. The Elkins Law, instead of
putting an end to the payment of rebates, as so many railroad men have
declared, had no effect whatever, apparently, on the volume of rebates
paid. Here is the monthly record of rebates paid in 1903 by one of the
principal railroads operating in Wisconsin:
January, 1903 $37,000
February 57,000
March 47,000
April 36,000
May 25,000
June 13,000
July 101,000
August 32,000
September 46,000
October 9,000
November 666
December 2,032
The Elkins Act went into effect February 19, 1903; yet the rebates in
February and March were larger than in January; and the rebates for July
were nearly three times the January figure. It is clear, however, that
when the light of publicity was turned on by the investigation, which
began September 29, 1903, the rebate payments that could be checked up
on the books dropped from $46,000 in September to $9,000 in October,
$666 in November, and $2,032 in December. Instead of paying cash rebates
the railroads began to issue a great many “midnight tariffs,” that is,
rate schedules printed on purpose to give favored shippers advantages
over others and then revoked or superseded as soon as the purpose has
been accomplished, so that the midnight tariff has, in a different way,
done exactly what is done by the payment of the cash rebate.
The impotency of the Elkins Law is still further shown by the fact that
the total rebates paid by the railroads in 1903 were greater than the
rebates of 1902. The Northwestern road, for example, jumped from
$212,075 rebates in 1902, before the Elkins Law, to $410,476 in 1903,
mostly after the Elkins Act took effect.
We have seen in Chapter III how President Mosher of the Northern Grain
Company fought La Follette’s railroad reforms because of his deep
sympathy with, and appreciation of, the rights of railroads that were
paying his company $30,000 a year in secret rebates. Another man who
bitterly opposed La Follette, denouncing him as “an inciter,” a
demagogue, etc., was an officer of one of the refrigerator companies
that carries beer for a big Milwaukee brewery. At the very time this
official condemned La Follette, his company was receiving from one to
three thousand dollars a month in rebates from a single one of the
Wisconsin railways, in addition to the mileage profits on the cars. No
wonder the brewers and their allies opposed all progressive railroad
legislation when they were getting $73,240 a year in mileage rentals,
and many thousands more in secret rebates or commissions from the
Chicago, Milwaukee, and St. Paul alone. These men were strongly of
opinion that there was law enough already.
An investigation in Minnesota a little before that of Wisconsin showed
precisely the same sort of facts, namely, enormous amounts in rebates
were paid by the Great Northern, the Northern Pacific, and other
Minnesota railroads. But in the Minnesota cases, to forestall further
agitation and publicity, most of the railroads paid the additional taxes
demanded by the State.
The railroads do not by any means confine their rebate operations to the
States in which their lines are located. The case of the Camden Iron
Works, recently before the Interstate Commerce Commission, shows that a
railroad will reach half across the continent with a rebate in its hand
to grasp important shipments. In this case the Northern Pacific gave R.
D. Wood & Co. of Philadelphia, the owners of the Iron Works, a rebate of
5 cents a hundred on 1,500 tons of iron pipe. The Great Northern, the
Canadian Pacific, the Delaware & Hudson, and other roads had agents on
the spot trying to get the business away from the Pennsylvania, which
would naturally have taken the shipment, but the 5 cent rebate carried
the day and the iron went via the B. & O., the Great Lakes, and the
Northern Pacific. The rebate was paid by a check for $1,500, and no one
but the traffic managers knew of the transaction, which would probably
never have come out except for the complaint of a traffic agent on the
Pennsylvania, who had offered a rebate of 1 cent a hundred but did not
get the business and was therefore blamed by his superiors.
CHAPTER XIX.
THE COLORADO FUEL REBATES AND OTHER CASES.
In the Colorado Fuel and Iron Case, investigated by the Commission in
1904 and 1905, it was shown that the Santa Fe has persistently violated
the Interstate Act, the Elkins Act, and the injunctions issued by the
United States Circuit Court. The Santa Fe tariff filed with the
Interstate Commission May 24, 1903, and in effect till November 27,
1904, made the rate on coal from the Trinidad district, Colorado, to
Deming, N. M., $4.05 a ton; but Mr. Biddle, General Traffic Manager of
the Santa Fe, testified that during all this time $1.15 of the $4.05 was
always paid back by the railroad to the Colorado Fuel and Iron Company,
a concern in which the Standard Oil people are largely interested.
Similar favors were shown the Colorado Company in respect to shipments
from its mines at Gallup, N. M., giving that company a decided advantage
over competitors, who were obliged to pay the full rate.[180]
It made a difference, also, who was to get the coal. The Santa Fe
carried Colorado Fuel and Iron Company coal to the El Paso and
Southwestern for $2.90 a ton, while charging $3.45 a ton for hauling the
same coal from the same mine to the same point, Deming, when the billing
was to the Southern Pacific. The El Paso could get coal on a rate of
$2.90, while the Southern Pacific must pay $3.45 and the published
tariff rate was $4.05. Anybody on the line of the El Paso who stood in
with the management could get the $2.90 rate, while his competitors
might be paying $4.05.
Mr. Biddle testified as follows, December, 1904, in answer to the
questions of Mr. Field: “I say the freight rate we got from the Southern
Pacific was $3.45 at the time we were accepting $2.90 on coal destined
to the El Paso and Southwestern.”
“MR. FIELD. That is to say, at that time you were charging the Southern
Pacific Railroad Company $3.45 per ton for transporting coal (to
Deming), when you were charging the El Paso and Southwestern Railroad
Company only $2.90?
“MR. BIDDLE. Yes, sir.
“MR. FIELD. And all upon a published tariff which showed a rate of $4 to
Deming?
“MR. BIDDLE. No; the arrangement we had with the Southern Pacific was an
agreement as to what they would pay for their coal.
“MR. FIELD. You paid no attention whatever to the published tariffs?
“MR. BIDDLE. I don’t know that we published a tariff on Southern Pacific
coal at all.
“MR. FIELD. When you published a tariff for the information of the
public and the Interstate Commerce Commission, it was with the
reservation that you might modify that tariff to certain consumers as
suited your business?
“MR. BIDDLE. It didn’t apply to coal when destined to the Southern
Pacific.
“MR. FIELD. That is another way of saying that it didn’t apply when you
didn’t want it to apply.
“MR. BIDDLE. It means just exactly what I said it meant. I said that the
rate we published to Deming on coal was published with the full
knowledge that it did not apply on coal destined to the Southern
Pacific, or coal going to points on the El Paso and Southwestern.
“MR. FIELD. With whose full knowledge?
“MR. BIDDLE. With my full knowledge.”
That is to say: The law requires all rates to be published and adhered
to, so that the Commission and the public may know what rates are being
charged. The traffic manager publishes a rate on coal, knowing that he
intends to give a secret cut rate to special customers, and then
testifies that the secret rate is no breach of the published tariff or
violation of law because the tariff was published with his full
knowledge that he wasn’t going to stick to it. The law in such case
depends entirely on what the railroad manager whispers to himself when
he issues the tariff. If the manager says to himself, “I intend to
follow this tariff which I’m sending to the Interstate Commerce
Commission,” then a rate lower than the tariff is in violation of the
law; but if the manager says, “I intend to give the Southern Pacific and
the El Paso lower rates than this tariff shows,” then the tariff is
issued with full knowledge that it doesn’t apply to Southern Pacific and
El Paso, and cut rates to Southern Pacific and El Paso and their
customers constitute no violation of law.
The Caledonian Company was organized in 1888 to operate a coal mine at
Gallup, N. M., on the Santa Fe.
The company sold large quantities of engine coal to the Santa Fe. The
contract expired in 1898 or 1899, and was not renewed, the parties not
being able to agree on the price; but the Santa Fe continued to buy more
or less coal from the Caledonian till 1901. Some time previous to the
expiration of the contract, the other mines at Gallup came under the
control of the Colorado Fuel Company. An agent of the Colorado Company
asked the Caledonian manager to name a price on his property, but he
declined to do so. “Soon after the Colorado Company took possession of
these mines, the Santa Fe system stopped receiving engine coal from the
Caledonian Company.” The Caledonian had a contract for engine coal with
another road, the majority of whose stock was owned by the Santa Fe.
This contract was also terminated in 1903, the manager of the road
stating that he did it, not because of any dissatisfaction, but by
direction of the purchasing agent for the Atchison.[181]
The Caledonian sought other markets, but found itself handicapped by
discriminating freight rates. Coal from the Colorado Fuel Company’s
mines at Trinidad and at Gallup was being supplied at a price which just
about equalled the freight rate alone from the point of production to
destination. For example, the rate on lump coal from Gallup to Las
Cruces was $5.65, and the coal was selling at the mine for $1.60 to
$2.50 per ton; yet Gallup lump coal from the Colorado Fuel Company’s
mines was being sold in Las Cruces for $5.65 a ton, exactly what the
rival company, the Caledonian, would have to pay in freight. The
Caledonian shipped coal to Silver City, N. M., paying the published
rate, $5.90 a ton, while the Colorado Company was able to deliver Gallup
coal at Silver City at $5.75 total for freight and cost of coal. This
was in April, 1900. Later, the Caledonian shipped to Silver City at a
rate of $5.75 per ton, just what the Colorado sold for, freight and all.
As Gallup, Silver City, and Las Cruces are all in New Mexico, the
Interstate Act does not apply to traffic between those points; but “Mr.
Bowie (manager of the Caledonian) testified that he had made many
shipments from Gallup to El Paso, Tex., upon which he paid the published
rate, and that he found the same competitive conditions at El Paso and
at points in Arizona and Mexico which existed at Silver City.”[182]
The result was that the Caledonian and other mines were practically
driven from the market, their business brought to a standstill, and the
Colorado Fuel Company obtained a virtual monopoly of the trade that
should have been divided with these companies.
Before the Senate Committee, 1905, in answer to a question by Senator
Kean about the so-called discriminations in the matter of the Colorado
Fuel and Iron Company and the Santa Fe Railroad, Mr. Hearne of the
Colorado Fuel Company said: “This matter has been brought about largely
by sensational newspapers.... The coal produced by the Gallup people is
inferior,[183] carrying not more than half the heating power of our
high-grade bituminous. If the railroads have not extended to them the
same rate they have extended to us, I presume it is because the people
at Deming and El Paso, etc., do not want that fuel at any price.”[184]
In other words, the Gallup coal was so poor that the people at Deming
did not want it anyway, and so the railroad put a prohibitive rate on it
to keep the people at Deming from buying it instead of the far superior
Colorado coal which the people were determined to buy anyway.
The Santa Fe used to own and operate coal mines, but in 1896 leased them
to the Colorado Fuel and Iron Company under a contract[185] supposed to
cover the question of freight rates. Afterward a circular in reference
to coal rates was issued from the central office of the Santa Fe in
Topeka.[186] It stated that coal originating at certain points (where
the Colorado Fuel and Iron Company had mines) would be delivered when
consigned to certain specified industries or parties at prices covering
both freight and cost of the coal, which total prices might be, as we
have seen, no greater than the published freight rate alone. The
circular was headed: “This publication is for the information of
employees only, and copies must not be given to the public.”[187] And it
gave notice to Santa Fe agents that the Colorado Company’s coal shipped
to points on the Santa Fe was “to be billed at figures furnished by the
Colorado Fuel and Iron Company which will include the freight rate and
the price of coal.”[188]
The following questions of the I. C. C. counsel, Mr. Field, and answers
by Mr. Biddle, the general traffic manager of the Santa Fe, are of
interest in this connection:
“MR. FIELD. You did not advise the Commission that the rate you made (on
the Colorado Company’s coal) included the price of the commodity?
“MR. BIDDLE. No.
“MR. FIELD. Why didn’t you?
“MR. BIDDLE. I didn’t consider it necessary.
“MR. FIELD. I ask you categorically if you didn’t do it with the
intention of deceiving the Interstate Commerce Commission and the
competitors of the Colorado Fuel and Iron Company as to that rate.
“MR. BIDDLE. No, sir.
“MR. FIELD. What was your purpose, Mr. Biddle?
“MR. BIDDLE. Well, we did it for business reasons.
“MR. FIELD. What were the business reasons? I want you to tell me the
reasons.
“MR. BIDDLE. We did it for reasons we did not consider necessary to
tell; on coal to intermediate points—the rate that we found it necessary
to make to points reached by the El Paso and Southwestern.
“MR. FIELD. You say upon your oath now, that you did not do it for the
purpose of deceiving the Interstate Commerce Commission or the
competitors of the Colorado Fuel and Iron Company?
“MR. BIDDLE. Whatever answer I may make here I am making under oath.
“MR. FIELD. Do you say that is so?
“MR. BIDDLE. I repeat what I said.
“MR. FIELD. You did not intend to conceal from the Interstate Commerce
Commission the fact that that rate as published included the price of
the commodity?
“MR. BIDDLE. We did it for business reasons.
“MR. FIELD. I ask you for a categorical answer. Did you or did you not
intend to conceal from the Interstate Commerce Commission the fact that
that rate included the price of the commodity?
“MR. BIDDLE. I decline to answer.”
In another part of the hearing, Mr. Field said to Mr. Biddle: “Can you
say, Mr. Biddle, how it happened that you issued a circular to your
subordinates in which you said, with reference to these coal rates, ‘To
be billed at figures furnished by the Colorado Fuel and Iron Company,
which include the freight rates and the price of coal; the rates issued
in the regular tariffs to be the minimum’?”
“MR. BIDDLE. Yes, sir.
“MR. FIELD. Will you tell us?
“MR. BIDDLE. It is because the railroads—the Western railroads
particularly—I don’t know whether the Eastern roads do it or not—have
been engaged in the reprehensible occupation of serving as a collecting
agency for the coal companies, and those particular instructions were
given so that the Colorado Fuel and Iron Company could sell coal to John
Smith at a given place and charge him $1.25 and somebody else $1.50 for
that same coal.”[189]
When the document was presented in evidence before the Interstate
Commerce Commission, counsel for the railway objected to its
introduction on the ground that it had been stolen.
Morawetz says that the rate agreement in respect “to shipments to the El
Paso and Southwestern was a three-cornered arrangement made in New York
in 1901 between the Colorado Fuel Company, the Santa Fe, and Phelps,
Dodge & Co., who operated large copper mines and controlled the El Paso
and Southwestern Railway.”[190]
Paul Morton, who was then the head of the Santa Fe traffic department,
says that in 1901 the people interested in smelting and mining in
Southern Arizona and Northern Mexico threatened to use Eastern coke or
build a coal railroad of their own unless lower prices were made on the
coal and coke they were receiving at El Paso and Deming. They were large
consumers, and their threat menaced a traffic worth nearly a million
dollars a year to the Atchison system. To protect its interests the
Santa Fe entered into an agreement with the Fuel Company and the El Paso
and Southwestern people the terms of which were that the Fuel Company
was to supply coal at $1.15 a ton, and the Santa Fe was to haul the coal
to El Paso and Deming “at the very low rate of $2.90 per ton, which was
in reality a division of rate, not usually published.” And “the
Southwestern people were to pay $4.05 for the coal which was to be used
by the railroad itself and the industries along its line.”[191]
This arrangement was, in view of the rates charged shippers from other
points and other consignees at El Paso and Deming, a clear violation of
the common law and the Interstate Commerce Act. A Federal injunction was
served on the Santa Fe in March, 1902, forbidding departure from the
published rates, and the Elkins Bill was passed in February, 1903. The
El Paso arrangement was not at the start a defiance of injunction or the
law of 1903, but became such by its continuance after their issue.
General Traffic Manager Biddle and General Freight Agent Gorman sent out
general orders in March, 1902, and February, 1903, that the law was to
be obeyed, and that “no departure therefrom will be permitted so far as
this company is concerned,” but the law was not obeyed nevertheless. A
general order of a railroad manager counter to the financial interests
involved does not seem to count any more than a Federal injunction.
The El Paso agreement was by no means the only breach of law in the
case. Even the discriminations in respect to shipments between New
Mexico points were in direct violation of settled principles of the
common law.
The Commission found that the Santa Fe acted as agent for the Colorado
Fuel Company in collecting from its customers the price of the coal
itself along with the freight rate;[192] that for over five years (July,
1899, to Nov. 27, 1904) the railroad had paid the Colorado Fuel Company
a rebate of $1.10 to $1.25 per ton on shipments to Deming; that the
railroad and the Coal Company have “systematically and continuously”
violated the Interstate Commerce Act of 1887 and also the Elkins Act of
1903; and that from March 25, 1902, till Nov. 27, 1904 the railway had
been in “continuous disregard” of the order of the United States Circuit
Court (in a suit begun at the instance of the Interstate Commission)
enjoining the railway to observe its published schedules of rates.[193]
Commissioner Prouty says: “In all my experiences with railway operations
I never saw such barefaced disregard of the law as the Santa Fe railroad
and the Colorado Fuel and Iron Company have manifested in this coal
case. For years the railroad company has received less than its
published rates from the Colorado Fuel and Iron Company while its
competitors have paid higher rates.”
The counsel, Judson and Harmon, employed by the Government to examine
into the “alleged unlawful practices of the Santa Fe in the
transportation of coal and mine supplies” reported to the Attorney
General, February 28, 1905, as follows: “From August, 1902, until
December, 1904, the railway company continuously transported coal for
the Colorado Fuel and Iron Company at less than the published rates then
in force, from various points in Colorado and elsewhere to El Paso,
Tex., Deming, N. M., and other places, to which such transportation was
interstate commerce.
“This was done by secret arrangement between the two companies, under
which the coal was apparently billed at the published rate of freight,
although in fact the price of the coal was included. The railroad
company collected the amount shown by the billing, and paid over part of
it to the fuel company as the price of the coal, making the real charge
for transportation less than the published rate by just that amount. At
the same time the rates given and charged other shippers were the
published tariff rates without any deduction.
“This plan, and the way it was carried out, plainly indicate an
intention to deceive the Government and the public, and to enable the
fuel company to gain a monopoly of the coal supply at the points
involved by giving them a strong advantage over competitors in the
actual cost of transportation. The motive for thus favoring the fuel
company does not appear in the evidence thus far taken, but the fact is
clear.
“This secret arrangement with the fuel company involved the carriage of
hundreds of cars per month. The concessions from the established rates
must have amounted to about a million dollars for the two and one-half
years during which they were granted; and it is incredible that this
scheme was devised and carried out by any authority but that of the
chief officers of the railway company, who were in control of its
traffic department. And it was the duty of each and all of these
officers to see that the injunction (of March, 1902) was obeyed.”
The special counsel recommended that “the Atchison Company and all its
principal officers and agents who had, during the period above named or
any part thereof, power and authority over traffic agreements and
freight rates, be arraigned for contempt of court.”
President Roosevelt has directed that proceedings for contempt be taken
against the companies in the Colorado Fuel Case and the International
Harvester Case, but will not proceed against individual officers
personally in any case until the department is in possession of “legal
evidence of wilful and deliberate violation” of law on their part.
I went over the Santa Fe while these secret discriminations were in full
blast, and met President E. P. Ripley, Vice-President Paul Morton, and
other high officials, who impressed me so favorably in our talks about
rates, discriminations, etc., that I wrote in my notebook: “I believe I
have found one honest railroad in America, honest at least in intent,
whatever deviations from principle the system may force upon it.” Mr.
Spearman evidently got a similar impression, for he says: “The Santa Fe
has eliminated preferential rates entirely from its own traffic
problems; and this sturdy determination to put all shippers on a just
and equal footing, to maintain open and even rates, is the keynote of
President Ripley’s successful strategy.”[194]
This is stronger than the impression I received, which was that
discriminations did exist and it was not thought possible that they
should cease to exist, so long as competition continues, but that there
was an earnest purpose to eliminate them so far as possible.
Notwithstanding the Colorado Case and others mentioned hereafter I still
think that the present administration of the Santa Fe is on the whole
relatively very honest and very admirable.[195]
President Roosevelt was led to a similar conclusion by the frank and
manly stand taken by Paul Morton in his testimony in the Dressed-meat
Hearings, Jan. 7, 1902. In a letter to Mr. Morton, June 12, 1905, the
President says: “At the time when you gave this testimony the Interstate
Commerce Law in the matter of rebates was practically a dead letter.
Every railroad man admitted privately that he paid no heed whatever to
it, and the Interstate Commerce Commission had shown itself absolutely
powerless to secure this heed. When I took up the matter and endeavored
to enforce obedience to the law on the part of the railroads in the
question of rebates, I encountered violent opposition from the great
bulk of the railroad men and a refusal by all of those to whom I spoke
to testify in public to the very state of affairs which they freely
admitted to me in private. You alone stated that you would do all in
your power to break up this system of giving rebates.” It was this, the
President says, that led him to invite Mr. Morton to take a place in the
Cabinet.
The high character and ability of Mr. Morton and President Ripley and
the fact that the Santa Fe management seems to represent high-water mark
in railroad honesty, gives great importance to the Santa Fe cases, and
the attitude of her leading officers towards the law, and the principle
of impartial treatment of shippers.
Paul Morton is reported to have said to a representative of the Chicago
_Daily News_, December 31, 1904: “What Mr. Biddle did was exactly right,
in my judgment, and if I had been in his place I should have done the
same thing.” And President Ripley is stated to have said to a reporter
for the _Inter-Ocean_, “It was not rebating. It was simply a figure
agreed upon by private contract. Mr. Paul Morton was cognizant of it,
and though his name may not be affixed to the order, he was the man from
whom Mr. Biddle, the freight traffic manager, got authority to haul coal
for the Colorado Fuel and Iron Company on the terms named.”
“Did you also know of it, Mr. Ripley?”
“Why, yes, as I know of all of our business. I consider it absolutely
legitimate, and will do it again to-morrow if I like.”
Knowing that serious misrepresentations have appeared in the papers,—for
example, that Mr. Morton was a stockholder in the Colorado Fuel Company,
and recreant to Atchison interests, which was untrue, as Mr. Morton had
sold his stock in the Fuel Company and all its auxiliaries when he left
its employ before entering the service of the Atchison in 1895—knowing
the frailty of newspaper reports I wrote to President Ripley and Paul
Morton asking if it were true that they had said Mr. Biddle did right in
making the arrangement with the Colorado Fuel Company in respect to the
rates to Deming, etc. They replied as follows:
THE ATCHISON, TOPEKA & SANTA FE RAILWAY SYSTEM.
_President’s Office._
CHICAGO, August 22d. 1905.
DEAR SIR,—I did say to the Press that Mr. Biddle’s action in making
the rate was exactly right. The whole trouble arose from a mistake in
our tariff printing department in confusing the actual rate charged
with the amount to be collected at destination. It was our custom, and
that of all the other fuel roads in Colorado, to collect at
destination the price of the coal as well as the freight rate.
Inasmuch as the tariffs printed are a guide intended quite as much for
the information of our own agents as for the public, the clerks
included the price of coal in the tariff as a guide to collecting
agents, but it did not occur to them that the information was liable
to mislead the public, especially as it was a well-known fact that no
shipper except the Colorado Fuel and Iron Company could possibly be
interested. The whole transaction was a perfectly innocent one so far
as regards any intent to injure any interests or to deceive the public
in any way, nor was any person injured by the transaction. I think
that all this will transpire and be recognized by the court in the
case now pending at Kansas City, though, of course, I am not in
position to anticipate a court decision. The trouble with the whole
matter was the fact that Mr. Morton was a member of the Cabinet and
that certain portions of the Press made use of the incident for the
purpose of discrediting the Administration.
The matter was unfortunate in so far as it may have constituted a
technical violation of the Interstate Commerce Law and of the
Injunction, but that is the worst that can be said of it.
(_Signed_) E. P. RIPLEY.
THE EQUITABLE LIFE ASSURANCE SOCIETY.
_President’s Office._
NEW YORK, August 24, 1905.
DEAR SIR,—Referring to your query relative to the remarks alleged to
have been made by me on December 31, 1904, to a reporter of the
Chicago _Daily News_, I have to say that although I do not now recall
everything that may have been said by me in conversations which were
not intended for publication, it is quite possible that I did remark
to some newspaper men that in my judgment Mr. Biddle’s personal action
in the case was entirely justifiable, and exactly what I or any other
railroad man would have done under similar circumstances. The contract
between the Railroad Company and the Fuel Company was of itself
neither unlawful nor unbusinesslike. On the other hand, it was
perfectly defensible from a legal standpoint, as well as being good
business ethics.
The fault lay with the Railroad Company’s tariff bureau, which failed
to properly publish the tariff, which should have shown that the
published rate of $4.05 per ton included the price of the coal ($1.15
per ton). There was no discrimination in favor of the Colorado Fuel
and Iron Company; in fact, discrimination was impossible, because
there was no other shipper of coal in that territory.
(_Signed_) PAUL MORTON.
There were, however, other mining companies in adjacent territory, along
the line of the Santa Fe in New Mexico, and at Gallup there were
competitors in the same field. The same day that the Commission began to
investigate the Colorado Case complaint was made about the rates from
San Antonio, N. M. San Antonio lies 150 miles north of El Paso on the
Santa Fe line from Trinidad, which is 500 miles from El Paso. The rate
paid by the Fuel Company from Trinidad was $2.90 and the rate from San
Antonio had been $1.25. “Under this adjustment of rates a coal operator
at Carthage whose product reached the iron of the Santa Fe at San
Antonio had been able to compete with the Colorado fields, and had
entered into a contract for furnishing the Mexican Central Railway
Company with its fuel. While that contract was pending the Santa Fe
advanced the freight rate from San Antonio to El Paso from $1.25 to
$1.50. By this action the operator at San Antonio was forced to give up
his contract and go out of business.”[196]
It seems clear that even our best railroads, while unwilling to
countenance graft and desiring to avoid all criminal practices, see
nothing immoral in granting whatever favors or imposing whatever
disadvantages may be deemed necessary to forward the financial interests
of the road.
The Santa Fe is by no means the only railroad that has been kicking over
the traces since the Elkins Bill was passed. Mr. Hendrickson, Secretary
of the Associated Merchants of Cumberland, Maryland, told the Senate
Committee that he came “to complain of coal discriminations. We are
charged 15 cents more a ton to tide water for our coal than is charged
other mines in more distant regions (50 to 75 miles further from market
on the same road), and we have a large amount of bituminous coal that
cannot be developed at the 15 cents differential.”
“SENATOR DOLLIVER. Why do they make this differential against you?
“MR. HENDRICKSON. I can only state that the Baltimore and Ohio
officials, when they were petitioned, said that other districts have
poorer coal than ours, a compliment we did not appreciate under these
circumstances; and they object to letting our coal reach market as
cheaply as these districts which they claim have poorer coal.
Nevertheless, it shuts our region out entirely. It is practically a
confiscation of our coal values, not our coal, but coal values, and that
amounts practically to the same thing.”[197]
The B. & O. made certain charges when coal was loaded by tipple and
exacted more if it was loaded in any other way. This is an unreasonable
discrimination against all who do not load by tipple.[198] The Pere
Marquette Railway has been selling ice to the Armour Car-Line at $2 a
ton while charging other shippers $8 to $12 per ton.[199]
The absorption of switching charges in some cases and not in others
constitutes an easy method of discrimination. For example, at Cincinnati
there is a large buyer of lumber whose yard is on what is called
“Hazen’s Switch.” To get to this switch from the Louisville and
Nashville Railroad, cars must go over part of the tracks of the P. C. C.
and St. Louis Railway and the Cinn. L. & N. Railway. These roads charge
the Louisville and Nashville $6.50 to $9 a car for switching. On lumber
originating at some points the shipper has to pay these switching
charges in addition to the freight; while on lumber from other points
the Louisville railroad pays the switching charges and the shipper is
favored to that extent.[200]
CHAPTER XX.
FREE CARTAGE, STATE TRAFFIC, DEMURRAGE, THE EXPENSE BILL SYSTEM, GOODS
NOT BILLED, MILLING-IN-TRANSIT.
In a recent St. Louis case it appears that the railroads were paying 5
cents a hundred to transfer companies for carting goods across the river
from East St. Louis to the depots in St. Louis. They paid the same
amount to the Grant Chemical Company for hauling their own goods across
the river and also to the make-believe transfer company of the Simmons
Hardware Company, the traffic manager of which organized the company’s
own teams into a little transfer company on purpose to get 5 cents per
hundred from the railroads. Other shippers were refused the 5 cent
teaming allowance. The Interstate Commission held that the payments to
the Chemical Company and the burlesque Simmons transfer company were
unlawful rebates.[201]
Traffic within a State not subject to the Interstate Commerce Act is
carried at low rates for favored shippers. Sometimes the shipper pays
the full interstate rates in consideration of receiving preferences on
shipments within the State to which the Interstate Act does not apply.
Allowances and advantages are accorded in handling and storing.
Commissions are paid, and goods are billed at less than actual weight.
And goods are shipped under false classification or to a false name
under the “straw man” system. This system is thus described by Mr.
Gallagher, representative of the Merchants’ Exchange of St. Louis:
“Instead of billing that stuff to the man I have sold it to I bill it to
a fictitious man, or straw man. On the bills he is the actual shipper. I
do not see him at all, don’t know anything about him, but he bills the
stuff to the man that I want it to go to, my customer, and it will go
through all right, and by and by the straw man sends me a check for a
rebate. You cannot find him; at least, I have not been able to do it.
That was also described to me by a man who practices it.”[202] Some
shippers are allowed to let carloads lie 15 days without demurrage,
while others have to pay for the car service they get.[203] In the West
I found many instances of this. In Butte, for example, one mining
company does not have to pay any demurrage, while other companies are
charged with demurrage.
Railway purchasing agents are instructed to buy supplies from parties
who are large shippers, and these agents buy at prices which afford such
shippers all the benefits they would get from a rebate on the freight
rates.[204] This is, in fact, only another way of paying rebates. The
allowance of fictitious claims is still in vogue.[205]
Abuse of the “rebilling privilege” or the “expense bill system” is still
in full bloom. Rebilling properly relates to the reshipment of goods
received in unbroken carload lots, so as to make them complete a
continuous trip at the through rate from the point of origin to final
destination. But it appears from a case passed upon this year, 1905, by
the Supreme Court of Mississippi, that merchants in Vicksburg receiving
freight over the Vicksburg, Shreveport and Pacific Railroad are allowed
to use their “expense bills,” showing the amount of freight received
over that line, in a way that enables them to get reduced rates. Within
90 days of the date of any expense bill the holder can ship out over
that road an equal quantity of freight not necessarily the same he had
received, but anything he chooses. By this means the Vicksburg merchants
can get grain by barge and ship it out at 3½ cents, while the merchants
of Meridian have to pay 10 cents on similar shipments, and the low rate
was not available either for merchants in Vicksburg who did not deal
with the said specially favored associated line having the through
rate.[206]
In a still more recent investigation (July 1905) by the Interstate
Commission at Louisville, Ky., it appears that on presentation of an
expense bill for each car of grain from St. Louis at any time within the
preceding 90 days, the Louisville dealer may ship an equal amount of
grain on to Atlanta at a rate 3 cents per hundred below the tariff from
Louisville to Atlanta. One day during the hearing 67 expense bills were
presented in evidence, some of which had been altered and the rest
duplicated and even triplicated with the result of giving the guilty
shippers an unlawful advantage of 3 cents a hundred over their
competitors selling grain in the southeastern territory. Many of these
bills were admitted to be forgeries from beginning to end, while others
were altered by erasing the original words and writing in others. For
example, wheat was sent as bricks by erasing the word “bricks” on an
incoming bill, writing in the word “wheat” and using the altered bill to
forward a car of wheat at the expense bill discount. Every one of the
bills in the bunch we are speaking of was in favor of a single
Louisville firm which does an immense business in the Southeast.
In other cases goods are not billed right. Dealers have been known to
ship cutlery as iron bolts, and dynamite as dried apples. False billing
as to weight is practised both in freight and express shipments. The
carrier acts in collusion with the shipper in some cases while at other
times the carrier is among the defrauded.
Sometimes large amounts of freight are sent without being billed at all.
“I know of a point,” said Mr. Davies of Chicago, representing 70 fruit
associations of that city, “where 150 cases of strawberries were
systematically loaded on a car upon which there was never any freight
paid, and the rate was 21½ cents a crate.”
“SENATOR KEAN. How long ago was that?
“MR. DAVIES. A year or two ago. It is done to-day.
“SENATOR KEAN. Do you have knowledge of it?
“MR. DAVIES. Yes; and so can you, if you go around the freight yards.
“SENATOR KEAN. Is this knowledge of yours a guilty knowledge?
“MR. DAVIES. I just a moment ago told you not, and further, I will offer
to this committee the records of my business.
“SENATOR KEAN. But you say you know these things are being done and have
made no complaint.
“MR. DAVIES. Haven’t I? I would like to show you these papers that have
been nursed by the Interstate Commerce Commission for a year.”
Mr. Prouty of the Interstate Commerce Commission says:[207] “I knew some
years ago that a train-load of wheat was transported from Minneapolis to
Chicago for nothing. There was simply no record of that shipment on the
books of the railroad.”
“SENATOR CULLOM. What object had they in doing that?
“MR. PROUTY. They wanted to prefer that man that had the wheat. Instead
of paying a rebate they carried the shipment for nothing.”
The power to give or withhold the milling-in-transit privilege is a
serious means of discrimination. The Pennsylvania Railroad, for example,
grants this privilege to mills west of Pittsburg, but denies it to
millers at Harrisburg.[208] The Commission decided that the allowance of
the privilege of milling-in-transit by a carrier to shippers in one
section must be without wrongful prejudice to the rights of shippers in
another section served by its line. But the evidence in this case was
too meagre and incomplete to enable the Commission to make any order in
the premises involving the general extension of milling-in-transit
privileges into a territory where such privileges had not been
previously allowed.
By refusing to accord the milling-in-transit privilege[209] to some when
it is granted to others the railroads may crush a mill more effectively
than it could be done by a hail storm in which each hailstone weighed a
ton. The big Atlantic Flour Mill at Beach and Green Streets,
Philadelphia, was rendered useless by the Pennsylvania Railroad’s
refusal to extend to it the milling-in-transit privileges enjoyed by
other Philadelphia mills.[210]
Western roads give saw-mills operating on their lines and having logging
roads an allowance of 2 to 4 cents per hundred lbs. on the through
rates. Roads east of the Mississippi decline to make any such allowance,
so that the Western mills enjoy an advantage of 60 cents to $1.80 per
1000 feet in the through freight rates.[211]
CHAPTER XXI.
MIDNIGHT TARIFFS AND ELEVATOR FEES.
“Midnight tariffs” or “flying tariffs,” changed while you wait,[212] are
used to give rebates and preferences all wool and a yard wide, strictly
gilt-edged and in accord with the statutes made and provided for the
publication and observance of schedule rates.
When a big shipper gets ready to send a large amount of freight the
railroads will suddenly make lower rates, publish them just in time to
fulfil the law, and the moment the shipment is made the lower rates are
withdrawn. For example a miller contracted for 17,000 bags of flour. At
400 to the car, 17,000 bags will make quite a string of freight. He went
to the railroad folks and got a cut rate of 5 cents a hundred on that
amount. They slapped in one of these “midnight tariffs,” published it,
and gave notice of withdrawal just as soon as the contract was
filled.[213]
In the spring of 1905, a grain merchant who owned large elevators,
accumulated about 20,000,000 bushels of corn. When he got ready to ship,
the railroads reduced the tariff 2 cents per bushel, so that he could
ship at a low rate.[214]
In some cases discriminations are the result of _intentional mistakes_
in printing rate schedules. A tariff is printed with a 3, perhaps, in
place of an 8, so that a rate of 38 appears as 33, or a rate of 82 as
32. After a few copies have been printed and sent to favored shippers
the error is conveniently discovered and the schedule is corrected for
all ordinary shippers.
The payment of elevator or commission fees continues to be a means of
discrimination beyond the reach of the law as it stands to-day. Some
lines which have buyers on their roads who own elevators at terminal
points allow an elevator charge or commission to their buyers, usually
1¼ cents per hundred, which constitutes practically a rebate or
preference not accorded to other shippers. Other lines which have no
elevators pay a rebate to their buyers equal to the elevator
charge.[215]
A judgment has been obtained for $5,600 damages in favor of the Kellogg
Elevator against the Western Elevator Association and the four trunk
lines—the New York Central, the Erie, the Lackawanna, and the Lehigh—on
the ground of conspiracy to ruin the business of the Kellogg Elevator by
discrimination in freight rates in favor of the elevators in the
Combine. The charge was that the railroads contracted to pay the
elevator trust ½ cent per bushel for all grain shipped on their rails
from Buffalo, whether it was elevated from lake vessels by the Elevator
Trust or not. So, in effect, the Elevator Trust was given a rate of ½
cent per bushel cheaper than the Kelloggs could get, and also that
premium on the Kelloggs’ business. The verdict of $5,600 was for three
weeks’ operation of the conspiracy. The Kelloggs claim that the annual
damage to them from discriminating rates amounts to $50,000 or $75,000.
The case is now pending on appeal to the Supreme Court of New York.
In the investigation now going on in Kansas City (July, 1905) it appears
that some elevator men get double rebates, while others get no
allowances at all from certain roads. E. O. Moffat said he got 1¼ cents
a hundred from the Union Pacific, Rock Island, Burlington, Santa Fe,
Alton, and Missouri Pacific, but got nothing from the Milwaukee. That
railway he believed paid an allowance to the Simonds-Shields Company but
refused to allow him anything, though he is a heavy shipper.[216]
M. H. McNeill, representing the Chicago and Great Western, admitted that
the custom was a senseless one and a wrong one, but said it had been
started at Omaha and had to be adopted at Kansas City. E. P. Shields of
the Simonds-Shields Company was asked by Commissioner Cockrell: “When
such allowances are made are not opportunities for discrimination and
the granting of rebates opened up?”
“Certainly,” he replied.
“I believe there are some abuses to-day regarding the matter of
allowances which ought to be corrected,” said the witness.
“Do you believe double or triple allowances have been made in Kansas
City?” asked Mr. Barry.
“I don’t know of my own knowledge,” replied the witness, “but I suspect
that they have been.”
CHAPTER XXII.
COMMODITY DISCRIMINATIONS.
Unfair discriminations in respect to special commodities are very
common. The New Haven and Hartford charges $80 a car on peaches from New
York to Boston, 228 miles, while the same peaches come from Georgia
points to New York, 1150 miles, for $162 a car. The Commission says the
$80 rate is arbitrary and unjust and that $50 a car would be a
reasonable charge.[217]
The Atlantic Coast Line Railroad made its rate on peaches depend on the
valuation put on the fruit, in order that by increase of rate in
proportion to valuation, shippers might be led to put low valuation on
their shipments and so provide the railways with an argument against
paying the real damages in case of accident or loss.[218]
From some places shingles are carried at rates as low as those applied
to lumber, while shingle shippers at other points pay more than the
lumber rates. This is held an unjust discrimination against shingles,
and against the places and shippers that pay the high rates.[219]
Railroads make high rates on ties, higher than on lumber, in order to
prevent their shipment to other parts of the country, and so diminish
their value and lower their cost to the discriminating railroad. The
president of one railroad stated the policy clearly: “We are simply
following what we consider our interest, which is to prevent the
shipment of tie lumber.”[220]
Early this year, 1905, the South Side Elevated road of Chicago wanted
400 carloads of ties. The blanket rate on ties from the entire yellow
pine belt to Chicago is 26 cents per hundred lbs. On shipments
originating between Luzon, La., and Pearl, Miss., the Illinois Central
made a special tariff (March 22 and April 6, 1905), fixing the rate on
ties at 26 cents per tie, each tie to be billed at 130 lbs. This was
equivalent to a reduction of the rate to 20 cents per hundred lbs., and
no shipper outside of the favored region could compete in the Chicago
market. It is suspected that the party who got the Elevated contract
knew beforehand that the railroad would issue this special tariff, and
was therefore able to underbid competitors in perfect safety.[221]
A rate of 90 cents a ton is charged on coal for a special use such as
railroad supply, while the same coal must pay $1.85 between the same
points if intended for manufacturing or other industrial domestic
use.[222]
It is unjust discrimination to charge more for carrying cattle and hogs
than for carrying packing-house products, and the desire of the carrier
to get more business by so doing is no excuse.[223]
The railroads have carried dressed meats from Omaha to Chicago at 18½
cents, while charging 23½ cents on live-stock from Iowa points nearer
Chicago. The packer could buy the cattle at Fort Dodge, Iowa, ship them
to Omaha, kill them and ship the dressed carcasses to Chicago, cheaper
than the live-stock owner at Fort Dodge could ship the cattle to
Chicago. Some years ago on arbitration, Mr. Fink and Judge Cooley being
the arbitrators, it was decided that the fair ratio between live-stock
and dressed meats from Chicago to New York would be 26 cents per hundred
for live cattle, and 45 cents for the dressed carcass. But the railroads
have reversed this relation, although the Interstate Commerce Commission
has decided that the rate on dressed meats should be higher than on
live-stock.[224]
Recently, January 1905,[225] the Commission has reaffirmed its decision
of 1890 and held that it is unlawful to charge more for transporting
live-stock from Missouri River points and St. Paul to Chicago than for
carrying packing-house products between the same points, but the Beef
Trust cares nothing for the opinions of Judge Cooley nor for the orders
of the Interstate Commerce Commission, and the Trust controls the
railroads.
On shipments from Chicago east to New York the rates are 28 cents per
hundred and 45 cents on dressed beef. Formerly the same rule applied in
the West, but when the Beef Trust began to build up great packing-houses
at Omaha, Kansas City, and St. Paul, they wanted to make the rates on
cattle from the West to Chicago higher than the rates on beef, so as to
force live-stock to come to their stockyards on the Missouri River where
they had a practically absolute monopoly, and the railroads obeyed their
behest. Shippers fought the change, and in 1890 the Interstate
Commission ordered the railroads to desist from charging more for
live-stock products than for packing-house products. The railroads did
not dare to raise Armour’s rate on dressed beef, so they reduced the
live-stock rate to 23½ cents, the same as the rate for dressed meats.
Armour then demanded and received a rebate of 5 to 8 cents a hundred
lbs. on packing-house products. The rebate was secret at first, but
after the Elkins Bill was passed the beef men made a contract with the
Great Western road at the rate of 18½ cents and the rate was published.
The cattle rate remained at 23½ cents so that Armour and his railroad
allies were again in open defiance of the orders of the United States
Government issued through its Interstate Commerce Commission. The new
decision of the Commission, January, 1905, requiring the railroads to
charge more for live-stock than for live-stock products has not been
obeyed and is not likely to be.[226]
“Could anything more clearly show the power of the Trust,” says Mr.
Baker, “than this reversal of the order of rate-making as manifested in
the tariffs east of Chicago, so that beef, the high-priced product, is
shipped at 18½ cents, while cattle, the low-priced product, is shipped
at 23½ cents, simply to enable the Trust to close the Chicago market—the
best market in the country for export cattle—to thousands of western
cattle growers? They cannot afford to ship live-stock to Chicago at 23½
cents when the Trust can ship the products of the same cattle, weighing
only 60 or 70 percent as much as the live animal, at 18½ cents. They are
therefore compelled to ship to Missouri River points where the Beef
Trust is in absolute control.”
A rate of $1.25 per hundred lbs. on oranges from California to points on
and east of the Missouri River, while lemons are carried for $1 to the
same points—is held unreasonable.[227] A higher charge on rye and barley
than on wheat is unjust.[228]
Western millers complain that the discrimination between flour and wheat
on shipments to the East is causing them much injury and will put them
out of business. The Commission decided that the difference should not
exceed 2 cents a hundred, but it has no power to enforce its order and
“frequently for considerable periods there is very great discrimination
between the rates on flour and the rates on wheat.”[229]
Railroads can discriminate against a whole industry by advancing rates
on particular commodities above the fair level, as illustrated in the
recent advances on hay and lumber.[230]
CHAPTER XXIII.
DISCRIMINATION BY CLASSIFICATION.
The intricacies of classification afford boundless opportunity for
favoritism. Classification is always more or less arbitrary by
necessity, and is frequently more arbitrary than necessary. One industry
or wholesale trade is often charged two or three times as much as
another for the same service. The New York Railroad Commission found the
railroads charging twice as much on dry goods as on coffee or sugar and
protested against the rule as utterly indefensible, but the railroads
refused to comply with the request for a change. Iron and coal cost less
to transport than grain, yet the ton-mile rates on iron and coal from
Pittsburg have been at times for years together from 2 to 5 times the
rates on grain from New York to Chicago.
In 1890 the Interstate Commerce Commission ordered the railroads to
transfer soap from the 5th to the 6th class. In 1900 the railroads
changed it back to 5th class in carload lots, and from 4th to 3d class
in less-than-carload lots, but if shipped in mixed lots with dressed
beef it goes as 5th class. So that Armour, Swift & Co., of the Beef
Trust, have been able to ship soap in less-than-carload lots at much
lower rates than their competitors.[231] The Commission ordered the
roads to cease their excessive discrimination on less than carload lots,
etc. The roads refused to obey. The Circuit Court has sustained the
order of the Commission.
Under the Illinois Central tariffs at one time it made a difference of
$40 a car if a man shipped a peck of potatoes in a car of 16,000 lbs. of
strawberries. If there were no potatoes in the car so that it was not a
mixed load, it cost $40 more than if there were a peck of potatoes in
with the strawberries.[232]
The classification of castor oil on the Lake routes affords a curious
example of the freaks of tariff classing. Vegetable castor oil is 5th
class, or 16½ cents a hundred, from Cleveland to Chicago, while mineral
castor oil takes a rate of 25 cents a hundred.[233]
The law has not yet definitely touched the favoring of large shippers by
excessive difference in the rates on carloads and less than carloads.
There is not more than 5 percent difference in the cost of transporting
goods in carload lots and less-than-carload lots, and yet the rates vary
from 30 to 80 percent, as a rule, and sometimes 150 percent.[234]
In a famous case three years ago, involving the rates on 400 commodities
from the Middle West to the Pacific Coast, the Commission held that a
differential between carloads and less than carloads, which is at once
more than 50 cents per hundred and more than 50 percent of the carload
rate, is _prima facie_ excessive, and puts the railroad on the defensive
to show special reason why so great a difference should be made.[235]
The difference between the carload rates and less-than-carload rates,
involved in this complaint, was held to be excessive in many cases.
On the Yazoo and Mississippi Railroad and the Illinois Central, 1 horse
can go 667 miles for $36 and 4 horses pay $99, while 25 horses can take
the trip together for $100. This encourages social habits. The first
horse is billed at 2,000 lbs. no matter what he really weighs; the
second is billed at 1,500 lbs.; and each additional animal counts 1,000
lbs. The rate is double first-class, or $1.80 per hundred, which the
Commission says is twice the fair rate.[236]
In a recent case it appeared that the Texas and Pacific was charging 42½
cents per hundred lbs. on cattle from Fort Worth to New Orleans, and $15
a car additional on a shipment of less than ten carloads. This addition
of $15 a car was held unreasonable.[237] For 17 years the road made a
much lower rate—34 to 40 cents per hundred lbs., without any $15 a car
additional. In March, 1903, the rate was raised to 42½ cents, and in
October of the same year the additional charge of $15 a car was imposed.
The distance is 500 miles. The distance from Fort Worth to Kansas City
is about the same, while to St. Louis it is 700 miles. The rate on
cattle from Fort Worth to Kansas City is 36½ cents, and to St. Louis 42½
cents, without any $15 addition. The Commission held the $15 charge to
be an unjust discrimination between the large and small shippers, and
against New Orleans in favor of St. Louis.
Discriminative rates are made oftentimes without any intent to prefer
one shipper to another, but simply to make things move. For example, a
business man of Greensboro, N. C., wanted to build a smoke-stack of New
Jersey brick, but the rates from New Jersey were too high. “A quotation
was made me by the stack builder, whose office is in New York, and I
remarked to him, ‘That price is prohibitive; I cannot pay that price for
that stack.’ He said, ‘That is the best I can do; but if you will tell
me what you can afford to pay for that stack in competition with
home-burned brick, I will see what I can do with the railroad people.’
He wanted to know how soon it would be necessary for him to give me a
reply, and I said, ‘I want to know within ten days.’ He said, ‘All
right; I will take it up with the railroad people.’ His quotation
included the delivery of the brick and the erection of the stack at my
plant. It would require something like 50 carloads of brick to build
that stack. Within a week he had his price revised, and gave me a
satisfactory quotation and took my contract for the stack.”[238]
The railroads, having regard to what the traffic would bear, gave the
builder a special rate in order that the New Jersey brick might move
over their lines to North Carolina.
CHAPTER XXIV.
VARIOUS OTHER METHODS.
Railroads are in the habit of giving special rates on stuff sent over
their lines for other roads. “It is done,” says one of the leading
traffic managers of the country, “on everything that is
handled,—supplies, coal, and material.”[239] This enables any one who
stands in with the management of a railroad to have coal, etc., billed
at low rates to the railroad for him.
The routing of freight is the source of a double discrimination.
Connecting lines in some cases pay shippers to route the goods over
their roads, while in other cases the connecting lines pay the rebates
to the originating line, or make an agreement with it for reciprocal
favors in the routing of freight.[240] Shippers receiving rebates from a
connecting line can afford to pay the originating road or its clerks to
route the goods over the said connecting line. Mr. Morawetz says it is
customary for shippers to pay clerks in the routing department $5 or $10
to route the goods the way the shipper desires. Or it is done by giving
theatre parties or presents to wives and daughters.[241]
In the California Orange Routing Case (132 Fed. Rep. 829) the United
States Circuit Court decided that an agreement between railroads as to
routing, whereby the apportionment of freight to connecting roads is
affected, is in the nature of a traffic pool and comes within the
prohibition of pooling, Section 5, of the Interstate Act.
The Interstate Commission held that the regulations of the Southern
Pacific and Santa Fe, reserving to themselves the right of routing, were
unlawful under the discrimination clauses, but the court did not decide
this point. (I. C. C. Rep. 1904, p. 78.)
Mr. Ferguson says the private car-lines “sell the tonnage to the highest
bidding connecting line. It is purely a matter of bargain and
sale.”[242]
Unfair distribution of cars is an easy means of discrimination. Failure
to furnish cars to complainant for shipments of grain, while supplying
more than a fair proportion of cars to a competing shipper in the same
town, is as effective as any rebate could be.[243]
Railways have refused cars to persons desiring to ship railroad ties
which the railways did not wish to have go out of their own field.[244]
A Michigan railroad neglected to furnish the Richmond Elevator Company
with cars in which to ship the hay the company had contracted to
deliver, although the railroad was all the while supplying other
shippers with cars for hay and straw, etc.[245]
The Pennsylvania Railroad has been recently sued by independent coal
companies along its line for $2,000,000 damages for refusal to furnish
cars in fair proportion. It is charged that the mines in which the
railroad company is interested have had all the cars they needed, while
the independents have not received cars enough to fill their orders; in
consequence of which great loss has been inflicted upon them and their
business diverted to the railway mines.
The B. & O. was also sued for refusing to furnish cars to the Glade Coal
Company, while supplying cars to competing mines.[246]
In the case of the West Virginia Northern Railroad[247] the Circuit
Court issued a mandamus ordering the road to cease from discrimination
against the Kingwood Coal Company in the supply of cars and to furnish
said company with a specified percentage of cars. In affirming this
decision the Circuit Court of Appeals said:
“It is insisted that the court had no power in a proceeding of this
character to fix the percentage of cars the relator should have, and to
command that such percentage of cars should be furnished to the relator.
The acts of Congress forbade discrimination and made it unlawful to give
any undue or unreasonable preference or advantage to particular persons,
companies, corporations, or localities, or any particular description of
traffic, or to subject them to any undue or unreasonable prejudice or
disadvantage in any respect whatsoever, and vested jurisdiction in the
circuit and district courts to proceed by mandamus as a cumulative
remedy for violations of the statutory provisions. We are unable to
accept the view that Congress intended to confine the scope of the writ
to admonition merely, or to a general command to desist from
discrimination, rather than from the particular action in which the
discrimination consisted. By the findings, the delivery to the relator
of any less than 31 percent of the supply amounted to unlawful
discrimination, and the judgment of the court did no more than to
correct it.”
Sometimes it is the denial of a switch, that blocks the independent; for
example, the railroads controlled by the coal pool refused to put in a
switch for the Johnson coal mine or to permit the company to put one in
until suit to forfeit its charter for refusing equal opportunities to
shippers was begun in the Ohio Supreme Court. Then the switch was put
in.
The Coal Combine and its railroads have persistently pursued the policy
of crushing smaller rivals by denying them transportation facilities.
An exasperating form of discrimination near of kin to this refusal of
cars is the refusal directly or indirectly to take shipments for certain
persons or to certain points. The Hope Cotton Oil Company operates a
mill at Hope, Ark., for the manufacture of cotton-seed oil. It desired
to buy seed at various points on the Texas and Pacific Railroad. This
seed could only reach the mill by passing over the Texas and Pacific to
Texarkana and from there to Hope by the St. Louis, Iron Mountain and
Southern Railroad. The published rate from the points in question to
Texarkana was 12½ cents per hundred, and 5 cents from Texarkana to Hope.
After receiving this information the agent of the Hope Company bought 49
carloads of seed on the line of the Texas and Pacific, intending to send
them to Texarkana on the 12½ cent rate and from there to Hope on the 5
cent rate. Seventeen cars were sent in this way. But when the General
Freight Agent of the Texas and Pacific ascertained what was being done,
he refused to allow the shipments to continue, insisting that the seed
must take the broad joint rate of 67 cents applicable to class A in
which cotton seed belonged. Under his orders the station agents on the
Texas and Pacific refused to bill the cars in any way to Texarkana on
the published local rate of 12½ cents. The 67 cent rate amounted to
$13.40 a ton on seed which only cost $14 a ton, and to insist on such a
rate the Commission says “was for all practical purposes to decline to
receive the cotton seed for shipment on any terms.”[248] The secret of
the situation was that the Texas and Pacific did not want the cotton
seed to go off of its line. If shipped to Texarkana mills or other mills
on its line the products would find their way to market over that road,
while if manufactured at Hope this would not probably be the case.
Denying a private switch to one party while providing such facility for
a competing dealer[249] may amount to a preference similar to that
resulting from free cartage.
A discrimination in the place of delivery of freight may work serious
injury to a shipper. For example, D. W. Miner, a dealer in beef and pork
products at Providence, complains to the Interstate Commerce Commission,
July, 1905, that the New Haven road refuses to deliver his merchandise
at the Canal Street yard where his place of business is located,
carrying his freight half a mile beyond, while delivery is made to his
competitors at the Canal Street yard.
Sometimes railroads discriminate even on long hauls in interstate
traffic by taking advantage of the fact that the Interstate Commerce Act
does not apply to State traffic. They take the car across the State line
on a “mem.-bill,” then draw a new bill of lading marked “State
Business,” and then pay the rebate without fear of disagreeable
consequences.
In other cases the full freight is charged on the way-bill, but a
fictitious entry is made in the prepaid column which is to be subtracted
from the total amount of charges when the bill is collected. If the
freight on a car amounted to $90, and $15 were entered in the prepaid
column, $75 would be collected and the consignee would be in the same
position as if he had received a rebate of $15 on the car.
Another method, akin to this, is to give the local agent at the station
of delivery power to correct the way-bill, or deduct a certain
percentage from every bill presented to the favored shipper. The agent
forwards the amount collected as full payment, correcting his accounts
so as to give himself the necessary credit, which is O. K.’d by the
auditor of the road on his next visit to the station.
Large payments are made by some railroads “to encourage new industries.”
They have the example of cities and States and of the nation to justify
appropriations for the establishment of infant industries and
development of the country, but they abuse the principle by making it a
cover for payments which are really rebates to favored shippers. Some of
the “new industries,” or infant undertakings, which the Wisconsin
investigators found were being “encouraged” by cash contributions from
the railroads, have been established and prosperous for 25 or 30 years,
one of them being founded away back in 1873 and others in the eighties.
Sometimes the railroads make a low rate, joint or single, on certain
goods when intended for a specific purpose, thereby limiting the low
rate to certain favored shippers. For example, in a recent case decided
on complaint of the Capital City Gas Company the railroads had made a
joint rate of 90 cents per ton on bituminous coal from Norwood, N. Y.,
to Montpelier, Vt., when intended for railroad supply, while the
ordinary combination rate of $1.85 per ton applied to such coal carried
between the same points and used for manufacturing or any other
industrial or domestic purpose. This was held by the Commission to be an
unlawful discrimination, on the ground that it is not permissible under
the Interstate Commerce Act for two or more carriers to establish a
joint through rate less than the sum of their locals, which shall be
applicable only to a particular shipper, or class of shippers, while
denying such low rate to other shippers of like traffic between the same
points.[250]
A method of discrimination that has spread enormously in the last year
is to pay large salaries or commissions to traffic agents located at
important points, on the understanding that these traffic agents shall
divide their salaries or commissions with favored shippers. This is much
safer than paying rebates or commissions direct to the shipper, and is
one of the most difficult forms of discrimination to overcome. In the
recent investigations in Wisconsin and other States this method has been
found in frequent use, along with underbilling and underweighing of
freight, the allowance of cartage or switching charges to favored
shippers, permission to hold cars as a means of storage for considerable
time without demurrage, midnight tariffs, direct rebates, etc., etc.
CHAPTER XXV.
TERMINAL RAILROADS.
Another method of preference without departing from published rates is
the division of rates with private terminal companies or mere switching
roads, or roads existing only on paper. A man of large experience in
railroad matters said to me not two years ago that “Since injunction
suits were instituted by the Interstate Commerce Commission in 1900,
published tariffs have been more generally followed. But big concerns
build a mile or more of railroad of their own, or incorporate their
switch tracks and sidings in a railroad company, and the division of the
through rate permits any commission that may be desired. That is the new
kind of discrimination that is spreading very rapidly. The effect is to
concentrate discrimination and the advantages it gives more and more in
the hands of the largest concerns. Formerly any big shipper could get a
rebate. Now only those big enough to build a railroad or own an elevator
get lower rates than others.” This is a little too strong. There are
many other forms of preference still in prevalent use, as we have seen,
but there is no doubt that the private railroad and the private car do
tend to concentrate discrimination, giving greater and greater
advantages to those who need them least.
They not only give the private railroads of some shippers a larger
percentage of through rates than they give to the private railroads of
other shippers, but they refuse to give the railroads of some shippers
any division of rates while dividing rates in this way with other
shippers in the same business.[251]
A few examples will make clear the private railroad or “fake terminal”
method of discrimination. The first case of this kind came to light in
1903 through an investigation of the “Salt Trust” by the Interstate
Commission. Hutchinson is the centre of the salt industry in Kansas.
There are 16 mills, 9 of which are operated by the Hutchinson Salt
Company, known as the “Salt Trust,” while each of the independent mills
is operated by a different individual or company. In July, 1902, the
Hutchinson and Arkansas River Railroad was organized under the laws of
Kansas. It took possession of about 1 mile of side tracks which had been
built by the Salt Trust in connection with its works. This new
Lilliputian railroad company had no equipment of any kind. The president
of the Salt Trust and the president of the railroad were one and the
same man, Joy Morton, brother of Paul Morton, who was then at the head
of the traffic department of the Santa Fe. The Santa Fe, the Rock
Island, and the Missouri Pacific—all the railroads entering
Hutchinson—made an agreement with the switch-track Salt railroad to give
said little 1–mile Salt Trust railroad 25 percent of the rates on bulk
salt to Missouri River points, not to exceed, however, 50 cents a ton on
all the bulk salt shipped to such points. The rate to Omaha was 12 cents
per hundred and the rate to Kansas City was 10 cents. The division was
therefore equivalent to a rebate of 50 cents a ton, which is of itself
an excellent profit in the manufacture of salt. The result was that
without departing from published rates, or apparently violating any
provision of law, the trust and the railroads drove the independents out
of the bulk salt business on the Missouri River and elsewhere, and an
extension of the arrangement to all markets and all kinds of salt would
give the Trust a weapon with which it could at any time destroy the
independents.[252]
Barton, one of the independents, had a contract to supply all the bulk
salt used by Swift & Co., at Missouri River points. The contract expired
April 1, 1903. Before asking renewal of the contract Barton went to the
coal people and the railroad to see what his costs were to be for the
coming year. He found that coal was to be advanced 25 cents a ton and
freight on it 25 cents a ton, making 50 cents a ton more on coal. As it
takes 1 ton of coal to produce 2 tons of salt, the increase in coal cost
meant 25 cents added to the cost of each ton of salt. Barton’s former
contract was on the basis of $2.25 at Hutchinson, now he must have
$2.50. While Barton was negotiating a renewal of his contract with the
Swifts, Hon. Frank Vincent, State Senator, manager of the Salt Trust,
and director in the Salt Trust railroad at Hutchinson, took a vacation
from the legislature, went to see the Swifts, and offered them salt on
the basis of $2.10 at Hutchinson, or 40 cents less than the independents
could afford to sell it. The Trust got the contract with Swift. This
gives an idea of the extent to which the railway favoritism enabled the
Trust to underbid the independents.
The owner of one of the independent salt plants was asked: “From where
did you meet most competition, as far as you know?” “From the Santa Fe
Railroad,” he replied.
One of the most remarkable facts in the case is that the division of
rates with the Salt railroad was made without even taking the trouble to
find out whether or no there was any railroad at all of any kind behind
the name presented in the request for a division.
“MR. MARCHAND. Then you entered into this joint arrangement with the
Hutchinson and Arkansas River Railroad without really knowing whether
there was any road there or not?
“MR. BIDDLE. I have done that hundreds of times.”[253]
Another indication that the terminal railroad is not the real reason for
the division of rates is found in the fact that it is not every large
shipper who can get a rebate by owning a private railroad. One of the
independent salt mills, the Matthews mill, had a switch built and paid
for and expected to get a rebate of $1 a car on the strength of it. But
the railroad refused to give any division of rates. Matthews did not
belong to the Morton family, nor have any other special claim to
hospitality at the hands of the Santa Fe.
The International Harvester Company, popularly known as the Harvester
Trust, was formed in 1902 to consolidate several big concerns
manufacturing farm machinery. It organized the “Illinois Northern
Railroad Company” and turned over to it the 17 miles of switching track
in the private grounds of its Chicago works. Till the end of 1903 this
vest-pocket railroad handled the cars of the Trust for a switching
charge of $1 to $3.50 per car, the average haul being about 4 miles. For
the works at Plano, another microscopic railway company, “The Chicago,
West Pullman and Southern Railroad,” with 4 miles of track, was
organized to switch the cars of the Harvester Trust. The International
Harvester Company owns these two railroads. Its officials are the
officials of those railroads in most instances. And it absolutely
controls the operations of the roads.[254] In January, 1904, contracts
were made for the division of rates to the Missouri River. The Santa Fe,
C. B. & Q., Rock Island, Chicago and Alton, Great Western, Chicago and
North Western, Wisconsin Central, Chicago, Milwaukee and St. Paul,
etc.—practically all the railroads going west—allowed the private Trust
railroads a division of 20 percent of the through rate with the Missouri
River as a maximum, amounting to $12 on an ordinary car of 20,000 lbs.
of farm machinery going from Chicago to any point in Kansas or Nebraska
or the Far West. The Interstate Commerce Commission says: “Since the
International Harvester Company owns the Illinois Northern Railroad, a
payment to the railroad is a payment to its owner, the International
Harvester Company. When a line transporting a carload of traffic from
Chicago to the Missouri River pays the Illinois Northern Railroad $12
for switching that car from the McCormick works to its iron, it gives
the International Harvester Company a preference of at least $8.50 over
what any other shipper of that same carload would be obliged to pay....
And there is no limit in law to the extent to which this shipper may be
preferred to other shippers in this way.”[255] In a suit brought July
11, 1905, by R. B. Swift, a former officer of the McCormick branch of
the Harvester Trust, it is declared that up to September 30, 1902, the
Trust received rebates from the railroads amounting to $500,000 through
the West Pullman switch road, and over $3,000,000 through the Illinois
Northern switch road.
The “Chicago, Lake Shore and Eastern Railway” is another of these
homeopathic railroads. It was organized in the interest of the Illinois
Steel Company and is now owned by the Steel Trust (The United States
Steel Corporation) which some time ago absorbed the Illinois Steel
Company. Since 1897 this private railway has been allowed a division of
10 percent on business to New York and other seaboard points, 15 percent
to Pittsburg, Buffalo, and other middle points, and 20 percent on
traffic to the Missouri River. It also has a division on rates to the
South. All Eastern and Southern lines as well as the Western roads
divide their rates with this Trust road. These divisions amount to $6 to
$12 a car for the switching service performed by the private road.
Besides this, certain special divisions are made. On coke from the
Connellsville region, for example, a division of 70 cents per ton is
allowed. This gives the “Chicago, Lake Shore, etc.,” above named, $700
to $1000 for hauling a train of coke 7 miles from Indiana Harbor to its
plant in South Chicago, while the actual cost would not exceed one-tenth
of this sum.
Railroad officers have claimed that such divisions of rates are
justified because the little private road is the “gateway of the
traffic.” “The business originates on the little road and it controls
the routing, and the division is only an application of the custom of
allowing the road on which traffic originates a considerable percentage
of the through rate, usually 25 percent.” Other railroad men tell me
that this is not true. President Tuttle, for example, says: “There is no
such thing as a custom to give the initiating road 25 percent or 10
percent or any percent. The division is on the mileage basis, but if one
road does special work, switching etc., a reasonable allowance may be
made, 1 percent or 2 percent or whatever is fair to cover the special
work or expense.” Even if there were a custom to give 25 percent to the
initiating railroad that could hardly explain the 70 cents per ton on
traffic not originating on the trust railroad in Chicago, but coming to
it from Pennsylvania points.
Whatever may be the custom or analogy used as a warrant for these
divisions it is clear that their effect is precisely the same as that of
a giant rebate.
The Trust railroad in this case makes a net profit of 150 percent a year
upon its capital stock of $650,000. How much the Steel Trust as a whole
gets in this way through all the private railroads connected with its
various plants is not known, but the Commission says it is certainly a
“sum sufficient to pay dividends on several millions of dollars of
capitalization.”[256]
The Illinois Glass Company at Alton, Ill., is the largest producer of
glass bottles in the United States. In 1895 certain persons in its
interest organized the Illinois Terminal Railroad Company, the principal
business of which is to handle the cars of freight that come to and from
the Glass Works. This terminal company in Alton is allowed by the
railroads a division of rates amounting to 25 percent of the Chicago
rate, and 15 percent of the rates to the Missouri River and to Eastern
destinations, or $8 to $13 per car. This is the testimony of the Glass
Works manager, but the Commission finds that as much as $17.10 has been
paid the Terminal Company on a car shipped from Alton to Kansas City, an
amount that is nearly double the 15 percent above mentioned. This $8 and
$13 or $17 is a pretty heavy payment for switching a car, a service
which the Terminal Company renders for $1.50 a car when the amount is to
be paid by the Glass Works.[257]
The St. Louis Preserving Company at Granite City, Ill., also gets large
rebates in the form of divisions of rates with a toy railroad the
company controls.[258]
Rate divisions have also been made by the railroads with boat lines[259]
belonging to or in league with large shippers, with “tap roads”
belonging to lumber companies,[260] etc., and this method of securing a
practical rebate is being rapidly adopted by large concerns all over the
country. A division of rates with a private line is not necessarily
unfair but if there is a desire to give an unfair advantage, this system
affords a cloak for it.
CHAPTER XXVI.
PRIVATE-CAR ABUSES.
Some of the worst discriminations now prevailing are connected with the
private-car system.
The private car originated in the need for special equipment for
particular purposes. It was clear that the transportation of live-stock,
fruit, vegetables, and other perishable products might be facilitated by
the use of special cars. When the inventors of improved stock cars and
refrigerator cars went to the railroad managers, they were informed that
the railroads had no money with which to make experiments in such lines,
but if cars that would do the work proposed were constructed the
railroads would be glad to hire them for a fair rental. So the cars were
built by private companies and used by the railroads on a mileage basis.
The fact that such special cars are needed in different parts of the
country at different seasons, their use in any large numbers being
confined on some roads to a few weeks in each year,[261] makes the local
ownership of such cars by the several railroads, less convenient and
economical than their ownership by car companies able to distribute the
cars to advantage throughout the country so that each section may have
the cars it needs, at the proper time, without unnecessary duplications
of equipment.[262]
To move the Georgia peach crop the Southern Railway would need about
3,000 refrigerator cars. The shipments occupy about six weeks, beginning
about the middle of June. The Pere Marquette Railroad moves about 2,000
carloads of fruit under refrigeration from Michigan points mostly in
September and October, and would need about 1,000 cars for the work.
These and other roads might well hesitate to invest the sums required to
provide expensive equipment when it would have to be idle the greater
part of the year; but this is easily done by a car company whose cars
can be employed in the orange trade from California and Florida in the
winter, in the Georgia peach traffic in June and July, and in the
Michigan and New York fruit business during the fall.[263]
The railroads began long ago[264] and still continue paying mileage
rates for the use of stock cars, tank cars, and refrigerator cars, the
three chief kinds of private cars. This would be all right if the
mileage rate were fair, but serious injustice results when the mileage
is so great as to give the owners of the cars a practical rebate of
large amount on all their shipments in such cars, as is the case with
all three classes of cars above named,[265] and especially with the
refrigerator cars of the Armour Car-Lines which are operated in the
interest of the Beef Trust. The railroads allowed at first a mileage
rate of ¾ of a cent a mile when the car was loaded. After a little the
car companies got the roads to pay the mileage on the cars both ways,
loaded or empty. The mileage rate on refrigerator cars was raised from ¾
of a cent to 1 cent over most of the territory west of Chicago and St.
Louis, and the 1 cent rate also applies to the movement of refrigerator
cars between Chicago and New England via Montreal.[266] From Chicago to
New York over the Vanderbilt lines is about 1,000 miles; so the mileage
on a refrigerator car amounts to $7.50 each way, or $15 for the trip.
The car companies have secured various concessions from the railroads
besides the payment of mileage loaded or empty. They require the
railroads to run their cars at high speed in special trains. The average
run of the freight cars owned by the leading railroads is 25 miles a
day. The average run of the private tank cars (Standard Oil mostly) is
66 miles, private stock cars 72 miles, refrigerator cars 108 miles, and
refrigerators operated in the beef trade 135 miles per day.[267]
There is evidence that Armour often makes his cars run 300 miles and
even 400 miles a day. He compels the railroads to push his cars day and
night whether loaded or empty. Most freight cars are loaded both going
and coming, which greatly lowers the cost of transportation, but Armour
requires the railroads to rush his cars back empty at full speed without
waiting for any return load. Ordinary freight trains go on a side-track
and wait till the Armour cars go by. The railroads sometimes even
side-track passenger trains in order that a meat train may be rushed by
to make a little more profit for the Beef Trust. Armour’s system of
checking his cars by means of his agents stationed at icing points along
the principal roads keeps his central office constantly informed of the
whereabouts of every car. If a train has lost time, if an Armour car is
side-tracked anywhere the Armour office asks over the wires: “What’s the
matter?” And if a railroad agent does not do as Armour bids he may lose
his position as a consequence. More than one railroad man, high in
authority, has been dismissed because he did not obey the Beef Trust. If
offences accumulate, some day the railroad finds that Armour has
diverted his entire business to a rival line which will hurry his cars
and otherwise obey his orders. What chance has the small shipper against
such a system? He may own private cars, but he cannot make them run, nor
can he obtain exclusive contracts such as Armour has on many roads, nor
make the railroads collect excessive icing charges for him, nor hold up
the roads in any other way; on the contrary, they are more likely to
hold him up.
The result of high speed and the mileage rate loaded or empty, is that
refrigerator cars earn for their owners an average of $25 a month, and
cars engaged in the export meat trade from Chicago frequently get $30
and upward per month from the railroads in mileage. This is enough to
pay the whole cost of the refrigerator car in 3 years, and its
maintenance in the meantime.[268] Private stock cars in some cases net
their owners 50 percent a year on the invested capital, repaying the
cost of the cars in 2 years, above operating expenses.[269] The average
mileage of through stock trains on the principal lines exceeds 100 miles
a day, yielding to the owner of such cars over 60 cents a day. This is
three times what the railroads pay each other for railroad cars in use
on a road other than the owning railway. A railroad receives 20 cents a
day for each day that one of its own freight cars is on another road,
while the same railroad pays the car companies 60 cents a day for the
use of a stock car, and $1 a day for the use of an Armour refrigerator
car in the dressed-beef business.[270] Yet a well built modern freight
car costs more than the average private stock car, and nearly as much,
many of them quite as much, as the average refrigerator car.[271]
Out of a total of 50,000 refrigerator cars,[272] about 15,000 are owned
by the railroad lines. These earn, it is claimed, about 40 cents a day,
while the cars owned by the Armours and other private car-lines earn or
receive on the average 60 cents to $1 or more per day from the mileage
payments alone.
The owners of the Beef Trust cars make enormous shipments of their own,
and have gained control of a vast amount of other business by offering a
share of the mileage receipts and other inducements to large shippers of
fruit, vegetables and dairy products, etc. With prodigious masses of
traffic in their hands which they could divert to any line they chose,
they have compelled the railroads to fix rates as they dictated,[273]
collect their icing charges for them, delay the cars of disobedient or
protesting shippers, blacklist them, shut off their credit, carry on a
system of espionage upon the business of their competitors, use their
power over railroads and shippers to drive their rivals out of
business,[274] and even make exclusive contracts prohibiting the use of
any other refrigerators on the lines of the contracting railroads. In
some cases the railroads pay the car-lines commissions of 10 to 12½
percent of the freight rate in addition to the mileage on the cars
loaded or empty.[275] Certain repairs on the private cars are also made
by the railroads.[276] Annual passes are also granted to owners of
private cars in order that their officers and agents may travel with the
goods, watch the car, and look out for the care and disposal of the
contents.[277] A wholesale firm which owned but one car made three
members respectively president, vice-president and general manager of
their little car company and got annual passes for all three members on
the railroads on the strength of that one car.[278]
One result of the exclusive contracts is that “charges for refrigeration
have been enormously and unreasonably increased.”[279] The Interstate
Commerce Commission says that “under the operation of these exclusive
contracts the cost of icing to the shipper (some shippers) has been
advanced from 50 to 150 percent and that the charges in most cases are
utterly unreasonable.[280] At first the railroads made no charge for
icing. Gradually the practice of making small charges for ice was
introduced, but the charges did not go much if any beyond the cost of
the service. They were very mild compared to the present refrigeration
taxes. The charges made by the railroads and even by the Armour Car-Line
before it secured the exclusive contracts, range from ½ to ⅙ of the
present Armour icing charges. From the Pacific to Duluth over the
Northern Pacific or the Great Northern, which still own and operate
their own refrigerator cars, the icing charge on a carload of fruit is
$25, while the Armour charge by the Southern lines is $107 per car. From
Rochester to Cincinnati railroads using their own refrigerator cars
charge $5 for icing. For the same distance and time the Trust charges
$35. The icing charge for a Pennsylvania car from Silver Creek, N. Y. to
Chicago, 500 miles, is $7.75 to $10; the Trust’s ice charge is $25 from
Lawton, Michigan, to Chicago, 120 miles. The icing charge under the
exclusive contract with the Armour lines is $45 on a car of pineapples
from Mobile to Cincinnati, against $12.50 from New Orleans to Cincinnati
over the Illinois Central. In 1898 the Armour charge for ice from
Michigan to Boston was $20 per car. In 1904 its charge was $55 a car for
the same service over the same route. The icing charge on an independent
refrigerator car from Chautauqua, N. Y., to Chicago, 550 miles, is $10,
against $84 in the Trust cars from Gibson to Chicago, 522 miles. In
1902, before the exclusive contract with the Pere Marquette Railroad,
the icing charge from Mattawan, Mich., to Duluth was $7.50, while the
present refrigerator charge between the same points in the same Armour
cars is $45. On shipments of strawberries, etc., from the South, the
Armour icing charges are $45 a car, against $10 to $15 over roads that
have not yet capitulated to the Beef Combine. The Armour icing charge on
strawberries from Tennessee to Chicago is $84, against $30 on the
Illinois Central and $15 actual cost.[281] From many points on the Pere
Marquette Railroad in Michigan to Chicago where the railroad charge for
refrigeration used to be $6 a car, the rate under the Armour contract
has been increased 416 percent.[282] In the Duluth case above mentioned
the increase was 500 percent. This, however, is more than the average.
From the great vegetable growing regions of Mississippi and Alabama to
Cincinnati the charge for ice was $27 before the exclusive contracts
were made. Afterward the price was raised to $60 and a little later to
$75.
In the summer of 1903 John Leverone of Cincinnati received 24 cars of
pineapples from Cuba. Ten cars came by the Illinois Central via New
Orleans with an icing charge of $11.37 a car. Fourteen carloads came on
Trust cars via Mobile, 100 miles nearer Cincinnati, with icing charges
of $45 a car.
Even when shipments are made in railroad refrigerators from regions the
Trust claims as its own peculiar territory, the full Trust charges are
collected and paid over to the Trust.
For example, in August, 1904, Coyne Bros. of Chicago received an
Illinois Central refrigerator car loaded with melons from Poseyville,
Indiana. The freight was $39 and the icing charge $45. The Illinois
Central icing charge for that distance was $10. Coyne Bros. went to the
manager of the railroad refrigerator service and found that the road had
an arrangement by which the Trust was to be paid at Trust rates on all
shipments from the melon region, whatever cars were used. If the firm
refused to pay the charge they would be boycotted or taken off the
credit list.
August 11, 1904, Coyne Bros. received a Louisville and Nashville car
loaded with melons from Epworth, Indiana. On the bill were two charges
for icing, one was the railroad charge of $14 and the other the Trust
charge of $45. The firm asked if they were expected to pay both charges.
The railroad then erased the $14 item. The firm refused to pay the $45
Trust charge for a service worth no more than the railroad charge of
$14, and the railroad took them off the credit list. Mr. Urion, attorney
for the Armour folks, came to Coyne Bros. and told their manager that
they must pay the ice charges or else everything shipped to them must be
prepaid. The firm found that shipments to them from the Michigan grape
region were cut off. They sent their own man to load the cars, but the
railroad agent refused to bill them. “I have my instructions from
Armour’s man here,” he said, “and I must follow them.”
On a car of melons from Carlisle, Ind., to Mr. Scales of Chicago, the
freight was $35 and the icing charge $50, representing 20 tons of ice.
There was no re-icing, and the car bunkers would not hold more than 6
tons of ice, so that there was a clear overcharge of $35 for
refrigeration.
J. D. Mead & Co. of Boston were charged $99.90 by the Armour lines for
icing on a car of peaches from Missouri. This is a startling sum for a
service that the railroads used to perform free of charge. On another
car of peaches from Maryland, the charge was $64 for icing. As the car
bunkers would not hold more than 4 to 6 tons and only one re-icing was
necessary between Cumberland and Boston, the firm protested vigorously.
They were told that the bill was a “trial bill.”
“What is that?” they asked.
“Try to collect,” said the railroad manager.
In this case, on appeal to New York, the bill was reduced to $24, a
slice of $40 off the icing bill, which was to Mr. Mead a _trial_ bill in
more senses than one.
Ellis and Company of Chicago received a car of tomatoes from Gibson,
Tenn., 522 miles away, and another from New Orleans, 923 miles distant.
The first was a Trust car with $74 icing charge; the other was an
Illinois Central car with $15 icing charge. That is, the Trust charge
was 5 times as great as the railroad charge, though the railroad car
came 400 miles further, nearly double the distance in fact that the
Trust car covered.
Grapes have been shipped from the New York grape field to Boston in
Vanderbilt refrigerator cars without any icing charge, while shipments
in Trust cars between the same points in the same month paid $22 for
ice. The Michigan Central has given notice that it has withdrawn from
the Armour contract and will handle Michigan fruit products in its own
cars supplying ice at cost which it says is $2.50 per ton. So the man
who can ship over the Michigan Central will get a rate of $15 to $25 a
car to Boston, while the man who has to use the Pere Marquette will pay
$45 a car for ice.[283] Two Boston men recently (1905) had occasion to
order each a carload of peaches from Michigan points some 20 miles
apart. One car came from Coloma over the Pere Marquette with Armour
charges of $45, while the other car came from Eau Claire over the
Michigan Central with the same freight rate, but only $13.13 for
icing,—$5.63 for the original icing, $5 for re-icing at Collingwood, and
$2.50 for re-icing at West Seneca. A year ago, before the Armour
contract with the Michigan Central expired, the icing charge on both
railroads was $55 to Boston; now the Armour charge has come down to $45,
but the Armour charge for ice in the case just stated was $9 a ton while
the Vanderbilt railroads charged only $2.50 a ton, which last the
Interstate Commission in a recent case has held to be a just and
reasonable charge.[284] There are no icing charges on dairy products.
The ice is paid for by the car company and the railroad. It takes as
much ice for dairy products as for fruit, but the Trust is carrying its
own goods in this field mostly and not the goods of other shippers, and
so it has not felt the need of changing the original arrangement in
respect to ice.
The railroads have also bound themselves by secret contract to furnish
by wire “such information as may be requested by the car-line’s
representatives.” This enables the Trust to know what every other
shipper is doing all over the country on the lines of the
car-line-contract roads. The Armours thus have means of knowing
immediately of the shipments made by competitors and the destination of
the same, so that they can tell exactly what to do to capture or destroy
the competitive business. If a car of apples is loaded by a competitor
and billed for Worcester, the Trust knows of it in time to run in a car
of apples ahead of the competitor’s and sell out the market from under
him. At Buffalo, while the Trust was fighting to control the local fruit
market, it forestalled, they say, every shipment that was made to its
competitors.
The Armour lines have another advantage, through the arrangement of the
freight tariffs, and the friendly inspection methods, or non-inspection
methods, which enable them to ship dairy products, fruits, vegetables,
etc., at much lower rates than others. Packing-house products, _i. e._,
hams, bacon, lard, etc., go from Chicago to New York in carloads at 30
cents a hundred; fresh meats, 45 cents; eggs, 65 cents; poultry, 75
cents; butter, 75 cents, etc. The Armours have a practical monopoly on
packing-house products and the fresh-meat business, as they own all the
slaughter houses of any importance, with 2 or 3 exceptions in the
country. So the bulk of their own goods go at 30 and 45 cents which are
regarded by railroad men as very low rates for goods transported in
refrigerator cars. On the other hand rates upon dairy products are very
much higher, and most shippers have to pay those rates. According to all
rules of classification packing-house products should pay higher rates
than fruit; but, in order to help out the infant beef industry, a
commodity tariff is arranged of which this is a sample:[285]
══════════════════════╤══════════╤════════════╤════════════╤═══════════
│ │ │ Beef │
│ │Fruit third │ (commodity │
│Distance. │ class. │ rate). │Difference.
──────────────────────┼──────────┼────────────┼────────────┼───────────
│ │ Cents. │ Cents. │ Percent.
Chicago to Duluth │ 478│ 44│ 28½│ 54
Kansas City to Duluth │ 699│ 53│ 40│ 33
Omaha to Duluth │ 504│ 45│ 35│ 28
Sioux City to Duluth │ 432│ 45│ 35│ 28
Cedar Rapids to Duluth│ 409│ 44│ 28½│ 54
──────────────────────┴──────────┴────────────┴────────────┴───────────
President Ripley of the Santa Fe declares that the rates on beef
products between Kansas City and Chicago are so low that every carload
is carried at a loss to the roads. Here are his figures:
Dressed meats: Actual cost per car, $82.19; revenue, $42.19; deficit,
per car, $40.
Packing-house products: Cost per car, $85.03; revenue, $56; deficit,
$29.03.
He also asserts that cattle are now hauled at a loss.
Other witnesses have disputed President Ripley’s statement of cost, but
however this may be it is evident that the Beef Trust has been very
generous to itself in the rates it has compelled the railroads to adopt
for its shipments.
The railroads do not like to be bossed either by the Beef Trust or the
Standard Oil, but they declare that they cannot help themselves.
President Ripley says: “The packing-house business to-day is
concentrated in so few hands that this fact, together with the
competition between the railroads, practically makes it possible for the
latter to dictate rates for dressed beef and the packing-house
products.”
President Stickney of the Great Western Railroad says: “In fixing the
rate on dressed meat we don’t have very much to say. The packer
generally makes the rate. He comes to you and asks how much you charge
for a certain shipment of dressed meats. The published tariff may be 23
cents a hundred, but he will not pay that. You say to him: ‘I’ll carry
your meat for 18 cents.’ He says: ‘Oh, no, you won’t. I won’t pay that.’
Then you say: ‘Well, what will you pay for it?’ He then replies, ‘I can
get it hauled for 16 cents.’ So you haul it for 16 cents a hundred.”
President Calloway, speaking to the Interstate Commission about the
speeding of the beef cars and other Armour exactions, said:
“We do not do these foolish things from choice. I will say that the
thing is just as bad and foolish and stupid as can be, but what are you
going to do about it? We have built up these dressed-beef men and they
have all got their own cars, and they can dictate what they are going to
pay. They just keep these cars humping. We unload them and get them back
to Chicago just as quickly as we can. The Pennsylvania people also were
very much disinclined to allow or foster this dressed-beef business, but
were forced into it.”
Very few railroads have dared to fight either Armour or Rockefeller
openly, but secretly the railroads did combine to fight these men and
employed an agent, Mr. Midgley of Chicago, for that purpose, whose
investigations and disclosures have done much to throw light upon the
hidden ways of the Trust magnates.
Mr. Midgley told the Interstate Commission in April, 1904, how the
representatives of sixty railroads met in St. Louis in 1894 and tried to
stand up against the Trusts, beginning with a reduction of the
extortionate mileage rates on tank and refrigerator cars, but they could
not free themselves from the yoke of oil and beef. The Standard gave all
its shipments to the Great Western, which agreed to pay the old mileage.
The other lines out of Chicago could not get a carload to St. Paul or
the Missouri River. The railroads surrendered finally to both the
Standard Oil and the Beef Trust. They reduced the mileage rates on stock
cars, railroad cars, and other cars not controlled by the Trusts to 6
mills per mile, but excepted refrigerator and tank cars out of respect
to the power of Armour and Rockefeller, because, the trunk lines said,
referring to the power of these Trusts: “We have never been able to
stand up against it.”
We have not yet finished with the favors shown to Armour. The railroads
as a rule inspect the loading of every car and the unfavored shipper
cannot mix eggs or poultry with low-class provisions and bill it all at
a low rate. But the Armours can do this, for inspection in their case is
a mere form. There is one inspector for shipments that average 75 cars a
day. The inspector could not watch them all if he would, and in fact he
simply inspects the Armour records and takes their word for the contents
of the cars.[286]
It is charged that Armour not only gets large quantities of high-class
freight carried at the rates appropriate to lower-class freight by
unreported mixing of his goods in carload lots billed at the lowest rate
applicable to any of the goods in the car; it is also further charged
that the space beneath the beef that is hung up in the refrigerator cars
is often crowded full of poultry, eggs, etc., which are carried for
nothing. No wonder Armour can undersell his rivals all over the country
and ruin his competitors in any market he chooses to enter.
The Beef Trust has compelled the railroads to fix a very low minimum
carload limit—20,000 lbs. on dressed beef, etc., against 26,000 to
30,000 lbs. on products the big Trusts are not interested in. If a load
is below the carload limit it has to pay less-than-carload rates, which
are 20 percent or more higher than carload rates. It is for the interest
of the railroads to keep the minimum carload limit at a good height to
prevent hauling cars with small loads and low rates, and to reduce the
effect of the prevalent custom of billing Trust cars at the minimum no
matter how heavily they are really loaded. The railroads have made
efforts to unite on a higher carload limit, but without avail so far. On
Dec. 12, 1903, it is said, 16 presidents and managers of the greatest
railroads in America met in New York and decided to make 24,000 lbs. the
minimum on dressed meats. The proceedings were under promise of secrecy
by all concerned. But within two days the Trust people knew all about
the secret meeting, and they took measures which prevented the new order
from ever taking effect. No agreement has ever been formulated that will
stand against the power of the Trust, the seductiveness of its promises
of diverting new masses of business to the yielding road, and the terror
of its threats of withdrawal of traffic from the unyielding.
These advantages—excessive mileage rates, high speed, exclusive
contracts, exorbitant icing charges, espionage of competitors, control
of tariffs, low carload limit, and go-as-you-please inspection—have the
same effect as a very large rebate; the private-car owners can ship at
very much lower cost than ordinary unprivileged shippers. The profits
are immense—$72,000 a day, it is said for the Armour cars.
It is estimated that the railroads pay the Beef Trust’s car-lines about
$25,000,000 a year in rebates or payments in practical violation of the
law.
On the basis of the very moderate Beef Trust Report of the Department of
Commerce, Mr. Baker figures the annual profits on the 14,000 Armour
refrigerator cars, from rentals alone, at $200 net per car, or
$2,800,000—nearly $3,000,000 a year, not including the enormous sums
extorted in excessive icing charges, nor the rebates and commissions
paid by the railroads in addition to the mileage. The estimate of $200 a
car is probably too low, for Mr. Robbins, manager of the Armour
Car-Lines, has testified that they rent old, inferior cars to breweries,
etc., at $204 to $280 per year.
Mr. Baker says: “Can any simple-minded person see any difference between
a payment of $3,000,000 net profit on mileage annually to a favored
shipper like Armour, and an old-fashioned cash rebate of $3,000,000? I
confess I cannot.”[287]
Mr. Baker has deducted operating expenses, repairs, and a liberal
allowance for depreciation, but he has not allowed for fair interest
upon the capital invested in the cars, a charge amounting to $650,000 a
year which should be deducted from the $2,800,000 in order to get the
portion of the mileage payment which is really equivalent to “an
old-fashioned cash rebate,”—an article that is not so old-fashioned,
however, as to be out of use, by any means, as we have seen.
Wherever it serves their purposes the car-lines share their rebates with
important shippers. This has been of special service in inducing large
shippers like the fruit growers of California and the South to give
their trade to the profit-sharing car-lines. The car-lines would pay
shippers a bonus on condition that such shippers would call on the
railroad for the cars of the agreeing car-line. Both refrigerator lines
and stock car-lines use this method. Sometimes half the mileage is paid
to the favored shipper. Sometimes $10 or $15 or even $25 and $35 a car
is paid back to the shipper by the car-line, which is of course a rebate
pure and simple, and has precisely the same effect when paid by the
car-line as if paid by the railroad directly to the shipper.
The Santa Fe car-line found it necessary to give a rebate of $25 a car
in California in order to get traffic in competition with the Armour
Car-Lines and on shipments going beyond Chicago the rebate that seemed
necessary to get business was $35 a car. So Mr. Leeds, the manager of
the Santa Fe car-line testified in April 1904 before the Interstate
Commerce Commission. Part of Mr. Leed’s testimony in answer to the
questions of the Commission and of its counsel Mr. Marchand was as
follows:[288]
“MR. LEEDS. This is the first year that we entered into the deciduous
fruit business in Northern California, and I met the competition which
we found there when we began business.
“MR. MARCHAND. What competition?
“MR. LEEDS. I think it amounts to $25 a car.
“MR. MARCHAND. $25 a car?
“MR. LEEDS. Yes, sir.
“MR. MARCHAND. By whom?
“MR. LEEDS. We had only one competition.
“MR. MARCHAND. Who was your competitor?
“MR. LEEDS. The Armour Car-Line.
“MR. MARCHAND. And it was necessary to give $25 or more in order to
secure the traffic—was that your idea?
“MR. LEEDS. I believed so.
“COMMISSIONER CLEMENTS. Uniformly $25 a car?
“MR. LEEDS. I think there would be some exception, as to business
farther east than Chicago.
“COMMISSIONER CLEMENTS. Would it be more than that?
“MR. LEEDS. Yes, sir.
“COMMISSIONER CLEMENTS. What on Eastern business?
“MR. LEEDS. An additional $10.
“COMMISSIONER CLEMENTS. $35?
“MR. LEEDS. Yes, sir.
“COMMISSIONER CLEMENTS. You pay $25 back to Chicago and points west of
Chicago?
“MR. LEEDS. Yes, sir.
“COMMISSIONER CLEMENTS. And $35 to points east of Chicago?
“MR. LEEDS. That is what it would amount to.
“COMMISSIONER PROUTY. Do you agree to do that before the shipment is
made, or afterwards?
“MR. LEEDS. Before.
“COMMISSIONER PROUTY. Are your agents authorized to make that discount?
“MR. LEEDS. No; they are not.
“COMMISSIONER PROUTY. Where is the agreement made, and with whom?
“MR. LEEDS. Myself.
“COMMISSIONER PROUTY. Do your agents there know anything about it?
“MR. LEEDS. I do not think they know what it is. They may know that
something of that kind is going on, but not what it amounts to.
“COMMISSIONER CLEMENTS. How does the shipper know that he can get this
$25 and $35 back?
“MR. LEEDS. Well, he probably could not ship if he did not know it.
“COMMISSIONER CLEMENTS. How does he find it out? You say your agents
there do not inform him.
“MR. LEEDS. Well, I spent about three months there in the past year.
“COMMISSIONER CLEMENTS. You have advised them all that that was done,
have you?
“MR. LEEDS. We sought the business.”
Mr. Watson appears to have received on California shipments about
$50,000 a year in rebates from the Fruit Growers’ Express (now an Armour
line), and perhaps the amount was nearer $100,000.[289]
The reduction of icing charges to favored shippers is, of course, only
another way of paying rebates. Yet the car-lines contend that icing
charges are compensation for a private service which is not part of the
transportation service, and therefore outside the Interstate law. The
Interstate Commerce Commission says: “It has been very customary in the
past, and the practice still prevails in some quarters, to allow to
particular shippers a reduction in these refrigerator charges. Testimony
recently taken at Chicago shows that one large shipper of California to
various eastern destinations was allowed concessions of this kind, which
probably aggregated in a series of seven or eight years several hundred
thousand dollars.”[290]
The testimony of H. J. Streychmans before the Commission at Chicago, May
12, 1905, throws much light on the Armour Car business. Mr. Streychmans
was for over 4 years, from April, 1900, to August 1904, in the employ of
Armour & Company, and the Fruit Growers’ Express, one of their car-line
systems. One of his duties was to check ice bills. He says the Armour
Car-Lines generally pay $2 to $2.50 a ton for ice, except on the St.
Paul and Northwestern and Erie. On the Northwestern the Armours paid $1
a ton for ice, and on the Erie $1.25 or $1.50. “These were the main
lines. The Northwestern and St. Paul handled practically all the green
fruit shipments, and the Erie used to get the shipments east.” The
profits were “five or six hundred percent.” On the very long hauls the
percentage was not so high. From Fresno, California, to Boston, for
example, the cost of icing was about $38 and the Armour tariff charge
for icing was $125, leaving a margin of $87 a car.
On some roads Streychmans says that rebates were paid the Armours on
ice. The Chicago, Milwaukee and St. Paul, for example, billed the ice at
$2.50, but in paying the railroad for the ice the Armours put in a
rebate claim for $1 a ton, reducing the net cost to $1.50. On the Texas
and Pacific, the company furnishing the ice remitted $1 per ton making
the net price $2.50. Ice cold rebates were also paid at Buffalo.
The Armours in their turn made “allowances” to favored shippers.
Streychmans had to make up “allowance statements” “showing the number of
cars shipped by the shippers and giving him a rate of 60 percent of the
tariff rate.” A “rebate of $15 to $25 a car” was paid back. The last
statement Mr. Streychmans put in typewriting before leaving the Armour
service in California was for a rebate of 45 percent to Alden Anderson,
Lieutenant-Governor of California. The witness saw on the office file
statements of rebates to the Southern California Fruit Exchange of $10 a
car on 1904 shipments of oranges, etc. A number of shippers in
California got rebates amounting to 45 to 50 percent of the icing
charges. They paid the actual cost of icing plus a bonus of $10 to
Chicago, $15 to New York, and $20 to Boston. The cost and bonus together
were ordinarily less than half the tariff charges. For instance, the
Armour ice tariff to Boston from Southern California was $120, the cost
$38, and the bonus $20,—$58 total, or a little less than half the
tariff. The full tariff rates were collected and the difference paid
back. Shippers not in on the secret-rebate arrangement paid the full
rates and got no discount.
From Portland, Ore., to Chicago the Armour icing charge was $45, because
the Northern Pacific cars are there to compete; but further south, at
Medford, Ore., where there is only the Southern Pacific, in league with
the Armours, the icing charge to Chicago is $75.
When possible the car-line runs the cars without ice, sometimes for long
distances, but charges the shippers for icing just as if it had been
done.
Some of the railroads pay a bonus for the Armour business, the St. Paul,
the Northwestern, and the Grand Trunk, for example; in other words, the
Armour lines not only charge extortionate rates for icing and get a
mileage on their cars loaded or empty, but in some cases sell their
tonnage to the railroads. In California, however, the witness believes
there is a traffic commission to settle questions of the division of
traffic between the Santa Fe cars and the Armour cars on the Southern
Pacific.
Mr. Streychmans as a confidential clerk was supplied with a secret code
for use in his correspondence. The inside title-page says:
“Transportation Department, General Offices, 205 La Salle Street,
Chicago, Ill. Cipher code No. 100; for exclusive use between themselves
and H. Streychmans. July 1, 1902. Armour Printing Works, Chicago.”[291]
Some of the cipher words and their meanings are as follows:—
_Launching_—Can make rebate.
_Laundry_—Force payment higher rebates.
_Laura_—Handle rebate matters very carefully.
_Laurus_—Pay rebates.
_Lava_—Pay rebates from cash on hand.
_Lavello_—Rebate must be confidential.
_Lavishment_—Working for rebate on.
_Kinsley_—Shade rates a little rather than lose business.
_Apples_—What allowance is necessary to secure business.
_Joculariss_—Divide rate.
_Jewelry_—Rates being secretly cut by all lines.
_Judiciary_—Keep your rates below all others.
_Junior_—Rates must be made which will secure the business.
_Junk_—If necessary to secure the shipment you can make the rate to.
_Juvenal_—Maintain rates unless others cut.
_Kadmaster_—Manipulate rates so as to.
_Kalatna_—Meet any rate offered.
_Footpath_—Interstate Commerce Commission.
_Footprint_—Avoid service of summons from I. C. C.
_Footrot_—Meeting of the I. C. C. at —— on —— to consider question of
——.
_Imprint_—Martin A. Knapp of New York, Chairman.
_Imprinted_—Judson C. Clements of Georgia.
_Imprinting_—James D. Yeomans of Iowa.
_Imprison_—Charles A. Prouty of Vermont.
_Improbitas_—Joseph W. Fifer of Illinois.
_Improbity_—Edward A. Mosely, Secretary.
_Armour_—Arrange this with the utmost secrecy.
It is evident that the Armour Car-Lines make a business of arranging
secret rebates, evading the law and eluding the Interstate Commission.
There are some 300 private car-lines in the country owning and operating
about 130,000 private cars. But the law of concentration is acting on
the private cars as well as on the railways, and the private cars are
rapidly consolidating in few hands. Speaking of this movement in the
refrigerator business, the Interstate Commission says in its Report for
1904, p. 14: “Some years ago there were a number of these private-car
companies which provided refrigerator cars for the transportation of
fruit under refrigeration. Some of these were the Fruit Growers’
Express, the Kansas City Fruit Express, the Continental Fruit Express,
and the Armour Refrigerator lines. These companies were all independent
of one another originally, and their cars were used in competition with
each other.... At the present day all the above car companies have been
absorbed by the Armour Car-Lines Company, which has to-day, in our
opinion, a practical monopoly of the movement of fruit in large
quantities in most sections of the country. There is the American
Transit Refrigerator Company, which operates over the Gould lines, and
the Santa Fe Fruit Express, which operates over the Santa Fe System, and
there are numerous refrigerator lines, having a small number of cars and
engaged in a particular service, but we know of no company other than
the Armour Car-Lines which could move the peach crop of Georgia or the
fruits of Michigan. And this company, having acquired sufficient
strength to do so, has adopted the rule that it will not allow its cars
to go on the line of any railroad for the purpose of moving fruit from
points of origin on that railroad, unless it be under what is known as
an exclusive contract.”
By force of the enormous shipments the Armours control they have
compelled railroad after railroad to make the exclusive contracts they
desire, fix rates at their dictation, collect exorbitant icing charges,
give them an excessive mileage allowance, return their cars empty if
they will at high speed instead of detaining them for loading back, etc.
And “if any railroad dares to disobey their orders when they impose a
requirement it will not get any more of their traffic. The boycott
cannot be visited more effectively upon the railways. That is the secret
of the whole situation. They are the largest shippers, the most
arbitrary, the most remorseless that have ever been known.”[292]
Is it any wonder that Mr. E. M. Ferguson, representing a dozen
associations of fruit and grocery and produce houses, should tell the
Senate Committee that the “situation is tantamount to commercial
slavery”? “It must be plain to all that commercial freedom in any line
of industry has ceased when a gigantic trust like the Armour interests
are permitted, through ownership and operation of private car-lines to
absolutely control the common highways in so far as the use of such
highways may be required in the transportation of that particular kind
of traffic for which their cars are a necessary instrumentality of
carriage, thus enabling the Armour interests (who, it will be
remembered, are also merchants in the commodities transported in their
cars) to completely dominate over all independent dealers to the extent
of fixing rates, conditions, and terms under which such independent
dealers may use the common highways.”[293]
The fate of a man left to the mercy of the Armours and the mild
influence of the Sermon on the Mount is similar to the fate of a man
without a gun encountering a tiger in the jungles of Africa. Even the
Government seems to be unable to compel justice in this case. The big
guns of the Federal courts have little or no effect on the packers and
the railroads they have benevolently assimilated. They disobey
injunctions as freely as they do the principles of Christianity and the
dictates of conscience, with the excuse perhaps, as to the last, of lack
of acquaintance.
Standard Oil still practically controls the railroads for the most part
so far as the transportation of oil is concerned, manipulating rates and
service so as to favor its own business and hinder or destroy the
business of competitors.
In the recent examination of Standard Oil methods by the State of
Missouri, L. C. Lohman, for 30 years an oil dealer at Jefferson City,
testified that he had been forced to abandon his dealings with
independent oil companies because the Missouri Pacific and Missouri,
Kansas, and Texas roads refused to accept oil for shipment to him from
these companies.
The railroads discriminate against the Texas oil wells by making the
rates on north-bound oil considerably higher than on south-bound oil.
Again the rate to various points from Lima, the centre of the Ohio and
Indiana oil fields, is considerably higher than from Chicago, the
Standard Oil shipping point. For example:
Miles. Rate per hundred.
Lima to Chattanooga 470 43
Chicago to Chattanooga 643 39.5
Lima to Mobile 916 32.5
Chicago to Mobile 926 23
Lima to New Orleans 962 32.5
Chicago to New Orleans 922 23
Lima to Memphis 512 26.5
Chicago to Memphis 526 18
Lima to Cincinnati 132 10
Chicago to Cincinnati 305 11
It costs 3½ cents more per hundred to ship from Lima, 470 miles, than
from Chicago, 643 miles; 9½ cents more from Lima, 916 miles, to Mobile,
than from Chicago, 926 miles, to the same place. The shorter distance
has the higher rate till you get 50 percent off, then the half distance
from Lima has about the same rate as the 100 percent distance from
Chicago.
The average rate on 25 staple commodities is about 2 cents higher per
hundred from Cleveland to New Orleans than from Chicago to New Orleans,
while the rate on petroleum is 8 cents higher. This is a strong
discrimination against the Cleveland refineries in favor of the Chicago
shipping point at Whiting. The Standard Oil is the only shipper of oil
from Whiting.[294]
The methods by which the Standard controls New England are still in full
swing. The report of the Industrial Commission tells how the Standard
Oil railroads keep the independent refineries at Cleveland out of New
England through high rates on oil by rail, while the Standard ships by
water, and by making oil second class unless the shipper has a private
siding or tank opposite the rails of the New Haven and Hartford
Railroad, but fifth class if the shipper has such siding or tank, _i.
e._, if the shipper is the Standard Oil Co.[295] “The freight rate from
Cleveland to Boston,” says the report, “was formerly 22 cents per
hundred pounds alike on iron articles, grain, and petroleum. But since
the Interstate Commerce Act the rates have been changed, so that the
rate on grain is 15 cents per hundred pounds, on iron 20 cents, and on
petroleum 24 cents. Again, on almost every commodity through rates are
made from Cleveland and other western points to points reached by the
New York, New Haven and Hartford Railroad. On petroleum there are no
through rates, but a local rate is added to the Boston rate. Moreover
the New York, New Haven and Hartford prescribes that petroleum and its
products shall be in the second class of freight unless the person to
whom it is shipped has a private siding or tank opposite the rails, in
which case it is fifth class, the rate for fifth class being probably
one-half that for second class. These arrangements are explainable by
the fact that the Standard Oil Company ships oil from its seaboard
refineries to Boston largely by tank steamers, and distributes it from
there for a comparatively short distance at the local rates.”[296]
In the West the Standard has persuaded the railroads to lift the rates
on oil so high as to make competition difficult. The rate from
Pennsylvania points to Chicago was raised from 17½ cents to 19½ cents,
and the rate from Chicago to St. Paul went up from 10 cents to 20
cents.[297] The Standard pumps oil to Chicago by pipe, and the higher
the rates by rail the more impossible it is for the independents to
compete. Of course it is against the direct interests of the railway
stockholders to have rates so high as to check the traffic in oil by
rail, but the Standard does not care about that, and it is a small
matter even to the railroad managers compared to incurring the
displeasure of Standard Oil, which has sufficient control in the railway
world to cause any disobedient railroad most serious loss and even make
a railroad war upon it.
Before the Standard found other methods of controlling transportation
and milking the public it used to receive half a million dollars a month
in rebates. But some railroad men who are in a position to know say that
since 1900 the Standard Oil has not asked for rebates, the reason being
that the tariffs are made in such a way as to give the Trust all the
advantage it requires.[298]
The fight now going on in Kansas between the people and the Oil Combine
has forcibly illustrated the methods of the Standard. When the Kansas
oil fields began to show signs of large prosperity the Standard went
into the State, put up refineries and storage tanks, laid pipe lines,
and began to build a through pipe line from Kansas to its Chicago
station at Whiting. By getting the railroads to raise their rates on
oil, compelling producers to agree to sell their oil only to the
Combine, resorting to cut-throat competition to drive them out of any
market they attempted to enter, they practically captured the oil
business of the State and were able to put the price of crude oil down
and squeeze the independents until many of them were ready to sell out
to the Combine at the victor’s own price.
The power of the Trust over the railroads is illustrated by the case of
Mr. I. E. Knapp of Chanute, who went to the field in 1899 and secured a
number of paying wells. He also obtained a market for his crude oil with
the Omaha and Kansas City gas companies, transporting the oil in tank
cars of his own. In the recent investigation in Kansas it appeared that
he had enlarged his business till he had 20 tank cars in transit. He
paid the railroads 10 cents per hundred lbs. to Omaha and Kansas City,
and they counted the weight at 6.4 lbs. per gallon. With this rate and ¾
of a cent mileage on his cars he was able to make a good profit, but
suddenly in May, 1902, two weeks after he had signed a year’s contract
with the gas companies, the railroads changed the weight classification
to 7.4 lbs. per gallon, adding thereby $7.50 per car to the freight,
while the freight on the products of crude remained unchanged. That is,
the Standard could still ship gas-oil as a product of crude at the old
weight of 6.4 lbs. a gallon.[299]
Mr. Knapp protested and the railroad agents, admitting that the
classification was arbitrary and not general even on their own roads,
succeeded in getting the order reversed, but only for a short time, when
back it went, and in reply to further protest from the Kansas agents
their superior officers wrote that they were tired of the correspondence
and declined to discuss the matter further. So for 11 months Mr. Knapp
had to fulfil his contract with a handicap of $7.50 per car more cost
than he had figured on. The result was that in May, 1903, he turned over
his crude oil to the Standard which thereafter supplied the Omaha and
Kansas City gas companies, while Knapp’s 20 cars were side-tracked and
in the spring of 1905 were still idle at Chanute.
The weight classification killed Knapp’s business, but a few small
independents lived in spite of it. So another move was made on the
railroad chess-board. Three great railroads tap the Kansas oil fields:
the Santa Fe, the Missouri, Kansas and Texas, and the Missouri Pacific.
In August, 1904, just as the Standard finished its pipe line to Kansas
City, the rates on crude oil and its products were raised by all the
railroads on the field. The rate to Kansas City went up from 10 cents to
17 cents a hundred; and the rate to St. Louis rose from 15 cents to 22
cents. On a carload of fifty-five thousand lbs. the increase in the
freight to Kansas City was $38.50, or $93.50 total, and $121 to St.
Louis. This was prohibitive. In their testimony given in March last
(1905), shippers, even those who were using their own tank cars,
declared that the change in rates compelled them to stop business at
once and shut down their wells.
The advance in freight was not a part of a general readjustment of
rates. It was made alone. And it made oil rates out of all proportion to
other rates. The freight from Chanute to Kansas City was $50 for a car
of wheat, $40 for corn, $66 for machinery, $28 for cattle, and $30 for a
car of fruit, against $93.50 for oil, the least valuable of all, and
formerly carried for $50 or $55 a car.
The examiner at the recent Kansas investigation presented the following
letter in explanation of the railroads: “The reason the Santa Fe and the
‘Katy’ railroads raised rates on oil after the pipe line was completed
was because the Standard’s companies arranged with them to do so, by
agreeing to give them a percentage upon every barrel of oil that was run
through their pipe lines on condition the railroads would increase the
freight rate on oil to a prohibitive rate, so that all the oil would be
forced through the pipe line. Now the railroads have no oil, but get
about ten cents per barrel for all oil going through the pipe lines.”
This is similar to an arrangement that existed for several years from
1884 on between the Pennsylvania Railroad and the Oil Combine by which
the railroad was to have a fixed sum per barrel on 26 percent of all the
oil going eastward from the Pennsylvania oil fields, whether the oil
went by rail or pipe line,[300] in consideration of which the railroad
was to put up the rates on oil.
In the Kansas case there are other reasons more direct and powerful
perhaps than any traffic arrangement. The Standard people have acquired
a large interest in the Santa Fe. One of their strongest and most
unscrupulous men, H. H. Rogers, has taken a place on the board of
directors. John D. Rockefeller and Wm. Rockefeller are directors of the
Missouri, Kansas and Texas, and the Missouri Pacific is one of the
principal lines of the Gould-Rockefeller system. There are other
indications of the grip the Standard has upon the Kansas railroads. For
example, the Colorado Fuel Company that was so greatly favored by the
Santa Fe is largely owned and managed by the Standard Oil crowd, and the
Standard uses the Santa Fe’s right of way for its pipe lines in Kansas,
and for almost the entire distance from Kansas City to Whiting.
Kansas has risen in revolt against the Oil Trust, and the Legislature
last year (1905) lowered the freight rates on oil and passed a bill for
the establishment of a State refinery to compete with the Standard and
give the oil producers of the State a chance to escape from the
“commercial tyranny” they are now subjected to in consequence of the
fact that there is practically only one buyer in the market. The State
Supreme Court, however, has decided that the State refinery act is
unconstitutional. The independents might, however, establish a
co-operative refinery of their own and do a good business, if they could
get equal freight rates and sufficient support from public sentiment to
withstand the boycott to which the Standard would be likely to resort.
Only the Standard, it is said, can get rates that encourage the shipment
of oil from Kansas wells at present. And the Standard custom of putting
prices very low where there is competition, keeping prices high in other
regions where there is no competition, making the people in
non-competitive localities pay the cost of killing competition in other
places, is exceedingly effective, as is also its diabolical habit of
ruining merchants who buy independent oil, by establishing competing
houses close to them and underselling them on the whole line of goods
they handle, the Trust’s wide business enabling it to stand such losses
easily, as the total is only an insignificant fraction of the profits
made in regions where no such fight is in progress.
CHAPTER XXVII.
THE LONG-HAUL ANOMALY.
The long and short haul clause is still broken by the railroads as well
as by the Supreme Court, especially in the West and in the South, where
the basing-point system causes such grievous discriminations. For
example, with a rate of 48 cents from New York to Atlanta and a local
rate of 38 cents from Atlanta to Suwanee, the rate from New York to
Suwanee is 86 cents, although Suwanee is 31 miles nearer New York than
Atlanta. This system is not confined to places that have water
competition. A considerable number of towns on the Southern Railway and
on the Louisville and Nashville have been made basing-points, though
they have no water competition.[301]
Jacksonville is the main basing-point in Florida, and rates to other
destinations are the rate of Jacksonville plus the local rate from
Jacksonville to destination, even though the destination is nearer the
point of shipment than Jacksonville.[302]
From New Orleans to the “Virginia Cities,” Richmond, Lynchburg, and
Norfolk, is about 800 miles. Charlotte, at the southern border of North
Carolina, is about half way. Yet the rates to Charlotte on a number of
articles are double the rates to the Virginia cities, twice the
distance. The Southern Railway and the Seaboard Air Line reach the city,
but there is no competition. Water competition must be met in Virginia,
but if the Virginia ton-mile rate will pay a profit, is not the fourfold
ton-mile rate to Charlotte an exorbitant charge?[303]
Danville is an excellent example of the evils of place discrimination.
Prior to 1886 Danville enjoyed equal freight rates with Lynchburg and
Richmond through the competition of the Virginia Midland Railroad and
the Southern Railway, but in that year the Southern road (then known as
the Richmond and Danville) bought the Virginia Midland and deprived
Danville of its equal rates. In 1890 Danville subscribed $100,000
towards the construction of another competing road, which was built, but
after a few years it too was purchased by the Southern Railway, and the
rates were made strongly adverse to Danville. The matter went to the
Commission and the courts, but the city has not been able to carry on
the litigation with the roads.[304]
The Southern Railway carried bananas in 1902–1903 from Charleston to
Lynchburg for 20 cents a hundred lbs., but if the fruit stopped at
Danville, part way on the road to Lynchburg, the rate was 43 cents a
hundred. The road said it had to make low rates at Lynchburg to meet
competing bananas coming in by way of Baltimore. The Commission found,
however, that the Lynchburg rate was 13 cents lower than the rate
justified by competition from Baltimore or elsewhere.[305] It is claimed
that railroad discrimination has decreased the taxable values of
Danville several hundred thousand dollars from 1900 to 1904. The
Danville representative said, “I have heard a great deal about
confiscatory rates, fixed by a Commission authorized to fix rates, but I
have not heard anything about confiscatory rates fixed by the railroads,
whereby the property of the public and of municipalities and taxable
values are destroyed; but those facts exist. They exist in my town, and
these facts exist in spite of the fact that the city of Danville
contributed $100,000 to the building of the Lynchburg and Danville
Railroad.”[306]
The rate on canned goods from Hoopeston, Ill., to Nashville, Tenn., is
27 cents per hundred. From Hoopeston to Memphis, several hundred miles
further, the rate is 19 cents. From Greenwood, Ind., to Nashville the
rate is 25 cents, to New Orleans 21 cents, to Mobile 20 cents, and to
Memphis 19 cents.[307] The Chesapeake and Ohio Railway, the Norfolk and
Western, and the Baltimore and Ohio, all carry lumber from the Blue
Ridge Mountains. The rate from the Shenandoah Valley to Philadelphia is
16 cents per hundred, while from points in the region a hundred miles or
so further west the rate is only 14 cents. “The man who is producing
lumber to-day on the eastern slope of the Blue Ridge Mountains, almost
within sight of us, must pay 2 cents per hundred lbs. more to get lumber
to Philadelphia than the man 50 or 75 miles further west, who gets his
lumber transported for 14 cents. Now, 2 cents a hundred lbs. is 40 cents
a ton. That is $12 a carload of 30,000 lbs., and that is probably about
all the margin of profit there is in lumber of that kind.” All three of
the railroads are controlled by one great railroad system, yet they
claim that competition among them justifies the lower rate in the region
where they cross.[308]
The rate on lumber from Chattanooga to Buffalo via Cincinnati is 20
cents, while from Chattanooga to Cleveland, a shorter haul over the same
road, it is 23 cents.[309]
Corn rates now (1905) are 13 cents per hundred from Omaha, 1400 miles to
New York, and 25 cents from Boone, Iowa, 1252 miles to New York, 25
cents also from Dennison, Iowa, 1341 miles to New York, etc. Many
similar facts might be named. And such discriminations between
contiguous markets do not violate the Interstate Law. There is no
requirement that one railroad line shall not charge less for a given
distance than another railroad line charges, and even on the same line
the long and short haul clause yields to the necessity of meeting
competition.
When Dubuque wants to buy things from the South it must pay much higher
rates than Milwaukee, Madison, Chicago, Freeport, etc. Manufacturers in
Fort Dodge and Dubuque, Iowa, have to pay higher rates to the Pacific
than manufacturers in Chicago and the East.
Iowa raises corn, cattle, and hogs, and would like to have
packing-houses, but cannot because of the discrimination in favor of
Chicago and Missouri River points.[310] Iowa business men also say that
small poultry and dressed-meat concerns cannot compete with the big
packers, on account of the private-car system and the concessions
granted the car-lines, and they complain vigorously of the
discrimination against them in the rates on shoes, grain, cattle, iron,
steel, etc. The railroads have decreed that Iowa shall not be a
manufacturing State.
“THE CHAIRMAN. Why do you say that the railroads have decreed that Iowa
shall not become a manufacturing State?
“HON. A. B. CUMMINS, Governor of Iowa. I reach that conclusion simply
because all our manufacturers, when they attempt to reach beyond our own
State, meet rates that so discriminate against them that they cannot
compete with manufacturers elsewhere.”
In many cases a shipper at an intermediate point between Minneapolis and
Chicago can send his grain to Minneapolis, rebill it to Chicago, and
have it go back through his own town to destination more cheaply than he
can ship direct to destination.[311]
From Cannon Falls the rate to Chicago is 15 cents a hundred on grain.
The rate from Cannon Falls to Minneapolis is 7 cents, and from
Minneapolis to Chicago 7½ cents. So it costs ½ cent a hundred more to
ship from Cannon Falls direct to Chicago than to ship to Minneapolis and
from there back through Cannon Falls to Chicago. And if he wants to send
his grain to Louisville, Ky., it will cost him 5 cents a hundred more to
ship from Cannon Falls to Louisville, than if he sends his grain to
Minneapolis and bills it from there to Louisville.[312]
Denver still suffers from the sort of discrimination described in the
preceding section.[313] The rate in cotton goods from New England to
Denver is $2.24 per hundred. From New England to San Francisco, 1500
miles further on, the rate is $1 a hundred in carload lots. On a
shipment in relation to which a Denver merchant made complaint, the
Burlington road received $25.95 from Chicago to Denver, whereas if the
same shipment had been intended for Frisco the Burlington would have
received only $4.50.
Salt Lake City also is wrestling with adverse freight rates. On cotton
goods the rate from New York to Frisco is $1, while on the shorter haul
from New York to Salt Lake it is just double, $2 per hundred.[314] The
rate on window-shade cloth from New York to Salt Lake City is $2.30.
Carrying it 800 miles further, New York to California, the railroads
charge only $1, and this affords a slight profit. Is it not clear that
the $2.30 is excessive?[315] “The men who build a city in the interior
cannot expect to get as reasonable a rate as the men who build their
city on the shore of the sea, but the difference should be a reasonable
one.”
It would seem that the men who build in the interior might expect that
they would not be called on to pay railway fixed charges on coast
traffic as well as on their own. It is unfair to give the coast people
the celerity of railway traffic at the cost of water traffic. The
railroad theory that every pound of freight is to be secured that will
pay the cost of hauling or a little more, though a water route or a
shorter rail line might carry the freight at less absolute cost, is not
in accord with sound public policy or the saving of industrial power. It
is an economic absurdity to haul by rail what can go more cheaply and as
safely by water. A co-operative company or a consolidated company of any
honest and sensible variety, owning both the railroads and the steamboat
lines, would divide the traffic in such a way as to secure the maximum
economy and convenience, and would make a reasonable payment for the
extra speed and other advantages of railway transit the main condition
of selecting that method of transportation, with an option in the
company under specified conditions to facilitate the full loading of
trains and boats through the adjustment of rates.
The case of Spokane is a specially aggravated one. The rate on bar iron
from Chicago to Spokane is $2.07 a hundred against $1.25 to Seattle;
iron pipe $1 to Spokane, 50 cents to Seattle; lamps $2.35 to Spokane,
$1.10 to Seattle; belting $3.13 to Spokane, and $1.65 to Seattle;
mining-car wheels $1.26 to Spokane and 85 cents to Seattle; cottons
$1.75 to Spokane, 90 cents to the coast; soap (toilet) $1.23 to Spokane,
75 cents to coast cities; wire and wire goods $2.35 to Spokane, $1.50 to
the coast; sewing machines $2.25 to Spokane, $1.40 to coast; typewriters
$5.96 to Spokane, $3 to the cities of the coast.
In general the rates from the East to Spokane are the through rates to
the coast plus the local rates from the coast back to Spokane.[316]
The preference which Tacoma, Seattle, etc., have over Spokane is about
80 percent. Spokane pays about $1.80 on shipments from Chicago, while
Tacoma and Seattle pay $1.[317] Spokane is a great railroad junction,
but competition has been suppressed by agreement between the lines,
while competition is still active at Tacoma and Seattle, so that under
the decision of the Supreme Court the railroads are free to discriminate
against Spokane. Aside from water competition the railroads want to
build up Seattle. They have invested a great deal of money in docks and
facilities for doing business there. The manufacture of wooden pipe was
flourishing in Spokane. The company was shipping 2 carloads daily and
its pay roll was $3,000 a month. A rival factory in Seattle, backed by
the big lumber firms of the coast, got the railways to make rates that
enabled it to lay down the manufactured pipe in Spokane about 60 percent
cheaper than the Spokane factory could make it. The situation came to
light November, 1903, two months after the rates went into effect, when
the Spokane factory came into competition with the Seattle factory for a
contract at Butte. The bid of the Seattle firm was less than the pipe
could be sold for at Spokane by the factory in that city, and Butte is
384 miles east of Spokane. The rates shut off the Spokane factory from
the East entirely. In about 8 months that flourishing manufacture in
Spokane was wiped out.[318] There was no water competition here to make
an excuse for discrimination, for the cut was made from Seattle east to
Spokane and points still further east.
The paper-box manufacture was forced out of existence in Spokane by
similar discriminations. Eastern factories can lay down the boxes in
Spokane cheaper than the local factories can get the strawboard. So with
other trades. The manufacture of sash would be rapidly developed if it
were not for the grievous discrimination on window glass, $1.38 from
Pittsburg to Spokane, against 90 cents to Portland, Seattle, etc.
CHAPTER XXVIII.
OTHER PLACE DISCRIMINATIONS.
There are multitudes of other place discriminations besides those
related to the long and short haul question. The Business Men’s League
of St. Louis and the St. Louis Merchants Exchange complain of serious
discrimination against their city as compared with Chicago, Kansas City,
Omaha, etc., in rates on corn, wheat, oats, groceries, hardware, and
cotton.[319] Des Moines gets supplies from Chicago at 60 cents, while
Fort Dodge, the same distance from Chicago, pays 72 cents.[320] Shoe
manufacturers and wholesale grocers of Atlanta who have had to close
down declare they were ruined by discriminative freight rates. Two years
ago a prohibitive rate was put on cotton bound for Atlanta, but the
freight agents of the leading railroads entering the city were indicted
by the Federal grand jury and the rate was withdrawn. Mobile complains
of loss of business because of discriminations in favor of New Orleans
on one side and Pensacola on the other. The Fort Wayne Commercial Club
complains of discrimination in rates, demurrage, switching, supply of
cars, etc. The lumber rate to Boston from points in West Virginia on the
Norfolk and Western is 29½ cents, while points on the B. & O. and
Chesapeake and Ohio in the same State and the same distance from Boston
have a rate of 23½ cents.[321] The Pennsylvania Railroad taking lumber
to points on the Long Branch Railroad made the rates by adding to the
New York rate an arbitrary charge of 5 cents a hundred lbs. if the
lumber came from Saginaw, Mich., but only 2 cents if the shipping point
was Buffalo; held an unlawful discrimination.[322]
Even so important a city as Philadelphia has had serious complaints to
make at times of the favoritism shown New York by sending many of the
best trains from Washington north through Philadelphia without running
into Broad Street Station, but stopping only at West Philadelphia, and
by arranging excursion tickets so that southern buyers would go to New
York instead of Philadelphia.[323]
In June, 1905, the New Haven and Hartford notified connecting lines that
it would not receive any further shipments of coal for delivery east of
the Connecticut River or north of Hartford after August 31. Such an
order constitutes a compound discrimination against certain localities
and a specific commodity.
The whole of New England suffers from a discrimination of about 100
percent in freight rates, the average rate in New England being about
double the average for the United States. Quoting my testimony before
the United States Industrial Commission: “Another phase of
discrimination was brought out very prominently in our studies in New
England, and the best source of information, perhaps, is the report made
by the Massachusetts Railroad Commission a few years ago (1894), in
which they compared the average freight rate on New England roads,
individual roads, and the average of all the roads there, showing that
our rates were about double the average freight rate in the Middle
States, or in the Middle West, and that it was clearly double what the
average freight rate was for the whole United States, and they argued
with much force that it was really a discrimination against New England
as a whole, especially against Boston. One of the pleas put forward in
discussing the question of leasing the Boston and Albany was that the
giving over of the Boston and Albany to the New York Central control
would intensify instead of relieve that sectional discrimination against
New England as a whole, because the road would come under the control of
those interested chiefly in the development of New York City, and not in
the development of Boston and the New England States.”[324]
In the Cincinnati Maximum Rate Case, involving a large number of
railways and steamship lines, the Commission found discrimination
between the rates from the eastern seaboard and central territory to
southern points, and fixed a schedule of maximum rates from Cincinnati
and Chicago to Knoxville, Chattanooga, Rome, Atlanta, Meridian,
Birmingham, Anniston, and Selma, and required the railroads to revise
their rates to other points in the South in conformity with the
provisions of the order.[325] On appeal to the Supreme Court it was held
that the order could not be enforced against the railroads, it being the
opinion of the majority of the court that the Interstate Act does not
give the Commission power to fix rates, such power not being expressly
conferred and being too great to be implied from the prohibition of
unreasonable rates and the general authority given the Commission to
enforce the law,[326] so that the discrimination the Commission sought
to abolish between different sections of the country is still in
operation.
Sectional discrimination, either intentional or unintentional, is bad
enough, but there is a still wider and more objectionable form of
discrimination as between the country and the big cities. The whole
inland territory is made tributary to a few competing points.
As Hadley says: “The points where there is no competition are made to
pay the fixed charges.”[327] The railroads make whatever rates are
necessary to get business on the through routes, and compel the rural
districts to pay rates high enough to make up for the low rates on
through traffic. In many cases local rates in country districts are
almost as high as they were in the old stage-coach days. Senator
Dolliver suggests that every village and interior community in the
United States has a grievance against the railways on account of
discrimination against them in favor of the large centres.[328] Every
small town, and every small shipper and every farmer has to pay tribute
to the big cities. The effect is to build up the cities in wealth and
population at the expense of the country. For example, while
Indianapolis increased by 32,389 inhabitants from 1880 to 1890, 49
counties remained stationary, and 21 counties lost. So Detroit grew
greatly, while 20 counties in the State, nearly all the counties in
Southern Michigan, lost population. “It is manifest that the railroads
are greatly aiding the cities in drawing to themselves the best and the
worst from the country, and every moment are increasing the magnitude of
the municipal problem.”[329]
Mr. Alexander says that the railways should have credit for decreasing
the discriminations made by nature. “Thirty years ago it cost over a
dollar a pound to carry from New York machinery and tools to work the
mines of Utah, and the trip consumed the whole summer, during which the
purchaser lost the use of his money. Now the trip requires but two weeks
or less, and the rate is about two cents. Comparing these rates, and
considering the character of the present service as compared with the
old, it is not an exaggeration to say that the railroads have removed
about ninety-nine one-hundredths of the discrimination against Utah
which nature ordained in surrounding her with deserts and
mountains.”[330]
It is true that the railways have greatly reduced the obstacles of
nature, but it is also true that they have used their power of reduction
unequally, arbitrarily, and unjustly. The discriminations of nature have
not the quality of justice or injustice that attaches to discrimination
by human agencies. In the exercise of the function of removing the
difficulties of nature the common carrier must be impartial.
CHAPTER XXIX.
NULLIFYING THE PROTECTIVE TARIFF.
The railroads continue to nullify the protective tariff upon imports,
and erect a counter protective tariff of their own in favor of foreign
goods and against domestic manufactures, aiming to supply home markets,
while on the other hand they facilitate the export of our productions by
rates much lower than the charges on the same goods for the same haul
when intended for domestic consumption. The effort seems to enable our
producers to capture foreign markets, and to give our markets,
especially the transcontinental markets, to foreign shippers. Anything
to get business, long hauls, ton-miles.
The Industrial Commission found that merchandise for export went from
Chicago to New York at 80 percent of the ordinary transportation rates,
and grain from Kansas City to Chicago took 3 cents a hundred lower rate
if billed for export than if intended for local consumption.[331] The
export rate on wheat from Chicago to New York is 15 cents, the domestic
rate 20 cents; from Kansas City to Galveston the export rate is 17 cents
against a domestic rate of 33½ cents.[332]
Another recent investigation shows that wheat from Kansas City to
Galveston was paying 27 cents if for domestic use, against 10 cents if
intended for export. The rates fluctuate, but if the domestic rate flies
low the foreign rate flies lower still.
The price of grain in Liverpool is determined by world competition; the
railroads cut rates so that our grain can be sold in Liverpool. They get
a little more than the cost of hauling and are satisfied.
When oil is selling at 9 cents a gallon here it can be bought at 3 cents
for shipment to Europe.
Railroads often give manufacturers a reduction of 33⅓ percent for
export, and manufacturers sell at 30 percent less for export. Mr. Bacon
told the Senate Committee (1905) that the export rates from all inland
points to the seaboard have been for years 25 to 33 percent below the
rates on goods for domestic use.[333]
The rate on rails from Pittsburg to Hongkong via San Francisco is only
60 cents per hundred, or less than the rate between points a few hundred
miles apart in this country.
“For the past two years the trunk lines have given the steel and iron
producers a reduction of 33⅓ percent less than the published tariff on
domestic freights, so that all iron and steel exported is carried at
one-third less than the people of this country are required to pay on
freight of the same character.”[334]
American steel has sold at Belfast for $24 a ton, while purchasers in
this country had to pay $32 a ton at Pittsburg for the same steel.[335]
American rails sell for $28 a ton for home use, but for foreign use they
can be bought in New York for $19 a ton and delivered in Beirut for
$22.88. Last year Mr. Wright, general manager of the Macon and Savannah
Railroad, stated that his road had to pay $29 a ton for 5,618 tons of
steel rails, although the same steel company offered him rails for
Honduras at $20 loaded on vessels chartered to a foreign port.[336]
During the last three or four years, while the home price has been $28,
the price for export has been $5 to $12 below the home price, and during
the period 1902–1904 the difference has been $8 to $12. The Great
Northern and the Northern Pacific pay $28 a ton for rails, while their
competitor, the Canadian Pacific, buys the same rails for $20 a ton and
sometimes for $18 a ton.[337] Even the United States Government could
not get fair prices at home for the materials and supplies needed for
the Panama Canal project, and found it necessary to open the competition
to foreign bids. Even if it were determined to use only American goods
they could be bought more cheaply abroad than at home. Matters are
arranged so that goods are hauled across the ocean to Europe and then
hauled back and sold here at lower prices than they could be bought for
at the factory here for home use. If the railways and the steamboats and
the allied interests make money they do not care how much industrial
power is wasted.
An investigation last year brought out the interesting fact that the
cheapest way sometimes to get goods from Chicago to San Francisco is to
ship from Chicago across the Pacific Ocean and then back to California.
The Interstate Commission says: “The complainant desired to ship the
machinery for a stamp mill from Chicago to China. Being interested in a
line of steamships between San Francisco and the East, his intention was
to make shipment to San Francisco and thus to destination by his own
line. Upon investigation, however, he learned that the rate from Chicago
to San Francisco was $1.25 per hundred lbs., while from Chicago to
Shanghai it was 90 cents per hundred lbs. The rate at that time from
Shanghai to San Francisco was 20 cents per hundred lbs. Had he desired
to lay down his stamp mill at San Francisco, he could have shipped it to
Shanghai, and from Shanghai back for 15 cents per hundred lbs. less than
the direct rate from Chicago to San Francisco.”[338]
President Tuttle of the Boston and Maine tells of a cargo of flour
carried from the Pacific Coast around the Horn to England and then back
to Boston to be delivered to a starch factory at Watertown. “A sailing
vessel had gone to the Pacific coast with goods from Europe. There was
some lack of a cargo for return. They found a lot of soft wheat flour
there with which they loaded that vessel and carried it to Liverpool and
put it in storage. Then the owner of the flour began to hunt around the
world for a market, and found that within ten miles of Boston he could
sell that flour to a starch factory at a profit and pay for the
additional land haul of 10 miles.”
“THE CHAIRMAN. It first went to Liverpool?
“MR. TUTTLE. Went from San Francisco around the Horn to Liverpool and
then across the Atlantic back to Boston. In order to carry that flour to
Watertown, across the continent by rail, the railroads would have had to
make a rate which was practically nothing, because the transportation by
water is so extremely low that you cannot put the railway rate against
it and make a profit. The cost of carriage of a ton of freight by a
large steamer is so low that there is hardly any way to figure it. We
have to meet those conditions. That is what we are doing.”[339]
The low rates on imports enable European manufacturers to ship their
goods to our western States more cheaply than our own eastern
manufacturers can send their goods to the West. Rates on imports are
frequently only a third of rates on domestic goods over the same
lines,[340] and sometimes the difference is greater yet. And it is not
confined to manufacturers. Thousands of acres of Kaolin mines from which
the finest chinaware can be made are idle in the region round Macon,
Ga., because clay can be shipped from England to Ohio factories cheaper
than it can go from Macon to Ohio. Several mining companies have had to
quit business because of foreign competition favored by low import
freight rates.
Both export and import reductions lead to serious discriminations, not
merely as between our people and foreigners, but among our cities and
shippers.
Unscrupulous shippers take advantage of the export rates in the domestic
trade, billing their freight on the export basis. Grain, for example, is
“billed for export” to Chicago or New York or other centre; and then
“the destination is changed in transit,” that is, after the grain or
other shipment gets to Chicago or New York, the shipper stops it there,
or orders it to Albany or Worcester or otherwise changes the
destination.[341] The same thing is done in the packing-house trade to
New York. The Vanderbilt traffic manager says: “Our domestic business
does not amount to anything.” About all the dressed beef that goes east
appears to be for export. When asked how the eastern territory got its
dressed beef, the manager said: “I could not give you any information on
that point.”[342]
Such results are worse even than the difference between the export rate
on wheat and on flour, which tends to discourage the milling of wheat in
this country and throw into the hands of foreign millers business that
belongs to our millers. Worse than this or than the discouragement of
home manufactures by cut rates on imports, is the discrimination in the
export and import rates in respect to different ports.
“One of the most remarkable trade movements of recent times is the
growth of the Gulf ports at the expense of New York and other Atlantic
ports. New Orleans has become the second largest grain-exporting port,
and gives promise of becoming the first. Galveston’s export and import
trade is rapidly increasing. In 1897 New York handled 77.9 percent of
the wheat, corn, and flour exports, and in 1904 her share had dwindled
to 36.9 percent. The Gulf ports have made corresponding or greater
increases. Natural advantages, including proximity to supply centres,
and the extension of port facilities for handling cargoes, have had
something to do with this increase of exports from the Gulf ports, but
the chief factor has been the differentials made by railroads connecting
with those ports. So alarming is the decrease of commerce through the
port of New York that an effort is being made to secure a legislative
investigation of the subject.”[343] The Chairman of the Committee on
Foreign Commerce for the Baltimore Chamber of Commerce says: “We are
gradually shrivelling up because of discrimination in freight rates.
Ever since December last, 1904, when the grain rates were advanced 1 to
1½ cents on export grain and 3 cents for domestic delivery, business in
this city has almost come to a standstill.... The Gulf ports are getting
it all, and while millions of bushels of corn were accustomed to arrive
here, after the December marketing from the Southwest, not one has been
received since the first of the year. Firms formerly engaged in the
exporting business in this city have pulled up stakes and have gone to
New York in search of better railroad opportunities.... The Chamber of
Commerce here is meeting daily to devise a means of surmounting the
danger which now threatens the export business of Baltimore.”
The Government is forbidden to favor one port more than another, but the
railroads are left free with a power of favoritism greater than any the
Government possesses, and they are using the power as we have seen.
Section 9, of Article 1, of the Federal Constitution says: “No
preference shall be given by any regulation of commerce in revenue to
ports of one State over those of another.”
Congress itself cannot establish any differential that would give one
port of the United States an advantage over another port. But what the
Constitution forbids Congress to do the railroads can do and have done,
by manipulating the rates on exports and imports, thereby making
business flow to whatever ports they please.
CHAPTER XXX.
SUMMARY OF METHODS AND RESULTS.
We have dug down through the geologic epochs of discrimination, and have
examined the living varieties. The predominant forms have changed, but
none of the species we find among the fossils of the earlier strata have
become extinct, though some of them, ticket scalping and the direct
rebate for instance, are much less in evidence than formerly.
Passes[344] and other personal discriminations[345] still prevail, and
the assortment of favoritisms in freight traffic is larger than ever.
Here is a list of more than 60 forms of discrimination that are now in
use, many of them constantly and others as occasion may demand:—
Passes.
Ticket brokerage.
Private passenger-coaches.
Gifts of stock.
Tips on the market.
Secret rates.
Rebates.
Elevator and compress fees.
Commissions to favored shippers as though they were agents of the
company, to secure for it their own freight.
Salaries to favored persons as nominal employees, or fees for nominal
services.
High salaries or commissions to real traffic agents who divide with
favored shippers.
Cash contributions to shippers in the guise of payments to “encourage
new industries.”
Paying “transfer allowances” to some shippers for carting their own
goods.
The “strawman” system.
“Expense bill” abuses.
Loans to dealers and shippers or consignees to increase shipments or
divert them from other roads.
Combination rates of which informed shippers may take advantage.
Making the published rate cover the price of the goods as well as the
freight for some shippers.
Flying rates, or “midnight tariffs.”
Terminal or private-railway abuses—unfair division of rates, etc.
Private-car abuses—big mileage rates, excessive icing charges,
exclusive contracts, etc.
Espionage, giving some shippers inside information of the business of
other shippers.
Maintaining or paying for the maintenance of tracks or other property
belonging to the shipper.
The long and short haul abuse.
Unjust differences in the rates accorded different places to favor
certain localities, or individuals who have business interests
located there.
Unduly low rates to “competitive points” in general, as compared with
local rates, building the cities at the expense of the country.
Unfair classification.
Use of different classification for local and for through traffic.
Laxity of inspection in case of special shippers, enabling them to get
low rates on mixed goods in carloads billed at the rate appropriate
to the lowest product in the mass.
Intentional mistakes in printing tariffs, a few copies being run off
for favored shippers, after which the mistakes are discovered and
corrected for the ordinary shipper and the Interstate Commission.
Fictitious entries in the “prepaid” column of the freight bill.
Instructions to agents to deduct a certain percentage from the face of
the bill when collecting for specified shippers.
Payment of fictitious claims for damage, delay, or overcharge.
Making a low joint rate (or single rate either) on a given commodity
when shipped for a purpose confined to a few shippers, while other
shippers using the same commodity for other purposes have to pay
much higher rates.
False billing,—
false weight—underbilling,
false number—billing a larger number of packages than are sent and
claiming pay for the difference,
false description—putting goods in a lower class than the one to
which they belong,
false destination—billing for export and changing destination in
transit.
Not billing at all—carrying goods free.
Excessive difference in the rates for large and small shipments.
Unfair discrimination between shipments in different form—barrels and
tanks for example.
Charging more when the freight is loaded in one than when it is loaded
in another way practically identical so far as the railway is
concerned.
Favoritism in switching charges, demurrage, etc.
Direct overcharges, causing loss through delay and expensive
litigation, or through excessive payments.
Withholding cars.
Delay in carriage and delivery.
Refusal to deliver at a convenient place.
Difference in time allowed for unloading.
Refusing privileges accorded others,—
milling-in-transit,
division of rates,
credit, or payment of freight at destination,
station and track facilities,
special speed.
Selling or leasing terminal or other rights or properties to favored
shippers so as to exclude others absolutely.
Refusing shipments to or from certain persons or certain places.
Failing to run advertised trains or taking other special action in
order to interfere with plans of an opponent, _e. g._, to keep
people from going to mass meeting at which he is to speak.
Unfair difference in the service accorded different places.
Cutting off part or whole of a customary service.
Side-tracking cities and towns, or depriving them entirely of railroad
facilities.
Arranging stop-overs so as to drive business to other cities.
Arbitrary routing of shipments.
Payments for routing.
Guarantee by railroad against loss upon shipments over its line.
Unreasonable differences in the commodity rates on different articles.
Prohibitive rates on special commodities or special shipments.
Unreasonable differences between the rates on the same goods going and
coming between the same places.
Special rates on goods for export.
Special rates on imports.
Even this long list does not cover the whole field. The cases on record
do not exhaust the possibilities of discriminations. The following bit
of testimony shows how easy it is to invent new ways of passing railroad
moneys into the treasuries of favored shippers,—ways that would not be
interfered with by any law short of public control of the purchase and
sale of merchandise. Mr. Gavin, the agent of the Vandalia line, was
being examined by the Interstate Commerce Commission in March, 1901. On
the question as to how business could be got by giving advantages to
shippers without cutting rates Mr. Gavin said: “There is nothing to
prevent my going down to the packing-house and paying $10 apiece for
hams if I wanted to; if I did not want to cut a rate, there is generally
a way out of the hole.”
“COMMISSIONER CLEMENTS. A good many ways; and it is your belief that a
good many of these have been practised, is it not?
“MR. GAVIN. I do not know. I would not like to say.
“COMMISSIONER PROUTY. If you bought hams enough at $10 apiece the
packing-house could give you the traffic at full rates?
“MR. GAVIN. Yes, sir.
“COMMISSIONER PROUTY. Have you ever known that to be done?
“MR. GAVIN. No, sir; but I say there are lots of ways out of the woods.”
Almost everybody agrees, in public, that railway favoritism ought to be
stopped.[346] It disturbs the fair distribution of wealth, undermines
industrial justice, business morals, and political honesty; builds
monopoly; wastes resources, and causes enormous loss to the railroads as
well as to the persons and places that are discriminated against.
Railway discrimination breaks down the equality of opportunity that is
one of the fundamental rights recognized in every country. It tends to
separate success from merit and industry, and make it depend on fraud
and favoritism. Judge Grosscup touched a vital point when he said to the
Boston Economic Club, March 11, 1905: “Any difference in rates permitted
by law, even though based on the bulk of the tonnage handled, is a
direct and effective blow, by the nation itself, at the principle that
every man, whatever his present business size, shall be given equal
conditions and equal opportunity.... In this country there is no such
thing as size to a business man. The man of little size expects to get
big. He has a right to get big. He has a right to have the atmosphere of
equal opportunity and equal conditions in which to grow, and excepting,
of course, some unit, such as a ton or a car, the charge ought to be the
same for the little as for the big shipper.”[347]
The railways are public highways, they exercise governmental powers and
fulfil governmental functions, and it is an atrocious misuse of social
power to employ these so as to give special advantages to a few members
of the community. The Interstate Commission says: “The railroad is
justly regarded as a public facility which every person may enjoy at
pleasure, a common right to which all are admitted and from which none
can be excluded. The essence of this right is equality, and its
enjoyment can be complete only when it is secured on like conditions by
all who desire its benefits. The railroad exists by virtue of authority
proceeding from the State, and thus differs in its essential nature from
every form of private enterprise. The carrier is invested with
extraordinary powers which are delegated by the sovereign, and thereby
performs a governmental function. The favoritism, partiality, and
exactions which the law was designed to prevent resulted in large
measure from a general misapprehension of the nature of transportation,
and its vital relation to commercial and industrial progress. So far
from being a private possession, it differs from every species of
property, and is in no sense a commodity. Its office is peculiar, for it
is essentially public. The railroad, therefore, can rightfully do
nothing which the State itself might not do if it performed this public
service through its own agents, instead of delegating it to corporations
which it has created. The large shipper is entitled to no advantage over
his smaller rival in respect to rates or accommodations, for the
compensation exacted in every case should be measured by the same
standard. To allow any exceptions to this fundamental rule is to subvert
the principle upon which free institutions depend, and substitute
arbitrary caprice for equality of right.”[348]
The losses to the railroads cannot be estimated accurately, but we have
some interesting hints. Franklin B. Gowan said in 1888: “The gross
receipts of the railroads of this country, in round numbers, are eight
hundred millions of dollars per annum, and I verily and honestly believe
that one hundred millions of dollars annually are taken out of the
pockets of the people of this country by unjust railway discrimination,
and turned over to this privileged class—and this is equal to a tax of
two dollars per head paid by the people for the sake of building up the
new aristocracy of wealth that in this free country arrogate to
themselves the position of the nobility of the older countries. It is
utterly impossible that there can be any success attending a monopoly of
natural products without the aid of the unjust discrimination of
railroad companies. And only when such discrimination ceases will all
people be placed on terms of equality.”
If the losses were more than $100,000,000 a year when the total income
of the railroads was $800,000,000 a year, the losses now with an income
of about $2,000,000,000 a year are probably, at least, $200,000,000 a
year, allowing for all the saving that is claimed to have resulted from
the Elkins Act. A railroad officer who says his road has constantly
disregarded the Interstate Commerce Law declares that in more than one
year the net revenues of his company “would have been increased by more
than 15 percent if no rebates had been paid to favored customers.” The
hundreds of millions which the transportation systems of this country
have, during the period from 1887 to 1905, earned and repaid to the men
who controlled the large industrial products of the country—coal, iron,
grain, salt, sugar, oil, provisions, and lumber—belonged equitably to
employees and stockholders (or to the people). “And the history of this
period may be repeated as often as the whim or the interest of a traffic
manager or owning director prompts or requires.”[349]
The losses through the disturbance of business, interference with the
relation between energy and industry on one side and success on the
other, depression of localities, and ruin of individuals, are beyond
computation.
Most shippers would be glad to do away with discrimination if they could
be sure that there would be a square deal all round, fair play, and no
concessions to their rivals. And most railroad men would be glad to be
protected against the discriminations that are forced upon them by the
shippers, and by competition among the roads, if they could be sure that
the published rates would really be adhered to by their competitors.
Law after law has been passed to prevent unjust discriminations, and yet
in spite of the contrary statements of some witnesses,[350] it is
perfectly clear that they have not ceased, and that comparatively little
has been done in that direction.
Railroad men in high position declare that discriminations always will
exist. President Ripley of the Santa Fe says: “The situation is
practically remediless. I think it will always be.”[351] President J. J.
Hill of the Great Northern says: “You may say there shall be no
discrimination. But that condition will never exist. If there were no
discrimination the people would come down here in great throngs and ask
you to authorize discrimination. We have to discriminate.”[352] When I
asked President Fish of the Illinois Central how discriminations could
be stopped he said: “Tell me how to enforce the Ten Commandments and
I’ll tell you how to stop discriminations.” Another railroad president,
whose name I am not at liberty to give, said in reply to the same
question: “Discriminations will never cease so long as there is
competition among the railroads, or political favors and protection can
be secured thereby, or railways and railway men are interested in other
businesses than transportation.” President Hill also recognizes the
factor of special self-interest in addition to the influence of
competition. He says: “I think that every railway officer in this
country should be disqualified from having any interest, directly or
indirectly, in any large producer of traffic, whether it is a coal mine
or a factory or a mill or anything else, on a line of railway where he
is on the pay roll.”
“SENATOR CLAPP. And the reason for that suggestion is what?
“MR. HILL. That he cannot be fair to the other fellow and punish
himself.
“SENATOR CLAPP. And the opportunity is such that it cannot be detected
and prevented?
“MR. HILL. It is so easy, if there is a great demand for coal in one
direction, or for some commodity in one place, for him to help one
fellow and forget the other.”[353]
One of the gravest dangers lies in the fact that men who are largely
interested in the great industrial corporations control certain railway
lines and have large influence with many others. The interlocking of
railroad interests with other industrial interests is a cause of
discrimination second only to the pressure of railroad competition for
traffic that is used by shippers as a means of extorting the favors they
desire.
A railroad executive writing in _The Outlook_ for July 1, 1905 says:
“Notwithstanding the violations of the Interstate Commerce Law have been
open and notorious, and indictments have been numerous and prosecutions
not infrequent, no railroad officer has ever been incarcerated. For my
own part, the penal liability for such disobedience has never in any
wise deterred my purpose to secure my company’s share of tonnage by
whatever means competitors employed. I have the reputation of a
law-abiding citizen in my home city—am well known—of good personal
character. I flatter myself that a jury could not be found which would
commit me as a felon because I directed the payment of a rebate to a
shipper—a transaction which did not inure to my financial advantage.
Could a jury be found that would exact a felon’s punishment for such men
as Mr. Stuyvesant Fish, or Mr. Secretary Paul Morton, or Mr. Marvin
Hughitt for disobeying a statute in order that the revenues of the
company by which he was employed might not be decimated?” He had
previously said that the revenues of the railroads have been decimated
by hundreds of millions through the granting of discriminations, but he
argues that the revenues of any particular railroad that should refuse
concessions would be decimated still more largely. The truth of this
contention is strongly illustrated by the following incident. Some years
ago Judge Taft (now Secretary of War), as receiver for the “Cloverleaf”
Railroad from Toledo to St. Louis, appointed Mr. Samuel Hunt of
Cincinnati, a well-known and successful railroad manager, and required
him to comply strictly with the Interstate Law. In doing this Mr. Hunt
was obliged “to disregard many outstanding rebate obligations of his
predecessor in the receivership, thereby giving offence to many patrons
of the road and their friends, the result of which was a decrease of the
gross earnings of the road within twenty months of more than $340,000.”
The sacrifice of hundreds of thousands of dollars, the loss of the
good-will of shippers, the harsh criticism of competitors, and broken
health were the results of Mr. Hunt’s earnest efforts to obey the law.
M. E. Ingalls, President of the Big Four, said a few years ago to a
convention of State railroad commissioners: “Men managing large
corporations, who would trust their opponent with their pocket-book with
untold thousands in it will hardly trust his agreement for the
maintenance of tariffs while they are in the room together.
“The railway official who desires to be honest sees traffic leave his
line.
“The result is these men in despair are driven to do just what their
opponents are doing. They become lawbreakers themselves.
“No one is going to try and send his competitor to prison. Besides,
there is the fear that he himself may have committed transgressions
which in turn will be discovered and punishment inflicted upon himself.
“Unless some change is made, the small shippers of the country will be
extinguished, and a few men of large capital will control the entire
merchandise business. And railways ... will be seized upon by large
capitalists and combined into one monstrous company.”
CHAPTER XXXI.
DIFFICULTIES OF ABOLISHING DISCRIMINATION.
It is difficult to enforce the law against discrimination, because of
the strong interests that call for it, the secrecy of many of its forms,
the reluctance of shippers to make complaints for fear of persecution,
and the resistance offered by railway officers to efforts to get at the
facts, leaving the country during an investigation, refusing to answer
truthfully on the witness stand, burning books and papers that might
reveal the facts to courts or other investigating bodies or enable the
officers to refresh their memories so as to be able to answer questions.
Often there are no records of the concessions granted favored shippers
except the memoranda in the personal note-books of the traffic managers.
Rebates or commissions are frequently paid by messenger boys sent from
the general freight office, or treasurer’s office, with the currency and
a slip of paper with some pencil marks on it, instead of sending a check
and obtaining a voucher.[354] The officers forget about the transaction
as soon as possible,—sooner than possible it seems sometimes,—or in some
other way try to prevent the Commission from getting the facts with
sufficient detail to bring suits. For example, in the “Dressed-meat”
Hearing at Kansas City, March 21, 1901, fifteen transportation men were
subpœnaed and examined without securing any important facts. The
witnesses, who occupied positions which would naturally lead one to
suppose they would know all about the matters in hand, manifested the
most persistent and remarkable ignorance, and the Commission had to go
to Chicago and try again before it got any light on the packing-house
transportation question.
In March, 1898, the Interstate Commission investigated rebates on flour
from St. Paul, Minneapolis, and Duluth to Atlantic seaports. The
Commission had information of wide departures from the published tariff.
It says: “The inquiry was greatly hampered by the disappearance of
material witnesses before subpœnas for their attendance could be served,
the inability of several who did testify to recall transactions there of
recent date, and the evident reluctance of others to disclose any
information bearing on the subject involved. All of the railway
witnesses denied knowledge of any violation of the statute, and most of
the accounting officers testified to the effect that if rebates had been
paid they would necessarily know about them, and that their accounts did
not show any such payments. It was nevertheless fully established by the
investigation that secret concessions had been generally granted on this
traffic, and that the carriers had allowed larger rebates to some
shippers than to others.”[355]
After the St. Paul investigation in 1898 the Commission entered on an
investigation at Portland, Ore., in respect to rates between the coast
and points on and east of the Missouri River. “It was established by the
proof that secret rates generally prevailed at Portland and common
points, and that transportation was, in effect, sold to the lowest
bidder. The lawful rates were ignored, except as they might serve as a
standard in making agreements for lower charges.... Some of the
merchants conformed to the law, but in so doing they were at a
disadvantage in competing with those who disregarded the statute; and in
many instances this disadvantage represented more than a fair profit
upon the commodities involved. Most of the merchants who admitted that
they had thus violated the law declared themselves unable to remember
who paid them the rebates, or when or upon what shipments any illegal
rate concessions had been made. Some testified that they had kept
account of the unlawful transactions, but that when they heard of this
investigation they destroyed their memoranda in order to defeat
prosecutions on account of their illegal acts. They insisted that
without these data they could give no specific testimony concerning any
of the transactions.”[356]
The Commission found in these and other investigations that “unlawful
rebates have been and are being paid by a great number of carriers,”
but they could not get the specific evidence necessary for
prosecutions.[357]
In its Report for 1904, p. 104, the Commission says: “Railroad officials
often seem to think that it is their duty to withhold facts, on account
of some real or supposed liability to make disclosures that will impair
the railroad’s rights or interests in future judicial proceedings. Some
companies seem to have adopted a settled policy to give the least
possible information, at all times, on any and all subjects.”
Discussing the continuance of the payment of rebates and the reasons the
Interstate Commission has not been able to stop the practice,
Commissioner Prouty says:[358] “When I first came onto the Interstate
Commerce Commission (1897), I used to see continually in the newspapers
statements like these: ‘Rates sadly demoralized,’ ‘agreement between
railroad officers to restore rates,’ and everything of that sort. I said
to my associates, ‘Gentlemen, this thing will not do; we must stop the
payment of rebates.’ They said, ‘How are you going to stop the payment
of the rebates?’ I said, ‘We are going to call these gentlemen before
us; we are going to put them under oath, and we are going to make them
admit they paid these rebates, and we are going to use the evidence
which we obtain to convict them.’ We employed Mr. Day, who is now with
the Department of Justice. The rates which have been almost uniformly
demoralized have been the grain rates from Chicago to the Atlantic
seaboard. We called in the chief traffic officials of all these lines
and we put them under oath. Now, I would ask these gentlemen, ‘Are you
the chief traffic official of this road?’ ‘I am.’ ‘Would you know it if
a rebate was paid?’ ‘I would.’ ‘Are any rebates paid on your road?’
‘There are none.’ ‘The rates are absolutely maintained?’ ‘They are.’
“Well, every traffic official who came before us in that capacity—and we
prosecuted it for three days at Chicago—testified that rates were
absolutely maintained.”
“SENATOR NEWLANDS. How many did you have before you?
“MR. PROUTY. We had the official of every trunk line leading from
Chicago to New York. They all testified the rates were absolutely
maintained from Chicago to New York. Two years after that I examined the
chief traffic officer of the Baltimore and Ohio, and of the New York
Central—do not think it was the same man in either case—and of the other
lines, and they all testified that rates had never been maintained. I
would like to know what I could do as Interstate Commerce Commissioner
to make those gentlemen admit that they paid rebates, and as they would
not tell that they paid rebates, I would be glad to know how I could
obtain evidence that they did.
“Having gotten through, Senator, with the lines between Chicago and New
York, we said perhaps this is not a fair sample. Now, we will go up in
the Northwest, and we will take the lines that carry flour from
Minneapolis east. We instituted another investigation, and we put the
railroad and the traffic men of the millers on the stand, and they all
swore without exception that the rates were absolutely maintained. One
traffic official there, when it got a little bit too hot for him, became
sick enough so that he threw up his dinner, but he did not throw up the
truth. We could not get the admission from any man there that they had
ever paid a rebate. We said, ‘This does for the East; now let us go
West.’ So we went into the Pacific Coast, to Portland, Oregon, and went
over exactly the same performance there. We made one man admit that he
burned up his books rather than present them to the Commission, but we
could obtain no admission of the payment of any rebate there.”
But the St. Louis Southwestern Traffic Committee or Traffic Association
employed a young man by the name of Camden and instructed him to lay
before the Interstate Commission any evidence he got of the payment of
rebates. “He had not been there more than two or three weeks before he
found some evidence to the effect that the Baltimore and Ohio Railroad
had been departing from the published rate, and he came up to Washington
and laid that evidence before the Interstate Commerce Commission, and we
began proceedings against the Baltimore and Ohio Railroad. That was the
first instance from the time I came onto the Commission that we could
obtain any evidence of a departure from the published rate. We directed
the Baltimore and Ohio road to file a statement showing what shipments
they had made during a certain time, and the rate of freight paid them
for the transportation. Thereupon they filed a statement showing a great
many departures from the published rate. At the same time they sent to
the Interstate Commerce Commission a letter. They said in that letter in
substance, that the roads in the territory in which they operated had
habitually departed from the published rate; that was after they had
sworn they maintained the published rate in that territory: ‘Now, for
us, the receivers of the Baltimore and Ohio, we have gotten through, but
we cannot maintain the rate unless our competitors maintain the rate. We
propose from this time on to maintain the rate ourselves, and we propose
to see that they maintain it; but in order that we may do that, we ask
you to call a conference of the railroad presidents in trunk-line
territory.’
“Now the Commission did, acting on that suggestion, invite every
president of the trunk-line railroads to come to Washington. They came,
all of them. Mr. Calloway was there for the New York Central; Mr.
Thompson was there for the Pennsylvania Railroad; Mr. Murray and Mr.
Cowan came there for the Baltimore and Ohio; Mr. Harris came from the
Philadelphia and Reading, and Mr. Walters was there for the Lehigh
Valley. I do not remember them all, but they all came there. Those
gentlemen all said: ‘It is true; we have departed from the published
rate. We did not like to do it, but we did. But we have gotten through.
We shall depart from the published rate no more. If you gentlemen will
only let bygones be bygones, we assure you that in the future there will
be no discrimination under this law.’
“Well, I expect, perhaps, that we ought to have said to them, ‘You are a
pack of consummate liars; we do not believe anything you say, and we
will prosecute you if we can. But we did not think so; we believed
exactly what they said, and we told them we did, and they went home, and
no prosecutions were begun on the facts which we had against the
Baltimore and Ohio. Then we called, at the request of certain persons in
the West, the presidents of all those lines, and they all came. Mr.
Marvin Hughitt came; Mr. Bird, of the Milwaukee line, came; in all, 30
or 40; and we had the same sort of an experience meeting again. They all
said: ‘We have sinned, but we have got through. Now, gentlemen, just
help us to maintain the Act to regulate commerce.’ We said: ‘We will do
it.’ And they went home.
“Now, I do not wish to pass any criticism at all on these gentlemen. I
have not the slightest doubt that they meant precisely what they said. I
think I know something about the difficulties under which they labored;
but they did not maintain those rates for a month, probably.... There
has not been a time since I have been an Interstate Commerce
Commissioner, when, if the traffic officers of the trunk lines between
Chicago and the Atlantic seaboard would have consented to tell the truth
under oath, the Interstate Commerce Commission would not have stopped
the payment of rebates. I have been able to discover no way in which to
make them tell the truth.”
“SENATOR NEWLANDS. In regard to the future, will it not be possible for
them to commence again this system of rebates?
“MR. PROUTY. I think they pay rebates now.
“SENATOR NEWLANDS. You think they do?
“MR. PROUTY. I think they do.”
Victor Morawetz, Chairman of the Executive Committee of the Santa Fe,
was asked if it would not be wise to require the traffic manager of each
railroad, the auditor, and the president, to report every three months
on all existing contracts, and that there had been no violations of law,
no abuses, so far as they knew, and that they had made diligent inquiry
to ascertain if there had been. Morawetz replied that if such a law were
passed some men would perjure themselves every three months, and others
who were thoroughly honest would simply not take office.[359]
Not all the railway officers refuse to tell the truth. There is every
reason to believe that Paul Morton and Mr. Biddle of the Santa Fe, for
example, spoke the truth in their testimony before the Commission. But
the evidence seems to be that the habit of truth telling is not very
prevalent. And when the railroad officers determine to prevent publicity
either by falsehood or by silence they take care to eliminate
documentary evidence that might be used to checkmate them. They destroy
their records so that they will be less liable to know anything about
the rebates they have paid, and to make it as hard as possible for the
Interstate Commerce Commission to get at the facts.
The Commission is examining Mr. McCabe, freight traffic manager of the
Pennsylvania lines west of Pittsburg.
“COMMISSIONER CLEMENTS. Are you in the habit of destroying records not a
year old?
“MR. MCCABE. Sometimes.
“COMMISSIONER CLEMENTS. But generally?
“MR. MCCABE. If they are not essential or it is not important that they
should be kept.
“COMMISSIONER CLEMENTS. What would be the particular reason for
destroying these papers and records?
“MR. MCCABE. Possibly because we thought you might want them laid before
you sometime.
“COMMISSIONER CLEMENTS. You destroyed the evidence of the illegal
transaction?
“MR. MCCABE. Yes, sir, that is right.”[360]
The general traffic manager of the Michigan Central said that papers
relating to refunds, etc., “were destroyed because their usefulness for
our purposes had gone and passed.”
“COMMISSIONER CLEMENTS. Do you destroy your other papers as recent as
these?
“MR. MITCHELL. Not as a rule, sir.
“COMMISSIONER CLEMENTS. Well, I will ask you again if you destroy these
papers in order to destroy the evidence of the transactions to which
they relate?
“MR. MITCHELL. Certainly we should dislike very much to have those
papers exposed to the general public.
“COMMISSIONER CLEMENTS. Why?
“MR. MITCHELL. It would be an unwise thing from a railroad standpoint to
have such matters going about.
“COMMISSIONER CLEMENTS. Why would it be unwise to disclose the method of
procedure?
“MR. MITCHELL. Well, on account of the Interstate Law.
“COMMISSIONER CLEMENTS. Because it violates the law, yes. That is what
you really mean, is it not?
“MR. MITCHELL. I suppose that is it, sir.”[361]
The Rock Island freight traffic manager also testified to the
destruction of papers showing rebates or concessions.
“COMMISSIONER CLEMENTS. Why are they destroyed?
“MR. JOHNSON. Simply for the purpose of destroying any evidence there
may be.
“COMMISSIONER CLEMENTS. All the papers you know about or entries that
you are familiar with are destroyed?
“MR. JOHNSON. I understand they are all destroyed.
“COMMISSIONER CLEMENTS. Have you any recent ones?
“MR. JOHNSON. I do not think they are more than thirty days old.
“COMMISSIONER CLEMENTS. You think that all up to within thirty days are
destroyed?
“MR. JOHNSON. That is the rule or custom.”[362]
The shippers who receive rebates, etc., adopt similar measures to keep
their modest affairs from the public. In April, 1904, the newspapers
reported that the Interstate Commerce Commission was going to Boston to
investigate rebates and private car-line abuses. The office force of the
Armour office at Boston was immediately set to work packing into barrels
all letters and records that might show a combination or understanding
among the houses or with the railroads, or other inconvenient matters,
and all these dangerous documents were incontinently fed to the
furnaces.
On the other hand, shippers who are not of the favored class are afraid
to complain for fear of persecution by delay of freight, overcharges,
prolonged litigation of every difference or dispute, and probable
intensification in some form of the discrimination in favor of their
competitors. The Oregon Commission says: “The shipper preferred to
tamely submit to the injustice put upon him through discriminations
against him or unreasonable and extortionate charges and exactions for
transportation facilities, than to hazard the utter ruin of his business
by provoking the animosities of managers if he carried his grievances
into the courts in order to have his rights determined and enforced....
Besides, if the shipper went to court with his grievances he was
confronted by powerful and wealthy corporations who contested, with the
aid of the ablest counsel money could procure, every inch of the ground
in the controversy, thus making each contest between the individual
shipper and these corporations an unequal one in proportion to the
ability of the shipper personally to press his case as compared with the
financial ability of the corporations.”[363] In a large majority of
cases the loss sustained by the individual through favoritism or
extortion is less than the probable injury resulting from litigation
with powerful corporations employing the ablest counsel, contesting
every inch of ground, defeating or delaying redress by every possible
means, and squeezing the plaintiff meanwhile perhaps with a grip upon
his business that means death to his prosperity, so that the shipper
thinks it better to bear the ills he has than fly to others to which he
has not been introduced.
CHAPTER XXXII.
REMEDIES.
Coming now to consider how railway favoritism may be abolished, we find
a wide divergence among railroad men, law-makers, and other authorities.
Some say that discriminations cannot be stopped,[364] others declare
that they have been stopped,[365] others that present laws are ample and
all that is needed is their enforcement,[366] while others state that
present remedies are insufficient,[367] and suggest further legislation
making the long and short haul clause binding except so far as relief is
granted by order of the Interstate Commission;[368] extending the power
of the Commission to private car-lines, fast freight and express
companies, and water carriers;[369] giving it, or a national court,
authority to fix reasonable rates in place of those which upon complaint
and investigation it finds unreasonable,[370] and to declare that a rate
resulting from any rebate or concession to favored shippers shall be
open to all shippers;[371] specifically enacting that the payments for
private cars and for switching shall not be greater than similar
payments made by the railroads to each other;[372] legalizing
combination and pooling;[373] forbidding railroad men to have any
interest in any large producer of traffic on their lines;[374] requiring
roads to make through routes and through rates with all connecting
lines;[375] protecting our railroads against the competition of Canadian
roads; providing for the public inspection of railroad books and
accounts;[376] requiring that all railroad monies shall be received and
paid out by Government officers;[377] or otherwise securing direct
representation of the public in the management;[378] and establishing a
sliding scale of taxation to apply in inverse ratio to the fairness and
openness of the railway administration, so that a railroad opening its
books freely to inspection and treating all fairly and impartially would
pay low taxes, while a railroad acting on opposite principles would be
taxed at a high rate.[379] The enactment of the Commerce Act by all the
States and territories so that the State and Federal laws may be in
harmony, and State and national commissions can co-operate in shutting
out discrimination from local and through traffic,[380] is also
suggested. Another view is that only public ownership of the railroads
under thorough civil service regulations can eliminate either the
motives or the power to discriminate,—the antagonism of public and
private interests being the tap-root of discrimination, it can be fully
overcome only by pulling up the root and making railroad managers the
agents of the public to run the roads for the public service instead of
being the agents of private interests to operate the roads for private
profit.
In his message of December, 1904, President Roosevelt urged Congress to
give the Interstate Commission power “to revise rates and regulations,
the revised rate to go into effect at once and to stay in effect, unless
and until the court of review reverses it.” He laid especial emphasis
upon the necessity of stopping rebates and unjust discriminations,
saying: “Above all else, we must strive to keep the highways of commerce
open to all on equal terms; and to do this it is necessary to put a
complete stop to all rebates.” In his message of December, 1905, the
President alters his recommendation to the granting of power to fix a
“maximum reasonable rate, the decision to go into effect within a
reasonable time and to obtain from thence onward, subject to review by
the courts.” In case a “favorite shipper is given too low a rate,” the
President says, “the Commission would have the right to fix this already
established minimum rate as the maximum; and it would need only one or
two such decisions by the Commission to cure railroad companies of the
practice of giving improper minimum rates.” (See below, recommendations
of the New York Board of Trade, from which, perhaps, the President took
this suggestion.)
The President says the law should make it clear that unfair commissions
and fictitious damages, free passes, reduced passenger rates and
payments of brokerage, are illegal; and that it might be wise “to confer
on the Government the right of civil action against the beneficiary of a
rebate for at least twice the value of the rebate; this would help stop
what is really blackmail. Elevator allowances should also be stopped.
“All private car-lines, industrial roads, refrigerator charges, and the
like should be expressly put under the supervision of the Interstate
Commission or some similar body.... Neither private cars nor industrial
railroads, nor spur-tracks should be utilized as devices for securing
preferential rates. A rebate in icing charges or in mileage or in a
division of the rate for refrigerating charges is just as pernicious as
a rebate in any other way.... No lower rate should apply on goods
imported than actually obtains on domestic goods from the American
seaboard to destination except in cases where water competition is the
controlling influence.
“There should be publicity of the accounts of common carriers.... Books
or memoranda should be open to the inspection of the Government.
“The best possible regulation of rates would, of course, be that
regulation secured by honest agreement among the railroads themselves to
carry out the law.... The power vested in the Government to put a stop
to agreements to the detriment of the public should, in my judgment, be
accompanied by power to permit, under specified conditions and careful
supervision, agreements clearly in the interest of the public.... But
the vitally important power is the power to fix a given maximum rate,
which, after the lapse of a reasonable time, goes into full effect,
subject to review by the courts.”
The President further says: “I urge upon the Congress the need of
providing for expeditious action.... The history of the cases litigated
under the present commerce act shows that its efficacy has been to a
great degree destroyed by the weapon of delay, almost the most
formidable weapon in the hands of those whose purpose it is to violate
the law.”
A summary of the principal provisions in some of the rate bills that
have been brought before Congress will illustrate the various methods
proposed for the better control of railroads. The Dolliver Bill provides
that, when the Interstate Commerce Commission, after full hearing upon
complaint, is of the opinion that a rate is unjust, unreasonable, or
unduly discriminatory, it shall fix a just and reasonable maximum rate
to go into effect 30 days after notice. The power applies to joint
rates, fares, and charges, as well as to those within a railroad system.
Broad provision is also made to cover the fixing of mileage rates, car
rentals, etc. The Commission may order a carrier to cease and desist
from any regulation and practice found to be unjust, unreasonable, or
unduly discriminatory. All orders are to go into effect 30 days after
notice unless the Commission extends the time to 60 days, or the order
has been suspended or modified either by the Commission or by decree of
a competent court. A penalty of $5,000 for each day an order is
disobeyed, and for each separate offence, is provided for against any
carrier, officer, representative, or agent who knowingly fails or
neglects to obey any order as aforesaid; and the Commission may also
apply to the Circuit Court for injunction, or other proper process, to
compel obedience. Appeal may be taken to the Supreme Court. Railroads
must give 10 days’ public notice of advances in rates, and 3 days’
notice of reductions, but the Commission may in its discretion allow
changes on less notice.
The Foraker Bill, which is understood to be preferred by the railroads,
provides for thorough inspection of books, records, and transactions of
interstate roads by agents of the Commission; and if any rate is found
to be unjust, or unreasonable, or the carrier “is committing any
discriminations forbidden by law, whether as between shippers, places,
commodities, or otherwise, and whether affected by means of rates,
rebates, classifications, differentials, preferentials, private cars,
switching or terminal charges, elevator charges, failure to supply
shippers equally with cars, or in any other manner whatsoever, the
Commission, if the carrier will not desist upon due notice, may state
the case to the Attorney-General, who is to bring suit in the circuit
court in any district in which the act complained of, or part of it, was
committed, and the court shall summarily handle the case and enjoin such
rate or conduct as it finds unlawful or what is in excess of what is
reasonable and just.” Appeal shall lie to the Supreme Court. The Bill
authorizes agreements between railroads in respect to rates or charges
and their maintenance so long as the agreement is not in _unreasonable_
restraint of trade.
The provisions for inspection and combination seem to us eminently just
and useful, although the latter is strenuously opposed by many on the
ground that it authorizes and invites all the railroads of the United
States to form a huge trust and monopoly to fix rates for the whole
country. This, it is claimed by ex-Senator Chandler, “gives away all
that has been gained by the Supreme Court decisions in the cases of the
Trans-Missouri Freight Association, the Joint Traffic Association, and
the Northern Securities Company. In the Joint Traffic Association case
the nine railroad systems between New York and Chicago formed an
organization of three billions of capital, made all the rates, and
prohibited any one of the roads from lowering any rate without the
consent of the nine managers of the trust. The court destroyed this
three-billion monster. The Foraker Bill creates a fourteen-billion
monster, which will prevent any railroad anywhere in the country from
lowering any rates without the consent of the traffic managers of the
combination.”
The plan of making the Interstate Commission a mere investigating body
with no power to fix a rate, but only to state the matter to the
Attorney-General, leaving the case to be tried on his initiative
piecemeal in the circuit courts all over the country, with appeal to the
Supreme Court, seems to us much more objectionable than the permission
to form rate agreements. Under any such form of court procedure it will
be possible for the railroads to delay final decision, fixing of a just
rate, or abolition of an unjust practice for years.
Senator Elkins’ plan is substantially the same, his idea being to give
the Commission no real power over rates, but only the right of petition
for judicial action. And suits may be brought in the Federal courts of
every district through which the lines of the carrier in fault are
operated, with appeal on every suit to the Supreme Court of the United
States.
Mr. Hearst has introduced a hill to bring the pipe lines carrying oil
within the Interstate Act and subject them to the jurisdiction of the
Commission; and another bill enabling the Commission to fix a rate, not
merely a maximum rate, but the actual rate that is to be used in place
of any rate found unreasonable or unjust. The order to take effect after
30 days. A special court of interstate commerce is provided for, which
shall have exclusive jurisdiction to review the orders of the
Commission, and suspend, annul, or enforce such orders, with an appeal
to the Supreme Court only on questions of constitutional law. These are
admirable measures in many ways, but are probably too radical for
passage through the Senate, in which railroad interests have so large a
representation.
Of the other bills the most important are the Esch-Townsend Bill, the
Interstate Commission’s Bill, and the Hepburn Bill. The Esch-Townsend
Bill was intended to give the Interstate Commission full power to fix a
specific rate, either single or joint, in place of a rate found to be
unreasonable or unjust, and to establish a special court of
transportation to have exclusive original jurisdiction of all suits to
enforce or prevent the enforcement of orders issued by the Commission
under the act.[381] Last year this Bill was regarded as the most
important measure before Congress, but this year, 1906, it has been
superseded by the Hepburn Bill.
The main points of the Commission’s Bill are: 1. That power be granted
the Commission, after full hearing, to fix the rate or practice to be
observed in the future in place of the rate or practice found by the
Commission to be unreasonable or unjust.[382] 2. That the Commission
shall have authority to prescribe the form in which railway books shall
be kept, with the right to examine such books at any and all times.[383]
3. That private car-lines, industrial railroads, import and export
rates, etc., shall be brought within the scope of the Commission’s
power. 4. That the time of notice of tariff changes shall be extended to
60 days, subject to modification in the discretion of the Commission,
and the Commission says: “We think that 60 days is not too long in the
great majority of cases, and that such length of notice would add
greatly to the stability of rates.” 5. That the Commission shall have
authority to order railways to continue through routes and joint rates
and to prescribe the divisions which the several carriers shall receive
in the distribution of those rates in case they fail to agree among
themselves. At present “carriers are under no legal obligations to
establish through routes or joint rates, and may at their pleasure
withdraw from such arrangements when they have been actually entered
into,” so that “if the Commission were to pronounce a joint rate
unreasonable and order a reduction of that rate and the carriers parties
to the rate should thereupon either cancel all joint arrangements, or,
as they might, cancel their joint rates upon the commodity in question,
the Commission would be practically powerless to enforce the reduced
rate. When it is considered that a large part of the most important
rates of this country are joint rates, it will be seen that the railways
have it in their discretion by this means to largely defeat the purpose
of the law.”[384]
The Hepburn Bill, which is one of the strongest measures before
Congress, provides that the Interstate Commission, on complaint and
proof that any railway rates or charges, or any regulations or practices
affecting such rates are unjust, or unreasonable, unjustly
discriminatory, or unduly preferential or prejudicial, may determine and
prescribe what will, _in its judgment_,[385] be the just and reasonable
rate or charge, which shall thereafter be observed as the maximum in
such case; and what regulation or practice in respect to such
transportation is just, fair, and reasonable to be thereafter followed.
The order is to go into effect thirty days after notice to the carrier.
And any company, officer, or agent, receiver, trustee, or lessee who
knowingly fails and neglects to obey any such order is liable to a
penalty of $5,000 for each offence; and in case of a continuing
violation each day is to be deemed a separate offence. It is provided
that the Commission may establish maximum joint rates or through rates
as well as rates pertaining to a single company, and may adjust the
division of such joint rates if the companies fail to agree among
themselves. The Commission may also determine what is a reasonable
maximum charge for the use of private cars and other instrumentalities
and services, such as the switching services of terminal railways, etc.
No change is to be made in any rate except after thirty days’ notice to
the Commission, unless the Commission for good cause shown allows
changes upon shorter notice.
The Commission may petition the Circuit Court to enforce any order the
railroads do not obey. And if on hearing “it appears that the _order_
was _regularly made and duly served_, and that the carrier is in
disobedience of the same, the _court shall enforce_ obedience to such
order by a writ of injunction, or other proper process, mandatory or
otherwise, to restrain such carrier, its officers, agents, or
representatives, from further disobedience of such order, or to enjoin
upon it or them obedience to the same.” Appeal may be taken by either
party to the Supreme Court of the United States. The Commission may in
its discretion prescribe the forms of all accounts, records, and
memoranda to be kept by the railways, and provision is made for
inspection as follows:
“The Commission shall at all times have access to all accounts, records,
and memoranda kept by carriers subject to this Act, and it shall be
unlawful for such carriers to keep any other accounts, records, or
memoranda than those prescribed or approved by the Commission, and it
may employ special agents or examiners, who shall have authority under
the order of the Commission to inspect and examine any and all accounts,
records, and memoranda kept by such carriers.”[386]
We are heartily in favor of the Hepburn Bill and would be glad to see
far stronger regulative measures passed, but nothing more than a
moderate palliation of the railway evils under which we suffer must be
expected from such legislation. England with her rigid control has not
been able to stamp out railroad abuses, and the lesson of English
railroad regulation is that the subjecting of private railways to a
public control strong enough to accomplish any substantial elimination
of discrimination and extortion takes the life out of private railway
enterprise along with its evils. Even Germany, with all the power its
great government was compelled to exert, could not eliminate unjust
discrimination until it nationalized the railways, and so destroyed the
root of the evil which lies in the antagonism of interest between the
public, on the one hand, and owners of the railways and associated
industries on the other.
It will be noted that none of the plans suggested proposes to give the
Commission any general power to initiate or originate rates, but only
the power of fixing a rate in place of one found unjust or unreasonable.
So that if the railroads obeyed the law and made no unreasonable rates
or unjust discriminations they would still have the whole rate-making
power in their own hands and the Commission would have nothing whatever
to do with fixing railroad rates.
Let us now examine briefly the merits of the leading remedies proposed.
_Pooling._
Many railroad men have advocated the legalization of pooling and
combination as a remedy for discrimination. A number of railway
presidents and managers have told me they believed this would stop
discrimination, and that nothing else would. Others have assured me that
pooling could not stop discrimination, and even those most emphatic at
the start in the opinion that pooling is the needful remedy have
admitted on further questioning that pooling would only stop one class
of discrimination. Take for example the statement of the president of
one of the greatest railroad systems in the country who is a strong
advocate of the legalization of pooling.
“How do you think unjust discrimination can be stopped?” I asked.
“Give the railroads a right to pool,” he said.
“Will pooling stop discriminations accorded to business concerns in
which the railways or their managers are interested?”
“No.”
“Will it stop any kind of discrimination except those that grow out of
competition among the railroads?”
“No, I guess not.”
To another railroad man of wide experience in inter-railway contracts, I
said: “Can any pool prevent the owners of big concerns in oil, beef,
grain, steel, etc., from getting special advantages, or abolish
discrimination in the supply of cars, quickness of carriage, division of
rates, classification, long and short haul, passes, political favors,
and other forms of favoritism originating in causes independent of
competition among the railroads?”
“No, of course it cannot,” he replied.
Such questions never fail to bring an admission that pooling cannot be
relied on for the whole of the work to be done in this field. In fact
only one of the six motives for discrimination[387] arises from the
competitive conditions that pooling is expected to remove. Combined
roads will make discriminative rates to create new business, to solidify
traffic, to favor places or concerns in which they are interested, to
favor persons of large influence who may aid or injure railroad
interests, or to injure persons or places that have incurred their
displeasure. All but 2 of the 64 methods of discrimination above
enumerated would find a use under a pooling system or even if
combination were complete and competition entirely done away with, as
the reader may see for himself by running over the list on pages
229–232.
Even competitive discrimination is not eliminated by pooling, for the
railroads will not stick to the pool. A railroad president has been
known to go from the room in which he had agreed with other railroad
potentates to pool their business and maintain rates, and hunt up at
once a big shipper, offer him a cut rate, and get a contract taking the
whole of his business away from the other roads.
Albert Fink, the greatest traffic association organizer we have had,
complained bitterly that rates agreed upon in a convention were
frequently cut before the convention had dispersed.[388] President
Tuttle of the Boston and Maine says: “I never knew a pooling arrangement
that prevented competition or was wholly satisfactory. There was never
what was considered an equitable distribution of traffic to anybody,
because the strong lines that could control and handle 50 percent of the
traffic were always struggling against parting with any of that 50
percent, while the weak, 10 percent road was always trying to get 15
percent.”
The man who drew the first pooling contract made in this country and has
drawn many since says that pooling will not stop even competitive
discrimination, because the roads will slash rates on the sly to get
business. In other words pooling does not eliminate the struggle for
traffic. Company A has 25 percent of the pool money between certain
points. It cuts rates on the quiet and gets 30 or 35 percent of the
business, and then says: “Gentlemen, I’m carrying 35 percent of the
traffic and I want more of the pool money.” The gentleman just mentioned
told me that this sort of thing had been done in every case of pooling
with which he was acquainted.
Sometimes the break in the rates is known to the Association but
assented to or tolerated because it is clear that a break is bound to
occur anyway, and may be enlarged rather than diminished by resistance.
Some years ago when Chauncey Depew was president of the New York Central
system, he said: “Large shippers arbitrarily transfer the whole of their
business from one line to another. That leaves a weak line denuded of
its business.
“A weak line is a line which is dependent largely upon through traffic
and which has not much local business. These great shippers who control
anywhere from ten to twenty-five cars a day will take all their business
off this weak line and put it on the strongest line, which already has
all it can do.
“Then the weak line is in trouble, and it comes to these shippers and
says: ‘Well, how can we get you back?’ The shippers say: ‘You can only
get us back by giving us five or ten cents a hundred off from the
tariff.’ The weak line invariably does it.”
Then Mr. Depew gave an instance of “one of the great merchants of the
West” who, on the organization of the Joint Traffic Association, said:
“I never have paid within twenty-five cents a hundred of tariff rates,
and I won’t do it now.” “His business,” continued Mr. Depew, “was on
what we call one of the weak lines. He took it off that line and put it
on one of the strongest lines. That left the weak line without any
westbound business.
“Then the weak line said: ‘We have got to have business.’ So we simply
closed our eyes while the weak line gave a rate twenty-five cents a
hundred less than the rest of us charged, and this firm advanced while
the others were stationary or went out of business. This firm advanced
by leaps and bounds to the front rank and toward the control of the
business.” If all the roads in the field do not come into the pool there
is every temptation for the outsider to cut rates. For example, in 1896
one of the trunk lines outside of the Joint Traffic Association was
carrying grain from Chicago to the seaboard at 13 cents per hundred when
the established tariff, which the Association was supposed to be
maintaining, was 20 cents.[389]
The whole history of the traffic associations shows that discriminations
can be guarded against by pooling only to a very limited extent.[390]
The legalization of pooling would enable railroads that wished to insist
on the maintenance of rates to bring suit against roads disregarding the
agreement. This would make it harder to get all the railroads into a
pool, for part of the inducement is the impunity with which the
agreement may be shuffled off, while on the other hand the degree of
respect manifested by the railroads for the law does not justify much
hope that it would be effective in holding them to any pooling contract
if they thought they could make more by breaking it than by keeping it.
The fact is that the railroads understand each other now about as well
as if pooling were legalized. They constantly make rate agreements and
have no hesitation in securing whatever degree of unity they desire with
or without law. Pools at best do not apply to local traffic, but only to
business between competing points, so that all discriminations in local
traffic are left absolutely untouched. And as to competitive points,
pooling is far less effective than consolidation, and consolidation has
shown no tendency to do away with any more than one of the six classes
of discrimination, while it emphasizes and extends the discriminations
in favor of the great industrial interests whose ownership is
interlocked with that of the big railroad systems, so that the advance
of consolidation means the extension of the influence of the giant
industrials in whose favor the most grievous discriminations are
granted.
Pooling and combination are good in many ways,[391] and ought to be
legalized;[392] but they cannot be relied on to abolish
discrimination,—they leave the worst forms untouched, intensify some of
them, and diminish only one of the six classes of preference. Shippers
have a strong prejudice against pooling, and the railroads do not care
so much about it as they used to, for consolidation and mutual
understanding have enabled them to accomplish in part the purposes they
had in view in the traffic agreements of earlier years.[393]
_Wrestling with the Long-Haul Abuse._
In respect to the long and short haul abuse, Commissioner Fifer, Brooks
Adams, and others argue that the practical remedy is to make the
long-haul clause of the Commerce Act binding except where the railroads
come in and get an order releasing them to a specified extent from the
operation of the clause.[394] The idea is to put the burden of showing
the need of an exception on the railroad. At present the burden really
rests on the complainant. The railroads disregard the law with impunity.
It is easy to show dissimilar circumstances, and then it is necessary
for the plaintiff to show that the circumstances are not so dissimilar
as to warrant the discrimination made. It is very difficult to satisfy a
court on this point, and so the rates stand and the clause is
practically nullified. Forbid departure from the clause absolutely
unless the carrier has obtained an order of release, and you put the
burden of proof where it should lie, namely, on the party that desires
to depart from the rule of equal treatment.
_A Drastic Cure for Rebating._
For the cure of discrimination, the Transportation Committee of the New
York Board of Trade suggests that Congress enact a law authorizing the
Interstate Commission, in case of any rebate or other device for
securing low rates, to declare that the net rate so made by the railway
or car owners shall be the regular tariff rate, published as such, and
open to all shippers; said new rate to take effect immediately, subject
to appeal within 60 days upon questions of law.[395] The Committee says
the proposal is based on the plan suggested by “Albert Fink, the ablest
of all American railroad managers,” and adopted by the joint executive
committee of the associated railroads in 1882.[396] “The giving of
unlawful rebates by traffic agents would be preventable if the agent
felt assured that such acts would be followed by his dismissal, and the
officers of the company would find a way to remove an offending agent or
to bring him under control if a punishment of suitable severity were
certain to be imposed upon the road for the violation of the law against
the giving of rebates.”
This would indeed be a drastic remedy, and very effective for the
prevention of the discovery of discrimination. An association of
railroads might ferret out preferences under such a rule, but it would
be almost impossible for a public board to do it. It has been for the
most part, as we have seen, practically impossible for the Commission to
get evidence of specific facts of discrimination, even under the
comparatively mild laws they have tried to enforce. And under such a law
the difficulty would be increased tenfold. Moreover, if discrimination
were discovered and the rule proposed were put in action,
discriminations would thereby be crystallized and legalized, and great
disturbances produced in the business of railroads and of the community.
Suppose it were discovered that a certain shipper of wheat from Chicago
east had a 10 cent rate over the Erie, while the published rate on all
the lines was 15 cents. Immediately the 10 cent rate would be open to
all shippers over the Erie. The Erie might be stricken with a sudden
dearth of cars, and be unable to handle the traffic at all. It would pay
the other roads to arrange with the Erie to be stricken that way. For if
the Erie handled the traffic, the other roads would have to come down to
10 cents and suffer a severe loss, or lose the business and suffer a
severe loss that way. Moreover, the difference in rates on wheat and
flour and other commodities would constitute serious discrimination,
petrified and perpetuated by law. Again, if many cut rates were
discovered in various lines of business and various degrees of discount,
the whole tariff would be thrown into confusion worse than the normal
chaos. Rates not in the discovered list would have to be raised to save
the revenues of the roads, the long and short haul rule would go to the
winds, and bankruptcy would threaten not only the culprit railroads but
individuals and communities not conditioned so as to be favored by the
cut-rate lists. On the other hand, if the railroads tried to be good,
the pressure of the big shippers for concessions would put many roads to
serious inconvenience and threaten them with dangers and losses almost
as great as those accompanying disobedience, and far more immediate and
certain. Under such circumstances the temptation to secure secrecy at
any cost, and if need be to control the Commission and the courts, would
be irresistible.
Most of those who favor further control of railroads advocate milder
methods. The favorite remedies are public inspection and the fixing of
rates by a commission or court of arbitration or tariff revision. The
facts above stated showing the secrecy of many forms of preference and
the difficulties of enforcing the law because of the impossibility of
getting railroad officers to reveal the facts indicate the necessity of
systematic and thorough public inspection, but also suggest a doubt as
to its effectiveness. If railroad officers destroy their papers and
refuse to state the facts on the witness stand, is it not possible that
they will keep any record of discrimination practices from appearing in
the books and papers they submit to inspection? Inspection and publicity
are excellent aids to reform, but they are insufficient in themselves.
We have had already a small-sized ocean of publicity through the
investigations of the Interstate Commerce Commission, but the results
have been very small.
CHAPTER XXXIII.
FIXING RATES BY PUBLIC AUTHORITY.
For years the Interstate Commerce Commission has been declaring that
when, on complaint and investigation it finds a rate to be unreasonable,
it ought to have power to fix a reasonable rate to take the place of the
unreasonable one, the order to be binding on the railroad for a moderate
period, subject to revision in the courts. For the first ten years after
the Interstate Commerce Act was passed no railroad denied the right of
the Commission to fix rates, and the Commission says it was supposed
that they possess the power. But the Supreme Court finally ejected this
impression in 1896, and again in 1897, and the Commission appealed to
Congress for the restoration of the authority that was swept away by the
interpretation of the majority of the Court. Congress for a long time
paid no attention to the Commission’s request for further powers, but
President Roosevelt took up the matter and pushed it with the splendid
vigor that characterizes all he does. In his message of 1904, already
referred to, he said: “Above all else, we must strive to keep the
highways of commerce open to all on equal terms; and to do this it is
necessary to put a complete stop to all rebates. Whether the shipper or
the railroad is to blame makes no difference; the rebate must be
stopped, the abuses of the private car and private terminal-track and
side-track systems must be stopped, and legislation of the Fifty-eighth
Congress, which declares it to be unlawful for any person or corporation
to offer, grant, give, solicit, accept, or receive any rebate,
concession, or discrimination in respect of the transportation of any
property in interstate or foreign commerce whereby such property shall
by any device whatever be transported at a less rate than that named in
the tariffs published by the carrier, must be enforced.... The
Government must in increasing degree supervise and regulate the workings
of the railways engaged in interstate commerce; and such increased
supervision is the only alternative to an increase of the present evils
on the one hand or a still more radical policy on the other. In my
judgment the most important legislative act now needed as regards the
regulation of corporations is this act to confer on the Interstate
Commerce Commission the power to revise rates and regulations, the
revised rate to at once go into effect, and to stay in effect unless and
until the court of review reverses it.” The President’s message of
December, 1905, has already been quoted at sufficient length in Chapter
XXXII.
In the last two years the legislatures of 18 States have passed joint
resolutions petitioning Congress to enact legislation for the regulation
of railroad rates; 12 States took this action last winter, 1905, and
asked their representatives and senators to secure the enactment of such
a measure. Commercial bodies in various parts of the country have also
petitioned for such legislation, while others have protested against
it.[397]
The Esch-Townsend Bill (1905) giving the Commission power to fix rates
passed the House, but failed to pass the Senate.[398] As stated in the
preceding chapter, the House has passed the Hepburn Bill by a very large
majority and it has gone to the Senate, where a determined effort will
undoubtedly be made to secure at least a provision for judicial review
on their merits of all orders of the Commission.
_Objections of Railroad Men._
Railroad men object to further regulation till the effectiveness of the
present laws has been thoroughly tested. In answer to the question what
he would do to stop discrimination, President Tuttle of the Boston and
Maine Railroad said to me this morning: “Enforce existing laws. The
Interstate Commission can investigate the railroads. It need not wait
for complaints. It can act on its own initiative. It can have experts
examine the railroad books. It can publish the facts, and publicity is a
powerful corrective. It can put the facts it secures in the hands of the
Attorney-General, and if the Department of Justice will prosecute
promptly discrimination can be stopped. There were no prosecutions even
after the Hutchinson salt investigation. The law is ample. The trouble
is that no adequate effort has been made to enforce it.”
The Commission says that as a rule it cannot get the facts. In some
cases it has succeeded, but usually it is thwarted in respect to
personal discriminations (to which President Tuttle’s argument chiefly
applies) because they are secret, and neither railroad men nor the
favored shippers will ordinarily tell the truth about them, and railroad
books do not commonly contain any record of them.[399] Where the
Commission has obtained evidence of unlawful discrimination it has
turned the facts over to the Department of Justice, which has not
prosecuted promptly, in many cases not at all, and has sometimes
prevented prosecutions which United States district attorneys were ready
to begin.
There seems to be good reason to believe it is true that existing laws
have not been fully enforced; that in addition to the difficulty,
perhaps impossibility, of getting at the facts in many cases, wrongdoers
have escaped punishment even where the facts were fully known; and that
a commission to investigate the Department of Justice, and try the
effect of publicity there, may be as essential as a commission to
investigate the railroads. Some criticism seems to attach also to the
Interstate Commission, as it does not appear that they have asked the
Department of Justice to prosecute senators and congressmen,
legislators, judges, etc., well known to be riding on passes, nor to
punish the railroads for giving them.
As long as express companies and water carriers are not within the
Interstate Act, and doubt exists as to private cars and terminal
railroads, there is room for further legislation. And in respect to
excessive rates and tariff discriminations between places and
commodities, though the facts can be easily ascertained, the remedy is
regarded by the Commission as wholly inadequate under existing laws,
because of the emasculation of the long and short haul clause by the
interpretation given it by the Supreme Court, and because the railroads
are able, whenever they choose, to delay the enforcement of an order for
years by litigation, conceding at last perhaps only a small part of what
they should concede and so requiring further years of contest to
approach another step toward justice. So the Commission asks for power
to fix a reasonable rate in place of one found unreasonable, and to put
the new rate into effect at once subject to subsequent revision on
appeal by the carrier.
The railroads seriously object, first, to the fixing of their rates by
anybody but themselves, and second, to the putting of such rates into
effect before they are tested in court. The immediate enforcement of a
rate order is most strenuously opposed, and with much force of reason.
The railroad people say that rate-making is very difficult and many
mistakes are likely to be made. Railroad history certainly affords ample
ground for this conclusion. But they say, or imply, that the Commission
makes more mistakes than they do. They declare that only trained traffic
experts can deal successfully with rate questions; that the Commission
has made so many errors that almost every one of its decisions that has
gone to the courts has been overruled; and that great havoc would have
been wrought if these decisions had been put into effect at once without
judicial review. “Take for example, the Maximum Rate Case where the
Commission ordered the rates from Cincinnati to important Southern
points cut down 15 or 20 percent. This change in rates to the
basing-points would have affected two or three thousand rates. Some of
the railroads didn’t have a margin of more than 15 or 20 percent and
they determined to fight the case. It is true that the Commission
exercised the power to fix rates a number of times in the first ten
years, but the cases were comparatively insignificant and the railroads
said, ‘Oh, well, let it go. We’ll take the rate the Commission wants.’
But when it came to the Cincinnati case the situation was serious and
the railroads said, ‘These fellows haven’t got the power to make rates.
In the debates on the Commerce Bill in Congress it was distinctly
declared that no such power was intended to be given. We’ll take the
question to the courts.’ And the courts sustained the railroads. Now
what would have been the consequence if the Commission could have put
its order into effect at once? The railroads would have been subjected
to serious losses during all the time that might elapse before they
could get a decision reversing the order of the Commission. It often
takes years to get a final judgment and there would be no way for the
railroads to recover for the losses entailed by erroneous orders.” This
is the argument substantially as presented to me by President Tuttle and
there is great weight in it.
_Alleged Errors of the Commission._
Another railroad president turns the lime-light of mathematical analysis
on the errors of the Commission. David Willcox, President of the
Delaware and Hudson, says: “About 93 percent of the decisions of the
Commission which have been passed upon by the courts have been held to
be erroneous. In case, therefore, the Commission had the future
rate-fixing power, so far as its decisions were in force until the
courts passed upon them, injustice would be accomplished in 93 percent
of the cases. For this there would be no remedy, because no recovery
could be had from those whose goods had been carried at unjustly low
rates.”[400]
We shall see that this statement gives too strong an impression of the
capacity of the Commission for mistakes, but there is no doubt that it
has made mistakes, that any person or persons attempting to fix rates,
even the railroad managers themselves, are liable to make mistakes, and
that losses result to the roads from their own mistakes and might
naturally result from the mistakes of a commission or court if its
erroneous orders were enforced upon them.
It may be said that if the orders of the Commission went into force
immediately it would be the interest of the railroads to hasten the
proceedings in court instead of prolonging them indefinitely as they are
too apt to do, and that with reasonable provisions for prompt
adjudication and the stimulus of powerful railroad interests in that
direction, the delay of the law, or this branch of it, at least, would
vanish. It may also be said that the railroads could recoup themselves
for the losses under discussion by curtailing the service they render
for the new rates, or by raising other rates not fixed by the
Commission. But the Commission might veto the raising of other rates,
and the entailment of service would be very undesirable. The question
arises whether it would not be fair for the public to stand any loss
clearly resulting from an improper order of its Commission, or else
require that any order the validity of which is questioned should be
passed upon by the court before it is put into effect? The Commission is
itself perhaps a sufficient court in respect to questions of fact, and
if it were arranged that in case of dispute on a question of law the
Commission might call upon the Supreme Court for an immediate
interpretation of the law, the rulings of the Commission could be
squared with the law at the start, and the danger of loss from an
erroneous order would be reduced to a minimum.
As above remarked, the mistakes of the Commission have not been so vast
as the reader might infer from the percentage of overruled cases stated
by President Willcox.
The work of the Commission may be summarized as follows:
It has received about 3,726 informal complaints relating to overcharges,
classification, rates, etc. Most of these, perhaps 3,200, have been
disposed of by correspondence or some mild form of arbitration, very
many have been settled satisfactorily, some have been abandoned, and
some have crystallized into formal complaints. The total number of
formal complaints has been about 854, including those that were formal
at the start and those that started as informal complaints and grew to
be formal through failure of adjustment by conciliatory methods. “From
1887 to October, 1904, the Commission rendered 297 decisions involving
353 cases, two or more cases being heard and decided together in some
instances. About 55 percent, or 194, of the decisions were in favor of
the complainant and 45 percent in favor of the railroads.[401] Mandatory
orders were issued to the number of 170. Of these 94 were complied with
by the railroads, 55 were disobeyed, and 21 were partly complied with
and partly disregarded. Some 43 suits were instituted to enforce the
orders of the Commission; and 34 of these have been finally
adjudicated.” The Commission claims that 8 cases of excessive rates and
unjust discrimination have been decided in its favor, while President
Willcox says that the courts have sustained the Commission on the merits
in only 3 cases.[402] Mr. H. T. Newcomb, who appeared before the Senate
Committee as the representative of several railroads, gives a table
showing that in the circuit courts the Commission has been sustained 7
times and reversed 24 times, the Circuit Court of Appeals has sustained
the Commission 4½ times and reversed it 11½ times and the United States
Supreme Court has partly sustained the Commission in one case and
reversed it in 15.[403]
Several comments are necessary. First, about ⅘ of the Commission’s
decisions have been right on the railroad’s own showing. They claim only
32 reversals out of 170 orders—nearly all the rest have been accepted by
the railroads or enforced upon them by the courts. Second, the reversals
have been based on questions of law in respect to which the courts
disagreed among themselves. The Commission has not been overruled in
respect to questions of fact, but on the application of what it believed
to be law (and what the framers of the law believed to be law) to the
removal of economic abuses. Third, the points of law in respect to which
it has been overruled are very few. The decisions have gone in bunches.
For instance while the Alabama Midland long and short haul case was
pending in the courts a number of other long-haul cases were decided by
the Commission, and when, after several years, the Supreme Court gave
final judgment, a whole block of the Commission’s rulings on this point
were discredited and subsequent reversals were simply repetitions
involving no new error. So the question of power to fix rates covers a
cluster of cases all thrown down in reality by one ruling.[404] And
these two questions represent nearly the whole difference between the
courts and the Commission. The 15 reversals in the Supreme Court do not
mean 15 errors, even in respect to legal points, but only a very few
errors if any. Fourth, the higher court reversed the lower in 9 out of
the 17 cases that went up from the Circuit Court, and in three of these
cases the Supreme Court reversed both the Circuit Court and the Court of
Appeals. Fifth, it is by no means certain that the Commission was wrong
and the court right. The fact is that the Supreme Court has not
interpreted the law according to its manifest and well-known intent, but
in a narrow, technical way that has defeated in large part the real
purpose of the law. It is an absurdity to rule that the law is valid and
then to decide that the railroads may escape from the long-haul section
by means of dissimilar circumstances created by themselves. And many
believe it to be an equal absurdity to declare that the Commission may
order the discontinuance, of an excessive rate or unjust discrimination,
but cannot fix a reasonable rate.
Take the Kansas oil rate for example. The railroads at the dictation of
the Combine raised the rate, as we have seen, from 10 to 17 cents.
Suppose the Commission had ordered the roads to cease charging 17 cents,
that being found to be unreasonable. The railroads could appeal and
appeal, and if after several years the case went against them they could
make a rate of 16½ cents. Then a new investigation could be begun, the
Commission could make a new order, and after years in the courts the
rate might come down another half cent perhaps. And so on; even if all
the decisions went against the railroads it would take 105 years to
reduce the rate to 10 cents again, calculating on the basis of the
average period of 7½ years required for final litigation. Why not sum up
the process in a single order for the 10 cent rate and if objected to by
the railroads have one judicial contest and finish the business. By the
indirect method of declaring one rate after another to be unreasonable
the Commission has now the power at last to fix the rate. The
proposition to allow it to name a reasonable rate is only putting in
direct, brief, effective form the power it now has in indirect,
diffused, and ineffective form. The railroads might not act in the way
described, but the point is that they could do so; there is no power in
the law as it stands to-day to compel them to adopt a reasonable rate
within a reasonable time.
Again, consider the predicament Commissioner Prouty presents.[405] If
the Commission, considering all the circumstances including railroad
competition, finds that the rates from certain points to W should not be
higher than the rates to O and orders the railroads to discontinue the
discrimination between the two cities, the court will sustain the order
and grant an injunction to enforce it. But if the Commission finds that
there should be some difference between the rates to the two places,
though not so much difference as there is, and it orders the rates to W
down so that they will be fair, the courts will annul the order because
the Commission has no power to fix rates in the opinion of the Supreme
Court.
The railways contend that a relative order would be sufficient. The
Commission could say what percentage of the Omaha rate the advance for
Wichita should be, and in the Kansas case the rate on oil could be
determined in reference to the rates on other commodities. It is true
that a relative order could be made, but it might be more embarrassing
to the railroads to have a group of rates tied up by each decision so
that they could not vary any of them without changing the rest, than it
would be to have one rate definitely fixed; the subtraction from
elasticity might be greater, and the difficulty of determining the true
relations between various rates might be far more serious than the
fixing of a reasonable rate in the particular case. It would be possible
to give the Commission the option to make a relative order or to
definitely fix a reasonable rate providing that it should carefully
consider the preference of the carrier as to the form of order, the
reasons for that preference, and the guarantee the carrier may be
willing to give as to _bona fide_ compliance with the order, and then
make up its judgment in the light of the circumstances in such a way as
to accomplish the purpose in view with the greatest certainty and the
least friction or interference with the freedom of railroad management.
But the railroads object to the fixing of rates in any manner by a
public board,[406] declaring that such a board could not be in
sufficiently close touch with traffic conditions all over the country to
adapt their rulings to the needs of business, that tariffs would lose
the elasticity requisite to keep them in harmony with changing economic
conditions. A rate that is reasonable to-day may be unreasonable
to-morrow. It is said that it keeps several hundred men, 500 to 700
skilled traffic men, working all the time on the adjustment of rates,
and that it is beyond the power of half a dozen men to pass on the rate
question of a country like this; that Congress cannot delegate to a
commission the power to fix rates; that it would destroy the initiative
of railroads and hurt their power of borrowing money for improvements,
injure investors, and throw the whole railroad world out of gear; that
the centralization of power would be dangerous, the disturbance of
business and interference with development disastrous, and the practical
confiscation of railroad properties and values unjust; that a flood of
litigation would follow, and that discrimination would not be removed,
for agents hustling for business would cut under commission-made rates
as quickly as they cut railroad-made rates.
There is much force in some of these points, none at all in others.
There is no reasonable doubt that Congress can authorize a commission to
fix rates. Railway Commissions in 21 States have power to fix rates,
either absolute or maximum, and some of them have exercised the power
vigorously, and a national commission may be given the same power over
interstate commerce that a State commission may have over State
commerce.
There is more force in the objection based on the lack of elasticity in
commission-made rates. Elasticity, however, may easily be overdone and
much of the present elasticity is very undesirable. Many flying tariffs
and unfair discriminations lurk under cover of that reputable word
elasticity. Moreover the Commission would not interfere with any fair
rate-making by the railroads. The bulk of the rates would not be touched
but only those that were unjust. So that it would depend entirely on the
railroads how much of the flexibility they so much admire should be kept
in their own hands. They would keep it all unless they were guilty of
dishonest flexibility, in which case the elasticity, which, according to
impartial judgment, exceeded the bounds of justice, would be checked.
In reference to the alleged necessity of flexibility in tariffs and the
ability of traffic managers to accommodate the rates to fluctuating
commercial conditions, Chairman Knapp of the Interstate Commission says
that there need not be any tendency to iron-clad rules or undue emphasis
of the mileage basis on the part of a Government board, but that the
necessity of frequent changes in tariffs is greatly overdrawn. He states
that the railroads have kept the same basis of rates since 1887
throughout the most important part of the United States, the “official
classification territory” or the section north of the Ohio and Potomac
and east of the Mississippi, and that “the class rates which govern most
merchandise and articles of manufacture and ordinary household
consumption have remained unchanged in all that territory.” The
railroads changed the classification of many articles about 1900, “but
they did not change the rates or the adjustments between localities.”
“I take it there is no agricultural product the price of which has shown
such wide fluctuations in the last few years as cotton. It is one of the
great staple articles of the country; the most valuable per pound of
anything that grows out of the ground in large volume. More than half of
it is exported and you know the price has gone from scarcely above 5
cents to 16 or 17 cents. And if there is any article which would seem to
be susceptible to market fluctuations and the changes in commercial
conditions, it must be cotton. But an inspection of the tariffs will
show you that the rates on cotton have not been changed in ten years.
“There has been no material change, I think, in any cotton rate in more
than ten years, except that certain reductions have been made in the
State of Texas by the commission of that State.
“Now, when I observe instances of that kind, when the ablest and most
experienced traffic officials tell me that there is no sort of reason
for 500 to 1,000 changes in interstate tariffs every twenty-four hours,
as our files show there are, you must not be surprised if I fail to
accept at par value all that is said here about the necessity of
adapting rates to commercial conditions. Undoubtedly, when you take a
considerable period of time, great influences do operate to an extent
which may justly require material modifications in freight charges, but
to my mind it is quite unsuitable that the little surface fluctuations
in trade should find expression in extended changes in the daily
tariffs. I believe that those surface currents should adjust themselves
to the tariffs, and not the tariffs to the currents. And I am saying
this, gentlemen, not as a result so much from my own observation or from
any _à priori_ view of the case as because of the statements made and
arguments submitted to me by practical railroad men of the highest
distinction.”[407]
To lay stress on the number of men required to arrange the details of
tariffs might seem to imply the belief that a very large part of
existing railroad rates will be found unreasonable and need the
attention of the Commission. It may however imply merely that there is
likely to be a very large number of complaints. The fact is that the
fixing of rates is a complex business, with a considerable percentage of
guesswork, experiment, broad judgment, and arbitrary decision. There are
some general principles of cost, distance, what the traffic can pay and
move, what shippers demand, what other carriers are charging, what rates
are necessary to create new business and fill up the cars both ways,
etc., but they are like the principles of law, you can come to any
conclusion you wish and then find a principle that will back up your
decision. Railroad men do not trouble themselves about consistency. They
do not and cannot adjust rates with reference to just relations between
places and commodities. They are looking for dividends and they make the
best rates they can with that object in view. The chief traffic officer
of one of the trunk lines, being pressed by the Commission as to his
method of making rates, said: “We make rates very much as the honey bee
makes its cells, by a sort of instinct.” When we look at his rates we
find that he is not so successful as the honey bee in respect to
symmetry and balance. Another traffic manager whose skill brings him a
salary of $50,000 a year, testifying as to the reasonableness of his
grain rates, was asked question after question as to methods of
determination, till finally he said: “To tell you the truth, gentlemen,
we get all we can.” Now it is because the railroads know that the
Commission would refuse to adopt this time-honored principle and would
aim primarily not at profit to the railroads, but at just and impartial
rates—it is this knowledge which more than anything else impels the
railroads to such strenuous opposition to any proposal for the fixing of
rates by a public board. The matter is of such moment that, when I asked
one of our leading railroad presidents what would happen if the
rate-making power were put in the hands of a commission, he said: “The
stake would be so great that the commission would have to be controlled,
that’s all.”
The railroads have the Senate, and the Senate must confirm all
nominations to the Interstate Commission. Aside from the appointment of
Judge Cooley all nominations to the Commission from 1887 down have been
due, said this railroad president, not to any special fitness for the
work, but to political pull. If a commissioner is appointed from a
certain State, the senators from that State regard the place as a part
of their patronage, and when the term of his appointment expires they
insist on the nomination of another man from their State. They say: “The
place belongs to our State,” and it is always their man, a man they want
on the board, who is presented by them for nomination. Vermont for
example has had three members on the Commission in succession, Walker,
Veazie, and Prouty; each time a vacancy has occurred in the Vermont
representation it has been filled at the dictation of the senators from
that State; “even President Roosevelt did not appoint for fitness. When
a vacancy occurred he did not look for the man best fitted to serve on
such a Commission, but appointed Senator Cockrell of Missouri, a nice
old man of 70 that everybody liked, but without any special
qualification for the work. The election went to the Republicans in
Missouri, so Cockrell couldn’t go back to the Senate. He has many
friends. The senators all like him, Republicans as well as Democrats,
and they said to Roosevelt: ‘You must do something for Cockrell; here’s
a democratic vacancy on the Interstate Commission, put him in there,’
and Roosevelt put him in.”
This railroad president is a man of the highest character and of very
extensive information. Whether or no he is rightly informed in respect
to the appointment of commissioners, it is clear that the railroad
representation in the Senate could bring tremendous pressure to bear to
secure the appointment of men approved by railroad interests, that they
could block the appointment of any other sort of men even if nominated,
and that the temptation to exert this power to secure men who could be
controlled would be practically irresistible if the Commission were
given the rate-making power.
The fear of confiscation does not seem to be well founded on the part of
the railroads; there is more to justify such a fear on the part of
companies and localities unfairly treated by the railroads. The
Commission will have no motive to make confiscatory orders, and the
courts will protect the roads from everything that is doubtful in the
slightest degree as they have done in the past. The real danger of
confiscation of values lies in leaving the railroads free to make such
orders as those in the San Antonio case or the Kansas oil case which
destroyed the business of independent operators. Adding 25 cents a ton
to the coal rates from San Antonio practically confiscated the coal
mines at that point, and raising the oil rates in Kansas from 10 to 17
cents practically confiscated, during the continuation of the order, the
product of the independent oil wells.
That some disturbance of tariffs and business might result from
conferring the rate-fixing power on a public board is quite likely.
There is a good deal of business that ought to be disturbed; that of the
Beef Trust and the Oil Trust for example would be the better for a
thorough house-cleaning. And the tariffs need considerable disturbance
to bring them into close relations with the principles of justice. But
the disturbance _might_ be more than is needful. Our railroads say that
Government boards the world over show a tendency to adopt some sort of a
mileage basis, in the shape of a zone system or some other form of
distance tariff. This would interfere with the equalization of rates,
which is one of the best elements in American railroading. The fruits of
California are carried all over the country at low blanket rates that
enable them to be sold in every hamlet in the country at prices the
common people can afford to pay. New England shoes are carried to St.
Louis at 1½ cents a pair and to San Francisco for 2 cents a pair. Milk
is brought into the cities at the same rate for many miles out. So with
the pulp mills in the forests of New York, Vermont, and Maine. The
railroads give them all equal rates to the great cities. When the big
mill at Millinocket, Me., was being planned the promoters went to the
railroads for rates. To make the product cheap they must build on a
large scale, and to justify this they must be able to reach many
markets; they must be able to supply newspapers in Boston, New York,
Philadelphia, and Chicago. So the railroads gave them rates that enabled
them to send their paper 1,500 miles to Chicago and sell it to
newspapers there at the same price they would have to pay for paper that
came only 500 miles.[408] This destroys nature’s discriminations due to
distance, and places men on an equality in the market to win by their
merits, not by natural advantages or disadvantages of location. This is
in many ways a beneficent process and if the railways did not create new
artificial discriminations of their own they would be entitled to be
placed among the great equalizers of the age.
Years ago there was a vigorous argument about the rates on wire from
Worcester, Mass., to Chicago, and from Pittsburg to Chicago. The wire
mills of Worcester had a good business, employing some 5,000 men, and
marketing mostly in the West. Mills were built in Pittsburg, and being
much nearer Chicago got a lower rate to that city. The New York Central
at once met the rates so that the Worcester Mills could get to market on
a level with the Pittsburg people, who still had the advantage of
nearness to the coal and iron mines. Not satisfied with this, however,
they carried the question to the Traffic Association, claiming that as
they were 500 miles nearer Chicago, they should have a lower freight
rate than the Worcester mills. But they didn’t get it. The New York
Central said: “Here are 5,000 men at work in Worcester. What are they
going to do if we let you crowd them out of Chicago, which is their
principal market? We shall stand by them and meet any rate you make from
Pittsburg.” That was fine, as good as the raising of a rate to kill the
San Antonio mine was bad; the railroads can save industrial life as well
as commit industrial murder.
It is said that government rate-fixing would not meet such cases; that
the principle of equalization is not recognized, and both justice and
business development would suffer thereby.
It is not true that government rate-fixers do not recognize the
equalization principle. The national post-office has carried it to the
limit, and has based its business upon it to such an extent that it is
known as the post-office principle. It is applied in government
telegraph and telephone systems much more fully than in our private
systems. Even the State railways make considerable use of it. Although
the tendency is to adopt some sort of distance system as the main basis
of the tariff, there is constant recognition in Germany, Belgium,
Denmark, Switzerland, and the Australasian States, and it is announced
as a definite policy that so far as reasonably possible rival industries
shall be placed on an equality in the market. “We mean to bring the
manufacturer who is 100 miles away into the market on a level with the
man who is 10 miles away,” said the manager of one of these government
systems to me, and there is more or less of the same spirit and purpose
in all the government systems I am acquainted with. The fact is that a
movement toward the equalization of rates through application of the
principle to one commodity after another, or the gradual extension of
zone distances in a zone tariff, offers the only hope of attaining a
really just and scientific system of rates. Any sudden adoption of such
a system would disturb the values of real estate, etc., beyond all
reason, but it can be gradually approached, and that is what the
railroads in this and other countries are doing.
Our Interstate Commission has, I believe, shown too little appreciation
of this fact, too much tendency to insist that a town or city is
entitled to the benefit of its geographical position. It is entitled to
the benefit of its geographical position to the extent that no place
more distant from its market should have lower rates to and from that
market, but the right to claim that the rates shall not be equal is very
questionable, and frequently it is clear that no such right exists. The
Commission has recognized this point in several cases. For example, in
the Business Men’s Association of St. Louis _v._ the Santa Fe, Northern
Pacific, Union Pacific, and other roads,[409] the Commission sustained a
blanket rate on many commodities from the Pacific Coast to all points
east of the Missouri River. And in the Orange Rate Case[410] decided
last year, a blanket rate of $1 per hundred on lemons from Southern
California to all points east of the Missouri was approved. In the milk
case, however, it held that “A blanket rate on milk on all the Delaware,
Lackawanna’s lines, New Haven road, Reading, Erie, New York Central, and
West Shore and other roads regardless of distance, viz., 32 cents on
milk and 50 cents on cream per can of 40 quarts, is unjust to producers
and shippers of the nearer points. There should be at least four
divisions of stations,—the first extending 40 miles from the terminal in
New Jersey, the second covering a distance of 60 miles and ending about
100 miles from such terminal, and the third covering the next 90 miles,
and the fourth covering stations more than 190 miles from the terminal.
The rates on milk in 40–quart cans should not exceed 23 cents from the
first group of stations, 26 cents from the second group, 29 cents from
the third, and the present rate of 32 cents from the fourth group.”[411]
It is quite possible that the Commission made a mistake in this case,
though it is not easy for any but a railroad man, with a ravenous
appetite for tonnage and reckless of the waste of economic power, to see
any sense in arranging rates so as to take milk to New York from points
near Buffalo while Buffalo gets milk from places east of points shipping
to New York; but if the Commission did fall into error in this case, the
mistake of refusing to allow the distant man to come into the
metropolitan market on equal terms with the nearer man is nothing
compared to the mistake the railroads so frequently commit of allowing
some Chicago or Kansas City man to come into New York at lower rates
than the New York, Ohio, Pennsylvania, and New England producers have to
pay.
In respect to the distance tariff question, Chairman Knapp of the
Commission says: “I am very far from believing that there should be
anything more than the most inconsiderable tendency, if any at all,
toward the adjustment of rates on a mileage basis, and I think the
prosperity of the railroads, the development of the different sections
of the country and their industries, justify the making of rates upon
what might be called a commercial basis rather than any distance basis;
but do you realize what an enormous power that is putting into the hands
of the railroads? That is the power of tearing down and building up.
That is the power which might very largely control the distribution of
industries. And I want to say in that connection that I think on the
whole it is remarkable that that power has been so slightly abused. But
it is there.... It comes back to the question which Senator Dolliver
asked, are the railroads to be left virtually free to make such rates as
they conceive to be in their interests? Undoubtedly their interest in
large measure and for the most part is the interest of the communities
they serve. Undoubtedly in large measure and for the most part they try
as honestly and as conscientiously as men can to make fair adjustments
of their charges. But suppose they do not. Is there not to be any
redress for those who suffer? That is really the question.... Suppose it
were true that a more potent exercise of government authority and the
adjustment of rates tended somewhat to increase the recognition of
distance with the result of producing a greater diffusion of industry
rather than its concentration.... I cannot believe that all those
institutions, laws, administrations which operate to the concentration
of industries and population are altogether to be commended. I doubt if
they result in happier homes, better lives, greater social comfort.”
A public board might not be willing to apply the equalization principle
without limitation under competitive conditions. It might put the sash
and door makers of Michigan and Vermont on an equality in New York City,
and yet not think it best to enable the Vermont manufacturers to send
sash to Michigan and Indiana points at the same rates the Michigan
manufacturers pay, while the Michigan factories get the same rates to
Vermont and Massachusetts points as the Vermont people; nor to arrange
matters so that a train-load of bananas from the port of New York to
Boston would pass a train-load of bananas going from the port of Boston
to New York. It takes a lot of railroads working for profit, regardless
of the waste of industrial force, to see the wisdom of such
cross-hauling. A public board would be likely to recognize not merely
the principles of profit, equalization, and development of traffic, but
also the principles of economy from a national standpoint, the
adaptation of special localities to special work, the value of
diversification of industry, etc., etc.
It is entirely possible to avoid such mistakes as those attributable to
the Commission in its geographical cases, and other mistakes that may
come from lack of thorough acquaintance with practical transportation
problems, by putting on the Commission two or three traffic men of high
character and long experience in the business of making rates.
And as the business of the Commission would not be to make rates in the
first instance, but only to revise them on complaint, much as the chief
officers of railway departments do now, only with a public motive and
point of view instead of a private one, there is every reason to believe
that the work of revision could be intrusted to a well-selected
commission, with great advantage to the public. The very existence of an
effective power of revision ought to go a long way toward making the use
of the power unnecessary. And it is wholly just and practicable that
monopoly charges should be subject to the veto of a public board that is
in a position to take a broad, disinterested view of rates and other
transportation questions.
How superior the Commission’s methods are in many ways to those in use
on our railways can hardly be appreciated by one who is not familiar
with the unscientific, chaotic rate-making practices everywhere in vogue
in this country, and also with the breadth and system that marks the
work of the Commission.
An illustration may help to make the contrast clear. Take the case of
Kindel _v._ Boston & Albany, and other railroads, decided by the
Commission, December 28, 1905. The railroads were charging $2.24 per
hundred on cotton-piece goods from Boston, New York, and other eastern
points to Denver, and $1.50 on the same goods from the East clear
through to San Francisco. The local rate from Omaha or Kansas City to
Denver was $1.25, the same as the rate on first-class goods, and the
rate from the Atlantic to Denver was made by adding the said local rate
to the rate from the East to the Missouri River. Kindel complained that
the rate to Denver was unreasonable and unjust. The Commission carefully
studied the facts, took into consideration the relation between cotton
rates and first-class rates on various routes throughout the country,
put the data on a chart, a facsimile of which accompanies this
description, and came to the conclusion that “the exaction of
first-class rates on cotton-piece goods between Missouri River points
and Denver, in view of the long prevailing differentials in other parts
of the country and other existing conditions, is unjust and
unreasonable; and that the result of the excessive rate on cotton-piece
goods between the Missouri River and Denver and the application of full
locals in making up the through combination rate from New York, Boston
and other eastern points taking the same rates to Denver is to make the
through rate excessive, and that such through rate to Denver to be
reasonable should not exceed $1.50 per hundred pounds.”[412]
[Illustration]
If the reader will examine the chart he will see that the cotton figures
(which are placed below the route-lines) are less than the first-class
rates (which are printed above the route-lines) in every case except
between the Missouri River and Denver, and in some cases the cotton
rates are only half the first-class rates. In view of the practically
universal custom of the railroads in this relation, the deviation in the
case of Denver amounted to a practical discrimination against that city
and any shippers who desired to lay down cotton goods in Colorado. The
railroads carried the goods from Boston to Chicago for 55 cents, while
charging $1.25 from Omaha to Denver, more than double the charge for
half the distance.
Railroad rate-makers do not base their tariffs on broad considerations
of justice, but get what they can out of the traffic for their own
lines, while the Commission asks what rate will yield a fair profit, and
will be just to the public and to the individuals and localities
involved, considering all the circumstances and their relation to
transportation conditions throughout the country.
At best, however, it cannot be denied that great inconvenience and some
injustice might be inflicted upon the railroads by public rate revision.
It seems to come down to the choice of the least of two evils. The
President and the people say that if the railroads are left free to make
the rates they do not deal fairly; experience shows that they
discriminate unjustly between persons and places, and put some rates too
high and others too low. The railroads say that if a public board should
make the rates the companies might not be treated fairly. Both
statements are true. But it is clear that somebody must make the rates.
And it is equally clear that there is no system of rate-making that will
do perfect justice. I know of no railway minister or traffic manager in
Europe or America who even dreams he knows of any method of rate-making
that will do justice all round under present industrial conditions. The
post-office principle may ultimately be applied to diffuse the burden of
distance over the whole community, but it is not practicable at present.
If then a certain amount of injustice is unavoidable, and we must choose
between injustice to a small group of stockholders or to eighty millions
of people, which alternative shall we accept? If there is no way to
solve this problem that will not work injustice somewhere, shall it be
to the little group of profit-makers or to the great public, the people
of the United States?
Besides this quantitative comparison, there is a qualitative comparison
that is still more weighty. Such injustice as may be done to the
railways is merely a matter of diminished dividends on stocks, a very
large part of which is water; while the false rates and unfair
discriminations made by the railway managers not only affect property
interests many times greater than railway stocks, but deny equal
opportunity and undermine morals, manhood, government, civilization, and
progress,—values far higher than any financial items whatever. Moreover,
it is not unlikely that a board constituted somewhat differently from
the present one might eliminate most of the errors of the Interstate
Commission as well as those of the railway. What are the causes at work
in the case? The reason the Commission has made some injurious rulings
is that they lack the thorough acquaintance with traffic conditions that
the railway managers possess. And the reason the railway managers make
rates that are contrary to public policy is that they are more or less
influenced by motives that are antagonistic to the public interest. The
Commission is disinterested; it has no wish or personal interest leading
to unfairness either to the railroads or the public; its motive is
right, but its knowledge is imperfect. The railway traffic managers, on
the other hand, have much more perfect understanding of the
transportation business, but their interest is not altogether in harmony
with justice and the public good. Is it not possible to create a board
that shall have the thorough knowledge of first-class railway experts,
together with the high motives and unmixed interests of an honorable
public commission or court, and so remove the chief causes that have
worked injustice in the past?
It is possible that there may be another fair solution,—that the rates
may be made neither by the railroads themselves nor by a body
representing the public alone. As there are three partners in the
railroad business, as in every great industry,—viz., labor, capital, and
the public,—it may be regarded as a case for arbitration, or for
decision, not by any one partner alone, but by a board representing all
three partners. Should there not be a board on which the railways have a
right to representation, the workers being represented too, and the
public also having fair representation upon the board? Then the decision
would represent the co-ordination of thought and interest of the three
great parties concerned in the railway problem. Perhaps such a solution
would be superior in its justice to decision either by the railways
alone or by a body representing the public only.
But it is clear that the final power to pass on transportation rates
must rest somewhere. That railways are public highways, and
transportation charges in the nature of taxes, are settled principles of
law and economics. That governments have a right to regulate railroad
rates is everywhere recognized. But how is the right to be effectively
exercised? If legislative bodies attempt to exercise it directly, the
lack of detailed information as to specific cases and the failure of
elasticity and adaptation to the needs of business, urged against
Commission work, would be emphasized a hundred fold. There is no way but
to delegate the power to an expert board, not with the expectation of
perfect justice, but of the greatest attainable justice.
The most important question of all in this connection remains to be
considered, viz., would the possession of the rate-fixing power enable a
regulative board to stop discriminations? Practically every rate
question but one involves the question of discrimination. The exception
is the query: “Are the total charges unreasonable?” It is conceivable
that the relations of the various rates might be fair but the whole
tariff might be pitched too high or too low; then the reasonableness of
that tariff would be the only question on which action would be
requisite. But in practice there are always some rates that are low
enough, some too low, and some too high. And there are always two active
questions in reference to any rate: 1. Is it fair in relation to the
rates accorded to other persons, places, or commodities? 2. Is it
reasonable? In other words, is it such that if other rates stood in true
relations with it the total margin of profit would yield a fair return
and no more than a fair return on the investment? Both questions are
very difficult, especially the latter. The reasonableness of each
particular rate depends not only on its own individual circumstances,
but on a comparison with all other rates and a consideration of the
company’s entire business. Difficult as it is, it would seem necessary
to try to answer it in a broad way, at least in respect to the tariff as
a whole, for the failure to answer it may mean unjust taxation of
industry, inflation of capital values, dividends on watered stock, vast
accumulations of wealth in the hands of railway owners, political
corruption, and the whole train of evils that follow in the wake of
industrial aggression. Yet deeply important as it is to secure
reasonable rates, how futile it would appear to attempt to do it by
means of a board making orders as to this, that, and the other rate
complained of, but without power to revise the tariff as a whole, or to
require any particular standard of service in return for the rate
decided upon. For every cent cut off the rate by the Commission, the
railways, if they are agreed to act in harmony, can easily withdraw two
cents’ worth of facilities. Suppose the Commission can fix a reasonable
rate, what is the use of it unless it can schedule to its judgment a
minute specification of the quantity and quality of service to be
rendered in return for that rate? And it would have to schedule also the
price level, the crops, and all the conditions of home and foreign
markets and adjust the rate on a sliding scale, else the rate that is
reasonable now may become very unreasonable in a few weeks or months
from now. And if, instead of this patchwork, the public board attempts
to revise the tariff as a whole and fix the services to be rendered, it
will either get itself captured by the railroads or it will cripple
railroad enterprise. Railroad men are not going to work with much spirit
if you take the control of rates and service out of their hands, and if
you leave them control of either they will have you instead of your
having them. It always means a struggle for mastery where a body that
does not own seeks to control. The body that owns and has possession
will evade, pervert, defy if possible, and if overborne will lose
initiative and energy and take on the air of a conquered province.
The case is no better in respect to discrimination. In the first place
it is clear that, as railroad managers have testified, it would be just
as easy to cut rates made by a commission as to disregard the rates made
by the railways and published by them and thereby made obligatory under
the law. Mr. J. H. Hiland, head of the traffic department of the
Chicago, Milwaukee and St. Paul, says: “I can cut a rate or give a
rebate on a rate fixed by a commission just as easily as though I had
made the rate myself.”[413] Mr. W. D. Hines, till recently
Vice-President of the Louisville and Nashville, says: “The Townsend Bill
made no provision whatever which looked to the prevention of rebates. It
provided that the Commission should fix rates, but there would have been
the same facilities and the same inducements to cut the rates made by
the Commission as to cut the rates established by the railroads.”[414]
President Tuttle of the Boston and Maine puts the case in this way. “A
big shipper says to the managers of the A, B, & C railroads ‘Give me a
cut rate.’ They refuse. Pretty soon all P’s business is going by the X
line. The A, B, & C folks notice that they are losing traffic and they
say ‘Look here, where’s all that business we used to get? The X line is
getting it all. P’s got a concession over there!’ Maybe he has and maybe
he hasn’t, but you can’t make those fellows on A, B, & C believe that he
hasn’t. They go to P and say: ‘What are you giving all your business to
the X line for?’ P says, ‘Well, I asked you to give me a lower rate and
you wouldn’t do it.’ He don’t say he’s got a lower rate on X, and maybe
he hasn’t, but the effect on A, B, & C is the same as if he had. They
say, ‘What do you want?’ P says, ‘Give me 2 cents a hundred off the rate
and I’ll distribute my business as I did before.’ So they give him 2
cents off and they get the tonnage.”
Mr. E. P. Vining, a former railroad manager, says that the reduction of
a rate found unreasonable by the Commission may result in new
discriminations unless other rates are reduced in fair proportion.[415]
It is also clear that in many cases the reduction of other rates by the
railroads may nullify the effect of the Commission’s order in respect to
the rate complained of. Take, for example, the railroads leading from
the wheat belt to Minneapolis and to Milwaukee. Excepting the Chicago,
Milwaukee and St. Paul the roads that lead to Minneapolis are not the
same roads that lead to Milwaukee. The Commission found that the rates
on grain to Milwaukee and Minneapolis subjected the former to undue
prejudice and disadvantage, but if the Milwaukee roads were ordered to
reduce their rates to a given level the Minneapolis roads could
neutralize the order by reducing their rates below the said level.[416]
In other words no mere right to designate a reasonable rate in place of
a rate complained of and found unreasonable can prevent unfair
discrimination between places.
Nothing short of a general rate-making power can do the work properly.
Particular rate-fixing alone means patchwork and inefficiency, easy
evasion and new discriminations in place of the old ones. On the other
hand, to give a public board general power to revise rates would if
effective be tantamount to taking possession of the railroads without
compensation, and if ineffective would amount to little in the way of
stopping discrimination. If the tariffs were made by or subject to the
revision or approval of a public commission and the rates so made were
enforced, the most vital element in the ownership of the roads would be
made public. And if the rates were disregarded or the power not
vigorously and intelligently exercised the evils we are considering
would still continue.
CHAPTER XXXIV.
CAN REGULATION SECURE THE NEEDFUL DOMINANCE OF PUBLIC INTEREST?
It is questioned whether any form of regulation can overcome
discriminations. One of the ablest members of the Interstate Commerce
Commission said to me: “No, regulation can never stop discrimination.”
And the man who is regarded by many as the leading railroad expert in
the country replied to my question in substantially the same way.
“Regulation properly so-called cannot eliminate discrimination, though
it may greatly diminish it.”
What he meant was that a control strong enough to eliminate
discrimination, would not be regulation, but ownership or
quasi-ownership. So long as men representing private interests continue
to possess control over rates and services they will continue to
discriminate, for private interests demand discrimination. And if
control of rates or services or both is placed in a public body, public
ownership or quasi-public ownership is thereby established, for control
is the essence of ownership. It makes little difference who has the
title to a farm if I have the control of it and can determine the way in
which the work shall be done and the price at which the crops shall be
sold. The “owner” in such case is little more than a mortgagee—he has
the interest on his capital, whatever I choose to allow him, and that’s
all. It would seem that if the people wish to control the railroads,
they should buy them at a fair value, and not establish complete or
quasi-ownership without compensation, under the name of regulation and
control.
This is an interesting line of thought, and philosophically has
considerable force in respect to control extending beyond what the
public may have a right to claim as a partner by reason of the bestowal
of franchises and other benefits. It is also important to note that only
substitution of managers owing allegiance to the public interest in
place of managers representing private interests can eliminate the
motives to discrimination, and remove the antagonism of interest between
the owners and the public, which is the root of all railroad evils.
This is a practical world, however, and the practical facts are that the
difficulties in the way of public ownership of railways in this country
at present are very great, and that much good may be accomplished by
judicious regulation. The long and short haul clause may be made
effective; the railroads can be prevented from paying shippers more for
cars or switches than they would pay each other; private car-lines,
express companies, and water carriers can be brought within the Commerce
Act; the Commission can be given power to name a reasonable rate or
practice in place of one found unjust, and either put it in force at
once, subject to revision in a special court devoted to transportation
cases, and acting promptly on all appeals, or themselves take the facts
and their conclusions at once to the court and get a ruling before
putting the order into effect; and railroad managers can be prohibited
from having any interest in any concern that can be aided by
transportation favors over their roads, as is already the case on James
J. Hill’s Great Northern, except with respect to Mr. Hill himself.
Besides all this it may be possible to make the law so clear that the
courts cannot twist it out of shape, and the States might be got to pass
laws in complete harmony with the Federal statutes. Railroads and trusts
can be subjected to public inspection, and to the pressure of damage
suits, injunctions, and progressive taxation. If need be the public
could demand representation on the boards of direction of all the
railroads, or the traffic managers could be made public servants and
required, as receivers are now, to report semi-occasionally to the
Federal courts, and to State courts also, perhaps, with the power of
judicial removal in case of misconduct. There is a practical warrant for
demanding representation in the management of the roads, in the fact
that the franchises bestowed on them by the public represent a large
part, probably half, of their market values. The public is entitled, as
we have said, to be regarded as a partner in the railroads.
If after thorough trial, regulation proves insufficient or
unsatisfactory, public ownership remains.[417] The movement of thought
in that direction in the last few years is very remarkable. In whatever
way relief may come, whether by regulation or public ownership, _the
essential fact is the dominance of public interest over private interest
at the points where private departs from public interest, and the
essential instrumentality for the realization of this fact in a republic
is the actual, complete, and continuous control of the Government by the
people_.
That unjust discrimination in railroad rates and service can be
abolished, we know from the experience of other nations. Studying the
railways of ten countries on the ground, examining the railway
literature and talking with leading authorities of twenty-six countries,
and analyzing the writings of the principal critics of the various
systems, I find that the railroads of the United States are unique in
two respects—the efficiency of the service they render, and the extent
and viciousness of the discriminations they make. If efficiency and
injustice were essentially related, we might look with some degree of
leniency on the evils of railway favoritism, though the wise would
prefer justice even at the sacrifice of some degree of efficiency. But
there is no such relation. Efficiency is due to national characteristics
and economic conditions. In Italy I found the least efficiency
coexisting with the greatest development of railway favoritism that I
discovered anywhere in Europe, while the German roads are highly
efficient and absolutely free from favoritism. All over Europe shippers
and railway men assured me that no concessions could be obtained on the
German railroads, and that they were the best managed roads in Europe.
The railways of France and England are less efficient than those of
Germany, and are tainted with discrimination to a degree that is
insignificant compared with the phenomena in that line over here, but is
very emphatic when compared with the German standards. The press of
Great Britain has for years been holding up the management of the German
roads as a model to be followed in England, and attributing the success
that Germany is having in superseding English goods with her own in many
leading markets to the efficient and far-sighted policy of her railway
management.
There does not seem to be any clear connection between efficiency and
the form of ownership. The private roads of America are the most
efficient and the private roads of Italy[418] the least efficient I have
examined. The public roads of Germany and Belgium, though less efficient
than our private roads, are more efficient than the private roads of
France and England. In the same country, under like economic conditions,
either private ownership or public ownership may secure the best
management and most efficient service according to the stage of
development. In the United States under existing political conditions
the managers of our railways have many facts on which to base an
argument that Government operation of railroads would be less efficient
than private operation; and the fact that our adverse political
conditions are due in large part to the private ownership of public
service monopolies does not destroy the whole force of the argument,
since our rings, bosses, party machines, spoils system, etc., are due in
part to other causes. But where public affairs can be managed with the
purity and business sense that characterize the railway managements of
Germany, Belgium, Denmark, New Zealand, and South Africa, there is
equally little reason to doubt that public operation is the more
economical and efficient.
The low average freight rate in the United States is often adduced as
conclusive proof of the efficiency of private management. But the
average freight rate in England and France is higher than in Germany or
Belgium.
If it is a valid argument to say that the low average freight rate in
the United States under private ownership proves the case as against the
higher average freight rate under the public systems, then why is it not
fair to say that the high rates in Great Britain and France under
private ownership in their turn prove the case for public ownership. The
average passenger rate in the United States and in Great Britain is
twice as high as in some of the public systems of the continent. If the
low freight rate proves the case for private ownership, why doesn’t the
low passenger rate in Germany and Belgium prove the case for public
ownership? The fact is that such comparisons of average rates prove
nothing as to the management. Differences in the density of traffic,
grades, curves, length of haul, wages, capitalization, etc., enter as
plural causes and make it impossible to ascertain the effect of the
element under consideration. Mr. Fink found that the ton-mile cost
varied eightfold on different lines in his own system, all under the
same management—700 percent more in some cases than in others. In view
of that fact, of what use is it to try to draw inferences from the
average rate?
Underneath our low average freight rate there are not only vast masses
of low grade freight, coal, iron, lumber, etc., on very long hauls, but
a traffic of great density between the great cities, and innumerable
discriminations in favor of big shippers and big cities. Local rates in
many rural districts are very high, almost as high in some cases as in
the old stage-coach days. Labor is more efficient in this country than
in Europe; for example, it takes, according to Mulhall, 2 men in
England; 3 in France or Germany, and 4½ in Europe on the average, to
produce the same agricultural product as 1 man in the United States. In
manufactures and construction work the ratios of efficiency are nearly
the same; 1 man in the United States does almost as much as 2 men in
England, 3 in France or Germany, and 5 in Italy or Hungary. Again our
Government subsidizes the railroads by paying very large sums for the
carriage of mails, while in Europe the railways are required to carry
the mails free or for a very small payment. Moreover our railway
capitalization, though larger than it ought to be by the amount of
watered stock and fictitious securities, is nevertheless considerably
below the capitalization of European roads. In the United States, the
railways were mostly built through a new country thinly settled in
comparison with Europe, and in many cases not settled at all. The right
of way cost practically nothing as compared with the cost in Europe. The
Government aided the construction of a number of giant systems by
enormous grants of land and loans of money. Few roads were built that
did not receive large donations from the cities and towns which they
pass. And the abolition of grade crossings and other safety requirements
in Europe entail vast expenses from which our roads are comparatively
free.
If Government operation were established in this country under good
political conditions and reasonable safeguards that would secure
efficient management, rates could be lower than they are now; for
hundreds of millions that go for profits on watered stock, legislative
and legal expenses, exorbitant salaries, competitive advertising, and
agencies, etc., etc., would be saved. The abolition of free passes and
freight concessions would permit a further reduction of the tariff; so
that the published rates the general public would pay could be much
lower, and even the ton-mile average would be somewhat lower than at
present.
CHAPTER XXXV.
HINTS FROM OTHER COUNTRIES.
Germany tried private railways for 25 years, and Austria tried them over
a quarter of a century, and they have tried the two methods side by side
ever since the public system was organized. In New Zealand, also, and
Australia the two systems have been tried side by side. And in every one
of these countries where they have thoroughly tried both systems the
conclusion by an overwhelming consensus of opinion is that public
railways serve the public interests best, and also make lower rates and
serve the people at less total cost. Switzerland, after a careful study
of both systems in various parts of the world, came to the same
conclusion, and her people voted 2 to 1 to transfer the railways to
public ownership and operation. All this is very strong evidence, and if
we turn from the tangled web of an international comparison of averages
and look at the principles and causes at work in the case, it will be
clear that public ownership tends to lower rates as well as to conserve
the higher wealth.
In the same country and under similar conditions otherwise than in
respect to ownership and control, public ownership tends as a rule to
make lower rates than private ownership. This tendency results from the
fundamental difference of aim between the two systems. Private monopoly
aims at dividends for stockholders; public ownership aims at service for
all. A normal public institution aims at the public good, while a normal
private monopoly aims at private profit. It serves public interest also,
but such service is incidental, and not the primary purpose. It serves
the public interest so long as it runs along in the same direction and
is linked with private profit, but when the public interest departs from
or runs counter to the interests owning or controlling the system, the
public interests are subordinated.
The conflict between public and private interest is specially strong in
the matter of rates. The rate-level that yields the greatest profit is
much higher than the rate-level that affords the greatest service, or
the greatest service without deficit; and since private monopoly aims at
profit it seeks the higher rate-level. Public ownership aims at service,
not at profit, and therefore gravitates to the lower rate-level, where
traffic and service are greater.[419]
There need be no hesitation, therefore, on economic grounds about
pressing toward the dominance of public interest, either in the form of
regulation, or, when political conditions justify it, in the more
complete form of public ownership. And this dominance of public interest
is the only thing that can eliminate unjust discrimination and establish
an impartial railway service.
The State railways of Germany, Austria, Switzerland, Belgium, Denmark,
and the Anglo-Saxon republics of South Africa and Australasia are
absolutely free from unjust discrimination. There are no complaints or
suspicions on that score. Shippers know to a certainty that their rivals
are paying the same charges that they are. Even the most strenuous
opponents of public railways do not accuse them of favoritism. The
railways privately operated in Holland, Denmark, Sweden and Norway, are
also free from discrimination. Thorough public control, natural honesty,
and lack of overwhelming temptation have combined to produce a pure
administration. In Prussia, the Government, strong as it was, did not
succeed in preventing discrimination on the private railways. President
A. T. Hadley, of Yale, says: “Where the system of granting special rates
becomes deeply rooted a great many are given without any principle at
all, through the caprice or favoritism of the railroad companies and
their agents.” The revelations made before the Hepburn Committee, as to
the practice of railroads in the matter of secret rates were simply
appalling. This is the most indefensible part of the whole system of
railroad management. It is characteristic that Bismarck, who always
chose his fighting ground with skill, made this a main base of
operations in his contest against private railroad policy in Prussia.
The Prussian Cabinet in the argument for the nationalization of the
railways submitted to the Parliament in 1879 made the following
statement:
“The principles of the publicity of the rates and the equal treatment of
all shippers which are embodied in the railroad legislation of all
countries, are liable, as experience has shown, to be circumvented on
account of the competing interests of the railroads, and also by
individual interests which have influence with the managements. The
granting of these secret advantages in transportation in the most
diversified ways to individual shippers, and in particular the so-called
rebate system, is the most injurious misuse of the powers granted to
railroad corporations. It renders government control of rates
impossible, makes the competition between the different lines, as well
as that of the shippers dependent on them, dishonorable and unfair,
carries corruption among the railroad employés, and leads more and more
to the subordination of the railroad management to the special interests
of certain powerful cliques. It is the duty of the government to oppose
this evil, to uphold the principle of the equal treatment of all
shippers, and to enforce the legislative regulations on this subject.
The importance of this problem is only equalled by the difficulty of its
solution.”
The problem was not solved till the railways were nationalized, and then
discrimination disappeared completely. I was not able to find a shipper
in Germany nor anywhere in Europe who knew, or had heard or had even a
suspicion, of the granting of any rebate or concession of any kind by
the German roads. Many of them did not stop with negative statements but
asserted positively that concessions could not be obtained. The nearest
I came in my search for a German fraud was the discovery of an
English-Italian fraud on the German roads. Leading business men in Italy
told me that while they could get no concessions from the German roads
directly, they could do it indirectly on transcontinental shipments by
means of a trick of the English traffic managers. They made their
bargains with the English manager, and he would pay a fictitious claim
for damages in transit, and then write the German office that he paid so
much for damages to the goods and that as it was not known in what part
of the journey the goods were injured the German system must stand its
part of the loss. They have to resort to fraud to get a discount on the
German railways. The principal motives to discrimination are absent and
the dangers to the guilty official are very great. His employers, the
railway management, and the Government back of it, are unalterably
opposed to the granting of unjust favors to any shipper. If a traffic
man should depart from the path of impartiality the public examiners
would be certain to find it out, and the traffic man would lose his job.
The railway management is in the closest touch with the people through
the local and national councils representing commercial bodies, labor,
manufacturing, agricultural, and other industrial interests. The law
requires the railway managers to consult these representative councils,
and their recommendations as to rates, time-tables, and other matters of
public interest are carefully considered and acted upon so far as
reasonably possible.
In France the first railway manager I asked about secret discriminations
said: “There is no such thing in France. The criminal law is very severe
and it would mean imprisonment. There were complaints of favoritism a
dozen years ago, but there have been none in recent years.” Other
railway men told me substantially the same thing. But very different
ideas were expressed by representatives of shipping interests and
others. Here are some of their statements: “The railroads hold
manufacturers and merchants at their mercy. They favor the great, and
put the burdens on the little fellows. The tariffs are full of special
rates, and 80 or 85 percent of these special rates are made simply for
some favored merchant or manufacturer. The minister can reject or
approve a tariff as a whole, but has no detailed power over one bad
rate. If he retires a tariff the old one comes into effect. It is true
that complaints are not made. What is the use? The danger is too great.
Where is the merchant who dare undertake a campaign against the great
companies?” I was assured that the statement of M. Cawes, vol. iv, p.
136, of the “Cours d’Économique politique,” was still true: “The benefit
of reduced tariffs is accorded upon secret approaches and solicitations;
the companies dispense at their will industrial prosperity and ruin.”
The discrimination between localities is very great, owing largely to
the way in which the railways are laid out. And “the companies defeat
the national protective tariff by letting foreign goods ride more
cheaply than French goods.” For example, American wheat from Havre to
Paris pays 18 francs per ton, while French wheat from Ferte-Bernard to
Paris, 37 miles less distance, pays 20 francs a ton. If the nation
desires to favor the importation of foreign products, well and good, but
it is a curious state of things for the Government to adopt a protective
policy and then permit private railways to reverse, overrule, and
nullify that policy.
We have already had occasion to throw a side light on English railroad
methods in describing the way in which Italian rebaters use the
elasticity of the English railway system to get fictitious damages. I
had to go to Italy to find the true character of the English railway
conscience. The railway men in England won’t tell. And nobody else, who
will tell, knows. Yet the English traffic man, though willing to pay
fake damage claims on proper occasions, is innocent of “flying tariffs,”
terminal railway abuses, systematic underbilling, classification
jugglery, and other preferential paraphernalia that belong to an
up-to-date railway system over here. The last case of personal
discrimination in rates that caused any stir was tried about 6 years ago
and the preference was so small that one of our trust magnates, used to
looking at large concessions, would not have been able to find it
without a microscope. Nevertheless a considerable number of complaints
(more than a hundred a year on the average) came before the Board of
Trade and the Railway Commissioners under the traffic acts of 1888 and
1894. The Secretary of the Board of Trade tells me that these complaints
relate chiefly to “high rates, poor facilities, and discriminations.”
About half the complaints charge excessive rates which amount in most
cases, on the face of the complaint, to discrimination between places or
commodities. A large number of complaints concern higher charges for
short hauls than for longer hauls on the same line, and another large
group allege disproportionate charges or higher rates for shorter
distances as compared with the rates on other lines. A fourth group,
containing about 25 percent of all the cases, includes complaints of
delay, overcharges, refusal of facilities or privileges accorded others,
personal preferences in rates, etc. For example the London and
Northwestern charged the complainant 12 cents a ton up to 20 miles for
hauling coal, while charging the complainant’s competitors only 9 cents.
Preferential treatment was alleged in the rates given to rival shipping
companies for the conveyance of goods from Hull to places in Yorkshire.
A coal shipper complained that the Midland Railway had for many years
made a practice of allowing a rebate of 6 cents a ton to large dealers,
and that in the lists of rates furnished the complainant no mention was
made of this rebate or allowance, though other rebates were mentioned.
The Midland replied that the system had been in operation since 1889,
when the company gave notice as required by law, in the public
rate-books, that they would allow a rebate to traders whose annual
tonnage exceeded 25,000 tons.
The English law does not object to the paying of a commission on a large
amount of traffic provided the same discount is given to all shippers
who attain the stated volume of business, but a higher commission to one
big shipper than to another big shipper is vigorously repressed. A case
of this kind was decided by the Railroad Commission in 1901. The court
found that the Midland Railway had given Rickett, Smith & Company, coal
dealers, a preference of ¼ of one percent in rebates on their annual
traffic account, and it enjoined the railway and allowed damages to the
complaining shippers. Some 75 suits were entered by different shippers
for this one cause. In the same report 28 cases are listed relating to
discrimination in brewery traffic, and 16 other applications for
injunctions against undue preference in respect to facilities, rates on
coke, brick, flour and grain, and other commodities to certain shippers
or particular places, and one request from the Inverness Chamber of
Commerce for an order enjoining the railways from selling season tickets
to big shippers (with a traffic worth $1,200 to $5,000 or more a year)
at lower rates than they will sell them to ordinary passengers. This
last application was dismissed by the court. England does not object to
premiums on volume, provided all shippers of equal size receive the same
treatment. That’s the principle the Trusts believe in; if vigorously
worked the principle is a powerful trust builder.
The English Commission has power to enjoin undue preference in rates or
facilities and give damages for the same, to fix reasonable charges in
some cases, and to order rates increased since the revision of 1892 to
be reduced to the previous level on proof of unreasonableness.
In the last report at hand, dated 1903, and relating to the year 1902,
there are 270 odd cases, 95 of which charge undue preference, and as
these matters come first before the Board of Trade, which does not grant
an appeal to the Commission unless it believes there is cause of action,
the probability is that all or nearly all of these applications are
based on a real discrimination.[420] It appears that 72 of the suits are
for damages growing out of the Rickett rebate case; the rest are
scattering. A few examples will show their character: 1. Application for
order enjoining railways to desist from undue preference to
complainant’s competitors through rebates on flour. 2. For injunction
against railways granting preferences to the firm of Leethan & Sons on
their traffic. This case was tried, the preference found, and the
injunction granted. 3. Undue preferences to certain manufacturers of pig
iron in the rates on coke. 4. Undue preference to a certain shipping
company through superior facilities and lower rates than were given to
others on the same goods and the same routes. Case settled before trial.
5. Undue preference to Corral & Company by rebates on coal to certain
stations while refusing to make the same allowances to other shippers.
6. Charging higher rates than E. on coal to the same point. Case tried,
undue preference found. 7. Refusal of allowances for cartage made to
others. 8. Refusal to supply cars in due proportion. 9. Preference of
competing millers and subjecting traffic of applicant to undue
prejudice. 10. Preference of brewers at Burton and Lichfield by low
rates and terminal allowances. 11. Preferences in favor of brick-makers
in Nuncaton and Tamworth by assessing the weights of their bricks lower
than the bricks of complainants. 12. Allowing 93 cents a ton for
services in loading and unloading, etc., and refusing similar allowances
for similar services by other shippers. 13. Undue preference through
higher rates on coal for domestic use than on coal for export, etc.
The English Railway Act of 1888 provides that “no railway company shall
make any difference in the tolls, rates or charges made for, or any
difference in the treatment of home and foreign merchandise, in respect
of the same or similar services.” But this part of the law has been
constantly and vigorously violated as we shall see in a moment. The main
aim of the English Government has been to keep the railways from lifting
the rates or overcharging, and it has carried this to a point which,
with the strenuous provisions against grade crossings and in respect to
fencing and other safety measures, has gone far to discourage English
railway development. The companies submit classifications and schedules
of maximum rates and charges to the Board of Trade, which hears all
objections and tries to arrive at an agreement with the companies. The
agreed tariffs, or, in cases where no agreement is reached, the tariffs
the Board thinks ought to be adopted, are embodied in Bills, introduced
to Parliament, and after hearing if need be enacted into law. Thus
Parliament enacts a tariff of maximum charges, and the law forbids
discrimination, and “whenever it is shown that any railway company
charges one trader or class of traders, or the traders in any district,
lower tolls, rates, or charges for the same or similar merchandise, or
lower tolls, rates, or charges for the same or similar services, than
they charge to other traders, or classes of traders, or to the traders
in another district, or make any difference in treatment in respect of
any such trader or traders, the burden of proving that such lower charge
or difference in treatment does not amount to an undue preference shall
lie on the railway company.” The long-haul abuse is met by a provision
free from any ambiguous “similar circumstances and conditions” clause.
“The Commissioners shall have power to direct that no higher charge
shall be made to any person for services in respect of merchandise
carried over a less distance than is made to any other person for
similar services in respect of the like description and quantity of
merchandise carried over a greater distance on the same line of
railway.” Section 31, provides that if any person believes a railway is
making an unreasonable charge, or treating him in any respect in an
oppressive or unreasonable manner he may complain to the Board of Trade,
which shall endeavor to settle the difficulty by conciliation and
arbitration. If this is not possible, and the case comes within the
jurisdiction of the Railway Commission the Board will give the plaintiff
a certificate to take the matter before the Commission for adjudication.
Under Section 1 of the Act of 1894 complaints may be made of the
unreasonable increase of any rate, directly or indirectly, since
December 31, 1892, and if the Board cannot effect an amicable settlement
the complainant may submit the case to the Railway Commission for
judgment. Some Northampton traders at once began proceedings under this
law, and after 2 years of litigation at a cost to the plaintiffs of
$10,000 they got a verdict, but the companies declined to accept the
case as a test, so that any one who feels aggrieved by an excessive rate
must spend the time and money necessary to carry his case through the
Commissioners’ Court to a decision.
The Board of Trade reports to Parliament every few years all the
complaints presented to it and the disposition thereof. By the last
report at hand, issued in 1902 and covering the years 1899, 1900, and
1901, it appears that nearly 3,000 complaints (2,946) have been filed
from 1888 to 1902,—2,032 related to “unreasonable increase of rates”
since 1892, and in 101 of these cases, when no amicable settlement could
be made, the Board gave certificates of appeal to the Commission, but
only a few of the complaints were carried up. Complaint of excessive
rates (not cases of increase) numbered 423, 88 of them in the last 3
years reported: higher charge for shorter distance than for a longer
haul on the same line, 66, 11 of them in the last 3 years;
disproportionate rates, or higher charge for a given distance on one
line than on another 157, 37 of them in the last 2 years; and 268
miscellaneous cases, 95 of which were entered in the last 3 years. About
4 percent of the complaints relate to canals, the rest are railway
cases. It takes 50 large pages to state the 325 complaints entered in
the last 3 years. A very large part, practically all in fact, are either
in form or in substance, cases of discrimination; even in complaints of
excessive rates the gist of the charge is usually that the rates
complained of are excessive as compared with other rates the companies
make.[421]
A few further concrete illustrations from recent years may be of
interest. 1. Refusal of free cartage to a manufacturer though another
mill further away had the benefit of free delivery. 2. Refusal of
allowance for loading, etc., on private siding though such allowance was
made to a rival firm. 3. Rates on coal from mines at Leigh and Abram to
Winnington, 26 miles, were 50 cents a ton against 42 cents from the mine
at Haydock, 29 miles. 4. Complaints of delay, insufficient facilities,
etc. 5. Fourteen complaints of increased charges for conveyance of small
parcels in freight-train transportation and that companies were not
following a decision of the Railway Commission. One of the complaints on
the ground just stated was filed against the railways generally by the
Co-operative Wholesale Society with practically 10,000,000 people back
of it in interest and sympathy. The companies revised the schedule and
reduced the rates. 6. Refusal to grant complainant the same facilities
for warehousing traffic as are granted to their competitors. The Board
succeeded in removing the preference without trial. 7. A rate of $11.25
on india-rubber goods from Birmingham to Newcastle-on-Tyne against $8.95
on the same goods intended for export. 8. One shipper stated that he was
charged $9.75 for a carload of coal (6 tons) from Cork to Baltimore,
while the Baltimore Fishery Schools were charged only $5.10 for the same
service. After the usual correspondence by the Board of Trade the matter
was settled by the railroads agreeing to give the plaintiff the same
rate as the Fishery Schools. 9. Another shipper alleged that since he
had sent his traffic from Methven via the North British route from Perth
instead of the Caledonian, the company had delayed his traffic at Perth
while other traffic was sent on; that the company had deprived him of
the use of facilities formerly enjoyed, and had stopped his credit. This
reads almost like an American case.
The long and short haul cases also remind one of home in about the same
ratio that a raspberry bush reminds one of a full grown oak. Both
personal preference and the long-haul discrimination are comparatively
rare in England. The greatest resemblance to America is in the rates on
imports. The English railway manager has as good an appetite for foreign
goods as any American manager, and in this matter the law does not tie
him up as it does in so many respects with its maximum rates and large
discretion in the Railway Commissioners to prevent excessive rates and
undue preference. Foreign linen goes from Liverpool to London for $6.10
a ton while home linen pays $9.25 or 50 percent more. Foreign woolen and
worsted goods are carried from Manchester to London for $6.10, against
$9.75 or 60 percent more for English goods. Foreign timber travels from
Hartlepool to Wimeaton for $3.12 a ton while English timber pays $7.50
or 130 percent more. English dressed meats from Liverpool to London
$12.50 a ton, American meat $6.25, just half the home charge. American
cattle slaughtered at the wharf in Glasgow, $11.25 to London, home beef,
$19.25. Cheese goes all the way from New York past Chelford and other
English stations for less than the rate from those stations to London.
“Foreign hops are conveyed from Boulogne, via Folkestone, to London at
$4.37 per ton, while the charge from Ashford, on the same line of
railway and much nearer to London, is $8.75—or just twice the amount for
about half the distance.... The rates for imported butter, cheese,
bacon, lard, and wool from Southampton Docks to London, distance
seventy-six miles, is $1.50 per ton. From Botley in the same county, and
a similar distance, the rate for all these goods is $4.80, or 219
percent more than for foreign stuff. The difference in rates between
Southampton Dock station (foreign) and the Southampton Town station
(home) is as follows: Hops $1.50 and $5; apples $1.25 and $3.22; pressed
hay $1.25 and $2.50; eggs $1.66 and $5. Further, Professor Hunter showed
that while French fruit is charged at the rate of 4½ cents per ton per
mile to London by the South Eastern, the same company charge Kentish
farmers 11 cents per ton per mile, or more than double.”[422] The London
_Times_ declares that “there are no arguments within the range of human
ingenuity that will convince a Sussex hop-grower of the equity of an
arrangement by which foreign hops are brought from the other side of the
Channel for less than he has to pay to get across Surrey.... For nothing
can shake the belief of the home producer, and in our view nothing ought
to shake it, in the argument that if these low rates pay the companies,
he is shamefully overcharged, while if they do not pay, he is still
overcharged to cover the loss and bring up the average.”
It is evident that England is far from being free from unfair
discrimination. A system of maximum rates, with penalties for undue
preference, and a commission able to countermand an unreasonable
increase of rates, is not sufficient.
In Canada a railway commission of three appointed by the Governors in
Council for ten years (but removable at any time by the Governors in
Council for cause) has absolute power over rates, classification, speed,
safety appliances, etc.[423] The railways may submit tariffs, but the
Board can approve or disapprove of them in whole or in part, and
prescribe such rates and classification as it deems best, and the
railroads cannot charge either more or less than the rates authorized by
the Commission. All undue preferences between persons and localities in
rates or facilities is forbidden, but “the tolls for larger quantities,
greater numbers, or longer distances may be proportionately less than
the tolls for smaller quantities or numbers, or shorter distances, if
such tolls are, under substantially similar circumstances, charged
equally to all persons. The Board shall not approve or allow any toll,
which for the like description of goods or for passengers, carried under
substantially similar circumstances and conditions in the same direction
over the same line, is greater for a shorter than for a longer distance,
the shorter being included in the longer distance, unless the Board is
satisfied that, owing to competition, it is expedient to allow such a
toll.” The burden of proof is on the company to show that any difference
of treatment does not amount to an unjust discrimination. And “the Board
may determine, as questions of fact, whether or not traffic is or has
been carried under substantially similar circumstances and conditions,
and whether there has, in any case, been unjust discrimination, or undue
or unreasonable preference or advantage, or prejudice or disadvantage,
within the meaning of this Act, or whether in any case the company has
or has not complied with the provisions of this and the last preceding
section; and may by regulation declare what shall constitute
substantially similar circumstances and conditions, or unjust or
unreasonable preferences, advantages, prejudices, or disadvantages
within the meaning of this Act, or what shall constitute compliance or
noncompliance with the provisions of this and the last preceding section
relating to discrimination, long-haul,” etc. No Supreme Court rulings
can knock out this Commission, for it has clear authority in the law to
interpret its provisions as it deems best, to accomplish the purpose in
view. Whether this law will work well or ill is not yet apparent.
In Holland, where the railways are owned by the State and operated by
private companies under lease from the Government, the Ministry assured
me that unfair discriminations between persons and places do not exist,
and I have every reason to believe they are right. The President of the
Government railways in Denmark said: “There are no discriminations
either on the public or company railroads. It would not be possible to
give such favors in Denmark.” And in reference to my description of some
of the American methods of favoritism, he said that nothing of the kind
had been attempted; and if it should be, every one concerned in the
transaction would be punished, and the guilty officials would lose their
positions.
Railway men and publicists of Norway and Sweden tell me that there is no
discrimination. It would not be permitted. There are no provisions
against it in the law. Nothing of the kind has ever been known.
A high official of the Japanese Government, whom I met in this country a
few months ago, said in answer to a question in which I stated some of
our discrimination methods, large and small: “The government fixes
maximum and minimum rates, and the companies are free between these
limits, except that the Minister keeps control sufficient to compel fair
rates if the companies should try to discriminate or otherwise make
unjust rates. We have had nothing like the Beef Trust or Standard Oil
discriminations you describe, nor any personal favoritism in
rate-making, but the government means to prevent the possibility.”
The railways of New Zealand are not troubled with complaints of
discrimination, nor those of New South Wales or Queensland or Victoria.
And in these boiling and bubbling republics, if there were the slightest
suspicion of a reason for attacking the Government management on this
ground, it would be done by the political opponents of the
administrations. South Australia has had one case of alleged favoritism.
The complaint was that the Railway Commissioner gave a reduced rate on
carload lots of certain goods to certain points, to meet water
competition. A shipper, desiring to send his goods at low rates in the
opposite direction, asked the Commission to give him a reduction equal
to that accorded on the traffic above mentioned. The Commissioner said
he would give the same reductions if the shipments were made in carload
lots. The complaining shipper could not do this, as his trade was not
sufficient. The matter was brought before Parliament, and Parliament
sustained the Commissioner. The Parliament of each of these republics
acts as the people’s board of directors of all public works, calling the
managers to account; and any member, from the remotest rural district,
can ask the Ministry and the railway management any question he chooses,
and compel full disclosure of the facts. Secrecy is practically
impossible.
The Government railways of Natal and Central South Africa are equally
free from secret concessions and favoritisms of every kind. In talking
with the manager of the Central South African Government railway, I
explained the nature of the favors granted to the big shippers in the
United States, using the Beef Trust, Salt Trust, Oil Trust, Fuel
Company, etc., as illustrations, and said: “Suppose a big concern tried
to get special rates or concessions of some kind on your railroads, and
made a secret agreement with the railway management?”
“They couldn’t do it.”
“Why not? Human nature is the same in South Africa as in America.
Suppose they made some traffic man a partner in their profits or brought
pressure enough on him in some way to get a concession?”
“It wouldn’t be possible.”
“Well, why? Suppose it were possible, what would happen?”
“The Government auditors would find it out, and the manager would lose
his position.”
“Couldn’t he cover up the thing?”
“Not for any length of time.”
“The people would have a fit if anything like that were attempted,” said
a member of the manager’s staff.
“You have no attempts to secure preference, then?”
“No it is not even attempted.”
If those who employ and discharge the traffic managers desire
discrimination or aim at results which can be forwarded by
discrimination, then discrimination will exist unless the public control
is strong enough to keep the big shippers and the people in possession
of the railroads from carrying out their purposes.
If, on the other hand, those who employ and discharge the traffic men
are sincerely opposed to discrimination and aim at results that can only
be secured by just and impartial management, then the traffic man who is
guilty of favoritism will lose his job, and the utmost possible
discouragement is put upon unjust discrimination.
Once more the vital conclusions seem to be, the necessity of the
dominance of public interest, and the value of being in possession or
having your own servants in possession instead of merely giving orders
to the servants of another in possession who may or may not obey, and
who are in no danger of losing their positions by disobeying you and may
gain greatly by it—the value of having public interest at the helm to
steer the vessel in a safe course, instead of keeping private interest
at the wheel while public interest stands on a steam tug with a big
whistle and shouts orders through the fog to the steersman on the
passenger liner who is more than half inclined to steer the ship as he
pleases, and gets his pay and employment from men who do not wish the
public orders carried out, and whose instructions vary widely therefrom.
You cannot expect the servants of others to obey your orders as well as
your own servants, especially if the said servants of others are
employed by persons whose interests are largely contrary to your own.
Neither can a commander be as sure of winning a victory at the head of
an army trained in the camp of the enemy owing allegiance to them, and
constantly receiving orders from them, as he could at the head of his
own proper troops.[424]
Is it fair to try to control in your own interest property that does not
belong to you? It is fair to try to exert sufficient control to secure
impartial treatment of persons, places, and industries; but can this be
done without fixing rates, and if this is resorted to will it not result
either in squeezing the life out of railway enterprise or in a vicious
struggle for mastery with new evasions of law and further
intensification of political evils, and corporate control of Government?
You will either deprive the owner of the right to determine the price at
which the product of his plant shall be sold, thus controlling his
profit and sapping his energy and incentive, or you will put a premium
on political corruption by making it necessary for the railroad owner to
control the Government in order to control his business and its profits.
You will check the development of railways and drive capital into
industries where the owners are free to fix prices, or you will check
the movement toward political purity. Public control in some form is
absolutely necessary in order to safeguard the public interest. The only
question relates to the form and degree. Is effective and adequate
public control of transport, with the unity, freedom, and hearty
co-operation that should characterize all business ventures, possible
without public ownership? And if not, isn’t it true that the economic
and governmental changes necessary to make public ownership safe and
successful constitute the essence of the ultimate railroad problem?
If the railways were united into a national system under a great leader
like James J. Hill, or A. J. Cassatt, free to operate the roads on
business principles, untrammelled by the spoils system or any political
control, backed by a public interest that would not tolerate favoritism,
partyism, political influence or graft in any form, working with public
aims and public motives instead of private aims and motives, managing
the roads for the whole people as stockholders instead of for a small
part of the people as stockholders, paid, in common with the whole body
of employees, on the basis of a fixed remuneration plus an additional
compensation proportioned to efficiency, and in constant consultation
with local and national councils representing commercial, manufacturing,
mining, labor, and agricultural organizations and interests, we should
have a railway system and management whose efficiency would astonish the
world, whose methods would bear the light, and whose administration
would be an honor to twentiethcentury civilization.
APPENDIX
A.—THE COAL-CARRYING DECISION, U. S. SUPREME COURT.
Since this book was put in type the United States Supreme Court has
sustained the Interstate Commerce Commission in an important suit
brought by the Commission against the Chesapeake and Ohio Railroad, and
the New York, New Haven and Hartford Railroad under the Elkins Act. The
Chesapeake and Ohio agreed to deliver at New Haven 60,000 tons of coal
at an aggregate cost which, after deducting the market price of the coal
at the mines and the cost of transportation from Newport News to
Connecticut, would leave the Chesapeake and Ohio Railway only about 28
cents a ton for carrying the coal to Newport News, while the published
tariff was $1.45 per ton. Suit was brought by the Interstate Commission
to enjoin the carrying out of this contract. The Government challenged
the right of an Interstate carrier to perform a contract to sell and
deliver merchandise (coal) whenever the price to be received by the
railway is inadequate to cover its actual outlay, plus the published
freight rates, upon the ground that the actual result would be
discrimination and failure to collect the published tariff, in violation
of the Interstate Commerce Law. The answer of the railway company was in
effect that it charged the full rate for transportation, but sold the
coal at less than market rates, at a price in fact which involved a
loss, and that special circumstances justified it in so doing. The
companies maintained that, when acting in good faith, they had, as
dealers, the right to make contracts at a fixed price for sale and
delivery extending over a series of years and then go into the market,
buy the merchandise, and deliver it at destination, notwithstanding that
what they received therefor might not be sufficient to yield them a net
sum equal to the published freight rate, according to which shippers
generally were charged.
In a strong decision rendered February 19, 1906, the Supreme Court
upheld the contention of the Government, declaring that a carrier cannot
deal in the goods it carries in such a way as to evade the provisions of
the Interstate Commerce Act, and therefore a railway cannot buy and sell
and underbid other owners of similar goods who are dependent on the
railroad for the transportation of their goods to market. “The existence
of such a power would enable a carrier, if it chose to do so, to select
the favored persons from whom he would buy and the favored persons to
whom he would sell, thus giving such persons an advantage over every
other, and leading to a monopolization in the hands of such persons of
all the products as to which the carrier chose to deal.... Because no
express prohibition against a carrier who engages in interstate commerce
becoming a dealer in commodities moving in such commerce is found in the
act, it does not follow that the provisions which are expressed in that
act should not be applied and be given their lawful effect.”
The Court quotes an English case, Attorney General v. The Great Northern
Railway, in which the Vice-Chancellor decided on common-law principles
that a railway could not deal in coal because such dealing was
incompatible with its duties as a public carrier and calculated to
inflict injury on the public.
The decision is important, and the railways, it is said, have already
begun to part company with their coal mines. But it must not be expected
that the evil at the bottom of this case can be so easily eradicated. It
will be a simple matter to put the coal mines in the hands of special
companies controlled by the same men who control the railways, and the
coal company and the railway can together continue to do precisely what
the railway alone has been doing in the double capacity of dealer and
carrier.
Within a week of its decision sustaining the Commission in the
coal-carrying case, the Supreme Court has reversed the Commission and
the Circuit Court in the orange routing case. In 1899 all the railways
of Southern California fixed a through rate of $1.25 per hundred on
oranges from California to the Missouri River and the East, reserving
the right to route the freight. The Fruit Growers Association complained
of this as depriving shippers of their right to route their shipments
and as virtually constituting a pooling agreement or combination in
violation of the Interstate Act. The Commission and the Circuit Court
sustained this contention, but the U. S. Supreme Court has now (March,
1906) sustained the railroad plea that they have a right to fix through
rates on condition of determining the routing themselves.
B.—REGULATION OF RATES.
In the Boston _Transcript_ for February 24, 1906, President Hadley, of
Yale University, criticises the Hepburn Bill because it makes “the
decision of the Commission itself final on all questions of fact,” and
he predicts that if such a bill is enacted into law it will be a
failure, although he does not believe it practicable to obtain a better
measure now.
President Hadley bases his prediction of failure on his interpretation
of the experience of England. He says that the English Railway Act,
1873, “had many points of resemblance to the Hepburn bill. It provided
for a commission which, besides ascertaining the rates charged by
railroads and making reports to Parliament concerning their management,
should also be empowered to investigate complaints concerning unjust
rates of discrimination in facilities and give adequate and speedy
relief. It was intended to have the quick jurisdiction of these
Commissioners supplant the slow jurisdiction of the older courts.”
“The twenty-sixth section of the act undertakes to restrict narrowly the
opportunity for appeal from the judgment of the Commission. The
Commissioners themselves may state a case; on the case thus stated, and
no further, the courts on appeal may decide what is the law. This was
intended not only to shut out the retrial of questions of fact, but to
give to the Commission, as far as the circumstances admitted, the power
of deciding which were questions of fact and which were not.”
The Committee of 1883 is quoted as finding that “a case has been made
out for granting to litigants before the Railway Commission a right of
appeal,” and we are told that the Committee were “all agreed that the
attempt to prevent appeals from the Commissioners’ decisions had been a
complete failure.”
President Hadley further says: “Parliament has abandoned the theory on
which the act (of 1873) was based, because the courts did not carry out
the law, but insisted on retrying questions in their entirety, instead
of acquiescing in the attempt to separate the law from the facts.”
And we are told that “the evil effects of the attempt to give the
English Railroad Commission power of fixing rates did not stop here. The
attempted performance of this duty took up so much of their time that
they failed to perform other duties, which under more favorable
circumstances they might have carried out efficiently and usefully. They
did not have that influence on the formation of railroad tariffs which
their experience and high position would otherwise have secured.”
Now as a matter of fact the English law never attempted to give the
Railway Commission power to fix rates, except a very limited power in
relation to through rates when the companies cannot agree, nor was it
intended that the Commission should have anything to do with the
“formation of tariffs.” Rates are fixed, not by the Commission, but by
Parliament with the advice of the Board of Trade. When Parliament orders
a revision of the maximum rates, the railways and the Board of Trade try
to agree on new schedules, and the Board embodies its conclusions in
Provisional Orders or rate bills which are passed by Parliament with or
without amendment as it sees fit. This was true in 1873 and has been
true ever since. The Commission’s duty in this connection was and is to
hear complaints of undue preference, and rates alleged to exceed the
maxima fixed by Parliament. If a through rate proposed by any company is
objected to by any forwarding company, the Commission has power to allow
or reject the rate subject to the limitation that it cannot require a
company to carry at lower mileage rates than it is legally charging for
like business on any other line between the same points. (Sections 11,
12, Railway Act of 1873.) The Commission may also determine the division
of through rates if the companies cannot agree. Since the Railway Act of
1894 the Commission has jurisdiction under Section 1 to order a return
to former rates charged by the company in case complaint is made of an
increase above the rates charged in 1892 (the date of the last
Provisional Orders or tariff revision), and the burden of proof is on
the company to show that the increase is reasonable. This puts a
limitation on the companies’ rate-making power in addition to the limit
of the parliamentary maxima, for no matter how much below the maximum a
rate in actual use in 1892 might have been, it cannot be increased if
the Commission on complaint and hearing forbids it.
Further, it is not the case that Parliament “abandoned the theory of the
act of 1873” in the sense the reader might gather from the statements
made by President Hadley. On the contrary, the Railway Act of 1888
(which resulted from the investigation of 1882, quoted by Hadley)
distinctly provides in section 17 that “no appeal shall lie from the
Commissioners upon a question of fact.” Subject to this provision an
appeal was given to a superior court of appeal, the change being that
under the old law the case went up on a statement by the Commission,
which could therefore itself determine what were questions of law and
what were questions of fact, while under the new law the case went up on
the record and the court above determined what questions of law were
involved. But the new law is exactly like the old in making the judgment
of the Commission final on all questions of fact.
The truth is that England never attempted anything like the system of
regulation embodied in the Hepburn Bill; never delegated to any
commission the power to fix reasonable rates or make reasonable
regulations in place of rates or regulations found on complaint and
hearing to be unjust, but she has done and continues to do the other
thing that President Hadley gives us to understand she has tried and
abandoned, viz., the intrusting of power to a Railway Commission to
render final decision on questions of fact.
In the _Transcript_ of April 1, 1905, President Hadley says he “urged
that a single hearing in the railroad court was better than two
successive hearings by two different kinds of bodies. Mr. Hepburn’s
committee desires to avoid the double hearing, but it undertakes to do
it by eliminating the court instead of the Commission. There is reason
to fear that this plan will not work.”
That may be true. There is reason to fear that no plan for government
control of these giant interests will work so long as the ownership is
divorced from the said control. As stated in the text, one of the ablest
and most honorable of our railroad presidents, in answer to my question
as to what would happen if the Interstate Commission were really given
power to fix rates, replied, “The Commission would have to be
controlled, that’s all.” And when I quoted this to one of the leading
members of the Interstate Commission his comment was, “I always said the
railroads would own the Commission as soon as it was worth owning.”
Even without owning the Commission the railroads can block it pretty
effectually by secret practices, extensive forgetfulness on the witness
stand, persistent persecution of shippers who make complaint, cunning
evasions, and interminable litigation. It is quite likely the proposed
regulation will not realize what is hoped for from it, but we cannot
predict such failure from English experience as President Hadley does
when he says, “The history of English railroad regulation shows that a
similar measure, passed under closely analogous circumstances, failed to
do the good which its advocates expected. The same failure is likely to
be repeated in the United States.” The Hepburn Bill in its scope and
directness is very different from anything that England has attempted.
It is quite likely that England may try some more vigorous measure than
she has yet adopted, but in spite of all her efforts at regulation Mr.
W. M. Acworth, the classic railway writer of England from the railway
standpoint, corresponding to President Hadley in this country, told me a
few months ago that dissatisfaction with the railway situation is so
great in England that “9 out of 10 would vote for public ownership of
the roads if the question were submitted to-morrow.”
The general failure of regulation in England to accomplish what was
expected of it, may suggest a broad conclusion as to this country, but a
specific conclusion from any parallel to the Hepburn Bill is not
possible, because no such parallel has been tried.
President Hadley thinks one hearing is enough, provided it is a hearing
before a court, not before the Commission. Like the railroads, President
Hadley has no use for the Commission. The reason perhaps is the
conscious or subconscious appreciation of the fact that rate-making
involves a vigorous _administrative_ element, which the Commission has
shown a tendency to use with great effectiveness, while a body
constituted as a court, by its very nature and traditions, is loath to
exercise administrative power or in any way disturb its exercise by the
companies except on the clearest kind of proof of the adequacy of the
new rate or condition proposed, which cannot in many cases be obtained
at all except by _bona fide_ trial of the new rate or regulation, since
a rate that is even below the present operating cost may develop traffic
enough to give it ample justification. Courts do not like to trust to
future proof. If rates do not seem justified on existing facts as shown
by accounts presented by the companies, the courts are apt to turn the
new rates down without a trial, as the United States Supreme Court did
in the Nebraska case when the law of that State fixing rates on local
traffic was declared unconstitutional. The companies made the division
between through local costs to suit themselves, and the Court not only
accepted their figures, but neglected to take into account the fact that
lower rates might easily develop new traffic enough to cover the slight
additional margin needed even on the companies’ own showing.
President Hadley says: “What the United States needs is an act under
which the Commission will take part in the making of tariffs and give
effect to the public interest in the general questions of railroad
management, leaving the specific cases of violation to be stopped or
punished by the courts.” Very good. But how is the Commission to take
part in the making of tariffs? If it is to do any more than to give
advice (the efficacy of which is nil when it comes up against the Beef
Trust, Standard Oil, or other big private interest), it must have
authority, general or particular, to fix rates when the railways do not
make them just and reasonable. In England Parliament fixes maximum rates
on the basis of Board of Trade studies, and the commission acts as a
court. The plan has not prevented either discrimination or extortion,
but has taken the life out of the railways to a large extent. In this
country it is proposed to try the plan of letting a public board fix
individual maximum rates when injustice is shown. As there is an appeal
to the Federal courts and as Hadley declares that the courts insist on
retrying questions in their entirety, it would seem that the very system
President Hadley advocates would really come into being under the
Hepburn Bill,—the Commission will have a part in fixing the rates, and
violations of law will really be determined by the courts.
INDEX
[References are to pages.]
A
ACWORTH, W. M., Appendix B.
ALABAMA MIDLAND CASE, 95.
ARMOUR CAR-LINES, 151, 174–207.
mileage, 175, 188, 190.
speed of cars, 177, 178.
passes, 180.
exclusive contracts, 177, 180, 182, 190.
icing charges, 181–186, 194–196.
espionage, 185.
fixing rates, 186–189.
lax inspection, 188–189.
low minimum carload, 189.
rebates and profits, 190, 191, 194.
cipher code, 197.
AUSTRIA, 315.
B
BACON, E. P.,
testimony, 111.
BAKER, RAY STANNARD,
on Beef Trust, 153.
BALTIMORE,
discriminated against, 226.
BARBED WIRE CASE, 88.
BASING-POINT SYSTEM, 98, 208 _et seq._
BEEF,
billed for export, 225.
BEEF TRUST. (See ARMOUR.)
controls rates, 152.
runs private cars, 176.
intimidates roads, 177.
discriminations, advantages, etc., 176–207.
shipments of, 179.
favored by rates, 186–187.
Boston books destroyed, 250.
packer and road director, 76.
BELGIUM, 315.
BIDDLE OF SANTA FE,
testimony, 114, 124 _et seq._
in salt case, 169.
BISMARCK, 316.
BLANCHARD, GEORGE R.,
quoted, 107.
on ticket scalping, 20.
“BLIND BILLING,”
Standard’s cars, 75.
BOOKS DESTROYED, 248–250.
BOSTON & ALBANY, 105–107.
BOWIE COMPRESS, 68.
BRICK CASE,
New Jersey to North Carolina, 157.
BROKERS, TICKETS, 20.
C
CALEDONIAN COAL CO., 126–129.
CALIFORNIA FRUIT TRANS. CO., 180.
CAMDEN IRON WORKS,
rebates, 122.
CANADA, 327.
CANNON FALLS CASE, 212.
CAPITAL CITY GAS COMPANY’S REBATES, 164.
CARLOAD, MINIMUM, 189.
CARLOADS & L. C. L., 156.
CAR-MILEAGE,
Pullman cars, express, refrigerator cars, etc., 58.
oil, 73.
Armour, 175, 188, 190.
Mr. Hill on, 178.
CARS DENIED, 66, 160.
CASSATT, A. J.,
rebates, 77.
testimony, 32–33.
CHAOS OF RATES, 156, 157.
CHARLOTTE, N. C., CASE, 208.
CHATTANOOGA CASE, 97.
CHESAPEAKE & OHIO,
discriminations, 64.
coal-carrying case, Appendix A.
CINCINNATI MAXIMUM RATE CASE, 218.
CIPHER CODE,
Armour, 197.
CITIES,
growth of, at expense of country, 219.
CLASSIFICATION,
flour and wheat, 70.
soap, Pearline, patent medicines, 71.
railroad ties and lumber, 72.
discrimination by, 70, 155.
COAL,
cars denied, 66, 160–162.
loading by tipple, 140.
Chesapeake & Ohio Case, Appendix A.
COCKRELL, COMMISSIONER,
on quantity allowances, 149.
appointed to commission, 290.
COLORADO FUEL & IRON CO.,
rebates, etc., 124–141.
COMMODITY,
rates, 70.
discriminations, 150.
COMMON LAW,
requires impartiality, 1.
CONFISCATION,
fears of, ungrounded, 290.
CONTRACTS,
Armour’s exclusive, 177, 180, 182, 190.
COOLEY, THOMAS M., 43.
as arbitrator, 152.
CORDELE, GA., 100.
CORRIGAN OF CLEVELAND, 34.
COTTON-SEED-OIL CASE, 162.
COYNE BROS., 183.
CUMMINS, GOVERNOR, 117, 211.
D
DANVILLE, VA., 209.
DAVIES OF CHICAGO,
strawberries carried free, 145.
DAVIS, C. WOOD,
passes cost $33,000,000, 12.
DEAD-HEAD,
passenger cars, 18.
passengers, 2–15, 46, 49, 50, 180.
DECADE OF FEDERAL REGULATION, 104–109.
DEFIANCE OF LAW, 238–240.
DEMURRAGE, 143.
DENMARK, 315, 328.
DENVER,
discriminated against, 92–94, 212, 297–298.
DEPEW, CHAUNCEY,
on pooling, 267.
DEPRECIATION OF LANDS CAUSED BY REBATES, 26.
DISCRIMINATION,
motives for, 23.
history and investigations, 24, 120.
early cases, 25.
varieties discovered by I. C. C. first year, 47.
H. F. Douseman, 54.
passes, 2–15.
reasons for, 2.
C. & O. coal, 64, Appendix A.
great number of, 2.
in facilities, 66.
by classification, 70, 155.
confiscates land values, 26.
Hepburn cases, 27 _et seq._
Standard Oil, 73–76.
beef, 76–83.
between localities, 87–94.
in favor of long hauls, 95–103.
Industrial Commission on, 108.
“all stopped,” etc., 113.
under Elkins Bill, 115–118.
Colorado F. & I. Co., 124.
various other forms, 142–149.
commodity, 150.
horses, cattle, and Jersey brick, 156–157.
to Beef Trust, 151–152.
oranges, 153.
hay and lumber, 154.
routing, 159–160.
refusal to furnish cars, 160–161.
cotton oil case, 162.
division of rates to fake terminals, 166–173.
in refrigerator charges, 181–186.
against independent oil, 201–205.
against non-competitive points, 208–215.
against New England, 217.
against rural points, 219.
against certain cities, 216–217.
in favor of foreign commerce, 221–226.
summary of methods and results, 228 _et seq._
$10 apiece for hams? 232.
defended, 233.
disturbance of business, 236.
“cannot be stopped,” 237.
difficulties of abolishing, 241–251, 272–273.
countries where there is none, 315, 317.
DISTANCE TARIFF, 287, 291, 293, 295.
DIVISION OF RATE. (See TERMINAL RAILWAYS.)
DOLLIVER BILL, 257.
DOLLIVER, SENATOR,
on recent rebates, 116.
non-competitive points, 219.
DOUGLAS, GOVERNOR,
pays his fare, 11.
DOUSEMAN, H. F., 54.
DRESSED MEAT,
rates, 151, 186–189.
billed for export, 225.
E
“ELASTICITY” IN RATES, 286.
ELEVATOR ALLOWANCES, 62, 148.
Industrial Commission on, 63.
ELKINS ACT,
effect, 110.
in Wisconsin, 121, 122.
discriminations since, 140.
opinions as to efficiency, 252, 253.
only one case under, 253.
ELKINS, SENATOR, 111–112.
EMPIRE CO., 31.
EMPORIA, KAN., 91.
EMPTIES,
returned free for Standard, 33.
Armours’, rushed back and paid for, 175.
ENGLAND, 318–327.
EQUALIZATION OF RATES, 291–296.
ERIE ROAD,
early cases, 28.
ESCH-TOWNSEND BILL,
supporters lost passes, 10.
provisions, 260.
ESPIONAGE, ARMOUR, 185.
EXCLUSIVE CONTRACTS,
Armour cars, 177, 180, 182, 190.
EXPENSE BILL SYSTEM, 62, 143.
EXPORT RATES,
low, 84, 221–226.
not fair to all ports, 86.
on flour, 86.
F
FACILITIES DENIED, 66, 88, 160.
FALSE BILLING, 61, 144.
FERGUSON, E. M., 199.
FICTITIOUS CLAIMS, 143.
FINK, ALBERT, 267, 271.
FISH, STUYVESANT,
on scalping, 19.
discriminations, 237.
FLAT RATES, 291–295.
FLOUR AND WHEAT, 70.
FOLK, GOVERNOR,
on passes, 6.
FORAKER BILL, 258.
FOREIGN COUNTRIES, HINTS FROM, 313–330.
Austria, Switzerland, Denmark, Hungary, etc., 313–315.
Germany, 313.
France, 317.
England, 318.
Canada, 327.
Holland, 328.
Norway and Sweden, 328.
New Zealand, 329.
Australia, 329.
South Africa, 330.
FOREIGN MANUFACTURES FAVORED, 84.
FRANCE, 317.
FREE CARTAGE, 59.
St. Louis cases, 142.
FREE FREIGHT, NO BILLS, 145.
FREE STORAGE, 60.
G
GEORGIA,
Railroad Commission cases, 98.
GERMANY, 316.
GLASGOW, 314.
GOVERNMENT,
rates not on mileage principle alone, 287, 291–295.
ownership of railways, 313–317, 328–332.
GOWAN, FRANKLIN B.,
on railway favoritism, 235.
GRAIN,
price controlled by roads, 63.
GRANGER LAWS, 26.
GRANT CHEMICAL CO.,
free cartage, 142.
GROSSCUP, JUDGE,
on discrimination, 233.
GULF PORTS, 225.
H
HADLEY, A. T., 14, 219–315.
on Hepburn Bill, Appendix B.
HARVESTER CASE, 135.
terminal road, 169.
HAZEN’S SWITCH CASE, 141.
HEARST’S BILL, 260.
HEPBURN BILL, 262, Appendix B.
HEPBURN REPORT, 27.
HILL, JAMES J.,
discrimination, 115, 237.
refrigerators, 175, 178.
HINTS FROM OTHER COUNTRIES, 313–330.
HOLLAND, 328.
HOPE COTTON OIL CASE, 162.
HORSES, CHAOS OF RATES, 156.
HUNGARY, 314.
HUTCHINSON SALT CASE, 167–169.
I
ICING CHARGES, 181–186, 194–196.
IMPORT RATE CASE, 85.
IMPORTS AND EXPORTS, 84.
INDUSTRIAL COMMISSION,
on discrimination, 108.
on exports, 221.
on elevator rebates, 63.
on passes, 228.
INGALLS, M. E., 104, 239.
INSPECTION,
of Armour cars, lax, 188–189.
INTERSTATE COMMERCE ACT, 41.
effects of, 49.
amendment of, 48, 89.
does not cover express companies, etc., 277.
INTERSTATE COMMERCE COMMISSION,
created, 41.
chapter on, 43.
first report, 43–46.
on long haul, 96, 102.
overruled by Supreme Court, 96.
orders disobeyed, 100, 153.
rates condemned by, 102.
ten years of regulation, 104–109.
complaints received since Elkins Act, 117.
on effect of Elkins Act, 118.
on terminal roads, 170.
railways public facility, 234.
bill before Congress, 261.
criticised, 276.
alleged errors of, 279.
work of, 280.
appointments to, controlled by Senate, 289.
on equalization of rates, 293.
INVESTIGATIONS, 24, 120.
(See INTERSTATE COMMISSION.)
IOWA LONG AND SHORT HAUL CASES, 211.
J
JAPAN, 328.
JUDSON & HARMON REPORT ON SANTA FE, 133.
K
KANSAS,
oil fight, 203, 283.
KAOLIN, 225.
KEARNEY, NEB., 90.
KELLOGG ELEVATOR CASE, 148.
KINDEL OF DENVER, 93, 297.
KNAPP, I. E., 204.
KNAPP, MARTIN A.,
government officials have passes, 13.
on government rates, 287.
on distance tariff, 295.
L
LA FOLLETTE, GOVERNOR,
investigations, 120.
LAKE SHORE,
cuts beef rates, 80.
LARRABEE, GOVERNOR, 27.
LAW, DEFIANCE OF, 238–240.
LAWSON, THOMAS W., 228.
LINCOLN (NEB.) PACKING CO., 82.
LOCALITY DISCRIMINATIONS,
barbed wire, 88.
Grinnell factory, 87.
Norfolk, Neb., 88.
ruining small towns, 89.
promoting towns, 89, 90.
Kearney & Omaha, 90.
St. Cloud, 90.
Emporia, 91.
Spokane, 91.
rails to Colorado, 92.
against Denver, 93.
(See CHAPTER ON LONG-HAUL DECISION, 95–103.)
LOMBARD, JOSIAH,
testimony, 32.
LONG AND SHORT HAUL CASES, 25, 27, 29, 47, 76, 87, 91, 92, 95–103,
208–215.
LONG HAUL,
decisions of Supreme Court, 95–103.
prohibition of abuse, 270.
M
MAINE,
legislators have passes, 8.
MASS. RAILWAY COMMISSION,
report on Boston & Albany, 106.
MAXIMUM RATE CASE, 218.
McCABE, A. C., 56, 77.
MEAD, J. D., & CO., 184.
“MEM. BILL” METHOD, 163.
MESSAGES,
President Roosevelt’s, 256.
MIDGLEY, J. W.,
testimony, 188, 199.
MIDNIGHT TARIFFS, 76, 147.
MILEAGE PAYMENTS ON CARS,
Pullman, etc., 58.
oil, 73.
Armour, 175, 178, 188.
MILK RATES,
flat, 294.
MILLING-IN-TRANSIT, 145.
MINER, D. W., 163.
MINNESOTA,
investigation, 122.
MISSOURI,
eliminating pass evil, 7.
MOFFAT, E. O.,
elevator allowances, 149.
MONOPOLY ELEMENT IN RAILWAY BUSINESS, 233.
MORAWETZ, VICTOR, 115, 131, 247.
MORGAN, J. PIERPONT, 64.
MORRIS, NELSON,
stock yards, 68.
MORTON, PAUL,
testimony, 81, 84.
reasons for passes, 13.
fuel and iron case, 131.
letter to Roosevelt, 132.
Chicago _Daily News_, 136.
letter from, 138.
N
NEWCOMB, H. T., 104, 282.
NEW ENGLAND,
high rates, 217.
NEW YEAR’S RESOLUTIONS, 79.
NEW YORK CENTRAL,
early cases, 28.
NEW YORK, NEW HAVEN & HARTFORD RAILROAD,
on peaches, 150.
coal, 217.
NEW ZEALAND, 313, 329.
NORFOLK (NEB.) CASE, 88.
NORTHERN GRAIN COMPANY,
rebates $30,000 a year, 18.
fought La Follette, 122.
O
OIL. (See STANDARD OIL COMPANY, TEXAS OIL, KANSAS.)
ORANGE,
rate, 153.
routing case, 160, Appendix A.
OUTLOOK, THE,
quoted, 238.
P
PASSENGER REBATES, 17.
PASSES, 2, 15.
and politics, 3.
Pennsylvania Railroad, 3.
reasons for, 2, 9, 10, 13.
legislators, congressmen, etc., 3, 5, 8, 10.
refused, 5.
Governor Folk on, 6.
Governor Douglas, 11.
jurors, 8.
judges, 9.
auditors, etc., 9.
Missouri, 7.
Maine, 8.
Stickney’s sheriff story, 11; Washington address, 13.
Martin A. Knapp, 13.
Paul Morton on, 13.
A. T. Hadley, 14.
C. Wood Davis, 12.
in foreign countries, 14, 15.
held unlawful, 46.
within a State, 49, 50.
owners of private cars, 180.
PATENT MEDICINE CLASSIFICATION, 71.
PEARLINE CLASSIFICATION, 71.
PENNSYLVANIA RAILROAD,
passes, 3.
passes in 1906, 4.
rebate war, 31.
stand by any rate, 56.
favors foreign trade, 84.
cuts beef rate, 78.
milling-in-transit discrimination, 146.
sued for failure to accord car service, 160.
PENNSYLVANIA STATE CONSTITUTION,
prohibits passes, 3.
PHILADELPHIA,
passenger case, 217.
PHILADELPHIA NORTH AMERICAN,
passes, 4.
stop-overs, 217.
PLACE DISCRIMINATIONS,
long hauls, 208–215.
against St. Louis and other places, 216.
POOLING,
advocated, 265.
difficulties of, 266–270.
PRIVATE CARS,
to favored individuals, 18.
passenger, 58.
freight, 118.
abuses, 174.
advantages, 174–175.
increase of, 198.
PROCTOR & GAMBLE CASE, 155.
PROTECTIVE TARIFF,
for England, 86.
nullifying, 221.
PROUTY, COMMISSIONER,
on the Elkins bill, 112.
on Santa Fe case, 133.
on the Colorado F. & I. case, 139.
on free wheat, 145.
on train loads, 234.
railway officials would not tell truth, 243–247.
commission rates, 284.
PRUSSIAN CABINET STATEMENT, 316.
PUBLIC v. PRIVATE INTEREST, 308.
PULLMAN CARS,
mileage rate, 58.
R
RAILWAY OFFICIALS,
as law breakers, 238–240.
RATE REGULATION,
pros and cons, 253.
advocated by President Roosevelt, 256.
by Interstate Commission, 261, 274.
by 18 States, 275.
opposed by railroad men, 276, 278, 285.
merits of controversy, 299.
RATE SCHEDULES DECEPTIVE, 148.
RATES,
fixed to suit the Standard, 75.
condemned by I. C. C., 102.
on packing-house products and fruit, 186.
fixed by Government not strictly mileage, 287.
complexity of, 288.
making by “instinct,” 289.
all the traffic will bear, 289.
equalization of, 291–295.
REAGAN CASE, 285.
REBATES,
on tickets, 19.
substitutes for, 57.
New York investigation of, 27.
on beef, 76, 79.
Wisconsin investigation, 120.
to Armours from “C. & A.” and “U. P.,” 191.
Santa Fe car-line, 193–194.
cost to railways, 235–236.
RECORDS DESTROYED, 248–250.
REFRIGERATION CHARGES, 181 _et seq._
REFRIGERATOR CARS, 174–207.
REFUSAL,
to haul goods, 68, 162.
to furnish cars, 66, 160.
REGULATION OF RAILWAYS,
work of I. C. C., 104.
Texas Railway Commission, 105.
efforts at, 254–255.
difficulties of, 264–265, 272–273.
by State commissions, 254–255.
can it succeed? 306.
in England, 319–327.
in Canada, 327.
REMEDIES, 252, 300.
RICE, GEORGE,
story of, 34–36.
denied car-mileage, 74, 75.
RIPLEY, PRESIDENT E. P., 135.
in Chicago _Inter-Ocean_, 137.
letter from, 137.
on packing-house business, 187.
discriminations permanent, 237.
RIPLEY, PROFESSOR W. Z., 116, 208.
ROBBINS OF ARMOUR CAR-LINES, 192.
ROGERS COAL COMPANY,
denied cars, 66.
ROOSEVELT, PRESIDENT,
favors rate regulation, 115.
messages, 256.
ruling on Paul Morton, 135.
letter to Paul Morton, 136.
ROUTING,
fees for, 159.
orange routing case, 160, Appendix A.
by railroads unlawful, 160.
S
SALT LAKE CITY, 212.
SALT TRUST CASE, 167.
SANTA FE,
early management, 54.
Colorado Fuel Co. case, 124–141.
Hutchinson Salt case, 167–169.
car-line, 191–194.
SCALPING, 19–20.
SENATE COMMITTEE OF 1885, 37–41.
SENATE COMMITTEE OF 1905, 111–117.
SIMMONS HARDWARE COMPANY, 142.
SOAP CLASSIFICATION, 71, 155.
SOCIAL CIRCLE CASE, 100.
SOUTH AFRICA, 329.
SPECULATION IN LAND AND TOWN SITES, 90.
SPOKANE, WASHINGTON, 91, 213–215.
SPRINGFIELD REPUBLICAN,
Pennsylvania passes, 4.
STAMP MILL FROM CHICAGO TO SAN FRANCISCO VIA CHINA, 223.
STANDARD OIL COMPANY,
car-mileage, 73.
barrel discrimination, 73.
underbilling cars at East Boston, 74.
paint out old car-numbers, 75.
control of New England, 75.
shuts out Western oil, 75.
rebate of 1872, 29.
ten advantages, 30.
secures terminals, 31.
private cars, 176.
favored by rates, 200–201.
STATE OWNED RAILROADS,
comparisons, 308–311, 313–315.
STATE RAILWAY COMMISSIONS, 254–255.
STATE TRAFFIC, 142.
ST. CLOUD, MINNESOTA, 90.
STEEL RAILS,
export rates on, 222.
STEEL TRUST TERMINAL RAILROAD, 171.
STEWART, A. T.,
rebates, 28.
STICKNEY, A. B.,
quoted, 87.
story of passless sheriff, 11.
on midnight tariffs, 116.
on passes, 13.
on rebating, 187.
ST. LOUIS,
discriminated against, 216.
STOCK YARD GRAFT, 68.
STOPPAGE-IN-TRANSIT, 60.
STRAWBERRY CASE, 174–175.
“STRAW MAN” SYSTEM, 142.
STREYCHMANS, H. J.,
testimony, 195–198.
SUBSTITUTES FOR REBATES, 57.
SUMMARY OF METHODS AND RESULTS, 228.
SUMMERVILLE CASE, 99.
SUWANEE CASE, 208.
SWIFT AND COMPANY,
indicted, 76.
SWITCH DENIED, 163.
SWITCHING CHARGES, 140.
SWITZERLAND, 315.
T
TARIFFS,
1000 changes daily, 288.
TAX,
Wisconsin roads, 120.
TERMINAL CHARGES, 59.
TERMINAL RAILWAYS, 118, 166.
logging allowances, 146.
Hutchinson salt case, 167.
International Harvester Company, 170.
Steel Trust, 171.
division of rates, 171.
Illinois Glass Company, 172.
TEXARKANA CASE, 162.
TEXAS AND PACIFIC CASE, 84.
TEXAS OIL DISCRIMINATION, 201.
TEXAS RAILWAY COMMISSION, 105.
TICKET SCALPING, 19–22.
complaint of, by I. C. C., 50–51.
TIES,
shipment prevented, 150.
rebate on, 151.
TRAIN LOADS, 234.
TUTTLE, PRESIDENT,
on division of rate, 171.
cargo-of-flour story, 234.
on pooling, 267.
on the I. C. C., 276.
Worcester Wise case, 292.
on getting rebates, 303.
U
UNION PACIFIC,
steel rail rate, 72.
UNION STOCK YARDS BEATS RIVALS, 68.
UNITED STATES SUPREME COURT,
Counselman case, 52.
discriminations, 59.
import rate decision, 85.
ruled that I. C. C. cannot fix rates, 92.
long-haul decisions, 95.
Social Circle case, 100.
maximum rates, 218.
on pooling, 270.
reversals of I. C. C., 283, Appendix A.
coal-carrying case, Appendix A.
orange routing case, Appendix A.
V
VANDERBILT, W. H.,
before Hepburn Committee, 28.
stockholder in Standard, 31.
W
WATSON OF PORTER BROS., 191.
WILLCOX, DAVID,
criticism of I. C. C., 279.
WISCONSIN,
railroads give passenger rebates, 17.
revelations, 120.
WORCESTER WIRE CASE, 292.
-----
Footnote 1:
See New England Exp. Co. _v._ Maine Central R. R., 57 Me. 188;
Fitchburg R. R. _v._ Gage, 12 Gray (Mass.), 393; Kenny _v._ Grand
Trunk R. R., 47 N. Y. 525; Messenger _v._ Penn. R. R., 8 Vroom (N.
J.), 531; Chicago, etc., R. R. _v._ People, 67 Ill. 11; Wheeler _v._
San Francisco R. R., 31 Cal. 46.
Footnote 2:
Pass discrimination alone, it is estimated, amounts to some 200,000
free transits a day, or over 70 millions in a year. And as for freight
discriminations, the reader who follows this history through will see
that like the leaves of the forest they defy computation. Just a hint
may be given here. Every day that one of the 300,000 private cars is
carried at the present mileage rates, a discrimination is made in
favor of the owner of the private car,—a hundred millions of unjust
discriminations, possibly, in this one item.
Footnote 3:
The New York Central, Baltimore and Ohio, and some other lines
announced the same purpose as the Pennsylvania in respect to passes
after January 1, 1906, but with them as with the Pennsylvania it
appears to be a case of more careful discrimination in the use of
discrimination, and an appreciation of the fact that it is very
important to make a good impression on the public mind just now, in
view of the widespread demand for drastic legislation in the direction
of railroad regulation.
Footnote 4:
A number of the States have laws against passes. The Interstate
Commerce law forbids them. And they are always against the moral law
whether they run beyond the State line or not.
Footnote 5:
In one case it appeared that a leading railroad attorney had been for
years in the habit of supplying jurors with passes. Opposing counsel
brought out the fact that all the jurors in the case on trial had
accepted passes from the railroad company which was the defendant in
the case, and that to have an equal chance for justice his client
would have to give each juror $50 to offset the railroad gifts. The
judge discharged the whole jury.
Footnote 6:
Condensation of statement of Texas Railroad Commission’s Report for
1898, p. 17. See, further, “Bribery by Railway Passes,” _North
American Review_, 138, p. 89; and _Public Opinion_, 26, p. 167, Feb.
9, 1899: “The Pass Evil in Three States” (Indiana, Minnesota, and
Washington).
Footnote 7:
“Railway Passes and the Public,” _Forum_, 3, p. 392.
Footnote 8:
Vol. iv, pp. 456–457.
Footnote 9:
American Railroads as Investments, p. 30.
Footnote 10:
See C. Wood Davis’ article in _The Arena_, vi (1891), pp. 281–282.
Footnote 11:
See the evidence cited below.
Footnote 12:
Report of U. S. Industrial Commission (1900), iv, p. 135.
Footnote 13:
Testimony before U. S. Industrial Commission (1900), iv, p. 490.
Footnote 14:
_Forum_, 3, p. 392.
Footnote 15:
Railroad Transportation, p. 109.
Footnote 16:
In order to test the attitude of the government roads, I did my best
to get passes, trying first through the American ambassadors in
Vienna, Berlin, and Brussels, and afterward by direct appeal to the
railway management. But it was of no use, although I had a letter from
the Chairman of the United States Industrial Commission saying that I
had rendered the government valuable service in connection with the
work of the Commission, and that any courtesies shown me or assistance
afforded me in my researches would be a public service. I had other
strong letters from men of high distinction in the United States and
England, and our ambassador at Berlin had been president of my alma
mater when I was in college, and was specially friendly and helpful;
but I was assured that no amount of influence or pull could secure a
pass or any other personal favor on the State railways.
Footnote 17:
See _McClure’s Magazine_, December, 1905, where Ray Stannard Baker has
stated the leading facts.
Footnote 18:
See, for example, the testimony of Stuyvesant Fish, President of the
Illinois Central, before the United States Industrial Commission,
calling attention to the fact that while railway officials could be
prohibited by law from selling tickets below published rates,
individuals could not be so prohibited, and that some railways sold
their tickets to competitive points to brokers, paying them a
commission for making the sale, out of which the brokers scalped the
rate. (Industrial Commission, 1900, iv, p. 334.)
Footnote 19:
Industrial Commission, iv, pp. 457–458.
Footnote 20:
Hudson, “The Railways and the Republic,” p. 42.
Footnote 21:
Hepburn Report, N. Y. Legislature Investigation, 1879, p. 120.
Footnote 22:
The facts appear at full length in the reports of the Hepburn
Committee, the Select Committee of the United States on Interstate
Commerce, 49th Congress, 1st Session, Lloyd’s “Wealth against
Commonwealth,” and Miss Tarbell’s “History of the Standard Oil
Company.”
Footnote 23:
Tarbell’s “History of the Standard Oil Co.,” pp. 185–190; Lloyd’s
“Wealth against the Commonwealth,” pp. 87–88.
Footnote 24:
The Standard paid nominally 60 cents a barrel, but got a rebate of 49
cents, so that their net rate was 11 cents per barrel against $1.90
for the independents. See report of the Hepburn Committee (N. Y.),
1879, and George Rice’s pamphlet on “The Standard Oil Trust.”
Footnote 25:
Quoted from a synopsis of the Report.
Footnote 26:
Railroad Freights, Ohio House of Representatives, 1879, pp. 159–163.
Footnote 27:
Hardy _v._ Cleveland & Marietta R. R., Circuit Court, Ohio, E. D.,
1887, 31 Fed. Rep. 689; Senate Select Committee on Interstate
Commerce, 49th Congress, 1st Session, p. 199.
Footnote 28:
Besides the references already given on the Rice affair, see the Trust
Investigation of Congress, 1888; the testimony in the Rice case before
the Interstate Commerce Commission, Nos. 51–60, 1887; Decisions of the
I. C. C., vol. 1, pp. 503, 722; vol. 2, p. 389; vol. 3, p. 186; vol.
4, p. 228; vol. 5, pp. 193, 660; State of Ohio _v._ Standard Oil Co.,
49 Ohio St. Rep. 317; Lloyd, chapters xv, xvi, xvii; and Tarbell’s
History.
Footnote 29:
I. C. C., First Report, 1887.
Footnote 30:
Passes (annual in this case) to persons not in the regular service of
the carrier held unlawful. State _v._ Northern Pacific, p. 359, vol.
2, Decisions, 1888.
Footnote 31:
Sale of 1000–mile tickets to commercial travellers at $20 while
charging others $25 illegal. Chicago & Grand Trunk, p. 147, vol. 1,
Decisions, 1887.
Footnote 32:
Paying commissions; selling tickets through brokers at reduced rates;
rate wars, etc. Pennsylvania, New York Central, Wabash, Chicago &
Alton, vol. 2, 1888, p. 513.
Footnote 33:
Discounts to shippers receiving more than 30,000 tons a year illegal.
Providence and Worcester, vol. 1, 1887, p. 170.
Footnote 34:
In many cases the direct rate between two points, X and Y, was found
to be greater than the combination of the rate from X past Y to a
competitive point Z and the local rate back from Z to Y. For example,
goods could be shipped from the Pacific coast to Kansas City and then
back to points west of Kansas City more cheaply than they could be
sent direct from the coast to these intermediate points. This enabled
a shipper informed of the combination rates to get an advantage over
one with less information who relied on the published tariffs stating
the rates between his place of business and the points to or from
which his shipments were to be sent. The Commission took up this
matter in 1887 and the traffic managers of the roads agreed to revise
their tariffs so that the direct local rate should in no case exceed
the through rate plus the local rate back from the terminus or
competitive point. This rule resulted in many material reductions of
the rates to intermediate points; for example, the points between
Denver and the Missouri River on the lines controlled by the Southern
Pacific. See Martin _v._ Southern Pacific R.R. I. C. C. Decisions,
vol. 2, 1888, pp. 1, 4.
Footnote 35:
A higher rate on oil in barrels than in tanks held unjust, vol. 2, p.
365. Report, 1888, p. 128.
Footnote 36:
Report, 1888, p. 112.
Footnote 37:
_Ibid._, p. 114 _et seq._
Footnote 38:
_Ibid._
Footnote 39:
_Ibid._
Footnote 40:
_Ibid._
Footnote 41:
The Commission’s reports, 1889 to 1891, dealt with numerous
discriminations between localities and persons through free
transportation, commissions on the sale of tickets, combination rates,
rebates, free cartage, payment of yardage charges, excessive car
mileage on private cars, discounts for quantity, unfair
classification, distribution of cars, special tariffs, advantage or
disadvantage to particular commodities or methods of shipment, low
rates on goods for export, etc., etc.
Footnote 42:
Report, 1889, p. 10.
Footnote 43:
5 I. C. C. Decis. 69, 1891.
Footnote 44:
_Ibid._; see also 5 I. C. C. Decis. 153, 1892. Case against the
Louisville and Nashville for granting passes to members of the city
council of New Orleans.
Footnote 45:
Investigation of the Commission, 1889.
Footnote 46:
Report, Interstate Commerce Commission, 1889, p. 14.
Footnote 47:
Pages 103–107, I. C. C. Rep. 1895.
Footnote 48:
Report, 1897, p. 61.
Footnote 49:
See p. 20 above.
Footnote 50:
Heard _v._ Georgia R. R., 1 I. C. C. Decis. 428, and 3 I. C. C. Decis.
111. But the United States Supreme Court decided against the
Commission on this point May 1, 1892 (145 U. S. 263), and the B. & O.
tickets for parties of 10 or more at ⅓ less than the regular rates
were sustained.
Footnote 51:
2 I. C. C. Decis. 649, and 3 I. C. C. Decis. 465.
Footnote 52:
This rule of exemption works great injustice under present conditions.
It was built into the common law when people were struggling against
oppressors in high places. But the conditions which made it useful
have long since passed away, and it is now simply a millstone about
the neck of justice.
Footnote 53:
Senate Committee, 1905, iv, pp. 2900–2901. Speaking of an
investigation of rebates on flour from Minneapolis and Duluth, the
Commission says (p. 8, Report for 1898): “All the railway witnesses
denied knowledge of any violation of the statute, and most of the
accounting officers testified to the effect that if rebates had been
paid they would necessarily know about it and that their accounts did
not show any such payments. It was nevertheless fully established by
the investigation that secret rate concessions had been generally
granted on this traffic and that the carrier had allowed larger
rebates to some of the flour shippers than to others.”
Footnote 54:
I. C. C. Rep. 1889, p. 75.
Footnote 55:
See I. C. C. Rep. 1889, pp. 15, 16, 126, 130, 132, 237, 239, 240–242;
Decisions, vol. 3, 1889, p. 89, 25% rebates on coal to certain points;
p. 137, low rates on goods marked for export (10 cents on one hundred
lbs. discount); p. 652, unlawful discount of 50% on emigrants’
movables; Rep. 1890, pp. 111, 190, 192, coal rates; 183, discount for
quantity; 189, export; 101, 192, hogs and hog rates; 184, stock yards;
99, 100, 185–187, oil; 112, 192, wheat and flour; 187, 190, private
cars; 188, special tariffs; and other unjust discriminations relating
to localities, privileges, etc., and not directly in point under the
head we are dealing with.
Footnote 56:
Testimony, U. S. Ind. Com. iv, p. 353.
Footnote 57:
I. C. C. Rep. 1890, p. 25.
Footnote 58:
I. C. C. Rep. 1896, p. 78.
Footnote 59:
_Ibid._, p. 82.
Footnote 60:
Industrial Commission, 1900, iv, p. 442.
Footnote 61:
I. C. C. Dressed-meat Hearing, December, 1901, p. 94; Chicago and
Alton manager to same effect for his road, p. 136.
Footnote 62:
I. C. C. Rep. 1898, p. 6.
Footnote 63:
4 I. C. C. Decis. 1891, p. 630. For example, on one line between
Chicago and New York, “200 stock cars more than paid for themselves
and all repairs, etc., in 2 years, and thereafter earned for the
owners upwards of $100,000 a year on no investment.” See Report Iowa
Railroad Commission, 1891, p. 30.
Footnote 64:
I. C. C. Rep. 1889, pp. 15–16.
Footnote 65:
9 I. C. C. Decis. 1, 1901 Rep., p. 36. As the circumstances were
substantially different in the two cases, the Commission said the
local charge to the drummer was “not necessarily unjust.”
Footnote 66:
An additional charge by the Santa Fe of $2 a car on cattle consigned
to the Union Stock Yards at Chicago, where the Santa Fe had for years
delivered cattle, was held unlawful by the Commission, and its
judgment was sustained by the United States Circuit Court, but
overruled by the Court of Appeals. I. C. C. Rep. 1896, p. 45.
Footnote 67:
Free cartage for a distant shipper and not for a nearer one is
equivalent to a rebate for the former. Hegel Milling Company v. St.
Louis, etc., Railroad, 5 I. C. C. Decis. 1891, p. 57.
Footnote 68:
The railway charged the same rates from the East to Grand Rapids as to
Ionia, although the former was 33 miles a longer distance point on the
same line of road, and in addition gave free cartage to Grand Rapids
companies. Complaint was made in September, 1888; April 26, 1890, the
Commission held the free cartage to be in effect a rebate, and ordered
the railroad to desist from giving free cartage in Grand Rapids. (3 I.
C. C. Decis. 60; I. C. C. Rep. 1896, pp. 37–39; 1897, pp. 94–95.) The
Circuit Court upheld the order October, 1893 (57 Fed. Rep. 1002), but
the Circuit Court of Appeals overruled the decision April, 1896 (74
Fed. Rep. 803), and the United States Supreme Court sustained the
Court of Appeals. (167 U. S. 633, May, 1897.) The Commission made the
mistake of resting the case on the 4th or long-haul section instead of
the 2d or 3d sections relating to undue preference, and the railway
should have been allowed the option of removing the discrimination by
giving free cartage in Ionia or making a lower rate there. The order
to discontinue free cartage in Grand Rapids was arbitrary and
unnecessary.
Footnote 69:
I. C. C. Rep. 1889, pp. 18–19.
Footnote 70:
Commercial Club _v._ Rock Island, 6 I. C. C. Decis. 1896, p. 647.
Footnote 71:
Pennsylvania Millers Association _v._ Reading R. R., 8 I. C. C. Decis.
1900, p. 531.
Footnote 72:
I. C. C. Rep., 1898, pp. 46–47; 7 I. C. C. Decis. 1898, p. 556:
Illinois Central, charging some shippers for storage while others are
not charged for it, unlawful.
Footnote 73:
Industrial Commission, iv, 541.
Footnote 74:
_Ibid._, 543.
Footnote 75:
Investigation of expense bill frauds on grain shipments from Missouri
River points to Chicago and other destinations. I. C. C. Rep. 1896, p.
75, on Santa Fe case. 7 I. C. C. Decis. 1897, p. 240, expense bill
system held illegal.
Footnote 76:
I. C. C. Rep. 1896, p. 79.
Footnote 77:
_Ibid._, p. 77.
Footnote 78:
_Ibid._, p. 80. The Commission has not felt able to declare such an
allowance unlawful (10 I. C. C. Decis. 1904, p. 309), but it seems
clear that substantial preferences may be given in this way.
Footnote 79:
Report, U. S. Industrial Commission, 1900, iv, p. 79.
Footnote 80:
I. C. C. Rep. 1896, pp. 46–48.
Footnote 81:
There is a statement concerning it in the I. C. C. Rep. 1896, p. 81,
but it does not bring out the facts at the core of the matter as
stated to me by the railway men.
Footnote 82:
8 I. C. C. Decis. 1898, p. 316.
Footnote 83:
I. C. C. Rep. 1894, p. 9.
Footnote 84:
It was held in the Nichols case (66 P. A. C. Rep. 768) that where a
shipper orders cars to be delivered at a certain date, the company’s
action in filling subsequent orders before complying with the first is
unlawful. (Oregon Short Line.)
Footnote 85:
Report, Texas Railway Commission, 1896, p. 11.
Footnote 86:
The Commission holds that the difference must not be so great as to be
destructive of competition between large and small dealers. (5 I. C.
C. Decis. 638, following Thurber _v._ New York Central, Delaware &
Lackawanna, B. & O.; and 3 I. C. C. Decis. p. 473, March, 1890; Rep.
1890, p. 87.) Many articles of groceries were so classified as to make
the difference between carload rates and less-than-carload rates
unjustly great in violation of the principles of the Interstate Act.
Footnote 87:
Industrial Commission, iv, 207.
Footnote 88:
Paine _v._ Lehigh Valley R. R., 7 I. C. C. Decis. 1897, p. 218.
Footnote 89:
9 I. C. C. Decis. 78; 1901 Rep. 38.
Footnote 90:
5 I. C. C. Decis. 663.
Footnote 91:
7 I. C. C. Decis. 43.
Footnote 92:
8 I. C. C. Decis. 214, 1898. See also 4 I. C. C. Decis. 417. and 7 I.
C. C. Decis. 481, Chicago, Milwaukee & St. Paul case, held that a
higher rate on wheat than on flour is unjust.
Footnote 93:
8 I. C. C. Decis. 304. See also 3 I. C. C. Decis. 400, and 4 I. C. C.
417.
Footnote 94:
4 I C. C. Decis. 1891, p. 733: N. Y. Central, Pa., B. & O., C. B. &
Q., Wabash, Santa Fe, etc.,—a whole page full of railroads.
Footnote 95:
Rice cases, Nos. 51–60, I. C. C. Decis. 1887, 65, 131.
Footnote 96:
Rice _v._ R. R., 4 I. C. C. Decis. 131; 5 _ibid._, 193, 415. Railroads
commenced charging for barrel packages in 1888, and in a case tried in
1892 against the Reading, Boston & Maine, and other roads the
Commission ordered them to cease, but they did not, and damages were
awarded two years later from 1888 to 1894. A similar order to desist
from charging for the barrel was issued against the Pennsylvania in
September 1890 and it complied. I. C. C. Rep. 1895, pp. 33–35.
Footnote 97:
Trust Investigation, Congress, 1888, pp. 531–533, 646–647.
Footnote 98:
Testimony, Rice cases, 1 I. C. C. Decis. 28.
Footnote 99:
See Trust Investigation, Congress, 1888, pp. 598–599.
Footnote 100:
Lloyd’s “Wealth against the Commonwealth,” pp. 427, 480–481.
Footnote 101:
U. S. Industrial Commission, iv, 53.
Footnote 102:
4 I. C. C. Decis. 158.
Footnote 103:
Senate Committee, 1905, 3457.
Footnote 104:
Testimony of McCabe, Pennsylvania traffic manager, I. C. C. Beef
Hearing, Dec. 1901, pp. 101, 102, 103.
Footnote 105:
_Ibid._, pp. 101, 102.
Footnote 106:
Mr. Cost, traffic manager of the Big Four, I. C. C. Beef Hearing, Dec.
1901, p. 105.
Footnote 107:
I. C. C. Beef Hearing, Dec. 1901, p. 114.
Footnote 108:
_Ibid._, pp. 113, 119.
Footnote 109:
I. C. C. Beef Hearing, Dec. 1901, pp. 85, 86.
Footnote 110:
I. C. C. Beef Hearing, Dec. 1901, p. 107.
Footnote 111:
I. C. C. Hearing in the dressed-meat cases, Chicago, Jan. 7, 1902, pp.
152–154.
Footnote 112:
Evidence in the I. C. C. Hearing in the dressed-meat cases, Chicago,
Jan. 5, 1902, pp. 145, 148, 149.
Footnote 113:
Report, Industrial Commission, vol. iv, pp. 69, 493.
Footnote 114:
Import Rate Case. Texas and Pacific _v._ I. C. C., 162 U. S. 197,
March, 1896. The complaint was brought in December, 1889, by the New
York Board of Trade against the Pennsylvania Railroad and others. The
New York Central, B. & O., B. & M., Ill. Central, Union Pacific,
Southern Pacific, Northern Pacific, Texas & Pacific, etc., 33
railroads in all, were joined as defendants. The Commission held
(Jan., 1891) that import traffic is entitled to no preference. 3 I. C.
C. Decis. 417. (See also 4 I. C. C. 447.) The Circuit Court sustained
the Commission in Oct., 1892 (52 Fed. Rep. 187), and the Court of
Appeals in Oct., 1893 (57 Fed. Rep. 948), but the Texas & Pacific
carried the case to the U. S. Supreme Court and the majority of the
Court, reversing the Commission and the Circuit Court, interpreted the
Commerce Act of Congress in such a way as to render substantially
inoperative the main clauses relating to discrimination and the long
haul, and practically nullify another Act of Congress so far as it
imposes duties on imports for the purpose of protecting home
industries. The Court accomplished this by focussing its attention on
the phrase relating to dissimilar conditions, instead of aiming to
enforce the act according to its clear purpose and intent. Chief
Justice Fuller and Justices Harlan and Brown dissented, holding that
the Interstate Act requires railways to make the same charge for the
same service, whether the goods carried are domestic or foreign.
Footnote 115:
For many other facts along the same lines, showing rates on flour from
the West to Baltimore, Philadelphia, New York, Boston, etc., 6 to 8
cents higher than the rates on wheat, and much lower rates on the same
products for export than for domestic use, see Industrial Commission,
1900, iv, 70.
The Interstate Commerce Commission in 1899 found the export rates on
corn and wheat much lower than the domestic rates. I. C. C. Rep.,
1899, pp. 20–28, 31.
Footnote 116:
8 I. C. C. Decis. 214 n.
Footnote 117:
Lewis, “National Consolidation of Railways,” p. 101.
Footnote 118:
Industrial Commission, 1900, vol. iv, pp. 441–442. Shippers in
Norfolk, Nebr. for example, pay the local rate of 45 cents per cwt.
(on first-class goods) to Sioux City on the Missouri River, plus the
rate from Sioux City to Chicago, while Fremont, a rival town near
Norfolk, has the same rates as Sioux City, the local rate not being
added in this case to the Missouri River rate. This gives Fremont
manufacturers and shippers a decided advantage over those of Norfolk,
and tends to build up Fremont and stunt the growth of Norfolk. The
witness suggested that “if the rates were established by the
Government instead of at the will and pleasure of the railway
managers, it is a natural conclusion that points having the same
general conditions would receive equal benefits.”
Footnote 119:
Cator’s “Rescue the Republic,” p. 15.
Footnote 120:
“National Consolidation of Railways,” Lewis, p. 102.
Footnote 121:
“National Consolidation of Railways,” Lewis, p. 83.
Footnote 122:
Martin _v._ Southern Pacific, Central Pacific, and Union Pacific
Railroads. 1 I. C. C. Decis. 1.
Footnote 123:
8 I. C. C. Decis. 481. The Commission made an order that the Kearney
rate should not exceed the Omaha rate by more than 15 cents, but the
Southern Pacific refused to obey, and the Circuit Court declined to
enforce the order on the ground that the Commission had not found the
rate to Kearney unreasonable in itself, but only in comparison, citing
190 U. S. 273.
Footnote 124:
9 I. C. C. Decis. 17: Rep. 1901, 30.
Footnote 125:
I. C. C. Rep. 1899, p. 31.
Footnote 126:
The Commission ordered the roads to discontinue this practice. They
refused. And the United States Supreme Court sustained them in their
refusal. (4 I. C. C. Decis., July, 1890, p. 104; Rep. 1901, p. 25.)
Footnote 127:
Nov. 1895, the Commission ordered that the rates from Pueblo to
California should not exceed 75 percent of the rates from Chicago to
California. The railroads refused to obey. Proceedings in court were
begun by the Commission to enforce their order. Then the railroads
yielded. They kept the rates down about 2 years, till Oct. 17, 1898.
Then the Southern Pacific increased the rates. The Colorado Fuel &
Iron Company on whose complaint the investigation and order were made,
sued for damages and an injunction, Oct. 1898. The Circuit Court
enjoined the railroads from charging more than the rates fixed by the
Commission. But April 16, 1900, the Circuit Court of Appeals reversed
the decision on the ground that the United States Supreme Court had
ruled that the Commission cannot fix rates. (I. C. C. Rep. 1895, pp.
41–43; and Rep. 1900, pp. 55–61); also (101 Fed. Rep. 779) an appeal
to the Supreme Court was dismissed per stipulation, Nov. 1901 (46 L.
Ed. 1264).
Footnote 128:
Ind. Com. iv, 257.
Footnote 129:
Ind. Com., iv, 257.
Footnote 130:
_Ibid._, 67.
Footnote 131:
_Ibid._
Footnote 132:
Ind. Com. iv, 252.
Footnote 133:
_Ibid._, 257.
Footnote 134:
Alabama Midland Case. Decis. of U. S. Supreme Court, Nov. 8, 1897, 168
U. S. 144; Behlmer Case, 175 U. S. 648, 676; 181 U. S. 1, 29; Dallas
Case, I. C. C. Rep. 1901, p. 27. Actual and controlling competition of
any sort is now held to justify a less charge for the longer than for
the shorter haul. 10 I. C. C. Decis. 289, June, 1904. See also Senate
Committee, 1905, 3339, where Chairman Knapp of the Interstate
Commission declares that the courts have interpreted the law so that
if the circumstances substantially differ, no matter what the reason,
the prohibition does not apply. Brooks Adams says, “The Supreme Court
is antagonistic to that clause,” (the long and short haul clause) and
does not intend to enforce it. “They have simply thrown out every
suitor but one who came in under that clause.” (Sen. Com., 1905, p.
2922.)
Footnote 135:
I. C. C. Rep. 1887. Nearly a hundred pages are filled with both the
statements and petitions of railroads relating to the long-haul
clause. See also Rep. for 1895, pp. 24–28. Exemption from the
long-haul clause was allowed in the case of passenger fares to the
World’s Fair at Chicago.
Footnote 136:
_In re_ Louisville and Nashville, 1 I. C. C. Decis., 1887, p. 31. See
also Ga. Rd. Commission _v._ Clyde Steamship Co., 5 I. C. C. Decis.
326.
Footnote 137:
Alabama Midland or Troy Case, 168 U. S. 144, 164, 166. Reference was
made to 31 Fed. Rep. 315, 862; 50 Fed. Rep. 295; 56 Fed. Rep. 925,
943; 71 Fed. Rep. 835, Behlmer Case; 73 Fed. Rep. 409, I. C. C. _v._
Louisville and Nashville.
Footnote 138:
I. C. C. Rep. 1899, pp. 66–68; 85 Fed. Rep. 1898, p. 107; 99 Fed. Rep.
1899, p. 52.
Footnote 139:
181 U. S. 1, April, 1901.
Footnote 140:
_Ibid._, 29, 1901.
Footnote 141:
Rep. 1895, p. 29. See Louisville & Nashville Case, 1 I. C. C. Decis.
31; C. B. & Q. Case, 2 I. C. C. Decis. 46; Krewer Case, 4 I. C. C.
Decis. 686; Nashville, Chattanooga and St. Louis R. R. Co., 6 I. C. C.
Decis. 343. See also 8 I. C. C. Decis. 503.
Footnote 142:
H. P. Newcomb, _Popular Science Monthly_, p. 815, Oct. 1897.
Footnote 143:
I. C. C. Rep. 1894, p. 19; 1900, p. 52. The Railways declined to obey;
the Circuit Court ruled against the Commission (71 Fed. Rep. Jan.
1896, p. 835); the Circuit Court of Appeals reversed the Circuit Court
decision (83 Fed. Rep. Nov. 1897, p. 898); and finally, in Jan. 1900,
the U. S. Supreme Court reversed the Court of Appeals and sustained
the railroads. (Behlmer Case, 175 U. S. 648.)
Footnote 144:
I. C. C. Rep. 1895, p. 29; 1896, pp. 16–23. In March, 1896, the U. S.
Supreme Court considered the case on appeal, and apparently accepted
the decision of the Commission on the question of similar conditions,
but overruled another part of its order, requiring the railroad not to
charge more than $1 per hundred on first-class goods from Cincinnati
to Atlanta. The Court placed its decision on the ground that the
Commission has no authority to fix rates, maximum, minimum, or
absolute. It may determine that a past rate is unreasonable, but
cannot fix a rate for the future. Interstate Commission _v._
Cincinnati, New Orleans, and Texas Pacific, 162 U. S. 184; and 167 U.
S. 479. I. C. C. _v._ Texas and Pacific, 162 U. S. 197.
Footnote 145:
6 I. C. C. Decis. 343; and Rep. 1895, pp. 29–31.
Footnote 146:
Rep. 1895, p. 31.
Footnote 147:
I. C. C. Rep. 1899, p. 68; 7 I. C. C. Decis. Dec. 1897, p. 431. The
Commission ordered that the charge to La Grange should not exceed the
rate for the longer haul to Atlanta, and two years later the Circuit
Court sustained the order (102 Fed. Rep. 709), but the Circuit Court
of Appeals reversed the decision in May, 1901 (108 Fed. Rep. 988), and
in May, 1903, the Supreme Court affirmed the ruling of the Court of
Appeals against the Commission (190 U. S. 273).
Footnote 148:
I. C. C. Rep. 1902, p. 48; 7 I. C. C. Decis. 431; 8 I. C. C. Decis.
377; 118 Fed. Rep. 613; Sen. Com. 1905, pp. 2316, 2317, 2926. No
appeal appears to have been taken from the Circuit Court.
Footnote 149:
8 I. C. C. Decis. Feb. 1900, p. 409; Rep. 1900, p. 34.
Footnote 150:
8 I. C. C. Decis. 93, reversed by the Circuit Court, August, 1902 (117
Fed. Rep. 741), and by the Court of Appeals, May, 1903 (122 Fed. Rep.
800); now on appeal to U. S. Supreme Court.
Footnote 151:
8 I. C. C. Decis. 142.
Footnote 152:
I. C. C. Rep. 1895, p. 39.
Footnote 153:
See 6 I. C. C. Decis. 257, 361, 458, 488, 568, 601; 7 I. C. C. 61,
224, 286; 8 I. C. C. 93, 214, 277, 290, 304, 316, 346. See also vol. 9
of the Decisions, and Rep., 1898, pp. 33, 246; 1899, p. 28; 1900, p.
40; 1901, pp. 57, 65; etc. Wherein conditions substantially differ the
exemption is applied. For example, the Santa Fe is justified in
charging lower rates from the Pacific to the Missouri River than to
Denver on rice, hemp, blankets, books, boots, etc. (9 I. C. C. Decis.
606); and a higher rate on lumber to Wichita from Western points than
to Kansas City is approved (9 I. C. C. Decis. 569).
Rates of an individual road cannot be compared with joint rates made
by that road with others. Osborne Case, 52 Fed. Rep. 912; Tozer Case,
52 Fed. Rep. 917; Union Pacific Case, 117 U. S. 355.
Footnote 154:
_Popular Science Monthly_, Oct. 1897, p. 816.
Footnote 155:
M. E. Ingalls, before National Convention of Railway Commissioners,
1898, p. 14.
Footnote 156:
Rep. 1897, p. 6; and 1898, p. 15.
Footnote 157:
“The exaction of the published rate is the exception.... Men who in
every other respect are reputable citizens are guilty of acts which,
if the statute law of the land were enforced, would subject them to
fine or imprisonment.” See Rep. 1898, pp. 5, 6, 18, 19; Rep. 1899, p.
8.
Footnote 158:
Report, vol. iv, 1900, p. 625.
Footnote 159:
Ind. Com. iv, pp. 6, 349, 359.
Footnote 160:
Testimony, p. 25.
Footnote 161:
Sen. Com. 1905, p. 2912.
Footnote 162:
Judge Clements of the Interstate Commission, Senate Committee, 1905,
p. 3238. When the reader examines the facts that follow in this book
he may wonder what the railroads will do when they are not under a
good resolution, in view of the record they have made while under a
good resolution.
Footnote 163:
See “Rebates” and “Discriminations” in index to Hearings of the Elkins
Committee, 1905.
Some of these witnesses who do not know of any discriminations or
unreasonable rates declare in other parts of their testimony that if
the proposed legislation were enacted the Interstate Commission would
be deluged with complaints. And this is probably true, since
complaints of excessive rates and discriminations have been more
numerous in the last two or three years than in any other equal period
before. (Testimony of Judge Clements of the I. C. C., Senate
Committee, 1905, p. 3242.)
Footnote 164:
Sen. Com. 1905, p. 1331.
Footnote 165:
_Ibid._, pp. 2253, 2284.
Footnote 166:
_Ibid._, p. 3140.
Footnote 167:
_Ibid._, p. 1652.
Footnote 168:
On the question whether or no rebates and discriminations exist, the
testimony of credible witnesses who say they know of these secret
favors far outweighs the proving power of the negative statements of
witnesses who say they do not know of the said phenomena. Lots of
people did not know till recently that the Equitable paid a famous
railroad senator $20,000 a year for “advice.” And the statements of a
multitude that they did not know of it would weigh nothing against the
testimony of 2 or 3 well informed men who positively stated the facts.
Discriminations may go on without the railroad directors or principal
officers knowing about them. They may not know about them on purpose.
Where ignorance is protection ’tis folly to be wise.
Railway men have told me that in many cases leading officers of a
railroad are purposely kept, or keep themselves, in perfect ignorance
of all discriminations and other wrongdoing in order that such
officers may appear in legislative and interstate commerce hearings
without knowledge of any facts that would be prejudicial to the
railroad.
Footnote 169:
Sen. Com. 1905, p. 1474.
Footnote 170:
Sen. Com. 1905, pp. 819, 820, 842.
Footnote 171:
_Ibid._, pp. 2122, 2123.
Footnote 172:
_Ibid._, p. 951.
Footnote 173:
_Ibid._, p. 2329.
Footnote 174:
Sen. Com. 1905, p. 2083.
Footnote 175:
In illustration of his statement the witness referred to the
prevalence of abuses in respect to terminal railroads, private cars,
purchasing agents, switching charges, special tariffs, milling in
transit, etc., describing a number of cases that have come under his
personal observation in the year 1905. Sen. Com. 1905, pp. 2432, 2434.
Footnote 176:
More complaints per annum have been filed with the Commission since
the Elkins Act took effect than were filed before the act was passed.
The reports of the I. C. C. show 145 formal complaints filed in 1903
and 1904, carrying the total to 789, and 888 informal complaints,
carrying the total to 3223, making the whole number 1033 in the two
years, and 4012 since 1887—more than 25 percent of the complaints
having been filed in the last two years which constitute only 11
percent of the time covered by the reports of the Commission. Out of
the 62 suits entered in 1904, 50 charge unjust discrimination of
serious character, and nearly all the rest involve discrimination in
some form. The complaints entered for amicable adjustment also relate
in large part to cases of discrimination between persons and places,
refusal to furnish cars, unreasonable delay, unfair classification,
discrimination in track facilities, unfair estimate of weights,
allowing competitors to underbill, refusal of the Transcontinental
Passenger Association to grant the American Federation of Labor the
usual special convention rate for their meeting at San Francisco,
refusal to route shipments as ordered by shippers, relatively
excessive rates on vegetables, lumber, lead, drugs, corn products,
coal, iron, shoes, leather, etc., violations of the long and short
haul clause, and outright refusal to accept shipments, besides a
number of complaints of overcharges, and rates alleged to be
unreasonable per se.
Adding the figures for 1905, which have come to hand since the above
was written, we find that more than double the number of complaints of
discrimination have been made to the Interstate Commerce Commission in
the last three years, since the Elkins Law was passed, than in any
equal period before. The complaints filed in 1903, 1904, and 1905
constitute more than a third of the whole number of complaints from
the beginning of the Commission in 1887. The average number of
complaints per year from 1887 to 1902 inclusive was 186, while the
yearly average for 1903–1905 is 534—more than double, nearly
threefold—and five-sixths of the suits entered charge facts that
constitute discrimination of serious character, and nearly all the
rest involve discrimination in some form.
Footnote 177:
In the report for 1905, p. 13, the Commission refers to the fact that
in the reports for 1903 and 1904 some favorable comments were made on
the effect of the Elkins Law upon the practice of paying rebates, and
says: “Further experience, however, compels us to modify in some
degree the hopeful expectations then entertained. Not only have
various devices for evading the law been brought into use, but the
actual payment of rebates as such has been here and there resumed. [It
never stopped in a good many places, judging by the La Follette facts
and other evidence, including the statements of many leading railroad
men.] Instances of this kind have been established by convincing
proof. More frequently the unjust preference is brought about by
methods which may escape the penalties of the law, but which plainly
operate to defeat its purpose.”
Footnote 178:
Judge Clements of the Commission, Sen. Com. 1905, p. 3238.
Footnote 179:
See the admirable summary of the investigation by Ray Stannard Baker
in _McClure’s Magazine_ for December, 1905.
Footnote 180:
The Interstate Commission says: “While giving rebates to the fuel and
iron company from tariff rates, it (the Santa Fe Railroad) charged the
full tariff rates on interstate shipments of coal by other shippers in
not only the general coal region involved, but in the same coal field.
This practice of the railway company resulted in closing markets for
coal to shippers competing with the Colorado Fuel and Iron Company.”
10 I. C. C. Decis. 473, February, 1905.
Footnote 181:
10 I. C. C. Decis. 475.
Footnote 182:
10 I. C. C. Decis. 476–480. While the Caledonian Company was trying to
get to market on equal terms with the Colorado Fuel and Iron Company,
they got a letter from the Santa Fe traffic office, Nov. 15, 1900,
saying that they could sell their coal to the Colorado Fuel and Iron
Company, or keep it. Mr. Biddle, however, when shown the letter and
questioned about it, admitted the authorship, but said he did not
construe the letter as saying anything of the kind. (I. C. C. Santa Fe
Hearing, Dec. 1904, p. 154. The text of the letter is not given.)
Footnote 183:
There was a dispute about the relative steam power of the coals from
the different localities, but the point doesn’t seem to be material.
Footnote 184:
Sen. Com. 1905, pp. 3072, 3073. The Caledonian had a good market
before the agreements between the Santa Fe and the Colorado Coal
Company were made, and it had many orders afterwards, but could not
fill them except at a loss because of favoritism in freight rates.
Footnote 185:
I. C. C. Hearing, Dec. 1904, pp. 135, 148, Biddle.
Footnote 186:
Mr. Biddle says the coal rate circular was issued by his authority and
continued a practice that was in effect when the Santa Fe operated the
mines, but he could not say whether it was “simply continued at the
time the Colorado Company acquired the mines or whether there were
negotiations under which it was done” (I. C. C. Hearing, Dec. 1904,
pp. 135, 136, 147, 148).
Footnote 187:
A copy of this circular bearing the name of the traffic manager of the
Santa Fe was taken without permission by a dealer at El Paso from the
Santa Fe office there.
Footnote 188:
I. C. C. Santa Fe Hearing, Dec. 1904, p. 8.
Footnote 189:
I. C. C. Santa Fe Hearing, Dec. 1904, pp. 146–148.
Footnote 190:
Sen. Com., 1905, p. 848.
Footnote 191:
Mr. Morton’s letter to President Roosevelt, June 5, 1905. Secretary
Morton continues: “The tariff covering this arrangement was published
so as to show the freight rate to be $4.05 per ton instead of the
delivered price at El Paso and Deming, and did not separate the
freight rate from the cost of the coal at the mines, as it should have
done. Until the investigation of the case by the Interstate Commerce
Commission I did not know personally how the matter was being handled,
so far as the publication of the tariff was concerned. My own
connection with the case was to see that the traffic was secured to
the Atchison rails, and after that details were left to subordinates.”
Footnote 192:
Mr. Biddle testified that the same thing had been done for other coal
companies, and in one instance at least it was shown that it had been
done for the Victor Fuel Company, but in this case “the price of the
coal and the rate of freight were kept entirely separate, the price of
coal being treated in the nature of an advance charge.” The Commission
says further “If the Colorado Fuel and Iron Company had in all cases
paid the published tariff rate which was exacted from other shippers,
the fact that the price of the coal and the freight were included in a
single item would have worked no practical advantage to that company
so far as we can see. Neither, apparently, would there have been any
reason for this arrangement if the purpose of the parties had been
honest. If, however, there existed upon the part of the Santa Fe
Company an intent to charge the Colorado Fuel and Iron Company less
for the transportation of its coal than the published rate, it is
evident that this method of billing would afford a ready means for
concealing the transaction. In point of fact, during the entire period
covered by this investigation (July 1899 to Nov. 27, 1904) the Santa
Fe Company did transport coal for the Colorado Fuel and Iron Company
for less than its open tariff rates, and these concessions amounted in
many cases to the price of the coal itself.” (10 I. C. C. Decis. 482,
Feb. 1905.)
Footnote 193:
See 10 I. C. C. Decis. 473, 487, 488, Feb. 1, 1905.
Footnote 194:
“Strategy of Great Railroads,” 1904, p. 167.
Footnote 195:
I confess, however, that I do not see how, in the light of the records
in the Colorado Case, the Santa Fe counsel could tell the Senate
Committee this year that his road had made no discriminating rates
(see above, p. 114). Neither is it easy to see how Mr. Biddle could
testify that he had not known of the payment of any rebates for 12
years. The Commission says the Santa Fe paid rebates to the Fuel
Company till November, 1904, and other preferences have been
unearthed, as we shall see hereafter. Some shippers and some
consignees have had better terms than others. Mr. Biddle does not call
these preferences rebates. The Commission sees that when the Santa Fe
collected the published freight rate, $4.05, from the El Paso people
and paid for the coal out of that, instead of collecting the $4.05 as
freight and leaving the El Paso folks to pay for the coal in addition,
the effect was the same to the El Paso people as the payment of a
rebate equal to the value of the coal, and the same to the Fuel
Company in respect to securing a monopoly of the market, and so the
Commission, looking at the substance of the matter and the form too so
far as could be judged from the published tariff, called the payments
rebates, or payments out of, or deductions from, the regular tariff
rates.
Footnote 196:
Commissioner Prouty to the Boston Economic Club, March 9, 1905.
Footnote 197:
Sen. Com. 1905, p. 3607.
Footnote 198:
10 I. C. C. Decis. 226, and Rep. 1904, pp. 58–59.
Footnote 199:
Sen. Com. 1905, p. 367. Testimony of E. M. Ferguson, representing 12
organizations of shippers, State and national.
Footnote 200:
Sen. Com. 1905, p. 2432.
Footnote 201:
I. C. C. Decis. 735, March 25, 1905.
Footnote 202:
Ind. Com. iv, 54.
Footnote 203:
Sen. Com. 1905, pp. 2284, 2429.
Footnote 204:
_Ibid._, p. 2432.
Footnote 205:
_Ibid._, p. 18.
Footnote 206:
Sen. Com. 1905, pp. 2484, 2490.
Footnote 207:
Sen. Com. 1905, p. 2912.
Footnote 208:
10 I. C. C. Decis. 675, April 11, 1905; Rep. Dec. 1905, p. 39.
Footnote 209:
Under the milling-in-transit privilege grain may be shipped into the
mill from the West, ground, and shipped out from the mill to New York
or other destination at a total cost but little greater than the
straight through rate from the West to New York. But a mill without
this privilege must pay the rate from the West to Philadelphia, and
then the local rate from Philadelphia to New York, making the total
cost very much greater.
Footnote 210:
Some strong statements about this case may be found in the
Philadelphia _North American_ August 12, August 20, and other dates
during August, 1903.
Footnote 211:
Sen. Com. 1905, p. 2434. See 10 I. C. C. 1905, p. 505.
Footnote 212:
This trick was resorted to by the oily people many years ago, but the
railroads, realizing its potency in eluding the rebate prohibitions,
have lately extended its sphere of usefulness and it is becoming quite
frequent. See Sen. Com. 1905, p. 2123.
Footnote 213:
Ind. Com. iv, 544. The name “midnight tariff” by which this scheme is
known probably fits the case, but “flying tariff” is perhaps still
more appropriate.
Footnote 214:
_Outlook_, July 1, 1905, p. 579.
Footnote 215:
Sen. Com. 1905, pp. 2911, 2912, Commissioner Prouty; 2123, President
Stickney. See also p. 3231, and 10 I. C. C. Decis. 317.
Footnote 216:
Mr. Moffat was asked if he thought the allowances ought to be made. He
said: “I think that it ought to be made to the big shippers. I think
the man who ships 100,000 bushels a month ought to get a little better
deal than the man who ships only 1,000 bushels a year.”
Commissioner Cockrell replied: “There is where I think you are
entirely wrong. No government could live under such a condition. The
rich would soon absorb everything and the small man would be wiped out
of existence. The whole business we are on now started from a railroad
giving a man a rebate. The minute the railroad does a thing like that
it opens the way to a swindling petty graft and bigger grafting and
crooked work. It is wrong, all wrong. It is so wrong that nobody knows
what to call it. Down in Louisville they call it a ‘swag.’ Here you
call it an ‘allowance.’ It is all wrong.”
Footnote 217:
10 I. C. C. Decis. 274, June 4, 1904.
Footnote 218:
_Ibid._, 255, June 4, 1904. The practice was held unjust.
Footnote 219:
_Ibid._, 489, Feb. 2, 1895. Duluth Shingle Co. _v._ Northern Pacific,
Great Northern, Chicago, Milwaukee and St. Paul, and other railroads.
Footnote 220:
10 I. C. C. Decis. 452, Jan. 7, 1905.
Footnote 221:
Sen. Com. 1905, pp. 2432, 2433.
Footnote 222:
11 I. C. C. Decis. 104.
Footnote 223:
10 _ibid._, 428, Jan. 1905.
Footnote 224:
Sen. Com. 1905, pp. 3426, 3427. S. H. Cowan, attorney of Cattle
Growers’ Interstate Committee; Chicago Board of Trade _v._ C. & A. R.
R., 4 I. C. C. Decis. 158.
Footnote 225:
10 I. C. C. Decis. 428. Chicago Live-Stock Exchange _v._ Chicago and
Great Western. See also I. C. C. Rep. 1905, pp. 42, 63.
Footnote 226:
The United States Circuit Court has refused to enforce the order of
the Commission on the ground that the Chicago Great Western reduced
the rate for competitive reasons to get its share of the tariff. The
Commission justly says: “If the decision of the Circuit Court in this
case is sound any carrier is justified in making the widest
discriminations in rates as between competing commodities, regardless
of the effect upon non-favored industries, by simply asserting the
existence of general competition and the desire to increase the
traffic in particular commodities over its line.”
I. C. C. Rep. December, 1905, p. 64. It is to be hoped that the case
will go up on appeal and a reversal of the Circuit decision be
obtained.
Footnote 227:
10 I. C. C. Decis. 590, Feb. 11, 1905; Rep. 1905, p. 31.
Footnote 228:
Cannon Falls to St. Louis, 10 I. C. C. 650, March, 1905.
Footnote 229:
Sen. Com. 1905, p. 1775. Mr. Bacon of Milwaukee, speaking for a
convention of shippers.
Rates to Texas also from Kansas and Missouri points are 5 cents per
hundred higher on flour than on wheat, and this differential is not
applied on shipments in any other direction from those points. (10 I.
C. C. Decis. 1904, 55.)
Footnote 230:
I. C. C. Cases, 707, 1905.
Footnote 231:
Proctor and Gamble Case, I. C. C. Rep., 1903, pp. 57–61; 1905. Rep. p.
63.
Footnote 232:
Sen. Com. 1905, p. 346.
Footnote 233:
_Ibid._, p. 2742.
Footnote 234:
_Ibid._, p. 18.
Footnote 235:
Business Men’s League of St. Louis _v._ many railroads, 9 I. C. C.
Decis. 319, Nov. 17, 1902.
Footnote 236:
10 I. C. C. Decis. 333, June 25, 1904.
Footnote 237:
_Ibid._, 327, June 25, 1904.
Footnote 238:
Sen. Com. 1905, p. 1925.
Footnote 239:
I. C. C. Dressed-meat Hearings, Dec. 1904, Biddle.
Footnote 240:
Sen. Com. 1905, pp. 351, 354, 364, 818, 2496. The routing instructions
to agents of the St. Louis and San Francisco Railroad Company were
introduced. The circular contained a list of the roads over which
shipments were to be routed unless shippers insisted on a different
routing. Agents were cautioned that “these instructions are
confidential and must not be made public. Under no circumstances must
representatives of foreign roads or fast lines be allowed to examine
the instructions contained in the circular.” (p. 351.)
Footnote 241:
Sen. Com. 1905, p. 818.
Footnote 242:
Sen. Com. 1905, p. 354. The witness derived his information as to the
sale of tonnage and reciprocal routing agreements from high officials
of the railroads, pp. 354, 364.
Footnote 243:
10 I. C. C. Decis., 1904, p. 47.
Footnote 244:
_Ibid._, 422, Jan. 7, 1905.
Footnote 245:
_Ibid._, 630.
Footnote 246:
10 I. C. C. Decis. 226, April 28, 1904; Rep. 1904, p. 58,—held
unlawful discrimination. See also p. 78, complaint against W. Va.
Northern for refusing due proportions of coal cars.
Footnote 247:
134 Fed. Rep. 196; I. C. C. Rep., Dec. 1905, p. 65.
Footnote 248:
10 I. C. C. Decis. 699.
Footnote 249:
_Ibid._, 47, 663. The favored party in this case was an agent for the
railroad. No relief could be given.
Footnote 250:
11 I. C. C. Decis. 104. Rep. 1905, p. 45. Citing Wight _v._ United
States, 167 U. S. 512, and the Midland Case, 168 U. S. 144.
Footnote 251:
The Commission holds that the division agreed on must not be excessive
(10 I. C. C. Decis. 1905, p. 385. Harvester Trust and Steel Trust
Cases). But there is nothing in such granting or refusing of rate
concessions that necessarily violates the interstate law, provided the
little roads are common carriers for the public subject to the Act to
regulate commerce. If not, the division is held unlawful (10 I. C. C.
Decis., March 19, 1904, pp. 193, 505, 545, 546. Lumber).
The plea that the division is accorded to the little road because it
controls the business of its routing does not explain cases of
division between a private railroad that brings logs, etc., to the
mill, and the railroad that takes the lumber, etc., from the mill. But
through the milling-in-transit principle a division may be arranged
between the common carrier by rail that brings the logs to the mill
and the carrier that takes the lumber away (10 I. C. C. Decis. 194).
Footnote 252:
I. C. C. Rep. 1903, pp. 18–22.
Footnote 253:
Testimony of Mr. Biddle, General Traffic Manager of the Santa Fe,
Hutchinson Salt Case. I. C. C. Hearing, Dec. 5, 1903, p. 35.
Footnote 254:
10 I. C. C. Decis. 385, 392, Nov. 3, 1904. The Commission held that
$3.50 a car to the Illinois Northern, and $3 a car to the West
Pullman, would be reasonable for switching charges, and that switching
charges in excess of these sums amount to unlawful preferences in
favor of the International Harvester Company.
Footnote 255:
I. C. C. Rep. 1904, p. 21.
Footnote 256:
I. C. C. Rep. 1904, p. 21; 10 I. C. C. Decis. 385, Nov. 1904. The
Commission held that “the divisions are grossly excessive for the
services rendered and afford unlawful preference for the U. S. Steel
Corporation, which owns the Ill. Steel Co.”
Footnote 257:
10 I. C. C. Decis., March 25, 1905, pp. 661, 667–669 _et seq._
Footnote 258:
_Ibid._, p. 661.
Footnote 259:
I. C. C. Decis., 664, March 12, 1904.
Footnote 260:
_Ibid._, 707, Feb. 7, 1905; also p. 681, March 19, 1904.
Footnote 261:
The oil cars, dressed-meat cars, etc., of course are in use the year
round, and even fruit and vegetables need refrigerator cars in the
winter to keep them from freezing as well as in summer to keep them
from spoiling. (Sen. Com., 1905, p. 370.)
Footnote 262:
The present system, however, does not always give good service. In
April and May, 1905, for instance, hundreds and hundreds of cars of
strawberries rotted at the stations in North Carolina for want of
cars. The Armour Car-Line could not, or at least did not supply the
needed cars, and as they have an exclusive contract with the Atlantic
Coast Line no other cars are in the field. At one station only 4 cars
were furnished in two days and 125 carloads of berries were left on
the platform and the ground to spoil. The loss this season to the
truck growers of this one section from insufficient car service is
estimated at $600,000. (Sen. Com., 1905, pp. 2596, 2619.)
Footnote 263:
Some railroads have refrigerator lines of their own; the Pennsylvania,
for example, and the Vanderbilts, the Goulds, the Santa Fe, the
Northern Pacific, the Great Northern, etc., but they carry the private
refrigerators also. Packers and other shippers owning cars insist on
sending their goods in their own cars, and making the roads pay
mileage. If the road refuses, the freight goes by some other line.
“They compel us to take it in their cars and pay them for the use of
them while our own cars stand on the side track, or else some other
road gets the business.” (Testimony of James J. Hill, Sen. Com., 1905,
pp. 1504–1505.)
Footnote 264:
See above, pp. 57, 58.
Footnote 265:
This mileage rebate system began long ago. Way back in the seventies
the Erie and other roads allowed the Standard Oil Company to put tank
cars on their tracks and paid it a mileage sufficient to pay back the
values of the cars in less than 3 years.
Footnote 266:
The 1 cent rate applies to 15 to 25 percent of the total mileage of
the cars and the ¾ cent rate to the remaining mileage. (Bureau of
Commerce Rep. on Beef Industry, March, 1905, p. 273.)
Footnote 267:
Evidence in I. C. C. Hearings on private car-lines, April 28, 1904, p.
8. The Beef Trust report of the Bureau of Commerce, 1905, presents
some conflicting evidence and sums up the case with a conservative
estimate which places the average daily run of _all_ the cars owned by
Armour and his associates and used in the beef business at 90 to 100
miles. In the same report, however, the refrigerator cars of the
National Car-Line Company, and of the Provision Dealers’ Dispatch are
reported as running 300 miles a day, and the cars of Swift and Company
are estimated to make 373 miles a day in Iowa. (“Report of
Commissioner of Corporations on the Beef Industry.” March 3, 1905, pp.
274–281.)
Footnote 268:
I. C. C. Rep. 1903, p. 23.
Footnote 269:
National Congress of Railway Commissioners, 1892, statement of the
Committee on Private Cars, p. 52 _et seq._ The Lackawanna Line Stock
Express Co., for example, netted 50 percent a year, or $343 per car.
See also 4 I. C. C. Decis. 630.
Footnote 270:
I. C. C. Rep. 1903, p. 24. Sometimes the payment for a refrigerator
car is much more than $1 a day. James J. Hill says: “If we take
another railway company’s car, we pay 20 cents a day for it for the
time we have had it, and we are in a hurry to get it back; and we load
the other man’s car back if we have anything to put in it. That is
always understood. But they do not want anything put in their cars.
They say: ‘Hurry it back; get it around quickly, and pay us, in place
of 20 cents a day, three-fourths of a cent a mile.’ They used to ask a
cent a mile, but I think that has been abandoned.”
“SENATOR NEWLANDS. How much does that amount to a day, say at the rate
of a cent a mile?
“MR. HILL. If they got a cent a mile and we hurried that car through
to the coast, we would take it about 300 miles a day, so that they
would get about $3 a day for the car.
“SENATOR NEWLANDS. So that in the one case you pay 20 cents?
“MR. HILL. And in the other we pay $3.
“SENATOR NEWLANDS. And the private car-lines you pay $3.
“MR. HILL. Yes—well, $3 would be the extreme figure. We will say
$2.50.” (Sen. Com. 1905, p. 1505.)
Footnote 271:
A refrigerator car costs $900 to $1000, as a rule. A first-class
steel-framed freight car costs about the same. Private stock cars of
good build cost about $800 each. (See evidence in Hearings on Private
Cars, I. C. C. April, 1904, pp. 19, 100; I. C. C. Rep. 1904, p. 14.)
The contracts provide that the railroads are to carry no perishable
goods except in Trust cars if the Trust cares to furnish the cars. If
by chance the railroads use their own or any other refrigerator cars
than those of the Trust they are to charge the full Trust rates and
turn over the said charges to the car-line just as if its cars had
been used.
Footnote 272:
Sen. Com. 1905, p. 776: 49,807 total, 15,269 railroad and 34,538
private refrigerators; 14,792 tank cars; 11,357 stock cars; 325
poultry cars; vehicle cars and furniture cars, 1,621. These with coal
and coke cars and other private cars make a total of 127,331 private
cars. The entire freight car equipment belonging to the railroads is
about 1,700,000 cars.
Footnote 273:
The Beef Trust is one of the largest shippers in the world. Its
packing-house shipments from Chicago are said to amount to some three
thousand million pounds (3,000,000,000 lbs.) a year. Its shipments
from Kansas City, Omaha, St. Joe, St. Louis, etc., are also enormous.
There is also a vast traffic in poultry, eggs, dairy products, fruit,
and vegetables, that is controlled by the Trust. Is it any wonder that
a railroad president or manager should refrain from action that might
lose him his share of this huge business? It would make a sad hole in
his receipts. Dividends would be emaciated and might vanish or appear
with a minus sign. His stock would sink in Wall Street. Angry
directors, bankers, investors, and stockholders would assail him and
attack his management. And as a result of defying the Trust he would
put himself out of office and his road perhaps in the hands of a
receiver.
Footnote 274:
C. B. Hutchins was the inventor of an improved refrigerator car. He
built five cars in 1886, and in 1890 he had the California Fruit
Transportation Company operating $200,000 worth of cars. In two years,
1890 and 1891, the profits amounted to $250,000 or more than the total
investment, and the company thought they had something better than a
gold mine. But the Beef Trust undermined them by railroad favoritism
and compelled them to sell out to the Swifts.
While the California Fruit Transportation Company was fighting for its
life with the Armour lines, it presented the Southern Pacific Railway
Company with $100,000 of its stock on condition of receiving an
exclusive contract. The contract was made, but the Armour cars
continued to go. An influence was at work stronger than the exclusive
contract and the power of the California Fruit Transportation Company.
Footnote 275:
Evidence, pp. 101, 133, 134, 146, etc. For example the manager of the
“Missouri River Despatch” operating 250 refrigerator cars testified
that the Erie paid 12½ percent commissions on the freight rates in
addition to the mileage. And the manager of the Santa Fe car-line said
the B. & O. paid them 12½ percent commissions on dairy products in
addition to the ¾ cent mileage, etc. etc.
Footnote 276:
Evidence, pp. 54–55, Armour Cars.
Footnote 277:
National Congress Railway Commissioners, above cited.
Footnote 278:
_Ibid._
Footnote 279:
I. C. C. Rep. 1904, p. 14. Aug. 1, 1904 the Armour lines made an
exclusive contract with the Pere Marquette Railroad, the fruit carrier
of Michigan. Before that the railroad iced carloads of fruit free of
charge. On the date named icing charges went into effect as follows:
$25 to Chicago, Detroit, Grand Rapids, and other Michigan points.
$30 to Cleveland, Columbus, Cincinnati, Indianapolis, and other points
in Ohio and Indiana.
$35 to Buffalo, Bloomington, and various other points in New York,
Illinois, and Wisconsin.
$40 to Des Moines, Minneapolis, Nashville, and other points in Iowa,
Minnesota, Tennessee, etc.
$45 to Duluth, Lincoln, Wichita, etc.
$50 to New York City, Baltimore, Washington, Denver, etc.
$55 to Boston, Hartford, Mobile, New Orleans, etc.
$60 to Spokane, etc.
From $25 to $60 for what a year ago the railroad gave free of charge.
Footnote 280:
Rep. 1904, p. 15, 10 I. C. C. Decis. 1904, p. 360. Dealers have
protested against paying 4 or 5 or 6 times the fair charge for ice,
and have now and then refused to pay, telling the companies they could
sue for the charges. But the car companies knew a better way. They
ordered the cars of the disobedient dealers delayed and notified them
that in future icing charges must be prepaid on all shipments to them
or from them. These orders were enforced by the railroads and the
kicking dealers were helpless. (Evidence, etc., 201–203.)
With a commission business such as that involved in the case referred
to, an order for prepayment of icing charges or freight rates or both
means ruin. For farmers and other producers will not prepay charges on
perishables, and will not therefore ship to commission merchants to
whom the railroads do not give credit that permits the payment of
charges at their end of the line, _i. e._, on delivery.
Footnote 281:
Evidence, etc., 206, 207.
Footnote 282:
_Ibid._, 207.
Footnote 283:
Sen. Com. 1905, p. 2596; and the next item in the text.
Footnote 284:
11 I. C. C. Decis, 129, and Rep. 1905, p. 30, holding the Pere
Marquette Armour charges excessive and approving the Michigan Central
charge of $2.50 per ton on interstate shipments by the car.
Footnote 285:
Sen. Com. 1905, p. 369.
Footnote 286:
I. C. C. Beef Hearing, 1904, p. 165 _et seq._ It is a physical
impossibility for a man to inspect the loading of 75 or 100 cars a
day, and if an inspector is overzealous and conscientious in watching
the cars he can attend to, the Trust has the railroad dismiss him.
Footnote 287:
_McClure’s_ for January, 1906, p. 323.
Footnote 288:
See testimony before the I. C. C. April, 1904, p. 27. Mr. Watson’s
memory was very hazy. He could not remember what he had formerly
testified on this subject before the referee. Neither could he tell
what “U. P.” meant nor recognize the clear meaning of “C. & A.” in the
car-line account books, though every one familiar with railway matters
knows that “U. P.” stands for Union Pacific and “C. & A.” for Chicago
and Alton. Mr. Marchand, counsel for the Commission, drew some curious
non-information and mal-information from Mr. Watson, the former head
of Porter Brothers, who were large shippers of fruit in Chicago.
“MR. MARCHAND. What commission did you receive from the railroads on
account of Porter Brothers up to that time?
“MR. WATSON. I told you that was all stopped about four years ago, to
the best of my recollection.”
“MR. MARCHAND. Do you remember receiving from the Union Pacific
Railroad Company $1,400 in 1898—January 25, 1898?
“MR. WATSON. I do not.
“MR. MARCHAND. You have no recollection of that?
“MR. WATSON. No, sir.
“MR. MARCHAND. In 1899 there appears upon the ledger of Armour & Co.,
or rather the Fruit Growers’ Express, an item of $47,000, a credit. Do
you know where that came from?
“MR. WATSON. I do not know anything about the books of Armour & Co.
“MR. MARCHAND. Do you remember having received from C. & A. as on the
books of Armour & Co., on the 10th of October, 1899, the sum of
$45,219?
“MR. WATSON. I do not. I guess if you look it up you will find it is
‘credits and allowances.’
“MR. MARCHAND. ‘C. & A.’ stands for ‘credits and allowances’? What
does ‘U. P.’ stand for?
“MR. WATSON. I do not know.
“MR. MARCHAND. Does that stand for ‘Union Pacific’?
“MR. WATSON. I do not know whether it does or not.”
Mr. Robbins, vice-president and manager of the Armour Car-Lines, was
also afflicted with loss of memory, which was specially unfortunate in
view of the fact that the Trust had destroyed the accounts some time
before the Hearing.
“MR. MARCHAND. Can you explain the item of $14,000 paid to the Union
Pacific?
“MR. ROBBINS. No, sir; I can not.
“MR. MARCHAND. Is there anybody in your employ that can?
“MR. ROBBINS. I do not think so.
“MR. MARCHAND. You say you have destroyed your records.
“MR. ROBBINS. Yes, sir.”
Footnote 289:
I. C. C. Hearing on Private Cars, 1904, pp. 147–149. Mr. Brown,
counsel for the Santa Fe, said to the Senate Committee, 1905, that he
wished to put on record a sweeping denial that the A. T. & S. F. Co.
has made any discriminatory rates or paid any rebates. The next
moment, in answer to a question about the reduction of $25 a car below
the published tariff, to which Mr. Leeds testified as given by the
Santa Fe car-line, Mr. Brown said: “It was a rebate given to every
one.” (Rep. Sen. Com. on Interstate Commerce, May, 1905, p. 3140.) He
first said the road did not give any rebates, and then admitted it did
give rebates, but said it gave the same rebate to every one that
shipped. The coal mines that paid the Santa Fe $4 against $2.90 paid
by the Colorado Fuel Co. would hardly agree to that statement. But Mr.
Brown had in mind the car-line case in which they said the same rebate
was given to every shipper. Mr. Leeds said it was a secret rate, and
that he went to California and solicited business from various
shippers. Under such circumstances, the fact that every one who
shipped got the rebate does not eliminate discrimination but
accentuates it. The discrimination is against the man who does not
ship, the man who is not informed of the secret rebate. The Santa Fe
car-line informed such dealers as it chose. No others could afford to
ship on the Santa Fe. The instructed dealers could easily hold the
market at prices that would prevent the uninstructed from thinking
about shipping such goods.
Footnote 290:
Rep. 1904, p. 13.
Footnote 291:
Mr. Streychmans has been accused of stealing this code book and also
certain letters and papers, but in fact he took no original papers,
but only carbon copies of letters and statements he wrote for the
company, and the code book was put into his possession for use in his
work by the secretary of Armour’s general manager. If any charge of
stealing or any other criminal charge could be made, Streychmans would
long ago have been prosecuted by the Beef Trust people. When he began
giving publicity to the facts in his possession the general manager
tried to buy him off. He was shamefully treated by some of the Armour
officers, and partly in revenge, probably, and partly in gratitude to
the editor of the San Francisco _Examiner_ for helping him out of
California and the Armour grip, he gave the editor copies of letters,
etc., the publication of which led to his examination by the
Commission.
Footnote 292:
Testimony of J. W. Midgley, for over 20 years commissioner, chairman
and arbitrator for various Western railroads. I. C. C. Hearing, April,
1904, p. 8. The reader who is specially interested in the Beef Trust
and its doings should send for a copy of this Hearing, and those of
1901–1902. The report of the Bureau of Commerce Mar. 3, 1905, and Mr.
Baker’s articles in _McClure’s_ for Jan. 1906 and following months,
are also of the deepest interest.
Footnote 293:
Sen. Com. 1905, p. 311. The organizations represented by Mr. Ferguson
are the Western Fruit Jobbers’ Association; the National Retail
Grocers’ Association; the Minnesota Jobbers’ Association; Wisconsin
Retail and General Merchandise Association; Wisconsin Master Butchers’
Association; Minnesota State Retail Grocers’ Association, Superior,
Wis.; Lake Superior Butchers’ Association, Duluth, Minn.; Duluth
Commercial Club; Duluth Produce and Fruit Exchange, and the Iowa Fruit
Jobbers’ Association.
Footnote 294:
Rep. U. S. Industrial Commission, iv, p. 53.
Footnote 295:
The Standard has the tanks and private sidings all over the New
Haven’s territory while few are owned by the independents. Persons
without these facilities must pay 2d-class rates, while the Standard
Oil pays 5th class. The 5th class rate between Boston and New Haven is
10 cents per hundred, while the 2d class is 20 cents, the difference
probably representing several times the profit in handling one hundred
lbs. of kerosene. (Commissioner Prouty, in Annals of American Academy
of Political and Social Science, January, 1900.)
Footnote 296:
Ind. Com. iv, p. 53.
Footnote 297:
Sen. Com., 1905, pp. 2740, 2742.
Footnote 298:
See _The Outlook_, July 1, 1905, p. 578.
Footnote 299:
See Miss Tarbell’s vigorous description of what the Standard did to
Kansas in _McClure’s_ for September, 1905.
Footnote 300:
Ind. Com. vi, pp. 663–665. The seaboard pipe line was completed in
1884.
Footnote 301:
Sen. Com. 1905, p. 2322, Professor Ripley.
Footnote 302:
_Ibid._, p. 48. A member of the Florida State Commission says the
roads also show favoritism in the supply of cars and by giving rebates
to large shippers. (_Ibid._, p. 47, R. H. Burr.)
Footnote 303:
Sen. Com. 1905, pp. 3339, 3340, Commissioner Fifer.
Footnote 304:
_Ibid._, pp. 1816–1820, 3439, 3440.
Footnote 305:
10 I. C. C. Decis. 342, June 25, 1904.
Footnote 306:
Sen. Com. 1905, p. 3441. Other witnesses agreed as to the oppressive
freight rates, and said the town had subsidized two roads, both of
which are now controlled by the Southern Railway, but they did not
think town values had decreased or that population had diminished (pp.
2006, 2018).
Footnote 307:
_Ibid._, pp. 1761, 1762.
Footnote 308:
_Ibid._, p. 3294.
Footnote 309:
_Ibid._, p. 1878.
Footnote 310:
Sen. Com. 1905, p. 2040.
Footnote 311:
Sen. Com. 1905, p. 34.
Footnote 312:
_Ibid._ See 10 I. C. C. Decis. 650, and Rep. 1905, p. 36.
Footnote 313:
Complaint of Denver Chamber of Commerce, Sen. Com. 1905, p. 3257.
Footnote 314:
Sen. Com. 1905, p. 3336.
Footnote 315:
Question of Mr. Fifer of Interstate Commission to Sen. Com. 1905, p.
3337.
Footnote 316:
Sen. Com. 1905, pp. 2930, 2940.
Footnote 317:
_Ibid._, p. 2914.
Footnote 318:
See statements of Chamber of Commerce of Spokane and testimony of its
representative, Brooks Adams, Sen. Com. 1905, pp. 2917, 2928.
Footnote 319:
Sen. Com. 1905, pp. 2527–2529.
Footnote 320:
Senator Dolliver, Sen. Com. 1905, p. 2094.
Footnote 321:
Sen. Com. 1905, p. 1870.
Footnote 322:
10 I. C. C. Decis. 456, Jan. 13, 1905.
Footnote 323:
See the series of broadsides on these subjects in the Philadelphia
_North American_ during August, 1903, and the early part of 1904. An
excursion ticket from Washington to New York and return allowed 10
days in New York. Formerly a southern buyer going north on such a
ticket could stop over in Philadelphia. But in 1903 this stop-over
privilege was revoked, and if the buyer stopped in Philadelphia and
then bought an excursion to New York he could only stay five days in
New York. The result was that southern buyers began to leave
Philadelphia out in the cold and merchants found that “the present
tariff arrangements are working incalculable injury to wholesale
houses in Philadelphia,” and some of them had to open houses in New
York.
Footnote 324:
Ind. Com. ix, p. 133.
Footnote 325:
4 I. C. C. Decis. 593. The order was made May 29, 1894, on petition of
the Freight Bureau of the Cincinnati Chamber of Commerce _v._ 23
railway companies, and the Chicago Freight Bureau _v._ 31 railways and
5 steamship companies. The companies refused to comply and the Circuit
Court dismissed the bill for an enforcement, October, 1896, 62 Fed.
Rep. 690; 76 Fed. Rep. 183.
Footnote 326:
I. C. C. _v._ Railway, 167 U. S. 479, May, 1897, reaffirming 162 U. S.
184 and citing 145 U. S. 263, 267. Justice Harlan dissented.
Footnote 327:
“Railroad Transportation,” p. 114.
Footnote 328:
Sen. Com. 1905, p. 844.
Footnote 329:
_Atlantic Monthly_, vol. 73, p. 803, June, 1894.
Footnote 330:
E. P. Alexander in “Railway Practice,” p. 8.
Footnote 331:
Ind. Com. iv, p. 194.
Footnote 332:
10 I. C. C. Decis. 1904, p. 58.
Footnote 333:
Sen. Com., 1905, p. 19, Bacon.
Footnote 334:
_Ibid._, p. 19.
Footnote 335:
J. C. Wallace of the American Shipbuilding Co., June 28, 1904, to the
Congressional Merchant Marine.
Footnote 336:
See Wright’s letter printed in the speech of Senator Bacon of Georgia,
_Congressional Record_, April 25, 1904.
Footnote 337:
Testimony of James J. Hill before the Marine Commission.
Footnote 338:
10 I. C. C. Decis. 1904, p. 81.
Footnote 339:
Sen. Com. 1905, p. 919.
Footnote 340:
_Ibid._, p. 20. Glass, for example, costs 53 cents a hundred from
Boston to Chicago, while it will go all the way from Antwerp to
Chicago for 40 cents, and the railroads get only a fraction of the
through charge.
Footnote 341:
Ind. Com. iv, p. 194.
Footnote 342:
I. C. C. Beef Hearing, Dec. 1901, pp. 106–107; see also pp. 87, 88.
Footnote 343:
Sen. Com. 1905, p. 1462.
Footnote 344:
See evidence adduced in Chapter II. The words of the Industrial
Commission are still true: “There seems to be a general agreement that
the issue of free passes is carried to a degree which makes it a
serious evil.... Passes are still frequently granted to the members of
State and national legislatures and to public officers of many
classes.... And stress is often laid on the opinion that the issue of
passes to public officers and legislators involves an element of
bribery.” (Vol. iv, p. 18.)
Footnote 345:
Salaries are paid to favored persons; stock is given to influential
people; and tips on the market are given to congressmen and others
whose favor may be of advantage. And the railroads act against those
they dislike as vigorously as they act in favor of their friends. A
curious illustration of the extent to which railways will sometimes go
in their breaches of neutrality occurred in connection with the recent
trip of Thomas W. Lawson in the West. During the Chatauqua exercises
at Ottawa, Kansas, the Santa Fe advertised specials to run every day.
The day that Lawson was to speak, however, no specials ran, and
thousands of people were unable to go, as they had expected, to hear
the man who was attacking Standard Oil and its allies. The specials
ran as advertised every day up to “Lawson Day,” and began running
again the day after. The Santa Fe may not approve of Mr. Lawson’s
statements and in common with all other citizens it has the right to
oppose him with disproof, but isn’t it a little strange in this land
of liberty, free speech, and equal rights, for one of the best
railroads in the country to boycott a Chatauqua day because a man it
does not approve of is to speak?
Similar experiences with the railroad service are reported from the
Chatauqua at Fairbury, Neb., when Lawson spoke there.
Footnote 346:
Mr. Appleton Morgan, writing in the _Popular Science Monthly_ for
March, 1887, said (p. 588): “Rebates and discriminations are neither
peculiar to railways nor dangerous to the ‘republic.’ They are as
necessary and as harmless to the former as is the chromo which the
seamstress or the shopgirl gets with her quarter-pound of tea from the
small tea-merchant, and no more dangerous to the latter than are the
aforesaid chromos to the small recipients.”
General Manager Van Etten of the B. & A. says discrimination is the
American principle. You find it everywhere. You buy goods at wholesale
much cheaper than you can get them at retail. It is the same with gas
and water and electric light.
A number of railroad men take the view that “railroad service” is a
commodity to be sold like any other sort of private property at
whatever price the owner can get or chooses to take.
The trouble with these statements (aside from the quantity plea which
may be allowed within reasonable limits) is that the differences
between railway service and ordinary mercantile service are not taken
into account.
If people found they were unfairly treated by the bakeries or
groceries or shoe stores of a town, it would be easy to establish a
new store co-operatively or otherwise, that would be fair and
reasonable, and that possibility keeps the store fair as a rule even
where there is no direct competition. But when the railways do not
deal justly with the people of a town they cannot build a new road to
Chicago or San Francisco. It is the monopoly element, together with
the vital and all-pervading influence of transportation, that
differentiates the railroad service from any ordinary sort of
commerce. If bread stores or shoe stores combined, and, by means of
control of raw material or transportation facilities, erected a
practical monopoly or group of monopolies, and favoritism were shown
in the sale of goods by means of which those who were favored by the
monopolists got all the chromos and low rates, and grew prosperous and
fat, while those who were not favored went chromoless and grew thin in
body and emaciated in purse, it is not improbable that the President
would write a message on the bread question and the leather question,
and a Senate committee would be considering legislation to alleviate
the worst evils of the bread and shoe monopolies without stopping the
game entirely.
Footnote 347:
In their established tariffs our railroads do apply the same rates per
hundred whether the goods moved in carloads or train loads. The
Commission has held that the law requires this, and Commissioner
Prouty says that the open adoption of any different rule would create
an insurrection that Congress would hear from from all parts of the
country; but he thinks that in certain cases, live-stock and
perishable fruit for example, the railroads should have a right to
make lower rates by the train-load than by the carload. In reference
to cost of service there is ground for such a difference, but on
grounds of public policy is it not a mistake to favor the giant
shipper in this way and so help the building of trusts and monopolies?
Footnote 348:
Sixth Annual Report, Interstate Commerce Commission, p. 7.
Footnote 349:
_Outlook_, July 1, 1905, p. 577.
Footnote 350:
We have seen earlier in this chapter that a number of railroad men and
others told the Senate Committee that they believed rebates and
discriminations to have ceased. In his excellent book, “The Strategy
of Great Railroads,” Mr. Spearman says: “Alexander J. Cassatt has made
unjust discrimination in railroad traffic a thing of the past.”
Sometimes we are assured: “There can be no doubt but that, on the
whole, the freight rates of the country have been adjusted in very
nearly the best way possible for the upbuilding of the country’s
commerce.” (See “Freight Rates that were made by the Railroads,” W. D.
Taylor, _Review of Reviews_, July, 1905, p. 73.) For one who has in
mind the facts brought out in this book, comment on these statements
is hardly necessary. There is no doubt that President Cassatt is a
railroad commander of exceptional power, but he has not vanquished the
smokeless rebate, nor driven the hosts of unjust discrimination from
the railroads of the United States.
Footnote 351:
Ind. Com. Q. & Ans. iv, p. 596.
Footnote 352:
Sen. Com. 1905, p. 1474.
Footnote 353:
Sen. Com. 1905, p. 1521. The Texas Railway Commission says: “It is
plain that, if a railway company is permitted to become interested in
any kind of business competitive with business in the carrying on of
which for others it is engaged, the business in which it is interested
can be made to prosper at the expense of the business in which it has
no interest. The temptation to unfair discrimination in such a case is
so powerful that it ought to be removed.” (Report, 1896, p. 29.)
Footnote 354:
Sen. Com. 1905, p. 17.
Footnote 355:
I. C. C. Rep. 1898, p. 6.
Footnote 356:
I. C. C. Rep. 1898, p. 8.
Footnote 357:
On pages 65 and 66 of the last Report, Dec. 1905, the Commission
discusses a decision of the Circuit Court for the Southern District of
New York, in June last, to the effect that a _subpœna duces tecum_,
commanding the secretary and treasurer of a corporation supposed to
have violated the law to testify before the grand jury, and bring
numerous agreements, letters, telegrams, etc.,—practically all the
correspondence and documents of the company originating since the date
of its origin,—to enable the district attorney to ascertain whether
evidence of the alleged breach of law exists, constitutes an
unreasonable search and seizure of papers prohibited by the Fourth
Amendment to the Constitution.
Footnote 358:
Sen. Com. 1905, pp. 2899–2901, 2911.
Footnote 359:
Sen. Com. 1905, p. 829.
Footnote 360:
I. C. C. Beef Hearing, Dec. 1901, pp. 100, 101.
Footnote 361:
I. C. C. Beef Hearing, Dec. 1901, pp. 114–115.
Footnote 362:
_Ibid._, p. 126.
Footnote 363:
Report of Oregon Railway Commission, 1889, p. 32.
Footnote 364:
See above, p. 237.
Footnote 365:
See above, p. 113.
Footnote 366:
“There is ample law to-day” to stop rebates and unjust
discriminations, says President Tuttle of the Boston and Maine (Sen.
Com. 1905, p. 951), and he backs up his statement with vigorous
reasons for believing that the Government has never earnestly enforced
existing laws. President Ramsey of the Wabash also says that the
present law is ample to cover every unjust charge, and no further
legislation is needed to stop discrimination (Same, p. 1959).
George R. Peck, general counsel for the Chicago, Milwaukee & St. Paul,
testified that “existing law is entirely adequate” (Same, p. 1301).
Mr. Robbins, manager of the Armour Car-Lines and director in Armour &
Co., declares that the “Elkins Law is ample” (Same, p. 2387). See also
p. 2117, James J. Hill; pp. 2179, 2181, Carle; p. 2228, Grinnell; p.
3068, Faxon; pp. 3274, 3276, 3285, 3290, Elliott; p. 2360, Woodworth;
p. 2829, Smith.
Footnote 367:
A number of witnesses declare that the delays and uncertainties and
inadequacies of redress under existing laws discourage shippers from
efforts to obtain relief. Mr. C. W. Robinson, representing the New
Orleans Board of Trade and the Central Yellow Pine Association, says
they had such bad luck with their lumber cases before the United
States courts that they are discouraged.
“‘Don’t you think that the question of rebates and discriminations is
already covered by law and can be stopped by summary proceedings?’
“MR. ROBINSON. That they are not stopped is patent to every one who
uses a railway company as a shipper and who keeps his eyes open.
“‘Has there been any suit brought within the last two or three years
for rebates and discriminations in this section of the country?’
“MR. ROBINSON. No; generally speaking, we have decided down there that
life is too short to litigate with the railroad companies” (Sen. Com.
1905, p. 2492).
Governor Cummins of Iowa says that no suits have been brought in Iowa
for discrimination under the Elkins Law because the remedy under that
law is regarded as inadequate (Sen. Com. p. 2081). It appears that
only one case, the Wichita sugar differential, is before the I. C. C.
under the Elkins Law (Sen. Com. p. 2874).
Footnote 368:
Fifer, Adams, etc., Sen. Com. pp. 2923, 3338.
Footnote 369:
Vining, Sen. Com. p. 1691, Knapp, p. 3294, etc. Robbins, however,
manager of the Armour Car-Lines, says they are opposed to being made
common carriers (pp. 2384, 2397, 2400). He says they do not indulge in
rebates, generally speaking (pp. 2382, 2387, 2403), and thinks they
would be worse off if put under the Interstate Law (pp. 2390, 2397,
2401).
Footnote 370:
President Roosevelt, Governor La Follette, Governor Cummins, Sen. Com.
p. 2046; Professor Ripley, pp. 2330, 2338: Commissioner Knapp, p.
3305, Commissioner Prouty, pp. 2794, 2873, 2881, and 2886, where he
says: “I do not think the Commission has to-day in its docket a case
that can be satisfactorily disposed of without determining the rate
for the future.” Commissioner Clements, p. 3243, Commissioner Fifer,
pp. 3344, 3350, and many other witnesses; also writers and speakers
throughout the country.
On the other hand, James J. Hill, President of the Great Northern,
says he cannot imagine a greater misfortune than to attempt to fix
rates by law, p. 1486; it would hamper transportation and hinder
development. President Tuttle says that rate-making is practically the
only property right the railways have, p. 913. Railway men generally
are strongly opposed to fixing rates by commissions.
Footnote 371:
Sen. Com. p. 3482, N. Y. Chamber of Commerce.
Footnote 372:
Several witnesses suggest this. See, for example, Sen. Com. p. 3280.
But James J. Hill says that if present laws were enforced not one of
the car-lines could exist a moment, p. 1486.
Footnote 373:
Professor Ripley, p. 2345, Fordyce, p. 2202, and many railroad men;
see below, p. 265. But see p. 61, Cowan; p. 822, Victor Morawetz; pp.
973 and 1003, President Tuttle.
Footnote 374:
James J. Hill, p. 1521.
Footnote 375:
Knapp, p. 3299; without such a provision the old roads can cripple a
new road unless it goes clear across the continent.
Footnote 376:
Morawetz, pp. 818, 824; Bacon, pp. 16, 23; Davies, p. 3470; and Report
of Industrial Commission. Publicity is an excellent aid, but is
insufficient alone. It must keep steady company with adequate
legislation and efficient enforcement of it. What has been the effect
of publicity on the Standard Oil Trust up to date?
Footnote 377:
Commissioner Prouty, p. 2912. “That would stop discriminations,” said
the Commissioner. “Unless they got possession of the man,” said
Senator Dolliver.
Footnote 378:
Judge Gaynor proposes that the traffic managers shall be appointed by
the Government. The present writer has suggested that the public might
be represented on the board of direction in consideration of the
franchises, etc.
Footnote 379:
_Arena_, vol. 24, p. 569, Parsons.
Footnote 380:
Many of the States have strong laws, but the inharmonious,
uncoordinated efforts of individual States have proved of little avail
against the giant railway systems. Of the 31 States which have
established railway commissions, 22 have given the commissions more or
less of the rate-making power. For example, the Alabama Code, 1886,
gives the Commission authority “to revise the tariffs and increase or
reduce any of the rates.” The California Constitution, 1880, confers
power “to establish rates;” Florida Laws, 1887, “to make and fix
reasonable and just rates;” Georgia Code, 1882, “to make reasonable
and just rates;” Illinois Laws, 1878, “to make for each railway a
schedule of reasonable maximum rates;” Iowa, 1888, and South Carolina,
1888, the same as Illinois; Minnesota, 1887, power “to compel railways
to adopt such rates and classification as the Commission declares to
he equal and reasonable;” South Dakota, 1890, the same; Mississippi,
1884, “to revise tariffs;” New Hampshire, 1883, “to fix tables of
maximum charges.” (See 63 N. H. 259.) Kansas: on complaint and proof
of unreasonable charge Commission may fix reasonable rates, and if
companies don’t comply they may be sued for damages. The Massachusetts
Commission has “authority to revise the tariffs and fix the rates for
the transportation of milk” (158 Mass. 1). In New York the board may
notify the railways of changes in the rates, etc., it deems requisite,
and the Supreme Court may in its discretion issue mandamus, etc.,
subject to appeal. In Nebraska the State Supreme Court has held that
general language prohibiting unreasonable rates, and giving the
Commission power to enforce the law, is sufficient to confer authority
to fix reasonable rates in place of those found unreasonable, such
authority being essential to the efficient execution of the law
against excessive rates (22 Neb. 313).
In none of the States does the power to regulate rates appear to have
produced results of much value. In some States, Georgia, Texas,
Nebraska, Iowa, etc., the power has been at times vigorously used, but
the effect has been to antagonize the railroads, which have so much
power that is beyond the reach of any State Commission that they can
arrange their tariffs and service so as to work against the aggressive
States and disgust the people with the consequences of trying to
control the rates. Senator Newlands, who is sincerely on the people’s
side in the struggle for justice in transportation, voiced the common
opinion when he said in the United States Senate, January 11, 1905,
“As to the rate-regulating power, my judgment is, and it is the belief
of almost all experienced men in this country, that the
rate-regulating power exercised by the States has not, as a rule, been
beneficially exercised.”
Footnote 381:
The Bill provides that “Whenever ... the Interstate Commerce
Commission shall ... make any finding or ruling declaring any rate,
regulation or practice whatsoever affecting the transportation of
persons or property to be unreasonable or unjustly discriminatory the
Commission shall have power and it shall be its duty to declare and
order what shall be a just and reasonable rate, practice or regulation
to be ... imposed or followed in the future in place of that found to
be unreasonable” etc. It also provides that the order of the
Commission shall take effect 30 days after notice, but may on appeal
within 60 days be reviewed by a special transportation court having
exclusive jurisdiction of all such cases. By Section 12, the case is
to be reviewed on the original record, except when there is newly
discovered evidence which was not known at the hearing before the
Commission, or could not have been known with due diligence, and the
findings of fact by the Commission are _prima facie_ evidence of each
and every fact found. The only appeal from the court of transportation
is to the United States Supreme Court.
Footnote 382:
I. C. C. Rep. 1905, p. 9.
Footnote 383:
The granting of such power of inspection and publicity has been urged
by the Commission upon Congress in previous reports. On page 11 of the
Report for December, 1905, the Commission says: “We have also called
attention to the fact that certain carriers now refuse to make the
statistical returns required by the Commission. For example, railways
are required, among other things, to indicate what permanent
improvements have been charged to operating expenses. Without an
answer to this question it is impossible to determine to what extent
gross earnings have been used in improving the property and the actual
cost of operation proper.... Certain important railways decline to
furnish this information at all, and others furnish it in a very
imperfect and unsatisfactory manner.”
Footnote 384:
I. C. C. Rep. 1905, pp. 9, 10.
Footnote 385:
This clause together with the words italicized in the next paragraph
make the ruling of the Commission final so far as the merits of the
case are concerned. (See Appendix B.)
Footnote 386:
As the galley proofs of this book go back to the printer, the Hepburn
Bill has passed the House by a big majority. If passed by the Senate
and put in force, it promises to operate as a serious check upon the
abuses connected with private cars, terminal railroads and midnight
tariffs, but it does not touch at all nine-tenths of the methods of
discrimination. We have seen that between 60 and 70 different methods
of unjust discrimination between persons and places are in use in our
railway business to-day. The fixing of a maximum rate cannot prevent
either secret rate cutting or favoritism in facilities and services,
or even open discrimination in the arrangement of classifications and
adjustment of rates between different localities.
No doubt this law in the hands of an able and honest commission would
do much good, but it cannot reach the heart of the railroad problem,
which is the unjust discrimination between persons and places. No
amount of maximum rate-fixing or prescribing of regulations can
destroy discrimination so long as we have the pressure of great
private interests driving the railroads into the practice of
favoritism.
The history of railroad legislation in this country shows that the
railways do not respect or obey the law when it conflicts with the
fundamental financial interests and orders of the railway owners and
trust magnates, whose gigantic power represents the real sovereignty
and control in America to-day.
On page 3 of the House Report, 59th Congress, 1st Session, No. 591,
January 27, 1906, accompanying the Hepburn Bill the Committee on
Interstate and Foreign Commerce says: “It is proper to say to those
who complain of this legislation that the necessity for it is the
result of the misconduct of carriers.... If the carriers had in good
faith accepted existing statutes and obeyed them there would have been
no necessity for increasing the powers of the Commission or the
enactment of new coercive measures.”
What reason is there to believe that the railroads will accept a new
statute in good faith and obey it any more than any former law? On the
contrary, the probability is that if the Hepburn Bill becomes a law
the main effect will be to compel railway managers and counsel to sit
up nights for a time planning methods to evade and overcome the new
provisions. Even if Congress gave the full power at first demanded by
the President, to fix the precise rate to be charged, the general
effect would probably be that railways would exert themselves to
control the Commission. They have always at hand the weapon of
practically interminable litigation, and it is very doubtful whether
the railroad representatives in the United States Senate will permit
any law to pass until it is amended so that the review in the courts
shall go to the merits of the Commission’s order in each case.
Powerful interests are opposed to any provision that will permit the
fixing of a rate, even a maximum, to go into effect before it is
connected already with the Federal courts.
Footnote 387:
See statement earlier in this discussion.
Footnote 388:
Sen. Com. 1905, p. 3485.
Footnote 389:
Dept. of Commerce, Monthly Summary, April, 1900, p. 3991.
Footnote 390:
See Ind. Com. vols. iv and ix, and Hudson, Hadley, etc.
Footnote 391:
They tend to stability, economy, and efficiency, diminishing the
fluctuation of rates, railroad wars, and the wastes of competition,
and improving the service by better co-ordination, distribution of
traffic, etc.
Footnote 392:
See the powerful statements of President Ingalls, President Fish, Paul
Morton, Professor Seligman, Commissioner Prouty, etc., Ind. Com. vol.
iv; and statements of Professor Ripley, Morawetz, Fordyce, etc., Sen.
Com. 1905. It is absurd to forbid co-operation for the maintenance of
reasonable rates and prevention of superfluous transportation, or any
other honest purpose. Traffic agreements may secure a co-ordination of
service approaching that which would be attained by unity of
management. The fetish-worship of competition is one of the prime
curses of our economic ignorance. We might as well worship
destruction, injustice, and inefficiency. Moreover, competition of the
kind that protects the public from oppressive rates cannot be
maintained in the railway world. Let the railways unite, and then
control them, insisting on the dominance of the public interest so far
as necessary to accomplish justice.
Footnote 393:
The United States Supreme Court held in the Trans-Missouri Case, March
22, 1897, and the Joint Traffic Association Case, Oct. 24, 1898, that
railroads cannot lawfully agree on rates to competitive points. But no
law or decision can well prevent railroad managers from meeting and
coming to an understanding that they will adopt the same rates to such
points. No contract in restraint of trade or to limit competition is
necessary,—if each railroad publishes the same rates between
“competitive” points and maintains them, competition as to rates is
killed as effectually as if there were a pool or a traffic association
with a written agreement.
Footnote 394:
Sen. Com. 1905, pp. 2923, 3338.
Footnote 395:
Sen. Com. 1905, p. 3482.
Footnote 396:
_Ibid._, pp. 3485, 3486. The railroad managers decided to notify
offending railroads that unless rates were restored, the lowest cut
rates that had been made by any line would be adopted by all, to
punish the rebaters and stop them from getting business thereby. At a
meeting July 26, 1882, 30 railroads being represented, a resolution
was unanimously adopted, directing agents at connecting points to
examine waybills, and when rates were found to have been cut, to hold
the freight at the expense of the initial line until the waybills had
been corrected.
Footnote 397:
Sen. Com. 1905, p. 1908, and index, “Rate-Making.”
Footnote 398:
The Senate is too full of men interested in railroads in one way or
another to make it easy to pass any measure that might seriously
affect either the power or the profits of the roads.
Footnote 399:
President Tuttle agrees with the Commission on this point. In his
testimony to the Senate Committee, 1905, he said that the company’s
books would not show rebates, etc., “unless they wanted them to. I
will say to you frankly that if a company intended to evade the law by
giving rebates and commissions they would find some way of so covering
them up that all the experts on the face of the earth could not find
them. If you assume at the beginning that the railroad management is
deliberately going into violations of the law it is not going to make
records of those things which can ever be found out.” (Sen. Com. 1905,
p. 952.) But President Tuttle said: “There is ample opportunity to
ascertain if rebates exist. There are always opportunities. The
competitive shipper knows about it. There is always enough of the
loose end hanging out somewhere so that if the Interstate Commerce
Commission or whoever is authorized to move in those matters will take
the time to proceed upon the lines of information that they can always
get they will be easily ferreted out and punished. I do not think
there is any evidence that the Interstate Commerce Commission has
tried to enforce the Elkins Law.” (Same, p. 951.) Shippers have,
however, often stated that they felt sure some concession was being
made to their rivals, but they could not tell what, and in many cases
there is simply a vague suspicion; no one knows whether others are
paying the tariff rates or not. And railroad men have admitted, as in
the B. & A. case, that no shipper knew what rates others were getting.
Footnote 400:
Sen. Com. 1905, p. 3644.
Footnote 401:
Out of 37 passenger cases (20 rate cases and 17 miscellaneous) the
decision was favorable to the complainant in 9; and in 316 freight
cases the decision was for the complainant in 185 cases. In 70 of the
freight cases the complaint was of excessive charges (half of them
charging discrimination also, or relative excess as well as absolute
excess); 119 related to charges relatively unreasonable; 52 concerned
long and short haul abuses; 20 unreasonable classification, 8 unfair
distribution of cars, 41 miscellaneous. Ninety-six of the 316 freight
cases were dismissed, 13 settled while pending, 4 left without a
general statement and no order, and 17 held for further action. Nearly
90 percent of all the cases, passenger and freight, related directly
to some form of discrimination, and indirectly discrimination of some
sort was an element in practically every case.
Footnote 402:
The 8 cases are the New York and Northern Case (3 I. C. C. 542) the
Social Circle Case (4 I. C. C. 744) the Minneapolis Case (5 I. C. C.
571) the Colorado Fuel and Iron Case (6 I. C. C. 488) the St. Cloud
Case (89 I. C. C. 346) the Savannah Case (8 I. C. C. 377) the Tifton
Case (9 I. C. C. 160) and the California Orange Routing Case (9 I. C.
C. 182). Mr. Willcox thinks the Minneapolis Case and the Colorado Case
should be crossed off because the carriers complied with the orders
while suit was pending, so that there was no decision on the merits.
He says the decision was not on the merits in the New York Case, the
St. Cloud Case, or the Tifton Case. In the Social Circle Case the
Supreme Court sustained the order in respect to discrimination, but
reversed it so far as it attempted to fix a maximum rate. In the
Orange Case the Circuit Court sustained the Commission, but an appeal
was taken at once to the Supreme Court. In the Savannah Naval Stores
Case the Circuit Court sustained the Commission and no appeal was
taken. Two cases in favor of the Commission in the Court of Appeals
and one-half a case in the Supreme Court, and one of the circuit
decisions is on appeal—one and one-half final affirmatives on the
merits out of 34. One would think that Mr. Willcox might allow the
Commission the three cases that were decided in their favor although
the court did not find it necessary to go into the merits of the
matter, and he seems to be less generous about the Colorado Case than
Mr. Newcomb, who says the Commission was sustained by the court.
Footnote 403:
Work of the Interstate Commission, p. 14, 1905. (See Appendix A.)
Footnote 404:
As the average time required to reach a final decision in a case that
goes from the Commission through the Federal courts up to the United
States Supreme Court is 7½ years, it is clear that there is plenty of
time for the accumulation of a congregation of cases, birds of a
feather, waiting for judgment, on the same point.
Footnote 405:
Sen. Com. 1905, p. 2888.
Footnote 406:
The railroads would prefer a court to a Commission if any public body
is to have power over rates. They know that proceedings in court are
likely to be troubled with long delays, and great expense, and that
courts are very delicate about determining what is a reasonable rate.
In the Reagan case (154 U. S. 362) the Supreme Court says: “It has
always been recognized that if the carrier attempted to charge a
shipper an unreasonable sum the courts had jurisdiction to inquire
into that matter and award to the shipper any amount exacted from him
in excess of a reasonable rate; and, also, in a reverse case, to
render judgment in favor of the carrier for the amount found to be a
reasonable rate.”
In any case of suit by a shipper to recover damages for unreasonable
charges the court would have to determine what was a reasonable rate
in order to fix the measure of damages, but Chairman Knapp of the I.
C. C. says he does not know of a case in which suit was ever brought
(Sen. Com. 1905, p. 3301). The fact that very many complaints have
been made of unreasonable rates and no suits brought in the courts
indicates that court procedure is regarded as inadequate. Courts are
by nature judicial, not legislative or executive. And the remedy which
can be administered by them in these railroad cases is uncertain,
limited, and indirect. (Sen. Com. p. 3362.)
Footnote 407:
Sen. Com. 1905, pp. 3297, 3298.
Footnote 408:
Sen. Com. 1905, p. 975.
Footnote 409:
9 I. C. C. Decis. 318, Nov. 17, 1902.
Footnote 410:
10 I. C. C. Decis. 590; Rep. 1905, p. 31.
Footnote 411:
Essex Milk Producers’ Association _v._ Railroads, 7 I. C. C. Decis.
92, March 13, 1897. See also Howell _v._ New York, Lake Erie, and
Western, 2 I. C. C. Decis. 272, equal milk rates from all distances
unlawful.
Footnote 412:
11 I. C. C. Decis. 31.
Footnote 413:
Sen. Com. 1905, p. 1339.
Footnote 414:
Sen. Com. 1905, p. 1165. The fact is that neither the Elkins Bill nor
the Esch-Townsend Bill reaches the private car abuses or terminal
railroads, or flying tariffs, or other evasive forms of
discrimination, and neither adds much to the power of the Commission
to deal with the subject. (See Sen. Com. pp. 2889, 2905, 2911).
Footnote 415:
Sen. Com. 1905, pp. 1675, 1676.
Footnote 416:
See Chamber of Commerce _v._ C. M. & St. P. Rd., 7 I. C. C. Decis.
1898, p. 510 and I. C. C. Rep. 1898, p. 24.
Footnote 417:
The reasons for and against public ownership of railroads are dealt
with in the testimony of the writer before the Industrial Commission,
vol. ix., pp. 123–193, 883–890. President Roosevelt had the
possibility of public ownership in mind when he said in his message
that we must choose between an increase of existing evils, or
increased Government supervision, or a “still more radical policy.”
Footnote 418:
The railways of Italy were operated by private companies when I was
there; since then, in 1905, the Government has undertaken the
operation of them.
Footnote 419:
A few illustrations of the vigorous manner in which this law works out
in practice may be of advantage here:
The Hungarian Government at a single stroke, in 1889, reduced State
railway fares 40 to 80 percent. Austria and Prussia have also made
great reductions in railway charges. Belgium started in the thirties
with the very low rate of ⅘ of a cent on her public railways. In New
Zealand and Australia also the Government managements have adopted the
settled policy of reducing railroad rates as fast as possible.
When England made the telegraph public in 1870, rates were lowered 30
to 50 percent at once, and still further reductions were afterwards
made.
When France took over the telephone in 1889, rates were reduced from
$116 to $78 per year in Paris, and from $78 to $39 elsewhere, except
in Lyons, where the charge was made $58.50.
Private turnpikes, bridges and canals levy sufficient tolls to get
what profit may be possible; but when the same highways, bridges and
canals become public the tolls are often abolished entirely, rendering
such facilities of transportation free, and when charges are made they
are lower than the rates of private monopolies under similar
conditions, and generally reach the vanishing point as soon as the
capital is paid off or before.
When Glasgow took the management of her street railways in 1894, fares
were reduced at once about 33 percent, the average fare dropped to
about 2 cents, and 35 percent of the fares were 1 cent each. Since
then further reductions have been made, and the average fare now is
little more than a cent and a half; over 50 percent reduction in 6
years, while we pay the 5 cent fare to the private companies in Boston
and other cities of the United States the same as we did 6 years ago,
instead of the 2½ cent fare we would pay if the same percentage of
reduction had occurred here as in Glasgow.
According to Baker’s Manual of American Waterworks, the charges of
private water companies in the United States average 43 percent excess
above the charges of public waterworks for similar service. In some
states investigation shows that private water rates are double the
public rates.
For commercial electric lighting Prof. John R. Commons says that
private companies charge 50 to 100 percent more than public plants.
We could offer many other illustrations of the law that public
ownership tends to lower rates than private monopoly, but this
discussion may be sufficient to indicate the complexion of the facts.
Footnote 420:
The sixteenth annual report of the Commission, dated 1905, and
covering the year 1904, has come just in time for a note before the
galleys are made up into pages. Of the 103 suits entered before the
Commission in 1904, about a quarter (25) relate to undue preference,
rebates, refusal or neglect to afford such reasonable facilities as
were accorded to others under similar circumstances; and most of the
other cases, charging unreasonable rates, etc., were really based on
some element of unjust discrimination in one form or another. (See
Appendix B.)
Footnote 421:
While this book is on the press, the eighth report, covering 1902 and
1903, has come to hand. More than half the 180 new complaints filed in
the 2 years directly relate to questions of discrimination—undue
preference, rebates, denial of facilities accorded to others,
excessive charges as compared with other rates, etc., and nearly all
the 180 cases involve discrimination directly or indirectly. (See
Appendix B.)
Footnote 422:
From the _Progressive Review_, vol. II, no. 11, pp. 441, 442, where a
number of facts relating to import rates are condensed from the
testimony before Parliamentary committees.
Footnote 423:
See “The Railway Act” 1903.
Footnote 424:
This and other phases of the problem relating to the comparison of
private management, government control, and government ownership, are
more fully dealt with in “The Railways, the Trusts and the People” by
the same author. Oct. 1905, Equity Series, 1520 Chestnut St.,
Philadelphia.
[Illustration]
------------------------------------------------------------------------
THE RAILWAYS, THE TRUSTS AND THE PEOPLE.
BY PROF. FRANK PARSONS, PH.D.
_Edited and Published by C. F. TAYLOR, M.D., Editor and Publisher of
Equity Series, 1520 Chestnut Street, Philadelphia._
THE CONTENTS ARE AS FOLLOWS:
PART I.
THE RELATIONS OF THE RAILROADS TO THE PUBLIC, OR VITAL FACTS FROM THE
RAILWAY HISTORY OF THE UNITED STATES.
CHAPTER
The Railway Empire I.
The Allied Interests II.
Railway Favoritism III.
Railways in Politics IV.
Fostering Monopoly V.
Watered Stock and Capital Frauds VI.
Gambling and Manipulation of Stock VII.
Railroad Graft and Official Abuse VIII.
Railways and the Postal Service IX.
The Express X.
The Chaos of Rates XI.
Taxation without Representation XII.
Railways and Panics XIII.
Railway Strikes XIV.
Railway Wars XV.
Defiance of Law XVI.
Nullification of the Protective Tariff XVII.
Railway Potentates XVIII.
The Failure of Control, How Far and Why XIX.
The Irrepressible Conflict XX.
PART II.
THE RAILROAD PROBLEM IN THE LIGHT OF COMPARATIVE RAILROAD HISTORY
COVERING THE LEADING SYSTEMS OF THREE CONTINENTS.
CHAPTER
The Problem XXI.
The Supreme Test XXII.
Lessons from Other Lands XXIII.
The Aim XXIV.
Contrasts in General Policy XXV.
Location.—Construction.—Capitalization, etc.
Management XXVI.
Safety.—Service.—Economy.—Progress.
The Rate Question XXVII.
General Policy.—Rate Level under Public and Private
Management.—Zone System.
Employees XXVIII.
Political, Industrial, and Social Effects XIX.
Remedies Proposed XXX.
Pooling.—Consolidation.—Regulation.—Public Ownership.
AMERICAN RAILROAD RATES
BY JUDGE WALTER C. NOYES
_Author of “The Law of Intercorporate Relations,” etc._
* * * * *
A masterly work, reviewing the most highly controversial economic issue
of the day in this country.—_New York Commercial._
Judge Noyes is the possessor of a thorough knowledge of the complicated
subject of rate-making.—_Chicago Record-Herald._
=The most intelligent discussion of the subject which has yet
appeared.=—_New York Law Journal._
Judge Noyes’ handling of the question is clear, impressive, and
indicative of a mastery of the legal or constitutional side of the
subject.—_Springfield Republican._
A careful reading will help toward a solution of the problem of federal
regulation of railway rates.—_Railway Age._
=We know of no book which will give the lay reader so clear and so
authoritative a statement of the fundamental legal principles which must
govern in the determination of the pending question concerning
government regulation of railway rates.=—_Outlook_, New York.
It is truly refreshing to turn to the book. Every aspect, historical or
actual, of the question is dealt with, including discrimination,
pooling, competition.—_Chicago Evening Post._
A book covering completely a field heretofore only touched in
spots.—_Indianapolis News._
=A remarkable book, considered from every point of view—economic,
practical, legal.=—EDGAR J. RICH, _General Solicitor of the Boston &
Maine R. R._
For readers desirous of reaching a clear understanding both of the legal
and economic questions involved in the fixing of railroad rates there is
probably no better handbook. His whole attitude is eminently judicial,
open-minded, and impartial.—_St. Paul Pioneer Press._
The author is an expert in railroad management and his opinions are
judicial and wholly unbiased.—_American Law Review._
* * * * *
PRICE, $1.50 net. Sent Postpaid on Receipt of $1.64 by
LITTLE, BROWN, & CO., _Publishers_, BOSTON
------------------------------------------------------------------------
TRANSCRIBER’S NOTES
1. Silently corrected obvious typographical errors and variations in
spelling.
2. Retained archaic, non-standard, and uncertain spellings as printed.
3. Re-indexed footnotes using numbers and collected together at the end
of the last chapter.
4. Enclosed italics font in _underscores_.
5. Enclosed bold font in =equals=.
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