Popular Science Monthly/Volume 51/October 1897/A Decade in Federal Railway Regulation

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IT is ten years since public dissatisfaction with methods of railway administration found legislative expression in the passage of the Interstate Commerce Law, which was practically the first attempt made by Congress to exercise, in relation to railway transportation, its constitutional power to regulate commerce between the several States. Whatever minor causes may have contributed to this dissatisfaction, there can be no doubt that the only subject of disagreement between the railways and the general public which constituted an at all adequate cause was the charges exacted for the movement of passengers and property. While it must be conceded that much of the complaint was unjust to the railways and arose through the fact that, particularly in the more exclusively agrarian sections of the country, much industry was conducted at a loss that might have been shifted to railway corporations could low enough charges for the movement of agricultural products have been secured, it is yet true that numerous individuals and communities had suffered grievous injury through unjust discriminations in the charges for railway service.

Unjust discrimination in railway charges being the evil that Congress intended to eradicate by the Interstate Commerce Law, the extent in which that result has been accomplished during the ten years since its enactment must be the measure of its success. If it has not materially diminished the unjust rate-making practices formerly so prevalent it will be fruitless to plead that it has, through the annual reports of the commission appointed for its enforcement, provided several volumes of most valuable and practical discussions of railway problems; that through a clause which has no direct connection with its substance, and might as well have been an independent enactment, it has given desirable impetus to the application of safety appliances to cars and trains; or even that in spite of limitations voluntarily imposed by the commission it has secured the compilation, under the skillful direction of a most accomplished statistician, of a mass of statistical information regarding the business of railway transportation that is of great utility to the student and may become an important factor in securing wise and adequate legislation.

The means that Congress provided for the prevention of unjust discriminations in charges were threefold, viz.:

First, a summary process for hearing and adjudicating complaints and enforcing relief; second, publicity of railway methods and accounts; third, perpetual competition among railways.

Though the tentative character of the law was acknowledged by the most vehement of its partisans, there has been as yet no amendment in any way modifying these fundamental principles. Those that have been passed—adding the penalty of imprisonment to that of a mere tine for violation of its clauses; extending the provisions requiring filing and publicity to rate schedules, in which two or more carriers join; requiring public notice of reductions as well as of advances in charges; and relating to procedure—have been at the direct instance of the commission and were advocated in its reports.

The first remedy lingers a living death in the reports of the Interstate Commerce Commission, and it may yet be resuscitated by suitable legislation, but it was deprived of all practical force, except as a contributor to publicity, when, in the first action brought to secure a decree enforcing an order made by the commission, a Federal court, in a decision that has been followed uniformly ever since, claimed the right to go into the matter at issue between the defendant railway and the complainant before the commission de novo, to hear new testimony if offered, to allow the railway to adopt a new line of defense, and to consider the conclusions of the commission as to law and fact as merely prima facie evidence subject to rebuttal.

Publicity was provided for by authorizing the commission to inquire generally into the business of all carriers subject to its jurisdiction; to keep continually informed regarding their business methods, by requiring annual statistical reports; authorizing the commission to prescribe a uniform system of accounts; requiring the publication and filing of schedules of rates on all traffic subject to the provisions of the law; requiring railways to file copies of agreements with other common carriers; and giving the commission authority to issue subpoenas and subpoenas duce stecum. Competition was to be perpetuated by the prohibition of pooling agreements. This and the second remedy have been enforced with reasonable continuity.

Charges for railway service may unjustly discriminate in three ways:

1. When differences are based upon the individuals for whom services are performed.

2. When charges upon different commodities are adjusted for the purpose or so as in effect to foster the movement of one at the expense of the other in a degree not warranted by differences appertaining to the commodities themselves.

3. When charges to or from particular localities favor some to the disadvantage of others more than is justified by natural conditions.

Unjust discriminations between individuals are those most readily observed, and consequently most obnoxious to the general public, though it is doubtful whether their consequences approximate in gravity the serious and deplorable effects of those that fall in the second and third classes. They are effected by means of secret deviations from the published rate schedules, while those between producers of different commodities or between localities appear boldly on the face of tariffs and classifications. The secret rates, rebates, drawbacks, allowances, or other illegal devices resorted to in order to accomplish the first class of discriminations are punishable by fine or imprisonment. The only remedies for the other kinds are modification of the rate schedules or monetary recompense for the damage suffered. The number of discriminations between individuals has been materially reduced by the operation of the present law, but that they have by no means disappeared is evident from the following extract, which, as it is taken from a recent issue of a railway paper of high standing, may be regarded as ex cathedra:

"At present no railway man dares to assist the commission to information against another road, no company dares to be the active instrument in bringing complaint against another. It has its own record behind it. There would be retaliation, and there is no great company which can face having its record of the past years subjected to investigation."

These discriminations are very effective in competition for traffic and will continue an important factor in the railway situation as long as competition is a controlling element in rate-making. It is not even certain that they are not more harmful at present than when more common, and it may be that their baneful effects are accentuated now that, instead of being granted to nearly every applicant, concessions from established charges are accorded only to powerful traders who are able to control traffic sufficient in quantity to yield revenue of almost vital importance to the carrying companies. One of the ablest men ever appointed to be an Interstate Commerce Commissioner has publicly declared that—

"If we could unearth the secrets of these modern trusts, whose surprising exploits excite such wide apprehensions, we should find an explanation of their menacing growth in the systematic methods by which they have evaded the burden of transportation. The reduced charges which they have obtained, sometimes by favoritism and oftener by force, account in great measure for the colossal gains which they have accumulated."

And he adds:

"Indeed, I think it scarcely too much to say that no alliance of capital, no aggregation of productive forces, would prove of real or at least of permanent disadvantage if rigidly subjected to just and impartial charges for public transportation."

Unjust discriminations prejudicial to particular commodities have not been materially reduced in number by the operation of the Interstate Commerce Law. They appear, as has been said, in rate classifications and rate schedules, and the burden of proof is usually upon those who allege that they are unjust. The commission, in response to complaints brought before it, has found it necessary to prescribe the proper relations between rates for carrying the following pairs of commodities: Common soap and pearline, dried fruits and raisins, lumber and hub blocks, lumber and railway ties, wheat and flour, corn and its products, grain and grain products, celery and green vegetables, window shades and hollands, and petroleum and its products. These, however, involve but the smaller side of the question. It is not clear that rates as at present adjusted are relatively reasonable as between, for example, the products of agriculture and those of other industries, nor that they do not bear with undue relative severity either upon the grain producer of the trans-Mississippi region or the cotton planter of the Gulf States. These are matters with which the Interstate Commerce Law does not effectively deal, and which can not be so dealt with until the law is modified in a manner more radical than any yet officially suggested.

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 point 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 can not 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.

The manner in which competition at points served by two or more railways affects those having but one has received general recognition, and is one of the most powerful causes of the too rapid construction that has burdened the country with many unnecessary, unprofitable, and bankrupt lines. To attempt to regulate these cases by the process of taking them up singly and prescribing the alterations necessary to make the charges relatively reasonable, is a task impossible on account of magnitude. Though the relief afforded to particular places through the orders of the Interstate Commerce Commission has often been of great local importance, a large number of its decrees, including those most important, have been entirely ignored, or are now awaiting enforcement through the tedious processes of the courts. Even had the commission itself the authority of a United States court, and were there no appeal from its decisions, the town with two railways would still have an immense advantage over that with one.

In the case of the Eau Claire Board of Trade, decided by the Commission in 1892, it was contended that the rates charged on lumber from Eau Claire to points on the Missouri River were so high relatively to those from points competing for the business of supplying the same markets, as practically to destroy the business of Eau Claire. Only a few of the roads serving these competing points reached Eau Claire, and accordingly the only practical mode of adjustment, from the standpoint of the law, was to order a reduction from that point. This the commission did, but added:

"Undoubtedly those roads" (referring to those not serving Eau Claire, and consequently not included in the order) "have it in their power to continue the present disparity, but we do not anticipate, and certainly can not assume, that they will resort to such inconsiderate and arbitrary action in order to nullify the lawful order of this commission."

The compliance of the defendant railway with the order of the commission was, however, almost immediately nullified by the action upon the part of the other railways which that body had most properly refused to anticipate, and the rates of all lines were ultimately restored to practically the figures in effect previous to the complaint.

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.

If it were true that the single step necessary to prevent or alleviate considerably the evils described is to re-enforce the law by adopting the amendments suggested by the commission, or otherwise to perfect the remedies already provided, adequate and early relief might reasonably be hoped for. That the commission does not take this complacent and superficial view is evident from the following extract from its Ninth Annual Report:

"Those who have given most reflection to the subject of government regulation are aware that the laws now in force are more or less tentative and experimental, and such persons anticipate that the evolution of railway control by public agencies will sooner or later result in a more comprehensive and direct exercise of the power possessed by Congress to regulate our internal commerce."

In fact, while the commission is, to adopt its own phrase, asking Congress merely "to make the act mean what it was supposed to mean at the time of its passage," it must be itself aware that it then contained the cause of endless discriminations. Says Commissioner Knapp: "The power to compete is the power to discriminate, and it is simply out of the question to have at once the absence of discrimination and the presence of competition."

And he adds:

"I regard the existing law as presenting this singular anomaly, that it seeks to enforce competition by the mandate of the statute, and at the same time to punish as criminal misdemeanors the acts and inducements by which competition is originally effected."

The unreasonable rate not made either to secure competitive traffic or to recoup losses from carrying such traffic at too low rates is so extremely rare that its very existence may well be doubted. Unjust discriminations between individuals are resorted to in order to secure by means of secret rates, rebates, or other devices a greater proportion of the traffic from or to competitive points than would be carried at open and equal rates. Discriminations between commodities result most frequently from favoring articles produced by heavy shippers or in towns at which competition is sharp, or from the fact that the railways agreeing to a particular classification have not a sufficient identity of interest to make naturally for harmony and justice. Localities either are favored unduly because they are served by competing lines, or are discriminated against in order that low rates may be maintained at other points more fortunate in this respect. The charges to local points on main and branch lines are too high relatively to those at terminals where there is competition. Yet it can not be denied that so long as the carriers are independent of each other in the matter of revenue there will be many plausible arguments available for the defense of these relations. The difficulty of dealing with such discriminations is greatly enhanced by the insufficient information upon which it is necessary to decide regarding the reasonableness of rates under present conditions. Thus, in determining whether a given rate on wheat from Chicago to New York is reasonable and just, it may be necessary to consider the rates on the same articles to Buffalo, New York, Philadelphia, Baltimore, Boston, Montreal, Newport News, and other Eastern points not only from Chicago, but also from Minneapolis, Duluth, East St. Louis, Peoria, Cincinnati, Buffalo, and other places. Rates on flour, corn, and corn meal between any of those points may also be involved; and possibly the charges on any of the commodities named from St. Paul or St. Louis to New Orleans via the Mississippi River boats, and from New Orleans to New York or Liverpool by steamer, may in some way be connected with the controversy so as materially to affect its decision. In fact, it is impossible to set any limit to the data that may have important bearing upon the question at issue, or to say of any fact concerning commerce or transportation that it would necessarily be wholly irrelevant in such a controversy. Yet the parties defendant, when such a case is heard before the Interstate Commerce Commission or the courts of the United States, are the carriers between Chicago and New York only. When the interdependence of all rates is thoroughly understood and the extent and importance of this condition fully appreciated, it will be a matter of little surprise that through the absence of sufficiently comprehensive information in particular cases, and through the impracticability of treating the subject of railway rates under the present system in the broad and thorough manner absolutely essential to the correction of the evils now existing, even the clear-headed and able men who have constituted the Interstate Commerce Commission have been led into occasional errors which have furnished arguments to those who from self-interest desire a return to the system in vogue when there was no public supervision of interstate commerce by rail.

The conflict of interest between the several corporate units of the railway system is the primary cause of the evils attendant upon railway transportation as now conducted. This fact being clearly established, it is at once evident that that portion of the Interstate Commerce law which was intended to perpetuate competition—i. e., the fifth or antipooling section—is radically antagonistic to any wise and practicable system of railway regulation. It is necessary at the outset, as a first step toward a system under which railway rates can be made equal to all, that this restraint upon the carriers should be removed—not in order to save them from the bankruptcy that is almost certain to follow the vicious methods now in vogue; not for the sake of the thousands whose small savings have been invested in railway securities in the reasonable belief that Congress would not legislate so as to destroy an investment through which private capital is made to perform a public function, but in order to relieve individuals, classes of property, and localities from the unjustly discriminating charges for railway service from which they now suffer. At the same time Congress should give some substantial finality to the findings of the board of railway experts which under the name of the Interstate Commerce Commission it has created to adjudicate between the railways and their patrons, and should strengthen the visitorial functions of that body by granting what-ever amendments to the law are necessary in order to secure the production of all the legal testimony desired and by considerably widening the scope of its statistical investigations.

But this is only a beginning of progress toward more enlightened methods of dealing with this important industry. It has never been found profitable to legislate in restraint of natural economic forces, but the best results have accrued when statesmen have frankly recognized the tendency of those forces and have sought to make their operation useful to society. The force which tends toward the consolidation of railway properties is one of the most powerful, and it is now recognized that such consolidation is in the public interest. All provisions forbidding or hindering the various forms of consolidation of parallel or connecting railways, whether contained in State Constitutions or in Federal or State statutes, should be repealed, and public and legislative encouragement so far as practicable should be generously accorded to every step that tends toward the complete harmonization of the railway system. If this somewhat radical change in the attitude toward the railway monopoly can be effected it will not be long before favoritism will become as rare in railway rates as in the rates of taxation.