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 Frank Parsons

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.