FOOTNOTES:
[746] The history of the clause will be found at pp. [473] and [564], supra.
[747] Digest of the Hearings, Appendix III, Dec. 15, 1905, pp. 1-244. An excellent body of unworked economic data on rate making is here afforded.
[749] 25th Ann. Rep. I.C.C., 1911, discusses the matter fully.
[750] Cf. p. [255], supra, as to which line makes the rate.
[751] 14 I.C.C. Rep., 476.
[752] Cf. instances cited by Judge Knapp before the Senate (Elkins) Committee, 1905, IV, p. 3294. Hammond, Rate Theories of the I.C.C., also marshals these cases.
[753] Cf. F.H. Dixon, A Traffic History of the Mississippi River; Doc. 11, Report National Waterways Commission, 1911.
[754] Cf. pp. [385], [566], supra, and [638], infra.
[755] 22 I.C.C. Rep., 366.
[757] Already discussed in other connections in chapters VII and XI.
[758] 5 I.C.C. Rep., 478, 510.
[759] For Spokane, 15 I. C. C. Rep., 376 (1909); 19 Idem, 162 (1910); 21 Idem, 400 (1911). For Nevada: 19 Idem, 238 (1910) and 21 Idem, 329 (1911). The latest Denver case is 15 Idem, 555. For Salt Lake City 19 Idem, 218.
[760] Shown by a map in 19 I. C. C. Rep., 241.
[761] 19 I. C. C. Rep., 250; 21 Idem, 351, 416-421; Dunn, The American Transportation Question, pp. 178-221. Railway Age Gazette, LIII, p. 202.
[762] Cf. chap. XX, infra.
[764] 9 I. C. C. Rep., 318 et seq. Reprinted in our Railway Problems.
[765] Cf. U. S. v. U. P., etc., Evidence, I, p. 295.
[766] Cf. Railway Age Gazette, LIII, p. 201.
[767] Best reviewed in Brief for the United States in U.S. v. Atchison, Topeka and Santa Fe Railway, etc.: Supreme Court, October term, 1911, p. 10.
[768] Railway Age Gazette, May 14, 1909, and November 25, 1910.
[769] Brief for U.S., loc. cit., p. 12.
[770] 191 Fed. Rep., 861.
[771] The plan is in Railway Age Gazette, June 4, 1909, p. 1182. New tariffs are described in ibid. Cf. also Boston Transcript, November 28, 1910, for other plans.
[772] 21 I.C.C. Rep., 329, 400. Both the Spokane and Nevada cases are combined in the appeal to the Supreme Court; as is also the independent order of the Commission denying relief from the fourth section to the Union Pacific and other roads.
[773] Chap. X, supra, especially the map facing p. [365].
[774] 9 I. C. C. Rep., 318. The first suggestion I find of graded rates is in the dissenting opinion in this St. Louis Business Men's League case. Reprinted in our Railway Problems.
[775] Brief for U. S., loc. cit., p. 55. Annual Report I. C. C., 1911, p. 31.
[776] A compromise offered by the railways and accepted by commercial bodies pending the Supreme Court decisions was filed June 18, 1912. It is estimated to save Spokane shippers alone about $500,000 annually. Class rates are the Commission's from the seaboard, but from interior points are somewhat lower. The acceptance of the distance principle is the significant point.
"As the distance, St. Paul to Spokane, approximately 1500 miles, is 150 per cent. of the distance Omaha to Salt Lake, approximately 1000 miles, a reasonable rate from St. Paul to Spokane would not be less than 130 per cent. of the rate from Missouri river to Salt Lake, and in the proposed tariff rates from St. Paul to Spokane would be made accordingly.
"From Mississippi common points as defined by current tariffs, the rates would be 112½ per cent. of the St. Paul rates.
"From Chicago and common points, the rates would be 116-2/3 per cent. of St. Paul rates.
"From Detroit and common points, 125 per cent. of the St. Paul rates.
"From Buffalo, Pittsburg and common points, 130 per cent. of St. Paul rates.
"From New York, Boston and common points, 130 per cent. of St. Paul rates.
"From Colorado common points, 90 per cent. of St. Paul rates."
[777] Cf. Railway Age Gazette, July 28, 1911, p. 162.
[778] 191 Fed. Rep., 856.
[779] Decided favorably to the I. C. C., 1914; 234 U. S. 476, 495.
[780] Market competition as such is discussed at p. [118], supra.
[781] 21 I. C. C. Rep. 355, 367: the Transcript of Testimony in the Supreme Court record is especially illuminating. Cf. also Twenty-fifth Annual Report I. C. C., pp. 30-40.
[782] S. O. Dunn in Railway Age Gazette, November, 25, 1910.
[783] Railway Age Gazette, 1910, p. 1005.
[784] 21 I. C. C. Rep., 418-423 is best on this. Cf. also p. [608], supra.
[785] As analyzed in chapter VII, supra.
[786] Brief for the U. S., loc. cit., p. 37; Annual Report I. C. C., 1911, p. 36.
[787] In the Lemon rate cases also; 190 Fed. Rep., 593. Cf. supra, p. [592].
[788] H. S. Smalley in Annals of the American Academy of Political Science, March, 1907, pp. 299-304. Cf. also our Railway Problems, chap. XXIV. The point will be more fully discussed in vol. II, dealing with matters of finance, valuation, etc.
[789] Annual Report I. C. C., 1911, p. 38. Brief for U. S. Supreme Court, no. 883 et seq., pp. 23-37. Also Brief for I. C. C. in the same case.
[790] Commerce Court opinion, p. 15. Cf. p. [507], supra.
[791] 181 U. S., I. Cf. also p. [592], supra.
[792] Of significance on this point is Commissioner Lane's dissent in the Lemon rate case. P. [592], supra.
[793] For details, Cf. Hammond, Rate Theories of the Interstate Commerce Commission (1911) and J. Strombeck, Freight Classification (1912). Also p. [468], supra.
[794] Atlantic Monthly, September and October, 1905. On shortcomings of the later amendments of the law, cf. F. H. Dixon, in Quarterly Journal of Economics, vol. XXIII, 1910, p. 630.
[795] Railway Age Gazette, editorial, January 12, 1912, p. 41; and S. O. Dunn, The American Transportation Question, 1912.
[796] Cf. the Fort Worth case decided June 6, 1912; also the Eau Claire case, 5 I. C. C. Rep., 264. The latest case in which the Commission held that it had power to suspend a proposed reduction in rates arose from just such a condition of affairs, 22 I. C. C. Rep., 160.
[797] I am indebted to Professor Smalley of Ann Arbor, certainly the best authority among economists, for many citations on this point; as well as to Professor F. H. Dixon for suggestions. Cf. also 21 I. C. C. Rep., 415; Annual Report I. C. C., 1911, p. 34; and the Commerce Court opinion under discussion. Commissioner Harlan in his dissent in the Shreveport case asserts a clearer right over minimum than over maximum rates as against state authority. 23 I. C. C. Rep., 54.
CHAPTER XX
THE CONFLICT OF FEDERAL AND STATE AUTHORITY; OPEN QUESTIONS
History of state railroad commissions, [627].—The legislative unrest since 1900, [628].—New commissions and special laws, [629].—The situation critical, [630].—Particular conflicts illustrated, [631].—The clash in 1907, [632].—Missouri experience, [633].—The Minnesota case, [634].—The Governors join issue, [634].—The Shreveport case, [635].
Control of coastwise steamship lines, [638].—Panama Canal legislation, [641].—The probable effect of the canal upon the railroads, especially the transcontinental lines, [643].
Historically, the attempt of the separate American states to control railways began with a law after the English model in New Hampshire establishing a commission in 1844.[798] Three other New England states then followed suit prior to the Civil War.[794] But these early experiments were mainly concerned with matters of safety rather than of rates. The first real step was taken by Massachusetts in 1869. The Railroad Commission created in that year has served ever since as a model of the so-called "weak" or "advisory" type of regulation. Others of this sort were more common in the eastern states. Such commissions, in Massachusetts for example, rely mainly upon public opinion for the enforcement of their decisions. They possess very limited authority over rates, although they are empowered to recommend such changes as may be deemed advisable. Back of this authority, of course, lies the legislative power of the General Court, invoked on special occasions. But, in general, the activities of the Massachusetts type of commission have been mainly confined to supervision, either of construction or of capitalization.[799] New York and several other states conformed in the main to this type, although none of them had any authority over matters of finance. A second variety of the older railroad commissions dates from the period of the Granger Movement in the West. Maximum rate laws were passed by a number of commonwealths in the seventies, notably Illinois, Minnesota, Iowa, and Wisconsin. The outcome of this legislation was the decision of the Supreme Court of the United States, elsewhere discussed,[800] holding that state legislatures had the power to fix rates. The so-called "strong" commissions had their rise in connection with these events. Railway boards of this second type exercised control over rates in two ways; namely, by means of the promulgation of freight classifications and the prescription of maximum distance tariffs. For the purposes of such regulation most of the western states grouped the carriers according to their earning capacity, with a different schedule in each case. In certain of the southern states these older commissions adopted even more drastic policies which brought about prolonged litigation. The peculiar case of Texas, adding financial legislation to the direct prescription of rate schedules, has been discussed by itself.[801]
A new chapter in railroad regulation by the separate states dates from the general public unrest and Congressional activity of the Roosevelt period. An almost frenzied activity after 1900 culminated in 1907 in a legislative wave which swept over the entire country. No less than fifteen new or remodelled commissions were created in the two years 1905-1907, bringing the total number by 1908 to thirty-nine. Practically all of these were of the so-called "strong" type; that is to say, possessing the most extensive powers over all matters of rate operation and in many cases of finance as well. The most notable of these, of course, were the so-called Public Utility Commissions of Wisconsin (1905) and New York (1907). The subjugation of the formerly dominant railway interests in New Jersey and Pennsylvania was also highly significant.[802] The movement even invaded the New England States,—so long a sanctuary of the "weak" or advisory commission. Vermont and New Hampshire set up powerful boards, and Massachusetts, in 1913, amplified the powers of its commission in harmony with the general movement. Several features of this new lot of state commissions contrast markedly with even the old-fashioned "strong" type. Many of them permit the fixing of absolute rates. The majority now provide for appointment rather than election of the commissioners; and also by salary and in other ways enhance the dignity of the office. This operates naturally to lift these boards out of a semi-political atmosphere formerly too characteristic in many cases; and to bring them more to a par with the state courts.
The "Wisconsin Idea," achieving its full flower under the remarkable leadership of Governor La Follette in 1905, ably seconded by a number of prominent University of Wisconsin men, notably Hon. B. H. Meyer, now a member of the Interstate Commerce Commission, most completely realizes the progressive policy of sane state regulation.[803] The principle is laid down "that it was as much the duty of the state to furnish transportation facilities as it ever had been to make roads or build bridges; and that if the function was delegated to any one, it was the duty of the state to regulate it so that the agent should be required to furnish adequate service, reasonable rates, and practise no discrimination." And, it is added, that this procedure should be "so simple that a man can write his complaint on the back of a postal card, and if it is a just one, the state will take it up for him." The three fundamental principles of the Wisconsin programme, now happily incorporated in the Federal law, were full authority over future rates; secured without expense to the complainant; and with the burden of proof laid upon the railroad in cases of appeal. In short, the Wisconsin plan provided for thoroughgoing administrative control, that is to say, with strict limitation of judicial review to the determination of points at law. The issues were in no wise different from those already discussed heretofore in connection with the development of the recent Federal policy; except possibly in respect of the persistency of opposition, which has had to be overcome more gradually in the Senate of the United States,—the natural stronghold of corporate influence.
The creation of powerful state commissions since 1905 has, oddly enough, been accompanied by a great activity of the state governments in the enactment of statutes aiming independently to regulate common carriers. Laws of this class are not new. As far back as 1890 there were twenty-two maximum rate and fare statutes. A period of quiescence, marked by only four such laws in twelve years, was followed by the passage within five years to 1907 of no less than twenty-two maximum fare laws and nine maximum rate schedules.[804] To these may be added a large grist of statutes dealing with almost every detail of operation or service. Demurrage, provision for terminals, train service and connections, distribution of cars, industrial and spur tracks, and hours of labor, may be cited among a host of others.
The activities of state governments in recent years in the creation of powerful railroad commissions, with the added grist of drastic independent statutes, have greatly emphasized the eternal conflict of authority between the state and Federal governments, as well as between the different states. Problems akin to those raised by the diversity of our laws respecting marriage, labor, and bankruptcy have been forced upon the attention of Congress and the Federal courts. Reasonable coöperation might be counted upon to accomplish something; but the course of events since 1905 points to the necessity of a final settlement of this important issue as far as common carriers are concerned, so authoritatively that a greater measure of political and industrial peace may prevail in future. The situation respecting railroads was well described by Justice McKenna of the United States Supreme Court in an opinion annulling the North Carolina law requiring railroads to receive goods for interstate transportation whether they had published rates for the proposed shipment or not;—"if the carrier obeys the state law, he incurs the penalty of the Federal law; if he obeys the Federal law, he insures the penalty of the state law. Manifestly, one authority must be paramount, and when it speaks, the other must be silent." It may be added that in this recent case, following the inevitable trend of events it was the state law upon which the penalty of silence was visited.
The ultimate ramifications of a state law under the complexities of modern railway rate adjustment and operation can never be foreseen. It is not simply a question of avoiding conflict between distance tariffs and classifications.[805] Oftentimes the most modest rules and regulations may lead to results affecting commerce over a wide area. The great increase in large cars throughout the West, by contrast with other parts of the country, as traceable to the establishment by Missouri of minimum carloads,[806] is a case in point. We have also already observed how the revised milk laws of Massachusetts opened up an issue covering all of New England.[807] And then there are the various attempts of the railroad commissions, notably Texas[808] and Minnesota, to set up schemes of rates which shall concentrate the distributive business of the community in local cities as against the competition of jobbers at a distance. The extreme confusion introduced in matters of classification by conflicting authorities has already reached a point where demand for the substitution of a single uniform schedule for the United States has become wellnigh irresistible.[809] There are also conflicts respecting laws regulating service, illustrated by the Supreme Court decision in 1907, holding that the attempt of North Carolina to require through fast mail trains to stop at small way stations, was unconstitutional;[810] and finally, some agreement as to division of accounts between interstate and intrastate business will at once be recognized as an essential to the determination of reasonable rates for through and local service respectively.[811] From every side, in short, the need of a clear separation of state and Federal powers is becoming more and more insistent.
The conflict between general and local authority came to a head in 1907, resulting in a violent clash between the Federal and state courts.[812] The worst complication arose in the South, particularly in North Carolina and Alabama. Certain railroads brought suit in the Federal courts to annul rates fixed by the state legislatures; and temporary Federal injunctions were at once issued suspending the statutes until determination of their constitutionality. Popular feeling was much aroused, and local officials sought vigorously to defend states' rights. Ticket agents collecting more than the state-prescribed fare, were condemned to the chain gang and the president of the railroad company was arrested. Federal judges promptly released all parties by writs of habeas corpus. A truce was finally patched up, pending determination of the matter at issue by the Supreme Court of the United States. The final and inevitable outcome, of course, was a decision by this tribunal, upholding the authority of the general government.[813] Technically, the question in these cases concerned the power of the Federal courts to issue temporary injunctions suspending state laws; or, in other words, raising the nice distinction as to whether a suit against a state officer was a suit against the state or not. Various other legal technicalities were involved both in North Carolina and Alabama. The main issue has been dealt with for the future by a special clause of the Mann-Elkins law of 1910. This provides that a petition for an injunction suspending a state law, shall be heard by three Federal judges, one at least of a superior court. Five days' notice is required; and there is a direct appeal to the Supreme Court of the United States. But an injunction, thus issued, is given clear precedence over any statute regarding common carriers emanating from authority of an individual state.
The state of Missouri has had a trying experience. This occurred in connection with a statute of 1907 reducing passenger rates from three to two cents a mile. Federal judges promptly granted injunctions against the enforcement of this statute. The state's Attorney-General in the meantime cited the railroads into the state courts to show cause for failing to obey. The compromise in this case took the form of an agreement to give the new law a trial of several months in order to test the financial effect of the reduction in fares. Then followed an interchange of injunctions, quite characteristic of the old days of the Erie Railroad, save for the integrity of the judges concerned. To this there then succeeded a decision by the Federal Circuit Court that the rates were confiscatory; although for some reason the two-cent fares and other reduced charges remained practically in effect. Controversies similar to this have arisen since 1907 in some seven different states. Oregon and West Virginia took issue as to the validity of two-cent passenger fare laws. In the latter case, the state supreme court held that the statute was not confiscatory. In Oregon the lower Federal court upheld the state law. The contest from Kentucky involved the constitutionality of a state railroad commission act, already held unconstitutional in the United States Circuit Court. The Arkansas appeal had mainly to do with maximum rate laws in relation to physical valuation of property; and in Ohio, the validity of a state rate on coal to Lake Erie was in dispute. The railroad contended that the traffic was interstate commerce, a contention denied by the state authorities.[814] The Minnesota case,—perhaps the most voluminous in its record of all,—had primarily to do with the confiscatory nature of reductions of intrastate rates: and this in turn hinged upon the mode of separating accounts.[815] A distinct affirmation of Federal supremacy has also been had by a Circuit Court opinion in 1911. All these cases are at this writing (1912) before the Supreme Court of the United States for decision. The main issue is pooled by agreement between the governors of the seven commonwealths concerned. The outcome cannot fail to be of the utmost importance,—far-reaching in its effect not only upon the regulation of railways but throughout the entire field of constitutional law. Such decisions as the Supreme Court has already rendered in connection with these matters having been entirely favorable to Federal authority, undoubtedly in this instance induced the joint action of the state executives for mutual protection and support. There can be no doubt that a sweeping decision, upholding Federal authority, will go far to solidify control by the Interstate Commerce Commission. It will also clear the air and greatly simplify the problem of operation by the managements of the railroads, not only in these seven states but all over the United States as well.
The delicate balance between state and Federal authority over commerce is also in a way to be tested in what promises to become an historic case before the Interstate Commerce Commission,—historic in the sense that its final adjudication by the Supreme Court of the United States will add a positive contribution to the body of our fundamental law.[816] It may best be understood by first gaining a clear idea of the nature of the economic grievance. Shreveport, Louisiana, is situated on the Red river, an important tributary of the Mississippi, some 190 miles distant from Dallas and 231 miles from Houston,—both of the latter being important and ambitious provincial distributing points in Texas. Shreveport, enjoying the benefits of water competition,—probably more keen historically than at present,—was granted correspondingly low carload rates by rail on merchandise from the north and east. These favorable rates were not extended to the two Texas cities, inasmuch as water competition was entirely absent. Naturally, therefore, an advantage was given to the Louisiana city in competition for distributive business in all the intermediate territory and even over in the Hinterland in Texas. In pursuance of a long-standing policy of encouraging the growth of provincial jobbing points within its own borders,[817] the Texas Railroad Commission proceeded to overcome this disability by prescribing relatively low rates out of Dallas and Houston as compared with the rates from Shreveport to the same points. It seems even to have gone further and to have interposed positive barriers against the competition of Shreveport jobbers in Texas territory, by somewhat more than compensating for the low water rates at Shreveport. The disparity thus set up may be best illustrated by the following table of charges for approximately equal distances.
Rates in cents per hundredweight
| Class | |||
|---|---|---|---|
| 1 | E | ||
| From Dallas to Big Sandy, Texas | 101 miles | 44 | 13 |
| From Shreveport, La., to Crow, Texas. | 100 miles | 95 | 18 |
| From Houston to Renova, Texas | 103 miles | 45 | 14 |
| From Shreveport, La., to Angeline, Texas | 104 miles | 68 | 15 |
Stated in another way, sixty cents would carry one hundred pounds of first-class traffic some 160 miles out of Dallas into eastern Texas; while an equal rate out of Shreveport into the same Texas territory, west bound, was exacted for a haul of only fifty-five miles,—about one-third the distance.
The Commission decided upon the evidence by a bare majority that these Texas tariffs were unduly preferential; and ordered them to be so readjusted that the charges should be the same for equal distances from all three cities regardless of state lines. Concerning the minor point that it was lawful for a carrier to equalize conditions as between two competing places by imposing high local rates upon one point in order to offset the advantages as to inbound through rates enjoyed by the other, the Commission merely re-affirmed its belief that natural advantages of geographical location could not lawfully thus be nullified.[818]
The opinion rendered in this case is remarkable, less in its economic aspects, concerning which there seems not to have been any great diversity of view, than as regards the divergent views expressed as to the legal authority of the Commission to interfere in the matter at all. Was undue preference and advantage in the eyes of the law,—the decision being rendered under the third section of the act,—created by the set of circumstances above described? At this point the Commission divided, with no fewer than two concurring and two dissenting opinions added to the majority view. According to this last, not only was the power of Congress to legislate in such matters paramount, but it was also held that this supreme power to put an end to all forms of local discrimination,—even those created by the act of state authorities,—had been delegated by Congress to the Interstate Commerce Commission. And in such instances, wherein conflict arose between Federal and state authority, the only rational and possible course, it was held, was for the national government through its administrative agent "to assume its constitutional right to lead."
The three separate dissenting opinions are of interest as expressing the need of a definitive pronouncement upon this great question by the Supreme Court of the United States. Not alone as to whether Congress intended to delegate authority to the Commission to settle such issues, but even the right of Congress itself to pass upon them under the Federal constitution, were called in question by the members of this administrative board. Two dissenters were content to submit the matter to "the august tribunal of the people which is continually sitting" to choose between submitting to such grievances as an alternative for virtually legislating state authority out of existence. The third dissentient view was more thoroughgoing. It not only discovered, legally speaking, no undue discrimination in the circumstances. It pointed out that on reducing the Shreveport local tariff "we fix interstate rates by the Texas yardstick," whereby "the national government therefore leads by following." It concluded by affirming that the Commission "should confine itself within the four corners of the law of its creation, usurping neither the legislative function of the Congress nor the judicial power of the courts." From all of which it is clear, first, that the Supreme Court of the United States, having once clearly defined the jurisdiction of the Federal government in such matters, it may, in the second place, well be that further amendment of the Act to Regulate Commerce will be in order.
In conclusion, it is pertinent, apropos of the approaching completion of the Panama Canal and the intensified interest in a more complete utilization of our internal waterways, to discuss briefly the relation between railroads and carriers by boat. The most stupendous canal projects are being brought forward, in the expectation that they will not only provide for a vast amount of low-grade traffic in themselves, but also that through the forces of competition they will bring about a substantial lowering of charges by railway. The most ambitious of these enterprises is the plan for a "Lakes to the Gulf" ship canal, even comprehending the dream of a twenty-four foot channel down the course of the Mississippi. Another and more modest proposition, probably practicable, is the construction of a canal from Lake Erie to the Ohio river. Altogether it has been credibly estimated[819] that the entire scheme for internal improvements of this sort would call for an outlay of not less than $2,000,000,000. Before engaging in any experiments upon such a magnificent scale, it is certainly proper to enquire whether the results will be in any way commensurate with their cost.
The cost of water carriage, like that of transportation by rail, should at the outset be divided into two distinct parts; one of which varies more or less in proportion to the volume of traffic, while the other, concerned with fixed charges on the investment, maintenance and depreciation, is constant. The latter in other words bears little or no relation to the tonnage transported.[820] A careful distinction between these two great groups of expenditures is of fundamental importance in any comparison between rail and water carriage. The failure to so distinguish is responsible for much of the fallacious reasoning upon the subject both in and outside of the halls of Congress. It is indisputable that mere operating expenses are very much less by boat than by rail, especially when the economies of large craft can be had. The phenomenal development of commerce upon the Great Lakes, especially for the carriage of iron ore, coal and lumber, is due to this fact.[821] But, on the other hand, it is equally clear that the second great group of expenditures, particularly the fixed charges due to the enormous first cost of construction, are very much greater by artificial waterways than by rail. The balance between low operating costs and heavy fixed charges, of course, will be struck according to the nature of the particular enterprise. And canals, being entirely artificial, offer the least advantageous opportunity for realization of the economies incident to movement of freight by water.[822]
Improved riverways are economical by comparison with canals just in proportion to their lessened first cost; but, on the other hand, mere movement expenses, maintenance and depreciation are apt to be higher according to the strength of the current. In each instance everything depends upon first cost and the consequent burden of fixed charges. This point is almost totally neglected in popular discussion of the subject. Internal waterways being, without exception, public enterprises, the burden of interest charges is generally put aside as of no consequence. Naturally therefore, these being eliminated, the apparent economy of carriage by water is mirrored forth with great effect.[823]
The experience of Germany, so often adduced in favor of water carriage, when examined in the light of the foregoing economic principles, is peculiarly illuminating. Much traffic, to be sure, moves apparently with greater cheapness than by rail upon both canals and rivers. Considering the tariffs which are based upon movement expenses alone, excluding, that is to say, any adequate return upon the total investment, such methods of transportation seem very economical and highly effective. But when total costs, rather than merely partial ones, are considered, the picture is completely reversed. The Dortmund-Ems canal, for instance, certainly the most important in Germany, represents an investment per mile fifty per cent. greater than the average for German railways.[824] For the single year 1905, the contributions from the states and cities interested, amounted to a subsidy of about $900,000. This financial burden, if distributed over the total tonnage, would make the entire cost of operation nearly one-fourth greater than the average by rail.
Rivers, as we have seen, possess certain advantages over canals, mainly in proportion to the lessened first cost of their improvement. The Rhine is often cited as an example of what the Mississippi should be as a great channel of commerce; but again that fatal objection of the first cost and, in the case of the Mississippi, of maintenance must always be kept in mind. The Rhine like the Hudson river or the St. Lawrence is, indeed, naturally adapted for carriage by water. Its firm banks, gentle gradient and constancy of level, are all elements in its favor. But it is certainly futile to anticipate similar results on the Mississippi or its tributaries,—huge and inconstant leviathans as they are, traversing a great alluvial plain devoid of solid foundations of any sort. The fact that today with a nine foot channel, Pittsburg makes no use of the Ohio river for its shipments of iron and steel, but sends them to the Pacific coast by way of New York, certainly does not augur well for the success of even an enlarged riverway in future, except possibly as to coal. Of course, if the government is to write off all the original investment, shifting the incidence to the general taxpayers of the country, that is a different matter. But unless the state thus chooses to subsidize the enterprise entirely, the total cost of transportation by rail will continue to be in future as it has been in the past, substantially lower than by the older and now antiquated methods of transportation. If the end in view be the attainment of the lowest possible rates, why not subsidize the railroads directly by this same amount? or even buy them up and operate them for cost? The expense to the taxpayers would be no more; and this plan would unquestionably give far better results. Even the electrically-towed canal boat is not to be compared for efficiency in reaching all parts of the country without transhipment, with giant locomotives, low grades, heavy rails and large train loads.
The ownership or control of water carriers by railroads constitutes a troublesome feature of present day conditions. Peculiar prominence, legislatively speaking, was given to it because of the attempt in 1912 to combine legislation dealing with this possible evil with the matter of Panama Canal tolls and regulations. Such control of water lines in competition with railways is matter of public record.[825] Much of the coastwise traffic is thus tied up. The Long Island sound service of the New Haven system, the Old Dominion Company, jointly owned by eastern railroads, and the Morgan Line and Pacific Mail Company, both parts of the Southern Pacific system, are notable instances. The same thing is true upon the Great Lakes, where a practical monopoly of eastbound transportation has been long held by the trunk lines. By refusal to grant through routes and joint rates to the Lake lines at Buffalo, these railroads have practically throttled the independent water service.[826] Even on the lesser rivers this phenomenon of neutralization of water competition occurs. Oftentimes where the bulk of the tonnage, as in transcontinental business, moves by rail, the water lines simply follow the railroads as to rates with a modest differential dependent upon circumstances. But the fact of practical elimination of competition by boat line is well recognized.
The concrete shape in which this matter arose in Congress was in the form of amendments to the Panama Canal law of 1912. In the House a bill providing for free passage of all American coastwise vessels was passed by a vote of 206 to 61, this measure at the same time prohibiting all railroads from owning stock in or otherwise controlling directly or indirectly, any competing steamship lines. The overwhelming non-partisan majority is significant of public sentiment on the question. The Senate took a less radical stand in limiting the prohibition of railroad ownership to vessels making use of the Panama Canal. After prolonged discussion in the conference committee, the more drastic measure was, fortunately, eliminated.
From several points of view absolute prohibition of financial relationship between railway and water carriers seems unwise. A practical objection is that it may seriously handicap American roads in competition with Canadian carriers. The Grand Trunk, for example, reaching tidewater on Long Island sound might lawfully operate a boat line extending its service into New York; whereas the New Haven Railroad would be forced to dispose of its water lines to the same point, because they were in competition with its railroad service. And it is indisputable that similar injustice to American railroads might elsewhere be brought about. Moreover, the undoubted evil of water competition thus neutralized by railroads, might be remedied in other ways. One of these, embodied in recommendations of the Port Directors of Boston in 1912, opposing the more drastic legislation above mentioned, is the prevention of monopoly through public ownership or control of docks and wharfs. For railway ownership or lease of these, as at Philadelphia, San Francisco, Boston and elsewhere, is one of the easiest methods of preventing water competition. The water lines find it physically impossible to secure suitable terminals. And then, finally, there is always the possibility under the now amplified Interstate Commerce law, of enforcing both reasonable rates and facilities for through shipments, part rail and part water, as exemplified in the Flour City case above mentioned. It is not improbable that further amplification of the law, as recommended by the National Waterways Commission in 1912, may be necessary. Probably, in the light of bitter Southern Pacific experience, it was wise to restrict Panama Canal traffic to water lines not under railroad control. But any attempt to go farther and absolutely to divorce rail and water lines without provision, even, for the approval of the Interstate Commerce Commission in exceptional cases, might be productive of great harm both to the railroads and the public.
What will be the probable effect of the opening of the Panama Canal upon the railroads of the United States? One must consider the nature and volume of transcontinental traffic. The most important fact is that nearly nine-tenths of all transcontinental business at the present time moves by rail.[827] The tonnage by vessel west bound either around Cape Horn or by the Isthmian routes has, to be sure, doubled within five years to 1911. But by far the larger proportion of the business moves by railroad direct. Secondly, it is important to note that a large part of transcontinental traffic consists of an exchange of commodities between the Middle West and the Pacific coast. Over one-half of the rail shipments west bound to Pacific terminals comes from west of Chicago. Less than one-quarter of the through traffic of one of the principal transcontinental roads originated at Atlantic coast points. And, inasmuch as water competition is still mainly confined to eastern seaboard territory, the diversion of this middle western business from the rail routes will not be disastrous in amount. In the opposite direction probably an even higher proportion of business is carried by rail, the principal reason being that much of the bulky freight of the Pacific slope,—lumber for example,—is consumed throughout the treeless Mississippi valley. None of this traffic naturally ever moves by water. It is apparent, therefore, that the effect of opening the Panama Canal, although great, will be for the most part localized as to results.
Specifically stated, four distinct changes seem likely to be brought about in the transcontinental situation. The first will probably be a considerable stimulation to the merchants and cities along the Atlantic seaboard throughout a zone extending inland, perhaps, as far as Cleveland and Pittsburg. A substantial drop in steamship rates will be followed, of course, by a corresponding reduction in through rates to the Pacific coast. But, on the other hand, it must be borne in mind that at best this tonnage is even today relatively unimportant to the transcontinental railroads. More than two-thirds of their through traffic, as we have just seen, now comes from the Middle West. These railways will probably prefer to lose a portion of this Atlantic seaboard business rather than to reduce their rates upon perhaps four-fifths of the other traffic, as they would otherwise have to do under the present system of postage stamp rates, from the Atlantic seaboard to the west of the Missouri river.[828] The eastern trunk lines, moreover, may probably be relied upon to extend the low seaboard rates somewhat farther inland than at present, rather than to divide low or even lower through all-rail rates from the Atlantic to the Pacific.
Next to the Atlantic seaboard territory, the so-called Intermountain or Rocky mountain region, may be expected to benefit substantially from the opening of the canal. It will surely get lower direct rates than at present on all its supplies from the East. Atlantic seaboard cities will doubtless also seek to regain some of the business throughout this region, which has been lost to them because of the growth of manufactures in the Middle West. The transcontinental railroads will seek to protect their clients in St. Louis and Chicago as against the merchants in New York and Boston, who gain an entrance to Denver and Spokane through the backdoor, so to say. Not only will lower rates prevail, therefore, but there will also probably be a larger proportion of supplies for these mountain states drawn directly from the eastern seaboard.
The foregoing prognostication, at first glance, seems to indicate that the Middle West is likely to profit less by the opening of this great waterway than other parts of the country. But it should be borne in mind that their hold upon west coast trade is now most firmly established. A part, but certainly only a part, of Pacific terminal business may be lost, but this will be more than offset by the growth of intercourse with the intermountain states. Surely the transcontinental railroads west from St. Paul, Chicago, and St. Louis may be relied upon to protect the direct exchange of goods of their constituents with the intermountain communities. Transcontinental railway rates will, of course, be lowered somewhat. The railways will, however, probably prefer to surrender the lesser portion of their present traffic in order to maintain profitable charges upon the major share of their tonnage. The profit of these railways will doubtless for the moment be lessened; but there can be little question that an enhancement of their prosperity will follow in the long run. The opening of this great new avenue of commerce by sea is bound to stimulate immensely the growth and prosperity of the entire country. And it is beyond question that in any such large development in future, they will all share to a large degree.