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.