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]]