Owing to the peculiar intensity of competition at their doors, Pacific terminals therefore enjoyed exceptional advantages in rates as compared with their less favored neighbors. On the other hand, even the terminal cities expressed some dissatisfaction with the transcontinental adjustment. It appears, for instance, that the growth of great distributing centers was difficult under the scheme of rates which was applied. So long as terminals were few in number, a considerable concentration in business was possible. But when the terminals multiplied, the territory controlled by any single city became limited by the low rates accorded to the nearby terminal cities, and expansion in any one spot became difficult. This rendered the volume of business of the Pacific Coast jobbers comparatively small. In the case of the Business Men’s League of St. Louis v. the Atchison, Topeka and Santa Fé, already cited, the two eastern firms of most prominence in the proceedings were the Simmons Hardware Company, of St. Louis, and Hibbard, Spencer, Bartlett and Company, of Chicago. The former of these firms then did business in every part of the United States except New England, while the representatives of the latter testified that the operations of his house were limited only by the confines of the earth. Competition by concerns of this magnitude was difficult for California houses to meet, especially at times when the eastern firms used the Pacific Coast as surplus territory in which they could afford to operate at a low margin of profit.
Another ground for dissatisfaction on the part of the coast cities arose out of their belief that the system as applied, in spite of its recognition of the advantages of the Pacific Coast, still fell short of the real equities of the situation. It was insisted that San Francisco was improperly shut out from Denver, Cheyenne, Salt Lake City, and Ogden. The Southern Pacific was charged with carrying hats from New York by way of the Union and Central Pacific routes and then down the San Joaquin Valley to Yuma at a lower rate of freight than the San Francisco dealer could send the same goods from his city to the Colorado River.[403] This same complaint was repeated by Mr. Leeds, of the San Francisco Traffic Association, in October, 1892, with the observation that if the same rate per mile were applied on eastbound traffic from San Francisco that was charged on westbound business from Chicago to Utah common points, then San Francisco would do the lion’s share of the Utah business instead of a mere 16 per cent.[404]
There is no doubt that a good deal of dissatisfaction with the transcontinental system was felt first and last by shippers to and from the terminal cities. Yet, after all, the situation of these cities as a group was excellent. The communities which were really handicapped were the towns intermediate between the Pacific terminals and the East, towns which paid higher rates for less service than did the terminal cities, and which found that this condition not only increased the cost of living to their consumers, but prevented their merchants from enjoying a profitable distributing trade.
It seems probable that the associates intended from the beginning to charge the mountain towns more on through hauls than was exacted from towns on the coast. Huntington relates a conversation which took place at Carson, Nevada, in 1861, between Stanford, Dr. Strong, Mr. Crocker, and himself, representing the railroad, and some twenty representative men of Nevada. The Nevada people observed that Huntington kept a pretty good hardware store, but that he was likely to leave it in the mountains if he started to build a railroad in Nevada. Huntington replied that he would look out for that, but, he continued, when the road was built he proposed to charge through rates which, while less than the Nevada people were paying for goods which then came to San Francisco by boat and were subsequently teamed across the mountains, would be materially greater than the rates to San Francisco. “We shall charge you for bringing back,” said he, “almost as much as we shall charge from New York.” After the road was built Huntington says he met one of these same men with whom he had talked in 1861. “Said I, ‘You recollect that talk we had in the Curry House in 1861?’ ‘Yes, oh yes.’ Well, we talked about that. He said, ‘You’ve got me there, Huntington.’ ‘Well,’ said I, ‘I said you would grumble. Now,’ said I, ‘you shut up.’”[405]
Objections
It is to be presumed that Mr. Huntington’s rejoinder was effective in the particular discussion which he relates. Yet the grievances of the interior towns found full and repeated expression after 1869, and indeed are still emphatically presented at the present day. The more fundamental criticisms of the transcontinental rate system are the following: The principal objection directed against the whole adjustment is that it leads to charges to intermediate points which are prima facie unreasonable. Speaking of the rates on iron and steel, a representative of the Traffic Bureau of Utah called the attention of the House Committee on Interstate and Foreign Commerce in 1918 to the fact that the rate on iron and steel articles for export from Chicago territory to Pacific Coast terminals was 40 cents per hundred weight or 3.54 mills per ton per mile. He continued:
They take an identical carload of the same commodity, and when it is going to the Pacific Coast for domestic consumption the rate is 65 cents a hundred, or 5.76 mills per ton-mile. If they were to apply that rate at the Utah common points—the same 65-cent rate—it would pay 8.65 mills per ton-mile. But they say, “We cannot afford that; you must pay 10.84. We haul it for a man in Russia for 3.54, but that is only the out-of-pocket cost. We will make you a rate of 10.84, which is a lower rate than you are entitled to.
I think any article, whether it is transportation or anything else, that could be produced at some profit at a price of 3.54, when you pay 5.76 for it you are paying a handsome profit; and if you pay 8.65 for it you are paying an abnormal profit; and if you pay 10.84 for the same thing you are being outrageously imposed upon, which is what we are doing.”[406]
The second objection of the interior cities is that the system of transcontinental rates limits the territory in which intermediate wholesale firms can do a distributing business; and the third ground of complaint, resulting from the other two, is that the policy of permitting low rail rates to the coast cities has the effect of building up large cities on the seaboard at the expense of the whole interior country.
Reply of Railroads