Some activity of railway experts has been devoted of late to the elucidation of this question.[512] But, after all, is this inquiry of basic importance as bearing upon the general reasonableness of railway rates? Here, as so often elsewhere in the discussion of these questions, the need is for the analysis of such problems with reference to particular services and not in connection with matters in general.[513] It is conceivable that railway rates might and properly ought to increase under certain circumstances much more than in proportion to the general change in freight rates; or that, on the other hand, they might fairly be compelled to lag behind. This introduces the larger question of reasonable rates in general which must remain for discussion in our second volume.
The general level of rates affects the ultimate consumer more than the shipper. Steadiness of rates, on the other hand, is vital to a healthy state of trade. It is important to examine the evidence from this point of view. The history of railroad rates shows a steady improvement in the direction of more general observance of published tariffs. Periods of abject demoralization incidental to the most furious rate wars, have alternated with periods of peace, characterized by more or less faithful observance of agreed rates. Viewed in a large way the intervals of disturbance have become less frequent and less intense with the passage of time. Present conditions are more satisfactory than any which have prevailed since 1850.
Rate wars are almost as old as railroading and are coincident with the appearance of competition. Among the earliest of note were the struggles between the Erie and the New York Central as soon as the former road was constructed to Dunkirk, Ohio, on the Great Lakes. But the most notorious rate wars were those which prevailed between the trunk lines in respect of the carriage of grain to the seaboard. These wars began with the entrance of the trunk lines into Chicago in 1869.[514] The Baltimore and Ohio from the outset was the disturbing factor. Having no entry into New York except over the lines of the Pennsylvania Railroad, the refusal of the latter in 1874 to give proper facilities led to immediate retaliation by rate cutting on the Baltimore and Ohio. The details of these wars and their economic significance have become classics in our American industrial history. Suffice it to say that for intensity and persistence these contests which lasted for ten years after 1884, have been unequalled in our history since that time. A brief period of calm ensued after 1876. But soon the struggle broke out again in 1881, intensified by the construction of new parallel trunk lines like the West Shore and the Nickel Plate. These latter rate disturbances lasted for about three years.
The passage of the Act to Regulate Commerce in 1887 greatly improved the rate situation for a time;[515] but harmonious relations were rudely shaken by a bitter rate war in 1888 between the Grand Trunk Railway and the American Lines with reference to the rates upon dressed beef. Trouble over this traffic had occurred as far back as 1879, when the rate from Chicago to New York had been cut from one dollar to forty-five cents. In 1888, however, the rate on dressed beef for weeks was as low as six cents per hundred pounds. The Grand Trunk which had carried almost half of this business in 1887, had its proportion reduced to twenty-eight per cent. in the following year. At this time also extensive rate wars prevailed in the far western territory. The failure of the Atchison Road brought to light accumulated rebates for the four years prior to 1894 to the amount of $3,700,000. The prosperity of the early nineties led to a considerable improvement in rate observances. The only exception was the persistence of trouble from the Canadian carriers. The Soo line across the Straits of Mackinac, opening a short route from St. Paul and Minneapolis to the seaboard, was acquired by the Canadian Pacific Railroad in 1890. Combined lake-and-rail grain rates were sadly disturbed and the controversy over so-called ex-Lake grain between the lines from Buffalo to New York, which afterward cropped out in 1900, took its beginning. These Canadian Pacific rate wars were severe while they lasted. In 1892, for instance, the rate on boots and shoes from Boston to St. Paul dropped from one dollar and fifteen cents per hundredweight to forty-five cents.
The panic and subsequent depression of 1893 caused serious and widespread rate wars all over the country. Grain rates from Chicago to New York were openly reduced from twenty-five to fifteen cents. Two peculiarities of this rate war deserve mention. In the first place, every concession was publicly made,—that is to say, the cut rates were filed with the Interstate Commerce Commission; and, consequently, owing to the percentage-basis system to intermediate points, the rate war on Chicago-New York business automatically induced a rate war to every intermediate point in Central Traffic Association territory. Transcontinental rates were also badly upset at the same time. This was due not only to the prevalent hard times, but to complications arising from the independence of the Panama Railway. This line had been controlled since 1871 by the Union Pacific Railroad. The arrangement under which the Pacific Mail Steamship Company was also controlled came to an end in 1893, when the field was again opened to competition. The merchants of San Francisco established an independent line of steamships and for two years the most bitter and reckless rate war prevailed. During this conflict freight was carried from New York to San Francisco as low as thirty cents per hundredweight.[516] Matters were finally settled in 1898; but in the meantime the Union Pacific Railroad had gone into bankruptcy.
Entire demoralization in freight rates throughout the southern states occurred in 1894. Every carrier in this section was involved. Rates were cut for two months by as much as two-thirds. The first-class rate from New York to Atlanta dropped from $1.14 to forty cents per hundred pounds. The years 1894-1895 for the country as a whole were exceedingly unfortunate. Better conditions then supervened except for a rate war on grain at Missouri river points, so important that it was made the subject of special investigation.[517] The Chicago Great Western Railroad through the agency of a corporation known as the Iowa Development Company actually purchased on its own account large amounts of grain in order to secure its carriage. Grain was carried from Kansas City to Chicago under the system of rebating known as "protecting the through rate" for as low as two cents, when the open published rate was seventeen cents per hundredweight. Conditions then bettered somewhat largely through the activities of the Joint Traffic and Trans-Missouri Freight Associations. The prospect of legalization of pooling by Congress was bright. Rates seem to have been observed with more than usual faithfulness throughout the country, the only exception being another brief conflict in the southern states. But the Trans-Missouri decision by the United States Supreme Court in 1897, declaring these traffic associations illegal, once more precipitated most unsatisfactory conditions. And these were accentuated by the budding prosperity of the following year.
With the return of activity in business and agriculture in 1898 a frenzy for participation in the rapidly expanding traffic once more brought about extreme disorganization. The Interstate Commerce Commission reported that "a large part of the business at the present time is transacted upon illegal rates ... in certain quarters the observance of the published rate is the exception." The commissioner of the St. Louis Traffic Bureau testified before the United States Industrial Commission that "there were fewer rates maintained in 1898 than at any other time within my knowledge of the railroad business, and I have been in the railroad business for twenty-eight years." At this point the Interstate Commerce Commission intervened by the proffer of its good offices. Conferences with the heads of the principal railroads were held. A decided change in the attitude of the Commission toward the carriers became evident. It wisely sought to arouse the railroads themselves to the enormity of the existing evils, being absolutely unable itself under the law either to prevent or correct the existing abuses. The result fully justified all expectations. The following year witnessed an almost complete restoration of published rates, although business continued to expand in volume. Naturally there was ample for all the railroads to handle. This condition lasted for some time. But during 1900 rate cutting again developed upon a large scale in westbound business. The great increase of eastbound shipments and the demand for return lading at any price was undoubtedly the cause. This condition lasted for some months.
Rate cutting between the trunk lines again broke out in the spring of 1901, grain being hauled as low as eleven cents per hundred pounds from Chicago to New York. Competition between the Lake line railroads seems to have been the cause. The problem of adjusting ex-Lake grain rates dates from this period. The community-of-interest plan of trunk line control was ineffective to prevent disturbance. In the same year a passenger rate war from the Missouri river to California was also threatened. The United States Industrial Commission sent out a number of inquiries concerning conditions in the summer of 1901. This indicated a firm and stable rate condition in the East but some disturbance on lines between Chicago and the Ohio river points. Trouble soon broke out, however. The Atchison road suspecting its competitors of bad faith, cut its rates first-class from Chicago to the Missouri river from eighty cents to fifty cents per hundredweight. Agreements were repeatedly made and almost immediately violated, some of the strongest lines being the worst offenders. During the fall of that year export rates on flour and grain were badly slashed. The traffic manager of the New York Central lines testified that grain rates for export were not maintained for a number of months.