Railroads: Rates and Regulations

by William Zebina Ripley

Only by means of concrete cases decided by the Commission as an administrative body, could the scope and meaning of the original law be determined. This was a most difficult task hinging upon the utmost legal technicalities and refinements. Even the most learned judges failed to agree among themselves. Thus in eight of the sixteen cases above mentioned, the decisions in the lower Federal courts failed of agreement with the final decree of the Supreme Court. In the Cartage case,—involving the legality of a railway giving one shipper free cartage of goods to a railway station as an inducement to ship over its line, while withholding the privilege from another,—the Commission was sustained in the Circuit Court and reversed in the two higher tribunals. In other instances, like the Social Circle case,—turning upon the discrimination in freight rates against small towns in favor of large competitive centres,—the first court ruled adversely, while the Circuit Court of Appeals and the Supreme Court sustained the Commission in part. Or yet again, as in the Chattanooga case,—wherein this city complained against a higher freight rate from New York than the rival city of Nashville enjoyed, although the goods for Nashville passed through Chattanooga and were hauled one hundred and fifty-one miles further,—both lower tribunals sustained the Commission only to be finally overruled by the Supreme Court. The fact that in only eight of these most important cases the courts could agree among themselves indicates the nicety of the legal issues comprehended. All parties were in fact working much in the dark, both as to the intention of the original law and as to the possible effects of its interpretation. The charge of incompetence, if it held good for the Commission, applied equally well to a large number of the most learned judges in the Federal courts.

Another indication of the extreme delicacy of the legal issues involved, is found in the lack of unanimity even among the justices of the Supreme Court itself. In nine of the sixteen Supreme Court cases the final decision was not rendered without dissent. As the lower courts were divided among themselves, so the justices of the Supreme Court were apparently somewhat at sea. The minority, to be sure, was small, in most cases being due to the failure of Justice Harlan to concur. But in the far-reaching Import Rates case,[559] the court was more evenly divided. The issue raised, concerned the legality of lower through rates on imports from Liverpool to San Francisco via New Orleans, than were granted on domestic shipments from New Orleans to the same destination. Thus the rate on books, buttons, and hosiery, from Liverpool to San Francisco through New Orleans was $1.07 per hundred pounds. At the same time the domestic shipper was compelled to pay $2.88, or two and one-half times as much, for a haul from New Orleans to San Francisco alone. In another important instance, tin plate was carried from Liverpool by steamer and rail through Philadelphia to Chicago for twenty-four cents per hundred pounds. For the American merchant in Philadelphia the rate to the same market was twenty-six cents. For the inland haul alone the Pennsylvania Railroad was receiving sixteen cents on the foreign goods, while coincidently charging American merchants ten cents more for the same service. Discrimination against the American merchant in favor of foreign competition, not infrequently more than sufficient to overbalance any supposed protection afforded by the tariff, has been repeatedly proved in such cases as this. The duty on imported cement was eight cents per hundredweight. In one instance, this duty with the total freight rate added amounted to only eighteen cents, as against a rate of twenty cents for the domestic producer from New York to the same point. There were reasons for this grievous discrimination against the domestic shipper, mainly concerned with the vagaries of ocean freight rates. Steamers must have ballast for the return trip to equalize out-going shipments of grain and other exports, and they will carry heavy commodities, such as salt, cement, crockery, and glass, at extremely low rates. Nevertheless, such imported commodities can be sold to advantage in competition with domestic goods only when the railways will contribute equally low rates to complete the shipment.

The Interstate Commerce Commission in these Import Rate cases originally held that such discriminations were unlawful. Two appellate courts, in turn, sustained this view. Finally, however, the Supreme Court decided, with three members, including the Chief Justice, dissenting, that the Interstate Commerce Law as phrased did not expressly prohibit the practice. Everything turned upon the interpretation of certain clauses in the law. No question was ever raised as to the economic issues involved, nor was it competent to these tribunals to pass upon such issues. The question was simply and solely this: When the Act to Regulate Commerce forbade inequality or discrimination between shippers, did it contemplate competition between shipments originating within the country and others from foreign ports? Was the Interstate Commerce Commission, in other words, empowered, in interpreting this act, to consider circumstances and conditions without as well as within the boundaries of the United States? If it was entitled to consider solely domestic conditions, it was certainly right and economically sound in forbidding such practices; if, on the other hand, it was required to take account of commercial conditions the world over, irrespective of the effect upon the domestic producer and internal trade, its decision should have been favorable to the railroads. To appreciate fully the extreme nicety of the legal points involved and the delicacy of the economic interests at issue, one must needs read the extended opinions both of the majority of the Supreme Court and of the three dissenting justices, including Chief Justice Fuller. But to interpret the reversal of the original decision of the Interstate Commerce Commission by this tribunal as in the slightest degree involving incompetence or judicial unfairness is a misrepresentation of all the facts involved. As in the preceding cases touching the interpretation of the long and short haul clause, it may fairly be said that the consensus of opinion among business men, and certainly among the professional economists of the country, was on the side of the Commission in condemning such practices. As to the law, that was decided otherwise by a narrow majority.

The final breakdown of the law of 1887 came, however, not from mere defects in procedure, but from the adverse construction placed by the Supreme Court of the United States upon its fundamental clauses, viz., those concerning the exercise of rate-making power by the Commission. Whether or not it was the intention of Congress to delegate such power, seems not to have been considered for some years. At all events, within two months after the law was passed the Commission certainly interpreted the law as giving it, not only power to investigate but to prescribe remedies for what it conceived to be unreasonable charges. The right to exercise general rate-making power in first instance was distinctly disclaimed.[560] But the right to prescribe a modification of existing rates on complaint was repeatedly affirmed, without question either by the carriers or the Federal courts.[561] The first order of the commission in Evans vs. The Oregon Navigation Company directed a reduction of the rate on wheat from Walla Walla, Washington, to Portland, Ore., from thirty to twenty-three and one-half cents. It was promptly complied with. Then came the Farmington-Red Wing, Minn., wheat case, touching not absolute but relative rates between two competing places. The order that the charge to one town should not exceed that to the other by more than one-third was likewise obeyed. Even freight classification, not specifically mentioned in the Act, was supposed to be fully subject to the Commission's control.

In the Reynolds case, railroad ties and lumber were ordered to be grouped together, without contest. The activity of the Commission at this time in promoting uniform classification elsewhere discussed,[562] was evidently based upon a similar belief in its legal competency to act. For nearly a decade attention seems to have been so concentrated upon matters of judicial procedure, that this more fundamental proposition was neglected. Moreover, all this time was needed to secure a final pronouncement from the Supreme Court, which was alone competent to settle it as a matter of law.

It was not, then, until almost ten years after the institution of the Commission, in fact, that its rate-making power was denied. The first shadow of doubt seems to have been expressed in the decision of the Supreme Court in the so-called Social Circle case.[563] This involved the reasonableness of rates from Cincinnati to the town of Social Circle, Georgia, as related to the rates to Atlanta and Augusta on either side. Disregarding other phases of the case which concerned the interpretation of the long and short haul clause, the Commission had, when the case was first decided in 1891, ordered a reduction of the rate from Cincinnati to Atlanta from $1.09 to $1 per hundred pounds. This case was carried to the Supreme Court, where decision was finally rendered in 1896. Purely as an obiter dictum the court discussed briefly the interpretation of the original act in respect to rate-making power. It expressed a reasonable doubt in the premises, even going further and confessing inability to find any provision of the act "that expressly or by necessary implication confers such powers." It does not seem clear whether by this statement the court had reference to the arbitrary prescription of rates in first instance to the carriers, or merely to action of the Commission in prescribing rates after complaint, in order to redress grievances.

Several decisions of circuit courts during 1896 reënforced the judicial doubt as to the validity of the rate-making power of the Commission. Thus, for example, in the case of Coxe Brothers,[564] involving rates upon anthracite coal, which, by the way, had been pending since 1891, the Circuit Court of Appeals expressly declined to enforce an order of the Commission, stating that it "is not clothed with the power to fix rates which it undertook to exercise in this case." The court's reasoning in the Social Circle case was followed and expressly cited. During the same year, 1896, other cases, such as that of the Truck Farmers' Association, were decided in the same spirit. The final adjudication of this point, however, was reserved for the decision in the so-called Cincinnati Freight Bureau case. This had its origin in an application from the Commission to enforce an order issued in 1894 against the Cincinnati, New Orleans and Texas Pacific Railroad Company.[565] The case involved the adjustment of rates from eastern and western centres, respectively, into the southern states; and the Commission had decided that a reduction of the rates from the western cities was reasonable and necessary. This leading case, also known as the Maximum Freight Rate decision of 1897, is characterized by the Commission itself as perhaps "the most important since the enactment of the Act to Regulate Commerce." It merits consideration in some detail.

The reasoning in the Maximum Freight Rate case[566] cannot be better put than by the following excerpts from the opinion of the Supreme Court.