Equally sound economic evidence that water competition alone was not responsible for the entire present transcontinental rate system, was afforded by the fact that the wide blanket zone, already described, covering two-thirds of the United States for westbound rates, found no counterpart in the scheme under which rates were made up in the opposite direction.[784] It is a poor rule which will not work both ways. And surely water competition, when present, should be potent in either direction. It was undeniable that the absence of pushing cities along the Pacific slope, desirous of developing trade relations with the Atlantic states, discouraged even the slightest extension of terminal rates inland. The ironclad monopoly enjoyed by the Harriman and Hill lines would probably have prevented this in any event. But the significant point was that there was no demand for a blanket zone for eastbound traffic. Hence water-compelled rates staid where they belonged; that is to say, closely confined to the Pacific seaboard cities. Thus it would also have been in the eastern half of the country, had it not been for "market competition"—this artificial factor which the Commerce Court failed utterly to recognize as in a class by itself.
The second vital difference of opinion between the Commerce Court and the Commission was economico-legal. The economist in the office of critic here stands upon less firm ground. And yet, whatever the law may be, the reasoning rests upon the interpretation of the facts.[785] The Commerce Court held that "when the rate for the longer haul is forced unreasonably low by competition, the only elements that can enter into the consideration of the rate for the shorter haul are its reasonableness," etc.[786] The controlling idea, in other words, in the reviewing judicial mind, was that, so long as the rate at Spokane or Reno was reasonable in itself, it was a matter of indifference to that locality what rate might be made to Seattle. All that the Commerce Court needed to do, therefore, was to consider the "intrinsic reasonableness"[787] of the intermediate rate. Not so, held the Commission. Whether this charge was reasonable or not was a question of relativity. It depended upon what rate was made to other points all around it and competitive with it. In other words, the intermediate could not be dissociated from the long-distance point. Railroads as public carriers owed a common duty to both points. No intermediate rate, however low per se, could be reasonable, if the carrier was voluntarily offering a lower rate to points beyond. If its lower rate beyond was accorded under compulsion, that of course was a different matter. But in so far as these low Pacific terminal rates were due to an artificial railroad policy, any discrimination against the nearer points was unwarranted.
The analogy is clear between this difference of opinion of Commission and court and that between the two schools which would base judicial determination of rates in general upon inherent or relative reasonableness, respectively. The "remuneration" test, which the carriers' representatives sought to insert in the law of 1906, seeks to discover innate reasonableness of rates; not affected, that is to say, by the revenue which may accrue from them in the aggregate. The other standard declares such reasonableness to be always dependent upon circumstances; notably upon the amount of the investment and the resultant earning power arising out of the volume of business carried at the rates in question.[788]
The third difference of opinion between court and Commission was purely one of law.[789] Had the latter exceeded its powers delegated by Congress in attempting to fix a relation of rates, instead of prescribing certain maximum rates applicable to particular points?[790] The reasoning followed was apparently derived from the Supreme Court opinion in the Chattanooga case.[791] This reasoning, the government now contended in its argument on appeal to that tribunal, was inapplicable to the since amended law. Limits of space and the natural diffidence of an economist, alike forbid extended discussion of this nice point at law. The Commission alleged that, except by the exercise of such authority to prescribe relativity of rates, it would be powerless to remedy such discriminations in future. In consequence, inasmuch as Congress evidently intended to enable it to afford such remedy, authority over relativity of rates must be derived by necessary implication. And it is certain, economically speaking, that in this position the Commission was once more perfectly right. Whether it was legally so remained yet to be decided.[792] In this connection, it seems odd that none of the briefs for the government mentioned an important instance of the undisputed exercise of such power to establish relativity of rates. The Commission had for years, even in absence of any express authorization by law until 1910, freely prescribed details of freight classification in a large number of important cases.[793] It had never done more than to fix relativity; and the constitutionality of its orders had never been attacked.
An entirely new issue arose at this point. Prescribing relativity of rates implied determination of minimum rates. For if, as in this transcontinental case, the freight rate to Nevada points from New York might never be more than twenty-five per cent. greater than to San Francisco, a lower limit as well as an upper one was thereby prescribed for the latter point, and vice versa. The rate to one point once fixed by the carrier, voluntarily if you please, the minimum rate to the other might be necessarily determined thereby. If a dollar rate prevailed at Spokane, the Seattle rate must not fall below seventy-five cents. Was this not something new? Did it not suggest fixing, not maximum rates alone, but absolute rates as well? And if an attempt to fix absolute rates, was it not unconstitutional? There could be no two minds about the need of conferring power upon the Interstate Commerce Commission over minimum or differential rates, if effective government regulation were ever to be attained. This had been my contention for years.[794] It had the best possible expert support from the side of the carriers.[795] Discriminatory rates could never be corrected until such power was delegated by Congress or conferred by judicial interpretation of the law. Kansas City now enjoys lower rates to Chicago on packing-house products than are accorded to Omaha. On every sound principle of rate making, the two cities ought to be placed on a parity. But the Commission could not rectify the abuse; for the roads from Kansas City promptly reduced their rates pari passu with any reduction of the charge at Omaha.[796] There was no bed rock below which rates could not go. The Omaha railroads as well as the government were powerless in face of the situation.
May power to fix minimum rates, so necessary to an adequate program of control, be constitutionally delegated by Congress? The question has never been squarely presented to the Supreme Court.[797] But the language in many cases has been such as to indicate that maximum rates alone may be lawfully established. Is the reiteration of the word "maximum" intentional? Or may it be that the judicial mind has never yet contemplated the need of regulating the minimum rate? Surely it seems an anomaly that the government should ever seek to fix such a lower limit, below which compensation may not be had. And yet many cases show that it is absolutely necessary, to the end that justice may be done. Or may the unconstitutionality of fixing minimum rates depend upon the fact that, if thus prescribed along with maximum rates, it will amount, practically, to determination of the absolute rate—the bogey which the carriers seem most of all to hold in dread? Interesting and inviting possibilities of judicial interpretation are indeed suggested along this line, were there opportunity to pursue them further.
FOOTNOTES:
[746] The history of the clause will be found at pp. [473] and [564], supra.
[747] Digest of the Hearings, Appendix III, Dec. 15, 1905, pp. 1-244. An excellent body of unworked economic data on rate making is here afforded.