Railroads: Rates and Regulations

by William Zebina Ripley

Control of coastwise steamship lines, [638].—Panama Canal legislation, [641].—The probable effect of the canal upon the railroads, especially the transcontinental lines, [643].

Historically, the attempt of the separate American states to control railways began with a law after the English model in New Hampshire establishing a commission in 1844.[798] Three other New England states then followed suit prior to the Civil War.[794] But these early experiments were mainly concerned with matters of safety rather than of rates. The first real step was taken by Massachusetts in 1869. The Railroad Commission created in that year has served ever since as a model of the so-called "weak" or "advisory" type of regulation. Others of this sort were more common in the eastern states. Such commissions, in Massachusetts for example, rely mainly upon public opinion for the enforcement of their decisions. They possess very limited authority over rates, although they are empowered to recommend such changes as may be deemed advisable. Back of this authority, of course, lies the legislative power of the General Court, invoked on special occasions. But, in general, the activities of the Massachusetts type of commission have been mainly confined to supervision, either of construction or of capitalization.[799] New York and several other states conformed in the main to this type, although none of them had any authority over matters of finance. A second variety of the older railroad commissions dates from the period of the Granger Movement in the West. Maximum rate laws were passed by a number of commonwealths in the seventies, notably Illinois, Minnesota, Iowa, and Wisconsin. The outcome of this legislation was the decision of the Supreme Court of the United States, elsewhere discussed,[800] holding that state legislatures had the power to fix rates. The so-called "strong" commissions had their rise in connection with these events. Railway boards of this second type exercised control over rates in two ways; namely, by means of the promulgation of freight classifications and the prescription of maximum distance tariffs. For the purposes of such regulation most of the western states grouped the carriers according to their earning capacity, with a different schedule in each case. In certain of the southern states these older commissions adopted even more drastic policies which brought about prolonged litigation. The peculiar case of Texas, adding financial legislation to the direct prescription of rate schedules, has been discussed by itself.[801]

A new chapter in railroad regulation by the separate states dates from the general public unrest and Congressional activity of the Roosevelt period. An almost frenzied activity after 1900 culminated in 1907 in a legislative wave which swept over the entire country. No less than fifteen new or remodelled commissions were created in the two years 1905-1907, bringing the total number by 1908 to thirty-nine. Practically all of these were of the so-called "strong" type; that is to say, possessing the most extensive powers over all matters of rate operation and in many cases of finance as well. The most notable of these, of course, were the so-called Public Utility Commissions of Wisconsin (1905) and New York (1907). The subjugation of the formerly dominant railway interests in New Jersey and Pennsylvania was also highly significant.[802] The movement even invaded the New England States,—so long a sanctuary of the "weak" or advisory commission. Vermont and New Hampshire set up powerful boards, and Massachusetts, in 1913, amplified the powers of its commission in harmony with the general movement. Several features of this new lot of state commissions contrast markedly with even the old-fashioned "strong" type. Many of them permit the fixing of absolute rates. The majority now provide for appointment rather than election of the commissioners; and also by salary and in other ways enhance the dignity of the office. This operates naturally to lift these boards out of a semi-political atmosphere formerly too characteristic in many cases; and to bring them more to a par with the state courts.

The "Wisconsin Idea," achieving its full flower under the remarkable leadership of Governor La Follette in 1905, ably seconded by a number of prominent University of Wisconsin men, notably Hon. B. H. Meyer, now a member of the Interstate Commerce Commission, most completely realizes the progressive policy of sane state regulation.[803] The principle is laid down "that it was as much the duty of the state to furnish transportation facilities as it ever had been to make roads or build bridges; and that if the function was delegated to any one, it was the duty of the state to regulate it so that the agent should be required to furnish adequate service, reasonable rates, and practise no discrimination." And, it is added, that this procedure should be "so simple that a man can write his complaint on the back of a postal card, and if it is a just one, the state will take it up for him." The three fundamental principles of the Wisconsin programme, now happily incorporated in the Federal law, were full authority over future rates; secured without expense to the complainant; and with the burden of proof laid upon the railroad in cases of appeal. In short, the Wisconsin plan provided for thoroughgoing administrative control, that is to say, with strict limitation of judicial review to the determination of points at law. The issues were in no wise different from those already discussed heretofore in connection with the development of the recent Federal policy; except possibly in respect of the persistency of opposition, which has had to be overcome more gradually in the Senate of the United States,—the natural stronghold of corporate influence.

The creation of powerful state commissions since 1905 has, oddly enough, been accompanied by a great activity of the state governments in the enactment of statutes aiming independently to regulate common carriers. Laws of this class are not new. As far back as 1890 there were twenty-two maximum rate and fare statutes. A period of quiescence, marked by only four such laws in twelve years, was followed by the passage within five years to 1907 of no less than twenty-two maximum fare laws and nine maximum rate schedules.[804] To these may be added a large grist of statutes dealing with almost every detail of operation or service. Demurrage, provision for terminals, train service and connections, distribution of cars, industrial and spur tracks, and hours of labor, may be cited among a host of others.

The activities of state governments in recent years in the creation of powerful railroad commissions, with the added grist of drastic independent statutes, have greatly emphasized the eternal conflict of authority between the state and Federal governments, as well as between the different states. Problems akin to those raised by the diversity of our laws respecting marriage, labor, and bankruptcy have been forced upon the attention of Congress and the Federal courts. Reasonable coöperation might be counted upon to accomplish something; but the course of events since 1905 points to the necessity of a final settlement of this important issue as far as common carriers are concerned, so authoritatively that a greater measure of political and industrial peace may prevail in future. The situation respecting railroads was well described by Justice McKenna of the United States Supreme Court in an opinion annulling the North Carolina law requiring railroads to receive goods for interstate transportation whether they had published rates for the proposed shipment or not;—"if the carrier obeys the state law, he incurs the penalty of the Federal law; if he obeys the Federal law, he insures the penalty of the state law. Manifestly, one authority must be paramount, and when it speaks, the other must be silent." It may be added that in this recent case, following the inevitable trend of events it was the state law upon which the penalty of silence was visited.

The ultimate ramifications of a state law under the complexities of modern railway rate adjustment and operation can never be foreseen. It is not simply a question of avoiding conflict between distance tariffs and classifications.[805] Oftentimes the most modest rules and regulations may lead to results affecting commerce over a wide area. The great increase in large cars throughout the West, by contrast with other parts of the country, as traceable to the establishment by Missouri of minimum carloads,[806] is a case in point. We have also already observed how the revised milk laws of Massachusetts opened up an issue covering all of New England.[807] And then there are the various attempts of the railroad commissions, notably Texas[808] and Minnesota, to set up schemes of rates which shall concentrate the distributive business of the community in local cities as against the competition of jobbers at a distance. The extreme confusion introduced in matters of classification by conflicting authorities has already reached a point where demand for the substitution of a single uniform schedule for the United States has become wellnigh irresistible.[809] There are also conflicts respecting laws regulating service, illustrated by the Supreme Court decision in 1907, holding that the attempt of North Carolina to require through fast mail trains to stop at small way stations, was unconstitutional;[810] and finally, some agreement as to division of accounts between interstate and intrastate business will at once be recognized as an essential to the determination of reasonable rates for through and local service respectively.[811] From every side, in short, the need of a clear separation of state and Federal powers is becoming more and more insistent.

The conflict between general and local authority came to a head in 1907, resulting in a violent clash between the Federal and state courts.[812] The worst complication arose in the South, particularly in North Carolina and Alabama. Certain railroads brought suit in the Federal courts to annul rates fixed by the state legislatures; and temporary Federal injunctions were at once issued suspending the statutes until determination of their constitutionality. Popular feeling was much aroused, and local officials sought vigorously to defend states' rights. Ticket agents collecting more than the state-prescribed fare, were condemned to the chain gang and the president of the railroad company was arrested. Federal judges promptly released all parties by writs of habeas corpus. A truce was finally patched up, pending determination of the matter at issue by the Supreme Court of the United States. The final and inevitable outcome, of course, was a decision by this tribunal, upholding the authority of the general government.[813] Technically, the question in these cases concerned the power of the Federal courts to issue temporary injunctions suspending state laws; or, in other words, raising the nice distinction as to whether a suit against a state officer was a suit against the state or not. Various other legal technicalities were involved both in North Carolina and Alabama. The main issue has been dealt with for the future by a special clause of the Mann-Elkins law of 1910. This provides that a petition for an injunction suspending a state law, shall be heard by three Federal judges, one at least of a superior court. Five days' notice is required; and there is a direct appeal to the Supreme Court of the United States. But an injunction, thus issued, is given clear precedence over any statute regarding common carriers emanating from authority of an individual state.

The state of Missouri has had a trying experience. This occurred in connection with a statute of 1907 reducing passenger rates from three to two cents a mile. Federal judges promptly granted injunctions against the enforcement of this statute. The state's Attorney-General in the meantime cited the railroads into the state courts to show cause for failing to obey. The compromise in this case took the form of an agreement to give the new law a trial of several months in order to test the financial effect of the reduction in fares. Then followed an interchange of injunctions, quite characteristic of the old days of the Erie Railroad, save for the integrity of the judges concerned. To this there then succeeded a decision by the Federal Circuit Court that the rates were confiscatory; although for some reason the two-cent fares and other reduced charges remained practically in effect. Controversies similar to this have arisen since 1907 in some seven different states. Oregon and West Virginia took issue as to the validity of two-cent passenger fare laws. In the latter case, the state supreme court held that the statute was not confiscatory. In Oregon the lower Federal court upheld the state law. The contest from Kentucky involved the constitutionality of a state railroad commission act, already held unconstitutional in the United States Circuit Court. The Arkansas appeal had mainly to do with maximum rate laws in relation to physical valuation of property; and in Ohio, the validity of a state rate on coal to Lake Erie was in dispute. The railroad contended that the traffic was interstate commerce, a contention denied by the state authorities.[814] The Minnesota case,—perhaps the most voluminous in its record of all,—had primarily to do with the confiscatory nature of reductions of intrastate rates: and this in turn hinged upon the mode of separating accounts.[815] A distinct affirmation of Federal supremacy has also been had by a Circuit Court opinion in 1911. All these cases are at this writing (1912) before the Supreme Court of the United States for decision. The main issue is pooled by agreement between the governors of the seven commonwealths concerned. The outcome cannot fail to be of the utmost importance,—far-reaching in its effect not only upon the regulation of railways but throughout the entire field of constitutional law. Such decisions as the Supreme Court has already rendered in connection with these matters having been entirely favorable to Federal authority, undoubtedly in this instance induced the joint action of the state executives for mutual protection and support. There can be no doubt that a sweeping decision, upholding Federal authority, will go far to solidify control by the Interstate Commerce Commission. It will also clear the air and greatly simplify the problem of operation by the managements of the railroads, not only in these seven states but all over the United States as well.

The delicate balance between state and Federal authority over commerce is also in a way to be tested in what promises to become an historic case before the Interstate Commerce Commission,—historic in the sense that its final adjudication by the Supreme Court of the United States will add a positive contribution to the body of our fundamental law.[816] It may best be understood by first gaining a clear idea of the nature of the economic grievance. Shreveport, Louisiana, is situated on the Red river, an important tributary of the Mississippi, some 190 miles distant from Dallas and 231 miles from Houston,—both of the latter being important and ambitious provincial distributing points in Texas. Shreveport, enjoying the benefits of water competition,—probably more keen historically than at present,—was granted correspondingly low carload rates by rail on merchandise from the north and east. These favorable rates were not extended to the two Texas cities, inasmuch as water competition was entirely absent. Naturally, therefore, an advantage was given to the Louisiana city in competition for distributive business in all the intermediate territory and even over in the Hinterland in Texas. In pursuance of a long-standing policy of encouraging the growth of provincial jobbing points within its own borders,[817] the Texas Railroad Commission proceeded to overcome this disability by prescribing relatively low rates out of Dallas and Houston as compared with the rates from Shreveport to the same points. It seems even to have gone further and to have interposed positive barriers against the competition of Shreveport jobbers in Texas territory, by somewhat more than compensating for the low water rates at Shreveport. The disparity thus set up may be best illustrated by the following table of charges for approximately equal distances.