The Railroad Question Part 20

A few of the most important decisions of the commission may be mentioned here. Construing the long and short haul clause, they held that, in case of complaint for violating this section of the act, "the burden of proof is on the carrier to justify any departure from the general rule described by the statute, by showing that the circ.u.mstances and conditions are substantially dissimilar." They also decided that "when a greater charge in the aggregate is made for the transportation of pa.s.sengers or the like kind of property for a shorter than a longer distance over the same line in the same direction, the shorter being included in the longer distance, it is not sufficient justification therefor that the traffic which is subjected to such greater charge is way or local traffic and that which is given the more favorable rates is not; and that it is not "sufficient justification for such greater charge that the short-haul traffic is more expensive to the carrier, unless when the circ.u.mstances are such as to make it exceptionally excessive, or the long-haul traffic exceptionally inexpensive, the difference being extraordinary and susceptible of definite proof; nor that the lesser charge on the longer haul has for its motive the encouragement of manufactures or some other branch of industry, nor that it is designed to build up business or trade centers."

Upon the question of publicity of the railroad business the commission held that, as the books of the defendant carriers, as to rates charged, facilities furnished and general movements of freight, are in the nature of semi-public records, the officers and agents of defendant carriers ought to give promptly to a complainant any statement of facts called for, if such statement may probably have importance on the hearing.

Judge Brewer's opinion as to what const.i.tutes a reasonable rate was evidently not shared by Judge Cooley and his colleagues, for in the case of the New Orleans Cotton Exchange vs. the Cincinnati, New Orleans and Pacific Railway Company the commission decided that the fact that a road earns but little more than operating expenses cannot be made to justify grossly excessive rates, and that "wherever there are more roads than the business at fair rates will remunerate, they must rely upon future earnings for the return of investments and profits." In another case the commission hold that "in fixing reasonable rates the requirements of operating expenses, bonded debt, fixed charges and dividend on capital stock from the total traffic are all to be considered, but the claim that any particular rate is to be measured by these as a fixed standard, below which the rate may not lawfully be reduced, is one rightly subject to some qualifications, one of which is that the obligations must be actual and in good faith."

The rules governing the proper construction of cla.s.sification sheets which the commission has laid down are founded upon common sense and justice. They say:

"A cla.s.sification sheet is put before the public for general information; it is supposed to be expressed in plain terms so that the ordinary business man can understand it and, in connection with the rate sheets, determine for himself what he can be lawfully charged for transportation. The persons who prepare the cla.s.sification have no more authority to construe it than anybody else, and they must leave it to speak for itself."

In defining what is legitimate traffic the commission made the following decision:

"The transportation of traffic under circ.u.mstances and conditions that force a low rate for its carriage or an abandonment of the business, but which affords some revenue above the cost of its movement, and works no material injustice to other patrons of a carrier, is to be deemed legitimate compet.i.tion. When, however, its carriage is at a loss and imposes a burden on like traffic at other points and on other traffic, it is to be deemed destructive and illegitimate compet.i.tion."

It has been shown in a former chapter that the weaker oil refiners have been discriminated against by the railroads, which permitted the Standard Oil Company to use their own tank cars in the shipment of oil and charge its compet.i.tors excessive rates for like shipments in barrels. Complaint being made of this discrimination, the commission held that it is properly the business of a carrier by railroad to supply rolling stock for the freight he offers or proposes to carry, and that "if the diversities and peculiarities of traffic are such that this is not always practical, and the consignor is allowed to supply it for himself, the carrier must not allow its own deficiencies in this particular to be made the means of putting at unreasonable disadvantage those who may use in the same traffic all the facilities which it supplies."

A most important ruling of the commission is that relating to the pa.s.s abuse. Complaint was made that the Boston and Maine Railroad Company issued in the States of Maine, New Hampshire, Vermont and Ma.s.sachusetts free pa.s.ses to certain cla.s.ses of persons, among them "gentlemen long eminent in the public service, higher officials of the States, prominent officials of the United States, members of the legislative railroad committees of the above named States, and persons whose good will was claimed to be important to the defendant." The commission decided that such a discrimination is unwarranted, that a carrier is bound to charge equally to all persons, regardless of their relative individual standing in the community, and that the words "under substantially similar circ.u.mstances and conditions" relate to the nature and character of the service rendered by the carrier, and not to the official, social or business position of the pa.s.senger.

It is a notorious fact that the practice of issuing free pa.s.ses to public officials and other influential persons has been more or less indulged in by nearly every railroad in the country up to the present time. It is to be hoped that this ruling of the commission will be enforced in such a manner as to put an end to this intolerable abuse.

The Interstate Commerce Commission has been equally efficient in its administrative capacity. From the very first it called attention to the great advantage of having one cla.s.sification of freight throughout the country, and it has since labored diligently to unify the various cla.s.sifications in use. As the commission in this undertaking is only armed with the armor of moral suasion, it is a difficult task; but there is little doubt that the accomplishment of this great reform is only a question of a few years. Iniquities in cla.s.sifications and rates are constantly pointed out by the commission and corrected by the companies.

Moreover, the annual reports of the commission, not to mention its very excellent statistical data, diffuse much useful information and dispel many delusions. Thus the fourth annual report of the commission says:

"A stranger to the law might infer, from some public addresses and pamphlets which have a.s.sumed to discuss this subject, that the railroad companies were prohibited from carrying the necessities of life over long distances at very low rates, unless their rates on other subjects of transportation for shorter distances were made to correspond. Indeed, instances have been pointed out in which it was said that certain articles of commerce could not now be transported for long distances, because, by reason of this provision, they would not bear the charges that must under compulsion of law be imposed upon them. Among such instances has been mentioned the granite industry of New England, as to which it has been said that valuable manufactories have ceased to be profitable because it has now become impossible for the proprietors to obtain from the railroad companies the nominal rates for the transportation of their products which they formerly enjoyed, since it is now, by the long and short haul clause, made criminal for the companies to give such rates.

"A complaint of this nature is not to be met by argument, because it is baseless in point of fact. The instance mentioned may safely be a.s.sumed to be chosen rather from regard to the need of an attack upon the law than from any belief in the justice of its application. The prohibition of the fourth section, so far as concerns this article of commerce, or any other that can be named, will have no application whatever until it is made to appear that elsewhere upon the lines of the road conveying it there is property of the same kind, for transportation by the same carriers in the same direction, upon which the carriers are disposed to making greater charges in the aggregate for the shorter hauls.

"The wheat of the extreme West, it is also said, can no longer have the nominal rates which were formerly made for transportation to the seaboard, but this a.s.sertion is also without point or applicability, unless it is shown that the carriers are not only disposed to give such rates, but propose to make up for the consequent losses to themselves by the imposition of greater charges in the aggregate for the carriage of the like grain when offered for carriage by growers in the States nearer the seaboard. Nominal rates impartially made as between shippers of like articles in the same direction and under like circ.u.mstances and conditions are as admissible now as they ever were."

The same report contains a rather pointed reply to Judge Brewer's ruling in the Iowa rate cases, viz., that, "where the rates prescribed will not pay some compensation to the owners, then it is the duty of the courts to interfere and protect the companies from such rates," and that compensation implies three things: "Payment of cost of service, interest on bonds and then some dividends." The commission reviews this stupid rule as follows:

"The effort has sometimes been made to indicate a rule which must const.i.tute the minimum of reduction in all cases, and it has been said that rates must not be made so low that the carriers would be left unable to pay interest on their obligations and something by way of dividend to stockholders, after maintaining the road in proper condition and paying all running expenses. This comes nearer to a suggestion of a rule of law for these cases than any other that has come to the knowledge of the commission. But it is so far from being a rule of law, that it is not even a rule of policy, or a practical rule to which any name can be given, and to which the carriers themselves or the public authorities can conform their action. In the first place, when we take into consideration the question of the condition of roads and of equipment, the proper improvements to be made, the new conveniences and appliances to be considered and made use of, if deemed desirable, and the innumerable questions that are involved in the matter of running expenses, it is very obvious that there can be no standard of expenses which the court can act upon and apply, but that the whole field is one of judgment in the exercise of a reasonable discretion by the managing powers or by the public authorities in reviewing their action. It is to be borne in mind that there are many roads in the country that never have been and in all probability never will be able to pay their obligations and to pay dividends, even the slightest, to their stockholders.... If the rule suggested is a correct one, and must be adhered to by the public authorities, then it is entirely impossible that those who operate these roads can prescribe excessive charges, since it is impossible to fix any rates that would bring their revenues up to the point of enabling them to pay any dividends.... But the rule suggested would also be one under which those roads would be ent.i.tled to charge the most which, instead of being built with the money of the stockholders themselves, had been constructed with money borrowed; the larger the debt the higher being the rates that would be legal. If a road were out of debt so that it had no bonds to provide for, it must content itself with such rates as would pay some dividend to its stockholders.

If the road were in debt, though it perhaps served the same communities, it might be ent.i.tled to charge rates 50, or possibly 100 per cent higher.... But over and beyond all this the attempt to apply the rule suggested would be absolutely futile for the reason that the rates prescribed for one road would necessarily affect all others that either directly or indirectly came in compet.i.tion with it."

It is no exaggeration to say that the annual reports of the commission stand unexcelled as dauntless, clear, concise and instructive public doc.u.ments. It may also be a.s.serted that whatever success has so far attended the Interstate Commerce Law, that success is in a great measure due to the tact, courage and ability of the men who, in the past, have been the guiding spirits of the commission.

Efforts will be made by railroad managers in the future, as they have been made in the past, to weaken the commission by securing the appointment of men servile to the railroad interest as members of that body.

Mr. Depew says that "all railroad men are politicians, and active ones."

This is true as to manipulating managers and will continue to be so just as long as we allow such extraordinary powers to be exercised by them.

The saloon men are politicians, and active ones. There is not a city or town in this broad land that is not in danger of falling under their sway unless their offensive efforts are resisted. The old United States Bank managers were politicians, and active ones. They perverted the trust reposed in their hands to such an extent that the indignation of the people was aroused, and under the lead of a stern old patriot the bank was swept out of existence. Shall we restrain corporation management within proper limits and make corporations serve the public welfare, or shall we let the abuses go on until the people, under the lead of another Jackson, demand emphatically the application of some remedy, for better or for worse? Perhaps Government ownership, perhaps something else. Nations, like individuals, should profit by the experience of the past.

The Interstate Commerce Commission, in their sixth annual report, say, concerning the Interstate Commerce Law:

"It was scarcely possible that it should be so complete and comprehensive at the outset as to require no alteration or amendment. Those who are familiar with the practices which obtained prior to the pa.s.sage of this law, and contrast them with the methods and conditions now existing, will accord to the present statute great influence in the direction of necessary reforms and a high degree of usefulness in promoting the public interest.

"Whoever will candidly examine the reports of the commission from year to year, and thus become acquainted with the work which has been done and is now going on, will have no doubt of the potential value of this enactment in correcting public sentiment, restraining public injustice and enforcing the principle of reasonable charges and equal treatment.

Imperfections and weaknesses which could not be antic.i.p.ated at the time of its pa.s.sage have since been disclosed by the effort to give it effective administration. The test of experience, so far from condemning the policy of public regulation, has established, its importance and intensified its necessity. The very respects in which the existing law has failed to meet public expectation point out the advantages and demonstrate the utility of Government supervision....

"Of this much we are convinced: The public demand for Government regulation and the necessity for legal protection against the encroachments of railroad corporations have not been diminished by the experience of the last six years. The act to regulate commerce was not framed to meet a temporary emergency, nor in obedience to a transient and spasmodic sentiment. The people will not tolerate a return to the injustice and wrong-doing which inevitably occurs when no correction is undertaken and no regulation attempted. The evils of unrestricted management will not be permanently endured, and legal remedies will continue to be sought until they are amply provided. The present statute, however crude and inadequate in many respects, was the const.i.tutional exercise of most important powers and the legislative expression of a great and wholesome principle. Its fundamental and pervading purpose is to secure equality of treatment. It a.s.sumes that the railroads are engaged in a public service, and requires that service to be impartially performed. It a.s.serts the right of every citizen to use the agencies which the carrier provides on equal terms with all his fellows, and finds an invasion of that right in every unauthorized exemption from charges commonly imposed.

"The railroad is justly regarded as a public facility which every person may enjoy at pleasure, a common right to which all are admitted and from which none are excluded. The essence of this right is equality, and its enjoyment can be complete only when it is secured on like conditions by all who desire its benefits. The railroad exists by virtue of authority proceeding from the State, and thus differs in its essential nature from every form of private enterprise. The carrier is invested with extraordinary powers, which are delegated by the sovereign, and thereby performs a governmental function. The favoritism, partiality and exactions which the law was designed to prevent resulted, in large measure, from a general misapprehension of the nature of transportation and its vital relation to commercial and industrial progress. So far from being a private possession, it differs from every species of property, and is in no sense a commodity. Its office is peculiar, for it is essentially public. The railroad, therefore, can rightfully do nothing which the State itself might not do if it performed this public service through its own agents instead of delegating it to corporations which it has created. The large shipper is ent.i.tled to no advantage over his smaller rival in respect of rates or accommodations, for the compensation exacted in every case should be measured by the same standard. To allow any exceptions to this fundamental rule is to subvert the principle upon which free inst.i.tutions depend and subst.i.tute arbitrary caprice for equality of right.

"The spirit of the law is opposed to usages so long continued and so familiar that their unjust and demoralizing character has not been clearly perceived, but it is a long step towards such regulation of the agencies of transportation as will make them equally available to all without discrimination between individuals or communities.

It can hardly be the fault of those who are charged with its administration if the beneficial aims of this statute have not been fully attained and compliance with its provisions not completely secured. A better understanding of its purpose and an educated public sentiment, aided by the needful amendments which experience suggests, will fully vindicate the policy of Congress in undertaking to bring the great transportation interests of the country into general harmony with its requirements.

"It affords us gratification to add that many railroad managers of the highest standing now concede the necessity for Government regulation, and avow themselves in favor of such further enactments as will make that regulation effective."

CHAPTER XIII.

THE RATE QUESTION.

Railroad managers frequently make the a.s.sertion that the average freight rates charged in the United States are lower than those usually charged in European countries and that this fact is in itself sufficient proof that they are too low. A comparison of the transportation problem of Europe with our own will show this argument to be fallacious.

While from $25,000 to $30,000 a mile is a very liberal estimate of the average cost of American roads, the average cost of European railroads, owing to their expensive rights of way, substantial road-beds and heavy grades, is probably not less than $75,000 per mile. British railway companies have laid out for the purchase of land, for right of way and depot accommodations an amount about equal to the entire average cost of American roads for the same number of miles.

For instance, the Southeastern Company paid $20,000; the Manchester and Leeds Company, $30,750, and the London, Birmingham and Great Western, $31,500 per mile. The first Eastern Counties line paid even $60,000 per mile for land through an agricultural district. As nearly as can be ascertained, the average cost of the right of way of railroads was over $20,000 for the United Kingdom. In Belgium the average cost of the right of way was $11,000. It was lower, however, in the other countries of the European continent.

The topography of the country through which the English railways are built is such as necessitated enormous expenses for heavy embankments, cuttings, viaducts, tunnels and bridges, and in some cases increased the cost of the roads to fabulous sums. The Lancashire and Yorkshire Railway actually cost $260,000 per mile for the whole of its 403 miles. European roads have been built in a much more permanent manner and have terminal facilities whose cost is far beyond any sum paid for such purposes in this country. In Great Britain, moreover, the expenses of contests and of procuring charters have been very great and have probably averaged $3,000 per mile.

English railway men charge Americans with having indulged in stock-watering to a greater extent than any other people in the world.

This is probably true, yet the English have not been dull students of this art, and they are far from free of having indulged in this luxury.

Much of their railroad stock was issued in a wasteful manner and represents no actual investment, and it is safe to say that from 30 to 40 per cent. of their present railroad capitalization is water.

If upon the above basis both European and American railroads are to yield an interest of 4-1/2 per cent. on the actual investment, the former will have to earn at least $2,250 per mile more than the latter, and this difference equals about 50 per cent. of the average operating expenses of American roads per mile. Labor is cheaper across the Atlantic, but this difference is more than equalized by the employment of a much larger number of men per mile, as the following table will show:

Countries. No. of men employed Average wages Wages paid per mile. per annum. per mile.

United Kingdom 18 $335 $6,000 Belgium 22 210 4,620 Russia 15 240 3,600 Germany 14 250 3,500 France 14 220 3,080 United States 5 555 2,625

The London and Northwestern Railway is 1,793 miles long and has over 55,000 employes, or over 30 per mile. The Lancashire and Yorkshire Company employs over 42 per mile.

The train men of Europe work less hours and earn less per capita for their employers than do the train men of this country. The average annual gross earnings per employe on sixteen of the leading lines of Great Britain, as shown by Mr. Jeans, appear to be $975 against $1,600 on fifteen leading lines of the United States, while the average net earnings per employe are $465 on the British lines against $720 on the American lines; making a difference in favor of this country of 70 per cent. in gross earnings and 53 per cent. in net earnings. If American labor is more expensive, it is also more efficient than labor is elsewhere.

It must also be considered that the average haul in Europe is much less than the average haul in the United States. It has always been maintained by the railroad companies, and very justly, too, that the terminal charges are as important a factor of freight rates as is the cost of carriage. The terminal charges are the same for a twenty-five-mile haul as for a thousand-mile haul; they form a comparatively large part of the total charges for the former and a very small part of the total charges for the latter. It is therefore manifestly unjust to compare the rates per ton per mile of Europe with those of the United States without making due allowance for the difference in the length of their average hauls. All other things being equal, a fair comparison between the freight rates of different countries should be based upon hauls of equal length.

There is another consideration which should not be lost sight of. The commodities in the United States which contribute princ.i.p.ally to the long haul are raw products. The universally low rates of these commodities greatly lower the general average. In Europe, on the other hand, manufactured goods predominate as long-haul freight, and based upon increased risk and increased cost of carriage, considerably swell the general average of freight charges. The railroads of the United States also do more business per train mile than those of any other country excepting perhaps Austria, Russia and India. This should certainly enable them to do business for less than it is done by transatlantic lines.

In addition to all this, a number of European countries, particularly France, require their railroads to perform large services, such as the carrying of the mails and the transportation of the officers and employes of the Government, gratuitously, and to carry soldiers at reduced rates.

Another factor in the equation should be considered. European roads are built, equipped and all permanent improvements wholly made at the expense of the stock- and bondholders, while in this country they are partially constructed at the expense of the patrons of the road. In the former case the capitalization of the road represents what has been paid by the stock- and bondholders, and in the latter, not only what they have paid, but large contributions paid from the income of the road and from public and private donations.

It will thus be seen that railroad rates ought to be lower, and even much lower, here than in Europe. If it _is_ true that the average rate per ton per mile is lower in America than across the Atlantic, this is chiefly due to the fact that water transportation has forced down through (or long-haul) rates and has thus lowered the general average.

This reduction was by no means made voluntarily by the railway companies, but was forced upon them. Where in the United States water does not exist, as in local traffic, rates are usually much higher than in Europe.

The reduction in freight rates was brought about by a number of inventions which greatly lowered the cost of both the construction and the operation of railways. Through the introduction of the steam shovel, of the wheel-sc.r.a.per, of improved rock-drills, and of other labor-saving machines, as well as by a general improvement in the methods of grading, the cost of grading has been reduced from 25 to 50 per cent., and railroad bridges are now built at one-third of their former cost. Owing to Bessemer's great invention, steel rails can at the present time be bought for one-half of what iron rails cost ten or fifteen years ago, and about one-third of the cost twenty years ago. According to David A.