IV
RATE-MAKING AND THE GOVERNMENT[1]
I think all railroad-owners and officers agreed with President Roosevelt when he said in a message to Congress: “Above all else we must strive to keep the highways of commerce open to all on equal terms; and to do this it is necessary to put a complete stop to rebates. Whether the shipper or the railroad is to blame, makes no difference; the rebate must be stopped, the abuses of the private car, and private terminal track, and side-track systems must be stopped.” In fact, the great bulk of the freight in the United States is now moving under that principle. I believe that there is much exaggeration and misconception about the alleged abuses that exist. There is no question of “railroads versus the people”; there is a demand for the correction of certain abuses and failures in the management of railroad business, resulting, unfortunately, in much confusion of ideas, which may produce results very detrimental to the growth of business in this country, and therefore harmful to the railroads. On the Northern Pacific road, for example,—comprising about six thousand miles,—there are no rebates; there are no private-car abuses; there are no side-track abuses. There are, of course, differences of opinion about the relations of rates, as there always will be under any system. Railroad business, being conducted by human beings who are no more infallible than those in other walks of life, is not conducted with absolute perfection. For the errors made in the conduct of the enormous railroad business of this country, the plan of control and management should not be condemned and dislocated, any more than the general scheme of our government should be condemned because there are frauds in the administration of the Land Office and the Post Office Department, and inefficiencies in the administration of the government in places.
It is my sincere belief that a very, very large proportion of the transactions made daily between the railroad-owner and the railroad-user go on without friction, without difficulty, and without hardship or injustice to any one. Not long ago I caused a calculation to be made of the total number of individual freight transactions on the Northern Pacific road in a year. In round figures there were something over 3,000,000 separate freight transactions, or about 9600 a working day. Each one of these transactions involved the use of freight tariffs, the making of bills of lading and waybills, the loading and transporting of the freight, the safe delivery to the consignee, the collection of the money, and the issuing of receipts. During the same time there were claims against the railroad for loss and damage, and other errors and failures connected with this large number of complicated transactions, of about one per cent of the shipments. Considering the complexity of the business and the large number of employees involved, this record, I believe, is creditable and shows reasonable stability and efficiency in conducting the business. What is true on the Northern Pacific is doubtless true on other roads, and most of the transactions between the shipper and the railroad are completed without any feeling of injustice, or that there is something radically wrong with the American railway system. The same thing is true to an even greater extent in the passenger business. Passengers get on and off trains all over the country without feeling that they have any complaint against the railroads as to discrimination or injustice in rates, except in rare instances.
With the growing railroad business of the United States, the distribution of railroad securities, and the demand for manufactured articles used by railroads, it is not unfair to say that, counting railroad employees and owners, and employees in industries furnishing material and supplies to railroads, there are from 2,500,000 to 3,000,000 persons whose daily bread and butter and general position in life, together with those of their families, depend very largely upon the railroad business and its development along wholesome lines. Multiply this number by four and we have 10,000,000 to 12,000,000 persons, or from one eighth to one seventh of the population of the United States, who either fail to realize the importance of the policy under discussion, or who, if they do realize it, are generally silent through lack of opportunity or ability to make any statement in their own behalf.
Most of these people are attending quietly to their duties on the railroad, in the factory, or in their homes, and they form a very important part of the population of this country. Ultimately, any step under which the Federal Government exercises the power of fixing the actual rate to be charged by railroads will affect them adversely by introducing an economic force into their scheme of life which will mean repression and curtailment of the chance of success due to hard individual effort. In the clamor for fixing railroad rates, much of which comes from those who want some personal advantage, either political or commercial, from those who hope to obtain through governmental aid success which they have not obtained by their own energy and ability, and from those who believe in socialism, the rights of this large number of people should not be lost sight of, and they should not have imposed upon them governmental conditions that do not obtain in other forms of commercial and business life in this country. When this large class of people come to understand fully what is contemplated, their voice will be heard most plainly against the socialistic plan now proposed.
The newspapers comment more or less upon the fact that great fortunes have been made out of the railroad business, and name a small number of individuals who, through superior ability, energy, foresight, and hard work, have built up large fortunes. From the constant discussion of this subject by the daily press, there is a more or less prevalent opinion that the railroad business furnishes a field for the rapid accumulation of money, and, to a certain extent, that this money comes unjustly from the public. It is true that a few large fortunes have been made in the railroad business, but no more than in the iron, coal, lumber, and manufacturing businesses, if as much. They are the capital prizes in the lottery of life that are open to every ambitious American. But of the great army of railroad-owners, officers, and employees, a very small proportion obtain more than enough for their daily living, whatever their position in society may be, and some saving for old age and their children outside of that.
As a rule, the railroad officer or employee is as conscientious, high-minded, and devoted to the interest that employs him as any man in any other walk of life, and he appreciates that the best interests of his employer are served by building up the tributary country, which can be done only by adjusting rates and giving service that will develop the natural resources. He is also fair-minded and anxious to be fair and square with the user of the railroad, as well as with the company, because he realizes that the greatest success to the company comes from fair treatment to the patron; in other words, a daily application of the “square deal.”
Take them as a class, moreover, the income received by the railroad officer and employee is no greater than that received by those interested or engaged in other business pursuits in the United States requiring the same ability and experience; and in the case of the railroad-owner, it is less.
We hear the expressions “railroad problem” and “railroad question” very often. There is nothing mysterious or unusual about the railroad business, and the problems and questions surrounding it are the same as those affecting other commercial business. In considering the railroad business, however, the fact should not be lost sight of that the business of building, managing, and operating railroads is comparatively new. Only within the last thirty years has it assumed the great importance and proportions that it now has. The work done by the American investor, railroad-builder, owner, and manager in the last thirty years has been enormous in producing the present railroad system of the country,—a system which, on the whole, is one of the most wonderful things ever produced by human energy. The performing of all this work has required many men, much money, making of great mistakes, wasting of money before obtaining the present roads, learning by experience, training of men to administer the business, evolution of methods; and the wonder is, not that there are some abuses and failures in the conduct of the business, but that there are not more.
The railroads of the United States are today in an unfinished condition, and need to attract capital, administrative talent, and the wage-earner. The country wants, in the railroads, the same things that are being furnished in older and smaller countries like England, France, and Germany; that is to say, better road, track, and bridges, faster trains, greater safety, more beautiful station facilities, all of which means an enormous investment of capital and a considerable period of time, the training of many men, and the least interference possible with the development of the business. Hamper the railroads by too much restrictive legislation and take away from the man who has to provide the money for these expanded facilities the naming of the price to be charged for the use of these this facilities, and this expansion will gradually be stopped. “You can lead a horse to water, but you cannot make him drink.” You can give to a branch of the Federal Government the power to fix an actual rate which the owner of property shall receive for the use of his property, but you cannot make the owner of the property improve his railroad, buy more cars, build more branch railroads, and expand his business.
That the abuses connected with the railroad business, small in number as I believe them to be when compared with the total volume of trade, are not affecting materially the general growth of business in the United States is evidenced by the fact that everywhere you go in this country, from the Atlantic to the Pacific, you see thriving towns and cities, expanding agricultural productions, demand for lands, growing values of lands, increasing manufacturing capacity, increasing ownership of homes, well employed labor, demand for more and better transportation, and a chance for the conscientious, sober, and industrious man to improve his standing, no matter what business he may enter.
If railroad rates, as a whole, were unjust, unreasonable, wrongly discriminatory, as between individuals and localities, this condition would not exist. It has been held that the power to fix a railroad rate should be lodged with some other authority than with the railroad-owner, because railroad transportation enters into the life of the people in every way, and, therefore, the railroad-owner should not fix that price. Is it not also true that the price of producing power enters into the life of the people in every way? The price of a pair of shoes, of a coat, or of any manufactured article, depends in part upon the cost of the power used to run the machinery that made the articles in question. If the final decision to fix the actual rate to be charged by the railroad is to be given to some branch of the Federal Government because a railroad rate enters into every one’s life, it is only a short step to say that the final decision as to the price of coal, or water-power, or of any other agency producing power should be fixed by some governmental authority. Again, the price of labor enters into the cost of living of every one, and to a greater extent than the price of railroad transportation or the price of power, because the price of labor is the largest single item of expense to the railroad and to the coal-mine. If it is wise for the Federal Government to fix the price of railroad transportation because of its affecting every one in the nation, why is it not equally wise to fix the price of coal, of electricity, and of labor? And where are you going to stop?
One argument advanced for changing the present federal laws about rates is that there has been during the last few years a gradual elimination of competition, and there is a fear that rates will be so controlled that they will not fall gradually, or that they will be advanced arbitrarily.
That there has been some elimination of certain kinds of competition is no doubt true. It has resulted, however, very largely from the better experience and sense of the railroad-owner or manager, who, each year, is conducting his business on a more scientific basis, so as to produce the greatest amount of good transportation at the lowest possible figure, and who has eliminated considerable waste and foolish competition, thus permitting a great decrease in rates during the last twenty years. There has been, however, no elimination of competition as to markets, which is the real competition in a country so large as the United States. The wool-grower in Montana must sell wool in competition with the wool-growers of Arizona and Kentucky, as well as of Ohio and Australia, and the railroads, in order to help develop Montana, Arizona, Kentucky, and Ohio, are all striving to place the wool of their respective states at the point of consumption, at the lowest price possible. The Northern Pacific does not fix the rates on wool from Montana. The price of wool in Boston, affected by the number of sheep on the Australian farms and the amount of free tonnage controlled in Liverpool, are elements beyond the control of the American railroads and the American Government. The Northern Pacific cannot charge an infinitesimal fraction of a cent more than will enable the Montana man to place wool in the common market at a common price, grade for grade. The makers of woodenware in Menasha, Wisconsin, and in Tacoma, Washington, are competing to reach the same markets, and the railroads leading from those two places, through self-interest, are adjusting the rates as low as they can, in order to help develop the trade in their respective territories. The producers of lumber in Idaho, Montana, and Washington, and the producers in Minnesota, Arkansas, and Louisiana are all trying to sell in the markets of this country and abroad, and the railroads from the respective districts, if the business is to move at all, must meet competitive prices and adjust rates accordingly.
Examples without number could be given of this competition of markets in raw material, in all sorts of manufactured articles, and in products of the mine and farm. In fact, this competition as to markets has been so marked in the case of live-stock that rates have been brought down to such a point that the railroad-owner is hesitating about increasing his investment in cars for the purpose of transporting live-stock, because the margin of possible profit in the business is so small.
Another potent cause that tends to prevent an advance, and to continue a general fall in rates, is that the railroads, in order to succeed at all, must do the largest volume of business possible over their rails, as the cost decreases somewhat as the volume increases; so the officers of the railroads are continually endeavoring to increase the volume of their trade, and stand ready to reduce charges whenever it is clear that a development of country and an increase in tonnage will result.
There is an erroneous idea that rates are fixed arbitrarily, and that a few so-called “railroad magnates” fix and control all of the rates in the United States; and that their chief idea is to fix them high. Nothing can be further from the truth. A railroad rate is the result of a large number of commercial and geographical forces and conditions working one upon the other, consultation between shipper and railroads, consultation between officers of one railroad and another, a study of all the conditions surrounding the problem,—of the density or volume of business, of grades, engines, car-supply, and cost,—and this process is going on every day among thousands of railroad officers and shippers.
Another element that is effective in the direction of causing a gradual reduction in rates, if the railroads are left reasonably free, is the fact that railroad transportation cannot be stored up and saved for future use. The railroad-owner and manager never can strike an exact balance between the demand for transportation and the supply. He has, therefore, on his hands at all times some unused transportation,—empty cars standing on side-tracks, engines waiting in round-houses, a large demand for them at one time of the year and a decreased demand at another, a demand to handle business east but nothing west. He therefore goes to work to increase trade by seeking to adjust rates so that he can use up part of his idle transportation by moving products between points where there was no such movement before. It is claimed that if the Commission have power to fix rates, such power would only be exercised occasionally, and that the power to fix a given rate upon complaint does not carry with it the power to fix rates generally. This is not true. Rates in this country are so complicated, are so related to one another, different cities and sections are so competitive, that a change in one rate will force changes in many other rates.
Rates really fix, or adjust, themselves, just as prices in all business transactions fix and adjust themselves. The man who slaughters cattle, hogs, and sheep cannot arbitrarily fix the price to be charged for the different parts or products of the various animals, so much a pound for tenderloin steak, so much a pail for lard, so much for hoofs, so much for sparerib, nor can any one else. His prices are fixed for him by competitive conditions, and unless he receives, on the whole, for all of the different kinds of things obtained from the animals enough to pay the total cost of his business, and some profit, he ultimately abandons his business. The railroad business is very much more complicated than the business of the butcher, and there are an almost infinite number of prices in the business which are fixed and adjusted just as the prices for the butcher are fixed.
If one man, if the Government itself, owned all the railroads of the United States, the rates could not be fixed mathematically at a central headquarters, and permit any development of business.
Regulating is one thing, and fixing is another. The present law grants ample power to regulate, to say what is unfair and unjust, and if it were enforced fairly and if the powers now in the hands of the Commission were used, much of the alleged popular demand for giving the powers to fix the actual rate would disappear. It is a question whether we are not even going too far in the direction of regulating for the best expansion of trade. Our neighbor Canada encourages its railroads so much that to-day products of the United States factories are reaching the Pacific Coast via Canada in constantly increasing quantities, because the Canadian roads can and do make rates which the American roads cannot make without being charged with violation of the Interstate Commerce Law.
The rule that the inland proportion of the rate necessary to move products between the United States and foreign countries be published, is a restriction that hampers the American roads in the efforts to expand trade and increase foreign commerce. What good does it do any one in the United States to have car-loads of manufactured articles delivered at Seattle, for instance, by way of the Canadian Pacific, when the United States labor, United States coal, and United States railroads could haul the product all the way? What harm does it do any one in the United States if locomotives are moved from Schenectady, New York, to China via United States railroads and Puget Sound rather than via New York and the Suez Canal, even if the rate from Schenectady to Puget Sound on the locomotives destined to China is less than on those used at Puget Sound, and even if the rate fluctuates day by day or week by week, to meet competition of the Suez Canal or the German maker of locomotives?
What, then, are the complaints? Those charged with the duty of studying and administering the great railroad business of the country receive complaints of various kinds. West of the Mississippi and Missouri Rivers they may be classified as follows. In the order of their relative importance:—
1. Complaint of insufficient facilities. This, in the growing, progressive, and expanding states of the West, is a steady and constant complaint, and it requires much time, money, and energy for the railroad-owners and officers to keep the supply of transportation up to the demand. The complaints come in for more freight-cars, for more passenger-trains, for better passenger-stations, for more side-tracks, for more switch-engines, for under-crossings and over-crossings in growing cities, for branch lines into new and undeveloped sections of the country; and every railroad west of the Mississippi must spend every year sums equivalent to from five to twenty per cent of its gross earnings for providing what is needed on the road already in existence,—not counting sums of money that must be raised for building branch lines and new lines. Would bureaucratic rate-fixing stop this complaint, or would it make it worse?
2. Complaints of the relation of rates between communities. The fact that communities are growing and strive each to outstrip the other in the West produces most energetic demands by mercantile organizations, commercial clubs, and other agencies that this town or that town have the rates so adjusted that it can enlarge its sphere of operation and diminish the territory of its rival community. Much of this complaint is caused by the competition of water-routes and Canadian roads that are not subject to the Interstate Commerce Law. The officers of the freight departments of the great railroads spend as much time, if not more, on this subject as on any other, making a constant study of the relation of rates and endeavoring, through consultation with all interests and without fear or favor, to harmonize the conflicting demands of the various communities. A commission could not satisfy this class of complaints, and would be driven to a system of rates based on distance.
3. Complaint of relative rates between individuals. Many individuals continue to ask the railroads for a better rate on their particular business than may be used by their competitor, although this request for personal preference in freight rates is diminishing steadily. Let it be understood that the federal authority will enforce the existing law, against both shipper and railroad, and this complaint will stop.
4. Complaints that the power of deciding questions is being centralized too much. The railroads, in their effort to conduct their business without personal and unjust discrimination, have centered the power of deciding various questions in their main offices,—with the result that sometimes there is considerable delay in deciding questions. A man wants a side-track to his warehouse, and in order to decide that question properly considerable information must be obtained and some one has to render a decision whether the company shall spend the one thousand dollars needed to furnish the track. Another man will build a manufacturing plant if he can get rates that will enable him to reach his market in competition with some other point. In order to decide this intelligently, an investigation must be made of prices, cost of doing business, the relation of other factories producing the same article, and all of the other factors that enter into the making of the price of his product at the point of consumption. This takes the time, thought, and study of a great many men on the railroad and causes some delay. Give a commission power to fix rates and you would not help this difficulty but would increase it.
5. Complaints that the rates charged by the railroads are in themselves too high. This complaint is not very common, because as a whole rates are very low, and in most cases the man who pays the freight is satisfied with the rate in itself, provided he feels sure that no one else is doing better than he is.
There are, and always will be, abuses in the conduct of railroad business as in the conduct of other business. That the abuses of which there is now complaint will be corrected by taking a given number of American citizens and making them officers of the Government, and charging them with some of the same duties that are now performed by the same class of people as private citizens, is very doubtful.
The rebate is one abuse, but that is practically gone as to the freight business. There remains personal discrimination in the passenger business by means of the pass or free ticket.
Discriminations between localities exist and must always exist in a country as large as the United States, and with as many varying conditions. Such discriminations are not caused by the railroads but are the result of geography and competition. The present law, if enforced, is ample to prevent any “unjust” discrimination.
High rates do not exist as a rule, and all evidence and the general conditions point to the fact that there is no real ground for apprehension that rates will be materially higher than they are now if the natural play of commercial forces and geographical and market competition is allowed to go on without artificial interference. In fact, if railroad-owners are not hampered and restricted too much, and are encouraged to perfect the means of transportation and the expansion of business, the rates in this country will probably continue to fall gradually, so that they will be below the present very low average of three fourths of a cent. On the other hand, discourage the railroad-owner, and give the Federal Government the power to fix the actual rate, and the tendency will be to an average higher rate.
If the Federal Government is to fix the actual rate, it must always fix it high enough to pay to the owner of the property cost, depreciation, and interest. If the Government does not so fix each rate, then it must provide means in some way to reimburse the owner of the road for any loss. To-day in handling an expanding business, the railroad-owner takes the risks of business and handles some at cost or less, and if he loses he must blame himself and pocket the loss. The Government could not force rates upon him that are non-compensatory, and the result would be that under a system where the Government fixed the actual rates, there would be a checking of the movement towards lower rates by the voluntary action of the roads in meeting commercial conditions.
There are some abuses connected with the private car, but the private car has served a most useful purpose during the last ten or fifteen years in helping to care for the commerce of the country. The money and energy of the railroad-builder in the last forty years have been very fully occupied in trying to produce the railroad, and he has not, in every case, kept pace with the demand for special facilities. The owner of the private car stepped in and said, “I will provide cars for fruit and perishable produce,” and the fact that he did so helped to develop the orange business, the butter, egg, and dairy business, the fruit business, and the meat business. The owner of the car naturally has tried to get as high rates as possible on his investment, and in some cases there have been unreasonable charges. In the evolution of the railroad business, however, now that some other parts of the railroad are more nearly completed, the tendency is for the railroads to eliminate the private car and provide their own special equipment, and this alleged evil, if left alone, will correct itself in time, because a railroad, like every other business, must make use of all by-products, and cut out all waste, and will therefore buy and own all cars needed for its business.
Railroads have naturally been unwilling to spend the money, in every case, for private tracks for an industry the success of which was uncertain. As a result, those promoting a given industry have put in their own side-tracks, furnishing their own switch-engines within their works, and delivered their own business to the railways. Incident to this there have been some cases of excessive payments to the owners of private side-tracks and private switch-engines, but here again the evolution of the business and the better experience and judgment of the railroad officers are eliminating any such payments.
What are the remedies for these abuses? In my humble judgment these various abuses will correct themselves through the good sense of the American business man and through the friction of business. In addition, the Interstate Commerce Law, with its amendments, provides ample machinery for correcting absolutely every discrimination as between individuals. If that law is effectually enforced, it will drive out the few remaining cases of personal discrimination as to freight shipments.
I think the effect on railroad-management, on the government machinery, and on the public generally would be good if the principles of the Interstate Commerce Law were applied strictly to the passenger business as well as to the freight business. That is to say, I would stop the making of preferential arrangements for transportation of passengers free or at reduced rates, because they occupy positions of more or less power, responsibility, and trust. As is well known, it is customary for the officers of the Government—municipal, county, state, and federal—to ask for and to receive more or less transportation, and some also for their family and friends. The revenue involved in this practice is relatively insignificant, because the great bulk of this travel would not take place if a free pass or reduced-rate ticket was not given. The effect, however, on the mind of the public is bad, and indirectly the impression is created that the railroad-owner, through the free pass, has a great deal more influence than he really has, that there is much more interference by the railroad in the machinery of the Government than there really is, and that there is a much greater obligation on the part of the recipient of the pass than there really is. Most passes are given to the officers of the various governments as a compliment, and not with the idea that any direct benefit is to be received,—possibly with the hope, in some cases, that any unfair action within the power of the receiver of the pass will be postponed or prevented. In the long run, however, the railroad-owner, the government officer, and the public generally would be in a better relation each to the other if this discrimination as to passenger transportation were eliminated. Such a step would go far toward making the general public feel that the railroad was not interfering improperly with politics, and that it did not have something within its power to give away to law-makers and others in authority that other people did not have. Let the officers of the Government, from the highest to the lowest, set the example of obeying the law, by paying for their railroad travel the same rates charged the general public.
The Interstate Commerce Law also has the power to prevent unjust discrimination between localities. Let the Commission be active in using the power it now has of stating when there is unjust discrimination; their decision and the force of public opinion, the pressure of business men, the increasing good sense of the railroad-owners and officers, will all be elements in determining a new relation between the communities.
As to private cars and private side-tracks, I believe that any difficulties or abuses incident to their use will eliminate themselves, just as the foolish custom of paying ticket commission eliminated itself by the voluntary action of the railroads. If, however, there is a feeling that the Government must in some way try to hasten the inevitable result, the present law seems ample to cure the evils, provided the Federal Government will use its machinery for enforcing it. If more law is needed, a very simple one will correct the alleged evil. Let it be the law that no payment shall be made by a railroad or by an individual for the use of, or service furnished by, a private car or private side-track, that is any greater than the payment made contemporaneously for the same kind of car and for the same kind of service by the railroads each to the other. Then, if the railroads are exchanging cars between themselves at twenty cents a day, or at fifty cents a day, that is all the private car-owner will get; if railroads furnish ice at $2.50 per car, that is all the private car-owners will receive; if the railroads switch in Chicago for from two to five dollars per car, that is all the owner of the private side-track will get in that locality.
The attempt by the Federal Government to fix in detail the exact rates to be charged by the railroads would be unfortunate for the United States. Such policy is un-American, in that it subjects a large number of the citizens of the United States to an economic restriction that does not apply to those engaged and interested in other classes of commercial, industrial, and agricultural business. By having the Government fix the price of railroad transportation, an obstacle would be placed in the way of the highest success of individual effort that would gradually result in depressing and repressing the efforts of those interested in or engaged in the railroad business and would reduce all to the dead level of mediocrity.
Such a plan is unjust, because it would apply to the large number of American people interested and engaged in the railroad business a rule not applicable to others. In good faith they have invested their time, their training, their energy, and their money with the idea that there were rewards for success as in all other businesses. They are taking, and have taken, great risks, as do all who are engaged in business, to obtain the benefits of success, if that comes, just as they must submit to the result of failure, if that comes.
Such a plan is unnecessary, because the development of the railroad business in this country has been such that we have the most effective service as a whole, the lowest rates as a whole, the highest wages as a whole, and the most progressive management of the business as a whole, of any country in the world. And all of this has been developed in fifty years by the energy, ability, and ingenuity of the American business man. With this record in the past, why is it necessary to take even a chance of delaying or changing this marvelous development? Or, to quote President Roosevelt again: “Nothing could be more foolish than the enactment of legislation which would unnecessarily interfere with the development and operation of these commercial agencies.”
Such a plan is unwise, because it would tend to a centralization of power in the making of the rates for the country. As I stated earlier, one of the complaints made now is that the decisions are not made promptly enough. What will be the inevitable effect upon the rate-making machinery of the railroads, if every rate can be challenged, and the power of fixing it is placed with a commission? The natural effect will be that the shipper will not be satisfied with the rate made by the railroad, and the railroad will hesitate to make a new decision, knowing that it is likely to be appealed from. The commission will be in time deluged with complaints. In trying to settle the questions submitted to it, the commission would have to adopt one of two courses. It might try to do exactly what the railroad-owners are doing,—adjust rates upon business principles, taking into consideration every element that affects the movement of commodities, weighing every situation, discussing the claims of communities and shippers, and finally rendering a decision which, when made, must be the rate until the same process is gone through with again. No matter how wise or able one set of commissioners may be, it would be physically impossible for them, sitting in Washington, to dispose promptly of the cases submitted to them. Then the suggestion would be for additional commissions, and in time the Federal Government would have as many people engaged in the rate-investigation, rate-discussion, and rate-adjusting business as the railroads now have. In other words, they would become the business managers of the railroads, but they would have no responsibility for results, no responsibility of ownership, no interest in providing large sums of money necessary to keep the railroads equal to the business, no responsibility or incentive for increasing business and developing new territory.
If the commission did not adjust the rates on business principles,—and it could not,—it would have to adopt some simple basis to be applied to every one without regard to geographical conditions or to previous commercial development. It is manifestly impossible for the Government to fix the rates on the postage-stamp principle, because that system creates unjust discrimination to the greatest extent conceivable. To-day mail is transported from San Francisco to New York at as low a price as it is from Washington to Philadelphia. Either the price from Washington to Philadelphia is too high, or the price from San Francisco to New York is too low, and this principle could not be applied to the fixing of freight rates unless the Government is prepared to make good any deficiency in revenue from the taxpayers as a whole.
The course that the commission would be driven into, and that every state commission is gradually being driven into, is to adopt a milage basis of rates. The effect of such a basis on a country of the size of the United States, with its past history of commercial development, is appalling to one interested in the growth of the country. If, in the beginning of the railroad and business development of this country, rates had been fixed arbitrarily on the basis of mileage, the States west of the Mississippi River would still be thinly populated, with few railroads and with little business of any kind. Inland cities, without access to water transportation, would not have been built up and the whole growth of the railroad and commercial system of this country would have been different. Fortunately for the growth of this country, the railroad-owners and operators did not adopt a rigid mileage basis of rates, and as a result the country has grown, agriculture has grown, diversified manufacture has grown, and there has been an equalization of commercial situations that has permitted a development of cities and communities, which under the mileage basis would all have been congested in a very few places. Give the commission the power to fix rates, and the land values of the agricultural States west of the Mississippi River would be at once affected. An advance of value would be stopped, and a decrease in value would result. To-day the railroads, in their desire to develop territory, make the rates on wheat from North Dakota, on wool from Montana, on lumber from Washington, on butter from Iowa, so as to compete with similar products raised in Ohio, in Kentucky, in Mississippi, in Pennsylvania, in New England. If the Government has to fix the rate, what right will it have to refuse to the wool-grower of Kentucky, the wheat-grower of Ohio, the lumber-producer of Mississippi, the butter man of Pennsylvania, the same rate per mile that is charged the producer in North Dakota, Iowa, Montana, and Washington? No matter how low the rate is made for the first ten miles, or for one mile of railroad transportation, when the haul is one thousand or two thousand miles and the mileage basis is used, the rate will be so high that the business will not move.
On a mileage basis of rates the business of the commercial centers west of the Mississippi would be destroyed. Cities on the oceans and the Great Lakes would have advantages, but the inland cities and agricultural districts would be depressed. When the agricultural and manufacturing population in the great States between the Alleghanies and the Rocky Mountains realize—as they will sooner or later—what a set of rates based on distance will mean to them and to their children, there will be a real rate agitation compared with which the present stimulated demand will be as nothing.
Far better the difficulties existing under the present system of commercial freedom than to turn to a rigid governmental plan for fixing railroad rates.
- ↑ Remarks before the Committee on Interstate Commerce, United States Senate, May 20, 1905.