PRESIDENT ROOSEVELT'S RAILROAD POLICY

THE only justification for increasing, by ever so little, the mass of material already in existence upon the vital problem of railroad control in the United States, is to be found in an attempt to define the issue and to state simply, with little attempt at argument or defense, the position which President Roosevelt and his supporters occupy in their demand for a change in existing conditions. I have called the problem advisedly, a vital one. Those who refuse to inform themselves upon its merits, and who dispose of the question by characterizing it as dull and impractical, must be assigned, to that class who are most hopelessly blind because they refuse to see. No man in this age, however much of a recluse he may be, can avoid the influence of the transportation agency. He cannot eat, sleep, walk, ride, read, work or play without directly or indirectly paying his tribute to the institution which transports himself or his goods. None but a Robinson Crusoe can escape. There has never been a problem before the Country which touches people so personally or so universally.

In order to effect the purpose of this article, it is necessary to recall the facts out of which the present situation has developed. The Cullom Committee, which investigated conditions in 1886, found a situation which imperatively demanded the interposition of government. Railroads were indulging, on a large scale, in practices which were in violation of their duty as common carriers and public servants. Local and non-competitive rates were unreasonably high as compared with through rates at competitive points ; personal discriminations were general ; special rates, rebates, drawbacks, and concessions of every kind flourished. No adequate remedy wag available. The Interstate Commerce Act was passed in 1887 for the purpose of relieving the situation. It demanded the abolition of discriminations, it prohibited unreasonable rates, it ordered all tariffs to be made public, and it created a commission charged with the execution of the law. Time has shown that the measure was too loosely drawn to stand the strain of judicial interpretation. The railroads naturally resisted its enforcement to the uttermost, and demanded from our highest tribunals, interpretation of difficult economic questions, and definition of such elusive terms as "undue," "unjust," "unreasonable," and "substantially similar." The outcome has been to rob the Commission of all the essential powers with which it was supposed to have been endowed.

Although there is no intention to enter into an extended discussion of the shortcomings of the act from the legal standpoint, it will be necessary, if we are to understand the present problem, to notice briefly those interpretations which have most seriously weakened the Commission. The most serious blow which the Act received was in the limitation of the Commission's power over rates. It had claimed the right to make a reasonable rate and to enforce its adoption. The power to condemn an unreasonable rate, so the Commission argued, carried with it by implication the power to declare what was reasonable. The Commission did not claim the right to initiate rates ; this power remained with the railroads. But it did claim the authority to amend an existing rate. Neither did it assert the power to make absolute rates, but only to establish a maximum above which railroad charges could not go. Early in the life of the Act this power was questioned, but not until 1897 in the Maximum Rate Cases did the point come squarely before the judiciary for decision. The Supreme Court then held that the power of the Commission to pass upon the reasonableness of a rate was entirely confined to determining whether that rate was reasonable or unreasonable in the past. The Commission could not prescribe a rate for the future. Obviously a power as limited as this can furnish no adequate safeguard against the imposition of excessive charges.

Another unexpected limitation of the Commission's power came with the judicial interpretation of the long and short haul clause of the Act. From this section much had been expected by its framers. It forbade the railroads to make a greater charge for a short distance than for a longer distance over the same line in the same direction, provided the circumstances in the two cases were substantially similar." It was in the interpretation of these last two words that the Commission and the. Court disagreed. The Commission had held in a series of cases that when a railroad was obliged to meet water competition, the operation of the clause might be suspended ; that is, that a road might charge a less rate to the competitive point than it charged to intermediate points which were deprived of such competition. But it had held that competition with other railroads, created through its own action, did not bring about such a dissimilarity of circumstances as to warrant a suspension of the clause. A case involving this point reached the Supreme Court in 1897 and the contention of the Commission was overruled. The result has been to deprive the clause of all its vitality. The framers of the Act had counted upon this section to prevent place discriminations, to put all stations on an equality as to markets, and to introduce to some extent the element of distance as a factor in rate-making. But the decision has legalized the charging of a less rate for a longer distance whenever competition, of whatever kind, at the more distant point, can be shown to prevail.

Again the prestige of the Commission has suffered a severe blow through the ruling of the Courtas to the weight which is to be attached to its findings. The law prescribed that the findings of fact upon which the conclusions of the Commission were based in any . investigation or hearing, should thereafter, in all judicial proceedings, be deemed prima facie evidence as to every fact found. It was clearly the intent of Congress that the carrying of a case into the Circuit Court, after a decision by the Commission, should be of the nature of an appeal, and that the case should be tried by the court on the findings of fact of the Commission. However, the court has held that it does not merely execute the Commission's orders, but hears and determines the case de novo, employing not only the prima facie evidence furnished by the Commission but all such other testimony as either party may introduce. The natural outcome of this ruling has been that the railroads have presented only the barest outline of their cases to the Commission, reserving their real defense for the court hearing. It has compelled the Commission to render decisions based upon inadequate information, and has subjected these decisions to reversal upon evidence which never came before it. Such reversals have furnished material for railroad literature designed to expose the inefficiency of the present Commission, and the undesirability of entrusting it with increased powers. Moreover, the speedy relief expected from a decision by the court on the Commission's findings is denied, and shippers have been discouraged from resorting to this remedy.

We find then that the judicial interpretations of the Interstate Commerce Act have rendered the Commission inefficient in three important respects ; it cannot fix a reasonable rate; it cannot equalize the transportation conditions of different producing sections and markets through the enforcement of the long and short haul clause; and it cannot compel a defendant railroad to present a complete case in a hearing before it or offer the speedy relief to shippers intended by the Act.' Accepting the judgment of the Supreme Court as our final authority, as we are compelled to do, we must conclude that these weaknesses, as revealed byjudicial decision, were present in the Act as framed. We are, therefore, justified in holding Congress, rather than the Commission itself, responsible for its inefficiency so far as the powers already discussed are concerned .

However, the incompetency of the present Commission is, in the judgment of many, not alone due to the unfortunate wording of the law of its creation. These critics insist that definite authority is granted in the statute of which the Commission has declined to take advantage. The Act created a semi-judicial body with two possible lines of action open to it. It might institute investigations on its own account, or it might sit as a tribunal to hear complaints. In view of the vastness of the area of jurisdiction, the inexperience of the members of the Commission in traffic questions, and the doubt as to the proper method of procedure in a problem- of such intricacy, the Commission deemed the first line of action to be difficult if not impracticable. It seemed wiser to accumulate through a series of cases submitted to it, an experience upon which it could safely proceed. Throughout its history' the Commission has held pretty consistently to the policy of acting upon cases presented to it rather than of initiating investigations on its own account. For this policy it has been criticized by those who hold that the Act did not intend to create another court, but rather to establish a body that should administer in the public interest. As one critic has remarked, " They have been putting on robes when perhaps they ought to have been wearing overalls."

But the most crying evil at the time of the passage of the Act was discrimination and we are concerned with the extent to which the situation has improved since the creation of the Commission. The Act unwisely forbade competing railroads to pool"their traffic, and attempted to compel competition. But the power to compete, as has frequently been said, is the power to discriminate. The two are inseparable, and Congress had attempted an impossible task. Insistence upon publicity of rates bad resulted in less open discrimination ; rate wars in large part bad ceased to exist. Although this result cannot be credited to the influence of the law alone, yet the Act must have been in part responsible for improved conditions. However, the change was largely only on the surface. Devices many and devious were employed by the railroads in order to continue their special rates to favored shippers. The Commission in December, 1901, found the rate situation in so demoralized a condition among the railroads handling grain and packing house products, that it resorted to the unprecedented policy of asking for an injunction from the United States Courts to compel carriers to maintain their published rates. To the surprise of the public, the carriers made no contest, but promptly and readily submitted to the injunction process. Their submission did not prevent them from reducing rates, but it required them to make their reductions in the form of published tariffs.

• This injunction method whose results were so satisfactory in this particular case formed the basis for the first important amendment to the Interstate Commerce Act, since 1889. In February, 1903, was passed the Elkins Daw which dealt primarily with the enforcement of published rates. It was aimed directly at rebates and similar practices, and explicitly declared that any departure from a published rate should be considered a misdemeanor. If there was reasonable ground for belief that tariffs had been disregarded, a court of equity might enjoin the offending carrier and enforce observance of published rates in a summary proceeding. The law was also designed to strengthen the criminal sections of the Act which had proved to be of little efficiency. It made the railroad corporation itself liable to prosecution instead of its officers and agents, and substituted fines in the place of imprisonment as a penalty. Moreover, shippers as well as carriers might be made parties to the action. These changes are in the direction of both justice and efficiency. The law was passed with the acquiescence and even the approval of the railroads. It is a measure in their interest, for it secures the aid of the government in the enforcement of discipline upon recalcitrant and irresponsible roads. The opposition to a measure of this character comes not from those roads that are industrially strong, but from the weaklings who secure their traffic through the inducements of secret and discriminating rates. This law seems to have been beneficial in its effects. Says the Commission in its report for 1903 : " No one familiar with railway conditions can expect that rate-cutting and other secret devices will immediately and wholly disappear, but there is basis for a confident belief that such offences are no longer characteristic of railway operations. That they have greatly diminished is beyond doubt and their recurrence to the extent formerly known is altogether unlikely. Indeed, it is believed that never before in the railroad history of this country have tariff rates been so well or so generally observed as they are at the present time In its present form the law appears to be about all that can be provided against rate-cutting in the way of prohibition and punitive legislation. Unless further experience discloses defects not now perceived, we do not anticipate the need of further amendments of the same character and designed to accomplisli the same purpose." It should be observed in connection with this optimistic view as to the prevalence of discrimination, that the El kins Law has not yet been subjected to the test of declining traffic when the amount of business is less than the aggregate capacity of the roads, and when a road can fully utilize its capacity only by diversion of business from a rival.

If the evil of discrimination has been taken care of so far as legislation can accomplish it, what remains to be done ? What is the occasion for the present agitation ? Its explanation is found in the demand, not that published rates shall be observed, which the present law if vigorously administered is adequate to accomplish, but that published rates shall themselves be reasonable. By this Ido not mean to imply that absolute rates in and of themselves are often unreasonable, or that many complaints of this character arise. Only occasionally is there a general advance of rates which arouses the opposition of shippers. The large proportion of complaints, and those at the basis of the present agitation, concern themselves with relative rates, that is, for example, with the comparative rates charged to a competing market from different producing sections or from the same producing section to competitive markets, or the relative assignment of goods to different classes. There is involved in this question; of relativity, the most intricate problem that exists in railroad rate making, the one which commands the largest proportion of the time and thought of the traffic manager. How can rates be so adjusted that each section shall be able to reach the market with its particular product, and at the same time not destroy the industries of another section served by the same road ? To what extent shall distance be disregarded in the fixing of a rate ? How far shall a section enjoy the advantage of its geographical location ? These are exceedingly difficult questions, and it is but natural that traffic managers who have acquired their experience by years of effort, should insist that the solution of such problems is beyond the power of an outside body of political appointees. But it should be observed in reply that in the first place, the traffic manager's problem concerns simply the railroad system which he is serving; that his interest is merely the interest of the industries along his line, and that the policy which he pursues and defends as a benefit to the sections served may be destructive of industries of far greater value on lines outside his circle of interest. Again, the policy of one manager may not be that of his successor, In relying upon the voluntary benevolence of a railroad there is no guarantee that its favor will be anything but temporary. Finally there is no inherent necessity that the members of a Commission shall be incompetent to handle traffic questions. Men with knowledge of the rate situation can be chosen for such positions, and they can learn more by experience, precisely as railroad officials have been obliged to do. It is at least probable that railroad traffic officials have occasionally made mistakes. The purpose of this argument is to enforce the point that the interest of the public is larger than the interest of any individual railroad, and that it is reasonable to assume that a Commission appointed in the public interest can be more safely entrusted with the fixing of rates that will secure the largest justice, than can an aggregation of competing railroads, each seeking primarily to promote its own welfare.

It is from this standpoint that President Roosevelt has approached the question. A few quotations from his annual message of 1904 will make his position clear: "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 all rebates. . . . . . . . While I am of the opinion that at present it would be undesirable if it were not impracticable finally to clothe the Commission with general authority to fix railroad rates, I do believe that as a fair security to shippers, the Commission should be vested with the power, when a given, rate has been challenged and after full hearing found to be unreasonable, to decide subject to judicial review what shall be a reasonable rate to take its place ; the ruling of the Commission to take effect immediately, and to obtain unless and until it is reversed by the court of review. The government must in increasing degree supervise and regulate the workings of the railroads engaged in interstate commerce, and such increased supervision is the only alternative to an increase of the present evils on the one hand or a still more radical policy on the other. In my judgment the most important legislative act now needed as regards the regulation of corporations, is the act to confer on the Interstate Commerce Commission the power to revise rates and regulations, the revised rate to at once go into effect and to stay in effect unless and until the court of review reverses it."

It will be convenient to discuss these recommendations in connection with the measure which passed the House at the last session and which may fairly be considered as an embodiment of the presidential policy. This measure, known as the Esch-Townsend bill, is in amendment of the existing Interstate Commerce Act and is designed to strengthen it at its weak points. It provides that when upon complaint and after full hearing the Commission shall declare a rate unreasonable or unjustly discriminating, it shall have power to fix a rate for the future. This amended rate is to take effect within thirty days and to remain in effect until set aside by the court. The railroad has a right of appeal at any time within sixty days. A special court is created consisting of five circuit judges to be known as a Court of Transportation, which is to have exclusive jurisdiction of all suits and proceedings of a civil nature to enforce the provisions of the Act. An appeal may be taken from this court to the Supreme Court within thirty days, and the Supreme Court is required to give precedence to these appeals over all except criminal cases. The findings of the Commission are prima facie evidence in this new court of all the facts found and "no evidence on behalf of either party shall be admissible in any such suit or proceeding which was not offered, but which with the exercise of proper diligence could have been offered, upon the hearing before the Commission that resulted in the particular order or orders in controversy ; but nothing herein contained shall be construed to forbid the admission of evidence not existing or which'could not, with due diligence, have been known to the parties at the time of the hearing before the Commission." The Commission is increased from five to seven members and the salary of each from $7,500 to $10,000.

The passage of this measure by the House has stirred the railroads into unwonted activity, and they are now carrying on a campaign of education such as is rarely seen. Bureaus of publicity have been organized, trained economists have been retained to prepare briefs, and literature is being lavishly distributed. A delegation of railroad employees has waited upon the President with the ridiculous plea that the enactment of the proposed legislation would affect disastrously the wage-scale. Because of the limitless resources behind this movement the people of the country are at the present time being much more clearly and fully informed of the arguments against the further increase of the Commission's power than they are of the reasons for supporting the President's policy. Whatever the outcome of the present discussion, relations of shippers and carriers are sure to be improved, for not only are the people as a whole obtaining accurate information of a complex and difficult business, but the railroad men are studying the question scientifically, a majority of them for the first time, and in consequence will be more likely in future to be governed in their policy by other considerations than those of mere expediency and temporary advantage, and with larger sympathy for and appreciation of the position of the shipper.

The opposition of the railroads to the endowment of the Commission with the rate-making power rests in the first place upon the claim, that even though the law leaves with the railroad the right to make rates in the first instance, and confers upon the Commission the power only to amend an existing rate upon complaint, nevertheless so delicately are rates adjusted in relation to one another, this limited authority to amend one rate may have wide-reaching effects by necessitating the modification of rates throughout an entire section. In the second place, their opposition finds its defense in the claim that the inevitable tendency of government-made rates is toward the enforcement of mileage schedules, that is, rates based absolutely upon distance, which would result in checking our industrial development by depriving many industries of their distant markets. In other words, a governmental body is obliged to eliminate from its decisions the elements of discretion and personal judgment and to act strictly in accord with a body of administrative rules. The unhampered liberty of a traffic manager, so it is argued, is quite impracticable in a government official. But the particular point in the bill which has been most bitterly contested by the railroads is that which provides that a rate fixed by the Commission shall go into effect and remain in effect until set aside by the courts. The railroads contend that this is in violation of the fundamental principles of our jurisprudence and amounts to the execution of sentence before guilt has been absolutely proven. They also insist that under such circumstances they would have no means of recouping their losses pending appeal, even if the court should decide in their favor, whereas, if the situation should be reversed, and the new rate should not be permitted to go into effect until after the court had passed upon it, the railroad could give the shipper a bond which would guarantee him against loss while the action was being heard, and which should become immediately payable if the decision was against the road. In reply to the first contention, it is sufficient to observe that there are many precedents for this form of procedure in our judicial practice, the most common being the temporary injunction, which exactly parallels the proposed method. The offer of the railroads to guarantee the shipper against loss pending appeal from the Commission's ruling, loses its attractive appearance as soon as one recalls that the shipper is often not the person injured by the excessive or discriminating rate. By being included in the price of goods when sold on the market, the rate has been shifted from the shipper to the consumer and has long since disappeared. The consumer is not a party to the controversy and has no right of action against the road. His interest can be cared for only by a body created in the public interest. If either party must suffer a loss pending a settlement of the rate question by the court, why, it may be asked, should it not be the railroad rather than the public?

The provision of a special Court of Transportation for the hearing of Interstate Commerce cases is an attempt to avoid the intolerable delays that have in the past attended the appeal of cases from the Commission to the courts, and to develop in the judiciary an expert knowledge of traffic questions that will increase their competence to settle these difficult controversies. The power of the Commission is to be increased and its prestige restored by the requirement that all the facts in a case must be submitted in the hearing before the Commission, and not be withheld until the action reaches the court of appeal, a most desirable and necessary amendment to existing procedure. Finally, the provision for an increase in the number of Commissioners and in the salary paid, is an answer to the frequently expressed criticisms of the personnel of the present Commission. The bill is doubtless defective in many particulars, and its hasty passage through the House may be a basis for criticism, but it is a step in the right direction. Its most striking defect is in its failure to attempt any resuscitation of the long and short haul clause. Signs point to a reintroduction and prompt passage of the measure through the House and to its somewhat drastic amendment and possible failure altogether in the Senate.

This discussion should not be brought to a .close without reference to another phase of the President's policy, equally important but not frequently noticed. I refer to his recommendations designed to increase the safety of railroad travel. For the purpose of making existing legislation more effective, he recommends an increase in the force of inspectors of safety appliances, an introduction of the English system of personal investigation by government officials of all accidents involving loss of life, and the imposition of heavy penalties for violation of the law. His proposals for further legislation include measures which shall compel carriers engaged in interstate commerce to adopt the block-signal system of train operation, and to limit the hours of labor of employees engaged in train service. For many of the best managed systems, such legislation will be unnecessary as they have voluntarily taken such action as the President suggests. However, this does not deprive the recommendations of their pertinency, for many railroad officials will consider the interest of the public in the matter of safety only when compelled to do so by the force of legislative decree. Railroad officials are entitled to all credit for their development of the most efficient railroad system in the world. But their great achievements do not warrant them in disregarding the appalling figures of railroad accidents in the United States, or in refusing to recognize their paramount obligation as public servants.

November 20, 1905.

Professor Frank Haigh Dixon of the Department of Economics