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Professional Papers No. 1.
Series of 1907.
THE GENESIS
AND DEVELOPMENT
OP RAILROAD REGULATION
IN THE UNITED STATES.
BY
JOSEPH NIMMO, Jr., LL D.,
Statistician and Economist,
(Former Chief of Ihc Bureau of Statistics in the Treasury Department.)
MARCH 11, 1907.
The Rufus f1. Darby Printing Company,
Washington, D. C.
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Professional Papers No. 1.
Series of 1907.
THE GENESIS
AND DEVELOPMENT
OP RAILROAD REGULATION
IN THE UNITED STATES.
BY
JOSEPH NIMMO, Jr., LL D.,
Statistician and Economist,
(Former Chief of Ihc Bureau of Statistics in the Treasury Department.)
MARCH 11, 1907.
The Rufus t1. Darby Printing Company,
Washington, D. C.
RAILROAD RIÍGULATION IN THE UNITED
STATES INSTITUTED AND DEVELOPED
BY THE RAILROAD COMPANIES.
Tlie regulation of the railroads engaged in the Interstate
Commerce of the United State originated with practical
railroad men. In all its more important manifestations
railroad regulation has been the result of experiences
arising in the interaction of the various roads with com¬
mercial and industrial conditions. The classification of
merchandise and the pnbjipation of rate sheets was adopted
as a necessity of raiLiioad--transportation long before joint
traffic or competitive traffic became essential features
»
of commerce by rail among the States. Very soon
after the passage of the Act of June 15, 1866,—the
"Charter of the American Railroad System,"—the union
of the lines of commerce by rail did more than
any other physical cause to cement the reunion of
the States. Immediately after the adoption of that most
important measure of reconstruction the railroads began
to inaugurate expedients in the nature of regulation or
self-government. Their efforts in that direction, supple¬
mented b}' governmental regulation, indicate a continuons
and ever advancing railroad problem. The expedients
and lines of policy which have been adopted mark ¡rro-
gre.ssive stages in the evolution of the railroad system of
this country and comprise the fundamental features of rail¬
road regulation which have acquired the sanction of law.
This was the aim and purpose of the leading railroad com-
2
panies of the country, as far back as the year 1875—or
twelve years before the enactment of the " Act to Regu¬
late Commerce," approved February 4, 1887. This is
clearly indicated by a report made to me in the year 1876
in my then capacity as an officer of the Government, by
the late Albert Fink, who above all men is entitled to the
designation of " Father of Railroad Regulation in the
United States."
HISTORY OF THE DEVEEOPMENT OF RAILROAD
REGULATION BY RAILROAD COMPANIES.
For proof of the correctness of the foregoing state¬
ment, I refer to the report by Mr. Fink in my First Annual
report as Chief of the Division of Internal Commerce
in the Treasury Department—pages i to 48 of the Appen¬
dix—published June 30, 1877.
At that time Mr. Fink occupied the largest field for the
exploitation of his eminently practical theories in regard
to railroad regulation. He had been for years a prominent
railroad manager and assiduous student of railroad affairs.
In the year 1875 he was appointed Commissioner and or¬
ganizer of the Southern Railway and Steamship Associa¬
tion, which embraced all the railroads of the vSouthern
States east of the Mississippi River and south of the Poto¬
mac, including also all the coastwise steamer lines con¬
necting Northern and Southern ports. As the result of his
proven fitness for such large and difficult work, Mr. Fink
afterwards became Commissioner of the Joint Traffic Asso¬
ciation, which embraced all the principal trunk lines ex¬
tending from the Mississippi River north of the Ohio River
3
to the principal Atlantic seaports north of the Potomac.
The correctness of his views in regard to the regulation of
interstate railroad freight traffic were here again demon¬
strated. In the course of time it became manifest that
the principles of railroad regulation adopted b\' Mr. Fink
eonld not become effective and be generally observed until
after they had acquired the sanction of law. Such require¬
ments became the fundamental provision of the Interstate
Commeree Act of 1887 known officially as the " .Vet to
Regulate Commerce." The cardinal features of this Act,
as of the scheme of regulation previously adopted bv the
railroads under the guidance of l\Ir. Fink are as follows :
(i) All rates shall be reasonable: (2) rates shall not be
unjustly discriminative ; (3) undue or unreasonable pref¬
erences shall not be made ; (4) rebates and rate-cutting in
every form shall be prohibited ; (5) the publicity of all
rates, fares and mutual agreements between companies
shall be maintained ; (6) due notice shall be given of all
changes of rates, fares, and other arrangements affecting
the commerce of the country ; (7) Recognition of the com¬
pulsive force of commercial conditons in the determination
of rates.
All these requirements are specifically mentioned by IMr.
Fink in his statement which appears as a part of my
''First Annual Report on the Internal Commerce of the
United States," published June 30. 1877, as appears from
the following e.xtracts from his statement included in that
report.
(ß) "Rates of transportation should be reasonable; they
should be uniform and permanent, as nearly as the condi-
4
lions of cost and the natural laws of competition permit;
they should be alike to all parties situated alike, and shoirld
be properly adjusted, so as not to discriminate unjusth^ be¬
tween different individuals or communities." Page 12-
(/;) "Rebates are generali}' paid and special contracts are
secretly made, all in direct violation of the law that should
govern common carriers. There are other causes which
lead to the same result." Page 12.
(h) " A common carrier shorrld stricth' adhere to the
rule to charge the same rate for the transportation of
the same articles between the same points, only dis¬
criminating on account of quantity so far as it influ¬
ences the cost of transportation." Page g.
" Discriminations in rates of transportation should be
based up n conditions and facts which cannot be con¬
trolled !.)}• the railroad companies, and upon principles
recognized as correct in all other business transactions.
Page 9.
" The practice of making special contracts with some
shippers—the larger shippers generally—at lower than
regular rates, and charging the regular rates to all other
shippers constitutes one of the most unjust discrimi¬
nations." Page 4.
(if) "The rivalry between commercial communities,
each served by a separate system of railroads, e.xert their in¬
fluence upon the tariffs. The railroads whose interests are
identical with the localities upon which, they depend for
business must adjust their rates so as to secure for them
the full adx'antage of their position." Page 24.
The war between trunk lines is a war waged for the
interests of each cit}' with which each road is identified.
Page 39.
(r) Air. Fink's loe'alt}' to the fundamental requirement
ill favor of the jniblicity of rates pervades his report of the
}'car 1876 and his writings upon the subject of railroad
transportation notwithstanding the fact that since he wrote.
D
thirtv-one \ears ago, pretended veforiners have from time
to time proclaimed the publicity of rates as an original
proposition.
Air. I'ink clearly recognized the right and duty of the
Go\-eniment to regulate the railroads on just and beneficent
principles as are the railroad comjranies of the country to-
dare Mi.s language on that point was as follows :
"The Government has rights, and it is its duty to guard
the interests of the people when the owners of the railroads
use the jiroperty to their injury, the same right as it has to
prevent an individual from using his propcrt\' to the injury
of his neighbor's propertra Page 46.
As an officer of the National Government in the year
1877, I fully endorsed the views expres.sed by Air. F'ink
and adopted by the railroad companies, and I firmly adhere
to those views to-day.
vSummarih- stated, the method of railroad regulation
proclaimed by Albert Fink and for years fully concurred
in by the principal railroad companies of the United States
embrace all the beneficent recpiirements of the Federal stat¬
utes which have since been enacted by Congress for the
regulation of comnrerce among the States and considerably
more unto which National legislation has not yet attained.
In view of these facts I felt fully justified, in a recent pub¬
lication, in asserting that the railroad companies of the
United ,States will stand with the commercial interests of
the country and with the people generally in favor of all
just and reasonable regulations.
In the beginning it was found necc.s.sary to adopt the
rule of apportioning—erroneously styled pooling—
6
compelitixc traffic, in order to put a stop to rate wars
wliich were ruining the coininerce of the country, and this
expedient gained tlie approval of the leading trade bodies
of the country, as an unavoidable means of overcoming an
exigenc}- in the conduct of railroad transportation, at a
time when there was not in existence any method of regula¬
tion by the railroad companies or by the Government.
This expedient, however, was abandoned by the companies
soon after organized methods of regulating rates had been
adopted.
It is matter of histoia- th.at all these requirements were
eml:¡race(l in the scheme of self-go\'ernment and of railroad
regulation which had been carefully wrought out and
proved to be sound in practice, by that eminent student of
railroad etliics and economics—Albert Fink—years before
the Act to Regulate Commerce was devised.
The Act to Regulate Commerce is moreover thoroughly
loyal to the principles of commercial liberty expressed in
the Constitution of the United States and in that great
unwritten code known as tlie common law of England and
America.
BENEFICENT RESULTS OF RAILROAD REGU¬
LATION INSTITUTED BY THE RAILROAD
COMPANIES AND SUBSEQUENTLY INCOR¬
PORATED INTO THE INTERSTATE COM¬
MERCE ACT.
Results have abundantly proved the utility and benefi¬
cence of the Interstate Commerce Act. This is clearly
indicated by the following epitome of its operations during
7
the first eighteen years of the adininistration of that Act
under the Interstate Commerce Commission:
(1) 3,000,000,000 (three thousand million) freight trans¬
actions.
(2) 9)099 complaints entertained by the Commis¬
sion.
(3) 9,054 complaints disposed of through the medi¬
atorial offices of the Commission.
(4) 45 cases appealed to the courts.
(5) 8 rases sustained by the courts, all itivolv-
ing unjust discrimination and not
a single case iiuolving an e.xorbi-
tant rate.
From this data it appears that the complaints enter¬
tained lay the Commission amounted to about one case in
333,000 freight transactions ; that of tlie complaints enter¬
tained bv the courts 99)7 per cent were disposed of by the
Commission through its mediatorial offices ; that of the
cases entertained by the Commission only about one-half of
one per cent were appealed to the courts ; and that of the
cases aiipealed to the courts less than one-fifth were sus¬
tained lay the courts. It also appears from the same report
of the Commission that while the few cases sustained by
the courts involved unjust discriminations, not a single
case involved an exorbitant rate. The Chairman of the
Inteistate Commerce Commission has declared that ex¬
orbitant rates in this country is an obsolete cjuestion. The
regulative influences which are exerted over rates by com¬
mercial forces are found in practice to effectuall}- pre¬
vent the imposition of exorbitant rates aside from the exer¬
cise of any power granted to the Interstate Commerce
Commission by the Act of February 4, 1887.
8
This marvelous record of compliance with the rec|uire-
ments of law, constitutes an anomaly in the history of
statutory provisions regulative of human conduct.
In further illustration of the beneficent results of railroad
operations in the Ignited vStates may be mentioned certain
facts ascertained and published b\- the National Govern¬
ment ;
(i) The average freight rate for transportation fell from
about 1.5 cents per ton per mile in 1875 to .jS cents
per ton per mile in 1Q05, a reduction in transporta¬
tion charges to the people amounting to about
81,200,000 on the timnage carried during the calen¬
dar year 1905.
(2I During the last eight A'ears the wages of 'abor emploved
b\' railroad companies and the cost of material re-
Cjuired in the operation of railroads luwe ad\'anced
from 25 to 30 jier cent.
(3) The facilities for transportation on railroads have been
greath' improved during the thirt\" years from 1875
to 1905
And vet complaints are still heard in regard to offenses,
actually or presumably existing. That is admitted. But
the progress of the American Railroad System from the
very beginning, has been in the nature of an evolution in¬
volving the constant elimination of offenses or causes of
complaint. Hundreds of these have worked out their own
cure. \'ery many have been abolished as the result of
conventional arrangements among railroad managers, and
many have disappeared as the result of the administration
of the Interstate Commerce law. But we still have a rail¬
road problem with us and probably shall have until the
evolution of the railroad system of the United States shall
have arrived at a stage approximating perfection.
9
That tlie evolution of the railroad system of this country
has not yet reached a state of absolute perfection is fully
conceded. That cannot be realized without doing violence
to public interests. This is freely admitted by the best in¬
formed railroad men of the countr}-, and notably b\' IMr.
J. I!. Thayer, A'ice-President of the Pennsyh ania Company,
in an address before the Traffic Club of New York, on Feb¬
ruary 16, 1Q07. " One thing at a time " is a good maxim
in all reformatory movements.
The wonderful degree of success which has attended the
various efforts at beneficent railroad regulation, already
recorded, leaves ample ground for the belief that just and
reasonable measures in the nature of regulation will prove
effective in the future as in the past.
impracticablp: and anti-american meth¬
ods proposed for the regulation
of the railroads of the united
states.
I now invite attention to some of the abnormal and im¬
practicable measures of regulation of the railroads of this
country which have been proposed and have commanded
a degree of public attention. During the last fifteen years
such measures have from time to time gained the attention
of Congress, but with little effect. Strange as it may ap¬
pear, the Interstate Commerce Commission which reponed
the marvelous successes of the law, already mentioned,
seems to have been more impressed by the frictional resist¬
ances and comparatively few infractions of the law which it
has appealed to the courts for the enforcement of its decrees
lO
than by the millions of freight transactions which have in¬
volved no complaint and the gg^per cent of the complaints
which were disposed of by the Commission informally or
through its mediatorial offices. The attitude assumed by
the Commission towards the beneficent and effective method
of regulation provided in the law which brought it into
being is strikingl}' illustrated by the following record of its
recommendations to Congress in favor of granting to it
practically autocratic powers.
In an argument addre,ssed to the Senate Committee on In¬
terstate Commerce on March i8, i8g2, the Commission
made the following declaration :
"The commercial development; of the country has otit-
grown the capacity of the common law and the ordinary
judicial tribunals to adapt themselves, under certain cir
cumstances, to the complete and effective administration of
justice."
There has not been and there is not to-day any foundation
of fact in support of this declaration.
2. In its annual report for the year i8g3 the Commission
declared at pages lo and ti that it ought to be invested
not only with thé power to determine rates, but also with
the power to determine the relative commercial status of
the various towns, cities, sections and industries of this vast
couutrv. This was expressed as follows :
"To gi\'e each communit}' the rightful benefit of loca-
cation, to keep dilferent commodities on an equal footing
so that each shall circulate freely and in natural volume,
and to prescribe schedule rates which shall lie reasonably
just to both shipper and carrier is a task of vast magnitude
and importance. In the performance of that task lies the
great and permanent work of public regulation."
II
3. At page 59 of its ninth annual report, submitted De¬
cember 2, 1895, the Commission said:
"The guardianship of the public interests so far as inter¬
state commerce is concerned is, under existing law, in¬
trusted to this Commission * * )-q gome
extent every question of transportation involves moral and
social consideration, so that a just rate cannot be deter¬
mined independently of the theory of social progress. This
argument is perhaps as indefinite as it is comprehensive."
All this is at variance with the genius of our institutions.
In explicit terms it advises the abrogation of the common
law and of judicial procedure in the regulation of com¬
merce among the States, the autocratic determination of
the course of the development of the commercial and in¬
dustrial intere.sts of the United States, and besides recom¬
mends a "guardianship of the public interests so far as
interstate commerce is concerned." This is anti-American
and exhibits an unmistakable feature of socialism. No leg¬
islative or administrative authority can ever be entrusted
with the power to determine the course of the com¬
mercial or industrial development of this countr\', as
recommended by the Commission. That would sap the
very foundations of libert}-.
The recommendations of the Commission above noted
have not been adopted by the Congress of the United
States. Yet the Commission has been persistent in its
appeal for a degree of power, which, to the e.xtent of its
jurisdiction, would convert our Government into a bu¬
reaucracy—a iorm of administration repugnant to the
12
principles of coinniercial liberty which characterize onr
political institutions. This attitude assumed by the Com¬
mission has imdoubtedly been stimulated by the anti-
railroad sentiment which pervades certain sections of the
country.
INJURIOUS EFFKCTS WHICH THRFATFXED
HOSTILF FFGISFATIOX HAS FXFRTED
UPON THE RAILROAD INTERESTS AND
ITIE DEPENDENT COMMERCIAL AND IN¬
DUSTRIAL INTERESTS OF THE COUNTRY.
The effect of this sentiment of hostility to the railroads
at a time when the commercial and industrial interests of
the country are full high advanced and prospering as
never before, is that the credit of the railroads whose
.securities have hitherto held a commanding position in
the money markets of the world have become depressed
bv hostile State legislation and by threatened adverse
State and National legislation. This has so operated as to
limit the possibility of securing, at reasonable rates, funds
for enlargements, extensions and betterments required by
the roads for the proper performance of pressing com¬
mercial demands whicli have outgrown the facilities now
afforded bv existing lines. Tliis has resulted in public
appeals for fair dealing by Congress and by State legis¬
latures. The gentlemen who have expressed such opin¬
ions in the order of time when issued are as follows : Mr.
James J. Hill, President of the Great Northern Rail¬
way Company ; IMr. W. W. Finley, President of the
Southern Railway Company ; Mr. W. C. Brown, Senior
13
Vice-President of the New York Central Railroad System;
Mr. Howard Elliott, President of the Northern Pacific
Railway Company ; Mr. George F. Baer, President of
the Philadelphia and Beading Railway Company and Mr.
J. B. Thayer, Vice-President of the Pennsylvania Railroad
Company. These statements are made by responsible
railroad officers of large experience who weigh their words
and who are able to prove the correctness of their
public utterances. Such statements were published at a
time quite near the end of a Congress, when Senators and
Representatives were busily engaged in the consideration of
other subjects, and therefore were unable to consider as re¬
flectively as was desirable matters relating to the railroads.
It is to be hoped, however, that these carefully prepared
declarations by representative railroad men of high char¬
acter will be thoroughly scrutinized during the long inter¬
val between the closing of the 59th and the convening of
the 60th Congress.
A DANGEROUS PROPOSITION.
On December 20, 1906, a bill—S. 7399—was introduced
by Senator La Follette, providing that the Interstate
Commerce Commission shall ascertain the value of the
property of every railroad engaged in interstate commerce.
On the same day Senate Bill 7400 was also introduced by
the same Senator. This bill provides that the Interstate
Commerce Commission shall have the power to determine
what will, " in its judgment," be the just and reasonable
rates on the railroads of this country. It is the general
impression that these two bills are intended to grant to the
Commission the power to prescribe rates for the future.
14
Four principal objections arise to such a drastic mode of
regulation, quite foreign to the methods of government
which have characterized the regulation of commercial
affairs in the past:
First. The proposed measure is uncalled for, in view
of the success which, as hereinbefore shown, have attended
the method of regulation instituted by the railroad com¬
panies and which has prevailed under the Act to Regulate
Commerce.
Second. The proposed measure is uncalled for, in view
of the phenomenal growth of the commercial and indus¬
trial interests of the country, and the reduction of freight
charges to the people, amounting to more than $1,200,000
in a single year.
Third. The proposed method of regulation is subject
to the objection that it involves the creation of a bureau¬
cratic power contrary to the genius of our political insti¬
tutions ; at the same time violating that rule of liberty
whiclî served as a guide to the men who framed our
National Constitution—"There is no libert}', if the power
of judging be not separated from the legislative and execu¬
tive powers." This is an accepted maxim of the celebrated
hlontesqnieu.
Fourth. Perhaps the weightiest objection to the pro¬
ject of conferring upon the Commission the power to pre¬
scribe rates for the future arises from the fact that rates
imposed on at least nine-tenths of the tonnage transported
on railroads are determined primarily and mainly by com¬
mercial forces. Evidently, therefore, the effect of such a
15
scheme, if its purpose should be sustained by the Supreme
Court of the United States, would be to dictate the course
of the development of the internal commerce and to a great
extent the course of the development of the foreign com¬
merce of the United States. That is evidently in conflict
with tlie fundamental principles of commercial liberty se¬
cured b\- the Constitution of the United States. This I
have attempted to show in a pamplet entitled "Commer¬
cial Libertv and Governmental Regulation of the Rail¬
roads," issued No\ember 12, igo6.
In recapitulation of the foregoing, it is not regulation
such as has been adopted and which has proved to be benefi¬
cent, effecti\-e, conformed to the principles of commer¬
cial liberty and promotive of the commercial, industrial and
transportation interests of this country to whicli I object.
Such regulation I eordialh* endorse and recommend, and I
believe they have the hearty approval of the railroad
interests of the country. Rut it is to regulations which are
detrimental to commerce, industry and transportation and
to the prosperity of the country generally—it is to schemes
of regulation opposed to the fundamental p:inciples of
justice and liberty and which go in the face of the genius
of our cherished American institutions, by pioposing to
eliminate or fatally impair the "Judicial Power of the
United States" and to establish in this country a bureau¬
cratic form of government, which was the most potent
cause of the downfall of the Roman Empire and has been
the bane of freedom ever since. It is to regulations of
this sort that I strenuously protest.
i6
It is my belief that if the general line of policy in regard
to the regulation of the railroads, hereinbefore outlined,
shall be adopted, it will tend to the peace and prosperity
of the whole country and remove from the consideration
of the National Government an exceedingly difficult and
complex question always productive of irritation and politi¬
cal unrest.
VERIFICATION OF THF FOREGOING BY
EMINENT STATFSAIEN.
Since the foregoing and professional papers Nos. 5 and 6
of the series of igo6 were written it has been with extreme
pleasure that I have read and carefully considered the
views of the minority of the Committee on Interstate Com¬
merce of the Senate of the United States on railroad rate
legislation ; the bill under consideration being the bill H.
R. 12987. This report was ordered to be printed June
28, 1906, the day before the bill as amended became a law.
But in view of the extreme importance of the subject from
a constitutional, and in the higher sense of the term the
political, point of view this expression of opinion was not
published until February 26, 1907, or eight months after
the passage of the Act of June 29, 1906, to amend the
Interstate Commeice Act.
In this connection I can allude only to the verification
which the statements hereinbefore made have received
from this report by the five distinguished Senators who pre¬
sented it, namely, Hon. Stephen B. Flkins, Chairman,
Hon. Nelson W. Aldrich, Hon. John Keen, Hon. J. B.
Foraker and Hon. W. Murray Crane.
17
1. Oll page two of tlie views expressed by tliese gentle¬
men it is said:
"The failure of the Committee on Interstate Commerce
to formulate amendments jjro'.dding for a judicial review
of the orders of the Commission, if followed by a similar
failure to perfect tlie bill in the Senate, would, in our judg¬
ment, render the measure \'oid and useless for the purooses
which it is intended to serve."
In this the Senators mentioned proclaimed their loyalt)'
to the constitutional principle which recognizes the au-
tliorit}- of "The Judicial Power of the United vStates" and
repudiates the attempt to establish a bureaucratic poweras
a feature of our governmental system.
2. The Senators mentioned agree that no additional
power can be constitutionally conferred upon the Interstate
Commerce Commission which under judicial construction
constitute a delegation of the legislative power of the
United States.
3. The Senators mentioned agree that not only the
Commi.ssion but Congre.ss itself is debarred from establish¬
ing rates which would violate the following constitu¬
tional prohibitions respecting—
(a) Rates which would afford any preference to the ports
of one State over those of another.
(Ó) Rates which would be so low that they would deprive
any person of property without due process of law.
(r) Rates which, in their effect, would constitute tlie
taking of private property for public use without just com¬
pensation.
i8
The distinguished statesmen constituting tlie minority
of the Senate Committee on Interstate Commerce crowned
their work in the following patriotic declaration at page 8 :
" Few acts of legislation would so seriously threaten
the future industrial progress and de\'elopment of the
American people as a law which would lea\-e to the deter¬
mination of any appointive tribunal those questions of
competiti\'e relations which find expression in re]ati\'e
rates and are properly worked out and from time to
time modified through the rivalries of the market place."
This is a splendid tribute to the glorious American prin¬
ciple of commercial liberty which has escorted this nation
in its magnificent progress from the beginning.
JOSEPH NIMMO, JR.
1831 X vSt. X. \v.
W.^SHIXGTOX, D. C., March 9, 1907.
JOSEPH NIMMO,Jr.,
V
l
Statistician and Kcononaiat,
Huntington, 1831 f Street n. w.
Long island, n. Y. Washington, d. c.
special attcmtion «ivch to qucstions in aeoard to
commerce» transportation. navigation and industry.