LIBRARY
sureau of railway eco^j^mics
was 't'lu
Confidential. No.
A Proposed Line of Policy for
the Correction of Kvils which
now affect the Railroads of
the United StatesJAnd for pre¬
venting the occurrence of a
threatening danger, through
measures in the nature of
self-control which may be
adopted by the Companies^»
By JOSEPH NIMMO, Je
Washington, D. C., Nov. 27, 1891.
I &-8/
/NTI
A STATEMENT OFTHE CASE.
I respectfully offer for the consideration and criti¬
cism of all persons to whom this document may be
submitted the line of policy and scheme of adjust¬
ment herein set forth, and having in view the follow¬
ing objects : Firnt, the correction of evils which now
injuriously affect the American railroad system ; and,
necond, the prevention of a threatening dangei', which,
if neglected, would, in my belief, involve the rail¬
road companies in much more serious difficulties than
any which have heretofore disturbed them, or from
which they now suffer.
In order to present these statements in a clear
light, it appears necessary to establish the following
points :
First. That the present is a critical period in the
history of the American railroad system.
Second'. That the companies can and ought to
avert threatened dangers by the adoption of meas¬
ures of self-control under the authority of law.
Third. That the line of policy herein proposed is
timely and adapted to the present condition of af¬
fairs.
I shall endeavor to establish these points by the
following presentation of facts and deductions there¬
from.
4
The confessed judicial impotency of the Inter¬
state CojiMEECE Commission and the dangers
involved in attempts to give to the commission
the extra-judicial powers which it seeks to
acquire.
In their third annual report submitted Nov. 30,
1889, the Interstate Commerce Commission declared
that " the conclusions, or even suggestions, of the
Commission are almost invariably acquiesced in by
the carriers." Besides, the general tenor of that re¬
port was to the effect that the act to regulate com¬
merce was suflicient for the complete exercise of the
powers granted to the Commission. But the fourth
annual report of the Commission submitted Nov. 29,
1890, wears an entirely different expression, an ex¬
pression of deepest interest to the railroad companies
of the country. This report divulges the fact that
the conclusions of the Commission are not even re¬
garded as prinia facie evidence before the courts of
the United States as to facts disclosed in contested
cases, that the Commission is practically powerless to
enforce any of its decrees, and that it really exercises
oidy the function of investigating and reporting upon
matters which engage its attention. The Commission
maintains that the judicial decisions which have
brought about this state of affairs are " fatal to ef¬
fective legislation." Tlie decisions which have espe¬
cially brought them to this conclusion are the rulings
of Judge Jackson in the Kentucky and Indiana bridge
case, and the decision of a circuit court in what is
known as the part3'-rate case.
5
Besides, iu their fourth annual report the Com¬
mission utters the complaint that the companies re¬
fuse to give in evidence when it appears to be incon¬
venient for them to testify, and that, practically, they
obey or disobey the orders of the Commission as may
suit their convenience or sense of propriety.
The labored manner in which these matters are
presented and the emphasis given to them clearly
indicate that the Commission is in distress.
It must, of course, be evident to every thoughtful
mind that, as thus conditioned, the Commission would,
in the absence of relief, soon lose even the moral in¬
fluence which it is now able to exert. In short, it
woirld become ridiculous.
For the cure of these disabilities, the Commission
reconlmend the enactment of such amendment to the
act to regulate commerce as shall make its findings
of fact not only facie, but conclusive evidence
as to facts. This is evident from the chapter on
judicial and administrative questions, and especially
from the following words on page 18 : "The propo¬
sition, therefore, that administrative decisions should
carry no more than a facie authority is as
mischievous in practice as it is erroneous in princi¬
ple."
But the Commission does not stop here. A criti¬
cal reading of their fourth annu 1 report and the
subsequent drift of events reveal the fact that they
aim at the acquisition of powers the practical exer¬
cise of wliich would involve a serious danger to the
railroad system of the United States. This danger
(J
lies in the assumption by the Commission that they
ought to be invested with a duplex administrative
function, viz., the power to administer justice in so
far as relates to findings of fact, and a co-ordinate
power of bnsiness administration with the companies
in all matters relating to the framing of freight clas¬
sifications and the making of rates. The real char¬
acter of this particular effort to gain additional
power appears to have escaped public criticism, but
it is clearly apparent upon a close reading of their
report, and particnlarly the chapters entitled, respec¬
tively, " Practical Workings of Regulation " and
" Judicial and Administrative Questions." In these
two chapters are revealed both the embarrassments
■which threaten the usefulness of the Commission and
the dangerous power which they seek to acquire and
which, as hereinafter shown, they pretend even now
to possess in some qualified sense not clearly man¬
ifest.
I do not wish to be understood as opposing the
idea of granting to the Commission the full measure
O O
of judicial power which they ask for. but I do most
vehemently oppose granting to them the extra-judi¬
cial power which they seek to acquire, and which
under an undefined authority they now attempt to
exercise.
I believe that this attempt by the Commission to
acquire the right to frame freight tariffs and to estab¬
lish rates is fraught with serious dangers, not only to
the railroad interests of the country, but also to the
public interests generally. I believe also that such
7
a line of policy would be politically disastrous, and,
so beliering, I am led to the conclusion that the time
has come for the railroad managers of the country
to adopt a line of policy at once protective of their
own interests and conservative toward the public in¬
terests. It it the main object of this paper to at¬
tempt to prove the correctness of this conclusion.
In so doing, I shall first point to the attitude as¬
sumed by the Commission toward the railroads, and
particularly towards the general subject of reguhxtion.
The unfriendly attitude assumed by the Inter¬
state Commerce Commission toward the Eail-
road Companies.
The Commission charges the companies xvith op-
jiosition to the law, such accusations being based
mainly upon facts arising out of inñrmities now at¬
taching to the means adopted by the companies for
securing the maintenance of rates. The Commission
resort to threats, and the taunt that " cut rates " con¬
stitute prima facie evidence that the rates cut were
too high.
On page 2ß it is asserted that in cutting rates the
managers " will appear to be furnishing to the public
evidence of no slight weight that the open and pub¬
lished rates which they fail to observe are higher
than they ought to be."
On page 30, in speaking of rate-cutting, carrying
passengers free, commission for obtaining business
and the employment of " scalpers," it is plainly de¬
clared that such drafts upon the receipts of the
8
companies and sncli improper reduction of rates
constitute " proofs that tlie rate sheets are too high ; "
and in the same connection the Commission openly
declare that it would be perfectly' legitimate and
proper in such cases to order such reduction as
would bring the published rates down " to the aver¬
age of the reduced rates, thus predicating a specitic
exercise of the rate-making power upon what every
impartial student of the subject must regard as the
result of an infirmity in the present means of main¬
taining rates. On page 28 we fiird the assertion that
the responsibility for the situation rests irrainly upon
themselves (the companies.)
But for the cure of all these troubles the Commis¬
sion has nothing to suggest, except an increase of
its powers, whereb}' it may put in force compulsory
processes, including penal remedies.
In berating the companies for their refusal to give
the Commission full information in regard to the
cutting of rates, as is done on page 26, the Commis¬
sion venture the unsupported opinion " that the very
disclosure of their business, if freely and fully made,
would have for them all * * some of the
benefits which they are claiming would result to
them and to the public from the privilege of pooling."
This is the language of taunt.
The Commission openly declare all rate-cutting to
constitute overt and intentional acts of disobedience
to the law in the following words, on page 25 : " If,
however, the managers elect to take an attitude of
diftohedience to the law, and to exit rates, as they
9
charge each other with doing now, they may very
likely succeed in making the condition of things, not
only for their stockholders, but also for the general
public, worse than it is now." This threat appears
to be inspired by a stubborn determination to regard
as evidence of wilful disobedience to the law acts
which every impartial student of the subject will re¬
gard as inevitable incidents of an acknowledged dis¬
ability which characterizes our American railroad sys¬
tem, viz., its present inadequate means of maintain¬
ing agreed rates. These unfriendly remarks by the
Commission, however, suggest to my mind the im¬
portance of establishing at once such legalized in¬
strumentalities of self-control among the companies
as will correct the evils of rate-cutting and the con¬
sequent discriminations upon which the assumptions
of the Interstate Commerce Commission are based.
The Commission bases its claims fob additional
powee upon the faults of the vast eailroad
system of the united States.
This I think must be evident from the foregoing
statements of fact. The Commission clearly bases
a policy of compulsion upon faults which attach to
the railroads of the country as a system, notwith¬
standing the fact that it is a system restrained by¬
law from the exercise of the most efficient expedient
for self-control yet tried—the apportionment of
traffic. The fourth annual report of the Commission^
and I think I may say all its reports, and other ut¬
terances in regard to the railroads of the country as
10
a system, are marked by an absence of a spirit of belp-
fnlness towards the companies in their various ef¬
forts at self-control and the employment of means
for correcting acknowledged evils. The Commission
point to organic defects, but carefully refrain from
any suggestion in regard to organic reformation.
But the faults of the system, which confessedly is
imperfect, are brought out in various ways, and in
all cases made the basis of a demand for more power
in the hands of the Commission.
On page 47, in speaking of rate wars, and else¬
where in speaking of evils and mischiefs, those sin¬
ning and those sinned against are classed together as
law-breakers, and the Commission appears to see no
remedies which are not embraced in penalties, crimi¬
nal and civil, and in the resources of the additional
powers which they ask for the avowed purpose of
facilitating their policy of compulsion. This is bad
government, and utterly out of harmony with the gen¬
eral line of policj' which thus far has characterized
the conduct of the Government of the United States.
The Foukth Annual Keporï of the Commission is
essentially a plea for such enlargement of
its powers as would give it not only large
additional judicial function, but also the
function of framing classifications and de¬
termining hates.
Judge Cooley and the Commission have pretty
carefull}' avoided drawing any distinction between
a clean-cut judicial administration of the powers of
11
Government directed to the object of preventing un¬
just discriminations, excessive charges, and other
" mischiefs," and the practical business administra¬
tion of the roads, the care of whose properties and
the determination of whose rates for transportation
services constitutis an indivisible administrative re¬
sponsibility. It may be harsh judgment, but it ap¬
pears to me that this failure to discriminate between
judicial administration and ordinary business admin¬
istrative work is due to a desire on the part of the
Commission to acquire power and to magnify its
office. An unmistakable evidence of the fact that the
Commission does assrime its competency to grapple
with and determine the relative value of the various
economic and commercial forces which enter into the
constructive work of rate-making is seen near the top
of page 17 of their fourth annual report, where for
the purpose of showing that all decisions of questions
of fact should be determined by the Commission and
not be reheard by the courts, it is stated in regard to
the practical questions involved in rate-making, that
"these cannot be determined as questions of law, but
must rest in the judgment of the competent admhiis-
irntive authorities, first of the railroads and then of
the StateP
The assumption of the right and the ability to de¬
termine rates is also clearly indicated in the follow¬
ing assertion on page 20 : " The Commission created
by law for the regulation of railway transportation
do not deal with questions of classification or of rates
as questions of law, birt as being what they neces-
12
saril}' are—questions of discretion and sound judg¬
ment."
Again, in order to defend themselves against what
the}' conceive to be an encroachment by the courts
upon their province, a labored argument is presented
in the chapter on " Judicial and Administrative Qires-
tions " to prove that the Commission, and not the
courts, is the proper tribunal to adjudicate in regard
to rates. But the question arises, In what respect
is the Interstate Commerce Commission better
equipped foï such work than the courts ? Evidently,
efficiency in framing classifications and in adjusting
rates to constantly varying circumstances is some¬
thing which only can be found with experts in rail¬
road management who have spent years in acquiring
a knowledge of such work, and who are constantly
in touch with commercial and industrial interests in
all parts of the country. But, notoriously, not one
of the able lawyers who has been appointed irpou
the Commission had, previously to his appointment,
an}' experience whatever in practical railroad man¬
agement. Besides, of the original five Commission¬
ers appointed only four years ago, but one remains.
Two of the present Commissioners are still new to
the business and two fresh men are soon to be ap¬
pointed. That a board of Government officers so
equipped and so conditioned should pretend to
know very much more about rate-making than the
judges of the Federal courts, and quite as much as
all the railroad experts of the country, is as absurd
as the remark of a certain new member of Congress,
13
tLat lie knew all about the tariff question, having
studied it for three days. This assumption of a
complete knowledge of rate-making by the Com¬
mission also serves to give point to a recent remark
by a railroad president, that " the Commission rove
about the country making inquiides, and then have
revelations as to what their decisions should be."
The Commission seeks to secure co-ordinate power
with the railroad companies in the matter of
framing freight classifications and determin¬
ing rates.
The entire chapter of the fourth annual report of
the Commission on " Judicial and Administrative
Questions " clearh' indicates that they are quite as
competent to decide upon all matters relating to
rate-making as are the executive and administrative
otticers of the various railroad companies. The ab¬
surdity of this assumption and the evil effects of the
adoption of such a scheme I have attempted to set
forth in an article which appeared in the Chicago
Tribune of November 23, 1891—copy enclosed.
The idea of co-ordinating governmental authority
with the authority of the executive and administra¬
tive officers of the companies in the matter of rate-
making appears to have been first enunciated by
Judge Cooley in a letter to the chairman of the Sen¬
ate Committee on Interstate Commerce. (See page 8
of Appendix to the report of the committee submitted
Jan. 18, 186G.) In that letter the idea was advanced
that the solution of the railroad problem might be
14
fouiidby " treating the railroad interest as constituting
in a certain sense a section by itself of the political
conimunity, and then combining in its management
the State, representing the popular will and general in¬
terests, with some definite recognized authority on the
part of those concerned, much as State and local au¬
thority are now combined for the government of
municipalities." The analogy attempted to be drawn
by the learned judge is not only strained, but I ven¬
ture to declare it a glaring solecism, for I don't be¬
lieve it is susceptible of any sensible explanation.
Neither Judge Cooley nor the Interstate Commerce
Commission have ever attempted to define the con¬
ditions and methods of the proposed co-ordination
of powers. The idea, however, runs right through
the work of the Commission, and it constitutes a
marked feature of their attempt to secure plenary
power in the matter of rate-making. This is evident
from the following citations : On page 33 the Com¬
mission mention with evident approbation the fact
that in Sept., 1888, the House of Representatives
passed a resolution directing the Commission, prior
to Jan. 1, 1889, to prescribe one uniform classifica¬
tion of freight for the use and guidance of the various
railroads of the United States." This monstrous
proposition failed to pass the Senate.
Judge Schoonmaker, late Interstate Commerce
Commissioner, appears to be perfectly surcharged
with this heresy of giving to the Commission co-or¬
dinate power with the companies in the matter of
rate-making. In a recent article (the New York In-
15
dependent of September 3, 1891), he declares " that
the cause of ruinous competition and of instability
and want of uniformity in rates is the independent
power of every railroad, or every system of rail¬
roads, in the country to make and change rates at
its own will and pleasure, with no restraint whatever
except the feeble restraint imposed by the present
law, of a notice of ten days for an advance of rates,
and of three days for a reduction in rates." He
goes on to suggest, as a remedy for existing evils,
" taking away or placing under proper (governmental)
restraints the independent power of every railroad
to make and change rates at will." This indepen¬
dent power of the companies to make rates he re¬
gards as a " dangerous right."
Nothing which more completely illustrates the idea
of placing the cart before the horse has ever come under
my observation. It is the very antithesis of judicial
procedure. Judge Cooley and Judge Schoonmaker
and the whole Commission appear to be infected
with a political disease, generally supposed to have
run out on this continent—goveminent<d imperialism .
Judge Schoonmaker, however, is entitled to the merit
of being frank in regard to this matter, while Judge
Cooley and the Commission are covert and diplo¬
matic.
That the Commission clearly contemplate the idea
that Congress shoixld givè them co-ordinate power
with the companies in rate-making is evident from
words on page 13 of their fourth annual report. Just
after speaking of the refusal of the companies to
16
obey orders of the Commission relative to reductions
in rates, they say : " But in order that the question
of rates should be one of law, it must he essential that
there he some clear and definite rules wherehy rates
can he made." I believe it would be a great relief to
the railroad managers of the country if they them¬
selves could discover some such clear and definite
rules for rate-making, and I presume they would be
willing to pay a liberal price to one who would impart
to them such knowledge.
In his address before the Convention of Railroad
Commissioners, held at Washington, March 3 and 4,
1891, Judge Cooley boldly declared in favor of sub¬
jecting the power of rate-making to governmental
censorship when he said—" but the public authori¬
ties are not consulted, and their consent is not asked,
as a prerequisite to putting the rate sheets in force."
And in the same connection he mentions, as justifi¬
cation for such governmental interference, the fact
that the railroads of the country serve so manj' di¬
verse interests, and that they are " so inextricably
intermingled in interest." This remark appears to
be thrown in to indicate that the companies are
incapable of instituting efficient measures of self-
control—an idea which I most earnestly repel.
But the fact is revealed in the fourth annual re-
poi't of the Commission and in their acts in adjudi¬
cated cases that they already assure me the right to
exercise the rate-making function. This is manifest
in the following statement on page 28 : " State Com¬
missions have in some cases reduced rates, and re-
17
ductions have been ordered by the Commission. In
some instances this has been done, because charges
were found higher tlian the tratftc should bear, but
more frequently to make them proportional and rel¬
atively just." At the top of page 26 they speak of
" sirch rates as the Commission has prescribed for
the roads."
Twice the Commission has " stepped out " in ten¬
tative efforts at rate-making. The fii'st time was in
the case of rates prescribed for the transportation of
food products by railroads in the Northwest early in
the year 1890, and the second, the order as to " rates
on oranges and lemons from Florida points to North¬
eastern markets," decided Oct. 29, 1891, and issued
in printed form about Nov. 20. This latter decision
is, therefore, expressive of the present views of the
Commission as to their powers in the direction of
rate-making. It directs the roads concerned to re¬
duce their rates five cents per box, and to refund to
all shippers the amounts collected from them in ex¬
cess of five cents per box above the rates in force
prior to Nov. 23, 1890. This means a drawback of
five cents on each box transported during nearly a
year. It will be a matter of interest to note the ac¬
tion of the companies concerned with reference to
this order. It is certain the Commission has no
power of itself to enforce such a decision, and it is
doubtful if the courts will decree the enforcement
of it.
The delegation of the rate-making power to the
Interstate Commerce Commission would inevitably
18
invite to confnsiou worse confonncled in the political
and commercial affairs of this country. It would be
as bad as handing the admiuisti'ation of our govern¬
mental affairs over to the so-called "People's Pai'ty,"
with all its vagaries and clearlj'-proved incompetence
to handle public questions even in the arena of par¬
tisan.politics.
A partnership arrangement between the Govern¬
ment and the railroad companies in the matter of
rate-making, or co-ordination of powers in that re¬
spect, would be, both in a political and a commercial
sense, a solecism of the most glaring description. It
would be as absurd as a partnership between em¬
ployer and employe, or between a father and his
minor child. If the Interstate Commerce Commis¬
sion as the agent of the Government shall ever ac¬
quire a CO ordinate power with the companies in the
matter of rate-making, such power will inevitably
partake of the essential and unavoidable attribute of
governmental sovereignt}:, with all the public respon¬
sibilities and the exclusiveness attached to the exer¬
cise of such power. The railroads in such case would
at once become a veritable Oklahoma of claimants
for favor, each seeking reduction in rates in order to
even up with some more favored person, locality, or
commodity somewhere, however well. justified the
discrimination might be by economic and commercial
circumstances and conditions. The companies in
such contention would occupy the grotesque position
of silent junior partners. The political torrent of
appeal would end only in some grand levelling pro-
19
cess whicli the Commission would be powerless to
resist. What, then, would be the standing of the
companies in court for damages incurred in bringing
about reductions made with the object in view of se¬
curing an ostensibly, and, in the eyes of the law, pre¬
sumably equitable adjustment of rates ? It would be
utterly impossible to make an assessment of such
damages. But I think I need say no more upon this
point in order to prove that this scheme of granting
a co-ordinate rate-making power to the Interstate
Commerce Commission would become a source of the
most appalling complications and embarrassments.
The attitude of the Commission in regard to the
general sub,ject of regulation and its views as
to matters of policy and of method.
The Commission looks to penal and other compul¬
sory measures and to inquisitorial methods involving
a detective operation for the maintenance of rates
under authority to be vested in them.
In this respect a decided change has come over
the spirit and intent of the Commission. In their
third annual report they seemed to rely largely upon
moral influences in the hands of the Commission.
On page 106 they spoke of the " public sense of in¬
congruity between the prosecuting function, involv¬
ing, as it does, detective methods and an attitude of
hostility, and the judicial function." But in one
year a change has come over them. Their fourth
annual report seems to be inspired throughout by
the desire to control the roads by compulsory meth-
20
ods, embracing penal remedies. They declare, page
26, that special agents have been employed to pro-
cirre evidence, and that counsel has been retained
with a view to the punishment of offenders against
the act. I have recently been informed upon reli¬
able authority that about fifty indictments have al¬
ready been found against shippers and railroad
officials for violations of the provisions of the
act, and that the secretary of the Commission has
been directed to prosecute every case in which suffi¬
cient evidence has been obtained in order to secure
an indictment. A news item of November 20, 1891,
states that the federal grand jury of Chicago, in three
different cases, has returned indictments against seven
persons, including six shippers and one railroad offi¬
cial. In tlieir fourth annual report the Commission
appeared to be oblivious to the incongruity between
the prosecuting function and the judicial function
which they deprecated only one year before, but
asked for more power in both directions. On page
63 they recommend that the payment of commissions
by the companies be made penal ; on page 64 they
ask for " the compulsory making of through routes
and through rates," and on pages 65 and 66 they
indicate a desire to compel the specific performance
of acts toirching the administration of the business
affairs of the companies.
In referring to the efforts of railroad companies
and railroad associations to abate the particular evil
of passenger commissions, the Commission say, p.
63, " but all such action must continue to be largely
21
futile, as far as any abatement of the evil is con¬
cerned, until there shall he aj)propriate legal enact¬
ment to prohibit the practice.''''
The whole drift of the fourth annual report of the
Commission is in the nature of an appeal for what
may properly be regarded as autocratic powers,
transcending all common law remedies.
The idea of regulation by compulsory methods
seems to have taken possession of the Commission
to the exclusion of any thought of recommending the
milder and more effective method of self-control on
the part of the companies, which latter is so much
more in harmony with the spirit of our political in¬
stitutions and with the spirit of the age.
The Commission teeats the pooling oe apfoetion-
ment of teaffic with studied indiffebence and
with appaeent contempt.
This is evident upon a mere superficial reading of
the fourth annual report of the Commission. On
page 22 they speak of pooling as follows : " Pools
are now under the ban of the law. They were for¬
bidden because it was believed by Congress that they
were often resorted to as a means whereby excessive
rates might be relieved from all restraining force of
competition." On page 25 the Commission say : " The
Commission could not give the privilege (of pooling)
if it thought wise to do so." On page 26 the Com¬
mission say : " The disclosure of their (the railroad
managers') business, if freely and fully made, would
leave for them all * * some of the benefits which
22
tliey are claiming woirld result to tliem and to the
public from the privilege of pooling." This appears
to be in the satirical vein.
On page 25 the Commission says : " The matter of
pooling rests with the legislative branch of the Gov-
vernment, and the Commission could not give the
privilege if it thoirght it wise to do so."
The Commission persistently refuses to discuss,
irpon its merits, the subject of an apportionment of
traffic as a restraint upon destructive competition,
and as a remedy for tlie evils aidsing from the fail¬
ure to observe agreed rates, which the Commission
jirstly regard as the chief source of the " mischiefs "
connected with the railroad S3'Stem. This seems to
indicate that the Commission has some objection to
pooling which it is unwilling even to discuss.
In the month of Maj', 1890, Mr. Aldace F. "Walker,
chairman of the " Western Traffic Association," came
to AVashington and labored hard in favor of the pas¬
sage of a bill which he had framed, granting to the
companies the right to "pool" or "apportion"
their traffic. The Commission gave no encourage¬
ment to the proposition, although earnestly requested
to do so. I think I am not mistaken in saying tliat
they quietly opposed it. In their i-eport for 1890,
page 22, they refer to the failure of the attempt in a
rather contemptuous manner. This matter has an
important bearing upon the recommendations made
in this paper.
23
The Comjiission expkess doubts as to the utility of
eaileoad associations and speak of them slight¬
ingly. The Commission also ignoees the whole
SUBJECT OF liEFOEM THROUGH MEASURES OF SELF-
CONTROL BY THE COMPANIES.
Ill speakiug of railroad associations as a means of
preserving " harmonious relations " among the roads,
the Commission say on page 22 ; " Nevertheless,
these also have to a large extent failed of their pur¬
pose." In a clearly apparent attempt to disparage
the associations, the real cause of their failure to ac¬
complish all that is desired of them is, however, cor¬
rectly stated in the following words : " Having no
legal sanction, the agreements under which they
have been formed have continued so long only as
those forming them could see it was for their inter¬
est to abide by their provisions."
In an apparent attempt to cast contempt upon
railroad associations the Commission, on page 29,
state a conceded fact as follows :
" If the regulations which are established by the
railroad associations were uniformly or even gener¬
ali}' observed by their members, respectivel}', there
would be little difficulty in -enforcing a rule of rea¬
sonable rates," Arc., etc.
But I think there are few railroad managers who
will deny that, if the associations were legally en¬
dowed with the power to enforce their decrees, the
difficulty complained of would be practically cured.
24
In his address before the Convention of Railroad
Commissioners held at Washington in March, 1890,
Chairman Cooley reviewed the entire field of " evils "
and " mischiefs " connected with the American rail¬
road sj^stem, bnt he did not so mnch as hint at the
existence of the railroad associations of the country,
which have done so much toward bringing about a
substantial unity of methods, and of introducing that
high degree of order and efficiency which now ren¬
ders the American railroad system practically as one
common carrier to the people of the United States.
Instead of attempting to show that all that is needed
for the purpose of curing frictional resistances and
incidental evils is to give certain additional powers
to the associations and to endow them with legal ex¬
istence, the mind and imagination of the distinguished
Chairman appeared to be filled with a vision of
" mischiefs " to be cured by granting autocratic
powers to the Interstate Commerce Commission.
The purpose of the Commission to exalt its own
authority appears to be clearly indicated by the fact
Chat it has avoided any reference to measures of self-
control, whereby the companies may of their own
motion and devisement correct abuses of which the
Commission complain, abuses which the comp)anies
have for years deprecated.
I would also advert to the significant fact that
thus far the Interstate Commerce Commission has
rather studiously avoided any treatment of the rail¬
roads of the country as a system ; on the other hand,
the whole tendency of the various deliverances of the
25
Commission appears to be in the direction of regard¬
ing the several railroad corporations as separate and
disconnected factors in the business of transporta¬
tion, and to represent the Commission as the central
power in the great work of regulating and controlling
the interdependent relationships of the companies.
This policy is in the face of the lessons of experience
regarding the development of the commercial and
financial institutions of the age.
CONCLUSIONS AND RECOMMENDATIONS.
The foregoing statements lead me to the following
conclusions :
First. That the Interstate Commerce Commission
aim at the acquisition of such power as would enable
them to usurp the power of rate-making and to se¬
cure other means of control over the business ad¬
ministration of the railroads of the country.
Second. That the railroad companies can expect
no help from the Interstate Commerce Commission
in any efforts, in the nature of self-control, which
may be devised for the purpose of correcting evils
incident to the failure to observe rate agreements.
Third. That the time has come when motives of
self-interest, as well as a sense of public duty, should
lead the companies to adopt some policy of self-con¬
trol whereby the threatening danger may be averted.
26
The adoption of a line of policy needed rather
than expedients.
The particular line of policy which I recommend
is that the companies present an earnest appeal to
Congress setting forth the " evils " and " mischiefs "
now incident to the conduct of the American railroad
system as fully and as clearly as they have been
stated by Judge Cooley. I would adopt his phrase¬
ology, and assign the same cause for the existence of
the " evils " and " mischiefs " which he mentions.
Next, I wordd show the utter impracticability of im¬
posing upon the Government the cure of these de¬
fects, and then show the entire practicability of such
reform in the organic characteristics of the Ameri¬
can railroad system as will enable the companies,
under the authority of law, to institute measures of
self-restraint, whereby the companies and the public
generally may be protected against violation of rate-
agreements and other " evils " and " mischiefs."
I propose next that the companies shall ask Con¬
gress to pass a general incorporation act, under
which they can, after the manner of the British
Clearing-House establishment, form associations for
the purpose of maintaining , agreed rates. That es¬
tablishment has gained the hearty and general ap¬
probation of the people of Great Britain.
Of course something more is needed than the
British Clearing House, which deals only with joint
traíBc and not with competition traffic. But I think
almost all the railroad associations of this country
27
collect full statistics of competitive traffic, which
must be brought within the proposed scheme for
maintaining rates. A leading railroad commissioner
has expressed to me his belief that under such le¬
galized arrangement the principal difficulties can be
brought under control. It strikes me at this moment
that it will be well to bring the several " car-service
associations " into the several organizations. This
is a function of the British Clearing House.
A more detailed statement upon this subject maj^
be deferred to some future occasion.
I will add just here that in my opinion any plan
involving the principle of a trust, or such a consoli¬
dation of railroad interests as would secure to pro¬
prietors a practical control of rates, however well
founded such plan might be upon sound economic
and commercial considerations, would inevitably in¬
vite a continual and ever tightening grasp of govern¬
mental regulation, until at last the end contemplated
by the Convention of Railroad Commissioners held
at Washington in March, 1890, would be realized—
" absolute regulation by tlie United States would re-
srdt in absolute ownership by the United States."
I suggest, therefore, a system of chartered insti¬
tutions independent of any particular railroad cor¬
poration, the membership of each one of which shall
consist of officers of the several railroad corpora¬
tions. This is the plan upon which the British Rail¬
way Clearing-House establishment is constructed.
Our country is evidently too large for one great
Clearing House, but it appears advisable that the
several establishments, having clearly defined geo¬
graphical limitations, should, by some plan of feder¬
ation, be empowered to act as a whole in matters af¬
fecting two or more organizations, and in matters of
national importance.
The detail of such a scheme is a thing which must
be worked out by conference among representative
railroad managers. It appears to me that when the
railroad managers of the country consider how inti¬
mately their traffic interests are now related, and
how, without any sort of confederated arrangement
known to the laws of the country, they are now closely
conjoined in their traffic interests, the plan suggested
will appear to be merely the perfecting of that which
really exists to-day as an intimate economic and
commercial confederation of interests.
I suggest, finally, that when the proposed petition
to Congress is drawn up, copies of it be sent to
every body of trade and chamber of commerce in
the country for consideration and criticism.
The Constitutionality of a general act op Con¬
gress for the organization of clearing HoUSES,
or Associations for the prevention of unjust
discrimination, and the maintenance of the
orderly conduct of the american Eailroad
System.
The fact is well known to every student of Ameri¬
can history that the power of Congress to create cor¬
porations has been hotly contested. The views which
29
have been advanced upon this snbject embrace the
following propositions :
First. A denial of the power of Congress to create
any sort of a corporation ;
Second. The opinion that Congress can create cor¬
porations only for Governmental uses ; and,
Third. The opinion that Congress can create cor¬
porations for any purpose promotive of the public
welfare, and particularly for all purposes embraced
in special grants of power to Congress, among which
is the grant of power to regulate commerce among
the States.
It woidd be a waste of time and result in no valu¬
able conclusion for a layman to discuss this subject
beyond the utterance of text law. In his commen¬
taries on the Constitution of the United States, Judge
Story disposes of the matter sxrmrnarily as follows ;
" It is not and cannot be disputed, that the power of
creating a corporation is one belonging to sovereignty."
And again ; " For if it be an incident to sovereignty,
and it is not prohibited, it must belong to the National
Government in relation to the objects intrusted to
it." One of these objects is to " regidate commerce
among the States." In the revised edition of Story
on the Constitution, with additional notes by Judge
Cooley, late Chairman of the Interstate Commerce
Commission, this note appears : " The estal)lishment
of the existing National Banking System in 1863
elicited but little discussion in denial of the power."
I refrain from any farther discussion of this sub¬
ject, simply adding that it seemed necessary that I
30
should satisfy myself as to the probable power of
Congress to incorporate such an establishment as I
have herein recommended. The whole subject, how¬
ever, is one which miist be left to constitutional
lawyers.
The foregoing is submitted for criticism, with the
remark that the latter portion has been prepared
somewhat hastily. Brrt as the entire document is
simply preliminary in its nature, it seemed unneces¬
sary to consider the subject of remedial measures
more fully at the present time.
JUL