CORNELL UNIVERSITY LIBRARY NEW YORK STATE SCHOOL OF INDUSTRIAL AND LABOR RELATIONS THE GIFT OF THE UNITED TRANSPORTATION UNION MODIFICATION OF TRANSPORTATION ACT, 1920 HEARINGS BEFORE THB WOMMITTEE ON INTERSTATE COMMERCE UNITED STATES" SENATE (ght SIXTY-SEVENTH CONGRESS FIRST SESSION ON S. 1150 AND S. 2510 e BILLS TO AMEND THE TRANSPORTATION ACT, 1920, AND FOR OTHER PURPOSES ————__ Prioted for the use of the Committee on Interstate Commerce v WASHINGTON GOVERNMENT PRINTING OFFICE 1922 COMMITTEE ON INTERSTATE COMMERCE, ALBERT B. CUMMINS, Iowa, Chairman. CHARLES E. TOWNSEND, Michigun. ELLISON D. SMITH, South Carolina. ROBERT M. LA FOLLETTE, Wisconsin. ATLEE POMERENE, Ohio. MILES POINDEXTER, Washington. HENRY L. MYERS, Montana. GEORGE P. McLEAN, Connecticut. OSCAR W. UNDERWOOD, Alabama. JAMES E. WATSON, Indiana. A. OWSLEY STANLEY, Kentucky. FRANK B. KELLOGG, Minnesota. KEY PITTMAN, Nevada. BERT M. FERNALD, Maine. JOSEPH S. FRELINGHUYSEN, New Jersey. DAVIS ELKINS, West Virginia. PAUL Moore, Clerk. It 2954 G2, AS TABLE OF CONTENTS. Page. Benton, John E., general solicitor of National Association of Railroad and Utilities Commissioners: Proceedings of convention of utilities commissioners at Atlanta, Georgia— Resolutions relating to— Section 13 of the interstate commerce act_____---__________ 6 Section 15a of the interstate commerce act__--_---_---_--- 6 Rates upon electric lines Sas, a 7 Certificates of convenience and necessity___._______________ ic Car-service rules _---_-----.----------------------------- 7 Amendment of valuation act__.-.-____-___--___-__________- 8 Discussion of above resolutions_ 8-11 The transportation act, 1920____---------__-----------_--__- : 11 Interstate Commerce Comniission, attempt to increase its jurisdiction_ dW Refusal by Congress of power claimed by commission______-________ 12 State commissions, deprived of proper powers__----___-_-___-__-___ 13 Power of Interstate Commerce Commission over intrastate rates, intent of Congress as to_ 15 Proceedings of commission subsequent to passage of the transporta- tion act 16 Cooperation, attitude of State commissioners toward er ReaD ape ea 17 Ex parte 74, participation of members of the association of State commissioners in Se 18 Wisconsin case, brief filed amici curiae by States in________________ 18-23 Advances in rates, expeditious action of State commissions in grant- . ing 25-27 Tabulation showing action of State commissions in granting advances to correspond to those allowed by the commission in Ex parte 74__ 28-31 Passenger fares, fixed by Congress__________-___---__--_-- 33 Advances in intrastate passenger fares. not beneficial to the railroads_ 33-38 State regulations, State rates instituted to destroy_________________ 38-40 The New York case, discussion of. -- 40-43 The New York case, report and decision of ‘the Interstate Commerce Commission in 43-53 Federal orders, character of a 55-57 Federal commission’s refusal to cooperate, as provided in section 13 of the transportation act 57-58 Report of special committee of National Association of Railroad and Utilities Commissioners upon cooperation of State and Federal commissions __----------_ 58-68 Construction placed upon section 13 by the Interstate “Commerce (COMMISSION a2 =e ns ees 121-124 SBE: THOUS, CASO xaos oe es oo es 2 ea Oe Se eed ot 177-178 The South Carolina and North Carolina cases_____-__--____________ 179 The Nebraska and Texas cases_______-_--_-__-_________ 187-201 Extent of the power of the commission over intrastate rates prior to the passage of the transportation act_-_________________________ 203-216 Interstate Commerce Commission has based its orders on section 15a of the transportation act____ 217-220 Opinions of three courts with respect to the power and duties of the i commission under section 15a of the transportation act_________ 221-224 Wisconsin case. brief filed amici curiae by 42 States____._________ 224-226 New England divisions case. bulletin of Association of Rallroad and Utilities Commissioners in the matter of_..__.________________ 226-229 Committee on litigation. report of__.._.____----__---__-_-________ 229-233 733387—22 ; 1II PROPERTY OF LIBRARY __NEW y on STATS SCHOOL Sok RELATIONS fe LS ve) are: . seaewemtt VI TABLE OF CONTENTS. Shaugnessy, John F., chairman of Nevada Railroad Commission : . Page. Applications for increases in rates and fares in Nevada and proceed: , ings thereon_________.-._-__ 149-152 Formal objections of Nevada Public Service ‘Commission before. the Interstate Commerce Commission in the matter of rates in Nevada, and finding of commission thereon___________.-_______________ 152-166 Shreveport doctrine, argument for nullification of__________--____ 166-167 Shreveport doctrine, bill proposing to amend the interstate com- merce act so as to nullify 168-169 Resolutions adopted by the Inter mediate ‘Rate ‘Association propos:ng certain amendments to the interstate commerce act_____________ 171-172 Scandrett, H. A., valuation counsel and commerce counsel of the Union Pacific Railway system : Unfair criticism of the transportation act 3877 Changes made in sections 13 and 1a, eet Se 378 Variety of. action of State commissions__.___-_-----__--------____ 381 Unjust discrimination against interstate commerce and undue pref- erences between persons and localities___________-__--_.--_____ 382-383 Unlawful regulation of interstate commerce___________-__----_-_--- 389 Freight rates seep skevesseeeeescee es 392 “Undue burden” versus “ discrimination”________________-_______ 402 Analysis of the Capper Dit eis oe eae See i 403 Analysis of the Nicholson bill i WE Ee ae 405 Amendments proposed by Mr. Benton______-----_----_ 408 Southern Traffic League, brief filed by_______---__----_--_--__-__.__ 717-720 Thom, Alfred P., general counsel, Association of Railway Executives : Analysis of statement of Clifford Thorne_______-___--_----___-____ 608-620 Events leading up to the passage of the transportation act__ ee 621-624 Intent of Congress with respect to revenues__________---->---___- 624-627 Intent of Congress with respect to discrimination-______-_._______ 627-629 Sections 13 and 15a intended to carry out the expressed policy of Con- 2 a a a ee 637 Analysis of section 13, paragraphs 3 and 4, and what constitutes dis- CEIMMAON 223 oo ee eee ee eee eee ee 638-645, Thorne, Clifford, counsel for the American Farm Bureau Federation: ; Powers of the States over commerce __-------------------------_ 313-315 Rate-making section of the interstate commerce act__________-_-___ 315.3823 Effect upon operating revenue of decision by commission in Ex parte ALD a a ra bay 325 Valuation of railway property____.__-___-__----_-_-_---- ee 325-329 Statistical tables presented__-----__----------__---------------- 334-337 Warfield S. Davies, president National Association of Owners of Railroad Securities : Effect of repealing measure of return____-.--.-----_--------------- 412 Consequences of changes proposed____--_-_--------_------------_- 414 Action by trustees of investing institutions_____-___-___-----__-_____ 415 Why a “reasonable ” return should be defined_______-----_________- 416 Judge Taft and others on constitutionality of act-_-.________-__-___ 417 Legal opinions and other data submitted_____-__-__________-_-____-__ 421 Willard, Daniel, president Baltimore & Ohio Railroad______-_-________ 602-607 Wood, Frederick H. (general attorney and commerce counsel of the Southern Pacific Co.) : Question one of public policy_-_--------------------------------_- 339 Proceedings before Interstate Commerce Commission—matters and facts Gonsidered oo a pee ee Oe 340 | Evidence of specific discriminations___________________-_-__--___- 341 Sections 15a and 18 and their effect---___-_----_----------------- 342 Proceedings before Interstate Commerce Commission—further con- Sid e@led|,, cos seee cos eee Reece wee ee eee eee ee 344 Adequacy of revenue and its equitable distribution fundamental to any legislative program ..—---.--=+--..--..-2-.-4--:2-5-.- <= 346 Revenue effect important consideration for Congress__.----------_- 348 Ratio of State to interstate traffic__--___-_------.------------------ 849 Joint tribunal of interstate and State commissioners created to de- cide dix parte T4.22-22 2b 2524 eee ce eat eos . B49 Report of State commissioners sitting with Interstate Comnierce * Comimissionss==- 025. 2 ane oo sapiur ad s}090 9°¢ 9A0qe ‘Og. eres Op PS Resies set sees iee () a Openmr aq 0. oSvaTIUT ON [too TrOpr Ty S/StRls Hale eisiaie PERE SIE sien soya aad squid ¢ aa0ge *$107 UT] ‘od sees Opetias pieces ree sine op-**** Opvul oq OF oSeeIDUT ON 09409 PU ‘110909 ‘YdTIq TO OSBAIIUI ON 2978p JV} JO sopna pue WOMBIPISSe[D VPTWCTY 0} Joelqns pure quad sad cz syd $ajei ‘gi6l ‘Fg oune UO 9}VP FLY) JdYyT [1 “49O Thun soyer ‘od 5 see JOAYWUOD [VIOPdT VO payuduios esvorouy |-~-*s-tOpPT TTA] Bpri0oly od. 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O70 _ o'0 ‘I SB outs D'O "TSB ouresg | sjued g'¢ BAOQe osvaIOUT ON | “{ SB OURG” ‘I sv omeg “UO pajoB JON “-aqgnyeys AQ POIOAOD frre -7* AI0INYeIG rqirao iad Fee eis . yeu 5 -078UL SUIpP[Mq-pvoi pus ‘odid seas Og * =\982% Opler paetceeecianss ca Cae a ae a a Se JO syuetidrys peojawd wo sasverout ON |*** >>> ope" 32. MODIFICATION OF TRANSPORTATION ACT, 1920.. The CHairMANn, Were the advances made by the State commissions at the request of the Interstate Commerce Commission, or what sort of communica- tion was had between the Interstate Commerce Commission and State com- missions that resulted in those advances? Mr. Benton. The carriers, after the decision in Ex Parte 74, proceeded in each - State to file tariffs or to ask leave to file tariffs, in accordance with the laws. of the respective States. Hearings were set and action was taken in regular form. The statement as to the participation of members of the National Association of Railway and Utilities Commissioners, which I put into the record on yes- terday, will show that under an arrangement made by the association the entire record in Ex Parte 74 was supplied to each State commission. Under explicit understanding had the National Association did not undertake to say whether that record would be introducible eyidence under the law of a particular State ov not; it was supplied for the information of the members of the State com- missions for such use as the State commissions might see fit to make of it. I am not aware of the fact that in a single State were the carriers refused per- mission to introduce that entire record in the State proceedings for the pur- pose of facilitating the rate inquiries and the granting at the earliest prac- ticable date of such advances as might be found to be necessary on intrastate rates. Obviously, unless that arrangepent had been made, and unless the State commissions had desired to recognize to the fullest’ extent that justice required the situation then existing be met as promptly as they could, hearings could not have been set and held and decisions reached and orders made throughout this country within two months. It has been sought to create in the public mind the idea that it was necessary for the Federal Government to step into the States and take away the power of State regulation which the States have had since the formation of this Gov- ernment on account of unwillingness on the part of State commissions to recog- nize the situation and to do what justice and fairness required. Nothing could be more false nor farther from the exact state of affairs. And I want to say that this tabulation which I have put into the record, and the time within which those results were obtained, refutes that claim more conclusiv ely than any words of mine or of anybody else could do, because no man who is at all familiar with the length of time that proceedings ordinarily take before State comunissions, to say nothing of the time that is required to carry through pro- ceedings had before the Interstate Commerce Commission, which is so much inore burdened than the State commissions are, can fail to understand the significance of the record which these State commissions made following the Ex Parte 74 hearings. A member of this honorable committee (Senator Townsend) on yesterday -asked me whether the State commissions, in their actions, considered only” the situation within their own States, and I said that I proposed to touch upon that subject Inter. I am now touching upon it. The sp_rit with which the State commissions, in common meetings, provided for informing themselves quickly with respect to the situation, and of ucting quickly upon applications tinade in their respective States, and the celerity with which they. did act, prove, I say, as conclusively as it is possible to prove unything, that the State . commissions of this country recognized -the responsibility which attached. to their offices, and viewed not alone the situation in their own States but the situation throughout the country. The CHAIRMAN. You xre speaking now of freight rates, of course? Mr. Benton. I 2m speaking of all rates, both passenger and fre: ght, and I am about to speak of passenger rates in particul: ir. The CHAinmMan. Of course, there are some States in which passenger rates are fixed by statute. Mr. Benton. I am coming to that, Mr. Chairman. The CHairMAN, If I understand your statement correctly, it is that in every State, save four, the State commisisons advanced rates in the same percentage in which rates had been advanced by the Interstate Commerce Commission in the matter of interstate business? Mr. Benton. Yes; with the exceptions I have mentioned. I have mentioned, for instance, Indiana, which advanced rates 334 per cent; Illinois, 35 per cent; Kansas, 30 per cent; Nebraska, 25 per cent; and Texas, 334 Pex cent instead of 35 per cent. The CuarrMan. That is substantially the Same advance as made by the In- terstate Commerce Commission in the matter-of interstate rates? fan ee MODIFICATION OF TRANSPORTATION ACT, 1920. 33 My. Bewron. That is true, Mr. Chairman. Then, there were certain commod- -ities which, as I have stated, the State commissions! inyestigated and found that modifications were necessary, and in order that the traffic might move they made the modifications. The wiping out of ‘those modifications I propose to refer to in a moment. PASSENGER RATES FIXED BY CONGRESS. An examination of this tabulation shows that, with the exceptions before mentioned, the passenger fares were raised in the nonstatutory passenger fare States. There were, however, a number of States where the commissions had not been granted passenger-fare inmisdiciion, such rates pene been regulated by statute. When it passed the transportation act, Congress eee that passenger rates had varied in different States in the past and might vary in the future. It knew of the passenger-fare statutes. It, however, took care of the problem they presented by the provisions of section 208(a) of the transportation act. In that section Congress exercised its war power to free the roads, to the extent it judged wise, from the statutes. It provided therein that the Director Gen- eral’s rates, both State and Federal, should continue absolutely in effect during the period of Federal control (unless changed by consent of the Federal commission) “and until thereafter changed by State or Federal authority, respectively.” The validity of this section as an exercise of the war power has been upheld by State and Federal courts: Public Service Commission of New York v. New York Central Railroad (New York Court of Appeals, decided Dec. 16, 1920) ; Mich‘gan Central Railroad v. Michigan Public Utilities Commission (U. 8. District Court, Hastern District of Michigan, decided Jan. 24, 1921). Under Federal control the passenger fares in all States were, therefore, con- tinued in effect on a basis of not less than 3 cents per mile. On many lines. there were rates very substantially exceeding 3 cents. All the Director Gen- eral’s rates continued after the termination of Federal control, State rates as well as interstate rates, except as they were increased in most of the States immediately after the Ex Parte 74 decision, as has been stated, and as will be shown by the tabulation. Nowhere did any State exercise the power which Congress clearly recognized in section 208(a) to reduce passenger rates after September 1, 1920, although in a single instance a single road was asked to observe a charter contract. A particular statement with respect to that, as I have stated, will be made by Judge Hale, representing the Public Service Com- mission of New York, and refers to the New York Central Railroad. ADVANCES COMPELLED IN STATE PASSENGER FARES NOT BENEFICIAL TO RAILROADS. I now want to make the statement as emphatically as I can that in my humble judgment it would have been better for the country and better for the carriers if the Federal commission had left in effect the passenger rates which Congress fixed. Three cents is about as high a passenger fare as will permit a maximum flow of passenger traffic, and it is from full cars that the railroads make their net earnings or profits. When the Federal commission and most of the State commissions allowed the 3-cent rate to be advanced to a minimum of 3.6 cents passenger traffic dried up. This is a matter of common knowledge. Senator Staniey. Will you permit an interruption right there? Mr. Benton. Certainly. Senator Stantey. I endeavored to get from the Interstate Commerce Commis- sion some statement as to the effect on passenger traffic of the increased rates, -especially on the use of sleeping cars, and I refer more especially to the later in- crease or surcharge. If an explanation has been incorporated in the record, I did not hear it, but I have been anxious to find out what has been the effect of this last charge of “ time and a half and double time,” as I might call it, put upon the traveling public when using the sleeping cars. I have had occasion recently to go west on one line and back on another, and on one line I had a whole car. to myself with the exception of one other passenger to keep me company. On Sev- eral other lines I noted this same falling off. I talked with Pullman car conduc- tors about it, and they said they had noticed it, but I have never been able to get. any official figures. My private opinion, publicly expressed, is that this last rate 73337—21—pr 1——3 B4 MODIFICATION OF TRANSPORTATION ACT, 1920. imposed on passenger traffic has destroyed the end for which it was designed ; it has decreased the traffic to. a greater extent than it has increased the revenues of the railroads. . ‘ The, CHATRMAN.. You mean the. surcharge that goes to the nallroads fhent selves? Senator Stantey. Yes; shat increase goes to the railroads and not to the Pullman Co. Mr. Benton. All of ‘the inerease goes to the railroads. Senator Stantey. But no matter who it goes to, the question to my mind is whether this last increase in rate has not driven people from Pullman cars to the extent as to absolutely lessen the earnings of the railroads. It has played hob with the commercial: traveler, and it is driving actors and opera troups almost entirely from the railroads because prices are prohibitive. I know what the public has suffered, and I think the railroads are suffering lessened earnings along with us who have to pay more for the service. Mr. Benton. As to the last Pullman increase, to which I understand you to refer, the imposition by the Federal commission of a Pullman surcharge of 50 per cent, it goes for the benefit. of the railroad carriers. Senator Staniey. Yes; that is what I referred to. : Mr. Benton. But the first increase which you referred to IJ assume to have been the increase which was allowed for the benefit of the Pullman Co. itself? Senator STANLEY. Yes. Mr. Benton. What the Senator from Kentucky (Mr. Stanley) wants and what I wish I could give him is exact data, figures, covering that subject. Those I can not give him, but.I feel certain that if he will make request to the Inter- state Commerce Cémmission they can be compiled and supplied to him. Senator Staniey. F am not criticizing the Interstate Commerce Commission. Mr. Brenton. I understand. And I feel certain vou will get that information. Of course it.takes time in any organization to compile data of that sort. Ulti- mately the Senator from Kentucky( Mr. Stanley) undoubtedly will get that information. I can only now éxpress what my information is, as rece'ved from commis- sioners with whom I have talked. The information universally received from them is that the Pullman surcharge has been very destructive of travel upon Pullman cars. That accords with my own personal observation; in fact,-s‘nce that surcharge went into effect the travel on Pullman cars has almost disap- peared on many trains. I came, a few weeks ago, from Chicago on one of the trunk lines, and from Chicago to Washington it is my recollection that there were only two people in the Pullman car besides myself. That is an experience of my own, as called for by the question of the Senator with respect to the effect on Pullman travel of the last increase. Senator Stantey. I do not mean to criticise the Interstate Commerce Com mission. They are usually very gracious and diligent in furnishing informa- tion, or especially that has been my experience, as. requested by Members of the Senate. The question I asked may have been answered in these hearings, but I have not got the information. I thoroughly understand the effect of this last surcharge upon the business heretofore handled in Pullman ears; and in addition to its effect upon those who would otherwise travel is the great con- sideration, its effect upon the earnings of the railroads themselves. I can not help but doubt whether the. railroads have not placed on the traffic more than it will bear and thereby lessened their own income, for they seem to have de- stroyed, or practically ‘destroyed, the greater part of this character of business. Mr. Benton. I agree with what I take to be implied in the Senator’s remark— that it must entail a loss upon the rail carriers to impose so high a Pullman charge that they drive passengers from the Pullman cars, and, accordingly, are obliged to haul empty Pullman cars. President Jackson, of the National Association of Railway and Utilities Commissioners. I may say that I have personal knowledge of one or two rail- roads—and I do not care to name them in the record, but they are big rail- roads in the United States—and I do not think the officers of those railroads desired the increase in pasenger fares to which reference has just been’ made. Senator Frrnarp. That increase, of course, was authorized by the Interstate Commrce Commission, I take it. Mr. Jackson. Yes, sir. ‘ The CHarRMAN. It ‘would depend somewhat, would it not, upon how many passengers ceased to travel and how many passengers were "driven from Pull- MODIFICATION OF TRANSPORTATION ACT, 1920. 35 man cars into day coaches, as to the situation which you mentioned, Mr. Benton? Mr. Benton. Of course, if the expense incident to hauling the Pullman car ceased when Pullman passengers went into the day coach, there would be no loss to the carrier. But if the carrier is obliged to.haul a heavy Pullman car from Chicago to Washington, or from Chicago to New York, with only three passengers in it, that railroad can scarcely say that it bas.lost nothing because the pasengers rode in day coaches if it had to provide the necessary day coaches for them to ride in. The CHarrMan. One would think under those cir cumstances a railroad would not carry any more Pullman cars than was necessary to handle the pasengers actually traveling. :' Mr, Benton. You are now getting ‘upon a subject IT can not answer because I do not know about the contracts between the Pullman Co. and the carriers. And, further, an answer to that question would depend upon whether the public would permit an entire cessation of Pullman service on important trains. The CHAIRMAN. It is. not. that, but there is no-contract between the Pullman Co. and the railroad companies requiring them: to haul a Pee number of Pullman cars over any patticular road, is there? Mi. Benron. As I was stating, I hav e no information on that subject. The Cuairnman,. Ir there is no contract between the Pullman Co. and the railread companies requiring them to haul any particular number of Pullman cars over any particular road, a railroad could reduce the number of cars hauled according to the amount: of travel. Mr. Benton. I do not know whether oe is such a UAEE or not. J have never examined the contracts. Senator Stanrey. At that point there is one phase of the. situation that affects the public very materially: I understand that traveling men who for- merly utilized sleeping cars in making long runs now stop at hotels along the route at night where they can stay for a couple of dollars and have quit using Pullman cars. The necessary result of that is that their. efiiciency is very much impaired, and the cost of the service rendered.by these commercial trav- elers is increased, and that increased cost is added to the many burdens passed on the ultimate consumer. Mr. Jackson. I was going to call attention, if I may, to the fact that a great many trains have to be run anyway, whether they carry any passengers at all. In other words, a certain amount, a minimum service, has to be ren- -dered the public. If those trains ‘have to be run anyway, they. are better off to carry five passengers at 3 cents a mile than four DApsenzers at 3.6 cents a mile, The CHAIRMAN. I would assume that if regularly or habitually there were only two or three. passengers on a Pullman car making the trip from Chicago to. Washington or New York that a railroad would cut down the number of Pullman cars handied. But, of course, that might be a great inconvenience to the public at one time and another. Mr. Jackson. I might add that I do not think the railroads are carrying anywhere near the number of Pullman cars they were hauling. . Mr. Crypr M. Reep, chairman of the Public Utilities Commission of Kansas. It. may be interesting at this point. to put into the record some figures bear- ing upon the statement Mr. Benton has made and concerning ‘which the mem- bers of the committee have asked.. Passenger-train operation has a direet relation. of course, to the number of cars run; and revenue has a, direct reia~ tion to the number of passengers handled per. car. In.a statement which has. just been issued: by the Interstate Commerce Commission covering revenue- traflic. statistics of Class I railroads in the United States it is shown that for the first seven months. BE 120 the average number of RABESBEELE handled per car was 22,12. t 7 : : The CHarrman. That is. handled on all cars? : Mr. Rrep. Yes, sir; that: covers all cars handJed.. And the average number of: passengers per car for the first seven months. of 1921 was 17.15, showing ‘that not onlv has. travel decreased ‘but. the: number of, passengers per car has ‘decrcased, which I think covers the point: mentioned by Mr. Benton. Senator Stantey. My question was especially directed to the number of passengers handled on Pullman cars. The CHarrMAN. That shows the diminution in travel, and I suppose it shows a reduction in business handled pane the capacity ot the railroads to. shrink their operating expenses. 36 MODIFICATION. OF TRANSPORTATION ACT, 1920. Senator Potnvexter: ‘Fhat, as:I understand, covers the number of passengers handled on all cars. , Mr. Rep. Yes, sir. No separate statistics are made by the Interstate Com- merce Commission. Zz ? ; as Senator PornpEexTer. And from it you could not make any deduction as to the Pullman-car decreases? ua ee ' Mr. Reep. Our stutement:was directed more to the effect that this passenger rate was having—to the fact that the rate was, economically speaking, ‘too high. But your point is well taken. ~ Senator Staniey. Does the Interstate Commerce Commission keep a sepa- rate record of the Pullman-car traffic from the traffic handled in day coaches? * Mr. Reep. There are no Interstate Commerce Commission statisties,.so far as we know, on that subject. Some railroads have those statistics separately, and perhaps all railroads have them. but there are no Interstate Commerce Com- mission statistics with which I am familiar that cover that information. The CHarrMAN. It would seem ‘to indicate inefficiency on the part of the management of railroads if such information is not kept by them. Mr. Benton. Mr. Chairman, the figures which have just been read into the record by Judge Reed are striking. The question arises, What causes diminu- tion in travel? Nobody will suggest that it was entirely caused by the in- erease in passenger fares. Nobody I think will suggest that the increase in passenger fares did not have a very large effect in producing this result, how- ever; and, for the reason I have just mentioned, that 3 cents is about as high a rate as will permit of a maximuny flow of travel; as will permit a man to go when he does not actually have to go; that will permit a man to take his wife when he would like to take her; that will: permit a man to visit in a dis- tant city when he can refrain from making the trip. The quantity of passen- ger travel which is subject to control by the mere disposition of the people who travel is tremendous. There is a certain amount of passenger traffic which must move and that does move; hut that great amount of passenger traffic which is voluntary may be diminished, and very greatly diminished, by the imposition of an unduly high rate. When the Interstate Commerce Commission and the most of the State com- missions allowed the 3-cent rate to be advanced to a minimum of 3.6 cents, and allowed a 20 per cent advance in the higher rates, which ran up as high as 6 cents and 8 cents per mile on branch lines in some States, the passenger traffic dried up. That is a matter of common knowledge. Senator Pornpexter. Were those 6-cent and 8-cent rates made by State com- missions? Mr. Berton. The 6-cent and 8-cent rates I speak of were not usual rates, but rates in excess of 3.6 cents per mile were common in different States on branch lines. They were rates which had been permitted by the State where in effect, and those rates have now come to be advanced 20 per cent under the orders of the Interstate Commerce Commission. Senator Stantey. Do I understand you to say that rates beyond the 3.6 cents per mile are made only on branch lines? : Mr. Benton. Oh, no. I am speaking of rates running up as high as 4 cents and 5 cents and even 6 cents and 8 cents per mile. On main lines in the country, as will appear Jater from what I say and from what others will tell you, the rates. were, however, as high as 4 cents a mile. ~ Senator Stantey. On main lines of railroads? Mr. Brenton. Yes, sir. Senator Stanrey. And I have paid it. Mr. Benton. When upon investigation and consideration the State commission has said: This is all the traffic is worth and all the traffic will bear, all that the public ought to be asked to pay, and declined to allow it to be advanced to 4.8 cents, the Federal Government, through the Interstate Commerce Com- mission, stepped in and ordered the advance. I say it is common knowledge that «passenger traffic began to dry up when that happened. Of course, my assertion on that is worth nothing unless it accords with what Senators themselves know. Accordingly, I assert that when passenger rates in some States remained on a basis of 8 cents as a minimum, they remained where Congress fixed them, and doubtless expected that they would remain, and where it would have been better for the roads themselves if they had, remained; and that the «advances in these rates which have been compelled by the Federal commission have been hurtful rather than helpful. ; Senator STANLEY. You speak of the inconvenience caused the general public bv the inability of a man to take his wife on an unnecessary but enjoyable MODIFICATION OF TRANSPORTATION ACT, 1920. 87 excursion.. It seems to me that.is the lesser of the two objections to these rates. A great many passenger rates are as much a-tax upon the public as a rate upon lumber or upon salt or upon wheat. Traveling men and others who are bound to‘use the railroads in the discharge of their business charge up their traveling expenses to that business, and that charge is reflected in the cost of the article they sell. The public pays the passenger fare of the shoe drummer just as essentially as it pays the freight upon the hides from which the shoes are made; and these excessive rates charged to traveling men, to members of theatrical companies, and othérs,.engaged in furnishing the necessities of life or the pleasures of life, are a tax upon the general public. And, I might add, there has been introduced a bill to give 1,000-mile rates to traveling men, which I am very anxious to see considered. Mr. Benton. I entirely agree with the observations which the Senator has made. I would point out, however, that I was approaching this subject from another angle. I was not citing the. ‘class of cases he refers to as a reason” for changing the law, or the need for having a lower rate because the public is deprived of the pleasures the people ought to enjoy. I was citing the situa- tion as a reason why, in'a way, this high rate works out so as to be hurtful to the carriers themselves. They are losing traflic which they need to fill their cars and enable them to make a net; and when the’ high rate is put in effect all that is driven: away, because it is unnecessary, the class of business the Senator from Kentucky refers to—this voluntary traffic may go or may not, and the high rate is. driving it away, and the carriers,.instead of being helped by the high rate have been hurt by it. That is the point I am seeking to: make. Senator Staniey. I am under the impression that: they have not only driven away the voluntary traffic, but, to a great extent, the involuntary traffic. In - other words, there are. thousands of traveling men who are utilizing the way- side inn and the automobile that do normally and would now..utilize the rn roads if. conditions were different. ‘Do you know about that? Mr. BENTon. That is in accordance with my personal. observation, and. it i is in accordance with what has been said to me by commissioners. For example, the New England railroads are in. an exceedingly bad condition. There is no com- mission in New England which has.not done everything it; could do to promote their fortunes, to get them on a good financial basis. The tabulation I have put in shows that in every one of the New England States every advance they asked for was allowed. The, chairman of:the Public Service Commission of New Hampshire was in my office some months after those advances took effect. He told me that he thought the passenger advance had been hurtful rather than helpful; he said it, had got to the point where if a man in Rochester wanted to go to Concord he looked about to see whether there was somebody else that wanted to go, and they would pick up two or three people and take a Ford auto- mobile and drive across the State to.Concord and then drive home again.. That is an illustration of exactly what the Senator from Kentucky suggests— that even where people must travel. they find other. less expensive means of travel. Senator. PITTMAN, I have been informed by some representatives of State coim-. missions that in various States the commissioners have authority to grant a . franchise to automobile companies as common carriers—that is, companies using automobiles for the handling, of passengers and freight—and that in many cases ‘those automobiles are paralleling railroads, , and the railroads have protested against the granting of franchises, saying it was taking travel away from the railroads and destroying their business. Have you heard pay such statements made? aN Mr. Benron. I heard a conversation. to that effect in si informal discussion of the jitney situation, which conversation took place in a hotel at Atlanta during our recent convention there.. One of the commissioners was calling attention to that aspect of the situation. Senator Pittman. That the rates on the railroads were so high that motor vehicles are run on roads parallel to the railroad lines and furnish service at a lower rate than the railroad rate? Mr. Benton. Yes, sir. Senator STANLEY. I will say for the information of the Senator from Nevada that it is my impression that complaint has been made to the Interstate Com- merce Commission in the case of the Cincinnati,.New Orleans & Texas Pacitic Railroad, which has a line running from Lexington to Nicholsville, a stretch of 12 miles, there being a parallel road over which trucks and jitneys run. I under- stand the Queen & Crescent line has asked the Interstate Commerce Commission 38 MODIFICATION OF TRANSPORTATION : ACT, 1920, to increase rates for freight and passenger traffic along that line ofiroad for the Treason assigned by the Senator from Nevada. Mr. Brentron.. My next subject is freight rates. The State commissions vol- untarily gave the carriers too. much in the way of advances rather than too little. With the exceptions mentioned, they gave them all that the Federal com- mission gave. The Federal commission in its report in Ex Parte 74 said: “It would be desirable, if it were possible, to. determine definitely the com- modities which can best bear the burden of increases and the relationships of the rates and differentials which will -be disturbed by a percentage increase. This is precluded by: me Heceesity of prompt action upon the - ‘main issues presented.” The State commissions were in a better position to determine. definitely the commodities which could bear the burden of increase which the Federal com- mission had said was desirable, for they had to consider only the rates of. their ‘respective States, and they were familiar with local conditions and with local rate structures and with the reasons therefor. With this knowledge and upon eareful consideration they made the exceptions as to particular commodities shown in the tabulation which I have put in, and modified the general advance as to some excepted commodities so as to enable the same to continue to move. When the carriers induced the Federal commission to wipe out these excep- tions, as they did in large part, they hurt the public and hurt themselves. i 2 STATE RATES INSTITUTED TO DESTROY STATE REGULATION, I have outlined at considerable length the action of the State commissions, so that you may be able to judge whether the carriers instituted the State rate cases, which resulted in the Federal orders which I have mentioned, because they were driven to do so by a niggardly policy on the part of the State. com- missions or whether ‘they did so because they thought the time opportune for destroying State regulation. The fact is, as I think I have shown, that in their orders advancing rates the State commissions erred on the side of too great generosity to the car- riers if they erred at all. They allowed practically all the freight rates, and with one or two exceptions all the passenger rate advances, which the Inter- state Commerce Commission allowed with the exceptions which I have before mentioned, which are shown in the tabulation put in, and with the exception of the States where the director general’s rate of 3 certs: remained because the State commissions had no passenger-fare jurisdiction. Senator PoMERENE, I did not hear your first statement. I understand your complaint, then, to be, from what you have just said, with reference to both rates, that both intrastate. and interstate rates have been too high; is that your position? Mr. BENTON. Mr. Chairman, the Senator from Ohio misapprehends the purpose of this part of my statement. The purpose of it is to demonstrate that no occasion existed for an application to the Federal commission or for the Federal commission to stretch its power under the act. My complaint is against the invasion of the powers of the States by the Federal Government through the Interstate Commerce Commission. Senator PoMERENE. I was attracted by your statement to the effect that State commissions had given the same rates as the Interstate Commerce Com- mission had given, except in a few instances to which you had called attention. Mr, BENTON. I was making that statement, and the purpose of it was to show you that the Federal Government is under no necessity of ousting the States of their powers of local self-government, which they have been permitted to exercise from the foundation of this Government to the present time. I have heard the argument made that it was necessary for the Congress to withdraw from the States the power of regulation of the internal commerce of the States, and I thought that it would be interesting to the Senators to know, and that the Senators ought to know, that that was not so, and the purpose of this part of my statement is to show that. The CHAIRMAN. Perhaps, Senator Pomerene, you were not here at the time the witness made a statement and introduced an exhibit which shows that after the Interstate Commerce Commission had decided, or had heard what is known as Ex Parte 74, through which the interstate rates were advanced, that all the State commissions, with only a negligible exception, advanced their State rates in the same proportion. MODIFICATION OF TRANSPORTATION ACT, 1920. 39: i Mr. oo The exceptions were on commodities where exception had to e made. Senator PornpexTer. Let me ask a question there: I understood that you were assuming a moment ago that that not only was injurious to the public but injurious to the railroads; that it tended to decrease’ the net earnings of the railroads. How do you justify the action of all those State commissions in doing a thing that had that effect? Mr. Benton. I attempted to picture the situation exactly as it occurred. It was commonly recognized in 1920 that there ought to be an increase in railroad revenues. .The Congress had passed an act providing, in section 18, subdivi- sion 8, for cooperation between State and Federal commissions in considering matters relating to alleged conflicts between State and Federal rates. There was on the part of both the Interstate Commerce Commission and the several State commissions anxiety to give to the carriers as large increases in revenue ag they justly ought to have. The Interstate Commerce Commission made an inyestigation—necessarily a hurried investigation, but yet an- investigation—covering some weeks, and de- termined to advance interstate rates certain percentages. The Interstate Com- merce Commission invited the National Association of Railway and, Utilities Commissioners to appoint a committee to sit with them during that hearing. While it was clear that that was not the kind of rate case that the Congress had in mind and had provided for in section 18, subdivision 3, nevertheless the State commissions thought they ought to show that they were sincere in their desire to help meet and remedy the then existing situation. Their repre- sentatives sat with the Federal commission, and the three men who were there expressed approval of the advance, as to interstate rates, which the Federal commission made, and they recommended that prompt, action be taken by State commissions as to such increases as they found necessary in the State rates. Now, gentlemen of the committee, the State commissions believed, whether wisely or unwisely, that it was desirable to waive any minor differences of opinion that might exist and to go along in a rather broad way at that time. not seeking to weigh with extreme nicety the advances which should be allowed as to State rates. They held their hearings; and where it was obvious that traffic would be destroyed or business unduly injured by the rates on certain commodities they modified the advances. The number of exceptions and modi-, fications is shown by the tabulation I have put in the record. You ask’ me, Senator Poindexter, how I justify the action of the State com- missions. I explain it by that statement of the situation, and I justify it by saying that they were actuated by the same disposition which actuated every- body else that bad to deal with the situation officially—a desire to deal gen- erously with the carriers. Senator PoINDEXTER. At any rate, what fault there was in the acti ‘on, what- ever criticism may be justly attached to it, equally applies to the State com- missions as to the Interstate Commerce Commission, does it not? Mr. Benton. I do not think so, Senator. I have not found any fault with the Interstate Commerce Commission for its action in Ex Parte 74. But I do not either at this moment desire to say that I think each State commission was charged with the same degree of responsibility ‘for thoroughness of in- vestigation before it allowed the advance, that the national commission was charged with. In the first place, the State commissions do not have the facilities for in- vestigation that the Interstate Commerce Commission has. In the second place, the several States of this Union are parts of a whole. When it comes to considering in a broad way the needs of the carriers as. to advances, and I think the commissions of the different States are entitled to and justified in attaching very great weight to an opinion which has been reached by the Inter- state Commerce Commission after an investigation; that they are not justified in acting upon such an opinion contrary to what they. know to be the facts, that they are not justified in allowing an advance, which, after an investiga- tion, they know to be unreasonable, but I think that a finding by the Interstate Commerce Commission under those circumstances is entitled to great weight, and that a State commission is not open to criticism if it assumes that the in- vestigation has been thorough and that the conclusion is a right one. Senator TownsEnp. If I understand it you were trying to work in harmony with the Interstate Commerce Commission. Mr. Benton. Yes, Senator; and we have put in a statement covering that point, and before I complete my statement I purpose to put in a report of a 40 MODIFICATION ‘OF TRANSPORTATION ACT, 1920. committee which shows that ever since the:transportation act was-passed the State commissions of this country have endeavored to work under the coopera: tive provisions of section 18, subdivision (3), but they have been disappointed in their attempts, through: no- fault. of theirs. I was observing that it. was in the face of this generous treatment, and in spite of the faet that. they had been granted all the advances that were to the.r profit, and more, that the carriers apparently adopted a deliberate plan to break down State regulation. : They found in the amended Interstate Commerce act a perfect instrument for that purpose if they could induce the Federal commission to accept their interpretation of it. THE NEW YORK CASE. The circumstances under which they brought the first State. case before the commission show, we believe, beyond any reasonable doubt, the purpose of the preceeding to have been the destruction of State power, and not the securing of the rate advances which were involved in the case. These circumstances ought to be briefly stated. ‘ After the decision in Ex Parte 74 the carriers applied to the public service commissions of New York for authority to file tariffs advancing their rates, both passenger and fre‘ght, in the ‘State of New York on short notice, the same percentage that had been approved for interstate rates by the Federal com- mission. Under the New York law freight rates were subject to advance under tariffs filed by the carriers without leave. The purpose of the application, sv far as those rates were concerned, was to procure authority to file tariffs on short notice. As to passenger fares the statute was different. Senator Pomerenr. Do I understand that the application was made before the Interstate Commerce Commission? Mr. Benton. No; the application was under Ex Parte 74 for increases in the State of New York and made directly to the public service cominissions of New York. Senator PoMERENE. That is what I did not understand. Mr. Benton. I was about to say this was not an application made in good faith, and the carriers purposely refrained from complying with the law. AS "to passenger rates, the situation was this: Those rates were fixed as to one line at least by the chatter of the line. As to other lines they were either in whole or in part fixed by statute. But the commissions had the authority under the law of New York if they found upon application and proof that the rates in effect were “insufficient to yield reasonable compensation for the service rendered ” to authorize an increase in those rates. The attitude of the New York commission was friendly. They set an early hearing, so that such advances as should be allowed might take effect coinci- dently with interstate advances. The carriers refused to introduce any evidence and claimed that the State commission had no right to consider the reasonable- ness of the proposed advances, but must, as to State rates, approve the exact . advances which had been approved by the Federal commission as to interstate . rates. The New York commission, in spite of this attitude of the carriers, permitted the filing of freight rate tariffs and permitted the same to take effect, advancing all freight rates in New York 40 per cent. As to passenger rates, however, in a very able opinion, the plain requirement of the New York law, which nécessi- . tated a finding by the commission upon evidence offered, was pointed out, and’ advances in those rates were denied until the law should be complied with. Senator PoMERENE. Do I understand from that statement that ‘there was a difference in the law as it applied to passenger and freight rates? Mr. Benton. You are’right. As to freight. rates, the carriers may initiate an inerease by the filing of tariffs, which increase becomes effective after a stated period of notice and without any action by the commissions. As to passenger rates, it was necessary for the carriers to make application and show by evidence that the rates in effect: were insufficient to afford reasonable compensation for the service rendered. If the commission upon evidence made that finding, then the commission was authorized to grant the advance. Senator TownsEnp. That 40 per cent increase was the same as _the increase made by the Interstate Commerce Commission, as I understand? Mr. Benton. It was, peneton MODIFICATION OF TRANSPORTATION ACT, 1920. 41 Nobody can read the opinion of the New York commission without toting a clearly implied invitation to comply with the law and receive the advances desired. : t— 4 hoo4y oak It may be observed that the New York law was passed during the adminis-_ tration of Gov. Hughes; that it guards the rights. of invested capital more care- fully by explicit provisions contained in the law than do statutes in most States. It may also properly be said that the New York ‘commission has always had'a reputation for faithfully carrying out the purpose of the law. Nobody, so far as I know, has ever charged it with a niggardly policy toward the public-service corporations subject to its regulation: — ‘ : The carriers. however, left that friendly ‘tribunal, which had made it clear that the increases desired might easily he obtained by conforming with the simple requirements of the law, and came to Washington and instituted a proceeding under the amended section 13, complaining that by authority of the State of New York they were compelled to maintain within New York rates which were discriminatory against interstate commerce. The commission was asked to make an order advancing all intrastate passenger fares in New York 20 per cent. : When this course was determined upon the carriers knew that they were beginning a litigation which would be prolonged and would find its end only in the United States Supreme Court. They knew that they could more quickly and easily obtain the advances for which they asked from the New. York commission. The conclusion is irresistible that their principal purpose was to destroy the power of that commission and of the commissions in other States. ‘ In the proceeding begun before the Federal commission the legal representa- tives of the State of New York.appeared, and pointed out to the commission that no application, such as is required by the New York law, had been made, to the New York commission: When I say that I mean no application accom- panied by proof as is required by the statute to enable a finding. wok The CHarrman. Did the carriers in New York come to the Interstate Commerce Commission and admit that they had not attempted to comply with the laws of New York? ak ; ; a : : Mr. Benton. They did, Mr. Chairman. They argued before the Interstate Commerce Commission, as according to my recollection the record will show, that after the passage of the transportation act the public service commissions of New York had no functions to perform with respect to either freight or passenger rates in New York, except ‘to register their approval of the exact percentage of increase which had been allowed as to interstate rates by the Federal commission. And that culminated in the case which has been recently argued’ here in Washington before the Supreme Court’ of the United States. Resuming my statement: Upon this point, Judge Hale, the exceedingly able counsel of the Public Service Commission of New York, in his brief said: ; “No application was made to the Public Seryice Commission under section 49 (1) of the Public Service Commissions Law by the New York Central Railroad or any of the carriers ‘that the maximum rates, fares, or charges chargeable by any such * * * railroad * * * corporation are in- sufficient to yield reasonable compensation for the service rendered, and are unjust and unreasonable. Is not the New York commission , entitled to the presumption that it will deal justly. and fairly with the carriers in. respect of their obligations under the trazisportation act of 1920, as well as with all, other ‘ contingencies?’ ” a That word “contingencies” is quoted and refers to a provision of the New York law which commands the New York commission to make allowance in its rates for contingencies. I continue to quéte from Judge Hale’s brief: 4 “We submit to the sound discretion of the commission that the New York Central Railroad (under whose leadership all the other carriers represented are willing followers) owes to its parent State of New York , the duty to seek at home what it claims to be its just due. The principle of Prentis v, Atlantic Coast Line, 211 U. 8. 210, is ay applicable here as in the United States Supreme Court.” 7 That reference is to an opinion of the Supreme Court, wherein the Supreme Court of the United States, having before it a proceeding on rates ordered by the Corporation Commission of Virginia which were under attack, said that while the Federal court had jurisdiction, and it would not dispose of the 42, MODIFICATION OF TRANSPORTATION ACT, 1920. case absolutely, it would take no further action until application was made to the Virginia court to correct the order complained of. And I think they were compelled to return to Virginia and to make an appeal to the Virginia Supreme. Court, which the law,allowed. I have not read that case for many years but that is my recollection about it. Acting under its interpretat on of the Federal law, however,. the Federal commission promptly found that intrastate passenger rates in New York, imposed by authority of the State of New York, were discriminatory against interstate commerce and prescribed a 20 per cent advance in every such rate in the State (except commutation rates, which it reserved for further investigation). It had been pointed out to the commission upon the argument by Judge Hale that many of the intrastate rates in New York were on a higher basis than 3 cents—some upon branch lines even as high as 5 cents—and that the service upon such branch lines was of very different character from the service on trunk lines and of less work, and that the rates in force at the time represented the full value of the service, and were all that the traffic would bear. It was claimed that these rates, at least, could, not be claimed to be discriminatory upon any theory; even the fanciful theory that a rate might be d’scr iminatory because it does not yield as much revenue as the carrier thinks he should receive. The Federal commission, however, made short work of that claim. It said in its report: “The needs of these interstate carriers for revenue to enable them to provide adequate ‘transportat on service and facilities are immediate and, in the interest of the public, can not be permitted to await the consideration : in detail of indi- vidual fares, charges, and rates.” , This order of the Federal commission was the first fruit of Federal control by a single board in Washington of all the rates, both interstate and local,.in this vast country. . In effect the commission said: ‘It makes, no difference that car- riers have not presented their application for an increase to the New York com- mission; and that the New York commission ig apparently disposed. to receive and to investigate and to act promptly and fairly on such complaint if it is pre-. sented as provided by New York law. It makes no difference that we are our- selves without time to make any investigation of the particular rates which are sought to be raised, and that some of those rates, already as high as 5 cents per mile, may be all that the service is worth and all that the traffic will bear. We will, never theless, make an order advancing all passenger rates in New York by a flat percentage increase, because we have no time to do otherwise than to deal. with them in th’s wholesale fashion.” Senator FernwArp. Those are the words of the Interstate Commerce Commis- sion? Mr. Benton. No; I ‘say this is what they said in effect, being the substance of their decision. What the Interstate Commerce Commission said I read you from the quotation. f ‘Senator FERNALD. I thought you were continuing a quotation from their rul-, ing? Mr. Benton. No. Senator Epce. That is the argument of the witness. Mr. Benton. Yes. I say in effect that is what they said. Senator Prrrman. Mr. Chairman, would it not be well to have that whole de- cision put in the record at the end? The CuairMAn. I think we ought to have the whole report of that case put in the record at this point. “Senator La Forretre. Yes; and the application in full as made by the rail- roads to the State commission. The Cuairman. If you have it, Mr. Benton, or can furnish it, the committee will be glad to have you do so; otherwise we will attempt to get it. Senator Frrnap. Is it the ‘contention of the witness in arguing on the pill before us that if this matter had been left to the State commissions the advances would have been less in the matter of passenger and freight rates than were made by the Interstate Commerce Commission? Mr. Benton. It is my contention that if the State of New York had been permitted, to handle this matter, at least as to many of the rates in New York, the advances would not have béen so much as they were. Senator FrrnaLp. That is your contention? Mr. Benton. It is my content‘on that based on the evidence a less advance would have been allowed. Senator Fernayp. And that is true of some other States, is it? Mr. Benton. Yes, sir. MODIFICATION OF TRANSPORTATION ACT, 1920, 43 The CHairman. After all, the principal: question’ is whether there ought to have been an application made to the New York authorities: before the Inter- state Commerce Commission acted on the subject. Mr. Benton. I think, Mr. ‘Chairman, the contention ‘s' tliat: there ought not to be any attempt to withdraw from New York the power which it has always exercised to control its internal commerce; and I am enlarging upon the situa- tion to show that there was no occasion for it; ‘that there was nothing to justity the argument that it needed to be done. ‘Seriator La ‘Fomurrre. Mr.'Chairman, we’ meet at 11 o'clock, and, as an- nounced, there are very important matters to be considered, and l take it that we ought to adjourn at this time. The CHarrMan. I think that is a fact. ‘ ‘ Mr, Benton. Now, if I may do so, before I close for the day ‘I. wack ‘te say’ that I was about to ask that a report be put in. From the decision of the full board Commissioner Eastman ‘dissented in a. very brief report, in which he said: “There is uo‘ basis for belief that the New York comm'ssion is disposed to deal other than justly with the carriers.” So logically does Commissioner Eastman discuss the transportation act in that. report that I desire to incorporate the same in my statement at this. point. ¥ had only intended to ask that Commissioner EHastman’s statement ‘be incor- porated, but in view of what the members of the committee have stated I take it thut the whole of this little pamphlet should be put in, and that the portions which I have stricken out with a blue pencil should go‘in as well. The CHAIRMAN. Very well. And if you have it I would ask you to put in’ the application made by the carriers on the Interstate Commerce Commission for the order which followed. Mr. Benron. I do not happen to have the application to which you refer, but I doubt very much if it would throw any light on this subject.’ (Interstate Citamere Commission. ] No. 116238. In the matter of rates, faves, and charges of the New ‘York Central Railroad Co. and other railroad companies in the State of New York. Sub- mitted October 11, 1920. Decided November 18, 1920. - Certain fares, charges, and rates required by State authority to be maintuined: by the respondents within the State of New York found to be lower than the corresponding interstate fares, charges, and rates authorized by the order in Ex parte 74, increased rates, 1920 (58 I. C. C., 220), and to be unduly prejudicial to interstate passengers and shippers, unduly preferential of intrastate BASREREETS and ihe es and unjustly discriminatory against commerce. John E. Benton for National Association of Railway and Utilities Conus. sioners. Charles D. Newton and Edward G. Griffin for the State of New York; Ledyard P. Hale and Joseph A. Kellogg for New York State Public Service Coni- mission, second district; Terence Farley for New York State Public Service Commission, first district; Fred W. Putnam for Minnesota Railroad: and Ware- house Commission; R. Hudson Burr and: James E. Calkins for Railroad Com- mnission of Florida; Morton T. Culver, W. E. Trautmann, A. D. Rodenberg, and H. H. Slater for Winois Public Utilities Commission; A BE. Helm and W., L. Huggins for Court of Industrial Relations, State of Kansas; J. H. Henderson for State of Iowa; Hugh LaMaster for State Railway Commission of Nebraska ; Dwight M. Lewis ‘for Board of Railroad Commissioners of Iowa. John Holley Clark, jr., for Chamber of Commerce of the Borough of Queens; John Adikes for Jamaicn Board of Trade. Alfred.P. Thom, Charles C. Paulding, Francis I. Gowen, John C. Bills, W. Bronson, Clyde Br own, N.S. Brown, George F. Brownell, FE. G. Buckland, . a : Rn. V. Fletcher for respondent. carriers. REPORT OF. THE COMMISSION. Forp, commissioner: In pursuance of our findings in Ex pranks TA, inereased rates, 1920, 58 I. C. C., 220, we authorized within a region that includes the State of New York an increase of 40 per cert in the interstate freight rates; 20 per cent in the interstate passenger fares, baggage charges, and rates on milk and cream; and also a surcharge amounting to 50 per cent of the charge for space in sleeping and parlor cars, to accrue to the rail carriers. 44 MODIFICATION OF TRANSPORTATION ACT, 1920. Thereupon the steam railroad companies serving the State of New York made.formal application to the public service commission of the State of New York, second district, for permission to file effective on five days’ notice, tariff supplements providing increases in the rates, fares, and charges appli- cable to intrastate traffic in the State of New York corresponding with those authorized in our report. So far as the application related to rates and charges. for the transportation of freight except milk it was granted by the public Service commission, by an order entered August 19, 1920,,and the increases. became effective August 26, 1920, contemporaneously with the increases in interstate rates.. But so far as it related to passenger fares, sleeping-car and. parlor-car fares, baggage charges, and rates on milk and cream, the application. was denied by the public service commission. Thereafter, the principal steam. railroads serving the State of New York filed with us a petition for relief in accordance with the provisions of section 13 of the interstate commerce act. A hearing upon the petition has been held, and the views of parties in interest have been presented to us on brief and by oral argument. This case raises again the question whether in regulating interstate com- merce, under authority reposed in us by Congress, we have incidentally the power of regulating intrastate commerce so far as it affects interstate com- merce.’ In the Shreveport Case (23 I. C. C., 31), we held that we did possess. that power by act of Congress, and we pointed out: ; “ Congress passed this act with full knowledge and profound appreciation of those decisions of the Supreme Court in which it had been held that State commerce was that wholly within a State ‘and not affecting interstate com- merce,’ as is fully shown by.the Cullom report of 1886, out of which grew the act to regulate commerce.” The position we took was sustained by the United States Supreme Court,. and the principle on which we acted then continues to be our guide. But since: then the general obligation resting upon us to exércise control ‘over intrastate: commerce so far as it affects interstate commerce has been put in the form of a mandate by section 18 of the interstate commerce act, as amended by the- transportation act, 1920." ‘ It has been urged in opposition to the application of this principle to the pending case that such incidental jur'sdiction as we may possess over intra- state rates is contingent upon proof that discrimination exists affecting par- ticular persons or localities. But inasmuch as the basis of our jurisdiction is. our power to regulate interstate commerce, it follows that the decisive factor is” whether the rates under consideration injuriously affect interstate commerce. It is no answer to this to say that if this conclusion be admitted it. may have the effect of completely displacing State jurisdiction over State commerce. There may be cases in which intrastate rates affect interstate. commerce in-- juriously in ways so manifest as to make them subject to our control: There may be cases in which the connection of intrastate rates with the movement of. interstate commerce is so remote and unimportant that we may properly disre- 1 Sec. 13.(3). Whenever in any investigation under the provisions of: this act, or ir any investigation instituted upon petition of the carrier concerned, which petition is. hereby authorized to be filed, there shall be brought in issue any rate, fare, charge, classi- fication, regulation, or practice, made or imposed by authority of any State, or initiated’ by the President during the period of Federal control, the commission, before proceeding to hear and dispose of such issue, shall cause the Peer States interested to be notified. of the proceeding. The commission may confer with the authorities of any State having. regulatory jurisdiction over the class of persons and corporations subject to this act with- respect to the relationship between rate structures and practices of carriers subject to the jurisdiction ot such State bodies and of the commission ; and to that end is authorized and empowered, under rules to be precertved! by it, and which may be modified from time to time, to hold joint hearings with any such State regulating bodies on any matters wherein the commission is empowered to act and where the rate-making authority of a State is or may be affected by the action taken by the commission. The commission is. -also authorized to avail itself of the cooperation, services, records, and, facilities of such State authorities in the enforcement of any provision of this act. , (4) Whenever in any such investigation the commission, after full hearing, finds that any such rate, fare, charge, classification, regulation. or practice causes any undue o1 unreasonable advantage, preference, or prejudice as between persons or localities in intra- state commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce, which is hereby forbidden and declared to be unlawful, it shall prescribe the rate, fare or charge, or the maximum or minimum, or maximum and minimum, thereafter to be charged, and the classification, regulation, or pracetice thereafter to be observed, in such manner as, in its judgment, will remove such advantage, preference, prejudice, or dis- crimination. Such rates, fares, charges, classifications, regulations, and: practices shall be observed while in effect by the carriers parties to such proceeding affected thereby, the law of any State or the decision or order of any State authority to the contrary notwithstanding. ; Bs eet f ‘ MODIFICATION OF TRANSPORTATION ACT, 1920. 45 gard it. But in every case which puts in question intrastate rates, the decisive .factor.is whether or not they affect interstate commerce injuriously to a con- ‘siderable extent. If they do they are brought under our jurisdiction’ and made subject to our control, even although the whole rate structure of a State should be involved. ; ; , sera It has not happened heretofore that we have had occasion to make such ah extensive exercise of our authority. as is now contemplated, and we could not be moved te do so save by the most cogent reasons. Such reasons have been supplied by the situat'on in which the transportation interests of the country were placed and the action taken by Congress to relieve that situation. . Our findings in Increased Rates, 1920, supra, were responsive, as the report shows, to legislation enacted by the Congress as part of the tranportation act, 1920, approved February 29, 1920; now incorporated in the interstate commerce act as part of section 15a thereof, paragraphs 2 and 8 reading as follows: “(2) In the exercise of its power to prescribe just and reasonable rates the commission shall initiate, modify, establish, or adjust such rates so that car- riers as a whole (or as a whole in each of such rate groups or territories as the commission may from time to time designate) will, under honest, efficient, and economical management and reasonable expenditures for maintenance of way, structures, and equipment, earn an aggregate annual net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of trans- portation: Provided, That the commission shall have reasonable latitude to modify or adjust any particular rate which it may find to be unjust or unreason- able, and to prescribe different rates for d’fferent sections of the country. “(8) The commission shall from time to time determine and make public what percentage of such aggregate property value constitutes a fair return. thereon, and such percentuge shall be uniform for all rate groups or territor‘es which may be designated by the commission. In making such determination it shall give due consideration, among other th’ngs, to the transportation needs of the country and the necessity (under honest, efficient, and economical management of-existing transportation facilities) of enlarg’ng such facilities in order to pro- vide the people of the United States wth adequate transportation: Provided, That during the two years beginn’ng March 1, 1920, the commiss‘on shall take as such fair return a sum equal to 54 per centum of such aggregate value, but may, in its discretion, add thereto a sum not exceeding one-half of 1 per,centum of such aggregate value to make provision in whole or in part for improvements, betterments, or equipment, which, according to the accounting system pre- seribed by the commission, are chargeable to capital. account.” 4 / In accordance with these statutory provisions we designated four rate groups, one of which embraces the territory bounded on the west by the Mississippi River and on the south by the Ohio River and the main line of the Norfolk & Western Railway; and we authorized increased rates, fares, and charges that were designed to enable the carriers as a whole in that rate group, ‘‘ under honest, efficient, and economical management and reasonable expenditures for maintenance of way, structures, and equipment,” to earn an aggregate annual net railway operating income equal, is nearly as may be, to 53 per cent upon the aggregate value of the railway property of such carriers in that group, plus one-half of 1 per cent of that aggregate value for improvements, betterments, or equipment, chargeable to, capital account. Congress had taken, as the basis for determining a fair return for the railroads, the aggregate value of the railway properties in each group held for and used in the service of transportation. In making a tentative finding of the value of the railway properties in each group, for the purposes of our report, we included all the railway property of each carrier held for and used in the service of transportation. This should not be construed as holding that jurisdiction over intrastate rates and fares has been taken away from the States and reposed in us. We find nothing in the law to indicate that such was the intent of Congress. .But Congress has directed that we allow rates that will yield in the aggregate a return of 53 or 6 per cent upon the value of the railway property in each of the groups. There can be no doubt of the power of Congress to devise and provide for carrying into effect a plan for assuring to the nation’s interstate railroads a fair return upon the value of their property; and the full control by Congress of this matter is not to be ‘denied on the ground that the carriers’ aggregate earnings are a commingling of . of intrastate revenue and interstate revenue. In The Minnesota Rate Cases (230 U. S., 399) the Supreme Court said: 46 MODIFICATION OF TRANSPORTATION ACT, 1920. “This reservation to the States manifestly is only of that authority which is consistent. with and not opposed to the grant to Congress. There is no room in our: scheme!of government for the assertion of State power in- hostility to the authorized exercise of Federal power. The ‘authority of Congress extends to every part of interstate commerce, and to every instrumentality or agency by which it is carried on; and the full control by Congress of the subjects committed to its regulation is not to be denied or thwarted by the commingling of interstate and intrastate operations. This is not to ‘say that the Nation may deal with the internal concerns of the State, as such, but that the execu- tion by Congress of its constitutional power to regulate interstate commerce is not limited by the fact that intrastate transactions may have become so in- terwoven therewith that the effective government of the former incidently controls the latter. This conclusion necessarily results from the supremacy of the national power within its appointed . sphere.” The record shows that the refusal of the State of New York to perriit the earriers to increase the rates and fares here in controversy to the extent approved by us is costing the ‘railroads between $11,000,000 and $12,000,000 annually. In other words, the annual earnings of the interstate carriers ‘operating in New York are now between $11,00,000 and $12,000,000 less than they would be if the general level of rates and fares approved by‘ us had become effective on intrastate traffic; and to that extent the declared purpose of Congress is defeated by a preferential basis of rates and fares maintained by authority of the State of New York. : aS : ie ' This proceeding presents a practical question .which we have’ endeavored to deal with in a practical way. The needs of these interstate. carriers for revenue to enable them to provide adequate transportation service and facilities are immediate and, in the interest of the public, can-not be permitted to await the consideration in detail of individual fares, charges, and rates. The record shows that the respondent carriers perform the services here in question under substantially similar circumstances and conditions, whether in respect of interstate or intrastate transportation; and that the lower basis of intrastate fares, charges, and rates results in undue prejudice against interstate pas- sengers and shippers and unjust discrimination against interstate commerce. The present record warrants the findings hereinafter made. | Those findings are without prejudice to the right of the authorities of the State of New York or of any other interested party, to apply in the proper manner for a modifica- tion of our findings and order as to any fares, charges, or rates on the ground that the latter are not related to the interstate fares, charges, or rates in such a way as to contravene the provisions of the interstate commerce act. PASSENGER FARES. The record leaves no dcubt as to the unduly preferential character of the intrastate fares and charges now in effect in the State of New York. Intra- state passenger fares are, in general, on a basis of 3.6 cents per mile as maxi- mum. Passengers traveling between points in the State of New York and points in other States may be required to pay 3.6 cents per mile, whereas pas- sengers traveling within the State of New York pay only 3 cents per mile. The basis of 3.6 cents applies on intrastate traffic in every State bordering on the State of New York. In other words, intrastate passengers:'in New York enjoy a basis of fares distinctly lower than those exacted of interstate travelers in ‘the same territory, often riding in the same trains, and also lower than the fares paid by intrastate passengers in neighboring States. The record shows beyond question that there are no transportation conditions in the State of New York that justify lower rates or fares, on the whole, than those applicable in neighboring States, or lower’ than ‘the interstate rates and fares between points in New York ‘and points in other States. j The situation is well illustrated’ by the fares between New York City and Buffalo. Of the several available routes connecting these points that over the New York Central is intrastate while the others are interstate. Exclusive of war taxes, it appears that since August 26, 1920, the fare has been $14.27 over the interstate’ routes and $13.16 over the New York Central, a difference of $1.11 in favor of the passenger using the latter route. In'the case of a’ passen- ger occupying a lower Pullman berth the difference is increased: to $2.36. Moreover, a passenger traveling from New York City to a point west of Buffalo- can, by buying a ticket to Buffalo over the New York Central and buying an- other ticket at Buffalo to his destination, defeat’ the through interstate fare. MODIFICATION OF TRANSPORTATION ACT, 1920, 47 Representatives of the carriers stated that the inevitable result of this s‘tua- tion would be the reduction of the interstate fare from New York to Buffalo to the level of the intrastate fare, and that this would tend to disrupt the entire fabric of the interstate pagsenger fares in the territory involved. Inasmuch as the excess-baggage charges are arranged upon a scale bearing a fixed relationship to passanger fares and correspondingly graded in amount, such charges are governed by the passenger fares, and any discrimination ‘in passenger fares would necessarily involve a discrimination in excess-baggage charges. This statement concerning the manner in which the baggage charges are détermined is based upon the schedule of rates and charges of the carriers now on file in the commissions’ office. RATES ON MILK AND CREAM. The expression ‘“ milk antl cream” as used herein includes milk, cream, skim milk, buttermilk, condensed milk, evaporated milk, and pot cheese, and for the purpose of indicating the effect upon interstate commerce and upon the reve- nues of carriers, of the discrimination under consideration, we give illustra- tions, as follows: The New York Central Railroad Co. operates nine milk trains daily into the ‘New York City district. carrying 1,800,000 quarts of milk and cream, of which approximately 75 per cent is shipped over intrastate routes and approximately 25 per cent over interstate routes. Nine or ten carloads of milk and cream per day originate on the Ulster & Delaware Railroad, which extends from Kingston, N. Y., northwesterly to Oneonta, 107 miles. The cars are delivered to the New York Central at King- ston and, together with six or seven cars originating on a branch of the latter carrier extending southwesterly from Kingston, are there formed into a milk train which moves to New York over the tracks of the West Shore line. This route runs through a part of the State of New Jersey, the West Shore termi- nals being at Weehawken, N. J., and is therefore an interstate route. Ship- ments of milk and cream also originate at points along the east side of the Hudson in territory not far distant from that served by the Ulster & Delaware and move to New York over the intrastate route of the New York Central along the east bank of the Hudson River. On shipments using the interstate route the rates charged are 20 per cent higher than those over the intrastate route, although there is no Justification from a transportation viewpoint for a difference in the rates. © Again, a milk train is operated: by the Delaware & Hudson Railroad from Eagle Bridge, N. Y., which is northeast of Troy,'in a northerly direction, a distance of 52 miles, to Castleton; Vt.. thence southwesterly to Troy, N. ¥.. where it is delivered to the New York Central. Between Hagle Bridge and Castleton this train crosses the State line three times, and again ‘shortly after leaving Castleton for Troy. All shipments re¢eived before the last crossing of the State line are interstate shipments, the others intrastate shipments. On milk and cream in this train which happens to cross a State line charges must be paid substantially in excess of those applying on intrastate shipments mov- ing in the same train. There is no doubt that shipments of milk and cream originating in western Vermont and shipped to the New York City district over interstate routes are in direction competition with shipments of the ‘same commodities originating in the eastern part of the State of New York: and moving to the New York City district over intrastate routes. Furthermore, there is a substantial portion of the State of New York; which embraces, generally speaking, the central ‘portion of the State, from which milk and cream may move to the New York City district over either interstate routes or intrastate routes. For the purpose of illustation we may refer to the line of the New York Central extending from Albany to Syracuse with a branch line extending from Syracuse southeasterly to Harlville. and to the line of the Delaware & Hudson from Binghamton to Albany. ‘From this whole territory shipments of milk and cream may move to the New York City district over intrastate routes. From the same general territory, however, shipments may move over the interstate routes of the New York, Ontario, & Western, the Delaware, Lackawanna & Western, and the Lehigh Valley Railroads. Tach’ of these roads has one or more points of contact with the New York Central's main line between Utica and Syracuse and with its branches in that territory. Shipments moving over the interstate routes now pay charges °20 per cent 48 MODIFIGATION OF TRANSPORTATION :ACT,’ 1920. higher than those charged for shipments from substantially the same territory moving over intrastate routes. The rates.on milk and cream to the New York, City district: have been con- sidered by us at various times. In, Milk and Cream Rates to New. York City (45 I. C. C.. 412) we found that the interstate rates on this traffic were un- reasonable and unduly prejudicial to shippers from near-by points and unduly preferential of shippers from distant points; and we prescribed a scale of mile- age rates, in blocks of 10 miles each, or distances up to 630 miles.. The pre- scribed basis was also adopted by the New York Central on intrastate traffic, resulting in a uniorm scale of rates. over interstate and intrastate routes. By the application of the 20 per cent increase to interstate rates without a corre- sponding increase in intrastate rates, this uniformity has been destroyed. COMMUTATION FARES. The record contains comparatively little evidence on the subject of commu- tation fares, but so far as it goes it discloses facts in the presence of whieh we can not presume that the existing rate structure is just and reasonable in its established relationships and that it should be adopted as the basis upon which a general advance should be authorized, as in the foregoing particulars. We shall therefore reserve for future consideration this branch of the case, and as to it we do hot now make any finding or enter any order, but we shall keep the case open for further investigation, limited to the subject of commutation fares and commutation baggage charges in the State of New York as to the question whether they cause any undue or unreasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue. unreasonable, or unjust discrimination against interstate or foreign commerce. FINDINGS. Subject to the above reservation in the matter of commutation fares and commutation baggage charges, we are of.the opinion and find that the increases made by the carriers under Ex parte 74, relating to passenger fares and baggage charges, and now in effect, result in reasonable passenger fares and baggage charges for interstate transportation within the territory involved in this proceeding, and that the failure of the carriers within the State of New York to increase the standard intrastate fares and charges correspondingly has resulted in the past and will result in the future: In intrastate fares and charges lower than the corresponding interstate fares and charges; in undue prejudice to persons traveling in interstate commerce within the State of New York and between points in the State of New York and points in other States; in undue preference and advantage to persons traveling intrastate in New York, and in unjust discrimination against interstate commerce. We further find that said undue prejudice and unjust discrimination should be removed by making increases in said intrastate passenger fares and baggage charges whieh shall correspond with the increases heretofore made as aforesaid in interstate passenger fares and baggage charges. We further find that the increases made by the carriers under Ex parte 74, relating to space occupied by passengers in sleeping and parlor cars, result in reasonable charges for the occupancy of such space by passengers traveling in interstate commerce in the territory involved in this proceeding, and that the failure of the carriers within the State of New York to increase corre- spondingly the charges for like space for passengers traveling in intrastate commerce has resulted in the past and will result in the future: In intrastate charges lower than the corresponding interstate charges; in undue prejudice to persons traveling in interstate commerce within the State of New York and between points in the State of New York and points in other States; in udue preference and advantage to persons traveling intrastate in New York, and in unjust discrimination against interstate commerce. We further find that said undue prejudice and unjust discrimination should ‘be removed by making increases in said intrastate charges which shall corre- spond with the increases heretofore made as aforesaid in interstate charges. We further find that the increases made by the carriers under Ex parte 74. relating to rates‘on milk and cream, and now in effect, result in reasonable rates on milk and .cream for interstate transportation within the territory involved in this proceeding, and that the failure of the carriers within the MODIFICATION OF TRANSPORTATION ACT, 1920. 49 State of New York to increase the intrastate rates on milk and cream corre- spondingly has resulted in the past and will’ result in the future: In intrastate rates lower than the corresponding interstate rates; in undue prejudice to shippers of milk and cream ‘in interstdte commerce within the State of New ‘York and between points in the State of New York and points in other States; in undue preference and advantage. to shippers of milk and crearh in ‘intrastate commerce in New’ York, and in unjust discrimination — against interstate commerce. We further find that said undue prejudice and unjust discrimination should be removed by making increases in said intrastate rates on thilk and cream which shall correspond with the increases heretofore made as aforesaid in the rates on milk and cream shipped ‘in interstate comimerce. We further find that, whether the aforesaid passenger fares, baggage charges, surcharges, or rates on milk and cream pertain to transportation in interstate commeree ‘or to transportation ‘in ‘intrastate’ commerce, the, transportation sevices, in’ each instance, are ‘performed’ by the carriers under substantially similar circumstances and conditions. An appropriate order will be enterdd. HasTMAn, commissioner, dissenting: I am unable to join in, the decision - of the majority, because I: believe it goes beyond our lawful power. The objection is mote than technical, for it concerns the basic relations between the State and Federal Governments, a matter of great moment. " ‘In essence, the carriers’ position is'that when we authorize au increase in in- terstate rates under section 15 (a) of the interstate commerce act a correspond- ing increase must be' made in intrastate rates; otherwise unjust, discrimination against interstate commerce results which it is our duty under section 13 to ¢or- rect. State dorfithissions may be asked to authorize the intrastate increases, but they need be offered no evidence except the fact of our decision and have no real discretion. The carriers accept the logical consequence of this view, if I understand them correctly, by holding that appications to the State commis- sions are in substance a matter of courtesy and that we could, under section 18, either upon complaint or upon our oWn motion, prescribe the intrastate rates desired even if no such applications had been made. If this be so, it follows that we could practically at will deprive any or all of the States of authority over intrastate rates, for when such rates are once prescribed by our order under section 13 they can not thereafter be changed without our consent. The record in the instant case is based upon and conforms to this general theory of our power, and it is the only theory, it seems to me, upon which the decision of the majority can in full measure be supported. I am unable to bé- lieve that itis sound. The Supreme Court of the United States has said: “In construing Federal statutes enacted under the power conferred by the commerce clause of the Constitution the rule is that it should never be held that Congress intends to supersede or suspend the exercise of the reserved powers of a State, even where that may be done, unless, and ae so far as, its purpose to do so is clearly manifested. Illinois Central R. R. v. Public Utilities Commission (245 U. S., 493, 510).” It is in the light of this wise and salutary rule that we should approach the issue before us, construing the provisions of the act with scrupulous respect for State authority. It is, I think, our duty to conclude that when the Con- gress expects us to exercise new powers at the expense of the States, we shall be told to do so in plain and unmistakable terms. In defining our i seaeenstag§ at the very beginning of the interstate commerce act, paragraph 2 of section 1 states that the provisions of the act shall not apply— “To the transportation of passengers or property, or to the receiving, de- livering, storage, or handling of property, wholly within one State and not shipped to or from a foreign country from or to any place in the United States as aforesaid.” The language is unequivocal, and there is no subsequent provision which runs counter to the limitation. It is interstate and not intrastate transportation with which the act has to do. Under paragraph 4 of section 18 it is true that we may prescribe intrastate rates, but only for the purpose of removing unjust dis- crimination against interstate commerce. Plainly this power springs from and is merely an incident of the duty to regulate and protect interstate traffic. Turning to section 15 (a). our duty to establish rates which will enable car- 73387—21—pr 1—_—4 50 ‘MODIFICATION OF TRANSPORTATION ACT, 1920. ? riers to earn a fair return upon the aggregate value of their railway property relates and is confined to interstate rates. Without regard to the limitation of . section 1, there is no “clearly manifested purpose” to extend our authority over intrastate rates, and certainly there is none in view of this limitation. Nor is such a conclusion inconsistent with a reasonable interpretation: and prac- tical application of this section. A rule is laid down for our guidance, but our “duty is confined to interstate rates, and it is a duty merely to maintain such rates at the level which will yield the return desired, assuming that the States will exercise their own power justly and taking into consideration our right to correct intrastate rates which unjustly discriminate against interstate com- merce. At this point we may consider for a moment whether or not there is reason to believe that the Public Service Commission of New York is disposed to deal justly with the carriers. Following our decision in Increased. Rates, 1920, supra, applications were filed with that commission for authority, to make like increases in intrastate rates, fares, and charges. With a few minor exceptions the freight increases sought were permitted at once to become effective, as was possible under the State statutes, without indication of approval or disapproval and subject to complaint or investigation in the future. The situation was different as to passenger fares. By a provision of the New York law these. are limited to a maximum of 3 cents per mile, but the State commission pointed out that it could permit fares in excess of this limit upon a showing that ex- isting fares were insufficient to afford reasonable compensation for the service rendered. Notwithstanding this intimation, the carriers offered no evidence and did not assert that the fares were insufficient, ‘but relied upon the fact that we had permitted an increase of 20 per cent in the interstate fares. Under the circumstances no course seemed open to the New York commission except to deny the application, and this it did upot the sole ground of lack of evidence. There is no basis for a belief, that the New York commission: is. disposed -.to deal other than justly with the carriers, or that it would have been unduly. ex- acting if they had undertaken to show insufficiency of ,compensation. Upon the facts before us and in a spirit of comity the carriers might well be remitted to the State tribunal to exhaust their remedies before coming to us for action which will deprive the State of all authority over intrastate fares so long as our order remains in effect. In this view of the matter whatever losses jn revenue the carriers may have suffered are chargeable to their own default. But approaching the matter solely from the viewpoint of our own jurisdic- tion, it is clear, I think, that for such authority as we possess over intrastate rates we must now look to the provisions of section 13. The question at once arises whether by reason of this section we have an essentially different issue before us than has frequently been considered under section 3 of the act to regulate commerce in so-called “ Shreveport cases.” The carriers assert that the issue is different because section 13. not. only prohibits “any undue or un- reasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand,” but also prohibits “any undue, unreasonable, or unjust dis- crimination against interstate or foreign commerce.” Their view, as I under- stand it, is that the word “discrimination ” in this latter phrase is equivalent to the word “burden,” and that the effect is to prohibit what was not prohib- ited by section 3, namely, an unduly low level of rates within the State which is yet not alleged or shown to be unduly preferential of or unduly prejudicial against any particular person or community. This conclusion I find it difficult ‘to accept. Upon protest the conference committee of the Senate and House of Representatives struck from section 13 the words “undue burden” and wrote in their place the words “undue, un- reasonable, or unjust discrimination,” which now are there. I hestitate to be- lieve, as the carriers urge that no change in meaning was intended or accon- plished by this change in words. Moreover, in speaking of section 3 of the act to regulate commerce in the consideration of the original Shreveport case, the Supreme Court of the United States said: “It is apparent from the legislative history of the act that the evil of dis- crimination was the principal thing aimed at, and: there is no basis for the con- tention that Congress intended to exempt any discriminatory action or practice of interstate carriers affecting interstate commerce which it had authority to reach.” (Houston East & West Texas Ry. Co..v. United States, 284 U. S., 342, 356. Sale this language is quite as broad as the words in section 13 to which our attention is now directed. MODIFICATION OF TRANSPORTATION ACT, 1920, 51 If the issue before ug is not essentially different from the issue which has been considered in prior “ Shreveport eases,” it will, I. think, be conceded that while the evidence may be sufficient to justify action against certain intrastate fares and charges, it is not sufficient to justify the all-embracing action which the majority approve. This is indicated by the fact that the car- riers have not seen fit to rely: upon preference to persons or communities, none of which are complaining, but have rested their .case chiefly upon the allegation that the intrastate rates are upon.a, lower level than the interstate and fail to contribute their fair share of the railway operating income to which we have found that the carriers in the eastern group are entitled. For the reasons above stated I doubt our power to changé State rates upon this ground. It falls nothing short. of an appellate power to substitute our judgment as to: the reasonableness of such rates for the judgment of the States. But assuming that we possess this power,,. is the evidence sufficient to justify us in exercis- ing it? Stating the question aimeventiy; is there evidence that. the intrastate fares and charges in question are not producing their fair share of. railway. operating ineome and, if they are not,. that the percentage: increase desired is necessary. to bring them to the proper level? That is not, it seems to.me, an inevitable con- clusion from our decision in Increased Rates, 1920, supra, and in this connec- tion it is desirable to understand clearly the purport and effect of that decision. We were there faced with the necessity of. providing without delay the addi- tional revenue needed to bring the aggregate income.of the carriers to the level prescribed by the act, and we adopted the expedient of authorizing horizontal preentage incréases in rates, fares, and charges within and between certain territorial groups. This expedient was necessary, for any detailed considera- tion of individual rates was impracticable in the time available. Nevertheless, it should be noted that the act does not prescribe this method of increasing rates, that our duty under -section 15(a) is a continuing duty, and that our finding was only that the method employed would “ result in rates not unrea- sonable.in the aggregate.” It rested upon the assumption that extensive readjust- ment would probably be necessary. It is not equivalent to a finding that indi- vidual rates, fares, and charges, or classes of rates, fares, and charges, so in- creased and now in. effect, are just and reasonable. Still less does it follow as @ necessary conclusion, where State authority is involved, that the passenger fares within any particular State must be increased 20 per cent in order to produce their. fair share of railway. operating income. But. if our decision in Increased Rates, 1920, is not evidence of that fact, certainly there is no other evidence of record upon which such a conclusion can be based. No doubt it may be unnecessary that the individual fares and charges within the State should all be considered separately or that the value of the property used in the intrastate transportation should be established and the return now earned upon that value. estimated by elaborate computations. But‘I am unable to escape the conclusion that even if the theory of the carriers as to our power under section 13 be. accepted, at least it should be shown, by evidence sufficient to justify a valid opinion, that the intrastate fares and charges in question are not now furnishing adequate compensation for the service rendered judged by the standard which the Congress has set forth, and. that an increase of 20 per cent is necessary to this end. - Summing the matter up, without going into further detail,. I am of the opinion that upon the record before us the decision of the majority involves the ex- . ercise of a power which goes beyond any “clearly manifested purpose” of the Congress, and which we ought not to attempt to exercise until it is con- ferred upon us in plain and unmistakable terms. Nor would such a conclusion leave the carriers without a remedy, if they are prepared to bring the necessary evidence to the attention of the New York commission. ORDER. At a general session of the Interstate Commerce Commission, held at its oflice in Washington, D. C’, on the 13th day-of November, A. D. 1920. No. 11623. In the matter of rates, fares, and charges of the New York Central Railroad Co. and other railroad companies in the State of New York. This case being a proceeding instituted by the commission upon petition filed, and having been duly heard and submitted by the parties, and full investigation of the matters and things involved having been had, and the commission, on the 52 MODIFICATION OF TRANSPORTATION ACT, 1920, date hereof, having made and filed a report containing its findings of fact and ee thereon, which said repert is hereby referred to and made a part hereof ; PE gg 1 . pov g ; It is ordcred, That the common carriers who are parties to this proceeding, namely, Skaneateles, Railroad Co.; Norwood & St. Lawrence Railroad Co. ; Middletown & Unionville, Railroad Co.; Grasse River Railroad Corporation ; Dansville, & Mount: Morris Railroad Co. and A.’S. Murray, receiver; Massena Terminal Railroad Co.; Sterling Mountain Kailway Co.; West Shore Railroad Co. (the New York Central Railroad Co., lessee) ; Rutland Railroad Co.; The New York, Chicago &:St. Louis Railroad Co.; The New York: Central Railroad Co.; The Michigan Central Railroad Co.; Lehigh Valley Railroad’ Co.; Fulton Chain -Railway’ Co.; The Delaware, Lackawanna & Western Railroad Co.; Boston. & Maine Railroad; Boston & Albany Railroad:Go. (The New York Cen- tral Railroad Co., lessee): The Lehigh & Hudson River Railway Co.; Fonda, Johnstown & Gloversville Railroad Co.; Central New York Southern Railroad Corporation; Buffalo & Susquehanna Railroad Corporation; “Arcade & Attica Railroad Corporation: Prattsburgh Railway Corporation ; Pere Marquette Rail- way Go.; Genesee & Wyoming Railroad. Co.; New Jersey & New York Railroad CGo.; Grand Trunk Railway Co. of Canada; 'Hrie Railroad Cov. ; Ceutral Vermont Rajlway Co.;: Bath & Hammondsport Railroad Co.; the Staten Island Rapid Trarsit Railway Co.; Lehigh & New England Railroad Co, ; the Baltimore & Onio Railroad Co.: the Pennsylvania HKailroad Co.; the Long Island Railroad Co.; the New York, New Haven & Hartford Railroad Go. ; Buffalo. Rochester & Pittsburgh Railway Co.; Adirondack & St. Lawrence Railroad Co.; the Ulster & Delaware Railroad Co.; Niagara Junction Railway Co.; New York, Ontario & Western Rail- way Co.; Unadilla Valley Railway Co.; the Pittsburgh, Shawmut & Northern Railroad Co. and IF. 8. Smith, receiver; Marcellus & Otisco Lake Railway Co.; Lake Champlain & Moriah Railroad Co.; Delaware & Northern Railroad Co.; Wabash Railway Co.; Napierville Junction Railway Co.; Greenwich & Johnson- ville Railway Co.; the Delaware & Hudson Co.; the Central Railroad Co. of New Jersey; the Lowville & Beaver River Railroad Co.; New York & Penrisyl- vania Railway Cu.; Catskill Mountain Railroad Corporation; Central New England Railway Co.; Deer River Railroad Co.; Dexter & Northern Railroad Co.; Glenfield & Western Railroad Co.; Marion Railway Corporation; Middle- burg & Schoharie Railroad Co.; New York Connecting Railroad Co.; Raquette Lake Railway Co.; and Schoharie Valley Railway Co., according as they re spectively participate in the transportation, be, and there are hereby, notified and required to cease and desist from practicing the undue prejudice. undue preference and advantage, and unjust discrimination, found in said report to exist, and to establish, put m force, and maintain passenger fares and baggage charges for the transportation of passengers ‘and their baggage in intrastate commerce within the State of New York which shall exceed the fares‘and charges of the carriers now in force and applicable to such transportation in amounts corresponding to the increases heretofore made by the carriers, now in effect, under ex parte 74, referred to in said report, in said carriers’ passenger fares and baggage charges for. the transportation of passengers and their baggage in interstate commerce within the State of New York and between points in the State of New York and points in other States; It is further ordered, That said carriers, according as they respectively par- ticipate in the transportation, be, and they are hereby, notified and required to cease and desist‘from practicing the undue prejudice, undue preference and advantage, and unjust discrimination found in said report to exist, and to - establish, put in force. and maintain charges for space in sleeping cars and in parlor cars oceupied by passengers traveling in intrastaté commerce within the State of New York which shall exceed the charges of the carriers now in force and applicable to the occupancy of such space in said transportation in amounts corresponding to the increases heretofore made by the carriers, under an order made by the commission ay aforesaid in Ex parte 74, in said carriers’ charges for the occupancy of like space in sleeping cars and in parlor cars by passengers traveling in interstate commerce within the State of New York and between points in the State of New York and points in other States; . It ig further ordered, That said carriers, according as they respectively par- ticipate in the transportation, be, and they are hereby, notified and required to cease and desist from practicing the undue prejudice, undue preference and advantage, and unjust discrimination found in said report to exist, and to establish, put in force, and maintain rates for the transportation of milk and cream in intrastate commerce within the State of New York which shall exceed MODIFICATION OF TRANSPORTATION ACT, 1920. 53 the rates of the carriers now in force and applicable to such transportation in amounts corresponding to the increases heretofore made by the carriers, under Ex parte 74, in said carriers’ rates for the transportation of milk and cream in interstate commerce within the State of New York and between points in the State of New York and points in other States; It is further ordered, That nothing contained herein shall be construed as either authorizing or requiring said carriers, or any of them, to change in any manner or to any extent the commutation fares, or any of the commutation fares, or charges upon excess baggage carried in connection with any of the commutation fares, of said carriers now in force and applicable to the transpor- tation of passengers or to other transportation in intrastate commerce within the State of New York; It is further ordered, 'That this order shall become effective on or before December 18, 1920, upon notice to this commission and to the general public by not less than five days’ filing and posting in the manner prescribed in section 6 of the interstate commerce act and remain in force until the further order of the commission in the premises; And it is further ordered, That a copy of this order be served Here each of the common carriers who are parties to said proceeding. By the commission. [SEAL.] Grorce B. McGinty, Secretary. The CuHarmrMan. The committee will now take a recess until 9.30 o’clock to- morrow morning. (Whereupon, at 10 o’clock and 55 minutes a. m., the committee adjourned until Wednesday, October 26, 1921, at 9.30 o’clock a. m.) MODIFICATION OF TRANSPORTATION ACT, 1920. WEDNESDAY, OCTOBER 26, 1921. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met, pursuant to adjournment, at 9.30 o’clock a. m. in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The CHarRMAN. You may resume your statement, Mr. Benton. STATEMENT OF MR. JOHN E. BENTON—Resumed. Mr. Benton. Mr. Chairman and gentlemen of the committee, at the close of the hearing on yesterday I was speaking of the New Tork order, and I will now continue along that line. THE CHARACTER OF THE FEDERAT, ORDERS. The character of the order which the Federal commission made in the New York case, and of the other orders which it has made prescribing State rates, ought to be explained. It is an order which, if valid, absolutely destroys all power of the State over the rates involved until such time as the Federal commission sees fit to revoke its order. Senator La ForLette. I. would like to get that clear in my mind: Did the railroads apply to the New York commission for an advance in rates? Mr. Benton. Yes. Senator La Fotierre. Did they make formal application? Mr. Benton. Yes, Senator, they did. And that application has been tele- graphed for and we hope to put it into the record, together with the report filed by. the New York commission. ‘In fact, there were two of them. ‘They applied but they did not comply with the law by producing any proof to show that the case fell within the requirements of the New York law, the New York law providing that before allowing an advance as to passenger rates the com- mission should make an affirmative finding that the existing rates were insuffi: . cient to afford reasonable compensation for the service rendered. And it will appear here that the railroads took the position that that provision of the New York law was nullified by the transportation act, and that the New York commission must make the order upon having information supplied to it of the action of the Interstate Commerce Commies ior in the form of its order as to interstate rates. : The CHarrRMAN. ‘lo make that statement aanenletey under the New York law the railroads had the right to put into effect tariff which increased freight rates, and those tariffs could only be challenged by ‘application being made upon the part of someone who was interested in them. Now,’ the question I want to ask is this: Did the New York carriers put into effect those advanced rates before they applied to the Interstate Commerce Commission? , Mr. Benton. As to freight rates they did. You have stated the situation: with almost complete accuracy as to freight rates. The New York commis- sion has the power of suspension of freight-rate tariffs, although there are some commissions that may -only act upon ‘complaint: of shippers of tariffs filed: Senator La Forrertre. They had the: initiative there. . Mr. Benton. The New York commission may take the initiative and suspend the freight-rate tariffs. But they did not do it. Tariffs were filed and did ma - ’ oe ie 55 56 MODIFJCATION OF TRANSPORTATION ACT, 1920. take effect, and as to freight rates no order has ever been made by the Inter- state Commerce Commission because there was never any occasion for or pos- sibility of such order, The CHarrMAN. So that the increased freight rates in New York have been brought about by the carriers themselves, and those freight rates have not been challenged as yet and have not been passed upon by the Interstate Commerce Commission? : , Mr. BENTON. That js true. And I should add, for the purpose of making that statement complete, what I‘ said on yesterday, that the New York com- mission set an early hearing and expedited the taking effect of those tariffs, so that they did take effect the same date as the increase by the Interstate Commerce Commission.of interstate rates. Senator La FoLterte: And we are going to lave the records in that: case, so that we will get the chronology of the entire proceeding. But to clear up one thing in my mind I want to ask you this: After they filed their new freight rate schedules with the State commission did they then file an appli- cation here with the Interstate Commerce Commission for an order advancing those freight rates in New York? \ Mr, Benton, Not ‘as to freight rates; and not as to passenger rates until after the New York reports which will be put in. f The CHarrMAN. How is it that in the New York case which was submitted to the Supreme Court of the United States a few days ago no question can arise save as to passenger rates? Mr, BenToN. Well, that case relates purely to passenger rates. ‘The CHAIRMAN, You say it does? ' ‘ ‘Mr. Benton. The case pending in the Supreme Court of the United States does, as you indicate, relate purely to passenger rates. The CHarrMan. That is.the way I understood it. Mr. Benton. There has never been an order of the Interstate Commerce Commission with respect to intrastate freight rates in New York. The CHAIRMAN. You may proceed with your statement. Mr. Benton. I will say that in section 13 subdivision (4) of the amended interstate commerce act it is provided that whenever the Federal commis- sion prescribes intrastate rates to take the place of rates found discriminatory, the same “shall be observed while in effect * * * the law of any State or the order of any State authority to the contrary notwithstanding.” The words I ask your attention to are that they should be observed “ While in effect,” assuming the validity of the law relating to application on the part of the carrier to observe rates prescribed by the Federal cominission. I want to couple that up with this statement that whereas formerly orders of the commission prescribing rates were lim‘ted in duration to two years. by the transportation act, section 15 was so amended that orders of the commis- sion now “ continue in force until its further order, or for a specified period of time, according as shall be prescribed in the order. unless the same shall he suspended or modified or set aside by the commission, or be suspended or set aside by a court of competent jurisdiction.” . Senator FerNALp. By the Federal commission, that means, of course? Mr. BENTON. Yes. Senator La Forietrre. When was that change effected ? Mr. Benton. That change was effected in the transportation act, Senator. Senator La; Fotietre. Oh, ves, I see. ‘ : 3 Mr. BENTON. It may be. pointed out that Congress. in section 13 subdivision (4) in granting power ‘to the commission to prescribe intrastate rates. evidently had:in mind not. entire bodies of rates, but particular rates. for power is granted in the singular, with respect to any “rate. fare, charge, classification. regulation, or practice.” , The commission has, however, interpreted the act to.give if power to pre- scribe whole bodies of rates, and in every case where it has preser‘hbed intra- state rates it has provided.in. the order that the same shall.“ remain in force until the further order of the commission.” Thus by a single order (it is claimed) a State may be absolutely dispossessed. of State power, over all. rates applieable to its: internal traffic. either pas- senger or freight, or both, for all time, or until such time as the Federal com- mission sees fit to give that power back. This is the character of order made in the New York case, although the Federal commission in effect in its report admitted: that it did not know whether all the rates ought to be advanced as ordered or not. And I again remind the Senators that the commission, in MODIFICATION, OF TRANSPORTATION ACT, 1920. 57 effect, in its report admitted that it did not know whether all the rates ought to be advanced as ordered or not. .: .. is "% : The CHAIRMAN. I desire to say here that I think you are entirely right in regard to the jurisdiction of the commission. The act was not intended, so far as I am concerned, to permit the raising of bodies of rates, but simply for it to take jurisdiction of a particular rate, or of a complaint of .a’particular’ rate, and inquire with respect to that rate and its effect as being discrimina- tory or prejudicial. d a , be Mr. Benton. I thank you, Senator, for making that statement. I always believed that the interpretation which the Interstate Commerce Commission placed upon:the act did violence to the intent of the Congress; but ‘we are dis- turbed, and the people of our States are suffering on account of the interpreta- tion, and we are especially disturbed because the Federal courts have sustained that interpretation. . THE FEDERAL COMMISSION’S REFUSAL TO COOPERATE, AS PROVIDED IN SECTION 13, SUBDIVISION (3), OF THE AMENDED INTERSTATE COMMERCE ACT. I have referred to the cooperative provisions of section 18, subdivision (8). It is therein provided that in a proceeding wherein the relationship of State and Federal rates is in question, the Federal commission may cooperate with the State commissions having jurisdiction over such State rates, and to that end is authorized to hold joint conferences and joint hearings. We think Congress introduced those cooperative provisions into the act with the intention that they should be used. We think that there would be few cases of alleged discrimina- tion where such cooperation would not bring about agreement, either to the effect that no discrimination, in fact, exists, or as to the manner in which it should be removed if it should appear upon joint consideration and particular investigation that it does exist. I have already spoken of the disposition of the State commissions and of the participation of members of the national associa- tion in the #r Parte 74 advanced rate hearing upon request of the Federal com- inission, even though it was recognized that that proceeding did not fall within the provisions of section 18, subdivision (3), because it did not involve State rates but merely interstate rate advances. The New York case, however, was a case of exactly the character wherein cooperation was contemplated by the terms of section 18, subdivision (3). The Federal commission, however, proceeded as if those provisions were not in the act. ee rey eK : And you will remember that I called attention to the appeal made by. Judge Hale before the Interstate Commerce Commission. s as ‘ The CHAIRMAN. The order in the New York case was made after the decision and opinion and, order in H# Parte T4?: j SD Mr. Brenton, Yes, sir. : ; ; The CHAIRMAN. And at a time when there were no members of any State commission sitting with the Interstate Commerce Commission? ... ; - : Mr. Benton. You are right. I will say now what I had planned to say, at a later time, that’ in no single case where allegations have been made to the Interstate Commeree Commission that rates prescribed by a State, or not. per- mitted to he advanced by a State, .were. discriminatory: has the Interstate Commerce Commission afforded a State commission. an opportunity to sit with it in joint -hearing to cons‘der the fact, or an opportunity to sit down with it in joint conference to discuss those rates and to-explain why they were. made and what the loeal situation was which made just and reasonable the rate which the commission of the State had prescribed. Senator Frrnatp. That is a very important statement, and I want to empha- size the first part of it—that in no case, you say, have they met with, the. State commissions. : fe Mr, Benton. "In no case involving State rates, Senator FERNALD. I understand.. : ; ; Mr. Benton, I stated, Senator Fernald, perhaps when you were engaged in, another hearing, that. directly after Congress passed the. transportation act the president of the national.association waited upon the chairman of the Interstate, Commerce Commission and stated the desire of State.commissions to fully co- operate under the provisions of the act. And he.then: said, for I had the privi- lege of being present, that it was the general desire of State commissions, to. cooperate with the genuine purpose of making the transportation act successful to the fullest possible extent. 58. MODIFICATION OF TRANSPORTATION ACT, 1920. I was asked by some Senator on yesterday how I accounted for the general action of State commissions in permitting rate advances. I made a statement touching that matter, and I desire, now to say that they were making the largest efforts which they could make in every: State to cooperate in a genuine desire to do what the situation seemed to demand, and in view of that it has been most surprising and disappointing to me that the act has been administered as it has. : a . I think the matter important, and I desire, in order to complete the record, if I may, to present to be. incorporated in the record a report made upon the subject of cooperation to the National Association of Railway and Utilities Com- missioners at its convention in Atlanta, of which I have spoken, by a special committee of the association. at i The CHarrMAN. If you will furnish that report to the reporter it may be incorporated in the record. 5 Mr. BENTON. I would like to hand it to the reporter to be incorporated in the record; and then, if I may, without causing a duplication in the record, read certain portions for the purpose of informing the members of the committee who are here present of the situation. But I would like the entire report to appear in the record. May that be done? The CHAIRMAN.. It may be done. , (The report referred to is here printed in full, as follows: ) Report OF SPECIAL COMMITTEE ON COOPERATION OF STATE AND FEDERAL CoMMISSIONS. CONFERENCE WITH FEDERAL COMMISSION AND CORRESPONDENCE RELATING TO COOPERATION, At the last annual convention of this association, this committee was created to confer with the Interstate Commerce Commission on the subject of coopera- tion, of State and Federal commissions. In pursuance of the vote creating the committee, the following communication was addressed to the chairman of the Interstate Commerce Commission: NATIONAL ASSOCIATION OF RAILWAY AND UTILITIES COMMISSIONERS, ; Washington, D. C., December 31, 1920. Hon. Epear EB. Ciark, Chairman Interstate Commerce Commission, Washington, D. C. Dear Sir: At the annual convention of this association, held in Washington, D. C., November 9-12, 1920, the following resolution was adopted: “Whereas, paragraph (3) of section 15 of the interstate commerce act, as amended by the transportation act, 1920, provides in part as follows: ‘Whenever in any investigation under the provisions of this act, or in any investigation instituted upon petition of the carrier concerned, which petition is hereby authorized to be filed, there shall be brought in issue any rate, fare, charge, classification, regulation, or practice, made or imposed by authority of any State, or initiated by the President during the period of Federal’ control, the commission * * * may confer with the authorities of any State having regulatory jurisdiction over the class of persons and corporations subject to this act with respect to the relationship between rate structures and practices of carriers subject to the jurisdiction of such State bodies and of the commission; and to that end is authorized and empowered, under rules to be prescribed by it, and which may be modified from time to time, to hold joint hearings with any such State regulating bodies on any matter wherein the commission is empowered to act and where the rate- making ‘authority of a State is or may'be affected by the action taken by the commission. The commission is also authorized to avail itself of the cooperation, services, records, and facilities of such State authorities in the -enforcement of any provision of this act;’ and “Whereas said provisions authorizing cooperation were enacted in conformity with ‘recommendations made to the Congress by this association, which recom- mendations were also in harmony with the recommendations made by the Interstate: Commerce Commission ; and ‘ “ Whereas this association is desirous of doing all that can be done by it to promote genuine cooperation between the State and Federal authorities exer- cising regulatory jurisdiction over common carriers; and MODIFICATION OF TRANSPORTATION: ACT, 1920. 59°! “Whereas it is the judgment of this association that in order that the maximum benefit may be derived from said cooperative provisions it is desirable that it should be understood in what classes of cases cooperation between State and Federal authorities is deemed feasible by the Interstate Commerce Commis- sion, and with respect to each such class of cases, whether by joint confer- ence or joint hearing, and under what rules of procedure such joint confer- ences or hearings may be initiated and carried forward: Therefore be it “ Resolved, That the president of this association be authorized to transinit to the chairman of the Interstate Commerce Commission a copy of this resolution, and to advise him that this association would welcome a conference upon the subject matter of this resolution as early as the same may be desired by. said Interstate Commerce Commission. Be it further “ Resolved, That the president and vice presidents of this association, together with the executive committee and the general solicitor, be authorized to repre- sent this association at any such conference as may. be ayranged by the president with the Interstate Commerce Commission, and that they be directed to report the results, together with their recommendations, if any, to the several commis- sions and to‘ the next conventién of this association, it being, however, under- stood that any conclusion arrived at in said conference, or any recommenda-’ tion made by said representatives of this association, shall be in no way binding upon any State commission except as the same shall be adopted by it.” Acting in conformity with said resolution, President Perry, of this associa- tion, has instructed me, in his behalf, to transmit this copy of the same to you and to state that if your commission’ deems a conference upon the subject matter of the resolution desirable this association will welcome such a conference as early aS may be desired by your commission. I may say that President Perry has asked me to present this matter so that I may act for him in conferring with you, looking toward the making of arrange- ments for such conference if that shall be desired. Very truly, yours, JoHNn E. Benton, General Solicitor. To this letter a reply was received as follows: INTERSTATE COMMERCE COMMISSION, Washington, D. C., January 5, 1921. Mr. Joun E. BENTON, ge : : ‘ General Solicitor National Association he of Railway and Utilities Convmissioners, ‘Washington, D. C. Dear Sig: I laid before the commission your letter to me of December 31, in which you quoted resolution adopted at the recent convention of the National Association of Railway and Utilities Commissioners relative to’ ’co-' operation between State commissions and the Interstate Commerce Commis- sion, and I am authorized to say that'the commission is very pleased to accept the invitation of the national association to arrange for a joint conference with the hope of reaching’ better understandings relative to this’ subject. is To that end the commission has appointed the undersigned and Commiis-: sioners Daniels and Eastman a committee to represent it in such conference. I shall be glad to take up with you at any mutually convenient time the ques- tion of time for meeting. The press of official duties is so great that it seems impracticable for us to ‘attempt to attend a meeting elsewhere than at Wash- ington. Yours, ‘very truly, Epear HE. CrarKk, Chairman. According toe arrangements made by the general - ‘solicitor with Chairman , Clark, the proposed conference was held in the general hearing room of the. Interstate Commerce Commission in Washington on January 22, 1921. It w: as” attended by the members of the Interstate Commerce Commission named in Chairman Clark’s letter, and by President Perry; Hon. C. M. Reed, of Kansas ; Hon. J. W: Raish, of the South Dakota commission (sitting on the proxy of Hon, J. J. Murphy, of the South Dakota commission) ; and General Solicitor | Benton. ‘ 60: MODIFICATION OF TRANSPORTATION: ACT, 1920. Following the conference 2 report was made by the committee 'to the several commissions covering the conference as follows: ‘ : Report on Interstate Commerce’ Commission conference. NATIONAL ASSOCIATION OF RAILWAY AND UTILitiis ‘ConarissIoNERs, 3 Washington, D. 0., February 3, 1921. To the State Commissions: ae At the last convention of this association a resolution was passed which is set out in full in my bulletin of November 24, 1920. That resolution, directed that if such a conference should be arranged thereunder, the representatives of this association should “report the results, together with their recommenda- tions, if any, to the several commissions, and to the next convention.” Acting under the direction of your representatives, I am making this report of results to this date. . As I advised in my bulletin of January 24, the conference was yheld on January 22. Your association was represented by President Perry, of the Georgia commission ; Chairman Burr, of the Florida commission; Hon. J. W. Raish, of the South Dakota commission (acting upon the proxy of Chairman Murphy, of that commission), Hon. C. M. Reed, of the Kansas Court of Industrial Relations, and myself. The Federal commission was represented by a com- mittee, designated by the commission, consisting of Chairman Clark and Com- missioners Daniels and Eastman. Cave : At the conference President Perry was requested to open the discussion, and did so. The. conference was, however, entirely informal, and all present took part in the discussion. In substance it was stated on behalf of.the State com- missions that they had united with the Federal commission in urging upon Congress 'the enactment of the cooperative provisions of the transportation act, with the hope and expectation that they would result in such cooperative action in the way of joint conferences and joint hearings that such conflicts as night appear between State and Federal rates might be by agreement removed by State or Federal authorities, respectively, accordingly as upon such joint harings or conferences it should appear that State or Federal rates, or both, should be changed. The opinion was,expressed that the enactment of the law created opportunity for such joint development of facts and common under- standings that if embraced occasion should seldom, if ever, arise for the pre- scribing of intrastate rates by Federal power. ‘ « ‘ Mr. Perry said that the State commissions were. disappointed that no sub- stantial results in the line of cooperation had followed the enactment of the cooperative provisions; that. they were uncertain as to what classes of cages the Federal commission considered properly the subject of cooperative effort, and as to how such cooperation should be initiated and garried forward; that they were in the dark ag to the Federal commission’s disposition and desires, , and were wondering, and hence had passed the resolution, so. that, if possible. a full understanding on.these matters might be obtained. hy / On behalf of the Federal commission, it was in substance stated to be the disposition of that commission to promote the idea and practice of cooperation ; attention was called to the fact that the Federal commission had in several cases requested. State commissicus to hold hearings upon applications of carriers for certificates of convenience and necessity in construction and abandonment cases, and to submit the record with their recommendations; that the California commission had lately undertaken, at the request of the Federal commission, to hold a hearing and make its recommendations as to the con- tinued joint use of terminal facilities at Oakland in that State; and that in Illino’s and Mississippi the Federal commission, at the request of the respective State commissions, had designated examiners to sit with the local ‘commissions in State rate proceedings. The action of the Federal commission in asking this.association to appoint representatives to sit in Ex parte 74 was cited. It was further suggested that the State’ commissions might’ be of much aid to the Federal commission through the use of their’ forces in the administration of the provisions of the transportation act, vesting control over security issues in the Federal commission. — ; ; 2 It was, however, stated by Chairman Clark that it did not appear to be wise to attempt to determine in advance “ what classes of cases” offer proper opportunity for cooperation, as such attempt might lead to the inclusion of cases which, when they arose, would appear not to be of a character upon which MODIFICATION OF TRANSPORTATION ACT, 1920, 61 Senator Pornpexrer. The Interstate Commerce Commission has never held that you could not adjust the rates for them? ‘ Mr, Suarer. By this order they say that these rates shall remain in effect until the further order of this. commission. The Cuarrman. But those were not intrastate rates. Mr. Sxater. Absolutely, those were intrastate rates. That is where they fixed these rates in the State of Illinois, in docket 117038, and said, ‘“ Don’t you change those rates until you get our order.” Then when we applied to them, “We have not the power to change them.” Those are the two things they said to the State of Illinois and the shippers of the State of Illinois. ; Senator PomERENE. You agree with Judge Hale, do you not, that as you con- strue the transportation act it was simply a declaration of the law as it had been construed by the Supreme Court in the Shreveport and other cases? . Mr. Suater. I think that I agree with him that that was the intention. But there is just this difference between the two. The language of that act, in which it states that the Interstate Commerce Commission shall prescribe rate groups and fix the rates in the particular groups so that they shall yield a fixed per cent return on the value of the property, has been construed to embrace both State and interstate, and they point out very frequently how it would be impos- sible for the Interstate Commerce. Commission to fix rates so that they shall earn 6 per cent unless they also fix the State rates together with the interstate rates. Senator PoMERENE. Well, these rates were not fixed for the purpose of securing 6 per cent. The commissioners have said so before this committee. Mr. Siater. Well, I do not mean a particular per cent. So that they shall return a fixed per cent return on the property they have. The CHarrMan. I suppose that Mr. Benton will show us that some court has said that. I have not known that any court has said it. The Interstate Com- merce Commission has not said that, and anyone who construes that paragraph in section 15 (a) to broaden the jurisdiction of the Interstate Commerce Com- mission and confer upon it the power to fix intrastate rates other than as is: provided in amended section 13 seems to me to deliberately misconceive and falsify the law. There is nothing in section 15 (a) that by any reasonable con- struction could affect the respective jurisdictions of the Federal and State com- missions. Mr. Suater. No; I agree with you that is true. But here is this difficulty about it. Every time there is a change in the interstate commerce act it re- quires a-great deal of litigation before it is construed in a manner that all will understand. Now, here is what happened before 15 (a) became effective. It was the duty of the Interstate Commerce Commission to fix rates so that they should produce a fair return on the fair value of the property. The CrmarrMANn. They had to take into consideration the revenue derived in the States, Mr. Stater. They undoubtedly had to, but as soon as that act came out and it directed the Interstate Commerce Commission to do that which it was legally bound to do, then the carriers said, ‘“ Now, the Interstate Commerce Commission has exclusive jurisdiction.” Now, whether they have or not, and whether the act is what the carriers contend it is or not, you can consider the situation we are in. We are in jail. The CHAIRMAN. I have nothing even to suggest by way of palliating these misconceptions of the law and this invasion which seems to have been made upon State jurisdiction, but there is nothing in that part of this act that does it. Senator La Fotztetrse. Mr. Benton says there are three courts that have held that there is. The CHarrmMANn. I don’t care how many courts have held it. Senator La FottetTte. You are like the attorney that was talking to the fellow that was in jail. ; The CHarrMan. No; I am not. The Supreme Court will never hold it. Senator LA FoLtette. We will know better about that when they decide some of these cases. 120 MODIFICATION OF TRANSPORTATION ACT, 1920. The CuHarrmMan. As I remarked the other day, I do not view that part of section 15 (a) as of any future value at all; none whatever. And I am not saying that because it may have been misconceived and misinterpreted, that I will be disposed to modify it. I do not; say that. But I do say that the court which decides that 15 (a), or that paragraph of 15 (a), changes or modifies or enlarges the jurisdiction of the Federal commission with respect to State rates, has made a mistake. Mr. Benton. Mr. Chairman, if I may say, I do fot want to overstate the effect of these opinions. I had’ planned that as soon as I could get to it I would put the opinions in. There are three decisions of Federal courts, which, in sustatn- ing these orders that have been made fixing interstate rates, have discussed 15 (a) as justifying the commission in exercising the power they claim. The CuHarrman. I will wait until those decisions go in. Senator Pomerrene. I want to make this observation, and if I am wrong about it I would like to be set right about it. Judging from what you have said and from what Judge Hale has said, it seems to me that in view of the financial condition of the railroads during the last year or two, and the effect of the Interstate Commerce Commission to increase rates for the purpose of increas- ing revenues, that the condition about which you complain under the old com- merce act, as construed by the United States Supreme Court, could just as well have happened as it does under the transportation act. Mr. Starter. Well, we do not believe that the carriers would have been as successful in the United States district court in securing this injunction if it had not been for the transportation act. Senator Pomerene. It did not happen until the transportation act was passed. Mr. Stater, The court pointed to the transportation act and said that under: this act the carriers are now national highways, and with that we end. The CHarrMan. That is your generalization? Mr. Stater. Now, just as a final plea for Illinois. You understand the situ- ation we are in. We are down here before you because we know that we can get relief here. The CHarrmMan. You want the injunction dissolved? Mr. Stater. That is what we want, and we can not get it dissolved any way except by having the transportation act amended, or unless the United States Supreme Court reverses the United States district court. But we can get it here, and we can get it promptly. Senator PoMERENE. I am very much interested in knowing whether that in- terlocutory order was made final. Mr. Starter. I will wire you that information. Senator PoMERENE. And whether your attorneys there are of the opinion that you could go before the court and ask a modification of that order. I am perfectly clear in my own mind that you can, unless some final order has been made. I have no doubt about it. Mr. Suater. I am leaving here, Senator, at 1.22, and I will wire that in- formation to you from Chicago to-morrow morning. I will be very glad, indeed,. to give you that information. I can only say that the people of Illinois are looking to the relief that we know we can get here in Congress, and we are doubtful that we can get it at the other place. We know that we can get it from you promptly. We do not know whether we will ever get it through any other channel. Now, we are, just here asking you to help us. : Senator PoMERENE. When you went before the Infersiate Commerce Com- mission, asking them to modify the local State rates—you did that, did you’ not? Mr. States. In the coal case; yes. Senator PornpExTER. They said, as I gnderstood you, that they had no juris- diction? Mr. Siater. Yes, sir. Senator PornpEexTer. Did you then call their attention to the fact that they themselves had assumed jurisdiction? Mr. Sater. Not in that case. Senator Poinpextrr. And that they had made an order that the rates fixed by them should not be changed until their further order? Mr. Starter. Not in that case, I did not. I did in the grain case. I did not appear in the coal case. Senator PoINDEXTER. I wanted to know if that question had been directly pre- sented to them, and how they would extricate themselves, MODIFICATION OF TRANSPORTATION ACT, 1920. 121 Mr. BENTON. Mr. Chairman, it seems the most astonishing situation. There is some explanation for it, and had I had an opportunity to complete the opening statement I would have shown the theory upon which the Interstate Commerce Commission freezes the rates by an order in one case and refuses to change them upen an application in another. I will gladly state it whenever an oppor- tunity can be reached. It is not so silly as it would seem at first glance. It is a condition which arises out of construing the act as they have. Mr. Starter. I want to thank you gentlemen for your kind attention this morn- ing. We are in a serious situation in Illinois, and we are asking for help. Senator La Fottetre. Mr. Slater, you are the official rate expert of the com- mission? Mr. Suater. Yes, sir. Senator La FottetrTe. May I inquire whether you are an attorney? Mr. Stater. No, sir. I have done everything except take the bar examination. No; I am not an attorney. I have been with the [linois commission since 1914. I have been in this business for 22 years. The CHAIRMAN. We are very much obliged to you for the light you have shed on this subject. Senator La Fotrerre. You understand my inquiry was not to raise any ques- tion as to your fitness and qualification to appear and represent the commission. Mr, SLATER. I understand. The CHArrMAN. Who is the next commissioner? Mr. BEeNTon. Mr. Webster is not-here. Whether there is any other commis- sioner who wanted to make a statement at this time I do not know. If there is not, in order that I may supply the information which I think Senator Poindexter would be interested in receiving, I would like to take that matter up. The CuHarrmMan. Mr. Benton wants to introduce at this time an explanation on the apparent position of the commission that it ean fix a State rate, but then can not unfix it. STATEMENT OF MR. JOHN E. BENTON—Resumed. Mr. Benton. You will remember, Mr. Chairman, that these proceedings in which these intrastate orders have been named, have been under section 13, paragraph (4) of the amended interstate commerce act; which provides that “Whenever * * * the commission * * * finds that any * * * rate”—I am not reading the entire paragraph, but trying to get the essential words—“ causes any undue or unreasonable advantage, preference, or preju- dice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, unreason- able or unjust discrimination against interstate or foreign commerce, which is hereby forbidden and @eclared to be unlawful, it shall prescribe the rate, fare or charge, or the maximum or minimum, or maximum and minimum there- after to be charged, and the classification, regulation, or practice thereafter to be observed in such manner as, in its judgment, will remove such advantage, preference, prejudice, or discrimination. Such rates, fares, charges, classifi- cations, regulations, and practices shall be observed while in effect by the carriers parties to such proceeding affected thereby.” It is in that language that the Interstate Commerce Commission claims to find an addition to their preexisting authority and full power to order into effect intrastate rates. As the preceding witness pointed out, the rates which they prescribe under this section are to continue in force as long as the order does. The commission has the right under another section of the act which I called your attention to yesterday to make the order for a specified length of time, or until a further order of the commission. They have chosen to make all of these intrastate rate orders until further order of the commission. So that the effect is to absolutely destroy—assuming the validity of the Interstate Commerce Commission’s order—the rate-making’ power of the State so far as those rates are concerned. Now, while they have thereby claimed the power to put those rates into effect, they claim it on the ground that they are discriminatory. They do not claim to review them, as Judge Jackson said this morning, upon the ground of their reasonableness. They do not claim to change an intrastate rate on the ground that it is discriminatory as compared with some other intrastate rate; that it is too high or that it is too low. The only ground that they claim power to proscribe it on is that it is discriminatory against interstate commerce. 12 MODIFICATION OF TRANSPORTATION ACT, 1920. Now, Judge Jackson pointed out that when they are making the order they apply to the word “ discrimination ” not only the meaning which was recognized by the United States Supreme Court in the Shreveport case but a brand new meaning, which is that it does not supply so much of the revenue of the inter- state carrier as the Interstate Commerce Commission thinks it ought to. Now, if they were logical, having applied that second meaning to the word “ discrimination ” in that paragraph, when a shipper came to the Interstate Commerce Commission and said, “ By reason of the increase you put on my rate is now too high, and you should reduce it,” they would say, ‘We did make that order upon the ground that this rate was discriminatory in this peculiar sense, that it did not yield revenue enough. We will review it, and if we find that in fact without the full increase which we put on it is yelding its fair share of the revenues of the carriers we will reduce it.” But they have taken the illogical position that when State shipper comes to them and presents a State rate, not upon the ground that some interstate rate is on a different basis than that, but simply on the ground that it is too high, made too high by their order, they have no jurisdiction over it. In other words, when a shipper comes in and complains that his rate is too high they say, “‘ The Inter- state Commerce Commission has no jurisdiction over the reasonableness of a rate.’ When a State shipper comes and complains that some other State rate is discriminatory as compared with his, they say ‘“ Under section 18, paragraph (4) our jurisdiction over this discrimination is confined to dscriminations be- tween State and interstate rates.” Senator PoInDExTER. They so construe it then as to practically nullify the provision of the interstate commerce act that when they fix a rate that rate must be a reasonable rate. That they fix the rate, and they ignore the requirement that it shall be a reasonable rate. Mr. Benton. The situation has worked out in the way that I have suggested. I think the incongruous character of it can not but have impressed the members of the Interstate Commerce Commission. They have seen what an almost im- possible, what a wholly impossible, situation they have produced by their orders, and they have tried to remedy it in this peculiar way. A case came up from Nebraska which I think brought about the attempt of which I am going to speak. In Nebraska all of the interstate and State rates, both passenger and freight, in one single order were advanced, and the car- riers were commanded to keep in force the advanced rates until the further order of the Interstate Commerce Commission. Thereby, assuming that order to be valid, the State of Nebraska lost absolutely any legisaltive power in regard to any of its rates. Of course, there are constantly arising many situa- tions where adjustments ought to be made and were made by the State com- missions. All such adjustments necessarily ceased when ‘the Federal order took effect. But there came up one situation relating, I think, to a shipment of brick. I may be in error about the commodity. It was necessary to make a change in the rate which the Interstate Commerce Commission had prescribed, if there was going to be a movement. There were shippers who wanted to make the movement. The carriers recognized that the change ought to be made, and both of them applied to the Nebraska commission. The Nebraska commission pointed to the fact that the carriers had procured an injunction against them which prevented them from doing anything with relation to any rate in Nebraska, but told them that they would indicate to the Interstate Commerce Commission their approval of the suggestion which the carriers and the shippers wanted to make. A correspondence was had between Ne- braska and Washington, and it extended for a considerable time—how long I don't know. I had nothing to do with it. My first knowledge of the situation arose from the appearance here in Wash- ington of the chairman of the Nebraska commission, who made a journey from Lincoln to Washington to see if he could help the situation, and he told me that he went before the chairman of the Interstate Commerce Commission and said to him: “Mr. Chairman, we think that our order was right, and that the Interstate Commerce Commission ought not to make the Nebraska rates, but that question is going to be settled judicially. We are not trouble makers. We are down here to help straighten out this situation and see if we can not get a rate into effect in Nebraska which will allow this movement to take place.” And the chairman of the Interstate Commerce Commission expressed appreciation of his attitude and a recognition of the anomalous condition which existed, and he said, “ We are going to attempt to work out MODIFICATION OF TRANSPORTATION ACT, 1920. 123 a way to meet that. It must be done. There must be some way to get changes in these rates.” Chairman Taylor, of the Nebraska commission, was here two or three days, and he went home thinking that he had accomplished something and that the rate would be put into effect. He was told that the commission had devised an amendment which would be made to the Nebraska order—I don’t know but it had already then been made; it was made at just about that time— under which it was believed that they could permit changes of that character which it was desired to make. And this is the amendment. It was put into the Nebraska order. It was put by amendment into every preceding order which the Interstate Commerce Commission had made fixing State cases, and has been included in every order since. I find this in the North Dakota order. It has been, as I indicated, included, I think, in every order made by the commission, : Having ordered the advance, the straight percentage advance on interstate rates corresponding to the percentage which was ordered as to interstate rates in Ex parte 74, the commission then goes on to say: “Tt is further ordered that nothing in this order shall be construed as requir- ing the respondent ”"—that is, the railroads—“ or dny of them, to establish, to enforce or maintain any rate, fare, or charge for the transportation of passen- gers or property in intrastate commerce which is greater than its correspond- ing rate, fare, or charge applicable to the transportation of passengers or prop- erty in interstate commerce, from, to, or at the same points in effect on the date hereof, or greater than its corresponding rate, fare, or charge contempo- raneously in effect and applicable to the transportation of passengers or prop- erty in interstate commerce.” I never could understand that paragraph, but my understanding of the way it has been applied by carriers is this: That if there is between two points within a State a rate which is higher than the proportional rate between those two points on an interstate movement they may reduce to the level of the proportional rate. Now, then, if the result of the order of the Interstate Commerce Commission has been to put into effect intrastate a rate which the carriers want to bring down, they can measure it by the part of an interstate rate between those two points, if there happens to be one. If there does not happen to be one and they want to reduce the rate they can come to Washington and file an inter- state rate between a point outside the State and one of those points passing through the other, and they can indicate the proportional part of the whole interstate rate which applies between these two intrastate points. Having done that, they have created an interstate rate between those points which may be used as a measure for the intrastate rate, and then make the reduction which they wanted to. 3 There is, as I understand it, another way also of construing the paragraph, which is that if there is from one of these intrastate points to some other point outside the state a rate which the carrier sees fit to consider as “ corresponding ” to the intrastate rate that it wants to bring down, which is on a basis lower than the interstate rate, it may take the paragraph as authority to bring it down. So that by going through that process it was suggested that necessary adjust- ments might be made in intrastate rates without regard to the fact that the Interstate Commerce Commission had no direct jurisdiction over it. And Mr. Taylor went back to Nebraska somewhat amazed at the complexity and the ingenuity of the device which had been invented to-allow the shippers and carriers in Nebraska to escape from the effects of the interstate order, but expecting that the rates would be put into effect, and it was weeks afterwards— permit me to add this, that I saw h’m and he told me that they were still strug- gling, trying to get those rates into effect which everybody wanted to put into effect and nobody objected to. Senator PornvexTer. Almost as hard to do as to find out how much taxes a man owes under the law. The CHarman. I do not begin to understand that kind of reasoning. I think your explanation makes it worse than it was before. Now, here is the situat on: We have no power over intrastate commerce. The Supreme Court has said that under certain circumstances rates within a State may be so connected with and so affect interstate commerce that they really become inter- state commerce rates. Now, that is the only theory on which they ought to 124 MODIFICATION OF TRANSPORTATION ACT, 1920. construe this bill. And when they make those rates they are just as oper to attack as though they had been upon commodities moving from one State to another. : Mr. Benton. Let me suggest, too, that the device would seem to offer a pos- sible way of escape when everybody was willing, but when the carriers are not willing to make the change the device does not apply very well. The CHAIRMAN. But, no; the law can only be enforced through the will of both sides affected by it. Senator La Fotitetre. Mr. Chairman, I understand that the other gentlemen who expect to be here are remaining over until another day and are not press- ing to be heard to-day. The CHAIRMAN. In that case we will now take a recess until half past 9, to- morrow morning. (Whereupon, at 1 o’clock p m., a recess was taken until 9.380 o’cleck a. m., Friday, October 28, 1921.) MODIFICATION OF TRANSPORTATION ACT, 1920. FRIDAY, OCTOBER 28, 1921. Unitep STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D.C. The committee met, pursuant to adjournment, at 9.30 o’clock a. m., in room -410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The CHAIRMAN. Mr. Benton, will you proceed, or have you some other wit- “ness? Mr. Benton. Mr, Chairman, Judge R. Hudson Burr, chairman of the Florida commission, is prepared to make a statement this morning. STATEMENT OF HON. R. HUDSON BURR, CHAIRMAN OF THE FLOR- IDA, RAILROAD COMMISSION, TALLAHASSEE, FLA. The CHAIRMAN, Will you kindly state your name and your residence and Your official relation to this subject. Mr. Burr. R. Hudson Burr, chairman of the Florida Railroad Commission, office at Tallahassee, Fla. I have been a member of that commission about 19 years; was a member when the carriers asked for the rate increase after hav- ing been granted the increase Ex parte 74 by the Interstate Commerce Com- ‘m‘ssion. I think, Mr. Chairman, that I would probably make it clearer if I would read the order that the Florida Railroad Commission made on the application -of the carriers to increase rates last year. It is short and it is in two sections, and I will have to explain the two sections to some extent, and therefore I had ‘better read them. I will omit reading some of the formal part of it. Skipping the opening paragraph of it, which states the case, I read: “The application in the main asks for 25 per cent increase in freight rates aud in rates for switching and special services, and a 20 per cent increase in passenger fares, excess-baggage charges, and milk and cream rates, and for a ‘surcharge upon passengers in sleeping and parlor Cars. “Pursuant to notice No. 242, dated the 30th day of July, A. D. 1920, the said matter came on for hearing before the railroad commissioners of the State of Florida in their office in Tallahassee, Fla., on August 19, A. D. 1920, at 10 -o’clock in the morning, and the commissioners having heard all interested par- ties appearing and who desired to be heard, took the said matter under advise- ‘ment. “ At the hearing there was no opposition to the increases asked for by the car- riers. “And now, on this date, the said matter coming on for further consideration and the commissioners being fully advised in the premises, “Find, that in order to meet the requirements of the provisions of section 15-A of the interstate commerce act the revenues of the carriers must be in- creased, and that intrastate traffic should bear its part of such increases, and that the carriers are entitled to increase their rates, fares, and charges in the manner hereinafter designated. “ Wherefore, it is considered, ordered, and adjudged by the railroad commis- -sioners of the State of Florida: : “ Secrion 1. Effective at the same time the increases authorized by the Inter. state Commerce Commission’ in Ex parte 74, become effective, carriers by rail in the State of Florida will be permitted to increase their freight and passenger rates, fares, and charges on intrastate business within the State of Florida by ; 125 126 MODIFICATION OF TRANSPORTATION ACT, 1920. the same amounts, and in the same manner prescribed by the Interstate Com- merce Commission in Ex parte 74, as applicable to interstate traffic; such in- creases to continue in force and effect to October 1, 1920, but not thereafter. “The commissioners will not require the carriers to file any tariffs carrying such increases.” I will depart from the reading to say that there would not be time for the filing, and therefore we waived. The CHarrMan. Well, that would be October 1, 1920. That would be for a month. Mr. Burr. No; the authorization by section 1, which I have been reading, did not require the filing of tariffs because this order was issued on the 18th day of August, and the rates were to become effective on the 26th, and there could not be time for the printing and filing of all the tariffs. Senator Krtztoce. No; but what the chairman asked was if the rates were to continue in existence for a month. Mr. Burr. They were to continue in existence from the 26th day of August to the 1st day of October. The CHarirMAN, Well, that is a month and four days. Mr. Burr. Yes. Now, I will explain section 2 later. I read from section 2 of the order now. [Reading:] é ’ “Carriers by rail in the State of Florida engaged in intrastate business, shall publish and file with the commission, to become effective on October 1, 1920, tariffs covering the transportation of freight and passengers, constructed on the following basis: “To the intrastate freight rates between points in the State of Florida, as in effect June 24, 1918 ”—that was the day prior to the director general’s order No. 28—“ shall be added an increase of 25 per cent. To this result shall be added a further increase of 25 per cent, authorized by this ordér. The term ‘freight rates,’ as used in this order is understood to include all charges in connection with the handling of freight traffic that had been authorized and approved by the Railroad Commission of Florida, and in force'and effect on June 24, 1918. one These rates and charges, and all tariffs carrying same, shall be subject to Florida Classification No. 4, and amendments thereto, as in effect on June 24, 1918, and shall be further governed by the rules of this commission ap- plicable thereto, as in force and effect on June 24, 1918. “ All passenger fares may be increased 20 per cent. “Wxcess baggage rates may be increased 20 per cent, except that where stated as a per cent of, or dependent upon passenger fares, the increase in the latter will automatically affect the increase in the excess baggage charges. “Rates for milk and cream carried in passenger trairis may be increased 20: per cent. “A surcharge upon passengers in sleeping and parlor cars may be made, amounting to 50 per cent of the charge for space in such cars; such charge to: be collected in connection with the charge for space, and to accrue to the rail carriers. a Passenger rates and excess baggage rates shall be governed by the rules of this commission, regulating the handling of passengers and baggage, nae were: in force and effect on June 24, 1918. “All the forego’ng rates shall be governed by the rules of this commission with reference to the disposition of fractions that were in force and effect on June 24,1918. “Tt is impossible at th's time to adjust all of the rates on individual com- modities. It is conceded by the carriers that readjustments will be necessary. This case shall therefore remain on the docket of the commission for the purpose: of making such changes in the rates, fares, and charges as the commissioners may, from time to time, upon their own motion or upon complaint, deem neces- sary, and for such further orders as may be proper in the premises. “All matters not disposed of in this order are carried over for further consid- eration and disposition later. “Tt is further ordered that the rates, fares, and charges prescribed in section 2 of this order shall become effective on and after October 1, 1920, and the rail carriers, parties to this proceeding, are hereby required to file tariffs accordingly with the commissioners on or before said date, “Done and ordered,” and so forth. The CHAIRMAN. Let me see where we stand. You first made an order for these increases taking effect immediately and expiring on the 1st of October. MODIFICATION OF TRANSPORTATION ACT, 1920. 127 Then you made an order putting in the same increases applicable after the 1st of October. Why did you do that? Mr. Burr. Mr Chairman, the purpose of the second section was to wipe out the arbitrary advances or advances by specific amounts which had been made by the director general in his order 28, and orders which followed. The CHarrmMAN, That is on commodity rates? Mr. Burr. Yes, sir; they were mainly on heavy grade commodities, where they were advanced in cents per hundred pounds, or in cents or dollars per ton, or in dollars per carload instead of by 25 per cent. They resulted in a greater increase than the so-called 25 per cent. The CHAIRMAN. I see. : Mr. Burr. So that the second section required the carriers after October 1 or by October 1, to go back to the rate structure as it stood June 24, 1918, and then put upon that the director general’s 25 per cent, and pyramid upon that the 25 per cent carried in Ex parte 74. The arbitrary advances that I re- ferred to increased the short hauls on the heavier and cheap commodities very greatly in excess of the 25 per cent, so that the result of going back to the old rates and plus them twice was that the short-haul rates were reduced by this order that I have read, but for the longer distances they were increased, and, as a matter of fact ,are higher than some of the rates in Hx parte 74. The general result of which, we take it, would about even up the gains and the losses; the gains to the carriers would about even up the losses where the reductions took place. Senator Krtiocc. Let me ask you a question there. Has the Interstate Commerce Commission questioned the effect or legality of your order? mane Burr. Well, they have ordered the carriers to obey the rates in Ex parte ; yes, sir. Senator Ketzioce. In Florida? Mr. Burr. Yes, sir. © Senator Ketuoae. As to intrastate rates? Mr. Burr. As to intrastate rates, and the order reads that they shall ‘t remain in force until the further order of the commission.” The CuHarrMANn. The Interstate Commerce Commission had not ordered an increase in Florida rates until after your order was entered, had it? Mr. Burr. No, sir; not until it was entered and disobeyed. That is, complied with by certain carriers, which I will go into later, and disobeyed by others, _ and after these carriers did not ohey the order of October 1, shortly thereafter our commission brought a mandamus proceeding in our supreme court to com- pel obedience to the order, and immediately the Florida carriers filed a peti- tion with the Interstate Commerce Commission complaining against this order ; that it differed from the rates in Ex parte 74, and had become a burden upon interstate commerce, etec—the usual style of petition that they followed in these cases. The Interstate Commerce Commission finally set it down for hearing; did hear it. The CHainMan. Well, was that case ever tried? Mr. Burr. No, sir. I am going to explain something about that in a minute. Senator Kriioce. Did the commission make an order on that? Mr. Burr. An order on our order? Senator Ketioce. No; on the petition of the carriers? Did the Interstate Commerce Commission make an order on the petition of the carriers? : Mr. Burr. They did; yes, sir; and it is in No. 11861, “ Florida rates, fares, and charges,” submitted February 5, 1921, and decided March 8, 1921, Senator Kerroec. Will you put that order in? Mr, Burr. Yes, sir; I am going to put them in. I will file this order that I have just read, if you desire it. The CHamMAN. That may be made a part of the record. (The order of the Florida Railroad Commission, No. 698, dated Aug. 18, 1920, is as follows:) Order No. 698. File No. 4127. BEFORE THE RAILROAD COMMISSIONERS OF THE STATE OF FLORIDA. In the matter of a general increase in freight and passenger rates. In this proceeding the carriers by railroad, subject to the jurisdiction of the railroad commissioners of the State of Florida seek authority to increase their freight and passenger rates and other charges to the extent of the increases 128 MODIFICATION. OF TRANSPORTATION ACT, 1920. recently granted the carriers by railroad by the Interstate Commerce Com- mission, in Ex parte No. 74, pursuant to the provisions of section 15-A of the interstate commerce act. The application in the main asks for 25 per cent. increase in freight rates and in rates for switching and special services; and a 20 per cent increase in passenger fares, excess baggage charges and milk and cream rates, and for a surcharge upon passengers in sleeping and parlor cars. Pursuant to notice No. 242, dated the 30th day of July, A. D. 1920, the said matter came on for hearing before the railroad commissioners of the State of Florida in their office in Tallahassee, Fla., on August 18, A. D. 1920, at 10 o’clock in the morning, and the commissioners having heard all interested par- ties appearing, and who desired to be heard, took the said matter under ad- visement. At the hearing there was no opposition to the increases asked by the car- riers. And now on this date, the said matter coming on for further consideration, and the commissioners being fully advised in the premises, Find, that in order to meet the requirements of the provisions of section 15-A of the interstate commerce act, the revenues of the carriers must be in- creased, and that intrastate traffic should bear its part of such increases, and that the carriers are entitled to increase their rates, fares, and charges in the manner hereinafter designated. Wherefore, it is considered, ordered, and adjudged by the railroad commis- sioners of the State of Florida: Section 1. Effective at the same time the increases authorized by the Inter- state Commerce Commission in Ex parte 74 become effective, carriers by rail in the State of Florida will be permitted to increase their freight and passenger rates, fares, and charges on intrastate business within the State of Florida by the same amounts, and in the same manner, prescribed by the Interstate Com- merce Commission in Ex parte 74, as applicable to interstate traffic; such in- creases to continue in force and effect to October 1, 1920, but not thereafter. The commissioners will not require the carriers to file any tariffs carrying such increases. Sec. 2. Carriers by rail in the State of Florida, engaged in intrastate busi- ness, shall publish and file with the commission, to become effective on October 1, 1920, tariffs covering the transportation of freight and passengers, constructed on the following basis: To the intrastate freight rates between points in the State of Florida, as in effect June 24, 1918, shall be added an increase of 25 per cent. To this result shall be added a further increase of 25 per cent, authorized by this order. The term “ freight rates,” as used in this order is understood to include all charges in connection with the handling of freight traffic that had been authorized and approved by the Railroad Commission of Florida, and in force and effect on June 24, 1918. These rates and charges, and all tariffs carrying same, shall be subject to Florida classification No. 4, and amendments thereto, as in effect on June 24, 1918, and shall be further governed by the rules of this commission applicable thereto, as in force and effect on June 24, 1918. All passenger fares may be increased 20 per cent. Excess-baggage rates may be increased 20 per cent, except that where stated as a per cent of, or dependent upon passenger fares, the increase in the latter will automatically affect the increase in the excess-baggage charges. Rates for milk and cream carried in passenger trains may be increased 20 per cent. A surcharge upon passengers in sleeping and parlor cars may be made, amounting to 50 per cent of the charge for space in such cars; such charge to be collected in connection with the charge for space, and to accrue to the rail carriers. Passenger rates and excess baggage rates shall be governed by the rules of this commission, regulating the handling of passengers and baggage, that were in force and effect on June 24, 1918. : All the foregoing rates shall be governed by the rules of this commission with reference to the disposition of fractions that were in force and effect on June 24, 1918. It is impossible at this time to adjust all of the rates on individual com- modities. It is conceded by the carriers that readjustments will be necessary. This case shall therefore remain on the docket of the commission for the ‘ MODIFICATION OF TRANSPORTATION ACT, 1920. 129 purpose of making such changes in the rates, fares, and charges as the com- missioners may, from time to time, upon their own motion, or upon complaint, deem necessary, and for such further orders as may be proper in the premises. All matters not disposed of in this order are carried over for further consid- eration and disposition alter. It is further ordered that the rates, fares, and charges prescribed in section 2 of this order shall become effective on and after October 1, 1920, and the rail carriers, parties to this pr oceeding, are hereby required to file their tariffs accordingly with the commissioners on or before said date. Done and ordered by the railroad commissioners of the State of Florida in session at their office in the city of Tallahassee, the capital, this 18th day of August, A. D. 1920. R. Hupson Burr, Chairman. Mr. Burr. And I will also file a supplemental order, No. 701, which was issued on the 28th of August, 1920,‘to clarify what appeared to us might result in a mistake in that first order, upon switching charges, etc., in ter- minals where they were not increased 25 per cent by order No. 28 of the director general, but the provision in that order that I have just read from, and which I have just put in the record, we thought, after considering it, might be subject to the interpretation of putting two 25 per cent increases on. Therefore this order No. 701 was simply issued to clarify that, to show that there would be one 25 per cent increase, the 25 per cent increase put on by the Interstate Commerce Commission. The CHARMAN. On terminal charges? Mr. Burr. Yes, sir; on certain ones. Naming the ones that the Interstate Commerce Commission laid it on. I will file this order No. 701 in the record. The CHainman. It may go in. 1 (Order No. 701 of the Florida Railroad Commission, dated Aug. 28, 1920, ‘is as follows:) Order No. 701, File No. 4127, BEFORE THE RAILROAD COMMISSIONERS OF THE STATE OF FLORIDA. In the matter of a general increase in freight and passenger rates. In the matter of order No. 698, dated the 18th day of August, 1920, granting increased freight and passenger rates to carriers by railroad, in pursuance of hearing held under notice No. 242, and in further consideration of the said matter, the commissioners fear. that there will be misunderstanding of the language contained in paragraph 2 of section 2 of said order, reading as follows: “The term ‘freight rates’ as used in this order is understood to include al charges in connection with the handling of freight traffic. that had been authorized and approved by the railroad commissioners of Florida and in force and effect on June 24, 1918.” When this language is read in connection with the language of section 2 of the order it may bear the construction that carriers are authorized to lay a. double increase upon switching, demurrage, storage, and other special charges as in effect on June 24, 1918, which was not the purpose of the order. Wherefore it is considered, ordered, and adjudged ‘by the railroad commis- sioners of the State of Florida: That the second paragraph of section 2 of order No. 698 is hereby amended to read as follows: “To the intrastate freight rates between points in the State of Florida, as in effect June 24, 1918, shall be added an increase of 25 per cent. To this result shall be added a ‘further’ increase of 25 per cent. To charges for switch- ing, transit, weighing, diversion, reconsignment, lighterage, storage (not in- cluding track storage), and transfer as in effect by the rules of this commission on June 24, 1918, shall be added a single increase of 25 per cent. To Intra- plant, intraterminal, and interterminal switching rates as in effect on June 24, 1918, shall be added an increase of 25 per cent. To this result shall be added a further increase of 25 per cent.” It is further ordered that the said order No. 698 is amended only in the particulars set forth above, effective October 1, 1920. 73337—21—pt 1——_9 130 MODIFICATION OF TRANSPORTATION ACT,’ 1920. . Done and ordered by the railroad commissioners of the State of Florida im session at their office in the city of Tallahassee, the capital, this 28th day of August, A. D. 1920. ' R. Hupson Burr, Choirman. The Cuarrman. Could you tell me at this point what ‘the revenue is for the movernent of State traffic in Florida as compared with interstate. traffic? Mr. Burr. I can not give you those figures with any degree of accuracy now, Senator. It has been mighty hard ever since the beginning of Government cdp- trol to really find out what your State revenues are. We have been trying for years to have an intelligent separation or segregation of the revenues by State lines in order that we would know more accurately what these ‘figures are, and it has grown worse instead of better from the beginning of Government control, and it has not improved so far in the last report received from the carriers. But I should: say in per cent that the interstate traffic: in Florida is somewhere around 80 to 85 per cent of the whole. The CHAIRMAN. It does not differ very much from that in other States? Mr. Burr. No, sir. Senator Fernaxp. There is no strong demand, in your judgement, in your State for Government control of railroads any further, is there? Mr. Burr. I do not believe that out of a million people you could stir up 5 per cent of the people who would be in favor of it. Senator Krtioce. What do, you mean by Government control—Government ownership? Senator FernaLp, No; J mean Government control. Mr. Burr. The fact of the matter is I do not believe there was a very over- whelming sentiment there in the beginning. Senator KetLtocc Well, do you mean by that that they are in favor of the abolition of all Federal Government control over rates? Mr. Burr. Oh, no. I understood the question to mean Government contro! such as we had during the Railroad Administration when I answered the question. Senator FeRNALD. That is it exactly. Senator Ketroce. Well, that is Government ownership. Mr. Burr. No; as far as that is concerned, Senator Kellogg, I think the people of my State are heartily in favor of the Interstate Commerce Commis- sion being clothed with every legitimate power that they ought to have over interstate commerce, but they, are equally interested in being able to control their local commerce. Senator Kretioce. Yes. Well, that is what I thought you meant. The CuarrmMan, Do you mean to treat as interstate commerce the freight traffic that would come within the Shreyeport. case? Mr. Burr. We recognize, Senator, the justice of the Supreme Court’s deci- sion in the Shreveport matter thoroughly, and my commission never has and would not knowingly undertake to create a Shreveport case. The CHatrmMan. You have no objection. to the Federal commission dealing with that traffic which would fall within the principle of the Shreveport case? Mr. Burr. No, sir; none at all, But on that point, Mr. Chairman, we do believe that, as has been stated here by other witnesses, there is an apparent misunderstanding | of the whole situation, and that the Congress, ought to make absolutely clear by a clear definition what is meant by the burdens that are placed by State authority on interstate commerce that would create so-called Shreveport eases. Having heard what you said about it, I think it is perfectly clear in your mind, and may be elear in some of our minds; ‘but still, we are like the fellow in jail, you know—we are there and we can not get out. The CHamman. You pay me too high a compliment. I am not sure that I could define it. Mr. Burr..At the time the carriers asked the commission for the increases carried in Ex Parte 74, of course the time was very short, and we had to act quickly. We, considered at that time that an emergency existed, ‘and that we should make increases, and make them simultaneous with the ‘effective date carried in, the Interstate Commerce Commission’s order, and that was our pur- pose. We heard the application of the carriers on the 18th of August. It did not take much time. We were through by noon, and immediately went to work and issued our order. We stayed there, and notified the carriers’ representatives that if they desired to remain that. it. was our purpose to get this order out before we left our office that day, and we did. And we realized that we could MODIFICATION OF TRANSPORTATION ACT, 1920. 131 not make the changes between the 18th and the 26th of the month which are carried in that order effective August the 1st, because it would be an impossi- bility for the carriers to get out tariffs and put them in effect, and we wanted to give them a reasonable time to file those tariffs. As to passenger rates, you will observe that the order carried every -pas- senger rate that the Interstate Commerce Commission carried. It carried the baggage rates and it carried the milk rates. All those were the same as Ex Parte 74. The principal changes, as I stated, were in these arbitraries made by the director general. We asked the carriers if they would not undertake to justify the rates that they asked for. They said they could not do that and it was not their purpose to do it; that they were not prepared to do it, and simply offered as to why we should grant these rates the testimony taken in Ex Parte 74 before the Inter- state Commerce Commission. The Cuarrman. That is, the carriers took the position that the changes in.the State rates should in every case be exactly like the changes that have been made in the interstate rates? Mr. Burr. Absolutely. The CuarrMaNn. Without any showing at all about the situation in Florida? Mr. Burr. Without any showing at all, Mr. Charles R, Capps, vice president of the Seaboard Air Line, was the spokesman for those roads appearing before the commission, and he absolutely had no figures to show what was needed in the State of Florida or what the effect on the traffic in the State of Florida would be by the advances made by the Inter: state Commerce Conmnission.’ ~ Senator Fernayp. I judge no attention was paid to any evidence that you may have brought before the Interstate Commerce Commission as State com- missioners. No regard was paid to that, was it, in any case or from any State? Any suggestions that you as a commission may have nade to the Inter- state Commerce Commission were disregarded? Mr. Burr. Do you mean after our order was issued ? Senator FERNALD. Yes. bd Axkte 5 Mr. Burr. Well, we went pretty’ fully into it; I think. Some three or four days of testimony was taken in Florida before Judge Woolley, who was then a member of the Interstate Commerce Commission, and some examiner who sat with him, and it appears to us, in view of the order that was issued by the commission, that there was not much attention paid to what was put in, because the case was built by the carriers upon imagination pure and simple. The rate comparisons were built upon what we know as paper rates upon cominodities that do not move, and all that sort of business. And, of course, they made a showing in exhibits built upon that basis, and the Interstate Com- merce Commission’s attention was called to it, but, apparently, ‘they, did not give any credit to it. The CHairman. If I gather it, there would not have been any substantial difference in the revenue derived by the companies on the State rates which you put in and the revenue derived on the rates which the Interstate Com- merce Commission put in? |. Mr. Burr. Senator, I do not. believe there would have been a difference on all the traffic of all the roads in the State of Florida of $100,000. I think it would have been under it. Our purpose was to iron out what looked to us Tike inequalities. It disturbed what we thought was a proper alignment of the rates. Now, I want to say at this point that the Florida Hast Coast Railroad, which is the third biggest road we have in the State in point of mileage, was absolutely satisfied with the order of my commission. Mr. Kirtland, who is in charge of all the traffic of that road, told me that his road was perfectly satisfied with the order and would publish and file the rates as required by the order, and they did. He said further that he was in accord with the cutting out of the specific advances and applying a percentage increase; that he thought them wrovg when the director general made them. Senator TownsENp. When what? Mr. Bugr, When the director general made these specific advances. He said also that his company was invited by the Atlantic Coast Line, the Sea- board Air Line, and others that were preparing to petition the Interstate Commerce Commission to attend a conference to attack the order of the State commission and join them in the petition, but that their company declined to attend or to take any part in making the complaint whatever. And at the hearing upon the petition of the carriers to set aside our order the Florida i 132 MODIFICATION OF TRANSPORTATION ACT, 1920. East Coast Railroad did not appear, either by a traffic official or by an attorney, and in the meantime operated under these rates. ‘There were some other smaller lines, quite a number of smaller Ines, that did not complain of our order, and published them, and they were in effect. But. they were all made by the Interstate Commerce Commission parties in the proceeding upon which Commissioner Woolley took the testimony. Senator Fernatp. And your order, the order of the State commission, was apparently entirely disregarded ? Mr. Burr. Yes, sir; it was by the carriers that prepared this petition. It was absolutely disregarded. And it has. been set aside by the order of the Interstate Commerce Commission made later. Senator, TownseEnp. Were there any questions involving the discriminations about which you complained? Was this particular road exempt from those, and did they apply to other roads? That is, I mean by that— Mr. Burr. Those arbitraries? ‘a Senator TowNsEND. Yes. Mr. Burr. They applied to all the roads. Senator TowNsenD. Well, did they affect this particular road less than they did. the other roads? Mr. Burr. Why, I think at least on one commod:ty, one heavy commodity that, moves in quantity on the Florida East Coast Railroad, it was affected more by our order than the other lines, and that is rock. ‘Senator Townsenp. I didn’t know but that there might be some conditions peat maintained on the Florida East Coast Railroad that were not common to he other roads, and they might therefore not be affected by your order as much:as the other roads. Mr. Burr. No, sir; there was no material difference in that except that I say ‘they have quite a heavy movement of rock, heavier than the other roads do. Rock is mined at Miami or near Miami and shipped all along that road. Now, with reference to the Florida East Coast Railroad, our commissioners flattered themselves that they had issued a mighty reasonable order, when that road comes up and says, “ We are satisfied with it. It is a reasonable order. We think it is correct.” Because we had had a number of lawsuits with that road in the past in enforcing rate orders before these emergencies came ‘on, and more so than with some of the lines that were petitioning ‘the Interstate Commerce Commission, so that, as I say, we felt very much flattered when we found that that line said the order was a reasonable one. At the hearing by the Interstate Commerce Commission in Florida held by Commissioner Woolley I called his attention to the fact that the Florida East Coast Railroad was not a petitioner to set aside this’ order, that they were satis- fied with it as a whole. He said that did not make any difference. - Senator Stantey. Is that. the road Flagler built? _ Mr. Burr. Yes; it is the Flagler system. Commissioner Woolley said ‘that made no difference; that the Interstate Commerce Commission had made them parties. I called attention to one or two other smaller lines that had not joined in this petition, and he made the same answer. And when the Inter- state Commerce Commission’s order was finally issued they required the Florida East Coast Railroad and other roads that were obeying the order of the State commission and had put the rates in to raise those rates to the level of the Interstate Commerce Commission’s order in x parte 74. ‘The CHAIRMAN. I suppose the Florida East Coast Railroad physically lies altogether within the State of Florida, as I understand it—doesn’t it? 2; Mr. Burr, Yes. "The CHamMan (continuing). Yet it does as large a proportion, practically, on interstate business as any of, the other railroads. _ Mr. Burr. .Yes, sir. . The CHAIRMAN. And it. was willing to: adopt your rates? ’ Mr’ Burr. Yes, sir; absolutely. “And this was testified to before the Inter- state Commerce Commission that that was the position of their traffic man. - Senator Stantey. For my information—I did not come in at the beginning ‘of the hearing—were you reviewing the rail rates or both rail and water rates this instance? I understand a great deal of the traffic, or the bulk of the traffic, of this Flagler system is between Florida and Cuba. I understand that a great portion of it is. _. Mr. Burr. Well, our order did not affect those rates in the slightest. They re interstate and, foreign rates, anyhow, and’ are covered by the Interstate | *Gouimeres Commission’s order. MODIFICATION, OF ,TRANSPORTATION ACT, 1920. 133 Senator Stantey. You do not have anything to do with that? Mr. Burr. No. Now, as to water rates and boat rates in Florida, ou com: mission has increased the water carriers from time to time as these increases have been made over the country. Senator Stantey. You mean you made the water carriers raise their rates? Mr. Bure. The carriers under our jurisdiction on inland waterways’ in the State of Florida. Now, those matters do not come before the Interstate Com- merce Commission at all. At the hearing conducted by Commissioner Woolley we again insisted: that the investigation go into the justness and reasonableness of the rates that were attacked, and we failed absolutely in setting the commission to go into ‘that phase of it. The carriers went on and put in voluminous exhibits, as I said a while ago, built. upon imagination, but it would take time to analyze and properly criticize and show to the commission just the faults in those exhibits. So that at the end of the carriers’ testimony we asked the commission to recess for ten days or two weeks—some reasonable time—that our men could examine these exhibits in order to be better prepared to criticize them or to cross- ques, tion their witnesses. We were not permitted any time, but. were compelled to go on immediately. So that there was no entering into the determination of whether those rates were just and reasonable rates or not. They seem to have proceeded wholly. upon the theory that if there was a difference in the rates, intrastate with interstate. that a burden on interstate commerce existed. I suppose that is what they concluded. Now, for instance, to give you an idea of some of the comparisons that the exhibits made. In their exhibit numbered 8 it is shown that order 698—that' is, a State order—makes radical reductions in the rates on cotton, cotton linters or re-gins, and the figures taken by themselves look formidable. Evidence in the case showed that so little cotton linters or re-gins moved intrastate in Florida that the figures merely constituted paper comparisons. ; I will give you some cotton figures a little later on. . The CHarman. That is the cotton rate; so far as Florida is concerned, it is rather immaterial, isn’t it? Mr. Burr. Absolutely. They made up another exhibit and put in a whole lot of testimony making comparisons in Florida with rates in other places" on dolomite. I don’t know what it is. I never have been able to find out what it is, and I have not found a single man in the carrier group, or anybody else, that knows what it is, and our attorney said that when he argued this case before the Interstate Commerce Commission he got quite a laugh over what it was. Senator TowNsEND. Well, it is not anything that they manufacture and, Pre: duce in such quantity in Florida that it moves? ‘ Mr. Burr. No. It isn’t anything that is manufactured and produced in Florida, absolutely not in the State of Florida—that is, it is not reported among ‘the commodities by the carriers in Florida. The CHairMAN. We will have to go to a tariff man to find out. what dolo- mite is: Mr. Burr. Well, we couldn’t find out in a dictionary that we had around, iin our office what it.is. Do you know what it is? The CHairman. Yes; I know in a general way what it is. I would not’ be able to. identify it if I should see it. Mr. Burr. This same exhibit went on to show, for the information, of’ the Interstate Commerce Commission that. the enforcement of our order would result in reductions of the rate on lime for the 10-mile haul, but failed to show that it made increases when. they got above 30 miles. So. that was the way these exhibits were made up, and the Interstate Commerce Commission’s atten- tion was fully called to that matter when the case was argued and briefed. Senator Townsenp: Well, is it a fact that you haul much lime down there by train for 10 miles?. Mr. Bure. Not a great deal for 10 miles; no, sir. It would be a mighty ae movement for 10 miles. It. would avehage 100 miles and over, the bulk of it. Senator TowNsENp. And your rates increase then over. 10 miles? Mr. Burr. Yes, sir; they increase when they get above 31 miles. i Senator KELLoGe. Let me ask you right there: Were your. sae built on a mileage basis? . Mr. Burr. Yes, sir; they tive been built on . mileage basis ait the while, ex- cept commodity rates, which have been voluntarily made by the carriers, and 134 MODIFICATION OF TRANSPORTATION ACT, 1920. filed with the commission, which became lawful rates and could not thereafter be changed without application and.showing to the commission. Then they fixed up an exhibit on sand. Well, now, some of you gentlemen have. been in Florida. You can get sand most anywhere in Florida, you know, and the comparisons made on sand are ridiculous. And the only place where they complained there was on the short hauls again. Well, sand can be gotten locally. There is going to be very little long-haul sand. There is one point in Florida which has some long-haul sand, and that is Lake Weir, because there is a sand dredged from the bottom of that lake that is very fine for certain Purposes, but it is expensive to ship it for’ great distances, and it is only shipped for purposes that it is absolutely necessary to use it for. Now, they made up a great exhibit on gravel. There is only one little bit of a spot about 100 acres in the State of Florida that there is any gravel on, and the cost to ship. it any distance would be prohibitive. It is not a grade of gravel that would be desirable to ship any great distance. If the parties wanted gravel, they would probably go to Alabama or Tennessee and get it because of the superiority of the grav el. The CHAIRM an. Well, your point is that the rate on grav eI could not discrimi- nate against interstate commerce at, all? -Mr. Burr. No, sir. Now then another one of their exhibits draws a compari- son of rates on cotton to Jacksonville, Fla.. under our order as against the present rate from'the same points to Savannah, Ga., on the basis of Ex parte 74. This exhibit was purely academic. The reason is that it appears from the evidence in. the record in this case that aproximately 98 per cent of the cotton raised in Florida moves interstate. It moves out of the State. From the reports of the carriers to the commission it appears that the intrastate move- ment of cotton is'so small that the revenues of carriers would not be seriously affected had our order made reductions amounting to 50 per cent or greater in the rates. _ To compare rates .on’ cotton in Georgia—they made comparisons with the Georgia rates—with rates on cotton in Florida is ‘about on a parity with com- paring the phosphate rates in Florida with phosphate rates in Georgia, which they did. Florida mines over 50 per ‘eent of the phosphate used in the world, as TI ‘understand it. ; _ Senator STANLEY. Not in the world? "Mr. Burr. We produce nearly all of the hits — phosphate that is pro- duced in this country. There is some, low-grade rock that used to be shipnet out. of Tentiessee. .Senator Stanitry, Do you mean to say that the phosphates mined in Florida are a considerable | part of the phosphates of the world?’ Mr. Burr. That is, when there is a normal movement, and before the war Florida supplied something over 50 per cent of the world’s needs in phosphate rock. Senator Stantey. I was under the impression that the German production of phosphate was high. . My. Burr, They do. not produce any, sir. We sell. it to Germany. Germany ‘was the biggest buyer of Florida phosphate rock in the world before the war. Senator Krritocce. Germany, Franee, Spain, and all these countries? Mr. Burr. It is 4 matter of common Knowledge that Florida furnishes practi- cally all the phosphate produced in this cowntry, while Georgia does not mine one pound; and yet a great big exhibit was built on a comparison of phosphate rates in Florida with phesplrate rates in the State of Georgia. The Interstate Commerce Commission’s attention was drawn to that forcefully, both by the ‘questioning ‘of the witness at the time that spoke for the carrier and iw the arguments afterwards. Why, it stands to reason, with the great volume of that business in Florida, that the rate would be: cheaper per ton per mile than it would be in the State of Georgia that does not produce a pound of it. It owght to be. The bulk, however, of this phosphate goes interstate and foreign, and ‘therefore the Florida commission’s order would not affect it. It would only be that amount of phosphate that would move to an aeid plant for acidulation and to be converted into acid phosphate. Senator KrrLoee. ‘Have you got any acid plants in FYoritdta? Mr. Burr. Yes. Senator Krrtoce. Where are they? Mr. Burr. There is one at Pensacola, one at Fort Inglis, Fla., and there are two at Jacksonville. | Senator Kettoce. Have they any acid tainty in Georgia? MODIFICATION OF TRANSPORTATION ACT, 1920. 185 Mr. Burr. Yes, sir; they. have got more acid. plants in Georgia; I Presume, than we have in Florida. Senator KeLtoce. But all the phosphate rock moves interstate? Mr. Burr. The bulk of it, as I say, moves, interstate and foreign. Senator Kettoce. But I mean.to.have it-in Georgia. Mr. Burz,. Yes, sir; it moves interstate; yes, sir. Now, on the cotton comparison I want to show how ridiculously their figures were built on that. Georgia.is the greatest cotton. State in the Union with the exception of Texas, and according to the Department of Agriculture’s report for 1917, Georgia produced 1,820,000 bales as, against a production for the same year, in accordance with the same report, in the State of Florida of 40,000 bales. In addition, Georgia has numerous cotton mills which create intrastate move- ments in Georgia, while Florida has no cotton mills, with the possible excep- tion of one small knitting mill, which necessitates the shipping of practically all cotton raised in Florida in imterstate commerce.: There is a little knitting mill at the city of Ocala, which is run by a negro, which mill makes some coarse ta socks. That is about the extent oF the..cotton-mill business in lorida. The CHAIRMAN. I suggest, Mr. Benton, that it is ‘quite apparent that so. far as Florida is concerned, at any rate, the Interstate Commerce Commission did not stop to consider any case of actual discrimination, and I would not, if I were you, extend the record very much. by giving individual. instances. Senator Kettoce. Let me ask you, Judge, a question. You recognize: the cor- rectness, as I understood you, of the Shreveport and the Illinois eases, those two cases? Mr. Burr. Yes, sir; where there is an actual existence of such a condition. But I would like to put this proviso to my answer, and that is that there. must be proof in these cases, not mere allegation of the carrier. Senator KreLLoge. Quite so. I recognize that. Now, the substance. of those decisions, and especially the Illinois case, which was.a little more specific, was that where an intrastate rate discriminated against an individual or com- munity, that the Interstate Commerce Commission had the power to declare the discrimination illegal. That is the. substance. of thase decisions, isn’t it? Mr. Burr. I think so; yes, sir. Senator KEnioge. Yes. Presumably they should base that finding.of dis- ‘erimination upon such evidence as the commission has a right to take,. but it should be based on evidence; that is your claim? Mr. Burr. Yes, sir. And let me say that the evidence ought ‘ta go. both to the reasonableness of the interstate rate, and also the State rate, because you take in the original Shreveport case, for instance, there was no determina- tion arrived at to oe out whether the Texas rate ee a just and reasonable rate or not. © Senator KELLoea. ‘Now, of course we meet in iogentation with a legal difficulty, for under the Constitution of the United States where a State regulation con- flicts with a Federal. regulation, or a Federal regulation conflicts with a State regulation, the Constitution of the United States has committed the, decision of that to. but one body, and that is the United States; isn’t that true? Mr. Bugr. I guess you are correct, Senator. Senator KELLoac.. Yes. Now, there we. strike a difficulty in. legislating. In other words, it is the province of the Federal Government to decide whether a particular rate, intrastate rate, conflicts. with an interstate rate, and about ‘all Congress can do is to follow those decisions and hedge them around with regulations so that there must be an actual discrimination, but the dogision of that must rest somewhere in a Mederal tribunal, isn't that true? Mr. Burr. I guess that is correct. Senator TowNsEND. Well now, what you are contending for, as I understand, even in that condition where the Government sets up a body like the Interstate ‘Commerce Commission’ to pass upon those things, it is at least presumable that it will take into consideration the evidence in the case and consider the State authorities before it determines that question. Mr. Burr. Yes, sir. And that they will not assume power that apparently has not been granted, which seems to. have been the case in all these State cages last year. They have certainly gone far beyond what a great many very able lawyers thought that the law called for. Now, I was saying that we tried to get into the merits, that is, to get them to go in and justify their position before the Interstate Commerce Commission. 136 MODIFICATION OF TRANSPORTATION ACT, 1920. Here is some language that I am going to read from the Interstate Commerce Commission’s order in our case. [Reading:] “ Because of the magnitude of the undertaking respondents have not attemped to estimate in dollars and cents the loss of revenue which would result from a compliance with section 2, of the Florida commissioners’ order. However, we do not regard as controlling the exact extent to which their revenues will be adversely affected.” In other words, the question of whether they are losing revenue, as I under- stand from this, is a small matter in setting aside our order. The CHarrman. I understand you to say that. Mr. Burr. I will place in the record the report of the Interstate Commerce Commission in No. 11861, “Florida rates, fares, and charges,” which is as fol- lows: [6694. Interstate Commerce Commission. No. 11861. Florida rates, fares, and charges.] In the matter of intrastate rates, fares, and charges of the Atlantic Coast Line Railroad Co. and other carriers in the State of Florida. Submitted February 5, 1921. Decided March 8, 1921. Certain. rates and charges prescribed by the railroad commissioners of the State of Florida, and. charged by several steam railroads for intrastate transportation in Florida, found to result in undue prejudice to shippers of interstate traffic, in undue preference of shippers of intrastate traffic, and in unjust discrimination cgi interstate commerce. Thomas Ww. Davis, W. N. McGehee, and Frank W. Gwathmey for the steam carriers. , Charles HE. Cotterill for International Agricultural Corporation, .Swift & Co., American Cyanamid Co., Phosphate Mining Co., Coronet Phosphate Co., and Charleston Mining & Manufacturing Co. James E. Calkins for railroad commissioners of the State of Florida. REPORT OF THE COMMISSION, ‘Danrets, Commissioner: This case involves certain intrastate freight rates and charges of steam railroads in Florida, which are alleged to be unlawful in their relation to the interstate rates and charges of the same carriers. Pas- senger fares are referred to in the above title and in the order instituting the investigation, but it developed at the hearing that no question was presented ‘with respect to them. In Increased Rates, 1920 (58 I. C. C., 220), and Authority to Increase Rates (58 I. C. C., 302), hereinafter referred to as Ex parte 74, decided July 29, 1920, this commission, under authority conferred upon it by the interstate commerce act, divided the country into four rate groups, namely, eastern, southern, western, and mountain-Pacific. These groups, in our view, represented a proper division of the country for the purposes of considering the financial condition of the carriers and fixing upon a general increase in rates. In the southern group, which includes the State of Florida, the increase allowed in charges. for freight services was. 25 per cent. It was our conclusion that this, together with other increases permitted, would result in transportation charges “ not unreasonable in thé aggregate. under section 1 ‘of the act and would enable the carriers in the respective groups under honest, efficient, and economical management and reasonable expenditures for maintenance of ‘way, structures, and equipment to earn an aggregate annual railway operating income equal, as nearly as may be, to a return of 54 per cent upon the aggregate value, for the purposes of this proceeding, of the railway property of such carriers held for and used in the service of transportation and one-half of 1 per cent in addition.” In reaching this'conclusion we anticipated that the various State authorities would: authorize corresponding: increases, as most of them have since done. Tariffs were filed establishing the new rates, fares, and’ charges, interstate, effective in most instances August 26, 1920. By authority of the railroad commissioners of the State of Florida, contained in an order, ‘dated August 18, 1920, the intrastate rates, fares, and charges were increased at or about the same time in’ amounts corresponding to those authorized by us for inter- state traffic. The Florida commissioners’ order was in two sections. Section 1 provided in substance that the intrastate rates, fares, and charges, increased MODIFICATION OF TRANSPORTATION ACT, 1920. 137 as above stated, should continue in effect until October: 1, 1920, but not. on or after that date in cases where section 2 of the order provided otherwise. Sec- tion 2 directed the carriers to maintain, on and after October 1, rates for freight services on the basis of the rates in force on June: 24, 1918, imme- diately prior to the effective date of general order-No. 28 of the Director General of Railroads, plus 25 per cent, plus a second 25 per cent.. Most of the intrastate rates established under section 1 of the order conformed to the re- quirements of section 2, but rates, principally on heavy low-grade commodities, which tunder general order ‘No. 28 were increased by stated amounts in cents per 100 pounds instead of 25 per cent, were in some instances to be substantially reduced and in others substantially increased. Under general order No. 28 the short-haul rates on these commodities had been subjected to much more than a 25 per cent increase, and the long-haul rates to less than a 25 per cent increase, and the main purpose of the Florida commissioners’ order was to dis- tribute the increases evenly and limit all rates to an increase of 25 per cent before applying the second 25 per cent. Among the commodities thus affected are brick, cement, plaster, lime, sand, gravel, rough stone, petroleum and its products, and cotton. It is testified that the further effect of section 2 of the Florida commissioners’ order is to require the cancellation of the minimum charge of $15 per car, applicable to carload shipments in other than switching movements; also the minimum charge on less-than-carload shipments and the minimum class-rate scale established under general order No. 28; also to render inapplicable the standard uniform packing specifications for fruits and vegetables established by the director general, and thus reinstate such requirements as were in force prior to Federal control; and to nullify other measures, said to be of a con- structive character, inaugurated by the director general, as it. restores the Florida commissioners’ freight classification as in effect June 24, 1918. In short, it appears that, except for the 25 per cent increase, all changes made by the director general in rates, _ charges, rules, regulations, and classification ratings are abrogated. After the order of the Florida commissioners was promulgated the steam rail- roads of the State filed with us a petition, alleging that the action of the Florida commissioners would result in undue prejudice to shippers and localities out- side the State and in unjust discrimination against interstate commerce, and we thereupon instituted this proceeding of investigation in accordance with the provisions of section 13 of the interstate commerce act for the purpose of de- termining what rates and charges, if any, or what maximum or minimum, or maximum and minimum, should be prescribed to be charged by the respondent carriers in order to remove such undue or unreasonable advantage, preference, or prejudice, as between persons or localities in intrastate commerce on the one hand and interstate commerce on the other hand, or such undue, unreasonable, or unjust discrimination against interstate commerce, as might be found’ to be caused by the rates and charges made cr imposed by the authority of the State of Florida. It is testified that the following carriers have’ complied with the Florida commissioners’ order: Apalachicola Northern Railroad Co.; Birmingham, Co- lumbus, & St. Andrews Railroad Co. and A. ‘D. Campbell, receiver; Charlotte Harbor & Northern Railway Co.; Fellsmere Railroad; Florida East Coast Rail- way Co.; Gulf Coast Railway ; Live Oak, Perry & Gulf Railroad Co.; Ockla- waha Valley Railroad Co. and H. 8. Cummings, receiver; Ocala & Southwestern Railroad Co.; Tavares & Gulf Railroad; Georgia & Florida Railway and W. R. Sullivan, John F. Lewis, and L. M. Williams, receivers; and South Georgia Railway Co. The other Florida steam carriers, or at least most of them, have failed to comply with section 2, and are still maintaining intrastate rates and charges bearing increases corresponding to those applied interstate under Ex parte 74, These carriers say that they found it impossible to comply with sec- tion 2 of the order by October 1 and finally decided to resist it. The Florida commissioners accordingly instituted mandamus’ proceedings in the Supreme Court of Florida to. compel compliance, but so far as we are advised the case has not been disposed of. Relying upon a decision of the Supreme Court of Florida in Florida East Coast Ry. Co. v. State (83 So. Rep., 708), the carriers in default take the position that they have a right to test the propriety of the State commissioners’ order before complying with it. Whatever the merits. of that question may be, a state of facts is before us in the instant case, with which we should déal. 138 MODIFICATION OF TRANSPORTATION. ACT, 1920. Most of the rates in Florida on the commodities in question appear to be on a mileage basis. The scales are divided into 5, or 10. mile blocks; and the rates progress with distances. Generally a different rate is provided for each block, but in some instances, particularly for the longer hauls, a common rate applies to several blocks. We may note the effect of section 2 of the Florida commissioners’ order on several of the scales: Commodities. Generally reductions for— 390 miles and less. ..-| 70 miles and less, .| 30 miles and less. 420 miles and less. 90 mjles;and less. 20 miles and, less. \ All distances. For greater distances than those shown there are increases in practically every rate. The information. appears in more detail in, appendixes 1 to 7 to this report. The rates shown are taken from the Florida commissioners” ex- hibits; the data submitted by the carriers do not fully or correctly portray the situation. According to the record, the commodities named constituted, in 1919, the following percentages of the intrastate traffic of the principal Florida carriers: + |Stone, sand,| Gasoline Cotton. bee ee and simi ar ang Ree commod-. | refined, lime. ities. ails, By ; ‘ Percent. | Per-cent. Per cent. Per cent. Atlantic Coast Line R. BR... . 2. eee eee cence ee 0. 2, 29, 8.3 9. Florida East Coast Ry..:...2-.. 0.02.2. e cece cece eee efee recent eneee 4.5 25.9 RY Seaboard Air Line Ry........ -t 2,4 3: 3.3. ‘Georgia Southern & Florida Ry...........- 2 2,8 Lt 1.3, Some of these commodities move in slight volume, as will be seen from the above table, but most of them enter very largely into the commercial life of the State, and the movement is substantial. / Fuel oil, one of the commodities affected, moves from, and to. certain, points in Florida on commodity rates made to meet peculiar conditions, There is a heavy movement from Tampa, Fla., to the phosphate beds in the Bone Valley district, about 50 to 60 miles distant. For about 16 years prior to the period of Federal control the rate was 64.5 cents per ton. The evidence is that this was a very low rate established to assist the industry. As a result of the increases made. under general order No. 28 and under section 1 of the Florida commissioners’ recent order, the vate became $1,875. The reduction, required under section 2 of the order would result in a rate of $1.01 per ton. Since the movement of this traffic is heavy the revenue loss would be considerable. This proceeding relates primarily to the rates made or imposed by authority of the State of Florida but, as above shown, as a result of section 2 of. the Florida commissioners’ order the rates for application within that State initiated by the President through the directory general during the periad, of Federal control are algo involved im the consideration of this issue, and our juyisdiction extends to such rates, The carriers content that the increases in cents per 100 pounds made by the director general were not, unreasonable. It is said to, have been the view of the director general that short-haul traffic was not bearing its proper proportion of the transportation costs, and that therefore. he concluded that the disproportionate inereases on that traffic were justified. There. is also. evidence from the carriers to. the effect that the director general did not intend that the inereases in cents per 100 pounds should approximate 25 per cent. One. of the director general's principal assistants in. traffic work, who, was familjar with the circumstances and conditions considered, in connection, with the preparation of general order No, 28, testified that the increases in cents per 100. pounds there provided for on heavy-moving commodities were determined before it was de- cided what percentage increase would be applied to rates in general. MODIFICATION OF TRANSPORTATION ACT, 1920. 139 To sustain the increases in cents per 100 pounds made by the direetor general the carriers refer to Virginia Iron, Coal & Coke Co. v. Director General (53 I. C. C., 583), wherein we found justified rates on iron ore from points in Ten- nessee, Georgia, North Carolina, and Virginia to Middlesboro, Ky., which had been subjected to flat increases of 30 cents per ton under general order No. ‘28, in addition to some increases made a short time previous. In general, the rates were for hauls of about 10 to 300 miles. The increases due solely to the addition of 30 cents per ton ranged from 136 per cent for the shorter hauls to 27 per cent for the Ionger hauls. The total increases ranged from 194 per cent to 48 per cent. : The minimum carload charge inaugurated by the director general does not apply to most of the heavy and low-grade commodities, but does apply to practi- eally all other carload traffic. Its cancellation effects reductions generally: for hauls of 50 miles and less. The cancellation of the minimum class-rate scale and the minimum charge for less-than-carload shipments, established by the director general, operates to reduce the charges for short hauls. The less-than- carload rates on ice would be materially reduced for considerable distances. Not a great amount of revenue is derived from these minimum rates and charges. Incidentally, it may be observed, they are substantially the same as apply to intrastate and interstate traffic everywhere else in the United States. The record affords several specific examples of how shippers and localities out- side the State are or would be directly and injuriously ‘affected by section 2 of the order. Fuel oil moves in considerable quantity from Jacksonville to Jamie- son, Fla., about 186 miles, where it is used in the manufacture of fuller’s earth. A large plant for the manufacture of the samme commodity was recently erected at Attapulgus, Ga., about the same distance from Jacksonville as is Jamieson. The same railroad serves both consuming points. The present rate on. fuel oil from Jacksonville to both points is $3.625 per ton, but under section 2 of the order the rate to Jamieson would be reduced 50 cents, affording the manufacturer ‘at that point an advantage of about $15 per car. There is quite'a heavy movement of brick in Florida. About 60 per cent of the traffic is intrastate, and the hauls are generally short. The reductions ordered by the Florida commissioners ure therefore of considerable, conse- quence. Producers outside the State compete with those within the State, and are threatened by the advantages aiforded the latter by the Florida commis- sioners’ order. For instance, brick is produced at Bainbridge, Ga., and Yeager, Fla. Under section 1 of the order, brick from Bainbridge toe Jamieson, 19 mniles, is charged $18 per ear, while that from Yeager to Jamieson, 10 miles, pays $14.50 per car. Under section 2 of the order a shipment.from Yeager would pay but $7.82 per. car. : There is a limited production of cotton. in northern Wlorida. Besides a movement to ginning points in the State there is a movement to Jacksonville, which city has recently increased its facilities for handling. the commodity and seeks to become a market of, importance. North of Jacksonville are Savannah and Brunswick, Ga., to which ports the rates from Florida were in- creased 25 per cent under Ex parte 74 without any subsequent reductions. There is great rivalry among the various ports and the carriers have hereto- fore maintained what they regarded as a proper alignment of rates, and for aught that appears it was satisfactory to the parties. concerned therewith. So far as cotton is concerned the Georgia commission recently denied a 25 per cent increase, which held the rates from Georgia: points, to the ports of, the State to.the basis in effect during Federal control. That matter coming be- fore us, we have held that the intrastate rates should be increased in amounts corresponding to ‘the increases made in interstate rates: and now in effect under Ex parte 74 to avoid undue prejudice and unjust discrimination against inter- state commerce. (Georgia Rates, Fares, and Charges, 60 I. C.,C., 527.) The earriers submit that there is ne good reason for now favoring Jacksonville with lesser increases than the other ports. The carriers contend that, due to the shape of Florida and the fact that most of the commodities in question are heavy and of low grade, the hauls are generally for .the distances to which the rates reduced under section 2 of the Florida commissioners’ order would apply; that the railroads are so located that the traffic does not move for the long distances between the west- ern and southern portions of the State, but that from either section it moves more frequently across the State line into or out of Georgia or Alabama, thus 140 MODIFICATION OF TRANSPORTATION ACT, 1920. becoming an interstate movement before any great distance is reached ; and that the revenue loss required on the short hauls is not offset by the increases for long hauls. The Florida commissioners contend that the changes required, taking into consideration the increases as well as the reductions, will result in comparatively little, if any, loss in the carriers’ revenue, and that the intra- state rates as a whole will not affect interstate commerce injuriously to any considerable extent. Because of the magnitude of the undertaking respondents have not attempted to estimate in dollars and cents the loss of revenue which would result from a compliance with section 2 of the Florida commissioners’ order. However, we do not regard as controlling the exact extent to which their revenues will be adversely affected. The fair conclusion from the whole record is that, taking the commodities in question as a whole, the increases granted by the Florida commissioners for the longer hauls will not produce revenue sufficient to equalize the reductions required on the shorter hauls, and we so find. In this connection it is significant that the rate expert of the Florida commis- sioners, in testifying at the hearing before the Florida commissioners on the carriers’ applications for increases corresponding to those authorized by us in Ex parte 74, the record of which hearing before the Florida commis- sioners has been made a part of this record, took the position that the specific advances as applied under general order No. 28 laid a heavy burden on short- haul traffic “ or that traffic which in intrastate commerce constitutes the most of the business,” and that the intrastate traffic was “necessarily short-haul traffic.” Similar specific increases were made by the director general in all other States on intrastate and interstate traffic and in our decisions in numerous cases and in Ex parte 74 we have recognized their propriety in general. . In Florida we find no conditions which suggest the propriety of any lower basis of charges for short-haul traffic than is maintained elsewhere in the same ‘general section of the country; in fact, the record shows that the Florida commissioners have in the past recognized that the transportation conditions in Florida justify a relatively higher level of rates in Florida than elsewhere in the South. Section 2 of the Florida commissioners’ order creates a rate structure intra- state materially different from that which applies interstate, resulting in injurious disparities, examples of which have hereinbefore been given, obviously also resulting in discrimination against intrastate shipments involving long hauls. As said in Intrastate Rates within Illinois (60 I. C. C., 92, 102): “The rates to and from the various points on any given commodity, both State and interstate, local and joint, are closely related and interrelated, and the creation of material differences between them is subversive of established and sound economic and commercial conditions, resulting in a situation which could not reasonably be approved. a” And, as we poined out in Nebraska Rates, Fares, and Charges (60 1.:C. C., 305, 313), “differences in judgment among the several State commissions, if each could and would create a rate group of its own, would obviously nullify the fundamental purposes of the transportation act.” The effect of the Florida commissioners’ order is to treat Florida as separte and distinct from the other States in the southern group and to require a different scheme of rate making. A general’ compliance with that order would obviously result in a serious disruption of the rate structure in Florida and indirectly in: other parts of the southern group. The carriers’ petition, alleging that unlawful disparities would result from a compliance with section 2 of the Florida commissioners’ order, states that it is filed on behalf of certain named steam carriers and all other ‘steam carriers subject to our jurisdiction operating in Florida, and our order instituting this investigation embraces all the carriers. However, the Florida East Coast Railway, which is one of the lines that complied with section 2 of the order, has never taken any active interest in the efforts of the other carriers toward the restoration or continued maintenance of the increased rates authorized by section 1, for the reason that it did not consider that it was substantially affected by the order of the Florida commissioners. Increases authorized by us for interstate traffic have been made by the Florida East Coast, but coore- sponding increases have not been made on intrastate traffic. ’ We are of opinion and find that the increases made by the carriers in rates and charges for freight services under our. decision relating to the southern group in Ex parte 74, and now in effect, taken in connection with the present MODIFICATION OF TRANSPORTATION ACT,.1920. . 141 interstate. rules, regulations, and classification ratings, and including the tninimum carload charge, the minimum less-than-carload charge, and the minimum class-rate scale, result in reasonable rates and charges for interstate transportation within said group, and that the failure of the respondent carriers by steam railroad within the State of Florida which complied with section 2 of the Florida commissioners’ order to continue the maintenance of correspond- ing increases in their intrastate rates and charges, as represented by the rates and charges in effect September 30, 1920, which were 25 per cent higher than those in effect on the date of our decision in Ex parte 74, has resulted and will result in unjust discrimination against interstate commerce and in undue prejudice to shippers of interstate traflic, and undue preference of shippers of intrastate traffic. We further find that said unjust discrimination and undue prejudice and preference should be removed by making and maintaining increases in the intrastate rates and charges for freight services in force on the date of -our decision in Ex parte 74, without reducing the minimum carload charge, the minimum less-than-carload charge, and the minimum class-rate scale in effect on said date, which increases shall correspond to the increases heretofore made as aforesaid by said respondents under Ex parte 74 and now in effect in their interstate rates and charges in the southern group. «The above findings are abundantly supported by the facts of record. They are without prejudice to the right of the authorities of the State of Florida, or of any other party in interest, to apply in the proper manner for a modification of our findings and order as to any specific intrastate rates or charges on the ground that they are not related to the interstate rates and charges in such a Way as to contravene the provisions of the interstate commerce act. Schedules giving effect to these findings may be made effective on not less than five days’ notice. An order will be entered at this time giving effect to our findings with re- spect to the rates and charges of the carriers which have complied with section 2 of the Florida commissioners’ order. The record will be held open for such further action as may become necessary. Eastman, commissioner, dissents. APPENDIX No. 1.—Brieck and rough stone. [Rates are stated in amounts per car, minimum 30,000 pounds.] - Under Under Under | Under Distances. section 1.| section 2, iDastaniees: section 1.) section 2. 5 milesand under........,...- $12. 50 $6.25 || 280 miles and over 260......... $32. 50 $31. 25 10 miles and over 5. ..- 14. 00 7.81 || 290 miles and over 280......... 33.00 32.'03 15 miles and over 10..... 16. 50 10. 62 || 300. miles and over 290......... 33.00 32. 34 20 miles and over 15..... 16. 50 10. 62 || 310 miles and over 300......... 34, 00 32, 81 30 miles and over 20....... . 17. 00 11. 50 || 320 miles and over 310......... 34. 50 33, 28 40 miles and over 30....... 8 18.00 13.13 || 330 miles and over 320......... 34, 50 33.75 -50 miles and over 40....... 4 19. 00 14. 38 || 340 miles and over 330......... 35. 00 34, 22 ‘60 miles and over 50....... 55 20. 00 15. 62 |} 350 miles and over 340......... 35. 00 34. 69 70 miles and over 60....... sea 20. 50 16. 09 |} 360 miles and over 350... . 2 35. 50 35.16 80 miles and over 70... 21, 50 17. 43 || 370 miles and over 360... 36.50] 35.63 90" miles and over 80. 22. 50 18, 59 || 380 miles and over 370.. 36. 50 » 36.09 ---19,-84-|| 390-miles and over 380. . 110 miles and over 100. 24, 00 20.31 |} 400 miles and over 390.. 120 miles and over 110........-. 25. 00 21. 56 |; 410 miles and over 400.... 37. 50 37. 50 130 miles and over 120......... 25. 50 22, 81 || 420 miles and over 410.... 38. 00 37.97 140 miles and over 130.....--.. 26. 50 23. 28 || 430 miles and over 420... . 38. 00 38. 44 150 miles and over 140......... 27.00 24, 54 || 440 miles and over 430.. 39. 00 38. 91 160 miles and over 150......... 28. 00 25.79 || 450 miles and over 440... . 39. 00 39. 38 180 miles and over 160......... 29: 50 27, 34 || 460 miles and over 450.... 39. 50 39. 84 200 miles and over 180... 3 30. 00 28,13 || 470 miles and over 460.... 40. 00 40. 31 ‘220 miles and over 200. 30. 50 28.91 |) 480 miles and over 470.... 40. 00 40. 78 ‘240 miles and over 220. 31. 50 29. 69 || 490 miles and over 480... 40. 50 41, 25 260 miles and over 240......... 32, 00 30. 47 |! 500 miles and over 490......... 40. 50 41,72 142 Aprmnpix No. 2.—Cement and plaster. [Rates are stated in amounts per ton.] MODIFICATION OF TRANSPORTATION ACT, 1920. Under ‘ Under '| Under i Under Distances. section 1. | section 2. Distances. section 1, | section 2, 10 miles and under............ $1, 50 $1.18 || 210 miles and over 200......... $3. 25 $3, 41 20 miles and over 10. 1. 625 1,41 || 220 miles and over 210.. 3.25 3.43 30 miles-and over 20. 1, 875 1,65 || 230 miles and over 220.. 3. 25 3. 44 40 miles and over 30.. 2.00 1.88 || 240 miles and over 230... 3. 25 3. 46 50 miles and ever 40. 2. 125 2.03 || 250 miles and over 240 3. 25 3. 47 60 miles and over 50. 2.25 2.19 || 260 miles and over 250... 3.25 3. 49 70 miles and over 60. 2. 375 2.35 || 270 miles and over 260 3.25 3. 50 80 miles and over 70. 2. 50 2.50 |) 280 miles and over 270 3. 375 3 52 90 miles and over 80. 2, 625 2.66 || 290 miles and over 280 3. 375 "3,53 100 miles and over 90.. 2.75 2.74 |} 300 miles and over 290 3,375 + 8.55 110 miles and over 100... 2.75 | 2. 82 || 310 miles and over 300.. 3.375 3, 57 120 miles and over 110 2.875 2.90 |! 320 miles and over 310.. 3.375 . 8.58 130 miles and over 120 2. 875 2.97 |) 330 miles and over 320:. 3. 375 3.60 140 miles and over 130 3. 00 3.05 || 340 miles and over 330.. 3. 375 3. 62 150 miles and over 140 3.00: 3.13. || 350 miles and over 340.. 3. 375 3. 63 160 miles and over 150 3. 125 3.21 || 360 miles and over 350. . 3.375 3.65 170 miles and. over 160 3. 125 3. 28 || 370 miles and over 360. . 3,375 3.86 180 miles and over 170 3. 25 3. 37 || 380 miles and over 370.. 3. 50 3. 68 190 miles and over 180 3. 25 3. 38 || 390 miles and over 380... 3. 50. 3. 69 200-miles and over 190 3.25 3.40 || 400 miles and over 390......... 3. 50 3.71 AppenDIx No. 3.—Lime. [Rates are stated in amounts per ton.] ‘ Under Under a Under Under Distances. section 1. | section 2. Distances. section 1, | section 2, 10 miles and under.......-...-. $1. 375 $1.18 || 210 miles and over 200. . $3. 125 $3, 41 20 miles and over 10... 1, 50 1,41 || 220 miles and over 210. . 3, 125 3, 43 30 miles and over 20..... 175. 1.65 |) 230 miles.and over 220. . 3.125 3.44 40 miles and over 30. .... 1. 875 1, 88 |} 240 miles and over 230. . 3,125 3.46 50 miles and over 40..... 2, 00 2.03 || 250 miles and over 240. . 3.125 3.47 60 miles and over‘50..... 2,125 2,19 |/ 260 miles and over 250. . 3. 125 3.49 70-miles and over 60..... 2, 25 2.35 || 270 miles and over 260. . 3. 125 3. 50 80 miles and over 70..... 2. 375 2,50 || 280 miles and over 270... 3. 25 3. 52 90 miles and over 80..... 2. 50 2.66 || 290 miles and over 280.... 3. 25 3. 58 100 miles and over 90... . 2, 625 2.74 || 300 miles and over 290.... i 3. 25 3,55 110 miles and over 100..... 2, 625 2.82 || 310 miles and over 300......... 3, 25 3. 57 120 miles and over 110... 2,75 2.90, || 320 miles and over 310. . wi 3. 25 3. 58 130 miles and over 120... 2.75 2.97 || 330 miles and over 320. . 2.25 3. 60 140 miles and over 130... 2, 875 3.05 || 340 miles and over 330. . ees 3, 25 3.62 150 miles and over 140... 2. 875 3. 13 |} 350 miles and over 340......... 3.25 3.63 160 miles and over 150... 3.00. 3.21 |} 360 miles and over 350......... 3, 25 3.65 170 miles and over 160... 3, 00 3. 28 || 370 miles and over 360......... 3. 25 3.66 180 miles and over 170... 3, 125 3. 37 || 380 miles and over 370......... 3.375 3.68 190 miles and over 180... 3, 125 3.38 || 390 miles and over 380......... 3. 375 3. 69 200 miles and over 190......... 3, 125 3.40 || 400 miles and over 390......... 3.375 3.71 MODIFICATION OF TRANSPORTATION: ACT,. 1920. [Rates are stated in amounts per car; minimum, 36,000 pounds.] APPENDIX No, 4.—Sand. ba ea 148 A Under Under « Under Under Distances. section 1,| section 2. |. Distances. section 1. | section 2. 5 miles and under............ «|, $9.40 $6. 25 || 240 miles and over 220 $28. 00 $29. 69 10 miles and over 5.. 10.50 | <¢ 7.81 |} 260 miles and over 240.. 20.00 30. 47 20 miles and over 10. * 13.00 | 10,62 || 280 miles and over 260. . 29. 50 31, 25 30 miles and over 20. 14.00] 11.50 |} 290 miles and over 280... ‘B0. 00 32.08 40 miles and over 30. 15.00 18. 13 || 300 miles and over 290. . 80. 50 32. 34 50 miles and over 40- 16, 50 14,38 || 310 miles and over 300... 30. 50 32. 81 60 miles and over 50. 17.00 15.62 || 320 miles and over 310. . 31. 50 33, 28 70 miles and over 60. 17.50 16. 09 || 330 miles and over 320 31. 50 33. 75 80 miles and over 70. 18. 00 17.34 || 340 miles and over 330 82.00 34, 22 90 miles and over 80. 19. 50 18. 59 || 350 miles and over 340 32. 50 34. 69 100 miles and over 90. 20. 50 19. 84 |, 380 miles and over 350 32. 50 85.16 110 miles and over 100. 20, 50 20. 31 || 370 miles and over 360... 33.00 35. 63 120 miles and over 110. 22. 00 21. 56 || 380 miles and over 370... 33. 00 36.09 180 miles and over 120. 22. 50 22. 81 || 390 miles and over 380.. 34:00 36. 56 140 miles and over 180. 23. 00 23, 28 || 400 miles and over 390.. 34. 50 37. 150 miles and over 140. 24, 50 24. 54 || 410 miles and over 400... 34, 50 37. 50 160 miles and over 150. 25. 00 25.79 || 420 miles and over 410.. 35. 00 37.97 180 miles and over 160. ' 26. 50 27.34 || 430 miles and over 420... 35.'00 38. 44 200 miles and over 180. 27. 00 28.13 |} 440 miles and over 430. . 35. 50 38. 91 220 miles and over 200......... 27. 50 28.91 || 450 miles and ‘over 440 36. 50 39. 38 APPENDIX -No. 5.—Gravel. (Rates are stated in amounts per car, minimum 30,000 pounds.] . Under | Under Dp Under | Under Distances. section 1.| section 2. Distances. section 1.| section 2. 5 miles and under............. $8.75 $6.25 || 240 miles‘and over 220......... $27. 50 $29. 69 10 miles and ‘over 5. . a 10.00. 7.81 || 260 miles and over 240.. 28. 00 30. 47 20 miles and over 10. = 12. 50. 10.62 |} 280 miles'and.over 260. . 29.00 '31. 25 30 miles and’over 20. S 13.00. 11. 50 }| 290 miles'and over 280. . ‘29. 50 32, 03 40 miles and over 30. : 14, 50. 13. 13 || 300 miles and over 290. . 29. 50 "32, 34 50 miles and over 40. - 15.00. 14. 38 |) 840 milesand over 300. . 30. 50 32. 81 60 miles arid ‘over 50. “ 16. 50 15. 62 || 320 miles. and over 310. . 30. 50 33. 28 70 miles and over 60. 17.00 16. 09 || 880 miles and.over 320. . 30. 50 33.75 80 miles and over 70. 17. 50 17. 34 || 340 miles and over 330. . 31.50 34, 22 90 miles and over 80. 19. 00 18. 59 || 350 miles and over 340. . 31. 50 34, 69 100 miles and over 90-. 19. 50 19. 84 || 360 miles and over 350... 32. 00 35.16 110 miles and over 100. 20. 00 20.31 || 370 miles and over 360. ... 32, 50 35, 63 120 miles and-over 110. 21. 50 21. 56 || 380 miles and over 370.... 32. 50 36. 09 130 miles and over 120. 22. 00 22.81 || 390 miles and over 380... 3 33. 00 36. 56 140 miles and over 130. 22, 50 23, 28 || 400 miles and over 390......... 33. 00 37.03 150 miles and over 140. 23. 00 24, 54 || 410 miles and over 400......... 34. 00 37. 50 160 miles and over 150... 24. 50 25.79 || 420 miles and over 410......... 34. 50 " 37.97 180 miles and over 160... 25. 50 27.34 || 430 miles and over 420......... 34. 50 38. 44 200 miles and over 180... 26. 50 28.13 || 440 miles and over 430......... 35. 00 38. 91 220 miles and over 200........- 26. 50 28,91 |} 450 miles and over 440......... 35. 00 39. 38 144 MODIFICATION OF TRANSPORTATION ACT, 1920. AppenpiIx No. 6.—Gasoline and other refined oils. [Rates are stated in cents per 100 pounds.] : Under | Under i Under | Under Distances. séction 1. | section 2. Distances. section, 1. | section 2. Cents. Cents, Cents. Cents. 10 miles and under. a .21 |, 210 me and over 200.... 57 20 miles and over 10 5 24 || 220 miles and over 210. 59.5 68 30 miles and over 20........... 28 28 || 230 miles and over 220. 60.5 69 40 miles and cver 30 29.5 30 | 240 miles and over 230. 62 71 50 miles and over 40. 30. 5 32 || 250 mules and over 240. 63 72 60 miles and over 50 84.5 37 || 260 miles and over 250 64.5 74 70 miles and over 60. 35.5 38 || 270 miles and over 260 65. 5 15 80 miles and over 70. 37 40 || 280 miles and over 270 67 7 90 miles and over 80. z 33 41 || 290 miles and over 280 69.5 80 100 miles and over 90. . x 40.5 44 || 300 miles and over 290. 70.5 82 110 miles and over 100. ‘ 43 47 || 310 miles and over 300. 72 8 120 miles and over 110. i 44 49 || 320 miles and over 310. 73 85 130 miles and over 120. a 45.5 50 || 330 miles and over 320. 74.5 87 140 miles and over 130. a 47 ‘52 || 340 miles and over 330. 74.5 87 150 miles and over 140. 49.5 55 || 350 miles and over 340. 75.5 88 160 miles and over 150. ns 50.5 57 || 360 miles and over 350. 75.5 88 170 miles and over 160. a 52 58 |) 370 miles and over 360. 75.5 88 180 miles and over 170. « 58 60 |} 380 miles and over 370. 77. 90 190 miles and over 180. z 54.5 62 || 390 miles and over 380. 7 90 200 miles and over 190......... 55.5 63 || 400 miles and over 390......... 77 90 APPENDIX No. 7.—Cotton. [Rates are stated in cents per 100 pounds.] . Under Under ‘ Under Under ‘Distances. section 1. | section 2. Distances. section 1.| section 2. Cents. Cents. Cents. Cents. 10 miles and under............ 32.5 ~' 18 {| 200 miles and over 180......... 65 58 20 miles and over 10..... é 35 21 |) 220 miles and over 200. . 2 66.5 60 30 miles and over 20..... 37.5 24 || 240 miles and over 220. . 67.5 62 40 miles and over 30..... 40 27 || 260 miles and over 240... 69 63 50 miles and over 40..... 42,5 30 || 280 miles and over 260.. 70 85 60 miles and over 50.....-. 45 33 || 300 miles and over 280.. 71.5 66 70 miles and over 60....... 47.5 37 || 320 miles and over 300.. 72.5 68 80 miles and over 70....... 50 , 40 || 340 miles and over 320-. 74 69 90 miles and over 80...... 52.5 43 || 360 miles and over 340... 75 7 100 miles'and over 90...... 55 46 || 380 miles and over 360.. 76.5 72 110 miles and over 100..... 56. 5 47 || 400 miles and over 380. . 77.5 74 120 miles and-over 110..... 57.5 49 |) 420 miles and over 400... 79 75 130 miles and over-120..... sie 59 50 |] 440 miles and over 420. . 80 77 140 miles.and over 130......... 60 - 52 | 460 miles and over 440.. 81.5 78 150 miles and over 140......... 61 53 |} 480 miles and over 460... . 82.5 80 160 miles and over 150......... 62.5 55 || 500 miles and over 480......... 84, 82 180 miles and over 160......... 64 57 ORDER. {At a general session of the Interstate ponimense ‘Commission, held at its office in Washington, C., on the 8th day of March, A. D. 1921. No. 11861. Florida Rates, Fares, and ‘Charges. ] ‘ In the matter of intrastate rates, fares, and charges of the Atlantic Coast Line Railroad Co. and other carriers in the State of Florida. This case being a case instituted by the commission upon petition filed, and having been duly heard and submitted by the parties, and full investigation of the matters and things involved having been had, and the commission, on the date hereof, having made and filed a report containing its findings of fact and conclusions thereon, which said report is hereby referred to and made a part hereof: Tt is ordered, That the following-named common carriers by steam railroad, parties to this proceeding, namely, Apalachicola Northern Railroad Co.; Bir- mingham, Columbus & St. Andrews Railroad Co., and A. D. Campbell, receiver ; MODIFICATION OF TRANSPORTATION ACT, 1920. 145 Charlotte Harbor & Northern Railway Co.; Fellsmere Railroad; Florida East Coast Railway Co.; Gulf Coast Railway; Live Oak, Perry & Gulf Railroad Co.; Ocklawaha Valley Railroad Co., and H. S. Cummings, receiver; Ocala & South- western Railroad Co.; Tavares & Gulf Railroad; Georgia & Florida Railway and W. R. Sullivan, John F. Lewis, and L. M. Williams, receivers; and South Georgia Railway Co., according as they respectively participated in the transportation, be, and they are hereby, notified and required to cease and desist from practic- ing the undue prejudice, undue preference and advantage, and unjust discrimi- nation found in said report to exist in the relation of interstate and intrastate charges for freight service, and to establish, put in force, and maintain charges for freight services in intrastate commerce within the State of Florida which shall exceed the charges for freight services of said carriers, including the minimum Carload charge, the minimum less-than-carload charge, and the mini- mum class-rate scale, in effect July 29, 1920, and applicable to such transporta- tion, in amounts corresponding to the increases heretofore made by said car- riers under Ex parte 74 and now in effect in said carriers’ charges for freight services in interstate commerce within the State of Florida and between points in the State of Florida and points in other States. It ig further ordered, That this order shall become effective on or before April 25, 1921, upon notice to this commission and to the general public by not less than five ‘days’ filing and posting in the manner prescribed in section 6 of the interstate commerce act, and remain in force until further order of the commission, And it is further ordered, That a copy of this order be served upon each of the common carriers by steam railroad who are parties to said proceeding. . By the commission. [SEAL.] Grorce B. McGinry, Secretary. Mr. Burr. I think you indicated, Mr. Chairman, that so far as this was con- cerned, I had gone far enough. “The CHarrMAN. I would be glad to have you put that into the record, but your statement is positive upon the proposition that the Interstate Commerce Commission did not attempt to inquire into actual discrimination, but evidently proceeded in your case upon the theory that’ your State rates must be the same as interstate rates. Mr. Burr. Absolutely. ' - The CHamrman. And your complaint is, of course, of the Interstate Commerce Commission, that it did not inquire into the fact of discrimination, but I assume that if your rates were not exactly according to the rates established for interstate traffic, that. there must be discrimination. Mr. Burr. Yes, sir. In other words, it appears to me that the Interstate Commerce Commission has beén’ looking at this case, and perhaps some of the other cases, and, finding discrimination where there is a mere difference in rates, rather than rates that created a discrimination and a burden upon interstate commerce. I think it must be conceded that it is often necessaty that there be some difference in rates, ahd there can be a difference in. rates within the State and yet there be no discrimination. The CHAIRMAN. To me that is perfectly obvious. You do not have to continue any argument to prove that to me. _ Mr. Benton. Mr. Chairman, Judge Burr requests that I read a resolution adopted by the convention at Atlanta, which was put into the record at the beginning without: reading. It is a resolution entitled “Resolution relating to certificates of convenience and necessity.” [Reading:]. Whereas, by the transportation act of 1920 the Interstate Commerce Commis- ‘sion was, in terms, given exclusive authority to grant. certificates of con- venience and necessity: ‘for construction and abandonment, not only of railroad lines which are interstate in character but of raflroad lines lying, or to be constructed, wholly within one State; and Whereas the Federal, Government ought not to undertake to authorize State railroads engaged in intrastate transportation, which have often been con- structed, in-part, by public aid from the State or subdivisions thereof, to abandon intrastate operation without authority from the State: Therefore be it Resolved, That Congress be respectfully urged to amend the. existing law so that certificates of convenience and necessity granted by the Interstate Com- 73337—21—pr 1—_10 146 MODIFICATION OF TRANSPORTATION ACT, 1920. merce Commission shall not purport to relieve the carriers obtaining the same from conforming to the laws of the States with respect to construction and operation within the States for intrastate transportation, or with respect to the abandonment of such transportation. I have not yet covered in niy opening statement that resolution, but Judge Burr desires to speak to it. Mr. Burr. About the middlé of December, 1920, the Atlanta & St. Andrews Bay Railroad, a line of railroad running from Dothan, Ala., just above the Flor- ida line, down through Florida to St. Andrews Bay, that. is, to Panama City and the town of St. Andrews, on St. Andrews Bay, a distance of some 84 miles, made application to the Interstate Commerce Commission for permission to abandon their branch line from Panama City to St. Andrews, St. Andrews being served by a branch line at the end of the road from Panama City. It is a short distance. The actual trackage on the branch is only 2.64 miles in length. It is about 3 miles to the town, but from where the branch moves off out of the yard it is 2.64 miles. : Early in this year, 1921, the Interstate Commerce Commission, by Commis- sioner Meyer, wrote our commission under the cooperative provisions in the transportation act, and asked if we would not hear that case for them and make a report and recommendation to the Interstate Commerce Commission, and we finally agreed to.do so. We felt that the first application that was made to us to cooperate owtght to be complied with if possible. So we held the hearing for the Interstate Commerce Commission in March, somewhere near the middle of March. The CHarrmMan. That is of the préSent yeur? Mr. Bung. Yes, sir. It took three days to take the testimony that was put in in that case, three long, solid days, too. We took as much testimony as if it had been a road a thousand miles long. That was taken without expense to the Interstate Commerce Commission, except that they furnished the shorthand reporter to take down the evidenee. The commission was there at their own expense, and everybody else that appeared there; if there was any witness. whose transportation had to be paid, we paid it. And I had some correspondence with the Interstate Commerce Conrmission as to. whether they expected our commission to make up a regular tentative report to the interstate Commerce Commission such as an examiner makes for them, or whether we should just write a communication. saying that we approved this abandonment or disap- proved it and send the recard. Of course, we hadi to send the record :to them, and did, send the record to them. Our time was too much consumed with other matters at the time to go into the question of writing a tentative report in that ease, so we resorted to, the other means of simply.a short communication to the Interstate Coramerce Com- mission transmitting the testimony and the exhibits in the whole case, and re-. turning their docket to them, and recammended against ‘the , abandonment. St. Andrews is a town of '1800 people who have setthed there in good, faith and built homes, and their business men have established businesses that would not have been established there had the railroad not reached there, and some of those businesses are such that they must sustain large loss if the railroad is moved away, because they can not move all of the investment that. they have got.. Senator PornpEXTER. What is the distanee from Panama City to St. Andrews? ? Mr. Burr. It-is a 8 miles haul. Of course, their business can be trucked’ back and forth, but it would be at a greater expense to some of the: industries. there that were served by the, railroad. And as I say, there is an investment there in plant facilities, so even if they do haul to Panama City it will be at loss, and they can hot move to Panama City without throwing away that invest- ment and having to procure other propetties and facilities: and make ‘further investments. — Senator PoINnDEXTER. That is in a way like a stvitoh, ‘almost? Mir. Burr. Why, yes. The former ownéts of this road called this branch line the Terminal & Switching Co. Now, the branch was operated by the same crews that 'o ao the main-line trains. This railroad is only 84 miles long. the whole o “Of course, you realize that it is a very short run. And it would take ie little time to make the run from one end of the line to the other, and there was otily occasional overtime for the crews that operated these trains in and out of there, due sometimes to the lateness of the arrival, of their train from the northern end of the road. There would be some little overtime, but usually there was no overtime. MODIFICATION OF TRANSPORTATION ACT, 1920. 147 - Now, I find fault with the Interstate Commerce Commission in this: _First, we recommended that the road be denied the privilege of taking up that track for the reason that it would injure a great number of people that had. all their money invested in this town. There is one fishery company there that. has a plant investment of over $100,000. This plant can not be moved to. Panama City. They are compelled to buy trucks now with the abandonment of the railroad, whereas it was not necessary for them to have trucks before, because the cars of the. railroad. run right to their door. These people have a fishing business there, and all of this fish goes out to the markets all- over, this country. Now, this party who owned this plant had built an. icing plant in connection with his fish houses, for cold storage, etc. He put his fish in cold storage until they were shipped out, and he had, this railroad right at the door, making it convenient to ship his fish out. With the removal of the railroad he is left with that investment on his hands, and it is a considerable investment and he can not move it somewhere else. He has got to stay and have his plant there. His fishing fleet, of course, can go into Panama City or any place on St. Andrews Bay; the fishing fleet can get any place on St. Andrews Bay as easily as they can get to St. Andrews, but they would not have a fish house to deliver the. goods to. Now, in making the order they permitted the temporary abandonment .of that line for 90 days. That is the ridiculous part of it, to my mind. What ean be proven by the abandonment of the St. Andrews branch for 90. days-is something that I can not understand. They will have nothing to compare the situation with, and it looks to me that if it was going to be abandoned at all, in justice to the people who have their money invested there, it ought to be abandoned permanently so that they would know what they are going. to expect and what they should do. It is equivalent to ordering these people to cease doing business for 90 days. The Carman. Was this company organized under the laws of Florida? Mr. Burr. Yes. 4 1 The Cuammman, Not under the laws of Georgia? Mr. Burr. No, sir; not under the laws of- Georgia. They are chartered, under the laws of Florida. The evidence shows that there are three of these wholesale fish concerns. Fish is one of the biggest industries at this point, The report of the Interstate Commerce Commission finds that there are only two fisheries there., One of the things that I am objecting to is the position they have put my comunission in. We took ‘this evidence and took it in good faith, and their report does not re- flect what is actually in that record. They found that during the period, that, was under review there were only 12.cars of fish moved from the town of St. Andrews. The railroad. company’s answer to the ‘questionnaire which »was sent to them to be answered, by the Interstate Commerce Commission, sworn, to by the vice president of that road, shows the initials and car es for 103 e¢ar-, loads. by- express. ° ; or “ ; . Senator TOM NEED, During what ‘time? Mr. Burr. That was from the period January 1, 1920, -to January,. 1921,, ‘The railroad company’s: answer to the questionnaire, as I say, which was sent, to. them by the Interstate Commerce Commission, shows 103 carloads iby, eXDress shipments and 12 carloads by freight.. And you will observe that their report says that there were only-12 carloads of.fish shipped from that. point during those 12 months, ignoring altogether that there were 103 cars more, shipped, making a total of 115 cars... The CHAIRMAN. Of course, evidence’ that the Interstate Coniimerce Commission, may have made a mistake in one case would not be reviewable here, but, the question is whether we should give the ‘power, ‘ta the Interstate Commerce Com- mission to do this thing. What is your view of\it? That we ought, to give it to no one, or that we.should give. it jointly to the Interstate Commerce ote mission and the State? : Mr. Burg.. I believe. this, that if a piece of railroad crossing a State ine seeks to take up its tracks that it.ought.to be reviewed by the Interstate Commerce Commission, but I believe that if that piece of trackage is wholly within the. State, that the State authorities are more competent to go into the’ juestion, for. they will know the conditions better than the Interstate Commerce Commis- sion can ever know them, and they ought to be allowed to pass upon. that. The CHarrMaNn. That power would be futile. A great many of the railroads. pass through more than one State. Now that is true of this railroad. And I 148 MODIFICATION OF TRANSPORTATION ACT, 1920. think any one would have to treat the railroad as a whole. It may not be wise to give any tribunal the right to say that a track or a part of a track should be abandoned, but if we give to any tribunal the right to determine that question, if would seem to me that it would have ‘to be in the Interstate Commerce Com- mission. Mr. Burr. Well, I do not know that I made my answer clear, Senator. The CHairMAN. Well, this little branch of 3 miles was owned and operated by an interstate carrier, and laws have to be general; you can not make them specific, to meet a particular case. Now, where ought the power to be?. The fact that it was a branch line would cut no figure. It might be just as well a part of the main track. Mr. Burr. Well, the way I look at it is this, sir: Every railroad that is in the business of common carriage is an interstate carrier, as far as that is con- cerned. ‘The CHarrMan. I do not know of any that is not. ' Mr, Burr. But what I mean by crossing the State line is this: I do not mean a part of the system that crossed the State line, but I mean the track to be abandoned would be track that would cross the State line; the actual track sought to be taken up would be a piece of track that crossed the State line. I say that there the Interstate Commerce Commission ought to pass on whether that is needed or useful in the interstate transportation. But if the track is not so located but is wholly within the State, then I say that the State com- mission, where there is a State commission, or whatever State authority is created for such purposes, ought to poss upon it. Our Supreme Court has intimated in another abandonment case that they think that the only bower that can give the right to a carrier to dismantle and go out of business is the power that gave it right.to do business in the State, and that is the legislature. : The CHaIRMAN. Of course, I can understand that’ position. It may be that we can not give to the Interstate Commerce Commission properly the right to say that any railroad, no matter whethér at is State or interstate,.can quit business and take up its tracks. ° Mr. Burr. One of the points that I want to side about this thing is that the. Interstate Commerce Commission have too much to do to know whether a p-ece of road 3 miles long or 50 miles long in my State ought or ought not to be taken up. Oftentimes a’ question is intrusted to people that have had no experience in ‘affairs at all, and they do not get the grasp of the situation or the necessity for these things, | and it is shown—it seems to me clearly here. I have not the slightest idea that the Interstate Commerce Commission read the exhibits or the testimony in that case before the ‘order was issued. They certainly’ would not ‘have left out of 115 carloads of fish 103 carloads of fish if they had ae the testimony in this case. I believe that is really all the work of some er! Now, I feel like cooperating with the Interstate Commerce Commission; but I- do not like to use the services of my commission and have it turned down by some inexperienced clerk in the Interstate Commerce Commission’s office. Now, I do not mean to say that because we did not agree upon the first case of co- operation that we had that we ought not to cooperate at all. The CHairMAN. We will have to suspend at this point, Mr, Burr. Can I have just one minute more, Mr. Chairman? The CHAIRMAN. Yes. -Mr. Burz: I want to:say that the revenue as shown i: the figures. of the railroad witnesses in this abandonment case are as follows: The gross average revenue per mile for that branch line amounted to $7,078.61. The average revenue per mile for the entire line of 84.64 miles was $5,183.38, so there could: not have been much necessity for the abandonment of the branch line. The CHAIRMAN, How do you figure that—on a mileage basis or otherwise? Mr. Burr. Yes; on the mileage basis they allowed these revenues. The CHAIRMAN. We will suspend now, and I hope the members of the com- mittee will be able to get together at 2 o’clock and go on with this hearing at the other office. We will now take a recess until 2 o’clock, to meet at the other office. (Thereupon, at 11, o’clock a. m., Friday, October 28, 1921, a recess was taken until 2 o’clock p. m. of the same day. ) MODIFICATION OF TRANSPORTATION” ACT, 1920. 149. APTER RECESS. The cavilinitten resumed at 2 o’clock p. m, pneenant to recess. The CHairman. The committee will-resume the hearings, Mr. Shaughnessy, you will state your full name, whom you represent, and your relation to this inquiry. STATEMENT OF HON. JOHN F. SHAUGHNESSY, CHAIRMAN NEVADA PUBLIC SERVICE COMMISSION AND MEMBER OF THE INTERME- DIATE RATE ASSOCIATION. Mr. SHaucunessy. I am chairman of the Nevada Public Service: Commission. I am also a member of the Intermediate Rate Association. That is an organization comprising the intermountain State commissions, the traffic bu- reaus, chambers of commerce, and commercial clubs. I appear here as the representative of these organizations. Mr. Chairman and gentlemen of the: committee, supplementing the statements made here by other States, I desire to review the Nevada- “Shreveport situation, and I can perhaps best bring to your attention what the issues are and how the carriers in our territory approached the matter by reading a few excerpts from the record of testimony put in before the Nevada commission upon the application of the carriers for the same percentage of increase as that granted in Ex. parte 74, That application was filed with the Nevada commission on May 24, 1920, - and supplemented on July 27, 1920, by the carriers serving Nevada, in ‘asking for that same percentage of increase, whatever it would be when the order was issued, which was on July 29, 1920. In opening the hearing before the Nevada commission on the carriers’ appli- eation, which hearing took. te on August 16-17, 1920, Mr. Henley C. Booth, commerce attorney of the Southern Pacific Co., and appearing as counsel tor all the carriers serving Nevada, made the following statement, this being his opening statement: “T should like to offer in evidence, as the only evidence we intend to offer in this matter, the certified copy of the opinion of the Interstate Commerce Com: mission in Ex parte 74, and I offer in connection with that a certified copy of Released Rate Order No. 149 of the Interstate Commerce Commission and 2 certified copy of Special Permission No. 50340, both of which are to be taken in connection with the order of the commission in Ex parte 74.” ‘Following that I asked him this question: — “In offering your testimony the only exhibit you offered was that of the commission’s decision in docket Ex parte 74. Do you wish to have considered in evidence the record taken before the Interstate Commerce Commission’ in Ex parte 74?” e To my question Mr. Booth: replied : ‘ “That question was asked of me by the chairman of the California eonnnens sion, and I made substantially this reply. After considering the matter we came to the conclusion that the order of the Interstate Commerce Commission is in the nature of an adjudication and that the situation was to be compated to an attorney seeking to prove a judgment; he offers the judgment in ‘evi- dence, proves its authenticity, and stops there; he does not offer the transcript of the reporter’ s notes upon which‘ that judgment was based. Perhaps a better comparison would be a citation of a case to the suprerhe court of this State. We: will say a California decision. It is very often done among attorneys that! when such a decision is cited that the attorhey goes to the law library and looks’ at the transcript and briefs in the case and uses those in his argument as: illustrative and helpful in the consideration of the case, and yet the case is the authority he stands on and not the transcript of testimony taken before the court.” - Be The CHamrMAN, That is, in substance, tis offered the’ order. ety shee Mr. SHavucHnessy. That is all. The CHAtRMAN. And not the testimony? Mr. SHAveHNeEssy. Not the testimony. Mr. Booth, continuing, said: “We do not understand that this case should: degenerate into a rate cage, The situation is one of exigency and emergency, and it has never been our thought that we would ever produce any evidence in, opposition to what any shipper might say or ane part in any investigation of that character.” ha ng te 150 MODIFICATION OF TRANSPORTATION ACT, 1920. I then asked him this question: “Is it your thought, notwithstanding that the rates within Nevada might be found to be compensatory, that: that shall be given no weight or consideration in the application of these so-called horizontal increases ordered by the Inter- state Commerce Commission for the Mountain-Pacific group as a whole?” And Mr. Booth replied: “Our thought is that this is a revenue case and not a rate case, and that if the construetion is to be placed upon the transportation act which.we believe should be placed upon it, the only function of this proceeding is to determine whether the commission will or will not enter an order in cenformity with the percentages of increase prescribed by the Interstate Commerce Commission. We’ regird the question of adjustments as one which should be taken up, if at all, after ‘that step is taken and, as I suggested yesterday, we feel that even in ‘the’ matter of adjustments’ there are some limitations on the powers of the State’ corhivissions. That'is, the adjustments should make no material inter- ference, with the national plan of regulation.” hat,’ in substance, was the position of all the carriers appearing before the. Net ada commission at that time, planting themselves squarely on the ground that the case was a revenue one ‘and in no sense of: the word a rate case. A number. of* witnesses from various sections of the State of Nevada ap- peared and put in testimony, but Mr. Booth, on behalf of the carriers, gave notice that he would not cross-examine any of those witnesses or have anything to do with, the testimony, as it went in; nor did he have any connection with the evidence so put in. ~~ ‘ The Nevada commission, pevieeaiiee from that paint and exercising its dele- gation of power from the legislature, coyld find no authority anywhere by which it. might, if we thought the rates should go in without modification or adjustment—could find no authority anywhere by which we could take any such action as that. And therefore in our epimion we reviewed. the issues and rejected the application of the carriers. From that point an appeal was taken to the Interstate Commerce Commis- sion, if we may refer to it as an appeal, on the ground that the action of the Nevada commission was unjust and uncalled for; that the rates which we re- fused to increase in the same percentage as those increased in Ex parte 74 were discriminatory. The CuarrMan. Technically it was not an appeal. Mr. SHaucuHNEssy. No. The CHarrMAN. It was an original application, I take it, which was made to the Interstate Commerce Commission thereafter. _ Mr. SHavueHNEssSY. Yes; I should have corrected that statement. It was on that ground an original appl cation to the Interstate Commerce Commission. In due time an examiner appeared and was prepared to take testimomy on the issues. The examiner was instructed, and the parties also—the State of Nevada and Attorney Booth—that the commission’ would take evidence on the reason- ableness of the rates jn the State of Nevada as affecting either intrastate or interstate commerce. That is, in so far ‘as ‘the eee went to the question of discrimination. There isa ‘colloquy that might be somewhat inteventiiig with respect to the interpretat’on which the carriers placed upon that matter, and with your permis: sion J will refer to it. The CHAIRMAN. Before you turn to that, Mr. Shaughnessy, did this exam‘ner who appeared’ for the Interstate Commerce Commission take any evidenee with regard to discrimination? Mr, SHavcHNessy. Oh, yes; he took evidence in detail. The CHAIRMAN. As to whether it was or was no discrimination? ‘Mr. SHavcHnessy. Yes; he did that. But, of course, we have mot been able to bring ourselves to believe, while he might have found discrimination here or there, that he did so upon any basis of reasonableness; and it was our theught, the thought of our people out there, that the two must necessarily be consid- ered together, must be dealt with together, or we can not for the future go for- ward with any certainty. What I mean by that is that there was traffic. within the State of Nevada that was bearing all it could bear in the way of rates. But not withstanding that fact discrimination was found and the carriers ordered to remoye the discrimination, which | they removed by increasing the rates to a level of Ex parte 74. In Ex parte 74 it was provided, as you’ sovotietbiy cecal that the carriers and the Interstate Commerce Commission would probably find many rates that would MODIFICATION OF TRANSPORTATION ACT, 1920, 151 not justify themselves; that there were many cases that should be adjusted promptly, and the shippers of the country were requested to call upon the re- ‘spective carriers to adjust such rate sitwations promptly without bringing the matter to the Interstate Commerce Commission. The CHairMaNn. The way I understand the law, and it does not seem to me to have been applied in any case I know of up to this time, is that when the car- riers applied to the Interstate Commerce Commission they would have to apply to that commission on the ground that the Nevada rates were discriminatory ; that is, discriminated against persons or localities or interstate commerce, If the commission found that your rates, or any of them, did so discriminate against interstate commerce the law simply transfers the rate-making power on that particular commodity, whatever it may have been, to the Interstate Com- merce Commission, and then it would be for the Interstate Commerce Commission to determine whether the rate was a reasonable one or not as it determined the question ef interstate rates. I have not read the decision in the Nevada oc the decision of the Interstate Commerce Commission, but that is the way I understand the law. Mr. Benton. For the purpose of the reeord, if it may be done, I would like to have the inquiry presented to Mr. Shaughnessy whether: there was any evi- dence whatever in that case of discrimination injurious to particular persons or localities. The Cuamman. You may answer that; whether there was evidence to show that the rates were unduly disadvantageous. Mr. Benton. Whether there was any evidence whatever of discrimination, and if so, the extent of it. Mr, SHauGHNEsSY. Well, there was a so- called discrimination as between. the level of the two rates. The CHAIRMAN. That is not discrimination. Mr. SHaveunessy. No; that is what we contended that it was not what might be termed undue discrimination, because there were many factors enter- jing into any number, in fact a great majority of interstate rates, that do not apply to intrastate rates. The CHAIRMAN. The mere fact that the rates were not the same per mile, or on any other basis with interstate rates along that line, does not prove dis- erimination in and of itself. What I would like to know is whether the Inter- state Commerce Commission entered into an investigation of the manner in which, if at all, the State rates affected interstate commerce or the rates which the people who lived outside the State must pay in order to do business within the State. Mr. SHaucHnessy. No; they did not, Senator. It might be termed a series of hypothetical cases. The CHarzMaNn. Or in other words,.did they undertake to do in Nevada what the shippers outside the State of Texas did in the Shreveport case—to show that they were kept out of Texas by discriminating rates or lower rates in the State of Texas? Mr. SHauGcHNEssSY. The carriers contended. that that would be one of the effects, but they did not show in any particular case, not in one single case, that there was such a burden or restriction. on interstate commerce. And you will find in reading the opinion in the Nevada case that they make these rate comparisons all right enough, and then go on and say that there are a number of cases shown where the shippers might take advantage of shipping in to some Nevada point and unload and rebill and reship out again in order to gain ad- vantage of the difference between the two rates. But as to any actual burden or restriction upon interstate commerce they failed to show anything of that kind. And when it came to the reasonableness of the rates which the Interstate Commerce Commission had called upon the carriers.to put into the record, counsel for the carriers refused flatly—abselutely failed and refused to put in evidence on that part of it. The CHarrMan. That was before your commission? Mr. SuavucHnessy. No; this was before the Interstate ‘Commerce Commission, And, the Interstate Commerce Commission, finding that no record had been put in in the Nevada case, I assume, issued the order ‘to investigate the reasonable- ness of the rate; or that would be the theory underlying it. In that connection, of course, this procedure was bad, for the reason that it would, in effect, make an original proceeding out of it;. that upon complaint from the carriers that the Nevada rates were discriminatory, the Federal commission, . without evi- dence other than a difference in level of rates, found that the intrastate rates 152 MODIFICATION. OF TRANSPORTATION ACT, 1920. should be increased in the same percentages as those -provided for interstate rates in Ex parte 74. This action gave the State commission no opportunity whatever to pass upon the rates under its jurisdiction, unless it did so without evidence, which it is not empowered to do under the laws of Nevada. We argued strenuously that there was no authority in law by which the Interstate Commerce Commission could assume such jurisdiction over every State rate within our jurisdiction, and in this connection we objected along the following lines: FORMAL OBJECTIONS OF PUBLIC SERVICE COMMISSION OF NEVADA. [Before the Interstate Commerce Commission. I. C. C. Docket No,,.11914. Involving rates, fares, and charges of the Southern Pacific Co. et al. operating within the State of Nevada. Hearing at Reno, Nev., Dec. 6, 1920.] We object to the granting of the prayer of the carriers in this proceeding, to wit: “ That an order be entered * * * prescribing rates and fares for the transportation of freight and passengers within the State of Nevada,” on the ground that to do so is.a suit against the State of Nevada without its consent (which consent is hereby formally denied), and therefore this honorable com- mission has no jurisdiction to in any way interfere with the domestic affairs of this State. : : We further object on the ground that the carriers have failed and refused to make any showing before the Nevada commission by which it could be determined what is the reasonable valuation of the properties actually and beneficially devoted to the service within the State of Nevada. " We further object on the ground that such an order as prayed for by the carriers would be unlawful and unjust on the ground that said carriers have failed and refused to submit any testimony before the Nevada commission by which it could be determined whether or not the present rates and fares between points within the State of Nevada are excessive and unjust, or less than just, reasonable, and fairly compensatory, when measured by. the reasonable valuation of the property actually and beneficially devoted to the service within Nevada. We further object that the carriers have failed to state a true cause of action and are improperly before this honorable tribunal-on the ground as aforesaid, that they have established no basis as to whether the rates within Nevada are less than just, reasonable, and compensatory, and without which they can not be heard to complain that Nevada’s rates are unduly discriminatory against interstate rates which were horizontally increased in Ex parte 74, and which thus far have not been measured as to their reasonableness to the public. And in this behalf, : We further object on the ground that there is nothing in the Esch-Cummins Act which authorizes the Federal commission to fix a high rate in one State in order that it may confer jurisdiction upon itself to say that.rates in another State are too low and must therefore be raised to the same level on the ground that the carriers need the money and without regard to the reasonableness of the rates to the public. : We further object that under the aforesaid act this commission is without jurisdiction to do more than investigate and determine the reasonableness of the interstate freights and fares of railroads serving Nevada, and that until such determination is made and in the absence of.a showing by the carriers before the Nevada commission that the present rates are unjust, unreasonable, and noncompensatory, the honorable Interstate Commerce Commission has no power to in any manner interfere with the intrastate rates within Nevada. This is true for the reason that otherwise under the issues raised in the pleadings and the failure of the carriers to submit evidence before the Nevada commission, this proceeding will be the full equivalent of an original proceeding by the 'Inter- state Commerce Commission to determine and fix the reasonableness of both the interstate and intrastate fares at one and the same time, a power which this honorable commission does not possess. In this behalf the jurisdiction of the Federal commission is clearly restricted from proceeding as aforesaid by para- graph 2 of section 1 of the Interstate Commerce Commission act, wherein it is provided that— = : ‘ a : ‘ “The provisions of this act shall not apply to passengers or property or to the receiving, delivering, storage, or handling of property wholly within one State and not shipped to or from a foreign country from or to an~ place in the United States as aforesaid.” ‘ MODIFICATION OF TRANSPORTATION ACT, 1920, 158 Further, the same section (1) limits the jurisdiction of the ‘Interstate Com- merce Commission to the regulation and control of. interstate columerce and no other, and this grant of authority reads as follows: “The provisions of this act shall apply to the transportation of passengers or property * * * from one State or Territory of the United States or District of Columbia, to any other State or Territory or the District of Colum- bia, or from one place in a Territory to another place in the same Territory, but shall not apply to the transportation of ¢ passengers or property, etc., wholly within one State. * * We further object that if carriers’ application in this proceeding is granted and receives the approval of the United States Supreme Court, it means the beginning of the end of State authority and the effective exercise of our dual form of government; in other words the ultimate destruction of the people’s right to local self-government and in lieu thereof the centralization of all im- portant functions of local government in the hands of bureaucratic departments at Washington. We further object that, if the carriers’ prayer is granted and ultimately re ceives the approval of the United States Supreme Court, the immediate effect will be to take from our legislators, courts, commissions, and the direct vote of the people upon the initiative, all power which they have heretofore exercised, over State commerce, and its instrumentalities. The question: at issue is one of government upon which there can be no compromise and if present con- stitutional provisions are susceptible of the construction contended for under the Esch-Cummins Act, the time is at hand for immediate appeal to Congress, and, if necessary, to the people for the submission and passage of a further constitutional amendment in such form as will, for all time, save to the people their rights, liberties and local independence. We further object upon the ground that the Interstate Commerce Commission determined aggregate value of railroad property fixed under Ex parte 74, sec- tion 15-A, is unjust, unreasonable, and excessive as a basis upon which’ to measure the reasonableness of rates to be literally applied to traffic moving to and from and within Nevada. Further that the interstate rates fixed thereon will dry up certain lines of industry and in other cases will cause a diminution in development and cast an unjust and excessive burden upon Nevada’s pro- ducers, travelers, and consumers. ‘ Pustic SERvVIcE CoMMISSION oF NEVADA, J. F, SHAUGHNESSY, Chairman. The commission disposed of our contentions at page 637, in the Nevada Ad- vance Rate Case (60 I. C. C. reports), wherein the commission said that “In answer to a somewhat similar contention in Arkansas Rates and Fares (59 “I. C. C., 471), we held: The desirability of concerted action of the ‘State and Federal regulatory bodies in all matters of transportation in which the power of both is involved has been given recognition in the interstate commerce act. The action of respondents in bringing the matter before us in advance of the filing of an ap- plication with the corporation commission and a determination by it renders difficult the coordinated action contemplated by Congress and deprives us of the benefit of such investigation and findings as the State authorities might have made. However, we are here confronted with practical questions for the solution of which Congress has provided a practical course of procedure by means of which substantial justice is assured. Respondents have elected to pursue that course and we are not vested with appellate power under which they might be remanded to tribunals of the State.” That is the vice as we see it of the working of the transportation act as construed by the Interstate Commerce Commission and the carriers. The car- riers contended entirely along those lines—that if the State commission acts all well and good, no matter what the statements made.may be or no matter what the proof may be. Otherwise, upon appeal to the Interstate Commerce Commission, it may assume the equivalent of original jurisdiction and go for- ward upon such basis. The CHainman. I think the act ‘gives to the Interstate Commerce Commission original jurisdiction, We put into the act a clause which gives the carriers, for the first. time, I think, the right to complain of a discriminatory State rate ; 154 MODIFICATION OF TRANSPORTATION ACT, 192U. and I think the carrier under the law would have the right to go directly, if it does exercise it, to. the Interstate Commerce: Commiysion and say that your rate on a certain commodity is unduly diseriminatory against interstate com- merce upon that commodity. Then I think comes the cooperation which the act provides for between the Interstate Commerce Commission and the State commissions, If the Interstate Commerce Commission finds upon testimony that that rate dees unjustly and unduly affect shippers or dealers or producers outside the State, if that is its finding, why, then we gave it the power to say what that rate shall be; in other words, to remove the discrimination. When it comes to the exercise of that part of its power it is governed necessarily by the same rule, precisely, that we have laid down for interstate rate; that is, it must enter into an inquiry. as to the reasonableness of the rates. At least I see no escape from that conclusion. But the first thing that it has got to do is to: find that the rate is one which is made unlawful by the statute, namely, an unjustly discriminatory rate as against persons, localities, or interstate eom- merce. Mr. SHAUGHNESSY. Following out that theory, it would be difficult to find many rates that will be left in any particular State subject to the jurisdiction of the State commission. The CHAIRMAN. I do not agree with you. You are thinking of just one thing, namely, the difference in the level of rates. ‘ Mr..SHavucHNessy. Yes, but jurisdiction over every rate in Navada was taken by the Interstate Commerce Commission. The CHarrMAN. That fact does not establish discrimination at all. You may have a level of rates in a State on commodities and where business is done that may be lower or higher than rates outside upon the same commodity or business without disturbing in the least the competition between the people who enter into the business. Suppose in my own State we had a rate on pota- toes from a place 30 miles out of Des Moines into Des Moines. No matter what that rate was no: human being could say that it affected interstate commerce; would affect the shipment of potatoes anywhere. That is my idea about it. What I am anxious to find out is whether or on what kind of evidence the In- terstate Commerce Commission found that yow rates discriminated against interstate commerce. Mr. SHauGHNESsy. There was no evidence except the difference in the levels, Senator, and the possibility that discrimination might occur. But from the carrir’s standpoint, with emphasis too, they insisted that those rates must be upon a uniform level in order to bring in the necessary revenue. The Cuarrman. I have been led to believe from what has been introduced up to. this time that the railroads have taken the position that the mere fact the rates were different is sufficient to prove discrimination. ‘i Mr. SHAUGHNESSY. Yes; they have done that. That has been their position. That is the theory upon which the Interstate Commerce Commission rested its decision in this Nevada advance rate case started March 8, 1921. I will offer, if you desire, a copy for the record. The Cuarpman. I am going to have all those orders secured. Mr. SHAUGHNEssy. Do you want it put in the record? -The Cuamman. I would like to have it in the recrod. — Mr. SHAuGHNESSY..I now offer it. (The opinion is as follows:) £3709. Interstate Commerce Commission. No. 11914.’ Nevada rates, fares, and charges] In the matter of Intrastate rates, fares, and’ charges of the Southern Pacific ‘Co. and other carriers in the State of Nevada. Submitted February 1, 1921. ‘Decided March 8, “4921. Certain rates, ‘fares, ‘and charges required by State authority to-be maintained by the respondents’ within the State of Nevada found to be lower than the coe To interstate rates, farés, and charges authorized by Increased Rates, 1920 (58 I. C. C., 220) and to be unduly prejudicial to interstate passengers and, shippers, “unduly prefetential of intrastate passengers and shippers, and unjustly discriminatory against interstate commerce. L. B. Fowler, J. F. Shaughnessy, W. H. Simmons, James G. Scrugliam, Benson Wright, and Fred W. Feldt for State of Nevada and Public Service Com- mission of Nevada. MODIFICATION OF TRANSPORTATION. ACT, 1920. 155 Fred Wood, J. R. Bell, H. C. Booth, Fred E. Pettit, jr.. and James S. Moore, jr., for respondents. FE. H. Walker, for Reno Chamber of Commerce, Reno Rotary Club, Greater Carson Club, Churchill County Commercial Club, and Fallon Commercial Club. Cc. A. Stevens, for Verdi Lumber Co.; B. J. Henley, and H. M. Rives, for Nevada Mine Operators’ Association ; H. R. Cooke, for Round Mountain Mining Co., Fairview Extension Co., and Fairview Round Mountain Mines Co.; and S. W. Bedford, for Mason Valley Mines Co. John E. Benton, for National Association of Railway and Utilities Com- missioners. REPORT OF THE COMMISSION. Hatt, commissioner: In Ex parte 74, Increased Rates, 1920 (58 I. C. C,, 220) we authorized increases in rates,. fares, and. charges to be made by all steam railroads subject to cur jurisdiction in the group which serves the State of Nevada. These increases within that Sroup, designated by us as the mountain-Pacific group, were 25 per cent in freight rates;:20 per cent in passenger fares and charges, excess-baggage charges, and rates on milk and cream; and a surchage upon passengers in sleeping and parlor cars amounting to 50 per cent of the charge for space in such cars, to accrue to. the rail carriers. Increased rates, fares, and charges pursuant thereto were established generally, effective on August 26, 1920. Prior to our decision in Increased Rates, 1920 (supra) the steam railroads operating in the State of Nevada, except the Nevada Northern Railway, Co., had applied to the public-service commission of that State, hereinafter referred ‘to as the Nevada commission, for permission to make increases in their intra- State rates, fares, and charges similar to those which should be authorized by us on interstate traffic. After our decision the Nevada Northern peitioned the Nevada commission for permission to make the same increases in its in- trastate rates, fares, and charges as had been authorized by us with the ex- ception of intrastate rates on ores between points on what is. known as its “ Mines-Smelter ” branch. Hearing was held by the Nevada commission, and all of the evidence before us in Ex parte 74 was made part of the record before it. By report and order*of September 17, 1920, the carriers’ applications were denied. Thereafter certain. carriers by steam railroad operating in Nevada filed with us a peti- tion in their own behalf, and on behalf of all steam railroads that might be made parties, for relief in accordance with the provisions of section 13 of the interstate commerce act. This proceeding, to which all railroads subject to our jurisdiction in the State of Nevada have been made parties respondent, was then instituted on our own motion. There are no electric roads operating in Nevada. The record in Ex parte 74 has been made part of the record in this :case. “ Nevada is the sixth largest State in the Union and the least populous. The following table gives comparable data, based on the 1920 census, as to most of the States included in whole or in part in the mountain- Pacific group: ) Area in Population | Population State. Square |Population. poe per mile of miles. i railroad. : Motitana.....:ccasncsevacsiecseesececs ceareetesceewsees _ 146,997 547, 593 3.71 110. 55 Tdeho. io... ccnee sence eee ee eene aoe 88, 888 431, 826 5.14 149. 76 Wyoming....... ee 97,914. ., 194, 402 1.98 102, 02 Colorado. ...-.-.---++- 103, 948 30, 376 8.95 157. 49 New Mexico.......-.. 122,684 | | 360, 247 2. 93: 147,08 Arizona.... 118, 956’ 333, 273 2.91 * 140.17 Utah..... 84, 990 449; 5, 29 nu Nevada... - 110, 690 77, 407 699 3 Washington, 69,127 | 1,386, 316 19. 67 216, 23 Oregon..... a aiaig 96, 699 783, 285 8. 10 252354 it 4 a pop 2 ‘ 156 MODIFICATION OF TRANSPORTATION ACT, 1920. 1) PASSENGER FARES. The following table shows-the present intrastate and interstate bases of fares in Nevada:. : Rate per passenger- ¢ mile: ne oe Railroads. Intrastate. | Interstate. Southern Pacific-—Maiti line......2....--00s--0eredadncedvavesmuneeneeneserereswes Western Pacific—Main line... soe acet eels este Donan eee ses occa } so.08 50:08. Do cep reins mere gece ninintes weenie acin acaaatene eadesacdava ee eeniomas 045 - 054 Southern Pacific—Nevada & California branch...............2--.0--2-00eee-ceee Southern Pacific—-Fernley branch... ag Los Angeles & Salt Lake—Main line. Virginia & Truckee.............-. Tonopah & Tidewater... Tonopah & Goldfield.............---..... ‘ a e Los Angeles & Salt Lake—Branch lines. ... sdbsweceemewses taces a -06 .072 Western Pacific—Reno branch.........2.0.-.eceeeeecceeneeceteceecee Bs Bullfrog Goldfield... -05 - 06 Nevada Copper Belt ae -08 | 1.096 Nevada Central « sccnansieseseccwseedcnsiae've cicccosseecieecnse wel . 0968. 1.2115 Eureka Nevada, operated by the Nevada Transportation Co........... ae .10 No fares. 1 Joint interstate fares applying from points on these lines have not been increased. Prior to August 26, 1920, the level of interstate and intrastate passenger fares in Nevada had generally been the same. Their history may be sketched in a brief and general way as follows: - Prior to July 1, 1906, the passenger-fare basis on the main line of the Southern Pacific was 5 cents; on the branch lines from Hazen to Churchill, 7 cents; Churchill to Mina, 6.5 cents; and Mina to the State line, 6 cents. On that date the main-line fares were reduced to a basis of 4 cents per mile, while all the branches were placed on a 5-cent basis. These bases continued in effect until August 26, 1920, when the interstate fares were increased 20 per cent. In 1907 the Nevada commission instituted a proceeding looking toward reduction in the main-line fares of the trunk lines to 3 cents per mile. As a compromise the carriers established round-trip fares between .Reno and San Francisco, Sacramento, and a few other points in northern California on a basis of 80 per cent of double the one-way fare, and also established round- trip fares in Nevada on a basis of 85 per cent of double the one-way fare. . .On January 24,1913, the Nevada commission entered an order reducing the main-line fares of the Southern Pacific to 3 cents per mile and the branch- line fares to 4 cents per mile. The United States district court enjoined this order without passing upon the reasonableness of the fares. It was subsequently withdrawn and the proceeding discontinued. In 1914 the Nevada commission instituted another proceeding relative to passenger fares in Nevada. Hearings were had and the case submitted. No decision has been rendered. Recently the Nevada commission cited the Southern Pacific, Western Pacific, and Los Angeles & Salt Lake to show cause why their intrastate fares should not be reduced to a “ just and reasonable basis.” At the hearing the chairman of the commission stated that he considered 3.6 cents per-mile a .just-.and reasonable basis. , The existing intrastate fares of the Los Angeles & Salt Lake and the Western Pacific, which are the same as the interstate fares in effect. on August 25, 1920, were established on the opening of those lines in 1905 and 1910, respectively. Because of competition the Western Pacific established the fares then applying on the Southern Pacific. : The first passenger fares of the Tonopah & Goldfield were established in 1905 and were based on 10 cents per mile. On July 1, 1906, this basis was reduced to 8 cents, and on January 1, 1907, to 6 cents. The 6-cent basis in effect on the Tonopah & Tidewater and the Bullfrog Goldfield was established in 1907 and 1908, respectively. : Fares on the Nevada Central have been uniformly on a basis of 9.68 cents: per mile; on the Nevada Copper Belt § cents, established in 1910; and on the Nevada Northern 4.5 cents, prescribed by the Nevada commission in 1912. This MODIFICATION OF TRANSPORTATION ACT, 1920. 157 road also publishes intrastate commutation fares between McGill, Ely, and other points for the benefit of employees of the Nevada Consolidated Copper Co. The basis of the Virginia & Truckee is about 5'cents, representing reduc- tions made in 1911 and 1917. Se It will be seen that for the most part the fares in effect on August 25, 1920, had been in effect for many years and had been established during a period of relatively low operating costs. Prior to Federal control the carriers issued scrip books good for both inter- state and intrastate transportation, one for $90 at the rate of 2.5 cents per mile and one for $40 at the rate of 3 cents per mile. Full fare was paid in purchase of these books, but under appropriate tariff provisions refund was made to the bases stated. The extent to which these scrip books were used does not appear of record. One conductor on a main-line Southern Pacific train testified that they have not been used to any considerable extent in recent years. : Under general order No. 28 of the Director General of Railroads the use of scrip books and all round-trip fares, interstate and intrastate, was abolished throughout the country, effective June 10, 1918. The Nevada commission claims that this resulted in unreasonable passenger fares in Nevada. At the hearing its chairman admitted that while he never considered the main-line fares in Nevada to be just and reasonable the granting of the round-trip fares and use of the scrip books resulted in “ somewhere near a just and reasonable rate.” In New Mexico and California the intrastate fares have been increased 20 per cent, but in Nevada, Arizona, and Utah the increase was denied. The intrastate passenger revenue in Nevada of respondents for the year ended De- cember 31, 1919, amounted to $719,237.58, of which $630,836.28 was received on a basis of 5 cents per mile or less. Most of the remainder was collected by the Tonopah & Goldfield on a basis of 6 cents. For the eight months ended August 31, 1920, the corresponding revenue was $499,590.36, of which $487,638 was on a basis of 5 cents per mile or less, and, as in 1919, most of the remainder was received by the Tonopah & Goldfield on a basis of 6 cents per mile. ; These respondents estimate that if the present intrastate fares are continued for one year, and if the intrastate traffic during that year is the same as.in the calendar year of 1919, the direct loss of revenue through failure to secure’ the 20 per cent increase in intrastate fares will approximate $145,000. . Esti-: mates based on the traffic for the first eight months of 1920 indicate that their, annual “loss” would approximate $150,000. ; : % All of respondents except the Nevada ‘Transportation Co., operating the Eureka Nevada Railway, a narrow-gauge road, carry both intrastate and inter- state passengers on the same trains with the same service and accommodations., The intrastate passenger paying the lower fare rides in the same car with the. interstate passenger who pays the higher fare. The evidence shows that there are no traffic or transportation conditions in the State of Nevada which justify a. lower basis of fares for intrastate transportation than for interstate. On the contrary, the average length of passenger haul interstate is several times the intrastate, as will be seen from the following table for 1919: Average haul. Respondent. Intrastate. | Interstate. | 8 |. M0863 Southern Pacific Co.—Pacific system........-...022.020 20 ec cece ec ee cee cence eee 5 ‘ . 63. Western Pacific Rajlroad.............- shige 45, 82 279,17 Los Angeles & Salt Lake Railroad. = 36. 35 212. 86 Bullfrog Goldfield Railroad . . 84 78.81 Nevada Central Railroad..... 77.01 77.01 Nevada Copper Belt Railroad 4 . 12,23 14, 88 Nevada Northern Railway..... ania SSUES SEER OUTER a Gate ecu 12, 51 120. 48 Tonopah & Goldfield Railroad... . nieaiessarcciuele miei oiia ails aeejeletetcieaetaie eeiseiane 63. 57 67. 42 Tonopah & Tidewater Railroad... colons avotegs sizgates$ dazseiais lawicgaiaseenatoleralecclalaxs Sacteasetel 11.19 29, 94 Virginia & Truckee Railway ........22..22- 22 cece cece cee ee cee cnet eee een eee 27. 45 72.95 Similar evidence covering the eight. months ended August 31, 1920, shows approximately the same result. It should be observed that the average insterstate haul of the lines that cross the State includes not only traffic to or from points in Nevada but the haul in Nevada on traffic that crosses the State. ; 158 MODIFICATION OF TRANSPORTATION ACT, 1920. The train-mile earnings from passenger , traffic are said to be naturally higher in States more densely populated than Nevada. It is also shown. that the earnings per train-mile, from passenger traffic. are greater on through in- terstate trains crossing. Nevada than on local trains within Nevada. An ex- hibit shows earnings on certain local branch-line trains of the Southern Pacific ranging from 14 cents to $1.62 per mile, while earnings on representative through interstate trains for, the first .10 months of 1920 range from $2.79 ¢o $3.60 per mile. The greater part of intrastate passengers on the main lines in Nevada are catried on through interstate trains. To show that, so far as passenger traffic is concerned, local stations ‘in Nevada are maintained principally for intrastate business, respondents intro- duced. exhibits as to ticket sales. Thus, during three months ended October 31, 1920, the total ticket sales at 34 stations of the Southern Pacific were, inter- state 6,342, intrastate 23,700. This does not include Reno, where interstate ticket sales predominate. The ratio of intrastate to interstate is even greater on the short lines in Nevada. The record’ contains many illustrations of the way in which the Nevada in- trastate fares have the effect of reducing the earnings on interstate traffic, or rather on what would be interstate traffic if it were not for the difference tn fares. Passengers coming from or destined to points outside the state find it cheaper to pay the intrastate fare within Nevada and the interstate fare be- yond the border than to pay the through interstate fares for the whole journey. Station agents and conductors testified that this practice was growing and difficult to eliminate. The situation is aggravated by the fact that holders of scrip books which represent so much cash can defeat the through interstate fares without leaving the train. This practice tends to break down the inter- state adjustment. “The difference in the level of the fares tends to prejudice localities outside the State of Nevada. Reno is by’ far the largest jobbing center in the State. Prior to August 26, 1920, the one-way fares from Goldfield to Reno and San Francisco were respectively $14.15 and $22.65. At the present time they are $14.15 and $27 .18,. respectively. No round-trip fares are now in effect: A passenger can go ftom Goldfield to Reno and return for $2830. To San Francisco and return he must pay $54.86, a difference in favor of Reno of $26.06, whereas prior to August 26 the difference in favor of Reno was $17. It. appears that during. the summer season round-trip fates tess than @ouble the one-way fare have been published from Goldfield to San Francisco. Again, Palisade, Nev., is approximately the.same distance from Reno and Salt Lake City, and prior to August 26, 1920, the fares were on the same basis. Now, the fare from Palisade to Salt. Lake is on‘a basis 20 per cent higher than that of the fare to Reno. The Western Pacific and the Southern Pacific have many stations common to both in eastern Nevada. From Reno to these points the route of the Southerr Pacific is intrastate, but that of .the Western Pacific is for about 50 niiles in California. As stated before, the fares from Reno to these stations from the time of the opening of -the. Western Pacific until August 26, 1920, were approxi- mately the same. ‘The fares over the interstate route of the Western Pacific have been increased 20 per cent. Those over the intrastate route of the Southern ‘Pacific td the same destinations have not, with a resulting difference ranging from $1.41 at Winnemucca to $2.87 at Wells. This relation of fares was made the subject of informal complaint to the Nevada commission and elicited from the chairman of that commission the TOMI WERE: expression to com- plainant:: \ _ There is no good reason, as we view it, why the Western Pacific should charge higher fares between Reno and other’ points throughout the State of. Nevada than are charged by the Southern Pacific, nor do we believe that the company will desire to continue such a business policy for any great length of time. It is within the power of the Western Patific Railroad to reduce its fares to the bases of those charged by the Southern Pacific within Nevada.” It was testified that the inevitable effect of this situation will be to force a reduction of the Western Pacific fares unless the Southern Pacific fares are increased. What has been said with reference to passenger fares applies with equal force to the surcharge for space in Pullman or parlor cars and the excess- baggage charges. Respondents estimate that their loss due to failure to secure the surcharge will approximate $12,500 annually, based on the traffic during 1919. MODIFICATION OF TRANSPORTATION ACT, 1920, 159 The Nevada commission compared passenger fares in Nevada with passenger fares per mile in other States, but with no showing as to similarity of transpor- tation conditions. The average revenue per passenger mile received by the Western Pacific, Los Angeles & Salt Lake, and Southern Padific for their sys- tems as a whole is naturally less than that received in Nevada on account of the lower basis in California, and, in the case of the Southern Pacific, on ac- cuunt of the heavy commutation travel in and out-of San Francisco und other bay points. The Nevada commission also submitted evidence as to passenger earnings for railway systems in various parts of the country which are of littie value in this proceeding. ; The record does not warrant a finding with respect to the relationship of intrastate and interstate commutation or other multiple forms of tickets, excur- sion, convention, or other fares for special occasions, or club-car charges, The intrastate movement of milk and cream in Nevada is negligible, and no evidence was offered with reference thereto. ; II. FREIGHT RATES, The Nevada commission admitted at the hearing that the Nevada State rates were on a just and reasonable basis prior to the increases under general order No. 28, and that it had diligently sought to harmonize those rates with rates in effect in California and elsewhere. Prior to Federal control the Nevada rates had been subjected to many reductions aggregating several hundred thousand dollars annually. The further admission was made that its opinion as to the justness and reasonableness of the rates in effect in 1917 was based on a valua- tion hereinafter considered. Respondents estimate that their failure to secure a'25 per cent increase in intrastate freight rates will result in annual loss of approximately $340,000, based on the traffic for 1919, or based on the traffic for ‘eight months of 1920, approxi- mately $397,000. They show that the average haul on traffic in Nevada is much longer, interstate than intrastate. The tonnage of intrastate freight handled in several States of the mountain- Pacific group is stated as follows: ° Year. Nevada. Arizong..| Oregon. | California. Tons. Tons. “ Tons, — 190;925:| 1,289,365 | 12,995, 345 181, 844 | 1,341,404 | 12,855,390 137,269 | 1,686,451 | 12,449,115 114; 152'| 1,183/000 | 12, 462, 166 es] epee | absie y or fe a aoe a76 I 3,572,350, 13°1207565 GQ) }'2y678,'867-) ay 1No record was maintained during 1919 segregating interstate and inttastate traffic in California and Prior to ‘August ‘26, 1920, class rates for application :to interstate: and -in- trastate traffic in Nevada were generally on the same basis. In Traffic Bureau of Merchants Exchange v. 8. P.Co. (19 I. C. C., 259), decided June'6, 1910, we prescribed a maximum scale of class rates from Sacramento, Calif., to points on the main line of the Southern Pacifi¢ in Nevada. In 1913, the Nevada commission prescribed a distance scale of class ‘rates ‘for: application. where no specific class rates were named between points :in Nevada on the main line of the Southern Pacific ; specific class rates between Reno, Lovelock, Winnemucca, Elko, and other main-ltine points: on the Southern Pacific; and specific class rates between the points named and points on the branch lines of the Southern Pacific south of Hazen. The‘carriers in publishing the rates so prescribed made them applicable also to interstate traffic in cases where no specific rates were. in effect. The reduction in-rates to points south of Hazen resulted in reduction of rates to points on the Tonepah & Goldfield. On April 20, 1914, the Nevada. commission ordered-a further reduction in all rates from Reno to certain points on the Tonopah & Goldfield, -:and this was made with specific reference to. rates. from California. The rates in-effect June 24, 1918, on the Nevada Northern. were the result of drastic reductions ordered by the Nevada commission in. 1912. aimee . 160 MODIFICATION OF TRANSPORTATION ACT, 1920. . In the Goldfield cases (34 I. C. C., 860), decided June 17, 1918, in discussing rates to points on the Tonopah.& Goldfield, Bullfrog Goldfield, and Tonopah & Tidewater, we said at page 870: “The rates on all these lines from the east and from the west, were reduced in 1910 by the order of the commission respecting class rates from ‘Sacramento to points in Nevada, 191. C. C., 259. The rates formerly in effect from Sacramento to Hazen, Nev.,. were as follows : Classes_____.- Rc AE eet ede tat 1 2 3 4 5 A B CGC D E Ratessnencse eet eats 129 1138 102 87 78 78 34 3834 25% 253 “The order of the commission reduced these rates to the following: ClASS@8 223 Bh 1 2 8 4 5 A B CG D EB Rates. -85 71 64 51 48 48 34 28 25 21 “The direct effect of the order was to reduce the rates from California points to points in Nevada, but owing to the fact that many rates from eastern points were made by combination over San Francisco, Sacramento, or Los Angeles, reductions were thus brought about from eastern points to this terri- tory. The various orders of the Nevada Railroad Commission have also had the effect of reducing the rates on some of these railroads.. A rather notable case is one concerning the rates on forest products from Verdi, Nev., to Tono- pah and Goldfield, which resulted in very material reductions in the rates on mining timbers and other lumber.” We found on page 376 that the rates on many. commodities from various points in the United States had not been shown to be unreasonable or other- wise unlawful, and the pending complaints were dismissed. . The distance class scale in effect June 24, 1918, ‘on the Los Angeles & Salt Lake ‘was that established when the line was opened in 1905 and was the same for intrastate and interstate application. The operating conditions over this carrier’s line in Nevada are much more severe than elsewhere, except for a severe grade between San Bernardino and Summit, Calif., about 20 miles. In Nevada it runs through desert country and-a canyon about 150 miles long known as the Meadow Valley Wash. Fuel and water must be. hauled from distant sources of supply, labor difficulties have been frequent, and the road has been closed for intervals ranging from 10 weeks to 6 months -because of slides and washouts in the canyon. Lumber is one of the principal commodities moving in Nevada, both inter- state and intrastate. A mill at Verdi, Nev., a few miles east of the Nevada- California line, is in competition with mills in the Truckee River district of California. , All these mills cut the same kind of timber and. manufacture the same kinds of lumber. They have always been in the same rate group on movements to practically all points, except that to Reno, ‘Tonopah, and Gold- field the rates from Verdi were slightly lower.and to near-by. California. points slightly higher than from the other mills. On westbound shipments the same parity still exists, as the California intrastate rates have been increased by the same percentage as the interstate rates, but Verdi now has an advantage to points in Navada. To the Tonopah and Goldfield district, the largest con- sumer of forest products in Nevada, the former advantage of Verdi over West- wood, Calif., has been increased from 2.5 cents to.14.5 cents per 100 pounds, and over Truckee from 4 cents to 16.5 cents. There is also a heavy movement of forest products to this district from Oregon and California mills, moving all rail or water to San Francisco, Los Angeles, or San: Pedro, and thence by rail. It is said.that the rates for this movement haye always been made with relation to the rates from Verdi and the Truckee River district. In 1910 the Nevada commission reduced the rates from Verdi to Tonopah and Goldfield, thereby forcing a reduction in rates from California and Oregon. According to figures of the Nevada commission this one reduction amunted to $89,000 annually. Flour mills at Reno, Sacramento, Ogden, and Salt Lake City compete actively for Nevada business. The rate on flour from Reno is blanketed from Carlin, 292 miles east of Reno, to the. Nevada-Utah State line. This rate is 46 cents and, prior to August 26, 1920, the rate from Sacramento was also 46 cents. To intermediate points between Reno and Carlin, the advantage of Reno over Sacramento ranged from 31 cents to 4 cents. Sacramento now pays 57.5 cents to the points blanketed east of Carlin, while Reno still enjoys the 46-cent rate, and the differentials to the intermediate points now range from 40 ceaie to 15.5 cents, MODIFICATION OF TRANSPORTATION ACT, 1920, 161 Utah-Idaho Millers & Grain Dealers Association v. Railroad Co. (42 I. Cc , 648), we found that the rates on flour from points in Utah and Idaho 2 nnn in Nevada and California were unreasonable and unduly prefer- ential to the extent that they exceeded by more than 5 cents per 100 pounds the rates on wheat then in effect from and to the same points. The rates then in effect on wheat were found to be not unreasonably low. We found that the rate on flour from Ogden to San Francisco applied to a blanketed territory of destination extending east to Avenal, Nev., a distance of 550 miles. On August 25, 1920, the rate was 46 cents and under Ex parte 74 was increased to 57.5 cents. The same rates generally applied from Salt Lake City. As stated ‘Before, Palisade is approximately equidistant from Reno and Salt Lake. ' Prior to August 26, 1920, Ogden had an advantage of 1 cent over Reno’ at Palisade and 5 cents over Reno at Carlin, a point just east of Palisade’ On and after ‘Au- gust 26 Reno had an advantage at Palisade of 9.5 cents and at Carlin ‘of 4.5 cents. At Tecoma, the first station in Nevada on the Southern Pacific’ west: of the Nevada-Utah State line, Reno is now at a disadvantage of only 1 cent. The distances from ‘Reno and Ogden to Tecoma aré, respectively, 426 and 118 miles! There are packing houses at Reno, Sacramento, Oakland, and San Francisco. From Nevada points the rates on fat, cattle are generally the same to the three California points named, but to Reno prior to August 26, 1920, the differential under these points ranged from $26 per standard 36-foot car at Tecoma to $64 at Hazen 45 miles east of Reno. As the rates to Reno have not. been increased the differentials now range from $57.50 per car at Tecoma to $89.50 at Hazen. It was testified that the rates in effect prior to June 25, 1918, date of their increase under general order No. 28, had been in effect for many years. Cyanide of potassium is consumed in considerable quantities at points in the Tonopah-Goldfield district. It is usually shipped from Perth Amboy, N. J., or Niagara Falls, Ontario. The joint through rate to Tonopah and Goldfield is $4 per 100 pounds. To Hazen, Nev., it is $2. The intrastate rate from Hazen to these two points is $1.60, thus cutting the through rate 40 cents. This commodity ‘ean be loaded to capacity of the car and on a shipment of 100,000 pounds the through rate could be defeated to the extent of $400. The Nevada commission attacks the factor south of Hazen of the joint through rate and claims that ¢~ increase the intrastate rate to $2 would be unreasonable. No cyanide of potas- sium is produced at Hazen and we must look at the through rate from point of origin to final destination. In the Goldfield cases, supra, we found that ‘a rate of $2.08 on this commodity from San Diego and San Francisco to. Tonopah in effect during the period from January 18 to September 24, 1912, and a rate of $1.92 in effect during the period from November 29, 1913, to December 15, 1914, had not been shown to be unreasonable. The $2 rate from Perth Amboy and Niagara Falls to Hazen is also applicable to San Francisco and other California terminals and is said to be water compelled. There is evidence with respect to the competitive routes of the Western Pacific and the Southern Pacific between Reno and points in eastern Nevada. It is obvious that if the intrastate rates of the Southern Pacific are not increased the interstate rates of the Western Pacific will have to be reduced or the Western Pacific must retire from the business. The Nevada commission sought to prove that the operating conditions over this longer route are more severe than over the Southern Pacific, and that the rates should be fixed with reference to the Southern Pacific and not to the Western Pacific. It contends that if rates are reasonable over the Southern Pacific it would be unreasonable to increase them in order to allow the Western Pacific to compete on rates profitable to it. The Western Pacific did not enter Reno until 1917. It then adopted the rates in effect between Reno and points common to it and the Southern Pacific, many of which had been prescribed by the Nevada commission in 1913. There are many illustrations of record as to the manner in which the through interstate rates can be defeated by forwarding to a Nevada point, taking deliv- ery, and reshipping. This is not always practicable but on some commodities it could be done with considerable saving. The Nevada mining interests urgently insist that they can not stand an in- crease in ore rates. The saine contention was made before us in Ex parte 74 by the chairman of the Nevada commission. The movement of ores to Nevada smelters is largely intrastate. There are smelters at Wabuska and Ely, and n mill for the treatment of ores at Millers. The smelter at Wabuska has been 73337—21—pt 1——-11 162 MODIFICATION OF TRANSPORTATION ACT, 1920. closed since February, 1919, because of the condition of the copper market. Prior to its closing this smelter drew ores from. California and Nevada, and the rates on such ores from eertain California points are now before us in No. 11896, Mason Valley Mines Co. v. W. P. R. R. Co. The principal intra- state movement of ores in Nevada is over the Tonopah & Goldfield and the Nevada Northern. The general manager of the Tonopah & Goldfield testified that even if authority was granted his road would not increase its ore rates, and that there was an identity of interest, between the road and the principal mine served by it. No specific evidence with reference to ore rates on the Nevada Northern was offered, but in its application to the Nevada commis- ston for authority te increase intrastate rates it excepted rates on ore. The last annual report of the Nevada Northern on file with us shows that it is controlled by the Nevada Consolidated Miming Co., which operates a mill, smelter, and-several mines served by the road. The respondent carriers have not in all instances inereased their intrastate rates on ore as permitted in Increased Rates, 1920, supra, and the record does not warrant a finding of undue prejudice or unjust discrimination with respect to the intrastate rates on ore. VALUATION. f The Nevada commission submitted evidence showing segregation of value, revenues, and expenses for the State of Nevada and the systems of the trunk line respondents as a whole with a view to showing that their mileage in Nevada is more profitable than for the systems as a whole. Expenses and earn- ings were allocated on a somewhat arbitrary train-mile basis. In its report denying the carriers’ applications for increases the Nevada commission found that’ $146,420,551.04 was the book cost value of the carriers’ property in Nevada. In Ex parte 74'‘the aggregate value fixed by us is said by the Nevada commission to result. in a reduction of 5.7 per cent from that claimed by the carriers. Applying 5.7 per cent to the above figure we have $138,074.571.15.. The Nevada commission contends that the fair value of the carriers’ property in Nevada is $79,115,222. Nothing has been submitted in support of this figure, which seems to be an estimate of that commission in the absence of any valu- ation made by it. To go to the full extent claimed by the Nevada commission would ultimately result in breaking up each group fixed by us into groups bounded by State lines. In Intrastate Rates within Illinois (59 I. C. C., 350) we said, at page 364: “It is further urged that in Increased Rates, 1920, we did not find the value of any railroad property in the State of Illinois or elsewhere in the eastern or western groups ‘as designated in that report, We. were directed to. prescribe rates so that in the aggregate they would yield a certain return, as nearly as may be, ‘upon the aggregate value of the railway property of such carriers held for and used in the service of transportation.’ We understand the inter- state commerce act to require us to. determine upon a valuation for the total property of the carriers and not for the property that might by some necessarily arbitrary method or formula be assigned to interstate traffic, and that is the Sune we followed in arriving at the estimated value used in Increased Rates, ' The Nevada commission compared many class ‘and commodity rates for hauls in Nevada with rates for hauls of similar distances in other States, Thus, comparison is made of class rates and rates on some 42, commodities from Sacramento to Greenwood, Calif., and from Boise to Doran in Idaho,‘ which are said to represent hauls of approximately the same distance as those from Reno to Lovelock and between points on other lines in Nevada! also of Nevada rates with rates. from San Francisco to many. points in California : rates from points outside Nevada to points within the State; and transcontinental rates. , This and similar evidence was unaccompanied by any showing of transporta- tion conditions or of movement of the commodities named, and is of little pro- bative value. From tariffs on file with us it appears that Greenwood and Doran are nonagency stations. Comparison was also made of the intrastate class rates between main-line points on the Southern Pacific and the maximum ‘class scale prescribed by us in the Memphis Southwestern Investigation (55 I. C. C., 515), as follows: MODIFICATION OF TRANSPORTATION ACT, 1920. 168 Classes. : 1,| 2 | 3 4), 5 | A] B a o a 50 miles: ‘ Cents.| Cents.| Cents.| Cents.| Cents.) Cenis.| Cents.| Cents.) Cents.) Cents. Nevada,intrastate scale1..| 40 35 31 27 25 25 7 4 12 9 Memphis - Southwestern : » SCRE. cw... eee een eee 36.5 | 31. 25.5 | 22 17.5] 186 | 145) 12.5] 11 9 100 miles: s Nevada intrastate scale!_.| 60 51 43 39 36 | 36 yy 10 15 12 Memphis - Southwestern SCAIlO. cose oc ce tesecenaics 51.5 | 43.5 | 36 31 ‘24.5 | 27 20.5 | 18 15.5 18 150 miles: Nevada intrastate scale1..) 80 68 56 50 46 46 32. 24 20 16 Memphis - Southwestern ne SCAG. . 2.2... eee e cence 66.5) 56.5} 46.5 40 32 35 26.5 | 23 20 16.5 200 miles: Nevada intrastate scale 1. _) 100 85 70 63° 58 58 40 30 25 20 - Memphis - Southwestern ‘ eS) V7 65.5 | 54 46 37. 40 31 27 23 19 300 miles: Nevada intrastate scale 1..| 133 113 93 83 76 76 53 40 ER} 27 “ Memphis - Southwestern 3 j i Ss W Mpesiesemaciead immnis 96 81.5 | 67 57.5 | 46 50 38.5 | 33.5 | 29 24 400 miles: ; Nevada intrastate scale 1. .| 155 132 109 97 89 89 62 47 39 31 Memphis - Southwestern SCBIO scricecrcencissaicuesics 11 94.5| 77.5| 665] 53.5] 57.5 | 44.5) 39 33.5 | 28 1 Nevada intrastate scale between main-line points on the Southern Pacific in effect June 24, 1918. The Memphis-Southwestern scale as prescribed by us, and as used in this table, did not include the 25 per cent increase under general order No. 28. The rates within the territory in which this scale applies were later increased by 35 per cent under Ex parte 74. No showing was made of similarity of transportation conditions in the territories where these scales are respectively applicable. It will be seen that for 100 miles and less the Nevada intrastate scale in effect June 24, 1918, did not greatly exceed the Memphis-Soutb- western scale. If the increases under general order No. 28 and Ex parte 74 were applied to this scale it would in many instances be higher than the present Nevada intrastate scale. The average haul on intrastate traffic in Nevada over the Southern Pacific in 1919 was 100.25 miles and for the first eight months of 1920 was 93.68 miles. . As stated before the Nevada intrastate scale. was. prescribed by the Nevada commission in 1913, and was made applicable by the Southern Pacific on interstate traffic. On June 25, 1918, it was in- creased 25 per cent and on August 26, 1920, it was increased 25 per cent for interstate application. ‘Much of the evidence in Ex parte 74 to which the Nevada commission refers has little or no bearing on’ the relationship of interstate and intrastate rates within Nevada and is really put forward in support of its contention that interstate rates to and from Nevada points are unreasonable and prejudicial. as compared with interstate rates to and from points in other States. It further contends that as the carriers submitted little evidence in the hearing before it we should refer them back to it to seek their remedy. The entire record in Ex parte 74 was before it when it denied the carriers’ appli- cations. In answer to a somewhat similar contention in Arkansas Rates and Fares (59:1. C. C., 471) we said: “The desirability of concerted action of the State and Federal regulatory bodies in all matters of transportation in which the power of both is involved has been given recognition in the interstate commerce act. The action of re- spondents in bringing the matter before us in advance of the filing of an appli- eation with the corporation commission and a determination by it renders diffi- cult the coordinated action contemplated by Congress and deprives us of the benefit of such investigation and findings as the State authorities might have made. However, we are here confronted with practical questions for the solu- tion of which Congress has provided a practical course of procedure by means, of which substantial justi¢e is assured. Respondents have elected to ‘pursue that course and we are not, vested, with appellate power under which they might be remanded to tribunals of the States.” ger 164 MODIFICATION: OF TRANSPORTATION: ACT, 1920. ~ pr! “ole FINDINGS, a Following the New York, Ilinois, and Wisconsin cases (59 I. C. C., 290; ib. 350; ib. 891), and upon this record, subject to the exception above noted in respect to commutation or other multiple forms’ of tickets, excursion, con- vention, or other fares for special occasions, and club-car charges, we’ are of opinion and find that the increases made by the respondent steam railroads, - except the Nevada Transportation Co., operating the Eureka Nevada Railway, under Ex parte 74, relating to: passenger fares and excess-baggage charges, and now in effect, result in reasonable passenger fares and excess-baggage charges for interstate transportation and that the failure of said’ respondents to in- crease the standard intrastate fares and excess-baggage charges accordingly within the State of Nevada has resulted and will result in intrastate fares and excess-baggage charges lower than the corresponding interstate fares and ex- cess-baggage charges, in undue prejudice to persgns traveling in interstate commerce within the State of Nevada and between points in the State of Nevada and points in other states, in undue preference of and advantage to persons traveling intrastate in Nevada, and in unjust discrimination against interstate commerce. We further find that said undue prejudice, undue preference and advantage, and unjust discrimination can and should be removed by making inoreases in Said intrastate passenger fares and excess-baggage charges which shall corre- spond with the increases heretofore made by said respondents as aforesaid under Ex parte 74 and now in effect in their interstate passenger fares and excess-baggage charges within that group. We further find that the surcharges made by said respondent steam rail- roads, except the Nevada Transportation Co., operating the Eureka Nevada Railway, under Ex parte 74 and now in effect upon passengers in sleeping and parlor cars result in reasonable charges upon passengers so traveling in interstate commerce, and that the failure of said respondents to make corre sponding surcharges upon passengers so traveling in intrastate commerce within the State of Nevada has resulted and will result in intrastate charges lower than the corresponding interstate charges, in undue prejudice to persons: so traveling in interstate commerce within the State of Nevada. and between points in the State of Nevada and points in other states, :in undue preference of and advantage to persons so traveling intrastate in Nevada, and in unjust discrimination against interstate commerce. We further find that said undue prejudice, undue preference and advantage, and unjust discrimination can and should be removed by making surcharges upon passengers so traveling in intrastate commerce which shall ‘correspond with 'the surcharges heretofore made as aforesaid under Ex parte 74 and now in effect upon passengers so traveling in interstate commerce. We further find, subject to the exception above noted with respect to rates on ore, milk, and cream, that the increases made by the respondent steam rail- roads relating to freight rates and charges under Ex parte 74 and now in effect result in reasonable rates and charges for interstate transportation, and that the failure of said respondents to correspondingly increase their rates and charges for intrastate transportation within the State of Nevada has resulted and will result in intrastate rates and charges lower than the corresponding rates and charges maintained on interstate traffic within the State of Nevada, und between points in the State of Nevada and points in other States in undue preference of shippers of intrastate traffic within the State of Nevada, in un- due prejudice to shippers of interstate traffic, and in unjust discrimination ngainst interstate commerce. We further find that said undue preference, undue advantage and prejudice, and unjust discrimination can and should be removed by making increases in said intrastate rates and charges as in effect July 29, 1920, which shall corre- spond with the increases heretofore made by said respondents aforesaid under Ex parte 74 and now in effect in their interstate rates and charges. We further find that, whether the aforesaid passenger fares, excess-baggage charges, surcharges, or freight rates and charges pertain to transportation in interstate commerce or to transportation in intrastate commerce, the trans- portation services in each instance are performed by the carriers under sub- stantially similar circumstances and conditions. Tariffs may be made effective on not less than five days’ notice. The above findings are abundantly supported by the record, but are without prejudice to the right of the authorities of the State of Nevada or of any other MODIFICATION OF TRANSPORTATION ACT, 1920. 165 party in interest to apply in the proper manner for a modification of our find- ings. and order as to any specified intrastate rates, fares, or charges on. the ground that the latter are not related to the interstate rates, fares, or charges in such a way as to contravene the provisions of the interstate ‘commerce ‘act. An appropriate order will be entered. Eastman, commissioner, dissents. ORDER. [At_a_ general Beseion of the Interstate Commerce Commission, held at its office in Washington C., on the 8th day of March, A. D. 1921. No. 11914. Nevada rates, fares, and c Ho In the matter of intrastate rates, fares, and charges of the Southern Pacific Co. and other carriers in the State of Nevada. This case being a proceeding instituted by the commission upon petition filed, and having been duly heard and submitted by the parties, and full investigation of the matters and things involved having been had, and the commission, on the date hereof, having made and filed a report containing its findings of fact and conclusions thereon, which said report is hereby referred to and made a part hereof: It is ordered, That the following-named common carriers by steam railroad, parties respondent to this proceeding, to wit: Builfrog Goldfield Railroad Co., Los Angeles & Salt Lake Railroad Co., ihe Nevada Central Railroad Co., Ne- vada Copper Belt Railroad Co., Nevada Northern Railway Co., Southern Pacific Co., Tonopah & Goldtield Railroad Co., Tonopah & Tidewater Railroad Co., Virginia & Truckee Railway, and the Western Pacific Railroad Co., according as they participate in the transportation, be, and they are hereby, notified and required to cease and desist from practicing the undue prejudice, undue prefer- ence and advantage, and unjust discrimination, found in said report to exist in the relation of interstate and intrastate passenger fares and excess-baggage charges, and to establish, put in force, and maintain passenger fares and ex- cess-baggage charges for the transportation of passengers in intrastate com- merce within the State of Nevada which shall exceed the fares and excess- baggage charges of said respondents now in effect and applicable to such.trans- portation in amounts corresponding to the increases heretofore made by said respondents and now in effect under Ex parte 74 in said respondents’ passenger fares and excess-baggage charges for the transportation of passengers in in- terstate commerce within the State of Nevada, and between points in the State of Nevada and points in other States. It is further ordered, That said respondents, according as they participate in the transportation, be, and they are hereby, notified and required to cease and desist from practicing the undue prejudice, undue preference and advantage, and uniust discricrination found in said report to exist in the relation of inter- state and intrastate charges upon passengers traveling in sleeping cars and in parlor ears, and to establish, put in force, and maintain surcharges upon pus- sengers traveling in sleeping cars and in parlor cars in intrastate commerce within the State of Nevada which shall correspond with the surcharges hereto- fore made by said respondents and now in effect under Hx parte 74 upon pas- sengers traveling in interstate commerce within the State of Nevada and be- tween points in the State of Nevada and points in other States. It is further ordered, That the respondents above named and also the re- spondent Nevada Transportation Co., operating the Eureka Nevada Railway, according as they participate in the transportation, be, and they are hereby, notified and required to cease and desist from practicing the undue prejudice, undue preference and advantage, and unjust. discrimination found in\said re- port to exist, and to establish, put in force, and maintain rates and charges for freight service in intrastate commerce within the State of Nevada which sha]l exceed the rates and charges of said respondents, respectively, in effect July 29, 1920, and applicable to such transportation, in amounts corresponding to the increases heretofore made by said respondents under Ex parte 74 and now in effect in said respondents’ rates and charges for freight service in - Anter- state commerce within the State of Nevada and between points in the State of Nevada and points in other States. It is further ordered, That the foregoing paragraph of this order shall not apply to rates on ore, milk, and cream, 166 ’ MODIFICATION OF TRANSPORTATION ACT, 1920. It is further ordered, That this order shall become effective on or before April 28, 1921, upon notice to this commission and to the general public by not less than five days’ filing and posting in the manner prescribed in section 6 of the interstate commerce act and remain in force until the further order of the commission in the premises. And it is further ordered, That a copy of this order be served upon each of the common carriers parties to said proceeding. By the commission. [SEAL. ] Grorce B. McGinty, Secretary. The CuairMan. ‘You are one of the States that did not obey the order of. ‘the Interstate Commerce Commission, T believe? © ' Mr. SHAUGHNESSY. We are ‘oné and Arizona is the other. ; ‘The CHarrman. What was the effect of that action; what happened then?’ Mr. SHaucunessy. The effect ‘thereafter was this, Senator, that on March 8, 1921, the Interstate Commerce Commission made its order finding that rates and fares within Nevada, except as fo rates covering the movement of ore, were discriminatory, and required the carriers to remove the discrimination. Imme- diately after the release of the order, which our general solicitor, Mr. Benton, informed us about by wire from Washington—I say, within an hour and a half after the release of the order counsel for the various railroads in Nevada had reached the Federal court at Carson by automobile, coming from Reno, and had secured a restraining order. The CHAIRMAN. Restraining you from enforcing the rates which you had? Mr. SHAUGHNESSY. Yes; and from preventing them from putting in rates that would be in conformity with the decision of the Interstate Commerce Commnis- sion. That injunction was against the State commission and the attorney gen- eral and the various district attorneys of the State of Nevada. The decisions granting injunctions in the Wisconsin, Ilinois, and New York cases had been rendered at that time, and appeals were under way in the United States Supreme Court. Therefore we have rested. We have not taken any action in the present case before the courts. The CHAIRMAN. You are just waiting to see how these other cases come out? Mr. SHAUGHNESSY. Yes. And all our people in Nevada are very desirous of having the matter clarified, and clarified by the Congress if it feels it can do s0, in such a way as there may not be these contentions and these uncertainties for the future. The CHAIRMAN. Have you considered the manner in which we could clarify it? Mr. SHAavueHNessy. Senator, I sincerely believe after studying the situation from all angles that: the question of the Shreveport discrimination in this country has been very largely overemphasized, and that there is no good reason for a continuation of that policy. I believe that we can, perhaps, get further in this country by an elimination of the Shreveport doctrine than we can by maintaining it. In that connection I have in mind the necessity of continued ¢o- operation of the States and the Interstate Commerce ‘Commission. The CaarrMAN. Your suggestion is that by statute there should be an elimi- nation of the doctrine laid down in the Shreveport case? Mr. SHavucunessy. That would be my position, Senator. And not only that, but cooperation with the Interstate Commerce Commission should be continued, and, perhaps more important, the necessity of bringing about a better under- standing and more effective cooperation with the traffic and operating managers of the railroads within our respective jurisdictions. It occurs to me that we are approaching a pretty dangerous line at the present time in going as far as we have gone in centralizing everything down here at Washington. I do not mean “everything” in a literal sense, and do not mean to be offensive by that statement; nor do I'in any way mean ‘to criticize the personnel of the Interstate Commerce Commission, for whom I have the highest regard and with whom I desire to work jn the future in a very harmonious way. But I am of the opinion, looking at the matter from a prac- tical standpoint, that the rajlway traffic managers can handle ‘these matters within their respective State jurisdictions and before the local tribunals set up by the people and officered by men in whom the ‘people have confidence in the respective jurisdictions or States, better than ‘they can ‘by centralizing it "3,000 miles away at the seat of government, or regionalizing it and then trying to operate from that standpoint. I think that all our people feel that way about it, and I am sure they became thoroughly fol of regionalizing during the period of war control and operation. MODIFICATION OF TRANSPORTATION ACT, 1920. 167 The Cuairman. But you know it is impossible for us to give the State com- missions. jurisdiction to remove discrimination against interstate commerce. We could not confer upon them any authority in that regard. Where would you get the authority to remove discriminations of that kind? You have no authority under your State laws to remove discrimination against interstate commerce. 1 Mr. SHavGHNEssy. I do not request that. The CHarrmMan. Where would you repose that authority? - : Mr. SHaucunessy. The point I had in mind was that we confer power upon both the National and State tribunals to fix just and reasonable rates. Now, then, if they were not carried out—— . The CHarrmMan (interposing). Of course, those are rates inside the State? Mr. SHAUGHNESSY. Yes. ° . The CHarrmMan. But, if in fixing such just and reasonable rates for State traffic, considering only, of course, State traffic and not considering outside traffic, you did put in a discriminatory rate, such as is alleged to have been done in the Shreveport case, how would you reach any remedy? Mr. SHauGHNEssy. Of course, there is a diffitulty about finding a remedy, but, as I suggested, Mr. Chairman, I believe that these matters could be harmont- ously worked out without the arbitrary exercise of Federal power. Whenever that power is exercised you set up irritation in the local communities that is not easily eradicated. The CHAIRMAN, You: find that same irritation in the Jurisdiction of the Federal courts. Mr. SHaueunessy. That is quite true. The CHAIRMAN. A great many people resent even the presence of Federal courts in their State,-or at least the jurisdiction which they GRenGLRES Mr. SHAUGHNESSY. Yes. The CHarrMAN. I do not believe you can get rid of: all the irritation as between the exercise of Federal power and State power. Mr. SHaucHNessy. I understand that that is the theory of our Government. You have stated that correctly. I was just thinking about a line of policy we might follow in the future that might be more harmonious than we have started out with under this transportation act, by which the States may not be ignored. This is a dengerous issue. There is a feeling, there is a wave of adverse sentiment growing and rolling from one side of this country to the other on that very issue; and, of course, nobody knows better than you, Mr. Chairman, I am sure, you who are so thoroughly informed on railroad matters and everything of that kind. You know just how it is affecting the people. But it is my firm conviction that if we can keep away from so much centraliza- tion, if we can better distribute the power, we will have more harmonious results in the respective States, and that it will be better for the carriers and all concerned. Take the situation out in our territory, 3,000 miles away from Washington. While, perhaps, some of the larger trunk lines who haye representatives here at Washington would prefer to deal with Washington, I am sure that our short-line carriers would rather deal with their authorities within the State. And I have found from discussing the matter with the representatives of States throughout the Union in the recent convention at Atlanta that that seems to be the sentiment everywhere. Some of the larger lines. are, perhaps, satisfied with the present manner of regulation, but even in that connection there are a number of railway managers of the larger lines that are not entirely satisfied they are proceeding along safe lines. The CHAIRMAN. Does that mean that you are tending toward regional Wed- eral commissions? Mr. Suaueunessy. The danger lies in failure to keep the people satisfied and the probability of Government ownership in the event of an unforeseen emergency. There is the further objection that the transportation act places too great a restriction upon the initiative and the efficiency heretofore exer- cised by the railway managers. I believe, in order to get the results we are seeking, that the initiative and efficiency of the railway operating and traffic managers should be as free from restriction as possible, and they should be encouraged to go forward in co- operation with State and Federal authorities in working out proper, results, subject, of course, to the exercise of,regulatory power when necessary. Un- less we can secure thoroughgoing cooperation all the way along the: line there is no hope for anything approaching a settlement of the railroad ques- 168 MODIFICATION OF TRANSPORTATION ACT, 1920, tion. The States will never relinquish their jurisdiction over State commerce and its instrumentalities, while at the same time the Federal Government is desirous of and continues to reach for more and more of. the States’ power. Mistakenly, I firmly believe, Mr. Chairman. the carriers have, since the incep- tion of the Shreveport doctrine, been strenuously contending for freedom from the jurisdiction of the 48 States—or the 48 masters, so called—and they be- lieve that the Federal Government is the place where all the power should be lodged. But I believe I note a change in the minds of some of the operating managers.; that they feel they are perhaps going too far. Cooperation with the States is indispensable to do the continued welfare of the carriers. There is another thing, too; that by loosening this thing up by some plan that will enable State commissions to function within their own jurisdictions and without continual imterference from the outside, you will relieve greatly the burdens of the Interstate Commerce Commission down here, and it will assist the Interstate Commerce Commission; it will free it from much of the hostile criticism that it now suffers from. During the past year or year and a half, during the time the transportation act has been in effect, the Inferstate Commerce Commission has, of course, as we all know, been badly loaded up'with business. It has not been able to expedite business and get it all out of the way. There is a good deal of criticism on that score. And there was very severe criticism from those interested in effective regulation covering the live-stock case; that the com- mission had gone forward in a temporizing way in that case, and that it had left to the jurisdiction of the railroads the fixing of rates. The commission has, however, redeemed itself in the hay and grain rate case just decided. The opinien is a strong one and is meeting with approval everywhere. Now, then, Mr. Ghairman, perhaps we have not been properly advised as to all our powers, but we have not undertaken to exercise our functions to regulate and fix just and reasonable rates since this action was taken by the Interstate Commerce Commission. There is the feeling in our State that things are rather frozen up, and that they are frozen up in such a way that the people can not exercise their own legal functions of government and that the Interstate Com- merce Commission is responsible for that condition. The CHAIRMAN. I would be very glad if you would put into form your sug- gestion: about repealing or modifying the Shreveport decision, inasmuch as you are the first one who has suggested it. Mr. SHaucHnessy. I will be very glad to undertake something along that line, Senator, for your consideration and for the consideration of your com- mittee, because I do think it is something worth while to begin to think about. (Pursuant to request of the chairman, Mr. Shaughnessy submitted a bill, which is here printed in full.) “A BILL To amend section 3 of the interstate commerce act, as amended by the trans- portation act, 1920, and paragraph (3) of section 13 of said act, as amended, and to repeal paragraph (4) of said section’ 13 of said act. “Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That paragraph (1) of section 3 of the interstate commerce act, as amended, be amended to read as follows: “*(1) That it shall be unlawful for any common carrier subject to the provi- sions of this aet to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic. in any respect whatever, or to subject any particular person, company, firm, corporation, or locality, or any part’cular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever: Provided, howerer, That nothing in this act con- tained shall be construed to lim‘t in any degree the power of a State to pre- scribe with final effect the rates, fares, and charges which shall be imposed and collected for the transportation of passengers or property or the transmission of intelligence by wire or wireless between points within such States, and otherwise to regulate such transportation and transmission, which power is expressly recognized in the several States, and left unaffected by anything con- tained in this or any other section of this act.’ “Src, 2. That paragraph (3) of section 13 of said interstate commerce act, as ainended by section 416 of the transportation act, 1920, be amended to read as follows: “«(3) To thé cnd that full information may be developed upon which, after hearing, all necessary adjustments of rates may be made by State and Federal MODIFICATION OF TRANSPORTATION ACT, 1920. 169 author‘ties, respectively, the commission may confer with the State authorities having regulatory jurisdiction over the class of: persons and corporations ‘sub- ject to this act, with respect to the relationship between rate structures and practices of carriers subject to the: jurisdiction of. such State authorities and of the commission, and, together with such State authorities, the commission may’ also confer with the representatives of carriers -and shippers. The com- mission is also authorized to avail itself of the cooperation, services, records, and facilities of such State authorities in the performance of its duties under any provision of this act.’ ; “Sec. 3. Paragraph (4) of said section 18 is hereby repealed.” Mr. Benton. Mr. Chairman, I would like to have you ascertain, if you can, from-Mr. Shaughnessy, whether that is his solitary opinion or that he has any means of judging whether that opinion is held by other State commissioners, and, if so, to what extent? The CHarrMan. Suppose you answer that question. Mr. SHavucunessy. Yes, Mr. Chairman; I should have referred to that, but overlooked it. At the Atlanta convention of the National Association of Rail- way and Utilities Commissioners a majority—in fact, a very large majority— of the commissioners present were strong for the adoption of a resolution memorializing the Congress to abandon the Shreveport powers of the Inter- state Commerce Commission—to wipe them out entirely, That was consid- ered, and then it was thought by some other commissioners that it might be wiser to bring to this committee a proposal or resolution asking that the com- mittee define and limit the powers of the Interstate Commerce Commission in Shreveport cases. The way the matter is being handled to-day, of course we know that the carriers contend that practically every rate in a State is sus- ceptible to discrimination, except, of course, something of a purely local char- acter like you referred to awhile ago about potatoes. It is obvious there could not be any discrimination in that matter. The CHarmman. I do not understand. from whut I have heard from them, which is, of course, altogether in the hearings we have had, that they base that upon any other principle than that each State in its business should raise for interstate carriers its fair share of revenue required for the operation of the properties. I do not believe any of them so far overlook the actual situation as to claim that a mere difference in rate interferes with interstate commerce. I have never heard that claim made and I know it is not.true. I can name hundreds of rates in my own State that do not interfere with interstate com- merce, no matter whether high or low. However, you may turn your hand to that proposition if you will and see how well you can succeed in working out some plan as suggested by you for a modification of the Shreveport decision. Mr. SHAUGHNESSY. All right, Senator. The CHarrman. Is there anything further? , Mr. SHAUGHNESSY. Yes, sir. I want to direct your attention on this question of undue discrimination, or whatever they want to call it, and the operation of it as it affected us, on the matter of passenger fares. That will probably bring to your mind something that will be worth while. Im all the States surrounding Nevada, Arizona, and New Mexico and the western portion of Utah and the eastern portion of California, in the Sierra Nevada Mountains, a short distance over the Nevada line, the rates are upon the basis of 3.6 cents per mile. When this proceeding arose and the Interstate Commerce Commission came in to examine our rates, the fares that we had in effect on the main lines of the Southern Pacific and the Western Pacific Railroads were 4 cents per mile, and on the branch lines they were 5 cents per mile. Because of a hangover in the State of California on one side and into Utah on the other, where the rates had been increased, they required us, without regard to whether the rates were just and reasonable, to increase our rates from 4 cents per mile to 4.8 cents per mile on the main lines and from 5 to 6 cents per mile on the branch lines. The same action was taken in Arizona and with the same result. This action in Arizona, New Mexico, and Nevada is defended because the volume of traffic is relatively small, but it is the exact converse of the action taken in all other States, where fares, irrespective of volume, were raised from 2 cents to 8 cents per mile and later increased 20 per cent, and aré now uniformly 3.6 cents per mile. Upon petition of these States for the same treat- ment accorded other States, an examiner of the Interstate Commerce Comm‘s- sion heard the case at Los Angeles more than a year ago, and has reported adversely for the reason aforesaid. We are not informed at this time when it will be reached for argument before the commission. lL 170 MODIFICATION OF TRANSPORTATION ACT, 1920. The CHairman. Then you were required to increase them 20 per cent? Mr, SHavucHNessyY. Yes, sir; that is tt. Now, on the Los Angeles and Salt Lake Railway, a part of the great Union Pacific system, they had in that sec- tion fares of 5 cents per mile on the main line and 6 cents per mile on the. branch lines. They increased those rates 20 per cent, making the fares through- out southern Nevada on that line 6 cents:per mile on the main line and 7.2 cents per mile on the branch lines. And we have freight rates that are extor- tionate, absolutely extortionate. Just think for a 400-mile haul from Reno to Cobre, Nev., they increased the rate of $1.92, first-class scale, to $2.40. That used to be a good rate all the way from the Missouri River to San Francisco. Compared with that, for a haul of 646 miles from San Francisco to Cobre, Nev., at which there is a junction with the Nevada Northern Railway, running down to Ely, the first-class rate scale runs into the Reno class-rate scale of $2.40. That rate had been increased from $1.92 to $2.40 in Ex parte 74. Our rate under this decision had to come up for the 400-mile haul from $1.92 to $2.40, or to the same level as for the 646-mile haul from San Francisco. Those are some of the inequalities and some of the injustices that flow from this character of regulation, and I am sure, Mr. Chairman, that it is not going to be satisfactory. That is wholesale regulation without regard to any con- sideration other than levels of rates. The CHAIRMAN. You.might use a stronger term. Mr. SHAvuGHNESSY. Yes; I wish I could think of one. The CHaremMan, Instead of removing discrimination it creates discrimination. Mr. SHAUGHNESSY. Yes. It does, in fact. Now, for a 244-mile haul from Reno to Tonopah, Nev., the fourth-class rate was increased from $1.45 to $1.814.. Immediately thereafter all the traffic be- gan to move by parcel post—everything that had moved, under first to fourth class. Recently the carriers have just put in a rate of $1 to meet the parcel- post rate which, from Reno to Tonopah is $1.08. The fifth-class rate on sugar and canned goods from San Francisco to Tono- pah and Goldfield, Nev., a distance of approximately 500 miles, was increased from $1.83 to $2.28. Recently, without any action on the part of our commis- sion or on the part of the Interstate Commerce Commission, the carriers have reduced this rate to $1.50. That was for the purpose of meeting the parcel- post competition out of both San Francisco and Los Angeles. * The CHAIRMAN. I suppose you have not any intrastate traffic in those com- modities to amount to anything? Mr. SHAUGHNESSY. We have from Reno. From Reno they have put in this rate of $1 that I have just referred to, as compared with the increased rate put in by the order of the Interstate Commerce Commission. . Just to show you that the level of everything is very high in Nevada, the rate on sugar from San Francisco to Imlay, Nev., a distance, of 385 miles is 96 cents, which rate blankets to Kansas City, Mo., a haul of over 1,900 miles, and with the rate of 78 cents on canned goods for a haul from San Francisco to Reno and thence to New York City and points intermediate. It hits 78 cents at about Reno, Nev., and then blankets to Utuh common points, distance about 800 miles, then reaches $1.05 and blankets to New York City and intermediate points. i The CHarrMan. When the interstate rate was reduced by the railroads them- selves, did your State rate go down accordingly? Mr. SHavuGHNEsSSY. They put in an intermediate clause that the rates inter- mediate should not exceed those to the farther distance points, but they did not work them out progressively according to the mileage, if that is what you mean. While I am on the question of rates, I want to refer to the fact that I appeared before the Interstate Commerce Commission in Ex parte 74, at which time I earnestly requested that exception be made on ore rates. This testimony was based upon investigations which I had made in Nevada with the manager of the Western Ore Purchasing Co., who buys ore throughout the State, which showed that asa result of the increase in General Order 28, 60 per cent of small shipping mines had to close, as the result of the ensuing increase in the price of powder, timbers, mine supplies of all kinds, and the increased cost of labor. I very strenuously urged in Ex parte 74 that ores moving out of ‘Nevada to the Utah and California smelters should be exempted from any further increase of that kind, and my recommendation was predicated upon the testimony of the manager of the Ore Purchasing Co., who was buying throughout the State, MODIFICATION OF TRANSPORTATION ACT, 1920. 171 that this further 25 per cent horizontal increase would wipe out practically all the shipping mines, and it has had this effect. I also showed, from the monthly reports of ‘the Nevada Consolidated ‘Copper Go., at Ely, and in connection with statements from the general manager of that company, that. it would affect their operations in this manner. They ‘were then operating on 18-cent copper; that was the selling price of copper at that time. He showed that for the year 1919—and the annual report confirmed the statement—the net. income of the Nevada Consolidated Copper Co. for 1919 was $386,000, and that if the 25 per cent. incrense were to apply to his coal and his oil and his timbers and his supplies, and to his copper outbound, the increase in his transportation bill for the future would be $345,000 per annum, or $9,000 in excess of the net earnings of the company for the year 1919. _ I also covered the Pioche district. in the;same detail. The Pioche district in Nevada: includes numerous mining companies, and they were shipping .to the Utah smelters on the basis of from 500 to 600 tons of ore per day. This was a low grade of ore, so low that after taking out mining costs and transporta- tion costs-and smelting charges, and everything of that kind, the profit to the owner was approximately 80 cents a ton. +The managers of those various properties were wiring me while I was here attending that hearing, telling me all these facts, and they sent a representative in with a statement from th» United States Smelting Ce., showing exactly what the facts were in that re- spect. 4 It also appeared, and I showed at that time, that from this traffic, very low grade as it was, the Los Angeles & Salt Lake Railway were loading their empty coal cars back in the direction of the Utah mines, and their empty foreign coal- car equipment with these ores from the Pioche district, and that the road as a result of that business was making $300,000 per annum from it. I also represented Arizona to some extent upon the same lines, upon the request of the commission in that section, where they were confronted with the same considerations. The order in Ex parte 74 was made, however, without providing for this exception that I have referred to, and that has been very, very hurtful to Nevada. The paramount industry of Nevada is mining, and, of course, without something being done in that connection we are pretty bad off. " The CHarrmMan. Mr. Shaugnessy, I do not quite see the materiality in this hearing of those suggestions, because they relate to rates which’ are undoubt- edly within the jurisdiction of the Interstate Commerce Commission, which I assume no one would think of taking away from them. Mr. SHauGHNESSY. You are quite right. I just wanted to emphasize our situation to that extent. In that connection it is very important that we should retain jurisdiction of our intrastate rates, because we have many mills, and we have two smelters within our State, one of which will become a custom smelter, or expects to become a custom smelter, providing they can secure rates covering the move- ment of ores from a near-by California district, and which case has been under submission before the Interstate Commerce Commission for decision on the basis of a favorable report of the examiner for about a year. I would like to offer in evidence a copy of the decision of the Nevada com- mission in this advance rate matter. I also want to offer resolutions adopted by the Intermediate Rate Association, comprising 5 State commissions and nearly 100 farm bureau, commercial, and industrial organizations in convention at Salt Lake City, Utah, June 13, 1921 [reading]: “Whereas the Interstate Commerce Commission under its construction of the transportation act of 1920, has assumed jurisdiction over all matters, inter- state and intrastate, relating to rates, fares, and charges, directly or in- directly, of the common carriers of the country; and “ Whereas we believe that such assumption of authority by the Federal Govern- ment constitutes an unwarranted and unconstitutional encroachment upon reserved and inherent rights and powers of the sovereign States; and “ Whereas we believe that such delegation, of power to the Federal Government, ' if it were constitutional, would be inadvisable since obviously because of the great distance from the seat of Government, it would have to be ad- ministered through subordinates unfamiliar .with local conditions; -per- haps disinterested in the growth and development of districts far removed from the capital and having no personal feeling of responsibility in the momentous problems before them; and 172 MODIFICATION OF TRANSPORTATION ACT, 1920. “Whereas we believe that the continuance of the policy inaugurated by the Interstate Commerce Commission in this respect will handicap and retard the progress and development of the industries and commerce of the Nation and create a dangerous menace to the exercise of the sovereign rights. of the States; and “Whereas we believe that the transportation act of 1920 should be immediately amended so as to remove any possible ambiguity relating to State and Fed- eral jurisdiction, and that the exclusive power of the States over matters of purely interna] character should be at once reaffirmed and so thoroughly and definitely established that there can never again be a question of doubt raised with reference thereto: Therefore be it * Resolved, That the Intermediate Rate Association, in convention assembled, record the unalterable opposition to centralized Federal control over intra- state commerce and that it urge upon Congress the necessity of at once amend- ing the transportation act of 1920 in consonance with the views herein ex- pressed ; and be it ‘“ Resolved further, That copies of this resolution be sent to our delegates in Congress, with. the request that ‘they immediately caucus and determine whick of the various bills now pending before Congress is best suited for the accom- plishment of the purpose herein designed, and that thereafter united, concerted, and vigorous efforts be constantly made for its passage at the earliest possible date uf the present session.” - ‘ By 9 “WWhereus the transportation act of 1920 purports to place in the hands of the Interstate Comuierce Commission exclusive jurisdiction to grant or deny certificates of convenience and necessity relating to the construction of railroad lines and facilities, or the abandonment or discontinuance thereof: and “ Whereas the exercise of this power by the Federal Government might result in great inconvenience and discomfort to the general public and irreparable financial loss to individuals and communities; and “Whereas the carriers are incorporated in and receive their only authority for corporate life and activity from the States wherein they are incor- porated, and should, therefore, be subject to the authority under which they exist for their corporate acts: Therefore be it “ Resolved, That the Intermediate Rate Association. in convention assembled, express its firm conviction that the transportation act of 1920 should be at once so amended as to eliminate the objectionable provision above referred to and to restore to the States their rightful authority over the children of their creation; and be it “ Resolved further, That copies of this resolution be forwarded to our dele- gates in Congress and that they be requested to secure the passage of a suit- able amendment for the accomplishment of the above purpose at the present session of Congress.” “ Whereas that section of the transportation act known as section 15a. carrying a mandate to the Interstate Commerce Commission to fix such rates as will insure a return of 54 per cent or 6 per cent on the aggregate value of the railroad property has resulted in: the levying of rates which have stifled commerce and prevented the free movement of commodities; and “Whereas the agricultural and horticultural interests of the entire Nation sre to-day practically at a standstill, the food products unable to reach the consuining markets, largely as a result of rates that have been fixed under the provision of this section of the transportation act: Therefore be it “Resolved, That the Intermediate Rate Association, in convention assem- bled, urges upon Congress immediate legislation for the repeal of this section of the act to regulate commerce anid the support of Senate bill 1150, introduced by Senator Capper, or any other similar measure.” ' The CHAIRMAN. You believe that the railroads ought to have enough income to keep them in operation? Mr. SHAvuGHNEsSy. Yes; Mr. Chairman. The CHarrmaAn. Or at least énough to pay the wages of the men? Mr. SHAUGHNESSY. I am in full, accord with. giving the railroads fair treat- ‘ment. att MODIFICATION OF TRANSPORTATION ACT, 1920. 173 The CHarrman, They have got to get it from some source? Mr. SHAUGHNESSY. Yes. I think you will find, too, Mr. Chairman, in that connection, that there has been a good deal of pretty harsh criticism put ‘in before your committee of the action taken by the respective State commissions throughout the country. Some of that has been pretty badly. turned, and is unfair. It has been turned in such a way as to make it appear that if these railroads were turned loose and put into the hands of the State railroad. com- missions without the supervision of the Interstate Commerce Commission they would all be in bankruptcy or in the hands of receivers about as soon as respective State legislatures could meet or the commissions could meet and bear down rates. Well now, that is not the sentiment among the members of the various State commissions. I am sure the discussion that prevailed at Atlanta would entirely disabuse the mind of anybody on that score. The CuarmMan. That is a very difficult question, of course. I do not agree with you, or with that resolution, that section 15-a has increased rates: I think they would have been increased just as much without it. Mr. SHaucHNessy. They would have been increased in any event. That is your idea, Senator? The CHarnMAN. My idea is that the railroads will not earn this year more than enough to pay the interest on their bonds, and probably not that much. But I do not look upon it as a matter of any great importance, because the particular thing you have in mind will in any event take place on the 1st of March, and, of course, there will be no increase in rates before that time. Mr. SHAvucHNEssy. Well, at that time there will be a fixing of the percentage rate of return; that is all, as I understand it. The CHarrMan. Well, that was their duty before—that has been declared over and over again—to fix rates that will yield a fair rate of return. Mr. SHAUGHNESSY. But. Senator, would it or would it not, in your judgment, be better to eliminate the mandates, so called, and instead give to the Inter- state Commerce Commission broad general power, such as has been given always to the various State commissions? The CHAIRMAN. Well, now, so far as the State commissions are concerned T have always stated my view as to that. We do not intend to make any change as compared with the Shreveport principle, save one of procedure. But so far as the revenue is concerned somebody will have to pay enough to keep the roads running. Whether it is fixed by the States or by the Federal Gov- ernment, somebody will ‘have to do that or the railroads will quit. Mr. SHAUGHNESSY. Yes; there is no disposition on the part of State authori- ties to refuse adequate earning returns. Arizona, Mr. Chairman, is in the same relative situation as Nevada is in. The CHarrMan. That seems to be the condition all over the country. Mr. SHauGHNeEssy. The carriers appeared before the Arizona commission and failed or refused to put in any evidence upon which the States commission could make an intelligent decision or order, and therefore they refused to grant the application of the carriers for this percentage of increase asked by the carriers. Also, Arizona is in relatively the same situation as Nevada with respect to its mining industry. It needs relief in that respect. Perhaps that is beside the issue, but I just wanted to bring it to your attention. ; . There are so many questions that are interrelated with rate fixing that I do not know just how to approach the matter. But is there not, Mr. Chairman, a large excess in the capacity of the railway plant? I think there has been an excess for some years. The point I have in mind is whether or hot we should for the future require the users of the transportation facilities to carry all of that burden, and to carry it in preparation for war necessities, or whether some of that burden should not be carried by property at large, which it is designed to protect in case of war or other emergency. That is a question of policy, and it is also a question of rate fixing. tee The CHamrMan. Of course that is true, but if we have to carry the facilities that are intended only for war it is quite apparent that those who pay the freight should not be compelled to bear that burden. But the constant complaint before this committee has been that there was a shortage in facilities in peace times for moving the ordinary commerce of the country. I have gone over that sub- ject pretty carefully, and the outcome of my investigation is that at times there isa shortage and at times there is an over supply. It has been less than a year 174 MODIFICATION OF TRANSPORTATION ACT, 1920. and a half since the people were complaining bitterly because the reads could not furnish: the cars that were necessary to move their products. This was long after the war ended. We have had extended hearings where the complaint was all the time that the railroads. ought to be compelled to buy more locomotives and more cars and build more tracks and elevators, etc, in order to do the ordinary business of the country.. I do not believe that we ought at this time to enter into an investigation as to the facilities. That is a widely disputed question. ‘ (The opinion and order of the Public Service Commission of Nevada is. not included in the record, but a copy is on file with the committee. (Whereupon, at 3.30 o’clock p. m., the committee adjourned to meet at 9.30 o’elock a, m. to-morrow. Saturday, October 29, 1921.) MODIFICATION OF TRANSPORTATION ACT, 1920. SATURDAY, OCTOBER 29, 1921. Unitep States SENATE, CoMMITTEE ON INTERSTATE COMMERCE, Washington, D.C. The committee met, pursuant to adjournment, at 9.30 o’clock a. m., in the com- anion room in the Capitol Building, Senator Albert B. Cummins (chairman), pre- siding. The Coatrman. The hearing will he resumed. Mr. Benton. Mr. Chairman, you will remember that when the session adjourned on yesterday Chairman Shaughnessy, of the Nevada commission, was speaking about the Shreveport power of: the Interstate Commerce Commission, and expressed thé idea that the matter could best be dealt with by an absolute repeal of any Shreveport pover in the hands of that commission; I mean the Interstate Commerce Commission. ou suggested at that time that he was the first man who had indicated any view-of that kind. Judge Burr, of the Florida commission, in view of the understanding which you seem to haveof the situation, wants to say something about that particular matter if he may have the opbertunity to do so. z a The CHatrman. Very well, the committee will hear Mr. Burr. STATEMENT OF HON. R. HUDSON BURR—Resumed. Mr. Burr. Mr. Chairman, I will take but a few moments. First, owing to the close of the hearing before I had finished the few remarks I wanted to make I want.to say that in the Florida case which I outlined to the committee, what I had to say was somewhat in criticism of the Interstate Commerce Commission, and I intended to say and want to say now in justice to Commissioner Eastman, he dissented in that case. I intended to say that on yesterday and think I ought to say it now. _ & And I want to make, after Hueiiag about it, a further answer—or I ght say an amended answer—to the questions asked me by Senator Kellogg on yesterday on the Shreveport doctrine, and it is this: That J am in favor of the so-called Shreveport pence if in each case the Interstate Commerce Commission enters into a thorough earing and investigation of both the interstate rate as to its justness and reasonable- ness, and the State rates as to their justness and reasonableness, and lets whichever rate is found to be unjust and unreasonable fall, whether it, be the State rate or the interstate rate. But. if that’ course is not to be followed I want to go on record as being opposed to the whole principle. na The CuairmMan. That is, the whole principle of the Shreveport position. .. . Mr. Burr. Yes, sir; because it is unfair to each State that on a mere allegation of some shipper or some railroad that the State rate is too low and constitutes a burden on interstate commerce to say that goes far enough. It may be that these State rates are just and reasonable, and if a proper investigation is made of both, then they can determine which must fall. I can not assert it asa ‘fact, but I believe even inthe original Shreveport case the decision should have been that the interstate rates should have been altered instead of the State rates in Texas. : ; The Cuarrman. Do you believe that a rate which upon investigation of the rate and its effect upon interstate commerce is held to be discriminatory, the conclusion dogs Hof inevitably follow that either the State rate or the interstate rate must be changed? : : ee ie Baus, I agree that there must be harmony there, but it does not follow, because somebody alleges a State rate is unjust and unreasonable that it is a fact. And if it is found upon investigation and the presentation of proper evidence that it is a just and reasonable rate, and then that rate is raised to meet the objection in the com- plaint as to interstate commerce because that rate is unjust and unreasonable to the public, although the State rate was reasonable before, of course, it; must be unjust to the public if raised. he 175 176 MODIFICATION OF TRANSPORTATION ACT, 1920. \ The Cuarrman. Is it possible that a system of rates, and I am speaking of an inter- state rate that is compared with a State rate and which is found to discriminate against interstate commerce, that the two rates can be considered without reference to that discrimination? What I mean is this: If the discrimination exists it must be re-- moved. Now, either the State rate is wrong under those circumstances or the inter- staterate is wrong. I can easily conceive that in such cases it might be that it was the interstate rate that should bé'changed rather than the. State rate, but'both of them can not continue, I think, under the law if discrimination is found to exist. Mr. Burr. Well, sir; all I want to.say is that the law should be so administered, and IJ think it should be so clear that it will become the dutv of the regulatory body to ascertain which one of those rates should fall," - - a The Cuarrman. I quite agree with you on that. Mr. Burr. But the proposition heretofore has been, and you take it in all these State cases, that have arisen in the last year I think, with only one or two exceptions the decisions have. been without going into the reasonableness of interstate rates as against State rates. ' ; The Cuarrman. I'do not understand the Shreveport case in just that way. Mr. Burr. For instance, there is this about it: A railroad company can create 4 Shreveport situation any time it pleases. It can go to work across the border of a State and file a tariff, which by its figures becomes such that an allegation can be made the next week after it goes into effect that the State rate is too low, and they can raise the rate on the border of your State. ; Mr. Benton. And it does not make any difference whether traffic moves under it or not. Mr. Burr. Yes; as Mr. Benton has suggested, it does not make any difference whather traffic moves under it or not. Take a case like the Florida case—— The CuarrmMan (interposing). The Shreveport case would not involve any such result as that, in my opinion, if properly applied. Mr. Burr. I believe that the question of discrimination in the so-called Shreye- port situations ought to be confined to complaints filed by persons and places and not by. carriers. e the CHAIRMAN: That is a debatable question; I agree to that, as to whether a carrier should have the opportunity to complain. : Mr. Burr. I do not know whéther'I have expressed myself as clearly'as I would have liked, but that is what I would like to say as an amendatory answer to the ques- tions I answered on yesterday. On the same question, the other day when we were in convention at Atlanta, and this question was under consideration, there was a resolution offered the purpose of which was to absolutely do away with the so-called Shreveport doctrine. There was’ some debate upon it and a few of the members said they were in favor of the resolu- tion as a whole but did not want to go to the whole extent of condemning the Shreve- port principle. Finally, after some debate on the question, the resolution was referred back to the committee that had been considering it for months and had drafted the resolution, without instructions, and that committee did redraft the resolution in the form in which Mr. Benton has introduced it here. The committee brought back both resolutions, the original and the redrafted resolu- tion. They did not offer one as a substitute for the other, but brought both back. A. vote was finally taken on the amended resolution and none on the other. 1 merely mention this in order to say to you that there was an overwhelming sentiment in that convention to absolutely do away with the Shreveport principle; and had the ques- tion gone to a vote I feel confident in my own mind about the result, because I cir- culated very actively among the membership present trying to get the sentiment, and I believe there would not have been over 6 or 8 votes in that convention-against the original: resolution. Whether I am wrong about that or not I am confident of this, and I think Mr. Benton will confirm my statement, that it would have passed by an overwhelming majority. So that there is sentiment, and it is not wholly in the minds or railroad commissioners who were voting on that resolution, because they are in touch with the sentiment of the people in their respective States, and that is where they get it from. - 7 I think that concludes the point I wanted to touch upon, Mr. Benton. Mr. Bznron. I thank you, Mr. Chairman, for permitting me to give way to Mr. Burr. Shall I resume, Mr. Chairman? : The Cuarrman. Inasmuch as you are discussing the whole subject it shall ‘be for you to say whether we will go on at this time or not. Mr. Benton. Mr. Chairman, J am estirely subject to the direction of the committee and am ready to go on at any time. Of course, it would be a matter of gréat'satisfac: tion if I might call the attention of other members of the committee to certain cases MODIFICATION OF TRANSPORTATION ACT, 1920. 177 which have been before the Interstate Commerce Commission and which present particular phases which I would like them really to know about; I realize we are mak- ing a large record here, which can be referred to by anybody who has abundant time and inclination to look into the subject. At the same time, all these matters are so exceedingly important to the States involved I wish it were possible to call. them to the personal attention of Senators in a way that would be easy for them to understand in our presentation of the case, and that they might ask any questions which occur to them. And yet I realize their engagements are such as to preclude the possibility of their being present all the time, and I shall avail myself of the opportunity which has been given to make the record here in the way that they want it made. The Cuarrman. It is possible some other members of the committee will be here presently, and unless you object to it you may go on, trusting that your general views may either be read by other members of the committee or that Senator Fernald and myself will be able to make them understand what your views are. ; Mr. Benron. Very well, Mr. Chairman. STATEMENT OF JOHN E. BENTON—Resumed.. THE ILLINOIS CASE. Mr. Benton. Mr. Slater has been before the committee and has told you gentlemen very graphically the Illinois situation. The Illinois case is one of the very early cases before the Interstate Commerce Commission. The passenger end of it was argued together with the New York case; the freight end of it was argued somewhat later. That case is reported in 59 I. C. C., 350, and in 60 I. C. C., 92. : Mr. Slater has explained to you the incongruous situation produced by the division of the State of Illinois into three districts, with the result that the increases were, respectively, 40 per cent, 25 per cent, and 35 per cent, with an intergroup increase of 334 per cent, making four different interstate increases which the State was subject to; and, as he told you, the State itself was compelled to suffer an intrastate advance of 40 per cent throughout the State. ; I refer to it merely for the purpose of being sure that you get clearly into your minds that this resulted in an increase of 40 per cent on intrastate movements on the very lines, in some cases, on which a 25 per cent increase was made in interstate rates. That result was brought about by the orders of one body—the Interstate Commerce Commission. Senator FERNALD. Mr. Benton, let me make an inquiry right there: What has been the practice of the different commissions in the different States relative to other matters, outside of rate. making, with reference to the railroads? Have you con- sidered an< 2tner expenses, in regard to operation of trains, like labor matters, or anything outside the rate regulation? Had that been the custom? Mr. Benton. Uniformly and without exception in every case where the rates were regulated the roads had the same sort of Shpotaaity to go into their operating expenses of all kinds, including their interstate obligations if they desired to offer testimony on that score, that they have before the Interstate Commerce Commission. Senator Fernatp. And that was universal? Mr. Benton. That was universal. The rate-making power of the several com- missions has been, to the extent that it went, as full and complete as the jurisdiction of the Interstate Commerce Commission. There were some States, as I have éx- plained, that had not been granted passenger fare jurisdiction and did not attempt to make passenger rates. “But in every case the carriers had the same opportunity to present evidence that they had before the Interstate Commerce Commission. The CuarrMaNn. This may be said in that connection: I do not know of any State that gave its commission authority to control the expenses, such as wages and the like. Mr. Benton. That is true; and, of course, the Interstate Commerce Commission does not have that power. Senator FERNALD. It does not haveit, of course, now that the Railroad Labor Board has it; but it formerly had some jurisdiction along that line, did it not? Mr. Benton. It never had any jurisdiction over wages. ; The CuarrMAN. It has jurisdiction to eliminate as expenses those expenditures which in its judgment. are not fair, honest, and efficient? Mr. Benton. And so does every State commission. The Carman. Yes; but what I mean is, no State commission has any such power as we gave to the Labor Board? : ; Mr. Benron. You are right, Senator, of course. The only exception which at any time could be made with respect to that was in Kansas. where the industrial court 73337—21—pt 1 12 178 MODIFICATION OF TRANSPORTATION ACT, 1920. had jurisdiction both over wages and rates. And there the attempt has been aban- doned, and control over wages has been left in the industrial court, and the public utilities commission has been reestablished with control over rates. They are inde- pendent boards, just as the Interstate Commerce Commission and the Labor Board are. ‘In Illinois the only rates which the Federal commission did not prescribe were commutation rates, and they are now making an investigation through one of their. examiners. In due time it may be expected that the examiner will make a report to a commission, and that it will be adopted and put out in the form of a Federal order. It may be that through employment by a department here in Washington a non- resident of Illinois may become able to make a wiser decision as to what local com- mutation rates about Chicago ought to be than ‘the duly elected officials of Illinois, who live in that State and know conditions there, but I can not refrain from sug- gesting that the substitution of such control over the subject matter represents a wide departure from the governmental policy which in the past we have been accus- tomed to in this country. . I come now to.the Wisconsin, Arkansas, Minnesota, Towa, Montana, Ohio, and Michigan cases. In these cases, reported, respectively, in 59 I. C. C., 391; 591. C. C., 471; 591. C.C., 502; 60 1. C. C., 55; 60 I. C. C., 61; 60 1. C. C., 78; and 60 I. C. C., 245, the Federal commission made orders similar to the order entered in the New York case prescribing a.20 per cent advance in passenger rates. ; . The CHairman. There is this difference between pee fare cases in those States which you have mentioned as compared with New York. So far as lowa is concerned, and I think it is true of every other State you have mentioned, the State commission has no power over passenger rates that have been fixed by statute. Mr. Benton. I thank you for mentioning. that. I did not mean to say that the local law was the same. I meant to say that the Interstate Commerce Commission pro- ceeded in the same way in those cases.and made the same sort of order—one setting aside the entire body of State rates, which, according to the terms of the ordet itself, the commission saw fit to make permanent, that is, until a further order of the com- mission. It locked those rates in those States up so that they were beyond the con- trol of either the local commission or the Federal commission itself; and I meant to say that they did that without consideration of the rates that they raised, applying a straight percentage of increase without finding whether the fares they raised were high enough already or not. : Some special mention may be made of the Iowa case. That was argued before the Federal. commission very shortly before the Iowa Legislature convened. (‘ounsel for the State of Iowa pointed out that there was no reason, to believe that Federal power must be exerted to compel the allowance of just rates of fare in Iowa. And I may say that Iowa has a State official known as commerce counsel, as ihe chairman of this committee will know, who is responsible not to the State commission but. a is a State officer. He came here and pointed out the fact which I just men- tioned. It was suggested that Hon. John A. Guiher, of the Iowa commission, had been one of the men who had participated in the Ex parte 74 hearing, before the Federal ccm- mission, and that the Iowa commission had very promptly granted the freight advances and had refrained from acting with respect to passenger rates, because it had no jurisdiction over such rates. [He asked the Interstate Commerce Commission not to destroy the power of Iowa over passenger rates, at least until the legislature should have had a reasonable length of time within which to act, by statute, as to such passenger rate, or to commit control of over the same to the State commission. In its report, handed, down just after the legislative session began, the Federal commission did not refer to the request in any way but made an order as already stated. In the Arkansas cace the Federal commission held, in substance, that it was optional with carriers, desiring to raise intrastate rates, whether they would apply to the State authorities to make the desired advance, or would apply directly to the Federal commission. This, of course, had been decided by.implication in the New York case, but the ruling was first clearly stated in the Arkansas case. In each of these cases, it will be noted, because the legislature did not happen to have committed the power of legislation as to passenger rates to the local commission, it was punished by having its legislative. power taken away, by an order of the charac- ter which I have mentioned. The same sort of order was made in South Carolina and also in North Carolina. MODIFICATION OF TRANSPORTATION ACT, 1920. 179 SOUTH CAROLINA AND NORTH CAROLINA CASES. These cases, reported, respectively, 60 1. C. C., 290, and 60 I. C. C., 362, I speak uf separately only to show the extent to which the Federal commission has been carried . under its interpretation of the existing law. In each of the cases State-wide crders were made advancing passenger rates, of the same character as that made in the New a case. It is, however, to other features of the order that I desire specially to refer. By State statute in South Carolina, where the distance traveled is so short that the mileage rate in effect would be less than 5 cents, the minimum fare is made 5 cents. In all other cases the established fare applies. Irom interstate passengers, however, the carriers were permitted—without the matter ever having been passed upon, so far as 1 am aware, by the Interstate Commerce Commission—to collect a minimum fare of 10 cents prior to Ex parte 74, and after the Ex parte 74 decision this was increased 20 per cent, making 12 cents as.a minimum fare. . . The Cuatrman. I can hardly.conceive that there would be any travel under an interstate rate as short as 12 miles. Mr. Benton. As short as 3 or 4 miles would give the 12-cent rate. There would he few instances—if there were any I do not know where. I assume that there were some; but they were so few that.they would be inconsequential. . a When the carriers complained of the passenger fares, of the 5-cent minimum fixed by the South Carolina statute, they asked the Federal commission to advance the minimum within the State to 12 cents, and the'Intefstate Commerce Commission did it, saying: “While in this instance the intrastate minimum charge apparently has no very sub- stantial effect upon the revenue of any one carrier, yet if the same charge were estab- lished throughout the southern group, and if similar discriminations were permitted in other minor rates, fares, and charges, the effect upon revenues might become con- siderable. It is clear that the question whether the intrastate charge is unjustly is- criminatory against interstate commerce does not depend upon the amount of revenue involved.” I call attention to the fact that they recognized they were not in any position to pass upon the justice of it, and they did not find it was just, but they found that the record did, not prove it was unjust, so they required it to be put into effect intrastate in con- travention of the South Carolina statute. Senator PoInpExtER. Who wrote that opinion? Mr. Benton. That was put out by the commission, not under the name of any particular man. The carriers in South Carolina also collected from interstate passengers boarding any train without tickets a cash penalty charge of 15 cents, without rebate. This was increased to 18 cents after the Ex parte 74: The South Carolina statute forbade any such penalty charge. Upon the carriers’ petition the Federal commission ordered the imposition of a 15-cent penalty charge for intrastate traffic, without rebate. The Se pei upon which it made this order was stated in the commission’s report as ‘ollows: “The conductor’s penalty oe is not levied for direct revenue purposes, but to facilitate the efficient handling of traffic and the collection of fares, and it was not our intent in Ex parte 74, although the language used may give color to the claim, to authorize an increase in charges of this character. We think, therefore, that the increase in the conductor’s penalty charge from 15 cents to 18 cents has not been justified, but upon this record we are not prepared to find that 15 cents is an unrea- sonable amount. It is also our opinion that the absence of such a charge for intra- state application in South Carolina can hardly fail to have a prejudicial effect, not only upon intrastate but upon interstate passenger traffic as well, and that it is unjustly discriminatory against interstate commerce. Our conclusion as tothe amount is without prejudice to any further consideration of the charge in the future upon a more comprehensive record.’’ ; a It may be proper for me to mention that in thé New York case, when the commission for the first time frankly entered the field of local regulation and displaced the State, it attempted to lay down a rule which should justify its action and perhaps serve as a restraint upon itself thereafter. It said: er “‘Tnasmuch as the basis of our jurisdiction is our power to regulate interstate com- merce, it follows that the decisive factor is whether the rates under consideration injuriously affect interstate commerce. It is no answer to this to say that if this con- clusion be admitted it may have the effect of completely displacing State jurisdiction over State commerce. There may be cases in which intrastate rates affect interstate commerce injuriously in ways so manifest as to make them subject to our control. 180 MODIFICATION OF TRANSPORTATION ACT, 1920. There may be cases in which the connection of intrastate rates with the movement of interstate commerce is so remote and unimportant that we may properly disregard it. Butin every case which putsin question intrastate rates the decisive factor is whether or not they affect interstate commerce injuriously to a considerable extent. If they do, they are brought under our jurisdiction and made subject to our control, even although the whole rate structure of a State should be involved.” Bu "The New York decision was made November 13,1920. The South Carolina decision was made January 28,1921. In that space of time the Federal commission had become more-accustomed to the exercise of its new power, and also prepared to indulge a passion for wniformity which is not uncommon to Federal boards. It had’ taken possession of the State field in the New York case avowedly to protect the revenues of carriers, and it had said there that the test of its right to do so in a given case was the extent of the injury shown to result from the difference in rates complained of. Within three months it had reached a point where it was prepared to set aside State statutes applicable to charges not designed for revenue purposes, and admittedly of slight consequence in their effect wpon carriers’ revenues, and was ready to say that the existence of unjust discrimination, giving the Federal commission jurisdiction, did not depend upon the amount of revenue involved. These two charges, inflicted upon the people of South Carolina by Federal authority, were admittedly of no great'consequence so far as the aggregate amount of money is’ concerned, This the Federal commission says, and this we admit. But they are charges which are irritating to the people of that State. The Legislature of South Carolina has not seen fit to delegate to the railroads of that State power to fine a man who may for any reason be unable to procure his ticket before boarding a train. And 1 want to say in-that connection that it appeared before the Federal commission and was argued by the chairman of the South Carolina commission in that cace, that under the conditions existing locally in South Carolina a charge which might, perhaps, be just somewhere else was unjust there because the carriers did not make provision by.the employment of clerks so that people within a reasonable time before the depar- ture of trains could procure tickets, and they were even compelled against their will to get on trains for passage without having purchased tickets, and for that reason he protested in the name of South Carolina against the setting aside of the South Carolina statute and the imposition of a 15-cent or 18-cent penalty charge, as then proposed, upon people who happened to’ be upon trains without tickets. The legislature has also expressed its judgment that the general mileage rate in effect should apply in all cases except where the fare produced would be less than 5 cents, in which cases 5 cents should he the fare: The Federal commission has now stepped into South Carolina, at the request of the carriers, and has compelled the payment of 27 cents, instead of 5 cents, by the man who rides half a mile without having bought his ticket in advance. I say this has been done at the request of the carriers, because in my section of the country if a man fails to purchase a ticket he is required to pay 10 cents more than the regular fare, but he is given a rebate check upon presentation of which at any ticket office he can be repaid that 10 cents. The commissiou knows this, but it does not exercise its power to compel anv change in the practice in my section of the country, although the carriers in New England need revenue perhaps worse than in any other vection. I waive any discussion of the question whether the 5 cents prescribed by the State of South Carolina for that half mile is or is not a more just rate than the 27 cents that is now prescribed under the order by the Federal Government. I point out the absurd- ity of the ground on which the carriers asked the Federal commission to act, and upon which the order of the commission must rest—that is, that the lower State charges put the man living outside South Carolina, and desiring to do business in that State, at a disadvantage, as compared with the man living in South Carolina was so serious that the Federal commission ought to find it unjust, undue, and unreasonable, and ought to bring into play the exercise of the power of the National Government to set aside local regulations made by the people of South Carolina to apply to their purely internal traffic. Senator Fernatp. Mr. Benton, right there let me inquire: While in this particular instance it appears to be a great hardship to the citizens of South Carolina, do you know of any cases on record in any States where it has also been a hardship to the car- riers and their revenue was less by reason of the increase? ° Mr. Benton. I have not any data in the way of compiled figures which I could present to the committee on that subject. Ihave expressed my opinion, early in the ‘hearings, and have shown that in different States, where freight rates have been locked up, the carriers have joined with shippers in attempting to discover a way of escape from the locked-up rates. MODIFICATION OF TRANSPORTATION ACT, 1920, 181 Since I touched on that matter before the committee the other day an order of the Interstate Commerce Commission has come to my attention which shows that another method of procedure whereby the carriers and the public may escape from the effect of this cast-iron order has been discovered. It is.a case that arose in the State of Texas, where the rates, as you will remember, have been permitted to be advanced by the State commission 33} per cent, and the Interstate Commerce Commission came in and held an investigation and found that they were unjustly injuring interstate commerce and ordered them up to 35 per cent—just a difference of 1% per cent. But it locked up every freight rate in Texas. A case arose where the parties wanted to ship gravel and they could not do it under the State rate because there was another rate that was discriminatory, which gave unfair advantage to another community. Both of the rates were subject to the jurisdiction of the State of Texas, but for the fact that they had been frozen up by the Federal commission’s order. Senator Stantey. Let me ask you a question right there: What concern was it of the Interstate Commerce Commission whether one community within the State was discriminated against in favor. of another community within the State if the traffic to both communities was intrastate? Mr. Benton. They had never heard of those rates, Senator. Those rates had been frozen up with all the other rates in the State by a blanket advance of 35 per cent without looking at the particular rates. Now, they were frozen up. The Texas commission heard the parties and it could not enter an order. It knew what it wanted to do but it was obliged to file a formal petition to the Interstate Commerce Commission, and it carried through that petition, and the action of the Federal commission finally took the form of an order that excluded from the erect of its order those two rates and left them subject to the jurisdiction of the State commission. Now, the State commission after all that procedure can go ahead and make the change in the rates which will permit the internal commerce of Texas to move. ‘ That shows that the Interstate Commerce Commission—whatever it may be disposed to say, and I believe it will be disposed to come here and frankly admit it—recog- nizes the hardship that is imposed by these State-wide orders. The Interstate Com- nerce Commission, I want to say, and it would be assumed if I did not say it, is not actuated in what it does by a desire to injure the people of the several States. But it has entered upon a mistaken policy in attempting to administer this act, and in my judgment it has gone very far wrong, but it is due these gentlemen for me to say that I have the highest regard for them collectively and individually. They are hard-working, conscientious, overburdened men, put to a task that no body of men that could be gathered together in the United States can perform satisfactorily. They are not infallible. With respect to their attempt to assume and exercise jurisdiction over the rates of the States they have made a serious mistake, in my judgment, but I want to say that I do not question the motives of the men upon that commission. Senator Stantey. I share your high opinion of the Interstate Commerce Commis- sion. It has done good work, and it is the most successful commission, and the only successful one that I know anything about, that the Government has ever organized to do any great work. But without regard to any good faith of the commission, which I do not question, my inquiry is this: Has the. Interstate Commerce Commission, according to your contention, any concern as a commission, without regard to the excellence of its members, with a differential or discrimination between two com- munities both of which do strictly intrastate business?. I want to get your viewpoint on that. Mr. Benton. Senator Stanley, in my judgment they have not. In my judgment the Congress never intended them to have anything to do with intrastate rates, except only to the extent that it may be necessary to abate discriminations which unduly injure interstate commerce and which show their effect upon persons and localities. But the Interstate Commerce Commission has construed section 15 (a) of this act as giving them responsibility for creating revenues, and from the beginning of their administration of the act until the last opinion they handed down they have shown that they were acting under the belief that the Congress had commanded them to do that thing. And that is the reason and not because they have any desire to injure the people of the State of Florida that in the Florida case, as Judge Burr told you on yesterday, they actually compelled the East Coast Railroad in Florida, and other railroads that were entirely satisfied with the rates prescribed by the State of Florida, to increase those rates. I suggest that such a proceeding is unheard of before in governmental regulation in this or any other country, and it arises purely by reason ‘of the presence in the act of section 15 (a). ‘ ; ‘The Cuarrman. I wish you would point out somewhere the language in the decisivn in Ex parte 74, or in any other proceeding before the Interstate Commerce (om- 182 MODIFICATION OF TRANSPORTATION ACT, 1920. mission upon an application to increase State rates, which indicates that the com- mission looked upon section 15 (a) as a command to increase State rates without respect to discrimination. Mr. Benton. That can not be done because the Interstate Commerce Commission takes the words ‘‘discrimination against interstate commerce’’ which the trans- portation act contains in section 13, and takes the command to produce 54 per cent or 6 per cent on the aggregate value of the property which the Congress put into section 15 (a), and says that the effect of that command would compel them, should there be a shortage in appropriate revenues from intrastate business, to make it up from interstate business, and that is ‘‘unjust discrimination against interstate com- merce.” So that the thing in all the discussions of the commission touching the subject is tied up with that idea of discrimination. If the Senator asks me to point out language where the order is not Mased upon the idea of discrimination, 1 can not do it; it is based upon that false idea which arises from the interpretation they place upon section 15 (a). The CHatrman. Then I want you to specifically call attention to whatever lan- guage they use with respect to the construction of section 15 (a) which indicates that conclusion. : : Mr. Benton. I should be very glad to do that, Senator. I am not prepared to do that now. I would like to do it consecutively, and in an orderly wav so that it may be as helpful to you as possible. If I may I would like to get the decisions, which have not here at hand, and examine them and present them tale, The CHarrman. Very well. I would like to have you do that. I agree with all vou say with regard to the high motives which actuate the Interstate Commerce Commission. But the fundamental error that has been made, from my standpoint, if your statements of fact are sustained is in accepting the fact that the State rates are lower than the rates which had been issued by the commission on interstate rates as conclusive evidence of discrimination, and of course that results in these frozen situations, of which you speak, and I do not believe that any member of the committee or any Member of Congress ever intended to do anything of that kind. I never dreamed that the Interstate Commerce Commission would declare a rate discriminatory as against interstate commerce, unless it had investigated that partic- ular rate.and the traffic which moved under it and found that it did unjustly and unreasonably work to the disadvantage of the people outside the State who were Borat ear kind of business. That was our idea, I am sure: Now, this blanket- ‘ing the whole country with a uniform advance in State rates, that is by groups,is the thing that has done all this harm. , Senator Stantey. It appears from what the judge -ays that the Interstate Commerce Commission seems to have been impressed with the idea that a duty was imposed upon them to so arrange rates as to provide this 6 per cent return. And I agreé with the chairman that there was no such intention upon the part of the framers of the law. The CaarrmMan. There was no such intention, and there is nothing in the act that could lead any reasonable person to any such conclusion as that. lf they have done that, then, as far as 1 am concerned, why the quicker it is undone the better it will be for the country. Mr. Benton. Mr. Chairman, those are very sweet words to my ears, and the echo of them will be most welcome in the different States of this country. Senator PoinpExtTrFR. Let me ask you one qnestion on the general principle of this question you are discussing. Suppose just for a hypothetical case, and stated in an extreme form, that all the State commissions fixed intrastate rates on a confisca- tory basis, what would you say then as to the power of the Interstate Commerce C'om- mission to readjust them? Mr. Benton. It has not got any power to readjust a rate merely upon the basis ‘of revenue, because Congress never gave it that power. Whether Congress has the constitutional power to do that or not, there is no necessity for it, because the carriers have not failed in any State to get a temporary injunction from the courts if they wanted to obtain a temporary injunction against a rate which they alleged to be confiscatory. a Senator PoinpextTer. You are getting back to the actual situation, in which I entirely agree with you, as has been statedhere. Itisperiectly absurd, in my opinion, that the commission should charge rates that they had never investigated for the purpose of finding out whether they were reasonable or unreasonable, or what relation they actualy had to interstate business in their effect. But I am speaking about the fundamental question. : Mr. Benton. The question of policy. Senator PornpExteR. The question of jurisdiction and power to regulate when such cases arise, and I want to get your opinion as to whether or not the fixing ‘of MODIFICATION OF. TRANSPORTATION ACT, 1920. 1838 rates by the State on a confiscatory or an unreasonable basis would be a discrimi- nation against interstate commerce in that it would place an extraordinary burden upon interstate business to raise essential revenues to operate the road? Mr. Benton. Are you meaning to ask whether, in my opinion, the Federal Govern- ment has the power to assume jurisdiction over that, or whether the Federal power ought to do it? Senator Poinpexrer. I am asking you whether the Federal Government has the power to assume jurisdiction, and also whether, in your opinion, the Interstate (om- merce Commission ha3 that authority under the present law. Mr. Benton. In my opinion the Interstate Commerce Commission has not that authority under the present law and will not have it unless there is an extension of the meaning of the act hy judicial construction, such as was made in the Shreveport case. .\s I indicated the other day, when Congress passed the act to regulate commerce it said that it should not apply to transportation ‘wholly within one State”—words that are clear of meaning to the ordinary man. Yet after those words had been con- strued by the Supreme Court it was found that transportation from A to B, both points being in one State, was not transportation “wholly within one State.”’ Now, if there is anything that would appear to be clear—both from the language which you used, from the history of the act, and from the declaration of both chair- men made when the bill was reported, and irom the declarations of Senators, mem- bers of this committee, made during this hearing—it is that there was no jurisdiction iutended by Congress to be granted in the transportation act to the Interstate Com- merce Commission to hold to be discriminatory a rate merely because the Interstate Commerce Commission did not think it was as high as it ought to be. But when the Federal courts throughout the country, in 20 States or thereabouts, have sustained orders made upon that theory, when an order made upon that theory in the Wisconsin case under challenge in the United States Supreme Court was argued in March of this year and has been held under consideration ever since, and when the court has ordered a reargument on that question in December, it would take a rash man to say with any degree of assurance that there may not be a construction placed upon the language which you put into the transportation act which will very greatly surprise you and surprise the rest of Congress and which will make that act accomplish snme- thing which Congress never designed to have it accomplish. Senator PoinpexTER. Well, now, what particular language do you refer to? Mr. Benton. I am referring to the words which you put into the section 13 author- izing the carriers to institute a proceeding for the purpose of setting aside State-made rates upon the ground that they were discriminatory, the words which you put inte that same section forbidding discrimination against interstate commerce additional to discrimination against persons and places, and to the provisions of section 15 (a) which, by the commission and by certain courts in decisions—which I will later put into the record—have been hitched up with those changes in section 13. Senator Stantey. Let me ask you one other question, Judge, to get this idea clearly in mind. Take the hypothetical case of a railroad both of whose termini are within a State, Sheree entirely in intrastate commerce. Is it your opinion that Congress is warranted under the Constitution in vesting in the Interstate Commerce Commission authority over that road whatsoever, or its traffic? . ’ Mr. Benton. I argued that it is not warranted under the Constitution in regulating any traffic over that road, except that which is interstate. Of course a road which is a State road may be engaged in transporting shipments interstate. Is it desired that I continue with my statement, Mr. Chairman? The CuarrMaNn. Well, we are going to have a short executive session. The Vice President will be here, so I will not have to leave to open the Senate, and you can continue for a while. We will go on for 10 minutes yet. Mr. Benton. I think in that time I can just about finish my reference to the South ~ Carolina case. saan ; I was pointing out the absurdity of the finding by the Interstate Commerce Com- mission that a minimum fare oe in South Carolina, or a provision by statute in South Carolina, that a conductor’s penalty charge should not be assessed on the man who happened to get on the train, constituted an ‘“‘unjust and undue discrimina- tion against interstate commerce.”’ : . Now, it is perfectly obvious that when men go into South Carolina from other States their trips are not likely to be less than 3 miles in length, and hence they will not be troubled with the question of minimum fare, and I submit also that the payment of the conductor's cash penalty charge is accidental and occasional, and can not by any, possibility constitute such a disadvantage to persons uv eby interstate as to prevent their competition on reasonable terms with persons living in‘South Carolina. Nothing could be more absurd than a finding that the existence of such a charge applicable to 184 MODIFICATION OF TRANSPORTATION ACT, -1920. interstate traffic, when the same charge is not in effect in South Carolina, operates to—and now I quote language from the Supreme Court——‘‘obstruct the freedom of movement of interstate traffic,’’ so that the setting aside of the South Carolina statutes is necessary ‘‘to keep the highways of interstate commerce open to interstate traffic,”’ which is the ground upon which the power of the Federal Government to control State rates was rested by the United States Supreme Court in the Shreveport case. Now, I may seem to have taken more time in the discussion of this South Carolina case than the importance of it would seem to warrant. I believe, however, that this is not true, because it is important that you should understand to what length the Federal commission considers that it should push its jurisdiction.. I have desired to point out also that whenever the jurisdiction of the Federal, commission depends upon a finding of discrimination, that finding will be made when it dezires to exercise such jurisdiction upon the most trivial evidence. It is well that you should have your attention called, as forcibly as may he, to concrete evidence that the power of the States to rerulate their internal commerce can be preserved in any part only by the explicit withdrawal of all power from the Federal commission under the so-called Shreveport rule, or by clearly defining the class of cases in which such power may be exercised, and the character of proof which must be presented to show the needs for the exercise of that power. Ata later time in the hearing, if I am permitted to do so, I am going to discuss what amendments Congress will have to make to cure this situation. There is one point upon which every State commissioner that I have talked with is in accord with all the other State commissioners, one point that I believe there can not be any reason- able doubt about on the ak of anybody who will study the opinions of the Interstate Commerce Commission that have been handed down in these State cases, and that is that an amendment to the act which merely makes clear that Congress did not intend to extend the Interstate Commerce Commission’s power by the passage of the trans- portation act, will not cure the situation. It is necessary to go further than that, or we are going to have the same kind of orders and be plagued with the same sort of difficulties and the same mass of litiga- tion which we are engaged in now. For this reason, that now whether the Interstate Commerce Commission can step into a State and make an order striking down its rates depends upon whether the Interstate Commerce Commission says: ‘‘We find that these rates are discriminatory,’’ and there is nothing laid down in the statute which defines discrimination, and the Interstate Commerce Commission in its reports has made it clear that it now claims that it could make the kind of orders it has made without the additional language in the transportation act, at least so far as the pro- visions of section 15 (a) are concerned. I am going to point out in a case that I want to refer to at some length later in my statement, where, in the case involving passenger fares on an electric railroad fixed by franchise in certain places in Ohio, notwithstanding the fact that section 15 (a) provides that the same shall not apply to carriers of that class, the Interstate Com- merce Commission has made an order prescribing intrastate rates and has shown by’ its discussion that it was doing so because it judged the rates fixed by the franchises to be too low. So that if Congress does. not like the sort of orders that the Interstate Commerce Commission is now making, and intends to cure the situation, it will have to go much further than merely to make it clear that it did not intend to extend the power of the Interstate Commerce Commission—it must end the power of the Inter- state Commerce Commission to affect intrastate rates, or it must say: ‘This is what we mean by discrimination, and this is the kind of proof which shall be presented to you to prove discrimination, and you shall find the facts upon which you base your conclusion that discrimination exists and state them in your report.’’ That is the kind of legislation that is asked for in the resolution that is presented to you, and it is to show the necessity of that kind of legislation that I present the cases where the Interstate Commerce Commission, upon the mere fact of a minimum-fare statute or the failure to permit a conductor’s penalty charge, finds that interstate commerce is unjustly discriminated against. , : The Caarrman. We will have to suspend the further hearing until Monday at half past 9 o’clock. There is no use of trying to get any members together this after- noon. Senator Srantey. Before we close, Mr. Chairman, I would like to ask a question. Mr. Benton, at that point I want to ask this question, because I want to think it over. Is it necessary for Congress to say anything more in order to cure this evil, than that the Interstate Commerce.Commission’s power over an intrastate rate is predicated upon the fact that the traffic is an integral part of interstate commerce, or that it is by nec2ssary implication indissolubly associated: with it? Mr. Benton. Do you want me to answer that now or later, Senator? MODIFICATION OF TRANSPORTATION ACT, 1920. 185 Senator Srantey. Yes; you can answer it now. Mr. Benton. It is necessary, because under the decisions of the United States Supreme Court anything which the Interstate Commerce Commission find as a fact, if there is some evidence before them, no matter how shadowy it may be, if it is some evidence which they were entitled to consider, it is final, and as I pointed out it is indissolubly connected with interstate commerce. Ifthe commission wants to create jurisdiction for itself so that it can strike down the State rate, it finds that it is indis- solubly connected with interstate commerce, it does not state the evidence, it does not state the facts. Senator Stantey. It would have to be broader than that? Mr. Benton. Yes; if you are going to cure it you must say what you intend shall be considered discrimination against interstate commerce, how it shall be proved, and require the commission to state in its reports the facts upon which they base their conclusion. The CuarrmMaNn. We will suspend now and will resume at half past 9 Monday morning in this room. (Whereupon, at 11 o’clock a. m. the hearing was adjourned until Monday, October 31, 1921, at 9.30 a. m.) MODIFICATION OF THE TRANSPORTATION ACT, 1920. MONDAY, OCTOBER 31, 1921. Unirep States Senate, ComMITTEE ON INTERSTATE COMMERCE, Washington, D. C. _ The committee met, pursuant to adjournment on Saturday, at 9.30 o’clock a. m., in their hearing room in the Capitol, Senator Albert B. Cummins (chairman) presiding. The CHarrman. The committee will come to order. Mr. Benton, we will proceed with your statement. STATEMENT OF JOHN E. BENTON—Resumed. Mr. Benton. Mr. Chairman, I was speaking at the last session about the South Carolina case. The North Carolina case in all substantial particulars wag like the South Carolina case, covered passenger fares and certain charges which I need not speak of, but the principle was the same. The reference to the North Carolina case I put into the record the other day. I will now proceed. THE NORTH CAROLINA CASE. ' The order of the Federal Commission in the North Carolina case also imposed upon the people of that State the same minimum passenger charge and conductor’s penalty charge as in the case of South Carolina, also in disregard of State statutes. NEBRASKA AND TEXAS CASES. I next refer to the Nebraska and Texas cases, reported, respectively, in 601.C.C., 305, and 60 I. C. C., 421. . My reason for referring to these cases together is because in each of them the State commissions went carefully into the questions of the value of the railroad property used in their respective States,.and reached the conclusion in each case that the rates which they permitted would yield more than 6 per cent upon the value of such prop- erties under a normal movement of traffic. The Federal commission ruled that the rates in those States, both passenger and freight, should be nevertheless advanced. ' In neither State did the commission have statutory authority as to passenger rates, but in each the freight rates were permitted to be so advanced that the revenues of carriers from all business within those States would yield the 6 per cent return required by the transportation act, under the adoption of the 6 per cent in place of 54 per cent by the Interstate Commerce Commission. In Nebraska the general advance allowed in freight rates was 25 per cent and in Texas 333 per cent. In each instance under the order made by the Federal commission that advance was made 35 per cent. I quote from the report of the Federal commission in the Nebraska case, beginning at age 312: 2 Fi cconding to the computations of the Federal commission, the increases it allowed would yield a return of about 6 per cent on $331,846,206, which was roughly estimated to be the value of the carrier’s property in Nebraska devoted to State and interstate commerce. In other words, in fimtane the carriers to the increases above stated the Nebraska commission proceeded, on the theory that each State could create a rate group of its own in addition to those fixed by us under the act in Ex parte 74. * * * The Nebraska commission seems to be of the opinion that a 35 per cent increase in Nebraska intrastate rates would make them unduly high and require the people of the State to contribute in an unfair proportion to the total revenues of the carriers. That the rates in Nebraska might be made too high can not be proved by data of the kind used by the Nebraska commission in computing valuation. Moreover, if there 187 188 MODIFICATION OF TRANSPORTATION ACT, 1920. are any conditions that justify less than a 35 per cent increase in this section of the West, the conditions are prebaply not circumscribed by the State’s boundary lines, but affect interstate as well as intrastate rates.”’ In the Texas case I quote from the report of the Federal commission, beginning at page 426: “We deem it unnecessary for the purposes of this report to enter upon a discussion of the testimony and exhibits dealing with the valuations of railroad properties in Texas and the earnings of the carriers on State traffic. In a procedding similar to this, increased rates within Illinois (59 I. C. C., 350), it was urged that in prescribing the measure of the increases to be applied to the rates and charges of the carriers throughout the country necessary to yield the return fixed by Congress for the two years beginning March 1, 1920, we had failed to determine the values of the railroad property separately in that and other States. We pointed out therein that Congress had Jaid upon us the duty of prescribing rates so that in the aggregate they would yield a certain return, as nearly as may be, ‘upon the aggregate value of the railroad property of such carriers held for and used in the service of transportation,’ and expressed the view that the interstate commerce act required us to determine upon a valuation for the total property of the carriers and not for the property that might be assigned to interstate traffic. We adhere to that view and repeat that in our opinion the manifest intent of Congress was to repose in us full and final authority to provide the revenues found necessary to yield the specified return by considering the entire structure of rates, both State and interstate, and the aggregate value of the railroad pope held for and used in the service of transportation without regard to State es. What the commission's ruling comes to is nothing more nor less than that under the group plan of rate making prescribed in section 15-a, which Congress is now asked to repeal, the commission may compel the shippers upon roads in one State to pay more than is necessary to yield a fair return on those roads to make up a deficit in desired earnings on other roads in other States. This proves what we have before asserted, that what the commission has aimed at in the making of these orders has been to produce revenue for the carriers and not to keep the highways of commerce open to interstate traffic on equal terms. Even if the Congress had clearly granted to the Interstate Commerce Commission power to review State rates on the ground of reasonableness, State lines could not be disregarded. Determination whether intrastate rates are sufficient requires a con- sideration of the value of the property devoted to intrastate service; “no valid finding can otherwise be made. The inconvenience of ascertaining such value can not remove the necessity for its ascertainment. This point has been clearly decided by the United States Supreme Court, In Smyth z. Ames (169 U. 8. 466, 541) the question was involved whether rates, pre- scribed by State authority, were invalid, as in violation of the fourteenth amendment, because confiscatory. The court held that, in determining the sufficiency of the rates so prescribed, the value of the property devoted to intrastate transportation must be the measure. Upon this point the court said: ‘In our judgment, it must be held that the reasonableness or unreasonableness of rates prescribed by a State for the transportation of persons and property wholly within its limits must be determined without reference to the interstate business done by the carrier, or to the profits derived from it. The State can not justify 'un- reasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, over which, so far as rates are concerned, the State has no control. Nor can the carrier justify unreasonably high rates on domestic business upon the ground that it will be able only in that way to meet losses on its interstate business. So far as rates of transportation are concerned, domestic business should not be made to bear the losses on interstate business, nor the latter the losses on domestic business. It is only rates for the transportation of persons and property between points within the State that the State can prescribe; and when it undertakes to prescribe rates not to be exceeded by the carrier, it must do so with reference exclusively to what is just and reasonable, as between the carriér and the public, in respect of domestic business. The argument that a railroad: line is an entirety; that its income goes into, and its expenses are provided for, out of a common fund; and that its capitalization is on its entire line, within and without the State, can have no application where the State is without authority over rates on the entire line, and can only deal with local rates and make such regulations as are neces- sary to give just compensation on local business.” The principle thus laid down was reaffirmed in the Minnesota Rate Cases (230 U. &., 352, 435). The same question was involved. It was held that the State's right. to prescribe intrastate rates was of such a nature that rates prescribed by the State could MODIFICATION OF TRANSPORTATION ACT, 1920. 189 be disreyarded as in violation of the fourteenth amendment, only when shown without question to be so low as not to yield a fair return upon the value of the propertv devoted to intrastate transportation. The court said: “Where the business of the carrier is both interstate and intrastate, the question whether a scheme of maximum rates fixed by the State for intrsatate transportation affords a fair return, must be determined by considering separately the value of the property employed in the intrastate business and the compensation allowed in that business under the rates prescribed. This was also ruled in the Smyth case (Id., O. 541). The reason, as there stated, is that the State can not justify unreasonably low rates for domestic transportation, cor sidered alone, upon the ground that the car- rier is earning large profits on its interstate business, and, on the other hand, the carrier can not justify unreasonably high rates on domestic business because only in that way is it able to meet losses on its interstate business. * * *” It will be observed that the question involved was one of constitutional limitation upon the power of a State to regulate intrastate rates. It was established by those decisions that the constitutional guaranty against confiscation in the fourteenth amendment entitled the carrier to a consideration of the value of its property devoted, to intrastate transportation, and to a fair return upon that value, without regard to its interstate operations and the revenue therefrom. It was likewise determined that the reservation of power to a State, under the tenth amendment, entitled a State to a like consideration of the value of property devoted. to intrastate transportation: in judging the sufficiency of rates prescribed by it. In other words, the Federal Consti- tution was held to protect the State in the exercise ofits reserved power as fully and effectively as it protected the carrier in its property right. ‘The question now is whether the Constitution :protects from destruction: by the Federal Government those rights which were reserved to the States by the tenth amendment as carefully as it protects the property rights of carriers under the four- teenth amendment. That question will be entertained in the United States Senate. The Cuairman. Let me suggest that we are very familiar with these cases, and I think if you can just refere to them and pass on it will save a good deal of time. ’ Mr. Benton. I will be glad todothat. Asamatter of fact, Mr. Chairman, I inserted this discussion here because I understood you to have requested me to discuss that branch: I may have misunderstood your request. The Cuarrman. I do not remember that. Mr. Benton. Then I prefer to hand this to the reporter so that the remainder which I have marked may be put in as if { had read it in order. : The CuarrmMan. That may be done. I thought you were going to suggest this morning the changes that you proposed in the act? Mr. Benton. No; I think not. The CuHarrMAN. Perhaps I was wrong about that. Mr. Benton. I will say, Mr. Chairman, that while I refrain from further reading from these cases, I do hope that the Senators will not underestimate the degree of reliance which we place upon that phase of the matter. We feel confident that there is not any phase of it which we can refer to which will receive such careful considera- tion from the Senators, because Senators in a peculiar way represent the several States, standing here to guard the sovereignty of States, and their separate rights under the Constitution. And if I may do so } want to make this suggestion: That if there was'ever a time when we ought to hold fast to an observance of the Constitition it is _right now. When the world is rocking, and when you look abroad and see that in some States the whole structure has crumbled, and in other States the foundation of the social fabric is cracking and beginning to crumble, and you see that in the whole world the United States is the only great country where we seem to be fairly safe, the suggestion of some folks that constitutional restrictions and discussion of constitutional questions is rather out of date will not I think, be received by Senators with very much tolerance. If our people are pretty well satisfied and pretty immune to Bol- shevism and Socialism it is because they are satisfied their rights are pretty safe here. Governmental traditions are things that are pretty valuable in keeping a people attached to government and satisfied. : ; When they are once shattered, they are pretty hard to build up again, Property is secure here—and the rights to individual liberty and the rights to political liberty— because our people are satisfied that the Constitution protects all alike. Certainly that is a tradition in which the people believe, and they are attached to the Govern- ment and are disposed to continue faithful in their allegiance to the Government because they believe these things are protected. One of the things that our people here in this country learned in their childhood in school, and everybody has thought a fact not to be questioned, is that the right of local self-government isa right that can not be taken away. 190 MODIFICATION OF TRANSPORTATION ACT, 1920, The Cuarrman. We do not intend to invade it. We do not intend to violate the Constitution if we can help it. Senator Krtioce, And we have not done it yet, so far as I know. . Mr. Benton. I want to suggest that you can not shatter one tradition without shattering others. If you shatter the tradition that'the Constitution actually protects one class of rights as well as another, you will shake the faith of the public in the inviolability of the entire Constitution, on which our entire social fabric itself rests. The Cuarrman. Senator Kellogg wants to ask you a question there. Senator Ketioce. I do not know that I understand your position. I asked the Florida man the other day if he contended that the Congress should change the rule laid down in the Shreveport and Illinois cases. Hesaid no. Now, is it your opinion that that rule should be changed? 9 ti The CoarrMaNn. But he came back afterwards and modified his statement in that regard. Mr. Shaughnessy had pore for the Nevada commission and he challenged the Shreveport case, and after he had done so, the next morning, Judge Burr appeared and said he thought possibly he might be misunderstood in answer to the question you put to him, Senator Kellogg, and that he wanted to challenge it also. Senator Ketuoce. Do you challenge the Shreveport case? Mr. Brenton. I challenge the Shreveport doctrine as now administered and applied - Senator Kerioac. As applied by the Supreme Court of the United States in the Shreveport and Illinois cases, do you challenge it? Mr. Benton. Senator, the constitutional power of the Congress directly or through ' its agencies fully protects interstate commerce, and it is its duty to protect it: against injury. I do not challenge that. Senator Kztioce. Do you challenge the doctrine laid down in the Illinois and Shreveport cases? Mr. Benton. That is the doctrine laid down in those cases and the doctrine I do not challenge. Senator Kettocc. Very well, you do not challenge those decisions, then? Mr. Benron. I indicated to you, and upon inquiry must now indicate, that I think the Shreveport decision carried the interstate commerce act beyond.anything the Congress ever intended. Senator Kztnocc. Then you want to say you wish us to enact a law changing the Shreveport and Illinois cases? Mr. Benton. Yes. I appear herein support of a resolution which asks the Congress to make clear and definite what it means by discrimination, and so to regulate the procedure in the application of the Shreveport power, if that power is permitted to be exercised hereafter by the Interstate Commerce Commission, that the States may be secure. Under the language of the act as it now stands we believe, and that opinion is the unanimous opinion of the members of the State commissions so far as I know, that that right is not secure even though you repeal the transportation act. The CHarrmMan. I will state further in connection with the Shreveport case that the convention at Atlanta originally proposed, or at least some members of it did, a reso- lution which did directly impéach the Shreveport decision, and Judge Burr says he believes that resolution would have been carried by a very large majority. But for some reason that so far has not been made clear to me that resolution was withdrawn and does not form a part of the memorial which has been presented to us. Have I stated the situation correctly, Mr. Benton? Mr. Benton. You have, and maybe I can make clear and maybe I can not just the reason: I agree entirely with Judge Burr’s opinion as to what would have happened if a vote had been taken upon the first resolution. The first resolution was the subject of long discussion by the committee on the question of limiting the Shreveport power so that the exercise of State power would ee secure if that power were left in the hands of the Interstate Commerce Commission; and the committee reported a reso- lution asking the Congress to terminate that power. Commissioner Taylor, chairman of the Nebraska commission, took the floor against it. The commissioner said that while his State was suffering, and suffering badly, from the existing state of affairs, he did not himself favor coming to Congress and asking the Congress to terminate that ower altogether; he thought we should make our request to Congress a request to so imit it and define it that the States would be secure in all reasonable and proper exercise of the State power of regulation. a4 There were one or two other people who indicated that same feeling, in their state- ments made on the floor of the convention—I think merely one from Missouri: A: motion was made to refer it back to the committee with instructions to modify it along the lines indicated by Judge Taylor. Objection was made to that, and it was referre back without instructions. Two resolutions were later reported in, the intent of the committee being to let the convention take its choice. The question was asked MODIFICATION OF TRANSPORTATION ACT, 1920. 191 whether the new one was a substitute. I think Chairman Webster of the committee wholly misa yprehended the inquiry from the chair, and he said it was, whereupon the chair immediately put the question and the substitute was adopted. It was the intention of the committee that there should be a choice between those two resolutions. But the resolution which comes here.comes with the unanimous vote of the convention behind it. Everybody is of opinion that there must be a definition of the Shreveport power of the Interstate Commerce Commission if State regulation is to be secure. The Caarnman. What we understand, and J ask it because we must hasten to a close: You do not question the doctrine abstractly laid down in the Shreveport case or in the Illinois case, but you believe it was improperly employed in those cases? That is, it was applied without sufficient proof or something of that sort? What we would like to know is what you want to substitute in its stead? Mr. Benton. I will present that. The Cuatrman. I think we fully understand this conflict between the Interstate Commerce Commission and the State commissions. Senator Keirtoce. What I want to know is this: Suppose a State should make rates for its local manufacturers for distribution in the state so that practically only the manufactured products of that state could be distributed in the state as against inter- state commerce. Do you deny the power or the propriety of the Initerstate Commerce Commission to prevent that? Mr. Benton. I do not deny the propriety or the duty of the Congress to terminate that sort of thing if it ever arises. But I do maintain that there is no state that makes rates that way; that in a government of this sort it is to be assumed, if the government is going to run along the way it has, that state officials will want to make the Federal plan of government work well, just as much as the Federal officials. Senator Kettoce. But as to whether there was discrimination or not you want the State commission to be the final judge? Mr. Benton. I am not asking that. " aoe Ketitoce. How can you do that under the Constitution of the Uuited tates? i Mr. Benton. I am not asking that, and as long as I am not asking it I will not, unless you desire me to, go into that matter. So far as that goes, however, I may answer you in a sentence, perhaps: The power to do a thing is quite different from the doing of it. The Congress had for many decades power to regulate interstate commerce but it did not do it; and it has the power to protect interstate commerce against improper state rates, but there is no compulsion to exercise that power, and no occasion to exercise it, until the need for it arises. Senator Kztuoce. Then, your point is that the Congress should not exercise any power to protect interstate commerce against discrimination by State rates? Mr. Benton. My personal judgment, which you appear now to be asking for, is that the Congress should just wipe the slate clean of the Shreveport power, and put into the act a provision similar to that which is included in the Sweet bill, in the House, which would keep the Congress informed all the time of any occasions where a State, in the opinion of the Interstate Commerce Commission, was misusing its power te make intrastate rates. Senator KEtLoce. But commit the absolute power to the States so that no inter- ference could be corrected by the Federal authority? Mr. Benton. That is my personal opinion. Senator Kettoce. That is what I wanted to know. , Mr. Benton. But that is not the proposition which the National Association of Railway and Utilities Commissioners, which I represent, has now come here with. That proposition is that the Congress shall define what character of discrimination it intends to empower the Interstate Commerce Commission to abate, and provide the procedure whereby it shall be abated, and provide that the Interstate Commerce Commission, when it attempts to exercise that power, shall make its report in such form that it may appear whether the case is within the class of cases which the Con- gress has intended to empower the commission to deal with. __ ; es Senator Pomerzrns. In my judgment you are putting up an impossible proposition to the Congress when you ask that they keep themselves informed whether a rate in one State on one commodity is too high or too low. Mr. Benton. That is not my proposition. You see, Senator, Senator Kellogg asked me what I thought about it and I told him what I thought. Thatis a proposition which isnot presented here. The proposition which is presented here is that presented by the National Association of Railway and Utilities Commissioners, and that is the second resolution put before their convention and adopted. . The Cuarrman. Let me give you an illustration for the purpose of getting your view upon it: Take my own State and the towns just across the river. Here is Moline, 192 MODIFICATION. OF TRANSPORTATION ACT, 1920, Ill.. which is an extensive agricultural implement manufacturing town; and then there is Davenport, Iowa, 3 miles away. or something like that. that also has similar manufacturing plants. Suppose the interstate rate from Moline, IIl., to points,in Iowa had been fixed by the Interstate. Commerce Commission. and the State rate from Davenport to points in Iowa had.been fixed by the State commission at one-half the rate enjoyed by Moline. Of course, that would drive Moline out of business so far as Iowa is concerned. Do you contend that the Interstate Commerce Commission ought not to have the authority to inquire into such discrimination, and if found to exist to declare what the proper rate from Davenport to interior points in Iowa should he? ‘ ie Senator Fernaup. That is a very fair question, Mr. Chairman, and I would like to have Mr. Benton’s opinion on it. ; Mr. Benton. The exact request which I am making here on behalf of our national association is not that the Interstate Commerce Commission shall be prevented from inquiring into such a situation as the chairman has mentioned, nor, if it finds that such a rate prescribed by the State of Iowa is arate which is too low for the service performed, iand discriminates against Moline, that it shall be prevented from pre- scribing the proper rate to be in effect in Iowa.* But, if it investigates and finds that the rate fixed by Iowa is a fair rate, the Interstate Commerce Commission should correct the interstate rate so that both of them will be fair. The Cuarrman. That is all we tried to do in this law. We did not intend to cover a situation that is not parallel to that. Senator PomereNE. Let me make another suggestion, and it may be you have touched upon it, as I have not been able to be here all the time beeause of other engagements, but when we had the transportation act before this committee I was satisfied, whether it meets the approval of the public generally or not, there was never a better effort made to solve these problems than was made by the committee at that time. Railroad executives and shippers. and others—-I say shippers, and I have heard nothing to the contrary—seemed to appreciate the situation, and it was said that North Dakota, by legislation under the nonpartisan league, had so reduced the rates on intrastate traffic in that State that it would bankrupt every trunk line that crossed the State line if the other States would do a similar thing. Under those circumstances do you think the Interstate Commerce Commission ought to be power- less to act? Or. to put it in another way, do you not think they ought to act? Mr. Benton. Upon the ground which you state, Senator, I think they ought not to act and that there is no occasion for them to act. Senator PomMERENE. Then who should act? Mr. Benton. I think you are misinformed as to the situation in North Dakota. I said something about those rates the other day in reply to a question by some mem- ber, but, assuming to be true all that you have said, the courts of North Dakota, or the courts of the Federal Government, would protect against such rates. Under the Constitution, if the United States Supreme Court has correctly construed it, the ee ia of rates for purely intrastate traffic was reserved to the States, and I believe wisely. Senator PoMERENE. With certain qualifications, that is true. I have never heard Md Caen case successfully controverted. I do not know that anybody has enied it. The CuairmaNn. The Shreveport case, however, Senator Pomerene, was not put on the basis that the'Texas rates were, that they did not produce sufficient revenue. ao PomERENE. Probably I was thinking of some other case when speaking of that. / The Cuairnman. The Texas rates discriminated against rates from Louisiana and other points into Texas. Senator Prrrman. If the rates in North Dakota were so low that they were con- fiscatory would not the courts have the right to correct that situation? The Cuarrman. Of course. Senator Prrrman. Is not that the remedy for the condition in North Dakota whether the Interstate Commerce Commission decided it before the courts did or not? The Cuairman. Personally I believe so far as insufficiency of State rates is con- cerned, if it is put upon the idea to raise revenue, I have been unwilling to give to the Interstate Commerce Commission power to correct, even if we could do it con- stitutionally, that objection, But we have been going on for years upon the assump- tion that the States must not discriminate against interstate commerce, that is, dis- criminate against people outside the State in the transaction of their business. And I nave not seen any reason to change the operation of the law with respect to that phase of it. ‘ Mr. Benton. I have endeavored to point out, Mr. Chairman, that we do not come here asking you to change the policy of the law. But we do point out to you that MODIFICATION OF TRANSPORTATION ACT, 1920. 193 the Shreveport power was built up on section 3, which was a. section which forbade any carrier to discriminate against any person or locality; and that whereas we thought we had a clear knowledge of what the courts would hold that to mean, nevertheless ° the Interstate Commerce Commission had given to those words a totally new meaning, and is now claiming, as I understand—although it has not put that claim into a report, where I can point to a discussion of it in any case; but I understand it is now claim- ane that it could have made all these orders under old section 3. { that is so it is perfectly obvious, if there is a situation existing which the Congress wants to cure, it will not be done by merely repealing the transportation act, for the commission is going to keep on exercising and claiming the power which it says springs . not only from section 13, as you have amended it, but from old section 3 without any amendment. What we would like the Congress to do is to determine the extent to which the Congress wants the Interstate Commerce Commission to set aside orders and laws of the States. We are indicating to you what in our judgment the amendment ought to be, but the Congress is the judge. Whatever the extent of the power you grant, we ask you to so limit and define it that it will be clear to the Congress and to everybody the extent to which you want the Interstate Commerce Commission to go. Then we ask you to provide a procedure which will compel the Interstate Commerce Commission to go no further than you have intended they should go; and as a part of that procedure we think it is proper that they should enter a report stating the facts that they find from the evidence upon which they rest their conclusion that the sort of case does exist which the Congress has told them they might exercise power over. The Cuarrman. I assume that is for the purpose of enabling a review? Mr. Benton. Yes. The Cuairman. And those interested may have a review of the order of the com- mission, so that a court could determine whether the facts found by the commission sustained the order that was issued. Mr. Benton. That is the purpose of it, Mr. Chairman. The CuatrMan. Well, now, what I would like to know—I think we have got a thoroughgoing view of the situation—is what the language is that you think ought to be put into the act. 7 r. Benton. I was not aware that you were going to ask me for that this morning, and I am not prepared to give it to you. I will ask leave to put it in the form of a concrete bill, if I may. I think it probably would be more helpful to you that way, and I will either mail it to you or be glad to appear before you and present it and answer any question about it. : The CHarruan. But a concrete bill would be unnecessary, for I assume it would be in the way of an amendment of the interstate commerce act or the transportation act, because we deal with that subject in both those acts, and we do not want to take up the subject entirely anew, ignoring all that has been done before. Mr, Benton. Of course when I said ‘concrete bill” I meant concrete in form of definite amendments to the interstate commerce act. ° The CHairnMAN. Well, I wish you would do that. Mr. Benton. I will do that. I want to say to you that the absolute necessity of providing definitions, procedure, and requirement for findings is made evident by the way the commission has handled these cases. If you will examine the several State cases, you will find that the Interstate Commerce Commission has made stereo- typed findings of fact intended to confer upon itself the jurisdiction to make the orders which it has made. You see that the commission has a very peculiar kind of jurisdic- tion. It is juriediction which exists upon its finding that the case exists in which you intend to authorize it to act. In other words, by their own findings of facts they create their own jurisdiction. They do not have any jurisdiction to touch State rates until they find that discrimination exists. Now they have adopted, as you might say, a kind of Ford process—they have made stereotyped findings of fact, which they run into every case that comes before them, with rarely a variation. And I have pointed out how even the most trivial things are sufficient to them as the basis of a finding of unjust and undue discrimination against interstate commerce. : Betiator Prrrman. I understand from you that they rather find conclusions than facts upon which conclusions might be based. ; : Mr. Benton. They do. In their reports they sometimes make statements of facts, but at the end of their reports and before they make their orders they throw in these’ conclusions, stereotyped, evidently drawn in the New York case, added to from time to time a little, but thrown into all the cases in almost identical form, it evidently having been determined that such findings were necessary to support the commission’s jurisdiction in intrastate cases... ase 733887—21—rr 1——_18 \ 194 MODIFICATION OF TRANSPORTATION ACT, 1920, Senator Prrrman. Well, then, judging from your answer to the chairman’s question, you desire that the evidence upon which they find their facts may be a part of the record, do you not? Mr. Benton. My wish is that the statute as amended shall provide specifically what kind of a cave they must find to exist. That they must find and incorporate in their report the facts from which they draw the conclusion. ‘That will render, as I understand it, their action open to review in two ways. If the report alone is trans- ferred without the evidence, it will enable a review to be taken on the question whether the conclusion is supported by the facts that they have set out in their report. If we want to review their findings of fact, we would have to review the same as we do now, by taking up the evidence. Of course, that is pretty unsatisfactory. It is a very important aspect of the matter for the Senate to consider, that whereas the Interstate Commerce Commission creates its own jurisdiction by its finding that discrimination exists, it is established by Supreme Court decisions that if there is any evidence before the Interstate Commerce Commission tending to support the finding that the Commission’s finding of fact is conclusive, and the courts won’t review. The courts won’t review as to whether a finding of fact is correct or not. They hold that Congress has committed to the commission the power to make findings of fact conclu- sively, so there is not very much to be gained ordinarily by taking up evidence, unless they have lawlessly made a finding of fact without any evidence at all. The Cuarrman. As it is at the present time, the commission must find that the State rate brought into question constitutes an undue and unreasonable discrimina- tion either against a person or a locality or against interstate commerce. Now one or the other of those findings must be made by the commission before it would have authority to proceed at all, | mean by the way of awardingaremedy. Now, you want something more specific than that? Mr. Benton. Yes. i The Cuarrman. And what I want to know is what you want. Mr. Benton. I will present it. I did not understand you wanted me to present it this morning, and I am not prepared to. Senator PomMBRENE. Mr. Chairman, I wanted to have the benefit of that concrete suggestion. We have heard a good deal of discussion on this subject here, and I havea letter which I received this morning from the Philip Carey Co. of Cincinnati, one of the very large manufacturers and shippers, and that company presents the other view of this very subject. I want to read this letter at this time if I may. [{Reading:] Pau Carey Co., Cincinnati, October 28, 1921. Hon. AttEE PomERENE, Uniied States Senator, Washington, D. C. Dear Sir: We understand that the National Association of Railway and Utilities Commissioners have presented testimony before the Senate Interstate Commerce Committee, of which we understood you are a member, in support of its. request for the amendment of the transportation act, so that the Interstate Commerce Com- mission will not have authority to compel the removal of discrimination between intrastate and interstate traffic. ‘There are within the State of Illinois, numerous rates on our finished products. and on the raw materiils from which we manufacture these products, that are on a considerably lower basis than the interstate rates and the Ohio intrastate rates appli- cable from our factory at Lockland, Ohio. ‘ It is our intention within a short time to file complaint with the I. C. C. seeking the removal of this prejudice against us and preference in favor of our competitors with factories located within the State of Illinois, from which points they ship to points of destination within the State of Ilinois. If the transp rtation act should be amended so as to leave the Interstate Commerce Commission without power to Le the removal of discrimination between intra- state and interstate traffic, we will be without any remedy for this matter. Further- more, it is manifest that if the basis of rates from our factory is justified, then the Illinois intrastate rates are too low and a burden on intrastate commerce. We believe that the Supreme Court in its decisions soon to be issued, will sustain the power of the Interstate Commerce Commission under the transportation act to compel the removal of discrimination as between intrastate and interstate rates, and believe that it would be a backward step to withdraw this power from the Inter- state Commerce Commission. We believe, therefore, that Congress will not withdraw this power from the Interstate Commerce Commission and are writing you merely in order that there will be no omission on our a in having expressed to you our opinion regarding this matter. We are inclined to believe that you will agree with us that it is important that the Interstate Commerce Commission should not be MODLFICATION OF TRANSPORTATION ACT, 1920. 195 deprived of this power, and we are in hopes that you will lend your most valued efforts in having this power retained by the Interstate Commerce Commission. Yours respectfully, ] R. B. Crass, Vice President. 1 express no final opinion with regard to this subject matter that is here before us now; but that is the other view, of course. : The CHarrman. Well, but until yesterday I never dreamed that anybody pro- posed to withdraw that power from the Interstate Commerce Commission, and I do not really think that Mr. Benton even suggests the withdrawal of that power. ‘hat is a power that it has had for years and with additional facilities for enforcing the power in the transportation act. Senator PomeRENE. Yes; but there are bills pending here to repeal and take away this power. ‘The Cuairman. Yes; but I had not thought that there would be much headwit made with them. Senator PomeRreNne. Well, it is a serious problem. I think the State commissions aa had their troubles and I think there have been some most unfortunate rates made. Senator PoInpEXTER. There have been some unfortunate opinioris, apparently, and I think that what Congress should do with the power of the Interstate Commerce’ Commission would depend on their decisions to some extent. The Cuarrman. the acts or the conduct of the Interstate Commerce Commission is that they have apparently misconceived the law and have gone forward and have taken possession of the entire State field without any evidence of the particular dis- crimination which the act was intended to remove. Mr. Benton. Mr. Chairman, it may interest the Senator from Ohio if I call his attention to a case which is now pending before the Interstate Commerce Commission from Ohio, known as the Ohio coal-rates case. Senator Pomerens. I know all about it. . Mr. Bewron. The Ohio Coal Rates Case is I. C. C. Docket No. 12851. Senator PomereweE. I don’t know all about that particular case, I mean to say, but I have known of the question to which you are referring; I have had a number of letters bearing on that subject. I am free to admit that there have been some very unfortunate discriminations, and it is particularly true as to the Ohio coal trade, because our Ohio mines have been discriminated: against by the interstate rates made from Tennessee and Kentucky and West Virginia. ‘hat is all true. But I was looking to the other view of taking away this power entirely. Mr. Benton. Yes. I would like to put into the record—I had planned to do so, and if I may I will be glad to do so at this point—a statement about that case. Itisa case where certain carriers serving mines outside of the State of Ohio. seek to enable those mines that are outside of the State to market their products in Ohio in competition with Ohio mines by lowering the rates to those mines'and raising them to the Ohio mines. The Ohio commission allowed the entire 40 per cent increase in freight rates, following Ex parte 74, that they were asked to allow, but when the car- riers came to them and asked them to advance the Ohio coal rares 16 per cent more,. the while the carriers were reducing the coal rate to the outside mines 8 per cent, ao as to allow the outside mines to compete with the Ohio mines, on favored terms, the Ohio com nission said, and I quote its words, that this was a proposition ‘‘to make the- Ohio shipper the goat,” and they refused to consent to the plan. | Now, upon petition of carriers, the Interstate Commerce Commission has ordered an investigation of those Ohio rates, with a view, if they decide to do so, of compelling that additional 16 per cent advance on the Ohio rates. Senator PoinpexteR. In intrastate rates? Mr. Benton. Yes. Senator PornpexTER. What would be the relative rate interstate and intrastate? Mr. Benton. I am unable to quote those two, Senator. Senator Pornpexter. You don't know whether they would be the same? Mr. Benton. No.. ; Senator PomERENE. Senator, this is not a new question. In the present form of these rates it is comparatively new, but this question has existed in Ohio for five or six years to my certain knowledge, and,it leaves this discrimination. This so-called Hocking Valley is in the southeastern part, in the southern pait, and West Virginia coal goes right past these mines in the Hocking Valley, and so forth, and on to Toledo, and taking into consideration the mileage, West Virginia coal goes through the Hock- ing Valley, and the portion ef the interstate charge which would be properly charge- able to Ohio is very much less from the Hocking Valley mines on West Virginia coal to ‘ 196 MODIFICATION OF TRANSPORTATION ACT, 1920. Toledo than it is on Hocking Valley coal from the Hocking Valley mines to Toledo. he ow that has existed, and it has a good part of this season put these mines out of usiness. Senator PoInpExTER. Do you bear in mind what the relative rate is? Senator PomerEenE. No. I have some figures on my desk. The fact is that I got a letter this morning from a man in Findlay, Ohio, bearing upon this subject. [ think that applies rather on Kentucky and Tennessee rates, etc., but the other rates we have and that has been a known controversy for a long time. (Mr. Benton subsequently filed the following letter, giving the information requested:) i Wasuineton, D. C., November 3, 1921. Hon. A. B. Cummins, Chairman Committee on Interstate Commerce, United States Senate, Washington, D. C. Dear Sir: The other day in a colloquy with Senator Pomerene I made reference to the Ohio coal rate case, now pending before the Federal commission, in which that commission is asked to advance the intrastate rates in Ohio 16 cents per ton in addi- tion to the 40 per cent voluntarily allowed by the Ohio commission after the decision in Ex parte 74. I was asked for the comparative intrastate and interstate rates. I could not give ‘them. They have since been supplied me by the Ohio commission, and are given below. The Crescent districts lie south of Pittsburgh, the Inner Crescent being nearer Ohio than the Outer Crescent. The rates per ton to Toledo prior to the Ex parte 74 advance and now and the average distances are shown: Average } Aug. 25, | Present distance. | 1920, rate.| rate. Ohio district... .. Nescee . ad 220 1. 50 Inner Crescent. gs 1.90 2. 66 Outer Crescent 2,10 2. 86 It will be noted that the carriers advanced the Crescent rate 8 cents less than the 40 per cent for which they were given authority by. the Federal commission. After putting the 40 per cent into effect in Ohio, they proposed to advance the Ohio rate 16 cents per ton additional. This additional advance was denied by the Ohio commis- sion, and the proceedings before the Federal commission are to compel its imposition. On this point the Ohio commission, in itsreport denying the 16 cents additional, said: “For the first time it is apparent that the carriers are attempting to use these differentials not for the purpose for which they were designed, but for the purpose of yng an additional burden of approximately $1,000,000 a year upon the Ohio shippers. , “The scheme here presented leaves the Inner Crescent rate undisturbed, deducts 8 cents from the Outer Crescent rate, and adds 16 cents to the Ohio rate, making the Ohio shipper the goat to bear the whole burden. If it is desirable to establish the 40-cent differential to the Inner Crescent and the 60-cent differential to the Outer Crescent at this time, it should be done by some more equitable scheme. The bur- den should at least be distributed in three parts, each bearing its share.” I would request that this letter be included in the record. Yours, very truly, Joun E. Benton, General Solicitor. The Cuatrman. Well, there is nothing in our law that gives any person the authority to complain of the discrimination of an interstate rate against a State rate. Senator PomEerENE. No. Mr. Benton. It is interesting to hear that declaration. I understand the law to be that way. I think that extreme care was taken in redrafting section 13 of the act to set off State commerce on the one hand as against interstate commerce on the other, and yet they are astute enough in and about the Interstate Commerce Commission so that they have found that that does give to the Interstate Commerce Commission the power to forbid a State rate which is higher than an interstate rate, and in at least one recent order made by the Interstate Commerce Commission they have allowed the State authorities the privilege of permitting advances in intrastate rates, but not reductions, provided, however, that they shall not permit a State rate to be put into effect which is higher than the corresponding interstate rate. I cite that as showing MODIFICATION OF TRANSPORTATION ACT, 1920. 19% how careful Congress has got to be in its delegation of authority and in the use of the language delegating that authority. _ The CHarrman. Of course the commission would have power to investigate the interstate rate as to its reasonableness, and cut it down if it wanted to, but: we have not attempted to deal with State rates at all, except as they become discriminations against interstate commerce. Senator PoMERENE. Was your statement that these rates had been raised hy the ise Fublic Utilities Commission at the request of the Interstate Commerce (om- ssion? Mr. Benton. My statement, Senator, was that following the decision in Ex parte 74, where 40 per cent advance in freight rates was allowed in the eastern district, Ohio quickly granted the full 40 per cent increase, and this is an attempt to increase 16 per cent more. ; Now I will read into the record, if it would interest anybody, a paragraph which I think now is put into all of the State orders. 1t is as follows (reading): “Tt is further ordered, That nothing in this order shall be construed as prohibiting any carrier, part) to this proceeding, from increasing any rate for the transportation of property in intrastate commerce, prescribed in this order, provided such increased rate does not exceed its corresponding rate contemporaneously in effect and applicable to the transportation of property in interstate commerce, and provided further that such increase is made pursuant to the laws of the State of Tennesree, and with the approval of the authorities of said State.” So that you will see that they have taken jurisdiction to prevent increases in intra- state rates as well as to compel them. : Senator FerNaup. Mr. Chairman, was it the intention of the act that the Interstate Commerce Commission should interfere with State rates only when they become discriminatory? Was that the intention of the act? The Cuarrman. The intention is that the Interstate Commerce Commission shall have the jurisdiction to take up a State rate which is mlleged to be and proven to be a discrimination against interstate commerce, and it it finds that such discrimination exists, it then has the power to declare what the intrastate rate shall be. Senator Fernautp. Yes. Well, now, that is well stated. Now, was it the intention also that they might have authority to take up intrastate rates when they were not discriminatory? — The Cuarrman. We do not deal with that question in the transportation act at all. It has always had the power to take up an interstate rate that was alleged to be either unreasonable in itself or a discrimination against any person or locality. ‘Senator Frernaup. And they have the power within themselves to determine whether they think it is discriminatory? The Cuarrman. I think so. : Senator Fernaup. Well, that seems to be the whole question. Mr. Benton. Now, Mr. Chairman, right in that connection I think it would be well to call attention to another case under the power which the commission claims to have from section 3. Let me say, reverting for a moment to the Ohio case, that I understand that that is regarded purely and simply as a discrimination case, and without the revenue feature which came in under the transportation act. Now, in the State of Washington—— ’ : . The Cuarrman (interposing). You had better state that section 3 of the original act is the section which declares that all rates shall be just and reasonable and shall forbid discrimination of any kind. That is true, isn’t it? Mr. Benton. Yes. ; : Senator Fernaxp. Well, now, Mr. Benton, let us get this clear. You allow, as the Chairman has stated, that they have this authority. Is it your contention, that they misinterpret the language or that they exceed their authority? _ : Mr. Benton. It is my claim that they have exceeded their authority. It is my claim that they have shown a disposition, a habit of making findings stated in the language of the act, without having evidence of facts before them which bring the case in which their findings are made within the spirit of the law, and what I am urging is that Congress itself determine how far it wants the commiesion to go, and put language into the act which will hold the commission to the delegated authority. The Cuarrman. But, as the Senator says, Congress can not review all of these different cases. Mr. Benron. No; I am not asking that. ‘ . : The Caarrman. Now, do you want the language so changed in the act that this authority which they assume or you allow them to assume should be cleared £0 that they do not have that authority which they now claim? Mr. Benton, Yes. 198 MODIFICATION OF TRANSPORTATION ACT, 1920. The CuairMAN. That is your contention? Mr. Benton. That is my contention. And such procedure provided as will enable the courts to review any departure from it. ; Senator PomERENE. Don’t you think after these cases are decided which are now in the Supreme Court—the gentleman from IIlinois the other day spoke about the cases that were pending here—that when the Supreme Court hands down its opinion in those cases it ie going to clarify this atmosphere a great deal? Mr. Benron. I ‘ae it may tend to clarify it, but I think it is very much more robable that it will leave many, many things to be settled by litigation which ongress could easily settle by a few words put into the law now. - Senator Pomzrens. Well, you are more of an optimist than I am if you think Con- gress can settle all these questions. Mr. Benton. Senator, Congress could prevent any such order being made as I am now going to call attention to. Senator FERNALD. Well, I understand, Mr. Benton, that you are going to produce to-morrow, or right away, an amendment to the act which you suggest? Mr. Benton. Yes. Senator Fernaup. Which you believe will clear the situation? Mr. Benton. Yes, Senator Fernald. Senator Prrrman. Mr. Benton, if the Interstate Commerce Commission fixed a rate lower than the Ohio rate, or lower than the Ohio rate could be placed, we will say, under the law, and that would be a discrimination in favor of West Virginia, because it was interstate commerce; on the other hand, ‘if the State commission of Ohio could place the intrastate rate in Ohio lower than the Interstate Commerce Commission, could fix the interstate rate, in-accordance with justice then that would be a dis- crimination against West Virginia or a discrimination against interstate commerce. So that doesn’t it seem that the only way that you can ever avoid discrimination, on oue side or the other is to have a uniform rate, I don’t, mean exactly, but uniform in accordance with the comparative hauls? Mr. Benton. I don’t believe this country can ever adopt a uniform rate. That may be a statement which will not meet with accord by people from some sections of the country. But our business has grown up with rates built to meet situations. There are two classes of rates:, Local rates and through rates. And many a mine and many a factory would be put out of business—New England could not live—if you established an absolute uniformity of rates. Itjustcan not bedone. Rate questions are too intricate to be settled mathematically by a rule of thumb—handing out a rule and allowing a clerk to apply it everywhere. There has got to be.a judgment exer- cised by somebody, who ought to be competent, applied to the facts of each given situation. . % Senator Prrrman. Then your answer is that uniformity of treatment is impossible and you have illustrated New England; and therefore some one must be vested with the power of determining discrimination. Mr. Benton. That is my answer, Senator. Senator Prrrman. That is a very difficult problem. Senator PoMERENE. And you-would place that with the State commissions instead of the Interstate Commerce Commission? Mr. Benton. No, and yes. I would place it—speaking now to the proposition I have presented here—with the State commission in the first instance. When it makes the State rates it will attempt to make them with a view not only to the business within the State, but to all the business that moves over the lines on which the rates are fixed. And if it errs and Congress passes the bill we now ask to have passed, the matter can be presented to the Interstate Commerce Commission, and discrimination can be removed, and both rates put on a just basis, The Cuarrman. Mr. Benton, we will have ta suspend now. Will Judge Reed be here to-morrow morning? Mr. Brenton. He intended to be, and I expect he will. The Cuairman. I think the best way to proceed now is if Judge Reed is here, and I hope you will get him here if you can, we will hear him to-morrow morning. After that time I have agreed to hear Judge Cowan and Clifford Thorne on this same proposi- tion. They represent a very large number of shippers in the west, especially the cattle shippers and grain shippers. And we will resume your testimony when you have prepared and are ready to submit to the commitice the concrete changes which you propose in the bill. I think that we can reach an intelligent conclusion a great deal more quickly if we have before us exactly how you propose to amend this law. Mr. Benron. Mr, Chairman, I have just been speaking of the Nebraska situation. T made reference the other day to an attempt on the part of Nebraska shippers and carriers and commission to get some rates into effect under the present state of affairs MODIFICATION OF TRANSPORTATION ACT, 1920. 199 and suggested that it took several weeks. I telegraphed to the chairman of that com- mission and asked him if he would not send me a statement covering it, so that I could put the facts before you more accurately than I had done, and he sent me a letter, which I would like to read, if I may. The CuairMan. Very well. , 23 Mr, Benron. The letter is as follows [reading]: , Ocroper 28, 1921, Mr. Joun E. Benton, : General Solicitor National Association of Railway and Utilities Commissioners, Washington, D. C. My Dear Mr. Benron: We have your telegram of even date, asking for a history of the Proccotines leading up to the approval by the Interstate Commerce Commis- sion of State-wide rate adjustments in Nebraska subsequent to that commission’s order in Ex parte 74. ‘ pcteog The rates involved covered the movement, intrastate, of sand, gravel, and stone, and also brick, hollow building tile and cement blocks. A demand.on the part of shippers for a readjustment of rates on both of these classes of commodities had been made even prior to the war. A complaint directed at the brick,rates was pending before this commission when the roads were taken over by the Federal Government. While sand shippers had not filed formal complaints, they had taken up at various times inequalities in the sand rate schedules and had urged action looking to a read- justment. It was admitted by the carriers that. the rates in both instances, both as to structure and to quantity, were inequitable and should be modified. _ At the hearing before the Nebraska commission on the carriers’ application for an increase in State rates of 35 per cent to correspond to the increase in Ex parte 74 shippers again called attention to the maladjustment in’ brick and sand schedules and were, assured by carrier representatives that in the event of a general increase of rates the schedules complained of would be taken up and corrected. In its order, however, the Nebraska commi:cion made an exception as to brick'rates and exempted this commodity from the application of the 25 per cent increase authorized. As to sand a maximum was provided of 160 per cent of the rates in effect at the time General Order No. 28 was promulgated. Hearing was had before the Nebraska Commission on the brick rates October 26, 1920. At that.iime the carriers submitted distance schedules of rates as their idea of what should he done to remedy the situation. Ship- pers objected to the rates as being: too high. While this care was still pending before the Nebraska commission the Interstate Commerce Commission issued its Shreveport order No. 11829, setting aside the Nebraska commission’s order and authorizing an increase on all:commodities of 35 per cent. Immediately thereafter the carriers secured an injunction in the Federal court restraining the commission from interfering with the enforcement of this order. This necessitated a suspension of any-action by this commission on brick ratez. Whereupon, shippers and representatives of this commission took up with the carriers the necessity of making some adjustment and the carriers indicated a willingness to enter upon negotiations. We inclose herewith a brief summary of the various steps taken during the progress of the negotiations. It should be stated in this connection that complaints directed at the adjustment on sand rates in Nebraska were filed with the Interstate Commerce Commission on behalf of interested shippers. On March 9, 1921, it will be noted, a conference was held at Omaha between sand and gravel shippers and traffic officials of the various roads. On April 27, 1921, a further conference was held at Chicago, par- ticipated in by Examiner Disque, of the Interstate Commerce Commission; Commis- sioner Browne, of the Nebraska commission, and representatives of the shippers and carriers. The second week in April the writer, after consultation with his associates and with shippers, concluded to visit Washington and lay the whole matter of Nebraska rates before Chairman Clark of the Interstate Commerce Commission. This he did, with the result that an order was finally made, amending the order in No. 11829, which had the effect of reinstating certain orders issued by the Nebraska commission made between July 26, 1920, and February 28; 1921. At this conference the chaotic condition with reference to State rates was described to Chairman Clark, but we were assured that unless the carriers would voluntarily agree to a readjustment no way could be found for a readjustment except by complaint to the Interstate Commerce ‘Commission, and some doubt was expressed as to whether or not changes could be effected in that manner. It will be noted from the summary submitted that May 24, 1921, Chief Examiner Quirk advised that the Interstate Commerce Commission would approve the carriers’ proposed schedule for interstate traffic and thus enable them to effect the same adjust- 200 MODIFICATION. OF TRANSPORTATION ACT, 1920. ment intiastate. Itis important to remember in this connection that in both instances the basis of negotiation throughout was the schedules submitted by the carriers and that these schedules-were modified but slightly before being agreed to. In other words, the State commission and the shippers particularly had to accept the carriers’ rates or get nothing. Even after Mr. Quirk had indicated that the Interstate Com- merce Commission was ready to approve the schedules as agreed to, and even after that commission had been advised that the shippers and the State commission had agreed to the rates, action could not be secured. Traffic representatives of .the Nebraska carriers made at least three trips to Washington, seeking to find a method by which to file the rates and make them effective on intrastate traffic. It finally became necessary for a representative of the carriers, Commissioner Browne, and certain Nebraska shippers to appear before the Interstate Commerce Commission with the carriers’ application and, to urge its immediate approval. This approval was not forthcoming until August 26, 1921. It is very probable that affirmative action would not yet have been secured had not constant pressure been exerted upon the Interstate Commerce Commission. , In justice to that body it should be stated that their delay was due to any not unwill- ingness to make the readjustment, but through doubt on their part as to how the thing desired could be accomplished. It is significant, also, that the order as finally issued was in the form of an amendatory order to No. 11829, whereas the commission had stated to the writer and to others that all that would be necessary would he for the carriers to file the rates desired interstate and that then the same schedule could be made applicable to intrastate traffic by complying with State requirements as to filing. The procedure at best is awkard, tedious and unsatisfactory and the shipper is dependent wholly upon the generosity of the carriers for any reduction or favor- ablereadjustment. |. ; We trust this supplies you with the information desired. Yours, very truly, / H. G. Taytor, Chairman. P. S.—When the State authorities made the rates inequalities were ironed out quickly by agreement when necessary and no state-wide sand and brick schedules were ever made. Now with all authority over State rates lodged at Washington, it takes months for adjustments to be made, and scales over wide areas are the only way shippers can get a measure of protection. Mr. Benton. The summary referred to in Chairman Taylor’s letter is as follows [reading]: : “On March 9, 1921, conference held at Omaha between sand and gravel shippers and traffic officials of various railroads. _ “Conference held at Chicago on April 27, called on the suggestion of R. E. Quirk, chief examiner of the Interstate Commerce Commission, attended by Examiner Disque, Commissioner Browne, U. G. Powell, representing complainiants in cases filed with the Interstate Commerce Commission, H. H. Holcomb, freight traffic manager, and K. F. Burgess, general attorney, of the Burlington. ‘Examiner Disque stated that if the shippers and carriers would come to mutual understanding as to a fair and proper scale of rates on sand in Nebraska, and an application be presented, signed jointly by the carriers and the interested shippers, that he believed the com- mission would make the necessary order permitting the publication of rates as agreed upon.’ (Letter of Mr. Montgomery, dated Apr. 30, 1921.) “Conference held at Lincoln at the offices of the commission on Monday, May 9, attended by representatives of carriers and various sand shippers. “Telegram dated May 24, 1921, from Chief Examiner Quirk, advising ‘if your commission will approve carriers’ proposition as most practical present adjustment * * * this commission will permit carriers to file that adjustment interstate. thereby enabling them to effect same adjustment intrastate.’ Answered May 25, ‘We think suggested carrier scale best present adjustment and will approve it.’ “Letter written to Mr. Quirk by Commissioner Browne on June 4, confirming tele- gram and stating, ‘we have asked the carriers to provide carload rates from pits to nearest, billing station, which distances are usually from 1 to 5 miles, and, with the possible exception of the Rock Island, this will be provided. We trust the Interstate Commerce Commission will. make similar arrangements covering the interstate traffic.’ “June 4, 1921, Mr: Quirk wrote, ‘It is my under.tanding that the Burlington will arrange to establish the ccale of rates heretofore suggested by it with the modifications ‘suggested by your commission on interstate commerce in the immediate future, and that it will at the same time arrange for your commission to establish the same scale intrastate.’ MODIFICATION OF TRANSPORTATION ACT, 1920, 201 / “Order entered by the Interstate Commerce Commission on July 9, 1921, reopening No. 11829, Nebraska fares, rates, and charges, in so far as it applies to rates on sand and gravel in carloads. “On July 30, 1921, copy of petition of the carriers to the Interstate Commerce Com- mission, was submitted to the Nebraska commission. The petition asked jor a special order in docket No. 11829 permitting carriers to establish and make effective rates for transportation of sand and gravel and stone, also brick, hollow building tile, and cement building blocks. “On the same day Chairman Taylor addressed a letter to Chairman Clark of the Interstate Commerce Commission in re petition mentioned in paragraph above stating ‘The Nebraska commission offers no objection to the rates as proposed, such approval, however, being without prejudice to any pending or proposed litigation with reference to jurisdictional questions and without any finding as to the reasonableness of the rates per se.’ * “On August 6 a letter was addressed to W. M. Daniels of the Interstate Commerce Commission, advising that the petition before that body would be filed by Mr. Mont- morency the coming week in person, and that he would possibly be accompanied by Commissioner Browne. The letter further stated that the shippers are very desirous of having the rates made effective at once. “On August 26, 1921, an order was entered by the Interstate Commerce Commission in 11829, amending previous orders so as to permit carriers in Nebraska on or before October 10, 1921, to establish upon notice of not less than five days’, rates on sand, gravel, and stone, also on brick, hollow building tile, and cement building blocks.’’ Mr. Benton. That shows that the rates that they wanted to put in were agreed upon in April. That the chairman then came here. That it took three trips by ship- pers to Washington, and another trip by Commissioner Browne, of Nebraska, in com- pany with one of those groups of shippers, to finally get the authority, and that it was obtained August 26. Senator PoinpExTER. Do not forget this Washington case that you started to state, bring that up the next time. Mr. Brenton. Yes. The CuarrmMaNn. We will now take a recess until to-morrow morning at half past 9 o’clock, hoping to hear Judge Reed. The hearing will be held in this room. (Whereupon, at 11 o’clock a, m., an adjournment was taken until Tuesday, Novem- ber 1, 1921, at 9.30 o’clock a. m.) MODIFICATION OF TRANSPORTATION ACT, 1920. TUESDAY, NOVEMBER 1, 1921. Unirep Srates SENATE, CoMMITTEE ON INTERSTATE COMMERCE, Washington, D.C. ° The committee met, pursuant to adjournment at 9.30 o’clock a. m., in the committee room in the Capitol, Senator Albert B. Cummins (chairman) presiding. ; ; The Es The committee will come to order. Judge Reed, are you ready to proceed? : Mr. REEp. Yes, sir. The Cuairman. You will please state your name, and your official position. STATEMENT OF HON. CLYDE M. REED, CHAIRMAN PUBLIC UTILI- TIES COMMISSION OF THE STATE OF KANSAS. _ Mr. Reep. It is not my purpose at this time to discuss.the legal questions involved in the transportation act. That has been very ably done by Mr. John E. Benton, solicitor of the National Association of Railway and Utilities Commissioners; by Mr. Carl D. Jackson, president of the association; and by Judge Ledyard P. Hale, attorney for the New York Public Service Commission, and by others. . The purpose of my appearance before this honorable committee and the statement made is to narrate the history of what is known as the Kansas case, and to state in as ° much detail as may be desirable the facts and circumstances relating thereto. ‘THE INTERSTATE COMMERCE COMMISSION CONSIDERED EX PARTE 74 A REVENUE CASE. That the Interstate Commerce Commission considered Ex parte 74 a revenue case is set out in its report in that case. In the beginning of its report the commission says: “In this proceeding the carriers by railroad subject to our jurisdiction seek authority pursuant to the provisions of section J5a of the interstate commerce act, to increase their freight revenues to a basis that will enable them to earn an aggregate annual net railway operating income equal, as nearly as may be, to 6 per cent upon the aggregate value of the railway property of such carriers held for and used in the service of trans- portation. (581.C. C., 223.) ; “In making their proposals in this proceeding the carriers have observed generally those three groups, but the carriers in New England and in the southwest have brought to our attention the peculiar financial needs of the railroads in those territories. (58 I. C. C., 224.) ‘*Evidence has been submitted tending to show that we should accord to the carriers the maximum per cent authorized by the Congress. (58 I. C. C., 226.) “The calculations of the carriers as to the increases in revenue needed by them * * * (581. 0. O., 227.)” On the following pages of its report the Interstate Commerce Commission discusses the needs of the carriers in various groups. The captions for such discussion are stated as follows: ‘‘Revenue needs of carriers in eastern group;” ‘‘ Revenue needs of carriers in southern group;” ‘‘Revenue needs of carriers in western group;” “Extent and method of obtaining needed additional revenue.” As has been previously pointed out in these hearings, the Interstate Commerce Com- mission realized that the time required for consideration of so gigantic a problem was too short to permit an accurate finding in all details, for on page 248 of its report, it further says: 3 “It would be desirable, ifit were possible, to determine definitely the commodities, the sections of the country, and even the individual rates which can best bear the 203 204 MODIFICATION OF TRANSPORTATION ACT, 1920. burden of increases, and the relationships of fhe rates and differentials which will be- disturbed by a percentage increase. This is precluded by the necessity of prompt action upon the main issues presented.”’ THE RAILROADS ALSO CONSIDERED, EX PARTE 74, A REVENUE CASE, Following the order of the Interstate Commerce Commission advancing interstate rates, fares, and charges, the carriers applied to the several States for increases in intra- state rates, fares, and charges. In the Kansas case a hearing was held at Topeka September 2, 1920. In opening the case counsel for the carriers said: “This is an application of the carriers in the State of Kansas for an increase of 35 per cent over present rates and 20 per cent increase in passenger rates and 50 per cent aeaaee on passengers occupying Pullman space, in accordance with the opinion. eh the oo Commerce Commission, handed down sometime ago. * * * ec., p. 2. “Now, this whole question revolves around the mandatory provisions of section 15 (a) of the Interstate Commerce law as amended. (Record, p. 3.) ‘Therefore, this is not an ordinary rate case; this is a revenue case. (Record, p. 8.) ‘Now, this Interstate Commerce Commission’s authority was paramount in this matter, it ‘was not a state proposition, it was a proposition involving the rates.of all the railroads in that group. As I said, they might, under the statutes, have put the tailroads of the country into one group, but they had authority to subdivide it,into zones and they did so, putting this territory in the western, group. (Record, p« 9.) “Judge Huceeins. I wanted to ask a question first before you start out. Is your position here as representing the carriers stated in very few words, simply this, that the only thing that this body can do is to sign on the dotted line and that we have- no discretion? : “Mr. Smita. As to allowing this 35 per cent increase on freight rates on existing rates, that is the sole duty of this commission. : “Judge Hucains. And what about the passenger rate? “Mr. Surra. Same as to the passenger rate. a ms “Judge Huaains. I see. We are sumply going through a form, a ceremony here at the end of which we must subscribe to ie charter and by-laws before we can become full members by signing? 1k ' “Mr. Smita. By raring the interstate commerce act you will see you are justified in doing that. (Rec. pp. 36-37.) * * * * * x ‘‘Judge RrEv. Do I understand your position to be that Congress vested the Inter-- state Commerce Commission with discretion in the ascertainment of the additional revenue necessary and withheld the exercise of any discretion from the State com- mission? ‘ “Mr. CotemMan. Absolutely. Otherwise the SranaperiaGion act would be a joke, Only one body can do it. If Congress can do it and 48 States could interfere with them, the plan would be useless. , ee ‘Judge Reep. In that event, wouldn’t it have been much simpler to have vested the entire power with the Interstate Commerce Commission without necessity of such a proceeding as this? “Mr. Coteman. They gave the entire power to the commission for the purpose of increasing efficiency and initiating these freight rates, but they left you the power to consider the reasonableness of a particular rate.’’ (Rec. pp. 38-39.) Os The CHarrman. If that was the position of the railroads, ais did you not ask then why they applied to the Kansas commission at all? , oe Mr. Reep. I think that does appear in the record, Senator. Perhaps I did not read it as clearly as I should. But that is the question here: / “In that event, wouldn’t it have been much simpler to have vested the entire- power with the Interstate Commerce Commission without necessity of such a. pro- ceeding as this?” ae ale ' As a matter of fact, it appears in the Kansas record that the'railroads claimed they were applying to the Kansas commission merely as a matter of courtesy and form; that the Kansas commission, and the other State commissions had absolutely no power: left, under section 13 of the act. 2 os In the proceeding in Kansas beginning September 2, 1920, the carriers introduced the record as made beforé the Interstate Commerce Commission, and nothing else: It was conceded by counsel for the carriers that that record did not undertake to show in any particular the value of the property in Kansas, the cost of operatién in Kansas,. the revenues in Kansas, or anything relating in any way, directly or indirectly, to- MODIFICATION OF TRANSPORTATION ACT, 1920. 205 any class or commodity of traffic in the State of Kansas. Thereupon the Kansas commission, through its attorney, asked the carriers to fur- nish certain information poene to the business of the railroads in Kansas, and re- oe until September 16 for the purpose of permitting that information to be fur- nished. Upon ee 16 certain statements prepared by the Kansas car- riers were brought before the Commission, but the carriers refused to assume any responsibility for them and objected ‘to their introduction as evidence in the case. The carriers were very frank in their position that the Kansas commission had no power or authority in the premises—that the Interstate Commerce Commission had relieved it of all responsibility except to order the same percentage of increase on intrastate business as had been ordered on interstate business, regardless of any differences in conditions that might apply to the two classes of traffic or to some form of intrastate traffic. Mr. J. L. Coleman, counsel for the carriers, said: “It is not my purpose to Py in any witness but our men are, of course, willing to anyswer any question which Judge Helm may put to them, but they are wholly his witnesses.’’ (Rec., p. 173.) Appearances had been entered and witnesses appeared representing a large number of shipping interests, particularly oil, cement, and live stock, and representatives of Kansas commercial organizations who gave testimony upon the class rates. Consideration by. the Kansas commission proceeded upon the basis of the revenue needed by the carriers as declared by the Interstate Commerce Commission and further emphasized by the carriers, and on October 9, 1920, an order was made raising rates in Kansas to the extent that the testimony in the case indicated was required to bring carriers in Kansas a 6 per cent return above operating expenses and taxes. The Caarrman. Who made the order? Mr. Reep. The Court of Industrial Relations. I would be glad to put a copy of the Kansas order in the record here, if it is desired. The Cuairman. That may be done. (The order referred to is not printed, but a copy is on file with the clerk of the committee.) ‘ No increase was allowed in passenger fares, and no increase was allowed upon crude oil and commodities basing thereon. Increases expressed in cents per 100 pounds were allowed upon brick, cement, crushed stone, sand, gravel, and coal, and a 30 per cent increase on other commodities. The opinion and order of the Kansas Court of Industrial Relations (which by legislative act has been superseded in utility and rail- road supervision and regulation by the Kansas Public Utilities Commission).are made a part of this record herewith. ‘ ‘any particular rate, or the condition of traffic or the reasonablenesg of the rates upon ¥ ILLUSTRATING HOW A CASE INTENDED TO PRODUCE REVENUE MAY BE CHANGED INTO A DISCRIMINATION CASE, AND FINDING BY THE INTERSTATE COMMERCE COMMISSION MADE ACCORDINGLY. The carriers promptly filed complaint with the Interstate Commerce Commission ainst the order of the Kansas commission, as was done in other States. The prin- cipal allegation was that the Kansas order was a discrimination against interstate commerce. The Interstate Commerce Commission docketed this complaint under Docket No. 11916 and set a hearing at Topeka before Attorney-Examiner Disque on March 1, 2, 3, and 4, 1921. At this hearing the carriers introduced practically no evidence on the revenue side of the question. Practically all of the testimony offered by them related to the difference in rates which was claimed by them to be discriminatory. = I will not undertake to discuss here the legal definitions of discrimination. As I stated in the beginning, that has been done by other witnesses appearing before. this committee. Starting 35 or 40 years ago the Missouri River was used by the railroads as a rate basing line. Traffic moving across the river did so on rates that sharply increased on the west side. Kansas has been engaged in a struggle for a quarter of a century to overcome the inequity of the original rate basing method. As its traffic and commerce has increased to a point that is comparable with the territory between the Mississippi and the Missouri Rivers, Kansas has sought to have its rates adjusted accordingly, and the carriers have fought such an adjustment at everyturn. I make this statement that the underlying philosophy of the Kansas rate order may be clearly understood. In its report in this case the Interstate Commerce Commission made a finding that traffic conditions on interstate and intrastate commerce are, generally speaking, the same. It says: 206 MODIFICATION OF TRANSPORTATION ACT, 1920. ‘‘Kansas intrastate: traffic traverses the same lines of railroad as does interstate traffic. All lines handle both State and interstate business on the same rails. The same kind of service and the same kind of railroad conditions prevail within Kansas .as-between Kansas and Nebraska, for instance, or between Kansas and Missouri or Kansas and Oklahoma. Generally speaking, there is no difference’ between the intra- state and interstate transportation conditions in any service, freight or passenger: (62 1. C. 0, 445.) e ’ In addition to finding that interstate and intrastate traffic moved under the same conditions, the Interstate Commerce Commission in its report in this case also found that many intrastate rates in Kansas were higlier than the corresponding rates upon which competitive traffic moved in and out of the State. Specifically it found: | “The Court of Industrial Relations calls attention to the fact that the intrastate class rates between most points in Kansas, except from jobbing points, are based on the Kansas mileage scale, and that the rates are relatively higher than the specific rates from Kansas City and St. Joseph, Mo., to points in Kansas. “1t was also developed by the Court of Industrial Relations that there are practically no joint class ratesin Kansas, nor.from Kansas City or St. Joseph, Mo., into Kansas. As most of the roads in Kansas reach Kansas City and St. Joseph, Mo., with their own power; jobbers at those points can reach almost all points in the State by a one line haul: that is, they can deliver their traffic to the road which reaches the destination to which they desire to ship, but.as all roads in Kansas do not serve all distributing points in the State, jobbers who ship to a destination on a road which does not serve the point where they are located must pay the combination of locals. These combina- nations are much higher than the single line rates for equal distances from Kansas City and St. Joseph, Mo., and, incidentally, much higher than the joint rates for equal distances within Missouri. * * * io. ee ‘Many rates on live stock from Kan-a: points ave relatively highe: to Wichita, Kans., than to Kansas City, Mo. For in.tance, for a 61-mile haul the rate on horze: to Wichita is $37.50 per car, while Kan:as City pays $31.50 for a haul of similay length. The rate; to Kansas City are specific rates, while thoze to Wichita ave ba-ed on the intrastate mileage scale, which has general application. On lumber, Wichita pays 29.5 cents for an intra:tate haul of 250 mile:. Kansas City, Mo., can ship that distance into Kansas on a specific rate of 24.5 cents. On broom corn, which it draws from points in Kansas, Wichita must generally, except for short hauls, pay the same rate from. a given point as Kansas City, Mo., although the diztance to the latter point is rouch greater. This is due to the, fact there are specific commodity rates from the producing points to Kansas City, while the general intra-tate mileage scale, providing rates relatively higher, applies to Wichita, but the mileage rate to Wichita is not used where it exceeds the specific rate to Kansas City. It is noted that on broom corn from Elkhart, Kans., for instance, the rate to Kansas City aud Wichita is 59.5 cents per.100 pounds. The distance from Elkhart to Wichita is 300 miles, and to Kansas City 459 miles. Wichita is the largest broom-corn market in the world. About. 90 per cent of the tonnage goes into storage and is later shipped out on the basis of the through rates from point of origin to final destination. : “Included in the criticisms made by the Court of Industrial Relations are the rate. on grain from Collyer, Kans., to Kansas City, Kans., versus the ratzs to Chicago, Ils To Kansas City, Kans., 334 miles, the rate is 23.5 cents and the earnings per ton-mile 14 mills. To Chicago, 792 miles, the rate is 44 cents and the earnings 11.1,mills. per ton-mile. The distance to Chicago is 237 per cent of that to Kansas City, Kans., whereas the rate to Chicago is 187 per cent of the rate to Kansas Citv, Kans. It-is. ' pointed out that if the ton-mile earnings on the intrastate rate remain constant for application to the interstate haul, the rate to Chicago would be 56 cents. On salt from Hutchison to Phillipsburg, Kans., 322 miles, the rate is 23.5 cents, yielding 14.6 mills per ton-mile, while from Hutchison to Centaur, Mo., 489 miles, the rate is only 3 cents higher, or 26.5 cents, yielding slightly over 10.8 mills per ton per mile. The interstate haul is 152 per cent of the intrastate haul, but the interstate rate is 104 per cent of the intrastate rate. On coal from Pittsburg to Hutchison, Kans., 216 miles, there is an intrastate rate of $2.40 per ton, yielding 9.4 mills per ton-mile, which is cited in comparison with a rate of $2.16 per ton irom Henrietta, Okla., to Neodesha, Kans., 230 miles, yielding 9.4 mills per ton-mile, A rate of $1.85 per ton on coal for a haul of 185 miles from Springfield to Chicago, Ill., yielding 10 mills per: ton-mile, is compared with the rate of $2.05 per ton for a haul of similar length from Pittsburg to Wichita, Kans., yielding 10.7 mills per ton-mile. Several instances are shown in which there are less-than-carload commodity rates from Kansas City, Mo., to points in Kansas on sugar, coffee, canned goods, beans, and sirup from 1.5 to. 3.5 cents lower than for equal distances in Kansas. MODIFIGATION OF TRANSPORTATION ACT, 1920. 207 ‘Many other instances were shown by the Court of Industrial Relations where the rates are relatively higher intrastate than interstate. * * * “In many instances the Kansas intrastate rates (on cement) at present in effect— that is, without the increases sought by the carriers in this case—are for equal distances as high as, or higher than, the interstate rates to, from, and through the State; and if the increases sought are made, the Kansas mills as to intrastate traffic will, of course, be at a still greater disadvantage. “Tf the intrastate rates are increased to the extent sought by the carriers, many intrastate rates will exceed the interstate rates, even between the same points in Kansas.. The interstate rates applicable between points within the State of Kansas via intrastate routes are nothing more nor less than proportional rates. However, in this connection we may call attention to the amended orders in several intrastate cases that have been before us, which provide that no carrier is required to maintain a higher intrastate rate than its corresponding interstate rate. “The increases sought by the carriers would also create new departures from the long-and-short-haul rule and increase the extent of existing departures. * * “With an order in this case conforming to the amended orders in previous cases— that is, providing that a carrier is not required to maintain any higher intrastate rate than the interstate rate applicable via intrastate routes between the same points— difficulties of the kind referred to could be avoided. (62 I. ©. C. 445, 446, 450.)” Now appears the most extraordinary situation that has been developed so far as I have knowledge in any order of the Interstate Commerce Commission in any of the State-rate cases. After finding that conditions of traffic both interstate and intrastate were substan- tially similar, and after finding that a great number of intrastate rates in Kansas were higher than the corresponding interstate rates, the Interstate Commerce Commission swept aside, except as to rates on crude oil and articles basing thereon, the whole fabric of Kansas State rates, including those which it specifically found were higher: than corresponding interstate rates. Its finding on this point was: ‘‘We further find that the increases made by said carriers in charges for freight services under our decision relating to the western group in Ex parte 74, and now in effect, result in reasonable charges for interstate transportation within the said group, and that the failure of said respondents within the State of Kansas correspondingly to inarease their intrastate charges for freight services in force on the date of our decision in Ex parte 74..* * * resulted in the past and will result in the future in undue prejudice to persons and localities outside the State and in unreasonable preference to persons and localities within the State, and in unjust discrimination against inter- state commerce. “We further find that said prejudice, preference, and discrimination should be removed by making increases in the intrastate charges for freight services * * * in force on the date of our decision in Ex parte 74, which shall correspond with the increase heretofore made and now in effect as aforesaid by respondents in the interstate charges in the western group. (621. C. C. 457,.458.)’’ About the time it wrote its opinion and order in the Kansas case the Interstate Commerce Commission evidently suffered some twinges of conscience. it must have realized that it was wholly inconsistent in setting aside intrastate rates already higher than corresponding interstate rates. Then followed the most extraordinary phase of this extraordinary «ase. In its order in the Kansas case there was a realiza- tion that not all the Kansas rates set aside could by any stretch of the imagination be called discriminatory. Yet it nullified the act of the Kanean commission and swept aside all of the Kansas States rates, whether discriminatory or not. Then it authorized. in the extraordinary language quoted below, the carriers to determine what was discriminatory and what was not. In other words, it transferred its legal power to determine discrimination to the railroads. I quote here from the order of the Interstate Commerce Commission in Docket No. 11916, Kansas Rates, Fares, and Charges: “lt is further ordered, That nothing in this order shall be construed as requiring or authorizing any common carrier to establish, put in force, or maintain any rate, fare, or charge for the transportation of passengers or property in intrastate commerce which is greater than its corresponding rate, fare, or charge applicable to the trans- portation of passengers or property in interstate commerce from, to, or at the same points in effect on the date hereof, or greater than its corresponding rate, fare, or charge contemporaneously in effect and applicable to the transportation of passengers or property in interstate commerve.”’ , ; The Kansas carriers are not so thin-skinned as the Interstate Commerce Commis- sion. Notwithstanding the findings of the commission and the language of the order, they blithely proceeded to raise freight rates in Kansas the full percentage of increase 208 MODIFICATION OF TRANSPORTATION ACT, 1920, allowed on interstate rates by the Interstate Commerce Commission, notwithstanding the fact that in thousands of instances the State rates were already higher than the interstate rates. : The (SATSMAN, That was simply in violation of the Interstate Commerce Com- mission? . Mr. Reep. We have been back, as I will develop later on, to the Interstate Com- merce Commission. We have been to the Federal court twice, and we have been back to the Interstate Commerce Commission, and we can not get any relief. Our rates are frozen up. P The CHatrmMan. You do not have any doubt about my statement, do you? Mr. Reep. I don’t think there is any doubt about it. But we can not get the Inter- state Commerce Commission to see that it was a violation of their order. I have dili- gently sought to get the Interstate Commerce Commission to see that it was a viola- tion of their order, but up to this time they have not said so. In the meantime and before the new tariffs of the Kansas carriers were filed, the railroads had gone into the United States district court for the district of Kansas and obtained an order restraining the Kansas Commission from interfering in any way with the rates, fares, and charges imposed under authority of the Interstate Commerce Commission. ' I might say there that that proceeding in the court was the proceeding followed in all the cases. In the State of Kansas we made the same perfunctory resistance as was made in all the State rate cases. In the Illinois case, when the Federal courts prac- tically refused to hear the attorney general of Illinois, there was not much use to try to make any fight in the inferior Federal courts, so that all ofthe States went through the motions of entering their appearance, and making their motions, but had to rest until they could get a case through the United States Supreme Court. After the Kansas carriers had filed their new tariffs and it had been ascertained that they had totally disregarded the modifying clause of the Interstate Commerce Commission order, the Kansas commission went back into the Federal courts to re- - strain the carriers from misinterpreting the order of the Interstate Commerce Com- mission. Between the time of these proceedings the chairman of the Kansas com- mission had telegraphed to the chairman of the Interstate Commerce Commission protesting against the acceptance of the freight tariffs prepared by the Kansas rail- roads and filed with the Interstate Commerce Commission. The chairman of the Interstate Commerce Commission stated that so far no tariffs in violotion of its order had been called to the attention of the commission, but that the commission would be happy to proceed upon complaint being made. In other words, the Interstate Commerce Commission said to Kansas, if you have complaints of any rates, make them and bring them to our attention. The effect of this was to transfer the burden of showing discrimination from the carriers that imposed such discrimination to the State of Kansas. But the telegram of the chairman of the Interstate Commerce Commission was sufficient for the Federal district court of Kansas, which dissolved the restraining order, dismissed the applica- tion for an interlocutory injunction and directed the State of Kansas to return to the Interstate Commerce Commission and seek its remedy there. There being nothing else to do, the State of Kansas proceeded to follow the advice of the United States District Court of Kansas and filed a petition with the Interstate Commerce Commission setting out its grievances and furnishing illustrations of the violation of the Interstate Commerce Commission order in the Kansas case. The Kansas commission praved the Interstate Commerce Commission: ‘To hear and consider its above and foregoing motion, and to make such appropriate order herein, amendatory of or supplementary to, said order of July 6, 1921, as shall clearly define and construe the provision of said order which is hereinbefore set forth, and shall prevent carriers operating in the State of Kansas from continuing, under claim of compliance with said order, to impose unjust, unreasonable, and unlawful rates for transportation between points in Kansas which are greater than rates in effect for application on interstate traffic between Kansas and the surrounding States, includ- ing the specific examples set out in the attached exhibits, and any and all other such: rates as under such claim they have put into effect and are now demanding and col- lecting, as aforesaid. : ‘““The applicant further prays that the commission give this matter immediate con- sideration, and pass upon it informally and announce its conclusion at the earliest date ractical. ? Did the Interstate Commerce Commission interpret its order and thus clarify the matter in the manner prayed for by the Kansas commission? It didnot. It reopened the case for a further hearing and on the 10th day of September, 1921, it made an order, of which the following is a part: MODIFICATION OF TRANSPORTATION ACT, 1920. 209 . “It is ordered, That said case be, and it is hereby, reopened for further hearing with reference to specific intrastate rates, fares, or charges applicable within the state of ana that may be higher than interstate rates, fares or charges to or from Kansas points. he “Tet is further ordered, That said case be set for further hearing before Attorney Ex- aminer Disque, at Topeka, Kans., at the office of the Public Utilities Commission of Kansas, at 10 o’clock a. m., October 6, 1921.” Extraordinary situations thusaccumulate. The original order of the State of Kansas having been set aside on the ground of discrimination on the basis of the findings of fact set out herein, and the railroads having put into effect intrastate rates higher than corresponding interstate rates, the State of Kansas is now allowed in a subsequent proceeding to show the particular rates of which it complains. But in the meantime and always the Kansas carriers are collecting the phar charges which no person properly informed in the law governing the making of railroad rates and charges will ‘contend for a moment are legal or justified. It is true that in its report and order in the Kansas case the Interstate Commerce Commission used the following language: ‘‘These findings are without prejudice to the right of the authorities of the State of Kansas or of any other party in interest to apply in the proper manner for a modifi- ‘cation of our findings and order as to any. specific intrastate rates, fares; or charges on the ground that the latter are not related to the interstate rates, fares, and charges in such a way as to contravene the provisions of the interstate commerce act. In ap- propriate proceedings we shall avail ourselves of opportunity to cooperate with the Kansas authorities in considering particularly such questions as joint rates in lieu of combination rates and the correction of the disparities due to the relocation of the line of the Atchison, Topeka & Santa Fe between Kansas City and Topeka; also any other matters that may be deemed important. (621. C. C., 459.)” But in the language of Judge Hale, of New York, before this committee, the Kansas commission is not ‘‘asking for crumbs from the table of the Interstate Commerce Commission.’ It prefers to-stand upon its legal rights and the rights of the State of. Kansas as an integral part of this Government’ to control its own internal affairs, sub- ject always to the national needs and to the duly and legally imposed requirements of the National Government under the Constitution. ; The original order of the Kansas commission was based on the best evidence, in fact the only evidence, before it as to the revenue needs of the carriers. The Kansas com- mission earnestly sought to cooperate with the Interstate Commerce Commission in carrying out its program under the transportation act. The Kansas commission has at no time sought to hold the return ot the carriers below the percentage fixed by the Interstate Commerce Commission under the authority of Congress. Yet we are con- fronted with a situation where all authority over Kansas rates has been taken away from the Kansas commission and a line of proceeding that for inconsistency and dis- regard of the equities of the situation probably has no parallel in recent history, if ever. A summary of the Kansas rate situation is—the Kansas commission made an order raising the rates for the purpose of giving the railroads additional revenue, the ade- quacy of which has not been questioned. a : : : The railroads applied to the Interstate Commerce Commission to set aside this order: on the ground of discrimination. The Interstate Commerce Commiscion ordered a hearing and after finding traffic conditions were similar and that many Kansas rates were higher than interstate rates, set all Kansas rates aside. ; The railroads misinterpreted the limiting clauses of the Interstate Commerce Commis- sion order. The Kansas commission applied to the United States district court for relief. ; The court first granted the restraining order against the railroads and then dis- solved it, directing thé Kansas commission to return to the Interstate Commerce: Commission and exhaust its remedy. ae ; The Kansas commission prayed the Interstate Commerce Commission to interpret and clarify its order to that the State could secure relief from the illegal charges which were being imposed. eet ; : The Interstate Commerce Commission, having transferred its powers to determine discrimination to the railroads, failed to clarify its order and reopened the case for hearing upon these specific cases, thereby imposing upon the State of Kansas the burden of pointing out every particular rate of which it complains. A rehearing was held and an additional record made in the case, and the matter now reposes in the bosom of the Interstate Commerce Commission.. ~ 73837—21— pr 1-14 210 MODIFICATION OF TRANSPORTATION ACT, 1920. , . In the meantime the State of Kansas ‘is paying the higher charges and is wholly without power to change a single one of. its own rates, being restrained by the courts and not being able as yet to secure relief through the Interstate Commerce Com- mission, ‘ The Cuatrman. Does that conclude your statement? Mr. Reep. That concludes my statement. The Cuarrman. It is a very clear and understandable statement. Senator Ferna.p. It is avery excellent statement. : The Cuarrman. There is no essential difference, as I see it, in the Kansas case and all other cases, except this, that you did not put into effect all the rates that had been ordered by the Interstate Commerce Commission in Ex parte 74; that is, you did not raise every rate the 35 per cent. Mr. RzEEp. May I give you our'theory of that, Senators? 4 The Cuairnman. I do not care anything about the theory, really. But you did not 0 it? Mr. Reep. No, sir. : . The CuairMAN. You made some exceptions? Mr. Rerp. Yes; we made some exceptions. The CuarrMan. Have you made an estimate with regard to the effect on the revenue of those exceptions? Mr. Rep. Yes; we treated the case in the beginning as a revenue case, and our order, if you will read and analyze it, it deals with the question of the business of the carriers in Kansas. It is the best effort that we could make to give the carriers. their 6 per cent return. We accepted the valuation of the property as found by the Interstate Commerce Commission. We accepted the rate of return which they found, and then we proceeded to apply the factors to the Kansas business, and we made an order based on the Kansas business that would give the railroads 6 per cent return And that has never been questioned; the adequacy of the order from the revenue standpoint has never been seriously questioned anywhere. Immediately now, althgugh starting out on the revenue basis, this proceeding was transferred to a dis- crimination proceeding, and not a revenue proceeding. . The Cuairman. Well, the application originally made by the cafriers to your com- mission might well be based upon the revenue needs, because it is the purpose of the State commission to see that they get proper revenue, just as it is the purpose of the Interstate Commerce Commission. You may not have been bound by the 54 or 6 per cent basis; I do not say you were. Mr. Resp. But we were. We accepted it. . The CuarrmMin. But in every case where the carriers come before the commission and say that the bages of the rates is too low—they do not afford sufficient revenue— you are bound to consider that proposition, because it involves the reaconableness of" the rates. But I was wondering whether vou had any cstimate of the difference- between revenue derived upon the application of a 35 per cent horizontal increase: and the revenue which was derived upon the rates which you actually put into effect. Mr. Reep. The diiference in the freight revenues was about $1,200,000 a year, something of that kind. : The Crarrman. That is, the railroads, if they had to use those rates. would have earned in your State on the tratic—— es : Mr. ReEeEp (interposing). That much more; akout $1,200,000 more. The CuarrMan. :More or less? Mr. Reep. More, had we raised the rates to the full increase. The Cuarrman. Oh, yes; had you raised them? Mr. Reev. Yes; they earned less, as it was. The Cuarrman. What do you propose in the way of a change in the law; have you given attention to that subject? Mr. Rexp. Of course, we do not think, to be frank, that the Interstate Commerce Commission has properly interpreted the law. But here we are tied up. Probably the simplest way to get at this is to amend the law so as to remove any doubt. An amendment of the law along the lines of the Nicholson bill, or of the Capper bill, probably should be undertaken. Of course, the Capper bill is farther reaching.» The CuarrmaNn. Have you examined the proposed changes that: Mr: Benton is about to submit to us? Mr. Rexzp. Yes; he discussed them with me-yesterday afternoon. The Cuarrman. As I understand it, some of the commissioners go a little further than the others do; they insist upon an amendment to the law that will modify in its application to particular cases the Shreveport decision. Mr. Reep. Well, personally, Senator, I have never sought to go, nor does the Kansas: commission seek to go, further than the Shreveport case. We do not seek to set our- MODIFICATION OF TRANSPORTATION ACT, 1920, 211 selves apart from the national system; we want to be a part of the national system and bear our part of the burdens, and having done that, we want the privilege of regulating our own business. So I do not go the full length that some of them do. ’ , The Catrman. You agree that when such a situation is investigated and it is found by: an impartial tribunal that the intrastate rate does discriminate, that the Federal Government should have the authority to remove such discrimination? Mr. Reep. I agree with that doctrine. The Cxarrman. That is a very sensible doctrine. _ Senator Fernatp. And that is about all there is to it. " The Cuarrman. The complaint is that the Interstate Commerce Commission went forward and lifted the rates in the various groups from 25 to 40 per cent without any real investigation of the discrimination which the State rates would bring about? Mr. Rrsp. Yes, sir. ; ’ Senator Fernaup. Or whether there was any discrimination. The CuiirmMan. Yes; whether there was any discrimination. ‘Mr. Rerv.' Now, the Interstate Commerce Commission in its investigation found that 25 per cent increase in freight rates south of the Ohio River and east of the Missis- sippi River would be sufficient to give the carriers the necessary revenue. But it also found that north of those rivers and east of Chicago a 40 per cent increase would be required. In the middle-western territory from Chicago to the mountains, 35 per cent was required, and again, west of the mountains. 25 per cent. In other words, the rate base being different and the needs of the carriers being different the Interstate Commerce Commission found that different percentages of increase would bring about the desired return. te ‘ Now the rate base in different States is just as different as the rate base in these main groups. Yet the Interstate Commerce Commission denied to every State. or to any State, ‘the power to examine iis Own schedules to determine whether the rate base was high or low. It merely said that you have got to raise every rate a given percentage regardless of the rate, regardless of the rate base, regardless of whether the commodity would move, regardless of whether that advance in rates created a discrimination against intrastate traffic. There was no investigation. The carriers, as I have read from this rerord, came before the Kansas commission. and I presume they were equally frank before other commissions—they were at least brutally frank with us. As this record shows, they said: ‘‘You have no authority in the matter atall. All there is for you to do is to sign on the dotted line. It does not make any difference what effect it has upon your traffic.” Now; that is the condition we struggled apne, that is the condition we protested against. And the only point wherein the Kansas case differentiates to any marked degree from any other case is that we have struggled harder and screamed a little louder and have carried our case through more different in an attempt to get an. adjustment of it than any other state. “You see, we followed up the order of the Inter- state Commerce Commission by going into court. Then we were told to come back by the Interstate Commerce Commission. We came back. ‘They reopened the case. We have had another hearing, but we haven’t got'any relief. ot The Cuarrman. Well, Mr. Benton says that the Interstate Commerce Commission has laid down the same doctrine under the original act without taking into account at all whatever changes were made in the transportation act of 1920. Do you know of any such instance? : ; ; Mr. Reep. I do not recall any such inetance. Mr. Benton is very much better in- formed than I am upon those matters, because he follows all of the rate matters in the United States, and I follow them as far as they relate to Kansas. And then I should have said in the beginning, Senator, I am not a lawyer, I am not qualified to talk legal points. Iam anéwspaper man, like Senator Capper. - The Cuarrman. Well, after all the difference between lawyers and laymen is rapidly Gisappearne: Everybody has to be a lawyer these days. Well, we are very much obliged to you. Mr. Rzep. I am very much obliged to you, Senator, for your courtesy. I have wanted to tell you about the Kansas cae, because I thought it would be illuminative of the situation. Senator Fernap. It has been very clearly stated. : ; ‘The Cuarrman. We expected to hear from Judge Cowan this morning. He is not here. I stated yesterday that after you made your statement to the coramittee, Mr. Reed, then we agreed to hear Judge Cowan and Clifford Thorne if they were ready to be heard, and then we would recall Mr. Benton again when he was ready to present in ‘concrete form the amendments which he wanted made to the law. He is not; I think, quite satisfied with the amendments proposed by Senator Capper or Senator Nicholson. He wants to go further. 212 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Rrep. Well, Senator, we have all realized the need for an amendment of the law, and from our standpoint, and I think generally, Senator Capper was one of the first, if not the first, of our Senators to realize the situation, and he prepared a bill and hasintroduced it. Now, other Senators and Members of the House have prepared bills. There is one thing upon which, we are all agreed, I think, and that is that the situation needsarémedy. So far as the application of the remedy is concerned, why I do not think that is very material. That is to say, I mean we can probably agree upon it—that is a better statement. . The CHarrMan. After we have finished with Judge Cowan and Mr. Thorne, or even before, if they are not ready to be heard, the railroads have made an application to be heard, rece we shall hear what they have to say in regard to these proposed changes. Mr. Resp. Well, I supposed Mr., Benton was coming over. I have not seen him this morning; I saw him yesterday afternoon. —_ : The Cuarrman. Mr. Thom, I have always rather recognized you as representing the railroads. When do you want to be heard? : Mr. Tyom. As I advised the chairman, I was detained in Chicago last week by the strike situation and have, therefore, not had the advantage of hearing the testimony of the witnesses. We have heard in a general way of the importance of the subject which is being presented to the committee, and I have made application to the secre- tary of your committee for advance proofs of what has been said so that we may present what we have to say in’an intelligent and in as brief a way as possible. We would like to have an opportunity of looking that over. A number of gentlemen have come here this morning at my request—have just arrived—and we want to prepare ourselves as soon as we know that the case in favor of the legislation is presented. The Cuarrman. Until we get over the present pinch we have but an hour and a half each morning. We begin at half past 9. Latterly Senator Fernald and myself Baie pee the only ones that have been here at half past 9. When do you want to e heard? Mr. Taom. Just as soon as I have seen the testimony. The CHarirMAN. You want to see the testimony before you come on? Mr. THom. Yes. The Cuarnman. Well, then, Mr. Thom, you can get a copy. of the testimony just as soon as it is printed, and I am very anxious to get through with this, and whatever you have to say about it you will come in and say immediately after that. ° ; Mr. Taom. Yes. I was in hopes that we would be able to get hold at once of some of the proof sheets of the testimony before it was printed so that these gentlemen that are here might be studying the question. 2 Mr. B. M. Roznryson (president American Short Line Railroad Association). Sena- tor, we are of the opinion that we will want to present some proof here for the short’ lines, but the officers of my association have been on a tour for the last month and ‘have just returned, and we know nothing of what has transpired, and we would not be in a position to do anything this week in the way of appearing before the committee, because we have an important case coming on before the Interstate Commerce Com- mission on Friday in renting to the interpretation of section 204 of the transportation act, but just as quickly as we can be in a position to know what has transpired here we may then ask you for an opportunity to be heard, if we want to be heard by: this committee. ; ; The Cuarrman. It is unlikely that we will come to you this week, assuming that Judge Cowan and Mr. Thorne are going to be here. ; ; esuill have 15 or 20 minutes, Mr. Benton. Have you anything further to say this morning? . Mr. Benton. Well, I can use 15 or 20 minutes. I would like not to be asked to try to talk about concrete amendments until I can get some amendments out that I have been working on this morning. STATEMENT MR. JOHN E. BENTON-—Resumed. Mr. Benton. I was asked the other day, Mr. Chairman, by you, to pay some atten- tion to that part of the resolution which related to 15 (a) and particularly to point out decisions of the Interstate Commerce Commission prescribing intrastate rates where they would seem to have rested their decisions upon provisions of 15 (a). I might say at this point, if I may, that there are two broad grounds upon which the State commissions rest their request which has been presented for a repeal of that section, They are both covered by the resolution. . =A 7 _ They are (1) that section 15 (2) has been made the occasion, and in part, at least; the alleged legal justification for the assumption of complete jurisdiction or final power over intrastate rates by the Federal commission, and (2); that the group plan of making rates and the mandate to the Federal commission contained in that section MODIFICATION OF TRANSPORTATION ACT, 1920. 213 to adjust rates which shall produce an aggregate fixed return in each group on the aggregate value of all roads within the group, produces unjust and unreasonable inter- state rates. aa By the laws of many of the States it ic made the dut of the State commirrions to represent the interests of the shippers of their States with respect to interstate rater; thus it becomes their dut:- to make the representations to Congress toucning this phase of the matter which they make at this hearing. The statement has heen several times made in the course of the hearing, irciden- tally, that the Federal commission has based its orders on section 15 (a). -\nd it was on one of those occasions that the chairman made the request, which I have referred to, to put into the record the statement which should point out the justification for this charge which has been made bi the State commissions. At the outset, in order that what I will come to a: moment later mav be more clear, I want to point out the limits of the commission’s Shreveport power before the transportation act was passed. I wish to present certain citations of cases and discussion of cases decided by the nee Commerce Commission and the courts before the transportation act was passed. ; , The Caarrman. I do not just catch vour point. You say these decisions, both of the Interstate Commerce Commission and the courts, are applications of the Shreve- port doctrine? ; , ig -Mr. Benton. Yes; they are interpretations of the act as it stood ‘prior to the parrage of the transportation act and show that at that time it was clearly recognized that the commission had no power to set aside or hold discriminatory a rate applicable for intrastate transportation simply on the ground that it was on a lower level than the interstate rate. I want to establish the fact that that was recognized by the Interstate’ Commerce Commission and the courts when the act was passed. THE EXTENT OF THE POWER OF THE COMMISSION OVER INTRASTATE RATES PRIOR TO THE PASSAGE OF THE TRANSPORTATION ACT. The Shreveport case was decided by the Supreme Court in 1914. In the six years which intervened before the pee of the transportation act of 1920, the commission in numerous cases was called upon to exercise its power to remove discriminations forbidden by section 3 of the commerce act, and the limits of that power were settled by a series of decisions, both of the commission and of the court. The following ex- cerpts state such limits in the language of the commission (reading): . We have held that discriminations under the third section to be undue and un- lawful must ordinarily be such that the prejudice arising out of it against one party is a source of advantage to the other alleged to be favored.”’ (Board of Trade of Chi- cago v. A., T. & S. F. Ry., 29 I. C. C. 438, 443.) . ‘Where the allowances prescribed by law for local shipments are paid, lower charges result on local than on export shipments, but mere differences in charges do not estab- lich unjust discrimination.’’ Shands v. 8. A. L. Ry. Co., 341. C. C. 214, 215.) ‘“‘Not all discriminations are unlawful, but only those that are unjust.’’ (American Coal & Coke Co., 36 I. C. C. 195, 197.) an es : : “The testimony as to the alleged unjust discrimination in grain rates was exceedingly meager afd unsatisfactory, consisting chiefly in a showing of the present relation of the rates themselves. It affords no adequate basis for a finding that unjust discrimina- tion exists.” (Holmes & Hollowell Co. 7. Great Northern Ry., 37 I. C. C. 627.) “The provisions of the act against unjuct discrimination speak to the carriers of the country individually and with respect to those things for which they are individually responsible and not to the carriers as parts of a single great system.’”” (Galloway Coal Co. et al., 401.0. C., 311,315.) he “Shippers at Nashville compete with shippers at Chattanooga, Tenn., and powers of the States within their own borders, has just ordered the railroads to incroise freight rates another 10 per cent and passenger rates 20 per eont. in defiance of the orders of the State commission and the statutes of this State, thereby s2eking to add wnother $3,000,000 per annum to the high rates already being paid by the people: Therefore, be it Resalved by the Sencte of the Nebraska Legislature in session assembled, That we indorse the efforts now being made by the railway commission and the attorney general to defend the sovereign police power of the State against further Federal encrdachment and give them full support and such financial aid as is necessary to carry through the struggle: And be it further rigs ; _ Resolved, That we urg2 upon the Nebraska Members of Congress (that in the event the courts sustain the interpretation of law made by the Interstate Commerce Com- mission) to give their support to amendments to that law which will restore to the State the very proper and necessary full supervision over the rates of railroads within its borders: And be it further ‘ ; Resolved, That a copy of these resolutions be respectfully transmitted to the Nebraska Members of Congress by the secretary of the senate. : te ’ ASSEMBLY JOINT RESOLUTION PASSED BY BOTH HOUSES OF NEVADA LEGISLATURE IN 1921. ‘ i JOINT RESOLUTION Memorializing the Congress of the United States to so amend the transportation act, 1920, as to eliminate therefrom the rule of rate making as applied to intrastate rates, end to reserve to the States of the Union power with telation to intrastate rates, services, and facilities, and local ques- tions affecting common carriers within the States. Whereas the Interstate. Commerce Commission, through. its interpretation of the transportation act, 1920, seems to indicate its. purpose to assume for itself full and exclusive authority to. regulate the railroads and all instrumentalities entering into the field of transportation, and thereby to divest the legislatures of the several States of substantially all power to regulate the intrastate rates and service of the railroadg within the respective States; and : Whereas, in conformity with this. policy and acting upon what it claims to be the intent of Congress in the enactment of section 13 (4) of the transportation act, 1§20, the Interstate Commerce Commission has made orders which seek to compel in- creases and other changes in intrastate rates in a number of States, without regard or heed to the protests of the governments of those States; and Whereas the eunhiaay it has assumed for itself permits the Interstate Commerce Commission to wield unreasonable power; and Whereas it is unjust and unnecessary ta permit the development ofa system which will compel a citizen of Nevada or any other State either to forego relief for local transportation problems or seek it solely: through the Interstate Commerce Com- mission at Washington at great expense in time and: money; and Whereas before the passage by Congress of the transportation act, 1920, there was no serious conflict between Federal authority in the regulation of interstate commerce -and State authority in the regualtion of intrastate commerce; and Whereas all government, whether through Federal or State agency, is directed to the sole end of promoting the welfare and happiness of the people; it is our firm con- viction that it is neither sound nor practical government to deny to the people of the several States the indisputable benefits of State regulation of commerce within the States upon the assumption that to. do otherwise may in some way be prejudicial to commerce between the people of the different States: Therefore be it » Resolved by the assembly (the. senate concurring), That the Legislature of the State of Nevada hereby respectiully petitions the Congress of the United States to so amend the transportation act, 1920, as to protect and preserve the powers of the several States with relation to intrastate rates, services, and facilities and the local affairs of the common carriers. within the States, in so far as the same shall not clearly and directly conflict with or discriminate against interstate rates, services, and facilities estab- lished by or under the authority of the Interstate Commerce Commission and to make such amendment or amendments in language so plain that the authority of the States in their respective territories shall be maintained without opportunity for misinter- pretation; and be it further ra ‘ Resolved, That the secretary: of the State of Nevada be, and he is hereby, directed to transmit a certified copy of this resolution to the United States Senate and House Committees on Interstate Commerce, respectively, and to each United States Senator and Representative in Congress of the State of Nevada. 246 MODIFICATION OF TRANSPORTATION ACT, 1920, RESOLUTION PASSED BY NEW YORK PUBLIC SERVICE COMMISSION, FIRST | DISTRICT, MARCH, Hl, 1921. A ‘ i Whereas: the transportation act, 1920, as construed by the Interstate Commerce Com- mission, authorizes that commission to regulate not only the interstate rates of public utilities but also all State rates which are in supposed conflict with interstate rates on the theory that they unjustly discriminate against them; and, _. : Whereas by this means the Interstate Commerce Commission has. sought and is now seeking to acquire control over all State rates, whether fixed, by statute or franchises ranted by the sovereign States; and / ereas there now exists and will continue to exist a conflict between State and Federal authority regarding the right of the latter to regulate State rates, which has been productive of much litigation because of the rulings of the Interstate Commerce ' Commission: Therefore be it Resolved, that the. Public Service Commission of the State of. New York, first dis- trict, respectfully petitions the Congress of the United States, and requests the Repre-; sentatives of the State of New York in the Senate and Congress of the United States to have the transportation act, 1920, so amended that it will define in clear and concise language the authority of the Interstate Commerce Commission and preserve to the sovereign States the powers which they constitutionally possess of regulating the rates and practices of intrastate carriers within their borders. : rth > —— 6 CONCURRENT RESOLUTION PASSED BY BOTH HOUSES OF NORTH DAKOTA LEGISLATURE, 1921. , . Gon ‘ : ; : oe i fe Bee a a sad i Whereas ‘the Congress of the United States enacted the transportation act of 1920, which said act amended the powers of the Interstate Commerce Commission; and Whereas the Interstate Comimerce Commission pursuant to such amended powers has construed the act as giving them power to regulate, increase, and prescribe intra- state rates for transportation of personsand property entirely within the States to the same extent that it exercises its jurisdiction over interstate rates; and Whereas the Interstate Commerce Commission is this day holding a hearing in the city of Bismarck for the avowed purpose of investigating the entire body of intra- state rates, fares, and charges applicable solely within the State of North Dakota, with a view to increasing said freight rates 35 per cent, and increasing said -passenger rates 20 per cent; although the Doard of Railroad Commissioners of the State of North Dakota-at a full hearing found that no increase was warranted, it appearing that the carriers, based upon their own book value of property devoted to common carrier purposes in the State of North Dakota, amounting to $185,440,198, are earning over $3,000,000 more per year than 6 per cent upon'such value;and =" ; Whereas the North Dakota intrastate rates which it is their avowed purpose to increase 35 per cent, judging from: the action: taken in similar cases in connection with the intrastate rates of other sovereign States of the Union, are as high now and in some instances higher than the intrastate rates of Minnesota are with the increase of 35 -per cent; and” ia ae ; ; ae Whereas: the increase of 35 per cent as intended in the intrastate rates of North Dakota will make said rates 35:to 40 per. cent higher: than the level of intrastate rates in Minnesota: Be it Pe te 1 Tame ho SH Be drat ye i Resolved, That the Senate of North Dakota, the House concurririg, memoralizé the Congress of the United States, bringing to its attention this ‘condition of assuming jurisdiction of internal affairs of the State of North Dakota, urging the’ Congress of the United States to'amend the ‘interstate commerce act (41 Stat. L., p.474), section 13, paragraph 4, the section under which the Interstate Commerce Commission is presuim- ing to assert authority over internal affairs of this State, limiting said commission’ so that it can not authorize blanket increases in intrastate rates. — : ay HOUSE CONCURRENT RESOLUTION 12. PASSED BY OKLAHOMA LEGISLATURE. CONCURRENT RESOLUTION Memorializing theCongréss of the United States to nullify certain orders of the Interstate Commerce Commission affecting intrastate railroad rates and to amend. the act to regulate commerce so as to render such orders in the future impossible. Whereas, in the so-called Esch-Pomerene bill to amend the act to regulate commerce, it was provided ‘that the Interstate Commerce Commission should have authority to make. such orders as-might in its judgment tend to remove any ‘undue burden upon interstate or foreign commerce; © vee ae «MB» ft iD ce is See MODIFICATION OF TRANSPORTATION ACT, 1920, 247 Whereas there was widespread apprehension, both’ in Congress and with the public ', generally, that the inclusion of such a provision would, almost, if-not entirely, eliminate State control of intrastate railroad rates for the reason that the com- mission might decide that any intrastate rates upon a lower basis than correspond- ing interstate rates would constitute such undue burden; ate Whereas after much debate upon ‘the question, both'in committee ‘and upon the floor of the House of Representatives, it was decided that such objectionable pro- vision would be and the same was stricken out of the bill; ‘Whereas the Interstate Commerce Commission has, since the passage of the transpor- tation act, 1920, interpreted section 13 (4) of the act to regulate commerce to con- fer upon it the same power over intrastate rates which it was feared would result had said undue burden clause been included; and, purporting to act under the authority of said section, the commission has already made orders purporting to change entire systems of intrastate rates in the States of New York, [linois, Min- nesota, and Wisconsin, and has many similar proceedings now pending before it; Whereas the reasons given by the commission for the orders:in question would apply wherever intrastate rates are upon a lower basis.than the corresponding interstate . rates so, that under its interpretation of said section 13 (4), the legislatures of the several States have been deprived:of substantially all power to regulate intrastate rates; ' ae ‘ © Whereas the construction placed upon ‘said section is not only in contravention of the tenth amendment to the Constitution of the United States but is directly con- trary to the will of Congress as evidenced by its action when it removed said un- due-burden clause from the Esch-Pomerene bill: Wherefore it is Resolved by the House of Represenitives of the State of Oklahoma, the Senate concurring, That the Congress of the United States be and is hereby respectfully and earnestly poset bars to take such action as will nullify the orders of the Interstate Commerce mmission herein above mentioned and to so amend the act to regulate commerce as to render such orders impossible in the future. ‘ 7 ; ; Resolved, That'the secretary of the State of Oklahoma be and he is hereby directed to transmit a certified copy of this resolution to each United States Senator and each ‘Representative in Congress of the State of Oklahoma. io “Passed March 8, 1921. 3 $ ‘ ’ 1% CONCURRENT RESOLUTION PASSED BY SOUTH DAKOTA, LEGISLATURE, 1921. CONCURRENT RESOLUTION Memorializing Congress to amend the transportation ‘act, 1920, so as . to eliminate therefrom therule ef rate making and: so.as to preserve to the States control of intrastate affairs of common carriers. a ty bg 8G Whereas by the provisions of section 15a of the transportation act, 1920, approved February 28, 1920, the Congress of the United States prescribed “‘that during the period beginning March 1, 1920, the commission shall take as such fair return a sum equal to 54 per cent of such* aggregate value but may, in its discretion, add thereto a sum not to exceed one-half of 1 per cent of such aggregate value to make provision in whole or in part for improvements, betterments, or equipment, which,‘ according to the accounting system prescribed by the commission, are chargeable to capital account,’’ and thereby enacted a rule of rate making, so called, to be observed by the Interstate Commerce Commission in exercising its power to rescribe interstate rates; and ben : ereas the result of such rule of rate making, so called, is practically to guarantee to common. carriers annual net earnings from operations and to remove the incentive for care and economy and expenditures for operations; and ms Whereas the policy embodied in such rule of rate’ making is, in the opinion of the Legislature of the State of South Dakota, detrimental to the public interests; and Whereas by several provisions of the. transportation’ act, 1920, approved February 28, 1920, the Congress of the United ‘States vested broad’ powers in the Interstate _, Commerce Commission, which: that commission is attempting to exercise with a view-to controlling interstate commerce and the instrumentalities thereof and with a view to preventing discriminations against and burdens upon interstate commerce, ‘in stch a way as to.deprive the several States of their right to regulate, under the police powers, intrastate rates, services, and facilities, and the local affairs of com- mon carriers: Therefore beit') = ENE Bh oy ee ; Deep tt e ’ Resolved, By the House of Representatives of the State of South Dakota, the Senate concurring, That the Legislature of the State of South Dakota hereby petitions ‘and memorializes the Congress of the United States so to amend the transportation act Ee tS atl 248 MODIFICATION OF TRANSPORTATION ACT, 1920, .1920, as to eliminate therefrom the rule of. rate making, so called, and to so define and curtail the powers of the Interstate Commerce Commission as to protect and preserye the: powers of the several State commissions: with relation to intrastate rates, services, and facilities and the local affairs. of common carriers within the States; and be it further E _ Resolved, ," hat the secretary of state of South Dakota be and he is-hereby directed to transmit a certified copy of this resolution to each United States Senator and each Representative in Congress of the State of South Dakota. CONCURRENT RESOLUTION CONCERNING CONTROL OF INTRASTATE AFFAIRS OF COMMON CARRIERS, PASSED BY BOTH HOUSES OF SOUTH CAROLINA LEGISLATURE. Whereas by the provisions of section 15a of the transportation act, 1920, approved February 28, 1920, the Congress of the United States prescribed ‘‘that during the period beginning March 1, 1920, the commission shall take as such fair return a sum equal to 54 per cent of such aggregate’ value, but may, in its discretion, add thereto a sum not to exceed: one-half of 1 per cent of such aggregate value to make provision in whole or in part for improvements, betterments, or equip- ment, which, according to the accounting system prescribed by the commission, are chargeable to capital account,” and thereby enact a rule of rate making, so called, to be observed by the Interstate Commerce Commission in exercising its ae to prescribe just and reasonable interstate rates; and . Whereas the result of such rule of rate making, so called, is practically to guarantee ‘to common carriers annual net earnings from operations and to remove the incentive for care and economy and, expenditures for operations; and Whereas, the policy embodied, in such rule of rate making is, in the opinion of the Legislature of the State of South Carolina, detrimental to the public interests; and Whereas by several, provisions of the transportation act, 1920, approved February 28, 1920, the Congress of the United States vested broad powers in the Interstate Commerce Commission which that commission is attempting to exercise with a view to controlling interstate commerce and the instrumentalities thereof and with a view to preventing discriminations against and burdens upon interstate com- merce, in such a way as to deprive the several States of their right to regulate, under the police powers, intrastate rates, services, and facilities, and the local affairs of common carriers: Therefore be it Resolved by the Senate of the State of South Carolina, the House.of Representatives concurring, That the Legislature of the State of South Carolina hereby petitions and memorializes the Congress of the United States so to amend the transportation act, 1920, as to eliminate therefrom the rule of rate making,.80 called, and to so define and curtail the powers of the Interstate Commerce Commission as.to protect and preserve the powers of the several State commissions with relation to.intrastate rates, services, eo facies and. the local affairs of common carriers within the States. And be it ‘urther Resglved, That the clerk of the Senate be, and he is hereby, directed to transmit a certified copy of this resolution to each United States Senator and each Representative in Congress of the State of South Carolina. ‘ ' CONCURRENT RESOLUTION PASSED BY BOTH HOUSES OF IOWA LEGISLATURE, 1921. Whereas the recent decision of the Interstate Commerce Commission in the Illinois rate case interprets the Esch-Cummins Act as giving them complete authority over _ the railways, the entire field of transportation, the traffic itself, and all the instru- mentalities and means of, carrying it on; and , Whereas it means that the law of the States and their officers are defied and that the Interstate Commerce Commission has assumed exclusive authority over the railways; and Whereas wheat, corn, live stock, and all farm products are being marketed at a heavy loss to the farmer; and Whereas the freight and passenger rates are already burdensome to the producers and consumers, with the likelihood that the railroads will ask for further increase in rates, with no consideration apparently having been given in the recent raise a8 to the low cost of construction and operation in the prairie States, with no completed valuation of the railways, or as to the fact that the railways in these States have’ MODIFICATION OF TRANSPORTATION ACT, 1920. 249 not millions invested in depots and terminals, we consider it unwise to confer upon the Interstate Commerce Commission the greatest power ever given to a body of men in peace times: Therefore be it __ Resolved by the senate, the house concurring, of the thirty-ninth general assembly, That we call upon Congress to so amend the transportation act and in such plain language that the authority of the States over intrastate traffic in their respective territories will be maintained without an opportunity for misinterpretation. Be it further Resolved, That a copy of this resolution be sent to each United States Senator and Congressman from Iowa. CONCURRENT RESOLUTION PASSED BY TEXAS LEGISLATURE, 1921. Whereas there is now pending in the various courts of the State, both Federal and State, litigation involving the validity of the constitution and laws of Texas and which will result in testing the validity of the Cummins-Esch bill in its features wherein encroachments are made upon the proper provision and jurisdiction of the ae commission of Texas, and the constitution and laws of the State of Texas; an Whereas the attorney general is now faithfully representing the State of Texas to. the best of his ability and the means at his hands; and , - Whereas we recognize that it is the duty of the lawmaking power of this State to render the proper aid and support: Therefore, be it. , : Resolved by the Senate. of the State of Texas (the House of Representatives concurring): That we commend the attorney general and the railroad commission of Texas in their efforts to uphold the constitution and laws of Texas, and pledge to them all necessary and proper aid and assistance. __ : The attorney general is authorized to employ such additional assistants as he deems necessary, not exceeding two in number, and assign them to the duties of his office in order that his two assistants handling the railway litigation growing out, of the pas- sage of the Cummins-Esch bill may devote their entire time to such litigation. HOUSE JOINT MEMORIAL NO, 4, PASSED BY BOTH HOUSES OF UTAH LEGISLATURE—STATE RIGHTS OVER RAILWAYS. To the Senate and House of Representatives of the United States in Congress assembled: Your memorialists, the governor and Legislative Assembly of the State of Utah, respectfully represent: : re That the Interstate Commerce Commission in recent decisions interprets the trans- portation act of February 28, 1920, as giving that body complete authority over the railways, the entire field of transportation, the traffic itself, and all the instrumentali- ties and means of carrying it on. That such interpretation and such assumption of complete and exclusive authority over the railways defies and sets.at naught the sovereign rights and laws of Utah, and other States enacted to. give the said States proper regulatory supervision over rail- ways within their own borders. : ; bien teh? aw That we believe it unwise and against the interests of the public to vest such power and authority in the Interstate Commerce Commission. ; . Therefore we respectfilly urge that Congress amend. the said transportation act so as to provide without possibility of misinterpretation that the authority of the States over railways within theix own borders shall be recognized, upheld, and maintained. Approved March 4, 1921. i JOINT RESOLUTION PASSED BY BOTH HOUSES OF WISCONSIN LEGISLATURE, 1921. On the part of the several States of the Union, requesting the Congress of the United States to call a convention for the purpose of proposing an amendment to the United States Constitution for the purpose of further strengthening the Tenth amend- ment to said instrument to further safeguard the self-governing power of the States and to more specifically define the powers of the Federal Government so as to restore to the people the rights of home rule as originally intended by the Federal Constitu- tion: 250 MODIFICATION OF TRANSPORTATION ACT, 1920. Whereas the National Government of the United States has' during the past several years assumed the exercise of powers both by legislative enactment, Executive order, and even subordinate department order, the latter orders assuming the sanc- tion of law, all of which assumption of power on the part of the said. National Gov- ernment and its agencies is destroying the self-governing rights of the people of the several States and striking at,the foundation of the fundamental principles on which the Republic was. established. The assumption.of said powers to a great degree Were justified as in time of war, but the continued application of the principles of same as to peace conditions are unauthorized and unwarrnated. The States have lost control of the regulation of railroads and the rates to be charged thereon on lines within their borders, and such regulation has been assumed by a national body which arbitrarily. enforces its decrees. The National Government is constantly seeking by the method of national bonuses to the several States, and by other sim1- _lar methods, to undermine the seli-governing rights of the States and make the Na- _ tional Government supreme, even as to the minor details of regulation. ___ The foregoing is only a few of the many instances in which the underlying prin- ciples on which. the Republic was founded. are being cast aside, and the flag of national domination has been raised. as a standard in place of the self-reliant a of Home rule. The present policy contemplates no longer that the people shoul uphold the Nationa! Government, but.that the National Government should uphold the people. The inspiration of a great nation no longer comes from the ranks of the people, but rather issues from the top by national edict.. Federal officials are found in every quarter of the land whose duties have heretofore been unheard of. The people are no longer controlling the Government, but the Government is controlling the people. The elasticity of the Republic by which the features adapted to each State and' each locality is‘being slowly and surely destroyed. The day of awaken- ing has arrived, and the growing power of the National Government must be fur- ther curtailed by specific constitutional amendment clearly defining the powers of Congréss and reserving all other powers to the several States of the Union and to the people, as is contemplated in the ‘tenth amendment to ‘the organic law of the Republic: Therefore be it ane, ew pla eter. g Resolved’ by the sénate (the assembly concurring), That the Wisconsin Legislature call upon the legislatures of the several States of the Union to apply to the Congress of the United States requesting that body to call a convention for the purpose of proposing such amendment or amendments having for its or their purpose the preservation of the self-governing rights of the States and the principles of home rule for the people thereof, and to restore to the States and to the people certain rights now exercised by the National Government and the several. departments thereof contrary to the intent of the Federal Constitution; be it ee " Resolved further, That a copy of these resolutions properly attested by the presiding officer of both houses be transmitted to. the governor of each of the several. States of the Union, with the request that the same. be transmitted. to the legislatures of the several States now in session.and to such sessions of said legislatures which may here- after be convened. Mr. Benton. The Senator from Washington asked me to be sure to mention the Washington case. I have not the time to do that at this point, but, if later, when I ain ‘presenting the concrete amendments I am questioned about it, I will be glad to make a full statement about that. PNG i eT ELECTRIC’ RAILROADS. . _ Now, there was also presented a resolution in which Congress ‘was asked to consider the question of electric railroads, and to determine to what extent it desired the Inter- state Commerce Commission to exercise jurisdiction over electric railtoads. ‘ It has shown a disposition to exert the same kind of-power over local rates on street railroads that it does on steam railroads. In the William Wylie Beall case, reported in 60 I. G. C., 601, and 63.1. C. C., 221, it made intrastate faresin Ohio to take the place of fares fixed by franchises. The importance of that can scarcely be overstated. Ifit can exercise that kind of power, the railroads by making joint rates with connecting lines, can bring almost all the mileage of the street railroads of the United States within the jurisdiction of the Interstate Commerce Commission, and we will have street-car fares fixed from Washington. nt = ag ue : The CuatrmaNn. That was not done under section 15(a)? Mr. Benton. No; it was not; and I called attention :to that the other morning. Now, I would like to discuss that at length, but I do not feel that I ought to at this time. Ina brief before the Interstate Commerce Commission in that case, I described the character of the case, and talked aboutit. I have eliminated portions of the brief, MODIFICATION OF TRANSPORTATION ACT, 1920. 251 and it isasmall brief. Probably it does not contain so many words as I should speak if I attempted to go into a discussion of the case here. IfI may, I would like to incor- porate that discussion. oe The Cuairman. The entire brief, or only that portion of it that relates to that ques- tion 5 oo a Mr. Benron. It all relates to that question, but I have eliminated portions of it. : the brief seems to the chairman too long, I will be glad to cut it down more than I ave. ‘ The Cuatrman. We will examine that and see whether it ought to go in or not. (The brief referred to is not printed, but a copy is on file with the committee.) _- Myr. Benton. Ihave here, but do not offer, for the reason indicated by the chairman, the first opinion of the commission. I think that I have stated the effect of it with a good deal of care in my brief before the commission. Baty The CuarrMan. Well, when we come to your proposed amendments, if we think your brief on that question ought to be printed as a part of the record, we will order it printed, but we rezerve the privilege of some review on that subject. . Mr. Benton. That, of courze, is as it should be, Mr. Chairman. I have no deidire to unduly expand the record. J have merely tried to devise a method by which I could get into the record for examination by everybody interested the matter which I would-like to have discussed. ; : Ms wpe Now, after that report was made, on behalf of the National Association of Railway and Utilities Commissioners, I made a motion for a reconsideration of it, and I was permitted to make an argument before the commission. I set out the far-reaching effect of the decision in that document which I have presented, which I inadvertently called a brief. Asa matter of fact, it is my motion for a rehearing of the case.’ After that argument was made, the commission handed down an opinion on the motion, in which it added nothing new to the discussion, but adhered to its former’ position and decision. The first decision was by_a division, consisting of ‘three commissioners. Commigsioner Aitchison was on the division. He dissented. When the matter was before the commission on the motion for rehearing the full commission supposedly sat, but it was determined in August, when the full commission was not actually present., ,Commissioner Aitchison was not present, and I understand that Commis- sioner Lewis was not, and that'Commissioner Potter was not, Commissioner Campbell jomed Commissioner Eastman in a dissenting report which covers only two ‘pages. Because it is the mo.t sensible discussion I have seen from any source as to what-ought to be the character.of jurisdiction exercised-from Washington, I ask to read it as a part of my statement. I -have eliminated all other parts’ of the report. ss] : The. Cusairman. Very well.. It may be read as a part.of the record. ye Mr. Benron (reading): ““Kastman, Commissioner; dissenting: ‘ “ef ‘I approach this case with the conviction that the activities of this, commission should be confined,,so far as the law permits, to matters of national consequence. The tendency to overcentralization, unless checked, can only lead to congestion, here and to conditions which will sooner or later become intolerable to the. people ¢f the country. It is impracticable to handle from Washington with any degree of satis- faction matters which are chiefly of local importance. Nor is the.fact that an evil exists which municipal or State authorities have not seen fit to abate. necessarily a reason why we should be called or go to the rescue. Oe ‘“This was, I believe, the underlying thought when the Supreme Court of the United States decided in the Omaha case that street railroads, even when they cross State lines, are not engaged in the interstate commerce ‘which Congress had in.mind when legislating in, 1887,’ and hence are not subject to, our jurisdiction. In the instant case the majority undertake to use the power of the Federal Government to raise two electric railway fares in Ohio which the lo¢al authorities will not-permit to be raised. One of thesé fares applies between two small towns ior a distance of about 9 miles the second between two other towns for a distance of about 7.5.miles. Iam wholly persuaded that we ought not to undertake to use. the.power of the United States for such a purpose unless it is clear that, Congress intended it to be so used, and that all doubts ought to be resolved against the assumption of such jurisdiction. ~ ses gee ‘ “The Ohio electric lines in question are operated under franchises granted to the Bellaire, Bridgeport & Martins Ferry Street Railway and to the Steubenville & Wheeling Traction Co. I am unable to discover any clearly marked distinction between these lines and the street railroad lines in the Omaha case, which the Supreme Court found. were not within our post en: ‘In our decision which the court reversed (West End Improvement Club v. Q. & C. B. Ry. & B..Co., 17 I. C. C., 239). we described the latter lines as follows, at page 243: iybains cca 1 252 MODIFICATION OF TRANSPORTATION. ACT, 1920. “Tn: the instant case it.should be remembered that the defendants have the char- acteristics of an interurban line as well-as of a street railway: They operate 196 single-track miles of road; the rails are not all laid in public streets and highways, but for some distance run over private right of way; they operate. over the bridge across the Missouri River and through sparsely settled sections over expensive cul- verts not conforming to the level of the streets or roads; they carry the United States mail and do not serve the needs of a single city and its.suburbs, but of two cities and several towns, villages, and resorts. ‘*Certainly the electric lines in the present case do not possess the ‘characteristics of an interurban line’ in any greater degree. Nor have I been able to-discover any changes in. the interstate commerce act since our order in the above-cited case which pees in any degree of clarity or certainty extended our jurisdiction over street rail- roads. ‘‘Hawever, my objections to the conclusions of the majority are not limited to this question of jurisdiction. I realize that there have been numerous decisions of the commission which are inconsistent with a strict interpretation of the. Omaha case. Butif we possess any power to override the will of Ohio municipalities and com- pel the raising of electric railway fares which these authorities, however mistakenly, will not permit to be raised, most assuredly it.is only when unjust discrimination against interstate commerce or persons or localities engaged therein has been definitely established. In the instant case evidence of substance is wholly lacking that ‘per- sons or localities engaged in interstate commerce are suffering injury because of the low intrastate fares or that the course of interstate commerce is in any way impeded. Such evidence as we have was presented chiefly by the ostensible defendant, the Wheeling Traction Co. No one else manifests serious concern for the protection of interstate commerce; its concern is clearly a matter of revenue; and its evidence is largely confined to a showing that the intrastate fares in question are unduly low. “T am unable to find in the interstate commerce act any intent of Congress that we should have power to raise the intrastate fares of electric railways which happen to be engaged to some extent in interstate commerce, as most of them are, merely because of a belief that such fares are lower than they ought reasonably to be and in the absence of evidence that: the free course of interstate commerce is in any substantial way obstructed or hindered. The complaint-should be dismissed. “T am authorized to state that Commissioner Campbell concurs in these views.’’ The CuarirnMaAN, It is a case of Daniel come to judgment. a _ Mr. Bunton. Yes. He is not so lonesome as Daniel was, but he is an unfortunate minority. But I do not present it.for that reason; I present it for the consideration of the reasoning contained in it, by anybody who.is called upon to act on the matters involved here. : de, TEOM, Mr. Chairman, may I ask if the majority opinions have been put in this record? : : The Cuarirnman. I did not understand you, Mr. Thom? * Mr. Tuom. Have the majority opinions in these cases been put into the record? - The Cuairman. As I said before, we will determine that when we get to the amend- ments that he proposes. So far as these latter papers are concerned, we will put them in the record if we think they shed any light on the subject. Mr, Tom, I merely want to.call attention to the fact that the Interstate Commerce Commission should not be tried on the minority opinions without the majority opinions being there also. The Carman. Well, the committee will inform itself with regard to the character of these orders and decisions. Now, if we can do it properly without printing 4ll that’ has been said by the Interstate Commerce Commission we will not print it, but it will be necessary, of course, for the committee to become familiar with what the Interatate Commerce Commission has done.and said. , . ave. eu Mr. Tuom. Of course, this is for the Senate and the country, and if the minority a alone go in—— : ; : “The Cuartrman (interposing). You understand Mr, Benton offers the minority opinion for the value of its reasoning, That is all. He is moving here for a change in the law. We will probably have to accept the majority opinion so far as the effect is concerned, and I assume that the minority will. When we are considering a, change in the law, we will consider it for the purpose of considering whether it is necessary to have a change in the law. Mr. Taom. The point that I make, and that I would be glad to have the committee consider, is that if the question is as to a change in the law, and any criticism is made of the actions of the Interstate Commerce Commission, that both sides of that question ought to be in the record, and that the minority opinions alone ought not to be resorted to for the purpose of determining whether there ought to be a change in the law. Itis “ ae MODIFICATION OF TRANSPORTATION ACT, 1920. 958 pe fair to the commission, for whom I hold no brief, of course; I do not represent em—— The Cuarrman (interposing), The way I look upon that is that what the commission has decided, it has decided. And if there be no change in the law, either by subse- quent action or by legislation, we must assume that the commission will continue to do what it has already declared it to be its duty to do. And therefore the ma- Jority opinion would be looked upon logically for the purpose of discovering what the commission has actually decided, and the minority opinion would be examined for the purpose of ascertaining whether or not any change in the law is desirable. Mr. Bunton. I feel sure that Judge Thom will be willing to leave with the com- mittee itself whether or not this should be printed, if he understands that I have presented both the majority and minority reports. My request goes to the minority report, but the committee, I am convinced— ; The CuairMAn (interposing). The committee will determine that. Mr. Tom. I just want to say this, Mr. Chairman: I understood the committee to grant the motion made by the witness that the minority opinion should be put in the record. I understood that that was an announced ruling of the chair. The point that I want to make, and I would like to present to the minds of the com- mittee here, is that if that is to be alluded to for the purpose of showing the strength of the reasoning against the law, it is not fair to the great public body, and not fair to the question that what I have said on the other matter be not in the record, and sub- ject to the same examination by the people who will examine the record for light on this subject. _ The Cuarrman. All that we desire is to limit the printing as much as possible con- sistent with a full understanding of the case. Pay Mr. Benton. I want to say that the majority reports, while considerably longer than the minority, are not extrémely long, and it would be very pleasing to us to have them all included. But I have felt that it was the desire of the committee to limit the printing, and therefore I have not asked for anything excepting dissenting reports. , F CAR SERVICE. Now, I come, Mr. Chairman, to the resolution relating to car service. The reso- lution itself so well expresses the views of the State commissions on this subject that I willread it. Itis very brief. [Reading:] | . “Whereas it is impracticable for the Interstate Commerce Commission to attempt to supervise the distribution of cars as between individual shippers throughout the United States; and ‘Whereas there should be some governmental authority within reasonable reach to which appeal can be made to require equitable distribution of cars without regard to whether the same are to be used for shipments interstate or intrastate: There- fore, be it “ Resolved, That Congress be respectfully urged to amend the interstate commerce act in such way that the regulatory authorities of the States may make reasonable orders and regulations, not in conflict with Federal law, or with lawful orders of the : Interstate Commerce Commission, requiring cars within the respective borders of such States to be equitably distributed to shippers desiring same, without regard to whether they are desired for us? in shipments that are interstate or intrastate.” That states the situation so well that little need be added, I think, by way of argument. The Interstate Commerce Commission has not attempted in a general way to do anything toward requiring equitable distribution of cars as between individual shippers. That, at times, becomes an exceedingly important part of regulation. Especially is that so in the grain States. It is not practicable—nor should there be any occasion for an attempt—to base any orders concerning such distribution on the intrastate or interstate character of the shipment to be made. What is necessary is to have a tribunal that can be easily reached at small expense, that can act quickly. : : . ; For the purpose of guarding against any failure to understand just how these matters usually are handled, I want to say that they are not usually handled by formal orders at all. Perhaps not once in a thousand times does the action of a State commission take the form of a formal order. An application is made to the State commission saying that so and so has made application for cars, and that he does not get them, and that a neighboring elevator is getting them, or that the next town or the next: city somehow or other gets cars, and they do not. The State commission can have a man on the spot that day, or the next day. or can step to the telephone and ask for a report from the carriers, and can say, “You must get some cars over there.’”’: And they are gotten there. The relief is obtained. 254 MODIFICATION OF TRANSPORTATION AOT, 1920. _Now, there is no reason why any nice legal question should be thought of at a time! like that. There is no desire here to impair in any degree whatever the full and com- plete control of the Federal commission over car service relating to the interstate business of the country. The Interstate Commerce Commesion must have the au-. thority to reach its hand into one State and take cars out of that State, even though: the people want them there, and put them into another State, if they are more needed there for the business of the country. All that is asked is that the State commissions: be permitted to function with respect to local situations so long as they do not make. any orders or requirements which interfere with the orders of the Interstate Commerce: Commission lawfully made under this act, or with a rule which the Congress itself has. putinto theact. That proposition isso inherently reasonable that I think probably no question will arise about it, unless somebody raises a question as to. the constitu- tional power of Congress to authorize a State commission to make orders with respect to cars which may be desired in interstate shipments. a It is fortunate that this exact question was considered by a very able lawyer who was at one time on the Public Service Commission of Massachusetts, and later on. the Interstate Commerce Commission and who is now on the Federal ‘bench in: Massari chusetts. I refer to Judge George W. Anderson. In an address delivered before the National Association of Railway and Public Utilities Commissioners in November, 1920, here in Washington, Judge Anderson advocated the passage of Federal legislation which would give to the. State commissions general jurisdiction. locally as regional Federal tribunals, and he-discussed the legal aspect of it. He cited some cases, which I will put into the record: nos .(The cases are as follows:) 4 , : “Levin v, United States, 128 Fed. 826; Holmgren v. United States, 217 U. 8., 5095. Dallemagne v. Moisan; 197 U.-8., 169; In re Spangler, 11 Mich., 298; In re Griner, 16 Wis., 447; Druecker v. Salomon, 21 Wis., 628, 638;, Allen v. Colby, 47 N. H., 544.’? The Cuamman. Mr. Benton, may J interrupt you a moment? ‘Of course timé every morning is very limited, Could you not come to the changes in the law which vou want to have made and leave us to examine these authorities, if you will just file a. brief of them? 4 Mr. Benton. Well. I was just putting the cases in. I would say that he reached the conclusion that the Federal power was ample. If anybody wants to look at his address, which is a very able one, it isto be found in the report of the national asso-; ciation at its convention last year, and the part I have in mind is at page 37. That, in view of the suggestion of the Chairman, is all’that I will say on that point. ‘ MULTIPLE VALUE OF RAILROAD LANDS. ' Now with respect to another resolution asking for amendment to the valuation act I do not want to say anything except that there is a bill already pending before the Senate, introduced by yourself, Mr. Chairman, 8. 539, which is the same bill'as H. R. 13997 before the Sixty-sixth Congress on which very voluminous hearings were held. Those hearings have beén printed and are available for inspection. There have been two hearings on the bill pending in the Senate at this session, one May 12:before:the subcommittee, and another June 10 and 11 before the full committee, both. of which have been printed. ‘ : (kEew The CuatrMan. Well, that relates to the valuation act. Mr. Benton. Yes. fit The Cusirman. I do not think we ought to bring that into this heating. . We have already heard it fully, and the subcommittee has reported upon it, and I am doing my best to get a report of the full committee upon it. eh Mr. Benton. I merely desire to call attention to the resolution which we present. on that matter, and to say that upon a matter where there is such unanimity of judg-. ment upon the part of all officials, it is the one thing where, so far as I know, there is nota State commissioner in the country that thinks the law should remain as it is pow. It has been a matter that the State commissions have been interested in ever since the carriers bezan to attempt to secure this multiple value of land. .As the resolution’ rehearses, the carriers under the proposed bill will get the full present value, even though the land was given to them by the Government. ‘ . The House bill was referred to the Interstate Commerce Commission, and the Inier- state Commerce Commission unanimously approved it, and sent the chief counsel. both before the House committee and before your committee. The law. of the matter, aside from the compulsion of the existing act of Congress, was declared hy the United States Supreme Court in the Minnesota case, and the State commissions feel that your. pill certainly: would be reported out if the: Senators conld find time from. their other. duties to take it up. aaa ie HS 0 MODIFICATION OF TRANSPORTATION ACT, 1920. 255: The Cuarrman. It will be reported out as soon as I can get a majority of the com- mittee to agree to it. Mr. Benton. And as the other members of the committee have not agreed to it we draw the inference that it has not come to their attention. We call attention to it and to the immense importance of it, as bearing upon what the people of this country will pay in rates in the future. Itis a question of whether some billions of dollars will be pumped into the aggregate value. It is especially important, if section 15 (a) shall stand in the law, that this bill shall be acted upon by Congress. I take note of the supe ion of the chairman that I should not discuss that matter, and I refrain from oing so. PROPOSED CAR SERVICE AMENDMENT, I now pass to the amendments in concrete form which we would propose. Taking up, because I think it will give occasion for the least discussion, the amendment under the resolution relating to car service, I offer the same for incorporation into the record without reading it. The Cuarrman. Read it, Mr. Benton. I want to hear it. Senator Fernaup. That is the most important part of this whole discussion, Mr. Benton. We ought to consider that, I am sure. ‘ The Cuarrman. He is speaking of car service now. Senator Fernaxp. I mean his suggested amendment. Mr. Benton. My assumption is that either the committee itself would amend one of the existing bills or make a new bill, and accordingly I have not put these sugges- tions into the form of a bill, but of sections for.a bill. or ne The Cuarrman. Precisely. . ache nee Bo oy Mr. Benton, I will read the proposed amendment under resolution relating to car service: , HOR Mn “Src. —, That paragraph (17) of section 1 of the. interstate-commerce act, as amended, be amended by adding thereto the following: ‘And provided further, That any State, by action of its appropriate regulatory authorities, may make reasonable: orders and regulations requiring cars within its borders to be distributed: equitably. to shippers desiring to make shipments therein, without regard to whether such ship- ments are. to be intrastate or interstate, except that no: requirement shall be made under this proviso which shall conflict with any. provision of this act or with any lawful order of the commission.’ ” os : PROPOSED AMENDMENT RELATING TO ELECTRIC ROADS, . The amendment under resolution relating to electric railroad rates is as follows: “Src. —. That paragraph (1) of section 15 of said act be amended by adding thereto the following: ‘Provided, however, That no street, suburban, or interurban electric railroad shall be subject to the jurisdiction of the commission unless the same shall be engaged in the general transportation of freight, which it interchanges with .con- necting lines.’” ‘ I ought to call attention to the fact that the resolution of the national association: merely requests Congress to direct its attention to the matter and to select the class © of electric roads which it desires the Interstate Commerce Commission to exercise- jurisdiction over, and to make that-clear I will say that being asked to present a con-. crete amendment I have drawn one intended to conform the law to: the opinion of: the Supreme Court in the Omaha case, which I cited the other day. Bn sod The Cuairman. Well, that is not as broad as the exception that we put into the transportation act controlling certain. parts of that act. — vg Bs 8 Mr. Benton. Yes; I am aware of that. But I present the same with this indication that there is no settled view, which the State commissions want to press upon Congress, as to the extent of the jurisdiction which should ‘be given the ‘Interstate Commerce Commission over electric roads. My personal belief is that Congress has never expressed. the intention to delegate to the Interstate Commerce Commiission any power over anything except railroads that carry on a general interstate business of the charac- ter described in the Omaha case, whichis the character of business carried on by steam. railroads in 1887. ‘ This amendment, however, would by implication extend the juris- diction of the Interstate Commerce Commission to that character of interurban roads which the court in the Omaha case referred to but did not decide about—that is, to roads that carry on a general freight business which they interchange with connecting lines. CERTIFICATES PERMITTING. CONSTRUCTION AND ABANDONMENT. I have prepared, but apparently it has not come with me, an amendment relating to certificates of convenience and necessity, which would incorporate a single sentence 256 MODIFICATION OF TRANSPORTATION ACT, 1920. in the appropriate section of the interstate commerce dct, ‘to the effect that the certifi- cate obtained from the Interstate Commerce Commission shall not relieve the carrier obtainirig the same from conformity to the laws of the State with respect to construc; tion, operation, and abandonment. That would conform with the resolution which has been offered. There has been much discussion on ‘that subject. The Cuarrman. Well, that would neutralize it entirely. Mr. Benton. No. Excuse me for so dogmatically answering any suggestion that comes from you, Senator. The law then would require the Interstate Commerce Commission to pass.upon these extensions and abandonments, but would not relieve carriers from conformity to State laws. If the purpose of the law was to relieve them' absolutely from the effect of State law, to that extent it would neutralize the act. But if the intent was to grant to the Federal Government authority to veto propositions to construct, extend, or abandon lines it would not neutralize it. © ‘ : The Cuarrman. Well, the State law is that the railroad can not abandon a line within that State without the consent of the State. Mr. Benton. Yes. The Cuarrman. That is the State law. Mr. Benton. Yes. .The CHarrman. We have said in the transportation act that it can abandon any such line doing an interstate business upon the authority of the Interstate Commerce Commission, so I rather adhere to my conclusion that it would destroy the power that we have given to the Interstate Commerce Commission. Mr. Benton. The amendment which I will propose will strike out simply the sen- tence in the act which provides that having obtained the certificate it may proceed without any other authority whatever, and insert a sentence which is directly contrary in intent. rs us The Cuarrman. Precisely. Mr. Benton. But, having done that, however, the situation will still be that, whereas before you passed the transportation act a company might abandon a line or build a line without getting the consent of the Interstate Commerce Commission, it could not do it any more—it could not do it after this amendment any more than it can now. » The Cuarrman, The final judgment of the propriety of the abandonment of a line would, under your amendment, be in the State? Mr. Benton, Yes. The Coarrman, And not in the Interstate Commerce Commission? Mr. Benton. Yes; that is right, Senator; and while I had not expected to take time to discuss this, I am glad to. The States think that when States, counties, municipalities, and individuals have contributed to help build these roads, and the State has developed along the lines after they are built, that the Federal Government ought not to ‘authorize their abandonment. : ‘he CHaIRMAN. Iam not passing on the merit of it at all. Mr. Benton. And to illustrate the idea: In my city of Keene, in New Hampshire, when that city was only a town of five or six thousand inhabitants, it voted a bond issue of $225,000 to help build the Manchester '& Keene Road, then ‘a purely intra- atate road running between intrastate points. It has now become a part of the Boston’ & Maine system. To the State authorities it seems unthinkable that the Federal Government will authorize the Interstate Commerce Commission to say that a road of that character may be torn up, and the salvage value pocketed, and the corpora- tion walk away. The Cuarrman. Well, I understand that. I am not passing upon the proptiety or wisdom or even authority for giving that power to the Interstate Commerce Commis- sion. I am only commenting upon the effect of your amendment. There is much to be said in favor of your proposition. : : Mr, Benton, It is the thought of those who ‘present the proposition that the car- riers are now fully protected under the law by the courts. It has been held by the Supreme Court that if operations ate so expensive and revenues so small that con- tinued operation operates as a confiscation of the property the carrier has a constitu- tional right to take up its track without authority from anybody, and it is their thought that the question of whether a road should be taken up if the State does not consent ought to be judicially determined, and not determined by a Federal admin- istrative board, ei The Cuatrman. Precisely. I understand the position all right. MODIFICATION OF TRANSPORTATION ACT, 1920. 257 PROFOSED AMENDMENTS TO SAFEGUARD STATE CONTROL OF INTRASTATE RATES, AND TO REPEAL SECTION 115A, Senator Fernap. Mr. Chairman, we have only a few moments more this morning. May I ask the witness just this: It has been the contention of all those representing the State commissions, Mr. Benton, that the Intetstate Commerce Commission had either misinterpreted the language or hac exceeded the authority given them in the transportation act. I understood that you were to suggest some amendment to clarify the language and end that situation: Have you any other amendment? Mr. Benron. I have, Senator; and have just arrived at it. ‘ Senator Fernatp. We have got about 10 minutes now to discuss that one contention, the most important of all. : Mr. Benton, I just did not want to have the committee lose sight of those other resolutions. orc I now read amendments proposed under the resolution relating to amendment ‘of the rate-making sections of the interstate commerce act, as amended by the transpor- tation act: “Sec. —. That paragraphs (3) and (4) of section 13 of the interstate commerce aet, as amended, be amended to read as follows: ‘(3) Whenever in any investigation under the provisions of this act there shall be brought im issue”—I will interject that the right of the carrier to institute these proceedings is eliminated—‘‘any rate, fare, charge, classification, regulation or practice made, imposed, or required to be kept in force by authority of any State, the comntission, before proceeding to hear and dispose . of such issue, shall cause the State or Statesinterested to be notified of the proceeding. ”’ Fo that point the law is unchanged, except in the respect I noted. [Continuing reading: se making any finding that the imposition or keeping in force of such rate, fare, charge, classification, regulation, or practice is within the inhibition of amy provision of this act, the commission shall confer with the authorities of such State or States, so notified, having regulatory jurisdiction over the class of persons and corporations strbject to this act, or afford opportunity for conference, concerning the relationship between rate structures and practices of carriers subject to the jurisdiction of the State and Federal authorities,respéctively, and the effect of the same upon the person or persons or locality or localities engaged in interstate commerce claimed to be injured thereby, with a view to a full understanding of the entire situation by both State and Federal authorities, so that such structures and practices may be brought into harmony by any necessary changes in the same, through action of either State or Federal authori- ties, or both, without the making by the commission of am order of the character authorized in paragraph (4) of this section, and to that end the commiesion is author- ized and empowered, under rules to be prescribed by it, and which may be modified from time to time, to hold joint heatings with any such State authorities, on any mnatter wherein the commission is empowered to act. The commission is also author- ized to avail itself of the cooperation, services, records, and facilities of such State authorities in the enforcement of any provision of this act. _ Pe (4) Whenever after any such invéstigation and a full hearing the commission shall find that the imposition or keeping in force of amy particular rate, fare, charge, classifi- cation, regulation, or practice made, imposed, or required to be kept im force by any State constitutes a discrimination within the inhibition of this act, which ean not be , removed in the manner contemplated by paragraph (3) of this section, it shall prescribe the rate, fare, or charge, or the maximum or minimum, ot maximum and minimum, thereafter to be charged, and the classification, regulation, or practice thereafter to’ be observed by the carrier or carriers theretofore found to have discriminated, in such manner as, in its judgment, will remove such advantage, preference, prejudice, or | discrimination, and such carrier or carriers shall thereafter observe the same, while the order of the commission cditinues in effect, the law of any State, or the decision or order of any State authority to the contrary notwithstanding: Provided, That no rate, fare, charge, classification, regulation, or practice applicable to the transporta- tion of persons or property in intrastate commerce, made, imposed, or required to be kept in force by authority of atry State, ‘shall be set aside, or held to be within the inhibition of any section of this act, solely by reason of the fact that it yields to the carrier a different revenue from that received for corresponding mileage from the inter- state rate with which it is compared, but dnly if the same shall be found-from competent evidence to injure a person or. persons, or a locality or localities, engaged in interstate commerce to such an extent as seriously to diminish the business of such person or persons or seriously to retard the growth and development of such locality or localities’ and unless the same shall also be found from competent evidence to be‘ unreasonable 73337—21—pr 1——17 258 MODIFICATION OF TRANSPORTATION ACT, 1920. and noncompensatory in such State under honest, efficient, and economical manage- ment and operation: Provided further, That whenever the commission shall make any order prescribing any rate, fare, charge, classification, regulation, or practive, for intrastate application it shall make a report.of the facts found from the evidence in the record, upon which it bases the findings hereinbefore provided for: And provided further, That no order of the commission, made under the authority of this paragraph, prescribing any rate, fare, charge, classification, regulation, or practice shall operate to prevent the exercise by any State of its regulatory power with respect thereto for a longer period than two years from the date when said order'shall become effective.”’ Another section declaring the purpose of Congress to recognize the continued right of the States—— Bg ts a : The Cuarrman (interposing). Well, that reverses the Shreveport doctrine. Mr. Benron. ‘Which does? - _ The Cuatrman. The amendment which you have just read. Mr. Benton. I'think not, Senator. 7 : * The Cuarrman. It does in this respect, if I get it correctly as you have read it, that the Shreveport doctrine does not require the Interstate Commerce Commission to find that the State rate is unreasonable or non-compensatory. And in that respect my first impression is that it is a reversal of that doctrine. : Mr. Benton. Senator, it is true that it has been held explicitly by the Supréme Court that in a discrimination case the question of the reasonableness of the respective rates is not in issue. ‘The question is that:of discrimination. That,was decided in the case of American Express Co. . Caldwell, the South Dakota Express case, which I think has been cited in the record. The purpose of this provision is to make it an issue to this extent only, that the Interstate Commerce Commission shall not set aside a State rate without inquiry as to its reasonableness, as it has been doing in these cases, but shall consider whether in fact it is reasonable. If it is reasonable it shall make such adjustment in the interstate rate as is necessary in order that both rates may be reasonable and fair. , The CHarrMan. Now, one or the other issue must dominate. It must be either the issue of discrimination or the issue of reasonableness per se. Now you intend by that amendment, I assume, that the Interstate Commerce Commission must find, first, that the rate does discriminate against a person or locality and injuriously affect the interstate business of that person or that locality; and second, that it must find that the rate is unreasonable in itself, and I assume that you test the reasonableness of a rate, under your amendment, by its revenue-producing effect. Mr. Benron. Yes. A ; ‘Senator Fernaip. But in either event, it is left with the Interstate Commerce Commision as to determining whether it is reasonable or whether discriminatory, so that it is left to the same court—the effect would be the same? The Cuarrman, The result would be or could be very easily that if the Interstate Commerce Commission would find that it discriminated and injured some person or locality engaged in interstate commerce, but at the same time might find that it was a reasonable rate so far as producing revenue is concerned, and in that event the Inter- state Commerce Commission could give no remedy. Mr: Bewron. Going back, Senator, to the-Iowa example, which you gave me the other day, under this amendment if the Iowa commission cut the rate in two for the benefit of the Iowa shipper, of course that would produce an unreasonable rate and the Interstate Commerce Commission could cure it. But under this amendment, if the Interstate: Commerce Commission, upon investigation, found that the Iowa rate was a fair rate, and that the interstate rate which had been filed by the carriers, allowed to. become effective on 30 days’ notice without action of the Interstate Commerce Com- mission, or which had been passed upon without due attention by. the Interstate Commerce Commission, was higher and on an unreasonable basis, thev would correct the interstate rate without bringing them hoth up to.the unreasonable and improper evel. : gore The Cuarrman. That the Interstate Commerce Commission ought to do under the authority it has now. oe Mr. Benton. It ought to do it, and we want the law to require them to do it. The Caarrnman. But you give the Interstate Commerce Commission specific au-: thority to inquire into the reasonableness of the State rate, not into the reasonableness of the interstate rate. I take it that it has authority to inquire into the latter now. Mr. Benton. Yes. ‘ The Cuarrman. And you mean by your amendment that if it finds, first, that the State rate is discriminatory, and second, that the carrier can do business under the State rate and make a fair return upon whatever basis may be assumed, tha. then there ds no remedy? : MODIFICATION OF TRANSPORTATION ACT, 1920. 259 ~ Mr. Brenton, There is remedy enough, Senator. There is remedy in correcting the wrong interstate rate. The trouble with the present situation is that the Interstate Commerce Commission proceeds upon the assumption that if there is a difference which causes what they see fit to call a discrimination, that the fault lies with the State rate. Itis a good deal more likely to be the other way, because the State bodies have a lesser jurisdiction, and know their local situations better, and are much more likely to have fixed their rates right. The CuarrmMan. Why do you not write into your propoced amendment the thought that you have just expressed, namely, that if i. finds a discrimination exists, that then it shall inquire into the interstate rate and ascertain whether that or the State rate is wrong. ‘ _Mr. Brenton. This is a limitation, Senator, upon the power of the Federal commie- sion to act with respect to intrastate rates. Congress is delegating the power to the Interstate Commerce Commission to strike down a State rate, and what we are asking is that that delegated authority shall be limited. There is no occasion for inserting in the language delegating that authority any specification as to the power and duty of the commission with respect to interstate rates. . Those are taken care of in other sections of the law, and are complete. It is the power and duty of the Interstate Commerce Commission to make all interstate rates just and reasonable, All that we aim to do in this provision is to delegate that authority to the Interstate Commerce Commission with a limitation, the limitation being that if they find a discrimina- tion—such as you see fit to describe—exists, which does operate, on account of the difference in the rate, to the disadvantage of somebody in interstate commerce, they shall examine to see whether that undesirable situation arises from any- fault of the State, and if the State has conformed to its duty of allowing a fair and reasonable rate to carriers, it shall not strike down the State rate. ; " The Cuatrman. Well, do you assume that in case a discrimination is found by the commission, under the terms of your amendment, which are just precisely the terms of the present law, that both rates, the State rate and the interstate rate, can both be reasonable? : Mr. Benton. I assume, Senator, that they will both be made reasonable. The CuatrMan. Well, I am speaking now about a case in which the State rate is so much lower than the interstate rate that the Interstate Commerce Commission finds that one doing business outside the State is unreasonably prejudiced and dis- advantaged, and therefore, a case of discrimination exists. Now, either the State rate or the interstate rate is wrong, isn’t it? Mr. Benton. Yes, sir. The Cuarrman, And ought to be changed? Mr. Benton. Yes, sir. The Cuarrman. Now, all you want is that the Interstate Commerce Commission shall consider which one of those is wrong? Mr, Benton. Yes. Having found the situation, if it finds the State rate is all right it should not have the power to touch that State rate, but it should direct its attention under its general powers in other sections of the act to correcting the inter- state rate. = The Cuarrman. But you agree that in the case I put both rates can not stand? Mr. Benton. Discriminatory rates ought not to exist under any form of govern- ment, and we do not seek to have them. # The Cuarrman. No. , Mr. Benton. I want to say that it is my genuine belief that if paragraph 3 is drawn over again in the form that is here suggested, there won’t one case in a hundred offer any occasion for an order from the Interstate Commerce Commission, because the State bodies are anxious to have our Government work well and to have right rates The Cuarrman. I want to'get.your idea fully. If any change is necessary in the present statute it is your opinion that it should be of this kind, that when the Inter- state Commerce Commission finds discrimination, that it shall have the power to remove the discrimination, either through the modification of the State rate or the modification of the interstate rate? ; Mr. Benron. Yes. Mr. Chairman, that is now in the law, and that particular feature of it we are not asking to have changed, because we know how thorough] you considered it. I do not want to concede that I think that that is constitutional. Perhaps I will want to say some day that the power to make an intrastate rate is not a power that the Federal Government can exercise. But it has attempted to exercise it. We are not asking you to change it. The Cuarrman. No; I think I get your idea. Mr. Benton. Now there are two or three other sections to completely cover that resolution, that I would like to read: : : 960 MODIFICATION OF TRANSPORTATION ACT, 1920. “Sec. —. That section 1 of the interstate commerce act, as amended, be further amended by adding thereto a new paragraph as follows: ‘(25) That it is hereby de- clared to be the policy of Congress to recognize the right of the several States to exercise full and final jurisdiction over the internal commerce of said States, respectively, and over the rates and services applicable to the transportation of the same, subject only to the necessary protection of interstate commerce, provided for in paragraph (4) of section 13 of this act.’” ! “Sec. —. That no order of the commission heretofore made prescribing: any rate, fare, charge, classification; regulation, or practice in intrastate commerce shall be of anv effect after the expiration of a period of ninety days from the passage of this act, but the commission, within such period, upon consideration of the record in any proceeding wherein any such order has been made, and without further hearing may, within the limits of the power granted by said section 13, as amended by this act, make a new report and such new order as may be justified by the facts found therein and supported by said record.” ‘Sec. —. That section 15(a) of the interstate commerce act, as amended, be, and the same is hereby, repealed.” PROPOSED AMENDMENT RELATING TO CERTIFICATES OF CONVENIENCE AND NECESSITY. The suggested amendment, which I referred to, relating to certificates of convenience and necessity, I find, and I now read that. The CuAirMAN. That is with regard to building new lines? ‘ Mr. Benton. Yes. Amendment under resolution relating to certificates of con- venience and necessity: : “Src. —. That paragraph (20) of section 1 of the interstate commerce act, as amended, be amended to read as follows: ‘(20) The commission shail have power to issue such certificate as prayed for, or to refuse to issue it, or to issue it for a portion ‘or portions of a line of railroad, or extension thereof, described in the application, or for the partial exercise only of such right or privilege, and may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may recuire. Such certificate shall not relieve the carrier obtaining the same from conforming to the laws of any State with respect to the construction, operation, or abandonment covered thereby. * Any construction, operation, or aban- donment contrary to the provisions of this paragraph or of paragraph (18) or (19) of this section may be enjoined by any court of competent jurisdiction at the suit of the United States, the commission, any commission or regulating body of the State or States affected, or any party in interest; and any carrier which, or any director, officer, receiver, operating trustee, lessee, agent, or person, acting for or employed by such carrier who knowingly authorizes, consents to, or permits any violation of the pro- visions of this paragraph or of paragraph (18) of this section, shall, ‘upon conviction thereof, be punished by a fine of not more than $5,000 or by imprisonment for not more than three years, or both.’” SECURITY ISSUES NECESSARY FOR IMPROVEMENTS ORDERED BY STATE AUTHORITIES. : Now that completes everything that I want to say with this exception, that I have received from the Transit Commission of New York a memorandum relating to the matter of securities to be issued to take care of improvements ordered by the State commission. The matter is covered in the memorandum, but it is possible that the representative of the New York commission, who desired to come here, can come here later, and if he does, I am sure the committee would hear him. If not, I will present that memorandum and explain it. And I think there is also a communica- tion of the same sort that J shall be asked to put into the record for the commission in Michigan. The Cnarrman. Very well. Senator PornpextTeR. What is the purpose of the amendment proposed by the New York Trangit Commission, just in brief? State the point brietly. _ Mr. Benton. Just in brief it is this: They desire to have such an amendment put into the law that improvements ordered by a State commission which require capital expenditures may not be defeated by a declination of the Federal commission to permit the expenditures. The occasion for their Spplieation is that, for the safe- guarding of life in New York City, they are obliged to make orders which require considerable expenditures about street crossings. They are concerned lest the State be prevented from exercising effectively that constitutional power which the Supreme Court in the Erie Railroad case, which was argued for the railroads by Justice Hughes and decided very lately, said they had. The court in that case, in an opinion by MODIFICATION OF TRANSPORTATION ACT, 1920. 261 Mr. Justice Holmes, said that the right of a State to keep safe the soil it has permitted to be occupied by a carrier, is a constitutional right, and the State can not be deprived of it. The court upheld the orders of the New Jersey commission, which were being contested. But the thought of the Transit Commission in New York is that these important operations, which they from time to time have to require, may be effec- tively prevented by the exercise of the power of the Federal commission with respect to securities. : If it ever comes to me to present the matter to the committee I shall. have some suggestions with respect to the form which an amendment might take, which I think will not interfere with the plan and purpose of the Federal control of securities; but at this time it is impossible for me to go into it. . ; ‘ I would also like, perhaps later, to put in the data called for by Senator Pomerene as to the Ohio coal rate. ef ‘ 8 (This data is inserted at this point in the form of a letter from Mr. Benton and one from Mr. H. E. Wood.) Wasuineton, D. C., November 2, 1921. Hon. A. B. Cummins, Chairman Senate Committee on Interstate Commerce, United States Senate, Washington, D. C. Dear S1r: I have a letter from Mr. H. E. Wood, of the legal department of the Illinois Commerce Commission, in which he refers to an inquiry made by Senator Pomerene of Mr. Slater, who appeared before your committee for the Illinois commis- sion. He states that in section 206 of the Federal Judicial Code, or section 1243 Compiled Statutes of the United States, will be found full authority for an appeal of an interlocutory order against a State by three Federal judges sitting en banc. He asked me to call this to the attention of the committee. pred e Mr. Wood came here with Mr. Slater to make’a statement before your committee, but was obliged to leave without making it, for reasons indicated in a letter of October 31, inclosed herewith, which I assume it is his wish should he placed before ‘your committee in some form. I accordingly ask that it be inserted in the record. — The ‘‘case now pending before the Interstate Commerce Commission” involving depreciation funds, to which he refers, is I. C. C. Docket No. 13135, and involves the question whether the Interstate Commerce Commission has jurisdiction over the accounts of the Washington Railway & Electric Co. as an interstate carrier, under the provisions of the interstate commerce act as amended. The company claims to be subject to the act, and claims that the jurisdiction of the Interstate Commerce Commission as to depreciation is exclusive of jurisdiction by the local public utilities commission. The Interstate Commerce Commission has institutted an investigation for the purpose of determining the question involved. I believe, however, that the character of the Washington Railway & Electric Co. is not different in any material way from that of the street railway involved in the William Wylie Beall case, of which I spoke briefly before the committee this morning. ‘ A tie OA age To complete the list of cases where the Federal'commission has prescribed intra- state rates, I would say that upon my return to the office to-day I find a report just issued by the Federal commission, but bearing date of October 4, 1921, advancing intrastate rates in Missouri on coal, coke, brick, and articles basing thereon, sand, gravel, stone, crushed rock, chatts, cinders, lime, cement, cement plaster, plaster, and articles basing thereon, and petroleum oil.and its products. The published dissenters are Commissioners Eastman, Campbell, and Lewis. The citation of the report is 64 I. C. C., 234. ae. : . i want also to complete the reference to the Arkansas case. This I started to do yes- terday, but time did not permit, nor did it to-day. . ; When the Federal commission advanced intrastate passenger fares in Arkansas it withheld action on road-building material for municipal uses, which was also involved in the proceeding, making a reference to the last sentence of paragraph (3) of section 13 of the interstate commerce act similar to that made in the Louisiana case, which I read into the record. The two cases were handled by the same examiner. Fora long time after the commission’s report nothing was done about the rates on road build- ing material, and it is only within the last 48 hours that I have learned, upon inquiry from the examiner, that on September 13 last a supplementary hearing was held in Little Rock, at which the examiner conducting it asked the State commissioners to sit with him. My answer to Senator Fernald’s question as to whether the commission had done this in any case was accordingly inaccurate to thisextent. _ The Arkansas commission is one of the two or three State commissions that I have not represented, and I did not know about the September 13 hearing until I made the inquiry mentioned. . 262 MODIFICATION OF TRANSPORTATION ACT, 1920, I can not refrain from calling attention to the fact that the examiner advises me that he has a very good understanding with the Arkansas commission, and is entirely con- fident that there is going to be no difficulty whatever in reaching a complete agreement as to rates applicable to road-building material which will be entirely acceptable to both commissions. In this case, where the Federal commission has seen fit, to the extent mentioned, to make use of the cooperative provisions of the act, it will accord- ingly be seen that they would seem to have operated to remove any necessity for a Federal order destructive of State power of regulation. President Harding uttered a striking truth when he said ‘‘What the world needs is understandings.”’ ; , I shall be glad if this letter may be printed in the record as supplementary to my statement. Yours, very truly, Joun E. Benton, General Solicitor, Curcaco, Iuu., October 31, 1921. Hon. Joun E. Benton, General Solicitor National Association Railway Utility Commissioners, Eighteenth Street and Pennsylvania Avenue, Washington, D.C. My Dear Mr. Benton: May I suggest that in connection with the testimony of Mr. H. M. Slater, rate expert of the Illinois Commerce Commission, before the Com- merce Committee of the Senate of the United States on October 27, 1921, the following conclusions seem to be irresistible: I. That it is an economic and industrial fallacy to attempt to restore business, industrial and farming prosperity in the United States, and particularly in Illinois, with the transportation systems of the State controlled by a national regulatory body unless in conjunction therewith, although operating separately under the jurisdiction of the State, there is a local regulatory body so equipped that it can reach to and remove discriminations in rates and service on each and every local switch track, industrial track, or service track. where commerce originates; that you can not have community prosperity unless you have the prosperity of the individuals in the com- munity; that you can not have or restore State prosperity without you have prosperity in each of the communities of the State; that you can not have national prosperity unless you have prosperity in the several States of the Nation; that the theory of the Interstate Commerce Commission of centralizing and nationalizing control in Wash- ington over the entire transportation systems of the country, both interstate and intra- state, is fallacious in that it tends to restore prosperity from the general group down- ward to the individual while the entire organization of the United States and the several Commonwealths is an organization individual in its nature; that each individual case demands speedy, efficient, and local understanding to solve the same in such a manner that local confidence will be restored and commerce begin to move. II. That whether or not the intention of Congress was not to change the interstate commerce law as it then existed by the enactment of the present transportation act, yet the fact is apparent.that, as generally construed by the people of the United States, section 15(a) is the expression of an obligation to maintain such a rate for transporta- tion of freight and passengers as will return to the several railroads of the United States a certain fixed percentage. : III. That while the Supreme Court may refuse the construction of the transporta- tion act as adopted by the Interstate Commerce Commission, yet in the present emergencv where social, industrial and economic balances in the several communi- ties of Illinois and the United States are so disturbed as to destroy confidence and add to the difficulty of readjusting industrial conditions, the Congress of the United States, responsible for the passage of the transportation act, should immediately take steps to remove the source of the trouble, even though this may require the entire repeal of the present transportation act. IV. That whether in the present transportation act or in any act amendatory thereto, or in the act repealing the transportation act, there should be such a declara- tion of public policy by the Congress of the United States which will immediately and finally determine the jurisdiction of the Interstate Commerce Commission and the State commission in reference to interstate and intrastate commerce in the United States. -The necessity for such & declaration is accentuated by the present crisis in industrial conditions in the United States ard the desire of all governmental bodies to immediately, so far as humanly possible, remove from the resumption of industry and commerce any unnecessary restrictions, a “As you know, the necessity. of Mr. Slater and my return to Illinois made it im- possible for me to supplement Mr. Slater’s remarks before the Senate committee. {am simply hurriedly dictating these observations to you which are the result of MODIFICATION OF TRANSPORTATION ACT, 1920. 263 study of the many complaints of carriers, shippers, and industrial concerns in Illinois in relation to the present transportation conditions in this State. In relation to the case now pending before the Interstate Commerce Commission there is involved the taking over of control of depreciation funds of the several street railways, etc., in the United States, and it would seem that this involves almost as serious a problem as the transportation question. It is my judgment that if the precedent is set, as contemplated in the case now on hearing, the time will not be far distant, unless the transportation act is repealed or radically modified and amended, or public policy declared as to no longer render a basis for the centraliza- tion idea, that we will find our telephones, electric lights, and practically all other local service rendered by large utilities operating under the direction of the Jnter- state Commerce Commission. Any further assistance that I can be to you in either or any of the above matters I will most cheerfully contribute for what, in my judgment, is absolutely essential to the public interest ery truly, yours, - - H. E. Woop, Supervisor of Orders. The Cuarrman. At this point we will be compelled to take a recess until to-morrow morning at half past 9, at which time Mr. Marsh will be heard for a half hour, and following him we will hear Judge Cowan. (Whereupon at 11 o’clock a. m. an adjournment was taken until Thursday, Novem- ber 3, 1921, at 9.30 o’clock a. m.) MODIFICATION OF THE TRANSPORTATION ACT, 1920. . THURSDAY, NOVEMBER 3, 1921. UnitED States SENATE, CoMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met, pursuant to adjournment, at 9.30 o’clock a. m., in the com- mittee room in the Capitol, Senator Albert B. Cummins (chairman) presiding. The CHarrmMan. The committee will come to order. Mr. Marsh, the committee will hear you. As I have suggested to other witnesses appearing before the committee at this time, we are conducting a hearing upon Senate bill 1150 and Senate bill 2510, the former introduced by Senator Capper and the latter introduced by Senator Nich- olson, of Colorado. You will, of course, confine your observations to one or the other of those bills, or the points or questions raised in those bills. This is not a hearing upon the general matters which have, during the summer and fall, indeed, occupied the attention of the committee. You may state your name and your general connection with this subject. STATEMENT OF BENJAMIN C. MARSH, MANAGING DIRECTOR OF THE FARMERS’ NATIONAL COUNCIL, AND EXECUTIVE SECRE- TARY OF THE PEOPLES’ RECONSTRUCTION LEAGUE, BLISS BUILDING, WASHINGTON, D.C. Mr. Marsa. My name is Benjamin C. Marsh, and I appear as managing director of the Farmers’ National Council, and as executive secretary of the Peoples’ Recon- struction League. Our headquarters are in the Bliss Building, here in Washington. Mr. Chairman and members of the committee, I am sorry that there is such a small attendance of the committee here, but I realize how difficult it is to get a full attend- ance at the committee hearings. The CuarrMan. I apologize for it, but I am unable to prevent it. Mr. Marsa. I realize that, Mr. Chairman. In view of your statement, Mr. Chairman, of course I shall try to confine myself as closely as possible to these two bills. Needless to say, every farmer who is pay- ing freight rates—and that means every farmer, because they have to advance the freight rates out of the prices which they get—as well as every consumer, is opposed to the Cunimins-Esch law, and very particularly to that section of it known as sec- tion 15 (a), which provides for a fixed return for a time upon the general capital investment account of the railroads, and which then attempted to establish the prin- ciple of fixing freight rates so as to yield a given return. : I want to put into the record at this point the fact that both the National Grange and the American Farm Bureau Federation, assumedly farmer organizations, indorsed the Cummins-Esch law, and although both of these organizations indorsed the law through their alleged spokesmen, assuming to speak for the farmers, the farmers have seen the futility of any such plan, and I am informed in their publications that the American Farm Bureau Federation now also urges the repeal of the Cummins-Esch law. I do not want to put matter into the record that has already appeared, and I therefore will ask whether certain matter has appeared in the record, as I have not. been able to attend the hearings and have been unable to get a transcript of the hear- ings. I ask whether you have had put into the record quotations from the decision of the Interstate Commerce Commission on the interstate rates on grain, grain prod- ucts, and hay, in carloads, between pointsin the western and mountain-Pacific groups, in which they discussed the guaranteed dividends and the rates. i The Cuarrnman. We have all seen the order and opinion. It has not been incor- porated in the record, as I understand it. 265, 266 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Marsu. I want to quote briefly from it. There is a brief citation which I want to make from that decision, because it expresses our opinions and thoughts quite thoroughly. The decision says, in part [reading]: i . “The purpose of section 15 (a) was undoubtedly to better stabilize the credit of railroads, reassure investors, and attract capital to the railroad industry. It is plainly our duty to do everything in our power to carry out this purpose. The experience of the past 12 months, however, has shown the limitations which surround in actual practice the operation of this provision of the law. Theincreases of 1920 were intended to give the carriers the specified return, and no doubt they would have done so if the volume of traffic hall remained normal. Instead, it fell off sharply, and_net earnings failed by a considerable margin to reach the desired mark. Nevertheless, when it became apparent that this would be the case, carriers and shippers alike agreed that it was not our duty, under section 15 (a), to raise rates to still higher levels. To have done this would clearly have been a vain thing, harmful alike to the country and to the carriers. The rate adjustment can not with advantage be made dependent upon fluctuations in traffic. ; “It is also to be noted that the duty cast upon us by section 15 (a) is a continuing « - duty and looks to the future. It does not constitute a guaranty to the carriers, nor is the obligation cumulative. We are not restricted by past or present statistics of operation and earnings. These are serviceable only as they illuminate the future. hat is Sapte by the law is that in this exercise of our rate-making power the result shall reflect our best judgment as to the basis which may reasonably be expected for the future to yield the prescribed return. ‘The conditions with which we are called upon to deal are extraordinary and unique, since they are the aftermath of a world catastrophe. The sufferings of the western farmers may be ascribed to that fact. The prostration of agriculture in this country is the product of world-wide forces. The high level of freight rates has been ‘an obvious and tangible circumstance which has quite naturally been a target of dissatisfaction, but we are not persuaded that it has been more than a minor factor in bringing about distress.’’ Now, I wish to dissent from that opinion as expressed by the Interstate Commerce Commission, and to say that the high freight rates have been a very extreme cause of dissatisfaction, and a very important factor in bringing about distress. In a way the commission qualifies its own position, for it goes on [reading]: “Whatever part freight rates may have played at the outset, many qualified to form an opinion entertain the view that the present level of these rates is one of the obstacles in the way of returning prosperity and likewise one of the obstacles to sub stantial reduction in the cost of living.” Then the Interstate Commerce Commission takes up the question of the earnings of the carriers. The commission, in my judgment, goes entirely outside of the scope of the duties when in this decision it takes occasion to encourage the owners of the railroads to seek a further reduction in wages. That is entirely extraneous to the duties of the Interstate Commerce Commission. And I want to say very frankly that while we are urging the gee of this section 15(a) of the Cummins-Esch law, both the Farmers’ National Council and the Peoples’ Reconstruction League, both of whom I represent, and I say that we realize that the high freight rates are not due to the wages paid to railroad labor. And I want to put in the record at this point this statement: Last May Mr. George B. Hampton, who, until his death during the last summer, was the managing director of the Peoples’ Reconstruction League, and I saw President Harding nd calicesl over the situation with him, and we told the President that we had information that the railroad men had compiled evidence of waste and mismanagement on the part of the railroads, and we requested the President formally to transmit the results of this investigation by this railway employees’ group to the Attorney General, to prosecute and to seek to recover if possible. The President told us he would do so. We re- ceived a letter on May 19, over five and a half months ago, from the President’s sec- retary to the effect that he had transmitted all this evidence to the Attorney General for the purpose of enabling him to make an investigation, and we have not had any word from the Attorney General since that time nor any report from the President as to why the Attorney General does not prosecute. But, Mr. Chairman and gentlemen of the committee, I would not be justified, frankly, and I would give a wrong impression of the position of the People’s Recon- struction League and the Farmers’ National Council, and I think I may say quite correctly of the majority of the thoughtful farmers of America—which means a real majority of the farmers of America—if I appeared merely before the committee and seemed to give indorsement only to the repeal of this guaranteed dividend section. MODIFICATION OF TRANSPORTATION ACT, 1920. 267 Or, to put it more nearly in the exact language of the section, instructing the Inter- state Commerce Commission to fix rates yielding a given return. That is no solution; it is no solution for the ills complained of until you repeal the Cummins-Esch law, and put all the railroads back under a unified government operation, And we have got to regard the railroads, as is indicated in this decision of the Interstate Commerce Commission to which I referred, as being something of more importance than for the purpose of juggling over the rates. We insist that not only should the roads be promptly returned to unified government operation, but that the freight rates should be reduced to those in force when the roads were returned. And, of course, this bears directly upon a proper adjustment of freight rates. If there is any deficit then, make it up by taxing the abnormally large number of war profiteers in this country. I say that the matter of railroading has got to be something more than a merely specu- lating operation, as it is to-day.. The farmers have got to know what they will have to pay for transporting their products. ; And we most sincerely hope that this committee will continue the investigation which you conducted during the summer. I even hesitated to ask to appear here for 15 minutes to a half hour on this proposal, because it is of such negligible importance compared with the necessity that the Congress shall promptly reestablish unified Government operation of the railroads. I do not know why it was—I have tried to find out—that this investigation by this committee—and I do not mean to be person'al—was so suddenly stopped after the railroads got in their mass of falsehoods, and statements— and I say that advisedly~— because I have had the privilege of examining a great deal of testimony which is yet to be presented to this committee. showing that the railroad executives and repre- sentatives presented unqualified falsehoods. And this evidence will be submitted to you. Ishall not anticipate facts and figures which I have been shown in confidence. But the case against the railroads is absolutely conclusive. They have mismanaged and wasted and looted, and somebody ought to go to jail. They would if they were poor people, unquestionably. Now, I want to make this suggestion, and requert that this committee summon before it the two gentlemen who served as directors. general of railroads during the ~ war, and up to the time when the Cummins-Esch law was enacted. I want to request very emphatically, very earnestly, that as soon as possible you resume the investiga- tion of the condition of the railroads under the Cummins-Esch law, and the manage- ment thereof, and that you invite Mr. McAdoo, and Mr. Hines here, not only to give you all information possible with reference to the operation of the railroads, but to give you specific instances where the railroad employees—that is, the official employ- ees, purposely interfered with the operation of the railroads in order to discredit Government ownership and Government operation. I understand that Mr. Hines is now back in this country; and Mr. McAdoo, of course, is here. They can give a large amount of information. I want to quote, inclosing, from the report ot the Interstate Commerce Commission for 1911, in which they practically admit that they can not control the railroads under pri\ ute operation. It is a tragic admission, but a self-evident proposition The only surprising thing is that the commission would admit it. They say, on page 12 of this report for 1911 [reading]: ‘ “The evils most difficult to defect and to prove to-day are those arising out of the community of interest of certain carriers and industrial corporations. The owner- ship of industrial corporations by carriers and of carrier corporations by industrials is frequently taken advantage of to defeat that equality between shippers which the act contemplates. This is accomplished by unreasonable divisions of joint rates, forced upon the carrier by poweriul shippers who control industrial railroads. Such arrangements may be legal in form, although certainly illegal in effect. We find that a certain number of large industrial concerns control tracks and terminal facilities normally owned by small railroad corporations which do not rise to the dignity of common carriers, but which are treated as such by the connecting carriers. As a result, the connecting carriers make a switching allowance or a division of the joint rate to such terminal lines, which practice unquestionably results in discrimi- nation and places the industrial at an advantage in the market. .\nother form ot discrimination is found in the leasing of property by carriers to shippers for a nomi- nal consideration with a further agreement that all shipments made by the lessee- shall be routed over the lines of the lessor. “It becomes increasingly evident that entire freedom from discrimination can be secured only by a complete separation of the business of transportation from every form of commercial or industrial enterprise.” 268 MODIFICATION OF TRANSPORTATION ACT, 1920. ‘That is the statement of the Interstate Commerce Commission in its report for 1911. Now, of course, it is patent that you can not have entire separation—or to use their expression ‘‘complete separation’”—of the business of transportation from every form of industrial enterprise as long as you have private ownership and private operation of the railroads. I have some recent correspondence here with Chairman Clark to which I would like to refer, although I will not go into detail on it. But I submitted to him last July that it was incumbent upon the Interstate Commerce Commission to take some action, in view of the breakdown of the transportation system of the country, and in view of the fact that this investigation by the Senate Committee on Interstate Commerce had been terminated, or I might say, had been adjourned for a time. I have tried to get the chairman of that commission to make an investigation of the extent to which discrimination and rebates are going on under the Cummins-Esch law. He replied, in effect—I do not quote him literally—that it would be such a tremendous job that they could not undertake it. Of course, that is well known. Of course, Mr. Chairman and gentlemen of the committee, while indorsing the principle of the Capper bill and the repeal of the joker therein, which is something like the so-called ‘“‘American valuation plan” in the Fordney tariff bill, let me say very solemnly that that is no solution for the railroad question; that we have got to have the railroads back out of the field of wasteful and competitive speculation before we can have any prosperity for agriculture. I recently met, this week, representatives of large farmers’ organizations of the South. I was astounded over their indignation with reference to these matters. And they had expected a large delegation here and were disappointed because there were not many, and I asked them why it was. They said the farmers have not a cent to travel with. And I know that that is tragically true; it is tragically true- And the Interstate Commerce Commission’s decision to which I referred admits that these freight rates have been a big factor—not the sole iactor—because financial conditions are involved in the situation. Now, another point in the Capper bill—and may I address myself principally to that? Thatis, the jurisdiction of the Interstate Commerce Commission over intrastate rates. Traveling a great deal as I do, naturally I talk these matters over with the farmers; that is, with the leaders of the farmers’ organizations. For instance, I spent five or six weeks on a trip to the Pacific coast during this past summer, and I talked with farmers in 17 different States. That is, I talked with the leaders of the farmers. And I am leaving again very soon for another trip to the Pacific coast. And I know, Mr. Chairman, that they feel very keenly the matter of not having any local control— I mean State control over intrastate rates. And I want you to know that I appreciate the difficulties of the situation confronting you, and that you can not have State control of the railroads and over the intrastate rates with the modified socialism of the Cummins-Esch law, which seeks to secure to the railroads a certain return upon a false capitalization. They can not do it. The Farmers’ National Council took-the position, which we retain emphatically, that labor is the first fixed charge on the railroads. The railroads, whether controlled intrastate or interstate—whatever the freight rates may be—have got to pay a living wage, an American wage, to every employee of the railroads who give an honest day’s work. And, frankly, the present level of wages to the railroad employees is not above a decent level. Senator Frrnatp. How does the level of railroad wages compare with the wages of farm labor? I ask you this becausé you are very conversant with the subject. Mr. Marsu. I am very glad you raised that question, Senator Fernald, because it is germane to this subject. J have the figures of a national farm organization which made a study of this matter through its national bureau on that question. They start out in 1913, using as a base 100, in 1913, and compare the railroad wages, avcrage employee compensation, union wages, in other industries, average farm wages, and combined crops and live-stock prices, ‘farmers’ gross compensation. In 1913, as I say, they take as a base 100. In 1916 railroad wages were up to 113. They are quoting all figures, they say, from the industrial union wages, which are wages in each year as of May, the Bureau of Railway Economics, the Department of Agriculture, and the Bureau of Labor Statis- tics. In 1916 railway wages were up to 113. Other union wages were 107; average farm ‘wages were 109; and the combined crops and live-stock prices were 119. In 1917 the railway wages were 129; the union wages were up to 114; the average farm wages were 137; and the combined crops and live-stock prices were 185. In 1918 the railway employee wages were up to 189; the union wages were 133; the average farm wages were 171; and the combined crops and live-stock prices were 207. MODIFICATION OF TRANSPORTATION ACT, 1920. 269 And then, assuming these figures to be correct, and I think they are approximately correct, and even if they are approximately correct they will serve the purpose for the point I make. ; In 1919 the railway wages were up to 227, as compared with 100 in 1913; the union wages were 155; the average farm wages were 202; and the combined crops and live- stock prices were 213. Now, the farmers are not getting what they are entitled to; that is perfectly true. There was a criminal conspiracy —— Senator Fernatp (interposing). The figures generally come down? Mr. Marsu. Yes; they come down. Senator Frrnatp. What is the ratio? Mr. Marsu. In 1921 the railway wages were up to 288, while the combined crops and live-stock prices were 122. Senator Fernaup. One hundred and twenty-two, as against two hundred and eighty-eight? r. MarsH. Yes; 122 as against 288. But, of course, it was just the reverse a little while ago. I want to read this because I want to answer your question. We farmers are not going to have an improvement in the return which we get for our products by hammering down the wages which these men earn. The farmers are going to get relief only after they get intelligent leadership in their organizations, asthey had before. And I am talking very plainly, as I have been talking in publications over my own signature, when IJ say that they were broken and crushed by a criminal con- spiracy which attempted to break farm prices as a means of breaking organized labor. This policy of deflation of the Federal Reserve Board was largely responsible for that; this stupidity—I call it largely stupidity—of the Federal Reserve Board, in start- ing deflation where it should have ended deflation. Some of you gentlemen come from agricultural States, and you know of the distress suffered by the farmers. The answer to your question, Senator, is that I know the farmers are not getting what they are entitled to for their crops, and I am working in every possible way to get those prices back. I worked for a loan to the Federal] live-stock interests. And then Morgan came down and saw the President, and told the President that the bankers did not want the loans made, and then the President saw certain Senators, who have told me, that the investment bankers did not want the loans made; and then Congress did what Morgan told the President to do, and the thing broke. Itisanoutrage. Now, to go on down the line, we can not blame the railroads ; it is coming back to the administration, and we know the reason. And we are going to fight to get the farmers what they ought to have, which is full cost of production plus a reasonable and going profit. And itis of common interest to the farmers, I willsay, tosee that the railway employees get good wages, because they constitute a large part of the farmers’ market. And, incidentally, I may say that I am working now on a direct trading proposition which will help the farmers. 7 Therefore, Mr. Chairman, I do hope that pending the action which ought to come within the next two months, to restore the railroads to unified Government operation that this section will be repealed, and the power given to the State authorities to regulate the State rates. I heard the very interesting statement of the gentleman from Oklahoma the other day as to the lack of help they have received. He did not point outin that statement, and I asked him subsequently, why they did not get court action, and get an oppor- tunity for the State commission to have a say, because I have always understood that in Oklahoma they are very advanced, and would not let a court decision smash agri- culture. He did not give me a satisfactory answer. But it is perfectly evident that the railroad commission of a State has to have some jurisdiction over exclusive State rates. Butit has no standing in court that I can see, if you have anything approximating this section. : Senator Frrnatp. We are very desirous of treating this matter in a spirit of fairness, Mr. Marsh, as ‘you know, and I am wondering about your argument. If farm labor is 122 as compared with railroad labor at 288, if we should bring the farm labor up to 288, which would bring the cost of farm products up to about double, do you not think the railroad labor would have to have an advance of about double its present wage? Mr. Marsu. No;I don’t think so. Ida notsay they should not have some advance. Senator Frrnaup. Of course transportation charges enter into the cost of everything Mr. Marsu. Yes. ‘ Senator FERNALD. It enters into the cost of farm products and of everything else; is that not natural? . : Mr. Marsn. Yes; but.the percentage of cost of production of the railroads is grossly exaggerated. , Senator Fernaxp. It enters in? 270 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Marsu. It enters in. But here is the point: The farmer gets to-day, roughly, . only 25 to 40 per cent of the dollar which the consumer pays for the farmers’ products; in some cases it is much less. It is only 25 per cent of what the consumer pays for the farmers’ products. Now, the position we take is not that we will fight railroad labor, for the farmer gets more when labor gets good wages. ; The thing to do is to take steps to eliminate the middleman, who gets 65 per cent, and the thing to do is to eliminate that waste. Senator Fernaup. Mr. Chairman, Mr. Marsh has had all the time allotted to him, and I will ask only one question more: Briefly, your solution of the problem is Govern- ment control and Government ownership of the railroads; briefly, that is your solution? Mr. Marsu. Yes; I see no other solution, but realizing what was done by the big financial interests, some of whom stayed on the inside during Government control, I repeat my request that you invite Mr. McAdoo and Mr. Hines here to give you information ‘on that subject. Senator FERNALD. We will have to remove a lot of railroad presidents and managers, if they are bad fellows. Mr. Marsu. We will have to have some changes. We will have to have some changes to get them out of control. Now, not as a benediction but as a conclusion, may I read to you what Chairman Clark said—— Senator Fernap (interposing). Would you have them managed without any finan- cial assistance? Mr. Marsu. No, certainly not; but I would have them managed by men who are interested in giving service and not interested in making speculative profits, because railroads are such a public necessity that they have got to be operated for service. _ Senator FernaLp. You would not naturally expect financiers to turn over their capital to somebody who is only interested in service rather than in a financial return on the railroads? Mr. Marsu. Railroad stocks should not be the subject of speculation. Let me quote you what Chairman Clark of the Interstate Commerce Commission says [reading]: ‘“‘No railroad has, in my judgment, ever been embarrassed financially if the proceeds from the sale of its stocks and bonds: have been devoted to the development of the property. It is the diversion of the proceeds of these securities to other channels that leaves the railroad with a burden of debt that it can not carry.”’ That is the whole history of railroads in this country, as you gentlemen know. Senator Cummins is, perhaps, the best student of railroads in America. I thank you, gentlemen, for the hearing. The Cuairman. There is one suggestion made by Mr. Marsh concerning which the chairman of the committee desires to make a statement, because it is so utterly unfounded in fact that I can not allow it to go without making a reply toit. Hesug- gests bad faith on the part of the committee in conducting the investigation concern- ing the general railroad situation. That is not only unfounded as a fact, but the inference he draws from it is-entirely erroneous. The chairman of the committee takes full responsibility for the program which was partially carried out during the spring and summer in regard to the order in which witnesses appeared. Upon looking at the report made by the railroads for the year ending March 1, 1921, it appeared that although the railroads had received, as operating revenue, nearly a billion dollars more than they had ever received before for the service rendered, they had expended that entire sum, or practically that entire sum, in the expenses of operation. It seemed to me, therefore, that it was incumbent upon the railroads. to appear and explain why they found it necessary to expend their entire operating revenue in main- tenance and operation. And they were, therefore, called upon to do that very thing. And they did appear, and their examination continued for some weeks. It is not true that only those who were defending those expenses appeared. On the contrary, the severest critic of the expenditures of the railroads during that year appeared, and it required that association—and I am speaking of the Association of Railroad Security Holders—and that association consumed an entire week in explaining or showing why or how these expenses might have been reduced, and could be reduced in the future. Moreover, the committee, or the chairman of the com- mittee, knowing that the representatives of the railway brotherhoods, and the railway employees had claimed that the railroads had been extravagant in their expenditures, and that they could have operated the roads for a much less sum, the chairman of the committee assigned a time for the appearance of the representatives of the railway brotherhoods. That appearance was twice postponed upon the application of the railway brotherhoods themselves, as can easily be ascertained by fe a cos to them or their representatives in Washington. It was in that situation early in July when the chairman of the committee had the misfortune to become ill, and was compelled to be absent from! the work in Washington. MODIFICATION OF TRANSPORTATION ACT, 1920. 271 for a period of something like two months. He found it impossible to secure the presence of the members of the committee, as they were busily occupied elsewhere, or any member of the committee to conduct or continue that examination during July and August. And immediately upon his return to Washington he at once took up the subject with the representatives of those who claimed that the railroads had expended much more than was necessary in the operation of their roads, and began that hearing and continued it until the public pressure for hearing upon these bills became so: great that he found it necessary to suspend that hearing and take up this one. This statement that has been put out to the country both from responsible and irre- sponsible sources with regard to the desire of the committee to hear the railroads in order that their case might go before the public and then suspend hearings in order that that impression might he deepened and fastened upon the country as a conviction, is’ absolutely false. That is all I desire to say. Mr. Marsu. Mr. Chairman, you have made certain charges against me. and I request the privilege of replying very briefly. The CHarRMAN. You may proceed. Mr. Marsn. 1 say I requested to be heard time after time, and I was not granted the opportunity. The CHairMAN. Certainly. Mr. Marsu. I will say further, that I know that certain railroad organizations were ready to go on, and anxious to go on. The CHatrmMan. I know they were not. Mr. Marsu. 1 know they were, and I will get the affidavits and present them. The CuarrmMan. You can get all the affidavits you like. It is immaterial to the ehairman. Mr. Marsn. I know that the railroad interests, who had smashed agriculture. were ready to smash labor, and they wanted to get their propaganda across. I do not criticize the chairman. I knewthat you wereill. But I knew also vou had a Senator from Michigan to act as chairman. It was unfortunate. nd J ask further, why, in view of the great importance of the subject, it was necessary to have a larger representation of the committee present than you have present this morning? We know, as practical men, that the railroad representatives were getting ready to su down wages. And they will never reduce freight rates until there is pressure to do so. The (uarrMan. I will say nothing about that. I had nothing to do with the con- duct of either the one side or the other. But the suggestion that the committee attempted to delay this hearing in order that you might not be heard, or that anybody else might not be heard, is not true. Mr. Marsa. I know that the facts are that the committee did not hear the other side, and the country knows that and the committee will have a right to explain, it. The Cuarrman. You are at perfect liberty to go to the country on that. Mr. Marsu. I will do so. I thank you for your courtesy this morning. The CHarrMAN. Judge Cowan, we will now hear you. Kindly state vour name and your residence, and your general relation to this subject. STATEMENT OF MR. S. H. COWAN, REPRESENTING THE AMERICAN NATIONAL LIVE-STOCK ASSOCIATION; THE NATIONAL LIVE- STOCK SHIPPERS’ LEAGUE, AND THE NATIONAL WOOL GROWERS’ ASSOCIATION, FORT WORTH, TEX. Mr. Cowan. My name is 8. H. Cowan; I live at Fort Worth, Tex., where I have resided for so many years that it would be embarrassing for me to tell you. I appear as the representative of the entire organized live-stock producing interests of the western part of the country, and extending somewhat farther than that; the American National Livestock Association, with its membership of many State and local organ- izations; the National Livestock Shippers’ League, which represents shippers, includ- ing coordination of the various live-stock organizations; and, by special request, the National Wool Growers. I am a lawyer, I think; a farmer, I guess. I am 62 years old; a Democrat; vote the Republican ticket; white. : I crave indulgence of the committee to put into the record of this hearing the results of a great deal of study, perhaps of poor quality, but active and well acquainted with the facts and circumstances surrounding the entire business from .practically every viewpoint, as I believe. At least, I am willing to make that contention with any gentleman who desires to controvert it. 272 MODIFICATION OF TRANSPORTATION ACT, 1920. I have asked of the committee the privilege to be heard along with my associates. And I have had the time set at a date that suited us, but the circumstances related by the chairman of the committee prevented those hearings at the previous date. At first the Capper bill was referred to a special committee, which I say by way of infor- mation, and should I be incorrect I hope I will be corrected, of which Senator Kellogg - was the chairman, and I and Mr. Benton, went to Senator Kellogg to get a hearing. I have been well acquainted with Senator Kellogg for a great many years, and we had no difficulty about an arrangement to have a hearing upon the bill. But before any of us agreed upon a date at which the hearing could be conveniently held to suit the convenience of the parties who had to work for a living in one way or another, and their time being thus occupied, it was decided, I believe, in the subcommittee—or by the general committee— to take the bill back to the general committee to await an opportunity to have a hearing under the general investigation of the full committee. To which we made no objection. In fact, it suited us better to have the bill heard before the full committee at the outset than to go before a subcommittee, and the idea of a subcommittee, I think, was only for the purpose of expediting a hearing on the bill. I think that is what I was told at the time. Mr. Benton, I think, will bear me out on that. : We have no complaint to make with regard to the matter of the opportunity to be heard. The difficulty we have had is just about as great as the difficulty the rest have had, of getting ready, the time and place at which we could conveniently get ‘together and present what we have to present. Certainly there are many other matters pending before Congress, and which engage and engross the attention of the Senate - to such an extent, in these unusual, unparalleled and unexampled times, that it would be hard at any time to get the attention of the committee, as is demonstrated by the fact that many of the members of the committee are not here this morning, gentlemen whom I feel the egotism to say will be very glad to hear what I have to say upon this subject, because I have been before committees a great many times, from days previous to the passage of the Hepburn bill down to the present, and have dis- cussed with them individually various of these intense and difficult problems. I have been assured by these gentlemen and the chairman of this committee that I would be given all the time I wanted. I do not wish to abuse that privilege. Ihave, I think, never unduly encroached upon the time of this committee or any other committee, beyond presenting what seemed to be necessary. I do wish to express this regret, however. I am not criticizing, I do not mentally or otherwise criticize any member of the committee by what I am about to say, but I do wish to express this regret: I think it was a grave mistake that the committee did not fully hear those who had given many years of study to this railroad transportation prohlem and the laws with respect to it, before this bill, with the scheme and plan of vie bill, was placed before the Senate, at a time when the object was to get the railroads turned back to their owners —that was the prevailing object—and it did not leave the opportunity for that thorough consideration that ought to have been given to the subject. Senator PowwpExrEeR. What bill are you referring to? The transportation act? Mr. Cowan. I am referring now to the Senate bill that was reported, and the bill here, so far as section 15 (a) is concerned. Senator Frrnatp. The Esch-Cummins—— Senator POINDEXTER. That is an act. Senator FERNALD. I suppose so. : Mr. Cowan. The committee did not hold hearings on that bill because it was deemed that the exigency of the occasion was such that the roads must be turned back to their owners as quickly as possible, as the country was demanding it. That was quite true. The house committee which did hear the arguments on the subject tarosed to adopt the plan that was laid down, put out and advocated by the organization which I mentioned a while ago, the name of which I do not recollect, but one Mr. Warfield was the representative of it, and which the United States Chamber of Commerce, as 4 convenient vehicle which doctors use to give bad medicine, advocated and placed before the public, and at last, when the bill was introduced, it, on the front page of an issue of the Nation’s Progress, took credit for that bill. I never thought at any time that it was possible for Congress to make a rate-making rule. The Interstate Commerce Commission, as was well known, did not believe so. They yielded to the matter because there was vast influence behind it. hen I have to stand across the table to talk in the presence of men of the great ability and pleasing personality and sents ways, if I might use a female expression of Col. Thom, I Salley that I am no match for such a man, and I do not know of any- body who is, and I can only figure that he beguiled this committee into believing that this was a good thing, nurtured, coached—— MODIFICATION Of TRANSPORTATION AOT, 1920. 273 Senator PornpExTER (interposing). My recollection is that Col. Thom was opposed to that. I am not sure about that, but that is my recollection. Mr. Cowan. Not at the last; no. With Mr. Warfield—I am speaking now of the senior Warfield—and Juther Warfield they were able to put the thing over and not have a hearing where it was exposed, and I think the subject matter ought to have been heard. Now, I think that is the only criticism and it is certainly a friendly criticism, of this coramittee. I realize quite well in experiences I have had in accumulating these gray hairs and the poor amount of wisdom that I have got, if any, that the com- Plexities of all these situations and surroundings of Members of the Senate and of the ouse, bring a situation about where it is next to impossible to know what to do to pie the people and yet to do what is right. I forgive everybody whatever they ave done, but I just want to keep them from doing it again. I think that the greatest obstacle to human progress in the entire history that I have been able to read, and I have not read a great deal of it—and I am not going to read Mr. Wells’s history of the human race, but if Henry Ford writes one I will read that, maybe—is the difficulty that we all face of admitting that we have made a mistake. Tf you can find a man who will admit that he made.a mistake you will find a man who can start again to do a thing as well as he might have done had he not made the mistake. That is all I fear before this committee in regard to repealing this law. That is the human nature side of it. Itis nota criticism of any of you as Senators or as men. It is simply calling attention to the frailties that we are all possessed of. I do not mean by that to preach, and I suppose I could not get admitted to that profession, and vet probably I could do better at that than I do at the law. Now, with these few prefatory remarks, and having devoted a good part of a life- time in the activity connected with this matter, and not in the pursuit of happiness, exactly, but in the pursuit of poverty, to which I and those associated with me have been led, I wish to call the committee’s attention, and I hope the Senate’s attention, to matters for consideration here that ought to underlie any regulation of privately- owned property doing a public service. I do not believe that it is possible to have the Government operation of a privately- owned property successful in this or any other country. Men were not made that way. Government can not be made that way. That was the difficulty that con- fronted the Railroad Administration, along with a thousand others, any one of which was sufficient to have produced the results that it did. Government ownership and the Government operation of privately owned proper- ties.are two wholly different things. The test, if it should be called a test, as fre- quently it is, of the Railroad Administration, is no test whatsoever of the Government ownership and operation of the railroads. The time is coming, in the process of evolution, when the Government will own and operate pretty nearly all the things where public necessity callsforit. 1tislikethe lawof self-defense. It arisesand con- tinues as long as the necessity exists, and only ceases when the necessity stops. Evo- lution takes no backward step except to get a better toe hold, and it is just as cer- tain as we sit here as men that this Government of the United States is drifting in- evitably to socialism; just as certain as the arts of peace lead to war. And that is what we have witnessed in this Great War. It was the arts of peace that led to it and will do it again. I say that we are leading to the socialistic condition in the sense that the Govern- ment will own, or some sort of government will own and operate the public utilities of the country and the public necessities of the country. Now I am not speaking here, I trust the Senators will understand, just for the purpose of being heard on-some subject where you have given me the opportunity. I am just laying some predicates upon which to base what 1 shall have to say with respect ultimately to the repeal of this particular law and the repeal of the Labor Board law. The time has come when we can not mince words about our sound judg- ment, if we have got any. Atleast our judgment, whether it is sound or not, should be expressed. Using Gov. Stubbs’s expression, the time has come to talk turkey, and that is what we have to do, because we are confronting to-day and are in the midst of a situation that itself contains no solution that if left alone will right the wrongs that are going on, and that presents to the Congress of the United States almost insurmountable obstacles to its righting them, and at least perhaps dealing largely in experimental legislation to accomplish it. : And, again, we are confronted, as always, with the proposition that ’tis not so much to pass the law as to administer it, and however good the law may be the administra- tion of it may wreck the whole intention of those that passed the law, and that is exactly what has happened with regard to the Esch-Cummins bill. 274 MODIFICATION OF TRANSPORTATION ACT, 1920. The right of individual ownership of property, the right of persons to do busines3— in other words, the pursuit of happiness—that are the foundation stones of our Gov- ernment, are to be affected ae by what somebody else will do to interfere with those rights and opportunities. It is quite immaterial whether the power is lawful that affects your business or hurts you or hangs you. It has the same effect upon you. It would not matter whether the sheriff hung me or the Ku-Klux Klan hung me, I would be hung. The point about it is to prevent the hanging by either unless it is ustified and unless the man has his day in court and the opportunity, according to the best forms of civilization, to trial and determination of the fact. So it is that in the establishment of the Interstate Commerce Commission the under- lying principles and objects were that the individual being confronted with a situation where he must patronize the railroads or not do business, was helpless at what they saw fit to do to him, with respect to the amount that they would charge or the service which they would render, unless there could be some law that provided for his rights. Corporations are not benevolent institutions as such. They are organized solely for the purpose of making money, and if the trustees carry on the trust reposed in them they will conduct that corporation to that object in the long run to get the most out of the business. : ; Blackstone was entirely right when he said ‘ta soulless corporation.’’ Naturally, a corporation is soulless. because Congress, the legislature, does not deal with the soul. It is a question whether it has got one itself or not. The object was that certain principles declare, are known by the common law, and under the civil law for that matter—and I think I could trace it as far back as the Bible. but that might be embarrassing to some gentlemen who would have to admit that they knew it when they did not—that the right to a reasonable charge for doing a public carrying service has always existed, the right has always existed, and the object of all the law on the subject of the regulation by the Government or munici- palities has been for the purpose of assuring that right. ° Our Constitution provided, under the fifth amendment, for the protection of the rights of property and of individuals in the completest fashion possible. There were no corporations for them to act upon or to have reference to at the time. practically, I believe. But so adjustable is it that it has been made io fit the public service corporations of the country, and to-day the whole library of the law upon-the subject of constitutional rights of property is involved in those rights as between ¢he States. or some government, or individual or corporation asserting the right under the Con- stitution to not have its property taken for public use without just compensation. Of course, the very object of establishing a corporation and putting the property into that business was that it should be devoted to public use, but the constructiom which is now admitted law, and there is no question about that—perhaps it is entirely right—is that it can not be taken for public use without just compensation. In other words, it can not be confiscated. They devoted it to public use when they went into the business. And there was on their part the obligation, in going into business. to afford reasonable rates to those whom they served, and that is just as much a funda- mental obligation as the other. , : The difficulty confronting us to-day is that they shall have a certain percentage of return upon some value of property without regard to whether or not those whom they were constructed to serve shall receive that service at a reasonable cost accord- ing to their business, their opportunity to live and to prosper and to do business in the country, and that is the controversy to-day existing between the railroads and the legislative department of the Government and administrative department of this Government and of the States. That must either be settled so as to leave the people an opportunity to live and reasonably prosper under’the-rates, or the Government. will be compelled to take the railroads, just in the exercise of the law of self-defense and it can not be avoided. I say that when Congress undertook to establish a rate-making rule by fixing a cer- tain percentage, or placing it in the hands of the Interstate Commerce Commission to do it, it overstepped the bounds of proper legislation. (Congress could have fixed the rate itseli—that is true—but then it would have had the responsibility; it would have rested somewhere. But they fixed a percentage. In other words, when the Government ceased to give the standard return, Warfield & Warfeld said: ‘Let us take it from Jones’s pocket.’’ The only mistake they made was that Jones’s pocket was not deep enough. That is the only mistake. Because they made the rates so high, through what they led the Interstate Commerce Commission to believe was the command of Congress, that the traffic would not move, and so Jones’s pocket fell out at the bottom, or the bottom was reached too soon, and they found they could not make it; and now who among the gentlemen are advocating an advance in rates for reaching the 54 per cent plus the one-half per cent? Instead of that they are MODIFICATION OF TRANSPORTATION ACT, i920. 275 asking for a reduction in rates, because Jones’s pocket has to be filled again before anvthing can be taken out. It is the duty of Congress to protect the helpless people of the country. If Congress and God do not protect the helpless. who will doit? The other fellows will take care of themselves, and since the day when that old blind man, Isaac, was deceived and fooled by his son Jacob and his own wife into bestowing the blessing intended for Esau upon Jacob, and all of his things and the products of the earth were committed to him and his descendants, they have been taking care of themselves, and they will continue to do it. It is the common people that need the protection, and they must have it in reasonable rates; and then the question is, Who is going to determine that? You have got to leave it somewhere, in sound judgment of men, according to the cir- cumstances at the time of the transaction, as being the nearest to an approximation of justice that is possible, and repeal all arbitrary provisions that prevent the exer- cise of that sound judgment. There would be no excuse for the organization of the Interstate Commerce Commis- sion or a State commission were it not that it is confessed in the very fact of estab- lishing them that the legislative body itself is incapable of doing the thing. And we all know that is true, because Congress could not sit in judgment and determine— it would be perfectly impossible—what reasonable rate Jones ought to pay for the hauling of his hay or his pigs or his coal, or what reasonable rate anybody else ought to pay. The circumstances are very complex always, so that it takes the use of some- hody’s judgment to determine : Now, before we had commissions the railroad exercised its judgment, or whatever character of carrier it was—the hackman, for example, or the man who drove the oxcart or rolled the wheelbarrow—and they always took what the traffic would best bear in the long run to the man that was performing the service or the corporation that was performing the service—that is, they always took what it would bear and what the traffic could continue to bear. But competition, the Supreme Court was led to say in more than one case, will always lead to reasonable rates. They did not know what was coming. They were not prophesying, they were speaking of the past. Competition between the insti- tutions organized for the purpose of making money out of the business brought it down, naturally, to the point where we would have more reasonable rates, and even at times to points where in the effort to crush one another out of business, or to secure more traffic, the rates were made less than would pay a profit at all. But when they combine with one another and eliminate the competition, whatever the means of combination may be, and fix their own terms for the carriage, then it is the duty of the Government, and recognized all the way through, to provide the means whereby the individual will be B Relat against such combination, and so we come back to the decisions of the Supreme Court of the United States a good many years ago. Take the celebrated Lockwood case, in which they held that even the contracts made by the railroads must be reasonable and just, and placed it upon the sole ground that the individual must patronize the public utilities, and they were charged, therefore, with the duty of making contracts that would be reasonable, and they could not limit their liability unless it was a reasonable limitation. Now, the object in establishing the Interstate Commerce Commission and State- commissions was to secure competent men, selected for their qualifications, to inform themselves and keep themselves informed, to. exercise sound and unbiased judg- ment based upon the facts ascertainable by them, to determine how much ought to be paid for transportation. Looking at it from the interest, that is to say from the rightful interest of both the railroads and the shippers, I say that anything that interferes with the exercise of that sound judgment at once destroys the very purpose and object of regulation, and it can not exist with limitations upon that judgment by arbitrary rules. I think it was a grave mistake. Now if we come to what has actually happened, it has been proven to be a mistake, but what appeared in the vision of the committee, what appeared as a possibility to the committee in the passage of the law may have justified the committee in reporting such a bill. For example, I believe it was conceived that the country ought to organize itself into a number of large competitive railroad systems where the strong would take care of the weak, and that is the great argument for Government owner ship, that the whole may take care of the weak lines, and yet furnish ample service and transportation facilities for the entire public, and that is one of the main objects of this law, and it is so recited in it. But that was reckoning without the host, because it could not be accomplished. We even have yet in the public press professors who are trying to educate the people 276 MODIFICATION OF TRANSPORTATION ACT, 1920. in these matters. And I will tell you, we have got to get somewhat away from pro- fessors in order to get back to the practical things. They do not grow corn and they do not raise cattle and they do not come into the bankruptcy court and they do not have the trials and tribulations that go with producing the primary wealth of this country. They are good for the purpose of educating the people, that 1s all right, but when it comes to telling the business people how to run the business of the country itis all wrong. But they tell of putting it all into 18 systems, and they tell how they can be made up. Itisagreatjoke There is no possibility toit. _ The Government can not compel it for the reason that it would have to first own the properties in order to consolidate them. Then it would have to destroy the rights of the States under the constitution and the corporations that have been organized. _ thereunder, to accomplish that. Then you must have the incentive of somebody that wants another piece of property. I would like to see somebody that wants the Orient Railroad. I see a number of railroad people present, and I ask them: Does any one want it? There is the Missouri & Arkansas; that seems to have gone back. Now it would be bad business—and they are not guilty of that generally—to take a roperty that would not be profitable to them. And the fellow that has got the other ine wants to sell it at something that he can get for it. Of course, he has got the privilege here of junking. I think that was a mistake. It could have been junked anyway sufficiently to protect the interest, as Mr. Benton has well explained. The whole problem is that whatever objective the committee had in passing this law, it has not happened that it has worked out that way, but it has paralyzed busi- ness, it has destroyed individuals, it has destroyed communities, it has destroyed railroads, at least it has been one of the factors in doing so. The Labor Board is perfectly inconsistent with the private ownership of railroad property and its operation by the owners. If we allow that a railroad company shall own its property and operate it under the obligations to give good service at reason- able rates, we must allow that corporation to have the right to employ the means of carrying out that service. If we are going into the business of determining wages for railroads let us go into the business of determining the wages for the entire United States. But assuming, if we may, that in order to avoid strikes, in order to avoid the disruption of business temporarily from that cause and maybe working great destruc- tion, it was justifiable to provide for that under the threats of strikes and the like, ~ still when you give to one arm of the Governnient sitting in Chicago the power to fix the amount of expenses that the private owner of the railroad has got to pay, and at the other end of the Government, at the Capitol, you offer to the shipper the oppor- tunity to have a tribunal to determine and fix a reasonable rate, you destroy com- pletely the entire fabric of regulation, and it can not be done, it can not be accom- plished. We must realize ourselves, through our limitations upon power, what Congress’ can and can not work out. The limitation arose here because the traffic did. not exist, when you put the rates so high, in sufficient quantities of the sort that would enable the railroads to earn the money to pay the wages that the Labor Board fixed on the rates that the Interstate Commerce Commission fixed that bankrupted the entire agricultural and live stock industry of the country, coupled with the fact that. in a year and a half the existing ec ase values in the country were cut off 60 per cent, bringing to actual want for the necessities of life the great part of the population. -of this country that is necessary to make the country safe and great. _It is hard here in Washington to realize what the situation is out in the country. They say they realize it. They say they know the facts. They say they admit the facts. . You tell them the situation; they say, ‘‘Yes; we know that.’ But it is not realized. The realizationis not there. The man that knew he was worth one hundred or two hundred thousand dollars—and there are literally thousands of these men of whom I am speaking now—two years ago, a year and a half ago, to-day can not get. the credit for his family at the store to support them, and he scrapes up a carload of mixed cattle or hogs or whatever he can ship, and ships to the market to get the money to buy his groceries with. Now, you sit here and you may not believe that. I say, { as I said to the agricultural commission: It ought not to satisfy itself without going into the households and seeing this great farming element of this country that is. brought to bankruptcy and ruin by whatever has happened. And there are a multi- tude of things that have happened, and whatever causes it, it is true. : Yet we must realize the fact that we are getting to-day somewhere near the prewar level of prices of farm products covering a period of 25 years next before the war taking the average. : The wage earner on my farms can not earn a dollar a day. Now, I own these farms. like some of these railroads own their property —for what I can get out of them, I can not levy any taxes; they can. Now, this wage earner can not earn a dollar a day; there is nothing he can work at to earn a dollar a day and his board. But the section MODIFICATION OF TRANSPORTATION ACT, 1920. QT7 men on the Santa Fe, the Mexicans and others working along there for eight hours a day, and soldiering at that, I guess get $3.25, isn’t it, Mr. Coleman? Mr. Coreman, No; they get 35 cents an hour, : Mr. Cowan. Well, they work eight hours, And this country, gentlemen of the committee, can not pay that, and the railroads can not pay it and make reasonable rates. And when the Labor Board undertakes to enforce it it is wrecking and ruinin, the country; that is my judgment. I want to talk plainly to this committee, and believe that those who comprise and compose the live stock organizations which I represent will rise up as a man, within 1 per cent, and back everything I say upon it. Tam speaking from the facts that I know as I know them and from talks with the people and seeing them, and I know what I am talking about. Now, that situation is the one that is up to Congress to relieve. Now, the railroads are not blameless. I hold no brief for them. I don’t believe they have ever charged me with holding a brief for them. And when they held the hearing in Ex parte 74, and the chairman of the railway executives was asked a ques- tion by one of the members of the Interstate Commerce Commission as to what the position of the railway executives was with regard to the application of railroad labor for an increase in wages, then being heard by the Labor Board at Chicago, he sat for a few seconds and then he answered, ‘‘We are neutral.’’ They were neutral then, but they are not neutral now. They were neutral then because Jones’s pocket had not been touched to the bottom. These are facts that ought to be known, and Congress ought to act in view of and in pursuance of such facts, Now then, they put over a proposition in Ex parte 74 in regard to valuations. That is the greatest crime that has ever been committed in public against the United States, aside from taking iife. Shortly I will review the decision in Ex parte 74. Now I wish to call the committee’s attention to a brief that was prepared by myself and Clifford Thorne, Grady Cary, and 8. C. Rowe. It was filed in Ex parte 74, in which we undertook to analyze correctly this act that you passed. The act was bad enough, but if it had been properly analyzed and sifted out on the fundamental prin- ciples of the law of the regulation of common carriers a great deal of this trouble could have been avoided. There are not enough members of the committee. I be- lieve, present so that I should presume upon the committee to read this from brief, but I will ask permission to put this brief into the record and ask the committee to have it printed. The conclusion that we reached isthe one that the commissioners finally found them- selves bound to come to in the last few days, that the soul of the whole act was reasona- bleness, and that when the second paragraph of section 15 (a) said that the Interstate Commerce Commission in the exercise of the power to make reasonabe rates should modify, adjust, initiate and so on, that it meant what it said, and that reasonable rates were the first sine qua non—is that the right word to use there, Mr. Coleman? Atall events, it was a condition precedent to the exercise of that power at all that it should in the exercise of the power make reasonable rates. That the commission ignored, never even mentioned in its opinion or remotely referred to at any time until they came to this grain case I will put this brief in the record, and ask to have it printed. The CHarrMaNn. It will be incorporated. (The brief presented by Mr. Cowan is not printed in full in the record, but a copy is on file with the committee.) : Mr. Cowan. Now, we have pointed it out so plainly that there can be no mistake aboutzit. Furthermore, another condition precedent was that the commission was not to attempt to exercise that nee except as to railroads economically, efficiently, and honestly managed, and that was completely ignored. It was admitted that they were not economically managed They fixed the 54 per cent in that valuation in face of the fact that it was admitted that they were not economically managed, and could not then be economically managed for want of 3,000 passenger cars, 2,000 loco- motives and 100,000 freight’cars, and that is recited by the commission in its opinion. Mr. Benton. They fixed 6 per cent, didn’t they, Judge Cowan? Mr. Cowan. Six per cent? : Mr. Benton. You said 5} per cent. It was 6 per cent, wasn’t it? Mr. Cowan. Yes; it was 6 percent. Yes. I want to refer to that while I am here, to punctuate the fact. It was suggested the other day in the House committee, when Mr. Benton was asking for a hearing on this subject, by one of the committee, and it has been said to me by one or two of the members of this committee: “Why, this act will expire, this section 15(a), this 54 per cent rule, will expire the Ist of March, and we could not pass any law before that, could we?’’ And some gentlemen do not know, and I ask them to read the law, and Mr. Benton has called attention to that, 278 MODIFICATION OF TRANSPORTATION ACT, 1920, and it has been amazing to us that this idea has gone around a good deal here in the Capitol, that this percentage guaranty clause of this law will expire on the 1st of March. The provision was that the Interstate Commerce Commission should fix a percent- age which would be a fair return upon the fair value of the property. That was the provision. Of course that is constitutional as construed by the Supreme Court. If the Intérstate Commerce Commission could do that, that is always the proper thing to do. And that per cent was to be the same in each of the groups or territories if it was divided into more than one. But during the two yéars it was to be 54 per cent, to which the Interstate Commerce Commission might add one-half of 1 per cent to make improvements and betterments chargeable to capital account. Which the Interstate Commerce Commission proceeded to do, and made it 6 per cent, and the man that could say that the Interstate Commerce Commission would not now make it 6 per ceat is going exactly in the face of the actual facts as they did exist actually, and what they did do when they did make it 6 per cent. The man that would say that would be going in the face of the actual facts. Now, it said in the opinion that the roads would be expected to report every six inonths of this collection. And I went to the statistician and to the bookkeeper and I asked them about it, and they did not know. They did not know it was in the opinion. And there has never been a report about it, and there has never been a word said about it, and the Interstate Commerce Commission has done absolutely ncething, so far as I can find out from these gentlemen, with respect to that one-half of 1 per cent. Nothing has been done by the Interstate Commerce Commission about it so far as I can find out. So it is a part of the return, 6 per cent, and that is the standard they fixed, and the Supreme Court has said so in the Gas case. That is the standard they fixed. ‘Now, Iam not complaining of that; but I am complaining that they fixed the value twice too high for rate-making purposes, and that was the blow that killed father. The Cuarrman. We will have to suspend now. Mr. Cowan. I thank the committee for permitting me to complete what I wanted to say about that this morning. The Cuairman. We will take a recess until half-past 9 to-morrow morning, when Judge Cowan will resume. (Whereupon, at 11 o’clock a. m., an adjournment was taken until Friday, November 4, 1921, at 9.30 o’clock a. m.) MODIFICATION OF TRANSPORTATION ACT, 1920. WEDNESDAY, NOVEMBER 9, 1921. Unitep Stares SENATE, CoMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met, pursuant to adjournment, at 9 o’clock a. m. in the committee room in the Capitol, Senator Albert B. Cummins (chairman) presiding. The Cuarrman. The committee will come to order. As much as I regret it, Judge Cowan, that we have not a larger attendance of members of the committee, I think we had better proceed. You may resume your statement, if you will. STATEMENT OF MR. S. H. COWAN—Resumed. Mr. Cowan. Mr. Chairman and Senators of the committee, following my statement before the committee last Wednesday, the second instant, at the conclusion of which I presented, in part, a brief analyzing this act in part, to show that the Interstate Commerce Commission should have exercised its power to make reasonable rates, rather than to subvert every other consideration to the sole purpose of producing revenue equal to 6 per cent of the aggregate value of all roads in a group, I now desire to review the main features of that decision. The purpose of this is to show that the rights of the shippers and the public were destroyed; the rights of the States abrogated; the stock raisers, whom I represent, and agriculture, were unduly burdened, and the railroads themselves were wrecked and business everywhere was paralyzed. The object is not for the purpose of criticizing the Interstate Commerce Commission, but to point out the reasons why, in presence and in view of that deliberate decision, it seems necessary to repeal the act, or that part of it which brought about this calamity. _ From conversations with individual members of the Interstate Commerce Commis- sion, and from breathing the atmosphere that surrounds the commission’s offices, comprised of a great number of men in positions of examiners who are largely the spokesmen and thinkers for the commission in handling the matters referred to them, I gather that it is the feeling of many of the examiners—probably it might be said to be the feeling of the commission—that they are blamed for the result of trying to do what Congress commanded tham to do—provide money and revenue for the railroads. This idea, in my opinion, was not justified by the construction which can easily - be placed upon the act, though it was justified by the construction which they did place upon it. Since the purposes of producing revenue by the method provided for have wholly failed, and since it had been demonstrated that it is impossible to carry out that plan and scheme to achieve the results which this committee and Congress aimed at, there would seem to be no reason why, if the act is harmful, it should not be repealed. That is not a criticism upon this committee, upon those who prepared and put forward the bill. Itis simply a statement of fact as a reflex of what has happened unexpectedly, IT have no doubt, to most of the members of this committee and to Congress, though it was not unexpected to those of us who have given a great deal of study to the subject as will be reflected in the arguments which we produced before the House committee when the same bill was there for consideration. Senator Warson. Having just come in, will you let me inquire, Mr. Chairman, what particular phase of the bill is being referred to? Mr. Cowan. Section 15a. The Cuarrman. We are discussing section 15a, and an amendment to section 13 of the interstate commerce act. These changes asked for in the bills before us are the main features that we are now discussing. Mr. Cowan. Yes; those are the main features under discussion. The CHarrman. And Judge Cowan is now referring to the plan adopted, set forth in section 15a. : Mr. Cowan. And as construed by the Interstate Commerce Commission. 73337—21—Pt 2——2 279 280 MODIFICATION OF TRANSPORTATION ACT, 1920. The CuarrmMan. Yes. Mr. Cowan. I have prepared what I have to say, or, rather, I have made my study of the subject upon section 15a, more than on section 13, because thdt is the funda- mental fault and defect in the law; it is the fundamental cause of the taking of juris- diction of the States by the Interstate Commerce Commission. I think unwisely, I think wholly contrary to the entire spirit of our form of government, and I think contrary to a fair construction of the act itself. Indeed, I think contrary to the exact and positive language of the act. Now, what I say on that subject is with that becoming respect, I hope, that every lawyer ought to have for a court before whom he practices, and for the Interstate Commerce Commission. And it does not mean—and I trust no one will give it that construction—that I hold or think that the Interstate Commeree Commission has acted otherwise than in the light of the best reasoning that the commission drew to itself in the consideration of this act. . I think it is not unbecoming to say, and I do say, that the enormous power arising naturally out of the great influence of the large owners of capital, the large owners of our big institutions of this country, on which the country and its business depends, had not a corrupt but an unwonted influence compared to the ordinary citizen, where we had practically no show even to present to the Interstate Commerce Com- mission for its sound reasoning upon what we might gather, the facts as they ought to have been presented. I think it due to say that as a result of my study of this subject that it is a disastrous situation that of the people who make and produce the primary wealth of this country, they have no means of speaking for themselves and asserting their rights, except what they may have through their representatives in Can ee and except by the individual officials and others of this country who serve the public. I think the Interstate Commerce Commission was intended as a buffer between these interests and the people, to protect the people. Ido not think that it has taken that position and exercised it in the way that the underlying principles of the law intended, nor as good goverhment would require. There is maintained here the Bureau of Railway Economics at very large expense, which is an operating expense that is charged up against the persons who pay for service upon the railroads, the same as any other operating expense. It was an institution which the Government supported during the war and during the entire time of Federal control of the railroads. Senator Watson. What is that annual expense? Mr. Cowan. Well, I do not know; I have no information. It is large. But what- ever it may be, it furnishes the only means of information available to determine, by statistics, the results of railway operation by systems of railroads, and it is to that source alone that the Interstate Commerce Commission had access during the hearings in Ex parte 74. And that institution, representing all the railroads, made up and furnished all the data and information, by the employment of a large number of great and small experts and clerks and others, to which the individual corporation or others who might desire, had no access or means of analyzing, notwithstanding it was maintained really at Government expense. The accounting department of the Interstate Commerce Commission is splendid so far as it goes, but when you take this act and undertake to enforce it and give applica- tion to it, this committee, in the preparation of the bill and Congress in passing it, did the sensible thing to provide that these railroads which were neater whether a long time or not, operate as a system, and should be so treated—that is to say, that they should be so treated in law as they are in actual fact. So that to-day, if you want information, you can get a great deal better information from the Financial Chronicle in New York than you can out of the reports of statistics of the Interstate Commerce Commission, and you can get it during this life time. It is a serious matter, I wish to say to you, Senators, and I trust you will bear it in mind, that if you, to-day, were zoe ne the grain growers, or the cotton growers, the live stock producers, or the lumbermen, or the coal men—anyone of you, as attorneys, and you undertook to make up a set of statistical figures to demonstrate the ae of certain operating railroad systems, you would find very great difficulty in oing it. : Benatot Warson. Well, is that a lack of system on the part of the Interstate Com- merce Commission or a lack of appropriations? Mr. Cowan. I do not yow, Senator. But I do believe that they ought to be required—or that thay pe to—I do not think the law need require them—because there is ample power in the law, but they ought to have their statistics made in a manner so a8 to make them usable for practical purposes. And that is not the case., MODIFICATION OF ‘TRANSPORTATION ACT, 1920. 281 ; es to give you an illustration and make it so plain that it can not be misunder- stood—— Senator La Foi.erre (interposing). I think it is fair to say that the Interstate Com- merce Commission has to struggle with the Committees on Appropriations of Congress to secure appropriations large enough to provide for the work that they are required to do. Mr. Cowan. That was the case, Senator, when I last knew anything about it, but I was not able to answer the Senator’s question other than I did. Senator La Fouerre. It has been the case since I have been in public life, and since the Interstate Commerce Commission was first created. And again and again has the Interstate Commerce Commission, or members of it, appealed to me to go per- sonally to members of the Committees on Appropriations in order to urge upon them larger appropriations for the work that the Congress imposes upon the commission and which the public expects it to do. And it is a struggle all the while. Senator Watson. Then it isa lack of appropriations. : Senator La Fotierre. It may be that ese ought to be some additional legislation, but I think not; I think that they have reasonable power. Mr. Cowan. No; I did not mention it for the purpose of advocating additional legislation upon the subject. Senator La Fouietre. No;4 understand. Mr. Cowan. I mentioned it for the purpose o! demonstrating the difficulty that confronts the ordinary people who pay the freight in trying these cases, and in having matters considered as I think they ought to be considered. And I am not doing that for purposes of criticizing the Interstate Commerce Commission. I am referring to a matter of fact. That whatever be the cause, it is a very unfortunate one, and will lead to just such conditions as have happened in the rendition of the opinion in Ex parte 74, which presently I shallreview. - The single illustration that I want to refer to is this: The question was, What amount of advance in rates shall be made for the purpose of producing the revenue which the commission may decide it is necessary to produce under this act? We wanted to know what the volume of traffic was on particular lines of railroads in particular territory, and especially in this territory of the great grain and live stock growing portion of the country, where I was interested in the representation of those that I have been employed by for a number of years. I, therefore, prepared certain requests for data which could have been furnished by the Board of Railway Economics. The Interstate Commerce Commission did not have any such statistics. That was during the hearings. It was held over for a week, and I kept inquiring whether we were going to have that information furnished. I need not here stop to argue whether it was valuable information or not, but the purpose was certainly an important one, and that was our purpose, and Mr. Thorne and myself and others who had had at least some experience in the matter had prepared these requests. And on the last inquiry, when the matter was shut off as to whether this data had been prepared, it having been first stated that it would take some time and the railroads kept saying that it would take so many men from their offices, and all of that, which always happens when you ask for statistics of the Interstate Commerce Commission, the chairman of the Inter- state Commerce Commission said, ‘‘ Well, we will decide now that the commission will not request it.” So it was not requested, and it was stated that we did not need it. Well, I could demonstrate that we did need it and needed it very badly, and need it yet. ; In the hearing of Ex parte 74 there was no means provided—I mean money—and none obtainable whereby the live stock and farm producers, and producers of fruits and vegetables—the things that grow out of the ground, on which the people live—to get that amount of data that was necessary for me to present an argument comparable at all to the vast volume of statistics that had heen prepared by the most skillful men— without intention of paying undue compliments, I will say—under the supervision of Col. Thom, who sits before me now, and Mr. Wettling, a very great statistician. We could not produce anything that was comparable. We did not have the means of getting it, if we had the money, and we did not have the money, and it was pitiable to see the few men, who were scarcely able to pay their expenses, who appeared before the Interstate Commerce Commission in representation of the class of people to whom I have referred. The Interstate Commerce Commission was confronted, apparently, with demands for a very large increase in rates, apparently from the shippers of the country, but it was not so much from the shippers of the country as from the trade; organizations of the shippers who sell f. 0. b., to whom it is immaterial what the freight rate is, provided their business is not, in volume, reduced thereby, were in enormous majority. It was comparable to the Democratic majority in Texas, before that commission—a, hearing room literally filled with very important, honorable, and intelligent railroad men and representatives of large interests—steel, coal, and lum- 282 MODIFICATION OF TRANSPORTATION ACT, 1920. ber—and certain industrial traffic representatives of associations of merchants and others at large cities, with commanding influence, to impress the commission with the idea that the largest possible increase must be made in rates, and whatever means might be devised to secure that, were only the best means to the best end. . I have no doubt the Interstate Commerce Commission acted under that belief and thought. Ithardly could have been otherwise. For example, the secretary, I believe was, of the National Industrial Traffic League, said that what he was afraid of was that. the railroads had not asked enough. i I ae Col. Thom thought that was a mistake, because he knew he had asked for enough. Mr. Nimrod, or Nemo, or some such name—I do not recall now—was the other rep- resentative of the National Industrial Traffic League, who, I understand, operates a big steel mill out near Chicago. Whether it is true or not, 1 do not know, but it was said he had a railroad over to the main lines from which he got good divisions from the point where he manufactured his product out to the railroads to whom he sold his supplies; and he backed up this proposition also, and testified at length. The Merchants Association of St. Louis came along with a telegram and said that the rates must be increased. “What we want is service.’’ _ Now, that term, “ What we want is service,’’ was spredtl throughout the country, and it was the most successful propaganda I have ever known to be circulated throughout the United States, to induce the commission to make an advance in the rates, and to make the rates high, and to bring forward the demand upon the Interstate Commerce Commission literally by hundreds and hundreds of letters and telegrams from every- where. _ I think the Interstate Commerce Commission now feels that it has been greatly imposed upon, and certainly that it is being unjustly criticized for doing what appar- ently the whole people of the United States were demanding. I have heard just such statements made, and I quite concur with the commission that they are justified in that belief._ And now it is said that even the railroads want the rates reduced. That has been stated to me by some of the commissioners, and by some of the general attorneys, and some of the strong men of the country. And it is an apparent necessity to the rail- roads. Itis areal necessity to the people. If the commission adheres to the decision it has rendered heretofore, in Ex parte 74, it is without power to doit. If it is com- pelled to dothat which it assumed in Ex parte 74, it must do it by command of Congress. It can not reduce the rates, because its power to do so depends upon holding that the rates are unreasonable, and in that case, as I will show in reviewing it, the commission fixed the rates for the revenue and declared that that was reasonable. Like the three tailors on Tooley Street petitioning Parliament, ‘‘We, the people of England, petition Parliament” to do so and so, and the second paragraph of the resolution ‘‘ Resolved, That we are the people.” Now, that has worked a great calamity, and it is our object here to secure a repeal of this section 15a and restore the rate-making power of the tribunal appointed by Congress to do it, to the exercise of that sound judgment which alone can work a benefit to the people and to the railroads in the ultimate end. I would not have prepared a review of Ex parte 74, except for the fact that so many people are not acquainted with it, or are not acquainted with the law or the theory of the Interstate Commerce Commission, to dispute the propositions which the logic of the situation unerringly establishes. : If I may be permitted now, I will read what I have on that subject, without stopping to comment upon it. : In the first place, the theory of the act is wrong for reasons we elsewhere give, and in the second place, the conclusions of the commission construing it are wrong. At page 244 the commission states: . ‘Section 1éa of the interstate commerce act provides that in exercising our powers under that section we shall ‘initiate, modify, establish, or adjust’ rates for the car- riers as a whole, ‘or as a whole in each rate groups or territories as the commission may from time to time designate.’”’ What the act does say is: wf “In the exercise of its power to prescribe just and reasonable rates the commission shall initiate, modify, establish, or adjust such rates so that carriers a3 a whole (or as a whole in each of such rate groups or territories as the commission may from time to time designate) will, under honest, efficient, and economical management and reason- able expenditures for maintenance vf way, structures, and equipment, earn an aggre- gate annual net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of transportation.”’ MODIFICATION OF TRANSPORTATION ACT, 1920, 283 Thus at the outset section 1, which was reenacted by this act, which prohibits every unjust and unreasonable rate and declares them unlawful, and section 15, which empowers the commission to prescribe reasonable rates, were made subservient to the sole purpose of securing aggregate revenue. Section 1 provides— ‘‘All charges made for any service rendered or to be rendered in the transportation of passengers or property or in the transmission of intelligence by wire or wireless as aforesaid, or in connection therewith, shall be just and reasonable, and every unjust and unreasonable charge for such service or any part thereof is prohibited and declared. to be unlawful.” Section 15 provides— “That after full hearing if the commission shall be of the opinion that any individual or joint rate, fare, or charge whatsoever demanded, charred. or collected is or will be unjust or unreasonable, the commission is hereby authorized and empowered to determine and prescribe what will be the just and reasonable rate,”’ etc. The rates referred to are those which the individual and those similarly situated pay, and the right of the shipper is coextensive with the duty of the carrier to publish just and reasonable rates as required by section 1. Tt is also in the exercise of the power to require this, and to make just and reason- able rates that the commission can exercise the powers in section 15a to so adjust the rates as to produce the revenue as ‘‘near as may be.”’ So at the threshold of administering this law, the mistake was made to produce the revenue and then to declare that rates so made were reasonable. This construction upset the whole fabric of this act to regulate commerce in its fundamental design to protect the shipper against unreasonable rates. The first condition of section 15a, paragraph 2, was annulled. What I wish principally to speak of is the western district, divided into two groups, namely, the western group and the mountain-Pacific group. Western group: The territory lying west of the western boundaries of the eastern and southern groups; south of Lake Superior and of the international boundary line, north of the Gulf of Mexico and the Rio Grande, and on the east of a north-and-south line running as follows: Following the boundary line between the State of North Dakota.and the State of Montana and the boundary line between the States of South Dakota and Wyoming and Nebraska and Wyoming, to the line of the Union Pacific extending east from Cheyenne, Wyo.; then following the line of the Union Pacific westward to Cheyenne and from Cheyenne running southward through Denver, Colorado Springs, Pueblo, and Trinidad, Colo.; then following the line of the Atch- ison, Topeka & Santa Fe Railway through Raton and Las Vegas, N. Mex., to Albu- querque, N. Mex.; then south along the line of the Atchison, Topeka & Santa Fe Railway to El Paso, Tex. Mountain-Pacific group: All that territory lying between the line last above de- scribed and the Pacific coast, not including Alaska. The Cuarrman, Judge Cowan, in using the word ‘‘reasonable’’ I suppose it may be assumed that the rate must be reasonable both to the freight payer and to the carrier? Mr. Cowan. Absolutely. I used it while you were out, I believe, in quoting from section 1. The CHAirMAN. Under section 1 it must be reasonable both for the carrier and for the freight payer. Mr. Cowan. Undoubtedly. It could not be otherwise; never could be otherwise. The CuarrMan. Now, it is true, is it not, that whatever may be the reasoning of Ex parte 74, that the Interstate Commerce Commission in a recent case, the grain case, held that the rate must be reasonable; that that was the dominating criterion? Mr. Cowan. That is correct. The Cuarrman. It must be reasonable both tor the carrier and for the shipper? Mr. Cowan. Yes, sir. The Cuarrman. So far as section 15a is concerned, it did not repeal that command to the Interstate Commerce Commission, to make rates that were reasonable both to the shipper and to the carrier. Mr. Cowan. Yes. While you were out, Mr. Chairman, I asked whether I should go ahead, and was told I should, and I pointed that out. ~ The CHamman. That is what the Interstate Commerce Commission did in Ex parte 74. ~-Mr. Cowan. Yes, sir. The CuarrmaNn. Butit seems to have recalled that decision, to that extent at least, in a recent case. 7 284 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Cowan. Yes. Paul at one time in his history believed that he was serving the Lord in persecuting the Christians, but the scales fell off his eyes. But the troubles that have come upon our country came because of the decision in Ex parte 74, and JT am complaining of Ex parte 74. Senator Watson. It is along time since I read that. Does the Interstate Coinmierce ee hold there that they could make rates that were not reasonable to both sides? i Mr. Cowan. No; they declared that if they made rates which produced the revenue, it was reasonable. Senator La Fouierre. They fixed a rate to produce the revenue. Mr. Cowan. Yes; they fixed a rate to produce the revenue. Senator La Fou.erre. And then put the seal of reasonableness upon it after they fixed the rate. Mr. Cowan. That is it exactly. Now, they have not, in the grain case, taken back the ruling in Ex parte 74. The gain case did acknowledge the principle you have announced, Mr. Chairman, but it id not overrule Ex parte 74. It still stands there. Senator Watson. Now, to get your viewpoint, do you hold that if the Interstate Commerce Commission had fixed a rate that does not produce sufficient revenues, that that is a reasonable rate? Mr. Cowan. I can not answer that question in that form, Senator, lest I might be misunderstood. I hold that the only way to determine what a reasonable rate is, within the meaning of the regulating law which-atthorizes a commission to prescribe the same, is by the exercise of a sound judgment of those called upon to act, without an arbitrary rule as to how much it shall produce by way of profit, or how much it shall contribute to the aggregate revenue of a company, or any number of carriers. Senator Watson. No. But in determining the reasonableness or unreasonableness of any rate, is it or is it not necessary to take into consideration whether or not that rate would produce sufficient revenue to run the railroads? Mr. Cowan. It is not necessary, nor is it possible. Your question elicits this reference: That there are two relationships with respect to what constitutes reasonable rates. One is that relationship which arises when the Government, be it State or Nation, by reason of the body of rates which it fixes, is charged with having deprived the carrier of its property without due process of law or just compensation. And the question then arises between the States and the railroad company, or a lot of railroad companies, as to whether that has been the result of a body of rates so fixed. In that case the question to determine is not the reasonableness of a particular rate, nor the reasonableness of the aggregate of the rates. The question is whether the railroads have been deprived of their property within the meaning of the Fourteenth Amend- ment, for public use, or whether it has been taken for public use without just com- pensation. Now, when you come between the individual and the carrier that he pays to perform service for him, it is entirely immaterial, and the rate can not be determined upon the question as to whether or not it is sufficient to pay a certain proportion of the aggregate return to which that road, or all the roads, might be entitled. Those things have been decided by the Supreme Court and by the commission. In one of the Minnesota cases, when the question as to the coal rates went to the Supreme Court of the United States, the contention was made that if all rates produced only the amount of revenue that the coal rates did, it would bankrupt the railroads, and the court held that it could not be tested by any such rule as that. It may be that the railroad would be required to make a particular rate which would not more than pay the expenses of that transportation. And the railroads do that themselves, and have always done so, whereas others pay a great deal more, and yet each might be reasonable; that depends upon the circumstances, and those are the things by which the commission is to judge Senator Watson. Judge, let me ask you this broad question. Mr. Cowan. Yes. / Senator Watson. I am interested in your viewpoint. What is a reasonable rate, in your estimation? Mr. Cowan. It has never been defined, as the Supreme Court said in the very first case decided—the Texas-Pacific case. Senator Watson. I am aware of that. Mr. Cowan. They referred ,to some of the courts of the Nation, and the railway and canal traflic act of England. ; And from that day to this the Supreme Court of the United States, and the supreme courts of every State that I know of, have said that the law does not define what is a reasonable rate, and it can not be defined. : MODIFICATION OF TRANSPORTATION ACT, 1920, 285 Senator Watson. I am aware of that, but I am asking you your individual opinion. Mr. Cowan. The reasonable rate in the present situation of this country is the highest rate that the traffic will bear and which will freely move to the markets of usual consumption of products, compared to the traffic during a period of time for 10 or 15 years next before the outbreak of the European war. Senator Watson. The highest rate the traffic will bear and move the products? Mr. Cowan. Freely. Senator Watson. Is any reference to be made then, in determining that question, as to whether or not that highest rate will produce sufficient revenue to allow the railroads to operate? Mr. Cowan. No, sir; you can not; because if the railroads can not operate, they can not get the money, and if the people will not move the traffic they can not get the money. The present situation is such that they can not get enough and have a rate that will move the traffic. J am giving you now my view of what will be reasonable rates. There is no law to that effect. Senator Watson. No. The CuairMANn. Much is to be said in favor of that, but that means that the rate must be one that in a course of years is reasonable. I do not think the rate can be tested by one month, or by one year. Mr. Cowan. No; I said in the course of 10 or 15 years. The CHarrMaNn. But it means a rate which will return over this series of years and months a reasonable rate of reward to the carrier for performing the service. It means a rate that will move the traffic, and that will earn a reasonable reward or profit to the carrier for performing the service. You would not contend, would you, that simply because the farmer is producing his products for less than cost—the fact that farm products have gone down to where they scll at less than cost of production—that the Government should compel a carrier to move that traffic for nothing, simply because it became necessary to move it for nothing in order to give the farmer a profit? You would not claim that, would you? Mr. Cowan. Not unless the Government paid the carrier for doing it. That is not involved in my answer. My answer is—I need not repeat it—for the purpose of showing what I think has to be done under the present exigency of the situation to restore prosperity in the country, commerce has to move to restore it, and the railroads are at such an expense to-day that it must move at the highest rate the traffic will bear to move it, and you will never get away from that, and if the Govern- ment has got to pay for moving it, it has got to pay for it, that is all. It has got to move to restore prosperity in this country. The Cuarrman. Well, Judge, do you recognize any difference in the policy that might arise that the railroads themselves voluntarily adopted, and the power of the Government to compel them to adopt that policy? Mr. Cowan. Well, of course, that is kind of academic to me. I think, as I said the other day, that when the railroads construct their roads for the purpose of per- forming a public service, they are bound to do it, and whatever the Government demands they shall do, they are protected by the Constitution, and it affords more protection than they can possibly get out of it to-day. The CHarrMaNn. That is what I mean. It might be good policy for a business man or a railroad, to use that as an example, to go on and do business for nothing for a period of time, but'I doubt very much whether the Government, when it comes to regulate them, can compel them to do business for nothing. Mr. Cowan. Of course they can not. That would be out of the question. If the Government is going to compel them to do it for nothing, the Government has got to ay for it. e The Cuarrman. But there are a number of people who are doing business now for nothing, or less than nothing. Mr. Cowan. Yes. The Cuarrman. But we can not compel them to do business for methine. Mr, Cowan. I think I will reach most of those points as we go along. My answers here have not been as complete as they should be in answer to your questions. Senator Watson. I went alittle aside from your discourse to ask the question. Mr. Cowan. But I do go to the point that we have been discussing, that the time has come, obnoxious as that may seem, that the railroads shall have-all the traffic will bear and have the traffic move, not for this month or next, or during the season, or a year, but for a period of years. They have got to get all it will bear, and that will probably produce the most revenue to them. The highest rates they can put on, like they have put on, is destructive to the country and to the railroads both, There is no doubt about that. 286 MODIFICATION OF TRANSPORTATION ACT, 1920. The Cuairman. I do not, myself, question the proposition that the traffic must move, but as I analyze it we have reached a time when the business of the country will not bear the charges for transportation that are necessary in order to give a fair return to those who have eiterell the business; that means simply that we have reached the time when the Government must become the owner of fis railroads and eupE ls whatever deficiencies may occur from taxation. . Cowan. That looks like one of the steps in the evolution of the times. 1 do not mean by that that Iam advocatingit. Idonot. I would rather have that, however, than not have the traffic move and have the country paralyzed as it is to-day. But that is bad coe to contemplate, and it is not contemplated, I think. Certainly not in anything I shall have to say to the committee. I wish to put myself on record always as opposed to it. The commission simply performed the task of establishing rates that would yield in the aggregate as nearly as may be the per cent (6) for the two years. Further quoting from Ex parte 74: “Tn establishing rates for the two-year period we have no discretion as to the amount of the fair return except that we may add to the 54 per cent provided by law ‘a sum not exceeding one-half of 1 per cent of such aggregate value to make provision in whole or in part for improvements, betterments, or equipment, which, according to the accounting system prescribed by the commission, are chargeable to capital ac- count.’ Having determined the per cent, we are called upon to perform the admin- “istrative task of establishing rates that will yield in the aggregate as nearly as may be- that per cent until March 1, 1922.” : This is based on interest rates, apparently on the ground that interest rates had increased (pp. 226-227). The same condition continues, so even had the 54 per cent not been in the act the commission would have made it 6 per cent; if not, why did it add the one-half per cent? I pause to make a remark here that that one-half per cent gives color to the whole situation. It was singular that the law as it finally was enacted said that they should add a half per cent for the purpose of enabling the railroads to make improvements and to acquire ncn which, under the accounting rules of the commission, would be chargeable to capital account. Some way or other, I am under the impres- sion that when the bill was first introduced by Senator Cummins it provided that an addition might be made for improvements which was not chargeable to capital account. I see no reason why it should be in there if it was chargeable to capital : ecount. The Cuarrman. The bill as I introduced it was that the basis should be 5 per cent, and then it had a recapture clause, that the surplus should not be recapitalized. We had a long struggle in the committee over whether it should be 5 per cent or 6 pez cent, and I finally agreed to come up to 54 percent. Thatis the history of that art of it. , e Mr. Cowan. But then, what I am speaking of is that this shall provide that, the railroads should add one-half of 1 per cent to procure equipment and make improve- ments chargeable to capital account. That is exactly contrary to all the spirit of the bill and the discussion. The idea was that the shipper would not have to pro- vide the capital spew which the railroad should charge the shipper for the use of it, but if it is chargeable to capital account it would have that effect. The Cuairman. That would not be the necessary conclusion. The purpose was to see that not more than 54 per cent should be available for distribution upon capital. And the words ‘‘chargeable to capital account” means simply to prescribe what should be done with the extra one-half per cent if it should be granted. © Mr. Cowan. Well, this extra half per cent should be added to the profit. It would be a part of the cost or profit. And the idea of the law was that they should have 54 pe cent on the cost of their property, and the commission added that because the railroads showed that they needed 2,000 engines (locomotives), 3,000 passenger coaches, and 100,000 freight cars. That, in principle, is wholly wrong, in my humble opinion, that you should take out of rates the capital over and above the return that is stated to be fair and leave it to the discretion of the commission. But it has been said that this act expires on the Ist of March, 1922. It is surprising to me to hear that statement made by those who have been so well acquainted with it, or had the opportunity to be, when the provisions of the act are that this 54 per cent is merely a proviso for the interim of two years. The commission has to fix the per cent of return, and it did do it, and to the 54 per cent added one-half per cent, in its discretion, and that makes 6 per cent. So when the time expired on March 1, I know of no good reason why it should not make it 6. I can see no reason why it ought not to be fixed, if the railroads upon reasonable rates can earn it, and I think they ought to. I mean, I think they ought to have it on reasonable rates. On roads MODIFICATION OF TRANSPORTATION ACT, 1920. 287 honestly built and favorably located they might have more, and on roads that were built on exploitation, and without sound judgment, they should suffer the conse- quences of their own want of judgment. To continue with what I have written: “That same condition continues, so even had the 54 per cent not been in the act the commission would have made it 6 per cent; if not, why did it add the one-half er cent— ie ‘We are of opinion and find that the following percentage increases in the charges for freight service, including switching and special services, together with the other increases hereinbefore approved, would under present conditions result in rates not unreasonable in the aggregate under section 1 of the act and would enable the carriers in the respective groups, under honest, efficient, and economical manage - ment and reasonable expenditures for maintenance of way, structures, and equip- ment, to earn an aggregate annual railway operating income equal, as nearly as may be, to a return of 54 per cent upon the aggregate value, for the purposes of this pro- ceeding, of the railway property of such carriers held for and used in the service of transportation and one-half of 1 per cent in addition; eastern group 40 per cent; southern group 25 per cent; western group 35 per cent, mountain-Pacific group, 25 per cent. ‘And force the shipper to pay for facilities chargeable to capital account their pay a return on that. The States were made to do that, though it was left discre- tionary with the commission on interstate traffic. It was only where roads were efficiently and economically managed that the rates were required to be so adjusted as to yield the per cent. On that subject no finding was made and the recitals show—page 227—that it was not a fact. ' ‘‘Aside from investment accounts, no evidence of value is recited or existed to jus- tify the $8,100,000,000 valuation for rate-making purposes. As to that item, the law— section 15a, paragraph 4—declares it shall be given ‘only that consideration ‘‘which. under such law as it is entitled’” (referring by the term ‘such law’ to the law of the land). When finally determined, the values under the valuation act (sec. 19a) is to be the value, but since the commission was naming an aggregate figure only, and no road has been finally valued or will be for years, probably, that is no evidence. The law refers to the valuations so far as it has progressed as an item which it may consider, but practically that was excluded as far as the western group and the mountain- Pacific group are concerned, because the commission said: “*Tt is not deemed necessary for present purposes to apportion the aggregate value of the properties in the western group, as defined by carriers, so as to show the value of the properties in the western and mountain-Pacific group as we have defined them. Many important railroads are in and serve both groups into which we have divided the carriers in the western group and mountain-Pacific group. It is not thought advisable to delay the decision of this matter to permit an accurate apportionment of the value of such properties, particularly as it would not materially affect the determination we reach.’ , “This is a most amazing statement in view of the aggregate value of the roads in_ the district and the fact of advancing the rates 35 per cent in the western group with- out the aggregate value to produce from the business there done 6 per cent on some- thing—what is it? X, the unknown quantity. And 25 per cent advance in the mountain-Pacific for the purpose of producing the same percentage of revenue. Now, bear in mind, it was net railway operating income. That requires as known factors (1) gross revenue from operation, (2) operating expenses to produce it, and (3) joint- facility rents, debits, and credits. All the evidence was for a system operated as such in the entire district as to— ' ; 23 Gross revenue. “(2) Operating expenses. ‘*(3) Joint-facility rents. ““(4) Property-investment account. 163) Par value of stocks, bonds, equipment, and trust obligations. “The aggregate of each in the western group—the 35 per cent territory, as in the mountain-Pacific group—the 25 per cent territory were wholly unascertainable and unknown quantities ”’ I may pause in this reading to again advert your attention to the fact that the com- mission was aa 35 per cent in fhe western group and 25 per cent in the mountain- Pacific group without a ba fee stated factor, or one that was ascertainable, by which to arrive at those figures. And that is the case to-day, and no man has answered that criticism as yet. 288 MODIFICATION OF TRANSPORTATION ACT, 1920. Senator PomnpExtTEeR. They ‘have no information as to the net earnings, or net losses on the roads? : : Mr. Cowan. Absolutely none with respect to the net value, gross revenue, net operating expenses, and net revenue as to the group where they put the 35 per cent, or the group where they put the 25 per cent. It is wholly incomprehensible that any such opinion should be rendered. i Senator FErNaLp. Judge Cowan, do you know the effort the Interstate Commerce Commission has made to get the valuation of the railroads? Mr. Cowan. You mean under the valuation act? Senator FernaLp. Yes. ‘ ‘ir, Cowan. No, sir; I am not familiar with that. I know they have not got it. bo the decision appropriately stated that a segregation of the values ‘‘could not materially affect the determination we reach;” that is, to increase rates 35 per cent in the western and 25 per cent in the eastern, solely by reason of the powers given by the provisions of section 15a, They simply do it without a single factor. The Cuarrman. That is not the fault of the law. Mr. Cowan. No; but I am telling you that that is what has happened to the people. To make confusion worse confounded, it must be borne in mind that Ilinois was divided originally so that the part north of the Illinois River, and north of a line along the Santa Fe, including Chicago and all Wisconsin which was first in the western group, was taken out of that group and placed in the eastern group, including Missis- sippi River terminals on the west bank, except as to traffic moving to and from the west. Ifthere were any place for aggregate value in the western group to be increased or decreased it must by this change have decreased to the extent at least that the property thus included in the eastern group which had been wholly in the western group was used in transportation on business therein and to and from the east, where the advance was 40 per cent. Thus all the big systems’ value and gross revenue, operating expenses, net revenue, and property investment and stocks and bonds were ifted and the 35 per cent remained. This becomes the more amazing when it is considered that the railroads were required in all the States where they did not do it voluntarily to advance State rates:the precise same per cent, on the ground that not to do so would be a discrimination against interstate commerce. And that entirely without regard to the value of the property in a State, and without regard to the fact that the act does not purport to give State commissions any power or take it away. Nor even inferentially require ther to add the one-half per cent for improvements or equipment chargeable to capital account, and in disregard of the first section excluding State traffic from the provisions of the act. Only because of discrimina- tion did the commission include it; and that based on the 35 per cent increase in the western group, determined wholly without a single factor as to that group being known or ascertainable. Couple this with the fact that there was admitted inefficiency and extortionate costs and wages, the full responsibility being shifted to those who pay the freight, then view it in light of their bankruptcy, and who can deny that both the law and the decision in whole or in part has been most destructive of the producer from the soil and destructive to the railroads. The remedy is, repeal this section of the law. That leaves the commission its powers as they were before the war. I wish this committee of Senators would, if they doubt my statements with respect to this decision, ask Col. Thom, whom I admire as a gentleman and a lawyer in every way, to point to a single factor upon which the Interstate Commerce Commission could base the 35 per cent increase in the western group, as a known factor that is produced by the railroads in fact, referred to by the Interstate Commerce Commis- sion, or which is to-day ascertainable. Senator PoinpExtTEeR. Just a moment, Judge Cowan. What was that western group you spoke of? You said 35 ae cent increase in the western group and 25 per cent in. the mountain group. Well, the mountain group was the Rocky Mountain country. Now, where was the 35 per cent group? Mr. Cowan. Between the Mississippi River and the Rocky Mountains, including the Illinois territory, to begin with, that was north of the Illinois River and the Chi- cago and west bank Mississippi River terminals, which subsequently was taken out of western and put in the eastern group. Senator PornpexTrr. How about the Pacific coast rates to the terminal points? What was the increase there? i Mr. Cowan. Do you mean the transcontinental rates, Senator? Senator PornpextTrer. The transcontinental rates; all the rates from the east, from any eastern points, to the Pacific coast terminals. MODIFICATION OF TRANSPORTATION ACT, 1920, 289 Mr. Cowan. The intergroup rates were all made 334 per cent; is that correct, Mr. Thom? The mountain-Pacific territory lies west of the eastern line of Montana, and a line drawn from there to some point about the eastern border of Wyoming, on the Union Pacific, and thence up to Cheyenne, thence down to Albuquerque and El Paso; west of that is the mountain group. Senator Pornpexter. I know all about the mountain-Pacific group, but that doc- not include the terminal points on the Pacific coast. : Mr. Cowan. Oh, yes; it does. That includes the terminal points on the Pacific coast. Senator PoINDEXTER. Do they go in with the mountain eroup? 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That, I think, is essential if regu- lation of these carriers is going to be a success. ‘ Senator Srantry. Right at that point let me ask you: Is there any reason whatever for maintaining any kind of relationship in the carriage of passengers, at least between the service and the cost of the service? Mr. Woop. I think there is. Senator STANLEY. We will take it here in New York, around New York City and New Jersey, and New York State and Connecticut—I do not know exactly what the population is per mile, but it is a very dense population. The cost of transporting passengers per passenger in full cars running every hour or two, in my opinion, would be necessarily much less than the cost of transporting a pas- senger the same distance in Montana, or North Dakota, or northwestern Texas, and yet from this map the Interstate Commerce Commission has fixed a flat rate of 3.6 cents per mile in that congested community, and in those thinly populated areas. The cost must be four or five times as much per passenger as it is here, Mr. Woop. About that, Senator, I can not say. The cost figures sometimes are very surprising. Sometimes we are surprised that the density of travel has not reduced the cost in the proportion which might be expected. There is a much greater frequency of service in those densely populated countries, and there is a much greater proportion of terminal expense. I know, on our own system, one of the best paying trains we have is a train that runs through the sparsely- settled countries. It is a through train; carries a large number of through pas- sengers. In other words, they have been able to condense the passenger travel on that train, so that the cost on this train is probably no more than in New York. Now, the sparsity of population is such that we do not run many trains, and do not have to, and I think it may be a question whether the cost of trans- porting passengers in New York, per passenger mile, is any less than in other parts of the country. But those are things that it seems to me must be referred to the judgment of somebody. Now, the body that has been created to determine that is the Interstate Commerce Commission. They determine that from the evidence—— : Senator Stantey (interposing). It appears in this case that they did not de- termine it from any evidence. Mr. Woop. I do not think that is a correct statement of the situation. There was a vast amount of evidence. And in those States that have statutory pas- senger fares, almost all of them said, in so many words, that if they could they would raise the rates. They did not do it because they did not have the power: They recognized that the rates should go up as the interstate rates had gone up. Senator Stantey. Right at this point, why not amend this act, then, in such a way as to provide that in the event the Interstate Commerce Commision and the State commisisons shall agree upon a rate, that rate shall be binding upon the States, the commerce acts of the States to the contrary notwithstanding? It would be, any way. Mr. Woop. That, sir, it seems to me, would be simply transferring power to the State commission instead of the Interstate Commerce Commission. Senator Stantey. So far as intrastate traffic is concerned. Mr. Woop. I believe there is a wide field for cooperation between the State commission and the Interstate Commerce Commission. . Senator Stantey. Right at that point, if the Interstate Commerce Commission has absolute power to fix all rates, with or without investigation, what is left for your State commission to do? ; . Mr. Woop. It has not the power to do it with or without investigation, and it has investigated. . . ; : "Senator STANLEY. All right, then, leave that out—with or without investiga- tion. They will determine whether it is proper or not; they have the absolute power to fix all rates, over all lines that have any connection, however remote, ’ 538 MODIFICATION OF TRANSPORTATION ACT, 1920. with interstate commerce in the carriage of passengers and freight; when you give that power to the Interstate Commerce Commission, what is left for the State commission to do? It can not fix any rates. Mr. Woop. I think that would be an exercise of constitutional power on the part of Congress. But that is not what Congress has done. Congress has left to them the power to fix the rates within their own borders, except where they has discriminated“against interstate commerce. And, as I have said, that does ‘leave a State that ‘wide discretion. Senator Stantey. But do you believe, when the Interstate Commerce Com- mission’ fixes a flat rate all over the United States—raises all traffic a certain amount—that it can be held by any strained construction that they have investi- gated every rate, and every point, and every case? Mr. Woop. They have not investigated every point— Senator STantey (interposing). It follows as the natural conclusion that they could not have investigated all the rates between all the points between Maine and California on all traffic, intrastate as well as interstate traffic. Mr. Woop. They did this, Senator; they took into consideration the purposes of the act and the exigencies of the situation; and it was recognized by every- body who appeared before the Interstate Commerce Commission that the situa- tion was such that there must be a general advance in all of the rates, and that there was in point of fact very little distinction as to the requirements between one case as compared to another. And they had a tremendous amount of testi- mony. I think it took some six weeks. Senator STANLEY. As you see it, they received some implied power, and they think it is necessary to raise this amount of revenue—— Mr. Woop (interposing). No. Senator Stantey (continuing). And that the necessities of the case supple-. mented any need for consideration; and they exercised this power because there was need, and exercised it whether they had the power or not? Mr. Woop. They undertook to carry out the expressed mandates of the Con- gress. They did not have every rate before them, but they had representative cases, stated by the witnesses to be representative. That evidence was not for the most part denied, and where it was denied and an issue of fact was joined, as it was in some of the freight cases, the Interstate Commerce Commission passed on them, and sometinres held with the carrier and sometimes with the State. They did not act just out.of the hand. Senator STANLEY. But they did make a flat rate? Mr. Woop. They did make a flat rate. Senator STANLEY. A flat-rate adjustment? Mr. Woop. Of course that goes to whether they exercised their judgment wisely or unwisely. If it is a matter directly within the realm of their judg- ment, then their judgment stands. If it is a matter that goes beyond their. judgment and which is beyond the discretionary power of the commission, it is subject to review by the Supreme Court. I do not see how you can deal with the Interstate Commerce Commission differently from any other tribunal. You must give them jurisdiction, and their power must be final to the extent they do not overstep their power. Senator STANLEY. Right there, you say we must give jurisdiction ; we can not give jurisdiction. We can authorize a commission to perform certain legisla- tive acts, in a way. The courts have held, as I understand it, that we can confer upon this commission such authority as we have, but it is doubtful to my mind whether Congress has an authority to make a broad and sweeping adjustment of this kind if there was no commission. And if CongreSs has not the power, how can it grant a power that is not vested in it? Mr. Woop. Now, of course, you are conring to the question of power, and Mr. Thom, I understand, before the conclusion of these hearings will discuss the question of power. Senator Stanrey. That is what I want to hear. Mr. Woop. I am assuming that Congress had the power to do what it did do. And I am suggesting the necessity for a broad policy on the part of Congress, and a broad interpretation of that power so that the Congress may act in a broad, comprehensive way. Senator Stantey. Right at that point I would like to have you cite me the authority of the Interstate Commerce Commission; where do you find it io the act? Mr. Woop. In section 138. MODIFICATION OF TRANSPORTATION ACT, 1920. 539 AMENDMENT WOULD NULLIFY FEDERAL SHANDARD FOR MAINTENANCE OF TRANS- PORTATION FACILITIES, Now, on the question of the State rates, whether revenue is a proper matter to be considered in a discrimination case or not, the control of State rates, where necessary to remove discrimination against interstate commerce, and the absence or presence of that power of control does necessarily have a power- ful effect on the revenues of the carriers, and as against this broad policy that I have urged, I want to read from the brief of Mr. Benton in the New York case, at page 30, in which we have the view of the spokesman of the National Association of Railway and Utilities Commissioners as to the relation between section 15a and the State and Interstate Commerce Commissions, respectively. After repeating what that section is, he says: ” “The commission is commanded to exercise ‘its power to prescribe just and reasonable rates,’ so that carriers shall earn a return ‘as nearly as may be,’ which means as nearly as the commission can by its order provide, upon the aggregate value of their property.” .And then, after some discussion dealing with the activities of the State commissioners, he says: “Tf rates prescribed by State authority should be too low, and because of that fact the net railway operating income should fall short of producing a fair return on the aggregate value of all caxrier property, it will still be ‘as nearly as may be’ to that return, by reason of anything that this com- mission may do.” In other words, Mr. Benton suggests that when Congress says that the Interstate Commerce Commission should see that the carriers should earn 5} or 6 per cent on the value of their property, it meant that the Interstate Com- merce Commission should see that they should earn that to the extent that the States permitted it. Senator STantey. You then interpret section 15a as a guaranty of a certain return? Mr. Woop. No, sir; it is far from a guaranty, but it sets a standard that ig necessary for the preservation of interstate carriers as interstate instrumen- talities. Now, manifestly, if any body, any part of the Government, has authority to set that standard it must be set by the Federal Government only. And. it seems to me that the setting of that sandard is the proper exercise of that authority. It would be a backward step, whatever the proper national standard is, whether properly expressed in section 15a or in some other way, it would be a backward step for Congress to enact a statute which would carry out what is unequivocally and unmistakably the view of the State commis- sioners, viz: That whatever that national standard is it should be realized only to the extent that the States would permit it to be realized, and no further. Senator SmirH (presiding). There is just one question in connection with the question propounded by Senator Stanley in reference to the uniformity of these rates without regard to the density or thinness of population. Is it not your opinion that, perhaps, the Interstate Commerce Commission had in mind, when making these flat rates, these uniform rates, that the density of the population, and necessarily the nature of the road traversing different sections, and that they had in mind the provision of the transportation act, that the amount that a given road earned was limited, and that any excess would go to make up any deficit that might occur elsewhere, and that, therefore, the general situation would be taken care of without undue or enormous earn- ings in one section as against loss that might be incurred in another section? Mr. Woop. I could not say, Senator, whether they had that specific thing in mind or not. Senator SmitTH (presiding). That is one question. Would there be any justi- fication, then, in putting a 3.6-cent rate in New York, where everyone knows it is notoriously a fact that they carry to full capacity, perhaps, of their trans portation facilities, and their earnings necessarily would be out of all pro- portion to the thinly populated States where the same rate obtained? It does not answer the question to say that they have more numerous trains. Senator Stantey. If they have more numerous trains, they have opportunity; and they are bound to make more money on the same roadway and equipment. Anybody knows that without being an expert. 540 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Woop. I could not say, Senator, whether they took into account this specific thing of which you speak. But they did have section 15a, which re- - quired them to look at it in groups and disregard State lines. They did have that in mind. ’ Senator SmirH (interposing). There, you see, you run into a contradiction When you say we must take into consideration a discrimination in the revenue. Now, where the revenue is so great as to more than meet the requirements for a given road for that community, there would be no justification whatever in maintaining the rate when the return on the property used for the public use was inordinately excessive; and yet, when you reduce it in order to have a rate that was in proportion to the investment, you would then have a rate there that would discriminate against an interstate passenger who goes from a thinly populated section into a congested section, which would be discrim- inating against him by force of the economic situation over which you and I have no control. You have a discrimination there by virtue of the revenue which you must provide, and which you must take into consideration, and any excess revenue earned there goes to make up the loss of the revenue in a less favorable situation where the revenue is not so great. a Mr. Woop. And that is, of course, one of the things that the California commission referred to, in the passage which I read, as indicating the neces- sity on the part of the States to cooperate in order to make the whole program effective. I think that is all I have to say and I thank the committee very much for its courtesy. ‘ : I desire, Mr. Chairman, if I may, to put into the record the opinion in the California case. ‘Senator SmiruH (presiding). It may be printed in the record. (The opinion referred to is printed in full, as follows :) BEFORE THE RAILROAD COMMISSION OF THE STATE OF CALIFORNIA. OPINION. In the matter of the application of steam and electric interurban railroads and boat-line common carriers to increase freight and passenger rates and fares, Application No. 5728. . Thig is a joint application by practically all of the steam railroads, electric interurban railroads, and boat lines operating in California. * The commission is asked to authorize these carriers to increase freight and passenger rates and to assess a surcharge upon passengers occupying sleeping and parlor cars on all intrastate business to the same extent as authorized by the Interstate Commerce Commission in an order made.on the 29th day of July, 1920. At the hearings herein applicants introduced no evidence except the order of the Interstate Commerce Commission above mentioned, together with the applications made to that commission which resulted in such order. . Applicants took the position that evidence of value of property used in the service, gross: and net income, etc., such as is usually introduced in a proceed- ing of this kind, was wholly irrelevant because the Interstate Commerce Com- mission, acting under the act of Congress ordinarily designated the Esch-Cum- mins Act, had authorized an increase of rates for carriers under its jurisdic- tion, and in determining the amount of such increases had included all reve- nue earned by these carriers on State as well as interstate business. The Esch-Cummins Act provides, among other things, that the Interstate Com- merce Commission shall fix rates for carriers under its jurisdiction in the fol- lowing manner: Hither treating the carriers of the United States as a whole, or as a whole in each of such rate groups or territories as the commission may from time to time designate, to fix the value, using certain prescribed methods, of the property devoted to the service of the public, and to so fix rates as to return to the owners of these properties 53 per cent net earnings; or, in the discretion of the commission, 53 per cent plus one-half per cent, the additional one-half per cent to be administered by the commission under conditions laid Otte Commerce Commission divided the United States into four group—eastern, southern, western, and Mountain-Pacific. California is em- braced within the Mountain-Pacific group. It concluded that for the Mountain- MODIFICATION OF TRANSPORTATION ACT, 1920. 541 Pacific group 25 per cent increase of freight rates and 20 per cent increase of passenger rates was necessary in order that the carriers enjoy the 6 per cent earnings provided by the Federal law. The Railroad Commission of California is confronted with these alterna- tives—either it must proceed and take evidence as to valuation, revenues and expenses, competitive conditions, long-and-short-haul violations, and the various other factors to which consideration is given in reaching a conclusion as to the reasonableness of rates, and come to a conclusion based on the conditions in California alone, regardless of the effect the income produced by the rates thus fixed would have upon the action of the Interstate Commerce Commission, or it must proceed in harmony with the decision of the Interstate Commerce Commission and put into effect the assumption that State rates would be increased in harmony with its decision. We have given this matter very careful consideration and in doing so have attempted to give weight to the probable consequences of proceeding upon either of these alternatives. We realize that, without requiring more evidence than is now before us in this proceeding, to impose on intrastate business the identical percentage authorized by the Interstate Commerce Commission would in effect be the fixing through us of State rates by the Interstate Commerce Commission. Whether or not this constitutionally may be done is a question we do not consider it our function to decide. On the other hand, to proceed in the usual manner as though this were entirely an independent proceeding would result in serious delay, as it is evident that to gather and submit ade- quate data upon which to base a sound judgment of what practically all trans- portation rates in California ought to be, would require many months and all possibility of immediate relief to the carriers found to be imperative by the Interstate Commerce Commission would disappear. This, however, is not the most serious result of independent action by this State Jf this commission, under the circumstances that now confront us, fixes State rates regardless of the order of the Interstate Commerce Commis- sion, and if such rate fixing resulted in a return to the railroads of the Moun- tain-Pacific group less than 6 per cent authorized by the Interstate Commerce Commission, either the Interstate Commerce Commission must further burden interstate commerce with rates high enough to make up the deficit resulting from the California action, or, if legally possible, the Interstate Commerce Commission would be compelled to overrule this commission, or the Esch- Cummins Act would be a demonstrated failure. It appeals to us that if each State in a given group insists upon wholly in- dependent action and judgment, that the whole spirit and purpose of the Esch- Cummins Act is in danger of nullification. That act in terms provides a scheme whereby individual railroads and par- ticular States are expected, and no doubt will, produce more than a 6 per cent earning upon the rate base fixed by the Interstate Commerce: Commission. This is clearly indicated in the act, because it is provided that where a given railroad earns more than 6 per cent the overplus is devoted to certain pre- scribed purposes. There can be no doubt that in order to prevent the annihilation of some of the less profitable roads it was the purpose of Congress to authorize rates which, because of the necessity of maintaining a parity for all roads in a given competitive territory, would return the more profitable roads and unreasonable earning, and faced with the alternative of providing rates which would only’ make a reasonable earning for the profitable roads and which would destroy the others, Congress determined that rates would be so adjusted as to permit the weaker roads to exist and to continue to function, but at the same time deprive the more profitable roads of the result of overplus of earnings. It is obvious that this plan can not work if each State or a given group insists upon a determination of its own as to what contribution should be made to the common group income. It must be realized that the Interstate Commerce Commission, a national body entitled to the respect and confidence of the country, acting under the mandate of Congress, has proceeded impartially, using the best available information and the best judgment of its members in the determination re- flected in the order referred to. It has evidently in good faith sought to carry aut the mandate of Congress. It is our deliberate judgment that it is the duty of this commission to cooperate in every reasonable way to give the Esch-Cummins Act a fair trial and, rather than to attempt to impair the success of this legislation, to so act 542 MODIFICATION OF TRANSPORTATION ACT, 1920. as to make it successful. Not merely on the general proposition that all laws should have a fair test, but on the more definite situation that now con- fronts this country. We must all realize that the transportation companies. have resumed control of the various railroad properties under difficult cir- cumstances and in view of the vital needs of this country for adequate trans- portation it is the duty of all citizens and officials to further any movement looking to the bettering of the transportation business. We feel that regardless of any opinion we might have as to the wisdom or unwisdom of the Esch-Cummins Act, it is the foundation upon which the regulation of the railroads now rests and to shake that foundation would. he against the public interest. We do not mean to say that this commission has abdicated its functions in rate fixing, as we believe that our determination to grant the prayer of appli- cants is sustainable upon the ground of reasonableness. Furthermore, we realize that we have a heavy responsibility in the matter of adjusting State rates which inevitably will become necessary upon the imposition of a percent- age increase. The shippers who appeared before us in this proceeding have taken a very commendable position. Practically without exception they have stated their conviction that the railroads must have relief in increased rates in order adequately to give service. Furthermore they believe that this commis- sion should cooperate with the Interstate Commerce Commission and make effective its order increasing rates. They do urge, however, that this commis- sion keep control of the matter of adjustment of-rates after the imposition of a percentage increase. ~ The carriers have agreed that they will, as promptly as possible, make ad- justments or change rates in agreement with their patrons wherever possible without resort to this commission, and as to all disputes or disagreements which may arise they will be promptly referred to this commission for de- cision. As to the carriers who are before this commission and who might not be considéred to be directly authorized by the Interstate Commerce Commission to increase rates, it is to be remembered that they are in competition with the carriers who will charge increased rates and it is necessary that the relation- ship of rates between ‘the carriers be maintained. We will therefore authorize all carriers applicant herein to increase freight charges 25 per cent and passenger fares 20 per cent with a surcharge on Pull- man fares of 50 per cent which will accrue to the carriers, and we will further order that this proceeding be kept open for the purpose of considering adjust- ments of rates and all further appropriate matters which poperly may come before us herein. ORDER. P Application having been made to the Railroad Commission of the State of California by practically .all the steam and electric interurban railroads and boat common carriers engaged in the transportation of persons and property in this State for an order authorizing the increasing of intrastate freight and passenger rates in harmony with the increase authorized under the provisions of the “ transportation act, 1920” (Esch-Cummins Act), by the Interstate Com- merce Commission in its docket Ex parte 74, decided July 29, 1920, all of which ‘is set forth in the applications and exhibits on file with this commission ; public hearings. having been held on said application and the commission being fully advised in the premises hereby finds as a fact that the application should be granted, Basing our order on this finding of fact and on.the further. findings contained in the opinion which precedes this order, It is hereby ordered, That the application should be and the same is hereby granted and that the applicants steam and electric interurban railroads and boat common carriers are hereby authorized to establish the following increased rates within 30 days from the date of this order. FREIGHT RATES. All applicants, steam and electric interurban railroads and boat line common carriers, may increase freight rates as follows: All freight rates, including switching and special service, may be increased 25 per cent. MODIFICATION OF TRANSPORTATION ACT, 1920. 543 ABSORPTIONS. Where tariffs now provide for the absorption by one carrier of the charges of another carrier in specific amounts, such absorptions will be revised in harmony with increases in charges herein authorized. PASSENGER FARES AND CHARGES. All steam and electric interurban railroad and boat line common carriers applicants herein may make the following increases: 1. All passenger fares and charges may be increased 20 per cent. The term “passenger fares” may be considered to include standard local or interline fares; excursion, convention, and other fares for special occasions; commuta- tion and other multiple forms of tickets; extra fares on limited trains; club car charges. No increases may be made in street car fares within any municipality except that the Pacific Electric Railway Co. is hereby authorized to increase all of its passenger fares 20 per‘ cent. . 2. Excess-baggage rates may be increased 20 per cent, provided that where stated as a percentage of or dependent upon passenger fares the increase in the latter will automatically effect the increase in the excess-baggage charges. 3. A surcharge upon passengers in sleeping and parlor cars may be made amounting to 50 per cent of the charge for space in such cars, such charge to be collected in connection with the charge for space and to accrue to the rail carriers, 4, Milk and cream are usually carried in passenger trains, and the revenue therefrom is not included in freight revenue. Rates on these commodities may be increased 20 per cent. DISPOSITION OF FRACTIONS. In computing and applying all increased rates authorized herein fractions will be treated as follows: Where rates are stated in amounts per 100 pounds or any other unit, except as provided in the succeeding paragraph, fractions of less than one-fourth of a cent will be omitted. Fractions of one-fourth of a cent or greater, but less than three fourths of a cent, will be stated as one-half cent. Fractions of three-fourths of a cent or greater will be increased to the next whole- cent. This rule will also be followed in computing passenger fares. . Where rates are stated in dollars per carload, including articles meving on their own wheels, when not stated in amounts per 100 pounds or per ton, amounts of less than 25 cents will be dropped ; thus, $25.24 will be stated as $25. Amounts of 25 cents or more, but less than 75 cents, will be stated as 50 cents; thus, $25.65 will be stated as.$25.50. Amounts of 75 cents or more, but less than $1, will be raised to the next dollar. DIVISIONS. Where carriers earn specific amounts as their compensation out of. through rates or fares, such amounts will be increased in the same percentages as the through rates or fares. Where the divisions of carriers participating in through rates or fares are in fixed amounts per unit and are absorbed by other carriers, such absorptions will be increased in the same percentage as the through rates or fares. MINIMA. Present minimum rates or charges are not to be disturbed. LONG-AND-SHORT-HAUL VIOLATIONS. Carriers affected by this order are hereby authorized to publish rates, fares, and charges in accordance with this order, which may be in violation of section 21 of the State constitution and of section 24 of the public utilities act. PUBLICATION OF TARIFF. -The rates authorized herein may be published on one day’s notice in a blanket supplement to all tariffs. Such supplement may be similar in character or the same as authorized by the Interstate Commerce Commission. 544 MODIFICATION OF TRANSPORTATION ACT, 1920. ADJUSTMENTS. This proceeding will be kept open for the purpose of considering adjustments of rates and all appropriate matters which may properly be brought before the commission. Adjustments will be necessary and carriers will be expected to deal promptly and effectively therewith, to the end that such readjustments may be made in as many instances as practicable without forcing an appeal to this commission. Dated at Ios Angeles, Calif., this 17th day of August, 1920. Epwin O. EDGERTON, H. D. Loveranp, Frank R. DEVLIN, H. W. BrunpipceE, Irvine Martin, Commissioners. A true copy. H. MaTHEWSON, ‘Assistant Seer etary Railroad Commission, State of California. Mr. Benton. Mr. Chairman, Mr. Wood has referred to some language used in the brief which I filed in the New York case, and if it is not an unreasonable request I would like permission to read into the record ¢ertain parts of that brief, covering fully the matter referred to by him. I would like to read that into the record. Senator SmitH (presiding). That may be read if there is no objection. Mr. Benton (reading) : “STATE RATES PRESUMED TO BE REASONABLE. “Carriers lay special stress upon the argument that it must be presumed that Congress intended to grant to this commission power to control intrastate rates because it has commanded this commission to adjust rates so that carriers as a whole will earn ‘an aggregate annual net. railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of transportation.’ It is urged that the income as described includes the net. from all traffic, State and interstate, and that the aggregate value embraces the value of: all property devoted to transportation. “These premises may be admitted without bringing us to the conclusion urged. If it be said that the commission can not know what carriers will earn from intrastate traffic, if it has no control over the rates to be charged, and they may be changed at any time without its consent, it may be replied that rates subjee to State authority are quite as stable as business and economic conditions, and that all Congress expected the commission to do was to make the best estimate possible. The words ‘as nearly as may be’ indicate that Congress realized that it was merely setting up a mark at which the commission was to aim. “The point mainly stressed, however, is that Congress must have intended to grant this commission power to control intrastate rates, because otherwise interstate commerce will be unjustly burdened. It is said that if the States im- pose rates that yield a less return than is fixed by the act or the commission, then, by the terms of paragraph 2 of section 15 (a), the commission must pre- scribe interstate rates high enough to ‘make up the deficit, and that it is not to be supposed that Congress intended to require interstate shippers to pay more than sufficient to yield a fair return on that, portion of carrier property devoted to interstate traffic. “This argument has no force unless (1) said paragraph 2 does in fact, prop- erly construed, require such overassessment of interstate rates; and (2) Con- gress expected that State rates would be unreasonably low and would fail to yield a fair return on that portion of carrier property which is devoted to intra- state traffic. Neither of these premises is true. “As to the first, it has been already pointed out that Congress stated in sec- tion 1 that the provisions of the act, necessarily including paragraph 2, shall not apply to intrastate traffic. Inasmuch, then, as Congress in paragraph 2 was not prescribing a rule for the making of intrastate rates, it was not prescribing a rate of return on property devoted to intrastate commerce. The purpose of Congress was to prescribe that this commission. when acting within its sphere MODIFICATION OF TRANSPORTATION ACT, 1920. 545 for the regulation of interstate rates, should fix such rates on the basis of the aggregate value of roads within groups or districts rather than on the basis of the value of particular roads. “The commission is commanded to exercise ‘its power to prescribe just and reasonable rates’ so that carriers shall earn a return ‘as nearly as may be,’ which means as nearly as the commission can by its order provide, upon the aggregate value of their property. If it be admitted that Congress had in mind total net railway operating income earned from all traffic, State as well as interstate, and total aggregate value of property devoted to all traffic, it did not expect this commission to exercise control over the income from the intra- state traffic, for it had expressly withheld the intrastate traffic from this com- nission’s control. It intended this commission in adjusting rates to do what it could to enable carriers to earn the income prescribed, acting ‘in the exercise of its power’ to regulate interstate rates. “Tf rates prescribed by State authority should be too low, and because of that fact the net railway operating income should fall short of producing a fair return on the aggregate value of all carrier property, it will still be ‘as nearly as may be’ to that return, by reason of anything that this commission may do ‘in the exercise of its power to prescribe just and reasonable rates,’ If it should attempt to increase the rates subject to its supervision to an amount more than is necessary to yield a fair return on the value of carrier property devoted to interstate traffic, such rates would be violative of para- graph 6 of section 1 of the act, and also of this very paragraph 2, which re- stricts the commission to the imposition of ‘ just and reasonable rates.’ “These considerations seems to dispose of the suggested construction that this commission must make up a shortage of intrastate revenue, if there is any. Ed * * : “As to the second premise, there is no reason to say that Congress acted upon the assumption that rates prescribed by State authority would be unreasonably low, and would thus yield less than a fair return, but that there are compelling reasons for saying the opposite. “In the first place, carriers have a constitutional right to a fair return from their State traffic upon the value of that portion of their property devoted thereto, and Congress was justified in assuming that the courts would protect the carriers in the enjoyment of that right. : _ “Next, and most important, it would be unseemly for Congress to legislate upon the theory that the States which compose the Union require to be dra- gooned by any Federal authority into granting to the carriers their rights under the Constitution. It is not a fact that the people of the several States. through their legislatures and the regulating bodies which by law they have created, are not disposed to act justly and in obedience to the supreme law of the land. “Tt may be said that Congress knew that there were certain statutes pre- scribing rates of fare less than the rates which were in effect under Federal control, and hence that it can not be supposed that it assumed intrastate rates would be reasonable, if no means for making them so by Federal authority was provided. But, as we have just pointed out, Congress was justified in assum- ing that the courts would protect the carriers against the imposition of confis- catory rates. The event has proved the safety of that assumption, for carriers have easily obtained temporary injunctions, which have relieved them from applying fares lower than the fares in effect under Federal control. These in- junctions will afford the legislatures opportunity to act, and if the statutes are not modified the injunctions may be made permanent, if the facts warrant. “Also, by section 208 (a) of the transportation act, Congress provided that rates and fares in effect at the termination of Federal control should continue in effect ‘until thereafter changed by State or Federal authority, respectively, n authority of law” * * * ; ; De aa of (dard was, we think it is fairly evident from what it did, that the State authorities would do their duty in the same spirit that it expected this commission to do its duty. It left in the hands of this commis- sion the power to remove discriminations by mandatory orders, but it pare that in every such case the State or States interested should be nee ae) it gave this commission the authority it asked for to enter upon a ee earing with State regulating authorities. It is reasonable to believe pe oe expected that the authority which the commission had asked for (to ol ed conference with State commissions) would be used, and that ordinarily the 546 MODIFICATION OF TRANSPORTATION ACT, 1920. views of the State and Federal authorities would be accommorlaten, and agree- ment arrived at, as to what rates should be put into effect. * “In less than two months after the advanced rate hearings fal been com- pleted orders had been actually issued, or advances had taken effect without order, in all States but three. Leaving out of account for the moment action with respect to passenger fares in States having passenger fare statutes, the results in these States may be summarized as follows: (This tabulation appears in the hearing, Pt. I, p. 28.) “Under, these circumstances it is lamentable that carriers have seen fit to precipitate this litigation, which is aimed, as we believe, at nothing less then an attempt to secure from this commission a construction of the present previsions of the interstate commerce act which, if sustained, will destroy all effective power of State commissions over intrastate rates. “Tt is not to be presumed that there is anything wrong with any of the orders which State commissions have made in the cases to which we have referred. If, in fact, they ought to be modified in any way, it is not to be presumed that any one of those commissions would not only be ready, but anxious, to make any change shown by facts, called to its attention, to be necessary. Is there any reason to expect that, proceeding along the line outl'ned by Chairman Clark (in his statement to Congress, reproduced in this hearing, Pt. I, p. 17), it can not, by further common study and joint conference, be determined, to the agree- ment both of any State commission and of the Federal commssion, whether State or Federal order, either or both, should be modified in any. #espect? - “The State commissions have in the main granted the full increases asked of them by the carriers, so far as under the statutes of their Stateg:they had power to act. Now they see carriers, upon the ground that they have not been granted everything they asked in every State, beginning litigation intehded to procure a construction of the law which will destroy the power of all State commis- sions to serve the people of their respective States in the mannen. prescribed by their statutes. We believe they are justified in feeling that this;is not a wise contribution on the part of carriers toward a satisfactory and permanent solu- tion of the transportation problem. “Tf the act is to be construed as the carriers are now seeking to have it construed, then, State commissions have no proper place in any joint conference or joint hearing. This commission doubtless took that view, since it is pro- ceeding in all these cases as if the cooperative provisions were not in the act. We believe, however, that this commission, after full consideration of this case, will adhere to the interpretation heretofore consistently put upon the discrimi. nation provisions of the act, and will hold that the record which the carriers have made in this proceeding affords no basis upon which discrimination can be found. If it does make that decision, and this and other cases like it are dis- missed, it will then be possible to give the cooperative provisions of the act a fair trial. “Tf that is done it may be expected, not only that such discriminations as are within the inhibition of the act may be abated without use of the commission’s mandatory power, but that any disadvantages, not falling within the description of discriminations, which may be found to arise from State-made rates, if any, can be abated, if the attempt is made in the same spirit as that indicated by Chairman Clark’s statement of Congress, which has been heretofore quoted.” STATEMENT OF MR. BIRD M. ROBINSON, PRESIDENT OF THE AMERICAN SHORT LINE RAILROAD ASSOCIATION. The CHarrMan. Mr. Robinson. will you state your name, residence, and your relation to this subject that we are investigating? Mr. Rogrnson. Bird M. Robinson, residing in Washington temporarily. I am president of the American Short Line Raitroad Association. That associa- tion consists of 518 of the smaller and weaker roads of the country. I have been absent from the city during most of the time you have been conducting these hearings, and my knowledge of the testimony presented is very limited. I have not had an opportunity to read in full the testimony of any of the witnesses, but have hurriedly scanned the testimony of the repre- sentatives of the National Association of Railway and Utilities Commissioners, and have noted the proposed amendments that they have submitted for your consideration. MODIFICATION OF TRANSPORTATION ACT, 1920. 547 A MOST CONSTRUCTIVE LAW. My association has been of the opinion that the transportation act was one of the most constructive acts that Congress had passed in a great many years. We think it is comparable to the act creating the present Federal reserve system. We have operated under it, and while we have not accomplished much that we had hoped to accomplish, we have felt that the act itself has not yet had a fair test, that the conditions following the war have been such as to pre- vent a thorough test as to the effect of the principles incorporated in that act. .The Interstate Commerce Commission has placed upon some of the clauses of the act an interpretation that affects our lives and which we think is con- trary to the act itself. The commission has suggested that we come to Con- gress and ask that the sections be amended so as to clarify the act. We-have not thought that desirable; we have felt that the law was sufficiently plain that we would succeed in getting those things that were necessary to enable our class of roads to succeed without asking Congress to change the act. We hoped, and we still hope, that we can induce the commission to place the correct interpretation upon the act. For that reason we have not asked any amendment, and we do not now intend to do so. eae ?'- JURISDICTION OF INTERSTATE COMMERCE COMMISSION. se I understand that the proposition to amend the interstate commerce act so as to clearly define and limit the power of the Interstate Commerce Commission in so far ws intrastate rates are concerned has been discussed at length by the witnesses produced by the Association of Railway Executives and the wit- nesses of ‘the National Association of Owners of Railroad Securities and I will not, therefore, consume your time in discussing that question. I will say, however, that I am of the opinion that it would be a serious mis- take to limit or restrict the powers of the Interstate Commerce Commission in its control of the general rate situation. I am advised and believe that about 85 per cent of all the freight traffic of the country is interstate and that only about 15 per cent is intrastate, and-I feel, for that and other reasons that it would be detrimental to limit the powers of the Inerstate Commerce Commission to such an extent, as to permit any authority to put into effect rates or condi- tions of service that will place a burden upon interstate commerce. NATIONAL WELFARE IS NECESSARILY PARAMOUNT. I was raised as an old line Democrat and was a firm believer in the doctrine of State Rights, but have long since been forced to yield my views with reference to the rights of the States when confronted with paramount conditions in which the people of the United States at large were interested, which interest at times necessarily conflicts with the views of the citizens of some of the States. Senator Staniey. Suppose it conflicts with the rights of the citizens of some of the States, what then? Mr. Rosinson. Then it can not be enforced. Rights are rights, and must be respected. : I am convinced that the rail transportation carriers of the country are by force of circumstances a national unit and a national asset, and- must be so treated. Believing that to be true, I feel that nothing should be done to deprive the Interstate Commerce Commission, as the agency of Congress, to control that transportation unit to the extent that it may be necessary to insure the most economical and most efficient transportation that is obtainable, and therefore T do not believe that it would be wise to limit the commission in the manner pro- posed; and I feel that if it is done, it will result in retarding, to a greater or less extent, the full development of the transportation system of the country. SELECTED SUBJECTS. To avoid repetition I will therefore confine my testimony, first, to the de- mand of the National Association of Railway and Utilities Commissioners that Congress repeal section 15a of the interstate commerce act, and, second, to the ‘proposal that paragraph 20 of section 1 of the interstate commerce act be so amended as to require the approval of the State authorities before a certificate of abandonment issued by the Interstate Commerce Commission shall become effective. 548 MODIFICATION OF TRANSPORTATION ACT, 1920. ALLEGED WORTHLESS RAILROADS. With a view to affording a convenient reference, I read into the record a paragraph from the preamble of resolutions said to have been adopted by that association in Atlanta on October 11-14, 1921: “Whereas under such group plan the worthless roads of the country, ill- considered ventures, duplicated lines, speculative enterprises, and roads that have served their useful purpose and outlived the industries which once justi- fied their construction, are valued with the good, and the good roads are given the right to earn upon -their own value and also upon the value attributed to such worthless roads, which can not earn because they perform no sufficiently useful service in the actual movement of traffic to enable them to earn.” I also read into the record, for like purpose, that part of the resolution said to have been adopted: ~ “ Resolved, That it is the sense of this association that the group plan of making rates, prescribed by said section 15a, is uneconomic and unsound and that the attempt, under its provisions, to produce returns upon roads that are unable to earn returns themselves, has placed an unjust burden upon the business of the Nation, from which it should be relieved by the immediate repeal of said section 15a.” . REPEAL OF SECTION 154. I assume that that part of their preamble, which I have just read, is the sole and only basis for that part of the resolution which I have read, and that the reasons therein stated are the sole and only bases for their demand to have section 15a of the interstate commerce act repealed and the group plan of dealing with the basic problem of adequate revenues must be abandoned. The reasons given in that preamble and resolution do not justify the repeal desired, nor do they justify the abandonment of the only plan which can be successfully used in this country as a basis for rates if all parts of our trans- portation system are to continue to function and give to the public that efficient service which they demand and are entitled to receive. That result can not be successfully accomplished except under the group. plan. RATES MUST BE SUFFICIENT. As a fundamental proposition, I assert that rates must be sufficient to pay the carriers the cost of producing the transportation and that cost must in- clude a fair return on the value of the property held and used for public service. ‘Senator STantey. Now, do you mean intrastate and interstate rates, both? Mr. Roprnson. Generally speaking, in a broad sense. Senator Stanitey. And Congress shall see that it is done? Mr. Roginson. That is not the proposition I made, Senator, if I may repeat it. I will give you this last sentence again, so that it may be clear to you. As a fundamental proposition, I assert that rates must be sufficient to pay the carriers the cost of producing the transportation and that cost must include a fair return on the value of the property held and used for public service. That is a general proposition, and not limited to Congress or limited to the States. That is a fundamental proposition. Senator Srantey. That is the rule that the Interstate Commerce Commission must apply to interstate commerce. Now, you are going to extend that to strictly intrastate traffic? Mr. Rosinson. That applies to both. I think that is a fundamental proposi- tion as to carriers. Senator Stantxry. Yes. TO SERVE AT PERMANENT LOSS IS CONFISCATION. Mr. Rosrnson. The courts have held in many, many cases that carriers can not be compelled to operate at a continuous loss. In the case of Brooks Scanlan v. Commission (251 U. S., 396) the Supreme Court held.in effect that a railroad, although devoted to a public use and affected with a public interest, and hence subject to public regulation and control, remains private property and is protected by the constitutional guaranty made to such property that it shall not be taken from its owners without due process of law, nor be taken for public purposes without a just compensation. The MODIFICATION OF TRANSPORTATION ACT, 1920, 549 devotion to public use does not mean devotion to public consumption and de- struction, and by no sort of regulation can a railroad be compelled to operate at a continuing loss. ; ‘ MUST HAVE REASONABLE RETURN. The Supreme Court held in Missouri Pacific Railway Co. (236 U. S., 585) and Norfolk & Western Railroad Co. v. Connelly (236 U. S., 605) that the inter- ested carriers could not be forced to operate without receiving a reasonable return on the money invested in the property devoted to public use. cost IS BASIC, The decisions of the courts and the interstate commerce act necessarily make the cost of producing transportation the basis of rates and divisions, and this is the only basis upon which a successful transportation system can be main- tained and operated. In ascertaining such cost the Government, representing the public, has the right to investigate and govern to a great extent the various elements that constitute that cost. ECONOMY OF OPERATION. The transportation act authorizes and directs the Interstate Commerce Com- mission to see that the carriers are efliciently and economically managed and operated. Costs vary widely because of difference in conditions. ILLUSTRATION OF COMPARATIVE COSTS. The cost is vitally controlling in every character of transportation. For ex- ample, taxicab companies furnish transportation in the cities to persons desir- ing service of that kind. Asa rule the taxicabs cost from $1,000 to $1,200. They operate upon streets constructed and maintained by the cities. In the ordinary city they charge, say, 50 cents for transporting one passenger 1 mile. Some of the citizens use cabs and pay that price, regarding it as a reasonable charge for the transportation for 1 mile to a railroad depot. Such a passenger, upon arriv- ing at the railroad station, takes a.train and will enter a car costing probably from $30,000 to $50,000. That car will be moved by an engine costing from $50,- 000 to $100,000 over a track that will cost on the average $40,000 to $50,000 per mile, and will pay only 4 cents per mile for such transportation, it having been determined by the Interstate Commerce Commission—and I might add by other commissions and by experience—that 33 to 4 cents would cover the cost of the service to the railroad, whereas the same individual willingly, or by choice, pays 50 cents per mile for the service of the taxicab. The reason for the higher charge of the taxicab is the limited amount of traffic available, which necessi- tates a far higher rate per unit of transportation produced, but yet no one would contend that the cab is worthless and should be destroyed. Yet a large per cent of our citizens are now complaining that the railroad rate is too high. LIGHT TRAFFIC MAKES HIGH COSTS. The same principle of costs necessarily must govern different carriers. The main trunk roads because of the density of traffic can produce units of trans- portation at a comparatively low cost : Senator STANLEY. You mean now, less than 4 cents a mile? Mr. Rosrnson. This has no reference to that 4 cents, Senator. This is speak- ing now of the general cost of service. Senator STanLey. Yes. Mr. Rosinson. I will repeat: The same principle of costs necessarily must govern different carriers. The main trunk roads, because of the density of traffic, can produce units of transportation at a comparatively low cost, whereas for lines of vital importance but with light traffic, the unit costs which must be met out of rates, are necessarily higher. In both instances, however, the cost should include all proper expenses, taxes, depreciation, and a fair return upon the property devoted to the public service. DISSIMILARITY OF COSTS. One carrier (A), because of low grades and dense traffic, may be able to trans- port its freight tonnage at a cost, including all expenses and a fair return, of _ say 1 cent per ton mile; while another line (B) equally well constructed and hav- 550 MODIFICATION OF TRANSPORTATION ACT, 1920. ing an equally dense traffic, but being built in mountainous country at a heavy construction cost, may not be able, even though most economically managed, to move its traffic for less than 2 cents per ton mile; and still another road (C), less expensively built, with less density of traffic but having heavy grades or other physical obstacles, may not be able to move its traffic at less than 3 cents per ton mile. And a fourth line (D) which penetrates a thinly populated district, and being cheaply built, may not be able to move its traffic at less than 5 cents per ton mile. COMPARATIVE COSTS NO TEST OF WORTH. The wide differences in the.cost of producing the transportation has led some people to hasty conclusion that the road with high cost of operating is either worthless, or is an ill-considered venture, and should be abandoned. That view is altogether erroneous. The whole public is interested in all of the traffic on all of such lines and must have the transportation furnished by each. It is apparent that if any considerable portion of the lines with the higher cost ratio should be discontinued it would immediately result in reducing the volume of traffic fed to the remaining lines, and that, in turn, would decrease the density of the traffic and increase the cost on the remainder. -HIGH UNIT RATES IMPOSSIBLE. The people living in regions’ served by light traffic lines can not pay rates corresponding to the high unit costs, and can neither prosper nor survive in competition with communities which might have rates corresponding to the low unit costs of the dense traffic carriers by which they are served; but jit is obvious that public policy demands that there be no such extreme condition of inequality if there is to be anything like a well-rounded national development. It is of equal importance to the regions of low unit costs to receive the products of the fields, the forests, and the mines, as it is to the regions of high unit costs to produce and market their products; and that factis at once the reason, the justification, and the necessity for some practical system of equalization. EQUALIZATION OF GROUP COSTS. That result can not be accomplished by dealing with the carriers separately. It can only be accomplished by placing them in groups and fixing rates on the traffic moved by all of the carriers in each group so as to give to all the cost of their service. It is true that owing to the density of the traffic and the present divisional arrangements some lines may apparently show earnings in excess of a fair return, but the rule of divisions was incorporated in the trans- portation act to give to each line the cost of its service, and thus insure a continuation of all of the necessary units of the system in each group. FALLACY OF ALLOCATING STATE COMMERCE, Mr. Benton, general solicitor of the National Association of Railway and Utilities Commissioners, discussed the group plan in his testimony and I read the following from page 188 of the printed report of the hearings: “What the commission’s ruling comes to is nothing more or less than that under the group plan of rate making prescribed under section 15a which Con- gress is now asked to repeal. The commission may compel the shippers upon roads in one State to pay more than is necessary to yield a fair return on those roads to make up a deficit in desired earnings on other roads in other States.” That statement is fallacious and unsound. It ignores the fundamental prin- ciple that our transportation system is an entirety and that each and every unit is necessary to make up the whole. It assumes that they are State roads. In other words, that there are carriers in which only the citizens of a particular State are interested and it assumes that the earnings of a road or a given part of a road which may be located in one State, are of interest only to the citizens of that State and that the citizens of other States have no interest therein. This, notwithstanding the fact, and it is a fact, that in many instances a carrier or a part of a carrier in one State may show larger earnings therein notwithstanding the greater portion of its traffic originated in some other State or States and merely moves through the favored States such as he has in mind. B oee MODIFICATION OF TRANSPORTATION ACT, 1920. 551 In such cases the citizens of the intermediate States have much less interest in the success of that part of the road in question than the citizens of the other States which originate or receive the traffic. NO STATE LIVETH ALONE. I could enumerate thousands upon thousands of instances to demonstrate that the welfare of the Nation at large is the real interest to be considered and that the interest of the local State is small in comparison. : Let me give you an illuminating example where I have full knowledge of the acts : About 15 years ago, I constructed the Tennessee Railway, penetrating into the mountains of east Tennessee, a distance of 62 miles. The territory in question was surrounded by a high range of mountains and contained approxi- mately 500,000 acres of hardwood timber. Practically all of that whole acreage is underlaid with seven workable veins of bituminous coal, the largest vein being about 7 feet thick. I participated in constructing on that road the largest hardwood sawmill in the world. Soon after its construction it was sold to the Globe-Wernicke Co. of Cincinnati. That company is probably the largest producer of filing cases, office furniture, etc., in the world, and it has since drawn its supply of hard- wood from that mill on the Tennessee Railway. The Globe-Wernicke Co. has supplied and is now supplying to the Govern- ment in this city a large per cent of its filing cases, desks, and other office furni- ture, and it supplies its products to the public not only throughout the United States but in all sections of the world. Some coal mines have been developed upon that road, but, owing to some serious controversies among the owners of the principal coal properties in that territory, the coal development has not been large. There are billions of tons of coal in that territory that can only be reached by the Tennessee Railway, and there is something like 3,000,000,000 feet of hardwood timber yet to be moved off that road. Notwithstanding that great amount of available traffic that road has never been able to pay any return on the money invested in it. Its rates have heen fixed by governmental authority and its divisions have been fixed by the con- necting lines, ‘and hence it has not been able to accomplish much more than pay its operating expenses, and at times it has not earned its operating expenses. Senator Stantey. Let me interrupt just at that. point. The trouble seems to be in the division that comes to that road. The commission has a right to ad- just that division of rates, as I understand it, now? Mr. Rospinson. The statement was made both as to rates and divisions. Its rates have been fixed by governmental authority, and its divisions have been fixed by the interested lines, so that the two were involved. The Interstate Commerce Commission has in that case acted and prohibited it from charging what were regarded by its owner—and I was the owner—as adequate rates. Notwithstanding the great. volume of traffic which that road has available, not- withstanding that in the future it will have to be double tracked or more to handle the business that must. come out of there, it has been termed a worth- less railroad, and has never been able to make any earnings or pay any interest on the funds invested in it. In view of the facts stated, it must be admitted that the consumers of hard- wood, the purchasers of the filing cases, desks, and other office furniture throughout the 48 States and the District of Columbia and our island posses- sions are directly interested in the Tennessee Railway. In fact, they are as much interested as are the local people on the line. They consume its products, they have the benefit of the service it renders, and they are interested in having it continue so that the vast amount of raw material yet to be moved may be made available for the benefit of humanity. It can not be said truly that that property which is located in one State is exclusively of interest. only to that State. STATE ROADS ARE UNITS IN NATIONAL SYSTEM. I assert that the Tennessee Railway is a part of the transportation system of the whole Nation, and that it produces a substantial volume of traffic which. moves not only in Tennessee but. throughout all parts of the United States, and 73337—21— pt 2-19 552 MODIFICATION OF TRANSPORTATION ACT, 1920, goes to remote parts of the earth. It performs its part of the transportation. required by the public, and it should receive in return the cost of its service. Senator Stanitry. Do you mean to state that without qualification? Mr. Rosrnson. That it should receive in return the cost. of its service? Senator Stranrey. That that road should be allowed to receive a rate that would compensate that road for the service rendered, or pay a sufficient return on the capital investment, without regard to any other consideration or any other road or cost of service? Mr. Rosinson. I believe that to be the true and correct statement of the facts: Hither one of two things must follow. Either the owners of that road must receive the cost of their service, compensation for the service they render, or they must be, in justice, permitted to take off that road and discontinue the service. Hither one of the two. Senator McLean. In a word, Mr. Robinson, why is it that this road has not been able to earn more than expenses? Mr. Ropinson. The rates fixed by governmental authority and the divisions that have been fixed by its connecting lines were such as to keep it from getting anything out of business it was able to handle. It has not had an adequate amount of the divisions that are available. Senator McLean. As fixed by other roads in that territory, you have not had an adequate amount of the divisions? Mr. Ropinson. In that group, in that territory, that is true. It has not had an adequate amount of the divisions that are available. The CyHairMAN. What is its connection? Mr. Rogpinson. It is now the Southern Railway. It was the Cincinnati, New Orleans & Texas Pacific. The CHarrMaAN. So this line connects with the Southern Railway? Mr. Roprnson. Yes; connects with the Southern Railway now. The Southern Railway has a line running from Cincinnati to Chattanooga. Senator STANLEY. It is a part of the Southern Railway now? Mr. Rosinson. Yes. Senator S1antey. It used to be a tap line of the Queen & Crescent? RIGHTS OF INTERMEDIATE STATES. Mr. Rosrnson. The great majority of the forest products produced on that road are moved north through the State of Kentucky, on a trunk road that in ordinary times is a large earner. It is inconceivable that Kentucky can claim that rates should be fixed in that State so as to give it the advantage of the large earn‘ngs of that trunk road on traffic which was produced and started to the market from Tennessee and other States. Nor can Ohio or any other State through which such traffic passes claim the benefit of the traffic so produced. In view of the fact, as stated above, that about 85 per cent of the traffic of the country is interstate and only about 15 per cent is intrastate, it is without doubt a violent assumption to claim that the earnings of roads in a given State are to be credited to that State. CLOTHING FOR THE NATION. To give you another illustration: My vice president and general counsel, Mr. Cain, constructed the Gulf, Texas & Western, a 100-mile road running west of Fort Worth, Tex., and penetrating a large undeveloped section of that State. There were no developments in that territory when he began construction. Since that time a great deal of the territory then fallow has been opened and the territory now produces cotton, grain, cattle, and other necessary products. Mr. Cain has recently investigated the final disposition of the cotton produced on his line. He finds that most of it moves to New England. A carload of cotton leaves his road after having been moved less than 100 miles and passes to one of the four trunk roads with which his road connects en route to St. Louis or Chicago. It then passes over one of the trunk roads to the New England territory, thence to the cotton mill, where the cost of producing the cotton and the necessary transportation is paid by the mill owner. After being manufactured into cloth, it starts back over the New England line, some of it going over the trunk roads to the Pacific coast, some of it moving back to Texas, and some of it going to Florida, in which regions ‘it is consumed. The consumer pays not only for the cotton but all of the transporta- MODIFICATION OF TRANSPORTATION ACT, 1920. 553 tion costs from the time it left the depot of Mr. Cain’s road until it reached the consumer. . It must be conceded that all of the roads that participated in the movement of that cotton and cloth are a part of the transportation system of the country. It must be conceded that the consumer is directly interested in the road on which that cotton was produced, and it can not be successfully claimed that any road in any one of the States through which it passes is to have special credit for that business or the revenue which was derived from such traffic. The CHAIRMAN. I think we will have to adjourn until Monday morning, and you may complete your statement then. Mr. Rogrinson. I believe I can complete my statement in a half hour. (Whereupon, at 1 o’clock p. m., the committee adjourned until Monday, November 28, at 10 o’clock a. m.) MODIFICATION OF TRANSPORTATION ACT, 1920. MONDAY, NOVEMBER 28, 1921. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The conmittee met, pursuant to adjournment, at 10 o’clock a. m. in the com- mittee room in the Capitol, Senator Albert B. Cummins (chairman) presiding. The CHarrMan. The committee will be in order, and we will proceed with the hearing on S. 1150 and S. 2510. Mr. Robinson, you may proceed. STATEMENT OF MR. BIRD M. ROBINSON, PRESIDENT OF THE AMERICAN SHORT LINE RAILROAD ASSOCIATION—Resumed. STATE ROADS ARE UNITS OF NATIONAL SYSTEM. Mr. Rosinson. Mr. Chairman and gentlemen of the committee, at the time of your adjournment on Wednesday, the 23d instant, I was discussing the state- ment made by Mr. Benton, shown on page 188 of the printed record of your hearing, in which he said that under the commission’s rulings, by reason of the group plan prescribed under section 15-a, “ the shippers in one State were compelled to pay more than is necessary to yield a fair return on roads in that State to make up a deficit in desired earnings on other roads in other States.” I had stated that assertion of Mr. Benton’s was fallacious and unsound; he ignored the fundamental principle that our transportation system is of national scope and that every unit which renders a real public service is necessary to make up the whole. I made the statement that I could enumerate thousands upon thousands of instances to demonstrate that the interest of the people of the Nation at large is the real paramount consideration, and that the narrow provincial interest of the State or local community is small in comparison. I gave two illustra- tions—first, the Tennessee Railway, a small road'in Tennessee, and, second, the Gulf, Texas & Western Railway, located in Texas. The facts stated show clearly, as I believe, that the citizens in all of the States are directly interested in the traffic originated on and handled by said two roads. In the instance of the Tennessee Railway the principal traffic is forest products, which go to all sections of the United States as well as to all parts of the world; and the second important item is bituminous coal, which is distributed to points ranging from Chicago on the north to the Gulf of Mexico on the south; hence the public in all of said States have a real interest in the continued existence of that road. In the case of the Gulf, Texas & Western Railway, I had described the movement and probable final distribution of the cotton produced by the farmers in the region immediately served, showing that the citizens of all of the other States are interested in the functioning of that carrier. I had not mentioned, but do now call attention to the fact that the territory served by the Gulf, Texas & Western also produces wheat, cattle, and other necessary agricultural products in substantial quantities, the consumption of which is widely distributed throughout the country. : HAVE NEVER PROFITED. Both of the two roads mentioned have in the past been permitted to eurn little, if anything, in excess of their operating expenses, and for considerable periods in their history they have not been permitted to earn the full amount of their mere “ out-of-pocket ” expenses. In neither instance have these roads been 555 556 MODIFICATION OF TRANSPORTATION ACT, 1920. able to earn and pay any return on the money invested in their construction. In other words, they have been rendering efficient service to the public substan- tially below cost, and the owners of said properties have sustained the loss, but that condition can not continue indefinitely. CONDITIONS NOT EXCEPTIONAL. These properties are not exceptional. They are fair examples of a very large per cent of the 800 short lines—— Senator La Foiterre (interposing). What are those roads? Name them again. Mr. Rosinson. The Tennessee Railway, and the Gulf, Texas & Western Rail- way. The CuarrmMan. Are those class I or cliss II roads? Mr. Ropinson. Class II roads both of them. Senator, I described both of those roads in my previous testimony, and I am merely referring to them again. Repeating the statement I have just made, These properties are not exceptional. They are fair examples of a very large per cent of the 800 short lines, which produce a very substantial percentage of the total volume of the traffic of the country, practically all of which is deliv- ered to the trunk roads and by them moved to destination, thus creating that density of traffic which enables that kind of roads to handle traffic at a very low cost. The CHainman. What is the mileage of your so-called short lines? Mr. Roginson. The total? The CHarrMan. The total. Mr. Roginson. It is estimated it is from 30,000 to 35,000 miles. It is rather indefinite just what constitutes a short-line road, so it is difficult to give a spec fic answer to your question. But it is from 30,000 to 35,000 miles. Senator La Fotterre. That is, in the aggregate? Mr. Rospinson. Yes; the 800 roads. a Senator La Fottetre. Eight hundred of them? Mr. Roginson. Yes; and when I speak of 800 it may not be entirely accu- rate; it may be a few more or a few less. Senator La Fortette. I understand. EVEN STRONGEST ROADS ARE DEPENDENT ON THROUGH TRAFFIC. Mr. Roprnson. We have no accurate record of the percentage of traffic origi- nated by the short and weak roads, nor have we been able to prepare any record which will show the amount of traffic originated by the trunk roads, but it is a fact that few if any of the trunk roads originate a sufficient volume of their own to enable them to continue in business. The Traffic World of July 9, 1921, makes the following statement: “Class I roads usually are regarded as representing at least 90 per cent of the transportat‘on business of the country. It is certain they have by far the greater portion of the revenue. Yet in the first quarter of this year they car- ried only 217,967,619 tons of revenue freight as originators of the traffic. They receive the rest of the total of 410,818,363 tons from their connections” (only a little more than half). SHORT LINES ARE ORIGINATORS. The short and weak lines originate or deliver a substantial amount of the through traffic handled by the class I roads, but they receive in return only a small percentage of through traffic from class I trunk roads. In fact, under practices and condit‘ons in effect prior to the enactment of the transportation act, the short and weak roads were the only ones that were expected to, or re- quired to, live upon the traffic which they originated, while the trunk roads were freely accorded all of the benefits of the through traffic as well as the revenue from the traffic which they originated. It was that condition in many cases which made the so-called strong road. TRUNK ROAD SYSTEMS MUST HAVE THROUGH FREIGHT. That fact can be successfully demonstrated by even a cursory examination of the business of most of our strongest and most efficient trunk road systems. For example, take the Union Pacific. During the early years following the con- MODIFICATION OF TRANSPORTATION ACT, 1920. 557 struction of that road both the local and through traffic was inadequate to meet its cost of service and it was forced into bankruptcy and liquidated. Since that time both tlfe local and through traffic have increased greatly, but if its traffic was limited to that which it originates it would quickly become a weak road and would within a comparatively short period again reach bankruptcy. “The through traffic handled by that system is originated on other lines and it is that traffic which gives that company its great strength and enables it to han- dle business at a low cost. If any considerable portion of that through traffic should be diverted to other lines, a thing that can easily be done by connecting lines, that road would, as a result, lose its premier position and gradually but certainly decrease in strength. The interdependence of the various units of our transportation system can be illustrated by a similar comparison with the New York Central, the Pennsyl- vania, Erie, or the Baltimore & Ohio, and any other of the leading strong sys- tems of the country. For example, if connecting lines or shippers, who have the right to route their freight, should for some reason determine to deliver their through business to the New York Central, the Erie, and the Baltimore & Ohio, it would soon reduce the Pennsylvania from its present strong and ef- ficient position and cause it to become one of the weak properties of the country. EQUAL RIGHTS OF STATES, It is self-evident that the largest volume or densest traffic of the country State, including the short and weak roads, and moving to and througb other States, is of equally vital importance to the citizens of all of the States and to all the units of the transportation system. It is self-evident that the largest volume or most dense traffic of the country is in the districts surrounding New York and Jersey City. That density of traffic has the effect of decreasing the cost of producing the transportation, but it is a violent assumption to say that the citizens of Greater New York or the citizens of the State of New York and the State of New Jersey are to be credited with the benefits of that dense traffic, hence should receive extremely low or subnormal rates. It is true that the consumers of that district pay the transportation charges on such part of the traffic as they consume, but in so doing they must also necessarily pay the cost of the service rendered them by the road which originated the traffic or performed an intermediate haul. It can not be fairly stated that citizens, when paying the cost of the transporta- tion services rendered them in their local city or State, are being compelled “ to pay more than is necessary to yield a fair return on those roads to make up a deficit in desired earnings on other roads in other States.” FEED ENOUGH TO NOURISH ALL. In summarizing my statement with reference to the group plan of making rates authorized in section 15-a, would say that I believe that that plan is the only one under which the Interstate Commerce Commission can, and will, meet the demands of the present situation confronting the railroads. It is based upon the fundamental principle that all of the roads rendering a real public service are a part of the transportation system, and that the roads shall receive just compensation for the services they render. That section pro- vides a measure by which the Commission can divide the total revenue between the various participating roads in such a way as to give to each that portion which is due them, and thus insure justice to and a continuation of the short and weak roads, which serve a real public purpose. ALLEGED WORTHLESS ROADS. I want to discuss, seriatim, the character or kinds of roads mentioned in the preamble and referred to in the resolution of the National Association of Rail- way and Utilities Commissioners, which I have heretofore read into the record. The first class mentioned as objectionable is called “the worthless roads of the country.” That term is a very general one and does not carry with it any indication of the kind of roads so questioned, but it is a term frequently though loosely used by many of the public when referring to some road or roads that have not been a financial success. More frequently than otherwise, however, it ig not only not justified by the facts but is a meaningless and worthless statement. 558 MODIFICATION OF TRANSPORTATION ACT, 1920. Is FINANCIAL SUCCESS THE YARDSTICK? I am more familiar with the railroads of the country than the average per- son. In fact, my knowledge is rather extended, and I know of but few roads that could properly be called worthless. Permit me to call your attention to a few roads which have often been so characterized by the public: : THE HENRY FORD ROAD. If earning power alone be the prime test. the case of the Detroit, Toledo & Ironton is an interesting one to contemplate. That road consists of about 450 miles, running from Detroit and Toledo on the north to Ironton, Ohio, on the south. While its termini are located nearly due north and south, the road runs in something of a semicircle, and misses most of the important manufacturing , and business centers in that section. It crosses all of the trunk roads running from the Atlantic coast to Chicago and St. Louis and crosses most of the north and south lines in its territory. That road consists of several former short railroads. The original road is said to have been constructed in 1874, and its history shows a continuous line of bankruptcies, receiverships, and reorgan‘zations. For many years it has been often pronounced a “road that should never have been built.” It has been almost universally branded as a ‘“ worthless” railroad. Most of the time during its existence it has suffered substantial operating deficits, and during only a small part of its existence has it earned sufficient to pay operating expenses. : f That road originated a substantial amount of traffic, but, like other roads, it could not exist on that alone. During its existence other roads in its terri- tory absorbed many of the short or intermediate class of roads and thereby acquired control of the greater part of the ava‘lable through traffic. These con- solidated carriers did not permit the Detroit, Toledo & Ironton Railroad to have any substantial part of the through traffic which they controlled, hence the volume of business which it handled was insufficient to maintain it. Yet with all its unsuccess this road has always had a decided potential value in the very fact which was its financial weakness, in that it dces avoid the con- gested industrial centers—for one of the gravest of the physical problems which eonfronts the railroads as a whole is that of ‘nadequate terminal facilities at originating, terminal, or intermediate business and manufacturing centers—so it is readily conceivable that in t'mes of great activity in the growing and pros- pérous Detroit region an open outlet which avoids all the points of congestion may afford an immense rel‘ef during periods of threatened blockades. The Detroit, Toledo & Ironton Railroad Co. was organized in 1914 and took over the property from a receiver. The market value of its securities declined from the time of the organization until some t'me in Aucust, 1920, when Mr. Henry Ford acquired all or practically all its outstanding securities. The Railway Age states that Mr. Ford did not become president of the company until the 4th of March, 1921, and that no change in policy or operation of the road took place until that time. Senator La Forretrre. Do you know the history of that road, Mr. Robinson? Mr. Roprnson. I am g’ving you most of the history that I know, Senator. Senator La FotitetTe. Do you know that it was built in 1874? Mr. Rogprnson. The record shows that. JI am repeating all these statements from the record, which I have access to. ; Senator La ForttetTe. What was it capitalized at? Mr. Rosrnson. I can not from memory give you any facts with reference to its capitalization either at the beginn‘ng or intermediate or at the present time. : The CHAIRMAN. It was not built as a complete road as it is at the present time? Mr. Rosrnson. I stated that it was bu‘It.up from a number of short roads. Senator La FottettTe. You do not know the capitalization or financial history of the several roads which comprise the Detroit. Toledo & Ironton Railroad? Mr. Rorixson. I do not. So far as the thought I am trying to advance here, it has no direct bearing on the thought I am trying to advance. But I do not have any knowledge of the organization or capitalization of that road at any time. The records show that the Detroit, Toledo & Ironton in February, 1921, incurred an operating deficit of $104,923, and that in April, two months later, MODIFICATION OF TRANSPORTATION ACT, 1920. 559 it produced a net operating revenue of $301,675. It is self-evident that no material change in the physical condition of the property could take place within the said two months, hence the remarkable change in results was due to other conditions. The record shows: “During the four months September to December, 1920, inclusive, after the present railway freight rates were fixed, the Detroit, Toledo & Ironton handled an average of 49,246,000 ton-miles of revenue freight per month and had freight earnings averaging $493,800 a month. In the months of April, May, and June, 1921, the road handled an average freight business of 37,093,000 ton-miles a month and earned from it an average of $694,203 a month. In other words, its average freight tonnage in these three months was almost 25 per cent less than in that last four months of 1920, while its average monthly freight earnings were over 40 per cent greater.” The record also shows that the Detroit, Toledo & Ironton received approxi- mately 1 cent per ton-mile during the last four months of 1920, and that for the month of April, 1921, it received 2.13 cents, in May 1.76 cents, and in June 1.78 cents per ton-mile. For the four months mentioned the receipts averaged 1.88 cents per ton-mile. During the same period the average revenue per ton- mile for all class I roads increased only from 1.1 cents to 1.383 cents per ton-mile. This so-called “ worthless road,” or ‘‘road that ought never have been built,” was suddenly removed from that unenviable status to a road that became not only self-sustaining but was widely advertised throughout the land as having been transformed into a model, successful railroad. There was no change in the termini of the road; there was no material change in the physical condition of the property ; it did not make any extensions or reach any new markets; and, so far as is apparent, nothing was done with the property itself which could produce the change that took place. The facts are that Mr. Ford was able to divert business being handled by other railroads to the D., T. & I and thus completely change its situation and make it a road that could be operated at a profit. Senator POINDEXTER. How was he able to do that? Mr. Ropinson. Senator, I am going to touch on that. Senator PorInDExTrER. Very well. Mr. Roptnson. Mr. Ford, as is well known, has very large manufacturing plants at Detroit and other points; he controls the routing of all raw material, shipped to his plants and the routing of the finished products sent therefrom to all parts of the world. He was able to, and did, cause practically. all, if not all, of such traffic to be routed over the D., T. & I. The great majority of such traffic was high class and paid a substantially higher rate than the bulk of the traffic, such as coal and other commodities, which had previously constituted its principal traffic. But the diverting of large volumes of traffic from roads that had theretofore handled it is apparently not all, for it is charged that the Ford interests de- manded and obtained a very large increase of the divisions of joint rates from roads with which the D., T. & I. now exchanges business. I do not intimate that the road was not entitled to such increase in divisions, or that there is anything illegitimate in Mr. Ford’s having taken his freight business away from the other railroads and given it to the D., T. & I. as an “ elixir of life,’ but it illustrates how a carrier which was a business invalid from birth has been made strong and prosperous by the sustenance derived from through traffic routed to the most distant parts of the country. OTHER CASES. I have heretofore in my testimony described the Tennessee Railway and its failure to earn sufficient funds to make it a financial success, and I described the substantial public service which it has rendered and which it will render in the future. That road has been unjustly characterized by many as a “ worth- less” road or a “ road that ought never have been built.” Senator Poinpexter. Let me get the location of that road. I do not just recall it. oa ee Mr. Rosrnson. It is a road which I built in Tennessee, due south of Cincin- nati, and which I described minutely in the first part of my testimony. : To repeat the last sentence: That road has been unjustly characterized by many as a “ worthless” road or a “ road that ought never have been built.” I have heretofore described the Gulf, Texas & Western Railway, and stated that it had been unable to earn sufficient to make it a financial success. I also 560 MODIFICATION OF TRANSPORTATION ACT, 1920. described the services it is rendering and called attention to the territory which it serves, and I stated that that has been termed as a “ worthless” road or a “road that ought never to have been built.” UNFAIR TO CHARACTERIZE AS “ WORTHLESS.” Statements of that character are wholly unjustified as to said roads, and I could describe a very large per cent of the 800 short lines of the country and show that very few, if any, failed to render a real public service, and that it is unfair to characterize them as worthless, and it is detrimental to the public welfare to exclude them from being considered and properly recognized in any constructive plan for rehabilitating the railroads and permitting them to have the constitutional right of receiving just compensation for the value of their service. They can not, however, continue to serve the public without being paid for the services they render; that result can not only be successfully accom- plished through the group plan of making rates, but it can be done under that plan in a way that will be fair to the public. If there are any railroads in existence that are truly worthless, they should be eliminated from the situation, and proper authority to accomplish this is contained in the transportation act, and I will discuss hereafter that subject. ILL-CONSIDERED VENTURES. The preamble which I have read also names what is called ‘“ ill-considered ventures,” but the phrase is so ambiguous that it can not very successfully be weighed. One can not know what that association had in mind when present- ing it as a basis for the repeal of section 15a of the interstate commerce act. It is possible that some small roads have been constructed without due con- sideration, but if so, the amount involved is practically negligible. The commission in the exercise of the power given it in the rule of divisions will hardly give any such road substantial encouragement. If there be any such road, the remedy is to have it abandoned and scrapped. DUPLICATED LINES. The third class of roads mentioned in the preamble is “ duplicated lines.” That term isa most general one, and in view of all the facts it should be analyzed before being given any imagined weight. It is true that there has been some duplication of lines in this country. Among the notable instances I may mention the Pacific coast extension of the Chicago, Milwaukee & St. Paul, the Western Pacific, and the Nickel Plate. These roads did materially duplicate some existing facilities, but they devel- oped and served extensive new territories that were without adequate transpor- tation facilities; and all of them now render a great public service. It is in- conceivable that lines of that character can be abandoned. If they can not, they must be sustained. MOTOR-TRUCK DUPLICATION, There is at this time an extensive duplication of service that is placing a much greater burden upon the public than the inconsequential duplication of railroad lines. I refer to the motor-truck lines. All the States of the Union are now building fine highways and the Government is contributing liberally thereto. Motor trucks are rapidly invading the transportation field and dupli- eating the service rendered by the railroads, under conditions that are most unfair and unjust, and are imposing a substantial burden upon the public. Trucks of that character in most of the States are permitted to compete as common carriers with existing railroads without paying anything for the road building or the upkeep, and they are rapidly destroying the roads. In most of the States they are wholly unregulated, being permitted to operate without schedule and without any regulation as to their charges. Senator Pornpexter. There isn’t any Federal regulation whatever ag to that industry—that is, as to the motor-truck lines? Mr. Rorninson. There is not, and we are of the opinion that there can not be any Federal regulation. We have investigated that matter and find that only 4 per cent of their business is interstate; something more than 90 per cent of MODIFICATION OF TRANSPORTATION ACT, 1920. 561 their business is probably intrastate, and therefore it would be very difficult for the Government to meet that situation, But in advancing this thought at this time I was attempting to call the attention of the National Association of Railway and Utilities Commissioners to a real duplication of service, and I am going to attempt to show that in some of the States they have control of this duplication of service and that they are nat in any way adequately or successfully limiting it. That is the thought I had. The railroads must not only build and maintain their own tracks but are taxed heavily to create and maintain the highways used by the trucks; operate upon schedules, and are governed rigidly as to the charges they may make. Under those conditions the motor trucks underbid the railroads on the cream of the local business, though they are under no obligation to operate during bad weather. In this way they not only duplicate existing lines and service, but by decreasing the volume of traflic of the railroads they increase the cost of the service of the rail carriers. Some States have given their railroad commissions authority to regulate motor trucks, but in most of such States the commissions utterly fail to prevent the duplication of the service and fail to require them to compete upon a fair basis. If there be any duplicated railroads that do not render a real public purpose, they should be abandoned, and the commission has power to accomplish that result. The CHarrMaAn. Let me ask you a question there: In speaking of the motor- truck business and ity extent, do you include the motor trucks that are not common carriers; that do business for one particular enterprise or concern? Mr. Rosinson. I do not. : The CHarrMAN. Or do you only include those that do business as common carriers? Mr. Rosinson. I contemplate those doing business as common carriers. I doubt the ability of the Government to prevent a manufacturing enterprise from running its own motor trucks and rendering service. I refer exclusively, in my statement, to those doing business ay common carriers. The CHarrRMAN. Where did you get your statistics on that point? I am anxious to know where you get the statistics? Mr. Ropinson. There are no statistics that are reliable, but we have had to grope around at this place and that place to find what proportion of the business crosses State lines. And these figures I gave here, gentlemen, can not be absolutely established. The CHAIRMAN. A great many of the motor-truck lines that do cross State boundariey are engaged in moving the products of a particular concern, and are not common carriers. Mr. Roginson. I attempted to answer you a moment ago, Senator, to say that those I contemplate are those that are rendering the service as a common carrier, and not those that belong to a given enterprise. The CuHarrmaNn. I do not know that any reliable statistics have been gathered on that point. I have been much interested in that subject and have tried to get the figures, and I could not tind any that are to be depended upon. Mr. Rosinson. I am not gure that the figures that I have given you as to the percentage of interstate business are at all reliable. Because there is ‘nothing that we could look to that would make it absolutely certain that our figures were reliable. But we do know, from the investigations we have made, that the interstate business handled by these common carrier motor trucks is comparatively small. The great bulk of it is intrastate business. Senator PornpEexrer. Complaint is beginning to arise, at a few po nts that I know of, of State oppression, or State discrimination between certain rivals of common carriers of interstate business, and inquiry is being made as to why the Federal Government does not protect them. I never discovered that the Federal Government had in any way ever endeavored to do anything at all about it. That is the reason I asked you the question. Mr. Ronrnson. So far as I know, the Federal Government has not. I may say that a Member of the House asked us to prepare a bill which he might introduce in the House to place motor trucks engaged as common carriers under the control of the Interstate Commerce Commission. As a result of that request, we made some investigation and concluded that it would not be feas‘ble to amend the interstate commerce act in a way to place that class of carriers 562 MODIFICATION OF TRANSPORTATION ACT, 1920. under the control of the Interstate Commerce Commision, as it would probably necessitate an entirely new bill. And during that investigation we reached the conclusion that the percentage of interstate business handled by that class of carriers was so small that it would probably not justify Congress at th's time in dealing with the matter. And, therefore, we did nothing. SPECULATIVE ENTERPRISES. The fourth class of roads mentioned in the preamble are “‘ speculative ” enter- prises. That term, like the others, is exceedingly vague and general. A road, whether constructed as a speculative enterprise or otherwise, must stand upon its merits. If it renders a real public service it is entitled to continue to exist and to receive just compensation for the service it renders. If it does not render a real public service, it should be abandoned, and the commiss’on has power under the transportation act to accomplish that result. A road built originally as a speculative enterprise may, in fact, become one of great impor- tance and may serve the public in the highest degree. In any event, the ques- tion is one to be tested primarily by the public necessity and convenience. ROADS THAT HAVE OUTLIVED THEIR USEFULNESS. The fifth class of roads referred to in the preamble are ‘roads that have served their useful purpose and outlived the industries which once justified their construction.” There are a few small roads of that character, but the whole value thereof is exceedingly small; and where it is clear that they no longer render a real public service they should be abandoned. The law gives the commission power to accomplish such a solution. VALUE OF THE FOREGOING CLASSES OF ROADS TO BE CONSIDERED BY THE COMMISSION. I have attempted to analyze in a limited way the reference to the class of roads mentioned in the preamble referred to, and I do not hesitate to express the opinion that while there is a mite of truth as to each of the classes men- tioned, yet the aggregate value of all of the roads that can be properly placed within the confines of the classes mentioned is exceedingly small. In fact, so small as to be negligible when considering the great problem of the trans- portation system as a whole. The preamble and resolution referred to are based upon the statement that “good roads are given the right to earn upon their own value and also upon the value contributed to such worthless roads which can not earn because they perform no useful purpose in the actual movement of traffic to enabie them to earn.” That is quoted from Mr. Benton’s testimony. Obviously that con- clusion is not justified by the facts. UNDER-PLUS RESULTS. It is true that prior to the time the commission shall decide to exclude any road it does take its value into consideration when fixing the level of rates. Past experience would seem to justify the conclusion that no harm to, or undue purden will thereby be placed upon, the public because of the inclusion of the’ limited value of so-called “‘ worthless roads,” for the reason that the rate level es- tablished on the value of all roads has produced less than 50 per cent of the amount which Congress fixed as a fair return on the value of their property held and used for public service. Hence, if the limited value of all of the classes of roads objected to was included, it was not detrimental to the public. In the event that the earnings of the roads in a given group, or as a whole, should earn more than the fair return fixed, the commission will, without doubt, promptly reduce the rates. If we apply the objection urged in the preamble and resolution to a road within any of the classes mentioned it will at once be apparent that the road in question must stand upon its own merits. If it orignates traffic that moves over connecting lines its existence will be justified to a like extent. The extent of the service can easily be ascertained; hence, there is no probability that it will become an incubus upon the transportation system if it does not render a real public service. MODIFICATION OF TRANSPORTATION ACT, 1920. 563 The duty of the commission is to protect the public and do justice to the carriers. It should not, and I believe it will not, include the value of any worthless road for rate-making purposes ; nor will it give divisions of joint rates to roads that do not render a public service. In view of all of the facts, I assert that the group plan of making rates, prescribed by section 15a, is not uneconomical and unsound, and does not place an unjust burden upon the business of the Nation. On the contrary, I am firmly convinced, and in that I am supported by the best judgment of practically all of the officers of the 800 short-line roads of the country, that the group plan of making rates pre- scribed by section 15a is sound and is the only plan under which rates can be made in this country, and that the principle upon which it is based is the only one upon which the question of the weak and strong roads can be solved. DIVISIONS. In this connection I desire to read the following paragraph from the testi- mony of Mr. Benton before this committee. I read from page 226 of the printed hearing: “ Now, it has been suggested that the unjust and unreasonable amounts that will be received by some carriers under the group plan of rate making may be diverted to the weaker lines through divisions. I point out that the right to make divisions does not depend upon 15a; that just divisions can be established and rates can be fixed upon the basis of what just divisions ought to be without 15a.” THE YARDSTICK. I can not agree fully to the proposition Mr. Benton makes “ that the right to make divisions does not depend upon 15a.” It is true that the right to make divisions is not conferred by 15a, but 15a has a substantial bearing on that question. The effect of the repeal of 15a will be to take away the measure which is now provided, and, when the commission comes to apply the rule of divisions in paragraph 6 of section 15, they will have no measure by which to fix the comparative fair return on railway property held for and used in the service of transportation. Speaking for the American Short Line Railroad Association, when the trans- portation act was being considered by Congress, I earnestly advocated the incorporation of a mandatory rule of rate making, which was done in section 15a. We did not advocate fixing the rate at 54 per cent. We believed that it would be best for all concerned to authorize the commission to fix the amount from time to time. Notwithstanding that fact, we are now strongly of the opinion that it would be seriously detrimental to repeal that section. It is true that it has been demonstrated that the carriers as grouped, or as a whole, will not earn or can not earn, at the present time, the authorized 54 per cent; and it is true that that provision will expire on the 1st of March next. If that section remains the law, the commission has a definite measure by which to make divisions. If repealed, the commission will find it much more difficult to make just and equitable divisions, and may, therefore, fail to accom- plish that result. If they do fail, it will result in the bankruptcy of many of the smaller or weaker lines. ' OLD RULE NOT SATISFACTORY. In the past the trunk roads, as a rule, have arbitrarily made the division of joint rates, and in most cases have not accorded to the short lines or branch lines a fair proportion of the revenue earned by them through joint service. Hence, the short lines had to struggle for an existence and have one by one fallen by the wayside because they were not paid an adequate amount for their services. DO NOT DISCOURAGE INVESTORS. The psychological effect of such a repeal on the minds of the Interstate Com- merce Commission and the public can not help but be adverse, and it will, with- out doubt, be used by that class‘of citizens who constantly advocate lower rates, regardless of the effect upon the roads, when conducting their campaign to accomplish their selfish purposes. 564 MODIFICATION OF TRANSPORTATION ACT, 1920. HOPE FOR THE FUTURE. That condition can, and I confidently believe will, be remedied in the future. It is true, that the Interstate Commerce Commission has not, as yet, made divi- sions of joint rates as required by paragraph 6 of section 15 of the interstate commerce act, but it now has that matter under consideration, and I am con- fident that it will establish a rule of divisions which can be utilized by the short lines in their negotiations with their connecting lines; and, in the event the interested parties do not agree thereafter, I am confident the commission will promptly act in individual cases. THE NEW ENGLAND CASE. It is true that the commission did not act in the New England case, but I do not believe that Mr. Benton, in his Bulletin No. 57, 1921, which is copied on pages 226, 227, 228, and 229 of your printed hearing, has fully understood or correctly interpreted the decision of the commission in that case. I strongly indorse the dissenting opinions of the commissioners which he incorporates, but I do not believe that the majority of the commission went farther in their finding than to decline to act on the facts before them, but decided to send the matter back to the interested roads with instructions, either to agree among themselves or to present the matter again with necessary additional informa- tion. I am now advised that the commission has reopened that case and will again give it consideration. PROPER INTERPRETATION. That rule of divisions, when properly interpreted and applied, will result in giving to each railroad its fair, just, and equitable division of the joint rates where it performs a part of a service; and it will then give each unit in the transportation system, as nearly as may be, the cost of its,service. It will enable each of the carriers that perform any substantial public service to receive revenues sufficient to maintain it and keep it In operation for the bene- fit of the public. Nothing should be done that will to any extent repeal or im- pair that part of the law. ABANDONMENT OF ROADS. Mr. Benton submitted in behalf of his association an amendment to para- graph 20 of section 1 of the interstate commerce act, which would have the effect of nullifying the authority the law now confers upon the Interstate Commerce Commission to issue certificates of convenience and necessity au- thorizing the abandonment of a railroad. The proposed amendment would require the carrier, in interest, to obtain permission of the respective State authorities before the commission’s certificate would be effective. If, under such circumstances, the respective States should prevent the aban- donment of a road thus found to be worthless or of no public service, it would thereby force the Interstate Commerce Commission or the State commission to give it such rates and divisions as will enable the owners to operate it, for the owners can not be compelled to operate at a continuous loss., If the present law is permitted to continue, the commission can, and it is its duty to, issue a certificate permitting the abandonment of a property and thereby remove from it the right to make any legal or equitable claim to have its value included for rate-making purposes or to participate in the revenue derived from transportation. j The National Association of Railway and Utility Commissioners, in their preamble and resolution which I have read, condemn the inclusion of that kind of a road as a basis for making rates, and yet their proposed amendment to paragraph 20 of section 1 would force that very condition in several of the States. For example, I understand that North Carolina has a law definitely pro- hibiting the abandonment and removal of a railroad. I am also advised and believe that the laws of the State of Texas specifically prohibit the abandon- ment and removal of a railroad. The officials of that State have been untiring in their efforts to enforce that provision of their law. MODIFICATION OF TRANSPORTATION ACT, 1920. 565 WASTING THE CORPUS. The Marshall & East Texas Railroad, a line of approximately 100 miles in length, was constructed some years ago. It proved to be a financial failure and a receiver was appointed. The receiver issued all of the receiver’s certifi- eates that he could sell and consumed the funds in the operation of the road. The property was sold and purchased by the owners of the receiver’s certifi- eates. It again proved to be a financial failure and a second receiver was appointed. That receiver succeeded in selling a limited amount of receiver's certificates’ and consumed the proceeds thereof in the operation of the road, but finally reached the limit of his ability to operate and thereupon at- tempted to abandon the property and remove ‘the rails. The State of Texas contested in the courts that effort, and that matter, as I understand it, is still pending. No trains have been operated upon the road for five or six years. Ties and structures have rotted and it would be impossible to operate a train. Notwithstanding that fact, the owners of the property are helpless and I respectfully submit that such conditions affecting a part of the transportation system of the country should not be permitted ; and that the investors or owners of roads should not be crucified. CASE OF THE LINVILLE RIVER RAILWAY. I will give you another illustration: Some individuals constructed the Lin- ville River Railroad in western North Carolina, due east of Johnson City, Tenn. There is a very large tract of timber in that section of the country, and those gentlemen built 32 miles of road, costing them approximately $20,000 per mile, for the purpose of removing that timber. They estimated that there was sufficient traffic there to engage that road for a period of 10 years. Since that time, or immediately thereafter, the transportation act was passed. which limited the earnings of a railroad to 53 per cent, plus the allowances that might be made, and requiring a recapture of all the earnings of the road in excess of the earnings provided in that act. The difficulties which the owners of that road now find themselves in, are that they may not earn in excess of 6 per cent without those earnings being subject to recapture; and at the end of the 10 years, when they have removed the timber, for the removal of which the road was built, there is nothing to maintain that road, and under the laws of North Carolina, they can not re- move the rails. Had the provision of recapture not been incorporated in the transportation act, they might have made a sufficient profit on that road dur- ing the next 10 years so that it would have paid them to have had it, without attempting to remove the rails after the timber was removed. But as it is, they can only be allowed to make 6 per cent on the investment for 10 years, and then lose their investment. OUR POSITION WHEN THE ESCH-CUMMINS LAW WAS FORMULATED. I have not located_the record of our presentation of the subject to your com- mittee, hence I take the liberty of quoting from the record of testimony pre- sented by our Mr. Ben. B. Cain to the House committee, as follows: “The next amendment to which I will call your attention is after the word ‘abandonment,’ line 19, page 9, of the committee print. I think the pending bill does give authority for the commission to permit a line that ought not to have been constructed to be abandoned, but it is our thought that the bill should go further and make it mandatory upon the commission to issue the order where it is impossible to operate a road so as to make it earn an operating income, therefore, we suggest this amendment after the word ‘abandonment’: ; eae “* Provided, That in all cases where it appears that a railroad with just and reasonable rates, fares, charges, routes and divisions, and efficient management ean not, with reasonable certainty, be made to earn an operating income, the commission shall, on application and proper showing, grant to such railroad the authority to discontinue operations and to dismantle and dispose of its rty.’ TAS T said a while ago, there are some roads—they are few, but there are some roads—that really perform no substantial public service. There are roads that in my judgment never can be made to earn their operating expenses. 566 MODIFICATION OF TRANSPORTATION ACT, 1920, “Mr. Stms. Is there no authority now in the law that a road may be dis- mantled?” “Mr. Carn. There is not, Judge, and in my State, as Mr. Rayburn knows, and in others, there are legislative acts against the abandonment of roads. In other’ words, a road chartered has to be operated as long as you can find some fellow who will lend you enough money to operate it.” We then produced extended testimony for the purpose of showing that the three fundamental principles just stated were vitally necessary to insure a well-rounded and efficient national transportation system. We then showed that in addition to having adequate rates and a just division of joint rates it was necessary to give the commission authority to abandon properties that did not or could not render a real public service. We then thought, and now believe, that the commission should have authority to eliminate from the system any road that did not serve a real public service and for that purpose we inserted in the rule of divisions which we then proposed and which was subsequently adopted as a part of paragraph 6 of section 15 that the com- mission should, among other things, consider “the importance to the public of the transportation services of such carriers.” We then believed, and I now believe, that the commission can, in the exercise of its authority, eliminate any and all lines that do not sufficiently serve the public. We are strongly of the opinion that it would be unwise to take from or limit the authority the commission now has in that respect. POSSIBLE ELIMINATIONS ARE NOT EXTENSIVE. The combined value of the 800 short lines of the country with 35.000 miles is in the neighborhood of about $2,000,000,000; and if it is conceivable that they could all be wiped out of existence and leave the rural districts without any transportation facilities, it would reduce the total aggregate of all railroad property to an extent of but approximately 10 per cent. This illustrates the obvious fact that the total values which could possibly be involved in the lim- ited number of instances where a railroad may be found to be really worthless from the standpoint of public convenience and necessity is so small as to be of no consequence in dealing with the railroad problem as a whole. IMPORTANT TO INVESTORS. However, it is, of course, a matter of serious gravity to those investors who have bought the stock and bonds of such an enterprise that the physical assets be not dissipated needlessly by prolonged delay in liquidation, and that they have an opportunity to realize as much as possible from the salvage value of the scrap. = FORCING WORTHLESS ROADS TO CONTINUE. It seems decidedly inconsistent that the State commissioners should have adopted a preamble and resolution:premised on the alleged existence of worth- less railroads, and then seek an amendment to nullify the authority of the Interstate Commerce Commission td eliminate any such instances. It is the consistent policy of this association to look at these matters from the broad standpoint of sound public policy, as we know full well that any other. foundation is laid on sand. It is our view, therefore, that in every instance where it can be clearly determined that a road is really worthless it should be promptly and clearly eliminated from the situation, but, on the other hand, jus- tice demands that if the owners of such a property are not to be permitted to abandon operation and salvage the scrap it must be included in the values upon which a proper rate level is to be fixed, and sustenance out of the general level of rates must be given. For the reasons stated, we earnestly recommend that Congress decline to amend paragraph 20 of section I of the interstate commerce act. FOUR PRINCIPLES ARE ESSENTIAL. As a-result of a long and intense study of the problem, I am firmly of the opinion that the transportation act contains all the principles necessary to finally solve our railroad problem. To meet the present situation, the following are the essential principles: First, the mandatory rule of rate making; second, MODIFICATION OF TRANSPORTATION ACT, 1920. 567 the rule of divisions; third, the authority for the Interstate Commerce Com- mission to permit the abandonment of a road not necessary for the service of the public; and fourth, the especially fundamental provision for the consolida- tion of the-present large number of carriers into a few well-balanced competi- tive systems. CONSOLIDATIONS INEVITABLE. The eventual consolidation of all the roads into a limited number of competi- tive systems must be accomplished, and I am confident that it will be. In the past the policy of the Government, insofar as it has been expressed by Congress and by most of the State Legislatures, has been opposed to consolida- tion of railroads, and much litigation has occurred, especially upon the part of some of the States, to prevent consolidations. Notwithstanding that public policy, many consolidations have been made. In fact the great majority of our strong and efficient trunk roads are the beneficial result of many consolidations. For example, it is said that the Penn- sylvania system now consists of what was formerly 212 different roads. Senator PoINpEXTER. There never has been any State or national policy against any such consolidation as that, has there? As I understand, that con- solidation was similar to that of many other large systems like the Southern, in that it connected up a number of consecutive lines that were not competitors of each other. The policy of the Government has been against consolidation of competing lines, has it not been? Mr. Ropinson. That was the basis of the policy; yes, sir. But in many of these cases that I have knowledge of, like the Southern, it was accomplished notwithstanding the opposition to it. I am going to touch on that subject further on. Senator POINDEXTER. Very well. Mr. Rosinson. For example, it is said that the Pennsylvania System now consists of what was formerly 212 different roads, and I am advised and believe that a very considerable number of the roads which now compose that system found it difficult to obtain revenue sufficient to sustain them as separate units. In fact, that many of them went. through bankruptcy prior to being merged into the present system. As a result of the consolidation of these properties we have one of the strongest and most efficient railroad systems in the world. A like statement could be made with reference to most of our large successful transportation systems. CONSOLIDATION WITH SAFETY. I see from the printed records of your hearings (p. 71) Senator Stanley sub- mitted the following question to Witness Jackson: “Do you believe it is possible that those railroads which are normally so situated as to take care of themselves without any Government aid or guaranty or any other arrangement by which they could receive assistance outside of their own exclusive business; do you think that those roads which would nor- mally have made a return of 6 per cent or over can take care of their weaker brothers—less fortunately located railroads—can take them into the lifeboat, so to speak, and not endanger the boat and sink them all?” Without presuming to be officious, I take the liberty of submitting the follow- ing statement, with the hope that. it may serve to some extent in giving informa- tion in answer to Senator Stanley’s question : TRANSPORTATION NOT A GOVERNMENT FUNCTION. I firmly believe that transportation is not a proper or logical function of the Government. of the United States, and that it should not engage in the trans- portation business, especially since we have had the recent experience whereby the Government did exercise that function at a very large cost and in a man- ner that caused great dissatisfaction and distress to the public. NO SUBSIDY OR FISCAL GUARANTY. I am also firmly convinced that the Government as such should not enter upon a policy of aiding or guaranteeing financial results to the carriers. On the contrary, I believe that the Government should, in the exercise of its con- 73337—21—rt 2——20 568 MODIFICATION OF TRANSPORTATION ACT, 1920, stitutional right to regulate commerce among the States, establish such rules and regulations as will permit the carriers to earn and receive an amount neces- sary to meet their reasonable and proper expenses, including other charges, and just compensation for the services rendered. If that. policy is adopted and put into execution no aid or guaranty upon the part of the Government will be necessary. I have heretofore stated at some length that the traffic originated by even the strong trunk roads would not enable most of them to operate and remain solvent; that they must have, in addition to their own traffic, a substantial amount that has been originated by other roads. I am confident that less than 25 per cent of the railroads of the country can earn as much as 6 per cent, which Senator Stanley suggests, on the basis of “ their own exclusive business.” Hence, I feel that it is a mistake to assume that any considerable portion of the roads can continue to function and prosper unless they receive “ assistance outside of their own exclusive business.” In other words, they must have the traffic originated on other lines or they can not accomplish the result stated. Senator Pornpexter. You might also add that they must have assistance for the traffic originated on their own lines; it works both ways. Mr. Rosinson. It does work both ways, Senator, and I thank you for the suggestion. STRENGTH IN CONSOLIDATION. I think that the consolidation of roads that have been made proves con- clusively that the fortunately located railroads have been benefited by acquir- ing lines that were not as fortunately located or as prosperous; and that the result of such consolidations is the large and strong systems which we now have. THE LOUISVILLE & NASHVILLE. I am confident that Senator Stanley has an extended knowledge of the Louis- ville & Nashville system. I am advised, and believe, that the original Louis- ville & Nashville’ Railroad has been greatly benefited by the various lines which it has acquired and absorbed. The taking over of the various lines has not endangered the life or the usefulness of that original property, and the public has been very greatly benefited by the fact that a number of weak lines throughout that section of the south have been absorbed into a successful system. THE SOUTHERN RAILWAY SYSTEM. - I am also confident that Senator Stanley has some knowledge of the Southern. Railway system. It is rather difficult to know what part of that road was the original line. I understand it now consists of 72 or more former railroads, and I know that several of the principal original roads which now constitute that- system were unable to operate successfully as separate and independent prop- erties; that several of them went through bankruptcy more than one time; and that since they have been combined into the Southern system it has become a strong, successful, and efficient carrier—one that efficiently serves the public not only throughout the South but in all of the States of the Union. A WESTERN EXAMPLE, I am advised, and believe, that one of the most successful systems in the Middle West now consists of what was formerly a large number of inde- pendent roads, most of which failed to succeed as separately operated proper- ties; but, notwithstanding that fact, that system is now one of the most suc- cessful in the United States. About 40 per cent of the trackage owned by that system consists of branch lines. It is stated that the question of the value of the service of those branch lines to the main line was questioned by the stockholders, and, as a result of which, an investigation was made by a committee of experts. That committee reported that practically all of the branch lines brought their traffic to the main line charged with an operating loss, but that the traffic they contributed produced a substantial profit to the main line, and that if said branch lines were disposed of or separated from the main line the latter would become bankrupt. MODIFICATION OF TRANSPORTATION ACT, 1920. 569 PROPER CREDIT NOT GIVEN BRANCHES. It is apparent from that statement that the main line officers were not giving their branch lines credit for a fair share of the joint revenue. The apparent loss on the branch lines and the so-called deficits of the branch lines were subsequently paid out of the main line treasury. I repeat this statement for the purpose of showing that the branch or weaker lines did not sink that system ; on the contrary, that they aided in making it a prosperous property. If time would permit, I could give detailed information about other con- solidations that have been ihade, and show conclusively, as I believe, that the public at large and the transportation system as a whole has been benefited by the consolidation of various properties, including both weak and strong. I confidently believe that the final solution of the railroad problem in the United States is to consolidate all of the units of the transportation system into a few well-rounded competitive systems. LET THE WATER FLOW DOWNHILL. I have not concurred in the opinion that the Government has the right to compel consolidation, and I do not believe that that will be necessary. If the Interstate Commerce Commission fixes rates sufficient to pay for the transpor- tation service rendered to the public, and exercises the authority given in the transportation act to make divisions of joint rates, so that each road will receive just compensation for the service it renders, the result will be, I believe, that the carriers will gradually, but certainly, be consolidated. The whole plan of consolidation can be rounded out, I think, without endangering the boat or sinking any of them. THE LABOR BOARD. In conclusion, Mr. Chairman and gentlemen, I wish to say that while we strongly endorse the principles of the transportation act, we realize that it is not perfect in its details. There is one feature that deserves consideration of Congress and ought to have it in due time and in a proper way. And I refer to sections 800 to 316, with reference to the Labor Board. I do not here criticize the Labor Board in any way. But it is not possible for it to successfully meet what Congress contemplated, situated and surrounded as it is. That body and the Interstate Commerce Commission ought, in some way, to be brought into close conjunction, and ought to work, in some way, together. And we are of the opinion that Congress ought in due time and as early as it can give that matter due consideration after having made a full study of all the facts sur- rounding it. I thank you, Mr. Chairman and gentlemen. The CHarrMaAN. Senator La Follette, have you any questions to ask Mr. Robinson? Senator La Fotrerre, No, sir. The CHarrMANn. That will conclude the statement, then, of Mr. Robinson. (Whereupon, at 11.20 o’clock a. m., the committee proceeded to the con- sideration of other business.) . MODIFICATION OF TRANSPORTATION ACT, 1920. FRIDAY, DECEMBER 9, 1921. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D.C. The committee met at 10 o’clock a. m., in the hearing room in the Capitol, Senator Albert B. Cummins (chairman) presiding. The CuarrMan. Mr. Hines, you can state your full name and your residence. Mr. HINES. Walker D. Hines, New York City. STATEMENT OF HON. WALKER D. HINES, ATTORNEY AT LAW, NEW YORK CITY. The CHArrMAN, I des’re to make an inquiry or two of Mr. Hines in order that the record may clearly show his relation to this subject before he begins with his general statement. You are a lawyer, are you not? Mr. Hines. Yes, Senator. The CHAIRMAN. Please state what your connection was with the railroad companies prior to the 1st day of January, 1918? Mr. Hines. My first connection with the railroad business was in 1890, when I became a stenographer in the law department of the Louisville & Nashville Railroad Co. In 1894 I became an assistant attorney; and from that time I became very active in attention to questions arising under the interstate com- merce act. In 1897 I became assistant chief attorney, and in 1901 I became first vice president, having charge of the law department, and also assisting the presi- dent in the supervis:on of the traffic department. In 1904 I retired from my connection with the Louisville & Nashville and entered the general law practice, and was in the general law practice for two years at Louisville, during which time I devoted a large part of my time to problems arising under the interstate commerce act. In 1906 I came to New York as general counsel of the Atchison, Topeka & Santa Fe Railway Co., and also entered the general law practice. And a year or two after that I became chairman of the executive committee of the Atchi- son, Topeka & Santa Fe Railway. Up to 1916 I was in the general law practice and devoting much of my time to questions arising under the interstate commerce act. In 1916 I retired from the general law practice and became chairman of the board of directors of the Atchison, Topeka & Santa Fe Railway Co., and continued in that position until the beginning of Federal control. And in April, 1918, I resigned my position in order to devote all of my time to the Government work in the Federal control of the railroads. The CHairMAN. After you became connected with the Federal control—that is to say, with the Railroad Administration under Government control—what was your position? Mr. Hines. I was Assistant Director General of Railroads for the year 1918, On January 11, 1919, I became Director General of Railroads and held that posi- tion until the return of the railroads to private control on March 1, 1920, and, in fact, did not resign as Director General until May 15, 1920. The CHAIRMAN. AS you have said, you became, prior to Federal control, very familiar with the interstate commerce act and with the work of the Interstate Commerce Commission under it? Mr, Hines. Yes; I had given special attention to that for a great many years. The CHAIRMAN. You were director general at the time the transportation act of February 18, 1920, was passed, and had been for some time before that? 571 572 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Hinss. Yes. The CHamman. It is true, is it not, that the chairman of the Interstate Com- merce Committee of the Senate had a good many conferences with you during the preparation and during the passage of that act? Mr. Hines. Yes; that is a fact. The CHarrman. So that you are familiar with its growth and development? Mr. Hines... Yes; iu a general way I was quite familiar with the development of that act. The CuHairMan. We are conducting a hearing mainly upon Senate bill 1150, introduced by Senator Capper, and upon Senate bill 2510, introduced by Senator Nicholson, of Colorado, Are you familiar with those bills? Mr. Hines. Yes; I have examined those bills, Senator, since receiving your telegram, The CHARMAN. With these preliminary explanations, the committee will be very glad to hear your views upon the subjects embraced in those bills. Mr. Hines. Senator, I would like to say that I have prepared a statement expressing my views on the principles in those bills, particularly in the Capper bill, and have endeavored, in the course of this statement,. to deal with various questions which I understand have arisen, and I believe the committee fre- quently pursues the course of deferring questions until the end of the formal statement. I will say that if that is agreeable to the committee they will probably find that many of the points that the members of the committee have in mind will be dealt with by me in my formal statement in regular order. The CHAIRMAN. That is our general pract’ce, but sometimes the members of the committee feel impelled to ask questions before the formal statement _ is finished. - But we will do the best we can in that regard. Mr. Hrynes. I understand that that rule is not without exceptions. The Cuarmman. That is correct. Mr. Hines. I wish first to discuss the principle involved in the proposal to repeal section 15a of the interstate commerce act. That section constitutes the first affirmative dealing by Congress with the regulation of railroad rates. In my opinion it const'tutes the corner stone of the new policy which was adopted by the transportation act of dealing with the railroad problem in an affirmative and constructive manner. Thirty-three years of railroad regulation, beginning in 1887, had finally led publ ¢ opin’on to the conclusion that an attirmative and constructive policy was necessary. The transportation act was the outgrowth of that conclusion, and section 15a is the vital element of the new policy. I will not undertake to repeat the difficulties and the disappointments which accompanied the old policy of railroad regulation—which was a policy of a negative and restrictive character. It is sufficient to say that, after long years of careful observation and painful experience, the conclusion prevailed that the only way to escape Government ownership of railroads, and to provide adequate facilities for the public, was through the adoption of an affirmative and constructive policy, and I believe most earnestly that Congress ought not at the present time to abandon that policy, as it would do by the repeal of section 15a. If that section is repealed, the interstate commerce act will again become a series of regulations merely of a restrictive and negative character, as far as the question of railroad rates is concerned. I fully realize that, for the time being, the new scheme has not produced ade- quate revenue, and that it has not produced rates that are satisfactory to the public. And I particularly appreciate that the rate situat’on at present bears with peculiar hardship upon the agricultural interests, which have seen the prices of their products deflated far ahead of the deflation of the prices of other products, and ahead of the deflation in the prices of labor. But, in my opinion, this situation can not be corrected by abandoning the affirmative policy of the transportation act, and by returning to the policy of mere restriction and negation in the matter of rates. And, in the long run, I believe the agri- cultural interests will suffer just as much as any cther interest from an aban- donment of the affirmative policy, on account of the resulting ult:mate impair- ment of railroad services. ; The fact is that the present scheme has worked unsatisfactorily, not because. of defects in the scheme, but because we are going through a period of extra- ordinary difficulty following the war, and at a time when no scheme whatever would work satisfactorily for the moment. MODIFICATION OF TRANSPORTATION ACT, 1920. 573 It seems to me that it is of the highest importance to give a reasonable op- portunity for the trial of the new policy, under conditions more nearly normal than those which have been possible since the transportation act caine into operation. The difficulties that we have been going through are the outgrowth of the war, and are not the outgrowth of the policy expressed in section 15a. An adequate railroad service in this country depends upon the expenditure for many years to come of enormous amounts of new capital. This is true more than ever now, because the improvements have had to be postponed to such an extent during and since the war. Taking into cons.deration this postponement of vital improvements, I believe it is conservative to assume that more than a billion dollars per year ought to be provided for improvements to the railroads for many years to come. I will say that :t is difficult for one who. is not in close touch witb railroad affa.rs to realize the great variety and the great importance of: the demands for new capital. The construction of new terminals and the enlargement of existing te:minals, the revis'on of grades and curvatures; the construction of additional main tracks; the building of new cut-offs; the strengthening of bridges; the construction of additional and improved station build’ngs; the enlargement of shops; the obtaining of more modera machinery for the shops; the construction of overhead crossings: the construction of office buildings— these are illustrations of some of the numerous and important demands that are press ng upon the railroads of the country; and of course, in addition to that, are the urgent demands for additional equipment. And all of these things are of great importance to the adequate service of the public. In these iespects. the American railroads are very different from the railroads in the oider and more settled countr es of Europe: there the railroad systems are more nearly a complete thing. But our country is still a new country, and the railreads are still far from complete. -It was this universally recognized need for raising tremendous add tional amounts of capital that led. in my opinion, to the adoption of this new and affirmative policy that is expressed in section 15a of the Interstate Commerce act. If the need for an affirmative policy of this Kind was apparent even before the difficulties of the war, it certainly has been greatly intensified by the condit ons which have arisen since the war. To a greater extent than ever before, it is pecul arly necessary to stabilize railroad conditions, and to give an encouraging basis for the inve tment of additional funds. I would like to say that I do not claim that the scheme of the transpo tation act will in itself prove a permanent solution of the raitroad problems of the country. But I do believe that the affirmative policy embod’ed in section 15a represents an important forward step in the evolution of the railioad policy of the country, and that it would be indescribably unfortunate to take a_hack- ward step at this t'me by repealing that section. I wish now to discuss the principle involved in the proposal to repeal the authority which the commission now has over intrastate rates when they con- stitute a discrimination against interstate commerce. In my opin‘on, the practical application of this princ’ple is essential to an orderly control and development of the railroads of the country. There can not be two supreme governmental masters with respect to th’s single subject matter. If anything has become entirely clear as the result of our experience in the last quarter of a century with the railroads, it has been that the railroad problem of the country is a single and indivisible subject matter. The same roadbed, track, station buildings, shop, and equipment serve interstate commerce and intrastate commerce indiscriminately ; the same trains carry both interstate and intrastate commerce; the same staff of officers and employees serves both those sorts of commerce indiscriminately. While this is very clear as to these physical elements, that they have an identity and a solidarity that can not be split up into a separate phase for interstate traffic and a separate phase for intrastate traffic, it is equally ap- parent, an] perhaps even more important, with respect to the financial aspect of the railroad problem. From a financial standpoint the vital thing is the net operating income of the railroad company, and that net operating income is a single thing. It would be utterly destructive of any orderly development of the railroad problem to permit two different series of tribunals to act, each independent of the other, in matters which had a vital effect upon that single thing, the net 574 MODIFICATION OF TRANSPORTATION ACT, 1920. operating income of the railroad company, which is the basis of its credit and the basis which enables it to raise the money which must be raised in order to promote the public service. Congress has been forced to legislate to secure adequate railroad service for the country; to prevent interruptions to railroad transportation, it has pro- vided the Railroad Labor Board and has established standar’s for railroad wages, and has created a situation as a result of which the view of the labor board as to wages is practically final. I may say that it seems to me that that is one of the admirable features of the transportation act, that that progress has been made in dealing with the labor problem. This view of the labor board, which becomes final in this way as to railroad wages, is not confined to interstate wages, because there is no such thing as interstate wages. It applies to wages of the employees who devote themselves indiscriminately to interstate and intrastate traffic. Now, how can a-Federal tribunal deal with confidence with this sole subject of wages, if a series of State tribunals, entirely independent of any Federal control, is to have unrestricted opportunity to pass upon an important part of the revenue out of which wages must be paid before the net income is arrived at? Likewise, Congress has legislated to compel adequate facilities, and has a‘lopted exclusive control of the issue of railroad securities, and that involves passing upon what is a reasonable rate of interest to be paid on those securities, an‘l what are reasonable prices at which those securities may be sold. Now, how can the Federal authorities deal with confidence with those sub- jects, which are absolutely dependent upon the net operating income, if*an important part of that net operating income is subject to the independent and unreviewable control of a series of State authorities? It is true that the Federal courts could still set aside any State rates whieh were regarded as confiscatory, on the theory that they violate the fourteenth amendment to the Constitution. But that remedy, even theoretically, can not meet many of the indirect influences of State action as to rates, because such State action frequently, on account of its competitive influence, affect interstate rates which are not directly within the scope of the orders of the ‘State au- thority ; and it is very difficult, and is, perhaps, imposs‘ble to bring them within the scope of any proceeding to set aside State rates as confiscatory. But, further than that and more important than that, our experience has shown that the railroads of the country can not be developed under a system which necessitates a series of lawsuits for their protection. It is just because that experience has been so unsatisfactory that Congress adopted the affirma- tive and constructive policy that was expressed in the transportation act. And that. policy can not be successfully carried out unless Congress has or, rather, urless the Federal authority has the final control of these elements which operate to produce the ultimate net income, which is the basis of railroad credit and the basis of railroad service. As I look at it, the original provision in section 3 of the interstate commerce act was broad enough to correct intrastate rates which would defeat the policy of Congress by creating undue prejudice against interstate traffic. You will recall that the original section 3 prohibited undue preference of any person, locality, or particular descript’on of traffic and undue prejudice against any person, locality, or particular deseription of traffic. It is clear to my mind that the interstate traffic of the country constitutes a particular description of traffic and that a discrimination against that traffic by State action would constitute a violation of the original section 3. In order to test that let us assume that independently of any State legisla- tion, a railroad company, of its own volition had adopted a 2-cent passenger rate on all intrastate business in the State of New York and at the same time had maintained a 3-cent passenger rate on all its interstate business. It is very clear to me that that action of the railroad company would have been regarded as a violation of section 3 of the act, on the ground that it con- stituted a prejudice against the interstate traffic of that railroad. So that it se; ms to me that no new principle needed to be invoked in order to accomplish the result wth respect to intrastate rates which has been pro- dueed by the transportation act. The express language of that act in referring to unjust discrimination against interstate commerce, in addition to the language already in the inter- state commerce act, in section 3, made the point more emphatic, and, therefore, MODIFICATION OF TRANSPORTATION ACT, 1920. 575 it seems to me that this new language was desirable, although I do not see that it was essential. And I think; too, that this new language of “discrimination against inter- state traffic” is at least as strong as the expression “burden upon interstate traffic.” I think there might be some discrimination against interstate traffic which might not be a burden, but I think any burden upon interstate traffic would be a discrimination against it and would be a prejudice against it. I want to call attention to the fact that there is a curiously inverted view involved in the idea that the intrastate rate ought to be corrected if it consti- tutes a discrimination against some particular shipper in interstate commerce, but that all intrastate rates ought not to be corrected if they constitute a serious impairment of a salutary policy of Congress. It seems to me that such a view amounts to saying that Congress, by its interstate commerce legislation, in- tended to provide a way for correcting a series of little wrongs, but deliberately refrained from providing a way for correcting a much greater and more far- reaching wrong in the event that it was committed. And I think that is opposed to the entire policy of Federal legislation and the entire policy of the Federal judiciary. It has been one of the fundamental principles of the Supreme Court that the power of Congress is as extensive as the evil and that every presumption is to be taken in favor of the view that congressional action was intended to correct the evil. In that connection you will recall the case of Illinois Central R.-R. Co. v. Public Utilities Commission (245 U. S., 483), where the Interstate Commerce Commission dealt with the much lower intrastate passenger rate in Illinois; and the Supreme Court held that the order of the Interstate Commerce Com- mission was not sufficiently definite as to the classes of interstate passenger traffic with respect to which it sought to put into effect the higher rate. In its opinion the court said: “ Of course, the commission could adjust the remedy to the evil and make the order as broad as the wrongful discrimination.” And it further said: “And had it intended to require or authorize a State-wide readjustment of the intrastate rates, it doubtless would have given direct expression to that purpose, which easily could have been done in a few lines.” So there was no suggestion whatever in the action of the court that it was not within the power of the commission to deal with all of the intrastate passen- ger rates, and the court distinctly implied the contrary and expressly stated the contrary in the language I have quoted. But the court held that the commis- sion’s order was not sufficiently specific to enable it to decide what the commis- sion intended, so that it was a mere question of procedure, and there was no question as to the power of the commission, and, in fact, there was an emphatic recognition of a power as broad as the evil. It seems to me that the present situation, which has given so much concern to the State commissions, does not arise out of any new principle, but arises out of the extraordinarily difficult emergency which has resulted from the war. When it became necessary after the war to increase freight rates from 25 to 40 per cent and to increase passenger rates 20 per cent, it was obvious that if State rates remained on the old level there would thereby arise a most serious prejudice against interstate commerce. It was this unprecedented state of facts that has produced the condition which has caused the existing complaints. I have examined the various decisions of the Interstate Commerce Com- mission jin regard to these intrastate rates, and I believe those decisions con- stitute the best defense of the criticisms that have been made of them; and I urge the committee to examine the decisions themselves. They do not show ‘a purpose to usurp the functions of the State commissions, but they do show a purpose to avoid what would have been an obvious undue prejudice of in- terstate commerce, if they had taken no action. I understand that the view has been urged on the committee that the action of the Interstate Commerce Commission has resulted in freezing the intra- state freight rate structure, so as to render the State commissions incapable of dealing with them. I take it that exactly the same situation arose before the war in the action of the commission—in the Shreveport case, for example, and in similar cases. I take it that in those cases, when the Interstate Com- merce Commission, in order to put an end to discrimination against interstate commerce, prescribed a series of intrastate rates that hampered the State authorities thereafter in dealing with that situation. But I do not think that is a reason why the remedy should not have been ‘applied. To say that that is a reason why the remedy should not be applied 576 MODIFICATION OF TRANSPORTATION ACT, 1920. would mean that the greater the evil the more clear it would be that no remedy could be applied; because the mere fact that a State maintained a State-wide rate structure that was obviously prejudicial to interstate commerce would, | in itself, on that theory, be an answer to the claim that Congress had the right to correct that situation, because it would be said. if Congress corrects that, it will tie the hands of the State commission, and therefore Congress ought not to correct the trouble. So, on that theory, the greater the evil the less power of remedy there would be. As a practical matter, however, I do not believe that these embarrassments which have been anticipated will necessarily continue in the future. The fact that the Interstate Commerce Commission was called upon, in a time of great crisis, to exercise a very grave responsibility in carrying out a highly important policy of Congress. And the commission in doing that was confronted with these conditions, suddenly arising, of the most serious character, and it had to deal with them. But I gather from the commission’s opinions in these cases that it has shown the most earnest desire to preserve unimpaired, as far as possible, the activi- ties of the State commissions; and I believe that if the question can once be set at rest by Congress, making it clear that it does not propose to abdicate its power, or what amounts to the same thing, to take away the power of the Interstate Commerce Commission to be the final authority with respect to these questions where intrastate rates constitute a prejudice on interstate commerce— if that question is once set at rest, it seems to me that it ought to be entirely feasible, and I believe it will be, for the Interstate Commerce Commission and the State commissions to cooperate in these matters, and to leave all the freedom possible with the State commissions. For example, as I understand the situation, in the States where the State commissions established the same general levels of rates that the Interstate Commerce Commission did, the hands of the State commissions are free to make those minor modifications which could be made without controverting the policy of Congress. And I do not see why, with just a friendly bit of coopera- tion, that status can not be established also as to these other States, just as a matter of administrative action, when the question of jurisdiction is once put at rest. So I do not anticipate that there will be this permanent interference with the normal functioning of the State commissions. — I make these statements with the liveliest appreciation of the necessity for local assistance in dealing with these problems. From time to time, when I have had occasion to discuss.the matter publicly, I have asserted most positively, both while I was Director General of Railroads and subsequently, that my experience there had convinced me that all of these details could not be suc- cessfully handled from Washington, and that the largest measure of local participation ought to be erected. And I would like to add there that I think that this local action is needed just as much for local interstate rates as for local intrastate rates, and if there is a rate for 100 miles from a point in western Kansas to a point in Colorado that is just as much a matter of local concern as a rate for 100 miles between two points in Kansas or in Colorado, and a contact with local conditions is just as desirable in dealing with that local interstate rate as in dealing with the local intrastate rate. So that it seems to me that the proper direction of the evolution of this matter would be, when times have become sufficiently normal, to take a further step in dealing with it—to attempt to develop some local method of handling, in the first instance, both the local interstate rate and the local intrastate rate, and bringing into that action the State authorities and getting. their par- ticipation. But I think all of that should take, as a starting point, the proposition that there can not be but one paramount authority in this single, indivisible subject matter, and that that one paramount authority must be the Federal authority, and that while every possible elasticity should be left to the State commissions, and that while it is desirable to go even further, when the time is favorable, and develop a more comprehensive way of dealing with these local problems, interstate as well as intrastate—while all of that is desirable, yet the starting point must be that the Federal authority is paramount and that the present authority of the Interstate Commerce Commission ought not to be impaired or questioned. 4 I would like to add, Mr. Chairman, what I omitted at the outset, and that is that I am making my statement here in response to your request for my MODIFICATION OF TRANSPORTATION ACT, 1920. 577 views and not on behalf of any client. I am expressing my views exclusively as a citizen and on the basis of my experience, and not as a result of any employment relating to this matter in any way. That covers the remarks I have to make on the questions of principle, which I understand are embraced in the Capper bill, and I take it that that sufficiently illustrates my views bearing on the other bill, S. 2510, introduced by Senator Nicholson. aes CHAIRMAN. Senator Townsend, have you any questions to ask of Mr. ines? Senator Townsenp. I have no questions to ask. The CuarrmMan. Senator Pittman, have you any questions? Senator PirrMan. Yes; I have a few. Mr. Hines, I think that I understand your theory. But you stated that you believed there was no intention on the part of the Interstate Commerce Com- mission to usurp the functions of the State commissions. Now, will you just briefly outline what the functions are as you understand it of the State com- missions as far as transportation companies are concerned? Mr. Hines. The functions of the State commissions are to deal with intrastate rates and intrastate service, subject to the limitation that their actions shall not constitute a prejudice on interstate commerce. Now, as this situation has developed and its unity has become more apparent those limitations on State action have necessarily become more defined, and they became defined in the most acute way, on account of this adoption by Congress of a policy of putting the rate structure of the country on the basis. which was outlined in section 15a. That brought the limitations more clearly into operat’on, and necessarily in that way it made it more probable that State action would run counter to inter- state action, or to Federal action. But I take it, for example, that a State which adopted the level of rates which the Interstate Commerce Conmiss’on adopted— and where no order was made by the Interstate Commerce Commission as to "intrastate rates—the State commission is perfectly free to deal with the ques- ‘tion of comparisons within the State and to make modificat’ons, and if it finds. one rate is high and another low, to make an adjustment. And so long as that would not run counter in a substantial and injurious way to the general level of interstate rates the State commission would be free to act. That, I th'nk, is the character of functions which the State commission con- tinues to have. And I might say that there are probably thousands of cases of that sort in every State, because the rate structures are very far from being perfect or scientific; and I have no doubt that there are thousands of instances. where a State commission with its knowledge of local conditions could iron out discrepancies of that sort without in any way attacking or undermining the general rate level which the Interstate Commerce Commission had settled. Now, as to States where the Interstate Commerce Commission had no neces- sity for making an order as to intrastate rates, I take it that the State commis- sion is perfectly free. As to States where the commission did have to make an order as to intra- state rates, it is probable that, for the time being, the State commission's hands are somewhat tied. But I believe that is purely a temporary matter, and that, by administrative action of the Interstate Commerce Commission, that could be put in proper shape, so as to leave the State commission perfectly free. to go ahead and iron out those discrepancies which exist in large numbers in intrastate rates—leaving it free to do that up to the point where they were within the limit of not undermining or seriously prejudicing the general rate level. Senator Pirrman. But the State commission, under your theory, can not lower the general rate levels on interstate carriers in the State, as those rate levels have been fixed by the Interstate Commerce Commission? Mr. Hines. It can not lower them if it constitutes an undue prejudice on in- terstate commerce; and, of course, since you must have. one final authority, the Interstate Commerce Commission is the judge of when that takes place. It may well be that in a given case, on a certain character of traffic a rate lower than the general rate level would be appropriate and would not be a prejudice on interstate commerce, because there would be a good reason for it. But if there were a difference of opinion on that, it is essential in any orderly regulation of “Gt to have one paramount authority; and my point is that that must be the Interstate Commerce Commission ; that you have got to trust somebody to carry out the regulation; and that it must. be the Interstate Commerce Commission 578 MODIFICATION OF TRANSPORTATION ACT, 1920, when there is a conflict of view between the State authority and the Federal authority. Senator Pirrman. I am trying to draw your statement of principle down to a ‘concrete condition, if I can, in my own mind. Mr. Hines. -Yes; I understand. Senator Pirrman. Now, I understand your theory to be that the total income must be determined by the Interstate Commerce Commission, and in fixing other restrictions on railroads, such as the rate for transpoitation, and even the question of the cost of labor, these are involved inthe general propos tion of amount of income the railroads should make; and the intrastate traffic is just as essential in determ ning those as the interstate traffic. In fact, the Interstate Commerce Comm‘ssion must take into consideration the income from both the intrastate and the interstate business. Now, then, if the intrastate business does not bring the income the Interstate Commerce Commission has determined it. should bring, then all the plans and pol’cies of the Interstate Commerce Commission are interfered with, are they not, and changed? Mr. Hines. Yes; if the failure to produce that income is due to the action of the State comm(‘ssion, then the Interstate Commerce Commission would have the right to modify that. Of course, it may be due to causes that neither may control, it may be due to a failure of business, or something of that sort. Senator PirrmMan. Can you conceive of a case where a State commission ‘would lower the total level of returns in the State below that fixed by the Interstate Commerce Commissionfi that would not act as a discrimination against interstate commerce? , Mr. Hines. I think the chances are 99 out of 100 that it would act as a dis- -crim‘nation against interstate commerce, and I -can not think of a case where it would not. Senator PirrmMan. That is what I am trying to get at. Then it comes down to the point that the State commission has not among its functions the right ‘to lower the general rate levels in the State, because it would interfere with ‘interstate commerce: or be a discrimination against interstate commerce? Mr. Hines. I will put it this way. Senator: That it has not the right to put them below the leval of interstate rates. Senator Pirrman. That is what I am trying to get at. Mr. Hines. Now, this situaton may exist: That in some of the States, the ‘intrastate level may be above the interstate level, and in that condition the State Commission would have the right to bring it down to that level. Senator Pittman. I did not have that in mind. Mr. Hines. I am simply pointing out a qualification of my statement. Senator PITTMAN. I am still trying to get at what, under your theory, the functions of the State commission are. ; Mr. Hines. Yes; I understand.. Senator Pirrman. So that they have not that function, under your theory? Mr. Hines. They have not the function to lower, on State business, the gen- eral rate level below that which the Interstate Commerce Commiss‘on has established for interstate business. Senator PirrmMan. They can raise it? Mr. Hines. Well, they would be the judge of that; the chances are that they ‘would not do it, because they would not want to create a prejudice against State business. Senator Prrrman. The State commission has got the power to increase rates, but they are limited in their power to decrease them by the general rate level fixed by the Interstate Commerce Commission? Mr. Hines. I am perfectly clear as to that that there is a very definite limit ‘as to its power to decrease intrastate rates. Senator Pirrman. Therefore, according to your theory, the State commission has not among its functions any power by which it can reduce rates to trans- port traffic in the State? Mr. Hines. It has not the power to reduce them below the general level which the Interstate Commerce Commission may have created. It has the power to make a great many readjustments, and perhaps in every State there are nu- merous rates that-are above-that:level, and the State commission has the power ‘to bring them down to that level. Senator PitrmMan. Well, it is to be assumed that the Interstate Commerce Commission would bring them down to a reasonable level, is it not, if they’ were higher than the relative rates in other States? MODIFICATION OF TRANSPORTATION ACT, 1920. 579 Mr. Hines. Well, I do not think the Interstate Commerce Commission would undertake to reduce intrastate rates, unless those rates constituted an undue prejudice on interstate commerce; if they do constitute that prejudice, the Interstate Commerce Commission would reduce them. I have in mind this situation, Senator: In the first place, I think we are agreed on the proposition that, for a State- wide reduction in rates, there is an important limitation on the power of the States commission, because there is that standard of the general rate level which the Federal authority has fixed and which must be observed, and the. Federal authority has the final say as to whether it is observed or not. While that is true, it will be found in every State that there are a great many variations in rates within the State, that really make it appropriate that there should be corrections. Now, that is quite an important field, and within that field I think the State commission has pretty extensive authority, and that it can do a great deal there without impairing the general rate level which the Interstate Commerce Commission has established. And that func- tion, which I regard as quite an important one, I think is a local one to a large extent, and one where local knowledge is particularly desirable. Senator Pirtman. That is all I have to ask. The CHairMAN. Senator Poindexter, have you any questions? Senator PornpExtER. No. The CHairMAN. Senator Kellogg? Senator Krettoce. I would like to ask the witness a few questions along the line of Senator Pittman’s questions. As I understand you, it is your opinion that under this law the State com- missions may fix, if they are authorized to do so by local statute, the rates tc be charged by railroads for intrastate traffic, provided those rates do not dis- criminate against interstate commerce? Mr. Hines. Yes. Senator Keitoce. There is not any doubt about that, is there? Mr. Hines. No; I am perfectly clear about that. - Senator KEettoce. They may also exercise the police power which is granted by many States as to many regulations which are local in their nature, and which could not possibly be adequately performed by the Interstate Commerce Comnmission—such as regulations as to construction and location of stations, and side tracks, and innumerable things which I will not stop to mention; is that not true? Mr. Hines. Yes; I think there is Senator KELLoce (interposing). A wide field. Mr. Hines. A wide field there; and it would be very rare that in that field the action of the State commission would reach the point where it would be a prejudice to interstate commerce, and if it did not it would be entirely within the scope of the State commission. Senator Kriiocc. Well, is it not your experience, both as a railroad man and as a public official, that it is highly important to the shippers of the country that there should be this local authority, which understands local con- ditions and can deal with local shippers and local conditions, not only as to these police regulations, so called, but as to local rates, where they do not discrimi- nate against interstate commerce? Mr. Hinges. Yes; I think that is true. And I would like to emphasize again that I think the real policy should be to erect along with that some adequate way for local attention to interstate local problems of the same character. Senator Krtitoce. Yes; I think it would be very highly commendable or use- ful, because it is impossible for the Interstate Commerce Commission to know, or to adequately deal with, all of these local questions in the. 48 States of the Union, is it not? Mr, Hines. Yes; I think that is true. Senator Kreitoae. It can not be done. Now, coming down to the question of principle, as to what is a discrimination Detween a State rate and an interstate rate, I understand it to be your opinion that the principle of the present law is exactly the power granted by the old interstate commerce law, which bad been in existence for years, as construed by both the Shreveport case and the Illinois case? “Mr. Hines. I think that is true. I think, however, that it is probable that——_ Senator KELLoge (interposing). Let me finish the question, please. And the only change that we made, or that Congress made, was to authorize the Inter- 580 MODIFICATION OF TRANSPORTATION ACT, 1920. state Commerce Commission, if they found a particular intrastate rate or set of intrastate rates discriminated against interstate commerce, to make a rate that would not discriminate, instead of simply negatively declaring the rate to be illegal and have another rate made and then declare that illegal, and so on; is not that the only additional power granted? Mr. Hines. Well, I am not sure, Senator, that there has been even that much additional power, because I understand that prior to the transportation act the Interstate Commerce Commission, in correcting discriminations growing out of an intrastate structure, did itself prescribe a maximum set of intra- state rates. Senator Krerroce. Yes, I was, perhaps, incorrect about that. But we made it clear in that act that that could be done? Mr. Hines. Yes. Senator Krtioce. And they probably had the power before that to make the maximuunyr rates? Mr. Hines. Yes. Senator KELtoce. Now, you knew something about the act while it was being drafted and the consideration of it both in this committee and in the con- ference committee; did you not understand that the act conferred exactly the power which had existed, as defined by the Illino’s case and the Shreveport case, and that we did not grant general power to the Interstate Commerce Com- mission to make all of those rates? Mr. Hines. I am trying to recall or to brush up my recollection as to the dis- cussions that took place. I think I shall have to rely just on the language of the act as passed. Senator Kerioce. Very well. Mr. Hines. And ‘the act as passed, it seems io. me. did provide for the pre- scrib ng by the Interstate Commerce Commission of intrastate rates when that was necessary to prevent discrimination against interstate commerce or to prevent a prejudice against interstate commerce, and I think that exactly that power existed prior to the transportation act. The CHarrMAN, I think at this point it would be helpful if some one would read just exactly what we did in that paragraph of the act. Senator Kreiioce. Yes; I would be very glad to have that put in the record before my next question. The CHAIRMAN. With your permission, I will do that. Paragraph 8 of old section 18—that is an amendment of section 13 of the interstate commerce act—provides for the procedure, joint hear:ngs, etc. Paragraph 4 provides: “Whenever in any such investigation the commission, after full hearing, finds that any such rate, fare, charge, classification, regulation, or practice causes any undue or unreasonable advantage, preference, or prejud ce as between persons or localities in intrastate on the one hand and interstate or foreign commerce on the other hand, or ’— Now, this is the new part— ' “Or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce, which is hereby forbidden and declared to be unlawful, it shall prescribe,” ete. I wanted you to have in mind just the language of the statute. Senator KELtLoac. Well, if the particular rate in the State discriminates against the particular rate of the Interstate Commerce Commission, that is a discrimination against interstate commerce. That is the only way you can discriminate against interstate commerce, is it not—by the rates, or by some regulations that would discriminate? Mr. Hines. Well, it certainly is one of the ways it could discriminate. Senator Ketioce. Well, I can not think of any other, at least for the moment. Now, coming to the question of the power which would decide, or which must decide, whether a rate is discriminatory against interstate commerce, and which power shall be supreme under the Constitution and laws of the United States, it is not possible for the Congress of the United States to create any other than the Federal power, is it? Mr. Hines. No; I do not see how it is possible under the Constitution to do that. Senator Ketrocc. In other words, the Constitution, first, gives exclusive control of interstate commerce to the Federal Government? Mr. Hines. Yes. MODIFICATION OF TRANSPORTATION ACT, 1920. 581 Senator KeEtLocc. Second, it makes the Constitution of the United States, the laws of Congress, and treaties made the supreme law of the land, any law of the State or decisions of its courts to the contrary notwithstanding. I think that is a fairly accurate statement of the constitutional provisions. Now, if there is a discrimination, and a conflict between the State rate and the Federal rate, the Federal Government, or some agency of the Federal Gov- ernment, must decide that question, and that decision must be supreme under the Const‘tution of the United States; is that not true? Mr. Hines. Yes; that is true. Senator Krrtoce. So that it would be possible for the Interstate Commerce Commission, under that provision of the Constitution in a State, to make that. decision within the State, would it not? ca Hines. No; I do not believe that it should be left finally with the tes. Senator Kettoce. Now, you dealt with one other question which I woul: like to have you illustrate a little more. You said that under the provisions of the fourteenth amendment that no State, or that provided that private property should not be taken for public use without just compensation, that that protected the property of private citizens and the railroad companies against confiscation in the States? Mr. Hines. Yes. Senator KeEttocc. That is the provision you referred to, the fourteenth amendment? - Mr. Hines, Yes. Senator Kettoce. In other words, that neither the Federal Government nor the States. the Federal Government under the amended provisions of the Constitution, and the States under the fourteenth amendment—well. I guess both of them for that matter, could not make a rate which would deny to a particular railroa company a reasonable earning upon the value of its prop- erty devoted to the public use. That is what you meant, is it not? Mr. Hines. Yes. Senator Kettocc. Very well. Is that either in the administration of the Interstate Commerce Commission or in the administration of the State a pro- tection to all of the railroads in a State or in the country? ’ Mr. Hines. It is a very imperfect protection. Senator KeLioce. Let me illustrate one case. Take one of the railroads that is fortunately located. Well, take a supposition case. Suppose that there is a railroad with interstate and intrastate traffic, very fortunately located, and constructed many years ago under conditions that make its capitalization ex- tremely low; it has a very large traffic, which can be handled cheaply, and a satisfactory rate would yield that road an adequate return upon its investment, and that rate if fixed by the State commission or the Federal Government would be construed under the fourteenth amendment Mr. Hines. As to that, actually Senator Ketioae. It might ruin every other railroad in the United States, and the other roads could not bring suit, could they? Would it not be entirely impracticable for them to bring suit in a case of that kind, because there they would meet the competition of the more fortunate road? Mr. Hines. Yes, sir; competition Senator Kretiocc. Then the principal—— Mr. Hines. As I recall, Senator, there was a case several years ago where several roads in Missouri attacked the scheme of State rates, and the Supreme Court upheld the rates as to some of the companies, but held that the rates were confiscatory as to at least one company. Senator KrLLocc. Would not the other companies have to meet the competi- tion? Now, the principle is exactly the same whether it applies to rates fixed by the Interstate Commerce Commission or by State commissions, is it not? Mr. Hines. Yes, sir; under the fourteenth amendment the rates fixed by State commissions are subject to the same limitations as are the rates of the Inter- state Commerce Commission under the fifth amendment. Senator Krettoce. Exactly. In other words, no railroad could bring suit, no individual railroad, if the rates yielded to that particular individual railroad an adequate return upon the value of the property devoted to public use? Mr. Hines. Yes; that is true. ; : Senator KELLoce. And yet that might be confiscatory, possibly, if the other railroads in the country had to meet that rate; and they could not bring suit, eould they? 582 MODIFICATION OF TRANSPORTATION ACT, 1920. 2 Mr. Hines. They could bring suit, but the decree would be of no practical value because of the competition. Senator Kret.oce. Now, what I want to bring out is that the principle applies exactly the same in rates made by the Interstate Commerce Commission under the fifth amendment as it applies to the railroads in the States under the four- teenth amendment? Mr. Hines. Yes; that is true. Senator Krettoce. Now, I confess that I have not been able to read the deci- sions of the commission—all of them—on this contested question. I have been laid up for a month, and I have not attended the meetings, but I want to bring out those points and see if you agree with those conclusions. i The CHAIRMAN, Is that all? Senator Kexxioee. Yes. The CHAIRMAN. Senator Myers, have you any questions to ask? Senator Myers. No; nothing at all. The CHarrman, Mr. Hines, I want to inquire upon two points. As I remem- ber, in the course of this hearing, which has been somewhat prolonged, two questions of chief importance have been developed. The first is as to the effect of section 15a upon the authority of the Interstate Commerce Commission, over what are ordinarily known as State rates. The second one is as to the char- acter of the evidence that ought to be submitted to the Interstate Commerce Commission to establish the discrimination either against persony or localities on interstate commerce traffic. Is it your opinion that section 15a confers any additional authority upon the Interstate Commerce Commission over State rates? Mr. Hines. The provisiony of that section are peculiarly broad—but while I have not had an occasion to investigate that thoroughly, and I would not want to express offhand a final opinion about it The CHairMAN. I can put it concretely so that it may be easier for you to answer one way or the other. ‘ Assuming that the Interstate Commerce Commission under section lia reached the conclusion that the railroads of the country, taken as a whole, or in such groups, well, take the illustration, taken as a whole, having been in receipt of an operating revenue of $5,000,000,000 needed $1,000,000,000 more in order to constitute a fair return, or result in a fair return upon the value of the entire property and the purpose was to add $1,000,000,000 to the operating revenues of all of the railroads taken together. In your opinion would that fact, offhand, have given jurisdiction to the Interstate Commerce Commission power to prescribe all State rates without any reference whatever to the action of the various State commissions, or the various State authorities? Mr. Hines. I believe that the court would hold that the Interstate Commerce Comuission did not have that authority. The language of section 15a is very broad, but I take it that the courts would construe it, I think, as a whole and would reach the conclusion that it was not the intent to give the Interstate Com- merce Commission the power to fix directly the intrastate rates, just as fully as it did the interstate rates. _ The CyHatrman. I agree with you about that. I think that Congress never intended to give them that authority. We will now come to the authority given under old section 3, as amplified, or enlarged, if you may so term it, by gec- tion 13, by an amendment to section 13 of the interstate commerce act. Now, you understand that I assume that the authority there given rests. entirely upon the finding, a finding by the commission that a given State’y rates, or State rates, fare, charge, classification, etc., regulation or practice causes any undue or unreasonable advantage, preference as between persons or locali- ties in intrastate commerce, on the one hand, and interstate or foreign com- merce on the other hand. : Now, those are the findings which assume, one or all, the Interstate Commerce Commission must enter, must reach, in order to give it any jurisdiction over State rates, at all. That is true, is it not? - Mr. Hines. Yes; it must decide as to the prejudices, or discrimination upon the part of the State rates against interstate traffic, shippers, or localities. The CHairMAN. And now, we come to what I have looked upon as the chief complaint made by the various State commissions and by those who represent the various shippers, or commerce organizations. What evidences; what is the evidence which, in your opinion, ought to appear in order to establish the unreasonable or undue advantage, preference, or prejudice, as between persons and localities in intrastate on the one hand or persons or localities in interstate MODIFICATION OF TRANSPORTATION ACT, 1920. 583 commerce on the other, as to what is undue, or unreasonable, or unjust dis- crimination against interstate or foreign commerce? That is the real question?. Mr. Hines. Well, Senator, it would be impracticable to specify the character of the evidence. Of course, it should be such evidence as would convince an expert and impartial tribunal that undue prejudice had been created. Now, in reading the opinions of the Interstate Commerce Commission, I am very much impressed with the idea that the facts before it were such as to justify the conclusion that it arrived at; but it is very ‘lifficult to specify the sort of evidence that would be needed. For example, I should say that if you would take. the State of New York, take the New York Central railroad, with its enormous passenger travel, and its being one of the most important rail- road systems of the country, I think in that particular instance, the mere fact that the state authority maintained a passenger rate of 2 cents, while the Interstate Commerce Commission fixed a rate of 3.6 cents; I think in that par- ticular case, that mere fact would be practically conclusive that that 2-cent rate was undue prejudice upon interstate commerce. That would be a very extreme case. There are a great many other cases and you would need to go very much more into detail in order to arrive at a full conclusion. The CHAIRMAN. Well, you have spoken several times of a rate level. What do you mean by “rate level.” Mr. Hines. Of course, the rates vary so much it is impossible to apply that term with precision; but an expert-rate tribunal, like the Interstate Com~ merce Commision, is able to arrive at a general conclusion by comparing the scale of rates applied by the Interstate Commerce Commission, and the scale of rates for intrastate commerce, and concluding that they either represent approximately the same level or are substantially different. It is a thing that is susceptible only of approximation. Even if you could get the statistics, and try the case and determine the average rate for all traf- fic, it would be a very difficult thing. I think it depends more upon an expert trabunal making a general review of the case and arriving at a conclusion. As to passenger traffic, of course it is a simple thing. The 2-cent rate is one level and the 3.6 cent is another level, and a very different level. It is a sim- ple thing when you consider passenger rates. When you come to freight rates, the situation is vastly more complicated, and it has to be approximated. The CHAIRMAN. Yes; lay aside for the present passenger rates. Mr. Hines. Yes. The CHAIRMAN. Suppose that for the shipment of steel in any form from Gary, Ind., into some point in Illinois, a hundred miles distant, the rate was $5 per ton. Suppose that at the same time the rate for the shipment of the same sort of steel, the rate from a point in Illinois to another point in Illinois, 100 miles distant was $4 a ton. Would -you regard that fact alone as conclusive evidence of descrimination against interstate commerce? Mr. Hines. No. When you take the two individual rates, you have got to compare the service and the conditions of the service as well as the rate; but when you deal with the rate structure as a whole, as you have got to do, because you would never get through with the thing otherwise, it has to be dealt with on an approximate basis, and by an expert tribunal, with the expert knowledge which it has acquired, and by comparing the rate structure for States and the interstate-rate structure for similar distances and conditions, so as to reach a conclusion as to whether the two are approximately equal. You could not deal with the individual rate. In an emergency of this sort—— The CHARMAN. Would you not feel the necessity to inquire into the condi- tions of competition as affected by the disparity between the rates, State and interstate? Mr. Hines. Well, I think the Interstate Commerce Commission has a very wide knowledge of things of that sort to start with. I have been struck in reading these decisions how frequently it was developed that the same subject matter had been before the commission before, and that they had previously investigated it. They have a very general knowledge on that subject, as to competitive conditions, taking the traffic as a whole. The CHAIRMAN. We have never adopted in this country in its entirely a mileage rate upon freight, have we? Mr. Hines. No. The CHARMAN. For instance, take the western country in which I live, in its shipment of certain food products to the eastern markets, New York; or 584 MODIFICATION OF TRANSPORTATION ACT, 1920. Boston, our rate into those markets is very much less per mile than the rates from New York itself, or New England, itself, into those THALSEN At least,. it used to be, and I suppose that that is still true. Mr. Hrinxs. I assume that it is true. Every probability is that it i is. I have not checked those rates, but I think that it is highly probable, almost inevitable. The CuHairman. And in order to ascertain and determine whether other rates, whether a State rate is in discrimination against interstate commerce, you have got to investigate the conditions, and your inquiry must go further than merely the comparison of the two rates, as it would seem to me. Mr. Hines. That comparison has to be made with the knowledge of the sur- rounding conditions. Now, a great deal of that knowledge the commission has developed by virtue of its survey of. these problems for so many years. The Cuairman. Whether right or wrong, you know our general policy has been to allow the producers in every part of the country to reach the markets which reasonably they may expect to reach, upon terms that will permit them, the various commodities, to compete with other sections. That is the general idea with regard to the rate structure of this country. Mr. Hines. Yes; that has been the history of the rate structure of this country. The CHairMAN. So that if we exclude section 15a from consideration in de- termining the jurisdiction of the Interstate Commerce Commission over State rates we must come back to what was really the law before—that is, a dis- crimination, finding what a discrimination against interstate commerce or some part of interstate-commerce is—and when we find that, then instantly the In- terstate Commerce Commission or the Federal powers have jurisdiction over that rate precisely as though it were an interstate rate. That is the way that I have viewed the matter. Mr. Hines. Yes; to the extent of correcting that discrimination. The Cuarrman. To the extent of correcting that discrimination. Mr. Hines. Yes. The CHAIRMAN. That is all I have to ask. Senator Prrrman. Mr. Chairman, along that line of freight level, you are bringing out one question which Mr. Hines admits is a very difficult proposition. to explain. As you have already stated, the rate must be fixed so as to grant an adequate rate to the railroads. I assume that is true, is it not? Mr, Hines. Well, section 15a says that the commission shall do that as far as may be. That does not mean that the commission must fix a rate so high that when the business is not there, when there is a great falling off of business,. that the revenues must be produced, because that is impossible; but I do think that it means that on a basis of a normal traffic the commission’s rates ought to be sufficient to produce adequate revenue. Senator Pirraran. Well, if that lack of rate resulted in the confiscation of the road—that is, resulted in the production of no revenue—what is to prevent that? Mr. Hines. Of course, respecting a suit to enjoin confiscation, as Senator Kellogg pointed out, each road stands on its own footing as to what it can do and what it can not do, but the Supreme Court has held that a rate need not be high enough to produce a return for a particular company that is badly sit- uated, and I take it that the same principle would apply in the time of a depres- sion—that is, I doubt very much if a scheme of rates would be unconstitutional because, in a year when there was a great slump in business, the roads d‘d not get a fair return, because the Supreme Court has always emphasized that a rate must be reasonable from the standpoint of the public as well as from the standpoint of the railroad companies. Senator Pirrman. I understand that the general principle is that their idea is to fix a general system of rates which is reasonable and compensatory to the companies. Mr. Hines. That is true, but that does not mean that it necessarily could be invoked at a time of a great slump in business to force the commission to make a great increase in rates. Senator Pirrman. That is not the question I really had in mind, but that’ just leads up to the rates of individual roads. Now I wish to ask some ques- tions with regard to rates. Mr. Hines. Yes. Senator Firrman. Now, the Interstate Commerce Commiss‘on, as has been suggested by the chairman, does not base its rate making upon mileage, but MODIFICATION OF TRANSPORTATION :ACT, 1920. 585 takes into consideration a great many conditions; in other words, a rate for interstate commerce between New York and San Francisco would probably be much lower that the combined intrastate rates of the various States between New York and San Francisco. , Mr. Hines. Oh, yes. Senator PITTMAN. But, of course, in getting a reasonably compensatory rate they would naturally take into consideration what they permitted to be charged for interstate traffic and what was to be permitted to be charged for the intra- state traffic. In other words, a sum of the proceeds, both from inter and intra state rates, constitutes the reasonabte compensatory rates to those railroads, and, having fixed that, that becomes the rate to the individual, does it not? Mr. Hines. That becomes the return to the railroad companies—the net oper- ating income of the company. Senator Pirrman. Now, that would be called the rate level? Mr. Hines. The rate level is a term that is very hard to describe. It is a result of the comparison, or basis of comparison, of two sets of rates, taking the rates themselves rather than the operating income, which is the return which the railroad company gets after it pays its expenses. It is a very unsatisfactory term, and it is a very difficult thing to make a comparison. For example, you might have a State where it had been known that for years the intrastate rates were relatively lower than the interstate rates for similar hauls in the same part of the country. Now, in that case, you could say in general terms that the freight level of those intrastate rates is less than the interstate freight level which surrounding interstate commerce has to pay, and if in that situation the interstate rates were increased 35 per cent and the State commission did not make a similar increase the disparity -, between those two levels would be increased still further. That is just an example. There is a great variety of rates on a great variety of commodities; but, taking the intrastate rates and the interstate rates for similar hauls in a similar part of the country, an expert tribunal can draw a reasonably correct conclusicn as to whether those rate levels are approximately the same or whether they are widely apart. Senator PirTMAN. Well, there is quite a distinction, is there not, as between a discrimination of intrastate commerce and interstate commerce, and a dis- crimination in the reductions of charges in a State which necessitates the necessity of changes on interstate—in other words, if State commissions should so reduce or attempt to reduce a rate on transportation in States that it would be essential for the Interstate Commerce Commission, assuming that the State authority to raise intrastate rates, we will say, double them, so as to bring in an income to those railroads doing interstate and intrastate bus‘ness both, that will be a discrimination against interstate commerce, will it not? Mr. Hines. I think so; yes. Senator Pittman. Well not, that constitutes discrimination? Mr. HINEs. Yes. Senator PrrrmMaNn. That is dealing solely with the income of railroads, of course? Mr. Hines. Yes. Senator PirtMaNn. Now, discrimination which discriminates against shippers of interstate commerce in favor of shippers of intrastate commerce, where a shipment comes from one State near the line and goes into another, that com- merce would be discriminated against? Mr. Hines. I think, Senator, as a rule, that any serious discrimination of the kind you mention, serving to reduce seriously the proportion of income arising from intrastate business as compared with the income from a similar volume of similar interstate business, would inevitably involve a great many discriminations against shippers, as between the shippers, even if it does not rise to the serious class you mentioned first of forcing the interstate rate to be increased to make up for the reduction on intrastate business. Senator PirrMaN. I only call attention to that discrimination because 1 only desire to ask you whether in reality those discriminations would affect the total income of the roads. Mr. HINES. Yes. Senator Prrrman. By reducing the intrastate rates? Mr. Hines. Yes. Senator PirrMan. Now, we will say there is a total freight rate from New York to San Francisco of $20 a ton on sonre particular commodity, and that the total intrastate rate on that commodity is $30 a ton. Now, that would 73337—21— pt 3-2 586. MODIFICATION OF TRANSPORTATION ACT, 1920. not be confiscatory to those roads if there was an equalization made increas- ing the interstate-commerce rate, we will say, just for an arbitrary illustra- tion, $25, and reducing the intrastate rate proportionately to $25 per ton, San Franc'sco to New York; there would be no confiscation there so far as the income of the roads is concerned, and that would become equal, according to the amount of transportation that they would carry. Mr. Hines. You could increase the interstate rate and decrease the intra- state rates; the interstate rate could be increased and the intrastate rate de- creased, or vice versa, so as to equalize the situation. Senator Pirrman. Exactly. _ ; Mr. Hines. On that particular traffic. Senator Pirrman. However, when the Interstate Commerce Commiss’on fixes that low rate for interstate commerce it is necessary for them to allow the higher rate for intrastate commerce, so as to insure to those railroads a sulli- cient income; is that not true? Mr. Hines. Your illustration contemplates a reduction in interstate rates by the Interstate Commerce Commission? Senator PirtMaNn. The converse is the plan. Mr. Hines. I am not sure I am following you or get that perfectly clear. Senator Prrtman. I think that it is true that in a great many cases the inter- state rate is less than the intrastate rate, say from New York to San Francisco. Now, then, the total income of those railroads through both interstate and intra- state rates between San Francisco and New York is made up of their rates, based on interstate rates and the rates based on the intrastate rates. That is the situation? Mr. Hinss. Yes. Senator Pirtman. Now, the intrastate rates are higher, the sum-of them, than - the through rates from San Francisco to New York; but they have fixed those rates and it is assumed that the fixing of those rates only gives reasonable re- turn to the railroads upon their investment. Mr. Hines. The State commissions fix those intrastate rates. Senator PirtMan. Well, we will say that the Interstate Commerce Commission fixes them, which was demonstrated a moment ago, that in cases where the Interstate Commerce Commission has fixed the interstate rate, the interstate rate—— Mr. Hines. How is that? Senator Pittman. Take a case in which the interstate rate is higher than the rate which has been fixed for the intrastate traffic whenever there is intra- state commerce, as I understand it, whenever those intrastate commerce rates, as I understand it, go below the level fixed by the Interstate Commerce Commission, the level which will bring an adequate portion of the returns from the intrastate traffic to the total sum to be earned by the railroads, the Interstate Commerce Commission-compels them to raise those rates. The CHAIRMAN. I am still in doubt as to what “ level” means, so that I am trying to find out what the word “level” means and I do not get anything out of it. This rate is fixed by the Interstate Commerce Commission for interstate commerce. Senator Ketioce. Let me suggest—I do not want to interrupt—I am trying to understand “level” myself. The Interstate Commerce Commission has held in the hundreds of these cases for the reduction of rates (that the principle of section 15(a) is a general principle, as the witness says, in normal times, to be applied so far as may be to produce on a whole reasonable income; but they said in times, and under conditions such as we have had during the last year they were not obliged to make those rates produce any such income, and as a matter of fact, they have produced but 2.5 per cent instead of 5.5 per cent. That is exactly what the Interstate Commerce Cominission said, bearing out that statement. Mr. Hines. Perhaps I may be able to make this suggestion, which may ex- plain a little more clearly what I understand the situation is. Here is prac- tically the situation: In a certain part of the West, I believe, the Interstate Commerce Commission, as to the general revenues of the whole situation, reached the conclusion that certain increases in rates ought to be made, includ- ing a 35 per cent increase in the freight rates in a certain part of the West in order to produce the result which section 15(a) contemplated. Now, that having been done, the commission was able to know what were the interstate rates, which had been produced by the 35 per cent increase. Now, MODIFICATION OF TRANSPORTATION ACT, 1920. 587 im considering the intrastate rates, say in the State of Kansas, the commission would not be particularly interested, would not be particularly helped by considering the continental rate or the rate from San Francisco to New York; but the commission would be interested in comparing those intrastate rates with the interstate rates in the same part of the country for similar distances, say 10 to 400 miles; the Interstate Commission would be familiar with that from their knowledge of the tariffs which they have acquired through many years of study of the subject, and it would know what would be the effect of that 35 per cent increase in interstate rates in comparison with a less increase or no incfease in the intrastate rates. It would form a judgment as to whether the increased interstate rates, for instance, for from 10 to 400 miles were materially above or materially below the intrastate rates. From that it would arrive at a fair judgment, based on an expert knowledge of the conditions as to whether maintaining the intrastate rates on the old ‘basis while putting the increase on the interstate rates would result in defeating the policy of the Congress. Senator Pirrman. And then when they do put on the 35 per cent, based on their judgment and calculations, you said then that becomes the rate level? Mr. Hines. That is the new rate level. Senator Pittman. Well, the rate level is not—— Mr. Hines (interposing). In other words, it equalizes, The State rates be- come approximately equal to the interstate rates for similar distances and conditions, and the levels of the two are regarded as being approximately the same level. Senator PIrTMANn. But it does become the rate level. Mr. Hines. I am using the rate level there—perhaps it is a misleading term, which simply describes a given system of freight tariffs. Take, for example, the State of Kansas. There, on intrastate business, you might say that the Kansas rates were from 10 to 15 per cent less than the interstate rate for the same distance. Then you would see that the interstate rate level is 10 to 15 per cent higher than the intrastate level. I am just using the word “level” as a description of the net result of the various rates. The CHAIRMAN. Well, it was suggested a moment ago that it would be difficult to find a case in which the intrastate freight rates were higher, comparatively, than the interstate rates. From my recollection of the situa- tion in times past I do not think it would be very difficult to find such a case. For instance, the railroads used to charge the same freight rate from the Atlantic seaboard to Spokane that they charged to Seattle, or the same rate to Reno that they charged to San Francisco; the same rate to Salt Lake City that they charged to Los Angeles, and so on. Now, there were instances in which there were higher interstate traffic rates than the State rates on the same commodities. Mr. Hines. Well, that is the. transcontinental rate, which you are speaking of now. i The CuHairMAN. And, as I understand these comparisons, it seems to me that they are most useful comparisons and that they could not eliminate the States, a suitable system of interstate and intrastate rates, having the same rates as far as possible, under the same conditions, which eliminated the transcon- tinental or highly competitive rates. We are, I think a little in danger in these days in putting a wrong definition upon the word “discrimination.” Now, I want to ask you about section 15(a). and give you my interpretation of that section, and how it corresponds with your own. Seetion 15(a) requires the Interstate Commerce Commission to determine the value of the property that is used in the service, and then fix rates as near as may be that will yield a fair return upon that value, as a whole. Now, in administering that section, as I have felt, the commission would pro- ceed with the fixing of the question of the interstate revenues, and then assume that if the interstate rates were to be raised, that the States would all adjust their rates,-in order not to be discriminatory against the interstate commerce, and then if after the interstate rate hdd been provided for, the States did not place their rates so that they wold not be discriminatory, then a case would arise under section 15(a), or ender 13, for the removal of the discrimination, which had been created on account of the increase of these interstate rates, and if in any case or in any State the Interstate Commerce Commission found 588 MODIFICATION OF TRANSPORTATION ACT, 1920. that the State rates were discriminatory, then the commission would proceed to remove that discrimination. That is my interpretation of section 15(a), and as I have looked at it, it is the only connection that 15 has with section 13. Mr. Hives. If I understand that, that was the practice that the Interstate Commerce Commission followed. The CHairmAN. Well, I am not criticizing the action of the commission in any manner. I am simply speaking generally. Mr. Hines. I mean that they put that practical construction on the language and this confirms your view; that is, the commission decided as to the increase needed in the gross revenues of the railroad companies in order to produce the net income contemplated by section 15(a). It decided what percentage of in- crease should be made in the interstate rates in order to produce that result, and it proceeded on the assumption that the State commissions would make readjustments of their own rates, so as to do their part in the execution of the same principle. Then if it finds out, later that the State commissions do not do that, it investigates the matter, and if it reaches the conclusion that the State rates do constitute an undue discrimination, in the light of those condi- tions, and in the light of all of the surrounding circumstances, then it fixes the State rates so that they will eliminate that unjust discrimination.. Senator Pittman. Well, that comes back to the same proposition that was discussed a while ago that the State commissions were subservient to the Inter- state Commerce Commission; that is, that they only have a right to fix a rate upon the Interstate Commerce Commission’s decision that it is a reasonable rate. That seems to be a very remarkable power. : The Cuairman. I do not think that that power is in there, because there may be a very great difference between the State rates and the interstate rates, and, still there would be no discrimination. Mr. Hines. You will find in these decisions of the Interstate Commerce Com- mission—in a good many cases—that they accept the action of the State com- mission on certain commodities, because in the lght of the circumstances that surround those commodities they will bear their part of the burden even with- out increasing the rates. There is room for almost endless variation. The general principle is reason- ably clear, but the application of those pr‘nciples leaves room for almost end- Jess variation, and the commission in dealing with these different State cases recognizes various exceptions of that sort; and in other cases they deferred action so as to get the further consideration of the State commission before making any increase in the intrastate rate. Senator Pirrman. I do not want. to be understood as entering any objection to that procedure by the Interstate Commerce Commission, because I realize that they have got to provide compensation for the roads. What I have in mind is this, that it is an extraordinary power in the Interstate Commerce Commission when taking into consideration the rates both from interstate and intrastate traffic. They can lower the interstate rate per mile per ton less than the intrastate. In other words, having fixed the interstate rate, no motter how low it is, having fixed it, then they can have the intrastate rate make up the balance. no matter how high they have to go. Mr. Hines. I do not believe, Senator. Senator PrrrTman (interposing). Otherwise it is discrimination. Mr. Hines. I do not believe in practice the matter works out. that way, Sena- tor. The commission, of course, does not undertake to make rates on a per mile basis. It recognizes the conditions, as the chairman pointed out. of the necessity of the products resching the market, and also takes into consideration competition. I think that the general theory of the commission js to comsider rates. State and interstate. for s'milar distances: say, in the case of Kansas. for example, from 10 miles up to 400 miles. I do not understand that the Interstate Commerce Commission stands for anv principle which makes the interstate rate for any distance less than the intrastate lines under similar conditions. Nevertheless. it may permit lower mileage-rates for longer hauls and for va- rious competitive features. and that has been recognized all through our rate history, that rates can not be fixed on a mileage basis, that rates for a longer distance are less per mile, and that rates for various competitive reasons are less than rates for the same distance where the same competition does not prevail. So, in practice, I can not imagine of a case where the Interstate Commerce Commission would reduce the interstate rates and would increase the intra- MODIFICATION OF TRANSPORTATION ACT, 1920. 589 state rates for the same distance under the same conditions, so that there would be a discrepancy, to the injury of the intrastate commerce. I think that that would certainly violate the spirit of the law, and I believe it would violate the commission’s settled views on that. Of course, as the chairman has pointed out, there are certain discrepancies on account of what is known as the long-and-short haul adjustments. Senator Prrrman. They take into consideration that theory of competition. Now, no matter what the theory is, they take that into consideration; the result is a discrimination against large sections of the country, and that has been going on all the time. Mr. Hines. That is a matter that has been more and more restricted as years have gone on. Of course, the argument that has been used in favor of it is that if the lower rate is not charged for the longer haul, that traffic would be lost, and as long as that traffic paid more than the actual movement cost it contributed something to the company’s treasury. I think that the diffi- culty there is in the matter of the difficulty of explaining it to the public. Such adjustments create a great deal of misunderstanding, and I think that there has been a gradual restriction of those higher rates for shorter hauls, although I believe it has not been by any means wholly eliminated, but is much more restricted than it used to be. The CHarirMAN. Mr. Hines, I have referred often to this illustration, or something like it. To clarify my own mind, at any rate, let us suppose that the Iowa rate on a crate of chickens, from 30 miles out from Des Moines, was so much. Suppose that there was no shipment of chickens into Iowa from any other State. Do you think that the mere fact that the Iowa State com- mission did not raise its rate 35 per cent would constitute conclusive evidence of discrimination against interstate commerce? , Mr. Hines. I do not think that it would constitute conclusive evidence. I think the interstate commission, with its knowledge of rates, would be able to form a conclusion as to whether the rates, as a whole, in Iowa, were rea- sonably equal or clearly unequal with the interstate rates for the same dis- tance of haul and the same part of the country. If you take the rate for a given haul for a given commodity and require an investigation on that basis, thus dealing separately with each article of traffic, why, the thing would never be done. They would never get to the end of it. They have got to deal with it broadly and look at the rates as a whole and reach an honest judg- ment as to what the rates should be, based upon their expert knowledge as to whether they are reasonably equal, and if not, to correct any inequality in the general situation as between intrastate rates and interstate rates for similar distances; but if you took up each rate and had investigation of that separately, you would never get to the end of it—never get them adjusted. The CHarman. I believe that you stated the emergency required wholesale action in a way, but it is very hard for me to reach the conclusion that in a case such as the case I have put to you the Interstate Commerce Commission had any authority whatever over a State rate such as that. Mr. Hines. Now, you will find in many of these decisions of the Interstate Commission that the d'fference of opinion between it and the State commissions appears with reference to rates on a few important commodities which moved in large volume. For example, brick frequently was one of the materials; road materials frequently was one; and cotton frequently was one. I think in these cases you will find that the Interstate Commerce Commission did not accept the mere fact of an increase not having been added, did not accept that as con- clusive at all, but it went into quite an elaborate study of the whole situation, what particular industries were shipp’ng, and what commodities and what the rate’s history was, and in the light of all of that studied and reached the con- clusion that the increase ought to be made in some cases, reached the conciu- sion that it ought not to be made in some cases, and reached the conclus‘on in some other cases that it ought to be postponed, that they should postpone con- sideratin of the case before a revision was made. The CHAIRMAN. Now, to put another illustration that has been used some- what, let us assume that the State authorities in Illino‘s, the proper State authority, whatever it may be, legislative or administrative, on the railroads going into Ch‘cago, ordered them to elevate their tracks so as not to disturb the surface travel, and that the cost of that elevation was $5,000.000. Do you think that that fact alone authorizes the Interstate Commerce Commission to increase State rates? 590 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Hines. Why, no. I think that should be regarded equally a burden on interstate rates. The CHAIRMAN. I suppose ‘there would be this distinction, that it might be a capital expenditure. Mr. Hines. It would be a capital expenditure, in any event, but the interest charge would be a burden on operation. It would be an improvement, and for an improvement of that sort it would be equ‘table for the interstate to pay its Proportion, and the intrastate to pay its proportion. I do not think that would be a reason for raising the intrastate rates alone. The CHatRMAN. If the commission found it necessary to ra’se the’ rates to’ meet that additional burden, they would still be required to find some dis- crimination in State rates against interstate commerce rates before they could deal with the State rates, would it not? Mr. Hines. I do not see how, in that case, the commission could deal with the State rates at all, on the face of the statement. I take it that if a s'tua- tion of that sort arose, and that if the Interstate Commerce Commission reached a conclusion that there must be an increase in rates in order to carry that addi- tional burden, what it would do would be to increase the interstate rates, and then if the State did not make an appropriate increase in intrastate rates, then they would investigate that question as to whether they were creating an uniust diser’mination. The CHAIRMAN. So, it all comes down finally to the alleged interference with State authority, to the question of discrimination peal persons, localities, or interstate commerce. Mr. Hines. Yes; and in the last analysis I think that the Federal authority has to decide—and I have been very much impressed, from my examination of these decisions, that the action of the Interstate Commerce Commission’s investigation has not in any sense been insufficient, and that they have not made their decisions on insufficient evidence, because they have made a very careful and painstaking investigation, in light of their very expert knowledge which they have acquired through many years of observation. The CHairRMAN. Has anyone any further questions? Mr, Joun HE. Benton. Everybody will be interested in the explanation of- fered by Mr. Hines. I have been greatly interested this morning, and, of course, I do not want to interrogate him, but there is one matter I would like to suggest, one point on which you touched, that I would like to invite his further expression of opinion on. It is this: Is there ever a t'me when State authorities prescribe the rates when upon complaint of the carriers to the cominission that the rate prescribed is unreasonably low and unduly preju- dices interstate commerce, and on that account the Interstate Commerce Commission can no doubt set aside the State rates? With regard to the effect of the State rate upon the movement of inter- state commerce, if I may add, to save time, the cases which Mr. Hines has examined will show that in Tennessee the entire advance, both as to passen- ger and as to freight, which the railroads asked for, was allowed, except only as to road-building material. Upon complaint of the carriers that that constituted an undue prejudice, the commission set aside the State rate and prescribed a rate in its place. In your own State of Iowa, Mr. Chairman, the commission is now proceed- ing upon the complaint of the railroads to consider whether it sha!l set aside the order of the State commission that 16,000 pounds should be the proper im‘nimum weight for hogs moving intrastate instead of 17,000 pounds. The CHAIRMAN. Well, it is not the practice of the committee to permit ex- aminations from persons other than members of the committee. I adopt the question as my own, and will be very glad if Mr. Hines would answer it. Mr. Hines. I am not sure that I completely grasp the object of the question asked me, and before answering I will ask for further light on it. Though, I will mention that my notes which I have made of the Tennessee case indi- cate that there were three questions involved. Apparently the Tennessee com- mission made no increase on brick, sewer pipe, and stone and gravel. The Interstate Commerce Commission took no action as to sewer pipe, leaving the rate as it was, reaching the conclusion that the intrastate rate was not dis- crim‘natory. As to the brick, the Interstate Commerce Commission said that they would take the matter up further with the State commission and en- deayor to work it out by further cooperation with the State commission. As to stone and gravel, it made the increase, holding that the State rates would be discriminatory, and it made it after an examination of the situation. MODIFICATION OF TRANSPORTATION ACT, 1920. 591 Now, I am not quite sure that I got the point of the question that was asked me, and I will ask you to give me a little more information. Mr. Benton. Mr. Chairman, my point was this: Does it make any difference whether the State refrains from allowing an advance in a particular rate, when a general advance is asked for, or whether if having granted the general ad- vance six months or six years later it makes a rate applicable to intrastate to any given commodity? Is it not always open to complaint by the carriers going to the commission? . Mr. Hines. In my judgment, the provisions of the interstate commerce act are continuing in their operation, and it is always open for the Interstate Com- merce Commission, either on its own motion, or on the complaint of a carrier, shipper, or other interested person, to consider the question whether intrastate rates or special intrastate rates operate as a prejudice against the interstate shipper or against localities or against interstate commerce. The Interstate Commerce Commission has, I think, continuing jurisdiction. The CHAIRMAN. Mr. Hines, we are much obliged to you for your appearance before the committee. If there are no further questions to be asked, we will adjourn the further hearing on these bills until Monday morning at 9.30, at which time a representative of the Transit Commission of New York City will be heard. Following him, I understand that representatives of the railroads will be further heard. (Whereupon, at 12.18 o’clock p. m., the committee adjourned.) “MODIFICATION OF TRANSPORTATION ACT, 1920. MONDAY, DECEMBER 12, 1921. Unitrep States SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met at 9.30 o’clock a. m., pursuant to adjournment on Friday, December 9, 1921, in the hearing room in the Capitol, Senator Albert B. Cum- mins (chairman) presiding. The CHAIRMAN. The committee will come to order. We will hear Mr. Kingsbury. State your name, residence, and official position. STATEMENT OF MR. HOWARD THAYER KINGSBURY, COUNSEL TO NEW YORK STATE TRANSIT COMMISSION, 49 LAFAYETTE STREET, NEW YORK CITY. Mr. Kinespury. I am counsel to the New York State Transit Commission, and am appearing at its direction and under its authority. I am also authorized to state that while I do not officially represent the public-service commission, being the utility commission which has jurisdiction outside of New York City, yet I have been in communication with its chairman and counsel, and am au- thorized to say for them that they urge the substance of this same amendment which I am presenting, not necessarily being committed to the precise lan- guage of the amendment which I am suggesting, nor am I really myself. 7 I have prepared, Mr. Chairman, a brief statement in writing setting forth the pith and substance of the amendment which the New York State Transit Commission desires to bring to the committee’s attention, and also the principal reason for urging it, and I think in view of the shortness of time it might really be more convenient if I should make a still briefer oral statement and file this with your official reporter; but that is entirely as you may prefer. The CHainMAN. What is the length of that statement? Mr. Kinessury. Only four pages. The CHAIRMAN. That is so brief that it astonishes me. Go on in any way you prefer. We are accustomed to days and days of these hearings. Mr. Kinessury. I can guarantee that this will only require a very few minutes, so I will, with your permission, simply make an oral statement and present this. The CHarrMaAn. You may present what you have to say just aS you please. Mr. Kincssury. The particular point that interests the transit commission in these proposed amendments is some modification of subdivis:on 2 of section 20(a@), which requires the approval of the Interstate Commerce Commission for all security issues by all carriers who are held in any way to be engaged in interstate commerce. Now, Mr. Chairman and gentlemen, the transit commission has jurisdiction over all carriers that come within the city of New York. Instead of going into a general argument I will take two particular instances. Among these carriers are a little steam railroad on Staten Island and also the New York Terminal of the Long Island Railroad. Both of these railroads have been held by a decision of the United States District Court for the Southern District of New York to be engaged in interstate commerce, although their lines are wholly within the State of New York. They do not run a single train outside the State of New York, but a few stray freight cars, a few stray shipments, are sent from their lines to other lines and which do pass into other States. Senator KELLocc. I just came into the room, and may I ask you what two lines those are? 53 594 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Kinessury. The Long Island Railroad and one other little railroad on Staten Island which is wholly within the borough of Richmond, which is in the city of New York. Senator Kettoce. The Long Island Railroad is owned by the Pennsylvania Railroad, isn’t it? Mr. Kingspury. As to this little railroad I think the Baltimore & Ohio owns it: I am not making that as an assertion; it is only my impression that it is a part of the Baltimore & Ohio system. Again, to proceed by way of illustration rather than detailed argument, one of the functions of the transit commission is to provide for elim ‘nation of grade crossings within the State. As, of course, the chairman of this com- mittee will know those even present places of really great danger to the whole population, particularly where grade crossings have been established in outlying sections of a city and then the city has gradually built up around them, and what was in effect a country road has become a city street. The commissiun has power under State legislation to eliminate grade cross- ings, to determine the question whether a street should be bri:lged by a rail- road or a railroad should be bridged by a street or in what manner the de- sired safety can be obtained; an‘ also to apportion the expense of same ac- cording to certain statutory rules which it is not necessary to burden this committee with, among the railroad company, the State. and the city. These crossing improvements often involve very consi‘lerable expense, as you may well imagine when you consider the cost of property in the neighborhood, and ‘the necessity it often involves of condemning property and acquirimg certain additional land for the purpose of building approaches to a bridge. One of the grounds upon which railroad companies most often ‘resist these orders, the ground upon which they are very largely resisting them now, and. we have quite a number before the comm‘ssion, is because the railroals very often ean not afford it. It is quite clear that the railroads can not afford to do it out of current earnings. In many cases if they are to change grade crossings they must resort to capital issues. If subdivision 2 remains in force in its present form—— Senator KELLoce (interposing). Resort to special capital issues, do you say? Mr. Kinessury. It will be necessary for any railroad company which is required to make a capital issue in order to raise funds to comply with lawful orders of the State commission. The CHarrMAN (interposing). Let me understand you. You have jurisdiction over all railroads that enter the city of New York? Mr. Kinessury. Yes. : The CHAIRMAN. Such railroads as you speak of are the Pennsylvania, the New York Central lines, and all lines that come in there. Mr. Kinessury. It includes those, of course, and The CHarirMAN (continuing). And you want them to be permitted to issue securities, for certain purposes at any rate, without the approval of the Inter- state Commerce Commission; is that your proposition? Mr. Krnessury. For certain purposes; yes, sir; in order to comply with lawful requirements of a State authority relating to their purely local equip- ment wholly within the State. I took the Long Island Railroad as an illustra- tion, because in that case there was really no interstate commerce involved, not to any great extent at least. Senator Kettoce. One minute. The Long Island Railroad is owned by the Pennsylvania Railroad, is it not? Mr. Kinessury. The Long Island Railroad is controlled by the Pennsylvania Railroad; yes, sir. But the Staten Island Railroad I spoke of I said I thought was controlled by the Baltimore & Ohio. Senator Kertoce. It has joint rates and through rates on all its interstate business. Mr. Kinesspury. But it is almost wholly intrastate business. Senator Ketioce. It runs a great many trains right straight through on the Long Island Railroad for delivery elsewhere? All its passenger trains come over the Long Island terminal. Mr. Krnessury. But they originate and end in New York State. They do not go outside the State of New York. Senator KreLtocc. Oh, yes; they come clear to Washington for all the southern business. Mr. Krincsspury. The Long Island does, do you say? Senator KEeLLogc. The trains of the Pennsylvania Railroad. MODIFICATION OF TRANSPORTATION ACT, 1920. 595 Mr, Krnessury. Oh, yes. Senator KEtLoce. And they run on to Long Island. Mr. Kinesstry. Yes, sir; they run to Sunnyside yard. Senator Kertoce. There is nothing in this act that takes away from the New York commission any power over grade crossings or the lowering of grades or the raising of grades at all, is there? Mr. Kinessury. Just as I outlined, sir, that if it hecomes necessary in order to pay the expense of complying with the commission’s order to issue bonds or to sell additional stock the railway can not do so without Senator KEtLoce (interposing). You have a right to order a grade crossing eliminated. The courts have held that that is not taking away from the com- amission that right even though the railroad is an interstate railroad. Mr. Kinesspury. Yes, sir; recently decided. ‘Senator KeLLoce. And it is the business of the railroads to get the means to earry it out. Mr. Kinessury. Yes, sir. Senator Kerioce. Do you know that the State railway commissions recom- mended this provision of law: That capital issues should be under control of the Interstate Commerce Commission? Mr. Kinessury. I know that the general principle was recommended, but—— Senator KELLoce (continuing). This law was recommended to the Congress by the railroad commissions of the States. Mr. Kinesstury. I am not arguing against the general principle at all. Per- haps it would really save time if I read the text of a very simple amendment which the New York State Transit Commission is suggesting. The CHainMAN. That is what I would like to hear. How would you go about saying a grade, whether inside the city or outside the city, which had to be elevated would not attach itself so inseparably to interstate commerce that you could hardly divide the several jurisdictions? Senator Keiiocc. Suppose there is a generai mortgage now over all the prop- erty of a railroad that covers after-acquired property as well as property now in existence; how are you going to make another mortgage for a particular matter? Mr. Krnessury. I do not think I have an answer ready for that question at the moment. Senator KeEtLoce. That is the question. How are you going to issue new securities when they have one charter and one issue of securities for all of the lines of the railroads? Mr. Kinessury. I do not think that is the case. Senator KeLtocc. Nearly always. I do not think there is one railroad in the country that does not have one issue of securities, at least. The CHAIRMAN. I think we would understand it better if you would read the amendment. Mr. Kinessury. This amendment we propose at some place in section 20a is: “Provided, That the authorization of the commission shall not be required for the issue of securities or assumption of obligations for the purpose of pro- viding funds wherewith to pay the reasonable and necessary expense of comply- ing with the lawful orders of the appropriate State authorities concerning the stationary equipment, buildings, or structures of a carrier corporation situated wholly within such State.” The CHAIRMAN. That would cover the Pennsylvania Railroad station in New York and the New York Central station in New York, would it not? Mr. Kinessury. It might. Senator Kreritocc. And they have a mortgage on all those improvements now. Mr. Kinessury. Yes, sir; I suppose they have. Senator Kriioce. They have one issue of stock on all their lines. How are they going to issue separate securities for that one improvement? Mr. Kinespury. There might be one issue of bonds for those improvements. Senator Ketiocc. They have one issue of bonds now. Mr. Krnesrury. But they could issue another. Senator Ketroce. Can they do that? Mr. Kinesscury. Some railroads have a second and a third and a fourth lien, going all the way down. Senator Ketioce. If the New York Central Railroad has a mortgage over all its improvements, can it issue another mortgage for some local improvement? Mr. Kineseury. I am inclined to think that for some improvements in New York City, to acquire new land they did not have before, for the purchase of i 596 MODIFICATION OF TRANSPORTATION ACT, 1920. property to make approaches to a bridge, it would be possible to have a sepa- rate security for that. The CHairMaAn. Do you anticipate any difficulty having your orders carried out for such improvements simply because the Interstate Commerce Commis- sion must approve the security? Mr. Kinessury. We not only anticipate it, Mr. Chairman, but we are en-., countering difficulty right along, and we think that the railroads will use thé present requirements of the act as an excuse for delay and for general oppo-" sition. They could very easily under the law as it stands new, say—in fact, they would be obliged to answer that they could not issue a new security ~ without getting the approval of the Interstate Commerce Comm’ssion. They. might then present an application to the Interstate Commerce Commission, and they might present it in such form as to take an unduly long period of time before it could be acted upon, or in such way that although they might seem to be advocating it yet that it might he denied. The CHarrMAN. You can easily see that for such expensive improvements as: have been made in New York City it might constitute a very heavy burden upon interstate commerce. Mr. Kinessury. That might be. The CHarrMaAN, And that the general revenues of the railroad companies. must pay not only the interest but the principal upon any such securities. Mr. Kinessury. That is true, sir. The CHarrMan. It is rather contrary to the spirit of the act, in so far as securities are concerned, to divide them or, I mean, to divide that responsi- bility. That is the very thing that seemed to be so difficult with the railroad conypanies, that they must secure the consent or the approval of a great many governmental bodies in order to permit them to go on and make the improve- ments that they had in view. Senator Kettoce. That was the ground that the State ¢ommissions took, that there should be one authority to pass upon securities where a company issued only one security—— Mr. Kinessury (interposing). And yet so many—— Senator Ketioce (continuing). And we followed their recommendation in that regard in our action in the Congress. Now they want it changed, do they? Mr. Kinessury. Well, this particular commission was not in existence at that time. Senator Krettocce. The New York State commission was. Mr. Kinesspury. There was a New York State commission, but this is an entirely new commission under a new act. This situation may arise, though, sir, which I think should be considered: Take the case of a grade crossing causing actual daily danger to human life, to the citizens of a given State. The State authorities order that grade crossing eliminated. It of course is not to be expected that the Interstate Commerce Commission would refuse its consent to issue securities for that purpose, but it is certainly within the legal possibility that it might do so. And it does not seem proper that the order of a lawful authority of a State for the protection of its own citizens’ lives should be subject, even by a legal possibility, ne be defeated by the failure or refusal to act of the Federal body. The CHAIRMAN. Does it occur to you that if we did this for the State and city of New York we would have to do it for ali States and cities in the country? Mr. Kinesspury. Oh, the law, of course, would have to be general. It could not be made applicable to New York State or city alone. Senator Kerttoce. Do not you know that thousands of grade crossings are being taken out every year throughout the States and cities of the country and that securities are not issued for a particular purpose; that they are issued for general improvements—so much per annum as the railroads can stand? Mr. Krnespury. I know that is the usual course of events. Senator Krttoce. Is it not perfectly apparent that it is entirely impracticable to authorize the issue of securities for a particular improvement, like a grade crossing or other and general improvements of a railroad property? Mr. Krinespury. I think it may be unusual, but I do not think it can be said to be entirely impracticable. I might also say, although my own suggestion to embody that as a proviso in subdivision 2 of section 20a, that it might also go instead in subdivision 9, which provides that the requirements of that general section, 20a, requiring approval of the Interstate Commerce Commission, etc., shall not be applicable to short-term notes. That is, say a railroad may issue short-term obligations. MODIFICATION OF TRANSPORTATION ACT, 1920. 597 ' The CHarrMaAn. There is a provision of law now in regard to that. Mr. Kinessury. Yes; and this might be made an added section, to be in- ‘eluded in that provision. I attach no particular. importance myself to which “part of the act it is put in just so its inclusion is to be considered. I will sub- mit, with the committee’s permission, both the memorandum in its original form and the alternat.ve provision, the latter only having been suggested to me yesterday evening, so I had no time to have it embodied in my memorandum. In connection with the proposed amendments to the interstate commerce act _which have been introduced with a view to preserving the r'ghts‘of the several “States over intrastate transportation, the transit commission of the State of “New York desires to urge an amendment to section 20a, which was added to the interstate commerce act by the transportation act of 1920. By subdivision 2 of such section the approval of the Interstate Commerce Commission is re- quired as a condition precedent to the issue by any carrier corporation of any securities of any other corporation, ‘‘even though permitted by the author.ty creating the carrier corporation.” Under this legislation the approval of the Interstate Commerce Commission would be required to enable a carrier cor- poration to provide for the expense of complying with the lawful orders of a public utility commission having competent jurisdiction over its structures and stationary equipment wholly within the boundaries of a State. Thus, under ‘color of the exercise of Federal jurisdiction over interstate commerce, the Inter- state Commerce Commission could prevent a State from enforcing its authority to protect the physical safety of its own citizens. Th‘s is a matter of special interest and concern to the New York Transit Com- mission, which has jurisdiction over all transportation lines within the city of New York, including railroads as well as street railroads. Naturally and . necessarily there are many points of intersection between the public streets of the city and the tracks of the various railroad lines. Many of these crossings have been at grade, especially in the outlying portions of the city. As the city has built up it has become more and more important to eliminate these grade ‘crossings as a matter of safety. Under the railroad law of the State of New York jurisdiction js vested in this commission to determine the manner in which these crossings are to be made (see railroad law, secs. 89-96, inclusive), and to apportion the expense of any construction or alterations required between the railroad, the State, and the municipality according to certain rules prescribed by the statute. In many cases the expense of complying with this commission’s orders in ‘such matters is too great to be included among ordinary operating expenses and paid out of operating income. Special financial provision, therefore, has to be made to meet such expenses, either by the issue of new stock or by borrowing upon bonds, notes, or otherwise. A refusal by the Interstate Commerce Com- mission to approve an issue of securities for this purpose might easily have the ‘effect of making it financially impossible for the railroad to comply with this commission's orders, and such refusal would undoubtedly be set up as a defense in any proceeding brought by this commission to enforce compliance with its order. The provision of the interstate commerce act as it stands is of doubtful con- stitutionality, under recent decisions of the United States Supreme Court. In Denver & Rio Grande R. R. Co. v. Denver (250 U. 8., 241) it was held that a municipal ordinance requiring the removal of a railroad track from across a ity thoroughfare did not impede the movement of interstate commerce and affected it “only incidentally and indirectly.” In Erie Railroad Company v. Public Utility Commissioners (254 U. S., 394) it was held that in respect to grade crossings “the State in the care of which this interest is and from which ultimately the railroads derive their right to occupy the land has the constitu- tional right to insist that they shall not be made dangerous to the public what- ever may be the cost to the parties introducing the danger”; that “neither prospective bankruptcy nor engagement in interstate commerce can take away this fundamental right of the sovereign of the soil”; and that “to engage in interstate commerce the railroad must get onto the land and to get on to it must-comply with the conditions imposed by the State for the safety of its citizens.” It is manifestly better that this constitutional difficulty should be eliminated by appropriate amendatory legislation, than that it should become the subject of conflict and possible litigation between the Federal and State authorities. When a railroad crosses a public thoroughfare, the element of danger involved is not affected by the presence of interstate commerce upon the railroad. The 598 MODIFICATION OF TRANSPORTATION ACT, 1920. expense of making such crossing reasonably safe is not a burden upon inter‘ state commerce and merely arises out of the obligation of the railroad to comply with requirements which the State has a right to impose as a condition of any operation. Especially is this true in the case of a railroad, the entire line of which is intrastate and which is brought within the operation of the interstate commerce act for any purposes only by reason of its connection with other railroads which do an interstate business. For example, the Long Is'’and Rail- road is situated wholly within the State of New York. It runs no through trains from any point in New York to any point outside of the State. The overwhelming bulk of its business is passenger traffic of a purely intrastate character. An infinitesimally small proportion of freight originating on its line in New York is forwarded over other lines to other States and to this extent it has been held to be within the purview of the interstate commerce act. This railroad has various grade crossings in the city of New York which this commission is endeavoring to eliminate. It would be a monstrous perver- son of the spirit of the commerce clause of the Constitution to require this rail- road company to go to the Interstate Commerce Commission for permission to finance the expense of complying with this commission’s orders in this regard or to permit the railroad company to avail itself of the procedure prescribed by the interstate commerce act as a pretext for delay or refusal. Yet exactly this would be the effect of the language of the interstate commerce act as now amended by the transportation act. Especial stress has been laid upon the question of grade crossings in this wemorandum, but there are doubtless many other purely local improvements which would be governed by the same considerations and any amendment of the statute should be broad enough to apply to all such local improvements. A distinction may doubtless be drawn between the requirement of safety ap- pliances on rolling stock actually used in interstate commerce and the require- ment to make safe the permanent structures and stationary equipment of a railroad located solely within a single State. . It is suggested that the desired result could be attained by inserting in section 20a, at an appropriate place, a proviso substantially as follows: “ Provided, That the authorization of the commission shall not be required for the issue of securities or assumption of obligations for the purpose of pro- viding funds wherewith to pay the reasonable and necessary expense of ¢com- plying with the lawful orders of the appropriate State authorities concerning. the stationary equipment, buildings, or structures of a carrier corporation sit- uated wholly within such State.” It is thought that this might be properly inserted at the end of subdivision 2 of section 20a, above mentioned. The precise form of the amendment, how- ever, is immaterial, provided that the purpose is clearly expressed and the ob- ject attained. The matter is one of interest and importance to all of the public- utility commissions, but it is especially urged by the New York Transit Com- mission by reason of the fact that its jurisdiction is exercised in the largest single community in the whole United States, and one in which the question of grade crossings is of special importance. And here is the alternative suggestion I have to make: Sec. —. That paragraph (9) of section 20a of the interstate commerce act, as amended, be, and hereby is, amended to read as follows: “(9) The foregoing provisions of this section shall not apply to notes to be issued by the carrier maturing not more than two years after the date thereof and aggregating (together with all other then outstanding notes of maturity of two years or less) not more than 5 per centum of the par value of the securities of the carrier then outstanding; nor shall said foregoing provisions apply to securities issued or to obligations assumed by a carrier for the pur- pose of providing funds wherewith to pay the reasonable and necessary ex- pense of complying with the lawful orders of the appropriate authorities of any State concerning the stationary equipment, buildings, or structures of a carrier which are situated wholly within such State. In the case of securities having no par value, the par value for the purposes of this paragraph shall be the fair market value as of the date of issue. Within 10 days after the making of such notes or the issuance of such securities or the assumption of any such obligation the carrier issuing or assuming the same shall file with the commis- sion a certificate of notification, in such form as may from time to time be determined and prescribed by the commission, setting forth as nearly as may be the same matters as those required in respect of applications for authority MODIFICATION OF TRANSPORTATION ACT, 1920. 599 to issue other securities: Provided, That in any subsequent funding of any such notes or securities the provisions of this section respecting other securities shall apply.” I appreciate very fully the difficulties which the chairman and other mem- bers of the committee have indicated, and it may well be that the form of the provision which I have drawn is too broad, too sweeping, and that there might be some modification of it. : I know that the Public Utilities Commission of the State of Michigan is urg- ing, or that it is going to urge, and I do not know whether it has been sub- mitted yet, a much more sweeping amendment in that regard, trying to have removed from the jurisdiction of the Interstate Commerce Commission all security issues required by any order of the Interstate Commerce Commission, whether they relate to stationary and permanent equipment or whether they relate only to rolling stock. I can readily see that if a State commission should order, for instance, the installation of a very expensive safety appliance on all trains running through the State that that might be an immediate burden upon interstate commerce. But it seems to me the requirements to spend money on grade cross:ngs or improvements at a station, which does not constitute a direct burden upon interstate commerce but a very indirect burden, because the crossing would be there whether there is any interstate commerce moving on the road or not, and the danger would be there just the same, and the danger is not increased by the presence of interstate commerce on the road except so far as interstate commerce may involve a larger number of trains; it seems to me that is a different matter. : Senator KEttoce. Aside from the extension of lines the removal of grade crossings and improvements within cities for the consolidation-or rearrange- ment or readjustment of terminals will constitute probably the largest single item of expense for railroads in the near future. Mr. Kinessury. Of course I realize that the expense of terminals is one of the very heavy burdens. Senator KELLocc. Your amendment would remove all such improvements from the jurisdiction of the Interstate Commerce Commission so far as issuing securities is concerned ? . Mr. Kinessury. Yes. Mr. Benton. So far as those are ordered. The CHAIRMAN. We will consider your suggestions, but we really had hoped that that was one point upon which there was or had been almost unanimous concurrence. We do not find many points upon which there has been unani- mous concurrence either. : Senator KeLLocc. There was unanimous concurrence when the bill was passed. The CHAIRMAN. We thought this was one provision in this law where we had met everybody’s wishes in the matter. Mr. Kinessury. I am a newcomer in this field of activity, but I understood when the national association of these public utilities commissions acted in the matter this question of its application to this kind of local improvement required, not merely authorized, but required by a State body, was not con- sidered. Senator KELLocc. Whether it had been considered or not it had been going on for years, and these were particular improvements which required capital and every State commission understood it perfectly. That is not a new thing you understand. Grade crossings have been eliminated for many years. Mr. Kinessury. Yes, sir. Do I understand that may original statement and the alternative suggestion will be incorporated in my remarks? The CHAIRMAN. That will be done, and we will give them very careful con- sideration. Mr. Krinessury. I thank you. Mr. Joun BE. Benron. Because it relates to additional securities. If I may I would like to present at this time on behalf of the Michigan Public Utilities Com- mission a statement prepared by its chairman. Senator KELLocc. The chairman of which commission? Mr. BENTON. Prepared by Mr. Sherman T. Handy, chairman of the Micht- gan Public Utilities Commission. Mr. Handy was here when the committee began taking statements, but opportunity did not present itself. and he was: obliged to return home. So he asked leave to make a part of the record this- statement for his commission. The CHAIRMAN. It relates to this particular subject? 600 MODIFICATION OF TRANSPORTATION ACT, 1920. Mr. Benton. It relates to the matter of security issues. As Col. Kingsbury has indicated, the Michigan commission asked to have section 20a repealed. The CHarrmMan. It may be incorporated in the record. Mr. BenToN. I would like to have it incorporated as Chairman Handy’s state- ment. I thank you. STATEMENT OF MR. SHERMAN T, HANDY, CHAIRMAN MICHIGAN PUBLIC UTILITIES COMMISSION. Mr. Hanpvy. In connection with the proposed amendments to the interstate commerce act which have been introduced with a view to preserving the rights of the several States over intrastate transportation, the Michigan Public Utili- ties Comm 'ssion desires to urge an amendment to section 20a which was added to the interstate commerce act by the transportation act of 1920. By subdi- vision 2 of such section, the approval of the Interstate Commerce Commission is required as a condition precedent to the issue by any carrier corporation of any capital securities or to its assumption of any obligation or liability in respect’ of the capital securities of any other corporation, “‘even though per- mitted by the author:ty creating the carrier corporation.” Under this legisla- tion, the approval of the Interstate Commerce Comm ssion would be-required to enable a carrier corporation to provide for the expense of complying with the lawful orders of a public util:ity commission having competent jurisdict:on over the structures and stationary equipment of the carrier wholly within the boundaries of the State. : Under the law as it reads, the Michigan Public Utilities Commission may enter an order directing a carrier to construct depots or freight houses, to Separate grades, to provide and erect safety devices, or to do any other things which, in the judgment of the State, should be done in order that the carrier May properly serve the people of the State; and the orders of the public utility commission of the State may be absolutely impossible of performance by the carrier because of the fact that the carrier must go to the Interstate Commerce ‘Commission for authority to sell capital securities with which to pay the expense -of the improvements ordered by the State. The Michigan Public Ut lities Commission has issued a preliminary order ‘looking toward the separation of grades in a certain city of the State, at an expense that will probably aggregate before the work is all completed, $8,000,000 -or $10,000,000. The separation of the grades in question will probably not add very much to the eain ng power of the railway company. Suppose the Inter- state Commerce Commission refuses to permit the railway company to sell capital securities in order to get the money with which to separate these grades. In such a case, the railway company could not carry out the lawful orders of the public utility comm/‘ssion, and a sufficient answer to the com- Mission on its part would be the fact that the Interstate Commerce Commis- ssion had refused its permission to sell capital securities with which to get the money to make the improvement. All railroad companies are incorporated ‘under the laws of the States. Each State provides under what circumstances a railroad company may issue ‘capital securities. No railway company can acquire a corporate existence to-day without complying with the laws of some State. The State tells it under what conditions and to what extent it may issue stock, bonds, and other evidences of indebtedness. Until the taking effect of the transportation act of 1920 the Federal Government never assumed to have any control over the ‘issuance of capital securities by the railroad company. The railroad com- pany is not a creature of the Federal Government, but is the creature-of some ‘State. Should the Interstate Commerce Commission have the power to regu- late the issuance of capital securities to the exclusion of the State under the laws of which the carrier was born? A railroad corporation is organized, running from Saginaw to Kalamazoo, :all in the State of Michigan. In order to acquire a corporate status, it must comply with the laws of the State of Michigan. That railroad company runs from Saginaw to Kalamazoo only and does not at any point run out of the State of Michigan. -It would be- absolutely impossible for that railroad com- pany to acquire a corporate existence except under the laws of the State of Michigan. Is it possible that the moment the said railroad company is born, the Federal Government can step in and take away from the State of Michi- MODIFICATION OF TRANSPORTATION ACT, 1920, 601 gan the right to regulate the issuance of the stocks and bonds of that railroad corporation, and transfer.that right to the Interstate Commerce Commission? If the Congress of the United States has such power and has exercised it in enacting the transportation act of 1920, then the law should be amended so as to give back to the State the power to regulate the capital securities of its own creature. A great deal has been said in the past about compulsory Federal incorpora- tion of interstate railroads. We think it has been the general view that the power of Congress to make Federal incorporation compulsory is very doubtful. It appears that the transportation act of 1920 sought to obviate the necessity of Federal incorporation by giving to the Interstate Commerce Commission the right to regulate the issuance of capital securities by all State railroad cor- porations. In the illustration above given of the railroad between Saginaw and Kalamazoo, the Michigan Public Utilities Commission might order it to make improvements that would cost $1,000,000. If the Interstate Commerce Commission refused to permit the railroad company to sell capital securities with which to raise the $1,000,000, the railroad company could fot make the improvements, and thus the Interstate Commerce Commission could, in effect, render useless the making of lawful orders by the public utilities commission. All existing railroad corporations have been created by States as agents of the States to perform certain public functions. ‘They have also been by the States clothed with the State’s power of eminent domain and made subject to regulation by the States in all matters not affecting interstate commerce. Even if Congress had the power (which we deny), should it attempt to take from the several States the power the States have always exercised of regulat- ing the issuance of capital securities by the agency they created? It has been suggested that some of the matters mentioned herein could be taken care of by inserting in section 20a at an appropriate place a proviso substantially as follows: “Provided, That the authorization of the commission shall not be required for the issue of securities or assumption of obligations for the purpose of pro- viding funds wherewith to pay the reasonable and necessary expense of comply- ing with the lawful orders of the appropriate State authorities concerning the stationary equipment, buildings, or structures of a carrier corporation.” Such an amendment might help a little, but it seems to us that the provision in the transportation aet of 1920 assuming to take away from the State the right to regulate the capital securities of its own creature and to transfer that right to the Interstate Commerce Commission should be absolutely repealed. If Congress has the power and desires to compel all interstate carriers to rein- corporate under a Federal law, well and good. The Federal Government would then, possibly, have the right to regulate the issuance of capital securities by the Federal corporation, but we believe that any law attempting to take away from a State the right to regulate the internal corporate affairs of its own creature and to transfer that right to the Interstate Commerce Commission should be repealed. The Michigan Public Utilities Commission will have occa- sion during the next year or two tq make many orders requiring the expendi- ture by railroad corporations of considerable sums of money. Those orders will not interfere in any way with interstate commerce. They will be orders in which the Federal Government is not interested. The railroad companies in question should not be compelled to go to the Interstate Commerce Commis- sion to get authority to sell capital securities to provide money with which to comply with the said orders of the Michigan Public Utilities Commission. The laws of the State of Michigan have provided that the said railroad corporations shall apply to the Michigan Public Utilities Commission for the right to issue and sell capital securities to provide the money with which to meet this expense. Trusting that part of the transportation act of 1920 under consideration may be repealed or amended in such a way as to obviate the difficulties herein men- tioned, we respectfully submit this statement. , The CHAIRMAN. Mr. Thom, do you wish to proceed? Mr. THomM. Yes, sir, ° The CuHarrMan. Mr. Willard, do you wish to be heard first? Mr. Wirarp. If you please. The CHAIRMAN. You may state your name and residence and your relation to this subject and your official position with respect to any common carrier. 7338387—21— Pt 83——3 602 MODIFICATION OF TRANSPORTATION ACT, 1920. STATEMENT OF MR. DANIEL WILLARD, BALTIMORE, MD., PRESI- DENT BALTIMORE & OHIO RAILROAD. Mr, Witrarb. Mr. Chairman and gentlemen of the committee, I appear here as representing myself primarily, nobody else, and what I wish to say will be said in opposition to the proposed Capper amendment to the transportation act. The CHARMAN. We are now considering what is known as the Capper bill. Mr, Wittarp. That is what I understood. The CHarrmMan. And the Nicholson bill and other bills having the same gen- eral object in view. Mr. Wixrarp. I think I am not acquainted with the others. I had in mind particularly the proposal to amend or repeal wholly section 15a and to restore to the States such rights as they might ever have had and which have been abridged. : The CuHairmMan. Those were the principal proposals in the bills before us. Mr. WILLARD. Those are the two particular things I would like to speak of, and I will ti¥ to speak briefly. I did not know until last Friday that I would be expected to appear to-day, and consequently I have not had time to prepare any written statement, and perhaps it is unnecessary. I have read carefully all that Mr. Clark, the former chairman of the Inter- state Commerce Commission, said before your committee; and I indorse every- thing that he said. I could not add to it if I should try. I have also read carefully what former Director General Hines said in his statement of a few days ago, and my views are quite in accord with Mr. Hines’s statements. I shall not attempt to add anything to the particular statements or argu- ments which they made, but desire to call your attention to certain angles of the question which appeal to me and which it seeme:] to me should be con- sidered in connection with these proposed amendments. I will refer first to the proposition in the Capper bill, that section 15a of the act to regulate commerce, as amended by section 422 of the transportation act, “is hereby repealed.” That means, I assume, that the whole section, including all its paragraphs, is to be repealed. Senator KeE.toce. I will ask the clerk to the committee to get.me a copy of the act. : Mr. Wictarp. I have before me a condensed form of the act which I think is substantially correct. Senator Kexioee. That is all right. I just wanted something to follow along with. Mr. WIitLarp. I take it that it was the intention of the Congress when the transportation act of 1920 was passed to provide a basis which, so far as possible, would assure successful operation of the railroads in the future under private ownership and subject to governmental regulation. It seemed to be made clear in the debates that that was what the Congress had definitely in mind. And I wish to say that the two things in the act which tend chiefly to that end are the two particular things, which it is now proposed to with- draw from the act. If these two amendments should be adopted and those provisions withdrawn, in my opinion it would lead to the complete failure of the transportation act of 1920, and would lead also indirectly, but certainly to the only alternative possible—Government ownership and control. I will speak more of that a little later on. I assume it is not proposed to revise section 15a because of anything that is found in paragraphs 2 and 8. Paragraph 2 says: “In the exercise of its power to prescribe just and reasonable rates the com- mission shall initiate, modify, establish, or adjust such rates o that carriers as a whole (or as « whole in each of such rate groups or territories as the commis- sion may from time to time designate) will, under honest, efficient, and eco- nomical management and reasonable expenditures for maintenance of way, structures, and equipment, earn an aggregate net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of trans- portation * * *,.” The CHAIRMAN. You are in error about that. That is the very part of it that the proponents of the amendment want to repeal, Mr. WitLarp. Well, if that is the part of the act that they propose to repeal I can not understand their objection to it. I take it the Constitution itself would assure to the carriers at least as much even if that portion of the act should be repealed. MODIFICATION OF TRANSPORTATION ACT, ‘1920. 6038 The CHAIRMAN. Have you read the testimony of Mr. Benton? Mr. Wittarp. No; I must confess I have not. The CHarirRMAN. Have you read the testimony of Mr. Clifford S. Thorne or of Judge Cowan? ’ Mr. WILLARD. No. i The CHarrMAN. The real point is not repeal of the so-called 54 per cent basis. The real point of the controversy is the repeal of the words you have just read. Mr. Wittarp. Well, I must confess I had not understood it that way. I haf supposed, in fact I had gathered from what I have read, that the real basis of the attack was against the specification by the Congress of 53 per cent as a fair return for a period of two years. . The CHarrman. That is the scarecrow that Some people have attempted to set up in the minds of the public generally. But those who are students of this subject, who understand the transportation act, are insisting upon the repeal e es you have read as being, as they are, the substantive part of sec- ion 15a. Mr. Witrtarp. The reason I had supposed that they were not concerned about paragraph 2 of the act was because, as Chairman Clark stated in his testimony, the Interstate Commerce Commission in the Five Per Cent Rate case acted in substantial accord with those principles before this act was ever passed, and undoubtedly would act so again even if this provision should be repealed. So, why should the Congress repeal a provision which simply puts in definite terms a policy that the Constitution itself sustains? The CHaiRMAN. They couple up with that language the provision fer grouping the railroads, of course. Mr. Wittarp. Very well, I will pass on to the next. Paragraph 3 says: “The commission shall from time to time determine and make public what percentage of such aggregate property value constitutes a fair return thereon, and such percentage shall be uniform for all rate groups or territories which -may be designated by the commission. In making such determination it shall give due consideration, among other things, to the transportation needs of the country and the necessity (under honest, efficient, and economical management of existing transportation facilities) of enlarging such facilities in order to provide the people of the United States with adequate transportation.” Now, Clearly enough, the Congress recognized—it was in fact a matter of rec- ord before the Congress—that it would be necessary in the future, as it had been in the past, to provide each year large sums of additional new capital if the public were to be provided with.adequate transportation facilities. Mr. Hines himself said he believed more than a billion dollars would be re- quired each year in the future, and I agree with him. In the past, before the war, on the relatively low basis of prices then prevailing, the railroads had been exepending about $600,000,000 a year for a number of years, and it was generally believed that they did not spend enough. So, on the basis of present prices, we must at least spend a billion dollars a year. And Congress evi- dently had that in mind, and it intended by virtue of this phase of: the act to direct its agent, the Interstate Commerce Commission, to fix such a basis of rates as would attract the necessary new capital. Of course if the Congress is not now willing to do that, then it had better abandon the policy of private ownership. You can not afford to have private ownership and operation of railroads on a basis that will not provide adequate transportation facilities, and it will not provide adequate transportation facili- ties unless there is a reasonable basis of credit. I had supposed and I am still inclined to believe, regardless of what may have been ‘urged to the contrary, that the thing they have chiefly in mind— I mean those who propose this amendment—is to get out of the bill before it expires by limitation the views therein expressed by the Congress as to what would be a fair return for a certain definite time as they then foresaw. Certainly it can not be said that 53 per cent per annum, with a possible one- half per cent more, is too great under conditions that have existed with'n the last two years; a time when, as Mr. Clark pointed out to you, railroads with the best credit have been obliged to pay 7 per cent to 74 per cent for new capital, and when even the Government itself has refused to loan money to the railroads at a less rate than 6 per cent, and then only to the extent that the railroads could furnish adequate and good collateral. Why, then, should anyone want the words referring to the 53-per-cent basis taken out of the law before that portion of the law expires by limitation? Of course if it were taken out the commission would still be just as free to act 604 MODIFICATION OF TRANSPORTATION ACT, 1920. in the future as in the past. But if it remains in there until it expires by limitation as the law provides, the railroads and those who represent them will undoubtedly urge consideration by the commission in future rate cases of the fact that the Congress did at one time and under certain circumstances specify a rate of return which was thought by that Congress to be fair at that time. And if the law is not repealed, that fact certainly can be urged with weight ypon the consideration of the commission. But if it is repealed within the next ight weeks, why, then, it could be said that the Congress repudiated that action and it no longer stands of record in the transportation act, and that is the only reason I can see for anyone desiring to amend this section at all at this time; because nothing else in the section is different from the practice that would have been followed even if the law had not been passed, except the provisions in paragraph 6, which I will refer to later on. The Congress in passing section 15a of the transportation act, in my opinion, made possible the future successful operation of the railroads under private ownership and control. If that. portion of the act which I have been discussing is taken out, then I am as certain as I can be certain of anything in the future, based upon the experience of the past, that the act will fail to accomplish what the Congvess set. out to accomplish, because it is practically the only part of the act, taken together with what is said about State rates, which was intended to strengthen the railroads and enable them to build up a credit in the future suffi- cient to provide adequate facilities. If Congress desires now to change its policy, and adopt. the theory of Govern- ment ownefship instead of private ownership, then, by all means, deal with it in a direct manner, because to do so would be in the best interest of all the people. The method proposed would simply be dealing with the matter in an indirect way, but with just. as great certainty as to ultimate results. Of course, I do not mean that the repeal of this section would mean imme. diate Government ownership, but it would mean that the railroads would be unable to provide adequate facilities in the future, and that would result in the Government being forced eventually to take over the transportation agencies of the country and deal with the matter on the only lines then possible. The repeal of this section would bring about Government ownership indi- rectly, and not. only that, it would accomplish that end in an immoral way. I will explain what I mean: We know that there have been people in this country who have advocated a policy which contemplated that the Government by its power to regulate should so restrict the railroads or limit their earnings as to flepreciate and so far as possible destroy the value of their securities, in order that the Government might at some future time take the properties over at. greatly decreased cost. We have seen in the past that same policy pursued by some industrial corporations; or, at least, it has been alleged that certain great. industrial corporations by virtue of their strength did so operate upon their weaker competitors as to greatly reduce the value of their properties, and then they were able to buy the property at reduced cost. But we have also seen the people and Congress universally condemn such policy as immoral and unlawful. It seems to me inconceivable that the Congress itself should now approve and adopt.a course that has beén universally condemned when followed by industrial corporations’, and that is exactly where this policy would lead to if put into effect. I will not comment further in that direction, but will now discuss paragraph 6 of section 15a. Paragraph 6 is that part. of the act which provides for division of so-called excess earnings above 6 per cent. I am well aware that opinions have differend greatly about that feature of the act. I was in favor of it, how- ever, when the law was passed, and J am in favor of it now. And I went. so far then before this committee as to say that I did not believe private owner- ship in the future would be possible without such a provision as that. I feel exactly the same to-day. I think that phase of the problem must be dealt with. and if it must be dealt. with, as I believe it must, then I think it is now dealt with fairly in the act. It is proposed to repeal that portion of the act, and while some might welcome it I myself believe that such action would also tend to destroy private owner- ship by an indirect way. I am so thoroughly in favor of private ownership, so ‘anxious to see it succeed, and at the same time so opposed to any possible alter- native that. I should greatly regret to see anything done at this time which will destroy the efficiency of the transportation act in its present form, because, in my opinion, it is a great constructive piece of legislation, and I believe it. does afford a reasonable basis for the successful future operation of the railroads under private ownership. MODIFICATION OF TRANSPORTATION ACT, 1920. 605 Just one word more and I will have finished. Assuming that section 15a be permitted to remain in the act, and assuming also that that portion of this amendment which deals with restoring to the State any rights which the States may have held or exercised at any time, and which they feel have been abridged by virtue of this act, then if that portion of this amendment should be passed it would tend to accomplish the same thing—that is, the destruction of private ownership—because it would make it impossible for your agent, the Interstate Commerce Commission, to carry out the provisions of section 15a which I have just been discussing. I repeat that section 15a of the act, to my mind, makes private ownership pos- sible, but it only makes it possible to the extent that your agent is empowered to make the provisions of that section of the act effective, and it can not make those provisions effective if you do the other thing also proposed in this amend- ment. I am not going to refer to one particular phase of the problem which Mr. Clark discussed. I refer to the effect the amendment would have or might have concerning the principles involved in the Shreveport rate case. Mr. Clark covered that point very thoroughly. But I do want to refer to one phase of the problem which he did not touch upon, and which, it seems to me, is mis- understood or very greatly minimized. It seems to he that altogether too much emphasis is placed upon the importance of vesting in the State authorities the right to regulate rates within the State. So far as Iam able to get informa- tion on the subject it would appear that not over 10 per cent, and certainly not over 20 per cent of all ton-miles handled by the railroads is strictly intrastate traffic, moving within the geographical confines of the State, and certainly 80 per cent and very likely nearer 90 per cent of all traffic on the railroads is handled between two or more States. Now, it seem to me that the people of any State are or should be more infinitely interested in the rate upon 80 per cent of their business than in the rate upon 10 per cent or 20 per cent of their busi- ness. It seems to me, for instance, that the farmer in North Dakota or in Kansas is much more interested in the rates on wheat from the Dakotas or Kansas to Chicago or Liverpool than he ig in the rate on wheat between one point in North Dakota and another point in North Dakota. It seems to me that the markets of the United States or of the world are of infinitely greater importance to the raiser of wheat in North Dakota than the markets in the State of North Dakota or of Kansas. And it seems to me the same argument applies to the raiser of fruits in Washington or Oregon, and to the producer of lumber in Washington, Michigan, West Virginia, or Louisiana, and to the producer of coal in Kentucky, West Virginia, Illinois, or Ohio: In fact, the argument might go to nearly every item in the entire list. Mr. THom. And it extends to cotton too? Mr. WitiLarp. Yes; cotton is an equally enlightening case in point. The point I make is this, if these United States had started out as one integral body, without 48 geographical divisions; and if we had built up a railroad sys- tem under those conditions, certainly it would have been regulated in such a way as to give all of the people adequate facilities if possible at fairly equitable rates. And if anybody had then suggested that we ought to divide the country up into 48 subdivisions, and fix rates with special reference to so much of the business as moved within any one of these little geographical limits, he would certainly have been looked upon with wonderment. Nevertheless, that is exactly the position we are now taking, or rather the position they are taking who advocate the amendment. Senator Srantey. If I understand you, you say th’s system should be con- sidered as if these 48 subdivisions did not exist? Mr. Witiarp. Yes; so far as relates to the commerce of the country as a whole. I claim that would be in the larger interest of all the people. But when I say that I must follow it up by emphasizing a duty which in my opinion should devolve upon State commissions and which I think is too much mini- mized. é I would not abolish the State commissions, please understand that. I would have them do even more than they now do but different things in the interest of their own people, of their own States. I think the regulating body of a State should give primary. consideration to all rates in the entire United States. The regulating body in Kansas, for instance, should take it upon itself to see that the rates on wheat, we will say, from Kansas to common points are as favorable to the producer in Kansas as to the producer in North Dakota or 606 MODIFICATION OF TRANSPORTATION ACT, 1920. Minnesota, or any other State. That I think is an important duty for State commissioners and one which seemingly has not been sufficiently recognized. Senator KELioce. But the States have no such power. Mr. WILLARD. No; not the power to actually fix such rates, but they have the power to review and bring such matters to the Interstate Commerce Com- mission for adjustment, just the same as the traffic managers employed by the various cities do. Senator KreLioce. They can petition the Interstate Commerce Commission. Mr. WILLARD. Yes; and that is exactly what I think they should do. They can not correct such a rate, but they can in the interest of their own people in their own State keep themselves advised concerning relationships and urge correction where correction is necessary. Senator Kreiioce. They are authorized to do that? Mr. WirLarp. Yes; and that is the thing I think they should do even to a greater extent than they are doing.at the present time perhaps. All cities of considerable importance have men who do that thing with particular refer- ence to their own interest, and the practice even goes as far as many industries. I think State commissions have very important duties to perform. But if they desire to have interstate rates on wheat, for instance, from Kansas to Chicago or to Liverpool] that are fair and reasonable, they can not have intrastate rates that are unfair and unreasonably low, because to the extent that any intrastate rates are lower than they fairly ought to be, to that same extent interstate rates will be higher than they: otherwise need be. Senator KeELioce. This act confers upon the comission, or does not confer upon the commission but recognizes the power of the commission, as it always had, when an intrastate rate discriminates against interstate commerce, the Interstate Commerce Commission is the superior power under the Constitution and laws of the United States. Mr. Witvarp. Yes. Senator KrLioce. It does not go any further than that, does it? Mr. Witrarp. No; the act does not, but I take it that those who propose this amendment expect to go much further than that. I assume that if this amend- ment should pass it would not only set at naught this act so far as it relates to States rates, but I am told it would largely neutralize the principles involved or established in the Shreveport rate case; and if so, it would set the whole prob- Jem back more than a generation. The CHArrMAN. The two acts together would do that, undoubtedly. Mr. Witxiarp. Yes. And it it because it seems to me it actually would do that, and so make absolutely futile the carrying out of the provisions of section 15a, that I urge as strongly as I can that this amendment in the form it is pre- sented be not adopted. I do not think there is anything more I have to say, gentlemen. I thank you for permitting me to be heard. The CHarrMAN. I think if you have not read carefully the testimony of the State commissions and of Mr. Benton, representing them, you probably did not catch the exact claim that is made by them. + Mr. Witvarp. I may not have done so. The CHarirMAN. While one or two of them may question the propriety or the soundness of the Shreveport doctrine, as I understand them, their main claim is this: That the commission has used section 15a, or the courts have used it, as broadening and amplifying the jurisdiction of the Interstate Commerce Com- mission over State rates; that what the Interstate Commerce Commission should do is to fix interstate rates on the basis that we have provided, and then if having so established a body of interstate rates the State rates as deter- mined by State commissions are found to be discriminatory unduly or unrea- sonably against persons or localities or interstate commerce, the Interstate Commerce Commission may proceed to remove that discrimination, and it is through that process that the revenue-producing quality required by the act is brought up to the point, namely, whatever return the Interstate Commerce Commission may find to be a fair return upon the value of the property. The most of them simply insisted that it must be that this return which the Inter- state Commerce Commission fixes shall be worked out through a finding that the State rates do discriminate against interstate commerce. Very few of them, I think, insisted that there should be any invasion of the Shreveport doctrine. And really the whole question is whether we have in fact relieved the Interstate MODIFICATION OF TRANSPORTATION ACT, 1920. 607 Commerce Commission of the duty of finding that State rates or any given State rate discriminates against interstate commerce. : Mr. THom. I understood their contention to go much further than that, though I may be mistaken. The CHarrMAN. I am not speaking now of these two bills. I am speaking of the views urged upon us by. the majority of those who have appeared before us advocating it. i Mr. THom. I am, too, and I understood their views to go much further than you have suggested. Senator Kretiocce. We have passed no legislation which confers upon the In- terstate Commerce Commission the power as an original power to fix all rates. Mr. THom. Nobody contends that you have. ‘ Senator Krerroce. No; and nobody has contended, as far as I know, that we ave. Mr. THom. At least, none of us. The CHairMan. Mr. Benton has come very dangerously near to that proposi- tion. : Senator KEtiLoce. Well, we never did. The CHairMAN. That is, they have contended that this act does confer original jurisdiction upon the Interstate Commerce Commission to fix all rates. Senator Krirocs. The railroads make no such claim. Mr. THom. No; the railroads do not. There was one brief filed in the Su- preme Court that took that position, but that brief did not have any indorse- ment and was expressly differed from by the representatives of the railroads. We do not claim any such thing. Mr. Wittarp. And I do not think the Interstate Commerce Commission does. Certainly as it speaks through Mr. Clark it does not claim any such thing. Senator Kertoce. So far as I understand, the provision of the transportation act simply continues the power that was in the commission before—that if a State rate discriminates against interstate commerce the commission shall have power to protect it; that the Interstate Commerce Commission is the superior body and must be the superior body under the Constitution and laws of the United States. Mr. Wittarp. That is my understanding and contention. The Cuarrman. And that is what we contend. Mr. Tuom. If their contention is correctly stated by the chairman, why, then, all they contend for is expressed on the fact of this act. It is all expressed right there now, if that is their contention. The CHairMAN. That is their view. Mr. THom. Then it comes to a question of administration. The CuarrMANn. That was our view when we brought forward the act. Senator Ketiocc. The Supreme Court has not made any ruling to the contrary et. Mr. Tuom. And they are not being urged to do anything to the contrary. Mr, Wittarp. Mr. Chairman, it would be foolish in me to undertake to discuss that angle of the problem with you, referring as it does toa purely legal phase. I only wish to be understood as in favor of the Interstate Commerce Commis- sion being left such power as to enable it to carry out the policy stated in section 15a. If that policy is followed, it will succeed. The act, I believe, will justify itself. ; Let me say in closing that I think the act itself is a great piece of constructive stateswanship. I believe it does afford a reasonable basis for success if we give it a fair trial, which it has not yet had. And I hope it will not now be. amended in any form. ‘ The CHAIRMAN. We will hear Mr. Thom now. STATEMENT OF MR. ALFRED P. THOM, GENERAL COUNSEL OF THE - ASSOCIATION OF RAILWAY EXECUTIVES, WASHINGTON, D. C. Mr. THom. I am general counsel of the Association of Railway Executives, and I appear for them. I want to give you an analysis which has been made by the Bureau of Railway Economics of a part of the testimony of Mr. Thorne. I shall not read it, but merely file it for the record. The CHAIRMAN. It may be included in the record without reading, if you prefer. 608 MODIFICATION OF TRANSPORTATION: ACT, 1920. ANALYSIS OF STATEMENT BY Mr. CLirrorD THORNE BEFrorr SENATE COMMITTEE ON INTERSTATE COMMERCE, NOVEMBER 7-8, 1921. [Hearings on Capper bill; pages refer to printed record.] Pages 315-316. Mr. Thorne said: ‘“‘ We believe that any statutory enactment which attempts by fiat of government to authorize or require charges in any industry of such a character as to yield a definite rate of return above all oper- ating expenses and taxes is fundamentally uneconomic and unsound. There is an ebb and flow in all business. * * * Every industry should be permitted during prosperous times to levy such charges upon the public that it can lay up a surplus to tide it over lean years and through a crisis or an emergency in business.” Comment: This argument may apply to unregulated industries, but hardly to an industry which is not on a competitive basis either as to rates or costs, and which has in the past neither been allowed to earn a high rate of return in good years nor been saved from a low rate in bad years. For example, in the period since 1908 the railways have in only one year earned as much as 6 per cent on their investment, and that was in the highly prosperous war year of 1916. During this period the rate of return fell as low as 4.12 per cent, not counting the three years of the Federal contro! and guaranty period (1918— 1920), when the rate of return fell so low that only the financial support of the Government saved the railways from bankruptcy. The official figures are as follows, and are taken from page 83 (Table IV) of the annual report of the Interstate Commerce Commission to Congress for 1921: Rate of return on investment—operating income, all railways. Fiscal year: Per cent. | Fiscal vear—Con. Per cent. | Calendar year: Per cent. 1908 ____--___. 4. 89 W913) oc 2s255ceS 5.01 1916 _-________ 6.17 1909 ______.___ 5. 88 NOTA 2s eee 4.12 AQT ooeec eee 5, 31 AGI a3) eee 5. 68 VOU Gio asc screcaess 4.17 1918 __________ 3. 60 QT aap es 4.92 1916 __________ 5.90 A919) 2. 64 W912 ona 4, 69 1920 ns 0. 85 The foregoing table is based on railway operating income, before rentals. The transportation act, in providing for a 53 or 6 per cent return to the rail- ways, provided that rentals (equipment and joint facility) should be deducted from operating income before making the computations. Making such a deduc- tion, so as to arrive at the net railway operating income, as designated in the act, it appears that the rate of return for railways of Class I has been as fol- lows since 1911: Class I railirays. Rate of Rate of return on Average return on | Average invest- dividend invest- dividend ment net rate, all ment net | rate, all operating stock. | operating stock. income. income. Fiscal year: Per cent. Per cent. Per cent. | Per cent. 1911 5.08 5.98 6.16 4,36 4. 84 5.07 5, 26 4, 40 5.15 4.45 3.51 3.95 4.17 5, 44 2, 46 3. 4,20 3.99 ll 3.73 5.90 4.08 This table has been compiled by the Bureau of Railway Economics from re- ports of the Interstate Commerce Commission. A column is inserted to show the average rate of dividend paid by railways of Class I on their outstanding stock during the same period. Clearly, any industry that over a period of 10 years earns 6 per cent on its investment only once can not be said to have benefited greatly by periods of general prosperity. The average dividend rate never reached 6 per cent. during the period. In four of the years it was below 4 per cent. and three of these MODIFICATION OF TRANSPORTATION ACT, 1920. 609 four years were the years during which the railways were receiving from the Government the “excessive” (p. 580) standard return and guaranty, based upon “the three most prosperous years” (p. 579) in railway history, of which Mr. Thorne complains. Here is none of the “ebb and flow” cited by Mr. Thorne; it is all ebb. ’ Page 316. Mr. Thorne said: “ The last official reports of the commission, com- piled from the sworn reports of the railroads themselves, show that American railroads have a total accumulated surplus of more than $1,800,000,000.” Comment: The general balance sheet of railways of Class I on December 31, 1920, showed a profit and loss credit balance of $1,840,485,046. What. is the ex- planation of this apparently large surplus, and how can the railways be finan- cially depressed with such a surplus on their books? Careful analysis develops several answers to this question, as follows: (1) The surplus is a book surplus. It is not cash, or even quickly realizable assets, but the great bulk of it is tied up in the railway properties. It can no more be utilized for meeting future obligations, or for paying current bills, or for paying taxes, interest, or dividends than a farmer with a thousand acres of Tand but. no money in the bank can pay his wages, interest, or taxes. It is solely a book account. (2) The surplus is an accumulated surplus, representing the cumulative re- sult of conservative railroad management for nearly 100 vears. or since rail- ways first began to operate in the United States. Assume that the bulk of this surplus has been accumulated in the past 50 years alone, or since the period of railway construction on a large scale commenced, and it develops that the ac- cunmulations per year ($1,840,000,000 divided by 50) have been only $36,800,000, certainly a modest amount when the magnitude of the railway industry is taken into consideration. (3) This surplus is large in gross amount but not large when reduced to a relative basis. The total assets and total liabilities of the railways of Class I on December 31, 1920, are given below, from which it. appears that the surplus was only 7.01 per cent of the assets. In other words, against every dollar of railway assets there stands 92.99 cents of liabilities of one form or another, leaving only 7.01 cents as the stockholder’s equity above the par value of his holdings. Total assets, class I railways, 1920__________________________ $26, 254, 477, 390 Total liabilities, class I railways, 1920___-___________________ 24, 418, 992, 344 Profit-and-loss balance___________ 2 1, 840, 485, 046. Ratio to total assets (per cent).--------------___----------- 7.01 Compared to the average industrial corporation such a showing does not indicate excessive prosperity. In fact, industrial corporations that accumulate a large surplus usually reduce it in one of two ways: (@) Hither by making large dividend distributions in cash to their stockholders, or (6) by arbitrarily increasing their apparent liabilities by declaring large stock dvidends. The railways are virtually estopped from employing either of these two methods, but must carry their nccumulated surplus permanently on their balance sheets. The dividends actually paid by the operating railways of Class I from 1912 to 1920 were as follows: Dividends, Class I railways. Fiscal year: UD santa at Sl nN he ha ate ete Re wilh Hes Aa ai de $339, 964, 855 DO UR a8 ee Ses So ont Be ee ore ae vee eae a ee 322, 300, 406 VN eS eS EAE ee eA Gate EA 2 ne ete 376, 098, 785 1919 2 cess op se SS es See cee eoae see esoeee ese 259, 809, 520 1916 22 2 oe ae ge ee see ce eee ee eee ees 281, 936, 372 Calendar year: ee ae RN ary ors as a aw ee 306, 176, 937 AOU (sas oe Se ee OR Ce a ean tele ate te Pe 320, 395, T79 DOUG 2x. oe ee et ee Set he Be ees Sa ae 275, 336, 547 OVO ran aoe on pe ee a OEE a MS tee Ate eS, 278, 516, 908 1920 so oe Ss ee ee eee come eee ee 271, 715, 609 Annual) OY Crates ano tee sek ee SS Se Se eee 8038, 225, 172 610 MODIFICATION OF TRANSPORTATION ACT, 1920. (4) During the decade from July 1, 1911, to December.81, 1920, the profit-and- loss balance of operating railways of Class I increased from $1.182,167,641 to $1,840,485,046. This was an increase of $658,317,405, or $69,300,000 pear year. Had the whole of this annual surplus during the period been paid out in divi- dends instead of being put back into the property the average dividend rate on railway stock would have been increased from 4.35 per cent to 5.29 per cent, or by less than 1 per cent. Two significant comments grow out of this situation: (@) That even had the stockholders absorbed the whole unappropriated surplus in dividends to them- selves the average rate (5.29 per cent) would have been moderate, and (b) that the margin on which the railways were operating (5.29—4.35, or ninety-four one-hundredths of 1 per cent) was very small. Again, this 10-year increase of $658,317,405 in unappropriated surplus spread over the period represents a ratio to the property investment of only forty one-hundredths of 1 per cent per annum. (5) The gist of the matter is that the apparently large accumulated surplus ds the result not so much of past prosperity on the part of the railways, but of sacrifice on the part of the investor in railway securities, particularly the railway stockholder. It is proof positive that railway managements have, with but few exceptions, been conservative and efficient. Had this not been so the stockholders would have absorbed all the free surplus, railway credit would perforce have been weakened, fixed charges would have been greater than at present (because the railway investor would have demanded a higher rate of interest), and the margin of safety between such charges and net income would be even smaller than it is to-day. Page 316. Mr. Thorne said: “They (the railroads) added to their surplus last year alone, above all operating expenses and above all taxes and all interest and dividends that were declared, the tidy sum of $129,000,000.” Comment: The net increase during 1920 in the profit-and-loss credit balance of the railways of Class I was $127,082,629. Not only does the foregoing discussion of accumulated surplus apply to the 1920 surplus as well, but there is the additional fact that the apparent surplus in that year was to an unusual degree a book account, representing amounts set up as credits to be collected from the Government, but may not be realized for some time. For example, this increase in surplus during 1920 included charges against the Federal Government for the last two months of Federal control and the six months of the guaranty period, much of which is still waiting settlement, and part of which may not in the end be paid, but may have to be charged pack. It also includes about $18,000,000 of back mail pay accrued for service rendered by the railways to the Government in 1917, but which was not collected until the spring of 1920. . It will be noted from statistics already given above that railway dividends in 1920 represented the smallest amount of any year but one in a decade, 1915 being the only year with a smaller amount, and that the average dividend rate in 1920, which was'3.73 per cent, was the lowest for the decade, being lower even than in 1915. The increase in surplus in 1920 was clearly the result of great conservatism on the part of railway managements, and was not due to any sudden rush of prosperity. Had all of the free surplus that was added to the books in 1920 been paid out in dividends the average rate would have risen from 3.73 per cent to 5.47 per cent. This free surplus of 1920 represented seventy nine one-hundredths of 1 per cent of the property investment. Page 316. Mr. Thorne said: ‘“ The railroads in the country as a whole were earning in 1917 practically double the amount per mile of line which they did back in 1890 when the Interstate Commerce Commission was commencing its labors.” ‘ Comment: Operating income (revenues less expenses and taxes) per wile operated was $2,056 in 1891 and $4,632 in 1917. Even making allowance for the fact that the 1891 average is based upon all railways, and the 1917 upon Class I. railways only (the Class I average being higher than that for all railways), the operating income per mile in 1917 was about double that in 1891. But other factors had also greatly increased. The investment per mile increased from $59,675 in 1892 (1891 not being available) to $74,500 in 1917, an increase of about 25 per cent. Ton-miles per mile increased from 502,705 in 1891 to 1,698,825 in 1917, an increase of 238 per cent. Passenger-miles per mile increased from 79,642 in 1891 to 170,088 in 1917, an increase of 114 per cent. Thus the railways in 1917 performed a relatively much greater service MODIFICATION OF TRANSPORTATION ACT, 1920. 611 to the public than in 1891, compared to their net earnings. Their freight service per mile much more than trebled, while their passenger service more than doubled. With all this added service the rate earned by the railways on their investment was greater than 6 per cent in only one year in their history (1916), and during much of the period under review was below 5 per cent. From 1908 to 1917, as already shown, in only one of the years was the rate of return on investment above 6 per cent, in six of the years it was above 5 per cent, while in five of the years it ranged between 4.12 and 4.89 per cent. Page 316. Mr. Thorne said: “The railroads as a whole in the United States in 1917 were earning a rate of return on their capital stock outstanding almost double that which they earned when regulation by this Government com- imenced.”’ Comment: In 1888 the ratio of railway dividends to outstanding capital Stock was 2.08 per cent; in 1889 it Was 1.93 per cent, in 1890, 1.97 per cent, and in 1891, 2.05 per cent. Several of these years represent a period of great business and financial depression. In 1917 it was 4.24 per cent. It may be noted in this connection that between 1891 and 1917 the aggregate amount of railway capital stock increased from $4,450,649,027 to $9,149,680,807, or 105.6 per cent, whereas the service rendered by the railways increased 386.6 per cent in terms of ton-miles, and 207.4 per cent in terms of passenger miles. Their service to the public increased relatively so much faster than their capital stock that they were justified in expecting a greater ratio of dividends, and in any event the increase from about 2 per cent to about 4} per cent does not indicate a tremendous excess of railway prosperity. Page 316. Mr. Thorne said: “During that 30 years (1890-1917) the net income of American railroads, above all operating expenses and above all taxes, had trebled in amount.” Comment: Between 1891 and 1917 the operating income of the railways revenues less expenses and taxes) increased from $331,593,407 to $1,069,750,514. The net income treble, yes; but the investment in railway property more than doubled during the same period, increasing from $7,755,387,381 in 1890 to $18,574,297,873 in 1917, or 139.5 per cent. During approximately the same period, or from 1890 to 1920, the population served by the American railway system increased from 62,947,714 to 105,710,620, or 68 per cent. Business increased to an even greater degree than population, owing to the continually rising standard of living, the greater utilization of goods per capita, and the shifting of industrial, mining, lumbering, and agricultural operations in ever- widening circles. During this same period of thirty years (1890-1920) the value of the total output of the manufacturing industry in the United States rose from $9,372,000,000 a year to $62,500,000,000 a year, or 567 per cent. The railways serve the manufacturing industry at virtually every stage throughout their several processes, yet while the gross’value of the manufacturing output more than sextupled, railway operating income no-more than tripled. The rate earned by the railways on their investment, which is the real measure of net income, increased from 4.64 per cent in 1891 to 5.381 per cent in 1917. Page 316. Mr. Thorne said: “In 1917 American railroads were earning a rate of return upon all the capital outstanding in the hands of the public almost double the average earned in England.” Comment: In 1917 the English railways were under government operation, as a War measure, and their net earnings were maintained at the level at which they stood in 1913, by means of grants from the British Treasury. Railway operations in England and the United States during the year 1917 are not, therefore, comparable. If the respective “test” periods for the two countries be taken. namely, the calendar year 1913 in England and the annual average of the three fiscal years 1915, 1916, and 1917 in the United States, it wil be found that the rate earned on investment in England :(19138) was 4.41 per cent. and in the United States (1915-1917) was 5.20 per cent. Page 316. Mr. Thorne said: “The railroads, somewhat impatient with not being able to get all they wanted, undertook at the beginning of the war, and again at the close. to make some radical changes. We believe they were funda- mentally in error and we now earnestly urge a restoration of the law to sub- stantially the same condition in which it existed before this upheaval occurred in government and in industry, growing out of the World War.” Comment: The changes referred to were not made by the railroads either before or at the end of the war, but such changes as were made caine about 612 MODIFICATION OF TRANSPORTATION ACT, 1920. through acts of the Government or its agencies throughout the period, or were the direct or indirect result of such acts. Mr. Thorne urges restoration of the law as it existed before the war. Does this contemplate the repeal of the Adamson Act, as well as the transportation act, 1920? If the transportation act is to be wiped off the statute book, what guarantee would be offered against the sudden and complete disruption of the transportation machinery of the country? z Page 316. Mr. Thorne said: ‘In one year the index numbers compiled by the Bureau of Labor Statistics, having been forced down 100 points,” ete. Comment: The Bureau of Labor Statistics (United States Department of Labor) computed the index number of wholesale prices, all comiodities, as 262 in July, 1920, and 148 in July, 1921. In both cases, the prices of the year 1913 are taken as the base, or 100. The truth is that the railways were never permitted, during the period of rising prices, to increase their charges to anything but a fractional proportion of the prices in other industries. Nonregulate:] industry did not have a Gov- ernment agency imposing increased expenses on the one hand and’ restricting earnings on the other hand. How far behind the trend of general prices railway charges lagged during the peak period of 1920 and during the earlier years from 1916 to 1919 is. clearly brought out in the following table, which for purposes of further com- parison includes certain farm prices, as well as prices in general. Page 322. Mr. Thorne said: ‘ During that (the war) period you gave the railroads the equivalent of a Governinent bond—an absolute guaranty of return—when other people were forced to take the hazards of war and of increasing labor costs and supply costs.” Comment: Mr. Thorne would be on firmer ground if the railway industry were not one whose rates (i. e., earnings), on the one hand, and expenses (i. e., labor costs), on the other hand, are almost wholly under Government con- trol. This was true even before the war, and has been emphatically the case since the period of war control ended. Acceptance of “war hazards” by other industries meant highly inflated profits for many, if not most, of them; had the railway industry been sub-. jected to the same war hazards without a Government guarantee, they would have been financially ruined, for it is almost inconceivable that they would have been permitted to raise their prices (i. e., their rates) to correspond with the great increase in their labor and other costs. Relative freight rates, prices, and farm reecipts, 1913-1921, [1913=100.] Averagereceipts per Average farm price | Average farm price ton-mile. Wholesale) per bushel of corn. | per bushel of wheat.. Period. al cori Actual. | Relative. |™0dities-) 4 tual. | Relative.| Actual. |Relative. Cents. Cents. Cents. 0. 719 100.0 100 61.8 100.0 79.2 100. 0 - 723 100.6 100 72.7 117.6 86.2 108. 8 - 722 100. 4 101 | 72.4 117.2 112.9 142.6 +707 98.3 124 75.7 122.5 117.3 148.1 «715 99. 4 176 141.4 228. 8 201. 2 254. 0 « 849 118.1 196 150. 4 243. 4 203.7 257.2 . 973 135. 3 212 156.6 253.4 214.7 271.1 1. 052 146.3 243 144.2 233.3 224.1 283. 0 - 969 134. 8 248 140. 4 227. 2 231.8 292.7 + 985 137.0 249 146. 8 237.5 235.7 297.6 « 986 137.1 253 148.5 240.3 226.6 286.1 » 981 136. 4 265 158. 6 256.6 | 234.0 295. 5 - 954 132.7 272 169.6 274. 4 251.3 317.3. «970 134. 9 269 185. 2 299.7 258. 3 326.1 July - 960 133. 5 262 185. 6 300. 3 253. 6 320. 2 JUL Gs 192 eee cman tacts te 1, 254 174.4 148 62.2 100.6 112. 2 141.7 {Sources.—A verage receipts per ton-mile: Annual and monthly reports of the Interstate Commerce Com- mission. TW helosuie prices, all commodities: Monthly Labor Review, Bureau of Labor Statistics, United States Department of Labo-. aon farm prices per bushel, wheat and corn: United States. Department of Agriculture Bulletin No. 999. MODIFICATION OF TRANSPORTATION ACT, 1920, 613 Page 322. Mr. Thorne said: “Aside from that, gentlemen (i. e., the Govern- ment guaranty), you gave them, in addition to this rate indicated on this line, a billion dollars practically—I think it will exceed that when all of the sums are paid—of additional funds over and above the rates received. And that was not gross; that was net.” Comment: This statement is inaccurate. Mr. Thorne is apparently speaking of the shortage of about a billion dollars, experienced by the Railroad Admin- istration during the period of Government control, as compared with the standard return. The railways did not benefit by the higher rates plus the guaranty of a standard return; the standard return was a fixed quantity, the higher rates merely stemmed (and only partially) the rising tide of labor and material costs, and the carriers got no double benefit. Had the rates not been raised in 1918, the railways would not have suffered; the deficit to be met from the Public Treasury would merely have been greater. So far as the period of Government control is concerned, it was a matter of indifference to the railways whether either rates or expenses were increased or decreased ; increased rates did not add one cent to their treasuries. : Page 322. Mr. Thorne said: “ They (the commission) guessed it (the value of railroads) high, we think.” Comment: In its decision in Ex parte 74 (July, 1920), the commission statea the property investment of the railways of the United States (1919) as $20,040,572,611. The commission’s tentative valuation of railway property for rate-making purposes was set forth in the same decision as $18,900,000,000, which was $1,140,572,611 less than the property investment. This would seem to indicate that the commission’s tentative valuation was not “ high.” Page 322. Mr. Thorne said: “ The rate then (in the first period) was approxi- mately 5.21; you assured them 53 to 6 per cent. at a time when every other industry was forced by society to reduce its charges; you said to the railroads, ‘You may increase your charges over and above this guaranty,’ and the amount so permitted was something like $1,500,000,000, as interpreted by the Inter- state Commerce Commission. Comment: There seems to be a confusion of ideas in this statement. The increase in rates made by the Interstate Commerce Commission in 1920 was not over and above the 5.20 (not 5.21) per cent represented by the standard return ; the bulk of the increase was designed to pull the railways out of the hole they were in by offsetting the great increases in labor and other operating costs which were threatening to swamp them. From January 1 to August 31, 1920 (when the new rates went into effect), the railways operated at a deficit of $155,000,000. That is, they fell short by this amount of earning enough to pay their expenses and taxes, let alone interest and other fixed charges, and a reasonable amount for dividends. It was largely to offset this deficit and place the railways on their feet that the rate increases were made, not to pile $1,500.000,000 additional on top of a 5.20 per cent return. Furthermore, it is a matter of record how far short of earning even 5.20 per cent the railways have been since September 1, 1920. During the first 12 months under the increased rates, to August 31, 1921, the railways earned only 2.9 per cent on their tentative valuation, or hardly enough to meet their interest charges. During the first 10 months of 1921, to November 1, their net operating income represented an annual rate of only 3.2 per cent. Page 325. Mr. Thorne said: “ That valuation (i. e., $18,900,000,000) is some- thing like $2,000,000,000 greater than the par value of all the stocks and bonds of American railroads outstanding in the hands of the public.” Comment: Specifically, Mr. Thorne’s statement is correct, except that he understates the par value of outstanding railway securities. On December 31, 1919 (the date to which the commission’s tentative valuation applied), the property investment, the tentative valuation, and the outstanding capital securi- ties in the hands of the public (i.e, the net amount, exclusive of interrailway holdings). were respectively as follows: December 31, 1919: Property investment. .o.-0 = 222.2 22s22nsecseccaeceseese $20, 040, 572, 611 Tentative yaluation....-....-. --s-2-2==s--+esss=ses