Ok 
 

1 1918 
 
 COMBINATION, NOT COMPETITION 
 OF RAILROADS 
 
 BY 
 
 BLEWETT LEE 
 
 UBRARY OF CONGRESS CARD A18-808 
 
 Reprinted from Michigan Law Review, Vol. XVI, No. 7, 
 
 May, 19 1 8 
 
COMBINATION, NOT COMPETITION, OF RAILROADS. 
 
 IN the course of the taking of evidence before what is generally 
 called the Newlands Committee, appointed by Congress to in- 
 vestigate conditions relating to interstate and foreign commerce, 
 it was very interesting to observe the personality of the different 
 members of the Committee, as indicated by the questions which 
 they asked of the various expert witnesses who were brought be- 
 fore them. The keen intellect of the Senior Senator from Iowa has 
 continually played about the problem, how the revenues of the weak 
 lines can be increased without at the same time increasing those of 
 the strong ones. Assuming that some of the lines are already earn- 
 ing enough, but some are not, how shall the poor lines be made pros- 
 perous without increasing the earnings of their strong competitors? 
 Shall the Government guarantee the earnings of the weak lines ? If 
 so, how will it ever get its money back ? Can the strong lines be made 
 to shoulder the weak ones, so to speak, or dilute their own pros- 
 perity by spreading it over the adversity of their weaker brethren? 
 On more than one occasion the Senator has declared this problem 
 to be insoluble. What is to be done? 
 
 It may be remarked at the outset that the idea that the earnings 
 of the strong lines must be kept down at all events, is far from com- 
 forting to people who have invested their money in the railroad 
 business, and most discouraging to those who are invited to invest 
 new money in it. 
 
 In one of the recent Treasury Decisions, Honorable David A. 
 Gates had occasion to remark that unless a public utility like a rail- 
 road company earned eight per cent- upon its investment, its stock 
 could not be kept at par — a conclusion which was reached from an 
 examination of many income tax schedules. In an investigation 
 made in connection with the Fifteen Per Cent. Rate Case, the Illinois 
 Central Railroad Company discovered that in the unusually pros- 
 perous year ending June 30, 1916, it had in fact received a return 
 on its investment in road and equipment of only 4.3%. The opin- 
 ion of the Interstate Commerce Commission in this case shows 
 that, taking the railroads of the country as a whole, the return for 
 this same most prosperous year for the carriers in the Eastern Dis- 
 trict was 6.64%, Southern District 5.26%, and the Western District 
 5.43% The net operating income for 19 16 is the largest which the 
 railroads have ever had, and was more than $1,000,000,000.00, but it 
 was less than 6% upon the value of the railroad property devoted to 
 
 .. «-• <•• 'W 
 
— 2 
 
 the use of the public. The increased operating expenses for 19 17 
 have caused a very considerable recession since that time. 
 
 During the year 19 16, not a single share of new railroad stock 
 was listed on the New York stock exchange, or sold to the public, 
 for new railroad building. It is generally agreed that at least one 
 billion dollars each year ought to be spent in increasing the railroad 
 facilities in the United States. This sum has to be borrowed from 
 investors, and, under the circumstances, they can hardly be blamed 
 for putting their money into something else, and this is, in fact, 
 what they are doing. The transactions of the New York Stock Ex- 
 change indicate that practically no new railroad securities are being 
 bought, and that such financing as railroads have done recently is of 
 a purely temporary character by the issue of short term notes. 
 
 Even if a scheme could be invented by which the earnings of the 
 proud might be humbled, and the earnings of those of low degree 
 raised up in the railroad world, it would be very ill advised to put 
 it into effect at a time when the railroads of the country are not ade- 
 uate to furnish the transportation facilities needed by business. 
 Additional sums will have to be borrowed in order to make the rail- 
 roads adequate to serve the business of the country. Congress has 
 by its laws created a situation where the rates charged must be the 
 same over all competing lines, for if they are different the line with 
 the low rate will get all the business. Since the rates are published, 
 other lines have no difficulty in immediately making the same rate. 
 Under these circumstances, the only competition possible is in con- 
 venience of facilities and in quality of service. This sort of competi- 
 tion, however, is very limited for the reason that the older lines first 
 on the ground have obtained facilities which the younger lines can 
 never possibly hope to duplicate, and they have reached a financial 
 status which is likely always to keep them at the front, so far as 
 quality of service is concerned. It ought also to be remarked that 
 this competition at competitive points in very special facilities and 
 expedited service is really to the disadvantage of the non-competitive 
 points. The town upon only one railroad is tied to the disadvan- 
 tage of having but one railroad instead of more, and if, at a com- 
 petitive point, the facilities are multiplied and services expedited on 
 account of competition, obviously the advantage in favor of the 
 competitive point is made greater than ever. The policy of the coun- 
 try ought not to be to increase the lead of the strong towns over the 
 weak ones. 
 
 A natural and wholesome economic process which would be to the 
 advantage of the people of the whole country has been balked and 
 practically brought to an end by the application to the railroads of 
 
what is popularly known as the Sherman Act, and by the anti-trust 
 laws of the several States. These statutes were passed upon the 
 idea that the principles of competition applicable to business gener- 
 ally, govern also in the case of railroads, wholly overlooking the es- 
 sentially monopolistic character of the railroad business. One read- 
 ily recognizes that the way-stations each upon only one railroad 
 have to do business with a monopoly. Even at competitive points, 
 the railroads are still monopolistic, and whenever they are compelled 
 by law to do business anywhere upon the same terms, the situation 
 of monopoly becomes almost as complete there as at the way-sta- 
 tions. The statutes which compel railroad companies to publish 
 their rates and practices, and everything which they do for the ben- 
 efit of the shippers, by compelling railroads to do business upon the 
 very same terms, have put the shipping public everywhere in the sit- 
 uation that they are dealing with a monopoly. Under these circum- 
 stances the American people have been intelligent to substitute reg- 
 ulation instead of competition. Rates and facilities are now sub- 
 jected to the control of the Interstate Commerce Commission and 
 the various State Commissions. Notwithstanding this, however, 
 the statutes which were framed on the idea of forcing the railroads 
 to compete, and which prevent acquisition of the weak lines by the 
 strong ones, especially if they should be parallel or competing, are 
 still on the statute books and actually compel the weak lines to re- 
 main indefinitely incapable of earning money for their owners or 
 giving adequate service to the public. 
 
 Is there any way to make the weak lines strong? Yes, a very sim- 
 ple one. Let the strong lines buy the weak ones, and in this way 
 only the strong lines would be left. This is the situation which al- 
 ready exists in France, and is rapidly coming to pass in England. 
 Undoubtedly the strong lines which have already control of great 
 traffic by using the weaker lines for feeders and cut-offs, can make 
 more money out of them than anyone else, and the country will be 
 better served by having the railroads in strong hands than in hands 
 which are financially feeble and unable to develop the country. 
 Wherever it has not been interfered with, the process of consolida- 
 tion of weak lines into strong ones has gone on and has, on the 
 whole, been of great benefit to the public, but this movement also 
 has practically come to a stop in the United States. Statutes block 
 the way. 
 
 The situation in France is in some respects a very interesting one. 
 The following quotation is taken from the "Historical Sketch of 
 Government Ownership of Railroads in Foreign Countries" by the 
 
distinguished English expert on railroads, W. M. Acworth, present- 
 ed to the Joint Committee of Congress on Interstate Commerce. 1 
 
 "On ist January, 1909, the Government by taking over one 
 of the six great systems — the Western — upset the symmetry 
 of the original plan. But with this exception, throughout the 
 whole history the original plan has stood firm. The whole 
 country was divided up among six great companies, five of 
 which radiate from Paris, and the sixth, the Midi, serves the 
 extreme South and Southwest. The development of the rail- 
 way net work has been systematic from the outset; trunk 
 lines first, then important branches, then the less important 
 ones, and finally in recent years a considerable development 
 of light secondary lines. Throughout, the State has guided, 
 subsidized and controlled. Each company has a monopoly of 
 its own district. So far as possible, the points where the great 
 systems meet are arranged, — not, as in Holland, or formerly 
 in Italy, at the great towns — but precisely at the points of 
 least importance from a traffic standpoint. Where traffic is 
 unavoidably competitive, as for instance from Paris to Cen- 
 tral Switzerland, which can be reached either by the Eastern 
 or by the Paris and Lyons railway, arrangements are delib- 
 erately made to prevent competition. The Government con- 
 trols all rates and fares charged and all services given, and 
 the Government approves, not merely of pools, but of agree- 
 ments by which shippers attempting to consign traffic by the 
 route by which railway companies have agreed the traffic shall 
 not flow, are deliberately penalized by higher rates." 
 
 Under this arrangement, as Mr. Acworth points out, 2 down to the 
 time the State took over the Western Railway of France in 1909, the 
 French companies had an operating ratio seven or eight per cent, 
 lower than that of the Prussian State Railways, which have been 
 regarded as models of successful government ownership. 
 
 In the January, 1917, number of the Edinburgh Review appears 
 an article on the future of railways in England, in which the author 
 evidently a very competent critic, concludes that, having seen the 
 advantages of the system of operation since the beginning of the 
 present war, by which all competition is ended, England is unlikely 
 ever to return to a competitive situation, so far as the railways are 
 concerned. The plan which prevails in France of having all the rail- 
 
 1 Page 19. 
 J Pace 35. 
 
— 5 — 
 
 roads in a particular section combine, so as to operate upon the most 
 economical basis, is recommended. The author is opposed to Gov- 
 ernment ownership, because the railroads would corrupt politics, 
 and politics would corrupt the railroads. He calls attention to the 
 classical instance of Belgium in June, 1912, when, in order to carry 
 an election, the Minister of Railways, the day before the election 
 occurred, raised the salaries of certain classes of railway workers 
 for six months back, and paid the money that very day. Before this 
 took place, the election had been doubtful, but the next day the Min- 
 istry was triumphantly returned to power. The author also recom- 
 mends that the Government should by purchase become a stockhold- 
 er in all the railways to such an extent as to secure representation 
 upon the Boards of Directors. 
 
 The following statement is quoted fom Sir Herbert Walker, 
 Chairman of the British Railway Executive Committee : 3 
 
 "I cannot think that our railways will ever revert to the in- 
 dependent and foolish competitive system which obtained be- 
 fore this war broke out. The old system possessed manifold 
 evils, not the least being the wastefulness of competition ; the 
 lack of standardization; the thousand and one intricate and 
 time-engaging processes necessary on each line owing to riv- 
 alry with others in ways that never ought to have been al- 
 lowed. If we are to get the really useful and tangible result 
 of what has been done in the war — if we are to prove that 
 the experience gained has been beneficial — there must be 
 vastly more co-ordination between the various lines and 
 companies. Overlapping must cease, and waste of material, 
 stock, man power and energy must be done away with." 
 
 An interesting phase of the recent situation in England is that 
 communities are required to be served with coal from the nearest 
 available mines, and in this way long hauls upon coal traffic are 
 avoided and a great saving is made in the amount and consequent 
 expense of transportation. Obviously, under the existing laws our 
 railroad companies would have had no way of preventing cross- 
 hauls, at least prior to the taking over of the railroads by the Presi- 
 dent under the War Power, however beneficent and economical. It 
 is said that upon the New York, New Haven & Hartford Railroad 
 sometimes a train of bananas from New York bound for Boston 
 has met a train of bananas moving from Boston to New York. This 
 means only that the New York broker has found Boston customers, 
 
 3 Railway Review, August 4, 1917, p. 150. 
 
— 6 — 
 
 and the Boston broker has found New York customers, but the re- 
 sult is a pure waste of transportation. From the point of view of 
 the railroads, this transportation is not wasted since it is all paid for, 
 but from the point of view of the country there should be as little 
 of it as possible. A similar waste arises when freight is hauled over 
 a round-about route, instead of a direct one. Under existing laws, 
 however, the railroads could not by agreement prevent this, even 
 if so disposed. Under an amendment to the Interstate Commerce 
 Act, the shipper also has the right to route the freight, and it is the 
 duty of the railroads to obey his directions. 4 
 
 It has turned out very unfortunate now that the railroads are 
 fully regulated, that the prohibitions against the pooling of traffic 
 still remain. The pooling of equipment has been found by actual 
 experience to be economical and in the public interest ; the pooling 
 of passenger train service would undoubtedly lead to the public be- 
 ing much more conveniently served at a considerable reduction in 
 expense ; while the pooling of freight traffic could be made a great 
 economy by sending freight over the cheapest lines. Pooling of any 
 kind should be under Governmental supervision, but there is no lif- 
 ficulty whatever in fully protecting the public interest by the various 
 regulating bodies. Economies of this kind are almost entirely for- 
 bidden by the anti-trust laws of today. As we shall see later, the 
 operation of all the railroads in the country by the Railroad War 
 Board as if they were one continental system, demonstrated that the 
 public has really everything to gain and nothing to lose by such an 
 arrangement. Under normal conditions the great systems natural 1 y 
 prefer that pooling should be prohibited, for it protects them against 
 the construction of new lines, built to share in the pools. 
 
 Section 5 of the Interstate Commerce Act 5 prohibits railroads 
 pooling freights or earnings. It has proved entirely adequate. Sec- 
 tion 11 of the Clayton Act confers upon the Interstate Commerce 
 Commission authority to enforce compliance with sections 2, 3. 7 
 and 8 of that Statute. Of these sections, section 7 is the one which 
 provides in regard to the acquisition by one corporation of the stock 
 of another. This jurisdiction of the Commission is concurrent, how- 
 ever, with that of the District Courts of the United States, (Section 
 15), so that the new legislation is only partly constructive. Indeed, 
 the chief present restriction upon the acquisition on the stock of one 
 railroad by another will be found in this Section 7 of the Clayton 
 
 * Sec. ii. Par. 4: U. S. Comp. Stat. Ann. (igiGl. § 8=183 CO. 
 s U. S. Comp. Stat. Ann. (1916), § 8567. 
 9 lb. 8S35J; 38 Stat. 734. 
 
— 7 — 
 
 Act of October 15, 1914, c. 323, the act entitled, "An Act to Supple- 
 ment an Act to protect trade and commerce against unlawful re- 
 straints and monopolies," by which the distinction is made to turn 
 upon whether or not the acquisition by one railroad company of the 
 stock of another may be substantially to lessen competition between 
 the corporation whose stock is so acquired and the corporation mak- 
 ing the acquisition. Under the words "may be" and "substantially" 
 practically every case would go to a jury, and since, under Section 
 14, a violation of the Act on the part of any individual directors, of- 
 ficers or agents of such corporation, carries with it a fine of not to 
 exceed $5,000.00 or imprisonment not to exceed one year, or both, 
 no one cares to undergo the risk of buying another railroad, since 
 how to predict what a jury will do under the circumstances is one 
 of those things which, as remarked by Lord Dundreary, "No fellow 
 ever can find out." In short, it is perfectly safe for a railroad com- 
 pany never to buy any other railroad, and it is more or less danger- 
 ous for any railroad company to buy another railroad, a state of af- 
 fairs which dooms the country indefinitely to being badly served by 
 weak and insignificant lines, which can never really render adequate 
 service, unless they fall into strong hands. The purchase of a rail- 
 road will turn upon such questions as whether or not the Attorney 
 General wants to run for Governor. The obvious remedy for the sit- 
 uation is to have the decision of the Interstate Commerce Com- 
 mission made conclusive of the legality of each proposed purchase, 
 for their fidelity to the public interest admits of no question, and 
 their competence can hardly be challenged. 
 
 The leading cases holding that the Sherman Anti-Trust Law of 
 July 2, 1890, applied to railroad companies, were: 
 
 Trans-Missouri Freight Association Cases, (1897), 166 U. S. 290. 
 Joint Traffic Association Cases, (1898), 171 U. S. 505. 
 
 In the first case the decision was rendered by a bare majority of 
 the court, in the face of a very vigorous dissent. In the second case, 
 the decision was rendered by five judges, three dissenting, and one 
 taking no part in the decision of the case. If the cases had come be- 
 fore the court for the first time at the present day, when the pow- 
 ers of the Interstate Commerce Commission over the railroad com- 
 panies have been so greatly increased, and especially since the power 
 to make rates and to compel the furnishing of certain facilities, has 
 been given to that body, the decision might very well have been dif- 
 ferent. It it had been, the task of effective railroad regulation 
 would have been greatly simplified. 
 
— 8 — 
 
 Under the new State Public Utility Acts, the very reasonable idea 
 that where everything is regulated by the State, competition ceases 
 to be controlling in importance, is beginning to make its way. 
 
 The Supreme Court of Illinois, in the case of State Public Utili- 
 ties Commission v. Romberg, 114 N. E. 191, P. U. R. 1917 B 355, 
 275 111. 432 (1916), recently held that under Section 27 of the Illi- 
 nois Public Utilities Act, (Hurd's Stat. 1916, p. 2027) a public util- 
 ity, upon obtaining the consent and approval of the Commission, has 
 the right to obtain control of a competing public utility through the 
 purchase of stock, bonds and other evidences of indebtedness. 
 
 In Ex parte City of Birmingham, (1917), 74 So. 51, the Supreme 
 Court of Alabama held that the act of the Public Service Commis- 
 sion of that State, in assenting to a transfer of the franchise of a 
 street railway, although it effected a consolidation of parallel and 
 competing lines, is not in violation of Section 103 of the Alabama 
 Constitution which requires that the Legislature provide by law for 
 the regulation, prohibition or reasonable restraint of common car- 
 riers * * * trusts, monopolies, to prevent them from making 
 scarce articles of necessity, etc., or prevent reasonable competition. 
 At page 55 of the report, the Court says : 
 
 "We take it that the reasonableness of the competition 
 which the Constitution intends to conserve depends on its ef- 
 fect upon the public interests, whether or not it makes rea- 
 sonable the cost of the commodity furnished to the consum- 
 er. Competition in some circumstances may amount to 
 needless economic waste in the duplication of investments 
 and the cost of operation for which in the end the consuming 
 public must pay. Hence a general drift of public opinion 
 and legislative practice, consonant with the language and 
 purpose of section 103, towards the supplanting of competi- 
 tion by the regulation of rates." 
 
 In the case of Cumberland Telephone cr Telegraph Company v. 
 State, (1911), 99 Miss. 1, 54 So. 446, the Supreme Court of Missis- 
 sippi held that in those matters which are directly and specifically 
 dealt with by the laws relating to public utilities, subjecting them to 
 the supervision of the Railroad Commission, the anti-trust laws of 
 the State have no application ; a simple, straight-forward solution 
 of a problem which, when solved in any other way, has resulted in 
 much confusion and obscurity. 
 
 Even in the halls of Congess, where the Sherman Act has been 
 the Ark of the Covenant, the evidence of a more intelligent appre- 
 ciation of the real situation is not lacking. 
 
— 9 — 
 
 In The Shipping & Navigation Act of September 7, 1916, it is 
 provided by Section 15, as follows: 
 
 "That every common carrier by water, or other person 
 subject to this Act, shall file immediately with the board a 
 true copy, or, if oral, a true and complete memorandum, of 
 every agreement with another such carrier or other person 
 subject to this Act, or modification or cancellation thereof, to 
 which it may be a party or conform in whole or in part, fix- 
 ing or regulating transportation, rates or fares ; giving or re- 
 ceiving special rates, accommodations, or other special privi- 
 leges or advantages ; controlling, regulating, preventing, or 
 destroying competition ; pooling or apportioning earnings, 
 losses, or traffic; allotting ports or restricting or otherwise 
 regulating the number and character of sailings between 
 ports ; limiting or regulating in any way the volume or char- 
 acter of freight or passenger traffic to be carried ; or in any 
 manner providing for an exclusive, preferential, or co-opera- 
 tive working arrangement. The term 'agreement' in this sec- 
 tion includes understandings, conferences, and other ar- 
 rangements. 
 
 The board may by order disapprove, cancel, or modify any 
 agreement, or any modification or cancellation thereof, 
 whether or not previously approved by it, that it finds to be 
 unjustly discriminatory or unfair as between carriers, ship- 
 pers, exporters, importers, or ports, or between exporters 
 from the United States and their foreign competitors, or to 
 operate to the detriment of the commerce of the United 
 States, or to be in violation of this Act, and shall approve all 
 other agreements, modifications, or cancellations. 
 
 Agreements existing at the time of the organization of the 
 board shall be lawful until disapproval by the board. It 
 shall be unlawful to carry out any agreement or any portion 
 thereof disapproved by the board. 
 
 All agreements, modifications, or cancellations made after 
 the organization of the board shall be lawful only when and 
 as long as approved by the board, and before approval or 
 after disapproval it shall be unlawful to carry out in whole 
 or in part, directly or indirectly, any such agreement, modi- 
 fication or cancellation. 
 
 Every agreement, modification, or cancellation lawful un- 
 der this section shall be excepted from the provisions of the 
 Act approved July second, eighteen hundred and ninety, en- 
 titled 'An Act to protect trade and commerce against unlaw- 
 
— 10 — 
 
 ful restraints and monopolies,' and amendments and Acts 
 supplementary thereto, and the provisions of sections seven- 
 ty-three to seventy-seven, both inclusive, of the Act approved 
 August twenty-seventh, eighteen hundred and ninety- four, 
 entitled 'An Act to reduce taxation, to provide revenue for 
 the Government, and for other purposes,' and amendments 
 and Acts supplementary thereto. 
 
 Whoever violates any provision of this section shall be 
 liable to a penalty of $1,000 for each day such violation con- 
 tinues, to be recovered by the United States in a civil action." 
 
 This is constructive legislation based upon business experience 
 and I venture to think it will be found ample for the protection of 
 the public. 
 
 The great democracies of Australia and Canada, indeed the 
 "crowned republic" of England, have distanced us in their legisla- 
 tion upon the subject of railroad regulation. 
 
 In the Interstate Commission Act, 1912, of the Commonwealth 
 of Australia, instead of our extraordinary muddle of Federal and 
 State authorities in conflict, we find the Interstate Commission is 
 given judicial power as a Court of Record, as follows: 
 
 "The Commission shall have jurisdiction to hear and de- 
 termine any complaint, dispute, or question, and to adjudi- 
 cate upon any matter arising as to — (a) any preference, ad- 
 vantage, prejudice, disadvantage, or discrimination given or 
 made by any State or by any State Authority or by any com- 
 mon carrier in contravention of this Act, or of the provi- 
 sions of the Constitution relating to trade and commerce or 
 any law made thereunder; (b) the justice or reasonableness 
 of any rate in respect of interstate commerce, or affecting 
 such commerce: (c) anything done or omitted to be done by 
 any State or by any State Authority or by any common car- 
 rier or by any person in contravention of this Act, or of the 
 provisions of the constitution relating to trade or commerce 
 or any law made thereunder." 7 
 
 The provisions of the Australian Interstate Commission Act, 
 1912, will be found at page 756 of the work just cited. Section 19 — 
 ( 1 ) is as follows : 
 
 "It shall not be lawful for any State, or for any State Rail- 
 way Authority, to give or make upon any railway the property 
 
 'Trust Laws & Unfair Competition, Washington Gov. Printing Office, 1016, p. 248. 
 
II — 
 
 of the State, in respect of inter-state commerce, or so as to 
 affect such commerce, and preference or discrimination which 
 is undue and unreasonable, or unjust to any State." 8 
 
 Section 27 reads as follows : 
 
 "The Commission may of its own motion summon before 
 it any State authority, common carrier, or person whom it 
 has reason to believe has done anything or left anything un- 
 done in contravention of this Act, or of the provisions of the 
 Constitution relating to trade and commerce or any law made 
 thereunder, and shall have jurisdiction to hear and determine 
 the matter and may make such orders in relation thereto as 
 if complaint had been made to it of the contravention. " ,J 
 
 Turning to the subject of railroad combinations in Canada, under 
 the Railway Act of 1903, (3 Edward VII, chap. 58), the purchasing 
 or leasing of railways must be approved by the Governor General, 
 (sec. 281 ). 10 
 
 In England, combinations between railroad companies must re- 
 ceive the approval of the court of the Railway and Canal Commis- 
 sion. 11 
 
 The outbreak of the war with Germany created an appreciation 
 of the necessity of an increased efficiency if the railroads of the 
 counry would handle its business at all. August 10, 19 17, Congress 
 passed an Act to amend the Act to regulate commerce, as amended, 
 and for other purposes, by which the President was authorized, if 
 he found it necessary for the National defense and security, to di- 
 rect that such traffic or such shipments of commodities as, in his 
 judgment, might be essential to the national defense and security, 
 have preference or priority in transportation by any common car- 
 rier, and he was allowed to act through such person or persons as 
 he might designate for the purpose, or through the Interstate Com- 
 merce Commission, disobedience of orders being punishable by a 
 fine of not more than $5,000.00 or imprisonment for not more than 
 one year, or both, in the discretion of the court, carriers complying 
 with such order or direction for preference or priority being exempt 
 from all liabilities in so doing. 
 
 Even before this Act became effective, the railroads of the coun- 
 try had voluntarily established the Railroads' War Board of five 
 men, of which Mr. Fairfax Harrison, President of the Southern 
 
 8 Paes 7fin. 
 
 3 Page 761. 
 
 11 Trust Laws & Unfair Competition, p. 242. 
 
 11 Trust Laws & Unfair Competition, p. 238. 
 
— 12 — 
 
 Railway Company, was Chairman, and had begun to operate the 
 railroads of the country as if they were one system, so far as carry- 
 ing freight was concerned. The result of this arrangement was an 
 enormous increase in the freight carrying record of American rail- 
 roads. With an increase of only y 2 of i% of locomotives in service, 
 and of only 1.6% of the number of freight cars, over 16% more 
 freight was handled in May, 1917, than in May, 1916. Preference 
 was at once given to the movement of coal and iron ore. An agree- 
 ment by which all shippers of tidewater coal pooled their coal at the 
 ports of New York, Philadelphia, Baltimore and Hampton Roads, 
 resulted in a saving, it is estimated, of 133,000 freight cars. A sim- 
 ilar arrangement was made effective at ports on the Great Lakes. 
 By one order 36 American railroads were required to move imme- 
 diately 68,815 empty freight cars to the lines of 54 other railroads. 
 
 One of the first official acts after the enactment of the Preference 
 Act, just referred to, ordered preference in the movement of coal 
 to the Northwest, in order to make sure that that section of the 
 country would be sufficiently supplied for the coming winter. 
 
 Another interesting development of the operation of the railroads 
 as a continental system was the arrangement by which export traffic 
 was diverted from congested ports on the North Atlantic to the 
 South Atlantic and Gulf ports. Here we have a result of the great- 
 est value which could not be obtainel at all in times of peace. When 
 we bear in mind that there are 693 railroads in this country, and 
 that they voluntarily merged their activities for the period of the 
 war by uniting into one continental system, one is filled with ad- 
 miration of the business sagacity and patriotism which made such a 
 solution possible. During the first four months of the Railroads' 
 War Board, car shortage was reduced 70% ; by the elimination of 
 passenger trains not essential to the most pressing needs of the 
 country, approximately 20,000,000 miles of train service per year 
 were saved and the reduction of passenger service released hun- 
 dreds of locomotives and train crews and cleared thousands of miles 
 of track needed for the transportation of necessaries. Empty cars 
 were moved from one railroad to another, irrespectice of owner- 
 ship; the movement of grain for export was regulated so as to avoid 
 delays and blocking of facilities at grain elevators and seaports; in- 
 deed the enormously increased traffic due to the war was handled 
 with a skill and success never before approximated in the work of 
 the railroads of the country. 
 
 One of the most interesting results of the operation of the rail- 
 roads as a unit was the reduction of what is known as "car short- 
 
— 13 — 
 
 age." The net shortage of all the roads May ist, 19 17, was 148,627 
 cars, but by July ist, it had fallen to 105,782 cars, and by August ist 
 t0 33'776 cars. By car shortage is meant the excess of unfilled car 
 requisitions, and it is unfortunately true that a shipper will fre- 
 quently make requisitions for more cars than he could possibly use ; 
 sometimes he will make requisitions for the same cars from several 
 different railroads at the same time. These figures, nevertheless ar- 
 gue the most efficient railroading the United States had ever had, 
 and the result is all the more astounding when it was made effective 
 in the face of from 15 to 20 per cent, more traffic than was handled 
 the previous year at the same time, when in fact there were less 
 cars to be used for handling it. The railroads of the country had 
 on June 30, 1916, 29,299 less freight cars than on June 30, 1915, and 
 1,237 l ess locomotives, and it is probable that in the following year 
 there was a still further decrease. The pledge made by the highest 
 railroad officers was : 
 
 "with the government of the United States, and with the gov- 
 ernment of the several states, and one with another, that dur- 
 ing the present war they will co-ordinate their operations in 
 a continental railway system, merging, during such period, all 
 their merely individual and competitive activities in the effort 
 to produce a maximum of national transportation efficiency." 
 
 In September, 191 7, the rule was put into effect that any box car 
 when unloaded might immediately be reloaded for movement from 
 any railway point to any point in the United States, regardless of 
 the ownership of the car. This is, of course, nothing more or less 
 than pooling the cars. It was estimated that the movement of freight 
 cars in the Chicago District would be expedited 15% as a result, and 
 taking the country as a whole, in effect it added many thousands to 
 the number of cars available for service. 
 
 On November 24, 19 17, without regard to the prohibition of pool- 
 ing contained in the Interstate Commerce Act, under the direction 
 of the War Board, steps were taken to operate the railroads north 
 of the Ohio and Potomac, and east of the Mississippi, as if they 
 were one line, to the extent of pooling their tracks and terminals, as 
 well as their cars and locomotives, so as to operate them as a single 
 system in every particular. 
 
 By the action of the Railroads' War Board on November 24th, 
 1917, 65,000 miles of track with 1,194,000 cars and 677,000 em- 
 ployees, were operated as one system and the congestion was re- 
 lieved by diversion and routing of freight so as to use all facilities 
 to the best advantage. It was obviously impossible for justice to be 
 
— 14 — 
 
 done unless the earnings of these properties were pooled in some 
 way as the railroads which carry the freight will make money, and 
 the railroads which carry the passengers will lose it. Obviously 
 also the railroads rendered themselves liable for not obeying the 
 routing instructions of shippers, as they are required to do under 
 the Interstate Commerce Act. 
 
 At the meeting beginning October 16, 1917, of the National As- 
 sociation of Railway Commissioners, its President, Hon. Max Thel- 
 en of California said in his opening address: 
 
 "The railroad problem in the United States has perma- 
 nently moved beyond the ownership and operation of the 
 railroads as disconnected entities by private companies. The 
 issue now and hereafter is an issue between consolidated 
 operation of our railroads in private ownership and the uni- 
 fied operation directly by the people through government 
 ownership. National exigency, lofty patriotism, and per- 
 haps a realization that government operation was immedi- 
 ately impending unless private operation met the emergency, 
 prompted the railroads of the United States, immediately 
 after the declaration of war, to operate as a single consolid- 
 ated American system and in doing so to eliminate a por- 
 tion of the waste and inefficiency which were pointed out by 
 the Interstate Commerce Commission in the five per cent, 
 advance rate case and which for years have been recognized 
 and commented upon by state railroad commissioners and 
 other students of raiload problems. But what is now being 
 accomplished is only a small part of what must be done if our 
 railroads are to measure up to our new standards of national 
 efficiency." 
 At this meeting the special committee on public ownership and 
 operation of the National Association of Railroad Commissioners, 
 after commenting upon the situation, put the question in so many 
 words, "Why should we not have a maximum of transportation 
 efficiency in peace as well as in war?" 
 
 President Rea of the Pennsylvania recently stated : 
 
 "No less than 2,385 separate railroad corporations report 
 to the Interstate Commerce Commission and I hazard the 
 guess that at least 2,300 of them could be merged into the 
 bigger systems with vast benefit to the public and everyone 
 else concerned." 
 He also said that in his judgment the pooling of traffic by the rail- 
 roads is essential for the public service and should be affirmatively 
 legalized, not only for the period of the war, but for all time. He 
 
_ I5 _ 
 
 added his belief that the restrictions of the Sherman law should not 
 apply to the railroads, and that mergers and combinations intended 
 to increase efficiency, simplify accounting and eliminate the wastes 
 of competition, should not only be countenanced but encouraged, 
 under public supervision and control. 
 
 The Traffic Director of the United States Shipping Board in Sep- 
 tember, 191 7, sent a memorandum to the tug owners serving the 
 North Atlantic ports, for the purpose of pooling all of the tugs un- 
 der one control. The memorandum indicated the possibility of an 
 enormous increase of efficiency, if the operation of the service were 
 delegated to a single head. 
 
 The Shipping Board on September 27, 19 17, approved plans for 
 this combination of New England coal barges and ocean going tugs. 
 
 A peculiar feature of the last annual report of the Interstate 
 Commerce Commission is that they again renew their recommenda- 
 tion to Congress that under the Panama Canal Act the Commission 
 be empowered to permit, subject to further order of the Commis- 
 sion, continued operation by a railway, or under railway control, of 
 water lines or vessels where it will be in the interest of the people 
 and of convenience to the public, even though such operation may 
 reduce competition on the route by water. It was bad enough to 
 have to ask for such authority at all, much less ask for it twice. 
 
 In a special report of the Interstate Commerce Commission to the 
 Senate and House of Representatives, dated December 1, 1917, the 
 majority of the Commission suggested as an alternative to Govern- 
 ment operation that the restrictions of the anti-trust laws, and of 
 the provision of the Interstate Commerce Act which forbids pool- 
 ing, be removed for the duration of the war. Several passages of 
 this report were significant. They say, speaking of competition be- 
 tween railroads : 
 
 "Since the Hepburn Act, and especially since the Mann- 
 Elkins Act, the prescription by this Commission of reasona- 
 ble maximum rates and charges for rail carriers subject to the 
 Act, and the exercise of its power to require abatement of 
 unjust discrimination or undue prejudice, have in great de- 
 gree restricted that competition to the field of service. But 
 whether or not perpetuation of the competitive influence is 
 desirable under a system of government regulation, etc." 
 
 The only limitation they recommended upon the suspension of the 
 operation of the anti-trust laws is in respect to consolidations or 
 mergers of parallel and competing lines. No exception is recom- 
 mended to the suspension of the anti-pooling provision of Section 
 
— i6 — 
 
 5 of the Interstate Commerce Act. The dissenting opinion of Com- 
 missioner McChord recommended that the railroads be taken over at 
 once by the Government, acting through the President, under au- 
 thority of the Act of Congress of August 29, 1916, and in the event 
 that the President did not elect to take over the railroads, that the 
 regulation the railroad operations then vested in the several agen- 
 cies of the United States Government should be promptly centraliz- 
 ed by Act of Congress under a single governmental administrative 
 control. Commissioner McChord pointed out that the diversified 
 control under which the carriers had been acting since the war had 
 done much to impede the movement of freight. The indiscriminate 
 and excessive use by government officials of directions for priori- 
 ty of movement of cars had in fact created an impossible situation. 
 The break-down of the existing system of railroad regulation was 
 at hand. 
 
 Apparently the storm finally broke because of the anti-pooling 
 clause of the Interstate Commerce Act. In President Wilson's state- 
 ment to the Associated Press of December 27, 19 17, in taking over 
 the railroads, he says : 
 
 ''Complete unity of administration in the present circum- 
 stances involves upon occasion and at many points a serious 
 dislocation of earnings, and the committee [referring to the 
 Committee of Railway Executives who had been co-operat- 
 ing with the Government] was, of course, without power or 
 authority to rearrange charges or effect proper compensa- 
 tion and adjustments of earnings. Several roads which were 
 willingly and with admirable public spirit accepting the or- 
 ders of the Committee have already suffered from these cir- 
 cumstances and should not be required to suffer further." 
 In fact the railroads were bound up in such a Gordian knot 
 of bad laws that the President had to wield the knife like another 
 Alexander. The prospects of inducing Congress and the State Leg- 
 islatures to repeal these laws might have well appalled the stoutest 
 heart. Too many political careers have been founded upon tying 
 the railroads tight. The war power of the Government, which was 
 found equal to freeing the slave without paying any compensation 
 to his master, was equal to seizing all the railroads of the country 
 in advance of any arrangement being made for the compensation 
 of the owners. The spirit of the President's proclamation and state- 
 ment breathes the highest patriotism and justice, and Congress has 
 met the railroad situation with a very creditable statute. But if the 
 Director General of Railroads is bound to obey all the existing rail- 
 road laws, and in this connection State laws and orders regulating 
 
— ly — 
 
 intra-state commerce are very important, the railroads might almost 
 as well be given back to their owners. Orders have already been 
 issued to disregard the routing of freight by shippers whenever 
 necessary, and already, upon the request of the Director General, 
 the Interstate Commerce Commission has doubled demurrage 
 charges for not unloading cars — something for which the railroad 
 companies could have hardly hoped on their own initiative. May we 
 not expect that necessary increases of rates long denied to the car- 
 riers, will now be granted to the Government? 
 
 At the time of our recent troubles with Mexico the country wit- 
 nessed the breakdown, for lack of efficiency, of the National Guard 
 system, and saw the necessity for unified Federal control in order 
 to get an efficient army. The same kind of a situation until recently 
 existed in the American railroad world. There was a regular army 
 in the form of the Interstate Commerce Commission and its staff, 
 and a National Guard in each State in the form of a State Commis- 
 sion, operating independently. Just as the Nation found by actual 
 experience that it was necessary to have a unified and National con- 
 trol for the troops of the United States, in the same way it has been 
 shown by actual experience that a unified National control is neces- 
 sary for the railroads. It is more than a generation ago that experi- 
 ence taught that there should be a unified central control of banking. 
 Beginning with the National banking system, this National control 
 has been strengthened and developed until we now have the Federal 
 Reserve Board. Even earlier than this, the shifting of control of 
 the improvement of rivers and harbors was made from the States 
 to the Nation. The railroads desire nothing more than that the Na- 
 tion should apply to them the same unified control which has been 
 found necessary in so many other instances. 
 
 In the case of City of Montreal v. Montreal Street Railway, A. C. 
 ( 1912) 333, it was held by the English Privy Council that a railway 
 wholly situated in one Province, and which had not been declared 
 by the Dominion Parliament to be a work for the general advantage 
 of Canada, remained subject to the regulation of the Provincial 
 Parliament only. Otherwise, said Lord Atkinson, 
 
 "the line itself is placed in this unfortunate position, that its 
 local traffic is put under the jurisdiction and control of the 
 provincial Legislature and the officials of the local Govern- 
 ment, and its through traffic, with all these other matters, is 
 subjected to the jurisdiction and control of the Dominion 
 Legislature and the officials of the Dominion Government. 
 A most unworkable and embarrassing arrangement." 
 
It is interesting to observe that this arrangement, which the distin- 
 guished Judge declared to be "most unworkable and embarrassing" 
 is the very one which in times of peace exists throughout the United 
 States. In Canada the regulation of commerce by the Dominion 
 Government is not subject to impediment by Provincial authorities. 
 
 The total number of regulating authorities in the United States, 
 exclusive of municipalities, (which frequently become very impor- 
 tant, as for example when they require the removal of grade cross- 
 ings, or electrification of tracks within city limits), is 96. The two 
 Federal agencies are, first, Congress, and secondly, the Interstate 
 Commerce Commission, while the 94 State agencies are 48 State 
 Legislatures and 46 State Commissions. To take, for example, a 
 railroad system which is not one of the largest, the Illinois Central 
 Railroad Company is regulated by Congress, the Interstate Com- 
 merce Commission, 12 State Legislatures and 12 State Railroad 
 Commissions. The issue of its securities is controlled by 2 State 
 Commissions, whose laws do not agree with each other, while the 
 requirements of the City of Chicago in the matter of track elevation 
 and electrification make its City Council as important to the railroad 
 system as a whole as a State Legislature or Railroad Commission 
 would be. 
 
 As an illustration of the intensely local spirit in which State Com- 
 missions sometimes deal with questions of national importance, in 
 an article by Mr. T. J. Norton, in the Traffic World of August 11, 
 191 7, 12 he says: 
 
 "In the western advance case of 191 5, the Interstate Com- 
 merce Commission permitted the carriers to increase the min- 
 imum load of flour and other grain products moving inter- 
 state to 40,000 pounds over a wide extent of territory, em- 
 bracing most of fourteen states west of Indiana and the Mis- 
 sissippi River. But in the course of two years the carriers 
 have been able to get that minimum of 40,000 granted in only 
 one state. Just a few days ago the state of Kansas, which 
 has compelled the carriers to haul a load of only 24,000 
 pounds of flour and other grain products, denied their appli- 
 cation for an advance to what the Interstate Commerce Com- 
 mission had found to be a fair-sized load, notwithstanding 
 that it appeared in the western advance case that the average 
 equipment would carry about 60.000 pounds and that flour 
 for export loads from 70,000 to 85,000. * * * 
 
 11 Vol. 20. D. 237. 
 
— ig — 
 
 On account of the interference with interstate commerce 
 by state regulating bodies the Atchison, Topeka & Santa Fe 
 Railway Company last year employed not less than 14,000 
 cars more than were necessary in the transportation of flour 
 and other grain products alone. A like stupendous waste for 
 only one carrier on only one commodity is suffered by all 
 carriers as to grain and grain products and also as to other 
 commodities in varying degrees." 
 
 In December, 19 17, the Interstate Commerce Commission was 
 compelled to make an order to put an end to the discrimination pro- 
 duced by an order of the Public Service Commission of Missouri, 
 creating a preference in favor of stock yards in St. Louis, Missouri, 
 over those in East St. Louis, Illinois, on shipments of cattle origin- 
 ating in Missouri. 13 Human nature is the great constant, and the 
 only way to stop wrong-doing is to make it unprofitable. 
 
 In October, 1917, the Chamber of Commerce of the United States 
 took a referendum in regard to the subject of railroad regulation. 
 The questions submitted by the Committee and the result of the 
 balloting were as follows : 
 
 I. The Committee recommends that provision be made for fed- 
 eral regulation of the issuance of railroad securities. 
 iii2 l / 2 votes in favor. 
 27^2 votes opposed. 
 
 II. The Committee recommends that Congress pass a general 
 railroad incorporation law under which all railroad car- 
 riers subject to the jurisdiction of the Interstate Commerce 
 Commission may organize. 
 iiny 2 votes in favor. 
 2 5/^ votes opposed. 
 
 III. The Committee recommends that if Congress passes a rail- 
 road incorporation law, all railroad carriers subject to the 
 jurisdiction of the Interstate Commerce Commission, both 
 those now existing and those hereafter to be created, be 
 required to organize under this law. 
 1080^2 votes in favor. 
 49^2 votes opposed. 
 
 13 Dimmitt-Candle-Smith Live Stock Commission Co. v. C. B. & Q. R. R. Co. ct ah, 
 20 Traffic World, 1259. 
 
— 20 — 
 
 IV. In view of the fact that conflict has arisen with respect to the 
 jurisdiction of the Interstate Commerce Commission over 
 intrastate rates, even though such rates affect interstate 
 commerce — the Committee recommends that the Commis- 
 sion be given authority by statute to regulate intrastate 
 rates when those rates affect interstate commerce. 
 I0 54//2 votes in favor. 
 66 l / 2 votes opposed. 
 
 It has been estimated recently by competent authority that Amer- 
 ican railroads, which consist of more than 250,000 miles of single 
 track, represent a property investment of about $17,000,000,000, 
 and that, either directly by stock ownership, or indirectly through 
 insurance companies, savings banks, charitable institutions, banks 
 and trust companies, half the people of the United States are inter- 
 ested in railroad securities. Investments in the stocks of railroad 
 companies have drifted out of the hands of magnates into those of 
 small investors. For example, nearly half the stockholders of the 
 New Haven do not hold over ten shares of stock, and in that com- 
 pany, as in the Pennsylvania, nearly as many women are stockhold- 
 ers as men. The Pennsylvania has 94,000 stockholders ; the Atch- 
 ison 45,000; the Illinois Central 10,000. When the railroads starve, 
 many people go hungry. This situation, however, makes little im- 
 pression on the popular mind, for the things which are seen are 
 politics and the things which are not seen are economics. 
 
 In the greater portion of the United States railroad property will 
 always receive comparatively bad treatment, because it is owned by 
 non-residents. It is a matter of common observation that the taxes 
 of non-residents are always higher than those of persons who are 
 on the spot and able to take care of themselves. This is human na- 
 ture. Money paid to railroad companies has the same bad aspect 
 as rent sent off to non-resident owners. The clamor and outcry of 
 railroad companies against injustice in most localities of the United 
 States is like that of a man situated a great way off, and whose 
 voice travels slowly. In most of the States of the Country, railroads 
 are to all intents and purposes non-residents, and in regulation by 
 such States they are treated accordingly. In regulation by the Nation 
 as a whole, however, those localities, for the most part east of the 
 Hudson River, where railroad stocks are largely held, have also a 
 voice. The owners of the railroads are not non-residents of the Na- 
 tion as a whole. For this reason, if for no other, National regu- 
 latin will always be fairer than that of all except a comparatively 
 few of the States, and the quality of the justice administered by the 
 
— 21 — 
 
 Nation will always be superior to that administered by all except a 
 comparatively small number of the States, so far as railroad com- 
 panies are concerned. Constitutional limitations, whether of the 
 State or of the Nation, are an inadequate protection to the railroad 
 industry. The growth and development of the railroads of the coun- 
 try can be, indeed it now is, effectively stopped without the violation 
 of a single constitutional limitation. A situation where one who 
 invests new capital in railroads cannot earn more than the rate of 
 interest, but may lose a part or all of the interest, or even of the 
 principal itself, will effectively stop the building of additional lines. 
 The only protection upon which the railroads can really count is the 
 economic law that people will not invest in securities which do not 
 promise a safe and adequate return. We have now reached a situa- 
 tion in this country when, taking the railroads as a whole, they have 
 ceased to be attractive fields for the investment of new capital. The 
 people of the United States ought to be concerned about this situa- 
 tion. There are only two remedies for it, either the railroads must 
 be allowed to earn enough to keep attracting the capital necessary 
 for the development of the business, or the Government itself must 
 build the additional railroads and facilities which the growth of the 
 country and of its business require. Indeed, since the President 
 took over the railroads at the close of 1917, only the latter alterna- 
 tive remains, for the present. It is clear as never before that the in- 
 terests of the whole people require that the railroad industry should 
 be placed permanently upon a prosperous basis, not only during the 
 present war but after. 
 
 The conclusion of the whole matter is that such things as experi- 
 ence during the war has shown to be for the benefit of the public 
 as well as of the railroad companies should be lawful when the war 
 is over; that the public should not be deprived of the advantages 
 which have been made manifest by unification for service of the 
 railroads of the country ; and that such statutes as forbid the con- 
 tinuance of an arrangement so excellent and so sensible from every 
 point of view, should be repealed or modified so as to permit a con- 
 tinuance of present conditions, so far as they are of advantage to 
 the people as a whole. 
 
 One of the greatest dangers of the present situation is that while 
 the Government is in control of the railroads without a fully corre- 
 sponding increase of rates, it will raise the wages of labor to such 
 an extent that their owners cannot afford to operate them upon the 
 conditions which will exist at the close of the war. In England it is 
 estimated that the increased wages paid to labor alone will wipe out 
 
all the profits of the railroad companies upon the basis of earnings 
 now existing. 1 * The English Government has raised the rates very 
 little, and the enormous burden of increased operating expenses has 
 fallen upon the English people in taxes. If such a condition should 
 arise here, the owners of the properties would find themselves ruin- 
 ed in advance, when they took their properties back, for they could 
 count upon the fierce resistance of the shippers to any increase of 
 rates, and the sympathy of the regulating bodies with the shippers 
 in that position. And who will reduce wages? Without an adequate 
 increase of rates, private ownership is a ruinous program. 
 
 In "China: An Interpretation," written several years ago by 
 James W. Bashford, Bishop of the Methodist Episcopal Church 
 resident in China 1 "' occurs the following passage : 
 
 "May 9, 191 1, the government proclaimed its policy for the 
 nationalization of the railways of China. An illustration of 
 the irony of history is found in the fact that in the technical 
 struggle over which the revolution finally broke, Prince Chun 
 was in the right and the liberals were in the wrong. This 
 technical struggle was over the question whether the railways 
 should be under the control of the central government or un- 
 der the control of the various provincial governments. Prince 
 Chun stood for a national ideal as over against the ideal of 
 provincial supremacy, while the provincial authorities, suf- 
 fering from the despotism of preceding centuries, struggled 
 for provincial control. Every American can see how danger- 
 ous, especially in time of war, would be forty-eight systems 
 of American railways, each under a state, rather than under 
 national control. Surely, if China is to protect herself 
 against foreign aggression, she must have, as speedily as pos- 
 sible, a system of railways extending throughout the nation 
 and under national control, by which she can move her troops 
 quickly to any point where danger threatens. The whole po- 
 litical history of the nineteenth century may be summed up 
 in a movement toward nationalism as over against state 
 rights, or the rights of petty independent kingdoms. In this 
 last struggle Prince Chun placed himself in line with great 
 statesmen of the modern world." 
 
 President Wilson has also placed himself in line. The situation 
 at this hour is full of hope. It is not beyond the reach of human 
 
 14 See article, "The Railways of Great Britain After the War," 64 Railway Age, 160, 
 taken from The Engineer, London. November -?o, 191 7. 
 
 15 PafifP 3X7 nnfp. 
 
— 23 — 
 
 possibility that the actual demonstration of the advantage of com- 
 bination instead of competition, will lead to a change of the entire 
 policy of the American people towards the railroads. 
 
 The Act of Congress of March 21, 1918, in making provision by 
 Section 10 that during the period of Federal control, whenever in 
 his opinion the public interest requires, the President may initiate 
 rates, fares, charges, classifications, regulations and practices, by 
 filing the same with the Interstate Commerce Commission, provid- 
 ing further that the Commission shall have no power to suspend 
 them, pending final determination, but that the Interstate Commerce 
 Commission shall, upon complaint, enter upon a hearing concerning 
 the justness and reasonableness of the order, expressly provides : 
 
 "In determining any question concerning such rates, fares, 
 charges, classifications, regulations, or practices or changes 
 therein, the Interstate Commerce Commission shall give due 
 consideration to the fact that the transportation systems are 
 being operated under a unified and coordinated national con- 
 trol and not in competition." 
 
 It is interesting to observe that the powers of the President are 
 not restricted to interstate rates, and that either the Interstate Com- 
 merce Commission is granted the power to review intrastate rates 
 initiated by the President, or there is no provision made to review 
 such intrastate rates at all. There is no constitutional difficulty in 
 power being conferred upon the Interstate Commerce Commission 
 to review intrastate rates, whether such legislation be based upon 
 the war power or upon the power to regulate foreign and interstate 
 commerce. 
 
 "If the situation has become such, by reason of the inter- 
 blending of the interstate and intrastate operations of inter- 
 state carriers, that adequate regulation of their interstate 
 rates cannot be maintained without imposing requirements 
 with respect to their intrastate rates which substantially affect 
 the former, it is for Congress to determine, within the limits 
 of its constitutional authority over interstate commerce and 
 its instruments the measure of regulation it should apply." 16 
 
 The effect of combination of railroads under the rule of the Di- 
 rector General has shown itself at once in a remarkable series of re- 
 
 w Simpson v. Shepard, (1913), 230 U. S. 352, 432-3. 
 
— 24 — 
 
 forms. Ports, terminals, locomotives, rolling stock and other trans- 
 portation facilities, have been utilized without regard to ownership ; 
 the designation of routes by shippers has been disregarded in the 
 public interest ; new through routes for traffic have been establish- 
 ed ; traffic agreements have not been allowed to interfere with expe- 
 dition. Demurrage charges have been increased upon cars so as to 
 minimize their detention for loading and unloading; new construc- 
 tion has been limited to the minimum required by National necessi- 
 ties ; ticket offices have been consolidated ; advertising and solicita- 
 tion of traffic have been discontinued; the amount of free trans- 
 portation has been reduced ; the use of universal inter-line way-bill- 
 ing and standard forms has been introduced; an uniform rule has 
 been established in regard to the construction of new industry 
 tracks ; an order has been made that suits against carriers while un- 
 der Federal control must be brought in the County or District where 
 the plaintiff resides, or in the County or District where the cause of 
 action arose, otherwise it is expected that no provision will be made 
 by the Government for satisfying judgments obtained in such suits. 
 The lines of steamships serving the Atlantic Coast have also been 
 taken over by the Director General and are expected to be operated 
 in connection with the railroads. Arrangements have been made to 
 unify the purchase of materials and supplies for all the railroads by 
 the Government. The Government has under consideration the dis- 
 continuance of fire insurance, the Government itself bearing the 
 risk. An increase of rates has been granted in Trunk Line terri- 
 tory, and further increases of rates in other parts of the country are 
 expected ; it is believed that the attitude of the Interstate Commerce 
 Commission will be more favorable to such increases than hereto- 
 fore. Superfluous passenger trains have been eliminated and their 
 schedules arranged so as to accommodate the passengers better in 
 the choice of time of departure, and further improvements along 
 these lines are in contemplation. The designs for locomotives and 
 cars have been standardized. The three different classifications used 
 in freight service in different parts of the country are expected to be 
 harmonized at an early day. Unnecessary associations of carriers 
 are in the process of being abolished. An end is to be made to the 
 cross-hauling of coal, by compelling the shippers to buy from min- 
 ers in their own field. In short, the Director General is earnestly 
 endeavoring to secure the economies of combination, and is making 
 considerable progress. 
 
 Can it be believed that the American people will ever return to the 
 regime of enforced competition of carriers, or even consent to the 
 
— 25 — 
 
 conduct of the railroad business on a competitive basis? This does 
 not necessarily mean Government ownership, 17 but it means at least 
 a sweeping reform in the system of railroad regulation which pre- 
 vailed before the President's Proclamation of December 26, 191 7. 
 
 Blewett Lee. 
 Chicago. 
 
 17 A concise discussion of "What Government Ownership Would Mean," by Mr. 
 Samuel O. Dunn, will be found in Volume 64. No. 14, page 831, of the "Railway Age". 
 Mr. Dunn concludes that after the war, private ownership under a more rational system 
 of regulation would be better than government ownership, but "to return the railways 
 to their owners after the war subject to the kind of regulation which has prevailed would 
 be disasterous to both the companies and the country." In this article Mr. Dunn ques- 
 tions the expediency of the President's having assumed such complete control of operation 
 of the railroads. The legality of the President's Proclamation of December 26, 1917, 
 is questioned by District Judge Evans in Muir v. L. & N. R. R. Co. (March 2, 1918), 247 
 Fed. 888. The Act of Congress of March 21, 1918, entitled "An act to provide for the 
 operation of transportation systems while under Federal Control, for the just compensa- 
 tion of their owners and for other purposes" would however be very curative. 
 
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