GIFT OF THE PROPOSED RADICAL RAILWAY LEGISLATION AN ADDRESS DELIVERED BEFORE THE FACULTY AND STUDENTS OF THE UNIVERSITY OF MISSOURI, OCTOBER 20, 1905 BY H. T. NEWCOMB, Of the Bar of the District of Columbia, Author of " Railway Economics," " The Postal Deficit," " The Work of the Interstate Commerce Commission," "The Federal Courts. and the Orders of the Interstate Commerce Commission," etc., etc. PRESS OF GIBSON BROS. WASHINGTON, D. C. 1905. THE PROPOSED RADICAL RAILWAY LEGISLATION AN ADDRESS DELIVERED BEFORE THE FACULTY AND STUDENTS OF THE UNIVERSITY OF MISSOURI, OCTOBER 20, 1905 BY H. T. NEWCOMB, Of the Bar of the District of Columbia, Author of " Railway Economics," " The Postal Deficit," " The Work of the Interstate Commerce Commission," "The Federal Courts and the Orders of the Interstate Commerce Commission," etc., etc. PRESS OF GIBSON BROS. WASHINGTON, D. C 1905. . CONTENTS. PAGE The Nature of the Proposal 5 Not Intended to Prevent Rebates 6 Not to Prevent Private Car Abuses 7 Not to Prevent " Industrial" Railway Abuses 8 Not to Prevent Excessive Charges 9 But to Control Competition 10 An Effective Remedy for Real Injustice now Exists 12 Rates to be Advanced as Well as Lowered 15 Market Competition Controls 16 Rates Measured by the Purchasing Power of Money 17 A Psychological Element 17 A Task of Impossible Magnitude '. 18 What Principle Would Govern 20 The "Theory of Social Progress" 22 The Blight of Partisanship 24 A Rigid System 25 Effect on Wages and Prices 26 Unconstitutional 27 Other Legal Difficulties 29 The Friendless Esch-Townsend Bill 30 Railways Not Obstructive 30 239450 The Proposed Radical Railway Legislation. BY H. T. NEWCOMB. THE NATURE OF THE PROPOSAL. The legislative proposal which we are to consider is the defendants in a particular class of controversies shall be compelled to submit to the judgment of a tribunal differ- ent in character and in methods of procedure from the judicial tribunals created under the Constitution and in conformity with the practice of all English-speaking peo- ples. The demand is that when the Interstate Commerce Commission has exercised the judicial power of determining that existing rates are unlawful, it shall, thereupon, have and exercise the legislative power to prescribe the rates which must in future be applied between the same places and to the same articles of traffic. Undoubtedly this would be a radical change from existing methods, but not because it would effectively establish governmental power to control railway charges. Inter- state railways are common carriers, and the principle that the rates of common carriers must be reasonable and just is as old as the Common Law. The judicial power to award damages for refusal to carry when reasonable compensation 6 had been tendered or for the sum collected in excess of such a charge is much older than the steam locomotive. Although jurists differ as to the extent of the power of Courts of Equity to enjoin unjust rates, until their usual powers had been supplemented by statute, there is no doubt that since the adoption of the Elkins law, in 1903, the Fed- eral courts have had the right to issue an injunction against " any discriminations forbidden by law. ' ' And the law pro- hibits every undue or unreasonable preference by which one shipper or community or class of traffic can be given an advantage over another. The innovation, then, is not in the end attempted, but in the means by which it is proposed that the end shall be at- tained. That the proposed step is a radical departure from the governmental practice which has the sanction of Amer- ican experience is, perhaps, not a reason for refusing to take it, but it certainly does impose upon those who are to decide the duty of proceeding with the utmost caution. Such caution requires a minute inquiry as to the reasons for the proposed innovation and its probable consequences. NOT INTENDED TO PREVENT REBATES. At the outset the inquirer meets with the fact that the proposed measure has no relation to that particular evil of railway practice which has been most generally and unspar- ingly condemned. Rebates and personal discriminations, whereby one shipper may be given an unfair advantage over a competitor, were the primary cause of the adoption of the present Interstate Commerce law, and there is no doubt that to-day the few belated instances of this evil practice constitute the principal basis of whatever public demand for further restrictive legislation really exists. That there should be favoritism in the charges for rail- way service is intolerable; it is, also, as contrary to the law of the land as that there shall be murder or theft. But social order is still interrupted by occasional larcenies and malicious homicides, and there is no evidence that the law against rebates is more frequently violated than those which forbid other offenses. Yet if any one can suggest a modification of the present law that will more effectually protect the public against the direct or indirect preferment of one shipper over another, through rebates or other con- cessions from the published schedules of charges, the sug- gestion will become, promptly and without opposition from any railway officer, a part of the Federal statute law. Public antipathy to rebates ought not, however, to be used to further the enactment of legislation having no bear- ing upon that subject. To confer rate-making power upon the Interstate Commerce Commission could in no way hinder the payment of rebates; it would, on the contrary, make illegal concessions from the published schedules the only means of approximating that elasticity in railway charges which is essential to the upbuilding of industry. NOT TO PREVENT PRIVATE CAR ABUSES. It is not proposed to confer rate-making power upon the Interstate Commerce Commission in order to enable that body more effectively to deal with evils growing out of the 8 use of private freight cars or the incorporation as railway companies of private side-tracks and terminals. Some of the owners of refrigerator cars are accused of charging ex- orbitantly for their use and for the services rendered in connection with them and with other improprieties which it is alleged are seriously detrimental to the industries they purport to serve. Whether these allegations are justified by the facts is no part of our present inquiry. Whatever of evil there may be in a system under which cars whose owners are not within the scope of the Interstate Commerce law are permitted to be leased to interstate railways for the purpose of performing services in connection with interstate traffic, it is obvious that they cannot be remedied through Federal exercise of the power of making rates. NOT TO PREVENT " INDUSTRIAL " RAILWAY ABUSES. Similarly, it is charged that great shippers have incor- porated as railways the side-tracks erected at their own expense and leading to their own factories and warehouses, and have demanded, and received, on behalf of these pri- vately owned lines, divisions of through rates sufficiently excessive to be obviously equivalent to rebates. Such evi- dence as is available concerning the character and extent of this practice conclusively proves that it is not to be remedied by government rate-making. If it is not, as most lawyers believe, completely covered by existing law, any amend- ment likely to correct it will be warmly welcomed. NOT TO PREVENT EXCESSIVE CHARGES. It is not proposed to confer rate-making power upon the Interstate Commerce Commission in order to prevent rail- way corporations from charging and receiving excessive or exorbitant rates for their services. No other great busi- ness enterprises in the United States are conducted for so low a return upon the capital actually invested as the average return received upon railway stocks and bonds. The American railway industry has drawn to itself much of the choicest business ability of the nation and a body of workmen whose high intelligence and exceptional physical excellence merit and receive the highest admiration. This labor is highly paid, but not more highly than it deserves. With high wages and low returns to investors American railways have attained, relatively to their cost, the highest efficiency of any railways in the world. This efficiency is partially expressed in the lowest average rates that any- where exist, rates which permit the extensive railway move- ment of commodities of such low value in comparison to bulk and weight that if moved at all on the Continent of Europe it must be in boats propelled along rivers or canals by the slow and painful efforts of the most meagerly com- pensated labor. Repeatedly have the most persistent advocates of government rate-making recorded the fact that they do not base their argument upon the allegation that rates are generally excessive. On the contrary, they have borne witness, as all fair and candid men must, to the exceptionally low level of rates which here prevails. 10 Government rate-making, then, is not to be resorted to in order to prevent or hinder rebating, not in order to re- strict the owners of private cars, not in order to limit the evils of " industrial" railways, not in order to secure a gen- erally lower level of railway rates. The evils named are those most prominent in the public mind, but over a remedy for them, should it be conceived and proposed in any quarter, there will be no controversy. The difficulty is to devise a more effective statute than that now in force. BUT TO CONTROL COMPETITION. The real basis of the demand for an extraordinary rate- making tribunal, widely differing from anything known to our Federal system, is found in the relations among the charges applied between competing markets and sources of supply or to competing articles of traffic. These relations are now determined by competition; it is proposed to make them the plaything of politics. Shall railways be required to carry manufactured articles from St. Louis to Atlanta at rates arbitrarily proportioned to those from New York to Atlanta, in accordance with the decree of a rate-making board, or shall the forces of com- merce be left free to control and progressively to modify the relation? Shall government require the rates on flour and wheat from Minneapolis to New York to be so adjusted to each other as to favor or to prevent the grinding of wheat for European consumption at Minneapolis or at Niagara or at 11 New York or at Liverpool, or shall the relative charges be those from time to time fixed by the natural operation of the competition of lake and canal and ocean and rail car- riers as well as that of the millers located at the different milling points and the producers of Russia, Argentine and Germany? Shall the railway whose terminals are connected by a water route be permitted to charge reasonable compensa- tion rate for transportation to or from intermediate points not served by water carriers while still accepting traffic between its terminals at the rates made necessary by the water competition, or must it withdraw from the rivalry in the service of its terminals, with the water route and thereafter be compelled, in order profitably to operate, to charge the entire cost of its maintenance, operation, taxes and interest against its local traffic? There is no American community which does not look jealously upon some other community with which it is maintaining a competitive struggle for supremacy in the industrial field. These competitive struggles are the source of constant pressure upon the railways for the read- justment of their charges, and the story of their acquiescence is to be read in the more than three hundred rate schedules, nearly all issued to report reductions, that are received every day in the office of the Auditor of the Interstate Com- merce Commission. Every community would like to have its own rates low- ered or, failing this, to have those of competing commu- nities advanced. To accomplish this result always a seemingly reasonable and just result to those to whom it 12 would bring additional profits there is probably no com- munity which would not speedily invoke the aid of a government rate-making tribunal and none which would not bring to bear upon that tribunal every plausible argu- ment and every potent influence at its command. Only the extent of commercial rivalry could measure the breadth of the task which it is proposed to confer upon the Interstate Commerce Commission. But these competitive struggles are more than a source of demands for more favorable adjustment of railway charges. Restricted, as those who seek these changes from the railways under present conditions are restricted, to commercial arguments, they may not rely upon the carriers to protect them against the results of mismanagement and incapacity. The com- munity which wishes industrial supremacy must now be diligent to seek, acute to perceive, and prompt to take advantage of every opportunity to improve its methods and to cheapen its production, and none may replace intel- ligence and zeal by the favor of the rate-making authority. If such a substitution had been possible American indus- trial progress would never have become the marvel of the world. AN EFFECTIVE REMEDY FOR REAL INJUSTICE NOW EXISTS. During the present discussion the Interstate Commerce Commission has loudly proclaimed its own impotence. In annual reports, in popular magazines, before scientific societies, at public dinners, in newspaper interviews, and in pamphlets, the Commission, or some of its members, 13 have asserted over and over again that there is no Federal power sufficient to prevent the railways from exacting unreasonable charges for their services. Yet while these assertions were being made the Commission, in the per- formance of its routine duties, was satisfactorily settling, without litigation in the Federal courts, thirty-nine out of every forty cases of complaint brought to its attention. The truth is that there is no genuine injustice in the rates charged for interstate railway transportation which cannot, promptly and effectively, be settled under the existing law. Ninety per cent of all the complaints brought to the atten- tion of the Interstate Commerce Commission are settled without formal proceedings of any kind. Of the remaining ten per cent in which formal proceedings are held, about half have so far been decided in favor of the railways. Among, approximately, two hundred cases hi which the Commission has decided that the complaining purchasers of railway transportation should have relief the expression of this opinion on the part of the Commission has been sufficient to induce the railways immediately to make the suggested changes in their schedules. In forty-five in- stances, out of four thousand complaints and in eighteen years, the railways have believed that the Commission was so wrong in its conclusions that to follow its advice would lead to disaster which they would share with their patrons, and in these cases they have resorted to their legal right to refuse compliance with its orders until those orders have received the sanction of a Federal court. Not all of these cases have been prosecuted to a conclu- sion, but of the thirty-five cases actually decided the Com- 14 mission has been wholly sustained in only two and partially sustained in only one. The conclusion seems clearly to follow that the ends of substantial justice have been successfully attained, without the intervention of the courts, in all but three cases out of four thousand presented to the Interstate Commerce Com- mission in the eighteen years of its existence, while in the three exceptional cases recourse to the courts, as provided for in the present statute, resulted in the enforcement of its lawful orders. The fact is that when the Commission has issued an order only two questions can be considered by the court which is appealed to in case obedience has been refused : These questions are : A. Has a lawful order been issued? B. Has the order been obeyed? If the first question is answered in the affirmative, and the second in the negative, no latitude of action is open to the court. It can neither revoke nor suspend, neither alter nor abate, in any degree, the order of the Commission, but must issue its decree commanding obedience thereto, and any carrier thereafter refusing compliance may be punished as for contempt of court. As the present law authorizes the Commission to command any carrier subject to its jurisdiction "to cease and desist" from charging any rate which is found absolutely or relatively unreasonable and provides this direct and simple method for the enforcement of its orders besides authorizing the alternative remedy of a direct application to the Circuit Court for an injunction and requiring special expedition in the trial of this class of cases, 15 it is difficult to see how a more complete remedy for railway abuses could be desired by anyone who has sufficient con- fidence in the righteousness of his contention to be willing to submit it to a court of justice. RATES TO BE ADVANCED AS WELL AS LOWERED. As the only complaints which are urged in justification of the proposed legislation are those growing out of the rela- tions among the rates charged for different services it is important to observe that new relations cannot be pre- scribed by the Government without withdrawing from the carriers the right to lower their rates at will. For example, under an arrangement which has been in force for more than twenty years, the inland rate on grain exported through the port of Baltimore has been three cents per hundred pounds lower than that applied to grain from the same point of origin exported through the-port of New York. Last year the railways reaching New York, under pressure from those engaged in the transshipment of grain at that port, were perfectly willing to lower their rates to the level fixed at Baltimore, provided their shippers could thereby gain the privilege of doing business upon equal rates with those enjoyed by their Southern competitors. The contro- versy which ensued was referred to the Interstate Commerce Commission, under an agreement to submit to its arbitra- tion, and its award required the carriers reaching New York to observe a minimum limit upon their rates which is fixed by adding an arbitrary differential to the rates in force at Baltimore. Similar examples could be drawn 16 from the controversies over rate adjustments wherever they exist. These differences cannot be settled through the power to prescribe maximum rates; there must be power to prevent reductions as well, and if such a power is granted the United States, through the Commission, will put itself squarely in the path of the normal downward tendency of railway charges. This, of course, is not the only way in which the persistent downward trend of rates would be opposed by the proposed legislation. MARKET COMPETITION CONTROLS. It is the competition of communities and markets, not that of rival routes between the same points, .which has produced the extremely low level of railway rates that to- day prevails in the United States. Thousands of railway officers are daily meeting with tens of thousands of shippers and considering how they can promote the industrial wel- fare of the communities they serve by revising, downward, their schedules of charges. The shipper explains to a rail- way officer how a reduction in a particular rate will enable him to reach new markets or to extend his business in those already reached, and the latter, anxious to prove his effi- ciency by augmenting the traffic secured through his efforts, is very apt, in the next scene, to appear before some higher railway officer as the advocate of the shipper. And when the first shipper and the first railway officer have secured the reduction, through their united efforts, another shipper and another railway officer, perhaps on the same line of 17 railway, make the first reduction an argument for a reduc- tion somewhere else. Over and over again the process is repeated, each change leading to many other changes, and thus fraction by fraction the general level of rates is low- ered. And to-day the average rate is barely one- third of the rate charged in 1870. RATES MEASURED BY THE PURCHASING POWER OF MONEY. We must not overlook the fact in this connection that in the last five years the average rate, per ton per mile, as measured in money, has increased from 7.24 mills in 1899 to 7.80 mills in 1904. But this apparent increase is so much less than the increase in value of commodities generally in other words, it is so much less than offsets the decrease in the value of the money in which the rates are paid that it is perfectly clear that the apparent increase is actually a decrease. President Hadley, of Yale University, has recently said: " It seems also clear that the average increase in rates is apparent only and not real. If the price of goods carried and wages of railroad laborers and the cost of materials of railroad construction and operation have increased from ten to forty per cent, an increase of apparent charge of five per cent on the part of the railroads is virtually a tremen- dous and gratifying decrease." A PSYCHOLOGICAL ELEMENT. But if the Interstate Commerce Commission is given the power to revise every rate of every interstate railway car- rier the railways will be forced to resist the appeals for 18 reductions, knowing well that any voluntary change will be the cause of fresh complaints to the Commission from com- peting shippers or regions and that one reduction will always seem in its eyes to be a complete justification for orders requiring reductions elsewhere. Under such cir- cumstances the now open-minded traffic officer, who with things as they are, readily assumes the attitude of an advo- cate of the shipper who convinces him that he can supply increased traffic at reduced rates, will be transformed into an advocate of every item in every existing schedule and an almost uncompromising opponent of every proposed reduction. He will know that until driven to combat con- fiscatory taking of property without due process of law before the Federal courts of justice the revenues of the property which he serves will have no protection except that which he and his fellow officers can supply. Whoever appreciates the importance of psychological considerations such as this, in the every-day business life of the Nation, will not hesitate to affirm that the purchasers of transportation are likely to fare better with open-minded rate-making officers than they ever can with a rate-making Commission. A TASK OF IMPOSSIBLE MAGNITUDE. If there were no other impediment to the success of such a Commission the physical limit upon its efficiency would be an insurmountable obstacle. In the eighteen years of its existence the Interstate Commerce Commission has received somewhat less than an average of fifty formal 19 complaints per year and considerably less than half of these have been prosecuted to a conclusion. Yet during most of its history the Commission has been an active and vigorous body. It has labored diligently in hearing and considering the cases presented to it and, although from two to four years have frequently elapsed between the filing of a com- plaint and the decision upon it, these apparent delays have usually been because the nature of the cases presented, the methods of procedure deemed necessary, and the extent and volume of the relevant testimony received have ren- dered more rapid action impracticable. But the present law offers no especial incentive to com- plaints which could not stand the test of judicial investiga- tion. While the decisions of the Commission show that even in its opinion complainants have been mistaken as to their rights and as to the obligations of the carriers in quite half of the cases presented, the law has not constituted the Commission the general rate-making authority for all the railways of the country and mere desires for advantages in commercial rivalry, unless supported by some evidence of injustice in the existing schedules, have not commonly resulted in additions to its docket of complaints. In the proposed statute, however, no such restraint would exist. The rate-making power of the Commission would be in- voked wherever there appeared to be a chance to secure an advantage through its agency and its docket would promptly be congested with cases which it would not have time to hear. At the same time, the statute-made reluctance of railway officers to grant, hi lawful form, concessions such as those which are freely granted at the present time, 20 would create an apparent necessity for the interference of the Commission where no such condition now exists. WHAT PRINCIPLE WOULD GOVERN. Another inquiry ought certainly to be made before the proposed step is taken. If railway rates are to be made by governmental authority, upon what principle is that au- thority to act? The commercial principle now governs; ought some other principle to be substituted? Are busi- ness and industrial conditions those which should be ex- pressed in railway tariffs or are there "social considerations that should modify or replace those that now control? Rates to-day are the resultants of the competitive con- flict of commercial or business forces, the action and inter- action of which the successful railway officer studiously observes but cannot control. The rate-schedules register these results. Thus, with certain imperfections of detail, but always tending toward a more perfect adaptation to the needs of business, the general body of railway rates is, under current conditions, a product of commerce. It seems almost absurd to suggest that the intervention of government that is, of a political body operating by political means and controlled by political necessities could bring about a more perfect expression of commercial conditions. Yet the testimony taken by the committees of Congress during the past year shows that there are sincere advocates of this legislation w ho would utterly condemn the adjustment of rate schedules on any other basis than that of industry and trade. One of these advocates of political 21 rate-making proposed the adjustment of rates upon a mile- age basis, and most of them argue that the element of dis- tance ought to be given greater weight than it is in the existing schedules. Some, however, utterly rejected the mileage basis, correctly concluding that it would be de- structive to American industry and prosperity particu- larly that of the great West and without proclaiming any principle which should govern the action of such a commis- sion, contented themselves with the reiterated suggestion that the present schedules contain imperfections of greater or less magnitude. It seems fairly obvious that a govern- ment rate-making tribunal must act, if it acts at all, upon some principle of sufficiently general character and appli- cation to afford to the public mind a readily appreciable justification for its course. If there is any factor in rail- way transportation, other than those of weight and dis- tance, which would serve this purpose it has not been brought to my attention. It seems, then, that if a Commission endowed with rate- making power should attempt to act in accordance with commercial considerations it will be forced, in greater or less degree, to neglect the more potent forces of competition and, proportionately, to substitute rates arbitrarily based upon mileage. This simple expedient of the distance tariff, with more or less modification, has been the refuge of most State commissions having rate-making power, and recourse to it has been the common result in those countries of Eu- rope which own their railways or in which the governments strictly control the charges of private companies. 22 THE "THEORY OF SOCIAL PROGRESS." The present Commission, however, does not believe that railway rates can be properly adjusted, to use its own lan- guage, "independently of the theory of social progress. " This, of course, means the particular "theory of social progress" that may be held at any particular time by the then majority of any particular commission. There are many theories of social progress there is the Democratic theory and the Republican theory. Mr. Roose velt has one theory; his recent Democratic opponent, Judge Parker, has another, and Mr. William J. Bryan, of Nebraska, has one, from which the President of the United States has evidently borrowed. If rates are to be made in accordance with a "theory of social progress," it will be very important to know who is going to select the Commis- sion to apply the theory and whose theory is to be applied. The theory of the present Commission was expressed in an annual report as follows: "To give each community the rightful benefits of loca- tion, to keep different commodities on an equal footing, so that each shall circulate freely and in natural volume, and to prescribe schedule rates which shall be reasonable, just, to both shipper and carrier, is a task of vast magnitude and importance. In the performance of that task lies the great and permanent work of public regulation." Pray, what are the "rightful" and what the wrongful "benefits of location?" What is the "natural volume" in which live stock should move from Columbia to St. Louis, 23 and what is that in which boots and shoes should move from St. Louis to Columbia? In similar vein, but with more definiteness of expression, Mr. Commissioner Prouty writes (in the Forum for April, 1899): " My proposition is that the business of railway transpor- tation is so far a function of government that the United States is bound to see that every individual, every industry, every locality, no matter how humble or insignificant, en- joys the advantages to which he or it is fairly entitled, and that he or it is not crushed out of existence by the exigencies of competition."* The discriminating will not find it possible to speak of such a conception of government as paternalistic. But how sweet must seem the proposed motherly cod- dling of incapacity to the consciously incapable and the hopelessly indolent. Unwillingness to be crushed out of existence by the exigencies of competition gives impulse to all industry and is the source of all material progress. To relieve the slothful and inefficient in business of this dread would penalize diligence and capacity and condemn poster- ity to drudgery from which protection through the continu- ance of normal progress is already clearly foreshadowed. Yet the introduction of any considerations other than those of commerce must mean that the natural operation of the forces of competition is to be mitigated either for the bene- fit of some of those whom it would cripple or destroy or for the further aggrandizement of some of those to whom pro- tection is superfluous. *The italics are the present writer's. THE BLIGHT OF PARTISANSHIP. Would a political commission be able to avoid the intro- duction of partisan considerations in the settlement of con- troversies that are usually between communities and there- fore geographical and at times sectional? The typical railway controversy when this suggestion is under con- sideration is that concerning the distribution of export grain tonnage between the Gulf and the Atlantic ports. The railways reaching Galveston and New Orleans are maintaining with increasing success a stupendous struggle for a larger share of export trade and every increment of traffic which they secure contributes its share to the indus- trial upbuilding of the South. One of the first tasks which would be set before a rate-making commission would be the determination of the relation between the rates charged to the Gulf ports and those charged to New York and Boston. If that question should be submitted to the present Com- mission it would go before a body which contains but one Southern member, and in which New England and New York have two representatives of great ability and influ- ence. It would also go before a body whose majority had been selected, in accordance with the law, from that politi- cal body which never anticipates success in any of the Southern States. Is it in the nature of things that the relations of locality and of partisanship should have no influence upon the result? If it shall come to pass that the favor of the Inter- state Commerce Commission is of great value to communi- 25 ties competing for industrial success, how long will it be before those interested will make its control the especial object of political controversy? This is precisely what has happened in most of the States which have had rate-making commissions long enough for an effective test. A RIGID SYSTEM. It is, of course, obvious that the creation of a government rate-making body would constitute a threat of interference which would give pause to the activities of the railway officers now engaged in making those daily adjustments of rates to changing conditions which have been one of the incidents of our commercial progress and that no commis- sion could possibly move fast enough to make those adjust- ments. The question is raised, therefore, whether such elasticity in rate-making as now exists is or is not, desirable. That such elasticity is not inconsistent with real pros- perity, is, of course, beyond question. Whether it is essen- tial to such progress is an inquiry which can best be ad- dressed to the business men of the country. Many of them have recently appeared before committees of Congress and it is noteworthy that without exception they have testified that their business has grown up through the friendly and lawful co-operation of rate-making officers. We know, too, that if low railway rates are desirable there is no way to attain them except through the multi- farious changes which result from such elasticity as we now enjoy. Drastic, arbitrary, reductions imposed by govern- ment authority, would not be an effective substitute. 26 Without the gradual increase in the volume of traffic which springs from gradual and intelligently applied reductions, such changes would be confiscatory and therefore they would be enjoined by the court. The rigidity of government rate-making would in a very large degree crystallize the organization of industry and substitute for our present intensely dynamic economic con- dition a static system. EFFECT ON WAGES AND PRICES. Regulation of railway rates is, of course, indirect regula- tion of railway earnings. Some of those who proposed such regulation seem to be of the opinion that in one way or another the returns upon railway capital are excessive. How this opinion can be held in spite of the statistical proof to the contrary is not perhaps of present importance. It follows, however, that if the indirect control of earnings reduces them below the point at which the necessary capi- tal for extensions and maintenance can be annually at- tracted to the railway industry there must be a modification of the rates of wages and the prices of supplies. In this way the regulation of the rates charged for service must become, sooner or later, and of necessity, a regulation of wages and prices. The traditional ineffectiveness of government in these directions perhaps suggests that there may be related difficulties in the effort to prevent the sale of railway trans- portation for what it is worth. The suggestion is only introduced now in order to inspire inquiry as to whether 27 justice to those who operate and own railways, working- men and investors, does not forbid political interference with the railway industry unless other industries are simi- larly treated. UNCONSTITUTIONAL. It is, of course, perfectly clear that the power which it is proposed to confer upon the Interstate Commerce Com- mission is legislative in its character and can be exercised only within the limits in which it is possible for Congress to delegate its authority. The general principle controlling is that legislative power cannot be delegated. One of the highest American authorities, Judge Cooley, has said: " One of the settled maxims in constitutional law is that the power conferred upon the legislature to make laws can- not be delegated by that department to any other body or authority. Where the sovereign power of the State has located the authority, there it must remain; and by the constitutional agency alone the laws must be made until the constitution itself is changed. The power to whose judgment, wisdom and patriotism this high prerogative has been intrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom and patriotism of any other body for those to which alone the people have seen fit to confide this sovereign trust." (Cooley's Constitutional Limitations, 141, 4th edition.) The only recognized limitation upon this principle, which really is not a limitation at all, is that when the legislature prescribes a rule of general character it may confer upon a 28 subordinate tribunal the duty of ascertaining the facts and details necessary for the application and enforcement of that rule. It is scarcely to be contended, however, that the requirement that rates shall be reasonable and just, both absolutely and relatively, is sufficiently specific as a rule of conduct to permit the delegation of the power to determine what rates meet with those conditions. If such a rule adds anything to the Common Law, which is a controverted point, it at least cannot be supposed that in its absence a commission to which rate-making power has been delegated would have the right to make rates that were unreasonable and unjust. If Congress should see fit to prescribe a mileage basis for rates or to set up a sufficiently specific standard of any char- acter there is no doubt that it might appoint a commission to ascertain what rates were consistent with the standard. Congress will not attempt to do so, and it is not believed that such a general delegation as that now proposed would survive the test of an examination by the Supreme Court of the United States. So far as the present occasion is con- cerned, however, I have done all that I have intended if I have suggested to you that the argument against the exist- ence of the power to delegate rate-making authority in the manner now urged is of sufficient weight to make certain that the question would have to be judicially determined. When a clearly constitutional means to an end exists or is available there can be no 'controversy over the fact that it is unwise to select a means the enactment of which would lead to prolonged litigation. 29 OTHER LEGAL DIFFICULTIES. Even if Congress were directly to exercise the rate-mak- ing power which it may be assumed to possess any rates prescribed by its authority could be questioned in the courts upon the contention that they amounted to taking property without due process of law, or that they afforded a prefer- ence to the ports of one State over those of another. These limitations upon the power to regulate commerce fixed in the Fifth Amendment to the Constitution of the United States are not only a limitation upon the power of Congress but they would, of course, limit the power of any body act- ing under authority from Congress. The ports of the United States are not only the harbors along its coasts, but are many of them inland towns to which imported traffic may be shipped before duties are collected. It is scarcely possible to conceive of any important con- troversy as to the adjustment of railway rates which would not involve the fixing of the relations among the rates to the ports of two or more States and in every such case the question whether a preference contrary to the Constitution had been granted would be one which could be brought before the courts. The possibilities for litigation under this head alone are very great indeed. If they do nothing else, they require us to consider whether it is not possible to present this class of cases like all other cases to the courts of law and equity in the first instance, for they make it certain that most of them will have to be judicially ex- amined before they are settled. 30 THE FRIENDLESS ESCH-TOWNSEND BILL. It is interesting to observe that those who advocate gov- ernment rate-making have apparently no fixed views as to the form which such regulation should take. The so-called " Esch-Townsend Bill/' which passed the House of Repre- sentatives by the vote of an overwhelming and obviously insincere majority is not now advocated, even by those whose names it bears. It has been publicly and enthusias- tically abandoned by all of those most active in the advo- cacy of rate-making legislation, and of the five members of the Interstate Commerce Commission who appeared during last June before the investigating committee of the Senate, none spoke a word in its favor. The President of the Cattle Raisers' Association, the ablest of those who are urging legislation, has described it as worse than no law. Yet the Esch-Townsend bill is the lineal descendant of a long series of bills which have been successively abandoned. What form will be assumed by the new measure, which is to be introduced when Congress convenes, it is impossible to predict, but one may be certain that the criticisms of its predecessors will be shown to have resulted in many modi- fications. RAILWAYS NOT OBSTRUCTIVE. The falsehood that the railways of the country are de- fiantly and obstinately opposing the will of the people has obtained dangerously extensive credence. Against it could be set the repeated declarations of many of the ablest lead- 31 ers of the railway world, but I shall quote only from Mr. Samuel Spencer, President of the Southern Railway, and a director of many other great railways. Speaking at Pitts- burg, Mr. Spencer said: " * * * if methods can be found * * * by which the great railway question of the day can be settled in accordance with law and equity and in accordance with those fundamental principles of government which are guaranteed by the Constitution, I speak with authority when I say that substantially every railway manager in the country will subscribe to that view and aid in the accom- plishment of the desired result. * * * It is not reason- able regulation to which the carriers object; it is to unwise and unfair regulation. It is not the regulation which seeks directly to remedy known and tangible evils, but it is the so-called regulation which, while ostensibly attacking one evil or class of evils, inflicts unknown and unjustifiable injuries upon those who are not offenders, and that which undertakes unnecessarily to interfere with the legal and beneficial freedom of commercial action and enterprise and thus to diminish the future usefulness of the carriers and impede the material development of the country. It is not the regulation which improves but it is the regulation which confuses and retards." It is to be hoped that when the discussion is over, if legis- lation should be adopted (and it is not my purpose to con- tend that the present law cannot be improved) that what- ever statute is enacted will be conceived in the spirit of the following expression of President Roosevelt : " It must not be forgotten that our railways are the ar- teries through which the commercial life-blood of this na- 32 tion flows. Nothing could be more foolish than the enact- ment of legislation which would unnecessarily interfere with the development and operation of these commercial agen- And if another word of guidance is needed, may it not be found in the words of Thomas Jefferson : "Agriculture, manufactures, commerce and navigation, the four pillars of our national prosperity, are the most thriving when left most free to individual enterprise. " N.Y.