demand that railways as common carriers, enjoying inestimably valuable privileges by authority of the government, shall accord substantially equal treatment to all shippers alike, be they great or small.

Rebates and discriminations are not, however, matters of historical but of very present importance. As late as 1900, according to the opinion of experts, personal favoritism had become a thing of the past. This was in large measure probably true so far as the ordinary private businesses of the country were concerned. But a new and highly disturbing factor was the sudden rise of great industrial combinations, incident upon the phenomenal prosperity since 1897. Many of these trusts were floated upon glowing prophecies of economies in production. Prominent among these was to be a saving in freights. through division of the market into districts, each supplied by the most conveniently located plant. The results have shown in too many cases that the real saving was not effected in this legitimate way at all. But their size and power were used as a club to force the carriers to grant secret favors in rates which were denied to the independent producers. The exposures of personal discrimination on a large scale started in Wisconsin in 1903, as a corollary to the investigation concerning railroad taxation under Governor La Follette. The so-called Elkins Bill, amending the Interstate Commerce Act in the interest of railroad revenues by greatly increasing the penalties for rebating, was enacted in the same year. Various investigations by the Interstate Commerce Commission since 1904 have uncovered intricate methods for evading even this more drastic prohibition. Prominent among these is the use of terminal railways owned by the shipper, which receive back an undue proportion of the through rate for a merely nominal service. The International Salt Company, the United States Steel Corporation, and the International Harvester Company, for example, have been detected in the utilization of this device. Another method, quite common, especially in securing rebates on grain and flour for the great Minneapolis millers, is the "midnight tariff," a low tariff publicly filed but made effective only for one day, for the use of

shippers warned and prepared in advance. Discrimination in the use of coal cars, always operating of course in favor of the large shipper, was discovered on the Pennsylvania system even more recently. For years the use of private-car lines by the Chicago packers, known as the Beef Trust, to stifle all effective competition from independents, has been well known; but it was not fully disclosed until the general agitation for railroad reform was taken up by President Roosevelt. And all the time, as it now appears, the plain old-fashioned mode of direct repayment of a part of the published tariff rate has continued in secret. The American Sugar Refining Company (in 1906) and the Colorado Fuel & Iron Company (in 1905) have already been convicted of this offense in the Federal Courts. The climax is now capped by the masterly revelations of the United States Commissioner of Corporations, in his Report upon the Transportation of Petroleum of 1906. That hoary old offender, the Standard Oil Company, is now on trial in the Federal Courts, having been shown by an investigation of the books of the railways by expert accountants, to have been regularly in the enjoyment of preferential rates over competitors in all parts of the country. The evidence upon this point, taken in connection with the public professions of those charged with its management, is one of the most extraordinary exposures of loose business morality which this present generation is likely to witness. This revelation, together with that of the Armstrong Insurance Committee in New York, is unfortunately bound to furnish powerful ammunition for the use of political demagogues, in the furtherance of their selfish ends. For the dispassionate student of public affairs the argument is greatly strengthened in favor of an extension of public regulation both of railroads and trusts. The advantages of an enforced and ample publicity have been most effectively demonstrated by this rather remarkable series of events.

Pooling, or agreements between carriers for obviating competition, was commonly practiced prior to the Interstate Commerce Act of 1887. That law expressly prohibited it; and the courts o interpreted the Anti-Trust Act of 1890 as applicable

to railway contracts of the same kind. Moreover the progress of railway consolidation since 1898 has been such, especially in the southern states, that the necessity for pooling agreements is far less obvious than it was twenty years ago. The enactment of Federal legislation for the prevention of rate cutting and secret discrimination insures a greater measure of stability. Cut-throat competition like that of earlier days has become almost impossible. Competition to-day is rather of service and facilities at established rates, than as between actual rates themselves. Consequently our chapter upon the Southern Railway & Steamship Association,1 at once the most effective and enduring organization of its kind, is now seemingly of historic interest alone. Yet a cogent reason for describing such a railway pool in detail nevertheless exists, and derives great force from the nature of impending problems in railway operation. Many competent students, other than railroad men, are convinced that the present prohibition of pooling ought to be repealed now that the great principle of public supervision and control of rates has been reaffirmed and securely established by the Hepburn Act of 1906.

The United States Industrial Commission of 1900 in its final report included an elaborate discussion of this topic, leading to the conclusion that agreements between carriers, subject of course to approval by the Interstate Commerce Commission, would not only greatly facilitate railway operation but also contribute powerfully to stability of rates. Since drafting this report, I have been able to investigate the subject further, with particular reference to the economic wastes incident to even normal and healthy railway competition. The conviction that the most certain remedy for many of these economic wastes in transportation will be found in a rehabilitation of pooling under governmental supervision, has been greatly strengthened also by a somewhat extended personal investigation of railway practice in Europe. In the British Isles, the broad principle that railways are essentially natural monopolies, and should both legally and administratively be treated as such, has always

1 Vide, p. 128, infra. 2 Ripley's Railroads: Rates and Regulation, chap. viii.

obtained. Pooling agreements are actually enforcible by legal process. This contrasts strongly with our American practice, where we have indiscriminately sought to perpetuate competition by law, both for railways and trusts, regardless of their economic differences. We have, for instance, failed to recognize that in the case of common carriers, as distinguished from industrial combinations, a remedy against unreasonable rates far more secure than competition, namely governmental control, may be exercised. Moreover this method is advantageous because it conduces to stability of rates, never possible under free competition, while at the same time it still permits of competition for business, not by cutting of rates, but under established rates through extension of better service and facilities. The necessity for prohibition of pooling in the United States has largely disappeared, now that the great principle of public regulation by the Federal government is definitely reenacted into law.

Observation in continental Europe, where government ownership of railways prevails, strongly impresses one with the economic advantages of entirely unified systems of operation. No devious routing of traffic is allowed. Certain lines, best situated and equipped for the business, are designated for each kind of traffic, and concentration on them follows to the exclusion of the weak lines, that is to say, of the lines which are weak for that particular business. No roundabout circuits occur because of the complete absorption of all lines in the government system. No independent roads have to be placated. The sole problem is to cause the tonnage to be most directly and economically transported. The advantage of monopolistic operation is amply demonstrated. But added evidence of the desirability of eliminating competition, except in the matter of service and facilities, is found in the fact that wherever these unified government systems come in contact they immediately resort to pooling agreements with one another. Thus the Prussian system is party to a number of pools with the railways of Austria, Bavaria, and Baden. The emphasis is laid upon securing the most direct and efficient service as well as the maintenance of stable rates.

For all these reasons above stated, it has seemed desirable to reproduce a picture of one of our best old-fashioned pools at work. Had such an organization not been prohibited, so far as rate making is concerned, by the Act of 1887, one may reasonably doubt whether the gigantic consolidations now dominating the southern states would have arisen. This particular chapter is reprinted, therefore, not only because of its historical importance but also in the hope that some day the railway pool under strict governmental supervision and control may be legally restored to favor as an agency for more effective service and greater stability of rates.

Traffic problems may be roughly classified in four groups: those appertaining to the reasonableness of rates in and of themselves without reference to any other tariff; those which spring from an imputedly unreasonable relativity between rates for different and competing places or markets; those which concern the relation between rates upon different commodities; and finally those which deal with differences in rates for the same service between competing shippers. Of these four groups the last one concerning personal discrimination has already been discussed. The third group is mainly concerned with the intricate and technical problems of freight classification, commodity rates, and car-load tariffs. Such matters, decided for example by the Interstate Commerce Commission in a number of important cases, are usually too elaborate for reproduction here, and moreover could subserve no useful purpose, as their decision depends rather upon mere questions of fact than of public policy. One simple concrete case alone, concerning the classification of fur hats,2 will serve to indicate the principles involved, and their importance in any general scheme of rate making. The problem of relative rates upon grain and grain products, discussed in the Export Rate case, incidentally involves issues of the same sort upon a large scale, as well

1 Notably, the New York Board of Trade and Transportation Case, Interstate Commerce Commission Reports, Vol. III, pp. 473-511.

2 P. 522, infra.

3 Vide, p. 487, infra.