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Virginia Co. v. Volcanic Co., 5 W. Va. 382 (1872)
Saw Mills— State v. Edwards, 86 Me. 102 (1893)
Grist Mills— Gajlord v. District, 204 111. 576 (1903)
Docks — Barrington v. Commercial Dock Co., 15 Wash.
I7O; Grain Elevator — Munn v. Illinois, 94 U. S. 113.

In the following cases among others, the business in
question was held private: Skating Rink — Tombler
V. Koelling, 60 Ark. 62 (1894); T^eafer*— Percell v.
Daley, 19 Abb. N. C. 301 (1886); Foundry— Loan
Ass'n. V. Topeka, 20 Wal. 655 (1874); MiZZ— Allen v.
Jay, 60 Me. 124 (1872); Coal Yard— Opinion of the
Justices, 182 Mass. 605 (1882); Apartment House —
Davis V. Gay, 141 Mass. 531 (1886).



189



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CHAPTER IX

UNFAnt PBACTICES IN PUBLIC CALLINGS
I

Although from the earliest times some
restraint has been exercised over such lines
of activity as are of vital interest to the
public, in recent times there undoubtedly is
an increasing need of stricter regulation of
those important employments which are
affected with a public interest. Indeed, in
the case of the public services, their power
over all commercial activities has become so
apparent that the necessity for the control
of that power for the protection of the whole
people is generally conceded. Undoubtedly
it is now thoroughly understood by all who
conduct businesses which are affected with
a public interest, that they must not un-
justifiably refuse applications for service,
willfully neglect to provide adequate facilities,
unreasonably demand unusual prices, or
capriciously discriminate between their pa-
trons. Nevertheless it is occasionally as-

190



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UNFAIRNESS IN PUBLIC CALLINGS 191

serted by the managers of a public employ-
ment that they may refuse to give service
when it becomes necessary to protect their
business interests; and more frequently the
right is claimed to make differences in their
prices in order to promote their business in-
terests.

n

To meet the exigencies of the trust situation
at present, positive law is required. Abusing
the freedom which those in private business
enjoy, those who have had control of the
industrial trusts have adopted various poli-
cies to force other competitors out of busi-
ness, which would never have been allowed
had the law of public business been applied
to the situation. One of the most repre-
hensible methods of building up monopoly
has been by adopting an exclusive policy,
refusing to sell to dealers who handled the
goods of their competitors. This almost in-
evitably forces a smaller competitor to the
wall. It is true that such competition is not
held unfair where individuals only are con-
cerned. But concerted action of this sort,
as has been seen, is generally considered to
be an actionable conspiracy. In open com-



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192 THE CONTROL OF THE MARKET

petition this business policy may be per-
mitted; but when monopoly is present, it
becomes too oppressive to be borne. From
a business standpoint it may be an effective
policy at times to refuse to have any deal-
ings with a customer who persists in patron-
izing a rival. The employment of such
policies is forbidden those who conduct pub-
lic services largely because in public busi-
nesses virtual monopoly is usually present.

In any case of public employment, how-
ever, it is really impossible to justify in any
way the outright refusal to serve an appli-
cant, who wishes service, on the ground that
he is dealing with a rival. One example
of this is Chicago & Alton Railroad v.
Suffem (129 111. 274), where the court
held that a railroad could not refuse to
receive coal from a shipper who had begun
to make shipments by another route, basing
its decision upon the ground that serious in-
jury would result to the business interests of
the people if shippers could be compelled
by such arbitrary measures to patronize one
railroad to the exclusion of others. As the
court said, since fair competition between
roads is for the public interest, if a road could
do so it could establish the most odious sort



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UNFAIRNESS IN PUBLIC CALLINGS 193

of monopoly. Another leading case is Ben-
nett V. Dutton (10 N. H. 481). There one
stage line refused to take passengers coming
for a part of the way by a rival line; but the
court held this to be a plain violation of
public duty.

Ill

It has been pointed out that the power of
the trusts to crush efficient competitors is
dependent to a large extent upon various
kinds of discrimination. It will be profitable
to see how the courts have dealt with this
sort of thing in the case of the public call-
ings in general, since the establishment of
any business as public in its nature depends
in the last analysis upon the existence of
virtual monopoly. Indeed, the modern rule
requiring service to all who apply, without
discrimination against any, is founded upon
the absolute necessity of preventing those
who have control of the market from exer-
cising that power to the disruption of the
industrial order.

The promptness with which the courts act
in recent years to prevent personal discrimi-
nation in the case of an admitted public em-
ployment is shown in a decision like Menacho



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194 THE CONTROL OF THE MARKET

V. Ward (27 Fed. 529), where Mr. Justice
Wallace said of a discriminating rate against
those who shipped goods by another line:
" Its tendency is to deprive the public of
their legitimate opportunities to obtain car-
riage upon the best terms they can. If
it is tolerated it will result practically in
giving the defendants a monopoly of the
carrying trade between these places. Mani-
festly it is enforced by the defendants in
order to discourage all others from attempt-
ing to serve the public as carriers between
those places. Such discrimination is not only
unreasonable, but is odious."

There is a telephone case in South Carolina
(61 S. C. 83) where one telephone com-
pany made its patrons agree not to use the
rival system. One of its patrons violated
this agreement; but the court held that his
service could not be cut off. "A telephone
company," said the court, " would have no
more right to refuse service for this cause,
than a railway company would have to refuse
to transport the goods of a shipper, unless
he would agree to patronize its lines ex-
clusively, and not to give any of his business
to any competing railway line." The neces-
sity of compelling those in public employ-



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UNFAIRNESS IN PUBLIC CALLINGS 196

ment to serve without discrimination is thus
apparent; it is no less obvious in every case
of virtual monopoly.

It seems to be an almost conclusive argu-
ment for treating as public-service companies
all great corporations that have established
control of their market, that by no other
law than that of public calling can the sit-
uation be met. In private calling factors'
agreements of this sort are supported, which
shows that the present conditions in the con-
duct of these great businesses have out-
grown this law. In public callings every
restrictive condition is void; and this points
to this law as the way out. In private busi-
ness this sort of competition is properly held
fair; in public business it is properly held
unfair. It is the modem desire to protect
the. small manufacturers from such competi-
tion by the large manufacturers. There can
be no doubt about this to anyone at all in-
formed of present public opinion upon this
crucial question.



IV

Another policy, which is often of such
obvious advantage as to be common in ordi-



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196 THE CONTROL OF THE MARKET

nary business, is to make lower proportionate
rates to larger than to smaller customers,
and even occasionally to decline to deal with
very small customers, who may be more
trouble than they are worth. The latter is a
small matter, perhaps, while the former is a
matter of great moment to the managers of
public services, who may often see the op-
portunity to get large amounts of valuable
business, highly profitable in the aggregate,
even at lower proportionate rates, if they can
still maintain higher proportionate rates upon
the regular business which they get from
smaller customers who are not in a position
to dictate their terms. It should be obvious
that in a public employment all applicants
must be served at fair rates, even if in a par-
ticular case it is especially bothersome or even
particularly expensive.

It is common knowledge that, in the con-
ducting of many large public services, dis-
counts have been made to large customers in
order to get their trade and to retain it; and
although this practice is not often made public
at the present time, still it is the policy some-
times adopted and, when attacked, openly
defended. That this policy may be often
advantageous in public, as it is in private



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UNFAIRNESS IN PUBLIC CALLINGS 197

business, may be admitted. But it has already
been seen that pubUc duties may conflict with
business policies; and that such a policy does
conflict with pubUc business may be argued
from its deplorable results. The undue favor-
ing of large customers will give them such
commercial advantages that they will crush
out their smaller competitors; and this is
particularly true when a railroad company
adopts the policy of making lower propor-
tionate rates to large customers as such.

Such discrimination is opposed to a sound
pubUc policy. It would build and foster
monopolies, add largely to the accumulated
power of capital and money, and drive out
all enterprise not backed by overshadowing
wealth. This was the line of argument relied
upon by the court in the leading case of Hays
V. Pennsylvania Railroad (12 Fed. 309),
where the rather plausible scheme was
adopted of a sliding scale by which the
amount of rebate was graduated by the
quantity of freight furnished by each ship-
per, a scheme which the railroad urged was
adopted in good faith for the purpose of
stimulating production and increasing its
tonnage. But the court said that if the rate
was fixed by the business furnished the rail-



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198 THE CONTROL OF THE MARKET

way, "the small operator must sooner or
later be forced to abandon the unequal con-
test and surrender to his more opulent
rival."

Although this case now represents the
great weight of authority, it must be admit-
ted that there is still a respectable minority
which holds that lower relative rates may be
made to large customers despite the injury
which small customers must suflFer thereby.
In the case of Silkman v. Water Commis-
sioners (152 N. Y. 327), for example, it was
held that lower water rates might be given
to large consumers than to small consimiers,
the court saying that to make such differ-
ence was a " business principle of general ap-
plication." The courts which take this view
profess to limit their doctrine by the quali-
fication that the differences between the
rates for large and small customers must
not to be unreasonable, but it is difficult to see
any standard by which that difference may
be tested if it is once permitted; and indeed
it may be asserted with confidence that it is
opposed to fundamental principles whenever
the services to large customers and to small
customers are practically identical, as they
usually are.



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UNFAIRNESS IN PUBLIC CALLINGS 199



In pursuance of the same policy of in-
creasing the total profits by reaching out
for additional business, which may be ob-
tained by making concessions from the ordi-
nary rates charged regular customers, many
managers of public services claim the right
to make special concessions for special kinds
of business, in which the ordinary prices
could not be aflforded. The same argument
is made here which is made elsewhere, that
handling this additional business will nor-
mally tend to the benefit of regular cus-
tomers, since the additional business, if
rightly managed in their interest, will relieve
the regular business of a share of the fixed
charges. This is the argument the apologists
for the trusts make in justifying a lower
price for export, which is making the Ameri-
can people so restive.

If public companies may not refuse to
deal with persons who want services for one
purpose, while they profess to serve others
who want the same services for another pur-
pose, it would seem to follow that, in their
dealings with their patrons who ask the same
service, a public company ought to charge



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200 THE CONTROL OF THE MARKET

all alike, without regard to the need they
have of the service. It is true that the re-
sults are not so deplorable when the dis-
crimination is between patrons who put the
service to different usage as they are when
the discrimination is between applicants
who are competitors; but it is submitted
that from a logical point of view there is
substantially the same illegality, and from a
practical point of view there is much the
same injustice. Nevertheless it is strongly
urged by the railroad companies, for ex-
ample, that they should be allowed to make
different rates for commodities which are
destined for different purposes. It is, again,
pointed out that this policy may be necessary
in order to get more traffic, and that this by
the law of increasing returns may be for
the benefit of all concerned.

Moreover, the railroad managers some-
times make here an argument, which they
elaborate in other situations, that upon
grounds of public policy they should be per-
mitted to make such lower rates as they did
in Hoover v. Pennsylvania Railroad (156
Pa. St. 220), where they exacted one rate
for coal to be sold at retail for domestic con-
sumption and a lower rate for coal to be



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UNFAIRNESS IN PUBLIC CALLINGS 201

used for manufacturing purposes. And, in-
deed, in that case the court was persuaded
that there was a public policy to support
^ such concessions for special purposes, in view
of the encouragement given to productive
industries by such preferential rates. But
despite the economic argument, the legal
principle remains that to charge diflferent
customers who wish the same service dif-
ferent prices, when there is no difference in
the conditions under which the service is ren-
dered, is plain inequality, and therefore out-
right discrimination.

Singularly enough, this was the basis of
the decision in another Pennsylvania case,
Bailey v. Fayette Gas-Fuel Company (193
Pa. St. 175), which was decided only a few
years later. In that case a higher price per
cubic foot was charged to customers who
used gas simply for illuminating than was
charged to such customers as used gas also
for fuel. This was properly held to con-
stitute unjustifiable discrimination, and so
sweeping was the language of the court as to
cover the less obvious case of making different
prices for illuminating gas and fuel gas.
But it would seem that the discrimination
was im justifiable, since it was not claimed



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802 THE CONTROL OF THE MARKET

that there is any diflFerenee in the cost of
the product to the company, the expense of
supplying it at the point of delivery, or its
value to the company in the increase of
business or other ways.



VI

The law of public calling is thus a solu-
tion for the worst wrong in the present sit-
uation — discrimination. It is also the way
out for the only other element in the situa-
tion that is of first importance — extortion.
In private business one may demand any
price one can get. Not so in public business ;
there only a reasonable price can be exacted.
That there is danger of unreasonable prices
in the present situation is quite evident.
Control of the market leads to power to put
up price; and power inevitably leads to
action. No law can effectively deal with
monopoly without the right to restrict to
reasonable prices; the law governing the
public services has that right. The elemental
principles thus far noted in the public serv-
ice law may be summarized as, on the one
hand, the right of the company to derive a
fair income, based upon the fair value of



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UNFAIRNESS IN PUBLIC CALLINGS 203

the property at the time it is being used
for the public, taking into account the cost
of maintenance or depreciation, and current
operating expenses; and, on the other hand,
the right of the public to have no more ex-
acted than the services in themselves are
worth. But the public service law has ad-
vanced beyond these generalizations, until it
has now become a working code.

It will be generally agreed that the law of
public calling is dealing with much success
with this difficult problem of the determina-
tion of the reasonable rate. The scientific
nature of the subject is now beginning to be
apprehended. Elaborate rules are being
framed; for at last the rights of both sides
are appreciated. On the one hand the full
right of the public to restrict a public serv-
ice company to reasonable charges is recog-
nized; on the other hand the corresponding
right of the public service company to a fair
return upon its capital is admitted. The case
of Brymer v. Butler Water Company (179
Pa. St. 231) shows how a late decision deals
with this troublesome conflict of interests.
A schedule of rates fixed by a water com-
pany came up for examination under a
statute which gave the court the power to



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204 THE CONTROL OF THE MARKET

revise a water schedule; and the court thus
stated the general principles upon which it
would proceed in judging the rates the com-
pany was charging: " By what rule is the
court to determine what is reasonable and
what is oppressive? Ordinarily that is a
reasonable charge or system of charges which
results in a fair return upon the investment.
Fixed charges and the costs of maintenance
and operation must first be provided for, then
the interests of the owners of the property
are to be considered. They are entitled to
a rate of return, if their property will earn
it, not less than the legal rate of interest;
and a system of charges that yields no more
income than is fairly required to maintain the
plant, pay fixed charges and operating ex-
penses, provide a suitable sinking fund for
the payment of debts, and pay a fair profit
to the owners of the property, cannot be
said to be unreasonable."

The law of public employment is certainly
ready to deal effectively with a most danger-
our phase of the trust problem. It is com-
mon knowledge that in most cases the capital-
ization of an industrial trust is many times
the actual amounts ever invested in the enter-
prises consolidated; and, indeed, the depre-



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UNFAIRNESS IN PUBLIC CALLINGS 205

dated quotations show that they are capital-
ized at many times their present value. This
sort of thing would not confuse the Suprepae
Court of the United States in the determina-
tion of the propriety of rates. Smyth v.
Ames (169 U. S. 466) makes that point clear.
In that important case Mr. Justice Harlan
said in part : " If a railroad corporation has
bonded its property for an amount that may
not impose upon the public the burden of
such increased rates as may be required for
the purpose of realizing profits upon such
excessive valuation or fictitious capitalization;
and the apparent value of the property and
franchises used by the corporation, as rep-
resented by its stocks, bonds, and obliga-
tions, is not alone to be considered when de-
termining the rates that may be reasonably
charged. We hold, however, that the basis
of all calculations as to the reasonableness
of rates to be charged by a corporation main-
taining a highway under legislative sanction
must be the fair value of the property being
used by it for the convenience of the public."
Plainly there is no safe basis for the de-
termination of the rate except the actual
values. It may be urged that the result of
this rule will be to give to the public the



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206 THE CONTROL OF THE MARKET

advantage of operation under monopolistic
conditions, in particular the elimination of
the wastes of competition. The reply is that
this is precisely the method that should be
pursued in dealing with the trust problem.
If the state permits monopoly it may demand
in return that the monopolist serve at a
reasonable price. This has always been the
law of public callings when the statement
of it is made with discrimination. It will
not do for the United States Steel Corpora-
tion to demonstrate that its outstanding
issues represent no more than the proper
capitalization of its proved earning capacity.
This argument is too obviously circular, since
it very probably would not have this earning
power, were it not for its virtual monopoly.
It is not an answer for the Standard Oil
Company to point to the fact that upon
the whole it has not advanced the price of
kerosene above the price at which it would
have been fixed from time to time had com-;
petitive conditions prevailed during the whole
period. It is still open to the general public
to point to the forty-eight per cent, dividends
in the last years, to say that these are the
proofs of the contention that, notwithstand-
ing, the price of kerosene has been too high



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UNFAIRNESS IN PUBLIC CALLINGS 207

during the whole period. Under the public
service law, therefore, the State could scruti- '
nize the issue of securities by the trusts, and
limit the size of their dividends.



VII

It should now be apparent that the funda-
mental question under discussion is how far
public duty must necessarily deprive those who
conduct public employments from basing their
business policies upon the elementary principle
of the law of increasing returns. That the net
returns tend to increase with the volume of
business in the industrial enterprises under
consideration is obvious; and the question is
whether a public service is to be permitted
without hindrance to shape all things so as
to hold its present business, and to add to it.
Some managers of public services assert this
boldly, and a few say frankly, for example,
that they base their rates upon what the
traffic will bear, making high charges against
business from which high rates can be got,
conceding low rates in order to get business
which could not otherwise be obtained. Of
course this consideration has some place in
every philosophy of price-making, but it is



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208 THE CONTROL OF THE MARKET

submitted that it is a dangerous principle,
which may often operate to the disadvantage
of the public where the public interest is
involved.

The real truth of the matter seems to be
that, while in private business nothing need
be considered except the law of decreasing
cost, in public business there is the law
against discrimination to be reckoned with.
As the court said in the case of Tift v.
Southern Railway (138 Fed. 753) it is no
excuse for raising the rate upon a particular
article, as lumber, that it will bear the
advance; the question is rather what price
it is fair limiber should pay in comparison
with other conunodities. It must be ad-
mitted, however, that the view of many
economists, that it will be to the advantage
of all concerned if railroad managers are
permitted to adopt any schedule of rates
which will produce the most tonnage, because
that policy will by the law of decreasing
costs tend with an enlightened management
to the lowering of all rates, is occasionally
adopted by lawyers, and, indeed, has never
been stated more strongly than recently, in
the case of Interstate Commerce Commission
V. The Chicago Great Western Railway



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UNFAIRNESS IN PUBLIC CALLINGS 209

(141 Fed. 1003). But if railway managers
are left practically unrestrained by law, it
is sufficiently plain that they will maintain a
high schedule of rates between localities
where they have control of the situation and
for valuable goods which will bear high rates,
while at the same time making disproportion-
ate concessions from this standard to get busi-
ness at competitive points or to induce the
movement of low grade commodities.

The authorities upon these questions are
a seething mass, particularly in the case of
railroad rates. The various commissions
which are near to actual conditions seem to
show a tendency to condemn the fixing of the


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