United States. Congress. Senate. Committee on Inte.

Railway freight rates and pooling : hearings before the commiittee on interstate commerce, U.S. Senate, having under consideration the bills (S.3521) to enlarge the jurisdiction and powes of the Interstae Commerce Commission -- and (S.3575) to amend an act entitled 'An act to regulate commerce' online

. (page 79 of 96)
Online LibraryUnited States. Congress. Senate. Committee on InteRailway freight rates and pooling : hearings before the commiittee on interstate commerce, U.S. Senate, having under consideration the bills (S.3521) to enlarge the jurisdiction and powes of the Interstae Commerce Commission -- and (S.3575) to amend an act entitled 'An act to regulate commerce' → online text (page 79 of 96)
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rather answer the question on Monday, after thinking it over, very well.

Mr. Clements. I can answer in a general waj'^ I think now, and if
it occurs to me later on that I have omitted anything I maj^ make
further answer.

The Chairman. If you please.

Mr. Clements. One of the things that would be considered is the
distance and the charges made for like distances on a like freight in
other parts of the countiy . Another is the value of the freight, because
you can not laj^ as much charge per ton per mile on a load of straw as
on a load of gold dust, and you nave to take into account the value of
the projjerty shipped, the risks incurred by the carrier, how much he
would have to pay in the event it was burned or lost and he became
liable for it. You would have to consider the weight of the article in
comparison with the space it would occupy in the car, because the
carrier can put perhaps three times as nmch or four times as much
grain into a car in bulk as wagons or buggies set up or some agri-
cultural implements which take a good deal of space and yet do not
weigh so much — furniture and things of that sort.

And you must take into account the expenses of the road, its con^
dition, its financial condition, so far as j'^ou can ascertain it. It is all
fraught with varying details and difiiculty; there is no doubt about
that. And after all, the best that any railroad man can do now or
pretends to do, the best that any other man or the Congress or a com-
mission can do, is but an approximation, because there are so many
varying conditions and articles. They must be classed, and yet if you
classify at all you must put a lot of articles into every class that are
not exactly alike in these respects to which I have referred — of bulk,
weight, value, and space required in a car. Therefore it is that on
some articles a road can earn less per ton per mile than upon others,
because if it charges on the lower grades of freight the same rate per
ton per mile that it does on the higher grades it would be prohibitory;



INTERSTATE-COMMERCE LAW. 329

the articles would not be moved at all. Therefore they are bound to
take into account what the traffic-will bear, and by that I do not mean
to say that they are authorized to go as high as it will bear; but in
considering whether they will carry the article at all or not they must
consider whether or not there is any proiit to them after paying the
expense of the movement of that freight.

All of these are matters that must be taken into account. The
Supreme Court said, in the Nebraska case, I think, where a State under-
toolc to fix the rates on all articles on all roads, that it must take into
account the bonded indebtedness and the other indebtedness, of stock
and its value, market value, what the roads earn. The}" must not be
confiscated — that is, no rates must be made which would leave them
no profit.

But to illustrate some difficulties about these matters. You say you
must take into account the value of their stock. The value of their
stock depends on what rates you will permit them to charge, and so
you get into a circle when you come to consider it from that standpoint.

Mr. Stewart. To fix rates on agricultural implements, would ndt
this be the process: You would first ask that if the company were
engaged entirely in the transportation of agricultural implements
whether the reasonable rates fixed would give them sufficient earnings
on the capital imested? Would not that be the process?

Mr. Clements. I presume so, if that were all they were hauling,
and yet of course that case could never arise in practice, because they
all engage in carrying a great many kinds of freight.

Mr. Adamson. Under legitimate conditions their property may
increase in value and they would be entitled to profits on real bona
fide value whether it cost that much or not. Mr. Stewart asked you
in regard to the cost. If its value increased, they are entitled to the
bona fide value, are they not?

Mr. Clements. Yes, sir.

Mr. Adamson. Sometimes that happens without watering stock ?

Mr. Clements. Undoubtedl3^

Mr. Adamson. In all kinds of property ?

Mr. Clements. Undoubtedly. I would not think that the original
investment was the only thing to go upon.

Mr. Stewart. My question was this: In order to arrive at whether
a rate was reasonable on agricultural implements, would j-ou not have
first to ask that if the companj^ were engaged entirely in the transpor-
tation of that article, whether the rate would give them a reasonable
earning on the capital invested?

Mr. Clements. I presume so. If that were all they were doing and
you found out the basis upon which they were entitled to earn, what-
ever that might be, that until they had earned something more than a
reasonable return you would not be authorized to reduce it.

The Chairman. If fixing or estimating value of plant and you allow
anv sum for the franchise, would you consider the value of the fran-
chise?

Mr. Clements. Well, Mr. Chairman, I hardly know how to answer
that question. It is probablj'^ one that has never been considered by
the Commission, certainly not within my knowledge except as the
franchise may be bound up with the tangible property'.

Mr. Coombs. For instance, in California the franchise is taxed; it is
considered taxable property. It is taxed very heavily, so much so that



330 INTERSTATE-COMMEECE LAW.

the railroads have been fighting it; but I think it has been established
that it is taxable property. Would you consider that an asset?

Mr. Clements. I should say the road was protected in this, that
before you undertake to reduce their revenues you consider what tax
they have to pay on their franchise and their property and on all these
things they pay on.

The Chairman. In this estimate of value, would you take into account
what is known as good will 'i

Mr. Clements. Well, Mr. Chairman, I would not know how to
measure that in any way except as it expressed its value in the value
of the property. I reckon that an element that enters in; I would not
know how to measure it, how to estimate it separately. It shows itself
in the value of the stock, whatever there is to that. The road that has
a good deal of good will, a high reputation and high standing, has
high-priced stock.

The Chairman. But there are many persons who insist that stock
and bond valuations are not proper "criterions to be looked to in per-
forming the duty of fixing a rate.

Mr. Clements. Not alone, no; I agree to that.

The Chairman. I want to know whether or not you can tell me
whether these matters of franchise and of good will are, to your mind,
or would be to your mind, in performing this duty, elements of value
to be considered in considering the aggregate value of the plant?

Mr. Clements. I do not think they are entitled to any consideration
except so far as their value is shown in the stock and property itself.

The Chairman. But if you abandon the method of ascertaining value
of taking stock and bonds, if you abandon that method, then would
you not consider the separate elements of value ?

Mr. Clements. Undoubtedly.

The Chairman. Would that include, in your mind, then, value of
franchises and value of good will?

Mr. Clements. It is rather a new question to me; but I suppose if
you eliminate the consideration of the stock and all questions of that
sort you would appraise the property Upon the same terms that you
would other property, and in that way the good will necessarily shows
itself in the value of the property. The franchise and the property
are bound up together; it is all one earning thing; speaking generally,
one is not available without the other — that is, for railroad purposes.

The Chairman. There are a good many persons who do not agree
with you, who say that in making estimates of this kind, ascertaining
value of this kind, the value of the franchise, the value of the good
will, are not to be considered. 1 have read much on that subject.
Now, I would like to know if you were to be intrusted with this power
of fixing a rate, where you must consider value of plant, whether to
your mind these particular elements of value are to enter into your
computation ?

Mr. Clements. I do not see how the}'- are to be left out on that basis,
if you abandon the stocks and go to the tangible property.

The Chairman. Excuse me for interrupting you.

Mr. Clements. That is all right; it is rather a novel question to me,
but speaking on the spur of the moment I do not know of any better
answer to make than that. Of course if the Commission had ever
been intrusted with or assumed that it had the power to make rates,
initiating rates on all traffic, we would have been confronted with that



INTERSTATE-COMMERCE LAW. 331

question long ago; but never having assumed that power, and only
believing that we had the power to correct the rates complained of in
particular instances by review, that question has not come up.

Mr. Stewart. The railroad companies in making up their assets
upon which they calculate their earnings do not value their good will
or their franchises at all, do they?

Mr. Ci-EMENTS. I do not know that they do. They take into account
their stocks and bonds and so on.

Mr. Stewart. And therefore the Commission, in finding whether the
rate was just or unreasonable, would not have to take into account the
question of what their franchise was worth ?

Mr. Clements. I think so, on the basis suggested. The chairman's
question had reference to eliminating a lot of those things.

Mr. Stewart. Do not the railroads eliminate it now?

Mr. Clements. But they take into account their stocks, and the
chairman's question was based upon the idea of eliminating that and
going to the value of the tangible property itself, ignoring the stocks
and bonds and all those things, and it was in that view I said what I
did.

The Chairman. In fixing a rate would you consider the fluctuation
in volume of business from one year to another; or, in other words,
in fixing a rate in what was spoken of yesterday as a fat year, would
you take into consideration the fact that last year had been a lean j^ear
or next year might be a lean year?

Mr. Clements. That requires me again to saj^ that in respect to all
these matters, whether we consider rates originated by the carrier or
corrected by a commission or arranged b^^ a railroad association, the
best that can be done is approximation; to deal with generalities and
approximate what is just and right, all things considered. There are
too many details, too many particulars, too many differentiating cir-
cumstances of time and place and value, to make it possible to do it in
any other way except upon approximation.

Now, that brings me to say what I think would be a right and
proper thing in regard to these fluctuations of which you speak, and I
am very glad you asked the question at this point, because it will
enable me to refer to some things which I was going to defer but
might as well speak of now.

Undoubtedly, any substantial, important change in these matters is
one that would be considered, and ought to be considered in a deter-
mination of what is reasonable and right, because you can see at a
glance by the figures that I have ref erred'to here that whereas the earn-
ings for the year 1901, ending June 30 of thatyear. were $1,578,000,000,
for the year 1899 they were $1,313,000,000. Making a difference of
1265,000,000 — about as much as you collected in the whole year from
the tariff on imported goods. The difference alone, that is, the increase
shown in 1901 over 1899, was $265,000,000.

Mr. Clements. Whereas the receipts from customs weref 238,000,000,
what 'did you ask ?

Mr. Adamson. Were the disbursements for 1901 more than they
were in the year 1899 ? They are somewhere near a fixed ratio.

Mr. Clements. The increase of expenses was $166,000,000; the
increase of receipts over earnings was $265,000,000.

Mr. Adamson. There is somewhere a fixed ratio, then ?

Mr. Clements. Approximately so, somewhat. These figures show



332 INTERSTATE-COMMERCE LAW.

1100,000,000 more increase in the earnings than there was in the
expenses in these two j^ears.

What I was about to say in answer to the chairman's question about
iixing rates in reference to fluctuations in earnings and so forth was
this: A few years ago the tonnage was not near so great as it is now,
and the earnings were less. Expenses were less then than now.
Naturally the}^ are more now, to handle a bigger volume of freight.
But you can not vary the rate; neither can the Commission or the rail-
roads vaiT the rate with every monthly or frequent fluctuation, or
one that affects some articles and does not affect business generally.
Reasonable stability in rates is desirable alike for the public and the
Commissioners. Rates can not be stable at all, whether made by the rail-
roads or a commission, on constant fluctuating changes in the value of
propertjr or the volume of business. That is another case for the
exercise of reasonable, fair judgment, so as to arrive at something that
is approximately just.

I' remember a few daJ^s ago seeing in the newspapers of Washington
that the cabmen of this city had applied to the District Commissioners
for authority to increase their rate of 25 cents for hauling a person a
certain number of blocks, and they assigned as a reason therefor the
fact that the price of hay and corn had gone up so it took more to
feed a horse now than before. Another reason they assigned was
that whereas for hauling a person they were entitled to charge the
fixed rate of 25 cents for so many blocks, and 50 cents for so many
more blocks, that in some instances thej'' were required to go 10 blocks
after a man, and then to take him to a place that he wanted to go, the
depot, for instance, and then thej'^ would have to go back again to their
stand, and that in view of the' actual distance traveled, and in view of
the greater cost of feeding their horses, they ought to be allowed to
charge a higher rate. But that request was refused by the Com-
missioners, the authority of this District, acting under the law of Con-
gress. You can not lay down an exact rule about such matters except
the general rule of reasonableness and fair play.

This regulation of cabs and street cars in Washington is interesting
in connection with the contention that to give the Commission the
limited authority to review the rates made by the carriers, for the
purpose of correction, not creation, is said to be revolutionar}^, radi-
cal, unreasonable, and dangerous, and yet right here in this community
of 300,000 people, the capital of the United States, by authority of
Congress the Commissioners of this District are authorized and that
without a hearing to fix a schedule of rates for the cabmen of this city,
to say what they shall charge you and me, so as to protect us when
you get off the car at the depot, for instance, against an exaction of
fl where the rate ought to be 50 cents. Now, if this little business
in this city, as between these men who stand around in eager compe-
tition, lifting their hands to you, saying "Here's a carriage," "Here's
a carriage," bidding for your business, if under that competition, I
repeat, in a little matter like this there is justification for the arbi-
trary fixing of a schedule of rates on this business, how infinitely
more important it is in respect to this greater business of the rail-
roads of the country that the individual, the shipper, should be pro-
tected in the rates he pays.

Now, if we take the advice of those who say that the fixing of the
rates by review and the correction in promotion of justice, of a rate



INTEBSTATE-COMMERCE LAW. 333

which the carriers have made is revolutionary, confiscatory, destruc-
tive, radical, and therefore not to be permitted, are we not straining
at a gnat and swallowing a camel when we set up this regulation for
the cabmen and street cars of this town ? You regulate their fares. Is
there any possibility that j'ou can be so badly hurt and oppressed by
the rates of these* local carriers here where they are in competition as
that the man out in the country, dependent on one road for transpor-
tation, will be subjected to a worse injustice? Take the man who
lives on one road and has no choice as between roads in respect to
moving his crop. He may sue in the courts for an excessive charge,
we are told. Well, one judge — a circuit court judge in Iowa — has
decided that the law fixes the published tariff rate now under this law
as the rate conclusive, and if you have paid the published rate and
then complain that it was unlawful and sue for the excessive part of
it in a court, that j'^ou can not recover it because the law has said that
the carrier shall make the rate and publish it, and when published he
shall collect it.

Not that he may do it. It is a crime for him to remit it after he
has published it. He is guilt}' of paying rebates if he does so; he is
guilty of a criminal offense if he takes less than his published rate.
He is not only permitted to collect it, but he is required to collect,
and he is a criminal under the law if he does not collect it. And yet
shall the law be left in such shape that a man must go into court and
complain that he has paid the rate which it was a crime on the part of
the railroad not to coUect after it is published? According to the
decision referred to there could be no recovery in such a case if the
rate collected was the published rate, however unreasonable. But if
this decision be erroneous and the amount of excessive rates collected
be sufficient to justify suit, now who is it that can collect in a case in
court. Take the grain men of the West or the cotton men of the
South, who grow the corn or cotton, as the case may be. At the end
of the harvest, or soon thereafter, these men sell their crop to a local
buyer. He sells it to Mr. Councilman or Mr. Richardson, or some
other one of the great grain dealers in the West, or, if cotton, to deal-
ers in the South. And what do the local men pay for it ?

They pay a price which is based upon what he is authorized by the
person i^ith whom they are dealing. That is fixed by the market
price of the grain in Chicago or in the markets of consumption farther
beyond in the case of grain, and they get that price or thereabouts
less the freight rate that is necessary to take it there. The grain man
sells at a price which is based on the published rate, and suppose after
that a complaint is made and upon investigation it is found by the
Commission first, and then the courts, that that rate was unreasonable
by 3 or 5 or 2 cents. The shipments have all been made, the crop
has been moved, practically, and the bills of lading have been made
out in the names of the dealers, not the farmer, the man that bought
the grain shipped it.

In the bill of lading his name only appears. He paid the freight.
The farmer did not pay it; the cotton man did not pay it; each bore
the burden of it, however; but the dealer paid the freight, having
shipped the grain and cotton. Now it is determined that that rate was
unreasonable by two or three cents, and the court sustains that finding.
Who is it that recovers back the difference, supposing anyone can ? It
is not the farmer, who has parted with his crop based upon the higher



334 INTEEST ATE- COMMERCE LAW.

rate. He has no standing in court or before a commission or anywhere,
because he had no transaction with the railroads. He did not ship any-
thing. He has no bill of lading, he has no expense bill showing what
he paid, and he has no standing anywhere, and yet he is the loser. But
who can recover in such a case? The middleman or the dealer who
bought it and paid for it at the lower price. He has the freight bill,
the bills of lading, and if anybody can recover he can. He has already
had his profit in the transaction.

These are illustrations to show that there is no protection, neither
can there be any protection, to those entitled to and needing it in
these matters unless you fix the reasonable rate beforehand, so that
he need not pay more than the reasonable rate nor sell his products
on the false basis of an import rate. If he has no remedy until he
has shipped, then he has none at all, practically. Hence the necessity
of fixing the rates for the future.

Now, is it so unreasonable that such a thing should be done? Not
for a commission to sit down and write out and promulgate all the
rates for all the carriers. That is done in a good many States, as you
well know. There are 20 States in this Union how whose commis-
sions, or public authorit}^ of some sort, fix rates for the carriers in
respect to State shipments. Within all these late years I remember
only three or four cases that have gone to the Supreme Court (one
was from Nebraska, one from Texas, and one probablj'' from South
Dakota) in which the carriers have charged that the rates fixed by the
State commissions were unreasonable, confiscatory, and unlawful.

With all these 19 States — I included above Virginia, which has just
adopted a provision in its new constitution, although the constitution
is not yet in force — there are only a few cases where the railroads have
had occasion to resort to the courts to stay the rate-making power of
the States on the ground that it was unreasonably or unjustly exercised.

Now, the record does not show any rash haste or disposition on the
part of any public rate-making power to make unreasonable or unjust
rates, where they have the full power to make the rates out and out.
There is no such thing as that suggested in any of these bills or in any
reports or suggestion of the Commission at any time. It is not an
authority that anybody need covet for the purpose of exercising it.
It is full of difficulties, but after a great deal of thought and experi-
ence about this matter, I respectfully submit that it is the only way in
which you can protect the snipper or producer, because to give him a
remedy of back action to recover either puts it in the hands of the
middleman who has no right to recover, as he has the only standing in
court and the producer has none in the one case, or else it requires
such a multitude of suits to recover little amounts that it is more
expensive than it is to submit to the wrong and bear the loss.

So you will find, when you turn this question over and look at it
from eveiy standpoint as long as you will, that there is no way- where
carriers make unjust rates to protect the other side except to correct
that rate, not simply by condemning the one that is wrong but by
substituting the one that is right.

Now, where is the hardshipin this? The shipper is entitled to a
reasonable rate. The carrier is entitled to a reasonable rate. Each
one is working for his own interest, naturally and properly. The
carrier says that he is capable of making a rate that will be just to his
patrons, that he will not oppress them; but can you leave the shipper



INTERSTATE-COMMERCE LAW. 335

in his hands with safety ? Human experience says no. You will not
permit the carrier to make the rates. Now, what else does the con-
science and the mind go to except some natural, reasonable, fair-minded
course such as we resort to in all other matters of controversy ? That
is, to have a court — which you can not have in this case, because it has
been decided that this is a legislative power when it relates to the future.
That eliminates the courts.

Mr. Stewart. New Jersey has no public debt or no State tax what-
ever. Her entire revenues are gathered from the railroads. Our
railroad commission fixes future rates, does it not, on the railroad
traffic in that State 'i

Mr. Clements. That may be; I am not aware of a commission in
that State.

Mr. Stewart. Has there ever come a complaint to the courts on
account of the unfairness of those rate.s^

Mr. Clements. From New Jersey ?

Mr. Stewart. Yes.

Mr. Clements. None that I have heard of and call to mind.

Mr. Stewart. If that is so in New Jersey why could not this com-
mission fix rates without difficulty '<

Mr. Clements. I must confess that all of these matters are important
and that there is more or less difficulty; but this is done, and I see no
other answer but that it will be more fairly done by an impartial
tribunal, whether you call it a commission or a congress, that has power
to do it, than to let it be fixed by either the shipper or the carrier in
his own interest. Of course, it would be wrong for the shipper to
make the rates, because he is an interested party. So, too, why should



Online LibraryUnited States. Congress. Senate. Committee on InteRailway freight rates and pooling : hearings before the commiittee on interstate commerce, U.S. Senate, having under consideration the bills (S.3521) to enlarge the jurisdiction and powes of the Interstae Commerce Commission -- and (S.3575) to amend an act entitled 'An act to regulate commerce' → online text (page 79 of 96)