Walter Chadwick Noyes.

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29,473 are operated by the State and 2815 by private companies.
Of the State-operated roads about seventy-five per cent are owned by
the Prussian Government and the remainder by the other German
States. The Government of the Empire operates no roads, although
it owns the system in Alsace-Lorraine and leases it to Prussia. We
shall, therefore, treat Prussian as German practices — the Prussian
railroad being typical of the German roads.



securities — until the present national system was
built up. The German railroads are under the
control of a graded administrative system — central,
international and local. The executive head of the
railroad administration is the minister of public
works. Different railroad directories, acting under
the minister, have supervision of the railroads in
different sections of the country. Below these
general directories are special administrative officers
who have direct charge of railroad operations.^

Advisory councils — composed of persons selected
from the general public — also have a part in Ger-
man railroad administration. Circuit councils act
in an advisory capacity to the different directories.
A national council acts in a similar capacity to the
minister of public works. The function of these
councils is to investigate railroad operations and to
make recommendations of any changes they deem
expedient. They give especial attention to rate
schedules. These councils are created by law, and
while they can only advise, and have no legal power
over the railroads, they have been efficient factors
in preventing friction between the roads and the
people. And that is their real purpose — to bring
the railroad officials and the public in touch.

Originally the German tariffs were based upon the

^ Much of the material for this examination of German railroads
has been obtained from the Report of the Industrial Commission, Vol.
IX, pp. 962-983 — an article upon Prussian Railways prepared by
Prof. B. H. Meyer.


equal mileage principle — with slight modifications.
There was an equal rate per ton-mile in addition to
a fixed terminal charge. It was appreciated that if
the terminal charge were made too high very short-
distance traffic would seek some other means of con-
veyance. So the terminal charge was made much
lower than the actual expense. This satisfied the
short-distance traffic. It was then found that the low
grade traffic could not bear the long-distance mileage.
The long-distance rate was then reduced and the
principle of equal mileage rates thereby abandoned.

The present German rate is made up of two fac-
tors : (i) a terminal charge which slightly increases
with distance up to 100 kilometers (62 miles), and
(2) a haulage charge per ton per kilometer, except
in the case of low grade traffic where the rate is
lower for distances above 100 kilometers.

The following division of traffic — operating as
a slight classification — is made:

(i) Fast parcel freight.

(2) Fast carload freight.

(3) Parcel freight.

(4) General carload class Ai, in shipments of
at least 5,000 kilograms.

(5) General carload class B, in shipments of at
least 10,000 kilograms.

(6) Special tariff Ai, in shipments of at least
5,000 kilograms.

(7) Special tariffs I, II, and III, in shipments
of at least 10,000 kilograms.


The valuable goods and those requiring quick
service take the first places, while the least valuable
commodities take the special tariffs in the lowest
class upon the list. These special tariffs, which
correspond to our commodity tariffs, are likewise
based largely upon value — manufactured goods
going into tariff I, while raw products are placed in
tariff III. The rate for transportation fills with the
class — fast parcel freight taking the highest, and
special tariff III the lowest, class rate.

The lowest rates, however, are contained in the
" preferential tariffs," which are officially described
" as applicable to agricultural and industrial prod-
ucts and intended to assist and facilitate imports
and exports, and increase the traffic of the country."
These preferential rates are given as bounties to
enable certain districts to export their products ; as
aids to different industries by carrying raw materials
cheaply, and for various other reasons — political as
well as economic. To such an extent has the grant-
ing of preferential charges been carried that less
than half the traffic is now moved at regular rates.

The German railroad service is efficient, and the
railroads have been operated with profit to the gov-
ernment. Passenger fares are much lower in Ger-
many than in the United States. Average and
actual freight rates, on the other hand, are lower
here than there. The difference in averages is
partly due to shorter hauls. The difference in real
charges ^results, in large measure, from the econ-


omies in operation incident to the superior develop-
ment of the freight service upon the American

In Austria over sixty per cent of the railroad
mileage is operated by the State. The remainder is
operated by private companies under strict Austria-
governmental regulation. In Hungary Hungary,
the government operates over eighty per cent of
the railroads. The tendency in both countries is
toward complete government ownership.

The famed " zone system " of rate making exists
upon both the ,State and private roads in Austria
and Hungary — having been introduced into the
latter country in 1889. A certain distance of car-
riage is established by law as a zone. A uniform
rate is charged to all stations within the zone.
Traffic moving to the last station within the pre-
scribed limits pays the same as shipments to the
nearest point. After a certain number of zones
distance is disregarded. The last zone includes all
the country beyond a prescribed point. Thus in
Hungary the zone for local passenger traffic was
originally ten kilometers (6.2 miles), and for through
traffic a somewhat greater distance, with fourteen
zones. The zone for freight traffic was fixed at
two hundred kilometers (124 miles), and there were
three zones : Zone I for distances below two hun-
dred kilometers; Zone II for distances between two
hundred and four hundred kilometers, and Zone III
for all distances beyond four hundred kilometers.


The Austrian system is a modification of that of

The purpose of the zone system was to modify
the equal mileage principle in favor of long-distance
traffic. Cheap and bulky goods like raw products
moving considerable distances form a large part of
the traffic in Austria and Hungary ; and these goods
could not bear equal mileage rates.

The zone system involves no new principle. It
merely enlarges the unit of distance. American
rates would not be made in any very different way
if the unit were a hundred miles instead of one.
The system is very simple and convenient, although
it makes some shippers pay for more than they
get in comparison with others. Its chief merit,
however, lies in the fact that it serves to develop
long-distance traffic in bulky goods and thereby
helps to build up the industries of the country.
But this is not because there are zones. The real
reason is that the system is an indirect method of
" charging what the traffic will bear."

Average rates in Austria and Hungary are higher
— as we have seen — than in America and Russia ;
about the same as in Germany, and lower than in
other European countries. But unlike the State
railroads in Germany, the roads operated by the
government in Austria and Hungary have gener-
ally returned deficits instead of profits.

An examination of rates and rate making in other
European countries would disclose no essentially


different principles or practices from those which
we have considered. As, therefore, our purpose is
rather to bring out American conditions by com-
parison than to study the rate situation in foreign
countries, it is unnecessary to carry our examination



The regulation of transportation charges by the State
governments can only be effectual as it supplements
federal action. In the constitutional division of the
field, the important traffic is beyond the reach of
the State. Standing by themselves, State laws are
wholly inadequate. Still the regulation of charges
by the States long preceded the declaration by
the Interstate Commerce Act that rates should be
reasonable and just. The earliest charters fixed
maximum charges. They were also prescribed in
general laws, and commissions were given power
to establish them. Rates made by law are no new
thing. The lessons we shall learn, however, from
examining the authority of the State and its limita-
tions, and past and present State legislation, will
be largely negative. What cannot be done will be
indicated fully as much as what can be done.

We have seen that a railroad company, in con-
sideration of the grant by the State of its charter and
_ , the right of eminent domain, assumes pub-

Power of . °. . . ^

State over lie obligations, and becomes, in respect of

their performance, subject to the control

of the State. We have also seen that the public

duties of a railroad exist independently of its charter


obligations and grow out of the nature of the busi-
ness in which it is engaged — that of a common
carrier. And we have further seen that the super-
vising power of the State, whether based upon the
nature of the railroad corporation or its business,
extends, within constitutional limits, to the regula-
tion of rates. ^

The State having power to regulate rates upon two
grounds — the quasi-puhWc character of the corpora-
tion and the public nature of its employment —
any action taken is necessarily based upon both
grounds ; and in considering the question of au-
thority it is unnecessary to differentiate between
them. But in determining the expediency of action
by the State, and the extent to which it should go,
the nature of the obligations of the railroad may
properly be examined.

Rate regulation merely and solely because a rail-
road is a ^z/^j/-public corporation would be of
doubtful propriety. It is possible to lay too much
stress upon the obligation which a railroad com-
pany owes to the State in consideration of the grant
of its charter and the accompanying right to con-
demn lands for its road. The franchise to build
and operate a railroad is seldom a special privilege.
Most of the States have general laws granting such
franchises to any persons who choose to put up the
capital and comply with the conditions. The right
of eminent domain, while an extraordinary, is not

1 See page 3.


an unusual, power. It Is granted to other corpora-
tions than railroads, including mills. It is coupled
with the obligation to make just compensation for
property taken; and just compensation in practice
is seldom less than very liberal compensation.

On the other hand, it is difficult to assert too
strongly the obligation which a railroad assumes In
entering a public employment. The business of a
common carrier upon one of the country's high-
ways of commerce deeply affects the public interest.
The State may well see that It Is carried on under
conditions just both to the shipper and to the rail-
road. The principle established by the Supreme
Court of the United States In the Granger cases ^
that when property has been clothed with a public
interest the legislature may limit the charges for its
use is — more than the quasi-puhlic character of
the railroad corporation — the real and substantial
source of the authority of the State to regulate rail-
road charges.

It Is a cardinal principle of our system of gov-
ernment, both In the State and the nation, that the
Legislative making of laws and regulations for future
respea^ng conduct belongs solely to the legislative
rates. department. To declare what the law

shall be is the function of the legislature alone.

* Munn V. Illinois, 94 U. S. Rep. 113. This case with several
others decided by the Supreme Court at the same time are called the
"Granger cases." The Granger movement is considered later in
this chapter.


We have seen that railroads as common carriers
are subject to governmental regulation which may
go so far as to fix the charges for transportation.
But this regulation is purely a legislative function.
The power to establish a tariff of charges or make a
single railroad rate belongs to the legislature alone,
whether it be the legislature of the State or the
Congress of the United States.^

While the legislature declares what the law shall
be, the courts declare what the law is. judicial
The legislature deals with the future ; the [especUng
judiciary, with the past and present. rates.

Making rates for the future is not within the prov-
ince of the courts. And it is equally true that
determining in a controversy the reasonableness of
existing rates is not within the province of the
legislature. As we have already seen, that ques-
tion is a judicial one.^ "It is one thing to inquire
whether the rates which have been collected are
reasonable — that is a judicial act; but an entirely
different thing to prescribe rates which shall be
charged in the future — that is a legislative act." ^

The legislature cannot confer upon the courts
power to make future rates ; nor can it confer what

1 The principles stated in the text are clearly established by a
long line of decisions by the Supreme Court of the United States, and
by State and lower federal courts. Perhaps they are more suc-
cinctly stated in the Maximum Rate Case, 167 U. S. Rep. 499,
than elsewhere.

^ See page 33.

8 Maximum Rate Case, 167 U. S. Rep. 499.


is equivalent — power to revise rates made by a
commission and to modify its findings. If the
courts could exercise the same discretion in review-
ing a rate as the commission exercised in making it,
the functions of both would be the same — and both
would be legislative. A statute imposing any such
non-judicial duties upon the courts would be uncon-
stitutional. The functions of the judicial depart-
ment are separate and distinct from the other two.
They cannot be commingled. Neither directly nor
indirectly can the courts be required to perform
duties properly belonging to another department of
the government.^

A case illustrating this point is worth examining.
A statute of Minnesota gave the railroad com-
mission of that State power to make rates, but
provided for an appeal from the action of the
commission to the district court. The act further
provided that upon the appeal the court should
" examine the whole matter in controversy, includ-
ing matters of fact as well as questions of law, and
affirm, modify, or reverse such order in whole or
in part as justice may require ; and in case of any
order being modified as aforesaid, such modified

^ Hayburn's Case, 2 Dallas Rep. 409 ; United States 'u. Ferriera,
13 Howard Rep. 40; Gordon 'v. United States, 117 U. S. Rep.
697; Interstate Commerce Commission -v. Brimson, 154 U. S. Rep.
447 ; Norwalk St. Ry. Co.'s Appeal, 69 Conn. Rep. 597.

A law is unconstitutional which vests in one body legislative and
judicial powers. Western Union Tel. Co.

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Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 13 of 17)