Regulation of railway rates : Hearings before the Committee on Interstate Commerce, United States Senate, in special session, pursuant to Senate Resolution No. 288, Fifty-eighth Congress, third session, April 17, 1905-
sS»--<''' .»; CORNELL UNIVERSITY LIBRARY FROM CORNELL UNIVERSITY LIBRARY 924 092 563 943 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924092563943 H. T. NEWCOMB, BOND BUILDtMG. WASHINGTON, - Q. 3. A 773 7 7 REGULATION OF RAILWAY RATES. HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, UNITED STATES SENATE. FIFTEENTH DAY. Friday, May S, J905. STATEMENT OF MR. HUGO R, MEYER— Continued. The Chairman. Professor, you may go on "with your statement from where you left off yesterday. Mr. Meyer. I beg leave to correct a most unfortunate mistake that I made yesterday. In reply to Senator Cullom's question I stated that the length of the railways was 12,000 to 14,000 miles ; it is about 32,000 miles, and the length of the waterways is about 8,000 miles. The Chairman. That is in Germany ? Mr. Meyer. In Germany. Senator Ctillom. I am glad to have that statement corrected; I thought there was a mistake somewhere. Mr. Meyer. I was speaking from memory, and had not recently refreshed my mind. At the close of my statement on yesterday I stated that the decision of the Interstate Commerce Commission in Holzdkom v. The Michi- gan Central admitted that the basing-point practice decentralizes trade and population; that it did not concentrate trade and popu^ lation. »* We have further evidence of that fact in .the case of La Cr*se Manufacturers and Jobbers' Union v. The Chicago, Milwaukee and St. Paul (Vol.^I). In that case manufacturers of La Crosse peti- tioned that the long and short haul clause be suspended on the ground that the enforcement of that clause had thrown the commerce of La Crosse back upon Chicago. In other words, under the basing- point system the Chicago, Milwaukee and St. Paul had built up at La Crosse a certain amount of jobbing and manufacturing business, and under the operation of that act that business was taken away from La Crosse and transferred back to Chicago. We have also the very well-known fact that Chicago would like to have the basing point that exists in the territory south of the OMo broken down, because the breaking down of that basing-^int system would transfer a considerable part of the jobbing trade of Cincin- nati and St. Louis to Chicago. For the same reason the people of New York City are interested in having the basing-point system broken down, because they know 15 D— 0.5 M 1 n ' ' , 1 i ' i x;- i V FIFTEENTH DAY. that in the breaking down of that basing-point system the shipping trade of Atlanta would not be transferred to points in the immediate neighborhood of Atlanta, but would be carried back to New York City. I shall now go on to a very brief discussion of the interpretation of the long and short haul clause at the hands of the Interstate Commerce Commission, for the purpose of showing that that inter- pretation was entirely in the direction of the restriction of trade and the restriction of competition. In the case of Boston and Albany Eailroad ?.'. Boston and Lowell (Vol. I) we have the first decision of the Commission on the question of the long and short haul. The Vermont Central, acting in con- junction with the Grand Trunk Railway, had made a through rate to Detroit which was so low that the through rate to Detroit was materially lower than the local rate from Boston to St. Albans, Vt. The Commission found that the Boston and Albany with the Grand Trunk had to make this low rate or withdraw from the business, for the rate was fixed by the direct line (the Boston and Albany), and the Vermont Central had no part in the fixing of the rate. Further- more, the Commission found that in the preceding year 79 per cent of thfe traffic of the Vermont Central had been through traffic to Detroit, that the directly local traffic had been only 5 per cent, and that if it had not been for the revenue derived from the through traffic the Vermont Central could not have maintained its road, and the people of St. Albans would have had no railway whatever. Furthermore, the Interstate Commerce Commission found that those rates to St. Albans were reasonable per se, that they did not restrict business at St. Albans, or in any way damage the people of St. Albans ; and the Interstate Commerce Commission went on to say in so many words that this arrangement of rates, of which the people of St. Albans complained, was really to the interest of the people of St. Albans, but that they had not had intelligence enough to see that, and that they had complained of a rate that was to their own interest. The Commission went on to say that if it had the right to use its discretion, then it might approve that adjustment of rates, but that it had no discretion; that its business was to rule upon a complaint that was made, and that it was the business of the public to make up its mind whether it was advisable to bring a complaint. Thereupon the Commission ruled that if the Vermont Central wished to continue to compete for the business at Detroit it must do that under the penalty of reducing the rates to St. Albans, making a reduction to St. Albans that would not bring about any increase of business, but Avould simply reduce the revenue of this railway, which for years had been in the hands of a receiver. In this case you have a striking illustration of the fact that gov- ernment regulation, whether exercised by the State or by a com- , mission, always results in hard-and-fast, inelastic rates. The Com- mission refused to exercise its discretion, because it said, " If 'we admit that the Vermont Central, with the Grand Trunk, formed a legitimate roundabout route between Boston and Detroit, somebody else may come and make a roundabout route from Chicago to St. Louis by way of St. Paul, and a third party may come and make a rounda|b9ut]^oU(t|e|from Boston by way of the Chesapeake and Ohio FIFTEENTH DAY. 3 Railroad to Chicago, and v\e shall be called upon to pass judgment upon an infinite number of questions of that kind, and it will be extremely difficult to draw the line; and therefore we prefer simply to shut off that kind of question and prevent its coming up here, holding that in this case we have no power to suspend the long and short haul clause, though the rates complained of are to the interest of the parties who complain." It is needless to point out that if the railway rates of this country had been regulated upon that basis since the close of the civil war the building of railways would have been restricted practically to the building of direct through lines and there would have been few roundabout lines, with the result that the people who now live on those roundabout lines would have no railway facilities. It is needless, also, to say that the Supreme Court entirely over- ruled the Interstate Conmierce Commission on this question inci- dentally in the later decisions, of which I shall speak in a moment. The next decision under this clause that I shall consider is that of Buggy Company v. Cincinnati, New Orleans and Texas Pacific Railway (Vol. IV), generally known as the Social Circle Case. A railway running from Cincinnati to Augusta, Ga., had made a low rate upon buggies to Augusta in order to enable the buggy manu- facturer of Cincinnati to compete in the Augusta trade with the buggy manufacturers of Baltimore, New York, and other Atlantic seaboard points. They had not extended this reduced rate to the intermediate point. Social Circle, on the ground that any reduction of rates to Social Circle would not have increased the amount of business done ; that it would not have induced the people of Social Circle to buy more buggies. The Interstate Commerce Commission held that they might not make this low reduction to Augusta except as they also made corresponding reductions to all intermediate points to the extent of not violating the long and short haul clause. It disapproved this low rate to Augusta because it was made on commercial considerations. The Commission said the railways have no business to make the rates on commercial considerations; that Baltimore and New York are geographically nearer to Augusta than is Cincinnati, and they have the first right to the Augusta trade; that if the railways have a right to relieve Cincinnati of the dis- advantage that it is under in competing for the trade of Augusta, then they have the right to relieve any place of any disadvantage that it is under; or, to state it in other words, they have the right to destroy the advantage of any place in competing for a certain trade. For example: They would have the right, not only to put the Cincinnati buggy manufacturer on an equality with the Balti- more manufacturer, but they would have a right to put even the Cincinnati manufacturer on a footing of equality with the Augusta manufacturer. Gentlemen, that is the very thing that our railways have been doing ever since they have been doing business. But it is to the glory of our railways that they have done that with such marvelous success. Every business man in this country who does anything more than a local business does that additional business by virtue of the fact that our railways have practiced that policy. If the policy underlying this decision shall become the policy of the United States, the United States would burst into innumerable areas which would have no trade •4 FIFTEENTH DAY. with one another, the monopoly of each such area going to the mer- chants and manufacturers of that area, so that this country, ^vhiph to-day is a unit in its business provisions and a unit in its political aspirations, would burst into a number of areas that would be more jealous of one another than were the colonies of this country in the days when each colony was imposing protective tariffs against every other one. If you started out deliberately to announce a proposition that should be in direct conflict with the whole genius of our institutions, you could not make a more successful statement than the Commission made in this case. The Interstate Commerce Commission went further and further as time proceeded. It began by telling the railways that they must assume the responsibility of judging whether or not they might make a certain rate under the long and short haul clause, and later, in the so-called Georgia commission cases, the Interstate Commerce Commission tried to take away that rate from the railways, and said to them, " Even where you have a case in which you may legally make a rate under the long and short haul clause, you must come to us and ask for permission before you may make that rate." In this case it was a question of competition between the merchants at Mem- phis and the merchants at Chicago for the trade at Charleston, S. C. In order that the railway leading ' from Memphis to Charleston might enable the Memphis dealer in hay and grain to meet in Charles- ton the competition of the Chicago dealer in hay and grain, the rail- road had made a lower rate to the terminal point, Charleston, than to the intermediate point, Summerville; and the Commission in this case held that the fact that there was competition between Memphis and Chicago in the trade for Charleston, but not competition between Memphis and Chicago in the trade of Summerville, did not constitute essentially dissimilar conditions and circumstances. If the spirit of that case had been carried out you would have had a further restriction of trade in this country. What became of that case ? That case itself was overruled by the Supreme Court in Louis- ville and Nashville Railroad v. Henry W. Behlmer (175 U. S.), and the decisions of the Interstate Commerce Commission upon this whole question of the long and short haul clause have been overruled in the following cases: Interstate Commerce Commission v. Alabama Mid- land Eailroad Company (168 U. S.) ; East Temiessee, Virginia and Georgia Railway Company v. Interstate Commerce Commission (181 U. S.), and Interstate Commerce Commission v. Louisville and Nash- ville Eailroad (190U. S.). The gist of these decisions has been to support and approve in tlieir entirety the practices of the American railways in the matter of basing points or competitive points. In this matter the Supreme Court has overruled the Interstate Commerce Commission on questions of law. It has overruled the Interstate Commerce Commission on questions of fact— that is, as to the weight to be attached to the evidence and on the interpretation to be given to the evidence — and it has differed with the Interstate Com- merce Commission on questions of the public policy underlying the decisions. The question of the public policy that underlay the decisions of the FIFTEENTH DAY. 5 Commission was the doctrine that every person was entitled to the advantages accruing to him by virtue of his geographical position, and that policy tended to throttle and destroy trade. The public policy underlying the act, according to the Supreme Court, was that the act to regulate commerce had been passed for the purpose of encouraging and promoting trade, not for the purpose of throttling it, and the Supreme Court said in the Alabama Midland Case : This act is experimental legislation and it should be Interpreted in accord- ance with the genius of our institutions, which is, In part, the promoton of trade. The Interstate Commerce Commission did not attempt to interpret this act " in accordance with the genius of our institutions." It inter- preted it in accordance with notions of its own as to the functions of the State and as to theories of society, of which it makes much in its annual reports. Senator Clapp. Do you recall, or do your data show, in how many of these cases the court of original jurisdiction reversed the Com- mission ? Mr. Meyer. I could not say, offhand. Now, I shall conclude by drawing attention to some further deci- sions of great moment made by the Commission, all in restraint of trade — the condemnation by the Interstate Commerce Commission of two of the greatest and most beneficent railway-rate practices to be found in this country, the discrimination in favor of grain and all kinds of agricultural products when designed for export, as against grain and agricultural products when designed for domestic con- sumption, and the discrimination in favor of commodities brought into the interior on through bills of lading as against commodities shipped in the first instance to an American port and then reshipped or as against commodities of a similar kind manufactured by Amer- ican manufacturers on the Atlantic seaboard. Take, first, the practice of discriminating in favor of the export trade. That practice is of very old standing, and it has been of enormous beneficence to the American farmer. Oftentimes, very commonly, the rates charged upon grain and all kinds of other agri- cultural products for export were only 50 per cent of rates charged for those same commodities when moving to the Atlantic seaboard for consumption. That has enabled the railroad to reduce its rates on export commodities with great rapidity. It would have been ab- solutely impossible to make those reductions had it been necessary to extend them to the domestic traffic, for the reductions that applied to domestic traffic would not have increased consumption upon the Atlantic seaboard; they would not have increased business. It would therefore merely have meant a loss of revenue, and a loss of revenue which the railways could not bear. On the other hand, it has been precisely the low rates made upon our exports that have enabled the American farmer to compete so successfully in Europe, not only with the farmer of England and Eussia, who has not the advantage of beneficent practices of that kind, but even with the farmer of Europe himself. Had it not been for that the American farmer would not have succeeded in displac- ing the western European farmer to anything like the extent to which he has succeeded. But it is a necessary incident and consequence of this practice that 6 FIFTEENTH DAY. the business of collecting grain in an elevator for export should, under this arrangement, he transferred from New Tork City to the interior. In other words, this practice of vast benefit to the Amer- ican farmer is a detriment to the New York exporter, the New York owner of elevator property. About 1888 or 1880, in the case of the New York Produce Exchange V. New York Central (Vol. Ill), the New York Produce Exchange brought complaint against this practice before the Interstate Com-' merce Commission, and the Commission promptly condemned the practice for two reasons, one being that the practice tended to con- centrate the export business of American agricultural products at interior points, to the detriment of New York City, and, in the sec- ond place, that it tended to facilitate discriminations. That question of discrimination was a question of police which the Interstate Com- merce Commission might have taken in hand, but without further ado it condemned this practice of vast beneficence. Immediately the chambers of commerce of Minneapolis and of Indiana and a number of State granges passed resolutions protesting against this decision of the Commission, and stating, in their pictur- esque language, that the western farmer was raising wheat for the purpose of making a living and not for the purpose of keeping in New York in the elevator business persons whom the natural course and forces of trade would force out of business. There you would have had a great conflict of sectional interests, , for unquestionably if this decision had been carried out the value of grain upon the farms west of the Mississippi River would have been a number of cents less than it Avas, and it is perfectly possible that at times the value of grain might have been 6, 7, or 8 cents less per bushel than it has actually been. We heard nothing of this decision, which was entirely in conflict with the whole spirit of our institutions, because the Commission in this case was reversed, by implication, by the Supreme Court of the United States in the case, I think, of Buggj'^ Company v. The Cin- cinnati, New Orleans and Texas Pacific. The case of the New York Board of Trade and Transportation v. Pennsylvania Railroad (Vol. IV) came up when the railways lead- ing to Philadelphia and Baltimore decided to build up an export trade in grain from Philadelphia and Baltimore. They had to induce steamships to come to Philadelphia and Baltimore for the purpose of carrying away the grain. Those steamships could not come in ballast, for if they had come that waj' they would have been obliged to put upon the grain tariff to Europe a charge for transpor- tation that would have been prohibitive. On the other hand, they could not come loaded or partially loaded, if they carried only such freight as was destined for Philadelphia and Baltimore directly, because those points at that time had no import trade worth speaking of. In order, therefore, to induce > steamship companies to establish sailings to Philadelphia and Baltimore the railways said : " You may get freight anywhere in Europe destined for any point in the interior of the IJnited" States, and you may carry it at any rate you please, and we will give you a certain percentage of it, and we shall be con- tent with the balance, remunerating ourselves irrespective of whether there is any profit in that for us or not; what we are interested in FIFTEENTH DAY, 7 is not SO much the profit to be derived from carrying these goods inland as in making it possible for you to establish sailings to these ports." The result of that was that very commonly freight would be con- signed from Liverpool to Chicago and other points in the interior at rates no greater than the rate from Liverpool to New York, or, at times, at rates actually lower than the rate from Liverpool to New York; and it happened that at times freight went from Liverpool to Montreal and Chicago and bapk to New York; and it happened that Messrs. Field, Leiter & Co., of Chicago, at times were able to sell commodities in New York City in competition with A. T. Stuart & Co., who thought that was depriving them of the advantages accru- ing to them by virtue of their geographical position, as well as of an ancient vested interest, the monopoly and business of supplying the people of New York City. Senator Foeaker. How did they do that? Mr. Meyer. Because the through rates to Chicago were so low that freight could- be actually carried to Chicago from Europe and sent back to New York at no greater cost than to send it directly from Liverpool to New York. That practice also impaired or neutralized in part our protective duties. There is no doubt that that practice does neutralize' in part our customs tariffs. Senator Foraker. What is it that enables them to do that ? That is the point. Mr. Meyer. The steamship agents on the other side made such rates as they had to make in order to induce business to move to Chicago and those interior points. They could not get sufficient freight if they, confined themselves to the business of Philadelphia and Balti- more, because those were not importing points of importance at that time. They had to have freight, and therefore they took freight to Chicago, and in some cases they actually created business, you may say, for the mere sake of getting freight. For example, a steamship company authorized its agent to buy and take a cargo of salt to Chicago simply for the sake of getting the freight money. It forces business all around. Senator Foraker. These are foreign steamship companies? Mr. Meyer. Yes. Senator Foraker. Over which we have no control? Mr. Meyer. I will take the Senator's statement for that ; not being a lawyer myself, I do not know whether we have control over them or not. Senator Foraker. We should have to wait until they get within the 3-mile limit, and then we mieht have something to say about it. Mr. Meyer. This practice ofended the importers at New York, who insisted that the cost of bringing freight to New York, plus the cost of moving it to Chicago, must be no greater than the cost of moving the freight directly on a through bill from Liverpool to Chicago. It offended also the American manufacturers, who were manu- facturing under protection of the customs duties, and therefore the New York Board of Trade and Transportation and a number of other bodies brought suit against the Pennsylvania Railroad and a 8 FIFTEENTH DAT. number of other railways. Some of those roads having ignored the order of the Commission with respect to this practice, the Commis- sion issued an order that this practice must be discontinued. Senator Foeakee. That is, that the roads should not make a through rate? Mr. Meyee. Should not make a lower rate on freight on through bills of lading than on corresponding freight of American origin or on corresponding freight that had been brought into a warehouse in New York and subsequently sold, and reshipped. The Supreme Court overruled the Interstate Commerce Commis- sion on the question of law. The question of law had been this: The Interstate Commerce Commission had said that in interpreting the long and short haul clause the Commission could not take cogni- zance of conditions abroad. The Supreme Court said that was error, and then went on at great length to express its disapproval of the public policy underlying the decision of the Commission. The Supreme Court pointed out that the Commission had been confronted by a great variety of conflicting interests, between which it was extremely difficult to hold the balance; that in order to get over that difficulty it had cut the Gordian knot by singling out one interest, fixing its attention upon that and deciding upon the strengt]i of , that to the exclusion of all other interests. The Supreme Court pointed out that it was not proper to proceed in that way. The Supreme Court pointed out that the Commission had concentrated its attention upon the American manufacturer on the Atlantic sea- board and the importer on the Atlantic seaboard, and that it had paid no attention whatever to the fact that this whole arrangement of rates encouraged competition between New York and Philadelphia and Baltimore, and that it gave the consumer in the interior of. this country the benefit of that competition. The Supre.me Court further pointed out that the Commission had ignored the rights of the railways as revenue-producing properties. It was pointed out that one of the railroads had obeyed the order of the Commission, with the result that it had been aboslutely unable to get anj' competitive business on through bills of lading, and the Interstate Commerce Commission naively remarked. " That lets the Illinois Central out." The Supreme Court said: " You can not de- prive the Illinois Central of its rights in that naive fashion." Furthermore, the Supreme Court said : Evidence was adduced, and not contradicted, that if this ruling or order of the Commission had been enforced it would have closed every steamship line to Philadelphia and Baltimore, because it would have been impossible to induce steamers to come to Philadelphia and Baltimore. They could not have obtained enough freight to make- it worth while to do that. Senator Forakee. If the roads with which the steamship lines con- nected at Baltimore had been the same with which the steamship lines connected at New York, in that respect there would not have been any trouble, would there? Mr. Meyer. These roads had to force business. The roads from New York were under no necessity of forcing the steamships to come to New York. Ncav York had practically the monopoly of the im- porting business. Senator Forakee. Wlien was this? Mr. Meyer. It began, say, in 1873, or along there, as soon as the FIPTEENTH DAY. 9 Pennsylvania and the Baltimore and Ohio began to carry freight to the Atlantic seaboard. Senator Culloji. That was before any law was passed on this subject? Mr. Meter. But it was continued, and has continued down to the present day: and to-day that practice is a very great factor in building up Xew Orleans as an importing point, and Sabine Pass as an importing point. The very moment that the Pittsburg and Gulf Kailroad decided to compete for export business, they had to go to Holland and induce steamers to make sailings to Sabine Pass, and the only way they could induce steamers to do that was to institute this practice. This practice is very common, and it is a tremendous factor in the building up of the southern ports. If it were not practiced in the southern ports, it would take them decades longer to become exporting and importing points. Senator Fobakee. AVhat is the practice ? Mr. Meter. Suppose a steamship line running to Xew Orleans finds itself short of freight. The agent of that line in Liverpool may get a cable that salt is selling at a certain price in Chicago, and he knows that it is selling at a certain other price in Liverpool, and he says: "As a steamship agent I can buy a cargo of salt, and I can send it to ■Chicago and sell it, and I will sell it at any profit that will simply repay me for acting as transportation agent, and I can make an extremely low rate, because the Illinois Central Railroad has said it would take any freight I might want it to take at, let us say, 25 per cent of the total charge from Liverpool to Chicago." That 25 per cent of the total charge may not be more than a quarter of the final charge that the Illinois Central would make for hauling salt from New Orleans to Chicago. "\Miat the Illinois Central is inter- ested in, in this particular case, is not the revenue it can get from that imported salt business. It is interested in having a steamship line that will come to New Orleans, and therefore it will say : " We make our revenue in part off of domestic salt that is produced, say, in New York State, and carried by the next liner to New Orleans, and thence by rail to Chicago, and we are willing to carry that salt for anything we can get, simply in order to induce a steamship line to come here. If we can not get steamers to come here we can not export, and what we are interested in is building up an exj)ort point." Senator Ctjllom. Are you approving of that or complaining of it? Mr. Meter. I approve it most heartily, sir. I think it has been a practice of enormous beneficence. For example, if this practice had been nipped in the bud, Philadelphia and Baltimore would have been very long in becoming exporting points. That would have meant that the American farmer would have been decades later in getting the relatively high prices for his products that he did get, because it is an established fact that New York had enjoyed for a long time the monopoly of the export business, which had begun when freight moved by the Erie Canal instead of by railway, and the merchants of New York charged very large commissions, but they did not make more than enough to reduce the cost of handling the business. In fact, Mr. Simon Sterne, their champion, contended that the Pennsyl- vania and the Baltimore and Ohio railways had no right to carry grain for export to Baltimore and Philadelphia ; that they had no right to destroy the monopoly Avhich New York had acquired by 10 FIFTEENTH DAY. virtue of its artificial means of transportation — ^the Erie Canal. But it was pointed out to Mr. Simon Sterne, who was one of the most powerful men in making public opinion in this covmtry in regard to railway-rate questions in the decade from 1870 to 1880 — it was pointed out to him if you had the railways leading to New York and the merchants served by those railways, and the railways leading to Philadelphia and the merchants served by them, then the railways leading. to Baltimore and the merchants served by them competing with each other, you would pull down not only railway rates but also ocean charges. Mr. Sterne replied: New York is not interested in low prices and in small commissions. New York lives by what it sells, not what it produces, and we prefer to establish a small business with large commissions, rather than a large business with small commissions. There is no doubt whatever about it that the great factor that has brought down not only railway rates, but all the storage, commission, and warehouse charges, has been this competition of rival railways leading to New York and to Philadelphia and Baltimore. In fact, the first modern elevator was put in in the citv of Baltimore, and that reduced the time for loading a cargo of gram from four days to four hours and correspondingly reduced the price. New York did not follow suit until it was absolutely compelled to. The conse- quence is that whenever roads have begun to compete for the export business the margin allowed for commissions and storage charges on grain moving from west of the Mississippi River to Liverpool has shrunk enormously. Before the Industrial Commission in 1900 convincing testimony was brought to the efPect that sijice 1895 when wheat is selling in Liverpool the farmer west of the Mississippi River would save 2 cents a bushel more than he got, say, in 1885, when competition was very slight. These are questions of tremendous import, and when the Inter- state Commerce Commission is asked to pass judgment on a question of that kind all that it can say is that commission merchants who were doing a good business in New York in past generations are being crowded out, as if any man had a vested right to remain indefinitely in the commission business in New York. A laboring man can not now insist that a labor-saving device can not be introduced because it would put him out of employment, so we have to become reconciled to the fact that a certain kind of business which was done at one time in New York and then moved to Chicago, and, after having been at Chicago for a certain length of time, would have to move on to Omaha ; and we are under great temptation and in great danger of invoking the power of the Federal Government for the purpose of arresting those changes which are a necessary incident to the progress and development of the country. Senator Foraker. You spolce about some case brought by the Chamber of Commerce of New York to the Interstate Commerce Commission, as I understood you, to break up this through-rate prac- tice that you have been telling us about ? Mr. Meyer. Yes, sir. Senator Foraker. What is the style of that case and where is it reported ? Mr. Meyer. The case was before the Interstate Commerce Commis- FIFTEENTH DAY. 11 sion, New York Produce Exchange v. The New York Central and Hudson RiAer Railroad, and it is reported in Volume III; that is upon the export question. Senator Foeaker. Volume III of the reports of the Interstate Com- merce Conunission ? Mr. Meter. Yes, sir. The import question came up in the case of The New York Board of Trade and Transportation v. The Pennsyl- vania Railroad Company, in Volume IV of the Commission's reports. Then, I shall have the decision in the Supreme Court of the United States in a moment. Senator Foraker. You may supply that later. Mr. Meter. It is the case of The Texas and Pacific Railway Com- pany 'V. The Interstate Commerce Commission (162 U. S.). That is the Import Rate Case. Senator Foeaker. No; I was speaking about the decision of the Supreme Court in the New York cases. Mr. Meti:r. Yes, sir ; that is the title, because it turned on the situation in New Orleans; but it was the appeal from this decision. Senator Foeaker. That is not the Social Circle Case? Mr. Meter. No, sir ; that is a different one. The Interstate Commerce Commission has not been reconciled to these decisions of the Supreme Court, and in 1899 it tried once more to disapprove the practice. In consequence of the competition of the roads running from the West to the Atlantic seaboard with the roads running from the West to the Gulf, the discrimination in favor of grain carried for export became very wide ; and the case was tried before the Interstate Commerce Commission on complaint of the Chicago Board of Trade, because this competition had become so keen that the commission merchants at Chicago practically were being crowded out, and the people of Chicago did not want the commission merchants to be crowded out. And the Interstate Commerce Com- mission said it could not condemn the practice under the long and short haul clause, because it had been overruled on that point by the Supreme Court. Then it asked itself whether it could condemn it under the clause requiring that rates must be relatively reasonable; and it did succeed in condemning it. Senator Forakee. Are you still talking about this through rate ?. Mr. Meter. Yes, sir ; a lower rate on export commodities than on domestic commodities. Senator Forakee. I understand. Mr. Meteb. And it said that if the railways of this country per- manently carried food stuffs and raw materials more cheaply for the foreigner than for the American manufacturer, they would give the foreign manufacturer an undue advantage over the American manu- facturer. That is, if the foreign manufacturer got his food stuffs more cheaply than the American manufacturer, and if he got his raw materials at a less freight rate, why then he would have an advantage in competing in the international markets with the American manu- facturer. And they said in this case, " You must hold the balance and inquire whether the disadvantage thus done to the American manufacturer on the seaboard is or is not counterbalanced by the advantage done to the American farmer." That is, was the advan- tage to the American farmer, in higher prices, so great as to justify 12 FIFTEENTH DAY. this disadvantage to the American manufacturer? There of course the Interstate Commerce Commission raised a question that nobody can possibly answer. That is a question to which you can not possi- bly get a scientific and a compelling answer. It is always a matter of judgment. In this case, however, the Interstate Commerce Com- mission made a tremendous mistake of judgment at a most critical time. The Interstate Commerce Commission in this case actually held that this enormous reduction in the rates on export commodities had not benefited the American farmer, had not raised the price of grain on the Atlantic seaboard. And let us look at the conditions which prevailed at the time when the Commission made this decision. It was a time when our corn and our wheat had been increased enormously and we were under the necessity of increasing enormously our exports of grain. That is, we were under the necessity of finding in Europe; a market for enormously increased amounts of grain which, of course, we could not do unless we were ready to sell grain at a materially lower price in liverpool. In the period from 1891 to 1892 the area under wheat in this coun- try fell from 38,000,000 acres to 34,500,000; and it remained at that low level until 1896, because the price of grain was so low. The price of wheat was so low tliat our farmers were superseding their wheat with corn, in order to feed the corn to beef. The farmer's price of wheat, according to the United States Agricultural Depart- ment's statistics from 1893 to 1895 had averaged 51 cents. Xow, in consequence of this transition from the raising of wheat to the raising of corn for feeding to cattle, the area under corn jumped up from G2,500,000 acres in 1894 to 82,000,000 acres in 1895. Here we have a country that in one year increased the area of corn raised by 20,000,000 acres — from 62,500,000 to 82,000,000 ; and that area was sustained. The area under corn remained at that high level. In 1896 the price of wheat went up, with the result that in 1897 the area under wheat was iiicreased by 5,000,000 acres. From 1896 to 1897 we increased our area under wheat from 34,500,000 to 39,500,000 acres, and in 1898 we increased our area imder wheat by another 5,000,000 acres. So that in two years we increased our wheat area from 34,500,000 acres to 44,500,000 acres. The result of that was that our exports increased as follows: From 1893 to 1896 our exports of wheat had averaged 145,000,000 bushels a vear, and in 1897 to 1900 they jumped to 210,000,000 bushels. That 'is, there was an increase of 65,000,000 bushels in our exports, and that was exactly one-half of the total increase in our crop. We increased enormously our crop of wheat, and we had to find a market for half of that abroad. Evidently you can not throw too great quantities of wheat on the market without pressing down the price, and if at that time the railways happen to be fighting with each other and the farmer gets an exceedingly low transportation charge to Liverpool, that is a very lucky incident, and prevents the price of wheat from dropping on the farm as low as it drops in Liverpool. Furthermore, our exports of corn, which were from 1893 to 189S 60,000,000 bushels, in 1896 to 1900 jumped up to 180,000,000 bushels. They were increased three times. In 1890 to 1895 we exported 3^ per cent of our corn crop, and in 1896 to 1900 we exported 8.4 per cent of our corn crop. We were teaching the European to feed corn o FIFTEENTH DAY. 13 to his cattle. The corn merchants of this country actually had agents over there. This, gentlemen, gives you an illustration of the mighty, the tre- mendous way in which this country does business — the tremendous changes which take place in a short time — this dropping off in the area of wheat from 38,000,000 acres to 34,500,000, and a contempor- aneous increase in the area under corn from 62,500,000 bushels to 82,000,000 bushels, and then the subsequent tremendous increase in the area of wheat — 10,000,000 acres in two years. Gentlemen, can a country that does business on such tremendous, stupendous lines afford to give the regulation of its trade into the hands of a body of men who, when they are confronted with a great question of this kind, lose themseh'es in arid and barren and futile speculations as to whether or not a reduction in the export rate of grain does the American manufacturer more damage than it does, good to the American farmer? It seems inconceivable. It is an illustration of the irony of fate that the greatest nation in the world, that has achieved in trade and industry what no other country has ever even distantly approached, should, at the same time, produce a body of civil servants — bureaucrats — an administrative body, who decide questions of this kind on principles of that kind. You can not conceive of anything more barren; you can not conceive anything more futile. You have here an administrative body of the United States placing itself absolutely on a footing of equality with an administrative body of Russia. It was only a few years before the Interstate Commerce Commission made this decision that the bureau- crats of Russia rejected the petition of the farmers in the interior of Russia for lower export rates on grain. The bureaucrats said: " A^Hiy, if we give you lower rates on grain, you will produce more grain, and you will swamp the foreign market and break the price, and what will it result in? You will simply give grain cheaply to the foreigner. It will be a waste of your own labor and of the nation's resources." And may I remind you, gentlemen, that some years ago, in the North American Review, a gentleman who had been Secretar}' of Agriculture in the United States propounded the argni- ment that the United States was wasting its resources by raising so much grain for export, which only redounded to the aclvantage of the foreigner. 