Quick response to business needs is a prime requisite to satisfactory rates. Knowledge of industrial changes must reach a commission at second hand and in a more or less attenuated form. Practically a commission in framing a schedule of rates is limited to fixing maximum mileage rates. Actual rates in the commission schedules are prescribed only in Arkansas and Texas, and in the latter State it has been held by a court of civil appeals that a railroad may charge less than the conmission rates if unjust discrimination does not result.

The rates established by commissions on their own initiative are almost invariably based on mileage. Rates prescribed by railroads and approved by commissions are not infrequently specific rates between the points named. The commissions which merely revise tariffs proposed by the carriers and alter rates found in practice to be unjustly discriminating really possess somewhat greater latitude in determining specific rates, although even in these cases the tendency to give extraordinary weight to distance is apparent.

Texas alone, among the commissions with general rate schedules, prescribes specific rates at all frequently. Among the commissions. without general schedules, Minnesota, Kansas, Kentucky, and California order specific rates in a number of cases. Two reasons probably operate to prevent commissions from adopting specific rates between places named. It is extremely difficult to ascertain competitive conditions with sufficient precision, and such rates are almost certain to evoke complaint that other places are not treated with perfect fairness. Mileage rates, while corresponding less exactly to industrial needs, are more easily determined, and, because they are in form equal to all purchasers of transportation, are easily defensible among those who have the least knowledge of the needs of business.

That the success attending rate fixing by State commissions is far from complete is shown clearly by the following extracts from the report of the committee on powers, duties, and work of State railroad commissions presented to the National Association of Railway Commissioners and adopted at its recent convention held at Deadwood, S. Dak., beginning August 16, 1905: "

The establishment of rates is a most delicate and intricate process, which can be successfully performed only by men thoroughly educated in the business of rate making and absolutely impartial and just in their reasoning and conclusions. It may be doubtful if in many instances the work of rate-making commissions in some of the States is wholly successful.

With the abolishment of rebates and discriminations and the proper regulation of the interchange of traffic between connecting roads, very many of the present-day abuses of railroads will pass away and an adequate service at a reasonable rate will follow as a natural consequence. It is quite true that classification and rates made by railroad corporations are sometimes offensive and occasionally unjust to the individual shipper. But interference by a commission constituted as most of our commissions are is quite as apt to result in more serious consequences to the whole system of interstate transportation.

STATE CLASSIFICATIONS.

The State commissions which have prescribed general tariffs of freight rates have likewise adopted their own classifications. These classifications are as a rule based originally on the regular classifications in force at the time the schedules were prepared, with such

a As reported in Freight, September, 1905, page 112. The official proceedings are not yet published.

modifications as the respective commissions have deemed wise or favorable to State traffic. The result is a large number of special classifications made legal for intrastate shipments and differing more or less widely from the classification covering interstate traffic. The differences tend to increase as time goes on by changes both in the Western and Southern classifications and in the State classifications. The value of as much uniformity in classification as can be made consistent with the widely differing conditions of transportation in different sections of the country is generally recognized, and the reduction of the number of interstate classifications to three (the Official, the Southern, and the Western) by the railroads has correspondingly diminished the difficulty with which occasional shippers may ascertain the legal rates. It is decidedly unfortunate that the action of State commissions has operated to increase so largely the divergencies in classification.

PROTECTIVE CHARACTER OF RATE REGULATION.

It should be frankly recognized by all investigators that any charge, whether customs, duty, shipping tax, or freight rate, that does not impose burdens equally on all portions of the goods consumed possesses a "protective" feature. Discriminating charges and rebates, like preferential duties, operate only indirectly, if at all, to lessen cost to the consumer, their direct tendency being to increase the advantages of certain producers. That many State commissions aim to place manufacturers and jobbers within their States at an advantage compared with competitors in other States is clearly avowed," but it is perhaps not generally understood that efforts in that direction have a similar economic effect to the imposition of taxes on commerce between the States a practice forbidden by the Constitution of the United States. In some of the European countries that own and operate railroads, notably in Germany, the use of railroad tariffs for protective purposes is admitted. There every decrease in rates not accompanied by a corresponding increase in traffic is a direct loss to the taxpayer; besides, the fixing of rates is a governmental function. These two facts make the connection between protective duties and preferential freight rates more obvious. But where railroad rates made by State commissions are so fixed as to establish preferences in favor of producers in particular localities or in particular States, the arrangement is undoubtedly "protective," although the charges are not taxes. In this country State protection against interstate commerce, except in the matter of freight rates, has never been advocated. However effected, it is obviously contrary to the best interests of the country as a whole.

SUPERVISORY POWERS.

Even in States whose commissions exercise rate control by far the. largest number of complaints filed relate to facilities and not to rates. Demands for sidings, for new stations, for connections permitting interchange of traffic between roads crossing each other and for additional train service are constantly received. Without doubt the commissions have accomplished excellent results in increasing railway

"See, for example, Alabama Commission, 23d annual report, 1903, page 27; Georgia Commission, 32d annual report, 1904, page 3.

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facilities. Under their requirements in many States the most dangerous crossings are being safeguarded against accidents.

Many of the commissions, especially in the South, are intrusted with the duty of assessing railroad property for purposes of taxation. There is some tendency to give railroad commissions authority over other transportation agencies, and over allied industries. In the grain belt of the Northwestern States-Illinois, Minnesota, the Dakotas, and Missouri-supervision of warehouses is an important duty of the commissions. The North Carolina and Virginia commissions have supervision over all corporations and in Arkansas and Kansas such duties are imposed on special boards.

SUMMARY OF RESULTS.

The chief results of this investigation may be summarized in six propositions:

(1) There is an entire absence of uniformity in the powers and practices of the various commissions. Instead of tending toward uniformity in classification the action of the commissions has resulted in increased diversity of classification.

(2) The rigid statutory requirements in many States and the inherent difficulties have led most rate-making commissions to prescribe maximum rates based on mileage. Such tariffs have little direct effect in lowering rates. They, nevertheless, prove in many instances vexatious to shippers and carriers and prevent the cordial cooperation that is essential to the best results. Maximum mileage rates when joined with a requirement of the commission's approval of all advances in actual rates have the effect of checking the natural decline: for rates will less frequently be lowered to increase traffic when they can not be restored if the anticipated increase is not realized. Commission rates are necessarily inflexible; they can not respond readily to changes in traffic conditions. Uniform maximum rates based on distance are useless to protect competitive traffic or to prevent unjust discrimination. (3) Flexibility in rates is especially necessary in States having or wishing to have many diverse industrial interests and many important jobbing centers. Rate-making commissions, with unimportant excep tions, are States that have made and are making little progress from the stage of development and in which transportation problems are the simplest. The existence of such commissions obviously tends to limit industry to its simplest forms and to retard the development of manufactures.

(4) Rates established in many States aim to aid local producers and jobbers in competition with those in other States, and in so far are "protective" in character.

(5) The supervisory powers, even in the case of commissions possessing rate-making power, are those most frequently used and most effective to prevent unnecessary friction between the public and the railroads. These powers are seriously weakened when duties inconsistent with them are added.

(6) Beyond everything else it should be borne in mind that State commissions have jurisdiction over but an insignificant proportion of the total traffic of the railways and that the rate-making commissions in particular deal mainly with local traffic moving under the simplest conditions, The complex competitive conditions so generally appli

cable to interstate traffic are rarely found in connection with interstate commerce, and this is especially true of those States which possess rate-making commissions.

POWERS AND WORK OF THE VARIOUS COMMISSIONS.

The legal power over rates granted to railroad commissions or similar boards and the manner in which that power is exercised in each State possessing such commissions are briefly described in the following pages. For convenience of reference the States are taken up in alphabetical order.

ALABAMA.

The railroad commission of Alabama, under the law as amended in 1903, is required "to consider and carefully revise all tariffs of charges for transportation," and where there are connecting lines to "fix joint local rates of freight." Prior to 1903 the power of the commission, in the case of joint rates, was limited to recommending to the roads such rates as it deemed just. Under its increased power, the commission, on July 3, 1903, ordered that on all joint shipments the rate should not exceed the sum of the local freight rates, less 10 per cent.

All railroad tariffs, whether increasing or reducing rates, must be submitted to the commission for approval or revision. It may change rates at the request of the railroads, on complaint, or on its own initiative. Since the recent change in the law, the commission has not prepared a general revised tariff, but to that end has required the various roads to submit their tariffs with such modifications as they desire.

In July, 1903, a d stance tariff was promulgated for hay, grain, and grain products, and for sirup and potatoes grown in Alabama, which was said to reduce materially the rates in force. A petition asking for a general reduction in railroad tariffs was refused on the ground that such a change would prove unjust to the railroads. The general provisions of the law are less rigorous than in some other States. The commission may increase as well as lower rates; it is not confined to a strict mileage basis in determining rates, but may take into consideration actual conditions, such as water or other competition; and, while unjust discrimination against persons and localities is prohibited in general terms, the law does not expressly declare illegal a lower charge for long than for shorter intermediate distances. It is expressly provided in the law that "the commissioners shall take into consideration the nature of the service to be performed, the entire business of the railroad, and its earnings from passengers and other

a The principal sources of information are the constitutional and statutory provisions relating to the railroad commissions, the reports of commissions, and the replies to a circular letter addressed to each commission exercising rate control. These sources have been supplemented by the following authorities:

Report of the Interstate Commerce Commission, Railways in the United States in 1902, Part IV, State Regulation of Railways. This comprehensive report, which gives in detail an analysis of the legal powers and duties of each railroad commission, has been used very largely.

F. C. Clark: State Railroad Commissions. Publications American Economic Association, 1891.

F. H. Dixon: State Railroad Control, with a history of its development in Iowa, 1896.

F. H. Dixon: Railroad control in Nebraska, Political Science Quarterly, 1898. F. Hendrick: Railway control by commissions, 1900.

traffic," and that they shall revise the tariffs so "as to allow a fair and just return on the value of the railroad, its appurtenances and equipments." The recent change in the law was enacted in spite of the adverse recommendation of the commission, which, in 1899, expressly disclaimed any desire for an enlargement of its powers. The report for that year says (p. 14):

There can be no law enacted and no commission created, either appointire or elective, that could make a general reduction of the railroad tariffs in Alabama below what they are at present that under the decisions of the Supreme Court of the United States would be constitutional and operative.

In general excessive charges on intrastate traffic seem to be feared in Alabama, as in other Southern States, more strongly than discriminatory charges. This is doubtless because the competitive commerce of the larger cities and towns and that in staple products is almost wholly across State lines.

ARIZONA.

A board of railroad commissioners, with supervisory but not ratefixing power, was established in 1891 and abolished in 1895.

ARKANSAS.

The railroad commission of Arkansas, established by act of March 11, 1899, was authorized and directed to make freight and passenger rates. A subsequent law, passed April 15, 1899, extended the power of the commission so as to cover joint rates. Higher charges are prohibited for short hauls than for longer hauls within which the former are included, and no authority is given to the commission to make exceptions from this provision.

The commission, after organizing, made a temporary order adopting the rate sheets of the various railroads as then in force, and required a strict observance of them. Numerous complaints arose on the ground that, by preventing special reductions, the order of the commission had operated to raise actual rates. Such complaints, when presented to the commission, were filed, and were used by that body to justify the somewhat drastic reductions made by the new standard distance tariff which was put into effect April 10, 1900. This tariff applied only on the principal lines; later tariffs were also framed for the shorter lines. The Western Classification, modified in certain particulars, was adopted. The railroads are required to observe the rates as fixed unless they obtain the approval of the commission to lower rates. Up to this time all tariffs promulgated by the commission have been on a strict mileage basis, with no allowances for water competition. Longer lines between competitive points may apply the rates fixed for their shorter competitors without bringing down the rates to their intermediate points. Joint rates, as fixed by the commission, must not exceed the charge for an equal distance over a single line by more than a specified amount.

The State board of construction was created in 1897, with authority to build and operate State railroads and telegraphs. It was authorized to issue bonds, receive donations, and sell State public lands. The location of its lines was to be determined by the following considera

a Railroad commission of Arkansas. First Annual Report (1899-1900), pages 5–6.