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SHALL RAILWAY POOLING BE PERMITTED ?
The Inter-State Commerce Law forbids one railway to charge openly or by device,
"any person a greater or less compensation for any service rendered . in the transportation of passengers or property ... than it charges . any other person for a like and contemporaneous service."
This was to secure equal and stable rates. When the same law deals with the same competitive traffics transported by two or more rival carriers, it says it shall be unlawful
“ to enter into any contract, agreement, or combination, for the pooling of freights of competing railroads, or to divide between them .. the earn. ings of such railroads."
This prohibition stimulates two or more carriers to make un. equal and unstable rates, because all routes are not alike in facility.
A law which requires uniform and non-discriminating rates on one line and legalizes diverse rates on various lines, is incon. sistent, and tends to produce the discriminations its text prohibits. The inconsistency results from legislative lack of knowledge of the vast problem, from political timidity, and from the mistaken idea that railway competition can be regulated by the mercantile laws governing the sales of corn or sugar. If the public interest requires one line to charge reasonable and just rates alike to all, why should various rates prevail over different lines for like service? If the all-rail rate on grain from Chicago to New York be 25 cents per 100 pounds by some routes and 15 cents by others, the preferences and discriminations forbidden by the act ensue to individuals and localities precisely as if the same two rates existed simultaneously on one railway, because the cheapest railway cannot carry all the traffic. Furthermore, if two
railways, short distances apart, have different local freight rates based on their different through rates, the local patrons paying the highest rates suffer most, because they cannot avail themselves of competing roads. This is not a fanciful suggestion. The rates of the Burlington route between Chicago and St. Paul, as I write, range from 40 cents for first class to 7} cents on the lowest class, and apply also to intermediate freights. A second line charges the same low through rates, but keeps up its former local rates. On yet other and shorter lines, the rates are from 60 cents to 124 cents between the same points, applicable to both through and local tonnage. The law justifies these three policies, but every public interest would be promoted if the same through and local charges were maintained on all those lines through a pool as formerly. In this foundation principle the pool was more just than is the law.
Were one railway capable of transporting all the tonnage passing both ways between New York and Chicago, the law requires that its charges should be uniform for like services. There being eight competing lines, the law says that if they contract to secure equal rates by a pool, they shall be estopped, but they may collect the same charges by other means. Can legislative inconsistency go farther ? The public interest clearly requires, whether there be one, two, or eight lines between Chicago and New York, that their rates be uniform, or at least that the differences existing between them shall be published, because shippers must know transportation charges as they know the rates of exchange or the market values of commodities. The rates of transportation must also be pre-determined in order to be published under the law. Conference, conciliation, and reconciliation must therefore provide for differences of judgment prior to issue and publication. If the eight lines declined such conference and each issued a tariff based on individual judgment, resulting in eight different through rates and eight bases for local rates under the long and short haul clause of the law, the mercantile public would be thrown into confusion, and would promptly and justly protest. Senator Cullom's committee anticipated this contingency, and said in the report which accompanied its first bill:
“A basis of fixed rates would seem to depend upon a general pre-determination of the rates to be established by the carriers interested. It seems necessary, therefore, to leave a way open by which such agreements can be made, in order to avoid the constant friction that would otherwise be occasioned."
The people nevertheless believe that if the New York Central and Pennsylvania Railroads covenant to maintain the same competitive freight rates jointly which each is required to maintain separately, there is a monopolistic act or tendency. In what manner an agreement to pool reasonable rates between two or more great routes can result in public injury has never been shown by antagonists of pooling, nor have they ever indicated wherein lies the difference between other pledges to maintain rates, if observed, and the use of the requisite pool procedure to carry those pledges into practical, honest, and permanent effect.
It is the rates alone which form the marrow of the commercial transaction. If 50 cents is a just and reasonable transportation charge per barrel on flour from Chicago to New York, exacted alike by all carriers, in what manner does it concern or injure the public if an agreed division of that sum is made between the same carriers ? This query has never been answered. Good legal minds go farther, and believe that after the proceeds of reasonable rates have reached the treasuries of the carriers, payments therefrom to adjust pool balances are not illegal. Judge Deady, of Oregon, concentrated this view in the following dictum :
“ It is not apparent how a division of the earnings of two roads can con. cern or affect the public, so long as the rate of transportation on them is reasonable."
As to the opening of new lines: if, where two railways already existed, a third one, built between the same points, agrees that, instead of reducing and antagonizing the former just rates, it will accept, say, one-fonrth the proceeds derived from all the traffic, at the rates before prevailing, wherein lies the injury to the public? The three lines will surely divide the traffic in some proportions as the result of public patronage ; why not divide it in fixed proportions, decided both by public use and railway facilities and agreement? The mere construc
tion of a third line cannot make the former reasonable rates of two carriers unreasonable. The rates are rather juster than before, because capital, invited by law, gives the two cities the facilities of three lipes for no compensation over the sums the first two lines would have received for a lesser service. There is no inherent or abstract public right which requires that reasonable rates shall be reduced as the number of railways is increased; and if the rates remain the same and reasonable, why should they not be administered by a pool as well as by any other method ?
The only answer is that the principle of pools is widely misunderstood. Senator Platt defined a pool sharply in the Senate debate :
“ What is a pool ? ... It is simply an agreement between competing railroads to apportion the competitive business; that and nothing more.”
Pools sought to divide the actual carriage of competitive tonnage among the various lines substantially as the public had done before, and adjusted any inequalities by the transfer of tonnage, or money, or both. They provided for uniform and non-discriminating rates by all lines. They consolidated the facilities of the united railways, as if they were one enlarged railway carrying the tonnage of a community as one firm. They allowed all lines to use all cars, especially replacing one line with another in time of casualty. It was co-operative railway confederation, serving a community with combined and increased facilities, and relative peace succeeded states of strife, wherein rival railways resorted to various rates and reprehensible devices to secure uncertain instead of fixed parts of the same aggregate tonnage.
That discriminations continued under pools is true, but pooliny did not cause them. Nor can it be denied that both old and new companies, in order to increase their pooled apportionments of tonnage, frequently resorted to rebates, openly reduced rates, fictitious weights, etc. New lines especially, being usually at first deficient in terminal facilities, tracks, sidings, equipment, etc., as compared with older ones, could not secure the business at equal rates, and resorted to these devices. All this was, however, in violation of every pool agreement ever made; and the managers who practiced such methods then are the first to violate now the Inter-State Law by other equally reprehensible discriminations or devices. Certain it is that the law has not stopped them. They fourish unregulated by statute now, whereas the pools were gradually restraining the evils and removing the causes that incited them.
All these injurious practices were called “competition," by theorists and the recipients of forbidden favors, and the moldy proverbs that “competition is the life of trade," and that “through competition people get their rights,” were invoked to support the shallow plea that pools should not be legalized. Messrs. Allen G. Thurman, E. B. Washburne, and Thomas M. Cooley said of railway rivalry in their report, as an advisory railway commission:
“A species of railway competition has prevailed from time to time which has brought satisfaction to few persons, and which has resulted in inequalities and disorders greatly detrimental to trade. ... The mere statement of these results is sufficient to show that this is not what in other business is known and designated as competition. Competition is the life of trade, but this is its destruction."
Mr. Nimmo, chief of statistics, said of these contests:
" During the struggles referred to, success waited upon intrigue and false representations. The freight agents deceived the merchants and the merchants deceived the freight agents."
Senator Cullom's committee said of this phase :
“It competition is to have full sway, as it does now, the constant changes it would necessitate would render it impossible to maintain fixed rates."
The astute remarks of Judge, afterward Senator, Howe, upon competition, are incisive:
“ I believe universal observation will attest that for the last quarter of a century competition in trade has caused more individual distress, if not more public injury, than the want of competition. Indeed, by reducing prices below or raising them above values, as the nature of the trade prompted, competition has done more to monopolize trade or secure exclusive advantages in it than has been done by contract.”
The unthinking do not reflect that railway rivalry differs es.