The CHAIRMAN. On the other hand, Mr. Mahaffie, you would hate to see any law go into effect which would make it impossible for you to do these things.

Mr. MAHAFFIE. It would disrupt business overnight, Mr. Chairman. The freight-rate structure of the country has been a long growth, and bness has adjusted itself to it. Violent changes in the method of raking freight rates would be as disturbing to business as anything that could be proposed.

The CHAIRMAN. Cities have grown up, and industries have found their location and scattered about over the country in somewhat of apparently a helter-skelter manner. And yet something that would come in to disrupt that would be very confusing and very disastrous, perhaps, to many cities and many industries.

Senator Capehart?

Senator CAPEHART. Mr. Commissioner, what you are saying is that if you were unable to permit the citrus growers of California to have a blanket rate, if you were unable to permit the shippers of Pittsburgh to have two choices of railroads from Pittsburgh to Springfield, Mass, one of course being less miles than the other, if you were perted from doing that, you think it would disrupt business in America?

Mr. MAHAFFIE. That is correct.

Senator CAPEHART. Do you not think the principle is about the same in respect to this matter that we are discussing here and have been making inquiry into for several months? Almost overnight American business became confused as to whether they could or could not absorb and equalize freight. To me the principle is exactly the

same.

And the end result is the same to the business interests of the Nation as it would be to the citrus growers in California and to the shippers in Pittsburgh on their shipments to Springfield, Mass. We are using that as an example and I presume there are literally hundreds or thousands of other examples we might use.

Mr. MAHAFFIE. I have not attempted to study-I have not even read-the decision the Senator has referred to. I have seen a good deal of comment on it. But any sudden change in the method of doing business required of the business communities is, of course, disturbing and makes a great deal of confusion and causes loss in readjustments required to meet new conditions.

Senator CAPEHART. I gather that you would be opposed to eliminating your right to establish blanket rates and your right to establish the same rates for two railroads from two given points, even the same rate from two different points on two different railroads even though the mileage on one was longer than the mileage on the other?

Mr. MAHAFFIE. Yes, sir.

Senator CAPEHART. You want to be able to continue that practice n the Commission, do you not?

Mr. MAHAFFIE. Yes, sir. That is the chief purpose of my testimony. Senator CAPEHART. Might it not be well then to continue that practice in respect to the freight costs of all the businessmen in

America?

Mr. MAHAFFIE. As I say, I haven't attempted to examine that, but any sudden change in the method of doing business is

I do agree that

very disturbing.

Senator CAPEHART. In other words, this bill or inquiry has be directed toward permitting businessmen to absorb or equalize freig if they do it without conspiracy or coercion or collusion, and I gath from what you said here this morning that you have been permitti shippers and railroads to do exactly the same thing, in princip Is that correct?

Mr. MAHAFFIE. We have been permitting them to do the things have mentioned. Now, whether that is exactly the same in princip as the absorptions, I do not attempt to say. I do not know how f they have gone or what they consist of. But we have permitted th railroads to equalize rates as between origins and destinations witho close regard to distance.

Senator CAPEHART. You have done it in order to help the produce Mr. MAHAFFIE. Primarily for that purpose, yes, sir.

Senator CAPEHART. In my opinion, it has benefited the consumer the buyer.

Mr. MAHAFFIE. As the Supreme Court said in the Ayrshire case we have a duty not only to the producer and to the carrier, but the Court said we should keep in mind the interests of the consumer as well.

We attempt to hear all of them and try to arrive at what seems under the act, the proper conclusion.

Senator CAPEHART. In the case of the California Citrus Fruits you did it in order to permit the California Citrus Growers, being 3,000 miles from New York, to compete with the Florida Citrus Growers, who are 1,200 miles from New York.

Now, the principle involved here is: Should a manufacturer of any kind of goods, or dealer in any kind of goods, in Los Angeles or California, be permitted to do the same thing in competing for the New York market with a producer of like goods in Florida, Georgia, North Carolina, South Carolina, Virginia, Maryland, Pennsylvania, New Jersey, and even New York City itself?

That is the question. It seems as though you have been in the Interstate Commission practicing that very principle.

I presume you felt it was to the best interests of both the consumer and the producer, and to the business interests of America.

Mr. MAHAFFIE. Yes, Senator, I agree with that, with this observation that I made in my statement: that the limit on such equalization must be the limit imposed by whether or not the rate causes undue preference or prejudice or is a noncompensatory one.

Senator CAPEHART. Undue prejudice in the case of the citrus fruits would be against the California producers?

Mr. MAHAFFIE. No, sir. Conceivably railroads and shippers from California might suggest a rate to New York that we would find, after hearing, unduly prejudicial to the Florida producers.

Those are the limitations on the extent to which we permit equalizations under the Interstate Commerce Act.

Senator CAPEHART. But if two groups, two manufacturers or two businessmen, were permitted to be equal in transportation costs from any given point in the United States, let's say to the New York market, wouldn't that be fairer and more equitable, in your opinion, and would it not promote competition?

Mr. MAHAFFIE. Not quite to the extent stated. If, for instance, a railroad serving New York from Cleveland attempted to equalize the

rate from San Francisco and Cleveland to New York-the chances are god that it would be a noncompensatory rate and we would find it ought not to be permitted; first because it was noncompensatory, and also because so great an absorption would be unduly prejudicial to the Cleveland manufacturer.

The CHAIRMAN. I am glad you used that word "absorption," Mr. Vaffie. The point is that any of these practices which you have entioned here have encouraged competition.

Mr. MAHAFFIE. That is correct.

The CHAIRMAN. The railroads, I think, deserve great credit for the decentralization of industry to the extent that it has been decentralized in the United States. I think they deserve great credit, and all the other arms of transportation deserve credit for doing that. It is very much to the advantage of the United States as a whole to Lare industry decentralized.

Has the ICC ever granted special rates to undeveloped areas where they are trying to get industries started in those areas? Has it ever given them encouraging rates to build up industries in undeveloped areas, in order to let them compete with industries already established me other section of the country?

Mr. MAHAFFIE. Yes, sir. We usually have applications when a industry is proposed, for rates that will permit it to operate in ompetition with established industries or tariffs are filed naming rates intended to do that.

I should say that a very great many of such applications that go through do not require our approval. It is simply a matter of the railroad and industry agreeing on a rate structure that will permit the new industry to start and to operate, and the rates are filed. We consider them if they are protested, and, if suspended, we have a hearng on them. A great many rate adjustments are made for new industries starting in; yes, sir.

The CHAIRMAN. In order to strengthen the competitive program? Mr. MAHAFFIE. I don't know about the specific reason, but it is in order to enable the industry to start out and to make a profit.

The CHAIRMAN. But it does encourage competition, whether that is the primary objective or not?

Mr. MAHAFFIE. Yes, that is true. The first thing anybody who is starting a new plant in an area where there has not theretofore been that type of industry normally does, before he even lays a cornerstone, is to get an agreement on his rates with the railroad. Those ordinarily, as I say, are simply filed with us and become effective. Sometimes they are protested and we have hearings about them. The CHAIRMAN. In your testimony you referred briefly to freight ates to seaports. What are the comparable freight rates to the varons seaports?

Mr. MAHAFFIE. I had reference to the export and import rates priarily, if that is what you mean.

The CHAIRMAN. Yes; that is what we mean.

Mr. MAHAFFIE. On a good many commodities they are made-parcularly through the west coast and the Gulf coast ports, some hrough the east coast ports-less than the domestic rates. That is not true now of a good many commodities moving through the Atlantic coast ports.

As to comparative rates: in general, from, say, the Chicago ar the railroads and the ports have agreed on a rate adjustment that su stantially equalizes, from a great deal of Central Territory, the ra through the Gulf ports and the Atlantic ports.

The Atlantic-port rates themselves are not identical to all of t ports from Central Territory, there being a differential against N York and Boston and in favor of Baltimore and Hampton Roads. Senator CAPEHART. Why do you make rates that are lower for expe shipments than you do domestic consumption?

Mr. MAHAFFIE. We don't ordinarily make those rates.
Senator CAPEHART. Why do you approve them?

Mr. MAHAFFIE. The system is largely historical. It is apparent based on the idea that the only way the American manufacturer ca compete, say, in South America with the European manufacturer to have a somewhat lower rate than the domestic rate. That system rate making has grown up in this country and has been carried in both export and import rates.

Senator CAPEHART. In other words you believe that it builds compe tition and helps industry as a whole?

Mr. MAHAFFIE. That is the only possible justification for it, I think that it helps domestic industry; yes, sir.

Senator CAPEHART. Therefore, wouldn't you say that every business man in America should be put in a position to compete with every othe businessman in America by being permitted by law to absorb and equa ize freight with every other businessman in America?

Mr. MAHAFFIE. Without a good deal of thought, I could not go tha far.

Senator CAPEHART. Why?

Mr. MAHAFFIE. Again you are getting away from the problem stated a while ago.

Senator CAPEHART. Isn't the principle the same, Mr. Commissioner Mr. MAHAFFIE. If you get back to my qualification that the freigh rate should be on a less-than-compensatory basis, and that it should not create preferences or prejudice.

Senator CAPEHART. We are getting to the principle we are talking about, of permitting everyone to compete with everyone else by ab sorption and equalizing freight.

You have a situation there where each and every one will actually pay the freight involved from his point of shipment to destination, but am thinking in terms of principle now.

The principle, it seems to me is the same, and should be the same, as you practice in your Commission, and I certainly have no objections to it. I think you are 100 percent correct.

Mr. MAHAFFIE. Subject to the qualification I have stated, I should think the principle is the same.

Senator REED. Mr. Chairman, may I offer something?

The CHAIRMAN. Yes, Senator Reed.

Senator REED. As a member of this committee I hope to be of some aid in keeping things straight. I have had more experience in transportation than I have had in monopolies, for example, or the antitrust laws.

In addition to my practice before your Commission for a long period of years, I was chairman of the Kansas State Commission.

We have a group of coal mines in southeast Kansas where the big market is the Missouri River cities, Kansas City, Mo. and Kans.

We always carried a group origin rate into those Missouri markets that applied to every coal mine in southeast Kansas, regardless of whether it was 100 miles from Kansas City or 150 miles at the other end of the origin group.

We had salt mines through the central part of Kansas. We always arried there, and the State of Kansas always insisted, and the carriers. agreed, that every salt mine should have the same rate from the point of the mine to the heavy markets at the Missouri River, regardless of any slight difference in distance.

I don't mean to say that you can make a group cover all distances, but it should cover where it is reasonable, where your group is a reasonable group.

That same thing applied to brick plants. I don't know whether you remember when we finished the argument in the grain-rate case under the Hoch-Smith resolution.

I want to come back to your export rate. On behalf of all the Sappers of grain in the Western Territory from Chicago to the Rocky Mountains, I urged your Commission to fix a lower rate for export

, whether it moved through Galveston, New Orleans, or Port Arthur, and I convinced part of your Commission, not all, that that ught to be done.

That was for the purpose of giving the American wheat grower a better chance to compete with the Canadian wheat grower in the European market, and a considerable part of your Commission agreed that that ought to be done, but not a majority.

There is one thing you didn't mention in your reply to Senator Capehart and to the chairman, Senator Johnson. The allegation in this case was that the cement manufacturers used their system of delivery costs to lessen competition.

Now, that is a matter over which your Commission would have no jurisdiction. You are determining the reasonableness and the fairess of freight rates in and of themselves.

Take Senator Johnson's state for example. My State of Kansas buys a lot of coal from Colorado. Every mine on the Moffott Road as the same rate when you get down into Kansas, regardless of the distance being greater in some cases than in others That is true of Your Walsenburg district. Every mine in the Walsenburg district, making rates from Kansas to Colorado, has the same rate. Every ne in the Trinidad district has the same rate. But we are here dealing with one other factor which we can not absorb but which you ave jurisdiction over.

That is the allegation that a certain commercial practice used by the cement companies had the effect of restricting competition as a mercial practice.

I want to keep that very clear, so far as I may, Mr. Chairman, and embers of this committee, because there is great danger that a conFision on these points might result disastrously to the country.

I do not know if the fabric of the freight rates over the years has en established by consent, or by the carriers, but it is satisfactory to the consumer. I don't want to see that upset here because of somehing that is somewhat indefinite.