roads of the continental United States into a limited number of systems. These consolidations are to be so arranged that competition shall be preserved as fully as possible and the existing channels of trade maintained. This part of the Commission's duty is relatively simple, but this is only the beginning of the Commission's troubles.

The separate systems must be so arranged that the relative costs of transportation, based upon the values of the properties, shall be so far as practicable the same, so that these competitive systems can employ uniform rates and "in the movement of competitive traffic and under efficient management earn substantially the same rate of return upon the value of their respective railroad properties." Surely Congress has imposed upon the federal regulating body a task of no mean proportions. When the plan has been completed, hearings are to be given and the final plan for consolidation published.

State Authority Passing

Upon the application of carriers to consolidate into single corporations, hearings are to be instituted to which the governor of each state concerned is to be invited. If the Commission finds that the consolidation is in harmony with its comprehensive plan for the country as a whole, and is in the public in

terest, it may authorize the step with such conditions as it chooses to impose, without regard to the law of any state or the decision of any state authority. This abrupt assumption of exclusive federal power over consolidation procedure takes away from the states the authority that they have exercised exclusively since the founding of the government, and they are left with no rights in the matter except that of protest at a public hearing. State regulation has been in large measure hampering, conflicting, and disastrous so far as it has been applied to this allembracing industry of transportation. Yet it is doubtful whether the states will give up their prerogatives without a struggle. Certainly they will insist upon a ruling by the United States Supreme Court.

A wholesome financial restriction upon too great freedom in consolidation is found in the requirement that the securities of the new corporation at par shall not exceed the value of the properties consolidated. This value is to be ascertained by the Commission through its valuation division, and in accord with the procedure now being followed in the general valuation of the railroads.

Restrictions of State Power

With the growth in federal regulation of the railroads, the powers of the states have

naturally been increasingly restricted. This action is in line with a general tendency that began to be manifest some years back, and which was greatly accelerated by the assumption of authority by the federal government as a war measure. The conflict of jurisdiction between state and federal governments in the matter of rate regulation first appeared in serious form in the Supreme Court of the United States in the Minnesota Rate Case of 1913, and again in the Shreveport Case in 1914. The Supreme Court's decision in the latter case, which sustained the federal authority and was a severe check to the ratemaking power of the state commissions, has now been incorporated into the Transportation Act of 1920. If the Interstate Commerce Commission finds, after hearing, that the rate or practice, as established by state authority, causes unreasonable preference or discrimination against interstate commerce, it shall prescribe the rate that will remove the discrimination. And this rate is to be observed by the carriers affected, the law of any state or the order of any state authority to the contrary notwithstanding.

Federal Supremacy the Intent

It is perfectly evident that Congress intended to establish once and for all the su

premacy of the federal authority in matters. of interstate commerce, and that this authority was not to be hampered by the order of any state commission, even though that order might ostensibly have validity only within the confines of the state in which it was issued. It is now the Interstate Commerce Commission that decides whether the state commission has gone beyond its powers. It is optional with the federal commission whether it consults with the state authorities or not. All it is required to do is to give the states interested notice of the proceeding.

This fundamental issue upon which the success of railroad regulation so largely depends is now undergoing further discussion and test. The new and increased rates promulgated by the Interstate Commerce Commission in August, 1920, have been adopted by many of the state authorities and applied to interstate traffic.

But

many of the states have insisted upon the restoration in varying degree of the pre-war rates, notably the state of New York with reference to passenger business on the New York Central. In several cases the Interstate Commerce Commission has already rendered decisions sustaining the federal power, and the question is now on appeal to the Supreme Court.

V

Restoration of the Roads to
Their Owners

The return of the railroads to their owners, following the period of government war operation, was in response to an unmistakable mandate from the American people, who for the time at least had no desire for any further demonstration of government operation. Probably impatience with governmental interference in many other lines of business had an influence upon their attitude upon the subject of railroad control, but it is likely that the financial showing was the most important consideration.

It

The government ended its stewardship with a deficit of nearly $1,000,000,000. had made one rate increase in 1918, both in freight and passenger service, but this increase was utterly inadequate to meet the steadily increasing wages and costs of materials, particularly coal. Unwilling to load the burden of additional rates upon the public, and displaying an amazing optimism as to the savings to be accomplished under unified operation, the administration proceeded without any further increases in rates and paid the bill out of the general treasury.