state Commerce Commission as an institution. And what I shall have to say to the committee is from that standpoint.

The entire commission seems to be under indictment or attempted indictment. I have not heard during this hearing any questions of the integrity or the ability or the efficiency of the nominee. Under those circumstances it seems to me, Mr. Chairman, that we may well look back over the history of the interstate commerce act and keep some points in mind.

Primarily what was the purpose of the act? It was enacted for the purpose of curbing or controlling through Government regulation the intolerable discriminations and favoritisms that had grown up in the absence of any regulation. Prior to the passage of the Hepburn law in 1906 the commission made a great many efforts to give the act some vitality, to accomplish something, and they did not succeed in getting very far.

In 1906 the commission's powers were enlarged, and it was given power to prescribe the reasonable rates. The records will show that prior to that time many of the decisions of the commission were successfully contested in the courts, mainly on technicalities of the law. After that time a good many of its decisions were contested in the courts. But if you follow the line down you will find that during the last several years the decisions of the commission, that have been contested in the courts, have been smaller in proportion to the number of decisions rendered, and have been sustained with a great degree of uniformity.

When the Government decided it would undertake regulation of these carriers it undertook it do it through an independent tribunal that would be kept as free as possible from political influences. The commission created by the original act to regulate commerce was not subordinate to any executive department of the Government. It was an arm of Congress reporting directly to the Congress, and that status has been continued without break. It was then provided that not more than a majority of the commission should belong to any political party. That provision has been preserved without interruption.

The fundamental requirements of the act as passed in 1887 are in the act still. There is the provision in the first section of the act that all rates and charges shall be just and reasonable. The second section of the act, that there shall be no unjust discrimination as between the patrons of the carriers. And the third section, the provision that there shall be no undue preference, nor undue prejudice against any shipper, commodity, or community. The law did not undertake to condemn all preferences and all prejudices, but those that are found to be undue.

The commission was created and charged with the duty of administering the law. It is required to make an annual report to the Congress together with its recommendations as to additional or changed legislation.

Out of the experiences of the commission, the decisions of the Supreme Court interpreting the law, putting the commission right some times when the Supreme Court said it was wrong, other times sustaining the commission, have brought about the ruling by that court, adhered to consistently since then, that the commission's decisions must be supported by evidence in the record in the case.

That it may not substitute its judgment or its knowledge of things for evidence that is not presented in the record in that case.

Among other duties the commission must determine whether or not a rate is reasonable, and if not, to prescribe what will be a reasonable rate. The Supreme Court has said affirmatively what we all, I think, agree to, that the making of a reasonable rate is not a matter of formula. It is necessarily a matter of human judgment within certain limits. There is an upper limit when extortion steps in, and a lower limit where confiscation comes in, and somewhere between those two is the reasonable rate, and the determination of what is a reasonable rate within those limits the Supreme Court says is a part of the flexible judgment that goes with the power to make rates.

What is undue preference or prejudice? It is an adjustment of rates that unwarrantedly effects injury to one and favor to another. Senator GOODING. Mr. Clark, how do you distinguish between an unreasonable rate and a prejudicial rate? What is the difference between the two? I do not know how you can have the one without the other.

Mr. CLARK. There may be, Senator, an unreasonable rate from A to B on a given railroad that does not affect any other shipper on that railroad or any shipper on another railroad with which that road connects and interchanges traffic, and it may not affect any other community on that other railroad.

Senator GOODING. But that was not the case in the Lake Cargo case at all.

Mr. CLARK. Well, Senator, as I stated in the opening

Senator GOODING. Well, I do not want to divert you from any statement that you want to make, Mr. Clark.

Mr. CLARK. I do not want to discuss this Lake Cargo case, as I said, because I am in no wise connected with it. I am not familiar with the record of it.

Senator GOODING. All right, Mr. Clark.

Mr. CLARK. I have been familiar with a great many of these records, and I know that in any record of that size you can find little extracts that will prove most anything, but like the administration of the law or the application of a law it must be interpreted in such way as to give full force to all of its provisions, if it is possible to do so.

Senator NEELY. Mr. Clark, does the illustration you submitted in response to the question asked by Senator Gooding present a case of prejudice or one of unreasonableness?

Mr. CLARK. It may present both or it may present the question of prejudice without any question of unreasonableness.

Senator NEELY. Will you give us an illustration of prejudice and of unreasonableness in rate making in which the words are not practically synonymous?

Mr. CLARK. Oh, I do not think they are at all synonymous, Senator.

Senator NEELY. I wish you would answer Senator Gooding's question. What is the difference between prejudice and unreasonableness as used in the decisions of the commission? In other words, how could there be unreasonableness in a rate without prejudice?

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Mr. CLARK. Unreasonable per se, so high as to be extortionate, so high relatively as compared with all other rates as to show that it is extortionate.

Senator NEELY. If it were an extortionate rate, would it not be a prejudicial rate?

Mr. CLARK. Not in the way that term is used.

A rate that is unreasonable per se is a rate that is too high for the service performed regardless of any other conditions.

Senator NEELY. Would that not be a prejudicial rate also?

not be a prejudicial rate also?

Mr. CLARK. No.

Senator NEELY. It would not?

Mr. CLARK. Not as prejudice is defined in the law or in the courts' interpretation of the law.

Senator NEELY. Then a rate could be so unreasonable that it would be impossible for anyone to ship under it and still not be prejudicial? Mr. CLARK. It would not be unduly prejudicial against another shipper or against another community or another commodity in the light of this act.

Senator BARKLEY. It might in a colloquial sense be prejudicial as between the carrier and the individual shipper, but your contention is that that is not the sense in which the word "prejudice" was used in the law?

Mr. CLARK. It might be prejudicial against the individual shipper, he being the only one who uses it or can use it; and it may be so high that he can not use it. But the act prohibits undue preference and undue prejudice as between shippers, as between communities, and as between commodities.

Senator BARKLEY. In the case of the individual conflict with the railroad it is a question of unreasonableness and not of prejudice or preference?

Mr. CLARK. It may be that and it may be both. He complains and alleges, perhaps, that the rate is unreasonable, and then that is the only question that the commission is called upon to decide.

Senator BARKLEY. Well, but if he is the only one affected by it, it is not a prejudicial rate, because your interpretation is that that language presupposed some sort of conflict between different communities or different shippers over the same railroad or over competing railroads.

Mr. CLARK. It does; and the commisison has said numerous times that undue preference and undue prejudice can not exist except where there is competition. There must be competition between the shippers or competition between the complaining community and some other, or competition of the commodity that is the subject of the complaint as compared with some other commodity that is transported over the same railroad.

Senator BARKLEY. In other words, the word "prejudicial" is a technical term which may not be used in the ordinary sense that one man is prejudiced against another or in any way that means the same thing?

Mr. CLARK. Oh, it is used in a different sense from that in this act, and as I pointed out, the first section of the act provides that the rates shall be just and reasonable. The third section of the act prohibits the undue prejudice and the undue preference.

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Senator BARKLEY. Has the Supreme Court interpreted the word prejudicial" in this sense?

Mr. CLARK. Oh, yes. I can not cite you at the moment to a case, but the court has sustained decisions of the commission where it found undue preference and undue prejudice.

Senator BARKLEY. I was wondering whether they had given actual legal definition of the term "prejudice "?

Mr. CLARK. No; I do not think so. The court has gone so far as to say that the question of whether or not there is undue preference or undue prejudice is a matter of fact to be found by the commission, and if found by the commission and that finding is based on the evidence in the record it is not reviewable by the courts.

In one case, which I can not cite now, but I can look it up if it is of any interest to anybody-I suppose everybody is familiar with it— the Supreme Court, speaking through the lips of Mr. Justice Holmes on just such an issue as this said that the law does not attempt to equalize fortune, ability or opportunity. The commission has for many years adhered to the proposition that it has no power, no right to attempt to equalize any of those things or to equalize disadvantages of geographical location.

Senator COUZENS. Well, in that connection do you think that the Hoch-Smith resolution made any change in the law?

Mr. CLARK. Senator, I want to answer your question, and I want to ask first that it be distinctly understood that I speak with complete deference to the Congress of the United States and to the commission if I shall refer to the commission in its interpretation of the Hoch-Smith resolution. I think that a careful analysis of the HochSmith resolution will show that it does not provide anything that the commission did not have as a matter of power or anything that was not permissible or possible under the act as it stood, except that declaration as to the policy of rate making. Now, I agree with an expression that was made here by a member of the committee yesterday, and I do not know but he made it twice, that the Hoch-Smith resolution could not properly be taken as a substitute for any provision of the statute, but it was misleading-it was misleading because it has been so generally misunderstood. A great many, and perhaps a majority of lawyers that were interested in it took the Hoch-Smith resolution as a direction to the commission which it must follow, a mandate. One of the commissioners asked me when I was arguing a case before the commission if that did not constitute a mandate to the commission. I do not think that it did. And if I had been a member of the commission-and again I say I am speaking with full deference and no disposition to criticize-at the time that resolution was adopted I can not see and I have not been able to figure out how I could have accepted the interpretation that has been put upon it, and I think it was a mistake to enact it, I think it has done a world of mischief, and I do not know that it has done any good. Does that answer your question?

Senator CouZENS. I think so.

Senator GOODING. We hope it will do some good by the time the commission gets through with its investigation. Mr. Clark. That was the purpose of the resolution.

Mr. CLARK. "Hope deferred maketh the heart sick."
Senator WHEELER. What was that remark?

tunity would be afforded for Racine interests to appear at Minneapolis if they so desire.

In the recent Lake Cargo Coal cases, as you doubtless know, the commission reduced rates by 20 cents per ton from Cambridge, and district No. 8 in Ohio, and the Pittsburgh, Pa., field on coal to Lake Erie ports destined for transshipment to points beyond. One of the objects of making such reduction was to increase the differential as between those fields and the fields of southern West Virginia, Virginia, and eastern Kentucky and Tennessee. The commission felt that the increase in the differential was justified on the ground of lesser distance and the difference in operating and transportation conditions. The viewpoint of the commission is clearly set forth in the decision. If the commission had permitted the filing of the proposed 20 cents per ton reduction on coal from the southern fields to Lake Erie ports it would have restored the situation which the commission in its decision in the Lake Cargo Coal cases declared to be discriminatory. It, therefore, suspended the proposed reduction from the southern fields, and it is the question of this reduction which is now set for hearing.

Extending kindest regards, I remain,
Yours very truly,

JOHN J. ESCH, Chairman. The above letter is interesting in more than one particular. First, because it misrepresents the findings of the commission in the Lake Cargo case as to the alleged finding of discrimination of rates in that case, when, as a matter of fact, no such discrimination was found, and second, because it appears to prejudice the merits of the case of the southern carriers then pending before the commission and before any of the proof had been adduced. At any rate, the views and conclusions of Mr. Esch as to the merits of the southern carriers' case are plainly apparent from this letter.

That great class of persons in this country removed from the centers of population are becoming justly alarmed at the tremendous power that the Interstate Commerce Commission has begun to exercise in assuming the right to control their business under the guise of freight-rate regulation.

This feeling arises from the claim to unlimited power over transportation. The commission is making a fetish of a "rate structure," and is apparently setting up the transportation system of the country as the business of the country, to which all other business must be subservient and pay tribute. They are making the transportation system the master and all other business the servant, instead of recognizing that the transportation system is an instrumentality valuable only as it serves the country as a whole instead of a single State or a single industry of some particular State. The effect of this doctrine is found in the constant rise in the value of railroad stocks, while great industries like farming, coal, and lumber are prostrate.

The citation of a few cases recently decided by the commission will tend to emphasize the proposition last asserted:

In the case of Sterling Salt Co. v. Ann Arbor Railroad Co. et al., known as Salt Cases of 1923, No. 14106, it was shown that the salt carriers of Louisiana have been shipping salt from their plants in the south and southwest to Chicago for more than a quarter of a century at a rate that was not only satisfactory to the shippers but was satisfactory to the carriers over whose routes this salt was transported, but on the complaint of Canadian and other salt producers the commission, Mr. Esch voting therefor, ordered a rate increase on salt from these salt fields which increased rates prohibited the further shipment of salt to Chicago from the southern fields and this rate increase so made by the commission in the above case was made over the protest of the carriers whose officials testified that their rates on salt were profitable.

In the case of Illinois Coal Traffic Bureau v. Alton & Southern Railroad, et al., known as the Illinois-Indiana Coal Cases, I. C. C. No. 16340, decided June 14, 1927, the commission, in order to assist the Illinois and Indiana producers, increased the rates on the L. & N. and Illinois Central Railroads, to points in Illinois, Missouri, Iowa, Minnesota, and the Dakotas on coal from western Kentucky over the protest of the carriers, shippers, and consumers, Mr. Esch uniting in this finding.

To show that the commission considered questions wholly outside of and not concerned with rate regulation and wholly outside of any power that could lawfully be exercised by it, we quote the following statement from the decision in the above case, shown at page 267 of the printed decision: