by raising through rates, or by reducing local rates. In the preceding chapter it has been shown that rates on American railways are not generally excessive, and that the returns upon capital invested in railways have been very moderate indeed. If, then, the returns upon such capital were substantially reduced below the present point, railway development in the future would be seriously crippled. Any serious reduction, therefore, in the local rates throughout the country, without a corresponding increase in the through rates, would tend to bring about such undesirable results. Would it then be advantageous to secure an advance in through rates, and if so by what means might that end be attained? These low competitive rates may be increased in only two ways. Either a minimum rate may be established, which would result in the destruction of the competition hitherto existing at the competitive points, or legislation may reduce the local rates, and drive the railroads themselves to combine in order to raise their through rates and thus prevent a complete annihilation of their profits. In fact it would be impossible for the gov ernment to secure an advance in any competitive rate without resorting to one or both of these means. In either case legitimate competition in rates is destroyed. It is very questionable whether such a result is desirable. In fact, the opinion of railway experts is almost unanimous that the great decline in the railway rates of this country has been brought about principally through the agency of competition. Even the most ardent advocates of government regulation admit that legislation could never have accomplished similar results, and, as we have already seen, the decline has been least rapid in those countries where legislation has been the most drastic.

Moreover the fixing of a minimum rate will be attended with evils of a peculiar nature. Not only does it destroy all legitimate competition, but it encourages and places a premium upon that competition which is illegiti

mate. Legitimate competition, in many cases, has already reduced the rates to competitive points to so low a figure that additional reductions cannot be made with profit. Hence there is little inducement for the traffic manager, in such cases, to cut under the published charges by giving rebates, and the amount which he can give in rebates is necessarily limited by the narrow margin of profit. However, if the government should step in and raise a competitive rate of this character, there would no longer be any possibility of any competition in the published rates, and whatever rivalry to secure traffic still existed between the railroads would be directed to the giving of secret rebates, which would then have become profitable. Furthermore, the principle of fixing minimum rates, if put into practice, would lead to the very evils which are sought to be remedied. Suppose a minimum rate were established from Minneapolis to Chicago. Instantly all the roads leading from Duluth to Chicago, and those from all the other points competing with Minneapolis, would perceive their advantage and would make rates which would result in depriving Minneapolis and the Minneapolis roads of their share in the grain business. It would then be necessary for the Commission to fix a minimum rate from all these points to Chicago. Then some road would find that by shipping the grain on two bills of lading by some roundabout route, it could make a through rate which would enable it to secure the greater portion of the business. In such a case, it would be necessary for the Commission to fix a minimum rate to and from all of these intermediate points in order to prevent evasions of the law. Soon we would have a whole system of minimum rates, and legitimate competition in rates would be wholly destroyed. Then steamship lines, which are not subject to the act to regulate commerce, would step in and absorb a large portion of the traffic, which, under conditions of free competition, the railways would have been able to secure. The result would be that

we should soon have conditions somewhat analogous to those which prevail in France and Germany, where the railroads are practically prohibited from making rates which would enable them to compete with the water routes.

The absurdity of giving a commission the power to fix minimum rates is so apparent that the subject would scarcely be worthy of notice were it not for the fact that that policy has received such strong support in so many influential quarters. The Commission itself has frequently asked for that power. The principle was advocated in the President's Message of December, 1904, and was subsequently embodied in the Esch-Townsend Bill, which came so near becoming a law. Till quite recently it was the programme of the Democratic minority in both the Senate and the House. It is argued that such a measure is the only means by which certain inequalities may be remedied. Let A and B represent two competing markets, served by two different railroads. If B obtains a rate which is proportionately lower than the rate to A, the citizens of A will complain that they are subjected to an undue disadvantage, since the railroads serving it do not meet the reductions to B. In order to remedy this discrimination, it would be necessary either to raise the rate to B, or to reduce the rate to A. But the rates to A may already be reasonable per se, and as the roads leading to that point have taken no part in the undue reductions to B there are no justifiable grounds upon which they could be compelled to reduce their rates. It is argued, therefore, that the only remedy for such a situation would be to raise the rate to B, which may appear unreasonably low, perhaps unprofitable. But what would be the result of such action? As already pointed out, the roads leading to A, and those leading to every other competitor of B, would immediately make rates which would deprive B of its business, since the roads at

1 In the Hepburn Act as finally passed, the Commission is not authorized to fix minimum rates.

that point would no longer be able to protect their traffic by meeting these reductions. In the mean time, while all these other rates were being "fixed," irretrievable harm might result to B.

The foregoing arguments show that the elimination of many of the inequalities of rates which prevail to-day would be impossible without overthrowing the whole competitive system of rate-making under which the remarkable development of the resources of our country has taken place. But though the inequalities arising from natural or acquired advantages, or from railway competition, are generally of such a nature as not to admit of remedy, is it not true that there are cases of unjust and capricious discrimination which do require a remedy? Upon an examination of the complaints before the Interstate Commerce Commission, it will be found that such instances are in fact of infrequent occurrence. Yet cases of this kind have occurred and may occur again. Discrimination between localities may be used as a pretext for personal discrimination. Thus it was alleged in the testimony before the Industrial Commission that the apparently lower rates on oil from points where the Standard Oil refineries were located were made by the railroads in order to give those refineries an advantage over the independent refineries located at other points. It is altogether likely that, wherever no other disturbing factors appeared, these departures from the observance of the ordinary principles of rate-making were made with some such ulterior motives as alleged. Whatever influence the large corporations have over the railroads may be used to prevent the extension of equally low rates to points where their competitors are located. The inequality of rates which results is not a personal discrimination within the meaning of the law, yet as far as its practical effects are concerned, it amounts to the same thing. Of course no harm would result if the independent producer could move his plant to the more favored point

without loss, but this is impossible after large amounts of capital have been invested in specialized buildings and machinery. There should certainly be some means by which the government may correct discriminations which arise under such circumstances as these. But such discriminations are already unlawful under the Interstate Commerce Law, which forbids all forms of unjust discrimination between persons and places. What is needed, therefore, is a quick and effective means of enforcing the present law. Another form of unjust discrimination between localities is that which frequently occurs where a railroad or its managers are personally interested in the development of some particular point. It is not infrequently the case that railway managers own elevator or other interests at some important grain centre. By extending especially low rates to that point, they are able to build up the business of that particular locality at the expense of other points, which, but for the difference in the rate, might be able to become strong competitors with the more favored point in carrying on the industry in question. Furthermore, as soon as the boom at the more favored point has reached its height, there is nothing to prevent the railway interests from selling out their property at inflated values, and then turning their attention to the development of some new point in which they may have become interested. There is no economic justification in discriminations such as these and they should be prevented. A common practice has been for railroads interested in Western lands to grant especially low rates on grain from points where their lands are located. They endeavor to build up those sections at the expense of other territory. The practice of granting especially low rates to certain points would not be an evil in itself, but frequently unreasonably higher charges are made to other points in order to force development into the particular channels which will be of personal profit to the railway managers. Any inequality of rates which cannot be justi