fied from the standpoint of the railway as a common carrier, with no ulterior interests whatever, in the nature of things is an unjust discrimination, and therefore unlawful. If the railroads were prevented from making such discriminations as these, proportionately low charges would be made over the whole section, since the railroads would then find it to their interests to develop the whole country which they serve. On the whole, however, it must be admitted that cases of unjust discrimination between localities are extremely rare, and where cases of this character have been brought to the attention of the railroads, they usually remedy them at once, without formal proceedings upon the part of the Commission.

But there is another class of discriminations which are much more common and less often justifiable. Such are the discriminations between similar classes of commodities. Yet even in respect to discriminations of this character, a close examination will show that the great majority of cases which have been made the subject of protest are the result of legitimate competition. Attempt to remedy such discriminations would lead to the same difficulties as the attempt to do away with the discriminations between localities which arise from the competition of railroads or from peculiar natural or acquired advantages. If the higher rate were found to be reasonable per se, the only means by which the discrimination could be prevented would be through the destruction of that competition which had given rise to it, an end by no means desirable. Thus in the recent decision handed down by Judge Bethea, of the United States Circuit Court, in the case involving discrimination between live stock and packing-house products from Missouri River points to Chicago, it was held that the lower rates on packing-house products were the result of legitimate competition. The Great Western had taken the initiative in a reduction of the rate on packing-house products, and the other roads

had been compelled to follow. The same forces had not operated to bring about a reduction in the rates on live stock, though these rates were shown to be quite reasonable in themselves. If a discrimination of this character were to be remedied, the remedy could be had only by a reduction in the rates on live stock, or by increasing the rate on packing-house products; that is to say in the one case, by depriving the roads of a fair return for their services, and in the other by destroying legitimate competition.

But still there are a large number of instances of such discrimination which cannot be justified on economic grounds. Thus a railroad, while making a low commodity rate on other rough lumber, placed railroad ties in the fifth class, thereby exacting a rate which was practically prohibitive upon the movement of that material.1 The object of this discrimination was that the railroad, being itself a large consumer of railroad ties, wished to keep this material upon its own line, and to depress the price so that it could obtain it at a "reasonable figure" at such time as it saw fit. Of course the railroad took into consideration the fact that as the forests were being cleared away, material of little use but for railroad ties would be cut down with the rest, and as this material would not bear transportation, owing to the excessive rate applied to it, the railroad would eventually be able to buy up these ties practically at its own price.

There are only three conditions under which discrimination between similar classes of commodities may be justified. The first condition is met wherever competition has acted with peculiar force in reducing the rates upon one commodity more than another. An instance of this kind of justifiable discrimination is exhibited in the recent cattle case cited above.

1 Thomas J. Reynolds vs. The Western New York and Penn. Railway Co., 1 Interstate Commerce Commission Reports, 393.

Secondly, discrimination between similar classes of commodities is justifiable when the higher charges are reasonable in themselves, and the lower charges are the highest which the traffic will bear. An instance of such discrimination is that which is frequently made between anthracite and bituminous coal. The Eastern roads charge a much higher rate upon the former than upon the latter. Yet upon most of the Eastern roads the rates upon anthracite coal are very reasonable, when considered apart from the lower rates upon bituminous coal, which, in most cases, barely exceed the cost of service. But if the rates on the latter were increased, the Eastern markets would cease to consume bituminous coal shipped from the West, but would draw their entire supplies from coal brought in by water from Canada or from other North Atlantic points. On the other hand, many roads west of Chicago charge a lower rate on anthracite than on bituminous coal. This results from the effort upon the part of the railroad to encourage the consumption of anthracite coal in the Western States, which, owing to the long distance which it must be transported, would otherwise be so expensive as to be beyond the reach of the ordinary consumer.

In the third place, discrimination between competing commodities may be justified on the ground that the cost of transporting one commodity is greater than that of the other. An instance of such justifiable discrimination is the common practice of charging less for furniture in the flat than in its finished state. It costs much less to handle the material in this form, and the railroads are therefore justified in making an allowance in the rate for this difference. In cases of this kind, however, there is no justification for a discrimination greater than the difference in the respective costs of service. While it might be impossible to compute absolute costs of service, the difference in relative costs may be computed with a fair degree of accuracy. The railroads should, therefore, be compelled to justify a discrim

ination of this character by an actual difference in the assignable cost of service.

Unfortunately, as already pointed out in the case of the discrimination against railroad ties, many of the discriminations between similar classes of commodities cannot be justified upon any of these grounds. Discriminations of this character may result from personal favoritism on the part of the railway managers or from caprice. The same economic forces do not interpose to make fair dealing essential to the highest welfare of the railroad itself, as is generally the case in the settlement of differentials between competing localities. In fact, it is usually a matter of indifference to the railroads which of two competing commodities they handle, or whether they carry the goods in the raw or in the finished state, provided their total amount of traffic remains the same.

A common case of discrimination of this kind is that made between grain and grain products. It may be a matter of indifference to the railroads whether they handle the grain itself or the flour and the meal. And yet, slight differentials in the rates upon these two commodities may have tremendous effect upon the development of the industries of large sections of the country. A differential of a few cents would determine whether the flour-mills of Minnesota should thrive, or those of the State of New York, whether the corn-meal used in Texas should be ground in that state, or in Kansas, whence Texas draws its corn supply. Arbitrary changes in a differential of this kind may result in the destruction of millions of dollars' worth of fixed capital, and the building up of the industry in some other section without the slightest aggregate advantage to society as a whole. In all this the railroads themselves would lose nothing. In fact, they would gain by securing the traffic of carrying the men and materials necessary to build up the industry in the new section. In the very nature of things, it is unjust that the railroads, whose interest

in such cases is very slight, should have the final power of deciding such issues, while society, whose interests are so large, should have nothing to say.

Many instances of sudden and arbitrary changes in the differentials upon competing classes of commodities might be given, and frequently the public has suffered severe loss in property values as the result of such actions. Take the case of the recent advance in the rate on corn-meal from Kansas points to Texas. For ten years the rate on cornmeal had been three cents higher than the rate on corn. On the basis of this differential the Kansas millers had found themselves able to compete with the Texas millers, and a large portion of the corn-meal used in Texas was ground in Kansas. In January, 1905, at the instigation of the millers of Texas, the Railroad Commission of that state announced a hearing for the purpose of determining whether intrastate grain-rates should be reduced. In order to prevent this, the railroads went to the millers and made a bargain with them. If the millers would agree to drop their complaint before the Texas Commission, the railroads, on their part, would advance the rate on corn-meal so as to exclude the Kansas millers from the Texas market. The bargain was carried out to the letter. The millers failed to appear before the Commission upon the date set for the hearing, and the grain-rates within the state were not reduced, while on the 19th of February, the railroads fulfilled their part of the contract by advancing the rate on corn-meal by an average of 5 cents per 100 lbs., without any corresponding increase in the rate on corn. The result

1 Hearings of the members of the Interstate Commerce Commission before the Senate Committee, testimony of Charles A. Prouty, p. 18. See also: 11 I. C. C. Rep. 220. Upon April 15, the differential was reduced to five cents to all Texas points.

After an extended hearing upon the case the Commission decided that any differential exceeding three cents per 100 lbs. would result in undue prejudice to the shippers of corn-meal, and the roads were accordingly ordered to cease and desist from charging a differential in excess of that amount.