An instance of what appeared to be extortionate rates occurred a few years ago in the West. Though the rates on flour and grain in other parts of the country seldom average more than three fourths of a cent per ton-mile, rates several times as high were in force for some time from Kansas to Texas points, being in many instances as high as four cents per ton-mile.' When these rates were complained of, the railroads were unable to give satisfactory reasons for this apparent anomaly.

Again when Mr. James J. Hill was being examined before the Senate Committee, he pointed out that the rate on engines was lower over his lines from Philadelphia to Japan than it was over other roads for distances of less than five hundred miles. Upon being asked if he considered the latter rates excessive, he answered that he considered that they were at least twice as high as they ought to be.2

In another instance, we find a railroad charging a through passenger rate of ten cents per mile, though its net earnings were already excessive.3

Notwithstanding the large number of instances similar to those which have just been cited, it must be admitted

some of its larger shareholders. In fact, since the passage of this law, the railroads have been rapidly disposing of their industrial stock to new corporations composed almost entirely of their own principal stockholders. It is extremely doubtful whether the Federal Government would have the constitutional authority to do more in such a case than to insist that the rates charged by the railroad should be reasonable, and that it should give impartial service to all applicants.

The exception which is made for timber was probably for the protection of a few short lines in the timber districts, practically the whole of whose business consists in transporting the timber which is the product of their own sawmills. At any rate the railroads cannot complain that they have not been given plenty of time to dispose of their industrial stock and arrange their affairs in such a way as not to come into conflict with this provision.

1 In the matter of alleged excessive rates on food products, see 4 I. C. C. Rep. 48.

2 Hearings of the members of the Interstate Commerce Commission before the Senate Committee (1905), statement of J. C. Clements, p. 73.

3 Board of R. R. and Warehouse Commissioners of the State of Mo. vs. The Eureka Springs Ry. Co., 7 I. C. C. Rep. 55.

that cases of extortionate rates are, perhaps, the least frequent of all the abuses of our present railway system. Up to the present time the railroads have been held pretty thoroughly in check by competition, and by the automatic limitations which result from their desire to develop the largest amount of traffic possible.

The restraining influence of competition is felt in a much wider field than merely that of parallel lines. In the first place, there is the competition of international markets. It is, therefore, to the interests of the railways of this country that they should make the rates on grain and other exportable materials low enough to enable the American farmers to compete with the producers of similar material in such countries as Argentine, Australia, or Eastern Russia. If the rates on such commodities should be permanently maintained at too high a level, the railways would lose a considerable portion of their traffic, which would probably result in a curtailment of their net revenue. Those railroads, therefore, which tap the wheat-producing regions of the Northwest as truly compete with the steamship lines to Argentine and Australia as they compete with one another. In the former case, however, the competition is of a broader and more permanent kind, and there is little probability of its elimination.

Secondly, there is the competition of markets and of producing areas within the United States itself. The railroads leading to the wheat-fields of the Northwest compete with those which tap the winter-wheat sections of Kansas and Nebraska. If a reduction in the rates from either district is not met by a corresponding reduction in the rates from the other, the development of the resources of the latter district would be greatly hindered, and hence the amount of traffic of the railroads serving it would fail to increase as rapidly as would otherwise be the case. Additional increments of capital and labor would flow to the more favored locality, and the equilib

rium could be reëstablished only when the most available resources of one section should be exhausted, or when the old differentials in rates should be restored. Thus at whatever point an industry may be located, the railroads at that point compete with all the railroads throughout the United States which serve localities where similar industries, capable of supplying the same markets, are situated. Neither is there any immediate prospect that such competition will be eliminated. At any rate, it will exist till all the railroads and water routes combine into one gigantic monopoly.

It is not at all likely that the present generation will witness such an outcome.' The people would never submit to it. Such action by the railroads would invite government ownership, which would inevitably follow. Furthermore, such a combination would be extremely difficult under our laws as they now stand. Pooling is prohibited by the Interstate Commerce Act, and it has been held that illegal pooling consists of all agreements of whatever character which are made in restraint of competition." The Sherman Anti-Trust Act forbids all combinations, of whatever nature, which in effect are a restraint upon interstate commerce, and provides severe punishment for any attempt to monopolize interstate commerce or any portion of it. The latter provision, if enforced, would no doubt cover cases of ordinary purchase where the intent was to secure a monopoly. The decision in the Northern Securities case shows how literally some of the provisions of this Act may be enforced.

Again, the interests of the railroads themselves check unlimited combination. After a certain point is reached, a railroad system becomes so large that its economical management as a unit becomes impossible. Thus many

Just as this is going to press the tremendous purchases of the Union Pacific interests in the stock of the Illinois Central, the Chicago and Alton, and other lines, are exciting universal comment.

The Interstate Commerce Commission vs. A. T. & S. F. Ry. et al. (132 Fed. Rep. 829).

of our large systems find it to their advantage to operate leased and purchased lines as separate systems. The amalgamation of three great railroads by the formation of the Northern Securities Company entailed no change whatever in the operating methods. Thus whatever advantage was to be secured was in the common financial management rather than in those savings which would ordinarily attend production upon a large scale. Then, too, the love of power and the personal rivalries of our great railway magnates would tend to deter them from subordinating themselves in any great railway combination, where each of these hitherto bitter rivals would be compelled to yield to the will of the majority, and where his personality would be almost wholly lost.

Finally, there is the competition of parallel lines; but this kind of competition, in many of the forms in which it has hitherto exhibited itself, seems to be rapidly disappearing. In the very nature of things, two different rates upon the same commodities, at the same time, and between the same points, are impossible. A railroad, therefore, has nothing to gain by a reduction in its published rates, for in such a case its rivals will immediately meet the reduction by similar cuts in their rates, so that the relative position of the first road would not be improved, though the absolute amount of the earnings of all the roads concerned would probably be diminished, owing to the lower scale of rates which would result. It is therefore absolutely necessary that these roads should come to some sort of an understanding, and that they should mutually endeavor to maintain whatever rates may be agreed upon. It is now only in exceptional cases that competing lines break away from these agreements for a test of strength in a rate-war. Yet experience has shown that whenever such wars have occurred, some of the reductions effected are usually permanent, the rates agreed upon at the end of the war being generally lower than those which prevailed previously.

Moreover, wherever there are many competing lines, an advance of rates is extremely difficult, for all the rival roads are not apt to agree upon the advisability of the advance, and if one road refuses to accede to it, the others can accomplish nothing. Likewise the managers of one road might believe that the total amount of traffic would be considerably increased by a reduction in the rate, and the other roads would be compelled to follow its action, whether they wished to do so or not.

There is, however, another form which this competition assumes which is frequently overlooked. It exhibits itself in the reductions which result from private contracts with large shippers. Thus in the recent packing-house products case, already referred to,1 it appeared that certain large packers of Kansas City had contracted with President Stickney of the Great Western to give him a considerable portion of their traffic for a period of seven years provided he would lead out in making a certain reduction in the rate on packing-house products which they desired. To this proposition he agreed, and when the reduction was made, the other roads were compelled to meet it in order to retain any portion of the business whatever. There is no illegality in such a contract, for the reduced rate was open to all shippers. The Great Western was well repaid for taking the initiative in the reduction by a large increase in its proportion of the competitive business. Competition of this character will continue to exist as long as parallel lines are owned by different sets of stockholders.

Still it must be admitted that railway competition in our country is a much less potent factor than it was ten or twenty years ago. Nearly three fourths of the total mileage of the country is now owned or controlled by five different systems, and the community of interest between these systems is in many cases large. More than $2,000,000,000 of railway stock is now owned by 1 See p. 30.