us to initiate, m»lify, establish, or adjust rates so that carriers as a whole * will * * * earn an aerate annual net railway operating income equal as nearly as may be to a fair return * * ** I am trying to omit unnecessary language and merely read that which will interest you. I am not reading the language exactly, but I am reading the words which are necessary to convey their argument [continuing reading]: * "It directed us t› take as such fair return for two years beginning March 1, 1920, a sum equal to 54 per cent * and authorized us, in our discretion, to add thereto a sum equal to one-half of 1 per cent * * * “In our decision in Increased Rates, 1920, we fixed the increases They further say [reading]: etc. "If, without good reason, the fares within a State are lower than those authorized and established for interstate application, intrastate passenger traffic will not contribute its just -hare to the passenger revenues of the carriers, and the carriers may not earn the tatutory return without further increases in the transportation charges on other traffic, including interstate commerce, thus unjustly discriminating against such commerce. Then they go on, and I read this to show how they slide from the idea of loss to the carrier into a finding of unjust discrimination [continuing reading]: "We find that there are no conditions within Illinois justifying the maintenance of lower intra-tate passenger fares therein than the fares applicable to the interstate transportation of passengers to, from, or through the State; and that the maintenance of such intra tate fares lower than the just and reasonable interstate fares and charges established by the carriers pursuant to Ex parte 74 gives an undue preference and advantage to persons traveling in intrastate commerce in Illinois and subjects persons traveling in interstate commerce to, from, or through the State to unjust prejudice and disadvantage, and unjustly discriminates against interstate commerce; which undue prejudice and unjust discrimination should be removed." Now the commission discussed the law in those two cases, and in practically every case since, though in the more recent cases they have evidently treated the law as so well established that they need not refer back. They have referred to those two cases for the discussion of the law. Now in the Louisiana case, which has not yet been referred to here, which is reported in 60 I. C. C., 472, the commission went further than anywhere else. And I will read from page 476 [reading]: "Counsel for the Louisiana commission objected to the admission of evidence with respect to the reasonableness of rates on sugar cane on the ground that no sugar cane is moved in interstate commerce between points in Louisiana on the one hand and points in any other State on the other hand, and that, therefore, there can be no unjust discrimination against this particular traffic as between the rates applicable within the State and any other rates.' Counsel for repsondents, however, contend that there is unjust discrimination gainst interstate commerce by reason of the low basis of rates applicable on sugar cane. It is admitted that there is no discrimination as between intrastate shippers of sugar cane and interstate shippers of the same commodity. There is here no interstate commerce in sugar cane, but it seems manifestly unjust that interstate commerce and interstate shippers should be required to forego the use of needed equipment in order that this particular traffic may be accorded a preference, and that interstate commerce and interstate shippers should be penalized through the medium of necessarily higher interstate rates in order to meet the deficiency in revenue, amply portrayed upon this record, growing out of the preferred treatment of this particular kind of intrastate traffic and this special class of intrastate shippers." Then the Interstate Coramerce Commission, having asserted its jurisdiction, in a sudden fit of generosity-perhaps I ought not to have used the word "sudden,” and I do not, said [continuing reading]: "We can not assume that the Louisiana commission would attempt to require respondents to haul sugar cane under rates that are shown to be less than the cost of service. Under section 13 of the interstate commerce act we are authorized to avail ourselves of the cooperation of the state authorities and, inasmuch as the next season of harvest and transportation will not begin for several months, we shall defer for later consideration the issue with respect to rates on sugar cane. I ought also to say--what I omitted to say the other day-that in the Arkansas case The CHAIRMAN (interposing). Well, Mr. Benton, you know every word that they have said there in the Louisiana case would have been just as applicable to the law as it was before we changed it. Mr. BENTON. Why, the argument in the Louisiana case was that interstate shippers would have to bear the burden of any charge The CHAIRMAN (interposing). No, the idea is that it is a discrimination against interstate commerce. Mr. BENTON. Yes. Now that is the exact reason, that on this ground we ask to have section 15-a removed, because by reason of its requirement that the Commission produce a certain quantity of revenue it has been argued by the carriers before the Interstate Commerce Commission that that places a burden upon interstate commerce which results in a discrimination, and the commission has accepted that view of it and has expressed it in its reports, and it is entirely a new view which was never expressed before the transportation act with that section in it was passed. The CHAIRMAN. We will be compelled to suspend now as I have to open the Senate at 11 o'clock. We will take a recess until to-morrow morning at half past nine, in this room. (Whereupon, at 11 o'clock a. m., an adjournment was taken until Wednesday, November 2, 1921, at 9.30 o'clock a. m.) MODIFICATION OF TRANSPORTATION ACT, 1920. WEDNESDAY, NOVEMBER 2, 1921. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, The committee met, pursuant to adjournment, at 9.30 o'clock a. m., in the com- STATEMENT OF MR. JOHN E. BENTON-Resumed. Mr. BENTON. Mr. Chairman, we come here this morning for the purpose of completing our presentation upon the several resolutions that were passed by the convention in Atlanta, and that have been put into the record. Up to this time we have only discussed the first resolution. Nevertheless, I think I can complete what I want to say. I was talking about 15(a) at the last session. I have very little more to say about that. Then if the Senators are disposed to allow me 15 or 20 minutes without interrogation, I think I can put such matter into the record and make such comment upon the other resolutions as I desire, before presenting the concrete amendment which I desire to present and upon which questions will be asked. The CHAIRMAN. We will endeavor to control ourselves. Mr. BENTON. I had put into the record discussions from reports of the Interstate Commerce Commission, showing that they found in 15(a) the occasion, and in part, at least, legal justification, in their opinion, for the orders whih have been presented to you here. I said I would present the opinions of courts in which they took the same view. They are before me, and I will read quotations from three Federal courts sustaining those orders. The CHAIRMAN. The quotations referred to may be read into the record. Mr. BENTON (reading). “It has now, for the first time, become the duty of the Interstate Commerce Commission to fix interstate rates so that the railroads will receive a specified net rate from their entire business. An injury to a part injures the whole. It seems obvious that if a rate of 3.6 cents upon all the traffic is necessary in order to earn the prescribed net return, action by the State compelling a less rate on intrastate business will in turn compel the imposition of a larger rate than the interstate business, and seems highly probable that each railroad does so much interstate business that it suffers from this burden. The provision in the transportation act fixing this net rate as the basis of interstate rate making, rather than the inherent reasonableness of the interstate rates themselves, and several other provisions of the act, make the situation materially different from that existing when it was held that the forbidden discrimination did not result merely from the existence of State rates so low that the sum of the locals was less than the through rate." (Cincinnati Northern Railroad Company et al v. Public Utilities Commission of Ohio, U. S. District Court, Southern District of Ohio.) "Under the transportation act, * * * the commission is required to modity, establish, or adjust rates for the carriers as a whole or as a whole in each of such groups or territories as the commission shall from time to time designate. The carriers here are included in the eastern group. To permit the New York State law to prevail and the orders of the Public Service Commission of the State of New York to be enforced would create an unjust discrimination of rates between the intrastate rate for New York and the interstate rate which, in turn, would cast a burden upon the interstate commerce of the railroads within this group, resulting in such a rise for maintenance of prices of rates and fares within the eastern group so as to make up the deficiency caused by the lower intrastate rates and fares which the commission finds is between eleven and twelve million dollars per year." (Railroad Companies v. Public Service Commission of New York, U. S. District Court, Northern Dis trict of New York.) * "In addition to the sections which bear directly upon this subject of discriminations against interstate commerce, there are the financial provisions, and there is also the power given to the commission to prescribe the rate which it finds is necessary in order to maintain the revenues that are necessary for the lives of these national carriers. When you look to the financial consideration of the act it is selfevident that the purpose of Congress in authorizing the Interstate Commerce Commission to act, and the purpose of the commission * * to produce the indispensable revenue would be destroyed, if the State were permitted to allow intrastate passengers to ride upon interstate trains at a lesser compensation. We must assume that the calculations of the Interstate Commerce Commission have been based upon the cost of carrying the passengers, and if a rate is made on a basis of passenger per mile and the intrastate passengers paying a lesser rate, it is casting the direct burden upon interstate commerce and is jeopardizing the power of the national carriers to maintain themselves on the basis which Congress declared they are entitled to maintain." (Railroad Companies v. Railroad Commission of Wisconsin.) Mr. BENTON. That concludes what I desire to say about the effect of 15(a) as sustaining, or being the cause of the Interstate Commerce Commission's orders in these State cases. As I said at the outset, the question of safeguarding State power of regulation is entirely separable from the question of a continuance of 15(a). It will be seen, if these opinions of the Interstate Commerce Commission and the courts are read, that they connect them. They all come to the conclusion that Congress intended to put the State rates under the Interstate Commerce Commission for the purpose of controlling the amount of revenue derived from those rates. Unless 15(a) is to have the effect of sustaining the usurpation, as we call it, by the Interstate Commerce Com mission of State powers, it will be necessary either to repeal 15(a), or to make such amendments of section 13 as will make it perfectly clear that differences in revenue derived from rates does not, of itself, constitute discrimination. Now, the other ground upon which the application for repeal of 15(a) by the State commissions was based, as I said at the outset, is the ground that (15(a) has a tendency to increase interstate rates. On that point the resolution speaks for itself. There is little that I have occasion to say this morning. I want to read into the record on that point two paragraphs from the report of the Interstate Commerce Commission in the grain case, 64 I. C. C., 86. The paragraphs I read are from pages 98 and 99 of that report. The CHAIRMAN. The paragraphs referred to may be read in the record. Mr. BENTON (reading). "We are to administer, and, so far as possible, give force and life to all the provisions of the interstate commerce act. Section 1 requires that no more than just and reasonable rates for transportation be exacted, and in determining what is just and reasonable it has always been recognized that, among other factors, not only the cost of the service but its value to the user must be considered. In the exercise of our power to prescribe such rates, however, we are now required by section 15(a) to initiate, modify, establish, or adjust rates (as that term is defined in the section) so that carriers as a whole or in designated rate groups will, under proper standards of operation, earn an aggregate annual net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of transportation. "It is plainly our duty to do everything in our power to carry out this purpose. The experience of the past 12 months, however, has shown the limitations which surround in actual practice the operation of this provision of the law. The increases of 1920 were intended to give the carriers the specified return, and no doubt they would have done so if the volume of traffic had remained normal. Instead, it fell off sharply, and net earnings failed by a considerable margin to reach the desired mark. Nevertheless, when it became apparent that this would be the case, carriers and shippers alike agreed that it was not our duty, under section 15(a), to raise rates to still higher levels. To have done this would clearly have been a vain thing, harmful alike to the country and to the carriers. The rate adjustment can not with advantage be made dependent upon fluctuations in traffic. "It is also to be noted that the duty cast upon us by section 15(a) is a continuing duty and looks to the future. It does not constitute a guaranty to the carriers, nor is the obligation cumulative. We are not restricted by past or present statistics of operation and earnings. These are serviceable only as they illuminate the future. What is contemplated by the law is that in this exercise of our rate-making power the result shall reflect our best judgment as to the basis which may reasonably be expected for the future to yield the prescribed return." It will be noted that the commission, in its report, speaks of the duty existing upon the Interstate Commerce Commission, before the act was passed, to allow just and reasonable rates, and then speaks of the effect of section 15(a). I desire to read in the record some citations from court decisions and discussion of what are unjust and unreasonable rates, considered aside ftom the effect of 15(a); and for that purpose I read two or three pages from an argument which I made before the Interstate Commerce Commission in the grain case. The CHAIRMAN. It may be read. Mr. BENTON (reading). “The right to regulate charges to the public for the use of privately owned property devoted to the public service has its roots far back in the common law. Because this case calls only for a correct application of fundamental principles of law to established facts, it will be worth while to spend a few moments' time in examining the nature and extent of the right of public regulation. "Lord Chief Justice Hale, in 1609, said: * * "If the King or subject have a public wharf, unto which all persons that come to that port must come * there can not be taken arbitrary and excessive duties, * neither can they be enhanced to an immoderate rate; but the duties must be reasonable and moderate.' * * "By act of Parliament (3 William and Mary, chap. 12, Sec. XXIV), in 1691, it was provided: "And whereas divers waggoners * * * have raised the prices of carriage of goods in many places to excessive rates, to the great injury of trade,' etc. “The leading case on this subject in this country, as you all know, was Munn v. Illinois. I will not stop to read you the cases showing how the constitutional rule against confiscation finally took form and come to operate as a limitation upon the legislative power. It is only necessary to guard against a misapprehension of the effect of the constitutional limitation. "That limitation does not secure to the private owners of property devoted to public use immunity from regulation of rates at all times, except when the rates to be regulated yield more than a fair return. Unreasonable rates may not be charged, even though they would yield no more than a reasonable return upon the portion of the property devoted to the service for which they are sought to be imposed. "The right to earn a return is a private right, protected by the Constitution, but exercised subject to the dominant right of the public to enjoy the use of the property at a rate not in excess of the value of the service rendered. "The Supreme Court made this declaration clearly in the Covington Turnpike Co. case, 164 U. S., when it said: "The legislature has the authority in every case, where its power has not been restrained by contract, to proceed upon the ground that the public may not rightfully be required to submit too unreasonable exactions for the use of a public highway established and maintained under legislative authority. If a corporation can not maintain such a highway and earn dividends for stockholders, it is a misfortune for it and them which the Constitution does not require to be remedied by imposing unjust burdens upon the public. So that the right of the public to use the plaintiff's turnpike upon payment of such tolls as, in view of the nature and value of the service rendered by the company, are reasonable, is an element in the general inquiry whether the rates established by law are unjust and unreasonable.' These words were repeated in the very case in which the fair value rule was established, Smyth v. Ames, and the court added: What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth.' "Sometimes sentences that are full of meaning are so familiar to us that we fail to comprehend their most obvious import. I want to direct your attention to the concluding words of the quotation which I have just read: What the public is entitled to demand.' Rates not exceeding the worth of the service are not merely something which the carriers may grant, nor even merely something which they ought to grant, but can not be compelled to grant-they are, in the words of the court, what the public has a right to demand.' Whatever the public has a right to demand, it is the right and the power and the duty of this commission to require. "It is a sovereign right, exercised now, as it was in 1691, in the words of that ancient statute. to prevent injury to trade.' It springs from the public nature of the property. When property is once devoted to public purposes, though it may remain privately owned, the public right becomes dominant. It can not be withdrawn directly and wholly from public use without the consent of the sovereign. Neither can it be so withdrawn indirectly by the imposition of charges on any class of traffic |