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all agree.

Mr. CLEMENTS. It seems to me so, if there was some way to have that obeyed. To say that such a rate is a lawful rate is one thing, and to have it conformed to is another thing.

Mr. ADAMSON. I want to ask you about another bill. I believe you have read the bill I introduced early in the Fifty-eighth Congress.

Mr. CLEMENTS. Yes; some time ago.

Mr. ADAMSON. I would like to ask you whether it is your recollection that that embodied all the recommendations, substantially, that the Comunission made for amendment to the law ?

Mr. CLEMENTS. It embodied as many as were concurred in by the Commissioners, I think. Of course there are five of us, and we do not

Mr. LAMAR. One other question, Judge, and I am through. Upon the question of capitalization I asked Mr. Bird a question, and I would like to ask you substantially the same thing. Leaving out all question of contest among carriers for freight, and leaving out all question of a particular rate as being unreasonable, and taking the whole tariff sheets of the railroads of the United States, must they not bear a direct relation to the capital invested in those properties?

Mr. CLEMENTS. I think so. The Supreme Court has indicated that.

Mr. LAMAR. The Supreme Court has said that in the Nebraska case. If that be true, and the Supreme Court has gone to the extent of saying that they can not earn compensation upon fictitious capital

Mr. CLEMENTS. Yes.

Mr. Lamar. Now, has your Commission ever inquired into the question of how much fictitious capital exists in all the railroads of the United States ?

Mr. CLEMENTS. It has never made any exhaustive examination of that matter that would be at all satisfactory.

Mr. LAMAR. As I understand it, the public generally has a belief, whether it be true or not-and it is a pity that that matter has not been investigated—that a large proportion of the capital of American railways is fictitious. If that be true it disposes of the argument of the railway men that railroad rates are reasonable, because if they are confiscatory they are unreasonable and extortionate. So that is an important question. The Supreme Court has said that as the basis of overthrowing a schedule of rates.

Mr. CLEMENTS. It is a very important question and a very large one.

Mr. LAMAR. It is such a vital question I am surprised that no statistics exist in the United States to challenge the fictitious capitalwind and water, as it is called popularly—in railways, for the simple fact that if that fact were proven it would be conclusive proof to the American mind that the present rates are unreasonable. Taking their own assertion that the present railroad rates are reasonable, it overthrows their statement at once, because it would be patent that they were earning dividends on capital not invested, and the Supreme Court says they can not do that.

Mr. MANN. What is the average rate of dividends now on all the capital stock of the railways of the United States, par value?

Mr. CLEMENTS. I have not those figures with me, Mr. Mann.

Mr. Mann. I suppose it would depend on what the present rates are whether it would show what Mr. Lamar suggests?

Mr. LAMAR. Does not the Industrial Commission in its general conclusions—I ask for information, I am not quite sure about itsay that everything is conjecture—and I believe there is a great deal of conjecture about all these questions—but being permitted to have their guess, have they not guessed that a large percentage of capital in the railways of America is fictitious ?

Mr. CLEMENTS. I believe so.

Mr. Mann. The market value of the capital stock will demonstrate that fact, that it is either fictitious or worthless.

Mr. CLEMENTS. Yes; some of it is not worth much.

Mr. BURKE. I understand you to say that discriminations by reason of a secret rate or cut rate or rebate have practically ceased ?

Mr. CLEMENTS. As compared with what was going on three or four or five years ago, yes.

I do not mean to say in this vast country, with all its great variety of commercial interests and industries, that there is not some of that going on, and probably there always will be, but it has been very greatly diminished.

Mr. BURKE. I believe you stated that certain proceedings were instituted in the way of injunction proceedings under the Elkins law.

Mr. CLEMENTS. Yes.

Mr. BURKE. Is your legislation adequate and sufficient on that point?

Mr. CLEMENTS. Well, we have several cases pending now under the Elkins law, and it is a little too early to say it will be sufficient in all respects, because it has not been tested, as we have had to test these former laws, by judicial procedure.

Mr. BURKE. Have you any reason to think at this time that it is not adequate ?

Mr. CLEMENTS. I have no suggestions to make in the way of further legislation to cover what are known as secret rebates, cut rates, and so on, which are covered mainly by the Elkins bill; but among other things one important thing is to practically prohibit and effectually stop certain abuses in respect to these terminal railways and car lines. For instance, an industrial plant that was a manufacturer and was running for no other purpose some few years ago has had switches put in and has incorporated as a railroad, and then it asked of the real railroad a division of the rates. Competition between carriers leads to that.

The CHAIRMAN. Is it your opinion that the present legislation gives power to the Commission and the courts to remedy those evils!

Mr. CLEMENTS. There is some difference of opinion among us about that.

The CHAIRMAN. I am asking your opinion.

Mr. CLEMENTS. It is stoutly denied by the car-line owners, and by the railroads, too, that use those car lines, that the Commission can pass upon the reasonableness of a refrigerator charge, an icing charge made in connection with the transportation of fruits and vegetables coming from California and other points to the eastern market. A great many of those railroads now have exclusive contracts with these car companies that the refrigerator cars of the companies shall be handled exclusively by railroad companies. The railroads do not publish the schedules for the icing service

The CHAIRMAX. I was asking you particularly with regard to the two instances that you gave where à fictitious railroad is created for the purpose of a joint rate and where an extravagant mileage is paid.

Mr. CLEMENTS. I do not see why that can not be found upon the facts to be a rebate, where it is excessive.

The CHAIRMAN. Then, in your judgment, the present legislation is sufficient to remedy those evils?

Mr. CLEMENTS. That is what I think, although that is an untried question. We have some matters of that kind now pending.

The CHAIRMAN. I am asking your opinion.

Mr. TOWNSEND. The question was asked you a little while ago in regard to the courts reviewing the unreasonableness of a rate. I notice in all the bills it is provided that the court may pass upon the reasonableness and law fulness of the rate. What is the distinction between those two terms; or, to put it in other words, what is there in " reasonableness” that is not covered by “lawfulness” that would be reviewable by the courts?

Mr. CLEMENTS. I do not know yet what the law is about it. I do not suppose there is anybody here who can say for a certainty. Suppose the law was that the Commission could, upon inquiry, fix a reasonable rate, which would be the lawful rate without appeal, with no review, and that would be the end of the law according to its terms.

Now, the railroad could nevertheless go into the courts, without any further provision of law, under the Constitution of the United States, and attack that rate as confiscatory just as if Congress had said that should be the rate, or a State commission or State legislature should say it, as they have done in various cases. Suppose it is claimed by the carrier that it is unreasonable because it does not allow a fair compensation, and, therefore, to that extent is confiscatory, because it intrenches upon the right of the carrier to make a reasonable return upon the actual capital invested. Now, will the court hold that that is an unlawful rate because it is unreasonably low and yet that there is some profit, but not enough? I confess I do not know

Mr. TOWNSEND. Does not unlawfulness cover all the ground that you hope to cover there, without the word "unreasonable?”

Mr. CLEMENTS. I think it does; that is my judgment about it. I hardly think a court would hold a rate to be lawful that was unrcasonable. It is because it is unreasonable that the law allows the court and the Commission to condemn a rate made by the carriers, and if it is unreasonable to the carrier I suppose the courts would apply the same rule

The CHAIRMAN. Might not a rate be unreasonably low, fixed by the company itself, and yet be lawful so far as those parties were concerned ?

Mr. CLEMENTS. I presume so; I have never thought otherwise.

The CHAIRMAN. And yet be unreasonable and unlawful so far as other parties were concerned—its discriminating between localities?

Mr. CLEMENTS. That is what this law proceeds upon now, that there may be discriminations of that sort; and by having one rate unreasonably low and another one unreasonably high, or even reason

ably high, the difference is so great that it allows one shipper to overreach his competitor. That is what I understand to be undue and unreasonable discrimination.

The CHAIRMAN. If the high rate was reasonable in the case of localities, then the remedy would be to raise the lower rate, would it?

Mr. CLEMENTS. If the higher rate was reasonable? The CHAIRMAN. If the higher rate was reasonable and the other rate unreasonably low, creating a discrimination between localities, would that furnish a case for the intervention of the Commission and the raising of the lower rate?

Mr. CLEMENTS. Well, we do not understand that under the law we can do that. We have said repeatedly in these cases where we thought that was the case that we condemned the discrimination, found that unreasonable and wrong, and ordered them to cease and desist from that, and admitted that they could cure that by raising the lower rate.

The CHAIRMAN. I am speaking now of localities that were not served by the same carrier.

Mr. CLEMENTS. Oh!
The CHAIRMAN. Where the discrimination is between localities.
Mr. CLEMENTS. As between places served by the same carrier ?

The CHAIRMAN. No; by other carriers; and the higher rate is conceded to be a reasonable rate and the lower rate unreasonably low. Now, in order to remedy that discrimination would you raise the lower rate?

Mr. CLEMENTS. That is a new question. Of course no such question as that can be raised in the law we now have, as I understand it. The present law deals with the carriers. You can not make one carrier change its rates because of what some other independent carrier is doing, whether it is a high or low rate.

The CHAIRMAN. Then questions of discrimination of that kind between localities are not within the jurisdiction of the Commission?

Mr. CLEMENTS. Not unless the discrimination is by the same carrier.

The Chairman. In your judgment, do you think discriminations of the kind I have spoken of ought to be within the jurisdiction of the Commission?

Mr. CLEMENTS. That is a pretty broad question, and I would hesitate to say that they ought to be.

The CHAIRMAN. You think that they ought not to be?
Mr. CLEMENTS. I am not prepared to say that they ought to be.

The CHAIRMAN. Is it not true that the Commission has frequently assumed jurisdiction of discriminations of that kind?

Mr. CLEMENTS. By different carriers ?
The CHAIRMAN. Yes, sir.

Mr. CLEMENTS. No, sir; I do not understand so. We have investigated the condition of rates by all carriers between certain points frequently, but not with the view of making the roads parties and issuing an order against a particular carrier or several carriers on account of rates that other and independent carriers have made; we have not done that.

The CHAIRMAN. The Eau Claire case, you do not think, involved that question?

Mr. CLEMENTS. I think in that case the Commission finally found that its order could not be enforced because one road served one of the favored points and didn't serve the complaining town. We understand this act to run and apply against carriers if they combine or if they make a through line, and so forth, and we have investigated tariff conditions and practices in respect to the railroads in a large territory, but not on a complaint in which we expected to make an order correcting any differences of the sort you mention.

It is said by the carriers in opposition to public rate regulation that “ an unreasonable rate per se is a thing of the past.” If the shipper has any right involved in the amount of the rate, there should be some place where he can be heard as well as the other party to the controversy who is making the rate; and such hearing should be with the usual effect of ordinary hearings in other matters, to the ascertainment of what is right and lawful and the enforcement of the same. Any other course must assume that the carriers can do no wrong in respect to these matters and exempt the complaints and issues in respect thereto from the ordinary and time-honored methods of procedure, which are based upon the principles of fair play and equal justice and have been recognized at least as long as the common law has existed.

Gentlemen, I am very much obliged to you. I have taken very much more time than I intended.

The CHAIRMAN. I would like to say to the committee that Mr. Crocker and Mr. Rulofson, from San Francisco, who were expected here on Monday, and who were detained in Chicago, are here now, and if it is the pleasure of the committee we will hear them briefly. I will say to those gentlemen that the committee had closed its hearings. Mr. Crocker submitted the following papers:

SAN FRANCISCO, January 19, 1905. To all whom it may concern:

This is to certify that Mr. A. C. Rulofson was duly appointed at a meeting of the board of directors of the Manufacturers and Producers' Association, held January 19, 1905, as a delegate to proceed to Washington, D. C., for the purpose of urging upon Congress the disadvantages to the business interests of the Pacific coast of any legislation which shall give the Interstate Commerce Commission the arbitrary right to make rates. (SEAL.] MANUFACTURERS AND PRODUCERS' ASSOCIATION OF CALIFORNIA.

E. GOODWIN, Secretary.

Preamble and resolutions adopted by the board of directors of the Manufac

turers and Producers' Association of California, January 19, 1905.

Whereas the present welfare of the manufacturers, producers, wholesalers, and jobbers of the Pacific coast and the future growth and development of their various and varied business interests depend largely upon a system of rate making by the transcontinental railroads, by which the terminal rate to which the jobbing and manufacturing cities of the coast are justly entitled by reason of water competition is recognized; and

Whereas determined effort has been made in the past by the manufacturers, producers, wholesalers, and jobbers of other sections to do away with said

H. Doc. 422, 58-3—24

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