to take that power away from them. I regard that as the first unfortunate step toward overthrowing the national policy of industry and transportation. I do not mean to say the railroads should have unlimited power in departing from this. I think there should be a certain restraint. But there was too great a restraint; then comes the law of 1920, which provides that the railroads must charge a "reasonably compensatory" rate to the competitive point. Now, there has been a good deal of discussion about the meaning of those words. My own opinion is that, when the Senate put those words into the bill-and they were put in in the Senate-no one really knew what they meant; and they did not care to know the precise meaning of those words. Now, that being so, it devolved upon the Interstate Commerce Commission to interpret them. Now, the Interstate Commerce Commission has interpreted those words with fairness, I think, and with a due regard to the wishes of Congress. The Interstate Commerce Commission has for the last 15 years recognized the economic conditions which I have endeavored to state to you; and they have under the law of 1910, or they did under the law of 1910, permit the making of those competitive rates under the same principles that the railroads operated under, namely, authorized a rate which met the out-of-pocket expenses, a rate which was no lower than was necessary to meet competition, and leaving the intermediate rates at a reasonable basis. Now, when the law of 1920 came the commission still held, I believe, to the view that the law of 1910 was adequate to meet the situation. But out of deference to the opinion of Congress the commission then said, in substance, "You have got to do something more than show something over out-of-pocket expenses.' Now, nobody knows just how much that is; nobody can tell. But the unfortunate thing about the law of 1920 is that it has made it so difficult to get relief from the Interstate Commerce Comsion, the Interstate Commerce Commission acting out of deference to the will of Congress. And to-day the situation is not as it should be, if our country is to continue to develop. And I believe that this Congress, or any Congress, could perform no greater act of statesmanship than to make less restrictive the exercise of discretion by the Interstate Commerce Commission rather than to take away from it all discretion. The CHAIRMAN. Are there any questions that any member of committee has to ask? Mr. RICH. I would like to say, Mr. Chairman and gentlemen, that if my answers are not responsive, I hope you will regard it as not altogether due to density of intelect, but due in some degree to a very serious impairment of hearing. The CHAIRMAN. Are there any questions to be asked of the witness? We will let you off without any questions, Mr. Rich. Mr. RICH. I thank you for your attention. Mr. THOM. Mr. Chairman, Mr. Beek has a statement which he desires to read. The CHAIRMAN. Very well. STATEMENT OF MR. JOSEPH H. BEEK, EXECUTIVE SECRETARY THE NATIONAL INDUSTRIAL TRAFFIC LEAGUE, CHICAGO, ILL. Mr. BEEK. Mr. Chairman and gentlemen; I have been sent a statement and asked to present it to the committee. This is a statement in behalf of the Manufacturers and Merchants' Association of St. Louis in opposition to the so-called Gooding bill. I will read it [reading]: Mr. Chairman and members of the committee, the board of directors of the Manufacturers and Merchants' Association of St. Louis, meeting in that city on January 27, 1925, voted to present to your committee the opposition of that organization to the measure known as the Gooding bill (S. 2327), now before your committee. The Manufacturers and Merchants' Association of St. Louis is composed entirely of manufacturers and shippers, has a membership of approximately 500 of the largest manufacturers of the largest city west of the Mississippi (membership verification in Department of Commerce Miscellaneous Series No. 99) and represents multiplied millions of dollars in investment and manufactured products annually. St. Louis is the geographical center of the Mississippi Valley, by far the most important city on the natural water transportation system of the Mississippi and Missouri Rivers, and is both a point of origin and a distributing center in a vast commerce between the Mississippi Valley and intermountain, coastal, gulf, and southwest points. In considering the Gooding bill, therefore, the Manufacturers' Association of St. Louis has not been unmindful of the necessity of water-transportation development, by both the rivers and the Panama Canal, but, on the contrary has had this water development at all times before it. No city in America has contributed to a larger degree to water-transportation movements than has St. Louis, and in the city's contribution to the cause, the Manufacturers and Merchants' Association has played an important part. However, in considering the Gooding bill, as in the consideration of any and all other proposed statutory changes in the transportation problem, we believe that transportation as a whole must be considered and not a particular, passing, temporary, or sectional grievance coming within the scope of the transportation act or its application. In the last analysis it is the consumer who has to pay the freight rate. Therefore the ultimate result of any change in the present rate structure must be given serious consideration and not merely the immediate or sectional proposed relief. And upon this fundamental theory of rate making all of the consumers of all the country must be taken into consideration, and not merely a sectional group or particular interest. A DANGEROUS PRECEDENT Since the earliest days of extensive movement of commerce by rail the problem which the Gooding bill seeks to solve by one sweeping order has been a subject of careful deliberation and cautious action on the part of the shipper, the railroads, and rate-making bodies. The long-and-short-haul problem was created when the first pound of freight was loaded into a car. By 1887, when Congress created the Interstate Commerce Commission, the problem was the same in character but larger in extent. And for 37 years it has been argued and fought out before the commission, in the various States, in State and Federal courts, and before the Supreme Court of the United States. During all these years, in the hundreds of investigations that have been made, in the comprehensive consideration of all those incalculable facts, circumstances, and conditions which enter into the rate-making problem one principle has been maintained to date, and that is that there should be no rigid long-and-short-haul clause in statutory enactments. Practically, though not perhaps in direct form, the Gooding bill seeks to destroy that principle and confine the rate-making body of the country, the Interstate Commerce Commission, to a rigid application of a long-and-short-haul clause. In the transportation act as now enforced the commission may, after investigation, grant relief under the fourth section to meet competition both as between rail carriers, and as between rail and water. Upon the theory that relief granted to a carrier under the present law may ultimately destroy the competition of water carriers, the Gooding bill provides that the carriers shall not be permitted to charge less for a longer than for a shorter haul (the shorter being included within the longer haul), except where between two rail carriers the carrier seeking relief is able to show that the route upon which relief is sought is longer than the route of another rail carrier between the same points. In other words, where there is competition as between rail and water the rail carrier is to be denied by statute any relief from the fourth-section, rigid, long-andshort-haul provision. To support this measure proponents from what is called the intermountain section of the country, comprising some seven or eight States and a population not in excess of 10 per cent of that of the Nation, have filed from time to time with the commission and more recently with the Senate committee of the United States Congress a mass of traffic detail, charts, figures, and facts purporting to show that relief granted in transcontinental traffic to railroads under the fourth section will be a distinct discrimination against these intermountain States and result in a demoralization of their industries. FUNDAMENTAL ISSUE In support also of the Gooding bill are found representatives of the intercoastal water lines operating through the Panama Canal. Stripped of the technical verbiage of the traffic expert and reduced to a question of policy or principle the problem loses a great deal of its intricacy. The Manufacturers and Merchants' Association of St. Louis believes that Congress faces a broad principle and not merely a sectional grievance. Shall Congress by statutory enactment place the rail carrier beyond the possibility of competition with the water carrier? Shall the admittedly higher cost of operation of the rail carrier be read into the law as a permanent barrier against rail and water competition? Shall Congress assume a rate-making function and strip the Interstate Commerce Commission of its authority in this vast field of rate adjustment? And if so, what will be the ultimate, not merely the immediate, effect? Two sections of the present transportation act which, is not proposed to amend, have much to do with an answer to the above questions. Section 500 of the act states that it is the "policy of Congress to promote, encourage and develop water transportation, service and facilities in connection with the commerce of the United States, and to foster and preserve in full vigor both rail and water transportation." Another section of the act provides that in fixing the rates to be charged by the rail carriers the Interstate Commerce Commission shall create a rate structure which will tend to grant to the carriers a reasonable return upon the investment devoted to public service. In order to carry out both of the "policies" cited above, the Interstate Commerce Commission has been granted broad inquisitorial powers and has been directed to use that power in a thorough investigation of the innumerable factors that enter into rate-making. A flexible long-and-short-haul clause is or has been set up heretofore as it was apparent that if the commission is to determine and fix a reasonable return to the carrier it may not do if there is attached to such direction a limitation upon its authority. SAFEGUARDS OF THE COMMISSION But, flexible as it may be, even the present_long-and-short-haul clause, and relief from it, are surrounded by safeguards. Congress first provided that any relief from the long-and-short haul must provide that where a lesser charge is made for a longer than a shorter haul the lesser charge must be "reasonably compensatory for the service performed." The commission interpreting this direction (74 I. C. C. LC 71) declared that no relief would be granted carriers (1) unless the long-haul rate will pay out-ofpocket costs and something additional; (2) unless the long-haul rate is such as not to endanger water competition; (3) unless the long-haul rate is such as not to interfere with the earning by the carrier of a reasonable return; and (4) unless the rate granted in the relief is such as not to place a burden on other traffic. Under the present law carriers can get relief under no other regulations or provisions. That is a commission decision. And to determine all the factors that enter into that delicate, intricate mechanism of rate making, in the longand-short-haul cases, the commission places in the public service, for the benefit of the consumer and shipper and carrier an army of experts, scientists, and technologists. The records of hearings are voluminous. Thousands of pages are devoted to individual cases. In the 1922 applications of the carriers the commission denied transcontinental traffic relief. Congress, under the Gooding bill, would determine the whole problem of this delicate operation with one sweeping clause and put into effect from coast to coast a definite rigid clause bearing upon rail-and-water competition. RESULT TO CONSUMER The Manufacturers and Merchants' Association of St. Louis finds further objection to the Gooding bill in its application and inevitable results. Commerce is increasing annually by rail and by water and this includes transcontinental traffic. If both "rail and water" transportation are to be "preserved in full vigor" there must be a distribution of the benefits of increasing commerce. If the rail carriers are not to be allowed to meet, in a reasonable manner, competition of water carriers, and yet are to be granted a fair return on actual investment devoted to public service, they must abandon all hope of business to and from competitive water points and devote their systems to intermediate point business. It will hardly be argued that such a readjustment would be tolerated if it included any material abandonment of service or equipment, and if service and equipment are not to be curtailed but aggregate business decreased, then the loss in revenue must be saddled on the rates to and from the intermediate points. Thus the entire rate-structure readjustment must necessarily result in increased rate schedules on all business left to the rail carriers, and the consumers of the Nation will have to meet the increased cost of freight charges. It is argued that the rail carrier will make no earning above "out of pocket" cost under fourth-section relief, or at least will not earn a fair return on investment actually devoted to that service. This point is hardly involved. The "reasonably compensatory for service performed" language of the transportation act is manifestly directed against ruinous competition in which rates might drop below actual costs. It is fundamental in any commercial enterprise that the wide distribution of production units, even though some of the units net only slightly above-cost earnings, tends to lower the overhead cost of production and therefore the general cost of the commodity. The same holds good with the carrier fundamentally. The consumer is purchasing service and the wide distribution of service units tends inevitably to general lower costs of that service. Narrowed units, as would result under the Gooding bill would, we believe, ultimately result in increased rates generally. CONCLUSION We believe that the rate-making power should be left with the commission where the delicacy of its operation can be dealt with both in general rules and specific applications and that an attempt by Congress to make rates, as the Gooding bill proposes to do, at least with respect to one set of rates, will prove a dangerous precedent. Congress might reasonably be asked later to take up and put into statutory law a direction affecting another phase of the rate structure. Congress inevitably would thus become the dumping ground for grievances of one locality against another over purely sectional problems. The Interstate Commerce Commission is the proper body to adjust such differences, but only on the basis of their relation to the whole problem of transportation, which, under the present law, the commission is required to do. We believe the Gooding bill will ultimately defeat its own purpose, that it creates a dangerous precedent in congressional rate making, and that it contravenes the fundamental principle upon which the Interstate Commerce Commission and its functions are founded. MANUFACTURERS AND MERCHANTS' ASSOCIATION OF ST. LOUIS. By order of the board of directors, as follows: Edwin B. Meissner, president, St. Louis Car Co.; Edw. J. Miller, The order of the board of directors and the names of the board of directors are given, some 25 or 30 of them; but, without attempting to read them all, I notice it is signed by Edwin B. Meissner, president of the St. Louis Car Co.; Edward J. Miller, president of the St. Louis Screw Co.; William L. Niekamp, president Beck & Corbitt Iron Co.; Joseph Peters, president and treasurer of the Joseph Peters Furniture Co., and a large number of other names signed altogether either by the presidents of the corporations, or their general managers. And. while I am not especially well acquainted in the city of St. Louis, I recognize these names as among the foremost people of St. Louis, and I submit that on behalf of the merchants and manufacturers of St. Louis, by request. The CHAIRMAN. Now, is there anybody else? (No response.) Mr. MAPES. May I ask Mr. Donnelly one more question? The CHAIRMAN. Mr. Donnelly, Mr. Mapes would like to ask you a question. Mr. MAPES. Mr. Donnelly, I assume you can answer the question. which I have in mind. This order of the Interstate Commerce Commission, made in 1918, which affected the fourth-section relief, as far as the western transcontinental traffic was concerned: How generally over the country did that apply? Mr. DONNELLY. My recollection is that that applied only to this western territory. Mr. MAPES. It did not apply to the Southeast? Mr. DONNELLY. No. |