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v. James10 shows that as to "those matters relating to commerce which are not of a nature to be affected by locality, but which necessarily ought to be the same over the whole country," failure of Congress to act is "a declaration that in those respects commerce should be free and unregulated by any statutory enactment."

Street railways engaged in interstate commerce cannot be regulated as to their interstate rates by state authority.11 In the Shreveport case,12 rates established under authority of the laws of the state of Texas were maintained by the carriers on intrastate traffic, which rates unlawfully discriminated against interstate rates maintained by the same carriers. Upon complaint to the Interstate Commerce Commission, it was found from the evidence of record that such relationship of rates resulted in undue preference and unjust discrimination, in violation of Section 3 of the Act to Regulate Commerce (now the Interstate Commerce Act.) The carriers defendant contended that the unlawful discrimination, if any, resulted from rates made under authority of the laws of Texas, and that such rates so made were not subject to the jurisdiction of the Interstate Commerce Commission. The contention of the carriers was not adopted, the Supreme Court holding that Section 3 prohibited all unjust discrimination, and that the fact that the discrimination arose from intrastate rates did not deprive Congress of the power to remove it, and that "in removing the injurious discriminations against interstate traffic Congress is not bound to reduce" interstate rates "below what

10 Western Union Tel. Co. v. James, 162 U. S. 650, 40 L. Ed. 1105, 16 Sup. Ct. 934. See also Welton v. Missouri, 91 U. S. 275, 282, 23 L. Ed. 347; Hall v. De Cuir, 95 U. S. 485, 5 Otto 485, 24 L. Ed. 547; Mobile County v. Kimball, 102 U. S. 691, 26 L. Ed. 238; Covington, etc., Bridge Co. v. Kentucky, 154 U. S. 204, 38 L. Ed. 962, 14 Sup. Ct. 1087.

11 South Covington Ry. v. Covington, 235 U. S. 537, 59 L. Ed. 350, 35 Sup. Ct. 158.

*

12 Houston E. & W. T. Ry. Co. v. United States, 234 U. S. 342, 58 L. Ed. 134, 1341, 34 Sup. Ct. 833, affirming Tex. & P. Ry. Co. v. U. S., 205' Fed. 380, and sustaining order of the commission in Railroad Com. of La. v. St. L. S. W. Ry. Co., 23 I. C. C. 31. See also, Corp. Com. of Okla. v. A. T. & S. F. Ry. Co., 31 I. C. C. 532; Merchants Exchange of St. Louis v. B. & O. R. Co., 34 I. C. C. 341.

it may deem to be a proper standard, fair to the carrier and to the public."

§ 4. Specific Exercise of Congressional Power in Assuring Adequate Transportation Service for the Country.—One of the major problems confronting the Congress at the close of the World War was the return of the railroads-which had been taken over, managed and operated by the federal government itself during the war period-to their owners under such circumstances as would tend, at least, to assure the people of the United States adequate transportation service in the future under private management and operation. Comprehensive legislation was enacted by Congress for this purpose. The background for such legislation, which is important in properly understanding its meaning and purpose, is thus described by the United States Supreme Court:13

"When the extraordinary demand for transportation arose in 1917, Congress and the President concluded to take over all the railroads into the management of the Federal Government, and by joint use of facilities, which the Anti-Trust Law was thought to prohibit under private management, and by use of Government credit, to increase their effectiveness. This was done by appropriate legislation and executive action under the war power. From January 1, 1918, until March 1, 1920, when the Transportation Act went into effect, the common carriers by steam railroad of the country were operated by the Federal Government. Due to the rapid rise in the prices of material and labor in 1918 and 1919, the expense of their operation had enormously increased by the time it was proposed to return the railroads to their owners. The owners insisted that their properties could not be turned back to them by the Government for useful operation without provision to aid them to meet a situation in which they were likely to face a demoralizing lack of credit and income. The Transportation Act of 1920 was the result."

In addition to making provision for the termination of federal control of the railroads, this Act embodied, under Title IV, various supplementary amendments to the Act to Regu

13 Railroad Commission of Wisconsin v. C. B. & Q. R. R. Co., 257 U. S. 563, 66 L. Ed. 371, 42 Sup. Ct. 232.

late Commerce. Section 422 (which became Section 15a of the Interstate Commerce Act14) was characterized by the United States Supreme Court in the Wisconsin case as the most novel and important feature of the entire Act. This section provides, first, that the Interstate Commerce Commission shall initiate, modify, establish or adjust rates so that carriers as a whole, or as a whole in each of such rate groups or territories as the Commission may from time to time designate, will, under honest, efficient and economical management and reasonable expenditures for maintenance of way, structures and equipment, earn an aggregate annual net operating income, 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. The Commission is further required to determine and make public from time to time what percentage of the aggregate property value of the railroads will constitute a fair return thereon, which return must be uniform for all rate groups or territories that may have been or may be designated by the Commission. In making such determination of a fair return, the Commission must, under the terms of this section, give due consideration, among other things, to the transportation needs of the country and the necessity for the enlargement of the transportation facilities to meet the needs of the people of the United States for adequate transportation. In addition to the duty of determining and making public from time to time the percentage of fair return to which the railroads are entitled, the Commission is required also to determine and promulgate periodically and as often as may be necessary the aggregate value of railroad properties.

This particular section also embodies elaborate provisions for the recapture of excess earnings of the railroads. Onehalf the excess over 6 per cent. which may be earned in any one year must be held in trust for the United States and, within four months from the close of the fiscal year, paid over to the Interstate Commerce Commission for the purpose of establishing and maintaining a general railroad contingent fund for use in the furtherance of the public interest in railway transportation, either through loans to railroads to meet

14 41 Stat. 488, Sec. 422, Title 49 U. S. C. A., Sec. 15a.

expenditures for capital account, to refund securities originally issued for capital account, or to purchase and lease to railroads transportation equipment and facilities.

The enactment of this section resulted in the establishment of a new objective, affirmative rather than negative in character, in the regulation of railroads by the federal government, viz., the promotion and maintenance of a system of railroad transportation, under private ownership, management and operation, adequate to the needs of the commerce of the country.

There is, to be sure, no guarantee, in the ordinary and usual sense of the word, of railroad earnings, but an assurance is held out that such earnings, insofar as it may be economically possible and to the extent that it may be accomplished by the regulating machinery of the federal government, will be reasonably adequate to compensate the capital employed in rendering railroad-transportation service, and to attract new capital therefor when needed.

In pursuance of the mandate of this section, the Interstate Commerce Commission, soon after such section became effective, undertook to readjust and revise the rate structure of the country in order to bring up railroad earnings to a higher level. The country was divided into four rate groups, viz., Eastern, Southern, Western, and Mountain-Pacific. An aggregate valuation of railroad property was determined and announced for each group, totaling, at that time, $18,900,000,000 for the continental United States as a whole. The percentage of return to which the railroads were entitled under such section was also promulgated. General increases were authorized in all railroad-transportation charges, including freight rates, passenger fares, sleeping- and parlor-car fares, and milk and cream rates. The Eastern group received a 40% increase in freight rates, the Southern 25%, the Western 35%, and the Mountain-Pacific 25%. Through rates from one territory to another were increased 33-1/3%. Passenger fares were increased uniformly 20% in all rate groups and between such groups. A surcharge was authorized to be added to sleeping- and parlor-car fares equal in amount to 50% of the charge for space. Milk and cream rates were increased uniformly 20% throughout the country. All of these in

creases were made effective in 1920.15 In 1922, on account of better economic conditions, a horizontal reduction of 10% in all freight rates was required by the Interstate Commerce Commission, and the percentage of return to the carriers was also slightly reduced.16

The constitutionality of this section of the law has been specifically attacked and upheld by the United States Supreme Court.17

§ 5. Power of the States Indirectly to Affect Interstate Commerce. That Congress alone may directly regulate or burden interstate commerce does not mean that the states may not, in the absence of federal action and under the police power of the state, pass regulations which may indirectly affect such commerce. Where diversity of treatment is possible, until Congress acts, there is room for state regulation which may have an indirect effect on interstate commerce. The power of Congress being supreme, when there is federal action, state regulations are thereby superseded. As to all external concerns Congress alone may act. As to "internal concerns which affect the states generally, '18 Congress having failed to act, a state may legislate in "safeguarding life and property and promoting comfort and convenience within. its jurisdiction," although such legislation "may extend incidentally to the operation of the carrier in the conduct of interstate business.''19

15 Increased Rates, 1920, 58 I. C. C. 220. The order of the Interstate Commerce Commission prescribing these increases was limited, in terms, to interstate commerce, but the increases were determined with the view of their application on both interstate and intrastate commerce, and in those cases where state authorities did not sanction such increases, they were generally put into effect on intrastate commerce by the Interstate Commerce Commission in proceedings brought by the carriers under Sec. 13 of the Act.

16 Reduced Rates, 1922, 68 I. C. C. 676. While this reduction was limited,

by the terms of the order of the Interstate Commerce Commission, to interstate commerce, it was intended to, and did, by action of the carriers and by state authorities, apply to intrastate commerce.

17 Dayton-Goose Creek Ry. Co. v. U. S., 263 U. S. 456, 68 L. Ed. 388, 44 Sup. Ct. 169.

18 Gibbons v. Ogden, 9 Wheat. 22 U. S. 1, 6 L. Ed. 23 (1824).

19 Simpson et al., R. R., etc., Com. of Minnesota v. Shepard, ("Minnesota Rate Cases'') 230 U. S. 352, 410, 57 L. Ed. 1151, 33 Sup. Ct. 729, citing cases; see also Chicago, R. I. & P. Ry.

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