As to the attitude of courts and commissions, this changes and will continue to change with growing appreciation by both of the facts involved. Such facts for instance as are set forth so clearly in Dr. Reitell's paper. I cannot leave this point without commenting on the quotation from Commissioner Corr's dissenting opinion in the Indianapolis Water Company Case. His mention of "unlawful exactions" "unlawfully collected" seems to conflict with his admission of "the legal and technical title." It is for Commissioners to take the forward stand (the fact that we have Public Service Commissioners is a forward step) that such rates are improper and not consistent with public welfare and when the public has a reasonable basis for its acts and a good understanding of the equities involved (instead of an unreasoning hatred of all things corporate) public opinion and the court decisions will soon fall in line with the views of the most advanced Public Service Commissioner who is performing his duties with due regard to his oath of office. The Interstate Commerce Commission well says in the passage quoted: "Moreover some method must be found under which a carrier by its own efficiency and management shall profit-Society should not take from the wisely managed railroad the benefits which flow from the foresight, skill and planned coöperation of its working forces. It would appear that one of the problems of the future in railroad regulation is to discover the machinery by which the railroad may justly take to itself a return for the investment which its stockholders have made, and share with the community the surplus which it creates."

This brings us logically to the final section of Dr. Reitell's paper "Socializing the Corporate Surplus," in which he shows how some of the best operating and financial men are beginning to look at the problem. The Montreal Street Railway franchise seems most decidedly a step in the right direction and it would seem that greater publicity for this plan would be most helpful. The rate of return on the capital invested seems adequate and large enough to bring out more funds when necessary. The guaranty fund put up by the owners and the contingent reserve fund taken from the earnings are sufficiently large to warrant the public to expect the best of service and of equipment. It will be interesting to learn just what will happen to the fund of

$181,000 per year set aside from earnings as discount on new capital if capital is obtained at par.

Such a contract seems to be almost ideal in scope and aim and certainly is a middle ground worth trying out by both the exponents of private enterprise and those holding for municipal ownership pure and simple. The latter may be correct theoretically, but it would seem that until municipalities learn to run their police departments, their fire departments and their street departments without the scandals of the past it would be wiser for them to refrain from too great excursions into the departments of finance and operation involved in the operation of our Public Utilities.

How Freight Rates Should Be Made

By ROBERT W. WOOLLEY

Member of the Interstate Commerce Commission

HEN I appeared before the Interstate Commerce Commit

WH

tee of the United States Senate in January, 1919, and urged that the government retain control of the railroads taken over on December 28, 1917, for a definite period of five years following the proclamation of peace in order, among other things, that the method of fixing freight charges might be simplified and made uniform, or at least approximately so, the average professional traffic expert and conventionally-minded economist protested that I was a radical neophyte, an unsound experimentalist. This protest was echoed in the columns of the newspapers and of the periodical press generally.

There was never a more striking example of the fallibility of the human memory. Not only was I able to summon to my support in my condemnation of the existing so-called rate structure, the late Justice Harlan of the United States Supreme Court, Secretary Lane, formerly a member of the Interstate Commerce Commission, and the membership of the entire Interstate Commerce Commission as it was constituted in 1911, but I might have quoted in like vein from the testimony of a dozen or more traffic and shipping experts, and also not a few business men, who testified before the Cullom Committee in 1886, when the present Act to Regulate Commerce was being formulated. These witnesses strikingly set forth many cruel injustices wrought through freight rates as prescribed and manipulated by the carriers under state control or no control at all. Indeed, it could hardly be called a stretch of the imagination to say that the achievement of a simple and uniform method of freight rate making, fair to the weak and strong alike, was largely the underlying thought of the framers of this legislation. It was because of the gross inequalities everywhere evident, of high handed practices on the part of many of the carriers and favored shippers that the Act to Regulate Commerce became a national necessity. Yet Congress, with a maximum of caution, gave to the newly created Interstate Commerce Com

mission a law to administer which, until 1906, restricted the Commission's power to censure and advise. The result was that no matter how militantly inclined, how public spirited the early members of the Commission might have been, their ability effectively to help the public was practically negligible. So dominant carriers on the one hand and powerful shippers on the other, through a series of actions before the Commission, wrought a firmer foundation for the rate specializations which had been the very object of attack and builded thereon a mountain of rate blankets, primary markets and other preferential situations which have been perpetuated, with the result that the freight rate today, instead of being fixed and administered in the interest of all for the unit of service rendered, is the very Gibraltar of monopoly. This may appear to the average reader or even the average economist to be an extreme statement, but I propose in this article to show that the freight rate, notwithstanding the administration of it under the Act to Regulate Commerce, is still in the hands of those who seek to equalize commercial conditions at the expense of the consuming public and I propose to state what I think is the way to right the wrong done. The freight rate as it is today is more potential than a protective tariff.

I quote from my supplementary statement of February 10, 1919, to the Senate Committee on Interstate Commerce as follows:

With reference to the recommendation, made by me, that the period of federal control be extended to five years following the date of the President's proclamation of peace, in order, among other reasons, that a standard rate structure based upon a uniform mileage rate plus terminal charges might be substituted for the numerous rate-making plans now in effect, I beg to say that the premises for the proposed rate structure lie within the political and economic principles upon which rest the commerce clauses of the Constitution, namely: Art. 1, Sec. 8: "but all Duties, Imposts and Excises shall be uniform throughout the United States."

Sec. 9: "No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another."

"No Tax or Duty shall be laid on Articles exported from any State."

Sec. 10: "Prohibiting any State from laying imposts or duties on

imports or exports."

The simple meaning of these tenets, which have withstood years of judicial interpretation, is that, in a natural sense, there shall be a freedom of commerce

between States, unhampered by artificial burdens which may bear heavily upon some localities and yield preferences to others. Natural advantages are left open alike to all, and they shall not be enlarged or diminished by artificial means. That is to say, New York City is justly entitled to retain its natural advantages; but that city should not be given still greater advantages by exemption from the burdens of commerce that fall upon other cities and states. Conversely, the geographical and commercial status of other cities should not, by a similar means, be equalized with those of New York. This doctrine, which applies between individuals as well as between localities, is clearly and nicely enunciated in Interstate Commerce Commission v. Diffenbaugh, 222 U. S., 42, 46, where Justice Holmes, speaking of the law in its generic sense, stated that it "does not attempt to equalize fortune, opportunities, or abilities." Unless the act to regulate commerce is construed and administered in conformity with these principles we are confronted with the anomaly of a special statute eating at the structure of the Constitution. That statute, however, was enacted to preserve these very principles; and it must be construed and administered as meaning that it is not the function of transportation agencies to “equalize fortune, opportunities, or abilities." Nevertheless, we find a modified doctrine at present running through the many reported decisions in rate complaints, namely, that rates cannot be based alone upon commercial considerations. When the application of this doctrine is analyzed we find that it sustains railroad practices of: (a) Grouping together, under a common rate, many cities within a radius of as much as 500 miles (yellow pine blanket) in order to equalize commercial advantages between such cities.

(b) Charging lower rates to more distant points than to less distant intermediate points, intended to meet competition, but with the obvious effect of building up certain communities at the expense of others.

(c) Absorbing terminal charges or giving free terminal services at some localities, and levying charges at others.

Points are grouped under common rates on grain, grain products, coal, oil, forest products, meats, cattle, sugar, minerals, packing house and dairy products, fruits, vegetables, and other staples; and the considerations controlling these groupings are largely to "equalize commercial conditions," rather than to permit, as should be the case, the greatest development of natural resources and the widest distribution of raw products and manufactured articles where needed.

Like a tax or duty the freight rate attaches to the article of commerce and ultimately is borne indirectly by the consumer in the retail purchase price. It is only one of the many items of expense that enter into the total cost of production, manufacture and sale. The vendor and shipper, under trade practices, often sell their goods at a delivered price, and when this is done we are led to believe that the vendor, and not the vendee, bears the freight. But this is not true, since in all such transactions the selling price is always more than the total expenses, including