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goes to aid in supporting the road and paying its expenses, and to that extent lightens the burdens which have to be put upon local freights for its support.
No citizen of Georgia is injured in the slightest particular by the action of the Central Railroad in loading the Saint Louis freight into the car that would otherwise go empty, and transporting it across the territory of the State; while, on the other hand, every citizen who is a patron of the Central Railroad, and has to pay local freights upon it, is to that extent relieved, as his local freights can to that extent be placed at a lower rate. While, therefore, the rule that you shall not carry the same quality and quantity of through freights a longer distance for less money than you carry the like quality and quantity of local freight for a shorter distance is plausible, and appears to be right in itself, all railroad experience shows it to be impracticable, seriously disturbing the operations of through transportation, and to be highly detrimental to the commerce of the country.
No railroad company can continue to run long unless it is permitted to make its fixed expenses, and if it is limited to fixed expenses it can pay no dividends nor can it pay interest upon the capital invested. By the fixed expenses I mean all the expenditure necessary to the purchase of cross-ties, new rails when those upon the track are being too much worn, to keep the bridges and culverts and everything pertaining to the track in good order, to purchase a sufficient number of engines and cars to transact the business of the road, to keep them in good repair and replace them with new ones when worn out.
This includes the expense that every railroad company has to incur in its repair shops, where a large number of machinists and mechanics are necessary to keep the engines and cars in good running order. Fixed expense also includes the salaries or compensation paid train hands, conductors, engine-runners, firemen, track-hands, flagmen, &c. It also includes the salaries of all the officers and agents connected with the company. All these expenses are necessary to keep the road in good running order, so that it can serve the public, and unless the company is permitted to make an amount large enough to cover all these expenses it can not be said to pay fixed expense, and any company that fails to pay the fixed expenses must of course soon go into the hands of a receiver, or it must let the road run down until it becomes too much dilapidated and too dangerous to serve the country longer by the transportation of freight and passengers.
But if you establish the rule that railroad companies shall only be permitted to collect enough for the transportation of freights and passengers to pay fixed expenses, you confiscate the capital invested in the enterprise to the public use without any compensation, as the railroad company that can pay no more than its fixed expenses neither pays interest upon the capital invested in the enterprise nor does it pay any dividends to the stockholders.
Every railroad which is built with the consent of the State under a charter given by the State for transportation in a particular section of country where it has been honestly built and the stock pot watered (and I do not justify speculation by watering stock) should be permitted to charge enough to pay all fixed expenses and to pay a reasonable amount as dividends to the stockholders, or to pay interest with a reasonable sinking fund, so as to extinguish the debt of the company within a reasonable time. I presume few men will deny that every railroad company oaght to be permitted to charge enough to meet the expenses of the company and to pay reasonable interest or dividends on the capital invested.
Under the present practice, where the Legislatures, the courts and juries, and the public, and indeed everybody, are in favor of robbing railroads or treating them as public enemies, much the larger proportion of them have gone into bankruptcy, or have found themselves wholly unable to pay the interest on their debt or to pay any reasonable dividends to the stockholders. I do not know half a dozen railroads in the whole Southern country from Washington to the Mississippi River and from the Atlantic to the Ohio River that are paying dividends to the stockholders on the original cost of constructing the road. Then there is no encouragement to capitalists for the future to put their money into the construction of new railroads, and as long as there is a general dispositions to make war upon them men of sense will decline to invest more money in railroad stocks or in the construction of railroads.
Some of the leading European governments have grappled with this question years since and have, after long experience, condemned the very proposition contained in the fourth section of this act and the amendment. They have found that it will not work in practice, that they are obliged to permit freights and passengers on many occasions to be transported a greater distance for less money. If a railroad company is to pay fixed expenses and dividends to the stock-holders, it must clear the money necessary to meet, such expenses either out of local freights or through freights or both.
Experience has shown in such case that the best that can be done is to fix the local freights at reasonable rates, with a view to meeting the necessary expenses of the company, and then rather than exclude through freights for long distances, and rather than have part of their employés and rolling-stock idle for a portion of the time, it has been found better to carry through freights in competition with other lines long distances at rates which are many times but little more than the actual cost of transportation. If it exceeds the cost of transportation a small amount is made by the company, which aids it in meeting its necessary expenses and relieves local freight from that much additional charges.
Probably not more than one-tenth of the freight carried is through freight over some of the long competing lines. The company can not afford to carry the other nine-tenths of its freight at the rates charged for the through freight, as it can not do so and pay necessary expenses, and if it is prohibited from carrying one-tenth or more of its freights long distances in competition with long through lines, it prevents those who are located far in the interior from reaching coast cities at all with their produce, and takes away from the company the small amount of clear money it realizes on such freights.
As already stated, experience has shown in foreign governments that it is unwise to restrict railroads within the limits prescribed by the proposed legislation.
Mr. E. B. Stahlman, one of the vice-presidents of the Louisville and Nashville Railroad Company, who appeared before the House committee and discussed this great question, made an argument so able and interesting that I shall make no apology for making quotations from it, as I can produce nothing better, and I have heard nothing better produced in the Senate.
Mr. Stahlman had looked into the action of the English, French, and German Governments upon this very question, and I quote from his speech.
He first refers to Great Britain, and says: In 1865 a royal commission, created to consider the entire railway question, in an elaborate report made in 1867, said:
"Inequality of charge in respect of distance, besides being a necessary consequence of competition, is an essential element in the carrying trade; that is to say, the principle which governs the railway company in fixing the rate is that of creating a traffic by charging such a sum for conveyance as will induce the product of one district to compete with another in the same market. The power of granting special rates thus permits a development of trade which would not otherwise exist; and it is abundantly evident, continues this able commission,
that a large portion of the trade of the country at the present time has been cre ated by and is continued on the faith of special rates. The conditions under which such rates are granted are so numerous that no special law could be framed to meet them."
In 1872 another commission was appointed upon the much vexed question of special rates, and after concluding that the enforcement of equal rates was “impracticable and inexpedient," says:
“It would prevent railway companies from lowering their rates so as to com-
In introducing the bill based upon this report to the house of commons, the
There was the question whether the unlimited power of varying their charges to the public which the railway companies now use (note this, notwithstanding former legislation) certainly with great freedom and in a manner which led to complaint and sometimes to suspicion ought not to be limited, and whether the system of equal mileage rates exactly according to distance should not be imposed upon the companies. They were carefully considered, and in all these cases the committee came to the conclusion unanimously that they were not conditions which it were either practicable or for the public interest to impose on railway companies."
Let us now look to France. M. de la Gournerie, inspector-general of the French corps of bridges and highways, in a report published in 1879, says:
“In spite of some peculiar circumstances the operation of railroads, like all other industries, is subject to the great law of economics. * * The prices should be regulated according to the value of the transportation, as determined by the action of supply and demand, and when different bases are adopted, such as the length of haul or the amount of cost, we are led into contradiction and impossibilities." Again :
A railroad in its own interest, and in that of the country, ought not to neglect any traffic of a kind that will increase its receipts more than its expenses.
"The different units of transportation carried by a company are far from giving equal profits. If, because some of them leave as net profits only a very small part of the receipts, we assume to regulate the tariff so that it shall get only the same proportion of the whole gross receipts, it will not be able to meet the obligations which it has contracted. The certain results of requirements of this kind would be to lead the companies to refuse all shipments in which they could not make a high profit, and consequently to abandon a considerable income, while depriving the country of cheap transportation for a great quantity of merchandise. "
The president of the French board of public works, commenting upon higher rates for short haul rather than for long haul, declared :
** These anomalies, so much charged against the railroads, were not, however, a new event in the transportation business. Before the establishment of railroads the carters likewise imposed a higher rate from Paris to Angiers (191 miles) than from Paris to Nantes (246 miles), and we see that over this route the railroad had only followed the old cartage irregularities. The boats on their part formerly took more from Chalon-sur-saone to Ville-Franche (60 miles) than from Chalon to Lyons (81 miles); more from Lyons to Tarascon (156 miles) than from Lyons to Arles (165 miles).'
Commenting upon this report, M. de la Gournerie says:
I do not see how it could be possible to establish that transportation never has a less value for a longer than a shorter distance, or that each separate transportation should not be paid for according to its value.
A good deal is said of un rmity of tariffs, of regulating the rates according to the distance carried, without taking into account the value of the transportation. Good results can be attained only by fixing rates closely in conformity
to the value of transportation. If they exceed it, the road is of little utility to the country and yields small receipts. If they are less than it, they are a gift to the community. Except for grave reasons an arrangement contrary to the rules universally admitted in commerce ought not to be adopted. Uniformity of tarift would occasion much greater inconveniences in France than in a smaller country, all parts of which would be under nearly the same economical condition.
Mr. Chairman, if uniformity should occasion inconvenience and hardships in
"I had sought to combat this widely spread opinion that in the commercial operations of railroads everything is artificial; that instead of observing, we must invent; that instead of habitually leaving the different interests to react upon each other through supply and demand, it is necessary to be regulated continually. If we were certain that the men who manage railroad business would always have a perfect understanding of these questions, my conclusion would be to leave the matter to them entirely; I think, then, that the state should preserve its powers, watch attentively, but prescribe little."
In referring to Germany, Mr. Stahlman says: In Germany the same difficulties have been experienced, so that the fixed policy of that empire has been to purchase the lines by just negotiations with their owners with a view thereafter of managing and controlling them.
Prior to this conclusion a royal commission reported upon the whole subject of regulation, from which I quote as follows:
"In the course of forty years of development the enormous importance of railroads for traffic and the entire modern civilization has been shown, so that the legal regulation of the state's supervision over the railroad system is acknowledged to be one of the most difficult problems to solve. It is not yet everywhere understood that an efficient regulation of the state's supervision over the railroad system is impossible for any length of time; that the indirect attention of the state for the public interests concerned is not to be regarded as sufficient means to solve the task of their protection and promotion. The existing order of the railroad system in the different states still presents a queer picture of the most differing systems. A closer study of the important public interests concerned in the railroad system and of the task the state has to fulfill in their protection and promotion will prove that the direct and unlimited attention of the state, the uniting of the property, of the traffic, and of the management of inland main lines, under the strong arm of the state, are the only efficient and proper means to solve that task.”
Again, upon the subject of freight tariffs: The regulation of tariffs moves in a broad margin between the expenses of run: ning the road, which it is difficult and uncertain to determine, and the value of transportation to the stockholders.
A forcible reduction of freight offers, for legitimate regulation, difficulties almost impossible to overcome, without, of course, referring to reductions conditioned by competition or pressing liabilities. A legitimate regulation contains not only a weighty and direct encroachment on the management, but also on the financial affairs of the enterprises concerned.
Mr. Stahlman adds:
Here then, Mr. Chairman and gentlemen, we have the great powers of England, France, and Germany, after years of thoughtful investigation and legisla tion, rejecting in toto every important provision of the Reagan bill, and yet the distinguished chairman of this committee continues to vigorously press this measure for passage.
But we are told that a greater necessity exists for legislation in America than in Europe.
I hold in my hand, Mr. Chairman, a few tables, hastily prepared, but correct in the main, and sufficiently full to illustrate what I am about to say. Take the freight tonnage per mile carried, and the comparison stands :
Tons. United Kingdom......
14, 200 France.
7, 100 Belgium.
10, 200 America...
Per mile carried.
41, 100 10, 600 19, 900 13, 750 2, 860
The table of freight earnings I have not been able to make up, but the comparison in freight is even more in favor of American roads than the exhibit in passenger rates, while the total gross and net earnings, including passenger, freight, and miscellaneous receipts, run from 200 to 600 per cent. in excess of the earnings of American roads, and yet we are told there is more need for legislation in this country than in Europe, and that the legislation here should be more rigid.
Take the question of passenger rates alone, compare the two, please, Mr. Chairman, and tell me (when you know, or at least ought to know, that the fa cilities furnished in America, even in smoking-cars, are equal if not superior to the first-class coaches of European railways), why the people of America should complain of a rate of 2.43 per mile, against a rate of 3.90 in Great Britain, 3.26 in France, 2.69 in Germany, 3.18 in Russia, 3.15 in Austria, and 3.54 in Spain; and this too when the travel in America is only 2,860 passengers per mile against 10,600 in France, 17,900 in Belgium and Holland, 13.750 in Switzerland, and 11.100 in Great Britain,
Now, Mr. President, a few words in reference to the second section of this bill. It provides that if any common carrier shall directly or indirectly, by any special rate, rebate, drawback, or other device demand, collect, or receive from any person or persons a greater or less compensation for any service rendered or to be rendered in the transportation of passengers or property, subject to the provisions of this act, than it charges, demands, collects or receives from another person or persons for doing him or them a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, such common carrier shall be deemed guilty of unjust discrimination, which is hereby prohibited and declared unlawful. And any common carrier who shall violate the provisions of this section as aforesaid shall be liable to all persons who have been charged a higher rate than was charged another person or persons for the difference between such higher rate and the lowest rate charged upon like shipments during the same period, or if such lower rate was made on any time contract or understanding, the said common carrier shall be liable to pay a like rebate or drawback to all other shippers over the same route, between the same points, who have shipped goods during the time that such contract or understanding was in operation.
Now, Mr. President, this is a very strong provision against rebates or drawbacks or special rates. As a general rule, rebates should be prohibited. In other words, all rebates which are intended unjustly to discriminate between two or more persons in the ordinary transaction of their business are highly improper and are seldom ever practiced by a railroad company that has regard for its own interest and the interest of the community. And still there are exceptions in the ordinary transaction of business where it is not only proper but important, where it is not only the interest of the railroad company but the interest of the community, that rebates should be given. * In the various transactions which arise in the development of our country and in conducting its great commercial affairs no stubborn iron rule that is inflexible can be