3 make part of transcontinental lines. Denver has also a rail-and-water route by way of the Gulf of Mexico and through Fort Worth.

The rates from Denver to San Francisco are now practically the same as those from Chicago and New York to San Francisco. They were formerly higher, the more eastern cities being given lower rates on the ground of sea competition by way of the Atlantic. A case was brought under the influence of the Denver Chamber of Commerce, known as Kindel v. The Atchison, Topeka and Santa Fe Railroad. Mr. Kindel, who brought suit, was a manufacturer of bed springs, who was especially anxious to obtain a satisfactory Western outlet. The Interstate Commerce Commission held that the rates from Denver to the Pacific coast should not exceed those from Chicago or more eastern cities. The witness believed at the time of his testimony in May, 1901, that the railroads were about to put the modified rates into effect.

Mr. STUBBS, of the Southern Pacific Company, says that the case brought several years ago by the chamber of commerce of Denver regarding freight rates was very similar to that which was being pushed regarding Pacific coast rates at the time of his testimony in the summer of 1901. The Denver case came directly within the long and short haul clause of the interstate-commerce law. The Denver jobbers claimed that they should have lower rates to and from points in California than prevail between the Missouri River points and California. The contention of the railroads was that the rates from the Missouri River to California were influenced by sea competition from New York, but that the influence of this sea competition did not extend farther west. They held accordingly that it would not be fair to give Denver a rate as much lower than that from Missouri River points as the proportionate distance would indicate. The railroads held that to give Denver the same rate as that from the Missouri River would be a fair compromise, and the Denver shippers accepted this offer.

The witness says further that the high rates which had previously prevailed from Denver had not been approved by the railroads themselves, but that they had maintained them because they did not wish to recognize that there was any effect of sea competition at Denver, or because the Interstate Commerce Commission would not recognize railroad competition as a factor in determining differences between the long and short haul rates. The railroads felt that if the rates from Denver were reduced then the rates from all other points would have to be similarly reduced, so that the rates were held up to protect the revenue of the railroads. In this case, however, the Interstate Commerce Commission held that Denver must be given the benefit of sea competitive rates. (760.)

Mr. GRIFFITH says further that Denver manufacturers also complain that the rates on raw materials from the East are high as compared with the rates on manufactured products, so that the development of manufactures in Colorado is greatly retarded. Some manufacturers have heen able to get the railroads to make commodity rates on raw materials, which have relieved them, but this is not true in other cases. In the case of iron and steel, which are largely produced in Colorado by the Colorado Fuel and Iron Company, the manufacturers who use these products as raw materials claim that the high freight rates from the East act as a protective tariff to the local industry, so that the manufacturers get no advantage in low prices as the result of the production of iron and steel in the State. A large manufacturer of machinery told the witness recently that he bought a considerable amount of pig iron from Pittsburg in spite of the fact that the freight rate was so high. The witness is inclined to think that the Colorado Fuel and Iron Company ought to be able to produce iron and steel about as cheaply as it is produced in Pittsburg, although the cost of labor and general expenses are higher in Colorado. The supply of ore and coal is practically unlimited and quite convenient, although the Fuel and Iron Company gets most of its iron ore from the edge of Wyoming. The witness presumes that sooner or later there will be many more ironworks established. Colorado is a large State, with many resources and few people to develop them, so the available capital has largely gone into precious metal mining and other enterprises rather than into coal, iron, and steel production. (848-857.)

2. Alleged discrimination against Denver jobbers in distribution of goods.—Mr. GRIFFITH presents a paper prepared by the chairman of the traffic bureau of the Denver Chamber of Commerce regarding the freight rates at Denver, and the witness himself explains the subject further and presents additional arguments in favor of modifications of the existing basis. It is asserted by these gentlemen that Denver has never had any substantial assistance in her development from the transportation companies, but, on the other hand, has been constantly handicapped by restrictions.

The particular complaint presented by Mr. Griffith is in behalf of the jobbers of Denver, who hold that they have never enjoyed a basis of rates for the distribution of goods, particularly to common points in Montana and Idaho and other States adjoining Colorado, which enabled them to compete with Eastern cities and Missouri

River points or with the Pacific terminal points as regards the distribution of products from California. Denver has always been treated as a way station in the making of rates. From the East the Missouri River is substantially the basis line. Missouri River and other Eastern points receive through rates directly to common points in the Mountain States, while Denver must add to a high rate from the Eastern points other high local rates. The rates from Denver to Utah, Montana, and Idaho are based upon the Missouri River rates and are usually 70 or 80 per cent of those rates, which makes it practically impossible for any considerable amount of business to originate at Denver. By way of further illustration the witness states that the rate from the Atlantic coast by rail to Denver is $2.72 per 100 pounds on first-class goods. The rate from Chicago to Denver on first-class goods is $2.05, and the rate from Mississippi and Missouri River points is practically the same. From Denver to common points in Montana and Idaho the freight rate is $2 on first-class commodities. The rates from the Missouri River to those common points direct is $2.50 per 100 pounds, which is very much less than the combined rate from the river to Denver and from Denver to Idaho and Montana. Mississippi River points have a carload rate on first-class goods to Idaho and Montana of $2.90 per 100 pounds, and Chicago has a carload rate of $3.10. The rate from Chicago to Denver, added to the rate of these common points from Denver, is $4.05, there being no carload rates allowed to Denver on most goods. The Chicago jobber thus has an advantage of 95 cents on the cost of shipment.

Mr. Griffith states that there is less occasion for complaint as regards the rates from Denver to New Mexico. An arbitrary blanket rate has been made by the railroads on the condition that the merchants should give them a certain amount of tonnage. These rates enable the Denver merchants to compete in New Mexico territory. The rates from Denver to Colorado points are also satisfactory, and, in fact, the jobbing business of Denver is largely confined to the State of Colorado alone. The rates in some instances are high, but the Eastern jobber has no advantage, since there are no through rates from the Eastern States lower proportionately than those by way of Denver.

This witness states also that practically all Eastern cities have the same advantage over Denver in the matter of jobbing business. The witness understands that goods coming from the East to Chicago takes a basis of 67 cents per 100 pounds first-class to Chicago; the Eastern rate to St. Louis is 87 cents, and to Missouri River points $1.47. All the different Missouri River points get the same rate from the Atlantic seaboard and make the same rate to Western points.

The Denver merchants maintain, according to Mr. Griffith, that they are entitled to be placed on an equal competitive basis with regard to distributing goods to common points in the Mountain States. The present base line on which the Western distributive rates are founded is the Missouri River. A new base line should be established, running north and south through Cheyenne, Denver, Colorado Springs, and Pueblo. This would enable all the cities named and others along the same line to compete on equal terms with Eastern points. The establishment of this new base would also prevent rate wars and discriminations, since if cuts in rates were made to these points they would have to apply to farther Western points as well. The Denver merchants do not desire that the rates shall be lower proportionately to and from Denver than in case of the more eastern points, but they do desire to have proportionate rates. The witness recognizes that if the adoption of such a new basis would not furnish sufficient tonnage to the railroads to justify the change in the rate they could not be expected to adopt it, but he asserts that the only way in which the country can be developed is by ceasing to discriminate against it. It is to the interest of the railroads that the country which they enter should be developed in its manufacturing and distributing business. (848, 857)

F. Freight rates to the Pacific coast and sea competition.-1. The case before the Interstate Commerce Commission.—Mr. WHEELER, representing the Pacific Coast Jobbers' Association, describes the case being prosecuted in 1901 before the Interstate Commerce Commission with reference to the Pacific coast freight rates. This case was brought by the jobbers of the Middle West, through the St. Louis Traffic Bureau, to compel the railroads to put them in a more favorable position as regards traffic to the coast.

The witness states that the transcontinental railroads found themselves at the outset met with the competition of sea carriers from New York and the Atlantic coast to San Francisco and other Pacific coast ports. They were obliged to make rates to meet that competition, with allowance for the less favorable conditions of sea traffic. The railroads of the Middle West thereupon insisted that they should apply like sea-competitive rates between Chicago and other Middle West cities and the coast. They insisted on what was known as "postage-stamp rates," making the charges

from all Eastern points equal, as the Government does in carrying letters. They made tariffs accordingly, which practically confined sea competition to competition as it then existed. The merchants of San Francisco, in 1893, in order to break the monopoly then maintained, by virtue of practical combination between the railroads and the steamship companies, established a new steamship line to run in connection with the Panama Railroad and its steamship line on the Atlantic. They also subsidized a rival line of clipper ships around Cape Horn. The result was violent competition and a great cutting of rates. Rail rates were generally flattened out, and little or no difference remained between carload and less than carload rates, while value of goods and other proper elements which should be regarded in connection with sea competition were disregarded. This rate war continued during 1893 and 1894, after which the new steamship line was abandoned and the Panama Railroad Company renewed its relations with the Pacific Mail Steamship Company (which is affiliated with the Southern Pacific Company). Rates were advanced, but carload differentials formerly existing were not at first restored. The Middle West jobbers had been able, owing to the abandonment of these special carload rates, to secure an abnormally large share of the business of distributing goods into the Pacific coast territory. For this reason the Pacific Coast Hardware and Metal Association, an organization of jobbers, made a protest and held a meeting with the railroads in May, 1898, at Milwaukee, as the result of which railroads in a measure restored the conditions existing before the rate war, which were more satisfactory to Pacific coast jobbers. The Middle West jobbers thereupon in turn protested and claimed as a right what had been granted by the railroads as a war expedient. Their efforts were successful in the case of the Great Northern and Northern Pacific railways, which, on May 1, 1899, reduced the carload differentials, and, despite the complaints of the Pacific coast jobbers, declined to recede from that position. The railroads running directly to California, however, paid no attention to their northern competitors, and continued the operation of the Milwaukee tariff.

Thereupon the Middle West jobbers began the suit before the Interstate Commerce Commission against the transcontinental railways. They demanded: (1) That rates should be graded according to distance, so that a lower rate should exist from St. Louis than from Chicago and a lower rate from Chicago than from New York; (2) that carload differentials should be materially reduced; (3) that "blanket" descriptions should be adopted, by which a variety of articles widely diverse in value, density, and liability to damage might be packed in a single case and transported at a single rate. (744, 745.)

Mr. LANGLEY, of the Merchants' Association of New York, says that it is possible for a New York merchant to do business in California territory in competition with San Francisco. On business destined for California and the Pacific coast there is a classification in effect which is peculiar to that traffic. It is made in a different way from the other classifications. It is made by grouping and naming rates to cover groups rather than items. There has been a contention by the commercial bodies of the central West, particularly Chicago and St. Louis, that the scale of rates and also the classification in effect from Chicago and St. Louis is detrimental to their interests. Those cities claim that the transcontinental lines are using the difference between the carload and the less than carload rates to exclude them from the Pacific coast territory. The Pacific coast jobbers maintain that Chicago and St. Louis have no right to do business in that territory, and there is now a case before the Interstate Commerce Commission that involves the whole question. The rate from New York to San Francisco and from Chicago to San Francisco is the same. Chicago and St. Louis both claim that because they are nearer San Francisco the rate to San Francisco should be relatively less than it is from New York. The rate from New York to San Francisco, however, on transcontinental business should be properly styled a "compelled" rate; that is, a rate not based on the cost of service or the distance hauled, but forced upon the roads by the ocean rate from New York around Cape Horn to San Francisco. Chicago and St. Louis seek to have that compelled rate used as a basis, and then oblige the railroads to grade the rates from the Eastern seaboard to the Pacific coast. Denver makes practically the same claim. If the principle involved in the compelled rate is not recognized and protected and this graded system of rates is introduced, the rate from New York to San Francisco of $1, if graded westward, would soon reach a point beyond Denver where there would not be any rate at all. The Chicago merchant, while apparently able to compete with the New York merchant for the California trade, has against him the rate that he had to pay to get his stock from the East to Chicago. On import goods, however, he can compete with the New York jobber for the California trade. (875-876.)

Mr. STUBBS, third vice-president of the Southern Pacific Company, also discusses the case brought by the shippers of the Middle West before the Interstate Commerce Commission regarding freight rates to the Pacific coast. He says that the interstatecommerce law recognizes by implication that a substantial difference of circumstances and conditions will justify a higher rate for the shorter haul that is contained within a longer haul than for a longer haul itself. Usually the Interstate Commerce Commission has defined such special conditions, justifying lower rates for longer hauls, to be competition by foreign carriers or sea carriers not under the control of the commission.

San Francisco has had the advantage of sea competition as from New York and from all points in the East within reasonable distance of New York. The sea carriers control the rates so that the railroads on such traffic can not get a fully compensatory rate, that is, a rate which contributes its full share toward all the expenses of transportation including fixed charges. The practice of the railways has been to meet this sea competition just so far as it extended and no farther. Thus the rail rate from New York to an interior town in California would be higher than the rate to San Francisco, even though the distance should be less, by the amount of the local rate from San Francisco back to this interior point. Thus the intermediate points in the West for a very considerable distance back from the coast have thus had higher rates than the rates from New York to San Francisco, and the Interstate Commerce Commission and merchants in the East generally have justified this practice. The same principle should apply as regards shipments from Eastern cities to the Pacific coast. Pittsburg, St. Louis, and other cities should have rates to San Francisco equal to the rate from New York plus the local rate from those cities to New York, whence sea carriers could be employed.

On account of the magnitude of the interests at these Eastern interior cities, they have been unwilling to accept this principle, and are bringing suit before the Interstate Commerce Commission to compel the railroads to make rates from Chicago, St. Louis, and other interior cities to San Francisco lower than the rates from New York to San Francisco, on the ground that the distance is shorter. All of the transcontinental railroads are involved, but the chief burden of the defense rests upon the Southern Pacific Company, because it is the most important and because it operates a through line from New York to San Francisco and has no line from Chicago, so that its interests are somewhat different from those of railroads originating at Chicago. The Southern Pacific Conpany holds that it would be ruinous to all of these roads if the principle contended for by the shippers in this suit should be accepted, because the rates from all intermediate points will be forced down to the level of the noncompensatory rates which are compelled by sea competition.

Mr. Stubbs declares that the influence of sea competition from the Atlantic coast to California affects the traffic as far west from the Atlantic as Kansas City, while goods have been shipped from San Francisco by way of New York, while goods have also been shipped from San Francisco to Dodge City, Kansas, by way of the Canadian Pacific. (760.)

2. Carload differentials.-Another question of difference in the suit referred to is regarding carload rates as compared with rates for less than carload quantities. Mr. STUBBS says that the Pacific railroads have made an adjustment precisely similar to that which exists in practically all railroad tariffs throughout the country, by which the rates on carloads are lower than those on smaller quantities. The difference is arbitrary, but wi'l range from 50 cents to perhaps $1.50 per 100 pounds, according to the basis rate. This arrangement enables the merchants of San Francisco, Portland, Seattle, and other jobbing centers on the Pacific coast to import goods by carloads and distribute them back to smaller towns in less quantities. The merchants of St. Louis, Chicago, and other large jobbing centers in the Midale West are trying to reach out into the Pacific coast territory, and are now seeking by this suit to compel the modification of the differentials in favor of carload lots, so that they can distribute their goods directly to the consumers on the Pacific coast at the expense of Pacific coast jobbers.

Mr. Stubbs says that the Northern Pacific and Great Northern railroads originally had the same carload differentials as the railroads terminating in California, and that on a petition of the jobbers in Chicago, St. Louis, and other cities they reduced the differential so as to give those jobbers an advantage in distributing goods to retailers on the Pacific coast. The object of the railroads in doing so was to favor the jobbers at their eastern terminals because of the relative unimportance of the jobbing business at their western terminals, especially as compared with the jobbing business of San Francisco. The attitude of these two northern roads as regards the case before the Interstate Commerce Commission is one of indifference. The witness does not know whether they would accept the existing carload differentials of the more south

ern roads if the Interstate Commerce Commission should declare them justifiable, and it is questionable whether the Interstate Commerce Commission would have power to compel them to make these same differentials. (760, 761.)

3. Blanket descriptions.-A third feature of the case is the demand that various classes of articles which now take different rates may be given the same rates. This is particularly demanded as regards hardware. Indeed the real movers in the present suit are the Simmons Hardware Company, of St. Louis, and the Hibbard, Spencer & Bartlett Company, of Chicago, two of the largest hardware companies in the world. They wish, by way of illustration, that hammers, hatchets, shovels, and planes, which may now be assumed to have different rates of freight, may be put under the single At present, if these different articles were packed in a single package, it would be charged for at the rate for the highest rated article. Under the change demanded the package would all go at one rate, lower than the former highest rate, the object of the change being to enable shippers to send assorted packages to retail dealers directly at low rates. (758, 759.)

rate.

4. Argument of Pacific coast jobbers.-In defense of the position of the Pacific jobbers in opposing the demand of the Middle West jobbers above outlined, Mr. WHEELER declares that it is not just to destroy the natural geographical advantages which any city possesses-advantages which were the very cause of its foundation. The people who pioneered San Francisco did not go there especially because of the beauty of its location or of its fine climate. They went because of the commercial possibilities owing to the fact that San Francisco had cheap water communication with the Eastern seaboard and is the natural gateway of the Pacific coast.

The San Francisco jobbers further believe that sea-competitive rates on the part of the railroads should be confined to points where sea competition actually exists. The witness believes that the long and short haul clause of the interstate-commerce law is clear in not permitting railroads to make a lower rate for a longer haul from Chicago and inland points to San Francisco. The law permits the waiver of the long and short haul clause where circumstances are dissimilar. The dissimilarity in this case probably consists in the fact that New York and other seaboard cities have water transportation to San Francisco which inland cities do not have. It costs comparatively little to build ships, and the sea is God's natural highway. New York has this sea connection with San Francisco. There is no such water competition directly from Chicago. Chicago and St. Louis, however, ignore the very basis of the low rates from New York to San Francisco, and maintain that they should have a lower rate than New York. The railroads claim that the rate should actually be higher than from New York, that the Middle West shipper should first pay the rail rate to New York, and then take advantage of the sea transportation. The railroads, however, are willing to compromise by making the rates the same from all these points.

Mr. Wheeler says further that the disadvantages attending water transportation are such that the rates by rail should be materially higher even in order to make equal competition, and he asserts that the shippers of the Middle West are trying to compel the railroads to ignore these disadvantages and make the rates by rail unduly low. In shipping by sea it requires at least four months longer to take goods by sailing vessels from New York to San Francisco than in shipping by rail. The capital invested in the goods during this voyage is idle, and the interest must be considered. Moreover, the uncertainty as to the time when the goods will arrive by sailing vessels is a great disadvantage to the purchaser of the goods. Again, to the sea rate the marine insurance must be added, as well as the liability to damage. All these disadvantages it is now sought to ignore. (745, 746.)

tes.

5. Pacific coast rates and the Denver case.-Mr. WHEELER holds that the Interstate Commerce Commission in its decision in the Denver case pointed out rightly the inconsistency of the principle of making sea competitive rates as regards Chicago, St. Louis, and other inland cities. Indeed, St. Louis, Minneapolis, Omaha, and other cites on the Missouri River are put by the railroads on an equality on the basis of The sea competitive rates from New York. The Interstate Commerce Commission the Denver case held that the railroads might not justly draw the line at the Misiri River, but must give Denver and even Salt Lake City the advantage of lower The rate has been higher from these places to San Francisco than from Jicago, St. Louis, or New York. The aim of the railroads in arranging the rates in this way has been to create the business as near as possible to their eastern termini, increasing the length of the haul. It is also the aim of the railroads starting from Chicago and Missouri River points to secure lower rates from those points than prevail from New York in order that manufacturing and other interests may be built up at their eastern termini and that their business may be increased at the expense of the business of seaboard cities which have natural and better geographical positions as regards Pacific coast traffic. For this reason the witness thinks that the Pacific