Personal discrimination.

Differences in rates based on

classification we found to be essentially legitimate. It is difficult, however, to find any principle on which to base distinctions between two or more shippers for a similar service. Personal discriminations are beyond cavil the most flagitious abuses of arbitrary railway management. Concessions made to large shippers do not, up to a certain point, come within this general condemnation. Allowance for quantity or making a distinction, e. g., between car-loads and less than car-loads is within certain limits defensible, and is practised in some shape in every country. But this is really a matter of classification, and may be upheld by the advocates of cost of service in the same way that classification into slow freight and express is defended. A well-filled car costs undeniably less in proportion than a half-filled car. But the difficulty is to select the unit of classification above which the rates shall be the same for all persons. Shall it be the pound, hundredweight, ton, or carload; or shall there be no unit at all? No country has as yet adopted the pound as a unit. In England we have the "smalls carried at lower rates, and other distinctions made in the mineral and special classes. With us the common unit is the hundredweight, because of the diversity of our car-loads, which vary from 20,000 to 60,000 lbs. The classification, however, generally specifies the minimum weight which entitles to car-load rates. Distinctions between ordinary and car-loads are everywhere permitted, and one of the fundamental principles of the "natural" and "reform" tariffs in Germany is that rates should differ with the quantities of freight (up to ten tons). Of course it costs

English Select Com. (1881) Evid. qu. 13302. Some make "differential" rates cover all discriminations, so that a preferential rate would be a differential rate. Others again call all discriminations preferential rates. But this is confusing. In the United States "differential" rate is sometimes used in a peculiar sense. The rate from Chicago to New York, e.g., is taken as a basis. A certain number of cents are added to or subtracted from this rate for all stations west or east of Chicago. These variations are termed differentials and are based to some extent on distance. The effect of these "differentials" is thus to attain an approximate equality of charge per tonmile, while a differential rate as commonly understood in European practice and in scientific works all over the world amounts simply to a discriminating rate or an absence of equality of charge. The latter method is more logical and scientific.

less to transport car-loads than single lots, but that is due only to the amount of the tare. If the single lots are packed closely, so as to fill the car, their dead weight would be greatly diminished. At all events it is almost impossible to fix the exact difference of cost, and in very few instances do the differences in cost warrant the actual discriminations.1 So that, even if we adopt the principle of cost of service, the distinction between car-loads and smaller shipments is only partially justifiable and may often work injustice to the small shipper. The attempt, however, to make the pound the unit of shipment would still be premature, although it may be the ultimate outcome of the controversy. Allowance for quantity below a moderate limit excites but little complaint and increases the efficiency of the railway.

But if this comparatively unimportant difference — which is in reality a species of classification- be in itself only partially justifiable, what shall we say of those vastly greater discriminations which cannot even claim cost of service as an ostensible reason? Such a practice is indefensible on any theory whatsoever. To build up one man's business at the expense of another can never be acknowledged a legitimate function of the common carriers. To give this power to private corporations would be to strike at the root of commercial prosperity. Such discriminations are sometimes defended on the plea of allowance for quantity. But allowance for quantity not based on cost of service is robbed of all pretext for existence. Whether a trainload is hauled for one shipper to one consignee, or for ten shippers to ten consignees at the same point makes very little difference in expense to the carrier. Furthermore, the matter rarely arises in this way. In almost every case of concessions. to large shippers but few cars are in fact forwarded at a time. The favored shipper's freight is hauled in the same manner as that of his competitors, and the special rates are granted only because of the contract to forward a larger number of cars per

1 See a typical case of rates on base-ball bats to Council Bluffs, where the difference between ordinary and car-load rates amounted to 157 per cent, thus crowding out the small shippers. Cullom Committee Report, Test. (Wicker), p. 759.

month or year.1 The cost to the railway is not appreciably smaller, but the advantage to the large shipper is obvious. The special rates enable him to control the market, the control of the market secures him the special rates. It is a see-saw working both ways. Allowance for quantity of this kind can hence not be justified even in the partial way that the distinction between car-loads and ordinary freight can be upheld. The cost of service principle cannot be invoked.

Reduced to this extremity, the advocates of personal discrimination are wont to assert that a business firm makes wholesale rates less than retail and gives, special figures perhaps to every customer. Why is not the same principle, they ask, applicable to the railroad business? They utterly fail to perceive that a railway is not simply a business corporation, but something far more; that it is a public trust and forms to-day our public highway; that a merchant is not bound to treat his customers equally and may favor his friends without violating any law of business ethics, but that a railway is a body of delegated powers; that it exercises public functions, is invested with public rights, and therefore has public duties. This is the important qualification of the principle that the question of railway rates is a mere commercial question. To make concessions for large shipments is to arrogate powers of wide-reaching potency; it is a claim which cannot be acquiesced in or defended. The wholesale principle or allowance for quantity when carried to this extreme becomes utterly untenable.2 And

1 Cullom Committee Report, p. 191.

2 The report of the Hepburn committee is thus open to question: "The principle of wholesale rates enters as legitimately into railroad carriage as into any private business." But this is qualified by the clause: "Where additional quantity ceases to lessen cost of carriage, or be of pecuniary advantage to the road, the differences should cease." Report, p. 65.

An interesting discussion of the principle of wholesale rates as applied to jobbers and retailers may be found in the report of the Iowa commissioners, an exceedingly able body. The celebrated case is Merrill & Keeney vs. Chic. & N. W. &c. See Report, 1883, pp. 678–686, and further discussion in Report, 1884, pp. 71-77. The commissioners go too far in the defence of the wholesale principle and err in making classification and differential rates depend upon this principle. They depend on the contrary on the distinction between fixed and variable expenses. Only in so far as allowance for quantity depends on cost of service, is it legitimate. The wholesale

the claim is in fact no longer upheld by our best railroad men.1 But although no longer theoretically defended, such discriminations are still actually practised. Not only concessions to large shippers, but what is worse, personal discriminations resting on no other basis but pure favoritism, are yet of common occurrence. The revelations of the New York assembly investigation of 1879 are fresh in the minds of all. A great improvement has indeed taken place in the eastern lines, but secret rebates or substantially similar favors are by no means a thing of the past.2

Personal discriminations then cannot be defended upon any theory of railway rates. They must be stopped at all hazards. But how? The common law forbids them, but the inhibition of the common law has been of little efficacy. The fear of incurring the displeasure of the railways has acted as a serious check to the institution of suits. To rely on free competition as a panacea is absurd. Personal discriminations are most glaring when competition is most active. Cut-rates and rebates. are never so common as during the railway wars. The surest method of preventing personal discriminations is just the opposite, i.e., universal combination or monopoly, in other words state ownership. This in fact was one great reason why the principle per se is not applicable to railroads. Cf. Test. of Manager Haines, Cullom Com. Rep., App. p. 143. Notwithstanding the report of the Iowa board, the distinction between jobbers and retailers was abandoned. Of late there has been a movement to abolish even car-load rates. But the arguments of the board have thus far prevented it. Report, 1885, pp. 45-53; 1886, pp. 31-46. From the railway standpoint the wholesale principle is indeed a "fundamental truth," as the commission says; but from the public standpoint the "fundamental truth" vanishes. Railway profits, as we shall see, are no excuse for inequality of charge.

1 Cf. Fink in Hepburn Com. Rep. Exhibits, p. 149, and The Railroad Problem and its Solution (1883), pp. 10, 41.— Cf. Cullom Com. Rep., Test. of Blanchard, p. 159; Firth, p. 466; Furber, p. 333; Kimball, p. 1238; Mink, p. 437, Wistar, p. 516. [The only two exceptions are Ackerman, p. 604, and Meek, p. 1049.] Also Jewett and Vanderbilt in Hepburn Com. Rep., Test., pp. 1481 and 130. So Alexander, Railway Practice (1887) pp. 21, 59.

2 Cf. the testimony of a railway official: "I have been doing it myself for years, and had to do it." Referring to the effort to get the business of a number of millers from another company, he adds: "I can accomplish my purpose better by picking out one good, smart, live man and giving him a concession; . . . let him go there and scoop the business. I get the tonnage, and that is what I want. . . . You can take hold of one man and build him up at the expense of the others, and the railway will get the tonnage." Cullom Rep., Test. (Wicker), p. 778.

But

railways were bought up by the Prussian government.1 state ownership is out of the question at present in the United States. With our actual political conditions and our unreformed civil service, the abuses would be intensified, not lessened. There are only three methods, or combinations of methods, which can settle the question, — judicial regulation, legislative and administrative regulation, development of the pooling policy. The history and merits of each, as well as the method pursued in the Interstate Commerce law, may be left to the following essay. But preferential rates cannot in any sense be upheld as a corollary of the principle of value.

Local discrimination. Quite different from preferential rates are differential rates. Differential rates may arise in two ways: through the desire of the railway to develop its traffic, or through the action of competitive centres. The road may wish to extend its traffic in commodities coming from a distance. If they are to be carried at all, they must be transported at less than the regular rates. A commodity which comes from a point a thousand miles distant cannot afford to pay the same rate per mile as one which comes ten miles. The traffic will not bear it. To charge the same rate per mile from Kansas to New York as from New Jersey to New York would simply put a stop to the Kansas traffic. Hence arises the necessity of a distinction between local and through rates. Goods coming from a distance must be treated in the same manner as cheap goods. Local discrimination is like classification. The distant freight is the cheap freight, the near freight is the dear freight. The underlying principle again is value of service. The act of transportation adds far more to the value of the distant than to that of the near freight. Annihilation of distance is propor tionate increase of value.

But secondly, local discriminations may arise from competition in the centres of traffic, whether the competition be due to railways or waterways. Two lines meet, e.g., in Buffalo. The old line wishes to retain its business, the new line wishes to

1 Cf. the argument for state railroad ownership (a translation of a Prussian par liamentary document of 1879), New York, 1880, pp. 43 et seq.