case of foreign competition. In Austria the short-haul clause is inserted in many of the railway charters, but both in the state and in the private lines the exceptions are exceedingly numerous.2 In Belgium and Holland, where the laws literally interpreted enjoin mileage rates, the vast majority of actual charges are arranged according to special rates, many of which permit greater charges for the shorter distances.3 In Italy similar special rates may be approved by the government.* Thus in no country where the tariffs are fixed by the state or subject to public control is the short-haul principle an absolute rule. In England, indeed, the short-haul principle has been affirmed by the courts,5 and the railway commission has of late gone even further in its opposition to differential rates. In the celebrated Broughton and Plas Power Coal Company case it was held that the charge for the longer distance must not only be greater than for the shorter distance, but must actually more than suffice to cover the total cost of the extra service. But these decisions have had very little influence on the actual arrangements of tariffs in Great Britain, and have been severely criticised in the parliamentary commissions. The decisions, moreover, are by no means uniform, and in a very recent case it was held by the court that differential rates are perfectly legitimate if in the one case the rate is a local rate, and in the other simply a portion of a through rate. It is not "under sub 1 Bericht des Bundesrathes an die Bundesversammlung, Nov. 23, 1883; in Hürlimann, Die eidgenössische Eisenbahngesetzgebung (1887). 2 Schreiber, Das Tarifwesen der Eisenbahnen (1884), S. 181, 191, 199. Cf. Nördling, Die Selbstkosten des Eisenbahntransports (1885), S. 219. 8 Jacqmin, Étude sur les chemins de fer des Pays-bas (1882), p. 87; Nicolai, Les chemins de fer de l'État en Belgique (1885), p. 29. 4 Agreements of 1885 with the Mediterranean lines, cap. 4, § 39, 44. 5 Cf. Budd vs. London and Northwestern Railway Co., 36 L. T. N. S. 802. This was a case of sea competition. The decision was opposed to the principle of the older decisions under Cardwell's act. 6 Railway Commission, Tenth Report (1883). 7 Select Com. (1882), Evidence, pp. 71, 89; especially the celebrated cases of Evershed and the Denaby main. 8 Hull, Barnaby and West Riding Junction Railway vs. Yorkshire and Derbyshire Coal Co. stantially similar circumstances." Lord Stanley's bill of 1887 in fact expressly provides that the justice of differential rates should be measured by the necessity of securing the traffic.1 We are thus prepared to pass an opinion on the Interstate Commerce law. The short-haul clause reads as follows: That it shall be unlawful for any common carrier subject to the provisions of this act to charge or receive any greater compensation in the aggregate for the transportation of passengers or of like kind of property, under substantially similar circumstances and conditions, for a shorter than for a longer distance over the same line, in the same direction, the shorter being included within the longer distance. . . . Provided, however, that upon application to the commission appointed under the provisions of this act, such common carrier may in special cases, after investigation by the commission, be authorized to charge less for longer than for shorter distances for the transportation of passengers or property; and the commission may, from time to time, prescribe the extent to which such designated common carrier may be relieved from the operation of this section of this act. It is improbable that the commission will interpret the act in the sense that the words "under substantially similar circumstances and conditions" justify all existing differential rates due to competition. This would practically emasculate the law. But on the other hand an analysis of the principles of rates and the results of European experience have shown us that any attempt to apply the law in all cases would be ruinous. A strict enforcement of the short-haul clause would most certainly result in general discontent and a speedy repeal. The safetyvalve consists in the discretion afforded to the commissioners, and upon them the success or failure of the law depends. The act is an expression of a correct principle, but the limitations of the principle are no less obvious. The country is to be congratulated on the legislative recognition of the rule; let us trust that there may be equal cause for congratulation on the official recognition of its limitations. Our preliminary conclusion may now be formulated. Under a system of free competition among private railways the 1 Railway and Canal Traffic bill, § 25, sec. 2. principle of value of service or charging what the traffic will bear is the only rational method, calculated to give the most efficient service and the greatest profits. But the existence or possibility of the abuse of power requires the restriction of this unlimited liberty in the public interest. The reconciliation of the railways and the public can take place only through the interposition of public authority. The public authority must lay down the rule of equal treatment as the fundamental doctrine, but must recognize the principle of value as a reason for departing from the doctrine in any individual case. Omission of either duty necessarily entails injustice or inefficiency. The short-haul clause is a partial recognition of the demand for equal treatment; the discretion given the commission is implicitly a partial recognition of the theory of value. The Interstate Commerce act thus accepts the principle and concedes its limitations; in this respect at least it is a wise and judicious measure. For the commission to ignore the limitations in the attempt to realize the principle would be an act of consummate folly. EDWIN R. A. SELIGMAN. RAILWAY TARIFFS AND THE INTERSTATE COMMERCE LAW. II. SCAR CARCELY second in importance to the short-haul clause of the national law, which has been discussed in the preceding essay,1 is the section which prohibits pooling. What is the true significance of pooling? What will be the effect of the law? To give a correct answer we must enter upon a consideration of competition in general. And here we are immediately confronted by the two fundamental questions: Is free competition universally beneficent? Is free competition universally existent? The doctrine of free competition is essentially a modern idea. 1 POLITICAL SCIENCE QUARTERLY, June, 1887, p. 223. It has been a source of great satisfaction to me that the Interstate Commerce commission in its recent weighty decision has taken substantially the same ground as that occupied in my first article. The chief points are as follows: 66 First. That the prohibition in the fourth section against a greater charge for a shorter than for a longer distance . . . is limited to cases in which the circumstances and conditions are substantially similar. "Third. That . . . in case of complaint for violating the fourth section the burden of proof is on the carrier. 66 ... Fifth. That the existence of actual competition . . . may make out the dissimilar circumstances and conditions. . . in the following cases: 1. When the competition is with carriers by water which are not subject to the provisions of the statute. 2. When the competition is with foreign or other railroads which are not subject to the provisions of the statute. 3. In rare and peculiar cases of competition between railroads which are subject to the statute, where a strict application of the general rule of the statute would be destructive of legitimate competition. "Sixth. ... The fact that long-haul traffic will only bear certain rates is no reason for carrying it for less than cost at the expense of other traffic."— In re The Louisville & Nashville R. R. Co. et al., pp. 27-29. As the basis of nineteenth century economics it was first formulated by the Physiocrats and Adam Smith. It is entirely foreign to ancient and medieval conceptions. The economy of the middle ages was founded on the idea of reasonable, customary price - the justum pretium of the legists, theologians, and statesmen. The institutions were based on restrictions, privileges, and enforced monopolies, while the legislative prohibitions were not entirely the product of class selfishness but in part the recognized expression of an attempt to secure distributive justice. That the legislators finally overreached themselves and stifled all liberty by their multifarious restrictions is a wellknown fact. The necessary and salutary reaction found its theoretic justification in the "natural law" tenets of the eighteenth century, and a partial realization of those tenets followed in the first half of the nineteenth century. The idea now became current that a reign of free competition and its logical correlative, absolute laissez faire, would bring about a harmony of interests, a state of universal bliss. The enthusiasm of Bastiat and McCulloch was natural in seeing the world break away from the shackles of medieval restraint. But recent experience has demonstrated the falsity of their anticipations and has disclosed serious defects in the régime of free competition. It does not always work evenly; it often secures undue advantages to the unscrupulous; it has given birth to great abuses in the factory system and the fraudulent speculation of modern society. The law of competition is not always beneficent. Furthermore, it does not exist universally. The doctrine depends on the postulates of absolute transferability of labor and capital. But this assumption is approximately true in only a few instances, absolutely untrue in many instances. In the industrial undertakings of the present day the capital invested is often fixed, not circulating, capital, and cannot easily be transferred to a more lucrative business. It is difficult to gauge even approximately the superior profitableness of some competitive enterprise; and even when it has been gauged, it is still more difficult at once to transfer the capital. In fact, in only one department of business life does the doctrine of the absolute |