when there is any danger of serious competition, between the railways and the waterways, including both canal and river traffic. In the allotment of percentage, moreover, the shortest line is not taken as the basis, but the shorter road is deemed equal to the longer road only up to twenty per cent of the longer distance.1 The pooling arrangements in Germany have been of signal service in simplifying and equalizing the charges, which prior to their introduction were of the most complicated and often outrageously unjust character; and to-day they still perform the most valuable services in international traffic. No one any longer thinks of opposing them in principle.2

In Austria, where the state and private railways exist side by side, money and traffic pools are of daily occurrence. No sooner is a new route opened than it receives its share of the competitive traffic, and is thus deprived of any pretext to undertake a railway war. It may be declared that all competitive traffic in Austria is strictly pooled. The state railways themselves divide earnings or traffic with the water routes, and are thus able to avoid crying discriminations. In Belgium, where one large private company, the Grand Central Belge, has been the most formidable potential competitor of the state railways, the government has concluded a pooling agreement for the strict division of all competitive traffic. The line over which the shipment is made receives all the frais fixes, or terminal charges, as well as one-half of the frais variables, or movement charges. The remainder is pooled in fixed percentages. The sad experience of railway wars and exorbitant

1 This is known as the doctrine of "virtual' 66 or computed" distances. Schreiber, Das Tarifwesen der Eisenbahnen, S. 245–249. It is somewhat similar to our "constructive mileage."

2 Cf. von der Leyen, Die nordamerikanischen Eisenbahnen (1885), S. 296: “The European expert finds these arrangements entirely unobjectionable ” (“findet in solchen Verbänden nichts Verwerfliches"). Cf. also Obermayer, Ueber Tarifverbände und Eisenbahnkartelle (1879).

3 Sax, Die Verkehrsmittel, Bd. II, S. 102. For full details as to a late instance (the Arlberg line), see The Railroad Gazette, 1884, p. 636.

4 According to the doctrine of "virtual distances." But if the longer line's mileage exceeds the other by more than 25 per cent, it receives nothing beyond the minals and one-half of the movement charges.

discriminations in the past has long since convinced the government of the absolute necessity of some agreements with its private competitors. Just as competition in general pulls the best men down to the level of the most unscrupulous, so in the competition between the state and the private railways the government itself was compelled to descend to the methods of private companies and practise discriminations of the most flagrant nature, in some cases going so far as to discriminate against its own property in the shape of canals. Until the state owns all the railways, such pools will be necessary and beneficial to all parties concerned.

In France the principle of territorialization from the very outset has materially lessened the need of pooling arrangements. If the division of the field were absolute, the division of traffic or earnings could not exist, for the same result would be attained in either way. In some few cases, however, the chief lines partially overlap each other and thus give rise to competitive centres, but the dangers of competition are immediately obviated by the formation of pools, which are recognized as perfectly legitimate.1 The state line itself has made such a compact with the Orleans company, in which the percentages depend to a certain extent on the differences of grade.2 France has no faith in railway competition. In Italy the railways are sharply divided into two networks, and there is no competition and hence no necessity for pools. All international traffic, however, is effectively pooled. In Holland, where the pooling policy is far less developed, the results of the competition between the railways, and especially the railways and waterways, have been so unsatisfactory and the discriminations so crying that the parliamentary commission of 1881-2 desired to seek refuge from the railway wars in universal consolidation, and would have advocated state purchase had it not

1 A prominent French official writes to me as to the existence of money pools between railways, and even between railways and canals: "Il en existe plusieurs exemples. C'est chose parfaitement admise." So, e.g., the Chemins de fer d'Ouest et d'Orleans.

2 Convention de 1883 avec la Compagnie d'Orleans, art. 16, in Picard, Chemins de fer français, t. 6 (1885), p. 396.

been for financial difficulties. Mere legislative prohibition of discriminations they confessed to be futile, and therefore proposed to hasten on the process of combination by furthering the consolidation of certain smaller lines, and by refusing charters to any new competing lines.1

All the European countries, therefore, inculcate the same lesson. Unjust discriminations and especially preferential rates are found in inverse ratio to the pools. Where the pools are legalized and most effective, as in Germany and Belgium, the abuses are least; where the pools are less frequent, as in England, the abuses are greater; where the pools are rare and ineffective, as in Holland, the abuses are scandalous. Experience is no less convincing than theory. As long as there is no complete consolidation we cannot prevent both pools and discriminations. We must choose between them. The full development of the one means the disappearance of the other. With an universal pool, we can stop all unjust discriminations produced by the stress of competition; with partial pools we can pro tanto abate the discriminations. Nothing will be gained by the attempt to stop pools. We may prohibit them, but cannot prevent them. And if they could be prevented, they would simply disappear for a time; the causes which rendered their existence necessary would reassert themselves, and in the long run prove invincible, with the only result that in the mean time the country would have been exposed to an intensification of the very evils which it was desired to suppress.

That there is a possible danger in pools is indeed not to be denied. The inference, however, is simply the necessity of effective public regulation. What the public fears is the temptation to impose exorbitant charges. The policy of avoiding competition from the outset on the continent of Europe has certainly had some influence in preventing so quick a reduction of charges as with us. But rates in this country are perhaps as low as can be reasonably desired.

1 Cf. the report itself (October, 1882). For an abstract, see Archiv für Eisenbahnwesen, 1883, S. 587-590. Cf. Jacqmin, Chemins de fer des Pays-bas, 2me éd., p. 87.

Proling dors not abolish competitita, it simply

raises it to a

No. 3.]

higher ircel

THE INTERSTATE COMMERCE LAW.

63

There is no serious complaint of extortion, and there is far less probability of extortionate charges here than in European countries, because of the exceptionally large amount of water competition in the United States. The gravamen of the complaints is discrimination, not extortion. There is no need of conjuring up phantom dangers. We are actually confronted by certain specific abuses, and it is a superficial policy to abolish the means of preventing these abuses because of the dim possibility of other abuses which do not exist.

One misconception more fatal than any yet discussed still remains. It is commonly supposed that pooling entirely prevents competition. This is a mistake. Pooling maintains the advantages of a healthy competition and at the same time prevents the dangers of an utterly unrestricted or "cut-throat' competition. The mere agreement to divide traffic or earnings in certain percentages does not put a stop to all competition. Each of the various roads will still attempt to procure as much business as can possibly be obtained in a fair and open manner. If any line while maintaining the published rates is yet enabled to run above its allotted percentage, this surplus will justify the railway in demanding an increased percentage in the new allotment that is to be made at the expiration of the monthly or yearly pooling arrangement. The incentive to fair and healthy. competition is not removed; each line will endeavor to vie with its rival in accommodations and facilities. But the temptation to take unfair advantages of its rivals is diminished, for an increase of traffic due to rebates or violations of the pooling agreement manifestly cannot justify a claim for increased percentages. A successful pool prevents railway wars with the accompanying discriminations, but does not prevent healthy emulation to attract business. It simply raises the plane of

competition to a higher level.1

The abolition of pooling would in fact hasten the very result which it is desired to avoid. Division of the traffic and the earnings form, as we have seen, the fourth and fifth step in the

1 This is another of the points entirely overlooked by Hudson, The Railways and the Republic, p. 229.

progress of combination. The final steps are lease and absolute consolidation. The tendency to combination is irresistible; all endeavors to stem the current have been and will be futile.1 If therefore pools, which still permit competition to a limited degree, be abolished, the process of complete consolidation, which utterly precludes competition, will be accelerated. Under the system of division of earnings, the weaker roads are still enabled to procure a share of the business and thus maintain a limited competition; remove the guarantee of allotted percentages, and it is simply a question of time before the weaker roads are driven to the wall and then bought out by their more sturdy competitors. No clause in the Interstate Commerce act prohibits the stronger line from lowering its charges and thus inaugurating a war of rates, provided it be done publicly. The enforced publicity of charges is undoubtedly an immense step in advance; but while no increase of charges can be made until after ten days' public notice, reductions in the charges may take place without previous public notice.2 Railway wars are hence by no means prevented. Pools are indeed a makeshift, but the disappearance of this modified and partial form of combination would most assuredly lead to a more complete and absolute form of combination. The logical outcome will be a concentration of the railways in the hands of an exceedingly small number of corporations, and the development may even be carried to a stage which the telegraph lines have already reached a practical monopoly of one huge corporation. The federal law is thus unwittingly hastening the very result which it intended to frustrate. It defeats the very purpose which it was designed to accomplish. Our legislators imagined that

1 Cf. English Select Committee (1872), p. xxvi: “While it is extremely doubtful to what extent the less complete forms of combination admit of competition, and what is the value of such competition, there can be little doubt, judging from the past, that they cannot be maintained as the ultimate forms, and are sure, whatever principles may be laid down by committees or commissions, to end in complete fusion. So much stronger is the power of wealth, self-interest, and united action on the part of the companies, acting each in its own case with clearness and decision, than that of any general principles by which committees and commissions have supposed that the public interest might be protected."

2 Sec. 6 of act.