The so-called "midnight tariff" was a strictly legal way of conferring favors upon certain shippers. It was much in evidence during the grain wars between lines serving the Gulf ports about 1903. And it seems to have been a device used at times all over the country. A traffic manager wishing to steal all the business of a large shipper from some competing road, and to build himself up at the expense of his rivals, secretly agrees to put into effect a low rate on a given date. The shipper then enters into contracts calling for perhaps several hundred car-loads of grain to be delivered at that time. This reduction is publicly filed, perhaps thirty days in advance, with the Interstate Commerce Commission at Washington. But who is to discover it, in the great medley of new tariffs placed on file every day? Yet this is not all. A second tariff, restoring the full rate, is also filed to take effect very shortly-perhaps only a day-after the reduction occurs. All these are public, and open to all shippers alike. But only the one who was forewarned is able to take advantage of them.

An entirely different plan of rebating—and a most effective one -has to do with apparently unrelated commercial transactions. Many shippers are large sellers of supplies to the railroad. How easy then to make a concession in rates to an oil refinery, for example, by paying a little extra for the lubricating oil bought from a subsidiary concern. The Federal authorities in recent years, and especially in connection with the prosecution of the Standard Oil Company in 1908-1911, have discovered the most extraordinary variations in the prices paid by railroads for supplies. Independent concerns were often not allowed to compete in the sale of lubricants at all. It would be difficult to prove any connection between so widely separate sets of dealings; and yet it is clear that rebates are often given in this way. Or even more fruitful as an expedient, especially in these later days, when rebating is a serious offence, why not confer a favor by extra liberality in allowances for damages to goods in transit?

Personal discrimination may be as effective upon competition through denial of facilities to some shippers as through conferring of special favors upon others. Practices of this sort have been quite common in the coal business, especially in the matter of furnishing or refusing to furnish an ample supply of cars or suitable spur tracks to mines. In 1906 came the startling revelations upon the Pennsylvania Railroad as to the practice of discrimination in furnishing cars to coal mines. A comprehensive investigation by the company itself resulted in the discharge of a number of high officials. It appeared, for example, that the assistant to President

Cassatt had acquired $307,000 in stock of coal companies without cost; that a trainmaster for $500 had purchased coal mine stock. which yielded an annual income of $30,000; and that one road foreman was given three hundred shares of the same company stock for nothing. In all these cases the object was to secure not only an ample supply of cars for the favored companies, but perhaps even the denial of suitable service to troublesome competitors.

Yet other means of favoring large shippers at the expense of small ones are almost impossible to eradicate. The record of the vigorous prosecutions against rebating, under the Elkins law, affords conclusive evidences not only as to the widespread extent of the evil, but as to its identification with many of the large industrial combinations. There was collected in fines for rebating between October, 1905, and March, 1907, the sum of $586,000. Several men were sent to jail, for from three to six months. Among the trusts implicated were the beef packers, who have been indefatigable in concocting rebating devices, the tin plate combination, and, most notable of all, the American Sugar Refining Company. Nearly $300,000 in fines was imposed upon this concern alone. The secret allowances in these cases were most ingeniously arranged. Some were "refund of terminal charges;" some were "lighterage demurrage;" some were allowances for damages. Many were paid by drafts instead of checks, so as to preclude identification of individuals; some were by special bank account; but the sums involved were very large.

The following quotation from a letter from an agent of the sugar trust accompanying a claim for overcharge of $6,866 on shipments of syrup, introduced in evidence in one of these cases, aptly describes the situation, both then, now, and always. "We ⚫ hope to devise some means to enable us to conduct our freight matters with the transportation companies satisfactorily even under the new conditions imposed by the Elkins bill; but there may be some cases that cannot be taken care of, in the event of which we will, like all other shippers, have to take our medicine and look pleasant." The Interstate Commerce Commission reported as to the conditions in 1908 that "many shippers still enjoy illegal advantages."

Thus the rebate as an evil in transportation, even since amendment of the law in 1906-1910, while under control, is still far from being eradicated. Favoritism lurks in every covert, assuming almost every hue and form. Practices which outwardly appear to be necessary and legitimate, have been shown to conceal special favors of a substantial sort.

C. THE NATURE AND EXTENT OF REGULATION

181. Complaints against the Railroad Systems

I. That local rates were unreasonably high, compared with through rates.

2. That both local and through rates were unreasonably high at noncompeting points, either from the absence of competition or in consequence of pooling agreements that restricted its operation.

3. That rates were established without apparent regard to the actual cost of the service performed, and are based largely on "what the traffic will bear."

4. That unjustifiable discriminations were constantly made between individuals in the rates charged for like service under similar circumstances.

5. That improper discriminations were made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight.

6. That unreasonable discriminations were made between localities similarly situated.

7. That the effect of the prevailing policy of railroad management was, by an elaborate system of secret special rates, rebates, drawbacks and concessions, to foster monopoly, to enrich favored shippers, and to prevent free competition in many lines of trade in which the item of transportation is an important factor.

8. That such favoritism and secrecy introduced an element of uncertainty into legitimate business that greatly retarded the development of our industries and commerce.

9. That the secret cutting of rates and the sudden fluctuations that constantly took place were demoralizing to all business except that of a purely speculative character, and frequently occasioned great injustice and heavy losses.

10. That, in the absence of national and uniform legislation, the railroads were able, by various devices, to avoid their responsibility as carriers, especially on shipments over more than one road, or from one State to another, and that shippers found great difficulty in recovering damages for loss of property or for injury thereto.

II. That railroads refused to be bound by their own contracts, and arbitrarily collected large sums in the shape of overcharges, in addition to the rates agreed upon at the time of shipment.

Adapted from the Report of the Senate Select (Cullom) Committee on Interstate Commerce, I, 180-181 (1886).

12. That railroads often refused to recognize or be responsible for acts of dishonest agents acting under their authority.

13. That the common law failed to afford a remedy for such grievances and that in cases of dispute the shipper was compelled to submit to the decision of the railroad manager or pool commissioner, or run the risk of incurring further losses by greater discriminations.

14. That the differences in the classifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions, were a fruitful source of misunderstandings, and were often made a means of extortion.

15. That a privileged class was created by the granting of passes, and that the cost of the passenger service was largely increased by the extent of this abuse.

16. That the capitalization and bonded indebtedness of the roads largely exceeded the actual cost of their construction or their present value, and that unreasonable rates were charged in the effort to pay dividends on watered stock and interest on bonds improperly issued.

17. That railroad corporations had improperly engaged in lines of business entirely distinct from that of transportation, and that undue advantages had been afforded to business enterprises in which railroad officials were interested.

18. That the management of the railroad business was extravagant and wasteful, and that a heedless tax was imposed upon the shipping and traveling public by the unnecessary expenditure of large sums in the maintenance of a costly force of agents engaged in a reckless strife for competitive business.

182. The Provisions of the Interstate Commerce Act9

BY LOGAN G. MC PHERSON

The Interstate Commerce Act, taking effect April 5, 1887, practically applied the principles of the common law which inhere in the unlimited jurisdiction of the State courts to the regulation of interstate traffic by the Federal courts. It provided:

First-That charges for transportation must be reasonable and just; prohibiting any unjust discrimination by special rates, rebates, or other devices, and any undue or unreasonable preferences;

'Adapted from The Working of the Railroads, 248-250. Copyright by Henry Holt & Co. (1907).

Second-That there should not be a greater charge for a short haul than for a long haul over the same line in the same direction under substantially similar circumstances and conditions;

Third-Prohibited the pooling of freights and the division of

earnings;

Fourth-Prohibited any device to prevent the continuous carriage of freights;

Fifth-Provided for the publicity and filing with the Commissioner of all tariffs;

Sixth-The Interstate Commerce Commission created by the Act is given power to investigate complaints against carriers and to make reports of its investigation in writing;

Seventh-The Interstate Commerce Commission is authorized, in case it finds that the carrier has violated the law, to order it to desist and make reparation for injury done. In case these orders are not obeyed the Commission is empowered to proceed in a summary way to have the Circuit Court of the United States enforce them.

183. The Provisions of the Elkins Act1o

The Elkins law, approved February 19, 1903, is an amendment to the Act to Regulate Commerce, and the only important amendment since 1889. The former act is directed against wrongdoing both in the fixing of tariff rates and in the failure to apply them when they have been fixed. Broadly speaking it is the latter class of offenses only which are affected by the recent legislation. Its provisions are designed more effectually to reach infractions of law such as the payment of rebates and kindred practices.

In the first place it makes the railroad corporation itself liable to prosecution in all cases where its officers or agents are liable under the former law. Such officers and agents continue to be liable as heretofore, but this liability is now extended to the corporation which they represent.

The amended law has abolished the penalty of imprisonment, and the only punishment now provided is the imposition of fines. As the corporation cannot be imprisoned or otherwise punished than by money penalties, it was deemed expedient that no greater pun-· ishment be visited upon the offending officer or agent.

Under the former law it was not sufficient to show that a secret and preferential rate had been allowed in a particular case; there had to be further proof of the payment of higher charges by some

10

1o Adapted from the Seventeenth Arnual Report of the Interstate Commerce Commission, 8-10 (1903).