Mr. KERNAN. I think not (reading):

Either party may, within thirty days, appeal from the judgment or decree of the circuit court to the Supreme Court of the United States; but such appeal shall not operate to stay or supersede the order of the circuit court.

I do not propose that an appeal shall stay proceedings but for thirty days, and I propose to leave the circuit court with its power to protect suitors in all cases of appeals by granting a stay pending appeal whenever the appellant requires it.

Mr. MANN. You mean a man to have a right of filing a petition for a writ of error in the supreme courts in order to stay the operation of a writ?

Mr. KERNAN. Yes, sir.

Mr. MANN. And obtain an order from the court?

Mr. KERNAN. Yes, sir.

Mr. MANN. So that this order, the judgment of the circuit courtit just goes directly from the circuit court to the Supreme Court? Mr. KERNAN. Yes, sir.

Mr. MANN. If the order of the circuit court happens to be entered in June of a year, there would be no chance for a stay of proceedings for some time, unless the Chief Justice, as a matter of form, provided for a stay of proceedings in all cases.

Mr. KERNAN. That is true in all cases of appeal in equity cases to the Supreme Court of the United States.

Mr. MANN. I know; but the custom is in every case for the court below to stay the operation of the judgment in order to give the parties an opportunity of getting a stay of proceedings from the Supreme Court of the United States if they are entitled to it. I do not think you will find in any court, under any circumstances, the provision that the appeal of the court below shall take effect within thirty days unless a party gets a supersedeas from the Supreme Court of the United States within that time.

Mr. KERNAN. Yes. Well, I will say in reference to that, without spending time as to how far that changes this rule, that I do not think this bill in any respect ought to put a railroad before the courts in any other position than a suitor always is in against whom a judgment has been rendered, and who wants it reviewed before it goes into effect. He may ask the granting of a stay, and a court may pass upon that.

That is the rule we should have here, and we should be careful in legislation never to go into language which changes the fundamental practice of administration of justice in the courts, otherwise you are making a very dangerous change.

The CHAIRMAN. The hour for adjournment has arrived, and if you will now suspend you will have the stand at 10.30 to-morrow morning. STATEMENT OF MR. WILLIAM R. CORWINE, OF NEW YORK CITY.

Mr. CORWINE. Mr. Chairman, I desire to leave the city, and I would like to have the privilege of going home and sending you what I have to say in written form on behalf of the organization which I represent. The CHAIRMAN. Very well. How soon can you have it here? Mr. CORWINE. I will try and dictate it to-morrow. I would like to have it noted on the record that I was here representing the Merchants' Association of New York City, also as a member of the committee advocating the passage of the Corliss bill.

The CHAIRMAN, Very well; your brief, when filed, will be inserted in the hearings.

Thereupon (at 12 o'clock m.) the committee adjourned until to-morrow, April 18, 1902, at 10.30 o'clock a. m.

FRIDAY, April 18, 1902.

The committee met at 10.30 o'clock a. m., Hon. William P. Hepburn in the chair.

The CHAIRMAN. I desire to lay before the committee this morning a letter, addressed to the chairman of the committee, from Hon. Martin A. Knapp, chairman of the Interstate Commerce Commission, which is as follows:

Hon. WILLIAM P. HEPBURN,

INTERSTATE COMMERCE COMMISSION,
Washington, April 17, 1902.

Chairman Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D. C.

SIR: I beg to acknowledge receipt of your letter of the 16th instant, requesting my associates and myself to present to your committee their views respecting proposed legislation, and to say that some or all the members of the commission will be pleased to appear before your committee on Monday next, the 21st instant, the date suggested in your communication.

Thanking you in behalf of the Commission for the courtesy extended, I remain, Very respectfully, yours,

MARTIN A. KNAPP, Chairman.

STATEMENT OF MR. JOHN P. KERNAN-Continued.

Mr. KERNAN. Mr. Chairman, I endeavored yesterday to state that certain propositions seem to me to have been settled with respect to the interstate-commerce law; that the express determination of the courts with respect to the traffic and freight rates must now be regulated by statute so as to protect the carrier in all of its just rights and furnish it with sufficient revenue from its business to give it a proper income on the money and labor invested, and also so as to protect the people against unjust discrimination and too high rates. And the reason of this, briefly, was because the law and its remedies had been found to be unequal to meet the necessities of present business conditions.

The CHAIRMAN. May I interrupt you there?

Mr. KERNAN. Certainly, sir.

The CHAIRMAN. If it is going to take you off from the thread of your argument, I will not do so.

Mr. KERNAN. I think perhaps I may cover the things which you desire to mention, if you will allow me to proceed.

The CHAIRMAN. This was a matter that you would not cover, because I was going to ask you if you had given attention to the subject you there refer to, a reasonable return on capital invested, and had any information as to what that probably should be, or if there was any way of ascertaining, in the aggregate.

Mr. KERNAN. I do not know but you might take perhaps the provision in our New York railroad law, which has been there since the general act in 1850. That provision is that the legislature can reduce

its rates when the clear income of a corporation is 10 per cent on the capital invested. That is our rule there and has been applied in the various investigations we had. For instance, the 5-cent fare on the elevated railroad was a matter that President Cleveland, when governor, refused to approve, although it was approved by the legislature, and we had to have an investigation of the elevated railroad under the statute, to ascertain whether they were earning 10 per cent on the capital, it being recognized that they were entitled to earnings to that extent, and there should be a reduction in the rates.

The CHAIRMAN. Would that be your own judgment from your own observation as to the measure of profits that might be just.

Mr. KERNAN. Well, no, sir. You know that has stood since 1850, and I should think now that the rate of earnings on capital which would be recognized as fair and reasonable under modern conditions would be 6 per cent on the common stock, aside from the fixed charges and bonded indebtedness. Of course that question is always complicated by the question of how much the capital actually is. Where it has been vastly watered, and where its construction account represents but a small percentage of the outstanding stocks and bonds, there always comes in the question as to whether a lower rate of remuneration would not be fair.

But I think in all investigations by bodies and commissions they seldom go back of the proposition as to the fact of what the outstanding issue of stocks and bonds is, and they usually make that the basis of the determination as to whether their rates should be reduced or not, permitting an earning on that of a reasonable amount. That becomes necessary, because if the bonds and stocks of a corporation that has been watered remained in the hands of the original holders, you might in justice reduce the earnings, but where they become scattered all through the country, in the hands of many purchasers, they lose the taint of the original wrong in the watering, and then you have another problem there; you begin then attacking innocent holders of the securities; and therefore I think that you can not do otherwise as a rule than to take the outstanding issues of stocks and bonds as a basis upon which you are to permit them to earn a return.

The CHAIRMAN. Has your investigation of this matter given you. any opinion as to who is the owner of what is known as the unearned increment? Does that belong to the public or the corporation?

Mr. KERNAN. No, sir; I never have gone into that. I have always assumed, as I say, and there was great difficulty in assuming any other basis than that unearned increment represented in stocks and bonds, inasmuch as the issue of stocks and bonds have been under the authority of the people and its statutes, and that therefore you can not deprive the railroad and the railroad shareholders of the stocks and bonds of their road, and what may be called that unearned increment. It would kind of seem to me that the people had abdicated their rights to assail the issues of stocks and bonds which they themselves, under the authority of their statutes, have permitted to be made, and they have got themselves into that position where I do not think you can ever deal with the question upon any other basis than that the revenue must be permitted to be earned upon the outstanding stocks and bonds that have been authorized by the statutes.

The reasons for this legislation were because the common law and its courts and remedies were inadequate to afford the protection that

the shippers ought to have against these railroads; second, because State legislation could not reach the subject, and in the third place because competition was no longer a sufficient protection against undue preferences and high rates.

It is an old saying that competition is impossible, and can not be maintained, where combination is possible, and that has been working itself out ever since until we now see that wherever competition formerly existed it has been eliminated for the people as protection against the competing lines by the merging of securities and ownership of each other's stocks, and in other ways.

Now this act, I want to state, as you may know, was based on the English act of 1854, which was very wise in its provisions against unjust discriminations and preferences. That was very wise because it gave us for our initial legislation a guide in the construction of that act which had taken place by the English courts from 1854 down, and I always insisted that that was the only safe way to start, because if we adopted new language, we did not know where it would land us upon its construction by the courts. We took that act as a guide. Then there was the appointment of the Commission, which all supposed to have the power, which it exercised for the first ten years, to fix future rates after an investigation and full hearing given to the parties, which was accepted by the railroads and the Commission and by every one that I know of until the Supreme Court finally decided that Congress had the right to confer the judicial power on the Commission and had the right to confer upon the Commission the power to fix rates, which is a power of legislation, yet it simply had not done so in this act, and while it might be inferred from the provisions of the act, for instance the provision of the act that the Commission should investigate and if it reached the conclusion that the rates were too high should direct the carrier by an order to cease and desist from charging the rate that was found to be wrong that while the inference might be drawn to that effect, yet the power was too great to be given by implication, and that the court would only recognize it when Congress expressly in an act conferred the power.

Now, this act was found defective in the matter of getting testimony. In the first place, after the Supreme Court of the United States held that the railroad and traffic managers who appeared before the Commission, and others, could not be compelled to testify to the facts, because they might subject themselves to punishment, it was found impossible to get them to testify, and so Congress amended the act to provide that any testimony given before the Commission by any witness should not subject that witness in any way to criminal prosecution, thus removing that obstacle from the path of the Commission; and 1 do not think that the Commission now needs any more power in ascertaining all the facts. That has remedied the defect of the origi nal law, and I think that meets the suggestion which the gentleman from Alabama has frequently made, as to how you are going to find out about the secret rates.

The Commission has not any difficulty in finding out about the rate. The railroads and the shipper watch these matters very closely, and they watch each other, and they always know when a competitor is getting more allowance from a railroad than they are getting, and then, as in the case recently where the rates in the meat business were shown, they have no difficulty in acquiring all the information that is

necessary. Next came the decision of the Supreme Court holding that the Commission has not this power.

The CHAIRMAN. This move in regard to securing testimony was effected in the amendment of 1893. It is referred to in the bills herein this last bill, which says:

But all persons so required to testify shall have the same immunity from prosecution and punishment as is provided in an act approved February eleventh, eighteen hundred and ninety-three, entitled “An act in relation to testimony before the Interstate Commerce Commission, and in cases of proceedings under or connected with an act entitled 'An act to regulate commerce,' approved February fourth, eighteen hundred and eighty-seven, and amendments thereto."

Now, we come to this next difliculty, that there is no power in the Commission to prescribe a rate for the future, although the Commission find that a rate which is testified to before it in hearings is unjust and for some reason wrong, and that is the reason that a second appeal to Congress is necessary to remove that defect in the law, if it be a defect; or at least if it is not a defect, it was not intended by the Congress in the original act.

I have always supposed that it was intended that that additional power should be conferred upon the Commission, if it can be safely done with due regard to all the parties to be affected by it. There is another thing which I want to suggest to the committee and which they should bring up before the members of the Commission when they see them. I do not think this power of the Commission was ever questioned until it came up in the import-rate case and the social-circle case, which were decided in the Supreme Court of the United States. And, again, there is not any trouble about high rates. The Commission never had any difficulty about lowering rates. The shippers do not care what rates are charged. It is the relation of rates between competitors; that is the thing they want fixed.

I will give you an illustration: I bought a furnace and had it sent up to my country house, 5 miles from Utica. The freight rate was 28 cents per hundred; that, on 400 pounds, was $1.12. Now, somebody asked me, "Was that high?" Why, taken by itself, I would not say that $1.12 was too much to pay for bringing that furnace up there, but the rate for that furnace, at the same time, from Utica to Minneapolis was 25 cents a hundred, or 3 cents less for 1,000 miles than it was on that 5 miles. Now, you say that that does not make much difference to me, as a consumer, on one furnace. That is true. But suppose I was a furnace manufacturer at my station, trying to compete with the Utica manufacturer in supplying the Minneapolis market, I would pay from Forestport to Utica-4 miles-28 cents per hundred, and then I would have to pay the additional 25 cents per hundred to reach the Minneapolis market from there.

Why, as business is done in these days, that wipes out me as a furnace manufacturer at that point, and the result is that upon the entire line of that railroad from Utica up there was not a single furnace manufacturer. The "arbitrary," as it is called, which is the rate from a station on a single line to a competing point, was so great as to absolutely preclude men from doing business. If I was a manufacturer at Forestport I would not care whether the rate was 50 cents to Minneapolis or 25 cents; but what I would want to have established would be the relation which my rate would bear to my competitor's at Utica. If I should be charged 3 or 4 cents a hundred miles, that is all right;