Popular Science Monthly/Volume 28/February 1886/Discrimination in Railway Rates I

by Gerrit L. Lansing

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DISCRIMINATION IN RAILWAY RATES.

By GERRIT L. LANSING.

I.

THE term discrimination, in its application to railroad rates, seems in the minds of some to have lost its original and true meaning—the act of distinguishing between things which are different. In the general affairs of life, the ability to discriminate is as commendable as the lack of it is discreditable. There appears no reason why the reverse of this should be true when applied to transportation. There must always be differences which fairly affect rates, as competitive routes and markets, the bulk and value of commodities, and the volume of the traffic. These differences demand recognition and require discrimination in fixing rates; but there should be no discrimination without a difference. This would afford a profit to a favored few, but would effect an injury to the many, and is therefore unjust.

It is asserted by transportation companies that such discriminations as they practice result from the differences which exist, and, though they may sometimes cause an injury to a few, they effect a much greater benefit to the many. The difficulty in the question is right here: The decision as to what is a sufficient difference to fairly require a discrimination in its favor must be decided by the. fallible mind of man. Differences of interest and so of opinion are therefore more frequent than differences of traffic. We may readily believe their statement, that the railroad managers are constantly besieged by the representatives of various places, trades, occupations, and interests, asking for concessions in rates that arc not granted to others. Each claims some peculiarity of situation or circumstance which justifies some concession. It is natural also that most of these claims should be based on interest rather than on principle. The railroad manager is prone to this view, as the interests of the property under his charge are certainly not advanced by building up the trade of one place or person by giving lower rates than are allowed to others similarly situated. These differences of opinion, it seems, must always continue to exist as long as there are different interests in commerce and different circumstances affecting production and trade. The decision as to the differences, too, must always be made by man; and the government official in Germany, France, Italy, Spain, and other countries of Europe where there is state ownership of railroads, has caused even more complaint by his rulings than has the manager of the private corporation in the United States.

That discrimination may be fairly and legally exercised has been decided by the courts, while most of the States prohibit unjust discrimination. An act of the Legislature of Illinois of July 1, 1871, "was pronounced unconstitutional by the Supreme Court of the State, because in its operations it was not in express terms directed against unjust discrimination, but against discrimination generally."^[1]

Such discriminations in rates as result from the operation of the railroads under the control only of the requirements of commerce and the interest of the corporations can not be unjust in the pense of political economy, can not affect injuriously the interests of the community at large, but, on the other hand, must always work for the advancement of the common good.

The causes of discrimination will be found in the principles regulating rates. That there are some natural principles is shown from the fact that in all the different parts of the world where railroads have been built the same questions arise from the dissatisfaction of communities, interests, and trades; the same charges of unjust discrimination are made, and the same remedies have been applied of legislative restriction and interference. To this we may add that there has been everywhere the same failure of these remedies to effect the result desired. In the older localities the earlier rule of interference has been gradually withdrawn, as the common commercial law of self-interest has been found to produce the best results; and as the populations of newer communities have increased, their interests have become more established, and their experiences enlarged, they too tend toward the path followed by the older places. Italy, after an examination of the subject by a special commission, which was continued several years, decided to lease the Government railways to private corporations to operate. Switzerland, upon reviewing the experience of the other states of Europe, declined to exercise the right granted by the charters of the railway companies, that after a certain time the Government might purchase and operate the roads, deciding that it would neither profit the state nor benefit the people.^[2] M. Léon Say says of the Government operation of the railways of France, "The failure is complete and irreparable."^[3] And M. de la Gournerie, Inspector-General of the French Corps of Bridges and Highways, concludes a review of the subject of railway rates as follows: "I have sought to combat the widely spread opinion that, in the commercial operation of railroads, everything is artificial; that instead of observing, we must invent; that instead of habitually leaving the different interests to react upon each other through supply and demand, it is necessary to be regulating continually. If we were certain that the men who manage railroad business would always have a perfect understanding of these questions, my conclusion would be to leave the matter to them entirely; but the companies enjoy too great power for us to resign ourselves to endure tranquilly the consequences of their errors. I think, then, that the state should preserve its powers, watch attentively, but prescribe little."^[4] The other countries of Europe have in general gone through similar experiences and arrived at the same conclusions, and, following the enlightened lead of the Railroad Commission of Massachusetts, the tendency in the other States of the American Union is undeniable also in the same direction of laissez faire.

In the transaction of trade, exchange is effected, not because one party demands it, but because both believe it to be a benefit. Neither can command what the other considers it his interest to refuse. Transportation is limited in the same way by the same requirements. The limit on one side is fixed by capital and is the total cost of all the service performed. If the roads are not able to secure enough trafic at prices which will pay the expenses of operation and a fair rate of interest on the investment, capital will no longer be invested in their construction. If they persistently fail to earn the ordinary expenses of operation, and so remain a constant tax upon the proprietors, they must ultimately be abandoned. The reduction of the charges can not permanently be so low that the income is less than the expenditure. The value of the service to the shipper fixes the opposite limit to the reduction of charges. Here the rule applies to each shipment and at once. The shipper knows with considerable exactness the elements which enter into the cost of the commodity and the price it will bring in the market. He can at once determine then whether or not its transportation will afford him a profit. If it will, it is sent. If not, it remains where it is. With the railroad, on the other hand, the cost of no single shipment can be determined. It is carried on a freight train, which also carries many other shipments consigned to many places. The same train often carries emigrant passengers, and is run over a track which is also used by passenger-trains. Besides these elements, there are large expenses incurred by the company of which an indefinite amount is chargeable to the various classes of traffic performed. It is thus a matter of impossibility to say what will be the cost of any particular shipment, and it is even a matter of extreme uncertainty to state the cost of the various classes of traffic each by itself—as passengers, freight, express, or mails. The only course then left to the railroad is to take the freight at whatever rate the shipper can send it with profit to himself and hope the whole of its traffic will amount to a greater sum than the cost of the service. The railroad may thus for years continue carrying freight at rates which do not cover the cost of the service, while the shipper will immediately stop his freight as soon as its transportation ceases to be remunerative to him. The rates can in no case be more than the value of the service, but they may be less than its cost. Between these two limits, the former of which ultimately determines the point below which no rates will be held, and the latter of which immediately determines the point above which no freight will be sent, there is in practical operation a varying scale of rates determined by competition both of parallel lines and various commercial forces.

These different kinds of competition I have elsewhere dwelt upon;^[5] it will answer the present purpose to name them. They are: competition of capital, of parallel railroads and water-routes, of markets, and the efforts of the railroad to increase its net income by increasing its traffic with lower rates. Wherever there is a fair discrimination exercised in fixing rates, it will be found to be based on one or more of these forms of competition. This proposition, it is intended to illustrate in the following pages; and, if true, it is of the first importance, for, as competition is generally conceded to be a more potent regulator of prices than all other forces, if discriminations result from it, to prohibit them must also interfere with competition. All forms of discrimination in the rates of transportation which are fairly exercised may be classed under three heads—namely, those which favor persons, places, or things.

1. Persons.—Discriminations which are exercised in favor of persons in the transportation of freight will be found to be not in favor of the person but of the freight. In fact, personality has no part in it, but the concession is caused by the circumstances of locality or the kind or volume of the traffic. For instance, the farmers of the West and Northwest are systematically and greatly favored in the shipment, of their products to the market. Grain and provisions are carried from Chicago to the seaboard at a discrimination in their favor of at least three to one as compared with the shipments by merchants, manufacturers, and others. But as without this concession the farmer would have no market for the greater part of his crop, and as it cheapens the cost to consumers of the staff of life, it is, though a discrimination, a subject of no complaint. The same remark applies to dealers in coal, lumber, petroleum, and all other things produced and consumed in large quantities.

But such rates should be open to all under similar circumstances; they can not fairly be affected by the personality. Where the circumstances of situation, kind, and quantity are the same, to give lower rates to one person than to another is, in most States, illegal as well as unjust. It tends, by preventing competition in trade, to maintain prices, and so to limit consumption and restrict traffic—a result directly opposed to the chief end for which all railroad managers are striving. I can conceive of no case in which a railroad would grant one shipper privileges not accorded to another where the circumstances of the traffic were the same, except it were as a gift and not in the line of a business policy; that is to say, the advantage given would be at the expense of the railroad.

In the transportation of passengers, however, differential rates are made which more nearly approach a discrimination as to persons. Yet, in this case too we will find that the different rates are caused by a difference in the traffic, and that, under like circumstances, rates to all are alike. With passengers, a discrimination based on the volume of the traffic results in the excursion rates, round-trip tickets, commutation, season, and one thousand-mile tickets, and the like, familiar to all. For instance, in California, from San Francisco to Alameda, Oakland, or Berkeley, a distance in each case of about ten miles, the passenger may buy a trip-ticket for fifteen cents, a round-trip ticket for twenty-five cents, and a sixty-ride ticket for three dollars, or at the rate of five cents a trip. The rate per mile would be, in the several cases, a cent and a half, a cent and a quarter, and half a cent respectively. Though here is a discrimination, in the proportion of three to one, yet its fairness is not only popularly conceded, but the Constitution of the State especially provides that "excursion and commutation tickets may be issued at special rates." The question, as popularly put, here arises, "On the ground of fairness, why should one person in the same train, between the same points, pay three times as much fare as another?" The highest of these fares—a cent and a half a mile—is much lower than the average rate of fare charged in the United States or on the remaining portions of the same road. It is certainly not, then, unreasonably high. But the reason it is lower than in the average of cases is that the ordinary traffic between the points in question, excluding that at special rates, and the possibilities of its development, are sufficient to warrant it. As to the traffic carried at the special rates, it could not be obtained without the special concessions. And, the road being built and the trains running, the extra traffic may be carried at a fraction of the average rate of cost for the whole. There is thus a profit under the circumstances on this traffic at the special rates; and, as it is developed and increased by the concessions made in its favor, it helps to pay more and more of the fixed expenses which were in force before its existence, and so by relieving the regular traffic of a portion of its burden of expense makes possible also a reduction in its rates. The reason for the discrimination, then, results from its necessity to secure the traffic; the common reason in all cases of lawful and fair discrimination. If, by an equalization of these rates, their averages were established as the rate for the whole, the daily passenger who now pays ten cents a day for his fare from his home to his place of business in the city and return would then be compelled to pay twenty-two cents. It is certain that in the greater number of cases he would not do this. Now, with this suburban traffic, as with all other traffic, the rates decrease as the volume increases—other things being equal—and, as the rate of expenses per passenger also decreases under the same conditions, the differential rates are justified on the ground of the cost of the service, as well as from the necessity of the traffic. The very much greater port ion of the suburban traffic is from the passengers who travel daily, a much smaller portion from those who purchase round-trip tickets, and the remainder from those who make an occasional single trip. The rates are thus inversely to the volume of the traffic. The highest rate is paid by those who pay very few fares, and the lowest by those who pay the largest number. This is a distribution of the burden of the expense which causes it to be felt the least; and it results in giving the benefit in the fares to those who by increasing the traffic cause the reduction in the rate of expense.

That the suburban passenger traffic throughout the United States is carried at lower rates than any other is a familiar fact, explained by the possibility of development and justified by its much greater volume, which is accompanied by a lower rate of cost per passenger. Where the volume of the traffic is less, the rate and the cost per passenger are alike greater. This rule holds good throughout, other things of course being equal. In the minority report of the Railroad Commission of California for 1883 (pp. 137-140), which is extremely hostile to the railroads of that State, it appears that the lowest passenger rates exist where there is the greatest traffic, and that "between all the thickly settled portions of the State" the rates are considerably lower than prescribed by the orders of the commissioners. An appended table in the same report shows that during the year 1881 the principal railroad company in the State had forty-six stations from which no passengers were carried, sixty-two from which the daily average was from one passenger each two days to one in thirty days, and there were forty stations to which no tickets were sold. It is in these cases, the report explains, that the highest rates prevail.

It thus appears that the discriminations which may be fairly exercised as to persons are not affected by the personality, but by the traffic. Like rates under like circumstances to all is certainly the common rule in experience, and in nearly every State any violation of this is properly prohibited by law. The railroad takes no cognizance of the person, but exerts all its efforts toward developing the traffic. The passenger who pays a cent and a half per mile for a single-trip ticket may, if he chooses, buy a sixty-ride ticket at one third that rate. The possibility of development depends upon population; it is greatest between great cities and their suburbs, and least in the sparsely settled plains and mountains of the West.

The discriminations which are popularly supposed to favor persons in the transportation of freight, it will appear, are in a similar way caused by the traffic, and not by the person. Some of these depend on the difference between things, the remainder upon the differences in the situation of places.

2. Things.—There are some discriminations between things, the justice of which will at once be recognized, as there is an obvious difference between them. Light and bulky articles occupying an unusual amount of space should, if charged by weight, be charged at a higher rate than more compact things; fragile articles involve a greater loss to the railroad from breakage, which entails a greater average cost in their transportation; and valuable commodities being more frequently stolen, and as frequently lost, entail an extra rate to cover the insurance while in transit which is assumed by the carrier. But, aside from these obvious differences of bulk and value, which justify a difference in rates, there are other discriminations between things which will be found to be chiefly based on the volume of the traffic and the possibility of its development.

On examination we will find that the discrimination in these cases also is justified by a difference in the cost of the service. Large quantities are moved at a lower rate of cost per ton per mile than are smaller quantities. A car fully loaded to one consignee is carried at a great advantage over the same car partially loaded with small shipments to various persons; and train-loads running through with grain or coal, it will readily be seen, may be carried and handled at a lower rate per ton per mile than shipments aggregating an equal tonnage switched off at various points and consigned to various parties. The Commissioners of Railroads of Massachusetts, in considering a complaint which was made on this ground of discrimination, not only justify the principle of quantity in reducing rates, but affirm that any other rule would be unjust. "One fact exists," they say, in reviewing a case, "which furnishes strong ground for criticism on the rates which are the subject of complaint. The Boston and Albany does not establish a lower rate for cargoes or large quantities than those fixed for car-loads. . . . The other great roads of the State do have one rate for car-loads and another and lower rate for cargoes, or for some large amount, generally fixed at one hundred tons. The principle on which this difference rests is founded on common sense, and is well recognized in railroad law; and it is recognized by the managers of the Boston and Albany Railroad in some other branches of traffic. Wholesale transactions furnish a reasonable ground for a reduction of rates; and, as the car-load rates of the Boston and Albany must be held as against that company to be reasonable as car-load rates, it follows that as cargo rates they are unreasonable."^[6] This opinion is affirmed by the same company in their report for the year following, when in referring to the first case they say, "The meaning of the opinion was, that it was reasonable to fix a lower rate for large quantities than for single car-loads."^[7] The principle here applied to cargoes and carloads is generally applied to car-loads as compared to smaller quantities, and as the "car-load rate," though lower than the rate for smaller quantities, has been generally approved, it amounts also to an approval of the principle of lower rates for larger quantities.

The difference in rates on the same thing justified in the difference in quantity is generally charged by those shipping in small quantities to be a discrimination against them as individuals, and so as unjust. But we find a denial of this in the fact that the rule affects more frequently things which are shipped in large quantities than persons who ship large quantities of the same thing. Grain, provisions, and coal usually form the largest items of tonnage and have the lowest rates, and it is in favor of these things that the greatest discriminations are made. To deny the fairness of the principle would require not only that the various quantities should all take the same rate, but that things themselves should take the rates charged on other similar things which are shipped in smaller quantity. This is a result which some newspapers and politicians imagine would be beneficial; for instance, I read in a daily payer that it is an "outrage" that wheat is carried from the interior to San Francisco at a lower rate than castor-beans. But it is a result which, in the opinion of the Railroad Commissioners of Massachusetts, "would work mischief in some sections, would divert business from the State, paralyze industry, drive away capital, and injure our great interest—labor."^[8]

The effect of free competition in trade is to bring the greatest competition to bear on those things in which there is the greatest trade. Thus, there is the smallest margin of profit over the cost of production on the necessaries of life, the next smallest on the common comforts, and the largest on the luxuries. This effect is not caused by any design on the part of traders nor from any beneficent legislation on the part of politicians. It results from the operation of natural laws of trade. The operations of the same laws produce the same effect on the rates of transportation. We find, as a rule, the lowest rates on coal, wood, petroleum, iron, lumber, etc.; the next lowest on flour, grain, provisions, etc.; we then have boots and shoes, cotton and woolen goods, clothing, etc.; and then a varying list of more costly or perishable articles and luxuries which are consumed in decreasing quantities. All the natural forces of competition which tend to reduce the rates of transportation co-operate in producing this discrimination in things which are moved in the largest quantities, and which are, of course, consumed in the largest amounts. The aim of the railroad manager is to secure the traffic. To do this he must make lower rates on cheap commodities, with those things which comprise the necessaries of life. It results in distributing the charges for transportation where they are most easily borne. Not only do the necessaries have the lowest rates and the luxuries the highest, but the necessaries consumed in the largest quantities have lower rates than those consumed in smaller quantities. We consume more fuel than bread, and more food than clothing, while the rates of transportation follow the opposite order.

This discrimination, though in favor of the necessaries and common comforts of life, is none the less a discrimination. It actually results in favoring classes. Those who consume but the necessaries, the day-laborers, are the most benefited; the artisans who consume, in addition to the necessaries, many of the comforts, the next; and so on as higher wages provide more of the comforts, and these merge into the luxuries. But the objection is frequently raised that the things having the lower rates are favored at the expense of the things required to pay the higher rates. That articles at low rates should be carried at the expense of things charged higher rates implies of necessity that the lower rates are below the cost, that the service is performed by the railroad at a loss. If the low-rate traffic is not carried at a loss—if the profit be ever so small—it can not, of course, be at the expense of the things paying higher rates. That the railroad should knowingly perform any part of its service at a loss is an absurdity, unless it be a case of nourishing an infant industry, where a temporary loss is incurred to secure a future gain. Those, indeed, who have been most forward in charging upon the railroads the fault of carrying part of their traffic at the expense of another part, would be the last to assert that the railroads are in the habit of doing a considerable part of their service below cost. This charge is so frequently made, and the facts are so commonly misunderstood, that the subject deserves to be followed further.

We are for the present considering only the discrimination between things as determining the rate of their transportation. Discriminations from other causes do not change this result. Competition by other lines between the same points, or to the same market, produces a general reduction in rules, but there remains the same inequality in the particular things shipped. The lowest rates will be given on the staple products of the country which are moved in the largest quantities and higher rates on merchandise shipped in smaller consignments. For instance, the chief products of the West—grain, provisions, and flour—are shipped to the seaboard for about one half the rate charged on miscellaneous merchandise. And this is the same, whether the route be by lake, canal, or any of the various lines of rail.

One of the natural principles of regulating rates which has been mentioned is the power possessed by the railroad of increasing its net income by increasing its traffic at lower rates. This follows from the fact that a large portion of the expenses are fixed—are not changed by the increase or decrease of traffic; so that an augmented traffic adds to but a portion of the expenses of the roads—to those not fixed. The average rate of cost per ton per mile thus decreases, other things equal, as the traffic increases. This result will appear more definite by the use of figures. The census for 1880^[9] shows that the annual interest, maintenance, and operation charges paid at that time by the railroads of the United States, amounted to about the sum of $542,000,000, classified as follows:

	Amount.	Per cent
1. Interest paid on debt[10]	$187,250,826	32·6
2. General officers, legal expenses, taxes, etc.	59,541,684	11·0
3. Maintenance of bridges, buildings, and way,	83,722,748	15·8
4. Maintenance of engines and cars	54,985,340	10·1
6. Conducting transportation	88,230,621	16·3
6. Motive power—fuel, engine-men, etc.	66,219,576	12·2
Total charges paid.	$541,950,795	100·0

It appears from these figures that the fixed expenses of the average railroad in the United States, which are a necessary charge on whatever traffic is carried, are:

1. Interest	34·6	per cent.
2. General expenses, taxes, etc.	11·0	""
3. Maintenance of way	15·8	""
4. A portion of the maintenance of rolling-stock, which, if we assume to be one half, will be	5·05	""
	———
Making a total of	66.45	""

On the other hand, we have the remaining items which are directly affected by and vary with the particular kind or quantity of the traffic, namely:

Conducting transportation	16·3	per cent.
Motive power.	12·2	""
And say one half maintenance of rolling-stock	5·05	""
Making a total of	33·5	""

We may say in very general terms, but which are sufficiently accurate to illustrate the principle, that 60·45, or say two thirds, of the expenses of the railroad are unaffected, or affected in a slight degree, by the quantity of the traffic. With one train or ten trains a day two thirds of the expenses would remain without great change. By the increase of traffic the remaining one third of the expenses would be increased, though still not in proportion to the increase of traffic—as it costs no more for the wages of train-men, for instance, whether the cars are half-empty or all loaded to their full capacity.

An established traffic, then, which at the rate of one cent per ton per mile would pay all expenses, including interest on the investment, might be increased in volume with an increased cost of but one third of one cent per ton per mile. All in excess of that sum would be a profit to the company. So a lower class of freight at a rate of one half a cent, instead of being carried at a loss, or at the expense of the originally established traffic, would not only pay the additional expense incurred in its transportation of one third of a cent, but a profit also of one sixth of a cent per ton per mile. This small rate of profit multiplied by many tons may become a greater sum than the higher rate applied to its smaller tonnage. So it comes to pay a great part of the fixed expenses, and by relieving the higher-rate traffic of a portion of that burden allows reductions in the rates charged on that traffic which theretofore were not possible. The process continues indefinitely. Traffic formerly at higher rates is then stimulated by lower rates, with the hope of increasing its volume, and so of the net amount of profit in its carriage. New industries become possible where the former cost of the service on the movement of their products precluded their transportation. The principle which in the commencement led to a discrimination in favor of certain staple commodities, in the end results in reducing the rates on nearly or quite all articles composing the traffic.

The proposition, therefore, that the transportation of things at lower rates is carried at the expense of things at higher rates, though fair in sound, is false in fact. The error is in the assumption that all traffic is alike, that it is the same kind, quantity, and value. Remove these elements, and the proposition becomes a truism. Remove them, too, and the discrimination disappears. Or, if not, there being no

difference in the traffic, the discrimination becomes then unjust. The fallacy of the proposition seems not to have been discovered by many who have boon prominent in discussing the question of the regulation of railroad rates. I mean those who have taken a political rather than an economic view of the subject. Following a similar kind of reasoning, they have deduced the unreasonableness of higher rates from the existence of lower rates. "As," they say, "rates on grain, flour, or other things carried at low rates, being voluntarily fixed by the carrier, are presumably fair, it follows that rates not so low are unfair." Here, again, the traffic is conceived of as a mental abstraction which admits of no division or degree; it is always traffic—that is, always the same; while, as a matter of fact, there is a much greater difference in the things than in the discrimination. For, practically, instead of a refined classification, taking into account all differences of value, bulk, quantity, or destructibility, things which are similar in these respects, though not the same, are grouped together in a single class.

The enforcement of uniform rates on all the traffic of a railroad (making a difference only for bulky and perishable articles) is in practice a thing of the past, though with politicians it is still preached. It has, wherever tried, been found not only wanting, but destructive. In Belgium, as most of the railroads were owned and operated by the State, the uniform rate theory was naturally adopted, as upon the face it seemed to be the fairest plan. The effect was the restriction of traffic and the oppression of commerce. After this system had been some time tried, however, the cause of the restriction was seen to be the lack of discrimination in things, basing the rates upon bulk, weight, and destructibility only, and ignoring the fundamental principle—the value of the service.

The result of this experience is thus stated by the Commissioners of Railroads of Massachusetts:

"In 1856, in spite of a considerable increase in the miles of railroad worked, the freight movement of the Belgian railroads was found to have seriously decreased. Instead of making good the deficiency in receipts by increased rates on existing business, the administration met the emergency by accepting all traffic that offered, at greatly reduced special rates. This policy succeeded so well that, in 1861, the principle was adopted as regards minerals and raw materials of a regular low scale of charges, with a reduction according to distance. This resulted in the following year in an increase of 72 per cent in the tonnage of this class of goods. In 1862 the principle was extended to goods of the next class, with similar results. In 1864 freights were reclassified and the new principle applied to all except the first class, or small parcels which in this country are known as express matter. The result was summed up by the Minister of Public Works as follows: 'In eight years, between 1856-'64, the charges on goods have been lowered, on an average, by 28 per cent; the public have sent 2,700,000 tons more goods, while they have actually saved more than $4,000,000 on the cost of carriage, and the public treasury has earned an increased net profit of $1,150,000.' A further reduction, made subsequently to this statement in 1864, exceeded even these results, and under it the tonnage rose from 4,479,000 tons in 1863 to 6,533,000 tons in 1864."^[11]

In this country, an extract from the report of the railroad commisioners of a single State will illustrate the common experience as to the operation of the principle of discrimination in things. The Commissioners of Railroads for Alabama tell us: "A proviso of the first section of the act to provide for the regulation of railroad companies and persons operating railroads in this State, approved February 20, 1881, provides: 'That nothing in this act shall be construed to prevent contracts for special rates for the purpose of developing any industrial enterprises, or to prevent the execution of any such contract now existing.' Whether in pursuance of law, or for the development of their own business, it is usual for such railroad companies to concede such 'special rates' to these 'industrial enterprises' for the purpose of developing and building them up, such as factories, mines, lumber-mills, flouring and grist mills, gas companies, water-works, and other 'industrial enterprises.' These 'industrial enterprises,' as we have stated, have these special rates conceded to them very generally in the different States of the American Union. The products of the labor and skill of these 'industrial enterprises' are in many instances transported to distant markets, and the enterprises themselves are created for the purpose of such competition. Where this is the case, enterprises of this description in Alabama would not enter into this competition with those of other States unless put upon an equal footing with them as is done by these 'special rates'; nor could they maintain their business in competition with those of other States in the absence of such 'special rates.' And where these 'industrial enterprises' do not enter into the competition in other States—many of them do in Alabama—and in the absence of such 'special rates' they would not be on equal footing to compete even in this State with enterprises of a similar character in other States, but doing business in Alabama. And in this class of these industrial enterprises where this competition does not exist at all, yet they furnish employment to larger numbers of persons, and confer public benefits in business upon the localities where they exist. It will thus be seen that in the two classes of these 'industrial enterprises' first above named, what would seem to be, to those not familiar with the facts, a special immunity given to them in these 'special rates,' and not accorded to the public generally, is, in fact, nothing more than putting them on an equal footing with similar enterprises in other States, and enabling them to fairly compete with such foreign enterprises; while, in the third class, the State and community, as a consideration for the privilege allowed, receive a benefit which is general and permanent. Without such 'special rates,' few of these enterprises could be made profitable, and the most of them would have to be abandoned. We state these facts, for such they are, and not for the purpose of entering into any argument or defense of the system. We found such 'special rates' existing between the railroad companies and these 'industrial enterprises' in the State at the time we entered upon our duties, and many have been made between them since that time. We have examined these 'special rates' very generally and particularly. The railroad companies have furnished them to us for this purpose. We think that in general they are such as are well calculated to develop and build up these 'industrial enterprises.' We have examined them for the purpose of ascertaining whether there was in any of them any 'unjust discrimination,' in favor of any and against others of these 'industrial enterprises,' and thus far we have discovered nothing that can be fairly construed to come within this category. These 'special rates' are, of course, as various as the different kinds of business to which they relate. We have notified the railroad companies that, under the statute, they have the right to make any such 'special rates' of this character as may be agreed upon by them and any of these 'industrial enterprises' in favor of one and against another, and they have all uniformly adopted the same view of this matter. They are matters of contract in every instance, and therefore are not in such shape that they can be tabulated in this report."^[12] The number of these pages might be indefinitely increased by additional quotations from the experience of Europe and America, illustrating the beneficial operation of the principle of discrimination between things in determining the rates of transportation. But enough has been said to show that the principle is based upon commercial necessity, and that under the operation of any other rule the railroad would fall far short alike of achieving its greatest usefulness to its patrons, and of yielding the largest profit to its proprietors.

 

1. "Report of Railroad Commissioners of Illinois," 1876, p. 17.
2. "Herapath's Journal," London, April 28, 1883, p. 518.
3. "Railway Age," 1882, p. 735.
4. "Report of Commissioners of Transportation," California, 1877-'78, p. 73.
5. "North American Review," May, 1884.
6. "Report," 1881, p. 212.
7. "Report," 1882, p. 100.
8. "Report," 1883, p. 26.
9. Vol. IV, "Transportation.'
10. By adding dividends paid, the item of interest would be considerably increased, giving a larger percentage to the fixed expenses and a smaller to be affected by traffic; but, as these figures are at best but approximate, the principle of the illustration is not affected, whether any item is cither more or less.
11. "Massachusetts Report," 1870-'71, pp. 52, 53.
12. "Alabama Reports," 1882, p. 28.