THE POIJTICAL ASPECTS
OF
GOVERNMENTAL REGULATION.
A SUPPLEALEATAL STATEAIEAT
BY
joseph nimmo, jr.
SÜBMITTED TO THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE OF
THE HOUSE OF REPRESENTATIVES, MAY 22,1902.
WASHINGTON:
GOVERNMENT PRINTING
1902.
OFFICE.
INTERSTATE-COMMERCE LAW.
541
The Political Aspects of Governmental Regulation.
A SUPPLEMENTAL STATEMENT BY JOSEPH NIMMO, JB.
[Submitted May 22, 1902.]
Mr. Chairman: In his testimony before the Committee on Inter¬
state and Foreign Commerce of the House of Representatives, Com¬
missioner Prouty stated, at page 238, that 807 complaints against
advances in rates or against rates which are alleged to be too high have
been filed with the Commission during the last three years. A similar
statement was made by Commissioner Prouty in an address delivered
at Chicago on April 2^ 1902, before the Illinois Manufacturing Asso¬
ciation. On that occasion he said:
While it [the Commission] can not grant relief, there are now pending before it for
investigation complaints involving millions of dollars—I think I might say -millions
annually.
Manifestly these statements are calculated to convey the impression
that the charging of exorbitant rates is now rampant throughout the
country. But this is absolutely refuted bj'^ the annual reports of the
Commission, which show that during the last three years only 23 cases
in all were decided by the Commission upon formal hearings, which
cases embrace only 8 complaints of unreasonable rates per se. Of
these the unreasonableness of only 4 was sustained by the Commission,
constituting less than one-half of 1 per cent of- the 807 complaints
alleged to nave been made to the Commission. This clearly indicates
either that the Commission has been derelict in the discharge of its
duties or that nearly 800 of the 807 complaints were inconsequential
or outside the function of the Commission. The latter is undoubtedly
the correct view of the case. Besides, the fact that not a single case
of exorbitant rates has been sustained in the courts during the fifteen
years of the life of the Commission raises the presumption that not
one of the 4 cases of exorbitant rates in the entire United States, as
determined by the Commission during the last three years, would
stand the test of judicial inquiry.
The total number of cases decided by the Commission each year
during the last three years, and the number of cases of unreasonable
rates tried and sustained, according to the last three annual reports of
the Commission, are stated in tabular form as follows:
Year.
Total num-
of cases
decided.
Number of
cases of
unreason¬
able rates.
Number of
complaints
of unrea¬
sonable
rates
sustained.
1899
5
1
1
1900
g
4
1
1901
10
3
2
23
g
4
The data from which this statement was compiled are found on pages
20 to 43 of the report of the Commission for 1899, on pages 34 to 48 of
the report for 1900, and on pages 22 to 39 of the report for 1901.
Hon. Martin A. Knapp also attempted .to create the same impres-
542
INTERSTATE-COMMERCE LAW.
sion as to the charging of exorbitant rates, notwithstanding the fact that
the statistics of the Commission indicate an average reduction of 22i
per cent for the entire country from 1890 to 1900, and a substantial
reduction in the average rate in each one of the ten groups into which
the railroads of the country are divided b}' the Commission. Mr.
Knapp attempted to overcome these facts by asserting that the appar¬
ent reduction in rates is the result of a disproportionate increase in
the quantity of low-grade freights, such an iron ore and coal trans¬
ported during the last ten years. This statement is without any
foundation in fact, the tonnage of merchandise transported other than
coal and iron ore having increased faster from 1890 to 1900 than did
the tonnage of coal and iron ore transported. This is explained at
length on pages 24, 25, and 26 of my recent pamphlet entitled A Com¬
mercial and Political Danger. Tt is also confirmed bj^ the traffic
records of the leading trunk lines of the country east and west.
The following table compiled from the data of the Interstate Com¬
merce Commission for the years 1890 and 1900 indicates the fall in rates
by groups and for the whole country:
Rerenue per ion per mile charged by railroads of the United States according to staiistics
of the Interstate Commerce Commission.
Group I
Group II
Group III
Group IV
Group V
Group VI
Group VII
Group VIII
Group IX
Group X
United States
Cents.
1.373
.828
.695
.844
1.061
.961
1.360
1.152
1.303
1.651
.941
1900.
Cents.
1.152
.613
.546
.595
.808
.806
1.064
.964
.938
1.067
.729
Reduc¬
tion.
Per cent.
16
26
21
29
24
16
22
16
28
35
22è
Data in the column for 1890 is from the statistics of the Commission
for 1890, page 72, and the data for 1900 is from statistics of the Com¬
mission for 1900, page 95.
The facts thus stated prove beyond all doubt that in all our splendid
American railroad system, embracing about 200,000 miles of road,
over which moves about $25,000,000,000 worth of merchandise
annuall}^ or more than twice the value of the entire railroad sj^stem
of the country, and involving millions of transactions every year, only
cases a year of unjust discriminations were proven in formal hear¬
ings before the Commission during the ten j'ears from April 16,1890,
to April 16, 1900, a fact stated by the Interstate Commerce Commis¬
sion in Senate Doc. No. 319 of the Fifty-sixth Congress, first session. Of
this small number less than one case a year of unjust discriminations
was sustained by the courts. Furthermore, not a single ease of unrea
sonable or exorbitant rates has been sustained by the Federal courts
during the fifteen years since the Interstate Commerce Commission
was organized.
THE POLITICAL ASPECTS OF THE CASE.
The fact adduced by Commissioner Prouty that during the last three
years 807 complaints of unreasonable rates were filed with the Com-
INTEKSTATE-COMMERCE LAW.
543
misííion, of which onh' 4, or less than one-half of 1 per cent, were
found to be well founded, has a much more important significance
than the members of the Interstate Commerce Commission seem to
have imagined. It serves to illustrate a fact of controlling force
respecting the broad subject of regulating commerce among the States,
namely, the fact that from the beginning the complaints which have
been tiled with the Commission have had their origin chieflj' in the
discontent incident to struggles for commercial advantage. But such
discontent is the chief stimulant of commercial enterprise. It involves
problems which must be wrought out bi' human intelligence and enter¬
prise and not by an}" sort of governmental interference: for we live
in a world in which we are all debating. Every individual, and every
section, State, city, county, town, village, and hamlet in this country is
at rivalry with competitors near and far and it is preposterous for any
governmental agency to attempt to reconcile those antagonisms.
They are intangible to any sensible or just method of governmental
regulation. The exemption of such antagonisms from governmental
interference is a natural and proper expression of the freedom of
commercial and industrial intercourse.
Faith in the conserv^atism, which inhei'es in the untrammeled inter¬
action of commercial forces has begotten the maxim "competition is the
life of trade," a maxim which has found its way into our statute laws and
has become atenetofjudicialfaithand practice. So firmly are the people
of this country imbued with this sentiment that for nearly an hundred
years after the founders of our Government had incorporated into the
national Constitution the provision that "Congress shall have power to
regulate commerce among the States," no systematic attempt was made
to exercise that power, and clearly owing to the danger attending any
attempt to meddle with a commercial interaction which is not and can
not properly become the subject of governmental concernment.
But at last by the act to regulate commerce approved February 4,
1887, an apparent but limited and clearly defined exception was made
to this policy of noninterference with commercial struggle. The
restraints provided by that act, however, applied exclusively to the
struggle of railroad transportation and not to the struggles of trade or
of industrial pursuits. Moreover, the restraints imposed by the
statute had already become approved as proper methods of railroad
self-government after the various lines of the country had become
closely connected and cooperative members of one great transpor¬
tation organism—the American railroad system. As such, these
restraints constituted a part of the American common law of the high¬
way, being based upon the lessons of experience and that consensus of
public sentiment which Lord Bacon has I'haracterized as leges legum.
Unfortunately, and as subsequently was proved, without any .sanc¬
tion of law the Interstate Commerce Commission assumed, in the
maximum-rate case decided by it in the year 1894, that the act to regu¬
late commerce authorized it to prescribe both absolute and relative
rates for the future. This assumption of authority clearly and inevita¬
bly embraced the power to determine the relative commercial status
of competing cities, towns, States, and sections afi'ected by that deci¬
sion. This monstrous assumption of political power was denied by
the Supremo Court of the United States in the year 1897. (167 U. S.,
479.) But not satisfied with this judicial determination of the case,
the Commission has ever since importuned Congress to grant to it the
544
INTERSTATE-COMMERCE LAW.
desired power. That demand is involved in the Corliss bill. It is a
political heresy which should be resisted in its beginning, and under
every guise and pretense of restraint.
That the attempts of the Commission to secure the rate-making
power intentionally and of necessity involves the Eutopian idea of
securing control of the internal commerce of the country is evident
from the utterances of the Commission during the last ten years, but
perhaps nowhere more strikingly than in the following declaration
found on page 10 of its seventh annual report:
To give each community the rightful benefits of location to keep different com¬
modities on an equal footing, so that each shall circulate freely and in natural volume,
and to prescribe schedule rates which shall be reasonably just to both shipper and
carrier is a task of vast magnitude and importance. In the performance of that task
lies the great and permanent work of public regulation.
This expression of its "high ideal" of the work of regulation is a
clean-cut proposition by the Commission to commit the Glovernment
of the United States to the task of determining all the difficulties
involved in the commercial and industrial interaction of the wealthiest,
the most enterprising, and the most virile nation on the globe, a matter
with which the Government should not meddle. As such it is rank
political heresy. It is also wildly impractical and revolutionary.
The fact that of the 807 complaints of unreasonable rates filed
with the Commission during the last three years only four, or less than
one-half of 1 per cent were susceptible of demonstration under
known principles of adjudication indicates that about 400 of the 407
complaints were of the sort which can not be made the subject of gov¬
ernmental concernment. This clearly exposes the absurdity of the
proposition "to give each community the rightful benefits of location,"
to adjust the commercial and industrial interaction of this great and
growing nation, and to accomplish that purpose setting up at the
seat of the National Government a bureau endowed with the function
of prescribing rates for the future with the chimerical object in view
of "keeping difl'erent commodities on an equal footing" throughout
the length and breadth of this land. This is a wide departure from
the views of public policy touching the interaction of commercial and
industrial forces which were entertained by the founders of our Gov¬
ernment, which operated as a barrier to any sort of regulation for
ninety-eight years, and which are dominant in this country to-day.
As a further illustration of the fact that the complaints which are
addressed to the Interstate Commerce Commission are mainly of the
class not subject to governmental concernment, the fact may be men¬
tioned that in its last annual report the Commission said:
The total number of proceedings brought before the Commission during the year
was 340. These include formal as well as informal complaints.
But only ten decisions were rendered by the Commission during the
year on formal proceedings, only two of which involved unreasonable
rates. In a word, the complaints of all sorts brought to the notice of
the Commission had their origin mainly in commercial and industrial
conditions completely outside the purview of governmental regulation.
I think, Mr. Chairman, that if you will carefull}^ review the testi¬
mony of all the representatives of the various trade and industrial
bodies who have laid their grievances before you at these hearings,
you will find such grievances to be of the intangible character just
described, being merely expressions of struggles for commercial ad-
INTEBSTATE-COMMEKCE LAW.
545
vantage, and not based upon any clearl}' defined eiTors or acts of
injustice on the part of the railroad carriers. An appreciation of this
fact seems to have been indicated b\' the repeated demand of members
of this committee for definite information tending to justify the passage
of the bill now under consideration—a demand which, in so far as 1
was able to discern, was in no specific manner complied with.
It would be difficult for Congress to differentiate between com¬
plaints which are based upon the conditions of commercial struggle
and those complaints which are valid subjects of regulation under the
terms of the act to regulate commerce, except in general terms express¬
ive of the firmly established policy of the Government upon the
subject. The distinction in concrete cases must be based upon the
specific facts which govern in each particular case. The only object
had in view in this connection has been to utter a word of warning
against a policy which would devolve upon the National Government full
responsibility for the course of the commercial and industrial develop¬
ment of this country with all the dangers of sectional political struggle
which would be engendered by such a departure from the principles
of commercial freedom upon which our governmental institutions are
founded.
There is another political aspect of the proposition to confer practi-
call3' autocratic power upon the Interstate Commerce Commission to
which I would here briefly allude. On pages 15 to 22 of my recent
pamphlet entitled A Political and Commercial Danger, I stated at some
length the reasons which sustain the belief that any provision of law
granting to the Commission the power to prescribe rates for the future
would eliminate the Federal judiciaiy from the function of passing
upon the reasonableness of rates. This view is fully sustained by Mr.
Commissioner Knapp on page 296 of the present hearing, as follows:
While the determination whether a given rate is—that it has been—reasonable or
not is a judicial question, the determination of the rate to be substituted in the
future is not a judicial question, can not be made a judicial question, and that
authority, if exercised at all under the circumstances, must be exercised either by
the legislative body itself, or by an administrative tribunal, to which some portion
of the legislative power has been delegated. Now, that being so, of course you must
bear this in mind, that it is incorrect and misleading to speak of an appeal from the
order of the Commission.
Mr. Knapp has made a labored argument to the effect that the
determination of the Commission—a mere administrative body, with¬
out permanent tenure of office and subject at all times to pla}^ of
political forces—would be made in a judicial manner, and therefore
would have practically the same effect as decisions rendered by the
courts. This is too feeble for serious consideration. It would be
superfluous to attempt any labored argument upon this point before a
committee composed mainly or entirely of lawyers.
The independence of the Federal judiciary has made it the bulwark
of the liberties of the people. So long as the courts have final deter¬
mination of all questions of commercial right, the time-honored policy
of noninterference in the competitive struggles of trade.will be main¬
tained, but when the courts are eliminated from the determination of
such questions, the storm of political demand for commercial advan¬
tage will break loose, and the Commission and the political representa¬
tives of the people in Congress will bend to the blast. Besides, the
sectional political struggles which would ensue from such a policy
would endanger the permanence of our governmental institutions,
i-c L 35
546
interstate-commerce law.
The exceedingly limited and in most eases utterly ineffectual way in
which Commission rate-making exists in certain of the States of the
Union affords no conception of the results which would ensue from
placing the interstate and foreign commerce of the country under the
control of a body characterized by Commissioner Prouty as "partly
political, and to an extent partisan."
Joseph Nimmo, Jr.
resolutions united states export association.
At a meeting of the directors of the United States Export Associa¬
tion, representing in its membership leading houses in 98 principal
lines of industiy situated in 34 States, held at No. 90 West Broadway,
New York, May 8, 1902, the following resolution was adopted unani¬
mously :
Resolved^ That the extension of our foreign trade, especially in
the heavy products of the field, forest, mine, and factory, depends in
a great degree upon transportation charges, and, in the opinion of this
association, the steady growth of our export trade is lai'gely due to the
fact that our railroad freights are much lower than those of other
countries; that these have been reached through intelligent manage¬
ment and a reasonable elasticity in rates, which permitted meeting the
varying conditions of foreign markets; that the interests of our do¬
mestic trade are not injui'ed by our transportation lines making lower
rates for export than for home trade, but, on the contrary, are bene¬
fited, just as the}' are by manufacturers selling their surplus abroad at
less than at home, thereby keeping labor, capital, and machinery fully
employed, and decreasing cost through increased volume of business.
"We are therefore opposed to increasing the powers of our Interstate
Commerce Commission in the direction of making or controlling rates,
believing that with full powers of investigation and its present power
to appeal to the courts to decide what is a reasonable rate the public
interest will be best subserved. We believe, however, that the evil of
unjust discriminations would be minimized if railroads were allowed,
under proper supervision and control by the Intèrstate Commerce
Commission, the'same right of contract enjoyed by all other corpora¬
tions and individuals to make and enforce their agreements on each
other which they are now debarred from doing by the prohibition of
pooling in the interstate-commerce law and by the Sherman antitrust
law as interpreted by the Supreme Court of the United States in the
trans-Missouri and joint Traffic Association decisions. We therefore
deprecate the passage of bill H. R. 8387, unless amended to conform
to the foregoing principles.
''Resolved, That we fully indorse the views in regard to this bill
submitted by the president of this association to the Committee on
Interstate and Foreign Commerce of the House of Representatives,
April 24, 1902."
Attest: Hylton Swan, Secretary.