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are representing the interests of your States in respect to the power to make war and the power to defend those States.

All that is committed to the authority which represents all the States just as much as you are exercising a supervision over the interests of those States in the matter of controlling imports and exports. Commerce is one of the subjects that has been selected to be a matter of national consequence and the control of it is confided to the representatives of the States in Congress and to the representatives of all the people in Congress, and your power to coexistent with the nationality of the States.

But, I say, Mr. Chairman, that you are asserting a certain degree of your power in this bill, you are regarding it from the standpoint of a supervisory authority, and we ask you, if you adhere to that, to add the amendment to which we have alluded, the three things, of allowing the railroads to complain of making unlawful and inequitable the burden as between the two classes of traffic and of conferring the power of suspension accompanied by the duty to prescribe proper methods for reparation in case the power of suspension is inadvisedly used.

Mr. Sims. Why not make it easy and authorize one corporation to acquire all the railroads in the United States, a national road, all be subject to the Interstate Commerce Commision, taxes, and everything else?

Mr. Thom. If you can do that you certainly can regulate the intrastate traffic by interstate carriers.

Mr. Sims. It would be much simpler and easier!

Mr. THOM. I do not know about it being easier. I do not look upon that as a very easy job. Mr. Sims. Not for those who own the railroads.

The CHAIRMAN. Mr. Thom, will you kindly insert in the hearing your suggested amendment to section 5 of the Cummins bill?

Mr. THOM. Yes, sir.

The CHAIRMAN. Have you in draft form your suggestions which you have set forth in these three principles and amendments to section 13 of our bill, giving the commission supervisory power!

Mr. THOM. We have, and I will present them.

I do not suppose that I can trespass longer on your time. I have one or two other points that I wanted to present.

The CHAIRMAN. Extend them in the hearings, if you will.
Mr. Thom. I wonder if anybody ever reads those things ?

The CHAIRMAN. I think you misjudge some members of this committee.

Mr. Thom. I did not say that I misjudged them; I said I wondered if they ever had time to read those things. The CHAIRMAN. The committee will take a recess until 2 o'clock. (Thereupon the committee took a recess until 2 o'clock p. m.)

ASSOCIATION OF RAILWAY EXECUTIVES,

Washington, D. C., September 27, 1919. Hon. JOHN J. Esch, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D, C. MY DEAR MR. Esch. While I was on the stand yesterday you asked me to present to the committee a draft of a substitute provision for what is now contained in H. R. 4378, in lines 23 to 25 on page 20, lines 1 to 25 on page 21, and lines 1 and 2 on page 23, relating to the authority of the Interstate Commerce Commission over State rates, and I accordingly herewith hand you a draft of the proposed substitute which, as you will note, provides for questions as to State rates being brought before the commission on complaint of the carrier as well as of other parties interested; for a suspension of State rates where the commission is of opinion from informal evidence that the State rates violate the law, and for power in the commission to remove any undue inequality of State rates as compared with interstate rates-these in addition to matters already covered. Very sincerely, yours,

ALFRED P. Thom.

DRAFT OF PROPOSED SUBSTITUTE OFFERED BY MR. THOM. For the information of the commission, every carrier subject to the provisions of this act shall file with the commission, from time to time, schedules showing all its individual or joint rates, fares, charges, classifications, regulations and practices for the transportation of passengers or property wholly within one State; and shall likewise file with the commission copies of all laws and orders of any State railroad commission or other State authority regulating rates, fares, charges, classifications, regulations or practices of said carrier for the transportation of passengers or property wholly within one State. The commission may determine and prescribe the form, time, and manner within which said schedules, orders, and acts shall be filed with it.

The commission shall confer with the authorities of any State having regulatory jurisdiction over the class of persons and corporations subject to this act with respect to the relationship between rates, fares, charges, classifications, regulations, or practices of carriers subject to the jurisdiction of such State bodies and of the commission; and to that end it is authorized and empowered, under rules to be prescribed by it, and which may be modified from time to time, to hold joint hearings with any such State regulating body, on any matters in which the commission is empowered to act, and where the ratemaking authority of a State is or may be affected by the action taken by the commission. The commission is also authorized to avail itself of the cooperation, services, records, and facilities of such State authorities in the enforcement of any provision of this act.

Whenever, either upon the complaint of any carrier, or of any person interested, or upon the initiative of the commission itself, there shall be brought in question any rate, fare, charge, classification, regulation, or practice or any body or level of rates made or imposed by authority of any State on a carrier engaged in interstate commerce, the commission shall cause such State, or States, to be notified of the proceedings.

The commission, after full hearing, shall, as to carriers engaged in interstate commerce, make such findings and orders as will, in its judgment, remove any undue inequality, or undue or unreasonable advantage, preference, or prejudice as between persons, localities, commodities, or other traffic, in State and interstate or foreign commerce, respectively, or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce, which on the part of carriers engaged in interstate commerce, are hereby forbidden and declared to be unlawful, and such findings or orders shall be observed, while in effect, by the carriers affected thereby, and the commission shall make the rates, fares, and charges, or the minimum and maximum of such rates, fares, and charges, and any classification, regulation, or practice which, in its judgment, will remove such inequality, advantage, preference, prejudice, or discrimination.

Pending such hearing and consideration the commission, if it be made to appear to its satisfaction by informal evidence that any rate, fare, charge, classification, regulation, or practice, or any level or body of rates applicable to State traffic of a carrier engaged in interstate commerce, constitute an undue inequality or an undue or unreasonable advantage, preference, or prejudice as between persons, localities, commodities, or other traffic, in State, or interstate and foreign commerce, or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce shall suspend such Statemade rate, fare, charge, classification, regulation, or practice, or body or level of rates and direct the carrier, until further order of the commission, to maintain such relationship between State and interstate rates, fares, charges, classification, regulations, or practices as the commission may seem reasonable and just ; but in the event of such suspension and such direction to a carrier the commission shall make reasonable requirements as to payment of any amount of reparation that may thereafter be ordered by the commission, within one year after the date of final action of the commission in the premises.

AFTER RECESS.

The committee met pursuant to the recess at 2 o'clock p. m.

The CHAIRMAN. Mr. Forney Johnston wishes to present as a part of the hearings a certain brief or statement.

ADDITIONAL STATEMENT OF MR. PORNEY JOHNSTON, OF COUN. SEL FOR THE NATIONAL ASSOCIATION OF OWNERS OF RAILROAD SECURITIES.

Mr. Johnston. Mr. Chairman, may I have the permission of the committee to present the opinion of Mr. Root and the other counsel for the National Association of Owners of Railroad Securities relative to this question of excess-earnings regulation, in view of the fact that a memorandum has been filed here with reference to that provision in the Cummins bill, embodied in section 6, which we ourselves have asked to be amended in order to relieve its constitutionality of any question of doubt. We think it highly proper that the matter should be presented from the standpoint of the constitutionality of excess-earnings regulation as properly and correctly stated, so that the opinion will be definite upon the question rather than upon a single paragraph of a pending bill.

The C'HAIRMAN. Have you it ready now!

Mr. Johnston. It is not ready. The bony structure of it is ready, but it will take a day or two to put it in definite shape.

The CHAIRMAN. You can submit it to the clerk bv Tuesday of next Week!

Mr. JOHNSTON. Yes.

It is important to bear in mind that the process of excess earnings regulation is based upon the establishment of rates upon a group basis-rates necessary to sustain transportation in each group. No shipper has a right to complain of rates necessary to sustain transportation considered in the aggregate. No carrier who is given rates higher than it would receive if the rates were considered solely on an individual rate or individual carrier basis can complain if Congress impresses a trust upon the excess.

It could authorize this excess to be returned to the shippers, but that would be impracticable as the excess involved in each shipment would be negligible. So Congress can clearly deal with this excess which is a by-product of the rational exertion of the commerce power in the general public interest in transportation.

It is obvious that Judge Hughes's opinion does not attempt to deal with that question and is confined merely to the original theory of Section 6 of the Cummins bill, which we understand has been modified so as to meet the criticisms properly directed to it.

152897—19—VOL 336

(The opinion submitted by Mr. Johnston is as follows:) NATIONAL ASSOCIATION OF OWNERS OF RAILROAD SECURITIES-OPINION OF ELIHU

Root, John G. MILBURN (NEW YORK), JOHN S. MILLER (CHICAGO), Hugh L. BOND, JR. (BALTIMORE), AND FORNEY JOHNSTON (BIRMINGHAM), With REFEBENCE TO REGULATION OF Excess EARNINGS OF RAILROADS OVER AND ABOVE A FAIR AND REASONABLE RETURN UPON THEIR PROPERTY,

Mr. S. DAVIES WARFIELD,
President National Association of

Owners of Railroad Securties, Baltimore, Md. DEAR SIR: We have heretofore give you our opinion as to the power of Congress to regulate the earnings of railroads in excess of a fair and reasonable return upon their properties held and used for the service of transportation, where such excess results from the policy of Congress to permit the establishment of rates in competitive areas which are intentionally higher than are required to produce a reasonable return for exceptionally situated carriers in the group but are necessary to sustain their less favorably circumstanced competitors whose maintenance is nevertheless essential in the public interest. Without this power Congress must acknowledge its inability to sustain competitive agencies of transportation and the power to regulate commerce on a constructive basis would fail at the first test.

We have heretofore pointed out to you the desirability that any act of Congress proposing to regulate excess earnings thus produced should clearly set forth in the act the theory upon which the regulation is based and should make it clear that, to the extent to which rates established with this end in view shall be found to produce more than a fair and reasonable return upon the property of particular carriers, they are to be received conditionally and in trust for administration by the United States for the benefit of the general public interest in transportation.

PUBLISHED RATES NOT NECESSARILY FINAL.

Most of the criticism directed against the process is based upon the assumption that the published rates kept in force from time to time by public authority are necessarily final and unconditional as to the carrier as well as to the shipper; and that legislation dealing with any portion of the proceeds of such published rates constitutes a mere effort to recover revenue which has become the absolute property of the carrier.

We have heretofore advised that the legislation now under consideration by Congress should prescribe that while rates are to be just and reasonable so far as the shipper is concerned, this result is not to be regarded as attained unless they are also sufficient to sustain the agencies of transportation as a whole in the several rate-making groups; and, further, that the act should clearly state that although individual rates paid a given carrier in the group in order to sustain these agencies as a whole may include an element of excessive return for the specific service as rendered by that particular carrier, this excess is necessary to be paid by the shipper to sustain transportation in the group and will be dealt with by Congress in the interest of transportation as a whole rather than be left subject to recovery in a proceeding for reparation by the shipper. Recovery by the shipper would obviously aniount to a rebate which would defeat the purpose. The question of “reasonableness'" from the shipper's standpoint is to be determined by the necessities of transportation in the group. He can not insist upon a rate that would destroy essential agencies of transportation by attracting all of the business to their competitors. From the carrier's standpoint the question as to what each particular carrier shall be entitled to retain out of its earnings over and above a reasonable return upon its property is de pendent upon entirely different considerations. The carrier can not complain of action by Congress appropriately exerted under the commerce clause if such action leaves it with a fair and reasonable return.

Singular confusion has arisen out of the reluctance in certain quarters to me ognize the fact that a rate may be reasonable for a shipper to pay, because of the necessity of sustaining competitive agencies for transportation, which would be wholly unreasonable for individual carriers to demand if their case alone were being considered.

EXCESS EARNINGS-A BY-PRODUCT OF RATES TO MEET THE NECESSITIES OF THE

GREAT BULK OF RAILROADS.

This necessity would produce returns for certain carriers in each competitive group so excessive as to stand as a stumbling block to rates adequate to sustain transportation as a whole unless the excess is regulated. Denial of the right of Congress to deal with the excess thus produced is tantamount to a denial of the power of Congress to regulate and conserve commerce.

This excess is obviously a by-product resulting from the exertion by Congress of its regulatory power. We entertain no doubt whatever of the power of Congress, under appropriate legislation so stated as to demonstrate with accuracy just what is being done, to administer this by-product in the general public interest in transportation. No shipper can complain; and as it is a gratuitous excess temporarily conceded by Congress over and above a reasonable return, it is difficult to ascertain any sound basis for complaint by the carrier.

CUMMINS BILL AMENDED TO AVOID ANY QUESTION.

It is to be observed that section 6 of the Cummins bill (S. 2906, 66th Cong., 1st sess.) was not sufficiently explicit in stating the necessities under which Congress labors in sustaining the agencies of transportation, nor as to the theory under which the regulation of excess earnings is proposed. We understand that the Senate committee has considered favorably the insertion in section 6 of the Cummins bill of substantially those provisions of the revised draft of the bill of the National Association of Owners of Railroad Securities dealing with this matter. The chief provision of this character is as follows:

" It being impracticable to establish a level of uniform rates and charges within competitive areas which will sustain sundry carriers indispensable to the communities served by them, without enabling more favorably situated carriers to receive revenue from such rates, negligibly as to each service but in the aggregate substantially and unreasonably in excess of the aggregate over a fair return upon its property, unless regulated in the interest of the commerce of the United States as a whole, it is hereby provided that, subject to the exceptions and conditions of this act, no carrier subject to the provisions of this act shall be authorized to receive and retain for the transportation services rendered such proportion of the rates and charges collected by it as may yield in the aggregate more than a reasonable return upon its property investment.”

Another appropriate provision desirable to distinguish clearly between the question as to what is a reasonable rate for the shipper to pay in order to sustain transportation as a whole and the ordinary right of the shipper to reparation is the thirteenth paragraph of section 1 of your rivised bill:

"The provisions of this section shall not be construed as depriving shippers of their right to reparation in case of overcharges, unlawfully excessive or discriminatory rates, or rates excessive in their relation to other comparable rates, but no shipper shall be entitled to recover upon the ground that or to the extent that particular rates may reflect a proportion of excess earnings produced and to be recaptured in the public interest under the provisions of this act.”

TRANSPORTATION AS A WHOLE MUST BE CONSIDERED.

We shall now proceed, as briefly as may be, to restate a few of the established principles showing that the shipper can not complain if he is required to pay a rate slightly in excess of that which he would pay if any particular carrier in the competitive group were being considered, in order, as above suggested, to sustain in his own and in the public interest the essential agencies of transportation as a whole; and that the carriers themselves can not complain if Congress determines upon the policy of temporarily permitting and subsequently recovering excessive returns realized by individual carriers, with the view to administering such excess in the general public interest in transportation, either through the amelioration of the condition of employees or for reinvestment in cars or similar facilities for use wherever the public necessity shall require them.

ANSWERS MR. HUGHES' OBJECTIONS. An analytical statement of the process which we have suggested above answers most of the objections which have been directed to our attention. Thus

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