INVESTIGATION OF EXPRESS COMPANIES.

On March 2, 1907, the Senate adopted a resolution directing the Commission to inquire, investigate, and report to the Senate whether certain express companies are engaged through their local or other agents in the business of buying, selling, or handling on consignment fruits, vegetables, and oysters entering into interstate commerce. In response thereto the Commission entered upon such an investigation and hearings have been had in the matter at Omaha, Nebr., Kansas City, Mo., and Chicago, Ill. On January 9, 1908, a further hearing will be held at Dallas, Tex. A report upon the facts will be made to the Senate at the earliest practicable date after the conclusion of the investigation.

THE COAL AND OIL INVESTIGATION.

Under date of January 25, 1907, the Commission transmitted to the Congress a partial report of its investigation of the subject of railroad discriminations and monopolies in the transportation of coal and oil, under the joint resolution approved March 7, 1906, and that report was published and somewhat widely distributed. Further reports upon this subject will be made as the investigation in different parts of the country is concluded. The matter is referred to in this report for the purpose of calling attention to and renewing the recommendations then made, which were as follows:

First. That every common carrier engaged in interstate transportation of coal be required to make public the system of car distribution in effect upon its railway and the several divisions thereof, showing how the equipment for coal service is divided between the several divisions of its road and how the same, in times when the supply of equipment does not equal the demand, is divided among the several mining operations along such road, and that the carrier further be required to publish at stated periods, and at each divisional headquarters upon its line of road, the system of car distribution in effect and the actual distribution made to each mining operation under such system.

Second. That where the capacity of the mines is the basis for the distribution of equipment, a fair, just, and equitable rating of the mines be required, and that provision be made for the representation of owners of the mines at the rating thereof.

Third. That after reasonable time carriers engaged in interstate commerce be prohibited from using “individual" or "private cars for the handling of coal traffic; and further, that when a carrier is unable to furnish all the cars required by all the shippers upon its line, all cars in service on the road, excepting individual or privately owned cars until their use is probibited, be treated as the equipment of

the company and subject to distribution according to the system or plan in effect at that time.

Fourth. That carriers engaged in interstate commerce be forbidden after reasonable time to own or have any interest, directly or indirectly, in any operated coal properties, except such as are exclusively for their own fuel supply, and that ownership, either directly or indirectly, by officers or employees of common carriers of any coal properties or any of the stock of coal companies along the line of road by which they are employed be forbidden.

THE UNION PACIFIC INVESTIGATION.

In a proceeding entitled "In the matter of Consolidations and Combinations of Carriers, Relations between such Carriers, and Community of Interests therein, their Rates, Facilities and Practices," the Commission conducted an investigation of certain transactions of the Union Pacific Railroad Company, including the acquisition of control of the Southern Pacific Company, the purchase of large amounts of stock of various railroad companies, and other matters of kindred import, and made a report thereon in July last which was published and distributed as are other reports of the Commission. The facts disclosed by the investigation may be summarized as follows:

The effect of the control of the Southern Pacific by the Union' Pacific has been to unify and amalgamate the management of these two railway companies and their steamship lines, and to substantially eliminate competition between them in transcontinental business and in business to and from oriental ports.

The Union Pacific, as has been shown, controls the San Pedro, Los Angeles & Salt Lake Railroad, the stock of which is deposited in the hands of a trustee. This line was originally intended as an independent road, extending from Salt Lake, where it connects with the Union Pacific and with the Denver & Rio Grande, to Los Angeles and San Pedro, Cal. There is therefore no competition between this line and the Union Pacific and Southern Pacific.

It appears that the Union Pacific also owns $10,000,000, par value, of the stock of the Atchison, Topeka & Santa Fe Railway Company, and about $30,000,000 more is owned by individuals connected with the Union Pacific, making $40,000,000, or substantially 17 per cent of the entire capital stock of the Santa Fe Company. Who owns this stock, outside of the $10,000,000, Mr. Harriman declines to state. Two directors of the Union Pacific are also directors of the Santa Fe Company, and there is now a division of the oriental traffic by the Pacific Mail Steamship Company between the Union Pacific and the Santa Fe systems. It appears that there has also been a division of the fruit traffic between certain California territory and the East, each taking a certain percentage, and that north of San Francisco

the Union Pacific and the Santa Fe have joined and amalgamated their interests in the Northwestern Pacific Railroad, and that a joint control has been inaugurated similar to that of the Alton.

Prior to the acquisition of the Southern Pacific by the Union Pacific, the Denver & Rio Grande system, extending from Denver, where it connects with various lines to the East, to Salt Lake and Ogden, was given equal facilities over the Central Pacific, and thereby practically formed another transcontinental line. Since the amalgamation of the Union Pacific and Southern Pacific and the construction of the San Pedro road this line has been denied equal facilities in the receipt and transportation of freight over the Central Pacific and San Pedro lines. Its business, therefore, has decreased, and its ability to compete with the Union Pacific and Southern Pacific has been impaired. On this account the Gould lines are aiding the construction of another line from Ogden to San Francisco. The joint control of the Alton Railway by the Union Pacific and the Chicago, Rock Island & Pacific Railway Company has undoubtedly eliminated competition between the Alton and the Rock Island between Chicago, St. Louis, and Kansas City.

If the policy of purchasing and controlling stocks in competing lines is permitted to continue, it must mean suppression of competition. In concluding that report the Commission made the following recommendations, which are now renewed, namely:

(1) The function of a railroad corporation should be confined to the furnishing of transportation. Railroads should not be permitted to invest generally in the stocks, bonds, and securities of other railway and of steamship companies, except connecting lines, for the purpose of forming through routes of transportation, including branches and feeders. It is in the interest of the public to facilitate the consolidation of connecting lines. The credit of a railway company is founded upon the resources and prosperity of the country through which it runs. Its surplus funds and credit should be used for the betterment of its lines and in extensions and branches to develop the country contiguous to it. The testimony taken upon this hearing shows that about 50,000 square miles of territory in the State of Oregon, surrounded by the lines of the Oregon Short Line Railroad Company, the Oregon Railroad & Navigation Company, and the Southern Pacific Company, is not developed; while the funds of those companies which could be used for that purpose are being invested in stocks like the New York Central and other lines having only a remote relation to the territory in which the Union Pacific system is located.

Railroad securities should be safe and conservative investments for the people. To this end the risks of the railroads should be reduced to a minimum. Everyone knows that railway securities fluctuate

more or less, according to the prosperity of the times, and also by reason of the wide speculation in such securities. It therefore adds an element of hazard to a railroad's capital and credit to have its funds invested in the stocks of other companies, thereby endangering its solvency and its ability to pay reasonable dividends upon its own capital stock. It is a serious menace to the financial condition of the country to have large railway systems fail to meet their obligations or go into the hands of receivers, and the object of legislation and administration should be to lessen the risks of railway investments.

(2) It is contrary to public policy, as well as unlawful, for railways to acquire control of parallel and competing lines. This policy is expressed in the Federal laws and in the constitutions and laws of nearly every State in the Union. We have examined the constitutions and laws of all the States, and find in about forty of them prohibitions against consolidation of capital stock or franchises of competing railways, or the purchase and acquisition by a railway of competing lines. Competition between railways as well as between other industries is the established policy of the nation. And while the acquisition of a small minority of the stock of a competing line might not decrease the competition, yet the acquisition of any considerable amount of stock, with representation on the board of directors of such railway, unquestionably has the effect of diminishing competition and lessening to that extent its effectiveness. So long as it is the policy of the General Government and of the States to maintain competition between naturally competing lines, the ownership of any stock by one railway in a competing railway should not be permitted, and such lines of railway should be prohibited from having any common directors or officers.

(3) The time has come when some reasonable regulation should be imposed upon the issuance of securities by railways engaged in interstate commerce. We are aware that in the construction of new lines of railway, developing new territory, it has been necessary in many instances to sell railway securities at large discount, and to sell bonds with stock bonuses, and even in such cases it has many times been difficult to raise the necessary capital. Men will not invest their money and take the risk for small rates of interest.

But this principle does not apply to old established railway systems having good credit. Such railways should be prevented from inflating their securities for merely speculative purposes. Railroads should be encouraged to extend their systems and develop the country. It is of the utmost importance, also, that railway securities should be safe and conservative investments for the public, and should yield good and ample return for the money invested. Reasonable regulation will tend to make them safer and more secure investments, and thereby benefit not only the railway companies but the public.

DECISIONS OF THE COMMISSION.

The principal rulings of the Commission during the past year, as set forth in its reports and opinions in contested cases, are summarized and indexed in Appendix B to this report. In addition, a separate and more extended statement of the decisions rendered in formal proceedings since our last annual report will be found below.

FREE PASSES AND FREE TRANSPORTATION.

On November 9, 1906, the Commission heard arguments of counsel for the Western Union and Postal Telegraph companies in support of their petition for a modification of the rulings of the Commission in regard to payment for transportation and issuance and use of free passes so far as they might control or govern certain contracts theretofore entered into between the petitioning telegraph companies and certain railroad companies, under which, and in consideration of the free telegraph service accorded by the petitioners over wires off the lines of the respective contracting railroad companies, the latter agreed to furnish free or reduced-rate transportation to such telegraph companies for the men, material, and supplies necessary in connection with the construction, operation, and maintenance of such telegraph lines off the lines of the respective contracting carriers and upon the rights of way of other carriers. Counsel for several railroad companies were also heard in support of the petition of the telegraph companies.

Contracts between telegraph companies and carriers for the maintenance of telegraph lines on the rights of way of railroads are sui generis and unlike any other contracts with carriers that have come to its attention. So far as the Commission could see, the full performance of such contracts by the carriers with whom they are made would not affect any public or private interest adversely. Nevertheless, the Commission knows of no provision of law now in force that vests it with any authority, or any clause in the law that affords it a reasonable ground, to differentiate "off the line" service by carriers for telegraph companies from the transportation of merchandise or any other form of property for private shippers. The mere fact that carriers, as a means of securing traffic, making arrangements with shippers, tracing their freight cars on the rails of other carriers, communicating with their agents in distant localities, frequently find it convenient to telegraph beyond their own right of way and are allowed by the telegraph companies to do so free or at reduced telegraph rates, does not make it lawful for a railroad company to grant to a telegraph company free or reducedrate carriage for its officers, men, materials, or supplies destined for use in a telegraph service on the right of way of other carriers.