feasible, they are certain to be prompted by business considerations. As it is, we have made the only reductions which we could perceive to be practicable, which is to say the only reductions which would not have involved injury either to the railroads, or to the public, or to both. A reduction of the rates on general merchandise would have made it impracticable to reduce on the low priced staples. Since, as we have shown, the necessary effect of reducing the maximum is to increase the minimum, it should always be remembered that the luxuries of life only are affected by the maximums, while the industrial products of the country belong to the plane of minimums. We consider it our duty so to act as that the greatest good to the greatest number should result from our policy, and this, we believe, has been attained. Our position is one of extreme difficulty beyond a question. If we treat the railroads harshly and arbitrarily, we are denounced as communists and confiscators. If we do not treat them harshly, we are accused of having sold out to them. As this has been the experience of every Railroad Commission that has been organized, however, perhaps we ought not to be surprised at it. In effect, it is a mode of treatment which has determined us upon the erection of a standard of equity to which we could attach ourselves without harboring a doubt, and as a result we have simply undertaken to arbitrate fairly between the public and the transportation agencies. The solution of the railroad problem is not to be expected in a short time, however. There are evils and abuses connected with it which do not as yet yield to the only forms of treatment which reason and experience sanction. It is open to the dangers which the exercise of great powers engender. The same may be said of every form of human enterprise, no doubt, but it has been more publicly discussed in the case of the railroads because of the anomalous nature of their legal relations to the State. All violent and summary attempts to do away with these evils and abuses have hitherto failed, and have brought disaster upon the public, in whose interests they were made. These lessons could not be lost upon such as were earnestly desirous of adjusting the issue, if possible, with the utmost advantage to the people. We have conscientiously investigated the subject placed in our hands, and have done the best that seemed possible under the circumstances. The success thus gained by the reasonable methods and the equitable principles justify us in anticipating that no greater difficulty will be experienced in bringing about still further reductions in freight rates, and also in reducing passenger rates as the growth of the State enlarges the volume of transportation, and thus increases the ratio of profits to cost of operation.

J. S. CONE,

President, and Commissioner First District.

C. J. BEERSTECHER, Commissioner Second District.

Dated, SAN FRANCISCO, May 10, 1881.

THIRD ANNUAL REPORT

OF THE

Board of Railroad Commissioners.

REPORT.

To his Excellency GEORGE C. PERKINS, Governor of California:

66

In pursuance of Section 22 of Article XI of the Constitution of the State, we submit our third annual report. For reasons expressed in our former reports to your Excellency, we did not enter into the discussion of the principles involved in the establishment of a just and reasonable schedule of fares and rates. We use the term 'just and reasonable" here at the outset of the report, assuming that no one, whether friend or foe of the transportation companies, or of this Commission, desires to do injustice to either. And here it may not be out of place to preface it by giving a short sketch of the history of the origin of the Transportation Commission in this State.

As early as 1865 the question of regulating carriers' charges was a subject of some consideration in the Legislature. In 1872 the question of regulating railroad charges by legislative Acts began to be agitated in a more decided form. It did not assume direct character until the session of 1873-4. At this session the first bill establishing an inflexible rate for passengers and freight was introduced in the Assembly. It was popularly known as the "Freeman Bill," and without material amendment passed that branch of the Legislature. In the Senate a bill was introduced which was popularly known as the "Irwin Bill," as well as one which was known as the "Transportation Commission Bill." The Irwin Bill was defeated in the Senate. The Transportation Commissioner Bill was substituted for the Freeman Bill and transmitted to the Assembly, which was rejected by that body. This ended the question in the Legislature for that session.

At the session of 1875-6 a bill known as the "Archer Bill" was introduced into the Assembly, and passed that body. This bill, like the Freeman Bill, established inflexible rates for all railroad companies operated by steam except street railroads. The reputation of the authors of these measures enlisted warm advocates in both branches of the Legislature; yet the Senate Committees, after giving them that deliberation which should always characterize the action of all conservative legislative bodies, felt compelled to report against the passage of the measures at the respective sessions. For the Archer Bill, the Act popularly styled the "O'Connor Bill" was passed in the Senate as a substitute. Its action was concurred in by the Assembly, and was approved by the Governor on April 3, 1876. The latter Act did not establish inflexible schedules of fares and rates, but did establish as the maximum of both the rates actually in force on the first day of January, 1876, leaving the companies free to regulate within those rates to suit the conditions of their business. Legislature recognized the difficulty of establishing a relation inflexi

The

bly between shipper and carrier, the conditions of which were constantly changing. This Act provided for a Board of three Commissioners, who had power to inspect the railroads within the State; hear complaints, intervene and settle differences, and to enforce penalties for extortion and unjust discrimination, and to report the result of their observations to the Legislature. The result of the labors of the Board are embodied in a report dated December 1, 1877. In support of the principles we intend to discuss in this report, we shall make liberal extracts from that report, as well as that of the successor of that Board, made to the Legislature January 1, 1880.

During the session of 1877-8, certain bills were introduced into the Assembly which, although not establishing a schedule of fares and rates, yet the effect of which would be to reduce rates at all intermediate and non-competitive points to the rates established at competitive points. After a long struggle the Legislature agreed upon a bill, commonly called the "Hart Bill." By suggestion of the Commissioners, ten or twelve amendments were adopted, which made it an improvement on the Act it superseded, and reduced the expenses of the Commission to one third that of the former one. This Act did not empower the Commissioner to establish fares and rates, but simply to inspect the books and papers of the companies, and by amicable 'interposition to endeavor to remove any antagonism that might arise between the producer and the carrier. The report submitted to the Legislature, dated December 1, 1879, shows an amount of labor and careful study of the subject of transportation which few men, under similar circumstances, would have undertaken. Governor Irwin, in his annual message to the Legislature, referring to the report, said:

Under the Act of April 1, 1878, creating the office of Transportation Commissioner, prescribing its powers and duties, etc., I appointed Hon. B. F. Tuttle, a gentleman well and favorably known throughout the State for his integrity and ability, Transportation Commissioner. He has, with great energy and assiduity, devoted himself to the duties of his office. The transactions of his office, and the results of his study and investigation of the problems connected with the transportation of the State, he will present to the Legislature.

The lateness of the hour at which I was able to obtain a copy of the printed report has prevented me from making any close examination of its contents. The railroad problem is one of the most important, as well as one of the most difficult, with which we have to deal.

Under the new Constitution, however, the power over railroad and other transportation companies, which, under the old, was vested exclusively in the Legislature, is transferred mainly to the Railroad Commission.

The power of the State to prescribe what transportation companies may charge for their services, where such power has not been surrendered by contract with the companies, is no longer open to question. *

*

Whatever opinions may be expressed regarding that report, none of the positions therein taken upon the various questions discussed relative to transportation have ever been successfully controverted. It has been commended by some of the profound and thoughtful men in other States, and for nearly three years after the Governor's appointment there was very little agitation or excitement growing out of the transportation question. As we shall have occasion to discuss and quote from the reports of our predecessors as we advance, farther notice of them at this point will be deferred.

The new Constitution, which took effect January 1, 1880, created a Railroad Commission, to be elected by the people, consisting of three members. The people of the State, in the most authoritative manner, invested this Commission with the power formally possessed by the three coordinate departments of the State Government, viz.: legislature, executive, and judicial, over transportation companies.