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Whatever differences of opinion existed at the time, or may still exist, as to the policy of creating a department of government and investing it with powers so far-reaching, is not now open for discussion. It is an accomplished fact, and must be treated as such in this report. Farther on we shall detail our experience relative to the questions that have come before us regarding the relations of shippers and carriers.

Invested as this Board is with legislative, executive, and judicial powers, the responsibility for the exercise of all three of these powers has tended to make us move with the utmost conservatism on those questions especially committed to this department of the Government. While these powers are committed in trust for our execution, we have felt compelled to assume and occupy the broad ground which the common law prescribes for the regulation of carriers' charges, viz.: are the fares and rates, all things considered, just and reasonable?

We are not unmindful of the fact that the organic law prescribes an inflexible rule, regardless of conditions and circumstances, for the government of our actions. We may, in the exercise of our legislative powers, establish fares and rates; we may, in our judicial capacity, determine whether these rates are just and reasonable, and if found to be so, we may see that they are enforced. But the judicial powers are greater, and include the other two prerogatives; hence are to be exercised judicially. The Board can determine questions by the inflexible rules laid down, or it can resolve itself into a common law Court and adjudicate on the basis of the common law. The latter, while it is not laid down in our statutory Code, is, nevertheless, to be found in the great volume of five hundred years of commercial experience and advancing civilization, which has acquired the force of statutory enactments, and no Court will ignore it in adjudicating commercial questions. Another reason why the Board should be guided by common law practice in adjudicating upon questions arising between shippers and carriers, is that its decisions are to be deemed final and conclusive.

In this regard it is the Court of last resort in so far as our State Courts are concerned. The question as to whether appeals to the domain of the Federal Courts could be maintained will not be discussed here. In case, however, such appeals should be taken, the decisions of this Board should be of such a character as to merit approval therein.

Above all such considerations, however, all the facts, conditions, and circumstances should be simply and clearly stated, so that the shipper and the traveler may understand that their transactions with carriers are not based upon inflexible, statutory enactments, but upon common usages and customs practiced throughout the civilized world. The experience of the most profound thinkers in this country and in Europe, who have investigated and studied up all the peculiar and exceptional characteristics of railroad transportation, is, that the establishment of inflexible relations between shipper and carrier is impracticable, and will work only injury to both. Every analytical mind that attempts a solution of the transportation problem, finds an expansive subject, and becomes astonished at its former restricted views, and would shrink from the responsibility of enforcing them on the commerce of the country. The conclusion is inevitable that

their enforcement would upset commercial values, destroy confidence, and result disastrously.

The true policy in this country is found in giving the greatest possible freedom to individual action, consistent with the rights of others equally free. The stability of society and protection to life and property; the development of commerce; the promotion of art and science; the attainment of a higher civilization; all find their solution in the theory of individual freedom. Commercial freedom is one phase of this theory, and under it the world's history records no instance of material prosperity equaling ours.

These developing forces are still going on. New channels of commerce are being opened, superseding those of our fathers. New industries are springing into existence, in response to the demands of these natural forces, to be succeeded by others, newer and better. In the changes which are being wrought in the process of commercial and industrial development, there will be, no doubt, in the future, as there have been in the past, individual and local hardships growing out of the changes in the channels of commerce. But shall this process of commercial development be arrested? Even the popular voice, when brought face to face with these changes, and the consequences of arresting them, becomes conservative and yields to the logic of passing events.

No local or individual interest is so great as that of the whole people, and it has no right to demand the arrest of these forces of commercial and industrial development which are superior to it and which contribute. more largely to human progress. This should be the political and commercial creed of all parties. From this standpoint we shall endeavor to discuss the transportation problem as it presents itself to us in this State.

The Constitution has empowered us to regulate the rates of all transportation companies or individuals engaged in the business of transportation, and the rates established by us are to be deemed conclusively just and reasonable. How can this Board then, invested as it is with unrestricted power, so exercise it as to subserve the best interests of the whole people? Whether it shall be by a judicious exercise of the power conferred, by considering all the natural and artificial conditions necessarily incident to the problem, or by an inflexible unyielding rule, regardless of these conditions, is the question.

As common carriers, the transportation agencies of the State are entitled to a just and reasonable compensation for their services, and at the same time, that they should treat all shippers with equality under like circumstances there is room for no two opinions. Yet shippers at interior points sometimes complain that the railroad companies discriminate against them unjustly. If, on investigation, we had found discriminations that natural conditions did not compel the carrier to make, we should have deemed it our imperative duty to correct it by exercising, if necessary, all the power conferred upon this Board by the organic law.

But we have not yielded to popular clamor in treating questions of this kind. We have followed the course mapped out for us by our predecessors, who, though not invested with any power to arbitrarily settle and determine controversies between shipper and carrier, yet found amicable intervention instead of force to be the most effectual

agent in settling them. To sustain our position we quote from the first report of our predecessors :

In October, 1876, we issued a circular, which was addressed to many hundred citizens in various parts of the State, whom we deemed likely to be able to furnish us with information or suggestions of value in connection with the subject of railroad transportation. A copy of it is as follows:

"SACRAMENTO, October, 1876.

"Among the principal objects proposed by the Legislature in creating the Board of Transportation Commissioners, is the compilation of facts and statistics connected with the building and operation of railroads in this State, and also the investigation of their management, especially as it affects the interests of their patrons and the public generally.

"It is believed that an impartial investigation of this subject will result in substantial advantage to all concerned, and to this end this Board desires to receive information, and suggestions, and statements from all who are interested.

"As your position has probably led you to give more than usual attention to the subject, there may be matters to which, in your opinion, the attention of the Board should be called; in which event, it is requested that you will communicate them to this Board in writing. "By order of the Board.

"WALTER M. PHILLIPS, Secretary."

This was transmitted to Supervisors, county officers, members and ex-members of the Legislature, Judges, prominent merchants, storekeepers, editors, hotel keepers, patrons of husbandry, etc., and it led to some valuable communications, although not to contributions of public opinion, or information on the subject, as full or extensive as we might have reasonably looked for.

We have deemed it our duty to visit and inspect, so far as such inspection can be made, in transitu, every part of every railroad in the State, in order to acquaint ourselves, so far as possible, with the circumstances, local connections, situation, and condition of the various roads. Without entering into unnecessary detail on this subject, we observe that generally the railroads of the State are in good order and their management wise and economical, and conducted with a view to public convenience. The older portions of the Central Pacific and Southern Pacific Roads are being gradually relaid with steel rails, of which material the new roads are generally built. In the bridges, viaducts, trestles, etc., no defects were observed. During the past year the high trestles on the Central Pacific have been filled in, and other structures of a temporary character are being replaced by permanent ones. Some parts of the engineering on the Southern Pacific Road have excited very general admiration abroad as well as here. The single exception to these favorable remarks is the California Pacific Road, the rails of which are much worn, laid in old-fashioned chair joints, and the track poorly surfaced and ballasted, and in all things quite below the standard of a first-class road.

The single exception was remedied as soon as was possible thereafter. Of complaints, our experience is well set forth by our predecessors as follows:

Some few complaints of inequality or unfairness of charges, and of lack of proper attention to the public convenience in the classification of goods and the charges for freight, have reached us. These have, in all cases, been first referred to the companies concerned for remedy or explanation, and in every instance, so far, the complaints have been responded to as promptly as if we possessed legal authority to command their answers or enforce redress. Our effort, in all such cases, has been, by amicable interposition between the parties, to effect the reform of any abuse found to exist, or to satisfy the complaining parties of their error, if it were such. So far, our limited experience tends to confirm that of the Massachusetts Commissioners, who have found such amicable interposition almost invariably successful. Some of the complaints made to us proved to be without foundation, or made on a misapprehension of facts. In others, reasons for the course pursued have been adduced, not before known to the parties complaining.

The power of the present Board over transportation companies within the State is absolute, and if exercised arbitrarily, regardless of vested rights, would produce unmeasured injury to the productive industries. But if exercised judiciously, it may be productive of great benefit to them, by bringing the producer and the carrier nearer together. Our action has thus far been in keeping with the policy of our predecessors as to the exercise of this power, as will appear by the following extract:

But power is necessarily attended with corresponding responsibility and duty. Our railroads have been built and are owned by individuals whose property is as sacredly under the protection of the law as that of any other individual's. The Legislature cannot, without making just compensation, directly take from them their stock in the roads, nor the roads themselves. It has, indeed, the power, indirectly, to render the stock and the roads valueless to their owners by hostile legislation, but the exercise of such power would be atrocious tyranny. It is believed by many that the undisputed recognition of the power on the one hand and the responsibility for its exercise on the other, joined with constant supervision of the management, will probably prove an adequate protection to the public against abuses of the railroad companies and to the companies against unjust legislation. Those who would most earnestly advocate even the harsh exercise of a power, the existence of which was challenged, will feel an increased responsibility for its exercise when its unlimited existence is conceded, and public supervision has been found, so far, the most efficient corrective of abuses. "A good government," says Chief Justice Waite, in discussing the leading Granger case, "never puts forth its extraordinary powers except under circumstances which require it. That government is the best which, while performing all its duties, interferes the least with the lawful pursuits of its people."

Thus far we have, in the discharge of our official duties, endeavored to be governed by the experience had in other States and countries, as well as by the axiom of Chief Justice Waite, viz.: "that government is the best which, while performing all its duties, interferes the least with the lawful pursuits of the people."

Of those who have studied the relations of carrier and shipper in the United States most from a public standpoint, we may cite the Honorable Charles Francis Adams, of Massachusetts. Perhaps no person living, whose life has not been devoted solely to the detailed workings of railroad traffic, so thoroughly understands the subject in all its phases. Fifteen years study of the problem has led Mr. Adams to the conclusion that "force bills" and "inflexible statutory regulations," instead of harmonizing the relations between carrier and shipper, but increase antagonisms. The idea prevails to some extent in this State that it is the duty of this Commission to establish uniform mileage rates on all classes of freightable commodities, and a uniform mileage rate for passengers, and also a uniform classification of freight of all kinds, regardless of the value of the articles carried. We shall discuss these subjects fully, because, however unreasonable the position taken may be, the effect is to create a public sentiment directly antagonistic to the public welfare. Therefore, in order to counteract this influence, we shall set forth facts and adduce reasons for the position we shall take, going to prove that the system of establishing commercial relations which prevails in the most advanced States and nations is not so defective as to require the adoption of the radical measures insisted upon by some public men. The position we will maintain is that in the adjustment of transportion rates the charges for carriage should be distributed, where they can be best borne." We will not impugn the motives of any public man or respectable newspaper who takes the position that the charges for carriage should be fixed on the basis of "cost of service;" but we will endeavor to prove that the latter method is impracticable, because it is impossible for any one to estimate accurately such cost. There are many reasons why the cost of any particular service cannot be ascertained in advance in a business that varies from week to week; and farther, because by far the greater and more important expenses of railroad management do not vary with the amount of service rendered, but are of the nature of what are called fixed charges. These expenses go on, whether the traffic is great or small. No one yet has established a rule which will distribute these expenses. over the different classes of business.

Colonel Fink and Mr. Blanchard have given this subject as careful consideration as any living men, and they have not been able to do more than to approximate it. Every practical business man will tell you that he cannot distribute accurately the cost of handling and disposing of a promiscuous stock of goods on any other than an ad valorem basis. The cost of selling fifty dollars worth of prints might be more than the cost of selling one thousand dollars worth of silks. Hence the impossibility of ascertaining the cost of any special service when it varies as it does in any commercial pursuit. Even if it could be ascertained, and charges regulated. accordingly, the most disastrous results to business would follow, because there could not be a judicious classification so as to distribute the cost on those classes of trafic which are best able to bear it. Applied to transportation traffic, on the basis of cost of service, grain, lumber, charcoal, wood, groceries, drygoods, chemicals, and all costly articles, would pay about the same rate per hundred pounds per mile, and that rate would have to be at least the average rate now charged upon the different classes of freight. The higher classes of freight would be greatly lowered, and the low classes would have to be materially raised, so as to make a general. average equaling the present average rates. The result would be that many articles which are now moved long distances could not be moved at all, and the development of many struggling industries. would be arrested.

No one will dispute the proposition that the whole volume of business done must maintain the road, pay interest upon its liabilities, and finally pay them off. In order that this may be done; that the business of the country may flourish; that the products at distant points may be marketed, the cost of maintaining the road must be distributed where "it can be best borne." This principle is not the result of the resolution of a Board of Directors, or the orders of the Presidents of the railroads, but is the result of the active forces and necessities of commerce. The very first object of a high maximum, is to enable the managers of railroads to place the burden of maintenance upon the traffic best able to bear it, and this principle can by no fair means be distorted into the popular cry of "all that the traffic will bear." Because that a ton of thirty dollar ore is carried a thousand miles for ten dollars, and a ton of three hundred dollar ore is charged thirty dollars, there is no warrant for saying the carrier charges "all that the traffic will bear;" nor is there any warrant for saying that it constitutes an unjust discrimination. The conditions are entirely different. The thirty dollar ores in Nevada, Arizona, Utah, and Colorado are in the ratio of twenty to one of the three hundred dollar ores, and while the actual cost of handling and moving a ton of the latter is no more than that of a ton of the former, yet the consumption of supplies as return freight, which can bear a high rate for the use of the men employed in producing the poorer qualities of ores, is in the same ratio. This principle applied to those Territories has made them prosperous and enterprising communities. We are not without concurring opinions on this principle, as the following extracts from our able predecessors will prove:

The value to the customer of the service rendered him by the transportation, though not a proper standard of charge, is yet an element necessary to be considered in establishing rates. It naturally forms the limit beyond which he cannot afford to pay; and as all transportation

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