since Peter Cooper ran his model locomotive out of Baltimore thirteen miles and back in a little more than two hours. Could a panorama of the present railroad system have been spread out before him, it would have bewildered even his practical mind. Yet he has lived to see more than one hundred thousand miles of railroad in his own country, and locomotives running at a speed of more than sixty miles an hour.

While the old channels of commerce have made some progress during this time, as compared with the new, they appear to have remained stationary. This progress has been so rapid under the stimulus which immunity from government interference has given, that some States have taken the alarm and have sought to check, by legislation, the natural forces of industrial and commercial development. In the short space of twenty years this generation has witnessed the disappearance of nature's obstacles in the way of transcontinental travel. The discriminations of nature against the interior of the North American Continent, are practically overcome by the completion of two trancontinental lines of railway, while others are now being constructed.

Invested, as this Board is, with unlimited power over the railroads within the State, what course does wise statesmanship point out for its members to pursue towards this great and growing industry? Ought it inaugurate a policy which, if the lessons of experience of other States are to be relied on, we should have to recede from, or should it adopt the Massachusetts plan of supervision?

The reasons urged by Chambers of Commerce, Boards of Trade, essayists, and reviewers, as well as political parties, will be considered, and our reasons for approval or disapproval fairly and candidly stated. Should our conclusions not be indorsed by the parties most interested in transportation, we hope those who succeed us will be more successful in their study of the economic problems involved in the establishment of an equitable tariff of fares and rates.

JUST AND REASONABLE RATES.

At the outset of this report we announced this common law maxim, and also the "economic axiom" that the price "charged for transportation should bear a reasonable proportion to the value of the service rendered," and the article transported. To this text we still adhere, believing that fair and candid argument will fully sustain our position, and at the same time direct public attention to an economic analysis of the transportation question.

To determine what is a just and reasonable price for a day's labor on a specific kind of work is comparatively an easy matter. This knowledge, however, is obtained through the actual experience of the employer of it. We do not mean to say that a day's labor of every man would be equally valuable, because, in practice, it is found that the labor of some men is two or three times more valuable than the labor of an equal number of other men. Hence, the division of labor in large manufactories. One man is found adapted to a certain kind of work; another to another kind, and so on, until it is found. that in the manufacture of a watch, about twenty men are employed in its completion, neither one of whom would be able to make a complete watch. The skill that is required to make a complete watch. is divided into twenty parts. The adeptness acquired in working

upon a single part of the machinery, without change, enables the workman to accomplish double the amount of labor of the particular kind that he could were he to work promiscuously upon all of the parts. This economic division of the labor of the twenty workmen enables them to complete forty watches, while an equal number, each making a complete watch, would complete but twenty. This greater achievement is obtained by a judicious classification of the labor required in the manufacture of a pocket timepiece. The question then arises, is the community benefited, when the skill and labor necessary to make a watch is so classified and divided as to produce two? By it the average cost of watches is materially reduced. Apply the same principle to the classification of freight carried by a transportation company. The term "freight" may include a thousand different species of goods, all differing in value. The actual cost of handling and moving a ton of one may not be more than that of moving a ton of another. The value of one may be a thousand times more than that of another.

We will illustrate by taking an article of universal consumption in large quantities and one of general use in small quantities. Wheat and tea will illustrate our point. The average price of wheat at San Francisco is $30 per ton, and the average price paid for marketing in 1881 was $2 30 per ton. The average price of tea will approximate $1,200 per ton. Now why should not the tea be carried just as cheaply as the wheat? The labor of handling and moving is no more, and why should the carrier be permitted to charge more for carrying one than the other? The right to charge in either case is not a "right" obtained by statute, but an inherent right, inseparable from the ownership of private property-neither can a statute take it away. The right, then, to use private property so as to make it most serviceable to the owner will not be questioned, provided it is used in a reasonable

way.

But to return to our question. The relative value of these two commodities is as forty to one, and the relative consumption as eighty to one. Applying the economic theory of classification to these articles, and it would lead the manager of a transportation company to establish a rate for each, bearing some proportion to their relative values. There are many producers of wheat at long distances from market. This product cannot bear a high rate of transportation without lessening its production. They are also consumers of tea, sugar, clothing, boots, shoes, and drygoods, and numerous articles of equal or greater value than tea. Now it makes no difference to the consumer whether the charges of the carrier of these various commodities be fifty cents per ton per mile, for five hundred miles, or whether he carries them for three cents. The merchant who sells to the consumer a pound of tea carried five hundred miles at fifty cents per ton per mile would add only ten cents per pound to its cost, while a charge above one cent per ton per mile on the wheat would prevent its production, five hundred miles away, for the general markets. If we extend the comparison to drygoods and clothing, the contrast will be still greater. Twenty-five cents per ton per mile on fine silks from New York to San Francisco will make no difference to the purchaser of a lady's dress than if it was carried for nothing. Now suppose an inflexible rate of five cents per ton per mile were established on all kinds of freight, and enforced, the effect would be either to stop the production for the general markets of lumber, wood,

coal, grain, and produce of many kinds, which under the present system are now marketed with profit to both the producer and the consumer, or materially increase their cost to the consumer. Were this Board to establish this rate under the authority conferred by the organic law, such "rates must be deemed conclusively just and reasonable," and from a determination of controversies arising under the rates we might establish, there is no appeal to the Courts of the State. The effect on many struggling industries would be disastrous in the extreme. Under the present tariffs of the Central Pacific, and roads operated by it, the average rate for all freight moved is about 2.116 cents per ton per mile. This is, however, distributed by classification, so as to place the charges for transportation where "they can be best borne." While we might find some articles improperly classified, we have found the general classification adopted by this company judicious and quite satisfactory. Under it the traffic which is charged above the average, enables the producer of the cheap and bulky commodities to market them profitably, and he does not feel the additional charge on the expensive commodities which he consumes in small quantities. A judicious classification ad valorem or approximating to this system, we believe to be more in the interest of the people than a single uniform classification. The ablest political economists of the United States hold, that in adjusting our revenue tariff laws, that the ad valorem theory is the only correct one, because it distributes the burden of taxation upon those who are best able to bear it. A specific charge on a pound of woolen cloth imported into this country is uniformly fifty cents, and an ad valorem charge of thirty-five per cent. Under this specific tariff the yard of English pilot, worth thirty-three cents at home, is enhanced by nearly two hundred per cent in our market, and is virtually excluded. The cost to the consumer of similar goods of our own manufacture is increased in the same ratio. The same tariff is applied to superfine broadcloth, which the wealthy alone use, and it is only increased in price one fourth the ratio of what the pilot is. An ad valorem tariff is pronounced by the ablest publicists the true system for obtaining revenue for the support of the Government and affording incidental protection to our domestic industries. A discriminating railroad freight tariff is analogous to a discriminating government revenue tariff. The ultimate object of each is revenue, at the same time so adjusted as to incidentally encourage the development of domestic industries. An inflexible freight tariff would tend to suppress, rather than encourage, the production of cheap commodities, which are of universal consumption. We quote from the report of the Commissioner of Transportation on this subject, as follows:

FREIGHT CHARGES.

If it were practicable to ascertain the cost to the railroad company of transporting any particular lot of freight, the question of regulating charges for transportation would be much simplified, for it would only remain to be determined whether a uniform profit should be allowed on the carriage of all goods, or one that should vary in accordance with classification. But it is not possible to ascertain the actual cost of movement in advance of the close of the season. So large a proportion of the cost of managing and operating a railroad consists of fixed expenses, which are, necessarily, the same in amount without reference to the volume of business transacted, that the actual additional cost of transportation of any particular lot of freight over that of running the train without it is scarcely appreciable; it amounts to little more than that of handling the goods. The "cost of transportation " in this sense cannot be made the basis, nor the profit on it the measure of a proper charge for carriage, because each parcel of freight should also bear its due proportion of the necessary general expenses of the

road. This it is impossible to ascertain without considering the whole volume of business—a thing liable to continual fluctuation, and impossible to be known in advance. "Cost of transportation," therefore, in the sense above indicated, simply fixes the point below which railroad companies cannot transport without actual loss. It regulates only the minimum of charge.

INFLEXIBLE RATES.

Hitherto inflexible rates, in those States which have adopted them, have proved detrimental both to the producer and carrier. The cost of transportation must be met by a charge for the service rendered. The cost of this service depends upon the volume of business and the character and cost of construction, and maintenance of the road over which the traffic is transported. No correct calculation as to such cost can be made by a legislative body or any other inexperienced persons.

Even with experienced agencies contingencies arise which set inflexible rules at defiance. What would be a just and reasonable rate, with a given amount of business, would be an unjust and unreasonable rate, with two or three times the same amount of business.

The modifications in the rates made by transportation companies grow out of their experience, which invariably shows that a large volume of business at reasonable rates proves much more remunerative than a small volume at high rates. The profits of the former are limited only by reaching the maximum of production; while the profits of the latter are reduced by the limitation of production to its minimum.

The question of a reduced maxima of fares and rateshas been discussed at various times by the Board. We have requested the managers to give reasons why the maximum rate charged should not be reduced. In these discussions the managers have usually participated, and have given the Board facts and figures, which, upon a thorough investigation by ourselves as to the effect of low maxima have determined us to move with the utmost caution. While there have been but few requests, even, for a modification of the rates, there has been no request on our part for specific reductions for the promotion of any particular industry that has not met with a favorable response. The desire on the part of the companies to meet all the wants of the shippers and producers, has rather kept in advance than in the rear of our demands. The proposition for reducing the maxima has not been adopted for many reasons which follow.

Lowering the maximum rate on freight necessitates an increased minimum rate to realize an equal amount of revenue. Without reducing the maximum, we find that, since 1872, an average reduction of passenger rates as follows: 1872, the average rate for all was 3.83 per mile; 1873, 3.65; 1874, 3.52; 1875, 3.27; 1876, 3.24; 1877, 3.02; 1878, 2.95; 1879, 2.72; 1880, 2.67; 1881, about 2.67.

It will be seen by the tables in the Appendix that there has been a gradual reduction of both fares and rates during the period covered by those tables. As traffic has increased, a gradual scaling downward in charges has followed. Whether the inspiring motive be an enlightened self-interest or other cause, the fact remains, and the people reap the benefit.

HIGH MINIMUM.

The object of a high maximum is, that there may be a correspondingly low minimum, and as these extremes approach each other, the just equilibrium which high cost and low cost goods bear to each other is destroyed. Because the average charge on all freight carried is only a little above two cents per ton per mile, it does not follow that the mean between fifteen, the maximum, and say three, the minimum, or nine, would be a reasonable rate. It would be extor

tionate on many articles of traffic, and would not pay cost of handling and movement of others; hence, a high maximum implies the lowest minimum on cheap traffic. In most countries there is no maximum at all, and notably so in most of the States east of the mountains. This system of adjustment enables the roads east of Chicago to move grain at half a cent per ton per mile in certain emergencies to the seaboard.

THE JUDICIAL CHARACTER OF REASONABLE RATES.

Are the fares and rates just and reasonable in this State? A reasonable rate is right. An unjust rate is wrong. How shall the question be determined? Mr. J. M. Mason, in the North American Review, says: "* * * Whether a charge is reasonable is emphatically a judicial question." This we indorse fully, but dissent from what follows: "But as it is competent for the Legislature to furnish the Courts rules of evidence, statutes prescribing the maximum charges for common carriers are regarded simply as a legislative declaration of the amount to be considered reasonable * * *" Let us apply this principle. The maximum rate on freight is fifteen cents per ton per mile. A carload of wheat is shipped from Redding to San Francisco, via Benicia; distance, 260 miles. The law assumes this to be a reasonable rate, and if Mr. Mason's theory be correct, the charge for ten tons of wheat would be $390 or $39 per ton. The wheat is worth $32 per ton, or $320, leaving a deficit against the shipper of $70. Would any Court worthy the name hold that, because of the rule of evidence prescribed by the Legislature, the rate was just and reasonable? This may be good in law, but it is bad in morals. When a Legislature prescribes a rule of evidence in derogation of private or public rights, it is the duty of the Courts to set it aside. Justice Waite, in the celebrated Granger Cases, says: "In countries where the common law prevails, it has been customary from time immemorial for the Legislature to declare what shall be a reasonable compensation under such circumstances; or, perhaps more properly speaking, to fix a maximum beyond which any charge made would be unreasonable." [The italics are ours.]

Now, the second clause of the above paragraph materially modifies the first; the implication being that, in order for a common carrier to have sufficient flexibility in establishing his rates, a maximum sufficiently high to be no restraint at all should be made. But the vital question to be determined is, whether the Legislature can perpetrate an injustice to either shipper or carrier, by prescribing a rule of evidence which will prevent a wrong from being redressed in the Courts of justice.

We think the Supreme Court of Illinois, in the case of the Chicago and Alton Railroad Company vs. The People ex rel. Gustavus Koener et al., Commissioners, has laid down a rule of action which might with profit be emulated by other judicial bodies. This decision established a rule of action for a legislative body, when either passion or prejudice had attained supremacy therein, and we insert an extract bearing upon the subject under consideration, although the question before the Court was "a legislative Act" prohibiting "unjust discrimination."

The Court says: