pays any profit either directly or indirectly, is beneficial to the local shipper to that extent. Yet it involves the charging in some cases more for a shorter than for a longer distance.

Actual illustrations are sometimes more convincing than argument, and to sustain the position taken as to discrimination we will cite an actual case, illustrating the economic principles involved in the development of commerce. Newhall, on the Southern Pacific Railroad, is situated about 450 miles from San Francisco. Near this station are located the San Fernando oil wells. It is a well-known fact that cheap transportation is an essential element in the development of an industry of this character. It is about forty miles from the port of Wilmington, on the Pacific Ocean. The ocean rate from Wilmington to San Francisco is much below the average cost of railroad transportation between Newhall and San Francisco. If no discrimination is made the rail rate per mile from Newhall to Wilmington will be the average rail rate per mile from Newhall to San Francisco. To illustrate, call it three cents per ton per mile. This would be equivalent to one dollar and twenty cents per ton to Wilmington. Allowing the ocean rate to be five dollars per ton will equal six dollars and twenty cents per ton from Newhall to San Francisco via Wilmington. The rail rate from Newhall being the same, three cents per ton per mile, and 450 miles would make the cost of carrying by the railroad, thirteen dollars and fifty cents per ton or seven dollars and thirty cents more than via Wilmington. Now, we ask, who would be hurt if the railroad should be allowed to compete for this traffic? Who would be hurt if the railroad should offer rates as to induce the opening up of this industry? This is just what has been done, and an industry has been developed which promises good results. While the rates may be below the rates on some other commodities, and may be carried a longer distance for less money, it aids in lowering the average cost of all traffic, and benefits the local shippers to the extent of the receipts from it above the actual cost of moving. Any inflexible regulation of this Board which would tend indirectly even to prevent the railroad from securing this traffic would virtually prohíbit competition and paralyze many industries now being developed. In competing for this traffic the railroad has to discriminate, but this works no injustice to any interest. The apparent inequality is in effect an indirect aid towards equalizing the charges on all traffic.

In establishing rates, each locality is considered by itself, as to competition and its relation to the general markets, and as to the amount of traffic it can supply the carrier. If the resources of Truckee are greater than those of Carlin, Truckee should not be deprived of its advantages to benefit Carlin, whose ability to furnish traffic is less than that of Truckee. Wherever there is a large and regular supply of business, it can be done at lower rates than at points where the business is less; hence the absolute necessity of discrimi-nating rates. Without recognizing this principle, the most unjust discriminations would be made against the points possessing the greatest natural advantages. Los Angeles is a notable case in point. She is located near the ocean, and the rates to that point are established mostly by the cheapest of all transportation, viz., water. It is also a large distributing point for Southern California and Arizona. To forbid differential rates by the Central and Southern Pacific Railroads would be equivalent to prohibiting competition between the

ocean route and the railroad, and depriving Los Angeles of the advantage of regular and rapid transit of goods, which the railroad affords. In other words, it is discriminating against what naturally, and of right, belongs to Los Angeles, and would benefit no one. The same comparison applies with greater force to San Francisco in regard to the overland traffic.

The natural position of San Francisco compels rates overland to be made as low, all things considered, as by the water route. The railroad must meet these rates, or abandon the San Francisco business. The latter alternate would involve an increase of local rates the whole length of the roads to recoup what would be lost by abandoning the through traffic. This would arrest the natural development set in motion by commercial necessities, restore the natural discriminations which had been partially overcome, and entail hardships upon all. Had this Board the power outside the State to enforce such a rule, we should deem it unjust and unreasonable, and against the best interests of the community, to exercise it. San Francisco can afford to profit by and enjoy her natural advantages. Commercial restrictions may annoy, but cannot permanently injure her. The apparent discriminations in her favor are not the voluntary concessions of the railroad companies, but the logical sequence of her natural position.

Sitting at the Golden Gate, and holding the keys in her hands to the commerce of the Orient, she is in a position of dictation rather than submission. The Pacific Ocean cannot be abolished, nor its use curtailed. In the last ten years the commerce of this port has largely increased; city improvements have kept pace with the increase of population, and evidences of general prosperity are seen on every hand, and we cannot say that San Francisco has not followed the law of growth of other American cities. The decline in American shipping has transferred our foreign carriage to foreign ships. While we regret the disappearance of American clippers that formerly came in at the Golden Gate, and the consequent transfer of our wheat freight to foreign ships, we can take some credit for the internal commercial facilities, which more than equal the loss of our clipper fleet. The opening of another transcontinental railway, with its proposed facilities for the transportation of the surplus wheat crop, via New Orleans to Europe, will have the effect of reducing rates by sea. This difference will be retained at home, and will inure to the benefit of the producer. As we have before stated, some local and individual hardships have been incurred by the change in the channels of commerce, yet there are corresponding benefits more than equaling them all. Under the old regime it frequently occurred that a few merchants obtained control of all the articles of merchandise of general consumption, both in port and to arrive, for a long time ahead, and the result generally was that for six months or more, prices for all such commodities as were in the pool trebled, while those who were parties to the combination usually retired with fortunes at the end of that time. With our present facilities for rapid transit of goods, and the use of the telegraph, it is impossible to corner any article for more than fifteen days. The change wrought in that direction is certainly most salutary. Legitimate trade rests upon a firmer basis, fluctuations in prices are less violent, and commercial prosperity is more general than under the old order

of things. If accidental fortunes are less frequent, legitimate mercantile independence is more general.

To prove the statement that the commerce of San Francisco has not declined nor likely to decline, we have copied from the report of the Bureau of Statistics the imports and exports from 1856 to 1881, inclusive. (See Table 4 in the Appendix.)

We might institute comparisons between the railroads west of Missouri River with those east of it, going to show that when all the conditions are considered which must regulate the charges for railroad transportation, that the fares and rates on the western roads are comparatively as reasonable as are those of the eastern roads. The country which is served by the New York Central Railroad system between the City of New York and Buffalo, contains a larger population to the square mile than any other line of railway within the United States. As compared with the same distance served by the Central Pacific system the ratio is as ten to one. The resources of all railroads are only those derivable from public patronage, and this is measured by the activities of commerce. These resources, of course, are affected by the active forces of commercial development, either near or remote. As a ripple upon the ocean vibrates to its utmost limit, so the vibrations of commercial and industrial development, set in motion on the shores of the Pacific, are felt upon the shores of the Black Sea, and within the confines of Asia, at the same time. Every industry that is developed contributes near or remotely to some other industry. These commercial forces have enabled the trunk lines to the Atlantic seaboards to compete in marketing the products of the western States successfully with the lakes and Erie Canal. We have taken for illustration the two extremes of the railway system connecting the Atlantic and Pacific. The rates upon each, as compared with the travel and traffic, are certainly not unfavorable to the Central Pacific system. For comparisons see tables in the Appendix. There will also be found tables comparing the rates of railroads whose resources as to population and commercial development are nearly equal with that of our own. The object of these comparisons is to direct the attention of the people to the investigation of the causes which control in the making of tariffs of fares and rates for inland transportation.

LOCAL RATES-HOW DETERMINED.

The elements entering into the calculation of establishing an equitable local freight tariff, are the distance, amount of traffic, obstacles to be overcome, competition, and the value of the service to be rendered. As to the termini of the road, the rates to all intermediate stations are local. We allude to this subject, because it is so closely related to the question of discrimination. If discrimination is not used in establishing rates at such places, it would seem to be an injustice to all other places.

This principle is in harmony with the theory upon which we started, viz.: that the rates to all points on the line of a railroad must bear a reasonable relation to the value of the service rendered. The service to and from all interior points is more valuable to the shipper than it is to points more favorably situated. The object is, to arrive at reasonable rates as near as possible, upon a system which distributes equitably the charges, by an average upon all the traffic,

ad valorem. The Government charges for its postal service proportionate to the value of the service, and not in proportion to cost. A letter weighing a quarter of an ounce is charged three times as much as a newspaper weighing two ounces, for the same distance. The object of the Government in regulating its postal service is not profit. It makes no investment involving millions of capital in perfecting its system, which must be recouped from the business; but it distributes the expenses equitably upon the whole people. The differential rates charged upon the different classes of mail matter, are based upon the assumption that a letter or newspaper is equally valuable to the receiver, whether carried ten miles or a thousand. If its postal system were regulated on the basis of cost, there would be as many prices for letter-carrying, as there are postoffices in the Union. Freight transportation, in many instances, is more valuable for a shorter than a longer distance; yet an inflexible rule would prohibit the performance of the more valuable service, on pain of forfeiture of the less valuable, and vice versa.

The fixed expenses of railroads render it necessary that the income for maintenance should be permanent. The local business, therefore, has to be relied on largely for the necessary income to pay for maintenance. The competition traffic will, to the extent of the profit on it, relieve the local rates; and when we use the term "profit," it implies what there is left after paying all the expenses and liabilities incident to it for the year. The rates that would yield a profit one year might, the following year, entail a loss. We will illustrate. The average rates on the Central Pacific system for 1881 are 2.116 per ton per mile. Assume the receipts for freight traffic to be fifteen million dollars. In order to realize the same amount of revenue the following year, the same amount of traffic must be done. The Table No. 4 in the Appendix will show the fluctuations in the commerce of San Francisco, already noted. These fluctuations apply indirectly to the railroads. If traffic falls off, rates must advance or receipts decrease. We might instance cases where grain has been moved in this State at half a cent per ton per mile for long distances. To carry at that rate would ordinarily entail loss by itself, but the same party may have to ship goods in return that he can afford to pay five cents, and on some, even fifteen cents per ton per mile. To refuse to carry the grain for half a cent because it is less than one fourth the average rate, would injure the producer's industry and the carrier's business in certain other directions, by depriving him of a traffic which would be mutually beneficial.

CLASSIFYING FREIGHT.

A judicious discrimination in classifying freight is a great adjunct in equalizing the discriminations imposed by natural conditions. The more valuable productions originate at points where nature has been more generous in her favors. Centers of trade and population furnish the sparsely settled sections of the country with manufactured articles of commerce on which much labor has been expended, in exchange for large quantities of earth's products, upon which comparatively little labor has been expended. One uniform classification for a ton of wheat, on which five days of unskilled labor has been expended, with a ton of boots, shoes, and clothing, on which a hundred days' skilled labor has been expended, would, to the intelligent

producers of both, seem to be a long stride backwards in economic science. When it is considered that the shoemaker in Boston can, with a single day's labor, pay the freight charges for one thousand miles on flour enough for himself and wife for a year, will either he, or the farmer who produces it, object to a judicious classification of their respective products for transportation, on a basis proportionate to the value of each?

Judicious classification of freightable commodities is one of the great aids to the development and expansion of the productive industries, which finds its authority in all commercial codes. Our immediate predecessor says upon the subject, in his report in 1880:

There are discriminations arising from the classification of merchandise, and from competition among dealers in certain kinds of merchandise in different localities, such as coal, lumber, and other cheap commodities, which will not bear a high rate of transportation. For example, lumber is sent from the mills at Truckee, eastward to the vicinity of Salt Lake, just as cheaply as to points one hundred miles nearer Truckee. This of itself constitutes discrimination against the nearer point, but if the lumberman gets a small profit at the farther point, and the carrier the cost of transportation or a little more, it makes the income of each average better, and creates a market which could not be had if the same proportionate rate were charged as is charged to the nearer points.

The same rule will apply in relation to coal brought from the mines of Wyoming. Unloaded cars weigh, on an average, a little more than half as much as loaded cars. At what rate can they be moved so as not to cause loss to the carrier? Whatever is gained in that way, although the rate to points westward is proportionately less than to Salt Lake, is so much made, yet in the latter case Salt Lake is discriminated against locally, but the amount earned in transporting the coal and lumber the longer distances, enables the carrier to transport the return freight at correspondingly lower rates.

Merchants and manufacturers make discriminations in their trade founded upon the same natural differences and distinctions that affect transportation charges. Competition in trade and commerce results in discrimination between persons doing business in different localities. The merchant at Salt Lake can obtain goods at San Francisco at better rates than the merchant at Virginia City. The former has the option of the eastern and western markets, with equal facilities for reaching them; the latter is almost necessarily confined to the western market. Their geographical positions, relatively to transportation facilities, give the Salt Lake merchant this advantage; and when he appears in the San Francisco market our merchants know that they have to compete with St. Louis and Chicago for the customer. They will accept a profit that would not tempt them from the Virginia trader. Legislative enactments cannot affect the relations of the two localities named to the markets of the world. Commercial law is flexible, and adapts itself to those differences founded on natural conditions, and it is the same principle that underlies the adjustment of tariffs by transportation companies.

As bearing upon this subject, it is difficult to ignore the fact that almost every railroad company, both in this country and in England, was chartered with specified maximum rates, up to which there existed the legal right to arrange transportation charges; and yet not one single company in either country can be found whose average charges are equal to the legal maxiThe principal roads in this State do not average above three cents per ton per mile for freight, and three and one half cents per mile for passengers. The statute existing at the time of their incorporation allowed them to charge fifteen cents per ton per mile for freight and ten cents per mile for passengers.

mum.

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.

We may add that classification of freight so as to distribute the charges for transportation equitably over the whole volume of traffic, is but a judicious distinction based upon the economic law of values. * * * 7, p. 93 to 98.

INTER-STATE COMMERCE.

"Congress shall have power to regulate commerce between the States, and with foreign nations." At the time of the adoption of the United States Constitution, the transportation service, or carrying trade, was performed either by vessels on the water, or by team and