Senator NEWLANDS. Are you a lawyer yourself?

Mr. BACON. I am not a lawyer; I am a business man.

Senator NEWLANDS. Are you familiar with the rules the courts have laid down as to the determination of what shall be a just and reasonable rate?

Mr. BACON. I have followed the cases to some extent as they have arisen under the workings of the interstate-commerce act.

Senator NEWLANDS. I am not very familiar with them, but I understand that they have determined that a rate must be reasonable and not oppressive, and that you must have in view a return upon the capital that has been invested.

Mr. BACON. The Supreme Court has specifically decided that the revenues of a railroad company must be sufficient to afford a fair return upon the actual capital invested.

Senator NEWLANDS. Have these decisions ever determined what a fair return, in the shape of interest, shall be?

Mr. BACON. Each particular case has been taken up individually and considered on its own merits, and no definite percentage of interest or return upon the money invested has been indicated by the court as proper and right, so far as I have observed, but the court has decided that point in a general way-that it must be a fair return on the investment. That is something that may vary in different periods.

Senator NEWLANDS. Has any court, to your knowledge, ever laid down a rule for determining the capital or value upon which the fair return, in the shape of interest, is to be computed?

Mr. BACON. No rule has been laid down, but different processes have been pursued in determining the cases before the courts-sometimes one method, sometimes two or three combined; but no rule has been laid down.

Senator NEWLANDS. Take, for instance, a continuous system of railways extending from the Atlantic coast to the Pacific coast, embracing perhaps as many distinct railroads as there are States through which it passes, each one of these railroads being subject to control by a local commission as to domestic rates, and also being under control by the Interstate Commerce Commission as to interstate rates: I ask how would it be possible, in each individual case before the Interstate Commerce Commission under this act, to determine the effect of a given rate upon the capital or value invested in each one of these roads?

Mr. BACON. A case might be very complicated, as you suggest; still, it is not beyond human wisdom to arrive at a satisfactory conclusion. It may involve considerable time and the consideration of many figures, but it is not beyond human capacity, certainly.

Senator NEWLANDS. Do you not think that with the number of cases before the Interstate Commerce Commission, involving both classifications and specific rates, and also with the number of cases that may be under consideration before each one of the local commissions as to domestic rates, there would be considerable confusion as to whether or not a proper return upon capital or value could be had as a result of these changes?

Mr. BACON. I do not think there would be any difficulty of that kind. The cases are easily susceptible of solution with proper time and consideration to be given them. But it is my judgment that with this authority conferred upon the Interstate Commerce Commission it would

operate very fairly toward the prevention of the exaction of discriminative or unreasonable rates.

Senator NEWLANDS. We all agree that that is what we want to have accomplished. The only question is as to the method.

Senator QUARLES. It would have to be worked out by the courts. Senator NEWLANDS. Yes; but in these cases we would have perhaps ten different circuit courts operating at the same time in suits instituted by each one of these railroads, incorporated under the laws of different States, and each one of them complaining of a particular interstate rate fixed by the Interstate Commerce Commission. It strikes me that this would be likely to produce a great deal of confusion. If we could simplify this whole system it would certainly be of great advantage.

Let me just suggest a line of thought I have been pursuing for some little time on this subject. It involves a radical change in existing conditions, but it seems to me that if it can accomplish good we ought gradually to reach out for it. It is this: We have here, say, 2,000 different railroads in this country

A great

Mr. BACON. Only about 600 operating railroads, however. Senator NEWLANDS. Only about 600 operating railroads. many of these operating roads are classified and combined into systems, so that practically it may be said that eight or ten systems of railroads control all the mileage of the country. That is accomplished either through leases or holding companies or through traffic arrangements. As a matter of fact, however, we have this large number of corporations-although only 600 operating railroads, as you say—and these railroads are so unified that no more than eight or ten systems control them all.

Mr. BACON. Substantially, yes.

Senator NEWLANDS. That being the case, that being the evolution of railroading, why is it not well to recognize that fact and bring them under control?

Mr. BACON. That is just what we are seeking, Senator.

Senator NEWLANDS. Let me suggest, right there, would it not be well for us, then, to frame a national incorporation act for interstate commerce, under which these various railroads now consolidated under one management-by devious devices that no one understands-can be incorporated, so that we shall have one capitalization fixed by the Interstate Commerce Commission or by the courts, and one system of of rates to act upon, as well as one system of taxation to act upon? It seems to me that the evil of the present system is that, whilst the Supreme Court has determined that there must be a fair return upon value or capital invested, yet you can have as many valuations fixed as there are States, and you can have as many rates of interest fixed as there are States, according to conditions.

Then, upon the question of return; this return must be found after operating expenses and taxes are paid. And yet, under existing conditions, we can have forty-five different systems of taxation, each of them variable according to the judgment of a legislature or according to the caprice of assessing bodies.

It strikes me if we could have a national incorporation act for purely interstate commerce, and permit consolidation of these great corporations with a capitalization fixed by law or judicially, and then provide for a percentage tax upon gross receipts absolutely in lieu of

all other taxes, national, State, county, or municipal (regarding these corporations as national machines for interstate commerce the National Government would have the constitutional power to exempt them from State or local taxation), and then provide that that tax shall be distributed by the United States among the various States according to some fair rule of distribution-according to trackage or volume of business we would then fix absolutely the rate of taxation by one. law, and that at the same time no State would be deprived of its rev

enue.

Thus upon this question of operating expenses and taxes we would secure certainty as to taxation, at all events.

The next step would be the fixing of the proper return upon capital invested. This law could fix the percentage of dividends to be allowed whether 4 per cent, 5, 6, or 7 per cent, whatever it may be-and it could vary that return according to the degree of risk involved in the enterprise, etc., or it could leave the question of interest as a return on capital to the decision of the Interstate Commerce Commission or to the courts.

Those things being fixed with absolute certainty (the taxes to be paid to the Government and the dividends paid to the operators), then you have remaining only the question of operating expenses, and it seems to me you would then have one body that would fix these rates and you would not be subject to the varying judgments of forty-five different commissions and forty-five different courts. What do you think of that, Mr. Bacon?

Mr. BACON. That is a very comprehensive plan, Senator, and there is much merit in it, but it will take many years to work that out in legislation.

Senator TILLMAN. I want to suggest to my friend from Nevada that he put this statement in the Record, for it is the most magnificent generalization that has ever come before me. So I hope he will repeat this statement in the Senate chamber, because it will be lost to the public unless put in the form of a speech in the Senate on this general subject.

Senator NEWLANDS. It will be in the record of the proceedings of this committee to-day, but I should like Mr. Bacon and his associates to look into that question; for while we may pass something of this kind as a temporary measure, I do not believe it will work satisfactorily as such. It strikes me that the minds of the shippers, as well as of the legislators of the country, ought to be directed to some plan of unifying and simplifying the entire railroad system of the country. Mr. BACON. That is entirely worthy of consideration with reference to the future, but it will take a long time to work it out. But here we have before us a very simple plan which has been evolved during the discussions of the past five years in regard to this class of legisla tion, and it seems to me that it would not be best now to take up any such comprehensive and general plan. Senators may work it out for themselves later.

Senator FORAKER. You would not endorse the plan suggested by the Senator from Nevada?

Mr. BACON. Not on the moment's consideration. I am very glad, however, to hear that suggestion.

Senator FORAKER. So am I, but I should want to give it further consideration.

The CHAIRMAN. Mr. Bacon, do you want to be heard futher? Mr. BACON. Right in this connection the Senator speaks of this being a very great change in the state of the law, but I wish to remind him that the Interstate Commerce Commission, during the first ten years of its existence, acted upon their presumption that that was the state of the law during that time and substituted certain rates when they found existing rates unjust or unreasonable. That procedure operated to the entire satisfaction both of the railway interests and of the public during that period, so that we have not a theory to contend with, but we have the benefit of ten years practice under this theory, and what we want now is simply to rehabilitate the Commission with the authority that it exercised during that period.

The CHAIRMAN. You advocate now that that order of the Commission be made operative at once?

Mr. BACON. Yes, sir.

The CHAIRMAN. Suppose that order, operative for the whole country, should be made to apply to certain timber sections--as, for instance. Missouri, Arkansas, and Michigan, on rates to Chicago, covering 500 miles by 1,000 miles and including a thousand shippers-and then the order of the Commission should be reversed by the courts; what relief would the railroad have under this bill?

Mr. BACON. To answer the question categorically, I should say it has no means of relief. But allow me to say

The CHAIRMAN. As briefly as you can.

Mr. BACON. Allow me to say, briefly, that the fact is that when a case has been carefully considered, under testimony taken on both sides and after argument on both sides, the result reached is presumably correct and right, and the fact would be that perhaps in not more than one case in fifty would the ruling of the Commission be set aside by the courts.

The CHAIRMAN. If it were set aside what would be the effect upon the lumber industry? Would the railroads have to lose $10,000,000 a year with no relief? I understand you to say they would have no relief.

Mr. BACON. During the four or five years that the rates have been continued in force pending adjudication the public has been subjected to the payment of charges that have been declared to be unreasonable or discriminative.

The CHAIRMAN. You can make the railroad give bonds.

Mr. BACON. The difficulty would be to reach the suffering party, because the shipper passes the increased rate he has to pay right over instantaneously to the public that buys the goods.

The CHAIRMAN. Suppose that the Commission applied the rate, that the court sustains the rate, but that the railroads think that the rate is too low, is there anything in these bills to make the railroads haul the freight? Suppose they should say they had not the cars?

Mr. BACON. This bill does not reach that.

The CHAIRMAN. Suppose the rate is thought to be too low; how are you going to make the railroads haul?

Senator TILLMAN. There is a penalty provided somewhere for a payment of $5,000 a day in such a case.

The CHAIRMAN. Suppose they had not the cars?

Senator TILLMAN. I suppose they might dodge in some way.

Mr. BACON. These are matters that can be worked out in the future. The CHAIRMAN. Have you considered the question of devolving the

decision of all these questions ultimately upon the circuit courts of the United States, or upon an interstate-commerce court?

Mr. BACON. You know, Mr. Chairman, that it has been decided by the Supreme Court that the making of a rate is a legislative act and can not be performed by a court.

The CHAIRMAN. Would you recommend that?

Mr. BACON. It is immaterial who fixes the rate, so we get relief.

The CHAIRMAN. see Senator Quarles is here, and we will hear him now with pleasure, or at any other time, at his own pleasure. We have him with us always.

Senator QUARLES. Like the poor. But, Mr. Chairman, it is now so near the hour of adjournment that if I should undertake to address you now it would, perhaps, trench upon the performance of your other duties here.

The CHAIRMAN. We shall be glad to hear you at another time.

Senator QUARLES. I have been giving this subject very careful study and certain things have suggested themselves to me which I deem of great importance in perfecting this bill. If it be the pleasure of the committee to hear me at some time in the near future I shall be very pleased to communicate to it my views.

The CHAIRMAN. The committee will be very glad to hear you at any time you may indicate you want to be heard."

The committee adjourned.

U. S. SENATE COMMITTEE ON INTERSTATE COMMERCE,

January 16, 1905.

ADDITIONAL STATEMENT OF MR. EDWARD P. BACON.

Mr. BACON. Mr. Chairman, I have prepared a statement, which I can submit, and after it shall have been printed can appear again to answer questions if it is so desired.

The CHAIRMAN. Do you not think you should make your statement now, so that some questions can be asked?

Mr. BACON. If that be the pleasure of the committee.

The CHAIRMAN. I know some Senators will want to ask you some questions, because you are an expert in this business.

Mr. BACON. Mr. Chairman, upon further consideration I think it will be better for me, instead of submitting a written statement, to hold myself in readiness to answer such questions as may be propounded to me by members of the committee. I have some documents with me to refer to in case it should become necessary in answering questions.

The CHAIRMAN. Mr. Bacon, I will ask you a question in regard to one matter that has been uppermost in my mind for some time. You are asking that the Interstate Commerce Commission be given power, upon complaint, to review and fix a railroad rate and make it reasonable that is the substance of it. I wish you would tell the committee just how that would correct the abuse of such discriminations, giving of rebates, and unjust advantages as the railroads practice. Just how would the fixing of rates by the Commission serve to stop this abuse? Mr. BACON. Giving them the power to correct rates found on complaint and investigation to be wrong.