signed directly to aid local producers of materials going into the manufacture of these products. Most important of these laws are those that provide for a tax differential in favor of wine made from local raw materials.

Legislation providing for a preferential tax rate on native products used in wine manufacture has been adopted in a number of States. Arkansas, Michigan, Georgia, and New Mexico have a higher excise on imported than on domestic wine. Michigan, for example, taxes domestic wine 4 cents per gallon and foreign wine 50 cents per gallon, and Georgia taxes dry wine 5 cents per gallon if made from native grapes, but 40 cents if made from imported grapes.

A like end is attained by a different method in Maine. All dry wine must pay a tax of 50 cents per gallon, but a tax of 4 cents per gallon is also assessed on liquid and 2 cents per pound on solid or semisolid raw materials grown outside of Maine and used in Maine wineries. A Georgia law contains similar provisions applying to distilled spirits. (This is a local option law. To become effective in any county it must receive a favorable vote in a referendum held in that county.) A tax of 50 cents per wine gallon is imposed on distilled spirits manufactured in Georgia from domestic products, and $1 per gallon is levied on spirits imported from some other State.

Other types of legislation also help the domestic producer. The State of Washington provides that domestic wineries may sell their wines directly to licensed retailers, whereas "foreign" wine producers may sell only to the Washington Liquor Control Board. Ohio has a regulation prohibiting wine tank-car shipments into the State. As most California wine was formerly shipped in this way, the result has been to help local producers. In 1935 North Carolina adopted the most protective type of wine legislation. This law, which was amended in 1937, erected an embargo against foreign wine by limiting sale within the State to the native product.

Finally, three States-Wisconsin, Minnesota, and Iowa-require that beer be made from 66%

percent or more of barley malt. The purpose of this legislation seems to be to discourage the use of substitutes for barley, particularly brewer's rice, in the brewing of beer. At any rate, all three of the States that have thought it worth while to pass this type of legislation raise no rice but are among the leaders in the production of barley.

RETALIATORY LAWS

Not the least significant aspect of protective legislation regarding beer and wine has been the swift appearance of administrative reprisals and retaliatory legislation. The most drastic of these retaliatory laws has been adopted by Missouri. This law completely bars from the State all alcoholic liquors from any State that has discriminatory liquor legislation of any kind. The definition of "discriminatory law" is so broad and administrative discretion is so great that the law is well described as setting up a "shotgun embargo power." A similar bill has been urged before other State legislatures. California passed such an act, but the governor vetoed it on the grounds that the State would probably gain more by setting a good example than by trying to coerce other States to repeal their discriminatory legislation.

Retaliatory laws of one kind or another have been adopted by many States. Connecticut, Ohio, Pennsylvania, and Florida have laws that provide for retaliatory taxes on out-of-State liquor when imported from States that are believed to have discriminatory taxes. Pennsylvania legislation provides for retaliation by imposing taxes, fees, or restrictions on out-of-State beer in the same measure that the outside State takes such action toward the Pennsylvania product. Michigan empowers its liquor control commission to forbid the importation of beer from any State that unreasonably discriminates against Michigan beer. Numerous beer and liquor wars, not unlike the truck-license wars described later (pp. 41-43), have been waged among the States. In December 1935, "hostilities" broke out on the New York-Connecticut

7 Columbia Law Review, vol. 38 (April 1938) p. 656. Beer and wine in Ohio; beer in Pennsylvania; wine in Florida.

border. Liquor dealers in New York attempted

to prevent residents of New York from buying in Connecticut where prices were cheaper. Protests arose and arrests were made, but the court found no violation of law and the war died down.

Much more serious has been the struggle between Michigan and Pennsylvania. Discrimination led to retaliation and retaliation to further retaliation until, during the first few months of 1938, both States had taken measures to place an embargo on beer importations from the other. Recently Michigan has removed its prohibition on beer from Pennsylvania and apparently at least a temporary peace has been arranged.

The most spectacular of these struggles has been that in which Michigan, Indiana, and Ohio have been engaged since 1935. Charges and counter charges have been made. Each State has considered itself unfairly discriminated against. Practically all the weapons of modern tariff reprisals have been resorted to, including retaliatory taxes, fees, and inspections; ports-ofentry; and absolute embargoes. At present there is a lull in the battle between Michigan and Indiana, both States having now removed their embargoes. But the Michigan embargo on beer from Ohio is still in effect and Indiana-Ohio relations are decidedly strained.10

Speaking on present trends in liquor control at Macinac Island, Mich., July 19, 1937, the Administrator of the Federal Alcohol Administration, W. S. Alexander, touched on this problem. He said in part: 11

"At this point I would like to digress for a moment to note one trend of state legislative policy which is personally very distressing and which, I believe, is an unfortunate development in the control of the alcoholic beverage industry. This is a matter which directly concerns the states themselves and does not infringe upon federal jurisdiction. I have noticed, in reviewing the recent legislation of many of the states, the increasing presence of measures which discriminate against the products of other states. Inspired

New York Herald-Tribune, Dec. 17 and 18, 1935.

10 Brewers Journal-Western Brewer, October 1935, pp. 23–28; November 1935, pp. 35-39; and The Brewers Digest, May 1938, pp. 45-46. 11 As reported in mimeographed release of the U. S. Treasury Department.

by such measures there now appear provisions which I believe to be even more dangerous. Some of the state legislatures have empowered their liquor control boards or taxing authorities to prescribe retaliatory regulations or taxes, directed against the importation of alcoholic beverages from any state which appears to discriminate against their products. Such measures, in the long run, will be productive of conditions which tend towards chaos and will give rise to further and more violent measures on the part of other states affected thereby. It was the adoption of discriminatory legislation of this nature by the original thirteen states which, in large part, made necessary the adoption of a federal constitution, and caused the control over interstate commerce to be lodged in the federal government. The twenty-first amendment to the Constitution has returned to the states part of the power to restrict or impede interstate commerce in liquor. I urge that this power be used in moderation and not abused, lest the chaotic conditions of pre-constitutional days appear again in the control of liquor traffic. May I therefore, be permitted to suggest the advisability of warning your state legislatures against such provisions, and of advising them to be especially critical of proposals of this nature. Such measures are often prompted by the selfishness of local interests in trying to monopolize intrastate business, or by fears of lost markets in other states. In most cases, such fears are in fact groundless."

RESULTS OF PROTECTIVE LIQUOR LEGISLATION

Sufficient evidence has been marshalled to show the lush growth of State protection in the field of liquor legislation. It is interesting to find that these restrictive laws apply in large part to beer and wine and not to distilled liquors in spite of the fact that it is in relation to distilled liquors that the need of control is deemed greatest from the standpoint of public health and morals.

The explanation is apparently an economic one. The manufacture of distilled spirits is a large-scale industry highly concentrated in a few States. Wine and beer, on the other hand, are

produced in many States and often on a relatively small scale. Although California is the great wine center in this country, other States produce appreciable quantities of grapes and manufacture local wines. Beer manufacture is even more localized than wine. Although certain States like Wisconsin and Missouri produce more for export than do most others, small breweries that manufacture for a local market will be found in all but a few States.

The direct effect of State laws that raise barriers to interstate commerce in intoxicating beverages, is probably much greater upon manufacturers and distributors than upon farmers. Laws that stimulate the production of beer in one area and discourage it in another may possible have some small effect in shifting barleyraising from more advantageous to less advantageous areas-that is, less advantageous on a cost-of-production basis.

The laws that give preference to native wines are probably of somewhat greater significance to farmers and may directly interfere with the development of agricultural production in the most advantageous areas. If this movement were carried to its limit, its absurdity would be apparent to all. Suppose each State placed an embargo on all out-of-State wine. Then each might develop its own vineyards. But grape production would be drastically curtailed, especially in California, and to some extent in other States that export wine, like New York and Michigan. Less wine would be sold, prices would be higher, and production would be stimulated in those States that are least adapted to grape culture and discouraged in those best fitted by soil and climate for growing grapes.

CONCLUSIONS REGARDING PROTECTIVE LIQUOR

LEGISLATION

There appears to be almost universal agreement that each State should be permitted to control the consumption and sale of alcoholic beverages within its own borders whether such beverages are produced within the State or in some other part of the country. But the question arises, in exercising such control should States be permitted to enact legislation favorable to local products or to in-State distributors or producers? Neither for the protection of public morals nor for the enhancement of the economic welfare of the whole country does such discrimination seem justified.

Unless State protectionism is to be encouraged, some way must be found to prevent States from adopting "protective" legislation of the kind here described. Some believe that this can be accomplished only through further action by Congress which will make impossible, as was done in the Wilson Act of 1890,12 all discrimination against out-of-State alcoholic beverages. Others have held that new legislation is unnecessary. They have maintained that the twentyfirst amendment did not give States the right to enact liquor legislation for the purpose of economic protection and that future interpretation by the United States Supreme Court will support this view. Recent court decisions, however, have not given encouragement to this viewpoint. Finally, many believe that the States, realizing the disadvantages of this type of legislation and the dangers of retaliatory laws, will find it desirable to repeal discriminatory liquor laws.

12 See p. 31.

RAILROAD REGULATION

AS LONG AS TRANSPORTATION in this country was carried on chiefly by horse and wagon on roads and turnpikes and by flatboats and ships on rivers, canals, and coastal waters, neither the States nor the Federal Government attempted much in the way of regulation. Even in the early days of the railroads there was little public control. In fact, down to the last quarter of the nineteenth century the chief public concern was in building a satisfactory transportation system.

But as the great period of railroad construction drew to a close, the character of the problem changed and public attention began to focus upon the need for making sure that the transportation system functioned to the greatest practicable public advantage.

Of the many problems that now arose, a very important one was the need of maintaining a free flow of commerce unimpeded by discrimination in favor of particular persons, places, or commodities. In no small part the Federal and State legislation of the period was designed to eliminate discriminatory practices. But State regulatory legislation itself presently led to a new problem in discrimination—the tendency of States to set rates that gave an advantage to intrastate trade but that burdened interstate commerce. It was soon apparent that, with State legislation so largely colored by local interest, effective regulation in the national interest by the Interstate Commerce Commission must include control over intrastate rates.

The situation as it existed in 1905 was described by Hugo R. Meyer in his testimony before the United States Senate Committee on Interstate Commerce. He declared:

"... practically all the State commissions that have been active in the matter of regulating railway rates have regulated largely with an eye to establishing local protection. To-day you can establish protection by means of regulation of railway rates in an astonishing degree of efficiency; and practically all of the State commissions that have been active in railway rate regulation have done that." 1

Gradually, therefore, the Federal Government found it necessary to extend its control over the railroads and to curtail the regulative powers of the States. The power of the Interstate Commerce Commission to regulate intrastate rates where they were found to involve unreasonable discrimination against interstate commerce was finally established by the courts.2 Moreover, Congress included a provision in the Transportation Act of 1920 giving the Interstate Commerce Commission control of intrastate rates where it found “. .. any undue or unreasonable advantage, preference, or prejudice as between interstate and intrastate commerce.3

As a result of this Federal power, the Interstate Commerce Commission has been able greatly to

1 Hearings on Senate Resolution No. 288, 58th Cong., 3d sess. (1905), vol. 2, p. 1553.

See especially Houston, E. and W. T. Railway Co. v. United States 234 U. S. 342 (1914).

3 41 Stat. 484.

restrain the tendency of the States to fix railroad rates in their own interest and to the national disadvantage. But it should not be supposed that the Interstate Commerce Commission has completely taken over the regulation of intrastate rates or that intrastate rates are always exactly in line with interstate rates. To a considerable extent intrastate regulation is still left in the hands of State commissions, and the Interstate Commerce Commission enters the picture only when questions of discrimination or undue prejudice are raised. That State commissions are still active in keeping intrastate rates as low as possible is indicated by the fact that cases in this field are almost constantly before the Interstate Commerce Commission.*

One of the most recent of these is Intrastate Class and Commodity Rates in Kentucky, decided July 13, 1937.5 As a result of action by the Kentucky commission, intrastate rates were generally lowered so that in many cases they were definitely less on a distance basis than interstate rates. Thus it was brought out that under the rate level as established by the State commission:

"Kentucky intrastate shippers can have merchandise rated first class transported 150 miles at a rate of 66 cents, whereas an interstate shipper from an Ohio River crossing or from a point in Tennessee or other southern State, must pay the same rate for a haul of 70 miles. Although recognizing that there was some maladjustment and suggesting the possibility of future reconsideration, the Commission stated:

"The record does not contain evidence necessary to support a finding that the rates required by the Kentucky commission cause undue and unreasonable preference and prejudice as between persons and localities in intrastate commerce on the one hand and interstate commerce on the other." 7

To the extent that this kind of situation exists, relative advantage may still be given to intrastate commerce and appreciable barriers erected to

See the intrastate rate cases regularly listed in the annual reports of the Interstate Commerce Commission.

223 I. C. O. 109. Ibid., pp. 114-115. 'Ibid, pp. 122-123.

interstate trade. It cannot be doubted, however, that the influence of the Interstate Commerce Commission has been greatly to reduce the inequalities between intrastate and interstate railroad rates, and the case cited above appears somewhat exceptional in that the Commission permitted the continuance of rates appreciably different for intrastate as compared with inter

state commerce.

Perhaps more serious than the problem of the relation of intrastate to interstate rates is the question of interregional freight rates. Three major railroad-rate territories or sections have emerged in this country, each one of which has developed, more or less independently, its own system of classification and charges. As a result of this regional development, appreciable rate barriers have in some cases been erected to interregional transportation. Just how serious these restrictions are to the movement of agricultural products it would be impossible to determine without elaborate study. But it is true that there has been a growing tendency toward uniformity and that some of the worst of these interregional difficulties appear to have been eliminated.

Yet there is impressive testimony to the fact that the situation is as yet not entirely satisfactory. In a recent study, the Tennessee Valley Authority found that certain producers in official or eastern territory 8 had a considerable advantage, so far as railroad rates were concerned, in selling their products in official territory. Shippers located in other rate territories typically had to pay substantially higher rates to reach equally distant markets in official territory. One example may be cited from this study. It was found that potato shipments from Maine to Ohio and Indiana points (intraregional traffic) involved freight charges appreciably less than from Colorado (interregional traffic) to the same markets which were approximately equidistant from the two producing areas.9

Obviously, different rates over equal distances may be justified by the presence of costs unre

Roughly this area is east of the Mississippi River and north of Kentucky and North Carolina. Appreciable parts of Wisconsin, Michigan, and Virginia are not included.

• House Doc. 264, 75th Cong., 1st sess., p. 40. 1937.