Mr. JONES. Rates have never been constructed on that basis on the Atlantic seaboard.

Senator CUMMINS. Do you know why that practice has been adopted for the western coast and not for the eastern coast?

Mr. JONES. I believe it is-putting it rather bluntly and frankly— because the carriers have gotten away with it, and it has been a source of a great deal of revenue that they have not earned; and, further, in connection with that, it can be stated that the lines east of El Paso and Ogden do not participate in the divisions of intermediate higher rates, or did not the last time we went into the questionthat is, a shipment from Chicago, say, to San Francisco or Los Angeles over the Rock Island to El Paso, on the Southern Pacific, where the freight was $200, and on the same train another shipment dropped off at Phoenix, 500 miles shorter haul, where the freight would be $300, the Rock Island in both instances got the same revenue and lines west of El Paso took up that flap.

Senator CUMMINS. Have you any information with regard to the volume of business that any given railroad does-for instance, the Union Pacific or Southern Pacific-at its terminal on the coast, as compared with the volume of business in the intermountain country? Mr. JONES. I have not in my mind those figures, Senator; but, to the surprise, I think, of the Interstate Commerce Commission and, I know, to my surprise and others, there were put into the record at Salt Lake City, in the last hearing of that case, figures showing that the traffic to the intermountain district was vastly greater than to the terminals.

Senator CUMMINS. Do you recognize the cost of the service as a fair basis for making rates?

Mr. JONES. In making freight rates, it is very doubtful whether the cost of the service should govern. It is obvious that it does not cost any more actually, aside from the hazard, to move a carload of 20 tons of pig iron than it does to move 20 tons of tea. Of course, there is a greater hazard and insurance rates on the higher class of commodity. The ability of the traffic to pay the rate, whether it would move or not, often governs the movement of the low-class conmodity. I think even to those that have studied the matter a great many years that the state of the freight rates and the relation one freight rate should bear to another, as to commodities, is somewhat complicated and should be so arranged that it would be flexible, and I believe the railroad companies have been heretofore, and are at this time, using very good judgment and making few mistakes in making their rates so that one would bear the proper relationship to another.

Senator CUMMINS. The ability of any particular traffic to pay the rates is only a paraphrase for making rates so that the public welfare will be best promoted, is it not-or ought to be?

Mr. JONES. That is one way to express it. It used to be expressed in perhaps a more forceful way in the past-what the traffic would

bear.

Senator CUMMINS. It is obvious, is it not, that there are some kinds of traffic which must be moved at a lower rate in order that the public may be properly served in its distribution?

Mr. JONES. Yes, sir.

Senator CUMMINS. Because if the rates were made purely on the cost of service it would prohibit the distribution of the commodity, whatever it may be, and various parts of the country would be deprived of the use of the commodity?

Mr. JONES. I think that is unquestionably true.

Senator CUMMINS. If that is so, there must be a discretion reposed somewhere in adjusting these rates from the standpoint of the public welfare, and that would apply to the length of haul as well as to the kind of commodity, and what has always bothered me—and I would be very glad for some light on the subject-is to prescribe some rule by which an administrative body could be governed in exercising that discretion.

Mr. JONES. I should hate to attempt to make an answer to that offhand.

Senator CUMMINS. At the present time the carriers themselves exercise it very largely, and they may do it sometimes wisely and sometimes unwisely, sometimes justly and sometimes unjustly. If we take that discretion from the railways and repose it in a public body, we have got to give that public body some guide so that it can proceed. for I do not think it either practicable or legal, simply to say to a public body, "You take this and do what you please about it." Mr. JONES. The Interstate Commerce Commission have construed that proviso substantially to that effect.

Senator CUMMINS. I know they have.

Mr. JONES. That they can do just what they please about it. Senator CUMMINS. I am perfectly free to say that I am not as much opposed to the fourth section as amended now as I was when it was originally put up. Of course, you know it was a compromise at that time, at least in the Senate, between the demand for a rigid long and short haul clause, such as you have suggested, and the law as it existed at that time.

Mr. JONES. Yes, sir.

Senator CUMMINS. And I have really doubted whether we have bettered the situation or not.

The VICE CHAIRMAN. In the House we thought it sufficient to transfer the discretion from the railroads themselves to the commission, thinking the commission would exercise it wisely, and if not, that the personnel of the commission could be changed so that it would do it wisely.

The CHAIRMAN. Have you any jobbing centers in Arizona?

Mr. JONES. Yes, sir; we have several, and possibly in the order of their importance they would be Phoenix, Tucson, but practically all the towns of any importance have large mercantile institutions that job within a radius half way to their next town. That would take in Flagstaff, Winslow, on the Santa Fe, and Kingland to certain. parts in the southern part of the State.

The CHAIRMAN. As to those jobbing centers, has their condition been improved at all by the amendment which was adopted to the fourth section of the interstate-commerce act in 1910?

Mr. JONES. The conditions have improved wonderfully since that time, not wholly by reason of any final order of the commission, but by reason of the suggestions of the commission and by reason, we think, of the constant agitation by the Intermountain States threatening against that situation. A question came up a moment ago as to

whether the Interstate Commerce Commission had not prescribed the present scale of rates. I state my answer rather broadly, having in mind, however, Arizona particularly. They may have prescribedand I think they did prescribe-a scale of rates to Salt Lake City, but there has been no line of rates prescribed by the commission.

The VICE CHAIRMAN. If the chairman will permit, did not the carriers themselves, following that amendment, make a general revision of their rates to meet that amendment?

Mr. JONES. There has been an effort in that direction and we are very much better off, and I think our country has responded in increased business, development, population, etc.

The CHAIRMAN. But the change has not been as beneficial as you expected, or as you had a right to believe?

Mr. JONES. We have not had out of the situation what we believe we are entitled to.

The CHAIRMAN. You say this beneficial change has not come from the action of the commission, but from the action of the carriers themselves in an effort to meet the purpose that the amendment was intended to secure?

Mr. JONES. I do not want to be urderstood as saying that no benefits have been derived through the action of the commission. The first order in the intermountain cases-comprehensive order-was written by Commissioner Lane

The CHAIRMAN. When was that given?

Mr. JONES. That was given-I do not want to be too sure about that, but it seems to me in 1912.

Mr. ESCH. Was that the Spokane case?

Mr. JONES. Yes, sir.

Mr. ESCH. Well, that was in 1912.

The VICE CHAIRMAN. Did not the carriers themselves make their own revision, following this amendment of the fourth section? Did they not then submit a revision to the commission with applications for permission to exercise their discretion as to permitting these exceptions?

Mr. JONES. The commission, by appropriate order or notice, gave the carriers a certain period within which they might apply for exemptions where they were then violating the fourth section, and the carriers generally made such application, and that order had the effect of sustaining, or at least approving temporarily, a continuation of the rate condition existing until the commission could take up and dispose of those matters. There were a great many cases involved, both freight and passenger, and spread all over the United States, and it was a large task to meet those.

The CHAIRMAN. Has the commission, in any case, disposed of those cases?

Mr. JONES. Yes, sir; it has disposed of a great many of those cases. I have not followed them all closely.

The CHAIRMAN. Favorably to the intermountain region or unfavorably?

Mr. JONES. Not with respect to the intermountain situation, because that, as I say, is still pending. The last order issued by the commission was to have been effective, I think, the 1st of October, where the long and short haul provision of the law would have been regarded-it was suspended, I understand, by reason of an

amendment or some act passed by Congress that rates could not be advanced without an application from the carriers and their application being justified.

Mr. EscH. That is, to increase rates?

Mr. JONES. Yes; increase rates. We understood that was without any official action.

The CHAIRMAN. That was last October?

Mr. JONES. My impression was that the order of the commission issued some time ago was made effective the 1st or the 15th of October.

Senator CUMMINS. You remember that it was following the decision or following the application of the fourth section to many of the southern railways which gave rise to an increase in certain rates as to which Senator Smith of Georgia complained so bitterly while we were passing the last act, and out of that grew his proposed amendment, which was put in in some form when we increased the Interstate Commerce Commission. That all followed the application of this section to the situation.

The CHAIRMAN. How do you account for the delay of some seven years in reaching any conclusion on this subject?

Mr. JONES. Well, by the first order, as I started to state, of Commissioner Lane's, we were deprived of the benefits we might have under that order by an appeal by the railroads to the courts. The Supreme Court affirmed the decision, and then the canal came along and was completed and various things have interposed.

The CHAIRMAN. How has the canal been a disturbing factor?

Mr. JONES. Well, the railroads when the canal was completed claimed that the cases should be reopened, because conditions had very materially changed-conditions of water transportation as between the canal and between the Tehuantepec route.

The CHAIRMAN. Was that contention disposed of?

Mr. JONES. Yes, sir; that contention was disposed of after a great many hearings and arguments and finally resulted in this order that I have spoken of which became effective a short time ago, and which has been, by reason of

The CHAIRMAN. That order was suspended by reason of the legislative order of Congress in the bill increasing the Interstate Commerce Commission, which forbade railroads making any increases in rates without the approval of the commission.

Mr. JONES. That is my understanding; yes, sir.

Senator CUMMINS. Is it not true that there was one phase of the Spokane case that had received rather careful consideration and rather a full opinion, which related mainly to eastbound traffic in which the country was divided into zones and the rates were fixed from the west into each of those zones?

Mr. JONES. That was Commissioner Lane's opinion.

Senator CUMMINS. That had little, if anything, to do with the westbound traffic?

Mr. JONES. Well, that went to the westbound rate situation. Certain zones were created starting at the Missouri River and ending at the Atlantic seaboard, where the rates from those zones were built up on certain percentages to certain points up to the terminals.

Mr. ESCH. That is where they established the zone system of rates; that is, from the Missouri River points to the Pacific terminals, there

is a blanket rate; from the territory between the Missouri and Mississippi there is a differential of 7 per cent; between the Mississippi River and the Pittsburgh line a differential of 15 per cent; and for the whole Atlantic Coast line a differential of 25 per cent?

Mr. JONES. Yes, sir.

Mr. ESCH. That did not become fully operative?

Mr. JONES. No, sir.

Mr. Esc. If it had become operative, would you have been advantaged?

Mr. JONES. Well, it would have been an advantage. At that time when that order was entered our rates were on the old basis of the full back haul-the full locals back. It would have given us the Missouri rate-the same rates that apply to the terminals-and the rates would have been very much lower than the locals back and would have been a relief to us in a great many ways.

Mr. Escн. If your contention that there should be distance tariffs established were put into effect, it would deprive the Pittsburgh and Atlantic coast people of the opportunity of supplying your markets, unless through the Panama Canal, and an absorption of rates from the interior points of production to the coast points would meet that competition.

Mr. JONES. I do not believe it would keep any district like Pittsburgh out of the market. That is my judgment.

Mr. ESCH. The ship lines have absorbed the rail rate from Pittsburgh to the Atlantic, have they not?

Mr. JONES. There was a time when they did that.

Mr. Escн. And then they absorbed some of the rates from the Pacific coast ports to your interior here.

Mr. JONES. They did to certain points, for the reason that the railroads had given those points-namely, points like San Jose and Sacramento had given them those rates, and water lines absorbed those rates to compete with the railroads.

The VICE CHAIRMAN. You referred a time or two to the rail carriers driving temporarily the water carriers out of business by reducing rates. There is an amendment to the fourth section, made in 1910, which you have not mentioned, by which we provided if a rail carrier did it, that it should not afterwards increase its rates without showing changed conditions not attributable to competition. What effect has that had on the situation? Has it benefited you any?

Mr. JONES. As far as I know that has not been regarded by the Interstate Commerce Commission. It has not regarded it in dealing with this situation here, at least.

The VICE CHAIRMAN. Has it been presented before them?

Mr. JONES. Yes, sir; it has been presented to them, and rates have been increased, I think, over the protest of certain interests.

The VICE CHAIRMAN. Probably they decided an issue of facts based on the language about changed conditions.

Mr. JONES. That might have been it. I do not attempt to speak authoritatively on that, because I have not given that situation very close study.

The CHAIRMAN. From whom does the opposition to the relief which the intermountain region is seeking under the amendment of 1910 come from the railroads or from the jobbing centers that are the beneficiaries of water competition?