Topic D. Rates Designed to Equalize Advantages § 462. Operation of the principle of equalization. 463. Limitations upon the Commission. 464. Rates made from a commercial standpoint. 465. Rates should not equalize differences in value. 466. Carriers not obliged to equalize disadvantages. 467. Protection of natural advantage.

468. No right to build artificial markets.

479. No equalization of patrons.

470. Equalization of advantage as a factor.

471. Passenger fares slightly affected by this principle.

$430. Provisions of the Act.

The provisions already discussed, to the effect that rates must be reasonable, are supplemented by the requirements, more fully considered later, that rates shall not be disproportionate. As has been seen, these two requirements are combined in section 15 establishing the jurisdiction of the Commission to see to it that charges shall not be unjust or unreasonable, or unfair or unjustly discriminatory or unduly preferential or prejudicial. In section 3, as was provided in the original Act, it is said that it shall be unlawful for any common carrier subject to the provisions of this Act to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic, in any respect whatsoever, or to subject any particular person, company, firm, corporation, or locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever. And to section 4 a paragraph was added recently to the effect that whenever a carrier by railroad shall in competition with a water route or routes reduce the rates on the carriage of any species of freight to or from competitive points, it shall not be permitted to increase such rates, unless after hearing by the Commission it shall be found that such proposed increase rests upon changed conditions other than the elimination of water competition. What is undue pref

erence under these provisions of the Act is discussed at large in Chapter XIV.

§ 431. Rates based upon value.

It is sometimes suggested that the value of the service to the customer is "what the traffic will bear," that is, what he will be willing to pay rather than lack the carrier's service. In one sense, the service is worth what one will pay for it. This is the rule which always appeals to the company as fair and just. And indeed this consideration has some place in every philosophy of rate making; although it is submitted that it is a dangerous principle which may often operate to the disadvantage of the public unless it is much modified in many cases. So necessary is some such principle felt to be by traffic managers that it will always be found to be continually employed in rate making; and this is one of the prime causes for the necessity of governmental revision, for the protection of the public, of the rates established by the carriers. The real truth of this matter seems to be that the policy of charging what will produce the largest volume of business is fundamental in private businesses, but often opposed to the law governing public businesses.

Topic A. Value as the Basis

§ 432. What the traffic will bear.

It is often urged in discussion of the railway rate problem that it is justifiable to make rates according to what the traffic will bear. This again is a factor in the situation undoubtedly; for the management in order to get business enough to carry on its service with economy and profit must make some concessions to the low grade commodities which it will inevitably recoup from the high grade freight. And yet this is clearly a principle which can only be justified under strict limitations. These are well discussed by the Commission in the quotation which

follows: $4 "There was the further suggestion running through the testimony of all the witnesses that, after all, a rate was purely a traffic question which could be properly estimated only by traffic and commercial conditions. The real question was said to be, Will the traffic bear these higher rates? One witness distinctly affirmed that no rate was unreasonable under which traffic would move freely, and that since it was for the interest of the carriers to move traffic, there was no probability that these rates were unreasonable, or that unreasonable rates would ever be imposed. This idea contains a half truth. With respect to some kinds of traffic the statement is correct. It is for the interest of the railway to create business upon its line, and in the legitimate pursuit of that interest it fosters industries by the making of rates which would not otherwise be put in force." 65

§ 433. Essential defects in the principle.

Any considerable concession to the principle of charging what the traffic will bear is dangerous. The carrier is acting primarily for the benefit, not for the exploitation of the public. To allow a carrier, for instance, to charge what the traffic will bear is to foster a continual increase of railroad rates. The problem was concisely and unanswerably stated and discussed by Mr. District Judge Speer in the case of Tift v. Southern Railway.66 In this

64 The quotation which follows is from Re Proposed Freight Rates, 9 I. C. C. Rep. 382.

"The richest example" of the charging-what-traffic-will-bear theory. In re Express Rates, 24 I. C. C. 380.

65 To base rates upon shipper's ability to pay, is to base rates upon cost of production rather than cost of carriage; this is in effect a usurpation of power of regulation of industries and commerce by the railroads. In re Advances in Rates, Western Case, 20 I. C. C. 307.

In all classifications consideration must be given to what may be termed public policy, the advantage to the community of having some kinds of freight carried at a less rate than other kinds; this is the true meaning of the phrase "what the traffic will bear." In re Advances on Coal to Lake Ports, 22 I. C. C. R. 604.

66 138 Fed. 753; see language in Tift v. Southern Ry., 10 I. C. C. 548.

Limitations to rule that a carrier should not charge more than an article can bear, discussed. Bartles

case the Southeastern Freight Association, an association including the defendant railways, had raised the freights on lumber from Georgia to the Northwest. At first shipments almost ceased; but with a revival of business they began again. Builders felt themselves obliged to have it, whatever the price, and whatever the rate, and large shipments were made on the advanced rates. The fact of the large shipments was relied upon to show that the new rates were not unduly high, but the court said that it was in no sense related to the reasonableness or unreasonableness of the rate. "Indeed, to concede the principle for the fixation of rates upon which the railroads through the medium of the Southeastern Freight Association have acted in this case would concede their power to levy for no better service augmentation of tolls for every increase of profit in every line of endeavor won by the enterprise, sagacity, and industry of the American people. It is superfluous to add that a government of law, and not of men, will never tolerate such domination and control of the trade, manufactures, and commerce of the American people." 67

§ 434. Legal limitations peculiarly necessary.

It is urged sometimes that this principle of charging what the traffic will bear contains its own safeguards; for, if more is charged than the value of the service to the shipper, shipments will cease; and traffic managers, realizing this, as they are in close touch with the situation, will never intentionally or permanently charge more than the transportation is worth to the goods carried. The answer to this seems to be that in many instances shippers will

ville Salvage Co. v. M., K. & T. Ry., 25 I. C. C. 672.

67 The Commission is not ready to accept theory that rates may lawfully be increased as long as traffic moves freely. Commercial Club

of Omaha v. A. & S. R. Ry., 19 I. C. C. 419.

The mere fact that traffic will bear the imposition does not justify unreasonable rate. Railroad Commission of Nev. v. S. P. Co., 19 I. C. C. 238.

pay for the transportation of goods more than the true value of the transportation, if that is necessary in order to get their goods to market. They will shift this undue burden upon the consumer if they can, and if not they will be obliged to forego a part, or in extreme cases all, of their legitimate profit in order to get their products sold at all. While the rule that a carrier should not charge more than the traffic can bear has some weight with a carrier in the making of its rates, it does not impose upon a carrier any duty to carry traffic at a loss.68 Whatever might be the policy in this regard, to adjust rates to correspondingly fluctuate with the values of products moving under them is impossible. Nothing is better established than that the Commission may not make the needs of the shipper the basis of reasonable rates.70 A shipper is entitled to the transportation that he desires on rates that are reasonable, not when tested by the fact that the carrier may earn larger revenues by hauling his wares, but on rates that are reasonable in accordance with the usual and ordinary tests that are applied to rates."1

§ 435. Value of service to shipper.

The value of the service to the shipper should be considered, which includes a consideration of the profit that the shipper can make by having his goods transported to their destination.72 This was once said by District Judge Bethea to be "an ideal method;" "practical, and is based on an idea similar to taxation.” 73 Nevertheless, the correctness of this view may be doubted; at all events, the Commission has rejected any theory to the

68 Bartlesville Salvage Co. v. M., K. & T. Ry., 25 I. C. C. 672.

69 Ponchatoula Farmers' Ass'n v.

I. C. R. R., 19 I. C. C. 513.

70 Superior Commercial Club v. G. N. Ry., 25 I. C. C. 342.

71 Chamber of Commerce of Mil

waukee v. C., R. I. & P. Ry., 15 I. C. C. 460.

72 Re Rates and Charges on Food Products, 3 Int. Com. Rep. 93, 4 I. C. C. 48.

73 Interstate Commerce Commission v. Chicago G. W. Ry., 141 Fed. 1003.