SOME ECONOMIC ASPECTS OF THE NEW

LONG AND SHORT HAUL CLAUSE 1

SUMMARY

Early interpretation of this clause, 323. — I. Cases in which relief is granted; the general policy, 325. — Roundabout lines, 327. — Crosslines, 328.—Market competition, 330. The parallel of a protective tariff, 332.-II. Extent of relief granted, 333. Recent trans-continental rate cases, 334. - The zone method criticised, 335. — Conclusion: the margin of tolerance and the Commission's ideal, 336.

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WHEN a statute has been suddenly revived after a sleep of twenty years, we cannot help wondering whether it has, like Rip Van Winkle, been much changed in the interval. In the early days of struggle for existence, the Interstate Commerce Commission was waging a losing fight in the mere attempt to give to the "long and short haul clause some meaning and force. Now it feels free to give the clause what meaning and force it will, subject only to constitutional limitations and to the guiding principles of reasonableness expressed in the statute. Then as now, the Commission had power in special cases to permit any carrier to charge less for a longer haul, and to "prescribe the extent to which such designated common carrier may be relieved from the operation of the section." But whereas at present this power to relieve is the central fact of the fourth section, previous to 1910 it was from force of circumstances a dead letter.

1 For a general survey, see Ripley, Railroads: Rates and Regulation, pp. 473 ff., 564-566, and chap. xix. The present study is more limited in scope, paying especial attention to the cases of 1912-13.

• R. R. Com. of Nev. v. S. P. Co., 21 I. C. C. R. 329, 340.

No sooner was the act of 1887 in operation than many carriers took the ground that competition of any sort at the more distant point was a substantially dissimilar circumstance, and entitled them, not to relief in the discretion of the Commission, but to complete exemption. If this sweeping claim could be made good, no special relief need be asked for, since all the cases in which it could be of moment, or in which there was any great probability of its being granted, would be already taken out of the hands of the Commission entirely. So the question of authority had first to be fought out. In defending its jurisdiction the Commission became more uncompromising than at the outset as to what were "substantially similar circumstances." It held, for purposes of giving vitality to the act, that nothing but competition of water carriers or of rail carriers not subject to the act could remove any rate from its operation,' tho in the first case heard it had conceded that the roads might be entitled to exemption "in rare and peculiar cases of competition between railroads which are subject to the statute, when a strict application of the general rule of the statute would be destructive of legitimate competition.'

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Whether or not this change of front was a wise tactical move, it probably had little effect on the outcome. In any case it is hard to see how the power to grant partial relief could have been anything but a dead letter in the incongruous setting of the original fourth section. The power could not be exercised arbitrarily, without reason given, for then the Commission would be open to the charge of exercising legislative powers which Congress could not constitutionally delegate to it. Only as it should follow the general rules of the act

1 R. R. Com. v. Clyde S. 8. Co., 5 I. C. C. R. 324. Reviewed in 21 I. C. C. R. 414. * In re L. & N. R. R. Co., 1 I. C. C. R. 31.

with regard to reasonableness and undue preference would it be acting clearly within its powers as an administrative body. But if some carriers were to be relieved wholly or in part from the operation of a section which applied to all alike, what reasonable ground could possibly be shown for doing so, other than some difference in the "circumstances and conditions" surrounding the long and short haul in those cases in which relief was granted? If such difference were not admitted to be "substantial," it could hardly furnish reasonable ground for relief. But to admit that the difference was "substantial" would seem equivalent to admitting at once that this was a case to which the clause did not apply at all.

It seems clear that the Commission could never have succeeded in prescribing the degree of relief to be allowed, even if it had made good its claim that the clause applied to cases of competition between domestic railways. This claim, however, the Supreme Court refused to sustain.1 A final attempt was made to prescribe the degree of relief to be granted in cases where circumstances were admittedly dissimilar, but the Commission was again overruled.2 The first chapter was thus closed.

From this brief survey, one conclusion should stand out clearly. The original attitude of the Commission was not radical nor uncompromising. The rigid attitude commonly ascribed to it was wrought out under stress of combat, and expressed the Commission's ideas of the legal necessities of the struggle for jurisdiction, not a settled economic policy that would be followed out, once the fight for jurisdiction should be won.

1 I. C. C. v. Alabama Midland Ry. Co., 168 U. S. 144.

E. T. V. & G. Ry. Co. v. I C. C., 181 U. S. 1.

I. CASES IN WHICH RELIEF IS GRANTED

In fact, the effect of the amendment of 1910 has not been by any means to establish a rigid long and short haul policy for all cases in which the discrimination is due to competition of carriers subject to the act. In the general statements with which the Commission signalized the reviving of the fourth section, it went back to the tone of its very first decisions, made nearly a quarter of a century previous, before the opening of the struggle with the courts. It proposed to grant relief in situations beyond the carriers' control - in difficulties that he has not brought upon himself by his own competitive policy. "If at the more distant point it finds a competition to which it must conform under the imperious law of competition, if it would participate in traffic to that point, it may discriminate against the intermediate point without violating the law, provided it establishes such necessity before the Commission." 1

The passage quoted sounds very like the "rare and peculiar cases" phrase of the original Louisville & Nashville decision. Indeed the "rare and peculiar " case dealt with in this early ruling is the type of the most important class of exceptions granted in consideration of railroad competition under the new act; namely that of roundabout railroad lines which are in competition with more direct routes. These it is the settled policy of the Commission to relieve from the operation of the fourth section, provided always that the short line bases its charges on distance, and that the rates to intermediate points on the roundabout line are shown to be in themselves reasonable.3

1 R. R. Com. of Nev. v. S. P. Co., 21 I. C. C. R. 341.

In re L. & N. R. R. Co., 1 I. C. C. R. 31, 81.

'Wright Wire Co. et al. v. P. & L. E. R. R. Co. et al., 21 I. C. C. R. 64; In re Rates on Salt, 24 I. C. C. R. 192, 195, and other cases.

This might seem to make a rather large breach in the barrier of prohibition that was intended to be wellnigh universal," but no one familiar with the history of the question will be surprised. The Commissioners are only following the original policy of their predecessors; they are in accord with foreign practice, and with a sound "cost" theory of charges. The essential thing, under such a theory, is that each locality should get the benefit of its location, as measured in the actual relative costs of carriage. The circuitous route is, of course, ordinarily the more expensive, especially as the Commission has tentatively defined a circuitous route for this purpose as one at least 15 per cent longer than the direct line. This is by no means a fixed rule, however; other disabilities than distance might have the same effect, even if the distance were the same." The decisive thing is an economic disadvantage of some sort, that would of itself justify higher rates than those of the stronger (usually shorter) line. In view of more complex situations to come, the writer begs the reader's patience in a brief review of the economics of this simple and familiar case.

An intermediate point (C in diagram) on the longer route has a right to a reasonable joint rate through the common junction and on by the direct line (CAB), if it is so near the common junction that this is the least expensive way for the carriers to haul the goods. This means a rate higher than the junction pays by an amount approaching the local charges for the haul AC.

To this rate, C is entitled on a cost basis and as a result of its location, no matter how the traffic moves;

1 In re Rates on Salt, 24 I. C. C. R. 192, 195. Edwards & Bradford Lumber Co. v. C. B. & Q. R. R., 25 I. C. C. R. 93.

In re Rates on Salt, 24 I. C. C. R. 192, 196. In re Lumber Rates, 25 I. C. C. R. 61. Grand Junct. Chamber of Com. v. D. & R. G. R. R. Co., 23 I. C. C. R. 115.

For a fuller discussion, going into some aspects of the situation not treated here, see Ripley, Railroads: Rates and Regulation, pp. 219 ff.