Showing Reductions on Cattle, per Car.

Showing Reductions in Rates on Grain to San

Showing Reductions on Lumber, per Carload of Six Thousand Feet, or Ten Tons.

In the Matter of a ten per cent reduction in Freight Rates to certain points on the line of the Northern Division of the Southern Pacific Railroad.

STATEMENT OF FACTS.

To the honorable the Railroad Commission of the State of California:

This honorable Railroad Commission, without the knowledge of the Southern Pacific Company, on the twenty-second day of November, 1887, made an order reducing freight rates on the line of the Northern Division of the Southern Pacific Railroad ten per cent to certain points, to wit: Tennant's, Gilroy, Miller's, Sargent's, Pajaro, and Watsonville. In pursuance of said order, the Secretary of said Commission thereafter prepared a schedule of freights in harmony with said order, and the same was served on said company. This order and the said schedule, so made, and so served, was the first knowledge said company had that any such reduction was contemplated by this honorable Commission. Immediately upon becoming informed of the purpose of this honorable Commission to reduce freight rates, Hon. Creed Haymond, solicitor of the Southern Pacific Company, requested a hearing in behalf of this company, which request was courteously granted. After some delay as to the time of hearing the objections and reasons of this company, the hearing was fixed for the twenty-seventh of February, 1888, at the hour of 11 o'clock A. M. of that day, at the rooms of this honorable Commission. At which time this company appeared by Hon. A. C. Bassett, Superintendent of this company, and E. J. Martin, Esq., Assistant General Freight Agent, and Geil & Morehouse, the attorneys for said company, and testimony of sworn witnesses, and documentary evidence was introduced by said company, showing why said reductions should not be made.

ARGUMENT.

To the honorable Railroad Commission of California:

GENTLEMEN: It is not our purpose in this argument to enter into any discussion of the legal propositions involved in the order made by you, but to deal solely with the facts, to present reasons and surrounding circumstances and conditions now affecting the freight traffic of this road which, in our judgment, should cause you to countermand this order. You must remember that mighty and various interests are at stake, demanding of you the most careful deliberation, and most thorough, prudent, honest, and just investigation. The fixing of a freight rate is not the merest caprice or whim. It is not the mad prejudice of some person who dreams that he has a grievance needing redress; but it is a vital problem involving alike the prosperity and perpetuity of this company and the onward march and splendid progress of all that part of the State's territory adjacent to this road, and of which this road is the commercial artery, carrying the life blood of business industry in all its varied forms. When you touch, with the palsied

hand of reduction, the rates of freight traffic, you must be exceedingly careful, or else that touch may mean death to the very industries which it is now the policy of this Golden State to cherish into greatness, unrivalled by any other State in this nation. It must be admitted, for it cannot be denied, that the Northern Division of the Southern Pacific Company is to-day the most important factor in the development of one of the richest and most healthful, productive, and fairest portions of the State. It must be admitted, for it cannot be successfully denied, that the road itself is one of the best constructed, most completely equipped, and best conducted roads in the United States. That its arrangement of trains, their sufficiency in number, the time of their running, both as to passenger and freight traffic, has been controlled by that judicious policy to accommodate every station and locality along its route, which should best subserve the progress and industries of these active business communities, but at the same time to promote private enterprises needing the encouragement of quick transit and large markets. It cannot be denied that the policy of the managers of this road has ever been to build up the industries of the communities along its route and strengthen the hands of the individuals engaged in business enterprises. And what has given it the ability so to do, other than a just and reasonable freight rate? Shall it now be said that without evidence, without a complaint setting forth specific charges-aye! without any complaint, that this Commission shall with the rude power and hostile spirit of the vandals, destroy at one stroke of their Secretary's pen, the power and efficiency of this road, and thus breed the boisterous and angry outcry of business men against this company? Is this wisdom? Is this that wise and judicious policy supposed to underlie the organic law of this State in making this Commission a constitutional power standing between the mad frenzy of unreasoning complainants on the one hand and corporate exaction on the other? Has not Hon. A. C. Bassett, Superintendent of this road, brought to the management a lifetime of study and experience, and should not his sworn testimony go further than the mere idle outburst of some man whose private affairs he wants advanced and who thinks the entire policy of the road should be changed to meet the private ends he has in view? Is not the testimony of E. J. Martin, Esq., whose whole life is but the study and practice of freighting on railroads, entitled to greater weight than the mere assertion of some man who, because of a low market price of an article in which he deals, wants a reduction on that article, and therefore complains grievously? To whom shall you look for knowledge? Shall it be the shipper, whose self-interest prompts him to complain? Or shall you appeal to such witnesses as we placed on the stand and who gave testimony under the sanctity and solemn obligation of an oath? And when these witnesses swore, was there any doubt as to the accuracy or truthfulness of their testimony? Then what do we glean from them?

EXPENSES.

First, we glean that the cost of fuel and labor alone on this road exceeds eastern roads over $300,000 per annum. Was this denied? Can it be denied? Is it not a known fact that now, in the City of San Francisco, good coal costs not less than $16 per ton? Is it not an evidence of good and prudent management that this company, with that prudence and foresight which distinguishes the owners of this road, that they have arranged so that their coal only costs $6 per ton? But suppose they had not contemplated a raise in the market price of coal, would you not, as just men wishing to perform the duties of a constitutional office, be compelled to allow them $16 per ton as a factor entering into the expenses of this company? Have we not fairly treated this commission when we figure the expense on twenty thousand seven hundred and fourteen tons of coal on the basis of only $6 instead of on the market price? Would any merchant or dealer in coal, who had foreseen the rise in the price of coal from $6 to $16, and had therefore lain in a large supply to meet the great demand-say twenty thousand seven hundred and fourteen tons- would such merchant sell you coal at $6? Or, would he consider that he was justly entitled to $10 profit on each ton, in consequence of his foresight? Try him on to-day in this great city. If, therefore, the merchant is entitled to such profits, by every law of business and trade, why not this company? And yet this company comes to you and says, we ask nothing for our prudence-nothing for that judgment and foresight on our part-but only ask that, as our expenses are greater, more onerous and burdensome than eastern roads, we are entitled to have our greater expenses considered as a factor in our favor why our rates should exceed eastern roads. And yet our rates do not exceed eastern roads. This company's rates are less, and that, too, over roads in the populous State of Illinois, where the roads are under the dominion of a closely scrutinizing Railroad Commission, and under the most autocratic, despotic, and anti-railroad legislation, sustained by Courts held under the influence of a strongly marked antagonistic public opinion. We then conclude that no escape can be made from the conclusion that as this company's expenses are greater than eastern roads, it has the right to charge a proportionately higher rate; and as it does not do so its rates cannot be said to be excessive, unjust, or oppressive.

But can these expenses be reduced? Certainly not on coal or wood, and you certainly do not ask that a reduction be made on the wages of the employés. The policy of the Southern Pacific Company has ever been to encourage labor by higher wages, always recognizing that an industrious and active laboring class is productive of peace to the State and prosperity to the corporation. Upon the arm of labor is resting to-day the perpetuity of American institutions; and when labor is well rewarded it is peaceful, contented, and happy, and becomes the foe, instead of the friend, of anarchy, communism, crime, and rebellion. The very day of this hearing a strike was proclaimed on the Burlington road,

and eleven thousand people are out of employment. A few days later and a strike is proclaimed on the Atlantic and Pacific road. By this means, which labor invokes for protection, not only are thousands of people impoverished, but business industries are stagnated, and freight and passenger traffic is suspended and bitter animosity is born and nourished into existence between capital and labor. Thus food is made for the fierce harangues of anarchists, until bloodshed crowns the whole and human hands are crimsoned in crime. All men know this. It is but a political truism of the day. Then, shall not this company have some credit for trying to avoid this disastrous consequence? Shall it not have credit for maintaining a high rate of wages, even though by so doing its item of expenses shall be increased?

POPULATION.

But, again, this company's road passes through a sparsely populated country, having but a small freight and passenger traffic compared with eastern roads. Think of the difference. Here the population is only as one to four, or one to five, compared with eastern roads. Can it be doubted that a road running through a State with a population of forty people to the square mile has a freight and passenger traffic at least twice larger than this company, running through a section of country with less than ten persons to the square mile? Can it be doubted that a large population increases the income of a railroad company? Who has the temerity to deny it? And yet, comparing the rates of this company with the rates of eastern roads-notwithstanding their advantage in population-the rates here are less. Does not this argue that the rates of this company are not excessive? Then why this proposed reduction? Does it spring from necessity? Has it an origin in the just wants of the people?

LOCAL TRAFFIC.

Nor have we failed to show you that a vast difference in expense results to the business of this company owing to the fact that its freight is purely local. To illustrate: This company, for the want of a dense population demanding a large mercantile freight to be carried from San Francisco into the interior, is compelled to haul empty cars south, so as to haul the farm products back to the metropolis. It, therefore, hauls empty cars one way, and has the expense of running its cars both ways, while it has paying freight but one way. Thus, its expense is double the eastern roads, and yet it charges no more. Does this look like excessive rate of charge? Nay, does it not clearly appear that this company has ever been the friend of its patrons, and is now and always has been the active agent in the development of that part of the State through which the road passes? Can this company become responsible for these conditions affecting its traffic? And when it equalizes those conditions by lowering its freight rate to a point below that maximum, which the law in its justness allows, to wit: a reasonable compensation for the service rendered, can it then be justly demanded that the rate should still be lower?

But this company, as we clearly showed, and the records of your office will ever show, has of its own motion reduced freights time and time again, as the business interests of the road and the rapid progress and prosperity of the adjacent country demanded. It has needed no commission to act as a spur to duty. It has always sought to encourage industry, and has made the progress of the State its object, its aim, and its duty, well knowing that the progress of the State and its road were so interblended that an injury to the one was an injury to both. Did this seem as though this company was assuming the manners of an autocrat, or does it teach us that this company knows more about the rights, duties, and obligations of the railroad to the people than all the brazen-tongued anti-railroad howlers in the State? This circumstance ought to have great weight, for it clearly shows that this company will, as soon as the conditions will permit, reduce its rates, and always reduce them without demand when it can do so.

OTHER ROADS.

But we proved, and the records of your office will show, that the other roads not owned by this company, and doing business in the State, are carrying freight at a rate from 25 to 50 per cent higher than this road. These other roads are laboring under like conditions, and being so situated, how is it that this company, with a freight rate far below these other local roads, is attacked? If reductions should be made, why is it that the road with the lowest freight rate is the first to be brought under the ban of displeasure? If the freight rate on these other local roads is but a just and reasonable compensation for the services rendered by such roads, then it is an unanswerable fact that the rates of this company are below such just compensation. But it may be said the rates charged by these other companies are unjust and unreasonable. We answer, that the rates on these other roads, as the records of your office will show, were fixed by the Railroad Commission, and that the Constitution of this State says that when so fixed "they shall be deemed conclusively just and reasonable." That is, no one shall dispute it. They are conchsively just and reasonable, and being so, and being also from 25 to 50 per cent higher than on this road, there is no escape from the conclusion that the rates on this road are at a basis below a reasonable compensation, and as testified by Mr. Bassett are at a point so low that a reduction would be unjust and wrong in fact. But it may be said that the grade on these other roads entitles these roads to a greater freight rate. Granted, for the sake of argument, and then we answer, their rates are from 25 to 50 per cent higher than on this road, which gives them the full benefit of grades; and as that is the only different factor in fixing rates on those roads, it would show that deducting the 25 or 50 per cent

from their rate as an allowance for grade, then our rate would be just and reasonable, as the Constitution declares theirs to be. Thus, by comparison there can be found no reason for the cutting of rates on this line; but, on the contrary, a reason strong, conclusive, and unanswerable why a reduction should not be made.

DISCRIMINATION.

But when we look at the effect of your order upon such localities as Salinas City and Hollister, its injustice becomes apparent. Why should these places pay a rate of freightage 10 per cent higher than favored Gilroy? Why should that poor man Miller have the benefit of a 10 per cent reduction over Hollister? Will these places remain quiet and submit to your order, or will they come before your honorable body and enter complaints that this company is discriminating against them? If they should complain, how could this company answer? If we say, "We are not discriminating, we are simply obeying the order of the Railroad Commission," will that be an answer? Nay; but as in the Watsonville matter will you not find that, though we obey your order, yet we are discriminating, and thus throw the blame on this company? Will such a course be just? Or shall this company reduce rates 10 per cent to Hollister and Salinas, even though such reduction shall cripple the business of the road and imperil the industries of the State? Are you aware that thirty-one roads went into bankruptcy in the East last year, and eight others into the hands of receivers? Shall this road be brought into the same condition, or shall it be permitted to carry, as it now is doing, freights on the basis of only a reasonable compensation? Discrimination is, as you are aware, prohibited by the Constitution of this State, and if this road shall not discriminate against places, why shall an order be made by your honorable body compelling just such prohibited discrimination? Is this company to be made the subject of complaint and ill-feeling, or will this honorable body, with that wisdom which should guide constitutional officers in the discharge of a great public trust, countermand this unjust, oppressive, and discriminating order?

COMPENSATION.

But this company has the right to rates which shall be to them a reasonable compensation. And this don't mean a certain per cent on the investment. Such a rule would bankrupt this or any other road. Such a rule is only the meaningless outcry of the ignorant, for losses, damages, and improvements to be constantly made are all factors in the fixing of a rate. You cannot say, let us take the gross income of the road and the gross expense, and deducting the expense from the income, say we have now the net income and we will find if such net income is only a reasonable per cent on the investment. This rule is an absurdity. This rule would destroy and ruin every road in California. This rule is the outcry of the man of prejudice, who neither thinks, nor does not want to think. Why? Because under this rule no road could make improvements, even in anything. If a smash-up should occur, the cars could not be replaced for the want of money; if a depot should be burned, the depot could not be rebuilt; if an accident should occur, the damage could not be remedied; when freight was lost, the company could not compensate the loser; in an action of damages, the judgment would stop the operation of the road under the process of execution; no new roads would be built; no old ones improved; extensions would be unknown, and in a few years decay and death would mark every railroad line in California. If new improvements or inventions are needed for the betterment of the service to the public, the improvement or invention could not be purchased; because no man of sense invests money in that which does not pay, and experience has taught railroad people just what rate pays, and when they testify they know of what they speak. Therefore, when Mr. Bassett testified that the present rate is only a just and reasonable compensation, his testimony becomes an admitted fact, beyond controversy, unless some attempt is made to show to the contrary, and none was made. Who denies his testimony? No one. But if you are to reduce rates, are you to proceed upon the theory that rates must down, or are you to proceed upon evidence that the rates are too high? When you, as a Commission, cut rates, you must remember you have the affirmative of the proposition. You must show that rates are too high; and then this company has the right to answer and show that the rates are not too high. Have you any testimony that the rates are too high? If so, what is it? The complaint of some shipper? If so, is his testimony of any weight? Does he know anything of railroading? No. And let us here call your attention to a significant fact, and we appeal to your records. Was there ever a written statement, or schedule, or showing made by any railroad company in this State attempted to be controverted by any one before your honorable Commission? No. Go back over the records of your office. What does this show, but that this and the other companies of this State have always presented the truth to your honorable body and that their cases have been unanswerable? We submit that we have shown that our rates are only just and reasonable, and that no reduction should be made.

EXTENSION.

But again, a great demand is being made on this company to extend its road through the Counties of San Luis Obispo and Santa Barbara. Salinas demands this extension, Santa Clara demands it, San José demands it, Watsonville demands it, San Luis Obispo demands it, Santa Barbara demands it, San Buenaventura demands it, aye! the State demands it. The traveling public demands it. This great portion of the State thus calling for the exten