City, it is cheaper to ship it to St. Louis and truck it back to Kansas City than it is to ship it direct to Kansas City.

That is only one of the many evils which have resulted from the application of the fourth section.

Now, as the law, the proposed law, reads, there is nothing in it at all to protect the public.

I will give you one or two more examples of what actually occurred. Mr. MARTIN. Just before you pass on: Apparently that condition you have just described has grown up under the long-and-short-haul clause in the fourth section.

General ASHBURN. Yes; but it has grown up, as I have described here, through the various decisions of the courts and the Commission itself.

Now, the Commission is mandated under the Transportation Act to endeavor to bring about a certain return upon the railroads' investment, and in many case, geographic consideration, market consideration, have entered into this thing rather than the determination of a reasonable coordinated system of transportation.

As I say, in this bill, the only thing that it permits-it does not remedy anything that now exists which is evil-but it does give the railroads opportunity to set up interior rates without anybody having any recourse to the InterstateCommerce Commission; without anybody having a chance to determine whether those rates are reasonable or compensatory.

The only thing that this bill does definitely forbid is that common carriers shall not receive any greater compensation as a through rate than the aggregate of the intermediate rates, subject to the provisions of this act, upon the authority of the Commission, and it holds intact all of the great injustices now being perpetrated in the present law.

If, instead of this wide authority, the present fourth section were modified so as to determine by law what shall be considered reasonably compensatory, then we would have a law under which the people on the interior rates would be protected. It is not fair. It is either wrong that the railroads should charge more to an interior point or charge them too much. If they are charging less for hauling to the long point, then they are charging too little.

Now, there is some point in there which is reasonably compensatory, and in endeavoring to determine what is reasonably compensatory, both sides to the argument have advanced definitions, the Commission has practically determined that out-of-pocket cost is the determining factor.

Mr. MARTIN. But, out-of-pocket costs are not reasonably compensatory, are they?

General ASHBURN. I do not think so, no.

Mr. MARTIN. All right. Now, do you think Congress can set up a standard or definition of what is reasonably compensatory? General ASHBURN. Yes; I think that is a very simple matter.

Mr. MARTIN. If you do, then I would like to have you define it for the record.

General ASHBURN. Well, we start off on the basic proposition that all people are entitled to all forms of transportation.

Mr. MARTIN. That is right.

General ASHBURN. Now, then, there should be fair competition between the various forms of transportation. If any particular form of transportation cannot exist under fair competition, then it has no place in our scheme.

To have a place in our scheme, the gross income of the railroads, or the waterways, or whatever form of transportation you have, should be greater than its gross out-go. In other words, either one of these forms of transportation, existing under fair competitive conditions, should have a living return.

Now, when I define a living return, I mean that at the end of the year the total revenues should equal at least the total out-go. If that is so, then it is a very simple method to determine, through the slightest computation, that the average rate per ton mile must be so and so.

Now that, of course, will be varied through various sections of the country. Where the volume of traffic is less than that, then probably the average return should be based upon that particular section, but you can arrive at an average so that the basic return upon your investment comes through the charge of a fixed rate per ton-mile.

Mr. MARTIN. I dislike to interrupt your very well connected argument; but what does the total out-go include; profits on the investment, reasonable profits on the total investment?

General ASHBURN. Yes, sir; I should say so.

Mr. MARTIN. Meaning more, of course, than all of the operating

expenses.

General ASHBURN. When I say the gross expenses, I mean to include everything that any one of them pays, or should pay.

Mr. MARTIN. Does that conclude your statement, General? General ASHBURN. Yes, sir; that concludes my statement, unless there are some other questions.

Mr. MARTIN. Does any member of the committee wish to ask the general any questions?

I would like to ask you one further question. Do you think the clause, "reasonably compensatory", could be defined specifically, or at least sufficiently to enable the Interstate Commerce Commission to apply it in a given or particular case?

General ASHBURN. I do. Now, I would like to give you another example of how you can work out the reasonably compensatory rates. I have quoted from some other man because he had the figures; but I was talking with a group of railroad presidents not long ago in which we were discussing this very question, and they informed me, or one of them informed me, that it would be quite possible for them to prove that it cost very little to put on extra car on, as the train had to run anyhow, and the carriage of something at a low rate, whatever they carried, was velvet.

Well, I answered the argument in this way: I said, we carry downstream, in our Federal barge lines, eight barge loads of grain, 16,000 tons. Under your theory, carried to its logical conclusion, I could carry another barge load of 2,000 tons for nothing, because the first 16,000 tons were highly remunerative.

Now, there is a cost in loading these cars, either fully or not fully. There is a cost for transporting them over other lines; there is a cost of handling at both ends; but if you take the total income at the end of the year and it exceeds the total outgo from all costs, then that

railroad, that line, has a living revenue, and there is no question about that being reasonably remunerative. It is a living. They can keep on going.

Now, if you have that in view as the objective in defining "reasonably compensatory", then I do not believe that even the railroads would object to such a definition as that. I know the water carriers would not object, and the truck lines would not object; but when you just absolutely throw off any restrictions upon which the public may appeal, except that they shall not charge more for a long haul than a lesser haul, then you have destroyed everything that the Congress and the Commission and the legal authorities have been trying to build up to protect the public.

Mr. MARTIN. What is your view of legislation to place the water carriers under the control of the Interstate Commerce Commission? General ASHBURN. I am strongly in favor of that, and have so testified before the committee, but I would put this qualifying phrase on that, that the Interstate Commerce Commission should have jurisdiction over rates of all carriers, but the Interstate Commerce Commission should be so reorganized that each form of transportation should have on its board of control some representative. I am very strongly in favor of that, and I have been publicly advocating it for several years.

Mr. MARTIN. What beneficial effect, if any, would the joint regulation of rail, water, and highway carriers have on the railroad problem? General ASHBURN. Well, I think it would have a very salutary effect on all of them. The railroads are today regulated-some people think too much and some people think too little-but they, themselves, I think, are a unit in believing that they should be regulated.

I heard them testify before the Coolidge committee on transportation, in which the question was directly asked, "If you had free and open competition, without any regulation, would you want that, or would you want regulation?" Mr. Thom, who was then general counsel, said, "No, we would not want it. We would cut each other's throats. We would all be dead within a short time." He said, "We need regulation."

That is the reason I believe in regulation. We have not had any regulation on our port rates. The result has been that there has been a great deal of throat cutting, and whenever there is throat cutting and price reducing, then the railroads, not as against any regulated line, but to meet this competition of the unregulated lines, have reduced their rates. It does not take much cutthroat competition to destroy well-established rate bases.

So that I believe if the whole, all forms of transportation, were regulated, put under an interstate commerce commission which is reorganized so that every form of transportation will have its own representative and where it will be impossible for a group of men following one line of study under a law for years to become fixed, or have fixed habits of life, so that they will not recognize the new conditions which arise when new kinds of competition come before them; I think that is the answer. If I could put it over, I would be very glad to do so.

Mr. MARTIN. Thank you very much for your statement, General Ashburn.

If

you

wish to revise or extend your remarks, or add anything to what you have said, you are at liberty to do so.

General ASHBURN. Thank you. I would be very glad to do so, because what I have said has been extemporaneous.

STATEMENT OF HON. BERTRAND W. GEARHART, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. GEARHART. Mr. Chairman, with the idea of self-identification, I might say that my name is B. W. Gearhart. I am a Representative in Congress, representing the Ninth Congressional District of California, a district which is composed of Stanislaus, Merced, Madera, Kings, and Fresno Counties, which lie in the heart of the San Joaquin Valley.

The principal city of my district is Fresno, a city which, by the Census of 1930, has a population of about 55,000; but which all persons familiar with conditions prevailing there would freely admit has in its metropolitan area a population of about 85,000.

As it has often been said of one of the cities of the Old World, all roads lead to Rome. In the San Joaquin Valley, it can be said that all roads lead to Fresno.

It is situated at the central trading point of that great valley of California.

Fresno is situated about 200 miles south of San Francisco, and the Bay area, and about 235 miles north of Los Angeles, and the industrial centers that surround that city.

So, Fresno is in the back country to those great port cities, and is referred to in those cities as the inland territory.

The people of Fresno County have been deeply interested in the maintenance of section 4 of the Transportation Act, and the condition in which it is now upon the statute books. We went through the fight very earnestly to obtain its enactment, and we are now in the fight just as earnestly to maintain it.

We have had experience with it, and we know and remember our experience had when it was not on the statute books.

Fresno was a small city when it was enacted. Today Fresno has become a city of quite great importance in California. It is important as a wholesale city and a manufacturing point, and it is regarded by both the great harbors and by both the great railroads which run through the city, the Southern Pacific and the Santa Fe, as a very, very important shipping point.

Under the beneficient influence of section 4, Fresno is regarded as a distributing point of importance, as nearly all of the great supply houses of the West have established in Fresno great wholesale warehouses from which they supply the entire valley.

Mr. MARTIN. Let me ask you a question right there: Do you think that Fresno has benefited at the expense of any inland territory, farther inland points, having comparable industries to Fresno? It is principally an agricultural and fruit center, as I understand.

Mr. GEARHART. We do not think so. We think that the entire valley of California has benefited just as we have, and the reason why Fresno has grown has been because of the fact that some city, situated some place in the valley, would naturally become the larger and more important center, and since Fresno is in the geographic center, it was

the city that has benefited the most and has grown to the largest size, and we attribute the fact that it has become an industrial city and has become a wholesale distributing center entirely to the fact that we have been able to obtain just, reasonable, and nondiscriminatory rates under the operation of section 4.

Now, the Fresno County Chamber of Commerce, the Fresno Merchants' Association, and the Fresno Traffic Association, the three great organizations which would naturally be interested in any proposal to change or amend section 4, have taken the position against any change whatsoever, and the Fresno Traffic Association has forwarded to me a statement which they have asked me to present to this subcommittee, and to have it included in its record, and, as it states the case of Fresno County and the San Joaquin Valley as clearly and succinctly as it could be stated, I ask that privilege, Mr. Chairman, of having it included in the record, and will conclude my remarks with this.

Mr. MARTIN. It will be inserted.

(The paper referred to is as follows:)

STATEMENT OF FRESNO TRAFFIC ASSOCIATION OPPOSING H. R. 3263 AND H. R. 5362

Prior to March 1918 our transcontinental rates from all eastern territory was made by adding to the rates from eastern points to Stockton or San Francisco, the local rate thence to Fresno called "back-haul" rates.

After the modification of the fourth section in 1910 we became interested in the subject of a readjustment of these rates, seeking to have abolished the fourthsection relief then in effect, and instead of this basis of rate making, to establish to Fresno and other intermediate cities the same rates as were published from eastern territory to cities beyond and to the west of us, otherwise port cities, called "terminal rates". During this intervening time we appeared many times before the Interstate Commerce Commission in cases involving this transcontinental fourth-section relief, endeavoring to wipe out this rank discrimination in rates and secure for ourselves an equality of rates just and reasonable. March 1918 by a decision of the Interstate Commerce Commission we achieved that which we had been for so long striving; just, reasonable and nondiscriminating rates.

For 17 years we have enjoyed an equality of rates from all eastern territory and this right was only won after hard fought battles and many bitterly contested cases before the Interstate Commerce Commission. To take these rates from us now would be a sad catastrophe to our industries, jobbing, wholesaling and retailing as well also property owners and real estate, and leave us in a deplorable state.

If the railroads should be permitted to establish discriminatory rates to Fresno and all other intermediate points by reason of publishing from eastern territory to Pacific port cities less rates than apply to Fresno, the resulting serious effect to our future growth and prosperity would be felt by all; property owners, businessmen, manufacturers and farmers. It would mean turning the business clock back 20 years.

This is what will happen if the long- and short-haul clause of the Interstate Commerce Act is repealed as proposed in the Pettengill bill (H. R. 3263) now before Congress. If successful in getting this bill through, then the railroads, so far as we can determine, propose to place the discriminatory blanket on everything shipped into the interior West from the East.

Repeal or modification of the long- and short-haul clause of section 4 as proposed in these measures would place us on a discriminatory rate basis. Our industries distribute or draw trade in an extensive territory where we meet the keen competition of other trade and commercial centers which under either of these bills would be given preferential rates.

We are all consumers and if either of the proposed bills should be passed every consumer would feel the ill effects by reason of the "back-haul" tax which would penaliez our industries and merchants. Property values would be depreciated and it would be ruinous to our prosperity. Under the strict application of sec