CONSOLIDATION-ABSORPTION OF WEAKER LINES BY THE STRONGER.

The tendency in recent years towards the aggregation and combina tion of capital invested in various of the larger business pursuits has been so marked-such aggregations are so subject to misuse, and when misused are so potent for mischief-that every new indication of the growth of this tendency leaves the public less free from apprehension. This is so true as to all transactions between railroad corporations that any working arrangement or agreement for the establishment of through lines, by which expense may be avoided and the public served, is subject to more or less distrust.

Whether because of some abuses in railroad management when in conducting interstate commerce the carriers were a law unto themselves, or whether for some other reason, the fact seems to be that every railroad combination in the direction of unity of interest or unity of control provokes such suspicion as to warrant, if it does not require, explanation.

The tendency to consolidation of railroads and to the absorption of the weaker by the stronger lines has been sometimes ascribed to the act to regulate commerce or some of its provisions. It has been so ascribed by those of such experience as to entitle their opinions to consideration.

The tendency to the combination and concentration of other great interests is scarcely older than the act to regulate commerce, to which such interests are not subject.

Combinations and unifications of railroad properties had their origin as early as railroad investment was of sufficient magnitude to invite them. They had so advanced when the act was passed that the railroads outnumbered the companies operating them two to one. Both before and since the act was in force the tendency to such combination and unity has kept well up with the increasing ability of the proprie tors and managers of one road to buy or control another.

With an average annual railroad investment approximating $400,000,000, and a corresponding increased railroad mileage, there are each year more roads for consolidation, increased opportunities for absorp tion, new and greater inducements for combination. Yet the propor tion of combinations effected was greater before than after the act. Considered separately for the period of nine years since the last census, the number of roads merged annually in the seven years before the act was nearly double the number annually merged in the two years thereafter. The combinations for these nine years, and how effected, appear in the following statement, which, with the subsequent statements, is taken from the best obtainable data:

CONSOLIDATIONS, ETC., TO DECEMBER 31, 1888, OF ROADS THAT WERE OPERATING COMPANIES ON JUNE 30, 1880.

The latest union of railroad interests which has attracted public attention, and of which this Commission has been advised, is that of the Union Pacific with the Chicago and Northwestern. This alliance is an agreement for the in terchange of through business, the establishment of through lines by which the interests of the companies may be promoted and the public convenience served. It provides for the interchange and continuous carriage of freights from the place of shipment to the place of destination over 5,000 miles and more of the Union Pacific system and more than 4,000 miles-all-of the Chicago and Northwestern system. The arrangement as to through carriage and interchanges for that purpose does little, if any, more than give effect to one purpose of the law. Such a continuous carriage is favored by the third and seventh sections of the interstate-commerce act. Except as to interchange of business and continuous carriage the two companies and systems seem as free from the control of each other as before such union.

Substantially all the consolidations and absorptions made by the two companies or systems preceded the act, or resulted from contracts which preceded it.

The authorized mileage of the Union Pacific proper, as constructed, was less than 2,000 miles, which was increased to more than 6,000 miles through its affiliated and controlled lines.

The Chicago and Northwestern acquired and commenced operating 119 miles of road at the date of its organization in 1859, and had less than 500 miles in 1866. By absorption, purchase, or otherwise, it had acquired control of more than 3,500 miles in 1886.

The Pennsylvania Railroad Company, a corporation of that State, an. thorized at first to construct a road less than 250 miles long between two of its principal cities, grew into a vast system, extending into and across several States of the Union. Its entire mileage, including main and branch, owned and leased lines, was less than 500 miles in 1861. In 1880 it included nearly 4,000 miles. In every year since then it has added to its mileage not more annually after than before the Act. By extension, purchase, absorption, or other arrangement, its control, directly or through affiliated companies, embraces more than 7,000 miles. The progress made by the two companies or systems last named, in acquiring control of roads of other companies and increased mileage, is indicated in the following statement:

SUMMARY OF NUMBER AND MILEAGE OF ROADS OF PENNSYLVANIA SYSTEM ACQUIRED, IN YEARS INDICATED, TO JUNE 30, 1889.

*The charter (1846) authorized the construction of a road from Harrisburg, Pa., to Pittsburgh, Pa., the length of which, when completed, was 248.2 miles; the first section, from Harrisburg, Pa., to Lewistown, Pa., 60.6 mile, was opened September 1, 1849. Mileage owned and controlled June 30, 1889, approximately, 4,113.75.

+ Mileage in 1871, the year of organization, 796 20. Mileage June 30, 1889, approximately, 3,381.27. Total mileage owned and controlled by Pennsylvania system June 30, 1889, approximately, 7,495.02. § Subsequent to 1860.

|| Subsequent to 1868. Includes ten roads, 1,556.25 miles, controlled through ownership of stock; no information as to date acquired.

SUMMARY OF NUMBER AND MILEAGE OF ROADS OF CHICAGO AND NORTHWESTERN RAILWAY COMPANY ACQUIRED, IN YEARS INDICATED, TO JUNE 30, 1889.

[Roads omitted for which proper data are lacking.]

* In addition to what appears in table, it should be stated that this company owns stock of the Chicago, St. Paul, Minneapolis and Omaha Railway Company, 1,310.52 miles, to the amount of $14,700,000 in total stock of $34,050,126.66, over $10,000,000 of said owned stock having been acquired in 1882. Mileage of Chicago and Northwestern Railway Company at date of organization, June 7, 1859, 119.80; mileage owned and controlled June 30, 1889, 4,250.38.

What is said of the Chicago and Northwestern and of the Pennsylvania may be said of the Louisville and Nashville, the Lake Shore and Michigan Southern, the New York Central, and is substantially true of the railroad system of this country as well as of other countries. Railroad consolidations and combinations first challenged public attention in other countries where they were the cause of great apprehension. Twenty years ago they were made the subject of investigation by a royal commission in England.

In view of the facts, it would seem that the cause for railroad consolidations must be looked for elsewhere than in the restrictive provisions of the interstate commerce act, while it is suggested with much reason that these restrictive provisions are themselves the result of behavior in railroad management.

The act in its main provisions declares in substance that

To be lawful, charges for railroad services must be reasonable and just.

To take a greater or less compensation from one person than from another for a like service is unjust discrimination and unlawful.

To give unreasonable preference to persons, localities, or kinds of traffic to the disadvantage of other persons, localities, or kinds of traffic is unlawful.

To make the greater charge for a shorter distance transportation service lawful there must be exceptional circumstances which make it just.

Combinations, contracts, and agreements between different and competing roads for pooling their freights or dividing any part of their earnings is unlawful.

To be lawful, schedules of fares and charges, as well as of increases and reductions in fares and charges, must be posted and kept open to public inspection.

Combinations, contracts, agreements, or devices to prevent the carriage of freights being continuous from place of shipment to place of destination are unlawful.

A provision of the third section of the act declares:

Every common carrier subject to the provisions of this act shall, according to their respective powers, afford all reasonable, proper, and equal facilities for the interchange of traffic between their respective lines, and for the receiving, forwarding, and delivering of passengers and property to and from their several lines and those connecting there with, and shall not discriminate in their rates and charges between such connecting lines.

Of the restrictive and chief provision of the act given above, that which makes the pooling of freights and the division of earnings of competing lines unlawful is usually credited with being the efficient cause as well of objectionable railroad consolidations and absorptions as of hurtful instability of fares and charges. It is so credited on the assumption that hurtful competition, especially between stronger and weaker lines, can only be prevented by the pooling of freights, the division of earnings, and the guaranties to be secured through such poolings and divisions. Weaker lines are indirect lines, longer lines, and lines requiring more time and affording inferior facilities and accommodations. Previous to the enactment of these restrictive measures prohibiting pooling and the division of freights and earnings of competing lines it was, in consideration of the maintenance of agreed fares and charges between the stronger and weaker lines, the practice of the stronger to guaranty to the weaker an agreed division, share, or proportion of business. When shippers patronized the stronger lines at the agreed rates to such extent that the weaker lines failed to obtain their conceded share of the business and earnings, the stronger lines accounted for and made good the deficiency from their own receipts. On the assumption that the agreed rates were no more than reasonable, the amount realized by the stronger lines was less than reasonable compensation for their services to the extent of such deficiency. But it being assumed that reasonable compensation for the transportation services they rendered remained to the stronger lines after making good the guaranty to the weaker, the amount necessary to make good such deficiency was necessarily derived from charges in excess of such reasonable compensation. In this view, the practice was interpreted as resulting in excessive charges on shipments made by the public as a means of paying weaker lines for joining the stronger in maintaining exorbitant rates. So interpreted, the practice, or guaranty based on agreed divisions of business, was condemned and prohibited by the act to regulate commerce.

This provision of the act making it unlawful to divide business or earnings deprived the stronger lines as well of the ability as of the legal right to guaranty to the weaker lines a conceded share of business when the guaranty could no longer be made good from charges regarded as excessive.