lines, as the effect of such an advance would be to check production and reduce traffic on that line. Thus railroads compete with each other through a common market, and the commercial forces are found to be to a certain extent regulators even of that local traffic over which railroad managers are sometimes supposed to exercise absolute control.

(c) Upon this subject Col. Milo Smith, of Clinton, Iowa, in a letter to this office says:

The competition is between cities rather than between roads, and for that reason no combination among the roads can ever last very long.

(d) Mr. Albert Fink presents an illustration of the competitive power of markets as follows:

Nashville is a manufacturing point for flour, and its chief southern market is Atlanta. Saint Louis and Chicago are also important centers of the flour-trade and compete for the trade of the entire Southern States, Saint Louis having the advantage over Chicago, on account of shorter rail-lines to the south and of transport by river. The average rate of transportation from Nasvhille to Atlanta is 72 cents per barrel of flour, and therate from Saint Louis to Atlanta is $1.16. In case the Saint Louis rates are reduced to 65 cents, which may be considered a "war-rate," the Nashville rate must of course be reduced proportionately, or else Nashville flour will be excluded from the Atlanta market. The interests of the Nashville manufacturers and merchants and the railroads carrying flour from Nashville must otherwise suffer. And as there would be no market for wheat raised on the various roads centering in Nashville which carry it to that point as a part of their local traffic, the local rates on these roads must also be reduced in order to prevent the distant market of Saint Louis from destroying the Nashville trade. Thus competition between markets induces competition between transportation lines which do not come within 300 miles of each other. (e) In March, 1876, a "pooling" arrangement was entered into by all the great trunk lines which, with their connections, operate between Chicago and the East. Soon afterward the rates to eastern points from Milwaukee across Lake Michigan, and thence by the Detroit and Milwankee and Grand Trunk Railroads, (both in a condition of bankruptcy,) were so reduced as to be 10 cents less on a barrel of flour from Milwaukee than from Chicago. The rates on grain were also made less from Milwaukee than from Chicago. The rates on certain east and west lines south of Chicago-also bankrupt-were, as before mentioned, made less than the rates via Chicago from points farther west. The result of these discriminations was to cause the products of the Northwest to avoid the Chicago market. The competition of the trunk lines both north and south of Chicago, in connection with the direct competition of eastern markets as against the Chicago market, threatened to make serious inroads upon the trade of that city. If these discriminations had continued, the interests of Chicago would have greatly suf fered. But the competitive influences centering there did not permit this condition of affairs to continue long. The merchants presented a protest to the pooling lines, calling upon them to protect the commercial interests of Chicago against such ruinous discriminations. Perhaps, however, this was unnecessary, for there were strong motives of self-interest which impelled the railroad companies to adopt the meas

ures recommended by the merchants. The pool-lines lowered their rates and the discrimination against Chicago ended. The circumstances which governed in this case are apparent. The interests of all the railroads centering in Chicago from the Southwest and Northwest are closely identified with the commercial interests of that city. To it they haul loaded cars and there they receive the largest amount of return freights. The whole economy of transport naturally leads them to favor through traffic to and from Chicago, rather than to allow freights to be diverted to lateral lines. All the great trunk lines which, with their connecting lines, operate between Chicago and the East, namely, the Grand Trunk, the New York Central, the Erie, the Pennsylvania, and the Baltimore and Ohio Railroads, depend very largely upon the enormous Chicago markets for their east-bound freights, and they are able to secure a larger amount of traffic to that city than to other any western point. Freights can be transported in large quantities a distance of nearly a thousand miles without breaking bulk much more economically than if received from numerous branch lines at various intermediate points. The economies of transport therefore closely ally the interests of the railroads mentioned to the commercial interests of Chicago.

Facts of this nature tend to show how strongly the interests of the roads lead them to frame their freight-tariffs in such a manner as to favor the interests of great commercial cities. They also show that the equilib. rium of competitive forces is an exceedingly delicate one, and that a small difference in rates may produce very important commercial results. (f) The following illustration of the competition of rival markets is presented by Mr. J. D. Hayes, of Detroit, in a statement to this Department:

The class of freights termed "special" grew out of some cargoes of coffee being landed at Baltimore for Saint Louis, together with some other circumstances which the northern roads could not control. Sugar, molasses, crockery, and coffee entering into the daily use of every household, they became what merchants term "close articles," the freight forming a large percentage of cost, and they too were placed in the class termed "special." These commodities being largely of southern production could be taken via New Orleans to Saint Louis at very low rates, and unless something was done to aid the Chicago merchants to compete with their Saint Louis rivals, they and the northern roads would get no share of that class of business. Therefore, the "special" class became a mutual thing for the protection of traffic over the northern roads and for the northern merchants.

The same commodities, however, when shipped from Chicago and Saint Louis to interior points, are placed in a higher class and the freight-charges are based upon local rates, and in some cases, as stated by Mr. Hayes, the charge for 100 miles "local" is greater than for 1,000 miles on the through trunk lines. This case illustrates the influence of several distinct classes of competitive forces: First, the competition between vessels on the ocean, when employed in bringing the various com. modities embraced in this "special class" from the countries in which they are produced to the port of New Orleans and to the several Atlantic seaports; second, the competition between the market of New Orleans, Balti

more, Philadelphia, New York, and Boston for the importation and distribution of the commodities composing this class of freights; third, the competition between the various trunk lines connecting the West and the Atlantic seaboard; fourth, the competition between the Mississippi River boats and the roads from the Gulf ports to the Western and Northwestern States; fifth, the competition of the east and west lines with the north and south lines mentioned; sixth, the competition between the markets of Chicago and Saint Louis and the competition of all the important trade-centers of the West for the same trade; seventh, the competition between rail-lines from Chicago and Saint Louis and the other centers of trade to the points of final destination.

Evidently the great trunk lines, with all their powers of capital and organization, are as much constrained as to their rates upon this class of freights, by the all-pervading influence of competition, as are the ships, which are free to engage in any traffic and to follow any course upon the trackless ocean. In so far as relates to this particular traffic, and in fact to all traffic other than that which is strictly local, the railroad, by virtue of the physical fact that it is confined to one route, is even more circumscribed in its competitive influence than is the ship upon the ocean.

(g) The subject under consideration was illustrated by recent events in connection with competition between the trunk lines from Chicago and Saint Louis to the Atlantic seaboard. The facts in this case were furnished by Mr. George H. Morgan, secretary of the Merchants' Exchange of Saint Louis.

The various lines east from Saint Louis formed in April, 1876, a combination to maintain rates by means of the arrangement known as "pooling." It happened, however, that during the existence of this combination a war of rates prevailed between Chicago and the East, by means of which rates from Chicago were reduced below the actual cost of transportation. The effect of the maintenance of the Saint Louis rates was simply to divert competitive business from Saint Louis to Chicago, including both receipts from the West and shipments to the East. In regard to this subject Mr. Morgan says:

If the freight on flour, wheat, corn, tobacco, lard, and pork to eastern markets during the first six months of the year 1876 had been based upon the same rate per mile as prevailed from Chicago the saving to Saint Louis would have amounted to about $360,000 on the freight alone, and such reduction would have greatly stimulated trade at Saint Louis instead of depressing it by rates discriminating against its commercial nterests.

In a subsequent letter, dated May 29, 1876, Mr. Morgan says:

The burden imposed upon the commerce of Saint Louis became so oppressive under the pool that our merchants could no longer submit to it. About two weeks ago, therefore, a committee was appointed from the Merchants' Exchange to wait upon the executive committee of the pool and demand that Saint Louis be put upon an equal footing as regards eastern freights with other competing cities. The demand was acceded to, and we have now a tariff based on the tariff at other points. The rate from Chicago to New York is 20 cents; consequently the rate from Saint Louis to New York

is 23.20, being 16 per cent. more according to distance. Thus the great principle we have been contending for has been established, and our railroad men promise to keep Saint Louis on a fair basis hereafter.

The most prominent competitive forces in this case were, first, the two rival commercial cities, and, second, the rival roads. The interests of the roads are evidently very closely identified with those of their terminal cities. In the case of the Saint Louis roads, all that was required was an understanding of the mutual interests of the city and of the roads in order to conform rates to those from Chicago.

It is a matter of interest to observe a feature of this case which characterizes commercial movements quite generally, and that is, that an arrangement made for the purpose of regulating any particular line of competitive traffic, incidentally affects important collateral interests. The commerce which is competitive as between Saint Louis and Chicago is chiefly embraced within the territory lying north of the latitude of Saint Louis and south of the latitude of Chicago. But the railroads from St. Louis to the East in reducing their rates so as to make them conform to the Chicago rates were obliged to embrace the traffic coming to them from roads extending from Saint Louis to Kansas, Arkansas, the Indian Territory, and Texas, and not competitive with respect to the Chicago roads. The single fact of the reduction of the rates east of Saint Louis was therefore probably felt by railroads extending from interior points in Texas to the port of Galveston, and also by vessel-owners engaged in the transportation of the products of Texas from Galveston to the North Atlantic States and to foreign countries, as a reduction of rates on the overland or all-rail route from the interior of Texas by the way of Saint Louis would naturally tend to increase the movement of cotton by that route, and to diminish the movement by the way of Galveston, or to compel a reduction of the rates by the latter route.

(h) The following extract from a statement made to this Department by Mr. Charles Randolph, secretary of the Chicago Board of Trade, points to the fact that the elements of competition are constantly increasing, and that in the course of the development of the railroad system it is becoming more and more difficult to form combinations between competing trunk lines for the arbitrary determination of rates:

I think the multiplication of avenues for transit, and especially the lack of dividends to stockholders, and also the extremely low rates for the past two years prevailing for water-transit, is certainly weakening the power to combine. The completion of the Baltimore and Ohio line to this city seems to have demonstrated that the introduction of a new competitor brings to the question more of complication and more of a disposition to act independently. Although it appears to be a somewhat uncomfortable rival, late developments indicate that it is by no means averse to co-operation in agreed rates. Its recent arrangement with the Erie Railway, forming a line to New York, entirely independent of either the New York Central or Pennsylvania Central, gives it great additional power for peace of war. Other lines mainly through Canada are nearing an independent through connection, and with increased and more varied interests it would seem that combinations are much less liable to be made effectual or lasting.

(j) The exceedingly wide range of the competition between rival transportation-routes for traffic between important trade-centers is very strikingly illustrated by facts which have been presented by Mr. Albert Fink in reply to inquiries from this office concerning the routes which actually compete for traffic between the cities of Saint Louis and Atlanta, Ga. Saint Louis is an important market for such western products as are shipped very largely into the Southern States, and Atlanta is one of the most important distributing centers of these products throughout the South Atlantic and Gulf States. The various routes competing for this traffic are shown in the following schedule:

Distances from Saint Louis to Atlanta, Ga., by various routes.

(c) Saint Louis to Baltimore......

Baltimore to Norfolk by steamer

Norfolk to Atlanta via Lynchburgh and Chattanooga......

1,725

920

165

650