FRIDAY, NOVEMBER 17, 1911.

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C.

The committee met at 10.30 o'clock a. m. for the purpose of further considering the bill (S. 2941) entitled "A bill to create an interstate trade commission, to define its powers and duties, and for other purposes," introduced by Mr. Newlands July 5, 1911.

Present: Senators Clapp (chairman), Cummins, Brandegee, Oliver, Townsend, Newlands, Watson, and Pomerene.

STATEMENT OF GEORGE HERBERT BEAMAN, 2232 MASSACHUSETTS AVENUE, WASHINGTON, D. C.

Mr. BEAMAN. Mr. Chairman. I would like about five minutes in which to submit some views to the committee.

The CHAIRMAN. The committee will be glad to hear you.

Mr. BEAMAN. I was the manager of the Boston Chamber of Commerce when the original committee was appointed, and they came on to Boston. I was exporting grain from Boston to England, and I made arrangements with the largest grain exporter in Glasgow, David Bannerman, one of the finest men they have in the trade, and I was trying to export grain, largely corn, from Boston to Glasgow and Liverpool.

In trying to do that business I would buy 16.000 bushels of corn and put it in the elevator in Boston, and I would cable Mr. Bannerman and ship him what is called 8,000 bushels, or 16,000, or multiples of 8.000 bushels of corn. My idea was to keep 16.000 or 24,000 bushels of corn in the Boston elevator and replace them by ordering carloads of corn from the West. That was the plan that I intended to carry out. Mr. Bannerman would cable to me at Boston the price he would give delivered in Glasgow for the corn, and delivered sometimes in Liverpool. Then I would cable him back, and I was able to make. some trades with him, but I found on investigating the matter that the large shippers in the West were always getting a lower rate than I could obtain. So I carried on that business for some time with Mr. Bannerman, until I found it was impossible to compete with a few large shippers in Chicago or St. Louis. So I made up my mind that I would investigate the whole matter, and from that time to this I have given my time to the investigation of this railroad rebate business. I was the only member of the Boston Chamber of Commerce, and an officer of that institution, that appeared before that committee, and I telegraphed to Senator Cullom, the chairman of the Interstate Commerce Committee at that time, telling him what was going on in the country as to secret rebates. I claim, practically, to be the first man who presented that question to that extent in Beston as a member and manager of the Boston Chamber of Commerce. All the statements that I made before that committee then have proven true, and the men whom I charged practically with taking those rebates have been brought before the court of public opinion and condemned.

This important committee, which I consider to-day the most important in the Nation, is confronted now with the same question, and

you are asked either to go forward or to go backward. I claim as a citizen of this country, after having given my testimony on this question, that I have a right to give an opinion which I consider valuable. My brother, Charles C. Beaman, of the firm of Evarts, Choate & Beaman, had more to do, I think, with the reorganization of the railroads of the country than perhaps any other man. I consider that what he did to bring about the reorganization of these great roads and put them on their feet entitles him to the thanks of the country.

I received to-day a report from one of the great railroads, the Chicago & North Western, and I consider that it is one of the most finished reports that has ever been published. It shows now that your work has accomplished something; that you have forced the great railroads of the country to make reports to the people and to the stockholders that are valuable.

Mr. Chairman and members of this committee, I feel the utmost confidence in your good judgment. There are things that I might say to you, because I have a knowledge of the facts that would be of great value, but I hesitate to say what I know to be true. I will say this, that the people of this country have resolved that we shall have an honest administration of the railroads of the country.

I have been doing what I could toward electing ex-Gov. Foss governor of Massachusetts. He is pledged to the reform of the railroad question, and I look forward to this committee to go forward with this work. I have a right to say this because the country has allowed the railroads to go on and manage their business in such a way that it has brought the Nation to a great crisis.

Now, I demand that you go forward in your work; that you insist that these railroads shall make proper and correct rates. One of your Senators, who has had as much experience as any Senator in the United States, told me that any body of men could fix these rates. The question is before the country to-day. That power must be lodged somewhere. You have placed that power in the Interstate Commerce Commission, and I claim, as a citizen of the United States, that you shall back up that commission. That commission has been given power to say what those rates shall be. Where shall that power be lodged? Are there any better set of men than those seven who have been appointed and confirmed by this Senate to say what that rate shall be? Have you any right, having created such a commission and given them that power, to bring the country into a state of chaos by withholding that power? I claim as a citizen of the United States that having given them that power it is your duty to back them up and see to it that that power and the opinions that they give shall have the merit of law. I stand here now having made a study of that question, and I tell you frankly that if this committee and this Senate at this Congress shall not uphold the Interstate Commerce Commission in that power that you have settled upon them, then I shall go and do what I can to carry out the idea of William J. Bryan-that the Government itself shall take possession of the railroad to protect the great interest of the United States.

Mr. Chairman and members of this committee, I stand ready to give such evidence as you may want to prove what I now say, that the finances of this Nation are in such a position to-day that there must be some power to fix those rates; otherwise the Nation will pass

through years of depression. I appeal to you, the fore, as a citizen of the United States having some rights in this matter, that you insist that that power that you have edged in the Interstate Commerce Commission shall remain therein.

Mr. Chairman and gentlemen, I thank you for the privilege of saying these few words. These words that I have said I shall follow up with all the power and strength that I have, and I hpe that I shall be but an humble instrument in following the lead of this great committee.

ADDITIONAL STATEMENT OF HENRY B. MARTIN, NEW YORK, N. Y., NATIONAL SECRETARY OF THE AMERICAN ANTITRUST LEAGUE.

The CHAIRMAN. Mr. Martin, you may resume the stand.

Mr. MARTIN. Mr. Chairman and members of the committee, I desired, if possible, in my statement of yesterday to make clear the position that our antitrust people hold, and which I believe a great many people of the United States hold-and we are inclined to believe that the majority of people hold-that there is a wide distinction that should always be recognized in legislation between the power of the Government to make rates upon railroads and their power to make prices on commodities and products of manufacture, merchandising, and mining. The one is clearly a government function; the other is in no proper sense a government function. The regulation of the railroad rates can not be left to the force of competition, whereas the regulation of prices of commodities can. I have endeavored to put in a very compact form, in just a few words, my idea in regard to that, which I would like to give you.

The reason for this is plain. There can be no question that the fixing of tolls or rates over the highways is clearly a function of the Government, and is an altogether different thing from the fixing of prices on pork, or potatoes, or steel, or lumber, or any of the other thousands of articles of human consumption which enter into interstate commerce, the prices of which under free and fair competition naturally regulate themselves by the great law of the supply and demand. With an equity, precision, and celerity inconceivable under any socialistic scheme, the Government fixes prices by the joint wisdom of a Government board and a board of directors of some great combination that controls that industry on the lines suggested by the testimony yesterday in regard to the coal interest. If we permit a corporation or a group of corporations to seize the control of an entire industry, then the effort of the Government in cooperation with them to fix prices becomes an impossibly complex problem, whereas if we secure equality of rates over the highways to all the shippers, and enforce the provisions of the antitrust act under free and fair competition, the force of supply and demand will regulate the prices as naturally as that water runs downhill.

I do not think there can be any question about that, and therefore we address ourselves to the proposition, and we urge upon this committee that the first legislation is legislation that shall secure this equality of rights over the highways and restore freedom of competition-free and fair competition. Of course it is not fair competition when one corporation like one of the great trusts-the 22877°—VOL 1-12- -8

Standard Oil, for instance, and the Steel Trust-have special rates and rebates and favoritism from the railroads in competition with an independent manufacturer who has none of those privileges. That is competition, but it is not free and fair competition. It is destructive competition in which the trust is aided by an instrumentality in the shape of a railroad that is in the hands of a private corporation.

So the basis upon which we feel that Congress should direct its efforts at the present time, if possible, would be the divorcement of all connection, secret or open or otherwise, between the great trusts and the railroads. Many people were inclined to the thought that that had already been accomplished by laws against rebate and the Interstate Commerce Commission, etc., but the investigation made by the Stanley committee, which is investigating the steel and railroad business in the House of Representatives, has shown clearly that that is not true; that rebates and preferences and special privileges still continue. For instance, it was shown that a couple of short railroads, running from the ore mines to the lakes in Minnesota, were charging a rate of freight on ore that was easily demonstrable as being 400 per cent too high. The effect of that was to give the Steel Corporation, which owns the roads, a rebate over the competing steel men of somewhere in the neighborhood of $1.50 to $2 a ton on pig iron. Of course that was a terrible advantage.

Now, since the exposure before the Stanley committee of these facts, the Steel Corporation, and the facts bearing upon that idea in the press, they have decided to cut those rates 25 per cent-reduce them from 80 cents to 60 cents, and there is no doubt but what the Interstate Commerce Commission, or some other governmental agency, will soon compel them to cut them in two-50 per cent more because it will be entirely reasonable, for the evidence taken before the Stanley committee shows that those roads were making 45 per cent to 75 per cent and 100 per cent, and in one year 150 per cent, in dividends. Of course railroads that do that are certainly practicing extortion on some part of their shippers or they could not do it.

That is only one illustration. Another is of the continued secret alliances between the railroads and these great trusts-the fact of their connecting railroads. Nearly all of these great trusts, like the Steel Corporation, for instance, at their large works have a short railroad connecting their works with the trunk-line road that runs in that vicinity, and they load the freight-the freight originates with them on their little short road; their road may be 10 miles long and the balance of the haul may be by a road a thousand miles long. They are able to dictate to the road making the long haul the division of the rate that shall be made, and they make that division of rate in such a way that it amounts to an enormous rebate to them. It is by such practices as that-these are only samples, they could be multiplied a hundred times over in other directions-that illustrate the assistance that has been rendered by the privately owned railroads in the creation of the great trusts. Nearly all of these great trusts originated in industries where freight was a large element in the cost of the great bulky product, such as lumber, flour, iron, coal, iron ore, steel, oil, and things of that kind.

Now, in order that these continued alliances-secret and unlawful alliances between the men who control these public highways

known as railroads, through their private corporations, and the great industrial trusts and monopolies may be severed and put an end to, we have proposed to Congress two steps in the form of two bills. One is the bill to which I referred yesterday, to create a Department of Transportation, an executive department, with a Secretary of Transportation, whose duties should be to police the railway systems of the country, and seize the offenders promptly and bring them before the commission or the court, the same as any other police authority would, and to a large extent, by thorough supervision, act as preventives rather than punishes those offenses. That would relieve the Interstate Commerce Commission of a good deal of its extra labors, and would make much more efficient the enforcement of the interstate-commerce law.

Another step in that direction to complete the divorcement of the unholy bonds that exist between the railroads and the great industrial and commercial trusts is a bill which we had introduced in the Sixty-first Congress prohibiting and providing penalties against the so-called interlocking board of directors system, prohibiting the directors or stockholders of industrial corporations from being directors or officers of transportation companies.

In the investigation into the Steel Trust by the House committee a great deal of evidence was adduced which showed how widespread that abuse had become. In fact, the testimony and evidence submitted there showed that practically the whole body of the railroad systems of the United States was dominated, directly or indirectly, by the leading directors and stockholders of the United States Steel Corporation. The vast and practical importance of this becomes manifest when we realize that the railroads purchase nearly 40 per cent of all the steel manufactured in the United States, and it is not in human nature that the directors of the Steel Corporation, selling its millions of dollars' worth of steel in the way of structural steel, rails, etc., to themselves as directors of the railroad corporations, should otherwise than favor their own corporations. Under those circumstances it is no wonder that the price of rails, exclusively consumed by the railroads, remain fixed for 10 years at the arbitrary figure of $28 a ton.

Now, we believe, Mr. Chairman and Senators, and we would respectfully ask the consideration of your committee of the propositions embodied in these two bills. I have here a copy of the bill creating the Department of Transportation, which I desire to have made a part of my remarks. It is not very long, and I have stated the substance of it, but I would like to have it handy for the members of the committee and those who read my testimony, so that we may get the proposition in definite form.

The CHAIRMAN. That privilege will be accorded. (The bill referred to is as follows:)

[H. R. 17411, Sixty-first Congress, second session.]

A BILL To create the Department of Transportation.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That there shall be at the seat of government an executive department to be known as the Department of Transportation, and a Secretary of Transportation, who shall be a Cabinet officer and the head thereof, who shall be appointed by the President, by and with the advice and