lation to take care of that situation in these other fields and there is no regulation to prevent the thing from occurring in transportation. There is only legislation that will prevent the railroads from in any way participating in this general economic trend.

Mr. HARRIS. That is true except where other types of common carriers are involved. If they operate their own transportation facilities there would be no regulation to it.

Mr. LYNE. That is right, sir, but in any case where a common carrier, whether it be by rail or highway or waterway, attempts to raise its prices very far above the level at which a producer could do his own transportation, the producer will go out and do his own transportation. There is a ceiling on what the common carrier can do now, which did not exist before, and that, sir, is the very nub of this whole problem. There did not used to be that ceiling and there is a ceiling now.

Mr. DOLLIVER. Isn't this very situation that we have outlined the reasoning that was behind the judge-made law sometime ago which brought about the concept of the common carrier; namely, that the carrier was in such a strategic position economically over the life of the individual, that the courts found the common carrier had to be regulated?

Mr. LYNE. Sir, as I understand it, these restrictions and limitations on the common carrier certainly developed out of actual experience and were needed in a day when the common carrier was practically the total carriage that we had. Now we have developed a situation where there is opportunity for any one to go into the transportation, business, and we are trying to operate the common carriers under the same restrictions that we had back there in those days when they had everything their own way.

Mr. DOLLIVER. You think the situation has changed somewhat by reason of modern competition.

Mr. LYNE. The ability of any producer to provide his own transportation if he so desires; yes, sir.

Mr. DOLLIVER. Thank you. That is all, Mr. Chairman.
Mr. HARRIS. Mr. Dollinger.

Mr. DOLLINGER. Mr. Lyne, this morning you were asked some questions with respect to the freight charge by the railroads in accordance with the value of the commodity which was carried. You indicated on page 4 of your statement that some items carry a higher rate than others. Is that by the railroad's own choosing or is that by regulation? Mr. LYNE. I would say, sir, that it is both. It is a development over many decades. It came to be a generally accepted approach to fair ratemaking.

Mr. DOLLINGER. Can a railroad charge less than they charge now without asking permission to do so?

For example, could they charge as much for copper as they could for some other commodity which is on a different scale at the present time?

Mr. LYNE. You mean could they reduce the rate?

Mr. DOLLINGER. Yes, voluntarily.

Mr. LYNE. They couldn't reduce the rate if anybody objected to the reduction, without first going before the Commission and getting the Commission's authorization to do so.

Mr. DOLLINGER. With respect to the truckers, do they charge similar rates on that basis? Are their rates rated with respect to the commodity that they carry?

Mr. LYNE. From what little knowledge I have of truck rates, sir, I would say they do bear some such relationship, but that would be hearsay evidence. I think the important thing in considering the truck situation is that most truck traffic is not by common carrier and is not subject to regulation.

Mr. DOLLINGER. It is possible for railroads to seek relief and ask for a reduction of their tariff?

Mr. LYNE. Yes, sir; they can file reduced rates, but any one who wants to object to this reduction may do so and the reduction may be suspended pending a hearing. Then the Commission may either grant the reduced rates or deny them or specify some other rate that they think would be better than any one of the railroad may have proposed.

Mr. DOLLINGER. The railroads must take such affirmative steps themselves?

Mr. LYNE. The railroads may take such affirmative steps. The Commission can get into any rate situation that it likes to on its own motion if it desires.

Mr. DOLLINGER. Railroads have taken steps on their own initiative to reduce rates?

Mr. LYNE. Yes, sir; on many occasions.

Mr. DOLLINGER. With what result?

Mr. LYNE. The results have been quite scattered. In some cases the reductions have been allowed. In some cases they have been denied.

Mr. DOLLINGER. What was the most recent date, if you know, that such request was made for a reduced rate?

Mr. LYNE. I can't tell you, sir. I don't read every case that comes out. I would be very glad, however, in this memorandum that I am going to send to the chairman, to incorporate that information, if you would like to have it.

Mr. DOLLINGER. Could I also, at this time, have, if you can give me the information with respect to the commodities they sought such reduction for?

Mr. LYNE. Yes, sir.

Mr. DOLLINGER. That is all, Mr. Chairman.

Mr. HARRIS. Mr. Hinshaw has another question.

Mr. HINSHAW. Mr. Chairman, when Mr. Lyne and I were talking this morning about rates, I had referred to his statement that the British railways

are permitted by law to charge one shipper one rate and another shipper a different rate, even if the actual cost of handling the two shipments is identical. That is a quote from a sentence close to the bottom of page 5.

Would you kindly explain how that would be applied in this country?

Mr. LYNE. I do not think it should be applied in this country, Mr.. Congressman.

Mr. HINSHAW. I though you gave your approval of that by including it in your statement.

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Mr. LYNE. No, sir. I cited this instance merely to show how far that the British have gone in giving freedom to their railroads over there in meeting their competition.

Mr. HINSHAW. That is the exact situation that the Interstate Commerce Act was passed to prevent, was it not?

Mr. LYNE. That is right, sir, and I am not advocating that at all. I just put that in to show that the British have gone as far as that. I don't know of anyone in this country who

Mr. HINSHAW. What is it that you do advocate?

Mr. LYNE. I advocate the somewhat modest proposals in the direction of greater freedom in ratemaking that have been proposed in this Cabinet committee report.

Mr. HINSHAW. I gather from the Cabinet committee report that the railroads should be free to make any rate they like to meet competition.

Mr. LYNE. There are certain restrictions on that, sir. The recommendation was that they not be allowed to make rates below their direct costs.

Mr. HINSHAW. Where do you think the rails would come out in the long run if the situation got to that point of making rates in accordance with, as you say, direct costs. I suppose you mean by that outof-pocket costs.

Mr. LYNE. They are almost the same thing, sir.

Mr. HINSHAW. What is the other part? What is the rest of it? Mr. LYNE. If we got into an exact definition of all these varieties of costs I am afraid we would have some little difficulty, but direct costs and out-of-pocket costs for all general purposes are practically the same thing.

Mr. HINSHAW. They don't cover bond interest and such things as directors' salaries, I take it?

Mr. LYNE. No, sir; there is very little incentive for a carrier to go below direct costs or even somewhat above direct costs.

Mr. HINSHAW. I should think if they went to direct costs they would be in the hands of the receiver pretty suddenly.

Mr. LYNE. They certainly would if they did it on any considerable amount of their traffic, but if they went to direct cost plus 20 percent, or something of that sort, on part of the traffic that they are not getting at all now, this 20 percent would make some contribution to common expense, a contribution which they are not now getting.

Mr. HINSHAW. I don't think it would be fair, in accordance with the statement you have made a little bit later at the top of page 5, to charge a greater percentage of overhead to one shipper than to another?

Mr. LYNE. There again you get into a very involved question of economic theory which I will try to put into the memorandum that I am going to send to your chairman.

Mr. HINSHAW. If you can explain it all in a memorandum, we will be delighted.

Mr. LYNE. I don't have a hope that I can completely succeed, but I can make a stab at it. I am afraid that a lot of us in this business are going to have to study this and learn a lot more about it.

Mr. HINSHAW. My conception of your statement this morning is that the rates to be charged would be gotten down all across the board to the out-of-pocket costs.

Mr. LYNE. Oh, no, sir.

Mr. HINSHAW. And thereby everybody would be thrown into receivership because that is the ultimate that the law would allow. Mr. LYNE. No, sir. If I gave that impression, sir, I failed miserably because I don't think that all rates should do that at all.

Mr. HINSHAW. I think that is the ultimate of your statement on page 5. You say "the alternative would appear to be-not by any means the elimination of all regulation of the common carrier-but enough loosening of the regulatory shackles from these carriers to enable them to defend themselves better than they now can do from their unregulated rivals."

If course I don't believe that their unregulated rivals are sinking them but, on the other hand, I think it is their regulated rivals who are in competition for the common carrier trade.

Mr. LYNE. The fact of the matter is that the unregulated rivals are the ones who set the ceiling

Mr. HINSHAW. That is private shippers.

Mr. LYNE. The private carriers, yes, sir.

Mr. HINSHAW. The private carriers.

Mr. LYNE. And the exempt carriers.

Mr. HINSHAW. You could not expect to regulate them, could you? Mr. LYNE. No, sir.

Mr. HINSHAW. If they can do it for 5 cents less than you can, you would expect them to do it.

Mr. LYNE. That is exactly right.

Mr. HINSHAW. Whether you run a railroad, truckline, airline, or anything, wouldn't you?

Mr. LYNE. But suppose the railroad, sir, can do it for a cent less than the unregulated carrier can do it

Mr. HINSHAW. Out-of-pocket costs?

Mr. LYNE. NO. It doesn't have to be out-of-pocket cost. Suppose there are cases

Mr. HINSHAW. It can be out-of-pocket cost.

Mr. LYNE. It could be. But I have seen fairly recent cases in which rates that the railroads propose that were high enough to be fully remunerative, not on any out-of-pocket cost but

Mr. HINSHAW. I wish somebody would define "fully remunerative” for me.

Mr. LYNE. All right, let us say a fully allocated cost basis.
Mr. HINSHAW. All costs?

Mr. LYNE. Yes, sir.

Mr. HINSHAW. That is a whole lot different than out-of-pocket cost. Mr. LYNE. That is right. But there have been cases, sir, where a railroad has sought to reduce rates which would still be on a fully allocated cost basis and they have been denied authority to make reductions to that point on the ground that it would injure a competitor. Mr. HARRIS. Mr. Flynt.

Mr. FLYNT. Dr. Lyne, with reference to the last paragraph on page 4 about using the value of the commodity shipped as a basis for the rates to be charged, am I correct in my recollection that the basis of that formula grew out of the fact that the railroads felt that they were entitled to some additional compensation due to the greater risk involved from the standpoint of loss or damage while in transit, in order

to make up the damage or loss cost in the event of damage while in transit?

Mr. LYNE. To the extent there is additional insurance cost in carrying a commodity of higher value, that would really indicate that there is a slight additional cost to carry the article of higher value, but that insurance cost is not too great a sum.

Mr. FLYNT. That is a negligible portion of the total charge.
Mr. LYNE. Usually it is, I believe; yes, sir.

Mr. FLYNT. What, if anything, would have been the objection a good many years ago to setting more or less a flat rate for transportation and then, as the value of the commodity shipped increased, adding additional insurance cost, but leaving the commodity transportation cost exactly the same for various types of commodities.

Mr. LYNE. It would have been perfectly possible to make rates in that manner, sir; but when these railways were built and the country was in process of development, it was perfectly obvious, since everybody had to ship by rail, that if you would charge a high rate on low value commodities, they could not move or they could not move as far. If you charged a relatively high rate on high value commodities you would not affect their movement adversely at all. So in order to provide the maximum traffic on the railroads, the maximum growth of the economy, you made rates with very strong emphasis on what the traffic would bear. That is a perfectly sound principle for making freight rates. The only thing is the fact that now that the shipper can provide his own transportation facilities it has put a much lower ceiling on what the traffic can bear. You can't go as high that way as you used to be able to go.

Mr. FLYNT. Then am I to understand that there might be some remote connection between the theory of charging what the traffic will bear and the theory which was advanced in the early stages of this hearing last week of "dynamic competition"?

Mr. LYNE. I didn't hear that testimony, sir; so I am at a little disadvantage in responding to it, but the principle of what the traffic will bear is perfectly sound for any business, but they must also take into consideration that what the traffic will bear is certainly no more than what their competitor will do the job for. The ceiling on what the traffic will bear has come down.

Mr. FLYNT. That is all.

Mr. HARRIS. Thank you very much, Mr. Lyne. We are very glad to have your contribution to this record.

Mr. LYNE. Thank you, sir.

(The following supplementary statement was later submitted by Mr. Lyne :)

SUPPLEMENTARY STATEMENT BY JAMES G. LYNE, CHAIRMAN, FEDERATION FOR RAILWAY PROGRESS, WASHINGTON, D. C.

My name is James G. Lyne. I am chairman of the Federation for Railway Progress. At an appearance at the above-mentioned hearing on May 2, a number of members of the committee asked me questions which I was unable to answer immediately, and by agreement with the presiding officer, Hon. Oren Harris, it was arranged that I file my answers to these questions in a written statement. This statement follows:

Rates above "fully allocated" costs.-I was asked by a member of the committee to cite an instance in which the Interstate Commerce Commission had required railroads to hold rates at a level above so-called fully allocated costs. Such a