We may now pass from the question of the relation of the Central Pacific-Southern Pacific system to legislative bodies in California and in Washington, to another matter of general importance in respect to which Southern Pacific policies profoundly affected the development of the West—the matter of railroad rates. Just as the associates were compelled to face the possibility of government regulation soon after they were fairly launched in their careers as railroad men, so they had to consider and determine the rate policies which they should adopt, independent of regulation, with respect to the shipping and traveling interests of the territory which they served. Their decisions in rate matters were certainly of no less significance than their attitude toward political control, and deserve the same broad consideration. We shall attempt in the following chapters to describe the conditions which affected the ability of the associates to set rates in California and on business to and from that state, and to consider the attitude of the Southern Pacific with regard to the more important questions of rates and of competition which arose. For reasons which will become apparent as the discussion proceeds, the scope and importance of water competition in the West will first be set forth. Water Transportation One of the most important conditions affecting railroad business in California is the ease with which freight and passengers may take advantage of the water routes. The long coast line of California affords relatively few good harbors, but it is broken in the center by the splendid bay of San Francisco, and in the south by the less commodious but still adequate ports of San Pedro and San Diego. Between these termini a considerable commerce has long been carried on. Still more important than the coastwise trade, however, has always been the deep sea commerce of San Francisco, and to a less extent that of the other ports. San Francisco is a focus for ocean lines connecting the Pacific Coast of the United States with the Atlantic seaboard, with Europe, with South America, and with the Orient. Likewise from San Francisco steamers ply up the Sacramento and San Joaquin rivers, carrying traffic well into the interior of the state. A mere mention of these facilities is sufficient to suggest the part which water transportation has played in the commercial and industrial life of the Far West. River Traffic