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The amount of passenger service in a year is sufficient to give every man, woman, and child in the United States a journey of over two hundred miles, and the amount of freight reported as carried (originating on line) is more than ten tons for each inhabitant (1900). The mileage of empty freight cars is nearly half as large as the mileage of loaded freight cars.

In 1906 there were 1287 operating roads in the United States, of which 1007 were nominally independent. Nine tenths of these lines are less than 250 miles in length, and represent less than a fifth of the total mileage. On the other hand, the fifty largest roads control about two thirds of the total mileage.

Railway Competition. The early roads were short, independ

ent lines largely for local traffic or to serve as feeders to canals. The first movement toward the efficiency of the present system was the welding together of separate links into through lines. The New York Central, for example, was formed in 1853 out of ten previously independent lines between Albany and Buffalo. The development of parallel through lines introduced an era of sharp competition. In the seventies the lines connecting Chicago and the Atlantic seaboard engaged in a series of rate wars. The experience of this decade showed clearly the temporary and unstable character of competition among parallel lines. The rule seemed to be that a railway war must be followed by a rate agreement of some sort, so that, instead of the maintenance of a supposedly fair level of rates by the steady pressure of competition, we find there was an alternation of high and low rates. The inevitable annihilation of direct competition in rates between railways is clearly portrayed in a congressional report in 1874, where the following prediction was made: "But when the natural tendencies of corporate power have wrought out their inevitable conclusions, the magnitude of our combinations will probably be in proportion to the extent of the field in which they operate." But so strong was the feeling at that time that competition is the life of trade, that it was recommended by the committee who made this report that the government build a line of its own simply to maintain competition with the private roads, for it was thought that the government could resist the great temptation to combine with the other roads.

The history of Belgium affords an instructive illustration of the effect of a mixed system of public and private ownership. Belgium began in 1837 with a carefully worked-out system of public railways. Ten years later it was decided to grant charters to private companies. A large number of private roads were organized, some with the purpose of competing with the state system. It was thought that competition between the state and private roads would be beneficial. The Massachusetts Railroad Commission, in its report of 1871, recommended a trial of this plan in Massachusetts But in Belgium the private lines were soon merged into four systems, which competed so vigorously with the state roads that the government adopted the policy of purchasing them. The mixed system was also tried in Prussia with unfavorable results. The advantages of government management cannot show themselves fully under such conditions.

Pooling and Consolidation.

As a result of the intense struggle

for business among the roads, there was a widespread resort to the practice of pooling, that is, a division of the earnings or tonnage of the competitive business. This form of combination, however, was at least nominally abandoned after it was declared illegal by the Interstate Commerce Act of 1887, but organizations for the purpose of making rates continued to exist. In 1894 these were also declared illegal by the Supreme Court of the United States on the ground that they were in violation of the Anti-Trust Act of 1890. The court, however, did not seem to prohibit the enlargement of the various systems by the purchase and lease of other lines, or controlling them indirectly by the purchase of the majority of their stock. But in 1903 the Supreme Court again applied the Anti-Trust Act of 1890 in a case against the Northern Securities Company, a corporation formed, not for the purpose of engaging in the railway business directly, but for the purpose of holding the capital stock of the Great Northern, Northern Pacific, and Burlington systems. But the legal prohibitions have had little effect upon the tendency to eliminate competition from the railway business.

The present organization of any one of our large systems, like a geological record, reveals the nature of the changes that have been going on. The consolidated company controls a number of large lines, perhaps by stock ownership, and each one of these is made up of a number of subsidiary roads united as a result of purchase, partial-stock ownership, or lease.

But the extent of consolidation is not shown by the growth of the large systems, for these are not wholly independent. A number of the large systems may be under the control of the same group of financiers. While the actual extent of this centralization in ownership is difficult to state, the well-known illustrations are striking: the Harriman group includes the Union Pacific, the Southern Pacific, the Illinois Central, and the Chicago and Alton systems, with partial control of the Baltimore and Ohio. In the Gould group are: the Missouri Pacific, Wabash, Denver and Rio Grande, Western Pacific, Texas and Pacific, and the St. Louis and Southwestern systems. The Great Northern, Northern Pa

cific, and Burlington systems are under one control. The Pennsylvania until recently controlled the Baltimore and Ohio and Norfolk and Western systems. The Vanderbilt interests dominate the New York Central, the Chicago and Northwestern, and the Cleveland, Cincinnati, Chicago, and St. Louis systems.

In spite of the progress of consolidation, competition has not entirely disappeared. Even where there is no active cutting of rates by parallel lines, there may be rivalry in service, but this also has its limitations, as is seen in the agreements that the shorter lines between New York and Chicago and between Chicago and Minneapolis shall not utilize their natural advantage in speed. Again, alternative routes may lead to competition among railways that are not parallel. Thus the roads serving the North Atlantic ports compete in the carriage of grain with those extending to Galveston and New Orleans.

Much has recently been said about the influence of market competition as a force affecting rates, even when the roads have been consolidated. To illustrate, the farmers and railways of North Dakota are joint producers of wheat, and they are both desirous that it shall be sold in competition with other wheat in the London market. It would be ruinous to the roads to make such high rates that the farmers could not afford to sell their grain. The railways cannot be prosperous if the farmers, merchants, and manufacturers along their lines are not prosperous. This partnership, however, has its limits, for a rate which would enable the producer to continue in business may yield the railway a surplus which could be shared with the producer.

The Movement of Rates. The average revenue per ton-mile of railways in the United States fell from 1.001 cents in 1888 to .729 cents in 1900, rising again to .780 in 1904, .766 in 1905, and .748 in 1906. Average ton-mile receipts, however, are not an accurate index of changes in rates, for such an index is affected by the changes in the nature of the traffic as well as by changes in rates charged. If the proportion of low-grade freight increases, there will be a fall in ton-mile receipts without any change in rates. But if we also take into consideration rates on specific commodities, such as wheat, stoves, etc., no doubt remains but that a large

decrease has taken place. In the last forty years there has probably been a fall of one half in rates on through traffic, but the fall was mostly in the first half of that period; in the second half there has been only a slight fall, with possibly some increase since 1900. In local rates the decline has been less marked. The decline in passenger rates before the recent reductions by government authority was less than in freight rates. Improvement in service should, however, be considered in this connection. But whatever the actual movement of rates, the question will inevitably be asked whether they have declined as much as they should have done, and whether the growth in consolidation which we have noted will not prevent such a decline in the future as may be warranted by the growth in traffic and attendant economies in operation. The question is, how shall a "reasonable" freight rate be determined?

The Level of Rates. — If, owing to the monopolistic nature of the railway business, the determination of rates can no longer be left to the automatic working of competitive forces, they must be consciously determined according to fundamental principles. Competition was supposed to do justice by limiting the aggregate earnings of an establishment approximately to the expenses of doing the business, and it seems most natural that we should apply the same guide in our conscious rate making. There can be no doubt but that expense is a safe guide so far as it can be accurately determined. It needs but a slight analysis of railway expenditure, however, to reveal the difficulty of using expense as a criterion of a fair rate. In 1906 the railways reported to the Interstate Commerce Commission gross income amounting to $2,386,285,473 (from operation and investments), and in this same year the interest and dividends amounted to $530,545,911, or 22.2 per cent of the gross income. This represents the amount accruing to the stock and bondholders as joint owners of the business, if we ignore the increase in the value of the plant that results from charging improvements to operating expenses. Is this a proper payment to such owners? That some compensation of this sort is necessary under the régime of private capitalism is clear, for if none were made, new roads would not be built nor would old ones be main

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