. - . . - - . . JH -5. b. " * I
tlbe Conservative *
RAILWAY COMIJINATIONS.
[ Bv H. T. NCWCOMII ]
Of the many addresses delivered nt
the recent Trust Conference in Chicngo ,
none was of more interest to railroad
men than that delivered by Prof. H. T.
Nowcomb , whose article on "Railway
Economics , " published exclusively by
the Railway World , attracted such
widespread attention. So much inter
est has been felt in this question of
"Trusts , " that we feel it a duty to our
readers to present to them Professor
Nowcomb's address. It follows :
Mu. PRESIDENT AND DELEGATES TO THE
CONFERENCE :
Before beginning an examination of
the nature and results of railway com
binations , it is desirable to consider
some of the facts that differentiate com
binations iii transportation from combi
nations in manufactures and trade.
First , in point of time. A strong
tendency toward the combination of
originally separate corporations has
characterized the railway industry dur
ing its entire history ; in manufactures
and in trade such combinations were
practically unknown prior to 1870.
Again , one of the methods of railway
combination , formerly most effective ,
I allude to the practice popularly known
as 'pooling,1 has been illegal , so far as
interstate traffic is concerned , since
1887. and even agreements to maintain
reasonable rates were forbidden by the
anti-trust law of 1800 , which does not
appear successfully to have been applied
to any other industry. The years sub
sequent to 1887 have witnessed a stronger
movement toward the consolidation of
manufacturing and trading establish
ments than was ever previously known.
Further , combinations among rail
ways can directly affect rates on but a
portion of the transportation furnished
to the public , for there are comparatively
few points served by more than a single
railway , and a large portion of the ag
gregate traffic must traverse a particular
route , or it cannot bo moved ; manufac
turing and trading combinations , if they
affect prices at all , must affect those on
the entire output of the establishments
combined.
Railway combination has assumed
three distinct forms. The first involves
the actual merger of several properties
through corporate consolidation , or
practically perpetual leases. Nearly
every great railway in the country is a
result of this process. The line of the
New York Central from Albany to Buf
* fl falo is formed of ten originally separate
roads ; the Atchison , Topeka and Santa
Fo Railroad , which terminates in this
city , operates lines that were formerly
the property of more than one hundred
distinct corporations. Such consolida
tions have been welcomed by the wiser
section of the public , for they have im
proved the service and lessened the cost
and difficulty of travel and of moving
freight.
Another form of combination is
effected by the purchase of the control
of separate corporations in a common
interest. Combinations of this charac
ter do not affect the corporate organiza
tions , which remain legally separate ,
and they may be brought about without
publicity. Until recently the only con
nection among the lines composing the
great Vauderbilt system was of this
character , and at present most of the
lines in that system are held in this
manner. The system which is con
trolled by the banking establishment
which is headed by Mr. J. Pierpont
Morgan lias no other connection and
probably very few individuals outside
of the firm know exactly what proper
ties compose the system.
The third form of combination is by
agreements between corporations , which
remain legally separate and continue to
exercise most of their functions inde
pendently. Such agreements may pro
vide for through tickets , the forwarding
of baggage , through billing of freight ,
interchange of cars and many other
incidents of modern methods of opera
tion that are essential to the efficient
organization of transportation. Without
them the production of utilities of place
would bo much more difficult and costly ,
and territorial division of labor , which
permits the assignment to each locality
of the particular industrial function to
which it is best adapted by natural re
sources , climate and location , could not
exist in its present state of develop
ment.
Another form of combination by
agreements among otherwise indepen
dent railway corporations has probably
furnished the occasion for more debate ,
and has been less understood by the
general public , than any other incident
of railway development , I refer to
agreements concerning the rates to be
charged on traffic for which two or more
rates are available.
As soon as the railway system of the
United States had reached the point of
development at which the same locali
ties wore connected by rival and com
peting lines , some peculiarities inciden
tal to rate making began to attract
attention. The business of railway
transportation is not and cannot be com
petitive , in the ordinary sense , at but
few points and with regard to but a
small portion of the aggregate traffic.
Railways cannot be , in many instances
or for long distances , exactly parallel.
At points not served by more than one
railway or possessing facilities for trans
portation by water , the railway busi
ness is , from its nature , a monopoly.
The bubiness of such points can often
be made to pay the entire fixed charges
and a large proportion of the operating
expenses , and the railway is left free to
accept traffic at the competing points at
rates that barely pay train expenses. In
the absence of express or tacit agree
ments concerning such charges , this re
sult was found to occur very frequently.
It involved discriminations , apparently
unjust , against traffic from and to local
points , which artificially accentuated
the tendency toward the concentration
of population and industry at large
cities.
But the case was even worse than
thin. Competition in this form practi
cally placed the rate-making power in
the hands of the most reckless , incapable
or unscrupulous officials connected with
any lino. Such an official could force
rival lines to meet rates far below the
remunerative point , or to witness the
possibly permanent diversion of import
ant traffic to the lines of their com
petitors. He could bankrupt his own
road or that of his rivals , and at the
same time profit greatly by the manipu
lation of the securities affected iu the
stock market. The competition of rival
routes seeking to secure the same traffic
therefore produced unjust discrimina
tion in rates , artificially stimulated the
tendency toward concentration of popu
lation in cities , and was an effective and
dangerous instrument in the hands of
railway wreckers. Few have failed to
recognize these facts , but many have
supposed that such competition has re
sulted in lower railway charges. An
argument in favor of this contention
can be plausibly supported by the com
mon assumption , that too frequently
passes undetected , that coincidence of
time and place prove a relationship as
between cause and effect. The decline
in railway charges in the United States
has been continuous and extensive.
The average rate per ton of freight car
ried one mile , measured in gold , has
declined from nearly two cents in 1867
to less than eight mills in 1898 , the last
year covered by the reports of the
statistician to the Interstate-Commerce
Commission. The price of wheat at the
port of New York during 1807 would
pay for the transportation of but 2.84
bushels of wheat from Chicago to New
York at the rates of that year ; in 1897
the price , though considerably lower than
in 1867 , would pay for moving six
bushels. In other words , the decline in
the railway rate from Chicago to New
York was twice as great as the decline
in the price of wheat. The decline in
passenger rates from 1871 to 1898
amounts apparently to 25 per cent , but
unlike that in freight rates , is not
susceptible of satisfactory statistical
presentation. The substantial identity
of the service necessary to permit the
use of the statistical method has not
been preserved. The dollar that pur
chases transportation in a modern train ,
provided with automatic couplers and
air brakes , traversing at sixty miles per
hour a track of Bessemer steel rails
weighing 100 pounds to the yard , and
guarded by block signaling apparatus ,
purchases vastly more than did the dol-