10 Tfte Conservative *
other producers of the same commodities
who meet with them iii common mar
kets , the apparent difficulty disappears.
Considered in this manner , such com
petition is clearly within the terms of
the definition of President Hadloy , and
if there is any to which it does not con
form it is one which is not abreast of the
modern development of industrial re
lations.
Competition of Producers mid Consumers.
A summary statement of this method
of explaining the decline of railway
charges may be given in the language in
which the writer thought best to present
it to the rather mixed audience which
gathered at the Conference on Trusts ,
held under the auspices of the Civic
Federation of Chicago , during Septem
ber , 1899.
"A little thought will suggest a cause
that may have produced the decline ,
in spite of , though somewhat hindered
by. the wastes just discussed.
For lack of a better phrase this cause
may bn designated as the competition
among producers for the privilege of
selling in the dearest markets and that
of consumers for the privilege of pur
chasing in the cheapest markets This
needs to be qualified by the suggestion
that railways must be considered as pro
ducers for the reason that the productive
process cannot be regarded as complete ,
in connection with a particular article ,
until that article is available for con
sumption. In more technical words ,
that are , however , perfectly clear in
their meaning , production consists of
the creation of utilities of place as well
as of utilities of form.
Railways , therefore , are partners in
the production of the commodities that
they carry. Partners with whom ? The
answer is , with every separate produc
tive establishment , farm or factory ,
workshop or mine , that exists along
their lines and furnishes traffic for their
trains. Each railway forms , in effect , a
separate combination [ the word com
bination is here used in a clearly
innocuous sense ] with each separate
productive establishment and , as either
place or form utilities might be useless
without the other , these combinations
are essential to the completion of the
productive process. Obviously , any
railway may participate in many such
combinations which produce the same
article. These combinations may com
pete among themselves , and as most pro
ducers of form utilities have a definite
cost of production per unit qf product
while most of the costs of producing
transportation cannot be assigned to par
ticular services , it is not difficult to force
railways to assume the greater shares in
the sacrifices which such competition
involves. "
The concept of a separate combination
. between each productive establishment
and the carrier serving it , suggested in
the foregoing extract , requires further
elaboration. Nearly every railway car
rier has along its lines and at its ter
minals large numbers of industrial es
tablishments which together usually
cover a wide range of productive activi
ties. These establishments , or most of
them , have among themselves no con
tractual or other fixed relations except
those resulting from the legal or com
mercial institutions of the country in
which they are located , and few of them
have any fixed relations , beyond those
so indicated , with the railway itself.
The products of these establishments
may bo classified with regard to wheth
er they are supplied to meet a local de
mand on the one hand or to meet the
wants of consumers in other regions
upon the other. In the former case the
relation of the railway to the producers
is rather indefinite and is not likely to
be expressed by any special action. The
wants of such producers in regard to
personal transportation and as consum
ers of goods produced elsewhere are
grouped with those of other residents
of the locality or treated with regard
only to the conditions of the production
which in turn supplies them.
The relations of the carrier with those
who produce to supply regions that can
be reached only by the utilization of
transportation agencies -are obviously
very different. Such producers furnish
the carrier with its freight traffic and
upon them it is dependent for its reve
nue. In this situation the local pro
ducer and the carrier are each capable
of supplying commodities which , having
by themselves no value , or none that
need be regarded in this connection ,
have together a considerable value. The
local producer has his utility of form ,
his wheat , cotton , pork , pig iron , steel
rails , woolens , or other goods ; the car
rier , producer of utilities of place , can
render these available to consumers by
transporting them to the regions where
the latter are located. Without the
added utility of place the commodities
of the local producer might be mere
negative utilities or , in rare instances ,
they might have some value for local
consumption. The latter possibility in
no way modifies the argument , however ,
for there is no objection to considering
the advantage which the producer of
exported commodities must abstain from
realizing through their local sale ,
as a part of the cost production of
articles which are reserved for export.
Of course this advantage has to be over
come before the commodities enter the
class with those which furnish railways
with traffic. The railway and the local
producer , therefore possess commodities
which are complementary to each other.
The union of these commodities is nec
essary before either can realize his cost of
production , to say nothing of such
profits as may reasonably be anticipated.
That such a union will take place in
most cases is not doubtful. It is the
economic necessity of at least one of the
possible parties and to the economic ad
vantage of the other.
Classification of Products.
If it is possible to obtain from an exam
ination of the circumstances which at
tend the agreements under which the
respective producers of these comple
mentary utilities effect their union , any
definite information concerning the
terms upon which they must meet , it
will materially advance the knowledge
of the conditions which determine rail
way rates. For thw purpose it is de
sirable to classify the producers of utili
ties of form according to the terms on
which their products enter the markets
that they supply. If these products are
so limited in quantity and so peculiar to
the region from which they are shipped
as to enjoy monopoly privileges in the
market or markets to which they are
consigned , the carrier will share what
ever profits may accrue from that mo
nopoly with the local producers upon
terms which will be fixed by contract.
Each party to such a contract will nat
urally attempt to secure the greatest
share possible and the result will de
pend largely upon the wisdom , ingenuity
and persistence with which each presses
his respective aim. The traffic in pro
ducts so monopolized is , however , under
modern conditions , very limited and
opportunities to secure very high rates
even on such traffic are closely re
stricted by the necessity of adjusting
even monopoly prices to the effective
demand of consumers. Though it is
apparently necessary to leave this
branch of the subject with a generaliza
tion that is unsatisfactorily indefinite in
terms , a recurrence to observation will
show that , however successful railways
may have been in their efforts to secure
high rates upon this portion of their
business , the total contribution to reve
nue obtained therefrom has not sufficed
to prevent a very material reduction in
the rate of return to railway capital.
This is equivalent to saying that even
though it should appear that railways
are able to and do take very large shares
of the value of the monopolized com
modities carried over their lines , this
will serve merely to demonstrate that
they secure smaller shares than would
ba otherwise indicated of the value of
the commodities that are marketed
under competitive conditions.
The vastly greater bulk of railway
freight traffic is composed of articles
which are produced in many regions
and by large numbers of independent
establishments. With regard to such
products consumers have usually little
if any preference for those of one region
over those of another and whatever
preference does exist is expressed by a
moderate differential. The latter being
overcomethe product of the less favored
region is unhesitatingly substituted.
The concept of a separate combination
