r
8 The Conservative.
OBSERVATIONS CONCERNING THEORY
OF RAILWAY CHARGES.
[ CONCLUDED FROM LAST WEEK. ]
Under these circumstances what are
the relations between the producer of
form utilities and the railway which
can place them in the maiket ? Start
ing with the fact that the price is fixed
and cannot be modified by the carrier ,
the next step is to observe that the
amount that must be permitted to ac
crue to the producer of utilities of form
is also beyond the carrier's control. This
point will be appreciated aa soon as it is
stated. The producer of utilities of form
must receive pricee equal to his cost of
production. If this is not returned he
will go out of business and will no long
er furnish" ! traffic for the carrier. Rail
way officers are keenly aware of this
fact and are exceedingly watchful that
they may not be taken unaware by
changes in market conditions resulting
in the unexpected diminution of the
tonnage received at any point. The fol
lowing quotation from a statement of
methods of observing traffic movement
with a view of preventing such reduc
tions in its volume is very suggestive :
"Now we will take up that very con
siderable class of tonnage that goes to
competing markets or to the same mar
ket from competing points. This is not
a certain and easy class to determine ,
but practically the distinction does exist
and is very clearly marked at times.
Only the traffic man is in position to
know just what business it is. It will
be scattered at various points along the
road and may be very miscellaneous.
Where once indicated by the traffic de
partment , such tonnnge should be regu
larly withdrawn each month from the
general body to a class by itself. * * *
Explanations will largely lie in market
conditions. It is the business that is
most sensitive to industrial and com
mercial conditions , and it is the duty of
the traffic man to detect at once any
general tendencies and adjust his rate
without delay. He generally does on
the complaints of individual shippers. *
* * Sometimes the fault may lie with
the producing point , and the traffic
manager will be us jealous to guard the
business from such decline as if it were
his rate that was at fault. "
A full comprehension of the signifi
cance of the foregoing is dependent upon
the realization that it is the statement
of a practical railway officer based upon
an intimate knowledge of the condi
tions of railway traffic and expressed in
the customary terminology of current
railway practice. Its essence is the
clear indication that the volume of traf
fic is to be controlled through the ad
justment of charges and that these musl
respect the interests of local producers
or traffic will fail. The admonition to
the rate-making officer to "adjust his
rate without delay" to changed com-
mercial'conditions is in agreement with
the most enlightened practice. It is
the practical statement of the theory of
charging "what the traffic will bear"
and avoiding what President Hadley
las called "what the traffic will not
bear. " The slight confusion of terms
in the concluding sentence of the quota
tion is so evident that it in no way de
tracts from the obviousness of this
.uterpretation.
Discriminating Charges.
Were there not insuperable objections
; o the general practice , even from the
point of view of the least far-seeing rail
way manager , it might be that the ad
justment of charges so as to insure to
each producer of form utilities the re-
iurn of his cost of production and to the
railway the highest possible revenue
would be accomplished by means of
separate bargains upon different terms
with each consignor. Were this practi
cable , the railway might collect in each
case the difference between local cost of
production and the prices paid by con
sumers ( less , of course , other costs of
handling in transit , commissions , etc. )
and thus absorb all possible local differ
ential gains. This may be the explana
tion of some of the discriminations
among individual shippers that have
caused so much complaint in the United
States during the last three decades.
The general imposition of the discrim
inating charges which would be neces
sary to effect the universal or even fre
quent absorption of differential gains
would be as impossible as it would be
illegal and undesirable. Substantial
support of this proposition might be
brought forward in the form of a dis
cussion of the effect upon productive
industry of what producers would re
gard as manifestly unfair distribution.
It is only necessary to suggest this ob
jection , as less complicated ones are
readily available. Such discriminations
are forbidden by law in the United
States and , however defective may be
the present enforcement of this law , it
has the unquestioned sanction of an
ultimately invincible public sentiment
and , with regard at least to an impor
tant portion of railway traffic , of com
mercial customs which cannot be over
come. Neither public sentiment nor
public law would permit the publica
tion of schedules of rates which , if
observed , would have the effect of secur
ing higher rates from certain producers
than from others located at the same
point and obtaining identical service.
Those violations of law which inevitably
occur under present conditions are effect
ed by means of secret and usually tem
porary variations from the published
schedules and in nearly all instances
must be supposed to have the effect of
adding to the differential gains of the
more favorably situated producers.
Under any open , schedule of charges
that may continually be applied at any
point , a marginal producer is certain ,
sooner or later to appear. No one can
be required to pay higher rates than
those published , and the marginal pro
ducer , if not , as is usually the case , too
weak to secure concessions for his traffic ,
is certain , unless they are withdrawn ,
soon to see the special rates which he
tias obtained openly promulgated as
charges applicable to all business of like
character received at the same point.
The limit to the amount which can be
collected by any carrier for any service
is , therefore , the difference between the
price of the commodity taken to market
through its agency and the marginal
cost of production of that commodity at
the point whence it is shipped.
It may be urged , however , that if the
carrier is not satisfied that it will be
profitable from its own point of view to
perform the transportation upon these
terms , it can withdraw from the busi
ness entirely or by raising its rates force
a particular marginal producer out of
business and substitute another whose
cost is lower. This contention is by no
means wholly groundless , yet it is im
portant to enumerate some of the cir
cumstances and motives which lead
railways to accept traffic at the lowest
possible rates and occasionally mislead
railway officers as to the point at which
profit ceases and loss commences.
Joint Cost.
The primary observation in this con
nection is that there is no specific cost
assignable to a particular railway ser
vice. A very large proportion of the
expenses of railway transportation are
incurred on account of numerous servi
ces , many are incurred on account of
all , and a very insignificant , in fact
almost negligible , proportion of the ag
gregate is accurately assignable to par
ticular services. President Hadley ex
pressed the consequences of this fact
and at least one of its causes when he
indicated an important distinction be
tween railway competition and that of
establishments having smaller proportions
tions of fixed capital. He wrote :
"The competition of different stores
finds a natural limit. It brings rates
down near to cost of service , and then
stops. The competition of railroads or
factories find no such natural limit.
Wherever there is a large permanent
investment , and large fixed charges ,
competition brings rates down below
cost of service. "
In declaring , however , that "compe
tition brings rates down below cost of
service , " the author of the foregoing
quotation apparently sanctioned the
erroneous assumption of the existence
of specific costs. The fact that railway
transportation presents a case of "joint
cost" had not received attention at the
time (1885) ( ) of the publication of the
work quoted. The fact that there are
no specific costs is now thoroughly un
derstood and there is consequently less
tendency to criticise the currently
accepted belief among railway officers
that anything received for a particular
