CHAPTER IV. RAILWAY RATES-THEIR BASES AND THE INFLUENCES AFFECTING THEM. An important factor in determining the rate is the attendant risk of handling the traffic. Common carriers are insurers, within certain prescribed limits. The insurance covers loss, breakage, and fire, in the case of goods, and accident and life, in the case of passengers. In many instances the risk is scarcely appreciable-does not sensibly affect the rate; in others it is as marked as the cost of handling. Whatever it may be, it influences the rate to that extent, and being of universal application, is general in its effect. The principles that govern the making of rates, while in the main identical in different countries, are affected somewhat by local conditions. In England and the United States, two things, above all others, operate: the value of the transportation, (determined by the thing transported), and the cost of carriage. The value of the service rendered is generally the difference between the value of a thing at the point of shipment and at its destination. More than this can not be charged. If it were, traffic would not be offered. In determining the cost of transportation, averages only can be safely used. We can not assume that new business will * cost less than the average of that which already exists. A French writer, however, disputes this. He thinks the lowest price at which a carrier can transport a unit of traffic, or ton of freight, one hundred miles, with advantage to himself, is not the average cost of carrying a ton one hundred miles, but is the cost of carrying an "additional ton" one hundred miles. He says: "If trains are run empty, the cost of handling them is a trifle less than if they were run full; but the difference is not large; and so long as there is not traffic enough to compel an increase in the number of trains, the transportation of a ton, in addition to that which already exists, involves, so to say, no additional expenses. Even when the number of trains is increased, the increase in the expense is far from being proportional to the increase in traffic." Mr. Colson's argument is more specious than trustworthy. No rate can safely be made that does not assume that the cost is equal to the general average for such freight. Any other basis would quickly bankrupt a company, because it would leave no margin for the constant enlargement of expenses that is going on. Not only this, but provision must be made for a return on the additions to the property that new business engenders. For, while the original cost of a property is but little considered in making a rate, additions to a property are not lost sight of in that connection. Thus, if rates are unprofitable, no additions or extensions to *C. Colson, of the Government Council of the French Railway Service. a property will be made. If they are made, it is because the rate on the business they are intended to provide for is sufficient to cover a return thereon. To this extent, therefore, the cost of a property affects the rate.* The large financial interest which the French government has in its railways suggests to it that the rate shall not only cover the cost of carriage, but also a proportionate charge on account of the original investment. The French are handicapped to this extent. The conditions in France are not the same as in the United States, where free railway construction is permitted. In explaining the French system, Mr. Colson says the cost of transportation involves, not only the expense of moving the traffic, but also a charge for using the road, which charge may properly be called a toll. On this charge the "additional ton" has but little effect, for the cost of the road remains the same until a very large additional traffic necessitates extensions and improvements, and much of the cost of maintenance is affected but slightly by the volume of traffic. Mr. Colson claims that the law of supply and demand is not free to act in the fixing of railway rates; that it is restricted and trammeled. The supply, for instance, is represented by facilities created by capital. But when once capital has been invested therein, it can never be withdrawn from *While this applies generally, it does not apply in every case. Many additions and improvements are made to a property with a view to cheapening the cost of operating. Thus a company whose traffic is unproductive may, by certain additions or improvements, so cheapen cost as to make its business profitable. 7 Vol. 8 that enterprise, if it be a failure, and put into more profitable ventures. This is only negatively true. If the original cost of a property determined the price asked for service, the law of supply and demand would not operate in fixing the rate. But it does not. The rate traffic will bear and the cost of service determine finally, as in every commercial transaction, whether business can be done or not. Wherever railways are unprofitable, other lines will not be built, and those in existence will dwindle. Unprofitable roads quickly adjust themselves to their environment, and if, with the increase of business that follows the introduction of every railway, properties that are at first unprofitable are able to earn abnormal returns, other lines will be constructed. From whatever point of view the subject is considered, the law of supply and demand operates untrammeled as effectively and inevitably in the case of railways as in the case of other industries. But this is only true where railway construction is free-wherever railroads are owned by private individuals, wherever unrestricted railway construction is permitted, wherever carriers are allowed to make their own rates. In making rates, each company endeavors to make the traffic it handles cover a reasonable return on the first cost of the property; but its ability to do this is governed by influences beyond its control or that of the shipper, and when traffic can not pay its proportion of fixed charges, it is yet taken, if it can contribute something, no matter how small the amount may be. This is not true of government railroads, or of monopolies. Rate-making is a purely practical question. And here is where so many writers and theorists fail to understand the problem. It is not, to them, coldly a matter of business, a thing governed by the same principles as the production and sale of turnips; a question of barter and sale, of giving every man his due. They look at it from a sentimental point of view. Properly, however, the subject can only be considered from the standpoint of the trader. Only on this basis can railways be made self-sustaining; only on this basis can those who use them be made to pay therefor. On any other basis the load would have to be borne, partially at least, by others. It would be class legislation of the most unjust kind. Professor Cohn likens the rates of railways to taxes: "All experience shows that railway rates are based, not on the cost of furnishing the service, but on what the purchaser can afford to pay, and ought to pay. . The problem at bottom is one of ethics, involving those considerations of public policy and of right and wrong which recur in the discussions of proportional or progressive taxation.” Because of this, curiously enough, he argues that private persons can not be entrusted with the delicate duty of determining what the charge shall be; that the government only can do this. It is very much like saying that because air is necessary to man, its distribution can not be left to natural laws, but must be looked after by the government. Ratemaking is purely a commercial question, like the supply of corn. "The main peculiarities in railway rates are not to be explained on a supposed basis of |