William Zebina Ripley

“ No postponement to a more favorable time for raising funds for better terminals or four tracking the main line is possible; nor does its character as a public servant permit a railroad to curtail service. The dead wall of congestion cannot be gotten around by either path. A crisis is presented, calling for the most heroic measures. This, of course, still further emphasizes the need for a long look ahead into the future with respect to railroad finance; not for the management alone, but for the government as well, charged as it is at present with control over rates for service. ”

“ Inasmuch as almost every railway in the country participates in transcontinental business, an agreement was practically impossible. Entirely aside from the merits of this particular intricate question, it must be borne in mind that there is no such thing as independence of action on behalf of any single carrier. It becomes exceedingly easy for one road to play a dog-in-the-manger part. The shipper may be subjected to an extortionate policy, not dictated by the road over which he ships, as a matter of fact, but by roads operating perhaps a thousand or more miles away. ”

“ What are the effects of this American practice of unduly disregarding distance as a factor in transportation? Not less [Pg 289] than five deserve separate consideration in some detail. It inordinately swells the volume of ton-mileage; it dilutes the ton-mile revenue; it produces rigidity of industrial conditions; it stimulates centralization both of population and of industry, and it is a tax upon American production.
One cannot fail to be impressed with the phenomenal growth of transportation in the United States, especially in recent years. ”

“ So profoundly modified in short are the conditions of railway competition by contrast with those in industry, that it is clear beyond a shadow of doubt that a railway is essentially a monopoly. This requires no proof so far as local business, in distinction from through or competitive traffic, is concerned. It is equally true in respect to all traffic of sufficient importance to bring about pooling agreements or a division of the business, in order to forfend bankruptcy and consolidation. To attempt to perpetuate competition between railways by legislation is thus defeating its own end. ”

“ The supreme disadvantage in building up a great monopoly in order to win traffic for a railroad is, of course, that the moment the shipper becomes sufficiently powerful, he can play off one road against another, thus becoming practically master of the situation. Sindbad is soon overwhelmed by the old man of the sea. And the weaker the road financially, the more powerful is the appeal, to which at last even the strongest lines must succumb. The history of the Standard Oil Company during the eighties clearly exemplifies this. ”

“ It is the railway's business to widen, not to restrict, the area of markets. "The more they scatter the better it is for the railroads." "Keep everyone in business everywhere." And if necessary to give a fillip to languishing competition, do so by a concession in rates. Is there not danger that with a host of eager freight solicitors in the field, and equally ambitious traffic managers in command, a good thing may be overdone, to the disadvantage of the railway, the shippers and the consuming public? ”

“ It is indisputable that the great dynamic force in railway operation inheres in the value of service idea. The traffic manager who is always considering how much it will cost to handle business, will seldom adventure into new territory. The United States, as a rapidly growing country, is consequently the field in which charging what the traffic will bear, has been most ardently upheld as the only practicable basis for rate making. ”

“ The common complaint today is not of high rates but of relative inequalities as between places. It is a truism to assert that it matters less to a shipping point what rate it pays than that its rate, however high, should be the same for all competing places. This immediately forces us to consider the consumer. What is the effect upon the general level of prices of the American policy of making an extended market the touchstone of success, irrespective of the danger of wastes arising from overlapping markets? ”

“ The Canadian Pacific, for example, was perhaps originally built without any expectation of being able to participate in San Francisco business; and yet, like the Grand Trunk, it has always been an active factor in the determination of transcontinental tariffs.
The fact is that cost of production, while in trade fixing a point below which people may refuse to produce or compete, in transportation may merely mark the point at which it becomes more wasteful to stop producing than to go on producing at a loss. Hadley's classic statement is so admirable that it cannot be improved upon. ”

“ Competitors on either side would similarly enjoy an advantage in more direct lines from New York to the places immediately beyond them. Thus for business from New York to Z, the more direct lines through E, F or G would obviously have an advantage over lines which passed around through A, B, C or D. An almost irresistible incentive to cut-throat competition would exist. The only way the lines east of the inner circle can peaceably partition business to the outermost western points is by an agreement to make all rates between the inner and outer circles the same. ”

“ Not many new steam railroad companies are now needed even in the West. It must be confessed that the recently authorized extension of the Grand Trunk Railway into the heart of New England shows how persistent is the demand for new roads even in the East. But whoever may build, let them learn the lesson, so often forgotten, that honest management and conservative financing, to the end that solid credit be first established, has far more to do with facilitating development than non-interference by law. ”

“ For a country to dispose of its surplus products abroad by cutting prices may not involve economic loss; but for two countries to be simultaneously engaged in "dumping" their products into each other's markets is quite a different matter. In transportation such cases arise whenever a community, producing a surplus of a given commodity, supplies itself, nevertheless, with that same commodity from a distant market. It may not be a just grievance that Iowa, a great cattle raising state, should be forced to procure her dressed meats in Chicago or Omaha ”

“ The New Haven monopoly in New England might be managed rather in the interest of New York than of the port of Boston. The Illinois Central, once devoted whole-heartedly to the upbuilding of New Orleans, must now, as a part of the Union Pacific system, comprehend San Francisco and even Savannah within the scope of its plans. New systems implied new traffic arrangements. Railroad policy must of necessity involve a choice, not between two evils, perhaps, but between a resultant good and a necessarily attendant evil. ”

“ It would be obviously unjust to compare a one-way fare with either excursion or commutation rates. Export and import freight rates, usually lower than regular domestic rates, must each be dealt with in a class by themselves, in determining whether the more distant point by having a higher rate prejudiced the rights of intermediate ones. Congress certainly did not intend to make the charging of a commodity or carload rate in transcontinental traffic unlawful, merely because it happened to be lower than local rates or less-than-carload classified shipments from intermediate points. ”

“ Commercial competition deals not with a mere choice of routes, but with alternative markets. The carriers act, not independently and of their own volition, but only as agents or representatives for their constituents, the shippers. They may become tools or weapons in the hands of merchants or manufacturers who are the real contestants. It is largely in this sense that it is so often alleged, and rightfully, that railway traffic managers oftentimes do not make rates at all. Their energies are bent to the analysis of those circumstances by which their rates are made for them. ”

“ One cannot for a moment doubt the advantages of such a policy as a safeguard against violent dislocating shocks to industry. It may render the transition to new and better conditions more gradual and easier to bear. It has been of inestimable value to New England, as exposed to the competition of newer manufactures in the Central West. But on the other hand, it is equally true that in the long run the whole country will fare best when each industry is prosecuted in the most favored location—all conditions of marketing as well as of mere production being considered. ”

“ A striking characteristic of American transportation history, emphasized by the foregoing account of land grants and subsidies, is its essentially speculative character. Railroads were more often constructed in advance of population and settlement than to accommodate traffic already in existence. Speculation, as will appear in another volume, has permeated all of our railroad finance. In the early days the most extravagant visions of development were indulged in on all sides. ”

“ Why need the public or other shippers be concerned about the railways' policy in this regard? Is not each railway the best judge for itself of the profitableness of long-distance traffic? Will it not roughly assign limits to its own activities in extending business, refusing to make rates lower than the actual incidental cost of operation? And are not all low long-distance [Pg 268] rates, in so far as they contribute something toward joint cost, an aid to the short haul traffic? The answer will in a measure depend upon our choice between two main lines of policy ”

“ This was the fate of the old New York and New England railway, finally purchased by the New Haven system; of the West Shore and Nickel Plate lines; and of the Kansas Pacific, unloaded on the Union Pacific by Jay Gould. The nature of railway competition is indeed such that no other result than consolidation or pooling can ensue. Weyl is right in his observation that,—"Strictly speaking, permanent competition can exist, not between railroads struggling for the same traffic; but solely between those railroads which have no territory in common." ”

“ The most important single factor in the production of increasing returns upon a railroad is the density of traffic; that is to say, the amount of business which can be conducted with a given set of rails, terminals and rolling stock. In other words, it is the degree of effective utilization of the plant and equipment. It is too obvious to need demonstration, after what has been set forth concerning the nature of railroad expenditures, that economy of operation and, consequently, profits are more or less directly dependent upon this fact. ”

“ The transportation of goods great distances at low rates, while economically justifiable in opening up new channels of business, becomes wasteful the moment such carriage, instead of creating new business, merely brings about an exchange between widely separated markets, or an invasion of fields naturally tributary to other centres. The wider the market, the greater is the chance of the most efficient production at the lowest cost. ”

“ Distrust of monopoly has always loomed up large in the public eye. The dread of it is voiced in every public document of the time. The Windom Committee in 1874, as we have seen, looked to the stimulation of railway competition as its chief remedy against high rates. Five years later, the Hepburn Committee in New York vehemently denounced railroad monopoly as an evil to be sternly repressed. But, in the meantime, the carriers, almost prostrated by the excesses of their rate wars, were slowly learning how to coöperate for the maintenance of more stable charges. ”

“ The freight service of a railway comprises the carriage of all kinds of goods simultaneously, from the most valuable high-priced commodities, such as silks and satins, down to lumber, coal, cement, and even sand. [141] To compel each of these classes of goods to bear its proportionate share of the cost of carriage, would at once preclude the possibility of transporting low-priced goods at all. One dollar a hundred pounds may not be too much to add to the price of boots and shoes for transportation from Boston to Chicago. ”

“ It is always considered desirable to have a long haul, and the rates on a long haul should be much less, in proportion to distance, than on a short haul. This is a principle of rate-making which has grown up as one of the factors in the evolution of the railroad business in this country, and it has greatly stimulated the movement of freight for long distances, has brought the great manufacturing centres in closer touch with the consumer at a distance and the producer in closer touch with centres of trade. ”