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As soon as it was realized in England and in this country that the safe and economical management of a railroad rendered it necessary that the work of the common carrier should be performed by the man. agement of the road itself, it was confidently predicted that the power of the railroad companies would eventually become so great and their control over the commercial and industrial enterprises of the people so absolute that it would become necessary for the state to govern the railroads in order to prevent the railroads from governing the state. Notwithstanding the fact that many of the evils apprehended have ex. hibited themselves in different degrees, experience has proved that the system contains within itself certain conservative elements, which, in the more advanced stages of railroad extension, assert themselves as regulating forces, although not to the extent of preventing all discriminations or of correcting all the abuses which have from time to time arisen. But this much is not to be expected in the course of human affairs, either as the result of the untrammeled action of natural forces or as the product of any scheme of adjustment.
At an early day in the history of railway legislation, the Duke of Wellington uttered this word of warning in the British Parliament:
Beware, my lords, lest in legislating in favor of railroads you lose sight of the old English idea of the highway." But the freedom of the highway, in the sense in which the term is employed with reference to transportation on wagon-roads, on canals, on rivers, and upon the ocean, has been entirely eliminated from railroads, and yet many of the evils apprehended have not been realized under the privileges and powers of independent corporate ownership. Monopoly has not strangled commerce, for competition, the natural regulator of values, has appeared under new conditions, and in the determination of rates for the transportation of both passengers and freights it appears to have kept pace with the development of the possibilities of the railroad system, although, as just stated, not to the extent of preventing all abuses.
Experience has proved tbat the system under which the entire freight and passenger traffic of railroads is conducted by the mauagement of the railroad companies themselves, as common carriers, has been the most important condition under which the present advanced state of railway transportation has been attained. Regularity of movement, reduction in cost, security, accountability, dispatch-all these inval. uable results are due to this peculiar feature of the system at first believed to be fraught with such serious evils.
Some of the features of monopoly always have and perhaps always will attach to the railroad system, but they will continue under certain restraints growing out of the competition between rival transportationlines, and between riral markets. As we have also seen, these restraints
operate under widely different conditions with respect to what are known as "competitive" and as “local” traffic.
During the first twenty years of railway construction in the United States there were comparatively few competing railroads. The companies sought new routes, where they could enjoy exclusive privileges. But in the course of a few years competing lines were constructed between the important centers of trade. In certain cases rival companies, seeing that competition would be disastrous to both, entered into combinations as to the rates which should be maintained. In other cases the two roads were consolidated under one ownership. This led to the impression that eventually there would be no effective competition between rival roads. George Stephenson, the father of the railroad system of Great Britain, expressed the opinion that “wherever combination is pos. sible competition is impossible," and the inference was generally drawn that competition may always be suppressed by combination. Experience has proved the fallacy of this idea. Perhaps the most extensive combinations and consolidations of railway interests in the world are those which bave been formed by the trunk lines connecting the Western and Northwestern States with the States of the Atlantic seaboard. These combinations and consolidations were originally entered into by the various railroad companies for the purpose of controlling commerce between the East and the West; but it is well known that the most ungovernable competition is that which now exists and which has existed for several years between those great rival trunk lines, and it is also a fact that the rates which have for several years prevailed upon those roads have been the cheapest rail-rates known in this country, and perhaps in the world. Strenuous efforts have been made by the managers of the trunk lines to advance competitive rates and even to maintain very moderate rates, but oftentimes unsuccessfully. Competition between the trunk lines and their various connecting lines, and other forces beyond the control of the managers of those lines have thwarted their efforts, and the result has been that the cheapness of through rates enforced upon these great companies has given rise to complaints of unjust discrimination with respect to rates between points where the commercial advantages of competition do not exist. It is averred that the great trunk lines have, during the last two years, engaged in the competitive traffic between the West and the seaboard at rates below the actual cost of transportation.
As the results of the efforts of the promoters of railway consolidations and combinations, we now see that it is impossible for these great trank lines to combine for the determination of rates, except as to certain classes of traffic and within limits imposed by the economies of transportation and by commercial forces beyond their control.
CIRCUMSTANCES WHICH TEND TO REGULATE RAIL-RATES.
Let us consider briefly some of the forces which in practice tend to regulate freight charges on American railroads in so far as relates to the great commercial movements between the West and the seaboard.
First. Between each of the principal commercial cities of the West and each one of the chief Atlantic sea-ports there are several competing lines formed by the trunk roads and their connections. One or more of these lines may regard the through traffic between certain centers of trade as a principal source of revenue. Other lines may regard it as a mere adjunct to their local business or as an adjunct to their more important through traffic between other points. In the latter cases the companies may be satisfied with any rate which will yield more than the mere cost of handling and hauling, and therefore be inclined to compete for the traffic at very much lower rates than the managers of other roads would desire to maintain.
Again, take the case which in practice has almost innumerable illus. trations. Between two centers of trade there are several competing lines differing widely as to distance, grades, and amount of traffic, and as to all the other conditions determining cost of transportation. It often. times occurs that the managers of the longer or more unfavorably situated lines see clearly that they can secure a share of the traffic only by taking it at rates below those prevailing on the more favorably situated roads. Unless the demands of the managers of the longer lines are complied with a railroad war ensues, with the inevitable result that all the roads are subjected to very much greater losses than would have been sustained even under the terms of an agreement which might not have been deemed altogether satisfactory to any one of them.
Second. The financial condition of railroads has an important bearing upon the question as to the rates which may be charged under certain circumstances. In the case of the competitive business between a commercial center at the West and an Atlantic sea-port, several of the lines pay dividends upon their stock, and they require certain rates of transportation in order to meet dividends and the interest upon their bouded indebtedness. There are other roads which can barely pay interest upon their bonds. There are also competing roads which are in a condition of bankruptcy, being unable to pay even the interest on their bonds. These roads, while struggling for existence under some form of compromise or of financial adjustment, are willing to take freights at rates very little in advance of the mere cost of moving them. About the first of March, 1876, a practical example of this sort was presented on a very large scale. The trunk lines from Chicago to the East (all solvent roads) formed a combination upon the basis of "pooling” earnings. Their efforts to fix the rates on grain were, however, defeated by the compe. tition of certain bankrupt railroads south of Chicago, having connections with almost all the western railroads. The strategic position held by these bankrupt roads as the result of their low financial condition enabled them to drive their more prosperous competitors from a chosen position.
Third. The competition of product with product in the markets of the country is in some cases an effective restraint upon freight-charges, while in other cases it exerts practically but little influence, but in all cases it exerts in some degree a restraining influence upon rates. The tradeforces of the country are oftentimes stronger than the power exercised by the railroad companies with respect to traffic between the more im. portant centers of trade.
Either directly or indirectly, the markets of every commercial city bring to bear upon the freight-rates of each one of the railroads tributary to it the competition of all the other tributary roads, as well as the competition of all the railroads tributary to rival commercial cities. This is a fact which forces itself upon the notice of the managers of every railroad in the country and which is recognized by them as establishing limits within which their discretionary powers with respect to competitive traffic are restrained. The degree of control exercised by every commercial city over the movements of any particular com. modity depends upon many circumstances, among which may be mentioned the magnitude of its total commerce, the amount of its available capital, the energy, tact, and enterprise of its merchants, its geograph. ical position, and its various facilities for transportation, including both rail and water lines.
In some cases railroad managers exercise a very wide discretion in the establishment of freight-charges, and in other cases their powers are restrained within very narrow limits. But the commercial forces always assert themselves. The competition of product with product in the various markets is widely diffused and presents itself under many varied aspects. The markets cannot enter into any sort of combination among themselves or with railroad interests. Although oftentimes dormant, the competitive influence of trade always asserts itself over transportation-lines. It is a statical rather than a dynamical agency.
The construction of railroads throughout the United States has vastly extended the geographical limits of the trade of commercial cities. The territory tributary to the commerce of each city overlaps the territorial limits of the commerce of several other cities. This has led to very marked results in commercial affairs. For example, competition between markets and between transportation-lines brings to New York certain products of Illinois and Iowa at rates little in advance of the rates upon the same com. modity from local points within 100 miles of that city. Thus railroads have in a very striking manner tended to diminish the effect of distance as an element of the cost of transportation and to equalize values throughout the country.
With respect to the through traffic between the West and the seaboard the combined trade and transportation forces determine the maximum limit of the charges which can be imposed by the feeblest of the bank. rupt connections of through lines, and to almost the same extent they determine the rates which can be charged by that gigantic organization, the Pennsylvania Railroad Company. The competition between markets is so closely intermingled and presents such a variety of phases that it is oftentimes impossible to define the relative influence of any particular market. The following statements in regard to actual commercial movements in the United States serve to illustrate the influence of the competition of rival lines and of rival trade-forces over freight-rates on railroads engaged in what is commonly known as “through traffic.”
(a) The competition between New York, Philadelphia, Baltimore, Chicago, Saint Louis, Louisville, Cincinnati, and other trade-centers in a great measure controls freight-rates on all the lines engaged in trans. portation between the West and the seaboard, as well as ocean-rates in our coastwise trade and in our trade with other countries. A single illustration in proof of this fact may be given:
There are not less than twenty different lines or combinations of lines over which grain produced in the Western States can be transported to the cities of New York, Boston, Montreal, Philadelphia, and Baltimore. Some of these are all-rail lines, others are rail and water lines combined, and there is also the Lake, Erie Canal, and Hudson River route. The lines to each one of these cities compete with each other, and in conseqdence of the identity of their interests with the interests of their respective seaport termini, compete with the lines to all the other ports.
There are also at all of these sea-ports one or more ocean-steamer lines to Europe, which compete with each other quite as sharply as do the railroads. The rates which can be obtained both on the internal and on the ocean lines of transport are therefore governed by the competition hetween all these lines, as well as by the grain-markets of the various Atlantic sea-ports of the United States and the grain-markets of Europe.
England is onr chief grain-market, but she also receives grain from Russia, Turkey, Austria, Egypt, Spain, Portugal, Morocco, South America, and Australia. The price of grain in the English market is regulated by the available supply from all these countries and by the freightrates which prevail from each country to England. All these competitive elements of commerce and of transportation react upon the railroads and interior water-lines of the United States and to a certain extent constrain tbe railroad manager in the adjustment of his rates on grain. Thus the coudition of the grain-markets of Europe and the ocean-rates on grain from Russia to England may exert a potential influence over the rates which can be charged on a branch road in one of our Western States.
(6) The effect of the competition of the markets upon railroad freighttariffs may, however, be illustrated in special cases as wellas in this worldwide competition. Suppose, for example, a grain-market at A having several roads leading into it from B, C, D, and E, each one of which engages in the transportation of grain from all points on its line. Evi. dently on no one of these lines to the common market A can the rates be advanced very much beyond the rates which prevail on the other