RAILROADS
RATES AND REGULATION
_BY THE SAME AUTHOR_
RAILROADS
FINANCE AND ORGANIZATION
=8vo. Pages xx + 638, with Index. $3.00 Net=
TABLE OF CONTENTS
CHAPTER
I Railroad Construction Finance.
II Capital and Capitalization.
III Railroad Securities: Capital Stock, etc.
IV Railroad Securities: Mortgage Indebtedness, etc.
V The Course of Market Prices.
VI Speculation.
VII Stock-Watering.
VIII Stock-Watering (_continued_).
IX State Regulation of Security Issues.
X The Determination of Reasonable Rates.
XI Physical Valuation: Reasonable Rates.
XII Receivership and Reorganization.
XIII Intercorporate Relations.
XIV Combination: Eastern and Southern Systems.
XV Railroad Combination in the West.
XVI The Anthracite Coal Arrangement.
XVII Dissolution under the Anti-Trust Law.
XVIII Pooling and Inter-Railway Agreements.
LONGMANS, GREEN, AND CO.
RAILROADS
RATES AND REGULATION
BY
WILLIAM Z. RIPLEY, PH.D.
NATHANIEL ROPES PROFESSOR OF ECONOMICS IN HARVARD UNIVERSITY
WITH 41 MAPS AND DIAGRAMS
New Impression
LONGMANS, GREEN AND CO.
FOURTH AVENUE & 30TH STREET, NEW YORK
39 PATERNOSTER ROW, LONDON
BOMBAY, CALCUTTA, AND MADRAS
1916
COPYRIGHT, 1912, BY
LONGMANS, GREEN, AND CO.
Published, November, 1912
Reprinted, November, 1913
September, 1916
THE·PLIMPTON·PRESS
[W·D·O]
NORWOOD·MASS·U·S·A
PREFACE
This treatise is the outcome of a continuous personal interest in
railroads, practically coincident in point of time with the period
of active participation of the Federal government in their affairs.
During these years, since 1887 when the Act to Regulate Commerce was
passed, as the problem of public regulation has gradually unfolded,
opportunity has offered itself to me to view the subject from different
angles. At the Massachusetts Institute of Technology, as instructor
of embryo engineers in the economic aspects of their callings; in
service for the United States Industrial Commission in 1900-01, in
touch alike with government officials and, travelling all about the
country, with shippers and commercial bodies during a period of acute
unrest; and finally ripening the practical experience, thus gained, in
the favoring atmosphere of Harvard University, seeking to imbue future
citizens with a sense of their civic responsibilities; through all
these years, the conviction has steadily grown that, as one of the most
fundamental agents in our American economic affairs, the subjection
of transportation to public control was a primary need of the time.
An earnest effort has been made to set down the facts concerning this
highly controversial subject with scientific rigor and with fairness
to all three of the great parties concerned, the owners, the shippers
and the people. If bias there be, it will in all likelihood be found to
favor the welfare of the "dim inarticulate multitude,"--that so inert
mass of interests and aspirations, too indefinitely informed as to
details and too much occupied in earning its daily bread, to be able
to analyze its own vital concerns, to give expression to its will,
and even sometimes, as it seems, wisely to choose its spokesmen and
representatives. It is this helpless and unorganized general public,
always in need of an advocate, which, perhaps, most strongly appeals to
the academic mind. If there be lack of judicial poise in this regard,
it is, at all events, palliated by free confession in advance.
Nor is the history of the assumption by public authority of its
inherent right to control railroads, as narrow an interest as it at
first appears. Transportation, as a service, is the commodity produced
by common carriers. The manner in which the price of this commodity has
been brought under governmental regulation has a direct bearing upon
another problem just beginning to open up; namely that of the control
by the state of the prices of other things. It is not unlikely, in my
judgment, that the final solution of the so-called Trust Problem in
the United States, whether for good or ill, may ultimately contain as
one important feature, the determination by governmental authority of
reasonable prices for such prime necessities of life as milk, ice,
coal, sugar and oil, when produced under monopolistic conditions. This
view is shared by my colleague Professor Taussig in his "Principles of
Economics." It is also distinctly set forth by President Van Hise of
the University of Wisconsin, in his recent "Concentration and Control."
When the seed of such an industrial policy is planted, as I believe
it possible in time, the soil will have been richly prepared for its
reception by our experience in the determination of reasonable charges
for the services of railroads and other public utilities.
A word of explanation may also be offered to the reader who finds
in these pages an almost exuberant mass of illustrative material.
Possibly, even, it may be alleged that in places so thick are the
circumstantial trees of evidence that one can scarcely perceive
the wood of principle. But, under the circumstances, it is almost
inevitable that this should be so. The method of inquiry adopted has
been mainly inductive. Text books and theoretical treatises have been
used only by the way. I hold them to be merely of secondary importance.
The principal reliance has been upon concrete data, painstakingly
gathered through many years from original sources. In this present
excursion in the far more complex domain of the social sciences, an
endeavor has been made to adhere strictly to the same scientific method
pursued in the field of natural science in writing "The Races of
Europe." A search far and wide for every possible bit of raw material
had to be made at the outset. To this succeeded the classification and
realignment of the concrete data thus obtained. The last step of all,
was the formulation of the governing economic principles. But an almost
indispensable result of this mode of work is a plenitude of reference
and example. One might almost say that under such circumstances it
becomes second nature to demand concrete illustration for every
economic theory or principle laid down. Such a statement, however,
would be fallacious. It would misrepresent the true sequence of events
as above outlined. Rather should it be affirmed, that, inasmuch as the
concrete examples are the sources of the reasoning, no theory can be
held valid for which somewhere or somehow, positive illustration drawn
from practice cannot be found. Such an ideal is, indeed, difficult
to attain; but it may be stated as a cardinal principle to be always
kept in mind. And it ought to excuse an author from the charge of
over-elaboration of detail in illustration. The only crimes for which
no verbal atonement will suffice are that the chosen illustration does
not fit the principle, or else that the facts have been distorted to
serve a preconceived idea.
References throughout this work to a second volume will be noted. This
will deal primarily with matters of finance and corporate relations.
The general subject of railroad combination was necessarily relegated
to another set of covers. This, however, is quite fitting, inasmuch
as the connection between matters of finance and organization is at
all times so intimate and necessary. The development of inter-railway
relationships has been, perhaps, next to the establishment of
government regulation, the most striking phenomenon of the last decade.
It is absolutely essential to a comprehension of present day financial
problems, to understand the nature and extent of the consolidation
of interests which obtains. This second volume, now nearly completed,
will, it is hoped, appear early in 1913.
This volume is also frequently linked by means of cross references
to a set of reprints of notable interstate commerce cases or special
articles which was published some years ago as "Railway Problems."
(Ginn & Co.) Much new material having accumulated since its original
appearance in 1907, it is the intention to prepare a new and revised
edition, particularly designed as an accompaniment to this treatise.
But the same chapter numbers will be preserved for all material taken
over from the first edition.
Many friends and specialists, who shall be unnamed, have been of
assistance in various ways for which I am duly grateful. But a few
have been so peculiarly helpful that it is fitting to make more
particular mention of my personal obligation. Especially is this true
of Hon. Balthasar H. Meyer of the Interstate Commerce Commission,
from whom through many years of friendship and common interest in the
subject, have come all sorts of aid and suggestion. Prof. F. H. Dixon
of Dartmouth College, Statistician of the Bureau of Railway Economics
at Washington, also a co-worker in the same field, has always without
reserve freely shared the best he had to give. I have drawn liberally
from his special contributions on transportation, particularly in
the history of recent Federal legislation. Despite the difference
in our point of view, the always friendly criticism of Frederic A.
Delano, President of the Wabash Railroad, has been most welcome and
serviceable. In matters of classification, Mr. D. O. Ives, Traffic
Expert of the Boston Chamber of Commerce, has extended a helping hand.
And I have profited greatly from the published work of Mr. Samuel O.
Dunn, now Editor of the _Railway Age Gazette_. In this connection,
acknowledgment should be made of my deep obligation to the other
editors of that admirable technical journal, who have in series during
a number of years afforded me an opportunity of reaching a class of
readers and, it should be added, not infrequently of unsparing critics,
whose intelligence and technical knowledge have held me to a strict
accounting in all matters of fact or principle. Without this critical
oversight, many statements, happily now tested, would have held less
secure place. Then again, there is the entire staff of the Interstate
Commerce Commission to whom I have been a care and trouble for so many
years. Ungrudgingly have its members always given response to all sorts
of requests, whether for documents, statistics or opinions. Without the
official stores of information at Washington, this present volume would
have been woefully incomplete.
CONTENTS
CHAPTER I
THE HISTORY OF TRANSPORTATION IN THE
UNITED STATES
Significance of geographical factors, 1.--Toll roads before
1820, 2.--The "National pike," 3.--Canals and internal
waterways before 1830, 4.--The Erie Canal, 4.--Canals
in the West, 6.--First railroad construction after
1830, 7.--Early development in the South, 9.--Importance of
small rivers, 10.
The decade 1840-1860, 11.--Slow railway growth, mainly
in the East, 12.--Rapid expansion 1848-1857;
western river traffic, 13.--Need of north and south
railways, 14.--Traffic still mainly local, 15.--Effect
of the Civil War, 16.--Rise of New York, 17.--Primitive
methods, 17.
The decade 1870-1880, 18.--Trans-Mississippi
development, 18.--Pacific Coast routes
opened, 19.--Development of export trade in grain and
beef, 20.--Trunk line rate wars, 21.--Improvements in
operation, 23.--End of canal and river traffic, 24.
The decade 1880-1890, 27.--Phenomenal railway
expansion, 28.--Transcontinental trade, 28.--Speculation
rampant, 29.--Growth of western manufactures, 30.--Rise of
the Gulf ports, 31.--Canadian competition, 33.--General
résumé and forecast, 34.
Public land grants, 35.--Direct financial
assistance, 37.--History of state aid, 39.--Federal
experience with transcontinental roads, 40.