purpose of securing for the railways an acquittal of every charge that
has been or ever can be brought against them of having anything to do
with the increased cost of living. Inasmuch as the cost of transportation
is a part of the cost of every article consumed, freight rates may, and
doubtless do, conceal much that makes for high prices. A Johns Hopkins
professor says: “The claim of the railroads that the rates on foodstuffs
are not high enough to enter as a factor in fixing the selling price
is fully substantiated by the dealers in such products.” And again the
same authority says: “The average weight of a carload of food products
is 30,000 pounds. If the freight on such a carload be $300 the rate per
pound would be only one cent, and there is scarcely a commodity upon
which a freight rate of one cent per pound makes any difference in the
selling price.”
When one considers the staples on which a cent a pound constitutes from
six to twenty per cent of the selling price, these extremely sweeping
statements must be admitted to need a lot of verification. Those who feel
most keenly the pinch of high prices live mostly on things which sell at
from four to twenty cents a pound—of which price an average of a cent
a pound freight is a considerable increase. But the efforts mentioned
have not been confined to arguments of the sort above quoted. We are
called upon to believe not only that no appreciable freight charge is
added to the burdens of the consumer, but that nothing worth mentioning
is deducted as freight from the prices to the producer. We thus have
the great incomes of the railroads very neatly palmed and effectually
concealed somewhere between the professor of economics and the Secretary
of Agriculture. For Secretary Wilson asserts that:
With approximate accuracy it has been determined that when
the farmer receives 50 per cent of the consumer’s price, the
freight charge on butter is about 0.5 of 1 per cent of the
consumer’s price; eggs, 0.6 of 1 per cent; apples, 6.8 per
cent; beans, 2.4 per cent; potatoes, 7.4 per cent; grains of
all sorts, 3.8 per cent; hay, 7.4 per cent; cattle and hogs,
1.2 per cent; live poultry, 2.2 per cent; wool, 0.3 of 1 per
cent.
These things are very convincing. And they are, no doubt, reliable as
to averages. The trouble with them is that they are averages, and that
they have the merits and defects of averages. One of the defects is that
they do not tell the real truth. I have in mind a farmer living at New
Rockford, North Dakota. He grows wheat as his staple crop, and about
the only crop upon which it is at all safe to depend. His task is to
help feed the world. As this is written, his wheat is worth in New York,
if for export, a dollar a bushel, if for milling in this country two
cents more. In addition to the cost of handling, the New Rockford farmer
must submit to a deduction of twenty-four cents per bushel in price
for freight to New York if for export, and of twenty-six cents if for
domestic use. Something like 35 to 40 per cent of his returns is deducted
for freight. It may satisfy the city consumer of bread to be told that
this freight does not add “materially” to the cost of his living, but the
New Rockford farmer is stubborn, and merely because his freight charge is
a third or more of his returns, he is not mollified by Secretary Wilson’s
statement that all grains “on the average” get to market with a deduction
for transportation of three and eight-tenths per cent. In Johns Hopkins
and at Washington, the freight charge may not amount to much. It is far
otherwise at New Rockford.
A North Dakota station and a low grade staple are selected for the
purpose of putting a finger on the point where the railways and the
farmers clash crucially. They clash thus in the heart of the continent
where distances to market are long, where there has been no rate
structure fixed under competition, and where the farm produces in the
main cheap and heavy staples. Whether grain, hay, root crops, or live
stock, the case is the same—prices at the railway station are reduced to
the point of vanishing profits by freight charges; and the cost of living
on the farm is proportionately increased by the same agency.
HOW TO DEVELOP THE REMOTE PARTS.
The greatest transportation fact faced by the American people is the
problem of developing the remote parts of the continent under conditions
which are new to the experience of the human race. In the past mankind
has been content to develop its great civilization near waterways. The
sites of Egypt, Greece, Rome, Phoenicia and Carthage were determined by
ease of transportation. Whether or not it is possible for the interior of
the North American continent to be fully developed industrially by land
carriage only is a question which is as yet an open one. It is safe to
say that such development cannot take place without the adoption by the
railways of some new transportation principles, applied for the express
purpose of national welfare. And if the only alternative—the building of
a national system of waterways—be resorted to, the aid of the railways
must still be demanded if success is to be attained.
Rates as a deduction from the income of the farmer are even on the face
of the averages quoted, considerable; but in the interior and on things
produced at a close margin of profit, they are decisive of the matter
of agricultural prosperity. On butter they are so inconsiderable as a
proportion that the output of Dakota creameries has not infrequently gone
on the market under conditions which enabled the Western butter-maker
to pay his entire freight bill with the difference in his favor in the
matter of quality. On eggs the burden of freight is similarly light. But
on potatoes the freight is, according to the figures of the Secretary of
Agriculture, 7.4 per cent of the consumer’s price, or about fifteen per
cent of the farmers’ returns, as a national average. It is quite clear
that the Montana or Nebraska potato grower must often find the freight,
over the great distances to market, decisive of the question of profit or
no profit. An acre of onions takes the labor of two or three persons a
good part of the season. The cultivation is largely done with hand tools
manipulated while the worker kneels and bends his body to the ground.
His produce should be about a carload. If on this he pays the railways
$300 freight it is a not inconsiderable contribution on the part of one
gardener and one acre of land to the transportation system of the Nation.
Just what is included in these professorial and secretarial calculations
is not quite clear. The word “freight” may or may not include such items
as the charges for refrigeration and of refrigerator car companies, fast
freight lines and the like, and until we know as to these items, we are
unable to decide on the worth of the statistics. But one item of expense
which through the policy of the railway companies the farmers are obliged
to pay is clearly not included—I refer to the charges of the express
companies.
The railways of the United States have enormously retarded the
agricultural development of the country, and added to the expense of
living, by permitting the lodgment in our transportation system of that
industrial parasite, the express company. Just what are the financial
inter-relations which have contributed to the willingness of the railways
to allow parcels carriage to pass from their hands, while sufficiently
obvious in a general way, cannot now be detailed. The glaring fact is
that the express companies, save for certain services which they have, in
violation of the criminal law, usurped from the postal system, perform
absolutely no functions which do not properly belong to the railways,
and no functions which the railways of other lands do not assume. Every
dollar of the huge profits which the express companies make is a burden
upon industry which is unnecessary and unjust. But instead of seeking to
remedy or lessen this burden, the railways pursue the policy of making
it greater. They practically abandon the field of parcels carriage to
the express companies. They allow their agents everywhere to work for the
express companies on commission, so that their wages are increased as
express business increases, while their interest in the growth of railway
business is reduced to a minimum by the receipt from the railway of only
a small fixed salary. Thus the railways not only turn over to the express
companies the parcels business, but saddle on that business, and on the
shippers by express, a good deal of the burden of their own payroll.
THE TOLLS ASSESSED ON AGRICULTURE.
The effect of this policy on agriculture is not to be measured by the
amount of express tolls paid on shipments made. That is a great burden,
but it is inconsiderable as compared with its injury to the farmers and
to the Nation by reason of the immense volume of potential traffic that
does not move at all. Under the paternal governments of the Australasian
colonies of Great Britain, agriculture is fostered by low railway
rates and a carefully studied policy of encouragement to the small
shipper. Packages of poultry, eggs, meats and other farm products are
collected on the remote railway lines, brought to concentration points,
refrigerated, shipped to the world’s markets, sold and remitted for
to the great benefit of the remote farmers, who otherwise would have
no way of marketing their little shipments. But here the trucker and
poultryman and the fruit-grower are in most localities relegated by the
railways to a third party—the express company—who seems to have no office
but the exaction of tolls which the railway itself could not charge,
but which it divides with the railway. This is unjust and is rapidly
becoming intolerable. The farmer must be placed in such position that he
can work up trade in the city and ship in small packages direct to the
consumer at just rates. The head of one of our great railway systems has
delivered several powerful addresses recently, in which he has asserted
that the farmers, and not the railways, are to blame for the spread of
from 30 to 75 per cent between the price received by the producer of
food products and that paid by the consumer. He advises farmers to “cut
out the middleman.” Good counsel, but let him follow his own advice. Let
him, and let all railways cut out the express middlemen, the private car
middlemen, the fast freight line middlemen, and the ordinary farmer will
be placed in better position for taking his advice. These agencies have
no place in a rational system of transportation. They are parasites,
which suck blood and confer no benefit. Transportation by rail should
be a simple transaction between the railway and the shipper, and with
no third party whatsoever. Whatever there may be in the way of parcels
transportation which does not properly belong to the railways should be
assumed by the government in the form of a general parcels post.
With the way cleared to simple relations between shipper and railroad,
the matter of rate-making in the interests of national development may
be taken up, and the railroads enlisted in such policies as may be
dictated by patriotism. In these the farmers are entitled to so much of
special consideration as is commanded by the importance of agriculture
as the basic industry of the world—no more, no less. In many schedules
the railroads have favored agricultural development. These instances are
those in which farming interests have been controlling in the matter
of dividends. Perhaps we should expect nothing more of the purely
individualistic philosophy of the past, but of the future we must demand
much more.
RATES AND DEVELOPMENT.
Instances of the influence of railway policies on agriculture may be
found in almost every country of the world. The beet sugar industry
of Austria has been built up through the adjustment of railway rates.
Huebner says of the German policy in this regard:
With the deliberate purpose of regulating industry and
commerce through the powerful medium of freight rates, 63
per cent of the traffic is given rates generally about half
as high as classified rates and seemingly unusually low as
compared with rates enforced in neighboring countries. These
rates are given to build up particular industries, to promote
specified districts, to protect German railways against foreign
competition, to overcome emergencies, to build up German
sea-ports, to promote German export trade, and discourage the
entry of specified imports.
We have been told over and over again that the acquisition of the
railroads of Germany by the government has been dictated by consideration
of military strategy; but the world is just awakening to the fact that
it is rather industrial strategy which has impelled the Germans to
government ownership. The time is coming when the German railways will
be freed from the fixed charges of both bonds and stocks, and German
agricultural products will go to market, with her manufactures, at
rates based on actual cost of service. The fostering uses of properly
adjusted rates as applied to remote agricultural districts in Australia
and New Zealand have been known to the world for years. Protection to
home industries through tariffs has failed to benefit our farmers in any
direct way, and the policy of attempting longer to maintain such tariffs
seems to be in process of abandonment; but Van Wagenen has pointed out
that agriculture may be stimulated and fostered through railway rates,
and given all the benefits which clearly accrue to protected industries
through tariffs. It might be no more than fair to the farmers if some
of the taxes exacted from them through tariffs in the interests of
manufacturers, were returned to them in such freight rates as would
develop their agriculture along the intensive lines made possible by
nearness to market; but it might be unfair to ask privately-owned
railways to do it.
The whole structure of rates as they now exist is devised to favor the
long line to and from market, and made up with reference to the demands
of certain trade centers, and certain powerful financial interests,
some of which are closely allied to the ownership of the control of
railways. A striking instance of this is to be found in the history
of the rates on the border line between the Gulf trade basin, and the
territory of the railways running to Chicago and the Atlantic ports.
From Kansas and Oklahoma points the distance to tidewater on the Gulf is
only from a quarter to a half the distance to the Atlantic. The farmers
of that region, and of a great part of Nebraska, Colorado, and much
other territory, are entitled to an outlet by way of the Gulf. It is
nearer. It is over cheaper track. It is on easier grades. It should be
in every way more economical. But when the battle between the old lines
and the new began with the building of the roads to the Gulf, it was
fought out, not along lines of what was best for the Nation, not along
lines of what was best for the farmers whose stake in the controversy
was the right to a fair price for their grain, but with sole reference
to the interests of the railways themselves, and of the grain trade with
which the railways have always maintained so intimate a friendship. Such
agreements were made that grain would be as likely to go from Kansas
City to the Atlantic as to the Gulf. In other words, the building of
the Gulf lines was robbed of its benefits to the farmer. Rates were so
adjusted, and still are, as to make the Gulf lines as bad for the farmer
as the Atlantic lines, instead of making the old lines as good as the
new should be. This is equivalent, as an economic futility, to the plan
of handicapping the binder so as to restrict its work to the amount done
by the same force in the old days of hand binding. Financially it may be
wise—for the elevator trade, and the railway community of interest—but it
is an economic crime as much as the breaking of the power looms by the
old weavers. The present railway situation is full of such anomalies. One
could spend days in their discussion. They are familiar to the shippers
of the nation. They are apologized for by the wise men who write great
tomes on transportation. But they must sometime be so corrected that
trade will go on the railroad which can perform the transportation task
most economically, without regard to the historic channels of traffic and
the private interests concerned in the use thereof.
[Illustration: DARIUS A. BROWN, Mayor of Kansas City]
“TAPERING RATES.”
I have spoken of the difficulties which confront the people of the deep
interior of the continent in working out their complete industrial
development. By complete industrial development, I mean that full growth
in industry which has come to such seaboard locations as Great Britain,
the Netherlands, our Eastern seaboard, our lake regions and the like. One
can scarcely conceive such complete development in Iowa, Nebraska, the
Dakotas, or Oklahoma. And yet it is merely a question of transportation.
The problem of the future relates to the question of the ability of land
carriage of any kind to furnish it. If it cannot be accomplished by land
carriage, the Nation will have recourse to waterways. New Rockford
and her sister hamlets will reach the sea, either by the way of the
railroads, or by the Missouri river. If the railways are to give New
Rockford—and in her I typify all the interior—what it must have if it is
to develope completely, they must find some way to compensate the place
by means of rates for its remoteness from the sea.
This may be done by what is called “tapering rates”—that is, by rates
which increase not with the distance, but on some basis which gives the
remote point a less tariff per ton a mile than the nearby point. The
railroads have made such rates always when the demands of profit called
for them; and their policy has resulted in great benefit to the interior;
but the diverse ownership of the different lines and restrictive laws,
as well as the lack of a national policy in rate-making, conspire to
prevent the full application of the principle. Congressman D. J. Lewis
of Maryland has laid down the principle that rates along a line should
increase with the square root of the distance, instead of with the
distance. Thus, if the proper rate per hundredweight for twenty-five
miles is ten cents, for 625 miles the rate should be not $2.50, which
would be the increase directly with the distance, but twenty-five cents,
the increase over ten cents according to the square root of the distance.
The value of this formula may lie principally in the emphasis of the
economic justice, as well as the necessity, of tapering rates for long
hauls. As it is, rates taper from New York to Chicago, not according to
the square root formula, but in a manner not very much at odds with it;
but then they are increased by the fresh start from Chicago as a basing
point. Under a national policy in rate-making, these rates would continue
to taper to the point at which it would be more economical to ship in
some other direction—to the Pacific, or to the Gulf.
The influence of tapering rates on the industrial development of a
people may be seen strikingly manifested in Texas, which has long had
a rate system peculiar to itself. This system is said to be the fruit
of the statesmanship of Judge Reagan, and was devised expressly in the
interests of a population deemed to be permanently agricultural. It is
exactly the opposite of the general policy which has built up a few
great cities at the expense of the rest of the country, and the best or
worst example of which is perhaps the case of Chicago. Chicago is fed by
livestock shipments which sweep past the very doors of packing houses
quite as well equipped to slaughter the stock as any in the Windy City,
and the livestock rates are only a sample of the system of tariffs that
keep in Chicago’s hands the headship in commerce to which in the natural
development of things she would not be entitled. Railroad rates keep
the great centers great by decreeing that the primary products shall be
sold there, and that the supplies of goods ready for consumption shall
be bought there. This is done by depriving other trade centers of the
natural advantages over Chicago, of their nearness to the farms, while
leaving them handicapped by their remoteness from water transportation.
And wherever a great city is found in the United States, the same sort
of rate structure is found. The economic result is that long hauls are
favored for the railroads, with greater profits to them perhaps; but the
farmers are deprived of the benefits of the home markets which nearby
large cities afford. The state of Iowa is Chicago’s back field; and
Iowa’s population is shrinking. This fact alone is enough to condemn the
rate system which permits it. And Iowa’s case is glaring merely because
she is an almost purely agricultural state. The farm populations of the
other states on Chicago’s back fields are shrinking, also. And while I
do not think it fair to attribute all this to rate mal-adjustments, I
feel sure that if the Texas system of rates had been in effect in the
Chicago-St. Louis basin, the phenomenon of decreasing population would
have been long postponed, and might never have appeared.
THE TEXAS SYSTEM OF RATES.
The Texas system, as perfected by the Texas State Railway Commission,
is based on the theory that many medium sized towns and cities are to
be preferred, for the agricultural welfare of the state, to one or two
overgrown municipalities with rates made to stimulate their growths at
the expense of the rest. This has been accomplished by the establishment
of a maximum freight charge, above which there can be no increase, no
matter what the distance—with the exception of certain remote points
in the cases of which additions are made, not according to the entire
length of haul, but according to their distance beyond the limits of the
zone which is established about every shipping point. Thus merchandise
taking the class rates pays a tariff from any shipping point according
to distance, up to 245 miles, beyond which the rate for 245 miles is
paid no matter what the distance. The maximum rate on cotton is reached
at 160 miles from any station; on flour, grain and hay at 140 miles;
on coal, 790 miles; on fruits, vegetables and melons, 180 miles, and
thus for all shipments. The result is that the remote truck farmer is
as close, so far as rates are concerned, to the city 500 miles away, as
to the one 180 miles off—and the principle is applied to all producers,
with variations as to distance. This gives him a wide choice in markets
and rates, which equalizes conditions so far as rates can do so, between
the interior and the coast. And it fosters the small and new city by
enabling it to compete in jobbing and manufacturing with the large and
old one. Thus, while such places as Galveston, Houston, Dallas, Fort
Worth and Waco are among the most prosperous towns of their size in the
country, they are constantly meeting the competition of that numerous
class of smaller Texan cities the unsuspected presence of which in the
interior is such a constant surprise to the traveler from the North.
Business is decentralized to an extent nowhere else seen in the United
States in an agricultural community. And decentralization, while opposed
to the immediate interests of the railways, is clearly profitable to
the farmers, better for the people in general, and in all probability
will prove in the end better for the railways themselves. For after all,
railroad prosperity must depend on national prosperity.