Value of service is a more desirable basis for rates and fares than
cost of service. By charging according to value of service is meant
that the shippers of commodities and the passengers who travel shall
contribute to the railroad's aggregate expenses in proportion to the
value which they derive from the transportation service. The rates and
fares may cover a part or all of the value of the service obtained. In
either case they are fixed with reference to that value and not with
regard to the cost involved in performing the work of transportation.
The levy of rates and fares in accordance with this theory, which is
usually called "charging what the traffic will bear," is considered by
most people to distribute transportation charges properly, because it
is claimed that the true measure of a shipper's or a passenger's
ability to pay for a desired service is the value which he will
thereby derive. That this theory, nevertheless, does not afford an
altogether satisfactory basis of charges, particularly in the freight
traffic, may be readily shown.
While it is true that the amount of value added by transportation to
goods of low value is less for each unit of weight or bulk than the
amount of value which is acquired by an equal weight or bulk of
high-priced commodities, yet the _percentage_ increase in value is
greater in the case of the goods of low cost. Expensive articles can
be carried long distances without adding very much to their cost to
the consumers. Measured in their percentages, then, the value of the
service of transportation is relatively much lower in the case of the
higher-priced commodities. The freight charges on wheat range from
twenty to forty per cent. of its farm value, while the rate on shoes
is possibly two per cent. of their factory price. That these charges
are levied in accordance with the real ability of the articles to pay
would be hard to establish.