IC-NRLF 3fl flfll 1CONSIN ES ICAN RAILWAY OUTLINES OF AMERICAN RAILWAY TRANSPORTATION BY RALPH H. HESS Associate Professor in Political Economy AXD HEISKELL B. WHALING Instructor in Political Economy THE UNIVERSITY OF WISCONSIN Copyright, 1915 By Ralph H. Hess CONTEXTS CHAP. PAGE I. The Functions of Railways 7 II. The Public Nature of the Railway Business 13 III. Foreign Railway Systems 19 IV. The Development of American Railways before 1870 27 V. The Growth of American Railways since 1879 33 VI. Railway Competition and Cooperation 39 VII. Railway Rate Theories 49 VIII. Classification and Tariff Structures 59 IX. Rate Systems in the East and South 73 X. Western. Transcontinental, and Import and Export Rates 81 XI. The Railway Corporation 87 XII. Purposes and Methods of Railway Regulation 103 XIII. Regulation in the United States prior to 1906 Ill XIV. Railway Regulation since 1906 121 XV. Organization of the Freight and Passenger Serv- ices 129 XVI. The Mail, Parcel Post, and Express Services 139 XVII. The Pullman Service and Private Car Companies. . 153 XVIII. Electric Railways 161 XIX. Some Current Railway Problems 171 Appendix. List of selected publications forming a comprehensive reading course in Railway Transportation 177 325746 INTRODUCTION A comprehensive study of transportation would include a survey of the transmission of goods, persons, and ideas by means of all known vehicles cf the land, water, and air. The course of study here outlined is confined to an examina- tion of the economic and social aspects of the transportation of goods, persons, and mails upon railways, and with special refer- ence to conditions in the United States. In this study, matters of first importance concern the relation of the railway business to other businesses and to the nation as a social unit. The theory and technique of railway organization and man- agement, especially as regards finances, are treated in certain general aspects as are also some phases of water transportation. Certain principles which are here developed pertaining to public policy in matters of transportation and to the functions and powers of railway corporations are generally significant in the wider field of public utility enterprise. Students should be careful to note .and offer for discussion such generalizations as may appear to. apply with like emphasis in the consideration of other public service activities. For the sake of brevity, references to the following books are indicated by names of authors. Beale and Wyman, Railroad Rate Regulation. Ooodnow, Municipal Government. Hadley, Railroad Transportation. Haines, Railway Corporations as Public Servants. Haney, Business Organization. Johnson, American Railway Transportation. Johnson and Huebner, Railroad Traffic and Rates. King, Regulation of Municipal Utilities. X,aSalle Extension University Series, Business Organization, Transpor- tation. McPherson, Railroad Freight Rates. Meyer, Railway Legislation in the United States. Merritt, Federal Regulation of Railway Rates. Morris, Railroad Administration. Noyes, American Railroad Rates. Pratt, Inland Transportation and Communication in England. Raper, Railway Transportation. Ripley, Railroads: Rates and Regulation. Sakolski, American Railroad Economics. Whitten, Valuation of Public Service Corporations. Wood, Modern Business Corporations. OUTLINES OF AMEKICAN EAILWAY TRANSPORTATION CHAPTER I THE FUNCTIONS OF RAILWAYS (a) Availability is an essential attribute of actual value. In broad terms, the function of railways is the creation of availa- bility or ' * place utility. ' ' 1. The bringing together of labor, capital, and natural resources is an essential preliminary to the creation of "form utili- ties" by the industrial processes of agriculture and manufac- ture. Railways have been the chief agency in promoting the settle- ment of continental interiors and geographical specializa- tion in production (mutual availability of the economic factors of production). 2. Specialized production necessitates the exchange of goods among districts yielding different forms of natural and labor products. Ready means of exchange generates competition in produc- tion among districts of like products. Railways and ocean vessels have most extensively served mankind in this respect (availability of goods). 3. Social intercourse, an essential attribute of civilization and a criterion of progress, has been many times multiplied in the last half century by railways (social availability). Pratt, Inland Transportation and Communication in Eng- land pp. 385-388, 397-399, 400. Annals American Academy, Vol. 5, pp. 905-908. Meyer, Railway Legisla- tion in the United States, pp. 3-6. Johnson, American Railway Transportation, pp. 3-4. Taussig, Principles of Economics, Vol. 1, pp. 43-^8. McPherson, Workings of the Railroads, pp. 13-14. 8 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 9 (b) The development of markets registered the first concrete function of railways in Europe and America. 1. The products of the mine, the forest and the farm were con- veyed to manufacturing and commercial centers. 2. The carrying of raw products to market was soon supple- mented by the transmission of finished products from "pri- mary markets" to local distributing points. Pratt, pp. 386, 390. Taussig, Vol. 1, pp. 41, Vol. 2, p. 363. Johnson, p. 4. Goodnow, Municipal Government, Chap. 2. McPherson, Railroad Freight Rates, pp. 1-3, 45. (c) The exploitation and development of natural resources, previously remote and unappropriated, followed the growth of markets and easy means of transport. The exploitation of surface prodiicts is generally followed by substantial industrial development of permanent resources. Pratt, p. 387. Meyer, pp. 30-34. Haines, Railway Cor- porations as Public Servants, pp. 29-31. (d) A rapid diffusion of population resulted from the availa- bility of industrial opportunity in new and rich districts made accessible by railways. 1. Railways tend to prevent 'social saturation' at certain points by geographically equalizing population and industrial op- portunity. 2. Certain social and economic forces tend to inhibit the rational diffusion of population. Railways compete with these forces in certain broad aspects of social control. 3. Human reproduction is usually quickened by the relief from economic restrictions. Railways have doubtless made pos- sible the existence of larger populations. Haines, pp. 15-17. Goodnow, Chap. 2. (e) The diffusion of culture and intelligence is a normal con- comitant of the exchange of ideas and the variety of experience and observation incident to specialized production, division of labor, and interregional trade. 1. The intellectual stimulus of industrial and commercial com- petition is a primary civilizing agency. 2. The accumulation of wealth and consequent leisure, coinci- dent with economically efficient means of production, may contribute to cultural progress. Pratt, pp. 396, 397, 404. Johnson, p. 7. 10 _ THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 11 (f ) The political importance of railways is at times consider- able. 1. As a means of national defense, railways make military forceq* quickly available upon the frontiers and at points of insur- rection, and afford superior commissary and hospital trans- port. Railways have made 'civilized warfare' possible. They may have contributed to the cause of international peace. 2. The political unity of great areas is made possible by railway intercourse. Permanent nationality necessarily rests upon economic and social unity. Meyer, pp. 5. Haines, pp. 33-34. Pratt, pp. 40. QUESTIONS 1. Explain the normal effect of the development of railways upon the efficiency of industry (a) in a new country, (b) in a densely settled country. 2. To what extent may railway owners share in the increased industrial product resulting from improved railway fa- cilities ? 3. Discuss the probable effect of railway development upon the growth and distribution of population. 4. To what extent and in what ways may railway develop- ment promote cosmopolitanism? 12 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION CHAPTER T THE PUBLIC NATURE OF THE RAILWAY BUSINESS (a) Certain social and economic needs are common to large groups of people. When such needs are served collectively, the service is a public service, and a public interest rests on the agency through which the service is rendered. (b) Railways render public service: 1. In marketing the products of specialized industries which might not otherwise exist. 2. In conveying supplies to aggregates of population which would perish without the service. 3. In disseminating such knowledge and in developing such eco- nomic resources as are necessary to human progress. 4. In transporting persons and goods in response to general eco- nomic, social, and political needs. (See Chapter I.) Beale and Wyman, Railroad Rate Regulation, sec. 55, 66. King, Regulation of Municipal Utilities, Chap. 1. Mnnn v. Illinois, 94 U. S. 113, La SdUe, pp. 10-19. (c) Individuals employed in a public service are following public callings. Corporations rendering public service are pub- lic service corporations. Private property being used in the per- formance of public service thereby becomes subject to a public interest. 1. Individuals, corporations, and property employed in public serv- ice are subject to public authority in the performance of their public functions and in the determination of compensation therefor. 2. Businesses organized for the purpose of, or engaged in, supply- ing public service are Quasi-public businesses. Beale and Wyman. sec. 1-5, 20, 28, 32, 41-42, 45, 48, 51,. .34-36. 61. 66-67. 14 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 15 (d) Corporations engaged in a public service are created by public authority for public purposes, and, while chiefly private in their corporate entity, they are essentially public as to origin, function, conduct, and tenure. Natural persons and private property employed by corporate organizations in rendering public service retain certain attributes of privacy. The following constitutional safe guards of private rights per- tain to quasi-public business as elsewhere. 1. Equal protection of the laic. 2. Due process of laic. 3. Just compensation. 4. Validity of contracts. 5. Exemption from self-incrimination. 6. Judicial review. Beale and Wyman, sec. 1331-1335. Yale Review, Vol. 16, pp. 361-366. Whitten, Valuation of Public Service Corporations, p. 2. Fourteenth and Fifth amendments to the Federal Constitution and similar clauses in state constitutions. Independent, Vol. 64, pp. 834-8. (e) The public interest in quasi-public business extends to the exercise of public authority in securing the following : 1. Adequate and continuous service without discrimination. 2. Rates, reasonable in amount and nondiscriminatory. 3. Safety, health, and moral protection of patrons and employes. 4. Promotion of general welfare. Beale and Wyman, sec. 1. King, pp. 4-10. Cleveland and Powell, Railroad Finance, pp. 153-155. (f) The legal concept of a, 'public business' is based upon the economic characteristics of the business, but requires validation by law. 1. Legislative act. 2. Judicial recognition. Munn v. Illinois, 94 U. S. 113. QUESTIONS 1. Formulate a comprehensive definition of a public. 2. In what ways are railways and the public mutually inter- dependent? 16 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 17 3. What elements of private monopoly appear to be inherent in unregulated railroad business? 4. If a railway system were permitted to advance its rates to the extreme of monopoly price, what effects would fol- low a. in the cost of living ? b. in the distribution of 'wealth? c. in the development of industry? d. in the welfare and growth of population? 5. What is meant by the police power f What is the re- lation of the police power to the public control of rail- ways? THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 19 CHAPTER III FOREIGN RAILWAY SYSTEMS (a) Tansportation systems are shaped by the physical, eco- nomic, social, political, and psychological characteristics of na- tions. 1. The determinant physical factors are size of country, topog- raphy, resources, and climate. 2. The economic and social forces are status of industrial civiliza- tion, cultural influences, economic well-being of people, inter- national relations and trade, business habits, and density of population and its distribution. 3. Political influences are social solidarity, governmental theory of transportation, military needs and practical politics. 4. From the psychological point of view, national temperament is significant in organization and administration. (Hadley, pp. 152, 187, 189-190). Johnson and Huebner, Railroad Traffic and Rates, Vol. 1, Chap. 1. Hadley, Railroad Transportation, pp. 14, 205. Raper, Railway Transportation, pp. 165. (b) In comparison with European systems of transportation, the American system is notable for its transcendent size, rapid- ity, of growth, capacity of equipment, and its relatively unde- veloped passenger service. 1. Mileage statistics. (1911) Number of Miles of railway Miles of railway Country miles of per 100 sq. mi. per 10,000 railway of territory population U. S. 246,602 6.9 ' 26,8 Great Britain 23,394 19.3 5.2 France 31,313 15.0 8.0 Germany 38,485 18.3 5.9 Italy 10,705 9.7 3.1 Austria 27,850 10.6 5.5 Europe 210,526 5.6 4.8 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 21 2. The Freight Service Country Tonnage Ton miles Average length of haul Average train load U. S. 1 1 1 1 Britain 1/2 1/6 1/6 to 1/5 1/4 to 1/3 France 1/6 to 1/5 1/20 1/3 1/4 to 1/3 Germany 1/2 1/9 1/3 1/4 to 1/3 U. S. 253,784,000,000 ton miles. 254 miles average haul. 352 tons average train load. Figures all based on U. S. as 1. Country Average size of cars U. S. 30 to 50 tons 20 tons is smallest Great Britain 10 to 15 tons 20 tons is largest France 10 to 15 tons 20 tons is largest Germany 10 to 15 tons 20 tons is largest Motive power, bridges, and rails are respectively more powerful, stronger and heavier in the United States. 3. The Passenger Service Number of trips Passenger miles Average distance Country per capita per capita traveled U. S. 6.9 220 33 Great Britain 27.0 245 9 France 10.0 165 16 Germany 12.0 175 15 PASSENGERS TRAVELING IN VARIOUS CLASSES (PERCENTAGES) Country U. S. Extra class 2 First class 98.00 Second class Third class Fourth class Britain 3.04 4.38 92.58 France 4.41 24.69 70.90 Germany .35 9.00 55.72 34. < In the United States there is some second class travel, but the percentage is unknown. It is not very large. 4. Relative importance of freight and passenger services Percentage of earnings from Country Freight Passenger U. S. 69.04 23.57 Great Britain 49.69 42.90 France 53.60 44.70 Germany 64.63 28.17 Johnson and Huebner, Vol. 1. Chap. 1. Hadley, pp. 146-149. Raper, pp. 63. (c) Continental rates are characterized by mathematical scales based on distance in contrast with English and American THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 23 ' individual ' rates based on traffic conditions : a contrast which results from the different degrees of public and private interest recognized in rate making. 1. Rates on the continent do not possess the same degree of elas- ticity as American and English rates. 2. No definite conclusions can be drawn as to the relativity of rates on account of the different conditions under which sys- tems operate and the difference in the services rendered. In general, freight rates in America are lower than freight rates in Europe, and passenger fares higher. Ripley, 155. Columbia Studies, Vol. 37, pp. 13-15. John- son, pp. 293-304. Noyes, American Railroad Rates, Chap. 8. Merritt, Federal Regulation of Railway Rates, pp. 1-5. (d) Private enterprise subject to government supervision characterizes the railway policy of England, France and the United States; state operation prevails in Germany, Austria and Italy. 1. In England, private enterprise in railway matters finds its fullest expression. The machinery of supervision includes Parliament, the courts, the Railway and Canal Commission, and the Board of Trade. Parliament promulgates the regulative principles. The Railway and Canal Commission, with jurisdiction over 'undue preference', traffic facilities, legality of rates, through rates, and appeals from the Board of Trade, exercises judi- cial functions. The powers of the Board of Trade are advisory. Johnson, pp. 322-330. Raper, pp. 45-59. Ripley, Problems, pp. 774, 795-800. 2. In France, government supervision amounts almost to govern- ment management. The law of 1842 outlined the basis of the French railway system practically as it exists today. Territorial monopoly by state authorization and public owner- ship of rights of way are unique features in government policy. Because of political and financial situations, France has as- sumed control of 18 per cent of her railways. The machinery of supervision involves Directors of Control bodies of experts whose functions are to gather information. Advisory Councils composed of state officials and representa- tives of industry, agriculture, and commerce whose functions are to harmonize conflicting interests in transport. 24 THE UNIVERSITY OP WISCONSIN AMERICAN RAILWAY TRANSPORTATION 25 The Ministry of Public Works an administrative body with large powers over finance, construction, operation, and rates. Johnson, pp. 330-334. Raper, pp. 61-65, 78, 95-100. Ripley, Problems, pp. 800-806. 3. In Germany the states own 92 per cent of the railways. The Imperial government exercises a nominal control over rail- ways; vital control vests in the various states. The machinery of control embraces The Ministry of Public Works an administrative body with general supervisory power. Advisory Councils, representing various state and economic in- terests, which seek to bring about a clear understanding of different points of view. Directorates of Operation whose functions are maintenance of plant and movement of traffic. Extra legal bodies, such as the General Conference, the Tariff Commission and the Traders Committee, the Railway Traffic Association, and the Association of Railway Managers, which deal with such matters as interchange of traffic and uniform classification. Johnson, pp. 337-344. Raper, pp. 134-143, 166-76. 4. Italian policy has vacillated all the way from private manage- ment, through intermediate steps, to government control. The machinery of control involves The Ministry of Public Works with general supervisory power. The Department of State Railways in whose hands is the ac- tual administration of the railways. Advisory Councils with the same functions as those in France and Germany. Johnson, pp. 335-337. Raper, pp. 102-120, 129-133. Johnson, pp. 346-347. Columbia Studies, Vol. 37, pp. 13. QUESTIONS 1. "What have been the dominant factors shaping the public policy of the various governments? See Johnson, pp. 346-8. 2. "What factors are most significant in explaining a. mileage? b. tonnage? c. length of haul? d. size of cars? e. train loads ? f. passenger development? 26 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 27 CHAPTER IV THE DEVELOPMENT OF AMERICAN RAILWAYS BEFORE 1870 <(a) Antecedents of the railways. 1. River boats in the East and South became efficient about 1817. 2. Post roads and turn-pikes were most extensively constructed in New England and Pennsylvania. Eastern points were connected by post roads with Charleston, Savannah, Nashville, New Orleans, and St. Louis. The pack-train, the prairie schooner, the coach, and the pony ex- press preceded the railways in the far West. The National Pike was constructed from Cumberland, Mary- land (1805), to Vandalia, Illinois (1835), at a cost of $8,500,000. 3. Three classes of canals were projected. Some projects were completed in early days, and others have recently been re- vived. A coastal system of canals was proposed by which the indenta- tions of the Atlantic from Cape Cod Bay to Pamlico Sound would be articulated. Canals were proposed to connect the natural waterways of the Atlantic slope with the lakes and rivers of the interior. A network of canals was designed to articulate the rivers of the interior' and finally to connect them with the Atlantic, the Gulf, and the Great Lakes. Ripley, pp. 1-7. Johnson, pp. 13-18. Cleveland and Pow- ell, Railroad Promotion and Capitalization, pp. 1-16 and 27-45. (b) The period from 1825 to 1840 was a time of railway ex- perimentation. 1. The Liverpool and Manchester and the Stockton and Darlington Railways were in successful operation in England before 1830. In America, the Baltimore and Ohio and the Charleston and Hamburg were in operation soon after 1830. The Rainhill trial, October 10, 1829, demonstrated the efficiency of the steam locomotive. THE UNIVERSITY OF WISCONSIN fe. AMERICAN RAILWAY TRANSPORTATION 29 2. Economic conditions determined the nature and success of rail- way construction. Dense population and established industries in the East. Needed means of transport in the South for marketing spe- cialized crops and securing supplies. A period of exploitation and development in the West. Conditions were generally less favorable to early railway de- velopment in America than in England. 3. Obstacles to railway construction occasioned much delay. Opposition of turn-pike and coach companies. Skepticism of engineers and capitalists. 4. Early railway construction (1840). Eastern and southern roads were successful from the start and were well under way by 1840. Railroads west of the Alleghanies were still in an experimental stage. Two charters were granted in Wisconsin in 1836. Construc- tion began in 1851. Ripley, pp. 7-11. Johnson, pp. 18-23. Cleveland and Powell, Railroad Promotion & Capitalization, pp. 46- 54 ? 57-66, 73. (c) The decade from 1840 to 1850 was the initial period of successful railway operation in the United States. 1. The mechanical development of the locomotive and track. 2. The repeal of the tariff on iron rails in 1843. 3. The extension of eastern lines into the middle states. 4. Financial difficulties and the depression of 1857. Ripley, pp. 11-15. Johnson, pp. 25, 43-44. (d) The period 1850 to 1870 witnessed the development of through traffic and the beginnings of the great railway systems' of the present day. 1. The land grant policy afforded a new means of railway finance. 2. The consolidation of eastern companies, undertaken by such men as Vanderbilt and Scott, resulted in the articulation of independent roads into "through lines". 3. The standardization of gauge and the articulation of schedules made through traffic possible. Railways connected the East with Chicago in 1853. Rails were laid to the Mississippi River by 1854, and to the Missouri by 1858. A railroad was built across the Isthmus from Colon to Pan- ama in 1855. 30 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 31 The Union Pacific-Central Pacific line reached the western coast in 1869. 4. The beginning of competition soon after the war marks the in- troduction of the economic and political problems which have been associated with the development of transportation since 1870: Rail and water competition. Competition between parallel rail lines. Rivalry among producing districts. Rivalry among distributing centers. Ripley, pp. 15-18, 35-43. Johnson, pp. 25-28, 308-321. Questions 1. What influence, if any, did the promotion of railways in the United States have in precipitating financial crises prior to 1870 ? In w r hat way was railway development associated with the crisis of 1873 ? 2. In what ways were the railways and waterways mutually complementary prior to 1870? In what ways were they competitive? 3. In what ways did the discovery of gold in California pro- mote railway construction ? 4. Were the reports of explorations in the West by Pike, Long,. and Freemont such as to promote or encourage railway construction ? 32 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION .33 CHAPTER V THE GROWTH OF AMERICAN RAILWAYS SINCE 1870 (a) The decade 1870 to 1880 is characterized by spectacular railway finance, by the development of both competition and cooperation among railway companies, by the permanent lower- ing of railway rates, by the decline of canal and river traffic, and by the rapid industrial development of the interior and the West. 1. The rapid railway construction in 1869 to 1872 led to financial trouble and contributed to the crisis of 1873. Such financial pirates as Jay Gould and Jim Fiske became ac- tive in railway affairs. 2. Competition between the first trunk lines of the New York Central and the Pennsylvania companies began in 1869. By 1874, the Baltimore and Ohio and the Grand Trunk were in- volved. Competition led to cooperation, discrimination, and regulation. 3. A decline in ocean traffic between the east and west coasts began in 1870. Traffic on the Erie Canal declined after 1880. Mississippi River traffic reached its maximum in 1879. 4. Low rates and the westward drift of population stimulated ag- ricultural production and foreign trade in grain and meat. Ripley, pp. 18-27, 431-432. Ripley, Problems, Chap. 1. La SaUe, pp. 31-32. (b) The period 1880 to 1890 experienced the most rapid rail- road building in history. Speculation and fraud in railway construction and finance were at high. tide. Railway competi- tion and associated phenomena became dangerously destructive to business and induced federal regulation. 1. Railway construction included the building of through lines in- to the South and West, and of cross-lines and parallel routes in the trunk-line district 11,569 miles were built in 1883, and 12,983 miles in 1887. 3 34 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 35 2. Speculation and fraud resulted in a "railway panic" in 1884. 3. Development of transportation facilities resulted in significant changes in the relative importance of cities: 4. Public aid was withdrawn from railways after the following contributions had been made: Federal aid $178,600,000 26,000,000 acres State aid 228,500,000 129,000,000 acres Municipal and local 300,000,000 $707,100,000 155,000,000 acres 5. The Cullom Report on pooling and discrimination was followed by the Interstate Commerce Act of 1887. Ripley, pp. 27-34, 35-42. (c) Since 1890, the physical growth of railways in the United States has been steady and relatively rapid ; regulation of rates and services both state and federal has increased in effectiveness, and the centralization of corporate organization and the exten- sion of intercorporate relations have advanced. 1. The United States has about 40 per cent of the total railway mileage of the world, and six times the per capita railway equipment of Europe. 2. Regulative measures include The Sherman Law decision of 1897 (Trans-Missouri Freight Case). The Elkins Act of 1903. The Hepburn Act of 1906. The Mann-Elkins Act of 1910. Provisions for physical valuation, 1912. Panama Canal Act. 1912. . 3. Methods of consolidation and centralization include Amalgamation. Merger. Holding companies. Interlocking directorates and voting trusts. Ripley, pp. 34-35, 42. Johnson, pp. 52-67, 28-33. (d) Mechanical improvements In track. In equipment. In terminal facilities. In safety. Johnson, pp. 34-51. Ripley, pp. 93-95. 36 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 37 (e) Improved efficiency in organization 1. The economies of large scale production. 2. The reduction of freight claims. 3. The introduction of scientific management. 4. The increased responsibility of directors. Ripley, pp. 71-100, 524-525. Noyes, pp. 169-177. Morris, Railroad Administration, pp. 71-75. Cleveland & Powell, Railroad Finance, p. 161. (f) Rate modifications 1. The alleviation of undue discrimination. 2. General reduction of freight rates, 1890-1900. 3. Legislative reduction of passenger rates. 4. The movement for higher freight rates, 1910 to present. 5. The reduction and standardization of express rates. 6. Introduction of the parcel post. (See chapters XIV, XVI). QUESTIONS 1. To what extent does public aid to railway construction seem to justify a public interest in the transportation busi- ness and the official regulation of rates and services? 2. Explain the relation between railway development in the United States and the growth of foreign trade. 3. "What relation, if any, exists between the development of railways and the decline of the American merchant marine ? 4. Does centralization of railway control, in itself, constitute a cause for more effective public regulation? "Why? 38 THE UNIVERSITY OP WISCONSIN AMERICAN RAILWAY TRANSPORTATION CHAPTER VI RAILWAY COMPETITION AND CO-OPERATION (a) Early American experience has demonstrated that rail- way competition is mutually destructive to the competing com- panies and to the public interests involved, and that when co- operation or combination is possible competition is not feasible. 1. Competition in New England and the eastern states resulted in some agreements to maintain rates as early as 1860. 2. Rate wars among roads entering Chicago in 1869-1874 resulted in a general movement toward railway cooperation. 3. The failure of the Saratoga conference to effect a cooperative arrangement among the roads of the trunk-line territory pre- cipitated the rate wars of 1875-1876 which clearly revealed the destructive results of unregulated competition and the absence of cooperation. (La Salle, pp. 345-346) 4. The intermittent rate wars of the eighties accelerated coopera- tion and consolidation, and likewise hastened the develop- ment of state and federal regulation of railways. Johnson, pp. 213-221, 225-227, 235. Johnson & Huebner, Vol. 1, pp. 288, 291, 293. Ripley, pp. 444-447. (b) The causes of railway competition are: 1. Rivalry between transportation routes. 2. Industrial rivalry among production districts and among large producers. The effect of rates on conditions of competition among the in- dustries served is the most vital factor in railway competi- tion. 3. Rivalry among markets. 4. Political and social rivalry. Johnson, pp. 264-270. Johnson & Huebner, Vol. 1, pp. 354-358. Ripley, pp. 124-127, 118-119. Sakolski, pp. 10-12. 40 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 41 (c) The direct results of competition are lower rates, discrim- ination, cooperative agreements, consolidation, and regulation. 1. "Cut rates" in themselves are only temporary; but the inaugura- tion of peace after rate wars has generally placed rates on a lower level than formerly prevailed. 2. Personal discrimination is inequality of treatment as among shippers in the nature of rebates or special service, and is generally carried on in secret. Forms of rebating include underbilling, underclassification, com- missions, favorable adjustment of claims, and "evening tar- iffs". Discriminatory services include free services, special contract- ual privileges to private car companies and to terminal and tap-lines,, unfair distribution of cars, and special favors in outside transactions and credit arrangements. 3. Local discrimination is denned by Ripley as "any unreasonable departure from a tariff graded in some proportion according to distance". Traffic centers have generally taken lower rates than points in non-competitive territory. This constitutes local discrimina- tion in affording lower long-haul rates to "competitive terri- tory". Johnson, pp. 250-257, 263. Tale Review, vol. 16, p. 81. Ripley, pp. 23, 114-115, 185, 186, 189-218, 233, 252- 254. McPherson, pp. 165-173, 207-210, La SaUe, pp. l-9 ; 63-79. (d) Present day competition is mainly between widely di- vergent routes and for through traffic. 1. Trunk-lines are in competition with lines to the north and south. 2. Trans-continental competition is effective as among northern, middle, and southern lines. 3. Competition between rail routes, rail-and-water routes, and all water routes is effective. 4. There is some local competition between steam lines and elec- tric lines. Johnson & Huebner, Vo. 1, pp. 356, 450-451, 456, 493- 494, Vol. 2, pp. 237, 254. Ripley, pp. 396, 400-401, 433, 437-438. (e) Railway cooperation may promote the quality and effi- ciency of the service. 1. Through service and joint traffic agreements. 42 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 43 2. Union stations and belt-line service. 3. Demurrage bureaus and railway clearing houses. Johnson & Huebner, Vol. 1, pp. 181, 190, 199, 203, 288, 306. (f) Railway cooperative agreements may be primarily per- cuniary in purpose. 1. Agreements to maintain rates. 2. Money pools. 3. Traffic pools. 4. The division of territory. Johnson & Huebner, Vol. 1, pp. 291-292. Johnson, pp. 224, 229-238. La Salle, pp. 347-351. (g) The historically alleged benefits of competition in trade do not apply to the railroad business because of 1. The fixity of railroad capital. 2. The necessity of continuous service. 3. The operation of the law of decreasing cost. Consequently, transportation is characteristically a monopolis- tic business and properly subject to government regulation. Johnson, pp. 221-224, 163. Ripley, pp. 71-77, 165. Cleve- land & Powell, Railroad Finance, pp. 154, 227-229. La Salle, pp. 9-10. (h) The progress of railway cooperation has been interferred with by state and federal legislation and by the courts. 1. Pools and discrimination were made unlawful by the Inter- state Commerce law of 1887. State laws were directed against these forms of railway coop- eration much earlier. 2. Agreements to maintain rates were declared to be in violation of the anti-trust law of 1890 by the Trans-Missouri "Freight deci- sion of 1897 and by the Joint Traffic decision of 1898. 3. Personal discrimination was made more difficult by the Elkins law of 1903. (See Chap. XIII.) 4. Later laws and decisions have reinforced and extended the reg- ulative measures mentioned above. (Chaps. XIII & XIV.) 5. Legislative measures directed against cooperation have been in 44 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 45 large measure ineffective because based upon the fallacious doctrine that "competition is the life of trade". Johnson, pp. 239-247. Johnson & Huebner, Vol. 1, pp. 300-301. Kipley, pp. 205, 452, 492-493. Morris, pp. 257-278. Cleveland & Powell, Railroad Finance, pp. 277-279. La Salle, pp. 351-356. (i) Extra-legal railway associations now accomplish the re- sults formerly secured by cooperative organizations which have been forbidden to exist. 1. There are three classification committees. 2. There are four general types of freight and passenger traffic associations Associations dealing with service and rates pertaining to through traffic over large areas. State traffic associations. Local (municipal) traffic associations. Associations which deal with specialized traffic. 3. Railway presidents, traffic officials, and operation officials enter into cooperative arrangements through their respective na- tional and district associations. These arrangements take the form of "gentlemen's agreements" and mutual understandings. Johnson, pp. 247-250. Johnson & Huebner, Vol. 1, pp. 303-305, 333, 306, 313, Vol. 2, p. 167. La Salle, pp. 356-362. EXERCISE Construct an outline map of North America showing the ap- proximate routes of the main lines of the following railway sys- tems. Indicate the approximate date of the completion of each through line and locate the principal cities on each route. In- dicate the three or four chief products of each geographical di- vision of the country which contributes to railway traffic. The New York Central lines. The Pennsylvania Lines. The Boston & Maine. The New York, New Haven & Hartford. The Baltimore & Ohio. 46 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 47 The Norfolk and Western. The Southern. The Atlantic Coast Line. The Illinois Central. The Chicago, Burlington & Quincy. The Minneapolis & St. Louis. The Union Pacific Route. ^ The Southern Pacific, i, The Atchinson, Topeka & Santa Fe. St. Louis, Iron Mountain & Southern. International & Great Northern. The Texas & Pacific. The Northern Pacific. v The Great Northern. The Chicago, Milwaukee & St. Paul (Puget Sound). The Grand Trunk and Grand Trunk Pacific. The Canadian Pacific. The Canadian Northern. The Mexican Central. The Mexican National. See historical sketch and map of respective roads in Poor's Manual, current railroad folders, articles on Railway Systems of America in Moody 's Magazine. Johnson & Huebner Vol. 1, Chap. 2. 48 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 49 CHAPTER VII RAILWAY RATE THEORIES (a) Railway rates are the prices of railway services, and economic principles which pertain to rate making are necessarily analogous to price theories. 1. Price theories are generally reduceable to two criteria as to the amount of the charge, i. e. the cost-of-production princi- ple and the monopoly principle. 2. The cost-of-production principle establishes a price sufficient to compensate necessary expenditures for materials, labor, in- terest, rent, and fair profits involved in the production of goods or service. Under this theory, the average unit cost is the primary price criterion. In certain instances the direct cost of specific units may be used. 3. The application of the monopoly principle indicates an ar- bitrary fixing of prices, in the absence of competition or regu- lation, as high as is consistent with the largest net income to the business. (See Theory of Prices in any modern text.) Ely, Outlines, pp. 170-172, 187, 197-199. (b) The' cost-of-tke-seri'ice theory of railway rates is analo- gous to the cost-of -production theory of prices, and assumes that reasonable rates should be primarily commensurate with the average unit costs of supplying the various classes of the railway service. 1. This theory is practicable only when the approximate average cost per unit of significant classes of the service may be as- certained by methods of accounting and statistics. 2. The following cost factors are essential to the determination of 50 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 51 the total cost of the service which constitutes the basis of reasonableness as to the gross revenue of the business Maintenance of way and equipment. Conducting transportation. Traffic expenses. General expenses. Interest (fixed charges and dividends). The first four factors are determined by accounting methods, and the latter (interest) is calculated upon a "fair valuation" of property "used and useful" in supplying the service, and a "rea- sonable return" upon such valuation as an investment. 3. Methods of valuation take account of tangible property and, in varying .degree, of intangible property elements. Different schemes of valuation are designated as follqws Cost value (historical method). Cost of reproduction value (hypothetical method). Commercial value (stock-and-bond method). 4. The chief problem in applying the cost-of-the-service theory is the allocation of gross expenses to different branches of the service and to the different classes of traffic. Certain expenditures are directly assignable to definite classes or branches of the service. A second class of expenditures is subject to apportionment on the basis of proportionate joint interests. The residuum of extraneous and overhead expenses may be sta- tistically apportioned upon a basis of relativity to certain elements of the service or prorated upon the basis of otherwise apportioned costs. 5. The additional cost of a specific service is a corollary of the cost theory which affords a legitimate basis of special rates on certain traffic which cannot be moved at average rates. Columbia Studies, Vol. 37, pp. 17-18, 146-154. Tale Review, Vol. 18, pp. 129-133, 142-152. Quarterly Journal Economics, Vol. 27, pp. 27-49. Johnson, pp. 271-272. Ripley, pp. 44-56. Whitten, pp. 39-40, 41, 66, 82. Erickson, Keg. Piib. UtU. pp. 3-5, 14, 25-33. (c) The valuc-of-tlie-seri'ice theory makes railway rates com- mensurate with what the public will pay rather than go with- out the service, the degree of approximation being at the discre- tion of the carriers. 1. This theory has been generally applied and defended by rail- way managers upon the claim that "one's business is his own and he may properly sell his product for what he can get". 52 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 53 2. Since railways are characteristically monopolistic, the value-of- the-service theory dictates the exaction of monopoly prices for transportation services. 3. When applied to specific services, the value-of-the-service the- ory may at times indicate less-than-cost rates, thus introduc- ing personal and local discrimination. Columbia Studies, Vol. 37, pp. 52-56, 80-81. Tale Review, Vol. 18, pp. 125-129. Ripley, pp. 166-184. (d) The value-of-the-commodity theory (taxation theory) makes rates proportionate to the respective values of commodi- ties per unit of weight or volume. 1. This theory is a derivative of the cost-of-the-service theory in that the expense of insurance, storage, care in handling at terminals and in transit, and the speed of transport are more or less commensurate with value of goods. 2. This theory is indirectly related to the value-of-the-service the- ory since the -place utility resulting from a performed trans- portation service enters into the value of the commodity. 3. The value-of-the-commodity theory affords a useful expedient at times but is not a scientific theory of rate making. Ripley, pp. 168, 180. Ripley, Problems, pp. 123-124. ' Quarterly Jour. Econ. Vol. 5, p. 438. (e) The developmental theory of rates is applied in justifi- cation of favorable rates to young industries and newly settled districts. 1. Developmental rates are often below the average unit cost of the service, thus shifting the deficit upon less favored industries and localities. 2. "Commodity rates" based upon the developmental principle are discriminatory and may be reasonable or unreasonable ac- cording to conditions prevailing in each case. Ripley, pp. 152, 157-162, 177-178. (f) The keep-everybody-in-business theory of rates equalizes geographical and other differential advantages in production by making compensatory differentials in rates. 1. This principle of rate making is an ultra-discriminatory corol- lary of the value-of-the-service theory. 2. Any rate system which tends to equalize natural economic dif- 54 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 55 ferentials is inimical to normal industrial and social devel- opment and violates the principles of public policy. Ripley, pp. 119-122, 127, 148, 159, 161-162. Yale Review, Vol. 18, pp. 125-126. (g) The postal theory of rates disregards geographical dif- ferential advantages in industry by equalizing rates regardless of distance. 1. When correlated with the cost-of-the-service theory, the postal theory may be properly applied to mail rates, urban passen- ger rates, and under certain conditions to through freight rates. 2. As a general principle, the postal theory is dangerously discrim- inatory. Ripley, pp. 127-134. (h) The so-called "what-the-traffic-will-~bear-doctrine" is not a rate theory, but an opportunistic method of constructing classi- fications and rate schedules regardless of any logical principle. It savors strongly of the value-of-the-service theory ; but in sig- nificant instances rests upon the cost-of-the-service. \Vhat-the-tranic-will-bear is a thoroughly indefinite, primitive, and unscientific criterion of railway rates. Johnson, p. 288. Ripley, pp. 171-172. La Salle, pp. 39- 40. (i) Passenger fares are generally calculated upon a distance basis, and closely conform to the cost-of-the-service theory. Johnson and Huebner, vol. 2, pp. 260-275. (j) In determining rate theories to be applied, the predomi- nant motive of the service controls. 1. Private self-interest dictates an expeditious application of the value-of-the-service theory or what-the-traffic-will-bear. 2. Economic interests of the consuming public dictate the use of the cost-of-the-service theory. 3. Ultra social or political interests may indicate other rate theo- ries, i. e. socialistic or postal. Columbia Studies, Vol. 37, pp. 12-13. 56 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 57 QUESTIONS 1. Dr. A. M. Sakolski argues that, since the more traffic car- ried the lower is the cost of carrying each unit, and since railway rates themselves influence the volume of business, ' ' to base rates on cost would be an attempt to find one unknown quantity by using another. " Discuss the logic of this proposition. Sakolski, p. 4. 2. Dr. J. M. Clark says, "The value of a transportation service is sometimes defined as the difference between the price of the commodity in question at the point of shipment and the price at the destination The sugges- tion is altogether deceptive, for the difference in price itself depends on the transportation charges. " Discuss the logic of this proposition. 58 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 59 CHAPTER VIII CLASSIFICATION AND TARIFF STRUCTURES (a) Two processes are involved in the determination of trans- portation rates to be applied to specific shipments; i. e., the classification of articles and the fixing of rates per unit for any given haul. These processes constitute the practical application of rate theories. 1. Articles are classified upon bases of similarity as to physical characteristics, relative values, and quality of service re- quired into an array of more or less homogeneous groups. Official Classification 14 groups. Western Classification 16 groups. Southern Classification 17 groups. 2. Classification books enumerate articles by groups or classes without reference to rates. 3. Class tariffs or rate sheets indicate the charge per unit upon each class of traffic from each to every other point of ship- ment. 4. The transportation of some articles involves extratordinary rate considerations. Such articles may be excluded from the classification and given special or "commodity" rates. Commodity tariff sheets indicate the rates on specified articles for given hauls. Johnson, pp. 113-118. Johnson & Huebner, Vol. I, pp. 334, 340-1. Ripley, pp. 297-303, 314-325, 340. La Salle, pp. 34-39. (b) The cost-of-the-service or "relative costs" theory enters largely in modern classifications. It tends to assign respectively relative proportions of total transportation cost to groups of commercially similar articles. 1. European classifications are constructed primarily upon this basis. 6 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 61 2. Recent rate regulation has generally been undertaken upon the cost-of-the-service theory. Hammond, Rate Theories of the I. C. C., pp. 42-69, especial- ly 52, 186-192. Columbia Studies, Vol. 37, pp. 13, 15- 19. American Economic Review, March 1914, pp. 69- 80. 1 Wis. RR. Com. Rep. 325. 9 Wis. RR. Rep. 629. (c) Commodity rates are obviously discriminatory; discrimi- nation being justified by " extraordinary ' ' competitive conditions, by the " direct cost of the specific service " on traffic which will bear no higher rate, or by the application of the developmental theory of rates to the products of youthful industries. 1. The elimination of unreasonable rates tends to reduce the num- ber of commodity rates. 2. Industrial maturity removes the motive of the developmental theory and reduces the number of commodity rates. Ripley, 134-140, 143-144, 157-158, 213, 322-325, 425, 615. Yale Review, Vol. 16, p. 86. McPherson, Railroad Freight Rates, pp. 117-126, 138-143. (d) Classification of freight, in the United States, is the main function of three permanent committees of traffic officials. The Official Classification is formulated by representatives of 540 roads, the Western Classification applies to 480' roads, and the Southern Classification, to 170 roads. 1. The three classifications differ in the number of classes and in the rating of particular articles. 2. Classifications differ as to car-load ratings and car-load minima. Ripley, pp. 303-306, 325-337. Johnson & Huebner, Vol. 1. pp. 335-339. (e) There is a gradual movement toward uniform classifica- tion for the entire country. A Committee on Uniform Classifi- cation with headquarters in Chicago is engaged in preparing uniform descriptions, package specifications, and carload rules pertaining to articles which move by freight; and recommends consideration of same to the three classification committees. 1. The advantages of uniform classification pertain mainly to the facilitating of through traffic and the calculation of joint rates. 62 THE UNIVERSITY OF WISCONSIN AMERICAN RAHLWAY TRANSPORTATION 63 2. The obstacles in the way of uniform classification are sectional differences in industrial and traffic conditions. Ripley, pp. 337-353. Johnson & Huebner, Vol. 1, p. 339. Xoyes, pp. 77-78. McPherson, p. 304. (f) Tariffs are nominally made by the traffic officials of the respective roads, but are finally sanctioned by the traffic associa- tions and are issued by their officers acting as * ' agents ' ' for the subscribing lines. Johnson & Huebner, Vol. 1, pp. 306-308. (g) The following characters and terms signify conventional types of rates C. L., L. C. L., Local, Joint, Through, Blanket, Arbitrary, Differential, Export, Import, Combination, Concen- tration, Rail and water, Proportional, Terminal, Individual, Intermediate, and Transit. (h) Administrative control of railways is largely effective through the authority of commissions over classifications and tariffs. 1. The Interstate Commerce Commission may declare existing classifications and tariffs unreasonable and may prescribe maximum rates in specific instances; it may suspend proposed changes during investigation, and may nullify existing or proposed rates for a period of three years. Thirty days' no- tice is usually required before rate changes become effective. 2. The Wisconsin Railroad Commission may permanently suspend existing or proposed rates, and may determine reasonable rates to apply in lieu thereof. 3. Rates are effectively changed by shifting articles from class to class, by modifying specifications as to C. L. and L. C. L. shipments, by shifting articles from commodity rates to class rates and vice versa, and by directly changing class and com- modity tariffs. Ripley, pp. 306-314, 505, 561-564, 594-600, 534-536, 525- 526. I. C. C. Act, Sec. 1, 10, 15. Wis. RR. Law, Sec. 1797-14. Johnson, pp. 376-384. (i) Freight rates in the United States steadily and markedly declined from the beginning to 1900. After 1900, there was a clearly defined upward movement until 1905, followed by a gradual return to the average of rates for 1902. On the contrary, passenger rates exhibited no marked decline 64 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 65 from 1870 until, in 1908, there began a series of legislative re- ductions. 1. Earnings per ton and passenger mile Year Ton-mile Passenger mile 1870 1.89 cts. 1880 1.23 cts. 1890 941 cts. 2.167 cts. 1892 898 cts. 2.126 cts. 1894 860 cts. 1.986 cts. 1896 806 cts. 2.019 cts. 1898 753 cts. 1.973 cts. 1900 729 cts. 2.003 cts. 1902 757 cts. 1.986 cts. 1904 780 cts. 2.006 cts. 1906 748 cts. 2.003 cts. 1908 754 cts. 1.937 cts. 1910 753 cts. 1.938 cts. 1911 .' . . .757 cts. 1.974 cts. 1912 (Official Classification Terri- tory) 644 cts. 1.840 cts. 1913 (Official Classification Terri- tory) .637 cts. 1.852 cts. 2. Rates from New York to Chicago (in cents per 100 Ibs.) Classes 1 2 3 4 5 1862 Oct . . . . 180 150 125 75 1863 Mav . ... 160 117 94 55 1864 Sept . ... 215 180 120 96 1865 Oct . . . . 215 180 90 82 1866 Mar . ... 188 160 127 82 1867 Xov , . . . 202 170 138 86 1868 Sept 188 160 127 82 Oct .... 70 60 55 50 Dec . . . . 202 170 138 86 1869 Aug . . . . 25 25 25 25 25 Xov . . . . 150 130 100 80 55 1870 Jul . . . . 50 50 50 45 35 Dec . . . . 180 150 120 80 60 1871 Jun . . . . 100 90 70 55 45 Sept . . . . 30 30 30 30 24 Dec . . . . 125 110 85 65 50 1872 Aug , 75 70 60 45 35 Oct . . . . 125 110 85 65 50 40 THE UNIVERSITY OF WISCONSIN 66 AMERICAN RAILWAY TRANSPORTATION 67 1873 Apr 100 90 75 60 45 Aug 27 27 18 18 17 1874 Jan 100 90 75 60 45 Aug 75 70 60 45 35 1875 Jan 100 90 75 60 45 May 40 40 35 35 25 1876 Jan 75 70 60 45 35 Jul 15 15 15 10 10 1877 Mar 75 70 60 45 35 Oct 100 90 75 45 1878 Feb 75 60 50 40 1881 Aug 45 32 26 19 Xov 60 50 40 28 1882 Jan 45 32 26 19 Xov 75 60 45 35 1883 Jun 75 60 45 35 25 1885 Jan 50 40 30 25 18 Xov 75 60 45 35 25 1887 Apr 75 65 50 35 30 25 1888 Jan 75 65 50 38.5 33 . 27.5 Xov 50 40 35 30 25 20 1888 Dec. to 1914.. 75 65 50 35 30 25 3. The rate index (average of published rates) fell from 130 cents per 100 pounds in 1867 to 85 cents per 100 pounds in 1900. (Data for later years not available). 4. In interpreting revenue-per-ton-mile statistics, consideration. must be given to the nature of the traffic, the length of the haul and the relative proportions of local and thorough busi- ness, and to the volume of traffic. The rate index must be interpreted in connection with changes in the classifications, and divergencies from published rates. In recent years, rate advances have been largely accomplished through changes in classifications. 5. The primary causes of the decline in freight rates have been- rate wars, technical improvements, and the growth of traffic. The nature of railway competition, and the economic status and national psychology of the American people explain the- course of passenger fares. Ripley, pp. 23, 411-^30, 594-600. Noyes, Chap. 7. John- son & Huebner, Vol. 1, Chap. 3. Decision of I. C. C. in the recent 5 per cent advance rate case. For rate comparisons see Infra. Chapter III. THE UNIVERSITY OF WISCONSI 8 AMERICAN RAILWAY TRANSPORTATION 69 PROBLEMS LOCAL CLASS TARIFF. C. M. & ST. P. Between Madison, Wis. and Classes. Rates in cents per 100 pounds. 345678 10 Portage Wi >6 5 21.: 18 13 10.5 10.5 7 6.5 5 4.5 La Cros^e Wis 43 5 34 5 77 n 5 17 18 12.5 10 8 7.5 Red Wing Minn 60 50 40 25 20 25 20 17 14 13 Minneapolis Minn 60 50 40 25 20 25 20 17 14 13 Aberdeen S D 114 95 67 50 37 44 38 32 25 22 JOINT CLASS TARIFF. C. & N. W. Between Chicago and (via D. S. & S. A.) Classes. Rates in cents per 100 pounds. 4 5 6 7 9 10 Duluth, Minn Marquette, Mich Soo Junction, Mich Sault Ste. Marie, Mich.. Houghton, Mich 65 55 44 28 22 60 50 40 28 22 75 65 48 38 30 75 65 48 38 30 76 63 50 32 25 28 22 19 17 18 28 22 19 17 14 38 35 30 25 23 40 35 30 25 23 32 25 21 18 16 COMMODITY TARIFF. C. & N. W. Between Milwaukee and Horses and mules. (Car load rates in cents per 100 pounds.) Hogs. Sheep. Grain. Bricks. Peoria, 111 14.3 14.3 16.1 17.5 16 16 16.2 17 17.5 17.5 20 21 9 9 10 10 7 7 7.5 7.5 Luther, 111 Girard 111 Benld, 111 Classification (V Electric fans In boxes In boxes. Western) L. C. L. 1 C. L. 4 min. wt. 30.000 Ibs Nitric acid In glass or earthenware, packed in bbls. 1 In carboys D 1 In packages named, min. wt. 30,000 Ibs. Rattan chairs S. U. in boxes, crates, or wrapped.. 3tl K. D. in crates or wrapped Dl Soapstone In bags, barrels, or boxes 4 Same, min. wt. 40,000 Ibs 70 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 71 Window glass In boxes, external measurement ex- ceeding 86 inches, length plus girth 1 Not exceeding 86 inches 2 Not exceeding 68 inches 4 In boxes, min. wt. 36,000 Ibs 5 1. Quote the local rate from Madison to Aberdeen, S. D. and the joint rate from Chicago to Marquette, Mich., on window glass. 15 by 20 inches, for a shipment of 9,000 Ibs. For 72,000 Ibs. For 50,000 Ibs. Does the two- f or-one-rule apply ? 2. What is the rate from Milwaukee to Peoria, 111., on a ship- ment of bricks weighing 45,000 Ibs? 3. See proper classifications and tariffs and quote the rate on cotton shipments from Houston, Tex., to New York. 4. In what ways may classifications be used for discriminatory purposes ? 5. If there is no joint tariff, how are through rates quoted? 6. Plot curves from the New York-Chicago rates and from the revenue-ton-mile statistics, and explain as fully as pos- sible fluctuations and general tendencies. THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 73 CHAPTER IX RATE SYSTEMS IN THE EAST AND SOUTH (a) Differences in industrial and trade conditions cause rate- making practices to vary. 1. In the East and Northeast the Official Classification and "dis- tance tariffs" prevail. 2. In the South the Southern Classification and the "basing point" system of tariffs are used. 3. In the West and Southwest extraordinary conditions of compe- tition and rapid industrial development have led to wide dis- crimination in rates as among localities. (See Chapter X). Johnson and Huebner, Vol. 1, p. 382. (b) Official Classification territory is relatively mature in matters of industry and trade, and is subject to more scientific and stable transportation arrangements than other sections of the country. 1. The MacGraham percentage system of rates was applied to coast-bound traffic in 1876. Class and commodity rates were made commensurate with the Chicago-New York rate in direct proportion to respective distances. 2. In 1879 composite "line" and "terminal" charges were substi- tuted for distance rates. A uniform terminal charge of six cents per hundred weight was made an element of each rate. The remaining part of the Chicago-New York rate was made the base for calculating the line charge from intermediate points. Such rates now apply also to west-bound traffic. 3. Differentials were applied to other coast cities to equalize trade conditions. Boston and common points paid 5 cts. more than New York; Philadelphia, 2 cts. less, and Baltimore 3 cts. less. (For present differentials see Johnson and Huebner, Vol. 1, p. 93). 74 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 75 4. Intermediate localities other than junction or common points are subject to arbitrary rates to nearest common points plus respective through rates east or west, care being taken not to violate the long-and-short haul clause of the Interstate Commerce Law. 5. Local shipments in Official Territory are graded by distance to seventy-five miles and, thereafter, subject to regressive gra- dients. 6. A strict distance tariff is departed from in many instances be- cause of: Interrailway competition at certain junction points. The desirability of keeping cross-lines as nearly as possible in non-competitive zones. The adjustment of elements of trade rivalry of industrial and commercial centers. 7. A classification of alternative routes is made upon a basis of speed and other service qualities, and corresponding rate differentials prevail. Routes Rate per 100 pounds New York to Chicago First class Standard Rail 75 cents Differential Rail 69 cents Standard Rail and Lake 62 cents Differential Rail and Lake 52 cents Canal and Lake 42 cents 8. Certain states, in trunk-line territory, have made regulations without regard to the general system of rates. In such cases the maximum rates fixed by the states are usually above the standardized rates, and no conflict results. Johnson & Huebner, Vol. 1, pp. 383-405. Ripley, pp. 354- 379. McPherson, pp. 67-78. (c) Railway traffic into and out of the South is subject to a measure of effective water competition on all sides and to rivalry among distributive markets which result in a rate system de- signed to equalize conditions of competition rather than to com- ply with scientific economic doctrine. Southern railway charges are characterized by low and equal- ized through rates to competitive centers known as "basing points", by a system of differentials as between all-rail, rail- s 76 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 77 and-water, and all-water routes, and by highly discriminatory local rates. 1. Water competition controls rates from the Northeast to south- ern basing points to coastal points by direct service and to interior points by operation of the long-and-short-haul clause. Actual or potential competition is effective on the Ohio and Mis- sissippi Rivers. Recognized rivalry of western and eastern producers and dis- tributors has extended the benefit of water competition to the North and Northwest. 2. Basing points may be divided into four classes: Sea ports from Norfolk to New Orleans and river ports from New Orleans to Cincinnati. Cities located at head of navigation on southern rivers, such as Richmond, Augusta, and Montgomery. Railway gateways and commercial centres, such as Atlanta and Birmingham. Industrial and commercial points of competitive import- ance not included in other groups. 3. Under the basing point system, a base rate applies from outside common points to each basing point. Through rates to other than basing points are combinations of the base rate and the respective local rates from the basing point. Local rates are relatively high and somewhat proportionate to distance. 4. The Baltimore-Atlanta rate is the main base rate used in calcu- lating all through southern rates. Differentials prevail as between Baltimore and New York, Phila- delphia, and Boston common points in shipments from At- lanta common points. 5. Rates into the South from the North and Northwest are equal to. the rates from points of shipment to the Ohio River plus the respective rates from the Ohio to destination. Ohio River gateways all take the shortest-haul distance tariffs from northern points, and usually take the same rate to each basing point. Atlanta common points take the same rate from all Ohio River crossings which is the Baltimore rate. Other southern points take differentials over the Atlanta rate. Trans-Mississippi traffic to Atlanta via Memphis takes a 4-cent differential under the Ohio rates. Out-bound rates for the North are not so clearly related to the Baltimore rates. Johnson & Huebner, Vol. 1, pp. -107-438, Ripley, pp. 380- 393. McPherson, pp. 85-92. 78 TEIE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 79 (d) Texas rates are adjusted to partially equalize industrial and trade conditions in that state ; namely, accessibility of mar- kets from producing districts within the state, and competitive rail and water rates between Texas and eastern points. 1. Texas intrastate rates are computed upon a graded and max- imum tariff. 2. Interstate rates to Texas common points are equalized as be- tween Atlantic coast cities and inland distributing centres. 3. Eastern rates are adjusted to meet water competition via the Gulf. Johnson & Huebner, Vol. 1, pp. 434-438. Kipley, pp. 393- 395. McPherson, pp. 92-102. QUESTIONS 1. Would the strict application of the long-and-short-haul clause completely destroy the basing point system of rate making? Explain. 2. Explain the probable effect of applying the principles of the distance tariff to rate making in the South and in Texas. 3. Not long ago the Texas Railroad Commission ordered a re- duction of 5 cents in a local rate from Waco, a point in central Texas, to Galveston. Explain the probable ef- fect of the change on through rates between Texas common points and points in the eastern half of the United States. May such a change affect interstate rates on traffic which does not touch Texas? Explain. 80 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 81 CHAPTER X WESTERN, TRANSCONTINENTAL, AND IMPORT AND EXPORT RATES (a) East-bound and west-bound traffic in western territory, excepting traffic moving under transcontinental, export, or im- port rates, is subject to rate differentials generally established with regard to certain "differential territory" delineated by Milwaukee, Chicago and St. Louis on the east, the Rocky Moun- tains on the west, and subdivided by the Mississippi and Missomi rivers. North-bound and south-bound rates are so adjusted as to equalize trade conditions as among Chicago, Omaha, St. Louis, and the Twin Cities. 1. Rates to and from eastern points are combinations of the respec- tive differentials assigned from points of origin to the Mis- sissippi, from the Mississippi to the Missouri, and west of the Missouri to points of destination. 2. Traffic consigned from St. Louis westward takes a 5-cent to 20- cent differential below Chicago traffic; and east-bound freight is burdened with a reciprocal differential. 3. Minneapolis and St. Paul rates to and from Chicago and St. Louis are equalized by a 5 per cent differential against St.- Louis. This is about 25 per cent below the Chicago-Omaha rate. 4. Twin City rates with intermediate points are made propor- tional to Chicago, St. Louis, or Omaha rates. Through traffic to or from the east via the Twin Cities meets rail and lake competition during the navigation season, re- sulting in low commodity rates. Canadian competition together with lake competition make the Chicago-Minneapolis share of joint rates very low. 5. In Western Territory, all points within a considerable area about shipping centers are called common points and take the same rate. Johnson & Huebner, Vol. 1, pp. 440-454. 6 82 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 83 (b) Transcontinental rates originally applied to traffic be- tween relatively narrow strips of territory on the Atlantic 'and Pacific seaboards, and were determined by conditions of compe- tition with the sea route around Cape Horn and the rail-and- water route via the Isthmus of Panama. Transcontinental tariffs now apply (with exceptions) to through traffic between points east of the Missouri River and west of the Rocky Mountains. 1. Generally, west-bound tariffs blanket all territory east of the Missouri on consignments to "Pacific terminals" and inter- mediate points. The latter take the terminal rate plus local rates from terminals to destination. 2. East-bound tariffs blanket "California Coast Terminals" and "North Pacific Coast Terminals" in consignment, and recog- nize ten "rate groups' (blanketed areas east of the Rockies) by gradients in the rates. 3. West-bound rates are usually higher to intermediate points than to Pacific terminals. East-bound rates from intermediate points are usually higher than from Pacific terminals. A general rule which fixes the limit of discrimination against intermediate points provides that through rates may not ex- ceed the "sum of the locals". 4. Local discrimination resulting from the present transconti- nental rate system forms the basis of recent action by the .Interstate Commerce Commission directed toward a recon- struction of tariffs by introducing a zone system of propor- tional differentials over terminal rates on west-bound traffic. (See Ripley, pp. 610-619). Johnson & Huebner, Vol. 1, pp. 456-488. I. C. C. Rep. XV. pp. 376-426, XVI. pp. 179-181, XIX, pp. 162-217, 238, 256. (c) Certain articles of import and export enjoy lower rates than like goods of domestic commerce. 1. Three influences have contributed to concessionary export rates: Competition among through (rail-and-sea) routes and the equalization of advantages of more favored lines by low rates on the haul of less favored lines. Aid to certain industries and localities in developing trade in foreign markets. Interregional and international competition for foreign markets. 84 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 85 2. Special rates on imported goods have customarily been granted in consideration of the following: Competition among transportation routes. Equalization of costs of raw materials to rival manufactur- ing interests. Nullification of tariff restrictions on trade. 3. Import and export rates apply chiefly to traffic from the sea- board to Central Freight Association territory. Billings may be direct from points of origin, or subject to delay in transit at ports of entry. Johnson & Huebner, Vol. 1, pp. 492-522. Ripley, pp. 406- 410. QUESTIONS 1. What reasons which do not now apply may have justified west bound terminal and differential rates in the past ? 2. Should .the present system of transcontinental rates be ex- tended to meet competition on goods which may move via the Panama Canal at lower than existing rates? Why? 3. Why are railways interested in the matter of canal tolls on coasting vessels ? in the financial control of steamships using the Panama Canal? 4. In case import or export rates are lower than the average unit cost of the service, who pays the deficit? Who pays if the rate is below the cost of the specific service f THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 87 CHAPTER XI THE RAILWAY CORPORATION (a) The economic advantages of the corporate form of organ- ization assume their greatest significance in the railway business in the United States. Where the railways are owned by tfre government, the private corporation is displaced by an administrative department and principles of public policy prevail irrespective of private pe- cuniary interests. 1. The attributes of the railway corporation, per se, are chiefly private, i. e. private proprietorship, private initiative in man- agement, and individuality in legal status. 2. In addition to the primary considerations of service and rates, certain attributes of public origin and significance inhere in the railway corporation, i. e. the right to exist, property ele- ments originating in public aid and social increments, and certain financial features of significance to the investing public. (See La Salle, pp. 189-198). Johnson, pp. 69-73, 322-323. Morris, pp. 152, 156, 160, 173. See Infra. Chapter III. La Salle, pp. 173-176. Cleve- land and Powell, Railroad Finance, pp. 110, 118. (b) Railway corporations are anteceded by the promotion of "projects" which contemplate commercial, social, or other ad- vantages as a result of the proposed construction or reorganiza- tion of railway properties. 1. The first essential of an attractive commercial project is the probability of securing sufficient traffic at remunerative rates. Terminal traffic may be anticipated through the medium of com- petition, or by traffic arrangements with connecting lines. Local traffic may be estimated upon the basis of existing indus- try or of industries to be developed along the proposed line. 88 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 89 2. Consolidation projects usually anticipate increased revenues through the elimination of competition, increased efficiency in organization and operation, and the probability of im- minent cash realization by the sale of additional securities issued against expected profits. 3. Financial backing for a project is usually enlisted by a group of men personally interested in the undertaking known as promoters and organizers. Financial arrangements to provide construction and equipment funds are made through banking and brokerage houses which are usually associated with other railroads and industrial corporations in matters of finance and management. Financial houses must be convinced of the probable prosperity of the proposed corporation and of its non-interference with the success of businesses in which they are already interested. Morris,' pp. 1, 2, 7-10, 13-20. Haney, Business Organiza- tion, p. 282. Johnson, pp. 89, 259-263. Cleveland & Powell, Railroad Finance, pp. 20-22, 29-30, 287-290, 320, 336. Noyes, pp. 155-157. (c) Railway corporations are created by a legislative grant of the right to exist for the purpose of rendering public service. 1. A railway franchise or charter is a grant of specific privileges by the legislature to the corporation. It may properly enum- erate reciprocal obligations, attributes of administrative con- trol, and the time and conditions of termination. Charters or franchises are always subject to certain "reserved powers" of government and to the exercise of the "police power". La Salle, p. 11. Meyer, p. 67. Beale and Wyman, sec. 16. Cleveland & Powell, Railroad Finance, pp. 153-155. Rail- road Promotion and Capitalization, pp. 155, 160. Bald- win, American Railway Law, p. 25. 2. Charters or franchises may be granted by special acts of the legislature, or by administrative act under authority of gen- eral laws. The latter method is now almost universal. Preliminary steps in matters of finance and organization must precede the granting of franchises. Cleveland & Powell, Railroad Finance, p. 16. Railroad Pro- motion and Capitalization, pp. 156, 159. 3. Franchise privileges granted to railway companies include the right to exist, construction rights, eminent domain, and a more or less exclusive right to sell services and collect rates and fares. THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 91 A franchise should indicate certain obligations to patrons (ade- quate service and reasonable rates), to investors (representa- tive and efficient management), to employees (reasonable safety and fair treatment), and to the general public (sup- port of public policy and aid in times of public danger or dis- tress.) Independent, Oct. 1892, pp. 99, 104. Cleveland & Powell, Rail- road Finance, pp. 153-156, 349-352, 118. Ripley, p. 443. Report of Board of Arbitration, pp. 99, 104. (d) Railways are financed by the sale of stocks and bonds to provide sufficient funds for promotion, purchase of right of way, cost of construction and equipment, and to maintain operation during periods of insufficient operating revenue. 1. Stocks (stock certificates) entitle the holder to an undivided interest in the property of the company, and to a propor- tional share of the profits and of certain liabilities of the corporation. Common stock, theoretically, carries the chief risk of the enter- prise and is ordinarily vested with voting power and the con- sequent control of the management. Preferred stock ordinarily conveys no voice in the administra- tion, but takes precedence over common stock in the order of dividends at a limited rate. Wood, Modern Business Corporations, pp. 112-116. Cleveland & Powell, Railroad Finance, pp. 39-45. Moody, The Art of Wall Street Investing, pp. 59-63. 2. Bonds are the promissory notes of the railroad corporation. They are of three general forms, i. e. mortgage bonds, collat- eral trust bonds, and income bonds. Notes and receiver's certificates are special debt obligations. The following are characteristic types of mortgage bonds: First Mortgage division bonds. Terminal bonds. Equipment bonds. Blanket bonds. Refunding prior lien bonds. Car trust bonds. Morris, pp. 187-195. Moody, pp. 33, 37, 38, 44-45, 51, 54, 57, 139. Cleveland & Powell, Railroad Finance, pp. 41, 48, 78, 79, 82- 85, 243-245. 3. The following technical processes are involved in the issue of railway securities: Subscription. Certification. 92 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 93 Execution of trust deed (in case of bonds). Underwriting. Marketing. Regulative agencies may require official validation of securities by certificate of convenience and necessity or otherwise. The exchange of securities in course of consolidation is frequent. Stock dividends and stock and bond bonuses have been popular ways of watering capitalization. Haney, pp. 301, 312. La Salle, pp. 179-182. Morris, p. 215. Cleveland & Powell, Railroad Finance, pp. 17, 23-27, 277. Johnson, pp. 86-95. 4. The nature of securities and conditions of marketing are largely determined by the stage of development and the pecuniary position of the company. Three stages are experienced in the development of a railroad: The period of promotion and construction. The period of growth of organization and traffic. The period of maturity and normal operation. The pecuniary position of a railroad company may be specula- tive, prosperous, unsound, or insolvent. Morris, pp. 178-187. Cleveland & Powell, Railroad Finance, pp. 50-52, 81-87. Sakolski, Chap. 1. (e) Railway corporations are so organized as, theoretically, to give every holder of common stock a voice in the management .and place the control with the majority of shares. 1. A board of directors is selected from the stockholders by cumu- lative or non-cumulative voting of the shares. 2. The directors select a chairman of the board, an executive com- mittee, a president (who is usually chairman of the board and of the executive committee), and administrative officers in- cluding several vice-presidents, the general managers, gen- eral superintendents, and the chief legal and financial officials. 3. Subordinate officers are usually appointed by their superiors subject to approval by a general officer or the executive com- mittee. 4. Vice presidents are usually general officers in charge of depart- ments or divisions. Wood, pp. 137-138. Morris, pp. 29-30. Haney, pp. 261- 263. (f) Corporate integration has characterized railway organiz- ation since the days of the consolidation of the original end-to- end railway lines of the East. 94 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 95 Recent activities of the United States Department of Justice seem to have effectually checked the progress of corporate integra- tion. 1. Consolidation involves the bringing together of two or more corporate properties under one management by the processes of amalgamation and merger. 2. Intercorporation brings together several corporate properties by means of the liolding company, interlocking directorates, and corporate federation. By the holding company plan the "controlling interest" (ruling aggregate of voting shares) in each associated or subsidiary company is owned by a supernatant corporation. Holding companies may be pyramided one above others. They may confine their activities to matters of control, or may also conduct railway operations. Interlocking directorates make it possible for a coterie of indi- viduals, each a stockholder in several of the associated cor- porations, to dominate the respective boards of directors and, by united action, control the policy of the group as a unit. Federation indicates united action of associated or autonomous corporations, resulting in pools, rate and traffic agreements, and standardization of policies. Morris, pp. 256-262. Haney, pp. 145, 207-208, 216, 222, 238-243, 130-131. La SaUe, pp. 211-223. Cleveland & Powell, Railroad Finance, Chap. 16, p. 278. Harper's Weekly, Vol. 58, p. 29 ; Vol. 56, p. 22. Literary Digest, Vol. 45, p. 1107; Vol. 47, p. 844. (g) Co-industrial affiliation between railway companies, ex- press and steamship companies, funding institutions, and in- dustrial corporations greatly influences financial and industrial affairs generally, and determines in large measure the develop- ment, organization, and policy of railwa; 1. The affiliation of railway companies and banks is necessary to the financing of railway projects. An indirect influence upon conditions of investment and industrial and commercial en- terprise may thus be exercised. 2. Affiliation with express and steamship companies has effected a centralization of shipping interests which presents certain serious phases of the so-called "trust problem.*' 3. Affiliations of railroads and industrial corporations have consti- tuted the chief cause of discrimination, assuming in some 96 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 97 cases the proportions cf "conspiracy in restraint of trade," and becoming the basis of current discussion as to the reas- onableness of discrimination and restraint of trade. INTERCORPORATE AND CO-INDUSTRIAL RELATIONS OF J. P. MORGAN & CO. AFFECTING A CAPITALIZATION OF $22,250,000,000 (1912) Center of influence Partnership and syndicate associates Media of financial influence 'New York *National City Bank *First National Bank Guaranty Trust Co. Bankers' Trust Co. Sphere of commercial and industrial influence 29 Railroad Companies Boston rKuhn, Loeb & Co. First National Bank National Shawmut Bank (New York) Old Colonial Trust Co. 34 Bank and Trust Companies Philadelphia Fourth St. National Bank Franklin National Bank Philadelphia National Bank 24 Producing and Girard Trust Co. Trading Compa- nies J. P. Morgan Lee Higginson & Co. Pittsburg * j KM .'er, Pea body & C'o. | Mellen National Bank Company * (Boston) Union Trust Co. (New York) 11 Traction, Lighting, Chicago and Power Compa- - First National Bank nies Continental and Commer- cial National Bank Illinois Trust & Savings Bank- 10 Insurance Compa- Drexel & Co. (Philadelphia) Merchants Loan and Trust Company First Trust and Savings Bank nies 2 Telephone and Tele- graph Companies 2 Express Companies . 1 Steamship Company Washington American Security Trust Co. Riggs National Bank * The sixty-five men who constitute the boards of directors of the Guaranty Trust Company, the Bankers' Trust Company, the First National Bank of New York and the National City Bank, inc"u 3 u^ I! > ||Ii _^ o .2 ^ - '? M fc Z r ^-S- S. - <: c o ^ S .; .- 5~ S S wO"^ 03 .2-u 01 M fe . "C . ^ " T l| K , BIS.. 0-3* "SiS^ S c ORGANIZATION OF THE I Freight claim agent \ U. S. B. line manager 1 General freight agent {Freight claim agent General freight agent and assistant f General eastern passen j . Sfligman. Railway Tariffs and the Interstate Commerce Law. Political Science Quarterly, Vol. 2. 16. Taussig, A Contribution to the Theory of Railway Rates. Quarterly Journal Economics, July, 1891. 17. \Vhitten, Valuation of Public Service Corporations. (The most complete discussion of bases of valuation) . CHAPTER VIII. CLASSIFICATION AND TARIFF STRUCTURES 1. American Economic Review, March 1914, p. 69. (Discusses cost of service in classification). 2. Beale and "Wyman, Railroad Rate Regulation, Chap, on Class- ification. (Decisions involving classification). 3. Dewsnup. F night Classification. 4. Interstate Commerce Commission Annual Reports, especially 1897. 5. Hammond, Rate Theories of the Interstate Commerce Com- mission, p. 42. et seq. (Discusses cost of service in classi- fication). 6. Johnson and Huebner, Railroad Traffic and Rates, Vol. 1, Chap. 17. 7. McPherson. Railroad F night Rates, pp. 117, 138, 304. 8. Noyes, American Railroad Rates, p. 77. 9. Regulation of Railway Rates, Sen. Doc. 243 1st sess. 59th Cong. p. 1230. 10. Ripley. Railroads: Rates and Regulation, Chap. 9. 11. Strombeck. Freight Classification. 12. Official Classification. Southern Classification. Western Classification. THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 189 CHAPTER IX. RATE SYSTEMS IN THE EAST AND SOUTH 1. Cases. Maximum Freight Rate Case, 6 /. C. C. Rep. 195. (Ex- plains the methods of making rates into South from East and West). Troy case, 6 /. C. C. Rep. 1. (Discusses basing point system). Chattanooga case, 10 7. C. C. Rep. 111. (Operation and effects of basing point system). Danville case, 8 I. C. C. Rep. 409, 571. (Virginia tariffs). These cases are discussed in Ripley, E nil- way Problems, Revised edition, pp. 357-482. 2. Dixon, The Traffic History of the Mississippi River. National Waterways Commission, Doc. 11. (The influence of the Mississippi River on rates) . 3. Fink, Adjustment of Transportation Rates to the Seaboard. 4. Johnson and Huebner, Railroad Traffic and Rates, Vol. 1. Chaps. 21, 22. (Discusses trunk-line and southern sys- tems. ) 5. Report of N. Y. Special Committee 011 Railroads, 1879, p. 3,000. 6. Report on Transportation Interests of the United States and ' Canada, Sen. Rep. 847, 1st sess. 51st Cong. pp. 611-636. 7. Ripley, Railroads: Rates and Regulations, pp. 354-379, 380- 395. Discusses trunk-line and southern systems. 8. Ripley, The Trunk Line Rate Systems: A Distance Tariff. Quar. Jour. Econ. Vol. 20. 9. Thayer, Transportation of the Great Lakes. Annals Amer- ican Academy of Social and Political Science, Vol. 31. CHAPTER X. WESTERN. TRANSCONTINENTAL, AND IMPORT AND EXPORT RATES 1. Cases. Business Men 's League of St. Louis v. A. T. & S. F. 10 /. C. C. Rep. 315. Spokane case. 15 /. C C. Prp. 376, 16 7. C. C. Rep. 179, 19 7. ".('. Iff p. 162. 190 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 191 Commercial Club etc. v. A. T. & S. F. et al. 19 I. C. C. R, L ). 218. Reno case. 19 / C. C. Rep. 238. (These cases all deal with transcontinental rates) Import Rates case, 4 I. C. C. Rep. 447. Export Rates case, 8 7. C. . Rep. 214. Pittsburg Plate Glass Co. v. P. C. C. & St. L. 13 7. C. C. R7. Johnson, American Fail wen/ Transportation, pp. 349-385. 8. Martin, History of the Grange Movement. 9. Peirce, Digest of decision of the Court and the Interstate Commerce Commission (up to 1908). 10. Painter, Compilation from the Congressional Record. 11. Ripley, Railroads: Rates and Regulation, pp. 441-499. (Prob- ably the best brief discussion of the act of 1887). 12. Cullom Report, 49th Cong. 1st Sess. Sen. Rep. 46. 1886. 13. "Windom Report, Sen. Rep. 307, 43rd Cong. 1st Sess. 1874. (Best discussion of the underlying causes of regula- tion) 196 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 197 CHAPTER XIV. RAILWAY REGULATION SINCE 1906 The Act of 1906 1. Beale and Wyman, Railroad Rate Regulation, pp. 1004 et seq. (Decisions on various points in the law). 2. Collier's Weekly, May 4, 1907. (Railroad publicity bureaus). 3. Dixon, Tlie Interstate Commerce Act as Amended. Quar. Jour. Vol. 21, p. 22. 4. Digest of Hearings before Senate Committee on Interstate Commerce 1905. pp. 1-56. (Railway concentration as a cause of legislation). 5. Haines, Restrictive Legislation, p. 265. (Efforts at legisla- lation between 1903 and 1906). 6. Meyer, Railway Legislation in the United States, Chap. 01^ Cullom Bill. 7. Merriam and Lust, Digest of Decisions of the Interstate Com- merce Commission since 1908. 8. Munsey's Magazine, March 1912. (Pro-railroad activity in behalf of Act of 1906). 9. Publicity of Accounts. Quar. Jour. Econ. Vol. 22, 364. 10. Report of Commissioner of Corporations on Transportation of Petroleum, 1906. (Rebating). 11. Ripley, Railroads: Rates and Regulation, pp. 499-556. Also Chap. 6 on discrimination, which has valuable refer- ences. 12. Smalley, Rate Control under the Amended Interstate Com- merce Law. Quar. Jour. Econ. Vol. 24, p. 292. 13. Tarbell, History of the Standard Oil Company. The Act of 1910, and subsequent acts 1. Annual Reports of the Interstate Commerce Commission. 2. Dixon, An article in the Quarterly Journal Economics, Vol. 23, p. 593. 3. Mann-Elkins Act, American Political Science Review, Vol. 4, p. 537. 4. Ripley, Railroads : Rates and Regulations, pp. 557-626, 638- 640. 5. Report of the Railway Securities Commission. 19J8 THE UNIVERSITY OF WISCONSIN (/ AMERICAN RAILWAY TRANSPORTATION 199 6. Review of Reviews, Aug. 1913, p. 208 contains a good expo- sition of the physical valuation act of 1910. 7. House Rep. 472, 62 Cong. 2nd. The Commerce Court. 8. The Intermountain Rate cases. Ripley, Railroads : Rates and Regulation, pp. 601-626. In the foot notes are valu- able references. 9. Reference should be made to indices of current leading magazines. 10. Annals, American Academy of Political and Social Science, Sept. 1914. 11. Shreveport Rate Case (34 S. Ct. 833). CHAPTER XV. ORGANIZATION OP THE FREIGHT AND PASSENGER SERVICE 1. Byers, Economics of Railway Operation. 2. Dewsnup, Railway Organization and Working. 3. Haines, American Railway Management. 4. Hine, Modern Organization: an Exposition of the Unit.- Sys- tem. 5. Johnson, American Railway Transportation, p. 184. 6. Johnson and Huebner, Railroad Traffic and Rates, Chap. 4. /l. Kruttschmitt, Tine Operating Organization of the Union Pa- cific and the Southern Pacific, Systems. Railway Age Gazette, Vol. xlvi. p. 1113. 8. McPherson, The Working of the Railroad. 9. Morris, Railroad Administration. (Probably the best gen- eral account). 10. Priestly, Report on the Organization and Working of Rail- ways in America. 11. Ripley, Railroads: Finance and Capitalization. CHAPTER XVI. THE MAIL, PARCEL POST, AND EXPRESS SERVICE The Mail and Parcel Post Services 1. Annual Reports of the Post Office Department. 2. Carr, The Railway Mail Service: Its Origin and Develop- ment. 200 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 201 3. History of the Railway Mail Service. Executive Doc. 40, 48th Cong. 2nd Sess. 4. Johnson and Huebner, Railroad Traffic and Rates, Vol. 2, pp. 324-349. 5. Newcomb, The Postal Deficit. (Taking the view that rail- roads are not paid too much). 6. Railway Mail Pay. Hearings before House Committee on Post Offices and Post Roads. 7. Report of the Postal Commission. House Doc. 608, 59th Cong. 2nd Sess. 8. Tunell, Railway Mail Service: A Historical Sketch. 9. Tunell, Railway Mail Service. (Discusses railway mail pay, inclines toward a cost basis). 10. Journal of Political Economy, June, 1914. Contains a good account of the Parcel Post in foreign countries and the administrative policy in America. See pp. 509 et seq. 11. Parcel Post in Foreign Countries. Prepared under the di- rection of Senator Bourne, Washington, 1912. 12. Parcel Post Hearings before Sub-committee on Parcel Post of Senate Committee on Post Offices and Post Roads, 1912, 5 vols. The Express Service 1. Alleged Purchase and Sale of Commodities ly Express Com- panies. Sen. Doc. 468, 60th Cong. 1st sess. 2. Stimson, History of the Express Business. 1895. (Very good for early history). 3. The present situation in the Express business may best be grasped from a study of the following cases: In re Express, 24 7. C. C. Reps. 385. (Best account of present practices.) Merchants and Manufacturers Association of Mil- waukee v. Wells Fargo et al. Wisconsin Commission No. R. 669, 1913. Boise Commercial Club v. Adams et al. 17 7. C. C. Reps. 115. Maricopa County Commercial Club v. "Wells Fargo et al. 16 7. C. C. Reps. 182. Ullman v. Adams et al. 14 7. C. C. Reps. 340. Kindel v. Adams et al. 13 7. C. C. Reps. 475. 202 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 203 4. Express Business in the United States. Bureau of Census, Special Reports, 1908. 5. Johnson and Huebner, Railroad Traffic and Rates, Vol. 2, pp. 270 et seq. 6. Official Classification. CHAPTER XVII. THE PULLMAN SERVICE AND PRIVATE CAR COMPANIES The Pullman Company 1. Annual Reports of the Pullman Company. 2. Graser, The Pullman Company under Federal Law. Rail- way World, Vol. 1, p. 781. 3. Loftus v. Pullman et al. 18 I. C. '. Reps. 135. 4. Johnson and Huebner, Railroad Traffic and Rates, Vol. 2, pp. 96 et seq. Private Car Companies 1. I. C. C. Reps. 3-15, 261; 5-35; 7-60; 16-80; 17-22; 1810. 2. In re Transportation of Freight by Common Carriers in cars not owned by such Common Carriers. I. C. C. Hear- ings. 1904. 3. Midgely, Private Cars: An Inquiry into their Growth, De- velopment, and Operation. Railway Age Gazette, Oct. 10, 17, Nov. 7, 21, Dec. 19, and Jan. 16, 1903. 4. Per Diem Payments. Railway Age Gazette, Feb. 17, 1899 and Oct. 11, 1901. 5. Ringwalt, Development of Transportation Systems in the United States. 1888. 6. Report of the Joint Special Committee to Investigate the Management of the Vermont Central. 1873. (Abuses of fast freight lines). 7. Reports. Bureaus of Corporations: 1905. Beef industry. 1906. Transportation of petroleum. 8. Theory and Practice of the American System of Through Fast Freight Lines, as illustrated in the operation of the Empire Line. 204 THE UNIVERSITY OF WISCONSIN AMERICAN RAILWAY TRANSPORTATION 205 9. Windoin Report, Sen. Doc. 43rd Cong. 1st sess. 307. 10. Wilson, History of the Pennsylvania Railroad Company, vol. 2. (Discussion of fast freight lines). 11. Johnson and Huebner, Railroad Traffic and Rates, Vol. 1. Chaps. 12 and 13. (A good brief discussion of private cars and fast freight lines). 12. "Weld. Private Freight Cars and the American Railway. Columbia Studies vol. 31. (A good study and very comprehensive) . CHAPTER XV11I. ELECTRIC RAILWAYS 1. Con way, Decreasing Financial Returns upon Urban Street Railway Property. Annals American Academy, Vol. 37. pp. 14-30. 2. Harding. Ehctric Railway Engineering. Pt. 1, Chap. 1. 3. Fisher, Economics of Electric Railways. 4. Franchises, Public Regulation, and Public Ownership. U. S. Census, Report on Street and Electric Railways, 1902. Chap. 9. 5. Interurban Railways Economic,' Financial and Social Fea- tures. U. S. Census Report, 1902. Street and Electric Railways, pp. 265-288. 6. Cumrnings, Possibilities of Freight Traffic on Interurban Lines. American Academy of S cial and Political Science, Vol. 37, pp. 68-77. 7. Arnold, Urban Transportation Problems. Annals American Academy, Vol. 37, p-. 1-13. 8. Johnson and Huebner, Railroad Traffic and Rates, Vol. 2, Chap. 36. CHAPTER XIX. SOME CURRENT RAILWAY PROBLEMS 1. Civic Federation Model Bill. 2. Report of Railway Securities Commission. (These reports discuss control of public service corporation securities). 3. Dunn, S. 0., Some Current Railway Problems. 4. Dunn, S. 0., Government Ownership of Railways. 5. Johnson and Huebner, Railroad Traffic and Rates, Vol. 1, Chap. 5. (Discusses terminal problems). 206 THE UNIVERSITY OF WISCONSIN \ AMERICAN RAILWAY TRANSPORTATION 207 6. Report of Board of Arbitration, 1913. (Discusses the labor problem). 7. Report of the Pujo Committee. (Intercorporate relations of railways and banks). 8. Ripley, Railroads: Rates and Regulation. Chap. 20. (State versus Federal control, with valuable footnote refer- ences). 9. Senate Committee on Valuation. Sen Rep. 1290, 62nd. Cong. 3rd. 10. House Doc. 1155, 63rd Cong. 2nd Sess. (The problem of railway mail pay) . 11. Whitten, Valuation of Public Service Corporations, pp. 102- 126, 160-166, 176-189. (Donated land, social value increments, and invested surpluses). 12. The 5 Per Cent Rate Cases, I. C. C. 1914 No. 5860. 13. The Minnesota Rate case. (See Pol. Sci. Quar., March 1914, P. 57). 14. Moulton H. G., Waterways versus Railivays. 208 THE UNIVERSITY OF WISCONSIN THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW AN INITIAL FINE OF 25 CENTS " ASSESSE . F " L URE TO RETURN BOOK ON THE'DATE DUE. THE PENALTV E T 5 CENTS N T " ' ' lJ N E SEVENTH 1 5 1933 e 1 AP8 7 1 91 1933 APR 191934 2 *UG'59BF REC'D L.D 1 9 1959 LD 21-50m-l,'3J YC 25386' r 325740 UNIVERSITY OF CALIFORNIA LIBRARY