CHAPTER X A STATISTICAL STUDY OF THE LAW OF THE effect of increasing returns on railway earnings and rates was illustrated in the previous chapter by a comparison of traffic density and rates. Because of the importance of this principle in rate-making and the fact that heretofore no similar analysis has apparently been attempted, it may be worth while to investigate (1) the operation of increasing returns in the history of American railroads; and (2) the relation between traffic density and cost of transportation. (1) "INCREASING RETURNS" AS INDICATED BY THE TREND OF RATES AND EARNINGS FOR ALL ROADS While steam transportation actually originated about 1820, a comparatively small amount of mileage was constructed up to 1860, and reliable statistics as to rates are not obtainable until about the time of the close of the Civil War. During the seventies and eighties railroad building proceeded in advance of the growth of traffic, but nevertheless there was a fairly steady decline in rates, as indicated in the table following. The decline during 1890 to 1910 was not so marked, although it would naturally be expected that with the close of the period of rapid construction the law of increasing returns would effect a considerable reduction in rates. When the change in the purchasing power of money (as indicated by Dun's index numbers of wholesale prices) is taken into account, however, the adjusted rate figures show the anticipated trend. Thus the average "rate" for 1890, 1.02 cents, was the same as that for 1867, but by 1910 it had declined to .63 cent, and by 1920 to .40 cent. 1 The ton-mile revenue figures for the years 1868 to 1888 are from the Report of the United States Industrial Commission, vol. xix, p. 280; for later years from the statistical reports of the Interstate Commerce Commission. 2 Ton-mile and passenger-mile revenue figures, divided by Dun's index numbers of wholesale prices. TENDENCY OF FREIGHT AND PASSENGER RATES IN THE 1 The ton-mile revenue figures for the years 1868 to 1888 are from the Report of the United States Industrial Commission, vol. XIX, p. 280; for later years from the statistical reports of the Interstate Commerce Commission. 2 Ton-mile and passenger-mile revenue figures, divided by Dun's index numbers of wholesale prices. The extent to which average rates for the United States have responded to changes in the average traffic density in accordance with the conclusion reached in the preceding chapter is indicated in the accompanying graph. Of course, the great increase in train-loading was made possible only by the invention of new devices and methods, but the fact that the traffic was available and that the traffic density might be increased doubtless stimulated such ad vances in the art of transportation. Whether lowered rates brought about an increase in traffic and in train-loading, or whether on the other hand larger train-loads brought about a decrease in costs and subsequently in rates, need not be analyzed. The fact remains that, whatever the relation of cause and effect, rates (or, more accurately, average receipts per ton-mile) have declined year by year in close agreement with the increase in traffic density. To what extent 20 20 Traffic Density Scale = 100,000 Revenue Ton Miles per Mile of Road 5 Average freight traffic Density. 1915 1920 the rate decreases were due to increase in the proportion of low-grade to total traffic, and to what extent to greater density for all traffic, has not been determined, but doubtless both factors were effective. The trend of average ton-mile revenues has, of course, been affected by Government regulation. This result was more evident in the earliest days of Government regulation, however. The special object of regulation during the early period was to eliminate rebates and the grosser forms of discrimination brought about by excessive competition, and this was undoubtedly a great benefit to most roads. FLUCTUATIONS OF PUBLISHED RATES AND TON-MILE RECEIPTS (From United States Industrial Commission Report, vol. xIx) 1 Average of actual published rates for various commodities between certain points. |