therefore pay the same rate of dividends upon the total capitalization as formerly.

Only, then, by excluding the amount of railway securities held by other railroads may we obtain a basis for determining the increase or decrease of railway capitalization relative to the value of the tangible assets, or to the number of miles of line. Using this method of computation we find that in 1880 the average capitalization per mile of main line was:

At that time there were 87,800 miles of railway in the United States, and 20,300 miles of second, third, and fourth track and sidings. In 1903 there were 207,000 miles of main line and 61,000 miles of auxiliary tracks. The capitalization per mile of line at that time was:

Thus the average capitalization per mile of line has decreased $8350, or 15.7 per cent. This has been accomplished in spite of the relative increase of more than thirty per cent in the number of miles of auxiliary tracks, the better ballast, the removal of curves, the cutting-down of grades, the boring of tunnels, the substitution of steel for wooden bridges, the heavier steel rails, additional signaling and other safety devices, the enormous increase in the number, size, and capacity of the locomotives and cars, more commodious stations and terminal facilities, greater comfort and speed for the traveling public, the elevation of tracks in some of the larger cities, and above all the enormous increase in the value of the rights of way and other railway property. In fact, it is believed by a large number of railway experts that the railroads of America could not be reduplicated to-day for a sum equal to their present capitalization.

If, then, we may assume that the capitalization of American railways is not at present greatly excessive, we must conclude that the returns which are now being paid upon that capital are on the whole very moderate. For twelve years, 1888 to 1900, an average of 63.94 per cent of American railway stock paid no dividends whatever. Even during the present era of prosperity 42.53 per cent of the total railway stock paid no dividends for the year 1904, while 4.49 percent of the funded debt paid no interest. But during the period 1888 to 1900, the proportion of the bonds which paid no interest was much larger, and as a result of this fact, nearly all of our great railway systems, at one time or another, have been driven into bankruptcy, frequently resulting in an almost total loss to the stockholders. The following table will show the low returns which have been paid upon railway stocks since 1888: 1

or 60

48.73

45.94

42.53

37.16

1.57

1.95

2.67

3.19

3.51

3.57

There is certainly, therefore, no cause to complain that our railroads have paid an unreasonably high rate of dividends. If we assume that during this period 50 per cent per cent of the total capital stock was water, the average returns upon the actual capital would still be very small. We conclude, therefore, that the average returns upon railway capital have not been above the average returns upon other kinds of investment.

From every point of view, therefore, American railway rates are, in general, very reasonable. But from this fact

1 Statistics of Railways of United States, 1904, p. 60, and 1905, p. 58.

alone we cannot derive a perfect guarantee for the future. It is a perilous thing to leave such vital interests as those of transportation unreservedly to the control of irresponsible private individuals. Economic causes have hitherto checked the greed of railway capitalists, but as certain forms of competition are becoming extinct, we have some grounds of apprehension for the future. As we shall subsequently show, however, that which is needed is adequate and expeditious machinery for preventing extortion and excessive charges, rather than a transfer of the responsibility of rate-making from the railroads to the govern

ment.

We shall now turn to a discussion of the relative inequality of rates in connection with which we shall find abuses which constitute a better foundation for the demand for public regulation.

CHAPTER II

FEDERAL CONTROL OF RATES IS NECESSARY

IN the preceding chapter, it has been shown that the real ground of complaint against the railroads is not that rates in general are excessive, but that they are inequitable. One shipper or one locality is especially favored as compared with other shippers, or with other localities similarly situated; or one class of commodities is placed at a disadvantage, as compared with other competing commodities. In other words, railroads are charged with unlawful and unjust favoritism.

At first thought, it would appear that a good case might be made out against the railroads upon these grounds. Discriminations in rates are everywhere so apparent as to require no presentation of evidence to prove their existence. Upon investigation, however, it will be found that, aside from personal discrimination, cases of unjust favoritism on the part of the railroads are extremely rare. Railroads are not in business for the purpose of conferring special favors upon particular localities or individuals. Their aim is to secure the largest net revenue possible. In every case, therefore, they charge the highest rate which, in their opinion, is consistent with their permanent interests. If one locality obtains a rate lower than that given to another, it is usually not because the railroad wishes to favor that locality, but because it is unable to charge more without losing traffic to the extent that there would be a loss in net returns. Nobody would criticise the railroads, in any given case, for making their rates low enough to stimulate traffic sufficiently to give them greatest net returns. But

how about those other points, where rates are not reduced to the same extent? Obviously, the reason these rates are not so reduced is that the railroads cannot increase their net returns by a reduction. There must be, therefore, something inherently different in the nature of the business at the respective shipping-points. The former locality may have the advantages of water competition, it may have the advantage of the competition of several railroads, or it may possess great natural or acquired advantages for developing traffic and carrying on a given industry. Is it not, therefore, to be expected that the railroads, in their attempt to develop the largest amount of traffic possible, will recognize these natural and acquired advantages, and adjust their rates accordingly? There is no unjust discrimination against the locality which does not possess these advantages and is charged a higher rate, unless it can be shown that a reduction of rates to that point would be equally advantageous with respect to development of traffic. The only valid grounds of complaint, therefore, would be the enforcement of rates either excessive in themselves, or established as the result of capricious or unreasonable discrimination on the part of the railroads.

Upon close examination of the various complaints brought before the Interstate Commerce Commission, however, it will be seen that cases of capricious or unreasonable discrimination are extremely rare. Nine out of ten of the cases of alleged discrimination between the localities arise from the fact that certain local points do not possess the advantages of competition, such as may have resulted in a disproportionate reduction in the rates to some more favored competitive point.

Now what might be expected to result if the government were to undertake to equalize these natural and acquired advantages, and thus put the local points upon an equal footing with the competitive points? This could be accomplished only by one of two means: either