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 THE RAILWAY AND THE STATE. 
 
 Since the nations of the earth have been old enough to trade 
 
 the control of commerce has been undertaken by the state. Its 
 extension or restriction abroad, its development or direction at 
 home, and its influence upon the wealth of the nation or the 
 interests of classes, have all been thought proper objects for the 
 exercise of the sovereign authority. But commerce, if allowed 
 to take its natural course, will, like all other movements of 
 nature, follow the direction of the least resistance, and the ten- 
 dency of state control has ever been to obstruct this natural 
 channel without supplying others which were deeper or more 
 direct. Control is ever thus upon the verge of interference, and 
 has ever been falling over the verge into the abyss below. This 
 has been the experience of the world. From that experience we 
 have constantly added to our knowledge of the subject, and as 
 in one case after another the control has been shown to result in 
 interference, producing the results it was invoked to prevent, 
 the interference has been withdrawn, and in its place there has 
 been substituted that control only which is exercised by the 
 state over all property: protecting it in its proper use, and 
 preventing its employment to the injury of others. 
 
 In all the transactions of trade experience has shown that as 
 1 each one works for his own interests, he equally works for the 
 greatest good of the greatest number ; yet, as new problems 
 present themselves in the advancing course of civilization, it 
 seems to be the tendency ever to solve them by state interfer- 
 ence. But the tendency of history is also to repeat itself in this 
 ^ as in other affairs of the world, and the injury resulting from 
 ' the interference leads to its abandonment. 
 
 The railway systems of the world seem to many to afford a 
 ^ new problem. In the memory of men still living the first loco- 
 £ motive was run in the United States, while now there are about 
 
 4) 4G1 
 
462 
 
 THE NORTH AMERICAN REVIEW . 
 
 one hundred and twenty thousand miles of railroad in opera- 
 tion — nearly equal to the mileage of the rest of the world com- 
 bined. The importance here of the railroad, entering as it does 
 into every interest of the country, naturally results in a popular 
 demand for a strict control of it by the law. When fifty mill- 
 ions of active people are every day affected by its operations, 
 there must be frequent complaints and many injuries, whatever 
 may be the principles of its management. Of these complaints 
 many no doubt arise from an ignorance of the causes leading to 
 the conditions complained of, — causes which are beyond the 
 control of the railroad as they are of the state. For the cure 
 of these real or imaginary ills the remedy at once suggested is 
 state control ; not by the redress or prevention of alleged injus- 
 tice or oppression, or by a trial of specific cases on their 
 merits ; but by an effort to manage the whole policy and direc- 
 tion of the traffic of the railroads, — to fix their rates and direct 
 their operations. 
 
 State interference in the management of railroads and the 
 fixing of rates, is excused on the ground that they are not con- 
 trolled, as are other commercial institutions, by competition. For 
 a popular belief this is natural enough, for such judgments are 
 generally based upon the information derived from a few uncertain 
 facts, together with the misinformation spread by the politicians 
 and a portion of the press. A close examination of the subject 
 will, however, show that the rates are the product of competition, 
 and are determined by the natural law of all commercial trans- 
 actions which constantly tends to reduce profits to a minimum. 
 Some of the natural forces which regulate the rates charged by 
 railroads I shall notice under the following heads : 
 
 First Competition of capital. 
 
 Second. Competition of parallel railroads and water routes. 
 
 Third. Competition of markets. 
 
 Fourth. Efforts of the railroads to increase their traffic and 
 net income by decreasing their rates. 
 
 First. It is an accepted maxim of economics that the value 
 of money depends upon the relations existing between the 
 demand for its use and the supply. This value, represented by 
 the rate of interest which is paid for its use, constantly tends 
 to equalize itself throughout all countries and in all invest- 
 ments. The differences which exist in the rates of interest in 
 various markets, are regulated by the abundance or the scarcity 
 
THE RAILWAY AND THE STATE. 
 
 463 
 
 of capital in each, compared with the demand for its use. 
 The differences which exist in the rates in any given market 
 are determined by the greater or less certainty of the return 
 from the investments in which the capital is employed. The 
 constant tendency is in all cases for the interest on the capital 
 to come to a uniform rate where there are uniform circumstances 
 of risk. It follows that under the free operation of the laws 
 of trade, capital invested in railroads cannot permanently, or 
 for a long time, earn a higher rate of interest than capital in- 
 vested in other ways where the uncertainty of return is not 
 greater. 
 
 With the threat of governmental interference in the control 
 of railroad tariffs, there is a new element introduced which 
 largely adds to the uncertainties that exist to a greater or less 
 extent under the natural conditions. The capital to be invested 
 in railroad undertakings, therefore, demands the promise of a 
 larger return than would otherwise be required. Such inter- 
 ference, when it is exercised for any other purpose than to 
 redress wrongs and to prevent injustice, must always discourage 
 the investment of capital in new lines which would afford 
 further competition 5 and a higher rate of interest will be 
 demanded on all the capital invested in railroads before a new 
 line will venture in the same field. Thus the competition of 
 capital, though an indirect, is yet a powerful element in deter- 
 mining the rates charged by railroads. Capital is eager to 
 locate itself where is the fairest promise of return. But if 
 attacked or threatened, it flies from the place, and only the 
 strongest inducements or most earnest promises can again lure 
 it back to the distrusted locality. 
 
 Of the arrested development of railroads there have already 
 been some conspicuous cases in the United States, for instance, 
 in the great agricultural States of the west and north-west. 
 These are some distance from the chief markets for their prod- 
 ucts, and the item of transportation thus becomes a prominent 
 factor in the cost of production in those markets. It is natural 
 that, under these circumstances, any charge that the rates of 
 transportation were excessive would be eagerly received by the 
 agricultural class. It was as natural that the politicians should 
 use these circumstances to their advantage, and do all in their 
 power to increase the misunderstanding between the farmer and 
 the railroad. The farmer was urged to believe himself the 
 yol. cxxxviii. — no. 330. 32 
 
 32 
 
464 
 
 THE NORTH AMERICAN REVIEW. 
 
 miserable villein groaning beneath the oppressions of his feudal 
 lord. He asserted his manhood by sending a champion of his 
 independence to the Legislature. The conflict of natural forces 
 in operation upon rates was interrupted, and the problems were 
 supposed to be solved by counting heads in the legislative arena. 
 In 1874 the principal laws were enacted or went into operation, 
 which authorized the state to fix the rates that private corpora- 
 tions and individuals should charge for the service of trans- 
 porting or storing grain. In 1876 the constitutionality of the 
 “ Granger Acts v was affirmed by the highest court of the land. 
 The effect of all this on capital is illustrated in the following 
 statement of the miles of railroad constructed, as shown in the 
 Report on internal commerce of the United States for 1880, by 
 Jos. Nimmo, Jr., Chief of the Bureau of Statistics.* 
 
 Miles op Railroad Constructed in Illinois, Wisconsin, Minnesota, Iowa, 
 Missouri, Kansas, Nebraska, and Dakota, yearly, from 1872 to 1880 
 
 inclusive. 
 
 Year. 
 
 No. of Miles. 
 
 Year. 
 
 No. of Miles. 
 
 1872 
 
 3086 
 
 1877 
 
 670 
 
 1873 1130 1878 1254 
 
 1874 509 1879 2465 
 
 1875..., 
 
 
 357 ... 
 
 1880 
 
 2915 
 
 1876 
 
 
 . 550 
 
 
 
 Of this period, the Commissioner of Railroads for Minnesota 
 remarks as follows : t 
 
 “I came into office when railroad enterprise was paralyzed, and the 
 general prosperity of the State at a low ebb ; when there was great 
 animosity among the people toward the railroads. I felt it my duty to do 
 everything I could to allay irritation and keep the peace between the people 
 and the railway corporations, to the end that our large agricultural territory 
 might get more roads. After an almost total suspension of railway con- 
 struction in the Western and North-western States for three years (1874 to 
 1876), Minnesota was the first to resume building roads, and kept in the 
 lead for several years, until we had substantially a complete system of trunk- 
 lines. There is, to-day, hardly a cultivated farm in the State from which 
 the farmer cannot drive to a railroad station and return in a day. 
 
 “I believe that the avoidance of legislative interference with rates, and 
 the administration of this office in a way to encourage the further investment 
 of capital in railways in this State, has had an appreciable influence in this 
 progress and development. Now that we have so many powerful corporations 
 competing for business, we are assured that branches and cross-lines almost 
 indefinite will be constructed, giving in a few years to every locality the 
 benefits of active competition, and the lowest practicable rates.” 
 
 * Appendix, p. 187. t Report 1881, p. 5. 
 
THE RAILWAY AND THE STATE. 
 
 465 
 
 The great depression in railroad investment during this 
 period of animosity toward the companies was, no doubt, to 
 some extent the result of other causes. The feeling of the peo- 
 ple, as well as the suspension of road building, were both, to a 
 great extent, the effect of a common depression following unwar- 
 ranted anticipations of great returns from all investments. Yet 
 there can be no doubt that, other causes being removed, the 
 threats and attacks of the time were sufficient to drive all 
 movable capital from the field, and to warrant the prediction of 
 Justices Field and Strong in their dissenting opinion, when the 
 decision of the Supreme Court in these u Granger cases n was 
 rendered. u The questions thus presented,” they say, u are of 
 the greatest importance, and their solution must materially 
 affect the value of property invested in railroads to the amount 
 of many hundreds of millions, and will have a great influence 
 in encouraging or repelling future investments in such property.” 
 
 While the attitude of the state toward railroads is of such a 
 nature that no dependence can be placed upon its actions, the 
 investment of capital in railroad building becomes an enterprise 
 of a highly speculative nature. Great returns must therefore 
 be promised to lure the capital into so uncertain a field. The 
 state thus becomes, however unwillingly, the enemy of capital, 
 delays the construction of competitive lines, and so tends, by its 
 interference, to maintain higher rates of transportation. 
 
 Second. Competition of parallel lines, by water or rail, is the 
 surest possible guaranty of the lowest rates and the best service. 
 This is a generally admitted truth, and is proven by all ex- 
 perience. So important has this direct competition been con- 
 sidered, that a select committee of the United States Senate, on 
 transportation, in 1874, prescribed it as the best remedy for the 
 evils connected with the subject, which existed or were antici- 
 pated. In the conclusion of their report they say : 
 
 ( ‘We are unanimously of the opinion that the problem of cheap trans- 
 portation is to be solved through competition, as hereinafter stated, rather 
 than by direct congressional regulation of existing lines.” * 
 
 To effectively secure this competition, they recommend that 
 the Government build and operate a double track freight rail- 
 road from the Mississippi River to the Atlantic Ocean ; and tell 
 us that if this road were used to its fullest extent, by having 
 
 * VoL I., p. 242. 
 
466 
 
 THE NORTH AMERICAN REVIEW. 
 
 trains follow each other at intervals of half an hour, upon 
 grades where thirty or thirty-five cars could be run to a locomo- 
 tive, the charge on shipments in bulk, on such goods as western 
 cereals, might not exceed seven and a half mills a ton a mile.* 
 The rate on grain, quoted by the Committee, between Chicago 
 and New York, in 1872, was twelve and one-tenth mills a ton a 
 mile. The reduction promised by the Government road was, 
 therefore, four and six-tenths mills. 
 
 Congress has not seen fit to act upon the recommendation of 
 the Committee, so the road has not been built. But by leaving 
 the subject to private interests, not only has the danger which 
 at the time was apprehended from the combination of the East 
 and West trunk-lines not been realized, but the rates estab- 
 lished by the Joint Executive Committee representing these 
 lines, are now greatly below the rate promised by the Govern- 
 ment road. The present tariff on grain and flour from Chicago 
 to New York is twenty-five cents a hundred pounds, or five and 
 four-tenths mills a ton a mile, — less than one-half the rate of 
 1872, and nearly one-third less than the low rate promised by 
 the Government all-freight road. 
 
 This result has been accomplished chiefly through the compe- 
 tition of parallel routes by water and by rail j though we shall 
 see that similar, if not as radical, results would be secured by 
 other forms of competition, which are not commonly so well 
 understood. 
 
 Third. Markets that are common to various points of produc- 
 tion or supply control the rates from all these points by the . 
 competition which may exist with any one of them. The lowest 
 rate to the market by any route, controls the rates by all the 
 other routes. This principle is well shown in the statement of 
 the Manager of the Great Western Railway of England. 
 
 “It will fairly illustrate to you,” he says, “the practice with regard to 
 some of the grain imported into this country, if I explain the position of 
 Birmingham and South Staffordshire, which is a comparatively small district 
 of about twelve miles square, and contains a population of upwards of one 
 million persons, and therefore consumes large quantities of foreign, as well 
 as home-grown grain, etc. 
 
 “ This district can be and is supplied from Liverpool, a distance of ninety- 
 eight miles ; Gloucester, fifty-three miles ; Bristol, ninety miles ; Newport, 
 ninety-eight miles ; and Cardiff, one hundred and ten miles (taking Birm- 
 ingham as the place to measure to). It will be seen that Gloucester is the 
 
 Yol. I., p. 154. 
 
THE RAILWAY AND THE STATE. 
 
 467 
 
 nearest point, and as it is connected with Birmingham and South Staffordshire 
 by river and canal navigation, as well as by railways, the cost of conveyance 
 of American grain is cheapest from that place, and therefore the rates from 
 Bristol, Liverpool, Cardiff, and Newport, have to be fixed so as to enable 
 these ports to compete with Gloucester.” * 
 
 The cost of American grain is probably the same at each of 
 these various points which may supply the market ; so that the 
 route having the longest haul can charge no more than the one 
 having the shortest. Though they are not parallel lines, yet 
 as they go to the same market they come directly in competi- 
 tion with one another. 
 
 The same rule aids in determining the rates on grain and 
 provisions from various producing points in America to the sea- 
 board, and the ocean rate from there to England. u The United 
 Kingdom,” we are told, “ is the chief grain market of the world. 
 All the Indian corn and about fifty per cent, of the wheat con- 
 sumed in that kingdom is from foreign countries.*’ t In this 
 market the chief competitors of the United States are Russia, 
 Germany, Egypt, Australia, Canada, and India. From the fields 
 of production in the United States, then, the rates are controlled 
 by competition with the different routes to the various countries 
 mentioned. The rate from Odessa, on the Black Sea, to Liver- 
 pool affects the rate by sea from California, as well as by rail 
 from Dakota. 
 
 Now, if the cost of production in Dakota were the same as in 
 Germany, for instance, and the supply in either case were suffi- 
 cient to meet the demand of Great Britain, the rate from Dakota 
 to Liverpool would be the same as the rate from the place of 
 production in Germany to Liverpool. If it were not as low, 
 Dakota would send no grain to that market. If, however, as is 
 the case, the cost of production in Dakota were less than in 
 Germany, the rate from the former place would be such as to 
 equalize the cost of production in the market. Now transporta- 
 tion is a part of the cost of production in the market. In the 
 place where grain or any other raw material is produced, trans- 
 portation is, of course, no direct element in its cost. But at the 
 place of production it is worthless ; it must be brought to 
 market. That from necessity involves an additional expense, 
 and this additional expense is a part of the cost of production 
 
 * Spl. Kept. Dep. Agri. U. S., April, 1883, p. 6. 
 
 t U. S. Inter. Commerce, 1880, p. 175. 
 
468 
 
 THE NORTH AMERICAN REVIEW . . 
 
 in the market. This fact suggests the importance and power of 
 the markets in regulating the rates of transportation. This 
 cost of production, other things being equal, determines who 
 shall sell and in what quantities. The selling price of a com- 
 modity is there determined by the competition of all sources of 
 supply which the market has. These may be so close at hand 
 that the transportation is an unimportant item ; or may be in 
 the place itself, in which case the transportation is no factor. 
 To meet such competition the transportation company is com- 
 pelled to fix its rates so low that the articles produced at a 
 distance can be brought to the market at a profit to the 
 producer. 
 
 This force of competition enters into the determination of 
 the rates on nearly all commodities and in nearly all places. It 
 operates most powerfully upon those things which are consumed 
 in the largest quantities, since for these there is the greatest 
 demand and the greatest competition in their sale. It tends to 
 reduce to a minimum the rates on grain, provisions, and coal, 
 and affects least the rates on silks, broadcloth, and wines. It 
 results in differential rates, which, while they cause complaint 
 from some, are a source of the greatest benefit to the many. It 
 produces competition between places where otherwise none 
 exists ; it brings competition to commodities which before 
 were monopolies. And so, in its effect, by constantly tending 
 to reduce the selling price, it restricts profits more and more 
 and brings into stronger play the forces determining the cost of 
 production. Hence result an action and reaction which contin- 
 ually tend to reduce the price of commodities to consumers. 
 
 Fourth . The fourth force regulating rates is found in the 
 power which the railroad possesses of increasing its net income 
 by increasing its traffic at lower rates. The influence of this 
 principle in the regulation of rates deserves more extended 
 notice, as it more or less affects all rates of transportation, — of 
 passengers as well as of freight, and between all places. 
 
 It is a principle of business generally understood, that more 
 is to be made with small profits and large sales than with small 
 sales and large profits. The wholesale merchant has a greater 
 income, because his transactions are much greater; but the 
 retailer receives a larger profit on the amount of the business 
 he does. The lower rates of the wholesale merchant are, how- 
 ever, a result of economy in exchange and not in production. 
 
THE RAILWAY AND THE STATE . 
 
 469 
 
 Cotton goods, for instance, whether sold at retail or wholesale, 
 cost the same at the factory ; and they must in any case he sold 
 at an advance on this cost to realize any profit. But suppose the 
 demand for cotton goods to he so limited that very small quan- 
 tities were manufactured ; while the factories, machines, engines, 
 officers, and general expenses of all kinds, were the same as with 
 a much greater production. Evidently the cost of production of 
 a single yard of calico would he greatly increased. But suppos- 
 ing, on the other hand, hy an increase of the demand tenfold, 
 ten times the amount of cotton should he manufactured without 
 requiring any increase of factories, engines, machines, or man- 
 agers, the cost of producing a yard would be greatly decreased. 
 There would he a greater profit to the manufacturer now, we 
 may assume, in selling the increased production at one-half the 
 former price, than there would he with the former rate and the 
 much smaller sales. 
 
 These considerations apply with much greater force to rail- 
 roads. The manufacture of cotton goods may have hut partial 
 influence upon the demand, and unless the demand is increased 
 an increase of the supply at lower rates would result only 
 in a loss. There are times, too, as there are many things, in 
 which the reduction of prices would make no increase of con- 
 sumption, and would be at the expense of the manufacturer. 
 With the railroad, however, the influences of all kinds of 
 production, of manufacture and of trade, are brought to bear. 
 The increase of production, the establishment of manufactures, 
 and the extension of trade into new fields, in all of its various 
 forms and branches, constantly offer and urge upon the rail- 
 road an increase of traffic at lower rates. That such a decrease 
 of rates, if accompanied by a corresponding increase of traffic, 
 would produce larger receipts for the railroad is apparent 
 enough. The important fact is that it does more than this, — it 
 produces a larger net profit. This follows from the fact that the 
 increase of traffic is not accompanied hy a proportionate increase 
 of expense. 
 
 Some of the expenses of a railroad are fixed, and remain 
 unchanged hy any increase or decrease of traffic. Such, for 
 instance, are interest (a very large item) and administration. A 
 much larger number arc increased in a very slight degree hy 
 an increase of traffic ; as superintendence, general offices, agen- 
 cies, repairs of tracks, bridges, engines, and cars, and other 
 
470 
 
 THE NORTH AMERICAN REVIEW. 
 
 expenses of a similar nature. What other charges remain are 
 increased by an increase of traffic to a somewhat greater degree, 
 yet by no means in proportion to the increased business. An 
 increase of traffic thus has no effect on large items of the 
 expenses of a railroad; has but slight effect on other items 
 which comprise the larger portion of the company’s expenses ; 
 and affects in a somewhat greater degree, but still not in propor- 
 tion to the increase of traffic, the remaining items. On the 
 whole, it will be seen that an increase of traffic may be carried at 
 a less rate and still afford a larger net profit. The following 
 statement from experience illustrates this proposition : 
 
 STATEMENT OP TONNAGE, RATES, AND PROFITS OF FREIGHT TRANSPORTED BY THE 
 ROADS NAMED IN 1875, COMPARED WITH 1880.* 
 
 1875. 
 
 Miles 
 
 of 
 
 Road. 
 
 Tons 
 Canned 
 One Mile. 
 
 Rate 
 per Ton 
 Mile . 
 Cts. 
 
 Freight 
 
 Earnings. 
 
 Freight 
 
 Expenses. 
 
 Net Earn- 
 ings from 
 Freight. 
 
 Erie Railway 
 
 .. 942... 
 
 ..1,016,618,050.. 
 
 ...1.208... 
 
 .$12,287,399.. 
 
 ..$9,647,786.. 
 
 . .$2,639,613 
 
 Pennsylvania 
 
 . 905... 
 
 ..1,479,414,466.. 
 
 ...1.058... 
 
 . 15,651,741.. 
 
 .. 9,166,374.. 
 
 .. 6,535,367 
 
 N. Y. Central 
 
 .1,000.. 
 
 ..1,404,008,029. 
 
 ...1.275... 
 
 . 17,899,702.. 
 
 ..12,639,005.. 
 
 .. 5,260,697 
 
 P. Ft. Wayne &C... 
 
 . 468.. 
 
 .. 491,289,899., 
 
 ...1.111... 
 
 . 5,430,511.. 
 
 .. 3,371,945.. 
 
 .. 2,058,566 
 
 Average 
 
 .. 829.. 
 
 .. 997,832,611.. 
 
 ...1.163... 
 
 . 12,817,338.. 
 
 .. 8,693,777.. 
 
 .. 4,123,561 
 
 Average to one mile 
 
 
 
 
 
 
 of road 
 
 
 , f 1,203,651. 
 
 ...1.163... 
 
 $15,461.. 
 
 .. $10,487.. 
 
 $4,974 
 
 1880. 
 
 
 
 
 
 
 
 Erie Railway 
 
 .1,010.. 
 
 ..1,721,112,095. 
 
 ... .836... 
 
 .$14,391,115.. 
 
 . .$9,188,297. . 
 
 ..$5,202,818 
 
 Pennsylvania 
 
 ..1,120.. 
 
 . .2,298,317,323. 
 
 ... .880... 
 
 . 20,234,046.. 
 
 ..10,892,368.. 
 
 .. 9,341,678 
 
 N. Y. Central 
 
 ..1,018.. 
 
 ..2,525,139,145. 
 
 ... .879... 
 
 . 22,199,966.. 
 
 ..13,670,884.. 
 
 .. 8,529,082 
 
 P. Ft. Wayne & C. . 
 
 .. 468.. 
 
 .. 806,257,399. 
 
 ... .91 ... 
 
 . 7,359,452.. 
 
 .. 4,069,097.. 
 
 .. 3,290,355 
 
 Average 
 
 .. 904.. 
 
 ..1,837,706,486. 
 
 ... .876... 
 
 . 16,046,145.. 
 
 .. 9,455,162.. 
 
 .. 6,590,983 
 
 Average to One Mile 
 
 
 
 
 
 
 of Road 
 
 1 .. 
 
 2,032,860. 
 
 ... .876... 
 
 $17,750.. 
 
 $10,459.. 
 
 $7,291 
 
 Tonnage per mile 
 
 C 1875. . . . 
 
 X 1880 
 
 2,032,860 — 
 
 Rate per mile 
 
 c 1875^ 
 
 cents 1.163 ■■ 
 
 1 1880 
 
 “ .876 ■■ 
 
 Profit per mile 
 
 C 1875 
 
 $4,974 - 
 
 X 1880. . . . 
 
 7,291 - 
 
 It will be noticed that the decrease of rates accompanied by 
 an increase of tonnage has resulted in larger profits. This 
 result may not have been attained by the voluntary reduction 
 of rates on the roads named, as they were influenced, perhaps, 
 more radically in a large portion of their traffic by direct com- 
 
 * Compiled from Poor’s Manual, 1881, pp. 39 -45. 
 
THE RAILWAY AND THE STATE. 
 
 471 
 
 petition of parallel rail and water routes. But similar results 
 have obtained everywhere, whether other principles of competi- 
 tion were also in force or not. The Central Pacific Railroad 
 Company, for instance, is often mentioned as having very little 
 competition for the greater portion of its traffic. Yet we find 
 here the same result. For the period of six years ending 
 December 31, 1882 — the same time as shown for the above 
 Eastern roads, but bringing the date down two years later — 
 the rates indicate a similar relation to the volume of traffic, 
 showing a steady decrease with the increase of business. As 
 other forces of competition have here been in less active force 
 than on the Eastern lines, the reduction in rates has been caused 
 to a much greater extent through the efforts of the company to 
 increase its traffic. And it will be noticed that the decrease 
 between the first and last years of those given has been greater 
 on the Central Pacific than upon the Eastern lines ; while the 
 increase of traffic has been greater on the Eastern lines than on 
 the Central Pacific. 
 
 STATEMENT OF FREIGHT TRAFFIC, RATES, AND GROSS RECEIPTS FROM SAME, ON THE 
 CENTRAL PACIFIC RAILROAD, FROM 1877 TO 1882, INCLUSIVE. 
 
 Tons carried Gross 
 
 Miles one mile to Bate Receipts 
 
 Year. of Tons carried each mile of per ton from 
 
 Road. one mile. road. per mile. Freight. 
 
 cts. 
 
 1877 1783 358,982,037 201,338 .. 2.71 $ 9,738,099 
 
 1878 2119 392,281,712 .. 185,126 .. 2.75 .. 10,802,276 
 
 1879 2319 .. 449,580,783 193,868 .. 2 43 10,934,574 
 
 1880 2467 .. 665,063,768 229,050 .. 2.34 13,245,857 
 
 1881 2707 733,285,889 270,885 .. 2.16 .. 15,842,139 
 
 1882 3041 902,981,309 296,936 1.81 16,302,882 
 
 (Compiled from “Poor’s Manual” for the different years, and verified by the 
 Annual Reports of the Company.) 
 
 RATES. 
 
 East........ 
 
 Cent. Pac. 
 
 East 
 
 Cent. Pac. 
 
 5 1875 ioo per cent. 
 
 * 1880 76 “ 
 
 5 1877 100 “ 
 
 ^ 1882 67 “ 
 
 TONNAGE. 
 
 5 1875 ioo per cent. 
 
 < 1880 169 “ 
 
 £ 1877 100 “ 
 
 * 1882 147 
 
 The foregoing exhibit suggests the importance of the rela- 
 tion between the rates and the volume of traffic. Complaint 
 is often made by those who have overlooked the importance of 
 
472 
 
 THE NORTH AMERICAN REVIEW. 
 
 this necessary relation, that Western lines have higher rates than 
 the Eastern trunk-lines ; and the lack of direct competition of 
 parallel routes is commonly assumed as the cause. Yet, when 
 the volume of the traffic is taken into consideration in connec- 
 tion with the rates, it in many cases seems remarkable that 
 there is not a greater difference in the rates than exists. The com- 
 parative relations of the tonnage, rates, and gross receipts from 
 freight between the above Eastern and Western roads for the last 
 year mentioned is as follows : 
 
 BATES PER TON PER MILE. 
 
 East. 
 
 Cent.Pac. 
 
 1.81 
 
 TONNAGE «>ER MILE OP ROAD. 
 
 East. 
 
 2,032,860 
 Cent. Pac. 
 
 296,936 i. 
 
 GROSS FREIGHT RECEIPTS PER MILE OF ROAD. 
 
 East. 
 
 $17,750 . — — -r.-m,,. .in ■ ■ 
 
 Cent. Pae. 
 
 $5,361 -h*™**—— 
 
 It will be noticed that, notwithstanding the fact that the 
 average rate of the Eastern lines given is about twice that of the 
 Central Pacific, the tonnage of the former is so much greater 
 that the gross receipts amount to about three and a third times 
 as much as with the Central Pacific. And by referring to 
 the former statement it will be seen that the net earnings of the 
 Eastern lines, per mile of road operated in 1880, were $7291 ; 
 while the gross earnings (the net not being given) of the Cen- 
 tral Pacific from the same source were, in 1882, $5361. The 
 difference in this result would probably be to some extent 
 equalized if the interest on the capital invested were taken into 
 account, many of the Eastern lines having double tracks, and a 
 larger equipment being required to transport the much greater 
 tonnage. But taking into consideration all causes of difference 
 which may occur to the mind, the result is apparent enough that 
 the higher rates of the West are a necessity of the much smaller 
 traffic. And we have before seen that to increase this traffic 
 and make larger net profits, reductions in rates are steadily 
 being made. 
 
THE RAILWAY AND THE STATE . 
 
 473 
 
 The fact, then, becomes apparent that the reduction of rates 
 will increase the profits of the railroad if accompanied by a cor- 
 responding increase of traffic, for an increase of traffic reduces 
 the ratio of expenses ; so the greater the traffic becomes the 
 greater is the profit. Now, by limiting the profit of producers, 
 or increasing the price to consumers, the production and the 
 traffic are equally limited ; the general wealth and the profits to 
 the railroad are both restricted. It follows from the necessity 
 of these relations that an increase in the profits of the railroad 
 is not at the expense of the community, but is an accompaniment 
 of that general increase of wealth which has been made possible 
 by the lower rates of transportation. 
 
 These natural principles regulating rates all urge the rail- 
 roads to increase their traffic, as by this means the greatest 
 profits are secured. The possibility of a large traffic offers the 
 greatest inducement to the capitalist to construct new roads ; it 
 gives rise to the most active competition between existing lines ; 
 it increases the competition in the markets, and it affords always 
 the strongest incentive for the railroads to reduce their rates, if 
 by this means their existing traffic may be increased. The nat- 
 ural principles regulating rates are, therefore, competitive forces j 
 the railroads are everywhere bidding for the business, and where 
 there is the greatest amount of business, there the bidding is 
 most active. So, where there is the least traffic there is the 
 least competition. This produces an important result. The 
 rates are lowest where the greatest quantities are moved, and 
 highest where there is the least traffic. As the decrease in the 
 rate of expense bears an approximate proportion to the increase 
 of the amount of traffic, the connection between low rates and a 
 large traffic is justified on the ground of cost, as well as by the 
 necessities of commerce. 
 
 But there is an incidental result which is important to note. 
 The greatest traffic is possible in those things which are pro- 
 duced in the largest quantities, and for which the demand is 
 practically unlimited. These, therefore, have the lowest rates. 
 They constitute, primarily, the necessities of life, which are con- 
 sumed by all 5 and, secondarily, the cheaper articles which are 
 the common comforts of the poorer classes. As commodities 
 become more and more expensive they become confined to a 
 smaller class, their consumption becomes, therefore, more re- 
 
474 
 
 THE NORTH AMERICAN REVIEW. 
 
 stricted, and the incentive to the railroad to carry them at 
 lower rates is reduced in the same degree. These natural prin- 
 ciples affect the rates of transportation exactly as similar laws 
 of competition in trade affect prices. They tend constantly to 
 cheapen, first, the necessaries of life ; second, the comforts j and 
 last and least, the luxuries. Does not this result in the greatest 
 good for the greatest number ? 
 
 Controlled by these natural forces of competition, the pro- 
 prietor of the railroad constantly works to advance the in- 
 terests of the patron. In seeking to increase the earnings of 
 the corporation, he does not increase rates ; but in virtue of 
 the common principles of commerce by which he is bound, the 
 tendency of rates as of prices is ever toward a minimum. In 
 seeking to advance his own interests he works equally to advance 
 the interests of the shippers, and so of the community at large. 
 This result, which is recognized by the Railroad Commissioners 
 of Iowa, is seen everywhere. 
 
 11 Our people,” they say, “ are directly the beneficiaries of a steadily and 
 continually falling rate. This reduction of rates is not confined to the 
 through traffic ; it applies — in a somewhat smaller ratio, it is true — to the 
 local traffic as well, which is demonstrated in tables further on, prepared 
 from reliable data by the Commissioners. What it is that has produced these 
 reductions in charges is a question rather for the economist ; it suffices to be 
 able to point them out and to know that they are welcome tidings alike to 
 producer and consumer.” * 
 
 The railroad cannot lessen its traffic without reducing its 
 profits ; it cannot restrict the development of its traffic without 
 limiting its profits. To injure the shipper or interfere with his 
 interests the railroad must equally injure itself. Is it not, then, 
 safer and better to leave the regulation, classification, and es- 
 tablishment of rates with the proprietors under the control of 
 these natural forces, than to delegate it to a legislature or com- 
 mission, whose interests in its proper execution are relatively 
 slight, and whose information at the best cannot be compared 
 to that of those who make it the business of their lives ? This 
 leaves great power with the corporation, it is true, but the power 
 is in the property. To shift the control from owners to com- 
 missioners, only shifts it from the responsible and interested to 
 the irresponsible and non-interested. It does not remove it; 
 that can only be done by removing the road. 
 
 * Report, 1881, p. 7. 
 
THE RAILWAY AND THE STATE. 
 
 475 
 
 The interests of the community and of the railroad equally 
 require the greatest possible extension of trade ; the greatest 
 possible movement and exchange of commodities. The control 
 of trade by the state, through directing the management and 
 fixing the rates of railroads, must result, as similar efforts have 
 resulted in the past, in interference : in restriction, instead of 
 extension ; in an injury, instead of a benefit. The best possible 
 results to all will follow where there is the freest operation of 
 the natural forces of competition. 
 
 Gerrit L. Lansing. 
 
ILLUSIONS OF MEMORY. 
 
 During his consulship in England, Hawthorne was traveling 
 near Oxford, and while visiting Stanton Harcourt he had a 
 curious psychological experience, which he describes in u Our Old 
 Home.” Nothing about this locality interested him more than 
 the kitchen of the ancient castle. Behind a hearth thirty feet 
 square there were two huge fire-places, used in olden times for 
 roasting oxen whole, while the smoke found its way through 
 great holes in the roof seventy feet above. This room is one vast 
 chimney, the rough interior walls blackened with the smoke 
 and soot of centuries, and lighted only from the apertures above. 
 “Now, the place,” writes Hawthorne, “being without a paral- 
 lel in England, and therefore necessarily beyond the experience 
 of an American, it is somewhat remarkable that while we stood 
 gazing at the kitchen, I was haunted and perplexed by an 
 idea that somewhere or other I had seen just this strange spec- 
 tacle before. The height, the blackness, the dismal void before 
 my eyes, seemed as familiar as the decorous neatness of my 
 grandmother’s kitchen.” 
 
 This incident, to which the author’s sequel will be given 
 later, fairly introduces, I think, the following study of a very 
 odd sentiment that sometimes comes over us in the ordinary run 
 of thought and action, — that the entire present situation is not 
 new, but merely the repetition of a former one. It is not 
 always easy to put this feeling into language $ it varies from the 
 vaguest suspicion to the intensest conviction. We exclaim 
 inwardly: “Why, I have seen or thought this all before,” and 
 yet, the most diligent search of memory failing to confirm the 
 impression, we infer we have been deceived. In all this there is 
 an absence of the slight shock occasioned by surprise, but at 
 times there ensues a feeling of uneasiness and actual discomfort, 
 especially when this sense of earlier experience is so strong that 
 
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