permanently be so low that the income is less than the expenditure. The value of the service to the shipper fixes the opposite limit to the reduction of charges. Here the rule applies to each shipment and at once. The shipper knows with considerable exactness the elements which enter into the cost of the commodity and the price it will bring in the market. He can at once determine then whether or not its transportation will afford him a profit. If it will, it is sent. If not, it remains where it is. With the railroad, on the other hand, the cost of no single shipment can be determined. It is carried on a freight train, which also carries many other shipments consigned to many places. The same train often carries emigrant passengers, and is run over a track which is also used by passenger-trains. Besides these elements, there are large expenses incurred by the company of which an indefinite amount is chargeable to the various classes of traffic performed. It is thus a matter of impossibility to say what will be the cost of any particular shipment, and it is even a matter of extreme uncertainty to state the cost of the various classes of traffic each by itself—as passengers, freight, express, or mails. The only course then left to the railroad is to take the freight at whatever rate the shipper can send it with profit to himself and hope the whole of its traffic will amount to a greater sum than the cost of the service. The railroad may thus for years continue carrying freight at rates which do not cover the cost of the service, while the shipper will immediately stop his freight as soon as its transportation ceases to be remunerative to him. The rates can in no case be more than the value of the service, but they may be less than its cost. Between these two limits, the former of which ultimately determines the point below which no rates will be held, and the latter of which immediately determines the point above which no freight will be sent, there is in practical operation a varying scale of rates determined by competition both of parallel lines and various commercial forces.
These different kinds of competition I have elsewhere dwelt upon;[1] it will answer the present purpose to name them. They are: competition of capital, of parallel railroads and water-routes, of markets, and the efforts of the railroad to increase its net income by increasing its traffic with lower rates. Wherever there is a fair discrimination exercised in fixing rates, it will be found to be based on one or more of these forms of competition. This proposition, it is intended to illustrate in the following pages; and, if true, it is of the first importance, for, as competition is generally conceded to be a more potent regulator of prices than all other forces, if discriminations result from it, to prohibit them must also interfere with competition. All forms of discrimination in the rates of transportation which are fairly exercised may be classed under three heads—namely, those which favor persons, places, or things.
- ↑ "North American Review," May, 1884.
