Popular Science Monthly/Volume 32/February 1888/The Interstate Long and Short Haul

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THE passage of the Interstate Commerce bill marked a new era in national economic legislation. The immense magnitude of the interests involved, makes such a radical enlargement of legislative jurisdiction a very important event to the business interests of the country. In view of the bad effects of the long-and-short-haul clause which already have become apparent, it is assumed by many friends of the measure that there is a persistent effort being made on the part of the railway corporations to render the law odious, by the application of its provisions in an extreme and offensive manner. It is true that in many cases long-haul rates have been raised so as to correspond with the old short-haul tariff, instead of the shorter rates being reduced, and in the place of any such general and perfectly proportioned revision of tariffs as would be likely to exhibit the practical operation of the new law in its most favorable light. Such an effort on the part of railway managers could hardly be expected. It can not be denied that corporations are selfish, nor that their operations are conducted with a view to the largest possible ultimate profit. In this respect they are not unlike individuals who engage in business enterprises. In either case the motive is not philanthropy, but profit. While the object of the State in granting charters and creating corporations is the public good and convenience, the purpose of the individual corporators is gain. In any study of the relations existing between the public and the railways, these cardinal principles must not be overlooked.

Before examining specifically the long-and-short-haul clause, let us briefly consider the law as a whole, or rather the principles of general restrictive railway legislation. The recent rapid advance and expansion of legislative jurisdiction into new fields, and especially in the regulation of railway tariffs, where heretofore natural and elastic principles have been supreme, is a new departure of very doubtful utility.

An attempt to regulate prices, or rates, of any kind by artificial legislation, rather than by natural law, or supply and demand, is open to serious objections. The question which now forces itself upon the owners of the $4,000,000,000 (more or less) worth of railway property in the United States is, Where and when will the limit of legislative usurpation be reached? Where will the path lead which is being so rapidly traversed, and upon which such progress has been made in the recent past? It is evident to any candid and thoughtful observer that, if present tendencies continue unchecked, not only tariffs and incomes will be involved, but that the entire principal invested in these great interests will be jeopardized. The value of any investment depends entirely upon its earning capacity, or upon the benefit or increase that can be realized from it. If the present or prospective earning power of any property is impaired, then, in the same proportion, the principal invested in the enterprise will be diminished in value. Proceed but a step further, and wipe out the revenue-producing capacity, and the total value of the investment is destroyed. These points are so plain as to be almost self-evident, but yet there is danger of their being overlooked or ignored.

What will be the result if the prices for railway service and transportation are to be controlled by the uncertain and often unintelligent action of a bare majority of a popular body of legislators. If members of Congress were all intelligent and conscientious experts, and if railway legislation were free from the element of demagogism, the case would be quite different. We are, therefore, forced to the conclusion that the time may be not far distant when not only the tariffs, but the veritable value of railway property will depend upon the whim and caprice of a bare majority of the ever-changing politicians who compose our national Congress. The railway interest of the country may well shrink from a near view of the logical sequence to the socialistic demagogism now so prevalent both in Congress and outside of it. An increasing number of pseudo-political economists are advocating governmental ownership of railways, among whom are found a few prominent professors and clergymen, who are distinguished for their voluminous theories, but whose ideas are destitute of any practical element. Any plan of transferring the vast railway interests of the United States, with which our general prosperity is so bound up, from business to political control, seems unworthy of candid consideration. With assets of four billions added to spoils already too great, to be fought over every four years by politicians, together with the unlimited patronage connected therewith, the result would be certain and utter corruption and demoralization. Many sentimental and visionary persons idealize the Government into a great infallible, allpowerful personality, which makes no mistakes, and which can accomplish impossible things; but the real Government is very unlike this ideal.

But let us return to the question, What are the proper limits of railway legislation? Clearly within these limits may be mentioned all such advisory powers and offices as are exercised so successfully by the Massachusetts State Commission, including the protection of the public by all proper moral, mechanical, and police restrictions and regulations. To these may properly be added regulations against discrimination, and the doing away with the abuses of the "free-pass" system. On the other hand, the domain of prices and rates is distinctly and properly outside of legislative jurisdiction, and, for the general good, should be left subject to elastic natural laws. Pricemaking in any department is beyond the province of even the most perfect and ideal legislation. But some one will suggest, that while this proposition may be true of prices of commodities in general, that railways, having a semi-public character, and receiving by their charters certain privileges from the State, are exceptional in this respect. It will also be claimed that, in the absence of rate-restricting legislation, the public will have no protection against the rapacity of great corporations, whose object is solely their own profit. The fact is overlooked that, in the absence of legislative enactment, there is a sovereign natural law, which is fundamental in its character and unceasing in its operation. Entire dependence on demand, or the amount of business, forms a natural barrier against abnormally high rates, in addition to both direct and indirect competition. In tariff-making it hedges in the most powerful corporation.

Even in the absence of competition, any tariff that is much above the normal (or above that point which is natural and fair) will inevitably cause a falling off in business, so that profits will surely diminish. Though not always realized by the management, it is directly for the interest of any road to stimulate, develop, and increase its business by making a normal tariff, and only by such a course can the maximum of profit be reached. The greatest financial success lies directly in the line of the old adage, "Large sales and small profits." To quite an extent rates make themselves, and the arbitrary power of the management in this respect is greatly overrated by the general public. A railroad is not merely an improved public highway, but it is a complicated transporting machine. To successfully manage such an institution, or even to make, approximately, a perfect tariff, requires peculiar ability and talent, which is so rare that it commands a very high price. The tariff which is the most profitable for any given road, is not the one which is the highest, but that one which is the most perfectly adjusted, so that each kind and class of freight shall pay just what it will bear. Some will object to such an expression at first sight; but let us state it again, with an always understood qualification. A perfect tariff would be one so adjusted that each kind of freight would pay what it will bear, compatible with its steady increase and development. The profit lies in the increase of business, and not in abnormally high rates. It may be admitted that many roads often mistake their best interests in this respect; but experience is a persistent teacher, and, in the absence of legislation, rates have been tending steadily downward, and would have so continued. The principle is well illustrated by the successive reductions in the rates of postage. Within a short time after each reduction, the business has so greatly increased that, as a direct result, the profits have become larger than before.

Let us now briefly examine the point which is the cause of so much misapprehension in regard to the long and short haul. The provision that no more shall be charged for a shorter than for a longer haul, under substantially the same conditions, seems, at first sight, to be perfectly fair and just. But the business of transportation is peculiar, and unlike any other in which the absolute cost of the article can be estimated. The actual cost of transporting any given quantity of freight is not a fixed, but a variable quantity, depending on a great variety of circumstances and conditions.

If we examine the nature of the expenses of the average railway, we shall find that about one half of the total amount consists of what are known as "fixed charges," which are usually made up mainly of interest on the bonded indebtedness. Of the remaining expenses, which include the cost of operating, about one half may also be regarded as fixed in its character, so that, on an average, about three quarters of the entire expenses remain the same, whether much or little business is done. This explains why certain kinds of business which are created by remarkably cheap long hauls can be profitably taken at very low rates, for it is almost so much clear gain to the road. All the necessary help, track, appliances, and machinery must be maintained, whether it is done or not. Shorter-distance rates, though higher in proportion, are yet a little cheaper than they could be in case this special cheap, long-haul business is destroyed by legislative regulation. Many of these special kinds of business have already been paralyzed or temporarily destroyed by the operation of the "long-and-short-haul clause," and can only exist under former free conditions. If they are destroyed, the quota they have heretofore paid toward railway revenue must be made up by other classes of business, and shorter rates must, therefore, necessarily be higher than before. As an instance, the long-haul business between New Orleans and New York or Boston, now being done by water, will deprive certain roads of some revenue they have formerly received, and, as a result, they will have to make its place good by higher local rates. Such an effect will be inevitable in the long run. It will be seen that the free, elastic, and ever-present operation of natural law in this, as in other kinds of business, will produce better results for all concerned than is possible from any amount of uncertain, spasmodic legislation, which at best will be artificial in its character. Such enactments in the department of rate- or price-making will only tend to hamper and embarrass traffic, obstruct commerce, and aggravate the abuses which it is vainly hoped may thereby be cured. Supply, demand, and competition are like great ocean-currents, silent, but powerful, and any attempts to set up artificial barriers will always produce friction, confusion, and loss. In any contest between the natural and the artificial, the latter must yield, and, if resistance is made, harmful results will surely follow.

This has been illustrated by "Granger" legislation, usury laws, and, in a variety of other attempts to override natural law, by a harmful excess of legislative enactment. The question of the present time is, Shall commerce be permitted to run smoothly in its own natural channels, or shall it be hampered and obstructed by the changeable temper of uncertain and unintelligent legislation?[1]

  1. Since this paper was written there has been another practical and important demonstration of the disastrous results of the long-and-short-haul legislation. The Canadian Pacific Railway, being free from any legislative shackles, is rapidly absorbing the traffic which otherwise would naturally seek the Pacific roads of the United States. A large diversion of the through transportation business from China and Japan has already taken place as a direct result of this remarkable policy of aiding our foreign rivals at our own expense. The handicapped condition of the American roads has been still further intensified in consequence of a recent renewal by our National Administration of a former concession, contained in the treaty of Washington, with her Britannic Majesty, which allows the transportation in bond of American merchandise from one port or place in the United States to another by a route, a part of which is by land-carriage, through the Dominion of Canada. By this means very large amounts of merchandise are now shipped from San Francisco and other American Pacific ports by steamers to the western terminus of the Canadian Pacific Railway, and thence brought over that line and distributed by American connecting lines to various commercial centers in the United States. Instead of fostering and building up the commerce of our own country, the Congress first takes away the freedom of competition from our carriers, and then our National Administration, while our legislative branch is not in session', restores to our rivals those special privileges which the Congress had abrogated in connection with the fisheries controversy. If such a peculiar joint policy by the legislative and Executive departments of our Government is long continued, and our Pacific roads can survive its effects, it will prove that they are possessed of great vitality.