The Development of Rates of Postage: An Historical and Analytical Study

by A. D. Smith

As to the transmission of letters, Sir Rowland Hill first perceived the significance of the fact that with objects of light weight the cost of conveyance, even over great distances, is small, and in his scheme of reform he consciously applied this fact to the determination of the rate of letter postage. This consideration remains; and as regards the ordinary letters of business or private communication—the average weight of which is less than half an ounce—the principle of uniformity of rate irrespective of distance, which is now the characteristic of letter postage, is well founded. Of the whole expense of conducting the postal services, the expense of the actual conveyance of a letter from place to place is not only small as compared with the cost of the terminal services of collection and delivery, but is actually so small in amount that no monetary system provides a coin of sufficiently small value to make its collection a practical possibility. The

uniform rate, by making practicable the system of prepayment of postage by means of adhesive labels, has, moreover, effected great economy in the working of the service, and its simplicity is a boon to the public, the more so as it has been possible to fit the common rate to a popular coin. A low uniform rate is, however, only made possible from the financial standpoint by the Post Office monopoly of the carriage of letters, although that monopoly is justified on other grounds. With a uniform rate, owing to the varying conditions under which the service is conducted in different districts, there is inevitably a variation in the amount of profit. In certain cases, the rate is actually unprofitable; and were private undertakings permitted to compete for the more profitable traffic, such as the local traffic in large centres of population, the profits of the Post Office would be reduced to vanishing-point.

Improvements in the means of communication have naturally had considerable effect on the development of the Post Office. The introduction of the stage-coach in the eighteenth century, and of railways and steamboats in the nineteenth, in turn revolutionized the methods of general transportation. By these improvements the capacity of the Post Office was largely increased, and regularity, rapidity, and increased frequency of service made possible. But such general improvements, while of the utmost importance as regards the capacity and character of the Post Office service, can affect the rates of postage only so far as they affect the cost of transportation of the mails, or, by largely increasing traffic, enable economies of business on a large scale to be secured. The stage-coach cheapened the cost of transportation, but, in England, had no effect on the rates of postage, because at the time of its introduction the charges were of a purely fiscal character, and the benefit of cheaper transportation was not passed on to the users of the Post Office. The effect of the introduction of the railway has, at any rate as regards letter postage, not been much greater. Sir Rowland Hill's reform, which standardized letter postage, was based on the ascertained cost of conveyance of mails by stage-coach.[634] He found the cost of such conveyance too

small to be taken into account; and the introduction of the railway could not, of course, improve such a situation.[635]

The ordinary light letter, weighing on the average considerably less than an ounce, comprises the overwhelming bulk of Post Office traffic, and the heavier letters occupy a quite subsidiary place. With the growth of Post Office traffic, and the consequent economies resulting from business on a large scale, the profits of the Post Office have gradually increased, but not to such an extent as to admit of the reduction of Sir Rowland Hill's penny rate without destroying the net revenue. Any reduction has been limited to the heavier letters.

The penny rate for the ordinary letter, though so moderate, is considerably in excess of the average cost even of long-distance letters.[636] Its maintenance, therefore, depends not on economic, but on general political and financial considerations. The question is, what general considerations shall be allowed to govern the rate? Shall it be fixed on the simple basis of cost and revenue, or shall it be fixed at such a level as to yield a surplus revenue? In other words, is it thought that the general public advantages which would result from a reduction of postage to the cost basis would counterbalance the disadvantages which would result from the loss of public revenue? This question will, of course, be answered in accordance with the varying circumstances in the different countries and at different times.[637]

An important consideration in relation to any proposal for reduction or increase of the letter rate, or, indeed, of any rate of postage, is, of course, the probable effect on the volume of traffic. Sir Rowland Hill, when he put forward his plan, laid stress on the increase in the number of letters which he anticipated would follow the adoption of his proposal. Since that time it has become almost an axiom that a reduction of rate will naturally and inevitably be followed by an increase of the traffic, more or less considerable, according as the reduction is large or small. Indeed, some writers have thought that the new postal system was based on a law of fixed relative proportions between a reduction of rate and the corresponding result on traffic. In point of fact, Sir Rowland Hill's estimates were based only partially on the probable effect of the reduction in stimulating traffic, and rather on the anticipation that, with a rate reasonably low, all that vast letter traffic which it was well known was being unlawfully dealt with outside the Post Office would be attracted to the lawful service. It is probable that a point of approximate satiety can be reached in the reduction of postage rates no less than in the reduction of the price of other commodities. A reduction would then result in only slightly increased consumption of the commodity—that is, in the case of letters, increase of the number posted. Per contra, a moderate increase of rate would result in a comparatively small reduction of the number of letters.[638] But moderate variations of postage on ordinary letters are difficult to make, since popular charges, such as a penny or halfpenny, while they offer obvious advantages from many points of view, are not susceptible of slight modifications.

The variation of rate according to the weight of the packet is a point which has received insufficient attention. There can be no doubt that the cost to the Post Office of performing the service it affords in respect of packets of any kind entrusted to it increases with the increase of the weight and size. But it does not increase proportionately. A letter of 8 ounces does not cost twice as much to collect, transmit, and deliver as a letter of 4 ounces. The operations of

stamping, sorting, and making up for despatch occupy more time and cause more inconvenience in the case of the larger packet, but the difference is slight when compared with the difference in size and weight. Nor does the cost of conveyance vary directly with the weight. In any system of rates, therefore, which are accurately adjusted to the cost of the service, the rate of charge must increase considerably less rapidly than the increase in weight, that is to say, the rate would be degressive. Of modern postage rates very few are constructed on this principle, and to that extent they are uneconomic. In the case of letters, since the weight of the packet is normally unimportant, and simplicity of charge very important, this factor has been for the most part ignored.[639]