At the close of 1850 there were nearly four hundred different railway companies in England; in the United States about a dozen companies were required to make the connection of New York City and Buffalo. A few of these paid dividends; a large majority barely met their operating expenses, defaulting the interest on their bonds; a great many were hopelessly bankrupt.
Consolidation of Connecting Lines.—Between 1850 and 1865 a new feature entered into railway management, namely, the union of connecting lines. This was a positive advantage, for the operating expenses of the sixteen lines, now a part of the New York Central, between New York and Buffalo were scarcely greater than the expenses of one-third that number. The service was much quicker, better, and cheaper. In England the several hundred companies were reduced to twelve; in France the thirty-five or more companies were reduced to six in number.
The consolidation of connecting lines brought about another desirable feature—the extension of the existing lines.[17] The lines of continental Europe were extended eastward to the Russian frontier, and to Constantinople; then the Alps were surmounted. In the United States railway extension was equally great. The Union and Central Pacific railways were opened in 1869, giving the first all-rail route to the Pacific coast. Other routes to the Pacific followed within a few years, one of which, the Canadian Pacific, was built from Quebec to Vancouver.
A TRUNK SYSTEM—THE VARIOUS BRANCHES EXTEND INTO COAL, GRAIN, IRON, CATTLE, TIMBER, AND TOBACCO REGIONS
The period from 1864 was one of extensive railway building both in the United States and Europe. Some of the roads, such as the transalpine railways of Europe and the Pacific roads of the United States, were greatly needed. Others that created new fields of industry by opening to communication productive lands were also wise and necessary; the lands would have been valueless without them. Not a few lines that were to be needed in time were built so far ahead of time that they did not even pay their operating expenses for many years.
Another class of roads was intended for speculative purposes. Thus, there were instances in which a line occupying a given territory had antagonized its patrons by poor service, and extortionate charges. Thereupon another company would obtain a charter—which was then easily done—and build a competing line in the same territory, the former most likely having scarcely enough business for one road.[18] The results were almost always the same; a war of rate-cutting followed; the stockholders of both roads lost heavily; and one or both went into the hands of receivers.
Competition and Pools.—In many instances the consolidation of roads, while cutting off disastrous competition in the territory jointly occupied by the two roads, brought the consolidated road into fierce competition with another adjacent system. If the roads had practically the same territory but different terminals the competition was confined mainly to local traffic. On the other hand, they might have the same terminals but cover different local territories; in this case the roads must compete for through traffic. Thus the Chicago, Burlington & Quincy is brought into competition with the Union Pacific in Nebraska, but inasmuch as the roads have different and widely distant terminals, their local traffic is easily adjusted. The Chicago, Burlington & Quincy and the Northwestern have common terminals at Chicago, St. Paul, Denver, Omaha, and Kansas City. They must therefore compete with each other, and with half-a-dozen other roads for their through traffic.
Competition between railways differs greatly from that between two firms. If one of two firms cannot afford to compete, the manager may discharge his help, and close doors; he then does not suffer actual loss. But a railway, being a common carrier, cannot do this; the road must keep its trains moving or lose its charter. If it cannot carry goods at a profit it must carry them at cost or at a loss. Even the latter is better than not carrying them at all, for the operating expenses of the road must go on.