Still another practical problem connected with the monetary and banking system of the United States is that of the independent treasury system. The Federal Government is to a large extent its own banker; it collects, disburses its revenue and keeps its money in its own vaults; it even, as we have seen, issues paper money and keeps a reserve therefor. By its action in withdrawing large amounts of money from use, or on the other hand making
large disbursements, it can and does affect the money market vitally and sometimes disastrously. While it is permitted to deposit funds in selected national banks and has recently made increasing use of this privilege, thus correlating in a measure the reserves of the Government and the needs of the business community, it is held by most students that the independent treasury system should be abolished, and that the banks should act as the intermediaries between the Government and the people in the collection and expenditure of its funds.
So far we have been discussing commercial banks, but there is another kind of institution which goes by the same name but serves quite a different purpose, namely, the savings bank. The essential and almost the only requirement of such an institution is safety. As we have seen, it is not only desirable for personal reasons to inculcate habits of saving and thrift in individuals, but it is also necessary to secure the accumulation of capital needed in modern industry. It is therefore important that such institutions should be widespread, accessible, and thoroughly trusted. These requirements seem to be best fulfilled by the postal savings banks in England and elsewhere, which have led to a great increase in savings on the part of the people. The introduction of such a system in the United States is greatly to be desired.
XVI. TRANSPORTATION AND COMMUNICATION.
Almost as important for the conduct of modern industry as machine methods and credit are the rapid means of transportation and communication furnished by our railroad, steamship, express, post office, telegraph and telephone systems. Indeed the development of industry on a national scale and its integration under centralized control has been made possible only by these improvements. But not only have these businesses rendered the centralization of industry possible; they themselves exhibit on a national
scale concentration of control. They are all industries of increasing returns and lend themselves naturally to monopolistic control. At the very beginning of railroad construction one of the most far-sighted managers enunciated the doctrine that “where combination is possible competition is impossible.” For years competition was regarded as the regulator of rates, pooling between railroads was forbidden, canals were advocated as competitors, and by every possible device it was sought to stimulate it. We are at last beginning to recognize the monopoly character of the railroad industry and to regulate it accordingly.
Consolidation in the railroad world is not a new phenomenon nor is it confined to that industry, but it has proceeded further there than in any other line of business. The first form which combination took was that of pooling, according to which the traffic was “pooled” and the earnings then divided among the companies entering into the pool according to some previous agreement. This was forbidden by the Interstate Commerce Act in 1887 and even more stringently by the Anti-Trust Act of 1890, and accordingly railroad managers next resorted to actual consolidation of competing lines. Where this has not been possible or desirable, virtual combination has been secured by the so-called “community of interests” arrangements, based on the acquisition by one road of enough stock in competing lines to secure representation on their boards of directors. Today some eight or nine groups of capitalists control over two-thirds of the railway mileage of the United States, and according to a recent widely-published statement the late Mr. E. H. Harriman was credited with controlling, directly or indirectly, a system aggregating over 67,000 miles. These great consolidations have followed mainly the territorial groupings of railroads; the United States has now been districted out by a few large transportation companies, much as France, Italy, England and other
European countries had previously been divided up. Consolidation has in many instances resulted in increased convenience to the public and in economies in management and operation, but it places a dangerous amount of power in the hands of a few men, which has not infrequently been abused, and should clearly be under strict government control.
The primary economic problem connected with railways is always the question of rates. This has been called in a recent book “the heart of the railroad problem.” The first fact that strikes the student of the subject is the great reduction in rates and fares in the past twenty-five years, especially in freight rates. From 1.24 cents in 1882 the average revenue per ton mile received by railroads in the United States has decreased to .748 cents in 1906. Freight rates, especially through rates for bulky traffic, are considerably lower in this country, and passenger fares somewhat higher, than in Europe. But the vital problem connected with rates is not as to their relative cheapness or extortionateness; it concerns rather the granting of discriminating rates. Discriminations may be of three kinds: those between different classes of goods, those between localities, and those between persons. The first group is based upon the classification of freight and rests upon differences in cost of shipment, in bulk, in risk, etc. If reasonably employed, this kind of discrimination is justifiable. Local discriminations, that is, charging different rates to different localities for substantially the same service, is not only unwarranted in most cases, but is short-sighted as well. Where superior facilities or especially keen competition exists, lower rates may be permitted for favored localities, but the arbitrary exercise of such powers by railway officials is thoroughly unjustifiable. Even less defensible is the practice, now happily less frequent, of granting discriminatory rates to favored individuals or corporations. They have been given by
means of secret rates and rebates, by under-billing and under-classification, by free passes, etc. Both of these latter evils have been forbidden or greatly restricted by the passage of the Interstate Commerce Act in 1887 and subsequent legislation.