THE EFFECT OF COMPETITION ON RAILROAD RATES AND FARES
Whatever theory of rates may be accepted as ideally best, it cannot be strictly adhered to under the existing conditions of active competition obtaining in the United States. Actual charges have to be fixed and revised to meet the varying circumstances under which railway traffic is conducted. This competition takes several distinct forms. One is that between railways and waterways. A large part of the domestic traffic of the United States has the choice of transportation by rail or by water on the great lakes and the tributary canals, by the navigable rivers, or by one of the many ocean routes followed by our coastwise commerce. There is also the competition of rival railways connecting common termini or serving the same cities. These forms of competition are the ones most frequently noted; but they perhaps exercise a less potent influence over rates than what is known as competition through the markets or through the channels of trade. The competition between rival centres of commerce and industry—between the Atlantic cities and the gulf ports, for instance, or between the manufactures of New York and Philadelphia and those of Chicago or Cincinnati for the markets of the Southern States, to cite another example—is a force that must be considered in making rates and fares. Even towns served by only one railway and by no waterway enjoy the benefits of this industrial competition. Unless the railroad can give the industries in these local towns rates that will enable them to market their products, the industries will decline and the railway will lose its traffic.
An interesting result of the competition of roads connecting common termini or joining a common industrial region with seaboard points is that the road whose line is the longest and whose expenses of transportation are greatest is obliged to charge the lowest rate. The short lines can charge more because they compete for traffic under more favourable circumstances. The lower charge of the longer line is called a differential rate, and it is customary for the shorter or "standard" lines to agree to allow the "differential" line a stipulated differential rate. This is the concession which the standard lines are obliged to make to temper competition and to prevent rate wars. The Grand Trunk, running from Chicago to Boston by way of Montreal, is a good example of a differential line, and the New York Central is a good instance of a standard line.
GOVERNMENTAL REGULATION OF RAILROAD TRANSPORTATION
It is a maxim of common law that transportation charges must be reasonable, and the exaction of an unreasonable rate by a public carrier is a common-law misdemeanour punishable by the courts. But when, as the result of severe competition of railroads with waterways and with each other, unjust discriminations between persons, between places, and as regards classes of traffic—the abuses which constitute the railway question—became prevalent, the common-law provisions applying to railway charges were given statutory form and were supplemented and extended by such legislation as the circumstances peculiar to the situation seemed to demand. The comprehensive railway- and canal-traffic act passed by Great Britain in 1854 has been the model adopted for much of the railway legislation in the United States.
The Constitution of the United States gives Congress power to regulate commerce "among the several States," but the jurisdiction over intrastate traffic lies with the State governments. The States began to pass general laws for the regulation of railroads fully twenty years before Congress acted, and two thirds of the States have established commissions to administer those laws.
THE INTERSTATE COMMERCE LAW
After fifteen years of agitation and investigation the existing interstate commerce law was enacted in 1887. The law prohibits unreasonable rates and unjust discriminations between persons, places, and classes of traffic, prohibits pooling agreements, provides penalties for the violation of the law, and establishes a commission of five men to administer and enforce the statute. Fortunately for the commission and for the country the first chairman of that body was the eminent jurist, Thomas M. Cooley, whose master mind did much to give vitality to the law.
During the first five years after the law was passed it secured a fairly efficient regulation of interstate railway commerce, but recent decisions of the United States Supreme Court have so weakened the law that at present the commission has very little power. The commission can investigate complaints and make reports, it can collect statistical information, it can and does informally adjust many differences between shippers and carriers; but, to quote from the last report of the commission, "it has ceased to be a body for the regulation of interstate carriers." Legislation to amend and strengthen the interstate commerce law is urgently needed.
