In addition to all this, a number of European countries, particularly France, require their railroads to perform large services, such as the carrying of the mails and the transportation of the officers and employes of the Government, gratuitously, and to carry soldiers at reduced rates.
Another factor in the equation should be considered. European roads are built, equipped and all permanent improvements wholly made at the expense of the stock- and bondholders, while in this country they are partially constructed at the expense of the patrons of the road. In the former case the capitalization of the road represents what has been paid by the stock- and bondholders, and in the latter, not only what they have paid, but large contributions paid from the income of the road and from public and private donations.
It will thus be seen that railroad rates ought to be lower, and even much lower, here than in Europe. If it is true that the average rate per ton per mile is lower in America than across the Atlantic, this is chiefly due to the fact that water transportation has forced down through (or long-haul) rates and has thus lowered the general average. This reduction was by no means made voluntarily by the railway companies, but was forced upon them. Where in the United States water does not exist, as in local traffic, rates are usually much higher than in Europe.
The reduction in freight rates was brought about by a number of inventions which greatly lowered the cost of both the construction and the operation of railways. Through the introduction of the steam shovel, of the wheel-scraper, of improved rock-drills, and of other labor-saving machines, as well as by a general improvement in the methods of grading, the cost of grading has been reduced from 25 to 50 per cent., and railroad bridges are now built at one-third of their former cost. Owing to Bessemer's great invention, steel rails can at the present time be bought for one-half of what iron rails cost ten or fifteen years ago, and about one-third of the cost twenty years ago. According to David A. Wells, the author of "Recent Economic Changes," the annual producing capacity of a Bessemer converter was increased fourfold between 1873 and 1886, and four men can now make a given product of steel in the same time and with less cost of material than it took ten men ten years ago to accomplish. A ton of steel can now be made with 5,000 pounds of coal, while it required twice that quantity in 1868. When it is considered that rails and tires made of steel last three times as long as those made of iron, permit greater speed, carry a much larger weight, and require less repairs, the importance to the railroad interests of the improvements made in the manufacture of steel can hardly be overestimated. Similar reductions have been made in the car and machine shops. An average train to-day probably costs no more than one-half as much as it did twenty years ago. Mr. Wells, in the work just mentioned, says:
"In 1870-'71 one of the leading railroads of the Northwestern United States built 126 miles, which, with some tunneling, was bonded for about $40,000 per mile. The same road could now (1889) be constructed, with the payment of higher wages to laborers of all classes, for about $20,000 per mile."
A great saving has also been made in the consumption of coal. Under favorable circumstances a loaded freight car can now be propelled a mile with one pound of coal. A similar economy of fuel has, through the improvement of their engines, been effected in ocean steamers. The invention of the compound engine has reduced the expense of running about one-half, while it has doubled the room left for the cargo. The statement has recently been made that a piece of coal half as large as a walnut, when burned in the compound engine of a modern steamboat, drives a ton of food and its proportion of the ship one mile on its way to a foreign port.
Furthermore, the invention of the air-brake has materially reduced the number of train men formerly necessary to safely manage a train, just as the introduction of steam-hoisting and other machines, both upon docks and vessels, has greatly decreased the number of men employed upon the mercantile marine.
There is certainly much similarity between the railroad and the steamboat as agencies of transportation. Whatever fuel and labor-saving causes operate on one must necessarily operate upon the other. When we, therefore, find that the ocean rates are only from one-third to one-fourth of what they were thirty years ago, we are justly surprised to see railroad rates maintained as high as they are. Operating expenses have been greatly reduced and passenger travel has largely increased during the past twenty years, but reductions corresponding in the passenger rates of the United States have not been made.
It is, nevertheless, no easy matter always to determine what are reasonable rates. It is easier to tell what rates are unreasonable. Rates are unreasonable that bring an income in excess of sufficient to keep the road in proper condition, to pay operating expenses, including taxes and a fair rate of interest on the amount, not including donations, actually invested in the road. The patrons of a road should not be taxed to pay interest on their own donations, or on public donations, to the road, as the donations were made for the benefit of the public, and not for the benefit of private individuals. A rate which may appear reasonable to the carrier is apt to be regarded as too high by the shipper; and, again, one that seems reasonable to the shipper is denounced as too low by the railroad man. Each is tempted to consult only his own interests and to disregard the just claims of the other side. Thus, while the shipper will claim that his rates ought to be low enough to enable him to compete with other shippers more advantageously located than he is, the railroad manager will demand a rate which would enable him to declare high dividends on largely fictitious values. The owners of roads which were built merely for purposes of speculation or blackmailing insist on being permitted to charge exorbitant rates to bring up their earnings to the level of those roads for whose construction there was a legitimate demand.
It is a settled principle of common law that all rates must be reasonable, but no uniform rule has as yet been adopted by which the question of reasonableness is to be determined. The doctrine laid down by Judge Brewer, that "where the rates prescribed will not pay some compensation to the owners, then it is the duty of the courts to interfere and protect the companies from such rates," and that "compensation implies three things: cost of service, interest on bonds, and then some dividends," is absurd. A question is never settled until it is settled right, and this rule is certainly open to very serious objections. A road may be bonded for several times its cost or its real value, it may be managed with such recklessness or extravagance that its operating expenses may be twice what they would be under a careful and economical management, yet under this rule the shipper must pay the premium which bond-watering and bad management command. The general enforcement of such a rule would place the public at the mercy of scheming railroad manipulators. No matter to what extent the business of a road may increase, a reduction of rates can always be prevented by the issue of new bonds and the doubling of the already lordly salaries of its managers. Again, under the operation of this rule a road which entirely suffices to do the business between two points may be paralleled by another and the public be compelled to pay excessive rates to maintain both. It might be said that the public cannot be forced to patronize any road, that if it would not withdraw its patronage from the old line, the new line would soon become bankrupt, and that in such an event its owners, and not the public, would be the sufferers. This argument may be met by the statement that, aside from the fact that concerted action among a large number of people can never be secured, few roads rely for their support solely upon local business, and that any loss which the older road sustains from encroachments by its rival upon its through traffic it is compelled to make up by raising its rates upon its local business. It is the almost inevitable consequence when one road is paralleled by another that the business which was previously done by one road will be nearly equally divided between the two, and under the rule laid down by Judge Brewer the public will be called upon to pay the operating expenses and the interest on the bonds of both, together with such dividends on the stock as the financiering ability of their managers may secure. The better judgment seems to be that to determine what are reasonable rates is not a question for judicial adjudication.