The economic anomaly of rates actually falling progressively as the length of the haul increases is graphically well illustrated in the accompanying diagram, based upon data in the Georgia Railroad Commission cases.[222] The charges from Cincinnati to local points on all lines converging upon Atlanta equal the sum of the rates to Atlanta plus the local charges out. This holds good even on the direct line from Cincinnati through Chattanooga, as the diagram shows; yet of course it also follows that rates must again decline as the next basing point is approached in any direction; be it Montgomery to the west, Macon to the south, or even Chattanooga to the north. The only condition analogous to this in the Far West appears in those places whose rates are made up by a combination of the low water rates to the coast plus a local back eastward into the mountains. The transition from this Pacific coast combination to the system based upon the Missouri river occurs at those places where the aggregate charges from either direction become equal. Viewed as a large matter of principle the whole western system is analogous to the southern system. It is inevitable in both that intermediate points should in all cases be assessed at a higher rate than those adopted as bases.[223]
The reason advanced in support of these basing point or basing line systems is that they are an outgrowth of commercial competition; in other words, that they are compelled by conditions beyond the carriers' control. Sometimes it may be the competition of widely encircling water routes—as from New York around to Galveston and up to Kansas City in the southwestern field, or to Mobile and up to Montgomery, Alabama, in the southeastern states. But, in many other cases, market competition from other centres of supply set the limit to the rate at the basing point. Missouri river cities enjoy a great advantage over all competitors, as meeting places of the ways. Generally, the low rates to the base points have been originally accorded in order to build up local distributive or industrial centres in the face of competition from older places. Nashville undoubtedly owes a large measure of its present prominence to the fact that in the old days its principal railroad gave a foothold and made a clientage for its merchants as against older rivals in Cincinnati and Louisville. Nor can it be said that this was an injury to that clientage, composed of consumers all through the adjacent countryside. Rates for these consumers were not put up, in order to build up Nashville. On the contrary, Nashville was given perhaps inordinately low rates, in order that the sum of these low rates and of the local rates out to Four Corners should be at least as low as those from Cincinnati and Louisville direct. This last argument is the main economic defence of the southern basing point system.[224] It applies equally to the advocacy of a low basing line at Missouri river cities for rate making to points beyond.[225]
The main difficulty with any system of basing points or lines, which so flagrantly violates the distance principle, is first of all to determine at what points to base; and thereafter to accommodate the system to the normal growth and development of the country. The system is inelastic. It tends to break down of its own weight. It must enlarge, if at all, by fits and starts, in each case with violent dislocation of trade. A generation ago towns in Iowa complained that the Mississippi river was a basing line. Then, when the Missouri river line was substituted, an outcry rose from all the points in Nebraska. The persistent complaint from Denver against its rate adjustment as compared with Kansas City,—a competitive distributing centre,—well exemplifies it. The Denver Chamber of Commerce intervenes, and proposes that the basing line be moved from the Missouri river out to Colorado common points (like Denver). Indeed, in each case the argument in favor of the change is identical. Each tier of complainants—thriving cities which have recently come to more or less commercial maturity—plead their inability to compete with the centres adopted some years ago for basing purposes. Denver, for example, wishes to sell goods throughout Utah. But its total charges there on goods purchased in the East amount to eighty cents from Chicago to the Missouri river, plus $1.25 on to Denver, plus $1.64 on to destination,—a sum of $3.69 per hundred pounds. The Kansas City dealer, on the other hand, gets a low base rate of only eighty cents with a single additional rate directly out to Utah of $2.05. In other words, the latter can lay down his goods in Utah for $2.85 as against $3.69 paid by the Denver competitor. The point to be carried forward, however, is not so much the disparity against Denver, as the fact that the moment Denver is promoted to be a basing point it becomes defendant in a complaint of precisely the same sort, brought by the places still further west. This inelasticity of basing point schemes, together with their inability to expand without abrupt dislocations of trade, is apparent everywhere in the South. Just as Chattanooga complains against Nashville, so the little intermediate stations between Chattanooga and Atlanta, as our diagram on page [240] showed, become restive under rates of $1.27 as compared with a rate twenty-one cents lower charged on to Atlanta. The system of basing points or lines may be an inevitable concomitant of industrial immaturity; but it is none the less difficult to defend as a permanent system or as one inherently just. And its final relegation to the scrap heap, in favor of a system of rates graded more or less according to distance, is ardently to be desired.[226]
Does a constant rate applied over a long stretch on the same line constitute local discrimination? May the nearer points rightfully protest against the fact that equally low rates are accorded to remoter points? This is the gist of the controversy in the very suggestive Milk Rate cases in 1897.[227] Here the conflict of interest between producer and consumer is obvious. The city of New York naturally desires a wide market from which to draw its supply. On the other hand, the nearby producers wish to enjoy the advantages of nearness to the market to the fullest degree. Study of the evolution of rate sheets clearly shows how such grouping of charges over long distances may be in the nature of a compromise to avoid actual violation of the long and short haul principle. Oftentimes places scattered along over a hundred miles of railroad enjoy absolute equality of charges. Obviously, the ton-mile rate steadily falls within such a group with progressive remoteness. Yet it is an inevitable feature of tariff building.[228] It is the kernel of the admirable trunk line rate system. Such an equalization of rates between points unequally distant from a given centre, not infrequently arises in connection with mere competition of transportation routes. Referring back to the diagrams on page [219], it may happen that a complainant at X, the nearer point, recognizing the inevitableness of a low rate at Y, may succeed in securing an agreement that, while its charges cannot be less than at Y, at least they shall not be more. This was all that was asked in the "rare and peculiar" case of Youngstown, Ohio.[229] But it is apparent that such a solution differs only in degree from those previously discussed. The question of principle remains the same. The roundabout route to New York up back by way of Youngstown could continue to compete at Pittsburg for as low a rate as on direct shipments, even if it observed the long and short haul principle to which the Pennsylvania direct route was committed, only by charging much lower rates per ton mile on Pittsburg traffic through Youngstown than was levied on business there originating. This raises precisely the same question of distribution of joint expenses between local and competitive traffic, already discussed. In certain contingencies under the second variety of the oyster cases, such a solution might apply. Would Chattanooga, for example, assuming it to belong in the second class of oyster cases, be contented with an equality of through rates with Nashville, leaving its local rates out to smaller towns as they are?
The most extreme instance of uniform or postage-stamp rates applied over long distances occurs in the transcontinental tariffs from different points in the East. These differ radically from the adjustment of rates between different points on the Pacific slope, already described. At the far western end the lowest rates are accorded to coast cities, because of water competition by sea. Rates to interior points progressively rise by the addition of locals inward toward the interior. The rates thus compelled by water competition are accepted by the all-rail lines. Thus the Pacific coast end is practically built upon a basing line. It might be expected that in consequence of water competition by sea a similar system would prevail at the eastern end of the line; that rates to the Pacific coast from interior cities would rise progressively according to distance inland, until at all events the direct all-rail charge became as low as by the combined rail-and-water rates. But such is not the case, and for two reasons. The first is that in the East interior cities are large and powerful factors in trade. There were no such interior cities in the Far West, until Spokane came into its own. These inland eastern cities, Pittsburg, for example, demanded equality of opportunity with the seaboard cities in Pacific coast trade. They succeeded in obtaining it by a grant of as low rates as New York or Boston enjoyed. In the second place, all the Pacific coast carriers enjoy monopoly as far east as the Missouri river. But east of that line there are many routes interested in middle western cities, but having no interest in those in the East. They, too, have insisted upon giving their clients in such places as St. Louis and Chicago as low rates as Philadelphia or New York. Little by little the equality of rates was extended until for many years the blanket rate has covered the entire United States east of the Mississippi river.
Does not this constitute local discrimination against the middle western cities? This was one of the main contentions in the St. Louis Business Mens' League case. Being one thousand miles nearer San Francisco, it demanded recognition of that fact in its tariffs. The difficulty is accentuated when both eastern and western point rates are considered together. St. Louis enjoys no lower rate than New York, although one thousand miles further east; and inland points in the Rocky mountain area may be one thousand miles further east than San Francisco and yet pay a higher rate. Thus it is possible to lop off one thousand miles at each end of the line without affording any recognition of it in the tariffs. The situation is too involved to discuss in detail in this place; but one finds it difficult to avoid the conclusion that the whole system will demand revision before long. Geographical conditions are immutable. Trade conditions are not. Perhaps it was inevitable that the former should by force of circumstances have been somewhat overlooked during a period of rapid growth. But, as commercial affairs approach a condition of stability and permanence, the matter will call for most careful examination.