rrying is done in some competitive way, at a low rate based on cost.
Consumers in B may have the option of bringing the goods by water,
along the coast or across an ocean, at a rate that makes the cost of
procuring them at B not much above the cost of making them at A. If
so, this small difference of costs represents all that any carrier can
get for moving them from A to B, and though this carrying may be done
by a railroad which has a monopoly of its route, its service will
command no higher rate than the one which is thus naturally set for
it. The rate is governed by costs, though not by costs incurred by the
railroad. Whenever competition rules, the returns for any productive
function tend to conform to costs, and we here suppose that it does so
rule (1) in the making of goods at A, and (2) in the procuring of the
goods by some alternative method at B. The difference between these
costs sets the maximum limit of the freight charge between A and B,
and this may exceed the cost of this service and leave a profit for
the carrier who uses this route.

_Freight Charges and Value._--The return for a productive operation
of any kind whatsoever is directly based on the value which it imparts
to something; and in the case of carrying, the value is measured by
the amount of "place utility" which the carrying creates. This is
merely one application of a universal law. What the goods are worth
where they are consumed, less what they are worth where they are made,
equals what can be had for moving them from the one point to the
other. Freight charges are gauged by the principle of "value of
service," but so also are the charges for making the goods. When
things are produced and used at the same place, the producer's returns
equal the value of his product, and this is fixed by the principle of
final utility. It is, however, a truism of economics that this value
itself tends under competition to conform to the cost of creating it.
In our illustration the manufacturing returns are fixed by the value
of service and also by the cost of service, and so are the returns for
transporting the goods from C to B; but the returns for carrying them
from A to B, where monopoly prevails, are not governed by the cost of
service but by costs elsewhere incurred.

_Freight Charges and Cost._--The law of costs as well as the law of
value holds good, in general, in connection with transportation.
Competition in this department tends to bring values c