V

THE FOREGOING PRINCIPLES APPLIED TO THE RAILROAD PROBLEM

_Simple Cases of Charging "What the Traffic will Bear."_--The value of
a study of primitive carriers and their policy lies in the fact that
it illustrates principles which apply to transportation by a
complicated system of railroads, although in this latter case they are
not easily discerned. Imperfect competition is what exists in the
department of carrying. So long as a railroad is without any rival it
may, in some cases, charge for moving goods from one point to another
about as much as the cost of making them at the latter point exceeds
the cost at the former. This is the simplest case of charging what the
traffic will bear. Or, again, the situation may be dominated by
producers at a third point who can make goods and get them carried to
the place we may term the market for less than the cost of making them
directly in this latter place. In such a case the road may demand
nearly the amount by which the cost of making the goods at an
accessible third point and moving them to the one which is their
market exceeds the cost of making them in the place first named; and
this is a slightly less simple case of charging what the traffic will
bear. It is appropriating the difference between two natural values
neither of which the railroad itself fixes.

_Charges based on Various Kinds of Cost._--The charges of the
railroad may be limited by the competition of inferior carriers who
use its own route, such as teamsters whose wagons use a public highway
running parallel to its own track. Here charges are based on costs,
but not on those which the railroad incurs. They are the costs which
the teamsters incur; and if the railroad has much business, its own
costs are less and it makes a profit. The charges may be based on
costs incurred by more economical carriers, like owners of ships, and
in such a case the rate which the railroad can get may be less than
its own costs, if these are figured in the simple way of dividing a
total outlay by a total number of units of freight transported. The
rate is based on the shipowners' costs, and these are so low as to
bankrupt the railroad if it should reduce all its charges to such a
level. It reduces them thus only on the particular route where
competition by water is encountered, and keeps them elsewhere at the
higher level. In the case of shipments by rail over such routes "what
the traffic will bear" is determined by the lo