w charges established by
the ships; and this means that it is determined by a certain definite
cost of carrying goods between the very points which the railroad
connects.

_The Exceptional Importance of Fixed Charges in the Case of
Railroads._--The railroad, in the case just noticed, carries its rates
below costs, as these are computed in a simple way, but keeps the
lowest of them somewhat above the variable costs which we have
defined; and there appears the important fact that the fixed costs
incurred by the railroad form an unprecedentedly large part of its
total expenses. The interest on the outlay it makes for roadbed,
track, bridges, tunnels, terminals, etc., is something for which
there is no fair parallel in the case of wagons or ships. This is the
first unique fact concerning railroads and their policy; and the
second is that they continue very long in that intermediate state
which we have illustrated by the ship which had only a partial cargo
and was impelled to take some traffic at a special and low rate. For
many years the railroad only partially utilizes its plant; and so long
as that is the case its natural policy is one of drastic
discrimination between different portions of its business. A third
great point of difference between the railroad and other carriers
appears if, while its capacity is still only partially utilized, it
encounters the direct rivalry of other railroads that are eager for
business; competition then takes a shape which impels the participants
irresistibly into some kind of combination. The union may be tacit or
formal, and it may depend on personal relations or on some merging of
corporations; but toward something that will make the rival lines act
concurrently and with mutual toleration the situation impels them with
unique force.

The general features of railroad rates, then, are--

(1) Some charges based on the difference between the natural value of
merchandise at the point of origin and its value at the point of
delivery, as this latter value is determined by causes independent of
the rates charged for transportation between the two points;

(2) The adjustment of other charges according to costs incurred by
independent carriers operating between the same points;

(3) The exceptional importance of the railroad's "fixed costs" and the
drastically discriminating rates to which this leads;

(4) The irresistible motive for combination where direct competition
appears between r