which will
disappear as traffic grows.

_The Policy of the State in Dealing with Low Charges based on Variable
Costs._--The interest of railroads which have a monopoly of their
routes is to advance the rates on through traffic. We have noticed a
possible case in which some equalization of charges by occasional
reductions of local rates takes place. An increase of charges over
long routes not made necessary by any pressure of business which
overtaxes the railroad's carrying power would of course be injurious.
Moreover, carrying full loads does not constitute such an overtaxing
as calls for the higher rates. There are times when present supplies
of cars and engines may not be able to move more freight than they do;
but in that case more of them are called for. Only when the point is
reached at which providing for this through traffic in addition to the
local freight entails additions to the permanent plant and involves
costs that exceed the return from the through business, is it
justifiable, in the interest of social efficiency, to advance such
charges. In preventing such an advance under other conditions a
government helps to secure an approach to a natural economy and a
maximum of production.

_When, in the Interest of General Productivity, a Reduction of Local
Charges is called for._--We saw that carriers of a primitive kind
competing with each other would put every charge, local or otherwise,
on a basis of its proportionate share of total costs. The traffic as
a whole would return enough to cover all the outlays, and each part of
it would yield its share. This is the ideal of effectiveness for
railroads, as well as for ships and wagons. The attainment of the
ideal without a regulation of charges by the state is never to be
expected. One feature of this normal condition is that, where no
special improvements have recently been made, total returns should
just equal total costs, in the sense in which terms are used in static
theory--that sense in which all interest charges and all expenses of
management figure among the costs. No net profit for the
_entrepreneur_, but full interest for the capitalist and full wages
for all varieties of labor, is the rule that gives the static measure
of normal returns. If a state shall slowly reduce the charges for
local freight, while holding unchanged those for through traffic,--all
the while allowing the total returns of the railroads to cover what we
have defined as total costs,-