third that they cannot be regarded as indepen- | paid. Not so the communities on the line dent factors. In the midst of all, comes the question of competition, and the immense influence it is obliged to exercise-a great principle, like the survival of the fittest in the struggle for life. Combination has gradually solved this question in a way which lets both or all the railroads live, but not always quite so merciful in its results to the public. Beginning with the two ideas however. The errors in the railroad compensate one another, while those to the communities do not. One community is served at less and the other at higher rates than are just. And so it becomes necessary, to some extent, to equalize results, by varying the rates according to the facts; and this by reason not so much of the railroad interest (for averaging will suffice for that) as of fairness among communities, that burdens and benefits may be rightfully 1. That production must pay the reasonable distributed among them. expense of transportation, and 2. That there should be as fair a distribution as possible of burdens and benefits. We see that one of the necessary elements is the cost to the railroad of rendering the service. Now, this cost is itself distributed into a large number of petty items. There need to be many provisions in advance for the simplest railroad operation-arrangements for the reception and handling of freight, for weighing, billing and booking it; then come movement expenses, and then arrangements for receiving it at the end of the line. The actual cost of any one freight service is quite complicated. It were right, if it were practicable, to let every tub stand exactly on its own bottom, and each separate service be apportioned properly as to its exact cost But to ascertain this with absolute exactness would really cost more than the service is worth; so THE PRINCIPLE OF AVERAGING is necessarily resorted to. Averages serve the purpose of the railroad better than of the public. If the railroad for 1,000 services gets the proper average, it is all right with the railroad, but as each individual has but one or two services, it may be all wrong with him. His number is too small to average. He does not have business enough to make up on one article for the loss on another, or vice Accordingly, some individuals necesarily get their work done too high, and others too low. versa. To a large extent this is unavoidable. Again, as to averaging. Suppose a railroad system under one management, composed of long main lines, worked in several divisions, and sundry branches to each. If the rates are averaged, some parts of the road will work too cheap, and other parts too dear, but the system as a whole may be fairly Carrying the matter still further. Suppose the whole complex system of railroads in the State to be owned by one company, or by the government itself. It were still necessary to vary the rates, else were the benefits unduly distributed in relation to the burdens. And the same would be true if the net work of the whole Union were under one control. It would still cost more to serve a thinly settled community with a small transportation, than a thickly settled and populous region abounding in travel and freight. And so the question of what constitutes A RAILROAD UNIT has more importance to the public than to the railroads themselves. In fixing rates, there are two scales to be studied, the Class Scale, and the Distance Scale. Classification itself, and the Class Scale vary greatly on different roads. But there is a growing tendency to uniformity of classification. The scale of charges per class-1st class, 2d class, class A, B, C, etc., varies also. Perhaps a wider divergence of charges according to class may not be amiss. Nearly all the roads at the South, in the adoption of the classification of the Southern Railroad and Steamship Association as a basis, make sundry exceptions to it in their local tariffs. Natural and artificial circumstances often made this necessary. The scale according to Distance also varies. To one at all familiar with the subject, it is evident that the cost of transportion as a whole does not vary in exact proportion per mile. There being numerous elements of cost, mileage is but one of these elements. One very large element in the calculation of cost is the amount of empty haul necessary for certain business. This one element often makes increased charges, apparently wrong, but really we fix are not too low, as not too high. They well founded. And so it happens that on some roads the scale approaches more nearly to the pro rate per mile than on others. It will be observed in the tariff adopted by the Commission as a standard, using 1st class goods, as an illustration, that while the rate increases with the distance, the increase is not uniform, but the successive increments are reduced From special circumstances the usual rate of slope would not apply to the Brunswick and Albany Road, and so a variation was made, and the slope made to run as from 70 miles on. So as to the Central Railroad; the slope was varied on a satisfactory showing. After all the study possible, and with all the light attainable, the question of rates is full of difficulty. It may be said that the suggestions we have been making are only a statement of the difficulties, and not of the solution. A CLEAR STATEMENT OF DIFFICULTIES, however, always helps towards the solution. are to be just and reasonable, which terms are as incompatible with unremunerative as with extortionate rates. Our guide for fixing rates was set forth in our second semi-annual report, in substance, thus: The rates shall yield a fair profit, with good average management, npon the value of the property, as distinguished from its cost. The things to be estimated, therefore, are: The value of the property; what is a fair profit; and whether the management has been above or below the average, in skill and economy We have already given our views as to estimates of the value of property. Upon the question of fair profit in some States, abroad and in America, 10 per cent. is adopted. In our second report we represented General Alexander as considering 6 per cent., under certain circumstances, satisfactory. He has since disavowed intending to make this impression on us, and we take pleasure in recalling the statement, made under a misapprehension of his views. In our report we suggested 8 per cent. as a fair average profit. It was a suggestion-rot intended as conclusive either on the one side or the other. The information to be obtained from the railroads in reply to the inquiries in our Blank Forms of Report, will be of the greatest service in enabling us to do more exact justice. We expect the zealous co-operation in this work of the leading minds in the railroad service. The limitation, as to fair average manageThose who are qualified to judge, appreciate ment is intended to supply the needful stimuthe difficulty. It is a task of great embarrass-lant both ways, viz: to reduce the rates, unless ment. If, however, the cost cannot be definitely ascertained, and is at last an approximation; who is to fix it? The same embarrassments attend the railroad officer and the Railroad Commission. Some one must actually decide on rates. Who shall it be? Availing itself of all the light possible, the ultimate decision must be by the disinterested, and not by the interested. This because the railroad is a quasi public corporation, subject to legal regulation as a monopoly. The same data, facts and principles are accessible to the Commission, as the representative of the public, and of the real rights of the railroads. And here again we would say that the terms which define our duty-just and reasonable rates-have two limits by which we are equally bound-an upper and a lower limit. It is as much our duty to observe the one as the other, and to see to it that the maximum rates the management is gcod; and to allow the companies the benefit of skill and economy. To fail to do this would be a failure to recognize a perfectly sound and just principle, and would take away all stimulus to diligence and painstaking. THE PRINCIPLES OF CLASSIFICATION we shall not now discuss, but in a future report will recur to them. It has been well observed that while classification is discrimination, it is not unjust discrimination. It is a well founded discrimination, relating to things, and not to individual persons or communities, (which are but collections of individuals.) We hope that by degrees the sound principles of classification will be better understood, and a unified system adopted, applicable to the whole country for through freights, with local exceptions set forth in each local tariff, If the principles of local rates be complex, those of through rates have added elements of complexity, sometimes overruled, however, by the one unifying element of competition. But whatever the difficulties of joint rates, through rates, extra State rates, etc., it is ever to be remembered that the data on which the calculation or conjecture is made are the same, whether the conclusions are reached by one of the parties, or by a Commission. The self-same data control. THE WHOLE ROUND OF EXCHANGES is to be considered, external and internal; of exchanges between the sections of the State, the United States and foreign countries. The strictly inter-State exchanges in Georgia are comparatively limited, except that products stop on their way out or in, at certain centers, for redistribution Nor is this a vain process. For example: cotton is assorted into lots, according to its quality and the purposes for which it is to be used, and this can as well be done in Savannah, or Augusta, or Charleston, as elsewhere. And there are some advantages in having it done near home. This assortment takes place in a more distributed way now than formerly-the buyers being more scattered through the interior towns and villages. Again, merchandise and provisions are distributed from local centers, and now a considerable wholesale trade is done by our larger cities. The merchants in these cities have facilities of knowledge and business connections which enable them to deal to better advantage than small purchasers can do. In all these cases, the laborer is worthy of his hire, and the middle man—if his rates are not excessive (and he at least is checked by competition)—is as valuable a member of society as any. THE GRANDER INTERCHANGES for us are between the Northeast, the Northwest and the South-the Northeast furnishing finer goods, and the nicer and higher priced and more labored manufactures-the Northwest furnishing grain, hay, and hog products, as also the heavier manufacturers of wood and iron, agricultural implements, furniture and the likeand the South supplying almost exclusively cotton, with some rice, sugar, syrup, etc. ern lines pass, and into which they penetrate, enables them to work at very low rates. The close competition between these rival routes led to the formation of the pool. Still other extensions of commerce reach to the markets of the outside world—to Europe, and all quarters of the globe, and the islands of the sea. In the matter of direct importation the South has little share. This commerce comes by the way of the eastern ports, and its freight reach her by coasting vessels, steam or sail. The for the facilities may depend largely on return whole current, both ways, is to be considered, freight. Sometimes the exchanges seem to be triangular, involving considerably empty haul. The Commission, in estimating the value of railroad property, has presented four APPROXIMATE METHODS to aid it in its decisions as to the real value. These methods will not lead to the same exact result, and so cannot all or any one of these be absolutely controlling. Each is liable to careful consideration. For example: the calculation based on net income for one year; again: the calculation at 7 per cent. as the rate; again: the market value may have fictitious elements that enter into it, such as are alluded to in other parts of the report. In the Blank Forms, questions are asked also as to what would be the present cost of building and equiping the road, and its cost to the present owners. The value has to be looked at on all sides, as a prudent man would examine carefully before making a large investment. In some cases one, in other cases another, may prove to be the most important factor. The method of computing by the sum of the stock and bonds needs many precautions. If we consider the market value to be our index, for example, we must be sure it has not been manipulated. Suppose we should agree to tell the time by the clock, that would of course mean by the hands of the clock as governed by its own machinery, and not as set back or forward by outside interference We feel well aware that the discussion of valuation and rates is a difficult one, and the The contest for through business is between whole subject as yet unsettled. We see through (1) Eastern lines, including water transporta- a glass darkly; yet the dawn begins to show. tion, and (2) the direct lines running from the We have dwelt upon it rather to show the diffiNorthwest to the South. The immense business culties-to set forth the questions, and familof the populous section through which the east-iarize the public with the problem. Also to "THE RAILROAD POOLING' SYSTEM. "When the railroads adopted the system of protest against the view that because it is hard to arrive at exact conclusions, therefore the whole matter should be left to one of the parties.pooling their competitive traffic, they sup This were no better than the judge's reluctance to hear both sides, because it confused him. The ultimate results of THE POOLING SYSTEM have not yet been reached, and are not fully to be anticipated. It has its great advantages, so far as the railroads are concerned, but it certainly makes the Railroad Commission an absolute necessity, for it destroys much even of distant competition. And even the railroad interests find in an upright and intelligent commission the legal authority necessary to protect them in all lawful and proper engagements with one another. Unchecked competition had in like manner its evils in its public aspect as well as in its relations to the railroads. It was almost sure to become what we have characterized as illegitimate competition, by unjust discriminations of a local or personal character, not distributed at all in conformity with any just principle. posed they had effected a complete cure of the inconveniences arising from competition. That system consists, first, in apportioning the through traffic among the several members of the combination, according to an agreed percentage for each; next, in determining among themselves the rates that shall be charged for such traffic and binding themselves each to the other to faithfully observe the schedule of charges thus agreed upon; and, finally, in appointing a board of commissioners who shall arbitrate all disputes between the members of the pool and supervise the management of its business. This regulation applies only to traffic to or from points which the several roads touch in common, and has no reference to way or local business. Before the adoption of the pool, this through business was done at constantly fluctuating rates, and for a compensation so inadequate that the traffic frequently incurred a loss to roads; and compensation for that loss was sought in charging proportionately higher rates on the local business, thus giving rise to gross inequalities in rates for carriage. Indeed, in this whole matter, the actual rate is less important (unless very excessive) than the relative rate. If equally and uniformly distributed, a rather high rate does comparatively little harm-just as deep water fish can stand heavy pressure when equally diffused, which would crush them into fragments, if ap-is very generally supposed that the pooling arplied unequally. Equality and fairness are the great matters The effect of this system ON SMALL SHIPPERS is generally good, while large object to it, Suppose larger and yet larger combinations, until to reach the ultimatum, the whole railroad system of the country should be combined under one management. It would certainly be a formidable and fearful power. Could even government control it? Would it not be King, Emperor, Autocrat, Despot? The pooling system, however, gives rise to a new order of dangers, which, unless prevented by wise precautions, will appear in due time. The public must take care both of itself and of the railroad interest, by needful regulation. On this subject we quote a very thoughtful article from the New York Commercial Bulletin: "These results of open competition unquestionably produced manifold evils, and they very seriously threatened the finances of the companies, especially of the weaker ones. And it rangements have largely, if not entirely, remedied the dangers and inconveniences of the former competition. There is a marked diminution in the complaints of discrimination in charges upon local freight; and if the Hepburn Committee had to sit to-day, it would probably discover no such gross inequalities under this head as it did two years ago. During the eighteen months for which this system has been in operation, the rates on through traffic have been about doubled as compared with the average competitive times; the earnings of the roads have shown an enormous increase; the finances of the companies have been marvellously strengthened; dividends have been increased; corporations that never before paid a dividend are now making regular distributions among the stockholders; some companies have so augmented their earnings that they desire to water' their stock in order to conceal the largeness of their dividends; railroad bonds formerly scouted as untrustworthy now rank | among sound investments; and the market value of railroad securities has, in the mass, nearly doubled. With such results, how is it to be expected that the pooling invention should be regarded otherwise than as the most magnificent financial success of the times? No one is found ready to distrust the perpetuity of the arrangement; for all such doubts are met with the very pertinent question-what company would be so insane as to permit its desire for a little more traffic to lead it to imperil a system that has so enormously increased its earning ability? "And yet there is another side to this question that has hardly been mentioned, but which demands very serious consideration before the pooling arrangement can be accepted as a permanent success. While it is conceded that pooling has made railroading, for the time being, the most remunerative branch of corporate enterprise, what is that fact likely to lead to? To a large extension of railroad building. When, for instance, the New York Central can earn eight per cent. on $200,000,000, and the New York, Ontario and Western can build a line between the same termini for less than $30,000,000, where is to be the end of constructing competing lines? Taking the railroads of the country as a whole, it may be safely asserted that their capitalization is double their actual cash cost; and when a system has been devised that enables the companies to earn interest upon this excess of nominal capital, what kind of enterprise can be found that affords anything like the profits afforded by railroad-building? It is the most direct method of realizing fortunes by the million that the times presents; it is a chance for making sudden wealth that does not happen once in a century; and what can possibly prevent an enormous future flow of capital in this direction? Such a drift of enterprise becomes all the more certain from the fact that the 'pool' stands committed to the necessity of backing these new constructions. In order that the new roads may be prevented from competing, they must be admitted into the pool copartnership; and, being thus assured of a portion of the through traffic at good rates, their success is guaranteed for so long as the pool exists. What can prevent a virtually unlimited supply of new roads under such cir. cumstances? "It will thus be seen that the direct and inevitable effect of the pool is to bring into the field an overwhelming flood of new companies. How will that affect the interests of the older roads? The facilities for transportation will be augmented far in excess of the natural growth of traffic. As a consequence the competitive traffic will have to be divided among a large number of corporations; and the quotas in the pool distribution will be less than they now are for each of the existing companies. Competition will thus take away from the older corporations a certain portion of their business; but the pool will still have rates under its control; and therefore the next step will be to compensate each, for the distribution of the traffic among a large number of members through enhancing rates. With each successive addition to the number of competing lines, the advance of rates will become a necessity to realizing the objects of the pool; and affairs will thus run their inevitable course until the intolerable burthen of charges will bring the railroads into open conflict with an outraged public opinion, to which the existing complaints will be as nothing, and that will deal with them certainly without mercy and probably with as little wisdom. "If this be a correct representation of the natural working of the pooling arrangements, it requires no great sagacity or courage to predict the ultimate total failure of that system. That outcome is probably so comparatively distant, that it may not be regarded as a matter ter immediately affecting either the railroads or the holders of their obligations; but the result is not therefore the less certain. It is already clearly apparent how the contrivance designed to defeat competition is increasing it. Since the pool was established, arrangements have been made for two additional trunk lines connecting New York City with Buffalo. The Baltimore and Ohio is working out plans for extending its western connections through to this city; and the Jersey Central is to be made the eastern link of a system connecting this port with the Southwest. Thus, during the first eighteen months of the existence of the pool, arrangements have been put in operation for increasing the lines connecting New York with the West FROM THREE TO SEVEN. Mr. Gould having secured ample earnings for the western system of roads through an alliance |