Railroad managers frequently make the assertion that the average freight rates charged in the United States are lower than those usually charged in European countries and that this fact is in itself sufficient proof that they are too low. A comparison of the transportation problem of Europe with our own will show this argument to be fallacious.

While from $25,000 to $30,000 a mile is a very liberal estimate of the average cost of American roads, the average cost of European railroads, owing to their expensive rights of way, substantial road-beds and heavy grades, is probably not less than $75,000 per mile. British railway companies have laid out for the purchase of land, for right of way and depot accommodations an amount about equal to the entire average cost of American roads for the same number of miles.

For instance, the Southeastern Company paid $20,000; the Manchester and Leeds Company, $30,750, and the London, Birmingham and Great Western, $31,500 per mile. The first Eastern Counties line paid even $60,000 per mile for land through an agricultural district. As nearly as can be ascertained, the average cost of the right of way of railroads was over $20,000 for the United Kingdom. In Belgium the average cost of the right of way was $11,000. It was lower, however, in the other countries of the European continent.

The topography of the country through which the English railways are built is such as necessitated enormous expenses for heavy embankments, cuttings, viaducts, tunnels and bridges, and in some cases increased the cost of the roads to fabulous sums. The Lancashire and Yorkshire Railway actually cost $260,000 per mile for the whole of its 403 miles. European roads have been built in a much more permanent manner and have terminal facilities whose cost is far beyond any sum paid for such purposes in this country. In Great Britain, moreover, the expenses of contests and of procuring charters have been very great and have probably averaged $3,000 per mile.

English railway men charge Americans with having indulged in stock-watering to a greater extent than any other people in the world. This is probably true, yet the English have not been dull students of this art, and they are far from free of having indulged in this luxury. Much of their railroad stock was issued in a wasteful manner and represents no actual investment, and it is safe to say that from 30 to 40 per cent. of their present railroad capitalization is water.

If upon the above basis both European and American railroads are to yield an interest of 4-1/2 per cent. on the actual investment, the former will have to earn at least $2,250 per mile more than the latter, and this difference equals about 50 per cent. of the average operating expenses of American roads per mile. Labor is cheaper across the Atlantic, but this difference is more than equalized by the employment of a much larger number of men per mile, as the following table will show:

The London and Northwestern Railway is 1,793 miles long and has over 55,000 employes, or over 30 per mile. The Lancashire and Yorkshire Company employs over 42 per mile.

The train men of Europe work less hours and earn less per capita for their employers than do the train men of this country. The average annual gross earnings per employe on sixteen of the leading lines of Great Britain, as shown by Mr. Jeans, appear to be $975 against $1,600 on fifteen leading lines of the United States, while the average net earnings per employe are $465 on the British lines against $720 on the American lines; making a difference in favor of this country of 70 per cent. in gross earnings and 53 per cent. in net earnings. If American labor is more expensive, it is also more efficient than labor is elsewhere.

It must also be considered that the average haul in Europe is much less than the average haul in the United States. It has always been maintained by the railroad companies, and very justly, too, that the terminal charges are as important a factor of freight rates as is the cost of carriage. The terminal charges are the same for a twenty-five-mile haul as for a thousand-mile haul; they form a comparatively large part of the total charges for the former and a very small part of the total charges for the latter. It is therefore manifestly unjust to compare the rates per ton per mile of Europe with those of the United States without making due allowance for the difference in the length of their average hauls. All other things being equal, a fair comparison between the freight rates of different countries should be based upon hauls of equal length.

There is another consideration which should not be lost sight of. The commodities in the United States which contribute principally to the long haul are raw products. The universally low rates of these commodities greatly lower the general average. In Europe, on the other hand, manufactured goods predominate as long-haul freight, and based upon increased risk and increased cost of carriage, considerably swell the general average of freight charges. The railroads of the United States also do more business per train mile than those of any other country excepting perhaps Austria, Russia and India. This should certainly enable them to do business for less than it is done by transatlantic lines.

In addition to all this, a number of European countries, particularly France, require their railroads to perform large services, such as the carrying of the mails and the transportation of the officers and employes of the Government, gratuitously, and to carry soldiers at reduced rates.

Another factor in the equation should be considered. European roads are built, equipped and all permanent improvements wholly made at the expense of the stock- and bondholders, while in this country they are partially constructed at the expense of the patrons of the road. In the former case the capitalization of the road represents what has been paid by the stock- and bondholders, and in the latter, not only what they have paid, but large contributions paid from the income of the road and from public and private donations.

It will thus be seen that railroad rates ought to be lower, and even much lower, here than in Europe. If it is true that the average rate per ton per mile is lower in America than across the Atlantic, this is chiefly due to the fact that water transportation has forced down through (or long-haul) rates and has thus lowered the general average. This reduction was by no means made voluntarily by the railway companies, but was forced upon them. Where in the United States water does not exist, as in local traffic, rates are usually much higher than in Europe.

The reduction in freight rates was brought about by a number of inventions which greatly lowered the cost of both the construction and the operation of railways. Through the introduction of the steam shovel, of the wheel-scraper, of improved rock-drills, and of other labor-saving machines, as well as by a general improvement in the methods of grading, the cost of grading has been reduced from 25 to 50 per cent., and railroad bridges are now built at one-third of their former cost. Owing to Bessemer's great invention, steel rails can at the present time be bought for one-half of what iron rails cost ten or fifteen years ago, and about one-third of the cost twenty years ago. According to David A. Wells, the author of "Recent Economic Changes," the annual producing capacity of a Bessemer converter was increased fourfold between 1873 and 1886, and four men can now make a given product of steel in the same time and with less cost of material than it took ten men ten years ago to accomplish. A ton of steel can now be made with 5,000 pounds of coal, while it required twice that quantity in 1868. When it is considered that rails and tires made of steel last three times as long as those made of iron, permit greater speed, carry a much larger weight, and require less repairs, the importance to the railroad interests of the improvements made in the manufacture of steel can hardly be overestimated. Similar reductions have been made in the car and machine shops. An average train to-day probably costs no more than one-half as much as it did twenty years ago. Mr. Wells, in the work just mentioned, says:

A great saving has also been made in the consumption of coal. Under favorable circumstances a loaded freight car can now be propelled a mile with one pound of coal. A similar economy of fuel has, through the improvement of their engines, been effected in ocean steamers. The invention of the compound engine has reduced the expense of running about one-half, while it has doubled the room left for the cargo. The statement has recently been made that a piece of coal half as large as a walnut, when burned in the compound engine of a modern steamboat, drives a ton of food and its proportion of the ship one mile on its way to a foreign port.

Furthermore, the invention of the air-brake has materially reduced the number of train men formerly necessary to safely manage a train, just as the introduction of steam-hoisting and other machines, both upon docks and vessels, has greatly decreased the number of men employed upon the mercantile marine.

There is certainly much similarity between the railroad and the steamboat as agencies of transportation. Whatever fuel and labor-saving causes operate on one must necessarily operate upon the other. When we, therefore, find that the ocean rates are only from one-third to one-fourth of what they were thirty years ago, we are justly surprised to see railroad rates maintained as high as they are. Operating expenses have been greatly reduced and passenger travel has largely increased during the past twenty years, but reductions corresponding in the passenger rates of the United States have not been made.It is, nevertheless, no easy matter always to determine what are reasonable rates. It is easier to tell what rates are unreasonable. Rates are unreasonable that bring an income in excess of sufficient to keep the road in proper condition, to pay operating expenses, including taxes and a fair rate of interest on the amount, not including donations, actually invested in the road. The patrons of a road should not be taxed to pay interest on their own donations, or on public donations, to the road, as the donations were made for the benefit of the public, and not for the benefit of private individuals. A rate which may appear reasonable to the carrier is apt to be regarded as too high by the shipper; and, again, one that seems reasonable to the shipper is denounced as too low by the railroad man. Each is tempted to consult only his own interests and to disregard the just claims of the other side. Thus, while the shipper will claim that his rates ought to be low enough to enable him to compete with other shippers more advantageously located than he is, the railroad manager will demand a rate which would enable him to declare high dividends on largely fictitious values. The owners of roads which were built merely for purposes of speculation or blackmailing insist on being permitted to charge exorbitant rates to bring up their earnings to the level of those roads for whose construction there was a legitimate demand.

It is a settled principle of common law that all rates must be reasonable, but no uniform rule has as yet been adopted by which the question of reasonableness is to be determined. The doctrine laid down by Judge Brewer, that "where the rates prescribed will not pay some compensation to the owners, then it is the duty of the courts to interfere and protect the companies from such rates," and that "compensation implies three things: cost of service, interest on bonds, and then some dividends," is absurd. A question is never settled until it is settled right, and this rule is certainly open to very serious objections. A road may be bonded for several times its cost or its real value, it may be managed with such recklessness or extravagance that its operating expenses may be twice what they would be under a careful and economical management, yet under this rule the shipper must pay the premium which bond-watering and bad management command. The general enforcement of such a rule would place the public at the mercy of scheming railroad manipulators. No matter to what extent the business of a road may increase, a reduction of rates can always be prevented by the issue of new bonds and the doubling of the already lordly salaries of its managers. Again, under the operation of this rule a road which entirely suffices to do the business between two points may be paralleled by another and the public be compelled to pay excessive rates to maintain both. It might be said that the public cannot be forced to patronize any road, that if it would not withdraw its patronage from the old line, the new line would soon become bankrupt, and that in such an event its owners, and not the public, would be the sufferers. This argument may be met by the statement that, aside from the fact that concerted action among a large number of people can never be secured, few roads rely for their support solely upon local business, and that any loss which the older road sustains from encroachments by its rival upon its through traffic it is compelled to make up by raising its rates upon its local business. It is the almost inevitable consequence when one road is paralleled by another that the business which was previously done by one road will be nearly equally divided between the two, and under the rule laid down by Judge Brewer the public will be called upon to pay the operating expenses and the interest on the bonds of both, together with such dividends on the stock as the financiering ability of their managers may secure. The better judgment seems to be that to determine what are reasonable rates is not a question for judicial adjudication.

The Interstate Commerce Commission, in their fourth annual report, assert that "there can be no standard of expense which the courts can act upon and apply, but that the whole field is one of judgment in the exercise of a reasonable discretion by the managing powers, or by the public authorities in reviewing their action." Their views upon this subject are still more definitely stated in the following words contained in the same report:

These views cannot fail to commend themselves to any unprejudiced mind. It is a well-established fact that all officials will, if permitted, extend their jurisdiction, and judges are no exception to the rule. It was therefore but natural that the courts should attempt to solve the problem of railroad rates.

The attempt so far has been fruitless, nor will it be otherwise as long as the courts persist in approaching with abstract legal maxims a question which, above all things, requires the light of experience and the exercise of sound discretion. The question of railroad rates will never be satisfactorily settled until it is definitely referred to expert administrative State and National boards empowered and prepared to meet the many contingencies that will always arise in the transportation business.

It is not difficult to account for the inability of the courts to properly adjudicate the question of reasonable rates. The legislature, or a board to which it has delegated its power, prescribes for a railroad company a classification and tariff. The company claims that the rates so fixed are unreasonably low and applies to the courts for redress.

Now, if the rates were based upon the cost of service only, it might, perhaps, be possible for a court to determine whether the prescribed rates are adequate or not. But even in such a case the question would arise whether the capitalization and the operating expenses of the road are not excessive, and its determination would require expert knowledge and sound discretion rather than legal lore. However, since the cost of service is not the only, and with railroad men not even an essential, factor in rate-making, it is evident that the rates upon single commodities can not be reviewed upon their individual merits, but the tariff must, in the judicial determination of the question whether it is reasonable or not, be viewed as a whole. But as it is impossible to foretell what effect a readjusted tariff would have on the revenues of a road, even courts are forced to admit that an actual trial of the tariff is necessary to establish its merits or demerits.

If the complaining company were as anxious to give the new tariff a fair trial as it usually is to demonstrate to the satisfaction of the court that it is devoid of every principle of justice, such a test might be accepted by the public as a reliable basis of judicial procedure. But railroad managers are not only striving to perpetuate their own high rates, but to show to the public that freight tariffs not emanating from a railroad company's office are of necessity crude and unjust to the carrier. They know that if they should succeed in convincing the public that administrative boards are incapable of dealing with that question, they might for years to come be left in undisputed possession of the power to make their own rates. This is certainly for the railroad manager a prize worth contending for, and no sacrifice is too great for him to make when there is any hope of ultimate victory. Being absolutely uncontrolled in his action, he finds it an easy matter, by temporarily diverting business from his line, by the increase of operating expenses and by repressing growing industries, and in many other ways, to curtail the business of his road and diminish its revenues. He can court losses in a thousand different ways discernible neither to the courts nor the general public. In short, it is in the power of any railroad manager to manipulate such a trial in his own interest, and, if determined, to obtain a verdict against any tariff not of his own making. This policy was pursued by several Iowa roads subsequent to Judge Brewer's decision that the alleged unreasonableness of the Iowa commissioners' tariff must be established by an actual trial, and was persevered in until the suit was withdrawn.

But even if the competency of the courts to properly determine such questions were admitted, there would still exist one serious objection to their jurisdiction. Courts necessarily move slowly, while all differences arising between the public and the railways, and especially those concerning rates of transportation, require prompt and decisive action. There are no fixed conditions in commerce. It is a kaleidoscope constantly presenting new phases. Competition at home and abroad, tariff duties, the condition of the crops and a thousand other influences affect it and may require a prompt readjustment of the tariff. So long as railroad companies are permitted to resort to injunctions and effect other delays rendered possible through the machinery of the courts, to prevent for years the enforcement of tariffs prescribed by administrative authorities, so long will the public be at their mercy. So long as they have nothing to lose and everything to gain by a judicial contest, it will be their policy to delay through the courts the enforcement of any tariff, whether prescribed by legislature or by an authorized commission, that falls below their standard. It is not to be understood that the acts of railroad commissioners should never be subject to a judicial view. If such boards clearly exceed their authority or are otherwise guilty of maladministration, if they violate constitutional rights, then railroad companies, if injured by their acts, should be permitted to seek redress in the courts; but they should not be permitted to nullify an official tariff by legal maneuvers. It is clearly not within the province of the courts to make rates or to lay down rules to be followed by those to whom the law has delegated the power to make them, nor should the courts aid the railroads in any attempt to nullify an official tariff that has been legally promulgated. A tariff prepared by sworn and disinterested officials is more likely to be just than one prepared by interested railroad men, and railroad companies should be compelled to adopt it and continue it in use until it is amended or revoked by legal authority.

Individual shippers are powerless as against strong corporations. Railroads apply to the courts for what they are pleased to term redress, and in the meantime refuse with impunity to accept an official tariff; but the shipper has no protection: he must pay their rates or go out of business. What reason can be assigned why the weaker should thus be discriminated against? A promulgation of a tariff prepared by a commission is equivalent to a declaration on the part of these officials that the rates or some of the rates charged by the railroads are unreasonably high. The railroad, in applying to the courts for protection, claims that the tariff prescribed by the commission is unreasonably low. Both tariffs are therefore impeached, one being that of an interested private company, the other that of a disinterested public board. It is evident that, even if the people should see fit to give the courts jurisdiction in such controversies, one of these tariffs must temporarily prevail pending the decision of the court, and sound public policy and justice to the patrons of the road certainly require that the official tariff be recognized by the courts and made to be respected by the railroad company until it is proved to be unreasonable and is set aside by lawful authority.

It is claimed by railroad men that they should be allowed to make their own tariffs because rate-making is so intricate a subject that none but railroad experts can do it justice. If this were so the courts would be even less competent to review a schedule of rates than a State or National commission would be to make one. Courts cannot be expected to have expert knowledge in all matters that are likely to be brought before them. They must rely upon the testimony of expert witnesses whenever technical questions are involved in the determination of cases. The identical sources of information from which courts draw are accessible, or may be made accessible, to a commission, which has the additional advantage that its members may be selected with special reference to their fitness for the duties which they will be called upon to perform and are expected to devote their whole time to the settlement of questions arising in the transportation business. Such a commission can practically be made a court with jurisdiction over all matters connected with railroad business. The railroad manager, no doubt, is thoroughly familiar with the wants and desires of his company; but it may fairly be presumed that he is less familiar with the needs of the public than a railroad commission whose members are in constant communication with the people, patiently listen to the complaints of shippers, court and receive suggestions as to needed changes in classification and rates, and study the relative advantages of the different sections and different interests of the State or the country as regards transportation. A railroad freight agent, on the contrary, is disposed to think that shippers ought to be satisfied with any rate lower than those charged fifty years ago for carting or other crude methods of transportation. He regards their views and suggestions as chimerical and not worthy of any notice, and does not even hesitate to inform them that rate-making is a branch of the railroad business wholly beyond their comprehension, and ought not to be meddled with or even inquired into by the public. The general freight agent is the employe of a company which rates his usefulness solely by his ability to constantly increase its revenues, and he invariably proceeds upon the theory that the best tariff is that which comes nearest imposing upon each commodity offered for carriage the maximum transportation tax that it will bear. A man who entertains such opinions cannot be supposed to be able to do justice to the shipper, and should not be permitted to act as arbitrator in rate controversies between the public and the company whose employe and advocate he is. Nor have we any reason to hope for a change in the present tariff policy of railroads. History has sufficiently demonstrated the fact that reforms must come from without. As long as human nature remains as it is, railroad officials will, if permitted, arrange tariffs in the interest of the men who give them employment, for if they did otherwise their services would soon be dispensed with. A freight tariff should be in the nature of a contract between the carrier and the shipper, and the assent of both parties ought to be essential to its validity. But as it is impracticable for all the parties interested to meet for the purpose of effecting an agreement, the power to make rates has in several States wisely been conferred upon railroad commissioners, and there is a strong tendency in others to adopt the same policy. Such boards have every opportunity to obtain any information needed for the efficient and faithful discharge of their duties. They can hear the representatives of the railroads as well as those of the shippers, investigate carefully disputed points, summon experts and witnesses, and obtain official information relating to classifications and rates from every State in the Union, and, if necessary, from every quarter of the civilized world. The assertion may safely be made that, with experience, a commission acquires more expert knowledge relating to the business of rate-making than a railroad manager. If there is any mystery connected with the business of rate-making which has so far been in the sole possession of railroad men, it is to their interest to initiate the commissioners into their profound secrets. It will be their privilege to enlighten the commissioners as to the actual cost of their respective lines, the cost of every branch of the railway service, and as to a thousand other matters which the public has both a desire and a right to know. If, after a schedule of rates has been prepared, and before it is promulgated, railroad men can suggest any improvement in it, they should have the privilege to do so; or if, after giving it a fair trial, they should be prepared to show that any rate is unreasonably low and injurious to them, their complaint should be carefully investigated, and, if found well grounded, the wrong should at once be righted.

But the same privileges should be extended to shippers. Their rights and their welfare should be guarded as sacredly as those of the railroad companies. They should have the same opportunity to examine a proposed schedule before its promulgation and protest against any feature of it which they may regard prejudicial to their interests, and their statements should receive the same consideration as is accorded to those of representatives of the railroad companies. So, likewise, when shippers prove to the satisfaction of the commission that a rate has outlived its reasonableness, their complaints should at once be investigated, and if their cause is found to be a just one, the tariff should be so amended as to give them relief.

The labors of a board of railroad commissioners are onerous, and their responsibility is great. No uniform rule can be laid down for their guidance in the fixing of rates, yet there are a few fundamental principles which should always be adhered to. The cost of service should invariably be an important factor of a rate. Railroads should not be compelled to carry any commodity for less than the actual cost of moving it, nor should rates be fixed greatly in excess of such cost of service. The carload should be the unit of wholesale shipments. Since it costs the railroad company as much to move ten carloads of freight which belong to one shipper as it costs to move ten carloads belonging to ten shippers, no advantage beyond the general carload rate should be given to the large shipper. The difference in the rates between shipments in less than carload lots ought to be determined solely by the difference in the cost of carriage and handling. Where shipments are made in carload lots, the loading and unloading is usually done by the shipper and consignee, cars are loaded to their full capacity, and no loading or unloading of shipments at intermediate points is necessary. It is therefore but just that the consignor and consignee should have the benefit of the reduced cost of such shipments. Raw materials, and especially coal and lumber and kindred articles, the transportation of which requires neither an expensive rolling stock nor warehouse accommodations nor speedy movement, and in which the risk of loss or damage is insignificant, should be carried at the lowest rate possible. Such a policy will tend to foster other interests, which will develop business for the road and will build up remote sections of the country, and will often enable railroads to carry large quantities of these commodities at times when they would otherwise be nearly idle. There should be a uniform classification throughout the country, based upon considerations of justice and equity instead of railroad tradition. Such articles should be classed together as resemble each other as concerns bulk, weight and risk, or what is virtually the same, cost of carrying and handling. It may be safely assumed that a rate which has been made and used by railroad companies is remunerative. If it is claimed by railroad men that it is not, the burden of proof should rest upon them. A rate may also be considered remunerative to a road if other lines similarly situated have voluntarily adopted it. A schedule finally must be considered reasonable if it enables the company for which it is prescribed to earn under efficient and economical management sufficient to maintain its road in proper condition and a fair rate of interest upon a fair valuation of its road. Property is never worth more than what it can be duplicated for, and railroad property is no exception to the rule. If there has been a depreciation in the property of a company, it should not demand dividends upon values which no longer exist. Nor can the same returns be conceded to railroad property as to private capital. Its investment is permanent and well secured, if it is honestly and intelligently made; and its dividends are net returns after the payment of all expenses, including taxes, cost of management and maintenance. The three per cent. bonds of the United States Government find a ready sale at prices above par. Were there less speculation and more honesty and stability in railroad management, railroad securities yielding a revenue of from 2-1/2 to 4 per cent. on the actual investment would be eagerly sought after by conservative capitalists.

Rate-making requires honesty of purpose, intelligence and discretion, qualities as likely to be found among the servants of the people as among those of corporations. A commission may err, but its errors are not likely to prove as detrimental to the railroad companies as the extortionate and discriminating rates imposed by railroad managers have proved to the interests of the public. Railroad managers acknowledge no obligation except that of earning dividends for their companies, while the members of a railroad commission, on the contrary, are responsible for their acts to the people, with us the source of all government and all power. To question the justice and sincerity of the people, or to deny the efficacy of such a control, is to deny the wisdom of popular government.

Railroads might be permitted to reduce their rates below the official tariff, but they should be required to give at least thirty days' notice of such a change, to enable shippers to prepare for it. The companies should not be permitted, however, to raise rates again without obtaining the commissioners' consent and giving at least two months' notice of the proposed advance. Sudden fluctuations in rates are a fruitful source of disaster in those branches of business in which the cost of transportation forms an important factor in the price of commodities, and are as unjust and unwarrantable as would be fluctuations in import duties. As long as they are tolerated there can be no reliable basis for business calculations or contracts. There is little doubt that, were such regulations enforced, railroad wars, so demoralizing to the business of the country, would soon belong to the things of the past, and a far-reaching assurance of future welfare would be given to the commercial, manufacturing and all other legitimate interests of the country. It should always be kept in view by the rate-making power that the railroad company, like the gas company, the water company and the street car company, is acting in the capacity of a public agent, and the rate of compensation should be fixed by public authority.