THE DIFFICULTIES OF RAILROAD REGULATION. 3 



ment for supplying the other half. Belgium built the main lines of 

 road at state expense for state management ; but at the same time 

 the building of private lines was also encouraged in every possible 

 way. It was not until too late that men saw what chaaces for waste 

 and corruption were involved in this indiscriminate encouragement of 

 railroad construction. England learned the lesson in 1847 ; Conti- 

 nental Europe in 1873. In spite of the severe experiences of 1857, 

 1873, and 1884, it is by no means certain that America has learned it 

 even yet. 



For a long time the only fear was that railroad charges would 

 be too high ; and this fear was happily disappointed. The maximum 

 rates which were fixed in the earliest charters were useless, simply be- 

 cause the railroads generally adopted a lower scale of their own accord. 

 It was found that the profits depended quite as much upon the volume 

 of business as upon the absolute rates charged, and that it was often 

 better to do a large business at low rates than a smaller business at 

 higher rates. This is of course true to some extent in every depart- 

 ment of industry, but there are reasons which make it apply specially 

 to railroads. About half* the expenses of a railroad are to a consider- 

 able extent independent of the amount of work done. Thus an increase 

 in the volume of traffic does not produce a corresponding increase 

 in cost. 



Railroad expenses may be roughly divided into two classes, accord- 

 ing as they do or do not vary with the amount of business done. 

 Those which do not vary rapidly are called fixed charges. This in- 

 cludes interest on cost of construction, the general expenses of the 

 organization as a whole, and a considerable part of the expense of 

 maintenance, which is due to weather rather than to wear. Those 

 expenses which vary nearly in proportion to the amount of business 

 done are called operating expenses. Under this head are included the 

 different items of train and station service, with some others. The 

 fixed charges of the railroads of the United States average somewhat 

 over $2,500 per mile annually ; the operating expenses average from 

 forty to sixty cents per train-mile. 



In order that a railroad as a whole may be profitable, it is neces- 

 sary that it should earn money enough to pay fixed charges as well as 

 operating expenses. But, in order to secure any individual piece of 

 business, it can afford to make rates which shall little more than cover 

 operating expenses, provided such business can be had on no other 

 terms. To secure traffic which it could not otherwise have, a railroad 

 can afford to make rates which would bankrupt it if applied to its whole 

 business. 



* In Mr. Lansing's valuable article on this subject (" Popular Science Monthly," Feb- 

 ruary, 1886), the proportion is estimated considerably higher. Any argument on the rea- 

 sons for the difference would be of too technical a character to come within the scope of 

 this discussion. 



