6 THE POPULAR SCIENCE MONTHLY, 



tern." Belgium and Prussia have made state management all but uni- 

 versal ; Italy has practically given it up. 



Of much more importance in the United States has been the effort 

 to regulate charges by legislation, without touching the question of 

 ownership. There was no lack of authority for so doing. Common 

 carriers had been made the subject of special regulation from time 

 immemorial, and it was a well-accepted principle that their charges 

 must be reasonable. 



But what constitutes a reasonable charge ? On what basis are we 

 to compute it ? 



It is by no means a sufficient answer to say that rates should be 

 based upon cost of service. What items of cost shall we include ? 

 Shall we count the fixed charges, or simply consider operating ex- 

 penses? In the earliest legislation the former course was adopted. 

 The English tolls and maxima were calculated upon this basis. But 

 they were soon found to be so high as to be almost inoperative. At 

 any rate, they did not prevent discrimination. They allowed the rail- 

 road to earn its fixed charges where it chose, and to lower rates else- 

 where. A prescribed rate of this kind is too high to be of any use. 



On the other hand, to prescribe a rate which does not provide for 

 fixed charges is even worse. This was tried in the Mississippi Valley 

 in the Granger movement. It was argued by the farmers that, if 

 the railroads could afford to carry their competitive traffic at very low 

 rates, they could afford to do the same for the local traffic. All rates 

 were therefore reduced by law to the basis of the competitive ones. 

 What was the result ? In Wisconsin, where the system was carried 

 out most completely, a law of this kind was in operation for two years. 

 At the end of that time, not a single railroad was paying dividends ; 

 only four were paying interest on their bonds. Railroad construction 

 was at a stand-still. The existing roads could not afford to extend 

 their facilities for traffic. The development of the State was checked 

 checked so abruptly that the very men who were most clamorous 

 for the railroad law in 1874 were most clamorous for its repeal in 1876. 

 In their anxiety to secure low rates, they had overlooked the necessity 

 for railroad development. This oversight reacted forcibly against 

 them ; and the same reaction is likely to be felt wherever reckless rail- 

 road legislation is attempted. Our railroad profits are not so high as 

 is often supposed. They are less than four per cent on the nominal 

 capital ; and, making all due allowance for water, probably less than 

 six per cent on the actual investment. Admit, if you please, that the 

 corruption of inside rings absorbs an additional amount which ought 

 to go to the investor ; this does not affect the fact that, if your legis- 

 lation prevents the investor from receiving his dividends, he will not 

 invest his capital in your State. It is not now a question of ethics 

 as to what you or he ought to do ; it is a matter of fact, proved by 

 actual experience as to what he will do. 



