The primary economic problem connected with railways is always the question of rates. This has been called in a recent book “the heart of the railroad problem.” The first fact that strikes the student of the subject is the great reduction in rates and fares in the past twenty-five years, especially in freight rates. From 1.24 cents in 1882 the average revenue per ton mile received by railroads in the United States has decreased to .748 cents in 1906. Freight rates, especially through rates for bulky traffic, are considerably lower in this country, and passenger fares somewhat higher, than in Europe. But the vital problem connected with rates is not as to their relative cheapness or extortionateness; it concerns rather the granting of discriminating rates. Discriminations may be of three kinds: those between different classes of goods, those between localities, and those between persons. The first group is based upon the classification of freight and rests upon differences in cost of shipment, in bulk, in risk, etc. If reasonably employed, this kind of discrimination is justifiable. Local discriminations, that is, charging different rates to different localities for substantially the same service, is not only unwarranted in most cases, but is short-sighted as well. Where superior facilities or especially keen competition exists, lower rates may be permitted for favored localities, but the arbitrary exercise of such powers by railway officials is thoroughly unjustifiable. Even less defensible is the practice, now happily less frequent, of granting discriminatory rates to favored individuals or corporations. They have been given by means 148 of secret rates and rebates, by under-billing and under-classification, by free passes, etc. Both of these latter evils have been forbidden or greatly restricted by the passage of the Interstate Commerce Act in 1887 and subsequent legislation.
The public nature of railroads is now fairly well recognized in our law and is beginning to be understood by the people at large. Railroads enjoy peculiar privileges in the grant of corporate franchises and charters, in the right of eminent domain, and in enormous grants of land and money which have been made to them in this country. Moreover in the functions they perform the social character of their duties is emphasized, and they are under the necessity of maintaining a constant service open to all. Though they are owned by private investors and managed as private enterprises, they are essentially public enterprises as to their privileges, functions, and duties. Consequently most of the states have now undertaken, through commissions, to regulate the railroads in the public interest. Some thirty-one have appointed commissions, which probably control four-fifths of the traffic originating and ending in a single state. These state commissions differ in power, those of the Mississippi Valley and the South usually having mandatory powers, that is, power to prescribe and enforce maximum rates. In the eastern and central states commissions with supervisory powers merely, of investigation and report, have been created. The only exceptions are found in the Far West where the need of improved transportation facilities is more pressing than regulation, and in five eastern states whose legislatures are controlled by the railroad interests. While the state commissions have done and are doing valuable service, it is clear that the growth of giant railroad combinations which traverse several states necessitates federal control. The appointment of the Interstate Commerce Commission in 1887 established the principle of federal regulation, but the application of the principle in active practice has 149 been slow and has been impeded by the courts. The final control of rates has not yet been given to the Commission.
