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fraction must be shown before its legitimacy is accepted. The principle of differential rates is just; all differential rates are not just.

The question hence arises: How far are these differential rates allowable; to what extent should local discrimination be practised? We are confronted, in other words, by the problem of the long haul versus the short haul, the through traffic versus the local traffic. If we take a line with its two termini as competitive centres, and a third point intermediate between the two, and not subject to the same competition, we may have three principal forms of differential rates:

1. The rate per ton-mile from New York to Buffalo may be less than the rate per ton-mile from New York to Rochester, and yet the aggregate charge to Buffalo may be greater than the aggregate charge to Rochester.

2. The rate per ton-mile from New York to Buffalo may more than cover mere movement expenses, and yet be so much less than the rate per ton-mile from New York to Rochester that the aggregate charge to Buffalo may be slightly less than the aggregate charge to Rochester.

3. The rate per ton-mile from New York to Buffalo may be so low that it will not even cover actual movement expenses, and the aggregate charge to Buffalo will be considerably less than the aggregate charge to Rochester.

The third case occasions but little embarrassment. Such a practice manifestly cannot be defended even from the standpoint of sound railway practice. For new or through business, as we saw, any rate above the additional cost of the new business is a paying rate. It is defensible on the theory of value, because it contributes to the fixed expenses and thus diminishes the burden or rate on the old business. But if the rate falls below the expense of the additional business, it undoubtedly becomes a losing rate. It contributes nothing to fixed expenses, but actually requires an additional charge on the old business to make good the fixed expenses. The justification. of differential rates thus entirely falls away. No theory of value

31 can require one shipment to be charged unduly high rates in order to transport another shipment at less than actual cost. This would carry the principle of compensation beyond all reasonable bounds. The only possible exception from the railway standpoint would be to reduce rates temporarily below cost of service in order to build up a certain locality, and thus ultimately develop paying traffic. The present loss may create a future gain. But from the public standpoint this would be inadmissible. Το raise local rates in order to decrease rates to competitive points below additional cost of the new business is theoretically indefensible. The minimum rate should never fall below the movement expenses. Any differential rate below this point is illegitimate, and, we may add, comparatively rare, because disastrous to the railway.

We come to the second case, where a higher aggregate charge is made for the short haul than for the long haul. At first blush such a practice seems a flagrant offence. We are tempted to exclaim: This inverts the natural order of things; it must be stopped at all hazards. But the matter is not quite so simple.

It is maintained that lower charges on short hauls remove the geographical advantages of localities, and since the termini of a road are generally larger cities, tend to unduly increase the advantages of the large as against the small places. The same argument, however, is applicable, although in a slighter degree, to any differential rates. They all discriminate against some localities in favor of others. For the purposes of the argument we may treat all differential rates together.

It may indeed be confessed that differential rates do sometimes remove geographical advantages. But it does not follow that such a practice is always reprehensible. There is no such thing at a natural, inviolable geographical advantage. There are no vested rights in situation. One town may be connected with the coast only by a turnpike; another town further distant may have the good fortune to see a railway built through its limits. Has the former any cause to complain because it is robbed of the benefits of its hitherto advantageous situation? A village ten miles distant from a metropolis has been supply

ing it with garden-produce. Is there any essential injustice in allowing villages forty or fifty miles distant to compete for the same market—a competition possible only through differential rates? In fact, the object of all improved means of transportation is to annihilate distance, to minimize the differences of situation. Maintenance of original differences of situation implies equal mileage rates. It would render impossible all but local business in the vast mass of commodities; it would again turn our western fields into barren wastes. Differential

rates widen the field of supply; they increase the specialization of wants, and create the possibility of satisfying these wants, so characteristic of modern industrial society. Opposition to local discrimination arises from viewing solely the interests of the producer; rational economics lead us to consider also the consumer. Opposition to differential rates is based on the supposed welfare of a particular class or section of producers; a wise national economy will ponder over the interests of the whole community, over the prosperity of the entire country, irrespective of sectional jealousies. If differential rates are so arranged that distant producers are enabled to compete with local producers, the latter indeed may see their profits curtailed, but the former will see their profits increased, and the consuming public as a whole will evidently gain.1 There is no absolute proprietary right in situation.

The charge, again, that differential rates increase the advantages of large cities may be admitted, but without any necessary imputation of injustice. It may be urged that differential rates do not at all differ from preferential rates; that all personal discriminations are wrong because they increase the advantages of the large shipper, and that all local discriminations are wrong because they increase the advantages of the large city. But such an analogy is essentially defective. Two or more shippers have a positive right to equal treatment. A common carrier must not assume the privilege of deciding between them. The common law and common justice demand

1 Cf. the recent complaints of California producers and manufacturers at being shut out of Eastern markets by the operation of the Interstate Commerce act.

equality of treatment for similar services. But in the case of localities there is no such indefeasible right. Differential rates which increase the advantages of large cities are due simply to the fact that these cities are competitive centres. The discrimination is the result of the competition. To avoid the discrimination, you must avert the competition, whether by rail or water. The building of an additional line temporarily increases the advantages of the terminus,1 for every new railway alters in some degree the relative advantages of situation. The local points simply pay the penalty of not being competitive points, and to accord all local points the same benefits as competitive points would be to invert the normal development. Differential rates in such cases maintain the natural advantages of situation, while pro rata charges would here invert the geographical advantages. Equality between persons is rightfully demanded because the services are similar; equality between places is not always necessary, because the services are sometimes dissimilar. The ability of long-distance freight to bear the charges diminishes faster than the distance increases.2 But of course this view does not justify all differential rates. The abuses have often been outrageous, the methods undeserving of palliation. Local interests have been disregarded, and the discriminations so conducted as to ruin whole businesses or towns in order to build up others. It is not necessary to ascribe illicit motives to the railway managers, although even such examples have not been wanting in our history. They

1 Temporarily, i.e., until some combination is effected between the rival lines; and such a combination is sure to ensue in the shape of a pool, an arrangement, or a consolidation. If there is water or foreign competition, the effect may be permanent instead of temporary.

2 The English courts at first interpreted Cardwell's Traffic act of 1854 in the above sense. The clause reads: "No company shall make or give any undue or unreasonable preference or advantage to, or in favor of, any particular person or company, or any particular description of traffic in any respect whatsoever." The courts held that this demand for equality of treatment applies only to persons; but that nothing prevents the railways from favoring one class of traders, or one town, or one portion of their traffic, provided the conditions are the same for all persons, and for the benefit of the railway. See the decisions in Shelford, Law of Railways (4th ed.), I, 166– 174. Cf. also the English Parliamentary Report for 1872 (Joint Select Committee on Railway Companies Amalgamation), p. xiii.

have often been forced into unjust discrimination by the stress of competition and the instinct of self-preservation. But railway officials commit a great mistake in calling all local discriminations just because they are the effect of competition, precisely as the demagogues err in opposing undeniably valid discriminations and at the same time upholding competition. Competition is made to cover a multitude of sins. From the standpoint of railway profits, all actual differential rates, unless where railways carry at less than hauling expenses, may indeed be defensible; but from the public standpoint of national prosperity and the equable development of all sections, many of them may easily be convicted of injustice.1 Railway profits and public interests do not always go hand in hand. The possible diversity of interest renders some form of governmental supervision absolutely imperative. Untrammelled liberty has been tried in the balance and found wanting. Private actions which so materially affect public interests must be subject to review and correction at the hands of some public authority.

The main limitation on the practice of differential rates hitherto has been the enactment of short-haul laws.

The short-haul system admits differential rates, but prescribes that the aggregate charge to any intermediate point shall not exceed the aggregate charge to the final point; the entire distance must never be charged less than any part of it. As a principle, it is in itself legitimate. It tends to check the undue extension of the practice of differential rates. For although, as we have seen, there is no vested interest in geographical advantages, it becomes an anomaly to charge to a way-station the rate

1 Thus Alexander, Railway Practice (1887), p. 14, says: "The competition which gives birth to such discriminations determines also their sizes, or the extent to which they must go. What are the rates to intermediate points has nothing to do with the case." Expressed in this general way, the principle is manifestly indefensible, for it would justify transportation to competitive centres at less than actual hauling expenses. It must be remembered that railway profits are no excuse for injustice to the public. So Fink, Argument before Senate Committee on the Reagan Bill (1879), p. 20, claims that competition would justify a charge of $1.50 a ton from A to B, and of $3.00 from A to an intermediate point, C. It is these exaggerated claims that arouse the ire of the public. For the claims of the railway antagonists in England, see Pope, Railway Rates and Radical Rule (1884).