Another condition which has contributed powerfully towards the general efficiency of the railways of the United States during the past third of a century has been the consolidation of companies and concentration - of management. The early railway companies were small, and their lines were short with varying regulations and tariffs. Between Buffalo and Albany in 1850 there were seven different companies operating, resulting in great inconvenience to both passengers and freight traffic. The small companies have nearly all entered into combinations, or been absorbed by large companies, until the railways lines of the country are now combined in a few great systems, with thousands of miles of track, such as the Pennsylvania, New York Central and Santa Fe. As an example, the Pennsylvania system now comprises over ten thousand miles and is composed of nearly two hundred small railway lines. Many of these were purchased outright by the Pennsylvania Company and absorbed into the system, while others are operated as subsidiary corporations. This great system transacts one-eighth of the entire railway freight and passenger business of the United States.

Railway associations and agreements in regard to the maintenance of rates, character and conditions of service to be performed, classification of freight, interchange of cars whereby shipments between roads can be made without transfers from car to car, establishment of rates, etc., have tended to further develop the efficiency as well as economy of our railways. The causes which brought about the organization of railway traffic associations were the necessity for co-operation, through tickets and through bills of lading, the interchange of cars with connecting lines, so that, for example, a car load of grain could be shipped from Minneapolis to the seaboard without change, and the necessity for the regulation of competition. As a result we have claim associations, car-service associations, passenger associations and other organizations for the adjustment of all questions arising in each department of railway service. The organization of small companies into large ones and the consolidation of lines led to violent competition and rate-cutting during the '70's, and was finally overcome by the associations referred to.

From the organization of railroad associations it was an easy step to "pooling," which consisted in dividing the total earnings of several competing lines according to an agreed basis irrespective of the amount of business actually done by the different roads in the pool.* The organizing genius of Mr. Albert Fink first developed the railroad pool. He organized the Southern Railway and Steamship Association (1875) in which were included nearly all of the railroad systems of the south besides several connecting steamship lines. The object of this pool was to settle what portion of competitive traffic each line should carry, and those which carried more than their share were required to pay their rivals the excess receipts less the bare cost of carrying. The "pooling" feature was more or less a prominent one in nearly all railroad association agreements until prohibited by the Interstate Commerce Act.

*The dangers of a pool lie in the arbitrary power which it places in the hands of a few men, to fix rates, control traffic and exercise a monopoly which affects business interests extensively, but in this there is a relief from the evils of the competitive system with its rate wars and destruction of profits which should accrue to stockholders or be used for the betterment of the road.

Traffic Associations

The earnings of the railroads of the United States for freight traffic are much more important than those for the passenger service, being about three times the amount received for passenger business. In some parts of New England where the population is dense, the passenger receipts may equal the freight, but a large portion of the freight of the country is hauled considerable distances, and the earnings are correspondingly great. Our principal grain fields are 1,000 to 1,500 miles from the seaboard, and hundreds of miles from the great commercial centers; our mines and forests are situated long distances from the coal beds or the factories. The fruit from California and live stock from the great plains of the west are carried to the Eastern market. This movement of great quantities of bulky freight long distances results in large revenues for freight traffic while the distance discourages passenger travel.

The Interstate Commerce Law was passed by Congress in 1887, after fifteen years of agitation and investigation. It prohibited unreasonable rates and unjust discriminations, between persons, places and classes of traffic, prohibited pooling agreements, provided penalties for violations of its provisions and established a commission of five men to enforce its requirements.

Railway freight rates in the United States average but a cent and a quarter per ton per mile.*. This is lower than any other nation and probably not more than half what it was thirty or forty years ago. Improved machinery, Bessemer steel and competition have caused a steady decline in the rates. This decline has been accompanied by a general lowering of the prices of the most important articles of traffic, and would have been even greater but for the fact that it was made in the face of steadily advancing wages for labor. In the case of most commodities the public will buy and use a given quantity at a fair price. If then the price is lowered, the quantity consumed will be increased, or if the price is raised, the quantity will be diminished. Transportation charges are properly regarded as a part of the first cost of all those commodities which must be transported from the producer to the consumer. The consumer always "pays the freight" as well as the profits of the middlemen, in addition to the original cost. Each producer, then, who desires to extend his business or increase his sales, perceives at once that it is only necessary for him to secure lower rates on his shipments. Any concession in rates cheapens the cost to the consumer and increases the volume of sales. Whether certain articles shall be sold in a given locality often depends upon freight rates from two competing points. Whether salt from Michigan or from Kansas will be marketed in St. Louis depends upon the freight rates between these two localities and St. Louis. Whether shoes made in Chicago can be sold in Pennsylvania in competition with eastern shoes, depends upon the freight rates. A persistent pressure is being constantly brought to bear upon the railroads by both shippers and consumers to secure a reduction of the transportation charges in order to extend sales or reduce the cost of purchases. This was strikingly illustrated by the rivalry which existed at one time between our principal seaboard cities, New York, Boston, Philadelphia and Baltimore, in their efforts to secure export business. So great was the pressure brought to bear on the railroads by the commercial organizations of these cities in their competition for export shipments that rates were utterly demoralized. This was through the competition of the cities, as well as the railroads, and to such an extent was the contest carried that in 1882 it culminated in arbitration proceedings in which the questions involved were submitted to a committee consisting of Messrs. Allen G. Thurman, Elihu B. Washburne and Thomas M. Cooley, for adjustment. The findings of the committee resulted in fixing the relative freight charges to these ports, called "differential rates," upon such a basis that they have remained practically unchanged since. By this adjustment Philadelphia was given a small advantage over New York, in the matter of rates from the West, and Baltimore, a still smaller advantage over Philadelphia. Owing to a threatened diversion of the grain trade of the Northwest to Gulf ports, the rates on grain to all eastern ports have since been materially reduced to meet this competition. A "differential" rate then may be defined as one which is made between two points, not with respect to the distance as traversed by the different transportation lines, but with regard to competitive traffic. Thus between Chicago and New York the passenger fare is the same on several,lines of railroad, and yet the distance traversed varies more than four hundred miles.*

*Our average passenger charge is 2.35 cents per mile, while that of most European countries varies from 1.3 to 2 cents.

Price of Rails Per Ton-                         1868 1872 1876 1880 1884

Bessemer steel .............. 158 112          59          67          31

Iron ................... 79          85          41          49 .

Cost to Consumer