Obstacles come in the United States. but not so long as to commit the municipality to high charges when changed conditions may make lower charges profitable. When the term expires the franchise should revert to the municipality and it should have the privilege of acquiring for itself or for a new company, at a fair valuation, the plant and equipment of the old company, in case its charter is not extended. (3) The specifications in the charter should be carefully drawn by experts so as to insure, at least at the outset, the best quality of service at reasonable rates. Charters should be granted like other government contracts to the responsible bidder offering the most favorable terms, and every effort should be made to advertise widely the provisions of the charter, and to prevent collusion between those who make bids. (4) Public service commissions should be created and given large powers of regulation and control. Space will not permit detailed discussion or defense of these principles. Although stated dogmatically, it is believed that they represent the consensus of opinion among those students of public-service corporations who recognize them as monopolies and yet hesitate to advocate for them municipal ownership and operation. It is one thing to lay down general principles and quite to be Over- another to carry them out in practice. Only of late years has public opinion in the United States been sufficiently enlightened on the subject of municipal monopolies to demand any sort of adequate control and regulation, and in the meantime all sorts of abuses have been permitted. Perpetual char-\ ters have, in many cases, been granted on terms which permit the companies operating under them to disregard completely the interests of the public. Worse than all, public-service corporations have come to exert an influence on political parties, through contributions to campaign funds, and on public officials, through powerful and unscrupulous lobbies, which opposes a serious obstacle to efforts to control them through political means. Neglect of the question has brought about a state of affairs in which each community is confronted by a special problem, modified by local conditions, and must proceed as best it may to gain the mastery over the corporations which it has so carelessly created and allowed to grow to overweening power and influence. In dealing with such corpora tions vested interests must be respected, but it must not be forgotten that the true interest of the whole community is more important than that of a particular class in the community, and that every great reform of necessity inflicts hardship upon some individuals. It is the duty of the government to indemnify innocent persons who are injured by changes which 1 are deliberately undertaken with a view to the general welfare, but it is even more its duty to make such changes. The reform and the desirability of the reform should be the predominant considerations, the indemnification an incidental accompaniment neither to be exaggerated nor lost sight of. Only thus can progress toward a better economic and political organization of society be realized. REFERENCES FOR COLLATERAL READING *Le Rossignol, Monopolies, Past and Present (bibliography); Bemis, Municipal Monopolies, *Ely, Problems of To-day, Chaps. XVII-XXI.; *Darwin, Municipal Trade: The Advantages and Disadvantages; *Howe, The City for the People; Spiers, The Street Railway System of Philadelphia; Heilman. Chicago Traction, a Study of the Efforts of the Public to Secure Good Servia, keport of Committee of National Civic Federation on Municipal and Private Operation of Public Utilities, 3 vols. National of Organ ization. CHAPTER XXIV RAILROAD PROBLEM IN THE UNITED STATES § 234. In addition to the municipal monopolies discussed in Monopolies the last chapter there are businesses, national in their scope, which should also be classed as natural monopolies of organization. The principal are the telegraph, the long-distance telephone, the express and the railroad businesses. For them, as for municipal monopolies, the fixed charges are a chief item of expense. Thus a telegraph or long-distance telephone company, whether large or small, must maintain offices in and connecting wires between the principal centers of population or it will have few patrons. In comparison with the cost of this necessary equipment the expense of receiving and sending messages is small. It follows that one company utilizing fully its permanent plant can conduct all of the business more economically than can two or more companies needlessly duplicating plants. In the express business the situation is similar as regards terminal offices, although the tendency toward combination and monopoly is less marked than in the telegraph business, because the actual transportation of goods is effected by railways acting as agents. These circumstances make monopoly the economical form of organization for each one of these businesses. That no one of them has yet become an open monopoly in the United States is no disproof of this assertion. Public hostility to monopoly is so familiar and finds such frequent expression in legislation and the decisions of the courts, that business managers are careful to maintain the forms of competition even after the substance has departed. § 235. The railway business exhibits on a larger scale similar conditions to those found in the telegraph business. Roadbed and terminal facilities represent heavy fixed charges that must be met, no matter how small the volume of business. RAILROAD CONCENTRATION 433 Railroad The more fully these can be utilized in carrying on a dense Circumtraffic the smaller will be the expense for each unit of traffic. stances It follows that competition for business among long-distance Making the railways partakes of the same life-and-death character that Business was described in connection with street railways. When one Monoporoad gains an advantage and begins to swell its profits by listic. drawing from the profits of the other company, the situation of the latter is very soon rendered desperate. It has to choose between combination with the other road on its own terms and bankruptcy, and either choice, as American experience has shown over and over again, means in the end combination and monopoly. " "A railroad is thus," to quote from one of the reports of the Interstate Commerce Commission, "essentially a monopoly. This is literally true as to all local points upon its line which are reached by it alone." And it is virtually true, as the report adds by implication, even of "competitive points," since the rates at such points are now fixed quite generally by agreements among the nominal competitors. Railroad § 236. The progress toward concentration of railway con- Progress trol in the United States has been marked by three distinct Toward stages. In the earlier period the railways were looked upon Concentraas beneficent agencies meriting generous public support and tion in the full confidence. Consolidations were regarded with indiffer- United ence, if not with favor, and the business was permitted to de- States. velop in the direction of monopoly as rapidly as its nature dictated. About 1870 it began to be appreciated that the power of the railways for evil might prove quite as great as their power for good. The cry of extortionate rates and monopoly was raised, especially in the agricultural states of the Middle West, and an era of drastic restrictive legislation was inaugurated. For fifteen years the states tried to deal with the railway problem through state laws and state railway commissions armed with sweeping powers. The chief result of their efforts was to educate public opinion as to the real nature of the railway business and to prepare the way for Federal interference. Incidentally they forced some of the roads into bankruptcy, and compelled all of them to substitute secret for open methods for securing the centralization of control that continued to be desirable. In this second stage Federal secret agreements in regard to rates were substituted for competition. The ease with which such agreements might be violated suggested that to them be added definite understandings in reference to the division of the traffic among nominally competing roads. The entire business was " pooled " and then divided up in an agreed proportion among the companies entering the pool. As one provision of these pooling agreements guaranteed to each road its proportion of the revenue from the joint traffic, whether it carried its exact proportion of the freight and passengers or not, the inducement to rate-cutting on the part of individual roads was removed, and the stability of rate agreements was proportionately strengthened. Such pools" became very common after 1880 and served to create combinations and monopolies on behalf of the roads entering into them as effective, while they lasted, as though the roads were under one management. In consequence, they became special objects of attack on the part of those who still believed in competition as a remedy for excessive railway rates. When the Interstate Commerce Act was passed, in 1887, one of its Legislation. clauses expressly forbade "pooling." The Federal AntiTrust Act of 1890, as interpreted by the United States Supreme Court, went even further, and prohibited all agreements in regard to rates. In consequence of these two measures railroad managers have been compelled during the third period of railroad development to look for other means to harmonize conflicting interests and secure the desired centralization of control. Among such means the most common have been the acquisition by one road of control over others through stock-ownership, the combination of two or more roads in holding companies owning sufficient stock in each to control them, and the development of a "community of interests " among railroads through interlocking directors and stockownership. In these different ways centralization of control has been extended to embrace a constantly growing proportion of the railroad mileage of the United States. Thus, while in 1890 less than half of the total mileage of the country was operated by companies controlling 1000 miles of line or more, by 1910 more than 60 per cent was so controlled. At the beginning of the new century there were indications that prog |