existing property used in the service is valued according to current methods of appraisal, reasonable justice would seem to be amply regarded. Perhaps in the majority of cases the past

is an uncertain matter. If then we were to forget the past, and were to place a valuation upon existing property either at cost of reproduction or, as nearly as may be determined, at actual cost, with reasonable allowance for accrued depreciation, what grave injustice would be brought upon the corporations? In determining social policy, should we not regard questions of justice from a broad standpoint? If a valuation policy in general brings substantial justice to investors, what more may be desired? Certainly if refinements are attempted, requiring additions to a physical appraisal on account of deficiencies in return, deductions should be made for excessive returns. In some cases such deductions would wipe out all investment and leave a net liability to the public. But if it appears unwise to provide for deductions as well as for additions, why require any modifications of a physical appraisal?

CORNELL UNIVERSITY.

JOHN BAUER.

RAILWAY RATE THEORY AND PRACTICE IN THE LIGHT

T

OF RIPLEY'S “RAILROADS"1

HE seventy-five years or so that have intervened between the publication of Henry Fairbairn's Treatise on Political Eco

nomy of Railways (1836) and of W. Z. Ripley's Railroads (1912, 1915) have been replete with attempts to discuss one or another of the problems connected with the development of railway transportation. Though many of these attempts have resulted in but ephemeral productions of practically negligible scientific value, the record is redeemed by the work of men like Sax, Cohn, Colson, Picard, Lardner, Acworth and others. Among those that have been successful in achieving distinction, the little volume on Railroad Transportation by A. T. Hadley still maintains a position of leadership, and with this production of an American scholar one compares, instinctively, the recent volumes of Professor Ripley.

Writing a generation after Hadley, Ripley has been fortunate in having at his disposal a mass of data, largely arising out of the activities of Congress and of its instrument, the Interstate Commerce Commission, that has enabled him to illuminate his discussion with an almost overpowering wealth of illustration. His pages show an admirable acquaintance with the American literature of railway economics, but draw little upon the corresponding European literature. In connection with this fact may be noted one great difference between Hadley's treatment and that of Ripley. To Hadley the problems of railway transportation were international, so to speak: to Ripley they are national, and he feels competent, therefore, to interpret them with little or no reference to the experience of other countries. No doubt there is some justification for Ripley's restriction of his field of survey, though the titles of his volumes by no means indicate this; but it must be recognized that the gain of minuter analysis is secured at the loss of that broader understanding of the railway problems of this country to be obtained from the comparative study of the economic status of other national systems. The opportunity for such a study, moreover, was an attractive one. The sources

1Railroads. By William Z. Ripley. New York, Longmans, Green and Company, 1915. xix, 638 pp. The writer of the following review hopes to supplement it with a further one in which will be discussed the problem of regulation as presented by Professor Ripley in his recent work.

477 open to Hadley had been vastly enriched by the writings of Colson, Hamon, Leygue, Milhaud, Varret and Guyot in France; of Kupka, Neményi, Hüber, von Weichs-Glohn, Rank, von Kaufman, Ulrich, Lotz, Cohn, Grunzel and Kech in Germany and Austria; of Tajani and Jonnelli in Italy, to say nothing of the work of numerous others. Professor Ripley's right of choice must be admitted, but may it be permitted to regret the choice made? Moreover, if his work is to be regarded as a general treatise on the economic and social problems of railway transportation, there are some conspicuous omissions. In spite of numerous previous attempts, there was still ample room for careful discussion of the theory of state control in railway management, and of the problem of actual management of the railway industry by the government. Excellent as is the author's treatment of the history of federal regulation in the United States, one cannot help but wonder why he should have neglected, so markedly in his first volume, the part played in railway regulation by the individual commonwealths. Yet, if the scope of treatment is open to criticism, there is, on the other hand, much to be said in praise of the manner in which the topics undertaken are handled. Rate discriminations, the rate structure, federal legislation and regulation, railway capitalization and financial policy, railway coöperation, are all discussed for the United States with a copiousness of appropriate detail that will secure for the treatise a prominent place in the permanent literature of railway economics. Not that Ripley is to be regarded as a discoverer of new principles; his conspicuous merits, indeed, are those of the recorder and interpreter. But he has assimilated, with uncommon skill, the discouragingly scattered sources of information, and has presented them in a way that wins appreciation, even where, here and there, it does not carry conviction. Future investigators into the economic problems of American railway transportation will be deeply indebted to him for the solid foundation that he has provided for their further researches.

In what is, indubitably, the most important part of railway economics, the theory of rate-making, Ripley's predecessors had still left much to be done. The theory of rate-making is part and parcel of the theory of prices in general, one of the most interesting divisions of the science of political economy. But while the theory of prices is comparatively simple when based upon hypotheses of single production and perfectly free competition, it becomes highly complex when the suppositions of joint cost or monopoly are introduced. Such complexities, present to a high degree in the phenomena of railway prices, account, no doubt, for the slow progress in scientific analysis that has been made. In this

part of the field, Hadley's work, excellent though it was, can hardly be regarded as more than rough pioneering. Yet the disposition was to accept his explanation of the principles of rate-making as sufficient; it had the merits of simplicity and clearness. The more unquestioned Hadley's theory was, the greater the barrier it proved to that intensive examination of the underlying factors of railway price-making, out of which alone a really satisfactory theory could be evolved. Hadley's essay has been supplemented by the special analyses of several economists, attracted, in passing, by the problem of railway rates; but contributions such as those of Taussig, Lorenz, M. H. Robinson, J. M. Clark and Edgeworth, illuminating even when their logic is not always entirely acceptable, fail to present a rounded-out theory of railway rates. Nor can it be said that the specialists in railway economics, writers like Acworth, Johnson, Noyes, Newcomb and others, have been more successful. However, one must not fail to recognize that the work done by all of these represents important and necessary preliminary surveys. To continue the surveying metaphor, the task left to Ripley was the determination of the line of actual location, the reduction of a grade in one place, the easing-out of a curve in another, perhaps the substitution of a more direct route in still another place, all this demanding close and careful examination and the constant exercise of a matured and balanced judgment. Needless to say, the task has been performed with considerable success. The fact that this review lays emphasis upon points of criticism rather than of approval must not allow the general excellence of Ripley's work to be underestimated.

From the point of view of price-making, the railway may be either competitive or monopolistic. Ordinarily it is not a perfect example of either, and, for that reason, it has often been termed a partial monopoly. As to whether, on the whole, the railway is more competitive than it is monopolistic, or vice versa, is a question requiring nice consideration. Perhaps the public at large is apt to credit the railway with even more monopolistic power than it possesses, not recognizing that while adjustability of railway rates may indicate monopoly, it may be, in part at least, nothing more than the result of the production of different services of transportation at joint cost. However, the significant fact for our present discussion is that both competitive and monopolistic influences tend to enter into the price-making of the railway, and that, in so far as the former are effective, the railway rate tends towards the cost of production of the service covered by it, and, in so far as the latter are effective, the rate tends towards the maximum demand price of the user of the service.

Approaching the problem from the first-named side, one is immediately confronted with the necessity of examining costs of production -in other words, the nature of railway expenditures.

66

There are two important questions that arise in connection with railway expenditures. Do they increase uniformly with the increase of traffic? Are they distinct and separable with respect to the various services of transportation, or are they joint and inseparable to any degree? To the former of these questions Professor Ripley addresses himself first. In any industry requiring the use of capital goods, a certain proportion of the total expenditures consists of interest and other fixed charges upon the capital, which, within the capacity of the plant as established, do not vary, closely at any rate, with the amount of goods produced. Besides these so-called "fixed" charges, there are certain operating expenses that respond more or less slowly to the oscillations of productive activity, notably, those connected with the general supervision of the establishment and general maintenance of the plant. Both of these kinds of expenditure may be roughly described as constant." Their relative amount as compared with the remaining variable expenses depends upon the nature of the business. Several writers, Sax, Acworth, Eaton and others, have made estimates of the proportion of constant expenditures in the railway industry. Quite commonly such estimates are lacking in precise and detailed analysis, very frequently arising from the absence of an intimate and practical knowledge of the real nature of railroad expenditures, so that their accuracy is open to doubt. Professor Ripley's analysis brings out clearly enough the fact that important proportions of maintenance and transportation expenditures may be properly regarded at any given time as "constant," but, with due respect to the interesting presentation, his estimate is of no particular statistical value since it is not worked out in sufficient detail to justify the precise ratio of "constant" to "variable" expenses, two to one, that he choses to adopt. Not that this estimate is an improbable one. It is in substantial agreement with those of Shirley Eaton, an experienced railway statistician, and Julius Kruttschnitt, a prominent railway executive. A generation or more ago, Emil Sax placed the ratio at three to one, but Sax was basing his figures on European railway experience of his day which found capital investment comparatively high, traffic comparatively scanty, and operating expenses comparatively low. Ripley does not discuss Sax's estimate, however, though it affords a convenient opportunity of pointing out that the ratio of constant to variable expenses may be affected by the size of the fixed capital investment, the density of traffic and the