ment for supplying the other half. Belgium built the main lines of road at state expense for state management; but at the same time the building of private lines was also encouraged in every possible way. It was not until too late that men saw what chances for waste and corruption were involved in this indiscriminate encouragement of railroad construction. England learned the lesson in 1847; Continental Europe in 1873. In spite of the severe experiences of 1857, 1873, and 1884, it is by no means certain that America has learned it even yet.
For a long time the only fear was that railroad charges would be too high; and this fear was happily disappointed. The maximum rates which were fixed in the earliest charters were useless, simply because the railroads generally adopted a lower scale of their own accord. It was found that the profits depended quite as much upon the volume of business as upon the absolute rates charged, and that it was often better to do a large business at low rates than a smaller business at higher rates. This is of course true to some extent in every department of industry, but there are reasons which make it apply specially to railroads. About half[1] the expenses of a railroad are to a considerable extent independent of the amount of work done. Thus an increase in the volume of traffic does not produce a corresponding increase in cost.
Railroad expenses may be roughly divided into two classes, according as they do or do not vary with the amount of business done. Those which do not vary rapidly are called fixed charges. This includes interest on cost of construction, the general expenses of the organization as a whole, and a considerable part of the expense of maintenance, which is due to weather rather than to wear. Those expenses which vary nearly in proportion to the amount of business done are called operating expenses. Under this head are included the different items of train and station service, with some others. The fixed charges of the railroads of the United States average somewhat over $2,500 per mile annually; the operating expenses average from forty to sixty cents per train-mile.
In order that a railroad as a whole may be profitable, it is necessary that it should earn money enough to pay fixed charges as well as operating expenses. But, in order to secure any individual piece of business, it can afford to make rates which shall little more than cover operating expenses, provided such business can be had on no other terms. To secure traffic which it could not otherwise have, a railroad can afford to make rates which would bankrupt it if applied to its whole business.
- ↑ In Mr. Lansing's valuable article on this subject ("Popular Science Monthly," February, 1886), the proportion is estimated considerably higher. Any argument on the reasons for the difference would be of too technical a character to come within the scope of this discussion.
