production on the largest known scale—the performance of joint services. As Mr. Mill explained with respect to joint production, 'Cost of production can have nothing to do with deciding the value of the associated commodities relatively to each other .... Cost of production does not determine their prices, but the sum of their prices .... When two or more commodities have a joint cost of production, their natural values relatively to each other are those which will create a demand for each, in the ratio of the quantities in which they are sent forth by the productive process.'[1]
Applying this reasoning to railways, it is not unreasonable (always supposing undue preference out of the question) that one section should be worked at a high profit and another at a low. I have in view chiefly the instances in which one kin(1 of traffic is carried at low rates for collateral reasons an(t objects—the (destruction or injury of a rival, the abstraction of certain traffic from its natural channel. There is a plain limit to the application of the principle that merchandise is to be carried at the rate it will bear; an(t the limit is reached when the rates charge(t are such that the volume of traffic is artificially diminished, or that the profits of producers are reduced below the usual rate. That this limit has sometimes been exceeded in districts where no competition existed is certain. That it is often realised seems very doubtful; and I find in the voluminous evidence collected by the traders few clear cases of the kind. The supposed instances brought forward prove, as a rule, on examination, cases in which a company is making on some kinds of local traffic 10 per cent., and is carrying certain goods which would otherwise go seaward at a rate just sufficient to pay a little more than working expenses. The truth is that the most grasping of general managers hesitates to stir up an agitation for a new line—an agitation which Parliament would tea(lily yield to.
4.—Cost of Traffic as a Measure of Rates.
Every inquiry by careful, responsible investigators has ended in a condemnation of all attempts to base rates on cost of trans- port. In one form or another this is often proposed. When examined, it is invariably rejected. Not the least emphatic rejection of such a scheme is that by Lord Balfour of Burleigh and Mr. Courtenay Boyle in their report to the Board of Trade.
- ↑ Political Economy, Book iii., chap. 16.
