Regulation of Rates of Common Carriers: Does It Need Revision?

Regulation of Rates of Common Carriers: Does It Need Revision?

Regulation of Rates of Common Carriers: Does It Need Revision?

Regulation of Rates of Common Carriers: Does It Need Revision?


RAILROAD RATES, and the economic considerations involved in establishing them, was one of the favorite subjects for study and discussion by two or three generations of economists -- but not by the present generation. Prior to World War I many if not most of the country's leading economists had done at least some writing in this area. For the past three decades, however, economic theorists have apparently lacked their former interest in the subject. Most of the writing on such questions has been done by specialists in transportation -- and, until recently, there has been relatively little that is novel -- from the standpoint of economic theory -- in current literature.

Perhaps the economic theorists believed that all the major problems in this area had been so well solved that further study of them would be unrewarding.

Meantime, however -- while the country's great economic therapists had busied themselves with other maladies of the body politic -- their transportation patient came down with complications. If the original problems of railroad rate-making, 50 or 75 years ago, were worthy of intensive study by the nation's ablest economists -- then the fix transportation rate-making is in today certainly calls for no less intensive attention by today's masters of economic analysis.

The country was pretty comfortable with railroad rate-making, under regulation which put an end to arbitrary discrimination and which recognized the "value of service" principle in allocating a large proportion of "overhead" costs to high-value traffic, "able to bear" higher rates. But that was when practically all inland transportation -- except local drayage -- was provided by the regulated railroads.

But then along came improved highways, improved rivers, pipelines, and air transport. Only a fraction of the services provided by these newer means of transport is subjected to regulation -- so how does (or should) a system of railroad rate-making, geared to conditions of a regulated monoply, adapt itself to pervasive competition which is untouched and untouchable by the regulators?

The problem would be much simpler than it is if these new rivals of the railways were, in all cases, lower -- cost carriers than the railways. In that event the railways could just quietly fold up and retire (and the regulators with them). In point of fact, however, the railways still provide transportation -- at least for most freight, and for distances of a hundred miles or so and upward -- at much lower economic cost than most of their rivals.

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