Book Reviews

As Dr. Carson sees it, our pres ent railroad mess is entirely gov ernment-made and can only be compounded by the "cures" that invoke the "public corporation" sort of thing that will mean more government involvement in mass transit, "Amtrak," et cetera. The Federal government took the first really fateful steps in the eighteen eighties with the creation of the Interstate Commerce Commission. Before that there had been rail road subsidies, usually taking the form of gifts of land and govern ment loans secured by first mort gages on railroad property. These resulted in premature building, but the results would not have been disastrous once bankruptcy had squeezed the water out of the more shaky enterprises. Subsidies 1971 THROTTLING THE RAILROADS 567 are bad enough, but in our first flush of railroad building their main deleterious effect was to drain capital from areas that might have given U.S. citizens more satisfactions. Undoubtedly they led to depressions, but the depressions of the nineteenth cen tury cured themselves. Permanent regulation is another matter, as Dr. Carson demonstrates beyond cavil.

Three-Way Intervention By Government The "throttling" of the rail roads by government, as Dr. Car son says, occurred in three main ways. Restrictive regulation took away "crucial managerial author ity," which naturally weakened the power of the railroads to make sound competitive decisions. Sec ondly, after the government had withdrawn from its original pro gram of subsidizing the rails, it turned to giving huge competitive favors to barge lines, the automo bile, and the airplane. Thirdly, the government embarked on a policy of giving monopoly status to the railway unions. The "throttling" continues despite everything, as I know to my own personal cost as I ride the decrepit New Haven line (now part of the bankrupt Penn Central system), to work on tracks that parallel the heavily subsi dized New England Thruway over which the trucks roar in an unend ing stream. The distinguishing thing about Dr. Carson's thinking is his un willingness to accept even the most hallowed cliches. In the eighties and the nineties of the past century there was a tremen dous outcry against such things as charging more for a short haul than for a long haul, or giving preferential rates to large ship pers, or favoring some shipping points over others. These prac tices were condemned as "pref erential'" and the case was seem ingly irrefutably established that "justice" required their abandon ment.

Dr. Carson, however, says that the railroads were entirely justi fied in their supposedly discrim inatory practices. A railroad usu ally has high fixed costs and low variable costs. To recover the fixed costs, it must be able to increase its income by taking advantage of the low variable costs. Other wise it may not be able to remain in business to service the whole community of consumers. Since it costs a railroad less per ton mile to carry things over big distances than over small (most of the fixed costs are in loading and unload ing), it can afford to charge less per-unit and per-distance for the long haul. Any other way of set ting rates must make it difficult 568 THE FREEMAN September for people at a distance to get their goods to market at a low enough cost to compete with those producers who happen to be closer to where the customer lives. Most of the allegedly nefarious practices of the nineteenth cen tury railroad derived from the nature of competition, and the consumer actually benefited from them. The execrated rebate was a competitive cure for the monop olistic "pool." The "rate war," a "horror of competition," was in actuality a way of clearing the market, in no way different from bargain sales in the dry goods business. If something hadn't been allowed for the "long haul,"

growers of grains and vegetables who lived at immense distances from their markets would not have been able to carry their mort gages. When the long and short haul rules went into effect, it actually promoted a nonintegrated national rail system, for there was no incentive to link the long haul western railroads with the short-haul eastern systems. A transcontinental railroad would have had to tie what had been profitable long haul rates to short haul rates in such a way either to incur great losses in the short haul business or to price itself out of long haul traffic. The effect of the Interstate Commerce Commission regulation dampened the ingenuity and the desire of the railroads to find new ways of serving their customers. Made lethargic by the inevitable impact of government interven tion, they were at a double disad vantage when forced to compete with the automobile and the air plane. The trucker had to pay gasoline taxes and user fees, but he did not have to invest in his right of way. The airplane had to load and unload like a railroad train; but the air, unlike the rail road bed, was free.

The unions put the finishing touches on the general railroad debacle. Protected by the govern ment, they have been able to insist on·their featherbedding practices. The railroads have been frustrated in their attempts to substitute automation and the use of labor saving technology in general for the "full crews" that were once needed when steam engines were in use. Dr. Carson tells about the height of absurdity that was reached when the unions insisted that crews of five men be hired to operate a one-man small auto de livery unit running on flanged wheels to carry passengers on a branch line. Dr. Carson's recipe for un throttling the railroads is simple: he would remove the dead hand of the ICC and the state regulatory commissions, he would takeaway 1971 THROTTLINGTHE RAILROADS 569 special privileges from the unions, and he would stop subsidizing competitive modes of transporta tion. Unfortunately, governments don't abandon their interventions easily. A few more years of gov ernment-protected chaos, however, might convince us that our "prag matism" just isn't pragmatic.

How long, 0 Lord, how long? EDITOR'S NOTE: The following "extra" analysis of Dr. Car son's book is in no sense to imply an inadequacy in John Chamberlain's review. Rather, it is to afford the additional point of view of an "insider." Mr. Canfield worked many years in the field of Industrial Traffic Management. He is now manager of the Commodity Code Group of the Uniform Classification Committee in Chicago. • THROTTLING THE RAILROADS by Clarence B. Carson. (Irvington on-Hudson, N.Y., Liberty Fund, for F.E.E., 1971. 143 pages. $4.00 cloth, $2.00 paperback). Reviewed by Joseph M. Canfield HUNDREDS of books have been written on the railroad problem. Dr. Carson's Throttling the Rail roads, consisting of only 143 pages, is refreshing because it clears the air of a number of cliches. This is accomplished by rigidly applying the libertarian "yardstick" of nonintervention to the railroad situation. When this yardstick is used, most railroad students, especially true libertari ans, have to acknowledge that their thinking has been inhibited by interventionist cliches.

In chapter four, Dr. Carson de molished the "right" of the com munity to "common carriage" and its other face, the "common car rier" obligation of the transpor tation company to serve all. Meas ured by the libertarian standard, this right-obligation should be relegated to limbo, along with that spurious "right to a free educa tion." Students in years past .had drilled into them the development of the common law obligation of wharfingers, carters, innkeepers, and ferrymen to serve all. When these "rights" to common service - actually compulsory service originated in medieval times, the free market economy wasn't al lowed to function and compulsion was needed as motivation. To have this concept carried into an in dustrial society shows how hard it is to shake obsolete ideas. The common carrier obligation has lost much of its meaning. It really isn't practical and cannot possibly be enforced. Most rail roads are common carriers only to those who offer 6,000 pounds or more of freight at one time. Le gally, most truck lines are com mon carriers, obligated to serve 570 THE FREEMAN September all the public. Practically, that doesn't mean a thing. For years, I was with one of the largest firms in the country. We were served by some regular truckers. But just try to get service from some com mon carrier we didn't regularly do business with or get someone to haul to a point that wasn't one of our regular destinations. Truck ers would merrily decline their "ccmmon carrier" obligation, and there wasn't a thing the company could do. The truckers were com pletely practical and more realistic than the law.

And, of course, pipelines are common carriers; common to any one who has a tank farm at each end of the line and can offer, say, 50,000 barrels of oil as one ship ment. To use the same legal con cept for a modern "big inch" pipeline as for a medieval boatman whose punt wasn't much longer than the pipeline's diameter, bor ders on the ludicrous. Our trans portation system is shackled with such obsolete thinking. Until I read Dr. Carson's book, I had always defended the rail road land grants. My reasons were, first, that they accelerated the transfer of land from government to private hands. Second, the rail roads in return for the grants, carried government freight at 50 per cent of the commercial rates. The saving, up to the end of the concession in 1940, exceeded by many times the price of the lands so granted. In chapter three, Dr. Carson shows that even in land grants government intervention is inter ference which is upsetting. The upsets spread like ripples in a pond. We rail men have been so impressed by the story of laying ten miles of track in a day during the building of the Union Pacific and Central Pacific, that we forgot our libertarian economics.

The effects of intervention spread somewhat in this order: 1. Railroads built without econom ic justification. 2. Government aid fostered corrupt practices in the railroads. 3. Farms were developed too soon and on poor soil. 4. The Indian problems were ag gravated. 5. The buffalo was almost exter minated. 6. Agricultural prices were de pressed. 7. Pressure for railroad regula tion was accelerated. And the dust bowl of the 1930's may even be a subsidiary effect. But, say objectors, private capi tal would never have any incentive to build into undeveloped areas without government aid. Canadi ans tried to copy our method of sup porting railroad extension. Their experience with the Canadian Pa1971 THROTTLINGTHE RAILROADS 571 cific Railway made them think they could get away with that sort of thing. When the same methods were repeated in the early 1900's, the Grand Trunk and Canadian Northern Railways overbuilt and collapsed. As a result, there has been over 50 years of government spending in an effort to straighten out the mess.

Private capital did go into many areas in Africa, Asia, and South America and build railroads, sometimes aided by some degree of government support. The only broad study of these efforts, made in 1928 by ICC Commissioner Splawn,! makes the point that government action doesn't produce success in the absence of economic justification for building a rail road. The willingness of American firms to pour money /into rail roads, such as the Quebec, North Shore and Labrador in recent years to reach iron ore deposits, confirms the libertarian doctrine that capital will move according to economic necessity. If there are no goods to move, the railroad won't be built. The itch to get something from government, to use government to provide something beyond our means, has always been with us. 1 Walter M. W. Splawn, Government Ownership and Operation of Railroads (New York: Macmillan Co., 1928). Many New England towns, hot beds of "rugged indi vidualism,"

used town funds to build branch railroads. These had no economic justification, but often were built for personal spite or town pride. This misuse of town funds con tributed to the rot that brought about the collapse of the New Haven and the Boston and Maine, even though the day of reckoning was postponed for many years. In my own studies of the trolley lines in the Midwest,2 I found case after case where promoters whipped up enthusiasm for trol ley lines that were completed only by the infusion of village or coun ty funds collected from the tax payers. The trolley cars had hard ly started running before the officials yielded to another wave of enthusiasm and had the tax payers pay for paved roads which destroyed the investment in the trolley lines. (The trolley is a form of transportation which can be a valuable tool, but one which has suffered from intervention more than any other transport medium - to the detriment of the commun ity.) In chapter six, a question we have often raised about railroad 2 Joseph M. Canfield, Electric Rail roads of Northeastern Ohio (1965); West Penn Traction (1968); Badger Traction (1969). All published by Central Electric Railfans Association, Chicago, Illinois 60690.

572 THE FREEMAN September mergers receives a likely answer. Why have there been no end-to end mergers? Dr. Carson suggests that they would be more vulner able to the restriction of the Long and-Short Haul Clause of the In terstate Commerce Act (Fourth Section). This provision, pride of early regulators, is an American aberration which even the Vic torian regulators of British rail ways never invented. Designed to protect one-railroad, intermediate towns (e.g., Tyrone, Pa.), it as sumed that justice required that lineal miles take precedence over market requirements in rate mak ing. End-to-end mergers would produce more situations where this restriction might apply. Actually, it may cost more to serve an intermediate city, espe cially if it must be served by local freights which are operated under present work rules. The recent newspaper ad, showing the avail able work force of Tyrone offering themselves, suggests that even 80 years of protection by the long short clause is of limited value in the face of economic reality.

Utilization of America's com petitive railway network has re sulted in wholesale exceptions to literal enforcement of the long and-short-haul clause. So-called Fourth Section Relief orders granted by the ICC have been nec essary to maintain a semblance of reality in the face of a legislative limitation. These orders must be published in the tariffs where they apply and add complication and expense. The tariffs are difficult to compile, publish, and interpret. And make no mistake, rail and motor truck tariffs, required by the regulatory system, are com plicated. Probably they are the most complicated publications re ceiving day-to~day widespread use. Having spent much of my work ing life interpreting tariffs, I found the mental gymnastics stim ulating, particularly when I spotted the right rate on the first try. But the cost to railroads and shippers of wrong rates runs into millions of d~llars annually.