Railroads, Rates and Regulations (Paperback)

Purchase of this book includes free trial access to www.million-books.com where you can read more than a million books for free. This is an OCR edition with typos. Excerpt from book: CHAPTER III THE THEORY OF RAILROAD RATES (Cont'd) The law of increasing returns, 71. ? Applied to declining traffic, 73.? Illustrated by the panic of 1907, 75. ? Peculiarly intensified on railroads, 76. Growth of mileage and traffic in the United States since 1889, 77. ? Increase of earnings, 79. ? Operating expenses, gross and net income, 80. ? Comparison with earlier decades, 85. ? Density of traffic, 86. ? Increase of train loads, 88. ? Limitations upon their economy, 92. ? Heavier rails, 93. ? Larger locomotives, 94. ? Bigger cars, 95. ? Net result of improvements upon efficiency and earning power, 97. The law of increasing returns due to financial rather than operating factors, 99. A railroad theoretically presents a clear example of an industry subject to the law of increasing returns ? that is to say, an industry in which the cost of operation grows less rapidly than the volume of business done. Each ton of freight added to the existing traffic costs relatively less to haul. From this it follows, obviously, that the net returns increase more than proportionately with the expansion of traffic. This may be demonstrated by a simple calculation. It has already been shown that only about two-thirds of the total expenditures of a railroad are applied to operation, the remaining third being devoted to capital account. Moreover, of these two- thirds of the total applied to operating outlay, only about one-half responds to any change in the tonnage, the other half being constant up to a certain point. Otherwise expressed, an increase of one per cent. in traffic and, therefore, of revenue, produces an increase in expense of only one-half of two-thirds of one per cent.1 Two-thirds of the entire increment of revenuegoes to profit. Cany this increase further and the...