Book Review - Railroads ... Rates and Regulation

[greyhounds]

Railroads, Rates and Regulation by William Z. Ripley.  Original copyright  1912.  Reprinted 1999 by Beard Books, Washington, D.C.  (678 pages)

This book’s author, Ripley, (1867-1941) was very well educated.  He was trained as a civil engineer at M.I.T. and earned a PhD in political economy from Columbia in 1893.   He became a professor of political economy at Harvard (1902-1933).  He did take time away from Harvard to do work for the US Government.

This book is available on line at no charge: 

 http://www.archive.org/stream/railroadsratesa00riplgoog/railroadsratesa00riplgoog_djvu.txt

I bought a printed copy for $34.95 at:

  http://www.beardbooks.com/beardbooks/railroad_rates_and_regulations.html

                I’m reading a series of books like this to try to understand (I always want to know “Why”?) how government regulation of rail charges came to be and also how it came to be so awful.  The regulations, of course, hurt the railroads.  But they also hurt the US economy and the US people by inhibiting economic development and general wealth creation.

                I found Ripley’s book to be both fascinating and foreboding.   In the early chapters he’s writing as an economist.   As such he can understand and explain various rail pricing systems.  He comes across as an admirer of the US   railroad industry.   As in:   

”Our railway managers have always been most progressive in seeking, in and out of season,  to develop new territory and build up traffic.  The strongest contrast between Europe and the United States lies in this fact.  European railways more often take business as they find it.  Our railways make it.  (Emphasis added.)  Much of this business is made possible only by special rates adapted to the case in hand.”   (P. 152)

                Regulation made such special rates difficult if not impossible.

And: 

“Our country has been unprecedently developed in consequence of the energy and progressiveness of its railway managers.”  (P. 158)

                Ripley quickly qualifies that last quote by saying that many of the special rates were not, in his written opinion, justified.  Well heck fire professor, if you’re going to be aggressive you can’t be overly cautious to the point of being afraid to make a mistake.  If you don’t bat 1000%, so what?

                On pages 152-153 Ripley observes :   “One of the stock objections to railway regulation is that it may lessen (the elasticity of rail rates – which promoted national wealth by enabling commerce),  ‘Substituting mile posts for brains,’ and produce stagnation in place of activity.”

                That was very prescient.  It’s exactly what happened.  Motor transport hit the transportation world in the 1920’s like a tsunami.  The role of the railroads changed dramatically.  Regulation prevented the needed changes in rail pricing and services.  Stagnation in place of activity indeed.  The whole country suffered as a result.

                In the latter chapters Ripley is a proponent of regulation.  Sometimes blatantly contradicting what he wrote in the early chapters.   The basic bone of contention was when the railroads charged more to move freight a shorter distance than a longer distance.  Ripley fully understands the wisdom and necessity of doing such a thing.  But he is also very sure he has a better understanding of when to do it than the people actually doing the pricing.

                 He gives a good history of regulation up to 1912.  It started out innocent enough.   But it never produced a perfect rate structure.  Each new law produced another imperfect result.   Always the government’s solution was to pass another law giving itself more power and control.  The eventual outcome in 1918 (well after the book was published)  was foreseeable.    The government had authorized  itself to seize the railroads in 1916.  All they needed was an excuse, and they got one with WWI. 

                But government operation also proved to be imperfect (and costly).   So the railroads went back to their owners under very strict economic regulation.  We all know the disastrous  results of that regulation.

                Next up for me….a couple books on the Granger Movement.

[Ulrich]

Thanks for the reference to the book...should be interesting reading. I've found that the simpler the rate structure, the better. When I got started in transportation I worked for a short time as a rates clerk for an LTL carrier...talk about complex rate structures! We had massive tomes that one could hardly lift with rates for  each customer. And the rates themselves varied depending on many factors..weight, dimension, commodity type, special handling needed etc.  I can understand why an MIT engineer would be needed to make sense of it all.

[MP173]

Ulrich:

I got my start as a rate clerk in LTL also.  It was a challenge.  Let's see we had Indiana Intrastate rates, Central States, Eastern Central, Central Southern, Middlewest, Rocky Mountain, and Niagara (for LTL to and from Ontario). 

It was tough for certain towns on or near the boundaries (typically Rivers such as Mississippi, Ohio, Potomac) and we used Rolodex as cheat sheets.  Then you had the interline factors to consider.   Then one had to determine the classification of the freight (NMFC Tariff....a 1000 page document). 

When those rates were computerized based on zip codes in the 80's it was an amazing step. 

About that time the "discounts" appeared. 

Big money was made by the transportation auditing companies on sorting out all these mistakes.

Sure glad I moved away from that industry.

 

Ed

 

 

[Ulrich]

The complexity can make for some humorous situations too. Some years ago Fedex let it be known that they were going into the FREIGHT business...that they would nolonger be doing just parcels and envelopes. So to test the waters I called them and asked for a rate for a half truckload to Barrie, ON, about 90 miles from here. Without missing a beat the lady I spoke to  said "that will be 45 THOUSAND  291 DOLLARS and 22 CENTS. I laughed and asked her if that was her best rate and she replied that if I had alot of these they could give me a 10% discount. I told her no thanks...i was currently getting these moved for $450.00. I guess they were going to FLY the load to Memphis, TN and then fly it back to Toronto where no doubt it would go on a truck up to Barrie.

The funny thing about those complex LTL rates..for anyhing above about 2000 lbs it becomes cheaper simply to move it truckload via a truckload carrier.

[Paul_D_North_Jr]

Thanks for sharing the reference and brief review. 

There was a plan from back around then to consolidate many railroads into a few big systems, which was called the "Ripley Plan" - no doubt authored by the same fellow ?   Will have to look it up sometime. 

- Paul North.

[greyhounds]

Paul_D_North_Jr

Thanks for sharing the reference and brief review. 

There was a plan from back around then to consolidate many railroads into a few big systems, which was called the "Ripley Plan" - no doubt authored by the same fellow ?   Will have to look it up sometime. 

- Paul North.

Yes, same person.  But, "A man's got to know his limitations."   Anyone who thought they could design the railroad system for the United States knew no such limitations.

I'd like to add one more quote from Ripley.  There was a discussion on this forum about the link between the Granger Movement and the development of Federal price regulation of the railroads.

Here's what Ripley wrote:

“No widespread demand for a general reduction of railroad rates seems to have existed in 1887.  (The year federal regulation was first enacted.)   In this regard the situation is strikingly in contrast (emphasis added) with that which prevailed during the protracted hard times succeeding the panic of 1873.   Acute industrial depression during that period had aroused deep public feeling against the ‘extortions of soulless railway corporations.’  It was but natural that all the farmers in the newly settled states should actively participate in the Granger movement.    The popular war cry in this agitation was lower freight rates.”  (p. 443)

                Indeed, railroad rates had plummeted   since 1872 and would continue to decline through 1896.  (Ripley, p. 413)  The bone of contention in 1887 was that the benefits of this plummet were not evenly distributed.  Well, they really couldn’t be evenly distributed.  Some geographic locations just had certain natural advantages and “…Natural advantages of a geographical location could not lawfully be nullified.”  (Ripley, p. 636)

                But the government was going to try to ensure equality of outcome.

                Ripley sees the “striking contrast” between the Granger movement and eventual Federal economic regulation.

                I’ve got some more reading to do on the Grangers.   But so far, it seems their “movement” was just an effort to blame other people for their economic woes.   The historical data just can’t be made to jibe with the Granger complaints.

                The worst I've read so far is that the rail rates for the farmers declined only slightly relative to the declining prices the farmers received for their crops.   In other words:  “I know you’re charging me less, but you should be charging me even less than you are.  And I’m going to have the state government make you charge me less.  So there!”