formulate a complete theory
of freight rates, it may be said that there are three factors to which
weight should be given in fixing charges: First, _the cost of
service_. The total costs of transportation, including a fair return
on invested capital, must be covered by total receipts. Furthermore,
the minimum rate charged any particular class of commodities ought to
be sufficient to pay the operating expenses incurred in transporting
the goods. Second, _the value of the service_. This fixes the maximum
rate that may be charged. Were the railroads to charge more than the
service is worth to the shipper the service would not be desired.
Third, _the value of the commodities_. Between the minimum rate fixed
by the operating expenses and the maximum charge determined by the
value of the service actual rates may vary through a wide possible
range. In determining what rates within this range will be
theoretically most just and least discriminatory, consideration should
be given both to the value of the service and--more than is the case
at present--to the value of the articles transported. By doing this
rates will be paid by the various articles of freight more nearly in
proportion to their ability to pay.

THE EFFECT OF COMPETITION ON RAILROAD RATES AND FARES

Whatever theory of rates may be accepted as ideally best, it cannot be
strictly adhered to under the existing conditions of active competition
obtaining in the United States. Actual charges have to be fixed and
revised to meet the varying circumstances under which railway traffic is
conducted. This competition takes several distinct forms. One is that
between railways and waterways. A large part of the domestic traffic of
the United States has the choice of transportation by rail or by water
on the great lakes and the tributary canals, by the navigable rivers, or
by one of the many ocean routes followed by our coastwise commerce.
There is also the competition of rival railways connecting common
termini or serving the same cities. These forms of competition are the
ones most frequently noted; but they perhaps exercise a less potent
influence over rates than what is known as competition through the
markets or through the channels of trade. The competition between rival
centres of commerce and industry--between the Atlantic cities and the
gulf ports, for instance, or between the manufactures of New York and
Philadelphia and those of Chicago or Cincinnati for the markets