Thorstein Veblen
THE LATER RAILWAY COMBINATIONS. (in Notes)
The Journal of Political Economy, vol. 9, No. 3. (Jun., 1901), pp. 439-441
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[439] The open concentration of railway control in the union of the New York 
Central, Lake Shore and Boston and Albany in the east, the Union Pacific, 
and Southern Pacific, and the Northern Pacific, Great Northern and 
Burlington in the west, and the less apparent but not less effective 
centralization by common ownership of independent systems, is making a 
radical change in transportation conditions which a few years ago would have 
not passed with the slight attention it is now receiving.
The consolidation movement in other industries contains elements of 
strikingly novel interest, which for the time being have so absorbed 
attention as to leave the railway combinations comparatively little notice. 
It is, however, as true now as it ever has been, that railway control and 
management is of fundamental and paramount importance to our industrial and 
commercial interests. Present prosperity with its higher prices and wider 
margin of profits may cause shippers to pay increased freight charges with 
little grumbling, but will the rates be lowered when less favorable 
conditions and lower prices compel the shipper to consider expenses more 
carefully than he is now doing?
In the past competition for a declining volume of traffic has compelled 
rival railway managers to lower rates during periods of depression, 
sometimes with disastrous results to the roads. These lower rates forced 
improvements and economies which enabled the roads to make a profit, even at 
the reduced rates, and the trend of rates has been steadily downward during 
the past three decades. Increased price of materials and higher wages are 
given as the excuse for the advance in rates, which has been made during the 
past two years. But the surplus of net earnings and the ability to pay 
dividends on stock which represents no investment of capital, indicates that 
power which restriction of competition gave, rather than the necessity of 
meeting higher expenses, led to the advance in rates. It is true that the 
increase in railway rates has been less than the addition to the price of 
tin plate, steel rails and other monopolized products, but this merely 
indicates [440] more moderation in the use of the power which railway 
combination confers.
The community of interests may be directly charged with the orgy of 
speculation through which we have just passed. The better dividends which 
the advance in rates made possible naturally tended to increase the price of 
stocks. The purchase of securities for the purpose of securing unity of 
action tended in the same direction, and the speculation as to the outcome 
of these great combinations tended to stimulate the powerful gaming instinct 
which is so widespread and needs little to rouse it to activity.
If rates had been maintained at a level which would give only normal returns 
on the capital actually invested in railways, and if the heavy capitalists 
had not been buying for control, does any one imagine that stocks which 
represent no investment would have sold at par or above?
In 1870, 1880 and 1886 conditions somewhat similar to those of the past two 
years led to railway building on an extensive scale. Competitors sought to 
share the profits which were being realized or which seemed to be in sight. 
Combination now seems able to prevent the waste which paralleling and undue 
extension then caused and a share of the profits has been sought by 
purchasing, at high prices, the securities of existing roads.
In the years following the panics of 1873 and 1893, when low prices, lack of 
employment and other conditions accompanying periods of depression caused 
serious agitation against the railways, the antimonopoly feeling was 
materially mitigated by the fact that competition between rival lines had so 
reduced rates as to involve many roads in bankruptcy. It was evident that 
monopoly was by no means complete, that rates were as low as any reasonable 
man could ask and the appeals of demagogues were rejected by intelligent and 
reasonable voters.
The optimist of course hopes that the dark years of depression will not 
recur. The ardent advocate of combinations also maintains that the powerful 
men in control of our railways and other industries will be able to prevent 
panics and depression. But let us consider for a moment the probable action 
of the managers of our combined railway system in case a period of 
depression should occur. Assuming a reasonably complete union of interests, 
rates will probably not be lowered except, perhaps, on the products of the 
industrial combinations which the railway capitalists also control. This may 
be expected to aggravate the feeling against monopolies, and the populistic 
hostility will not be [441] tempted by lower rates and by the financial 
difficulties of the railways unless this danger is avoided - unless the 
increased power which combination gives is used with the greatest wisdom and 
rarest moderation, unless those in control of the railways, and the great 
industrial combinations are gifted with the keenest insight, so that they 
find their own interest in using their enormous power under a full sense of 
the responsibility that it involves, they will raise a storm of discontent 
and antagonism which will end in transferring their power to political 
leaders who will probably use it more arbitrarily and certainly less 
intelligently.
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