wheat enjoys no monopoly, and the freight rates on these roads must be low enough to allow the Dakota farmer to compete with the farmers of Nebraska or Kansas. In consequence the freight charges on Kansas and Nebraska roads will determine a maximum above which the Dakota railroads cannot permanently charge. The same fact is true of foreign competition. Our wheat roads must compete not only with those of Canada, but with Indian, Russian and Argentinian railways, as well as with numerous maritime agencies all over the world. . . . . This competition . . will at all events keep down freight rates and induce the railroads to make, if necessary, repeated concessions to the needs of their patrons. . . This competition . . is practically non-existent in the transportation of passengers."

The terms of the foregoing statement are not always accurate, and it is somewhat sketchy and incomplete; yet, in the main, it is a more concise and satisfactory description of conditions which have long been recognized by careful students than any elsewhere available.

In common with all other statements in regard to this form of competition there is, however, a total absence of any explanation of the manner in which it operates.1 The necessity of such an explanation is beyond question, for the most superficial examination will show that the competition indicated is not within the terms of any of the customary definitions of that economic process. These definitions all contemplate a rivalry for the privilege of supplying or obtaining similar commodities or services and certainly do not refer to a rivalry between agencies which offer such widely different services as those involved in transporting wheat, respectively, from Dakota and from Argentina to their common European markets. Closer examination of the conditions of which the quotation constitutes but a sketch in outline will show that the distinction is only superficial and that by remembering that transportation is really a part of the process of production and then resorting to the simple and scientifically correct expedient of considering the producers of utilities of place as coöperating with the producers of utilities of form in a joint productive process and as joint competitors with other producers of the same commodities who meet with them in common markets, the apparent difficulty disappears. Considered in this manner, such competition is clearly within the terms of the definition of

'The writer acknowledges having incorporated a similarly defective statement in his Railway Economics-p. 49 et seq.

President Hadley,1 and if there is any to which it does not conform it is one which is not abreast of the modern development of industrial relations.

A summary statement of this method of explaining the decline in railway charges may be given in the language in which the writer thought best to present it to the rather mixed audience which gathered at the Conference on Trusts, held under the auspices of The Civic Federation of Chicago, during September, 1899.2

"A little thought will suggest a cause that may have produced the decline, in spite of, though somewhat hindered by, the wastes just discussed.

For lack of a better phrase this cause may be designated as the competition among producers for the privilege of selling in the dearest markets and that of consumers for the privilege of purchasing in the cheapest markets. This needs to be qualified by the suggestion that railways must be considered as producers for the reason that the productive process cannot be regarded as complete, in connection with a particular article, until that article is available for consumption. In more technical words, that are however perfectly clear in their meaning, production consists of the creation of utilities of place as well as of utilities of form.

Railways, therefore, are partners3 in the production of the commodities that they carry. Partners with whom? The answer is, with every separate productive establishment, farm or factory, workshop or mine, that exists along their lines and furnishes traffic for their trains. Each railway forms, in effect, a separate combination [the word combination is here used in a clearly innocuous sense] with each separate productive establishment and, as either place or form utilities might be useless without the other, these combinations are essential to the completion of the productive process. Obviously, any railway may participate in many such combinations which produce the same article. These combinations may compete among themselves, and as most producers of form utilities have a definite cost of production per unit of product while most of the costs of producing transportation cannot be assigned to particular services, it is not difficult to force railways to assume the greater shares in the sacrifices which such competition involves."

The concept of a separate combination between each productive

"Competition may be defined as the effort of rival sellers to dispose of their goods, or of rival buyers to secure the goods and services which they require; an effort limited by the desire of the seller to secure as high a price as possible, and by the desire of the buyer to pay as low a price as possible." Economics, p. 73.

3

'Proceedings of the Chicago Conference on Trusts, pp. 242-43.

The word "partners" was used as more nearly expressing the speaker's meaning than any other that would be generally intelligible to those addressed, and is not to be taken in an unqualified sense.

establishment and the carrier serving it, suggested in the foregoing extract, requires further elaboration. Nearly every railway carrier has along its lines and at its terminals large numbers of industrial establishments which together usually cover a wide range of productive activities. These establishments, or most of them, have among themselves no contractual or other fixed relations except those resulting from the legal or commercial institutions of the country in which they are located, and few of them have any fixed relations, beyond those so indicated, with the railway itself. The products of these establishments may be classified with regard to whether they are supplied to meet a local demand on the one hand or to meet the wants of consumers in other regions upon the other. In the former case the relation of the railway to the producers is rather indefinite and is not likely to be expressed by any special action. The wants of such producers in regard to personal transportation and as consumers of goods produced elsewhere are grouped with those of other residents of the locality or treated with regard only to the conditions of the production which in turn supplies them.

The relations of the carrier with those who produce to supply regions that can be reached only by the utilization of transportation agencies are obviously very different. Such producers furnish the carrier with its freight traffic and upon them it is dependent for its revenue. In this situation the local producer and the carrier are each capable of supplying commodities which, having by themselves no value, or none that need be regarded in this connection, have together a considerable value. The local producer has his utility of form, his wheat, cotton, pork, pig iron, steel rails, woolens, or other goods; the carrier, producer of utilities of place, can render these available to consumers by transporting them to the regions where the latter are located. Without the added utility of place the commodities of the local producer might be mere negative utilities' or, in rare instances, if we suppose a want-which must necessarily be of some given magnitude; and if we suppose the physico-chemical properties of a thing and our knowledge or opinion of such properties to be constant, then the utility of this thing is a function of its quantity, and, at first positive, ends by becoming negative. Every commodity may thus cease to be a commodity, and may become a thing of negative utility, or to put it more briefly than accurately, a negative commodity." (Pantaleoni, Pure Economics, pp. 79, 80.)

they might have some value for local consumption. The latter possibility in no way modifies the argument, however, for there is no objection to considering the advantage which the producer of exported commodities must abstain from realizing through their local sale, as a part of the cost of production of articles which are reserved for export. Of course this advantage has to be overcome before the commodities enter the class with those which furnish railways with traffic. The railway and the local producer, therefore, possess commodities which are complementary to each other. The union of these commodities is necessary before either can realize his cost of production, to say nothing of such profits as may reasonably be anticipated. That such a union will take place in most cases is not doubtful. It is the economic necessity of at least one of the possible parties and to the economic advantage of the other.

If it is possible to obtain from an examination of the circumstances which attend the agreements under which the respective producers of these complementary utilities effect their union, any definite information concerning the terms upon which they must meet, it will materially advance the knowledge of the conditions which determine railway rates. For this purpose it is desirable to classify the producers of utilities of form according to the terms on which their products enter the markets that they supply. If these products are so limited in quantity and so peculiar to the region from which they are shipped as to enjoy monopoly privileges in the market or markets to which they are consigned, the carrier will share whatever profits may accrue from that monopoly with the local producers upon terms which will be fixed by contract. Each party to such a contract will naturally attempt to secure the greatest share possible and the result will depend largely upon the wisdom, ingenuity, and persistence with which each presses his respective aim. The traffic in products so monopolized is, however, under modern conditions, very limited and opportunities to secure very high rates even on such traffic are closely restricted by the necessity of adjusting even monopoly prices to the effective demand of consumers. Though it is apparently necessary to leave this branch of the subject with a generalization that is unsatisfactorily

indefinite in terms, a recurrence to observation will show that, however successful railways may have been in their efforts to secure high rates upon this portion of their business, the total contribution to revenue obtained therefrom has not sufficed to prevent a very material reduction in the rate of return to railway capital. This is equivalent to saying that even though it should appear that railways are able to and do take very large shares of the value of the monopolized commodities carried over their lines, this will serve merely to demonstrate that they secure smaller shares than would be otherwise indicated of the value of the commodities that are marketed under competitive conditions.

The vastly greater bulk of railway freight traffic is composed of articles which are produced in many regions and by large numbers of independent establishments. With regard to such products consumers have usually little if any preference for those of one region over those of another and whatever preference does exist is expressed by a moderate differential. The latter being overcome, the product of the less favored region is unhesitatingly substituted. The concept of a separate combination between each producer of utilities of form and the producer who adds thereto a complementary utility of place, is especially valuable in connection with this great mass of railway traffic.

The consumers who obtain their supplies in a particular market will pay a definite price for a certain quantity of any commodity. If more is offered they will, within certain limits, not now material, take it at a lower price; if less is available they will bid the price to a higher figure. These conditions of course are equally applicable to monopolized commodities, but they do not affect the railway rates applied thereto with similar force. The reason for this difference is simple-if the article is monopolized, the carrier may demand a certain rate and may refuse to carry unless that rate is paid. Then only so much will be shipped as can profitably be marketed after meeting the transportation charges that are demanded. Thus the carrier by limiting its rates can determine the volume of shipments, i. e. the supply in the market reached, and, of necessity, the price will be that which the local producer is willing to accept at the local point plus the rates imposed by the carrier and the other incidental