History of the Louisville & Nashville Railroad

16 The Great Freight Rate Debate

16 The Great Freight Bate Debate Of all the problems associated with the development of American railroads, none has proved more baffling or explosive than the freight rate question. Cloaked in arcane technicalities and mathematical jungles, it contained enough political dynamite to make or break more than one election campaign. Railroad managers, financiers, shippers, merchants, farmers, and politicians alike vented their spleens over the issue, resorting as often to invective as to logic in their quest for a solution . For all their fury, however, the problem remained to most of the contestants a vast unfathomable iceberg. The onset of World War I found the question talked and analyzed into submission but still largely unresolved . Especially was this true in the South. Here as elsewhere the issue was engulfed in a seamless web of economic logic, political expediency, and individual self-interest. The reason for such intensity of interest was simple : the stakes were high. They involved no less than the basic structure and character of southern economic development. The fates of men, firms, and whole communities hinged upon the influence exerted by freight rates upon the flow of trade. That flow in turn helped determine where distributing and manufacturing centers would arise—or if they should arise at all. Upon it depended the nature and extent of industrial and mineral development. In short, the freight rate question touched the very heart of the South's anemic economy. For that reason alone men could not possibly 3 4 6 HISTORY OF THE LOUISVILLE & NASHVILLE RAILROAD treat it impartially regardless of its technical complexity. Southerners may often have been ignorant of the mathematics involved, but they were keenly sensitive to the economic and political implications. Between 1865 and 1900 freight rates in the United States declined steadily. Southern rates followed this national trend but remained at consistently higher levels than other regions throughout this period. Several peculiar features of the southern transportation problem help explain not only the section's higher tariff schedules but also the factors that shaped its freight rate controversy. To begin with, the South was a thinly populated agricultural section with few large cities or important distributing centers. Population and markets alike were not only sparse but scattered over long distances as well. These few simple facts imposed severe limitations upon rail transportation in the South. Since agricultural products, which comprised the bulk of early traffic, were low-grade commodities and were often hauled long distances, they brought relatively modest income and provided little opportunity for interchange of traffic. Moreover, such commodities were seasonal cargoes. They glutted the carriers at harvest time and left them with empty cars the rest of the year. The South's unbalanced economy aggravated this situation for decades; even during the years of nascent industrial development most of the tonnage continued to be raw materials (such as ores) rather than finished products. Some of these materials, coal being a good example, required specialized equipment that could not be utilized for return shipments. The problem of one-way hauls dramatically illustrated the plight of southern railroads. Lacking an industrial base for its economy, the South was forced to import its manufactured goods from the North in true colonial fashion. This flow of finished products southward left the carriers with a serious dilemma over how to find cargoes for the return trip. Most of this southbound through traffic went to the region's major distributing centers. Since the competition for it was fierce and the returns unpredictable , most southern lines had to rely heavily upon local business to remain solvent. But local business developed slowly and unevenly, with the result that most southern roads seem in retrospect to have been built ahead of demand. That is, the roads anticipated the growth of sufficient business to sustain their cost rather than responding to the prior existence of income-producing sources. This situation shaped the contours of the freight rate controversy. It compelled the roads to devise a system of rate differentials that favored the urban distributing centers with low rates and penalized local or way customers with high tariffs. Since the latter schedules comprised the backbone of the railroad's revenue, they could not be compromised without THE GREAT FREIGHT RATE DEBATE 3 4 7 inviting financial disaster. Local rates were by nature monopolistic and could therefore be fixed, but rates to distributing centers were competitive and therefore fluid. The presence of extensive water...