The combined result of (1) a vast increase in industrial production; (2) the decline in river, canal and road transport; and (3) the various conditions which checked competition on and between the railways was to increase greatly the need for transportation facilities, and to make traders and the public in general more and more dependent on the one means of consignment and locomotion thus so rapidly becoming paramount. Coupled with the many technical details which, as pioneers of the railway system, the English companies had to work out for themselves, and, also, with the questions arising as to the future relations between the railways and the State, there were the further problems as to (a) the means to be adopted to ensure that the rates and charges were reasonable, and not likely to become unjust or oppressive, and (b) the bases on which the rates and charges should themselves be fixed in order to secure due regard for the public interests, to guarantee the operation of the railways on commercial lines, and to ensure for the railway investors a reasonable return on their investments.

The earliest railway rates of all were simply a toll (as on a turnpike road) at the rate of so much per mile, or so much per ton per mile, for the use of the rails, with an extra charge if the railway owners supplied the waggons. This was the practice in vogue down to the Surrey Rail-way period, the tolls for such use of road being fixed by Parliament because of the railway lines being a monopoly.

The next development came when the Stockton and Darlington Railway Company obtained powers to supply haulage by steam power or steam-engine, and were authorised by Parliament to charge a "locomotive toll," in addition to the road toll, when the trader made use of the company's engines.

There was a further development when the railway {336}companies undertook the functions of carriers, provided waggons, carriages and staff, and were authorised to make a charge for the "conveyance" of goods.

Parliament did not, at first, specify the amounts of the locomotive and conveyance tolls, but simply required that they should be "reasonable," the expectation at that time being that these tolls would be kept to reasonable limits by the competition of the outside carriers. When it was found that the outside carriers would not run their own locomotives on the railway, and that the railways would do their own carrying, the amounts which could be levied as locomotive and conveyance tolls were specified in the special Acts of the companies concerned.

At one time, therefore, the railway companies were authorised by their Acts to impose three separate charges, (1) road tolls, (2) locomotive tolls, and (3) conveyance tolls; but in 1845 a "maximum rates clause" was introduced which grouped these different tolls into a total charge something less than the aggregate of the three.

In proportion as the railway companies themselves performed the duties of carriers, instead of leaving this branch of the transport business to the outside carrying firms, it became necessary for them to provide goods dep?ts and warehouses, and to have a staff available for a variety of services—loading and unloading, covering and uncovering, etc.—which were necessary in the handling of the traffic. The companies then claimed that for these "station terminals" and "terminal services" they were entitled to make charges in addition to the maximum rates, whereas it was contended on the part of the traders that these services were included in the maximum rates, and that the companies had no right to charge for them separately. After prolonged controversy and much litigation, the dispute was eventually decided in favour of the companies; but Parliament required them to distinguish the charges for conveyance, terminals, and collection and delivery, and, finally, by the Charges Acts of 1891 and 1892, fixed the amounts of the maximum station and service terminals that each company might demand.

In the meantime much trouble had also arisen as the result of the haphazard fashion in which the railways of the country had been called into being.
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The original classification of goods for transport was of the most primitive kind. In the canal companies Acts the authorised tolls and charges were generally specified in respect to only about a dozen different articles. The early railway Acts followed the canal precedent in so far that each of them contained a classification of the goods expected to go by rail, the main difference being that the list given in the railway Acts generally comprised from forty to sixty articles, divided into five or six groups.

As the railways extended, and began to deal with the great bulk of the commerce of the country, these original lists were found to be hopelessly crude and inadequate, and one of the duties undertaken by the Railway Clearing House, first set up in 1847 and incorporated by an Act of 1850, was the preparation of what became known as the Clearing House classification—a work required in the interests equally of the railways and of the traders. At the outset the Clearing House classification comprised about 300 articles. By 1852 the number had increased to 700, and in 1864 it had further expanded to 1300.

The Royal Commission of 1865 recommended that the new and improved classification thus compiled and put into operation by the companies themselves should be the basis of the classification imposed by the special railway Acts. The Committee pointed out that the rates authorised by Parliament were no longer necessarily an indication of the charges actually made in practice since these charges depended, not on the classifications in the companies' Acts, but on the Clearing House classification, by reason of which they were often lower than the statutory maxima. The Committee regarded the classification of the private Acts as defective and inharmonious, and they advised that the Clearing House classification should be enacted by some general Act which might be adopted in the private Acts by reference. The Joint select Committee of 1872 also advised the adoption of a uniform classification; but it was not until the passing of the Railway and Canal Traffic Act of 1888 that the recommendation was carried out.

This Act of 1888 was, in part, the outcome of reasonable dissatisfaction among the traders.

In the absence, from the outset, of any real and effective system for the organisation of railways in accordance with {338}well-defined general principles, based on the needs of the country as a whole, great uncertainty existed as to the rates and charges to be paid. There were then no fewer than 900 Acts of Parliament which dealt with the charging powers of 976 past or present railway companies, while the only uniform classification was that of the Railway Clearing House, which had almost entirely superseded the primitive classification in the railway companies' Acts but had not yet received legal sanction.

A recommendation to the effect "that one uniform classification be adopted over the whole railway system" had been made by a House of Commons select Committee in 1882. They considered that the adoption of this course was necessary in view of the imperfection and want of uniformity in the special Act classifications and charges, in which they had failed to discover any general principle. "In some cases," they said, "reference must be had to more than fifty Acts to determine the various rates the company is authorised to charge."

The position in regard to a new and uniform classification thus so persistently recommended was, however, complicated by the fact that the adoption thereof would involve new maximum rates, since the rates charged for the commodities carried naturally depended on the particular "class" to which those commodities had been allotted. Hence when, by the Railway and Canal Traffic Act of 1888, provision was at last made for a revised and uniform classification, each railway company was further required to submit to the Board of Trade, within a period of six months, revised schedules of maximum rates, with a view to these ultimately—after approval by Parliament—taking the place of the schedules in the existing special Acts. The new scales were, also, to include fixed maxima for "station terminals" and "service terminals," the controversy in regard to which, as already spoken of, was thus to be definitely settled.

The railway companies complied with these requirements, the revised classification and schedules of maximum rates being sent in by March, 1889, to the Board of Trade, which appointed two special Commissioners, Lord Balfour of Burleigh and Mr (afterwards Sir) Courtenay Boyle, to hold an inquiry into them on its behalf. The traders were invited to {339}send in any criticisms they might wish to offer to the companies' proposals, and by June 3rd no fewer than 4000 objections had been received from over 1500 individuals or trading associations.

By this time the formidable nature of the work that had been undertaken began to be more fully appreciated. Not only were there the 900 Railway Acts dealing with rates and charges, but there were about 18,000 railway stations and some 40,000 pairs of stations between which business was actually transacted in regard to one or more of the 2500 articles that, by this time, were included in the Clearing House classification. As for the rates in force, we have the statement of Sir Henry Oakley that on the Great Northern Railway alone they numbered 13,000,000, while Sir Richard Moon estimated that on the London and North-Western Railway the total at this period was no fewer than 20,000,000.

The task thus imposed by Parliament on the Board of Trade in the revision of rates whose total number seemed almost as countless as the stars themselves was, indeed, of stupendous magnitude, apart altogether from the very heavy labours devolving upon each individual company in the preparation of schedules for its own particular lines. The task itself was, however, rendered still more difficult by the fact that, as pointed out by Mr Temple Franks—[53]

"No principles of revision had been laid down for guidance. The Commissioners were not told to regard either the existing statutory maxima or the actual rates then charged. Amendments to this effect had been rejected in Parliament. The Commissioners, therefore, held that the Legislature contemplated a departure from existing maxima, and that it is equitable 'to make a reduction in their present powers and fix rates based to a great extent on existing rates, but with a reasonable margin of profit for possible changes of circumstances injuriously affecting the cost of or return from the carriage of merchandise by railway.' In determining, however, the principles upon which the future maxima were to be governed, they refused to accept the proposition that they shall cover all existing rates and non-competitive charges."
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With regard to a uniform classification, the Commissioners recommended the adoption, with certain slight changes, of the existing Clearing House classification.

There is no need to record here, in detail, the exhaustive nature of the inquiries, protests, rejoinders, discussions and controversies to which the preparation of the new schedules led. Suffice it to say that these and the revised classification were eventually embodied in a series of Railway Rates and Charges Orders Confirmation Acts which, as applying to the different companies, either individually or in groups, were passed in the Sessions of 1891 and 1892, and came into operation on January 1, 1893. Under these Acts the scales of charges are divided into six parts, viz.: (1) goods and minerals, (2) animals, (3) carriages, (4) exceptional, (5) perishable commodities by passenger train, and (6) small parcels by merchandise train. Each rate is made up of two parts—conveyance and terminals. The conveyance scales for all companies are as near alike as circumstances will allow, and the maximum terminals (station terminal at each end and service terminals in respect to loading, unloading, covering and uncovering) are common to all the Confirmation Acts.

Sir Henry Oakley, who was at this time acting as secretary of the Railway Companies' Association, declared concerning the new conditions thus brought about in regard to the bases of railway rates and charges that "practically they amounted to a revolution." The maximum powers were reduced almost universally; the classifications of the companies' own Acts were abolished, and a new and uniform one substituted; various new scales were introduced; the obligation was now for the first time thrown upon the companies of carrying perishables by passenger train; and a new system of calculating rates was established. "It was not," said Sir Henry, "so much per mile for any distance beyond six miles, as it was in the original Acts, but for the first twenty miles a certain rate, for the next thirty miles a certain less rate, and for the next fifty miles a still further reduction, the effect being that, by that mode of calculating, the longer the distance the goods were carried the less the average rate per mile that was to be charged."

Within a very short time, however, of the new rates coming into force, there were louder and more vehement protests {341}than ever on the part of the traders. The advantages of a uniform classification were fully realised, and the traders naturally did not object to the fact that (as stated in evidence by Sir Henry Oakley, in 1893), from thirty to forty per cent of the existing rates had been lowered. But they did object most strongly when they found that certain of the rates had been increased.

It was explained by some of the railway companies that, owing to the vast number of the rates involved, and to the short time between the passing of their Rates and Charges Orders Confirmation Act and the 1st of January, 1893, when such Act came in force (the period in question being in some instances not more than about four months), it had been impossible for them to complete the revision of their rate-books by the date mentioned. The class rates were ready, and what had happened was that these had been temporarily substituted for the special rates when time had not allowed of the latter being duly revised.

On the other hand it was alleged against the companies that, apart from any question of shortness of time for their revisions, they had sought to adopt a policy of recoupment, specially low non-competitive rates having been raised to the new maxima with a view to counterbalancing the decreases.

While the plea of the companies in respect to shortness of time was abundantly warranted, the counter-allegation of the traders would appear to have been not without foundation, in view of the fact that the setting of increases against the decreases was defended by the companies on the ground that, being corporations based and operated on commercial principles, they were bound to see that their revenue did not suffer, while, it was further pleaded, they were still charging no more than the rates which, having been expressly sanctioned by Parliament, were, presumably, reasonable. They gave the assurance, however, that the rates were still undergoing revision, and that the increases made were not necessarily final. They further undertook that no increases should be made which would interfere with trade or agriculture, or diminish traffic, and that, unless under exceptional circumstances, there should be no increases at all which exceeded by five per cent the rates in force in 1892.
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The undertaking thus given failed to satisfy the select Committee appointed in 1893 to inquire into these further grievances. The Committee, in their report, expressed the opinion that the course taken by the companies had been "mainly actuated by their determination to recoup themselves to the fullest extent by raising the rates of articles where the maximum rates were above the actual rates." They were of opinion that the rates not reduced by the new maxima should have been left untouched; and they affirmed that "the margin between the old actual rates and the present Parliamentary maxima was not given by Parliament in order that immediate advantage should be taken of it, or that the policy of recoupment should be carried on, but only to meet certain contingencies, such as rises in prices and wages," etc. They also recommended that further steps should be taken to protect traders from any unreasonable raising of rates within the maxima, the Railway and Canal Commission being empowered to deal with such questions as they arose.

The outcome of all this controversy was the passing by Parliament, in the following Session, of the Railway and Canal Traffic Act, 1894, which introduced an entirely new principle in railway operation.

Turnpike trustees had always had full power to reduce and subsequently to advance their tolls, at their own discretion, provided they never sought to exceed the maxima imposed under their special Acts; and down to this time it had been assumed that railway companies had similar powers in regard to maxima which Parliament had already expressly sanctioned in the Act or Acts of each individual company. There was—and still is—no question (except in cases of "undue preference" or "through rates") as to the right of a company to reduce a rate, or to transfer a commodity to a lower class, thus effecting the same object; and there was, down to 1894, equally thought to be no question as to their right to increase a rate within the same limitations as those applying to turnpike trustees.

What the Act of 1894 did was to restrict the powers of railway companies to increase their rates even within the range of their statutory maxima. It enacted that in the event of complaints being made of any increase of rates, direct or indirect, since December, 1892 (and under the Act of 1888 {343}a railway company had already been required to give public notice of any increase in tolls, rates or charges it proposed to make), "it shall lie on the railway company to prove that the increase is reasonable"; and for this purpose it is not to be "sufficient to show that the charge is within any limit fixed by an Act of Parliament or by any Provisional Order confirmed by Act of Parliament." Complaint is first to be made to the Board of Trade, and, if agreement between the trader and the railway company should not follow thereon, the trader has the right of appeal to the Railway Commissioners, to whom jurisdiction to hear and determine such complaint is given. "So that," as Butterworth remarks in his "Maximum Railway Rates," "the legislation of 1888-1894 presents this remarkable result—that Parliament in 1892, after probably the most protracted inquiry ever held in connection with proposed legislation, decided that certain amounts were to be the charges which railway companies should for the future be entitled to make, and in 1894 apparently accepted the suggestion that many of the charges, sanctioned after so much deliberation, were unreasonable, and enacted that to entitle a company to demand them it should not be sufficient to show" that the charge was within the limit which Parliament itself had previously fixed.

Whether traders have really gained any balance of advantage from this further outcome of legislative policy in the assumed protection of their interests, as against the railway companies, is open to question. On the one hand they have a guarantee against increases that offer even the slightest suggestion of unreasonableness. On the other hand the Act has destroyed the element of elasticity in rate-making, inasmuch as railway managers must needs show extreme caution in granting reduced or "experimental" rates—in the interests of growing industries—when, if the experiment should fail, and the expected traffic not be forthcoming, the company must go through the formality of advertising the "increase" involved in putting the rate back to its former level, and must, also, run the risk of having to "justify" such increase before the Board of Trade or the Railway and Canal Commission. "I know of my own knowledge and my own experience," Sir George Gibb once told a Departmental Committee of the Board of Trade, "that the effect of these sections has been to {344}prevent many reductions of rates that would have been tried experimentally."

When we pass on to consider the principles on which railway rates and charges are based we are met with so many complexities in the solution of transport problems, and with such direct conflict of interests on the part of different groups of traders, that we can in no way be surprised at the controversies and the grievances, real or imaginary, to which the subject has given rise from time to time.

The original idea that railway rates and charges should be fixed on a mileage basis, on the same principle as tolls on turnpike roads and canals, was soon found to be impracticable, and successive Parliamentary Committees have demonstrated its futility; though its advocacy, in one form or another, has not even yet been discarded by those who think that railway rates for any given commodity should be so much per ton per mile for all traders alike, irrespective of distance and all other considerations.

One effect of such a principle of rate-fixing as this would have been to exclude the long-distance trader from any particular market, and to confer an undue advantage on the trader in the immediate neighbourhood, or at a short distance therefrom, who would thus have gained a monopoly of the market, to the disadvantage of other traders and of the local community. Nor would such a system of rate-making have answered for the railway companies themselves, since the discouragement of long-distance traffic would have restricted the area of business, and limited their sources of revenue.

Another once much-favoured theory is that the railways should charge so much for cost of service, plus a reasonable profit for themselves.

Here, in the first place, there is the impossibility of deciding what is the cost of the service rendered in regard to each commodity and each consignment thereof that is carried. No basis exists on which the most expert of railway men could decide the respective costs of transport for each and every article in a train-load of miscellaneous goods, nor could any one apportion the exact amount that each should bear in regard to interest on capital outlay and other standing charges which must needs be covered as well as the proportionate cost of actual operation.
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Then we have the fact that, even if these figures could be arrived at, many of the commodities carried would be unable to pay the rates fixed thereon. This would especially apply to coal, iron-stone, manure and other things either of low value or of considerable weight or bulk. Whatever may be the real cost of carrying them, commodities of this kind cannot pay more than a certain rate. If that rate is exceeded either they will be sent in proportionately smaller quantities or they will not be sent by rail at all.

We arrive, in this way, by the logic of actual facts, at the fundamental principle, adopted by railway companies, of charging "what the traffic will bear"; and by this is meant "charging no more than," rather than "charging as much as," the traffic will bear. Findlay, in his book on "The Working and Management of an English Railway" (fourth edition, 1891) says of the practice based on this principle:—

"The rates are governed by the nature and extent of the traffic, the pressure of competition, either by water, by a rival route, or by other land carriage; but, above all, the companies have regard to the commercial value of the commodity, and the rate it will bear, so as to admit of its being produced and sold in a competing market with a fair margin of profit. The companies each do their best to meet the circumstances of the trade, to develop the resources of their own particular district, and to encourage the competition of markets, primarily, no doubt, in their own interest, but nevertheless greatly to the advantage of the community."

The application of the principle is worked out by the division into various classes of all minerals and merchandise carried on the railway. The classes are known respectively as A, B, C, 1, 2, 3, 4, 5, the rates charged being lowest for commodities in Class A and highest for those in Class 5. The type of article included in each class may be indicated by the following examples:—

Class A (applicable to consignments of four tons and upwards).—Coal, coke, gravel, iron-stone, limestone, stable manure, sand.

Class B (applicable to consignments of four tons and upwards).—Bricks, concrete, various articles of iron and steel, granite (in blocks), lime (in bulk), salt (in bulk), common slates.
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Class C.—Parsnips, pitwood (for mining purposes), potatoes (in bulk or in sacks), salt (packed), soda, straw (hydraulic or steam-packed), waste paper (for paper-making).

Class 1.—Cardboard, cotton (unmanufactured), onions, printing paper, finished wrought iron in shafts (for driving mill wheels), soap, sugar (in bags, cases or sacks), tallow, vinegar (in casks).

Class 2.—Bacons and hams (cured and packed), celery, coffee, copper, earthenware (in casks or crates), crucibles (plumbago or clay), oranges, ropes, raw wool or yarn.

Class 3.—Baths, calicoes, carpeting, china (in hampers), combs, cotton and linen goods (in bales, boxes, etc.), cutlery, groceries, hardware, lead pencils, tea, wheelbarrows.

Class 4.—Light drapery (various), footballs, garden arches, grates, ovens or stoves, haberdashery, hats (soft felt), lamps, umbrellas.

Class 5.—Amber, engravings, feathers, cut flowers, hothouse fruit, furs, dead horses, lace, looking-glasses and mirrors, musical instruments, picture frames, silk.

These examples indicate the gradual rise in value in the articles included in the several classes, though, assuming that the traffic will bear the rate, other considerations as well as value will apply, among these being liability to damage during transit, weight in proportion to bulk, and nature of packing or cost of handling.

It is further to be remembered that although a good deal of raw material is carried in the lowest classes at rates which might work out at less than "cost" price, when every item in respect to "cost of service" and interest on capital expenditure had been allowed for, the commodities in question may reappear in various successive forms as part-manufactured or, eventually, as manufactured, articles, paying a successively higher rate, in accordance with their progressively greater value, on the occasion of each further transportation. Even when these results do not follow, the commodities carried at these low rates may help to develop the resources, or to expand the population, of a particular district, and thus serve to create traffic in other ............