The primary distinction in railroad expenses is between those which are constant and independent of the volume of traffic, and those which vary more or less directly in proportion to it. Thus, of the total outlay, it may at once be premised that for a time, at least, certain capital expenditures are entirely unrelated to the volume of business transported. Interest on bonded indebtedness is neither increased nor diminished, up to a certain point, by the number of tons of freight moved; whereas, on the other hand, other items of expenditure, such as wages of train hands and fuel cost, are more or less directly affected. The distinction above mentioned finds its clearest expression in the primary division of railroad accounts into so-called "operating expenses," which are variable; and "fixed charges," which, as the name implies, are constant. Much of the direct wear and tear of equipment belongs to the first class, while, as we have said, interest on its own funded or floating debt, together with capital obligations on leased lines, naturally fall into the second group. This second class of constant expenses, which along with taxes is often denominated in railway reports "Deductions from Income," is a relatively large one. Thus, in 1910, out of a total expenditure by all the operating railroads of the United States of $1,822,000,000, no less than $490,000,000, or about 27 per cent., consisted of interest on debt and taxes. This proportion of absolutely fixed expenditures, moreover, shows a remarkable constancy throughout a series of years. It reached high-water mark during the hard times in 1895, at 33.07 per cent. of all outlay. Indebtedness had accumulated unduly, while at the same time the volume of traffic was so small that mere operating expenses dwindled in proportion. But since that time, largely as a result of the financial reorganizations of 1893-1897, the percentage of fixed charges has reached its present low point. This improvement is also in part due to the growth of traffic, and thereby of operating expenses. The latter have indeed grown faster than the accumulation of debt, owing to the practice prevalent among American roads of paying for many improvements and additions out of surplus income, rather than by charging them to capital account,--that is to say, by borrowing money to pay for them. Having at the outset deducted approximately one-quarter of our total expenditures to meet fixed charges, we may now proceed to analyze those outlays which remain. And this is to be done, always keeping in mind the fundamental distinction between constant and variable items. From 1887 until 1906 the operating expenses of American railroads were allocated in the four following groups: (1) Maintenance of Way and Structures (2) Maintenance of Equipment (3) Conducting Transportation (4) General Expenses