Having thus reviewed the charging methods of the electricity business, we come to the question whether these furnish good examples for the other types of utility. And here the answer can clearly be that any utility which differs from the electric business only in having fewer variations and complications to allow for, can certainly use any system that works well in the electricity business, modifying the accounting details, of course, to suit its special conditions, and cutting out any factors which its greater simplicity renders superfluous. In the supplying of water, residence consumers are so nearly alike, in large classes at least, that capacity costs can be shared among them equally without injustice.19 And in the gas business, as already noted, such a system of charging would more accurately represent the true investment responsibility, since it is not disturbed by the time-of-day factor, which cannot be comprehensively allowed for by electric companies outside of special contracts to use current "off the peak." To any simpler problem than the one they were designed for, such formulae are obviously adequate.20

own.

The telephone rate question is different, in that it has all the complexities of the electrical situation, together with others of its Chief among these is the fact that the existing degree of speed and accuracy of service, which are, of course, expensive qualities, are caused, not by all subscribers alike, but by the business subscribers chiefly, especially in cities of some size. Then there is the further fact, that the quality of service rendered one subscriber may be improved by something entirely apart from changes in his own equipment, namely, by connecting him with other subscribers with whom he may some time wish to talk.

Thus there is in this field more latitude for concessions and exceptions under the "value of service" principle than in that of any other public utility business, and no simple rules have as yet shown themselves as sufficient guides in the fixing of rates. Space will not permit more discussion here of this question, which has been treated by writers of more experience.21

What suggestions can be made for furthering the desirable 19 Thos. Kirwin et al. v. City of Darlington, 6 W. R. C. R., 26, 41-43. "See water and gas cases of Wisconsin Railroad Commission, W. R. C. C., passim.

See paper entitled "Is a Rational Basis for Telephone Rates Possible?" by Prof. D. C. Jackson of Massachusetts Institute of Technology, in Proceedings of National Municipal League at Buffalo, Nov., 1910. Also Wisconsin Railroad Commission Reports, passim.

growth of rate systems that will promote efficiency and fairness in the utility businesses? One obvious suggestion is the alteration of laws which fix maximum rates on a uniform basis or which hamper the freedom of companies to make separate consumer and capacity charges. Another is the need of systematic study, by experiment, directed to the end that the principles of "expediency," "value of service," and "charging what the traffic will bear" may be used reasonably, and with clear ideas of unit costs for guidance, and not haphazard as they too often are or have been used.22 Such experiments might well result in increasing the earning power of our public utilities while somewhat lowering the average rate. If this should occur on any considerable scale, what should be the attitude of regulating bodies toward the increased profits so obtained?

The study of differential rates has thus led, as it so often does, to the question of total earnings. And here again it may be questioned whether the American system of control is all that could be desired. Certainly if the principle of a fixed rate of return on the investment were enforced rigidly and all the time, there would be little reason to expect the managers of public utilities to take trouble and possible risk for an improvement that could bring them no gain. They could hardly be expected of their own accord to experiment with their rates in the face of the prospect that, if their experiment were successful, their profits must remain as before and the consumers absorb the whole benefit. And, on the other hand, it is obvious enough that it is not the function of a public utilities commission to order such experiments, as they may order an improvement in the quality of equipment used if it is below standard of efficiency. The argument that regulation of profits to a dead level tends to kill initiative and prevent pioneering, would seem to have lost little of its force.

The other way of handling the situation, and the one that seems best to meet the need in question, is to let the company earn higher profits if it has earned them by an improvement in its service to the public.

The two main things to be seen to in such an arrangement, would seem to be, first, that the extra profit be in proportion to benefit received by consumers in the shape of lower rates or in

In re Application of Manitowoc Gas Co. 3 W. R. C. R., 163, 175, furnishes an illustration of experimenting to develop off-peak consumption.

creased service, and, second, that it be only for a reasonable period of time. If the businesses in question were very progressive, that period would have to be correspondingly short. With the rapidity of invention and the steadiness of progress that mark the present age, each achievement but opens the way to some other, already in view, and that, in its turn, to others. Last year's innovation may easily be antiquated practice year after next, and it would then be obviously absurd for a company to be still earning extra profits on account of having adopted it, especially if they had done so after it had been tested by others. Even if there be no great danger of such trouble arising in our more static public utilities, still there would be no reason for extending the privilege of extra earnings longer than necessary to give a substantial motive for making the improvements. It would seem that three years should, in most cases, be sufficient.

With these tentative suggestions of policy, this rapid and necessarily incomplete study may conclude. It will have achieved its purpose if it helps to stimulate interest, which seems to be rapidly growing at the present time, in the solving of these important problems, and if it promotes in any degree discussion and clear thinking on issues of such widespread bearing and general interest. J. MAURICE CLARK.

Amherst College.

RECENT DEVELOPMENTS IN TAXATION IN ENGLAND

How to finance social reform side by side with the provision of a heavier insurance for commercial and territorial security is the twin problem which has become more and more engrossing during the past five years of Liberal administration. The present Government, despite the fact that its first enormous majority was returned in 1906 strongly pledged to avoid the great increase of national expenditure which had marked the career of its Conservative predecessor in office, has found itself face to face with the necessity of providing for an ever-growing expansion of public needs. Almost without exception, the estimates of the State Departments have gone up, and in many instances the local bodies have emulated the national authority, either of their own accord, or more generally, because they have been compelled by recent legislation to undertake duties which involve very considerable outlay.

Peace, retrenchment, and reform-the watchwords of the Gladstonian epoch-have required a new interpretation under a change of circumstances and a more modern conception of the range of the State's functions. To preserve the security of the Empire and to meet the altered strategic relations of the Great Powers is today costing seventy-two millions, as against the forty-five millions of only twelve years ago; the reforms which are most in favor and which have been projected or put in working are of an economic and social character entailing large and growing expense; as a natural corollary, retrenchment, except among a small and dwindling section of the party has gone out of fashion, although it is still emblazoned, nominally, on the party banners. The Prime Minister has quite recently noticed the readiness with which the House of Commons disposes itself, sometimes with no very grave sense of its responsibilities, to enlarged expenditure during the passage of Government measures, and in introducing his Insurance scheme for Sickness and Invalidity last April, the Chancellor of the Exchequer expressly warned his supporters that without recourse to further taxation it would be impossible to make larger provision, and that his financial proposals must not be interfered with. Outside Parliament, however, there is a widespread feeling in favor of the establishment of an impartial ComImittee for the examination and control of the estimates of the great spending Departments. This project, admirable as it is

in intention, labors under the disadvantage of cutting athwart the constitutional responsibility of the Executive.

The three great factors which contribute most significantly to the constantly increasing total are the military and naval services, and the civil service charges for education, unemployment, labor exchanges, and for old age pensions under the Act of 1908 and its extension of the present year. The magnitude of the financial problem may be seen when it is remembered that while the cost of the army remains fairly stationary at about 27 millions, the navy for which 33 millions had to be provided in 1906 now demands over 44 millions; pensions for which the first estimate in 1908 was 6 millions, now account for 13 in the estimates of the forthcoming year; civil service and educational burdens on the central authority have risen in the last five years from 33 to 47 millions: and the whole national expenditure under all heads has increased from 150 millions to a grand total of 181 millions sterling.

What has been the financial policy inaugurated and developed by the Liberal Chancellors for meeting this vast accretion of responsibilities?

Three lines of advance may broadly be traced: (1) a settled and continuous policy of reducing debt liabilities and of placing national obligations on a more satisfactory financial basis; (2) a progressive increase of direct taxation with a few, though important, concessions to the indirect taxpayer; (3) an attempt to arrive at a more scientific and permanent relationship between national taxation for general purposes and local taxation for services mainly affecting the inhabitants of the various local areas. It is manifestly impossible within the narrow compass of this article to do more than briefly sketch in outline the chief incidents in the history of the development of this policy; yet it is essential, in order to understand the present position and the main points in controversy, both with regard to taxation and finance, that summary consideration should be given to them.

When the Liberals assumed office in 1906 the foundations of national credit, which had been somewhat shaken during the Boer war period, had first to be strengthened: this was an inevitable preliminary to the safe raising of the superstructure of economic and social reforms which the administration was bound to undertake, or court disaster at the hands of the representatives of labor who had rapidly grown in numbers and influence.