is emphasized when one bears in mind the severe restrictions, such as those of the demurrage and loading regulations, to which the freight traffic is subjected. It may be good political policy to maintain passenger fares at a low level, but, if this means that profits have to be bolstered up at the expense of freight charges, it is unfortunate. Since an infinitely smaller proportion of the income of the average individual is spent on railway passenger traffic than on freight transportation, low passenger fares are, in general, of much less economic importance to the community than low freight charges.

Like state managements in general, that of the Prussian railways seems to be inelastic. Some half dozen years ago, the Prussian operating ratio was about 62 per cent: it was 62.67 in 1905. In the three following years, it rose 12 points, reaching the unprecedented figure of 74.62. In France the increase was from 52 to 58, in England from 62 to 64; in the United States from 66.78 to 70. In all these countries the same economic influences were at work during the period, a general upward movement in the cost of railway labor and supplies, and, during the last year, the pressure of the financial panic which commenced abruptly in the United States towards the close of 1907. A similar relationship is revealed when the ratios of the state railway of France is compared with those of the five great private lines (the Western being excluded because of the embarrassment of its working by anticipations of purchase). The former increased its ratio from 72.2 in 1905 to 80.69 in 1908, while that of the latter lines increased from 50.2 to 54.8. I do not wish to make the mistake of laying undue emphasis upon figures which represent the results of the action of complex and varying combinations of forces, but such dissimilarities as do exist seem hardly capable of explaining away the criticism of state management involved in the comparison. One of the most eminent students of international railway policy, M. Colson, said but recently "Les administrations d'État, généralement, (sont) moins habiles que les compagnies à serrer les prix de revient à découvrir et à réaliser toutes les economies possibles."

Yet, in some ways, the railway administration of Prussia has been inclined to push economy to the extreme. In 1906 an expenditure of $50,000,000 on equipment was authorized, and much has been made of this action as an illustration of the advanced policy of enlightened state management. But, as a matter of fact,

66

the conditions of car service had become absolutely lamentable, and the government did not undertake this expenditure until it was actually unavoidable. The 1907 report of the Chamber of Commerce of Essen says ... the increase of our roadway accommodations, and the provision of rolling stock, etc., has not taken place in a manner corresponding to the development and the necessities of traffic, and, further,

no progress of general importance has been made in the matter of our goods traffic." Charges of this kind are common in the history of the Prussian state railways. Ten years ago, Professor Dr. Arthur Böhltingk, in his pamphlet "Unsere Deutschen Eisenbahnen", wrote "Although his Excellency Von Thielen has not once been able to provide sufficiently for the demands for rail transport, and although he has repeatedly declared that the railways had reached the limits of their capacity, he seems to have thought less than ever of making them equal to such demands by means of additions and improvements."

Short of an exhaustive analysis impracticable within the limits of this paper, sufficient evidence has been brought forward, perhaps, to indicate how little reliance can be placed upon the argument for nationalization which is based on the results of Prussian railway management. In spite of all its apparent success, I am convinced that the state government has failed to live up to its opportunities. With all the disadvantages and defects of the privately managed American railway system, and notwithstanding the restrictions placed upon its working by federal and state governments, it has contributed far more to national economic development than has the state system of railways in Prussia.

There are certain other features of state railway management, a brief statement of which must suffice, though their importance is considerable. There can be no question but that, where economic conditions render it at all practicable, state railways will endeavor to make profits. The history of Prussia indicates very clearly that, under such circumstances, there is a great probability of too intimate a relationship being established between the financial and railway departments of the state. This is likely to lead, as it has led in Prussia, to a subordination of the economic interests of the industry to the fiscal necessities of the treasury. Again, with the nationalization of the railway system, the experts of that branch of industry become government servants, and, as such, liable to less searching criticism than when, as the repre

sentatives of private enterprise, the sword of government investigation and regulation was constantly suspended above their heads. Like individuals, government is not apt to criticise itself. The depressing effect of government management upon the initiative and self reliance of employees is an old charge, and I will do no more than quote from the report of the recent Board of Trade investigation of Italian railways. "There is one element in connection with the transfer from private working, and that is the change which has taken place in the management of the personnel. Numerous removals have been effected consequent on promotions being made in order of seniority, which is not in all cases compatible with merit. One hears traders who have had close associations with the officials, in the days of private ownership, deploring the disadvantages caused by the removal of local officials possessing intimate knowledge of the working, and their replacement by officials from probably quite a different part of the country owing to some claim of seniority. Again, in the staff themselves, there has been noticed, it is said, a change occasioned by the transfer from private to state ownership. As state officials, there does not seem to be quite the same amount of willingness to take responsibility; the strict letter of the rules and regulations is the boundary line over which there is no disposition to step."

way.

So much for the influence of state management upon the railWe may now ask what is the effect of the state railway upon general state administration. This question is worthy of a much more elaborate answer than I can possibly give at the present time, and I shall not attempt to do more than outline some of the leading considerations. First, then, the entry of the state into general or specific industrial competition with its own citizens is neither wise nor proper. Its natural position as the disinterested and unbiased dispenser of justice, revealer of frauds, and adjuster of inequities is prejudiced thereby. Confidence in its impartiality becomes weakened, capital hesitant, private initiative less keen, with corresponding retardation of the material growth of the community. Secondly, the duties necessarily imposed upon the executive of the modern state in connection with the fundamental functions of administration of justice, protection of the community from physical and moral violence, whether in social or strictly economic relations, and guardianship of its physicai and mental health, constitute a heavy burden in themselves; and an efficient

discharge thereof is far from being attained in the most advanced countries. To superimpose upon these duties the responsibilities of the industrial entrepreneur is to diffuse the energies of the state through a still wider field, over which it is likely to exercise a still less satisfactory control. The capacity of government is not unlimited. Thirdly, in so far as the railways are productive of surpluses, to that extent the executive of the state is relieved from drawing upon the pockets of the taxpayers. It is admittedly difficult even in the most democratic states to keep the executive in responsive relationship to the legislature and to the public. The more dependent the executive is upon funds raised by taxation, particularly direct taxation, the less arbitrary can it become. The ultimate political well-being of the democracy rests upon the practical recognition of this canon of government. Fourthly, fiscal reliance upon railway earnings is apt to prove embarrassing to state finances, at recurring periods, from shrinkage of receipts -a difficulty that is accentuated by the apparent inability of government railways to adjust themselves readily to economic vicissitudes.

From the point of view either of the influence of the state upon the efficient management of the railway system, or of the influence of the responsibility of railway management upon the efficiency of state administration, there is reason to dispute the advantage so loudly claimed for nationalization. The real meaning of railway nationalization is the substitution of uncontrolled state management for controlled private management, and the change is unfavorable to economic progress and efficient govern

ment.

THE PLACE OF THE CANAL IN A NATIONAL SYSTEM

OF TRANSPORTATION

W. F. GEPHART

It is often desirable after the discussion on a question has extended over a considerable period of years, with the inevitable result that many extraneous elements have been brought into it, to return to a review of the original causes of the discussion. Those who have been interested in the solution of the present question have had the very great difficulty of attempting to value properly the new factors introduced into the problem, as a result of the progressive changes in the methods of transportation and in the kinds and quantities of goods to be carried. The transportation problem, as it originally presented itself in the United States, had two most striking natural characteristics. First, the country was so vast that many miles of artificial transportation means were demanded. In no previous time was a people forced to think of transportation on such a vast plan and in such large units. Second, the commodities to be transported were to be made up very largely of raw materials. Nature had supplied her resources in such large quantities and in such diversity that the extractive industries promised for many years to be the most remunerative. But these products must necessarily move long distances, which on account of their low value and large bulk meant that the value density on our transportation routes would be very low. A failure to keep these two facts in mind has often led us to make assumptions and false comparisons between the transportation problem in the United States and in Europe. We have taken as a basis of comparison a European country and the United States, when a more proper unit for comparison would be a single state or group of states in the United States. Even then the differences in the natural resources, the character of the industrial life, the social and political ideas of the people, and the length of time that the regions have been settled make a comparison frequently futile. Just as there were two striking natural characteristics in our transportation problem, so too there were two important human characteristics in it. First, over this vast area was spread a vigorous but sparse population, eager to begin the exploitation of the great natural resources.