GIFT OF 
 
HISTORICAL SKETCH OF 
 GOVERNMENT OWNERSHIP 
 OF RAILROADS IN 
 FOREIGN COUNTRIES 
 
 By W. M. ACKWORTH 
 
 
Historical Sketch of 
 Government Ownership of 
 Railroads in Foreign Countries 
 
 By W. M. ACWORTH 
 
 Presented to the 
 
 Joint Committee of Congress on Interstate Commerce 
 
 SENATOR NEWLANDS (Nevada) Chairman 
 Washington, D. C., May, 1917 
 

 CONTENTS 
 
 INTRODUCTORY 3, 4, 5, 6, 7 
 
 PRUSSIA 7, 8, 9, 10, 11, 31, 32, 33, 34, 35, 37, 38, 39, 43, 48 
 
 SWITZERLAND 11, 12, 13 
 
 ITALY 13, 14, 15 
 
 AUSTRALIA 15, 16, 48, 49, 55, 56, 57 
 
 RUSSIA 17, 18 
 
 AUSTRIA 17, 18 
 
 INDIA 17, 18 
 
 HOLLAND 18, 19 
 
 FRANCE 19, 20, 21, 22, 23, 24, 25 
 
 NEW SOUTH WALES 35, 36, 37 
 
 25, 26, 27, 28, 29, 38, 39, 40, 41 
 GREAT BRITAIN 42,43,44,45,46,47,48,49,50 
 
 SOUTH AFRICA 52, 53, 54 
 
 BELGIUM] 57, 58, 59, 60, 61, 62 
 
 CONCLUSION . 62, 63 
 
HISTORICAL SKETCH OF 
 
 GOVERNMENT OWNERSHIP OF RAILROADS 
 
 IN FOREIGN COUNTRIES 
 
 Introductory 
 
 On the 24th of May, 1830, the first few miles of the Baltimore & 
 Ohio Railroad were opened for traffic. Four months later, on Sept. 
 15, came the opening of the whole thirty miles of the Liverpool and 
 Manchester. A yet more conspicuously dramatic event, for not only 
 did this line connect two of the greatest cities in the world, but a 
 Cabinet Minister was killed by one of the first trains run. And so, 
 at the outset, the United States and England, the two countries 
 where capital was most abundant and most venturesome, accepted, 
 half unconsciously no doubt, the principle to which they have since 
 adhered; and, relying on that spirit of individual enterprise which 
 centuries of history had called forth and fostered, entrusted the 
 development of their railways to the unaided energy of private citi- 
 zens organized into voluntary corporations. 
 
 "The English and American maxim is," says Mr. A. T. Hadley, 
 President of Yale, in his well-known book, "Railroad Transportation, 
 its History and its Laws," "that whatever can be done without Govern- 
 ment, should be thus done. The Continental principle is that whatever 
 can be done by Government, should be." How far operating a railroad 
 was a thing that could be done by Government, must have been a 
 difficult question to solve in the early days. For though construction 
 and maintenance of roads and canals had long been recognized as a 
 Government function, no Government had ever monopolized the car- 
 riage of traffic on these highways ; and at a very early stage in railway 
 history it became clear that the owner of the road must in this case 
 have also the exclusive right of carriage along it. 
 
 But abstract considerations are apt to go to the wall when prac- 
 tical questions press for instant solution. On October 4, 1830, Bel- 
 
 3 
 
 364306 
 
gium, which had in 1815 been made by the Treaty of Vienna part 
 of the kingdom of Holland, declared its independence. And if inde- 
 pendence, economic as well as political, was to be secured, if Bel- 
 gium was to hold its own against Holland, if Antwerp was to be 
 able to compete with Rotterdam, it was urgent that the great traffic 
 route from the Rhine and the German frontier through Liege and 
 Brussels to the Scheldt and the North Sea should be under Belgian 
 control. A railway must be built. If built by private capital, the 
 capital would almost certainly be Dutch. Accordingly, as early as 
 1834, the Belgian Parliament resolved that the railway should be 
 built and worked by the Government. And by 1840 upwards of 200 
 miles, the main trunk lines of the Belgian State system as it exists 
 today, were already in operation. And so today we have behind 
 us three-quarters of a century of history during which the character- 
 istics good and bad of State and private railways can be compared 
 and contrasted. 
 
 Comparative Statistics 
 
 "Most countries own their own railways." This statement, true 
 but misleading, is often made. Bulgaria owns its railways, 1,204 
 miles in all. The United States has more than 200 times the Bul- 
 garian mileage, all owned by private corporations. Bulgaria counts 
 as a country; the United States counts as one also. According to 
 the latest figures in the Archvu fur Eisenbahnwesen, the official organ 
 of the Prussian State Railway Administration, there were in Europe 
 at the end of 1913 216,396 miles, of which 116,111 (rather more than 
 half) were State railways. There were in the whole world nearly 
 700,000 miles of railway of which less than one-third were State 
 railways.* 
 
 The capital invested in railways, according to the same author- 
 ity, amounted to 208 billions of marks, or $49,547,680,000. It is 
 not possible to work out the respective proportions of State and 
 private capital. Suffice it to say that, whereas 33 of the Nations 
 enumerated own their railways in whole or in part, the United 
 States and Great Britain, where the railways are all in private hands, 
 account between them for more than half of the world's total rail- 
 way capital. The Archvu gives no figures of traffic, of work, that is, 
 done for the public. But Mr. Slason Thompson in his Railway 
 Statistics for U. S. A. for the year 1915 (p. 41), states that the 
 twenty-five principal countries of the world have 187,530 locomo- 
 
 *The exact figures are 690,138 and 225,914 miles respectively. 
 
 4 
 
tives, of which 89,668 (almost half) are in the United States and the 
 United Kingdom, while out of 5,816,441 freight cars these two 
 countries have 3,123,660* (a good deal more than half). On the 
 whole, having regard to the enormously greater capacity of an en- 
 gine or a freight car in the United States than elsewhere, it is prob- 
 ably safe to make the broad statement that two-thirds of the railway 
 mileage of the world has been built; two-thirds of the railway capital of 
 the world has been provided; and two-thirds of the current railway 
 ivork of the world is done by private enterprise; and only the remaining 
 third by National undertakings. 
 
 It has, however, already been pointed out that, if the nations of 
 the world were polled great and small, and assigning to each nation 
 one vote, as at the Hague Convention, a considerable majority 
 would be found to have decided in favor of entire or partial State 
 ownership. The United States and the United Kingdom are the 
 only nations of the first rank who own no railways. Spain, Turkey, 
 and Greece, among the less important European countries, are in the 
 same position. Every other European nation and most of the extra 
 European countries own some at least of their railways, though 
 several of them, and those not the least important, British India, 
 for instance, and Holland have handed over the working of the na- 
 tional railways, partly in the case of India, wholly in the case of 
 Holland, to private companies. Mexico is set down in the Archiv 
 as owning its railways. But in fact the Mexican Government is 
 not the owner but only the majority shareholder, a shareholder who, 
 as long as Mexico was an organized community, was content to 
 vote the election of a board of directors put forward by the private 
 minority holders of the railway stock. 
 
 Changes of Ownership and the Causes 
 
 Another point should be noted. There is no country which has 
 throughout its history kept its whole railway system in its own 
 hands. In Belgium in 1860 the State lines were less than half of 
 the whole mileage. In 1870 the State proportion had fallen to lit- 
 tle more than one-quarter. Prussia at the same date was still a 
 country of mixed ownership, as the Scandinavian countries are still. 
 But after the war with France in 1870 Belgium began to buy up 
 the Private Companies ; and Bismarck inaugurated a new policy in 
 Germany. He attempted to acquire the private lines for the new 
 German Empire. Foiled in this attempt by the local particularism 
 
 *These figures take no account of the freight cars in the United 
 Kingdom, estimated at 500,000 as a minimum, which are in the service of 
 the railways but the property not of the railway companies but of private 
 individuals. 
 
of the separate States, he carried through in Prussia a thorough- 
 going policy of nationalization ; and his policy was followed by the 
 other German States within their own jurisdiction. Today private 
 ownership in Germany is almost extinct, and the railways in each 
 several State of the Empire are the property of that State. Ger- 
 many's example was contagious. In recent years the Russian Gov- 
 ernment has bought out a good many companies. Austria has 
 carried the same process even further. Belgium has acquired all 
 the private lines of serious importance. In 1898 Switzerland na- 
 tionalized its railways. Italy did the same in 1906; Japan in 1907. 
 Last, but not least, in 1908 the French Government took over the 
 Western Railway, one of the six great systems among which France 
 had been districted since the beginning of its railway history. Even 
 though on the other hand within the same period Brazil and several 
 of the Central American States sold to private companies mainly 
 as an available asset to satisfy clamorous creditors railways which 
 they had owned, it is evident that the idea of nationalization has 
 been in the ascendant in recent years. How far does history help 
 us to explain the fact? 
 
 President Hadley wrote in 1886 : 
 
 "The motives which have led governments to extend 
 the sphere of their business activity have been three : 
 
 1. To increase their own political influence. 
 
 2. To make up for the lack of private enterprise. 
 
 3. To avoid the abuses incident to private manage- 
 ment." 
 
 Thirty years have elapsed since this was written, and in the 
 light of subsequent experience, perhaps the case may now be stated 
 as follows : 
 
 Governments go into the railway business for three reasons. 
 
 1. For political reasons. These reasons may be either external 
 or internal. External reasons are to obtain control of an instru- 
 ment of war that can be used either for aggression or for defence, 
 or to prevent the control of this instrument by capitalist subjects 
 of another possibly hostile power ; or again to be able to use the 
 railway tariffs as an auxiliary in support of the policy embodied in 
 the customs tariffs of the country. The main internal reasons are 
 either to unify the nation or to centralize authority or to obtain 
 new sources of revenue independent of the taxes voted by 
 Parliament. 
 
 2. To make up for the lack of private enterprise. 
 
 3. With the idea of procuring for their citizens better condi- 
 
 6 
 
tions (lower rates, greater facilities, more impartial treatment, etc.) 
 than private enterprise has given or is expected to give. 
 
 It would require a volume to tell in full the events which led 
 up to nationalization even in any one country, to enumerate the vari- 
 ous reasons, and to estimate the comparative value to be assigned 
 to each. But the outline of the story can be briefly told. 
 
 Nationalization in Prussia 
 
 Prussia, the leading instance of State ownership, as being at 
 once the largest and usually regarded as the best example of an 
 efficient National railway system, must be dealt with first. At a 
 later stage in this paper we shall have to consider two questions of 
 first-rate importance. 
 
 1. Are the Prussian railways really efficient when 
 judged by the standard of comparable private under- 
 takings ; and 
 
 2. Assuming for the sake of argument that the 
 Prussian railways are efficient, is their efficiency under 
 an autocratic Government any ground for expecting 
 that National railways would be equally efficient under 
 the democratic form of government that exists in the 
 United States and the United Kingdom? 
 
 For the moment we are only concerned with the history of the 
 nationalization policy inaugurated by Bismarck. 
 
 When railways first came into existence, Germany was only a 
 "geographical expression." Each State there were some two score 
 of them was practically an independent sovereignty. At the out- 
 set several of the most important States of the second rank, Bavaria, 
 Wirtemberg, Baden and Saxony, followed the example of Belgium. 
 The Grand Duchy of Mecklenburg offers a curious example of 
 vacillation. At first its railways were in private hands; then they 
 became the personal property of the Grand Duke ; then in 1878, 
 just at the time when Prussia was nationalizing its railways, they 
 passed back into private hands ; and finally, in 1890 they were ac- 
 quired by the State. Speaking broadly, one may say that in the 
 richer and more commercially developed parts of Germany the rail- 
 ways were in private ownership ; in the more backward agricultural 
 districts they were in the hands of the various State Governments. 
 This is well exemplified by the history of the kingdom of Prussia.* 
 
 *The King of Prussia is, under the constitution of 1870, also German 
 Emperor. But Prussia still remains a separate State. It is much as though 
 the Governor of the State of New York was always also President of the 
 United States. But New York is, in population, less than one-tenth of the 
 United States. Prussia is three-fifths of Germany. 
 
 7 
 
At an early date private railways .were constructed in Westphalia, 
 along the Rhine, and connecting the Rhine and Hamburg with 
 Berlin. But private enterprise hesitated to build railways over the 
 poor country from Berlin eastwards, and the State had to under- 
 take the task. So that almost from the beginning Prussia had ex- 
 perience of State railways. Then, after the war with Austria in 
 1866, Prussia annexed Hanover, Hesse-Cassel and other smaller 
 States, and so entered into possession of a considerable additional 
 mileage of State railways. 
 
 Then came the war with France in 1870, resulting in the unifica- 
 tion of Germany under the leadership of Prussia. And Bismarck, 
 in order to cement together the newly formed Empire, attempted 
 to acquire all the railways of Germany for the Empire as one single 
 unit. But the feeling for State rights, especially in the South, was 
 too strong even for Bismarck. The kingdoms of Bavaria and Sax- 
 ony replied to the Prussian proposal by promptly taking into their 
 own hands such private lines as existed in their territories. Foiled 
 in this attempt, Bismarck determined at least to nationalize all the 
 Prussian railways. Probably he had a stronger case for his action 
 than has ever existed at any time in any other country. The private 
 systems were comparatively small and of very different financial 
 strength. The shape of Germany, the fact that traffic passed in all 
 directions over its frontiers, the fact that it possessed no dominating 
 central city such as Paris or Vienna or London all these causes 
 had resulted in a condition of what might be called railway anarchy. 
 There was no uniformity of tariffs, scarcely even of operating regu- 
 lations and conditions. While traffic from abroad was attracted to 
 round-about routes by reduced rates, often accompanied, it was 
 alleged by secret rebates, the local rates were high, and the ex- 
 change of traffic between two neighboring systems was actually 
 discouraged. 
 
 In the Session of 1879 the Ministry submitted to the Prussian 
 Parliament an elaborate memorandum in support of the policy of 
 nationalizing the railways remaining in private hands.* It mar- 
 shalled with great skill, and applied to the special case of Prussia, 
 all the familiar arguments in favor of railways nationalization. It 
 began by emphasizing the importance of railways for military pur- 
 poses it is interesting to observe that the "military" note is struck 
 hard at the outset and for the development of trade. It went on 
 to declare that various abuses were inseparable from private man- 
 agement. These abuses it described as (1) the existence of numer- 
 
 *Begriinding des Gesetzentwurfes betreffend den Erwerb mehrerer 
 Privateisenbahnen fur den Staat. Abgeordneten Hauses Verhandlungen 
 Session 1878-1880, Acktenstiick. No. 5. 
 
 8 
 
ous concerns of doubtful solvency and restricted capacity of service, 
 (2) abuse by the concessionaires of their privileged position, (3) 
 opposition to desirable reforms, (4) complicated and arbitrary varia- 
 tions in their methods of organization, (5) chaos of tariffs, (6) 
 quarrels and waste resulting from the fierce competition of numer- 
 ous separate administrations. 
 
 Perhaps it is desirable at this stage to bring the allegation that 
 all these abuses are inseparable from private management to the 
 test of nearly forty years of subsequent history and to deal with 
 them seriatim as follows: (1) There are no concerns of doubtful 
 solvency and restricted capacity among the private railway com- 
 panies of France, and none of more than trifling importance in Eng- 
 land. (2) Appears to mean that a company strives to gain an ade- 
 quate net revenue before it will reduce its rates, which is true. But 
 as the Prussian memorandum lays down in the strongest terms 
 the obligation of a State system to do the same thing, and as the 
 Prussian Government has for many years offered an unyielding 
 opposition to any reduction of rates, while it has extracted from 
 passengers and shippers a net revenue, which, after paying interest 
 in full of the railways' debt, yields in normal times a sum of some 
 fifty million dollars towards the general expenses of Government, 
 the abuse if it be an abuse does not seem to be confined to private 
 railways. (3) In answer to this charge it is sufficient to say that it 
 is the private railways of England, France and the United States 
 which have led the world in improvements, while it would be diffi- 
 cult to mention a single reform for which the world is indebted to 
 the State rail ways' of Prussia. (4) As has been said, had this charge 
 been confined to the private railways of Prussia, there was a con- 
 siderable foundation for it. But it applies neither to France, Eng- 
 land nor the United States. In all these countries the private com- 
 panies have worked out among themselves uniform codes of rules 
 in reference to operation, construction of equipment, interchange 
 of traffic, and everything else required to avoid interruption of 
 through service. (5) As for chaos of tariffs, the French tariffs are 
 simpler and more logical than those of Prussia, and for all ordinary 
 traffic they are uniform throughout the whole of France. Perhaps 
 the most scientific tariff in the world is that which for very many 
 years has ruled in the Trunk Line Territory of the United States 
 with its simple and easily intelligible New York-Chicago basis. (6) 
 As for "quarrels and waste," quarreling is only a bad name for 
 competition. Competition may or may not be a good thing. But 
 it is not inseparable from private ownership. The French com- 
 panies have, with negligible exceptions, never competed with one 
 
 9 
 
another, while the English have in large measure ceased to do so. 
 Competition would probably have much more largely diminished 
 in the United States also, had not the deliberate policy of Congress 
 been to keep it alive. So far as competition implies waste, that is, 
 the expenditure of money that in the absence of competition would 
 not have been spent, one cannot have omelettes without breaking 
 eggs. Prussia has abolished competition. -Her railway accounts 
 give us no reason to think she has thereby abolished waste. But 
 with this point it will be necessary to deal hereafter. 
 
 To return to the memorandum. The Prussian ministry go on 
 to say that as early as 1873 a Special Commission had reported that 
 a universal State System should be regarded as the ultimate aim 
 to be sought. They then go on to set down the advantages of a 
 single unified management. These they summarize as follows: 
 
 Avoidance of the construction of competing lines. 
 
 A reduction of the numbers of officers and staff and 
 of the amount of correspondence. 
 
 Unification of tariffs and train schedules. 
 
 Simplification of dealing with damage claims. 
 
 Provision of interchange stations. 
 
 Better use of equipment. 
 
 Avoidance of duplications of service and of round- 
 about routing of traffic resulting in higher operating 
 costs and consequently higher rates. 
 
 It is the duty of the State, says the memorandum, to secure to 
 the public rates which shall be low, steady and uniform. ^It is also 
 important to the. State that the railway tariffs should correspond 
 with the fiscal policy of the country and not be allowed to neutral- 
 ize the customs tariff. Assuming, then, the memorandum goes on 
 to say, that the railways of the country must be in a single hand, 
 this object may be attained in four different ways. (1) A single 
 private company may both own and operate, (2) a private company 
 may operate the lines which the State owns, (3) the State may op- 
 erate all the private owned companies, (4) or, lastly, the State may 
 both own and operate the whole system. And it is for this last 
 solution that the memorandum declares. Confidence is expressed 
 that the zeal of the staff will suffice to render unnecessary the stimu- 
 lus of competition. The State, it is said, having no shareholders 
 greedy for their annual dividend, can afford to take longer views 
 than a company. But it must continue to charge rates sufficient to 
 cover expenses, interest and sinking fund and the "current expenses 
 of the State." Whether this meant what it said, or whether it only 
 meant the liabilities of the State in its capacity as railway owner, 
 it is impossible to decide. 
 
 10 
 
This much, however, is certain. The Act as it passed the Prus- 
 sian Parliament, contrary to what had generally been understood 
 during its progress, contained no express provision that railway 
 revenues should be used only for railway purposes. And ever since, 
 the railways have been, to use the favorite phrase of domestic 
 critics, "the milch cow of the Treasury." 
 
 On the whole it is abundantly clear that, though there were con- 
 siderable abuses of private ownership in Prussia, and though the 
 desire for unification of management both from the commercial and 
 the operating point of view was not without weight, the main reason 
 for Bismarck's action was of a political nature. It is in harmony 
 with all Prussian history that the importance of military considera- 
 tions and the necessity of making public control paramount in the 
 life of the country should weigh above all other considerations with a 
 Prussian statesman ; and after the war with France and the creation 
 of the German Empire these considerations might be expected to 
 have even greater weight than at any other time. 
 
 Switzerland 
 
 Were it not that the scale is so disproportionate as to make a 
 comparison almost laughable, for the railroads of the United States 
 earn as much money in two days as the Swiss Railway system in 
 a twelvemonth Swiss history would be a stronger argument than 
 most that are put forward for the nationalization of American rail- 
 roads. Switzerland has owned and operated its railways for more 
 than fifteen years. Switzerland is a democracy. And Switzer- 
 land, though the results fell very far short of the expectations enter- 
 tained at the time of purchase, managed its railways, on the whole, 
 with fair, if by no means with brilliant success, until the breaking 
 out of the European war upset the entire life of the country. 
 
 Switzerland is a union of three nationalities, German, French 
 and Italian. But the German population is a good deal more than 
 two-thirds of the whole; and naturally therefore German political 
 and social theories have great influence. As early as 1891, the 
 Swiss legislature passed a law authorizing the purchase of one of 
 the principal railways, the Swiss Central. But this law was defeated 
 on a referendum by a majority of more than two to one. The move- 
 ment, however, in favor of nationalization continued. In 1897 an 
 Act for the purchase of all railways except lines of purely local inter- 
 est passed the two Chambers, with majorities of 98 to 29, and 25 
 to 17 respectively; and this time on a referendum there was a two- 
 to-one majority in favor. The memorandum, prefixed to the Bill 
 repeated the arguments in favor of State ownership in words that 
 
might almost have been copied from the Prussian memorandum 
 which has already been dealt with. There was, however, one addi- 
 tional argument which apparently had as much weight as all the 
 others put together. Swiss Railway Shares, it was stated, had 
 of late years ceased to be held as permanent investments, and had 
 passed in large measure into the hands of speculators who were 
 not Swiss citizens but foreigners. And this dangerous state of 
 affairs could not be allowed to continue. It had in fact been found 
 that in three out of five companies the majority of the registered 
 shareholders and under a law of 1895 "registered" shareholders 
 alone were entitled to vote were foreigners. 
 
 It is not necessary to go into the history of the purchase. Three 
 of the principal roads were transferred to the State in 1901, a fourth 
 in 1903, and the last, the Gotthard, in 1909. The purchase price 
 which was fixed in every case by agreement, exceeded by about 
 11 per cent, the estimate of the cost originally put forward by the 
 Government. Warned by Prussian history, the Act laid down 
 categorically that the Railway Budget was to be absolutely and 
 completely independent of the ordinary budget of the State. Any 
 surpluses obtained were to be devoted solely to railway purposes, 
 either to be used as capital or to be devoted to reduction of rates 
 and improvement of service. 
 
 In the early days of nationalization there was a very serious in- 
 crease in expenses, due partly to a more generous service, but 
 mainly to increased wages and reduced hours for the staff. For the 
 four years following on 1903 the cost of staff increased year by year 
 as compared with the previous year by the following percentages : 
 10.16, 7.08, 9.99, 9.27. Between 1900 and 1911 the number of the 
 staff increased 46 per cent., while wages increased 92 per cent. In 
 1912 a further increase of less than 1 per cent, in number of staff 
 corresponded with an increase of no less than 10.2 per cent, in wages. 
 The increase in the number of the staff was, no doubt, justified by 
 a 25 per cent, increase in road mileage, and an increase of 100 per 
 cent, in passenger traffic and of 67 per cent, in freight traffic. But 
 the rise of over 100 per cent, in the wages bill upset the equilibrium 
 entirely. The operating ratio went up from 65.53 per cent, in 1903 
 to 71.03 in 1908. In three years, after meeting operating expenses 
 and the charges of the debt, there was an accumulated deficit of over 
 $2,500,000. 
 
 The management took fright. They cut down renewals, reduced 
 services, increased rates and fares, stopped automatic increases in 
 staff wages, and by refraining from filling up vacancies gradually 
 reduced the number employed. The public and the employees sub- 
 mitted, not without natural reluctance, and the financial equilibrium 
 
 12 
 
was restored. After placing to sinking fund an average of about 
 a million dollars per annum the railways just cover interest on their 
 debt at the rate of 3 l / 2 per cent. But the rosy views of the authors 
 of State purchase have been far from materializing. They promised 
 reductions of rates and fares, and with the great increase in traffic 
 density ought, one cannot but think, to have been able to obtain 
 them. The average fare was indeed reduced by 13}/2 per cent, be- 
 tween 1900 and 1911. But freight rates were rather worse than 
 stationary. The ton-mile rate was slightly under 3 cents a mile in 
 1900; in 1911, it was slightly over. The authors of the purchase 
 further estimated that the profits to be realized would suffice to 
 extinguish the railway debt within 60 years. In fact, the sum paid 
 for the acquisition of the railways was $205,493,880. And the debt 
 at the date of the last account, with one-quarter of the period ex- 
 pired, so far from being reduced had risen to $270,132.80. 
 
 
 Italy 
 
 The history of Italian railways is much too complicated to be 
 even sketched in outline here. An admirable summary coming 
 down to 1884 will be found in Hadley's "Railroad Transportation". 
 Italy has experimented with every conceivable form of railway 
 policy. It has tried State ownership and operation, private owner- 
 ship and operation, State ownership with private operation, and 
 now, for the last ten years, it has reverted to both ownership and 
 operation by the State. The country has been hampered in its 
 railway development by various causes ; geographically, by its shape 
 and by the mountainous divisions between east and west; politi- 
 cally, by the fact that not until 1870 did the whole of Italy become 
 a united kingdom ; and financially, by the fact that the economic 
 development is backward, the people very poor, and, at least till 
 quite lately, subject to a crushing burden of taxation. 
 
 As the Kingdom of Italy gradually grew together out of its com- 
 ponent States, it was necessary to make railways to cement its unity. 
 Further, the State was compelled to take over the liability for rail- 
 ways which other people had constructed. The Austrians, for ex- 
 ample, had built railways in Lombardy and Venetia, but when they 
 were expelled from those provinces, in 1859 and 1866 respectively, 
 the State had to buy out the Austrian company, or else leave two of 
 the richest provinces still subject to the domination of the hated 
 foreigner. 
 
 Betwen 1866 and 1885 the bulk of the railways of the country 
 were in the hands of the State. In the latter year, as the result of 
 an inquiry by a Commission which sat from 1878 to 1881, studied 
 
 13 
 
the history of the railway world in exhaustive detail, and embodied 
 its report in seven quarto volumes, the Italian railway system was 
 handed over to two great operating companies on a 60 years' 
 lease, terminable at the end of 20 or 40 years the Mediterraneo 
 and Adriatico respectively. The essential idea was, as indeed 
 the names of the Companies imply, that one system should operate 
 along the western coast and the other along the eastern. Each 
 company was, either by its own lines or by means of trackage 
 rights, to have access to the great centres, Milan, Florence, Rome, 
 Naples, and in this way it was hoped that competition would 
 secure adequate services and reasonable rates. 
 
 The leasing system was not a success, mainly because both the 
 lessors and lessees took too sanguine a view of the prospects of the 
 future. Almost at the outset it became evident that additions and 
 improvements, especially additional rolling stock, were urgently 
 needed ; and there were no additional net receipts to pay the interest 
 on the capital required. Why should the Government find this 
 money for railways not in their hands ; and, on the other hand why 
 should the Companies take the risk on so short a tenure? There 
 was another very serious factor. The railway staff, who had great 
 political influence, and who assert, probably not without reason, 
 that they were overworked and under paid, were clamoring, and in 
 some cases even striking, for better conditions of service. And last 
 but not least, the rolling stock was grossly inadequate, and what 
 there was, was almost falling to pieces. In the result Parliament, 
 with a sudden resolve to cut a knot which it could not untie, on 
 April 22nd, 1905 determined to take over the railways as from the 
 following 1st July. 
 
 Undoubtedly as agencies of public service the Italian railways 
 have been considerably improved in the last ten years. The number 
 of locomotives increased in eight years from 3,580 to 5,322, and the 
 number of freight cars from 69,000 to 105,000. And the improve- 
 ment is even greater than these figures would indicate, for old stock 
 has been scrapped and replaced by new and efficient equipment; 
 lines have been improved and doubled on a considerable scale ; and 
 the services undoubtedly much improved. But the financial results 
 are very serious, especially for a country so poor as Italy. The de- 
 mands of the staff which the railway administration has found itself 
 powerless to resist, have, in the eight years, 1906 to 1913, implied an 
 additional expenditure of $18,330,440. In the same period the 
 number of staff increased from 121,000 to 149,000, equal to 23 per 
 cent. Per kilometre of road worked there were 9.3 men at the 
 earlier dates and 10.9 at the later. But while numbers increased 23 
 
 14 
 
per cent., cost increased 57 per cent.; in other words, the average 
 wage per employee increased 27 per cent. 
 
 The gross receipts rose in the eight years from $78,724,416 to 
 $120,595,000, or well over 50 per cent., while the length of line 
 operated remained practically unchanged. Per train-mile the in- 
 crease was from $1.41 to $1.63 or about 16 per cent. With much 
 greater density of traffic and a considerable increase in earnings 
 per train-mile, one would naturally have expected a substantial 
 improvement in the operating ratio, once road and rolling stock had 
 been brought into good order. But the opposite has been the case. 
 In the first year of nationalization the operating ratio was 73.4; in 
 no subsequent year has it fallen below 79.5 per cent.; and for the 
 three years 1911-13 it averaged 84.4 per cent. Each year shows a 
 substantial advance in operating costs over the year preceding it. 
 The figure in the first year of the period was $57,885,600; in the 
 last it is $102,264,560, an increase of over 78 per cent. 
 
 The final result is that, whereas in the financial year 1906-7 the 
 railways paid over to the Treasury $9,796,366 as a return on a 
 capital of $1,091,404,045, which is roughly 1 per cent, in the last 
 year they only returned $5,402,656 on a capital that meanwhile had 
 risen to $1,374,975,952 which is roughly 2-5ths of 1 per cent. An 
 attempt was made in 1909 to raise the rates but the Ministry failed 
 to carry their proposals and went out of office. 
 
 How far he Italian Government is satisfied with the existing 
 situation may be judged from a significant fact which has not 
 hitherto received the publicity which it merits. In at least two 
 cases just before the war concessions had been granted to a private 
 enterprise which was to take over a portion of the existing State 
 railway, to build an extension with the help of substantial State 
 subsidies, and then work on its own account both sections as one 
 undertaking. 
 
 Australia 
 
 The most conspicuous instance of railways being constructed 
 by the State because private enterprise refused to undertake the 
 task is to be found in the Australasian Colonies of Great Britain. 
 The Australasian population is of pure British stock, and when the 
 necessity of railway building became manifest, as true Britishers 
 they naturally expected private enterprise to undertake the task. 
 But local capital was scant and England was far away. Moreover, 
 Australasia was in the throes of the gold fever resulting from the 
 discovery of the rich fields of Ballarat and Bendigo. And such 
 local capital as was available was not likely to be put into railway 
 enterprise to earn a possible 5 per cent, when the gold fields offered 
 
 15 
 
prospects of a fortune in a few months. And accordingly as the 
 need of railroads was imperative, the Governments of the separate 
 colonies borrowed money on their own credit and set to work to 
 construct their own State railway systems. Once embarked on such 
 ownership they have never gone back from it. Certain local lines 
 have, from time to time been built by private capital, but they have 
 never been important. On the one hand neither local nor English 
 capital has been over anxious to go into the business, and on the 
 other, the State railways have been jealous of interference by private 
 companies. Speaking broadly the seven separate States which 
 make up Australasia have among them over 20,000 miles of railway 
 owned and worked by the respective Governments. And it must 
 be frankly said that public opinion is entirely in favor of this system. 
 No proposal to divest the States of their ownership would be lis- 
 tened to for a moment. And, having regard to the well-known fact 
 that State socialism has been carried further in Australia than in 
 any other part of the world, this is not surprising. 
 
 Whether the Australian public are really competent to judge 
 how far they have got a good bargain may be illustrated by the 
 following anecdote. Some years ago, a distinguished railway man 
 went from America to assume the post of Chief Commissioner, in 
 other words President, of one of the most important Australian 
 State Systems. After he had been in charge for a year or two, he 
 sent to a railway friend at home statistics showing the improve- 
 ments and economies effected under his management. The friend, 
 in acknowledging the receipt, pointed out that the figures furnished 
 did not include the ton-miles of traffic, and therefore neither receipts 
 nor cost could be worked out on a ton-mileage basis, and asked 
 whether it was possible that a railway man accustomed to American 
 methods failed to keep statistical records in this form. The answer 
 was in effect as follows: "I have the ton-mileage figures. I dare 
 not publish them. If I did publish them, they would show a ton- 
 mile rate so excessive as compared with other countries similarly 
 situated, where the traffic is mainly in agricultural products carried 
 long distances, that public opinion would enforce a sweeping re- 
 duction in rates and bankrupt the undertaking." It may be added, 
 as proving that the Chief Commissioner in question had good reason 
 for desiring to avoid a comparison, that two New South Wales and 
 South Australia out of the seven Australasian State Railway sys- 
 tems do publish ton-mileage statistics. They show ton-mile earn- 
 ings of 2.20 cents and 2.12 cents respectively. The corresponding 
 figure for the private railways of Canada is 0.75 cents, and for the 
 private railways of the United States 0.738 cents. 
 
 16 
 
Russia, Austria and India 
 
 Russia, Austria and India may be grouped together as three 
 countries where a mixed system of State and private ownership pre- 
 vails. They are all alike in the fact that political, and especially 
 military reasons compelled the State to make railways which private 
 enterprise was not prepared to undertake. They are alike too in 
 the fact that the tendency has swayed back and forth as between 
 State and private ownership. Austria at one time sold to private 
 companies a number of railways that had been built by the State. 
 Nowadays having bought most of them back again, it owns 80 per 
 cent, of the total. One incident of the transfer deserves to be re- 
 lated. The Kaiser Ferdinand Nordbahn was an old and very rich 
 company. Its dividend for the previous five years had averaged 
 over 12 per cent. It was taken over in 1906. In 1910 the President 
 of the Austrian Chamber of Deputies described the result as fol- 
 lows : "We have always been in favor of the State taking over the 
 railways, but if we had been able to foresee the results of the man- 
 agement I assure you we would have hesitated a little longer. We 
 are still in favor of the principle, but it does seem to us that our 
 government has performed a remarkable feat when it has succeeded 
 in creating a deficit on the Northern Railway. The government 
 have enlisted an army of new employees ; they have gone much too 
 far in the reduction of hours of labor; instead of commercial man- 
 agement they have appointed lawyers to posts that require business 
 men or experts ; they have established an entirely unpracticable 
 bureaucracy. At the present moment we are face to face with a 
 deficit of $25,000,000. There would be no deficit at all if the re- 
 turn from our railways were that which it ought to be. I repeat 
 that absolute imbecility has characterized the taking over of our 
 railways. We must introduce business ideas into the government 
 service." Russia, too, has not only built State railways but taken 
 over private railways. Of late years, however, the tendency seems 
 to be in the direction of private enterprise, subsidized and closely 
 controlled by the Government, which at the present time owns and 
 works two-thirds of the whole mileage. In India, several of the 
 most important lines were built by private enterprise with State 
 guarantees of dividend for a short term. At the end of the term, 
 when these railways passed into the hands of the State, they were 
 leased back to the old Companies as operating Contractors. At 
 the moment of writing, an exhaustive investigation is proceeding, 
 which seems likely to result in the adoption of a definite policy for 
 the whole country. British merchants in India are apparently 
 strongly in favor of retaining the private companies. Indian native 
 
 17 
 
 
opinion, appears, so far as it is vocal, to be in favor of State owner- 
 ship, the reason being that it is thought that Indian ideas would have 
 more influence on the policy of a Government Department on the 
 spot, than on that of a Board of Directors sitting in London. This 
 last argument raises a point, the importance of which we have 
 already seen in the cases of Belgium and Switzerland. Evidently 
 the argument against private ownership is stronger where the capital 
 is foreign than where it is found within the country itself. 
 
 A point of importance should here be noted. It is true that the 
 Austrian Government, forty years ago divested itself of its Railway 
 Property. The Italian Government divested itself of the operation 
 though not of the ownership as lately as 1885. More recently, Brazil 
 as also other less important States in South America, Guatemala 
 and Nicaragua have handed over some or all of their railways to 
 private companies. But, speaking broadly, it is safe to say subject, 
 however, to the possibility of an exception in the case of Belgium 
 to be referred to later that nowadays, a decision of a nation to 
 acquire its railways is irrevocable. This may be taken as proving 
 it has often asserted that it does prove that no nation having 
 experienced the benefit of State ownership ever desires to go back 
 on its decision. But the argument cuts also the other way. If the 
 decision be irrevocable, and modern railway history seems to indicate 
 that it is, it is also well to be quite satisfied that it is the right de- 
 cision before making it. 
 
 Holland 
 
 One country, small but not unimportant, has not hitherto been 
 mentioned. In Holland, though some of the most important lines 
 were built by the State, the operation has always been wholly in 
 private hands. For many years, there were in Holland three prin- 
 cipal companies ; the State Railway Company, the Holland Com- 
 pany and the Dutch Rhenish Company. In 1890, the Dutch Gov- 
 ernment made a new departure. It bought up all the lines which it 
 did not own, and it then apportioned the whole system anew be- 
 tween two companies representing, respectively, the old State Rail- 
 way and the Holland Companies, in such a manner that each Com- 
 pany had access to every important town in competition with the 
 other. This system, which presumably was patterned on the Italian 
 System of 1885, has been in existence ever since. In 1908 a motion in 
 Parliament in favor of nationalization was brought forward and 
 defeated. A Parliamentary Commission to investigate the question 
 was subsequently appointed and reported unfavorably. The pub- 
 lic seem to be satisfied with things as they are, the passenger serv- 
 ice appears to travelers exceedingly good, but the financial result to 
 
 18 
 
the State is not over satisfactory. That, however, is perhaps un- 
 avoidable. Holland is intersected everywhere by rivers and canals, 
 which have to be kept open for drainage purposes, and they carry 
 the bulk of the heavy traffic of the country and of the German 
 through traffic. The railways therefore have to depend for a liveli- 
 hood in the main on passenger and high class freight. What bulk 
 freight they get, they can only get at exceedingly low rates. 
 
 One further point may be here noted. A suggestion has, from 
 time to time been put forward in various countries where the 1 sys- 
 tem of private ownership prevails, that the Government should 
 purchase one or more of the private undertakings, and should run it, 
 partly as a pattern to be followed, and partly as a regulating force 
 to control the rates charged on the private railways alongside. 
 Some such idea seems to be implied in the recent papers pub- 
 lished in the United States by Mr. W. W. Cook. The idea has never 
 been carried into practical effect. It is hardly likely to be seriously 
 taken up nowadays in any country, and under the circumstances, 
 criticism is evidently superfluous. 
 
 France 
 
 The railway history of France stands by itself. Nowhere is the 
 passion for logic and the love of symmetry which distinguish the 
 French genius better exemplified than in the history of the French 
 Railway system. The ground plan of the policy which, broadly 
 speaking, France has followed ever since, was laid down in a law 
 passed as long ago as 1842. There were important developments 
 after the world crisis in 1857, and again in 1878. And on 1st Janu- 
 ary, 1909, the Government by taking over one of the six great sys- 
 tems the Western upset the symmetry of the original plan. But 
 with this exception, throughout the whole history the original plan 
 has stood firm. The whole country was divided up among six great 
 companies, five of which radiate from Paris, and the sixth, the Midi, 
 serves the extreme South and Southwest. The development of the 
 railway network has been systematic from the outset; trunk lines 
 first, then important branches, then the less important ones, and 
 finally in recent years a considerable development of light secondary 
 lines. Throughout, the State has guided, subsidized and controlled. 
 Each company has a monopoly of its own district. So far as possi- 
 ble, the points where the great systems meet are arranged not, as 
 in Holland, or formerly in Italy, at the great towns but precisely 
 at the points of least importance from a traffic standpoint. Where 
 traffic is unavoidably competitive, as for instance from Paris to 
 Central Switzerland, which can be reached either by the Eastern or 
 by the Paris and Lyons railway, arrangements are deliberately made 
 
 19 
 
to prevent competition. The Government controls all rates and fares 
 charged and all services given, and the Government approves, not 
 merely of pools, but of agreements by which shippers, attempting to 
 consign traffic by the route by which the railway companies have 
 agreed the traffic shall not flow, are deliberately penalized by higher 
 rates. At a later stage of this paper, more must be said of the work 
 which the French Railways have done, and reasons will be given to 
 show that the French private companies have served their public 
 at least as well as the Prussian State railways have served theirs. 
 But it belongs here to deal with the history and the results of the 
 nationalization of the Western Railway eight years ago. 
 
 For more than thirty years the French Government have owned 
 and worked a system of lines in the Central West of France. This 
 system was not inconsiderable in mileage (1844 miles), but its dis- 
 trict was purely agricultural and its traffic scant. It only reached 
 Paris over the lines of the private companies, and even when it 
 served important towns such as Nantes and Bordeaux, it only 
 served them by inferior routes. The financial results were very 
 unsatisfactory the operating ratio over a series of years ranged 
 between 72 and 83 per cent but in some respects, as, for instance, 
 admitting third class passengers on all express trains, it gave to 
 the public advantages which the private companies did not give. 
 
 Among the great companies, much the weakest financially was 
 the Western. A large portion of its mileage was in Brittany, one 
 of the poorest districts of the country. It did serve the town of 
 Rouen, and the very important port of Havre, but the canalization 
 of the Seine diverted from the railway a large proportion of the 
 valuable merchandise traffic between Havre and Paris. The French 
 Government guarantees the dividend on the. shares of all the French 
 railway companies, and year after year, the French Government 
 had to find a considerable portion of the dividend to the Western 
 shareholders.* 
 
 Further, large new capital expenditure was needed, especially to 
 cope with the enormous passenger traffic of the company in the 
 suburbs of Paris. How heavy that traffic is anybody who remem- 
 bers the Saint Lazare station in Paris will know. The necessary 
 capital could not be raised without Government approval ; and Gov- 
 
 *It should be noted that only 10 per cent, of the total French railway 
 capital is in the form of shares: 90 per cent, is in the form of bonds which 
 practically, though not formally, are guaranteed by the French Govern- 
 ment. The dividend on the shares therefore, though large in percentage 
 it ranges from 7 per cent, on the Western and the Eastern, and 10 or 11 
 per cent, on three of the other companies, to 13 per cent, on the Northern 
 is not very large in total amount. Broadly speaking, the companies, other 
 than the Western, more or less earn their dividends in normal times without 
 State help. 
 
 20 
 
ernment approval, owing to strong parliamentary opposition, could 
 not be obtained. Meanwhile the service was going from bad to 
 worse, and the equipment was on its last legs. Something had to 
 be done. Once more, the knot that could not be untied was cut. 
 And as from January 1st, 1909, the Government exercised its rights 
 under the concession, and took over the railway, continuing to pay 
 the guaranteed dividend to the shareholders in the form of an an- 
 nuity running till the termination of the concession. 
 
 The political history of the transfer is distinctly interesting. 
 The employees on the railway itself were unanimously in its favor. 
 And, as subsequent experience proves, with good reason. And the 
 whole strength of the Socialist party and of Socialist sentiment was 
 thrown on the same side. A majority was secured for the Bill in 
 both Houses, though a large majority of the representatives of the 
 districts served by the railway voted against it. The Bill passed 
 the Chamber in December 1906. But it was hung up in the Senate 
 for eighteen months till June 1908, and finally only passed by a 
 majority of three votes, after M. Clemenceau, who was Prime Min- 
 ister at the time, had given it to be understood that, unless the bill 
 was passed, he would resign. And much as the majority of the 
 Senate disliked nationalization, at the moment they disliked the 
 resignation of M. Clemenceau even more. It may further be added, 
 that according to the French custom, the opinion of all the Cham- 
 bers of Commerce in the country, which are statutory bodies, was 
 invited on the measure, and that not one single town of more than 
 third-rate importance reported in its favor. 
 
 Experience of State Operation in France 
 
 Here in broad outline is the story of the result of the transfer.* 
 In the five years, 1904-1908. before the transfer the gross receipts 
 rose steadily from $37,084,000 to $42,145,000. In the five subse- 
 quent years 1909-1913, (the war upset entirely the figures for 1914) 
 the gross receipts rose from $42,333,000 to $48,701,000, a slightly 
 greater rate of increase. In the five years before the transfer, the oper- 
 
 *The figures given above are from official sources. The story is mainly 
 taken from an article by Pierre-Leroy-Beaulieu, himself a Deputy, in "The 
 State in relation to Railways." (P. S. King & Co., London, 1912.) See 
 also Colson in "Revue Politique et Parlementaire" for November, 1910, De- 
 cember, 1911, May, 1913, and May, 1914. The railway newspapers all over 
 the world were full of the story in 1909 and subsequent years. 
 
 Monsieur Colson, an engineer by training, was formerly head of the 
 Railway Department of the Ministry of Public Works and is now President 
 of the Section of the Council of State (a body partly executive and partly 
 judicial) which deals with all questions concerning transport by rail or 
 road or water. His book, "Transports et Tarifs," is a recognized classic on 
 its subject. 
 
 21 
 
ating expenses rose from $20,796,000 to $28,388,000, this last figure 
 being unduly inflated by the fact that, from the date the Chamber 
 voted the acquisition of the railway, the staff became entirely de- 
 moralized. The first year after the acquisition the operating ex- 
 penses were $30,304,000. The next year they were $34,921,000, and 
 the year after, $39,454,000. In 1912 they had reached $41,800,000 
 and for 1913 they fell back to $41,478,000. In other words, to earn 
 a net revenue increased by 31 per cent., the operating expenses in- 
 creased by 100 per cent. The net revenue was never below $13,- 
 757,000 in the worst year of Company rule. It fell to $5,352,000 
 after the Government had been in possession four years. The 
 operating ratio, which had risen from 56.4 to 67.8 under the Com- 
 pany, was for the next five years as follows: 72.7, 79.9, 87, 89.4 
 and 85.2. It is fair here to make a qualification. The operating 
 ratio had gone up on all the French railways between the two 
 periods. It averaged 50.3 for the other five great companies for the 
 years 1905 and 1906, and 58.4 for the two years, 1912 and 1913. But 
 a rise from 50.3 to 58.4 is one thing ; a rise from 56.4 to 89.4 is quite 
 another. 
 
 A main argument used in Parliament in favor of transfer from 
 the company to the State was that the company never did, and 
 never could, earn its guaranteed dividend in full, still less the extra 
 dividend which it would be entitled to if earned ; that the company 
 was accordingly a mere caretaker and not interested in financial 
 results, and did not operate, and could not be expected to operate, 
 with economy. The State on the other hand would have a direct 
 interest in operating economically. That was the argument. Here 
 are the facts. During the last ten years of company management, 
 the State had to pay an average of $2,894,280 a year to meet its 
 liability under the guarantee to make up the deficiency in net oper- 
 ating income. During the first three years after the transfer, the 
 sums it had to find under the same head were $6,753,320, $8,875,792, 
 and $14,934,484, respectively. For the year 1913, the figure was 
 $14,752,237. 
 
 Nor do these deplorable financial results tell the whole story. 
 The service to the public was absolutely demoralized. There were 
 several very serious and numerous smaller accidents, and the staff 
 and the public got so frightened that the express trains on the main 
 line, already the slowest in France, were decelerated down to a 
 timing that had been abandoned as inadequate in 1896. In addition, 
 a number of trains were suppressed altogether. Punctuality went 
 to the winds. Commuters on the system in the suburbs of Paris 
 were compelled by their employers to live elsewhere because of the 
 unpunctuality of their arrival at their work. As for the service in 
 
 22 
 
general, one figure will suffice. Compensation for accidents, loss 
 and damage, averaged some $400,000 or $500,000 a year in the last 
 days of the company. In 1911, the figure was $2,045,291. The 
 Minister of Public Works himself publicly criticized the State 
 Administration as "a frightful fraud." And the Senate passed 
 unanimously a resolution beginning: "The deplorable situation of 
 the State system, the insecurity and irregularity of its workings." 
 M. Leroy-Beaulieu gives the reasons for the "deplorable situation" 
 as follows : "In the first place, it is the abuse of formalism and red 
 tape, with all the delays which follow and which are directly in conflict 
 with commercial needs. In the second place, it is the lack of stability. 
 The director and all the chiefs of the service change at the will of 
 the Ministers, whilst in the private companies the higher personnel is 
 maintained a long time, fulfilling the same functions. It is next the 
 political influence which enters into the choice and advancement of 
 the personnel. It is, lastly, the lack of discipline which also results 
 from the political influence at work. From the electoral point of view, 
 the loiuer staff, being much more numerous, will always have much 
 more power than the superior staff. It is always on the side of the 
 former that many Deputies will be systematically ranged. Above 
 all, it is impossible to be at once controller and controlled. If one 
 of the great French companies under private management renders 
 poor service, the public opinion is not slow to move the public 
 power, and as this has the means to bring pressure indirectly but 
 in many ways upon the companies, they are led to reform. On the 
 contrary, when complaints are made against the State itself, the 
 administration, irresponsible, does not listen. Rather, it seems in- 
 dignant that particular individuals or even large associations should 
 dare to find that all is not perfect. 'I have not seen without a cer- 
 tain astonishment/ said the Minister of Public Works in the 
 Chamber, 'the Chambers of Commerce criticise the actions of the 
 State in its (their) reports upon the railways/ The same Minister 
 has dismissed an employee from his office who was at the head of 
 a section of a passenger line which emitted protestations against 
 the delays on the Western State service in the Paris suburbs. When 
 the Minister was reproached in the Senate, he declared himself ready 
 to do the same again. One may see how dangerous to the liberty 
 of citizens the extension of the industrial regime of the State would 
 be, where the number of functionaries would be indefinitely multi- 
 plied and where they would no longer have the right to complain. 
 "From all points of view, the experience of State Railv/ays in 
 France is unfavorable, as was foreseen by all those who had re- 
 flected upon the bad results given by the other industrial under- 
 takings of the State, such as the telephones, matches, and many 
 
 23 
 
others. The State, above all an elective administration, cannot be 
 a good commercial manager. It works expensively, and is power- 
 less before its employees. The experience which we have recently 
 gained has had at least one result. It has provoked a very lively 
 movement, not only against the re-purchase of the railways, but 
 against all extension of State industry. This result seems to me 
 fortunate. I hope this opinion will be maintained, and that not 
 only we, but our neighbors, may profit by the lesson of these facts." 
 
 M. Leroy-Beaulieu gives examples of what has happened under 
 the various heads. "As for formalism and red tape," on the eve 
 of the handing over of the railway to the State, there were 1,526 
 employees in the Central Office. Within three years the number 
 had increased to 2,587. "The single service of the Accountant 
 General was increased by 70 persons directly after the repurchase." 
 And this was due partly to political pressure and partly to excessive 
 red-tape. For example, in the Caen division, the preparation of the 
 pay-sheets, which under the Company took nine persons three days 
 i=27 days, under the State Administration took twelve persons six 
 days=72 days. "According to official documents, there are not less 
 than 96 persons receiving a salary of more than $1,929.52 in the 
 State system" as against 33 on the system of a neighboring company 
 of much the same mileage but with much higher receipts. In the 
 five years from 1908 to 1912,* the total expenditure increased 
 $10,573,770, of which $8,412,707 were for salaries and wages. In 
 1908, out of every $19.30 of receipts, the Company paid $7.24 in 
 salaries and wages. In 1912* this figure was $9.70. The compara- 
 tive figure for the five great companies is only $5.70. In 1910, per 
 $192,952 of receipts, the State railways employed 235 persons, the 
 private companies 174. 
 
 Again, as the result of the great strike of October, 1910, the Cham- 
 ber of Deputies voted a large all-round increase in the wages of the 
 staff. Naturally, the staff thought there were shorter cuts to in- 
 creases of wages than hard work. As a sample of want of ordinary 
 business management on the financial side, the Budget Commission 
 of the Chamber reported that it could not draw up a proper estimate 
 ?2>r 1912 from lack of the necessary accounts. "The statements ad- 
 dressed to the Budget Commission by the Administration were 
 
 manifestly inaccurate The great part of the statements of 
 
 receipts and expenditure were found to lack any sufficient justifica- 
 tion. Thus as regards the expenditure upon personnel, the tables 
 accompanying the statement only stated the numbers of workmen 
 and staff and the amount of their salaries in round figures 
 
 *1912 figures are Budget Estimates only. 
 
 24 
 
We wrote for further statements, more particularly the numbers of 
 the personnel. . . . The Minister replied (three years after the 
 railway had been taken over) that the enumeration of employees 
 had not yet been made. . . . This example suffices to show the 
 trust that may be placed in the other parts of the budget estimate." 
 This is not the opinion of an outside and unfavorable critic. It is 
 the report of a Committee of the Chamber of the same political 
 complexion as its predecessor which voted for the purchase, based 
 upon a draft drawn up by a Deputy well known as an advocate of 
 State ownership. 
 
 One story given by M. Leroy-Beaulieu is so striking as a sample 
 of the highest quality of red-tape that it deserves to be given at 
 length. It is from a letter of a stationmaster read in the Chamber 
 of Deputies : "In the time of the Western Company, we station- 
 masters had orders to use the rolling stock as quickly as possible, 
 and to send to a given station, all that we did not ourselves require. 
 Under the State all is changed. Every stationmaster is forbidden 
 to load any wagon without the orders of the distribution bureau of 
 the district. This bureau is, as is well known, a new creation 
 specially designed for the purpose of finding situations for so many 
 more bureaucrats. Recently, having received two wagons loaded 
 with horses, accompanied by an order to send these wagons to Caen 
 after they were unloaded, I thought to do well by loading in these 
 two wagons 200 sacks of grain, which had been waiting in the sheds 
 for several days to go to Caen. But alas, I did not know the bureau 
 of distribution. The next day I saw my two wagons return, and I 
 received at the same time an order to unload them. I was reproved 
 into the bargain for excess of zeal. I had to obey the order. That 
 evening I sent the wagons empty to Caen. Next day I received two 
 others, also empty, in which to load the grain." 
 
 The Lessons of Foreign Experience 
 
 Such is an outline history of the introduction of State ownership 
 in the less important half of the railway world. What lessons has 
 it to teach for the more important half, the United States and the 
 United Kingdom? Evidently, in these two countries it will not be 
 suggested that State ownership is necessary for political and mili- 
 tary reasons. The consciousness of political unity needs here no 
 artificial stimulus. The experience of England since the present 
 war began has sufficiently demonstrated that a number of inde- 
 pendent and often competing private companies can be welded to- 
 gether at a moment's notice into a homogeneous system, and oper- 
 
 25 
 
ated from the moment when war is declared, with absolute success 
 as an organic whole, under public control, on public account, for 
 the public service. 
 
 Nor will it be suggested that in these two countries private enter- 
 prise has fallen short of meeting the public requirements. On the 
 contrary, that England is adequately provided is admitted on all 
 hands. And if, as is doubtless the case, the United States still need, 
 and will continue to need, fresh railways built, past experience, 
 which shows that in no other countries have railways been pushed 
 so boldly in advance of population as in the States, gives every rea- 
 son to suppose that private enterprise will be able and willing to 
 provide them. And it may be added that the country which comes 
 next in this respect to the United States far in advance of the 
 English colonies of Australasia, with their exclusively State systems, 
 and of Russia or India, with their immixture of State ownership is 
 Argentina, also a country wholly developed, till quite recently, by 
 private companies. 
 
 Railway history conclusively refutes the idea that State owner- 
 ship promotes railway development. If we consider countries where 
 the railways are already making a reasonable return on the capital, 
 what do we find? Belgium has notoriously failed to keep its rail- 
 ways abreast of its rapidly growing trade. The Prussian Govern- 
 ment has consistently for a generation past forced the enormous 
 coal and iron traffic of Lorraine, Luxemburg and Westphalia on 
 to the waterways, by refusing to build the new lines necessary to 
 cope with the traffic by land. American shippers sometimes com- 
 plain of shortage of equipment. But these complaints in times of 
 worst congestion are not more bitter than those which go up regu- 
 larly every autumn from the coal operators of the Ruhr Revier, 
 the most important coal field in Prussia. In Australia the manage- 
 ments of the Government railways have boldly defended themselves 
 in times of bad congestion by claiming that the railways cannot 
 afford to keep sufficient equipment to cope with maximum demand. 
 In the great Empire of India, with a teeming population of 315,000,- 
 000 spread over an area nearly two-thirds that of the United States, 
 a population which though very poor is also very industrious, there 
 are only some 36,000 miles of railway. That more railways and im- 
 provements of existing railways are urgently needed, is admitted 
 on all hands. Nor is it denied that they would pay their way. But 
 the Government refuses to allow private capital a free hand. A 
 private company may build branches as feeders of the existing 
 trunk lines on strictly regulated terms. But that is all. And yet the 
 Government itself can only find a few million pounds per annum for 
 
 26 
 
a work in which scores of millions could be profitably employed. 
 The Dominion of South Africa, with a white population of a million 
 and a quarter, has a State railway system of some 8,000 miles. In 
 the much newer territory of Rhodesia alongside, company enterprise 
 has already provided 2,000 miles of railway for the service of a 
 white population of 32,000. 
 
 The reason is obvious. A railway company exists for a single 
 end. If an extension offers reasonable prospect of financial success, 
 and if capital can be raised on reasonable terms, a company will 
 always build it. Even if success is problematical, ambition and the 
 desire to forestall a possible intruder will usually turn the scale in 
 favor of a forward policy. But a Finance Minister is in quite a dif- 
 ferent position. Calls upon him for money come in from a dozen 
 different directions. The army, the navy, education, irrigation 
 schemes, social betterment and fifty things more, all press their rival 
 claims. The money is limited. New taxes do not conduce to popu- 
 larity. The budget has to be made to balance and the railways go 
 short like all the other claimants. 
 
 The experience of the last few years in the United States has, it 
 must be admitted, shown that, under present conditions, private 
 capital is not being found in sufficient quantity for extensions and 
 improvements which are urgently necessary. And it has been 
 argued therefore that the State will be compelled to come to the 
 rescue by taking over the private undertakings bodily. But this 
 is scarcely practical politics. To suppose that serious statesmen 
 would, for this reason only, decide on a step so serious as railway 
 nationalization, is to suppose the impossible. Taking over a quar- 
 ter of a million miles of railway, with $16,000,000,000 net capital and 
 over 1,800,000 employees, may be a good thing or a bad thing; but 
 it is undoubtedly a step, the seriousness of which can hardly be ex- 
 aggerated. To compare it in importance with the alternative of 
 allowing the existing companies to raise their rates by an average 
 of a mill per ton-mile, which would make all the difference between 
 poverty and affluence would be almost farcical. 
 
 The argument for State ownership in the United States or the 
 United Kingdom can therefore be based only on the claim that the 
 substitution of Government for private ownership of the existing 
 lines would, on the whole, secure better public service. A dis- 
 tinguished English authority, Sir George Gibb, has, in fact, put 
 the question precisely on these lines. He has contended that, in 
 Anglo-Saxon countries at least, it was entirely right that the con- 
 struction and development of the railway system should be left 
 to private enterprise. Private enterprise is, he thinks, bolder; 
 
 27 
 
companies are more flexible, more ready to take risks and to try 
 experiments in new methods, than any State organization could be. 
 Moreover and the importance of the point will not be lost on any- 
 one who remembers that the bulk of the American railways have at 
 one time or other passed through a receiver's hands, and that some 
 forty per cent, of their share capital receives no dividend if a 
 company improvidently or unwisely invests its capital in a non- 
 paying proposition, while private individuals lose their money, the 
 public is uninjured. Capital borrowed on credit of the State is a 
 permanent burden on the country as a whole, whether or no it earns 
 any net revenue to pay the interest. On the other hand once the 
 system is created and substantially finished, Sir George Gibb, in 
 the paper referred to, considered it an open question whether State 
 or private ownership and management should be preferred. 
 
 Cost of Raising Capital 
 
 It is this question therefore that we have now to consider. It is 
 commonly claimed, as one of the advantages on the side of the State, 
 that it can raise capital more cheaply than any private company. And 
 the claim is not without substance. But the advantage is not great. 
 The market value of United States Bonds cannot be compared with 
 that of first class railway mortgage bonds, because of the fictitious 
 value attached to the former for bankers' purposes. But in England 
 over a series of years though here, too, consols have to some extent 
 had an artificial value the interest on first class railway debentures has 
 averaged, perhaps, half of one per cent, above the interest obtainable on 
 Government obligations. At the moment of writing, while the English 
 Government is borrowing on short term bonds at the rate of six 
 per cent., first class railway debentures are still selling on the basis 
 of less than 5 per cent, yield. And it is only the first charge securi- 
 ties of railway companies which can fairly be compared with the 
 Government stocks; for the income return on junior securities, 
 more especially common stock, includes a more or less considerable 
 allowance for insurance against risk. Averaging the return on all 
 capital invested in a successful private company, it would un- 
 doubtedly be considerably higher than the return paid to the pur- 
 chasers of an equal amount of Government Railway Stock. But the 
 Government Stock would unquestionably include a considerable 
 amount of capital spent on railways not producing any, or only an 
 inadequate, income, which capital, as has already been said, would 
 have been in the case of a private company, either written down in 
 market valuation, or, it may be, written off entirely. 
 
 28 
 
Economy in Use of Capital 
 
 Further, though a saving of perhaps half of one per cent, in 
 interest is not unimportant when the capital is reckoned in billions 
 of dollars, it may be more than compensated for by a greater pro- 
 portional increase in the capital itself. Is this likely to be the 
 case ? It is certainly the common belief of ninety-nine business men 
 out of a hundred, both in America and in England, that the Gov- 
 ernment gets less value for its money than a private trader. So 
 far as it is possible to compare one country as a whole with another, 
 it certainly looks as if this belief were justified in railway experi- 
 ence. The railroads of the United States were capitalized in 1915 
 (deducting inter-corporate-ownership) at $66,447 per mile. The 
 State railroads of New South Wales and Victoria were capitalized 
 at $77,253 and $65,774 per mile respectively.* It must be admitted 
 that the Australian roads, whose construction engineers had beec 
 brought up to regard English standards as universally applicable, 
 are more substantially and expensively built than many of the 
 Western roads of the United States. On the other hand, the 
 American figure includes the trunk-line railroads of the East, with 
 a standard of construction and a mass of equipment to which the 
 Australian roads can offer no analogy. On the whole it is safe to 
 say two things. If an experienced railway man came to America 
 for the first time, and made an exhaustive examination of the United 
 States railroads, he would marvel when told that so magnificent a 
 machine had been built up at a capital cost of only $66,447 per mile. 
 If an English or an American business man, fortified by the ex- 
 pert's opinion, were asked whether he thought his own Govern- 
 ment could have carried out the work as cheaply, it is equally cer- 
 tain what his answer would be. 
 
 Summing up then the subject of capital cost, it would appear 
 that, whereas on the one hand the State can obtain its capital some- 
 what cheaper, on the other hand private enterprise makes each 
 dollar of capital go further. And the advantage and the disadvan- 
 tage may fairly be set off, the one against the other. 
 
 *The cost per mile of the railways in the other Australasian colonies, 
 and also in the Cape of Good Hope, is much lower than in New South 
 Wales and Victoria. But they are all, with one partial exception, narrow 
 gauge lines, and cannot be compared with the American railroads. The 
 cost of the Canadian private roads is very much the same as the American 
 average. The cost of the National Trans-continental railway recently con- 
 structed by the Canadian Government was estimated to be $39,083. It has 
 actually cost $99,000. 
 
 29 
 
Quality and Cost of Service 
 
 The vital question, however, is not concerned with construction 
 and capital cost, but with the day-to-day working of the actual 
 existing system. Will the public on the whole get better services 
 or lower rates, or possibly both these advantages? On this ques- 
 tion there is a mass of accumulated information that may help to 
 an answer. But the difficulty of making a fair comparison between 
 one country and another is exceedingly great. National customs 
 differ widely. To give one striking instance. The average Ameri- 
 can railway charges its passengers two cents a mile, and admittedly 
 makes no profit. The East Indian Railway charges four mills, 
 and makes a handsome profit, because the Bengali ryot is content 
 to travel under conditions of speed and accommodation and con- 
 venient frequency of service which imply reductions in operating 
 costs more than counterbalancing the five-fold reduction of charge. 
 And even the four mills rate is a much larger tax on the income of 
 the ryot than the two cents rate is upon that of the American 
 laborer, etc. What shall be said? Would it be reasonable to say 
 that, all things considered, the passenger fares in America are 
 really lower than those in Bengal, in spite of the fact that in Bengal 
 a man can travel five miles at the price of one mile in the States? 
 Must it not be acknowledge that, where conditions are so abso- 
 lutely different, one cannot really compare, but can only contrast? 
 
 If comparisons are to be of value, they must be made where 
 conditions are, if not similar that we shall never find at least as 
 similar as may be. This much seems clear. Given two countries 
 in which the standard of living and the purchasing power of money 
 are substantially the same, and where the quality of railway service 
 is substantially the same also, the country in which the rates charged 
 are the lower is the country best served by its railways. If a coun- 
 try, where the purchasing power of money is low, obtains the same 
 quality of service at a substantially lower rate than is charged in 
 countries where the purchasing power of money is high, where, in 
 other words, ordinary commodities are cheap, then surely that 
 country has an exceptionally efficient railway service. Tried by 
 this test, how does the United States stand? 
 
 It is a matter of common knowledge that the freight rates of 
 the United States are out and away lower than those of any country 
 with which comparison can reasonably be made. The figures of 
 the average receipts per ton-mile for Germany and France are 
 nearly double those for America, 1.37 and 1.30 cents per ton-mile 
 
 30 
 
respectively as against 0.738 cents.* And all the other countries of 
 Western Europe, except Belgium, are higher than France. The 
 Belgian rate is 1.13 cents. As we get towards the east, rates fall. 
 In Russia, the average is 0.94, in Japan 0.87, and finally in India, it 
 gets down to 0.74 cents, which is practically the same as the 
 American figure. 
 
 The reason why Oriental rates are low is obvious. Roughly 
 half the cost of railway operation is direct labor cost. And in 
 Japan a railway employee earns a dime, and in India a nickel, where 
 in America he earns a dollar. Why then are not the rates still 
 lower? Because it needs many Orientals to do the work of one 
 American, with his efficient methods and his labor-saving ap- 
 pliances. To give one instance, railway embankments in India were 
 till quite recently, and probably are still, constructed by gangs of 
 coolies running to and fro with small baskets of earth upon their 
 heads. 
 
 But let us leave India aside. Once more it is a contrast and not 
 a comparison. Confining ourselves to Europe, we may say broadly 
 that it costs as much to move a ton one mile in Europe as to move 
 it two miles in America. And when all allowances have been made 
 for circumstances tending to make European business more ex- 
 pensive to handle short hauls, more diversified loads, higher cost 
 of coal, and so forth the 100 per cent, difference in rate is so great, 
 that it seems impossible to doubt that a large part of it must be due 
 to the greater efficiency of the American railway. 
 
 Prussia Compared with U. S. A. 
 
 The European country where the traffic conditions most nearly 
 approach those of America is undoubtedly Prussia. In the years 
 since 1880, by which time the railways had mostly been taken over 
 by the State, the Prussian population has increased some 60%, and 
 the urban population in a still higher ratio. The output of German, 
 mainly Prussian, coal has grown from under 60 to over 250 mil- 
 lion tons, and of steel from under 1 to over 17 million tons. And 
 Prussia, is by universal consent, the country where State manage- 
 ment is at its best. 
 
 ^English figures are often given in international comparisons, but they 
 are pure guesses. And how far the guesses are wide of the actual facts, no 
 man can say. For English railways, with one exception, do not publish, 
 or even compile, ton-mile and passenger-mile statistics. One company, 
 the North Eastern, does compile these figures, and used to publish them, 
 but has ceased to do so in recent years. Even if the recent North Eastern 
 figures were available, it would be quite impossible to say how far they are 
 typical of the English railways as a whole. The present writer's guess is 
 that they are not typical, because, for one reason, the preponderating traffic, 
 which is in coal, is carried for unusually short distances, and therefore at 
 unusually high rates. 
 
 31 
 
Let us take the claim of a panegyrist of the Prussian system, and 
 see how it compares with American achievement. In a paper read 
 at the Royal Economic Society Congress in London in 1911.* Pro- 
 fessor Schumacher of Bonn gave two instances of the accomplish- 
 ments of the Prussian railways : "In the case of goods sent in bulk, 
 the freight for long distances is as low as 0.8 pfennigs per ton- 
 kilometre." This is roughly 0.35 cents per ton-mile, which is very 
 far from being a startlingly low rate in America, seeing that the 
 average rate for coal last year on the Chesapeake & Ohio Railroad 
 was only 0.304 cents, while for all traffic high class as well as bulk 
 freight, short distance as well as long distance it was only 0.38 
 cents per ton per mile.. 
 
 Professor Schumacher says further that "the receipts amounted 
 in 1880 and 1909 to 4.14 and 3.54 pfennigs per ton-kilometre re- 
 spectively (1.65 and 1.41 cents per ton-mile). They have therefore 
 been reduced by about 15 per cent." The corresponding receipts 
 per ton-mile for the American railways were, in 1882 the first 
 year for which adequate figures are available 1.236 cents; in 1909 
 0.763 cents. In other words, the American ton-mile rate started 
 at the beginning of the period 25 per cent, below the Prussian rate ; 
 and it fell in the course of the twenty-nine years, not 15 per cent., 
 but nearly 40 per cent. At the end of the period, the American rate 
 was not much more than half the Prussian rate 0.763 cents com- 
 pared with 1.41. There are many elements, doubtless, responsible 
 for so striking a difference. But, when all have been taken into 
 account, a railway expert is bound to come to the conclusion that 
 the main element is relative operating efficiency. To discuss this 
 subject here at length is impossible. But one point may be taken. 
 The incomparable cheapness of American carriage is primarily due 
 to the employment of the largest possible units of car-load and 
 train load. Less than thirty years ago, 8-ton coal cars could still 
 be seen in Jersey City. Since then, the size of car has been increased 
 to 30 tons, 50 tons, and now 70 tons and 90 tons. Prussia, not being 
 hampered like England with high platforms and innumerable tun- 
 nels limiting the loading gauge, might well have followed the Ameri- 
 can example. But she has clung to the old 4-wheeled cars with an 
 average capacity of less than 15 tons ; with the result that, while the 
 average American freight train has reached 500 tons, the Prussian 
 load is 246 tons, or less than half the American. 1 And, to re- 
 dress the balance, the American freight rate per ton-mile is half the 
 
 *The State in Relation to Railways, London, P. S. King, 1912. 
 
 1 When the American rate was 1.236 cents per ton-mile, the train load 
 was only 129 tons. It is mainly the increase of the train load to 500 tons 
 and the consequent increase of the train-mile revenue to $3.74, spite of a 
 40% drop in the average ton-mile rate, which has made the modern American 
 rate of .738 cents possible. 
 
 32 
 
Prussian, spite of the fact that Prussian railways pay practically no 
 taxes and that American wages are double those in Prussia. 
 
 It may be added that the progressive reduction of rates, of which 
 Professor Schumacher speaks, had in fact ceased long before 1909. 
 M. Colson writes: "The Germans no longer make any serious 
 freight rate reductions. Within the last ten years, the average rate 
 per ton-kilometre has oscillated between 4.41 centimes and 4.36 cen- 
 times per ton-kilometre (1.37 cents and 1.34 cents per ton-mile) 
 according to the composition of the traffic. During the same period, 
 the average rate in France has fallen from 4.71 centimes in 1901-2 
 to 4.19 in 1911, (1.45 to 1.3 cents per ton-mile) a reduction of 11 per 
 cent." On the other hand, he adds, that "between 1905 and 1911, the 
 average passenger fare fell in Germany from 3.22 to 2.94 centimes 
 per kilometre (.99 to .902 cents per mile, nearly 9 per cent.), while 
 in France it only fell from 3.69 to 3.50 centimes" (1.13 to 1.08 cents 
 per mile, just 5 per cent.) 2 It may be added further that even the 
 15 per cent, reduction, of which Professor Schumacher speaks with 
 pride, is largely due, not to reduction in individual rates, but to the 
 increased proportion of the whole traffic which consists of coal, 
 iron ore, and other raw materials taking the lowest rates. 
 
 Prussia Compared with France 
 
 But it is perhaps scarcely fair to compare Prussian railways with 
 those of America. After the Battle of Salamis, Themistocles re- 
 ceived by the vote of the Greek generals the first prize for valor. 
 For though each general considered that he himself was entitled to 
 the first place, they all agreed that Themistocles was entitled to the 
 second. Similarly, though the railwaymen of other countries might 
 each claim the first place in efficiency for themselves, there can be 
 little doubt that they would all agree in giving their second vote to 
 the United States. The railway service in America has attracted 
 perhaps the best brains of the country. In Germany, military, 
 naval and diplomatic careers, and even professorships in the Uni- 
 versities, offer higher inducements to their brightest men. 
 
 German railways, however, may be fairly compared with those 
 of France, where Government service has a similar prestige. M. 
 Colson has on numerous occasions compared the efficiency of opera- 
 tion of the two countries. The comparison which he makes is in 
 outline as follows: 
 
 2 Revue Politique et Parlementaire, May, 1913. 
 
 *See Colson's articles in the "Revue Politique et Parlementaire" for 
 May, 1902; May, 1904; May, 1906; May, 1907; November, 1910; December. 
 1911; May, 1913, and May, 1914. See also "Cours d'Economie politique" 
 Livre VI 1907. The outline in the text is mainly taken from "Cours 
 d'Economie Politique." 
 
 33 
 
Prussia occupies a position naturally more advantageous than 
 France from the point of view of economical operation. The coun- 
 try is almost wholly flat, while most of France is hilly, and a con- 
 siderable part mountainous. Coal is immensely cheaper, and also 
 steel. The traffic density is much higher, the number of units of 
 traffic (ton-kilometres and passenger-kilometres) carried being more 
 than double in Prussia, though the length of line is only 29,000 as 
 against 25,000 miles. On the other hand it is to be admitted that 
 the French length of haul is somewhat greater. The charges made 
 for carriage are substantially identical in the two countries. There 
 is a difference of about three per cent, in the average ton-mile rate 
 in favor of Prussia. But this difference is very much more than 
 explained by the much larger proportion in Prussia of coal, iron-ore 
 and other bulk freight carried at the lowest rates. Taken separately, 
 the average rate per kilometer for coal in 1905 was 3.10 centimes 
 (.96 cents per ton-mile) in France, and 3.16 centimes (.98 cents per 
 ton-mile) in Prussia. For all other freight, it was 5.07 (1.57 cents 
 per ton-mile) in Prussia against 5.00 (1.55 cents per ton-mile) in 
 France. But when the two came to be added together, the 
 total result was 4.30 centimes, (1.34 cents per ton-mile) in 
 Prussia and 4.52 (1.40 cents per ton-mile) in France. In the case 
 of passenger traffic, M. Colson admits that the average rate is 
 12 per cent, higher in France. But he points out that 30 per cent, 
 of the Prussian passengers are carried in fourth-class carriages, in 
 which to a very large extent there are no seats, a class of accom- 
 modation to which France offers no parallel. Further, a much 
 larger proportion of the freight traffic in Prussia is in straight car- 
 loads, loaded and unloaded by the shipper, services which are usually 
 included in the French rate. Wages in France are at least as high, if 
 not higher than in Prussia ; and in addition to the wages, the French 
 railways incur charges amounting to quite a high percentage of the 
 total wage bill for pensions, superannuations and other benevolent 
 purposes. Again, the French railways are subject to serious respon- 
 sibilities from which the Prussian State Railways are free. In both 
 countries there is a legal limit of time fixed within which traffic must 
 be delivered at destination, and if this limit is exceeded the freighter is 
 entitled to damages. But in France the period begins to run from 
 the time the freight is brought to the railroad ; in Prussia, only from 
 the time when the railroad gives notice that a freight car is ready 
 to receive it. The French railways are required to pay full com- 
 pensation for loss, damage or delay. In Prussia, liability is legally 
 limited to a fixed, and usuaally quite small sum, normally a certain 
 
 34 
 
proportion of the freight charge paid. 1 Another fact which should 
 tend to produce a lower operating ratio in Prussia than in France 
 is that a larger proportion of the French traffic is passengers ; and 
 passenger traffic, under French and German conditions, is unques- 
 tionably less profitable than freight traffic. "From the combined 
 effect of all these causes," writes M. Colson, "if the opefating ratio 
 in France were 10 or 15 per cent, higher than in Germany, it would 
 not imply inferior operating ability. But in fact the difference is 
 in the opposite direction. If our companies worked as expensively 
 as the German State Railways, they would spend from twenty to 
 forty million dollars more than they do per annum." The operating 
 ratios as given by M. Colson for different dates are as follows : 
 
 1900 1910 1911 1912 1913 
 
 France 54 60 62.5 63 63 
 
 Prussia 62 67 65 66 66 
 
 The difference has lessened in recent years. But the explanation is 
 that since 1909, the Western railway of France has been handed over 
 to the State ; and the operating ratio of this system has gone up to 
 such an extent (it was 87 per cent, in 1911 according to the official 
 figures used by Mr. Colson though M. Le Roy Beaulieu 8 makes it 
 to have really been as high as 90 per cent. and 89 per cent, in 1913, 
 as compared with an average of 60 per cent, for the five years before 
 the purchase) as seriously to affect the French average. Thus, while 
 the operating ratio for all the French railways in 1911 was 62.5 per 
 cent, as given above, for the private lines only it was 58.5 per cent. 
 So it appears that the divergence of 7 or 8 per cent, in the operating 
 ratio between the French companies and the Prussian State railways 
 remains substantially the same over a series of years. And the fact 
 that the expenditure on the Western of France has, since that sys- 
 tem was taken over by the State, increased out of all proportion 
 either to its own previous expenditure, or to the expenditure still 
 found sufficient on the remaining private railways, clearly affords 
 no argument for the economical management of the Prussian State. 
 
 New South Wales Compared with Texas 
 
 Let us attempt another comparison. To compare Australia as a 
 whole with the United States as a whole, though the two areas are 
 very nearly the same, would be unreasonable. Australia, with only 
 
 *A full account of the stern restrictions with which the liability of the 
 German State Railways is fenced round will be found in "German v. British 
 Railways," by Edwin A. Pratt (P. S. King & Co., London, 1907). Mr. Pratt 
 quotes a statement made to him by a large German trader that, sooner 
 than send in claims which they would have no chance of getting paid, 
 "they had better save the postage stamp." 
 
 *The State in Relation to Railways, p. 55. 
 
 35 
 
five million inhabitants, has nothing comparable with the enormous 
 traffic of the North Atlantic States. But a comparison between New 
 South Wales, the oldest Australian Colony, and Texas seems to be 
 fair, and is not without interest. 
 
 New South Wales, with 310,000 square miles, is not dissimilar in 
 area from Texas with an area of 262,000 sqare miles. But Texas 
 had a population at the census of 1910 of 3,900,000, while the popula- 
 tion of New South Wales was only 1,650,000. The New South 
 Wales population is not only smaller, but is increasing less rapidly. 
 In the ten years 1901-1911, it only increased from 1,359,000 to 1,648,- 
 000, or 21 per cent. In the same period the population of Texas in- 
 creased from 3,049,000 to 3,897,000, or nearly 28 per cent. But while 
 Texas with double the population had, at the census of 1910, no 
 town of over 100,000 people, no less than 621,000 of the inhabitants 
 of New South Wales lived in Sydney and its suburbs. It is safe 
 to say that a chief cause if not the chief cause of the smaller popu- 
 lation of New South Wales, and its concentration in and around 
 the capital, as compared with the larger and better distributed popu- 
 lation of Texas, is the difference in the railway development and 
 service of the two countries. 
 
 Texas has over 15,000 miles of railway against 4,000 in New South 
 Wales, giving a mile of line for every 259 inhabitants of Texas, as 
 against a mile of line for every 412 inhabitants in New South Wales. 
 Certainly the New South Wales Government does not seem to show 
 to great advantage as compared with private companies, so far as 
 enterprise in opening up new country is concerned. 
 
 Now let us see whether the railways that have been constructed 
 r in New South Wales serve the public better than the railways of 
 Texas. The average rate in Texas per ton-mile in 1915 was .995 
 cents, and the average rate in New South Wales for the same year, 
 inclusive of terminals, which the official statistics leave out in their 
 ton-mile calculations, was 2.20 cents, or more than double. It is true 
 that the average fare per passenger mile in New South Wales, where 
 it is pulled down by the enormous commuters' traffic of Sydney, 
 was only 1.15 cents, as against 2.42 cents in Texas, or less than 
 half. But no one will suppose that low rates for passengers are as 
 important to the prosperity of a country as low rates for goods. 
 And, besides, whereas the average passenger journey in Texas was 
 53 miles, and in New South Wales only 14 miles, the average dis- 
 tance a ton of freight was hauled was 135 miles in Texas, as against 
 79 in New South Wales. 
 
 Comparing the work done for the public in the two States, we 
 find that in Texas 7,360,000,000 tons were hauled one mile ; in New 
 South Wales only 917,000,000. Passengers hauled one mile were, 
 
 36 
 
on the other hand, 1,231,000,000 in New South Wales against 1,007,- 
 000,000 in Texas. Putting the two together we have 8,367,000,000 
 traffic units (one ton or one passenger carried one mile) in the year 
 in Texas against 2,148,000,000 in New South Wales. In other words, 
 the private railways of Texas performed for the Texan public nearly 
 four times as much work as the New South Wales State railways 
 performed for the public of that State. 
 
 The traffic density is very mch alike in the two cases : 515,000 
 traffic units per mile of line per annum in Texas; 530,000 in New 
 South Wales. The Texan railways have a considerable advantage 
 in better gradients and longer hauls, and for both these reasons 
 lower rates in Texas might naturally be expected. But the differ- 
 ence is far too great to be explained on these grounds. Per unit of 
 traffic carried the public were charged in Texas 1.17 cents, in New 
 South Wales 1.60 cents, nearly half as much again. 
 
 As the result of their high rates the New South Wales railways 
 earned $9,140 per mile of road per annmu. As the result of their 
 low rates the Texan railways earned only $6,592. But, thanks to 
 superior efficiency of management, the Texan railways spent much 
 less to carry each unit of traffic. Per unit the Texan railways spent 
 0.935 cents; the New South Wales railways spent 1.115 cents. In 
 other words, had the Texan railways operated as expensively as the 
 New South Wales railways, they would have had practically no 
 net revenue at all. 
 
 One point more : the Texan railways have had to raise their cap- 
 ital as best they could and could do very well with more of it. Were 
 they in a position to raise new capital on favorable terms, they could 
 doubtless improve their operating efficiency still further. The New* ..* 
 South W T ales railways can raise, and always have been able to raise, 
 on the government credit all the money they need at the lowest rate 
 of interest. Will any one deny that, even handicapped as they are, 
 the private railways of Texas are giving to the people of Texas a 
 more ample, a more efficient, and a cheaper service than the govern- 
 ment of New South Wales gives to its citizens ? 
 
 Private Railways Lead in Inventions and Improvements 
 
 To turn from specific comparison to more general considerations. 
 The fact has already been mentioned that, while the American com- 
 panies have boldly revolutionized their machinery and methods 
 of carriage, the Prussian State has clung to old machinery and old 
 methods. The huge engines and freight cars used in America today 
 could never have run on the rails or crossed the bridges as they 
 existed in 1880. So the American companies have laid ever heavier 
 
 37 
 
and heavier rails, and have rebuilt their bridges, often more than 
 once. The Prussian State is content to put forward, as a sufficient 
 reason for adhering to the old methods, the fact that track and 
 bridges are not strong enough to carry the heavier equipment. 
 
 This example is typical. In all the history of railway develop- 
 ment, it has been the private companies that have led the way ; the 
 State systems that have brought up the rear. It would be difficult 
 to point to a single important invention or improvement, the intro- 
 duction of which the world owes to a State railway.* England 
 shares with America the credit of having invented the locomotive. 
 England first rolled steel rails, but America was not long behind. 
 England first introduced the block system of signaling; while to 
 America is mainly due the later development of automatic appli- 
 ances. There are two types of power brakes on the world's rail- 
 ways. The Westinghouse brake was invented in America, the 
 vacuum brake in England. The automatic coupler is wholly 
 American. So are the sleeping car and the dining car. Shunting 
 by gravity, which accounts for a saving of millions of dollars a 
 year, was invented in England, but has been mainly developed in 
 America. Brunei, on the Great Western of England, first taught the 
 world what express trains meant. And forty years later, the English 
 companies in the historic "Race to Edinburg" in 1888 gave a new 
 interpretation of the term. America promptly replied with the 
 "Empire State Express," and bettered the instruction with the 
 "Atlantic City Flyers." The French companies, too, took up the 
 challenge, and put on trains from Paris to Calais, and to the Belgian, 
 German and Spanish frontiers, that could hold their own with any- 
 thing that England and America had to show. And meanwhile the 
 International Expresses of Prussia and Belgium jogged contentedly 
 behind. It is true that in these two countries the track was not fit for 
 high speeds. Nor was it at the outset in France or America. But it 
 was possible to make it so at least where it was in the hands of a 
 private company. Take the latest problem of all, the electrification 
 of main lines with dense traffic. Electric working is constantly push- 
 ing out from New York and Philadelphia, from London and Liver- 
 pool and Manchester. And, meanwhile, the Prussian Government 
 has carried out some interesting and exhaustive experiments on a 
 special track at Zossen. 
 
 Railroading is a progressive science. New ideas lead to new in- 
 ventions; imply new plant, new methods. And this means the 
 spending of much new capital to be recouped by larger economies 
 
 *Possibly the Schmitt locomotive superheater might be claimed by the 
 German railways as an important improvement of which the credit is theirs. 
 
 38 
 
later o 
 
 .ter on. The State official mistrusts ideas, pours cold water on new 
 inventions, grudges new expenditure. No one questions the ability 
 of the German people. German manufacturers, German merchants, 
 German bankers have taught the business world a good deal in 
 recent years. German railwaymen have written many books, some 
 of them valuable; but in practical operation they have taught the 
 railway world nothing. Why? Is it because they are State Officials? 
 
 
 English Government Management of Telegraphs 
 and Telephones 
 
 Certainly English experience of undertakings in the hands of 
 public authorities would lead us to suppose so. English experience 
 confirms the conclusion of the Italian Commission of 1881 that "the 
 State is more likely to tax industry than to foster it." Fifty years 
 ago, the English Government acquired the telegraphs. Three official 
 estimates of the cost of acquisition were put forward. The first was 
 for $11,679,600; the second was for $29,199,000, and the third was 
 for $32,848,875. According to the official figures, the capital account 
 was finally closed with a total expenditure of $52,887,289. On the 
 basis of the $29,199,000 capital cost, the Post Office estimated to 
 obtain an annual net revenue of $987,900. The fact had been that, 
 on the average of the last ten years, there has been a loss of more 
 than $4,866,500 per annum. 
 
 The Act authorizing the Government to acquire the undertak- 
 ings of the Telegraph Companies was passed in 1868. In the fol- 
 lowing year a further Act was passed giving the Post Office the 
 monopoly of the business. When telephones were invented the 
 Post Office did nothing to encourage their development. It merely 
 looked on while private companies undertook the work. As soon as 
 it became evident that the thing was serious, the Post Office took 
 fright, and started out to defend its monopoly. After long litigation, 
 the Supreme Court of Appeal decided that a Statute passed many 
 years before telephones were born, giving the Government the 
 monopoly of telegraphs, extended to all forms of electric communi- 
 cation. And thereupon, the Post Office proceeded to handicap its 
 rival by imposing a license fee of 10 per cent, on all telephone gross 
 receipts. Not content with this, it took all the trunk lines into its 
 own hands, leaving the company only the local exchanges. It 
 reserved certain areas for itself, characteristically giving in these 
 areas, except in quite populous places, telephone service only from 
 8 a. m. to 8 p. m. on week days ; whereas all the company's offices 
 were open continuously. And last, not least, it only granted short 
 term licenses, so that the company had difficulty in raising necessary 
 
 39 
 
new capital. Spite of all these difficulties, the company managed to 
 pay a fair dividend, till finally in 1911 the licenses expired, and the 
 Post Office took over the whole business. It has already succeeded 
 in converting a surplus into a substantial deficit. And one is keep- 
 ing well within the facts to say that, so far, the service to the public 
 has not improved. 
 
 The English Post Office has made yet another, though less im- 
 portant, effort in the direction of "taxing industry rather than foster- 
 ing it." It had been urged for many years to establish a special 
 delivery service for letters, and had steadily refused, alleging that 
 there was no substantial public demand. Some five and twenty 
 years ago, an enterprising company started in London a District 
 Messenger service. It was found to meet a real need, and seemed 
 to be likely to establish itself successfully. Thereupon the Post 
 Office, which has a statutory monopoly of the carriage of letters, 
 promptly took action. It began by hampering its more nimble 
 rival with a heavy license duty, and it went on to establish a service 
 of its own, which, though less convenient and flexible, was con- 
 siderably cheaper. Naturally the company was hard hit, and it has 
 only maintained its existence by undertaking other work, such as 
 that of a theatrical ticket agency. The net result is that London 
 has two inferior services instead of one good one. Whether the 
 Post Office makes a profit or a loss, the published accounts do 
 not show. 
 
 Municipal Electricity in England 
 
 England is admittedly behind her two great commercial rivals, 
 the United States and Germany, in the application of electricity to 
 commercial purposes. And this we owe to the fact that the munici- 
 pal authorities have faithfully followed the lead of the Post Office. 
 Gas lighting was introduced all over the country by private com- 
 panies; but the gas undertakings in most of the important cities 
 have long ago passed into the hands of the municipalities. And as 
 a rule, as private enterprise had piloted them safely through their 
 early stages of development, they have been the source of con- 
 siderable profits to the City Exchequer. About thirty years ago, 
 when electric lighting first became commercially possible, Parlia- 
 ment, by an Act passed in 1882, and an amending Act passed in 
 1888, laid down a general code regulating the subject. Broadly to 
 this effect: Either a company or a local authority may apply to 
 the competent department of the Government, the Board of Trade, 
 for an Order or, in American phrase, Charter. If both a company 
 and a local authority apply for an Order relating to the same area, 
 it is the application of the local authority only that is granted, unless 
 
 40 
 

 under exceptional circumstances. If an Order is granted to a com- 
 pany, it expires after 42 years. The original period was only 21 
 years; but it was found that on this condition no company could 
 raise capital. If an Order is granted to a local authority, it is in 
 perpetuity. The Order gives to the grantees, unless and until a new 
 Order admits a competitor, which in practice never now happens, a 
 monopoly of supply within the scheduled area. The Board of Trade 
 has wide discretion to revoke the Order, where the grantees have 
 not substantially carried out the works projected, or where they 
 fail to furnish a satisfactory supply. The upshot of these condi- 
 tions has been this. At the outset, a large number of local author- 
 ities applied for Orders, apparently merely with the object of keep- 
 ing out private enterprise, for they took no steps whatever after 
 they had obtained their Orders to put them into effect. After 
 considerable delay, the bulk of these blocking Orders were revoked, 
 but private enterprise had meanwhile been effectively warned off. 
 When at length, it became evident that public electric supplies must 
 come, in some areas companies were grudgingly admitted ; in other 
 areas, the local authority undertook the work itself ; whichever hap- 
 pened, it was a very frequent complaint that the local authority was 
 more concerned for the protection of the existing revenue from its 
 gas undertaking, than for the development of the new force, which 
 science was ready to put at the disposal of the public. 
 
 A later phase of the situation came into view when the suitability 
 of electricity, not merely for lighting, but for power purposes, be- 
 came manifest. A municipality could not legally supply beyond its 
 own restricted area. And industrial districts in their development 
 pay no attention to city boundaries. Numerous companies, influ- 
 entially supported, brought forward schemes of wholesale genera- 
 tion with modern plant for large districts. A good many Orders 
 were granted. Only one of the schemes has been even a moderate 
 success. And a chief reason has undoubtedly been that the munici- 
 pal authorities of the important cities geographically included in 
 the various districts fought successfully to deprive the power com- 
 panies of the right to supply within their cities, alleging that it 
 was not in the public interest that private companies should, for 
 selfish ends, compete with undertakings carried on at the public 
 expense and for the public benefit. And so England is still mainly 
 given over to small separate undertakings, which cannot, in the 
 nature of things, give a cheap supply, and which, in many cases, 
 are unable to give a supply on such a scale as would be necessary, 
 if a large manufacturer desired to substitute electricity for steam as 
 the motive power in his factory. 
 
 41 
 
Public Officials and Commercial Managers 
 
 Other instances might be cited from English experience. But 
 the above are sufficient to show that in England at least the official 
 is not eager to foster industry ; that he will fight to mainain the ac- 
 quired situation of his public undertaking, however much it may be 
 in the interest of the public itself that the situation should be mod- 
 ified. It might have been expected, d, priori, that public officials, 
 having only the public interest to serve, and having no shareholders 
 to whom increase or decrease of profits means increase or decrease 
 of dividends, would be more ready to take reasonable risks, more 
 complaisant, less meticulous to protect their undertakings to the 
 utmost, than the managers of commercial companies. But experi- 
 ence shows that the reverse is the case. The careful Prussian regu- 
 lations limiting, and in practice usually excluding altogether, the 
 liability of the railway administration for delay, loss or damage of 
 freight, have already been mentioned. It may be added that the 
 Prussian railways have an elaborate system of "delivery insurance" 
 under which, by making an extra payment, the shipper, if the ample 
 legal limit of time for transportation is exceeded, can recover some 
 extra compensation from the railway. It is difficult to imagine what 
 would be the attitude of a shipper in England or the United States, 
 if he was asked to insure at his own expense the fulfillment by the 
 railway company of its common law duty to him to deliver his 
 freight within a reasonable time. 
 
 In every country where railways are highly developed, rates for 
 freight consigned in full carloads are lower than for freight con- 
 signed in retail quantities. And the practice is abundantly justified, 
 commercially on the ground that the wholesale price is always less 
 than the retail, and technically on the ground of the saving of operat- 
 ing cost to the railroad. England, where the public stil persists in 
 regarding a railway truck as only a slightly modified carrier's cart, 
 makes the least reduction, averaging perhaps 15 to 20 per cent. 
 France makes more. America, which usually concedes the reduction 
 of 2 classes in the Classification, makes more still. But Prussia goes 
 much further than any other country. Freight, not classified as 
 entitled to exceptional rates, and therefore carried at the rates of 
 the normal tariff, is charged in he ratio of 9 to 4, according to 
 whether it takes the 10-ton or the package-freight rate. And, as a 
 result of this method of charging, 95 per cent, of the Prussian traffic 
 is in carload lots. The system is highly convenient and profitable 
 to the railroad, for it evidently leads to the more economical occupa- 
 tion both of the road and the freight cars. Whether it is equally in 
 the public interest is more than questionable. Assume that a 
 
 42 
 
freighter at a way-station 20 miles west of Berlin wishes to send 
 2 tons of merchandise to a similar station 10 miles short of Frank- 
 fort. He has two courses open to him. Either he can send it direct ; 
 if he does he will be charged 4.5 cents per ton per mile. Or he can 
 hand it over to a "spediteur" or forwarding agent. In that case 
 the "spediteur" will take it back to Berlin at the L. C. L. rate, send 
 it thence to Frankfort as part of a 10-ton consignment, and thence 
 reconsign it back to its destination as package freight. The con- 
 signor will gain something in money the smallest proportion, 
 namely, of the difference between the package freight rate and the 
 sum of the three rates paid by the "spediteur" which the "spediteur" 
 thinks will induce the consignor to continue to deal with him in 
 future. But he will hardly gain in promptitude of delivery. Can it 
 be doubted that in this instance it is railroad interest rather than 
 public convenience which is primarily regarded?* 
 
 Here is a comparison on all fours of English and Prussian meth- 
 ods. In England any respectable shipper, and indeed any private 
 individual, can open what is known as a "ledger account" with the 
 railway company. He then obtains practically two months' credit 
 for the carriage of his shipments. The account for each months is 
 rendered by the company to the shipper at the end of the month, 
 and then the shipper has another month in which to pay. Often- 
 times the month is exceeded. If the shipper disputes any item, on 
 whatever ground seems to him sufficient, he strikes it out and only 
 pays the balance. And the railway submits as of course to the 
 charge remaining in suspense till the matter is settled. In Prussia, a 
 shipper can open a monthly account, provided his average freight 
 payments amount to not less than $75 a month, and provided he 
 deposits with the railway administration cash or securities equal in 
 value to one and one-half times his average monthly account. If 
 in the course of the month his shipments reach the value of the se- 
 curities deposited, he must either increase his deposit, or pay prompt 
 cash for the rest of the month. That this difference of method is not 
 due to the fact that the railways are, in the one case, in England, 
 and in the other, Prussia, but rather to the fact that in the one case, 
 they are in the hands of private companies, and in the other in 
 those of State Officials, may be concluded from the attitude of the 
 State in England in the case of those commercial undertakings which 
 it does manage. In England, the maintenance of a deposit cover- 
 ing prospective telephone calls or rather two deposits, one for 
 
 *It should be further noted that these "spediteurs' " charges, which are 
 not inconsiderable in the aggregate, should be added to the railway freight 
 rates if we wish to estimate the total rates paid by the Prussian shipper 
 as compared with his competitors in other countries. 
 
 43 
 
local and one for long distance calls is as rigidly insisted on as is 
 the corresponding deposit by the Prussian State Railways ; and a 
 householder, who neglects to replenish his deposit when exhausted, 
 even though it may be only a few shillings overdrawn, finds his tele- 
 phone service cut off without more ado. As for liability for loss and 
 damage, the regulations are sufficiently frank and drastic. "The 
 Post Master General is not liable for any loss or damage which may 
 be caused by the failure of any telephonic communication, whether 
 such failure is, or is not, due to the act or default of any officer of 
 the Post Office." And the regulations in respect of the telegraph 
 service are to the same effect. Can such regulations be justified in 
 the public interest? Can it be right that the public in its corporate 
 capacity should refuse justice to its own individual members? Can 
 these regulations be explained, except on the theory that they are 
 imposed by the State Official for his own convenience, and sub- 
 mitted to by the public, because, while individuals can invoke the 
 aid of the State against a powerful private corporation, they have 
 no means unless in the last resort and in cases of supreme import- 
 ance of redress against the action of the State itself? 
 
 Civil Service Rules and Promotion by Merit 
 
 To turn to a different point. Railway management, on its main 
 sides of policy, operation and traffic, is essentially a commercial 
 business, requiring commercial training and commercial apitude. 
 The railwayman, if he is to serve his customers and his shareholders 
 properly, must look ahead, plan boldly for the future, and not fear 
 to take risks. His mind must be alert to recognize and use every 
 new technical improvement, that so he may give the best possible 
 service at the minimum possible expense. He must be quick to 
 observe the course of trade, the changes of demand, the potentiali- 
 ties of new markets and new sources of supply, and to adjust his 
 tariffs accordingly. Above all, he must keep abreast of his work, 
 however arduous, even though it means working all day and half 
 the night, and double tides on Sunday. If he fails at least in the 
 employ of a private company he goes ; and a better man takes his 
 place. 
 
 Can we expect these qualities from a State official? Let the 
 Italian Commission answer. It is true they wrote 35 years ago, 
 but human nature has not greatly altered in the interval. "On a 
 State railway system, the personnel would be chosen according to 
 Civil Service Rules. Seniority would count more than merit or 
 special qualifications. . . . There would be bureaucratic dilatori- 
 ness, incompatible with railway service. This applies specially to 
 the executive officers, who need to have, in the highest degree, in- 
 
 44 
 
dustrial energy, initiative in planning improvements, commercial 
 intelligence essential in controlling the various classes of expendi- 
 ture; who have to encourage traffic, improve service, maintain dis- 
 cipline, and so forth. The chief officers and their staff must have 
 a personal interest to stimulate them, and a high sense of respon- 
 sibility to encourage them to perform their duty. And for men 
 like these, the State would substitute officials with no personal mer- 
 est in the operating results. Further, the Government employee is, 
 as a rule, worse paid and subject to less severe discipline than men 
 in private employment, and consequently, he does less work. 
 
 "When the operation of the Upper Italian Railways was tem- 
 porarily taken over by the State, only a short time elapsed before the 
 discipline, energy and prompitude of the staff, which had been ex- 
 cellent, broke down, and the service became abominably bad. The 
 general rule is that Government employees do less work; conse- 
 quently more men have to be employed ; and the wages bill accord- 
 ingly goes up." 
 
 That on this last point, the Commissioners were true prophets, 
 the Italian experience since 1909, which has been recorded already, 
 sufficiently shows. As for "industrial energy," "initiative in im- 
 provements" and "commercial intelligence," let the Prussian history 
 of unchanged methods and cast-iron tariffs testify. But there is a 
 more important point than these. There is general agreement, both 
 in America, and England, that, to avoid the worse evil of political 
 patronage, appointments in the public service must be made by 
 Civil Service methods. This means appointment by an examination, 
 mainly literary, at an early age ; a life tenure except in cases of gross 
 incompetence ; and promotion mainly by seniority. Will any human 
 being claim that American railroads would have achieved their 
 magnificent record of technical progress, of rates steadily reduced in 
 face of a steady rise, not only of railroad wages, but of prices of 
 almost all other necessities of life, if the management of the railroads 
 had been in the hands of men originally selected by an examination 
 forty years before, who had since risen to the top, not as the result 
 of conspicuous competence, but by sheer seniority? And would the 
 men who are now at the head of the railways have stopped in the 
 Government service, had they entered it as young men, if they had 
 only had the prospects of promotion and compensation which Gov- 
 ernment service affords? 
 
 Possible Abuses of Private Ownership 
 
 At this stage it may be fairly said "Granted that State railway 
 systems, like all other human institutions, are far from perfect, what 
 about the abuses of private ownership?" And the point is a fair 
 
 45 
 
one. It might well be that the abuses of private ownership are so 
 great that State ownership implies, at least, the lesser of two evils. 
 How do the facts stand? 
 
 In he old days in England, there was a saying of an Official 
 of the Board of Trade, afterwards well known as a Director of one 
 of the great English railways and President of the Grand Trunk 
 Railroad of Canada, Sir Henry Tyler, which became famous : "If 
 the State does not control the railways, the railways will control 
 the State." And thirty or forty years ago, when the railway dir- 
 ectors were strongly entrenched in a House of Commons elected on 
 a very restricted suffrage, the phase perhaps represented something 
 more than a mere rhetorical exaggeration. In reference to Eng- 
 land, as it is today, the idea is only laughable. The railways are 
 absolutely powerless to resist public opinion. Five and twenty 
 years ago, the House of Commons threw into the waste paper bas- 
 ket the original Schedules of Maximum Rates on the faith of 
 which private capitalists had embarked five billion dollars in con- 
 structing railways. After an inquiry lasting over ten years, they 
 formally enacted new Schedules of Maximum Rates which the com- 
 panies "might lawfully charge and make." The companies were so 
 ill-advised as to take Parliament at its word. And they proceeded 
 in many instances to "charge and make" accordingly new rates 
 which implied considerable advances on the scale then in force. 
 Shippers rose in revolt and refused to pay. In the very next ses- 
 sion, Parliament deprived the companies of the power which it had 
 given, and enacted that thenceforward no railway company should 
 increase any rate to which one single shipper objected, unless the 
 company could prove affirmatively in a court of justice that the in- 
 crease of rate was justified by increased cost of doing the business. 
 Similarly in America. There was a time it will hardly be denied 
 by anyone today when the great railroads had inordinate powers, 
 and those powers were concentrated in the hands of a single man. 
 Not only might he abuse them for private interest, but in any case 
 the powers were despotic. And democracies will not tolerate des- 
 potisms, even if benevolent. But the president-despot benevolent 
 or otherwise has long been dead. And his day returns not. Ser- 
 ious critics, both in England and America, have questioned whether 
 private capital will continue to invest in railways, if the State con- 
 tinues to interfere so drastically both with operation and with rates. 
 But no-one is heard seriously to assert that Parliament and Congress 
 lack the power to make their will effective, whatever the railroads 
 may say or do. 
 
 A main argument put forward in favor of the nationalization of 
 railways in Prussia was that the tariff system of the private com- 
 
 46 
 
panics was honeycombed with rebates, and that rebates were in- 
 evitable under private ownership. If this latter statement were 
 true, it would be sufficient justification for sweeping away private 
 ownership, without more. But it is not true. If, after seventy 
 years of private ownership in France, no suggestion has ever been 
 heard that rebates are there given, it is fairly safe to say that they 
 have not been given. In England there were undoubtedly special 
 favors given to certain freighters in the very early days, not probably 
 from corrupt motives, but merely as a matter of commercial custom. 
 To big customers and keen bargainers rate concessions always had 
 been given by the carriers, whether by road or by canal, and at the 
 outset there seemed no reason why railroads should not follow the 
 example. But as long ago as 1854, in words that were practically 
 copied in the original United States Act to Regulate Com- 
 merce thirty-three years later, the English Parliament enacted 
 that rates should, under the same circumstances, be the same to all ; 
 and that, if circumstances were different, the difference in rate 
 should be proportionate to the difference in circumstance. And there- 
 upon, rebates disappeared from English railway history. "It is re- 
 markable" the words are those of a House of Commons Committee 
 reporting in 1882 after an exhaustive investigation "that no wit- 
 nesses have appeared to complain of preferences given to individuals 
 by railway companies as acts of private favor or partiality, such as 
 were more or less frequent in the years before the Act of 1854." 
 One still sees, from time to time, fines inflicted upon American rail- 
 road companies for offences of this nature. But in almost every 
 case, the transgression had occurred some years before the infliction 
 of the fine. It is safe to say that nobody in America today believes 
 either that secret rebates exist to an appreciable extent, or that the 
 railroad officials desire to revive the practice of giving them. 
 
 Somewhat analogous to direct rebates are concessions given to 
 traders and other persons, whom it is desired to influence, by liberal 
 payment of claims for loss and damage of freight, by under-classifi- 
 cation, free transportation and so forth. In France, with a non- 
 competitive system, such practices have apparently never existed. 
 In England they have never cut much figure; and as long ago as 
 1902, the establishment of a Joint Claims Committee by the compa- 
 nies themselves, put an end to such abuses in this respect as did exist. 
 Free passes in England have never been an abuse, of which the best 
 proof is that they still remain unregulated by law, and a manager can 
 any day privately give a free pass to whom he pleases. That free 
 transportaion and the payment of bogus claims were serious abuses 
 on the American railroads not so many years ago is undeniable. 
 No one doubts that they are practically eradicated today. And, 
 
 47 
 
after all, the abuse of free transportation is not confined to private 
 railroads. Not very many years ago, the "Melbourne Age," the 
 leading paper in the Australian State of Victoria, published a list, 
 occupying eleven and a half closely printed columns, of free passes 
 granted by the State railways to the relations and friends and 
 dependents of Members of Parliament. 
 
 State Railways Not Usually Profitable 
 
 Our history has then reached this stage. In the two coun- 
 tries where the railways are still wholly in private ownership, the 
 United States and the United Kingdom, nationalization cannot be 
 justified on the ground of lack of private enterprise. Nor is it 
 necessary to avoid abuses ; for those abuses can be either prevented 
 or cured by adequate State regulation and supervision. Further, 
 it does not appear that the State is likely to build railways cheaper. 
 Still less, that it will surpass private companies in efficiency of 
 management, and will therefore have available more net revenue 
 to be applied either to improvement of service or reduction of rates 
 in the country as a whole. 
 
 With the exception of the South African Dominion whose 
 railways are not, however, important, and which owe their moderate 
 success to the fact that the great mining community of Johannes- 
 burg, importing almost everything it consumes, and accustomed 
 to pay gold miners' prices, is many hundreds of miles from the sea 
 Prussia is the only country where the State system shows a sub- 
 stantial profit after payment of operating expenses and interest on 
 capital. And this fortunate position Prussia owes to two things. 
 It bought the railways at a most opportune moment, just before 
 the great industrial and commercial development that has made 
 modern Germany; and the Government has been powerful enough 
 to maintain the scale of rates, as we have se*en, practically unaltered 
 over a long series of years. Belgium roughly makes both ends 
 meet. Switzerland the same. The smaller German States and the 
 Australasian Colonies, speaking broadly over a series of years, have 
 to make up some part of their interest charges out of general tax- 
 ation. Austria, Italy, and France on its State railways, as we have 
 seen, produce deplorable financial results. 
 
 Is State Management More Equitable? 
 
 It is, however, claimed that the State would apportion its favors 
 with a more equal hand; would level the backward parts of the 
 country up to the standard of the better developed ; and adjust rates 
 and fares more equitably. These were promises made by the 
 
 48 
 
Prussian Government when they took over the railways. And so 
 far as the first half of the promise, the extension of the railroads 
 into poor districts, is concerned, unquestionably it has been fulfilled. 
 But the reason is to be found, not in the beneficence of the State, 
 so much as in the fact, that the only power in Prussia that counts, 
 beside the Throne, is that of the agrarian party, the Junkers. Partly 
 owing to their hereditary influence over the Executive government, 
 and partly to the fact hat the agricultural disricts are enormously 
 over-represented in the Prussian Parliament, they have succeeded 
 in getting a good share of the surplus revenues from the manufac- 
 turing districts devoted to developing their own estates. On the 
 other hand, as has already been mentioned, when it comes to tariffs, 
 no counry has gone as far as Prussia in giving advantage to the big 
 shipper over the small man. 
 
 In Australia undoubtedly railroads have been built in backward 
 districts which private enterprise would never have touched. But 
 if a railroad, after being open for traffic for ten or a dozen years, 
 still hardly does more than pay its operating expenses, it is safe 
 to say that it is not an undertaking which would have been entered 
 upon at all by a prudent management, had it been free to spend its 
 capital where it would do most good to he public as a whole. In 
 other words, the reason why such a line was built was political 
 pressure. And that such lines are common enough all over Aus- 
 tralia is sufficiently well-known. Indeed, the report of the Victorian 
 State Railways for 1907 gives a list of seven branches, with an 
 aggregate length of 46 miles, constructed at a cost of $1,883,336, 
 which were closed for traffic at various dates between 1898 and 
 1904, and abandoned altogether because gross receipts failed even 
 to cover operating expenses. 
 
 The claim that the State will adjust rates and fares more 
 equitably is more difficult to deal with. The famous Prussian 
 Finance Minister von Miquel asserted categorically that the only 
 possible policy for a State system was to adopt a rigid tariff uniform 
 over the whole country. And that is, in fact, the Prussian system 
 of today. For 500 miles the rate is ten times that for 50 miles. 
 Whether this equitable is another question. It certainly does 
 not cost the railway ten times as much to do the business. Nor 
 does it seem to be treating the shipper in accordance with the canon 
 of taxation which says that the end to be aimed at is equality of 
 sacrifice by the taxpayer. But, be that as it may, while such a policy 
 is possible for Prussia, with only a small seaboard, and where the 
 Government owns, not only the railways, but the canals, it is un- 
 thinkable in England or in America. Imagine an English Govern- 
 
 49 
 
ment charging from London to Edinburgh ten times as much as 
 for the first forty miles out of London. The only result would be 
 to drive the whole of the traffic to the coasting steamers. As for 
 America, the thing is still more impossible. To quote an extreme 
 case: the fact that, after years of deliberation, the Inter-State 
 Commerce Commission has finally decided that it is reasonable 
 to charge more for a car-load of freight from Chicago to Denver 
 than from New York to San Francisco is sufficient, without more, 
 to show that American railways, even under public ownership, 
 would need to maintain tariffs in broad outline such as those existing 
 today. Certain modifications might, and, no doubt, would, take 
 place gradually; but the essence of the thing would needs remain 
 unchanged. Tariffs, that is, would continue to be dictated, not by 
 a priori theories, but 'by economic necessities. And such tariffs, 
 one might say further, would continue to be denounced as unjust 
 and unreasonable as the Inter-Mountain Rates have been for a 
 generation by the citizens of Colorado by those whom they ap- 
 peared to prejudice, and who would naturally lay the blame on the 
 railroad managers whom they see, and not on nature and geography 
 which keep in the background. 
 
 National Railways in a Democratic State 
 
 We come now to a more important point, a point which may 
 probably be said to be of more importance than all the others put 
 together. Prussia is undoubtedly the most successful instance of 
 State Railway management. Reasons have been given already for 
 thinking that the Prussian success, achieved under uniquely favor- 
 able circumstances, is not so much to boast of after all. But let 
 it be admitted for the sake of argument that the success is as brilliant 
 as it appears to the imagination of the most enthusiastic German 
 professor. The point cannot be too much insisted on that the 
 success of the Prussian autocracy is no argument for similar success 
 in the hands of English or American democracies. 
 
 A great American, who has passed over to the majority within 
 the last twelve months, Mr. Charles Francis Adams, put the matter 
 nearly forty years ago in words that have so often been quoted 
 that they have become classic : 
 
 "In applying results drawn from the experience of one country 
 to problems which present themselves in another, the difference of 
 social and political habit and education should ever be borne in mind. 
 Because in the countries of continental Europe the State can and 
 does hold close relations, amounting even to ownership, with the 
 railroads, it does not follow that, the same course could be success- 
 
 50 
 
fully pursued in England or in America. The former nations are 
 by political habit administrative, the latter are parliamentary; in 
 other words, France and Germany are essentially executive in their 
 governmental systems, while England and America are legislative. 
 Now the executive may design, construct, or operate a railroad ; the 
 legislative never can. A country, therefore, with a weak or un- 
 stable executive, or a crude and imperfect civil service, should accept 
 with caution results achieved under a government of bureaus."* 
 
 A railroad is a great business concern. And as every business 
 man knows, a business concern, if it is to prosper, must have a 
 single directing mind at the head. Under an autocratic system, the 
 head is the Minister of Railways ultimately responsible to the 
 Monarch, and to him alone. He may consult his customers, pas- 
 sengers and shippers, listen to their grievances and welcome their 
 suggestions the Prussian Government has an admirably organized 
 system of district and national councils for this very object. But he 
 alone decides. The King of Prussia is as really the head of the 
 railroads as he is the head of the army. Between a railway chief 
 in this position and a Minister in a democratic country, changing 
 every few years as his party goes in or out of power, liable at any 
 moment to be out-voted if he refuses a concession that a substantial 
 section of members of the legislature combine to demand, no com- 
 parison is possible. "The executive may design, construct, or 
 operate a railroad." And this is what happens in Prussia. "The 
 legislative never can," and in democratic countries it is the legis- 
 lative branch of the Government which not only decides policy but 
 dictates always in main outline, often down to the detail of a par- 
 ticular appointment or a special rate, how the policy shall be carried 
 out. 
 
 It may be objected that in every country, whatever be the form 
 of Government, the State runs the Post Office ; and in almost every 
 country the telegraphs, if not the telephones also. If it can manage 
 these, why not also railroads? The answer is that between these 
 two classes of business there is no analogy. The Post Office is a 
 purely executive business, with no commercial side to it. Uniform 
 rates, two cents or a penny or whatever the figure be, equal for all 
 distances, are accepted as a matter of course. The amount is so 
 small that nobody objects. If the charge for a letter were, not two 
 cents but a dollar, people would fast enough be found to protest that 
 it was unreasonable to charge the same from Wall Street to Central 
 Park as from Boston to San Francisco. A business such as this 
 can be managed well enough by a civil service organization. It is 
 
 '"Railroads: Their Origin and Problems." Edition of 1888. Page 115. 
 
 51 
 
essentially a matter of routine and operating efficiency. There may 
 be, in fact there usually is, political interference in reference to 
 appointments and promotions. And the staff no doubt avail them- 
 selves of their votes to improve their wages and working conditions. 
 But this, though a pretty serious matter, is not so vitally important 
 as the difficulties on the side of commercial management. 
 
 Whether a new railroad shall be built is not a matter where 
 precedents and fixed rules can decide. It can only be decided by a 
 man able to bring to bear on the question a trained mined and ripe 
 judgment, after taking into account all the factors of probable 
 traffic, probable cost, and whether the limited amount of capital 
 available would not be better employed elsewhere, perhaps in 
 something like double tracking, or the construction of a new classifi- 
 cation yard, which does not appear directly to benefit any single 
 member of the public. It is hard enough for the best man, left 
 free to exercise his unbiased judgment, to decide such questions 
 rightly. Can it be expected that they will be decided rightly by a 
 Minister responsible to a democratic legislature, each member of 
 which, naturally and rightly, makes the best case he can for his own 
 constituents, while he is quite ignorant, even if not careless, of the 
 interests, not only of his neighbor's constituency, but of the public 
 at large? The answer is written large in railway history. 
 
 Politics in South African Railways 
 
 It may be said without fear of contradiction that in no demo- 
 cratic community, where the railways are run by the public authori- 
 ties, is railway capital spent on construction, developments and 
 improvements, or railway operation conducted, with a single eye 
 to the best interests of the whole community. To produce public 
 evidence of this statement is not easy. It is not fair to quote 
 unsupported assertions in newspapers or elsewhere, as though they 
 were proof. The men who know the facts from the inside are not 
 i i a position to publish them. But of recent years, South Africa 
 has spoken out with considerable freedom on the subject in official 
 documents. And South Africa may well serve as a sample. In 
 March, 1907, a Commission on the Cape Railways reported unani- 
 mously that it "was impressed with the necessity of removing as 
 far as possible the management of the railways from the influence 
 of party politics." Here is in more detail an account of the reasons 
 which led them to that conclusion. The quotation is from: "A 
 Memorandum relative to Railway Organization, prepared at the 
 request of the Railway Commissioners of the Cape Government 
 Railways, by Sir Thomas R. Price, formerly general manager of 
 
 52 
 
those railways, and now general manager of the Central South 
 African (i. e., Transvaal and Orange River) Railways, dated Johan- 
 nesburg, February 22nd, 1907." 
 
 "Political Influences Disturbing Effect of. 
 
 "The drawbacks in the management of the railways in the Cape 
 that call for removal arise from the extent to which, and the manner 
 in which, the authority of Parliament is exercised. They are two- 
 fold in their character, viz. : 
 
 "(1) The practice of public authorities, influential persons, and 
 others bent on securing concessions or other advantages which the 
 general manager has either refused in the conscientious exercise 
 of his functions, or is not likely to grant, making representation to 
 the Commissioner (as the ministerial head of the Government), 
 supplemented by such pressure, political influence, or other means 
 as are considered perfectly legitimate in their way, and are best 
 calculated to attain the end applicants have in view. 
 
 "(Many members of Parliament act similarly in the interests of 
 the districts, constituents, or railway employees in whom they 
 happen to be interested. It is by no means unknown for the re- 
 quests in both classes of cases to coincide somewhat with a critical 
 division in Parliament present or in prospect or otherwise some- 
 thing has occurred which is regarded as irritating to the public 
 or embarrassing to the Government, and the desire to minimize 
 the effect by some conciliatory act is not unnatural). 
 
 "(2) The extent to which the fictitious, and often transitory 
 importance which a community or district manages to acquire 
 obscures (under the guise of the Colony's welfare) the considera- 
 tion of the railway and general interests of the Colony as a whole." 
 
 "(During the earlier period of my railway service in the Cape 
 Colony few things impressed me more, coming as I did from a 
 railway conducted on strictly business lines, than the extent to 
 which the conduct of railway affairs was influenced by certain con- 
 ditions. Nor was this impression lessened afterwards, when in the 
 course of a conversation on the matter, Sir Charles Elliott mentioned 
 to me that he had more than once told a late Railway Commissioner 
 'The Government is powerful, but [mentioning the town and 
 authority] is more powerful still')." 
 
 "I do not regard it as open to doubt that the Colony as a whole 
 has suffered severely in consequence, the inland portions of the 
 Colony particularly so ; and that the need for a remedy is pressing 
 if the railroads are to be conducted as a business concern for the 
 benefit of the Colony. 
 
 53 
 
"Means of Securing Freedom from Political Influences." 
 
 "The necessity for the railways and their administration being 
 removed from such an atmosphere, and treated as a most valuable 
 means of benefiting the Colony as a whole, whilst not neglecting 
 the interests of a district (but not subordinating the welfare of the 
 whole Colony thereto), is pressing. That there should be an au- 
 thority to refer to in case of real necessity, where the decision or 
 action of the general manager is not regarded as being in the public 
 interest, is also clear. But it is equally manifest that the Com- 
 missioner or the Government of the day, with political or party 
 consideration always in view, is not the proper court of reference. 
 
 "Political Influences as affecting Construction of New Lines. 
 
 "There can be little doubt that in the Cape Colony political con- 
 siderations have influenced the adoption of new lines and their 
 construction many, if not most of them, of an unprofitable charac- 
 ter without sufficient inquiry or information, often with scanty 
 particulars, and possibly contrary to the advice of the officer after- 
 wards entrusted with the construction and working of the line. 
 
 "Proposals for New Lines Procedure recommended. 
 
 "A material change is imperatively necessary in this respect, if 
 only to insure solvency of the Colony." 
 
 Neither the Commision's Report nor Sir Thomas Price's Memo- 
 randum can have sufficed to change matters, for in May, 1915, there 
 was a further "Memorandum on the Control and Management of 
 Railways and Harbors" presented to the South African Parliament 
 by the Board of Railway Commissioners. Here are some extracts 
 from it: "Any Minister, however able and strong his character 
 may be, is, under the system of party government, insensibly sus- 
 ceptible to party considerations and is in constant difficulties in 
 giving impartial decisions. * * * It is perhaps natural that men who 
 have been accustomed to the methods in vogue when the railways 
 were of limited extent should still desire to cling to the old system 
 of control, but the consequences of doing so cannot but be unsatis- 
 factory. * * * As the railways and their working were regarded as 
 part and parcel of the system of party government, with the obvious 
 advantage to the party in power, the reluctance of any Government 
 to make a change is what might naturally be expected. Apart from 
 the magnitude of the railways and the number of the railway ser- 
 vants employed, forces have of late years come into prominence 
 that make it increasingly urgent that the railways and harbors 
 should be regarded and administered in the interests of the whole 
 Union and not as an adjunct of the party that is in power." 
 
 54 
 
Politics in Australia 
 
 Official documents have not let us behind the scenes in Austral- 
 asia, in the same way as has been the case in South Africa. But 
 the public history is sufficiently striking. Down to the year 1884, 
 the railways in all the different colonies were managed, like any 
 other department of the Government, by a Minister directly respon- 
 sible to Parliament. This system was not a success, either from the 
 financial or any other point of view. In 1884, Victoria led the way 
 to the adoption of a new system. A buffer was inserted between 
 the politicians and the railways in the shape of a non-political com- 
 mission. The Commission was composed of three men holding office 
 for a fixed term of five years, and, like judges, irremovable except on 
 a vote of both houses of Parliament. The members were all profes- 
 sional railway men, and the Chief Commissioner had the right, in 
 case of disagreement, to over-rule his colleagues. A well-known 
 English railway man was appointed to fill the post of Chief Com- 
 missioner. The Commission had not power to undertake the con- 
 struction of new lines without the consent of the Ministry, but the 
 entire responsibility for the maintenance and working of the exist- 
 ing lines was handed over to them. 
 
 The example of Victoria was followed by South Australia in 
 1887, by New South Wales in 1888, and by Queensland and New 
 Zealand shortly after. In each case, the first Chief Commissioner 
 was an English railway man. In Victoria, the new system was 
 not over-successful. Political pressure still continued. The financial 
 position got worse. Budget estimates of expenditure were largely 
 exceeded. And, as has already been mentioned, free transportation 
 was given on a wholesale scale to the dependents of members of 
 Parliament. After much mutual recrimination, the Commission 
 was abolished, and the railways handed back to direct political con- 
 trol. Evidently a Commission which, though composed of individu- 
 als personally clean-handed, is not strong enough to crush attempts 
 at jobbery in its neighborhood, may be even worse for the public 
 interest than a Minister who uses his patronage for political ends. 
 For the Minister can at least be watched and exposed in Parliament 
 by political opponents, while a Commission can take shelter under 
 the cloak of its statutory irresponsibility. 
 
 The experience of New South Wales was different. The Chief 
 Commissioner appointed in 1888 was not merely a brilliantly able 
 administrator, but a man of iron will. He insisted on managing 
 the railroads committed to his care solely in the public interest. And 
 within four years, he had succeeded in simultaneously advancing 
 wages, reducing rates, and increasing net earnings by 56 per cent. ; 
 
 55 
 
thus restoring the finances to a satisfactory position. The result was 
 curious. The Commission was persecuted by a "large number of 
 people whose influence was at an end under a changed state of af- 
 fairs." Two Commissions of Inquiry were appointed to investigate 
 the alleged misdeeds of the Commissioners. They found an unhesi- 
 tating verdict for the defendants on every count of the long indict- 
 ment. An address of confidence was signed by thousands of electors 
 - all over the colony and presented to the Commissioners at an en- 
 thusiastic meeting of five thousand citizens of Sydney. The Com- 
 missioners were reappointed for a second term of five years; but 
 early in his second term the Chief Commissioner died suddenly. 
 Within a few years things had gone so far wrong that a Royal Com- 
 mission was appointed to investigate. As a result of their report 
 two out of the three Commissioners were called upon to retire. 
 
 It is not possible here to go through the varying histories of all 
 the colonies. One important phase of the history must not, however, 
 be passed over. In Victoria, in 1903, there was a fierce railway 
 strike, which, by the threat of a drastic Bill introduced in Parlia- 
 ment with the support of an almost unanimous public opinion, was 
 promptly put down. Thereupon an Act was passed depriving all 
 railway servants of their local vote, placing them on a separate and 
 distinct register, and giving them power to elect as their special 
 representatives one member to the Council and two to the Assembly. 
 In 1906 this Act was repealed and superseded by "An Act to abolish 
 separate representation in Parliament of Public Officers and Rail- 
 way Officers." Section IV, (1) and (2) of this Act, which is still 
 in force, is as follows : 
 
 (1). "In order that all officers may be enabled to render loyal 
 and efficient service to the State, it is hereby enacted that no person 
 or class of persons employed in any capacity (whether permanently 
 or temporarily) in the Public Service (including the Railway Serv- 
 ice, the Police Force, the State Rivers and Water Supply Depart- 
 ment and the Lunacy Department) shall either directly or indirectly 
 take any part whatsoever in or in relation to election of members 
 to the Legislative Council or the Legislative Assembly, or directly 
 or indirectly in any way take part in the political affairs of the State 
 of Victoria, otherwise than by recording a vote at a Parliamentary 
 election ; and no person or class of persons so employed shall di- 
 rectly or indirectly use or attempt to use any influence in respect 
 to any matter affecting the remuneration or position in the Public 
 Service of either himself or any other person. 
 
 (2). If any person so employed is guilty of any contravention of 
 this section, then on proof thereof to the satisfaction of the Public 
 Service Commissioner, the Commissioners of Railways, the Chief 
 
 56 
 
Commissioner of Police, or the State Commissioners and Water 
 Supply Commissioners, or the Inspector General of the Insane (as 
 the case may be) such person may by the said authority be fined 
 any sum not exceeding 10 and may be reduced in class, subdivision, 
 grade or status, and salary, or he may be dismissed or his services 
 may be dispensed with, provided that such person shall not be 
 dismissed or have his services dispensed with for any contravention 
 
 of this Section without the consent of the Governor in Council." 
 Victoria had in 1903 again reverted to the Commissioner system. 
 It imported an expert this time from America and a striking im- 
 provement, both in operating and financial results, at once became 
 evident. Since then there has been a relapse, and it is understood that 
 at present Victoria is once more considering the importation of a 
 new expert. In fact, in almost every colony, the management has 
 gone through various phases. Sometimes there have been Commis- 
 sions of three, at other times single Commissioners. At one time a 
 Commission has had full power; at another time it has been more or 
 less subordinated to a Minister. Or, again, the Commission has been 
 abolished altogether, and the railways have been worked by a gen- 
 eral manager whose position is definitely that of a Ministerial sub- 
 ordinate. 
 
 Another point may be noted. For thirty years most of the Aus- 
 tralian States have imported their chief official, whether entitled 
 Commissioner or General Manager, from England. They have not 
 had the pick of the English railway service. For neither in authority 
 nor in compensation is the position in Australia comparable to that 
 of a General Manager of one of the great English railways. And yet 
 the practice continued. What shall be said of an organization 
 which cannot train its own young men to become chief executives? 
 That the men are there, there can be no doubt. No one would sug- 
 gest that the average Australian is inferior to the average English- 
 man. Is not the reason that, in a commercial concern, promotion 
 by merit not only brings the best men to the top, but stimulates 
 every man to do his best, while Government service usually only 
 gets work done at the rate of what is known in England as the 
 "Government stroke." 
 
 Politics in Belgium 
 
 The history of Belgium affords a singular contrast to that of 
 Australia. There has been no attempt to interpose a buffer authority 
 between Parliament and the railways. The political Minister is 
 frankly the head of the railway system. And what is more remark- 
 able the same political party called Catholics by themselves and 
 Clericals by their opponents have been in power for 32 consecutive 
 
 57 
 
years, and up to the time of the war, they showed no signs of losing 
 their hold on the management of affairs. It is claimed by the 
 Liberal and Labor opponents of the present Ministry that this long 
 tenure of office is in large measure due to the patronage and influ- 
 ence which their possession of the railways gives them. Certain it 
 is that about six per cent, of the total votes polled in Belgium, vot- 
 ing is compulsory are those of the railway staff. Certain it is, too, 
 that the State administration does not err on the side of employing 
 too small a staff. Per kilometer of line open it employs 19.1 per- 
 sons, while the Northern Railway Company of France on its lines 
 in Belgium, where the traffic is certainly not below the average 
 of the State system, only finds it necessary to employ 12.91. It is 
 certain also, that, while the goods rates, which are only directly 
 paid by a few persons, have been maintained unreduced it is fair 
 to remember that even now they are the lowest in Western Europe 
 passenger fares, which appeal to the general public, have been 
 brought down to a point which experts say results in an actual loss. 
 The long distance workmen's weekly tickets have often been re- 
 ferred to with admiration. In the case of the longest distance, the 
 rate charged comes down to as low as six miles for one cent. Pro- 
 fessor Mahaim* regards these workmen's tickets as "a boon which 
 has rendered the population mobile, and solves the problem of unem- 
 poyment." The opponents of the Ministry tell another story, and 
 assert that these tickets are issued in order to prevent workmen 
 leaving the country districts, where they remain under the influence 
 of their priests, and coming to live near their work in the towns, 
 where they might be subject to other political influences. They 
 assert that it is not in the interests of the workmen that they should 
 be encouraged to live so far from their work that in extreme cases 
 they have to leave home at 3.30 or 4 o'clock in the morning, and only 
 get back at 11 o'clock at night. And this view has very recently re- 
 ceived support from one who cannot be regarded as a political oppo- 
 nent. Writing in the "Independence Beige" for 20th September, 
 1916, Father Rutten, a very well-known and influential priest, and 
 a strong supporter of the Government, says : "Better and cheaper 
 connection with the suburbs will alone induce workmen to desert 
 the crowded centres ; but matters must not be pushed to the other 
 extreme of further multiplying the workmen's fares. I have seen 
 at too close quarters the demoralizing of the Flemish worker who 
 has to spend every day four or five or even six hours on the railway, 
 in crowded carriages, in an atmosphere that in winter is not fit to 
 breathe. Living in the country is all very well ; but the benefits are 
 
 ""Railways and the State," London. 1912. 
 
 58 
 
greatly reduced by the necessity of these long journeys and by the 
 hours spent in the saloons alongside the stations." 
 
 It may be added, that whatever the reason be, the Ministry have 
 been so strongly opposed to bringing workmen to reside in the big 
 towns that, not only have they done little or nothing to develop sub- 
 urban traffic in the immediate neighborhood of Brussels, but they 
 have steadily refused the request of the railway officials that work- 
 men's cottages might be built near the big stations, so that men 
 might be at hand at all times of the day and night for urgent require- 
 ments of snow storms, accidents and the like. 
 
 In the matter of train service, it will hardly be denied that the 
 Belgian State railways are inferior to all their neighbors; every 
 passenger entering Belgium from France is conscious of a marked 
 slowing down of the train. Indeed, the international service be- 
 tween Ostend and the German frontier was so poor that the Prussian 
 Government is understood to have threatened to divert the English 
 Mail via Holland and Flushing unless it was improved. 
 
 Antwerp and Brussels, the two principal towns in the country, 
 with a population of over a million between them, are only 27j^ 
 miles apart; until quite recently the best train took practically an 
 hour over the journey. The slowness of the trains is partly to be 
 explained by the fact that expenses have been rising fast in recent 
 years, and the State Administration has economized in road main- 
 tenance. And M. Mahaim gives figures, of which he apparently 
 does not fully appreciate the significance showing that, while be- 
 tween 1901 and 1908 total operating expenses rose 25 per cent., road 
 maintenance expenditure only rose 1.7 per cent. And every railway 
 man knows what this means. Nor can it be denied that the Belgian 
 Government has been behind the times in necessary new capital 
 outlay. To give one striking instance: A direct underground 
 connection between the Northern and Southern stations at Brussels 
 has been recognized as necessary for a quarter of a century. The 
 work was only commenced just before the war, up to which time 
 the only access to the Northern Station was over a single track 
 known to the Brussels newspapers, owing to the frequency of 
 accidents on it, as "the death trap." 
 
 In Belgium the Railway Budget and the State Budget are inex- 
 tricably entangled. Promises have been frequently made that the 
 two budgets should be separated, as in Switzerland and Italy, but 
 hitherto the promises have not been carried out. Official figures 
 do indeed give the total amount of the railway debt. But there are 
 no separate railway loans ; the whole money has in fact been raised 
 on the general credit of the State. The Railway Accounts show a 
 figure of some $3,859,040 per annum charged as "sinking fund." 
 
 59 
 
But in fact no sinking fund payment is really made, and the figure 
 is a mere book entry. 
 
 When the Chicago and Alton railway under Mr. Harriman's 
 management went back into the old books, extracted items of what 
 were really Capital Expenditures but which had been paid out of 
 Revenue, and then proceeded to capitalize the result, Americans 
 denounced it as a financial scandal. But the example had been set 
 by the State Administration of Belgium some years before. In 1897, 
 the Ministry went back on the sixty-three previous budgets, ex- 
 tracted a host of small additions to works and equipment which 
 had been charged to Revenue under the category of Renewals, 
 making together a total of over $2,122,472, and charged them back 
 against Capital.* 
 
 Efforts have been made from time to time, not only to separate 
 the Railway Budget from the General Budget, but to withdraw the 
 actual management of the railways from the political Minister. In 
 1905, for example, when M. Liebeart was Minister of Public Works, 
 the general management was, in the interests of discipline, handed 
 over to an expert railway man. The reform immediately produced 
 excellent results. But the deputies complained that their recommen- 
 dations had ceased to be received with sufficient attention, and one of 
 the first acts of M. Helleputte, who succeeded M. Liebeart as Min- 
 ister in 1907, was to resume all authority into his own hands. How 
 that authority is exercised can be judged by one or two instances. 
 According to the regulations, for every place vacant that is not open 
 to competition, a candidate must be entered on one of five categories. 
 The first three categories are composed of sons of officials possessing 
 various qualifications. The fourth category is composed of persons 
 recommended to the Minister's private secretary by senators, depu- 
 ties, or priests. The fifth category comprises everybody else. The 
 categories are taken in order. In practice the first three categories 
 provide very few candidates, and broadly no one is ever appointed 
 except from the fourth category, "recommended candidates." The 
 railway officials have tried to mend matters by filling as many posts 
 as possible by competition. The Ministry fights against this en- 
 roachment on its influence. For instance, open competition for 
 the posts of road-foreman and running-shed-foreman has been put 
 a stop to. Promotion is nominally by seniority, except in cases of 
 exceptional merit. In practice there is good reason to believe that 
 the exceptional merit is mainly of a political kind. The superior 
 officers are forbidden to mix themselves with politics, which, in 
 practice, means that they are forbidden publicly to express opinions 
 
 *See the official "Compte Rendu" for 1912, p. A89. 
 
 60 
 
than those of the Government. Similarly the formation of 
 associations among the rank and file of the staff is closely super- 
 vised.* It is claimed that, while Catholic workmen are free to 
 associate as they please, associations of an opposite tendency live 
 under a constant threat of dissolution. 
 
 Here is a quite recent story. On the occasion of the elections in 
 June, 1912, as the result of orders direct from the Cabinet of the 
 Minister himself, increases of wages were granted and paid to a 
 large number of men on the very day before the vote was taken, and 
 these increases were made to date back to the previous 1st January, 
 The Minister was accused in Parliament of having ordered these 
 increases by telegraph ; he replied that the accusation was not true. 
 He was quite accurate in his statement. The order had been given 
 by telephone. 
 
 As is well known, the Catholic party is mainly composed of the 
 Flemish portion of the population, while the Liberals and Socialists 
 are mainly French and Walloon. Two somewhat amusing instances 
 of the encouragement of Flemish aspirations may be given. The 
 public notices in the stations at Brussels used to be in two languages 
 the French above the Flemish. Not long ago, they were all taken 
 down, and stuck up again with the Flemish above the French. The 
 Traveller's Guide used to be published in two editions. Of the 
 French edition 80,000 copies were sold ; of the Flemish 3,000. And 
 it is alleged that, in order to get even the 3,000 sold, the French 
 edition was allowed to go out of print before the demand was ex- 
 hausted. To please the "Flamingants," the French edition has been 
 abolished, and a single edition has been put out in both languages, 
 naturally larger, more complicated and less convenient. 
 
 Let us turn from the question of interference with the manage- 
 ment of an undertaking belonging to the public at large in the 
 interests of a single political party, and note a result of State man- 
 agement of a quite different kind. Alongside of the Belgian State' 
 railway system proper, there is a secondary system of light railways, 
 under a management organized as a company, of which, however, 
 the State and the various local authorities are practically the only 
 shareholders. In this secondary system the State has only about 
 fifty per cent, interest, whereas it has a hundred per cent, interest 
 in the State railways proper. The Minister of Public Works has 
 control of the tariffs of the light railways, and exercises that control 
 to prevent the light railways from reducing their tariffs though it 
 may be to the interest both of the light railways and their customers 
 
 *See the regulations put out in March, 1910, which are to be found in 
 the report of M. de Bue on the Railway Budget of 1911 in the "Documents 
 Parlementaires." 
 
 61 
 
to do so whenever it is feared that competition injuriously affecting 
 the State railway revenues might result. 
 
 One Word more as to Belgium. The same political party has, 
 as has been said, retained control of the railways in Belgium for 
 32 years. But shortly before the war a Commission was appointed 
 to inquire into the whole subject. No report has been officially 
 published. But it is a matter of public knowledge that the Com- 
 mission had determined to recommend that the construction of new 
 lines should in future be entrusted to a contractor and not left in 
 the hands of the Railway Administration, that they were seriously 
 considering the grant of a lease of the State railways to an operating 
 company, and that certain very influential persons were in favor 
 of the adoption of this policy. 
 
 Conclusion 
 
 President Hadley has summed up the conclusions of the Italian 
 Railway Commission based on the railway experience of the world, 
 as it existed 35 years ago, as follows : 
 
 (1) Most of the pleas for State Management are based upon the 
 idea that the State would perform many services much cheaper than 
 they are performed by private companies. This is a mistake. The 
 tendency is decidedly the other way. * * * The State is much more 
 likely to attempt to tax industry than to foster it. 
 
 (2) State management is more costly than private manage- 
 ment. * * * 
 
 (3) The political dangers would be very great. Politics would 
 corrupt the railroad management, and the railroad management 
 would corrupt politics. * * * 
 
 In the foregoing pages, an attempt hampered by the condition 
 that the most important facts of contemporary history are not 
 always those that can be most readily published has been made, 
 subject to strict limitations of space, to bring the history up to date. 
 And the conclusions of the Italian Commission still seem to stand 
 firm. 
 
 The essential lesson of the history may be said to be this : It is 
 impossible to obtain satisfactory results on government railways in 
 a democratic State unless the management is cut loose from direct 
 political control. Neither Australia nor any other country with a 
 democratic constitution perhaps an exception ought to be made of 
 Switzerland has succeeded in maintaining a permanent severance. 
 The Australian Parliaments have loosened their hold for a few years, 
 but only for a few years. In France, in Belgium, in Italy, Parlia- 
 mentary interference has never been abandoned for a moment. 
 
 62 
 
ithout imputing a double dose of original sin to politicians, it is 
 easy to see why this happens. The railways belong to the people. 
 Parliament is the authorized representative of the people. It seems 
 therefore to the ordinary citizen only right and natural that Parlia- 
 ment should control the management of the people's railways. And 
 yet facts are stubborn things ; and the facts show that Parliamentary 
 interference has meant running the railways, not for the benefit of 
 the people at large, but to satisfy local and sectional or even personal 
 interests. They show further that, under Parliamentary manage- 
 ment, it is easier to get money for big schemes of new construction 
 than for inconspicuous day-to-day betterments and improvements 
 which probably would produce much greater public benefit. Some 
 day perhaps, having learned wisdom by experience, a Parliament and 
 a people may recognize that management for the people is not neces- 
 sarily management by the people ; that there are other branches of 
 government, besides the judicial branch, unsuited for popular inter- 
 ference ; and may establish a permanent State railway organization, 
 /'with its own board of directors, with its own separate budget, and 
 entirely independent of Parliamentary control, but controlled like 
 any private company by a judicially minded commission, required 
 also like a private company to earn a dividend for its stockholders, 
 the people. And then a main objection to Government railways in 
 a democratic State will have lost its force. But hitherto no Par- 
 Hament and no people have recognized this fact, even though it 
 stands out abundantly clear on the pages of railway history. 
 
 63 
 
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