expenses increased 4.9 per cent, and net operating revenue decreased .5 per cent. The additions to taxes and other incidental expenses will raise this figure. The progressive decline of net earnings per mile under the existing method of rate regulation is assured.

The properties of many systems are already encumbered to the limit of credit and solvency. Securities have been consolidated, equipment trusts have placed what are practically chattel mortgages on rolling stock, and money cannot be raised except for a short term and at high rates. Ten or fifteen years ago 4 per cent would bring in capital for railroad improvements. Strong properties sold their bonds bearing 3½ per cent interest. Now some of the strongest roads are paying 4½ per cent for new capital. Properties less well known for stability and earning power pay more. The rate has advanced by from 1½ to 2 per cent in little more than ten years. The great sums required to extend our terminals to meet the actual business of the country can be had only on condition that the payment of principal and interest is absolutely secured. The railroads can pay money only as they are permitted to earn it. In the last resort it is up to the people to say whether or not these terminals and other facilities shall be supplied; just as it is up to them to suffer the severest of the consequences if they are not.

Two questions arise immediately and naturally from the situation as it discloses itself to any one who chooses to look at the facts. The first is, “Why are the railways not now in a position to borrow the money and build the terminals at once?”; the second is, “What have the railways done to entitle them to confidence, to relief and to a more fair and generous treatment by the public?”. Each of them can be answered by an examination of facts officially vouched for.

The impairment of credit has already been partly set forth in presenting the difficulty of making loans for improvement purposes, and noting the higher rate that must be paid. How has this happened? The limitation has come, of course, from two directions; decreased earning power and increased expenses. A railroad has no other source of income, generally speaking, than receipts from rates. These have steadily declined. While the price of everything else rises, the price of transportation falls. The average freight rate per ton per mile received by the railroads of the United States fell from 9.27 mills in 1890 to 7.53 mills in 1910. This is partly the effect of legislative regulations and the orders of public commissions, and partly due to voluntary reductions made possible by increased efficiency and increase in the density of traffic. On the whole, railroad rates in the United States are the lowest in the world. But they cannot continue to grow less forever.

Rates must be such as will bring in, above operating expenses, a reasonable return on the investment as measured by the value of the property. So much the courts will uphold. But that is not enough, if the railroads are to go into the money markets of the world as borrowers of billions of dollars. A man must do better than graze the sharp edge of bankruptcy if he is to find himself welcomed as a prospective creditor by the investor. So the railways, if they are to carry this new burden, must not only be protected against the further destruction of their credit involved in an unending succession of attacks upon their existing revenue. They must also be permitted to earn enough to assure capital that they can pay interest and principal of the heavy additional loans asked. By the light of this practical, unchangeable fact the railway regulation of the future must be guided. If it is not, then congestion and a general paralysis of trade, costing the country more than double its whole bill for transportation cannot be avoided.

The Railroad Securities Commission, with President Hadley at its head, the ablest and most disinterested body which has ever investigated the subject in this country, said in its report: “Where the future is uncertain the investor demands, and is justified in demanding, a chance of added profit to compensate for his risk. We cannot secure the immense amount of capital needed unless we make profits and risks commensurate. If rates are going to be reduced whenever dividends exceed current rates of interest, investors will seek other fields where the hazard is less or the opportunity greater. In no event can we expect railroads to be developed merely to pay their owners such a return as they could have obtained by the purchase of investment securities which do not involve the hazards of construction or the risks of operation”. Exactly what happens when this right rule is reversed, and the railroads are forbidden by curtailment of their earning power to attract capital may be understood from the following extract from an editorial on the financial year which appeared in the New York Times of October 3, of this year: “Railways have issued a total of stocks and bonds and notes smaller this year than last by $23,821,100, while industrials have increased their issues by $362,288,650. The decrease of the railway bond issues was no less than $99,889,400, and they were formerly the favorite investment. The increase in industrials was mostly in stock, the figures being $259,416,250. Formerly industrials were unable to market stock in competition with the railways, but this year they have been able to place between three and four times as much as the railways.”

While revenue was shrinking, the obligatory expenses of the railways of the country have increased enormously. Their equipment alone is valued at nearly three and a half billion dollars; the increase during the last nine years being 45.3 per cent in locomotives and 39.7 per cent in freight cars. For the mere maintenance of equipment they spent over $413,000,000 in 1910. When we come to consider operation, the figures mount as rapidly as those on a pressure gauge when the needle is racing toward the danger point. The wages of the railroad employes in this country have reached the stupendous total of over $1,200,000,000 a year. According to the advance summary of the report of the Interstate Commerce Commission for 1911, the total number of employes in the United States decreased in that year by 29,611 as compared with 1910, while the total wages paid increased by $64,741,164. In no other occupation has such a showing ever been made. If the wage scale of 1899 had been in effect, the item of labor cost would have been some $300,000,000 less. Against liberal wages the railways do not protest, because they know that they can render safe, adequate and satisfactory service in proportion as their employes are well fitted and well paid for their work. But new outlay must be balanced by new income unless operation is to cease. Public sentiment almost always supports the demand of employes for higher wages. Public sentiment cannot, from the point of view of either justice or safety, continue to prohibit or prevent the levying of such rates as alone will enable the employer to pay the wage rate in many cases practically imposed from without as authoritatively as are the traffic rates that a commission orders into effect.

Another item of expense which grows out of all proportion to railway revenue or national development is taxation. In 1890 the taxes paid by all the railroads aggregated $31,207,469; in 1910 they had risen to $103,795,701; for 1911 they are estimated at $109,000,000 and may be a couple of millions more. The increase in twenty years up to 1910 is 233 per cent. This is by direct act of the people. The extravagance of all modern legislative bodies, the doubling of state and national expenses within a few years and the continuous issue of bonds for all