upon the traffic curve as a base. The profit curve crosses behind the traffic curve at N, the line M N representing the largest traffic that can be secured by lowering rates and yet escape a deficit; while H I, as before, is the line of largest profit, with higher rates but much smaller traffic, H x, than is the case on the level M N. Private monopoly aiming at profit tends to put rates at H with the traffic Hx and the profit xf, while public ownership aiming at service tends to put rates several flights of stairs lower down, at M, with the very much larger traffic M N and no profit. I say "tends," because actual rates may not be on the lines H I and M N-public ownership may place the rates above M N (though rarely or never as high as HI) or below MN, even down to the zero level, and private ownership may, through miscalculation, put rates above H I or below it (though rarely or never so low as MN). The significant fact is that private rates gravitate to the high level HI with large profit and comparitively small service, while public rates gravitate to the low level M N, with large service and no profit, and in later stages of development may seek a lower level still and even cultivate the zero line.

The curves in these figures would vary, of course, with the location and character of the business. Under some circumstances a 50 per cent reduction of rates would double traffic and increase expenses 30 per cent perhaps, while in another case a 50 per cent reduction would increase the business 20 per cent and the expenses 10 per cent or 15 per cent. In some cases the traffic curve becomes concave toward the left as it nears the zero level, while in other cases it might be concave toward the northeast and strike the zero level at a great distance to the right. But through all the various phases of these curves the essential facts remain the same, viz: (1) The rate level that yields the greatest profit carries a relatively small traffic and lies above the rate level that yields the largest traffic attainable by lowering rates without incurring a deficit, and (2) private ownership seeks the high-rate level with maximum profit, while public ownership seeks the low-rate level with maximum service at cost.

The great point is that the private system looks at this profit line while the public system looks at the traffic line. Private managers regulate this business simply in reference to the profit line, trying to establish rates at the level which will produce the greatest profit regardless of whether it produces the greatest movement in the country or not, or the greatest development of industry; whereas the tendency of the public system is to look to the greatest development of traffic so long as it remains within reasonable cost, and not always that. We make our public highways-not our iron highways, but our stone highways and common roadsabsolutely free for the development of commerce and civilization.

Q. (By Mr. CLARKE.) Is that diagram based on actual experience, or is it mere theory? A. It is based on the results of experience, the laws of movement indicated by actual cases. For the extremes-top and bottom-we have, of course, only general indications from what scientists call "adjacent cases" and from the results of selling water below cost and of making roads, parks, and schools free, and carrying school children and some fertilizers free in New Zealand and Australia. But the middle sections are carefully platted according to principles established by the experienced results of lowering rates on railroad and street railway systems. Telegraph and telephone experience, and actual reductions in rates for water, gas, and other similar services, illustrate the same general truths that business increases rapidly with lower rates, while expenses, as a rule, increase in smaller ratio, and that the rate level yielding the greatest profit is above the rate level yielding the greatest traffic without deficit-this is the universal and essential truth on which I base the proposition that public ownership aiming at service tends to make lower rates than private ownership aiming at profit. However much the shape of the curves may vary in different systems of railroad, street railway, telegraph, or telephone, their relations will always be such as to harmonize with and illustrate the fact that the line of greatest profit is at a higher rate level than the line of greatest traffic at cost. So that this diagram is not only accurate but universal in respect to the truth for the illustration of which it is adduced.

Q. Now, at some stage I would like to have you answer the question, and now, if this is the time when you wish to do it, whether or not there is not, in your opinion, sound economics in the principle that every tub should stand on its own bottom-that is, that every system should produce a good financial result, even a little profit, rather than a deficit?-A. No; I do not think it is a sound economic principle, not as a universal principle, for this reason: morals, intelligence, and civilization are just as vitally related to economics as dollars and cents, and the development of education is just as much a part of the business of an economic system, of a railway system, or any other industry, as the making of profit-in short, the serving of the public good is the only admissible purpose of all public utilities; and if the public good requires that the roads of the country should be

free, I think there can be no sound economics in requiring them to pay cost or make a profit; or if, considering all interests of the higher wealth as well as the lower, the public good requires that the public schools should be free, then any principle that requires them to make a profit can not be sound economics. It is right that the elevator in the building should be run free and the charge put upon the party who rents the building, because of the simplicity of the thing. And if it should turn out with the railways as it has with these other things, that it is best to make them free, there is no economic principle to prevent it so far as I know. There may be a prima facie presumption that each service should be selfsupporting till good reason appears to the contrary, but when such reason does appear, sound economics requires that it should be heeded. Sound economics will do whatever is best for the community, and if it promotes the public welfare to carry mail. or school children, or fertilizers below cost, and make use of our streets, roads, hospitals, and fire departments free, then sound economics will do it. In most countries, as far as the mass of the business is concerned, the public railways are managed so as to make a little profit, but there is no sound economic principle that would require them to continue on that basis after it became clear that public interests would be better served by running them below cost to secure the education, intelligence, character, harmony, development of industry, etc., accompanying the increase of traffic that results from lower rates.

Q. Now, suppose the nontaxpayers are in control of the Government and seek to have the railways and their public conveniences run at cost, or less than cost, for their convenience and make up the deficit by taxing the people on their property. Does that seem to you to be an improbable result of that system?—Ã. În the light of the past I should say that it was a very improbable result with the railroads, so far as the near future is concerned, but I should not say that it was improbable in the far future. Let me give you a little summary by Professor Seligman, of Columbia University, which throws much light on this matter.

THE FIVE STAGES OF DEVELOPMENT.

"In all the media of transportation and communication there seems to be a definite law of evolution. Everywhere at first they are in private hands and used for purposes of extortion or of profit, like the highways in medieval Europe or the early bridges and canals. In the second stage they are affected with a public interest,' and are turned over to trustees, who are permitted to charge fixed tolls, but are required to keep the service up to a certain standard. This was the era of the canal and turnpike trusts or companies. In the third stage the government takes over the service, but manages it for profits, as is still the case to-day in some countries with the post and the railway system. In the fourth stage the gov ernment charges tolls or fees only to cover expenses, as until recently in the case of canals and bridges, and as is the theory of the postal system and of the municipal water supply with us at the present time. In the fifth stage the government reduces charges until finally there is no charge at all and the expenses are defrayed by a general tax on the community. This is the stage now reached in the common roads and most of the canals and bridges, and which has been proposed by officials of several American cities for other services, like the, water supply.

The extent to which public ownership and cooperative effort have replaced individual and private action in any community is one of the surest tests of the degree of its civilization. And the final stage in the case of a great universal utility, such as transportation, is free service, but in the nature of things this final stage is not likely to come or be closely approached very soon, and even if voters should call for such a system before the better wealth diffusion of the future has made them all taxpayers, still the change would not be nearly so unjust as it may seem at first sight, because the property of the large taxpayers has been chiefly produced by nontaxpayers and taken from them by an unjust system of wealth distribution, wherefore the railroad tax would in very large part be merely one step toward a fairer adjustment of wealth and burdens, like a progressive income or inheritance tax.

To come back to Diagram II: We have seen that in the same country and under similar conditions otherwise than in respect to ownership and control public ownership tends to make lower rates than private ownership. The line of greatest profit is on a much higher rate level than the line of greatest service, and since private monopoly aims at profit it seeks the higher rate level. Public ownership aims at service, not at profit, and therefore gravitates to the lower rate level, where traffic and service are greatest.

I regard this as a practical demonstration of the generalization as to the tendency of public ownership to lower rates.

ILLUSTRATIONS OF THE TENDENCY OF PUBLIC OWNERSHIP TO LOWER RATES.

A few illustrations of the vigorous manner in which this law works out in practice may be of advantage here.

The Hungarian Government at a single stroke in 1889 reduced State railway fares 40 to 80 per cent. Austria and Prussia have also made great reductions in railway charges. Belgium started in the thirties with the very low rate of fourfifths of a cent on her public railways. In New Zealand and Australia also the government managements have adopted the settled policy of reducing railroad rates as fast as possible. For example, in the New Zealand report for 1899 Mr. Cadman, the minister of railways, announced reductions of 20 per cent on farm products and 40 per cent on butter and cheese, concessions amounting to one-seventh of the railway receipts and equivalent to a reduction of $150,000,000 in the United States. Following this, Mr. Ward, the new minister, announced a general lowering of passenger fares. In the United States, on the other hand, by reclassification, etc., rates on many products have recently been lifted instead of lowered. When England made the telegraph public in 1870, rates were lowered 30 to 50 per cent at once, and still further reductions were afterwards made.

When France took over the telephone in 1889, rates were reduced from $116 to $78 per year in Paris, and from $78 to $39 elsewhere, except in Lyons, where the charge was made $58.50.

Private turnpikes, bridges, and canals levy sufficient tolls to get what profit may be possible; but when these same highways, bridges, and canals become public the tolls are often abolished entirely, rendering such facilities of transportation free, and when charges are made they are lower than the rates of private monopolies under similar conditions, and generally reach the vanishing point as soon as the capital is paid off or before. The difference between public and private management of such undertakings is strikingly illustrated in the following comparison of the Brooklyn and St. Louis bridges:

The Brooklyn Bridge is owned by the cities of New York and Brooklyn. The St. Louis Bridge is privately owned. The contrast in the management of the two bridges is very great.

Before the recent lease giving the companies the use of the Brooklyn Bridge the public operation realized more than enough to pay expenses and interest, on a 24-cent fare, etc. (as above), paying the car men $2.75 for an 8-hour day. The elevated railway companies running over the bridge pay $2 for 10 hours, and some of the men receive less and work longer, so I am told by the men themselves. On the electrics running over the St. Louis Bridge the men work 12 hours, for which the conductors get $2.25 and the motormen $2.

Under the lease the elevated roads pay about $100,000 a year for the use of the bridge, and the trolleys 5 cents a car, a fraction of a cent per passenger. The franchise charges were made very small in order to arrange matters so that no extra fare for crossing the bridge would be collected from those paying the ordinary 5-cent car fare, thus making the bridge free for passengers coming from or going to a distance, and more than free to those who simply cross it in the bridge cars, since a ride in the cars anywhere else for any distance, no matter how short, costs a nickel instead of the 2-cent bridge rate-nothing for the bridge and half price for the car ride. The arrangement is good for the people and good for the companies, as it increases their traffic. It could only be improved by a larger payment from the companies, or lower fares in general, or, best of all, public ownership of the street railways as well as the bridge.

The net earnings of the St. Louis Bridge are one and one-fourth millions a year, or 25 per cent on the Gould investment, and 12 per cent on the impairable capital (the excavating of the tunnels, etc., will never have to be done again). The St. Louis charges may be objected to, not only as extortionate, but as discriminating. A passenger who buys a ticket in New York or Philadelphia to go to St. Louis has to pay 75 cents for crossing the bridge, whereas if he buys a ticket to East St. Louis and then crosses the bridge in a railroad train, it will cost him only 25 cents.

The St. Louis Bridge is managed for private profit; the Brooklyn Bridge is managed for public service, the aim being to make the bridge as useful to the people as possible.

When Glasgow took the management of her street railways in 1894 fares were reduced at once about 33 per cent; the average fare dropped to about 2 cents, and 35 per cent of the fares were 1 cent each. Since then further reductions have been made, and the average fare now is little more than a cent and a half; over 50 per cent reduction in 6 years, while we pay the 5-cent fare to the private companies in Boston and other cities of the United States the same as we did 6 years ago, instead of the 24-cent fare we would pay if the same percentage of reduction 16A- -10

had occurred here as in Glasgow. At the same time that rates have been cut down in Glasgow wages have been raised, hours reduced, and the service greatly improved; and the profits of the business go to the people instead of a few stockholders. In the early nineties, when the private tramways of Glasgow were collecting an average fare of 3.84 cents, they declared that only 0.24 cent was profit. Now the public tram lines, with less than half the fare, still realize nearly a quarter of a cent clear profit and put $200,000 a year in the public treasury above all cost of operation and fixed charges.

According to Baker's Manual of American Waterworks, the charges of private water companies in the United States average 43 per cent excess above the charges of public waterworks for similar service. In some States investigation shows that private water rates are double the public rates. (See City for the People, pp. 20, 195.)

For commercial electric lighting private companies charge 50 to 100 per cent more than public plants. (See Municipal Monopolies, p. 156.) What public ownership can do toward lowering the cost of street lighting may be seen from the following table:

TABLE II.-Cost of electric light before and after public ownership.

[Total cost per lamp year for electric street lights before and after public operation, the "after" service being as good or better than the service it replaced.]

Column 2 is made up of the operating cost plus 5 per cent on the investment for insurance, taxes, and depreciation and 4 per cent for interest, except where the actual interest is known. With Aurora, Fairfield, Marshalltown, and Bay City the real contrast is between columns 1 and 3, for there is no debt to allow for in those cases. Perhaps the same is true of Bangor and Lewiston. The data in my possession leave that point in doubt in those two cases. The true contrast is always between columns 1 and 3 if you wish to compare private ownership and operation not merely with public operation of a plant the capital in which is still privately owned, but with public operation and ownership complete.

When we are trying to ascertain what it is fair for a private company to charge we must add interest, but when we are trying to discover the effect upon the people of a change to complete public ownership there is no interest on the public side of the account.

The number of lights was greater in several cases under public ownership than with the private supply. On the other hand, the actual candlepower in the public lights is usually higher and the public plants are handicapped by lack of permission to engage in commercial lighting. This more than balances the advantage of a large number of street lamps-300 street lamps plus 20,000 private lamps makes a much larger business and lower cost per unit than 350 or 400 street lamps with no commercial business. Setting this handicap against the increase of street lamps, it seems fair to conclude that the above figures obtained from the reports and officials of the municipalities involved do not overstate the saving power of public ownership.

In the early years before the cost of electric lighting was understood and the companies were charging speculative prices, as in Elgin, Aurora, etc., the change to public ownership caused an amazing reduction. And even in later times the saving through municipal ownership is sufficiently marked. In Detroit, for example, one of the latest cases, the city, when considering the change to public ownership 5 years ago, could get no bid for its street lamps lower than $132 per arc year; it saved nearly $50 per arc at the start, and has now reduced the total cost, interest, depreciation. taxes, insurance, and operation to about $70 per are, and could cut it down to $60 or less if the commercial lighting of the city were united with the street lighting in one system under public management.