PUBLIC OWNERSHIP AND LOW RATES

In the same country and under similar conditions otherwise than in respect to ownership and control, public ownership tends as a rule to make lower rates than private ownership. This tendency results from the fundamental difference of aim between the two systems. Private monopoly aims at dividends for stockholders; public ownership aims at service for all. A normal public institution aims at the public good, while a normal private monopoly aims at private profit. It serves public interest also, but such service is incidental, and not the primary purpose. It serves the public interest so long as it runs along in the same direction and is linked with private profit, but when the public interest departs from or runs counter to the interests owning or controlling the system, the public interests are subordinated.

The conflict between public and private interest is specially strong in the matter of rates. The rate-level that yields the greatest profit is much higher than the rate-level that affords the greatest service, or the greatest service without deficit, 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 greater. The diagram will make the matter very clear.

In the figure, LO is the rate line with zero rates at the bottom and at the top rates so lofty as to be prohibitive; TTT is the traffic curve expanding rapidly as the rates are lowered; E E E is the expense curve beginning with the minimum of fixed charges and operating cost which must be incurred even with the smallest traffic and expanding with the traffic, though not in the same ratio. A considerable traffic can be handled at a slight advance up the minimum cost (the fixed charges being nearly the same with 60 passengers per car as with 1, while the operating cost is only slightly increased), and for the later ranges of the traffic curve the expense account expands at so much less a rate than the traffic that an enlargement of 100 per cent. in the traffic frequently increases expenses only 30 to 50 per cent., and sometimes scarcely at all, as when Hungary adopted the zone system in 1889. R R R is the curve of receipts, which is a function of the rate and the traffic, and can be easily platted from them; Y RN, the part of the curve of receipts that extends beyond the expense line, represents profits. HI is the rate-level that yields the greatest profit, and M N is the ratelevel that yields the greatest traffic without incurring a deficit. It is the level at which the line of receipts crosses the expense line, so that there is neither profit nor deficit, but service at cost. M N, the line of greatest traffic without deficit, is always a considerable distance below H I, the line of greatest profit. As you go down the rate line from H the traffic increases and the profit diminishes, until you come to a point where the rates are so low that profit vanishes, and there you have the rate-level of greatest traffic without deficit.

Now, private monopoly aiming at profit tends to establish rates at the level HI, the rate-level for profit, while public ownership aiming at service tends to bring rates down to the level M N, the rate-level for service.

Private monopoly aiming at profit tends to put rates at H with the traffic HP and the profit X I, 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 S and no profit. I say "tends," because actual rates may not be on the lines HI and M N-public ownership may place the rates above M N (though rarely or never as high as H I) or below M N, 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 M N). The significant fact is that private rates gravitate to the high level H I with large profit and comparatively 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 the figure 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 ratelevel with maximum service at cost.

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 four-fifths 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.

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.

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 six years ago, instead of the 24 cent fare we would pay if the same percentage of reduction had occurred here as in Glasgow.

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.

For commercial electric lighting Prof. John R. Commons says that private companies charge 50 to 100 per cent. more than public plants.1

We could offer many other illustrations of the law that public ownership tends to lower rates than private monopoly, but this discussion may be sufficient to indicate the complexion of the facts and put the reader upon inquiry, which is the purpose of this brief article.

National Public Ownership League, Boston, Mass.

FRANK PARSONS.

1 See "Municipal Monopolies," p. 156.

BOOK DEPARTMENT

NOTES

STEPS IN THE EXPANSION OF OUR TERRITORY, by Oscar P. Austin, 'is a volume in the "Expansion of the Republic Series," and is designed to "tell in simple terms the steps by which the United States has been transformed from thirteen political communities into fifty." The author divides the territorial history of the country into thirteen periods and discusses the various territorial and political changes occurring in each, accompanying the text by an elaborate series of black line maps. The latter form the most important feature of the work.

The author's preference for an extremely simple style leads him to adopt a colorless one. He is likewise guilty of a few minor inaccuracies hardly excusable in a statistician of national reputation. Among these we may note his statement (122) that in 1803 the United States became owner of both sides of the Mississippi "from the source to the mouth;" that the United States acquired the Alabama portion of West Florida in 1812 (143); that Spain, in 1795, sold West Florida to France (145); that the desire to acquire the Floridas was due wholly to the "slave power" (145); that in 1819 we exchanged Texas for the Spanish claims above the forty-second parallel; and that Texas land warrants played a more important part in the South than in the North (167) in forcing the annexation of that State. These inaccuracies which may be taken as typical of many others detract much from the value of the book as a graphical representation of the growth of the United States.2

THE REAPPEARANCE OF "Sophisms of Free Trade and Popular Political Economy Examined,' by Sir John Barnard Byles,3 at this particular juncture in England will be readily understood. As an ex parte argument upon a much vexed question it has its merits; among which frankness and courage of conviction are conspicuous. These, however, are not all; for it successfully controverts many of the tenets of the "orthodox economists” and places before the reader in a good literary form what we are now acquainted with as the stock arguments for protection. It repeats some of the old errors also.

RELIGIOUS FREEDOM IN AMERICAN EDUCATION, by Joseph Henry Crooker,' is a little book which deserves wide reading among American students. The author's main purpose is to discover the true status of religion in its relation to

1 Pp. 258. Price, $1.25. New York: D. Appleton & Co., 1903.

2 Contributed by Isaac Joslin Cox.

3 Newly edited from the eighth edition with notes and introduction by N. S. Lilly & C. S. Devas, London, 1904. Pp. li and 424. Price, $1.25. London: 1849. New York: John Lane, 1904. 4 Contributed by J. E. Conner, Ph.D.

Boston: American Unitarian Association, 1903.

public education. To this end he discusses lucidly the function of the "secular" state, the Bible in the public schools, the need of religious neutrality, the religious motive in its relation to higher education, etc. There is an interesting chapter embodying the results of a painstaking investigation into the practices of some of the larger universities with regard to the holding of chapel exercises. A final chapter, in some respects the best in the book, contains the author's conclusions and recommendations on the subject of religion in its relation to education.

THE STOCK EXCHANGE® is a little book of interest to all Americans who have to do with stock exchange transactions. Within a brief compass the author has given full and excellent description of the London Stock Exchange and of its methods. The book is naturally compared with Pratts's "Work of Wall Street." It is by no means as complete as the latter, nevertheless it contains all the information concerning stock exchange transactions in London in which the general reader will be interested.

Two GERMAN GOVERNMENT OFFICIALS COnnected with the collection of customs in South Germany have recently written a volume on the commercial policy of the Empire. They state the purpose of their book to be “to give a survey of the development of customs duties and of the economic significance of these duties, as well as to show the connection, direct and indirect, between customs duties and the whole economic life of the nation." This, however, is only part of their purpose. It is soon evident that their ultimate aim is to urge the formation of a customs union of the nations of Central Europe, as the only defense against disastrous transoceanic competition.

This subject of "transoceanic competition" is of interest to American readers for the United States is in German eyes the chief offender. Separate chapters are devoted to Russia, England and America, which constitute, according to the authors, the three great economic domains. In the chapter on America the authors express fear of a Pan-American customs union, which, they feel, would mean nothing but probable economic disaster to the nations of Europe. They openly advocate a preferential tariff for European competitors (as opposed to American competitors) pending the formation of a Central-European Zollverein.

8

BY ALL MEANS the best brief account of the development of English public charities is that given by Charles A. Ellwood, Professor of Sociology in the University of Missouri, in his recent pamphlet, "Public Relief and Private Charity in England," which appears as Vol. II, No. 2, of the University of Missouri Studies. The style is clear and concise and the author is to be congratulated that he has so well told a long story in less than one hundred pages.

By Charles Duguid. Pp. 173. Price, 2s. 6d. London: Methuen & Co., 1904. 7 Brennende Agrar-, Zoll-, und Handelsfragen. Bearbeitet und herausgegeben von Hermann Egner und Karl Schuemacher. Pp. 378. Price, 3 marks, or one dollar. Karlsruhe: J. J. Reiff, 1903.

8 Contributed by Dr. C. W. A. Veditz, Lewiston, Me.