tained by taxation. Water rates on certain traffic are attractively lower than rail rates, and in some instances traffic is driven from rail to water routes by legally enforced prohibitive rail rates. In this situation, Dr. Moulton sees only poor economics and mistaken public policy and advocates the evacuation of the waterways. In the opinion of the writer, there is reason to doubt the validity of this conclusion. But Moulton has established beyond peradventure that there is little probability of lower average transportation costs as a result of improved water transportation.

VI. Disregarding the probability or improbability of lower rates, there is evidence of possible beneficence of a progressive waterway policy in the United States, and such evidence bears promise of increasing weight with the flight of time.

First. There are indications of the approaching maturity and inelasticity of the railway system and its consequent failure to meet future demands of commerce unless relieved or deprived of certain classes of traffic which are absorbing a rapidly increasing amount of operating capacity.

Second. Public outlays for permanent improvements are not properly to be considered as being in the same category with private investments, particularly, with respect to expected dividends and the inclusion of interest as a cost factor in the calculation of rates to be charged for public services. This being granted, waterway development may be justified in spite of the improbability of commercial revenues sufficient to cover costs, including interest.

Third. Sound public policy in flood prevention and water power development may dictate such measures as will make navigation a coördinate, or possibly secondary, object of stream control; thus materially reducing the capital costs of development and maintenance chargeable to any one purpose.

During the autumn and winter of 1906 and 1907, there occurred an unprecedented congestion of railway traffic in the United States which, although partially due to poor operating management, was indicative of possible physical traffic limitations of the railway organism. There have been recurrences of traffic congestion less severe than that of 1907, but of sufficient frequency and magnitude to hamper commerce and to cause considerable anxiety among thoughtful railway managers as to the future performance of the railway system. Traffic congestion does not mean merely an ex

cess of freight above the maximum capacity of the roads, but also a partial paralysis of the entire system and a general reduction of efficiency in handling business. No one cause is sufficiently conspicuous to suggest an effective remedy by reinforcement or improvement of the existing system. At times, car shortage is the predominating symptom, at other times it is motive power that is inadequate, and most frequently, perhaps, terminals and transfers are jammed.

Measures have been taken to bring the existing railway system to its highest efficiency by strengthening the weaker parts of the organism and by developing a highly coördinated management. But such measures are of temporary relief only. Careful observation leads inevitably to the conclusion that the railway mechanism of the country has reached that point in its development where increased capacity and efficiency can be secured only by physical additions amounting to "reduplication"-the construction of an additional operating unit of physical dimensions comparable to that of the present. This would not mean any considerable extension of the railway net, but the duplication of trackage, equipment, and terminals. To this end, railway financiers are endeavoring to raise new capital at the rate of a billion a year and are frankly justifying their purpose by proof of the physical inadequacy of the existing railway establishment.

The strongest proof of this condition of the railways is evidenced by the fact that, in recent years, additional traffic has been handled. at an increasing unit cost of service, and the relative increase extends to every important cost factor, i.e., investment, maintenance, and operation. This is the most significant fact of recent railroad history. The railroad business has been considered one of decreasing unit costs, and competitive and developmental rates have customarily been made very low upon the theory of lower costs of additional service. Traffic and revenue statistics submitted by the thirty-five railway systems of the East and Northeast, and substantiated by the investigations of the Interstate Commerce Commission, in the so-called Five Per Cent Rate Case before the Commission in 1914, afford startling evidence of the status of the railways. The statistical charts reproduced in the notes below clearly indicate that the railway establishment of the most highly developed industrial district of the nation has passed the summit of efficiency,

and, since 1906, has experienced a functional decline known in economic parlance as the state of decreasing returns, or, conversely, increasing costs of production.22

CHART G.-Comparison of increases in property investment and traffic, 1900 to 1914, inclusive, for all 35 systems.

% 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 200

22 Charts G and H indicate an increasing proportion of traffic growth to investment growth from 1900 to 1907, and, thereafter, a notable decrease in additional traffic and income relative to concurrent investment which is most apparent during 1914.

Chart N effectively illustrates the relative increase of the several items of operating and maintenance expense in contrast with concurrent revenues.

Although correction should be made for increased cost of labor and materials, and possibly for taxes, before such statistics are accepted as evidence of the operation of the law of decreasing productivity, the correction is not sufficient to materially modify the character of the revenue and expense ratios, or to invalidate the implications of the chart.

5.50

5.00

4.50

4.00

3.50

6.00

CHART H.-Ratio of net operating income to property investment for all 35 systems.

% 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 6.50

The almost obvious conclusion seems to be that either of two things may be done to provide for the transportation demands of the future. (1) An approximate reduplication of the railway establishment may be undertaken at a probable cost of $20,000,000,000. (2) A system of interior waterways may be developed at a possible cost of $1,000,000,000. Such a waterway would relieve the railways for an indefinite period of a considerable portion of certain classes of bulky traffic which are the primary factors in car shortage and terminal congestion, and would leave the present railway mechanism entirely adequate for the handling of passengers and medium and high class freight.

The physical feasibility of railway enlargement is not a simple matter. Multiplication of tracks is relatively easy, and the same is true of equipment, provided funds are available; but the expansion of terminals presents physical and financial problems which are truly staggering. The terminal problem presents the choice of abandoning terminal properties in the larger cities for more spacious locations or the forcible expansion of city terminals by the clearing of intensively occupied areas of urban land. Electric equipment and underground and overhead passage afford a tremendously costly and, at best, temporary palliative.

Low class freight which may be afforded a reasonable service by water carriage should not longer be permitted to absorb the capacity of railway facilities which are dangerously threatened with

CHART N.-Ratios of groups of operating expenses to operating revenues for all 35 systems.

Above charts are reproduced from the findings of the Interstate Commerce Commission in re Investigation and Suspension Docket, No. 333, Rate Increases in Official Classification Territory, Dec. 16, 1914.

inadequacy. Fuel, building materials, and some farm crops are admirably adapted to water transport. The annual growth of such traffic is large. It insures a ready demand for water transport and may be desirably eliminated from long-haul rail service.