The development of waterways as a secondary means of transport seems entirely logical. Rivers and canals would cease to be actual or potential competitors of the railways, but would be coordinated with them to form one organic economic unit, the same coöperative devices being used to coördinate rail and water transportation as are now in effect among rail carriers. Adequacy of service and the approximate maintenance of the existing level of transportation rates would be the result, rather than lower rates as prophesied by some visionaries, or the unavoidably higher rates which are rapidly becoming necessary to sustain the higher costs of railway operation.

If, as some contend, railways may be provided to handle all the traffic of the future at rates commensurate with those of the present, the only justification of waterways must be a lower cost for water transport. If this position is correct, the canal and river systems of Europe, rather than being an asset as is generally supposed, are a social impediment, parasitic upon industry and representing a loss of capital equal to all outlays for construction and maintenance plus compound interest on the amount and augmented by a considerable waste during each additional year of operation. But a correct principle of cost determination, as applied to rail and water services, with a proper regard for the respective public and private interests concerned, may give the matter another color.

Transportation is a quasi-public business, with increasing emphasis on the public element of the hyphenated adjective. The quality of the service is distinctively a matter of the public interest to be officially determined. The cost of the service is a matter, primarily, of private interest properly to be reflected in rates sufficient to constitute just compensation for capital and labor utilized in creating the service required. The mere magnitude of a business may become so great as to establish a public interest, in addition to service requirements, in such features, for example, as the incidence of the rates and the source and methods of accumulation of capital.

Railway capital is already so great as to absorb a large measure of the total social wealth. The imminent enlargement of the railway plant, in the absence of waterway facilities, will doubtless involve the fixed investment of one-fifth to one-fourth of the nation's capital resources. The segregation of so much capital in any one public service industry of unified management is cause for the exer

cise of a public interest in the capitalistic features of the transportation business. Now, the railway companies may or may not be able to secure the requisite amount of new capital. In the latter instance, the whole transportation establishment is headed toward government ownership-for government can always raise funds. But granting that additional capital may be had, interest charges will become higher on all capital when the new securities are placed. The higher rates will be necessary to attract new capital to the railways, to divert old capital from other enterprises, and to induce saving and investment by persons not sufficiently thrifty to acquire capital at the premium afforded by existing rates of interest.

It is well understood that government can raise capital much easier and cheaper than can the most favorably considered private corporation. Government can borrow at rates one-fourth to onethird lower than can railway companies. Furthermore, funds realized from the sale of government bonds are not withdrawn from industry nor were they, as a rule, available for industrial investment. Government may raise funds by taxation without creating any obligation beyond the employment of such funds in promoting the general welfare. In this it is interesting to observe that the collection of a tax may actually create capital and induce enduring thrift when the interest premium on saving may do neither. It is indeed probable that the large proportion of the total public revenues, approximating $3,000,000,000 annually, represents private savings which would have been thoughtlessly spent for non-essentials in the absence of tax requirements. There is little doubt that the sinking-fund tax levied to retire the Civil War bonds resulted in a net addition to the nation's wealth to the amount of the bonds and interest. The French learned to save while being taxed to pay the German indemnity of 1870 and have been saving ever since. Given a certain standard of well-being, a people may actually be taxed rich, provided public funds thus accumulated are properly disposed-like life-insurance, which involves the identical principle, the benefit may go to the next generation.

We are forced to the conclusion that, if the capital necessary for the absolute requirements of railway enlargement is raised by the ordinary methods of private finance, there will be created a shortage of funds in other businesses, an increased interest rate on capital, and consequent depreciation of all outstanding securities,

and, finally, railway services will be produced at a higher cost and sold to the public at higher rates.

An equal capital could be raised by government without financial proselytism, without disturbing the normal distribution of new capital, without materially advancing the interest rate or disturbing security values, and probably in such a way as to materially increase the private and social wealth of the country. But the investment of public capital raised by bond issue or taxation in railway construction would be a long step toward government ownership, indeed, this fact is the strongest argument in favor of government ownership. In the absence of a desire to accomplish public ownership of railways, it seems the part of wisdom to stabilize and secure private interests as they now are and to utilize the superior financial facilities of the government to supplement the existing rail mechanism of transportation with government-owned waterways subject to regulated use by privately owned boat lines.

The reasonableness of water rates may be judged on an entirely different basis than that of rail rates. In the latter instance, private capital requires remuneration on a scale necessary to induce saving and investment as against the ever-present alternative of pleasure-spending. Public capital may be sufficiently compensated in the promotion of economic opportunity or other attributes of general welfare resulting from its employment, regardless of any immediate or direct value return. The primary interest motive— the personal reward of saving-is largely absent in matters of public investment; and waterway rates may properly neglect the interest factor in the determination of the cost of the service.

VII. The improvement of navigation as a logical concomitant, or even as a by-product, of power development and flood control is not so remote or inconsequential as may at first appear. The expenditure of large sums in flood prevention on streams of actual or potential navigability is imminent and imperative. Hydro-electric development on a grand scale is a certainty of the next decade or two. The result of both will be a marked improvement in the regimen of many streams subject to navigation. Power development, together with navigation facilities, will tend to a decentralization of industry and population and a redistribution in harmony with economic opportunity as determined by the natural location of the resources and agencies of production.

Railway enlargement means the aggravation and intensification of the social and economic diseases of concentration. Unless new routes and terminals are established, which is improbable, population will continue to concentrate at existing terminals and industrial points along the railway lines. The very nature of railway service and railway rates exerts a constant pressure cityward. Social hygiene may be "far fetched," in the minds of some, when admitted to a discussion of industrial development. To some of the others of us, it is preeminently relevant.

Finally, if there still be reason for doubt as to the financial feasibility of waterway development, let us consider that the customary "pork barrel" appropriations of Congress amount to not less than five per cent annual interest on $500,000,000. The rivers and harbors pork barrel will never be destroyed until the excuse for its existance is disposed of. The application of one-half of that $500,000,000, together with an equal amount to be supplied by the willing localities of the Mississippi Valley, to perfect in detail the Mississippi, Missouri, and Ohio Rivers projects, and the Lakes-tothe-Gulf canal project, would be a beneficent measure, even if the resulting waterways should prove financially unprofitable as means of transportation.

THE RECONSTRUCTED CITY

BY J. RUSSELL SMITH, PH.D.,

Wharton School of Finance and Commerce, University of Pennsylvania.

When an architect builds a factory, he lays down upon the table before him a list of the various things the factory is to do, and then proceeds from these known needs to create a structure which will best meet them. It seems peculiar that, despite our thousands of years of experience with cities, there has been so little attempt to apply large scale planning to the idea of the city as a functioning unit and lay it out accordingly. Is it any more desirable that a city should grow indefinitely large than that a man should grow indefinitely large? Perhaps most of us as little boys have wished the wish of fairies that we might be as big as a giant so that we might pick up certain undesirable persons and put them between our fingers and place them where they belonged. Is the world-wide desire of cities to grow big, big, big, any more sane? My answer is emphatically "no." A city is to perform certain functions, and when it is big enough to perform those, additional size is of no more value than an additional one hundred pounds is to a man who already weighs one hundred and eighty.

The World's Greatest Town Planner.

Mr. Ebenezer Howard, an Englishman, sat down and drew up the plans of an ideal city. He first analyzed the proposition. The city affords to its inhabitants the social opportunity of numbers, to the factory the labor market of numbers, but it tends inevitably to crowd. On the other hand, the advantages of the country are cheap sites and room to grow things in the yard and garden, room to play, fresh air, and nearness to food supplies, but lack of social and employment opportunity. Then having put these things down on the table, he proceeded to plan a city which swung around the cardinal principles of (1) having all the inhabitants so placed that they were so near their factories that they could walk to their jobs, (2) so near to open space that they could easily walk to the farms, fields, and playgrounds, yet (3) sufficiently numerous to make the labor supply for factories which pro