railroads have been constructed, together with the excessive amounts which have been paid out to build unproductive lines, have deprived other districts of any hope of a railroad of their own. New Zealand has at last begun to comprehend that the construction of lines which do not pay is "bad policy."

The government has recently adopted a system of forcing the railroads to earn their own interest on the capital invested. Sir Joseph Ward, at Winton, on the 5th of May, 1910, even mentioned the necessity for amortization. "The time for continued borrowing is coming to an end, and that of repayment is approaching."

Unfortunately the government finds itself between districts which are demanding railways, districts which have them, and which are demanding rate reduction, improvements of transportation and other favors, and employees demanding increase of salaries and shorter hours. The department of labor insists that railways be constructed in order to give work to the unemployed; while finance critics demand that the railways be compelled to provide for the interest on the capital invested in them, and that they earn enough to pay for the new lines.

Yet, despite all the disadvantages connected with government operation of railways, no one dares suggest that the lines may be leased to a private company, although a provision for such lease exists in the act of 1900 (section 34), and such a proceeding would undoubtedly be the best means of putting the finances of New Zealand on a sound basis. It has been suggested that the administration of the railways should

be confided to a commission of experts who would be independent of the influences to which public officials are exposed. Even this system, however, would not completely insure freedom from political interference, were it only by reason of its origin and the necessity for its renewal. Such a commission is also practically certain to fall into all the errors of a bureaucracy. The system has been employed in the Australian states, notably Victoria, and in New South Wales.

The government of New Zealand is anxious to make use of the railways to carry out a certain policy relating to the distribution of population. The "stage system" of railway rates worked out by Samuel Vaile, and discussed with much approval in 1882, was especially designed to prevent the concentration of population in cities and to keep it distributed over a vast territory, by establishing very low rates in rural districts and high rates in the urban districts. The experiment, however, was never made.

New Zealand is developing. Little by little the profitable lines have been completed, and some abuses have been more or less checked. In fact, the government has gone so far as to ask, as a condition of completing the Lawrence-Roxburgh railway, that the people of the district guarantee at least 3 per cent. interest on the capital cost. But although the results of railway operation are improving, and will probably continue to improve, and although partisans of state operation have been untiring in their attempts to draw conclusions favorable to their argument, an unbiassed history of the railways in New Zealand only condemns it.

Government property in New Zealand is exempt from taxation. At each extension of its activity the amount of property subject to taxation diminishes, and, if these enterprises fail, the burden of the taxpayers is increased. The principles of sound private and public finance are the same everywhere, and profit from public enterprises is indispensable in order to establish the fact that they are an advantage as public investments.

It is not so many years since the state of New Zealand undertook the operation of two coal mines, known respectively as the Seddonville and Port Elizabeth mines. In 1905, 1906, and 1908 the first was losing money. In 1911 it lost £3,219. In 1910 it made a profit of £194, and in 1912, of £863. The mine of Port Elizabeth brought in profits as high as £21,313 in 1906. But its profits have greatly diminished during the last few years, and in 1912 were only £3,964.

The explanation of these profits is simple. Up to 1908 the government had bought 166,000 tons out of a total production of 237,300 tons for the railroads. But it apparently found its own coal too expensive. It began to buy coal from private dealers. In 1912 it bought only 58,000 tons, out of a total production of 244,500. Its mining profits, therefore, have been mainly derived from its own railroad.

CHAPTER VIII

GOVERNMENT RAILROADS IN FRANCE

1. A Good Turn to the Socialists.-The Impromptu Purchase of the Western Railway.-Extravagance.-In Aid of the Old State System.-Charges Against the Western Railroad Company.-Advantage to the Stockholders. The Opération Blanche. The Purchase Price.

2. Net Profits of Operation by the State and by the Company. Provisions and Rectifications Serve Only to Aggravate the Situation.-Supplemental Credits.Share of Labor.

3. Attacks Upon State Credit.-4 Per Cent. Bonds. 4. Conclusions.

1. In Book I, Chapter 2, I referred to the political motives underlying the purchase of the Western Railway of France. In order to do a good turn to the Socialists, Georges Clemenceau socialized this system.

The Minister of Public Works, Louis Barthou, saw in the purchase a double advantage. It would be a sop to the Radicals and Radical Socialists, for one thing, and, in addition, it might serve to cover the deficits of the so-called old government system, that is to say the lines already under public management. The deficits were not to be hidden, however. Therefore, Minister Barthou, who had at first repudiated the charge that such deficits existed, openly demanded that

the sum of 26,600,000 francs be set aside for the benefit of the old system from the special treasury account established by the law of December 18, 1908.

In November, 1906, the government introduced a bill for the purchase of the Western Railway, although it confessed "that no papers relating to such a project were on file in the office of the Minister of Public Works," a provision required by law. Nevertheless, the government demanded that a law authorizing the transaction be passed by the Senate and the Chamber of Deputies, before the end of the year, in order to prevent the Western company, which had had a profitable year, from increasing its net profit.

The Senate, however, refused to be intimidated by threats. Its committee, through the secretary, M. Prevet, who assigned the strongest possible reasons for such action, rejected the purchase bill, although it had already passed the Chamber of Deputies, by 364 votes against 187, 76 out of the 80 deputies from the districts touched by the Western road having voted against the purchase. Out of 46 senators, 44 were emphatically against the bill. Nearly all the chambers of commerce in France were also opposed.

The argument advanced in favor of the purchase was that the Western company would never be able to repay the advances that had been made it under the name of guaranty of interest, that thus it was running on government money, and hence it was neither more. nor less than a state department engaged in an unprofitable operation.

Yet the results of its operation indicated that the company was making the greatest possible effort to