the annual increase in expenditures would ultimately reach 20,000,000 francs. This year (1913) it has been 11,270,000 francs.

After 1906, following an average rise in wages, together with an increase in the number of employees, the ordinary labor expenses of the railroad exceeded by 4,280,000 francs the figure of the preceding year.

Beginning with April 1, 1912, a new law concerning salaries went into effect, which has brought about an annual increase of 8,200,000 francs in the expenses, without counting supplementary payments to be made in the way of pensions and sick and other benefits established on the basis of full pay. Nor does it include the increase in the salaries of laborers paid by the day. The total increase is estimated at 10,000,000 francs.

From 1904 to 1910 the increase in labor expenses was 14,370,000 francs, or 51 per cent. For all other expenses the increase was only 36 per cent. In 1902 there were 23,030 employees; in 1907 the number had risen to 31,300. On the 1st of April the tri-yearly rise in salary took effect, as provided for by a law fixing higher maximums. This law has increased the annual expenses by 10,000,000 francs.

With the object of balancing the expenses in favor of the employees, certain economies were effected at the expense of passengers and shippers, such as withdrawal of reduced fares on holidays, decreased inspection of the road, fewer trains, speed of freight trains lessened, a certain number of improvements postponed, and resistance to demands for improvements which were not too urgent. Finally the de

partment determined to increase the rates when the industry and commerce of Switzerland are already paying internal transportation taxes double those in force in neighboring countries.

The nationalizing of the Swiss railways has certainly proved of advantage to the employees. But, are state operations carried on for the benefit of employees or for the public? Present conditions justify the following prophecy of Numa Droz:

"Through this purchase our railroad policy is in course of stiffening into a set of rigid regulations prescribed by a poverty stricken department incapable of solving the great problems of the future for lack of resources.'

CHAPTER VII

RAILWAYS OF NEW ZEALAND

Capital Charges.-Receipts and Expenditures.-Net Operating Profits.-Deficits.-Interest on the Debt.-Predominance of Political over Economic Considerations. Causes of the Deficit.-Advancement According to Seniority. "The Government Strike."-Theory of Operation at a Loss.-Profits from State Mines Attained Only at the Expense of the Railroads.

In 1860 the first railway of New Zealand was constructed by the provincial government of Canterbury, to connect the town of Christchurch with the port of Lyttelton, separated from it by a chain of high hills. In 1863 the provincial council of Auckland and Drury conceived the idea of extending the line to Wellington.

The capital then and subsequently sunk in the railways of New Zealand, amounting, according to the accounts, to £27,762,592 ($135,203,823), on the first of March, 1909, is far from representing the whole expense of the project. £1,289,840 ($6,281,520), the cost of lines not yet opened on the 31st of March, 1909, should have been added to this sum. The total amount would thus reach £29,052,432 ($141,485,343). Moreover, no account was taken of the interest paid on the capital sunk in lines not operated during the thirty-nine previous years.

Before 1882 the amount of the deficits can only be surmised; since that date they have aggregated £4,500,000 ($21,915,000). The total capital invested from 1870 to 1909 has been about £40,000,000 ($194,800,000), of which £23,305,009 ($113,495,000) was paid out of borrowed money. The rest has been raised by the sale of public land, and, above all, by the aid of taxes-direct or indirect.

Since 1895 the capital cost per mile of open line has risen from £7,703 to £10,351. This increase is due in part to improvements upon the roadbeds. In order to explain further such an increase in cost it is said that the country of New Zealand presents unusual difficulties-that it is situated far from the industrial centers of the world, and that construction is on a small scale. We might add that railway construction is considered as a species of national workshop, designed to give employment to laborers out of work; that none of the modern mechanical methods are employed; and, finally, that "the work is done by the government and not by private contractors." 1

The gross earnings of the railways increased from £1,150,851 in 1895 to £2,929,526 in 1908-1909. But the expenses rose in even greater proportion. They increased from £732,160 in 1894-1895 to £2,114,815 in 1908-1909. And, if there had not been a reduction of the rate of interest on government loans, the deficit of 1909, based on the "capital cost" of the open lines, would have been £323,555, instead of £212,468.

The railway statement, presented annually to Parliament by the Minister of Railways, always shows a 1 State Socialism in New Zealand, page 72.

"net working profit," without any indication that this profit is always insufficient to pay the interest upon the cost of construction at the average rate of interest paid by the government upon the public debt.

During the year ending March 31, 1909, the railways earned a "net profit" of 2.93 per cent. on a capital of £27,762,592 ($135,203,823), the cost of construction of the open lines. But, since the average rate of interest paid on the public debt was 3.7 per cent., the "net profit" is absorbed in interest payments, and a deficit amounting to £212,468 ($1,034,719) emerges, if interest is reckoned on the cost of the open lines only. But real cost of construction includes the cost of the unopened lines, making a total of £29,052,432 ($141,485,343), reducing the "net profit" to 2.80 per cent., and increasing the deficit by £262,760 ($1,279,641). If the interest upon the open lines only is considered the total deficit from 1882 to 1909, in round numbers, is £4,500,000 ($21,915,000).

But as a matter of fact, according to the conditions of its investment, interest at the rate of 4 per cent. should have been paid on the railway debt. In such case the deficit in 1908-1909 would have been for both classes of lines £347,386 ($1,691,769); while the total deficit since 1881-1882 would probably amount to at least £8,000,000 ($35,160,000), and perhaps £10,000,000 ($48,700,000).

The deficit is due, above all, to the principal line of the South Island, 1,299 miles long. The political influence of this part of New Zealand, formerly much greater than it is to-day, contributed to the unprofitable railway construction in that territory. Sir Joseph