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Home -> Charles Francis Bastable -> Public Finance -> Chapter III b

Public Finance - Chapter III b

1. Preface

2. Chapter I

3. Chapter I a

4. Chapter II

5. Chapter II a

6. Chapter III

7. Chapter IV

8. Chapter V

9. Chapter VI

10. Chapter VII

11. Chapter VII a

12. Chapter VIII

13. Chapter VIII a

14. Book II Chapter I

15. Chapter II

16. Chapter II a

17. Chapter III

18. Chapter III a

19. Chapter III b

20. Chapter IV

21. Chapter V

22. Book III Chapter I

23. Book III Chapter I a

24. Chapter II

25. Chapter III

26. Chapter III a

27. Chapter III b

28. Chapter IV

29. Chapter V

30. Chapter V a

31. Chapter VI

32. Book IV Chapter I

33. Chapter II

34. Chapter III

35. Chapter IV

36. Chapter V

37. Chapter VI

38. Chapter VI a

39. Book V Chapter I

40. Chapter II

41. Chapter III

42. Chapter IV

43. Chapter IV a

44. Chapter V

45. Chapter Va

46. Chapter VI

47. Chapter VIa

48. Chapter VII

49. Chapter VIIa

50. Chapter VIII

51. Chapter VIIIa

The tendency of all improvement is to displace fixed
capital previously in use by newer and better forms, and
state agencies cannot expect to escape this influence. But
the existence of this danger is a good ground for seeking
to get the maximum net revenue in the earlier years, in
order to wipe off the capital charge, and in the period of
decline for keeping the rates at the highest profitable

Much stress has been laid on the indirect benefits likely
to result from the abolition or lowering of dues on water-
ways by encouraging industry. This claim really amounts
to the advocacy of a bounty, and should be judged on that
ground l .

12. In social and financial interest and importance rail-
ways far surpass the other agencies of transport. The crea-
tion of the present century, they have contributed largely
to promote its special characteristics. Existing political
and economic arrangements depend for their successful
operation on the modern railway system, supplemented by
steamboats and telegraphs. We need not accordingly be
surprised to find that the principal financial problems of
the public industrial domain centre in the treatment of
railways. Every country has had to consider in what
mode it might best utilize the invention, and in each the
influence of national peculiarities and historical conditions
has produced different effects. The railway legislation of
England, France, Germany, and the United States affords
many interesting examples of this statement.

Confining our attention to the financial aspects of the
subject two divergent modes of treatment are broadly con-
trasted 2 . The policy of England and the United States
has been to regard railways as merely one particular form
of industry taking a place alongside of Banking, Insurance,
Shipping, Mining or other Companies, but dependent for
any special privileges on the direct exercise of the legisla-
tive power. The railway company on its first appearance
was regulated by enactments curiously similar to those
devised for the earlier turnpike trusts and canal companies.
The liberal laws of the various American commonwealths
with reference to the formation of companies, while giving
certain advantages to promoters, were based on the same
principle. Such a policy reduced the public financial
interest to a minimum. Railway companies were indeed
taxed for local purposes as any other proprietors of land
and buildings. A passenger duty intended to balance the
older stagecoach tax was imposed on them. Various
corporation taxes were raised by the American States,
lavish grants of land were given to new companies, but in
all other respects the public powers and the railways were
separate. The various changes of English and American
legislation have not infringed on this complete isolation.
The restraints of the Intestate Commerce Act and the


Railway and Canal Act (1888) have had no financial aim
or effect. They are confined to the field of economic
policy *.

1 Continental countries have started from a different con-
dition of things, and have all been willing to recognise
a much closer connexion of the State and the railways.
The earlier transport agencies had been under state
direction. The carriage of passengers was one of the
branches of the French post before the Revolution, and
the administration of both roads and canals had been
carried on by a state department. The German States
had the same general conception without the centralized
organization of France. There was thus a predisposing
cause for the recent movement towards state railways,
which has been encouraged by the ablest theoretical
writers. The direct action of the State in the construction
and working of railways has been restrained by economical conditions too potent to be set aside by legislation.
England was the birthplace of the railway, and its mode
of procedure had some effect on other countries, but the
principal check was found in the absence of sufficient
capital for the work. It was only by severe pressure on
the English middle classes that the rapid progress in
railway construction of the years 1845-50 was accom-
plished J , and the motive power was the extravagant hope
of gain. No such force assisted continental governments
in procuring funds, and they were therefore compelled
to fall back on the support of private companies whose
shareholders were actuated by the ordinary economic

/ 13. The different circumstances of the different countries
affected the railway system. France with its strongly
unified government aimed from the first at establishing a
well-arranged series of lines on a systematic plan, with
the reservation of the ultimate property in them to the
State. /This course had much to recommend it when
considered a priori. It preserved the routine policy of
the administration as to the older communications, and
it promised at the end of the periods of concession to
the companies to add a valuable property to the public
domain. The earlier concessions under the legislation
of 1842 were for short periods not in any instance ex-
ceeding forty-five years. The result was, however, to
hinder the investment of capital, and to gradually force
more favourable terms from the Government. To en-
courage the construction of new lines a guarantee of inte-
rest was given to the older companies who opened them,
and the time of the concessions was extended. Special
legislation was applied to induce the construction of local
railways either at the expense or with the aid of the
local governments. The war of 1870-1 and its effects
made the improvement of the service a matter of great
interest. In 1878 some railways were acquired and worked
directly by the State, and a plan for the creation of
state railways on a large scale was proposed. Owing to
the impossibility of procuring the necessary capital a new
arrangement was made with the companies in 1883, by
which the state railways became only one, and that the
least important, of the seven groups into which the main
lines are divided.

The financial results are decidedly unsatisfactory. The
surplus from the government group after the working
expenses are paid is small (for the year 1885, 4,257,000
francs), and by no means equals the interest on capital,
which for the same year (1885) was over 40,000,000 francs.
The local lines are a further charge on the central and local
governments, as they have been proved to possess little
earning power. Under the various conventions between
1859 and 1883 large advances have been made in the
form of guaranteed interest, amounting for the eight years
1867 74 to ov^rj 290,000,000 francs. As these charges are
repayable out ot the mture increments of value, they hav,e
under the newer system been separated from the annual
Budget charge l . /To shortly state the outcome of French
railway policy on its financial side, we may say that as yet
the expenditure of the State has been considerable, for
which the returns so far have not been a sufficient recom-
pense, but that the method of limited concession which
checks the development of railway enterprise, and almost
forces the State to give subsidies or guarantees, has the
advantage of creating a large state property in the future. /
The terms of the six great companies who possess the
main lines of France all expire between 1950 and 1960,
when nearly 16,000 miles of railway will revert to the
State, besides the new lines amounting probably to about
6000 miles for which public money is by the arrangement
of 1883 to be gradually advanced. The net revenue of the
French lines for 1887 was over 500,000,000 francs, so that
without taking the prospects of increased revenue into
account there would be an addition of 20,000,000 annually
to the state resources. Whether undue sacrifices have been
made for the sake of this distant benefit is a difficult ques-
tion to answer. We may conjecture that a simpler and
more consistent method would have been better for French
Finances l .

lA/The earlier German railways were developed chiefly
by state assistance or in some cases by state construction,
but on no uniform plan. / Each of the smaller territories
formed its own railway system to meet local needs, with-
out paying attention to the through lines of communication.
Prussian railway policy was somewhat exceptional. Private
companies were allowed to take part in the work of supply-
ing needed lines, and guarantees of interest were given as
encouragement. On military grounds several railway lines
were constructed and worked by the State, and thus a basis
was laid for the later policy.

/The creation of the German Empire and the unification
of its monetary and banking legislation could not fail to in-
fluence the position of the means of communication. State
ownership and management were decided on ;/ the only ques-
tion of difficulty being the determination of the bodies who
were undertake the duty. At first the central or Imperial
government was to have been the owner. When, in deference
to the sentiment of the smaller States, this plan was aban-
doned, the Prussian administration proceeded to buy up the
chief private lines and work them by state officials. The
magnitude of this process, which commenced about 1870,
may be judged from the fact that in the year just mentioned
thestate-owned railways were about 3,000 miles against 8,000
miles owned by private companies. In 1889 the lines owned
or worked by the State had 13,200 miles against 1260 miles
owned and worked by private companies. The smaller
States have also purchased most of the few private lines
in their territories. Hesse alone has a greater length of
private than public mileage 1 .

So far as Prussia is concerned the financial results have
been extremely favourable. The prices paid for the pur-
chase of the several lines were high, but nevertheless there
has been a good surplus in each year after meeting all
expenses and paying interest 2 . The services given to the
imperial post by the railways form another gain, which is
hardly ascertainable since it is mixed up in the postal
receipts, which are thereby increased. To obtain a clear
revenue of over 5,500,000 is an undoubted proof of finan-
cial success, though it may partly be derived from limiting
the facilities for goods and passengers, and be in fact a tax
on industrial activity. The great amount of public debt
contracted as the purchase money of the private lines
should be taken into account in considering the policy of
Prussia. All pre-existing debt makes the terms of future
loans more onerous, even when there are assets sufficient to
meet the earlier charges, and it may be that Prussia's railway
debt will injuriously affect her credit should she need it
for war.
In the smaller German States the advantages of owning
tne railway lines are not so greatl In Baden the estimate
for 1890 assumed a surplus ovler working expenses of

14,341,000 marks, while the interest and sinking fund on
the railway debt was taken as 17,091,000 marks. Wlirttem-berg is in a similar situation. The net revenue for 1889-90
was estimated at 14,500,000 marks ; the interest on the rail-
way debt being 15,861,000 marks. The Bavarian railways
hardly meet the interest of their debt, and the lines of
Saxony just balance. The reasons for this relatively inferior
position are not clearly established. The greater activity
and the wider area covered by the Prussian railroads pro-
bably allow of more economical management than can be
applied to the smaller lines. The system of state manage-
ment is of longer standing in the other States, and it is
possible that sufficient time has not elapsed for a proper
judgment on ^the merits of the state railways of Prussia.
1 15. Both Austria and Hungary have in recent years
increased the number of their state lines. ) In consequence
of the financial troubles of 1873 and to avoid the heavy
payments for guaranteed interest several leading lines were
purchased by the State, though more than half remain in
the charge of private companies. The surplus of the Aus-
trian railways for 1891 is estimated at 8,300,000 florins,
which does not meet the interest on the railway debt.
The Hungarian state railways also have been in an unsatis-
factory financial condition, the surplus for 1891 being taken
as 20,200,000 florins, against a much larger debt charge *.

I Belgium illustrates perhaps better than any other Euro-
pean country the operation of state and private railways.
The earlier lines were created by the State with the object
of developing the transit trade, for which the country was
so well suited. Additional lines were afterwards constructed
by private enterprise, which competed with the state rail-
ways and with each other. To avoid this struggle a large
part of the company-lines has been purchased by the
government, but with the unfortunate result of reducing
the receipts below the profitable point. In 1870, before
the era of purchase, the surplus was nearly 20,000,000
francs, and the interest on debt nearly 13,000,000 francs,
giving a net gain of almost 7,000,000 francs. Ten years
later the surplus had risen to 45,750,000 francs, but the
debt charge had reached 45,795,000 francs, giving a deficit
of 45,000 francs, or, speaking broadly, the total receipts and
expenses balanced. By 1883 the surplus was 48,500,000
francs, the debt charge having grown to 52,000,000 francs,
thus making a deficit of 4,000,000 francs. Higher rates
were imposed as a remedy for this evil, but in 1888 the
surplus was only 51,700,000 francs, still leaving a deficit.

The experience of other European countries in regard to
the financial effects of state-owned railways does not ma-
terially alter the conclusions that the cases already examined
suggest. Holland and Italy (since 1885) have preferred to
lease the state lines to private companies. Russia has some
state railways, but for the larger part of her system gives
guarantees of interest to private companies. Roumania,
Norway, Sweden, and Denmark have most of their lines
under state ownership, which in the former countries does
not give sufficient surplus to pay interest on capital charge.
Spain, Portugal, and Switzerland have as yet substantially
adhered to the system of private enterprise 1 .

16. Outside Europe the railways have been mainly
an item of state expenditure to the various governments.
j Both in North and South America large grants of land and
guarantees of interest have been given as inducements to
the undertakers of railways.^ Brazil and Chili possess some
state lines which do not pay the interest on their capital.
The government lines of Canada in some years have not
even paid working expenses; the deficit in 1886 being
185,000 dollars, and 1887, 311,000 dollars, with the interest
on $50,000,000 capital.

The Australasian colonies have entrusted the work of
railway construction to their governments, who have bor-
rowed largely for the purpose. In the year 1887 the total
receipts from the Australasian state rail ways were 7, 200,000
and the working expenses ^4,540,000, giving a surplus of
.2,660,000. The debt contracted for railways amounted
to 95,300,000, the interest on which is about 4,000,000.
1,340,000 would therefore represent roughly the expense
of the Australasian railways for the year under considera-
tion l . The Victorian railways, however, show better results
than the other colonial lines, especially since the appoint-
ment of a special board of commissioners, and the growth
of population will in the future largely increase the receipts
in all the colonies.

The Indian railway policy is financially interesting as a
further proof of the readiness of English administrators to
adopta system quite different from that of their own country.
As in Australia, the State has taken a great part in the ex-
tension of railway communications. The first method was
that of securing or guaranteeing interest to private com-
panies, under which stimulus some of the main lines were
constructed. Then came the pressure of military necessities
and of famine relief. A number of smaller and less important
lines were established and for the most part worked by the
government. Finally, financial conditions have made it
desirable to return to the guarantee system, but at a
lower rate of interest and for a limited time. Though
the receipts from the state railways are large (166,865,000
rupees for 1889-90), the expenditure is still larger
(187,131,000 rupees for the same period), so that if the
net balance only be taken into account, there is an
annual outlay for the service.

17. The statistics of state-railway Finance have been
given at some length in order to facilitate the formation of

New South Wales
New Zealand
South Australia . .
Tasmania . .
Victoria . .
Western Australia

a correct judgment on the system. Within the last twenty
years the movement towards * railway nationalization ' has
been increasing in force, and though the grounds on which it
has to be decided belong mainly to economic policy in the
widest sense, financial considerations cannot be altogether
neglected. (vThe one conspicuous success of state-managed
railways is found in Prussia, of which the minor German
States, as Cohn allows *, fall very far short, j France and
Belgium in recent years have not profited financially from
their state lines. Those of Australasia and Canada afford on
the whole no direct addition to the public revenues, a state-
ment which is also true of India.

[ If the question be determined on these definite facts the
conclusion ought, we believe, to be against state property
in railways. \ Many other considerations are however to be
taken into account. (Advocates of state property dwell on
the future increases from the growing movements of both
persons and goods, and regard construction or purchase as
a profitable investment for the futureA Transport agencies
act powerfully in the promotion of industrial and commer-
cial development, and hence it is argued that even unremu-
nerative lines may so benefit the community as to increase
the productiveness of other sources of revenue.) Again, unity
of management, only to be obtained under the State, would
reduce working expenses and leave a larger surplus as net
profit. The superiority of state credit is alleged as another
reason for believing that its ownership would be financially
successful. 1 The English government could some years ago
borrow at 3j/ (and now at less than 3%), and buying
up the railway shareholders' interests at their market value
would, it is supposed, secure for itself the difference between
the return on railway shares and that on Consols. By an
extensive investment of borrowed capital a margin of profit
would be obtained for the discharge of other public services.
The objections to such a policy are obvious enough. There is
no financial reason for investment in railroads that might
not be applied to other forms of industry. If the advan-
tages of unified management are important, the dangers of
attempting to deal with a varied and complicated business
are grave. ^Railway nationalization as a financial measure
is open to the risks that attend similar proposals for land
nationalization. Without accepting Jevons' view that the
supposed gain from purchase through the higher credit of
the State is wholly a fallacy 1 , it is certain that it depends
on a series of events which are uncertain and incalculable.

/Depression in trade, appreciation of the standard of value,
or new inventions, would reduce very much the value of the
fixed capital of the railway system. The policy of state
acquisition exposes the public finances to all the chances of
loss that these possibilities open up. /At best the system
of state-owned and managed railways thus appears to be
a speculative employment of financial resources, and judged
in the light of experience to be of more than doubtful ad-
vantage to the Exchequer. The general difficulties of state
industrial enterprise are besides likely to occur in this as
in other cases. The defective accounts of capital and
revenue, expenditure and receipts cannot be escaped any
more than in the dockyards or arsenals. With the best
intentions it is not easy to distinguish clearly between the
source and application of the different funds that railway
administration has to deal with, and yet to get a perfectly
trustworthy statement of the financial position of state

1 ' If the State manages the railways just with the same degree of skill and
success as the Companies there would then be no gain or loss ; if better, there
would be gain accruing, not from good credit, but from good management ;
if worse, there would be certain loss. Thus, in theory, the use of the public
credit proves to be a pure fallacy, and if it were not so there would be no
reason why the Treasury should not proceed to invest money in many kinds
of industrial enterprises besides railways and telegraphs,' Methods of Social
Reform, 371. The fact that the chance of loss is usually overestimated is here
neglected. Jevons would be right if the same income as formerly were to be
secured to -shareholders, but the suggestion is that only the market value of
the shares should be given.
railways is essential for a correct judgment on the policy
that has created them.

18. What the railway system is to the nation, tramways
are to the town, and therefore it is quite in accordance with
the general course of policy that tjiere should be an effort
to ' municipalize ' these means of communication. English
legislation places local governments in an exceptionally
favourable position, either for establishing tramways them-
selves, or, after the expiration of a period, purchasing the
rights of companies. Several leading British towns own
their local lines, but are obliged to lease them to a con-
tractor for working. Nearly 3,000,000 of capital has been
applied to this object by about thirty towns. In the United
States ' a few municipalities manage their own street-car
lines ' 1 , but the number is small.

Though classed in accordance with their nature among
the industries of transport, the tramways resemble in their
economic and financial aspects the other industries discussed
in an earlier part of the chapter.

V 19. The proper administration of the railway system,
assuming it to be owned by the State, is a further problem. |
Shall the lines be leased to a company, as in Holland, or
be managed directly by state officials ? The former seems
the solution that offers the greatest financial advantages.
The full value of the line can be obtained and the chance of
loss in a great measure avoided. Unfortunately the objects
for which state railways are often desired cannot be accom-
plished in this way. The lessees will doubtless use their
privilege to gain the highest possible returns, and the evils
of competition and unfair rates will continue.

State administration is so much desired by the opponents
of private companies that, as in Germany, private lines are
leased to the State. In this way the great outlay of capital
is not required, and as the management of a railway line
may be reduced to a system of routine, there at first appears
to be a fair analogy with the post office. This resemblance
is only apparent. Instead of the simple tariff and limited
classes with which the Post Office deals, there must be very
elaborate classes and frequent adjustment to new conditions.
The management of a great railway is an industrial 'under-
taking ' of peculiar difficulty, and is almost certain to suffer
from the want of capable direction. The financial success of
state-managed railways will be affected by the efficiency of
the management of so complicated a business, and it is
more than doubtful whether the gain through unity of
direction and system will compensate for the lack of energy
and zeal that state industries display.

A great deal will depend on the particular constitution
and situation of the country. The good financial results of
the Prussian railroads are attributed to the skill and care of
the trained officials in the service of that State. Countries
where the public service is not so well organized and with
Governments more subject to popular control cannot hope
for equal success. * I tremble to think/ said Jevons, * whati
might be the financial results if a property exceeding the
national debt in nominal value and requiring in every part
of it constant repairs, renewals, and extensions were in the
hands of a Parliamentary minister who might find some
day that he had been illegally and ignorantly signing
away great sums of money at the bidding of his subor-
dinates 1 '.

(The financial working of the system would be particu-
larly exposed to danger; for in addition to the risk of
of errors in management there would be the pressure of
opinion in favour of low fares and rates. )lf a substantial
surplus were realized in any year it would be impossible to
escape reductions that would effectually prevent its recur-
rence. Victorian experience is instructive on this point.
Any increases in the gross receipts of the Colonial lines
have been * absorbed by the additional working expenses '
due to extra facilities and lower rates. The Railway Com-
missioners declare that ' No department controlling state-
owned railways can expect to be allowed to realize more
than a small margin beyond the amount required to pay
the interest upon the capital invested, as immediately that
point has been reached the public request and insist upon
concessions in rates or increased facilities, both of which are
practically an amelioration of taxation.' l It remains to be
seen whether Prussia will succeed in maintaining her high
revenue from railways when once a movement for remission
of taxation sets in. Cohn, for example, justifies the railway
surplus on the ground that it is derived from the well-to-do
classes, and makes the distribution of public burdens
fairer, but if the duties on commodities of general use, which
are so heavy in Germany, were modified, the claim for lower
railway charges could not be met in this way -.
l\ The question of compensation for loss is another of the
financial points in railway administration.^ State post
offices escape the difficulty by repudiating all responsi-
bility, no matter what the loss they inflict, but railways
could not follow this most objectionable method. Over a
large system it is probable that the cost of accidents and
other losses could be averaged from year to year, though
some variation would still occur. Smaller countries would
not have this refuge from loss. A single heavy accident
would damage the balance and turn profit into loss. The
Victorian railways had for a single accident to pay claims
to the amount of 128,988 ; but the total expenditure under
that head for the year in question (1887-8) only amounted
to 142,562, while for the preceding year it was but 6655.
It is moreover highly probable that if the amount of com-
pensation was assessed, as at present in England by juries,
their bias would be altogether against the railway adminis-
tration and to a greater extent than it is at present against
private companies.

20. One difficulty common to most forms of state in-
dustry arises from the necessity of dealing with large
numbers of employees. The tasks of the modern State are
sufficiently varied and comprehensive to take up all the
ability and time of administrators without adding unneces-
sarily to their duties. Public industries, however, require
for their efficient working a body of organized hands,
obtained by free contract. The unavoidable consequence
is the possibility of disagreement between the State and its
helpers, culminating perhaps in the last weapon of industrial
war strikes 1 . The position of the public powers is in such
cases a trying one. The agency that is bound to enforce
order and fair-play is one of the parties to the dispute ; the
natural disposition of an administrator in a popular govern-
ment is to make things smooth by yielding to the demands
of the discontented, a course that involves additional expense
and injuriously affects the financial position. The pressure
of the consumer that is the community for low rates, and
that of state officials for better conditions of service, is the
most serious financial risk that the industrial activity of the
State is likely to encounter. The Prussian railway service
controls its 80,000 employees on an almost military system,
aided by the organization of the national army. But any
attempt to direct the railway system of the United Kingdom
on a similar plan would be hopeless.

21. But whatever be the judgment that we form as to
the expediency of the policy, there can be little doubt that
it has had important effects on public Finance. In most
European States a new branch of the public domain has
been called into existence, with very large gross receipts.
The weight of public indebtedness has moreover been in-
creased, and the real nature and results of that burden have
been obscured 2 . A large section of private industry that
would otherwise contribute to the public resources through
taxation has come into the charge of the State. The
broader social and political results do not concern us
here. (But the purely financial consequences of a con-
tinuance of the movement have much interest.^ One
inevitable result will be the comparative reduction of
tax-revenue as contributing to the gross receipts. The
addition of English railway expenditure and receipts to
the National Budget would nearly double its already
portentous sum 1 .

Under such conditions the ordinary method of inter-
preting financial returns would prove defective. At present
the Post Office unduly affects the balance of the Budget,
but its effect is insignificant compared with accounts of
the magnitude of the railways. The Indian Budget, as
Fawcett very clearly showed 2 , is open to misinterpretation
on this ground. Until the gross and net figures are
separated and arranged, there are no correct data for dis-
cussing the financial situation. t
V_Of more weight is the fact that this great increase
of gross receipts and expenditure would leave the real
power and burdens of the country almost unchanged. The railways of the United Kingdom show the following results for the
year 1889:

Receipts from all sources 77,025,017
AVorking Expenditure . 40,094,116
Net Receipts . . 36,930,901

Paid-up Capital . . 3 76, 595,1 66
The gross public revenue for the year ending March 3 1 st, 1 890 was


The total expenditure . 86,083,314

The National Debt at the end of the year was . . 684,954,150
The charge of the debt for the same year, including redemption


The inclusion of the railway accounts in the Budget would raise the receipts
to over 166,000,000 and, taking the present railway net receipts to be capi-
talized at 4 per cent., the total expenditure to 163.000,000, and the Public
Debt to about ,1,600,000,000. If the now standard 2f per cent, stock were to
be given, the capital should be proportionally increased or severe loss inflicted
on the shareholders who had invested in the assurance of being undisturbed.
The establishment of a sinking fund in the same proportion as that applied
in various forms to the present debt would necessitate increased taxation unless
state management proved very much more economical.
3 Indian Finance, 17-25.
Finances might be a little better or a little worse accord-
ing as there was a net gain or loss from the new state
domain, but in substance the public wants would still have
to be met from taxation, and the pressure would fall
on private income, since the large revenues from quasi-
private possessions would have corresponding charges
against them. )

/ The system of creating a state industrial domain by the
policy of granting long concessions with ultimate reversion
to the State is by far the most plausible. It appears to be
a form of saving by securing advantages in the distant future
at a small present sacrifice. ) For we cannot believe that the
concessionaries do not endeavour to compensate themselves
for their shorter term by increased charges, the result .of
limitation of advantages. Such is apparently the case in
France, where the railway companies, if their tenure is
limited, derive a counter advantage from the very high
dividends guaranteed to them.

From one point of view the formation of a state property
may be regarded as a process of saving somewhat analogous
to the treasures accumulated by sovereigns in earlier times.
A long-continued process of judicious investment might
succeed in raising these accumulations to a very large
amount, but under modern conditions it is better to trust to
taxation for the needed revenues, and allow the investment
of capital to proceed from the action of individuals. It
may be further remarked that each extension of state
ownership and management is a step in the direction of
Socialism. That the growth of public industries, if carried
on unchecked, would ultimately transform society into the
type desired by the more thoughtful socialists, is undeniable;
and whatever may be the merits of this kind of social
organization, it is utterly incompatible with the continuance
of the conditions which existing financial theories assume.
During all changes of social life the fundamental economic
and financial categories will survive, but their form may be
so changed as to render entirely new expositions essential.
We are not called on to discuss socialistic proposals, but, to
all who recognise their impracticability, the encouragement
to Socialism that attends the extension of the industrial
domain of the State may be noted as a further objection

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