tive of it were furnished to us by a director who had wit nessed the whole process of causation. When preference share dividends and guarantees began to make large draughts upon half-yearly revenues—when original stock was greatly depreciated, and the dividends upon it fell from 9 and 8 per cent. to 42 and 4 and 34, great dissatisfaction necessarily arose among shareholders. There were stormy meetings, motions of censure, and committees of investigation. Retrenchment was the general cry; and retrenchment was carried to a most imprudent extent. Directors with an indignant proprietary to face, and under the fear that their next dividend would be no greater, perhaps less, than the last, dared not to lay out money for the needful repairs. Permanent way, reported to them as requiring to be rep-aced, was made to serve awhile longer. Old rolling stock was not superseded by new to the proper extent; nor increased in proportion to the demand. Committees, appointed to examine where the expenditure could be cut down, went round discharging a porter here, dispensing with a clerk there, and diminishing the salaries of the officials in general. To such a length was this policy carried, that in one case, to effect a saving of £1,200 per annum, the working staff was so crippled as to cause, in the course of a few years, a loss of probably £100,000: such, at least, is the opinion of the gentleman on whose authority we make this statement, who was himself one of the retrenchment committee.

What, now, was the recessary result of all this? With the line out of condition; with engines and carriages neither sufficient in number nor in the best working order; with drivers, guards, porters, clerks, and the rest, decreased to the smallest number with which it was possible to work; with inexperienced managers in place of the experienced ones driven away by reduced salaries; what was likely to occur? Was it not certain that an

EVILS ENTAILED BY OVER-EXTENSION.

303

apparatus of means just competent to deal with the ordi nary traffic, would be incompetent to deal with extraordi nary traffic? that a decimated body of officials under inferior regulation, would fail in the emergencies sure from time to time to occur? that with way and works and rolling stock all below par, there would occasionally be a concurrence of small defects, permitting something to go wrong? Was not a multiplication of accidents inevitable? No one can doubt it. And if we trace back this result step by step to its original cause the reckless expenditure in new lines-we shall see further reason to doubt whether such expenditure has been as advantageous to the public as is supposed. We shall hesitate to indorse the opinion of the Select Committee on Railway and Canal Bills, that it is desirable "to increase the facility for obtaining lines of local convenience."

Still more doubtful becomes the alleged benefit accruing to the public from extensions that cause loss to shareholders, when, from considering the question as one of traffic, we turn to consider it as a general commercial question-a question of political economy. Were there no facts showing that the travelling facilities gained were counterbalanced, if not more than counterbalanced, by the travelling facilities lost, we should still contend that the making of branches which do not return fair dividends, is a national evil, and not a national good. The prevalent error committed in studying matters of this nature, consists in looking at them separately, rather than in connection with other social wants and social benefits. Not only does one of these undertakings, when executed, affect society in various ways, but the effort put forth in the execution of it affects society in various ways; and to form a true estimate, the two sets of results must be compared. The axiom that "action and reaction are equal, and in op. posite directions," is true, not only in mechanics—it is true

everywhere. No power can be put forth by a nation to achieve a given end, without producing, for the time being, a corresponding inability to achieve some other end. No amount of capital can be abstracted for one purpose, without involving an equivalent lack of capital for another purpose. Every advantage wrought out by labour, is purchased by the relinquishment of some alternative advantage which that labour might else have wrought out. In judging, therefore, of the benefits flowing from any public undertaking, it is requisite to consider them not by themselves, but as contrasted with the benefits which the invested capital would otherwise have secured.

But how can these relative benefits be measured? it may be asked. Very simply. The rate of interest which the capital will bring as thus respectively applied, is the measure. Money which, if used for a specific end, gives a smaller return than it would give if otherwise used, is used disadvantageously, not only to its possessors, but to the community. This is a corollary from the commonest principles of political economy-a corollary so simple that we can scarcely understand how, after the free-trade controversy, a committee, numbering among its members Mr. Bright and Mr. Cardwell, should have overlooked it. Have we not been long ago taught, that in the mercantile world capital goes where it is most wanted--that the business which is at any time attracting capital by unusually high returns, is a business proved by that very fact to be unusually active-that its unusual activity shows society to be making great demands upon it; giving it high prof its; wanting its commodities or services more than other commodities or services? Do not comparisons among our railways demonstrate that those paying large divi dends are those subserving the public needs in a greater degree than those paying smaller dividends? and is it not obvious that the efforts of capitalists to get these larger

MISAPPROPRIATION OF CAPITAL.

305

dividends led them to supply the greater needs before the lesser needs?

Surely, the same law which holds in ordinary com merce, and also holds between one railway investment and another, holds likewise between railway investments and other investments. If the money spent in making branches and feeders is yielding an average return of from 1 to 2 per cent., while if employed in land-draining or ship-building, it would return 4 or 5 per cent. or more, it is a conclusive proof that money is more wanted for landdraining and ship-building than for branch-making. And the general conclusions to be drawn are, that that large proportion of railway capital which does not pay the current rate of interest, is capital ill laid out; that if the returns on such proportion were capitalized at the current rate of interest, the resulting sum would represent its real value; and that the difference between this sum and the amount expended, would indicate the national loss-a loss which, on the lowest estimate, would exceed £100,000,000. And however true it may be that the sum invested in unprofitable lines will go on increasing in productiveness, yet as, if more wisely invested, it would similarly have gone on increasing in productiveness, perhaps even at a greater rate, this vast loss must be regarded as a permanent and not as a temporary one.

Again then, we ask, is it so obvious that undertakings which have been disastrous to shareholders have been advantageous to the public? Is it not obvious, rather, that in this respect, as in others, the interests of shareholders and the public are in the end identical? And does it not seem that instead of recommending "increased facilities for obtaining lines of local convenience," the Select Com mittee might properly have reported that the existing fa cilities are abnormally great, and should be decreased?

There remains still to be considered the other of the

two objections above stated as liable to be raised against the proposed interpretation of the proprietary contract— the objection, namely, that it would be a serious hindrance to railway enterprise. After what has already been said, it is scarcely needful to reply, that the hindrance would be no greater than is natural and healthful-no greater than is requisite to hold in check the private interests at variance with public ones. This notion that railway enterprise will not go on with due activity without artificial incentives-that bills for local extensions "rather need encouragement," as the committee say, is nothing but a remnant of protectionism. The motive which has hith erto led to the formation of all independent railway companies the search of capitalists for good investmentsmay safely be left to form others as fast as local requirements become great enough to promise fair returns; as fast, that is, as local requirements should be satisfied. This would be manifest enough without illustration; but there are facts proving it.

Already we have incidentally referred to the circum. stance, that it has of late become common for landowners, merchants, and others locally interested, to get up rail ways for their own accommodation, which they do not expect to pay satisfactory dividends; and in which they are yet content to invest considerable sums, under the be lief that the indirect profits accruing to them from in creased facilities of traffic, will outbalance the direct loss. To so great an extent is this policy being carried, that, as stated to the Select Committee, "in Yorkshire and Nor thumberland, where branch lines are being made through mere agricultural districts, the landowners are giving their land for the purpose, and taking shares." With such examples before us, it cannot rationally be doubted that there will always be capital forthcoming for making local lines as soon as the sum of the calculated benefits, direct and indirect, justifies its expenditure.