efficient, and economical management. Nowhere is there a criterion of the fairness, justness, and reasonableness of a rate nor of efficiency and economy of management.

For many years it was the tendency of legislatures and commissions to compel the railroads to charge rates which would allow the greatest number of competing producers and shippers to compete. This tended to subvert the justification for competition itself, and to reduce that which the railroads received in relation to the service performed. When railroad rates are so adjusted that the less efficient producers of utilities of any kind are enabled to continue to supply part of the demand which otherwise would be supplied at prices as low by more efficient producers, there is utilized in their production the effort of a greater number of persons than is necessary and of a greater proportion of capital than is requisite. The burden falls in large measure upon the railroads. They are compelled to do more work than they ought to do. This means an unnecessary employment of capital and of effort by the railroads, and they receive less than they ought to receive for the work they do. This has conspicuously been the case in the bituminous coal industry, which provides a large proportion of the traffic of the railroads. It has been easy to open a bituminous coal mine in this country. New operators have demanded an allottment of the cars supplied by the railroad companies. Railroad commissions have compelled compliance with their requests notwithstanding that existing mines were more than adequate to supply the demand. The result has been loss, waste, lack of continuous employment, and continual disturbance in the industry. It is authoritatively and conservatively estimated that the mechanical capacity of the bituminous coal mines in this country is at least 75 per cent greater than requisite to supply the demand, that the working capacity including the effort of the miners and other employees is at least 50 per cent greater than requisite to supply the demand.

For many years it was the tendency of legislatures, commissions, and boards to compel the railroads to increase the wages of their employees and to increase the number of their employees beyond that requisite for the efficient performance of the service. This tended to increase the costs of performing the service in relation to the service performed. Ground between the upper and the nether millstones, the revenue of the railroads became inadequate. The difficulty was enhanced under the governmental

control of the railroads during the war. Wages were advanced time and again, the working conditions of employees were made easier and the number of employees was multiplied. Commensurate advances were not made in rates, the governmental authorities preferring to pay the deficits from taxation.

The Transportation Act without specifying a definite criterion for expenses endeavors to provide adequate revenue for the railroads through that adjustment of rates which will enable them to pay their running expenses and to obtain a specified net railway operating income. That this is putting the cart before the horse is demonstrated by the effect of the increased rates accorded after the Transportation Act was enacted. Not only did the increased rates not yield to the railroads the specified net railway operating income, but their tendency was to retard instead of to promote the industry and commerce of the country.

It happened that just as the preparation of this paper reached this point the Interstate Commerce Commission, in an order making a radical reduction in the rates on hay and grain, declared in effect that railroad rates should be so adjusted as best to serve industry and commerce, and that it was the duty of the railroads from the receipts derived from the sale of transportation at such rates to provide their service and to provide the facilities for increasing their service. This is putting the horse before the cart where it belongs. The first and foremost reality of the transportation problem is the need to keep the horse and cart moving under the conditions which best serve the industry and commerce of the United States and therefore best serve the material welfare of the people of the United States. When the horse and cart are thus kept moving the railroads will have emerged from their predicament, the transportation problem will have been solved.

To this end there must be the application of certain elementary principles of economics. It might seem superflous or worse to indulge in the expression of such principles before a body of professional economists were it not that their application has been woefully neglected and that the principles themselves are not generally understood. Moreover, when important conclusions are drawn the premises ought to be clearly stated. Economic theory ought to embody economic principles of practical application; otherwise it is useless. The justification of the economist is in the ascertainment and elucidation of such principles. Through long

practical experience there was painfully borne in upon me in all of the disputes concerning the railroads not only the absence of recognition of underlying principles, but the absence of such principles themselves.

The following fundamental propositions are advanced as truisms. They are advanced in the hope that they are given that coördinated and synthetized expression which adapts them for practical application in the economic activity which is interwoven throughout all production, buying, and selling.

The processes of producing the utilities which individuals use and consume, the utilities in the forms of matter requisite to the maintenance of human existence, to the manifestation of human activity in whatever field, are effected at this time in the main by organizations of employer and employees. They apply productive force in unending ramification in the successive processes of producing substance, of transforming it into the utilities we use and consume, and into the instruments of production utilized in that transformation. Throughout all of the stages and processes in which there is the ramification of productive force there is the ramification of the service of the railroads due to the productive force applied by them. The charges paid for the service of transportation enter into the costs of production at every stage and process from which emerge the final utilities which all persons use and consume. The final buyers of final utilities for the use and consumption of the entire population thus pay for all of the costs of their production, including the costs of transportation. The service of the railroads is of a piece with the service of all industry and commerce.

In all of the stages and processes of production are utilized land, instruments of production, and human effort. The utilization of these factors constitutes the application of productive force. There cannot be more of utilities used and consumed by the entire population than emerge from the processes of production. The greater the volume of utilities of any kind and quality produced in relation to the productive force applied, the greater the number of persons whose wants for utilities of that kind can be met. The greater the volume of utilities of any kind produced in relation to the productive force applied, the more there will be of productive force available for the production of utilities of other kinds. Therefore, the greater the volumes in which utilities of the various kinds are produced in due relation

to the demand, and in relation to the productive force applied, the greater will be the volumes and the varieties of utilities to meet the wants of the entire population.

The lower the cost at which utilities are produced, the lower the prices at which they can be sold. The fewer the dollars expended in production, the greater the measures of utilities that dollars will buy. As the volumes and varieties of utilities produced increase in relation to the entire population, they increase in relation to the number of those applying effort in their production. Competition between employers for the sale of the larger volumes of utilities produced compels them to sell at prices that extend their sales. As production thus increases and extends, competition between employers for the effort requisite to continued production compels the payment of wages which enable employees to extend their purchases. The fewer the dollars expended in production and the greater the volumes and varieties of utilities produced, the greater the measures of utilities that can be bought with the dollars all persons receive.

If more is paid for any factor utilized in production than the price at which that factor could be obtained under conditions which promote its wholesome preservation and efficient utilization, the costs of production have been unduly increased. Moreover, if higher wages are paid to employees engaged in any process of production, buying and selling, including the provision of transportation, than those at which employees of equal serviceability could be secured, the latter will be deprived of the opportunity for which they are capable, and may be obliged to take other employment at still lower wages. If the prices of utilities of various kinds are unduly increased by the payment of such unduly high wages, all of those who buy such utilities, including the employees engaged in their production, will have to pay higher prices for them. Unduly high costs of production may mean that unduly high prices will have to be paid or that the profit of producers will be unduly diminished, or both.

It is the attainment of profit which enables the acquisition of increasing areas of land, the provision of instruments of production increasing in number and capacity by means of which production of all kinds is in vastly greater volume than otherwise would be possible, the production of increasing volumes of substance, its transformation into increasing volumes of utilities, and the payment of wages and salaries to an increasing number of employees.

Thus it is by means of profit that the increasing wants of an increasing population are met, and wages are paid to the increasing number who must apply their efforts in the increasing production. Moreover, it is the attainment of profit from the sale of utilities produced which enables the production of utilities of other kinds which have not previously been produced, which enables an increase not only in the volumes but also in the varieties of utilities.

The principles that the volumes in which utilities are produced should be in due proportion and in due relation, that in such proportion and relation they should be produced in the greatest practicable volumes in relation to the force applied under the conditions which promote the wholesome preservation of every factor constituting that productive force, that with due regard to these conditions no higher price be paid for any factor utilized than the price at which that factor could be obtained under fair competition, and that there be increasing production to meet increasing wants, are applicable toward the solution of virtually every problem that besets industry and commerce today. Their application with exactitude may be exceedingly difficult, but their universal recognition would tend toward their application in the fullest attainable degree. They are applicable in the working of the railroads and in the inter-working of the railroads with all of the stages and processes of production, buying, and selling. That is, there must not only be the relation between that which is paid to the railroads and that which is paid by the railroads which will conduce to the observance of these principles, but there also must be the relation between the receipts and expenditures of the railroads and the receipts and expenditures of all other business organizations which will so conduce. The degree in which the administration and management of a railroad conduces to this observance is the criterion of economy and efficiency in operation. The degree in which a railroad rate conduces to this observance is the criterion of the justness, fairness, and reasonableness of a railroad rate.

One fact is of preeminent importance. It is not alone the physical assets which conduce to the serviceability of a railroad company. Of equal if not greater importance is the efficiency with which these assets are utilized. For example, if the movement of cars and locomotives in the conveyance of freight be doubled, double the volume of transportation is provided with the same volume of physical assets. If the reward of the railroads