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THE HISTORY

AND ECONOMICS OF

TRANSPORT

7

THE HISTORA

AND ECONOMICS OF TRANSPORT

BY

ADAM W. KIRKALDY

M.A., B.LITT., OXFORD; M.COM., BIRMINGHAM; PROFESSOR OF ECONOMICS AND COMMERCE, UNIVERSITY COLLEGE, NOTTINGHAM

AND

ALFRED DUDLEY EVANS

SECRETARY OF THE BIRMINGHAM EXCHANGE

SECOND EDITION

LONDON- SIR ISAAC PITMAN & SONS, LTD. PARKER STREET, KINGSWAY, W.C.2

BATH, MELBOURNE. TORONTO, NEW YORK

L920

First Edition . . 1915 Second Edition . . 1920

PttfWTli, B, FNGL/LNB, »T

8DJ I TMTTV9

\<k:Vr^

PREFACE

Transport problems are not of recent origin. In one form or another they have arisen ever since man had any goods to move from place to place, and as transport has become more completely organised they have provoked increasing controversy. Nor can it be said that their solution has never been attempted. In the railway period alone Parliament and traders have given much time to their elucidation. But it is only in recent years that they have been systematically studied. The new Universities and Schools of Economics having included the subject of transport in the curric- ulum for their commerce degrees, it has come to be treated as a branch of economics deserving of accurate, scientific inquiry and study. The aim of this volume is to assist this study, and conse- quently much that has been written is elementary. There is also much that, necessarily, is sketchy, because, with a subject so comprehensive, it has been found impossible to deal in detail with every branch ; to have done so would have required several volumes. There is much also that, inevitably, touches controversial ground. Where this is so an attempt has been made to present both sides of the question as fairly and as adequately as possible. But while the primary aim has been to produce a text-book for the student, the authors hope that it will be found interesting to the general reader, particularly to the business man whose daily affairs bring him into close contact with the problems of transport.

This volume was mainly written before the War, and was first published in 1915. The first edition having been exhausted, it was necessary to reprint, and advantage has been taken to add to the sections on Railways and Shipping, giving in both instances some account of what happened during the War period.

Some of the appendices have also been brought up to date.

These should prove useful both to the student and to the general reader.

Vll

CONTENTS

PREFACE

PAGE

vii

INTRODUCTION Methods of Transport and their Development

i. the land or the water route

ii. english roads

iii. the insufficiency of the turnpike road

iv. the beginning of the english canal system

v. railroads and the locomotive

1

7 15 19 26

PART I

The Railway in the United Kingdom and Abroad

i. a standard gauge ...... 33

ii. some initial difficulties ~> . . . . .40

iii. the evolution of trunk lines .... 43

iv. the railway and canal and light railways com- missions 50

v. the scope and purpose of working agreements . 55

vi. railways of the united states .... 61

vii. the european railways . . . . .71

PART II

Railway and Canal Economics

(i) Railway Economics

i. railway capital

ii. railway revenue and expenditure

iii. the evolution of railway rates and fares

iv. theories as to the basis of railway rates

v. allegations of discrimination and excessive rates

vi. the question of foreign preference

vii. government control of railways

viii. railway statistics and accounts .

ix. state railways ....

x. government control during the war

xi. future railway policy

ix

79 90 102 118 132 147 159 171 181 197 208

X CONTENTS

(n) Canal Economics

CHAP. pAGE

XII. CAPITAL REVENUE AND TRAFFIC .... 219

XIII. DEFECTS OF THE CANAL SYSTEM .... 228

XIV. ADVANTAGES OF WATER TRANSPORT .... 240 XV. RECOMMENDATIONS OF THE ROYAL COMMISSION . . 251

PART III

Shipping and Ocean Transport

i. early navigation and the commencement of

modern international transport services . 260

ii. the perfecting of the vehicle of ocean transport 267

iii. the economics of marine fuel .... 284

iv. modern ocean transport ..... 307

v. shipping regulation and management . . . 315

vi. british shipping during the war . . . 333

APPENDICES

NO.

1. table showing the development of railway

mileage, capital, traffic, expenses and receipts for the united kingdom 341

2. ) skeleton specimens of the new forms of railway

3. ) accounts 342-344

4. preferential rates in european countries . . 345

5. various statistics which can be compiled from

ton mile figures 347

6. birmingham canal navigations, schedule of tolls

and charges 348

7. shropshire union railways and canal company

schedules of rates and charges . . . 350

8. market price of coal at cardiff and the tyne,

1913 and 1914 351

9. principal coal-exporting centres of the united

KINGDOM 352

10. production and export of coal, united kingdom,

1855 to 1919 352

CONTENTS XI

NO. PAGE

11. production and export of coal, british dominions,

1890 to 1919 353

12. ditto, foreign countries, 1890 to 1919 . . 354

13. prices and conditions for the supply of coal at

various coaling stations for 1913, 1916, 1917, and 1920 355

14. map showing the canal routes recommended by the

ROYAL COMMISSION FOR ACQUISITION AND IMPROVE- MENT, AND THE VARIOUS STANDARDS OF SUGGESTED

improvement end of book

INDEX

359

THE

HISTORY AND ECONOMICS

OF TRANSPORT

INTRODUCTION METHODS OF TRANSPORT AND THEIR DEVELOPMENT

CHAPTER I

THE LAND OR THE WATER ROUTE

Ever since trade and commerce necessitated the transport of goods the same problem has confronted the trader. With improved methods and greater knowledge of forces giving in- Land and Water crease(j p0Wer 0ver physical conditions, the terms of the problem have been modified. But the primi- tive trader of many centuries ago debated the same questions as does the twentieth century merchant in the Midlands to-day : Shall I send my goods by land or by water ? By the land road or the water road ; by the wagon on the turnpike, or by the barge on the canal ; by the railway, or by an improved canal method — these under different forms are practically the same question, which has demanded an answer from the trader of antiquity, the eighteenth century factor, and the captain of industry to-day.

Nor is this question, which to the superficial observer appears so simple, easy to answer. The closer one looks into the subject the greater do its possibilities and complexities grow. ^Problem**16 Wnen tne primitive trader had a few goods to trans- port a few miles he might, or might not, have the choice of routes. If, however, he lived on the banks of a river, or lake, or by the sea, he enjoyed the advantage of the choice. If, for instance, one were to imagine a trader living on the side of a lake and having some goods to send to a settlement 10 miles distant, yet close

1

1— (1327a)

2 ECONOMICS OF TRANSPORT

to the lake, will he send those goods by road or by water ? It is frequently possible to get a clearer understanding of the problems of to-day, by going back to simpler times, and there view the problem shorn of the complications inherent in some modern methods. In the case now under consideration the trader knows that if the goods are sent by land there must be a roadway of some sort along which the beast of burden or the primitive vehicle can travel. If the shores of the lake are densely wooded, or marshy, it will be necessary first of all to make a road either by cutting a way through the trees and levelling a track, or by constructing a causeway through the marsh along which man or beast can safely travel. When this roadway is available it will next be necessary to decide how the goods shall be transported along it. If the roadway be level and smooth a simple sledge drawn by horse or ox may meet the case ; or the trader may have been introduced to the wonders of the wheel, and by constructing a rough cart mounted on an axle with two wheels he may ease the labour for his horse or ox very considerably.

The point to note is that if he decide to transport the goods by

land two questions have to be answered — is there a suitable road, and

what shall convey the goods over the road ? In

M°Jl STransi5.nS other words- man has to Provide both a road and a vehicle. But in the case under consideration the

trader is living on the shores of a lake, and as the destination of the

goods is near the lake there is an alternative route. Now this route

differs in almost every respect from the other. In the first place

the roadway is ready for use. There are no trees to cut down or

a morass to be rendered traversable. Nature has freely provided

a level, easily traversed roadway, and for the use of this, all that

the trader need do is to construct some type of boat or craft that

will float.

To primitive man living near river, lake or sea, the water road offered many considerable advantages over the land road. And it is fairly certain that, under the conditions stated, the invention of the coracle preceded the invention of the cart.

Throughout commercial history it is safe to say that, taken as a whole, water transport has been cheaper than land transport. Nor is the reason far to seek. Not only has the land road to be constructed, and this frequently entails great labour and expense,

THE LAND OR THE WATER ROUTE 3

but it has to be kept in a state of repair. An untended road

sooner or later relapses into an impassable condition. Even the

Roman roads, so solidly constructed that they could

Comparative Cost almost defy the i avages of Nature and of time, have, of Water and Land , , , , . „ .

Transport. except where they have been continually in use and

on the whole kept in a fair state of repair, disap- peared from view under natural growths, the removal of which would be almost as costly as the construction of new roads. The water road of lake, river, or sea, with the natural modifications worked by time, changes but little during the history of a nation. There may be a certain amount of silting up or charge of course, or modifications caused by erosion, but on the whole it may be said that the natural road enjoys a permanency quite foreign to any human attempts at road-making on land. The modern example of this fact can be illustrated by studying the capital outlay required for a railway company and a steamship company of the present time. The largest railway company of the United Kingdom is saddled with a capital of upwards of £200,000,000 sterling ; but there is not a single British shipping company whose capital even approximates to £10,000,000. And the total value of the mercantile marine of the United Kingdom, which comprises no less than 18,250,000 tons of shipping, is only about ^lSO.OOO.OOO.1 Yet this shipping carries on somewhere about one-half of the ocean transport business of the whole world. If an analysis be made of the capital of a railway and steamship company, the cause of this great dispro- portionate need for capital very soon emerges. The cost of the rolling stock of the railway company is comparatively small. The items in the capital account, which have consumed the great mass of capital, are, in the first place, the survey of the route, then the Parliamentary expenses connected with getting the charter, and finally the purchase price of the land, and the making good of damage. In a word, it is the preliminary expenses in getting the scheme approved, the purchase of land, and the construction of the permanent way that have bulked in capital expenditure. Thus, while the capital of the railways in the United Kingdom now stands at something less than £1,400,000,000, about two-thirds of this vast sum has been spent in securing the roadway. It is not to be wondered, then, that there can be no comparison or equality between railway rates and steamship freights. 1 These are pre-war figures.

4 ECONOMICS OF TRANSPORT

The modern world has to sink large quantities of capital to secure a modern land road. The ancient world had to put forth great efforts to construct even a suitable track for the transport of weighty commodities. The amount of capital sunk in ancient roads was probably never either con- sidered, estimated, or even approximately totalled up. The labour employed was forced or slave labour, and the materials were obtained by this labour from the nearest source of supply. What counted in those days was the effort or trouble entailed in procuring the facility afforded by a good road. Thus, if there was an alter- native water route, mankind naturally gave its attention rather to the improvement of the water route vehicle than to the comparatively greater work of making a land road.

The first water vehicle may have been a raft rudely constructed by fixing a number of tree trunks together. But this was a cum- brous machine, difficult to control and slow of speed. V'eliicles ^ ^ wou^ soon ^e superseded by the coracle. This craft, which played a considerable and useful part in the early history of these islands, was an ingenious invention. It was possibly suggested to some talented savage when he noted that the skins of animals would float. Eventually a craft was constructed by making a^ wicker framework and covering it with skins. The coracle is the earliest water-craft known in the history of the British Isles, and has survived almost in its original form down to the present day. On the Dee, and the Severn, these craft, the outer covering, perhaps, being tarred canvas instead of skins, can still be seen ; whilst in some parts of Ireland the type of craft used has scarcely changed since the days of St. Columba. In these slender craft long voyages were undertaken. There is on record a seven days' voyage by three Irish missionaries who travelled in a coracle from Ireland to Cornwall. Julius Caesar realised the convenience of these craft, which apparently he saw for the first time in Britain. He had some coracles constructed and gives an interesting description of their build. They had gunwales and keels of strong, light wood, and the framing between these was of wicker work. The result was a boat -shaped basket which was covered with the skins of horses or oxen. Such a craft was light, and so was easily portable ; it would stand a considerable amount of hard usage, and was very durable. Small coracles were

THE LAND OR THE WATER ROUTE 5

covered with one skin, but larger craft were constructed, which required two, three or more skins to cover them. There is a curious and very interesting survival of the coracle in present-day ship- building technical terms. Where more than one skin was required to cover the wicker framework, there was a seam that had to be made water-tight. Thus, in the construction of these primitive craft there was the skin and the seam. These two terms have persisted right down to the present. The ocean liner also has a skin, i.e., the outer plating, and where the plates are butted or riveted there are seams that have to be caulked to render them water- tight. The skin and seam of the early craft are thus commemorated, although few things could be less alike than the steel plating of a modern steamship and the hide covering of a coracle.

When mankind produced more efficient tools, and was able to burn down or cut down a giant tree, the possibility of making the tree into a boat soon occurred to some quick-witted EtheUBoat.°f native- Probably fire was used to hollow out the tree, and form a bow and a stern. The wooden canoe became a practical fact and with this the adaptation of wood to ship or boat -building began. A canoe hollowed out of a tree was a cum- brous affair compared with a coracle. Thus, as soon as it was found possible to split trees into thin planks, the framework of the coracle was somewhat modified, and, in place of the hide cover- ing, thin planks were used. But as yet there were no such things as nails or rivets, so the planks were sewn together as the edges of the hides had been. There was still, in the true sense of the word, a seam. Wooden boats with the seams sewn together, instead of being nailed, can still be seen in Northern Europe.

With the introduction of wood as the material for shipbuilding very great possibilities opened out before the shipbuilder and trader. The dimensions of the ship could be enormously in- the'shio ° creased. This necessitated, however, many modifi- cations, in form, construction, propelling force, and method of steering. But it was no great distance from the first clinker-built boat to the Viking ship — a craft prepared, under the conditions of water transport in those far-off days, to go anywhere and do anything. The long, swift Viking ship could not only cross to England or Ireland but could brave the ciossing of the Bay of Biscay (or coast round it), and passing through the Straits

6 ECONOMICS OF TRANSPORT

of Gibraltar it became a familiar object on the Mediterranean. Or to put it in another way, the improvement of the coracle to the Viking ship made international trading possible.

This evolution did not take place in one part of the world and then spread abroad. So far as can be gathered from survivals of early

craft in different parts of the world, a very similar Evolution evolution took place in widely separate countries

and continents. Both in the Far East and the Far West serviceable sea craft were produced, and as mankind settled down after having passed through the hunting and pastoral stages to the more civilised stage of agriculture, and had quantities of food-stuffs and raw materials of various kinds with which to traffic, the vehicle suitable for early trade was also available.

Thus trading began and continued to develop, a growing com- merce requiring a larger vehicle which led to the oar first being supplemented, and finally displaced by the sail.

CHAPTER II

ENGLISH ROADS

In a very few pages the evolution of water craft over many centuries has been sketched. Meantime land transport had also made ad- vances, and both road and vehicle had been subject ThVeWcleCled to many improvements. It would be the rolling of a log that first suggested the possibility of easing the labour of haulage by using a roller or wheel. The facility thus gained would lead on to other attempts being made to assist the work of transport. The roller, whilst diminishing the heavy work of the haulier, was slow, because of the ever-recurring necessity of replacing the roller. This inconvenience doubtless led to the invention of the axle, and when once a freely rotating, yet fixed, roller or wheel was evolved the dimensions of the diameter of the wheel would soon increase. The original roller would be the trunk of a medium sized tree, and when once the principle of the action of the wheel had been grasped, sections of larger trees would be experimented with, until the solid built wheel would come into use. When Caesar invaded Britain in the year 55 B.C., he found the war -chariot in use. This was a two- wheeled car, of which the axles were prolonged, and fitted with scythes for the pur-

Wh^iT'v j?'i Pose °* cripPnng the enemy when a charge was

in Britain. attempted. The wheels of these chariots would be

constructed of solid wood, perhaps bound with

metal ; centuries were to elapse before the spoke-built wheel would

come into general use, but drawings of the eleventh century show

carts mounted on wheels of very similar appearance to those fitted to

present-day country carts. It is evident, however, from Caesar's

descriptions, that two- wheeled vehicles and hence roads of a more

or less primitive type have been in use in this country, at any rate

throughout the Christian era.

The coming of the Romans was to have an important effect on

_ „ , methods of transport, for the Romans were great

Roman Roads. , -^ ■ i

road engineers. Road- making was an essential

feature in their policy for maintaining their hold over the countries

they conquered. Nor was an exception made in the case of Britain.

7

8 ECONOMICS OF TRANSPORT

Throughout the Island — north, south, east, and west — wherever the Roman went he left an indelible mark in the form of roads. After 2,000 years of hard wear many hundreds of miles of these roads are still in use Other parts of the system have been overgrown or covered with wood, but even these could apparently be restored, for recently the suggestion has been made that the disused Roman roads should be opened out for motor traffic. The rough tracks of the primitive inhabitants had developed in some cases into broad clearings through the woods and forests, forming roadways which afforded a means of communication throughout the Island. It was this system of communication that the Romans, during their occupation of Britain, improved, straightened, constructed and developed. The main routes eventually7 were — ' 1. The Watling Street, leading to Ireland, and starting from Richborough by London and Worcester to Festiniog. Thence it had two branches — the left to Carnarvon, the right by Chester, Manchester and Corbridge to Cramond, Jedburgh, and the North.

" 2. The Ikenield Street, from the country of the Iceni (about the Wash and Yorkshire) by Newmarket and Dunstable to Streatley. Here it branched — the right by the Berkshire Ridgeway to Ave- bury ; the left by Newbury and Tangley to Old Sarum, Dorchester, Honiton, Exeter, Totnes, and the Land's End.

"3. Akeman Street, from the eastern counties by Bedford, Buckingham, Alcester, Woodstock, Cirencester, Aust (where it crossed the Severn), Caerleon, Cardiff, Caermarthen, and St. David's.

" 4. Ryknield Street, from the Tyne by Bruchester, Borough- bridge, Aldborough, Ribston, Bolton, Chesterfield, Burton Wall, Birmingham, Tewkesbury, Gloucester, Chepstow, and so by Abergavenny and Caermarthen to St. David's.

" 5. Ermyn Street, from East Scotland by Berwick, Brampton, Corbridge to Catarick, where it divided ; the western branch along the Ryknield Way to Aldborough, Houghton, Doncaster, Southwell and Staveley, where it rejoined its own Eastern branch which had proceeded from Catarick by Northallerton, Stamford Bridge, South Cave, Lincoln, Ancaster, and near Witham.

' Thence the road ran to near Stamford, Chesterton, Royston, Ware Park, Enfield and Wood Green to London.

" Here it again divided — the western branch by Dorking and

ENGLISH ROADS 9

Pullborough to Chichester ; the easterly by Bromley, Tunbridge, Wadhurst and Eastbourne to Pevensey.

" Two subordinate roads are also mentioned by Sir Richard Colt Hoare —

" 6. The Fosse Way, from about Seaton by Ilchester, Bath, Cirencester, Northleach, Claychester, to Lincoln.

" 7. The Via Julia, mentioned both by Antonine and Richard of Cirencester, from Bath, Bilton, Caerwent, Caerleon, Cowbridge, Neath, and Caermarthen to St. David's."1

In the year 410 a.d. the Romans withdrew from Britain, and

the British found themselves confronted with an enemy against

whom they could make but a fitful and unsatisfac-

Slow Development tory resistance. Within half a century the Jutes

Period. and Saxons had established themselves in the south,

and within another century the whole of the east

and south-east coasts were in the hands of the Angles, Saxons, and

Jutes. The British were driven steadily westward until finally the

conquest was complete, and the various groups of invaders began to

strive among themselves for the mastery. When this was decided

other invaders entered upon the scene, nor was it until the Norman

Conquest that the country enjoyed a cessation from serious outside

attack.

All these centuries of strife and uncertainty were ill-calculated to assist in the development of either internal or external trade. Indeed, the roads for the most part were allowed to go to ruin, although the Trinoda Necessitas compelled freemen to maintain bridges — the three compulsory works being repair of bridges and fortifications and personal service in the fyrd or militia. Thus such transport as existed was carried on either by land or by water under the greatest difficulties.

But with the coming of the Normans, and the constant going and coming of the conquerors between the Continental and English

divisions of their kingdom, the routes to the more Norman Period. . .-..».

convenient seaports on the south coast were im- proved. Hence by the time the Plantagenets were on the throne the main roads connecting London with the seaports for the Continent were in fair condition. But northward and westward com- munication was difficult and remained so for some centuries. 1 Social England, vol. i, pp. 49, 50.

10 ECONOMICS OF TRANSPORT

Parts of the old streets were either still in use or had been repaired, but the main traffic of the country continued to be carried on by means of pack animals.

Thus the trading routes were Holloways. These had originally been tracks cleared of obstruction or made traversable where morass w„ .. ,, succeeded the generally prevailing wood. There

was no attempt, however, at road construction, and as a consequence these tracks became more and more deeply worn — hence the name Holloways. In some places they were worn to such an extent that the pack animals going along them were barely visible to people on the level. In the winter time such tracts would fill with water, and, if the season was severe, would be frozen hard ; in either case the passage-way along them was ob- structed. There are still survivals of these Holloways in many of our old towns. The place at which the way entered the town was the Holloway head, a name that still lingers ; in London it has given a name to a large district.

The difficulty connected with the transport of goods under

such conditions can be more easily imagined than described. But

undoubtedly it was a great factor in stimulating the

Foreign Trade. imPoriat i°n OI foreign manufactured goods, which

could be brought within reasonable distance of most

market towns or fairs by the water road. Thus it is not to be

wondered at that English manufactures stagnated, and that until

the rise of the Mercantilists, whose policy it was to make the nation

powerful and self-sufficing, England merely produced raw materials

for continental craftsmen to manufacture.

From the reign of Edward III, however, a new policy was gradu- ally evolved. The Government became increasingly ambitious ; but an ambitious policy was found to be an expensive Home Trade. P°licy. and the old financial arrangements for sup- porting the King and administrative services were no longer adequate. In the words of the Chroniclers the King could no longer live of his own. The rents and services of the royal demesne were insufficient either to protect the old Norman posses- sions of the King of England on the Continent, or to enable Edward III to make good his fatuous claim to the Crown of France. Henry

11 had substituted money payments for personal service, and owing to this it became necessary to increase money taxes. For that

ENGLISH ROADS 11

pmpose a taxable fund had to be created, for it did not then exist. \ Thus King and Government looking round to discover where money was made saw that the manufacturing industries of Flanders were producing what appeared to them to be so necessary for the pro- gress and well-being of England. It had previously been the experience of the Sheriffs that in collecting taxes, money was more easily extracted from townsmen than from agriculturalists ; so now a new fiscal policy was introduced. The raw materials must be retained in the country and worked up at home. As English craftsmen were lacking, advantages were offered to foreign crafts- men, who, in return for bringing their skill and setting up their industries in England, were granted special concessions. This policy, which continued right on to late Tudor days, resulted in developing many valuable manufacturing industries in this country and with the introduction of each new industry the demands on the means of communication and transport increased. Thus it was that King and Government began to foster trade and com- merce. Originally trade was to be the servant of the State, pro- viding the sinews of war to support a spirited foreign policy. It is interesting to note that, as the centuries passed, this position became reversed, until in the middle of the eighteenth century, a British minister was to declare : " I am conquering Canada in the plains of Germany." Or in other words, trade from having been the servant of the military party had become its master. The Wars of the Plantagenets and Lancastrians were waged for the sake of chivalry and military display : the wars of modern England have been waged in the interests of trade, colonisation, and progress — three terms which are practically synonymous in their significance. With increasing manufactures and trade it became necessary to improve transport methods. Thus roads, wagons, boats, and ships all began to feel the effects of growing demands on

olT^rauwort' their services- Hence in the reign of Edward III commenced the system of charging tolls for the use of roads, the theory being that the toll collected should be sufficient to keep the road in repair, and even extend its length. Efforts had been made by statute to remedy the bad roads of the country, but the toll system was for a considerable period found to be the most efficacious method of providing the necessary funds for both their construction and their maintenance.

12 ECONOMICS OF TRANSPORT

It was in the year 1346 that Parliament authorised the levying of the first toll on an English road. And when the road for which the special legislation was passed is known, a clear light is thrown over the condition of communication in this country. The road in question led from St. Giles-in- the-Fields to the village of Charing, now central London ; it con- tinued from Charing to Temple Bar, and turning northward went along Perpoole, which gives the line now occupied by Grays Inn Road. According to the Act the footpath at Temple Bar was overgrown, and during spells of bad weather was impassable. We read in the ordinary history books long descriptions of Edward III and his chivalry ; the Act just cited reveals the less satisfactory side of the picture, for we learn that when Edward rode down to Parliament, such was the unevenness of the roads in Westminster that the ruts and holes had to be filled with faggots to make a passage for the Royal procession.

If this was the state of the highways at the centre of Government, it can easily be imagined what the roads were like away from London. In fact, the further one went from London the greater were the difficulties of travel ; and this continued to be the case until well into the eighteenth century.

Much can be learned as to the means of communication about the country and the difficulties experienced by travellers and mer- chants by going through the proceedings of Parlia- Eariy^Roads. ment- Durin& T"dor times some of the statutes are very interesting from this point of view. Even in parts of the country like Kent and Sussex, where one might have expected to find roads and tracks fairly good, owing to the extent of the intercourse between England and the Continent, there is evidence that they were deplorably bad. There are instances where Parliament was asked for permission to construct new tracks, the old ones having become so impassable that they were reported as being beyond repair, and the only course was to construct new roads.

Trade and commerce were thriving during the sixteenth century. Englishmen were finding themselves, and taking

Surveyors t^ie^r Posrti°n at tne head of those developments in

trade and discovery which were to result in the

building up of the Empire with which the twentieth century is

ENGLISH ROADS 13

familiar. Its foundations were laid then, and it was then, too, that an energetic policy in several spheres began to reveal to the world a new force, the English gentleman-trader. If the activities of these men were to have full scope there must be greater ease in getting about the country. Goods carried in panniers from manufacturing centres to the coast were not a fit complement to the system of import and export trade at the ports. Unhappy as were the days of Queen Mary, the need to supply the country with roads fit for cart traffic forced itself upon the attention of people and Govern- ment. Thus, in the year 1555, Parliament passed a law to the effect that every parish should appoint two surveyors of the highways, whose duty it should be to maintain the roads in their district, and for this purpose they were empowered to employ compulsory labour.

The great interest in tracing out the gradual improvement in the road system of England is that it provides a clear and unmistak- able illustration of the integration of industries ; indeed, one might go further and say the integration of all that is best in the forces working for the material and the intellectual well-being of the community. To have mapped out the country during the sixteenth century with a system of first-class roads, and to have carried out the scheme, would not have been possible. The country was comparatively poor, and was only sparsely inhabited. Neither the population nor the accumulated wealth could have borne the strain entailed by the carrying through of a big scheme of road construction. As popula- tion and wealth increased, as trade and its needs developed, so one can trace small improvements in methods in various and differing spheres. These small advances tended to increase with an astonish- ing celerity as the decades passed, until when George Stephenson, by the invention of the forced draught, perfected the locomotive engine, all the other departments of human activity had developed up to the point at which it was necessary for them to be, if that invention was to be rightly applied and its benefits fully enjoyed. Thus population, manufacture, trade, capital, scientific knowledge, practical skill, and other necessary spheres had all evolved to an extent that enabled them to take advantage of the new possibility. George Stephenson and his inventions would have been before their time in the sixteenth century, but within three centuries the world

14 ECONOMICS OF TRANSPORT

was ready for him, and his work completed the work of one epoch, and laid the foundation of another. Without the foundational work of Tudor and Stuart days the nineteenth century engineer and scientist would have been as " voices crying in the wilder- ness." Each age has its special work, nor is any part of that work unnecessary in the great scheme of evolution. A study of the history of civilisation convinces one not only of integration working in every great sphere of human activity, but of a more complete and far-reaching integration which links all spheres, and makes their evolution contingent on the steady advance of all.

CHAPTER III

THE INSUFFICIENCY OF THE TURNPIKE ROAD

From the general, however, one must return to the particular, and

sketch out the development of the means of internal communication

in this country from the seventeenth century. Nor

D raiooment *s t^ie narrat^on °* tms °* merely historical interest. One learns that each advance made in methods of travel — the coach, the train, the cycle, the motor — has often, in the first instance, been a luxury for the rich or a plaything for the venturesome. And that after many a test, and sometimes through much exaggeration (e.g., the racing motor), it has become eventually the heritage of the poorest, giving means of enjoyment and pleasure, and the possibility of carrying on business and commerce under new conditions, and at a cost that brings its benefits within the reach of all.

About the middle of the seventeenth century, the means of travelling in England were revolutionised. A stage-coach travelling

at four miles an hour would raise a smile to-day, but The Stage Coach. , . , , . .... ...

when it was introduced into this country it was con- sidered a great innovation. At first the stages were only in opera- tion on the best roads in the vicinity of London. But in the year 1663 a stage-coach system was organised to as far north as Preston. The vehicle itself was only a superior kind of waggon with no springs, and travelling over roads of a corduroy description, the experiences of those making use of the service were anything but happy. Nor did the public welcome the advent of the coach. The Londoner, always apt in his descriptions, named these coaches " Hell Carts," and as a dangerous innovation likely to cause injury to the public at large, there was some demand that they should be prohibited.

Coaching was not only a slow and tedious business, but was attended by some danger ; especially was this the case during bad

weather, when the wretched roads along which they

had to function were apt to suffer from flooding. The management apparently was conscious of the risks attending even moderate journeys, for the bills announcing the various

15

16 ECONOMICS OF TRANSPORT

coaching services usually contained a sentence to the effect that the coach would start, "God willing," at a given time, or when the majority of passengers should decide. Nor is such a safeguard to be wondered at when one realises that, in the year 1700, the time required to journey by coach from London to York was a week. To-day a miserable railway service manages to effect the run between London and Tunbridge Wells in about an hour ; then by coach it required two days. To get to Scotland then was more difficult than to go to India now. In the year 1763 it took no less than a fortnight to reach Edinburgh from London, and the coach only attempted that feat twelve times a year. What an undertaking a long coach journey was during the eighteenth century can be realised by the fact that tools and arms had to be carried, the former being necessary at times to clear a road, or repair a breakdown caused by the roughness of the way, the latter for the protection of life and goods against the depredations of highwaymen. When speed was an object people rode. Commercial travellers always went on horseback, and their samples were carried in bags, whence these necessary adjuncts of trade were called bagmen.

When comparatively lightly loaded vehicles, i.e., those for passen- ger traffic, experienced a difficulty in making their way along such roads as existed, what must have been the obstacles

HeavvPGoods in the way of the transPort of heavy goods ? In actual practice it was found impossible to employ carts except in or near towns. Corn, wool, and even coal, were loaded into pannier baskets slung across the backs of horses or donkeys. The cost and tediousness of this method set a very practical limit to exchange. It is said to have cost £7 to transport a ton of goods from Birmingham to London less than two centuries ago. Business men, seeing how foreign manufacturers were able to get their goods to the English markets expeditiously and cheaply, thanks to the water routes, began to turn their attention to the improvement of rivers, and the linking up of river with river by means of canals. But the commercial men being a small minority, their schemes had to wait for a national awakening. That the , state of the roads was occupying public attention is

pi y ' shown by the adoption of the turnpike system. The first Turnpike Act had been passed as early as the year 1663, but improvements worked slowly. It was not until the winter

THE INSUFFICIENCY OF THE TURNPIKE ROAD 17

of 1745, when the Government was nearly overthrown, mainly because of the bad state of communication between various parts of the country, that England really woke up. The work pro- gressed with a hurry, that may be described as almost feverish, for no less than 452 separate Turnpike Acts were passed by Parlia- ment during the fourteen years between 1760 and 1774. Such an amount of legislation on behalf of communication is only paralleled by the stress of work in Parliament during the early days of rail- ways. These roads, however, useful as they might be for military, mail, and passenger purposes, were of but small advantage for the conveyance of goods, in the quantities that were being demanded by a rapidly increasing trade.

So far as speed in travelling was concerned, improvements began to take place. In the year 1754, Manchester, then almost cut off from civilisation, produced a flying coach, and in- augurated an improved service with London. As announced, this flying coach would, " although the statement may appear incredible, arrive in London (barring accidents) in four and a half days after leaving Manchester." In the year 1784 Palmer's mail coaches began to run, and the journey from Edinburgh to London was reduced to two days and three nights. The speed was thought to be excessive, and travellers were seriously warned of the ill effects likely to result from rushing through the air at such a speed for two or three consecutive days.

Arthur Young, in his Tours,1 gives glowing accounts of the roads and their defects. In one place he mentions being more than ordinarily impressed by the bumping caused by ruts, and on getting down to measure the cause of the discomfort, actually found one rut having a depth of no less than four feet.

There was a deep-lying and unsuspected cause for the unsatis- factory state that continued to be the characteristic of English roads. The Romans had been great road engineers, but

Itate ^Roads' when they left the country> n0 one took UP their r°le in this respect. The roads were bad, not only for

want of funds to construct and repair them, or for the wish to have

them (indeed, as commerce progressed, there were both the funds

and the wish in evidence), but the real obstacle in the way of

1 Six Weeks' Tour Through the Southern Counties. A Six Months' Tour Through the North of England.

2— (1327a)

18 ECONOMICS OF TRANSPORT

obtaining good roads was that even when Parliament provided a way, the carrying out of the scheme was left in unskilful hands. What was required was the scientific training of real road engineers, men capable of constructing roads as good as those whose remains were a monument alike to their constructors and the period of Roman domination. Such engineers as existed considered road construction beneath their dignity, not realising that a good road goes very near towards immortalising its constructor. This state of affairs continued until John Metcalfe (1717-1810) appeared upon the scene ; the first great road engineer in England, for many cen- turies. Curiously, too, Metcalfe was blind. Yet this blind man was a genius, and in following his instinct, was a considerable factor in revolutionising road- making in this country . x

When once Metcalfe had shown the way others followed. Macadam (1756-1836) and Telford (1757-1834) continued his great work of putting the highroads of England in good order.

Thus new routes were planned and constructed, and many places hitherto isolated from each other were linked up and became im- portant points on the system of communication. Planned ^e coacn> too, was improved, and so with good

roads and a good vehicle a service remarkable alike for its regularity and speed, was organised throughout the country. At its best, however, coach travelling was but slow, and it only met the requirements of passengers and mails. Had roads been the last word in improved methods of communication, the trade of the world would not have developed very greatly. To the transport of goods by wagon on an ordinary road there is an economic limit, which is very soon reached. For instance, it has been calcu- lated that to transport wheat 2,000 miles in a wagon by road would cost 21s. a bushel. Compare with this what has been achieved by modern facilities, namely, that wheat can be carried a similar distance by rail at a cost of Is. l|d. a bushel. And this brings it about that wheat, carried long distances, can be sold in New York at 3s. 4d. a bushel. The harvests of the Far West of America would never have reached either the Eastern States oi the European markets, had the transport eastward depended on horse-drawn wagons, though the roads might have been never so good.

1 For a short sketch of Metcalfe's remarkable career cf. Smiles's Lives of the Engineers, vol. iii, pp. 74-93.

CHAPTER IV

THE BEGINNING OF THE ENGLISH CANAL SYSTEM

The great inventions of the middle of the eighteenth century caused the upheaval in manufactures and commerce known as the Indus- trial Revolution. It is true that this was a peaceful Revolution revomtion, but it caused so radical a change in the conditions of industrial life in all its spheres that some new means of transport had to be devised, or the new possi- bilities that were opening out before the manufacturer and trader would to a great extent have been rendered nugatory.

It was at this moment that James Brindley and the Duke of Bridgewater introduced into Lancashire a development of water

transport by constructing inland canals, which

Water Transport. f * , .,? ,. , . ., , ,

exactly met the needs of the time, and contributed

in no small measure to make England the workshop of the world. Canal construction became almost a mania. Between the years 1760 and 1830, practically the whole of the extensive system of canals this country has enjoyed, with the exception of the Man- chester Ship Canal and a few short lengths of ordinary barge canal, was constructed.

When Brindley qualified himself as a canal engineer, canals were no new invention. In the far-off days of antiquity, canals

along levels had been dug. A small canal had lessens been constructed across the Isthmus of Suez

many centuries before Ferdinand de Lesseps projected his great ship canal.

The advantages of an inland water route, as has already been seen, had been recognised from a very early date, and even when the rail

had very considerably diminished the friction of

Water^^oute"! the road' with slow-g°ing traffic, the water road offered less resistance than the land road. " It is estimated that on a good wagon road a single horse power will drag about 3,000 lbs. at the rate of 3 ft. per second ;• on a railway about 30,000 at the same rate ; in water up to as much as 200,000 lbs."1

1 Cf. Chisholm's Commercial Geography, 4th edition, p. xxxix.

19

20 ECONOMICS OF TRANSPORT

But when the locomotive gave great additional speed to rail- borne traffic, the railroad became manifestly superior to the canal ; for extra speed on a canal is not only difficult to obtain but is likely to cause serious damage to banks and locks.

To cut a canal along a stretch of level country presented but few difficulties. An adequate labour force and the ability to con- struct a bottom that would not leak abnormally

Construction were tne cme* requisites. Unfortunately, outside low-lying countries like Holland, there are but few parts of the world where a canal can be cut through the level. It being impossible to make water run up a gradient, it was not until the lock system was invented that canals could be constructed in undulating or hilly countries. In England there had been, at any rate, two canals constructed during the Roman occupation, and one of these is still utilised. But both these were constructed through the low-lying parts of East Anglia. The Caer Dyke (40 miles long) and the Fosse Dyke (11 miles long) are both in Lincolnshire — the latter is still navigable.

The Italians and the Dutch dispute as to the credit for the inven- tion of the canal lock. It may have been invented in Italy, where canals were introduced during the twelfth century,

Canal Loek ^llt tnere *s no means of deciding the question.

Holland has probably benefited by canals more than any other country. The great fact is that the lock was invented, and from that moment inland navigation throughout a hilly country like England became a possibility.

Brindley cannot claim the credit of being the first modern canal engineer in this country, although he was undoubtedly one of the

greatest. The first modern canal with various Calder Canal levels to which barges passed through locks, was the

Aire and Calder Navigation in Yorkshire. This, the first of our modern canals, has kept up its reputation by being equipped in the most up-to-date fashion at the present moment. This canal was opened before the dawn of the eighteenth century, full half a century before Brindley's activities commenced. But it was Brindley's work that led to important results affecting manu- facturing England. Thus a short sketch of his work, and what inspired it, will make clear the origin and effect of the movement as a whole in this country.

THE BEGINNING OF THE ENGLISH CANAL SYSTEM 21

So far as the Duke of Bridgewater is concerned, he had been watching the new possibilities connected with the lock canal, and having coal-bearing property in the vicinity of Man- Brideewater Chester, then a town capable of developing manufac- tures if it could procure a good supply of cheap coal, he naturally began planning how to effect the latter by constructing a canal from his Worsley mines to Manchester.

Brindley had commenced his working life as a wheelwright. He

had been interested in experimenting with steam, but about the year

1755 inland navigation claimed his attention.

EaBrinSfey8. °f Earl Gower wished to brinS Liverpool and Hull into communication by means of a Trent and Mersey canal, and Brindley was employed to survey the route. During this period the Duke of Bridgewater met him, and decided that Brindley was the man he required to plan and to execute his scheme at Manchester.

Brindley quickly set to work, and the Duke was able to present his first canal bill to Parliament in the year 1759. In the bill the Duke bound himself to carry coal to Manchester at The Canal!Water a maximum charge of 2s. 6d. a ton, and to sell coal at Manchester at a price not exceeding 4d. for a hundredweight ; about half the price then charged for coal in Man- chester. Parliament consented to the scheme and, with some modifications, it was carried through. The scheme included what for the time was a great engineering feat, the bridging of the river Irwell at Barton. The aqueduct there was 200 yaids long and 12 yards wide, and carried the canal over the river at a height of 39 ft. From the mines at Worsley to Manchester is 10J miles. At Worsley it was necessary to construct a head of navigation, i.e., water space for barges to collect. At this point Brindley's-genius effected a fur- ther economy in working. The coal measure was in the side of a hill. If the coal were hoisted to the surface, it would then have had to be lowered from the hillside into the barges. Brindley saved this double handling by tunnelling into the side of the hill, and so taking the barges to the coal. The first barge load of coal passed along the canal on the 17th July, 1761. The Act of Parliament per- mitting the construction had only been passed in the session of 1760, so that the work was not only successful, but had been very expeditiously carried out. The immediate result was that

22 ECONOMICS OF TRANSPORT

Manchester secured a regular and sufficient supply of coal at a price which on the average was 50 per cent, cheaper than the previous intermittent supply. The ultimate effects of Brindley's work can be realised by remembering that as a necessary complement to the Worsley Canal, Brindley and the Duke constructed another canal connecting Manchester with the Mersey, and thus giving con- tinuous water transport between the manufacturing town and its natural seaport ; and then by comparing the Manchester and Liver- pool of the middle of the eighteenth century with the Manchester and Liverpool of to-day. For not only had Manchester suffered from the lack of a cheap and sufficient coal supply, but the difficulties connected with getting raw materials from Liverpool, and trans- porting manufactured goods to the port for shipment, had they not been overcome, would have very considerably reduced the advantages gained by the construction of the canal which provided Manchester with cheaper fuel. The land road between Liverpool and Manchester at the middle of the eighteenth century did not deserve the name of a road. Its condition was so bad that it cost £2 a ton to transport goods along the forty miles. There was a water route of a kind — for the river Irwell connected Manchester with the Mersey — but the Irwell navigation was subject to both floods and droughts, and at times was not available. Hence, although the cost of transport by this route was only about 12s. 6d. a ton, it was of too uncertain a character to meet the requirements of a developing commerce. It would, nevertheless, be an exaggeration to attribute the whole of the progress made to the two local canals, but un- doubtedly it was the impetus then given that revealed commercial and industrial potentialities hitherto beyond the realm of dreams. For many years after the opening and success of the Bridgewater Canal the construction of artificial waterways was carried on with great vigour. * The commercial energy and en-

CanaKTnastni?tion.gineering talent which was afterwards to go to the

construction of railways threw itself into this line of

operation. A writer whose work was published in the year 1795 says —

" The prodigious additions made within a few years to the system of inland navigation, now extended to almost every corner of the kingdom, cannot but impress the mind with magnificent ideas of the opulence, the spirit, and the enlarged views which characterise the commercial interest of this country. Nothing seems too bold for it to

1 Cf. Final Report of the Royal Commission on Canals, 1909, p. 3.

.» • *i

^^mm^^^^m^mm^^mm «^

M.

F.

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. 10

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. 36

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undertake, too difficult for it to achieve, and should no external change produce a durable check to national prosperity its future progress is beyond the reach of calculation." *

The same writer points out that —

" At the beginning of this (eighteenth) century it was thought a most arduous task to make a high road practicable for carriages over the hills and moors which separate Yorkshire from Lancashire, and now they are pierced through by three navigable canals." 2

It is not necessary to detail all the canals constructed ; suffice

it to say that the Mersey, Thames, Severn, and Trent were all

joined, and a network of canals was constructed in

Constructed Birmingham and the South Staffordshire Black

country. The following is a list of Brindley's canals

taken from Smiles's Lives of the Engineers —

The Duke's Canals [ WorsleY to Manchester

[ Longford Bridge to Runcorn Grand Trunk (Wilden Ferry to Preston Brook) Wolverhampton Canal Coventry Canal . Birmingham Canal Droitwich Canal . Oxford Canal Chesterfield Canal

This list, of course, falls far short of exhausting the number of canals constructed. England became covered with a system of arti- ficial waterways, which (though defective through

VCanafseS ° ^ac^ °* umiormrt Y> as will be seen from the chapters dealing with canal economics) were immensely bene- ficial to the community. They gave to commerce easy means of transport in place of execrably bad roads, and thus not only cheapened the cost of transport but widened its area and stimu- lated it beyond the possibility of accurate estimate at this distance of time. And this occurred at the period of what has been aptly termed "the Industrial Revolution"; when James Watt had invented the steam-engine, and many other mechanical inventions were changing the character of the industries of the country — were

■ n converting them from small scale domestic indus-

Cost of Road . . . , , , , . ,

and Canal tries to relatively large scale factory industries. All

Carriage xhjs was no^ done at_ 0nce, of course. It was a Compared. .

gradual, evolutionary process ; but the part which

canals played in facilitating the revolution cannot be overestimated. 1 Aiken's Lancashire. 2 Aiken's Lancashire, p. 137.

24

ECONOMICS OF TRANSPORT

i

s.

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Some idea of the reduction brought about in the cost of transport

may be obtained from the following figures1 —

COST OF GOODS TRANSPORT PER TON.

By Road. By Water. Between

Liverpool and Etruria .

Wolverhampton Birmingham . Manchester ,, Wolverhampton Birmingham . Lichfield Derby . Nottingham . Leicester Gainsborough Newark .

In their book, Our Waterways, Forbes and Ashford state —

" Up to the close of the year 1838-39 there had, according to a calcula- tion made by Rennie, been formed in Great Britain 2,236 miles of improved river navigation at a cost of ^6,269,000, and 2,477 miles of canals at a cost of ^24,406,389."

Naturally the canals were prosperous. The fourth and final Report of the last Royal Commission on Canals and Inland Naviga-

Canal Profits t*on cluotes ^rom tne Gentleman's Magazine for December, 1824, the following table of dividends paid on, and prices of, canal shares.

Canal. Dividends. Price of Shares.

Trent and Mersey

Loughborough

Coventry

Oxford ....

Grand Junction

Swansea ....

Staffordshire and Worcestershire

Birmingham

Worcester and Birmingham

Shropshire

Rochdale

Lancaster

Kennet and Avon

Leeds and Liverpool .

There are wide variations in the dividends and prices, and the inference is that some of the canals were not very profitable, but these appear to have been few in number, and the majority enjoyed great prosperity which was reflected in both dividends and prices.

Prior to this there had been the inevitable " mania " which

1 Reproduced in E. A. Pratt's History of Inland Transport and Communication in England, from Barnes's History of Liverpool.

1

s.

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75

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2,200

197

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4,600

44

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1,300

32

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850

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290

11

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250

40

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960

12

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350

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56

8

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175

4

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140

1

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45

1

0

0

29

15

0

0

600

THE BEGINNING OF THE ENGLISH CANAL SYSTEM 25

seems to be inseparably associated with every commercial develop- ment into which the public are allowed to come as shareholders.

It occurred in the " South Sea Bubble," it Speculation occurred in connection with canals, it occurred in

connection with railways, and many years later it occurred in connection with cycle companies, for instance. The canal mania occurred between 1791 and 1794, and it gave rise to a great deal of unwise speculation in the shares of the existing com- panies and to the flotation of projects which never had the semblance of a hope of success. Much money was lost ; many investors were ruined ; but that was the fault of the individuals : it in no way detracted from the importance or the usefulness of the service to the community which canals were performing and continued to perform for many years.

Canals prospered and became finally characterised by all the abuses inseparable from prosperous monopolies. Prosperity brought

stereotyped rigidity and petrefaction. The owning

The Monopoly companies were finally more concerned to maintain

of Canals. anci increase their own profits than to meet the

growing requirements of commerce, and from that period (the early part of the nineteenth century) dates their down- fall. The coming of the railway in the thirties of the nineteenth century marks the end of the canal era. Some of them continued for a long time after to retain a large share of the transport industry of the country ; some of them in this twentieth century still continue to carry large volumes of traffic ; but in the main, inland navigations are barely profitable or absolutely unprofitable under- takings. Those which remain profitable are the canals whose management has continued enterprising and progressive, and has not hesitated to face the expenditure necessary to bring them up to date and keep them efficient. There have been one or two inland navigations, such as the Manchester Ship Canal, constructed during the second half of the nineteenth century, but for every mile of new canal there have been many miles that have either been allowed to become derelict, or have not been improved and maintained in that condition of efficiency necessary to meet the modern requirements of commerce. Their present defective con- dition, the reasons for it and the proposed remedies are subjects discussed in the chapters dealing with canal economics.

CHAPTER V

RAILROADS AND THE LOCOMOTIVE

It was the desire to find a market for coal at Manchester that induced

the Duke of Bridgewater to plan out his canals with Brindley.

It was the difficulty of dragging coal from the

the Railway P^'s mou-n over ^a^ roads to river or canal that led to the evolution of the railroad, and it was the great cost of horse feed during the last years of the eighteenth and the opening years of the nineteenth century, that led to the invention of the locomotive engine. This one commodity, coal, has been the mainspring in the working of our national industries and com- merce. One advisedly mentions both industry and commerce, for, as will be seen in a later section of this book, when steam power was successfully applied to ocean voyaging, it was the transport of English coal to coaling stations on the main ocean routes that gave British shipping an advantage which has lasted down to the present moment.

Good as the ordinary roads had become during the last half of the eighteenth century, they were not intended for heavy traffic. Even though the coal-tracks had been macadam- ised, it is doubtful whether they would have met the requirements of the traffic. Moreover, such roads were expen- sive to construct, but for public traffic a good common road was a necessity. Where wagons were employed in carting coal from the pit's mouth to the barge or keel and had to return empty, all that was required was two tracks sufficient for the purpose of an up and down service. The slow and expensive method of slinging sacks or baskets of coal across a horse's back had been superseded by the two-wheeled cart, and this cart had, in some parts, given place to the four-wheeled wagon. But with increasing loads, the wear on the colliery tracks was found to add greatly to the friction, and hence to the cost of haulage. A double stone track, of a gauge to suit the distance between the wheels of the vehicles was found to lessen friction very considerably and so reduce the cost of cartage. Colliery proprietors adopted this method of road-making,

26

RAILROADS AND THE LOCOMOTIVE 27

and at various collieries, long roads were constructed, with either stone or timber tramways laid on them. Arthur Young came across coal tracks constructed in this way, some of which were about 10 miles long, and he was interested in finding to what an extent they lessened the work of a horse, one animal being able to drag as much as 60 bushels of coal in a cart along a road of this description. This was really the germ of the railway track. Stone tracks were expensive to lay and keep in repair ; wooden tracks soon rotted or splintered. To prevent the latter, some enter- prising colliery manager sheathed the timber with iron plates. These plates effected a further considerable saving of friction and increased the capacity of a horse, but the wood under the iron still rotted. This led to a trial of cast-iron rails. At a colliery near Sheffield there was a cast-iron track fixed to wooden sleepers as early as the year 1776. But as the loads of coal increased, the cast-iron rail was found to be too brittle, hence the introduction of the wrought-iron rail, the immediate progenitor of the steel rail now in use. In connection with colliery work, then, railroads capable of dealing with a maximum of weight at a minimum of effort were gradually perfected.

The Locomotive

For many decades before James Watt's successful experiments,

the force of steam had attracted the attention of inventors, and no

„, . . sooner had Watt shown how to utilise the force of X-

The Locomotive. , , , . , . . , ,

steam by the invention of the stationary engine

than, with renewed vigour, attempts were made to produce a self- propelled steam vehicle. At the South Kensington Museum there is to be seen a model of a steam carriage, which was tried in the streets of Paris as early as the year 1770. This engine had been invented by Cugnot in the year 1763. His object was to produce a steam carriage capable of transporting guns and military stores. The form the engine takes is a wooden frame- work supported on three wheels, the central wheel being acted upon by the piston rods of two cylinders. The boiler which supplied the steam to the cylinders was small ; indeed in practice it was found to be too small to keep a sufficient head of steam to make the engine a success. The difficulty in keeping the necessary pressure of steam resulted in the average speed of the carriage amounting to

28 ECONOMICS OF TRANSPORT

about only 2| miles an hour. When tried in Paris this engine over- turned when negotiating a corner and was condemned as dangerous. In both America and in Great Britain several unsuccessful attempts at producing a steam locomotive were made during the last quarter of the eighteenth century. The attempt which the6 Locomotive most nearly succeeded was a model engine con- structed by William Murdoch in Cornwall. This was in the year 1786. The machine ran well, but it was only a small model, and apparently Murdoch did not attempt to construct a full-sized engine for practical work. But his invention was not lost, for his pupil, Trevethick, constructed the first steam carriage to run in England. This carriage would travel well enough for a very short distance ; the difficulty that all the early engineers failed to overcome was the impossibility of keeping up the steam pressure necessary for continuous travelling. Trevethick attempted to create sufficient draught by using bellows, but his engine, though a great improvement on Cugnot's, was a failure owing to its inter- mittent working powers. But that Trevethick did not despair of finding a solution to this difficulty is proved by the fact that he described his engines as being capable of running either on ordinary roads or on rails. He very nearly happened upon the forced \ draught , which was George Stephenson's great contribution to the v perfecting of the loQomotive engine. For the~exhaust steam from his steam carriages created a nuisance, and he attempted to pre- vent this by leading the exhaust pipe into the funnel. The engine which contained this innovation was employed in a colliery in South Wales and was able to draw 10 ton loads at a speed of 5 miles an hour. But the weight of the engine and load was too much foi the permanent way, and the locomotive was converted into a stationary engine.

The experiments, becoming more and more successful, gradually made their way northward. The next interesting attempts were

„ . made at Leeds. There were other difficulties to be

Experiments. , . ,

overcome besides those of keeping up steam and

increasing the solidarity of the roadway. None of the early

engineers could get away from the belief that a smooth wheel

would not grip a smooth rail, and that thus, if locomotives were

run on rails instead of on roads there must be specially constructed

gearing in order to make the wheels grip the rails. Hence, up to

RAILROADS AND THE LOCOMOTIVE 29

the year 1814, the wheels of locomotives were toothed and worked in a toothed rail. At Leeds Blenkinsop produced a rack-rail which connected with gearing on the engine. In constructing an engine to work on this principle, Blenkinsop adopted another Leeds invention, the double cylinder. An engine thus constructed worked fairly successfully at the Middleton Collieries, the speed averaging about 4 miles an hour. This experiment may be said to be the first successful application of the steam locomotive to commercial transport purposes. Several attempts were made to simplify the gearing between the rail and the engine, and finally, in the year 1814, Matthew Hedley demonstrated the fact that a smooth wheel not only can but will grip on a smooth rail. This very considerably cleared the air, and led to a series of experiments at the colliery at Wylam, near the Tyne. This colliery is four miles from the river. There was a track laid with timber, which ran from the pit's mouth to the keels lying in the Tyne ready to receive the coal. The coal was carried in carts containing about 25 cwt. each, and as a cart drawn by one horse could only make five single journeys in a day, the cost of cartage was very heavy. Borrowing Trevethick's drawings, Mr. Blackett of Wylam constructed a series of engines. The difficulties of the engineer were greatly increased by the fact that workmen, tools, and materials were by no means easy to obtain. Wheelwrights and blacksmiths had to be developed into fitters, and tools had to be contrived to meet the needs of each new operation. But it must have been the lack of suitable materials for constructing an engine that caused the main difficulty. Rolled wrought iron plates suitable for boiler construc- tion had been available since 1786, but the early locomotive builders obstinately pinned their faith to cast-iron boilers. And these boilers frequently burst, doing more or less damage to life and property. At length Blackett constructed a locomotive with a wrought-iron boiler, and, although a clumsy-looking piece of machinery, it was capable for the work required, and worked regularly. The success of the locomotive engine was at hand. George Stephenson was engineer at Killingworth Colliery, and went over to Wylam to inspect the new engine. As a result of what he saw, he persuaded Lord Ravensworth to allow him to construct a locomotive for the Killingworth Colliery. It took the greater part of a year to complete the engine ; however, by the middle of

30 ECONOMICS OF TRANSPORT

the year 1814 it was ready for trial and succeeded in dragging a load of 30 tons up a slight gradient at a speed of about four miles an hour. But would such traction be more economical than horses ? For twelve months strict accounts were kept, with the result that it was proved that the locomotive and horses worked at the same cost — there was at present no economic advantage in employing the engine. But while the engine was at work Stephenson was watching it, confident that if he could overcome the difficulty in keeping up a sufficient head of steam, the speed and capacity of a locomotive would only be limited by the strength of the materials employed in its construction. Noticing that the exhaust steam left the exhaust pipe at a greater speed than did the smoke from the funnel, it occurred to Stephenson that increased draught might be produced by leading the exhaust into the furnace. This idea was acted upon and success was the result. Forced draught was invented. George Stephenson had perfected the locomotive. Since his day many have been the modifications made in the railway engine, but Stephenson's locomotive,1 fitted with forced draught, in the year 1815, contained all the essentials of the twentieth century engine.

It is a remarkable fact that although Stephenson had succeeded where so many had failed, and the engines at Killingworth worked steadily and economically, it was some years before the outside world realised what had been achieved.

It was the construction of the Stockton and Darlington railway that made Stephenson's genius known to the world. While Stephen- son was quietly perfecting the locomotive at Kill- Stockton and ingworth, Mr. Edward Pease was endeavouring to Railway. improve the means of transport so that the southern end of the Durham coalfield might be developed. To this end some means must be devised for conveying coal cheaply from the collieries to Stockton-on-Tees for shipment. There were rival schemes before the public for accomplishing this. One party wished to improve the channel of the river Tees, and to give com- munication by water, but Edward Pease was persuaded of the superiority of a railroad and refused to compromise. This led to the formation of the Stockton and Darlington Railway Company,

1 Either models or originals of these pioneer locomotives can be seen in the South Kensington Museum, London.

RAILROADS AND THE LOCOMOTIVE 31

Mr. Pease having succeeded in obtaining parliamentary sanction for his scheme in April, 1821.

George Stephenson soon heard of the Stockton and Darlington railway scheme, and determined to make himself and his loco- motive known to the projector. In an interview he

Stephenson and g0 interested Mr. Pease in the work his engines were doing at Killing worth Colliery that the latter visited Killingworth to see for himself the superiority of steam over horse traction. At first Mr. Pease does not appear to have been convinced that the locomotive would prove efficient on his railway, but he was so strongly impressed by Stephenson's personality and giasp of the technicalities of transport business, that he persuaded his fellow directors to appoint Stephenson engineer to the new company, with the privilege of carrying on independently an engineering works for the construction of locomotives. The directors, too, were persuaded to try the effect of steam traction on the new railway. This had not been contemplated when the Act was obtained, so Parliament was applied to again, and in August, 1823, the first Act of Parliament authorising the employment of locomotives for passenger traffic was passed. In the following year, 1824, the Stephenson works at Newcastle-on-Tyne were founded. The railway company placed an order for three locomotive engines with the Stephenson firm. As goods traffic was expected to be the main business of the line, the type of engine decided upon was suitable rather for heavy goods than passenger traffic. It weighed about 8 tons, and had an average speed of about 15 miles an hour.

The work of constructing the permanent way and getting ready the necessary equipment was actively carried through, and on the 27th of September, 1825, the railway was publicly opened. The first train to travel from Darlington to Stockton consisted of an engine with thirty-four vehicles attached. Next to the engine there were six trucks, loaded with coal and flour, then a passenger coach (specially constructed for the ser- vice by Stephenson) containing the directors of the company ; following this were twenty-one trucks in which, for this journey, seats had been placed so that between 500 and 600 people could enjoy the first orthodox railway journey ever made ; the train was completed with six more trucks loaded with coal. The run was carried through with complete success, and the speed for the whole

32 ECONOMICS OF TRANSPORT

journey averaged 12 miles an hour. That about 600 people, together with twelve loaded trucks, could be safely and expedi- tiously transported at this speed proved to the world at large that Stephenson had indeed succeeded in producing a locomotive engine capable of rendering a service to mankind the benefits of which time alone could measure. Methods of transport, it is true, had been revolutionised by the modernising of the canal, but the inven- tion of the steam locomotive closed one epoch and opened another. The age of steam, which commenced with Watt's invention of the stationary engine, attained a fresh significance and opened up new possibilities when George Stephenson ran his train from Darlington to Stockton on that memorable day in September, 1825.

PART I

THE RAILWAY IN THE UNITED KINGDOM AND ABROAD

CHAPTER I

A STANDARD GAUGE

When George Stephenson demonstrated so successfully the merits of his locomotive, there were already a good many miles of railroad existing in this country. The advantages con- * nected with the rail had been discovered at our collieries, and from assisting in the transport of heavy commodities like coal, the rail had been adopted, with some success, for passenger and other services. As early as the year 1799, there was a scheme for connecting London to Portsmouth by a railroad. One outcome of this was the construction of the railway from Wandsworth to Croydon, ac-oss Mitcham Common. Horse traction was employed and the weight that could be drawn by one horse along iron rails was a great surprise to Londoners. A number of Acts were passed by Parliament during the following twenty years, permitting the construction of railroads. It was not, however, till 1823 that an Act of Parliament sanctioned the construction of a railway on which steam locomotives were to be utilised. Most of the early railroads were absorbed in the railway systems which, with the success of the Stockton and Dailington Company, began to spring up all over the country. From 1825 to 1846 may be looked upon as the period of railway construction. The big company with a capital amounting to many millions of pounds would have been an anomaly early in the nineteenth century. Thus the first railway companies were comparatively small affairs. But when once the question of gauge had been settled by the Act of 1846, the period of consolida- tion of systems began— and these consolidations might, perhaps, with benefit, have been carried further than they were, had not Parliament decided that amalgamations of continuous lines might

33

3— (1327a)

34 ECONOMICS OF TRANSPORT

be safely allowed, but that an amalgamation of competing lines would be contrary to the interests of the community.

The Stockton and Darlington Railway taught railway managers many useful lessons ; the two most important of these to railway practice and economics are well worth a little consideration.

A speed of 12 to 15 miles an hour was greater than a horse could

maintain. But at first the intention was that a railway should be

worked on the same lines as a canal, owners of

Revolutionary vehicles being charged a toll for the privilege of using

NatinreMode3hoafDSe an imProved road- No sooner, however, did the Transport. railways begin to function than it became evident that when vehicles ran on rails, the slowest vehicle set the pace to all those behind it. The Stockton and Darlington Railway had frequent sidings to meet this difficulty, but experience of the working of the line showed that a railway company was some- thing quite distinct from either a turnpike authority or a canal company ; and that to get the best results from both the rail and the locomotive, the management must not only own, control, and main- tain the permanent way, but must have complete control over all the services functioning along the line. In other words a railway company must not only own a road, but also be a common carrier, and have responsibility for both the goods and passenger trains run- ning on its system. This in itself brought about a great and indeed a very revolutionary change in the conception of how the transport of either goods or passengers should be conducted. It was evident, - therefore, almost from the outset of railway enterprise, that the new method in transport would require many changes in the customs and methods of the travelling and trading public ; and that new laws and regulations must be framed to meet this changed state of affairs.

The second great lesson taught to railway management by the first

railway was that regular transport of large quantities of any com-

t modity can be carried on at a very small rate, and

Econ'omy1 ^et ^e Pay*n§ business. In other words, if you have regular traffic, which gives a through haul, full truck-loads, and but little handling, you get a maximum of economy at a minimum of expense. Thus railways, almost at the outset, showed their capability for dealing with large quantities of dead-weight, if the business was regular, at very low rates.

A STANDARD GAUGE 35

The proprietors of the Stockton and Darlington Railway had expected to make their chief profit from the transport of coal. Their hopes that they would build up a great business in the shipment of coal from Stockton to London had, however, been considerably damped by an amendment which had been moved by Mr. Lambton, the member for Sunderland, when the Bill was before the House. This amendment had been carefully framed in the interests of Mr. Lambton's constituents, whose coal, to a great extent, supplied the London market at that time ; and was to the effect that for the hauling of coal to Stockton-on-Tees, the maximum rate should be |d. per ton per mile. This amendment was carried, although the company was allowed to charge a maximum of 4d. per ton per mile on coal carried along the line for local sale. Mr. Lambton and his friends had confidently expected that the |d. rate would very effectually prevent any coal from passing along the line for shipment at Stockton. To the surprise of everybody, it was this traffic that in practice was found to be the dividend- earning business of the company, and ere long the quantity of coal carried for shipment each year averaged no less than 500,000 tons. The desire for railway extension, when the first short services had shown their capabilities, is not to be wondered at. The turnpike

roads had proved to be inefficient for the transport Extension °^ S°°ds, and canals had been constructed in various

parts of the country specially to assist the indus- trial towns. But canals, although a great improvement on previous methods of transport, were found to be too uncertain under the conditions existing in some parts of the country. The canals themselves were efficient enough, but where the canal entered a river, the condition of the river governed the canal so far as through traffic was concerned. It was the uncertainty of getting the goods along the Tees that had caused Mr. Pease to plan the Stockton and Darlington railway. It was in much the same way the un- certainty of navigation on the upper waters of the river Thames that led to the formation of the Great Western Railway Company, which was originally to have been called the Bristol and London Railway Company. The transport of goods between London and Bristol had been by way of the Thames to Reading, then by canal to Bath, where the barges entered the Avon, and proceeded to Bristol. When times were normal all might be well, but times were

36 ECONOMICS OF TRANSPORT

not always normal. Floods and droughts come and make a river an uncertain means of communication, unless that river be con- served for purposes of navigation. As a result, although the canals were safe and sure, goods and barges were frequently delayed in the Thames or the Avon. Delays of from three to six weeks might occur. Such irregularity of service was not calculated to help business. Hence a proposal was made about the year 1824 to lay a railroad from London to Reading and from Bath to Bristol. Goods would thus travel by truck from London to the canal, they would there be transferred from the truck to the barge, and on reaching Bath would require re-handling to transfer them to the truck for Bristol. This handling meant an added expense, but that was trifling compared to the annoyance and inconvenience so fre- quently caused by long delays on the river sections of the old route. To save the extra handling a proposal was made to construct a through railroad from London to Bristol. This, however, would have meant competition with the existing canal, and there were discussions as to the merits of the two schemes which deferred matters for a few years. Then the success of the Liverpool and Birmingham, and the Stockton and Darlington railways showed that further discussion was unnecessary ; the obvious necessity was a railway served by steam traction to connect the great commercial centres of the east and west. Hence, in the year 1832, what was destined to become the Great Western Railway took shape, and the following year Brunei was appointed engineer to the company. This period in railway history is most interesting, probably the most interesting of any part of the story : for the Stephensons were

making themselves a power in the north, and now Bs't hensons their great rival was to begin the system on which

his broad gauge was to be adopted. The adoption of the 7 ft. gauge by the Great Western Company raised the question of the advisability of adopting a standard gauge for the whole coun- try. Apparently, George Stephenson was the only statesman among railway engineers or proprietors. He was able to take broad views, and, looking well ahead, could foresee the ultimate extension of the railway over the whole country, and hence the necessity for keeping to one gauge for the track, in order that the rolling stock of all systems might function along any rails, wherever they might be laid. It was thus that, when Joseph Locke asked Stephenson

A STANDARD GAUGE 37

what gauge the railway he was constructing between Canterbury and

Whitstable should be, the answer he received was, " Make it 4 ft.

8i in., for though they be a long way apart now, The Fiffhi of (he Gau" es dePend upon it, they will be joined together some

day." This was a broad statesmanlike view, al- though different from that which influenced Brunei and his directors to lay the broad gauge for the Great Western system. Brunei undoubtedly believed in the superiority of the broad over the narrow gauge, but he also, and his directors too, hoped that by adopting the 7 ft. gauge they would be able to maintain a monopoly over the west and south-west of England. Looking back now, one is apt to wonder why the projectors of each short length of railway hesitated as to the gauge, but as things were then, it required a man of Stephenson's faith in railways to foresee a network embracing every section of the country. And yet is not the same error being committed by the municipal authorities to-day ? At no far-off date the tramway systems of this country may link up first of all neigh- bouring towns, and, by that means, eventually large areas, or even the whole country, may be made parts of one system ; and yet there is no standard gauge. Some authorities for economy's sake have installed narrow gauge trams, others have more wisely adopted a broader system, yet both must eventually come into contact, indeed, in some cases, already do meet, necessitating a change of car for those passengers who need to travel beyond the break of gauge. But the justification for the policy is that trams are for passengers only ; there is no need for expensive re-handling of goods. This, however, is rather an excuse than a justification — a uniform gauge would make for speed, convenience, and possibly for safety.

The position in the early thirties did not become pressing, but as the mileage of track increased, the work of construction became a big thing, and there was no longer any doubt that the Standard' Gauge. wn°le country was to be covered with lines. Ste- phenson's contention came home to the minds of all thinking people, and it was determined to get Parliament to decide on a standard gauge for the whole country.

A gauge of 4 ft. 8| in. looks somewhat unscientific. Why should it

„„.. . _ „ not have been 5 ft. or 4 ft. 6 in. ? Stephenson, in Which Gauge? . , _ , -^ ,. -^ .,

constructing the Stockton and Darlington Railway,

had adopted the colliery gauge. The coal carts, probably from

38 ECONOMICS OF TRANSPORT

time immemorial, had been constructed to that gauge ; at any rate when tracks were laid and then rails took the place of timber, the gauge adopted was 4 ft. 8| in. to fit the carts. The gauge of the carts had probably been fixed by rule of thumb at the width at which it was most economical to cut the timber for their construction. However this may be, in the north country collieries, the railroads had this narrow gauge, and the early roads constructed by Stephenson were of the same gauge in order that the rolling stock of both colliery and railway might function along them.

Brunei's broad gauge was an innovation, nor was it easy to find a justification for it. It has been said that Brunei adopted it for

_, _ _ safety's sake, that he disliked the carriages and

Broad Gauge. J °

wagons projecting over small wheels, and so con- structed a car for the Great Western system of the ordinary dimen- sions, but supported it on large wheels which projected. The directors of the company apparently disapproved of this coach as being uneconomical, and so ordered another to be built that should have the full width allowable on a 7 ft. gauge, which would enable two additional passengers to travel on each seat. If this be so, Brunei's innovation stood condemned from the beginning.

With Stephenson, business considerations always weighed. To him the narrow gauge was a business proposition, and even though

greater speed might be attained on the rival system, Narrow Gauge. ° r ° J .

the first necessity was for railways to be paying

concerns, and thus attract the capital which would be required in such enormous amounts, if his dream was to be fulfilled. The Battle of the Gauges waxed hot, and finally Parliament appointed a Commission to consider the whole question. As a consequence a series of tests was arranged. The broad gauge was tested between Didcot and Paddington, the narrow gauge between York and Darlington. Rival trains with a load of 80 tons showed that Brunei's system could give a speed of 50 miles an hour, Stephenson's but 44. Nevertheless, looking at the question from every standpoint, especially as to capital, earnings, and goods traffic, Narrow G^u^ ^ was decided that the advantage lay with the nar- row gauge. Parliament , therefore, in the year 1846, passed the Act for Regulating the Gauge of Railways, by which the gauge for England, Scotland, and Wales was fixed at 4 ft. 8| in.,

A STANDARD GAUGE 39

and that for Ireland was fixed at 5 ft. 3 in. The Great Western Company for a time persisted in their gauge policy, but eventually had to come into line with the rest of the railways. Finally, in the year 1892, the last of the old broad gauge disappeared, to the great advantage of the Great Western Company.

CHAPTER II

SOME INITIAL DIFFICULTIES

The year 1846 fixed a standard gauge for English railways, and in doing so, opened the way towards a consolidation of many small rail- ways into one big company. But, as has already Amalgamations, been noticed, Parliament discouraged the amalga- mation of the big companies. This policy has had both its advantages and its disadvantages.

Before, however, considering how amalgamations were effected between various companies, it is necessary to say something more concerning the early days when railway construction was a possi- bility, but railways had not as yet proved their capacity to pay dividends to shareholders.

The first railway projectors found their path strewn with diffi- culties, nor was it a light task to overcome the obstacles that impeded progress at every step. The railway was a new

PreiRluwaaygs*in8t thing ; esPecially was the idea of making u\e of a steam locomotive abhorrent to conservative people,

who, arguing that as horses had proved themselves capable of

satisfying the trading needs of the country during all known time,

there was no need to fly in the face of Providence, and displace a

noble animal by a machine that might burst and deal death and

destruction to all around.

The arguments then used against railways sound puerile indeed,

but even to-day, equally silly objections continue to be made when

a Parliamentary Committee is considering some scheme to improve

means of transport. The canal, the railway, the motor-car, and the

aeroplane, each in turn has to endure not only the ignorant criticism

Natural °^ tnose whose material interests may suffer by its

Conservative adoption, but of people who are temperamentally

Instincts. opposed to any novelty. It must be admitted,

however, that even captious opposition may do some good. It

undoubtedly has the effect of causing projectors and inventors to

make sure of their ground and produce their very best before

40

SOME INITIAL DIFFICULTIES 41

attempting to get concessions from the community. But at the same time opposition can be carried too far, and become a policy of mere factious delay, or of an attempt to squeeze the greatest pecuniary return possible for a concession. It was so with the early railways, and railway capital has suffered right down to the present from the enormous sums that had to be paid to buy off opposition. A typical instance of this occurred when the London and Birmingham Railway Bill was before Parliament. The first Bill v/as thrown out by the House of Lords, and yet, when presented the following session, was carried without much difficulty. The explanation of this change of front would appear to be, that, whereas the original estimate of the price to be paid for the land on which the railway was to be constructed was £250,000, the price actually paid was no less than £750,000, or, to put the matter plainly, a bribe of £500,000 was required to beat down the opposition of interested parties. Methods like this did much unnaturally to inflate railway capital, and in this connection it may be noted that the capital of English railways was also increased by the fact that, in this country, most of the experiments for proving the efficacy of railways were tried. Experi- ence generally has to be paid for ; in the case of railways the price of this very necessary experience was high. England paid the bill ; the world at large gained the advantage of this dearly bought knowledge, and other countries were able to plan out their railway systems in the light of ascertained facts. Yet another point as to the difficulty that the early railway projectors experienced in this country in raising capital, and which tended to swell the amount of capital on which dividends had to be paid. At first the investing public were shy, and in order to induce people to invest in railway stork in some cases it was issjfj [frt any rate was allotted, at a considerable discount ; sometimes this would be- as much as 50 per cent. In a later section^ thishiook the whole question of railway capital and the causes oy artificial inflation have been treated.

Not the least effect of canals and railways on our national life was that they caused the rise of new centres of industry

Effects of an(j the decay of many a historical town. This was

Railway on , ,,/,,,-,, ,, , r

Towns and Trade. n°t altogether the fault ot the new methods or

transport, although it can be traced to both canal

and railway. In fact, where towns have decayed since the

42 ECONOMICS OF TRANSPORT

introduction of modern methods of transport, the fault can generally be traced to the towns themselves. Early canal projectors encountered the most unexpected opposition from towns through, or near, which the proposed canal would run. Carriers and others interested in carting and horses declared that their businesses would be ruined, and that horses would no longer be required. In some cases the opposition was so strong that the proposed line of the canal was altered, so as to pass three or four miles from a given town, in order that goods for that town would have to be carted by road.

The convenience of being on a canal or railroad accounts for the

origin and rapid development of many of our northern industrial

towns. Business concentrates at convenient cen-

NortherKowns tres' and these are where facilities for communica- tion and the transaction of business exist. The district or town that barred out facilities, or kept them at a safe distance, has inevitably suffered in that its development and progress have come to a standstill from the moment that it turned its back upon new methods. No lesson comes out more clearly in industrial history than this, that the nation, community or individual that neglects new opportunities and improved methods for carrying on business is soon out of the running and ceases to progress. Civilisa- tion and commerce have invariably advanced hand in hand, and the neglect of the latter has always imperilled the former.

CHAPTER III

THE EVOLUTION OF TRUNK LINES

The railway, like the canal, soon justified the optimism of its early

projectors. Canal companies had paid good dividends, and for a

long time were considered perfectly safe invest-

PubKc Favour. ments- Then the railwaY came. At first it had to prove its capability as a method of transport, and its ability to pay a regular dividend on the capital required for its construction and equipment. No sooner were these ascertained facts than railway stock as an investment began to take the place of that of the canals in the favour of the public. Unfortunately, too, just at this time, circumstances conspired to increase the popularity of railway stock until the investing public lost their heads, and the railway manias of 1836 and 1845 seemed for a time likely to bring the country to the brink of financial disaster.

In spite, however, of speculation and, it must be confessed, the employment, in some cases, of vicious financial methods, very con- siderable progress was made with genuine railway

Early* Systems. const ruction. The proof of this can be grasped by noting the dates of the foundation of some of our leading railway companies. The London and Birmingham Railway, now the London and North Western, dates from the year 1833, but the 2,000 miles of track now managed from Euston represent the amalgamation of over 100 railway companies ; nor was the London and Birmingham Railway the senior of these, although it may be looked upon as the main trunk to which all the others become naturally attached. The London and Southampton, now the London and South Western Railway, dates from the year 1834 ; the Great Western Railway, 1835 ; the South Eastern, 1836 ; the Eastern Counties (since 1862 known as the Great Eastern), 1836 ; the London, Brighton, and South Coast, 1837 ; and the Great Northern, 1846.

It is from the last-named year (1846) that order really began to emerge from chaos, for from that date the chief systems of

43

44 ECONOMICS OF TRANSPORT

this country gradually evolved. Parliament, after being congested with railway business to such an extent that a stoppage of the legis- lative machinery appeared to be highly probable,

Parliamentary adopted a definite policy as to concessions, and Procedure Simplified. passed the Railway Clauses Consolidation Act

(1845), which by prescribing the form in which all railway Bills must be presented, limited the attention that need be given by the House to any one Bill, to the details of the scheme for which it had been framed. The policy as to concessions is of interest in that it shows how reckless competition may be prevented, and yet a practical monopoly may be robbed of most of its evil possibilities. Thus Parliament requires proof that a proposed railway is really needed. Where this requirement is fulfilled, there has been little difficulty in getting the necessary Act passed. Thus railway promotion has been remarkably untrammelled by Government interference in the United Kingdom.

Reference has already been made to the amalgamation of many small companies into one great system. This policy towards com- bination dates from the early forties. It is one thing

Amalgamations. to declare that the amalgamation of several small companies into one big one will benefit the com- munity, but quite a different matter to bring such a policy to a successful issue. There are so many conflicting interests which have to be brought into harmony. The small undertakings probably have been organised under very different conditions as to manage- ment, capital, and working. In order to effect an amalgamation the services of many officials have to be dispensed with. Only one Board of Directors is necessary for the new and enlarged company ; only one staff for office and management work. Hence Directors' fees and officials' salaries are in jeopardy. Even after the interests of officials and shareholders have been considered and necessary points of friction connected with these have been adjusted, Parliament has to be faced, and when the Bill comes before the Parliamentary Committee local jealousies and petty animosities have their opportunity, nor are they slow to avail themselves of it.

A few striking points from the amalgamation which resulted in the formation of the Midland Railway Company will serve to

THE EVOLUTION OF TRUNK LINES 45

make the seriousness of some of these difficulties plain. There were three small railway companies — the North Midland, owning 73 miles

of track ; the Midland Counties, owning 58 miles ; TExperieac°d'S and the Birmingham and Derby Junction, owning

about 50 miles. The North Midland Company ran from Derby to Leeds, the Midland Counties from Derby to Nottingham, and the third company commencing at Derby ran via Tamworth and Burton to join the Birmingham and London near Birmingham.

The three companies had been keen competitors for the business of the districts they served ; indeed the competition had waxed so fierce that about the year 1842 all three were in a very shaky condition. They were charging rates that were quite unprofitable, their management expenses were excessive, and just at that moment there was the possibility of further competition that might prove more difficult to face than that which had existed, for the Great Western Railway was contemplating an extension of its system, and the Great Northern Company was " in the air." At a shareholders' meeting of one of the small companies, a Mr. Heyworth ventilated the discontent of the shareholders and urged the need for a searching enquiry. Directors' fees, he declared, cost the company £1,200 per annum. Twelve men could do the work more efficiently at half the cost. And from this beginning he stated a case which led the meeting to vote for the appoint- ment of a committee to investigate and report on the state of the company. The outcome of the labours of the committee was a proposal of amalgamation between the three companies. There was a storm of opposition and the first scheme came to nothing. But the stalwarts persevered. After the failure to carry a scheme of combination, the competition became more intense than ever, and within a few months the financial situation was so serious that something drastic had to be done. The wiser heads connected with the companies called in George Hudson and Robert Stephen- son to advise, and they reported in favour of an immediate amalgamation. A joint committee of the three companies was formed, and a bill was drafted for submission to Parliament. To arrive at this point had been sufficiently difficult, but the working out of the details of the amalgamation must have required an immense amount of both patience and tact. To take but one

46 ECONOMICS OF TRANSPORT

difficulty : how should the respective values of the share capital in the companies be fixed ?

The capital of the North Midland Company had been issued in the form of whole shares of £100 each, half shares at £40 each, and one-third shares at the curious figure of £21 13s. 4d. Complicated^ The M^land Counties Company's share capital was in the form of whole shares issued at £100, one quarter shares issued at £15, and one-fifth shares on which only £2 each had been paid. The Birmingham and Derby Company's capital consisted of whole shares of £100 fully paid, one-third shares issued at £25, and one-eighth shares issued at £3 18s. 5d. Here then was a Chinese puzzle of the first order. To bring about agreement among the shareholders must have been a work of genius. The details of the negotiations are not available, but that they would make interesting reading is evident from the final compromise effected. The shares of the first two companies were all (except the one-fifth shares in the Midland Counties Company), taken at the nominal value ; the one-fifth shares were reckoned at the amount paid on them, namely, £2 each. The Birmingham and Derby Company's capital presented peculiar difficulties ; finally, however, the holders of £100 shares in the old company were allotted £95 for each in the new company. The one-third shares, nominally £25 each, were taken at £31 13s. 4d. and the one-eighth shares at £6 14s. 9d. And, in order that the work of the dividend clerks might be rendered interesting, the shareholders in the Birmingham and Derby Company agreed to accept £1 7s. 6d. per annum less dividend than the shareholders of the other two com- panies. These figures tell their own tale. The original thirty- four directors of the three companies were replaced by fifteen for the new company. Thus nineteen directors and two sets of staff officials were dispensed with. On 10th May, 1844, the Midland Railway Company's Act received the Royal Assent. The capital of the company was £5,158,900, and the length of track operated extended to 179 miles. This was at the time the largest railway company in existence.

The amalgamation of the multitude of small companies was bound to proceed until a comprehensive system of great trunk lines was evolved. In no other way could the country become possessed of a railway service adequate to the ever-growing needs of

THE EVOLUTION OF TRUNK LINES 47

its industries and commerce. How important is this possession of

long through routes under a single management, and capable

of conveying goods and passengers (especially the

Vital former) one or two hundred miles without change

IVftCftRsitiV of Amalgamations. OI system, will be more adequately realised later

when the chapters dealing with canal economics are read. But it may be briefly stated here, as an illustration of the point, that one of the reasons why the canals of this country have failed to move with the times and have, in the aggregate, taken no larger place in the transport industry than that which they occupied half to three-quarters of a century ago, is because they have re- mained small fragments, connected physically at various points ; but in the matter of management isolated, independent, even jealous of their own position, and often, apparently, incapable of working together for the development of the traffic of their systems. It is impossible to conceive the conditions that would have resulted had railways remained in this same fragmentary condition. There are still some small independent railways possessing but a few miles of track. The Harborne Railway running from Birmingham to the suburb called Harborne is an example of this. It has a paid- up capital of £115,000, and possesses about five or six miles of single track suburban line joining the London and North Western system just outside Birmingham. Its separate identity is main- tained, but its line is managed and worked entirely by the North Western. And there are others in a similar position, as will be seen from a casual inspection of the annual blue-book of railway returns issued by the Board of Trade. They still serve a useful purpose but do not render inaccurate the general statement that from what, at this distance of time, appears a state of things greatly resembling chaos has been evolved a complete system of trunk lines.

The original amalgamations, however, did not give us the trunk system exactly as we now know them. For instance, the Midland

Railway, when it first got through to London, had Powers" no^ ac(luired the St. Pancras terminus. It ran

into the metropolis over the Great Northern line from Hitchin to King's Cross. Other companies obtained running powers over what may be called " foreign " lines into various important towns, and it is still a fairly common thing to find a

48 ECONOMICS OF TRANSPORT

company running trains into the station of a rival company. The Midland runs into North Western stations at Wolverhampton and Walsall. The existence of these arrangements brings us to a brief consideration of the question of running powers, the creation of which marked an important step in railway history.

' Running powers," i.e., the power of one railway company to

run a train over lines belonging to another company may be of two

Object of kinds : (1) compulsory, or (2) by friendly arrange-

Corapulsory ment. It is the compulsory powers with which we

Running Powers. are most concerne(j an(} which mark an important

step in railway history. The period with which we are dealing, it should be remembered, is the first half of the nineteenth century. In this second decade of the twentieth century one of the common complaints against the railways is that they have entered into so many agreements and working arrangements that competition between them is dead. In the days when the amalgamations were carried out this amicable feeling did not prevail. Where a company possessed an advantage over a rival it was apt to retain its advantage if possible. In this and other ways attempts were made to " freeze " out smaller and less favoured companies. Parliament was concerned about this because one of the guiding principles on which it had acted in railway matters was that the possibility of monopolistic abuses should be prevented, not by regulation but by competition. Those were the days, of course, when belief in the infallibility of free competition shaped most of the legislation affecting trade and commerce. Naturally Parliament viewed with concern the evolution of large companies. It realised the advantages which would accrue from them, and also the dis- advantages arising from the disappearance of competition ; it realised, too, how drastic might be the consequences of the " freez- ing " process when carried out by large and powerful companies. Parliament considered the question, but did nothing until 1853, when a committee, the most important members of which were Gladstone and Cardwell, invented "compulsory running powers," which ultimately became embodied in the Railway and Canal Traffic Act of 1854. Parliament permitted specific clauses to be inserted in railway companies Acts giving power to them to run over other companies' lines where a connecting link was missing. The same Act required all railway and canal companies to " afford

THE EVOLUTION OF TRUNK LlNES 49

all reasonable facilities " for dealing with traffic from all other companies. From this time any company could, subject to Parliamentary approval, obtain access for its trains to the system of any other company in cases where such access was desired, and of course the " freezing " process came to an end. The fact is not solely of historical, but also of economic, importance in that it contributed to the extension of transport facilities ; to the opening up of more free and larger highways of traffic for the use of the rapidly expanding trade of the country.

Friendly arrangements, i.e., arrangements for which Parlia- mentary sanction was not sought, were not always dictated by a pure spirit of friendliness, as the name may suggest. Friendly Sometimes companies thought it desirable to grant Arrangements, running powers to rival companies for fear of the greater evil of increased independent competition. It was deemed to be better policy to let a rival into a town rather than to force that rival to obtain its own way in. In this way the permitting company would obtain some control over the other's traffic through handling it, and it could at least make this " foreign " traffic subservient to its own requirements. An instance of this is furnished in the history of the Midland Railway. The increase of traffic became so enormous between Hitchin and King's Cross where the two companies used the Great Northern line that the facilities for dealing with it were inadequate. Naturally, the Great Northern gave their own traffic the preference, and the Midland trains were so constantly delayed that in the end the Midland had to construct their own London terminus at St. Pancras, the Act for which was passed in 1863.

■(1327a)

CHAPTER IV

THE RAILWAY AND CANAL AND LIGHT RAILWAYS COMMISSIONS

Parliament, though relying chiefly on the restraining influence of competition, appears to have felt all the time that the railway com- panies needed to be subjected to some kind of

Early Methods centrai supervision and control. At one time there of Control. r , . ... ,

was a recommendation, arising almost entirely

from the absorption of its own time by railway legislation, that the Board of Trade should be given power to make a preliminary investigation of all railway schemes and to report on them. Had effective use been made of this idea possibly we should have ob- tained a better devised and cheaper trunk system than we now possess, but two things combined to defeat this idea — Parlia- ment was jealous of the delegation of its own powers to a depart- ment of State and the railway interest was too hostile to the idea and sufficiently powerful to defeat it. Parliament, however, had another and equally important idea— it early saw the desirability of a specially constituted tribunal for dealing with railway ques- tions. The obligations imposed by the Act of 1854, to which reference was made in the preceding chapter, especially those dealing with "reasonable facilities," required such a tribunal. The intention of the framers of the Act was to confer the necessary powers on the Board of Trade, but the " railway interest " was sufficiently powerful to prevent this from being carried out, and the court named in the Act was the Court of Common Pleas. This amendment stultified the Act because the judges declined to deal with purely technical questions. ;

The defect of the existing legislation continued to be recognised,

but it was not until 1873 that another decisive step was taken in the

appointment of Railway Commissioners, to whom

First Railway transferred the powers given to the Court of

Commissioners. „, ,:,,„-/* <-n. j

Common Pleas under the 1854 Act. The procedure

and powers of the Commissioners were made more elastic than

are those usually exercised by judges of the High Court. For

instance, section 7 states that :— " When the Commissioners

50

THE RAILWAY AND CANAL, ETC., COMMISSIONS 51

have received any complaint alleging the infringement by a rail- way company or canal company of the provisions of any enactment in respect of which the Commissioners have jurisdiction, they may, if they think fit, before requiring or permitting any formal proceedings to be taken on such complaint, communicate the same to the company against whom it is made so as to afford them an opportunity of making such observations thereon as they may think fit." The same Act gave the Commissioners power to hear and determine questions as to terminal charges where such charges were not fixed by Act of Parliament and to make orders requiring the companies to divide up particular charges so as to show the toll, the conveyance chaige, and the terminal charge.

From time to time the powers of the Commission were increased as, for instance, under the Act of 1874 power was given to refer to them Permanent questions of difference required to be referred to the Commission arbitration of the Board of Trade, or to arbitrators Created. appointed by that Board. But the most im- portant development took place under the Railway and Canal Traffic Act, 1888. This Act was an enormously important one, affecting railway rates and charges, as will be seen in the subse- quent chapters in Part II of this book. Here we are only con- cerned with the Commission. The first part of the Act is entirely confined to the creation of a new Commission, called the Railway and Canal Commission (canals are brought into the title for the first time) and defining its duties and powers. This body was made permanent ; its predecessor had been appointed merely for a term of years. It was to consist of two appointed and three ex-officio members. The ex-officio members were and are required to be judges of the superior courts of England, Scotland and Ireland, and an ex-officio commissioner " shall not be required to attend out of the part of the United Kingdom for which he is nominated." The object, of course, was to secure that in whatever part of the United Kingdom the Commission might sit its presiding head should be a judge of the court having jurisdiction in that part, and, natur- ally, familiar with its special laws. The other two members were to be appointed on the recommendation of the Board of Trade, and " one of them shall be of experience in railway business."

The powers of the newly constituted Commission were con- siderably enlarged by this Act of 1888 ; for example, it was given

52 ECONOMICS OF TRANSPORT

jurisdiction to order traffic facilities, notwithstanding any agree- ments into which the companies concerned might have entered. The Commission remains in existence, and is, of course, the supreme authority for dealing with all questions as to rates and facilities. If, for example, a trader feels that he has a grievance against a particular company because it is charging excessively for services rendered, or is giving a competitor preferential treatment in the matter of rates ; or if a body of traders think that a particular company is carrying imported foreign produce at rates which constitute an undue and unreasonable preference he, or they, may raise these points before the Railway and Canal Commission.

Theoretically, the Commission is perfect, and there can be no

doubt that it serves a useful purpose, but the business community

is not entirely satisfied with it. Its judicial and

technical ability are not questioned, but criticism turns on the cost of its proceedings. For some reason (possibly because the railway companies always brief most eminent counsel to represent them before the Commission and consequently traders feel that if their case is to be adequately expounded they must do the same), reference to the Commission has come to be regarded as beyond the means of most traders. As a rule, it is only large corporations, either municipal or commercial, that bring cases in the court of the Commission. For this reason the Associated Chambers of Commerce have, during recent years, maintained a fairly constant agitation in favour of the cheapening of the procedure for dealing with grievances against railway companies. The Association would appear to favour the abolition of the Com- mission ; at any rate, the extension of the powers of the Board of Trade is advocated so that that body may deal cheaply but effectively with minor grievances.

Brief reference should also be made to an important departure from the Parliamentary custom which had been observed for at least

sixty years in connection with railways — the

Light appointment of a Light Railways Commission in

Commission. 1896. Light railways, it was thought, would serve

a useful purpose in extending efficient means of transport into parts of the country not effectively covered by the ordinary railways. Although the ordinary railway system was so comprehensive and widespread there yet remained parts of the

THE RAILWAY AND CANAL, ETC., COMMISSIONS 53

kingdom, and especially in Ireland, not adequately covered. Parliament thought the deficiencies might be made good if it en- couraged capitalists to build the required lines by relieving them from some of the most arduous requirements that had always been insisted on in the case of the ordinary railways. The object was sought to be accomplished by the creation of a Light Railways Commission consisting of three members to which quite novel powers were delegated, by far the most important of which had relation to the compulsory acquisition of land. For the first time in its history Parliament surrendered to a subsidiary authority its powers of dealing with the rights of landowners. Schemes for the construction of light railways are enquired into by this Commission, and if passed are formally reported to the Board of Trade for its approval, and on this being given a scheme requires no further sanction. The proposed company can acquire the land required by means of compulsory purchase and can proceed with the construction of the light railway. Other departures from previous custom are that the Commission may, and does, hold enquiries into schemes in the localities affected which, of course, means the reduction of the expenses of the application because witnesses are on the spot and have not to be conveyed to and maintained in London during the time the enquiry lasts. The Act also provides for the co-operation of the State, the locality, and private enterprise for the provision of such lines, and, further, power is given to the Treasury to render financial asistance where it is satisfactorily proved that the localities proposed to be served are so poor that otherwise the scheme would be impossible. This Government assistance can be made in the shape of an out-and-out gift, or of a debenture loan bearing interest at 3| per cent.

Of course, it follows that the schemes for which Treasury assistance was intended were those mainly promoted by local authorities. A

private venture for profit could not claim to reap

Not a the benefit of such financial provisions. But as a

Success. matter of fact, light railways have been principally

constructed by private enterprise. Populous urban localities have usually adhered to the more familiar street tramways ; sparsely populated suburban and rural localities have usually been either too poor or too lacking in enterprise to take the initiative themselves. While making these special

54 ECONOMICS OF TRANSPORT

arrangements for simplifying procedure, and reducing costs of pro- motion and construction, Parliament took care to protect the ordinary railways from the competition of great lines of railway constructed under them, and the Commissioners have rejected attempts to use these facilities for the purpose of creating com- petition. The aim was to supplement the existing railways by covering the country with which they were not closely connected, and not to provide new trunk lines to compete with those already in existence. But it cannot be said that on the whole this de- parture from long established custom has been conspicuously successful. There has been some success in Ireland, but in Eng- land, at any rate, many of the schemes (the majority in fact) have amounted to little more than passenger-carrying tramways with their lines running along public roads. Ordinary limited com- panies promoted by private enterprise have found the provisions of the Light Railways Act a cheap and convenient method of obtaining sanction for suburban tramway schemes. They have taken powers to carry goods and merchandise as well as passengers, but, as a rule, the goods business transacted has been infinitesimal compared with their passenger business. Even in some sparsely populated districts, where so-called light railways have been constructed, the result has been much the same. The fact is that private enterprise is not attracted by benevolent schemes for rural development. In the slang expression of the day, it is " out for " business and profits ; and the rural districts to which light railways should have been most useful have not, as a rule, the enterprise necessary to spur them on to such undertakings nor the ability to carry them through. Whatever else it may be, a railway whether " light " or " heavy," is not a philanthropic, but a business, undertaking.

CHAPTER V

THE SCOPE AND PURPOSE OF WORKING AGREEMENTS

One other important stage in the evolutionary process must be dealt

with before leaving this brief historical sketch of British railways.

It has already been pointed out that at the outset

The Era of Parliament fostered competition by means of a

Fierce* Competition, multitude of small lines, and that the next stage of

development was the evolution of the large com- panies controlling great trunk lines. This did not in the least diminish the competition which Parliament desired. Rather it fostered it by transferring it from small bodies to large, powerful, wealthy corporations capable of large undertakings and large policies. The period which followed saw the fiercest possible com- petition. In even these early days there was at least one instance of an alliance, but in the main it was the era of keen business antagon- isms. The companies, it is true, all worked to one classification of merchandise and to maxima schedules imposed by Parliament, and occasionally they entered into agreements for the regulation of passenger fares, especially those for excursion traffic.

Beneath this apparent uniformity, however, there was much room for competition in the matter of facilities. Passenger services were duplicated, and the companies endeavoured Nature of the to outvie each other in speed and comfort of Competition, travel. In the goods department all kinds of con- cessions were made in order to secure traffic. One of the most notorious methods concerned the generosity with which claims for damage, misdelivery, and delay were treated. If the company protested against a claim which was regarded as excessive the trader's invariable retort was : "Oh, very well. If you don't care to pay my claim the whole of my traffic will be transferred to your rivals." Such a method of squeezing the companies was singularly successful for years, until in fact the trader came almost to regard it as a legitimate means of securing what amounted to an indirect reduction of goods rates and charges. Another direction in which the influence of

55

56 ECONOMICS OF TRANSPORT

competition was seen was in the laxness with which charges for ware- housing goods or for the demurrage of trucks were enforced. The regulation free limits for warehousing or the detention of trucks were systematically exceeded. Again, the companies would carry goods at the reduced " owner's risk " rates, and in case of damage, loss, or misdelivery would not too strenuously resist a claim, although, in the strict letter of the law, the lower rate given was in consideration of the consignor himself undertaking these risks.

Ultimately the companies became tired of this policy and began

to act together to enforce warehouse and demurrage charges and to

resist claims. It caused a great outcry because the

Cl3 T?ge?hen effect of this chanSe was to add to the traders' transport bill, and naturally this was vigorously

resisted. The opposition was not conspicuously successful, and

the companies, having thus drawn closer together than they had

ever done before, began to draw even closer still, until the final

outcome was the arrangement of several working agreements.

Working agreements were not, even at that time, entirely novel

in the history of British railways. Parliament itself had sanctioned

one in the case of the London, Chatham, and Dover

Agreements?5 and the South Eastern companies under which the management of these two railways was vested in a joint committee drawn from the two boards of directors. Thus, though the companies retained their separate identities their systems became as one. Their receipts were " pooled " (i.e., paid into a common account), and their net profits divided on a proportional basis. From the sum which each company thus received from the joint managing committee, dividends were paid to stockholders. It is also interesting to find that as early as the " seventies " of the nineteenth century there was a working agreement (not sanctioned by Parliamentary authority and little known of generally) between the London and North Western and the Lancashire and Yorkshire railways. Under this the two companies " pooled " the receipts from certain traffic at "competitive points" (i.e., the traffic arising in places which both companies served) and divided them on a fixed basis.

It was on these lines that the agreements of the first decade of the twentieth century were based. There were several in existence. For instance, the London and North Western,

THE SCOPE AND PURPOSE OF WORKING AGREEMENTS 57

the Midland, and the Lancashire and Yorkshire companies worked

under such a system. This triple arrangement was not made all at

once. That with the Lancashire and Yorkshire,

Triple Affiance as ^as ^een sa^> na<^ been in existence for about a generation, and it had been extended in 1906 when more traffic was brought within its scope. The next step came in 1908 when the North Western and Midland came together, but for a time the arrangement was confined to these two ; it did not extend to the Lancashire and Yorkshire. Within a very short period, however, the Midland came into full working arrangements with the other two companies. This tri-party combination only concerned " competitive traffic," the receipts from which were " pooled " and divided on a proportional basis. The exact details of the arrangement were not well known outside the offices of the companies concerned and even there only in those departments directly interested, but it appeared to be very wide- spread, covering all goods, parcels, and passenger traffic at points where the three companies were in competition.

Some idea of its effect may be obtained from the following circular issued by two of the companies in districts where they alone are concerned. Had the third company been affected, of course its name would have been added —

London and North Western and Midland Railways

PARCELS TRAFFIC

Wolverhampton and Walsall

The London & North Western and Midland Railways beg to inform their Customers in Wolverhampton and Walsall that commencing Monday, October 12th, 1908, the collection and delivery of Passenger Train Parcels will be performed by joint vans, and that the parcels traffic of the two Companies will be under the control of their joint Agents, Mr. W. H. Hickman, at Wolverhampton, and Mr. A. Plant, at Walsall, respectively, who will be responsible for the Collection of the Carriage Accounts of both Railways and to whom all applications relating to the parcels business of either Company should be addressed.

The traders may rely that their traffic will be as promptly and efficiently dealt with as it has been in the past.

Frederick Harrison,

General Manager, L.&- N.W. Rly.

W. Guy Granet,

Euston Station, General Manager, Midland Rly.

London, October 7th, 1908.

58 ECONOMICS OF TRANSPORT

How passenger traffic was affected may be seen from the arrange- ments concerning "season" or "contract" tickets. A holder of a London and North Western season ticket be- Eflect on tween, say, Wolverhampton and Birmingham, or Traffic. between Walsall and Birmingham, or between

Sutton Coldfield and Birmingham might travel between the two terminal points covered by his ticket in the trains of either company. Similarly, of course, a Midland season ticket- holder might travel by North Western trains. The only restriction was that if travelling on the line which had not issued the season ticket the journey could not be broken at stations between the terminal points. Of course, on the issuing line the journey might be broken anywhere between the terminal points. In some respects the privileges applying to ordinary tickets were even greater than those applying to season tickets. In addition to this agreement there was a very close one between the Great Central, Great Eastern and Great Northern companies, and the last two had a working arrange- ment with the Great Western at certain points. The Great Western and the South Western had a working agreement, and so had the Scottish companies.

It will be seen, therefore, that the movement in the direction of

eliminating competition had developed to a considerable extent.

From the point of view of the companies, of course,

Companies ° suc^ arrar-gements are a11 to the good. They mean an appreciable reduction of working expenditure through the abolition of duplicate services of all kinds. In some, if not all, cases, the number of passenger trains was reduced, and it is claimed that this was done without inconvenience to the public because the trains of the companies concerned were better arranged and better spread over the day. In connec- tion with goods and merchandise traffic, of course, these alliances meant a reduction in the money formerly spent on " getting traffic " and on collecting parcels, for instance. The companies themselves stated that such economies had become desperately necessary. The circumstances of their development in the last decade or two of the nineteenth century had added enormously to their capital accounts and frequently the expenditure was upon enlargements, which, while imperatively necessary for the handling of traffic, did not result in an increase of earning power,

THE SCOPE AND PURPOSE OF WORKING AGREEMENTS 59

or a decrease in working expenditure, proportionate to the capital expenditure. Further, there had been, they asserted, a steady increase in operating expenses arising from a variety of causes. These things were impairing, and threatened to do so still more, their ability to maintain their dividends, and, unless some counteracting move were made, would ultimately mean the diminution of dividends.

From the point of view of traders, these arrangements appear,

according to their published statements, to possess few advantages

and many disadvantages. Of course, they put

Point of View an enc* to t^le Iormer astute policy of setting com- pany against company ; that device was no longer available to the man in search of a concession. It was also stated that there had been an appreciable reduction in facilities, the real effect of which was equivalent to an inciease in the charges for trans- port. Naturally, the trader argued that he was not any more able to meet such increases than were the railways to meet those directly affecting them. On the surface it does appear as though all the advantages accrue to the companies and none to the traders, but a superficial view of a matter of this sort is scarcely adequate. If the position of the railways which induced them to enter into such working arrangements was as has been stated by them, then it is obvious that it would not have been to the real and lasting advantage of the community that it should continue. The industry of transport cannot, any more than any other, be expected to deny itself a legitimate return on the capital it employs. If such denial is insisted upon, the industry must ultimately become unattractive to capital which will cease to become avail- able to meet future requirements of the industry. The conse- quences of such a condition would inevitably be the stagnation, and following that the retrogression, of the industry. Whatever else the industries of this country may face, they cannot contemplate with equanimity a retrogressive or even stagnant transport system. It may be, therefore, that the ultimate effect of these working arrangements is distinctly beneficial to the public. They certainly mean the elimination of waste, and the logical C,° NecesPsary.Si0n sequence to that should be, sooner or later, the pro- vision of cheaper and better transport facilities. Both these might perhaps have been secured under the old

60 ECONOMICS OF TRANSPORT

competitive system, but some students of the problem are firmly convinced that they could not. There is, of course, a danger of movement in quite the opposite direction. It is very easy for combinations such as these, or of any kind, to develop on un- desirable lines and to become oppressive of, rather than beneficial to, the public. That is one of the dangers and problems which traders generally and Parliament in particular will need to watch, determined if ever the position arises to step in and end it unhesitatingly and ruthlessly.

CHAPTER VI

RAILWAYS OF THE UNITED STATES

It is quite impossible to attempt a detailed description of the railways of the United States. Their extent is far too vast for such a task to be accomplished within the limits of a U S XRailwavs sm^e chapter of a book designed to take a compre- hensive view of the whole subject of transport. Quite a substantial book would be required to deal with the subject on such a scale. Some idea of the extent of the railways of the United States may be obtained from a comparison of figures. In 1911 there were 246,572 miles of road, against 39,916 in the United Kingdom (exclusive of sidings) ; the total capital was $19,346,784,000 (say roughly, £3,869,356,800) against £1,324,018,361 for the United Kingdom in the same year ; the gross earnings were $2,840,870,000 (say £568,174,000) against £127,199,570 from all sources, and tons carried (1910) 1,849,900,101 against 523,577,178. In short, the system is the largest in the world. The whole of it has been created in less than a century, as, of course, have the systems of every country possessing railways. There are still untouched areas, large if stated in miles, though still relatively small ; but on the whole it is not inaccurate to describe the country in the somewhat hackneyed phrase as covered with a network of railways. If it is desired to realise this it is only necessary to procure a " folder " from one of the shipping agents — Cooks, for instance. A " folder " is an American railway main line time table — called " folder " because it is arranged so as to be capable of being folded up for the pocket. Some of the com- panies supplement the time table with a railway map. Their own system is brought into prominence by means of a heavily emphasised line with the curves flattened out and the route made to look as direct as possible. While this is done, however, it is not unusual to find the whole railway system of the country lightly printed in. From such a source as this may be obtained a vague but useful idea of the national system as a whole. Merely to inspect a map of this kind is instructive.

61

62 ECONOMICS OF TRANSPORT

The history of the development of the railways of the United States is very different from that of this country. England was a

settled country with a large population and many with England. towns- Outside the towns the country was well

developed agriculturally. These conditions pos- sessed advantages and also disadvantages. Under the first of these descriptions have to be placed a number of facts. Agriculture, commerce, and industry, were more or less flourishing when estimated by the circumstances of their time. They were await- ing the stimulating influence of extended, improved and more rapid means of transport. Trade was ready for the railways and their main routes were settled for them. One of the first and most obvious tasks before the pioneers was to connect up centres such as Liverpool and Manchester, London and Birmingham, London and Bristol, and Liverpool and Birmingham. And, of course, there were other towns in the northern midlands and the north east for which similar facilities were required. The dis- advantages may be summed up in the cost of construction arising from this settled, developed condition of the country. Land was being used and consequently expensive to acquire, apart from the manner in which costs were piled up because of antipathy and cupidity. The procedure necessary to acquire Parliamentary sanction for the various projected lines was another heavy item of expense.

In complete contrast to this were the conditions prevailing in the United States. Except on the coast lines, or the banks of the great

rivers, and the lakes, the country may be described New^Re^ions without exaggeration as unsettled. One of the

authors possesses an old school atlas dating from somewhere early in the nineteenth century which marks a great por- tion of what are now the States of Nevada and Utah as " desert." In the United States, therefore, railway construction, except in the eastern populated regions, was entirely pioneer work. The lines were constantly being pushed out westwards in advance of the population and then the pioneers set to work to obtain popula- tions for the regions they had opened up. It was, therefore, a very different problem that confronted railway promoters in the United Kingdom and the United States. In the latter country they passed comparatively soon from the populous places, where

RAILWAYS OF THE UNITED STATES 63

their success was as certain as it could be, to regions where every yard of track laid was a purely speculative undertaking. The pioneers there, however, had every inducement given to them. There were no restrictions as to the kind of track which should be laid or of rolling stock which should be used ; and there were no landlords to be conciliated. In fact, the State was so anxious to get railways pushed out into the prairies that it commonly gave not only the land for the road-bed but considerable tracts on each side of the line, so that the companies might reap the full benefit of their enterprise. And the tracks laid in these pioneer days were far below the standard required in the United Kingdom even at the same time ; in fact, here they would have been regarded as most primitive and dangerous to the travelling public. The story of the development of these pioneer lines would make most interesting reading were there space to tell it. It was not always successful at the outset. Some lines came to grief finan- cially because they were so far in advance of a paying popula- tion ; some were more or less wild cat schemes ; and the ultimate ending in such cases was liquidation. But as far as the country was concerned these failures were mere incidents in what may now be described as a history of almost uninterrupted progress. Companies that did the pioneer work may have failed ; but others took their places and carried on the work to success.

It is difficult, if not impossible, to divide up the history into periods as can be done with English railways because develop- ment continued so long. Until quite recent years

COcnons!ndatIomd one of the chief tasks sti11 before the railwaYs was the opening up of new country. In the main,

however, there were the two stages — (1) construction, (2) consolida- tion— just as there were here. The only difference is that the two stages overlapped, or ran side by side. Many prominent names in the financial and railway world have been conspicuous at various periods in the work of consolidation. Two only of the more recent ones need be mentioned — Hill and Harriman. Mr. Harriman was the central figure in the amalgamations which created the Union Pacific line and took it out west to the Pacific Ocean. Mr. Hill with Lord Mount Stephen and Lord Strathcona acquired the control of certain scattered railways and combined them to form the St. Paul, Minneapolis, and Manitoba Railway. In 1889 it

64 ECONOMiCS OF TRANSPORT

was decided to push on this system also to the Pacific, and the name was then changed to the Great Northern Railway.

The power and authority of railway magnates such as these were

and are immense. How they acquired it is not easy to state in general

terms because every transaction of the kind would

P°WMagnSSWay have its Points of difference- But one of the cir- cumstances which frequently assisted this acquisi- tion of one-man control may be found in the nature of the capitalisa- tion of American railways. Frequently the common stock (which in this country would be called ordinary capital) was small in relation to what are called Bond issues — similar to British deben- tures and guaranteed stock. As with ordinary capital here the voting rights are mainly confined to common stock. Bondholders only have power of intervention and control through the appoint- ment of a receiver when there is failure to pay the interest due to them and the particular railway is insolvent. Normally, therefore, control is in the hands of common stockholders, who appoint directors. To obtain control of a company, under such circumstances, the magnates had not to consider great bulks of capital. All they were concerned with was the common stock, and a bare majority of this (even a one-share majority) was sufficient to give them effective control of the company under which they could appoint themselves or any other nominees as directors, and thenceforward shape the whole policy of the company.

In this and similar ways one-man control was secured. Its influ- ence cannot be unreservedly approved or condemned. On the one hand, it undoubtedly had its good features. It and Defects placed the control of huge developing organisations in the hands of strong men ; men of dominating personality, of imagination and enterprise ; men who conceived great schemes and carried them through in a way that probably would have been impossible under any other conditions. But while the system had advantages such as these it undoubtedly had counterbalancing defects arising from the manner in which it was abused. Much of the scandalous Stock Exchange manipula- tion of railway stocks, which time after time has brought ruin to thousands of small investors, may be traced to this source. And the State has found cause to interfere in these arrangements and

RAILWAYS OF THE UNITED STATES 65

to exert its authority to quash them because of its conviction that they are antagonistic to the interests of the public. £t 'Apart from the initial one of how to get a comprehensive system of railways, the problems which the United States have had to solve have been very similar to our own — the preven- tive States t*on °* ^e a^uses 0* monopoly and the regulation of rates. Competition as a regulating force keeping both these kinds of abuses in check is bound to have its weaknesses ; to produce irregular and uneven results. The localities enjoying the advantage of being served by more than one system are bound to obtain great benefits from competition as long as it remains free and unrestricted by any form of working agreement. And of themselves such benefits are equally bound to have what may be called a reflex effect. The transport rates which some localities enjoy are so much lower than those available for others, where competition does not exist, that, inevitably, there must be an ap- pearance of unfair discrimination in favour of one locality against the other. Apart from this condition, which may be described as natural or inevitable, it is also alleged against the railways of the United States that in their efforts to secure transport busi- ness they have deliberately discriminated in favour of the con- signor who could hand them large tonnages at the expense of the smaller man. Into the merits of this particular phase of the dispute it is not necessary to enter ; it is only mentioned as an indication of the kind of problems with which the legislatures of the Union and of the individual States have been constantly faced. The trouble began early in the second half of the nineteenth century. The expansion of agriculture fostered by railway develop- ment had been so rapid that wheat prices fell Movement* considerably, and with the existing railway rates farmers were unable to make a profit. From the point of view of the railways the reductions demanded would have meant disaster, but unwisely they did not rise to the necessity of doing something useful to help the settlers whom they had planted on the soil. Naturally in this crisis the indignation of the farmers became acute. In 1867 there had been formed a society known as " The Patrons of Husbandry," the object of which was the social improvement and industrial betterment of agriculturists, though those interested in other industries eventually joined.

5— (1327a)

66 ECONOMICS OF TRANSPORT

The object was mainly educational. The meetings of the local

branches were held in granges or barns, and so the lodges came to

be known as granges and the whole movement as " the Granger

movement." Naturally a body of this kind, formed on the lines

of a secret society, and having the care of agriculture as its primary

object, began to take a considerable interest in the position as

between the railways and the farmers, until in the end, the society

promoted laws against monopolies, which were primarily directed

against the railways, and ultimately became known as the " Granger

laws." These were passed in the States of Illinois, Iowa and

Minnesota. There was in 1870 an unfruitful attempt in Ohio to

regulate railway goods rates by law, and in the following year in

Illinois a law was passed setting up a series of maximum charges.

One of the judges declared this to be unconstitutional, and as the

result failed to obtain reappointment. His defeat showed the

true significance of the movement. The farmers were seeking

what they believed to be their "rights" and the salvation of

their industry ; and naturally they were in no mood to tolerate

technical points which might be raised to set aside the legislative

expression of their convictions and intentions.

The difficulty was overcome in an Act passed in 1873 which did

not fix maximum rates but required them to be reasonable, and

a Commission was appointed to settle what were

Bad Effect of reasonabie rates. Minnesota and Iowa followed Restrictive Laws. „,T. . , ., , . ,,

this example. Wisconsin went farther, and in the

" Potter law " fixed rates on various goods at levels that were de- clared to be unremunerative. Of course the railways contested the validity of these laws, but in 1877 the Supreme Court pronounced them constitutional. Thus the " Grangers " were successful in enforcing their views, but their success proved to be short lived because experience soon showed that the restrictive laws so diminished the earning powers of the companies that they became unprofitable undertakings. In Wisconsin the general level of goods rates was reduced to those prevailing at competitive points, and in two years none of the railways was able to pay a dividend, and only four were able to meet the interest due on their issues of Bonds and other prior charges. The inevitable result followed —capital was not forthcoming for extensions which came to an end for the time being and the State ceased to develop. So

RAILWAYS OF THE UNITED STATES 67

severe was the crisis provoked by the " Granger Laws " that even before the Supreme Court upheld them in 1877 they had come to be regarded as unwise, and it was realised that it would be bad policy to enforce the decision.

Of course the breakdown of the " Granger Laws " did not mean

the end of all attempts to control railway rates and policy. The

necessity for such control had been made abund-

The Inter-State antly evident by the experiences which had spurred Commission, the traders on to action. But while the necessity was recognised, it was about ten years before an acceptable policy was agreed upon, and in all this decade there were frequent legislative attempts on the part of individuals and much wrangling over the merits of rival policies. One of these proposals was the enforcement of strictly equal mileage rates — an attractive scheme because of its superficial appearance of all-round equity, but one which in practice is incapable of strict application for reasons which will be seen later in the chapters dealing with the economics of transport. The ultimate solution of the difficulty was found in the creation of the Inter-State Commerce Com- mission in the year 1887. By this Act the regulation of railways became national rather than local. Their control was handed over to the Commission, " pooling " was prohibited, and there was a clause with reference to the relationship of " through " to local rates, the object being to give the Commission wide, if not very exact, powers of minimising the abuses which arose from the granting of exceptionally low through rates while local rates for the same commodities over part of the same route as the through rates covered were maintained at their high level. Great discre- tion in the matter of discriminatory rates and of the long and short haul charges was left to the Commission.

That body appears to have tackled its work with vigour, so much

so that for ten years, according to a paper read by Professor E. R.

Dewsnup (University of Illinois) at a congress of the

"S D°S. aDd R°yal Economic Society in London in 1912, it assumed the right to order the companies to fix reasonable maximum rates. It was inevitable, of course, that when such a policy was resisted in the courts it failed, and for eight years the Commission repeatedly sought such powers until they were granted in 1906. This power was further extended in 1910 when

68 ECONOMICS OF TRANSPORT

authority was given to fix reasonable maximum rates even though no complaint might have been brought before the Commission. In the same Act the commissioners were authorised to postpone new rates proposed by companies, while enquiry was made as to their reasonableness and more complete control was given over long and short haul rates. But perhaps one of the most im- portant enactments was that where a company reduced rates in competition with a water route it should not be allowed subse- quently to increase those rates unless it could show changed cir- cumstances other than the elimination of the water competition as the justification for its action.

Apart from this rate regulation, however, the Commission is endowed with a variety of powers. It is the authority for en- forcing compliance with requirements as to equipment such as brakes and automatic coupling appliances ; for regulating the carriage of explosives ; for regulating the hours of the operating staff ; for arbitrating in case of labour disputes on the railways, and for a variety of other things. And there is, appa- rently, an increasing tendency to seek its opinion on all kinds of subjects connected with the railways, while its power of control is extending indirectly from Inter-State matters to those which formerly were regarded as the sole concern of the States them- selves. Obviously it must be so because if the Commission orders certain things with reference to Inter-State traffic its decision cannot be allowed to be invalidated or infringed by the fact that a State has not enforced similar laws within its own boundaries. Such an admission is merely logical.

It is difficult at a distance far removed from the sphere of the

Commission's activities and without close personal acquaintance

with it to pronounce an opinion as to the value of

V* Work ^ its work' lt can hardly be doubted, however, that from many points of view it is an extremely useful department of State. It combines in one authority powers that in this country are scattered over two — the Railway and Canal Com- mission and the Board of Trade — and it has also the advantage of being endowed with more initiatory powers than are possessed by the regulating authorities in this country. Here the powers of the Board of Trade are almost entirely supervisory and those of the Railway and Canal Commission judicial. If there is a

RAILWAYS OF THE UNITED STATES 69

grievance as to rates in this country it is for the dissatisfied con- signor to set the law in motion and not for the Commission to do so, whereas the United States Commission may act of itself. It seems probable that this power of action is a distinct advantage. In this country, it is frequently alleged that the Railway and Canal Commission is not the useful body it might, and should be, mainly because aggrieved traders will seldom incur the expense arising from procedure before the court. For this reason griev- ances may continue for years without being submitted to that judicial investigation which would either end them, or, if they are not really legitimate grievances, would bring out the necessary information to explode them. Possibly the usefulness of the Commission would be greatly increased if the aggrieved trader's duty ended with the communication of the complaint ; if he were not required to conduct his case as he would have to do in an ordinary action at Common Law ; if the Railway and Canal Commission were provided with an adequate staff for the investi- gation of such complaints and the presenting of carefully sifted evidence.

Against the advantages of the American system, however, are to

be set one or two disadvantages. At times there seems to be about

its procedure a suggestion that it is a political

Judicial T rather than an administrative and judicial body ;

that the public opinion of the day shapes its policy

and decisions rather than the letter of its constitution. Another

serious allegation against it is that it shows tendencies to become

bureaucratic, afflicted with the worst faults of bureaucracies,

arrogance, and rigidity ; a tendency to fix stereotyped rules of

action and to interfere despotically with matteis that are not

strictly before it. But in all these things it is difficult to strike

the happy mean between inefficiency and officiousness ; and it will

always be so.

Before leaving the railways of the United States it seems desir- able to add a few words as to their present stage of development. The system has already been described as the of Development lar£est national system in the world. And anyone who has little more than a bowing acquaintance with its history, extent, and achievements will agree that from some points of view it is also one of the most efficient, best organised, and

70 ECONOMICS OF TRANSPORT

cheapest systems in the world. It moves an immense volume of goods traffic and the average rate per ton per mile charged for the work it does is the lowest in the world. It has its defects, of course, and at times it has been made the instrument of grave abuses. All the advantages claimed for it are not always admitted by critics and rivals, but when allowance is made for all the defects criticised it still remains a wonderful system ; one which has played a vastly important part in the development of a country of immense possibilities and is still ministering capably and effi- ciently to its further development, not merely internally, but externally, in the commerce of the world.

CHAPTER VII

THE EUROPEAN RAILWAYS

Railway conditions in Europe are quite different from those of the countries already dealt with. The United Kingdom of Great Britain and the United States of America obtained their Prevalence of railways entirely as the result of private enterprise, State Ownership, although, as has been seen, relatively small but valuable assistance in the shape of land grants was given to the pioneer American railways. European countries have obtained their railways largely as the result of State enter- prise. At the outset there was some measure of private enter- prise, but for various reasons this was soon superseded either by complete State ownership or by a combination of partial owner- ship and financial assistance to companies operating under con- cessions. In no European country is there an instance of private enterprise constructing railways, amalgamating them, financ- ing them, and generally developing them until they obtained the extent and importance of those of the United Kingdom and the United States.

France was rather slow and hesitating in adopting the new method of locomotion. The French people at the beginning of the nine- teenth century were in the enjoyment of an almost HeSF?ance.in Perfect system of roads radiating from Paris. Road construction had been systematically and scientifically studied at the £cole des Ponts and Chaussees. In addition the country had a serviceable system of inland water- ways, both natural and artificial, which was being developed by the State on an organised plan when the railways made their appearance. France naturally hesitated to " scrap " her existing means of communication for something as yet untried and un- proved, which might or might not be capable of being applied to the whole country on well arranged and comprehensive lines. Nor could she easily make up her mind as to whether she wanted private or State ownership. In 1838 the Government proposed to construct seven trunk lines, and that they should be operated by the State, but Parliament rejected the proposals, and in the

71

72 ECONOMICS OF TRANSPORT

end the first considerable railway possessed by the country was projected and financed by an Englishman, Edward Blount, and constructed by another ' Englishman, Thomas Brassey, who employed English labour to a large extent.

The State encouraged private enterprise, but the railway in- dustry remained in a precarious condition until 1842. M. Thiers produced and carried a scheme under which (1) the SchemeS " State agreed to construct the road-bed and lease it to companies ; (2) the companies were to supply the equipment and work the railways ; (3) at the end of a specified period the whole system was to revert to the State. This, in general and subject to variations in detail, has been the underlying principle on which France has subsequently acted.

This coming of the State into partnership with private enter- prise gave the latter the necessary confidence, and from 1842 to the Revolution of 1848 construction was rapid, over thirty com- panies being formed to construct about 2,500 miles of line. Im- mediately after the Revolution came a period of stagnation, but in 1851 a new era began. Napoleon III and his Government stimulated activity again by extending the concessions, or charters, to 99 years. This extension, of course, improved the financial position of the companies and enabled them to under- take the consolidations and amalgamations which produced the six companies as we now know them— the Nord, the Est, the Ouest, the Paris-Lyon-Mediterranee, the Orleans, and the Midi. The systems of these companies radiated from Paris, and each had a complete monopoly of its own district, with the result that competition was lacking, local business was neglected, and neces- sary branch lines were not constructed. Monopoly ultimately had its usual result — stagnation and petrifaction.

By 1857 the country was again faced with the problem of making railway construction keep pace with its developing requirements. The difficulty was overcome by M. de Franqueville's UInteresT scheme, the chief point in which was that the Gov- ernment guaranteed 4 per cent, interest on the capital raised for extensions. The companies were not relieved of the obligation themselves to pay this 4 per cent., and as long as they did, they could pay what dividends they chose on their other capital. If, however, the Government was called upon for the 4 per cent.

THE EUROPEAN RAILWAYS 73

or any part of it the dividends were restricted to former averages. A further point was that power was taken by which the Govern- ment could nationalise the railways at the end of fifteen years on terms favourable to the shareholders. In 1877 there was a movement in favour of State ownership which resulted in the taking over of unprofitable lines in the South-west which had no connection with Paris and failed to get one. Two years later M. de Freycinet produced a scheme to provide 12,000 kilometres of new lines, and it was adopted ; but it was not a well-arranged scheme, and apparently political considerations influenced its execution. Ultimately it failed, and the Ministry fell.

In 1883-4 fresh arrangements were made under the following headings : — (1) State ownership was confined to the South-west ; (2) Lines owned by the Government elsewhere were leased to the great companies ; (3) The connection of the State railways with Paris was abandoned ; (4) New construction was to be under- taken by the existing companies in their respective districts, the money being found by the State by annual credits ; (5) The State guaranteed to the companies a minimum dividend equal to an average of a series of years and in return acquired the right to two-thirds of the profits above an agreed amount. The final development was the repurchase by the State in 1909 of the Western railway. The results of this undertaking are dealt with in the chapter on the nationalisation of railways.

It will have been gathered from this brief historical sketch that the railways have cost France considerable sums of money, and that each time the State has had to intervene the France° companies have been able to extort still greater ad- vantages. The State, of course, has some counter- balancing advantages, one of which is a very close control over the working of the systems, especially of their charges, which cannot be varied without the express sanction of a Ministry of State. Another advantage is the ultimate reversion of the whole national system to itself. It has been estimated that the value of the lines exclusive of the part contributed by the State, is £640,000,000, so that, prior to the European War of 1914, it was hoped that when the concessions expired the value received by the State would be equivalent to the whole national debt There was no German Empire at the time of the birth of railways,

74 ECONOMICS OF TRANSPORT

but a multiplicity of States, of which Prussia was the most important

and powerful. It is difficult to picture the Germany of those days,

but the land suffered from this disunity ; from

Start in Germany. tne survival °f aU kinds of antiquated customs, privileges and rivalries, none of which tended to progressive development. So it is not surprising to read that originally the idea of building railways was looked upon with suspicion ; that they were regarded as financially and politically undesirable. The first start made in 1835 was a very unam- bitious one — four miles of line from Nurnberg to Furth. Other small lines followed, and then when some idea of the possibilities of this new method of transport was demon- strated, the various States, and particularly Prussia, began to take an interest in them. Prussia began to give assistance in the shape of guarantees, or by subscribing for shares in the promoting companies. Some of the other States built their own lines ; some left the initiative to private companies to which State assistance was given, though not invariably. Thus the railways of Germany began to be created in the disunited, piecemeal fashion characteristic of the whole social fabric of the land in those days. Later Prussia began to build railways herself, not merely because she conceived them to be commercially necessary, but also because they were strategically desirable to assist the maintenance of her independent nationality. Some of the lines built were in direct competition with those of private companies to which concessions had been granted.

But the really interesting and important period did not begin until Bismarck acceded to office in 1861, although for some years R' k' w k *a*er tn^nSs were allowed to develop on their own mixed lines ; partly private and partly State ownership. Bismarck's idea, however, was a consistent State system for the whole of what became the German Empire with all the private and small State managements eliminated and the whole placed under one control. This proved to be impossible of accomplishment owing to the hostility of some of the States, which had even gone to the length of acquiring their railways (when they did not already own them) to prevent them from falling under Prussian control. What Bismarck was unable to do for the

THE EUROPEAN RAILWAYS 75

Empire, however, he proceeded to do for Prussia. In 1879 he began to buy out private companies, and in two years obtained possession of about 4,000 miles of line, and the policy was con- tinued until the whole system became the property of the State. But Bismarck did not entirely confine himself to the railways of Prussia. Where private companies ran into other States he acquired those portions of the lines as well, until, finally, Prussia became the dominating power in the German railway world. Force of circumstances such as these compelled other States to come into line as far as operation and policy are concerned, although they may have retained their ownership.

The Statistical Abstract for foreign countries shows that there were in the German Empire in 1910, 59,031 kilometres (approxi- mately 36,658 miles) of railway, of which 55,353 ReSSystem.the kilometres (approximately 34,500 miles) were State- owned and the rest were " companies' railways," although of these privately-owned lines nearly 90 miles were worked by the State. It follows, of course, that the railways are managed by a department of the State, and the results obtained have been extolled and criticised by the supporters and the opponents res- pectively, of railway nationalisation. These aspects are dealt with later in the chapter on nationalisation. Here it is only necessary to say that from a purely financial point of view the German railways have been most successful. They have yielded substantial revenues to the State. From an economic point of view, also, they have been of enormous advantage to the Empire. Possession of the railways has enabled them to be used to forward national trade policy. Railway rates have been made to supple- ment the restrictive influence of import duties ; or perhaps it would be more correct to say that the railways have been pre- vented from neutralising import duties by giving low rates, as might have been done had they been in the hands of private com- panies who arranged their rates solely from a business point of view. On the other hand, by providing exceptionally low export rates the State has been able to use them as an instrument to facilitate the growth of German trade in the markets of the world. There are defects and disadvantages, but these are more appropriately dealt with in the chapter already mentioned.

Belgian railway history is interesting because the conditions

76 ECONOMICS OF TRANSPORT

existing at the outset approached more nearly to those of England. Both countries had arrived at what was, for the times, an advanced

state of industrial development. Industrial cen- State Ownership tres were exj[sting and were ready for the improved

means of transport. There was one point of differ- ence, however. Belgium being mostly a flat country, presented few engineering tasks, such as had to be overcome in England. Construction began in 1833, and from the first the Government had a clear idea of the necessity of taking a considerable part in the new industry. It constructed and retained for itself the great main lines of traffic, and allowed private companies to fill in the gaps, the private lines being thus more or less local in their character and serving largely as feeders for the Government trunk lines. This original work was well conceived, and well carried out ; and for about a quarter of a century the management is described as having been good. The methods of compiling reports and sta- tistics at this time were ahead of those of the rest of the railway world. But the country seems to have become content with what had been done, and its railway methods became stereotyped and out of date. Government construction ceased in 1850, but the private companies continued to extend their systems, and presently began to amalgamate with each other until systems were created which from being feeders of, became strong competitors of, the Government system. This competition prevented railway affairs from stagnating, and there ensued a period of fierce rate wars during which rates fell to only a little over -|d. per ton per mile. The companies made a profit at these rates. The State was wakened from its lethargy and was forced to conduct its railway business on business lines.

Between 1870 and 1873 the State began to purchase the com- peting lines and to make working arrangements with those it could not acquire. By 1874 it owned half the railway mileage, and by 1880 two-thirds of it ; and there have since been further extensions of State ownership. The length of line in 1911 is returned as 4,720 kilometres (2,931 miles) of which 4,330 kilometres were worked by the State and 390 by companies. State owner- ship is therefore fairly complete, but it is alleged that once again the Belgian railway management has lost its up-to-date character, and that the proper functions of a railway system run on business

THE EUROPEAN RAILWAYS 77

lines are being made subservient to political considerations to the great disadvantage of the railways. This, also, is a question referred to in the chapter on nationalisation.

There are various points of interest in the history of railways in other countries, but they must only be very briefly referred to. In Holland the task of building them up in face of hf Holland ^e competition of the existing waterways seemed hopeless and the early railways were a serious finan- cial drain on the resources of the Monarch (William I) and the State ; and in addition they were badly mismanaged. William II caused the uncompleted line, which was intended to run from Amsterdam to Arnheim and eventually to the German frontier, to be leased to a private company. From this sprang the Dutch-Rhenish company which did much reorganising and extending work, but remained unsuccessful until the development of the Westphalian coalfield gave it traffic. There were at the same time two other disconnected and unprofitable systems, but in 1860 the Government began to construct railways which were leased to an operating company. The Dutch-Rhenish Company was acquired by the State in 1890. The system remains a " mixed " one, partly State and partly company owned, but all the work of opera- tion is done by two companies, each of which pays a rental, and, under certain conditions, a percentage of profits to the Government. Denmark began with privately owned railways, but the companies only provided for the populous areas where a profit seemed probable, and so the State had to provide for the less promis- in Denmark ' ing areas. The companies were ultimately unsuc- cessful and the State had to give them financial assistance, and finally to buy them up and extend the system itself. At first the railways were worked " for the benefit of the country," but ultimately a loss occurred and rates had to be raised to put them on a profitable basis, this object being attained. Their chief success has arisen not entirely from skilful management (it is not intended to criticise the management) but from the way in which the agriculturists in Denmark have co-operated to make up large consignments of produce and thus secure the most advantageous rates. Of course, the railway companies have also benefited from the co-operation, which gives them larger consignments to handle.

78 ECONOMICS OF TRANSPORT

Italy suffered at the beginning of the railway era from the same disadvantage as Germany — disunity — and got as a consequence

a number of disjointed systems in the various State^ Ownership States which, according to the critics, have never

been satisfactorily combined now that national unity has been attained. In the course of their history the railways have been subject to various kinds of agreements with the Govern- ment— capital advances, subsidies, direct State management, and leases to companies. At one time a commission reported against State management and operation, and the lines were leased to two companies. This arrangement was ended and State control resumed ; and since then it has been alleged that it has been impossible to run the railways on strict business lines because they have been made too frequently the instruments of political corruption.

PART II

RAILWAY AND CANAL ECONOMICS I. Railway Economics

CHAPTER I

RAILWAY CAPITAL

Hitherto we have been dealing with the historical and physical features of railways ; their origin, development, and practical

working. It is now necessary to turn to their econ- Railway om-c s-^e an(j to 0btain a broad, general view of

their size and importance as business undertakings ; as industries employing capital and labour, not for the purpose of production but to render most important services to mankind and (a point which is of equal importance) of earning dividends for the owners of the capital employed.

Concerning the nature of the services rendered to the com- munity little need be said because everyone is more or less familiar with them. It will, however, help the realisation of the importance

of the service to recall some of the conditions and

Nature o! Services. , , ,, ., , ,

costs of transport in the pre-railway and pre-canal

days. It is difficult to imagine the then isolation of communities now within easy distance of each other by rail. The only means of communication was by road and the roads were mostly indifferent or altogether bad. Stage coaches, stage wagons, and pack- horses were the only vehicles by which commercial exchanges could be effected except in the case of towns which lay along the course of rivers such as the Thames, Severn, or Trent. Smiles, in his Lives of Engineers, says that though " Manchester and Liverpool were improving towns," their merchandise was distributed by chapmen with pack-horses. The roads were very neglected, and in winter " altogether impracticable for wagons." " It was more difficult to reach a village 20 miles away than it is now to journey from the cotton city to London. In the inland southern counties

79

80 ECONOMICS OF TRANSPORT

the only coal used was carried on the backs of horses, while the food of London was principally brought from the surrounding country in panniers. . . It used to cost from £1 to £9 to convey a ton of merchandise from Birmingham to London." The same authority states : " In those pre-canal, pre-railway days the small quantity of Manchester goods exported was carried on horseback to Bcwdley or Bridgenorth, and then floated down the Severn to Bristol." Bristol, then, was still the second city and the second seaport of England. Liverpool was a quite insignificant port.

The cost of transport in these inconvenient days was naturally heavy. E. A. Pratt, in his History of Inland Transport, quotes Cost of *^e I0U0Wing figures from Baine's History of

Transport. Liverpool as prevailing in 1777 —

Cost of Goods Transport per Ton.

Between —

Liverpool and Etruria .

,, ,, Wolverhampton

,, ,, Birmingham

Manchester and Wolverhampton

,, „ Birmingham .

,, ,, Lichfield

Derby .

„ „ Nottingham .

„ „ Leicester

„ ,, Gainsborough

„ ,, Newark

Compare these figures with the £1 Is. Od. per ton which was the charge for carriage of hardware between Birmingham and Liver- pool prior to the rates revisions in 1920. The time occupied in the process of transporting goods has also been reduced to a few hours in comparison with days required to do the same work in the first half of the eighteenth century.

The wonderful organisation, or rather group of organisations,

to which we owe this remarkable transformation, had a " paid up "

capital at 31st Dec, 1912, 1 amounting in round

Railway Capital. ^^ tQ .^334 000 000 The realisation of this

immense figure will be assisted by comparing it with the National

Debt of the United Kingdom, which, in 1914, totalled £661,473 000,

and the £720 640,000 of national income on which income tax was

paid in the year 1911-2. Of course this huge capital has been of

gradual growth. In 1851 it amounted to no more than £248,000,000

1 The year 1912 is taken because the 1913 figures were not issued at the time of writing, and the war has made later comparisons difficult.

iy

Road.

£

s.

d.

2

10

0

5

0

0

5

0

0

4

13

4

4

0

0

4

0

0

3

0

0

4

0

0

6

0

0

3

10

0

5

6

8

RAILWAY CAPITAL 81

sterling, so that in about sixty years there has been an increase of no less than 437-9 per cent. It is interesting to review other growths that have taken place in the same period : — length of line open from 6,890 to 23,441 miles = 240 per cent ; number of passen- gers from 85,000,000 (including season-ticket holders) to 1,294,000,000 (excluding season-ticket holders) = 1,422 per cent. ; total traffic receipts from £14,000,000 sterling to £118,000,000 = 742 per cent.; total working expenses from £9,000,000 to £81,000,000 = 800 per cent.; net receipts from £11,000,000 sterling to £47,000,000 = 327 per cent.

This £1,334,000,000 capital is divided into five main classes as follows :— Ordinary, £493,000,000 ; preferential, £356,000,000 ; guaranteed, £125,000,000 ; loans, £12,000,000 J DiclpUaI.°f debenture stock, £384,000,000. Further, some companies subdivide their ordinary capital into preferred ordinary and deferred ordinary. The significance of these various classes of capital is largely a question of security, first of capital and secondly of interest or dividends. In this respect there is little difference as a rule between debentures and loans. Both are more or less in the same position as mortgages of land or houses. In the jargon of the exchanges they constitute a " first charge on the undertaking and assets " of the company that issues them. In other words, if one of our railways were to fall into bankruptcy the debenture-holders would be able to seize the assets, conduct the undertaking, and pay their own interest before considering the claims of other classes of capital holders. Guaranteed stock ranks next in importance in that before the preference or ordinary stockholders can receive any dividend the claims of those who hold guaranteed stock must be satisfied. When this is done then the preference shareholders have, as the name of their stock implies, preference over the ordinary stockholders in the division of what- ever profits may remain available for distribution. Finally, the ordinary shareholders, assuming that the surplus profits are not exhausted by these prior charges, are entitled to dividend, and theirs is the only variable rate, depending for its amount on the comparative success or failure of the period to which the accounts of the company relate. The relative positions of the various classes of stock may be illustrated by the rates of interest or dividend attached to each in the balance sheet of the Midland

6— (1327a)

82 ECONOMICS OF TRANSPORT

Railway Company as follows : — Debentures, £43,533,340, interest 2| per cent, loans, nil ; guaranteed stock, £18,089,560, dividend 2| per cent. ; preferential, £63,978,526, dividend 2| per cent. ; ordinary stock, viz., preferred converted ordinary, £39,172,975, dividend 2| per cent. ; deferred converted ordinary stock, £38,947,942, the rate of dividend depending on the result of the year's working.

Included in the £1,334,000,000 of capital are the following amounts which have been nominally added to the various classes — Ordinary stock . £93,000,000 = 18-8% of Ordinary. Preferential „ . £44,000,000 = 12-3 „ Preferential Guaranteed „ • £17,000,000 = 13-6 „ Guaranteed Debenture „ . £44,000,000 == 12-4 „ Debentures Total . . £198,000,000 = 14-8 „ Gross Capital. It may seem strange that undertakings, usually esteemed as sound as British railways are, should have merely nominal additions to their capital amounting to no less than AdCapStal.t0 £198.000,000; additions which exist merely on paper and represent no contribution of actual cap- ital by the stockholders. Usually such a condition of things is condemned most severely under the stringent name of '" watering." There can be no possible doubt as to the unwisdom of " watered " capital. It has been the cause of the downfall of many a joint stock or limited liability undertaking that might have enjoyed a fairly prosperous, steady career had its capital been represented by solid assets or, in default (though even this latter quality does not necessarily give immunity from failure), by solid earning capa- city. The company whose capital is " watered " finds it difficult in times of bad trade to pay the usual rate of dividend ; its share- holders become dissatisfied, its shares depreciate ; its credit is weakened ; frequently, too, the final outcome is liquidation and an insufficiency of assets to meet the demands of the owners of its « w » capital. Some of the capital " watering " of

British railways comes within this category in every respect except that the railways themselves are of such apparent solidity, their assets are so visible and so tangible, that failure to supply a dividend on the " watered " stock has not resulted in such widespread depreciation and distrust as to destroy credit ; and moreover, the " monopolistic " position occupied by the railways

RAILWAY CAPITAL 83

has prevented that diversion of trade which inevitably follows depreciation and the destruction of confidence.

On the other hand, some of the nominal additions to capital have

been quite legitimate ; neither the company nor the stockholders

have suffered ; indeed, the company at any rate

Additions may ^e sa^ to ^ave ^een t^le u^imate gainer as the result of the policy which necessitated " watering."

The position may be very simply explained. The tendency over a long period has been for the rate of interest on really first-class, well secured capital stock, such as debentures, to fall. Assume, for the sake of an easy illustration, that one of the railway companies years ago issued 6 per cent, debentures. Whatever may have been the case years ago, 6 per cent, became for many years a very high rate of interest for a first-class debenture secured on so important an undertaking as a railway. Naturally the directors of a company having debentures carrying such a rate of interest would want to bring their stock into conformity with modern conditions. They would no longer desire to borrow money at 6 per cent. Their idea, probably, is that under all the circum- stances 4 per cent, is quite sufficiently high and they would seek to reduce the rate of interest accordingly.

But the man who has invested £100 in these particular debentures has an inalienable right to his covenanted 6 per cent. ; and that right

can only be disturbed by paying him out or by SomeAdditions compensating him for disturbance. To pay him out

would be an undertaking not to be lightly faced. In the first place, it is probable that the market value of his £100 will have risen to £150, or even more ; but this figure best serves to illustrate the point. This comes about because, on the assumption that the prevailing value of money lent on debentures is 4 per cent., then the more recent investor seeking employment for his surplus wealth is willing to pay £150 for a debenture of £100 yielding 6 per cent. Such a payment will give him exactly 4 per cent. The railway directors who desire to reduce the rate of interest on their debentures from 6 per cent, to 4 per cent, are therefore faced with the alternative of either buying out the 6 per cent, debenture- holder at the rate of £150 for every £100 of stock he holds, or of putting him in a position which shall be no worse than that he now occupies. Whichever course is adopted the ultimate result is the

84 ECONOMICS OF TRANSPORT

same. If the directors choose the latter alternative they must continue to give the debenture-holder the equivalent of his 6 per cent., and to do this they must give him in exchange for every £100 of stock at 6 per cent. £150 of stock at 4 per cent. If they do this the stock is immediately watered to the extent of 50 per cent. The directors are not called upon to find an extra penny for pay- ment of the interest on the debentures issued up to that time and in all subsequent issues they borrow at 4 per cent, and thus save 2 per cent. In the long run probably the company may be better off, although the original amount of debentures has been increased 50 per cent. ; while the original debenture-holder remains in enjoy- ment of precisely his original income. Thus "watering," a practice so liable to abuse and disaster, may be a harmless, and even a beneficial transaction.

Let us take the experience of the Midland Railway Company as an

example. The total amounts of the various stocks of this company

have already been given and need not be repeated.

The Midland Included in those amounts are the following Railway Company, nominal additions :— Ordinary, £34,664,741 ; pre- ferential, £19,765,891 ; guaranteed, £7,588,166 ; debentures, £11,769,422. In round figures these nominal additions amount to £73,790,000, and it is somewhat staggering to realise that of a total capital of £203,722,000 so large a proportion (over 36 per cent.) is " water." Originally the debenture stock, which it will be remembered now bears interest at 2\ per cent., carried a 4 per cent. rate. The reduction was made in two stages, first from 4 to 3 and second from 3 to 2 \. In addition there were various rent charges, preferential and guaranteed stocks, bearing differing rates of interest, which were all consolidated into one kind of stock at a lower rate of interest. As has been seen, the nominal rate of interest on a stock cannot be reduced unless the holders are com- pensated, and, doubtless, these reductions were both economical and expedient, nor has the company suffered from the nominal additions to capital which they have entailed.

Whether the same " clean bill " can be given concerning the

alteration of the ordinary stock is a matter of

Ulstock!8 opinion. What happened was this. For each £100

of ordinary stock held at the time of the conversion

the directors issued £100 of preferred converted ordinary stock,

RAILWAY CAPITAL 85

bearing interest limited to the low rate of 2\ per cent., and £100 of deferred converted ordinary stock, which had no fixed rate of divid- end but was entitled to take all the profits that remained to be divided after all the other stocks had received their fixed rate of inter- est or dividend. It might thus happen that in a lean year there was nothing left, after all the prior claims had been satisfied, to pay a dividend on the deferred ordinary stock ; or it might happen that, as in 1912, while the preferred ordinary received its 2| per cent, the deferred ordinary received 3 per cent. From the point of view of the ordinary stockholder who retained his original holding as modified by the conversion the change meant that on the original value of his holding, say £100, he was assured of 2\ per cent., while on the nominal, or bonus, £100 he stood to gain a higher rate of interest, or a lower, as the experience of the company varied in any particular year. In the end he was no worse off. If the profits before division would have given him 5 per cent, he would receive 2| per cent, on each of his £100 of preferred and deferred stocks. If the profits were only sufficient to pay 2\ per cent, on the original value of his stock then he would receive exactly that amount — 2| per cent, on his preferred ordinary stock. Similarly, from the point of view of the company, it made no difference to the total amount paid whether that total was paid as 5 per cent, on the original amount or 2| per cent, each on two separate hundreds. If the profits justified 2| per cent, only, then only 2| per cent, was paid on the preferred ordinary stock, which it will be remembered was really, in effect, the original ordinary stock.

And so we have a perfect illustration of the position that, apart

from the inherent objection to giving something for nothing in the

shape of a 100 per cent, bonus on ordinary capital,

Nominal Additi°ns.ne^^er ^e comPany nor the shareholder can be said to have suffered any disadvantage. Some- times quite a useful purpose may have been served by these conver- sions entailing nominal additions ; at any rate, that was the argu- ment advanced in their favour to induce Parliament to sanction them. In other cases it is probable that the "watering" deserves sterner criticism.

The wisdom or otherwise of these nominal additions to capital may

r.« * t^. ... * be criticised from another point of view, its effect

Effect on Dividends. ...... ., _r

on the dividends paid. Set out on the next page

are the actual rates paid on the various classes of capital in 1912 side

86

ECONOMICS OF TRANSPORT

by side with the Board of Trade calculation of what the dividends could have been had there been no nominal additions to capital.

Dividend

What it

Class of

actually

might

Capital.

paid.

°/

have been

Ordinary .

/o . 3-45

10

4-25

Preferential

. 3-52

4-01

Guaranteed

. 4-02

4-65

Loans

. 3-61

3-61

Debentures

. 3-42

3-92

All classes

. 3-52

413

In no case is the difference great, for, taking all classes together, it will be seen that had the companies been able to refrain from making these additions the amount of money distributed was sufficient to make the average rate 0-71 per cent, higher. The increase in the rate per cent., however, would have been the only difference ; the total amount distributed would have been the same.

From the point of view of the trading and travelling public " watering " of stocks may be criticised on the ground that it has

resulted in a large increase in the capital on which Watering Stock dividends are expected to be paid, and that as the

capital, whether nominal or otherwise, exists, there must necessarily be a constant effort on the part of the directors to provide it with a reasonable rate of interest. This means the maintenance of profits and, it may reasonably be argued, con- stitutes an obstacle to the reduction of rates and fares which the public are incessantly demanding. Again, "watering" lends itself very readily to the criticisms of the Labour Party and to all the other advocates of the policy of nationalising railways.

What is this total capital of £1,300,000,000 represented by ? Freehold land, track, buildings of all kinds, rolling stock, harbours

and docks, steamships, hotels, and the thousand and

HR?m»seited1S one misce"aneous small things in the way of stores and equipment which go to make up a modern rail- way. It would be interesting if we could set out the apportioned value of all these things, but unfortunately the official returns do not give the necessary particulars. All, they tell us, that it is repre- sented by are 23,441 miles of line — this, however, is not a really representative figure, for it takes no notice of double tracks, etc.

RAILWAY CAPITAL 87

Of running track reduced to figures of single line there are 40,034

miles, and of sidings 14,875 miles, altogether 54,909 miles —

22,998 locomotives, 52,888 passenger vehicles, 20,000 other vehicles

attached to passenger trains, 757,884 wagons and 22,636 other

goods vehicles. Rolling stock, apart from locomotives, thus totals

853,408 vehicles. These figures, however, must leave a huge amount

of the capital unaccounted for. Mr. W. M. Acworth, dealing with

1905 when the total capital was £1,200,000,000, deducted

£200,000,000 of nominal capital and accounted for the balance

as follows : — Railway proper, £800,000,000 ; rolling stock,

£150,000,000 ; miscellaneous property, £50,000,000. Of course they

are now out of date, but these figures serve to give an idea of the

relative values of the main descriptions of railway property as

estimated by one who is an acknowledged authority possessing

special " inside " information.

This huge capital, of course, has been of very gradual growth, and

each year sees its amount increased. It began to accumulate long

- . „ .. , before there was a single mile of rail or a single Growth of Capital. . x. , . . & , , . , . b

locomotive or vehicle of any kind in existence.

Before any of these things came the preliminary surveys of the country proposed to be covered. Then the engineers having drawn up their scheme it became necessary to apply for Parlia- mentary sanction before its execution could be carried out. Parliamentary approval is a necessary but very expensive pre- liminary. It might be imagined that a company applying to Parliament for permission to construct a railway from which a large tract of territory would benefit, would be received with open arms. In the abstract, no doubt, it is welcomed, but when the scheme gets to the Parliamentary committee to whom the duty of investigating is committed, then begins the clash of individual interests. Every person affected, for instance a landowner, part of whose land is required, enters his objection, not because he has an insuperable objection to parting with his property, but because, as a matter of tactics, he knows that if he is to obtain the best possible terms and conditions he must fight for them. His sale is not a willing one, but a compulsory one, and he must be com- pensated for the compulsion employed and for the depreciation which, he claims, his land will suffer through having a railway taken across it. These fights before Parliamentary committees

88 ECONOMICS OF TRANSPORT

date from the very beginning of railway enterprise. Was it not George Stephenson who, when before a Parliamentary committee, was asked what would happen if a cow strayed on to a railway line, and replied that it would be " bad for the cow " ? The incident, whether true or not, is sufficiently good to illustrate the attitude which Parliament has always adopted towards these schemes. Every interest, no matter how small, must be protected if they were to be sanctioned. No wonder then that the necessity of acquiring Parliamentary sanction is an expensive one. How much it has cost no one can say, but preliminary expenses, which of course include Parliamentary sanction, have been estimated by a competent authority at £4,000 per mile. Obviously from first to last it has added millions to the capital of the companies.

After sanction is obtained the engineers make their second survey to draw out their more detailed working plans ; and then comes the work of construction. Neither of these advanced telswoltoiu stages is inexpensive. In new and sparsely popula- ted countries, such as the United States in the days of railway development, surveys and construction are much more simple matters. The railways and the population advance almost side by side, and the method of construction followed as a rule would be regarded in this country as extremely primitive. It has its advantages and disadvantages — cost of construction is relatively light, but as this generally implies lack of the stability usually re- garded as essential in this country, the work of construction has practically to be done over again as the surrounding population increases and finds more and more work for the railway to do. Still, in the end, the cost of construction in these new countries is usually lower than here. In the United Kingdom, of course, we are familiar with virtual reconstructions. There is not an important railway company that has not had to duplicate its line in places, to rebuild its large terminal stations, to increase its siding accommodation by providing immense goods yards, to rebuild its warehouses for the accommodation of merchandise and to construct " short cuts " for the purpose of reducing its original mileage from point to point. But this is not reconstruction in the sense implied above. British railways have had to do very little of this sort of reconstruction because, for one thing, of the watchful eye which Parliament, through the Board of Trade, has kept on them. Parliament has

RAILWAY CAPITAL 89

wisely insisted on a certain standard being maintained in this constructional work ; track must be well laid ; bridges well constructed ; and even the rolling stock is subject to a certain amount of supervision and regulation. All this, of course, has added to the cost of construction and has helped to swell the capital accounts of the railway companies to their present proportions.

CHAPTER II

railway revenue and expenditure

Revenue

The gross receipts of the railways of the United Kingdom in 1912 amounted to £128,553,417. By itself this is an impressive figure, but

it requires to be reduced to its true proportions by

ReceiDts of means of comparisons. The total capital, we have

Railways of seen, is £1,334,000,000; gross earnings therefore

United Kingdom. amount to 9.62 per cent, of the total capital. The

net receipts for the same year were £47,329,074, and this amount is equal to 3-55 per cent, of the total capital. Both per- centages, but especially the latter, seem astonishingly small. It may be suggested that they are so because the figures apply to the whole of the companies of the United Kingdom ; the large and the small, the profitable and the unprofitable, the efficient and the inefficient. That is true, of course, but even so the figures do not appear to be really misleading when tested by the returns of individual companies. The proportion of net receipts to capital of the Great Western, London and North Western, Midland, and North Eastern in the order named is as follows : — 54 per cent., 4-6 per cent., 2-5 per cent, and 4-8 per cent. On the whole, the percentage given for the whole country cannot be said to be unrepresentative to any serious extent of individual experience. The percentage of gross earnings to capital indicates that it takes the companies more than ten years to turn over their capital, which, general knowledge suggests, is a very much longer period than that occupied by the average industrial concern. It is impossible, of course, to get at the gross receipts of manufacturing companies, but in these days of limited liability concerns it is quite possible to compare their net profits with their capital. For this purpose half a dozen companies have been taken haphazard. Together they have a capital of £9,393,033, and their net earnings for their trading years ending in 1913 (all

90

RAILWAY REVENUE AND EXPENDITURE 91

their years did not end at the same time) come to £1,061,895, which is equal to 11-3 per cent. It cannot be too strongly insisted upon that this is net profit, and that in the case of some of the companies it is a net profit after a large reserve has been made for depreciation. Taken individually, the net profit of the same half-dozen companies ranges from 10 per cent, to 26 per cent. The arithmetical average of the six companies is 14-3 per cent. The fact that there is this disparity between the net receipts of the British and Irish railways and of those of industrial companies seems to point to one of three things. Either the railways are (1) over capitalised ; (2) badly and extravagantly managed, or (3) extremely efficient and rendering very cheap services to the public. These points are worth examination in some detail —

(1) Over capitalisation. It seems obvious, in view of what has been said already as to the cost of construction, that there is some degree, either small or great, of over capitalisation. C 't°rert'o ^n(* aPart fr°m the initial expense of construction and equipment there is reason to believe that capital accounts have been unduly swollen in comparison with what is the general business custom. In the average business, one of the things most suspiciously regarded and carefully guarded against is the increase of capital account. Of course there are plenty of cases in which capital has been increased. Growth of business involves larger works, extensions of plant, increases of stocks of raw materials and finished goods. Such experiences are quite common, but it is still more frequent to find that commercial and manufacturing concerns contrive to avoid additional capital expenditure by providing for normal extensions out of reserves. It is the usual thing for companies to set aside annually large sums for reserves, and these reserves in nine cases out of ten are "employed in the business." The meaning of this is that profits are not dis- tributed " up to the hilt " but some portion is kept in hand as a reserve fund. This fund is mostly used to replace obsolete plant, to extend premises, or to increase stocks of raw and finished materials. Generally it helps to finance the business just as much as if it were subscribed capital. It is not often a definitely ear- marked sum lodged at the bank or invested, because used in the business its earning powers are so much greater. It is an intangible balance sheet figure on the liabilities side which is balanced by

92 ECONOMICS OF TRANSPORT

increased value of assets on the other side. No single asset

reveals the presence of this reserve fund ; it is spread over all

of them. And the amount of nominal or paid up capital

for which the directors are responsible to the shareholders remains

unaltered.

Such reserves are not unknown in connection with the railway

companies but they are relatively rare and insignificant. It will be

_ realised, when expenditure comes to be considered,

l\t'Sorvos

that it is the custom of the companies to provide for

extensive repairs, renewals, and replacement of permanent way, rolling stock, and plant generally, and also for minor extensions, out of the annual revenue ; but still experience shows that they have been too prone to borrow fresh capital for extensions while the ordinary limited liability companies contrive to provide for much more of their growth out of reserve funds. In recent years the companies have exercised more restraint under the com- pulsion exercised by the expressed opinions of their critics, many of whom have been shareholders, but previously their attitude in this matter was very well summed up in a remark made by Sir Richard Moon, a former chairman of the London and North Western Railway Company, who once said : " If the capital account were closed the company would never pay another dividend."

There is much truth in the remark. Possessing either insignifi- cant reserve funds, or none at all, the companies, if they closed capital accounts, would be unable to undertake necessary develop- ments on a large scale. They would have to carry on their work with the existing facilities, and failure to keep pace with growing requirements would soon mean congestion, delay, loss of traffic and diminished earning power. Alternatively developments would have to proceed more slowly and be paid for out of earnings ; and as the margin of these beyond expenditure is so small relatively, dividends would be endangered, if they did not disappear. Sir Richard Moon's remark, therefore, is not to be accepted as an inviolable principle of railway economics, but rather as the outcome of a policy which some persons would not hesitate to call short- sighted and foolish, but one which now cannot be appreciably altered without the unfortunate results which he foretold. But while there is some truth in the remark there is also some

RAILWAY REVENUE AND EXPENDITURE. 93

exaggeration, for in recent years capital additions have been restricted to the fullest possible extent.

(2) Bad or extravagant management. Whatever may be the case now there seems to be no question that not much longer than a de- cade ago such a charge was amply justified. In the

Bad or passenger service there was such excessive duplica-

Mana^ement. tion and competition, and, in the goods branch, trains, trucks and loads were so small, and mileage so great that there arose a considerable outcry from shareholders. At first these complaints were met with the reply that the character of business in this country was such that large trucks fully loaded made up into large trains (which would have meant a decrease in working expenses) were impossible ; but the agitators persisted and forced their point. Possibly there is still room for improve- ment in this respect, but that something valuable resulted is seen from the Board of Trade Bluebook statement of total receipts per train mile. In 1903 (the first year dealt with in this particular section of the returns for 1912), the passenger receipts averaged 49-21d. per train mile, and in 1912 50-26d., an increase of l-05d. — not a large one it is true, but the movement is in the right direc- tion. The corresponding figures for goods are 82-55d. and 101 T4d., an increase of 18-59d. per train mile. Taking the two services together the figures are 62-79d. and 68-83d., an increase of 6-04d. per train mile. What this means in the case of goods traffic may be seen from the fact that the goods train mileage in 1912 was 151,892,869, and the increased earning Is. 6|d. per train mile. The change is also illustrated by the fact that in 1903 the goods train mileage was 159,743,146 miles, which is 7,850,277 miles more than the figure just given for 1912. Obviously it is impossible to resist the conclusion that management was bad even if it is not now.

(3) That from the point of view of the services rendered to the public the railways are extremely efficient. This latter point need

not be laboured. Everyone is familiar with the Railways. character of the services rendered to the travelling public. During the railway era the cost of trans- port both of individuals and of goods and merchandise has been immensely reduced, and at the same time the service has been improved. To realise this one has only to recall the miserable open

94 ECONOMICS OF TRANSPORT

carriages not much better than modern cattle-trucks originally provided for travellers and contrast them with the present corridor coach or dining car.

The result of the examination seems to be that the extremely small percentage of gross and net earnings to the capital employed is due to a combination of all these three causes.

The survey of the revenue of the companies may be completed

by setting out the details of the various sources of income in 1912 as

follows : From passenger traffic (including season

Vaof°incomeCeS tickets> c