state indirect taxes, forming about half the revenue of the state. This would make a hiatus in the state revenues, which would require a doubling of the rate of the state tax. The final result would be a net reduction of the amount of state tax paid by the municipalities and a corresponding increase of the amount from the wild lands. The assumption upon which the proposition was theoretically defended was that a direct state tax on prosperity is a fixed element in the taxing system of the state; that every dollar now collected from the indirect taxes relieves the towns in the state, in proportion to the property taxable therein, from a direct state tax which would otherwise be exacted up to the amount so collected; and that the proceeds of the indirect taxes, if no longer required for state purposes, might properly be returned to the municipalities, according to the taxable property therein, to compensate for the increased direct state tax levied upon such property.

The " grange scheme" was for a direct increase in the amount of the state tax, the additional revenue to be returned to the towns for school purposes in proportion to scholars and for road purposes in proportion to road mileage.

The compromise scheme which was adopted retains the present direct state tax unchanged, but levies a special additional state tax of one and one-half mills for schools and returns the proceeds to the towns, two-thirds by valuations, onethird by scholars.

It seems to the writer that all three of the propositions just mentioned were unfortunate, although the one adopted, as it was the mildest, was probably the least objectionable. Each plan involved an increase in the rate of the direct state tax and, therefore, a step backward; for the experience is universal that a direct state tax, apportioned by valuations, however necessary it may be, is none the less a misfortune. Every effort is being made in other states to reduce the tax to a minimum. Further, each of the plans included a rebate of state funds to localities. Such rebates set precedents exceedingly hard to escape, as Michigan and Wisconsin have found in the case of their school funds and Massachusetts and New Hampshire in the case of their state corporation taxes. Finally, each of the plans would

inevitably result in deplorable local extravagance. Each town is obliged to spend eighty cents per inhabitant upon its schools, aside from state rebates other than the new mill-and-a-half fund. The state rebates which are locally distributed in addition to the fund just mentioned are the proceeds of a state tax of a mill and a half on the state valuation, as a part of the usual direct tax, and one-half the receipts from the franchise taxes on savings banks and trust companies. It is easy to understand why many of the real friends of the schools are apprehensive of the prospect for the immediate future.

It will be seen that Maine has within two years made but little headway in solving her peculiar problem, although the state has spent $25,000 on a special tax commission which devoted half its time to the particular problem, and although the legislature, at its recent session, devoted more time to the discussion of this matter than to that of any other subject.

What the outcome will be, it would be dangerous to prophesy. Since the adjournment of the legislature, the daily papers have been devoting much space to the recriminations and counterrecriminations of those who stood sponsors for the various schemes before the legislature, and who are now accusing one another of too great friendliness to the interests of the wildland owners. During the two-year period which must elapse before the meeting of the seventy-fifth legislature, it will perhaps be possible to ascertain whether the board of state assessors, with its increased powers, has lessened the difficulties which attach to the direct state tax; whether the burden of taxation upon the wild lands is excessive; whether the school rebates have been harmful; and whether there is any reform which can be made which will allow the state to retrace its backward step of this winter in increasing the direct state tax, without disturbing a proper solution of the problem of taxing the forest lands. The experience of the coming two years may be helpful, both to Maine and to other states which have similar problems to face.

PORTLAND, MAINE.

CLEMENT F. ROBINSON.

THE NECESSARY READJUSTMENT OF RAILWAY RATES

THE

HE interrelations of modern industry are so close and all members of the complicated economic organism are so sensitive to conditions affecting others that serious depression anywhere is incompatible with the normal activity of other lines of industry. No great industry can suffer a prolonged period of stagnation without so strongly reacting upon general business conditions as to impair confidence everywhere, with widespread losses and disaster to both labor and capital. This is particularly true of the United States, where the happy combination of absolutely free trade over an extended area of widely diverse natural conditions with the most efficient transportation system in the world, offering its services at the lowest rates, has brought about the highest degree of local specialization of industrial functions and the greatest dependence upon territorial exchanges of surplus products.

The railway industry in the United States is not only a great industry; it is the greatest save one, that of agriculture. It represents an actual capital investment exceeding one-tenth of the nation's wealth, and, under normal conditions, it gives direct employment to one and three-fourths millions of the country's most intelligent and efficient workers. Indirectly, in rail mills, locomotive works and car shops, in mines producing fuel for locomotives and ore for rails, axles, wheels and bridges, and in forests from which timber for cars and stations and ties are obtained, it gives employment to many more, to say nothing of the multitudes employed on farms, in factories and elsewhere to feed and clothe and house those previously enumerated.

The business of carrying persons and property by railway in the United States is not, to-day, in a healthy or prosperous condition. Omitting from the account the recent anti-railway agitation, which was more threatening in the vehemence of a few uninstructed advocates of drastic laws than serious in finaaccomplishment, the chief reason for this condition is unquesl

tionably to be found in the fact that, in the face of a rapid and extensive decline in the value of standard money, the charges made by the railways have been so effectively controlled by custom and by law, principally the former, that they have far too sluggishly responded to the alteration in the value of the medium in which they are paid. The decrease in the value of money, which has been uninterrupted since the year 1897, has carried railway rates down with it; and this subtle, silent, unsolicited decrease has proceeded until not only the railway industry but all American industry has felt the cumulative force of an unseen injury. The obvious remedy for these conditions, which affect the business of railway transportation and react injuriously upon labor and capital in every other field, is to dissolve, for the time being, the customary restrictions upon the rate schedules and frankly to sanction such a readjustment in rates as will sufficiently, although partially, offset the loss through the depreciation of money. No railway manager should hesitate to acknowledge that the application of this remedy is impossible save through the coöperative acquiescence of the fair-minded traveling and shipping public.

The precise extent of the depreciation of the American dollar since 1897 is, of course, not measurable. The most nearly adequate statistical efforts to measure fluctuations of this sort omit some essential elements, and questions of the relative weights of different items are insoluble; but approximations are possible and helpful. The figures of the United States Bureau of Labor' show an increase in general prices, from 1897 to 1907, in the ratio of 897 to 1295 or 44.37 per cent, which means that $1.44 in 1907 would buy only as much as $1.00 in 1897. Another approximation, by Dun's Review, gives about the same result, viz., an increase in the ratio of 75,502 to 107,264 or 49.37 per cent. The smaller increase in general prices disclosed by the investigations of the Bureau of Labor is equivalent to a fall in the value of money of 30.73 per cent. To assume that the inclusion of omitted items, principally those

1 Bulletin no. 75, Bureau of Labor, United States Department of Commerce and Labor.

of rent, amusements, personal services and transportation, would reduce the fall to but twenty per cent is doubtless to be unnecessarily liberal. But on this low basis the fall in railway rates has been excessive.

Applying the rule laid down by Adam Smith, that "the real price of everything, what everything costs to the man who wants to acquire it, is the toil and trouble of acquiring it," the foregoing means that the average purchaser of railway transportation now obtains passenger service at a price 20.33 per cent lower and freight service at a price 23.93 per cent lower than in 1897. If, however, we follow the problem a little further, applying Adam Smith's second conclusion, that "what everything is really worth to the man who has acquired it and who wants to dispose of it or exchange it for something else is the toil and trouble which it can save to himself and which it can impose upon other people," we shall find that the transportation which it has to sell is less productive to the railway by which it is sold.

The pay-roll of the railways in 1907 amounted to $1,072,386,427 and required no less than $41.42 out of each one hundred dollars of their gross receipts. And in transportation, that is to say, in passenger-miles or ton-miles, railway labor cost much more in 1907 than ten years earlier. The following table shows, for example, that in 1897 the average payment for carrying a passenger 86 miles sufficed to pay for one day's service of the average station agent, while in 1907 a passenger had to be carried 102 miles, or 18.60 per cent further, in order to provide the