included in operating expenses) decreased about $3,000,000. Treat. ing these months as typical months—and there is no reason why they should not be regarded as such-and extending the figures so as to embrace a year's business on this basis, the result would be that with increased gross earnings of about $16,000,000, there would be a decrease in the net earnings of about $7,200,000. The results of the five months' operation already referred to have also shown that (treating again the expenditures heretofore made for additions and betterments as part of the operating expenses, in order to enable a comparison to be made), the operating ratio has risen from 69.70 per cent in 1909 to 75.51 per cent in 1910, an increase of almost 6 per cent. There is no reason, in my judgment, for expecting that further increases of gross earnings will tend materially to reduce this operating ratio, except to the extent to which increased rates of freight will tend to do this. The company will therefore in the future be obliged to expend for operating expenses probably not less than 75 per cent of any increased earnings which it may derive, but the 25 per cent which will be thus left will not represent surplus earnings; thus, for example, gross earnings of the Pennsylvania Railroad Company in the year 1909 exceeded those of the year 1900 by about $66,000,000, the operating expenses, including taxes, increased $52,000,000 and the net earnings about $14,000,000.

But in this same period the investment of the company in the property from which this income was derived had increased to the extent of $288,000,000. Interest on this amount at the rate of 6 per cent would be more than $17,000,000, so that of the increased earnings of 1909, which, as has been already said amounted to $66,000,000, $52,000,000 was absorbed by operating expenses and taxes, leaving $14,000,000 net earnings, or $3,000,000 less than the interest on the amount necessary to secure them.

In my judgment, therefore, it would be wholly unsafe to assume that the company will, as the result of the growth of its business, be enabled to recoup itself for the depletion in its surplus revenue which is certain to result from a continuance of the present operating cost. Under these conditions I feel that it is essential, in the interest of the public and of shippers, as well as of the railroad company itself, that it should be permitted to secure through an advance in rates the amount which represents its additional outlay on account of the advance in wages in order that its surplus earnings may continue at approximately the rate at which they have

been running in the past. It will require the expenditure of more than these surplus earnings to enable the company to keep pace with the demands of the public and of its shippers, and unquestionably additional capital must be secured in the future. If we are to obtain this we must not only be in a position to make a fair return on it, but we must be able to show a margin of safety in our earnings.

In closing I want to say that, based on my railroad knowledge and experience, I believe, generally speaking, that which I have said in regard to the Pennsylvania Railroad as to the necessity for the rate advance is equally true of almost all railroads in the United States certainly those which are conservatively managed and which are endeavoring to give the public such a service as they have a right to expect.

RAILWAY GAUGES.

FROM THE South African Railway Magazine.

The so-called standard gauge-four feet eight and one-half inches-is, of course, based on the gauge of the early English railways, but up to the present time more than twenty other gauges have actually been adopted. Of these other widths, the five foot six inch gauge is by far the most widespread. This gauge has been used on about 34,560 miles of railway, whereof about half is in India, a quarter in Spain and Portugal, and the other quarter in the Argentine and other South American countries. The gauge of the main Irish railways is a little less, being five feet three inches. According to recently published statistics, 14.5 per cent of the world's railways are on the broad gauge, that is to say, have a wider gauge than four feet eight and one-half inches; 71 per cent have the standard gauge of four feet eight and one-half inches, and 14.5 per cent are on the narrow gauge. The following table shows the proportion of the mileage of the gauges in different parts of the world:

The majority of the European broad gauge mileage is repre

sented by the Russian railway system.

NEEDS OF THE RAILWAYS

Two Addresses by Chairman MARTIN A. KNAPP of the Interstate Commerce Commission.

(1) BEFORE THE TWENTY-SECOND ANNUAL CONVENTION OF THE NATIONAL ASSOCIATION OF RAILWAY COMMISSIONERS AT WASHINGTON, D. C., NOVEMBER 15, 1910.

"Mr. President and Gentlemen: On behalf of the Interstate Commerce Commission, it gives me very great pleasure to welcome the members of this association, who have come to Washington to attend its twenty-second annual convention.

"It is difficult for me to realize that it will soon be twenty years since I attended the third annual convention of this association, but I have not forgotten the impression then made on my mindfor I had just been appointed to this commission-by the memorable address delivered on that occasion by Judge Thomas M. Cooley, then and from the first its presiding officer. He was a very great man, a jurist of extraordinary and versatile ability and a student of the railroad question, as profound and as intelligent as any man of my acquaintance who has given consideration to that great subject. It was, I think, his last public utterance, for he left shortly afterwards for his home in Michigan and failing health prevented his return. Nor could I find more befitting words or a more appropriate sentence for this present hour than the opening paragraph of that opening address. He said:

"Our purpose on coming together on this occasion is for consultation upon subjects of mutual interest, and for the discussion of questions which either pertain directly to official duties we have severally taken upon ourselves, or which, at least, have some bearing upon the proper performance of these duties. We are not all clothed with the same powers; there has not been prescribed for all of us the like obligation; but in our official actions we all have the same general purpose in contemplation, and it may justly be assumed that the views we severally hold will be of common interest, and that in so far as there has been any experience in dealing with practical questions, that experience will not be interesting merely, but of high value.'

"Great changes have been made since that address was delivered. The country has grown marvelously in numbers, in wealth, and in power. There were then only a little over 161,000 miles of railroad, now about 240,000, an increase approaching 50 per

cent, while the gross revenues of the railroads have leaped in that time from a little less than $1,100,000,000 to the enormous sum of over $2,850,000,000. There were then only 22 states having railroad commissions or regulating bodies, and now, I believe, there are 42, which is some indication not merely of the rapid growth and wonderful development of our transportation systems, but of the firm hold which public regulation has taken upon the judgment and sentiment of the American people.

"It is easy to see that great progress has been made in the task which has been committed to our hands, and I have this encouragement, that when I contrast the methods and practices which were characteristic, if not universal, a score of years ago with the methods and practices which generally obtain today, I can see an immense advance toward right conduct and impartial treatment of the public. Quite as significant as this, to my mind, is the altered attitude of railroad managers toward the whole subject of public regulation; that whereas it was then opposed, belittled, obstructed, it is today, if I may not say welcomed, at least conceded to be a public necessity.

"But I am not altogether persuaded that the scheme of public regulation has passed the experimental stage. I do not forget that older countries than this, whose experience we may well consider, have, with only one notable exception, adopted the other theory and made their transportation lines a government service, and I am more and more impressed with the belief that upon the wisdom of our legislation, the prudence and intelligence of its administration, depends in great measure, if not altogether, whether that experiment is to be permanently successful or whether the other and most undesirable result will be reached at no remote date.

"I realize in some degree the difficult and delicate questions which have arisen and must arise between state and federal authorities, and I can see in that direction the possibility of such disappointing and unsatisfactory results as, instead of promoting popular confidence in railway regulation, will furnish an impetus toward a movement in favor of the nationalization of our railway systems. That to me is a constant admonition that we should seek that substantial harmony of legislative measures and that substantial cooperation in our administrative policies as will result not only in the wise and useful regulation of our railway systems, but strengthen and confirm that policy as against government ownership.

"I trust the deliberations of this convention will be of peculiar satisfaction to all its members, as I am sure they will be of permanent value to our common country."

(2) BEFORE THE RAILWAY BUSINESS ASSOCIATION AT NEW YORK, NOVEMBER 22, 1910.

"The question of railroad rates, that is to say, of railroad revenues, involves vastly more than the direct interest of shippers or shareholders. In a very real sense, in a sense which is fortunately coming to be better understood, it is a great question of national policy second to none in its economic importance. Speaking only for myself, and without reference to the pending controversy over rate advances or any other concrete instance, I suggest three aspects of this question which are of immediate and intense public concern. If our country is to grow and prosper as it ought, if its untold resources are to be developed and its swelling numbers find profitable employment, we need and must have railway earnings sufficient for three things:

"First. A return on railway investments of such amount and so well assured as to attract and secure the necessary capital-an enormous sum in the aggregate-to improve existing roads and to construct without delay thousands of miles of new lines in fruitful districts now destitute of any means of transportation. It is a matter of common knowledge that the output of traffic for the fiscal year 1907 exceeded our entire carrying capacity on land and water. With the rapid increase of population and of productive efficiency, that is, with a greater army of workers and better industrial organization, the volume of that year ought to be and will be nearly doubled in another decade if only we can provide for its prompt and proper distribution. And when we think of the rich regions yet unopened because unserved, when we recall, for example, that there is today in the old state of Maine a section larger than the whole of Massachusetts in which there is not a rod of railroad, must we not be impressed with a realization of pressing need and of boundless opportunity! Since it is our national policy -and long will be, I trust-to rely upon private capital and private enterprise to provide these great highways of commerce, to improve and multiply them in pace with our requirements, must we not in the larger public interest, whatever may be thought by this or that shipper, make the business of furnishing railroad transpor