ever, we are dealing with a temporary, not with a permanent monopoly. Consequently, it is natural that the price policy will be that of a temporary monopoly. If the monopolist enjoys a position that is reasonably secure, it is highly improbable that he will plan to retire from the field after a short period of ruthless exploitation. The individual monopolist may retire from business, but he will seek to sell his privileged position to the best possible advantage. Now the permanent monopoly price, as has been shown, is the price calculated to give the highest value to the monopoly privilege. It is, therefore, the most advantageous to the individual monopolist, whether he desires to remain in the field or to retire from it.

Again, it may be said that the control of a monopoly need not necessarily be exercised in its permanent interest. A band of financial wreckers may gain possession of a majority of the stock in a monopolistic corporation and force prices to the maximum present profit level, to the permanent injury of the monopoly. When the stream of profits begins to subside, the men in control may through false representations succeed in selling their stock on advantageous terms to innocent investors; and these in turn may persevere in the policy of fixing maximum profit prices, with a view to selling their interests on as advantageous terms as possible to still more innocent investors. Obviously, however, this process cannot continue indefinitely. Sooner or later the control of a permanent monopoly must pass into the hands of those who will find it to their advantage to conserve its permanent interests. That those who control the price policy of a permanent monopoly will, as a rule, be disposed to take future demand into consideration, must, I think, be conceded. But will a monopolist, even if he is willing to sacrifice present profits to future profits, be able to form a sufficiently accurate estimate of future profits to guide him in his

price policy? It is true that the effect of present prices upon the future development of demand and upon future profits is something that cannot possibly be determined with accuracy. But it is equally true that it is impossible to determine with accuracy the effect upon future profits of the present investment of capital in permanent plant. In either case a certain present is balanced against a more or less uncertain future. If the uncertainty of the future does not deter a monopolist from investing capital in fixed plant,-i.e., sacrificing present purchasing power in order to add to his means of creating a future income,— it will not deter him from sacrificing a present profit in order to create a future profit.

It must be granted that the calculations of the monopolist who endeavors to fix prices to his own best advantage will contain a large amount of uncertainty. This fact does not preclude definiteness of statement in a law of monopoly price. It is to be borne in mind that the entire structure of economic theory is a formulation of the interests, not a description of the actions, of economic man. Capital seeks the more profitable rather than the less profitable field, we say. What we mean is that it is to the interest of the capitalist to place his productive wealth in the more remunerative field. That the capitalist always has the knowledge that enables him to do this we cannot assert. Nor can we assert that he always has the will to transfer his funds from the less profitable to the more profitable field. We have a right to assume, however, that, as a rule, men will seek to gain the largest possible income from their capital. Therefore, the law that capital seeks the most profitable fields is a true statement of an actual tendency. The accepted law of temporary monopoly price is not an induction from the observed conduct of the practical monopolist. It is a formula setting forth the price policy that it would pay a monopo

list to adopt. We cannot suppose that a practical monopolist can actually fix upon the price that yields the highest immediate net revenue. For the more convenient

exposition of the theory of the interest of the monopolist we assume that he has better facilities for ascertaining present demand than he can actually have. Our results are, therefore, real only as indicating the standard towards which temporary monopoly prices tend. The law of permanent monopoly price pretends to no higher degree of reality. It exhibits the price policy that a perfectly intelligent monopolist would adopt, and thus throws light upon the standard towards which permanent monopoly prices tend.

VI.

A word as to the practical consequences of the theory of permanent monopoly price. It has often been asserted that monopoly prices-and temporary monopoly prices are the ones in view-are sometimes lower than competitive prices. As permanent monopoly prices are necessarily lower than temporary monopoly prices, it is at any rate not improbable that the former would often be less than competitive prices. Furthermore, it has been shown that the more readily demand responds to present price policy, and the lower the rate at which future income is capitalized, the greater will be the difference between the temporary and the permanent monopoly price, and, naturally, the greater the probability that permanent monopoly price will be less than competitive price. Now there is every reason for believing that future demand grows more and more responsive to present price. Again, there is reason for believing that, even if the general rate of interest does not decline, the rate at which monopolists will discount future incomes will be lower. Our monopolies have been passing through a formative stage,

where whatever capital they commanded could be made to yield very high returns. When each monopolistic enterprise has grown up to its field, so that surplus income can be made to yield only a low return, the monopolist will discount future incomes at a lower rate, and hence will be more moderate in his charges.

It does not follow that monopoly is a desirable factor in our economic life. Tho monopolies may grow less exacting in the future, yet it may be better to eliminate them altogether, if this is possible. It does, however, follow that a policy which tolerates monopoly without legalizing it is of doubtful expediency. The monopoly that may at any time be dissolved will be little disposed to sacrifice present income to future income. It will evince a tendency to exact from the public the exorbitant temporary monopoly price instead of the more moderate permanent monopoly price. This insecurity, further, deters capital from flowing freely into the monopolized field, and so forces the monopolist to discount the future at a high rate,—another reason for fixing high present prices, regardless of future demand.

On the other hand, whatever tends to place the control of a monopoly in the hands of those who are permanently interested in its welfare makes for lower prices. If the control of a monopolistic corporation rests with a few large holders of non-dividend-paying stock, we have no assurance that a price policy will be adopted that will conserve the permanent interests of the monopoly. For the sake of the consumer as well as for that of the investor it is desirable that a check should be placed upon the existing tendency to divorce the control of a monopolistic corporation from the ownership of the productive capital invested in it.

UNIVERSITY OF NEBRASKA.

ALVIN S. JOHNSON.

AUSTRALIAN ECONOMIC PROBLEMS. I. THE

RAILWAYS.1

SUMMARY.

I. Comparative railway conditions in America and Australia, 400.- History of early railway enterprises, 402.- Railways and public lands, 403.-The leasing system, 404.-Land grant railways in Western Australia, 405.-II. Early history of railway administration, 406.-The commissioner system, 408.-Railway acts, 409.-Status and powers of commissioners, 410.-III. Construction of new lines, 410.-Land revenues appropriated to railway construction, 411.-Local guarantees for new lines, 411.-Early progress of railway construction, 413.-Causes that retarded progress, 414.Comparative mileage of different colonies by decades, 414.-The gage question, 415.-Description of the state railway systems, 415.— Projected transcontinental lines, 417.-Private railways, 418.Railway mileage in proportion to population and area, 418.-Railways constructed in advance of requirements, 419.-Distribution of railways, 419.—IV. Accounting methods, 420.-Cost of construction, 421.-Operating expenses and gross revenues, 425.-V. Passenger service and fares, 428.-Description of freight traffic, 429.-Some

1 BIBLIOGRAPHICAL NOTE.-The only scientific study of early Australian railway policies known to the writer is Doctor Moritz Kandt's Ueber die Entwickelung der Australischen Eisenbahnpolitik (Berlin, 1904), which gives a history of railway development and administration in Victoria until government ownership was fully established. The best descriptive and statistical account of Australian railways, their finances and operation, is in T. A. Coghlan's Australia and New Zealand (Sydney, Government Printing Office, 1904). Coghlan gives the most reliable comparative statistics. The Report of the New South Wales Commissioner of Railways for 1866 contains a history of the origin and progress of railways in that colony. The various colonial year books and railway department reports have afforded all the other statistics quoted. Data as to recent rates are from the published rate books of New South Wales, Victoria, and South Australia. Parliamentary acts, reports, and debates throw light upon railway history and policies. Interstate competition was discussed fully in the federal convention and the debates of that body and the papers laid before it by state officers give a satis factory view of the question up to the time federation was accomplished. For later details the federal Hansard should be consulted. The account of Australian railway operations most accessible to Americans is to be found in Professor Hugo Meyer's Government Regulation of Railway Rates. But this account, tho accurate in most of its details, omits so much that is essential for an understanding of real conditions in Australia as to be but a partial and rather one-sided presentation of the subject, and therefore open to the charge of bias in its conclusions.

This paper, and others to follow, give the substance of lectures delivered at Harvard University.