At this rate we would, theoretically, reach a balance in the movement of goods in another few months. However, economic movements do not proceed on time schedules, although their trends are no less positive. Many uncertain factors naturally affect commodity movements and but little beyond tendencies can be noted. It would, at least, appear that the invisible exchange is able to take care of commodity balances and that we are reaching the end of the gold import stage of war readjustments. Continued trend in the general direction now evident would soon produce gold exports even in the face of payments on account of Allied debts.

SHIFTS IN THE CHARACTER OF EXPORTS.-There are several important shifts in our foreign trade due to the war. The export of foodstuffs has immensely increased, due partially to the demoralization of Russia. There is at best no probability of Russian exports of large volume for another two or three years, not only because of the condition of her agriculture, but also because of the demoralization of her railways. There has been a decrease in raw cotton exports due to various causes, partly due to short production, partly due to steady increase in our cotton manufactures, and partly due to reduced buying power in Europe.

The following table shows the quantitative movement of major agricultural exports, prewar and for the last two fiscal years:

About 55 per cent of our total exports are agricultural produce and raw materials and 45 per cent are manufactured and partly manufactured goods (excluding manufactured foodstuffs).

About 75 per cent of our exports of agricultural produce and raw materials go to Europe and about 25 per cent to the rest of the world.

About 26 per cent of our manufactured exports go to Europe and 74 per cent elsewhere.

Our exports of agricultural produce comprise, roughly, 15 per cent of the entire crop value on the farm, while our exports of manufactured goods comprise less than 4 per cent of our production. Our exports of agricultural produce to Europe comprise 11 per cent of the value of our agricultural production and our exports of manufactures less than 1 per cent of our manufactured production.

This last fact has much to do with our ability to shake loose from European economic currents in the manufacturing industries, and with the strengthening of employment in our home industries we will no doubt increase home consumption in agricultural products.

A pronounced shift in our foreign trade during the past few years is the increasing ratio of imports from tropical countries. A study of this situation reveals that over one-half of our imports are of tropical origin (rubber, sugar, coffee, woods, etc.), as against about one-third of such imports before the war. The balance of trade is heavily against us in the Tropics as a whole. A study of the trade of these particular countries indicates that the excess of our imports from those areas over our exports to them is about $500,000,000 per annum, which is largely used by them for the purchase of manufactured goods from Europe, thus to a considerable extent liquidating the excessive balance in our favor in our European trade, created by shipping Europe our agricultural products. This triangular operation seems likely to increase, as tropical goods do not materially conflict with our own production and our consumption of these commodities is likely to increase steadily.

THE EFFECT OF TARIFF ON EXPORTS.-The theoretical assumption that the new tariff will so diminish our imports as to strangle the buying power of foreign countries for our exports does not seem borne out by a critical examination of the actual factors involved. Somewhere between one-third and one-half of foreign buying power for our exports is furnished by invisible exchange. Beyond this somewhere from 49 to 55 per cent of commodities shipped to us from abroad are upon the free list (based upon application of the Fordney tariff to the 1921-22 imports, where about 60 per cent were free), thus the buying power is untrammeled up to, say, 70 to 80 per cent. The remainder of our imports which are dutiable is in large part such goods as will be imported in any event, as sugar, wool, luxuries, etc. Therefore it would not seem that the gross volume of exports would be very greatly influenced one way or another by the tariff. Generally the volume of our imports is likely to be increased by the increasing prosperity at home.

THE RAILWAYS.

Our transportation facilities have lagged far behind the necessities of the country. Progress has been made in their restoration from the demoralization of war, but our rolling stock, our trackage, and many of our terminals are unequal to our needs. Some increases in equipment have been made during the past year; yet they are entirely insufficient as the result of long-continued financial starvation. The deficiency in transportation finds its visible expression in car shortage; and while the recent strike has temporarily aggravated the situation, the trouble is far more deep-seated. Except during periods of business depression or strikes there has to some degree been continuous car shortage for the last six years. Furthermore, car shortage reaches its most acute stage during the four or five months of peak load in the fall and early winter.

Railway cars are the red blood corpuscles of commerce, and we suffer from commercial anæmia every year, because they are starved. The losses through short transportation are a tax upon the community greater than the cost of our Government, because such a shortage not only stifles the progress of production and introduces speculation into distribution, but it also seriously affects price levels. No better instance exists than the lift in the price of coal by over 300 per cent in 1920, when there was no strike, and over 60 per cent in 1922, after production following the strike had been resumed. In both cases the mines could have produced 30 per cent more coal, and if the railways could have transported even 20 per cent more, then prices would have been normal. Furthermore, this very shortage is one of the most deep-seated causes of the instability in the bituminous industry and its recurrent strikes. The car shortage also directly affects our farmers, because in every car-shortage period a price differential on grain below the Liverpool price (and yet in excess of the railway rates and handling costs) sets in of from 5 to 15 cents per bushel. The losses to live-stock growers are very great because of the necessity to feed stock beyond the fattened stage. And there are regularly great losses in fruit and vegetables because of the lack of refrigerator cars.

The management of our principal railways to-day, by all the tests of administration, of load factors, of mechanical efficiency, etc., is the most efficient transportation machine in the world in so far as it is not limited by causes beyond the managers' control.

The situation has been contributed to by the war, but also fundamentally by the cumulation of experiments in public rela

tions to the railways, both National and State. We have tried uncontrolled operation; we have tried negative regulation in the prevention of discrimination; we have tried nationalization; we are now trying positive regulation. Nationalization would

be a social and economic disaster; free operation would reconstruct the vicious practices of 30 years ago. Regulation in some form is necessary, but constructive development of this regulation—to preserve the initiative and responsibility of our railway executives, to secure the fine values of private operation, and at the same time to secure public protection and assure adequate service is absolutely vital and not necessarily incompatible. The present Transportation Act possesses many constructive features and some weakness. It was the result of compromises in many particulars, and these very compromises are some of its weakest points.

If the causes of financial starvation were solely a question of war and of hard times, we could afford to wait for a natural solution, but they are not. The Transportation Act of 1920 affirmatively declared that the rates should yield a fair return on the aggregate real value of the railway properties (as determined by the Interstate Commerce Commission) used in public service and operated under honest, efficient, and economical management. It provided that the fair return during the first two years should be at the rate of 5 per cent on the railways as a whole, or in each of the major groups in which the country might be divided in the administration of the law, and that during this period there might be added 13 per cent for rehabilitation. At the expiration of this two-year period the Interstate Commerce Commission placed the fair return at the rate of 5 per cent per annum, or 6 per cent less one-fourth per cent to cover income taxation. The law, however, further provided that any particular carrier which earns in excess of 6 per cent per annum shall hand over one-half of that excess into a contingent fund to be administered by the Interstate Commerce Commission "in furtherance of the public interest in railway transportation" either by loans to carriers or by the purchase of transportation equipment and facilities and the leasing of the same to the carriers. The carriers have never earned these amounts and the failure of earnings without charge on the Government is complete disproof of the current fiction that earnings are "guaranteed."

Furthermore, the immediate effect of this recapture provision would be that whereas the strong and fortunately situated railways are able to earn in excess of 6 per cent, and are there

fore able to secure finance for betterments, the very fact that they did earn in excess of the average would mean that the weaker roads were unable to earn up to the average. It may be accepted as a general proposition that carriers earning materially below the 5 per cent return are not in a position to command the confidence of investors which is necessary for expansion to meet the public demand. The contingent fund makes available money which such carriers may borrow, provided, however, that they are able to give the necessary security for repayment. It is easy to comprehend that such a contingent fund may serve the purpose of bridging carriers over temporary difficulties, but it is more difficult to understand how a carrier which, though it may be very essential to its part of the country, is financially a chronic weakling is to be made strong and capable by becoming more deeply involved. If there is any merit in this device, it seems not to extend to those anæmic carriers that are unable to give the Government the color of assurance of repayment. This device also carries a certain liability to the Government in that carriers that borrow from the fund and fail to pay are likely to become Government railways through their financial difficulties. It would seem that the first of the two uses to which moneys of the contingent fund may be put holds out better promise of furtherance of the public welfare. However, the creation of such a national reserve of transportation equipment has not been seriously undertaken. It would seem that our dire distress in time of car shortage and, at times, motive-power shortage would strongly argue for the creation of such reserves. Rolling stock for limited use during 60 to 90 days is probably unprofitable to any railroad, and certainly the stronger railroads can not, and should not, be expected to provide it for the weaker ones.

The present act contemplated the solution of the problem of the weak roads through voluntary consolidation of the weaker and stronger roads into larger systems to be definitely indicated by the Interstate Commerce Commission. There is no doubt that such consolidation would be a large advance in solution to the whole problem. As the Nation has resolved to control rates, and thus to depend no longer on competition as a means of rate regulation, it should secure the manifest advantages of larger systems. The economies in operation through standardization and better employment of rolling stock would be constructive themselves, but of vastly more importance would be the strengthening of the foundations for the financing of betterments and for more intelligent handling of rate regulation. The part of the act providing for consolidations has not been