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Volume 3, 1870
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Art. LXVIII.—On the Political Economy of Railways.

[Lecture delivered before the Otago Institute, August 24, 1870.]

The subject upon which I propose to address you has been brought prominently under public notice of late, by what is commonly known as the financial policy of the Government. Of that policy generally it would be unbecoming in me to speak, nor is it, indeed, a fitting subject for discussion in this place. One part of that policy, however, consists of a proposal to establish an extensive system of railways throughout the colony by means of a loan raised in England; and as that proposal involves certain principles of economical science, I connect those principles with my subject by the title which I have given to this paper, and I think you will find that the observations, and the calculations, which I am about to present to you, will fully bear out the title which I have chosen. I may here observe that it is only a limited portion of the results and consequences of railway enterprise which I propose to discuss, namely, the effect upon the public wealth. In thus confining myself within narrow boundaries, I am sensible that I leave out much more than I embrace. Railways are the offspring of an advanced civilization. They also react upon and tend to develop the very civilization of which they are the fruit. Thus they assume the characteristics of both cause and consequence. They are fraught with important social and political results. United with the electric telegraph, the steamship, and a free press—the operations of which they tend to facilitate—they aid in promoting peace among nations, and the interchange of the best thoughts current throughout the world. These social and political advantages, however tempting they may be, I must leave entirely untouched for the present, and I shall only permit glimpses of them to appear when I think it necessary to remind you of the limits which I have chosen. You will understand, therefore, that I intend to confine myself to an investigation of the modes in which railways tend to augment and distribute the wealth of the country. As I had some share in carrying into operation an extensive railway system in a neighbouring colony, I have necessarily turned my thoughts a great deal to that which I have ventured to call “the political economy of railways;” and it is to the Colony of Victoria that I shall turn for the facts and illustrations to which I am about to direct your attention.

The Colony of Victoria has now in operation about 252 miles of Government railways, namely, from Melbourne to Geelong and Ballaarat, about 100 miles, and from Melbourne to Castlemaine, Sandhurst, and Echuca, on the River Murray, about 152 miles. There are also short railways radiating from Melbourne to the port and suburban districts, making about 20 miles more. Thus Victoria has now completed about 272 miles of railway. I do not

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propose to say anything more on the short railways constructed by private companies, or to draw any illustrations or inferences from them. To make my remarks as intelligible as possible, I shall confine myself as near as possible to round numbers, calling the length of the lines 250 miles, and the capital expended in their construction £8,000,000. Thus, the prime cost of the Victorian railways, including stations and the first outlay for rolling stock, was no less than £32,000 per mile. Perhaps a very minute analysis of the different classes of expenditure would bring out a slightly different result, but dealing, as I do, with round numbers, this is accurate enough for my purpose. Now, when it is considered that the Government had no parliamentary charges to pay, beyond the ordinary expenses of printing a public bill, that the necessary legal expenses were included in the general legal expenses of the law officers' department, and that there was very little to pay as compensation for land taken, the cost per mile must be considered large; but it had been deliberately decided by the Legislature that the railways should be constructed in the most substantial and durable manner; and so far as Victoria is concerned —a wealthy country without debt—I believe that decision to have been a wise one. Moreover, it should not be forgotten, that owing to recent improved methods, the work could now be done much more economically than was possible twelve years ago. In this colony, where we have to cover a great extent of country with only moderate means, so costly a system would be altogether inapplicable, and it is anticipated that our railways will not cost more than one-fifth or one-sixth of the above sum. This may, perhaps, turn out to be a somewhat sanguine estimate, but if we fail in the end to obtain 1500 miles of cheap railways for seven millions and a half of money, the ultimate total will not fall many hundred miles below it.

Now, our New Zealand railways are at present so completely in the womb of the future, that I must necessarily resort to what has been done in Victoria for the principles upon which I am about to expatiate. I am not disposed to deal in the speculative, but I think you will perceive that the inferences which I am about to draw, apply to our case as well as to the case of Victoria. The difference between the two will be a difference of degree only.

I will begin with the loan. Here I must remind you that the condition of a colony presents economical features the reverse of those presented by what is called an old country. In England, everything is abundant and cheap except land; land alone, in relation to capital and labour, is limited, and therefore dear. In the colonies, on the contrary, everything is scarce and dear except land. Unoccupied land is abundant and cheap. Capital and labour are among the plentiful and cheap things in England; they are among the scarce and dear things in the colonies—meaning always in relation to land. What Mr. Wakefield called “systematic colonization,” as distinguished from mere emigration, consists in transporting what is

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abundant and cheap in England, and especially capital and labour (not the one without the other) to the new and more extended field. Taking advantage of the abundance of mere money capital in England, Victoria borrowed £7,000,000 out of the £8,000,000 destined for railway purposes, in the London money market. Practically, what Victoria proposed to the English capitalists was this: “You can barely obtain 4 per cent. for your money, and that often on questionable security; ‘the elegant simplicity of the three per cents.' only affords you about 3.¼ per cent.; but money is worth to us about 8 per cent. Let us then divide the advantage; we offer you 6 per cent. for your money, by which we shall save 2 per cent., and you will gain 2 per cent.” So well did the English capitalists think of this proposal, that they gave for the £7,000,000 a profit, in the shape of premium, amounting to £385,000. Now, in exporting our securities to England, where mere money capital is constantly accumulating and outgrowing the means of profitable investment, what reason is there to suppose (provided the money market be judiciously fed), that the results will be otherwise in principle, if not in degree, to that exhibited by the Victorian loan ? I believe that the public in England have a very vivid, and I may add a just, impression of the great natural resources of New Zealand. The integrity of our public men is beyond question. Why, then, should we not anticipate that, as we the borrowers want lenders, and as they the lenders are equally on the alert to find good borrowers, we shall secure some profit on our securities, if a favourable condition of the money market be chosen, though it would be undoubtedly rash to attempt to anticipate the figure or per-centage ?

I now desire your attention to that which I consider the most important economical result of all means of cheap transport, and especially of railways, as exhibited conspicuously by those of Victoria. All that I am about to point out to you is equally true of common roads; but when we spend a sum of money on a Macadamized road, it becomes quite impossible to keep the sort of account which I am about to present to you.* To enable you to appreciate the change which has been brought about, I must carry you back to what, considering the rapid march of the colonies, I will take leave to call ancient times. When gold was first discovered in Victoria—not quite twenty years ago—the country was without roads, and was too poor to make them. The population was 71,000, spread over a country without inland towns and without much internal trade. As miners, or rather diggers (for mining, proper, did not at first exist), seated themselves where gold was most abundant, the towns of Ballaarat, Castlemaine, Sandhurst, Maryborough, and some few others

[Footnote] * In the ten years ending 1861, Victoria expended upwards of £5,000,000 on roads and bridges. Cartage was reduced from the fabulous rates mentioned in the text, to some £6 or £8 per ton. The capital expended was equal to a perpetual annuity of £3000 a-year; the gain was perhape four or five times that amount.

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grew up, and traffic, with horse and bullock drays increased naturally to meet the wants of the population. In winter the old bush tracks became so cut up as to be almost impassable, and as much as £60, £80, and even £100 per ton has been paid for the carriage of goods to Sandhurst. These high prices, however, were partly due to the abundance of money. From 1852 to 1858, very large sums were expended in the construction of roads, and just before the opening of the Northern Railway as far as Sandhurst, the cost of carriage was reduced to £6 10s. per ton in winter, and to £5 10s. in summer, the mean rate being about £6 per ton. To Ballaarat the mean rate for the year was about £4 10s. per ton. As I am merely engaged in working out a principle, it is unnecessary to seek for perfect accuracy; let us, therefore, assume that at the time of opening the railway to Sandhurst, the average rate of cartage for the whole distance was £5 per ton; and at this reduced rate the carriers had the advantage of 21 miles of railway. During the first year, after the lines were opened to Sandhurst and Ballaarat, rather more than 200,000 tons of goods were carried. I have not any very recent statistics, but from the rate of increase and the opening of the line to Echuca, I believe that 300,000 tons of goods and produce, at least, pass over the two lines—by far the greater part being carried to and from the great seats of population, and only a small portion being dropped by the way; but for the portion so dropped I will deduct one-third, and base my calculation upon the assumption that 200,000 tons of goods and produce are carried to and from Melbourne to the great seats of population. The gain, therefore, to the consuming public is on 200,000 tons of goods carried the whole way. What is that gain ? At first the charges were 50s. per ton to Sandhurst, and 42s. per ton to Ballaarat; but it has since been reduced to about 35s. and 40s. per ton. I will take the average at 40s., and thus we have a net saving of £3 per ton, or about £600,000 a-year. This is the saving spread over the whole body of consumers by means of cheaper transport. Whether this estimate be precisely correct or not (I believe it to be within the mark), it is absolutely certain that whatever is saved by the improved means of transport, is so much added to the material wealth of the country. It may not be all preserved as wealth. Part may be at once expended in immediate enjoyment, but part will remain as wealth. The subdivision in some cases is so infinitesimal, that it escapes appreciation. A saving of £3 per ton is about one-third of a penny per +Ib. This is not much on every teaspoonful of sugar which is put into the old dame's tea, but it is something substantial on the 4+Ib. loaf, especially when multiplied by all the loaves consumed by a family in the year.

By way of parenthesis, but at the same time not wholly unconnected with my subject, it may be amusing to state what I actually paid in 1854 for some of the articles of ordinary consumption in a family. I have paid 35s. per cwt. for potatoes, at the very time that farmers in some parts of the country were

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complaining that their potatoes were rotting in the ground for want of labour to dig them, and of roads to convey them to market. I paid 4s. per +Ib. for butter, ls. 8d. per quart for milk, 6s. a dozen for eggs (they had just before been 9s. per dozen), 2s. 6d. for a cauliflower, and 1s. 6d. for a cabbage. The health of the town population then suffered for the want of fresh vegetables. Bread was more than 1s. for the 4+Ib. loaf, and had been higher. Labour was 20s. a day, and yet the labouring classes really suffered from the insufficiency of their wages to purchase food and other necessaries. Everything seemed out of joint. A turkey cost 50s. In 1862, eight years afterwards, I could buy similar turkeys for 7s. 6d. Oats were 20s. per bushel, and hay £24 per ton. Fine times for farmers ! you will exclaim. Not so, however, for the greater part of these high prices was lost and wasted in the cost of conveyance. I shall have to recur to this part of the subject in treating of another branch of railway economy.

Hitherto, I have only taken into account the goods traffic, but the passenger traffic is of nearly equal importance; and if we were now considering comfort, health, and social advantages, I could show that the carriage of passengers is even of more importance than the transport of commodities. In the early days of the gold discovery, the coach fare from Melbourne to Ballaarat was £6, and I believe even more. As road-making proceeded, the fare was reduced to £4, then to £3, and, during some short periods of competition, even to less. It was about one-third higher to Sandhurst, which was a long, dreary, and fatiguing journey. The charge to Ballaarat for a first-class ticket is now, I think, 30s.; and about 35s. or 40s. to Sandhurst, and the second-class fare is about two-thirds of the first. I cannot be quite certain of these rates, as I have not the last Bradshaw. Even the second-class accommodation is in every respect more comfortable than that of the best constructed coaches. Travelling has of course greatly increased. Taking the short stages with the long, it is perhaps ten times what it was in the old coaching days. A man can now go to Ballaarat or Castlemaine, transact his business, dine with a friend, or marry a wife, and return without fatigue to Melbourne in the same day. The saving of time, the increase of comfort, the absence of fatigue, are gains which really possess a money value, though they baffle a money estimate. The mother can with ease visit a sick child, the daughter a dying parent. These, and similar advantages, cannot be set down in figures, yet they are gains for which every one is willing to pay in shape of tax. Taking the money gains alone upon the passenger traffic, I am convinced that it is not an over-estimate to set it down at between £300,000 and £400,000 a-year, spread over a very large proportion of the whole population of Victo+ria, who are becoming, under the new railway facilities, as much a travelling people as the Americans. Thus, then, with a population of about three-quarters of a million, we have a total gain of nearly one million. Indeed, in the present year, it probably exceeds that amount.

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But this is a gross and not a net gain, and it becomes necessary to enquire what the people pay collectively in their character of taxpayers, in order to secure this gain of a million which reaches them individually. This we can ascertain with more exactness than the computation of the gross gains was susceptible of. The railway loan bears interest at the rate of 6 per cent. per annum. I have already pointed out that it yielded a profit of £385,000, which is equivalent to a reduction of interest. I will not, however, embarrass the calculation with too great precision, but will set down the charge against the consolidated revenue, to which all taxpayers contribute, at £500,000. It is unnecessary to take the capital into consideration, for if it were paid off to-morrow it could only be paid off with colonial funds, which would yield an interest or profit if otherwise employed. Suppose the Government were to find a great deposit of gold, worth £8,000,000, and were to pay off the loan therewith, and so extinguish the annual interest, the same interest, or something near it, ought still to be deemed a charge against the railway enterprise of the colony, because that interest would be yielded if the new eight millions were invested otherwise, instead of in paying off the railway loan. Five hundred thousand pounds a-year may, therefore, be set down as the dead weight of the railway enterprise of Victoria.

But as the gross gain is not all profit, so this dead weight is not all loss. It is partly met out of the revenue of the railways for goods and passenger traffic, after deducting therefrom the working expenses of all the lines. I have no later returns than those of 1864–5, which I regret, as later accounts would be much more favourable. The traffic receipts of that year are set down at £546,000, and the charges against this are as follows :—

[The section below cannot be correctly rendered as it contains complex formatting. See the image of the page for a more accurate rendering.]

Salaries and wages 33,350
Departmental contingencies 220,372
Total working expenses     £253,722

Deducting this sum from the traffic returns, we find the net revenue to be £292,278, and deducting that sum from the interest on the debentures, which I have called the dead weight, the net deficiency is £207,722. But, although this is a real deficiency, it can only be regarded as an apparent loss. It is the sum which the people of Victoria are willing to pay, and do pay, out of the general taxation of the country, in order to secure a gain which I have ventured to estimate at £1,000,000, distributed over the whole population; though, as I shall hereafter show, not with exact equality, and not in all cases in the same shape. I cannot, of course, pretend to speculate as to the results of the future railways of New Zealand, but the same principles apply here as in Victoria. At first our railways may only just pay their working expenses, or, perhaps, a little more. In that case, what I have called the dead weight will be subject to little deduction. But I can scarcely conceive the possibility

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of the gross gain from cheap transport failing to exceed very considerably the dead weight. That excess, whatever it may be, is the net profit of the railway system. Comfort, health, ease, the saving of time, the facilitating of business, and the interchange of the family affections, are substantial advantages which do not immediately belong to my subject, but which ought not to be left out of consideration, although we cannot reduce them to figures.

Our roads in this country, except for a few miles outside of the principal towns, are much in the condition of many of the English roads at the end of the last century, when General Wade first improved the Great North Road beyond Leeds.

“If you'd seen but these roads before they were made,

You would hold up your hands and bless General Wade.”

Englishmen who have only known the transition from the four-horse coach of 1830, so splendidly appointed and so well worked, to the railway of recent date, can form no conception of the change in Victoria, or the change which the railway system will produce here. It is a change from misery, not without danger, to comfort and safety—a sudden leap from the middle of the eighteenth to the middle of the nineteenth century. Mr. Wentworth, in 1851, said, “The discovery of gold has precipitated us into a nation.” The idea was excellent, but the mode of expressing it was not happy; but may we not say that a well-considered railway system will go far to elevate us into a nation?

There is another economical result which has disclosed itself very conspicuously to those who have carefully marked the effects of the railway system in other countries. It is comprised in the phrase, “equalization of of prices.” It is not in itself an independent gain. It is simply the mode in which the sum-total of gains from cheap transport distributes itself between producers and consumers. Now, if this equalization of prices has made itself manifest in countries (England for instance) where the transition has been only from excellent common roads to railways, how much more conspicuous will it not be where the transition is from bad roads, or no roads, to railways?

Let me explain this phrase, “equalization of prices.” It is not so much in the larger productions of agriculture, such as wheat, oats, potatoes, and so forth, that the equalization will appear. These, wherever practicable, are conveyed by water, by the coasting steamers; but to some extent it will operate upon such productions. It will, however, be most conspicuous in the productions of the small farmers and dairymen, who raise poultry, butter, bacon, etc., for the town markets. We will take a single article as an illustration, and it is not of much importance whether we state the prices accurately. We are quite at liberty to assume an arbitrary price as an illustration of the principle. Fowls are now, in Dunedin, 6s. per couple. We will suppose that fowls are produced in some parts of the country not very accessible to the town, or so

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situated as to make the town inaccessible to the producer. In such a case the remote country price would be, let us suppose, 2s. per couple. Though these assumed prices are not of much importance, they are such as I have known to coincide. Now, what I have described as taking place in the case of a railway loan, may be anticipated as certain to take place in the case of the productions of the small farmer. The cost of transmitting poultry by railway is very small; deducting that cost, the producer and consumer will share the advantage between them in proportions to be determined by a double competition, that is, the competition of producer against producer tending to lower the price,—the competition of consumer against consumer tending to raise the price. If these two competitions be of precisely equal force, then (leaving out the trifling cost of conveyance as being infinitesimal in this case) the consumer who has hitherto paid 6s. will get his fowls for 4s., and the producer who could only get 2s., if indeed he could sell at all, would now get 4s.* It is unnecessary to dwell on other articles. The town consumer will get his bacon, hams, butter, eggs, and cheese at perhaps one-third less, while that same reduced price will yield to the small farmer perhaps one-third or half as much more than he can now obtain. Let it not be supposed that this is speculative or chimerical. Remember, that I could purchase in the Eastern market of Melbourne as good a turkey for 7s. 6d. in 1862, as cost about seven times as much in 1854. Let me once more remind you that I do not state this as an additional gain, but only as explanatory of the mode in which the whole gain arising from cheap transport distributes itself.

I cannot resist the temptation of illustrating this part of the subject by

[Footnote] * As an illustration of this double competition, and of the manner in which the relative forces of the two may be disturbed, I may here refer to the mode in which the Victorian debentures were placed upon the London money market. The loan was negotiated through the six principal banks of Melbourne. They agreed to supply the Government with money, in sums required from time to time, and to hold the debentures as security at a limit—communicated at first under sealed cover. Under that limit they were not to sell for a certain stipulated time; but when their advances reached a certain amount, and after the expiration of the time agreed upon, they had power to sell in order to replace their advances, and to enable them to supply the renewed wants of the Government. To prevent the six banks from competing with each other, it was however stipulated that the sales were to be effected through one bank only; in other words, that the market should be fed through one conduit pipe only. The effect of this was to reduce the force of the competition of sellers against sellers tending to lower the price, while it left unaffected the competition of the buyers. Thus the balance of these two forces being on the side of the buyers, the result was the profit of £385,000 which I have mentioned. If the six banks had been left free to compete with each other, and had not substituted for the condition in the contract which I have mentioned some equivalent arrangement among themselves, that competition would have acted in some degree against the force of the competition among the buyers, and the result would probably have been a lower premium and a smaller aggregate profit.

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another case. In the Wairarapa Valley, forty miles from Wellington, are some magnificent totara forests. There are also saw-mills which cut the totara logs into boards. But the difficulty is in conveying the bulky boards from the place of production to the place of consumption, the road being a mountain road over the Rimutaka ranges, 2500 feet high. The cost of conveyance is consequently heavy, and while the price at the mill is under 10s. per 100 feet, the price in Wellington is something like 18s. per 100 feet. Now, surveyors well acquainted with the country affirm that there is a practical, and by no means difficult line for a railway; and should one be constructed, the boards could be conveyed to the town for (let us suppose) 2s. per 100 feet. Here then would be a saving in the cost of delivering the boards in Wellington of 6s. per 100 feet, or about 33 per cent. The difference between 18s. and 12s. (the real gain) would be shared between the producer and consumer on the principle which I have already explained. In time, the consumers in the town would probably secure the greater part of the saving, but the producer would reap his advantage from the greatly increased demand.

Let me now mention a case not of simple interchange (though it partly bears that character) but of substantial saving, in addition to the mere saving in the cost of transport. Very soon after the opening of the line from Melbourne to Sandhurst, slaughter yards were opened at the latter place for the supply of Melbourne with meat. It is well known that oxen and sheep, when driven to a distant market, fall off in weight and condition. They lose fat, and every one knows that the loss of fat involves the loss of flavour and of nutritious qualities. These disadvantages were obviated by slaughtering the animals at Sandhurst and sending the carcases to Melbourne. There was gain in many ways. Weight and quality preserved, expense of drovers got rid of, carcases capable of being packed in a smaller space than live stock— though live stock also was transmitted to a considerable extent. Here, as elsewhere, we are inevitably approaching the boiling down phase of pastoral enterprise. Along the lines of railway, the legs of the sheep, which yield but little tallow, but which afford the best food, will be sent to the town consumer, while the tallow-yielding parts of the animal will be boiled down as near to the station as possible. By the process of equalization, the result of competition, the consumer will get cheaper legs of mutton, while the boiler-down will get a sale for what to him is the useless, or, at all events, the least useful part of the animal. With the cheaper carriage for the latter, the boiler-down will be able to offer to the squatter better prices, and even the distant consumer of tallow will “share i' the gains.” Cheap carriage may not always show itself in better prices, but rather in arrested decline. Though no one can possibly analyse the distribution in figures, which, in the case of a single transaction may be infinitesimal, that distribution does most certainly adjust itself by natural laws—as certainly indeed as the laws which regulate rain and sun-

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shine, although we cannot trace the distribution to its ultimate resting place.*

I now come to the effect of railways upon the town and country populations respectively, and I may add reciprocally. Within my lifetime, which in spite of my grey hairs is a very short time in relation to the progress of a nation like England, London has increased from under one million to something over three millions of people. A very large part of this increase has taken place since the institution of railways, and it is usually, and I believe justly, attributed to the stimulus given to production and trade by the rapid development of the railway system. But it is also in part attributable to the effect upon production and trade of the gold discoveries in California and Australia. In America, and on the Continent of Europe, similar development from similar causes is observable. But not to travel so far from home, let me call your attention to what has taken place in Melbourne, because I shall apply that case to New Zealand, with, however, a difference to be presently pointed out. The Northern Railway of Victoria reaches the Murray River at a place called Echuca. The Murray River is navigable for steamers, except during a few months in summer, for a distance of 1754 miles. Its tributaries, the Edward, the Wakoul, and the Billobong, are navigable during a part of the year for about 300 miles. The Murrumbidgee, with its several expansions or lakes, has been navigated to Gundagai, about 900 miles. The Darling has been navigated for some 800 miles, and the Lachlan has been ascended, but I am not aware how far. All these streams fall into the Murray, and they are all shallow in the dry season, but at other seasons we have here specified an inland navigation of some 4000 or 4500 miles. The Murray might be made navigable during the whole year, but at present, in the dry season, when the water is low, the channel is choked by snags. In 1862, there were twelve or thirteen steamers on the Murray, measuring about 2500 tons, and moved by about 450 horse-power, and these had an attendant flotilla of barges. As the line from Sandhurst to Echuca has been opened since 1862, I have no doubt that the tonnage has increased, but of this I have no account. The Murray is the boundary between New South Wales and Victoria, and the country north of the Murray, which is watered by the rivers already named, is usually

[Footnote] * I may here mention, very briefly, that under the railway system proposed to be established in New Zealand, the advantages of both saving and equalization of prices are likely to be greater in proportion to the capital employed, and the proportion of population directly reached, than in Victoria. When Victoria opened her 250 miles of railway, the population was but little over half a million. By the system of inexpensive lines, we should have at least four and perhaps five times the extent of railway for the same money, with about half the population at first, and perhaps about the same number when the lines are completed. Thus our railways will penetrate to a greater distance, and embrace and influence a much larger extent of country; in other words, the advantage will be brought within the reach of a larger proportion of the people. It is quite impossible to calculate this; but it must be very obvious.

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called Riverina, and is within the colony of New South Wales. Now, the Northern Railway, at its Echuca terminus, taps, as it were, the whole of this inland navigation, and brings the whole Riverina trade to Melbourne. New South Wales governs Riverina, but Sydney is not its commercial metropolis. Most of the Riverina squatters and traders transact their business at Melbourne, and when the Judges of the Supreme Court of New South Wales go circuit to Deniliquin, they find it convenient to go by sea to Melbourne, and thence by railway to Echuca—a coach conveying them thence to the circuit town. Melbourne is thus not only the capital of Victoria, but is the metropolis of a vast interior, into which settlement is rapidly extending. At Cooper's Creek, the starting place of Burke and Wills, and not far from which they died exhausted, there is now an accommodation house for travellers. One striking piece of evidence of the metropolitan character of the City of Melbourne is furnished by the press. What the Times is to Great Britain, the Argus is to Australia. It is not merely the Melbourne paper, it is the Australian paper. Primarily, it represents the opinion of its Victorian subscribers; secondarily, it is the embodiment of public opinion in Australia.

From the geographical features of New Zealand, and the manner in which settlement has been made, we cannot have a great metropolis. There are many disadvantages in this—economical, social, political; but it is quite inevitable; our town populations cannot be so concentrated, but must ever be distributed between Dunedin, Lyttelton (with Christchurch), Wellington, Auckland, and the smaller coast towns. Notwithstanding this, there are good grounds for anticipating that what has taken place in Victoria upon a scale exceptionally grand, will take place in New Zealand in a minor degree, and, so to speak, distributively. Who can doubt that if the Hutt River, which falls into Port Nicholson, had been navigable for only 100 miles into the interior, Wellington would now have been a considerable city. Who can doubt that if the harbour of Dunedin had enjoyed the advantage of a navigable river, the growth of the city would have been much more rapid than it has been. The same may be said of Auckland, with its fine harbour. That which navigable streams would have done here, had they existed, will be effected by railways—though, of course, in a minor degree and less rapidly and effectually

The growth of towns depends upon the prosperity of the country. The country population mainly consists of producers, that of the towns of distributers and exchangers. This division, though convenient and intelligible, is neither perfectly accurate nor perfectly exhaustive. It is not quite accurate, because distributers and exchangers (that is, merchants, agents, brokers, and carriers) are really producers. They perform a service, and add a value to the produce and goods which pass through their hands. The division is not exhaustive, because there are direct producers in all towns, and there are distributers—that is, traders—in all parts of the country. Still, it is con-

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venient to distinguish the town from the country populations by the salient feature which each exhibits. Now, it is almost a self-evident truism to say that, in proportion as settlement spreads throughout the country and the land becomes occupied by direct producers, there will be a continually increasing demand for more traders of various classes, by whom the increased exchanging and distribution must be carried on. If facilities of intercommunication, which is only another expression for cheapness of transport, have the effect (of which I, for one, have no doubt) of promoting the settlement of the country districts and stimulating production, the town populations must increase in a corresponding ratio. More producers will require more exchangers. Between the producer and the consumer there is almost always one middle man, and generally more than one. The wholesale dealer and the retail dealer, the sea carrier and the land carrier, often even an agent or broker between these, are all set in motion by increased production; and they are all, or nearly all, dwellers in towns.

I now approach the last branch of my subject, and it is one which presents some complication, and therefore somewhat greater difficulty. The gains which I have enumerated will not, and cannot, be shared equally by all classes of the community, whilst the price which we must pay in order to secure these gains will (until railways pay a profit equal to the interest on the capital expended upon them) be borne by the whole population. No taxpayer can escape his contribution to the charge, howsoever small his share may be, while his remoteness from the lines of railway may deprive him of direct benefit. This is undoubtedly inseparable from all internal improvements, but if the people of every district could successfully oppose improvements in every other district, improvement could never begin. In the case of railways, however, the advantages are more generally diffused than those arising from ordinary local improvements. In the first place, a trunk railway is partially available to persons living at considerable distances from its line of progress. They will generally be able to send their produce to the nearest station, which will secure to them the benefit of a portion of the line. Thus the wave of cheap transport, as well as the wave of equalized prices, though continually diminishing in its advance, does in practice reach to considerable distances. Still, it must be obvious that there will always be remote localities, which the beneficial influence cannot directly reach. But there is an indirect consequence which is felt universally, and that alone, I think, is worth the small share of taxation which, as I have said, those who reside in localities remote from the railway lines cannot escape from. This benefit, arising out of cheapness, which indirectly reaches all and invigorates all, I will now endeavour to explain.

If, as I trust I have proved, there is a saving from cheap transport spread over the whole community, what is done with that saving? A portion, no doubt, will not ultimately be saved at all. Those who find it hard to

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support their families will increase their comforts. If they save in one thing, they will expend more on other things. Confined to the bare necessaries of life before, they will very properly indulge in a few comforts. But there can be no doubt that, when once saving becomes practicable, accumulation is the result. This accumulation it is which adds annually to the wealth of all countries which are still progressive. But even this accumulated wealth requires further analysis, because it is not all accumulated wealth, the benefit of which spreads throughout the country. Mere accumulated wealth is not capital. If the man who saves upon his general expenditure during the year expends the whole or a portion of his savings in purchasing books, pictures, plate, and jewellery, the portion so expended remains still in the condition of wealth. They are “material productions of capital and labour possessing exchangeable value.” By the purchase of such things, the purchaser has given employment to the producers of the articles once only. They then remain in his possession in a dormant state. But if, instead of purchasing such articles of wealth as are destined thus to lie dormant in his hands, he devotes a part, or the whole, of his savings to the extension of his business; or if he hand it to others to be productively employed, such portion is continually reproduced, and it continues to set labour in motion so long as it is so employed. The portion of wealth so employed is called capital, or, in other words, the term capital is confined to that portion of wealth which is employed directly or indirectly in productive industry. There is no doubt that spendthrifts are not so unpopular as they ought to be. “They do good to trade,” it is said; but in truth, they do good to trade only once, while the more prudent, who save and invest, do good to trade many times; as often, indeed, as their capital is reproduced with the ordinary profits. Of course the wretched miser who saves only to hoard does no good to trade, or to anybody or anything else. But such hoarding is rare in modern times, and the most miserly, now-a-days, employ or invest their savings in some way, so as to reap a profit, and this, as I have shown, is to apply their wealth as capital.

I have said that capital may be employed in stimulating production, and giving employment to labour indirectly as well as directly. If the person who saves be not himself engaged in any reproductive pursuit he probably invests his savings in a bank, or in some other dividend-paying institution. His money, so invested, finds its way into the hands of the active producer; thus he stimulates production indirectly. It is by no means difficult to understand in what manner money nominally lying in banks always operates beneficially in stimulating productive enterprise, and in giving employment to labour. A man who has a good balance at his banker's, for which he cannot find direct employment, is apt to say, “I have so much money lying idle at my banker's,” but in truth it does not lie idle. If the banker kept the whole idle—if he did not lend it to those who can profitably employ it, “dividend” would be a word

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unknown to the English language. The sum total of the balances in the banks, although legally demandable at once, can as safely be relied on by the bankers as a constant average capable of being safely employed in their business. Of course, a prudent and well managed bank must keep a considerable amount of specie to meet all demands; but there is a net balance of deposits which it can use to accommodate its customers. I am not aware what the deposits in the banks in New Zealand amount to, but they count by millions.* In Victoria, in 1862, the deposits exceeded £8,000,000, whilst the reserve of specie was under £2,500,000, so that they must have felt themselves safe to lend five and a half millions out of the deposits of their customers, though the whole of those deposits were legally demandable at once, and without notice, or “at call,” as it is technically expressed. It may therefore be no small comfort to any gentleman patriotically disposed, who, for his own convenience, keeps an average balance of £100 at his bankers, to know that he really is an indirect promoter of productive industry to something like two-thirds of that balance; and although he does not deposit his money with any such benevolent intention, he may really be indirectly helping some farmer at Lake Wakatipu, or some miner at Naseby.

It is, in truth, in the order of providence, or, to change the expression, it is a natural law, that we are made doers of good without intending and without knowing it. But how, it may be asked, do our annual savings, whether from cheap transport or any other cause, reach the farmer of Wakatipu? I will answer this question by another: Can anyone tell me of that remote region which is outside and beyond the direct or indirect beneficial influence of banks? The banks lend the money of their shareholders and their depositors to their own town customers, chiefly the merchants and wholesale traders. These are thereby enabled to give increased accommodation and credit to their customers—the country storekeepers. The storekeepers, in their turn, are better enabled to give credit and other accommodation to the farmer; and he, in his turn, gives employment to the labourer. The banks, moreover, by means of their country branches, bring themselves into more immediate contact with the country demand for assistance. Thus it is that every shilling saved and invested goes to swell the aggregate of “that portion of the wealth of the country annually set apart for production.”

Thus it is that I believe myself justified in saying that the remotest parts of the country cannot fail to participate in the advantages which spring from railway enterprise. This is really the compensating element of the whole scheme. The direct benefit of railways cannot be equally shared. Those who

[Footnote] * I have since met with the Bank statements in the Gazette of the 1st of September. The deposits amount to £3,177,056; the specie reserve is £967,201; the balance available for accommodation, £2,209,855.

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use them most, whether for travelling or for transport, get the most benefit. Is not that the case with every improvement? But it is the result of a natural law, that there are other advantages which every man shares in without any effort of his own. So long as a deficiency remains, no man can escape from contribution to it; but then there are some advantages of which no man can be deprived, and if no great improvement is to be undertaken until the benefits can be as evenly and universally spread as the cost necessarily must be, then perish all efforts to improve; for improvement, upon such conditions, becomes impossible.