Copyright Newsweek, Inc., July 18, 1966, and Henry Hazlitt.
New York City’s first subway opened in 1904. The fare was 5 cents. The subways remained under private ownership until 1940. The fare was still 5 cents. But meanwhile wholesale prices had gone up 32 per cent; wage rates had tripled; the lines were granted tax exemption by the city. They petitioned for higher fares. But the 5-cent fare was sacred. The city fathers decided that the only way to keep it was to eliminate private profit and run the trains themselves.
So the subways were bought by the city in June 1940. On July 1, 1948, the fare was doubled to 10 cents. On July 25, 1953, it was tripled to 15 cents. Between 1940 and 1953 other consumer prices went up 91 per cent, but New York subway fares went up 200 per cent. The lines were still run at heavy loss. Even by its own method of accounting, the Transit Authority has lost money in seven out of the last ten fiscal years. If even one of its several subsidies from the city is deducted, it has lost money heavily in every one of those years.
The Transit Authority, which runs the subways for the city, is required by law to operate within revenues received from operations. This is a rather technical requirement. In the first place, capital funds (such as for subway construction, subway cars, and buses) are provided by the City of New York. There is a subsidy for carrying school children, and a subsidy for Transit Police.
In the fiscal year ended on June 30 last, the Transit Authority reported an operating deficit of $62 million. This deficit was achieved in spite of a tax subsidy of $166 million to Transit for the fiscal year. The subsidy was made up of New York City’s outlays for all debt service, construction, and new equipment of $116 million; the subsidy for student fares of $20 million, and the subsidy for Transit Police of $30 million.
And now the fare has been raised to 20 cents — a 300 per cent increase since 1940. The extra 5 cents is expected to bring in something in excess of $60 million, but probably will not be enough to cover the operating deficit even when all the subsidies are included. A 25-cent fare may be less than a year away.
As the charge for the service has been going up, the quality has been going down. The trains run less frequently; they don’t meet schedules; they get older and dirtier, and so do the stations.
The Wall Street Journal recently complained in an editorial: "The change-makers in the municipally operated subway system refuse, usually with great rudeness, to accept a $5 bill or anything higher… A person finding himself with nothing under $5 has no choice but to trudge back up the stairs and find a store willing to make change. Nine times out of ten the shopkeeper will do so in perfectly friendly fashion. The contrast is illuminating. The salesman in the store knows his livelihood depends on courtesy and service. To many a minion of bureaucracy, however, people are nuisances at best and to be treated as such."
This is "public" ownership. This is how socialism, U.S. style, works. A theory has developed that municipal transportation ought not even be expected to pay its way. This theory is merely the outgrowth of government ownership. When cities own and operate the subways, the fare must be subsidized. When governments own the railways, the railway fare must be subsidized. When governments own the telephone and telegraph lines, the lines are subsidized. When governments own the power and the light companies, power and light are subsidized. When governments own the airlines, the airlines are subsidized. Governments run the mail service, and the mail is carried at a loss. Nothing is expected to pay its own way.
A subsidy on bread would be more defensible than any of these, but the government doesn’t yet own and run the bakeries.
The socialist argument begins by saying that fares are too high because private industry is under the necessity to make a profit. What is overlooked is that it is precisely the need to make a profit, or to avoid a loss, that leads to economy, efficiency, and good service. Government ownership removes the incentive to all three.
Henry Hazlitt
Henry Hazlitt (1894-1993) was the great economic journalist of the 20th century. He is the author of Economics in One Lesson among 20 other books. See his complete bibliography. He was chief editorial writer for the New York Times, and wrote weekly for Newsweek. He served in an editorial capacity at The Freeman and was a board member of the Foundation for Economic Education.