Subway Story

As an illustrative instance, on a rather grandiose scale, there is the case of the New York City subway system. Originally this railroad was built by entrepreneurs under a franchise granted by the “city fathers.” As a condition of the grant, the fare was fixed at five cents. For a while all went well; the company rendered adequate service and paid its bills, including interest on its bonded indebtedness. As the city pulled into its orbit more and more surrounding communities, the company extended its mileage, as required, and in due time the nickel fare did not meet operational costs. The company asked for permission to increase its fare. The people-loving politicians refused the request and the “nickel fare” became a potent campaign issue. From the very beginning there were those who clamored for public ownership and operation, terming the franchise a “giveaway,” but they were shouted down as socialists, the bondholders and management being most vociferous in this denunciation. But, when the company defaulted on its interest payments, and the bonds consequently shrank in value, it was the bondholders who asked the city to buy them out; they had no objection to socialism if a profit were involved. Eventually, a “reform” administration, headed by a mayor of pronounced socialistic persuasion, arranged for the purchase of the bonds at a price far beyond the open market quotation. The taxpayers, as usual, paid the bill. Shortly thereafter the subway was “taken out of politics,” meaning that the fare was raised to ten and then to fifteen cents, and deficits are now the regular order. The subway system is now a city-owned monopoly, run by bureaucrats, whose prime interest is the perpetuation of their jobs, not railroading.

via A Matter of Degree: The New York Subway – Frank Chodorov – Mises Institute.

This is a familiar pattern which quite possibly outlines the future of American health care.


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