The advantages of electricity over horsepower naturally led to the multiplication of electric street lines, as the system ten or fifteen years ago passed beyond the experimental stage. As in all new enterprises, speculation ran ahead of the reality and financing built upon oversanguine calculations has too often had difficulty in squaring accounts when brought face to face with facts. In most of the calculations insufficient allowance was made for the wear and tear of service; in other words, for renewal of road and equipment. After a few years' test of earnings against expenses, it became evident that a proper allowance for depreciation of plant would show a heavy deficit in the income account. In most cases therefore no allowance or only a meager one was made. For a time this method of bookkeeping proved less disastrous than might have been expected owing to the rapid growth of population and business in American cities. It was possible in many cases to consider the enhanced value given to the franchise by growth of business as an offset to the depreciation of tracks and equipment. In so far also as the plant was kept up to a high degree of efficiency by charging the expense of repairs to operating expenses, the absence of a depreciation account was partially offset. With the progress of recent years, however, a new factor has been entering into the problem which promises to make the situation still more serious for the traction systems. This new factor is the rise in prices and wages. Temporarily the influence of this factor may be checked by diminished business activity, but when normal conditions are restored, it will commence to act again upon the railways with accumulated effect. In most cases a proposition to increase the standard street-railway fare above five cents as an offset to the increased operating expenses would be so revolutionary a proposal that it could hardly be carried through. With the line of cost converging upon the line of receipts and with no proper allowance made for depreciation, the traction systems of the country seem to be facing a difficult problem. In the long run it can not be doubted that the problem will be met and solved in a way to afford justice alike to the public who use the cars and to the capitalists who have made street traction on a large scale possible, but in the meantime the investor who desires perfect safety should exercise great care and discrimination in his purchases of street-railway obligations. II. _Rate of Income._ As a general rule, street-railway bonds in common with the obligations of all public-service corporations sell upon about the same income basis as high-grade industrial bonds--that is to say, under normal conditions they return considerably more than railroad or municipal bonds.