Evening star. [volume] (Washington, D.C.) 1854-1972, 1905-08-19
RAILROAD VALUATION
Figures From a Census Bull
letin.
TOTAL CAPITALIZATION
COMPARED WITH INTERSTATE
COMMERCE COMMISSION FIGURES.
Both Documents Show an Excess Of
Capital Over Value-Data
of Interest.

railroad capitalization in the United States
is given in the census bulletin, the full text
of which has just been issued. These CEN
figures relate to the conditions exist
ing June 80, 1904, a synopsis of which was
recently published and has been followed
by the complete bulletin giving. much addi-
tIonal data of great interest.
The bulletin IS of especial interest at this
time in connection with the figures giving
the total capitalization of the roads on the
same date that have just been given out
by the interstate commerce commission. l.
is inevitable that in the discussion of rail-
way rate legislation. comparisons will be
made between the figures given In the
census bulletin and the capitalization of
the roads for the reason that many of the
arguments in favor of giving the inter
state commerce commission authority to
fix railroad rates are based on the hypoth-
esis that the railway system of the coun-
try, a whole. is grossly overcapitalZed
and that efforts TO earn DIVIDENDS on IN
hated capitalization tend to raise the gem
raj level of TRANSFORMATION charges. In the
hearings before the Senate committee on
interstate commerce. for instance, much OF
the argument of Gov. Cummins OF Iowa In
favor of giving to the commission general
power to fix rates was based on this idea.
Excess of Capitalization.
Prof Henry C. Adams, the stattstfcian of
the Interstate commerce commission, under
whose general direction the census bulle-
tin was prepared, does not consider it OF
value. however, in connection with the
question of rate regulation, and In the in
PRODUCTION he says:
1.-The commercial valuation of railway
property, in 50 far it depends on in
come arising from the sale of transporta-
ton, is the result, among other things, of
n-tn .l,n1 bod 10 nf tnhf nr,I moi
senger rates, from which 1t follows that
such a valuation cannot be used for de-
termning the reasonableness unreason
ableness of the rates In question.
The two documents seem to show a con-
excess of capital over value-the
interstate commerce commission figures for
the par value of all outstanding railway
capital on June 30, 1904, being S13 213 1874
60, and the census figures of total value
being but 81 .24i, So 600, an apparent excess
of capital of sl.96S $40. The Interstate
commerce commission statistics of total
capital include s2,501 $50 .6O1 of railway cap
ital owned by other railway companies on
which the holding companies have issued
certificates of their own, thus making a du-
plcation of that amount in the figures of
aggregate capitalization. But the census
office arrived at its conclusions as to val
uation by capitalizing the net income of
the roads derived from Transportation by
rail and expressly excluded from consd-
Grafton the income derived from the owner
ship of railway securities Therefore if is
claimed. that for purposes of comparison
s25Ol .33o,6O1 should be deducted from the
aggregate capital. Making this deduction.
the value given by the census bulletin ex
ceeds the aggregate capitaliza ton by s533.-
057. 800. |
Basis for Calculation.
II appears further that, the object of the
census office being to compile statistics of
railway valuation as a step in the determi-
nation of the aggregate wealth of the ma
ton. the income considered as the basis for
the calculation of value was only that part
OF the net income of each road that was
derived directly from transportation by rail
Income from all other sources was excIud-
ed to be included under other headings in
making up the figures for. the aggregate
wealth of the nation. Thus, among the
many items that go to make up the basis
fof the aggregate capitalization of railways,
the census bulletin takes no account of the
income derived from lands rental of equip
ment, house rents. interest on insurance
funds. interest on surplus loans sinking funds
notes etc; hotels and dining rooms news
privileges and news stands. stockyards,
ocean, lake and river steamships and many
other items that go TO make up the value
OF railroad as an operating property, and
that are properly included in the basis of
Its capitalization.
In supplement to the census bulletin
Prof B. H. Meyer of the University of Wis
consin. who was Immediately in charge of
Its preparation, discusses very infinitely the
methods that were adopted in it's compila-
ton. He shows that, in arriving at the
commercial valuation of individual roads
the market prices of quoted securities were
used to determine the rates at which in
Genes were to be capitalized. For this pur-
pose quotations for the six months ending
June 30, 1904 were used. The financial con-
ditions that prevailed during 1903, had re-
suited in a general decline in the prices of
securities to such an extent that especially
during the first Of the parnd "A W.
considered, market quotations We're general
ly considerably below true values The
effect, therefore, of using these market quo
tatons is to reduce the figures of the bull
letin below what they would have been had
the same method been pursued at time
when conditions were normal, and when
quotations more accurately reflected true
value.
A Low Valuation.
Prof. Meyer also shows that wherever
there was any possible doubt as to the
proper method to be pursued 1t was de-
cided on the side of low valuation Thus
in speaking of the question that arose as to
whether, before using market quotations of
stocks. they should be stripped of their
accrued expectations of dividends he says:
However, as the stripping seemed on the
side of low and conservative value 1t was
resorted to-" and in discussing the weight
to be given to bid and TASK" quotations
he says: Throughout this Investigation 1t
was the settled rule to resolve all doubts in
favor of the lower valuation" Again, al
though recognizing that the true market
value is generally between the price bid and
the price asked. Prof. Meyer says: with
two exceptions IT was decided that, In the
use of the bid and ask quotations, 1t should
be the general rule to use the bid and neg
lect the ask. This was in harmony with the
practice throughout this report to resolve
doubts in favor of lower valuation
Other examples might be given of the
tendency of the methods used by the census
office to reduce the figures finally obtained
and published as the Commercial Value of
Railway Operating Property in the United
States but enough have been cited to show
that the bulletin does not purport to give
the total commercial value of the railway
property of the United States, and that as
an exposition of the value arising from ac-
tual transportation by rail- it is extremely
conservative. 1t Is claimed that as the ag-
gregate net capital of the railway compa-
MES of the country covers all of their prop
erty of every description it is apparent that
If this is to be compared with the CONNER
clal value of railway property the compare
son should be with the total commercial
value.
Another View.
Some students of these figures claim that