Los Angeles herald., 1909-07-22
TAXING POWER OF
RAILROADS
IN view of the recent 10 per cent in
crease In transeontinental freight

ing eultoflal item from the saturday
Evening Post is of special interest to
the people of California:
I'm 1904 the Southern Pacific owed
large floating debt, mostly to the
Union Pacific, which had bought control
of the road some two years before. To
liquidate this debt it issued forty mil
lions of preferred stock, which was
sold to its shareholders. including the
Union Pacific, at par. In 1907 an addi-
tional thirtyfve millions of preferred
stock was sold to shareholders at par.
THE road now proposed to redeem
the seventy-five millions of preferred
stock at $12O share, S100 in bonds, $40
in cash. Holders of the preferred stock
have received regular dividends at the
rate of per cent a year, and are now
offered a bonus of 20 per cent On this
basis the Southern Pacific will have
paid the Union Pacific and its other
shareholders about 13 per cent per an
mum.
"Only the other day Mr.. Hartman
positively ASSERTED that the Standard
Oil fine-as a sort of elimination of the
dreadful Roosevelt pohcies-caused the
panic of 1907. We wish to merely
point out that, in spite Of terrible
handicaps, it has been possible for a
really bright man 10 get a fair run
for his money in railroading."
1t will be noted from the foregoing
that by a stroke of that kind of bril-
liant railroad fnanciering for which
Mr.. Hartman has become famous since
the looting of the Alton treasury of
some sixty millions of dollars which
was conducted under his able leader
ship, provision is made for paying the
big capitalists, who are Mr.. Harri-
mans associates in his railroad deals
interest at the rate of about IS per
cent per annum on seventy-five mil
lions Of dollars. which those capitalists
advanced to the Southern Pacific
Railroad company a few years ago by
purchasing its preferred stock.
This enormous rate of interest on
this huge sum, it will be noted, covers
the dull period Of the past two years,
when most men whose money is invest
ed in manufacturing and other legiti-
mate enterprises were happy If they
realized a modest or 6 per cent upon
their investments. and many of them
realized nothing at all.
There is large investing class in the
United States-the class which buys
permanent bond issues of railroads
on n4H
we'll as the bonds of the national gov
ernment-that are entirely content if
they can secure a rate of from to
per cent interest on their money. This
class. however. is not represented by
the kings of finance" with
whom and for whom Mr.. Harri-
man deals and who are his asso-
ciates. These men, while owning and
investing larger sums than any other
class of our citizens, use the power
to tax the public which the con-
troll of public service corporations
much greater rate of interest on their
money than can ever be reaped by the
ordinary investor.
1t is safe to say that the 4, and
per cent bonds which Mr.. Harriman's
Southern Pacific Railroad company
has issued are most largely held
by that large class of ordi-
nary investors known as the gen
eral public" who are content to Sc
cure a modest income, based upon
safe investment, but when a melon
such as the one described in the edi-
torial above quoted is to be cut,
the Hartman crowd are careful that
it shall only get into the hands Of
those great kings of finance" who are
his immediate associates.
Thus we see that in order to return
to these men earnings upon their
money which the ordinary investor
either in securities or in business en-
terprises during dull times can never
hope TO achieve. the Southern Pacific
railroad is loaded up with new
bond issue whose proceeds are used
to retire this preferred stock at
an extravagant price, and these
new bonds are made to pay in
terest by adding, in dull times, 10 per
cent to the freight tariff which the
public are required to pay to the rail-
road
1t is simply one more of the
many evidences that the power
to tax the public, inherent in all
great public service corporations,
cannot be safely left in the hands
of individuals without the strict
est possible regulation.
1t is merely another of the
many warnings which the people
have had that they must do one
Of two things:
Either provide for a strict
regulation of the power of public
service corporations to issue Sc
curities and of the expenditure of
the proceeds of these securities,
or the ownership by the public
of the public service corporations
whose taxing power is being
manipulated to loot the public.
Probably none Of our nnanciers has
given the public more frequent or i'm
uortant lessons in the necessity of the
public's adopting one or the other OF
these defenses than has MI, Hartman.
And it is probably just as well that
these lessons shall multiply, because
~. .oorar tbe Dublic are made to see