Los Angeles herald., 1910-09-21
Witness Tells How Capitalization
Is Forced Up to Fat
ten Dividends
BLAME. HIGH RATES TO PANIC
Illinois Central Officials Try to
Explain the Recent Ad-
vanceS Made
IAssociate4 Press1

CHICAGO, Sept. 20.-Alleged manips
ulation Of a railroads income to cover
I'D earnings and to compound its In
come was inquired into today by at
torneys for the interstate commerce
commission and western shippers and
ohicerst Of the Illinois Central in the
hearing of the rate case, now in pro-
gress.
Interesting opinions upon the pro-
priety of the disposition Of earnings
were given by General Manager Parks.
Mr.. Parks has told the commission
he thought a proper freight rate was
one that rendered fair return for SER
vice to the shipper and which, after
paying a reasonable dividend on the
capital stock, paid fixed charges and
operating and maintenance expenses,
and would also give the company a
yearly surplus Of 100000 or $7,OOO,OOO,
"to make the investment attractive to
people with money and to give the
company q credit"
"And what would yiu do with this
surplus, just hold it?' inquired Attor-
ney John H. Atwood of Kansas City,
representing the general shippers COM
mittee.
mo" was the reply. 81 would use it
for bettering the road. For instance,
1 would devote part Of it to new
depots, ETC."
depot was built You would consider 1t
a part of the actual property of the
company, proper subject for addl-
tional capitalization, wouldn't your
"Of course" was the answer.
HOW DIVIDENDS ARE RAISED
"Then when you later had capital
ized, you would say you ought to be
entitled to reasonable dividend upon
that eapitalization?"
Yes"
"rfaen the simple fact is, you ought
to be entitled to charge shippers
so that you can devote part to new
capitalization and then get big re-
turn on it in the shape of dividends,
do you? Is that your idea of what
constituted fair tariff for the ship
pers p"
The witness did not answer.
Attorney w. H. Horton of the 1lli-
nois Central sprang a surprise on At
torney H. C. Lust Of the Illinois Man
ufacturers' association. He tsked:
'Mr Lust, will you give me the
names of four or five Of your largest
shippers?"
"Why do you want them?" returned
Lust in surprise. 1--WE represent ship
pers who pay $150oO0,oOO annually In
railroad freight rates"
''I want them," retorted Mr.. Horton,
"to produce statements similar to ours,
in which to show our returns on the
investment are only 4.6 per cent, and
see what the returns are. Do get the
names?"
1--WE will have consultation" an
swered Mr.. Lust.
RAILROAD INTUITION
Manager Parks introduced q new
term in railroad nomenclature-"rail-
road intuition" He had been asked
by Commissioner Clements on what he
based his opinion that the present
In excess of It's $2S5,000,000 capitaliza-
tion
"Why, I haven't any exact data to
determine the physical valuation" said
Ms. Parks. "I depend upon what
might call railroad intuition-yes,
that's It, railroad intuition. You see,
a man can't do nothing for thirty-flve
years but ride over railroads, compare
property values and buy lines without
gaining an intuitive value apprecia-
ton. / couldn't name any definite fig
ure, but it Is much higher than the
capitalization"
Chief Engineer A. S. Baldwin, who
followed Vice President Parks, said
that because Of the so-called panic of
1907 millions of dollars worth of re-
pairs, new buildings and "many other
expenditures that it would have been
wise to incur and which it was false
economy not to-" had been deferred
and now demanded attention"
Commenting on labor efficiency, En-
gineer Baldwin said:
"Ip ten years we have raised certain
workmen's pay 25 cents day, and
as a result we are getting less return
for our money. The more independent
worker becomes, either through
unions or otherwise, the less dependent
he feels toward his employer, the less
conscientious effort he gives in return.
1t is safe rule to say that increased
wages means less labor efficiency"
The Illinois Central announced at the
close of the days session that 1t had
put in its case. 1t was understood the
next railroad to present testimony
would be the Chicago, Milwaukee &
st. Paul. This road will appear before
the committee tomorrow.
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