The Washington herald., 1914-03-30

cording to the statistics OF the Inter.
state Commerce Commission. was SSl. IS
per mile. II Is this gross capitalization
figure which ordinarily Is used by those
who seek to show that our railways are
over capitalized. But the figure con-
tains a large duplication owing to the
ownership of large amounts of bonds
and stocks by the railways themselves
This duplication must be eliminated in
order to arrive at the capitalization act
ually outstanding in the hands Of the
public. The Interstate Commerce Com
mission does this eliminating. and re-
ported in its statistics for 1911 that the
net capitalization actually outstanding
at the time was $50 944 a mile. Neither
the gross nor the net capitalization
figure seems TO be very large compared
with the figures for capitalization of the
railways Of other countries. Disregard
ing, however. whether our railways are
over capitalized or not. let US see on
what capitalization they now actually
earn and pay a fair return.
Earn Less Than Six Per Cent.
1t will be universally conceded, / sup
pose, that any railway which has been
and is managed with reasonable pru-
dence is entitled to earn and pay at
least per cent on a fair capitalization
or fair valuation. Certainly, in no
other class OF business are men content
to earn or pay less, or even so little.
Now. the total earnings which the rail-
ways Of the United States had left in
1911. after paying their operating ex-
penScs and taXes-that is. the total net
operating income they had-was $751;
10000, and the total amount which they
paid out in interest and dividends in
that year was $sI2 OOO.OO On what
amount OF capital would the net operat-
ing income which they actually had have
paid a return Of as much as per cent ?
On only sl2,7I5. 1000 or Sl. 200 per mile.
And on what amount of capitalization
would the interest and dividends which
they actually paid out have paid a re-
turn Of per cent? On only Sll, ,l53 700, on.
or $500 mile. And what did the
railways do with the portion OF their
net earnings which they did not pay
out in interest and dividends? Practi-
cally every dollar of il was invested
in the properties.
Now, then. suppose that il be granted,
for arguments sake, that the gross capi-
taliation of SM.SOO a mile. or even the
net capitalization of $4,000 a mile, is
excessive, will any one say that il is
reasonable for the railways to be re-
stricted to earning only per cent on only
Sbl,I60 per mile OF line or to paying only
6 per cent on only $3.50 per mile? There
is not large system of railways in the
world that is capitalized for as little as
the larger Of these figures: most Of them
are capitalized for more than twice as
much. And since the railways net oper-
ating income is so small. can II BE-
nationally argued that any change can be
made in the use OF their present net
rninRG ha
the increased investment in their proper
ties which Is needed to enable them to
render the higher standards of service
which the public demands? ManifestIy.
no. The railways are not earning or pay
ing a reasonable net return on any
where near the investment and value rep
resented by their present properties: and,
therefore, without a large increase in
their net earnings they cannot make or
pay a return on the large additional in
vestment that the public demands they
shall make in order to improve their
service.
4 Doubtful Proposition.
j. As the railways cannot reduce, or even
keep down their operating expenses. they
can secure the needed increase in their
net operating income only by Increasing
their gross earnings. II has been int.-
mated during the hearing of the Eastern
rate advance case that the roads should
increase their available revenues by be-
ginning to charge for certain services
which they now render to shippers free,
and by ceasing to pay shippers allow
ances for rendering certain services
which in the past the shippers have
theoretically rendered to the railways.
but which. in fact. in some cases. thev
-
timations have come from the Interstate
Commerce Commission and its attorney.
Mr.. Louis D. Brandeis. II II is possible
Tor the railways to get some of the need
ed revenue in this way. and the COM
mission and the public prefer that they
should do so. doubtless the RAILWAYS will
accept their view. But II Is questionable
whether as large additional revenues can
be obtained in this manner as some an
pear TO think. The only other way to get
{ is by increasing rates.
Three years ago the railway managers
advanced somewhat the same arguments
or hiGher rates that they are making
low. Their views were not accepted and
he advances were disallowed. 1t was said
W those who opposed the advances that
he railways should be able to get enough
additional revenue through the normal in
'rease in the volume Of traffic and by
Increasing the efficiency Of their opera
ions
Commissions Decision Wrong.
The railway managers feared that the
esults OF the commissions decisions
would be harmful Later events have
demonstrated that the commissions de-
isions were wrong. In spite Of all the
always managers have been able to do,
he subsequent period has been one Of
Increasing operating expenses. Gross earn |
ngs have not increased in proportion. |
vet earnings have, in consequence, de- |
lined. And the construction of new
Mileage has been almost stopped. while |
he making of permanent improvements |
as been gravely hindered.
The railways are the largest purchasers /
4 the products Of manufacturing indus |
ries, and the restriction of tfeir growth |
nd development has been one of the
hief causes, IL not the chief cause. of 1
he depression In business which has con-
inued in spite OF all the cheerful talk in |
'hich those responsible for the admins
ration Of public affairs have INDUCED.
mother decision denying to the railways
he opportunity to increase their reve-
ues would have the same effect as the
ecision granted by the commission three
ears ago. The railways cannot, under
resent conditions, prosper or render the
ind of service the public demands with
ut higher rates. and the country cannot
rosper as long as the railways do not.