East Oregonian : E.O. (Pendleton, OR) 1888-current, 1915-07-14
az LOWELL MELLETT.

AS LnS NuA1C, oA4S Expert
BY LOWELL MELLETT.
{ United Press Staff Correspondent
WASHINGTON, July l4.-cHfford
Thorne sat in a corner Of hotel
room. stretched his legs till his feet
rested comfortably in the middle OF
the room and fired off statistics like
Roman candle shooting sparks. The
chairman OF the Iowa state railroad
commission is the greatest known
container of statistics-and also one
Of the greatest unloaders thereof. He
had just unloaded several carload
lots on the Interstate Commerce Com
mission, but still had considerable T.
o. b.
Having established beyond question
that not only does two and two make
four, but that two billion plus two
billion make four billion and having
shown. the connection between these
mathematics and the increase in rates
wanted by Western railroads, he pro-
pounded this question:
What constitutes a reasonable rate
of return?"
Not being furnished an answer, he
went on.
"An error of one per cent, made by
the interstate commerce commission
in fixing the rate of return that is
reasonable is equivalent to a mistake
of one billion dollars in the value on
which It is held the carriers are en-
titled to a return. DO you follow that
If five per cent is reasonable return
on the investment in railroads, an
error Of one per cent amounts to one
fifth. The alleged value of these
western railroads is 5000, 900, 900.
One fifth of five billion is one billion
and there you are.
1T is very difficult for the human
brain, with a sort of intellectual mi
croseope, to intelligently analyze dec
imals Of one-tenth of one per cent. We
can handle with more facility varia-
tions of hundred million dollars al
year in the value of the property. One
is as important as the other. The
rate of return is certainly as import
ant as the value.
IF a railroad president is asked,
he will say per cent is reasonable
IF farmer, he says IL per
cent What is reasonable on govern
ment bonds is not reasonable in a.
manufacturing security; what is rea-
sonable on the latter is not reasonable
on railroad securities, either stocks or
bonds. More than half the wealth of
this nation is invested on a basis of
four per cent or less. There are bill
lions of dollars on deposit in our
savings banks drawing four and three
per cent billions in government
bonds, drawing less than three perl
cent; billions in railroad bonds draw
ing 1-2 per cent and billions of dol
lars in our farms.
while some farms earn as high
as 10 and Is per cent 1t is safe to say
ON the records-they are earning
an average of less than four per cent
on their value. You cannot name al
railroad that has been making regu-
larly more than five per cent on the
total value of its plant whose securi-
ties are not selling at above par in
ordinary years.
THE investor in the capital stock
of these railroads is entitled to a
higher return than the investor in the
bonds and if there were in existence
a collosal financial giant with the
ability to purchase whole railroad
systems then We might find out the
rate at which they are willing to buy
a railroad. But railroads are not
bought individually. We buy and
sell them piecemeal, by stocks and
bonds. The market places of the
country do not offer the best evidenced
of what the investing public considers
to be a reasonable rate of return onI
the stocks and bonds of railroads
Taking all the stocks of our
Northwestern group of railroads,
weighing them in proportion to the
amount of capital stock outstanding,
their average price in the year 1914
amounted to 1865. This is a remark
able demonstration that the stocks Of
these companies are worth 100 cents
on the dollar in the eyes of its invest
ing public, although it is commonI
knowledge that a large portion Of
them do not and never have repre-
sented bona fide investments in the
property. There is not a railroad
company in this or any other part of
the United States that has paid l-2I
or per cent dividends to its stock
holders whose stock ordinarily does
not sell for more than l00 cents on
the dollar. The railroads of this ter
ritory are able easily to bond their
property up to 65 per cent or 20 per
cent of their value. If you could Sc
cure to these railroad properties a
return Of I per cent on their total
values, the stocks will be earning
from 10 per cent to 10 per cent and
they will be selling-everyone OF
them-from 15O per cent to 200 per
cent of their par value. You will be
giving to these roads more than what
the public says is reasonable.
The Hot Weather Test makes peo-