The sun. [volume] (New York [N.Y.]) 1833-1916, 1915-07-08
munity and the general public. II Is


munity and the general public. II IL
q notice tn corporate arrangements
that finance must direct its attention
to keeping fixed charges on earning
capacity within alutary limits. II Is
a notice to public opinion that In mat
ters of politics affecting corporate on.
tcrprise public policy must be such
AS to encourage those forms OF In
vcstment that are represented by own
ership shares rather than evidences
of debt.
one Of the causes Of the financial
difficulties which have overcome so
many Of our railways under the ad-
ditlonal strain OF the economic dis
turbance resulting from the Euro
pcan war has been denoted In past
years by the increasing preference Of
investors to become creditors of the
railroad industry rather than part
ners IN II. During the last decade
It has been harder and harder for
the railroads to finance their needs
through the sale of stock. They have
had to sell too many fixed charge
obligations, running, In the last few
years especially, to IN inordinate total
VI short term notes. because 1t was
easier to obtain funds from the
bankers money market than from
the market for permanent investment
capital.
The case Of the Missouri Pacific IL
n glarlng illustration of the evil Of
this curse. What has brought the
property to grief has been more than
anything else the piling up Of fixed
charge securities So that - per cent.
Of the total capitalization of the com
pany Il mile Of road Is In such So
curities and only % per cent. In
stock. The principal aim Of the re-
adjustment devised is to INT out more
than $50, 1000 OF fixed interest OBJ
legations and reduce their ratio to n
little more than 80 per cent.
There Is another side to this mat
ter, however. Mistakes OF financial
policy by railway arrangements are
only partly to blame for the hard
ships against which so many railway
systems are contending. Financial
policy in n past not 81 very remote
did not reckon with Il change of pub
lie attitude from excessively liberal
encouragement Of railroad develop
ment TO excessively severe restriction
Of railway control over earnings and
expenditure with II consequent de-
cline in profits available for stock
holders. A statement made in the
Missouri Pacific reimbursement plan is
worth quoting for the reason that
while similar statements have become
Of late only too familiar they are
none the less deplorably true, and 1t
throws a great light on the railroad
problem with which the country Is
confronted. The statement reads:
prominent among the causes to which
the present pliSht of the company Is
due are unremunerative freight and pas
senger rates. local and interstate. from
which the company has thus far been
unable to obtain material relief heavy
increases in taxation and wages. and
many burdensome requirements imposed
by public authorities"
Admitting the errors, culpable or
otherwise. which railway financial
management has committed and must
correct, there are errors for which
the public is responsible which must
also he corrected II railway prosper
ity Is to he restored and do its share
in contributing to the general pros.
perity. The political pressure from
which the railroads have suffered
must be immensely lightencd II pri,
vate capital is to go into railway en-
terprise on terms that will render
unlikely a recurrence Of the era OF
railway insolvencies through which
we are passing.