The daily Gate City. [volume] (Keokuk, Iowa) 1855-1916, 1915-07-14
Shows How Railroad Stocks Are
Listed at Higher Rate
Than Dividends
Show.
THE REASONABLE RATE
mistake Of One Per Cent Means Ons
Billion Dollars
on Either
Side.

TBy Lowell Mellett, United Phess
Staff Correspondent
WASHINGTON, July 14.-Clifford
Thorne sat in corner OF notei
room, stretched his legs till his 1eee
rested comfortably in the middle Oh
the room and fred off statistics IKE
Roman candle shooting SPARKS
The chairman of the Iowa state ran.
road commission is the greatest
known container Of statistics--.and al
so one of the greatest unloaoers
thereof. He had just unloaded sew
eral carload lots on the lntersta'e
commerce commission, but still hao
considerable +. o. b.
Having established beyond ques-
ton that not only does two and two
make four, but that two billion Plus
two billion make four billion, ana
having shown the connection between
these mathematics and the increase
in rates wanted by western railroads,
he propounded this question:
"What constitutes a reasonable
rate of return?"
Not being furnished an answer, ne
went on:
IAN 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 fohoW
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 $5,0OO,0O0,Ooo.
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
croscope, to inteligently analyze deer
mails Of 6ne-tenth of one per cent.
We can handle with more facllity
variations of a hundred million dol
lars year in the value Of the prop
erty. One is as important as the
| other. The rate of return is certain
| ~ as important as the value.
"If railroad president is asked
he will say seven percent is reason
able. If farmer, he says, 81 per
cent. What is reasonaD pie on govern
ment bonds is not reasonable In
manufacturing security; what Is rea-
sonable on the latter is not reason
able on railroad securities, either
stocks or bonds. More than halle the
wealth of this nation is invested OH
basis of four per cent or less.
There are billions of dollars on de-
post in our savings banks drawing
four and three per cent; billions In
government bonds, drawing less than
three per cent; billions in railroad
bonds drawing AZ per cent and bill
lions in our farms.
while some farms earn as high as
10 and Is per cent it is safe to say
on the records-they are earning an
average of less than four per cent on
their value. You cannot name rail-
road that has been making regularly
more than five per cent on the total
value Of it's plant whose securities
are not selling at or above par in or.
binary years.
"The investor in tho capital stock
of these railroads Is entitled to
higher return than the investor In
the bonds and if there were in exist
ence a colossal 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 evidence of what
the investing public considers to be
a reasonable rate Of return on the
stocks and bonds Of railroads.
Taking all the stocks Of our north
western group of railroads, weighing
them in proportion to the amount OF
capital stock outstanding, their aver
age price in the year 1914 amounted
to 1865. This is a remarkable DOM
onstration that the stocks OF these
companies are worth 100 cents on the
dollar in the eyes Of its investing
public, although it is common knowl-
edge that large portion OF them uo
not and never have represented bona
fde investments in the property.
There is not q railroad company in
this or any other part of the United
States that has paid 61s or per
cent dividends to it's stockholders
whose stock ordinarily does not sell
for more than 100 cents on the dol
lar. The railroads of this territory
are able easily to bond their property
I'D to IS or 70 per cent of their value.
If you could secure to these railroad
properties a return of seven per cent
on their total values, the stocks will
be earning from ten to fifteen PEI
cent and they will be sellinS-every
one of them-from 100 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.