New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1916-11-07

eral commission to approve the is
sue of securities; the Federal incor-
poration Of railroads, and a stand
ardization of railroad accounting.
These are all excellent suggestions
and practical, but from the air with
which they are set forth one would
think that railroad bonds had fallen
from a high estate, whereas, in fact,
they have risen from low one. Pos
sibly the investment bankers are too
close to the merchandise properly to
appreciate its merits. Their own
lack of interest in railroad bonds is
owing very largely to the fact that
the profit in handling them has been
tending for some years to diminish.
The distribution Of other kinds of
bonds, such as those of public utili-
ties corporations, has become a much
more lucrative business. The mar
gin of profit in good railroad bonds
is small, as in any staple merchan-
disc. There Is less in New York
City bonds and still less in United
States government bonds. The bet
ter the goods the lower the profit
American railway bonds, barring
unimportant exceptions, are the best
investments in the world. They are
legal for savings banks, whose funds
are invested under rigid state laws.
They are very heavily held by trust
institutions and insurance compa-
MES. They have been accepted by
the United States government as
security for currency and public de-
posts. They are so diffused through
our financial fabric that they are in
separable from the solvency of the
country as a whole, and the govern
ment has committed itself to the
proposition that railroad rates must
be sufficient not only to pay inter
est on the bonds of the railroads, but
to pay fair dividends on all honest
stock and leave a margin over for
improvements. Never were railroad
bonds SO safe before.
But it was not always so, and most
people would be surprised to know
how recently it was different. Men
are living in Wall Street who can
recall time when to invest saw
ings banks deposits or trust funds in
railroad bonds would have been the
same as now to invest them in min
ing stocks. In the three years from
1879 to 1889 28,400 miles of new
railroad were opened and nearly ST.
O00,000,000 of new railroad securi-
ties were issued, of which $1,000
100000, according to the estimate of
Poor's Manual, was fictitious capt.
talization. Indeed, according to this
same sedate authority, practically
the whole stock capitalization of all
American railroads at that time was
pure water. Their stock was S3,700,-
100000, their bonds $3,445, 100000
and their floating debt 1882, 900, 900.
The bonds and floating debt repre-
sented what they had cost; the stock
represented promoters profits. Peo-
pie were under a singular delusion
as to the value of railroad securities.
They bought them Historically. In
1883 the bubble burst. Poor's Man
ual at the end of that year said:
at is in this enormous increase of
fictitious capital that is to be found
the cause Of the general decline in
the price of railroad securities"
After the panic and the ensuing
depression, the water was elected,
or, where that was not done, the
railroads grew up to their fictitious
capitalization. There was long
and toilsome process of financial and
moral rehabilitation. The average
tate of interest paid on American
railroad bonds in 1885 was 4.97 per
cent. From that time it declined
steadily, as railroad credit improved,
until it touched 3% per cent about
1911. After 1895 the railroads be-
came preferred borrowers of capital.
They could sell bonds at a lower rate
e interest than any other corpora
tons. The 6, Z and 8 per cent bonds
issued twenty years before were paid
off or refunded with 312 and a per
cent bonds. The average rate of
dividend paid on all railroad stocks
in 1885 was 21z per cent. As the
average rate of bond interest fell,
with the improvement in railroad
credit, the average rate of dividend
increased steadily. In 1914 it was
$50. per cent.
In the last few years, owing TO
great economic causes which need
not be discussed here, the prevailing
rate of interest has been rising in
the whole world. This has nothing
l. ...:.l A,,or;can roiiroat credit