New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-11-04

about S43,0OO,000 Of stock issued in
exchange for convertible bonds sold
prior to 1912, and about S14,00O,ooo
of the shares Of subsidiaries taken
by controlling companies. 1t also
does not include about $l42,000,00O
paid in assessments by the share
holders Of reorganized companies.
Topheavy
With Debt
To continue financing the railways
by increasing their indebtedness, as
we have been doing for the past six
years, must inevitably lead to dis
aster. The vulnerable position Of q
corporation that has financed itself
largely by bonds is apparent. II a
100000 company has outstanding
ss,OOO,OO0 Of 5 per cent bonds and
100000 of stock, the annual in
terest charge is 100000, or 4 per
cent on the total capitalization. If
its net income declines to this 4 per
cent danger line, its credit is i'm
perilled and its solvency threatened.
But if its capital is made up Of
100000 of bonds and 100000
of stock, the fixed charges are only
100000, or but 1 per cent on the
capitalization. So financed, a COM
pany can weather very heavy seas.
Even with net income reduced to
4 per cent it earns its fixed charges
three times over.
When it is remembered that the
Eastern roads in 1914 earned less
than per cent on their property
investment, and in 1915 less than
Az per cent, it is plain that a heavy
of debt is q danger
GUS development in railway finance.
| believe that it is automatic that
the earnings Of railways should be
large enough. year in and year out,
to attract new capital in competition
with other industries. There can be
no dispute on the proposition that
the railways cannot maintain a
healthy growth on starvation rage.
But in spite Of this unanimous agree
rent on a fundamental policy of rail-
way regulation the carriers continue
to be starved. Let me quote from a
well known authority:
Capital will seek on the average
that investment which Is most salts
factory. To divert private capital
to railway enterprise IL is only neces-
sary 20 offer an investment which
is more attractive or equally attrac-
tive with other forms Of investment.
contemporaneously presented. 1t is
generally conceded that within the
next few years, II our means Of
transportation by rail are 20 keep
pace with the calls upon them. very
large sums mus. be expended in the
way of new construction ard new
equipment. While some small por-
ton Of this may come from current
earnings, the great bulk must be new
z.-...l he h
tanned from the investing public. II,
therefore, We are to rely in the
future, as we have In the past, upon
private enterprise and private capital
for our railway transportation, the
return must be such as will induce
the investment. II is, therefore, not
only a matter OF justice. but in the
truest public interest, that an ade-
quate return should be allowed upon
railway capital.
That logical analysis Of the prob
lem was not written by banker, or
q railway lawyer or publicist. 1t is
part Of the opinion Of the Interstate
Commerce Commission in the 1910
rate case.
And in even more vigorous Ian
guage Commissioner Harlan empha-
sized this fundamental principle Of
rate regulation in his opinion in the
1917 rate case:
Our population and our commerce
have largely expanded, but there has
been no expansion, relatively speak
ing, in our transportation facilities.
So long as We look to private
interests TO furnish a transportation
service for the country We must see
70 It that the rewards are sufficient
to attract capital for its further de-
velopment. Under present conditions
this appears not TO be the case.
We must not overlook the
fact that at this time, and apparently
for the next few years, new capital
must be sought BY the carriers in
competition with the demands Of
many governments for war loans, and
in competition with the very large
returns OF industrial companies.
A rate is public question
and the existing rates, aside from
any interest that the owners Of our
railroads may have in the matter.
could we'll be advanced In the public
interest, In order that assurances NAY
thus be given for the enlargement
of our transportation facilities.
Cannot Finance
Growth Out Of Earnings