New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-09-22
Railroad Financing

strangely enough only arrives at the
usual conclusion Of the railroad man
that an increase in rates is the rail-
roads only salvation.
There is at present problem CON
fronting the railroads, it must be ad-
mitted. as they are unable to borro"
money except at rates considerably III
advance of what they formerly were IN
the habit of paying. The reason ior
this, however, is not, as your CORE
spondent seems TO assume, that the IN
vestor has lost confidence in the rails
because of their failure 70 secure
further rate increases.
II is believed that the public as
whole has a higher regard for railroad
securities than at any time IN the re-
cent past. For some little time the
NEWSPAPERS and tickers have been filled
with railroad earnings reports such as
were never before dreamed Of Inc IN
yestor is also we'll aware of the great
savings effected by the roads by acleh-
tifc management, and while railroad
officials have been crying loud Tor rate
increases he knows that the roads have
already received substantial advances.
Why the railroads must now pay
more for money resolves itself to
pure question of everyday competition
in business. In its recent large scale
loan operations the government has
offered for sale to the public better
credit commodity than the railroads
could, and in comparison, together with
the resulting diminution in the demand
for this commodity, the railroads have
had TO sell their obligations at
cheaper price-that is, at higher IN
terest rate.
II would not seem to be dlihcult
matter for the government TO increase
its borrowings so as to cover the needs
of the railroads. Yet it would be vastly
more efficient than TO increase rates so
as to pay the higher interest charges
and thereby readjust freight classihca-
tions, freight rates and business con-
ditions throughout the country, And
would not this plan be but recog-
milton of the economic principle that
competition is unscientifc and that the
United States could better borrow as
whole for all the railroad lines than
that each and every line from coast TO
coast bid for funds in competition with
each other and Uncle Sam as well?
As matter of fact, the execution OF
this plan would be no more than an eX-
tension of what the United States has
been doing in its borrowing operations
for the Allies. The advantage of this
has been that one big bond issue has
taken the place of the numerous bond
issues of the Allies which were previ-
ously foated in this market, thereby
causing saving, not alone in interest
rates, but in effort and advertising eX-
pense. What Uncle Sam has done for
his friends across the sea he ought to
be only too clad TO do for his own chief
industry here.
1t is also TO be noted that the opera
ton Of this plan would give the gov
eminent a direct supervision and con
troll over railroad financing.
The contention may no doubt be
made that this plan would cause the
bond issues of the government to be
very greatly increased, and that. as
. 70 nl,- Of to q
mand is, of course, limited. the inter
est rate which the government itself
would have to pay would be higher
than at present. This may be true,
but the slightly higher rate of interest
which the government would thus be
paying would, nevertheless, be lower
than what the railroads would have TO
pay for the same funds, because the
public will always lend its money for
less on the better security of Uncle
Sam than il will to the individual rail
roads on their respective credits.
This difference in interest rates
would be a saving to the railroads, as
the plan would be for the government
to turn over the additional funds 1t
would borrow TO the railroads at cost.
While the old saying that what is
saved is made is as true now as ever,
Mr.. Fayant entirely overlooks this feat
ure of the proposal. Would not this
saving be the same as an increase in
rates effected without confusion, and,
remarkable as it may sound, coming
out of nobody's pocket?
Nor would this saving be counter
balanced by the losses the government
would sustain by weaker roads failing
to meet their obligations. The losses
(which the government would thus sus-
tain would indeed be less than the
losses which the public as whole now
sustains, inasmuch as the fact that
the roads would be securing funds at
lower rates would put all in stronger
financial position and decrease the
number of receiverships.
IL would. moreover, be more equltd-
Bile and democratic for the public as a
whole (by ultimate taxes to stand the
loss of such railroad obligations as go
to default than fer separate groups Of
industrial stockholders TO bear the
burden, with the consequent hardship
thereby entailed. Railroads are not
separate businesses they constitute,
as has only recently been demonstrat-
ed. a complex whole and entire unit
They are not private enterprises. and
the duty they owe TO the public IS re-
ciprocated in the duty the public as a
whole owes them.
II seems hardly necessary TO answer
the contention that the suggested plan
would pile railroad debt upon debt. It
would merely substitute a less eXpen-
sive debt for the present one. In fact,
il would be utilizing that hitherto un-
utilized Niagara of credit power-the
10 L OF Uncle Sam.
ROBERT MOERS.
New York, Sept. Is, 1917.