The sun., 1919-07-09
Already bonded Heavily.

''AIost OF our roads are already heavily
bonded, and unless they can market new
stock. none OF their securities will long
attract investors. Inevitably this means
high capital cost and a need for very
large earnings
Before the war. the roads asserted
that new stock could not be sold without
income sufficient to pay per cent. divi-
bends with protective margin of per
cent on par value each year for reserve.
Under present conditions. with the great
demand for capital all over the world
and prevailing high interest rates. there
is little doubt that per cent. would fall
short of making railroad common or even
preferred stock a popular investment
''Financiers are now claiming that to
insure good credit net income must equal
at least l25 per cent. OF the amount
necessary to pay interest and such divi-
dends however great. as may be required
to market new stock.
I'VE need not accept these claims at
face value to prove the serious disad-
vantages OF private railroad credit. espe-
cially under existing conditions. The
claims apply not only to oonservatively
capitalized roads, but to companies suf-
fering from imitation or burdened with
heavy and Improbable outside invest
ments.
"To maintain a credit upon a sound
basis and enable the roads generally to
attract capital in accordance with their
needs private operation will, fear, re-
quire either a Government guaranty. or
in the alternative, the raising OF rates to
point where earnings will be upon a
relatively higher level than ever before.
"A guaranty of dividends is a mongrel
and unsatisfactory arrangement II
would irrff,a ir w ayar Initiative nFiva II
management may stu posses Moreover.
II the Government 10 to guarantee the
securities Of private corporations. 1t will
not be long. and ought not TO be. before
complete and direct control over the
affairs of those corporations Is placed in
the hands of the Government"
Tho Commissioner declared that there
never was a time w1ar conservatism
was more desirable with regard to rails
ing rates Freight rate increases. he
said, have more far reaching results
than is generally understood. and the
situation should not be tempered with.
Mr.. Eastman vigorously opposes the
merger idea advanced, under which the
stronger roads would absorb the weaker
ones He expresses the view that this
would be long, painful process with
bankers and lawyers in charge Of the
negotiations as the chief benehclaries
On the labor problem, the Commits
sioner says the Federal Government can
guide the situation with a stronger and
surer hand than can private corpora
lions. and continues:
Even those most keenly DESTROYS that
the roads should have the beneht Of
private Initiative are sufficiently dis
trustful OF the manner In which II
might be exercised. so that they wisely
urge stringent and costly governmental
supervision, not only over rates, but
over capitalization. mergers, new con-
struction and service as we'll.
THE choice, therefore, is not between
Federal operation and private Initiative
Euch as is manifested In highly COM
petitive industries where success Is in
separable from efficiency. but between
Federal operation and private initia-
tive in field where competition is much
less a factor. II II is to be a factor at
all where prosperity is deemed to be
dependent chiefly upon rates; and
where the door Is open, except 90 far
as It may be closed by supervision to
Interior motives directly opposed to the
public interest"
The commissioner made this conclud-
ing recommendation:
In the meantime the suggestion which
I respectfully offer for your consider
alton Ia that the present form OF ma
tional operation, with the modification
proposed In the so-called Cummins bill.
be continued for an appropriate period
in order that uncertainty as to the i'm
mediate future may be ended and suf-
hcient time gained for the deliberate and
constructive consideration of the entire
problem"