New-York tribune., 1919-02-07
MIR. Warburg's Plan for the Railroads

yesterday by Mr.. Paul Warburg to the
literature of the railroad problem cannot
fail to arrest widespread attention. Mr.
Warburg approaches the question of
what to do with our great transportation
system from the point of view of his val
liable experience as q member of the
Federal Reserve Board in the first four
years of its existence. The solution he
offers will commend itself for it's simple
ty and its adequate consideration of the
widely conflicting interests involved
1t is universally recognized that the
roads must have more adequate return
upon their investment, or they fail At
the present time, as Mr. Warburg points
out, only about ten of the more i'm
portant companies are able to sell their
capital stock at par or above Unless
they have assurance of larger return,
the roads cannot 60 on raising money at
increasing rates Of interest on mort
cages The alternative is a higher re-
turn or government ownership in some
form.
Mr.. Warburg reviews at length the
difficulties involved in the latter, the lack
of initiative and enterprise, the inevi-
table political pressure, the tendency to
extravaganza He remarks:
"Anybody who has lived for four wears
IN Washington and has had the opportu-
hlty tor intimate observations of the diff
cultles, delays and dangers lying in the
way OF government administration must
shudder when he thinks OF what would be
the result for body polite and econ
omic If twenty billions worth of railroad
property became the object for develop
ment and operation by d party govern
ment. Who would doubt that through the
elimination of competition and the substi-
tuition of governmental officaldom for pri-
vate enterprise general efficiency and prog
ress would suffer- while the cost of opera
tion would increase by leaps and bounds?
In order to protect the roads from the
grave danger of seeing their Offices filled
through process of political favoritism,
1t is necessary to erect the breastworks of
the civil service system. But the latter
has the never-failing effect of deadening
personal ambition and the spirit Of enter
prise. and of creating in its stead sys-
tenn OF slowmoving and on the whole in
efficient bureaucracy"
Mr.. Warburg acutely points out that
even a fve-year test under government
operation would not offer any real evil
dence as to future results, inasmuch as
the test would be carried on with staff
and under the leadership of men still
trained in the school of modern business,
such as bureaucracy after ten years of
administration would no longer be ca
pable of producing" Regarding these
difficulties as inherently insuperable and
opposed to the whole spirit of the coun-
try, he asks If there is no middle ground
There has been wide agreement as to
some form of government guarantee. or
rates assuring adequate return. But
upon what basis?
Not upon original cost, replies Mr.
Warburg, for that is simply impossible
to determine. Scarcely on replacement
value, for at the present level of costs
and materials this would be extravagant
and unjust to the country. Not upon
the average net earnings for these have
been confessedly too low to permit of
proper development Of the roads. Scarce
ly upon prevailing stock and bond values.
for in these there has been ruinous
slump.
"The enumeration of these difficulties
leads US to the conclusion that no mathe-
matcal or technical rule could probably
be devised that if fair to one road might
not be doing violence, or be too favorable.
to another. Shall we then throw up our
hands and surrender to government oper-
alton? Let US remember that government
operation cannot be brought about with
out condemnation proceedings, which again
must be based upon valuatonc'
In order to cut the Gordian knot-"as
inevitably we must'--or fail, Mr.. War
burg suggests an expert and impartial
body with functions in many ways not
unlike that Of the Federal Reserve
Board, charged with the duty not to at
tempt to drive the hardest possible bar
gain. but, like a court of justice, to de-
termine fair value for the properties
without Journalism or long delays. He
imagines, for example, board of five
made up, say, of one member each from
the law, finance, business and labor and
one railroad man.
This board should lay down a broad
principle of valuation, having consider
alton alike for actual investment. losses.
present difficulties and present earnings
in brief, board of equity rather than
of technical experts, aiming to consider
alike the rights of the owners, the ship
pers and the whole country On the
basis of this valuation, which need not
take great while, he proposes that the
4 government shall in effect guarantee a
minimum return Of az per cent. even