The labor journal. [volume] (Everett, Wash.) 1909-1976, 1919-09-26
Guarantee of Railroad Bonds
by Congress Would Cut
Value of Holdings
TRANSFER OF BILLIONS
Rise of Market Price of Stocks
Would Sacrifice the
Liberty Loan

There are at present a score of
proposals before Congress looking
to the perpetuation of financial
control of the railroads under pri-
vate ownership, Every one of them
provides for the protection of the
owners by a guarantee of returns on
railroad securities.
Two methods of assuring these
returns are advocated One is for
the Government to make up any
shortage out of the nation treas
ury; the other would give the rail
road owners power to raise
rates sufficiently to assure the nee
essary dividends. The plans differ
only in the detail of how the funds
should be raised. Each is a. direct
tax on the people. One would levy
the tax by means of the Govern
ment's taxation machinery; the
other would operate through trans
portation rates and bring returns
from the increased prices of COM
modities.
In point of fact, the owners of
railroad securities are asking the
Government to guarantee returns
on fictitious values. The market
value of railroad securities is some
thing over thirteen billion dollars
on a face value of over eighteen
billion. Valuations of the Inter
state Commerce Commission tend to
show that the cost of duplicating
the railroads would not be more
than ten or eleven billions. Yet the
security owners ask the Govern
ment to guarantee them returns on
approximately 100000, 100000, or
the property investment account.
When Glenn e. Plumb appeared
before the House Committee on In
terstate Commerce in support of the
Plumb plan, he raised the question
of what effect a Governmental
guarantee of dividends to private
owners of railroad securities would
have on the Liberty Bonds issued
by the Government itself
PUT yourself in the place of a
man owning $4,000 worth of war
bonds which he purchased at par,
said Mr.. Plumb. He notes that
there are pending before Congress
many propositions whereby the
public is asked to guarantee either
in rates or returns an interest OF
not less than per cent upon S2O,-
O0O.0OO,O0O of outstanding railway
securities, which now have a mar
ket value not exceeding $4,000
100000. He hears it claimed by
those urging this guaranty that a
return of not less than per cent
will place these securities at par
and provide a market where many
seeking investments can be in
duced to serve the public in return
for the further issuance of such Sc
curities. Such a guaranty will mean
an advance in value of from Sl3,-
OO0,0OO,O00 their present value, to
$2O.OOO,00O,OOO, their par value,
Would you not ask yourself
what effect this would have upon
the bonds which you held, on which
the same Government had guaran-
teed only 31a to 4l2 per cent
Would you not believe that such ac-
ton merely transferred from the
market value of war bonds TO the
market value of railroad securities,
six or seven billion dollars? Would
YOU not believe that your Govern
ment bonds, if the desire Of the rail
roads and the financiers was ful-
filled. would be quoted at the aver
age of present railway securities
while the railway securities would
be quoted at the present market
value of Government bonds?'
The. Government has floated ap-
proximately $2O.OOO,OOo,ooO of
Liberty Bonds and Victory Bonds
depending for security upon the
good will of the Government. They
stand in exchange value at nearly
par. There are also in existence
about $2O.OO0,OO0,OO0 of railroad
securities, with a percentage of fic-
titious value so great that they are