The Washington herald., 1920-03-29
pvsslments
new CAPITAL
And THE RAILS
To What Extent VIII New
Offerings Attract
Investors?


probably q better law than anyone
had hoped for when the subject was
first considered. The original pro-
vision that two-thirds of TIE profits
earned by any one system above
the statutory fair return" was to
go to the government. was changed
so that only one-half of such earn
ings are now to be recaptured. This
is probably the largest proportion
that the government could take and
still leave an incentive to private
mana cement for eficiency, economy
and new development
We cannot afford, however, the
assumption that the railroad prob
lem Is solved. Though the new law
provides that half of the earnings
OF any particular railroad above
the statutory average return to
railroads as a whole or to any par
ticular rate group" shall be taken
outright from that railroad, 1t does
not provide that half of any deficit
suffered by any other particular
railroad below this average return
shall be given outright to that other
railroad. Such railroads may earn
as little as ., or ! per cent on
their capital, or even undergo
losses. soIlong as the average earn
ings of all the railroads or Of the
rate group" equal 5s per cent
Railroads may borrow from the
government fund established out of
the earnings of the more prosper
Gus roads, but at terms apparently
, little better than those ordinarily
obtainabie in the open market. The
Interstate Commerce Commission
! must have reasonable assurance of
the applicants ability to repay"
adequate" security must be fur
nished. All such loans shall bear
interest at per cent. While the
commission Is also authorized TO
build equipment out of this fund. I,
must consider, when leasing. the
prospective earning power OF the
applicant" IL must have reason
able assurance OF the applicants
ability to pay promptly the rental
charges" which shall he "at least
suficient to pay return of per
cent per annum, plus allowance for
depreciation"
How Congress can expect rau-
roads to pay 6 per cent for loans
and rentals when upon these loans
and rentals the roads are permitted
to earn only 81 per cent is not
clear. The only roads which would
find it profitable to borrow money
or equipment under such conditions
would be those earning above the
average-precisely the roads that
would least need to borrow.
The effects of a grudging and pc
nurious policy with the railroads
do not make themselves felt i'm
mediately. but accumulate over a
long period. Pursued for the last
decade, the result of that policy has
been to confine and sometimes to
strangle industry on all sides. For
a number of years Investments in
railroads have not been as attract
i've as other Investments: railroads
have therefore not grown in pro-
portion to ether industry. The rail-
roads are the channel through
which nearly all goods must flow
during production and before reach
ing the consumers today the chan
mel is too narrow. In nearly all ba-
sic lines there is a glut.
1t remains to be seen how much
capital will now be attracted into
the railroads. Interest returns, alb
so!utcly assured, in equal amounts
be obtained from investment in gov
ernnent bonds, while investments
in other industries offer unrestrict-
ed and high potential profits. Con-
gress has seen to il that existing
investment in the railroads shall
not receive an excessive" return.
But it cannot compel new invest
ments to be made.
The present railway law in deal
ing with railway wages. provides
that the labor board shall consider.
among other things, the scales of
wages paid for similar kinds of
work in other Industries" and the
hazards of the employment" Sim
liar instructions might have been
given to the Interstate Commerce
Commission as a means of arriving
at fair wage for railway capital