The Birmingham age-herald., 1921-07-23
By HOLLAND

New York, July 22.-(Special.)- Elisha Lee, vice president of the Pennsylvania Railroad company. es- inmates that the railroads of the United States now have in the hands of the public sixteen billions, or in other words the public has invested sixteen billions in American railway properties. It is no wonder, there fore, that the public feels vitally in- terested in the railway situation and earnestly hopes that the recent un- dertaking to fund some of the rail- read obligations to the government will be successful.
 Nine and one-half billions of the total capitalization of the American railroads are represented by bonds. Six and one-half billions are repre- sented by capital stock. The own CTS of the American railroads have therefore nearly seven billions of equity. But this is not all. The railways of the United States have out or their own earnings and fresh capital invested approximately twen- tv billions in these properties This money was taken out of earnings be- fore dividend payments were made. It was used for equipment, for inn provements, for the enlarging of ter minal facilities. Therefore the rail-
 roads of the United States as a whole nave out of earnings put approxi- mately four billion dollars more into the properties than the combined bond and stock capitalization. If the comparison is made with bonds, then these railroads represent investment taken out of earnings more than twice the face value of the bonds
 The ablest railway constructive forces in the United States always looked upon it as wise investment Of some part of the earnings, if they were turned back into the property. In the early days of railroad develop ment. when Commodore Vanderbilt was recognized as the leader, he set the example of putting some part of the earnings back into the prop critics. This was the policy followed by President Thompson of the Penn sylvania. He was the first to equip railroad in the United States with steel rails. and it has always been the presumption that payment for these rails were taken out of earn ings.
 E. H. Hartman always favored putting some part of the earnings back into the railroad properties. He was assured that this was a wise in- vestment, for 1t not only increased the value of the properties, but was certain to increase profitable traffic.
 The Big Four Railroad company some years ago put back into the properties large slice of the earn ings It was-a wise investment, and its value was recognized in the ap- preciated market value of the stock. Perhaps the best example of the sue cess which followed wise utilization O part and at times of all of the net earnings, is furnished by the Lake Shore Railroad company. Many millions were put into improvements. Grades were eliminated as far as pos sible and long tangents secured. The roadbed became model And so great was the improvement in this railroad property, due largely to the placing of earnings into the proper ties. that in the early years of the present century 1t was found possible to finance the securities on the basis of sls per cent.
 It Cost Twenty Billions
 The railroads of the United States, therefore, at the time the govern ment in war days took them over, represented an expenditure of twen- ty billions in improving and as far as possible perfecting the various systems. But the bonded indebted ness of the American railroads as whole is little under ten billion dollars. Therefore, the railways Of | the United States are mortgaged Tor crlv one-half of the total cost of ,mproyements Of course. it should he horne in mind that some of the fund. obtained by the sale of bonds and stock also represent railroad i'm l movement. Mir Lee calls attenton | to the fact that it is rather coin cidence that the amount or the 1uno' ] ed debt and the book cost Of tns American railroads correspond witI l the estimates made by those wn' llend money upon mortgages or req estate as to what constitutes hisn l grade first mortgage.
 Ia There Watered Stock
 Some years ago statement, ai.er
 uards reputeS: was made publlci.
 that a large amount of the capita stock of the Southern Pacific Rai, road company was pure water. S' also charges have been made Una other railroad stock was waterso One of the first of these accusa.lon
 was hurled at Commodore Vanoerp.,
 at the time when he caused seoo' I dividend equivalent to the cap,ea ,'',
 stock as that was before the o,v.
 dend. to be declared. So II wa ras
 ouently said that the New TOTS
 tral system contained at lease ,S
 Ter cent Of water in It's cap'.a' .,,a
 Eut excellent demonstraeiou
 maa. ot tbe reasons why dividen
 nf this kind was declared. The Ne. vorr central system had been great k, i,nrroved. Many millions had pee taken out of earnings in order :.
 perfect the property Commooor