The Rock Island Argus and daily union. (Rock Island, Ill.) 1920-1923, 1921-04-29
LAUCK CLAIMS
ROADS ARE OVER
CAPITALIZED
Labor Economist Tes-
titles at Wage
Hearing.

Chicago. April 2s.-Charges that !
many railroads were "fictitiously
or unnecessarily overcapitalized"
were made by W. Jett Lauck, con-
sulting economist for the railroad
labor unions, today in the second
day Of union testimony in the Rail-
road Labor board hearing into the
demands of the roads for lower
wages.
Mr.. Lauck cited 20 of what he
termed representative railroads."
which he said were fictitiously or
unnecessarily overcapitalized TO
the extent of 1,217 100000.
"The results of financial misman-
agement SO far as financial status
and physical condition of the trans
porlation industry prior to the war
is concerned. together with the re-
lation of the employees to the final
situation which developed, may be
briefly summarized as follows" he
continued.
Il. The increased returns re-
sulting from the efforts of operat-
, ing and mechanical officials, and
railway employees in general were
absorbed by unwarranted security
issues and distributed as bonuses
to the underwriting syndicates or
to the holders of securities.
"2. Railroad debts as a rule were
not paid. Old obligations were re-
funded into new issues and fixed
charges accumulated and increas-
ed.
"3. Proper reserves for deprecia-
ton of property and equipment
were not set aside from current
earnings.
4. As the cost Of materials and
supplies advanced the net income
of the railroads declined.
"5. As the result of this situa
ton the margin of safety of thu
railway net over fixed charges wa!
Sc reduced that railroad securitie,
could not be sold and railway cred
it was impaired.
| War Pressure.
IS. The final outcome of tn
, financial mismanagement Of tn
railroads prior to the war came il
1917, when the entire industry col
lapsed because OF the unusual pres
sure placed upon it Operating an
mechanical officials, because Of tn
absorption of earnings arising from
] financial mismanagement, had beel
forced to defer much needed i'm
provements on account of a lac
of funds or credit, and had beel
compelled to permit the physica
deterioration of the equipment an
properties of the railway compan
les. AS a consequence, the trans
portation industry was unable t
Withstand the unusual strain whicl
our entrance into the war impOs
ed on it.
"7. Although the employees wer
: debarred from a fair participation
in earnings, labor costs of opera
: tion steadily declined up to 1911
, Rates of pay of employees were in
adequate, working standards wer
bad and hours on duty excessive
, M. Lauck regretted the end 9
q !government control, saying that
= should have extended for a Ion
! period. After the end of govern
ment control, he said, the road
!, returned to what he termed tn
! pre-war evils. Operating contre
i was decentralized, the economies G
= unified direction were lost, capita
: and credit were withheld, and tn
y roads elected to maintain excessiv
= prices and profits for railroad ma
terials and supplies and to contrae
, for repair work at higher price
4 than necessary, he said.
, Mr.. Lauck went into the detail
\ of four exhibits on railway man
agement which previously had bee
presented to the board.
Samuel Higgins, the third of tn
three new board members recentl
appointed by President Hardini
was present today. Albert Phi
\ lips is the only member absent, b
!. being held in California by the il
ness of his wife,