Arizona republican., 1922-05-04
The Troubles of the Railroads

roads progressively got into better
financial shape. More of their prop
erty was free OF debt and they had
larger surpluses at the end of the
ten year period than at its beginning.
However, the industrial group was
not nearly so heavily mortgaged at
any time during the period as the
railroads. The funded debt, that is
the mortgages already on the indus
trials. in 1911, was only 1880. BY
1920 it had declined to 1859 per cent
Also their surplus increased, ranging
from 13 per cent in 1911 to S2.14 per
cent in 1920.
But railroads constitute an abso-
luteIy essential public utility They
carry the mails, they convey the pub
lie about its business, they transport
the freight of the nation. The rail
roads must endure. The government
would not let them go out of bust
ness under any consideration. They
constitute a permanent fixture in the
community.
Industrial corporations do not
have this absolute solidity Great
companies sometimes fail dismally
no matter how strong they appear
and smaller ones grow up and become
new generation of great ones. In
dustrials are changing: railroads are
less so. This means that the Sc.
curity Of the industrial stock or bond
is not so firmly based as the Sc
curity of the railroad obligation
Therefore, although on the surface i
appears that the relatively low debi
and large surplus of the industrials
would make them always preferred
when compared with the more heavi-
| ly encumbered railroads. the greater
solidity Of railroad enterprises musi
be set against this.
IndustriaIs Pay Better
The people who are willing to take
a chance on the industrial securities
many of which are almost as solid a:
the treasury, get higher returns. II
1911 people who rented their money
TO the railroads got s4.S3 a year tol
each $780, People who rented theil
money to industrials got $3.50. II
1920 the railroads paid $4.03 rent {
year for money while the industrial:
paid $3.50. There are Dr. Muller;
| figures.
He points out that the ten veal
period has resulted in overcoming
to some degree the equality of the
competition ten years ago and tha'
now LIe lnuuSIFldlS, O6Spibe lieli
greater hazard, have got the best o
it. They pay so much higher rem
that people are willing to take {
chance to get the greater return.
Not until this analysis was made
by DR. Muller were any definite fig.
ures available on just what handical
was faced by the railroads in getting
| the use of money.
| The transportation act limits th'
amount of dividends which railroads
can pay to per cent. This limita.
ton DIR. Muller regards as unfair as
| he claims, it places the railroads a
a disadvantage in comparison Will
the industrials in obtaining the us'
of money which they need to maxi
| improvements. buy cars, extend theii
lines and develop generally.
The lesson to be drawn from DR.
Muiler's analysis seems to be that th'
| investor can take his choice between
| a solid railroad investment in whicl
| the property that secures his loan Il
practically certain of remaining in
tact because it is a necessary public
utility, but which, under existing
laws cannot pay more than pc
| cent. or an Industrial investmen
which, If all goes well, will pay per
haps twice as much as the railroad
but which may succumb. to CONNER
cial disaster.