Great Falls tribune. [volume] (Great Falls, Mont.) 1921-current, 1922-06-15
WATERED RAILROAD
STOCK.

livery once in a while some poll
tician gets eloquent over the al
leged fact that the railroads are
collecting dividends on "watereo
stock" and that rates are adjusted
on this basis by the Interstate Com'
merce commission. Sometimes they
add the statement that the govern.
rasnt guarantees the railroads
six per cent on this "watered
stock. There is no truth in either
statement. The government guar
antees no rate Of net earning to any
road. They paid a rental during
the war when the government took
them that was based on six per
cent of the replacement value OF
the roads so taken, and not on their
stock issued. After they turned
them back they extended their
guarantee for six months. That
date has expired long ago. The
railroads have no guarantee OF six
per cent or m per cent, or any
Der cent for dividends. AS a matter
of fact many of them in the last
year made no per cent net earn
irgs, and taken as a whole the net
earnings were a good deal less than
six per cent on their replacement
value.
This talk about six per cent div
idends probably arises out OF the
fact that the Interstate Commerce
commission has adopted the rule
that when rates are shown to pro-
duce less than six per cent net for
dividends it is evidence that rates
are too low if the road is properly
managed. In other words they hold
that six per cent is a reasonable
wage for capital invested. The
amour. of capital invested is fig
ured on the replacement value OF
the assets of the road, and no re-
gard at all is given to the amounts
Of stock issued. For a dozen years
or more under a law of congress
the Interstate Commerce commits
sion, at the expense of the rail-
roads, have been checking up the
replacement value of the railroads.
They know now just what it would
cost to replace all the property the
railroads own, and that replace
merit cost is the basis Of rates and
all government dealing with the
railroads watered stock, if it ex-
listed, would not help the railroads
to get an extra dollar out of the
public.
We are credibly informed that
in the case Of most of the railroads
the government investigation has
disclosed the fact that their prop
erty is worth today more than the
total value of all the stocks and
bonds outstanding at market prices
and therefore they have no water
ed stock at present. If they ever
had any the water has been squeez-
ed out of them. More than that
our information is to the effect
that quite a number of roads, es-
pecially in the west, are undercap-
italized when valued at their re-
placement cost, That is due to
two factors. In the first place their
right-of-way, terminals, and other
land values have greatly increased
in value since the road was built,
and in the second place they have
writing off depreciation. While
we make these statements on good
authority and believe that they are
correct, we should also say that
no public report of the commission
appointed by the government to re-
value the railroads and find out
what it would cost to replace them
has yet been made, and indeed the
work is not quite finished yet as
regards some railroads. However.
in an unofficial way the total fig
ures have been given out as some
thing in the vicinity of eighteen
billion dollars, and many of the
railroad systems have been told
the exact figures concerning their
owr. system. All this information
is in the hands of the Interstate
Commerce commission as a basis
for rate making. Therefore, this
talk about the railroads levying
taxes on watered stock on their
railroad charges is merely political
bunk. They are not doing any such
thing and they could not do it If
they wanted to do it. The govern
ment knows exactly how much their
property is worth, and the law pro-
vifes that if they make more than