The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1922-05-04
TOPEKA STATE JOURNAL
Information Bureau
FREDERIC ,. HAsKIN. Director.
Washington, d. @
THE TROUBLES OF THE
RAILROADS

Washington, d. C. April 3O--Ih-u-
out the winter the interstate COM
merce commission has been engaged
lupon an intensive study of fixing rail-
road freight rates to provide trans
portation for American business at
reasonable charges and at the same
| time to enable the railroad corpora
, tons to earn a fair return on their
investment. This is a tremendous I'M
dertaking. The commission has heard
| thousands of pages of testimony from
| experts representing railroads. ship
pers. investors and the general~public.
One of the most difficult problems
involved is how much the commission
! should be guided in fixing rates by the
| need of the railroad companies for
trevenue adequate to pay dividends to
| their stockholders.
! There are two Numerically opposed
schools of thought on the question OF
rate making in relation to return. The
railroads maintain that the commits
sion should consider the amount of
| money, invested in railroad property,
| equipment and cost of operation and
then fix rate which will yield a fair
return-say per cent-on this capital
sum. They say that they are regulated
| and not in the free market of compe-
| titiOn and therefore should have rates
! fixed on a basis which Will guarantee
| earnings.
In opposition. the shippers present
some such argument as follows: A
man owns two houses. Both cost him
$4,000, including land and building.
But one is better situated or better
designed than the other. He can get a
rent of $50 a month for one house but
only $40 q month for the other. After
holding them for some time he desires
to sell Prospective purchasers in
vestigating to learn what these prop
critics were actually worth would find
out what rent they yielded the owner.
! Upon discovering that one house paid
a return of sac and the other $50 they
would offer a higher price for the $50
house than the other.
In others words. the value of
property must be determined by its
the railroads is the reverse. that is.
the earning rate must be fixed arbi-
trarily by the cost of the property.
Commission Must Judge.
This gives something of an idea of
the difficult problems which arise in
connection with rate regulation. Both
sides have their champions. The
commission must decide between
them. To obtain the best available
Information, the commission gathers
elaborate data Such a study recently
has been made by DR.. Jean Paul Null
Ter, an attorney, accountant and econ
oEnist of Washington. He has made a
critical survey of the relative value |
and earning power of a group of rail- |
roads and a group of industrial cor
porations. The figures produced by |
this study throw valuable light on the /
relative positions of these two impor-
tant business groups
The man in the street who works |
for salary sometimes has difficulty |
in thinking of money as financiers. I
1ndustr1alists and economists think of
it. The fact is that money in the l
large business sense is a commodity |
just as potatoes. shoes, wheat or steel
are commodities. Its price and avail
ability are determined by the laws of /
supply and demand just as in the case
of other goods. Money has price as |
much as cigars. The price of money
is expressed as interest. In reality, it /
is rent. A given amount of rent is !
paid for the use of money for a year.
The rent is high or low in accordance |
with the abundance or scarcity of idle |
money and also in accordance with
the relative risk involved of losing it
or getting it back at the end of the
lease. If a man is sure he will get
his money back. he will rent it for a
lower figure. Many men are willing
to run a slight risk in order to earn
the higher rent for the use of their
money which risky investment pays.
of a risk. Capital, that is money, is
the most timid commodity in the
world.
Now Doctor Muller has studied a
group of railroads and a group of in
dustrial companies for the ten-year
period from 1911, to 1920, inclusive. to
ascertain which group pays the best
yield.
one thing which governs the safety
Of an investment is the amount of
money already advanced on the secur-
ity offered
Much Money I'm Roads.
DR.. Muiler's figures show that FOR
this ten-year period more money al
ready had been invested in the rail-
roads than in the fndustrials. BY in
dustrials is meant manufacturing en-
terprises and the like. The figures
show that for the ten years, approx
mately half of the value of the rail-
roads was mOrtgaged- The figures for
the mortgaged portion range from
55.O5 per cent in 1911 to 4T.0S per cent
in 1920. The surplus, that is. profits
for this group range from 7.SS per
cent in 1911 to 17.6S per cent in 1920.
This shows that the railroad progress
sively got into better financial shape.
More of their property was free of
debt and they had larger SURPRISES 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 rail-
roads. The funded debt, that is the
already on the industrials,
in 1911 was only 1880. By 1920 1t
had declined to 11.69 per cent. Also,
their surplus increased, ranging from
10 per cent in 1911 TO S2.14 per cent
in 1920.
But railroads constitute an abso- ]
lutely 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 business s
under any consideration. They con-
stituts a permanent fixture in the ]
I
Industrial corporations do not have /
this absolute solidity. Great compan-
les sometimes fail dismally, no mat
ter how strong they appear. and I
smaller ones grow up and become a {
new generation of great ones. Indus l
trials are changing; railroads are less {
so. This means that the security of \