Great Falls tribune. [volume] (Great Falls, Mont.) 1921-current, 1922-05-03

1nrOu&QOuC the WluLeT Tue 1ueeioSoes
Commerce commission has been en-
gagged upon an intensive study OF fixing
railroad freight rates to provide trans
~portation for American business a,
reasonable charges and at he same
time to enable the railroad corpora
tons to earn a fair return on their in
vestment. This is a tremendous I'm.
d~ertaking. 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 in
volved is how much the commission
should be guided in fixing rates by
the need of the railroad companies for
revenue adequate to pay dividends ia
their stockholders.
There are two dramatically opposed
schools Of thought on the question OF
rate making in relation to return.
The railroads maintain that the com
mission should consider the amount OF
money invested in railroad property
equipment and cost of operation and
then fix a rate which will yield q
fair return-say 6 per cent-on this
capital sum. They say that they are
regulated and not in the free market
OF competition and therefore should
have rates fixed on a basis which will
guarantee earnings.
In opposition, the shippers present
some such argument as follows: A
mar owns two houses. Both cost him
So,OOO, including land and building. But
one is better situated or better design
ed than the other. He can get q rent
OF 500 a month for one house but only
$40 a month for the other. After hold
ing them for some time he desires to
sell: Prospective purchasers investi-
eating to learn what these properties
were actually worth would find out
what rent they yielded the owner. Upon
discovering that one house paid a re-
turn OF $40 and the other $50 they
would offer a higher price for the $50
house than the other.
In other words, the value Of a prop
!erty must be determined by it's earn
ing power: The rule sought by the
railroads is the reverse, that is, the
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 COM
mission 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 Muller. an attorney,
accountant and economist of Washing
ton. He has made a critical survey
of the relative value and earning power
of a group Of railroads and a group of
industrial corporations. The figures
produced by this study throw valuable
light on the relative positions of these
two important business groups.
The man in the street who works for
a salary sometimes has difficulty in
thinking of money as financiers. in
dustriallsts and economists think of it.
The fact is that mony in the large
business sense is a commodity Just as
potatoes. shoes, wheat or steel are
commodities. Its price and availability
are determined by the laws of supply
and demand, just as in the case of other
goods. Money has a price as much
as cigars. The price of money is ex-
pressed 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 a risky investment pays No
one is willing to run very much of a
risk. Capital, that is money, is the
most timid commodity in the world.
Now DIR. Muller has studied a group
of railroads and a group of industrial
companies for the ten year period from
1911 and 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 or the secur-
ity offered.
Much Money In Roads
DR.. Muller's figures show that for
this t~en-year period more money al
ready had been invested in the rail-
roads than in the industrials. By in
dustrials is meant manufacturing en-
terprises and the like. The figures
show that for the ten years, approxim-
ately half of the value of the railroads
was m~ortgaged. The figures for the
mortgaged portion range from 53.03
per cent in 1911 to 47.08 per cent in
1920. The surplus, that is, profits, for
this group range from 7.SS per cent
In 1911 to 1888 per cent in 1920. This
shows that the railroads progressively
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 it's be-
ginning.
However, the industrial group was
not nearly so heavily m~ortgaged at any
time during the period as the rail
roads. The funded debt, that is, the
mortgages already on the industrials,
in 1911 was only 1880. By 1920 it
had declined to 11.69 per cent. Also,
their surplus increased, ranging from
13 per cent in 1911 to 32.14 per cent
in 1920.
But railroads constitute an abso-
lutely essential public utility. They