Evening star., 1925-09-04
ARTICLE vi.

Authorities on economics say three
benefits are to be expected from rail
road consolidation. The railroads OF
this country have had 20 long, lean
years. Some roads have now emerged
into prosperity. These must provide
the revenue needed by their weaker
fellows.
This can be done more efficiently by
joining the weak to the strong In
great systems than by the presen.
plan for recapture of excess earnings
or the plan for pooling earnings pro-
posed by former Interstate Commerce
Commissioner Potter.
The protesting minority stockhold-
ers have complained the Van SWef-
ingens intend to join the now atfiuen.
Chesapeake and Osio to less fortuna e
roads. This, economists say, is ex-
actly what consolidation is intended
TO do.
Railroads are beginning to seek new
money for long-needed improvements.
A wide investing public is beginning
10 be attracted to railroad securities,
some of which have advanced enor-
mously in value in the last four years.
This appreciation in value partly eN-
plains. incidentally, the vast paper
profits from the present consolidation
accredited to the Van Sweringens.
From the publics viewpoint, by con-
solidation the securities of a doubtful
road in which an uninformed investor
might lose disastrously WIN be as
sumed by the sound roads.
The Van Sweringen Plan.
The financial structure of the pro
posed Van Sweringen Consolidation
win consist of about so per cent tund-
ed debt bonds. against 40 per cent "a
shares or stock. Oris Van SwerinSen
testified My ideal ratio is 80 per cent
of funded debt 10 so per cent OF capt.
taliZation Wen have to compromise
that ideal ratio in the new company,
probably for a number of years
Lastly, consolidation brings increas-
ed fiexibility TO the rate structure.
The Interstate Commerce Commission
has found that a rate which permits
one road to bloom brings another (wit-
ness the St. Paul. to bankruptcy. But
with few great systems, eaCn sim
liar in diversity of traffic and physical
conditions, high rate placed on coal.
for instance, can compensate for a
nominal rate on grain-to the delight
of wheat farmers and the rage of
users of coal
This is why President Coolidge puts
railroad consolidation high up on his
farm program.
The same authorities on economics
say it is doubtful if consolidation
brings the savings in operation it's
proponents expect A small, highly
organized road, which two or three
executives can supervise intimately,
like the Lehigh Valley, is more eff
cient than any great system could be.
Practical railroad men protest that
large scale production for railroads,
since they deal in a service and not a
commodity, brings exceptional econ
omieS, as we'll as the inevitable loss in
efficiency. The elimination of car in
spectors alone, on the proposed Van
Sweringen system, will mean a sub
Stantial saving.
The Nickel Plate experts point to
the possibility of routing Chesapeake
and Ohio coal through Marion. Ohio.
over the Erie to Chicago, as one OF the
traffic advantages gained by consoli-
dation. This is disputed by the
minority counsel, who say the larger
part of the Chesapeake and Ohio's coal
business will continue to pass through
the Cincinnati gateway. They main
tain the Chesapeake and Ohio, from a
traffic standpoint, cannot be regarded
as, a necessary part of the proposed
system.
An Example at Buffalo.
A conspicuous example of traffic ex-
change advantages to be gained through
consolidation, interesting in the light
of the Van Sweringens' expressed de-
sire to add the LackaWanna to their
proposed system, exists at Buffalo,
where the Lackawanna gives and re-
ceives one-half of the Nickel Plates
through freight. In general, however,
experts declare traffic will continue to
follow natural channels, regardless of
how the railroads are owned.
In the present consolida tion-and
the question has been raised about
consolidation as a whoie-the minority
have asked if the adva ntages of COM
petition may not be lost when indie
pendent roads fall under the control
of great combinations of capital.