Evening star., 1931-06-21
Government Ownership a Possibility of
Present DeplOrable Plight of Railroads

life insurance companies, are now well
on their way toward the danger line Is
| undeniable. In 1926 the railroads were
earning at the annual rate of 4.98 on
their total valuation" In the first
four months of this year they were
earning at the annual rate of only all.
The reasons given for this downward
Of the reasons, 1t exists as fact. The
investors look at the fact.
~ *4
1t is fact which has been grievously
accentuated in its investment conse-
quences by the policy of the railroads
In seldom retiring any part Of their
bonded debt and in steadily enormously
increasing the total Of it. In the years
from 1900 to 1929 railroad stocks, rep
resenting ownership and risk, were in
creased approximately 70 per cent in
volume. In the course of those same
years railroad bonds, representing in
debtednesS and annual fixed charges" :"
were increased approximately $50 per
cent. In 1900 the railroads had to pay
on their bends in annual interest the
sum of approximately $3.50 900. In
1929 on that same fixed" item they
had to pay approximately $3.50. 900 900.
Can the railroads, in the midst of all
their accommodating business misfor-
tunes, many Of which are in no way de-
rived from the depression. continue to
earn one and one-half times the amount
of such "ixed charges" in order to
make their bonds eligible for savings
banks and for life insurance companies
and in order thus to keep their sources
of private capital for the necessary de-
velopments of their properties freely
flowing?
1t is a question which has aroused
grave concern in the Interstate Com
merce Commission. Commissioner
Joseph Eastman. in concurring in the
decision of the commission in the
famous "O'Fallon case" said:
Means must be found whereby the
burden upon the public of overhead
capital charges on account of the rail-
road properties can be reduced. If this
were Indebtedness of the Government,
without doubt steps would be taken to
reduce it, particularly in times of
national prosperity An illustration
which I have often used is that of the
subways of Boston. They are owned by
the city. They are leased to the
operating company for yearly rental
OF Az per cent, which is sufhcient to
meet the interest on the city's indebted
ness and at the same time to provide
q sinking fund which in due course
will retire the debt so that there will
no longer be any interest charges what
ever to pay"
y \
In sum:
The primary cause for the appear
ance of the railroads before the Inter-
state Commerce Commission for a
freight rate increase is their bonded
indebtedness and the necessity for
making that indebtedness continue to
attract investors. There would seem
to be just two ultimate ways out. One
is to grant such increases whenever
required to meet the legal needs Of
savings banks and insurance companies.
The other Is to substitute In our rail-
roads the cheap credit of the Govern
ment, along with governmental sinking
funds, for the more expensive credit Of
private institutions, and thus finally
bring the annual fixed charges" Of the
railroads down to more manageable
compass.
This Is per cent freight rate increase
case seems bound to go right on into the
highest politics of national economics.
(Copyright, 1e5l.)