RAILWAY FACILITIES AND TERMINALS***


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THE COUNTRY’S NEED OF GREATER RAILWAY FACILITIES AND TERMINALS

Address Delivered by

Mr. JAMES J. HILL

At the Annual Dinner of the Railway Business Association, New York City
December 19, 1912



The subject of national transportation is many-sided. One aspect of it
takes precedence in one community or in the opinion of one interest,
while for others some different phase ranks all the rest. But every
interest and every community should understand that the main need
today of transportation and of the many activities connected with and
dependent upon it is an increase of terminal facilities. It is no
exaggeration to say that the commerce of the country, its manufacturing
and agricultural industry, its prosperity as a whole and the welfare
of every man in it who engages in any gainful occupation can escape
threatened disaster only by such additions to and enlargements of
existing terminals at our great central markets and our principal points
of export as will relieve the congestion which now paralyzes traffic
when any unusual demand is made upon them. Our natural material growth
will make this their chronic condition in the near future unless quick
action is taken.

If you increase the size of a bottle without enlarging the neck, more
time and work are required to fill and empty it. That is what has
happened to the transportation business. In 1907 traffic was blocked
on nearly all the principal Eastern railway lines. It took months
to convey an ordinary shipment of goods from one domestic market to
another. The dead-lock was broken partly by a panic that lessened the
volume of business and partly by the efforts of railway managements
to add, by increased efficiency, to the moving power of facilities at
command. We neither anticipate nor desire perpetual business depression.
While the limits of efficiency have not been reached, we know that it
cannot be made to cover the demands of our growth in population and
production. The records of any large city will prove this. The tonnage
of the Pittsburgh District, for example, by railroad alone, grew from
64,125,000 to 152,000,000 in the ten years between 1901 and 1911. It is
both practical and patriotic to ask what is to be done.

First, let us examine the following table, compiled from the reports of
the Interstate Commerce Commission, showing the recent growth of the
transportation business in the United States:

                                     Increases Per Cent.
                        1895 to 1905.   1905 to 1910.   1909 to 1910
 Mileage                     21              11               1.5
 Locomotives                 35              22               3.
 Passenger Cars              23              16               3.3
 Freight Service Cars        45              23               3.
 Passenger Mileage           95              36              11.
 Freight Ton Mileage        118              37              16.6

Business is beginning to feel the swell of a revival. The freight ton
mileage of the country was less by seventeen and a half billions in 1909
than in 1907, and very little more than in 1906. Contrast this with the
growth of the single year between 1909 and 1910. The freight ton mileage
grew in that year eleven times as fast as trackage, and five times as
fast as equipment. This ratio will be subject to increase rather than
decrease. It will be much greater in this year of large crops and added
tonnage. If any manufacturer were confronted with such conditions, it
would be clear to him that he must either refuse business or more than
double his plant. The railroad cannot refuse business. If it could do
so legally, that policy would still mean national panic and individual
ruin. It must enlarge its plant. Just what this means in the expenditure
of billions of dollars on new track and rolling stock I demonstrated
more than five years ago, and the facts have now been accepted by
all authorities. But even the existing plant cannot be worked to its
capacity without larger terminals. Hence the supreme importance at the
very outset of this factor of the transportation problem.

This matter is vital not only to the railroads, but to every business
man. It is the immediate concern of every large city. Cities can grow,
they can escape decline, only as the movement of business between and
through them is kept free. When the people find that their business
cannot be handled, they must either move away or cease producing and
consuming. They will decentralize their traffic, so far as that can be
done; and the inability of the railroads to prevent this, by reason of
conditions imposed on them from without, will work injury to all the
great markets which have arisen through the free play of economic forces
and the wise judgment of the builders of our prosperity. No city can
afford to place its trade, which is its life, on a false basis. When the
commerce naturally tributary to it is handicapped by poor terminals, or
overloaded with too heavy charges on account of the excessive cost of
enlargement, it will go elsewhere. There are a dozen places between the
Maine coast and Norfolk that could be made available for relief. A city
can never grow great enough to defy safely the demands of the laws of
trade and its proper accommodation. Should the decentralization plan be
forced on traffic, some of our greatest cities would not merely forfeit
their natural share in national growth, but they would surely decline in
business, wealth and power.

Interest in this question should be not local only, but national. A
railroad terminal performs the same function as a harbor. It is actually
the largest and most valuable harbor used by the nation’s commerce.
Probably no greater volume of rail and water traffic is transferred in
any city anywhere than in Duluth-Superior. On the land side almost the
whole of this is carried by three railroads. It is received, transferred
and discharged without congestion in the busiest seasons and with
expedition because the terminals there have been specially created for
the work they have to do. The nation has properly made the provision
of adequate harbors its care, and expended millions of dollars on our
seaboards and the Great Lakes to ensure ample facilities for loading
and unloading cargoes. It is not to be supposed or desired that the
nation should furnish the money to provide those great harbors known as
railroad terminals, although they are vastly more essential to the free
movement of trade. But it should smooth the way and make easy the task
of those whose business it is to provide them.

When traffic is blocked and the railroad yards of the principal cities
are filled with cars that cannot be moved, the railroad suffers the loss
of a portion of its earnings; but the business man loses a larger share
of his trade, and the workingman his employment. No industry can do more
than protract a starved existence when the currents of transportation
cease moving freely. When the commerce of an industrial empire whose
magnitude is partly indicated by the clearing house exchanges of
$102,000,000,000 in New York City alone during the past year is blocked,
the whole nation suffers.

Whenever we have a big crop or a general revival of business, the
country hears most of the danger of a car shortage. The public assumes
that if enough cars are provided they can be moved on schedule time from
point of origin to destination, wherever these may be. This is not the
real trouble. What is really needed is the greater movement of cars. The
average movement of a freight car is about 24 miles, or two hours, per
day. Delays in loading and unloading by shippers are partly responsible,
but much of the lost time is consumed in getting into, out of or through
terminal points where there is not room to handle the cars. More cars
intensify instead of reducing the trouble. No other business could
endure the loss of the use of its machine plant for twenty-two hours out
of the twenty-four. One thousand cars will cover nearly eight miles of
track. Each car must be switched, loaded or unloaded, or all three. This
multiplies the trackage requirement.

A thousand cars are a fleabite compared with the daily movement in the
busy season. The railroads of the United States carried 1,849,900,101
tons of revenue freight in 1910. At the average load of 21.5 tons per
car, it would take 86,041,865 cars to move it. Nearly all of these
pass through some large terminal, most of them several times in the
year. There are about thirty important traffic centers; and if the
total movement were divided equally between them, supposing each car
to pass through but one market, and that only once a year, 7,858 cars
would have to pass through each terminal every day in the year. Five
thousand cars a day are enough to create a blockade in many of the
large terminals of the country. Our worst troubles have come not from
insufficient rolling stock or lack of efficiency in handling it, but
from congested terminals. Water routes give little assistance: first,
because the largest streams of traffic in the United States are not in
a direction where either natural or artificial waterways can be used;
second, because a waterway less than twenty feet deep cannot compete as
a carrier. The waterway, too, may and often does increase rather than
lessen the pressure on terminal facilities. There is but one possible
remedy--enlarged terminals. The main question back of that is financial.
Where and on what terms is the money to be had for an improvement become
as necessary as the removal of a freight wreck from a main traffic line.

The two obstacles to be overcome in this readjustment of the
transportation agency to the growing needs of the country are the
physical difficulty and the cost. The railroads could not have foreseen
and guarded against this need thirty or forty years ago. They could not
then know where the greatest markets were to grow. They could not tell
in what portion of any city it would be most convenient to have railroad
yards placed a generation later. If they had secured land, changes in
business districts would in many cases have made their forethought
useless. Even if gifted with prophetic knowledge, they could not then
have commanded the resources for such an undertaking, any more than the
country town of today can put in all the improvements that its future
as a city will require and justify. It is a natural and inevitable
condition that we face. Upon the railroads rests the responsibility of
performing the work now to be done. Will they be left free to attempt
it under such conditions as will make the performance of it a feasible
thing and not a miracle?

In some places it will be physically impossible to secure the land area
for proper terminals. The space that must be used is generally in or
near the business heart of the city; often along the waterways, where
enterprise has been busy and land values have reached their highest
point. Therefore the space for such terminals is either not available on
any terms or will cost sums that sound fabulous. The financing of new
terminals presents a far more serious problem than the financing of a
new railroad. Large sums of money must be raised. The owners of capital
will not supply them unless they are satisfied with the security and
with the prospect for a sure and adequate return on their money.

What security can the railroads offer for such a loan? Already, merely
for constructing and operating their existing machine, many of them
have not only pledged their credit to the limit but have absorbed a
large share of their surplus earnings that in other countries would have
been paid out in dividends. The ability of the Pennsylvania system to
handle its big business is due in no small degree to its past policy
of diverting profits legally the property of the stockholders to the
construction of betterments. There is not a well-managed railway of
any size in the country of which the same is not true to some extent.
And, with the increase of their expenses and the limitation of their
income by public authority, there is coming to be little or no surplus
revenue that may be so employed. Net income, not gross, is the index
of prosperity and the foundation of credit. Gross revenues grow, but
expense grows faster. Returns to the Bureau of Railway Economics,
covering 90 per cent of all the steam railway mileage in the United
States, show that during the first seven months of 1912 operating
revenues increased 3.3 per cent per mile as compared with the same
period in 1911, operating expenses increased 4.9 per cent, and net
operating revenue decreased .5 per cent. The additions to taxes and
other incidental expenses will raise this figure. The progressive
decline of net earnings per mile under the existing method of rate
regulation is assured.

The properties of many systems are already encumbered to the limit of
credit and solvency. Securities have been consolidated, equipment trusts
have placed what are practically chattel mortgages on rolling stock,
and money cannot be raised except for a short term and at high rates.
Ten or fifteen years ago 4 per cent would bring in capital for railroad
improvements. Strong properties sold their bonds bearing 3½ per cent
interest. Now some of the strongest roads are paying 4½ per cent for new
capital. Properties less well known for stability and earning power pay
more. The rate has advanced by from 1½ to 2 per cent in little more than
ten years. The great sums required to extend our terminals to meet the
actual business of the country can be had only on condition that the
payment of principal and interest is absolutely secured. The railroads
can pay money only as they are permitted to earn it. In the last resort
it is up to the people to say whether or not these terminals and other
facilities shall be supplied; just as it is up to them to suffer the
severest of the consequences if they are not.

Two questions arise immediately and naturally from the situation as it
discloses itself to any one who chooses to look at the facts. The first
is, “Why are the railways not now in a position to borrow the money and
build the terminals at once?”; the second is, “What have the railways
done to entitle them to confidence, to relief and to a more fair and
generous treatment by the public?”. Each of them can be answered by an
examination of facts officially vouched for.

The impairment of credit has already been partly set forth in presenting
the difficulty of making loans for improvement purposes, and noting the
higher rate that must be paid. How has this happened? The limitation
has come, of course, from two directions; decreased earning power and
increased expenses. A railroad has no other source of income, generally
speaking, than receipts from rates. These have steadily declined. While
the price of everything else rises, the price of transportation falls.
The average freight rate per ton per mile received by the railroads of
the United States fell from 9.27 mills in 1890 to 7.53 mills in 1910.
This is partly the effect of legislative regulations and the orders
of public commissions, and partly due to voluntary reductions made
possible by increased efficiency and increase in the density of traffic.
On the whole, railroad rates in the United States are the lowest in the
world. But they cannot continue to grow less forever.

Rates must be such as will bring in, above operating expenses, a
reasonable return on the investment as measured by the value of the
property. So much the courts will uphold. But that is not enough, if the
railroads are to go into the money markets of the world as borrowers of
billions of dollars. A man must do better than graze the sharp edge of
bankruptcy if he is to find himself welcomed as a prospective creditor
by the investor. So the railways, if they are to carry this new burden,
must not only be protected against the further destruction of their
credit involved in an unending succession of attacks upon their existing
revenue. They must also be permitted to earn enough to assure capital
that they can pay interest and principal of the heavy additional loans
asked. By the light of this practical, unchangeable fact the railway
regulation of the future must be guided. If it is not, then congestion
and a general paralysis of trade, costing the country more than double
its whole bill for transportation cannot be avoided.

The Railroad Securities Commission, with President Hadley at its head,
the ablest and most disinterested body which has ever investigated
the subject in this country, said in its report: “Where the future
is uncertain the investor demands, and is justified in demanding, a
chance of added profit to compensate for his risk. We cannot secure
the immense amount of capital needed unless we make profits and risks
commensurate. If rates are going to be reduced whenever dividends exceed
current rates of interest, investors will seek other fields where the
hazard is less or the opportunity greater. In no event can we expect
railroads to be developed merely to pay their owners such a return as
they could have obtained by the purchase of investment securities which
do not involve the hazards of construction or the risks of operation”.
Exactly what happens when this right rule is reversed, and the railroads
are forbidden by curtailment of their earning power to attract capital
may be understood from the following extract from an editorial on the
financial year which appeared in the New York Times of October 3, of
this year: “Railways have issued a total of stocks and bonds and notes
smaller this year than last by $23,821,100, while industrials have
increased their issues by $362,288,650. The decrease of the railway bond
issues was no less than $99,889,400, and they were formerly the favorite
investment. The increase in industrials was mostly in stock, the figures
being $259,416,250. Formerly industrials were unable to market stock
in competition with the railways, but this year they have been able to
place between three and four times as much as the railways.”

While revenue was shrinking, the obligatory expenses of the railways of
the country have increased enormously. Their equipment alone is valued
at nearly three and a half billion dollars; the increase during the
last nine years being 45.3 per cent in locomotives and 39.7 per cent
in freight cars. For the mere maintenance of equipment they spent over
$413,000,000 in 1910. When we come to consider operation, the figures
mount as rapidly as those on a pressure gauge when the needle is racing
toward the danger point. The wages of the railroad employes in this
country have reached the stupendous total of over $1,200,000,000 a
year. According to the advance summary of the report of the Interstate
Commerce Commission for 1911, the total number of employes in the United
States decreased in that year by 29,611 as compared with 1910, while
the total wages paid increased by $64,741,164. In no other occupation
has such a showing ever been made. If the wage scale of 1899 had been
in effect, the item of labor cost would have been some $300,000,000
less. Against liberal wages the railways do not protest, because they
know that they can render safe, adequate and satisfactory service in
proportion as their employes are well fitted and well paid for their
work. But new outlay must be balanced by new income unless operation is
to cease. Public sentiment almost always supports the demand of employes
for higher wages. Public sentiment cannot, from the point of view of
either justice or safety, continue to prohibit or prevent the levying
of such rates as alone will enable the employer to pay the wage rate in
many cases practically imposed from without as authoritatively as are
the traffic rates that a commission orders into effect.

Another item of expense which grows out of all proportion to railway
revenue or national development is taxation. In 1890 the taxes paid by
all the railroads aggregated $31,207,469; in 1910 they had risen to
$103,795,701; for 1911 they are estimated at $109,000,000 and may be a
couple of millions more. The increase in twenty years up to 1910 is 233
per cent. This is by direct act of the people. The extravagance of all
modern legislative bodies, the doubling of state and national expenses
within a few years and the continuous issue of bonds for all sorts
of public purposes formerly met by general taxation have drained the
ordinary sources of revenue. The railroad treasury has come to be looked
upon as the public milch cow, from which a new supply of nourishment may
always be obtained. So railway taxes have risen by leaps and bounds.
Each mile of line in the country paid $199 in taxes in 1890, and $431
in 1910. The owner of capital will not be over-anxious to lend it to
concerns which, if the present tendency is not checked or reversed,
will presently see all receipts beyond a bare living income diverted
by taxation to the public treasury. When the state appropriates out of
the earnings of the railways, as it did in 1910, more than one-fourth
as much as was paid in dividends to all the stockholders, the interest
rate naturally rises and the possible supply of new capital for railway
investment threatens to vanish altogether.

If you take two dollars out of your purse each time you put a dollar
in, bankruptcy will happen in time. The railroads are not yet reduced
to the point of collapse, because most of them are still permitted to
earn and retain dividends. But their borrowing power has been cut down
until it suffices only for hand-to-mouth improvement. Their credit must
be so far restored as to make it equal to carrying forward the creative
and constructive work which we have seen to be a condition of continued
national growth. How does their record for trustworthiness stand?
What have they done to show themselves fit for that larger liberty of
action which is indispensable if they are to perform all the functions
belonging to the proper conduct of their business?

The railroads of the United States are entitled to both confidence
and relief because they have not abused their trust in the matter
of capitalization. While, to make possible the raising of money,
stock-bonuses undoubtedly were given in their earlier history, it
is true of them as a whole today that they have by far the smallest
capitalization per mile in the world; and that they have kept their
capitalization low by using for betterments millions of earnings which
anywhere in Europe would have been handed over to stockholders, leaving
the cost of improvements to be charged to capital account. This is one
of the best-established facts in railroad history, though few people yet
realize how great is the difference in our favor.

The statistics of railway capitalization, as given by the Interstate
Commerce Commission, are, unfortunately, not always computed according
to the same rules. This weakens or destroys their value for comparison.
A change of statisticians may involve a change of method. However
conscientious the motive, the result alters relations which should be
constant. Thus the official railway capitalization in 1909 was $59,259.
In 1910 it is returned at $62,657. But the increase is chargeable
mostly to changes in the assignment of capital stock to one account
instead of another; and one such change alone operates to increase the
average capitalization $700 per mile for the entire United States.
“Manifestly”, says the Statistician of the Commission in his report,
“a figure so constructed should not be subjected to the burden of
sustaining any very weighty conclusions”. The Bureau of Railway News
and Statistics estimates the capitalization of 1911 at $59,345 per
mile; probably $60,000, in round numbers, represents about the average
actual capitalization today. This figure is to be compared with the
capitalization per mile in other countries, as shown in the following
table:

 United Kingdom      $275,040
 England alone       $314,000
 Germany             $109,788
 France              $139,237

The increase of capitalization per mile of railroad in England and
Wales for the nineteen years between 1890 and 1909 was from $255,073
to $328,761, or $73,688; against a total capitalization for all the
roads in the United States in 1909 of $59,259. It exceeded our total
capitalization by $14,429 per mile. The average annual increase for
the nineteen years has been $3,873 per mile, exceeding the entire
annual net earnings per mile of railways in this country during the
corresponding period. Our capitalization per mile is from one-half
to one-fifth that of European countries; partly because the initial
cost of construction was greater there, but largely because of a fixed
difference in policy. The American railway makes improvements so far as
possible out of earnings or surplus, leaving capital account to carry
only new construction. The European road distributes earnings among its
stockholders, and issues new capital to provide necessary betterments.
The difference accounts for the sharp contrasts of the figures presented
above.

The American policy is in the public interest, because it tends to keep
fixed charges down. A management can take its own time about replacing
a surplus used for improvements. When the money has been procured by
issuing new bonds, the interest on these is a mandatory charge and must
be added to the total to be raised annually from rates. So far as the
public is concerned, the American policy is far better. And it should be
remembered that it became the American policy by choice, not of legal
compulsion, at a time when managements had a liberty of action denied
to them now. It would be an ironic turn of affairs if this policy,
deliberately followed of their own option by railroad managements
through the whole history of American railroading, at the expense of
the stockholders and because it favors the rate-paying public, should
be reversed, and the burden transferred to the people’s shoulders as
a consequence of regulations prescribed by the people themselves. At
present it seems not improbable that this will come true to some extent.
A capitalization of $60,000 per mile will not transact the business
of the country. On all trunk lines and wherever population becomes
dense and traffic heavy, capitalization will have to be made larger
for new facilities and double tracking. The heavy amounts required to
provide terminals must also be charged to capital account. With wages
and material as high as they are now, billions will be required. If
additional money must be borrowed for the less permanent improvement
of which I shall speak presently, the country will eventually have to
carry a capitalization more nearly approaching that of Europe; and, as a
necessary corollary, rates will rise to a corresponding level.

The railways are entitled to confidence and relief because they have
displayed efficiency in the conduct of their business. This is just
as marked as their relatively low capitalization. The figures already
given show an increase of traffic in a year about five times as great
as the increase of equipment and eleven times the increase of mileage.
Yet the machine has been hauling its load, because efficiency has been
developed. Heavier rails, larger engines, cars of greater capacity,
increased train movement and the full utilization of equipment have kept
business moving. The density of traffic in England, France and Germany
should be as much greater than in the United States as the density in
the Middle exceeds that in the far Western states. Yet here are the
facts:

                      Ton Miles Per Mile of Road

 France                           496,939
 United Kingdom                   529,622
 Germany                          827,400
 United States (1910)           1,071,086

It is clear that our railroads have been capably managed, and that the
resources and powers entrusted to them are being used to the highest
business advantage. How the money they spend is being employed is shown
by the fact that our railroads move 272 ton miles of freight per dollar
of net revenue, where the United Kingdom shows only 58, Germany 172 and
France 88. For honest and efficient conduct our railways have no equals
in the world. By this supreme test they declare their fitness for the
gigantic work that still remains to be undertaken.

Not only, as I have shown, have they not charged to capital the cost
of improvements covered by stock and bond issues in other countries,
but they have shared their gains liberally with the people through rate
reductions. It has become common to think of the progressive lowering of
rates, while all other charges are rising, as the work of legislative
compulsion. On the contrary, many of the most important reductions made
in the past were voluntary. These are the lowering of charges on the
great staple products of the soil. This has made settlement possible.
It has made it possible for the farmer to realize the benefit of high
prices for his crops. It has doubled production again and again. It
has made possible the movement of lumber from the Pacific Coast to
the Middle West and even the Eastern markets. It has become a definite
policy. And it has left in the pockets of the people an enormous amount
of money that would have gone to the carriers or at least been shared
by them if they had fought against cheap transportation for the farm
instead of fostering it. If the freight and passenger rates in force
on the Great Northern system in 1881 had remained unchanged until
1910, there would have been collected from the public $1,267,411,954
additional. This amounts to more than eight times the average par value
of its outstanding stock and bonds in the hands of the public during
the same period. That is to say, if there had been no rate reductions
on that system during the past thirty years, it could have paid off its
entire capitalization every three and three-quarters years. If railroad
rates in the United States had increased as much in proportion as the
prices of commodities and the wages of labor between 1894 and 1909, the
country’s bill for transportation for those fifteen years would have
been over seven billion dollars more than it was.

The railroads, then, have proved themselves competent and trustworthy.
But if they are to furnish the necessary additions and provide new
terminals, without which the traffic of the country can no more continue
to move than a derelict can voyage from port to port, the money will
not come, as a magician catches coins, out of the air. It must be
either earned or borrowed. It seems clear to any one familiar with the
conditions and requirements that both resources must be drawn upon.
First capitalization must be materially enlarged. But the railroads must
be able to show that they can earn a fair return before they can add to
the principal of their debt. The very fact of additional capitalization
involves additional fixed charges. The investor must be assured that
such earnings will not be prohibited by the law before a loan can be
placed at a bearable rate of interest. And the higher the rate, the
greater must be the future charge on traffic to meet it. The country
comes to a stop before a financial “no thoroughfare”, from which no
exit can be found save through a relaxation of the rigid and hostile
prohibition of all rate advances that now absolutely negates the proper
and necessary expansion of traffic agencies in this country.

The theory of encouraging home industry has prevailed in this country
during the greater part of our national existence. Import duties
averaging 41.22 per cent were levied in 1911. The advocates of the
system claim this is done to protect American Labor. Our manufactures
are protected as a matter of national policy. Transportation costs
the public from one-third to one-half as much here as in Europe. This
cheapness is not purchased at the cost of the workingman. In 1910
the average daily earnings of railway employes in the United States
were more than twice as great as in the United Kingdom, and two and
three-quarters times as much as on the Prussian-Hesse system in Germany.
As employers of labor and also as producers of a commodity that
everybody uses directly or indirectly, paying that labor more than it
receives anywhere else in the world and supplying that service for less
than is charged anywhere else in the world, the railroads deserve a
public consideration not extended to them now.

Second, the railroads should be permitted to earn and hold a surplus
equal to fifty per cent of the amount they pay out in dividends, to
be held for emergencies and applied to improved facilities. There are
many expenses, and new ones constantly arising, that must not be added
to capital charge unless rates are to be made that the public cannot
and ought not to be asked to bear. In addition to the heavy demands of
the ordinary growth of traffic, there are many extraordinary expenses.
Public authorities do not hesitate to order the railroads to provide
additional equipment. This, being only partially under the owner’s
control, is soon scattered over the country. The weaker roads prefer
paying a per diem charge to buying for themselves. This compels the
stronger roads practically to provide new equipment for the whole
country and pay the cost of it from their own resources. Grade crossings
must be eliminated both in the cities and in the country. The ordering
of these is held to be a legitimate part of the police power of the
state, whose exercise is unlimited. To raise or lower tracks at a single
city may cost millions of dollars. This class of expenses grows very
rapidly in the United States as population becomes denser. Shall we
capitalize them also, as has been done abroad? Safety appliances must
be adopted. Ingenuity is adding yearly to the number of these; and the
public demands rightly that they be put into use as soon as their value
is demonstrated. But all these things take money--and a lot of it.

Steel cars are a good illustration of this kind of expense. They are
coming into general use, and it has been proposed to make their purchase
and employment compulsory even before their benefits have been fully
proved. To buy them is a big expense, but that is only the beginning. A
train made up of them is sixty-five per cent. heavier than one composed
of old style cars. More trains must be run to render the same service.
Tracks and bridges must be strengthened. So the cost of service is
increasing all the time through improvements that the railroads are just
as anxious as the public to adopt. Every one of these improvements costs
money. Very few of them produce one dollar of additional revenue. Yet
the railroads must pay their bills or go into the hands of a receiver.
Such an increase of rates as will cover these expenses; the accumulation
of at least such a surplus as will furnish funds for these daily demands
in the domestic economy of the railroads, must be authorized, unless
traffic is to decrease, transportation facilities to grow worse instead
of better, or capitalization to be increased until any rates that the
people can pay will fail to cover the fixed charges of the common
carriers.

An extraordinary doctrine is now being propounded in many quarters.
It is held that the accumulation of a surplus is evidence that rates
are too high and ought to be lowered; just as if the man who earns,
saves and puts a dollar in bank to meet future contingencies thereby
admitted himself guilty of either dishonesty or extortion. It is held
that a railroad has no right to receive or enjoy income derived from
any other source than the operation of its plant. It is asserted that
a railroad has no right to the natural increment in the value of its
property, though this is not denied to any other corporation or to any
individual under like circumstances. It has been attempted to apply
these principles to the regulation of railway property, stripping it of
privileges enjoyed by citizens and other corporate entities under the
constitution. But how about the other side of the shield? Does the state
recognize and abide by this same doctrine when its own revenue is at
stake?

All the earnings of the railroad, from whatever source derived; all the
property to which it holds title, no matter how acquired or held, is
taxed by the state as the property of the railroad; either indirectly by
a tax on gross earnings or directly on assessed valuation. The state has
taxed surplus and all improvements made from it just the same as those
made from the proceeds of stock and bond sales. Can it do this--can it
tax all earnings, improvements made from earnings and surplus without
confessing that the holders are entitled to the property and the
income from it as truly as the state is entitled to the tax? The rule
of fairness and the equal hand of the law should make the obligations
and the privileges of the railroad co-extensive. The taxes paid by the
railways of the United States in 1910 were about 13 per cent of the
total interest and dividends. They were over 25 per cent of dividends
alone. That is, the state received from the property one-fourth as
much as all the owners of it put together. In the face of facts like
these, no just man and no court that regards either law or equity should
question the right of the railways to enjoy the natural increase and to
earn the normal rate of profit on all the property they hold, no matter
how invested or employed.

It is not a political but an economic question that the country has to
consider and solve. The adjustment of tariff taxation, the regulation
of railroads and all other similar matters over which the legislative
power has control and which are essentially economic and non-political
are held deliberately within the range of current controversy for the
advantage of party politics. So long as they can be kept from a fair and
permanent settlement on the basis of economic justice, they will furnish
rallying cries for the unthinking of one political party or the other.
The country cannot rise to the level of its duty or its opportunity
until the scientific knowledge of the expert and the action of the just
judge are applied to the settlement of such economic issues.

The American people must soon begin to realize how injuriously they are
themselves affected by a game that has been played for so many years
with their business prosperity and their future welfare. Meantime the
practical questions that I have presented and that grow straight from
the root of the present situation remain. The wisdom, the desire for
justice, the intelligent self-interest of the whole country should be
concentrated upon the answer, which is not really difficult to find. The
people must first realize that regulation must not be strangulation.
Every restriction compatible with the public interest may be applied
without impairing the position of the railways, or their ability to
continue serving the public; because their interests at bottom are one.
It is high time that a rational perception of this identity should put
an end to hostile discrimination against the railroad, and a policy be
shaped which will permit the railways of the country to lay a broad
foundation for transacting the future business of the country, by
providing the machinery without which that business cannot be done.

Since the greatest need is larger and better terminals, the process
of improvement will be costly. Since the sum to be raised must be
reckoned in billions, the railroads, if they are to maintain their wage
scales, and their standards of efficiency, must be permitted to charge
such rates as will enable them to pay interest on the additions to
capitalization representing the money invested in new terminals, and
also accumulate a surplus sufficient to take care of the constantly
arising demands for additions to the existing plant. Courts and
commissions will see that excessive rates are not collected. On the
other hand the courts have affirmed the right of the companies to earn
a reasonable return on the total value of their property. Between
these well-marked lines the railway rate should move, according to the
needs of traffic and the development of the business of the country.
Rates either permanently unchanged at the present figure or lowered
by compulsion mean, in view of the existing emergency, nothing but
ruin. That ruin will not be so immediate or complete for the railroads
themselves as it will be for the business interests to which they will
no longer be able to give a prompt and adequate service. It will be
far-reaching, because its effects will touch every man, however humble,
who is engaged in productive industry. If it comes it will be the
most disastrous catastrophe in all our business experience. The whole
question may be summed up in the simple fact that the business of this
country has grown beyond the possibility of being handled by a railroad
system costing on an average $60,000 a mile. The experience of the whole
world is against such a proposition.

I do not underrate the importance of other interests or issues, I only
give due place and emphasis to this question when I say that it dwarfs
by comparison every other that bespeaks the attention of our people.
What, in comparison are any of the innovations or interpretations
of the national will which have recently formed the subject of a
nation-wide and passionate discussion? Across every stream of commerce
where it enters a distributing city an obstacle grows higher every day,
restraining the impatient tide of the nation’s exchanges. It is time
for all of us to lay aside prepossessions, hostilities, differences
in points of view, and work together for an object infinitely more
essential than most of the great enterprises deemed so national in
their scope and benefits that they command not only the sympathy but the
financial backing of the government itself.

It is the duty of every business organization, of every business man,
of capital interested in safe investment and labor interested in sure
and remunerative employment, to help swing the country into line behind
the only policy that can help and save them all. No pledge of national
credit, no subsidy in cash, no immunity or privilege is asked; only
freedom to raise on reasonable terms the capital without which the work
cannot be done; implying necessarily freedom to earn on that capital the
return without which it will not be forthcoming, and enough additional
to make and keep railway equipment and service equal to the progress of
invention and improvement and to the just expectations of the people.

No national or municipal campaign, no moral crusade, no commercial
or financial adventure or assurance can demand or ought to receive
from you and others like you the attention, the study, the energetic
support claimed by the imminent and urgent issue which I have tried to
present in outline. In a day of big things it looms above them all. The
railways, anxious to be active in the upbuilding of the country and the
introduction of a coming era in transportation, stand at attention.
Will the country give the word of permission and remove the heavy cloud
of doubt and depression which has steadily arrested the growth of the
nation’s commercial facilities?




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Transcriber’s note:

--Obvious errors were corrected.