James J. Hill

“ 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. ”

“ 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. ”

“ 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. ”

“ 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 [9] 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. ”

“ 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 [2] 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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”. ”

“ 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 [24] 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. ”

“ 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 [11] reductions made possible by increased efficiency and increase in the density of traffic. ”

“ 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. ”

“ 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. ”

“ 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 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. ”

“ 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. ”

“ 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 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. ”

“ 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. ”

“ 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 31⁄2 per cent interest. Now some of the strongest roads are paying 41⁄2 per cent for new capital. Properties less well known for stability and earning power pay more. The rate has advanced by from 11⁄2 to 2 per cent in little more than ten years. ”

“ 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. ”

“ 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. ”