SOME COMMENTS ON THE PUBLIC
REGULATION AND CONTROL
OF RAILWAYS
FREDERIC A. DELANO
AN ADDRESS DELIVERED BEFORE
THE COMMERCIAL CLUB OF HANNIBAL, MO.
H E
MARCH 25, 1909
SOME COMMENTS ON THE PUBLIC REGU¬
LATION AND CONTROL OF
RAILWAYS
When one considers the immense importance of rail¬
way transportation to the life of every community—
indeed, of very individual—it is not to be wondered
at that every one feels privileged to take a hand in the
management of the railways. Our whole scheme of
civilization to-day is dependent upon good and cheap
transportation. The food upon our table is supplied
from immense distances, and the same is true of all our
daily needs. When transportation was confined solely
to short distances, every community was obliged to con¬
tent itself with the articles which were produced within
a small radius. But in this country, where transporta¬
tion has been developed to a higher degree of efficiency
than anywhere else in the world, we do not think anj'^-
thing at all of drawing our means of subsistence from
a distance of two to three thousand miles. As a nation,
we stand for protection of home industries, but at the
same time we furnish the best example of a great free
[1]
trade experiment. We do not allow any part of the
Union a monopoly in any article of production or
manufacture, and time and time again since the rail¬
roads were created, an industry well established in one
part of the country has been entirely destroyed and
replaced by the more successful production in another
district.
Note.—A number of examples might be cited. The
case of the wheat-growing and flour-making industry
in the Genesee Valley, which was displaced by the suc¬
cessful cultivation of wheat in various Western states,
and eventually the extensive development of the indus¬
try in Minneapolis. Many other cases might be found
in manufacturing and other lines.
And yet, all this has come about in a little more than
two generations. The first steam i-ailroad to be oper¬
ated in the country was opened for business just eighty
j'^ears ago this j^ear; and during this period of eighty
years, by far the greatest part of the development has
been during the last one-third of the period. It is
hardly to be wondered at that in a growth so rapid some
serious blunders have been made, and that there have
been errors of judgment, as well as serious misdemean¬
ors for which railroad officials may be justly censured,
indeed, it is no part of my object this evening to pre¬
tend that railroad men are more capable or more honest
[2]
than their hrethren in other walks of life. It is my de¬
sire, however, to point out some of the difficulties which
railroad development has had to contend with, and to
indicate very briefly that the remedies which have heen
applied from without have frequently had entirely op¬
posite effects from those intended.
In my opening remarks, I called attention to the
fact that it was perhaps natural that every one should
feel that he had a right to take a hand in the manage¬
ment of the railroads, for it is evident that every man,
woman, and child in this land comes in contact with the
railroads, and in this intimate contact, one cannot fail
to note things to criticise. And yet, if it has seemed to
you that railroad officiais, both big and little, have
chafed under the criticisms and suggestions, I can only
ask that you put jmurselves in their places. What one of
you would accept with equanimity suggestions as to the
conduct of your own business at all comparable with
the suggestions and criticisms, not to mention legal
restraint and interference, which the railroad officials
have to accept daily? What would you say if citizens
of jmur community were to begin to inquire the cost of
articles you are selling over your counter, and criticising
the profit which you are making in some cases ; or find-
[3]
ing fault because, for some commercial reason which
you consider ample, you Avere selling one article at little
or no profit, and another article at a very high profit?
I am aAvare that any suggestion along this line will he
met with the objection, that because railroads are quasi-
public undertakings—because they are public service
corporations, thej^ must submit. In other AA ords, because
railroads ha\^e certain public functions to perform and
are given certain privileges in the expropriation of "right
of AA'ay," which often means that they must pay twice
what any other purchaser AA'Ould pay, thereby they for¬
sake all rights to conduct their own business. As a rail¬
road man, I shall not pretend to say that there is not a
distinction between the two cases ; but I do contend that
the quasi-public institution theory is frequently worked
for more than it is worth, and that it is producing just
the condition of affairs AA-hich the public does not want,
and is certain to regret in the long run. The reasons
for this I AA'ill try to explain as I proceed.
In a country groAving as our country is, the demands
on transj)ortation increase at a rate which may he con¬
servatively estimated at five per cent a year on the
average. (During the years 1897 to 1907, they in¬
creased at nearly double this rate; hut that period was
[4]
undoubtedly one of exceptional expansion.) This has
also been found to he about the ratio of growth in the
demands on urban traffic lines. From this it is apparent
that if the facilities were to keep pace with the increased
demands, there would have to he an expansion of these
facilities equal to that growth. Of course, it may he
argued that a considerable expansion in business can
be taken care of without an expansion in facilities ; and
while this is true in certain directions, it is not true as
a whole when the more exacting demands in regard to
quality of service, the betterment of conditions, etc.,
are taken into consideration. It is also true that as the
country develops and becomes more thickly settled, the
very factors which produce the increased business also
tend to an appreciation of the values of all property,
and make the extension of the railroad facilities more
and more costly, particularly in the congested districts,
where such extensions are most necessary. If, then,
this estimate is a correct one, it means that there should
be spent on the railroads of the country in every year
a sum aggregating not less than six hundred and fifty
millions of dollars, this being five per cent on the esti¬
mated present value of railroad facilities of the country.
So vast a sum of money as this can only be raised on
[5]
credit; and credit, as every one knows, depends wholly
on the faith of the community in the ability of the bor¬
rower to repay the loan with interest, or, in other words,
to "make good." In the last three years we have seen
in this country a most astonishing decline in railroad
credit. To understand the reasons for this, one must
have been a close observer of the conditions and a close
student of the facts. You may permit me to call atten¬
tion to these in a general way.
As already explained, the growth of all business
from 1897 to 1907, due to a period of unexampled pros-
perit}'^ following four years of depression, was quite
extraordinary. The traffic of the railroads increased
enormously, and in order to inerease their facilities com¬
mensurate with the demands, the railroads themselves
were large borrowers of money, spending it chiefly for
improvements and betterments. As already pointed
out, the growth of the traffic during this period was at
a rate something like twice the average or normal rate
for a long period of time. Facilities were overtaxed;
congestion of traffic occurred; and, worst of all, a dis¬
position to criticise railroads and railroad methods in¬
creased to a point where it showed itself in all sorts
of adverse legislation. A well-known railroad official
[6]
is authority for the statement that during the legislative
year of 1906-1907,' over 800 hills affecting railroads
were introduced in the eleven states of the Central West
in the Federal Congress—all of them seeking to regu¬
late, restrict, define, or lay down the method of railroad
management. Of course, this was the climax of a con¬
dition, the hlame for which all sections of the community
must share; and I would neither contend that the rail¬
road men were blameless, nor that the feeling of hostility
to the railroads was without any justification.
Simultaneously with this condition there had been
a rapid advance in wages of labor, a rapid advance in
the cost of material, and a consequent advance in the
cost of transportation, which made it impossible for the
railroads, even with the largely increased volume of busi¬
ness, to make anything like a commensurate increase in
profits. The creditor, whom we may say was repre¬
sented by the banker and investor in the large trade cen¬
ters, having control of the loanable funds both in this
country and abroad, began to take alarm. He saw
the storm gathering both in the hostile legislation and
in the rapid increase of operating expenses. He began
to withhold funds and to make his terms more onerous
to the borrower. This had the effect, of course, of check-
[7]
ing work; and if it had not been for a serious bank failure
in New York City, might have been effective in bringing
about a gradual depression without a sudden panic.
However that may be, for reasons which it is hardly
necessary for me to discuss fully here, a sudden break
in our prosperity came in October, 1907. I am glad to
say that since that time there has been a pretty satis¬
factory restoration of confidence, especially in the West,
but the fact remains that business continues to be on a
scale far smaller than it was before the panic.
Note.—As is well known, these conditions are not
confined to this country, but are quite worldwide in their
extent. While the rapid railroad, mining, and industrial
expansion in this country was one of the important
causes, the wars in Africa and Russia and the industrial
expansion in Germany were all contributing causes in
producing this worldwide condition; the fundamental
trouble being that the growth of expenditures has been
more rapid than production of wealth.
What I am most interested in discussing this evening
and pointing out to you is the immense demands on the
railroads and the conditions which must exist before
these demands can be met. Bear in mind, please, that
in any case railroads will be built and developed only
by the capital of our people or of such foreigners as may
be induced to invest in this country. This is just as
[8]
true, whether the railroads belong to the Government,
or whether they belong to and are operated by individ¬
uals. The only difference is that in the case of Govern¬
ment ownership the Government raises the money for
the pnrehase or building of the railroads by a guarantee
of the bonds and stock; whereas under private owner¬
ship the investor buys from the railroad company direct,
and on its credit only. (A large portion of the invest¬
ment in railroads is indirectly from the masses of people
whose funds in the hands of the hanks and insurance
companies are invested in railway securities.) Regard¬
less, therefore, whether the ownership of the railroads is
public or private, it is evident that public necessity exists
for a constant and annual expansion ; that this necessity
requires an expenditure of something like six hundred
and fifty millions of dollars per year on the average;
that this sum of money can only he raised from surplus
earnings, or by borrowing. If, by borrowing, that bor¬
rowing must he on the credit of the borrower.
Note.—It is often said of borrowing that any one
can borrow, hut the terms at which one may borrow de¬
pend wholly on the credit of the borrower. During the
last two years there are a good many cases on record
where great railway companies have paid as high as
nine and ten per cent for the use of money, thus indicat¬
ing very well their dire needs, as well as the extent to
- [9]
which their ability to pay their debts has been jeopar¬
dized.
In the face of this condition of affairs, it is not strange
that railroad officials feel a good deal of annoyance and
are disposed to he irritated at the disposition of the legis¬
latures, first to reduce their sources of revenue; second,
to increase their expenses; third, to demand public im¬
provements. For, bearing in mind what I have said
at the beginning, that railway men claim to be no better
than the rest of humanity, they do claim to he human,
and subject to the same desires and ambitions as the
rest of the family. Indeed, I may say that in all my
railroad experience, I have never met a railroad official
who did not want to spend money on his road as fast
as the credit of his company, the ingenuity of his bank¬
ers, and the approval of his directors would permit.
This is only reasonable and human. The manager of a
single track road wants to make it a double traek line;
he wants to get rid of many bad grade crossings; he
wants to adopt safety appliances ; he wants to reduce his
grades and curvature in order that he may show more
efficient operation. Is it to be wondered at that he feels
irritated and even peevish when the state legislature
reduces passenger fares, or freight rates, to a point at
[ 10]
which the operation of the road hecomes unprofitable?
Is it to be wondered at that he is irritated when the state
limits the length of trains; limits his methods of opera¬
tion; requires him to employ three hrakemen when he
thinks two are suffieient? Is it to be wondered at, when,
on top of all these restrictions and requirements, sundry
betterments and improvements are demanded ; and
finally, when politicians ride into office or win political
preferment by their abuse of railway management and
methods, that the patience of the railway man is well-
nigh exhausted ?
What is the remedy for these conditions? Evidently
the remedy which the railroads need more than any other
is a rest from the attacks made upon them. Railroad
operation and management is complex and involves so
many problems and commercial questions that what the
railroads need is more thorough study of the questions
and less disposition on the part of all communities to
jump at conclusions. Mr. Willard, second vice-presi¬
dent of the Burlington Company, covers the point well
in a recent address made to a body of the employees of
that company at Galeshurg. He says :
"In my opinion, railroad business, whieh really means
all business, will recover its former proportions when
■ [11]
the influences and forces at work during the last two or
three years shall have ceased doing the tilings that have
contributed so largely towards bringing about the de¬
pression which we all deplore. Perhaps that is not quite
clear. I do not mean that laws already made must neces¬
sarily be unmade, that wages raised must be reduced,
but we must have a rest. We must be given time and
opportunity to work out the new problems that have
been forced upon us during the last two years. We
must be given a chance to find out what it is going to
cost to meet the new requirements, and also how much
our revenues are going to be reduced by reduction of
rates. Perhaps it will be found that by new methods
growing out of the exigencies of the case we will still
be able to earn a surplus sufficient to justify the resump¬
tion of extraordinary expenditures as formerly. If not,
then, either rates must be advanced or wages be reduced,
or improvements must wait or be carried on with bor¬
rowed money, and railroads will be slow to increase their
interest-hearing debt under such circumstances."
In dealing with questions of this kind there have al¬
ways been two broadly different policies, one the policy
of great freedom from restraint, the other of extreme
repression. The pendulum of public opinion swings
slowly from one extreme to the other. The first policy
is not often heard of now; it is usually called by its
French name, "Laissez faire," i. e., "Let things alone."
This policy was first developed by the economists in re¬
action from the excess of regulation and interference
with business which reached its extreme development
[ 12]
in France during the reign of Louis the Fourteenth and
under the primacy of Colbert.
Note.—Colbert, in the years 1661-72 developed the
industries of France in a most astonishing way. Later,
under a system of well meant paternalism all sorts of
governmental offices and commissions were created to
regulate these industries and protect the public; but
soon this system of over-regulation reached a point where
it broke down of its own weight, and a sharp reaction
to the "Laissez faire" doctrine took place.
While this "Let things alone" policy is no longer
popular, it might be well to point out the logic of it
when applied to present day conditions in respect to
railroads. The theory of the policy is that objectionable
economic conditions have within themselves the eleiuents
of their own cure. In other words, that if things are
left alone, natural causes will produce a remedy. Thus,
if railroads are built and prove very profitable, other
railroads will be built in competition, and competition
will soon divide and diminish profits. If, on the other
hand, railroad building proves to be unprofitable, if
state interference and hostile legislation tend to dimin¬
ish profits below a reasonable point, railroad building
and development will cease.
Whether there is anything in this doctrine or not, it is,
as I have already said, an unpopular one to-day, for the
[13]
reason that communities are much too impatient to get
results. People who helieve in temperanee are unwilling
to wait for the slow process of education and the spread
of morality to produce the desired results, hut insist
that temperate hahits must he brought about by a law
which will compel total abstinence.
In the same way, if the community thinks the rates
they are charged are too high, they don't investigate
the matter, hut they straightway get legislation com¬
pelling the railroads to reduce rates, apparently entirely
overlooking the economic results which will certainly
flow from such a course.
In an undertaking where a large portion of the capi¬
tal invested is in a fixed form—structures, buildings,
etc.—capital once invested cannot he easily withdrawn.
This is more true of railroad investment than of any
other form of endeavor, and so the public are inclined
to jump at the conclusion that because capital has been
invested in railroads, and the railroads cannot he taken
away, and trains must be operated, they can with im¬
punity "put on the screws." Without commenting on.
the morality of such a point of view, it should he borne
in mind that the railroad is not a completed thing; that
even some of our most perfect trunk lines are constantly
[14]
undergoing change. Thus, one of the country's greatest
railways is said to have been relocated in some stretches
of its line four different times, in order to get better
gradients, or alignment; for, after all, the final economic
location of a railroad is subject to change until it reaches
perfection-—the only perfect railroad being the railroad
which is both level and straight. The amount which can
he economically spent on a railroad and still produce
return on the expenditure depends, first, on the rate
of interest paid for the money, and, secondly, on the
volume of the traffic involved. A very trifling saving
per ton of freight or per passenger handled, spread over
a sufficient volume of business, will warrant the expen¬
diture of very large amounts.
These instances are cited simply to show that a con¬
stant supply of money is needed for the improvement
and development of existing railroads, to say nothing of
making extensions or building railroads into new coun¬
try. There is not a railroad man who could not cite
from his own experience dozens of instances where the
expenditure of hundreds of thousands, and even mil¬
lions of dollars would, in his opinion, be justified by
reason of the economies produced, and yet, in such times
as these, it is with most railroads impossible to raise
[15]
money. If this is true of improvements and better¬
ments which increase the earning capacity, or reduce the
cost of doing business to an extent sufficient to fully
warrant them, how much more is it true of those forms
of expenditures in which the public is vitally interested;
for example, a better and safer track; better and more
commodious stations; better and faster trains; better
car equipment; the abolition of grade crossings; and
many other things which I might mention that are neces¬
sary or very desirable, but do not produce any additional
revenue.
The reverse of the policy which permits things to
work out their own salvation is the policy of regulation
which is so much in vogue to-day. Its theory is that all
functions in which the public are generally interested
must be either owned or subject to control by the state;
that is, the community at large. I shall certainly not
take the position that this is either an unfair or unwork¬
able theory; but I shall endeavor to point out some of
the difficulties which have arisen under its operation.
To begin with, it is only human nature that a man
or group of men who put their money into an enter¬
prise should desire the full control of it. In ordinary
manufacturing or commercial undertakings every man
[ 16]
has his own notions about the conduct of his business,
and docs not want to be interfered with, or dictated to
by people who knew less about his business than he does
himself. Now, while it may he argued in the ease of
public service corporations that the people who have put
their money into these enterprises, have done it with
their eyes open and with full knowledge that they were
subject to Governmental regulation and control, there
is nothing in that argument which makes public inter¬
ference any more palatable to the man or group of men
who are interfered with. The fact that the ordinary
merchant does not like to he dictated to cannot be al¬
tered, even if you convince him that the law compels
him to submit to that dictation. If the conduct of rail¬
roads involves as many intricate and complex questions
as the conduct of other business, then jmu will have to
admit from the analogy of your own experience that
interference and dictation, especially when it comes from
those less familiar, less acquainted with the problems, is,
to say the least, difficult to hear and very annoying.
There is a movement on foot in some of our states
for legislatures to delegate their authority in the super¬
vision and conduct of public service corporations to
specially created commissions. Theoretically, at least,
[ 17]
this appears to be a movement in the right direction;
that is, it shifts the control from a body so large that it
is difficult to clearly establish responsibility to a small
body on which responsibility can be fixed and of which
a fair degree of expert knowledge can be expected. On
the other hand, the plan is still experimental and is by
no means a proved success. It is opposed to the basic
principle of democracy which, as I understand it,
maintains that the average common sense of a large
body will produce better results in the long run,
than the special knowledge of a small body of men.
It sometimes happens that even a well selected com¬
mission is not given a fair chance—the unreasonable
is expected of it. Public opinion sometimes forces action
when it should permit deliberation and careful study.
It is unfair to expect a group of three, five, or seven men,
who have not been trained to transportation problems, to
grasp, within a few months, subjects which are consid¬
ered intricate by men especially trained by long experi¬
ence. And yet, that is what many of our states demand.
Note.—In the case of the Interstate Commerce
Commission we have a notable example of an unreason¬
able requirement by the public. Here is a group of men
who are required to exercise inquisitorial, adminstrative,
and judicial functions. We might as reasonably expect
[18]
a court to act as prosecuting attorney, listen to the evi¬
dence, decide the case, and administer the law.
That dealing with these problems requires special
knowledge and training can hardly be contradieted by
any one when one reflects on the intricacies of other
business. Is there a single vocation in life which is not
more complex to-day than that same vocation was twen¬
ty-five or fifty years ago? Is there a single voeation,
profession, commercial or manufacturing undertaking
whieh does not demand a greater training and a greater
degree of specializing to-day than it demanded twenty-
five or fifty years ago? I feel that I may safely say
there is not, and, frndher, that the railroad is no ex¬
ception.
A year or more ago when the railroads were smarting
severely under the heavy depression in business, and
concerted eflforts were under consideration to advance
rates of freight as preferable to any scheme of reducing
wages, the railroad officials of the country, in spite of
their own convictions as to the justification for an ad¬
vance, concluded to "go slow" and not make advances.
Repeatedly, I have been asked by prominent manufac¬
turers of railway supplies, "Why don't you advance
your rates? This is the only way you eau improve your
[19]
credit, increase your purchasing power, and enable you
to again come into the market and buy our goods?"
INIy answer has been, just as that of many others, that
it was not feasible to advanee rates generally until the
community at large were convinced of the justice of
the proposition. Not until some headway was made
against the hostility, which, rightly or wrongly, exists
against the railroads, ean we get an advance in our rates
which will he remunerative and which will again restore
the purchasing power of the railroads.
Y ou may argue, as many have argued, that this panic
started in Wall Street, and that it existed nowhere else—
and, indeed, it is fortunate for the country that our im¬
mense agricultural sections have felt the panic and re¬
cession so very little—hut if you do not know what the
panic has been, I would advise jmu to go into the manu¬
facturing sections of the country, to any of our large
cities or the centers of the iron, coal, and coke industry.
It is true that these industries have been talking brave,
just as. many railroads have been talking brave. In
fact, it often happens that the officers of a railroad cor¬
poration are in the same sort of position as the officers
of a bank, when they fear a "run oji the hank." It won't
do to admit to the public that your credit is weak, that
[20]
you are well-nigh insolvent, that you are not earning the
interest on your dehts. You may at that very minute
he trying to borrow money to tide you over the bad
period. So it happens that the railroad man must do the
same thing that the banker or the manufacturer or the
merchant does when he is put in a similar position. He
puts a brave face on the situation. He makes light of
his troubles. He urges that things are not so bad as
they might he. He expects an improvement shortly,
and says in fact all that he needs is a little temporary
assistance.
Happily, that critical period is past, and we can now
look at some of these questions squarely, and without
any dissimulation. Many people who are despondent
over the situation will tell you that there is a general
spread of socialistic ideas, and that it is this which is
causing the trouble. Personally I am not alarmed on
this score, because I have the utmost faith in the sound
common sense of the American people; and while I
realize that a little education is often a dangerous thing,
and leads men to very ill-judged and mischievous con¬
clusions, I feel sure that as the public becomes more
familiar with these difficult problems, they will become
more and more conservative and cautious. Socialism is
[21]
a dreaded word with many people; but, after all, it is
a word which is so difficult to define, that scarcely two
people understand the same thing hy it. To some men
it is synom^mous with anarchy; to others it means state
ownership, to others again, comniunisvi; some men pic¬
ture it as a kind of Utopia, the ideal of all unselfishness,
but admittedly well-nigh incompatible with human
nature as it exists about us. These isms do not discour¬
age me, because I believe that human nature, while
much the same the world over, is gradually changing for
the better; that our general education and our freedom
of discussion are helping all the time to bring about a
better understanding and a better condition of affairs.
Along the lines of discussion of these questions.
Government ownership is sometimes suggested. Per¬
sonally, I would oppose Government ownership, not
for the effect it would have on the railroads, but on
account of the results to the Government and the com¬
munity. I have no fear that Government ownership
will be brought about from below, but I have much
greater dread that it may he brought about from above.
In other words, there is much less danger that the
general public will demand Government ownership of
railroads and the taking over of railroad property by
[22]
the Federal Government, than there is that the represen¬
tative and large owners of railroad property will become
so tired of petty annoyances, interference, control of
profits, etc., that they will be the ones to seek to bring
it about. But there is no immediate danger of this; it
will not come within your lifetime or mine.
In this connection, one thing often lost sight of is
that when the Government undertakes control of any
large public function, there is no supeiwision or control
over that operation. The Government cannot success¬
fully supervise itself. Theoretically, the supervision is
in the whole people, but the difficulty then is that "what
is eveiybody's business is nobody's business." On the
other hand, under private ownership of public utilities,
there can be public supervision, criticism, and finally
control, a degree of control which is practically not possi¬
ble in the case of any governmental depai'tment.
Note.—It is to be remarked in this connection that in
no municipal state or federal operation in this country
have we the degree of publicity in reports of revenue,
cost of service or profits that are commonly given vol¬
untarily by corporations to their stockholders or the
public. Also that in private undertakings there is
necessarily a relation between income and outgo, where¬
as, in our country, in all public finances, we have as yet
created nothing effective in this direction. We go mer-
[23]
rily on spending money without knowing where the
revenue is coming from, and when we get "hard up" we
sell bonds or increase taxes. This period of adolescent
finance cannot continue indefinitely, hut, in the mean¬
time, our people are failing to learn the most important
lesson of political economy—a lesson which, unless
learned, must sooner or later get us into serious trouble.
From the standpoint of the public, then, it seems to
me that private ownership and public supervision and
control is the ideal method unless it is pushed to an
extreme where it necessarily breaks down. In other
words, it can he pushed to the extreme where there is
no incentive or inducement for private capital to enter;
where even though the capital already invested may not
he withdrawn, no new capital will come in; expansion
and development ceases. We are nearer this condition
of affairs in this country than, the railroad men care to
admit; hut actions speak louder than words, and you
can see the results of diminished capital investment in
railway enterprises, in the diminished purchasing of
material and the cessation of improvements and better¬
ments. The railroad men of the country would like to
see an end to this condition of affairs, hut I for one
say it would he better that the lesson so dearly bought
should he learned and comprehended by all. I doubt
very much if the country as a whole can he prosperous
[24]
with the greatest single industrj^ on starvation rations.
There never was a time when there was a greater need
for thorough study—courageous, patient, good-tem¬
pered study of such great public questions. Better the
Frenchman's "Laissez faire" policy than the "pin prick¬
ing" policy, the thoughtless tinkering with legislation,
of which we have all seen so much.
As has been said already, the worst of this storm
has passed, and even though conditions are still de¬
pressed, it is better that the railroads should be patient
than that they should adopt harsh or retaliatory tactics.
For this, if for no other reason, it would be better that
railroads should continue to live on a starvation basis
and from band to mouth, than that any summary action,
however justified it may be, should be taken. The rail¬
roads of the country are suffering—and suffering sorely,
there is n.o doubt about it ; but tbey can afford to suffer
if by so doing, the community as a whole is learning the
lesson which should be learned by such an experience.
As a nation, we have had a sharp spell of sickness, and
it would be dangerous for us to assume that because we
feel better we have entirel}^ recovered our strength.
Let us thoroughly understand the cause of the malady,
and after the disease has run its course we will be
[25]
ourselves again, immune, I hope forever, from tliis par¬
ticular complaint.
The great state of Missouri—one of the greatest in
the Union in area and natural resources—is surely not
ready to say that it invites no more capital for invest¬
ment in railroad improvements, expansion and exten¬
sion; and even if not a single mile of railroad were
needed in this state to develop unoccupied areas, there
is scarcely a mile of existing trackage in which some
sort of hetterment or improvement is not desired. How
shall the capital to make these improvements be ob¬
tained? Certainly in one way, and one way only; that
is, by making the enterprise reasonably profitable. And
you will pardon me for suggesting it, for I cannot help
thinking it is the wise course, that a public service com¬
mission, instead of busying itself solely in defining the
duties which this road or that should perform and the
improvements which should he made, might very prop¬
erly study the sources of revenue of the railroads, ascer¬
tain why it was that the roads were not more profitable,
co-operate with the management in effecting economies
or increasing earnings, with the certainty that every
dollar profitably invested in the railroads will attract
additional dollars to the state. I have not heard of any
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State Commission that has gone about its work in this
way, and perhaps public opinion has not arrived at the
point where a commission so minded would have public
support ; but certainly, a commission could safely assume
this attitude, for it would he in a position to use its
regulative power at any time in protection of public
interests if it saw the railroads gathering in excessive
profits and failing to do their full duty to the public.
My own experience in the study of railroads of the coun¬
try convinces me that even the richest railroads are pay¬
ing only moderate returns on the capital actually
invested and are making large expenditures for better¬
ments and improvements out of funds which might
rightfully have been applied to dividends.
Finally, let me remind you that the capital invested
in railroads was invested with the hope of return—and
while neither state nor Federal Government gave any
guarantee of a return, neither did they place a limitation
on it. Only in very recent years has any court sug¬
gested that the return should be limited. In other words,
it now appears that while the bona fide investor here or
abroad stood to lose all the money he put in (and cases
are very numerous where he did lose all) he now finds
the trend of recent decisions limiting the return to say
[ 27 ]
6%. Remembering that the theory underlying the in¬
vestment of capital is that the possible reward or return
on the investment must increase about in proportion to
the hazard incurred, does any one suppose that our rail¬
ways, especially in the far West, could have been built
without any guarantee, if there had been an intimation
that 6% was to be the limit of profit on the most suc¬
cessful operations? The answer to these questions I
can safely leave to you, confident as I am of your fair¬
ness, and confident, too, that all we need is a more thor¬
ough knowledge of conditions and less disposition to
cure every ill with a new law.
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