Price, 25 Cents. 
 
 Our Railroads 
 
 BEING A 
 
 STATEMENT OF THE VALUE AND EARNINGS 
 
 RAILROADS OF THE WESTERN STATES. 
 
 BY HARRY P. ROBINSON. 
 
 SECOND EDITION. 
 
 St. Paul, Minnesota, 1890. 

 
 385
 
 .^ 
 
 
 csX? 
 
 m 
 
 Our Railroads. 
 
 By harry p. ROBINSON, 
 
 editor of the 
 Northwestern Railroader. 
 
 COPYRIOHTED, 1890. 
 
 o 
 
 1675
 
 AUTHORITIES QUOTED IN THE FOLLOWING PAGES. 
 
 Second Annual Report of the Inter-state Commerce Commis- 
 sion, 1888. 
 
 Report of the Statistician of the Inter-state Commerce Com- 
 mission, 1889. 
 
 Reports of the Boards of Railroad Commissioners for the 
 year 1889 of the states of Minnesota, Iowa, Kansas, Missouri, 
 Michigan, and the Territory of Dakota. 
 
 Report of the Railroad Commissioner of Wisconsin, 1888. 
 
 Reports of the Board of Transportation of the state of Ne- 
 braska. 
 
 Report of the Assistant Secretaries of the British Board of 
 Trade on the Working of British Railways, 1888. 
 
 Report to the U. S. Department of Agriculture, 1890. 
 
 Administration Report on the Railways of India, 1889-90. 
 
 Report of the Victorian Railway Commissioners, 1 889, 
 
 Report of the Railway Commissioners of New South Wales, 
 1889. 
 
 Poor's Manual of Railroads, 1889 and 1890. 
 
 Annual report of the Directors of the Chicago and Alton 
 Railroad, 1889. 
 
 Annual Report of the Chicago and Northwestern Railway 
 Company, 1890. 
 
 Prof. A. T. Hadley, " The Railroads in their Business Rela- 
 tions."
 
 INTRODUCTORY. 
 
 One of the immediate results of the publication of the first 
 edition of this pamphlet was a sudden influx to the author of 
 letters of enquiry. These letters came almost entirely from two 
 classes of men — from railroad employes and from farmers, or, 
 at least, residents in small towns and rural neighborhoods. 
 The enquiries were for the most part of an elementary 
 nature, such as "What is the difference between bonds and 
 stocks ?" " What does * capitalization ' mean ?" and so forth. In 
 view of this fact, readers who are more familiar with the subject 
 matter of the railroad question will pardon the introduction 
 of this very elementary preface. 
 
 The object is to show in the simplest form possible that there 
 is nothing mysterious about the organization of a railroad com- 
 pany and the building of a railroad, and for this purpose an 
 imaginary case is introduced. Each reader will please believe 
 that this is not intended for his instruction, but for the instruc- 
 tion of some one else who knows much less than he does. 
 
 Let us suppose that two men start out, one to be a farmer and 
 the other to build a railroad. 
 
 The farmer has $1,000 capital. I The railroad man has $1,000,000 
 
 capital. 
 
 The farmer receives from the gov- | The railroad man receives priv- 
 
 ernment extraordinary privileges, | ileges from the government and 
 
 by which he gets his land for noth- j counties on his line by which he 
 
 '"g- gets his land for right of way, etc., 
 
 paitly for nothing and partly very 
 
 I cheap. 
 
 The farmer's capital of $1,000 is The railroad man's capital of 
 
 then spent in fees, preliminary $1,000,000 is then spent in fees, 
 
 expenses, farm binldings, fences, i preliminary expenses, surveys and 
 
 breaking, etc. < building the first section, 50 miles, 
 
 j of road. 
 
 The farmer needs more buildings The railroad man needs more 
 
 and machinery, 1 road, terminals and equipment,
 
 OUR RAILROADS, 
 
 So he borrows $1,000 more and 
 mortgages his farm to get it, and 
 gives his note — 
 
 So he borrows $1,000,000 more 
 and mortgages his road to get it, 
 and issues bonds — 
 
 WHICH IS A BONDED DEBT. 
 
 The farmer has to go to a pro- 
 fessional money lender for his 
 '$1,000, who only ^ves him $850 
 and makes him pay mterest at 8 per 
 cent, on the whole $1,000, or $80 
 a year — 
 
 The railroad man has to go to a 
 professional floater of railroad se- 
 curities to get his $1,000,000, who 
 only gives him $850,000, but makes 
 him pay interest at 8 per cent, on 
 the whole $1,000,000, or $80,000 
 a year — 
 
 WHICH INTEREST IS A FIXED CHARGE. 
 
 The farmer puts up barns and 
 buys machinery with his $850, be- 
 sides breaking more land. 
 
 Then he works his farm for a 
 year. 
 
 There is now an investment in the 
 farm of $2,000, of which $1,000 is 
 capital and $1,000 is in the mort- 
 gage. 
 
 As a result of the first year's work 
 the farmer gets $580 profit from his 
 farm. 
 
 Of this, $80 goes to pay interest. 
 
 The other $500 is a profit of 50 
 per cent, on his original capital — 
 
 The railroad man puts up stations 
 and buys equipment with his $850,- 
 000, besides laying some more 
 track. 
 
 Then he operates his railroad for 
 a year. 
 
 There is now an investment in the 
 railroad of $2,000,000, of which 
 $1,000,000 is capital and $1,000,- 
 000 is represented by bonds. 
 
 As a result of the first year's 
 operation the railroad man gets 
 $580,000 profit from his railroad. 
 
 Of this, $80,000 goes to pay in- 
 terest. 
 
 The other $500,000 is a profit of 
 50 per cent, on his original capital — 
 
 WHICH PROFIT IS DIVIDENDS. 
 
 But instead of taking this $500 
 for his own use, he puts it back into 
 the farm 
 
 And buys live stock with it. 
 
 This increases the capital invest- 
 ment to $1,500. 
 
 The second year, owing to hard 
 times and low prices, he fails to get 
 any profit from his farm. 
 
 But the interest must be paid, and 
 he needs money to go on with. 
 
 So he borrows $500 more. 
 
 And mortgages his extra buildings 
 and live stock to get it. 
 
 Which increases his bonded indebt- 
 edness to $1,500 
 
 And his annual interest to $120. 
 
 The third year he makes just $120 
 profit. 
 
 Which all goes in interest on his 
 mortgage, 
 
 And he gets no return for himself 
 on his own capital. 
 
 But instead of taking this $500.- 
 000 for his own use, he puts it back 
 into the railroad 
 
 And buys rolling stock with it. 
 
 This increases the capital invest- 
 ment to $1,500,000 
 
 The next year, owing to hard 
 times and low rates, he fails to get 
 any profit from his railroad. 
 
 But the interest must be paid, and 
 he needs money to go on w^ith. 
 
 So he borrows $500,000 more, 
 
 And mortgages his extra buildings 
 and rolling stock to get it. 
 
 Which increases his bonded indebt- 
 edness to $1,500,000 
 
 And his annual fixed charges to 
 $120,000. 
 
 The third year he makes just 
 $120,000 profit, 
 
 Which all goes in interest on his 
 bonds, 
 
 But he gets no dividends for him- 
 self on his own capital.
 
 OUR RAILROADS. 7 
 
 The fourth year prices are worse The fourth year rates are worse 
 
 than ever, and he comes out at the than ever, and he comes out at the 
 end of the year with a net loss. end of the year with a net loss. 
 
 He cannot pay his interest and the He cannot pay his interest and the 
 
 holder of his mortgage forecloses, holders of the bonds apply for a 
 
 ■ receiver. 
 And the farm is sold at auction — I And the railroad is sold at auc- 
 
 I tion — 
 
 WHICH IS BANKRUPTCY. 
 
 Now when the farm was sold for what it would fetch it repre- 
 sented an investment of ^3,000, of which ;^i,500 was original 
 investment and ^1,500 was represented by the mortgage. 
 
 When the railroad was sold for what it would fetch it repre- 
 sented an investment of I3, 000,000, of which $1,500,000 was 
 capital invested and ;^ 1,500,000 was represented by the bonds. 
 
 In the case of the railroad, instead of one man having a capital 
 of $1,000,000 to start with, it is usually subscribed by, say, one 
 hundred men who have $10,000 each, when each possesses one 
 one-hundredth of the stock, and all together are the stock- 
 holders of the company. 
 
 When a farmer (or other man) is told that railroad capital 
 does not deserve to earn any dividends, he has only to refer to 
 his own case and consider whether he himself is entitled to any 
 profit on his investment in his farm or business. 
 
 And when a farmer or other man is told that all that a rail- 
 road company earns in excess of operating expenses is " profit," 
 and that if it earns interest on its bonds that is as much as it 
 deserves, he has only to think if in his own case he considers 
 the money which has to go in interest on his mortgage as 
 "profit," or if, when he earns barely enough to pay that interest, 
 that is as much as he deserves. 
 
 Finally, the author wishes to call attention to the fact that the 
 figures and statements in the following pages are not in any 
 sense of his own manufacture. They are quoted entirely from 
 the only authoritative sources. The writer is not advancing 
 "estimates" or evolving theories of his own. He has but 
 collated and laid before the reader the facts as they are 
 found in these various official documents, and which, as facts, 
 are not open to question, leaving the public to use its own judg- 
 ment in passing upon the significance of those facts.
 
 "Take nothing for granted upon the hare authority of the 
 author ; but weigh and consider, in your own mind, the proba- 
 bility of the facts and the justness of the reflections. Con- 
 sult different authors upon the same facts, and form your 
 opinion upon the greater or less degree of probability arising 
 from the whole."
 
 OUR RAILROADS. 
 
 The railroads of the world are to-day worth from $25,000,000,- 
 000 to $30,000,000,000. This probably represents one-tenth of the 
 total wealth of civilized nations and one-quarter, if not one-third 
 of their invested capital. It is doubtful whether the aggregate 
 plant used in all manufacturing industries can equal it in value. 
 The capital engaged in banking is but a trifle beside it. The 
 2vorld's ivhole stock of money of every kind— gold, silver and 
 paper— would purchase only a third of its railroads. — A. T.Hadley 
 in ''Railroads in Their Business Relations." 
 
 In the above paragraph Professor Hadley places before the 
 mind, in a striking and picturesque form, the magnitude of the 
 railroad interests of the world. As his words were written some 
 years ago, however, the higher of the two figures which he gives 
 may safely be taken as the nearer to the truth to-day. 
 
 Professor Henry C. Adams, the official statistician to the 
 Interstate Commerce Commission, in his second annual report, 
 advance sheets of which have been distributed, though the full 
 report has not yet been issued,* says that on June 30, 1889, the 
 number of miles of railroad in the United States was 157,758. 
 The aggregate capitalization and funded debt of this mileage 
 was $8,573,000,000, 
 
 The total railroad mileage of the world has been calculated 
 to be 361,886 miles.f The United States contain, therefore, 
 approximately three-sevenths of the railroad mileage of the world. 
 
 It is a remarkable fact that until two years ago the govern- 
 ment of this country had not provided any adequate machinery 
 for the collection and presentation of the statistics relating to 
 
 •The full report has this week been issued, November 10th, 1890. 
 fKeport to the United States Department of Agriculture on "the Substitution 
 of Metal for Wood in Railroad Ties," p. 292.
 
 lO OUR RAILROADS. 
 
 these vast interests. Almost all the governments of the world 
 had seen the necessity of doing this and had entered upon it, 
 but the United States gave it no attention. There has been no 
 way by which the truth of the railroad question in its larger 
 aspects could be arrived at. The interested politician or the 
 railroad attorney has been able to advance what statements he 
 pleased without fear of refutation, as there was no official 
 authority on which any statement in refutation could be based. 
 
 The twentieth section of what is generally known as the Inter- 
 state Commerce Act authorizes the Interstate Commerce Com- 
 mission " to require annual reports from all common carriers 
 subject to the provisions of this act," and further provides that 
 such reports " shall show in detail the amount of capital stock 
 issued, the amounts paid therefor and the manner of payment for 
 the same; the dividends paid, the surplus fund, if any, and the 
 number of stockholders ; the funded and floating debts and the 
 interest paid thereon ; the cost and value of the carrier's prop- 
 erty, franchises and equipment ; the number of employes and 
 the salaries paid each class ; the amounts expended for improve- 
 ments each year, how expended, and the character of such im- 
 provements ; the earnings and receipts from each branch of 
 business and from all sources ; the operating and other expenses ; 
 the balances of profit and loss ; and a complete exhibit of the 
 financial operations of the carrier each year, including an annual 
 balance sheet." 
 
 In his first report, issued in the spring of 1889, the statistician 
 to the commission himself commented upon the curious absence 
 of information up to that date: * 
 
 " The length of line (in the United States) on June 30, 1888, 
 was 152,000 miles, and the property based upon it did not fall 
 far short of $9,000,000,000. The gross earnings on this prop- 
 erty for the year preceding were nearly $930,000,000. Passen- 
 ger mileage reached the enormous figure of 1,500,000,000, 
 while ton-mileage of freight exceeded 60,000,000,000. * * 
 
 * * An industry of such magnitude must of its own 
 
 merit arrest public attention, but when it is recognized that 
 every other industry in the land is dependent for its highest 
 success upon the way in which the railways are conducted, the 
 
 • Page 237.
 
 OUR RAILROADS. 
 
 M 
 
 absence of trustworthy and comprehensive statistics on railvva y 
 affairs is indeed occasion for surprise." 
 
 The standard authority on railroad statistics in the United 
 States, before the estabHshment of the commission, had been 
 Poor's Manual of Railroads, an excellent and laboriously com- 
 piled work, but which had not carried, and could not carry, 
 however accurate it might be, the weight which will hence- 
 forward attach to the official reports of the statistical department 
 of the Inter-state Commerce Commission. As a matter of fact, 
 a comparison of the results arrived at in Poor's Manual and in 
 the reports of Professor Adams shows that the former might 
 safely have been trusted, and have been accepted as authori- 
 tative, with more confidence than was ever extended to it. Such 
 divergence as there is between the conclusions arrived at and 
 the figures given in the two volumes is a divergence compara- 
 tively of small detail. The following comparison shows how 
 nearly they coincide: 
 
 Inter-state 
 Com. Commission. 
 
 Miles of railroad I57 753 
 
 Capital stock " *$4,251,190,719.00 
 
 Funded debt *4,321,856,023.00 
 
 btock and debt per mile »55 898.00 
 
 Percentage of unproductive stock.. ; ' 61.67 
 
 " bonds.. 18.19 
 
 Poor's Manual. 
 
 160,544 
 
 $4,495,099,318.00 
 
 4,828,365,771.00 
 
 58,077.00 
 
 62.21 
 
 18.73 
 
 Whenever possible, in the following pages, the figures of the 
 Inter-state Commerce Commission are used as being official. 
 On points which the report of the commission does not touch, 
 the figures o'i Poors ManuaUre used. With the information con- 
 tained in these two volumes, supplemented by the reports of the 
 various state commissions, it is possible now to arrive at conclu- 
 sions as to the present earning power of railroads in the United 
 States, and in the Western and Northwestern states, which are not 
 conjecture— as virtually all conclusions advanced previously to the 
 last two years must have been— which are not matter of esti- 
 mate—which can not possibly be suspected of being distorted 
 by prejudice or partiality. 
 
 *On 153,385 miles of road which made reports.
 
 12 OUR RAILROADS. 
 
 The importance to the public interests of having these con- 
 clusions of fact plainly set forth and established cannot easily be 
 overestimated. No intelligent public treatment of the railroad 
 problem can be reached without such knowledge. With such 
 knowledge once in the possession of the public — of the legis- 
 lators, public officials, business men, and writers on the daily 
 press — it ought not to be difficult to arrive at such an adjust- 
 ment of the rights and responsibilities of the railroads in their 
 relations to the state and the citizen as will best promote the 
 interests of the country. 
 
 To quote a writer on a daily paper : — "The people do not pro- 
 pose on the one hand to suffer themselves to be wronged by any 
 oppressive or unjust acts of extortion on the part of the railroad 
 companies; nor, on the other hand, do they propose that the 
 railroad companies should be wronged by unjust and confisca- 
 tory legislation. What they want is simple justice for themselves 
 and for the railroads. That is all they want. They know very 
 well that hostile legislation which seeks to destroy the value of 
 railroad property must result in immense harm to public interests. 
 They do not want to place their interests, therefore, in the hands 
 of the enemies of railroad corporations — of men whose only aim 
 is to cripple and destroy them — but of men who are broad 
 enough to do justice to both the people and the railroads." 
 
 The people, if, as one party claims, the corporations are enjoy- 
 ing too large privileges or are abusing their great powers, desire 
 and demand such legislation as will secure to society its rights 
 against the encroachments of monopoly. And if, as is claimed 
 on the other side, the corporations are already burdened beyond 
 the limit of justice and beyond the point where the earning of 
 reasonable returns upon investment is possible, then the people 
 know that any further legislation adverse to the railroads will 
 and must injure the community as a whole out of all proportion 
 to any benefit that it can confer on any one class of the people. 
 
 What is the situation, then ? What are facts ? Is there need 
 of more anti-railroad legislation, or has there already been too 
 much ? 
 
 Before entering into a discussion of the figures upon a consid- 
 eration of which a solution of the above questions only can be 
 reached, it is worth while to note a remark of the Inter-state Com-
 
 OUR RAILROADS. 13 
 
 merce Commission's statistician included in his first report* above 
 referred to. Prof. Adams, more than any other man in America, 
 had had the opportunity of arriving at a just estimate of the 
 financial condition of the railroads of America, and of the right 
 attitude of society towards them. The conclusion at which he 
 arrived, was that "it is more than likely that, if the facts pertain- 
 ing to railroads be properly collected, massed and mterpreted, 
 the demand for a very considerable increase of legislation which 
 would otherwise be necessary will disappear." 
 
 As being the well considered judgment of the statistician of 
 the Inter-state Commerce Commission, based upon the first ap- 
 proximately complete official statement of the condition of the 
 railroad properties of the country which had ever been collected, 
 this conclusion is significant. 
 
 THE RAILROADS OF THE UNITED STATES. 
 
 We have quoted above the figures of the Inter-state Commerce 
 Commission showing that the railroad mileage of the whole 
 country on June 30, 1889, was 157,758 miles. The total capital- 
 ization and funded debt of all roads reporting, viz., 153.385 
 miles, were $8,573,046,742. This is an average of stock and 
 debt of 555,898 a mile. 
 
 The great question to be settled, then, is, does this immense 
 capital earn too large revenues, or does it not ? The considera- 
 tion which meets us at the very outset is the question as to what 
 actual investment of capital these liabilities represent. What, 
 in fact, is the amount — if any — of over-capitalization? This 
 matter will receive more attention later on. For the present, 
 let us see what the returns are on the stock and bonds them- 
 selves. 
 
 The total amount of money paid in the whole country as divi- 
 dends on stock in the year 1889, was ;$82, 110,198. The total 
 amount paid as interest on funded debt was $213,173,672. 
 
 The dividend ^payments were an average of 1.91 per cent on 
 all common stock, and 2. 11 per cent on all preferred stock, or 
 an average of 1.93 per cent on the total of stock of all kinds. f 
 
 *Pafre 33. 
 
 ; Statistics of RaiUv.-xys of the Unitea States (Inter-state Commerce Cmrimission) 
 
 p. 2'J. 
 
 d
 
 14 OUR RAILROADS. 
 
 The interest was an average of 4.9 per cent on all bonds. The 
 average of returns on all securit"ies was 3.43 per cent. 
 
 In the first statistical report June 30, 1888,) of the Inter- 
 state Commerce Commission was given a table* of all classes of 
 stocks and bonds, with the rate of dividend or interest paid on 
 each. Of the ^6,976,271,156 of total capital and debt (on 120,- 
 OCX) miles of road), ^2,500,000,000 were in 1888 absolutely un- 
 productive. On ;^2,500,ooo,ooo worth of securities, or more 
 than one-third of all, there was no return paid at all. 
 
 In the second report (for the year ending June 30, 1889,) a 
 similar table is given which shows an increase in the amount of 
 these unproductive securities of over ;^ 800,000,000. The total 
 amount of stock and bonds on which no returns were paid w^s 
 i^3. 397. 291, 587. Of this amount ^2,621,497,932 were stock and 
 over ;^775,ooo,ooo were bonds — or 18,19 per cent of all the 
 bonds of the railroads of the country drew no interest, and 61.67 
 per cent of the stock paid no dividends. 
 
 Considerably more than one-third, very nearly two-fifths, of 
 the entire investment in the railroads of the United States 
 was in the year 1889 absolutely unproductive of revenue. 
 
 In the year 1SS6 Poo/ s Manual showed that 58.12 per cent 
 of the stock on all lines of the country were unproductive, and 
 10.88 per cent, of the bonds. Since then — that is in three years 
 — the increase in the proportion of unproductive securities has 
 been 3.55 per cent, of the whole amount of stock, and 7. 11 per 
 cent, of the whole amount of bonds of the country. 
 
 The last edition of Poors Mamuil,\ however, for the year 
 ending June 30, 1889, gives the following table of the percentage 
 of returns on the railroad investment of the country: 
 
 Year: 1884 
 Interest on bonds, p. ct... -i.ee 
 
 Dividends on stock 2.48 
 
 Total payments, stock, 
 bonds and debt B.52 
 
 1885 
 4.77 
 2.02 
 
 3.36 
 
 1886 
 4.75 
 2.04 
 
 3.26 
 
 1887 
 4.71 
 2.18 
 
 3 40 
 
 1888 
 4.35 
 1.77 
 
 3.03 
 
 1889 
 4.38 
 1.77 
 
 3.07 
 
 This is to say that during three years the decrease in income 
 to the holder of securities has been 1 5 per cent. Also the capi- 
 tal stock and debt per mile of road have decreased in the same 
 
 •Second annual report of the Inter-state Commerce Commission, p. 254. 
 t Poor's Manual of Railroads for 1890, p.iv. The divergence of the figures of the 
 Manual from that of Prof. Adams has already been commented on.
 
 OUR RAILROADS. 1$ 
 
 length of time from $59,391 in 1884 to '$S^y977 i" 1889. If the 
 stock and debt per mile of road were as great to-day as they 
 were six years ago, the total liabilities of the railroads of the 
 country would be two hundred million dollars greater than they 
 are, or $199,351,376, and the percentage of returns would be 
 proportionately smaller than even is the case. 
 
 With nearly three and one-half billions of securities entirely 
 unproductive of revenue, it is not surprising that the statistician 
 of the Interstate Commerce Commission should ask, " what is 
 the meaning of it? " 
 
 Here, then, we have seen that more than one-third of the 
 railroad stock and bonds are unproductive, and that the average 
 of returns in all is 3.4 per cent. The question is, is this a 
 condition which shows an unreasonable rate of profit? Is 
 this a larger revenue than the ordinary business man — merchant, 
 banker, farmer or manufacturer — expects to make or does make 
 upon the capital invested in his business ? Is it larger than the 
 law allows as reasonable interest? 
 
 Now, touching for a moment on the subject of over-capi- 
 talization, let us see how this showing compares with that of 
 the railroads in other countries. 
 
 The total of stock and debt on all lines in this country is 
 shown by the statistician of the Inter-state Commerce Commis- 
 sion, as already noted, to be *$ 5 5,898 a mile. 
 
 In Great Britain, the average is $193,000 a mile. While in 
 this country 1 50,000 miles of road have to earn returns on eight 
 and one-half billions, in Great Britain 20,000 miles have to earn 
 returns on nearly four billions. And they do earn returns of 
 4.07 per cent., as against the 3.43 per cent, in this country. 
 
 And while the capitalization per mile in this country is only 
 one-fourth that of Great Britain, it is two-fifths that of the rail- 
 roads of France, and about one-half that of the railroads of 
 Germany. 
 
 But the comparison with the railroads of .European countries 
 may not be a fair one as the conditions are so different. There 
 are other countries, however, wher^ the analogy is closer and 
 with which a comparison may fairly and instructively be drawn. 
 
 Turning to Australia, in New South Wales the govern- 
 
 'This does not include "current liabilities," but only funded debt.
 
 1 6 OUR RAILROADS. 
 
 ment has owned the railroads from the very first. Here, if any- 
 where, there should have been a chance for cheap railroad 
 construction. "The country offered no serious obstacles. The 
 land was to be had cheap. No special effort was made to 
 avoid grades by cuttings or tunnels. The lines were not con- 
 structed for heavy traffic or hard usage. There are practically 
 no fast trains. Only 79 miles out of a total of 2,200 are double 
 track."* .Yet in spite of all these advantages, the average cost 
 per mile of road in New South Wales is given as ^68,000 against 
 $55,898 a mile in this country. 
 
 In Victoria, t the " total spent in construction" has been an 
 average of $70,900 a mile. The returns on this for the year 
 were 3.73 per cent. The commissioners explain, however, that 
 a large portion of this expenditure was on uncompleted lines 
 not yet operated, and the average of returns on all capital in- 
 vested in completed lines was 4.40 per cent. The railroads here 
 are all built directly by the government and owned by the 
 government. All contracts for construction are let to the lowest 
 bidder, and no such accusation as that $70,900 is not the lowest 
 possible figure at which the roads could be built has, we believe, 
 ever been made. 
 
 Turning then to India,| the 16,300 miles of railroad on the 
 Indian peninsula cost to construct $81,085 a mile, as against 
 $55,898 in this country. In the year 1888 the railways of India 
 earned 5.32 per cent., and in the year ending May 20th, 1890, 
 they earned 4.93 per cent, on their investment, as against 3.43 
 per cent, in the United States. 
 
 It should be remembered that in all these countries both the 
 construction and operation of the railroads are conducted either 
 more or less directly under governmental supervision or under 
 immediate government ownership. The possibility of inflation 
 of capital by individuals and corporations in most of them does 
 not exist. The figures given above are the figures of actual 
 cost and as such are not open to question. At the same time, 
 
 •It should perhaps be explained that the figures of mileage, viz.. 157,758 as the 
 total of the U. S., do not include anything but main track. It is the mileage of 
 road, not of tracks. There are over 50,000 miles of second and third and fourth 
 tracks, of spur and side tracks, of which no account is made in any calculations. 
 
 t Report of the Victorian Railway Commissioners for the year ending Jime 30th, 
 1889. 
 
 t Administration Report of the Railways of India for the year 1889.
 
 OUR RAILROADS. 1 7 
 
 with very much larger capitalization or investment to earn 
 returns upon, the rate of returns earned is also larger. This is 
 achieved by the sole plan of charging higher rates. It is 
 impossible here to give a detailed comparison of rates in this 
 country and in others, but it may be stated generally that while 
 in some countries the rates of third (or whatever may be the 
 lowest) class of passenger travel are lower than the passenger 
 rates in this country, all other rates, both passenger and freight, 
 are higher.* 
 
 Let us now turn from the country at large to the West, South- 
 west and Northwest, and see how our railroads here compare 
 with those in the Eastern and Northern states in their capitaliza- 
 tion and earning power. 
 
 THE RAILROADS OF THE WEST. 
 
 The Inter-state Commerce Commission has made no com- 
 parison of different states or sections of the country. The 
 following figures are from Poor's Manual for the year ending 
 June 30th, 1889. The statement of capitalization and debt per 
 mile of road on the lines of the country grouped geographically 
 is as follows : 
 
 Capitalization and 
 
 debt per mile 
 
 of road 
 
 New England group $56,4-22 
 
 Middle group 119,121 
 
 Central Northern group 52,073 
 
 South Atlantic group 40,041 
 
 Gulf and Mississippi Valley group 52,691 
 
 Southwestern group 45,063 
 
 Pacific group 59,927 
 
 Northwestern group 48,319 
 
 The average for the whole country has been said to be 
 +$58,077, so that the capitalization and debt of the Northwestern 
 lines is less than the average throughout the country by nearly 
 
 •The average of rates charged in England to-day is more than double the aver- 
 age in the United States. The latest Act of Parliament in which an^- specific rate 
 is provided for transportation is that of 1883, in which it is provided that govern- 
 ment material and ^' War Office Stores" shall be transported at a charge not 
 exceeding four cents a mile. The average of earnings per ton per mile in the United 
 States last year was 0.97 cents. The latest act in England fixing passenger rates 
 provides for a maximum of 6 cents for first class, 4 cents for second class, and 2Vi 
 cents for third class. The average in the United States for the j-ear 1889 was 
 2.17 cents. 
 
 t According to the Inter-state Commerce Commission, §55,898.
 
 I 8 OUR RAILROADS. 
 
 $10,000 per mile, or $9,758. The capitalization and debt of the 
 Southwestern lines is $13,000 a mile below the average. 
 
 Having thus much smaller investment (or liabilities) to earn 
 returns upon, it might reasonably be supposed that the percent- 
 age of returns would be larger than the average. As a matter 
 of fact Poor's Manual shows that the average payment on the 
 capital stock and debt of the Northwestern lines was in the year 
 1889 only 2.71 per cent. — as against *3.07 percent, for the country 
 at large — and on the Southwestern lines only 2.16 per cent. 
 
 If we analyze these figures still further, we come to facts yet 
 more significant. 
 
 It is obvious and well understood that, when earnings are 
 reduced below what may be called the line of normal prosperity 
 and before actual bankruptcy is reached, 'the burden of loss must 
 fall principally upon the stockholders. The operating expenses 
 have to be paid. Economy and retrenchments can reduce them 
 to a certain extent, but the limit of elasticity is soon reached. 
 Similarly with the fixed charges, — taxes and the interest on 
 bonds must be paid if the money to do it can possibly be ac- 
 quired or very disagreeable consequences will ensue. The real 
 index to the prosperity of any given group of railroads — the 
 evidence as to what they are earning above the necessaries of 
 life — is to be sought in the dividend payments. The average 
 dividend payment on stock of the Northwestern lines in 1889 
 was 0.49 per cent, or less than one-half of one per cent, against 
 an average of 1.77 per cent, over the whole country. The 
 total amount of this capital stock on all the Northwestern lines 
 was $409,208,838, Any person who was so fortunate as to 
 have a fortune of $100,000 worth, face value, of that stock, in 
 the year 1889, received on nt as an income to live upon just $490. 
 
 On the Southwestern lines the average dividend payment on 
 stock was 0.72 per cent., or something less than three-quarters 
 of one per cent. The total amount of stock on this group of 
 lines was $693,610,736. A fortune of $100,000 of that stock 
 produced $720 as an income. 
 
 The combined mileage of these two groups was 51,430 miles, 
 almost exactly one-third of all the railroad in the country. The 
 total amount of their combined dividend payments was less thaa 
 
 •According to the Inter-state Commerce Commission, 3.40 i>er cent.
 
 OUR RAILROADS. 
 
 19 
 
 one-eleventh of that paid in the whole country, or in proportion 
 of 7 to 7g]4. 
 
 The New England group of lines, with only 6,926 miles of 
 road, paid in dividends just 50 per cent, more money than did 
 the combined Northwestern and Southwestern groups, with 
 51,430 miles of road. 
 
 The Middle group of lines include 19,243 miles of road. The 
 capitalization of these 19,243 miles was almost exactly the same 
 as the capitalization of the 51,430 miles of road in the combined 
 Northwestern and Southwestern groups, viz: ^1,090,580,000, 
 and the amount of money paid in dividends was almost precisely 
 four times as large. 
 
 In 1888 "the average percentage of dividends paid on rail- 
 roads in New England in 1888 was 4.56 per cent, in the North- 
 western states 0.52 per cent. This," remarks Pool's Manual, 
 " shows the difference between the results produced by Eastern 
 and Western state legislation relative to railroads." 
 
 But these comparisons might be carried on almost indefinitely, 
 
 showing results fully as startling — for they are startling as 
 
 these at every turn. The temptation to continue them is very 
 great, for these facts will be something of a shock to the average 
 reader who has been accustomed to hear only the socialistic or 
 granger misrepresentation of the railroad question, and they can 
 hardly be too distinctly stated or in too many forms. 
 
 One more statement on this line, however, is all that we will 
 make. 
 
 On the lines in the Northwestern group in the year 1889, over 
 80 per cent, of the stock was absolutely unproductive, (against 
 61.67 per cent, for the country at large.) That is to say, that of 
 the $409,000,000 of stock in these lines, the holders of ^327,- 
 000,000 derived no income whatever from their investment. 
 
 Whether or not there is need of legislation to further reduce 
 these inordinate profits, is a question for the public to decide. 
 
 Nor was this lamentable showing in any way to be attributed 
 to faults in the management of the roads. So far from that 
 being the case, it is a curious fact that in no other group were 
 the operating expenses cut down to so low a basis as in the 
 Northwest. Owing to extraordinary conditions which render 
 the operation of some of the lines in the Southwest very expen-
 
 20 OUR RAILROADS. 
 
 sive, especially in the mountain sections, the showing for the 
 Southwestern group is not as good as that of the Northwestern. 
 Here is a table giving the percentage of operating expenses to 
 gross earnings for the year 1889 of all the various groups : 
 
 PER CENT. 
 
 New England group 72.01 
 
 South Atlantic group 71.91 
 
 Southwestern group 71.88 
 
 Central Northern group 68.16 
 
 Middle group. 66.39 
 
 G. & M. Y. group 65.92 
 
 Pacific group 64.61 
 
 Northwestern group 64-. 57 
 
 This calculation, viz., the percentage of the gross earnings 
 which are consumed in operating expenses, is the standard by 
 which tjie ability and economy of the management of a given 
 road are most commonly measured. If the percentage is too great 
 it shows that the management is either paying too much to get 
 its business, or else is v/asting money in handling it. And we 
 can readily see how important this showing is, by making a 
 comparison of the above figures. 
 
 We will not take an extreme instance, but will take the Cen- 
 tral Northern group, the 68.16 per cent, of w^hich is approxi- 
 mately half-way between the lowest proportion, 64.57, ^nd the 
 highest, 72.01. The difference between the figures of the North- 
 western group, 64.57, and those of the Central Northern group, 
 68.16, is 3.59 per cent. The gross earnings of the Northwestern 
 group were $84,056,412; and 3.50 per cent, of that is $2,941,974. 
 If the managements of the Northwestern roads had spent in 
 operating expenses, therefore, as large a proportion of their gross 
 earnings as did the managements of the Central Northern group 
 the item of operating expenses would have been increased by 
 $2,941,974, which must have come from somewhere else. The 
 stockholders would have suffered first. But the gross amount 
 of money paid in dividends on stock of the Northwestern group 
 in the year only amounted to $1,985,531. So that, to make up 
 that $2,941,979, that poor one-half of one per cent, which was 
 paid as dividends would have had to be entirely wiped out, and 
 the companies would still have been nearly a million dollars — or 
 $956,443 — short of meeting their expenses. In which case some- 
 body must have gone into bankruptcy.
 
 OUR RAILROADS. 21 
 
 Now from these figures there are two conclusions of fact to be 
 drawn. 
 
 In the first place this extraordinary economy of operation in 
 the Northwestern lines is only attained at the cost of great hard- 
 ship to the employes. To make the above showing, forces had 
 to be reduced, wages cut and hours shortened to an unparalleled 
 degree. This point is of so much importance that it will be 
 referred to again, but meanwhile it should be noted that in the 
 execution of these economies the numbers of track- men and 
 yard-men and train- men have been so reduced that what is 
 known as the "danger line" of operation has long ago ceased to 
 be regarded, and inasmuch as the safety of travel is thereby 
 imperilled, the general public is hardly less interested in this 
 than are the employes themselves. 
 
 The second fact to be observed is this : We have seen that 
 with a smaller indebtedness and greater economy in operation, 
 the railroads of the Northwest are still less productive as an invest- 
 ment than those of any other portion of the country. And when 
 this question of the productiveness of the railroads is regarded 
 by outside capitalists, as it is regarded, as the best indication of 
 the general prosperity of any section of the country, this show- 
 ing is one which cannot do anything but very seriously injure 
 the reputation of the Northwest in the financial circles of the 
 East and of Europe. 
 
 DIFFERENT WESTERN STATES COMPARED. 
 
 In the first edition of this pamphlet the author said : "A word 
 should be said here on the difficulty of arriving at a correct 
 statement of earnings, expenses or dividends on lines within any 
 given state. Of course a railroad company, operating a system 
 in, perhaps, half a dozen different states, does not and could not 
 keep the accounts of the lines in each state distinct from the 
 lines in the other states. For the purposes of state commissions, 
 therefore, it is customary to make an approximate division of 
 these matters on a mileage basis. That is to say that the com- 
 pany reports upon its whole system. That may be 5,000 miles 
 in length. Of this amount perhaps 1,000 miles or one-fifth of 
 the whole may be within the state limits. To obtain the propor- 
 tion of earnings, expenses and dividends on the lines within the
 
 22 OUR RAILROADS. 
 
 State, the whole earnings, expenses and dividends are divided by- 
 five. The result is, of course, only approximately accurate, and 
 sometimes may give rise to very considerable misrepresentation. 
 
 "An instance of this may be seen in the statement of dividends 
 and interest on Minnesota lines given above. The entire amount, 
 the state commissioners' report shows, paid in dividends on lines 
 within the state in 1 887 was $2,070,000. This was figured on a 
 mileage basis. Of this sum nearly $400,000 was estimated as paid 
 by the lines of the Chicago & North-western Railway Company in 
 Minnesota. As a matter of fact the lines of the Chicago & 
 North-western Railway in Minnesota were absolutely unpro- 
 ductive. The dividends and interest paid by that company in 
 1 887 were all earned on other parts of its system, while the Winona 
 & St. Peter showed an actual deficit (short of paying operating 
 expenses and fixed charges) of $450,000. This had to be made 
 up out of the surplus earnings on other parts of the company's 
 line, so that, instead of the people of Minnesota being taxed to 
 pay $400,000 of dividends on thd company's lines, the people of 
 other states had to come forward and make up the $450,000 of 
 the carrier's expenses which the people of Minnesota failed to 
 pay to the carrier for conducting their business. 
 
 "This would make a very material difference in the figures 
 given above. It would increase the amount of non-productive 
 stock on Minnesota lines and would decrease the rate of return 
 below 3.06 per cent. But the mileage basis is the one which by 
 common consent is followed in various states, though with a full 
 recognition of its inadequacy ; and it seems to the writer better 
 to accept the official figures of the state commission, even when 
 obviously open to criticism, than to compile his own statistics, 
 which would certainly be criticised, whether accurate or not." 
 
 Since the above w^as written some of the state commissions, 
 among them being those of Minnesota, Nebraska and Iowa, 
 have in large measure abandoned the plan of attempting to so 
 apportion the stock or debt or dividends between the particular 
 portions within and without the limits of a given state. The 
 figures now are given " for the Vhole lines." Similarly Poor's 
 Manual has abandoned many of the tables showing results 
 according to states which appeared in earlier editions. The plan 
 of division into groups of lines, bunched according to geograph-
 
 OUR RAILROADS. 23 
 
 ical location, is unquestionably the most natural and scientific. 
 Results so arrived at are certain and of practical comparative 
 value. Results based on arbitrary apportionments by state 
 lines, while interesting and reasonably approximating the truth, 
 could never have the positive and demonstrable exactness which 
 attaches to the figures that we have quoted so far. 
 
 It will doubtless suggest itself to the reader that the practice 
 of enacting widely different statutes relating to the regulation of 
 common carriers in neighboring states is equally absurd. 
 The endeavor to operate the two ends of one line so as to con- 
 form to two entirely different sets of state regulations is not only 
 unnecessarily harassing to a railroad manager, but also com- 
 pels injustices and inequalities in the treatment of the public on 
 opposite sides of the dividing boundary. 
 
 The annual conventions of State Railroad Commissioners 
 which are now being held at Washington under the patronage 
 of the Inter-state Commerce Commission, will, in time, do a 
 great deal towards making uniform the legislation of different 
 states.* But what is most needed is a more intelligent under- 
 standing of the railroad question by state legislators. 
 
 Statistics can be compiled ad libitum from the reports of the 
 various state commissions to show that the condition of the 
 railroads is deplorable in each Western state. But when the 
 condition of all the Northwestern lines is as set forth above, it is 
 needless to say that those parts of them which run through 
 Iowa and Minnesota and Nebraska and Wisconsin are all alike 
 unremunerative property. Certain results can be abstracted 
 from these state reports which have a value of their own, and 
 
 *In the first edition of this pamphlet attention was called to the urgent advisa- 
 bility of having the same form of annual report adopted by the various state 
 commissions and the Inter-state Commerce Commission, and also of making the 
 fiscal years end at the same date. The folloviring extract from a letter from the 
 statistician of the Inter-state Commerce Commission to the writer, under date of 
 September 25th, 1890, will show how much progress has since then been made in 
 these directions: "We have supplied direct from this office, similar to the Minne- 
 sota form sent you (completing the forwarding on 23d inst.), state editions of the 
 1890 form to eighteen states, namely, .\labama, Arkansas, Connecticut, Florida, 
 Georgia, Iowa, Kans9.s, Kentucky, Minnesota, Mississippi, Nebraska, North 
 Dakota, Ohio, Oregon, South Carolina, South Dakota, Vermont and Virginia. It 
 should be said further, it is understood in this office, that seven other states, 
 namely, California, Illinois, Massachusetts, New York, Pennsylvania, Rhode Island 
 and Wisconsin, though not furnished by us with the 1890 form, arc this year using 
 forms similar to that of the Inter-state Commerce Commission, thus making prac- 
 tically twenty-five states in which the interstate form has been adopted out of 
 twenty-nine states having railroad commissions."
 
 24 OUR RAILROADS. 
 
 these the author has endeavored to state as concisely as possible. 
 
 For comparative purposes the following table from the In.er- 
 state Commerce Commission's* report may be interesting : 
 
 SUMMARY OF RAILWAY MILEAGE IN THE UNITED STATES 
 
 BY STATES AND TERRITORIES. 
 
 Mileage on 
 State or Territory. June 30, 1889. 
 
 Alabama 3,034.57 
 
 Arkansas 2,156.11 
 
 California 4,250.27 
 
 Colorado 4,127.42 
 
 Connecticut 1,006.13 
 
 Delaware 305.69 
 
 Florida 2,282.82 
 
 Georgia 4,094.43 
 
 Illinois 9,829.48 
 
 Indiana 6,045.87 
 
 Iowa 8,320.39 
 
 Kansas 8,770.01 
 
 Kentucky 2,522.06 
 
 Louisiana 1,535.25 
 
 Maine 1,314.34 
 
 Maryland 1,222.82 
 
 IMassachusetts 2,072.76 
 
 Michigan 6,783.59 
 
 Minnesota 5,340.46 
 
 Miss'ssippi 2,266.90 
 
 Missouri 5,924.05 
 
 Nebraska 5,012.00 
 
 Nevada 927.87 
 
 New Hampshire 1,102.06 
 
 New Jersey 1,982.66 
 
 New York 7,680.11 
 
 North Carolina 2,654.54 
 
 Ohio 7,797.15 
 
 Oregon 1.503.61 
 
 Pennsylvania 8.214.35 
 
 Rhode Island 214.63 
 
 South Carolina 2,118.41 
 
 Tennessee 2,576.18 
 
 Texas 8,347.84 
 
 Vermont 1,012.54 
 
 Virginia 2,821.11 
 
 West Virginia 1,231.03 
 
 Wisconsin 5,384.63 
 
 Alaska 
 
 Arizona 1.096.83 
 
 Dakota 4,472.85 
 
 District of Columbia ' 30.57 
 
 Idaho.... 844.70 
 
 Indian Territory 999.55 
 
 Montana 1,821.05 
 
 New Mexico 1,324.51 
 
 Utah 1.124.07 
 
 Washington 1,356.82 
 
 Wyoming 901.74 
 
 Total 157J58.S3 
 
 'Statistics of Railways of the United States, pp. 10 and 11.
 
 OUR RAILROADS. 2$ 
 
 The following brief statements of the situation in the different 
 states are taken from the latest official reports of the respective 
 state commissions, all of which, with one exception, are for the 
 year ending June 30th, 1889 : 
 
 MINMESOTA.* 
 
 According to the report of the Railroad Commissioners of 
 seventeen companies operating lines of railroad in the state of 
 Minnesota during the year 1889, eight companies showed 
 deficits and failed to meet their fixed charges by the aggregate 
 sum of ;S2, 555,768; one company was in the hands of a 
 receiver; three companies earned their expenses, but failed to 
 pay any dividends, and the remaining five only paid dividends.* 
 The amount of these dividends paid on the lines in the state was 
 ^1,564,000, which is almost one million dollars less than the 
 deficit of the other lines, or ;$99i,700. 
 
 As a matter of fact, however, the results were even worse than 
 this, as one of the companies credited with a dividend — viz., the 
 Chicago & Northwestern — paid that dividend with money earned 
 on lines outside of the state. Its lines inside the state limits 
 were operated at a loss of nearly half a million dollars, so that 
 the real results of the year's operations were nine companies 
 (not counting the one in the hands of a receiver), showing an 
 aggregate deficit of three million dollars ; and only four com- 
 panies paying dividends, aggregating a little over one million 
 dollars. 
 
 lOWA.t 
 
 Of thirty-four companies making reports of operation of lines 
 in the state of Iowa, seven companies paid a dividend in the 
 year ending June 30, 1889, and twenty-seven failed to do so. 
 Four companies were operated by receivers, and sixteen others 
 showed deficits in the year's business. The aggregate shortage 
 of the sixteen companies was a little over nineteen hundred 
 thousand dollars, — $1,914,509. The aggregate of unproductive 
 stock (i. e., stock on which no dividend was paid,) on the whole 
 lines of the companies reporting, was $117,695,574. 
 
 The number of stockholders of all lines was 15,350, of whom 
 only 253 resided in Iowa. 
 
 •Report of the Railroad and AVarehouse Commission of the State of Minnesota, 
 for year ending June 30th, 1889, pages 7 and 8. 
 
 tReport of the Railroad Commissioners of Iowa for the vear 1889.
 
 26 OUR RAILROADS. 
 
 As in the case of other western states, the companies which 
 paid dividends were the large corporations operating systems 
 draining immense territories and with terminals in Chicago and 
 other large cities. The seven companies were — the Chicago, 
 Rock Island & Pacific; the Chicago & Northwestern, with other 
 parts of the same system, viz., the- Chicago, St. Paul, Minne- 
 apolis & Omaha, and Sioux City & Pacific ; the Chicago, Mil- 
 waukee & St. Paul; the Chicago, Burlington & Quincy, and the 
 Dubuque & Sioux City, (Illinois Central system). No company 
 which had to depend on Iowa business alone, succeeded in paying 
 a dividend. 
 
 The average of capitalization and debt per mile of all roads 
 operating in Iowa, was ^38,069, as against ^55,898 per mile as 
 the average for the whole United States. The attitude of the 
 state authorities and railroad commissioners of Iowa towards 
 railroads is too well known for it to be necessary to remark 
 here that the commissioners do not incorporate in their report 
 anything which might tend to expose the forlorn condition of the 
 railroads of the state, unless they are compelled to do so. Such 
 admissions as they do make are evidently sadly against their 
 will ; but the following extracts are eloquent : 
 
 "The total number of persons employed on the roads in Iowa, 
 estimating last year for the roads not reporting, was 24,622; the 
 amount paid (as wages), $14,212,590.27. Last year the number 
 was 30,236; the amount ;$i5,6i9,4i7.i6. The causes that led 
 to this reduction were, diminished tonnage on inter-state busi- 
 ness, and the reduction of expenses resulting from the reduction 
 of the number of trains, and the economics introduced to meet 
 the conditions" (p. 12). 
 
 "The reduction of expenses (i. e., operating expenses for the 
 year) of $689,197.75, which is partly due to a decrease of pas- 
 senger train service, while it resulted in some instances in public 
 inconvenience, se^ms, on the whole, to have been an advantage 
 to the railroads from a financial standpoint" (p. 9). 
 
 "The total number of miles of railroad in operation in Iowa, 
 ***** is about the same as last year, although some 
 additional road has been constructed" (p. 4). "The Sioux 
 City & Northern railway company has constructed a road to the 
 north line of the state. This, however, was not in operation
 
 OUR RAILROADS. 2"] 
 
 June 30, the end of the fiscal year. The fact is stated here as 
 evidence that there are parties who are still willing to invest in 
 building roads in the state" (p. 13), 
 
 There is pathos in this anxiety of the commissioners to put 
 the best face upon the situation, going outside of the period 
 covered by their report to find evidence (and that in a line which 
 was built only as part of the whole plan of development of the 
 Great Northern system, and which only as an accident enters 
 Iowa territory) to prove that there are "parties who are still 
 willing to invest" in railroad properties in Iowa. 
 
 NEBRASKA.* 
 
 Of eleven railroad companies operating lines in the state of 
 Nebraska, in the year ending June 30, 1889, three companies 
 paid a dividend, and eight companies failed to do so. Of those 
 eight companies, three showed deficits on the year's operations, 
 the three deficits aggregating ^875,329. The total amount of 
 unproductive stock, i. e., stock on which no dividends were paid 
 during the year, on the eight roads above-mentioned, was 
 ^128,107,150. The average of capitalization and debt of all of 
 the roads operating lines in the state was ;^47,ioo a mile. 
 
 But, perhaps, the best evidence as to the earnings of the 
 Nebraska railroads is furnished by the Board of Transportation, 
 not in its annual report, but in a special report made in June 
 last. 
 
 A resolution had been adopted by the board declaring that 
 " rates for transportation should be adjusted and regulated to 
 afford no more than a reasonable rate of income upon the 
 capital already invested in the construction of the roads, and, 
 proceeding, the secretaries were instructed to investigate the 
 relations existing between the earnings of the Nebraska roads 
 and their cost of construction, and so determine and afford 
 conclusions as to the need of alteration in the existing tariff 
 rates." Acting under this resolution, the secretaries of the 
 board proceeded to make investigations. As the report says : 
 
 Your secretaries were of the opinion that judgment upon the matter in 
 hand should be in no wise influenced by the brawling assertions of design- 
 ing agitators, or by the general denials ever forthcoming from the railroad 
 representatives. Equally confident was the feeling that no consideration 
 
 •Nebraska Board of Transportation, Annual Report, 1889.
 
 28 OUR RAILROADS, 
 
 for individual or party political results should weigh in the judgment. 
 The matter was one of figures. The railroads cost certain amounts, 
 different roads varying in cost under varying conditions. Certain 
 amounts have been expended since their construction for bettering their 
 condition in conformit}- with the needs of a gradually increasing traffic. 
 The total of the two items — first cost and betterments — represent, for all 
 practical purposes, the cost of all roads placed in operation within a half 
 dozen, or say ten j'^ears preceding. * » * * f },g cost of Nebraska 
 roads, in conjunction with the earnings therefrom, after deducting the cost 
 of operation, enables a determination of the annual rate of income. As to 
 the allowable rate of income there is considerable diversity of opinion. It 
 is apparent to the fair minded that the management of a common carrier 
 should not be hampered by the state in impartially directing the operations 
 of their roads to the end of earning a reasonable return upon the cost, and, 
 in addition thereto, a sum sufficient to keep the roads in good and safe 
 repair, and to make those additions from time to time required for the 
 convenience of the public. » * * Your secretaries are of the opinion 
 that five to six per cent per annum is a reasonable rate of income for the 
 purposes set forth, and that seven is not extortionate or excessive for the 
 period intervening from the time of beginning operations on a newh' con- 
 structed road in a country but partially developed to that time when an 
 increase of traffic, to a point somewhere near the road's capacitj', has 
 brought about the development of the road to a first class condition. 
 
 On this basis the board set to work to find whether or not the 
 railroads were earning any such sums in excess of a reasonable 
 income as would justify a reduction in rates. They made en- 
 quiries as to the cost of the most prosperous lines, and they 
 obtained figures which, (with the exception of the case of one 
 line which, the board believes, reported its indebtedness instead 
 of its cost,) they have accepted as a sufficiently fair statement 
 of the actual investment upon which a proper interest may be 
 regarded as a reasonable income. 
 
 They found that the C, St. P., M. & O. Ry. earned 2.3 per 
 cent on its cost ; that the Union Pacific leased lines earned less 
 than 2 per cent on their cost, and the Burlington lines 5.09 per 
 cent on their cost. These three roads include the greater por- 
 tion of all the mileage in the state. On the results so arrived 
 at the board decided that the roads were not earning more than 
 a reasonable income, and that a reduction of maximum rates 
 was not justified by the conditions. 
 
 THE DAKOTAS.* 
 
 Of fourteen companies reported as operating lines in Dakota 
 
 •Railroad Commissioners of the Territory of Dakota, Fifth Annual Report for 
 year ending June 30th, 1889.
 
 OUR RAILROADS. 29 
 
 (before the territory was divided into two states), five companies 
 paid dividends in the year ending June 30th, 1889, and nine 
 companies did not. The dividend payment was equal to 1.7 per 
 cent on all stock ; the total amount of unproductive stock (i. e., 
 stock in all the lines of the companies paying no dividends,) 
 was ^139,757,577. The five companies which paid dividends 
 were all companies owning long inter-state lines, viz., the Chicago 
 & Northwestern, the Chicago, Si. Paul, Minneapolis & Omaha, 
 the Chicago, Milwaukee & St. Paul, the St. Paul, Minneapolis & 
 Manitoba, and the Dubuque & Sioux City. 
 
 Of twenty-eight companies reporting lines of railroad operated 
 in the state of Kansas in the year ending June 30, 1889, five 
 companies only paid a dividend and twenty-three companies 
 failed to do so. Of those twenty-three one was in the hands 
 of a receiver, and eighteen others show deficits aggregating 
 ;^2. 875,673 ! Of these eighteen companies, thirteen not only 
 showed a deficit of earnings below expenses and fixed charges, 
 but failed to earn their operating expenses alone, setting taxes 
 and interest on bonded debt out of the question. 
 
 The total amount of stock on the lines of the twenty three com- 
 panies which failed to pay a dividend was ^173,507,736. 
 
 The five companies which paid dividends were the Atchison, 
 Tcpeka & Santa Fe, the Chicago, Rock Island & Pacific, the 
 Kansas City, Fort Scott & Memphis, the Missouri Pacific and 
 the St. Louis & San Francisco. 
 
 The average of capitalization and debt per mile of the com- 
 panies operating lines in the state was $49,500, against the aver- 
 age of 555,898 for the whole United States. 
 
 MICHIGAN.f 
 
 Of twenty-eight companies operating lines in the state of 
 Michigan in the year 1889, ten companies paid a dividend on 
 their capital stock, and eighteen failed to do so. Fifteen com- 
 panies out of the eighteen carried forward to the year 1890 
 debit balances aggregating 54,861,654.71. 
 
 •Seventh annual report of the Board of Railroad Commissioners of Kansas, 1889. 
 t Report of the Railroad Commissioners of Michigan, 1889.
 
 30 OUR RAILROADS. 
 
 There were 6,41 1 miles of railroad in the state, with a capital- 
 ization and debt of $50,178 per mile. The stock was held by 
 15,295 stockholders, of whom only 106 resided in the state. 
 
 WISCONSIN. 
 
 Of twenty-two companies making reports of lines operated in 
 the state of Wisconsin, five companies paid a dividend in the 
 two years, ending June 30th, 1888,* and seventeen companies 
 failed to do so. Of these seventeen companies, nine show a 
 deficit (i. e. their earnings for 1888 were insufficient to meet their 
 expenses for the same year), the aggregate amount of the eight 
 deficits being not quite two million dollars, viz., ;^l,994,5 18.03. 
 The total amount of stock in the whole lines of the companies 
 which failed to pay any dividend was ;^i 50,538,328.17. 
 
 The five companies which paid dividends were the Chicago & 
 Northwestern, the Chicago, Milwaukee & St. Paul, the Chicago, 
 St. Paul, Minneapolis & Omaha, the Milwaukee, Lake Shore & 
 Western, and the Prairie du Chien & McGregor. The first three 
 have already been mentioned more than once as contributing a 
 large part of the dividend payments in other states. Of the 
 remaining two, the Milwaukee, Lake Shore & Western paid on 
 dividends ;^46o,ooo on a total capital stock of ;^7,ooo,ooo, or 
 0.65 per cent. The Prairie du Chien & McGregor Railway 
 is a pile pontoon bridge across the Mississippi river between 
 Prairie du Chien, Wis., and North McGregor, Iowa. The cost 
 of the bridge was :$ 100,000, which is represented by $100,000 
 
 •The Railroad Commissioner of the state of Wisconsin makes a biennial report. 
 The report for the two years, ending June 30th, 1890 is promised (in a letter from 
 the Commissioner to the authorl in December of this year. The figures given here 
 are from the third biennial report for years ending June 30th, 1888. The report is a 
 pleasant contrast in its tone to the reports of Iowa and some other states. The 
 Commissioner is moderate and careful in his statements and conservative in his 
 point of view. The relations of the state of Wisconsin towards her railroads are 
 pleasanter than those of any other Western state. The state made an experiment 
 in drastic anti-railroad legislation some years ago, when the Potter Law (simi- 
 lar to the present Iowa and Minnesota statutes) was enacted. It was quickly- 
 repealed however, and two years ago, when a similar bill was introduced into the 
 legislature by Mr. H. A. Taj'lor, since appointed U. S. Commissioner of Railroads, 
 the people of the state protested very strongly against its passage, and it was 
 hopelessly defeated. The state certainly docs not suffer by its attitude. It has less 
 friction and leas litigation with the railroads than any other Western state. It; 
 receives from the companies, w^ho pay without a protest, something over one 
 million dollars a year in taxes, under a law providing for a graduated tax on gross 
 earnings. The average freight rate per ton per mile in the state was 0.96 cents in 
 1888, and the Commissioner of Railroads estimated that "the sum of $17,328,161 
 are paid to labor In the state of Wisconsin" by the railroads alone.
 
 OUR RAILROADS. 31 
 
 capital stock. In the year 1888, the property earned a surplus 
 of $13,665 over expenses; but the forthcoming report of the 
 commissioners will show that, in the year 1889, there was a 
 deficit of $15,873. It also failed to pay a dividend in the year 
 1887. With the exception of the 0.65 per cent, paid by the 
 Milwaukee, Lake Shore & Western, therefore, the only railroad 
 properties in Wisconsin which can be classed as paying prop- 
 erties are the lines of the three companies first named above. 
 
 The mileage of railroads in Wisconsin was 5,278.25 miles, 
 with a capitalization and debt of ^42,216 a mile. 
 
 MISSOURI.* 
 
 In the year 1889 there were forty-eight companies operating 
 lines in the state of Missouri. Of these the commissioners say 
 (seep. 9): "Ten companies earned dividends on their stock, 
 some of the dividends being paid only on portions of stock. 
 Thirty-eight companies earned no dividends." Ten companies 
 show a deficit of earnings below expenses. Three companies 
 were in the hands of receivers. The average of stock and debt 
 on lines in the state was *$ 5 5,606 a mile. The amount of stock 
 on all lines of the companies operating in the state which failed 
 to earn any dividends was $164,040,800. This does not include 
 that portion of the stock on which no dividend was paid of 
 companies which did pay dividends on some portion of their 
 stock, as mentioned above. 
 
 RESUME. 
 
 There is one further statement which should be made in regard 
 to these figures of the different states. Attention has already 
 been called to the fact that it is almost without exception only 
 the large inter-state lines operated by strong companies that pay 
 any dividends. In many cases the same company is counted 
 in two, three or even four different states. Taking the seven 
 states of Iowa, Minnesota, the Dakotas, Wisconsin, Nebraska 
 and Kansas, collating and comparing the different reports, we 
 find that there are in all ninety different companies owning lines 
 in them. Of these ninety companies only fifteen paid dividends 
 
 •Report of the Railroad and Warehouse Commissioners of Missouri for the year 
 ending Dec. 31, 1889.
 
 32 
 
 OUR RAILROADS. 
 
 in the year 1889, while the whole stock of all the other seventy- 
 five was entirely unproductive. 
 
 In the year 1888, out of 650 operating companies'^ in the 
 United States, eighty-three paid dividends and 567 companies 
 failed to do so. 
 
 Now, in connection with this fact, which stands out so con- 
 spicuously, viz., that only the long lines and strong systems can 
 earn dividends — there are certain considerations which must be 
 noticed. 
 
 In the first place, paradoxical as it may seem, this state of 
 affairs is brought about under pressure of legislation which is 
 really directed chiefly against the long lines and not so much 
 against the lesser ones. 
 
 Through rates and the rates on longer lines necessarily affect 
 a very much larger number of people than can any individual 
 local rates. The popular pressure for their reduction is corres- 
 pondingly greater; and legislation has consistently been aimed 
 primarily at the reduction of through rates and joint rates. But 
 it is a fact with which railroad men are familiar, though legis- 
 lators do not appear to be so, that a reduction of rates, or of a 
 certain class of rates, on any one line will necessarily and almost 
 immediately compel a similar reduction on all lines in that 
 territory. For this reason the laws which have been enacted in 
 some states graduating maximum rates by a classification of 
 roads according to earnings are entirely futile. Though a rail- 
 road, which only earns, say ;g2,ooo a mile, gross, may be per- 
 mitted by law to charge ten cents for a service for which another 
 road, which earns $3,000 a mile, gross, is only allowed to charge 
 five cents, yet this permission is, in practice, almost invariably 
 useless to the former road. Rates in any territory necessarily 
 seek the same level and the lowest level. If one road is only 
 charging five cents for a given service, other roads in the same 
 territory, even when not in direct competition, must come to the 
 same charge. On this same principle, under existing com- 
 mercial and legislative conditions, anything which depresses 
 rates on the through lines and long hauls must similarly reduce 
 rates on the shorter lines and on local business. The small 
 lines have been compelled to adopt the same low schedules as 
 
 •Poor's Manual.
 
 OUR RAILROADS. 33 
 
 the strong systems. And, this condition once reached, the same 
 law applies to railroads as to any other commercial in.stitutions, 
 viz., that when the margin of profits is reduced to a minimum 
 it is only the strong concerns, with the economies which large 
 business and common management make possible, which can 
 stand. The weaker lines, just as the small business houses in 
 similar periods of acute competition and narrow margins, must 
 fail or be swallowed up by the larger ones. 
 
 It is obvious that these conditions, operating so powerfully as 
 to forbid any but the fifteen strongest lines out of ninety to earn 
 any profit, would naturally have a tendency to increase the 
 number of such strong lines by extension, by consolidation, by 
 absorption, or by traffic agreements. 
 
 CONSOLIDATION AND POOLING. 
 
 Those who are by temperament or political conviction antago- 
 nistic to the railroads, constantly deny, firstly, that the railroads 
 are failing to earn reasonable profits to-day, and when convicted 
 of error in this, secondly, that if they are so failing, it is their 
 own fault for building too many lines. Anti-railroad legislation, 
 they say, is not the real cause of the present de[)ression. 
 
 Of the first of these contentions we believe the facts set forth 
 in the foregoing pages have sufficiently disposed. Whether the 
 anti-railroad laws are responsible for any of the existing con- 
 ditions does not seem to be the thing which, on the theory of 
 probabilities at least, is arguable. That the laws exist is un- 
 questioned. That their only object is to reduce the earning 
 power of the railroads (or their charges, which is the same) is 
 equally certain. That the reduction has actually taken place 
 and continues to manifest itself wherever these laws are most 
 vigorous and most actively enforced, is also evident. And when 
 we see a man shoot at a duck and immediately afterwards find that 
 duck dead, it is not an unreasonable conclusion to assume that 
 it was the man who killed it. 
 
 Finally, as to whether the railroads themselves are at fault for 
 building too many lines, it is an undeniable and very unfor- 
 tunate fact that in certain sections of the country, and between 
 certain points, there are more lines than are needed or 
 than the traffic warrants. But a moment's reflection will con-
 
 34 OUR RAILROADS. 
 
 vince any one of two things, (i) That the last person who is 
 likely to desire to build, or who should be held accountable for 
 instigating the building of a competing line, is the railroad com- 
 pany with whom the new line comes in competition; and (2) 
 That the only power which can prevent over-construction is the 
 people themselves, through the legislatures, through boards of 
 commissioners or through the courts. Every railroad company 
 in existence would be profoundly grateful if it was to be guar- 
 anteed against competition and the invasion of its territory. 
 But the same people, the same towns, as clamor most loudly 
 for lower rates will most enthusiastically welcome and promote 
 any scheme for building a competitive line, which will divide the 
 traffic and make reduction of rates more than ever incompatible 
 with reasonable earnings. 
 
 Now, until a few years ago the railroad companies had done 
 their best to protect themselves against the results of this exces- 
 sive competition by what is known as "pooling." The pool was 
 only moderately successful as a device for obtaining stable rates ; 
 but it ivas moderately successful. The Inter-state Commerce 
 Act, however, forbade pooling, and it is to that one provision, 
 more than any other existing piece of legislation, that the disas- 
 trous conditions of the last few years are due. There is, we 
 believe, no competent authority who regards that provision of 
 the Inter-state Commerce Act as a wise one, and who would not 
 much prefer, for the public's sake, to see pools legalized, subject 
 to the regulation and supervision of the Inter-state Commerce 
 Commission or some other properly constituted body. But 
 the general public are not yet prepared to be converted on, this 
 point. The very name of "pool" is evil sounding in their ears 
 and of itself provokes antagonism. But there is a force now at 
 work which, it is to be trusted, will, before long, work this con- 
 version. If not, the people will regret it. 
 
 In a recently published circular letter, Mr. Aldace F. Walker, 
 chairman of the Inter-state Commerce Railway Association, says 
 that at the rate at which earnings are now being reduced, "Rail- 
 way managers will soon be chiefly receivers." He then says : — 
 " The most certain method of escape from the net in which 
 the roads are thus enmeshed would be to physically terminate 
 competition. Consolidations might be made which would pres-
 
 OUK RAILROADS. 35 
 
 ently reduce our country to the condition of France, with its six 
 non-competitive railway companies, each exclusive in its terri- 
 torial field. This is not what the public expect or desire. The 
 course has been entered upon, however, and progress would be 
 rapid but for the peculiar difficulties in the way of each indi- 
 vidual transaction." 
 
 We believe that Mr. Walker is right in assuming that the 
 public does not desire to see such consolidation as he indicates. 
 But there is no possible room for question that it is just that 
 thing which is "coming, and coming with a rapidity which few 
 railroad men, to say nothing of the general public, appreciate. 
 
 Some idea of this rapidity may be gained frcfm the statement 
 that since June 30th last (which is to say, in five calendar 
 months,) 8,000 miles of railroad, formerly independent lines, 
 have become merged in other systems, which is 5 per cent of 
 the total railroad mileage of the country. But on June 30th nearly 
 one-half of the railroad mileage was already included in ten large 
 systems. More than one-tenth of all the independent lines of 
 the country have therefore been absorbed in the last five months. 
 Nor does the public, as the writer believes, at all grasp the sig- 
 nificance of the rumors of vast consolidations of Western rail- 
 road interests which have been so conspicuous in every issue of 
 the daily papers for the past few weeks. 
 
 To bring these figures nearer home and to take a local in- 
 stance which will be easily understood, we will look at the situa- 
 tion in Minnesota. When the first edition of this pamphlet was 
 published, less than two years ago, there were ten companies 
 operating lines in this state which owned more than 250 miles 
 of road each. They were 
 
 The Northern Pacific. 
 The St. Paul, Minneapolis & Manitoba. 
 The Chicago, Milwaukee & St. Paul. 
 The Chicago & Northwestern. 
 The Chicago, St. Paul, Minneapolis & Omaha. 
 The Chicago, Burlington & Northern. 
 The Wisconsin Central Lines, 
 The Soo Line. 
 9. The Minneapolis & St. Louis. 
 10. The Chicago, St. Paul & Kansas City.
 
 3b OUR RAILROADS. 
 
 Since then the following changes have taken place . 
 
 1. The Northern Pacific has leased the entire Wisconsin 
 Central lines. 
 
 2. The St. Paul, Minneapolis & Manitoba has been consoli- 
 dated with the Eastern Minnesota, Montana Central and other 
 roads into the Great Northern Railway Line. 
 
 3. The Chicago, Milwaukee & St. Paul last month absorbed 
 by purchase the Milwaukee & Northern. 
 
 4 and 5. The Chicago & Northwestern and Chicago, St. 
 Paul, Minneapolis & Omaha have formed a close traffic alliance 
 with the Union Pacific. 
 
 6. The Chicago, Burlington & Northern has been absorbed, 
 by purchase, into the Chicago, Burlington & Quincy system. 
 
 7. The Wisconsin Central, as already stated, is operated as a 
 branch of the Northern Pacific. 
 
 8. The Soo Line is now in process of amalgamation or con- 
 junction of management with the Duluth, South Shore & 
 Atlantic, the control of both being now in the hands of the same 
 parties. 
 
 There remain (9) the Minneapolis & St. Louis, and (10) the 
 Chicago, St. Paul & Kansas City. The former of these is 
 already a part of the Rock Island system, and is moreover in 
 the hands of a receiver, so that change has been impossible, and 
 there is therefore only one company, viz., the Chicago, St. Paul 
 & Kansas City, out of the ten which were in Minnesota less than 
 two years ago which has not since then played, as a principal, 
 a part in some large consolidation, merger or amalgamation. 
 
 As has been said, neither railroad men nor the public realize, 
 as they hear of the individual movements, how rapidly the pro- 
 cess of consolidation is going on. Possibly the above showing 
 may help to place the situation in a clearer light. Possibly it 
 will help the public to understand what it is that is being done 
 by the present legislative efforts to enhance competition by the 
 prevention of pooling — what sort of competition it is that is 
 being promoted. 
 
 OVER-CAPITALIZATION. 
 
 On the subject of over-capitalization so much has been said 
 by the political opponents of the railroads, and so much has 
 been written by good authorities on the railroad question, that
 
 OUR RAILROADS. 37 
 
 it is difficult to condense any comprehensive statement on the 
 subject into reasonable limits. Certain facts can however be 
 definitely stated. 
 
 There have been in the past some conspicuous instances of 
 gross and utterly dishonest inflation of the capital stock of rail- 
 roads. Colossal fortunes were by these means amassed, and the 
 methods of operation in those cases which have been exposed 
 have cast discredit upon all railroad financiering. 
 
 On the other hand it is just as certain that the railroad prop- 
 erties of the United States to-day represent an actual value con- 
 siderably in excess of the aggregate capital stock and funded 
 debt. In part, but in comparatively small part only, this is 
 due to the increase in the value of lands held by the companies, 
 whether granted by the government or purchased for t^minal 
 purposes in cities. But it is difficult to understand why the 
 companies are not as justly entitled to this increase in values 
 which they themselves have created, and which they built their 
 railroads chiefly with the deliberate purpose of creating, as is 
 the farmer or investor in city property entitled to the increase 
 in value of his land which the railroad company has created for 
 hirii. 
 
 But far more important factors in the immensely increased 
 value of railroad properties to-day are two other processes. One 
 of these is the constant elimination of stock and wiping out of 
 debt in foreclosures and reorganizations. Complete statistics 
 on this point are promised by the statistician of the Inter-state 
 Commerce Commission, but meanwhile it is recognized by stud- 
 ents of the railroad problem (and figures unlimited are put forth 
 and might be quoted here to prove it) that the total amount of 
 liabilities which have thus been wiped out is largely in excess of 
 any possible original over-capitalization. 
 
 The most careful compilation of records which we have seen 
 on this subject* covers a period of fourteen years only, viz., 
 from 1876 to 1889, inclusive. In these fourteen years the 
 amount of capit^al stock of railroads so "wiped out" was ^1,264- 
 684,715, or an average of ninety million dollars a year. If the 
 records could be carried back for twenty-five years, it is certain 
 
 • Annual Report of the Directors of the Chicago & Alton Railroad, 1890. The 
 figures compiled from the records of the Railway Age.
 
 38 OUR RAILROADS. 
 
 that it would be found that over ^2,000,000,000 of stock had 
 been thus disposed of, — or about one-half of the total capital- 
 ization of all the railroads of the country to-day. The number 
 of railroads sold under foreclosure in the fourteen years was 
 448. 
 
 The second process is the terribly expensive annual " better- 
 ment " of the railroads, including in that term the sinking of 
 capital in improvements of track, in building spurs and sidings, 
 in erecting new stations and bridges, and renewing and replacing 
 old wooden bridges with iron and stone structures, and in the 
 purchase of cars and locomotives. There are one million cars 
 in the United States to-day and thirty thousand locomotives. 
 The value of these is — or the cost to the railroad companies has 
 been — just about ;^ i ,000,000,000 — nearly one-eighth of the total 
 capitalization and debt of all railroads being thus represented 
 by the equipment alone. 
 
 The " cost" of the railroads of the country, as reported by the 
 companies themselves, shows an average of two to three thousand 
 dollars a mile less than the total of capitalization and debt. The 
 valuation of the properties to-day is, on the average, several 
 thousand dollars a mile in excess of the capitalization and debt. 
 It is easy, of course, to say that the mere fact that the railroad 
 companies themselves make the reports of cost, and make 
 them knowing that there is no one who can authoritatively 
 dispute their statements, at once discredits the reports and makes 
 them unworthy of credence. At the same time the internal evi- 
 dence is strongly in favor of the accuracy of these reports. 
 
 We have seen what an immense amount of money is repre- 
 sented by the equipment — the motive power and rolling stock — 
 of the country. We know what colossal expenditures a single 
 company will sometimes make to obtain entrance to or terminals 
 in one large city. We are familiar with the costliness of indi- 
 vidual railroad bridges. We can guess at the vastness of the 
 sums which have been spent in tunnelling and other engineering 
 work in the mountain regions. When a piece of track is taken 
 from the hands of a contractor or construction company, up to 
 which time it may have cost the railroad company not more 
 than ;^i 5,000 a mile, or even, in rare instances, less than $10,000 
 a mile, the real building of the road is only begun. For years
 
 OUR kAILROADS. 39 
 
 afterwards work has to go on on what is really the construction, 
 and for years capital is being sunk in it. 
 
 It is a curious fact that in the recent Minnesota rate cases, 
 wherein the decision of the United States supreme court has be- 
 come so famous, it became necessary or expedient for one of the 
 companies to show, if possible, that its road had really cost the 
 money represented by its stock and debt; whereupon the original 
 vouchers for every dollar of (and for rather more than) the 
 amount of those liabilities were put into court in evidence, show- 
 ing exactly how much of the money had been paid for locomo- 
 tives and to whom, and how much for track and to whom, and 
 so on through every item of construction. 
 
 The statistician to the Inter-state Commerce Commission, after 
 presenting certain statistics, remarks :* "A comparison of the 
 percentages presented in the above tables tends to increase the 
 confidence with which one regards statistics of railways ; for if 
 there were general carelessness in reporting on the part of the 
 carriers, or if unstable rules were followed in keeping accounts, 
 there could not be such uniformity in results as the above tables 
 disclose." 
 
 The Railroad Commissioner of Wisconsin, in his last biennial 
 report,! comments briefly on the question of whether the cost 
 reported by the railroads represents the actual cost of the 
 properties, and explains why, with the dishonest methods once 
 in vogue, it is not easy now to ascertain how much actual 
 money was originally put into the older lines. " But roads 
 are not built thus to-day in Wisconsin. The most of them are 
 built with cash, and the managements have great care over ex- 
 penditures. The cost of a road built and equipped to-day can 
 become known with as much accuracy and certainty as can any 
 other great building enterprise." 
 
 Distrust of railroad financial statements and belief in the 
 enormous volume of fictitious capital in railroads are always 
 found flourishing most vigorously in minds furthest removed 
 from any practical acquaintance with railroading. They are 
 most luxuriant in the agriculturalist and the country politician. 
 They wither (or, to change metaphors, they contract like the 
 
 •Statistics of Railways of the United States. Page 32. 
 t Report to Jane 30th, 1888. Page 1 0.
 
 40 OUR RAILROADS. 
 
 pupil of the eye, as the light of information shines upon them), 
 as those in whom they are rooted acquire knowledge. In the 
 real "students of the railroad problem," they exist not at all. 
 Unfortunately, the men who are most competent to speak on 
 railroad statistics are either men in official positions, who have 
 not the courage to speak plainly, or railroad managers and 
 railroad presidents, whose evidence is inadmissible here. 
 
 In view of all the foregoing facts, however — in view of the 
 enormous costliness of all those things which combined form the 
 railroad properties of the country — in view of the unquestioned 
 fact that the present value of the railroads far exceeds the 
 capitalization and debt, and that they could not be duplicated for 
 approximately those amounts to-day — in view of the fact that 
 incredulity (which is only credulity of the negative proposition), 
 exists in men in proportion to their lack of information — in view 
 of the fact that the railroads of every other country of the world 
 have cost, actually ccst (for the expenditures there are supervised 
 by the governments) from 30 per cent, to 300 per cent, more than 
 the railroads of this country — in view of all these facts, we say, 
 it does not seem that the figures of capitalization in this country, 
 less than ^60,000 a mile, are or can be excessive. 
 
 There is not one railroad man who believes that they are. 
 
 THE RAILROAD EMPLOYE. 
 
 We have already briefly touched upon the effect which the 
 present situation has upon the railroad employe. It is not 
 necessary here to dilate upon the fact that the relations between 
 employer and employe on the western railroads have recently 
 been far from harmonious. The daily papers, with their daily 
 details of strikes and "troubles" of all kinds, state this fact with 
 sufficient clearness. And the truth is that the railroad employe 
 is suffering, and has, for the past few years suffered, many hard- 
 ships. It is not that the average of wages paid by railroad 
 companies is not fairly good. It is good. Where the employe 
 suffers chiefly is in uncertainty as to the continuance of his 
 employment. In the constant struggle to cut down expenses to 
 conform to diminishing earnings, the railroad companies of the 
 Southwest and Northwest have, during the last three years, been 
 compelled to practice economies which, ten or even five years ago.
 
 OUR RAILROADS. 4I 
 
 expert railroad men would have pronounced impossible. There 
 has long been recognized, though never clearly defined, what 
 has been called the "danger line" in the number of employes to 
 be employed in the operation of a given length of road and the 
 handling of a given train service or tonnage movement. For 
 these last few years this "danger line" has been disregarded, 
 obliterated, forgotten. The permanent force of the railroads has 
 been reduced. And even that force is subject to constant in- 
 vasions and temporary reductions. As soon as work in the 
 shops begins to grow light, hours of labor are reduced and the 
 wages are diminished in proportion. On the smallest pretext of 
 fair weather and security from fear of floods or snow storms, 
 track forces are cut down to the lowest point. The smallest 
 diminution in the volume of traflSc is announced to the men by 
 the "laying off" of them in blocks. And these intervals of idle- 
 ness, shortened hours and uncertainty of employment are worse 
 than regular work at lower wages would be. But the volume 
 of business on the railroads ebbs and flows. At times they must 
 have full forces ; at others they need not, and they cannot afford 
 to keep one superfluous man on the pay-roll. 
 
 In the state of Iowa there were in the year 1889, (see page 12, 
 Commissioner's Report, 1889), 5.594 fewer employes than in the 
 year 1888. The railroad mileage was about the same. 
 
 In the state of Minnesota there were in the year 1889, 
 (see page 10, Commissioner's Report), 703 fewer employes 
 than in the year 1888. The railroad mileage had increased by 
 260 miles. The average number of employes to every 100 
 miles of road in the whole United States is 459, (see I. C. C. 
 Statistician's Report, p. 16), so that there should have been an 
 increase of about 1,200 instead of a decrease of 700. The 
 number of locomotives to be operated and cars to be handled 
 had correspondingly increased. 
 
 On all the lines of the companies operating in the state of 
 Minnesota, there were 8,382 fewer employes in the year 1889 
 than in the year 1888. 
 
 And these figures of the reduction in permanent force show, as 
 has been said, only a small part of the real hardship which has 
 been inflicted on the railroad employes by the reductions in rates 
 and earnings.
 
 42 
 
 OUR RAILROADS, 
 
 The railroad employe does not entirely understand the situa- 
 tion. He knows that he is badly used ; that he has a grievance. 
 He carries his grievance to the company ; and the daily papers 
 announce the fact. The officials of the company tell him that 
 they are anxious to do the best they can by him but that they 
 can do no better because they have no money to pay him with. 
 The employe then either suffers in silence or he strikes and 
 makes the public suffer. As has been said, he does not yet en- 
 tirely understand it. He knows that the company has more cars 
 and more engines than it used to have ; that the cars and engines 
 seem to be busy. Why then is the company not able to give 
 him work and wages ? 
 
 The following table* of average freight rates per ton per 
 mile throughout the country for the last seven years may sup- 
 ply the answer : 
 
 CENTS. 
 
 1883 ^-2^^ 
 
 1884 l'^24 
 
 1885 ^057 
 
 1886 1042 
 
 1887. 
 1888. 
 1889. 
 
 .1.034 
 .0.977 
 .0.976 
 
 If the rates had been the same in 1889 as they were in 1883, 
 the railroads would have earned $170,000,000 more than they did 
 earn in that year from freight alone. And then there would 
 have been no trouble in keeping pay-rolls full. 
 
 The following table also shows the steady decrease in rates on 
 one of the large Western roadsf through a series of years. As 
 has been said, the rates on all roads in the same territory are 
 at any given time necessarily about the same, and the figures 
 given in this table would be about the same on every Western 
 railroad : 
 
 •Poor's Manual, 1890. P. XIII. 
 
 tReport of the Chicago & Northwestern Railway for the year ending May 31. 
 1890.
 
 OUR RAILROADS. 
 
 43 
 
 FISCAL YEAR ENDING 
 
 Average Rate Per 
 Ton Per Mile. 
 
 Average Rate Per 
 
 Passenger Per 
 
 Mile. 
 
 May 31st 
 
 1871 
 
 CENTS. 
 2.87 
 2.61 
 2.35 
 2.28 
 2.10 
 1.95 
 1.86 
 1.72 
 1.56 
 1.49 
 1.47 
 1.47 
 1.42 
 1.31 
 1.19 
 1.19 
 1.10 
 
 .99 
 1.01 
 
 .98 
 
 CENTS. 
 3.31 
 
 1872 
 
 3.28 
 
 
 1873 
 
 3.16 
 
 
 1874 
 
 1875 
 
 3.20 
 3.02 
 
 
 1876 
 
 2.85 
 
 
 1877 
 
 2.89 
 
 
 1878 
 
 2.83 
 
 
 1879 
 
 2.79 
 
 
 1880 
 
 2.67 
 
 
 1881 
 
 2.53 
 
 
 1882 
 
 2.52 
 
 
 1883 
 
 2.46 
 
 
 1884 
 
 2.40 
 
 
 1885 
 
 2.38 
 
 
 1886 
 
 2.36 
 
 
 1887 
 
 2.29 
 
 
 1888 
 
 2.30 
 
 
 1889 
 
 2.24 
 
 • < a 
 
 1890 
 
 2.17 
 
 
 
 
 Poor's Manual for 1889 analyzes the rates on thirteen typical 
 railroad lines in the United States for the last twenty-four years, 
 and shows that these railroads received in 1888 only ;^20.00 for 
 services for which in 1865 they received ;^ioo.oo — a decrease of 
 75 per cent. 
 
 Of the northwestern companies, whose fiscal year ended with 
 June 30th, 1890, the president of one* company informed the 
 stockholders that that company, during the year had made no 
 attempt to compete for its share of wheat and flour business, as 
 the traffic cost more to' haul than it paid. The receiver of 
 another companyf announced that for the same reason, his 
 company had gone entirely out of competing for any through 
 business, not even having competitive tariffs in effect. 
 
 During the year 1890, //le average eastbound rate on wheat and 
 flour from the Northwest has been o.j of a cent, — three mills per ton 
 per mile. That is to say that one ton of wheat has been hauled 
 three miles for one cent. During the year 1889, the average 
 earnings per ton per mile in the whole country were 0.976 of a 
 cent. On the Pennsylvania Railroad, with its enormous traffic, 
 
 •The Chicago, St. Paul & Kansas City Ry. 
 tThe Minneapolis & St. Louis Ry.
 
 44 OUR RAILROADS. 
 
 the earnings per ton per mile were 0.626 of a cent, and the cost 
 of moving one ton one mile was o 401 cent. 
 
 The above rate on the northwestern lines was therefore less 
 than one-third of the average freight rate of the country ; less 
 than half the average rate on the crowded Pennsylvania lines, 
 and even one-fourth less than it actually cost the Pennsylvania 
 Railroad to do its business. 
 
 In the Southwest the condition of rates on corn and other 
 staples has been even worse than this. 
 
 At such rates it is not easy to see how a railroad company can 
 hope to pay its employes reasonable wages, or keep them on the 
 pay-rolls when business is light. 
 
 CONCLUSION. 
 
 In conclusion, we have seen 
 
 1. That the railroads of the United States have cost less 
 than the railroads of any other country and are capitalized for 
 less. 
 
 2. That in spite of this fact the rate of returns earned upon 
 the capital invested is less than in any other country. 
 
 3. That in the West the railroads have again cost less and 
 earn less on their investment than the rest of the railroads of 
 the United States. 
 
 4. That the average rate of returns on all railroad invest- 
 ments in the country was, in the year 1889, less than t,^ per 
 cent. 
 
 5. That in that year over three billions of dollars ($3,300,- 
 000,000) of American railroad securities were absolutely unpro- 
 ductive of any revenue. 
 
 6. That in the Northwest the rate of dividend payments on 
 all stock was less than one-half of i per cent, and in the South- 
 west that it was less than three-quarters of i per cent. 
 
 7. That out of ninety railroads in seven states, fifteen compa- 
 nies only paid dividends and seventy-five were unproductive. 
 
 We have seen that this condition of affairs is owing to the ex- 
 traordinary lowness of rates which now prevails, and that under 
 existing legislative conditions the railroads cannot protect them- 
 selves or establish rates on a more remunerative basis, except 
 by consolidating.
 
 OUR RAILROADS. 45 
 
 The holders of the railroad securities number something over 
 one million persons in this country. 
 
 The railroad employes of the country number over 700,000 
 persons. 
 
 It is estimated that there are further engaged in allied indus- 
 tries in this country, entirely dependent upon the railroads, from 
 1,500,000 to 2,000,000 persons more. 
 
 We have seen how much hardship is being inflicted upon the 
 holders of the securities by the present conditions. We have 
 seen what injury is being done to the employes. We have also 
 seen certain grave dangers which are threatening the public at 
 large. 
 
 Now, supposing for one instant that it is possible that the 
 people, as a whole, are not interested in the welfare of the rail- 
 roads and their maintenance on a safe basis of operation ; sup- 
 posing, for an instant, that they could look on with indifference, 
 so far as their personal interests were concerned, and see the 
 commerce of the country suffering from insufficient train ser- 
 vice, tracks in bad repair, and inadequate equipment ; supposing 
 that they do not care if all the lines in the country are absorbed 
 by five or six gigantic systems — supposing all this, and consider- 
 ing only the few millions who are immediately interested, is it, 
 firstly, the part of political expediency to compel these men to 
 combine together, their hands against every man's, for the 
 protection of their rights and their homes ; and, secondly, is it 
 the part of justice to deprive them of the returns on their capital 
 and their labor, and to confiscate their property ? 
 
 Do we need more anti-railroad laws, or do we not ?
 
 Zf
 
 ^iJii*: 
 
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