Agriculture Banking and the Carrier BY * HOWARD ELLIOTT PRESIDENT, NORTHERN PACIFIC RAILWAY ADDRESS BEFORE THE MINNEAPOLIS CHAPTER AMERICAN INSTITUTE OF BANKING MINNEAPOLIS, MINN. April 26, 1913 Digitized by the Internet Archive in 2017 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/details/agriculturebankiOOelli cWoLtir AGRICULTURE BARKING and the CARRIER When your committee asked me to speak before you at this meeting*, I hesitated about accepting your very complimentary invitation. I felt that it was very difficult to bring anything to you that would give you pleasure after your very good dinner, or con- vey suggestion that would be helpful in trying to advance the welfare of the great American Northwest, of which, and in which, Minneapolis and Minnesota are a most important part I was asked to give a name to what I might say, and replied that I would try to present some facts about Agriculture, Banking and the Carrier. These three agencies are most important in our part of the country. Upon the wisdom and energy with which they are con- ducted, upon their co-operation each with the other, and upon the w wise and fair treatment accorded them by the public through the forces of Government, depend their success and the continued growth and success of this great Northwestern country. THE AMERICAN NORTHWEST The American Northwest is a great empire, very young, but very strong and full of opportunity for the best kind of human endeavor. Much has been done, and great has been the growth in the last thirty years, as some of these figures will show : 3 Facts About the States of the American Northwest Admitted to the Union Land Area Area Population as a State Sq. Miles Acres 1880 1910 Minnesota . ..1858 80,858 51,749,120 780,773 2,075,708 N. Dak . . 1889 70.183 44,917,120 }i 35 ,i 77 -! r 577,056 S. Dak . . 1889 76,868 49,195,520 L 583,888 Montana . . . . 1889 146,201 93,568,640 39459 376,053 Idaho . . 189O 83,354 53,346,560 32,6lO 325,594 W ashington . 1889 66,836 42,775,040 75,116*1,141,990 Oregon . . . , • • 1859 95,607 61,188,480 174,768 672,765 Total . . . . 619,907 396,740,480 1,237,603 5,753,054 Railroad Mileage Banking Capital (a) 1880 1910 1880 (b) 1912 Minnesota . • 3^51 8,669 $6,539,238 $67,338,460 North Dakota j 1 , 225] 4,201 ■ 555 , 363 { 18,427,504 South Dakota . 3,947 1 16,838,792 Montana . . 106 4,207 382,700 18,834,517 Idaho 206 2,178 126,885 9,782,696 Washington 289 4,875 203,533 37,769,323 Oregon .... 508 2,284 640,657 25 , 945,979 Total . . . . • 5,485 30,361 $8,448,376 $194,937,271 (a) Banking Capital includes capital, surplus and undivided profits. (b) National banks only. A Chance This American Northwest of ours comprises 21% for Growth of the area of the whole United States, but has only a little more than 6 % of the population. The rail- roads have been active in providing facilities, and there are only 190 people to the mile of railroad as compared with 382 people for the United States as a whole, showing that the railroads have been doing their share in the development of. this region. The banking capital, from such figures as I have been able to obtain, is $33.88 per person for all classes of banks in the Northwest, and $18.00 for National Banks only, as compared with $45.28 for all classes of banks and $18,98 per person for National banking capital for the whole country. The deposits in our banks are $941,935,000 — not quite 5% of the total deposits in the United 4 States, of $19,663,857,000; and the deposit per capita in our part of the country is $164.00 and $214.00 in the United States as a whole. What a chance here for growth ! AGRICULTURE What Has I have spoken of Agriculture as the first of the great It Done? agencies, the success of which is so vital to all, and in Agriculture I include all forms of activity engaged ijn by the farmer. It is true that in Minnesota, Montana, Washington, Idaho and Oregon lumbering is, and in the four last states for a considerable time will continue to be, a most important part of the business of the people. . It is also true that in North Dakota, Montana, Idaho and Wash- ington, mining furnishes a field for the employment of labor, capital and brains, but upon the wise and efficient use of the soil depends, more than upon all else, the future prosperity of the American Northwest. Some Results Consider for a moment some of the figures from Agriculture about people engaged in agriculture and the results obtained in the American Northwest. 1880 1910 All land in farms (acres) 23,561,289 124,345,917 Improved land in farms (acres) 11,540,115 7 2,992,996 Land capable of being farmed and not in use (acres) . 12,021,174 51,352,921 Number of farms i 35 > 97 i 466,856 1879 1909 Bushels Value Bushels Value Wheat 47,842,928 not available 290,802,582 $267,708,909 Oats 32,919,797 tt 252,593,225 96,305,612 Barley 5,048,623 tt 97,253,571 47,696,131 Corn 17,020,707 tt 130,004,006 60,400,992 Flaxseed 174,300 it 18,731,213 28,031,509 Total 103,006,355 a 789,384,598 $500,143,153 Tons Tons Hay and Forage 2 , 420,913 a 18,954,653 $111,154,653 5 LIVE STOCK ON FARMS 1880 1910 Number Value Number Value Cattle 1,607,915 available 7, 150,802 $172,843,915 Horses 528,321 “ 3. *39, 1 53 347.783,768 Sheep 1,885,490 “ 13,078,131 65,923,572 Poultry (ah Fowls) . 3,345,325 “ 25,333,553 12,150,697 Hogs 672,315 “ 3,572,890 32,972,560 Total 8,039,366 “ 52,274,529 $631,674,512 ORCHARD FRUIT 1879 Value $ 857,812 1909 Value 10,106,702 POTATOES 1899 1909 Acres 276,242 479,024 Bushels 29,497,186 56,237,161 Value $ 8,303,259 $19,706,596 Comparing These figures are interesting in showing the de- Agricultural velopment in a term of years. When we look at Results with them we are inclined to “pat ourselves on the back” Denmark and think we have done wonders, for the total value of all crops, not counting live stock and its products, for the last census year in the states comprising the American Northwest was $691,634,435. This is a very large sum of money, equal to $120 per inhabitant, but to only $5.50 per acre for all of the farms, and to $9.50 per acre based on the improved land in farms. Denmark with a much more dense population of 183 to the square mile as compared with a little over 9 in the American North- west, has so improved methods of work and of agriculture that the average annual value for the same classes of products for every acre in that little kingdom is $225.16. Because of the greater density of population, the production per person averages $65.33. 6 Something has been done in the direction of improving agri- cultural methods in this country, but these figures show how far behind we are in making the best and most productive use of our soil. Suppose that the yield per acre on improved farms only was one-half of the average for the whole of Denmark, then the production from the soil in the American Northwest would amount to more than $8,000,000,000 of value, instead of the present $691,- 000,000. The addition of this vast sum to the wealth production of the country north and West of here would mean much to every farmer, every banker, every business man and every railroad em- ploye in the country. These startling figures emphasize that there is a great responsi- bility upon the man engaged in agriculture in improving his effi- ciency, and also a responsibility upon all in seeing that hand in hand with the development of agriculture must go proper develop- ment of the banking and transportation interests of the country. THE BANKER His Growth and How about the banking capacity of the Ameri- Future Work can Northwest? The growth of the banks in the states making up the American Northwest, from less than $9,000,000 capital in 1880 to $195,000,000 in 1912, shows clearly that this agency has been keeping pace with the growth of the country, and in the whole United States the growth has been from $825,000,000 in 1880 to $4,164,914,181 in 1912. Today there are more than 3,360 banks in the American North- west, taking care of nearly $1,000,000,000 of the people’s money and helping the farmer, the business man and the railroad employe carry on their daily lives. Taking the United States as a whole the deposits have increased from $2,201,900,000 in 1880 to $19,663,857,000 in 1912. The banker in his business meets many people and has a chance to direct attention to the right way of solving some of the diffi- culties that confront the country. 7 THE CARRIER The Carrier Is What about the carrier? What has been ac- the Railroad complished in creating that agency ? In our part of the country, the principal carrier for any distance is the railroad, and to a very large extent this is true in the United States as a whole. Without efficient railroads the country cannot develop any more than it can develop without efficient agriculture and safe and sound banks. What Have the Here are a few figures that will show what the Owners Done? owners of the railroad have done in producing a transportation machine to handle the people and products of the country : The American railroad system has been created in its present form since the Civil War, and practically built and rebuilt within the last forty years. The railroad owner has provided in round figures 250,000 miles of railroad, 370,000 miles of track, 62,000 locomotives, 51,000 passenger cars, and 2,200,000 freight cars. Its Value, The fair present value of this tremendous piece Working Force, of machinery is probably at least $18,000,- Payroll and 000,000, and in keeping it in order and in Securities operating it about 1,700,000 men are employed with an annual payroll of nearly $1,300,000,000, The securities representing this value are held by hundreds of thousands of individuals, and also by Insurance Companies, Savings Banks and Trust Companies, Hospitals, Churches and Colleges, and the people as a whole have as vital an interest in maintaining the credit and prosperity of the railroads as they have in maintain- ing the solvency of the banks. It is stated on good authority, that the Life Insurance Com- panies doing business in the State of New York hold one-eighth of the entire railroad bond issues of the country. There are about 20,000,000 policy holders in these companies and they are very much interested in the soundness of this great investment. There are 16,108 holders of Northern Pacific stock, of which 5,675, or 35% are women, and presumably the same relation obtains in other large railroads. Business Handled This great piece of machinery handled last in One Year year 33,510,673,000 passengers one mile, and carried 267,313,687,000 tons of freight one mile. These figures are so vast that the human mind can- not understand them. But assuming that there are 92,000,000 people in the United States, it means that the railroads pro- vided a trip of 364 miles and that they hauled 2,905 tons of freight one mile for every man, woman and child in the United States. People from all over the world come to examine the Amer- ican railroads and the American railroad system and go away in wonder because the American railroads perform a greater service per mile of track than those of any other nation, at lower rates and pay their employes higher wages. Comparison of Rates, Capitalization and Wages with Foreign Nations are obtainable : The following are the average rates per ton per mile for handling freight in some of the important countries for the last years for which figures United Kingdom Germany France Russia Austria Hungary Denmark Holland Switzerland United States.... and here are some figures for capitalization per mile of road : United Kingdom $275,000 Germany 1 14,000 France 144,000 Russia, including Siberia 81,000 Austria 118,000 Hungary 67,000 2.33 cents 1.41 “ i-39 “ •95 “ 145 “ I -3 I “ 2.16 “ 1.32 “ 2.91 “ .741 “ 9 Denmark 58,000 Holland 82,000 Switzerland 117,000 United States 60,000 and here are the average wages paid railroad employes per year: United Kingdom $270 German Empire 388 France « 260 Russian Empire 196 Austria 277 Hungary 283 Italy 287 Switzerland 292 United States 733 New Capital People who do not study the figures often look Not Attracted upon the railroad as a great piece of machinery to Railroads with an unlimited ability to obtain money in indefinite amounts for increasing its capacity and improving the quality of the service. The transactions are so large and the figures run into so many millions that the impression prevails that the railroads must be very rich, and that any failure or refusal of the management to do the things that people want done is due to an unwillingness and to a spirit of parsimony, when as a matter of fact it is because of the absolute inability of the owners and managers to obtain the money from any source whatsoever. Equipment of The equipment of the railroads alone repre- Railroads and sents at least $3,500,000,000, and that equip- Its Cost of ment must be maintained in good order, that Maintenance it may perform the duty imposed upon it by the public. It must be improved in quality and quantity year by year. The imagination of the people is fired by the building of the Panama Canal, and it is thought of as a great work, but the railroad equipment for the use of the people is worth at least eight times the cost of that canal, and the annual cost 10 of repairing and replacing that equipment, about $446,000,000 in 1912, is as much as the cost of the canal. To maintain a high standard of equipment for the use of the American people is fully as important as to have the Panama Canal, and yet rarely is any suggestion made to en- courage the railroads in the work they are trying to do and in helping them to make a better use of that equipment, or in helping them to obtain rates that will enable them to have adequate facilities and adequate equipment for the fast grow- ing business of the country. Accidents and The railroads are struggling all the time to per- Their Causes form their work with less loss and damage to life and property, and few people not in the business realize the vast capital expenditures that should be made in order to equip the railroads with modern safety appliances that help to prevent accidents. Such appliances will not entirely stop accidents, because in the last analysis the human equation is the test, and only until public opinion holds to a rigid account railroad officers and employes who are unfaithful to their duty, will acci- dents be minimized in spite of all the appliances that modern science may adopt. Statistics show that about one-twelfth of the accidents on the American railroads are due to causes that can be remedied by mechanical appliances for the protection of trains ; the other eleven- twelfths flow from causes that are common to all classes of business. Accident Figures Much has been said about accidents in this Compared with country as if we were very far behind other Other Countries countries in this respect. Look at the figures for a moment : In Europe on 206,987 miles in 1910 there were killed 554 passengers, 2,607 employes and 4,465 other persons, or a total of 7,626. In the United States on 248,888 miles reported in 1912, there were killed 318 passengers, 3,235 employes, and 6,632 other persons, or a total of 10,185. Included in the figures for the United States were 5,434 trespassers, and it is well known that in most European countries the public realize they have no right to 11 trespass on railroad property, while in this country, except in a few states, people think the railroad right of way can be used as a highway, with the result that there are about 14 trespassers a day killed in the United States. These trespassers not only lose their own lives, but they endanger most seriously the lives of the employes and passengers on the trains. Absolute obedience is not encouraged enough in American education, or in the American home, and in spite of everything that railroad managers can do, it is very difficult to have absolute obedience to reasonable rules. Block Signals Nearly $300,000,000 is needed to install a Help in suitable block signals on the American Preventing Accidents railroads, which means an annual charge for maintenance and depreciation of about $75,000,000. What Becomes of The revenue of the railroads is collected Railroad Earnings? in the main from the handling of property and passengers, and it cannot pay out more than it takes in. In 1912, out of every dollar that the railroad received, the following disposition was made : Labor direct Fuel and Oil, 70% labor Material, Supplies and Miscellaneous Expenses.. Loss and Damages Taxes Rents for Leased Roads Interest on Debt 44.17 cents 8.93 “ 14.06 “ 2.20 “ 4.21 “ 4.41 “ 1343 “ Total 91.41 Balance 8.59 100.00 Of this balance 3.75 cents was for betterments and deficits, and 4.84 cents for dividends. In other words, of the dollar collected there had to be paid out 91.41 cents for those things 12 that were absolutely necessary for maintaining and operating the property, paying taxes and interest, leaving only the small balance of 8.59 cents for improvements and dividends. Increasing Costs Without effective banking the great railroad Make Problem systems of the country could not have been of Railroads developed to the extent that they have been, More Difficult and one of the great problems confronting the carriers today is that of making both ends meet, and having enough money left over so that bankers will be able to obtain from investors new funds to increase the facilities. It is a matter of common knowledge and evident in the lives of all of us that expenses and the cost of living are greater today than a few years ago, and the same causes that affect the individual affect the great transportation compnies. The demands of labor, the increased cost of material, ever- growing taxes, many new federal and state laws unnecessarily increasing the payroll, requirements of prosperous people for better service, all tend to increase the railroad expense, but so' far with no increase in rates. As a result, the balance left to pay a return upon investments is not the amount that it should be to enable the banker to say to his client, “Lend me your money that I may furnish it to the railroads so they can go on with their work.” Increased Capital Produces Figures compiled from the reports No Improved Returns of the Interstate Commerce Com- mission for the fiscal years 1907 and 191 1 are given below : ign 190 7 Cost of road and equipment. . . *$14,984,796,837 $12,940,379,220 Revenues 2,852,854,721 2,570,795,058 Expenses 2,005,528,462 1,737,698,201 Balance 847,326,259 833,096,857 Taxes 102,657,157 79,640,013 Operating income 744,669,102 753,456,844 Increased cost of road compared with 1907 2,044,417,617 Decrease in income 8,787,742 *Cost taken from balance sheets are far less than present real value. 13 In other words, with $2,000,000,000 new capital put into the business there was nearly $9,000,000 less return. How long will people go on putting money into a business that makes no return on the new capital required? COMPARISON OF RETURNS On Agricultural In 1900 the value of farm property in the Capital states of the American Northwest was $1,843,- 409,554, and in 1910 it was $5,436,255,070, an increase of 194.9%. 1900 1911 Minnesota $788,684,642 $1,476,41 1,737 North Dakota 255,266,751 974,814,205 South Dakota 297,545,302 1,166,096,980 Montana 117,859,823 347,828,770 Idaho 67,271,202 305,317,185 Washington 144,040,547 637,543,411 Oregon 172,761,287 528,243,782 $1,843,409,554 $5,436,256,070 The capital value represented by Agriculture for the United States for 1910 was estimated at $40,991,449,000, and the re- turns from Agriculture for various periods are: 13.8% in 1890 16.3% in 1900 16.8% in 1905 The farmer of the American Northwest has prospered as much as in any other section and his property has increased largely in value, and presumably 'he has made as handsome a return on that value as for the average of the United States. On Banking The capital, surplus and undivided profits of all Capital the banks of the United States for 1912 are given as $4,164,914,181. The net earnings in the same periods for national banks, and not including state and private banks, which are said to do as well, if not better than national banks, have been, based on capital and surplus: 14 6.66% in 1880 8.63% in 1890 8.20% in 1900 9.67% in 1910 Or, if based upon capital alone, the net earnings have been : 8.36% in 1880 11.48% in 1890 11.60% in 1900 16.00% in 1910 On Railroad The capitalization of the railroads in 1910 repre- Capital sented by securities in the hands of the public was $14,338,575,940. The return on capital in- vested in railroads was investigated carefully by the Railroad Securities Commission, with President Hadley of Yale at the head, whose report was sent to Congress by the President on December 8, 1911. What the Commission says in that report tells the story: “Neither the rate of return actually received on the par value of American railroad bonds and stocks today , nor the security which can be offered for additional railroad invest- ments in the future, will make it easy to raise the needed amount of capital. “ The rates of interest and dividends to outstanding bonds and stocks of American railroads is not quite four and one- half per cent in each case And again : “A reasonable return is one which, under honest accounting and responsible management, will attract the amount of in- vestors' money needed for the development of our railroad facilities. If rates are going to be reduced whenever dividends exceed current rates of interest, investors will seek other fields where the hazard is less or the opportunity greater .” To quote again from this report: “The necessary development of railroad facilities is now endangered by the reluctance of investors to purchase new 15 issues of railroad securities in the amounts required. This reluctance is likely to continue until the American public under- stands the essential community of interest between shipper and investor , and the folly of attempting to protect the one by taking away the rewards of good management from the other.” The evidence all indicates that the returns upon capital invested from both Agriculture and Banking have been much more attractive to the investor than have the returns upon capital advanced to the carrier, and the Securities Commission points out very clearly that the returns upon railroad invest- ment are not enough to attract the needed capital. What Can Be Done to I have tried to give you a few of Increase the Efficiency of the important facts about Agricul- These Three Factors? ture, Banking and the Carrier, — ^ the A, B, C of the alphabet of prog- ress in the American Northwest. If these three agencies are not efficient and progressive, then there will be indifferent progress in merchandising, manufacturing, and in the develop- ment of the more complex forms of human effort that do not flourish until there is some surplus of brains, energy and cap- ital over and above the imperative needs of the simpler forms of business. Following, and to some extent coincident with the success of this A, B and C, come the things every man works for, and hopes for — better homes, better care of women and children in schools, hospitals and churches, and better facilities for the general welfare and uplifting of society. We all of us want these things, and we all want agriculture, banking and the car- rier to go on with their work, and to succeed. The practical question is, What can any one of us do to help out, that we are not doing? 16 Banker Has Been It is gratifying that the country gener- Helprng the Farmer ally is awakening to the fact that agri- . culture is an occupation that needs the £ M entl ° n r an K beSt brainS that Can be £ iven to it. and the Minneapolis bankers have been giving praiseworthy atten- tion to the problem. Too long has the farmer’s life been pic- tured as unattractive, unremunerative and something that the young men and young women should shun. Lately, however the Government, the bankers, the carriers and people gener- ally have awakened to the fact that it is important to improve 5X farm tl0nS °" ^ ^ t0 increase the productivity i i Prog , ress has been made, but much remains to be done to ielp and encourage the farmer and his family and to increase the product from each acre. £Se t R Ha t Been f° r many years the attention of thought- Helping the Banker ful men has been directed to our mon- t , etar y Policy and the mantle of govern- ment protection has been thrown around our banking methods business' 7 tT 6 made t0 Safeguard that important ■ 1 I h , are some weak spots in our system which it is hoped will be cured in due time. EncouraMncr thlrd g ’ eat agency > that of the carrier, has RMlroadf f ° r f 4 ° years struggle d to create a good trans- lroads portation machine, much of the time without helpful support from either the public or the Government, and of late years in the face of restrictive and fcnt 1 tL e ft S h atl ° n i,' I 11 " 4 the bUSineSS haS succee ded to the ihl TT f h a c haS ’ haS been due to the wonderful growth of e United States, which has carried forward all classes of usiness to a fair and in some cases a high degree of prosperity. 3e Ve inte?e n s e ted h ° Uld iS COnfronting ‘he Amer- interested man people that is just as important to • , their future welfare as is the success of ignculture, or of our monetary system. success of 17 When the silver question was rampant, many people said they did not care about that, because it was a question for the bankers and it did not affect them; they, however, learned later on that the policy of our financial system affected every man from one end of the country to the other. Fair Treatment Many people say now that in some miracu- to the Railroads lous way the railroads are going t p all the facilities that are necessary for the expanding country, and that it is their business to get the money spend it, and have adequate facilities. The mabi y or failure in providing these facilities win sooner or later affec every one from one end of the country to the other, and it i just as much to the interest of the farmer, the banker and the business man to see that fair treatment is accorded to the rail roads so that money will be attracted to that business, as 1 to have sound agricultural practice and a sound banking po icy. Need of Men There is one feature of railroad operation that ^ Character is not often considered, and that is the question and Ability of manning this great machine. There are many high-minded, earnest men in all departments of railroad work who are giving the best that is m them 1 m trying to do their duty to the owners of the proper y an \ It is an unfortunate fact, however, that of late years young men in the United States who are fortunate enough to be trained in the best schools and colleges for business and pro- fessional life, and who have the liberty of choice in select, g their life work, do not select the transportation business thT the supply of trained railroad officers is not as great as t h ,hoiid be” the magnitude oi .he busmesa EnP«™» «d r Vn’o-h character in the management of the railroads giv if progress in the right direction is to be made. It is verv much to the interest of the future growth of the it . , ctates to have the railroad business offer such rewards t Sf— .« X «m flow freely into building up .he ...ns- 18 portation machine, and to offer such attractions to the best talent of the country, that men will engage in the business as freely as they engage in banking, in law, in medicine, in manufacturing and in agriculture. There is the closest connection between the railroads and the bankers, because the railroads must turn to the banking fraternity to help them in getting funds to carry on the great work of providing sufficient transportation for our American Northwest. Tribute to There has just passed away one of the great Mr. J. P. Morgan bankers and one of the great men of the world — I refer to Mr. Morgan. The railroads of this country, and particularly the road I happen to represent, and the country that it serves owe much to Mr. Morgan, for by his character and courage and because of the respect that investors had for his opinion, he was able to reorganize and finance the Northern Pacific, and put it on its feet at a time when the outlook in the country was not encouraging. His ability to inspire confidence and to obtain money meant much for the development of the Northern Pacific which was the pioneer carrier through the American Northwest. His life, his courage, his faith in the country, and his spirit of co-operation exemplify what can be accomplished by the proper relation be- tween the banker and those he is trying to serve. Duty of Is it not your interest as bankers to try to so shape the Banker public opinion, that not only will the particular busi- ness in which you are engaged, receive fair treat- ment, and agriculture receive help and fair treatment, but that the great business of the carrier receive like encouragement and fair treatment, so that the capital now invested in that important busi- ness and needed so much in the future, will receive a return suffi- cient to justify you in recommending and obtaining the funds to be used for expanding the facilities of this great country? I believe that it is, and that everyone can do something in his own life to foster a better understanding and a saner public opinion about these questions so vital to all. 19