Communication: Addressed to the Editor of the Atlanta
Journal by Milton H. Smith, President Louisville &
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Nashville Railroad Co.
Louisville, Ky., October 31, 1907.
Editor Atlanta Journal:
An Atlanta friend has, called my attention to the editorial in your
issue of the 27th instant, entitled "President Smith's Misrepresenta¬
tions," in which you charge that in a communication to the Atlanta Con¬
stitution, published on the 20th instant, I deliberately made false state¬
ments relative to matters of public record, and you seem to base your
conclusions on three statements, viz;
1. Bankruptcy of all the railroads in the State except three during
15 or 18 years following the enactment by the State of Geor¬
gia of a law creating a commission with mandatory powers,
and the exercise of such mandatory powers by the commission
in an arbitrary manner.
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2. That I, being in a position to know the facts, wilfully made the
false statement that the Georgia Railroad has up to this time
been operated by the lessees at a heavy loss.
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3- That I, without seeking to inform myself, stated that only one
important line had been constructed in the State of Georgia
since the enactment of the legislation, and you assume that,
having made such statement, I am ignorant of the fact that
there has been a large increase in railroad mileage in the State
during the period referred to.
In regard to the first charge : When I stated that during fifteen or
eighteen years afteV the enactment of the law creating a commission,
''every railroad in the State except three became bankrupt," I had in
mind the Georgia, the Atlanta & West Point, and the Western & At¬
lantic as the three roads. It now appears that my statement was in
error, to the extent that the Savannah, Florida & Western Railroad
Company acquired the Atlantic & Gulf Railroad (which was the suc¬
cessor of the Savannah, Albany & Gulf Railroad Company) at bankrupt
sale, December 19, 1879. So far as I now recall, all the other roads in
existence at the time the act was passed were financially embarrassed
during the period named—at least I do not now recall an exception.
As to your second charge : The Georgia Railroad was leased to the
Louisville & Nashville and Georgia Central Railroads on April i, 1881,
for ninety-nine years, the lessees agreeing to pay a rental of $600,000.00
per annum. On July i, 1895, the Georgia Central Railroad having be¬
come bankrupt, the Louisville & Nashville was compelled to assume the
entire lease. Up to that date the losses, including advances to subsidiary
companies and interest at 6 per cent, per annum to June 30, 1907,
amounted to $3,513,030.19, of which the Louisville & Nashville's one-
half was $1,756,515.09. On July i, 1899, the Atlantic Coast Line as¬
sumed one-half the lease. The loss to the Louisville & Nashville Rail¬
road Company as sole lessee during the four years, including advances
and interest at 6 per cent, per annum to June 30, 1907, was $531,836.55.
The total loss, including interest, etc., to June 30, 1907, was $4,044,-
866.74, of which the Louisville & Nashville's proportion was $2,288,-
351.64. For the eight years ended June 30, 1907» during which the
property has been operated for account of the joint lessees, there was
a profit, after deducting advances, of $986,641.83, which, adding inter-
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est at 6 per cent, per annum to the losses, leaves a net loss of $3,058,-
224.91. The profit shown for the years 1901 to 1906, inclusive, is ap¬
parent, but not real, for the reason that the lessees have permitted the
management to use the profit in improving and adding to the property.
To state it another way, the result of operations to the lessees shows a
total loss of $4,044,866.74, against which there is a book credit of
$986,641.83. The charging of interest on losses and amounts advanced
by the lessees is justified on the ground that should the operations at
any time in the future produce a surplus that may warrant the lessees
in taking it over, they would credit it against previous advances, in¬
cluding interest.
You state that the lessees of the Georgia Railroad "made a net
profit on the lease last year of $2,500.00 a mile, and have not made less
than $2,000.00 a mile since 1901." The result of operations for the
year ending June, 1907, shows a loss of $37,295.76. The mileage oper¬
ated is 307 miles, sundry short branches not included, which, at $2,-
000.00 per mile, would be $614,000.00—a marked discrepancy. The
largest profit in any one year was for the year ending June 30, 1906,
and amounted to $294,187.05, equal to $958.00 per mile—another dis¬
crepancy.
The investment of the Louisville & Nashville Railroad Company in
the stock of the lessee company of the Western & Atlantic Railroad,
which was liquidated after the expiration of the lease on December 27,
1890, including interest to April 30, 1898, the date of final payment,
showed a total loss of $802,890.57.
With reference to your third charge: I quote from the statement
which you are criticising, as follows : "If I am not mistaken, only one
important line in the State of Georgia has been constructed since the
enactment of the legislation, and there is good reason for believing that
those who furnished the capital to construct that line have not received
an adequate return upon their investment. All other roads constructed
since the enactment of the injurious legislation have been built largely
by local capital, and such local roads, built for the accommodation of
the communities directly affected, have in some instances been consol-
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idated into lines that promise to be important. Some have been ac¬
quired by the older corporations, a large part of the original capital
invested having been lost."
"It is true that the benefits of rail transportation lines to communi¬
ties and territory not adequately supplied with such facilities, are of
such advantage that those deriving the benefits can afford to invest con¬
siderable amounts which may at the time not promise to be directly re¬
munerative, relying upon the advantages accruing to them for their
recompense." On the foregoing you base the charge that I was igno¬
rant of the fact that a large mileage of railroads had been constructed
in Georgia since the enactment of a law creating a commission with
mandatory powers. The above extract shows that I made no such
statement. The important line that I had in mind as having been con¬
structed during the period was the Seaboard Air Line, which has con¬
structed a road across the State to Atlanta, and thence acquired and
constructed a line to Birmingham, Ala. An examination of the annual
reports of the Seaboard Air Line Railway will, I think, show that the
Georgia, Carolina & Northern has up to this date been operated at a
loss, which has been assumed by the Seaboard Air Line as owner.
While I have not as yet fully investigated the means by which the
numerous short local lines have been constructed, I am not at the pres¬
ent time advised of any exception that disproves the correctness of my
statement. I know that the Louisville & Nashville and Georgia Cen¬
tral, lessees of the Georgia Railroad, in 1884 unwisely came to the re¬
lief of the then owners of the Gainesville, Jefferson 8¿ Southern Rail¬
road (Hon. A. D. Candler, President), extending from Monroe, Ga.,
to Gainesville, Ga., with a branch to Jefferson, Ga., by endorsing the
bonds, a large amount of local capital having already been invested;
that the result was disastrous, and the loss to the lessees of the Georgia
Railroad to this date, interest not included, has been approximately
$500,000.00, with a total loss of local capital invested, except such as
was invested in the endorsed bonds.
I recall that the Atlanta & Florida Railroad, extending from Atlan¬
ta to Fort Valley, Ga., was promoted and financed by citizens of At-
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lanta; that the result was disastrous and the road was sold in 1893;
that at the time of sale there was outstanding $1,955,000 of stock and
bonds, and I personally know that the property was.repeatedly offered
for sale for $1,000,000.00. I do not know what the Southern Railway
Company, which acquired the line, paid.
The Covington & Macon Railroad Company constructed a road ex¬
tending from Macon, Ga., to Athens, Ga., and the result proving disas¬
trous, the property was acquired through foreclosure, by the Macon &
Northern Railway, in 1891. It was then leased jointly by the Rich¬
mond & Danville and Central Railroad & Banking Company. The
Richmond & Danville defaulted, and the lease seems to have been as¬
sumed by the receiver of the Central Railroad of Georgia. The capital
stock and bonds outstanding amounted to $3,200,000.00 and the proper¬
ty was again sold under foreclosure, in December, 1894, and by an ar¬
rangement between the bondholders and the purchasing committee of
the Georgia Central Railroad & Banking Company was included in the
reorganization of that road (now Central of Georgia Railway).
The Georgia Southern & Florida Railroad was promoted and
financed by citizens of Georgia; completed and opened for traffic in
1890, and a receiver appointed in 1891, the capital stock and bonds out¬
standing amounting to $6,768,000.00. The property was acquired by,
or in the interest of, the Southern Railway.
It would make this communication too long and too tedious to give
a resume of the construction of other railways in Georgia during the
period under consideration. So far as I am advised the financial results
have been, without exception, unfavorable, and I am quite sure a de¬
tailed analysis will sustain the correctness of my statement that "all
other roads constructed since the enactment of the injurious legislation
have been built largely by local capital, and such local roads, built for
the accommodation of the communities directly affected, have in some
instances been consolidated into lines that promise to be important.
Some have been acquired by the older corporations, a large part of the
original capital invested having been lost."
I have not forgotten the acquiring and constructing of an important
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railroad by the Atlanta, Birmingham & Atlantic Railroad Company. It
was that company I had in mind when I stated that roads built by
local capital "have, in some instances, been consolidated into lines that
promise to be important." The larger part of the line in Georgia is an
aggregation of local lines, some of which I think were originally lo¬
cated and constructed to facilitate the movement of forest products.
In quibbling over the correctness of my statements relative to the
construction of roads in Georgia and the financial results—heavy losses
of capital invested—of such construction, let us not lose sight of the real
question at issue:
Will the citizens of Georgia or other States or other coun¬
tries invest their savings, on which they may desire to receive a
satisfactory return, to create railroads in a State or country
where the remuneration received for the transportation of per¬
sons and property is fixed hy the agents of the State, without
the State assuming any responsibility for the result, and, in ad¬
dition to fixing the rates and exacting onerous taxes, enact laws
regulating the conduct of business and the relations between
the carrier and its patrons in a manner that, if enforeed, will
greatly embarrass, and probably finaneially embarrass, the
carrier?
Let each one answer.
MILTON H. SMITH.
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