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AN EFFICIENT
TRANSPORTATION MACHINE
A NATIONAL NECESSITY
BY
HOWARD ELLIOTT
President, Northern Pacific Railway Company,
New York, N. Y.
An address delivered at the Thirteenth Annual Meeting of the
ASSOCIATION OF LIFE INSURANCE PRESIDENTS
At New York, December 4, 1919
AN EFFICIENT TRANSPORTATION MACHINE
A NATIONAL NECESSITY
By Howard Elliott
President, Northern Pacific Railway Company,
New York, N. Y.
an address delivered at the thirteenth annual meeting of
the association of life insurance presidents in
new york city, on december 4, igig
a national question
Among the important questions before the country today is this
"What is the best way for the American people to create and
maintain an efficient transportation machine ?"
Safe, adequate and satisfactory transportation must be furnished
to the American people either by private owners as a business enter¬
prise under suitable Governmental regulation and protection, or be
furnished by the Government itself.
public sentiment
The public seem to have settled in their own minds that they
prefer to have the transportation furnished by the owners rather
than under Governmental control or Government ownership.
The Association of Railway Executives recently sent out a ques¬
tionnaire to some 6,000 editors throughout the country asking them
to express their opinion about Government ownership and control.
Eighty-three per cent, answered that their communities were in
favor of the return of the roads to the owners.
Most of the bills introduced into Congress reflect this sentiment
with varying degrees of Governmental regulation and protection.
policyholders interested
Those who are interested in life insurance, both the insurers and
the insured, are vitally interested in the proper answer of the ques¬
tion.
In 1918 there were 53,923,734 life insurance policies in force
i
with the legal reserve companies. Among the assets securing these
policies are nearly $1,700,000,000 of railway securities, 26.25^ of
the total assets, and a failure to protect these securities affects
directly the holders of these policies and the beneficiaries thereof.
CONTINUOUS DEVELOPMENT NECESSARY
In addition, these policyholders, in common with the balance of
the 105,000,000 people in the country, need continuous development
of the transportation machine for the purpose of increasing the food
and fuel supply and the production of those articles that are neces¬
sary for clothing, shelter, and oUr modern American life. If this
is not done, the standard of living must decline and the cost of
living, instead of being reduced, will be increased. This general
development will be checked if the transportation machine of the
country is not sufficient and adequate. Even to-day, in the months
of heaviest business, it is doing about all it can and there is a very
small margin of safety.
WHAT IS THE TEANSPOETATION MACHINE?
In order to consider the question the salient facts about the trans¬
portation machine must be given—its growth during the last 19
years, what it represents in the property of the nation, the work
that it does for the people, and what should be done to keep it effi¬
cient for future needs.
The transportation machine consists of 260,000 miles of railroad,
and about 404,000 miles of track : in 1900 there were 192,560 miles
of railroad and 258,784 miels of track, an increase since then of
67,440 and 145,220 miles. Over these tracks are operated about
66,000 engines, nearly 2,400,000 freight cars and about 56,000 pas¬
senger train cars—an increase of nearly 30,000 locomotives, 1,000,-
000 freight cars and 22,000 passenger train cars since 1900.
It is interesting to note here the very slight growth since June
30, 1915, in the number of units of equipment. The number of
locomotives is substantially the same as in I9I5> although they are
of a heavier type. The number of freight cars is substantially the
same, although of larger capacity, and the increase in passenger
train cars is only about 1,000. The reason the people have received
the transportation they have without more of an increase in units of
rolling stock is the increased efficiency developed in handling the
equipment.
While there is always a chance to improve methods, further in¬
creases in efficiency in the use of equipment will be obtained slowly ;
2
and because the increase in the capacity of the machine has not been
as great or as constant as it should be during the last five years,
the country now is face to face with a most urgent need of
immediate expansion in order to make up for lost time.
WHO OPERATES IT?
This great transportation machine is maintained and operated
by an industrial army of nearly 2,000,000, earning an average in
1918 of $1,418 a year. ' In 1900 there were about 1,000,000 em¬
ployes, earning an average of $567 a year.
VALUE, CAPITAL AND OWNERSHIP
The total book value of the machine in 1918 was about $19,000,-
000,000, or nearly $79,000 per mile of road.
The capital representing this great machine in the hands of the
public at the end of 1917 was about $16,500,000,000, or $66,700
per mile of road. There have been some additions during 1918
and 1919, the complete figures for which are not now available.
The stocks and bonds of American railroad companies are in the
hands of the public—are owned by insurance companies, savings
banks, guardians, trustees, and by hundreds of thousands of indi¬
vidual investors, representing every trade and calling. The once
more or less prevalent idea that the railroads are owned by a few
great financiers is erroneous. Everybody knows that the securities
of our railroads are scattered all over the country—an investment
of the people. The Bureau of Railway Economics, in a recent
statement, announced that the ownership equities of American rail¬
roads are really in the hands of more than 50,000,000 people.
For example, the stock outstanding at the end of 1917 was
$9,045,000,000, held by 647,689 stockholders, with an average hold¬
ing of $13,966. No accurate figures as to the number of bond¬
holders are available, but it is thought that there are more bond¬
holders than stockholders, so that there are at least 1,250,000 owners
of this great machine.
Accurate figures can be given for a number of important com¬
panies showing the wide distribution of the stock and the relatively
small holdings per person. For example :
The Pennsylvania Railroad in 1910 had 63,298 stockholders, and
the average holdings were $6,515.29. In 1918 it had 106,911 stock¬
holders, and the average holdings were $4,669.91.
The Northern Pacific in 1910 had 10,551 stockholders, and the
average holdings were $23,499.76. In 1918 it had 27,338 stock¬
holders, and the average holdings were $9,071.56.
3
The New Haven in 1910 had 16,258 stockholders, and the average
holdings were $8,850.64. In 1918 it had 25,026 stockholders, and the
average holdings were $6,278.18.
The Atchison in 1910 had 26,399 stockholders, and the average
holdings were $10,594.80. In 1918 it had 49,905 stockholders, and
the average holdings were $6,932.35.
TRANSPORTATION FURNISHED THE PUBLIC
This great transportation machine, owned by more than 1,000,000
people, and managed and operated by nearly 2,000,000 people, is
furnishing freight and passenger transportation to the public in very
large quantities and the growth from 1900 has been phenomenal.
The population of the country in 1900 is given at 75,994,575, in
1910 at 91,972,266, and in 1918 105,118,467.
The units for measuring transportation are the tons of freight
hauled i mile, and the passengers moved i mile. In 1900, for every
person in the country, the railroads handled 1,863 of freight
I mile, and furnished passenger transportation equivalent to 211
miles. This had increased in 1910 to 2,773 fons of freight i mile
and 352 miles of travel for the 92,000,000 population. In 1918 the
activities of 105,000,000 people in serving this country and the world
made it necessary for the transportation machine to provide trans¬
portation of 3,871 tons of freight moved i mile and a trip of 411
miles for everyone in the country.
This freight service is ec[uivalent to hauling every day in the year
for each man, woman and child in the country, 21,000 pounds of
freight I mile. The increase in freight transportation furnished to
each person in this country is 100^ since 1900, and nearly 40%
since 1910.
In the last 8 years the population of 92,000,000 increased
13,150,000, or 15%, but the consumption of transportation increased
much more rapidly. In another 8 or 10 years the population of
105,000,000 will no doubt increase 20,000,000, and if the country is
to maintain the present standards of living and participate in the
world trade for which the merchant marine has been developed,
the freight consumption per person should be not less than 4,000
tons per annum, or 500,000,000,000—an increase of at least 25%
over the present output, to which must be added an increase in
passenger transportation furnished. This cannot be done unless
the transportation machine is enlarged very much and can work
rapidly, effectively and continuously, without friction, heat and
congestion at important points.
4
NEED FOR ADDITIONS, BETTERMENTS AND EQUIPMENT
From 1912 to 1917 there was spent for new lines and extensions,
additions and betterments to existing property, and for additional
equipment, an average of about $450,000,000 a year, based on the
then prices for material and wages. Today these facilities would
cost much more.
As already pointed out, there has not been much increase in the
number of locomotives, freight train cars, and passenger train cars
since 1915, and with the next uplift in business (which no doubt
will come, possibly in 1920, and if not then, in 1921) very sub¬
stantial additions to the rolling stock and other facilities must be
made if the necessary transportation is to be furnished. Director
General Hines put this very well in his letter to Senator Cummins
of October 7, 1919, when he said:
"In order to keep abreast of the growth of business in this
country, it is indispensable that the railroads should continue
to spend large sums in the acquisition of new equipment, the
enlargement and unification of terminals and the construction
of additional and the enlargement of existing shops, engine
houses, turn tables, etc., and in the carrying forward of normal
programs for the revision of grades, construction of additional
main tracks, longer and more numerous passing tracks, etc.
"In the year or two prior to the beginning of Federal control
this work was largely arrested by the difficulties of securing
materials and labor and also by the difficulty of securing new
capital. During the 3^ear 1918 this work was largely restricted
to things which could be promptly done and which would have
a relation to winning the war and also restricted by the scarcity
of materials. The result was that comprehensive programs
for developing the railroads were largely interrupted. During
the calendar year 1919 there has been unavoidably an almost
complete stoppage of all these matters because of the prospect
of early termination of Federal control and the resulting in¬
disposition on the part of Congress to ma]<e appropriations
large enough to provide for extensive improvement programs
to be carried on with Government funds under the direction
of the Railroad Administration."
Now, what have been the financial results of this great machine?
The net income from operating the transportation machine in
1900 was $477,000,000, in 1910 $799,000,000, and in 1918 $704,-
5
000,000, although the transportation furnished per person had in¬
creased in 1918 100^ over 1900 and 40% over 1910, and the trans¬
portation furnished the entire country was nearly three times as
much in 1918 as in 1900, and one and one-half times as much as
in 1910.
The net corporate income from all sources in 1910 was $982,-
773,180, and in 1918 estimated at $904,366,908 final figures not
received) ; and the per cent, of return on total capital fell from
5.53% in 1910 to 4-55% in 1918.
WHAT BECOMES OF THE PUBLIC'S DOLLAR
In 1900 the dollar paid for transportation was divided :
For labor 38.8c.
For material and supplies 25.8c.
For taxes 3.3c.
Balance, representing net
operating income 32.1c.
lOO.OC.
In 1918 it was divided:
For labor 52-5C.
For material and supplies 29.0c.
For rentals .6c.
For taxes 3.8c.
Balance, representing net operating income avail¬
able for betterments, improvements, and pay¬
ment of interest on securities 14.1c.
100.0c.
PUBLIC CONFIDENCE AND NEW CAPITAL
In other words, in spite of a very large increase in the amount
of capital invested in the machine (nearly $9,000,000,000 since
1900 and more than $3,500,000,000 since July i, 1912) and a large
increase in the amount of transportation furnished to the public,
there has been a marked decline in the amount saved out of the
dollar paid for transportation which could be used for increasing
the plant and for a return on capital. This fall in net returns
in the face of a larger output of transportation has gradually
weakened the public confidence in railroad securities.
We sometimes forget that without the railroads the country could
never have been developed, its life carried on, or its business trans-
6
acted because the railroads have come to be so very much a matter
of course.
It seems also to be forgotten by some that a great many hundred
millions are needed today for expansions and improvements. Where
are these millions to come from? No one can be compelled to'
furnish them and everyone who is requested to do so, if he is
ordinarily prudent, must realize the conditions under which he
does it. If he puts his money into manufacturing or trade
he knows that his return will be subject to' the natural laws of
commerce only; that if the cost of the material he uses increases,
or if the wages go up he is at liberty to increase the price of his
commodity correspondingly. In no other way can business be suc¬
cessfully carried on or capital receive a just return. Wages and
the cost of all materials have risen very much and the cost of their
combined resulting products has risen correspondingly. The com¬
modity the railroads furnish is transportation. The cost of provid¬
ing it has risen enormously. Correspondingly the railroads should
receive higher freight and passenger rates. To win back the con¬
fidence of the investor and obtain new capital through the issue of
stock is necessary if the transportation machine is to be adequate.
GOVERNMENT CONTROL
The war produced transportation conditions north of the Ohio
River and east of the Mississippi that were most difficult, and the
President, as a war measure, decided to take possession of all the
roads, which he did on December 27,1917, among other things stat¬
ing to the Congress :
"While the present authority of the Executive suffices for
all purposes of administration, and while, of course, all private
interests must for the present give way to public necessity, it
is, I am sure you will agree with me, right and necessary that
the owners and creditors of the railways, the holders of their
stocks and bonds, should receive from the Government an un¬
qualified guarantee that their properties will be maintained
throughout the period of Federal control in as good repair and
as complete equipment as at present, and that the several roads
will receive under Federal management such compensation as is
equitable and just alike to their owners and to the general
public. I would suggest the average net railway operating in¬
come of the three years ending June 30, 1917. I earnestly
recommend that these guarantees be given by appropriate legis¬
lation, and given as promptly as circumstances permit."
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GOVERNMENT INCREASES RATES
The Government's measure of the net earnings of the railroads
of the country for the three years ending June 30, 1917, generally
known as the "standard return," was approximately $935,000,000.
The authorities at Washington from the very start of Government
control found that the revenues to be received from existing rates
were not sufficient to meet the growing expenses. This fact received
the careful consideration of the Director General, and as a result
the Director General, on June 10, 1918, made passenger rates 3
cents a mile instead of 2 cents and cents and on June 25, 1918,
increased freight rates about 25 per cent.
The administration naturally hoped that these increases in rates,
together with economies that it expected would result from unified
operation, would take care of the situation and that there would
be sufficient earnings to pay expenses, taxes, and the standard re¬
turn to the owners.
RESULTS IN 1918
The net operating income for the first year of Government oper¬
ation failed to meet the standard return by approximately $235,-
000,000. This was in spite of the very earnest, sincere and hard
work of the Director General and all of his assistants. In that first
year the new rates were not effective for the entire period. There
was a very serious winter in parts of the country, and war condi¬
tions were most onerous and difficult so that the Federal administra¬
tion had unusual conditions to deal with. It is, therefore, fair to
say that 1918 should not be taken as a measure of the results under
the new rates inaugurated by the Government and under the wage
scales that it was necessary to pay because of these war conditions.
ESTIMATE FOR I9I9
Figures are now ready for part of 1919, and a fair estimate can
be made for the balance of the year. The Director General had
hoped that income would be sufficient to meet all outgo, but the
results are disappointing. (In fact, he so testified before the Sen¬
ate Committee. The figures for the 9 months, for Class i
roads (earning $1,000,000 or over) show that the proportion of
the standard return for that period has not been met by $245,000,000.
During the months of July, August and September the roads have
just about earned the standard return, and possibly in October they
may do the same, but there is every indication that the year will
8
end with a substantial deficit, perhaps $350,000,000, for all railroad
operations.
FUTURE EXPENSES
These deficits must be considered in any forecast of future re¬
quirements, and, in addition, there are other elements to be taken
into account.
Because of the difficulties in obtaining men and material, due to
the war, not as much work has been done on the equipment of the
roads, especially the freight cars, as is necessary to keep them up
to that standard which the needs of American commerce demand.
Nor have there been placed in the tracks of many of the roads
sufficient rails and ties, as is necessary for the best health of the
property, and there have been some failures to do work of
other kinds because of the conditions as to men and materials.
The money necessary to bring the condition of the present
properties to a higher standard must be spent in the next few
years, and is an element in considering the revenue needs of
the railroads. This amount cannot today be stated exactly,
but it will be several hundred millions of dollars.
Again, there are some increases in expenses to be met in 1920
which were not effective for the full year 1919, such as the re¬
cent change in rates of wages and rules for men working in shops,
estimated at about $50,000,000 a year. Other increases in wages
may have to be made, and these will be an important element
in the problem.
There is also the probability that as a result of the recent
coal strike fuel will cost more in 1920 than it did in 1919. The
railroads' coal bill today is running at the rate of at least $500,-
000,000 a year, and prior to the war was about $225,000,000.
Then the world-wide demand for steel, lumber and all ma¬
terials for reconstruction work and for doing work that has been
postponed or suspended since 1914 means that there will prob¬
ably be no decrease in the prices of these important elements
in the railroad expense account, and there may be an increase.
Additional payments must also be made for new capital to be
used for increasing the capacity of the roads to serve the pub¬
lic. For 5 years prior to the war the expansion of the roads
was not rapid enough to meet the needs of the country, and
during the war period even less has been accomplished.
It is not too much to say that for new equipment, with the
necessary shops and tools to keep it in order, there should be
9
spent within the next few years $3,000,000,000, and, no doubt,
an equal amount for tracks, terminals, electrification and other
facilities to make the transportation machine equal to the de¬
mands of the country if growth is to continue.
The increased expenses of States, counties and municipalities,
because of higher wages, is being reflected in a constantly in¬
creased tax rate, and this also must be taken into account when
considering the revenue needs of the railroads.
In 1910 the taxes paid by the railroads of the United States
were $103,000,000, and for 1919 the total taxes will be approxi¬
mately $250,000,000.
PRESENT EARNINGS INADEQUATE
It has been stated that the roads will be returned to the owners
on January i. It is hoped some legislation before that date will be
passed that will protect the situation until the necessary readjust¬
ments between income and outgo can be made and the earning
power of the roads restored. Even before the war the net earnings
of the roads were not sufficient to attract the new capital needed
each year, and these net earnings are even less today, although nearly
$800,000,000 has been spent in the last two years in adding to the
plant, not counting equipment.
It is fair to say that the net earnings of the railroads under pres¬
ent conditions are plainly inadequate to meet the absolute necessities
and to provide at all for the future. Very few railroads could
pay the present dividends, and many could not pay interest on bonds
without the aid of the "Standard Return" or "Just Compensation"
from the Government. When this payment ceases, unless there is
an increase in rates, a large number of railroad companies will face
bankruptcy, and very few of those who escape this unfortunate
plight can pay any return to the shareholders.
A railroad is never completed. A farmer compelled to run his farm
year after year without fertilier, would be like a railroad compelled
to run without capital. The bigger the farm is, the more money re¬
quirements for fertilizer and improvements.. The bigger the railroad
system, the more the money needed for capital expenditures. It is
a generally recognized fact that the railroads of the country will
need for the next few years about a billion dollars a year in new
capital for purposes other than expenses—for new equipment, for
terminal facilities, for new stations and tracks and other improve¬
ments. The railroad industry is the greatest purchaser in the
United States of iron and steel, and those industries, with their
10
vast number of employees, are largely dependent for their pros¬
perity upon the prosperity of the railroads. Agriculture is the
only industry in the United States which is greater than the
railroad industry. This new capital must come by voluntary in¬
vestments in the securities which the companies from time to
time are able to offer. The earnings allowed by law must be
sufficient to make certain that the payments for the use of
new capital, either in interest or dividends thereon, shall be
forthcoming and continuous—or the available capital will seek other
and more attractive investments.
CAPITALIZATION
For a number of years some of our railroad brotherhood
friends have charged that the railroads of the country are over¬
capitalized to the extent of $8,000,000,000 to $10,000,000,000.
This is a most remarkable hallucination. The railroads are glad
to have this charge investigated—and no doubt the insurance com¬
panies feel the same way, because it is obviously a charge based on
lack of knowledge and prejudiced use of the real facts.
WHAT A NATION.VL TRANSPORTATION SYSTEM SHOULD PROVIDE
In a growing and still undeveloped country like the United States,
with a population that will in another generation be 150,000,000,
and with a future that should be more wonderful than the past,
legislation should be so framed that any system of internal trans¬
portation will provide for ;
(1) Inducement for the individual citizen to engage in the
business by permitting rewards for brains, energy, industry and
capital sufficient to attract the men and money necessary.
(2) Constant development of the transportation machine to
keep it at all times ahead of the needs of the growing country.
(3) Adoption of improved methods of carrying on the busi¬
ness in order to obtain maximum efficiency and economy.
(4) Reasonable and regulated competition and co-operation
for the purpose of producing development of different sections
of the country and improvement in the methods employed by
the transportation agencies serving the country.
(5) Continuity of service so that the transportation machine
will always be in a position to serve the country unless pre¬
vented by Act of God or by war.
II
(6) Regulation through suitable Government agencies which
regulation must be of such form as :
(a) To attract capital and permit a steady improvement
in, and expansion of, the facilities;
(b) Which must protect the interests of the public using
the railroads, and promote the comfort, convenience and
safety of that public;
(c) Which must protect the officers and employes who
operate the roads and which must work constantly in the
direction of improved working and living conditions ; and
which must provide some method of adjustments of all con¬
troversies over wages and working conditions ;
(d) And which must also protect the interest of those
who have invested in the securities of the railroads and who
are also directly interested because of railroad investments
represented in insurance policies, savings banks, charitable
institutions, etc.
TENDING LEGISLATION
The present Senate has considered this transportation question
for nearly a year, (and prior to that time the so-called Newland's
Commission had if under investigation fo rseveral years) and the
House since last May. The result of their study is seen in the
Esch Bill already passed by the House, and the Cummins Bill about
ready (it is said) to be voted on in the Senate. The bills are very
radically different and the measure finally enacted into law must be
made in conference.
The presentation of many plans and the debate thereon have
been completed and now every patriotic citizen ought to lay aside
any pet theories or pre-conceived notions and use his influence to
obtain the best bill possible. That bill must protect
The general producing consuming and traveling public—
comprising practically all our population of lOi,coo,coo—THE
RAILROAD USERS.
The very large number of people who are interested directly
as owners of securities, and of those who indirectly are in¬
terested in the solvency of the roads and soundness of the
securities because of savings bank deposits, insurance policies,
charitable funds—probably at least 50,000,000—THE RAIL¬
ROAD OWNERS.
12
The large number of strong, hard-working men who manage
and operate the plant, so that the users may have service, and
the owners some return—possibly 2,000,000—THE RAIL¬
ROAD WORKERS.
There is danger that the transportation machine of the United
States may not be developed and protected sufficiently to give
good service and prevent a financial collapse, and so that necessary
expansion will continue.
In considering this subject all should admit that the interests
of the Nation are paramount and the problem must be approached
from that point of view, having due regard to the rights of in¬
dividuals and of the railroads under the fifth and fourteenth amend¬
ments to the Constitution.
I believe it is better for the country to adjust rates so the roads
shall be self-supporting rather than to adopt the plan of continuous
appropriations from the Treasury. I do not believe business should
get into the habit of relying upon Government aid to meet obligations
which ought to be taken care of by hard work, business skill and
honest methods.
POWER OF THE PEOPLE
The American people are powerful enough and rich enough to
have the very best transportation machine. They have the best in the
world today, and they can continue to have it. A people that has been
able to absorb $20,000,000,000 of Liberty Bonds in two years, carry
on an active business of every kind, and increase the deposits in
savings banks from $4,997,706,013 in 1915 to $5,471,579,948 in
1918 can well afford to put $1,000,000,000 a year into their rail¬
roads until they are equal to their task if they can be made to under¬
stand the real necessity of a good machine and how dependent all
business and growth is upon an efficient transportation machine.
Such an organization as you gentlemen represent reaches the
very heart of public opinion. You are in close touch with
the high and humble of the land, you are familiar with the work¬
ings of every industrial enterprise in the country from its human
standpoint, you are familiarly in touch with the bone and sinew
of this land. More than all, you, as the trustees and guardians
of the millions of railroad securities which you hold as a guarantee
that your policies will be met, are fully alive to the absolute neces¬
sity that the railroads of our country must be maintained and nour¬
ished for the benefit of all the people. The people cannot survive and
13
grow without the railroads and our railroads cannot survive and
grow without our people. They go hand in hand either for good or ill.
With your complete knowledge of our people, with your avenues of
information, with your channels for the dissemination of the truth—
you are perfectly aware that the power of public opinion is omnipo¬
tent. This public opinion should be directed toward a complete
knowledge of railroad conditions, their effect upon the securities
you hold as against the millions on millions of policies you have
issued for the protection of the family; and all should understand
that our railroads cannot serve the people, cannot serve the country
without adequate rates, and it is quite apparent that our rates at
the present time are not adequate ; are not sufficient to maintain the
railroads on that highly efficient plane which our people demand.
There can be no higher function at the present moment, let me add,
than for the great life insurance companies of our country to make
it plain to all the people that our transportation machine must not
be crippled, but, on the contrary, must be kept abreast of the times
and be prepared to serve the great and growing future of the
country.
America is the greatest nation on the face of the earth and our
railroads, second only to agriculture as our greatest industry, have
helped very largely to make it so. Our leaders of industries, our
bankers, business men, manufacturers and our farmers and work¬
men have contributed their mighty share in giving America this
place in the world. Let us keep it there.
We can do so if we will practice some of the old-fashioned
habits that do not seem to be popular today. Let everyone work
a little harder than ever before to make up to the world the man
power destroyed by the war and influenza.
Let everyone be prudent, and economical, and save so that the
store of the world's capital can be replenished and thus provide the
means for increasing the productive capacity of the world.
Let everyone follow the advice of that grand old man from New
England—Edward Everett Hale :
Look up and not down!
Look out and not in 1
Look forward and not back!
Lend a hand !
We live in a wonderful world and in a wonderful time—if we
judge by the headlines in the newspapers we might say, fearful
and wonderful ! But there are millions of people who are steady,
14
hard-working, thoughtful patriots, and the country is not going to
the dogs.
All of the great questions before us today, including that of trans¬
portation, that are so disturbing and perplexing, will be answered,
but they will be answered more quickly and in the interest of our
children and grandchildren if we who are on the stage today will
work, will save, and will "Lend a hand."
STATISTICAL INFORMATION FURNISHED
BY
BUREAU OF RAILWAY ECONOMICS
THE TRANSPORTATION MACHINE
Miles of Single Track Operated
Year ended
June 30 Total
1900 192,556-03
1905 216,973.61
1910 240,830.75
1915 257,569.32
Year ended
Dec. 31
1917 259,705.25
1918 *260,116.00
*Partially estimated to include returns of Class II and III roads.
Miles of All Tracks Operated
Year ended
June 30 Total
1900 258,784.30
1905 306,796.74
1910 351,766.59
1915 391,141-51
Year ended
Dec. 31
1917 400,359.00
1918 *403,617.00
*Partially estimated to include returns of Class II and III roads.
15
Freight train cars at end of year
Year ended
June 30 Total
1900 1,383.136
1905 1-753,172
1910 2,162,345
1915 2,356,338
Year ended
Dec. 31
1917 2,391,165
1918 *2,366,658
*Partia]ly estimated to include returns of Class II and III roads.
Passenger train cars at end of year
Year ended
June 30 Number
1900 34,713
1905 40.713
1910 47,095
1915 55,705
Year ended
Dec. 31
1917 55,823
1918 *56,494
*Partially estimated to include returns of Class II and III roads.
Locomotives at end of year
Year ended
June 30 Number
1900 37,663
1905 48,357
1910 58,947
1915 65,099
Year ended
Dec. 31
1917 64,508
1918 *66,010
*Partially estimated to include returns of Class II and III roads.
16
operated by an industrial army of :
Number of all Aggregate Average
Year ending officers and wages and per
June 30 employees salaries person
1900 1,017,653 $ 577,264,841 $ 567.25
1905 1,382,192 839.944,680 607.69
1910 1,699,420 1,143,725,306 673.01
1915 a 1,409,342 1,164,844,430 826.52
1915 & 1,366,316 1,134,665,975 830.46
Dec. 31
1917 b 1,732,876 1,739,482,142 1,003.81
1918 b 1,820,660 2,581,884,559 1,418.10
a Data for 1915 excludes returns of about 20 large carriers not
reporting data regarding employees, b Data for Class I roads.
owned by ; Average Amount
Number of Capital Stock of Stock per
Year Stockholders Outstanding Stockholder
June 30, 1915. .. . 626,122 $8,638,286,892 $13,796
Dec. 31, 1917 647,689 9,045,431,809 13,966
Note: Data for 1900, 1905, 1910 and 1918 is not available.
Number of bondholders is not available.
stockholders of individual road :
Penn. R.R Northern Pacific New Haven
Year Number Average Number Average Number Average
1900 26,000 $5,809.85 18 $8,611,111.11 9,190 $5,950.53
1905 41,479 7,293.16 1,400 110,714.28 11,792 6,784.26
1910 63,298 6,515.29 10,551 23,499.76 16,258 8,850.64
1915 93,332 5,349-35 20,413 12,149.04 26,589 5,909-13
1917 100,038 4,990-76 25,780 9,619-79 25,249 6,222.73
1918 106,911 4,669.91 27,338 9,071.56 25,026 6,278.18,
Atchison
Year Number Average
1900 12,472 $18,720.81
1905 18,140 12,871.33
1910 26,399 10,594.80
1915 42,738 7,362.60
1917 44,561 7,728.48
1918 49,905 6,932.35
17
others vitally interested:
Holders of Life Insurance Policies
Legal Assessment Savings
Year reserve companies Bank
companies* and others depositors
1900 14,395,443 2,725,221 6,107,083
1905 22,490,063 6,625,261 7,696,229
1910 29,998,633 9,287,669 9,142,908
1915 41,933.932 8,665,044 11,285,755
1917 49,050,477 a 11,367,013
1918 53,923,734 a 11,379,553
*Policies in force, a Information not available.
railroad securities owned by!
Railroad Bonds Owned by Savings Banks
Mutual Sav. Stock Sav. All Sav.
Banks Banks Banks
June 7, 1910 $757,494,316 $26,200,000 $783,694,316
June 29, 1918 406,262,169 2,663,188 408,925,357
book value of the transportation machine :
Year ended Total Per mile
June 30 Book Value of road
1900 $10,263,313,400 $56,567
1905 11,951,348,949 58,808
1910 14,560,543,744 64,39s
1915 17,421,409,990 70,884
Year ended
Dec. 31
1917 18,574,297,873 77,122
1918 *18,948,000,000 *78,670
*Estimated.
capital in hands of the public :
Year ended Per mile
June 30 Total Amount of road
1910 $14,388,575,940 $62,657
1915 16,307,502,580 66,447
Year ended
Dec. 31
1917 16,401,786,017 66,699
Note: Data for years 1900, 1905 and 1918 not available.
18
PRODUCTION AND CONSUMPTION OF TRANSPORTATION :
Year
Fiscal Population Tons i mile Pass, i mile
1900 75.994,575 i4i,599.i57,27o 16,039,007,217
1905 83,983,420 186,463,109,510 23,800,149,436
1910 91,972,266 255,016,910,451 32,338,496,329
1915 100,399,318 277,135,000,000 32,475,000,000
Year
Calendar Population Tons i mile Pass, i mile
1917 103,545,418 398,263,061,787 40,099,757,819
1918 105,118,467 *406,937,000,000 *43,167,000,000
Tons I mile Pass, i mile
Fiscal per person per person
1900 1,863 211.1
1905 2,220 283.4
1910 2,773 351.6
1915 2,760 323.5
Calendar
1917 3,846 387-3
1918 *3,871 *410.7
*Partially estimated to include returns of Class II and III roads.
FINANCIAL RESULTS :
Year Total
ended operating
June 30 revenues
1900 $1,487,044,814
1905 2,082,482,406
1910 2,812,141,576
1915 2,956,193,202
Year ended
Dec. 31
1917 4,115,413,056
1918 *5,062,000,000
Total
operating
expenses
$ 961,428,511
1,390,602,152
1,881,879,118
2,088,682,956
Taxes
$ 48,332,273
63,474,679
103,795.701
139,298,167
Railway
operating
income
a $477,284,030
a 628,405,575
826,466,756
727,546,101
2,906,283,165 221,603,476 986,819,183
4,100,000,000 *230,000,000 732,000,000
* Partially estimated to include returns of Class II and III roads,
o Railway operating income for 1900 and 1905 is after hire of
equipment-balance.
19
Net operating income
Year ended Total book Per Cent on
June 30 value Amount Book Value
1900 $10,263,313,400 $477,284,030 4.65
1905 11,951 >348,949 628,405,575 5.26
1910 14,560,543,744 799>336>033 5.49
1915 17-421,409.990 691,161,343 3.97
Year ended
Dec. 31
1917 18,574,297,873 946,833,853 5.10
1918 *18,948,000,000 *704,064,000 *3.72
*Partially estimated to include returns of Class II and III roads.
Balance of income from all
sources applicable to interest,
dividends and improvements.
Year ended Total Railway Per cent on
June 30 Capital Amount Capital
1900 $11,491,034,960 $514,328,383 4.48
1905 13-805,258,121 683,895,325 4.95
1910 17,774,426,871 982,773,180 5.53
1915 19-719-893,944 818,972,750 4.15
Year ended
Dec. 31
1917 19,764,941,991 1,132,868,882 5.73
1918 *19,869,800,000 *904,366,980 *4.55
*Estimated to include returns of Class II and III roads.
20
HOW THE DOLLAR OF GROSS EARNINGS IS DIVIDED:
The
Operating
Year railway
rentals
Net
ended dollar
Material,
debit
Operating
June (total opr.
Labor
Supplies
Taxes
balance
income
30 rev.)
etc.
(cents)
(cents)
(cents)
(cents)
(cents)
(cents)
1900 100.0
38.8
25.8
3-3
a
32.1
1905 100.0
40-3
26.4
3-1
a
30.2
1910 100.0
40.7
26.2
3-7
1.0
28.4
1915 100.0
43-1
27.2
4-7
1.2
23.8
Year
ended
Dec. 31
1917 100.0
43-3
27.2
S-3
0.9
23-3
1918 100.0
52.5
29.0
3-8
0.6
14.1
a Operating rentals for the years 1900 and 1905 are included in
operating expenses.
EXPENDITURES IN NEW LINES AND EXTENSIONS AND IN ADDITIONS
AND BETTERMENTS, I912 TO I917 :
CLASS I AND II ROADS AND THEIR NON-OPERATING SUBSIDIARIES;
Investments during year
Year
In new lines
In additions
Fiscal
and extensions
and betterments
1912
.. $205,128,794
$337.737>66O
1913
129,248,519
545.989,342
1914
121,705,678
516,061,290
1915
9,117,141
254,611,955
1916
41,885,894
239.249.206
Calendar
1916
7>335.O64
346,690,506
1917
34,489,465
537.257.058
21
Annual average
July i, 1912—December 31, 1917.
Investments in new lines and extensions $31,415,235
Investments in additions and betterments (including
additional equipment but not replacements) 414,432,057
Miscellaneous expenditures, not classified 1,036,004
Total $446,883,296
nuaieer of wage earners in country :
persons of 10 years and upward engaged in gainful occupa-
tions: total
Year Male Female Total Population
1900 23,753,836 5.319.397 29,073,233 75.994.575
1910 30,091,564 8,075,772 38.167,336 91,972,266
Note : These are the only figures available for the period 1900 to
1918. They are taken from the Statistical Abstract of the
United States, 1918, Department of Commerce.
savings bank deposits:
Amount of deposits
Year in savings banks
1900 $2,449,547,885
1905 3,261,236,119
1910 4,070,486,246
1915 4,997,706,013
1917 5,418,022,274
1918 5,471,579,948
Source : Report of the Comptroller of the Currency, 1918, page 97.
22
LIBERTY BONDS SUBSCRIBED FOR: From Bulletin of the Secretary of
the Treasury, October 21, 1919.
Outstanding
Original issue Retired, net June 30, 1919
First Liberty Loan
334% Bonds of
1932-47 $1.989,455.550 $579.383.950 $1,410,071,600
First Liberty Loan
converted 4%
Bonds of 1932-47 568,318,450 400,525,700 167,792,750
First Liberty Loan
converted 4 %
Bonds of 1932-47 405,443,150 2,003,050 403,440,100
First Liberty Loan
Second Conv.
aVa^o Bonds of
1932-47 3.492,050 3.492.050
Second Liberty Loan
AJo Bonds of
1927-42 3,807,864,200 3,103,659,850 704,204,350
Second Liberty Loan
Conv. 434% Bonds
of 1927-42 3,034,609,850 172,357,600 2,862,252,250
Third Liberty Loan
434% Bonds of
1928 4,175,148,700 216,596,000 3,958,552,700
Fourth Liberty Loan
434% Bonds of
1933-38 6,958,481,700 165,000,000 6,793,481,700
Victory Liberty Loan
434% Notes of
1922-23 2,414,243,550 2,414,243,550
Victory Liberty Loan
334% Notes of
1922-23 408,986,150 408,986,150
$23,766,043,350 $4,639,526,150 $19,126,517,200
23
number of roads eeeorting to the interstate commerce com¬
mission each year i9ii to i916 by classes:
Class
of Road
1911
1912
1913
1914
1915
1916
Class I
175
171
176
176
172
180
Class II
.... -245
260
272
276
272
268
Class III
.... 446
407
402
419
418
425
Total
.... 866
838
850
871
862
873
Lessor
.... 461
449
454
463
448
451
Total
.... 1,327
1,287
1,304
L334
1,310
1,324
"C" roads
.... 512
S18
455
506
489
430
"U" roads
99
126
153
80
78
91
Total
.... 1,938
L93I
1,912
1,920
M
00
1,845
"P" roads
.... 241
246
215
199
193
179
Total
.... 2,179
2,177
2,127
2,119
2,070
2,024
Explanation of Classes
Class I—Roads having annual operating revenues above $1,000,000.
Class II—Roads having annual operating revenues between $100,000
and $1,000,000.
Class III—Roads having annual operating revenues of less than
$100,000.
Lessor Companies—Roads whose operations are included in those
of Class I, II, and III roads.
"C" roads—Operating or non-operating roads for which brief cir¬
culars showing date of incorporation, mileage, etc., were filed.
"U" roads—Roads for which official returns were not secured.
"P" roads—Roads for which separate reports were not filed, opera¬
tions are included in Class I, II, and III roads.
24
INVESTMENT IN ROAD AND EQUIPMENT
CLASS I AND II ROADS AND THEIR NON-OPERATING SUBSIDIARIES
1913 to 1917
Item
Fiscal, 1913
Fiscal, 1914
Fiscal, 1915
Fiscal, igi6
Calendar, 1916
Calendar, 1917
Mileage represented (at begin¬
ning of year)
229,902.66
233,759-66
236,556.43
238,162.14
a
233,581.03
Mileage represented (at end of
239,120.61
year)
235,456.23
235,985.60
237,272.11
239,392.31
233,517.05
Property investment (at begin¬
ning of 3'ear)
$15,874,579,626
$16,424,359,514
$16,983,946,107
$17,267,119,423
$17,349,632,708
$17,678,316,078
Property- investment (at end of
year)
16,351,639,266
16,936,697,840
17,247,101,881
17,525,576,908
17,681,126,339
18,423,235,159
Increase during year
477,059,640
512,338,326
263,155,774
258,457,485
331,493,631
744,919,081
Investment during year ;
In new lines and extensions..
49,752,948
33,601,433
9,117,141
41,885,894
7,335,064
34,489,465
In additions and betterments..
545,989,342
516,061,290
254,611,955
239,249,206
346,690,506
537,257,058
Miscellaneous charges not
classified
4,847,012
851,068
Total investment during
year
600,589,302
550,513,731
263,729,096
281,135,100
354,025,570
571,746,523
Net book ■ adjustments b
Cr. 123,529,662
Cr. 38,175,405
Cr. 573,322
Cr. 22,677,615
Cr. 22,531,939
173,172,558
Total increase in invest¬
ment
477,059,640
512,338,326
263,155,774
258,457,485
331,493,631
744,919,081
July I, 1912, to Dec. 31, 1917. Annual
: average
Investments in new lines and extensions $ 31,415,735
Investments in additions and betterments 414,432,057
Miscellaneous charges not classified 1,036,004
Total average investment 446,883,796
Net book adjustments Cr. 4,342,791
Total average increase in investment 442,541,005
a Data not available, h Book adjustments and difference between record value of grantor and purchase price of grantee
in cases of roads sold, merged, consolidated, etc., during year. Note: Annual average computed by adding data for fiscal years
1913, 1914, 1915, 1916, calendar year 1917, and 53.71% of calendar year 1916, and then dividing this total by The 53.71%
represents approximately the amount of investments made in last half of the calendar year 1916.
INVESTMENT OF AMERICAN LIFE INSURANCE COMPANIES IN
RAILROAD SECURITIES, 1904-1919:
Per cent of
total assets
Number
of all
Per cent
of
American
Railroad Securities Owned
of assets
Date
com¬
panies
report¬
companies
which the
assets of
invested
in
railroad
ing
tabulated
companies
represent
Stocks
Bonds
Total
securi¬
ties
Dec. 31
1904
63
99-59
$45,681,426
$750,668^349.
$796,349,774
31-99
1907
14
66.67
a
a
866,304,598
42.55
ign
39
93.03
a
a
1,336,657,217
34-44
1914
36
92.8s
a
a
1,514,084,128
33-04
1917
33
89.92
a
a
1,740,570,237
32-58
1918
60
94.14
39.652,730
1,662,257,230
1,701,909,960
27.69
July 31
1919
60
94.14
36,708,802
1,655,589,973
1,692,298,775
*26.25
o Data not available * Estimated
NOTE: It will be noticed that total amount of railroad securities
owned has been increasing, but from the last column of the tabulation it will
also be noticed that percentage of investment in railroad securities as com¬
pared with total assets of the companies has steadily decreased since 1907,
Percentage for 1907 is probably a little higher than it would have been had
data for more companies been available. Comparable condition for 1907 can
be arrived at very closely by adding to the fourteen companies reporting in
1907, the amount held by the twenty-five additional companies reporting in
1911, decreasing the 1911 holdings by the same ratio that the fourteen com¬
panies changed during 1907 to 1911. On this basis the holdings of thirty-
nine companies for 1907, whose total assets amounted to 91.61% of all com¬
panies, amounted to $1,100,000,000 and their railroad securities owned
amounted to about 37.92% of all assets.
GENERAL DISCUSSION
Hon. W. a. Day, President, Equitable Life Assurance Society,
New York: Mr. Chairman, if it is not an embarrassing question,
I should like to ask Mr. Elliott to state to the Association
a concrete formula that we can work to as an adequate remedy
for the situation.
The Chairman (Mr. W. W. McClench, President, Massa¬
chusetts Mutual Life Insurance Co., Springfield, Mass.) : Judge
Day asks Mr. Elliott to answer a real question.
Judge Day:
formula.
Mr. Elliott asks our help. i should like a concrete
26
The Chairman: A concrete formula by which life insurance
presidents can work.
Mr. Elliott : I could not answer that without sending you a
written communication. I can do that, however, with a great deal
of pleasure. There have 'been some twenty or thirty plans sub¬
mitted to the Congress and, as you probably know, two major plans,
the one known as the plan of the Association of Railway Executives,
and the other known generally as the Warfield plan.
I have been trying my best for three or four months to get the
Warfield people and the Railway Executive people together in order
to get a plan so that—now that we are approaching the time when
the bill should be passed—we will have a plan that will represent
the views of all of those who see the seriousness of the situation,
and I still hope that that can be done.
It would be very difficult for me to state at this meeting, any more
than I have done in that paper, just how legislation should be
framed. I have outlined in the paper the things that must be pro¬
tected in the legislation, but, if your Association desires, I will
give you a paper that will give you our views.
The Chairman: Any other question? We have now reached
that part in our program headed, "General Discussion." I assume,
therefore, the meeting is open, and I am quite sure Mr. Elliott will
answer any other questions which are put to him in reference to
this important matter.
Are there any general suggestions?
I do not know whether, Mr. Elliott, you answered a question
which I have had in mind for some time : whether without a specific
direction from Congress to the Interstate Commission in reference
to the rates, the so-called weak roads can survive.
Mr. Elliott: I do not believe all of them can. All of the dif¬
ferent plans provide for a specific mandate to the regulating power,
whatever it may be, that rates shall produce sufficient revenue to pay
the necessary wages, all other necessary expenses, necessary taxes,
and a fair return upon the fair value of the property. When the
Esch Bill got on to the floor of the House, the committee report
had a mandate in it as to the rates, but the House itself took that
mandate out and left the bill as to the rate situation in practically
the same condition as it is today, leaving it entirely to the discretion
of the Interstate Commerce Commission that the rate should be
reasonable.
27
The Cummins Bill provides that the roads in given groups of
territories shall have rates fixed by the Interstate Commerce
Commission, so that they shall produce sufficient revenue to pay
of the fair value of the property, plus one-half of i% in
the discretion of the Commission, for maintenance, in case main¬
tenance was not adequate, and if they should earn above 6%, the
excess up to 7% is to be divided, one-half going to the owning
company and one-half to a fund within the control of the Govern¬
ment.
Now, people have differed as to the wisdom of that provision,
on the theory that if you take away the hope of profit, you check
incentive and check initiative and it will cost the country more in
the long run for their transportation, because no one will try very
hard to earn more than the 6^. They will be extravagant, perhaps,
in operation ; they will not be careful, and that is one of the points
of difference between the so-called Warfield plan and the so-called
Executives' plan.
There is something to be said on each side. If we can get a basis
of rates that will produce 6fo on the value of all of the railroads
in a given group, it does not mean that every railroad will earn 6fo,
because some cannot, but it gives a basis that will help to protect
the weaker roads. The railroad executives, however, fear that if
you adopt the theory as above outlined, when you get into the Con¬
gress, they will do what the House of Representatives did—either
eliminate the provision entirely or reduce the proposed 5/^% rate
of return to 45b or or 4;>4% on the theory that no figure
should be named higher than the rate for Liberty Bonds ; also that
any specific rate named in the act would gradually come to be con¬
sidered a maximum as well as a minimum, and that such low rate
would weaken every railroad security in the country, hurt the credit
of the roads so that new money could not be obtained and the
transportation machine would not grow as the country grows.
That is the chief difference between the so-called railway executive
plan and the Warfield plan, and it is now being debated in the
Senate as to whether that is the right thing to do or not.
If everyone in this room knew that the roads would receive
SVifo or 6% of the value of all the properties in a certain region,
and it would continue, I think we would all be very happy, but
you do not know that you can get it, and that subject has to be
threshed out in the Conference Committee and on the floor of the
House and Senate. In each of the two bills there is a mandate
28
that the roads must have rates sufficient to produce a fair return.
This is mentioned in actual figures in the Warfield bill, and is in¬
dicated in the railway executives' bill by saying the rates must be
adequate to pay wages, costs of materials, taxes, a fair return on
the value of the property and enough to restore the credit of the-
roads and make the public feel that the business, as a going business,
is a safe one. In the railroad bill no specific figures are named
because conditions change and the rate of return needed fluctuates
from time to time. Today may be too low, but ten years
from now it may be too high. So we felt (we may be wrong)
that if a formula, as I have just recited, is produced that will allow
that level to fluctuate from time to time, as is provided in our bill,
it will be much better.
We have provided in our bill for a new body known as "The
Board of Transportation," which shall be charged with some of the
duties that the Commission i.ow have, and also with the duty of con¬
stantly surveying the whole transportation situation in the United
States and the credit situation. Calculating from time to time how
much revenue these railroads must have, not for the sake of the
owners, but for the sake of the country, so that the railroads will
grow sufficiently, and when that was stated, then it was the duty of
the Commission, under our proposed plan, to let the rate be high
enough to produce the figure which this new body said was necessary
so that these transportation machines may be maintained, and keep
on growing for the benefit of the whole country. That Board of
Transportation was eliminated in the House Bill and everything
is put in the hands of the Interstate Commerce Commission, as now,
without any special instruction as to rates.
We have had that law since 1887, but the pressure on the Com¬
mission has been so great that the "fair and reasonable" rate, as it
is today, is not enough to keep the machine up to the mark, and
capital has gradually been seeking other fields. Therefore, if
the public want, as they seem to want, this machine to run in the
best possible way, they must in some way impress upon the regu¬
lating authority that there must be enough revenue produced so
that the machine can be supported and increased day by day, and
year by year; if not, we will surely stop the growth of the country.
29