The Menace to National Prosperity
An Address
BY
NEWMAN ERB
Delivered at the Annual Banquet of The
Toledo Transportation Club, at Toledo,
Friday evening, November 19th, 1915.
2 757
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The Menace to National Prosperity
An address by Newman Erb, delivered at the Annual Banquet
of The Toledo Transportation Club, at Toledo,
Friday evening, November 19th, 1915
It is a source of great pleasure to be afforded an
opportunity to meet the members of the Transporta¬
tion Club of Toledo as one of their guests and to have
the honor of addressing them this evening. I was more
than glad to accept your invitation, simply to be with
you as neighbors and friends having more or less intimate
business relations from time to time with the Ann Arbor
Railroad, with which 1 happen to be officially connected;
but added interest attaches to the occasion by the large
representative character of your gathering.
It is a matter of congratulation that I am able to
point out to you the encouraging outlook which the
immediate future presents. We have entered upon an
era of prosperity which is to be unprecedented in our
history. In the present calendar year upwards of $350,-
000,000 has already been added to our store of gold;
we have re-purchased more than $500,000,000 of oux
securities held abroad; repaid at least $500,000,000 of
our foreign-held obligations; and loaned externally
more than $800,000,000 to be repaid within a period of
five years. The colossal aggregate will perhaps be
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■UREAU OF RAILWAY ECONOMICS,
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more than doubled if the regrettable conditions abroad
continue for another year.
The enormous influx of gold and the additions to our
national wealth, which we are already largely experi¬
encing will inevitably quicken the arteries of our in¬
dustrial and commercial life to the most distant limits
of our country, and its stimulation will be felt in every
factory, every activity and every home. We must not,
however, forget that the conditions which bring about
these results are abnormal. Prosperity is forced upon
us in spite of the Republican or Democratic parties; in
spite of politics and politicians; in spite of free trade
or tariff, and in the face of lawless legislation, which
for nearly ten years has been directed continuously with
more or less virulence against big business, big banks,
big industries and big men.
The era of prosperity upon which we are now entering
must in my opinion inevitably end in serious reaction, if
we do not profit by the bitter experience of seven long
years of business recession. The conditions which
brought us to the verge of financial disaster last year
have not been remedied and under intoxication, stimu¬
lated by abnormal processes, we are menaced with the
danger of overlooking and forgetting the factors which
brought them about.
Since 1907, excepting a year or two of partial recovery
from the panic, the country has experienced a business
depression which affected almost every channel of com-
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mercial activity, and which was so generally far-reach¬
ing as to paralyze nearly all the industries of the country,
brought general business almost to a standstill, and
benumbed the constructive spirit of our people, which
with few interruptions during a period of more than forty
years had pushed us forward as the most progressive
one of the most successful and the richest peoples of the
world.
It was in 1907 that legislative crusades against busi¬
ness were fully launched, and continued with intensify¬
ing virulence throughout all the States until successful
business enterprise fell little short of being considered
prima facie evidence of crime. No one active in the
world's work could feel himself safe from the unreason¬
able attack under the ill-advised legislation which was,
and to some degree is still being featured by law-makers.
When, therefore, we return to the normal conditions of
commercial and industrial life, are again forced to meet
the competition of the world's work shops, and are con¬
fronted with the necessity of dealing with each other
and with the world under conditions which prevailed
only a little more than a year ago, we will inevitably
find ourselves face to face with the reactionary business
conditions, unless we shall have prepared ourselves for
normal resumption of manufactures, and with financial
safeguards.
It goes without saying that the legitimate aim of all
Governmental regulation should be constructive, not de-
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structive; to build up, not destroy; and that the incen¬
tive for expansion, so indispensable to the national
progress, should not be impaired.
It is therefore only a matter of prudence for us to
take stock of our experience and use the yardstick of the
past to measure up our future. I am optimistic. I have
confidence in the willingness of our people to deal with
important issues fairly and properly, when their interests
are properly and understandingly aroused, and that they
will then act with promptness and well directed energy.
We are, however, so apt soon to forget and too apt to
overlook the factors of business and financial safety
under the belief that the present favorable conditions will
continue tomorrow and indefinitely, that I am prompted
to ask you to gather the harvest while the weather is fair,
but to prepare for the rain which is certain to follow.
Next to farming, the transportation industry is the
largest and most important in this country. It is only
second in the amount of capital invested, second in the
number of people employed, but first in its influence upon
all other industries, all other business activities and
upon our national prosperity. More than ten per cent,
of our voting population is directly employed in rail¬
road transportation, and indirectly through equipment,
steel and other material and supply dependencies it is
estimated another eight per cent, may be added. It
goes therefore without saying that an industry of such
magnitude, employing so large number of men upon
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whose earnings so large a percentage of our population
is necessarily dependent, which distributes in wages and
for its material and supplies in operation alone over
two billions annually and in betterments, equipment and
extensions under normal conditions, at least another
billion dollars, cannot languish or be unsuccessfully
operated without influencing adversely our whole in¬
dustrial and financial structure.
Our transportation structure is made sensitively re¬
sponsive to environment by the peculiar fact that no
other business renders so small gross return to the
amount of capital actually invested. With more than
fifteen billion dollars capital invested, the entire gross
income is less than three billion dollars. No industry
and no business has obtained or can obtain so small a
percentage of gross return upon the capital employed
without bankruptcy. What would you say to a busi¬
ness undertaking that had ten thousand dollars employed
and had sales of only two thousand dollars; or an auto¬
mobile industry that had one hundred thousand dollars
invested with less than twenty thousand dollars gross
business per year; or a bank with one hundred thou¬
sand dollars capital and doing less than twenty thousand
dollars business per annum? You can therefore readily
appreciate that the transportation industry differs in
most vital and essential features from general business
undertakings, and that bv reason of the very small ratio
of gross amount of business done to capital invested,
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it is more quickly responsive and more adversely affected
in net returns by any reduction in its gross revenue how¬
ever apparently unimportant.
An increase of five per cent, in all freight rates would
mean only approximately six-tenths of one per cent, on all
the capital employed, and yet expensive and protracted
hearings have brought only fractional response to ap¬
plications thus far made for relief.
Railroad construction, except in the absolute neces¬
sary development of existing lines, came practically to
a complete standstill in 1913, 1914 and in the present
year renewals and replacements were suspended wher¬
ever it could be prudently done and with safety 1 no new
equipment was supplied not absolutely essential; pro¬
ducers of materials and manufacturers of supplies used
in the construction, equipment, maintenance and opera¬
tion of our railroads found themselves almost idle, and
every calling was more or less adversely affected thereby.
In the Southwestern group of States and some adjoin¬
ing territory, out of a total of 42,000 miles, upwards of
28.000 miles of railroads are in receivers' hands. In
your own adjoining State almost as large a percentage
is in the control of the Courts. The whole American
railroad system has been built up upon financial wrecks
and skeletons, which has marked railroad investments
in this country during the past forty years. Most all
of the larger systems have in their time defaulted, passed
through foreclosures and reorganizations. The Union
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Pacific, Northern Pacific, Santa Fe, Baltimore & Ohio,
Wabash, Erie, the whole Southern Railway System and
scores of others are all gravestones that mark the burial
place of great fortunes that have been lost in this class
of investments.
I have no doubt that it has occurred to you that there
is something radically wrong with the conditions which
bring about results so startling and so disastrous to
invested capital.
Railroad systems today generally traverse two or
more States and are subject to conflicting legislative and
governmental control, and for the past ten years have
been the subject of harassing, ill-considered, and in most
cases unreasonable restrictive legislation. During the
last winter session of the legislatures of the several
States, 1,097 bills were introduced affecting railroad
operation and management, of which 137 were enacted
into law. Most of these bills resulted, and were per¬
haps so intended, in adding burdens and expenses, un¬
necessary for the safety or comfort of passengers, or for
the expeditious movement of traffic. This was done at
a time when it was recognized by the President, by com¬
mercial bodies and by the public generally that the
railroads were already overburdened. The Govern¬
ment itself set an example of unfairness, calculated to
aggravate the conditions which brought the railroads
of the country to the verge of financial disaster, little
more than a year ago, by its treatment in the matter of
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the parcel post. Not only in imposing this burden with¬
out reasonable additional compensation, but in itself em¬
ploying the railroads to transport commodities for which
the parcel post was not intended, as in the instance of
the transportation of 200 tons of gold—$99,000,000 in
amount—from Philadelphia to New York by parcel post
with a retinue of guards, without cost to the Government
for the railroad service invoked. This gold was sent as
mail matter. Think of our great Government sending
$99,000,000 of gold as mail matter to avoid paying for
its transportation.
Business men are aware of the large increases in
taxes, cost of labor, material and supplies in the past
twenty years, and more particularly within the past ten
years. It is doubtful whether any industry has been
compelled to respond more generally to these increases
than our railroads. The class of service performed has
been vastly improved and there are no better railroads
and certainly none equal to the facilities which they fur¬
nish than those of this country, yet transportation rates
have not increased, nor have we been permitted to ad¬
vance them, to make them only partially responsive to
the additional burdens which have been imposed upon us.
I believe it is generally recognized that laws affecting
our railroads must be made more uniform, more
harmonious and more tolerant. The railroads must be
given rates adequate to allow a fair return upon the
capital invested; provide for the ordinary hazards
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which pertain to all business undertakings, and to admit
of a high degree of maintenance, efficient operation and
replacement of adolescent equipment. A business enter¬
prise that does not from its profits admit of the replace¬
ment of worn-out machinery, maintenance of its plant,
the setting aside of a reasonable surplus to cover
eventualities and the ordinary hazards of the undertaking
besides a reasonable return upon the investment is in
a sorry plight indeed and certainly cannot be said to
be successful. There can be no general prosperity under
normal conditions unless our business men who come in
closer touch with transportation than others, diligently
co-operate in securing a measurable degree of prosperity,
for their railroads, which are the main reliance for their
own success.
And now permit me to say a few words to you con¬
cerning your own home City. No other interior City
has water and railroad transportation superior than, and
few equal to, Toledo, not excepting Chicago. Your
success in the past has, of course, been largely due to
your energy and commercial enterprise, and the devo¬
tion to the interests of your City, but in a larger sense
it is founded upon the extraordinary transportation
facilities which you enjoy, equal to any and excelled
by none. I am therefore justified in speaking for your
transportation lines, asking your intelligent, unbiased and
hearty co-operation in protecting them against unreason¬
able legislation and unreasonable and oppressive burdens,
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hoping that you will assist them to obtain a fair return
under all conditions upon the investment which they
embody.
Your failure in this respect will constitute a menace
to your own prosperity and in a more or less degree to
that of the whole country.
IO
THE EVENING POST JOB PRINTING OFFICE, INC
186 FULTON STREET. NEWYORK
8221.
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