Number of days laborpurchasable for $105.00.Class of Employees.1897.1907.Decrease,per cent.Station agents60.751.215.65Other station men64.859.08.95Enginemen28.824.415.28Firemen51.241.319.34Conductors34.228.516.67Other trainmen55.341.325.32Machinists47.136.622.29Carpenters52.243.816.09Other shopmen61.451.016.94Section61.855.310.52Other trackmen90.571.920.55Switchmen, flagmen and watchmen61.056.18.03Telegraph operators and despatchers55.346.515.91Employees, account floating equipment56.546.318.05All other employees and laborers64.054.714.53——————Average16.27
The foregoing shows that on the average the gross railway receipts derived from the service assumed as the basis of the calculation would purchase 16.27 per cent. less of the necessary services of railway employees, in 1907 than in 1897 and what is true of the receipts from this service is true of every dollar received by a railway—that is, no railway dollar will pay for more than eighty-four per cent., on the average, as much railway labor as it would in 1897.
The change in railway rates necessary fully to offset this decrease in the value of the money in which rates are paid would amount to an apparent advance of 19.43 per cent, of the money rates now in force.
COST OF FUEL FOR LOCOMOTIVES.
Next to labor the principal single item of expense incurred in the operation of the railways of the United States is for the fuel used in their locomotives. The expenditures for this purpose now constitute about eleven per cent. of the cost of operation and since 1897 have been as follows:
Cost of fuelYear.for locomotives.1897$65,044,670189872,469,777189977,187,344190090,593,9651901104,926,5681902120,074,1921903146,509,0311904158,948,8861905156,429,2451906170,499,1331907200,261,975———————Total$1,362,944,786
Thus, from 1897 to 1907, the cost of fuel for locomotives, in spite of the economies in its use partially suggested by the contemporaneous increase in the train-load of freight from 204.62 to 357.35 tons, or 74.64 per cent., increased 207.88 per cent., while passenger traffic increased but 126.15 per cent. and freight traffic by 148.69 per cent. Thus while there was one dollar spent for locomotive fuel in 1897 for each $17.25 of gross railway receipts the ratio had declined by 1907 to one dollar for locomotive fuel for each $12.93 of gross receipts—a difference which must plainly be productive of profound changes in the proportion of gross receipts remaining after the payment of necessary operating expenses. The average prices of coal, per ton of 2,000 pounds, at the mines, in the several states, in the years 1897 and 1907, as given by the United States Geological Survey, were as follows:
Price per ton.State.Increase,1897.1907.per cent.Alabama$0.88$1.2946.59Arkansas1.061.6856.49California(a)2.55(a)3.8149.41Colorado1.171.4019.66Georgia(b)1.03(b)1.3833.98Idaho(c)3.33(c)4.1023.12Illinois.721.0748.61Indiana.841.0828.57Iowa1.131.6243.36Kansas1.181.5228.81Kentucky.791.0634.18Maryland.761.2057.89Michigan1.461.8023.29Missouri1.081.6451.85Montana1.761.9410.23New Mexico1.381.465.80North Dakota1.081.6149.07Ohio.781.1041.03Oklahoma1.342.0452.24Oregon3.092.34DecreasePennsylvania—Bituminous.691.0450.72Anthracite1.511.9126.49Tennessee.811.2554.32Texas1.521.6911.18Utah1.191.5227.73Virginia.671.0252.24Washington1.942.097.73West Virginia.63.9957.14Wyoming1.211.5628.93(a) Includes Alaska.(b) Includes North Carolina.(c) Includes Nebraska.
It will be noted that the cost of coal increased in every state of considerable production. In California much of the locomotive fuel used consists of petroleum, and the same fuel is used to some extent in Oregon and New Mexico.
The number of tons of coal purchasable at the mines in the several states with $105.00, the gross revenue from the typical shipment which has been used for illustrative purposes, in 1897 and in 1907, would have been as follows:
Tons of coal purchasablefor $105.00.State.Decrease,1897.1907.per cent.Alabama1198131.93Arkansas996237.37California412831.71Colorado907516.67Georgia1027625.49Idaho322618.75Illinois1469832.88Indiana1259722.40Iowa936530.11Kansas896922.47Kentucky1339925.56Maryland1388836.23Michigan725819.44Missouri976434.02Montana605410.00New Mexico76725.26North Dakota976532.99Ohio1359529.63Oklahoma785134.62Oregon3445IncreasePennsylvania—Bituminous15210133.55Anthracite705521.43Tennessee1308435.38Texas696210.14Utah886921.59Virginia15710334.39Washington54507.41West Virginia16710636.53Wyoming876722.99
In this connection it should be noted that the United States Department of Labor reports an increase, between 1897 and 1907, in the price of anthracite of 29.23 per cent., and in bituminous coal from the Georges Creek region of 85.54 per cent.
COST OF RAILWAY SUPPLIES.
Bulletin No. 75, of the United States Bureau of Labor, shows average prices for the following articles used by railways, or, as raw materials, for the manufacture of railway supplies:
Price.Articles.Increase,Unit.1897.1907.per cent.Axes, M. C. O. YankeeEach.39.6874.36Coke, Connellsville, furnaceTon1.622.8374.69Bar iron, best refined, from millPound.011.017559.09Barbed wire, galvanizedCwt.1.802.6346.11Copper wire, barePound.1375.240274.69Doorknobs, steel, bronze, platedPair.166.450171.08Files, 8-inchDozen.811.0023.46Hammers, Magdole, No. 1½Each.38.4723.68Lead pipeCwt.4.326.7155.32Locks, common, mortiseEach.0833.20140.10Nails, cut, 8-penny, fence and commonCwt.1.332.1662.41Nails, wire, 8-penny, fence and commonCwt.1.492.1242.28Pig iron, BessemerTon10.1322.84125.47Pig iron, foundry No. 1Ton12.1023.9097.52Pig iron, foundry No. 2Ton10.1023.87136.34Pig iron, gray, forge, southern, cokeTon8.8020.99138.52Steel billetsTon15.0829.2593.97Steel railsTon18.7528.0049.33Steel sheets, black, No. 27Pound0.0190.02531.58Tin, pigPound.1358.3875185.35Tin, plates, domestic, Bessemer, cokeCwt.3.184.0928.62Zinc, sheetCwt.4.947.4951.62Brick, common domesticM4.946.1624.70Cement, RosendaleBbl..75.9526.67Doors, pineEach.811.88132.10Lumber, hemlockM feet11.0022.25102.27Lime, commonBbl..72.9531.94Linseed oil, rawGal..33.4330.30Lumber, maple, hardM feet26.5032.2521.70Lumber, oak, white, plainM feet36.2555.2152.30Lumber, oak, white, quarteredM feet53.8380.0048.62Lumber, pine, yellowM feet16.4430.5085.52Lumber, poplarM feet30.6758.0889.37Shingles, cypressM2.354.2380.00Lumber, spruceM feet14.0024.0071.43Window glass, American, single, firsts,6 by 8 to 10 by 15 inch50 sq. ft.2.202.8127.73Window glass, American, single, thirds,6 by 8 to 10 by 15 inch50 sq. ft.1.962.2414.29
The bulletin indicates that putty, Portland cement and Ames shovels are about the only exceptions to the general rule of greatly increased prices of railway supplies. It is plain that as to all of the important supplies and materials included in the foregoing list the$105.00 of gross receipts from the typical shipment heretofore used as an example would show the same, or a greater, loss in purchasing power which has characterized the comparisons previously shown.
Evidence from official sources thus shows that in purchasing the same quantities either of labor or of supplies the railways have now to expend much larger sums than they did ten years ago. The official statistics already quoted are fully supported and their pertinence to the problem in hand is fully proven by the accounting records of the purchasing departments of the several railways. The Trunk Line Association has obtained detailed information concerning purchases in 1897 and 1907, by important railways represented in its organization, and this information has been carefully and accurately tabulated. A table showing the largely increased cost of articles which this tabulation reveals has been made Appendix B and will be found at pages 194 to 198 of this pamphlet. An examination of this appendix and, particularly of the classes of labor and of the articles shown to have greatly increased in cost, discloses the unquestionable fact that the increased cost pervades the whole aggregate of operating expenses and that there is no considerable exception to the rule that every item of operating expenditure is now very much greater than it was in 1897.
OTHER COSTS OF SUPPLYING RAILWAY SERVICES.
The cost of railway transportation which must be borne out of the receipts for railway services includes operating expenses, interest on capital and taxes. Before discussing the increase in the rate of interest demanded it is worth while to note that the exactions made by the taxing power upon the railways have also notably increased.
The sums annually paid as taxes on railway property since 1897 follow:
Taxes paid.Miles operatedand includedAveragein reportsAmount.per mileof taxes paid.operated.1897183,284.25$43,137,844$235.361898184,648.2643,828,224237.361899187,534.6846,337,632247.091900192,556.0348,332,273251.001901195,561.9250,944,372260.501902200,154.5654,465,437272.121903205,313.5457,849,569281.761904212,243.2061,696,354290.691905216,973.6163,474,679292.551906222,340.3074,785,615336.361907227,454.8380,312,375353.09——————————————* *$625,164,374* *
Thus in the years from 1897 to 1907 railway taxation per mile of line has increased from $235.36 to $353.09, or no less than 50.02 per cent.
COST OF REGULATION.
Closely akin to taxation of railway property are the additional expenses which have to be met out of railway revenues on account of public regulation. The increased and, in many cases, minute regulation imposed by the Hepburn law of 1906 and the rules and requirements established thereunder by the Interstate Commerce Commission and by various State enactments have caused the railways many new and augmented expenditures. Among the many purposes for which these expenditures have become necessary are those enumerated below:
1. Preparation, publication, filing, posting, etc., of rate schedules.
2. Compilation and tabulation of statistics, preparation and filing of annual reports of operation and finance.
3. Litigation under regulatory statutes including cases before National and State commissions and including legal and incidental expenses thereof.
4. Appliances and special equipment required by safety appliance laws.
5. Additional employees and additional wages paid on account of laws regulating the hours of labor.
Besides these and other positive additions to the expenses of operation there have been considerable reductions in revenue brought about by the various regulative statutes. Thus there have been reductions in revenue caused by the following:
1. Orders, or suggestions having practically the force of orders, requiring changes in the classification of freight.
2. Orders, or suggestions having practically the force of orders, requiring reductions in rates.
3. Statutory reduction in the rates of compensation for carrying the mail.
4. Reduction of compensation for carrying the mail made by executive order.
A painstaking effort to secure accurate statistics concerning recent increases in these expenditures and losses has been made and data for that purpose have been supplied by many of the railways operating east of the Mississippi river. These data are necessarily incomplete and fragmentary, the accounts of many of the companies not being kept in such form as fully to disclose the items desired. In few cases were the data which could be obtained for any line complete—some companies were able to report particular items while other companies could not give these, but could supply others. Generally speaking, it should be realized that the tabulation of these reports makes a showing which is incomplete mainly in the form of omissions. A conservative computation discloses that the costs due to increases in expenses or reductions in revenue imposed by statutes or by Commissions acting under Federal and State regulatory laws costs the railways of the United States approximately $200,000,000 in two years. That this is not an exaggerated estimate will be appreciated by reference to the principal general items of expenditures as enumerated on the preceding pages. Until these items shall have been assigned a proper classification in the accounts of the railroads the accurate results may not be ascertained, but it will at once occur to those in any measure informed that there has been an enormous increase of work and expense placed upon the carriers to conform to the innumerable requirements of State and Federal laws and the rulings of the Commissions thereunder, and that this burden has extended to all departments of the carriers. Litigation and miscellaneousexpenses appear as a large part of these new costs, and in addition the carriers' revenues have been greatly depleted either directly by the laws, orders of Commissions or suggestions having practically the force of orders, resulting in reductions of freight and passenger charges.
COST OF OBTAINING NEW CAPITAL.
In the matter of interest on the capital employed the railways have apparently enjoyed an advantage which would seem to offset the natural tendency of interest rates to rise in response to the stimulus of augmented cost, in dollars and cents, of the commodities entering into the budget of expenditures of the average recipient of interest—that is to say, the advantage growing out of the fact that a large proportion of railway capital is secured under long-time contracts and that many of the contracts now in force unquestionably run back to a time before the extensive depreciation of the American dollar began. This advantage is a real one, but its extent is easily exaggerated. For the purpose of throwing light upon the effect upon the cost of railway transportation of the rise in interest rates which has characterized recent years an analytical study of railway indebtedness (including guaranteed dividends) amounting, in the aggregate, to $9,499,099,065 has been made. This sum represents indebtedness now outstanding and includes some duplication owing to the fact that certain of the securities represented in the aggregate are themselves based upon other securities deposited as collateral or held in the treasuries of the corporations making the secondary issues; duplication which could not be eliminated without adding vastly to the difficulty of the inquiry with no corresponding gain in the accuracy of the result. These data are also subject to the qualification necessarily due to the fact that all of the issues included were not sold at par. In some cases a small premium was doubtless obtained and in other cases a slight discount was required, but, nevertheless, it is believed that the data fairly indicate the general change in interest rates on capital loaned to railways. Of the total outstanding indebtedness of $9,499,099,065 the portion incurred during the years 1897 to 1908, inclusive, amounts to $5,466,340,252, or 57.55 per cent. The following table shows the amounts incurred at the different rates during each of the years named:
Rate of Interest and Amount Incurred During Year and Outstanding.Year.6½ per cent.6 per cent.5 per cent.4½ per cent.1897—$11,039,000$42,126,000$7,700,0001898—487,0007,486,700207,0001899—13,094,00029,197,00015,896,0001900—1,133,00015,926,3517,979,0001901—1,777,77538,840,00037,845,3781902——44,949,50819,949,6001903—1,552,00053,592,03022,092,5001904—256,00061,191,56130,241,7291905—1,810,00066,346,00073,996,1001906$350,0001,180,579141,786,51140,922,1811907—30,325,000289,458,892177,805,9621908(a)—114,504,97047,546,3852,850,000——————————————————————Total$350,000$177,159,324$838,446,938$437,485,450Rate of Interest and Amount Incurred During Year and Outstanding.Year.4 per cent.3¾ per cent.3½ per cent.3 per cent.1897$205,882,500—$221,663,000$4,998,2751898187,898,000—194,724,325—1899277,784,400—126,734,00043,231,272190083,735,500—62,577,00043,689,0001901382,131,250330,00051,635,000—1902348,038,050—58,641,500—1903317,948,000—22,308,0009,866,4351904193,499,500—39,890,000—1905364,507,404—112,645,15516,000,0001906251,037,68148,262,54831,098,670—1907210,399,075—423,000—1908(a)101,380,000——————————————————————————Total$2,924,181,360$48,592,548$922,339,650$117,784,982(a) January to July, only.
Even a cursory examination of the foregoing statement shows that the average rate of interest demanded by those who supply railway capital has greatly increased. In 1897 and 1898 the largest aggregate of new indebtedness was incurred at the rate of three and one-half per cent. per annum; in 1899, 1900, 1902, 1903, 1904, 1905 and 1906 the preponderating portion was at four per cent.; in 1907 the largest aggregate was at five per cent., while in the months of 1908 for which data are available the greater portion was obtained at six per cent. Loans at three and three and one-half per cent., which supplied a considerable aggregate during all of the years to and including 1906 and particularly in the earlier years of the period, had substantially disappeared before 1907 and nofunds were procured at less than four per cent. during the portion of 1908 which is included. The increased volume of loans at five and six per cent. is equally marked. The following table makes this analysis clearer by showing the total borrowings of each year and the percentage at each rate:
Rate of Interest and Proportion of Total IndebtednessIncurred During Year and Outstanding.Year.Borrowed.6½ per6 per5 per4½ per4 per3¾ per3½ per3 percent.cent.cent.cent.cent.cent.cent.cent.1897$493,408,775—2.248.541.5641.73—44.921.011898390,803,025—.121.92.0548.08—49.83—1899505,936,672—2.595.773.1454.91—25.058.541900215,039,851—.537.403.7138.94—29.1020.321901512,559,403—.357.587.3874.550.0710.07—1902471,578,658——9.534.2373.80—12.44—1903427,358,965—.3612.545.1774.40—5.222.311904325,078,790—.0818.829.3059.53—12.27—1905635,304,659—.2810.4411.6557.38—17.732.521906514,638,1700.07.2327.557.9548.789.386.04—1907708,351,929—4.2840.8625.1029.70—.06—(a)1908266,281,355—43.0017.861.0738.07———Total5,466,340,2520.013.2515.348.0053.490.8916.872.15(a) January to July, only.
The foregoing table shows that while, in 1897, the railways borrowed 87.66 per cent. and in 1898, 97.91 per cent. of the new capital obtained in the form of loans at four per cent. or better, they were compelled, in 1907, to promise more than four per cent. on 70.24 per cent. and in the first six months of 1908 to promise six per cent. on 43.00 of their borrowings. The significance of these figures is made still more apparent by the following table, which shows opposite the aggregate borrowings of each year, the interest charges thereon and the average rate upon the portion of the capital which it represents:
AggregateinterestAv. rateYear.Borrowed.charges.interest.1897$ 493,408,775$ 19,258,5933.901898390,803,02514,744,1413.771899505,936,67219,804,8143.911900215,039,8518,073,6383.751901512,559,40320,856,5594.071902471,578,65819,119,1824.051903427,358,96517,561,5774.111904325,078,79013,571,9454.171905635,304,65925,758,6014.051906514,638,17021,964,2154.271907708,351,92932,722,0814.621908(a)266,281,35513,431,0675.04———————————————Total$5,466,340,252$226,886,4134.15(a) January to July, only.
The foregoing shows an increase, in the average interest rate demanded upon new loans to railway corporations, from 3.90 per cent. in 1897 to 4.62 in 1907 and 5.04 in 1908. The increase in the rate from 1897 to 1907 was equal to 18.46 per cent. and from 1897 to 1908 it was 29.23 per cent. In other words, one dollar would pay interest on as much of the new capital secured by loans in 1897 as $1.29 would of the loans of 1908. The gross revenue of $105.00 obtained in both years from the typical shipment of fourth class freight between Chicago and New York, at the unchanged rate applicable to such a shipment in both years, would pay interest on $2,692.31 secured in the earlier year and on only $2,083.33 secured in the later year. The loss in power to purchase loaned capital therefore amounts to 22.62 per cent. In order fully to appreciate the importance of this rise in the cost of capital it is necessary to realize that very great sums of new capital are annually required for the necessary augmentation and improvement of railway facilities. This is made evident by the total yearly borrowings as shown in the foregoing tables, but it should be borne in mind that further sums, certainly not less extensive in the aggregate, have been raised through issues of stock, which promise no certain rate of interest, although these sums could not have been obtained unless the subscribers had considered it probable that they would, in the long run, receive returns in dividends at least equal to the "going rate" of interest. It is interesting to note that the aggregate of new capital secured by loans in each year has very largely exceeded the total interest payments to all capital obtained by borrowing. This is shown by the following table, the data in which, except those as to the sums obtained by loans, are from the reports of the Interstate Commerce Commission: