Average Daily CompensationRelative Prices of Food, 1890-1899 ==100YearEnginemenFiremenConductorsOther Trainmen1899$3.72$2.10$3.13$1.9499.619003.752.143.171.96101.519013.782.163.172.00105.519023.842.203.212.04110.919034.012.283.502.27111.619054.122.383.502.31112.519064.122.423.512.35116.219074.302.543.692.54120.719084.462.653.832.64117.719094.462.673.762.60127.7Per cent. increase19.927.120.134.028.2
Here it will be observed the percentage of increase in the average daily compensation of "Other trainmen" exceeds the relative increase in the price of food, that of firemen almost equals it, while that of enginemen and conductors is below it by approximately 8 points. But, as demonstrated in the table from the Eighteenth Annual Report of the Commissioner of Labor (1903), a smaller percentage of the income of enginemen and conductors is spent on food than of those employes receiving lower pay.
Moreover as only two-fifths of all expenditures is spent on food an increase of 20% in wages would take care of a 50% advance in the average price of food—provided the increase in wages was not attended by a corresponding increase in every other item entering into the cost of living.
And right here's the rub with any attempt to measure wages by the cost of living. Which is the egg and which is the hen, in the matter of precedence. Does the cost of living lay the income or does the income hatch the cost of living?
Economically and theoretically it is not up to the railways to solve this world old conundrum. Practically they are called on to meet every advance in the cost of living of their employes to which in twenty years they have not added a nickel, and they are denied the privilege, enjoyed by every other employer of labor, to add its increased cost to the price of their only commodity or service—transportation.
Today the advances in the scale of railway wages awarded, proposed and demanded mean an increase of from $60,000,000 to $75,000,000 in the annual "cost of living" of the railways. Theadvance made in 1906-07 added $120,000,000 to the pay roll of 1908. Combined, these two advances within three years mean an increase of approximately $200,000,000 a year to the operating expenses of the railways without adding a single unit to efficiency of the labor factor in railway operation.
This is equal to an annual first charge of 5% on $4,000,000,000!Imagine the hue and cry from the press, the immediate injunctions from Washington, thedespondentwail from Wall Street, if the railways proposed to pour that much "water" into their own cost of living without getting a mile of track, a single engine, car, or coach, a cubic yard of ballast, one untreated tie or any semblance of improvement or new facility to show for the vast expenditure!
And yet the railways have their increased cost of living to meet just as the rest of us. Nothing they need and must have can be purchased at the prices of a few years back. When you mention steel rails you have named about the only railway necessity that has not advanced its cost of living in recent years, and the railways have to buy 100-pound rails where five years ago 80-pound rails sufficed, and ten years ago 70 pounds was heavy enough for the lighter cars and engines of the time.
But at the first suggestion of advancing rates to meet advancing prices of commodities the Commissions were overwhelmed with protests from shippers and the paring of freight rates down went on as the prices of the goods they carried went up.
In ten years the price of lumber advanced nearly 50%. As a cheap bulky commodity it had enjoyed a low rate in order to move it and it was moved at the expense of other commodities. When it was able to pay a little more toward the cost of getting it to market the proposal of an advance was met with indignant protests from lumber shippers and dealers and reversed thumbs by the sympathetic commissions.
The railways pay more for their lumber and other material today than they did ten years ago but they will have to fight for any advance in rates to meet this part of their cost of living. It is said to be a poor rule that will not work both ways—but the cost of living seems to have only one way of working so far as railway economics are concerned.
Just as a straw to indicate that high prices of food are the result and not the basis of high wages the following table of comparative prices in London and New York from the New YorkTimesof March 27, 1910, is instructive:
Comparative Retail Prices of Articles of Food in London and New York in March, 1910.London.New York.Cents.Cents.Apples, 1 lb4 to 610Bread, 1 lb45Butter, 1 lb24 to 3230 to 35Cheese, 1 lb14 to 1618 to 22Cocoa, 1 lb16 to 3625 to 50Coffee, 1 lb16 to 3020 to 50Currants, 1 lb4 to 88 to 12Eggs, 12 to 16256 to 12—25Codfish, 1 lb8 to 1215 to 29Fish (general), 1 lb4 to 1210 to 25Flour, 3 lbs9 to 1012Meats:Bacon, 1 lb16 to 2425 to 30Beef, 1 lb16 to 2022 to 30Pork, 1 lb12 to 1620 to 24Milk, 1 pint44 to 5Oatmeal, 1 lb4 to 65 to 10Onions, 1 lb24Oranges, 1 doz10 to 1218 to 50Potatoes, 1 lb1 to 23 to 4Prunes, 1 lb8 to 1210 to 18Raisins, 1 lb6 to 1010 to 16Rice, 1 lb46Syrup, 1 lb610Sugar white, 1 lb66Sugar, yellow, 1 lb45Tapioca, 1 lb810Tea, 1 lb20 to 6030 to 1.50Tomatoes, 1 lb812
The amazing feature of this statement is that the United States produces and exports to the United Kingdom enormous quantities of breadstuffs, meat and provisions, which constitute the chief articles of food in London and which are sold there at prices from 20% to 25% lower than in New York. Clearly it is the high scale of wages that fosters the high cost of living in the United States and there can be little question but it breeds the high wages it feeds on.
It is humanly certain, though economically unsound, that wages will continue to advance with the cost of living and will not recede proportionately as prices of food fall. But both will decline together when for any considerable period there is a surplus of efficient labor for the requirements of American industry. Even railway labor in the most stable of all employments yielded to this influence in 1893 and 1894; and the prices of food receded to the low mark in the following years 1895, 1896 and 1897. Not until wages took their upward turn in 1898 did the cost of food begin to show above the index average of 1890-1899.
According to the Twenty-third Annual Report of the Interstate Commerce Commission the amount of railway capital, including stocks and bonds "outstanding in the hands of the public on June 30, 1908, was $12,840,091,462, which, if assigned on a mileage basis, shows a capitalization of $57,230 per mile of line."
In the face of all the fustian about over-capitalization of American railways, this is a most remarkable admission, not only of their moderate, but of their decreasing capitalization per mile.
In its report on the Intercorporate Relationships of Railways, dated March 10, 1908, the Commission found that as the result of its investigation the figure for railway capital outstanding in the hands of the public, "Measuring the claim of railway securities on railway revenues," reduced the amount "from $67,936 per mile of line (1906) to $58,050 per mile of line."
Of course there was never any justification for using the larger sum as a true measure of railway capitalization, for it was known to contain at least 15% duplicated capital.
In its Statistics of Railways for the year ending June 30, 1907, the Commission gave the net amount of railway capital outstanding in the hands of the public at that date, "assigned on a mileage basis as $58,298 per mile of line," or $1,068 more than the figure reported for 1908.
As the computation for 1908 was made on a basis of 224,363 miles of line, this would indicate a shrinkage of no less than $239,616,480 in the par value of railway capital. It is needless to say there was no such shrinkage.
Net Capitalization in 1909.
Following the earlier judgment of the Official Statistician, this Bureau seeks to arrive at a fair approximation of the capitalization of the railways of the United States through the reports of operating roads and the capitalization of the rentals paid for leased roads. This, in the more recent language of the Statistician, furnishes the only capitalization that "measures the claim of railway securities on railway revenues."
Applied to the returns received by this Bureau from 221,132 miles of operated line, this formula yields the following result for the year ending June 30, 1909:
Summary Showing Capitalization of 368 Companies Operating 221,132 Miles of Line for the Year Ending June 30, 1909.Capitalization1909(182,046 Miles Owned)Capital stock$6,199,919,551Funded debt8,015,841,805Receivers' certificates20,497,447$14,236,258,803Rental of 39,086 miles, $120,784,982, capitalized at 5%.2,415,699,640Total$16,651,958,443Deduct:(a)Railway stocks owned (actual value)$1,889,157,214Other stocks owned (actual value)206,461,423Railway bonds owned (actual value)1,054,095,905Other bonds owned (actual value)140,282,7283,289,997,270Net capitalization, 1909$13,361,961,173Net capitalization per mile operated60,425(a) The par value of these stocks and bonds owned is given as $4,739,231,832.
An estimate of $25,000 per mile for the 11,870 miles of line not reporting to this Bureau would add $296,750,000 to the above total. From this should be deducted $150,000,000 for the sum assigned by the Official Statistician "to other properties," and we arrive at the following close approximation of the true measure of the capital employed in the transportation industry of the United States:
Net capitalization, 233,002 miles operated line, 1909$13,508,711,173Net capitalization per mile of line57,962Net capitalization per mile of track39,730
In computing the average capital per mile last given, no allowance has been made for the 8,927 miles operated under trackage rights for the sufficient reason that the rental paid therefor is represented in the total capitalization just as fully as if so much capital had been expended in the construction of that many miles of line.
It is worthy of note that the net capitalization thus arrived at through a straightforward analysis of the returns of the operating companies is in substantial agreement with the Commission's report on the Intercorporate Relationship of Railways in 1908. The construction of 11,000 miles of line since 1906 would undoubtedly account for the difference between $58,050 and $57,962 per mile of line.
Summary Showing Net Capitalization of the Railways of the United States, 1909-1904.YearNetCapitalPer Mileof Line1909$13,508,711,173$57,962190813,007,012,56358,864190713,064,279,30359,600190612,628,000,00057,966190511,167,105,99253,328190410,711,794,27852,099
Owing to the intercorporate ownership of stocks and bonds and the consequent intercorporate payments of interest and dividends, it is no easy matter to make an entirely satisfactory estimate of the return paid to capital out of the purely transportation revenues of the railways. But the persistent reiteration by the Official Statistician of the fictitious aggregate of all the dividends paid by operating and non-operating companies, covering in 1908, by his own admission, $3,927,453,365 duplicated capital, justifies the attempt.
The operating income of the roads reporting to this Bureau for the year 1909 is arrived at thus:
Gross earnings (221,132 miles operated)$2,375,141,766Operating expenses1,568,008,389Net earnings from operation$ 807,133,377Less taxes82,650,214Net operating income$ 724,483,163
This $724,483,163 is the balance in the hands of the 368 companies of the moneys received by them from transportation, or, as the Official Statistician now calls it, "rail operations," for the payment of interest, rent, other deductions, dividends, additions and betterments, reserves, surplus and deficits. But before proceeding to this distribution these companies received $200,725,696 incomefrom other sources, principally interest and dividends on stocks and bonds owned and for rent of track, and a net balance of $5,410,338 from outside operations. The total of these two sums, $206,136,034, may be arbitrarily applied first to offset the item of rent, $120,784,982, paid for leased lines and track, and the balance in payment of interest and dividends in proportion to the value of bonds and stocks owned as above, viz.: 36% and 64%, respectively.
This enables us to make the following distribution of the net operating income of the railways reporting to this Bureau, as follows:
Net operating income, as above$724,483,163Disposition of same:Interest on funded debt$324,181,521Less paid from "other income"30,843,416$293,338,105Interest on current liabilities22,546,779Other deductions70,174,473Dividends preferred stock50,183,739Dividends common stock176,607,550$226,791,289Less paid from "other income"54,832,742171,958,547Dividends on other securities769,222Additions and betterments charged to income24,807,546Appropriations to reserves16,984,447Miscellaneous5,602,761Deficits of weak lines4,996,195Surplus available for adjustments and improvements113,205,088$724,483,163
This table shows the actual disposition made of the net income from operation of the roads reporting to this Bureau, representing 97% of the railway business of the United States, except that $120,784,982 of the income from other sources has been eliminated from the account and applied to offset the rental paid by the reporting roads.
It will be observed that the gross dividends declared were only $226,791,289, which is 3.64% on the par value of the stock of the 368 reporting companies.
Misrepresentations as to Dividends.
The discrepancy between this condition and the official statement as to dividends declared in 1908 calls for an analysis of the latter. This reads, "The amount of dividends declared during the year (1908) was $386,879,362, being equivalent to 7.99% on dividend-paying stock. For the year ending June 30, 1907, the amount of dividends declared was $308,088,027."
Two income accounts—one of operating roads and the other of leased roads—for the year ending June 30, 1908, give a clew as to how the Official Statistician more than doubles the dividends actually paid out of transportation revenues. The gross total is made up of these four items:
Operating roads:Dividends declared from current income$271,328,453Dividends declared out of surplus57,733,808Leased roads:Dividends declared from current income33,843,577Dividends declared out of surplus27,550,596Total$390,456,434
As these income accounts show that the operating companies received $280,427,460 "other income" from outside operations and sources other than transportation, and the leased roads received $111,153,013 "income from lease of road," the source of the major part of this fictitious dividend is revealed. The $280,427,460 from other sources would pay the entire income of the leased roads and leave nearly $170,000,000 to extinguish so much of the dividends declared by the operating roads.
Modified as to details, this is what actually occurs every year. In the year 1908 the total amount paid out of transportation revenues on account of capital of the 97% of the railways of the United States reporting to this Bureau was represented in the sums:
Net interest on funded debt$282,354,000Interest on current liabilities31,835,708Rent paid for lease of roads113,529,261Net dividends104,074,006Total$531,792,975
This total was equivalent to 4.15% on the net capitalization of the roads represented. The rental paid the lessor roads constituted the fund from which those roads paid their interest and dividends. Further remark on the misleading and harmful statement of the Official Statistician as to dividends declared in 1908 is unnecessary.
Incomplete as are the figures of the cost of the railways of the United States, and exclusive as they are of the millions put back into the properties out of income for additions, betterments and reconstruction in the process of operation, yet the statistics of the cost of construction and equipment afford a complete answer to all charges that American railways are over-capitalized.
Upon the question of the cost of road and equipment in 1909, the returns of the 368 roads reporting to this Bureau furnish the following data:
Summary of Cost of Road and Equipment Covering 221,132 Miles of Operated Line for 1909.ItemAmountCost of road (182,046 miles owned)$6,603,504,463Cost of equipment1,122,409,813Undistributed cost of road and equipment3,080,064,960Cost of 39,086 miles leased lines rental capitalized2,415,699,876Total$13,220,678,876
Adding to this $290,750,000 to represent the 11,870 miles of road not reporting to this Bureau at $25,000 per mile, we obtain
$13,417,438,876
as the cost of road and equipment of the 233,002 miles of line employed in the transportation industry of the United States in 1909, or
$58,031 per mile of line.
This is an underestimate by reason of the failure of a few lines to furnish even approximate figures on the accumulated cost of their properties. Averaging the cost of locomotives at $15,000, of passenger cars at $6,000, of freight cars at $800, and of company's cars at $500 apiece—their present cost rates much higher—the equipment of American railways represents an investment of over $3,000,000,000, and its bare maintenance alone involves an expenditure of nearly $400,000,000 annually.
Physical Valuation of the Railways.
It is worthy of passing note that just as the railway companies have shown their indifference to a physical valuation of their property, the clamor of regulators and agitators in its favor has subsided. The proposal lost its attractiveness to them the moment they became convinced that such an investigation would put a valuation on the roads so high as to take not only the wind out of their sails but the last drop of water out of their mouths. To-day the only insistent demand for this futile undertaking comes from quarters interested in the distribution of the appropriation of several millions it would cost.
Credit for the reversal in the popular and political attitude on this subject is largely due to the valuations attempted by the states of Minnesota, Washington and Wisconsin. The results in these states may be briefly summarized as follows:
Miles of LineCapitalization per MileValuation by State, per MileMinnesota, 19077,596$44,206$54,201Washington, 1908:Great Northern80644,07873,900Northern Pacific94270,278106,500Oregon R. R. & Navigation Co50143,01238,900Wisconsin, 19067,13533,42434,630
Even Senator Albert B. Cummins of Iowa has seen such a bright light on this subject that in his speech before the Traffic Club of Chicago last February he said that he would not be willing to make a present valuation of railroad property a basis for determining rates, "for the reason that it was more than probable that the present capitalization of between fifteen and sixteen billions would be increased to twenty billions."
In the Bureau's Statistics for 1908 it was said:
"If the valuations in Minnesota and Washington, made by none too friendly commissions, are any criterions of what a national valuation made under presumably unbiased federal authority would be, the present cost to reproduce the railways of the United States would be nearer $20,000,000,000 than any sum within the anticipations of those agitating for such valuation."
Capitalization of Foreign Railways.
With both sides of the balance sheet testifying to a capital investment in American railways of under $60,000, and official valuation abandonedbecause it would demonstrate that they could not be reproduced for less than $80,000 per mile, the reader is asked to compare the American figures with those of the capitalization, or cost of construction, of the principal foreign countries set forth below. These have been compiled from the latest available official returns.
Summary of Railway Capitalization of the Principal Foreign Railways from Latest Data.YearCountryMiles of LineCapital or Cost of ConstructionPer MileEurope:1908United Kingdom23,205$6,382,296,742$275,0401908Germany35,5583,903,848,400109,7881907Russia in Europe (exclusive of Finland)32,900(a)3,170,876,36080,9851907France(b)24,7303,447,366,000139,3901907Austria13,4271,515,576,885112,8791907Hungary11,769741,586,39163,0101907-08Italy (State roads only)8,6991,086,000,000124,7301905Spain (13 roads)6,840583,632,00085,3271906Sweden7,938257,408,45032,4271907Belgium (State only)2,537430,800,000169,8061907Switzerland2,740298,709,210109,000Other Countries:1909Canada24,1041,608,990,65666,7521908British India30,5761,364,669,37544,6321907Argentine Republic13,690820,433,79659,9301908Japan4,444190,173,72842,8001909United States of America233,00213,508,711,17357,976(a) Russian capitalization, including railways in Asia, covers a total of 39,277 miles, from which the capital per mile is computed.(b) This is exclusive of 4,259 miles of local interest.
The most striking feature in this table is the steady advance it shows in the capital cost of German railways. In ten years this has increased from 251,597 marks per kilometer in 1898 to 283,608 in 1908,i. e.31,731 marks per kilometer or $12,282 per mile. This means an increase of $991,687,440 in capital cost for an increase of only 5,525 miles of line.
Returns to this Bureau place the number of stockholders of record at the date of the last election of directors prior to June 30, 1909, of the 368 roads reporting at 320,696. As only 182,046 of the 221,132 miles operated by these roads was covered by the capital stock, this would show 1¾ stockholders for each mile of road and would indicate that there are at least 415,000 stockholders in all the railways of the United States. Owing to the incompleteness of the returns on this subject and the fact that large blocks of stock are held in the names of associations and trustees, it is safe to estimate that the actual ownership of railway stock is distributed among at least 440,000 persons.
In 1905 the Commission reported the number of stockholders of record prior to June 30, 1904, as 327,851, but has given no later figures. It may be of interest to compare these figures with the partial reports to this Bureau since then.
YearNumber ReportingNumber of Stockholders19041,182 roads327,8511906284 "226,9861907317 "240,5541908315 "315,7271909340 "320,696
If the ownership of railway bonds, which is even more widely distributed than that of stocks, could be traced, it would be found that over a million investors are interested in the financial welfare of the railways. This would give to each an interest of $13,000, from which the average income is not over $520 a year.
The attempt of the Commission in 1908 to secure evidence that the control of the railways was concentrated in a few hands by calling for a statement of the "ten largest holders of voting securities" of the reporting companies having established that nowhere did theyowna majority or an approach to a majority of the controlling stock, inquiry along that line was dropped in 1909.
In railways, as in any republic, the latent power is widely distributed among the many, while the administrative responsibility is necessarily entrusted to the few.
It is the reproach of our system of government statistics of railways that their first concern is financial results, which the government takes no thought to improve, and the harrowing roll of accidents, and not the adequacy of the service and the steady development of the means of transportation. Every month, almost every week, the public is informed of the volume of traffic, and every quarter the record of casualties is told in sensational head lines. It is left for belated annual reports to record the public service of this great industry upon whose progressive efficiency every other industry in the United States depends.
It is not upon what the railways earn, but upon what they DO that the whole industrial fabric of the republic rests. It is not upon the dividends they pay but upon the traffic they carry, the net income withheld from dividends and put into improvements, that their success as carriers depends.
The Passenger Traffic.
In considering the public service of the railways it is customary to give first attention to the passenger traffic. This is not because it is the most important branch of the service but because passengers are numbered by millions, where thousands suffice in the enumeration of the shippers, who frequently mistake themselves for the entire American people.
In twenty years between June 1, 1889, and June 1, 1909, the population of the United States increased from 61,289,000 to 88,806,000, or nearly 45%. In the meantime the passenger cars provided by the railways increased from 24,586 to 46,026, or over 87%. But this does not measure the liberal provision made by the railway for the travelling public, which is more fully and accurately expressed by the amazing growth of the number of passengers carried one mile from 11,553,820,445 in 1889 to approximately 29,452,000,000 in 1909, or nearly 155%.
Here is shown an increase of cars not far short of double the increase in population and an increase in passengers carried proportionately greater than the numerical increase in cars.
In the meantime the average receipts of the traffic have declined from 2.165 cents per passenger mile in 1889 to 1.916 in 1909—adecline of over 11%, although every item involved in the service, locomotives, cars, track, stations, labor, etc., cost more. The passenger service, except as precursor to the freight service, and in certain densely populated sections, was unremunerative in 1889 and is more so now. It is maintained at the expense of the freight service by what the Railroad Commission of Wisconsin has characterized as "a species of piracy practiced upon the shippers of freight."
The salient features of the passenger service reported to this Bureau for the year 1909, as compared with the final official returns for the preceding year, are shown in the following statement: