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The Commoner
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AUGUST 24, 1906
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Senators Squarely on Record for QAtefc-capitalization
The New York Press, a paper which at the
top of its editorial column boasted that "it has
the largest republican circulation by many thou
sands of copies a day," printed In its issue of
July 22, an editorial which should be carefully
read by every Commoner reader. This editorial
was entitled "Senators Squarely on Record in Fa
vor of Railroad Robbery Through Overcapitaliza
tion." In this editorial Senator LaFollette's
amendment to the ship canal charters is so cldar
ly explained, and it 18 upon such ah important .
subject that tho editorial is printed in full. It
follows:
"No phase of the problem of suppressing
private, monopoly and regulating railroad Tates
is of .more consequence than the matter of capi
talization. Tho senate 'debate showed the Hep
burn act would be of little value unless means
were adopted to learn what is the reasonable
rate for transportation. It was likewise mlTae5
clear . that congress as at present constituted is
opposed to the principle of limiting the capitali
zation of railroads to the amount of money act
ually invested in the property. Congress refused
to confer power on the interstate commerce conv
mission to make a valuation of the railroads in
order to determine what would be a fair return
to the companies on the money actually invested.
"This principle that the people ought not to
be taxed to pay dividends on watered stock con
gress not only refused to sanction in the rate
legislation, but In another similar matter flatly
took the position that a common carrier has the
right to issue stocks and bonds to many times
the amount of money invested, and then to tax
the shippers enough to retire the stocks and
bonds. The senate actually voted to do this in
the bill to incorporate the Lake Erie and Ohio
river ship canal, and the debate and roll call on
that subject throws a flood of light on the atti
tude, of United States senators toward the trans
portation problem.
"When this bill came up Mr. LaFollette made
a fight, as he did in' the rate legislation, for the
principle that the state, as a necessary part of its
r.ight; tp enforce a just and reasonable rate for
transportation,, ought to- supervise the issue of
stocks, aud bonds by the corporations it creates.
A reasonable rate is a fafr return to the capital
actually invested in the property. So the United
States supreme court has held. To find the rea
sonable rate it is necessary to know what capital
is actually invested in the road, or waterway. Mr.
LFollette therefore 'offered an amendment to the
Ship canal charter, modeled on the laws of Massa
chusetts and Texas, under which It would bo
necessary for the canal corporation to submit sat
isfactory evidence to 'the interstate commerce
commission that there Is actual value back of
the proposed issue of stocks and bonds.
"In advocating the passage of this amendment
Senator, LaFollette said: 'If objection be made
to it at all it must be on principle, and I can con
ceive of no objection which can be made to the
amendment upon any principle.'
"'The incorporators who are asking for this
charter by the terms of this bill propose to issue
$400,000 of stock and $400000 of bonds for every
mile of the canal from Lake Erie to the Ohio
river. Once issued, the coal and iron and grain
shipped through the canal will be charged tolls
to pay interest on all the bonds and dividends
on all the stock, though it may not have cost
half of $800,000 per mile to build, maintain and
operate the canal. This is the vice of allowing
m public service corporations to issue stocks and
bonds without any government supervision re
quiring the corporation to make satisfactory proof
that every dollar of stocks and bonds represents
actual "bona flde Investment.
" If this canal will cost $8000QQ per mile to
build it is an easy matter for those who are ask
ing this charter at the hands of the federal gov
ernment to make that plain to some authority of
the federal government.
"'The transportation of this country Is on a
false basis. The steam railroads, the street cars
and interurban companies, the sleeping car com
panies, the express companies are, all of them,
as is well known, overcapitalized and grossly in
flated. The people are charged transportation
rates high enough to pay dividends on all stock
and interest on all bonds, notwithstanding the
fact that more than 50 per cent of such stocks
and bonds represent no investment whatever.
"'The difficulty in squeezing the water out
after the stocks and bonds have been issued is
at once manifest. You are at once encountered
with the plea a false one, as I contend-rthat
the stocks and bonds have become tho property
of innocent purchasers.'
"The senator pleaded with the chamber to
prevent the injustice at tire outset. Ho called
attention to the fact that tho Lake Erie "Ship
Canal company could, under tho terms of the
proposed charter, issue $180,000,000 of securities,
no. matter what the cost of tho canal; while the
estimate for the lock and dam typft;of the Panama
canal was precisely that sum $180,000,000, al
though the istiimian waterway was to be more
-than thrice the depth of the one connecting the
Ohio. river and Lake Eriet
v "A challenge to the railroad senators to de
fend the watering of transportation stock was
not answered from the floor. Tle opposition to.
tho LaFollette program confined its voice to a
motion, through Senator Nejson of. Minnesota,
to lay the amendment op the table. Thirty six
senators are recorded as , 'not voting including
Piatt and Depew of New, York, most of thein, hay
ing dodged the vote because their help was not
needed to defeat the attack on the trust and rail
road extortioners. The, senators who did vote
to kill the LaFollette amendment were: Aldich,
Allee, Ankeny, Benson, Brandegee, Bulkeley, Bur
kett, Burnham, Burrows, Carter, Clapp, Clark
(Mont), Cullom Dillingham, Elkins, Flint, Ful
ton, Gallinger, Hale, Hemenway, Kean, KJttjedge,
Knox, Long, McCumber, Millard, Nelson, Penrose,
Perkins, Piles, Scott, Sutherland, Warner.
"Tho record was 33 ayes to 20 noes, but at
least twenty more votes could have been com
manded at any time by the railroaod lobby, and
probably not more than ten would have joined
the advocates of reasonable rates if they had
voted.
"Through the whole discussion of the bill
only one objection was made to the LaFollette
anendment that it prevented . even the orgauiza
tipn of the company until authority could be ob
tained to issue stock on an estimate of the canal's
value. Mr. LaFollette drafted an amendment
meeting that objection, but it also was voted
dpwp.
. "Then he moved to strike out the most vi
cious section of the bill one allowing the canal
company to charge tolls in order Vo lay by. a
surplus out of which it might pay fcte principal
as well as the interest of its bonds, The govern
ment authorized this corporation 'to Impose such
transportation charges upon tho commerce that
will pass through the canal as can free its stock
holders from furnishing at least one-half of the
capitalized value of this canal.' ,
. ,.-Mr. LaFollette summarized the wrongfulness
of, this, policy in most effective fashion:
" 'Any charge made upon the commerce of
this, country which exceeds a fair interest rate
upon the amount of money invested in the build
ing of the railroad or the canal is an unjust tax
upon the commerce of the country. When you
empower by legislative implication a corporation
to which you give a charter to charge rates high
enough not only to pay interest upon bonds and
dividends upon stocks but also to set aside a
surplus that shall ultimately discharge the bond
ed obligation of the company, you are surely
imposing upon the commerce carried by the com
pany an unlawful and unjust burden.
. " 'I am well aware, Mr. President, that under
the present system of financing such enterprises
the railroads of this country do exactly that thing.
They charge on the commerce of the country
rates high enough to pay a fair return upon a
fair value of their property. They go beyond
that. They make the transportation pay a fair
return upon the watered and inflated capitaliza
tion of the railroads of the country. They go be
yond that. They make the transportation of the
country pay enough more to set aside a surplus
out of which they may make their improvements.
And then they make those improvements the
basis of new capitalization and advance trans
portation charges upon the people.'
''In thia connection the speaker put into tho
record some of the wrongs the largest companies
have inflicted upon the commerce of the nation:
" 'From 1899 to 1905 the Baltimore and- Ohio
Railroad company made improvements or better
merits out of Its surplus exacted from the people
in excess transportation charge to the amount of
$19,000,000.
" 'The Delaware, Lackawanna and Western,
from 1901 to 1904, exacted $13,347,100.
" 'The Pennsylvania Railroad company took
by excessive transportation charges out of the
people out of its lines and made improvements
io:the extent of $50,000,000.
. " 'The Chicago and Northwestern Railway
company took $20,000,000; tho Chicago, Mllwaukeo
and St. Paul Railway company took $9,000,000;
the Chicago, St. Paul, Minneapolis and Omaha
Railroad company, $31,000,000 botwoen 1899 and
1905; tho Illinois Central Railway company, be
tween 1900 and 1905, took $10,030,000; the Nor
folk and Western Railway company, botweon 1900
and 1905, took $12,250,000; tho Atchison, Topoka
and Santa Fe Railway company, botweon 1896 and
1904, took $30,000,00; the. Great Northern Railway
company, botweon 1898 and 1905, took $15,850,000;
tho Northern Pacific' Railway company, between
1898 and 1905,, took $19,999,003, And the Union
Pacific Railroad company, between 1900 and 1905,
took $13,479,105. Ji
" 'Every dollar' of that amount' of Invostmout
in tho betterment of those railroad companies'
said the Wisconsin senator, wa3 paid out of tho
surplus which was exacted from tho transporta
tion of this country and imposed upon the con
sumers of the country In direct violation of tho
rule laid down by tho suprome court as to what
Is a legitimate transportation charge, and Section
5 of thia bill, which I have proposed by amend
ment to wipe out, will warrant and authorize this
canal company to make an excessive charge for
the payment of its bonds
"Yet the old guard of railroad senators ral
lied to retain this outrageous section in the Lake
Erie and Ohio river ship canal bill. Nobody dared
tako the floor to defend tho rascally clause In
the interest of high finance. Senator Nelson
merely moved to lay the LaFollette amendment
on the table, which was done by a vote of 32 to
14, forty-three senators dodging the roll call.
"Again the Irrepressible and indomitable Wis
consin fighter made a last stand for the principle
of tho reasonable rate in tho ship canal charter.
He offered the mildest program- ho could possibly
base on that sound principle. ,It was In tho
form of an amendment authorizing the interstate
commerce commission, without any expense what
ever to the canal company, to obtain Information
from, time to time on which It can determine just
what is a reasonable toll for the vessels passing
through the canal. 'If any objection can be
offered tp tho proposed amendment, said .ho, 4l
hope some, senator will rise and present It burofo
the vote Is taken.' '
"Not ono railroad lackey did rise. " There was
no argument against the, LaFollette program, bo
none was made. But tlip syndicated railroads
did not dare admit the justice of the principle
that the real investment In a transportation line
not the wind and water, is the basis of the rea
sonable rate, or at least they did not dare to lot
the senate make the confession on their behalf.
They had the brute strength to kill the LaFollette
amendment, however, and they contented them
selves with doing that. Senator, Nelson again
moved to lay the amendment on the table, and
his motion was carried by a vote of 30 to 20."
. . f
THE PRIMARY PLEDGE
As this copy of The Commoner may be read
by some one not familiar with the details of the
primary pledge plan, it Is necessary to say that
according to the terms of this plan every demo
crat Is asked to pledge himself to attend all of
the primaries of his party to bo helfl between
now and the next democratic national 'convention,
unless unavoidably prevented, andto secure a
clear, honest and straight-forward declaration of
tho party's position on every question upon which
the voters of the party desire to speak, Those
desiring to be enrolled ean either write to The
Commoner approving the object of the organiza
tion and asking to have their names entered on
the roll,or they can fill out and mall the blank
pledge, which Is printed on page 12.
Extracts from letters received at The Com
moner office follow:
. E. C. Wood, Hudson Mill, Va, I send you 28
primary pledge signatures.
F. W. Schroeder, Lake Andes, S. D. Please
find inclosed primary pledge with 35 signatures.
This makes 49 that I have sent in and 14 sub
scriptions to your paper this year.
J. N. Baxter, New Martinsville, W. Va. I most
heartily send you tho names of 114 good demo
crats who have signed primary pledge. The most
of them I have known for quite awhile say forty
five years or more, down to the present time
and can vouch for their democracy. I will send
in another list in the future. You will .find
"first voter" wrote in left hand margin to indicate
who the person is and his address also. You will
also find five persons' names and addresses on
margin.
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