JUNE 7, 1912
The Commoner.
11
total stock issue of $8,884,234,925,
an increase of nearly 112 per cent.
That year dividends were paid upon
$4,526,958,760 of stock. It would
bo interesting to know how much
of this added railroad holdings was
dividend paying stock, and whether
any of the $463,860,764 of stock in
crease, sold to the public in those
two years, paid dividends.
Nor was the railroad influence idle
in the halls of legislation during
these yetrs. Of all the laws enacted
by congress in the last half century,
with tho declared intention of curb
ing the railroad excesses, not one
proved effective in the final test.
Tho interstate commerce act was
farcical; tho Sherman law of 1890
without decisive effect; the Elkins
law a burlesque; tho Hepburn bill
an insult to the public intelligence.
Whether the recently enacted rail
way bill will be equally impotent re
mains to be seen. President Taft was
quoted some months ago as having
said: "Tho realization of the power
now lodged in tho interstate com
merce commission is enough to make
a man tremble." Time will tell.
Until its recent decision against the
railroads upon their demand for
further increased, freight rates the
commission had not distinguished
itself as a friend of tho common
herd.
Tho Hepburn bill, of all tho rail
way legislation, was tho supremo
traversity upon justice. It pro
hibited rebates and passes, thereby
forcing upon the railroads an econo
my of untold millions of dollars, yet
there seems to have been neither
efficient intelligence nor honesty in
congress to compel a reduction in
freight rates to offset this enormous
saving. The railroads were left free
to increase their rates as before.
Burdening the traffic with all it will
bear has long been the practice in
rate making. The lengths to which
the railrqads have gone may be cited
in tho rate on dry goods in cases,
New York to Pacific coast points,
which since 1898 has just doubled.
During that period the dividend rate
has increased more than 100 per
cent. And since the passage of the
Hepburn bill railroad capitalization
has increased 25 per cent.
Look at the Rakc-Off
Reference to railroad over-capitalization
has about the same effect
upon railroad presidents as a red flag
has upon an angry bull. No other
charge has drawn from them such
instant and fiery denial. During the
rjondencv of their recent rate in
crease demand the magazines teemed
with articles written by a $50,000-a-year
railroad president, bitterly
denouncing the traducers of these
empire builders and declaring with
equal vigor that added millions in
earnings were necessary to maintain
the present efficiency of their lines.
Let us examine the records. As
long ago as 1884 "Poor's Manual of
Railroads," then as now the rail
road authority, declared without
qualification that all of the then out
standing railroad stock, approximat
ing $4,000,000,000, was water.
Speculation that early had the bit in
its teeth. Poor's estimated that dur
ing the three preceding years $2,
000,000,000 of capital and debt had
been created, and "the whole in
crease of share capital, $999,387,
208, and a portion of the bonded
debt," was in excess of construction.
Today even Poor's Manual has
learned its lesson. It comments no
more upon railroad capitalization.
Even so its records alone toll an
amazing story. Poor's states the
railroad capitalization in 1910 ag
gregated $18,890,850,293 upon 242,
107 miles of road, or $78,714 a mile.
Thirty years ago the capitalization
was $5,402,038,257 on 92,147 miles
of road; or $58,624 a mile. So, since
1880, while tho mileage was increas
ing 143 per cent, the capitalization
increased 350 per cent. And the
capitalization of tho 149,960 miles
added since then is at tho rato of
$89,949 a mile. This too despite the
tremendous advancement in modern
me'thojds of construction which fixes
$50,000 a mile as the upset price.
Bring this down to more recent
years and the results are nothing
short of startling. More convincing
proof of the wholesale stock and
bond watering that has been going
on could scarcely be asked. In the
last fifteen years 62,286 miles of
road have been built. The capitali
zation has increased $7,642,280,635.
And the capitalization of this added
road is $122,697 a mile!
Surprising? Then consider this.
In the last five years 23,674 miles of
road have been built. Capitalization
has increased $3,297,270,233. Each
milo represents a capitalization of
$139,235. Who got the rake-off.
Does anyone imagino for a mo
ment that all this money went into
actual road building and equipment?
Personally I believe that modern
methods of railroad finance have
taken more money from the people
in the last fifteen years than has
been taken by all the thieves that
have been sent to the penitentiaries
since the government was organized.
This gigantic railroad swindle has
not been perpetrated with either the
knowledge or the consent of tho ma
jority of the 450,000 stockholders.
They, have had no more to do with
tho management of the lines and the
.dictation of their policies than the
man in the moon. Annually their
right to speak has been signed away
in the form of a proxy. Tho rail
road manipulators and the select
coterie of Wall street financiers who
stand back of them have controlled
the roads, often while owning less
than one per cent of the capital
stock, and have taken the big win
nings. They alone are responsible
for the $9,500,000,000 of water
which the most competent railroad
authorities declare is in the present
railroad capitalization. It is the
ability of these financial sharks to
issue and control the securities
which has made this condition pos
sible. And these are the men who
most strenuously maintain that there
is no over capitalization.
In only a few instances have phy
sical valuations of railroads been
made, but these, I believe, are the
facts so far as demonstrated by
actual investigation. In 1909 the
state railway commission made a
physical valuation of the railroad
properties in Texas. The valuation
totaled $212,794,586; the capitali
zation was $412,465,743. South
Dakota found actual valuation $299,
858,186; capitalization $344,979,-
692. Wisconsin, actual value $196,
239,314; capitalization $290,874,-
693. Net result: actual value $708,
892,083; capitalization $1,038,320,
128; water $329,428,042. More
than 31 per cent.
Tho EfTect on You
Now what about the bonds? As
an instance of how they too have
been watered I shall relate a per
sonal experience. Many of you will
recall that in 19Q7 Wall street manu
factured a panic. It put a premium
on suicide before the government
treasury was wheeled to the rescue.
Just at that time the New York, New
Haven & Hartford railway had
planned to float another of the bond
issues which in the last six years
have served to boost its capitaliza
tion from $85,000,000 to more than
$350,000,000. The panic knocked
the bottom out of the stock market.
Finally it was arranged through
Wall street influence that the gov
ernment would loan treasury funds'
to national banks at one per cent on
these bonds up to 80 per cent of
their par value. An ' Akron (O.)
bank in which I was an officer bought
$121,000 worth of these bonds at 85.
There was just 15 ilor cent of
water in each bond sold at that price.
The New Haven & Hartford at that
time was considered an ultra con
servative road. If it wnterod its
bonds 15 per cent what has been
done in the manipulation of other
roads where tho issuance of bonds
was easy and the dcslro to realize
upon them quickly wao great?
Now let us consider the effect of
this over capitalization. Has it ever
occurred to you how largely railroad
freight charges enter into the high
cost of living? That almost every
thing which contributes to your en
joyment, your comfort, your every
day necessities, pays its tribute to
tho railroads? Have you ever looked
about your home and sought to find
one article In all its equipment
which has not, somewhere and some
how, been subject to the toll of the
railroads? In many cases several
times over from raw material to
finished product. It Is dollars to
doughnuts you have not.
Think this over a moment. Figure
up for yourself the amount necessary
to pay dividends upon $9,500,000,
000 of water. Remember that every
penny of it must come out of the
pockets of the consumer and it is
not so difficult after all to under
stand why the cost of living is high
and why the railroads should come
in for a little attention at the hands
of congress. I fully appreciate the
importance of the stability of vested
rights of property, corporate or per
sonal, but I vigorously contend that
the commission of excesses in the
capitalization of corporate companies
forfeits instantly the right to claim
face value for such capitalization in
the levying of a tax upon the public
for the payment of dividends upon
such watered stock. Yet this is just
what the railroads have been doing
and are doing today. And the con
sumer is paying the bill.
Much was said prior to and dur
ing the last campaign about the high
cost of living. The railroad presi
dents were agreed that freight rates
did not affect it. James J. Hill and
W. C. Brown declared the low acre
age production of our farms was
responsible. Trust magnates did not
agree. S. R. Guggenheim charged it
to extravagance on the part of the
laborer. Ogden Armour declared it
was duo to the law of nature. John
Wanamaker blamed the tariff. Sec
retary Wilson attributed it to the
greed qf the retailer. Senator Lodge
said it was due to the greed of the
farmer. President Taft facetiously
remarked that we were living in an
automobile age. Meantime prices
continued to rise like a river at flood.
The tariff was blamed chiefly and
congress denounced for not having
revised it downward. The para
mount lesson of the election was
that the fattening of special privilege
must no longer be continued at the
expense of the national meal ticket.
The president, impressed, called con
gress into extra session. Congress,
likewise aroused, jumped on the
tariff with both feet. Ye Gods! how
many iniquities have been perpe
trated in the name of the tariff!
What is the plain, unvarnished
truth about the tariff? Let us con
trast customs revenues and railroad
earnings and analyze their effect
upon the people and living cost. It
is interesting and enlightening. It
makes the tariff look like the tradi
tional 30 cents. That the figures
may not be doubted or disputed the
government reports will be taken as
authority.
In 1910, the secretary of the
treasury reports, the tariff revenues
aggregated $333,683,445. Appor
tioned among the 18,40Q;000 fami
lies, estimated,, the tariff" cost each
family in the United States just
$18.1'3. A tariff, is either'a principle
these high-
or Fancy
c t f row the
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FRANKLIN
WORSTED MILLS
2703 N. Hancock St., Philadelphia, Pa
Our cloth
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Send for
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South Hnvoii, Mich.
Agent: Novelty SIkii Card poll
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