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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (Jan. 1, 1917)
I s The Commoner JANUARY, 1917 21 MR BRYAN OPPOSES EXCLUSIVE ' FEDERAIj CONTROL OF RAILROAD (Continued from Page 11.) Mr. Bryan. Well, nearly all. Tho Chairman. Practically all? Mr. Bryan. Yes. The Chairman. Now, then, with reference to the stock and bond issue of the state corporation engaged both in state and interstate commerce, whore tho regulating power of the state says that the stock and bond issue shall be ono amount, and-the national government, acting for in terstate commerce, says tho stock and bond issue shall be another amount, how is that corporation to obey both mandates? Mr. Bryan. Well, if you will par don me, your statement is not quite accurate, senator. The state does not say it shall be a certain amount. It says it shall not be more. The state fixes the maximum ana the federal government fixes tire maximum, but if the federal government fixes a maximum lower than tho state, it does not conflict with the state, oe causo the state simply says that the higher maximum shall be possible, but not necessary. Tho Chairman. Now, proceeding to the question of fair capitalization, you are aware tnat the national gov ernment has passed a law for the val uation of railroads? Mr. Bryan. Yes. Tho Chairman. Railroads, engaged in interstate commerce, and th'at the process is now going on? Mr. Bryan. Yes, sir. Tho Chairman. Now, assuming that a fair valuation is arrived at by that process, what would you regard as a fair return Trith1 a view to, main taining that valuation on the market? Mr. Bryan. I think it would be impossible to fix it in figures, but the principal is very easily ascertained. I would allow the market price of money to determine so that a margin of say from 1 to 10 per cent above the par value might be allowed; that whenever the dividend paid raised tho value of the stock above 10 per cent it ought to be reduced. If the dividend paid reduced the value of the stock below 1 per cent it ought to bo raised. I think it would be pos sible to simply state the principle that the dividends should be sufficient to keep that stock at par and a rea sonable margin to cover the fluctua tions that you could not possibly calculate. The Chairman. How about the surplus, this return for a surplus which is to guard the lean years and protect the stockholders; have you any views as to the amount of return which should be. allowed for that Purpose? Mr. Bryan. Nothing except a sug gestion. It would be merely a mat-d ter of opinion. I should say tenta tively 25 per cent, but when I say 25 per cent I do not mean to say that I would favor that and nothing else. The Chairman. You mean 25 per cent of the amount of the return Mr. Bryan. The capital. No; I would say let the railroads and I am just suggesting that by way of "lustrationlet the railroad collect enough in rates to pay the dividends and interest and, in addition, a cer tain amount that could be fixed that would go intothe surplus until the surplus reached a certain sum and thereafter would cease until the sur plus fell. To illustrate what X mean, suppose we fixed the dividend at 5 Per cent and allowed the rates to be sufficient to collect a dividend of 5 Per cent, and then suppose we al lowed 2 per cent to be collected in addition, that would bo put into this surplus until tho . surplus reached, say, 25 per cent. The Chairman. Twenty-five per cent of the capital? Mr. Bryan. Of tho capital. Then the 2 per cent would cease to be" collect ible until tho surplus was reduced by being drawn on to pay dividends, and whenever it was reduced it would bo again increased by tho same process. The Chairman. Now, regarding Mr. Bryan. May I just add a sug gestion before you proceed? Now, you spoko of the ascertaining of the value of tho road. I think that is tho first step. When we havo ascertained the value we will know, then, what amount of water they have or what; excess their capitalization contains. I believo that excess ought to bo dealt with and removed from the basis of calculation, and when you come to that there are equities that ought to bo considered. I would not be 'willing to say that as soon as you ascertain what the actual value of tho road is that then you should, by law, wipe out all the rest, because there may be equities to be consid ered; but when you find out what that actual valuation is, l think that ought then to bo represented by stocks and bonds, and thereafter no stocks and bonds should be allowed to be issued except under supervision and for actual money invested. Then this excess, which will be greater in some roads than in others, should be treated by itself, and that the excess should be disposed of upon some equitable basis. It might bo fair, all things considered, that that amount should be divided between tho stock holders and the general public. It might be wise for the general public to assume the payment of a certain amount of that excess, if it can be shown to have an equitable claim; but I think we ought to get to some basis-and' not have this quantity of water made as a continuing founda tion upon which there should be a perpetual tax upon the public. I would rather have that set apaptand settled upon an equitable basis, and after that the railroad problem, so far as the stockholders aro concerned, would be very easy. Then 1 think we ought to have legislation that would prevent the exploitation of roads, not by their owners, because the owners of roads do not exploit them. The railroads -re exploited by a group of men who use the power the stockholders give them, not for the benefit of the stockholders, but for the benefit of themselves. A rail road president drawing $100,000 a year would have to serve 50 years in order to make $5,000,000, and that on the assumption that he did not spend during that time more than the interest on this money invested. Now, nobody begrudges these rail road offlcialsa-fair return for their serviceXTiutwhen a president draw ing $100,000 a year is permitted to buy a railroad and then sell it to him self for five millions more than he paid for it he makes in one transac tion as much as the railroad would pay him in 50 years, and tho large fortunes, as I understand it, have not been made out of salaries; they have been. made out of exploitation. One of the common ways has been when a railroad is to be built of course, we do not have so much building now, and it is not, there fore, so much used but the way used to be for the railroad company to elect its directors and then the di rectors would form a construction company, and the construction com pany would then deal with itself and the railroads represented by those men would pay to those men all that the railroad had, and these men would get all tho raonoy that tho rail road had by dealing with themselves. Now, that has boon tho way in which a good deal of tho exploitation has been done. Since that tlmo wo have had this other nlan nf imvino. a now road, as wo have had somo illua.4 trauons or It in tho railroad life. Tho men in charge would buy a road and sou it to tho corporation they con trolled, and in that way they havo made that money. I thmx wo ought to have laws that will compel tno railroad managers to do an nonest business. We havo had an investi gation in the last few years that has shown that railroads that stood among tho very best in tho country, backed by men whom wo recognize as our biggest financiers, have been guilty of things that would bring discredit upon an ordinary highway robber. The Chairman. Would you have this legislation to prevent tho ex ploitation of railroads, to which you refer, enacted by the nation or tho states? Mr, Bryan. I fall back upon ray original proposition. I would liavo both. I would havo the nation uo its part, but not deprive tho states of their rights; in other words, I be lieve that national remedies should bo added to the state remedies and not subtracted. They can act con currently within their respective ju risdictions. Tho Chairman. With reference to tho corporate organizations which aro to operate in interstate transpor tation, with a view of meeting the demands of the nation us well as the respective states In which they aro located, do you regard this tendency toward the consolidation of state railroads into great national systems, under which oUo system will operate railroads in 3, 4, 5, tf, vc xO states, a beneficial one? Mr. Bryan. Well, I would not at tempt to interfere except where com petition was eliminated. That is, tho more extension of a line into new ter ritory I would not regard as neces sarily object! able, and I would not care to say that a limit should be set to tho length of a road or to tho num ber of its branches, but The Chairman. Or '.o the number of states in which it runs? Mr. Bryan. That would follow from Its length but I do think that no permission should be given to take competing 'lines. To my mind com petition is essential unless you would have government ownership. The Chairman. Now, taking Into consideration the present 8 or 10 large systems of railroads, consol idating in their operation many miles of track, .that belong to individual corporations, organized under the laws of the states, do you view any of theso consol-dations which have been effected, so far as their opera tion is concerned, as prejudicial to tho public interest? Mr. Bryan. I am not prepared. senator, to point out a case and ex plain the operation of its manage ment. The Chairman. Are you awaro of any general public complaint against any one of these consolidations, bo far as the area of its operations la concerned? Mr. Bryan. No; I can not say that T irnnw of anv comnlaint based on area. Take the Pennsylvania and the Baltimore & Ohio. Tnere was com plaint based on the destruction of competition, and I think tho same with regard to the Southern Pacific and Union Pacific The Chairman. Well, we have now In the east several great railway sys tems the New York Central, em bracing six or mvon states, runntac as far as Chicago and perhaps be yond; the Pennsylvania railway sya tom all extending from the Atlantic coast to the middlo wost. Do you know of any public complaint against tue area In iviitnK u .. ... .w. niuou iuuus opur- oas to tho area, rather, In which niuBu rgaus operator nn5n ?rJ?n am not Ppared to nay that thero is any complaint, and mX ?i0t r?CaI1 ovcr h,av,nK rd n objection based upon' area alono. I know in tho m of ihQ H0Uthern railroads thero havo boon complaint based upon combinations that havo eliminated competition. Tho Chairman. And thero aro also complaints ns to capitalization, out I am confining myself simply to area served. Mr. Bryan. I see your point. Tho Chairman. I want to get at nntSnM,"011 fts,t0 whtst"cr tero Is any public complaint against tho slzo or tho area of operations of theso great systoms. Mr. Bryan. I know of no com plaint based raoroly on length or area. It has been based merely on tho elimination of competition. The Chairman. You aro awaro In each one of thi-se districts consolida tions havo been effected of from two to five or six hundred Individual roads by a gradual process, aro you not? Mr. Lryan. I know that that proc ess has gone on, but I am not suro that it has gone on in recent years as it did somo time ago. Then, of course, that process may not at all Interfere with competitionthe ex tension of arms and branchon mnv not affect tho matter of competition; Tho Chairman. Now, the state ment was made somo years ago, whrfn I examined this mnttnr Hmrourrlilv that thero wore about 6,000 individ ual railroads In tho country; that thero wero about 2,000 operating railways, and that the bulk of thono operating railways had been through some process consolidated in their operation through tho creation of great systems, some 10 in number, and this consolidation had gone so far that tho entire trackage of theso 10 systems amounted to about 200, 000 miles of railway out of the 225, 000 or 230,000 miles then existing. Now, just simply from the econ omic standpoint, tho question of ser vice to tho public, and disregaraing tho question of exaggerated stock is sues and bond issues, do you regard that tendency as simply meeting the economic requirements of the times, or was it a-mistako? Mr. Bryan. I think it would be difficult to answer that question in telligently without more information as to tho details of each particular case than I havo from your question. Tho Chairman. Do you not think if It had violated the economic re quirements of the time wo would havo heard from tho public? Mr. Bryan. I think tho public would not likely havo complained, except as that consolidation deprives them of an effective competition. Tho Chairman. I understand, 'and it It does not prevent an effective competition J Mr. Bryan. J3flmpetition, to my mind, is the test question. Tho Chairman. You aro aware that each one of theso systems' has main trunk lines and also branch lines extending out like the bones-of a fish from thfcritplnal column, and you are aware that as to each one of these systems, these branch lines stretch out into each others' terri tories, and in that way create a com petition between tho branch lines; are you not? Does- not tnat constitute '1 j-i ii it m s i f ! Ml m ii "