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
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