Part 37
=====================================+============+============= | London. | New York. | Cents. | Cents. -------------------------------------+------------+------------- Apples, 1 lb | 4 to 6 | 10 Bread, 1 lb | 4 | 5 Butter, 1 lb | 24 to 32 | 30 to 35 Cheese, 1 lb | 14 to 16 | 18 to 22 Cocoa, 1 lb | 16 to 36 | 25 to 50 Coffee, 1 lb | 16 to 30 | 20 to 50 Currants, 1 lb | 4 to 8 | 8 to 12 Eggs, 12 to 16 | 25 | 6 to 12--25 Codfish, 1 lb | 8 to 12 | 15 to 29 Fish (general), 1 lb | 4 to 12 | 10 to 25 Flour, 3 lbs | 9 to 10 | 12 Meats: | | Bacon, 1 lb | 16 to 24 | 25 to 30 Beef, 1 lb | 16 to 20 | 22 to 30 Pork, 1 lb | 12 to 16 | 20 to 24 Milk, 1 pint | 4 | 4 to 5 Oatmeal, 1 lb | 4 to 6 | 5 to 10 Onions, 1 lb | 2 | 4 Oranges, 1 doz | 10 to 12 | 18 to 50 Potatoes, 1 lb | 1 to 2 | 3 to 4 Prunes, 1 lb | 8 to 12 | 10 to 18 Raisins, 1 lb | 6 to 10 | 10 to 16 Rice, 1 lb | 4 | 6 Syrup, 1 lb | 6 | 10 Sugar white, 1 lb | 6 | 6 Sugar, yellow, 1 lb | 4 | 5 Tapioca, 1 lb | 8 | 10 Tea, 1 lb | 20 to 60 | 30 to 1.50 Tomatoes, 1 lb | 8 | 12 -------------------------------------+------------+-------------
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.
IV
CAPITALIZATION
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.
======================================+================================= | Capitalization | 1909 | (182,046 Miles Owned) --------------------------------------+----------------+---------------- Capital stock | $6,199,919,551 | Funded debt | 8,015,841,805 | Receivers' certificates | 20,497,447 | |----------------+ $14,236,258,803 Rental of 39,086 miles, $120,784,982, | | capitalized at 5%. | | 2,415,699,640 | +---------------- Total | | $16,651,958,443 | | Deduct:(a) | | Railway stocks owned (actual value) | $1,889,157,214 | Other stocks owned (actual value) | 206,461,423 | Railway bonds owned (actual value) | 1,054,095,905 | Other bonds owned (actual value) | 140,282,728 | |----------------+ 3,289,997,270 | | Net capitalization, 1909 | | $13,361,961,173 Net capitalization per mile operated | | 60,425 --------------------------------------+----------------+----------------
(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 |$13,508,711,173 Net capitalization per mile of line | 57,962 Net capitalization per mile of track | 39,730 -------------------------------------------------------+---------------
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.
==================+==================+========= Year | Net | Per Mile | Capital | of Line ------------------+------------------+--------- 1909 | $13,508,711,173 | $57,962 1908 | 13,007,012,563 | 58,864 1907 | 13,064,279,303 | 59,600 1906 | 12,628,000,000 | 57,966 1905 | 11,167,105,992 | 53,328 1904 | 10,711,794,278 | 52,099 ------------------+------------------+---------
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) | $2,375,141,766 Operating expenses | 1,568,008,389 +--------------- Net earnings from operation | $ 807,133,377 Less taxes | 82,650,214 +--------------- Net 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 income from 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 | | |$724,483,163 Disposition of same: | | | Interest on funded debt |$324,181,521 | | Less paid from "other income"| 30,843,416 |$293,338,105 | Interest on current liab- | | | ilities | | 22,546,779 | Other deductions | | 70,174,473 | Dividends preferred stock | 50,183,739 | | Dividends common stock | 176,607,550 | | +-------------+ | |$226,791,289 | | Less paid from "other income"| 54,832,742 | 171,958,547 | +-------------+ | Dividends on other securities| | 769,222 | Additions and betterments | | | charged to income | | 24,807,546 | Appropriations to reserves | | 16,984,447 | Miscellaneous | | 5,602,761 | Deficits of weak lines | | 4,996,195 | Surplus available for adjust-| | | ments and improvements | | 113,205,088 |$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 | $271,328,453 Dividends declared out of surplus | 57,733,808 | Leased roads: | Dividends declared from current income | 33,843,577 Dividends declared out of surplus | 27,550,596 +------------- Total | $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 | $282,354,000 Interest on current liabilities | 31,835,708 Rent paid for lease of roads | 113,529,261 Net dividends | 104,074,006 +------------- Total | $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.
V
COST OF CONSTRUCTION
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.
=====================================================+================ Item | Amount -----------------------------------------------------+---------------- Cost of road (182,046 miles owned) | $6,603,504,463 Cost of equipment | 1,122,409,813 Undistributed cost of road and equipment | 3,080,064,960 Cost of 39,086 miles leased lines rental capitalized | 2,415,699,876 +---------------- Total | $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 |Capitalization| Valuation by | of Line| per Mile |State, per Mile -------------------------------+--------+--------------+--------------- Minnesota, 1907 | 7,596 | $44,206 | $54,201 | | | Washington, 1908: | | | Great Northern | 806 | 44,078 | 73,900 Northern Pacific | 942 | 70,278 | 106,500 Oregon R. R. & Navigation Co | 501 | 43,012 | 38,900 | | | Wisconsin, 1906 | 7,135 | 33,424 | 34,630 -------------------------------+--------+--------------+---------------
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 abandoned _because 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.
======+===========================+==========+=================+========= Year | Country | Miles of | Capital or Cost | Per | | Line | of Construction | Mile ------+---------------------------+----------+-----------------+--------- |Europe: | | | 1908 | United Kingdom | 23,205 | $6,382,296,742 | $275,040 1908 | Germany | 35,558 | 3,903,848,400 | 109,788 1907 | Russia in Europe (excl- | | | | usive of Finland) | 32,900 |(a)3,170,876,360 | 80,985 1907 | France |(b)24,730 | 3,447,366,000 | 139,390 1907 | Austria | 13,427 | 1,515,576,885 | 112,879 1907 | Hungary | 11,769 | 741,586,391 | 63,010 1907-8| Italy (State roads only) | 8,699 | 1,086,000,000 | 124,730 1905 | Spain (13 roads) | 6,840 | 583,632,000 | 85,327 1906 | Sweden | 7,938 | 257,408,450 | 32,427 1907 | Belgium (State only) | 2,537 | 430,800,000 | 169,806 1907 | Switzerland | 2,740 | 298,709,210 | 109,000 | | | | |Other Countries: | | | 1909 | Canada | 24,104 | 1,608,990,656 | 66,752 1908 | British India | 30,576 | 1,364,669,375 | 44,632 1907 | Argentine Republic | 13,690 | 820,433,796 | 59,930 1908 | Japan | 4,444 | 190,173,728 | 42,800 1909 | United States of America | 233,002 | 13,508,711,173 | 57,976 ------+---------------------------+----------+-----------------+---------