Part 7

Of these 46,434 miles of railroads only 1,134 miles approximately, or 2½ percent, are double track. It is possible that the next ten years will see at least one-fourth, or over ten thousand, additional miles of second track.

It must be borne in mind that while transportation is the burden bearer of both production and commerce, it is only able to perform the full and complete measure of its functions when properly nourished and assisted by finance.

In ancient days the birth of civilization started with the ability to preserve food products. This grew from the temporary necessity of accumulating sufficient food to last from one chase to another, or to enable journeys to be performed or winter climates endured, to the storage of vast quantities of food to enable nations to survive years of famine, as was exemplified by the storage of grain in Egypt in the days of Joseph, which period history shows us was the crowning epoch of Egyptian civilization.

Today the measure of our modern civilization is our transportation facilities. Safe, efficient and rapid communication, and the economy of the world's transportation systems, are binding the nations of the earth closer together day by day, and helping to create the conditions which will ultimately place the crown of accomplishment upon our modern civilization.

Coming back to the South, from which we have been temporarily led astray, it is self-evident to the careful observer that all the diverse interests of this section--agriculture, mining, manufacture, commerce and banking--are unavoidably and irrevocably bound up with the transportation facilities furnished and to be furnished by the railway systems ramifying its territory and performing a service for the South similar to that performed by the arteries and blood-vessels in the body of corporeal man.

It is also apparent to the impartial observer that if the South is to reach its highest state of development its transportation facilities should not lag, but should lead the march of progress, and that this development should be stimulated in every possible way; and men of the South should never forget for a single moment that _the needs of the railroads are the needs of the South_.

It has been our custom in America to anticipate future needs in transportation, and in a measure attempt to forestall and provide for them.

The policy of foreign countries has been practically the reverse. The railway systems of England have been constructed to take care of and supply a demand for transportation facilities that already existed.

The railroads of the United States in the South and West have been projected and constructed, and to a great extent financed, by men whose inspiration was a firm belief in an unseen future and whose assets were largely composed of hope and an undying faith in the future development of their country.

Now, the future demands for increased transportation facilities in the South are plainly indicated by past records, showing the growth of productive activities and the constant increase of tonnage to be moved.

If these requirements are to be met, demand and supply must move forward hand in hand. Additional tonnage will justify increased facilities and increased facilities will stimulate still greater tonnage.

During the past 25 years the total products of the South, from agriculture, forest, mines and manufactures, have increased in valuation over 225 per cent. During the last five years of this period, ending in 1906, the increase has been 50 per cent.

The common fallacy that a railroad is completed when opened for traffic has long since passed away, at least in the minds of intelligent men.

The railroad of today is no sooner completed as a single track, than it becomes necessary to provide industrial spurs; additional or enlarged terminals; replace its temporary structures by permanent ones; widen its excavations; strengthen its embankments; provide passing tracks, additional shop facilities, enlarged passenger and freight stations, warehouses, elevators, docks and wharves at water terminals, additional tracks, heavier rail, rock ballast, elimination of curves, reduction of grades, block signals, elimination of grade crossings, heavier engines, larger and better cars, to the end that the constantly growing requirements and exactions of modern traffic conditions may be met; all of which requires increased expenditures, which it is easily seen could not in any event be provided for out of earnings.

During the next ten years the railroads of the South will require $1,000,000,000 to enable them to fully provide for the increased demands for transportation facilities, an average of $100,000,000 per annum. Including the estimated increased mileage and the present capital investment, the resulting average capitalization would amount to $53,000 per mile, being $20,000 per mile under the present average capitalization of all the railroads of the United States today, which is $73,000 per mile.[B]

Meeting the requirements of the railroad situation in the South by the expenditure of a round billion dollars during the next ten years, as outlined herein, would make the total investment in southern railways at the end of that period three billions of dollars on an estimated mileage of 56,000.

It would require average earnings of $9,000 gross per mile per annum, with operating expenses at 70 per cent of the gross, to yield sufficient net income to provide a return of 5 per cent on this total investment.

When these figures are compared with the present average gross earnings of the railroads of the United States, $11,400 per mile per annum, with an average cost of operation of $7,757 per annum, resulting in a ratio of operating expenses to gross earnings of 68 per cent, the above estimates appear reasonable and conservative.

Even if this expenditure is made and the results predicted obtained at the end of the ten-year period, southern railroads will still fall approximately 25 per cent short of yielding the present average gross earnings per mile per annum of the railroads of the United States today.

To provide funds to meet these ever-growing and incessant demands for additional facilities, the railroad companies must necessarily be large borrowers.

The prosperity of the South in the next decade, and in those to follow after, depends upon the ability of the owners and managers of southern railways to foresee and provide for future necessities, and upon the promptness with which the work is accomplished.

The ability of railroads to construct these improvements, which are so essential to the future prosperity of the South, depends upon the willingness of capital to furnish the necessary funds for the purpose.

While legislation may control and regulate the returns upon invested capital, there is no process by which it can compel that investment originally. While investment is easily retarded it is difficult to attract.

There is probably no form of capital investment more open to attack or more liable to depreciation through unfair or unwise legislation than the railway investments of today.

While the speaker is a firm believer in the principles of governmental control and supervision over the corporate entities which have been created by the people and for the people, it must not be forgotten that every shield has its reverse, and that the exercise of such control and supervision must necessarily be along the lines of right and justice, which no mere legislative enactment can change. Any variance brings its own reward, which frequently spells disaster.

The power to control, regulate and supervise necessarily carries with it responsibilities from which there can be no escape.

Every tax, every restriction, every requirement which costs money or reduces revenue to our southern railroads is a tax which must ultimately be paid by the communities which they serve.

The prosperity of the southern railroads and the prosperity of the South are irrevocably bound together, and the _needs of the South are identical with the needs of the railroads_.

The basis of securing capital must necessarily be the ability of the borrower to inspire confidence in the lender that his capital will ultimately be returned to him intact, and that he will receive regularly and promptly adequate hire therefor.

No section of our great country has such reputation for united action as the South. In political matters this unity of action for years has led to the designation "The Solid South."

What the railroads in this section need today is _a solid South behind and beneath them_; a solid South taking a calm and rational view of the immense factor the railways have been and always will be in the development of its future greatness.

The recent reversion of sentiment in the State of Georgia, brought about by a calm and deliberate analysis of the present situation by the business men of that State, should be the keynote of the future action of the solid South.

_The adoption of a policy of fairness and liberality towards the railroad interests on behalf of all the Southern States, and the ability to convince the financial world that this action is sincere and genuine and will be permanent, is the great paramount need of the railroads of the South today._

Prompt action along these lines will enable the railroad companies of this section to successfully compete in the markets of the world for the capital needed to carry out the improvements outlined, and thus provide the facilities which will enable the producers of the South to ride the crest of the wave of coming prosperity.

In its calls for capital the southern railroads must come into competition in the markets of the world, not only with the railroad requirements of the North, of the East and the West, but with all the lines of human industry and endeavor throughout the wide world.

The difference between the five or six per cent paid by southern railroads for the money which goes into their additional facilities or equipment, and the three or four per cent which may be yielded by the high-class world investments, is merely the gauge by which the confidence of the capitalist is measured in the integrity of his investments.

Today it is difficult to secure money for railroad development, either South or North, at any ordinary rate of interest. Why? Is it because money is scarce? No.

I can best answer this by a story of the panic of '93, when a citizen of Chicago dropped into the office of Lyman Gage, of the First National Bank of that city, and inquired of Mr. Gage if money was tight. He replied, "No, the bank had plenty of money." The citizen said, "That's fine; can I secure a loan of $100,000?" Mr. Gage replied, "Yes, you can have it; we will loan it to you. What is your collateral, what security can you give?" It is needless to say that the loan was not made.

The customer afterwards remarked to a friend that he had found that the trouble was not that money was tight, or that money was scarce, but was due to the scarcity of collateral or security, which is only another designation for guaranteed confidence.

This is the situation today. There is not a railroad in the South, North, East or West that could not secure all of the funds necessary for any development it might desire to make provided it could show the capitalists to whom application for the loan was made that it could furnish security which would insure the repayment of the loan and the interest thereon as due.

I doubt if there is a single southern railway system, the officers of which would not gladly today take up, consider and block out a scheme for the improvement and betterment of their property, and commence preparations to enable their system to fully perform the increased functions of a common carrier, which the abundant years of the immediate future promise to require, if they could be sure, and in turn could assure their financial backers, that the earnings of their road would be amply and safely sufficient to provide for, and take care of, the investment necessary.

Therefore, _remember that the needs of the railroads are the needs of the South_.

I presume there is no planter, miner, manufacturer, producer of any sort, banker, merchant or professional man in the wide South who would not say in a moment that every thousand dollars of capital invested in his vicinity, or in his town, or in his state, would be gladly welcomed and eagerly sought for, by the planter paying eight per cent and the merchant and miscellaneous producer from six to eight per cent, and that approximately one billion of dollars injected into the commercial channels of the southern states during the next ten years would bring a relative measure of prosperity to every man, woman and child within its borders.

When it is considered that this amount of money could be invested in additional railroad improvements and facilities; that under proper conditions it could be secured at a rate not in excess of five per cent; that approximately eighty per cent or more would be spent for southern labor and southern material, and would find its way through every artery and vein of southern trade and commerce, it would seem that the solid South would be thoroughly alive to the burning fact that--_The needs of the railroads are the needs of the South_.

I might talk to you for hours about the evil and unfairness of legislative enactments to retard and make unproductive railway investments; of the injustice of any body of men attempting by legislation, without giving the railroad corporations proper hearing, to arbitrarily adjust their rates of toll for either passenger or freight simply because politicians consider it a popular thing to do.

I might suggest a multitude of things which could be done to increase the credit of railroads throughout your section.

I might mention a multitude of things which have been done to injure and impair and prevent railroads securing the necessary capital to provide for their needs.

I might also attempt to enumerate the ill-advised actions of railroad managers and employees toward the public.

I might expatiate upon the foolishness and unwisdom of a corporation--the creature of the public--attempting to dictate to its master or declining to obey its commands.

It is doubtful, however, if the enumeration of the errors and shortcomings of the fellow-members of the same family ever tends to a better understanding or more harmonious relationships. The need of the hour is a recognition of the interdependent relations which exist between us all, and to remember--intensely, actively, potently remember--that an "injury to one is an injury to all," and that "united we stand, divided we fall."

FOOTNOTE:

[B] This includes $15,000 per mile of duplicated capital.--S. T.

PROBLEMS CONFRONTING AMERICAN RAILWAYS

BY DANIEL WILLARD,

PRESIDENT OF THE BALTIMORE & OHIO RAILROAD.

[An Address delivered at Galesburg, Illinois, to Burlington Railroad Employes, February 20, 1909, by Mr. Willard, then Second Vice-President of the Chicago, Burlington & Quincy Railroad Company.]

A short time ago I had occasion to explain to some of your associates who happened to be in my office, some of the difficulties the railroads had been contending with during the two years just past, and I was asked if I would be willing to come to Galesburg and explain to other Burlington employes the things I had endeavored to make clear to them. I replied that I would be very glad to do so, and I suppose that is how I happen to be here tonight.

I understand that this audience is composed largely of employes of the Burlington Railroad Company, and I am glad that that is so, and what I shall say will be addressed particularly to them.

So much has been said and written about railroads during the last two years, and by many well qualified to do both, as well as by some not qualified to do either, that it can hardly be possible that any new thing remains to be said, and I fear I shall only be able this evening to repeat to you collectively the same things I have already said to many of you individually.

Under the Burlington plan of organization the Second Vice-President has direct charge of the operation of the line (responsible, of course, to the President), and for the last five years I have had the privilege and honor of holding that office. I refer to this only that I may by so doing establish my relationship with the various matters to which I shall later specifically refer, because I propose to confine my remarks chiefly to home matters; that is to say, to matters pertaining directly to the Burlington Company. I feel that I ought to be qualified to speak clearly on that subject, and while I have naturally read much concerning the general railroad question as a whole, the same sources of information have also been open to you, I have no doubt many of you have given the general subject as much or even more study than I have.

In October, 1907--16 months ago--the Burlington Company did the largest business in its entire history--ran the most trains, earned the most money and employed the most men. During that month the names of 53,000 men appeared upon its pay-rolls; and the same condition existed quite generally throughout the entire United States. There was a well-nigh universal complaint of car shortage and lack of motive power.

Four months later, reports from the Car Efficiency Bureau in Chicago showed a surplus of over 325,000 freight cars on the American railroads. In the meantime the Burlington Company had reduced its force by nearly 18,000 men and it was estimated that the transportation business of the country had fallen off more than 30 per cent.

What caused this unprecedented change? Men far abler than I have undertaken to explain, and many reasons have been given, all, I presume, more or less in harmony with the facts, but influenced no doubt by each man's point of view. I say, candidly, I do not know what caused it; that is, assuming that there _was any one cause_, but I think I can point out to you _some_ of the _contributing_ causes, at least so far as the Burlington Company is concerned.

A railroad, as you all well know, is a living, growing thing. It is never finished, or if we think we have finished some certain part, as was probably thought when the original stone engine houses were built here some years ago, or when the first bridge was built across the Mississippi River at Burlington, it always happens that heavier, larger, and longer engines come along in course of time, forced upon us by the changed conditions, and our engine house which was built for all time becomes too short, and our bridge is too light, and both must be rebuilt. The same thing is going on in every department of railroad operations--ballast, ties, rails, coaches, station buildings, even grades and curvature, all come within the changing influence of time and progress. I referred to the engine house specifically simply to illustrate my point.

Because of the constant change or evolution which is going on, it is necessary that Railroad Companies, if they expect to keep abreast of the times, should make annually large expenditures for such improvements as from time to time become desirable or necessary, if the standard of service is to be raised, or even maintained. These are called extraordinary expenditures, and it is customary on this Line to prepare each year, as of January 1st, what is called a Budget, being in effect a list of the more important improvements considered necessary by the officers of the Road. The Budget shows the separate items, with description of each, and also estimated cost. It may and does include such items as new cars or engines needed, additional sidetracks, new terminal yards, such as you have here, water treating plants, new coal chutes, etc.

On January 1, 1907, the sum total of the Burlington Budget, as it stood approved by the President on that date, amounted to something over $16,000,000.00. It included some new equipment and also some quite large improvements, such as new yard at Lincoln, grade reductions between Galesburg and Savanna, etc.

The Burlington System is over 9,000 miles in length, and goes through parts of eleven different states. On the 1st of January, 1907, the legislatures in all of the eleven states, I think, were in session. The Federal Congress was also in session at Washington. Bills having special reference to railroads were being introduced daily in some of the legislative bodies above mentioned. I cannot say now that all of them were against the railroads, but I feel I am justified in saying that while perhaps some of them if passed might not have injured the railroads much, none, or at most very few, were intended to help the roads. In fact, the attitude of the Federal Congress as well as of most of the state legislatures was considered by nearly all railroad owners, and officers as well, as distinctly hostile. This belief may or may not have been justified by the facts--at any rate it existed. The owners of the Burlington Company believed it. Its executive officers believed it. I believed it.

The number of bills affecting railroads introduced in the legislatures of the eleven states above referred to, and in the Federal Congress, during the session of Winter of 1906-1907 was over 800--at least, over 800 such bills were actually laid upon my desk. Among these were bills reducing the passenger fares in several states; others about reciprocal demurrage--if any one can explain how such a matter can be made reciprocal; still others fixing the speed of stock trains, and the size of caboose cars; fixing the hours of labor for men in certain branches of the service (and I wish to say here that that part of the Federal law fixing limit of hours for men in train and engine service has my hearty support); bills having reference to the liability of the railroads to their patrons and employes, etc., etc. I do not wish you to understand that I criticise all, or for that matter, any, of the bills by this enumeration. I am now simply reciting the facts. But whether the bills were good or bad, desirable or undesirable, it was clear if some of them became laws that the expenses of the railroads would in consequence be largely increased, and no way was provided whereby the revenue or earnings would be correspondingly raised--in fact, there seemed to be a demand from all directions that rates should be reduced, and they were reduced in many states.

Another important movement was also under way at the same time, and that was in the direction of a general wage increase in practically all departments. This one item alone cost the Burlington Company $3,000,000.00 a year.

Now, what effect do you suppose all these things had upon the Budget and similar questions? Just the same effect that the same kind of questions in a personal way would have had upon you and your personal affairs.