The theory of encouraging home industry has prevailed in this country during the greater part of our national existence. Import duties averaging 41.22 per cent were levied in 1911. The advocates of the system claim this is done to protect American Labor. Our manufactures are protected as a matter of national policy. Transportation costs the public from one-third to one-half as much here as in Europe. This cheapness is not purchased at the cost of the workingman. In 1910 the average daily earnings of railway employes in the United States were more than twice as great as in the United Kingdom, and two and three-quarters times as much as on the Prussian-Hesse system in Germany. As employers of labor and also as producers of a commodity that everybody uses directly or indirectly, paying that labor more than it receives anywhere else in the world and supplying that service for less than is charged anywhere else in the world, the railroads deserve a public consideration not extended to them now.
Second, the railroads should be permitted to earn and hold a surplus equal to fifty per cent of the amount they pay out in dividends, to be held for emergencies and applied to improved facilities. There are many expenses, and new ones constantly arising, that must not be added to capital charge unless rates are to be made that the public cannot and ought not to be asked to bear. In addition to the heavy demands of the ordinary growth of traffic, there are many extraordinary expenses. Public authorities do not hesitate to order the railroads to provide additional equipment. This, being only partially under the owner’s control, is soon scattered over the country. The weaker roads prefer paying a per diem charge to buying for themselves. This compels the stronger roads practically to provide new equipment for the whole country and pay the cost of it from their own resources. Grade crossings must be eliminated both in the cities and in the country. The ordering of these is held to be a legitimate part of the police power of the state, whose exercise is unlimited. To raise or lower tracks at a single city may cost millions of dollars. This class of expenses grows very rapidly in the United States as population becomes denser. Shall we capitalize them also, as has been done abroad? Safety appliances must be adopted. Ingenuity is adding yearly to the number of these; and the public demands rightly that they be put into use as soon as their value is demonstrated. But all these things take money—and a lot of it.
Steel cars are a good illustration of this kind of expense. They are coming into general use, and it has been proposed to make their purchase and employment compulsory even before their benefits have been fully proved. To buy them is a big expense, but that is only the beginning. A train made up of them is sixty-five per cent. heavier than one composed of old style cars. More trains must be run to render the same service. Tracks and bridges must be strengthened. So the cost of service is increasing all the time through improvements that the railroads are just as anxious as the public to adopt. Every one of these improvements costs money. Very few of them produce one dollar of additional revenue. Yet the railroads must pay their bills or go into the hands of a receiver. Such an increase of rates as will cover these expenses; the accumulation of at least such a surplus as will furnish funds for these daily demands in the domestic economy of the railroads, must be authorized, unless traffic is to decrease, transportation facilities to grow worse instead of better, or capitalization to be increased until any rates that the people can pay will fail to cover the fixed charges of the common carriers.
An extraordinary doctrine is now being propounded in many quarters. It is held that the accumulation of a surplus is evidence that rates are too high and ought to be lowered; just as if the man who earns, saves and puts a dollar in bank to meet future contingencies thereby admitted himself guilty of either dishonesty or extortion. It is held that a railroad has no right to receive or enjoy income derived from any other source than the operation of its plant. It is asserted that a railroad has no right to the natural increment in the value of its property, though this is not denied to any other corporation or to any individual under like circumstances. It has been attempted to apply these principles to the regulation of railway property, stripping it of privileges enjoyed by citizens and other corporate entities under the constitution. But how about the other side of the shield? Does the state recognize and abide by this same doctrine when its own revenue is at stake?
All the earnings of the railroad, from whatever source derived; all the property to which it holds title, no matter how acquired or held, is taxed by the state as the property of the railroad; either indirectly by a tax on gross earnings or directly on assessed valuation. The state has taxed surplus and all improvements made from it just the same as those made from the proceeds of stock and bond sales. Can it do this—can it tax all earnings, improvements made from earnings and surplus without confessing that the holders are entitled to the property and the income from it as truly as the state is entitled to the tax? The rule of fairness and the equal hand of the law should make the obligations and the privileges of the railroad co-extensive. The taxes paid by the railways of the United States in 1910 were about 13 per cent of the total interest and dividends. They were over 25 per cent of dividends alone. That is, the state received from the property one-fourth as much as all the owners of it put together. In the face of facts like these, no just man and no court that regards either law or equity should question the right of the railways to enjoy the natural increase and to earn the normal rate of profit on all the property they hold, no matter how invested or employed.
It is not a political but an economic question that the country has to consider and solve. The adjustment of tariff taxation, the regulation of railroads and all other similar matters over which the legislative power has control and which are essentially economic and non-political are held deliberately within the range of current controversy for the advantage of party politics. So long as they can be kept from a fair and permanent settlement on the basis of economic justice, they will furnish rallying cries for the unthinking of one political party or the other. The country cannot rise to the level of its duty or its opportunity until the scientific knowledge of the expert and the action of the just judge are applied to the settlement of such economic issues.
The American people must soon begin to realize how injuriously they are themselves affected by a game that has been played for so many years with their business prosperity and their future welfare. Meantime the practical questions that I have presented and that grow straight from the root of the present situation remain. The wisdom, the desire for justice, the intelligent self-interest of the whole country should be concentrated upon the answer, which is not really difficult to find. The people must first realize that regulation must not be strangulation. Every restriction compatible with the public interest may be applied without impairing the position of the railways, or their ability to continue serving the public; because their interests at bottom are one. It is high time that a rational perception of this identity should put an end to hostile discrimination against the railroad, and a policy be shaped which will permit the railways of the country to lay a broad foundation for transacting the future business of the country, by providing the machinery without which that business cannot be done.
Since the greatest need is larger and better terminals, the process of improvement will be costly. Since the sum to be raised must be reckoned in billions, the railroads, if they are to maintain their wage scales, and their standards of efficiency, must be permitted to charge such rates as will enable them to pay interest on the additions to capitalization representing the money invested in new terminals, and also accumulate a surplus sufficient to take care of the constantly arising demands for additions to the existing plant. Courts and commissions will see that excessive rates are not collected. On the other hand the courts have affirmed the right of the companies to earn a reasonable return on the total value of their property. Between these well-marked lines the railway rate should move, according to the needs of traffic and the development of the business of the country. Rates either permanently unchanged at the present figure or lowered by compulsion mean, in view of the existing emergency, nothing but ruin. That ruin will not be so immediate or complete for the railroads themselves as it will be for the business interests to which they will no longer be able to give a prompt and adequate service. It will be far-reaching, because its effects will touch every man, however humble, who is engaged in productive industry. If it comes it will be the most disastrous catastrophe in all our business experience. The whole question may be summed up in the simple fact that the business of this country has grown beyond the possibility of being handled by a railroad system costing on an average $60,000 a mile. The experience of the whole world is against such a proposition.
I do not underrate the importance of other interests or issues, I only give due place and emphasis to this question when I say that it dwarfs by comparison every other that bespeaks the attention of our people. What, in comparison are any of the innovations or interpretations of the national will which have recently formed the subject of a nation-wide and passionate discussion? Across every stream of commerce where it enters a distributing city an obstacle grows higher every day, restraining the impatient tide of the nation’s exchanges. It is time for all of us to lay aside prepossessions, hostilities, differences in points of view, and work together for an object infinitely more essential than most of the great enterprises deemed so national in their scope and benefits that they command not only the sympathy but the financial backing of the government itself.
It is the duty of every business organization, of every business man, of capital interested in safe investment and labor interested in sure and remunerative employment, to help swing the country into line behind the only policy that can help and save them all. No pledge of national credit, no subsidy in cash, no immunity or privilege is asked; only freedom to raise on reasonable terms the capital without which the work cannot be done; implying necessarily freedom to earn on that capital the return without which it will not be forthcoming, and enough additional to make and keep railway equipment and service equal to the progress of invention and improvement and to the just expectations of the people.