Vanishing Landmarks: The Trend Toward Bolshevism

by Leslie M. Shaw

If someone should predict that the last railroad ever to be built in the United States of America, has been built, are you prepared to question its correctness? Will it be necessary to change our policy if more roads are to be builded?

Listen! Will you invest money in railroad construction, knowing that if it succeeds you will be allowed no more than six or eight percent on the money wisely spent, and that if, through misfortune or want of foresight, it fails, you will lose everything? The theory of public utility commissions generally, is that if money is unwisely invested it ought to be lost, and when it is wisely invested, it should earn about six percent.

Suppose you and I install a hydraulic power plant and build our dam according to plans and specifications prepared by a reputable engineer. Then a flood destroys it and demonstrates that the money was unwisely spent and, therefore, according to these commissions, should be lost. If the dam stands the strain, and if it was wisely placed, and if it be economically operated, we will be allowed six percent. Are you ready to join in an enterprise of this character? If you will not, who will?

Suppose a promoter presents to you an engineer’s report made from a preliminary survey of a railroad extending, let us say, from St. Louis, around through Arkansas and Texas to Galveston. I am informed that such a report exists, and that it shows that the road will go through the largest body of uncut white oak in the world, extensive pine forests, tap that belt of zinc ore extending south from Joplin, Missouri, make available large coal measures, iron deposits and agricultural areas now obtainable at less than twenty dollars per acre, but which with proper transportation facilities, and a progressive citizenship, would be worth two hundred dollars per acre. The engineer estimates that the road when completed will earn twenty percent on the cost of construction, and you are asked to buy some of the stock at par. The statutes of most states forbid the sale of even initial stock issues for less than par. How much of this stock will you take? Will your neighbors and friends want some? How much stock in an unbuilt railroad do you think can be sold at any price when good farm lands adjacent can be bought at twenty-five percent of par?

While the wisdom of the modern law-maker prohibits the sale of stock at less than par few if any statutes have been enacted, limiting the price at which bonds may be sold. Suppose you are offered bonds instead of stock. Possibly you can get the bonds at less than par. What will you pay, and how large a block do you desire? Remember, the road has not yet been built. The money must be placed in the bank to be used in construction and you must wait for your interest until the road has earned it. If you will not buy, will your neighbors?

It will help to solve these problems if you recognize early in your calculations that men with much money are not much bigger fools than we with little. If you and I will not invest in railroad construction under present conditions, men of means and experience will not, and the last railroad ever to be built beneath the Stars and Stripes is now in operation unless—unless!

THE OLD WAY

During the half century and more of the unparalleled growth and development of the United States, bonds of unbuilt railroads were offered with fifty percent or more of stock as a bonus. The estimates indicated that the roads would earn not only interest on the bonds but dividends on the stock, and a portion of the unearned increment resulting from development was in this way awarded to those who took the risks. Investors were thus encouraged to expect reasonable returns, plus fifty percent or more of water. The promoters who had paid the expenses of preliminary surveys (often abandoned as worthless) also labored with hopes of great gain if they should discover a meritorious proposition. Those who bought and occupied the lands contiguous to new roads endured some hardships but took no risks and yet expected to add at least four hundred percent of water to their investments. They realized in most instances more than one thousand percent profit on the original cost.

Does anyone doubt that a return to the policy of apportioning unearned increment equitably among those who shall in any way contribute to the general result will revive internal improvements? No one asks, and no one would consent, that all the unearned increment should go to the stockholders of a railroad. Every one favors governmental supervision and control of rates. The point where a few diverge from the mass is in recommending that those whose vision and courage are solely responsible for development, shall have an equitable share of the unearned increment.

Lest I be misunderstood, I desire to state parenthetically that I have never owned a railroad bond or a share of railroad stock; and I have never promoted a railroad or been employed in any capacity by a railroad. Most of what little I now possess, I have made by watering the capitalization of real estate. Occasionally, in times past, when I have known of a railroad about to be constructed, and have recognized an opportunity to make a little money through another man’s vision, on another man’s courage and at the other man’s risk, I have purchased a little contiguous real estate, watered the capitalization from one hundred to one thousand percent, and then insisted that the road should haul me and my produce at cost plus six percent.