I met a friend not long ago who, in explaining that the world had been good to him, told me that some years before he had bought a large body of badly located but excellent timber back in the mountains of Washington, at fifteen cents per thousand on the stump. Then a railroad was built up to his holdings. That was some years ago and during the period of national development. When the road was completed, he went to the Interstate Commerce Commission and got a rate so that he was then selling his timber, which cost him fifteen cents per thousand, for five dollars per thousand, while those who builded the road are presumably getting six or eight percent on their investment and will until the timber is exhausted, when their road will be worthless. My friend is not a reactionary but is far-sighted. I think he said he studied finance from the standpoint of a farmer.
A few years ago, at a Chamber of Commerce dinner in New York, Myron K. Jessup asked me if I knew that he was once president of a railroad in Iowa. The road extended from Dubuque to Farley. I asked him if he remembered when an engineer by the name of Smith made a preliminary survey from Farley to Sioux City, and reported that there was nothing west of Iowa Falls worth building a railroad into. “Remember it!” said he. “He made that report to me.”
Think of it. A man living and in good health in 1906 who was old enough to be the president of a railroad at a time when two-thirds of the north half of Iowa was considered not worth developing. Ultimately the road was constructed and I happened to be at Storm Lake when the last spike was driven connecting the two ends of the road. This was in 1870. That whole stretch of country could have been bought at that time at an average of less than five dollars per acre. I remember riding forty miles without seeing a house. The lands I saw that day could not have been sold for two dollars and are now worth two hundred dollars per acre.
These lands were worthless without the railroad and the railroad relatively worthless without the lands. The lands, exclusive of improvements, have paid in rentals more than twenty percent on their cost and their present value is ninety-nine-one-hundredths water. No money invested in railroads or any other industry ever yielded returns comparable with that.
The wealth of the United States, estimated at two hundred and fifty billion dollars, is probably ninety percent water. Farm lands, timber lands, mineral lands, oil lands, town lots, originally cost very little. Deducting improvements, interest and taxes from rents and returns already received, plus the market value, and the difference is the unearned increment or the water that has been added to the original capitalization.
Suppose, if you please, we are just opening a new country. What policy would you recommend? Would you expect each one to attempt everything? Or would you encourage a division of labor and enterprise? I fancy we would follow the policy the Fathers adopted. We would encourage the improvements of lands, the construction of transportation facilities, the building of mills and factories, of stores and banks, the opening of mines and the development of water power, and then we would tacitly agree that whoever contributed in any manner to the common good should share equitably in the resultant unearned increment.
CHAPTER XX
BUSINESS PHILOSOPHIES
This is a preliminary chapter intended to show that management is the most essential factor in every business proposition. Several illustrations are given, and some advice offered.
Before discussing government construction, ownership and operation of railroads, and other so-called public utilities, I want to call attention to some well-known but seldom recognized principles.