5. The necessity of complete reconstruction within a brief period of most railroads built through new territory, and the increase in funded and in floating debt involved.
7. The growth of railroads beyond the ability to handle them.
8. The steadily increasing expenditures required by law to accommodate the public.
9. The abuse of their position by directors and trustees.
10. The irresponsibility of railway accounts.
And it may be added that the control of American railways by foreign investors who apportion charges between operating and capital accounts in a way unsuited to American conditions has been upon occasion a cause of disaster. Unlimited freedom in matters of capitalization and unrestricted competition have nevertheless been the fundamental causes of bankruptcy.
It is interesting to observe that the majority of the principal railroads which failed in the nineties had taxed their resources nearly to the point of exhaustion before the panic of 1893 finally drove them to the wall. For every $100 received in 1892 the Richmond & Danville and East Tennessee systems were paying out $68.79 for operating expenses and $31.15 for interest on bonds, rentals, etc., leaving only 6 cents for dividends, necessary improvements, and the like. For every $100 received the Erie paid out the same year $66.46 for operating expenses and $31.85 for interest and other fixed charges, leaving only $1.68 as a surplus to ensure solvency in case of a decline in earnings. In 1893 the Atchison, the Northern Pacific, the Reading, and the Union Pacific had no surplus at all, but rather a deficit. The following table shows similar figures for all of our reorganized roads:
Percentage to Gross Income
| Operating Expenses | 1893 Fixed Charges | Surplus | Operating Expenses | 1892 Fixed Charges | Surplus | ||
|---|---|---|---|---|---|---|---|
| B. & O. | 66.89 | 24.27 | 8.83 | 67.68 | 24.55 | 7.76 | |
| Erie | 64.91 | 32.12 | 2.96 | 66.46 | 31.85 | 1.68 | |
| N. Pac. | 59.25 | 43.55 | 53.71 | 36.34 | 9.94 | ||
| Reading | 57.04 | 45.41 | 52.64 | 33.91 | 13.44 | ||
| Rich. & Danv. and E. Tenn. | 73.49 | 25.63 | .12 | 68.79 | 31.15 | ||
| U. Pac. | 59.66 | 43.18 | 51.91 | 36.42 | 11.66 | ||
| Atchison | 77.47 | 24.96 | 77.16 | 21.59 | 1.24[690] |
With these figures may be compared statistics for seven roads which went through the depression of 1893–7 without failure. These roads had a more extensive margin which could be cut off before interest on their bonds should be endangered. Furthermore, this margin was secured, not by low operating expenses, but by low fixed charges, including interest on bonds. Operating expenses averaged higher than for the preceding group, fixed charges averaged much lower. In the first group but one road had charges in 1893 which were less than 25 per cent of gross income; in the second group but two roads had charges which were greater. The condition of the roads of the second group referred to was as follows: