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.
You will remember that I said the Budget amounted to $16,000,000 on January 1, 1907. That was just before this wave of anti-railroad legislation referred to had fully developed; but when we saw what was happening, when we read the bills that were being passed daily, and the others that were under consideration, we became very much concerned. It seemed clear to us that even if business continued good—and remember this was ten months before the panic of November—that our earnings would probably be considerably reduced by the reduction of freight and passenger rates in various states, and our expenses were certain to be much increased by some of the legislation and also by the advance in wages, and it was necessary to consider where the money was coming from to pay the large bills that would come due in connection with the Budget program. After considering the matter very carefully early in January, we decided, first, not to authorize anything further in the way of improvements unless actually necessary; and, second, to stop as many things already authorized as it was possible to get along without. Among the things so put off or deferred were the building of a new engine house and necessary shop buildings at Clyde; the construction of a new line about 55 miles in length from Herrin to the Ohio River; double track between Galesburg and Bushnell; new passenger depots at Monmouth and several other places; work on new terminals at Lincoln, etc. Of course, it may not have seemed to you at the time that we were stopping, because we still had so many things under way, and you cannot prudently stop large undertakings all at once—for instance, we could not stop work on the new yard at Galesburg when it was half done, and you will recall that it required more than two years to complete the plan, but we did slow up as much as possible; that is to say, we tried to finish up such things as were authorized before January 1, 1907, and which were still considered necessary, but we did not start any new things. The effect of this is best shown by the size of the Budget on January 1, 1908—it was then a little over $8,000,000.00, or about one-half what is was twelve months before. In the meantime the November panic of 1907 had come upon us, and it seemed not only best, but necessary, to continue the policy decided upon in January of that year, and on the 1st of January, 1909, the Budget, as it then stood, and as it now stands, amounts to a little less than $1,000,000.00; and this brings us up to the present time.
In February, 1907, I had the honor to be invited to the annual banquet of the Commercial Club at Clarinda, Iowa, and I was asked to speak about the railroad situation. After referring to some of the proposed laws that were then under consideration in the various states, I continued as follows: "I will not speak of the probable effect of such a public policy as I have referred to, on the general railroad situation, as others are much better qualified to do that, but speaking for the Company which I represent, we view the situation with much concern, and we have done, I think, what any prudent manager would do if he saw confronting him conditions which he was certain would increase his cost of operation a large but unknown amount and at the same time reduce his revenues—we have planned to curtail our expenditures wherever possible. I do not mean that we shall let the property suffer, or lower the character of the service, but we will not undertake extensions or large improvements until we can see more clearly where the money is coming from, or if it comes at all. How far reaching this policy of retrenchment, or perhaps I should say curtailment, will be, I, at least, cannot say; it will depend upon the future. Certain it is that our expenditures in that direction will be much less this year than last, which means, of course, fewer men employed and less material purchased." It is two years since that was written, and I regret to say that circumstances have not yet seemed to justify any considerable change of policy.
The Burlington Company has on its pay-rolls today about 38,000 men, 15,000 less than in October, 1907, and 7,000 less than in February, 1907. We are doing all the things that we consider necessary for the safe operation of the trains, and for the proper maintenance of the property, but conditions so far have not seemed to us to justify a resumption of the policy of betterments and extension followed during 1906 and the preceding years. I do not know absolutely that it is so, but I imagine that the other Railroad Companies have been pursuing much the same course as we have here. The latest reports indicate that the total railroad mileage of the United States is about 230,000, so that the Burlington's mileage is about one-twenty-fifth of the whole, and if you multiply what has happened on this road by twenty-five, you will get a result for the whole country which will probably not be far from the truth. In fact the Eastern roads suffered much more from the actual business depression than we did in the West.
It has been stated by men who should be competent judges that from one-third to one-half of all manufactured steel and iron is used either directly or indirectly by the railroads, and that fully one-half of all the lumber manufactured is so used. When it became necessary for the railroads to stop buying new cars and engines, and also to stop all new construction and improvements, when possible to do so, you can well understand the effect that that course must have had upon the two particular lines of business just mentioned. Of course, many other lines were similarly affected, and it would seem logical that no full and real resumption of business can be expected until the railroads are again able to resume the policy which they were forced to abandon early in 1907.
When will that time come? I do not know. What will bring it about? I do not know that either, but I do know what will help matters greatly, at least so far as the Burlington Company is concerned; but before saying what I have in mind in that connection, I will digress a little, and briefly explain something of the financial responsibilities of a large Railroad Company, because in spite of all we hear about corrupt management, stock watering, etc., it is still a fact that the railroads did cost something, and the money that was used for that purpose was all, or very nearly all, furnished by private persons like yourselves, and it was furnished by them for investment because they thought or hoped such an investment would be profitable to them, for there is, there can be no other reason for investing money in anything, unless it be invested for charitable purposes. The Burlington System today, as I have said, is over 9,000 miles in length. It has large terminals in Chicago, St. Louis, Kansas City, and the other great cities it reaches. It owns 1,600 locomotives, 1,200 passenger cars, and 52,000 freight cars. The last annual report shows that its bonded debt (or the size of its mortgage) amounts in round numbers to $165,000,000.00, equal to about $18,000.00 a mile. This mortgage is legally entitled to interest at the average rate of 4.185 per cent per annum, because it is so specified in the bond, and that interest must be paid, or the mortgage would be foreclosed just as would happen if you failed to pay the interest on a mortgage, in case you happened to have one on your home. In addition to the bonded debt above referred to, there is outstanding $110,000,000.00 of stock in round figures, or about $12,000.00 a mile, making a total capitalization of $30,000.00 per mile. We are constantly told that the American railroads are overcapitalized, and yet the Burlington Road could not be replaced today for twice its capitalization. I doubt if it could be duplicated for three times its outstanding capital. The stock, as you know, receives as interest or dividends whatever sum the Directors may decide to pay, out of what is left after paying the operating expenses, taxes, and interest on the mortgage. If there is nothing left after paying the other items mentioned above, the stockholders receive nothing, so that there is a certain risk connected with an investment in railroad stock that does not apply to railway or Government bonds. For a number of years the Burlington Company has paid 8 per cent dividends to its stockholders. It has earned more than that, as the annual reports show, and the Directors might legally and properly have paid larger dividends, but they did not, and all the money earned in excess of 8 per cent on the stock has been spent for betterments, new equipment, etc. This policy, pursued through a long period of years, as it has been, explains how it is that the Burlington is in such good physical condition as it is today, and with such a low capitalization. With this explanation, you will understand, I am sure, that with an increase per year in wages alone of $3,000,000.00, together with other increases due to legislation, such as $325,000.00 per year because of the nine-hour law for operators, and a smaller income because of rates reduced (freight and passenger) in many states, the surplus, if any, after paying dividends would be much less than formerly, and if any new work was undertaken it would be necessary to keep its cost within such surplus as might be available, or else borrow the money with which to pay for such work. I hope I have now made clear why it was that we became worried about the Budget in January, 1907, and why for the last two years we have been trying, so to speak, to get our house in order. It will perhaps be said that we could have borrowed money for new extensions, betterments, etc., and that is actually what we were compelled to do, in order to complete the Budget plans above referred to; but what prudent man would want to borrow beyond his forced necessities, at a time when the future seemed so uncertain, and when the interest on the money so borrowed would add that much more to his existing burdens? The same sound principles should and do underlie railroad operations that you should and do apply to your own personal affairs. The items are larger in the case of the railroad—that is all.
I will now repeat the question—What will bring about a resumption of business on railroads? And if I have succeeded in making clear what I sought to explain, I think you can answer the question just as well as 1 can, but I will give you my views, and you will now be in position to judge whether they seem sound or otherwise.