A fourth contradiction is found in the great increase in cost of producing transportation without the corresponding increases in selling prices which have taken place in other kinds of business in which private capital is engaged. The erroneous impression seems to prevail that the supply of capital for the railroad industry is an inexhaustible reservoir, regardless of the compensation which it shall receive and the conditions under which it shall perform its work.
A fifth contradiction is the effort to connect up rate-making with physical valuations. If it will be a satisfaction to the politicians to have a physical valuation of all the railroads in the United States, and the people are willing to be taxed to pay the great expense of obtaining it, perhaps no great harm will be done; but I believe all of us here would concede that valuations by the ablest engineers, if separately made, would not agree, and that before such valuations could be finished, they would be out of date. Some of us probably think that for rate-making purposes the Government may as well be employed in making a physical valuation of farms and farm improvements in order to ascertain what is a fair price for wheat; or, for that matter, perhaps be as well employed in adding up car numbers. I know something of a piece of railroad out west, which in a great mining excitement was built through rocky and tortuous gorges, and with four per cent grade hung upon the precipitous sides of awful mountains in a climate described by one of the inhabitants as consisting of three seasons—July, August and winter. Later the boom evaporated and the business of the road got down to one train a day. In the low ebb of traffic a brakeman one day "sifted" into the trainmaster's office and asked for a job. The trainmaster put him through the catechism, and among other things inquired, "What would you think if you saw a train carrying green signals?" to which the applicant promptly responded, "I'd think business was picking up." Now, can any of us tell what they would do in Washington with a physical valuation of a road like that? Its rates today are only about one-fifth what they were at first.
A sixth contradiction is the wide-spread desire to regulate capitalization. Now it may be that there have been abuses; but if one asks any of these critics what is the grievance to be remedied, great silence usually falls upon them, for they are unable to show any more relation between rate-making and either physical valuation or capitalization than there is between the price of a pair of suspenders and the physical valuation or capitalization of a department store. Railroads are continually importuned to make rates that will "move the business," as in the case of the Western road just cited, and those parts of the United States which have the highest railroad capitalization have the lowest average freight rate. If you will look at the American Review of Reviews for the month of June, 1908, you will find a very interesting article by Interstate Commerce Commissioner Lane on "Railroad Capitalization and Federal Regulation." His program is a very simple one, and while pointing out that there should be some way of insuring that the proceeds of all railroad securities shall be actually invested in "acquisition of property, construction, completion, extension, or improvement of facilities, the improvement or maintenance of service and the discharge or lawful refunding of obligations," he says:
"Fundamentally, there is at present no inter-dependence of capitalization and rate—the latter is not in law, nor in railroad policy, the child of the former—though railroad men have sometimes expediently urged the claim, and courts have sometimes too kindly given it their nod of sanction."
Also,
"The most potent kind of regulation is that which casts the burden upon the individual to do the regulating himself and makes him responsible to the law for dereliction; and the plan for the regulation of capitalization here presented is founded upon that theory—to require the directors of the railroad companies to make public announcement of their security issues, to publish the objects for which such issues are made, and be responsible for the use of the proceeds in the precise and limited manner announced. This is far too modest a program to please those who delight in elaborate methods of procedure involving much filing of forms and petitions and many hearings, appraisements, viseings, and solemn givings of consent; and without question it is not nearly as thoroughgoing a plan as others which have been devised. But the simpler the plan is, the better, if it may effect its purpose."
He further says that his program
"does not guarantee the prospective purchaser of the stock that the stock certificate which bears a printed par value upon its face does in fact represent property of the full value so designated; but this is not a duty which the Government for any reason is bound to assume, and I know of no motive arising out of national policy which compels the assumption of such responsibility—certainly not at present."
If our complex government shall control all future issues of railroad capitalization, we may rely upon it that most of the new railroad construction in this country, instead of being independent, will be fathered by existing railroad systems, because their established credit, whatever it may be, will be required.
RECONCILIATION.