The Railway Library, 1909 / A Collection of Noteworthy Chapters, Addresses, and Papers Relating to Railways, Mostly Published During the Year

by Unknown

		Rate of Interest and Proportion of Total Indebtedness
		Incurred During Year and Outstanding.
Year.	Borrowed.	6½ per	6 per	5 per	4½ per	4 per	3¾ per	3½ per	3 per
		cent.	cent.	cent.	cent.	cent.	cent.	cent.	cent.
1897	$493,408,775	—	2.24	8.54	1.56	41.73	—	44.92	1.01
1898	390,803,025	—	.12	1.92	.05	48.08	—	49.83	—
1899	505,936,672	—	2.59	5.77	3.14	54.91	—	25.05	8.54
1900	215,039,851	—	.53	7.40	3.71	38.94	—	29.10	20.32
1901	512,559,403	—	.35	7.58	7.38	74.55	0.07	10.07	—
1902	471,578,658	—	—	9.53	4.23	73.80	—	12.44	—
1903	427,358,965	—	.36	12.54	5.17	74.40	—	5.22	2.31
1904	325,078,790	—	.08	18.82	9.30	59.53	—	12.27	—
1905	635,304,659	—	.28	10.44	11.65	57.38	—	17.73	2.52
1906	514,638,170	0.07	.23	27.55	7.95	48.78	9.38	6.04	—
1907	708,351,929	—	4.28	40.86	25.10	29.70	—	.06	—
(a)1908	266,281,355	—	43.00	17.86	1.07	38.07	—	—	—
Total	5,466,340,252	0.01	3.25	15.34	8.00	53.49	0.89	16.87	2.15
(a) January to July, only.

The foregoing table shows that while, in 1897, the railways borrowed 87.66 per cent. and in 1898, 97.91 per cent. of the new capital obtained in the form of loans at four per cent. or better, they were compelled, in 1907, to promise more than four per cent. on 70.24 per cent. and in the first six months of 1908 to promise six per cent. on 43.00 of their borrowings. The significance of these figures is made still more apparent by the following table, which shows opposite the aggregate borrowings of each year, the interest charges thereon and the average rate upon the portion of the capital which it represents:

		Aggregate
		interest	Av. rate
Year.	Borrowed.	charges.	interest.
1897	$ 493,408,775	$ 19,258,593	3.90
1898	390,803,025	14,744,141	3.77
1899	505,936,672	19,804,814	3.91
1900	215,039,851	8,073,638	3.75
1901	512,559,403	20,856,559	4.07
1902	471,578,658	19,119,182	4.05
1903	427,358,965	17,561,577	4.11
1904	325,078,790	13,571,945	4.17
1905	635,304,659	25,758,601	4.05
1906	514,638,170	21,964,215	4.27
1907	708,351,929	32,722,081	4.62
1908(a)	266,281,355	13,431,067	5.04
	———————	——————	——
Total	$5,466,340,252	$226,886,413	4.15
(a) January to July, only.

The foregoing shows an increase, in the average interest rate demanded upon new loans to railway corporations, from 3.90 per cent. in 1897 to 4.62 in 1907 and 5.04 in 1908. The increase in the rate from 1897 to 1907 was equal to 18.46 per cent. and from 1897 to 1908 it was 29.23 per cent. In other words, one dollar would pay interest on as much of the new capital secured by loans in 1897 as $1.29 would of the loans of 1908. The gross revenue of $105.00 obtained in both years from the typical shipment of fourth class freight between Chicago and New York, at the unchanged rate applicable to such a shipment in both years, would pay interest on $2,692.31 secured in the earlier year and on only $2,083.33 secured in the later year. The loss in power to purchase loaned capital therefore amounts to 22.62 per cent. In order fully to appreciate the importance of this rise in the cost of capital it is necessary to realize that very great sums of new capital are annually required for the necessary augmentation and improvement of railway facilities. This is made evident by the total yearly borrowings as shown in the foregoing tables, but it should be borne in mind that further sums, certainly not less extensive in the aggregate, have been raised through issues of stock, which promise no certain rate of interest, although these sums could not have been obtained unless the subscribers had considered it probable that they would, in the long run, receive returns in dividends at least equal to the "going rate" of interest. It is interesting to note that the aggregate of new capital secured by loans in each year has very largely exceeded the total interest payments to all capital obtained by borrowing. This is shown by the following table, the data in which, except those as to the sums obtained by loans, are from the reports of the Interstate Commerce Commission:

			Per ct. int.
	New capital	Interest on	paym'ts new
Year.(a)	borrowed.	funded debt.	borrow'gs.
1898	$ 390,803,025	$ 237,578,706	60.79
1899	215,039,851	241,657,535	47.76
1900	215,039,851	242,998,285	113.00
1901	512,559,403	252,594,808	49.28
1902	471,578,658	260,295,847	55.20
1903	427,358,965	268,830,564	62.90
1904	325,078,790	282,118,438	86.78
1905	635,304,659	294,803,884	46.40
1906	514,638,170	305,337,754	59.33
1907	708,351,929	323,733,751	45.70
	——————	——————	——
Total	$4,706,650,122	$2,709,949,572	57.58
(a) Accurate data for payments to capital in 1897 are not available.

FROM THE VIEWPOINT OF THE PURCHASER OF THE SERVICES.

So far the extent and significance of the changes in the value, or purchasing power, of money have been considered from the point of view of those who produce and sell railway transportation. But equally striking changes will appear and similar conclusions are inevitable when recent history is reviewed in the aspect which it presents to those whose earnings are devoted, in part, to the purchase of the services which the railways supply. For the important consideration to the wage-earner who wishes to travel by rail or who buys commodities that have been so carried, or to the producer whose products must go to market over railway routes, is not, how much money must be paid for the railway services, but, rather, how much labor must be expended, or what quantity of his goods must be produced, in order to obtain that sum of money. If the earnings of a particular wage-earner have increased from fifty to seventy-two cents per hour, a railway service is cheaper, to him, if it costs twelve cents than it was at ten cents when his earnings were on the fifty-cent basis, for he now procures with the fruit of ten minutes' toil what formerly cost the result of twelve minutes' labor. In Bulletin No. 77, just issued by the United States Bureau of Labor, the official statistician presents data showing the relative wages per hour of many different classes of wage-earners, not including railway employees, in 1897 and 1907. While these data show that wages have almost uniformly advanced (there are ten somewhat questionable exceptions among the 342 classes) the data supplied by the Interstate Commerce Commission show that during the same period average railway freight rates have declined from 7.98 mills to 7.59 mills per ton per mile, or 4.89 per cent. A table presenting and based upon these official statistics and showing the relative wages per hour of the various classes of labor, in 1897 and 1907, the percentage increase in wages rates per hour and the increased command over railway freight services which these wage-earners have obtained through the combined effect of higher wages and lower ton-mile rates is given in Appendix C[F]. In studying the data presented in this appendix it should be borne in mind that the wages are relative and not absolute. They mean, for example, that the average male blacksmith in the agricultural implement industry was paid, in 1907, $1.25 for the same quality and period of labor for which he was paid a little less than ninety-six cents, in 1897. This increase amounted to 30.58 per cent. of the wages rate of 1897, and, combined with a decreased cost of railway freight service of 4.89 per cent., which made 95.11 cents go as far in purchasing the latter in 1907 as one dollar would go in 1897, gave him 37.29 per cent. greater command over railway freight services.

In an earlier bulletin, No. 75, published during the current year, the Bureau of Labor continued its "index numbers," which show, in similar manner, the average relative wholesale prices of the commodities entering into the ordinary budget of family expenditures. For the purpose of presenting the changes in these prices on a uniform basis the Bureau represents the averages for the ten years from 1890 to 1899, inclusive, as one hundred per cent. and reduces the averages for each year to percentages of the averages for the basic period. The following table presents these figures for the year 1897 to 1907, inclusive: