There is no safer business in the world than railroad transportation; there is none that has less elements of uncertainty; none whose returns in the aggregate are less varying. Every other business in the country, whether prospering or struggling, pays tribute to it. It rests on a cash basis, and suffers probably less from hard times than any business of its magnitude. Both the merchant and the manufacturer run large risks in doing business largely on a credit basis. The farmer sows in the spring, harvests in the fall, and often cannot realize on his products until winter; but the railroad company always receives its pay as soon as its work is done, and not unfrequently even before it is done. Statistics show that railroad revenues are, in the aggregate, remarkably uniform, and there is no reason why railroad securities should be less stable than bank or insurance stocks. Mr. Jeans says:
"It is observable, in respect to the net profits from railway working, that they have not fluctuated from year to year in the same way as nearly all other profits have done.... It comes, then, to this, that, next after land and house property, the railway interest is the largest and most important in the country. But it is superior to both of these rival interests in its profit-earning capabilities, yielding, as it does, more than 4 per cent. on the capital expended, against a possible average of 2-1/2 to 3 per cent. in respect to the others."
There may be some arguments in favor of bonding railroads, but this practice is, upon the whole, productive of infinitely more evil than good. The State should, therefore, compel railroad companies to liquidate all of their bonded indebtedness without unnecessary delay. In the proportion in which this is accomplished railroad shares will gain in stability and value.
Railroad men complain that the small savings of the poor invested in railroad securities do not yield adequate returns and are often lost in consequence of the foreclosing of the roads in which these investments have been made. Others complain that railroads are bankrupted in the interest of designing bondholders. Still others charge that rich and powerful roads contrive to obtain a controlling interest in the depreciated stock of weaker roads and then manage these roads in their own interest and greatly to the detriment of other stockholders. All these evils would disappear if the law required the identity of actual and virtual ownership. "Freezing-out" processes could no longer be resorted to by expert directors to obtain without compensation the property of their less sophisticated fellow stockholders. One railroad could no longer obtain control of another by acquiring an insignificant part of the sum total of its securities. There would be no longer any clashing between the interests of bondholders and stockholders, and railroads would no longer be managed in the interest of a small minority of their owners.
In addition to the cancellation of all railroad mortgages the State should require that all railroad stocks should, in the future, be paid in full. Furthermore, roads should be built only from the proceeds of the capital stock, and the expense of repairs should be defrayed from the revenues of the road. Dividends should only be paid from surplus earnings and should in no case exceed a fair rate of interest on the actual present value of the road. The statistician to the Interstate Commerce Commission suggests the creation of a special commission charged with the duty of converting the actual capitalization of railroad lines into a just value of their property. To do justice to both the railroads and their patrons in the fixing of rates, it is important that the just value of railroad property be ascertained, but the work could probably be done with less friction by a coöperation of National and State commissions. A number of reforms are needed within the province of railroad management. Passenger rates are, as a rule, too high, and out of all proportion to freight rates. Many passenger tariffs still recognize the old stage-coach principle of fixing the fare in an exact proportion to the distance traveled. Thus a passenger who takes the train for a five-mile trip pays only fifteen cents for his own transportation and that of one hundred pounds of baggage, while the passenger who buys a ticket for a journey of one hundred miles pays, on most American lines, exactly twenty times the amount paid by the five-mile passenger. Here the principle of collecting terminal charges is entirely ignored. Sufficient inducements are not held out to the passenger to prolong his journey, and as a consequence of this short-sighted policy of the railroad companies the average distance traveled in the United States by each passenger, instead of having gradually increased, has gradually decreased of late years until it is now only 24.18 miles. The average freight haul in the United States is 120 miles, or about five times as long as the average journey per passenger. How can such a difference be accounted for except by the dissimilarity in the principles which govern the computation of passenger and freight charges? The same rule should be adopted in fixing passenger rates that is recognized by railroad men in fixing freight rates: the rate per mile should decrease with the increase of the number of miles traveled.
The principle of arranging passenger tariffs on a sliding scale has found recognition in Europe. In Denmark first-class passenger fare is 3.13 cents for each of the first 47 miles, 2.67 cents for each of the next 47 miles, and only 2.22 cents for every additional mile. The practical application of this principle is, in fact, only limited by the extent of the kingdom. In nearly all European countries a uniform reduction, ranging from 20 to 30 per cent., is made from regular rates for return trip tickets, and coupon tickets are issued to tourists almost everywhere at largely reduced rates.
Hungary recently adopted a new method of making passenger and freight tariffs for its state lines. This is now generally called the zone system. There are two classes of tickets sold, one for short trips on suburban or branch lines, the other for longer journeys on the main lines. The distances that can be traveled on short or suburban lines are divided into two zones of stations, and those on main lines into fourteen zones. The division of the kingdom into zones is made with Buda-Pesth as the center. A ticket purchased for a particular zone carries the passenger to the end of that zone or any nearer station.
The following table will show the extent of each zone and the fares paid:
| Zone. | Distance. | Local Trains. | Fast Trains. | ||||
| First Class. | Second Class. | Third Class. | First Class. | Second Class. | Third Class. | ||
| Short Lines. | Fl. | Fl. | Fl. | Fl. | Fl. | Fl. | |
| First Station. | 0.30 | 0.15 | .10 | - | - | - | |
| Second Station. | .40 | .22 | .15 | - | - | - | |
| Main Lines. | |||||||
| 1 | 1-25 km. | .50 | .40 | .25 | 0.60 | 0.50 | 0.30 |
| 2 | 26-40 km. | 1.00 | .80 | .50 | 1.20 | 1.00 | .60 |
| 3 | 41-55 km. | 1.50 | 1.20 | .75 | 1.80 | 1.50 | .90 |
| 4 | 56-70 km. | 2.00 | 1.60 | 1.00 | 2.40 | 2.00 | 1.20 |
| 5 | 71-85 km. | 2.50 | 2.00 | 1.25 | 3.00 | 2.50 | 1.50 |
| 6 | 86-100 km. | 3.00 | 2.40 | 1.50 | 3.60 | 3.00 | 1.80 |
| 7 | 101-115 km. | 3.50 | 2.80 | 1.75 | 4.20 | 3.50 | 2.10 |
| 8 | 116-130 km. | 4.00 | 3.20 | 2.00 | 4.80 | 4.00 | 2.40 |
| 9 | 131-145 km. | 4.50 | 3.60 | 2.25 | 5.40 | 4.50 | 2.70 |
| 10 | 146-160 km. | 5.00 | 4.00 | 2.50 | 6.00 | 5.00 | 3.00 |
| 11 | 161-175 km. | 5.50 | 4.40 | 2.75 | 6.60 | 5.50 | 3.30 |
| 12 | 176-200 km. | 6.00 | 4.80 | 3.00 | 7.20 | 6.00 | 3.60 |
| 13 | 201-225 km. | 7.00 | 5.30 | 3.50 | 8.40 | 6.50 | 4.20 |
| 14 | 225 km. and over | 8.00 | 5.80 | 4.00 | 9.60 | 7.00 | 4.80 |