The Truth About The Railroads

Front matter

THE TRUTH ABOUT THE RAILROADS

BY

HOWARD ELLIOTT

Introduction

INTRODUCTION

The time has now come for an impartial and serious consideration by the people at large, as to whether it might not be better for their interests individually and collectively, and for all business interests of the country, to give the railroads a breathing-spell, to eliminate some of the useless and unnecessary restrictive law under which they are compelled to work, and to permit them to solve the very serious problem of giving the public what it wants in railroad service and railroad facilities, by encouraging friendly relations and friendly discussion with the public, rather than to have constant friction and bickering.

For many years, and particularly in the last few, there has been agitation about the so-called railroad question, or problem. Throughlack of complete information about the railroads there has arisen some antagonism toward them, and it is important to explain the real situation, because the American people, when they know the truth, are not likely to be unjust to any one class of people, or to any one business.

Upon the one hand there is a critical public. Upon the other, the railroads are struggling with forces which are causing rates to remain stationary or to decline, causing wages to rise or to remain stationary, bringing demands from a prosperous and luxurious people for increasingly expensive facilities and service, and causing taxation to rise at an alarming rate. These four forces are all at work reducing the margin between income and outgo and making it more and more difficult for the owners of railroad properties to keep their lines in suitable condition to carry on the business of the country, and to obtain a return commensurate with the risk of the business and sufficient to attract further investment.

If rates had not been fair and service adequate, neither agriculture nor commerce would have shown such gratifying gains as were made during the census period ending in 1910. If it were not a fact that since they were constructed railroads have steadily lowered rates, while increasing the extent and raising the quality of their service, and at the same time steadily increasing expenditure and work for the development of the country, America today would not be what it is. Its development would have been retarded and its progress slow.

To-day, however, the railroads are a big target at which many shoot. Out of 92,000,000 people relatively few in the regular course of their lives and business come closely enough into contact with railroads to know railroad officers or understand the business. Those who do not must depend upon casual information—what politicians say, what magazines print, what appears in the daily press—for their knowledge about railroads. The arguments hurled at railroads by some of the magazines are often more calculated to increase circulation than to educate the American people as to the actual facts. Many of the charges which have been believed by thou of people are not based on accurate knowledge.

Railroad officers have been less active than they should have been in keeping in touch with the public. The railroad stockholders have not realized how strong the forces affecting their properties are. This condition has changed and the modern railroad-owners, officers, and employees should and do realize that it is necessary to maintain cordial and friendly relations with the public and by their personal efforts and examples to give full information about the business, and to build up a constantly better feeling toward the transportation machine of the United States.

It is, no doubt, true that little things—the abruptness of an agent or a trainman, a lack of proper courtesy, inattention to complaints of the public, dilatoriness—often cause quite as much criticism from the public as things of greater importance. This irritation and criticism can be reduced by adjusting the relations between the railroads and the public at the point of contact. For example, the passenger men and their representatives during 1913 came into touch with each one of nearly nine hundred million users of railroads. In each of nine hundred million instances some man had a chance to make or mar the reputation of his line and to affect just a little the attitude of the people toward the transportation business. Nine hundred million instances of courtesy and attention, or nine hundred million passengers completing a journey with a feeling that the railroad was interested in their comfort or pleasure, would constitute a great leverage, moving public sentiment into better channels.

Not only the passenger man but railroad men in general can build up cordial relations in this way, and have an opportunity to place before the people the real facts about the railroad business of this country, which will show a majority of the American people—who are unfair only because they do not fully understand this question—that the railroads cannot indefinitely provide at rising costs the increasingly good service which the public demands and should have, and survive, unless there is more reason in directing and controling the four forces which are influencing rates, wages, demands, and taxes.

There is plenty of information at hand about the railroad business. No form of business in the United States is conducted so openly, and in none are the facts and figures so available. This information does not reach the everyday citizen, who is interested but lacks ready sources of information, to the degree that it should. Every railroad man can do a great work by seeing that it does reach him.

The press of the United States reaches the people. The press can help the relations between the public and the railroads by giving correct information, and, if approached properly, will usually manifest a fair attitude. Railroad men have a responsibility in this respect, and, with their more intimate knowledge of the business, they can in many wayshelp the newspapers to avoid misstatements and false conclusions. In fact, this is a legitimate and patriotic line of work for the railroad stockholder, officer, and employee.

The railroad is working hard to do its part, but it cannot accomplish the impossible, and it needs the careful thought, judgment, and help of men in business life, who need to have the railroads grow and improve. The railroad system of the United States is a great piece of commercial machinery, essential to every one in this complicated modern civilization; without this piece of machinery, there could not be the volume of business—agricultural, manufacturing, and commercial—that there now is. The magnitude of these transactions is so great that this piece of commercial machinery must be kept in the very best order, and its capacity must be increased all the time. Without this, much business could not exist; on the other hand, without the business, this piece of commercial machinery would be idle and rust. The relation between the two is very close. Injustice and unfair treatment of either by the other is sure to react, and this fact is a much safer insurance against any injustice on the part of railroads than attempting to manage by legislation all of their affairs in great detail.

To-day on all important questions but one the railroad-owner is directed by acts of Congress and of state legislatures and by the orders of commissions and bureaus. He has little control over the rates, over the hours of labor, over the rules for the conduct of the business in which his money is invested, over the taxes he shall pay. There is reserved to him the one duty and responsibility of finding money to pay the bills. In order to make clear what this interference with the details of management really means, a commonplace illustration may be used.

Suppose, for example, that some men are engaged in the business of hauling freight of all kinds from the water-front to the various parts of a city. The owners and chief managers are doing the best they can to deliver coal, merchandise, and other freight promptly and cheaply, though every pound must be hauled with difficulty over slippery streets and up heavy grades. Suddenly, however, a large number of men appear and begin to tell the owners and managers how to run their . None of these men have any financial interest in the business of transporting merchandise by wagon, and few of them have any practical knowledge of it. One man says, “I have been looking at your wagons and their beds are not the right height from the ground, and you must change them. I notice also that the steps are put on wrong and the buckles of your harnesses are not of the right character. You must fix these things.” Another man says, “The lanterns your teamsters carry are not suitable. You must buy a much more expensive kind and see that they are carried whether they are needed or not.” Another says, “You must not use a certain lead horse any more because he is not suited to the business.” Another says, “I noticed that you were carrying a calf on one of your wagons. In such cases you must get your wagon from the waterfront to destination within one hour, and it must be moved at a speed of not less than ten miles per hour.” Another says, “In our part of the city your wagons must not move faster than four miles an hour, and you must stop them at every street-crossing.” Another says, “The city authorities have decided that you must reduce all your charges 25 per cent.” And still another says, “I represent a committee that has decided that your sheds and barns are not of the right type and you must tear them down and build new ones.” Meanwhile some of the stablemen and others have come to the managers and owners saying that they have decided not to do any more work unless their pay is increased 25 per cent. Naturally the owners and their managers are somewhat confused and discouraged at all this interference and are tempted to say, as the fiddler did in the mining camp, “Please do not shoot, for I am doing the best I can.”

Now this all sounds rather ridiculous when it is applied to the man hauling coal and merchandise in the city, but it is exactly what is going on all the time in the United States to-day in relation to the railroads; only there is much more of it, because the Federal Government and all of the States are making rules and regulations about the kind of equipment to be used, the character of locomotive headlight, the kind of boiler in the engine, the speed of live-stock trains, the speed of trains in cities, the rates to be charged, the kind of buildings to be put up, and the labor unions are at the same time making demands for increases in pay.

Lincoln said the country could not endure “half slave and half free,” and it is a grave question whether the railroads can continue to meet the demands of the people and be the efficient instruments that they should be, if owned by private individuals, but in all important matters of management, except finance, practically directed by governmental authority.

The American people are strong enough to have any kind of railroad ownership and management that they want, and if they want government ownership they can have it. I submit, however, that the management of business enterprises in this country by the Government has not given evidence of thoroughness, efficiency, and economy equal to that displayed by private individuals, and that it is not to the best interest of this country to have government-owned and government-managed railroads.

So I repeat, those in the railroad business, both owners and employees, have a greater responsibility than ever before; not only the responsibility of doing their best, whatever may be their position in the service, but the responsibility of telling the people the real facts — the truth — about the railroad business, the responsibility of using their opportunities to aid the nation by helping the movement to have a greater proportion of our population live in the country than in the cities, the responsibility of directing the attention of the tourist to the beauties of America, so that the money now going to foreign lands will remain here and help to increase the balance of trade in our favor, and last, but not least, the responsibility, which to-day is a great one to every American and to every railroad employee, of encouraging the practice of those habits of industry, thoroughness, and thrift, which have not been so common in the last twenty-five years as they were when our country began its work of becoming a great nation.

The average American citizen has good common sense. He lives in the best country in the world, has the best institutions, by far the best and cheapest rail transportation in the world, and if the individual will exercise his common sense there is no limit to the progress that this great nation will make. If he does not, there will be increasing danger of a change in our institutions, so that the railroads and corporations, which are and should be powerful instruments for good, will be crippled, and later on the foundations of the Government itself will be shaken.

Every patriotic individual should do his part to counteract the foolish talk and insidious influences that are at work in the land and should exercise his mental and moral strength.

“Say not the days are evil — who’s to blame? And fold the hands and acquiesce — O shame; Stand up, speak out — and bravely — in God’s name.”

It is in this coöperative and hopeful spirit, then, that the following addresses on the railroad business in America are now submitted with the hope that they will throw some light on a subject most important to the future welfare of the United States.

Chapter 1

Coöperation is defined as “the association of a number of persons for their common benefit,” and my purpose is to show the absolute necessity, if prosperity and progress are to continue, of coöperation between the railway-owner, the railway employee, and the railway-user.

In order to consider this question, a brief statement must be made showing what the railway system of the United States is to-day, what it represents, the work it does, and the work it must prepare to do if safe and ade transportation is to be furnished to the people of the United States. The railways of the country, in their present form, have been built since the close of the Civil War, or in less than fifty years, and are the wonder and admiration of students of the transportation problem who come here from other countries. There are 234,182 miles of railway, and more than 340,000 miles of track in this country, as compared with a trifle less than 300,000 miles of railway in all the other countries of the world combined. There are nearly 58,000 locomotives; more than 45,000 passenger-train cars; nearly 2,200,000 freight- and service-cars. On these tracks, and with these engines and cars were run in the year ending June 30, 1909, freight-trains for 560,602,557 miles, and passenger-trains for 491,903,107 miles, or an average of 2,883,577 miles everyday in the year. This is equal to a trip around the world at the equator 116 times each twenty-four hours.

These trains handled in the year ending June 30, 1909, 217,756,776,000 tons of freight one mile and 29,452,000,000 passengers one mile. The significance of these figures will bebetter understood by stating that they are the equivalent of hauling a ton of freight 2419 miles for every man, woman, and child in the United States, and giving each of them a ride on a passenger-train of 327 miles. The number of tons of freight moved over each mile of railway during a year is the measure of the freight work performed for the country by the railways. This was —

In the United States | 969,000 tons one mile in 1909

In England | 530,000 tons one mile in 1908

In Germany | 880,000 tons one mile in 1908

In France | 497,000 tons one mile in 1907

— showing that the American railways are furnishing a greater service per mile of railway than the older countries.

Since 1889 the miles of railway in the United States have increased 52.7 per cent; the passengers carried one mile on those railways have increased 154.8 per cent, and the tons of freight carried one mile 224.3 per cent; the number of employees 116.2 per cent, and the taxes 230.8 per cent.

With ninety million busy people In this country the next twenty years must see a constant addition to the railway facilities of the country if the commerce is to be moved satisfactorily, and the railway-user must see to it that the railway-owner has sufficient margin to justify the enormous additional investment that must be made in order to provide the needed transportation.

The passenger-trains of the United States earned on the average for the year ending June 30, 1908, $1.27 per train-mile, and the average cost per train-mile for expenses, not allowing anything for taxes, using the total freight- and passenger-train-miles, was $1.47. From this it is plain that there is no margin in the passenger business for taxes, interest, and dividends, and that passenger-train service, as a whole, is furnished without profit, and often to the detriment of the freight business, which must be moved promptly for the development of the country.

This country, as it grows in population and wealth, wants more and better passenger-train service and better stations, just as it wants more and better hotels and more and better street-paving and lighting and more and better restaurants; but in the case of the hotels, paving, lighting, restaurants, and many other things, the public are willing to pay more, and do pay more, for the better facilities. Not so with the railways; with more trains, heavier trains, faster trains, more luxurious trains, and better track, there has swept over the country a wave of legislation for a 2-cent fare. The 2-cent maximum fare is unjust, and retards the development of the very things the railway-user wants, because it is obvious the railway-owner must sooner or later stop doing so much work without any margin of profit at all.

In England the first-class passenger rate is 4 cents, second-class 2½ cents, and third-class 2 cents. In Germany, the first-class is 3 cents, second-class 2.55 cents, third-class 1.79 cents; but the second- and third-class accommodations in England and Germany are nowhere near as good as those furnished the traveler in the United States.

In Great Britain the average freight charge for handling a ton of freight one hundred miles was $2.31 in 1907 and $2.33 in 1908. In Germany the average charge was $1.42 in 1908; in France, $1.46; Austria, $1.39; Belgium, $1.22. The great freight service of the American railways was furnished in 1908 and in 1909 at an average charge of 75 cents for handling a ton one hundred miles.

In 1888 the average rate per passenger-mile in the United States was 2.35 cents, and in 1908 only 1.937 cents, and yet the accommodations provided have constantly improved in quality. In 1870, the average rate for handling a ton of freight 100 miles was $1.99, and in 1909, 75.4 cents, or a reduction in forty years of 62 per cent.

The railway-owner, by his courage, energy, and intelligence in adopting advanced methods, has been able to improve the railway system of the United States steadily in the last forty years and still maintain and operate his property in spite of this reduction in rates. If the railway-user had paid, for the year which has just passed, the same average freight rates as in 1870, he would have paid $2,691,473,751.36 more than he did pay; if he had paid the same average rates per passenger-mile as in 1888, the additional payment would have been $147,260,000, the two amounts being greater than the entire earnings of all the United States railways in the last year.

But the railway-owner is now put to it to maintain and operate his property on the basis of present rates, present wages, present prices for material, present taxes, present rigid government restrictions, and the growing demand of a prosperous people for more and better service.

Railways are using rails of 90 and 100 pounds weight to the yard; freight-cars carrying 50 and 60 tons of freight; passenger-cars weighing 50 and 70 tons often carrying only a dozen people, or five tons of dead weight for one passenger, and locomotives weighing 300,000 to 600,000 pounds, with 58,000 pounds on a single axle. The railway-owner can go no further in using larger tools in his plant and must depend for any further economies upon an improvement in the work of the railway-user and the employee in using that plant. If the railway-user fails to load and unload the cars promptly, if the railway employee is careless and inefficient, the railway cannot be used to its full effect.

The American railways to-day are represented by a capitalization of $13,600,000,000, or a trifle less than $58,000 per mile of road, and less than $40,000 per mile of track. Compare this total capitalization with the total reported for farm values, $20,514,001,838 for 1900, and in manufacturing, $12,686,265,673 for 1905, and it will be seen that the railway is the second great industrial interest in this country. The railways in Europe are capitalized per mile as follows:—

United Kingdom | $275,040

France | 139,390

Germany | 109,788

Austria | 112,879

Russia | 80,985

Belgium | 169,806

Here is evidence that the American railway-owner has produced a piece of machinery with far less average capitalization than in any other country; which does more work in moving the commerce of the country per mile of railway than in any other country, and which has steadily reduced the prices charged to the railway-user in spite of increasing costs and complications in doing the business. The American railway-system of to-day could not be reproduced for a figure anywhere near what it stands for on the books. Monthly, daily, almost hourly, improvements have been made, and the railways are becoming seasoned and better adapted to the great work they have to perform. Go to any of the large cities and growing towns and try to acquire sufficient terminal ground to do even a moderate business. Not long ago in New York, an investigation was made with the idea of seeing what it would cost to get an entrance to the city and a moderate terminal area, from the northern boundary down to about Fortieth Street. One of the best real-estate agents in New York made a calculation, and he thought that a right of way down through Manhattan Island sufficient for two tracks and with a limited terminal at the end might be obtained for $170,000,000, but would probably cost $200,000,000. This would be an investment of $170,000 or $200,000 a mile for the New York terminal alone of a railroad between Chicago and New York, and in addition right of way between the two cities, intermediate terminals, and the railway itself must be obtained. Every man, of his own knowledge, is aware of the fact that property suitable for terminals, in common with other real estate, has advanced very much in value in all cities, big and little, in the United States in the last twenty-five years. The railway-owner is paying taxes on those increased values and is surely as much entitled to a return on the increased value as is the owner of a farm, or the owner of a business block.

Now, who is the owner of this enormous and complicated piece of machinery built up in the last fifty years? The best figures obtainable as to the number of stockholders show 440,000, and while the number of bondholders cannot be determined with the same accuracy, information about a few roads indicates that the number of bondholders exceeds the number of stockholders, and that 1,000,000 is not an unfair figure to represent those holding railway securities. Many of these holders are women and children, charitable and educational institutions, national banks, savings banks, trust companies, and insurance companies. The average for each owner of railway property in this country is $13,600. Of course, some individuals hold more than this, and very many hold much less, but the statement that railways are owned and controlled by a few very rich men is not correct. These 1,000,000 owners represent at least 4,000,000 people in the United States whose daily bread and butter depends more or less on the success or failure of the railways.

Now, this railway-owner, with an average ownership of $13,600, is dependent entirely, as to a return on his investment and as to the safety of his principal, on the honesty, intelligence, and efficiency of the railway employee, and on the sense of justice and fair treatment of the railway-user. The railway-owner if he does not like his investment, cannot shut up shop and wait a while until business is better. He cannot even abandon his business and pocket his loss. He must go on, whatever the conditions may be, with the hope that the ultimate good sense and justice of the American people will give him even a part of that protection and encouragement that is given to those who may be engaged in agriculture and in manufacturing.

Then, in 1909 there were 8,831,863 depositors in savings banks, having $3,713,405,710 on deposit. In 1908 there were 25,852,405 separate life-insurance policies held in this country with a face value of $14,518,952,277. Every savings-bank depositor and every holder of a life-insurance policy is interested in having railway securities safe and profitable, because the savings banks and the all life-insurance companies are holders of railway securities, and anything that affects the welfare of those two great institutions affects millions of people outside of the owners of railway stocks and bonds. In 1909 there was $33,117,068,129 of fire insurance written in the United States and $126,171,492 fire losses paid. The large fire-insurance companies, like the large life-insurance companies, are investors in railway bonds and stocks. The savings banks and insurance companies must have assets that pay a sure return and that can be converted easily and quickly into cash, and their ability to pay depends in part upon the stability and earning power of the great railway corporations.

For the years 1906, 1907, and 1908, complete statistics are furnished by the Commerce Commission. These were three years of fairly good business in the country, when farmers and manufacturers did well. In round numbers, the results to the railways of the country from the transportation of persons and property were:—

| 1906 | | 1907 | | 1908

| Total earnings | $2,325,765,167 | $2,589,105,578 | $2,394,780,410

| Total expenses and taxes | | 1,611,662,886 | | 1,828,828,189 | | 1,754,951,949

| Net earnings | $714,102,281 | $760,277,389 | $639,828,461

These are very large sums, but the net earnings, on an average valuation of $13,000,000,000, represent only 5.49 per cent for 1906, 5.85 per cent for 1907, 4.92 per cent for 1908, — not a very large return even if the railway-owner could take it all, but he must, of necessity, use a liberal share of any such net earnings for a multitude of improvements and additions to the railways, for as the Commerce Commission says in its report for 1908, “Every safely administered railroad should recognize the difficulty of bringing operating expenses under control, and in times of prosperity provide against the contingency of reduced traffic.”

The railway-owner recognizes this, for there was paid in interest and dividends, in the years named, 1906 — $518,893,000, or 3.99 per cent; 1907 — $551,129,000, or 4.24 per cent; 1908 — $571,114,000, or 4.39 per cent; the balance going back into the property. In fact, in order to keep up a great piece of machinery like the railway, subject to damage in many ways and needing constant additions, an amount at least equal to 60 per cent of that paid in dividends should be put back out of current earnings into the property each year. How many farmers, merchants, and miners would think these returns attractive enough to justify their engaging in the business?

Out of every one hundred dollars of gross earnings of the railways in 1908 there was paid for —

Labor — direct payment | | $43.36

Labor in materials purchased | | 7.77

Labor in fuel and oil | | 6.88

Total for labor | | $58.01

Fuel and oil, less labor | | 1.72

Material, less labor | | 3.33

Hire of equipment and buildings | | 2.46

Hire of tracks and terminals | | 4.60

Damages and injuries | | 1.80

Taxes | | 3.56

Interest | | 13-34

Deficits | | 2.39

Total | | $91.21

Betterments to property, etc | | 4.37

Dividends | | 4.42

| $100.00

Out of each one hundred dollars, ninety-one dollars was paid out for labor, material, taxes, rents, interest, all of which must be paid if the railway-owner is to keep out of the hands of the sheriff. The balance, nine dollars, was available for improving the property and for dividends, and the margin is very small.

There are 1,525,000 railway employees, including the officers, representing at least 6,000,000 of the population of this country. They are equal, in honesty, intelligence, industry, and character to the average of American citizens engaged in other pursuits. They are trying to do their part in managing and operating this great piece of commercial machinery that the railway-owner has created. As they are human, they make mistakes, and sometimes forget that they assume an obligation when they enter the railway service, to be honest, fair, and loyal to the railway-owner, and to the railway-user. The great army of railway employees, in their efforts to obtain the highest wages possible, must remember that there are only one hundred cents in a dollar; that it is possible to force wages to a point beyond the ability of the railway-owner to pay and still maintain his plant for the benefit of the railway-user, and that the constant wage has already discouraged the railway-owner, and will tend to discourage him more unless additional revenue can be obtained from the railway-user. The railway-user often fails to understand the wage situation, and the railway employee and the railway-user must remember that in fixing wages they must consider the ability of the business to pay the wages demanded.