THE TRUTH ABOUT
THE RAILROADS
I
COÖPERATION BETWEEN THE RAILWAY-OWNER, THE RAILWAY EMPLOYEE, AND THE RAILWAY-USER[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 cooperation 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 adequate 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-increase 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.
In 1908, the official figures show that there were 1,458,244 railway employees receiving $1,051,632,225 in wages, or an average of $721.16 per year. For the year 1907 the average pay of railway employees in the United Kingdom was $260; in Germany $371, in Switzerland $292; in Belgium, where the railways are owned by the state, firemen received $15 to $23 a month, the higher rate only after fifteen years’ service; enginemen from $22.50 a month to $28 a month after twenty-four years’ service; conductors from $15.97 a month to $34.70. The average railway worker in Belgium gets 43 cents a day. Certain classes of American railway employees get more in a month than Belgium railway employees average in a year.
The advances made in wages in 1906 and 1907 increased the payrolls of the railways about $120,000,000, and increases since then and now under discussion mean $60,000,000 to $75,000,000 additional. These two increases are equal to 7 per cent per year on a capitalization of from $2,500,000,000 to $2,750,000,000, a sum of money that would go a long way in adding to the transportation facilities of the country.
The railway employee has a responsibility to the railway-user to be sober, industrious, and careful, so as to furnish the best and safest transportation to the public, and he has a responsibility to the railway-owner to furnish a full day's honest and efficient work for the compensation that he receives, whatever it maybe. The industrial supremacy of America cannot be maintained unless that is done, and every patriotic man, no matter what his employment, should stop waste in labor as well as in material, and expect hard work and rigid economy.
Suppose each one of the railway employees should, by better work and greater care, save only one cent a day; that would mean for the country $5,566,250 a year, or enough to buy between 5000 and 6000 freight-cars; or, enough to build two hundred miles of branch-line railway in Montana. If they could save ten cents a day, it would mean $55,662,550 a year, which could be applied to adding to the railway facilities in the country.
In addition to the 1,525,000 employees working directly for the railways, there are 2,500,000 in coal mines, steel mills, manufacturing plants, all supplying what is necessary for the railways in their operations, who represent at least 10,000,000 of our total population. So the railway employees and the employees of the industries dependent more or less on the maintenance of railways on a sound basis represent approximately 16,000,000 people whose rights must be considered.
The railways are the great purchasers of materials of many kinds, and the moment they are forced to stop buying, the effect begins to be felt in the forest, the mine, the mill, and the factory.
Of the 90,000,000 people in the United States, there are, as already pointed out, about 4,000,000 interested directly as railway-owners and their dependent families; 6,000,000 as railway employees and their dependent families, leaving 80,000,000 as railway-users, with an indirect interest in the prosperity of the railway. Some of these 80,000,000 are vitally interested, because they work for industries dependent upon the purchasing power of the railway for their success; others because they have their savings in banks and trust companies; others because they hold life-insurance policies for the protection of their families, and fire-insurance policies for the protection of their homes and business; and all are interested in having enough transportation and good and safe transportation.
The railway-user, however, is too apt to think that his interest lies in having railway rates constantly reduced, railway wages constantly raised, and railway taxes constantly increased, forgetting that it is equally important to him, and really more important, to have the railway system of the United States so handled that capital will feel safe in adding to investments necessary to furnish the transportation that the business of the country demands. Already, in certain parts of the country, the margin between adequate and inadequate transportation is too small. Only last winter, between the Missouri River and Chicago, and in the vicinity of Chicago, the railways could not furnish that prompt and regular service that is essential for a satisfactory movement of the commerce of the country.
The railway-user needs safe and adequate transportation, and it will be furnished just so long as the business pays. The railway-owner cannot constantly be borrowing money for every minor improvement and addition to the property. The cry is sometimes raised that the railways should not make improvements out of current earnings. They should not make all of their improvements out of current earnings, but they should put back into the property every year a substantial amount of their earnings for improvements like better passenger-stations, more side tracks, better rails, better ballast, safety appliances, and other forms of improvement of which the present generation of railway-users get the immediate benefit, as well as making possible a higher development of the country for their children and grand-children.
The railway-owner, the railway employee, and the railway-user must coöperate, and all must remember the definition of coöperation, — “the association of a number of persons for their common benefit.” In the long run it will not benefit the railway-user to crowd down rates so low and raise taxes so high that he takes away all chance of profit from the railway-owner. The railway employee must remember that in the long run he will not profit if he crowds up wages so high that the railway-owner has not sufficient margin for the development of the facilities along progressive and safe lines. On the other hand, the railway-owner must in fixing the rates do so in such a way that a healthy development of the country will be promoted.
Individually, the railway-owner, the railway employee, and the railway-user, when they discuss the subject, are fair and agree there should be fair treatment to all. There is, however, a school of politicians who make wild and extravagant statements and who are assuming, without knowing the facts and without adequate study of the situation, that great injustices are being done. It is important for the railway employee and the railway-user to post themselves about this general subject if they are to continue to exercise their present control in the management of the business of the railway-owner. His business is now an open book, and every transaction is recorded in plain black and white and reported at frequent intervals to railway commissions, state or national. The charges that he makes for service performed are largely decided by statute or by railway commissions. Many of the rules under which he conducts his business are made by law, or by various boards. The railway-user, if he wants the best railways and progressive development of them, must see to it that his law-makers and his boards of one kind and another are the right kind of men, and that they look at this question, not in a narrow, partisan way, but in a broad, far-sighted manner.
On January 16, 1905, Senator Elkins introduced into the United States Senate a resolution asking the Interstate Commerce Commission for a statement showing the work done by that body with respect to formal and informal complaints, hearings, decisions of the courts, exorbitant rates and rebates during the preceding eighteen years, or since the creation of the Commission. On May 1, 1905, the Commission furnished figures showing that the total number of complaints which reached the Commission was 9099 and the total number disposed of through the friendly offices of the Commission, 9054, or more than 99 per cent of the total. The cases appealed by the Commission to the courts were only 45 — about one half of 1 per cent of the total number of cases. Of the 45 cases appealed to the courts by the Commission, only 8, or less than one fifth, were sustained by the courts, all of which involved unjust discriminations (always a difficult question in our complicated commercial life), and not a single case involved an exorbitant rate. Of the total number of complaints made to the Commission, 8319, or 91 per cent, were of so simple and unimportant a character that they were disposed of informally.
During these eighteen years the separate freight transactions of the railways in the United States were in excess of 3,000,000,000, or there was one complaint for each 330,000 separate commercial transactions, and not a single serious complaint about exorbitant rates. Certainly a marvelous record of compliance with a law, and one not equaled anywhere in the history of the statutes regulating human conduct, — a compliance that should refute completely the idea that the railway business needs some peculiar treatment by law that is not required by other business and the idea that the railways do not try to obey the law.
The cost to the country of the Commission Commerce in 1888 was $97,867, and in 1909, $988,936.
In the past, complaint has been made because the railways engaged in politics; to-day the country is confronting a danger which is just as serious, if not more so, because politics is now taking charge of the railways and other forms of business, and assuming the responsibility of many parts of the management, but with no responsibility for the financial results. The railway-owners and the railway officers and employees are just as loyal, high-minded, and energetic and industrious citizens of the United States, as a class, as any other body of men in the country. They have a great task imposed upon them, which they are manfully trying to carry out, and at times it seems as if every man’s hand was against them.
Edward Everett Hale, one of the grand old men of the nineteenth century, put into four short sentences some very sound philosophy about life:—
“Look up, and not down;
Look out, and not in;
Look forward, and not back;
Lend a hand.”
Will not greater progress be made in trying to put this great railway business on a sound basis, if all who are interested “look up” at the best features of it and of the men engaged in it, and do not assume, without knowing, that the business is conducted improperly and that the men giving their lives to the work are incompetent or dishonest? Will not the best results come if all “look out” from their own surroundings and see the difficulties confronting others as well as themselves, instead of thinking only of their selfish, local advancement? Will not the best results be obtained if all “look forward” with hope to the future, instead of repining over the mistakes that may have been made honestly in the past in the effort to put the United States on a sound industrial basis? Better than all, will not the best results be obtained if every one “lends a hand,” and helps instead of raising all sorts of objections, — many of which are not justified when the facts are known, — magnifying the errors, and minimizing the good work done?
The future welfare of the railway system of the United States is largely in the hands of the railway-user, and what will he do? Will he crowd the railway-owner so hard that the latter cannot produce the increasing amount of transportation needed for the free flow of the commercial life-blood of the nation? Then what? The railway-user will have several courses open to him. He can have a less rigid system of regulation and government red tape and encourage the railway business and the railway-owner to go on as does other business, subject to the great laws of supply and demand, competition, and the natural desire of the owner to manage his business in such a way that it will be a success, with the hope of profit, which is the main incentive of all business. Or, he can take over the ownership and management of the railways and become responsible for their operation and for the money needed for additions and betterments to existing properties, and for the building of new ones. In the present state of politics in this country, such a plan is almost terrifying in its possibilities, because the Government has not shown that it can do work of this character as efficiently and economically as private individuals can. Government ownership, management, and development of the railways would become a matter for the politicians to trade upon. Just recently, in Austria, there has been considerable discussion because the railways were taken over by the state on the theory that better service and lower rates would be given to the public. Now there is agitation to put them back into private hands, for, instead of proving profitable, there is a heavy annual deficit, which the general tax-payer has to make up. The service has deteriorated and railway-expansion has ceased. Or he can continue the present system of rigid governmental control and supervision, and interference with the judgment and management of the owner, which is rapidly having a deadening and discouraging effect on the development of the business, and is preventing those additions and improvements so much needed in a growing country like the United States. Or he can continue the present system of government regulation and control, but guarantee to the railway-owner some minimum return upon his investment, so he will be willing to put money into the business. Such a plan, however, means that the non-user of the railway will be taxed for the benefit of the user.
To my mind the first course, of more commercial freedom, is by far the better for a growing and expanding country like the United States. We have not yet reached the state of perfection, politically or socially, where government ownership and bureaucratic management of the large, complicated, and delicately adjusted railway system of the country will be a success. Putting a government uniform on a railway employee does not at once endow him with a new kind of intelligence and supernatural powers, and it will reduce his feeling of responsibility.
If the railway-user and the railway employee are not careful to see that justice is done to the railway-owner, and if he is not protected and encouraged a little, the time is rapidly coming when the railway-user will go to buy some transportation for his wheat, his coal, his cattle, his manufactured articles, and he will be confronted with the statement from the railway-owner that all the transportation he has has been sold, and furthermore, that he cannot produce any more transportation because he cannot get any more money, and if the railway-user desires an increased quantity or quality of transportation he must organize and produce it for himself. The railway employee will find that the monthly pay-day is not so regular and certain as it used to be, and that the wages paid are lower.
The ultimate good sense of the American people and their belief in the rights of property will, in the long run, I believe, prevail over the misstatements and misrepresentations of some public men who, without careful study and full knowledge of the situation, and without due regard to the effect of their extravagant language, make indiscriminate attacks upon the railway system of the United States, and upon the men who are giving the best that is in them to the work of advancing that system.
- ↑ Address delivered at the Montana State Fair, Helena, Mont., September 26, 1910.