fyxmll ^nmx^ii^ Jiht:^^j 
 
 THE GIFT OF 
 
 K.^jTU. 
 
 •\,/ft/Wrv\ 
 
 TT 
 
 
 678-2 
 
9 '0»- 
 
 The date shows when this volume was taken. 
 
 To renew this book copy the call No. aud give to 
 
 the librarian. ^_^ 
 
 HOME USE RULES. 
 
 All Books subject to Rncall. 
 
 Books not used for 
 instruction or researeh 
 are returnable within 
 4 weeks. 
 
 Volumes of periodi- 
 cals and of pamphlets 
 are held in the library 
 as much as possible. 
 For special purposes 
 they are given out for 
 • a limited time. 
 
 Borrowers should 
 not use their library 
 privileges for the bene- 
 fit of other persons. 
 
 Books not needed 
 during recess periods 
 should be returned to 
 the library, or arrange- 
 ments made for their 
 return during borrow- 
 er' s absence, if wanted. 
 
 Books needed by 
 more than one person 
 are held on the reserve 
 list. 
 
 Books of special 
 value and gift books, 
 when the giver wishes 
 it, are not allowed .to 
 circulate. 
 
 Readers are asked 
 to report alt cases of 
 books marked or muti- 
 lated. 
 Do not deface books by marks and writing. 
 
 fi Cornell University Library ^^ 
 
 ' HE2231 .T47 1908 
 
 Cost,.ca^ta|;j.tjon,and^^e^te|v^^^ ^ 
 
 3 1924 032 483 525 
 
 olin 
 
July 
 

 G ^ lA. A, 
 
 . A, -vtms^u/ 
 
The original of tiiis bool< is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924032483525 
 
COST 
 CAPITALIZATIOIN 
 
 AND 
 
 ESTIMATED YALUE 
 
 AMERICAN RAILWAYS 
 
 AN ANALYSIS OF CURRENT FALLACIES 
 
 SLASON THOMPSON 
 BUREAU OF RAILWAY NEWS 
 
 THIRD EDITION 
 
 Chicago: 
 
 Gunthorp-Warren Printing Company 
 
 1908 
 
jV 1 1 
 
 1 I 
 
 
NOTE. 
 
 Except as they present facts and legitimate deduc- 
 tions, no authoritativ& value is claimed for these pages. 
 Neither is any railway official or organization responsible 
 for the views expressed herein. They are published by 
 the writer as the result of four years' study, in which he 
 has had time and opportunity to investigate the subject 
 beyond what was possible in his many years of active 
 daily journalism. 
 
 Wherever statements of fact are not matters of com- 
 mon knowledge their source is given. From these facts 
 only the most obvious deductions have been drawn. 
 
 S. T. 
 Chicago, 1907. 
 
There can, indeed, be no doubt that American~rail- 
 ways are less over-capitalized now than they have ever 
 previously been, the amount of profit diverted to capital 
 purposes in recent years having been on a truly colossal 
 scale. — London Statist, August 24, 1907. 
 
CONCLUSIONS BY WAY OF PREFACE 
 
 From the facts presented in the following pages it is sub- 
 mitted that the VALUE of railway property in the United 
 States employed in the service of the public is shown by several 
 independent methods of inquiry to exceed their total NET 
 CAPITALIZATION. 
 
 Historically, the cost is shown to be always cumulative, while 
 the capitalization has sometimes been scaled down and millions 
 of expenditures have never been capitalized. 
 
 [ Where the Net Capitalization in. 1906 has been officially de- 
 clared to be only $11,671,940,649, the cost or value ascertained, 
 through several processes, is approximated as follows: 
 
 Construction and Equipment to June 30th, 1905, $13,000,000,000 
 (Exclusive of appreciation of right of way and terminal rights.) 
 
 Commercial Value, as approximated by Prof. 
 
 Henry C. Adams as of June 30th, 1904 $11,244,852,000 
 
 Applying Prof. Adams' formulae to earnings of 
 
 1905 $15,235,765,167 
 
 Applying Prof. Adams' formulae to earnings of 
 
 1906 $17,248,620,000 
 
 Market Value as shown in quotations of securities, anywhere 
 
 From $1 1,000,000,000 
 
 To $14,000,000,000 
 
 and upward, 
 
 according as afifected by politics, crops, value of 
 money and manipulation. 
 
By Comparison with capitalization of foreign roads 
 
 From $13,384,240,000 (on the Canadian basis) 
 
 To > $21,969,000,000 (on the German basis) 
 
 or $28,712,000,000 (on the French basis) 
 
 or $34,795,000,000 (on the Belgian basis) 
 
 or $58,644,000,000 (on the English basis) 
 
 Even allowing $100,000.00 per mile for the difference in the 
 value of right of way (the only feature of cost greater in Great 
 Britain), American Railways capitalized on the English basis 
 might fairly be capitalized at $37,000,000,000 and with freight 
 rates as charged in England their commercial value on Prof. 
 Adams' theory would exceed that amount. 
 
 On the basis adopted by Japan in the purchase of private roads 
 of Japan, in 1906, the value of American Railways on the aver- 
 age business of 1904, 1905 and 1906 would be over $14,505,000,- 
 000. 
 
 Capitalized according to the price paid by Japan for the in- 
 ferior railways of Japan, the value of American Railways would 
 be nearly $16,000,000,000 
 
 And finally: 
 
 On the ratio of assessed value to the true value of all property 
 in the United States, as reported by the Federal Census Bureau, 
 the assessment of American Railways for the purposes of taxa- 
 tion is a certificate of value for $12,890,000,000, or over a billion 
 dollars more than their Net Capitalization. 
 
INTKODUCTION 
 
 Whj Official Yaluation of Railway Property is Desirable 
 
 In numerous official and unofficial utterances, President 
 Roosevelt has made it clear that he has lent a more or less 
 complaisant ear to the theorists and agitators who for many 
 years have been clamoring for government valuation of the 
 property of the railways of the United States represented by 
 their stocks and bonds. This clamor was put in concrete shape 
 in the amendment to the Hepburn Act introduced by Senator 
 La Follette, which reads: 
 
 "That the Commission shall estimate and ascertain the fair 
 value of the property of every railroad engaged in interstate 
 commerce, as defined in this act, and used by it for the con- 
 venience of the public." 
 
 That the demand thus formulated was not original with the 
 senator from Wisconsin is proven by the discussion of its 
 practical; iity by Professor Henry C. Adams in his first report 
 as Statistician to the Interstate Commerce Commission for the 
 year ending June 30, 1888. In this he asked: "Is it possible 
 to discover the cost and value of the carrier's property, fran- 
 chises and equipment?" And while he was of opinion that such 
 a task was a "prodigious," if not an impossible one, he thought 
 that a trustworthy estimate of the relation existing between 
 "the present worth of railroad property and its cosi to those 
 who are proprietors of it" might be obtained. He also thought 
 that "the estimate of social agitators on the one hand and of 
 men interested in the present status on the othet might "be 
 far from the truth." 
 
 The idea present in the mind of Statistician, Senator and 
 President is, and always has been, that the cost or capital of 
 railways exercised a controlling influence on rates. In other 
 words that the falsely alleged "exorbitant rates" on American 
 railways were due to the necessity of paying interest and divi- 
 dends on gross over-capitalization. 
 
It has gone for naught with the "social agitators," back of 
 this contention, that the rates on American railways are not 
 exorbitant, being the lowest in the world. Neither have they 
 been able to grasp the truth that rates are not fixed by divi- 
 dends, because they close their understanding absolutely to the 
 mute immutable testimony of such figures as the following, 
 showing that while gross railway capitalization per mile has 
 steadily increased during the period of Mr. Adams' incumbency 
 of his present office, the tendency of average rates has, almost 
 invariably, been downward : 
 
 Gross Capital and Average Receipts Per Mile, 1888-1906. 
 
 Year. 
 
 1888.... 
 1889.... 
 1890. . . . 
 1891.... 
 1892.... 
 1893.... 
 1894.... 
 1895.... 
 1896.... 
 1897.... 
 1898.... 
 1899.... 
 1900.... 
 1901.... 
 1902.... 
 1903. . . . 
 ■ 1904. . . . 
 1905.... 
 1906 . . . 
 
 Gross Railway 
 Capital 
 per Mile. 
 
 Passenger 
 Receipts per 
 
 Freight 
 Receipts per 
 
 Passenger 
 
 Mile (Cents). 
 
 Ton Mile 
 (Cents). 
 
 S56,498 
 
 2.349 
 
 1.001 
 
 56,892 
 
 2.165 
 
 .922 
 
 58,659 
 
 2.142 
 
 .941 
 
 59,006 
 
 2.126 
 
 .895 
 
 61,130 
 
 2.108 
 
 .898 
 
 59,729 
 
 2.111 
 
 .879 
 
 59,419 
 
 1.986 
 
 .860 
 
 59,650 
 
 2.040 
 
 .839 
 
 59,610 
 
 2.019 
 
 .806 
 
 59,620 
 
 2.022 
 
 .798 
 
 60,343 
 
 1.973 
 
 .753 
 
 60,556 
 
 1.978 
 
 .724 
 
 61,490 
 
 2.003 
 
 .729 
 
 61,531 
 
 2.013 
 
 .750 
 
 62.301 
 
 1.986 
 
 .757 
 
 63,186 
 
 2.006 
 
 .763 
 
 64,265 
 
 2.006 
 
 .780 
 
 65,926 
 
 1.962 
 
 .766 
 
 67,936 
 
 2.002 
 
 .748 
 
 Here is an official demonstration that while the capitalization 
 of American railways increased $11,438 per mile between 1888 
 and 1906 their average passenger receipts per mile declined more 
 than a third of a cent, and their freight earnings per ton were 
 less by over a quarter of a cent per mile. 
 
 President Roosevelt and Senator La FoUette and Professor 
 Adams and all intelligent students of railway affairs understand 
 the significance of these figures, but the "social agitators" dwell 
 upon the increase of capital and never tell their deluded fol- 
 lowers that a reduction of one-third of a cent per passenger 
 
mile on the traffic of 1906 meant a saving of $87,000,000 to the 
 traveling piiblic, while a decline of 2.53 mills in the rate per ton 
 mile meant a loss to the railways of $545,974,000 on the freight 
 traffic of 1906. 
 
 These two items make a total greater by $138,000,000 than the 
 aggregate of interest and net dividends paid by the railways 
 in 1905. In other words the possible net profits of the railways 
 in 1906 were practically cut in two by the decline in passenger 
 and freight rates between 1888 and 1906. 
 
 Any relation between capitalization and rates such as is 
 harped on by the "social agitators" is thus demonstrated to be 
 an iridescent bubble proceeding from more "water" on the brain 
 than there is in all the railways in the universe. 
 
 The prevalence of such popular hallucinations, however, 
 emphasizes the necessity for an intelligent attempt on the part 
 of the government to ascertain and publish to the world a 
 reasonably trustworthy estimate of the cost and true valuation 
 of the railways of the United States. The right to regulate 
 carries with it the duty to protect. This was recognized in 
 the passage of the original Act to Regulate Commerce and by 
 the first .Commissioners appointed under that act. In its first 
 report written by the late Judge Thomas M. Cooley, than whom 
 no higher authority ever wrote on railway subjects, the Com- 
 mission says: 
 
 "The act to regulate commerce was not passed to injure any 
 interests, but to conserve and protect. It had for its object 
 to regulate a vast business according to the requirements of 
 justice." 
 
 The power to decree reasonable rates carries with it the duty 
 to preserve the property of the railways from confiscation or 
 unreasonable rates, and the Supreme Court of the United States 
 has declared that a railway company "is entitled to ask a fair 
 return upon the value of that which it employs for the public 
 convenience." Furthermore, it has decided that: 
 
 "In order to ascertain that value, the original cost of con- 
 struction, the amount expended in permanent improvements. 
 
the amount and market value of its bonds and stock, the present 
 as compared with the original cost of construction, the proba- 
 ble earning capacity of the property under particular rates pre- 
 scribed by statute, and the sum required to meet operating ex- 
 penses, are all matters for consideration, and are to be given 
 such weight as may be just and right in each case." 
 
 If it were established once for all, under the stamp of an 
 impartial investigation, that the ascertained value of the rail- 
 ways after due consideration of these elements was equal to or 
 exceeded the sum of their stocks and bonds, very much of 
 the popular hostility to their management would disappear. 
 Such hostility is undoubtedly fanned into radical demands for 
 restrictive and oppressive legislation by the reiterated charges 
 that extortionate rates are imposed in order to pay profits on 
 excessive capitalization. Nothing short of a thorough govern- 
 mental investigation of the cost and value of the property used 
 for its convenience will satisfy the public who are right, the 
 "social agitators" or the hundreds of thousands of American 
 citizens who have invested billions in American railways. 
 
 Unless it can be shown, that the cost or present value of 
 the railways approaches their capitalization, the crusade of the 
 "social agitators" will continue to attract followers by confusing 
 cries of "water" and "over-capitalization" in one breath and 
 "exorbitant rates" and "discrimination" in another. This too 
 in spite of the testimony of such an unprejudiced expert as 
 Chairman Martin A. Knapp of the Interstate Commerce Com- 
 mission, who as long ago as 1899 testified before the Industrial 
 Commission as follows : 
 
 "I have not seen any instances in which the rates have seemed 
 to much depend upon or be influenced by the capitalization of 
 a road. 
 
 "Q. You have never seen such a case? 
 
 "A. I have not. The capitalization of the railroad, I think, 
 cuts no figure in this rate question." 
 
 This from a firm believer in the principle that "a fair valua- 
 tion on the railroad properties" is an essential basis for a judi- 
 cial determination of what the proper rate should be, would 
 seem to be conclusive. 
 
It is therefore as a measure to protect their rights in any 
 judicial investigation into their rates, that I would recommend 
 to the railways that instead of opposing they should insist upon 
 an official valuation of their properties. Such a valuation by 
 an intelligent and fair-minded commission, would, in my 
 opinion, result in a convincing demonstration that American 
 railways, as a whole, are under-capitalized, and that all the 
 "water" that from time to time has been present in their stocks 
 has been absorbed by the cost of improvements, plowed back, 
 as the farmers say, into them from operating expenses and net 
 earnings. 
 
 Given such a Commission as that named by Governor La 
 FoUette himself, which has recently made a report on 
 passenger rates in Wisconsin, remarkable for its compre- 
 hensive thoroughness and judicial fairness, and the railways have 
 nothing to fear but much to gain by supporting Senator La Toi- 
 lette's proposition, so far as it relates to the valuation of their 
 properties. If there ever was a case of a man smitten dumb 
 by a granted prayer, it would be the Senator from Wisconsin 
 by the report of any commission capable of making a reasona- 
 bly adequate and just valuation of railway properties in the 
 United States. 
 
 The only thing the railways have to fear is the appointment 
 of prejudiced or incapable appraisers. 
 
 It is the purpose of the present writer to anticipate, so far 
 as may be, the findings of such an official body, conceding 
 at the outset that anything like an authoritative valuation of 
 railway property is beyond the reach of his expectancy. Even 
 the government with all its resources and inquisitorial powers 
 can never arrive at a definitive conclusion of what has been 
 well called a "superhuman task." 
 
 The difficulties confronting such an undertaking are practi- 
 cally insuperable. That of numbering the stars deals with 
 more tangible units. As the Railway and Warehouse Commis- 
 sion of Minnesota, which has essayed the task for a single state, 
 admits, it involves "the closest personal examination of all the 
 
8 
 
 physical properties of each company doing business in this 
 state." Moreover those entrusted with it must be (to quote 
 from the same authority) "Men of wide experience, who thor- 
 oughly understand the business in all its details, and who know 
 the values of everything which enters into the problem, from 
 the right of way to the completed road, with all its necessary 
 equipment. As every line has its own physical obstacles to 
 overcome and the necessary conditions of efficiency and the 
 necessary equipment in each case involves nearly every cir- 
 cumstance affecting the business, such work cannot be hurriedly 
 or superficially done without complete sacrifice of the value 
 and usefulness of the work as evidence." 
 
 Then the Commission enumerates a few of the items com- 
 prised in its investigation as follows : 
 
 "The detailed examination into the present value of lands 
 for right of way, yards and terminals ; the cost of tracks, bridges, 
 buildings, shops, machinery and tools, engine-houses and turn- 
 tables, locomotives, freight and passenger cars, in fact, every 
 item that enters into the physical property of the railroads of 
 the state." 
 
 It must be evident that when the value of all these things 
 have been estimated — ^they cannot possibly be ascertained — 
 there remain the intangible rights and opportunities to be 
 guessed. 
 
 What this may amount to can be "guessed" from the fact 
 that the Tax Commission of Texas in 1906 valued the intangi- 
 ble properties of the railways of that state at $152,827,760 
 after deducting $188,600,939, the value of their physical property 
 fixed by the Railroad Commission, "from the true cash value 
 of all the property of said companies" in Texas. 
 
 No guess based on earnings can be admitted, being precluded 
 by the purpose of the inquiry to find "a safe foundation upon 
 which to construct fair and reasonable rates," for the rates are - 
 themselves the determining factor in the earnings. 
 
 Nothing short of omniscience can know or find out what the 
 State of Minnesota has undertaken in the premises. 
 
 Manifestly, therefore, nothing absolutely conclusive will be 
 attempted or should be expected in these pages. But it is 
 
believed that by applying various tests with candor and com- 
 mon sense a more or less convincing estimate of the present 
 value of railway property in the United States, as a whole, may 
 be arrived at. Statistics will be used only to aid ordinary in- 
 telligence to reach a sane conclusion. 
 
 To begin with, comparison will be invited to measure the 
 cost and capitalization of American railways by that of foreign 
 railways. This test involves a very simple process and would 
 be of great assistance if the physical and financial conditions of 
 railway construction and the necessities of traffic in different 
 countries could be reduced to a common basis for comparisons. 
 Unfortunately this is impossible and therefore comparison, "the 
 right hand of logic," will only be appealed to to throw a side- 
 light on the subject. 
 
 Next there is the historical method of investigation. This 
 will trace the making of American railways from the small be- 
 ginnings three-quarters of a century figo and their gradual evo- 
 lution from the twenty-three miles of horse power railways in 
 1830 to the 317,083 miles of all kinds of track in 1906. Done 
 with any approach to exhaustiveness this would require as 
 many volumes as the "Messages and Papers of the Presidents," 
 which will never be brought up to date. But no commensurate 
 estimate of the cost and value of American railways can be made 
 without at least a cursory review of the trackless task that con- 
 fronted them, and the various stages of their development. 
 "The Winning of the West" by the voyageur and pack train 
 has no more stirring stories of courage, adventure and indomita^ 
 ble energy than can be found in the final conquest of this 
 continent by the surveying parties, construction gangs and 
 steam horses of railway history. And all along the trail of 
 almost incredible achievement there has been one continuous 
 chorus of pessimism and detraction. Criticism and speculation 
 between them have made the construction of American railways 
 an undertaking beset with quicksands and whirlpools. The 
 history of railway construction as written in Wall Street has 
 
10 
 
 been one thing; its history in the field, from the driving of 
 the first spike by one of the signers of the Declaration of Inde- 
 pendence, down to the present day, has been another. 
 
 Unfortunately, the financiering of railway companies has 
 received more attention in public prints than the details of the 
 expenditures involved in making the railways themselves. Coups 
 in Wall Street by which the control over the properties was 
 seized or shifted, have obscured the unsensational progress by 
 which those properties were steadily and often stealthily trans- 
 formed from the "strap rail" period to vast transportation sys- 
 tems of today. And so we are left to guess what this transfor- 
 mation cost, and are forced to piece out any information we 
 have of original cost by an inquiry into what it would cost to 
 produce existing railways at present prices. Thousands and 
 millions of dollars have gone into the making of the railways 
 of America which is represented in the properties but not in 
 the capitalization of present companies. Panics, abandonments 
 and reorganizations have dealt cruelly with the investments 
 of thousands who put their faith in the alluring railway pros- 
 pectuses of the past. The public has been the only invariable 
 winner throughout the record of experiments, wrecks and re- 
 ceiverships that mark the financial history of American rail- 
 ways. It has been truly said that no matter how unprofitable 
 any particular undertaking has been to its owners, no American 
 railway has failed to bring profit, sometimes ten fold, to the 
 community it served. This is true although there are thousands 
 of miles of badly located roads in the union which never should 
 have been built where they were first surveyed. Once built, 
 however, the investment in them has been irrevocable, and the 
 years come and go without bringing the balsam of dividends to 
 cure the original mistake. 
 
 It is the futility of attempting to get at the original cost and 
 subsequent sums poured into sustenance, as well as maintenance 
 a.nd improvement that has brought most economists to con- 
 sider that the present value of railways can best be approxi- 
 mated by the cost of reproduction at present prices. The in- 
 
11 
 
 vestment of foresight, energy and spirit of venture, to which we 
 owe the railways as much as to the actual money invested, may 
 be considered as being represented by the increase that has 
 come in the value of the right of way and terminals, to which 
 the railwaj'S have contributed their value. 
 
 While it is doubtful if the present cost of reproduction new 
 would cover the original cost of the railways, plus the cost 
 of reconstruction concealed in yearly and daily maintenance and 
 improvements to meet the ever increasing traffic, it is generally 
 admitted that no other method would so nearly and justly recog- 
 nize all the elements that underlie the present value of American 
 railways. And after the cost of reproduction is estimated there 
 remain other elements of value to be considered, notably that 
 intangible, illusive thing known as franchise value. This is a 
 possession of the railways which may have more value than 
 their tangible property and yet there is no known method by 
 which that value can be estimated with any approacli to con- 
 vincing accuracy. It is more nearly represented in net earnings 
 than anywhere else. The right to operate over a favorably 
 located line in a territory of dense traffic between termini of in- 
 creasing originating or distributing potentialities, is the posses- 
 sion that differentiates successful railways from the failures. 
 The physical attributes are the mere means for its exploitation. 
 Such an inquiry as this must include an estimate of the com- 
 mercial value of the railways as a system. This means the 
 market estimate of the propert}', not according to its cost or 
 its value as a physical proposition, but as based on its net 
 income and what is termed the "strategic significance" of the 
 property. In 1900 in response to a Senate resolution the Inter- 
 state Commerce Commission made one approximation and in 
 1905 Statistician Adams of the Commission made another ap- 
 praisal for the Census Bureau. Both of these are interesting but 
 unconvincing contributions to the study of the subject. 
 
 Another means of arriving at an estimate of the value of 
 railways is to study them through the returns of the dififerent 
 assessors and state boards of equalization. Here they are 
 weighed in scales which have never been tipped in the favor 
 of the corporations to any notorious extent. When it is con- 
 
12 
 
 sidered that they are regulated as public highways, the levying 
 of any tax upon railways is an anomalous proceeding. But in 
 the matter of taxation the railways are treated as private cor- 
 porations and pay taxes in excess pro rata of those paid by the 
 tillers of the soil, the manufacturers and the merchants whom 
 they serve at the lowest rates on earth. 
 
 Through these various mediums, which in some instances 
 overlap and afford cumulative testimony, it is thought an ap- 
 proach may be made to a convincing estimate of the present 
 value of the railways of the United States — at least sufficiently 
 convincing to dissipate from all reasonable minds the impres- 
 sion that as a whole American railways are grossly over-capital- 
 ized. 
 
 Nothing authoritative will be attempted in this inquiry, its 
 only aim being to present facts that will enable the fair minded 
 to arrive at a mean estimate of the value of our railways that 
 shall approximate the truth. This, it is believed, will support 
 the view of President Hadley of Yale that "the efifect of a fair 
 valuation would be overwhelming proof of the reasonableness 
 of American railway rates as fixed at present." 
 
13 
 
 A SEVEN BILLION DOLLAR ERROR 
 
 The Beductio Ad Absurdum 
 
 In approaching a subject of such infinite possibilities for 
 error, it is well at the outset to sweep aside the one obvious 
 misstatement which from its bold reiteration may be regarded 
 as the chief corner stone of the present agitation against Ameri 
 can railways. 
 
 In his three-day speech before the Senate on April 19, 20, 
 and 23, 1906, Senator La P'ollette having, on the estimates ol 
 one reckless writer, estimated that in 1903 there was seven 
 billion dollars of water in the 'Capital of American roads, took 
 occasion to adopt the theories of another even less reliable 
 author to astound his hearers with the statement that $8,000,- 
 000,000 odd of their capitalization in 1904 was entirely ficti- 
 tious. 
 
 It is interesting to trace how Senator La Follete worked 
 himself up to this magnificent absurdity. In 1893 Mr. Van Oss 
 of London published a work entitled "American Railways as 
 Investments," which, with true insular abandon, fairly reeked 
 with charges of fraud, dishonesty and recklessness in the con- 
 struction and financiering of American railways. As a result 
 of Mr. Van Oss' alleged investigations, to quote Senator La 
 Follette's words, he arrived at "two important conclusions: 
 
 "First, that the average amount originally received in actual 
 value for American railway bonds probably did not exceed 
 67 per cent; 
 
 "Second, that the original investor in American railway stocks 
 certainly paid not more, on the average, than 10 per cent, of 
 their face value, and probably less." 
 
 Then Senator La Follette, accepting these glaring fictions 
 as facts, on his own account went on to construct he following 
 Eiffel tower of error: 
 
14 
 
 "If an. estimate of the actual investment on American rail- 
 roads is computed on the basis of these final percentages given 
 by Mr. Van Oss on the capitalization of 1904, as reported by 
 the Interstate Commerce Commission, we get the following 
 result : 
 
 Senator La Follette's Estimate. 
 
 
 $ 65,000,000 
 4,585,000,000 
 
 
 
 
 Total investment represented by $13,213,124,679, total capital 
 
 $4,650,000,000 
 $5,000,000,000 
 
 
 
 "The remaining $8,000,000,000 odd are entirely fictitious 
 .capitalization, and cannot be considered in discussion of rail- 
 way earnings." 
 
 Why Senator La Follette made the mistake of saying that 
 $65,000,000 was a round figure for 10 per cent, of six billion odd, 
 or did not swell his fictitious capitalization to eight and a half 
 billion, as he well might by the showing of his original error, 
 is not explained in the context in the Congressional Record. 
 
 That Senator La Follette was thoroughly possessed and fas- 
 cinated by the false estimates cited in this speech is proved by 
 the following extract from his speech of May 18, 1906, explain- 
 ing his vote on the Hepburn bill : 
 
 "So long as the legislation relative to the common carriers 
 of this country permits these corporations to increase their 
 capital stock without limit, increase it without adding any- 
 thing of value to their properties, and increase it solely with 
 the purpose of fixing rates upon that inflated capitalization, 
 in order to pay profits and dividends to those holding the stocks 
 and bonds, in which they have no real investments, just so long 
 this question will be a vital issue before the American people. 
 There is today in the stock and bond valuation of the railroads 
 of this country upward of seven billions of water." 
 
 Let us examine this fictitious Niagara in the light of incon- 
 trovertible facts: 
 
 According to the last statistical report of the Interstate Com- 
 merce Commission, the total railway capital outstanding, in- 
 
15 
 
 eluding stocks, bonds, income bonds, equipment trust obliga- 
 tions, and miscellaneous obligations was $14,570,421,478. Of 
 this $2,257,175,799 stock and $641,305,030 bonds was owned by 
 the railways in their corporate capacity and was not in the 
 hands of the public, and in the language of the official statis- 
 tician, "to the extent that such reductions are proper, over- 
 states the capital." This leaves the net capital of the railways 
 at $11,671,940,649. 
 
 There are certain physical appurtenances to the operation of 
 railways which have a standard average value, namely, locomo- 
 tives, cars, rails and ties. They cannot be bought for "water." 
 
 Their cost as they stood on June 30, 1906, may be tabulated 
 thus : 
 
 Estimated Cost of Equipment, Rails and Ties. 
 
 Items, 
 
 Cost. 
 
 51,672 Locomotives at $12,000 
 
 $ 620,064,000 
 
 42,262 Passenger Cars at $6,000 
 
 253 572 000 
 
 1,837,914 Freight Cars at $1,000 
 
 1,837,914,000 
 
 47,241,600 
 
 1,066,802,000 
 
 445,273,000 
 
 78,736 Work Care at $600 
 
 *309,218 Miles of Track, 70-lb. Rail, at $28 per ton 
 
 Ties tor ditto, 2,880 to the Mile, at 60 ct 
 
 
 
 Total 
 
 $4,270,866 000 
 
 
 
 ♦Estimated. 
 
 This affords the basis for the following demonstration of 
 the absurdity of Senator La Follette's claim that there is "up- 
 ward of seven billions of water" in the stock and bond valua- 
 tion of the railroads of this country today: 
 
 Demonstration of Senator La Follette's Error. 
 
 Net Capitalization in 1905 (official) 
 
 $11 671 940 649 
 
 Cost of five items, as above 
 
 4,270,866,000 
 
 
 
 
 $7,401,074,049 
 
 
 7 000 000 000 
 
 
 
 Balance to represent the "upward" 
 
 8401,074,049 
 
 Capital available for all other construction of 309,218 miles of track. . 
 
 00,000,000,000 
 
 As it would cost more than $30,000,000 for spikes, irrespec- 
 tive of other fastenings, to attach the rails to the ties on 
 
16 
 
 309,218 miles of track, and more than $625,000,000 for the bal- 
 last in which to imbed the ties, there can be no possible escape 
 from the reductio ad absurdum. 
 
 When one considers that the six items in the above table 
 of cost merely represent the superstructure and ephemera of 
 railways (and not all of these), which have to be continually 
 renewed and replaced or they become defective or obsolete, 
 amazement grows at the magnitude of Senator La Follette's 
 error. Nowhere does the table include the real thing — the 
 location, right of way, strategic position, grading, cuts, fills, 
 bridges, tunnels, stations, freight houses, shops and other prop- 
 erties and rights that make the railway the highway upon 
 which the traffic of a mighty people moves with ever-increasing 
 volume and despatch. These constitute from two-thirds to 
 three-fourths of the value of the property of the railways used 
 for the service of the American public today. Unlike the items 
 in the table, right of way and location of railways are not 
 subject to depreciation, but increase in value with each passing 
 year with the increase in population and wealth of the United 
 States. 
 
 It is well for the Senator that the rule falsus in uno, falsus 
 in omnibus does not apply to all senatorial utterances. 
 
17 
 II 
 
 WATER IN RAILWAY CAPITAL 
 
 Nothing has served so continuously to darken counsel in re- 
 gard to American railways as the glib charge that they impose 
 extortionate rates in order to pay dividends on watered stock. 
 It flows with equal fluidity from the lips of economist, agitator 
 and demagogue, and it has been thus flowing so long that it 
 has been accepted as true by a majority of the American peo- 
 ple. In truth, it has ever been mostly a theory, never a gen- 
 eral condition. 
 
 Now, what is this "water" in railway capital which is the 
 subject of such popular opprobrium? 
 
 Generally speaking it is used as a synonym for fictitious cap- 
 italization — meaning that either stock or bonds or both have 
 been issued for which no equivalent was paid, or is represented, 
 and that the value of the property is not equal to the face value 
 of these obligations. In this obvious sense its use is noted 
 in financial literature early in the seventies and it is first recog- 
 nized by Webster in his 1879 Supplement as "Brokers' Cant." 
 
 In the Century Dictionary it is classed as "commercial slang," 
 and is defined as follows: 
 
 "To increase the nominal capital of a corporation by the 
 issue of new shares without a corresponding increase of actual 
 capital. Justification for such a transaction is usually sought 
 by claiming that the property and franchises have increased in 
 value so that an increase of stock is necessary in order to fairly 
 represent existing capital." 
 
 Legal writers define watered stock as a security issued as 
 fully paid in, when, in fact, the whole amount of the par value 
 thereof has not been paid in. 
 
 Under both of these definitions it will be perceived that 
 there may be legitimate and illegitimate watering of railway 
 capital. But the term has been so persistently and offensively 
 a/bused by critics and commentators, as well as detractors of 
 American railways, that the distinction is lost in popular discus- 
 sions of the subject. The public has been led to believe that 
 
18 
 
 the increases in railway capitalization during the past thirty 
 years have been largely fictitious; that they have been made 
 to conceal large dividends on stock, and to forestall the de- 
 mands for a reduction in rates. 
 
 It matters little to the parties whose chief capital is denuncia- 
 tion of watered stocks that, water or no water, the increase in 
 net railway capitalization from about $7,000,000,000 to $11,671,- 
 940,649 during the past twenty years has been accompanied by 
 a reduction of freight rates from 1.04 cents to 7.48 mills per 
 ton mile and of passenger rates from 2.19 cents to 2.002 per 
 passenger mile. They will continue to cry "Water, water, 
 everywhere !" in hopes that the discovery of a few cesspools 
 in railway finance will convince the public that all sources of 
 railway capitalization are polluted at the fountain head. 
 
 Senator La Follette is not the only advocate of a valua- 
 tion of American railways who professes to think that they 
 are floating islands surrounded by oceans of water. Only last 
 winter the Washington correspondent of one of our great dailies 
 wrote to his paper that: 
 
 "Every development of late shows that most of the big lines 
 of railroads in the United States are vastly over-capitalized, 
 some of them having a funded debt and capital stock issues 
 amounting to from two to ten times their actual cost." 
 
 The point of this watery delusion was put thus : "It is easy 
 to see that if a railroad has been capitalized ct a figure five or 
 ten times its vd.'v.n ii must meet a fixed charge five or ten times 
 as great as it should be expected to meet." 
 
 It will be observed that "actual cost" and "value" are here 
 used as interchangeable terms and the illegitimate water in 
 most of the big lines was said to be from 50 to 90 per cent. 
 
 To well-informed readers the mere extravagance of such a 
 statement carries with it its own refutation. Bvit to the sus- 
 picious, the prejudiced and the ignorant there is nothing in- 
 credible about the most palpable and self-stultifying exaggera- 
 tion. If Senator La Follette could carry o& a seven billion 
 dollar misrepresentation without question in the United States 
 Senate, why should anyone hesitate to believe a statement that 
 
19 
 
 for one part of cost there are nine parts of "water" in the 
 capitalization of American railways? 
 
 Neither must it be thought that this cry of "water" is any 
 modern invention ! In one form or another it has been a con- 
 tinuous chorus which has accompanied the floating of every 
 railway enterprise since Colonel Stevens first sought to raise 
 funds to construct a railway from the Delaware River to the 
 Raritan in 1815. Every government or corporation issuing 
 securities and selling them at a discount, whether at 90 per 
 cent., as the German Empire has within six months, or at 50 
 cents on the dollar, as some of the early American railways had 
 to, has watered its capital stock to that extent. In his letter of 
 August 24, 1897, classifying the items to be charged to cost 
 of construction, Statistician Adams recognized its legitimacy 
 in these words: "To this account should be charged discount 
 on securities sold; interest on loans affected, and on notes 
 issued for construction purposes or overdue payments to con- 
 tractors or other creditors, and discount, interest and exchange 
 on other commercial paper issued for a similar purpose." 
 
 When the first railway was built in the United States, money 
 in a perfectly safe investment commanded 10 per cent, and 
 upward. Neither then nor at any time since has railway con- 
 struction appealed to investors as a perfectly safe investment. 
 At the start, national, state and local authorities doubted its 
 financial success more seriously than its practicability. They 
 had absolutely nothing upon which to base a favorable judg- 
 ment. Such assistance as they were finally induced to extend 
 to the pioneer railways was in the nature of subsidies, land 
 grants or guarantees, to encourage an experiment in transporta- 
 tion rather than an investment made with any hope or expecta- 
 tion of a monetary return. How railways were regarded in 
 those days is well reflected in the report of a special Board of 
 Commissioners to the Pennsylvania legislature in 1831 : 
 
 "While the board avow themselves favorable to railroads 
 where it is impracticable to construct canals, or under some 
 peculiar circumstances, they cannot forbear expressing their 
 opinion, that the advocates of railroads generally have over- 
 
20 
 
 rated their comparative value. The board believe that notw^ith- 
 standing all the improvements that have been made in rail- 
 roads and locomotives, it vs^ill be found that canals are from two 
 to two and a half times better than railroads for the purposes 
 required of them by Pennsylvania. And they again repeat 
 that their remarks flow from no hostility to railroads, for next 
 to canals they are the best means that have been devised to 
 cheapen transportation." 
 
 In the beginning not only in New England and in some of 
 the Southern States, as we are generally told, but throughout 
 the Union, roads were largely built with money raised by the 
 sale of stocks, and it was upon the security of these original 
 investments and the rights thus secured that money was bor- 
 rowed on bonds for their completion. In these cases share- 
 holders were induced to subscribe on favorable terms that prom- 
 ised more than the then current rate of interest on their money. 
 Paid-up stock was issued at 75, 50 or even 25 cents on the dol- 
 lar, according as the risk was great or slight, or the returns 
 promised to be immediate or remote. The building of a road 
 to connect centers of population and established trade relations 
 had manifest elements of profitable traffic absolutely absent 
 from the majority of railway enterprises that quickly engaged 
 the speculative enthusiasm of that generation of railway projec- 
 tors. 
 
 American investors were quick to appreciate the difference 
 between investments in railway bonds and railway stocks. They 
 recognized that the stocks represented, as one writer (A. M. 
 Wellington) puts it, "the risk only, the dubious margin which 
 is dependent upon sagacity, skill and good management," while 
 the bonds represented "a certain minimum value," for which 
 the property and all its hereditaments and potentialities were 
 pledged. Upon this simple distinction grew up the practice 
 of "sweetening" the sale of bonds with bonuses of stock. Bonds 
 carrying 6 to 8 per cent, would be sold with different amounts 
 of stock thrown in as a premium, the bond purchaser feeling 
 sure of a share in the property in any event and being tempted 
 to make the investment by the prospect of higher returns on 
 the stock. 
 
21 
 
 With many of the projected roads it was a case of "wood- 
 chuck or no meat." Their projectors simply were forced to 
 give bonuses with the bonds, sell the bonds at a heavy dis- 
 count, make bricks without straw, or leave the roads unbuilt 
 until some less conservative parties came along who had the faith 
 and confidence that move mountains and build empires through 
 the combination of capital and wisely directed energy. 
 
 From 1830 down to this day there has never been a time 
 when the "sagacity, skill and good management" ever active, 
 dominant and progressive in American railways, has not more 
 than made up for any excess of nominal capital over capital 
 actually paid in and expended on the property. But whether 
 this be admitted or not, there is abundant evidence in the cost 
 of the railways themselves that the par value of their capital 
 in dollars and cents derived from some source has been ex- 
 pended upon them. 
 
 For three-quarters of a century the managers of American 
 railways have followed the sound financial policy of reinvest- 
 ing undivided profits in their properties. In lean years and 
 fat alike this course has been pursued. Even when in the 
 stress of hard times there have been no net profits and some 
 roads have been thrown into receiverships, the process of en- 
 richment has gone on with the proceeds of receivers' certifi- 
 cates, which, with returning solvency, have gone to swell the 
 funded obligations of the railroads. 
 
 That the shareholders in American railways are entitled to 
 be credited with the gross sum of these undivided profits turned 
 back into the property as well as for all expenditures for better- 
 ments, improvements and excess of cost of renewals, is admit- 
 ted by every economist who has given the subject sober thought. 
 The principle is precisely the same as that by which the thrifty 
 individual instead of spending all he makes or earns invests 
 a percentage of it to extend his business. The abstinence 
 from distributing all the net earnings of railways among their 
 hundreds of thousands of stockholders,* which is distinctively 
 
 (*) The last official report put the number at 327,851. 
 
22 
 
 an American policy, represents one of the factors in the crea- 
 tion of wealth which has always been recognized by economists. 
 In this case it accounts for the comparatively low capitaliza- 
 tion of American railways in contrast to the British practice 
 which has been to distribute all .the net profits and charge all 
 betterments and improvements to capital account. The low 
 capitalization of American railways is due to the policy tersely 
 expressed in the phrase, "A dollar for dividends and a dollar 
 for betterments." 
 
 Because the official statistics are confused by including the 
 returns from non-operating railways, — which are in no sense 
 legitimate subjects of interstate regulation, neither are they 
 common carriers, for they carry nothing, — it is impracticable to 
 give anything like a complete summary of the moneys expended 
 annually by the railways on additions, betterments and im- 
 provements. In the year igo6, however, the returns made to 
 the Interstate Commerce Commission by 313 operating roads 
 showed that 94 per cent, of the railways of the United States 
 devoted no less than 
 
 $220,316,034 
 of their income to improvements "charged to income account,'' 
 ."other deductions" not chargeable to the operations of the 
 year and in surplus. The income account of thesu, roads in 
 1906, considered as a system, may be summarized as follows: 
 
23 
 
 Income Account, 1906 
 (206,960 Miles of Line Represented.) 
 
 
 82,246,421,166 
 
 
 1,482,148,334 
 
 
 
 
 
 $764,272,832 
 
 
 67,356,217 
 
 
 
 
 Earnings less taxes 
 
 $696,916,615 
 
 
 
 Charges: 
 
 Interest on funded debt 
 
 8252,572,777 
 
 13,819,287 
 
 422,322 
 
 116,144,978 
 
 
 
 
 
 
 
 $382,959,364 
 
 
 
 Balance available for dividends, adjustments and im- 
 
 
 $313,957,251 
 
 Dividends — Common 
 
 »175,334,923 
 
 46,005,909 
 
 166,371 
 
 
 Preferred.... 
 
 
 Other payments 
 
 $221,507,203 
 
 
 
 
 
 $92,450,048 
 
 
 
 
 Deficits in operation of 76 unprofitable roads 
 
 
 12,292,750 
 
 Net balance from operation 
 
 $80,157,498 
 
 
 140,158,136 
 
 
 
 
 Balance nvailfible ff^r iTTiprnvempn+p 
 
 $220,316,034 
 
 
 
 Disposition of balance: 
 
 $56,502,413 
 
 59,610,904 
 
 104,202,717 
 
 
 
 
 Surplus 
 
 $220,316,034 
 
 The income from other sources is principally derived from 
 rentals and from railway stocks and bonds owned by these 
 operating roads, and practically takes care of the rents and 
 interest charges on the debt incurred in the purchase of such 
 securities. If these items of income and expense could be 
 eliminated, the balance for improvements would not be mate- 
 rially affected. 
 
 During the past sixteen years the official statistics show 
 the following balances "available for adjustments and improve- 
 ments," the sums under "permanent improvements" being in- 
 cluded in the total sum available in comparison with the net 
 dividends in each year: 
 
24 
 
 Investments in Improvements from Income During .Sixteen 
 Years 1890-1905. 
 
 Year. 
 
 For Permanent 
 Improvements. 
 
 Available for 
 
 Improvemen t 
 
 and Adjustments. 
 
 Net Dividends. 
 
 1905 
 
 $37,720,624 
 
 38,522,548 
 
 41,948,183 
 
 34,712,968 
 
 31,938,901 
 
 25,500,035 
 
 13,070,045 
 
 6,847,905 
 
 4,544,813 
 
 5,162,240 
 
 4,016,382 
 
 4,418,003 
 
 2,957,069 
 
 4,126,273 
 
 4,887,975 
 
 4,511,508 
 
 $185,088,372 
 
 143,691,430 
 
 190,856,993 
 
 172,977,856 
 
 150,392,692 
 
 142,754,358 
 
 92,719,113 
 
 78,370,389 
 
 20,300,720 
 
 26,525,485 
 
 (2) 1,001,805 
 
 (3) 16,821,274 
 37,045,024 
 45,499,874 
 40,721,296 
 41,765,491 
 
 $188,175,151 
 
 183,754,236 
 
 166,176,586 
 
 157,215,380 
 
 131,626,672 
 
 118,624,409 
 
 94,273,796 
 
 83,995,384 
 
 (1) 87,377,989 
 
 88,097,757 
 
 85,961,500 
 
 101,607,264 
 
 102,941,289 
 
 101,929,135 
 
 96,489,013 
 
 89,688,204 
 
 1904 
 
 1903 
 
 1902 
 
 1901 
 
 1900 
 
 1899 
 
 1898 
 
 1897 
 
 1896 
 
 1895 
 
 1894 
 
 1893 
 
 1892 
 
 1891 
 
 1890 
 
 
 TotaL. 
 
 $264,885,472 
 
 $1,289,709,898 
 
 $1,877,933,765 
 
 
 (1) Dividends previous to 1897 inclusive are swelled by duplications. 
 
 (2) There was a deficit after paying for permanent improvements. 
 
 (3) Deficit. 
 
 Notwithstanding the fact that prior to 1897 the dividends were 
 swelled by duplications amounting to at least $12,000,000 an- 
 nually — in 1897 the exact figures were $12,245,480— it will be 
 perceived that the undivided profits of the railways devoted 
 to their betterment amounted to over three-fourths of the sum 
 distributed in dividends. Nor does this showing, impressive 
 as it is, tell the whole truth, for in the years 1894, 1895 and 
 1897 in addition to the figures shown in the table the railways 
 had to account for deficits of unprofitable roads amounting to 
 $45,851,294, $29,845,241 and $6,120,483, respectively. 
 
 During the years covered by the foregoing table the total 
 amount of capital stock outstanding not owned by railway 
 corporations has increased from $3,445,804,726 to $4,484,504,943 
 or $1,038,700,217, which is almost exactly a quarter of a bil- 
 lion ($251,009,681) less than the aggregate sum retained from 
 the stockholders and devoted to the betterment of the property 
 in that period. 
 
 It is out of such persevering, constructive, progressive, 
 American financiering as this that the railways have been nour- 
 
25 
 
 ished by "water" into the admirable position of the lowest 
 capitalized high standard railways in the world. 
 
 And mark you, this does not complete the tale of their en- 
 richment at the expense of the stockholders. In the year 1906, 
 the 313 roads above rnentioned expended on road and equip- 
 ment $14,593,642 which was included in operating expenses, 
 exclusive of expenditures in certain cases amounting to less 
 than $100 on road, $300 on equipment, and not taking account 
 of excess of weight of rails and improved quality in renewals 
 on some of the largest systems in the country. This sum is 
 equivalent to $70 per mile of line. Accepting this as an 
 average, and it is a low one, the railways of the United States 
 in thirty years between 1875 and 1905 have paid over $300,000,- 
 000 for improvements and charged it to operating expenses. 
 Does anyone seriously question that this is a legitimate invest- 
 ment of money belonging to stockholders? 
 
 Between 1850 and 1900 the improved farm lands in the United 
 States increased from 113 to 414 million acres, or considerably 
 less than fourfold. In the meantime the value of all farm prop- 
 erty increased from $3,967,343,580 to $20,439,901,164, or more 
 than fivefold. The average value per acre of all farms has 
 risen from $13.50 in 1850 to $25 in 1900, making a difiference 
 of over $8,000,000,000 in the wealth of American farmers, com- 
 pared with what it would have been at the prices of fifty years 
 ago. Would anyone call this vast accretion of wealth "water" 
 because chiefly due to the railways and not represented by 
 any equivalent capital invested in farms, except out of surplus 
 earnings ? 
 
 Each generation of railway critics has found some particular 
 American road to single out as the terrible example of over- 
 capitalization. It used to be the Erie. Now it is the Chicago 
 and Alton Railway that is the target of this unenviable noto- 
 riety. Twenty-six years ago the Chicago and Alton's total 
 capital account, covering 840 miles of main line, was $37,821,727 
 or $45,239 per mile. If divided by the miles of all tracks it 
 was equal to $35,629, and President Blackstone frequently 
 claimed that the Alton was capitalized at only 60 per cent, of 
 
26 
 
 its accumulated cost. Twenty-six years ago its disbursements 
 on account of funded debt, rent and dividends amounted to 
 $2,624,446, or nearly 7 per cent, on its total capital account, 
 which covered the leased lines. 
 
 Last year the capital liabilities of the Chicago and Alton were 
 $119,046,218, or $122,728 per mile of line, or $83,658 per mile 
 of all tracks. The reader will perceive that the capital per mile 
 of line had been nearly trebled while per mile of track it had 
 been only slightly more than doubled. 
 
 Such are the incomplete facts coupled with sensational stories 
 of fortunes made through manipulations that have filled the 
 press with a perfect deluge of charges of "water." These it 
 is not necessary to discuss now. Here it is sufficient to. say 
 that the total annual disbursements on account of this gross 
 capitalization foots up $3,468,528, or 2.92 per cent Moreover, 
 these capital disbursements in 1906 amounted to only $2,347 
 per mile of track, where the like disbursements in 1880 amounted 
 to $2,473, ^nd in 1870 to $3,028 per mile of track laid with 56 
 to 65 lb. iron rails. 
 
 Paradoxical as it must seem to the economists of the hydro- 
 pathic school, the increased capitalization of the Chicago and 
 Alton has been attended by a remarkable decline in the rates 
 paid by the public both for passengers and freight, as the fol- 
 lowing statement shows: 
 
 
 PERIODS OF 
 
 
 Low Capital. 
 
 High Capital. 
 
 
 1874 (a) 
 Cents. 
 
 1880. 
 
 Cents. 
 
 1906. 
 
 Cents. 
 
 
 3.267 
 2.123 
 
 2.076 
 1.206 
 
 2 05 
 
 Freight receipts per ton per mile 
 
 639 
 
 
 
 (a) Passenger and ton mile units first available for 1874. 
 
 Evidently the "water" in the Chicago and Alton, like the 
 paints of the master artist, must have been "mixed with brains" 
 to produce such results, and its patrons, if not the "social agi- 
 tators," have reason to await the next shower with equanimity. 
 
27 
 
 It was Judge Thomas M. Cooley who first directed attention 
 to the danger of arousing popular hostility against railway 
 management because great private fortunes had been amassed 
 in their control. "The natural conclusion," he said, in his first 
 report as chairman of the Interstate Commerce Commission, 
 "which one draws who must judge from surface appearances 
 is, that these fortunes are unfairly acquired at the expense of 
 the public; that they represent excessive charges on railroad 
 business, or unfair employment of inside privileges, and fur- 
 nish in themselves conclusive evidence that current rates are 
 wrong and probably extortionate. An impression of this sort, 
 when it happens to be wide of the fact, is for many reasons un- 
 fortunate. It creates or strengthens a prejudice against all rail- 
 road management — the honest as well as the dishonest — which 
 affects the public view of all railroad questions; it renders it 
 more difificult to deal with such questions calmly and dispas- 
 sionately; it makes the public restive under the charges they 
 are subjected to, even though they be moderate and necessary; 
 it tends to strengthen a feeling among the unthinking that cap- 
 ital represents extortion. However careful, considerate, fair and 
 just the management of any particular road may be, and how- 
 ever closely it may confine itself to its legitimate business, it 
 is impossible that it should wholly escape the ill effects of this 
 prejudice, which are visited upon all roads because some con- 
 spicuous railroad managers have by their misconduct given 
 in the public mind a character to all." 
 
 Throughout every period of the development of American 
 railways, economists, theorists and agitators have been so in- 
 tent on watching the black spots on the system as revealed in 
 Wall Street speculations and financial crises that they have over- 
 looked its underlying sanity and solvency. Even such an 
 eminent authority as Charles Francis Adams failed to properly 
 emphasize the fact that it was overconstruction and not over- 
 capitalization that brought about the financial disasters of the 
 seventies. He recognized that "the mania for construction, 
 which began in 1866 and culminated in the crash of 1873," had 
 outstripped the business needs of the country, but he reserved 
 his severest criticism for the gross scandals that disgraced the 
 
28 
 
 management of some of the companies. Morally he was right, 
 and no strictures could be too harsh for the jobbery that pre- 
 vailed in railway speculation. But through the worst of it the 
 railways of the country went steadily forward, some with water 
 and some without, giving the American people constantly im- 
 proved service at constantly declining rates. 
 
 Then as now the railways were entitled to be judged by 
 their general performances and not by the misdeeds of their 
 black sheep. In the very heat and stress of the Granger move- 
 ment, when the railway companies were compared with the 
 feudal barons as levying iniquitous taxes upon the commerce 
 of the country, they were not paying extravagent nrofits on cost 
 of construction, they were not over-capitalized and the rates 
 charged to shippers had been steadily declining for three de- 
 cades. 
 
 In 1873 the railways of the United .States were over-con- 
 structed but not over-capitalized. Today they are both under- 
 constructed and under-capitalized, but the facts have been so 
 misrepresented that the springs of fresh capital are dried up by 
 popular and legislative hostility. A year ago the railways were 
 in a position to borrow money for much needed improvements 
 and extensions upon reasonable "terms. Today they are forced 
 to abandon their extensions or make loans upon terms that to 
 the ignorant will have a watery, if not a usurious aspect. 
 
 Easy chair economists may disapprove of it, but it is a 
 sounder policy for a railroad to borrow money at 3 per cent, 
 and issue an equivalent amount of stock as a bonus to obtain 
 the loan, than to sell a 6 per cent, bond for the same amount. 
 The funds realized are the same, but in the former case the 
 fixed charge is less and the stock affords an incentive to its 
 holders to employ the ability, energy and industry necessary 
 to the financial success of the property. Such water is as nec- 
 essary to the building of a new railroad or the healthy develop- 
 ment of an old one as blood, which is more than nine parts 
 water, is to the human body. 
 
29 
 
 III 
 
 HISTORY OF AMERICAN RAILWAYS 
 
 "The inventor of the railroad ought to be ranlied among the chief builders 
 of ihe American Union." — John Fislie. 
 
 If there are canals all over the face of the planet Mars it 
 must be because there are no railways in Mars. But for the 
 inspiration of James Watt and the genius of George Stephenson 
 we might still be as dependent on canals for artificial water- 
 ways as were the almost human beavers before Venice was 
 mistress of the seas and the internal transportation of Holland 
 was the envy of less favored nations. 
 
 It is impossible for the present generation to realize what 
 it owes to the railways, which, with their bands of steel, fairly 
 bind the United States in an indissoluble union, without a glance 
 back at the conditions prevailing on this continent before their 
 introduction. Bet-v(feen the first English settlement of Virginia, 
 whose tercentennial we are now celebrating, and the building 
 of the first real railway from Baltimore to Ellicott's,, not a step 
 forward had been taken to expedite communication any con- 
 siderable distance away from tidewater and navigable rivers. 
 The first practical steamboat had made its appearance on the 
 Clyde in 1802. Five years later it took Robert Fulton's Cler- 
 mont 32 hours to make the trip from New York to Albany — 
 an average speed of less than 5 miles an hour. 
 
 In 1818 the first steamboat crossed the Atlantic in 26 days 
 — a feat which has been accomplished by sailing vessels in 
 practically half the time. 
 
 In the matter of land transportation the world in the cen- 
 turies between had not improved upon the road making of the 
 Romans. No advance had been made on the motive power of 
 the horse, the sure-footed pack mule and the hump-backed 
 "ship of the desert." At the opening of the 19th century, as 
 now, the United States, standing in greater need of internal 
 means of transportation than any other country on earth, had 
 the poorest public roads of any civilized community. 
 
 That we may fully appreciate the physical conditions in the 
 
30 
 
 republic before the railways came to bind it into a physical 
 as well as a political union of sovereign states, let me present 
 them as described in a few salient paragraphs culled almost at 
 random from Henry Adams' "American History During the 
 First Administration of Thomas Jefferson." No running com- 
 ment is necessary to suggest the contrast: 
 
 "According to the census of 1800 the United States of America 
 contained 5,308,483 persons"— one-fifth of them negro slaves. 
 
 "Even after two centuries of struggle the land was still un- 
 tamed. 
 
 "The center of population rested within eighteen miles of 
 Baltimore. 
 
 "Except in political arrangement, the interior was little more 
 civilized than in 1750 and was not much easier to penetrate 
 than when LaSalle and Hennepin found their way to the Mis- 
 sissippi more than a century before. 
 
 "A great exception broke this rule. Two wagon roads crossed 
 the Alleghany Mountains in Pennsylvania ; while a third passed 
 through Virginia southwestward to the Holston River and Knox- 
 ville in Tennessee. 
 
 "Nowhere did eastern settlements touch the western. At 
 least one hundred miles of mountainous country held^'the two 
 regions everywhere apart. The shore of Lake Erie, where alone 
 contact seemed easy, was still unsettled. 
 
 "The same bad roads and difficult rivers, connecting the 
 same small towns, stretched into the same forests in 1800 as 
 when the armies of Braddock and Amherst pierced the western 
 and northern wilderness. 
 
 "Even by water, along the seaboard, communication was as 
 slow and almost as irregular as in colonial days. The voyage 
 to Europe was comparatively more comfortable and more regu- 
 lar than the voyage from New York to Albany. 
 
 "If America was to be developed along the lines of water 
 communication alone, by such means as were known to Eu- 
 rope, Nature had decided that the experiment of a single re- 
 publican government must meet with extreme difficulties. By 
 water an Erie Canal was already foreseen ; by land, centuries 
 of labor could alone conquer those obstacles which Nature per 
 
31 
 
 mitted to be overcome. Highways furnished no sure measure 
 of progress. No matter how good the road, it could not com- 
 pete with water, nor could heavy freights in great quantities 
 be hauled long distances without extravagant cost. 
 
 "At any known rate of travel Nashville could not be reached 
 in less than a fortnight or three weeks from Philadelphia. 
 
 "Politically each group of States lived a life apart. 
 
 "In the Northern States, four miles an hour was the aver- 
 age speed for any coach between Bangor and Baltimore. Be- 
 yond the Potomac the roads became steadily worse, until south 
 of Petersburg even the mails were carried on horseback. 
 
 "Of eight rivers between Monticello and Washington, Jeffer- 
 son wrote, 'five have neither bridges nor boats.' 
 
 "The usual charge (for passengers) in the Northern States 
 was six cents a mile by stage. 
 
 "The Saxon farmer of the eiglith century enjoyed most of 
 the comforts known to Saxon farmers of the eighteenth. 
 
 "Fifty or a hundred miles inland more than half the homes 
 were log cabins, which might or might not enjoy the luxury 
 of a glass window."* 
 
 "As a rule American capital was absorbed in shipping or 
 agriculture, whence it could not suddenly be withdrawn. No 
 stock exchange existed, and no broker exclusively engaged in 
 stock-jobbing, for there were few stocks. 
 
 "A probable valuation of the whole United States in 1800 
 was $1,800,000,000, equal to $328 for each human being, includ- 
 ing slaves; or $418 to each free white. 
 
 "Taxes amounted to little or nothing, and wages averaged 
 about a dollar a day." 
 
 Such, in brief, is Mr. Adams' description of the conditions 
 prevailing in the United States at the beginning of the nine- 
 teenth century. That they had been but little bettered prior 
 to the advent of railways is the testimony of other historians, 
 from De Tocqueville down. The observant philosophic French- 
 
 (*) In passing it may be noted that in 1809 Abraham Lincoln was born in one of these log 
 cabins without the luxury of a glass window. 
 
32 
 
 man whose "Democracy in America'' was published in 1835. 
 found that, 
 
 "The valley of the Mississippi is, upon the whole, the most 
 magnificent dwelling place prepared by God for man's abode; 
 and yet it may be said that at present it is but a mighty desert." 
 
 Daniel Webster, with oratorical license, ridiculed the possi- 
 bility of the present State of Washington becoming a part of 
 the Union, on the ground that a Senator elected from that State 
 could not reach the national capital before the expiration of his 
 term of ofHce. Today Senator Foster can reach Washington 
 from Taconia in half the time it took Webster to get to Wash- 
 ington when first elected to the Senate from Massachusetts. 
 
 From the dawn of civilization canals had been the means 
 by which man had sought to supplement Nature's waterways 
 in the transportation of merchandise, especially of a bulky or 
 heavy nature. There were canals in Egypt seventeen centu- 
 ries before Christ, and a canal mania raged in England seven- 
 teen centuries after that central event in the upward progress 
 of mankind. 
 
 The first canal opened in the United States was that con- 
 necting Boston with Concord river in 1804. But the active 
 period of canal digging did not come until later when, in 1825, 
 the Erie Canal was opened from Albany to Bufifalo. This was 
 the cause of universal rejoicing throughout the country. Be- 
 gun in 1817, eight years and between eight and nine million 
 dollars were spent in its completion. Although it was 352 miles 
 long and 40 feet wide at the top, it was so shallow — only 4 feet 
 — that it was irreverently spoken of as the longest and most 
 expensive gutter in the world. 
 
 The joyful tidings of its official opening was boomed to 
 New York by relays of cannons in 80 minutes — which was 
 transmitting the news with an approach to lightning rapidity 
 for those days. 
 
 By means of this marvel of early American energy three 
 fast-walking horses were enabled to draw a canal boat four 
 miles an hour, and we read that "At the end of the fourth 
 day from Schenectady the jaded traveller reached Buffalo." But 
 more important was the fact that, where previous to the build- 
 
33 
 
 ing of the canal "it cost $5 and 30 days to ship 100 pounds from 
 Philadelphia to Columbus, Ohio, after it opened the time was 
 reduced to 20 daj's and the cost to $2.50!" In every way it 
 answered the expectations of its enthusiastic projectors, whose 
 enterprise was repaid by seeing its business double during the 
 first seven years. 
 
 In 1835 the Erie canal, at a cost of $25,000,000, was enlarged 
 to 70 feet wide at the top and 40 at the bottom. It had been 
 deepened to 7 feet and provided with 72 locks. This raised 
 its aggregate cost to about $34,000,000, or $97,000 per mile, an 
 expenditure fully justified by the results. By 1852 its receipts 
 reached $3,000,000 a year, or nearly three times what they 
 were in 1826. In the meantime its. tolls had been reduced to 
 one-third the original charges. Then began its struggle with 
 railway competition, lasting until 1871, when it finally failed to 
 pay expenses of maintenance. In spite of this demonstration of 
 the impotence of canals to cope with railways, the legislature 
 of New York has not hesitated to renew the contest by ex- 
 pending $100,000,000 for the enlargement and improvement of 
 the old waterway. 
 
 Judge Cooley has summed up the result of the struggle be- 
 tween waterways and railways in the memorable words: "The 
 experience of the country has demonstrated that the artificial 
 waterways can not be successful competitors with the railroads 
 on equal terms." 
 
 Just as the American people, with characteristic energy, were 
 projecting canals in every direction, George Stephenson suc- 
 ceeded in demonstrating the feasibility of substituting steam 
 for horses in the propulsion of cars on rails. When he com- 
 bined the escape-steam blast, which provided the draft neces- 
 sary for a hot fire, and the tubular boiler to multiply the heat- 
 ing surface, the knell of canals on this continent was struck, 
 although many years were to elapse before it was realized. 
 
 in 1825, the same memorable year that savv tne opening of 
 the Erie Canal, the Stockton and Darlington railway was opened 
 for passengers, and in 1829 Stephenson's locomotive, the "Rock- 
 
34 
 
 et," attained a speed of 29^ miles an hour. It was this feat of 
 speed that hastened the struggle with the slow-going canal boat, 
 and no thought as to the locomotive's efficiency in drawing heavy 
 loads — something not dreamed of in the minds of engineers ex- 
 perimenting with engines weighing from 3 to 7 tons — the lighter 
 machines having the preference for American roads. The im- 
 possibility of canals responding to the American passion for 
 speed finally sealed their fate, outside the deliberations of politi- 
 cal conventions and legislative bodies. 
 
 The United States is most truly a land of "magnificent dis- 
 tances." Before the era of railways its inhabitants were almost 
 as isolated, so far as means of rapid communication were con- 
 cerned, as were the different tribes which roamed the continent 
 before the voyage of Columbus. The horse or mule power 
 canal boat was "slow freight" compared with the swift moc- 
 casin shod despatch bearer of Pontiac. The almost magical 
 transformation that came across the physical possibilities of the 
 United States with the introduction of the steam locomotive has 
 given to the genesis of the- American railway an increasing 
 fascination for American historians. To them the fact that the 
 first tram-road was built from the granite quarries at Quincy, 
 Mass., to Neponset river in 1826 to transport stones for the con- 
 struction of Bunker Hill monument obscures the fact that it was 
 not a railway in any true sense, being merely a quarry road 
 operated by gravity and horse power. It was not even the first 
 of its kind in the United States and never rose to the dignity 
 of a railway until purchased by the Old Colony Railroad Com- 
 pany in 1872. Then for the first time its relaid T rails felt the 
 swift triumphant tread of locomotive wheels. 
 
 Another gravity road frequently mentioned in the early his- 
 tories of American railways was built at Mauch Chunk, Penn- 
 sylvania, in 1827, and still another for the Carbondale and 
 Honesdale Railroad the following year. It was on the last 
 named road that the first locomotive used in the United States, 
 the "Stourbridge Lion," built in England, had its trial trip. 
 Although its weight is stated as only 6 or 7 tons, it was found 
 too heavy for the primitive tracks of those days. 
 
35 
 
 To the Baltimore and Ohio belongs the credit of being the 
 first American railway designed and built for both passenger 
 and freight traffic. At the ceremony of breaking ground for 
 this road on July 4, 1828, Charles Carroll of Carrollton, then 
 in his 92d year, said, "I consider this among the most important 
 acts of my life, second only to that of signing the Declaration 
 of Independence, if even second to that." He lived to see it 
 completed to the Point of Rocks, 73 miles from Baltimore. Origi- 
 nally operated as a horse railroad, the Baltimore and Ohio was 
 the scene of the celebrated contest between a horse drawn car 
 
 Peter Cooper's Locomotive, 1830. 
 
 and the experimental locomotive, Tom Thumb, built by Peter 
 Cooper. Unfortunately for the engine, the belt that worked 
 Mr. Cooper's contrivance for blowing the fire slipped off the 
 drum at a critical stage of the race, and before it could be re- 
 adjusted the "gallant gray" of the story came in an easy win- 
 ner. But even in this contest the "iron ho^se" demonstrated 
 its superiority, barring accidents, over the horse which for ages 
 had been the recognized symbol of power and speed. The Balti- 
 more and Ohio road was opened for traffic for 14 miles in 1830 — 
 the year Abraham Lincoln left his mother's log cabin to shift for 
 
himself. Within the past eight years the original main line be- 
 tween Relay, 9 miles from Baltimore, and Washington Junction 
 has been entirely reconstructed, including the straightening of 
 curves and a reduction of grades, at a cost of over $3,000,000, 
 or $52,000 per mile. 
 
 To Colonel John Stevens of Hoboken seems to be due the 
 high honor of being the first conspicuous American persistently 
 to urge the construction of locomotives on railways for long 
 distance transportation on this continent. He built and ran a 
 steamboat nine years before Fulton built the Clermont, and also 
 patented a multi-tubular boiler as early as 1803. Stevens built 
 and operated the first engine that ever ran on wooden tracks in 
 the United States. As early as 181 1 he had applied to the legis- 
 lature of New Jersey for a railroad charter. Disappointed in 
 this application, he endeavored to persuade the Erie Canal 
 Commissioners, then just appointed in New York, to build a 
 railroad instead of a canal across the state from Albany to 
 Bufifalo. Failing of this, he again applied to the law makers 
 of his own state, and this time, in 181 5, secured the first railroad 
 charter in the New World, to build a road to join the Delaware 
 and Raritan rivers, connecting at either end with steamboat 
 lines for Philadelphia and New York. His road did not ma- 
 terialize, for the same reason that for yet a dozen years was 
 to nip in the bud man}'^ similarly promising projects — lack of 
 confidence, credit and capital. Investors were not yet ready to 
 assume the risk of placing their money in an enterprise where 
 the investment was certain and irrevocable but the profits were 
 still problematical. In those days the necessary funds had to 
 be secured by selling securities at a discount. 
 
 Turned down by New York and having made a "dry haul" 
 in New Jersey, Colonel Stevens next directed his attention to 
 Philadelphia, where, tlirough the aid of some of its business 
 men, in 1823 he secured a charter to build a railroad from Phila- 
 delphia to Columbia, a town on the Susquehanna twenty-seven 
 miles south of Harrisburg. Some of the privileges granted in 
 this charter, says MacMasters, seem curious enough. "The 
 charter was to be in force for ten years ; the rails were to cross 
 all pikes and roads on causeways and the company might charge 
 
37 
 
 seven cents a ton per mile on freight moving westward, and half 
 that sum on freight bound east." 
 
 Although this charter was subsequently repealed and the State 
 of Pennsylvania itself assumed the task of building a railroad 
 from Philadelphia through Lancaster to Columbia, the charter 
 to Stevens, with its provisions for a seven cent rate per ton 
 mile, is worth recalling for the contrast it affords with the rate 
 of the Pennsylvania Railroad Company of 59/100 of a cent in 
 1906. Before 1830 the potentialities that lay behind railroads 
 were fully recognized, but the means to grasp the opportunity, 
 namely — monc}' and labor, were scarce and almost impossible 
 to get. 
 
 Rich as the histories of those early days are in stories and 
 incidents showing with what persevering enthusiasm and in- 
 genuity that generation of Americans approached the task of 
 adopting and adapting the railway to the needs and conditions 
 of the country, they are singularly shy of accurate data as to 
 the cost of construction. Somewhere it is told that the four 
 miles of the Quincy tramway cost "about $34,000" or $8,500 
 per mile. With nice exactness we know that the first powerful 
 7-ton Stephenson locomotive brought to this country "cost $4,- 
 869.59, including freight, duties and insurance." We know that 
 the first railways consisted of local lines built generally to con- 
 nect waterways, that they sought level routes, that they avoided 
 steep grades; that Colonel Stevens had to build a circular rail- 
 way to demonstrate that a locomotive could haul a train around 
 curves ; that the first rails were long wooden stringers protected 
 on the top from the wear of the wheels by strap iron nailed on, 
 and that the locomotives only weighed a few tons and gave 
 more promise of speed than of tractive power. Engineers still 
 doubted the adhesion of a smooth wheel on a smooth rail. There 
 were no through routes in 1830, the longest road actually under 
 construction being from Charleston 135 miles to Hamburg, 
 South Carolina. 
 
 We know that the country highway of those days cost from 
 $300 to $500 to build and the rate to move a ton mile on it was 
 about 25 cents. 
 
38 
 
 We know that the early turnpikes cost from $3,000 to $5,000 
 and reduced the cost of moving a ton to 20 cents a mile, at which 
 figure the average rate stands today. According to a recent 
 bulletin of the Bureau of Statistics the present team haul cost to 
 agriculture averages 23 cents per ton mile, the average on wheat, 
 corn and oats being 19 cents, fruit and vegetables from 28 to 
 31, and on cotton 27 cents per ton mile. 
 
 But we do not know whether the first railways cost more or 
 less than the $25,000 a mile of the original Erie four foot gutter. 
 All we do know of them in this respect is that the opportunity 
 for them was as broad as the continent, the necessity for them 
 apparent, the demand for them insistent and imperative, while 
 the money with which they were financed had to be borrowed 
 mostly in England and Europe at 8 to T-ofo, and everything that 
 went into their construction had to be brought from abroad or 
 built at home in primitive fashion. The inevitable discount on 
 the sale of securities was the "water" without which American 
 railways could not have been built. 
 
 The final picture of the condition of the United States before 
 the railways came to bind its isolated communities into one 
 homogeneous nation is afforded b)'' the National census of that 
 year: 
 
 United States Census, 1830, 
 
 Alabama 
 
 Arkansas 
 
 Connecticut. . . 
 
 Delaware 
 
 Florida 
 
 Georgia 
 
 Illinois 
 
 Indiana 
 
 Kentucky. . . . 
 Louisiana. . . . 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan 
 
 Mississippi. . . . 
 
 309,527 
 
 30,388 
 
 297,675 
 
 76,748 
 
 34,730 
 
 516,823 
 
 157,445 
 
 343,031 
 
 687,917 
 
 215,739 
 
 399,455 
 
 447,040 
 
 610,408 
 
 31,639 
 
 136,621 
 
 Missouri 
 
 New Hampshire 
 
 New Jersey 
 
 New York 
 
 North Carolina 
 
 Ohio 
 
 Pennsylvania 
 
 Rhode Island 
 
 S. Carolina . . . 
 
 Tennessee 
 
 Vermont 
 
 Virginia 
 
 District of Columbia 
 
 U. S. Sailors and persotfs st 
 tioned abroad • 
 
 Total 
 
 140,455 
 269,328 
 320,823 
 
 1,918,608 
 737,987 
 937,903 
 
 1,348,233 
 
 97,199 
 
 581,185 
 
 681,904 
 
 280,652 
 
 1,211,405 
 39.834 
 
 5,318 
 
 12,866,020 
 
 The omissions of this table are its most significant features. 
 Where are the great states of California, Colorado, Idaho, Iowa, 
 
39 
 
 Kansas, Minnesota, Montana, Nebraska, Nevada, the Dakotas, 
 Oregon, Texas, Utah, Washington, Wisconsin, Wyoming, Okla- 
 homa and the territories? They were waiting for the railways; 
 and most of them had to wait three decades longer before they 
 knew the real rush of settlers which came when the railways, 
 with admirable boldness, ventured to build into the wilderness, 
 in many instances before the Indians had finally left it. 
 
 Before closing this brief story of the beginnings of American 
 railways, it may be permitted to pass in review their first steps 
 toward the conquest of the continent. 
 
 As its name implies, the Baltimore and Ohio was chartered 
 to build a railway from the city of Baltimore to the Ohio river, 
 a distance of over 300 miles. It did not reach its destination 
 until 1853. Only half the distance, with a branch to Washing- 
 ton, was completed within the first decade. 
 
 De Witt Clinton Engine ,\nu Tkain, . 
 At the Opening of the Mohawk and Hudson Railroad September, 1831. 
 
 When the State of Pennsylvania took the construction of the 
 Philadelphia and Columbia railway off the hands of Colonel 
 Stevens' company, the line was located in 1828 and construc- 
 tion commenced in the year following. This was the first rail- 
 way work unaertaken by a State government. About twenty 
 miles at the eastern end was opened for travel in 1832 and by 
 1834 the entire line, with two tracks, was completed. Both 
 passenger and freight cars were owned by individuals or com- 
 panies, who furnished the horses or mules to haul them, paying 
 the State toll for the use of the road. At first the State owned 
 two locomotives and the number was increased so that by 1834 
 animal power on the long stretches of the road was discon- 
 tinued. A regular toll was charged by the State for the use of 
 its locomotives. 
 
40 
 
 McMasters' description of the trip west over this early state 
 road gives a vivid summary of the hybrid railroad and canal 
 travel in the early thirties. 
 
 "It was then the custom," says the historian, "for travelers 
 going west from Philadelphia to leave their names and addresses 
 with the agent of some transportation line the day before de- 
 parture, in order that the "bus" which went the rounds of the 
 city early every morning should call for and carry them and 
 their baggage to the depot. Once there the passengers were 
 hurried into the cars which were coupled in pairs, their luggage 
 was piled on the roofs, and the little trains were hauled by horses 
 to the foot of an inclined plane on the west bank of the Schuyl- 
 kill River near Belmont. Up this plane they were pulled by 
 
 The **Old Ironsides," 1832 
 Balbwiis's FiBST LooowoTivE. Weight 5 Toss. 
 
 a stationary engine and rope, and when all were at the top the 
 train of ten or a dozen cars was attached to a little puffing, 
 wheezing locomotive without a cab, without a brake, and whose 
 tall stack sent forth volumes of smoke mingled with red-hot 
 cinders. But this was nothing to what happened when the 
 train, rolling along at a rate of nine miles an hour, crossed a 
 bridge. In those days the floors and trusses of such structures 
 were protected by roofing them over and boarding up the sides 
 almost to the eaves. To raise the roof so high above the rail 
 that the tall stack of the locomotive might pass under would 
 have been costly. The stacks therefore were jointed, and when 
 crossing a bridge the upper half was dropped down and the 
 
41 
 
 whole train was enveloped in a cloud of smoke and live cinders. 
 
 "A ride of five or more hours, according as the rails were dry 
 or wet, brought the travelers to Lancaster, where they spent 
 the night, and at four the next morning were up and ready 
 to go on. No necessity existed for so early a start, for the dis- 
 tance from Lancaster to Columbia was but twelve miles and 
 the travelers could not leave Columbia till four in the after- 
 noon. But as they had been fed and sheltered at the hotel at 
 Lancaster, it seemed fair that the Red Lion at Columbia should 
 have them at breakfast and dinner. 
 
 "At Columbia the railroad ended and the canal began, and 
 there, every week day about four in the afternoon, a few blasts 
 on a horn gave warning that the packet was ready to start. The 
 canal wound along the east bank of the Susquehanna to a point 
 opposite the mouth of the Juniata, crossed by a viaduct to the 
 west shore, and went up the valley of the Juniata through most 
 beautiful scenery to Hollidaysburg at the foot of the Alleghany 
 Mountains. There canal navigation ended. There the traveler 
 spent the night of the second day after leaving Lancaster and 
 early next morning began a journey which none but the boldest 
 
 Passenger Coach Used on the Portage Railroad Over the Alleghany 
 Mountains in 1S35. 
 
 ventured to take over the portage railroad. The cars were 
 drawn by horses from Hollidaysburg some four miles to the 
 foot of inclined plane No. lo. An endless rope passed up the 
 middle of the right-hand track, around a series of great drums 
 at the top, down the left-hand track and around other drums 
 to the foot of the right-hand track. Made fast to this rope, the 
 cars, two at a time, were pulled up the incline to level No. 
 ID. Along this they were drawn by horses to the foot of in- 
 
42 
 
 cline No. 9, and by repetitions of these processes to the summit 
 of level No. 6, which crossed the crest of the mountain. 
 
 "The traveler was then fourteen hundred feet above the canal 
 at Hollidaysburg, and was about to be lowered eleven hundred 
 and seventy-one feet by another series of inclined planes and 
 levels to the basin of the Western Canal at Johnstown. Level 
 No. 2 was fourteen miles long, passed through wild and beauti- 
 ful mountain scenery and the longest tunnel in the country. 
 Another incline and another level, four miles long, brought the 
 traveler to Johnstown. There a change was made from railroad 
 cars to a canal packet boat, which passed down the valleys 
 of the Kiskiminetas and the Alleghany to Pittsburg." 
 
 This description of a journey which consumed five days where 
 the Pennsylvania covers the same distance in seven hours, fairly 
 represents the contrast between travel only 70 years ago and 
 today. In 1851 the State commenced the construction of an- 
 other line to avoid the ten inclined planes across the Alle- 
 ghanies, but in 1857 before the work was completed sold both 
 the old and the new portages and the canal sections to the 
 Pennsylvania Railroad Company, which had previously built 
 its own line across the mountains. In 1858 the State disposed 
 of its remaining canals and abandoned its system of transporta- 
 tion. But who will say that all that the State of Pennsylvania 
 paid and sank in its experiments with government ownership 
 and operation of this great transportation undertaking is not 
 properly to be reckoned as a part, and a very essential part, 
 of the cost of construction of American railways. The fact 
 that the road and canal were sold for a song compared with 
 their cost, and that scarcely a vestige of the State venture, ex- 
 cept right of way, remains of service to the public today does 
 not wipe out the obligation of the original investment. Be- 
 sides, the people of the United States in our day are millions 
 richer for the pioneer work of the State which a great railway 
 company subsequently had to reconstruct or abandon to perfect 
 its magnificent service across the Alleghanies. 
 
43 
 
 How subsequently the railroads pushed their way westward 
 until they reached the Pacific is thus summarized in a para- 
 graph from Poor's Manual for 1870-71. 
 
 "In 1851 the Erie Railroad was opened from the Hudson to 
 Lake Erie — an event of first rate importance in the history of 
 our railroad enterprises. In the following year the completion 
 of the Michigan Central and Michigan Southern lines carried 
 the railroad system of the country as far west as Chicago.* 
 
 The EECONSTBnCTED "Piokeee" of the Chicago & Noethwesiehn. This 
 10 Ton Locomotive Reached Chicago by Schooner Oct. 10, 1848. 
 
 In 1854, this system was carried to the Mississippi River 
 by the completion of the Chicago and Rock Island Railroad. In 
 1853, The Baltimore and Ohio Railroad was completed to the 
 Ohio River, at Wheeling. In 1854, the Pennsylvania Railroad 
 was completed to Pittsburg. In 1856, the Illinois Central Rail- 
 road was completed from Chicago to the Mississippi River, at 
 Cairo. The Chicago, Burlington and Quincy Railroad was 
 opened to Quincy in 1856. The Pittsburg, Fort Wayne and 
 Chicago, extending the Pennsylvania Railroad to Chicago, was 
 completed in 1858. In 1859, the Hannibal and St. Joseph Rail- 
 road was extended from the Mississippi to the Missouri. In 
 1866, the Cedar Rapids and Missouri was completed to the 
 Missouri River opposite Omaha. In 1867, a line of railroad was 
 formed betAveen Chicago and St. Paul, Minnesota; and in 1869, 
 by the completion of the Pacific Railroad — the greatest enter- 
 prise of the kind ever yet achieved — a. continuous line of rail- 
 way was formed from the Atlantic to the Pacific Ocean, a dis- 
 tance of nearly 3,500 miles." 
 
 *Lake Michigan and not Chicago was the original objective of these roads. 
 
44 
 
 In concluding his review of the thirty years of railway achieve- 
 ment in America prior to 1870, the editor of Poor's Manual in 
 that year said : "The early roads, as already remarked, were 
 neither designed nor adapted to serve the purpose of commerce 
 so much as of travel. The frail works first constructed were by 
 no means adequate to a heavy merchandise trafific. Ihey were 
 constructed with longitudinal sills covered with thin flat bars 
 of iron. With such structures, neither high speed nor heavy 
 trains were possible." 
 
 And yet the early roads were as adequate to the trafific of 
 1870 as the roads and equipment of 1870 would be to the trafific 
 of 1907. The "early roads" revolutionized the transportation 
 system of the United States; they made its remote places as- 
 cessible ; they brought millions upon millions of acres of wilder- 
 ness, prairie and forest within the radius of man's dominion; 
 they enabled the union of the states to expand from ocean to 
 ocean; they brought the American farm and factory within 
 trading distance of foreign markets; but without another revolu- 
 tion, in which they have been reconstructed from Portland to 
 San Diego, the railways of 1870 would no more have been able 
 to handle the trafific of 1907, they have been chiefly instrumental 
 in creating, than would Peter Cooper's "Tom Thumb" have been 
 equal to hauling a passenger train of 1876 from San Francisco 
 to the Centennial at Philadelphia. 
 
 Wooden bridges, strap rails and dirt or gravel ballast sufficed 
 for the earlier traffic of American railways. Before 1870 these 
 had given place to iron bridges, 56 lb. iron T rails and some 
 broken stone ballast as trafific expanded. And these in turn 
 have been superseded by steel or masonry structures, 70 to 100 
 lb. steel rails and more carefully prepared road beds to meet 
 modern demands. 
 
 In 1835 it would have taken something more than human 
 prescience to have foreseen such a growth as is shown in the 
 following table of way freight on the Camden and Amboy rail- 
 road, 1835-1869: 
 
45 
 
 Way Freight on the Camden and Amboy 1835 to 1869. 
 
 Year. 
 
 Tons Carried. 
 
 Year. 
 
 Tons Carried. 
 
 1835 
 
 1,451 
 
 3,356 
 
 7,480 
 
 20,515 
 
 1865 
 
 71,764 
 
 1840 
 
 1860 
 
 1865 
 
 83 543 
 
 1846 
 
 182,541 
 
 1850 
 
 1869 
 
 429,029 
 
 
 
 
 In 1906 the United Railroads of New Jersey division of the 
 Pennsylvania Railroad, into which the Camden and Amboy was 
 merged, carried a total of 30,732,210 tons. 
 
 The miracle of such revolutions in ability to handle traffic, 
 common throughout the country, is that it has been accomplished 
 without material increase, if any, to the net capitalization of 
 American railways per mile. Millions of dollars were expended 
 to bring the original roads up to the requirements of 1870, and 
 other millions have been spent to bring the roads of 1870 up 
 to the standard and performance of today, while the net cap- 
 italization stands at $54,421 per mile against a gross of $59,- 
 726 in 1870, when intercorporate holdings were comparatively 
 insignificant. 
 
 With 1870 the historical review of American railways ends, 
 and the period of comprehensive statistics begins. This may 
 be prefaced with a table showing the mileage of American 
 railways by states in successive decades : 
 
46 
 
 Mileage of Railways im the United States by States 
 Since 1841. 
 
 
 1841. 
 
 1850. 
 
 1860. 
 
 ,1870. 
 
 1880. 
 
 1890. 
 
 1900. 
 
 1905. 
 
 
 46 
 
 102 
 39 
 
 271 
 
 183 
 
 402 
 39 
 21 
 
 643 
 
 111 
 228 
 
 78 
 
 80 
 
 245 
 
 *259 
 
 1,035 
 
 342 
 
 76 
 
 467 
 
 206 
 
 1,361 
 
 283 
 
 575 
 
 1,240 
 
 68 
 
 289 
 
 290 
 384 
 
 97 
 20 
 
 743 
 38 
 23 
 
 601 
 
 127 
 
 402 
 
 1,420 
 
 2,790 
 
 2,163 
 
 655 
 
 534 
 335 
 472 
 *386 
 1,264 
 779 
 
 862 
 817 
 
 661 
 
 560 
 
 2,682 
 
 937 
 
 2,946 
 
 2,598 
 108 
 973 
 
 1,253 
 307 
 
 554 
 1,379 
 
 352 
 905 
 
 1,157 
 266 
 925 
 167 
 742 
 197 
 446 
 
 1,845 
 
 4,823 
 
 3,177 
 
 2,683 
 
 1,601 
 
 1,017 
 
 460 
 
 786 
 
 *671 
 
 1,480 
 
 1,638 
 
 1,092 
 
 990 
 
 2,000 
 
 705 
 
 593 
 
 736 
 
 1,125 
 
 3,928 
 
 1,178 
 
 t66 
 
 3,538 
 
 159 
 
 4,666 
 
 136 
 
 1,139 
 
 1,492 
 711 
 267 
 614 
 
 1,486 
 
 387 
 
 1,625 
 
 459 
 
 1,843 
 
 869 
 2,195 
 1,570 
 
 923 
 
 275 
 
 618 
 2,459 
 
 206 
 7,851 
 4,373 
 6,400 
 3,400 
 1,630 
 
 662 
 1,005 
 *1,040 
 1,915 
 3,938 
 3,151 
 1,127 
 3,965 
 
 106 
 1,953 
 
 739 
 1,015 
 1,684 
 5,957 
 1,486 
 tl,225 
 6,792 
 
 508 
 6,191 
 
 210 
 1,427 
 
 1,843 
 
 3,244 
 842 
 914 
 
 1,893 
 289 
 691 
 
 3,155 
 612 
 349 
 
 1289 
 758 
 
 3,147 
 
 2,112 
 
 4,147 
 
 4,154 
 
 1,007 
 
 322 
 
 2,389 
 
 4,105 
 
 941 
 
 9,843 
 
 5,891 
 
 8,347 
 
 8,806 
 
 2,694 
 
 1,657 
 
 1,312 
 
 1,138 
 
 2,093 
 
 6,788 
 
 5,466 
 
 2,292 
 
 5,897 
 
 2,181 
 
 5,274 
 
 924 
 
 1,133 
 
 2,034 
 
 7,462 
 
 2,904 
 
 1,940 
 
 7,719 
 
 1,268 
 
 8,307 
 
 205 
 
 2,095 
 
 2,485 
 
 2,709 
 
 7,911 
 
 1,090 
 
 913 
 
 3,142 
 
 1,698 
 
 1,305 
 
 6,468 
 
 941 
 
 1,061 
 
 30 
 
 1,046 
 
 1,284 
 
 167 
 
 4,219 
 3,341 
 5,744 
 4,587 
 1,023 
 346 
 3,272 
 5,639 
 1,261 
 10,997 
 6,469 
 9,180 
 8,719 
 3,059 
 2,824 
 1,915 
 1,376 
 2,118 
 8,193 
 6,942 
 2,919 
 6,867 
 3,010 
 6,684 
 
 909 
 1,239 
 2,237 
 8,121 
 3,808 
 2,731 
 8,774 
 1,723 
 10,277 
 
 211 
 2,794 
 2,849 
 3,124 
 9,873 
 1,447 
 1,012 
 3,729 
 2,890 
 2,198 
 6,496 
 1,228 
 1,411 
 31 
 1,322 
 1,752 
 
 827 
 
 4,776 
 
 
 4,183 
 
 California 
 
 Colorado , 
 
 6,477 
 5,027 
 1,018 
 
 
 335 
 
 Florida 
 
 3,590 
 
 
 6,442 
 
 
 1,466 
 
 
 22 
 
 11,830 
 
 
 6,915 
 
 
 9,871 
 
 Kansas 
 
 28 
 
 40 
 
 11 
 
 *259 
 
 373 
 
 138 
 
 14 
 
 63 
 186 
 538 
 
 87 
 
 36 
 
 754 
 
 50 
 
 204 
 
 8,841 
 3,286 
 
 
 4,011 
 
 
 2,028 
 
 
 1,434 
 
 
 2,119 
 
 
 8,789 
 
 
 7,992 
 
 
 3,672 
 
 Missouri 
 
 8,039 
 3,309 
 
 
 5,833 
 1,180 
 
 
 1,267 
 
 
 2,224 
 
 
 8,336 
 4,210 
 
 Ohio 
 
 3,233 
 9,259 
 
 
 1,813 
 
 
 11,043 
 
 
 212 
 
 South Carolina 
 
 Tennessee 
 
 Texas 
 
 3,160' 
 3,067 
 3,561 
 11,983 
 
 Utah 
 
 
 1,774 
 
 
 223 
 61 
 
 1,058 
 
 Virginia 
 
 3,960 
 
 
 3,367 
 2,929 
 
 Wisconsin 
 
 7,211 
 
 Wyoming 
 
 1,247 
 1,665 
 
 District of Columbia 
 
 Indian Territory 
 
 32 
 2,638 
 2 634 
 
 
 2,625 
 
 
 United States 
 
 6,635 
 
 9,021 
 
 30,626 
 
 52,922 
 
 93,237 
 
 159,271 
 
 192,940 
 
 217,017 
 
 
 United States, 1906 .' 222,340 
 
 *Includes District of Columbia, 
 flncludes South Dakota. 
 J Includes Oklahoma. 
 
47 
 
 IV 
 
 PRESENT CAPITALIZATION 
 
 Amount. 
 
 Per Mile 
 of Line, 
 
 Gross capital (including duplications), 1906. 
 Net capital (excluding duplications), 1906. . . 
 Net capital per mile of track 
 
 $14,570,421,478 
 11,671,940,649 
 
 $67,936 
 54,421 
 37,746 
 
 Nearly all discussions of railway problems have been con- 
 fused and the value of their conclusions vitiated by fixing popu- 
 lar attention on the gross figures of capitalization, income and 
 profits. To what extent this is calculated to mislead the un- 
 wary and deceive the uninformed, may be judged by the fore- 
 going table. 
 
 From the date of his first annual report on the "Statistics 
 of Railwa3'S of the United States" (March i, 1889) down to his 
 latest report (August 20, 1506), Henry C. Adams, Statistician 
 of the Interstate Commerce Commission, has shown the live- 
 liest interest in this question of railway capitalization. Refer- 
 ence has already been made to his early views on the imperative 
 necessity for an estimate of the cost and value of the railways, 
 to be made "by competent authority, free from outside influ- 
 ences and clothed with ample power for the investigation." Co- 
 incident with this expression of his views in regard to cost, in 
 his first report he discussed the amount and character of capital 
 invested in the railwa}^ industry, applying the term "railway 
 capital" to' all forms of property "that draws its revenues from 
 railway operations." This he found to consist of stock, all forms 
 of funded debt for the security of which railway plant or rail- 
 way income is mortgaged, and the floating capital necessary to 
 keep fixed investments in a profitable state of activity. 
 
 Following out his idea that this capital should include the 
 property that drew its "revenues from railway operations," Mr. 
 Adams' first tables included under the term capital all "stocks, 
 bonds, car trust obligations, receivers' certificates and current 
 
48 
 
 lial)ilities." In his explanation of his course in including cur- 
 rent liabilities in his classification, he said: "Stocks and bonds 
 make up fixed investments. They represent fixed capital. But 
 fixed capital cannot be a source of profit except through the 
 constant application of circulating capital." This circulating 
 capital, he concluded, was fairly represented in "current lia- 
 bilities," which were included in the official capitalization tables 
 until 1896, when, at the request of the Association of American 
 Railway Accounting Officers, they were excluded from the cap- 
 ital account. 
 
 As early as 1867 "Poor's Manual of the Railroads of the United 
 States" had attempted to give the capitalization of American 
 railways, then estimated to be $1,172,881,000 or about $40,000 
 per mile. That this was little more than a conscientious guess 
 was quickly demonstrated, when, in the fifth issue of that valu- 
 able work, for the first time anything like a comprehensive 
 summary of the affairs of American railways was made acces- 
 sible to the public. Even this was not as exhaustive as the 
 publishers of the Manual hoped to make it, for in the sixth 
 series they apologized for the "meagre and incomplete" reports 
 from some of the companies, and only vouched "for the cor- 
 rectness of our (its) own statements as far as they go." 
 
 In the following table of "Gross Capitalization" compiled 
 from Poor's Manual down to 1888 and the official Statistics of 
 Railways since then, "floating debt" is included prior to 1875 
 and excluded thereafter. The figures of mileage prior to those 
 for June 30, 1890, include road operated under trackage rights, 
 which were excluded by Mr. Adams in the summaries after 
 that year. This accounts for the increase in capital per mile 
 shown in the official figures between 1889 and 1890. This table 
 is presented for comparative purposes only, and not as properly 
 representing the true situation at any period. Its defects, how- 
 ever, except as to the variations noted, are common to all years. 
 The returns from the Manual are by calendar years, those from 
 the official Statistics by fiscal years : 
 
49 
 GROSS CAPITALIZATION. 
 
 (Including Stock, Bonds, Income Bonds, Equipment, Trust and Miscellaneous Obligations.) 
 
 Year 
 
 Miles of 
 Line. 
 
 Total 
 Capital. 
 
 Capital 
 per Mile 
 of Line. 
 
 1871 
 
 1872 
 
 1873 
 
 187^ 
 
 1875 
 
 1876 
 
 1877 
 
 1878 
 
 1879 
 
 1880 
 
 1881 
 
 1882 
 
 1883 
 
 1884 
 
 1885 
 
 1886 
 
 1887 
 
 1888 (a), 
 1888 (b). 
 
 1889 
 
 1890 
 
 1891 
 
 1892 
 
 1893 
 
 1894 
 
 1895 
 
 1896 
 
 1897 
 
 1898 
 
 1899 
 
 1900 
 
 1901 
 
 1902 
 
 1903 
 
 1904 
 
 1905 
 
 1906. . . . 
 
 Increase per mile in 35 years 
 
 Increase per mile in 16 years (official). 
 
 44,614 
 
 57,523 
 
 66,237 
 
 69,273 
 
 71,759 
 
 73,508 
 
 74,112 
 
 78,960 
 
 79,009 
 
 82,146 
 
 92,971 
 
 104,938 
 
 110,381 
 
 115,671 
 
 123,280 
 
 125,144 
 
 136,986 
 
 145,333 
 
 136,883 
 
 153,385 
 
 156,404 
 
 161,275 
 
 162,275 
 
 169,779 
 
 175,690 
 
 177,746 
 
 181,982 
 
 183,284 
 
 184,648 
 
 187,534 
 
 192,556 
 
 195,561 
 
 200,154 
 
 205,313 
 
 212,243 
 
 216,973 
 
 222,340 
 
 $2,664,627,645 
 
 3,159,423,057 
 
 3,784,543,034 
 
 4,221,763,594 
 
 4,415,631,630 
 
 4,468,591,935 
 
 4,568,597,248 
 
 4,590,048,793 
 
 4,715,136,465 
 
 5,239,548,318 
 
 6,055,798,785 
 
 6,692,998,547 
 
 7,165,205,297 
 
 7,373,967,813 
 
 7,518,864,803 
 
 7,810,125,828 
 
 8,302,586,330 
 
 8,977,758,747 
 
 7,733,684,420 
 
 8,574,046,742 
 
 8,984,234,616 
 
 9,290,915,439 
 
 9,686,146,813 
 
 9,894,625,239 
 
 10,190,658,678 
 
 10,346,764,229 
 
 10,566,866,771 
 
 10,635,008,074 
 
 10,818,554,031 
 
 11,033,954,898 
 
 11,491,034,960 
 
 11,688,147,091 
 
 12,134,182,964 
 
 12,599,990,258 
 
 13,213,124,679 
 
 13,805,258,121 
 
 14,570,421,478 
 
 $59,726 
 55,116 
 57,134 
 60,425 
 61,533 
 60,790 
 61,644 
 58,131 
 59,677 
 63,783 
 65,136 
 63,780 
 64,768 
 63,749 
 60,990 
 62,409 
 60,609 
 61,704 
 56,498 
 55,892 
 58,659 
 59,006 
 61,130 
 59,729 
 59,419 
 59,650 
 59,610 
 59,620 
 60,343 
 60,556 
 61,490 
 61,531 
 62,301 
 63,186 
 64,265 
 65,926 
 67,936 
 
 8,210 
 9,277 
 
 (a) Calendar year, Poor's Manual. 
 
 (b) Year ending June 30, Interstate Commerce Commission, 
 
 It is obvious that if the mileage of track rights deducted 
 from the miles of line to ascertain the capital per mile in the 
 Interstate Commerce Commission reports could have been de- 
 ducted in the returns from Poor's Manual, the capital per mile 
 would have appeared greater than is shown above for the years 
 down to 1 888. 
 
50 
 
 The apparent excess of capital per mile in the returns from 
 Poor's Manual is probably due to an even greater duplication 
 of capital than the later official reports contained. 
 
 The apparent decrease in mileage in the official report for 
 1888 was probably due to the incompleteness of the first reports 
 to the Commission, as the increase in the succeeding year is not 
 warranted by the new construction. 
 
 Although valuable as showing the comparative trend of rail- 
 way cai)italization, owing to two errors — ^one of omission and 
 the other of inclusion — this table fails to afford a truthful state- 
 ment of the capital situation of the railways at any time during 
 the 36 years it covers. Neither in 1871 nor in 1906 does it show 
 all the trackage on account of which railway capital has been 
 expended, while during the whole period the capital is unduly 
 swelled by including capital invested in securities of other rail- 
 ways. 
 
 Manifestly the growth and cost of American railways since 
 1871 is inadequately expressed in the increase of single track 
 mileage, omitting all reference to the simultaneous increase in 
 miles of auxiliary track and sidings, to say nothing of the ac- 
 companying reconstruction of every physical feature of original 
 lines. Reserving comment on this last illusive item of cost rep- 
 resented in capitalization, to be discussed in another connection, 
 the capital cost per "mile of track," as distinguished from mile 
 of linCj may be studied to advantage. 
 
 Returns for "all other tracks" are first given in Poor's Manual 
 for 1872, where they amount to 11,188 miles, or one mile of 
 "other track" to 5.1 miles of line. By 1880 the mileage of "other 
 track" had increased to 21,977 ^^'^ bore the proportion of one 
 to 3.7 miles of line. 
 
 When the official statistician first took cognizance of "other 
 track" in 1889, he found that it consisted of 8,084 miles of sec- 
 ond track, 722 miles of third track, 531 miles of fourth track, 
 and 31,715 miles of yard track, sidings and spurs, making 41,052 
 miles of other track; or a proportion of one to 3.7 miles of line 
 — the same proportion as in 1880, — a rather remarkable, albeit 
 reassuring, coincidence. 
 
51 
 
 By 1895 the total of "other track" officially reported had 
 risen to 55,528 miles, or a proportion of one to 3.2 miles of line; 
 and in 1906 it had increased to 94,743 miles, or a proportion of 
 one to 2.3 miles of line. 
 
 In brief, the miles of auxiliary track during the period for 
 which we have information has increased twice as fast as miles 
 of single track, although the latter in the meantime has almost 
 quadrupled. 
 
 In the matter of second track alone, 8 per cent, of the line 
 mileage of the United States ' is double tracked now against 
 only 5 per cent, in 1889 — the actual second track mileage hav- 
 ing more than doubled. 
 
 The significance of these facts is that any increase there may 
 have been in railway capital per mile during the last thirty years 
 is wholly accounted for by the relatively greater increase in 
 "other track" mileage, which has enabled the railways to meet 
 the advancing tide of traffic. 
 
 NET CAPITALIZATION. 
 
 Thus far we have dealt with gross capitalization and what 
 it has represented. It is now in order to squeeze the duplica- 
 tion out of that gross total. Unfortunately, prior to 1889 the 
 summaries of statistics fail to disclose to what extent railway 
 capitalization was duplicated by intercorporate investments. 
 That it was extensive is proved by the fact that in 1870 the 
 Pennsylvania Railroad owned stocks and bonds of other cor- 
 porations to the amount of $23,668,220 — a sum equal to more 
 than a third of its capital stock and funded obligations. It was 
 not until well along in the nineties that the New York Central 
 became heavily interested in the securities of other companies, 
 of which in 1906 it held $154,411,052. 
 
 Since 1889 the Interstate Commerce Co.mmission reports have 
 contained tables showing the amount of such securities owned 
 by all the railways. In that year these amounted to $1,151,972,- 
 901, or 13.5 per cent, of the entire outstanding capital. In 
 1895, this had risen to $1,447,181,534, or 15 per cent, of such 
 
52 
 
 capital, and in 1906 to $2,898,480,829, or slightly less than 20 per 
 cent, of such outstanding stocks and bonds, or 19 per cent, of 
 the total capitalization of $14,570,421,478 — including income 
 bonds, equipment trust obligations and miscellaneous obliga- 
 tions. 
 
 How this capital account actually stands may be seen at a 
 glance in the following table: 
 
 Capital Account in 1906. 
 
 Gross Capital Stock — 
 
 Common 
 
 Preferred 
 
 Funded Debt- 
 Bonds 
 
 Miscellaneous obligations 
 
 Income bonds 
 
 Equipment trust obligations 
 
 Total Gross Capital 
 
 From which deduct — 
 
 Stock owned by railway corporations $2,257,175,799 
 
 Bonds owned by railway corporations 641,305,030 
 
 Total stock and bonds owned 
 
 Net capitalization 
 
 Divided by Mileage — 
 
 222,340 miles of line less 7,865 trackage rights equals 214,475 miles. 
 Net Capital per Mile 
 
 $5,403,001,962 
 1,400.758,131 
 
 6,266,770,962 
 973,647,924 
 301,523,400 
 224,719,099 
 
 814,570,421,478 
 
 2,898,480,829 
 
 $11,671,940,649 
 $54,421 
 
 "Current Liabilities" are excluded from this computation as 
 in 1905, when they amounted to $953,319,866, they were more 
 than ofifset by $1,014,288,239 "cash and current assets," $149,- 
 371,001 "materials and supplies," and $128,588,790 "sinking 
 funds and sundries." (Vide Interstate Commerce Commission's 
 "Statistics of Railways" 1905, page 99.) 
 
 Applying this formula to the data since the figures as to track- 
 age rights and securities owned have been available — to wit, 
 i89CH-we arrive at the following correct statement of net cap- 
 italization of American railways per mile of line : 
 
63 
 
 Net Capitalization Per Mile of Line, 1890-1905. 
 
 Year. 
 
 Miles of Line 
 
 Less Trackage 
 
 Rights. 
 
 Net 
 Capitalization, 
 
 Capital 
 per Mile. 
 
 1890 
 
 153,160 
 157,457 
 158,452 
 165,659 
 171,505 
 173,460 
 177,264 
 178,381 
 179,285 
 182,212 
 186,876 
 189,955 
 194,767 
 199,411 
 205,604 
 209,405 
 214,475 
 
 $7,577,327,615 
 8,007,989,723 
 8,294,689,760 
 8,331,603,006 
 8,646,600,008 
 8,899,572,695 
 9,065,518,857 
 9,168,071,898 
 9,297,167,776 
 9,432,041,731 
 9,547,984,611 
 9,482,649,182 
 9,925,664,171 
 10,281,598,305 
 10,711,794,078 
 11,167,105,992 
 11,671,940,649 
 
 $49,473 
 
 1891 
 
 50,858 
 
 1892 
 
 52,348 
 
 1893 
 
 50,293 
 
 1894 
 
 50,358 
 
 1895 
 
 51,421 
 
 1896 
 
 51,141 
 
 1897 
 
 51,396 
 
 1898 
 
 51,856 
 
 1899 
 
 51,215 
 
 1900 
 
 51,092 
 
 1901 
 
 49,925 
 
 1902 
 
 50,961 
 
 
 51,559 
 
 1904 
 
 52,099 
 
 
 53,328 
 
 1906 
 
 54,421 
 
 
 
 
 $4,948 
 
 
 
 
 
 Comparing this increase of $4,948 per mile of net capital with 
 the increase of gross capital for the same period, it will be per- 
 ceived that by applying the simple touchstone of truth, sup- 
 plied by the ofiRcial figures, no less than $4,329 per mile of the 
 fictitious water, we hear so much about in railway capitaliza- 
 tion, is not and never has been there. 
 
 Conclusive as these figures for 1906 are of the present low 
 and reasonable capitalization of American railways, and while 
 they may be compared instructively with similar figures as to 
 capital cost of railways in other countries, they are susceptible 
 of further rectification before they are finally available for com- 
 parison with our past capital per mile. 
 
 Attention has already been called to the relatively greater 
 increase of second, third, fourth and other track and sidings (of 
 which there was less than 12,000 miles in 1872 and nearly 95,000 
 miles in 1906) over single track mileage. It is now proposed 
 to show the comparative course of railway capitalization in the 
 United States since 1889 as applied to miles of track operated — 
 this term including single track, second, third, fourth, yard track 
 and sidings — it being submitted that all these are properly in- 
 
54 
 
 eluded in the capital investment, and it being a matter of com- 
 mon knowledge that much of the auxiliary track represents a 
 higher investment per mile than some original single track mile- 
 age. 
 
 Comparative Summary of Net Capitalization Per Mile of 
 Track Operated, Including Single Track, Second Track, 
 Third Track, Fourth Track and Yard Track and Sidings, 
 1889-1906. 
 
 Year. 
 
 MUes of All 
 
 Tracks 
 Operated. 
 
 Net 
 Capitalization. 
 
 Capital per 
 Mile of 
 Track. 
 
 1889 
 
 191,001 
 ■ 208,612 
 216,149 
 222,351 
 230,137 
 233,533 
 233,275 
 239,140 
 242,013 
 245,333 
 250,142 
 258,784 
 265,352 
 274,195 
 283,821 
 297,073 
 306,796 
 317,083 
 
 $7,422,073,841 
 
 7,577,327,615 
 
 8,007,989,723 
 
 8,294,689,760 
 
 8,331,603,006 
 
 8,646,600,008 
 
 8,899,572,695 
 
 9,065,518,857 
 
 9,168,071,898 
 
 9,297,167,776 
 
 9,432,041,731 
 
 9,557,984,611 
 
 9,482,649,182 
 
 9,925,664,171 
 
 10,281,598,305 
 
 10,711,794,078 
 
 11,167,105,992 
 
 11,671,940,649 
 
 S38,911 
 
 1890 
 
 36,322 
 
 1891 
 
 37,048 
 
 1892 
 
 37,304 
 
 1893 
 
 35,768 
 
 1894 
 
 37,025 
 
 1895 
 
 38,150 
 
 1896 
 
 37,908 
 
 1897 
 
 37,882 
 
 1898 
 
 37,896 
 
 1899 
 
 37,307 
 
 1900 
 
 36,934 
 
 1901 
 
 35 735 
 
 1902 
 
 36,195 
 
 1903 
 
 36,225 
 
 1904 
 
 36 057 
 
 1905 
 
 36,399 
 36,810 
 
 1906 
 
 
 
 Increase per mile in sixteen years 
 
 $ 478 
 
 1890-1906. 
 
 
 
 
 In this table the increase of $4,948 in net capitalization per 
 mile of line shown for the fifteen years 1890 to igo6 dwindles to 
 only $478 per mile during the same years, when the increase in 
 auxiliary track is taken into account. Will anyone conversant 
 with the practical operation of railways dissent from the in- 
 clusion of auxiliary tracks in the cost of railways at any stage 
 of their development? If he does, let him calculate what the 
 railways of the United States in 1906 would have been had their 
 auxiliary tracks been increased only pro rata, as they did be- 
 tween 1880 and 1889. We have already seen that there was one 
 mile of auxiliary track to every 3.7 miles of line in 1889. Ap- 
 plying this ratio to the single track mileage of 1906 would have 
 provided only 58,641 miles of auxiliary track against a reported 
 
55 
 
 mileage of 94,743. The difference, 36,102 miles, involved new 
 construction just as surely as in the building of original lines. 
 At an average of $10,000 per mile this would require a capital 
 expenditure of $361,020,000. This is a very conservative esti- 
 mate because most of this auxiliary construction has been in 
 the territory with the densest traffic and where cost of yard 
 space near terminals was highest. 
 
 An estimate of $361,020,000 disposes of more than one-third 
 the capitalization represented in the increase of $4,948 per mile 
 between 1890 and 1906 in the table of net capitalization. 
 
 The remainder is far more than represented in the increase 
 in the relative number, capacity and cost of equipment per mile 
 during the same period. This increase in number is shown in 
 the following statement: 
 
 
 1889 
 
 1906 
 
 Increase 
 
 
 Number 
 
 No. per 
 100 MUes 
 Operated 
 
 Number 
 
 No. per 
 100 MUes 
 Operated 
 
 per 100 
 MUes 
 
 Locomotives 
 
 29,036 
 
 25,665 
 
 885,688 
 
 18.6 
 
 16.4 
 
 577.3 
 
 61,672 
 
 42,262 
 
 1,916,650 
 
 23.2. 
 
 19.0 
 
 861.8 
 
 4.6 
 
 
 2.6 
 
 
 284.5 
 
 
 
 The increases per 100 miles of line operated shown in the 
 last column of the above table when applied to the mileage of 
 1906 produce the following statement of the increase in the 
 capital cost of equipment over what it would have been had 
 the ratio to line remained the same as in 1889: 
 
 Excess Over the Ratio of 1889. 
 
 Number 
 
 Cost 
 each 
 
 Capital 
 Cost 
 
 Locomotives. . . 
 Passenger cars. 
 Freight cars. . . 
 
 10,225 
 
 5,779 
 
 632,443 
 
 J12,000 
 
 6,000 
 
 900 
 
 8122,700,000 
 
 34,674,000 
 
 569,189,700 
 
 Total. 
 
 $726,563,700 
 
 This sum added to the estimate of the cost of the excess of 
 auxiliary track over the proportionate increase during the period 
 under consideration makes a total of $1,087,583,700 or $5,072 
 per mile of line, to place against the increase of $4,948 per mile 
 in net capitalization shown above. 
 
56 
 
 While these estimates are not scientifically accurate, they 
 are so obviously reasonable as to afford convincing proof that 
 in recent years there has been an actual and remarkable shrink- 
 age in the capitalization of American railways when compared 
 with the vast sums that have been invested in their extension, 
 renewal, improvement and re-equipment. Furthermore, it should 
 be borne in mind that these estimates, as to the cost of excess 
 of auxiliary track and equipment, have not taken into account 
 the capital outlay for introducing the block signal system on 
 over 50,000 miles, the equipping of virtually the entire service 
 with automatic couplers and train brakes — not 10% of the cars 
 being so equipped prior to 1889 — the reduction of grades, 
 straightening of alignment and relaying of thousands of miles 
 
 Tback Elevation in Chicago by the C hicago and Western Indiana R, R, 
 Looking South Fkom 49th Stebet. 
 
 of old line with heavier rails, more ties per rail and better bal- 
 last. 
 
 Nor has the elimination of crossings of highways and railways 
 at grade been a matter of insignificant expense to the railways. 
 In Massachusetts, where the commonwealth and the local au- 
 thorities bear 35% of the cost, the Railroad Commissioners re- 
 port that this work since 1890 has cost the railways $16,299,664. 
 
57 
 
 Nearly three times this sum has already been spent by the rail- 
 ways of Illinois, without state or local aid, on track elevation in 
 Chicago alone; and similar work laid out will call for a total 
 
 Track Elevation in Chicago by the Chicago and Western Indiana R. R. 
 Looking North From 49th Street. 
 
 expenditure of $75,000,000, an amount equal to the Census valu- 
 ation of all the railways of South Carolina in 1904 and more 
 than the construction cost of all the railways of the kingdom 
 of Norway. 
 
 It has been estimated that it would cost nearly half a billion 
 dollars to do away with the 8,733 grade crossings in New York 
 State alone ! 
 
 Whether the railways of the United States are worth their 
 net capitalization as of June 30,, 1906 — $11,671,940,649 or $54,- 
 421 per mile of line or $37,746 per mile of track — is an inquiry 
 that we may now approach from several different points of view. 
 
58 
 
 FIRST COST OF CONSTRUCTION 
 
 From the earliest records, and despite the financial shifts to 
 which the original builders of American railways were forced 
 to raise capital, the fact stands out through all the statistics 
 that their capital and cost of construction were never far apart. 
 In their early history capital invested and cost of construction 
 were often treated as synonymous, although in 1870 it was said 
 that the stocks and bonds issued by all the companies had not 
 probably produced more than seventy-five cents on the dollar. 
 It was recognized then, though often forgotten since, that the 
 account was about evenly balanced by the net earnings, which 
 in the language of Poor's Manual ('70-71) "have been put into 
 construction without any increase of nominal capital. The cost 
 of old lines, of course, constantly increases, but the average for 
 the whole country is kept down by the new lines which are being 
 opened." 
 
 In a table of comparative statistics for the year 1875, accom- 
 panying the ninth series of Poor's Manual, the total investment 
 per road mile of American railways is given as $62,725, while 
 the "cost of works per road mile" is placed at $58,874. In 1880 
 the total investment including floating debt was $5,108,241,906 
 and the "cost of railroad and equipment" was placed at $4,653,- 
 609,297. The Manual for 1886 thus states the liabilities of the 
 companies owning 127,729 miles of line in 1885 : 
 
 LIABILITIES. 
 
 Capital stock S3,817,697,832 
 
 Funded debt 3,765,727,066 
 
 Unfunded debt 259,108,281 
 
 Current debt 231,040,215 
 
 Total liabilities $8,073,573,394 
 
 ASSETS. 
 
 Cost R. R. and Equipment . . .87,037,627,350 
 Real estate, stocks, bonds and 
 
 other investments 946,353,859 
 
 Cash, bills receivable, current 
 
 accounts, etc 303,853,405 
 
 Total assets 88,287,834,614 
 
 Excess Assets over Liabili- 
 ties 214,261,220 
 
59 
 
 This statement contains the unmistakable indication of what 
 was susceptible of bookkeeping proof, as soon as the official 
 statistician segregated the items, that the cost of Construction 
 and Equipment of American railways exceeded their net cap- 
 italization, as is shown in the following statement of these items 
 sincCj 1890: 
 
 Comparative Statement of Net Capitalization and Cost of 
 Construction and Equipment, 1890 to 1905. 
 
 YEAR 
 
 Net Capitalization 
 
 Per MUe 
 
 Cost of Cpnstruc- 
 
 tion and 
 
 Equipment 
 
 Per Mile 
 
 1890 
 
 S 7,577,327,615 
 
 153,160 miles 
 8,007,989,723 
 
 157,457 miles 
 8,294,689,760 
 
 158,452 mUes 
 8,331,603,006 
 
 105,059 miles 
 8,646,600,008 
 
 171,505 miles 
 8,899,572,695 
 
 173,460 mUes 
 9,065,518,857 
 
 177,264 mUes 
 9,168,071,898 
 
 178,381 mUea 
 9,297,167,776 
 
 139,285 miles 
 9,432,041,731 
 
 182,212 miles 
 9,547,984,611 
 
 186,870 miles 
 9,482,649,182 
 
 189,955 miles 
 9,925,664,171 
 
 194,411 mi es 
 10,281,598,305 
 
 199'4n mUes 
 10,711,794,078 
 
 205,604 miles 
 11,167,105,992 
 
 209,405 mnes 
 11,671,949,649 
 
 214,475 miles 
 
 S 49,473 
 50,858 
 52,348 
 50,293 
 50,416 
 51,306 
 51,029 
 51,396 
 51,856 ' 
 51,764 
 51,0Q2 
 49,920 
 51,055 
 51,545 
 52,099 
 53,3?8 
 54,421 
 
 $ 7,755,387,381 
 (not given) 
 8,738,533,165 
 (not siven) 
 * 8,564,394,830 
 143,518 miles 
 8,937,.545,760 
 101,258 miles 
 9,073,470,532 
 104,008 mUes 
 9,203,49;i,619 
 107,741 mUes 
 9,500,327,733 
 173,860 miles 
 9,709,329,228 
 174,673 miles 
 9,750,581,424 
 170,000 miles 
 9,961,840,805 
 177,638 mUes 
 10,263,313,400 
 
 181,437 miles 
 10,405,095,085 
 
 182,734 miles 
 10,658,213,376 
 
 187,442 miles 
 10,973,494,903 
 193,823 miles . 
 11,511,537,131 
 
 198,841 mUes 
 
 11,951,348,949 
 
 203,228 mUes 
 
 
 1891 
 
 
 1892 
 
 9 59,674 
 
 1893 
 
 55,423 
 
 1894 
 
 55,317 
 
 1895 
 
 54,867 
 
 1896 
 
 54,643 
 
 1897 ,. .'■ , 
 
 55,585 
 
 1898 ..'... 
 
 57,336 
 
 1899 
 
 56,079 
 
 1900 
 
 56,511 
 
 1901 
 
 56,941 
 
 
 56,861 
 
 1903 
 
 56,616 
 
 
 57,893 
 
 1905 
 
 58,807 
 
 
 
 
 
 *Thia decrease is explained by transfer of 8541,000,000 included in "Cost of Road" in 
 ' 1891 to "Miscellaneous" item in General balance Sheet for 1892. This is all the information 
 vouchsafed by the Statistician. 
 
 Here we have what Mr. Adams calls the "bookkeeping state- 
 ment" of, the cost of constructing American railways, which on 
 its, face shows that during the whole period mentioned the cost 
 of a part has exceeded the net capitalization of the whole. The 
 
60 
 
 figures in small type, giving the mileage for each year respec- 
 tively, show that this discrepancy in mileage represented ran 
 as high as 14,93-1 miles in 1892 and 3,404 miles at its low mark 
 in 1896. 
 
 In regard to the annual balance sheets of the railways, from 
 which Mr. Adams compiled these figures of cost of construction, 
 it should be said that he was never satisfied that they accurately 
 represented actual expenditures. Different roads used a diversity 
 of methods in accounting. In 1891 he asked, "Is the balance 
 sheet the true interpretation of the standing of a railway com- 
 pany that expends large sums of money on its roadbed, and 
 charges such expenditures to operating expenses?" Of his own 
 general balance sheet that year, however, he said, "It is doubt- 
 less more nearly accurate than any similar statement ever pub- 
 lished." And yet, as the note to the above table states, it con- 
 tained a small item of $541,000,000 in cost of construction which 
 was transferred to "Miscellaneous" account in the following 
 year. 
 
 These annual balance sheets bear internal evidence to the 
 fact that they consistently understated the cost of the railway 
 property. For instance, in 1895 the item for "cost of equip- 
 ment" is given at $571,570,946, to which it had risen gradually 
 during the preceding years. By 1898 this item had declined to 
 $526,347,372, although during the meantime there had been an 
 actual increase of 535 locomotives, 483 passenger cars, and 55,- 
 613 freight cars which at prevailing prices could not have cost 
 less than $50,000,000. A decrease in cost of equipment as given 
 in the balance sheet in the face of such facts can only be ex- 
 plained by assuming that during the period of receiverships and 
 reorganizations that prevailed from 1894 to 1898, account ceased 
 to be taken, not only of current expenditures for additional 
 equipment, but of the irrevocable expenditures previously 
 made. 
 
 The word "Receiver" does not appear in the exhaustive in- 
 dex to the report of the Statistician for the year ending June 
 30, 1893. The report for the year following notes, "That never 
 in the history of transportation in the United States has such a 
 
61 
 
 large percentage of railway mileage been under the control of 
 receiverships as on June 30, 1894." The receivership record for 
 that and the next five years, which had such an apparent bear- 
 ing on the shrinkage of the cost of equipment, was as follows: 
 
 Railways in Receiver's Hands, 1894-1899. 
 
 YEAR 
 
 Number of 
 
 MUes 
 
 Companies 
 
 Operated 
 
 192 
 
 40,818 
 
 169 
 
 37,855 
 
 151 
 
 30,475 
 
 128 
 
 18,861 
 
 94 
 
 12,744 
 
 71 
 
 9,853 
 
 Capitalization 
 Involved. 
 
 1894 
 1895 
 1896 
 1897 
 1898 
 1899 
 
 82,500,000,000 
 
 2,439,144,503 
 
 1,892,331,464 
 
 1,131,278,748 
 
 661,575,318 
 
 585,878,251 
 
 Formidable as is the array of wrecks from the depression of 
 1894, it does net tell the whole distressing story. During the 
 period covered in the above table no less than 308 roads operat- 
 ing 55,620 miles of line and having an aggregate capitalization 
 of over $3,133,000,000 went into receivers' hands. This means 
 that during six years, less than a decade ago, nearly one-third 
 of the mileage and more than one-third of the capitalized invest- 
 ment of American railways had to seek the shelter of the courts 
 to escape the effects of the financial and industrial storm that 
 swept over the country. 
 
 In 1900, when the railways may be said to have emerged frotn 
 the protectorship of the courts, the report of the Statistician 
 credits them with $588,361,029 for "cost of equipment," or only 
 $16,790,083 more than in 1895, although in the meantime there 
 had been an increase of 1,967 locomotives, 1,601 passenger cars, 
 and 178,676 freight cars, representing an outlay of at least $135,- 
 000,000, irrespective of the increased cost of more expensive 
 replacements. 
 
 From which it is evident that receiverships have had the 
 efifect not on.'v of squeezing the water out of railway capitaliza- 
 tion but of excluding- expenditures for additional equipment from 
 the "bookkeeping cost" of the railways. 
 
INCOMPLETE RECORDS OF COST. 
 
 There are as- many reasons why it is impracticable to get at 
 the actual cost of the railways of the United States as there 
 are railway companies — and the last official report gives a list 
 of 2,167 °^ them — ^to say nothing of those which have become 
 extinct since Carrol of Carrolton turned the first sod for the 
 B. and O. In the beginning they were independent corpora- 
 tions subjt^ct to few regulations as common carriers and none 
 as to their methods of accounting. The cost of the Quincy tram- 
 way is a mere guess of "about $34,000." The capital subscribed 
 for building the 61 miles of the Camden and Amboy Railroad 
 in 1830 was $4,000,000, or over $65,000 per mile. But this in- 
 cluded the digging a canal. The so-called "Mauch Chunk Rail- 
 road," a mere 3 ft. 6 in. wooden tramway built in 1827, from 
 Mauch Chunk, 9 miles to the coal mines, cost $3,500 per mile. 
 We know to a cent what the first imported Stephenson loco- 
 motive cost, for it had to be declared at the Custom House. We 
 are told that it cost one hundred dollars to transport a ton of 
 freight from Buffalo to Albany before the construction of the 
 Erie Canal, and know approximately that it cost $97,000 per mile 
 to build and improve the great waterway that was to remove 
 the land barrier between the East and West. But we have no 
 authoritative knowledge on which to base a comprehensive 
 guess as to what was the original .cost of the instrumentality 
 which, after a generation of competition, was to put the Erie 
 Canal out of business. 
 
 Buried in the archives of a thousand and one companies might 
 be found the records of the cost of their original lines had 
 anyone the time, patience and interest necessary for the task. 
 But no scrutiny however conscientious and searching could 
 possibly separate the myriad items of expenditures for improve- 
 ments and betterments from the current expenses for mainte- 
 nance of way, structures, and equipment during three-quarters 
 of a centur}"- of railway expansion. 
 
 There was no system about and no supervision above either 
 the beginnings or the bookkeeping of railways in America. They 
 sprang into existence in response to the demand for communica- 
 
63 
 
 tion between settlements on the tidewaters and water routes 
 of the country. Canals served well enough to carry heavy or 
 bulky goods, but were tedious for passengers and in the North 
 closed to traffic in winter. The railways came sporadically wher- 
 ever the conditions promised profit, they were financed with 
 difficulty and frequent disappointments, • except during periods 
 of speculative mania, and were often not built by the parties 
 who projected them and paid the initial cost of surveys and loca- 
 tion. This kind of costly experience has lasted all through the 
 history of railways at all stages of their initiation, construction, 
 development and survival. The records of their cost have been 
 lost or rendered valueless in the numerous financial crises and 
 combinations and reorganizations that have marked and scarred 
 their history. 
 
 Originally capitalized at $5,000,000, by 1843, when 188 miles 
 had been built, the Baltimore and Ohio had cost $7,623,600, or 
 over $40,000 per mile. 
 
 The Charleston and Hamburg road of South Carolina, char- 
 tered in 1829, for which the first American locomotives placed 
 in actual service were built, is said to have cost only $1,750,000 
 for 135 miles completed in 1834, but before 1840 it was sold to 
 the Louisville, Cincinnati and Charleston Railroad Company for 
 $2,400,000, or nearly $18,000 per mile. It was an unusually 
 straight and level road, through a gently undulating country, 
 and was cheaply constructed even for those times. 
 
 The original cost of the New England roads was much 
 higher; that of the Boston and Lowell, commenced in 183 1 and 
 completed in 1835, being $1,505,645 up to November 30, 1836, 
 or $56,600 per mile; that of the Boston and Worcester, com- 
 menced in 1831, $1,700,000, or $38,700 per mile — $250,000 being 
 expended for real estate, right of way, depot buildings and ma- 
 chinery; that of the Great Western Railroad (now Boston and 
 Albany west of Worcester) was estimated at $4,191,171, or 
 $36,104 per mile; that of the Boston and Providence, $1,782,000, 
 or $43,460 per mile. 
 
 New York, because of its faith in canals and waterways, did 
 not enter on railway building with so much enthusiasm as its 
 sister states to the north and south. In the eight miles of the 
 
64 
 
 Harlem Railroad, however, from near the City Hall "passing 
 along. Center and Broome Streets and the Bowery to Fourth 
 Avenue, and thence to Harlem Strait," it could boast the most 
 expensive piece of railway property in America prior to 1839. 
 "The whole cost of the work, including depots, motive and 
 other power, etc., amounted to $1,100,000, or $137,500 per mile." 
 
 The New York and Hudson River Railroad had not then 
 been projected, but the construction of the New York and Al- 
 bany Railroad from "Harlem Strait" to Greenbush, opposite 
 Albany, was under way and was estimated to cost $2,377,946, 
 or nearly $17,000 per mile, "exclusive of land damages, ware- 
 houses, locomotives, etc., etc." 
 
 "The Erie," commencing on the Hudson River "at Tappan, 
 25 miles above New York," had been constructed as far as 
 Middletown in Orange county and was already in the throes 
 of financial difificulties. This "stupendous work," as it was 
 called, when completed was to be relinquished "to the state 
 at cost, with interest at 14 per cent, per annum" — which throws 
 a flood of light on the value of money for railroad construction 
 previous to 1839. 
 
 The Mohawk and Hudson Railroad, upon which the De Witt 
 Clinton made its trial trip in 1831, connecting Albany with the 
 Erie canal at Schenectady, cost $600,000, or $38,000 per mile. 
 
 Original Cost of the Pennsylvania. 
 
 The Columbia and Philadelphia Railroad, destined to be the 
 main stem of the great Pennsylvania system, was undertaken 
 by the Keystone state to form a part of the great thorough- 
 fare to Pittsburg and the western states. A description of the 
 journey in early days has been given in the preceding pages. 
 Its construction was authorized by the legislature in 1828 and 
 in October, 1834, it was completed as a double track road the 
 entire way from Philadelphia to Columbia on the Susquehanna 
 river, where the travelers betook themselves to boats. When 
 in 1834 the road was opened for public use, the historian says, 
 "The depots, workshops and other necessary structures, were 
 subsequently completed." The cost of the road without these 
 incidentals in 1834 was as follows: 
 
65 
 
 Cost of the Columbia and Philadelphia Railway in 1834 — 
 
 81.60 Miles: 
 
 Grading 
 
 Culverts 
 
 Viaducts or railway bridges 
 
 Boads and farm bridges 
 
 Fencing ' 
 
 Railway superstructure 
 
 Building and Machinery 
 
 Engineering and superintendence 
 
 Damages 
 
 Repairs 
 
 -Incidentals 
 
 Alteration to acconmiodate the city of Lancaster. 
 
 Total.; J3,754,677.20 
 
 649,158.69 
 74,113.94 
 
 327,695.80 
 
 42,055.00 
 
 66,410.86 
 
 !,181,156.25 
 
 111,787.12 
 
 133,934.31 
 54,833.29 
 42,451.76 
 11,980.18 
 60,000.00 
 
 To which there was subsequently added the following items: 
 
 Locomotive engines 
 
 Additional buildings, turnouts 
 
 Retained percentage on former contracts 
 
 New ropes at inclined planes 
 
 Embankment at Maul's bridge 
 
 Renewal of wooden track 
 
 Rebuilding Valley Creek bridge destr<^yed by fire. 
 New road to avoid Columbia inclined plane 
 
 Grand Total. 
 
 Per mile. 
 
 327,203.41 
 
 37,511.16 
 
 5,134.08 
 
 11,584.34 
 
 1,796.34 
 
 18,907.48 
 
 17,218.13 
 
 118,123.63 
 
 $4,296,796.92 
 63,047.00 
 
 First Locomotive Used on Pennsylvania Bailrcad. 
 
 In the details of these accounts it appears that locomotives 
 cost $6,720 each, and the cars, which were the property of pri- 
 vate individuals, $2,000 for passenger and $275 for freight cars. 
 Although the state furnished the steam motive power, provision 
 was made for horse power by laying a "horse path" of broken 
 
66 
 
 stone from 6 to 9 inches deep. The owners of the cars paid 
 toll to the state and collected 4 cents a mile from passengers; 
 and 9-14/100 cents per mile for a ton of goods. 
 
 Two items in the above statement are especially instructive 
 — that for alterations to accommodate Lancaster and that, for 
 the new road to avoid Columbia inclined plane. It is impossible 
 to estimate the; cost of changes made in American railway routes 
 to accommodate various communities, or of 1neW"d6'nstrTlction to 
 remedy original misconstruction in levels and alignments, as 
 the field broadened. 
 
 Cost of the Alleghany Portage Road, 
 
 What was known as the Alleghany Portage Railroad formed 
 the link between the Pennsylvania canal system at Hollidays- 
 burg on the east and the resumption of water transportation 
 at Johnstown on the west, attaining an elevation of 2491 feet 
 above the Atlantic Ocean. The viaduct over the Conemaugh 
 at the Horseshoe bend, described as a "magnificent sfructure," 
 cost $54,562. The general statement of the cost of 'this im- 
 portant pioneer work was as, f,ollo-\^s : 
 
 Masonry ._,j;. , ,^ 
 
 First track of, Railypay.* .......: T. .... -. ...:',.:...... •„■, ../... 
 
 Second track of Railway j '. . ..'.;'.;. . .ij'; .J , 
 
 Building maclunery';' etc., at planes (first set) , .' 
 
 Ten stationary eiigines (second ret) '.' *.- '....., 
 
 Buildings, etc., for second set of engines ■.. ^ ,.;'.-. . .,.,'■. .^-. , . 
 
 Depots, machine shop^, water stations, weighing machines and various works 
 
 Total 
 
 Per mile, 36 . 96 miles. 
 
 HS47-2,lC2.69i 
 
 1^6,402. 64i 
 
 ":i36;?16.59i 
 
 362f,987.£0i, 
 
 161,923, 30i 
 
 .'' 37,779.75- ' 
 
 2l>048.59 
 ' 41,3S6,:66ii 
 
 81, 634,357. 69i 
 44,545.00 
 
 The fractions of a cent in this statement iUustrate the exact- 
 ness with which the state kept its books in those days, but 
 neglects to throw any light on the cost of the four loiomotives; 
 used on the "long level" of the road. Nor does the statement 
 cover office expenses, engineering and extra allowances made 
 to contractors by the legislature. This work was completed in 
 1834. 
 
 The initial cost of the Philadelphia and Reading Railroad, in- 
 cluding the extension to Pottsville, 95 miles, was $5,000,000, 
 or $52,630 per mile. 
 
67 
 
 Cost in the Forties. 
 
 In 1840, when there were 2,818 miles of railway in the United 
 States, an estimate based on earnings and on current publica- 
 tions would indicate that the capital cost, ten years after the 
 opening of the Baltimore and Ohio road, of all the railways in 
 the country was : less, than, $66,000,000 or about $23,000 a mile. 
 This -fistimate^' judged by figures given above, is probably far 
 below the mark. Money for such risky business was worth 
 at least 10 per cent, at that time. More than half of 
 
 ■ feffe ^;* 
 
 Freight Enqjne, 1844. 
 
 the mileage of 1840 was in the Middle 'States, about one- 
 fifth of: it in the New England States and not one hun- 
 dred miles of it was west of the Alleghanies. It was of the 
 most primitive and temporary construction, laid with the strap 
 rail already described and built piecemeal to connect established 
 communities at the least possible cost. Already the railways 
 had been crippled and their extension retarded by the financial 
 panic of 1837. One of the effects of this business recession was 
 the financial embarrassment of the founder of the Baldwin Loco- 
 motive Works, who was forced to a settlement with his cred- 
 itors before continuing his great industry, which has been so 
 intimately associated with the fortunes of American railways 
 since their infancy. 
 
68 
 
 On December 6, 1845, ^ committee of citizens of Vicksburg 
 appointed to solicit charters from the legislatures of Alabama 
 and Mississippi for the Charleston and Western Railroad (Ala- 
 bama and Vicksburg now) made the following statement in their 
 report : 
 
 "Twenty years ago, a short road at Quincy, to carry marble, 
 was all the pioneer we had. Now, we have nearly 4,000 miles 
 of railroad in actual daily operation in the United States, and 
 a great deal more in the rest of the world. The materials of 
 experience are therefore sufficiently abundant. The cost of 
 79 railroads in the United States is given in the table published 
 in the American Railroad Journal. The aggregate length of 
 them is 3,723 miles, and the cost is $109,841,460; or $29,325.85 
 per mile. ! 
 
 "In the Carolinas and Georgia 785^ miles cost but $14,063,175, 
 or $17,919 per mile; those of North Carolina and Georgia 583J 
 miles long, cost $8,391,723; or $14,387.72 per mile; those of 
 Georgia 337! miles, cost $5,231,723, or $15,489 per mile; the 
 Central Railroad in Georgia, 190} miles, cost $2,551,7^3; or 
 $13,570-72 per mile; and. that part of the Georgia Railroad of 
 65 miles, which has been constructed of late years, is said to 
 have cost less than $12,000 per mile, including an edge rail; 
 or, as commonly called, a T-rail. 
 
 "The residue of the railroads on the list, in the northern and 
 
 Baldwin Fast Passenger Engine, X848 
 
 eastern states, amounting to 2,937! '^'^^^s in length, cost $95,- 
 788,295; or $32,633.23 per mile. 
 
 "The reason of this difference of cost, in favor of the southern 
 
69 
 
 states, is mainly in the abundance and cheapness of timber, the 
 absence of rock excavations, and the low cost of right of way." 
 The company applying for these charters was to fix and pub- 
 lish its tolls not subject to change "oftener than once a year," 
 with a restriction that the annual profit should not exceed "25 
 per cent." In those days legislators were only too glad to 
 promise the railways the earth if investors could thereby be 
 tempted to furnish capital to provide much needed transporta- 
 tion. 
 
 Cost in the Fifties. 
 
 By 1850 the m.ileage of American railways had risen to 9,021 
 miles and their earnings were in the neighborhood of $4,000 
 a mile. An estimate places their cost at this period at $272,- 
 000,000, or over $30,000 per mile. The increase in cost per 
 mile between 1840 and 1850 was largely due to the reconstruc- 
 tion of entire lines to carrV the unexpected burden of freight 
 which was beginning to leave the canals and waterways for 
 the more expeditious and accessible railways. During this 
 decade eastern roads began replacing their strap rails with T- 
 rails, — selling their strap rails to western roads for whatever 
 they could get, up as high as $50 a ton — about 30 tons being the 
 average weight to the mile. At this date there were only 131 
 miles of rails west of Indiana, of which Illinois boasted iii and 
 Wisconsin 20. It was not until five years later that the great 
 commonwealth of Iowa appeared in a table of railway states. 
 Chicago had not then been reached by rail from the East, the 
 original Michigan Central terminating at New Buffalo, whence 
 its business was transported by steamers across Lake Michi- 
 gan. Between 1848 and 1850 the railway mileage west of the 
 Alleghanies was almost doubled and then ensued that rush of 
 construction which only suffered temporary abatement during 
 the trjang days of the Civil War. 
 
 I deem myself fortunate, for the purpose of this record, that 
 there has come into my possession a collection of engineers' 
 reports, covering the period between 1846 and 1854, giving valu- 
 able data of estimates and cost of railway construction when the 
 pioneer work was being pushed with great energy into virgin 
 
70 
 
 territory. For the benefit of the stockholders of a projected 
 Canadian road one of these reports contains the following statis- 
 tics of the principal railroads of the two well settled states of 
 New York and Massachusetts in 1851 : 
 
 New York and Massachusetts Railways in 1851. 
 
 ITEM. 
 
 New York. 
 
 Massachusetts. 
 
 Length of main lines miles 
 
 1,703 
 ,346 
 56 
 1,992 
 $91,423,040 
 45,895 
 32 
 17 
 3 cents 
 4,738,784 
 8,045,708 
 247,878,040 
 1,274,649 
 75,867,747 
 66i 
 404 
 810,192,445 
 5,795 
 2.10 
 4,626,535 
 90 cents 
 45.4% 
 
 1,005 
 
 Length of double track, miles 
 
 267 
 
 
 110 
 
 
 1,293 
 
 Total cost 
 
 $65,855,315 
 50,930 
 
 Average cost per mile, single line 
 
 Average speed passenger trains, miles per hour 
 
 Average speed freight trains, miles per hour 
 
 24 
 13 
 
 Average charge per mile, per passenger, first class 
 
 Total miles run by trains * . . 
 
 3 cents 
 4,726,017 
 
 Total passengers carried in cars 
 
 9,569,470 
 
 
 157,202,590 
 
 
 2,499,953 
 
 Total tons of freight carried one mile 
 
 76,244,739 
 
 Average number of passengers per train ; . . 
 
 65 
 
 
 50 
 
 Total earnings 
 
 $8,786,440 
 
 
 9,030 
 
 Earnings per mile run 
 
 1.78 
 
 Total expenses 
 
 4 751 830 
 
 Expenses per mile run ; 
 
 96 cents 
 
 
 53% 
 
 
 
 Net profit 
 
 $6,565,910 
 
 6.1% 
 
 $4,034,610 
 
 6 1% 
 
 Profit on cost 
 
 
 
 If the cost per mile had been calculated in the usual way, 
 viz., per mile of line, the cost in New York would have amounted 
 to $52,600 per mile and in Massachusetts to $59,000. 
 
 Although the rate per ton mile is not given, it is clear that 
 it must have been approximately 3.67 cents, or not far from 
 5 times the present rate. Three-quarters of the earnings was 
 from passenger traffic. In 1906 over 70 per cent, of the gross 
 earnings of American railways was from freight. 
 
 The ratio of expenses to income of 45.4 per cent, in New 
 York, or even 53 in Massachusetts, half a century ago may well 
 fill the minds of present day operating officials with envy. But 
 they could do better if rates and fares had not been so merci- 
 lessly slashed through the periods of fierce competition that have 
 intervened since 185 1. 
 
71 
 
 Details for several New England roads, whose names are still 
 familiar to American ears, throwing further light upon the sub- 
 ject we are considering, appear in another tabular statement, 
 from which the following is extracted: 
 
 
 Average 
 
 ■Ratio of 
 
 MUeage 
 
 cost per 
 
 expense to 
 
 
 mile 
 
 earnings 
 
 25.77 
 
 $88,000 
 
 65 
 
 74.26 
 
 61,565 
 
 48 
 
 41.00 
 
 67,000 
 
 47 
 
 44.63 
 
 88,570 
 
 55 
 
 50.93 
 
 66,620 
 
 60 
 
 37.25 
 
 63,710 
 
 75 
 
 155.40 
 
 80,065 
 
 44 
 
 Per Cent 
 of profit 
 on cost 
 
 Boston and Lowell 
 
 Boston CLnd Maine 
 
 Boston and Providence 
 
 Boston and Worcester 
 
 Fitehburg 
 
 Old Colony , 
 
 Western (later Boston and Albany) 
 
 7i 
 
 8 
 
 71 
 
 6i 
 
 5i 
 
 3i 
 
 7J 
 
 In 1851 the Western Railroad was found by a committee of 
 stockholders to be in need of heavy expenditures to make good 
 depreciation in structures and equipment all the way from 
 Worcester to Albany. Over $81,000 was needed to renew the 
 wooden bridges that had not then been replaced with iron or 
 steel structures. Rails bought in this country had "already 
 manifested great inferiority of quality," and provision had to 
 be made for their replacement at $45 per ton, 100 tons to the 
 mile. Stati(jn buildings were out of repair. "The original stock 
 of Engines furnished for the road was, for the most part, both 
 as to power and efficiency inadequate to its business;" so new 
 ones were purchased raising the expenditures for locomotives 
 to $672,739, with only 59 of all descriptions in service. This 
 made each engine represent a cost of over $11,000. About one- 
 fifth of the cars in the passenger service had only four wheels. 
 A similar proportion of "merchandise cars" were in the same 
 primitive fix. For 906 of these the amount of $532,025 had 
 been expended, which is nearly $600 per car, and the committee 
 recommended an "extraordinary expenditure" of $48,704 to re- 
 place worn out "with entire new cars." About the only thing 
 that had not suffered depreciation was the value of the land 
 belonging to the corporation. This the committee found "cer- 
 tainly had not." Even after writing bfif $216,531 for deprecia- 
 tion, the committee found that the stocks and bonds amounting 
 
72 
 
 to $10,469,520, only exceeded its assets, not counting the appre- 
 ciation of its real estate, by $88,409. 
 
 The estimates of the chief engineer of the Cleveland and 
 Pittsburgh Railroad for the 99.84 miles from Cleveland to 
 Wellsville on the Ohio river afford an instructive illustration 
 of the cost of building a railway in what was then the "far 
 west." For one mile of superstructure "with H or inverted T- 
 rail weighing 65 pounds to the yard," the estimate was as fol- 
 lows: 
 
 Cost of the Cleveland and Pittsburgh. 
 
 
 Per MUe. 
 $ 700.00 
 
 10,560 lineal feet of ground sills 4 x 12 inches, 4 cents per 
 2,112 lineal feet cross ties, each S feet, 6 inches long, 1 
 
 foot 
 x8 
 
 422.40 
 337.92 
 
 
 63.00 
 
 
 260.00 
 
 103 tons of iron (H or inverted T rails, weighing 65 lbs. 
 
 per 
 
 6,489.00 
 
 fiQO chairs each 15 lbs 8 850 lbs at Si cents cer lb 
 
 309 . 75 
 
 
 118.00 
 
 
 272.52 
 
 
 240.00 
 
 
 
 
 Total 
 
 $9,212.59 
 
 
 
 The estimate for grading, masonry and bridging was $581,- 
 320 and for 6 miles of "turnouts" at $12,000 per mile, $72,000. 
 Only $30,000 was estimated for land damages and 8 per cent, 
 was allowed for contingencies. The total estimate including 
 $328,000 for equipment, stations, shops, etc., was $2,076,201 or 
 $21,000 per mile. The provision for rolling stock was as fol- 
 lows: 
 
 12 Locomotives and tenders at S7,500 
 24 Passenger cars at $1,500 
 
 120 Freight cars at $500 
 
 120 Freight cars at $333 
 
 Total 
 
 $90,000 
 36,000 
 60,000 
 40,000 
 
 $226,000 
 
 In its charter as amended in 1845 the Cleveland and Pitts- 
 burgh Railroad was authorized to demand and receive "four 
 
73 
 
 cents per mile' for passengers, and "not more than eight; cents 
 per mile for freight." 
 
 When the road was finally completed in 1853, the estimated 
 cost had been exceeded by nearly a minion. Real estate for 
 which $30,000 was estimated was already valued at $164,823. 
 Nearly half the capital had been obtained through subscription 
 to stock and $221,650 charges had been incurred in the sale of 
 the Company bonds. The Company earned dividends from the 
 start, which were paid in stock, the cash being put into con- 
 struction, "instead of borrowing funds for carrying on that 
 work," as the report states.* 
 
 This road played a pioneer part in the building of the West 
 and is now a very important link in the Pennsylvania system 
 west of Pittsburgh. 
 
 Contemporaneous with the building of the Cleveland and 
 Pittsburgh other railway pioneers were pushing the construc- 
 tion of the Toledo, Norwalk and Cleveland Railroad, now a part 
 of the Lake Shore and Michigan Southern, and in the language 
 of their first annual report (1852) "were obliged to submit to 
 some sacrifices on our stocks and bonds in order to provide the 
 means of payment." The original cost of this road and also of 
 the Ohio section of the Cleveland and Buffalo Railroad was in 
 the neighborhood of $20,000 per mile. The rails (65 lb. to the 
 yard) for this road cost $36.76 per ton, with $6 added for freight, 
 passenger engines $8,000 each, freight engines $9,500, passen- 
 ger cars, 1st class, $2,200, 2nd class and postoffice cars, $1,200, 
 freight cars $575 to $700. A modern postal car costs from $6,000 
 upwards. 
 
 In a report on the preliminary surveys of the Cleveland, Co- 
 lumbus and Cincinnati Railroad (1846) there is an interesting 
 discussion as to the merits of the T and Plate rail. The dif- 
 ference in cost was no less than $4,164 per mile, for at that 
 early date 56-lb. iron rails cost $80 per ton delivered in Cleve- 
 land. Four wheeled freight cars cost $375 each. Light is 
 
 *This was regarded as sound "economical policy," and the sequel has proved that 
 it was. 
 
,74 ■ = 
 
 thrown on the general cost of railways ' in ' those days by the 
 statement of the engineer in chief that the road from^develand 
 to Columbus, owing to the small expense for grading, timber, 
 right of way, etc., "may be made at from one-third to one- 
 half the expense of such roads how existing in the United 
 States." As his estimate for the Cleveland to Columbus road 
 was over $15,000 per mile, he placed the cost of- other rcJads 
 from $30,000 to $45,000 a mile, or considerably below the New 
 York and Massachusetts average. The report' of this engineer, 
 C. Williams, lays stress on the "creative power" of a railway, 
 its "ability to produce business, that- before did' not .exist, and 
 would not, but for the means of getting promptly and cheaply 
 to market," 
 
 The charter of this company, as amended in 1845, grants to 
 it "power to demand and receive for the transportation of per- 
 sons and property over said railroad or any part thereof, such 
 rates as the directors of said company may deem reasonable." 
 
 The prospectuses and prelirninary reports of the engineers of 
 this period almost ignore Chipago and the Northwest as an 
 objective. The Pennsylvania system was already making its 
 way by "links in the Great Central ^^-pute to St. Loiiis." 1?he 
 engineer's report on the third link, the Bellefontaine and In- 
 diana Railroad, was not wholly oblivious to the northw^estern 
 possibilities when he wrote, "I, cannot close this branch of my 
 report without referring to your communication with the great 
 northwest. The railroad now under consicjeration from Indian- 
 apolis to LaFayette is on a direct line towards Chicago, and 
 it is intended to open a continuous line by that route. At Chi- 
 cago it will meet the railroad frqm Galena," ^ ';■ 
 
 How roads were financed in those days is suggested in a 
 single paragraph in the first "exhibit" of the Columbia, Piqua 
 and Indiana Railroad (now a division of the Pittsburgh, Cin- 
 cinnati, Chicago and St. Louis Railway), which says: 
 
 "The Company have secured the right of way for nearly the 
 entire road (102 miles) which is estimated to be worth $75,000. 
 
75 
 
 Its entire cost will not exceed $30,000, one-half of which will 
 be liquidated by the stock of the company at par. The prop- 
 erty and grounds for depots, station houses and machine shops, 
 belonging to the Company, have been acquired by donation 
 or subscription to the capital stock of the Company, and are 
 valued at $50,000." 
 
 The idea that only roads in the east represented an invest- 
 ment by stockholders is refuted by every one of these reports 
 which contain statements similar in effect to the following from 
 the exhibit just cited: 
 
 Ways and Means. 
 
 Subscriptions to capital stock by counties and townships. . . . 
 
 Subscriptions in cash by individuals 
 
 Subscriptions in lands 
 
 Add issue of first mortgage. 
 Total 
 
 $238,000 
 629,500 
 100,000 
 
 $ 967,500 
 600,000 
 
 $1,567,500 
 
 The bonds bore interest at 7 per cent, and the first $140,000 
 were disposed of at par. 
 
 Right of way "in most cases was conferred voluntarily, the 
 citizens throtigh whose property the road passes acting in the 
 spirit of men who appreciate the advantages to accrue to them- 
 selves, as well as the public, from the construction of the road." 
 And well they might, for every railroad built in those days im- 
 mediately doubled, and often quadrupled, the value of the land 
 through which it passed. 
 
 Beginning in 1850, railway building was assisted and stimu- 
 lated by land grants in portions of the country least able to 
 provide profitable trafific. Figures relating to these are very 
 incomplete, but in 1897 it was estimated that patents had been 
 issued for 87,915,326 acres. The government lost nothing by 
 these grants, as the price of the alternate sections it retained was 
 increased from $1.25 to $2.50 per acre. Lands so obtained were 
 disposed of by the railways to settlers as rapidly as possible 
 and at reasonable prices. Professor John Bell Sanborn, in Bui- 
 
76 
 
 letin No. 30 of the University of Wisconsin (1899), says that 
 these "lands have not been the source of wealth to the roads 
 that it is commonly supposed. Even in the case of the largest 
 grants the balance for the whole period is quite small and in 
 many cases the land departments are noW a source of expense 
 rather than of revenue." The average price obtained has been 
 under $10 an acre. "Comparing the building of the roads which 
 received land grants," says Professor Sanborn, "with those that 
 did not, it seems that there was no particular need for most of 
 the grants. Unaided roads were built along similar routes even 
 faster than aided ones. The great transcontinental roads, how- 
 ever, probably needed the assistance of aid in the shape of land 
 or bonds to secure their construction at the time they were 
 built." 
 
 Whatever the value of these land grants, it went to swell the 
 total irrevocably invested in American railways. In compar- 
 atively few instances, as mentioned in the succeeding paragraph, 
 were stocks or bonds issued to represent the millions invested 
 in railways through these grants and public and private dona- 
 •tion of right of way, etc. 
 
 The first annual "exhibit" of the engineer of the Cincinnati, 
 Union and Ft. Wayne Company (now a part of the Grand 
 Rapids and Indiana) sheds instructive light on the taking of land 
 for stock, in these terms : 
 
 "The company has taken lands in subscription for stock 
 under the provisions of the law authorizing the same. They 
 were not taken, however, at fancy prices, but at their cash 
 valuation, ascertained by an appraisement under oath, by an 
 appraiser appointed by the company, who did not include per- 
 ishable improvements in the valuation, nor did he take into con- 
 sideration the prospective increase of value of the lands, on 
 account of ' the construction of the railroad." 
 
 The lands taken in this case were mortgaged to secure the 
 bonds upon which funds were obtained to complete the road. 
 
 Among the interesting and valuable reports of these early 
 days is the first (January 18, 1853) to the stockholders of the 
 
77 
 
 Racine, Janesville and Mississippi Railroad Company (now a 
 part of the Chicago, Milwaukee and St. Paul). "The total esti- 
 mated cost of the work, fully equipped and furnished in all 
 departments, is $20,000 per mile amounting, for 67 miles of 
 road, to $1,340,000." A year later the engineer presented the 
 following detailed estimate of cost: 
 
 Original estimate of cost of 66 miles of Chicago, Milwaukee 
 and St. Paul in 1854: 
 
 Road. 
 
 Grading, masonry and bridging 
 
 6,233 55-100 gross tons rail on track, S78 
 
 Chairs and spikes, per mile S600 
 
 Ties 
 
 Laying track and dressing at $400 
 
 Ballasting and raising track 
 
 3^ miles turnouts 
 
 66.08 miles at $16,296.40 per mile, including turnouts. 
 
 $ 342,036.00 
 486,216.90 
 39,648.00 
 58,113.75 
 26,432.00 
 86,710.00 
 37,710.00 
 
 SI, 076,866. 65 
 
 Equipment. 
 
 8 Locomotives 
 
 8 passenger cars 
 
 4 baggage cars 
 
 70 freight cars 
 
 Platform and gravel cars. . 
 
 Depot buildings, engine houses, etc 
 
 Engineering, superintendence and agencies.. 
 Eight of way apd fencing $l,OOO^er mile.. . 
 
 66.08 miles at $20,938.96 per mile. 
 
 $72,000 
 
 16,800 
 
 6,400 
 
 45,500 
 
 25,000 
 
 165,700.00 
 40,000.00 
 35,000.00 
 66,080.00 
 
 $1,383,646.65 
 
 The capital for this expenditure consisted of: 
 
 Capital stock 
 
 First mortgage bonds. 
 
 $ 670,000 
 670,000 
 
 $1,340,000 
 
 Funds for the preliminary work were derived from subscrip- 
 tions to capital stock, and the account of disbursements to 
 January 17, 1854, were as follows: 
 
78 
 
 Disbursements. 
 
 For construction, including grading, bridging, grubbing and 
 materials furnished 
 
 For depot grounds at Racine and Beloit and other real estate 
 
 For right of way and fencing 
 
 For engineering, including preliminary surveys 
 
 For expense, including interest and discount, exchange, sur- 
 veyors' instruments, office furniture, taxes, expenses in 
 procuring right of way, and general expenses under 
 Commissioners and Board of Directors 
 
 For salaries including attorneys and bookkeepers 
 
 Total 
 
 $ 75,227.25 
 
 37,887.45 
 
 26,489.14 
 
 8,941.70 
 
 8,285.58 
 1,183.22 
 
 $157,014.34 
 
 These reports illustrate better than any formal history can, 
 not only the cost of the early railways in the United States, but 
 the sources from which the funds for their construction were 
 derived and the economy with which such funds were expended. 
 Their cost continued to justify Mr. Tanner's comment in 1840 
 that "The economy with which most of them have been exe- 
 cuted, when compared with the cost of similar works abroad, 
 is matter of .surprise to all." The reports during the Fifties 
 •all exhibit the same spirit set forth in the first report of the 
 engineer of the North-Western Railroad Company (the link 
 of the Pennsylvania system from Blairsville to Newcastle on 
 the line to Cleveland) as follows: 
 
 "The object contemplated by the construction of the road 
 is two-fold — 1st, to develop the mineral wealth of the region 
 traversed, and furnish an outlet for the surplus productions 
 of a portion of the state entirely destitute of railroad facilities f 
 and 2d, to open a direct communication between Philadelphia 
 and the Lakes; either of which will fully justify the compara- 
 tively small expenditure required." 
 
 • In this particular instance, the expenditure required was 
 estimated for "grading and bridging $1,375,000, averaging $16,- 
 272 per mile" for the 84J miles and "about an equal amount for 
 the superstructure, equipment, depot, water stations, etc., nec- 
 essary to put the road in running order." 
 
 It has cost many times as much more to place this road 
 through that "rugged and difficult country" in a condition to 
 move the modern millions of freight at modern rates. 
 
79 
 
 Some idea of the railway situation before the war can be 
 had by recalling the fact that the Baldwin Locomotive Works, 
 which in 1906 built 2,666 engines, some weighing as much as 
 175 tons, produced only 47 in 1855; 59 in 1856; 66 in 1857; 33 
 in 1858; 70 in 1859 and 83 in i860, and that they varied from 
 15 to 28 tons in weight. It is difficult to say which is the more 
 instructive contrast, that between the number, or the weight 
 and consequent power of these engines. The decrease in pro- 
 duction in 1858 reflects the effect of the business depression in 
 the preceding year. 
 
 Cost Since i860. 
 
 In i860 the railway mileage of the United States had risen 
 to 30,63s, more than one-third of which was west of Pittsburgh. 
 So rapid had been the construction into unprofitable territory 
 that the earnings had increased less than $1,000 per mile over 
 the figures for 1850. A conservative estimate places the cost 
 of constructing this mileage at over $1,000,000,000 or about 
 $33,000 per mile. The banking panic of 1857 had little effect 
 to retard railway expansion beyond increasing the cost of float- 
 ing loans. By this time the work of relaying the original roads 
 with T-rails was completed, although in 1865 Charles A. Dana, 
 who had been appointed to investigate and report what should 
 be done with the railways that had been seized and used by 
 the government and on which it had spent millions of dollars, 
 in his report to Secretary Stanton said : "Our expenditures upon 
 some of these have been very heavy. For instance, we have 
 added to the value of the road from Nashville to Chattanooga 
 at least a million and a half dollars. When that road was re- 
 captured from the public enemy it was in a very bad state of 
 repair. Its embankments were in many places washed away, 
 its iron was what is known as the U-rail, and was laid in the 
 defective old-fashioned manner, upon longitudinal sleepers, with- 
 out cross-ties." The government replaced the antique construc- 
 tion with T-rails for its own use but with little intention of 
 making the replacement a permanent improvement. 
 
 Incredible as it may seem to our generation, when Abraham 
 Lincoln was elected for his first term there was not a mile of 
 
80 
 
 railway in the great states of Minnesota, Kansas and Nebraska 
 and only 23 miles on the whole Pacific coast. In the broad 
 territory between, the Indians and buffaloes still roamed; and 
 most of it had not even been organized into territories, much 
 
 il 
 
 ^^^l*-■:^;i?a^^i^:■■^g^,'^'W 
 
 Baldwin Ekqike Built in 1861. 
 
 less into the present sovereign states. I wonder if the reader 
 realizes what this means? In his "Conquest of Arid America," 
 William E. Smythe says, "The ninety^seventh meridian divides 
 the United States almost exactly into halves.'' A glance at the 
 map shows that this meridian cut the Red River of the North, 
 the western boundary of Minnesota, at Grand Forks, and thence 
 passes through the Dakotas, Nebraska, Kansas, Oklahoma and 
 Texas. In i860, less than half a century ago, this vast half of 
 the United States was without railways except for 23 miles in 
 the environs of San Francisco. To it should be added Minne- 
 sota and the portions of the other states named east of the 97th 
 meridian, except Texas, which at that time had some 300 miles, 
 all in the eastern section of the state. Today, including Texas 
 and excluding Minnesota, there are over 6r,ooo miles of railway 
 in this territory, or double the mileage in the whole United States 
 in i860; and there is need of as much more if it is to secure 
 anything like the benefits of transportation now enjoyed by that 
 half of the republic east of the 97th meridian. 
 
 By 1870; when we reach the period of more trustworthy data, 
 the railway mileage of the United States was 52,898 miles, con- 
 
81 
 
 structed at an approximated cost of $44,000 per mile. This ad- 
 vance in cost is partly represented in the millions spent in re- 
 habilitating the railways of the Southern States, which had been 
 either destroyed or allowed to go to seed during the civil war, 
 
 BiiiDGE, Locomjtive, Train akd WoODCni Landscape. 1869. 
 
 when the mileage in some of these states was at a standstill. 
 Virginia went into the war with 1,379 ^^'^ came out of it with 
 1,401 miles; Georgia had 1,420 miles at the beginning and close 
 of the war; Florida, 402 and 416, respectively; Mississippi, 862 
 and 898; Louisiana, 335 at the opening and close; Kentucky, 
 549 and 567, respectively; Tennessee, 1,253 ^"^ i>296, and 
 Arkansas did not show a mile of new construction from the 
 opening of the war until 1868. From 1861 to 1865 only 349 
 miles of railway were constructed in the twelve states in the 
 Southern group, and much of this being for military purposes 
 was of the most flimsy character, to be subsequently abandoned 
 or wholly rebuilt to meet the transportation demands of peace. 
 Moreover, it was during this period that the Union and Cen- 
 tral Pacific Railroads were undertaken and completed at a total 
 cost of over $254,000,000 or $112,000 per mile, with no extrava- 
 gant expenses for terminals or right of way. The net capitaliza- 
 tion of the 2,955 miles owned by the Union Pacific today is less 
 than $85,000 per mile. The building of these two connecting 
 roads, to which the government contributed its credit by issuing 
 over $53,000,000 in 6 per cent, currency bonds, and generous 
 land grants, was then regarded as a patriotic necessity, and its 
 completion in 1869 was celebrated as a proper subject for 
 national rejoicing. In 1869 public sentiment had not been stu- 
 
82 
 
 diously perverted into 'an attitude of mistrust and hostility 
 toward the one agency that had done more than any other to 
 build up and preserve the Union. The cost of these two roads 
 alone was equivalent to adding $S,ooo per mile to the average 
 cost of the entire mileage of the United States. 
 
 A GrOLD Medal American Engine— Paris, 1867. 
 
 Justice in the public mind has never been done-^-probably 
 never will be — -to the courage, enterprise and indomitable energy 
 of the Americans who pushed this great work through financial 
 shoals and physical obstructions to completion. It and the Cen- 
 tral Pacific, as well, were built at war prices. Labor was scarce 
 and was to be had only at exorbitant figures. The cost of ma- 
 terials was well nigh prohibitive. The price of ties laid down at 
 Omaha ran as high as $2.50. The rails for the first 440 miles of 
 the Union Pacific cost $135 per ton. When railway connection 
 was established between Council Bluffs and the East this was 
 reduced to $97.50. Government bonds were issued as the work 
 progressed, and netted the Company only 65 cents on the dollar. 
 The country through which it was built was the hunting ground 
 of the most warlike Indians of the West. They harrassed the 
 work at every stage, from scalping surveying parties to attacks 
 on graders, who worked with their guns stacked within easy 
 reach. It is related that more than half the construction gangs 
 were men who had been through the war, which experience 
 stood them in good stead. 
 
 The conception of this work was an inspiration of patriot- 
 ism ; its financiering was a nightmare ; its physical construction 
 was a battle between civilization and the forces of savagery 
 
83 
 
 and Nature, worthy the pen of Fenimore Cooper ; its progress 
 was a titanic race for subsidies and its completion was hailed 
 with patriotic acclaim throughout the Union. President Lin- 
 coln designated the eastern terminus of this transcontinental 
 railway on March 7, 1864, and on May 10, 1869, President Grant 
 received the tidings that the last spike — a golden one from Cali- 
 fornia — had been driven that joined the rails of the Union and 
 Central Pacific Railways at Promontory, Utah. That event was 
 celebrated in a poem by Bret Harte beginning: 
 
 What was it the engines said, 
 
 Pilots touching head to head; 
 
 Facing on the single track 
 
 Half a world behind each back. 
 And what was this great work whose completion marked the 
 meeting of the iron girdle across a continent, with half a world 
 behind each pilot? It was a hastily graded, unballasted, indif- 
 erently equipped, single track road of 1921 miles, laid with 56- 
 Ib. iron rails, through sparsely settled deserts and mountains, 
 which, paradoxical as it may seem, cost three times as much as 
 it was worth and yet was worth more than three times as much 
 as it cost. 
 
 The Union Pacific of 1907 has more miles of yard track and 
 sidings than the Union Pacific of 1870 had miles of main line. 
 
 It was between i860 and 1870 that the steel rail first made 
 its appearance and began to supplant iron on roads whose traf- 
 fic justified the cost of its substitution. That this was almost 
 prohibitive for, weak roads may be judged from the fact that in 
 1870 the price of steel rails was still $106 per ton. The first 
 steel rails used in the United States cost $210 per ton, and the 
 Pennsylvania Railroad paid $206 per ton for the first Bessemer 
 steel rails which it laid in 1865. 
 
 By 1880 the mileage of operated railways in the United States 
 had increased to 82,146 and the cost per mile had risen to over 
 $56,000. No one at all conversant with the history of American 
 railways during the preceding decade will be at a loss to ac- 
 count for this development. It covered a period of extraordi- 
 
84 
 
 nary expansion, disaster and recovery. Between 1870 and 1873 
 nearly 18,000 miles of road had been built, more than 10,000 
 miles of which was in the sparsely settled western states where 
 construction was expensive, population was needed and traffic 
 was light. The Northern Pacific Railroad, for which ground 
 was broken in 1870, boasted that it was going into a territory 
 that "would make ten States as large as Pennsylvania, wholly 
 unsupplied with railroads." In the language of Poor's Manual, 
 speaking of one western road, "Nearly the whole increase of 
 mileage has proved unproductive." This was true of all other 
 western railroads. It was simply a case of excess of mileage 
 to population. The country was railroad mad, and then, as 
 ever, speculative promoters took advantage of the fever to 
 project lines into territory which could not be expected to sup- 
 port them for another decade. Then came the granger legisla- 
 tion in the same western states, which frightened capital and 
 effectually put an end to railway expansion, until, with its modi- 
 fication or repeal by 1878, there came restored confidence and 
 renewed activity in building into the wilderness, soon to be 
 peopled with millions brought thither by the railways which 
 looked to the future to recompense them for what were origi- 
 
 " Monster of 1876 " (3 tt. 6 iN. Gauge) akd a Modern Locomotive, 
 
 nally unprofitable optimistic ventures. How the financial and 
 industrial panic of 1873 affected the railways is shown in the 
 receiverships during the following years, a summary of which 
 
85 
 
 is given elsewhere (page 154). Its effect vipon the cost of 
 the railways is reflected in the advance from a cost of $44,000 
 per mile in 1870 to $56,000. While the panic and liquidation 
 wiped out millions of dollars of investments, it simply created 
 the necessity of raising other millions to restore many roads 
 which were permitted to run down and to bring others up to 
 the higher standard required by our increasing population and 
 expanding trade. Roadbed, bridges, rails, equipment and ter- 
 minal facilities had to undergo a complete transformation to 
 meet the demands of a freight traffic that more than doubled 
 in ten years. 
 
 Between 1870 and 1880 the mileage of secondary track and 
 sidings had more than doubled, and, while steel rails were so 
 exceptional in 1870 as to escape the attention of the statistician, 
 by 1880 there were 33,679 miles of line laid with steel. The sub- 
 stitution of steel rails for iron during this decade alone at prices 
 ranging from $106 per ton in 1870 to $57 in 1880, cannot have 
 cost the railways of the United States during the period in 
 question less than $250,000,000, or over $3,000 per mile. 
 
 Between 1880 and 1889 no less than 15,570 miles of track were 
 converted from a gauge of 5 feet or over to the standard Ameri- 
 can 4 feet 8J inch gauge. Before 1886 there had been an infinite 
 confusion of gauges varying from 2 feet up to 6 feet, with, oVer 
 3,000 miles with two separate gauges. 
 
 In 1890 we arrive at the period of official figures of cost of 
 construction given in the first table in this chapter. Unfor- 
 tunately, it was not until 1892 that the official statistician in- 
 cluded in his report a statement of the miles of line repre- 
 sented in this cost. Assuming that 140,000 miles were repre- 
 sented it would appear that the cost of construction up to that 
 date was $55,000 as against $56,000 in 1880. This decrease in 
 the ave'rage was due to the construction in ten years of over 
 40,000 miles of comparatively inexpensive lines in the terri- 
 tory west of the east line of Illinois and the Mississippi River. 
 The magnificent territory of the Northwest and Southwest only 
 needed the railways to make them accessible for the thousands 
 
86 
 
 of settlers who waited .on transportation to convert it into the 
 great agricultural and industrial states it has since become. How 
 some of these states have profited by the empire building rail- 
 road construction of the twenty years before 1890 is shown in 
 the following statement: 
 
 
 MUes of 
 
 Railroad 
 
 1870. 
 
 MUes of 
 
 RaUroad 
 
 1890. 
 
 Increase. 
 
 Iowa 
 
 2,683 
 
 1,092 
 
 1,501 
 
 711 
 
 65 
 
 157 
 
 8,347 
 5,466 
 8,806 
 7,911 
 1,940 
 2,485 
 4,154 
 
 5 664 
 
 
 4,374 
 
 Kansas 
 
 7 305 
 
 Texas 
 
 7 200 
 
 North Dakota 
 
 4,360 
 
 South Dakota 
 
 Colorado 
 
 3 997 
 
 
 
 Total 
 
 5,209 
 
 39,109 
 
 ,32,900 
 
 
 
 Railways at any cost were indispensable to the very states 
 which were among the first to disregard the scripture injunc- 
 tion, "Thou shalt not muzzle the ox when he treadeth out the 
 corn." It is worth remembering that the population of these 
 states increased from 2,970,749 in 1870 to 7,799,505 in 1890. It 
 is difficult to imagine any of these states dependent on water- 
 ways and post roads. 
 
 During the following decade to 1900 the reported cost of 
 construction rose to $10,263,313,400 for 181,437 miles repre- 
 sented, or over $56,500 per mile. This shows an increase per 
 mile over both 1880 and 1890, and is easily accounted for by 
 the continued transformation and improvement that was .sjoing 
 on throughout the railway world. Where over 74,000 miles of 
 new road had been built between 1880 and 1890, less than 
 37,000 were added to the total mileage in the succeeding de- 
 cade. In the meantime, however, the auxiliary tracks and sid- 
 ings had increased from 33,711 to 52,153 miles; the tracks laid 
 with steel rails increased from 167,458 miles to 238,464 and cov- 
 ered 92.4 per cent of the total trackage of the country; the 
 adoption of automatic couplers and train brakes scarcely begun 
 in 1890 had become well nigh universal ; various forms of block 
 signal systems were being installed and the whole railway trans- 
 
87 
 
 portation system had been put on a plane of efficiency beyond 
 the anticipations of 1890. The proof of this increased efficiency 
 is found in the following statement of the public service ren- 
 dered in 1890 and 1900: 
 
 Passengers carried 
 
 Passengers carried one mile 
 
 Passengers carried one mile, per mile of line. . . 
 
 Tons of freight carried 
 
 Tons of freight carried one mile 
 
 Tons of freight carried one mile per mile of line. 
 
 1900. 
 
 576,865,230 
 
 16,039,007,217 
 
 83,295 
 
 1,101,680,238 
 
 141,599,157,270 
 
 735,366 
 
 1890. 
 
 492,430,865 
 
 11,847,785,617 
 
 75,751 
 
 636,541,617 
 
 76,207,047,298 
 
 487,245 
 
 Here is an increase of over 35 per cent, in passenger service 
 and nearly 86 per cent, in freight service during a decade when 
 the population of the republic showed a growth of less than 
 21 per cent. The marvel of this achievement is that it was 
 effected in the face of one of the worst periods of reaction ex- 
 perienced in the industrial progress of the United States, to 
 which reference has already been made. Even in 1900 $3,176,- 
 609,698 of railway stocks outstanding, or 54.34 per cent, of the 
 gross capital stock paid no dividends. 
 
 The country recovered from the "effects of the slump of 1893 
 more rapidly than the railways, which were forced to extraordi- 
 nary expenditures to make good the depreciation in road and 
 equipment suffered during the receiverships and enforced econo- 
 mies of 1893-1897. And during this period of recovery the rail- 
 ways were called on to make provision for transporting traffic 
 which increased at a pace unparalleled in the previous history of 
 the country, although it has been surpassed since. 
 
 The analysis of the cost of construction at the date of the 
 latest official statistics requires a separate chapter. 
 
88 
 
 VI 
 PRESENT COST OF ROAD AND EQUIPMENT 
 
 In his balance sheet for the year ending June 30, 1905, the 
 official statistician gives the following statement of the cost 
 of road and equipment for "203,228 miles of line." 
 
 
 Amount 
 1905. 
 
 Increase 
 over 1904. 
 
 
 $11,170,458,581 
 780,890,368 
 
 $ 389,288,643 
 
 
 46,889,612 
 
 
 
 Total 
 
 $11,951,348,949 
 $58,809 
 
 $436,178,255 
 
 
 
 
 
 Unfortunately for my purpose this balance sheet bears on 
 its face evidence of its own incompleteness. Its statement 
 of liabilities places the capital stock at $6,680,473,280 and the 
 funded debt at $7,568,555,810, aggregating $14,249,029,090 for 
 "203,228 miles of line represented." As the total railway cap- 
 ital for 209,405 miles of line in another summary of the same 
 report is given at $13,805,258,121,, the total in the balance sheet 
 is manifestly incorrect. This error is all the more bewildering 
 because the statistician in connection with the lesser total says: 
 
 "The aggregate railway capital at the close of the year was 
 $13,805,258,121, which is equal to a par capitalization of $65,926 
 per mile of line. This assignment makes no deduction of stocks 
 and bonds owned by railways in their corporate capacity, and 
 to the extent that such deductions are proper, overstates the 
 capital per mile of line." 
 
 An examination of earlier balance sheets shows that this 
 discrepancy, by which the capitalization of a part of the rail- 
 ways is made to exceed the whole, has been steadily growing 
 since 1898. Prior to that date the balance of capital was always 
 very properly on the side of the greater mileage, even though 
 the capital per mile of line was not. 
 
 Another feature of this balance sheet, calculated to detract 
 
89 
 
 from its authority, is that in the list of assets the stocks and 
 bonds owned by the railways are given as follows: 
 
 Stocks and Bonds Owned 1905 Given in Balance Sheet. 
 
 
 Amount 
 1905. 
 
 Increase 
 over 1904. 
 
 stocks owned 
 
 $1,766,761,049 
 572,609,132 
 
 S 43.539 611 
 
 Bonds owned 
 
 14,216,048 
 
 
 
 Total 
 
 $2,339,370,171 
 
 $57,755,659 
 
 
 
 Compare these figures with the following from the summary 
 of ownership of railway stocks and bonds, page 56 of the same 
 report : 
 
 Stocks and Bonds Actually Owned. 
 
 Amount owned by 
 Railway Corpora- 
 tions. 
 1905. 
 
 Increase 
 over 
 1904. 
 
 Stocks 
 
 Bonds 
 
 Total 
 Discrepancy. . . . 
 
 $2,070,052,108 
 568,100,021 
 
 $2,638,152,129 
 298,781,958 
 
 $127,193,749 
 9,627,779 
 
 $136,821,528 
 79,065,869 
 
 . These discrepancies cannot be explained as due to the differ- 
 ence in mileage represented in the summaries and the, balance 
 sheet, for the excess of capital in the balance sheet is for less 
 mileage, and itself proves that all the great stock and bond 
 owning companies are included in the balance sheet. 
 
 Such discrepancies would be immaterial for the purposes 
 of this inquiry did they not tend to discredit the two items of 
 the balance sheet in which we are interested. Here again the 
 inquirer after truth is confronted with a statement of cost of 
 equipment that strains credulity. The official balance sheet 
 places the co'-t of equipment in 1905 at $780,890,368 and the in- 
 crease in such cost at $46,889,612. Turning to the section of 
 the official report relating to equipment for that year, it appears 
 that the railways owned 48,357 locomotives, 40,713 cars in pas- 
 
90 
 
 senger service, 1,731,409 freight cars and 70,749 work cars. The 
 exact expenditure on account of this equipment is not known, 
 
 1880— Passenger Coaches— 1905. 
 
 but if it had to be replaced today its cost might safely be esti- 
 mated at the prices given in the following computation: 
 
 Number and Cost of Equipment in 1905. 
 
 Average Cost. 
 
 Aggregate Cost. 
 
 48 357 locomotives at .'$12.000 
 
 $580,204,000 
 
 244,278,000 
 
 1,731,409,000 
 
 42,449,400 
 
 
 1,731,409 freight cars at 1,000 
 
 70 749 work cars at 600 
 
 
 Total 
 
 $2,598,340,400 
 
 
 From which it is evident that the cost of equipment as given 
 in the ofificial balance sheet is less than one-third what it should 
 be. The estimated cost of the several items in this table could 
 be reduced to $10,000; $5,000; $800 and $400 respectively and 
 the total cost would still be $2,100,561,800, or nearly 170 per 
 cent, more than the total given by the official statistician. 
 
 Unfortunately, it is not permissible to correct the official 
 balance sheet by substituting an estimate, however reasonable, 
 in place of an error, however palpable, or the cost of construc- 
 tion would read as follows: 
 
91 
 
 
 $11,170,458,581 
 
 
 2,598,340,400 
 
 
 
 
 $13,768,798,981 
 
 
 
 or with a reduced estimated cost per item, 
 
 as 
 
 ollows : 
 
 
 $11 170 458 581 
 
 Cost of equipment 
 
 2,100,561,800 
 
 
 
 
 
 $13,271,020,381 
 
 
 
 But railway accounts have been so lacking in uniformity 
 and have come through so many vicissitudes and reorganiza- 
 
 Steel Passenger Cab, 1907— Total Weight, 105,500 Lbs. 
 tions that thi;re is absolutely no way by which we can test the 
 "Cost of road" items. As given in the "Balance Sheet," there 
 is every probability that it includes many millions of dollars ex- 
 pended on cost of equipment. But on the other hand there is 
 an equal probability that it excludes other millions of cumula- 
 tive cost expended through seventy odd years of railway devel- 
 opment out of income for additions, betterments and improve- 
 ments. 
 
 Fortunately, there is independent data by which to arrive at 
 a more accurate approximation of the cost of construction of 
 American railways than is afforded by the official "Balance 
 Sheet." In 1906, official reports from 313 companies operating 
 206,960 miles of line, or approximately 94 per cent, of the aggre- 
 gate mileage in the United States, furnished the following data 
 in regard to their actual cost for 166,493 miles owned to June 
 30th of that year: 
 
92 
 
 Line represented, 
 166,493 Miles. 
 
 Cost of road 
 
 Cost of equipment 
 
 Cost of both, not separated. . . . 
 
 Totalcost of construction. 
 
 $5,966,303,567 
 
 786,469,647 
 
 3,286,313,826 
 
 $10,039,087,040 
 
 Distributing the third item in this table between cost of road 
 and equipment in the same proportion as that where they were 
 separately reported, it was found that the total cost of road 
 would be $8,874,691,398 and of equipment $1,164,395,642. 
 
 The 313 companies operated 40,477 miles of line under leases 
 in one form or another, for which they paid $116,144,978 rental. 
 Estimating that they paid as high as 10 per cent, on the cost 
 of these leased lines, much of which was for essential terminal 
 trackage, would make a capitalized cost of $1,161,949,780. To 
 this should be added the cost of 13,066 miles of unreported line, 
 for which $30,000 per mile is a low estimate. Adding to these 
 the estimate of actual cost of equipment in 1906 already made 
 gives the following statement of the cost of constructing and 
 equipping 220,036 miles of line in 1906:. 
 
 Cost of 220,036 Miles of Line Operated. 
 
 Cost of road (166,493 miles) owned 
 
 Cost of road (40,477 miles) leased : . . 
 
 Cost of road (13,066 miles unreported, at S30,000). 
 Cost of equipment 
 
 Total cost of construction 
 
 $8,874,691,398 
 
 1,161,949,780 
 
 391,980,000 
 
 2,758,611,600 
 
 $13,187,232,778 
 
 It will be perceived that by following an independent route 
 we arrive at approximately the same results — the higher total 
 of the table derived from the official Balance Sheet being un- 
 doubtedly due to the inclusion therein of cost of equipment 
 under cost of road. 
 
 Whichever figures we accept, it is evident that the book- 
 keeping cost of constructing the railways of the United States 
 
93 
 
 is in- the neighborhood of $13,000,000,000. This is $1,328,059,351 
 more than' their net capitalization in 1906! 
 
 The reason why the original cost of construction is an item 
 that cannot generally be ascertained, "except for relatively new 
 roads," is thus admirably stated by the Railroad Commission of 
 Wisconsin in its decision in fixing the passenger fare in that 
 state at 2^ cents per mile: 
 
 "Most of the roads were built by construction conipanies 
 whose records are not in existence, and then turned over to 
 some other company at a different value than the original cost. 
 Many of the roads are undergoing constant improvements; in 
 fact, some of them have been almost entirely rebuilt since the 
 time of their first construction. The original cost as well as 
 the amount that has been expended upon the plant to any 
 given date, exclusive of the maintehance, are items that for 
 these and other reasons cannot be obtained, and which would 
 probably be of little value if they could be had." 
 
 There is little reason to doubt, however, that the $13,000,000,- 
 000 the "bookkeeping cost of construction" fairly represents the 
 amount of money that between 1830 and 1906 has been ex- 
 pended in bringing the railways of America up from the 23 
 miles of experiments with horses and 7-ton engines for motive 
 power, to the 309,218 miles of track upon which engines weigh- 
 ing as high as 175 tons drag trains carrying an average of 322 
 
 Baldwin Mallet Oompound, 1906. Weight on Drivers, 350,000 Lbs. 
 
 tons of freight. At every step money has been spent that has 
 never appeared in the construction account, some of it on 
 roads that have disappeared from the map; much of it has gone 
 
94 
 
 in driblets — ^here an additional spike, there one more tie per 
 rail; here a hundred feet of siding, there miles of double track; 
 everywhere betterments and improvements charged to operat- 
 ing expenses or paid for out of surplus income, amounting in 
 some instances to more than the dividends and often where no 
 dividends were declared. 
 
 Cost Measured by Traffic. 
 
 The extent and cost of the improvements during three-quarters 
 of a century cannot be ascertained, but it can be measured by 
 the growth in the volume of trafific. The type of the physical 
 structure of the railway, the strength of its track and bridges, 
 the length of its auxiliary track, the character and cost of its 
 depots, freight houses and shops, the quality of its service — 
 everything in fact that contributes to its value as a public 
 servant — depends on the amount of its traffic. The cost of the 
 instrument, commensurate to the traffic it has handled, has par- 
 alleled the growth of that traffic. 
 
 So late as 1851, the total tonnage of all the railways of the 
 United States is stated to have been less than 5,000,000 tons, 
 from which the receipts were $20,192,104, or over $4 per ton, 
 irrespective of distance. 
 
 In 1906, the total freight carried by the railways of the United 
 States was 1,631,374,219 tons, for which the receipts were $1,- 
 640,386,655, or $1.01 per ton, irrespective of distance. 
 
 If the railways of 1906 had received the same rate per ton 
 charged by those of 1851 their freight receipts would have ex- 
 ceeded $6,500,000,000 instead of the one-fourth of that sum they 
 actually earned. 
 
 Between 1851 and 1906 the mileage of American railways 
 covered in the above data increased from 8,876 to 222,340 miles, 
 that is, 25 fold. 
 
 But their tonnage in the meantime increased from 5,000,000 
 to 1,631,374,219 tons, that is to say 326 fold, or over 13 times 
 faster than their mileage. 
 
 To handle this remarkable increase in volume of traffic of 
 13 times per mile, the cost of road and equipment has only risen 
 from about $30,000 per mile in 1850 to about $60,000 in 1906, 
 while the net capitalization has only increased to $54,421. 
 
95 
 
 In other words, transportation capacity in fifty years has in- 
 creased over i,ooo per cent., while the cost of the medium has 
 increased lOO per cent, per mile and the capitalization of the 
 medium has increased less than 75 per cent, per mile. 
 
 Fast Maii,, 1904— Taken Ikstantaneouslt While Kuhning 80 Miles an Hour. 
 Green, Photographer. 
 
 Accompanying this wonderful achievement and inseparably 
 involved with it has been the still more amazing phenomenon 
 of a decrease in the cost of railway service to the public, amount- 
 ing in the case of freight rates to nearly 80 per cent, and in 
 passenger rates to at least 33 per cent, and to fully 66 per cent, 
 from the pre-railway days. 
 
 That these estimated reductions in the cost of railway ser- 
 vice to the public are not wide of the mark is proved by the 
 reports of the Pennsylvania Railroad. Since as late as 1864 its 
 average earnings per ton mile have declined from 2.498 cents to 
 0.595 in 1906, or 76 per cent., and its passenger receipts from 
 2.672 cents to 2.014, or over 24 per cent. Had the Pennsylvania 
 received the same rates in 1906 that it did in 1864 its freight 
 earnings last year would have been over $460,000,000 instead 
 of only $109,960,888, and its passenger earnings would have been 
 nearly $40,000,000 instead of only $30,074,868. Today the cost 
 of road of the Pennsylvania Railroad is $134,000 per mile of 
 road owned and of equipment $17,000 per mile of line operated. 
 In 1864 the cost of its road and equipment was $81,000 per mile 
 of owned load. In 1906 the freight service of the Pennsylvania 
 was over 40 times greater than in 1864 and its passenger service 
 
96 
 
 was nine fold greater, while the cost to the public has been at 
 the reduced rates as above stated. 
 
 The actual cost of reconstructing, equipping and expanding 
 the Pennsylvania road to meet the demands of a traffic more 
 than doubling every decade, in the nature of railway service 
 cannot be ascertained. But that it exceeds the book account 
 of cost of construction many millions admits of no doubt. Spec- 
 tacular expenditures, like that of tunneling Manhattan Island, 
 perfecting its Philadelphia terminal and reducing its grades 
 through the Alleghanies, halt public attention and get into the 
 capital account in ;stims: of eight figures, but of the million and 
 one items of improvement- going on constantly, all charged, in 
 the day's wprk, so to speak, who knows or can compute them? 
 Financiers, know that* since 1899 the Pennsylvania has invested 
 ,$72,941,000 in betterments and charged it to income, paid. oiT 
 $17,020,000 Car Trust obligations but of profits and invested 
 $42,649,000 premiums on stock issued in improvements, but 
 even they have no means of knowing how much has gone into 
 the cost of the railways and been charged to operating ex- 
 penses. 
 
 During the eight years 1899 to 1906 inclusive, no less than 
 $274,816,000 has been expended by the Pennsylvania Railroad 
 on additions and improvements, nearly half of which was de- 
 rived from profits as shown in the accompanying statement: 
 
 Betterments and Outlays out of Profits. 
 
 Year to Deo. 31. 
 
 1906. 
 1905. 
 1904. 
 1903. 
 1902., 
 1901.. 
 1900., 
 1899., 
 
 Total. 
 
 Additions to 
 Cost of Road 
 and Equip- 
 ment Charged 
 Capital 
 
 $33,532,000 
 38,832,000 
 12,199,000 
 29,292,000 
 24,932,000 
 
 1,671,000 
 1,748,000 
 
 $142,206,000 
 
 Betterments 
 
 and Sinking 
 
 Funds 
 
 $11,558,000 
 
 8,739,000 
 
 6,809,000 
 
 10,030,000 
 
 13,037,000 
 
 11,337,000 
 
 8,496,000 
 
 2,935,000 
 
 $72,941,000 
 
 Car Trust 
 
 Capital 
 Payments 
 
 $4,246,000 
 3,249,000 
 3,249,000 
 2,685,000 
 1,472,000 
 1,121,000 
 585,000 
 413,000 
 
 $17,020,000 
 
 Other Sums 
 used to meet 
 
 Capital 
 Expenditures 
 
 $15,201,000 
 
 17,362,000 
 
 8,536,000 
 1,550,000 
 
 $42,649,000 
 
97 
 
 Expenditures like these have led such high authorit}' as the 
 London Statist to remark that "Not only does the capital ac- 
 count of the Pennsylvania Railroad contain no 'water,' but it is 
 doubtful if the road could now be built and equipped up to its 
 present standard for more than double the sum at which it is 
 now capitalized." 
 
 What has been done in this way by the Pennsylvania has been 
 the characteristic policy of maintaining structures and equip- 
 ment on every railway in America that has pretended to keep 
 pace with the expanding trafiJc requirements of the times. It 
 has been done whether the roads could afiford it or not, whether 
 they paid dividends or not, under the inexorable compulsion of 
 their public service. 
 
 In its recent investigation into the finances of the Chicago, 
 Milwaukee and St. Paul Railway, the Railroad Commission of 
 Wisconsin found that $25,617,015 or one-tenth of "the cost of 
 the plant" was "represented by surplus earnings and other in- 
 come which had been devoted to new construction"; and that 
 between June 30, 1899, and June 30, 1906, "about $7,826,758 
 were charged to operating expenses and credited to the Renewal 
 and Improvement fund." Speaking of the permanent improve- 
 ments which were included in disbursements before the income 
 account of this road was credited with the surplus, the Railroad 
 Commissioners of Senator La Follette's own state decided that: 
 
 "These additions to the plant are undoubtedly in the nature 
 of permanent investments that could have been properly charged 
 to the construction account. The sums thus spent are equities 
 which belong to the stockholders, which they could have taken 
 out in the form of dividends or they could very properly have 
 been added to the surplus." 
 
 In passing, it is interesting to note tbat while the Commis- 
 sioners found that the cost of construction account of the Chi- 
 cago, Milwaukee and St. Paul Railway showed $32,247 per mile 
 for the entire line, their estimate of the cost of reproduction 
 of the part of it in Wisconsin was $37,388 per mile. Compare 
 these figures with a net capitalization of only $31,605 per mile! 
 
 If the present value of the right of way of the Chicago, 
 
98 
 
 Milwaukee and St . Paul Railway, largely obtained free of 
 charge, were added to its cost of construction, as the Commis- 
 sioners admitted it very properly might be, the excess of cost 
 to capital of this one road would be in the neighborhood of 
 $10,000 per mile. 
 
 Assuming that there is a more or less close relation between 
 cost and capitalization in the different groups into which the 
 country is divided by the Interstate Commerce Commission, the 
 following table of net capitalization and earnings per mile in 
 the several groups shows that capitalization or cost of con- 
 struction is absolutely without determining effect on the cost 
 of the service to the public: ' 
 
 Capitalization and Cost of Service, 1905. 
 
 Group. 
 
 MUes of 
 Line. 
 
 Net Capital 
 per MUe. 
 
 Average 
 
 Passenger 
 
 Receipts 
 
 per Mile. 
 
 Cents. 
 
 Average 
 
 Freight 
 
 Receipts 
 
 per Ton Mile. 
 
 Cents. 
 
 I New England 
 
 7,980 
 22,100 
 23,915 
 12,169 
 23,869 
 46,836 
 11,337 
 29,384 
 14,393 
 17,422 
 
 $53,279 
 102,931 
 67,543 
 45,770 
 36,879 
 43,350 
 42,069 
 50,557 
 39,099 
 49,280 
 
 1.762 
 1.722 
 1.957 
 2.363 
 2.298 
 1.987 
 2.108 
 - 2.108 
 2.283 
 2.124 
 
 1 179 
 
 II. North Atlantic 
 
 III. Ohio, etc 
 
 .665 
 607 
 
 IV. South Atlantic 
 
 V. Central and Gulf 
 
 VI North Central 
 
 .691 
 .839 
 766 
 
 VII. Northwestern 
 
 VIII. Southwestern 
 
 IX. Texas 
 
 .900 
 
 .988 
 
 1 096 
 
 X. Pacific 
 
 1 098 
 
 
 
 United States 
 
 (a) 209,405 
 
 $53,328 
 
 1.962 
 
 766 
 
 
 
 (a) Net after deducting line operated under trackage rights. 
 
 This table will afford a perplexing study to those theorists 
 who persist in claiming that capitalization exercises a controlling 
 influence on rates. The effect of density and volume of trafific 
 and length of haul is reflected in every figure of this significant 
 table. It also indicates that outside of Groups I and II there is 
 not enough density of passenger traffic to justify a 2 cent maxi- 
 mum fare. 
 
 Unfortunately, the official statistics do not furnish data for 
 a like distribution of cost of construction among the several 
 
99 
 
 groups. As the cost of construction for the whole country ex- 
 ceeds the net capitalization by about 12 per cent., anyone in- 
 terested can arrive at an approximation of the cost in any par- 
 ticular group by adding such percentage to its net capitalization 
 per mile. The difiference between cost and capital, . however, 
 varies greatly in dififerent groups. 
 
 The comparative data of the above table leads up to a wider 
 field of comparative statistics. 
 
100 
 
 VII 
 
 COMPARATIVE CAPITALIZATION 
 
 Candidly considered, nothing in the history of American rail- 
 ways should redound more to their credit than their low capital 
 as compared with either the cost or capitalization of the rail- 
 ways of other countries — unless it be the cheapness of their 
 freight rates. In either or both respects comparisons are odious 
 — to their detractors. 
 
 The plain unvarnished facts on this point, from official sources, 
 are presented in the following table : 
 
 Capital or Cost of Construction. 
 European Railways. 
 
 Year. 
 
 1905 
 1903 
 1905 
 1904 
 1904 
 1904 
 1903 
 1903 
 1903 
 1905 
 1905 
 1904 
 1904 
 1904 
 1904 
 1904 
 1904 
 
 Country. 
 
 United Kingdom 
 Russian Europe. 
 German Empire. 
 
 France 
 
 Austria 
 
 Hungary 
 
 Italy 
 
 Spain 
 
 Sweden 
 
 Norway 
 
 Denmark 
 
 Belgium 
 
 Holland 
 
 Switzerland 
 
 Bulgaria 
 
 Servia 
 
 Roumania 
 
 Total 
 
 Miles of 
 Line. 
 
 22,847 
 
 30,050 
 
 34,048 
 
 24,755 
 
 12,710 
 
 11,069 
 
 10,016 
 
 8,559 
 
 7,551 
 
 1,526 
 
 1,992 
 
 2,520 
 
 2,060 
 
 2,603 
 
 751 
 
 440 
 
 1,974 
 
 175,471 
 
 Capital or Cost 
 of Construction. 
 
 86,247,240,553 
 
 2,833,853,000 
 
 3,486,711,237 
 
 3,313,980,000 
 
 1,378,308,847 
 
 695,188,847 
 
 1.102,811,500 
 
 813,105,000 
 
 230,242,016 
 
 57,087,216 
 
 52,352,500 
 
 408,836,500 
 
 139,769,000 
 
 269,083,877 
 
 29,707,000 
 
 24,360,000 
 
 150,579,877 
 
 «21, 233 ,206,970 
 
 Cost per 
 Mile. 
 
 J2 73,438 
 
 94,304 
 
 102,435 
 
 133,871 
 
 108,443 
 
 62,805 
 
 110,104 
 
 95,000 
 
 30,491 
 
 37,409 
 
 26,281 
 
 162,236 
 
 67,849 
 
 103,374 
 
 39,556 
 
 55,341 
 
 76,281 
 
 8121,007 
 
101 
 
 Other Parts of the Globe. 
 
 1905 
 1904 
 1906 
 1902 
 1905 
 1906 
 1904 
 1906 
 1906 
 1904 
 1906 
 1904 
 1905 
 
 Canada 
 
 British India 
 
 Japan 
 
 Argentine Republic. . 
 
 Mexico 
 
 New Zealand 
 
 ■Victoria 
 
 New South Wales. . . . 
 
 South Australia 
 
 Queensland 
 
 Central South Africa. 
 
 Cape Colony 
 
 Natal 
 
 21,353 
 
 27,560 
 
 4,488 
 
 10,798 
 
 6,503 
 
 2,406 
 
 3,371 
 
 3,390 
 
 1,745 
 
 2,928 
 
 2,158 
 
 2,533 
 
 783 
 
 11,332,498,704 
 1,182,500,000 
 217,295,827 
 568,000,000 
 376,181,625 
 111,469,900 
 200,721,920 
 212,458,620 
 
 66,280,700 
 101,718,690 
 112,053,255 
 128,830,273 
 
 63,103,239 
 
 $62,403 
 42,906 
 48,417 
 52,602 
 57,847 
 45,826 
 59,543 
 62,672 
 37,982 
 34,7'39 
 51,899 
 50,861 
 80,592 
 
 The United States. 
 
 1906 214,475 
 
 $11,671,940,649 S54,421 
 
 Taken singly or collectively, the obvious comparisons of this 
 table are a triumphant refutation of the charge that American 
 railways are over capitalization. 
 
 And when it is considered that they have been constructed 
 by labor whose wages has always been from two to twenty 
 times* higher than the wages paid in other countries, the con- 
 trast would pass belief were the figures not incontrovertible. 
 
 Cost of British Roads. 
 
 An examination into the conditions in the several countries 
 only deepens the first impression of amazement over what has 
 been accomplished in America with low capitalization. 
 
 In Great Britain, railways were built from the start in the 
 most substantial manner. The Liverpool and Manchester road, 
 upon which Stevenson made his successful demonstration of the 
 tractive capacity of the locomotive, is said to have cost $4,100,- 
 000, or $100,000 per mile. The rails were of forged iron, 35 
 pounds to the yard. These rested on cubes of stone let into 
 the ground three feet apart, and the track was amply strong 
 for engines whose original weight was figured not to exceed 
 six tons — ;the Rocket was only 4^ tons. 
 
 *In India laborersare paid from 4 to 8 cents per day; in' Japan fromlO to 15 cents. 
 
102 
 
 In 1850, when official statistics first took cognizance of British 
 railways as a whole, their capital cost was well over $100,000 
 per mile. Since i860 it has steadily risen, as appears from the 
 following table: 
 
 Year. 
 
 Miles of Line. 
 
 Paid-up Capital. 
 
 Capital per Mile. 
 
 1850 
 
 6,621 
 10,433 
 15,537 
 16,658 
 17,933 
 19,169 
 -20,073 
 21,174 
 21,855 
 22,847 
 
 81,170,118,528 
 1,695,293,718 
 2,580,655,237 
 3,069,188,415 
 3,546,903,049 
 3,973,228,727 
 4,370,688,766 
 4,875,406,776 
 5,727,129,204 
 6,247,240,553 
 
 8176,728 
 
 1860 
 
 162,493 
 
 1870 
 
 166,090 
 
 1875 
 
 W 184,247 
 
 §■ 197,786 
 
 207,273 
 
 1880 
 
 1885 
 
 1890 
 
 217,739 
 
 1895 
 
 230,254 
 
 1900 
 
 262,051 
 
 1905 
 
 273,438 
 
 
 
 Here we find between 1870 and 1905 an increase of 142 per 
 cent, in capitalization against an increase of only 47 per cent, 
 in mileage. The increased cost amounts to no less than $107,- 
 348 per mile, or double the present capitalization per mile of 
 the railways of the United States, and more than that of those 
 of the German Empire. 
 
 Nor is this startling increase in the average capitalization of 
 British railways to be accounted for by extraordinary expendi- 
 tures for double track. The percentage of second track in 1870 
 was practically the same as in 1905, being 54 per cent, in the 
 former year against 55.5 in the latter. 
 
 The explanation of the very high capitalization of British 
 roads is to be found in the heavy cost of right of way owing to 
 the density of population when railway building began, heavy 
 masonry and tunnelling work, and the system adopted in the 
 United Kingdom of charging betterments and improvements 
 to capital account and dividing practically all net receipts among 
 security holders. In 1871 there were 261 persons to the square 
 mile in the Kingdom and no less than 391 in England, or a 
 greater density than that of Massachusetts in 1906. The pres- 
 ent density for England and Wales is 558 per square mile. 
 
 The initial cost of right of way of British roads indicates what 
 would be the expense of securing right of way in populous terri- 
 tory in the United States today, and has an important bearing 
 
103 
 
 on the question of what it would cost to reproduce American 
 roads under twentieth century conditions. 
 
 An analysis of the elements of cost of seven of the principal 
 British railways made by the London Mining Journal in 1844 
 gives the following interesting averages: 
 
 Seven British Railways 1844. 
 
 ( £ = $4.80 then.) 
 
 Cost per Mile. 
 
 Parliamentary expenses 
 
 Law charges, engineering and direction. 
 
 Land and compensation 
 
 Railway works and stations 
 
 Carrying establishment (equipment) 
 
 £1,000 
 1,600 
 5,000 
 
 26,000 
 3,000 
 
 r 
 
 Total ($175,680). 
 
 £i6,600 
 
 The three leading lines, viz., the London and Birmingham, 
 the Great Western and the Southwestern cost £47,000 ($225,- 
 600) per mile, and "the average cost of all the English passenger 
 lines was £34,600 ($166,080)." 
 
 Discussing these averages, the London Mining Journal said: 
 
 "The United States had 3,500 miles of railway open in 1839. 
 None of these cost more than £ 10,000 per mile, and the average 
 of the whole was only £4,800. It is true some of these are 
 single, and others are of slight construction; but it is a startling 
 fact that the best American railways, which are said to be 
 little inferior to ours, are made at one-third the expense." 
 
 The attention of the reader is called to the item of £5,000 in 
 the above table for "Land and Compensation." It will be per- 
 ceived that it exceeds the entire average cost of American rail- 
 ways in 1839. Many early railways in the United States were 
 built and equipped for less than the average sum paid by 
 British roads for parliamentary, legal and engineering charges. 
 It will also be observed that less than one-twelfth of the cost of 
 British roads was invested in equipment. Of the chief item, 
 £26,000 ($124,800) for "railway works and stations," the same 
 London , publication above quoted said: 
 
 "Useless expense, too, has often been incurred in the execu- 
 tiori of railways from the ambition of engineers to render the 
 
104 
 
 works monuments of their own skill by making all the parts 
 unnecessarily strong or unnecessarily perfect." 
 
 The engineers of British railways laid them put and con- 
 structed them as if they were building for eternity and already 
 knew all the demands the future was to put upon their work. 
 American engineers confronted a different problem in a differ- 
 ent and wiser spirit. They suited their plans to their genera- 
 tion, recognizing that transportation on this continent was in 
 its infancy, and that nothing they could do, with the capital 
 and experience at their command, could possibly anticipate the 
 star of empire in its western flight over what in 1839 was mostly 
 wilderness. 
 
 The monumental British roads of 1844, reconstructed up to 
 date, would be ground to dust beneath the traffic which daily 
 passes over the leading American lines. This is no mere fig- 
 ure of speech, for the best British construction of today has been 
 tested on the Pennsylvania road and found wanting in stability 
 under 90 and 100 ton engines drawing loads of 1,000 tons ^jid 
 upwards. 
 
 In passing it may be said that the Great Western Railway 
 mentioned above as one of the leading British roads had a 7- 
 foot gauge down to 1892, and that the London and North- 
 Western Railway, which swallowed the London and Bir- 
 mingham also referred to above, has a paid up capital of £122,- 
 662,484, or over $347,508 per mile. The Midland Railway, how- 
 ever-, surpasses this with $404,366 per mile. 
 
 As if to further emphasize the contrast in capitalization be- 
 tween British and American railways it may be said that our 
 locomotives average more than twice as heavy, while our freight 
 cars average 33 tons capacity to under 12 tons for theirs. 
 
 Today the railways of the United States are capitalized at 
 less than one-fifth the paid up capitalization of British rail- 
 ways. 
 
 Cost of German Railways 
 
 At all stages the capital cost of the railways of Germany 
 has been about double that of American railways, and less than 
 half that of British roads. From such data as is available the 
 
105 
 
 following statement of their cost at different periods is sub- 
 mitted : 
 
 Year. 
 
 MUes of Line. 
 
 Cost. 
 
 Cost per Mile. 
 
 1868 
 
 10,600 
 11,730 
 20,690 
 24,270 
 *28,071 
 30,956 
 34,048 
 
 8823,030,000 
 993,480,000 
 2,098,970,000 
 2,410,650,000 
 2,777,487,620 
 3,025,111,981 
 3,486,711,237 
 
 $77,644 
 84,695 
 
 101,448 
 99,326 
 98,945 
 97,723 
 
 1870 
 
 1880 
 
 1888 
 
 1895 
 
 1900 
 
 1905 
 
 
 
 *Since 1895, inclusive, the figures are official; prior to that they are Mulhall's. 
 
 The increase in mileage and cost per mile between 1870 and 
 1880 is significant of the change that took place under the con- 
 solidating hand of Bismarck. It unified German railways at an 
 increased cost of over $16,000 per mile. 
 
 The reasons why the cost of German railways is less than 
 that of British are four fold — labor is cheaper there, population 
 is not (especially was not) so dense, the physical problem was 
 easier and they were not so well built. They were more ex- 
 pensive than American roads despite the cheaper labor and 
 easy engineering because of the density of the population and 
 the costly bureaucratic methods of construction. 
 
 The average daily wages of an unskilled laborer in Germany 
 in 1840 was about 32 cents against 49 cents in England and 90 
 cents in the United States. Relatively wages in the several 
 countries have remained about the same ever since; in Germany 
 ranging from 48 cents to 75 cents now, in Great Britain from 
 60 to 85 cents and in the United States from $1.25 to $1.75. 
 In the working of railways the three systems are confronted' 
 with the same difference in the cost of labor which absorbs 
 60 per cent, of all opefating expenses. 
 
 In 1837 the territory now included in the German Empire 
 had a population of 31,589,547, or 151 persons to the square 
 mile, where, about the same time, England and Wales had 273; 
 Massachusetts in 1840 had 92, and the whole United States only 
 8.4 per square mile. In 1900 Germany had a density of 270 
 to the square mile, or still only about half that of England, but 
 ten times greater than that of the United States. 
 
 The cost of constructing the railways of Germany was very 
 
106 
 
 much less than in Great Britain by reason of the topography 
 of the country. Speaking of this feature of the difference in 
 cost Edwin A. Pratt, in his "German vs. British Railways," 
 says: 
 
 "Between the Hook of Holland and Berlin the railway does 
 not pass through a single tunnel (there is in fact not a single 
 railway tunnel in the whole of North Germany), nor does it 
 pass through a single deep cutting, or along a single high em- 
 bankment. Bridges and viaducts across rivers are the only 
 engineering works of special importance that had to be under- 
 taken." In England tunnels, cuttings, embankments and 
 bridges abound and have swelled the total cost. 
 
 In America where mountains have been pierced and mighty 
 rivers spanned and every engineering problem known to railway 
 construction has been surmounted, the cost of railways has 
 been only one-half that through the level plains of North Ger- 
 many. 
 
 Cost of French Railways. 
 
 French railways whether built by the government or by com- 
 panies show a capital expenditure more than two and a half 
 times greater than ours. Railway history in France begins with 
 1840 and Mulhall gives the cost of early construction as fol- 
 lows: 
 
 
 Cost per Mile, 
 
 Ratio, i 
 
 
 £ 2,540 
 
 11,4,30 
 
 12,700 
 
 5,080 
 
 8.0 
 
 
 
 40 
 
 stations, etc 
 
 16 
 
 
 
 Total 
 
 £31,750 
 
 100.0 
 
 
 This may be compared with the cost of the Paris and Rouen 
 road as given in the London Mining Journal, reprinted in the 
 American Railroad Journal (January 30, 1845) as follows: 
 
 Law charges, engineering and direction . 
 
 Land and compensation 
 
 Railway works and stations 
 
 Carrying establishment (equipment) . , . , 
 
 Total 
 
 £ .800 
 2,30,0 
 
 17,003 
 2,400 
 
 £22,500 
 
107 
 
 As the line from Paris to Rouen was described as one of 
 "the two most important railways in France" in a contempo- 
 raneous technical publication, it does not seem, credible that 
 Mulhall's average figures for 1840 can be correct. By 1885 he 
 says the average cost had "diminished" to "exactly £27,000." 
 Since 1895 we have the following official data: 
 
 Year. 
 
 Miles. 
 
 Cost of Construction. 
 
 Cost per Mile. 
 
 1896 
 
 22,649 
 23,701 
 24,755 
 
 $3,060,697,600 
 3,202,901,600 
 3,313,980,000 
 
 . 3135,136 
 135,138 
 133,871 
 
 1900 
 
 1904 
 
 
 The greater cost of French roads compared with German is 
 probably due to the greater density of population and conse- 
 quent increased expeditures for land damages when they were 
 originally built. These it will be perceived in the case of the 
 Paris and Rouen road amounted to over $11,000 per mile at a 
 time when there were 178 persons per square mile in France to 
 only 151 in Germany. The condition as to density of population 
 has been reversed in late years. 
 
 The high cost of railways in Belgium is almost wholly at- 
 tributable to the combination of density of population with 
 state extravagance either in constructing or acquiring them. 
 Belgium had a population of over 360 to the square mile in 
 1830 which has risen to over 600 now, or more than double the 
 density of New Jersey. 
 
 Cost of Japanese Railways. 
 
 Perhaps the rriost instructive sidelight as to the cost of modern 
 railways is to be obtained by comparison with those of Japan. 
 How absolutely modern is the experience of Japan with rail- 
 ways may be judged from the fact that in 1871 there was not 
 a single mile of line in the empire, which even then had a popula- 
 tion of 33,000,000, or more than 200 persons to the square mile. 
 As late as 1880 the railway mileage of Japan was only 121 
 miles. 
 
 The last report of the Director of the Imperial Railway Bureau 
 of Japan states the total mileage open for traffic to March 31, 
 1906, to be — 
 
108 
 
 
 Railway Mileage in Japan. 
 
 
 
 1,532 mUea. 
 
 Private 
 
 3 251 miles 
 
 
 
 
 Total 
 
 4 783 miles 
 
 
 
 His report further shows that the cost of constructing this 
 mileage has been: 
 
 
 Yen. 
 
 Cost per Mile 
 (Dollars). 
 
 
 159,918,445 
 251,640,590 
 
 $52,202 
 38,742 
 
 
 
 Total 
 
 411,559,035 
 
 $43,056 
 
 
 In a separate table "the average construction cost per mile of 
 railways open for traffic" is given as follows: 
 
 
 Average Cost 
 per Mile. 
 
 Exclusive of Roll- 
 ing Stock Cost. 
 
 
 $52,202 
 38,742 
 
 $44,201 
 31,339 
 
 Private railways 
 
 
 
 $43,056 
 
 $35,461 
 
 This leaves an average of $7,595 per mile as the cost of roll- 
 ing stock, the character of which is shown to be as follows: 
 
 1,717 locomotives, average weight 45.3 tons. 
 
 5>340 passenger cars, average seating capacity 33.7 per car, 
 
 27,183 "Goods wagons,' average loading capacity 6.8 tons per 
 wagon. 
 
 The passenger carriages are divided into the following 
 classes : 
 
 First class 
 
 Second class 
 
 Third class 
 
 Composite 1st, 2d or 3d class. . 
 
 Composite 2d or 3d class 
 
 Compodte 2d, 3d or brake van. 
 
 Miscellaneous 
 
 Post or brake van 
 
 Total 
 
 106 
 528 
 2,989 
 849 
 167 
 411 
 86 
 704 
 
 6,340 
 
109 
 
 Compared with those of the United States the railways are 
 supplied with the following rolling stock per mile of line: 
 
 Locomotives.. 
 Passenger cars. 
 Freight cars. . . 
 
 Japan. 
 
 No. per 10 Miles 
 
 Open. 
 
 3.6 
 
 12.8 
 
 ee.s 
 
 United States. 
 No. per 10 Miles. 
 
 2.2 
 
 1.8 
 
 80.0 
 
 The difference in number of locomotives per mile against the 
 United States is more than made up by the greater weight of 
 engines on American lines. These average over 63 tons ex- 
 clusive of tenders to 45.3 tons including tenders for the Japan- 
 ese roads. The passenger trafHc in Japan accounts for almost 
 three-fifths of the railway receipts and for the large number of 
 cheap cars. The capacity of our rolling stock for freight is fully 
 six times greater per mile than that of Japan. 
 
 If the cost of rolling stock for Japanese railways was over 
 $7,500 per mile it is a reasonable estimate to say that the 
 rolling stock of American railways has cost $15,000 per mile. 
 
 The aggregate capital of the private railway companies of 
 Japan in 1906 was 291,256,800 yen; or $19,808,105 more than 
 their reported cost of construction. That this was" in no proper 
 sense an over capitalization is proved by the fact that the Japan- 
 ese government in its scheme to nationalize the railways of the 
 islands, already passed by the Imperial diet, has fixed the price 
 of the seventeen private roads it proposes to acquire far above 
 the cost of construction, as the following table shows: 
 
110 
 
 Price to be Paid for Japanese Roads. 
 
 Road to be 
 Acquired. 
 
 Mileage. 
 
 Cost of 
 Construction. 
 
 Price Fixed for 
 Nationalization. 
 
 Ratio Net 
 Earnings to 
 Cost, 1906. 
 
 Nippon 
 
 Sanyo 
 
 Kobu 
 
 Kansai 
 
 Saugu 
 
 Sobu 
 
 Boso 
 
 Kyoto 
 
 Kankaku 
 
 Kokuyetsu 
 
 Nishinari 
 
 Nanao 
 
 Ganyetsu 
 
 Tokushima 
 
 Kyushu 
 
 Kokaido-Tanko 
 Kokaido 
 
 Totals 
 
 860 
 
 406 
 
 28 
 
 280 
 
 26 
 
 73 
 
 39 
 
 22 
 
 94 
 
 86 
 
 5 
 
 34 
 
 50 
 
 22 
 
 446 
 
 208 
 
 158 
 
 326,682,021 
 
 17,917,923 
 
 1,747,066 
 
 13,619,200 
 
 930,432 
 
 2,604,331 
 
 1,024,596 
 
 1,725,099 
 
 3,189,689 
 
 3,564,973 
 
 876,564 
 
 762,407 
 
 1,293,478 
 
 644,703 
 
 25,473,758 
 
 5,756,896 
 
 5,239,645 
 
 $65,266,270 
 
 37,021,490 
 
 4,864,510 
 
 15,604,030 
 
 1,886,920 
 
 5,163,240 
 
 960,760 
 
 1,381,735 
 
 3,175,963 
 
 3,566,980 
 
 978,257 
 
 715,186 
 
 977,949 
 
 617,961 
 
 48,827,300 
 
 14,584,090 
 
 5,462,394 
 
 15.3 
 
 10.4 
 
 11.2 
 
 6.4 
 
 10.8 
 
 10.9 
 
 5.8 
 
 3.0 
 
 5.6 
 
 5.4 
 
 5.1 
 
 4.7 
 
 3.5 
 
 4.7- 
 
 9.7 
 
 12.5 
 
 1.6 
 
 2,837 
 
 9113,052,776 
 
 8211,055,035 
 
 This figures out $74,393 per mile as the purchase price of 
 roads whose original cost of construction was slightly under 
 $40,000. 
 
 The Japanese government arrived at its valuation of the 
 several railw=ays by multiplying the average net profits in 1902, 
 1903 and 1904 by twenty, dividing the product by the cost of 
 construction and multiplying the quotient by the paid up capi- 
 tal. A glance at the last column of the table shows that the 
 value of a line was fixed at approximately the cost of construc- 
 tion where net earnings were 6 per cent, on such cost. Where 
 the roads earned more the price advances until it reaches 150 
 per cent, for the prosperous Nippon and Kokkaido CcJlliery lines. 
 "Strategic significance" apparently played some part in the 
 estimate of the value of the last named road. 
 
 Twenty times the net earnings of the railways of the .United 
 States during the years 1904, 1905 and 1906, including taxes in 
 operating expenses would place their value at $12,811,204,320. 
 Excluding taxes and payments for betterments and improve- 
 ments from operating expenses would give them a value of 
 $I4,505>033>I20. 
 
Ill 
 
 If the Japanese formula were applied to American lines sev- 
 erally as it was to those of Japan, their aggregate estimated 
 value would bie still greater. 
 
 The development of engineering science as applied to rail- 
 ways and the cheapness of Japanese labor during the period 
 since they were first projected account for their comparatively 
 low cost of construction. The cost of labor in Japan can be 
 judged from the following statement of the average rates for 
 train crews: 
 
 Enginemen. 
 Firemen , . . . 
 Conductors. 
 
 22 cents to $1 .00 per day. 
 15 cents to .37 per day. 
 12 cents to .42 per day. 
 
 In Japan unskilled laborers receive from lo to 30 cents a 
 day according to the nature of their employment and their 
 efificiency. 
 
 The average receipts for freight on the government railways 
 in 1906 was 2.01 sen (i.oi cents) per ton mile against 1.80 sen 
 (0.90 cents) on the private roads, and for passengers 1.43 sen 
 (0.72 cents) per mile on government roads against 1.32 sen 
 (0.66 cents) per mile on the private- roads. 
 
 Cost in Other Parts of the World. 
 
 The low cost of the railways of British India is traceable to 
 minimum expenditures for land and labor; fhe latter is even 
 cheaper than in Japan, the daily wage of unskilled labor being 
 from 4 to 8 cents. Moreover, 7,318, or over one-quarter of the 
 27,560 miles of Indian railways are only metre or 3 feet 3f-inch 
 gauge roads and correspondingly cheap in construction. 
 
 The variation in the cost of the railways in Australian colo- 
 
 • 
 
 nies from $34,739 per mile in Queensland to $62,672 in New 
 South Wales is almost wholly a matter of difiference in gauges. 
 Queensland has a standard narrow gauge of 3 feet, 6 inches; 
 South Australia has 507 miles of 5-ft. 3-inch, gauge, and 1,238 
 miles of 3-f t. 6-inch ; New South Wales has a standard gauge 
 of 4-ft. 8^-inch, and Victoria has 78 miles of 2-ft. 6-inch gauge 
 and the balance is of broad 5-ft. 3-inch construction. 
 
 Compared with those of Queensland and South Australia 
 
112 
 
 the capital cost of $45,826 per mile for the narrow 3-ft. 6-in. 
 gauge government railways of New Zealand appears excessive. 
 And this is emphasized by the fact that 1,562 of the 2,406 miles 
 in the colony is laid with steel or iron rails of S3-lb. to the 
 yard or under. 
 
 The advance in the cost per mile of New Zealand railways 
 since 1899 is shown in the following statement: 
 
 Cost of New Zealand Railways. 
 
 
 Cost per Mile. 
 (3-ft. 6-in. Gauge.) 
 
 1899 
 
 $38,225 
 
 1900 
 
 38,755 
 
 1901 
 
 38,546 
 
 1902 
 
 39,734 
 
 1903 
 
 41 083 
 
 1904 
 
 43,717 
 44,516 
 
 1905 
 
 1906 
 
 45326 
 
 
 An increase of $7,280 or nearly 19 per cent, in cost of con- 
 struction per mile in the last five years, without any extra- 
 ordinary work to account for it, would disturb the financial 
 complacence' of any less optimistic organization than the gov- 
 ernment of New Zealand. Between 1901 and 1906 the gross 
 earnings of New Zealand railways increased over 36 per cent, 
 but the percentage of working expenses to earnings rose from 
 65.30 to 69 while the percentage of net earnings to capital fell 
 from 3.47 to 3.24.^ 
 
 It is impossible to reconcile such conditions with the ideas 
 of economical railway management which prevail in the United 
 States. 
 
 The high cost of the narrow gauge (3-ft. 6-inch) railways of 
 the British South African colonies is due to the combination 
 of government construction and the scarcity and consequent 
 high wages of efficient white labor. 
 
 An interesting fact in connection with the capitalization of 
 Canadian railways, which differs materially from their reported 
 cost of construction, is that these two items for the Intercolonial 
 
113 
 
 Railway (the government road) are reported at the same amount, 
 $81,238,728. This is over $54,800 per mile and $1,472 per mile 
 more than the capitalization of the railways of the United 
 States for the same year. 
 
 One thing stands out distinct above all others as the con- 
 clusion to be drawn from this comparative resume of the cost 
 or capitalization of the railways of the world, and that is that 
 the capitalization of the greatest and most efficient system is 
 less per mile than that of any other except those of relatively 
 insignificant extent and traffic. 
 
114 
 
 VIII 
 COST or REPRODUCTION 
 
 Thus far we have considered only the cost of the construc- 
 tion and equipment of the railways of the United States as it 
 appears in their general balance sheet as an offset to their 
 capitalization. In this it has been established to a reasonable 
 certainty that their cost has apparently exceeded their net cap- 
 italization by approximately $1,328,160,000. 
 
 Many students and economists, however, maintain that the 
 true measure of the value of American railways is not in what 
 they have cost, or in their earning power, or what their securi- 
 ties stand for in the open markets of the world, but the sum 
 for which they could be duplicated or reproduced today. If it 
 were possible to secure an appraisement of this so much talke.d 
 of cost of :eproduction by a thoroughly competent, conscien- 
 tious and impartial tribunal, it would go far to correct the pop- 
 ular impression that American railways are overcapitalized. The 
 difficulty would be to secure appraisers with the requisite capac- 
 ity, industry and impartiality. With their experience in the 
 past the railways may well look askance upon any comihission 
 appointed to probe into their affairs. It is common knowledge 
 that in recent 3/ears familiarity with any branch of railway 
 management has been an almost universal disqualification for 
 appointment to any ofificial body charged with the duties con- 
 templated in legislation to regulate railways. It is to the 
 credit of our common citizenship that our railway commissions 
 have in time become as efficient as some of them are. In a 
 matter where it is possible for a United States senator to make 
 a mistake of seven billions in judgment or animus, I care not 
 which, it must be obvious that the appointment of a commis- 
 sion to make an official valuation of the cost of reproducing the 
 railway system of the United States calls for the human wis- 
 dom of an Abraham Lincoln and the almost superhuman mental 
 detachment of a George Washington. 
 
115 
 
 Granting that reasonably competent appraisers could be 
 found and were appointed, they would be confronted with a 
 task whose conditions would grow beyond them no matter 
 how fast they worked, just as the demands of American indus- 
 trial development have outstripped the strained resources of its 
 transportation facilities. Besides taking into consideration the 
 infinite minutiae and staggering aggregate of the business 
 we have been discussing, any such inquiry would have to put 
 a valuation upon the almost priceless advantages of location and 
 terminals of present railway systems separately. These, except 
 as they have been included in transfers of ownership under fore- 
 closure proceedings or in reorganizations, are not represented 
 in the present book cost of the railways. In many instances 
 the terminal rights, facilities and property of existing railway 
 companies are worth as much as their total capitalization. 
 
 Then, there are their "intangible assets." In Texas the Tax 
 Commissioner has valued these at $152,827,760 over and above 
 the $188,600,939 valuation placed on their physical property by 
 the Railroad Commission. 
 
 In his testimony before the Industrial Commission on Trans- 
 portation in 1899, Samuel R. Callaway, then president of the 
 New York Central, testified: 
 
 "I suppose our property in New York is worth more than the 
 entire capital of the road. In fact, you cannot duplicate it for 
 anything." 
 
 Nobody familiar with the New York Central's property in 
 New York City and what it means both to the railway and 
 the people of the United States will doubt the accuracy of Mr. 
 Callaway's statement. The Pennsylvania Railroad is spending 
 over $100,000,000 to secure a terminal by tunnels that will bear 
 any comparison to those obtained by its great rival "for a song" 
 when New York City above 42d street was mostly a picturesque 
 rocky pasture for goats. The original cost of the New York 
 and Harlem Railroad, which included right of way to the heart 
 of the city, seventy years ago was only $2,200,000, or less than 
 $84,000 per mile for its 26 miles of line. 
 
 After it had spent months and probably years to fit itself 
 
116 
 
 for the work such a conscientious Commission would find that 
 it could only conclude its endless task by adopting some law of 
 averages, and applying them with such discretion as it might 
 possess. Any attempt to deal with details would be to emulate 
 the unnecessary labor of Sisyphus with an accumulating mass 
 to which his fabled rock would seem a mere pebble. When 
 completed, while the valuation might be labeled "official," it 
 would be no more capable of demonstration than the following 
 estimate made from the best evidence at the command of a 
 single investigator: 
 
 Cost of Reproduction of the Railways of the United States 
 AS of June 30, 1906. 
 
 Cost of construction 214,475 miles single track at 835,000 per mile. 
 Cost of construction 94,743 miles auxiliary track at $10,000 per mile 
 
 Cost of Equipment 
 
 Block Signals, 50,000 miles 
 
 Cost of Bight of Way, present location and Terminals 
 
 Real Estate, Shops, Tools and Material 
 
 Total 
 
 «7,606,626,000 
 
 947,430,000 
 
 2,760,000,000 
 
 60,000,000 
 
 3,000,000,000 
 
 500,000,000 
 
 $14,773,056,000 
 
 Cost of Construction. 
 
 That the foregoing estimate of $35,000 per mile as the cost 
 of physically constructing the 214,475 miles of single track in 
 the United States is a reasonable one may be judged from the 
 following figures of actual construction by several companies 
 during the past seven years : 
 
 Examples of Cheap, Typical and Expensive Construction in 
 THE United States since 1899. 
 
 location. 
 
 Inexpen- 
 sive 
 
 Typical 
 
 Expensive 
 
 Eastern Road 
 
 Eastern 
 
 $18,300 
 
 $35,000 
 67,892 
 63,600 
 60,112 
 31,678 
 42,949 
 28,000 
 23,730 
 
 $132,532 
 204,809(d) 
 
 Central 
 
 
 Southern 
 
 19,663 
 
 133,533(d) 
 
 Southwest 
 
 
 11,345 
 16,000 
 10,350 
 
 66,771 
 274,000Cd) 
 229,480(d) 
 
 Western 
 
 Northwest 
 
 
 
 $14,931 
 180 
 
 $42,620 
 510 
 
 $173,520 
 67 
 
 Miles represented 
 
 
 
 (d) Double track. 
 
117 
 
 This statement yields the following summary: 
 
 CLASS 
 
 Miles 
 
 Aggregate 
 Coat 
 
 Inexpensive construction 
 
 Typical construction. 
 
 Expensive construction 
 
 Total 
 
 Average per mile 
 
 Less average cost of rigt of way. 
 
 Net average cost of construction. 
 
 180 
 
 510 
 
 67 
 
 $2,687,580 
 21,736,200 
 11,625,840 
 
 757 
 
 336,049,620 
 47,622 
 10,388 
 
 $37,234 
 
 In the statements for the typical roads included in the above, 
 it appeared that the average outlay for right of way was $6,975 
 per mile. If this is deducted from the average cost of these 
 roads it leaves a net average cost of $35,645, which is in sub- 
 stantial agreement with the average as derived from the above 
 combination of the three classes of construction. This, it is 
 submitted, justifies adopting $35,000 as the average cost of con- 
 struction throughout the United States, exclusive of cost of 
 right of way. 
 
 Moreover, it should be said that the most expensive piece 
 of construction brought to the writer's notice in his inquiries, 
 averaging $816,800 per mile, was not included in the above 
 summary, because of its exceptional character, involving ter- 
 minal rights, etc. The cost of getting into any of the larger 
 cities is not included in any of these computations. 
 
 In further substantiation of the basis of accepting $35,000 
 as the basis for estimating the cost of construction in repro- 
 ducing the railways of the United States, the following com- 
 posite statement of expenses of typical single track construc- 
 tion derived from reports of three different railways — ^320 miles 
 represented, is submitted: 
 
118 
 
 Composite Statement of Typical Items. 
 
 ITEM 
 
 Engineering 
 
 Station grounds 
 
 Real estate 
 
 Grading 
 
 Tunnels 
 
 Bridges, trestles and culverts 
 
 Ties 
 
 Ralls. 
 
 Track fastenings 
 
 Frogs and switches 
 
 Ballast 
 
 Track laying and surfacing 
 
 Fencing right of way 
 
 Crossings, cattle guards and signs. . . . 
 Interlocking and signal apparatus. . . . 
 
 Telegraph lines 
 
 Station buildings and fixtures 
 
 Shops, engine houses and turn tables . 
 
 Shop machinery and tools 
 
 Water stations 
 
 Fuel stations 
 
 Electric light and power plants 
 
 Miscellaneous structures 
 
 Legal expenses 
 
 General expenses 
 
 Total. 
 
 Average 
 
 cost per 
 
 mile 
 
 SI, 291 
 
 15,418 
 
 365 
 
 7,226 
 
 2,071 
 
 3,944 
 
 737 
 
 115 
 
 1,490 
 
 2,723 
 
 315 
 
 93 
 
 48 
 
 145 
 
 801 
 
 153 
 
 25 
 
 510 
 
 240 
 
 31 
 
 155 
 
 30 
 
 511 
 
 S38,437 
 
 In order that the reader may perceive for himself where the 
 difference in cost between expensive and inexpensive construc- 
 tion occur.s, the following composite summary has been pre- 
 pared from two sets of returns from each of the classes included 
 in the general summary above: 
 
 Itemized comparative statement of cost of expensive and 
 inexpensive construction derived from the reports of two of 
 each kind: 
 
119 
 
 Cost of' Items in Cheap and Expensive Construction. 
 
 Cheap con- 
 struction, 
 average of 
 21 miles. 
 Cost per mile. 
 
 Expensive 
 
 construction, 
 
 average of 
 
 37 miles. 
 
 Cost per mile. 
 
 Engineering 
 
 Right of way and station grounds , 
 
 Real estate 
 
 Grading 
 
 Tunnels 
 
 Bridges, trestles and culverts 
 
 Ties 
 
 Rails 
 
 Track fastenings 
 
 Frogs and switches 
 
 Ballast 
 
 Track laying and surfacing 
 
 Fencing right of way 
 
 Crossings, cattle guards and signs, . 
 Interlocking and signal apparatus. 
 
 Telegraph lines 
 
 Legal expenses 
 
 General expenses 
 
 Total., 
 
 S830 
 
 4,224 
 
 3,015 
 898 
 
 2,575 
 523 
 106 
 385 
 
 1,703 
 
 161 
 
 60 
 
 120 
 
 21 
 
 Jl 4,615 
 
 SI, 468 
 
 32 
 
 32,702 
 
 1,943 
 
 10,001 
 
 2,124 
 
 4,418 
 
 758 
 
 167 
 
 3,716 
 
 3,710 
 
 550 
 
 175 
 
 172 
 
 26 
 
 684 
 
 S62,646 
 
 In the case of one of the expensive examples the way lands 
 and real estate cost $14,666 per mile and in the other $6,087 — 
 in neither case was terminal rights involved. 
 
 It will not escape notice that in none of these itemized state- 
 ments is full provision made for interlocking and signal appa- 
 ratus or many of the other fixtures and structures now re- 
 garded as indispensable in the construction of a railway of 
 modern efticiency. In the development of the American railway 
 system such things come later — for few of our railv.'ays are 
 completely equipped in these respects before they are opened. 
 Cost of construction is afifected very much more by the nature 
 of the country through which the railway runs than the stand- 
 ard of its structures, although these vary greatly. My informa- 
 tion shows that the inexpensive construction was in compara- 
 tively level localities, with very little of what the engineers call 
 "cross drainage," and consequently a minimum of bridges, tres- 
 tles and culverts. Typical construction traverses a more or less 
 undulating country, or follows a valley of some river crossed 
 by tributary streams involving frequent, but not heavy cuts and 
 
120 
 
 provisions for waterways. It has some rough country requir- 
 ing cuts or fills which swell the item for grading. An exami- 
 nation of the foregoing statements indicates in the differing 
 cost of the items for grading and bridges why some roads cost 
 only $15,000 a mile and others $35,000 and still others over 
 $100,000. When they get into the hills and mountains with 
 cuts, fills and tunnels, or have to invest in heavy masonry or 
 steel structural work the cost soars into the hundreds of thou- 
 sands. 
 
 The general conclusions from the foregoing statements as 
 to cost of construction is borne out by a series of articles in 
 the Railroad Gazette in the fall of 1906, dealing with the "Unit 
 Cost of Railroad Building." Summarized, its examples of cost, 
 "including preliminary surveys, clearing right of- way, roadbed, 
 ties, rails, ballast and side tracks, in shape for operation, but 
 not including real estate, stations, equipment or signals," yield 
 the following data: 
 
 Examples of Cost of Construction. 
 single track. 
 
 Miles. 
 
 location. 
 
 Year. 
 
 Cost per 
 mile. 
 
 12.13 
 9.06 
 15.77 
 12.00 
 4.10 
 30.08 
 10.72 
 
 Te.'cas 
 
 Peimsylvania.. 
 Pennsylvania.. 
 West Virginia. 
 
 Ohio 
 
 Pennsylvania.. 
 West Virginia. 
 
 1904 
 1902 
 1903 
 1904 
 1903 
 1901 
 1903 
 
 $19,649 
 26,300 
 37,014 
 40,000 
 40,700 
 60,628 
 78,000 
 
 93.86 
 
 Average. 
 
 $46,527 
 
 DOUBLE TRACK. 
 
 Miles. 
 
 LOCATION. 
 
 Year. 
 
 Cost per 
 mile. 
 
 11.00 
 3.60 
 
 51.84 
 1.57 
 8.10 
 
 .76.11 
 169.97 
 
 New Y"ork. ... 
 New York. ... 
 
 Ohio 
 
 New York. ... 
 West Virginia. 
 
 1898 
 1903 
 1905 
 1899 
 1903 
 
 $ 50,000 
 
 76,000 
 
 100,000 
 
 105,186 
 
 154,000 
 
 miles. Average cost per mile., 
 miles, Average cost per mile.. 
 
 $97,492 
 $69,430. 
 
121 
 
 In only one Instance does the Gazette give in detail the cost 
 of the road — that of the 12.13 miles in Texas. This road follows 
 the dividing ridge between tvvo Texan streams, with no side hill 
 cuts, considerable filling, with few openings and mostly on level 
 ground; the details of cost are as follows: 
 
 ITEM. 
 
 Cost per 
 mile. 
 
 £ngmeermg 
 
 Grading 
 
 Bridges, trestles and culverts 
 
 Ties 
 
 Rails 
 
 Track fasteniugs 
 
 Frogs_ and switches 
 
 Ballast 
 
 Track laying and surfacing. . 
 Crossings, cattle guards and 
 
 Total 
 
 S £22 
 
 6,363 
 
 3,434 
 
 2,211 
 
 3,101 
 
 462 
 
 97 
 
 2,516 
 
 784 
 
 159 
 
 $19,649 
 
 It will be observed that several items of cost necessary to 
 the completion of this piece of road are omitted from the state- 
 ment, which nevertheless affords an interesting basis for com- 
 parison with those previously given. 
 
 In the same series of articles the Gazette prints the following 
 data respecting quantities and cost of broken stone ballast per 
 mile of track : 
 
 Single track. , 
 Double track, 
 Four track. . . 
 
 Cubic yds. 
 per mile. 
 
 2,323 
 
 4,910 
 
 10,085 
 
 Cost per 
 cubic yd. 
 
 $0,904 
 .904 
 .904 
 
 Cost per 
 mile. 
 
 $2,099.99 
 4,438.64 
 9,116.84 
 
 This agrees with the average cost of ballast where stone 
 is used in the original returns from which the preceding state- 
 ments were compiled. The total cost of ballasting the 309,218 
 miles of track in the United States may be safely estimated at 
 $600,000,000. 
 
 In support of the foregoing may be cited the following state- 
 ment of what it would cost to reproduce the Northern Pacific 
 Railroad from figures filed by that road with the Interstate 
 Commerce Commission in June, 1907: 
 
122 
 
 Estimated Cost to Construct the 5,785 Miles Included in 
 THE Northern Pacific . Railroad System in 1907: 
 
 Cost per 
 mile. 
 
 Engineering (5,785 miles) 
 
 Grading 
 
 Tunnels 
 
 Bridges, trestles and culverts 
 
 Ties 
 
 Rails 
 
 Track fastenings 
 
 Frogs and switches 
 
 Ballast 
 
 Track laying and surfacing 
 
 Fencing right of way 
 
 Crossings, cattle guards and signs . , . . 
 
 Signal apparatus 
 
 Telegraph lines 
 
 Station buildings and fixtures 
 
 Shops, round houses and turn tables. 
 
 Machinery and tools 
 
 Docks and wharves 
 
 Water stations 
 
 Fuel stations 
 
 Warehouses 
 
 Miscellaneous structures 
 
 Seattle terminal facilities 
 
 Ferry equipment 
 
 IjCgal expenses 
 
 General e.^penses 
 
 Interest and discount 
 
 Contingencies 
 
 S 1,500 
 
 12,303 
 
 757 
 
 3,517 
 
 2,387 
 
 4,765 
 
 632 
 
 204 
 
 1,424 
 
 1,309 
 
 131 
 
 £0 
 
 29 
 
 249 
 
 434 
 
 686 
 
 190 
 
 251 
 
 340 
 
 110 
 
 4E8 
 
 397 
 
 425 
 
 106 
 
 50 
 
 SO 
 
 6,159 
 
 2,245 
 
 Total. 
 
 $41,198 
 
 As the Northern Pacific has about i,6oo miles of auxiliary 
 track estimated to have cost $16,000,000, the average cost would 
 be reduced to about $38,000 per mile of line, or $3,000 more than 
 is herein estimated, for the entire country. 
 
 Cost of the Northern Pacific right of way will be considered 
 elsewhere. 
 
 Cost of Auxiliary Track. 
 
 With the exception of a few miles, none of the construction 
 
 included in the compilations from which the average cost of 
 
 building American railways was deduced covered double or other 
 
 track. In the cases cited from the Railroad Gazette, one mile 
 
 of siding was included to every nine miles of single track the 
 
 average cost of which however was $46,527 per mile. My esti- 
 mate of $10,000 per mile for auxiliary track, covering second, 
 
123 
 
 third, fourth, yard track and sidings, is based on returns cover- 
 ing over 400 miles, some of which give instances of additional 
 track construction costing as high as $18,000, $21,000 and $23,000 
 per mile, according as the particular work involved more or 
 less reconstruction of the original main track. Scarcely any of 
 such secondary track work fails to involve some revision of the 
 grades and additional expense on the primary track. One piece 
 of double tracking in the middle west cost $3,350,000, in round 
 numbers, for 335 miles, or $10,000 per mile. Irrespective of all 
 other expenditures incidental to track laying, the following 
 items of everage cost are unavoidable : 
 
 Cost of Standard Items in Auxiliary Track. 
 
 ITEM. 
 
 Cost per 
 mile. 
 
 Grading 
 
 Ties 
 
 Rails (65 lbs. per yard) . . . 
 
 Track tasteuings 
 
 Frogs and switches 
 
 Ballast 
 
 Track laying 
 
 81,700 
 1,300 
 3,200 
 400 
 40 
 1,400 
 1,800 
 
 Total for six items. 
 
 89,840 
 
 As this list is far from exhaustive, or from furnishing a high 
 average piece gf subsidiary track construction, it is safe to 
 estimate the average cost of all descriptions of auxiliary track 
 at $10,000 per mile, or $947,430,000 for the whole railway system 
 of the United States. 
 
 Cost of Reproducing Equipment. 
 
 From what has been previously written in regard to the 
 present cost of railway 'equipment, it is only necessary to say 
 here that it could not be reproduced for less than the average 
 price of locomotives, and passenger and freight cars. Briefly 
 stated, the number and cost of railway equipment of June 30, 
 1906,, was approximately as follows : 
 
 .Locomotives, 51,672 at 812,000. . , 
 Passenger cars, 42,262 at $6,000. , 
 Freight cars, 1,837,914 at $1,000. 
 Work oars, 78,736 at $600 
 
 Total cost. 
 
 $ 620,064,000 
 
 253,572,000 
 
 1,837,914,000 
 
 47,241,600 
 
 $2,758,791,600 
 
124 
 
 That the estimated cost of locomotives is a reasonable one 
 is proved by the following weights and prices of current types 
 of locomotives in 1905 furnished by the Baldwin Locomotive 
 Works company: 
 
 Weight 
 (excluding 
 tender) 
 pounds. 
 
 Cost 
 
 American type 
 
 Atlantic type 
 
 Pacific type 
 
 Ten Wheel type. . . . 
 Consolidation type.. 
 
 102,000 
 187,200 
 227,000 
 156,000 
 192,460 
 
 3 9,410 
 15,750 
 15,830 
 13,690 
 14,500 
 
 Average price. . 
 
 $13,836 
 
 Moreover, the price of locomotives has advanced considerably 
 since 1905, and will continue to advance so long as the cost of 
 labor and material and the unabated demand for more engine 
 power continues. 
 
 As to the cost of passenger cars, their price varies from $4,000 
 
 New All-Steel Postal Car — ^UmoN PAorFic. 
 
 to $14,000 with the ruling average, including postal and baggage 
 cars, rather over $6,000. 
 
 It is pertinent to this discussion to quote the recent decision 
 of Commissioner Lane in a case before the Interstate Commerce 
 Commission involving separate accommodations for white and 
 colored passengers on the Nashville, Chattanooga and St. Louis 
 Railway, where he found that: 
 
 "The cost of the car allotted to negroes was in the neighbor- 
 hood of $8,100, while that of the other passenger coach in defend- 
 ant's No. 93 train was about $8,800. The expense of the small 
 
125 
 
 smoking compartment in the latter accounts for nearly all the 
 difference in cost between the two cars." 
 
 The history of the road to which this case relates is worthy 
 of study for the light it sheds on another phase of this subject.' 
 The construction of the Western and Atlantic Railroad, now 
 leased to the Nashville, Chattanooga and St. Louis Railway, 
 was begun by the State of Georgia under legislative sanction 
 as far back as 1836, but the last rails from Atlanta to Chatta- 
 nooga were not laid until 1851. For a period' of nearly twenty 
 years, rich in vicissitudes and scandals, the state undertook 
 its operation, and finally, in 1870, leased it to a private com- 
 
 IMl,^^, , iMflSm'^W^ 
 
 
 
 
 
 Intebiob of Steel Postal Cab — Union Pacific. 
 (See preceding page.) 
 
 pany at a rental of $300,000 per year, being 6 per cent, on 
 $5,000,000, or $36,232 per mile, the road was said to have cost. 
 In 1890 the road was again leased to the present lessees for 29 
 years at $420,012 per annum, all renewals and improvements 
 made by the lessee. By the arrangement the state is receiving 
 8.4 per cent, on its original investment, or 4.2 per cent, on a 
 
126 
 
 present valuation of $10,000,000 or over $72,000 per mile, with 
 no risk through a depletion of the lessee's revenues in conse- 
 quence of arbitrarily reduced rates. The example is an in- 
 structive one as to the increase in the value of railway right of 
 way in Georgia during twenty years, and indicates what it would 
 cost to reproduce such a road today. 
 
 The cost of freight cars runs from $600 up to $1,200 and 
 $1,400 for the standard 80,000 pound car. Many of the roads 
 are being equipped with steel cars and high grade refrigerator 
 cars. There are standard prices for different parts of freight 
 cars used in settlements between railways which support these 
 figures. For instance: 
 
 Bodies of eight wheel box cars according to length, 32 ft. to 40 ft. or 
 
 over 
 
 Ditto, ventilated, 34 ft. to 40 ft. or over '. 
 
 Bodies of flat cars 32 ft. to 40 ft. or over 
 
 Bodies of drop bottom gondolas according to capacity 
 
 Bodies of hopper bottom gondolas, according to capacity 
 
 Trucks, 25 to 50 tons capacity, per pair 
 
 Trucks with steel or stpel tired wheels, extra per car 
 
 Air brakes 
 
 Steel couplers 
 
 $330.00 to $440.00 
 
 385.00 to 
 
 470.00 
 
 155.00 to 
 
 200.00 
 
 200.00 to 
 
 330.00 
 
 220.00 to 
 
 440.00 
 
 215.00 to 
 
 425.90 
 
 • 
 
 112.00 
 
 27.50 to 
 
 35.00 
 
 8.75 to 
 
 9.50 
 
 When attached to an underframe varying in cost from $ioo 
 to $300, according to material and capacity, these items can be 
 assembled into low and high priced freight caiis as follows: 
 
 Low. 
 
 High. 
 
 Bodies 
 
 Frames 
 
 Trucks 
 
 Steel wheels 
 
 Metal bolsters 
 
 Metal center sills. . 
 
 Air brakes 
 
 Couplers 
 
 S155.00 
 100.00 
 215.00 
 
 27.50 
 
 8.75 
 
 S470.00 
 
 300.00 
 
 425.00 
 
 112,00 
 
 40.00 
 
 40.00 
 
 35.00 
 
 9.60 
 
 Total. 
 
 S506 25 
 
 81,431.50 
 
 Freight cars, like other railway equipment, suffer deprecia- 
 tion to the extent of from 15 to 20 per cent, from manufacturer's 
 cost immediately they are put into service, becoming "second 
 hand" in transit from shop to road. Notwithstanding this fact, 
 it was brought out in one of the many recent investigations that 
 
127 
 
 in 1902 the Berwind-White Coal Company bought 1,000 cars 
 from the Pennsylvania Railroad at $1,187 P^"" car, and refused 
 to sell them back at the same figure. 
 
 It is well within the mark to estimate the cost of reproducing 
 the railway equipment of the United States, as it stood on 
 June 30, 1906, at $2,760,000,000. As it stands today, June 30, 
 1907, it could not be reproduced for less than $3,000,000,000, 
 for, apart from replacements, it has to be increased at the rate 
 
 New Side Opening Subuhban Car — Illinois Centeal. 
 
 of over .10 per cent, a year or it becomes inadequate to the de- 
 mands of American transportation. 
 
 Present Value of Railway Right of Way. 
 
 A scientific valuation of the right of way and real estate 
 of the railways of the United States is an undertaking beyond 
 the resources of the human mind. Like the estimate of the 
 wealth of the United States by the Census Bureau, it must 
 remain an approximation. Mine, as represented in the table of 
 cost of reproduction of American railways, is $3,000,000,000, or 
 about $14,000 per mile of line. If I had the, courage of legitimate 
 deductions from the evidence before me, the average would be 
 $20,000 per mile and the aggregate over $4,400,000,000. 
 
 That the right of way is valuable in proportion to density of 
 population is a recognized principle the world over. But the 
 relation varies according to the character of the population and 
 the use to which the property is or may be put. In seeking 
 for a basis by which to value the right of way I have utilized 
 
128 
 
 this principle as modified by the actual experience of American 
 railways. Happily, the Census Bureau furnishes data regarding 
 the density of population per square mile and the value of land 
 and improvements per acre throughout the United States. Con- 
 crete instances of cost of right of way throughout the United 
 States in recent years warrant the multiplication of the Census 
 valuation by 15 to obtain the price which railways would have 
 to pay for right of way, whether obtained at private sale, as 
 most of it has always been, or by condemnation, as some of it 
 has to be when negotiation fails. 
 
 As so much depends on the reasonableness of this factor, let 
 me explain how it is arrived at. 
 
 To begin with, the Census Bureau average for the whole 
 United States is universal, whereas, the railways have naturally 
 selected their loutes through the most populous and richest 
 territory. The official average is reduced by the low value of 
 real property inaccessible by land or water transportation or 
 
 A Priceless Freight Yard in Chicago's Front Yard. 
 
 through natural causes; the railway average is augmented by 
 the invariable rule of locating roads in the fertile valleys where 
 possible. The law of gravitation has caused the railways to 
 build as near as could be upon the level, which they only leave 
 to follow where man has made land more valuable by his pres- 
 
129 
 
 ence and industry in large numbers. Only when the railway 
 deserts the fields and enters towns and cities is this rule of 
 selecting the most costly route, because it pays, abandoned and 
 the right of way is purchased along the line of the least mone- 
 tary resistance. Even here in some instances it pays to follow 
 the most expensive routes. Vide the Pennsylvania's improve- 
 ments in New York City. 
 
 But it so happens that a majority of the leading railways of 
 the United States secured their present rights of way in and 
 through cities in days when land was comparatively cheap, and 
 populous centers vied with each other in extending inducements 
 to railways to secure the advantages of rail transportation. The 
 difference between the conditions when the railways began 
 obtaining right of way and today is shown in the table of density 
 of population by states in 1830 and 1906. In the United States 
 at large the density is over four times greater now than then, 
 and outside of the original thirteen states it is ten times greater. 
 
 Under all the circumstances it seems that six is a low estimate 
 of the ratio to represent the excess of the value of land traversed 
 by the railways over the average value of land in the United 
 States at large. 
 
 On top of this is the difference between the value of the 
 land and what the railway has to pay for it. Here I have 
 accepted the opinion of the Railroad Commission of Wisconsin, 
 which is that the cost of railways "includes the value of the 
 right of way, yards and terminals at two and one-half times 
 the prices of adjacent real estate." 
 
 Six times two and one-half, or fifteen, therefore, represents 
 the difference between the value of railway right of way and 
 the average value of land throughout the United States. This 
 applied to the figures as supplied by the Census Bureau and 
 by the Interstate Comerce Commission provides the factors for 
 the following table, which shows the density of population 1830 
 and 1906; average value of land per acre; average value of a 
 mile of right of way (12 acres) and value of railway right of 
 way in the United States by states and territories: 
 
130 
 
 Density of Population and Value of Right of Way per Mile 
 IN THE United States. 
 
 Density of 
 
 population 
 
 per sq.uare 
 
 mile. 
 
 1830 1906 
 
 Average 
 
 value per 
 
 acre. 
 
 1904 
 
 Average 
 
 value, 
 
 right of 
 
 way per 
 
 mile 
 
 Total value 
 
 Railway 
 light of way, 
 
 1905 
 
 Alabama 
 
 Arizona .'.... 
 
 Arkansas 
 
 California 
 
 Colorado 
 
 Connecticut 
 
 Delaware 
 
 Florida 
 
 Georgia 
 
 Idaho 
 
 Illinois 
 
 Indian Territory 
 
 Indiana 
 
 Iowa . 
 
 Kansas 
 
 Kentucky 
 
 Louisiana 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan 
 
 Minnesota 
 
 Mississippi 
 
 Missouri 
 
 Montana 
 
 Nebraska 
 
 Nevada 
 
 New Hampshire 
 
 New Jersey 
 
 New Mexico 
 
 New York 
 
 North Carolina 
 
 North Dakota 
 
 Ohio 
 
 Oklahoma 
 
 Oregon 
 
 Pennsylvania 
 
 Rhode Island 
 
 South Carolina 
 
 South Dakota 
 
 Tennessee 
 
 Texas 
 
 Utah 
 
 Vermont 
 
 Virginia 
 
 Washington 
 
 West Virginia 
 
 Wisconsin 
 
 Wyoming 
 
 United States 
 
 6.0 
 
 0.6 
 
 61.4 
 
 39.2 
 
 0.6 
 
 8.8 
 
 2.8 
 
 17.2 
 4.7 
 13.4 
 45.3 
 75.9' 
 0.2 
 
 2.9 
 2.1 
 
 49.9 
 43.0 
 
 40.3 
 15.2 
 
 23.0 
 
 30.0 
 89.6 
 19.3 
 
 16.3 
 
 18.7 
 
 18.7 
 
 6.4 
 
 39 
 
 1 
 
 2V 
 
 11 
 
 6 
 
 209 
 
 99 
 
 11 
 
 42 
 
 2 
 
 97 
 
 17 
 
 76 
 
 40 
 
 20 
 
 58 
 
 34 
 
 24 
 
 123 
 
 379 
 
 45 
 
 25 
 
 37 
 
 49 
 
 2 
 
 14 
 
 04 
 
 48 
 
 292 
 
 2 
 
 173 
 
 42 
 
 7 
 
 109 
 
 15 
 
 5 
 
 155 
 
 460 
 
 48 
 
 6 
 
 52 
 
 13 
 
 4 
 
 38 
 
 49 
 
 9 
 
 45 
 
 41 
 
 1 
 
 28 
 
 13.61 
 
 2.15 
 
 11.82 
 
 2.0 67 
 
 9.61 
 
 275 66 
 
 106.90 
 
 6.36 
 
 14.98 
 
 2.76 
 
 152.58 
 
 11.00 
 
 76.64 
 
 70.03 
 
 21.69 
 
 33.41 
 
 16.84 
 
 22.04 
 
 142.16 
 
 630.42 
 
 54.89 
 
 38.31 
 
 9.42 
 
 50 78 
 
 3.52 
 
 22.10 
 
 1.74 
 
 47.17 
 
 395.15 
 
 1.97 
 
 300 . 08 
 
 12.81 
 
 8.27 
 
 1 29 . 78 
 
 14.49 
 
 8.85 
 
 229.71 
 
 766.48 
 
 12.95 
 
 7.75 
 
 20.90 
 
 9.26 
 
 4.92 
 
 33.38 
 
 28.18 
 
 12.78 
 
 23.70 
 
 47.56 
 
 2.11 
 
 $32.75 
 
 2,448 
 
 384 
 
 2,127 
 
 4,800 
 
 • 1,729 
 
 49,618 
 
 19,242 
 
 1,144 
 
 2,696 
 
 496 
 
 27,464 
 1,980 
 
 13,795 
 
 12,605 
 3,904 
 6f007 
 3,031 
 3,967 
 
 25,588 
 
 113,475 
 
 9,880 
 
 6,895 
 
 1,695 
 
 9,140 
 
 633 
 
 3,478 
 
 313 
 
 8,580 
 
 71,127 
 354 
 
 54,014 
 2,305 
 1,488 
 
 23,360 
 2,608 
 1,593 
 
 41,347 
 
 137,966 
 
 2,331 
 
 1,395 
 
 3,762 
 
 1,666 
 
 886 
 
 6,008 
 
 4,712 
 
 2,300 
 
 4.266 
 
 8,560 
 
 379 
 
 $13.33 
 
 S, 
 31, 
 
 8, 
 50, 
 
 6, 
 
 4, 
 17, 
 
 324, 
 
 5, 
 95, 
 124, 
 34, 
 19, 
 12, 
 
 8, 
 
 36, 
 
 240, 
 
 86, 
 
 65, 
 
 6, 
 73, 
 
 2, 
 23, 
 
 10, 
 
 158, 
 
 450, 
 
 9, 
 
 4, 
 
 266, 
 
 6, 
 
 2, 
 
 456, 
 
 29, 
 
 7, 
 
 4, 
 
 13, 
 
 19, 
 
 1, 
 
 6, 
 
 18, 
 
 7, 
 
 12, 
 
 61, 
 
 $2,800 
 
 ,691,048 
 699,264 
 899,332 
 092,838 
 ,694,196 
 ,511,633 
 446,070 
 108,755 
 ,367,632 
 727,372 
 ,899,120 
 ,223,240 
 ,392,425 
 ,423,9.55 
 ,516,264 
 ,740,645 
 157,341 
 045,076 
 693,909 
 ,454,684 
 83.5,320 
 ,108,836 
 ,225,876 
 ,476,460 
 ,096,251 
 ,203,674 
 369,340 
 ,871,493 
 186,443 
 898,303 
 ,260,704 
 706,165 
 ,812,320 
 ,815,240 
 ,846,000 
 ,888,109 
 ,600,442 
 ,248,792 
 ,.366,960 
 ,278,465 
 ,396,482 
 969,669 
 570,877 
 356,464 
 617,400 
 744,100 
 495,114 
 ,726,160 
 473,236 
 227,984 
 
131 
 
 The District of Columbia has been omitted from^ this signifi- 
 cant table because it has no country area to reduce its urban 
 density to a comparable basis. It is a noteworthy fact, however, 
 that the Census Bureau estimates "the true value of real estate 
 and improvements exclusive of railroads, and telegraph and 
 telephone systems" in the District at $21,620 per acre. A mile 
 of right of waj' in the District, therefore, would cost $259,560 
 and the aggregate value of the 31 miles of right of way in Wash- 
 ington, D. C, would be $8,046,360, to say nothing of railway 
 area in yards and terminals. 
 
 Lest the reader's credulity should be staggered by such fig- 
 ures as these, he should be informed that there is real estate 
 in Chicago upon which a valuation of over $4,000,000 per acre 
 has been put ; that there is one terminal occupying property 
 which, according to the assessed valuation of adjoining prop- 
 erty, is worth over $1,000,000 an acre. There are several other 
 terminals occupying land fully as valuable. Only last spring 
 (1907) the Chicago and Northwestern, in connection with other 
 purchases for its proposed passenger depot, paid $50,000 for a 
 piece of propertj"^ west of the river — that Is outside of the busi- 
 ness center — 80 x 80 feet, or at the rate of nearly $8 per square 
 foot. At the average of 12 acres to the mile of right of way, 
 this would approximate $4,224,000 per mile. 
 
 The same company recently bought an irregular lot in the 
 vicinity of its proposed new terminal, containing 28,000 square 
 feet for $365,000 or $13 per square foot, which is at the rate 
 of $572,000 per acre or $6,864,000 per mile of right of way 100 
 feet wide. This is a trifle less than the price paid this summer 
 for the site of the old Fifth Avenue hotel in New York City. 
 
 Another road, the Chicago and Western Indiana, in order to 
 extend its trackage, has recently paid $75,000 for a strip of land 
 at 26th Street, Chicago, two miles from the Postoffice, contain- 
 ing 17,125 square feet. This is equivalent to $4.40 per square 
 foot or $193,600 per acre. Seventeen years ago the "Atthison, 
 Topeka and Santa Fe in Chicago" sold 2.12 miles of terminal 
 right of way in this territory for $8,000,000 cash. 
 
 Other railways in Chicago have to pay equally high prices 
 for -land. It is not pretended that property so bought is worth 
 
132 
 
 the price paid for it. But these purchases illustrate what the 
 railways have to pay when they go into the market, as quietly 
 as they can, to obtain land necessary to make extensions im- 
 peratively demanded by the public. The Wisconsin Railroad 
 Commission estimates the holdup to be one and one-half times 
 above the value of the property. 
 
 Speaking in round numbers, there are 800 miles of main line 
 and 1,400 miles of auxiliary track within the corporate limits 
 of Chicago. The main line alone represents 9,600 acres, or one- 
 thirteenth of its total area. As the fair value of all real estate 
 in Chicago, exclusive of improvements, is assessed at approxi- 
 mately $1,500,000,000 it is clear that the value of railway right 
 of way would amount to about $115,000,000, or about $144,000 
 per mile of line. The value of land occupied by other tracks, 
 terminals and yards within the city limits is probably as much 
 more. The aggregate would account for a valuation of nearly 
 $20,000 per mile for all railway right of way in Illinois, leaving 
 the rest of Cook County to account for the balance of $7,464 
 as the State's quota is the foregoing table. 
 
 What is true of Chicago and Illinois is true of every other 
 state containing one or several large cities within its borders. 
 
 Let me cite from the Census Bulletin the average value of 
 "real property and improvements" per acre in counties in which 
 cities larger than the national capital are located: 
 
 COUNTY 
 
 Area 
 square 
 miles. 
 
 Land 
 
 value per 
 
 acre. 
 
 1904. 
 
 326 
 
 «29,433' 
 
 993 
 
 3,727 
 
 130 
 
 24,464 
 
 61 
 
 16,785 
 
 51 
 
 37,382 
 
 30 
 
 24,779 
 
 472 
 
 1,915 
 
 1,040 
 
 620 
 
 47 
 
 20,861 
 
 405 
 
 1,967 
 
 758 
 
 2,371 
 
 197 
 
 1,327 
 
 626 
 
 984 
 
 228 
 
 2,871 
 
 60 
 
 21,620 
 
 Land 
 
 value per 
 
 capita. 
 
 1900. 
 
 New York, including King's, New Y'ork, Queen's and 
 
 Richmond 
 
 Cook (Chicago) 
 
 Philadelphia 
 
 St. Louis City 
 
 Suffolk (Boston) 
 
 Baltimore City. 
 
 Cuyahoga (Cleveland) 
 
 Erie (Buffalo) 
 
 San Francisco 
 
 Hamilton (Cincinnati) 
 
 Allegheny (Pittsburg) 
 
 Orleans (New Orleans) 
 
 Wayne (Detroit) 
 
 Milwaukee 
 
 District of Columbia, .Washington 
 
 $1,507 
 
 985 
 
 1,215 
 
 1,020 
 
 1,775 
 
 842 
 
 850 
 
 883 
 
 1,435 
 
 1,196 
 
 1,181 
 
 559 
 
 993 
 
 1,048 
 
 2,678 
 
133 
 
 Moreover, these valuations are "exclusive of property held 
 by railroads, street railways," etc. If the value per acre be 
 multiplied by 12, the average number of acres in a mile of right 
 of way, and the product by 2^ to represent the premiums rail- 
 ways have to pay for property, the reader can have some idea 
 of the present cost of railway properties in large' American 
 cities. 
 
 The general accuracy or understatement of the value of right 
 of way in the table on page 128 is borne out by concrete exam- 
 ples gathered from widely separated sources. 
 
 In one case, $998 per mile was paid for right of way through 
 four counties of a western state having an average. population 
 of 2.5 per square mile. This is a higher average than the table 
 shows for Arizona with i inhabitant per square mile; Idaho 
 with 2; Montana with 2; Nevada with .4; New Mexico with 2; 
 Utah with 4 and Wyoming with i. 
 
 In another case, $1,700 was the average paid per mile for 
 crossing two rural counties of a western state having an aver- 
 age of 24 persons per square mile, and $2,550 for crossing three 
 other counties of the same state having an average of 27 per- 
 sons per square mile. These were comparatively populous 
 counties where the value of right of way was not 'affected by 
 the presence of large cities. Bearing this fact in mind, they 
 may be compared with Alabama, with its average of $2,448 
 valuation per mile; Arkansas with $2,127; Colorado with $1,729; 
 Florida with $11144; Georgia with $2^696; Indian Territory 
 with $1,980.; Mississippi with $1,695 ; North Carolina with $2,305 ; 
 North Dakota with $1,488; Oklahoma with $2,608; Oregon with 
 $1,593; South Carolina with $2,331; South Dakota with $1,395; 
 and Texas with $1,666. 
 
 In a third case, $18,950 per mile was the average paid for 
 building across a county having a population of 112 to the 
 square mile to the outskirts of a large city, which was excluded 
 from the computation for obvious reasons. Had the road been 
 compelled to build another mile into the city its bill for right 
 of way would have been more than doubled, though spread 
 over the whole length of its line across that particular county. 
 
134 
 
 The average for this right of way is only exceeded by that for 
 Connecticut, Delaware, Illinois, Maryland, Massachusetts, New 
 Jersey, New York, Ohio, Pennsylvania and Rhode Island, in all 
 of which the value of railway right of way is enhanced by the 
 high price of urban property through or into which it runs. 
 
 One Chicago road which figured that its "waylands" through 
 the state of Illinois from 1897 to 1907 cost an average of $75 
 per acre or $1,000 per mile of line was confronted with a very 
 different condition when it faced the necessity for the purchase 
 of a mile only 66 feet wide across a 185 acre tract in the environs 
 of Chicago. Here, while it had to pay only $12,000 for the land 
 it needed, its bill for damage to the remainder of the tract was 
 $18,500 and it had to purchase land for a new street laid out 
 through the tract at as much more per acre as it paid for its 
 own right of way, together with the cost of improving the 
 same. So, that one particular mile of "waylands," ^ feet wide, 
 finally stood on the company's purchase account at $53,050, 
 where the 8 acres it actually bought was valued at only $1,500 
 an acre. From this it can be imagined what the railways would 
 have to pay for right of way into terminals in any of the great 
 cities of the Union, were they called upon to do so today. 
 
 The highest price paid by another Chicago road for right of 
 way during the past ten years was $67,000 per mile. Here again 
 the road was already in possession of the real coign of vantage 
 of terminals in all the cities it reaches. 
 
 In proceedings before the New Jersey State Board of Equali- 
 zation of Taxes it was recently testified that the railroads owned 
 600 acres of upland and 600 acres of submerged lands on the 
 shore line of Hudson County which chiefly consists of Jersey 
 City. Some of this property was assessed as high as $41,000 
 per acre, when the average value of all real property in the 
 county according to the Census Bureau was only $11,452. Even 
 at the average estimate, railroad right of way in Jersey City 
 would be worth at least $13,000,000. In 1904 Professor Henry C. 
 Adams estimated the value of the Pennsylvania Railroad ferry 
 property in Jersey City for the Census Bureau at $5,698,000. 
 
 In further illustration of this point it may be mentioned that 
 
135 
 
 the three terminals of the Atlanta, Birmingham and Atlantic 
 Railroad at Atlanta, Birmingham and Brunswick, which have" 
 been secured, will cost approximately $7,500,000. 
 
 In fact today the cost of access to the coveted centers of the 
 great cities is so nearly prohibitory that only some such wealthy 
 system as the Pennsylvania has the means and daring to essay 
 it. This prohibitive cost of terminals accounts for the fact that 
 twenty-four roads focussing in Chicago possess only six pas- 
 senger stations among them. This means that a majority of 
 them gain entrance to the greatest railway center in the world 
 over trackage rights or common ownership. It is impossible 
 to capitalize these trackage rights, but it is evident that they 
 represent a railway asset only second to the actual ownership 
 of the terminals in the proprietary roads. 
 
 Some idea, however, of the value of these rights at terminals 
 may be formed from the fact that the New York, New Haven 
 and Hartford Railroad this year paid $798,076 rental to the New 
 York and Harlem road for twelve miles of trackage rights from 
 ■Woodlawn to the Grand Central Station, under a lease made in 
 perpetuity in 1848. Capitalized at 4 per cent, this represents 
 nearly $20,000,000 or $1,662,000 per mile. When it is considered 
 that the cost of the original New York and Harlem Railroad 
 from the City Hall to White Plains (26 miles) was only $2,200,- 
 000 sixty years ago the enormous advance in the value of ter- 
 minal rights then acquired or donated to the early railways 
 becomes apparent. 
 
 A foreclosure sale valuation of $362,694 per mile was recently 
 put on the property of the Wheeling Terminal Railway which 
 owned a bridge and about 10 miles of terminal track at Wheel- 
 ing, W. Va. 
 
 Reverting to the statement of present cost filed by the North- 
 ern Pacific Railroad with the Interstate Commerce Commission 
 already referred to, it contained a summary of value of right of 
 way and station grounds at large terminals fully confirming the 
 foregoing estimates and deductions. This summary was as 
 follows : 
 
136 
 
 Value of Right of Way and Stations of Northern Pacific 
 
 Railroad. 
 
 LARGE terminals 
 
 Acres. 
 
 Total value. 
 
 Superior 
 
 Duluth 
 
 Duluth Union Depot 
 
 St. Paul 
 
 Minneapolis 
 
 Spokane 
 
 Tacoma 
 
 Seattle 
 
 Butte 
 
 Everett 
 
 Bellingham 
 
 South Bend 
 
 Aberdeen and Hauquaim.. 
 
 982.62 
 
 600.91 
 
 6.94 
 
 676.97 
 
 284.61 
 
 422.31 
 
 680.84 
 
 461.03 
 
 233.76 
 
 124.68 
 
 67.86 
 
 35.63 
 
 69.83 
 
 $1,552,020 
 
 5,155,204 
 
 420,625 
 
 9,574,177 
 
 5,065,082 
 
 7,240,293 
 
 12,160,000 
 
 30,167,000 
 
 2,000,000 
 
 374,040 
 
 339,300 
 
 249,419 
 
 698,300 
 
 Total large terminals. 
 
 Other right of way and station grounds . 
 Total 
 
 4,637.99 
 
 152,185.00 
 
 875,000,501 
 
 31,889,589 
 
 $186,822.99 
 
 Value per acre 
 
 Acres per mile of line . 
 Valiie per mile of line. 
 
 $106,890,090 
 
 $681 
 .27.11 
 $18,477 
 
 This statement indicates how far within the mark is njy 
 estimate of $14,000 as the average value of railway right of 
 way per mile in the United States based on the assumption that 
 "waylands" 100 feet wide would cover not only main line but 
 land for auxiliary tracks, sidings, yard tracks and station 
 grounds. Applied to the whole country the averages for the 
 Northern Pacific would support an estimate of $20,000 per mile, 
 or more than $4,400,000,000 as the present value of the right of 
 way and station grounds of the railways of the United States. 
 
 Touching the justice of including the present value of their 
 possessions in any estimate of the cost of reproducing the 
 railways^ of the United States the Railroad Commission of Wis- 
 consin, owing its appointment to Senator La Follette, has ad- 
 mitted that: 
 
 "It can perhaps be said that the owners of railroad property 
 are entitled to any increase in the value of their property that 
 may accrue from the progress of the territory in which it lies, 
 and that they have as much right to the natural increments in 
 
137 
 
 the physical value of their property as the owners of any other 
 property.'" 
 
 If the Commission had been entirely just it would have gone 
 further and said there was no "natural increment" about the in- 
 crease in the value of railway property to which they have not 
 contributed by far the greater share. Without the railways 
 built in Wisconsin since 1850 the increase of the wealth of Sena- 
 tor La Follette's state from $42,056,595 in that year to $2,838,- 
 678,239, or over 6,650 per cent, would have been as impossible 
 as, looking backwards, it seems incredible. 
 
 There has been no "unearned increment" about the advance 
 in the value of the physical property of the railways. 
 
 It is needless in such a work as this to more than remind 
 the reader that the increase in land values has not been con- 
 fined to the cities, but has its counterpart throughout the coun- 
 try. One example will suffice to illustrate this point. The late 
 William (Lord) Scully, of absentee landlord fame, bought farm 
 lands in Illinois in 1851 from the government at $1.25 per acre 
 which he rented in 1900 at $3 per acre per annum. 
 
138 
 
 IX 
 COMMERCIAL AND MARKET VALUATION 
 
 In 1905 the Statistician of the Interstate Commerce Commis- 
 sion, Professor Henry C. Adams, as the authorized agent of the 
 Census Bureau, reported what has been currently known as 
 the "Commercial Valuation of Railway Operating Property in 
 the United States." This report, which was made as "one step 
 in the determination of the wealth of the nation," placed the 
 value of railway operating property, computed for the year 
 1904, at 
 
 $11,244,852,000. . 
 
 This valuation was arrived at by capitalizing what was called 
 "their true net earnings" at a rate arrived at by an elaborated 
 formula based on "the market price of their securities." 
 
 In his computation for the Census Bureau, Professor Adams 
 very wisely freed himself from all the "entangling alliances" 
 and duplications arising from including "non-operating" with 
 operating raihvays in his statistical work for the Interstate 
 Commerce Commission. By adopting the "operating railway 
 systems as the units of appraisal," as expressed by the Director 
 of the Census, he was enabled to arrive at a result the value of 
 which depends solely on the acceptance of two elusive factors, 
 viz., "true net earnings," and the rate determined on for their 
 capitalization. 
 
 Professor Adams arrived at the former by subtracting reported 
 operating expenses, less such sums as were spent for permanent 
 improvements and charged to operating expenses, from gross 
 earnings from operatibn. From the remainder he subtracted 
 the amount of taxes paid. The final balance was accepted as 
 the true prolu from operation. 
 
 This afforded a very simple formula, but an attempt was made 
 to equalize the result by taking the average of profits from 
 operation of certain roads for five years, and of others for three, 
 
139 
 
 and estimating the value of others on mileage, gross earn- 
 ings, operating expenses, etc. 
 
 With the aid of Professor B. H. Meyer, of the Railroad Com- 
 mission of Wisconsin, Professor Adams arrived at 4.256 per 
 cent, as the exact rate for the capitalization of the "true net 
 earnings" as previously ascertained. 
 
 By supplementing these methods with others to meet iso- 
 lated cases. Professor Adams and his assistants compiled the 
 following statement of the commercial value of the railways of 
 the United States for the year 1904 (Vide Census Bulletin 21, 
 page 9) : 
 
 Valuation. 
 
 Per cent of 
 
 
 total. 
 
 «10,385,264,000 
 
 92.35 
 
 705,418,000 
 
 6.27 
 
 87,23,5,000 
 
 .78 
 
 11,288,000 
 
 .10 
 
 2,828,000 
 
 .03 
 
 .5,755,000 
 
 .06 
 
 22,871,000 
 
 .20 
 
 1,816,000 
 
 .02 
 
 22,318,000 
 
 .20 
 
 59,000 
 
 
 
 
 »11,244,852,000 
 
 100.00 
 
 Capitalisation of net earnings: 
 
 (a) Rate based on market quotationi 
 
 (b) Rate based on formulae 
 
 Operated mileage 
 
 Gross earnings 
 
 Operating expenses 
 
 Cost of construction, etc 
 
 Some or all of debt. . . . . , 
 
 Appraisal for taxation 
 
 Income from lease 
 
 Actual sale of entire property 
 
 Total 
 
 As this valuation rests on "the capitalization of the average 
 net earnings for a period of five years preceding June 30, 1904," 
 it is obviously a valuation for 1901-2 rather than for 1904. As 
 the net earnings of the railways from operation in 1904 were 
 $42,585,342 greater than the average for the five year period 
 preceding, it is equally obvious 'that using the rate determined 
 on, viz., 4.256 per cent., the capitalized value of the railways 
 would have been almost exactly $1,000,000,000 more than as 
 estimated on the period named. 
 
 Now if the method of valuation of Professors Adams and 
 Meyer be applied to the earnings for the year ending June 30, 
 1905, and estimating the cost of permanent improvements 
 charged to operating expense, we obtain the following: 
 
140 
 
 Commercial Value, 1905. 
 
 Gross earnings from operation 
 
 Expenses of operation 
 
 Less permanent improvements charged to operating expen- 
 pense 
 
 Income from operation. 
 Less taxes 
 
 "True net earnings" 
 
 Capitalized at 4.256%= . 
 
 81,390,602,152 
 20,000,000 
 
 82,082,482,406 
 
 1,370,602,152 
 
 S 711,880,254 
 63,474,679 
 
 S 648,405,575 
 
 816,235,093,400 
 
 If the same methods were applied to the railway income for 
 the year ending June 30, 1906, the results would be still more 
 surprising, as the following statement shows: 
 
 Commercial Value, 1906. 
 
 Gross earnings from operation 
 
 Expenses of operation 
 
 Less permanent improvements charged to operating expense 
 
 Income from operation. . 
 Less taxes 
 
 "True net earnings". ... 
 Capitalized at 4.256% = . 
 
 81,636,877,271 
 20,000,000 
 
 $2,325,765,167 
 
 1,516,877,271 
 
 8808,887,896 
 74,785,615 
 
 8734,101,281 
 8X7,248,620,000 
 
 If the formula adopted by Professors Adams and Meyer and 
 accepted by the Census Bureau is entitled to credit, the com- 
 mercial value of the railways of the United States on June 30, 
 igo6, was approximately $17,248,620,000. 
 
 Even if the rate 4.256 be applied to the average "true net 
 earnings" of the last period of five years, 1902 to 1906, inclusive, 
 the commercial value according to the official formula would 
 be approximately $i4,840,ooo;ooo. This of course is a mean 
 commercial value for the terril of years and not at the end of 
 the term when the "true net earnings" were fully $232,000,000 
 more than at the beginning. 
 
 When the returns for 1907 are all in it will be found that 
 the commercial value of the railways of the United States ac- 
 cording to thf formula adopted by the Census Bureau is over 
 $19,000,000,000. 
 
 But it must be obvious to the most casual student that this 
 
141 
 
 so-called commercial valuation of the railways is merely a cap- 
 italization of the earning capacity of the railways, which must 
 rise and fall with the prosperity of the public they serve. In 
 no way does it go to establish "the value of the transportation 
 plant employed in the service of that public." 
 
 The sole purpose for which a separate valuation of the physical 
 property of the railways is sought by the Interstate Commerce 
 Commission is that it inay be used in "determining the reason- 
 ableness or unreasonableness of rates." As this commercial 
 valuation depends absolutely on income arising from the rates, 
 even Professor Adams admits "that such a valuation cannot be 
 used" for that purpose. 
 
 That it could be and would be used as a basis of values in 
 case the Government were considering the purchase of railways 
 is indicated by the procedure adopted in Germany and Japan. 
 
 Market Value of the Railways. 
 
 Little need be said of the value of the railways of the United 
 States as reflected in daily market quotations. These are affected 
 by influences so entirely independent of the value of the rail- 
 ways, and often so independent even of their income earning 
 capacity, as to be practically worthless as a measure of value. 
 
 In 1900 when the net capital of the railways of the United 
 States was $9,547,984,611, the Interstate Commerce Commission 
 made a report of their market value to the Senate as follows: 
 
 Ascertainable market value, . . 
 Not ascertainable (par value). 
 
 Total. 
 
 $8,351,103,523 
 812,066,859 
 
 J9,163,170,382 
 
 In short, in 1900 the market value of railway securities was 
 96 per cent, of their net capitalization. In 1905 their net cap- 
 italization had risen to $11,167,105,992 and on a basis of 96 
 per cent, their market value would have been approximately 
 $10,720,420,000.' 
 
 But between 1900 and 1905 the quoted market value of rail- 
 way securities had advanced ah average of 20 per cent» making 
 their market value two years ago approximately $12,864,500,- 
 oOo. 
 
142 
 
 In 1906 there was a further increase both in the capitalization 
 and market value of railway securities, so by the end of last 
 year it is gaic to estimate the latter at $13,000,000,000. 
 
 Then came the great decline of last March which in the 
 course of a few weeks demonstrated the utter worthlessness of 
 market prices as a measure of the values of railway property. 
 With every railway in the country in better physical condition 
 than ever before in its history; with their facilities taxed to 
 the utmost by unprecedented traffic; with gross earnings sur- 
 passing all records and net earnings showing a healthy increase; 
 with the business of the republic betraying no signs of a reces- 
 sion — in the face of the most favorable conditions — so far as 
 railway earnings were concerned — the market value of their 
 securities in six months showed a shrinkage on June 30, 1907, 
 of no less than $2,000,000,000. 
 
 That this decline of two billions is not a mere estimate is 
 proved by the fact that the shares of 54 companies having an 
 aggregate capital stock of $4,481,400,000 showed an actual 
 shrinkage of $1,361,505,000 in market value in the •first six 
 months of 1907. This is equivalent to a decline of over 30 per 
 cent. If the remainder of the capital stock suffered a like de- 
 cline it would amount to no less than $1,966,000,000 for all the 
 railways. As there was a shrinkage of over 6 per cent, in the 
 market values of railway bonds aggregating at least $360,000,000, 
 the total decline in the market values of railway securities must 
 have been fully $2,300,000,000. 
 
 Any measure of values liable to a shrinkage of from 15 
 to 20 per cent, in the face of an increase in the physical, com- 
 mercial, taxable and earning value of the railways must be 
 rejected as valueless in ascertaining their true valuation. 
 
 Furthermore, in igoo when the Interstate Commerce Com- 
 mission reported its estimate of $9,163,170,382 as the market 
 value of all the railways to the United States Senate, it reported 
 the net interest and dividends paid by the railways as fol- 
 lows : 
 
143 
 
 Net interest on funded debt. , . 
 Interest on current liabilities. . 
 Net dividends 
 
 Total. 
 
 $242,998,285 
 
 4,912,892 
 
 118,624,409 
 
 S366,535,.5S6 
 
 This sum is an inappreciable shade over 4 per cent, on the 
 market value as reported by the Commission. 
 
 In 1905 and 1906 the railways reported the payment of inter- 
 est and dividends under the same heads as follows: 
 
 Net interest on debt 
 
 Interest on current liabilities. 
 Net dividends 
 
 Total. 
 
 1905 
 (Full Returns). 
 
 $294,80.3,884 
 
 11,451,400 
 
 188,176,151 
 
 11(494,430,435 
 
 1906 
 
 (94% Returns). 
 
 8252,572,777 
 
 13,819,287 
 
 , 221,507,203 
 
 8487,899,267 
 
 Capitalized at 4 per cent., the rate fixed in the Commission's 
 report in 1900 the net interest and dividends paid in 1905 would 
 justify a market valuation for that year of approximately $12,- 
 360,000,000 and in 1906 for 94 per cent, of the roads of $12,197,- 
 000,000. 
 
 But as market values as revealed in daily stock quotations 
 are influenced as much by the price of money in London as by 
 the earnings or true value of American railways such estimates 
 as these possess little more than a speculative interest, except 
 as they afford cumulative testimony to the point that American 
 railways are not over capitalized. 
 
 If the prevailing rate of interest were ever to go to 8 per 
 cent., where it was when many of our railways were projected, 
 the market value of American railways would shrink nearly 
 50 per cent., but that would not affect their cost, true value, or 
 capitalization. It would only make it more difficult for them 
 to provide adequate service for the American people. 
 
 The difficulty with the railways today, then, is not over- 
 capitalization, but where to get more capital to enable them to 
 keep pace with the business demands made upon them. With 
 Boston, New- York City and New York State failing to float 
 4 per cent, bonds at par, and the railways forbidden to go near 
 the "water," the prospect for necessary improvements and ex- 
 tensions is very dry indeed. 
 
144 
 
 VALUATION AS ESTABLISHED BY TAXATION 
 
 In the year 1904 the "estimated true value of all property" 
 in the United States as set forth by the Director of the Census 
 was 
 
 $107,104,192,410. 
 
 In this total was included for "Railroads and their Equip- 
 ment" exclusive of "railroads which in certain states are classed 
 as real property" the sum of 
 
 $11,244,752,000, 
 
 being just $100,000 short of the commercial value of railway 
 operating property compiled for the Census Bureau by Profes- 
 sor Henry C. Adams, the statistician of the Interstate Commerce 
 Commission. 
 
 For 1904 the Census Bureau found that the "assessed valua- 
 tion of all property (real and personal) subject to ad valorem 
 taxation" in the United States was $38,963,381,120, or only 
 36.4 per cent, of the estimated true value of all property in the 
 country as given above. (See diagram next page.) 
 
 If the railway property included in the major total had been 
 assessed on the same basis as all property, its assessed valua- 
 tion, exclusive of that classed as real property in certain states, 
 would have been $4,095,089,7.28. 
 
 Now it so iiappens that Professor Adams in submitting his 
 report on the commercial value of the railways for the Census 
 Bureau in 1904 presented a table which he called "A compari- 
 son between the Actual Commercial Value of Railway prop- 
 erty devoted to transportation and the latest reported values of 
 railway property assessed for purposes of taxation in various 
 states and territories." For some unexplained reason no less 
 than seven states, including three of the most important, were 
 omitted entirely from the table. Incomplete as it was this table 
 showed that the railway property assessed for taxation amounted 
 
145 
 
 Diagram and Table. 
 
 Estimated True Value of All Property, and Assessed Valuation of Portion 
 Subject to Ad Valorem Taxation for Each State and Territory, 1904; 
 vide "Wealth, Debt and Taxation," Official Reports of the Census Office, 
 1907, pages 28 and 41. 
 
 HUNDREDS OF MILLIONS OF DOLURS 
 
 New YORK 
 
 PtHHSTLVANtA 
 ■LLINOII 
 
 HASSACHUBETTS 
 OALIFOnHIA 
 
 MINNESOTA 
 MICHIOAN 
 HEW JERSEY 
 INDIANA 
 WIGCONSIH 
 
 NEBRASKA 
 
 MARYLAND 
 
 OONNEOTIOUT 
 
 VIRDINIA 
 
 CDLORADO 
 
 OEORaiA 
 
 TENNESSEE 
 
 WABHINOTON 
 
 DIST.OP COLUMBIA 
 
 LOUISIANA 
 
 ALABAMA 
 
 NORTH OAROLINA 
 WEST VIROIHIA 
 ARKANSAS 
 RHODE ISLAND 
 
 MONTANA 
 'NORTH DAKOTA 
 MISSISSIPPI 
 SOUTH DAKOTA 
 OKLAHOMA 
 SOUTH CAROLIHA 
 
 INDIAN TERRITORY 
 
 VERMONT 
 
 IDAHO 
 
 NEW MSXIOO 
 
 WYOMINQ 
 
 Estimated true 
 
 value of all 
 
 property. 
 
 Assessed valuation 
 
 of portion subj ect 
 
 to taxation. 
 
 United States.... 
 
 New York 
 
 Pennsylvania. . . . 
 
 Illinois.... 
 
 Ohio 
 
 Massachusetts. . . . 
 
 California 
 
 Iowa 
 
 Missouri 
 
 Minnesota 
 
 Michigan 
 
 New Jersey 
 
 Indiana 
 
 Wisconsin 
 
 Texas..-. 
 
 Kansas 
 
 Nebraska 
 
 Kentucky 
 
 Maryland 
 
 Connecticut 
 
 Virginia 
 
 Colorado 
 
 Georgia 
 
 Tennessee 
 
 Washington 
 
 Dist. of Columbia 
 
 Louisiana' 
 
 Alabama 
 
 Oregon 
 
 North Carolina . . 
 West Viginia .... 
 
 Arkansas 
 
 Rhode Island.. . . 
 
 Maine 
 
 Montana 
 
 North Dakota . . 
 
 Mississippi 
 
 South Dakota'. . . 
 
 Oklahoma. ._ 
 
 South Carolina, , . 
 New Hampshire . 
 
 Utah 
 
 Indian Territory 
 
 Florida 
 
 Vermont 
 
 Idahri 
 
 New Mexico 
 
 Wyoming 
 
 Arizona 
 
 Delaware 
 
 Nevada 
 
 Estimated True 
 
 Value of all 
 Property, 1904. 
 
 S107,104,192,410 
 
 14,769,042,207 
 
 11,473,620,306 
 
 8,816,586,191 
 
 6,946,969,466 
 
 4,956,578,913 
 
 4,115,491,106 
 4,048,516,076 
 3,759,697,461 
 3,343,722,076 
 3,282,419,117 
 
 3,236,619,973 
 3,105,781,739 
 3,838,678,239 
 2,836,322,003 
 2,253,224,243 
 
 2,009,563,633 
 1,527,486,230 
 1,611,488,172 
 1,414,635,063 
 1,287,970,180 
 
 1,207,542,107 
 1,167,446,671 
 1,104,223,979 
 1,061,671,432 
 1,040,383,173 
 
 1,032,229,006 
 965,014,261 
 852,053,232 
 842,072,218 
 840,000,149 
 
 803,907,972 
 799,349,601 
 775,622,722 
 746,311,213 
 736,802,909 
 
 688,249,022 
 679,840,939 
 636,013,700 
 585,863,222 
 616,789,204 
 
 487,768,616 
 459,021,355 
 431,409,200 
 360,330,582 
 342,871,863 
 
 332,262,650 
 329,672,241 
 306,302,305 
 230,260,9Y6 
 220,734,607 
 
 Assessed Valuation of 
 all Property subject to 
 Ad Valorem Taxation. 
 
 Total 
 
 % 38,963,381,120 
 
 7,7,38,165,639 
 3,676,796,517 
 1,087,844,331 
 2,113,806,168 
 3,261,793,834 
 
 1,548,698,785 
 642,445,336 
 
 1,380,246,430 
 857,796,773 
 
 1,728,712,850 
 
 1,055,669,790 
 1,532,896,640 
 1,359,098,346 
 1,082,781,329 
 372,673,858 
 
 294,779,246 
 700,881,240 
 680,743,794 
 690,896,142 
 637,032,099 
 
 342,170,703 
 630,894,765 
 428,715,337 
 298,845,507 
 235,233,101 
 
 361,018,941 
 326,173,663 
 188,058.281 
 442,418,677 
 275,275,936 
 
 249,779,108 
 444,144,066 
 366,514,014 
 201,748,063 
 169,606,057 
 
 269,490,396 
 214,239,028 
 90,609,073 
 209,691,693 
 274,902,447 
 
 132,756,900 
 
 117,064,840 
 
 168,011,776 
 
 20,613,661 
 
 42,566,000 
 46,696,949 
 46,069,645 
 71,145,422 
 36,270,135 
 
 Per 
 Cent. 
 
 36.4 
 
 52.4 
 32.0 
 12.3 
 35.5 
 65.6 
 
 37.6 
 15.9 
 36.7 
 25.7 
 52.7 
 
 32.6 
 49.4 
 47.8 
 38.2 
 16.5 
 
 14.7 
 46.9 
 45.0 
 48.8 
 41.7 
 
 28.3 
 44.5 
 38.8 
 28.4 
 22.6 
 
 34.0 
 33.8 
 22.1 
 62.5 
 32.8 
 
 31.1 
 55.6 
 47.3 
 27.0 
 21.7 
 
 39.2 
 31.5 
 14.2 
 35.8 
 63.2 
 
 27.2 
 
 27.1 
 46.6 
 20.6 
 
 12.8 
 14.2 
 14.7 
 30.9 
 16.4 
 
146 
 
 to $3,027,144,820. It has been computed from such figures as 
 are available that the assessed values of the railway property 
 in the omitted states compared with their Commercial Value as 
 found by Professor Adams were as follows: 
 
 Estimated 
 
 Assessed Value 
 
 1904. 
 
 Commercial 
 Value 
 1904. 
 
 Delaware 
 
 Maine 
 
 Maryland 
 
 Massachusetts. 
 
 Minnesota 
 
 Oregon 
 
 Pennsylvania 
 
 Indian Territory. . 
 
 »10,153,500 
 
 • 49,038,900 
 
 57,919,200 
 
 307,076,600 
 
 301,567,600 
 
 40,336,700 
 
 517,101,312 
 
 6,662,900 
 
 $ 17, 
 
 80, 
 
 132, 
 
 250, 
 
 466, 
 
 75, 
 
 1,420, 
 
 79, 
 
 ,285,000 
 146,000 
 342,000 
 0.52,000 
 ,734,000 
 ,661,000 
 ,608,000 
 ,405,000 
 
 Total. 
 
 81,289,856,712 
 
 *2,522,233,000 
 
 This enables us to arrive at the following approximation of 
 the assessed valuation of the railways of the United States : 
 
 Assessed valuation as found by Professor Adams, 
 Assessed value for States omitted 
 
 $3,027,144,820 
 '1,289,856,712 
 
 84,317,001,532 
 
 If the proportion of 36.4 per cent, between assessed value and 
 true value of all property in the United States be correct, this 
 table approaches a demonstration that the true value of all 
 railway property of the United States in 1904 was 
 
 $11,841,589,000. 
 
 That this estimate is not far astray is proved by the fact that 
 in 1905, the year when taxes were paid on this assessment, the 
 railways of the United States paid $63,324,551 in taxes, or 
 slightly over 53 cents on the $100, which is precisely the tax 
 rate applied to the true value in Texas as found by the Census 
 Bureau. 
 
 That it should approach so nearly to their value in 1904 for 
 commercial purposes, as estimated by the official statistician, 
 is strongly corroborative that their actual value is in excess 
 of either aggregate. It is safe to say that there is not another 
 great indu.stry in the country, where the return on invested 
 
147 
 
 capital is so small, which pays such a large proportion of its 
 net earnings in taxes, amounting in the days of its greatest 
 prosperity to over 12 per cent. 
 
 Moreover rhese figures of value of railway property assessed 
 for the purposes of taxation are exclusive of the almost price- 
 less railroad i^roperty assessed in New York and New Jersey 
 as real estate. As the New York Central alone in 1906 paid 
 $2,924,593 for taxes on real estate out of a total of $4,126,984, 
 it is evident that the assessed value of railway real estate in 
 New York must have been at least $300,000,000 and last year's 
 railway taxes in New Jersey show that railway real estate in 
 that state must have had an assessed value of over $75,000,000. 
 As the assessed value of all property in New York is 52.4 per 
 cent, of the true value and in New Jersey 32.6 per cent., these 
 two items alone would add over $800,000,000 to the value of 
 railway property as established on the basis of taxable values 
 in the Unite.I States, making an aggregate total of 
 
 $12,641,589,000. 
 
 In order that the student may appreciate the varied con- 
 ditions as to taxation which confront the railways in the various 
 states of the Union, the following table presents the facts as 
 to their mileage, assessed value for taxation, total taxes paid 
 and per mile in the several states from the latest official re- 
 turns, except as noted, where they were computed: 
 
148 
 
 Railway Assessment and Taxes. 
 
 Mileage 
 1905. 
 
 Assessed for 
 
 taxation 
 
 1904. 
 
 Taxes paid 
 1905. 
 
 Per cent 
 of tax on 
 
 value. 
 
 Tax rate 
 per SlOO of 
 
 estimated 
 true value. 
 
 Alabama 
 
 Arkansas 
 
 California 
 
 Colorado 
 
 Connecticut 
 
 Delaware 
 
 Florida 
 
 Georgia 
 
 Idaho 
 
 Illinois 
 
 Indiana 
 
 Iowa 
 
 Kansas 
 
 Kentucky 
 
 Louisiana 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan 
 
 Minnesota 
 
 Mississippi 
 
 Missouri 
 
 Montana 
 
 Nebraska 
 
 Nevada, 
 
 New Hampshire 
 
 New Jer.sey 
 
 New York '. . 
 
 North Carolina 
 
 North Dakota 
 
 Ohio 
 
 Oregon 
 
 Pennsylvania 
 
 Rhode Island 
 
 South Carolina 
 
 South Dakota 
 
 Tennessee 
 
 Texas 
 
 Utah 
 
 Vermont 
 
 Virginia 
 
 Washington 
 
 West Virginia 
 
 Wisconsin 
 
 Wyoming 
 
 Arizona 
 
 District of Columbia, 
 
 Indian Territory 
 
 New Mexico 
 
 Oklahoma 
 
 United States 
 
 Assessed as real estate in N 
 Assessed as real estate in N 
 
 Total assessed value . . 
 
 4,776 
 
 4,183 
 
 6,477 
 
 5,027 
 
 1,018 
 
 335 
 
 3,590 
 
 6,442 
 
 1,465 
 
 11,830 
 
 6,915 
 
 9,871 
 
 8,841 
 
 3,286 
 
 4,011 
 
 2,028 
 
 1,434 
 
 2,119 
 
 8,789 
 
 7,992 
 
 3,672 
 
 8,039 
 
 3,309 
 
 6,833 
 
 1,180 
 
 1,287 
 
 2,224 
 
 8,336 
 
 4,210 
 
 3,233 
 
 9,259 
 
 1,813 
 
 11,043 
 
 212 
 
 3,160 
 
 3,067 
 
 3,561 
 
 11,983 
 
 1,774 
 
 1,058 
 
 3,950 
 
 3,367 
 
 2,929 
 
 7,211 
 
 1,247 
 
 1,821 
 
 32 
 
 2,638 
 
 2,534 
 
 2,625 
 
 217,017 
 ew York . 
 ew Jersey 
 
 353,926,026 
 
 34,709,623 
 
 92,378,5.50 
 
 49,492,135 
 
 120,493,648 
 
 10,153,500 
 
 21,817,478 
 
 63,105,810 
 
 10,115,378 
 
 425,709,055 
 
 165,863,367 
 
 .57,535,160 
 
 60,093,534 
 
 77,6,58,040 
 
 29,044,195 
 
 49,038,900 
 
 57,919,200 
 
 307,076,600 
 
 196,795,000 
 
 301,567,600 
 
 29,847,640 
 
 97,916,869 
 
 36,759,827 
 
 ' 46,082,853 
 
 13,778,049 
 
 22,625,000 
 
 231,655,525 
 
 229,582,064 
 
 69,480,974 
 
 22,160,304 
 
 133,858,945 
 
 40,336,700 
 
 517,101,312 
 
 15,832,003 
 
 29,467,716 
 
 14,354,930 
 
 58,536,566 
 
 95,209,785 
 
 20,682,461 
 
 27,344,020 
 
 63,269,623 
 
 26,066,949 
 
 28,771,358 
 
 218,024,900 
 
 7,498,232 
 
 6,667,349 
 
 2,486,024 
 
 6,662,900 
 
 8,511,538 
 
 11,936,317 
 
 $4,317,001,532 
 
 300,000,000 
 
 75,000,000 
 
 84,692,001,532 
 
 t833,121 
 
 789,442 
 
 1,919,125 
 
 1,374,077 
 
 1,281,751 
 
 101,535 
 
 469,938 
 
 831,436 
 
 375,678 
 
 5,186,887 
 
 3,096,288 
 
 2,089,289 
 
 2,398,209 
 
 1,180,298 
 
 79.5,874 
 
 490,389 
 
 579,192 
 
 3,070,766 
 
 2,680,851 
 
 2,189,953 
 
 648,417 
 
 1,594,094 
 
 765,322 
 
 1,296,686 
 
 282,697 
 
 395,328 
 
 1,862,786 
 
 5,066,316 
 
 642,466 
 
 805,766 
 
 4,297,601 
 
 403,367 
 
 3,586,872 
 
 222,233 
 
 496,750 
 
 325,306 
 
 832,869 
 
 1,274,694 
 
 461,885 
 
 156(«60 
 
 1,219,316 
 
 826,722 
 
 599,804 
 
 2,262,303 
 
 200,491 
 
 230,792 
 
 41,966 
 
 33,329 
 
 278,618 
 
 453,816 
 
 363,324,561 
 
 1.544 
 
 2.274 
 
 2.077 
 
 2.776 
 
 1.063 
 
 1.000 
 
 2.154 
 
 1.317 
 
 3.713 
 
 1.218 
 
 1.866 
 
 3.631 
 
 3.997 
 
 1.519 
 
 2.740 
 
 1.000 
 
 1.000 
 
 1.000 
 
 1.362 
 
 .726 
 
 2! 226 
 
 1.628 
 
 2.081 
 
 2.813 
 
 2.061 
 
 1.746 
 
 .799 
 
 2.206 
 
 .924 
 
 3.636 
 
 3.210 
 
 1.000 
 
 .694 
 
 1.403 
 
 1.682 
 
 2.266 
 
 1.422 
 
 1.338 
 
 1.991 
 
 .573 
 
 1.927 
 
 3.171 
 
 ,1.751 
 
 1.037 
 
 2.673 
 
 3.476 
 
 1.285 
 
 .600 
 
 3.273 
 
 3.802 
 
 1.467 
 
 $0.56 
 0.63 
 0.74 
 1.00 
 0.61 
 0.60 
 0.68 
 0.78 
 0.61 
 0.67 
 0.98 
 0.61 
 0.71 
 0.72 
 0.92 
 0.94 
 
 0.62 
 0.60 
 0.71 
 0.30 
 0.84 
 0.70 
 0.97 
 0.52 
 0.66 
 fl.87 
 0.66 
 0.66 
 0.81 
 0.70 
 0.70 
 0.74 
 0.53 
 0.63 
 0.55 
 0.58 
 0.98 
 0.73 
 0.78 
 0.35 
 0.57 
 0.34 
 0.07 
 0.47 
 0.56 
 
 80.74 
 
149 
 
 As all property in the United States is assessed on an average 
 of 36.4 per cent, of its estimated true value (Table 16, Census 
 Report, Wealth, Debt and Taxation 1907) this assessed value 
 of $4,692,001,532 represents an estimated true value of approxi- 
 mately 
 
 $12,890,000,000. 
 
 The variation of $248,411,000 between this result and that 
 arrived at on page 147 is due to the disturbance of the ratio be- 
 tween the assessed value and the "estimated true value" by the 
 introduction of estimates for the states omitted in the Census 
 table of assessed values and the estimates of real estate values 
 excluded from the assessed values in New York and New 
 Jersey. 
 
 Whichever figure is accepted establishes the fact, that on 
 the basis of assessed valuations and taxes compared with their 
 relation to the official estimated true value of all property in 
 the United States, the value of American railways for taxation 
 purposes is greater than their, net capitalization of 
 
 $11,671,940,649. 
 
 An analysis of the last two columns in the above table demon- 
 strates that the rate paid by the railways on the assessed value 
 of their property is from i to 7 times greater than the tax rate 
 paid per $ico of estimated true value of all property in the 
 United States. In the country at large it is twice as great. 
 
 Texas affords a striking illustration of the difference between 
 the tax levied on railways and the rate paid on general prop- 
 erty. Although the taxes levied on the railways of Texas were 
 only 1.338 per cent, on their assessed value, this was 2.53 times 
 more than the average rate levied on private property through- 
 out the state. In 1906 the Texas railways were assessed at $10,- 
 907 per mile for purposes of taxation and the taxes actually paid 
 by them amounted to $1,594,825 or 1.212 on their assessed value 
 which is 2.3 times more than the rate levied on the true value 
 of all property in Texas. This would make it appear that their 
 true value for taxation purposes was $25,086 per mile, or $8,555 
 more than the valuation put on them by the State Railroad Com- 
 mission. 
 
150 
 
 According to the assessors, the value of Texas railways in- 
 creased $2,456 per mile between 1905 and 1906, while the Com- 
 mission could only find that their value had increased $11 per 
 mile, which shows the difference whether the appraiser is seek- 
 ing to increase the revenues of the state or for excuse to reduce 
 the revenues of the railways. 
 
 In passing, it is worthy of note that while the net capitaliza- 
 tion of the railways of the United States has increased only 28.7 
 per cent, during the last ten years their taxes have increased over 
 87 per cent. 
 
 The railways of Minnesota, according to the State Commis- 
 sion, paid $3,015,676 taxes in 1905 against $1,911,707 in 1904. 
 
 Where the railways of New Jersey are credited in the above 
 table with having paid only $1,852,786 taxes in 1904, the total 
 tax upon them for state uses in 1906 was $3,509,371. 
 
 With these examples of what consideration the railwa_vs are 
 receiving at the hands of taxing bodies, I leave this phase of 
 the subject. 
 
151 
 
 XII 
 RECEIVERSHIPS AND THE RAILWAYS 
 
 Among the many things laid at the door of alleged over- 
 capitalization of American railways are the periodic succession 
 of receiverships that have seared their history with the brand 
 of financial tribulation. Even the fairest writers on railway 
 economics have not escaped this pitfall dug by political agi- 
 tators for the delusion of the unwary. Professor Emory R. 
 Johnson in his "American Railway Transportation," one of the 
 ablest and most instructive of recent works on the subject, 
 falls into the popular error, when he says, "The large number of 
 railroad receiverships in the United States has been the result 
 of several causes, of which the first and most potent has been 
 over-capitalization." 
 
 As a matter of fact, there is not the slightest evidence to 
 sustain such a sweeping assertion. That over-capitalization has 
 in a few flagrant cases contributed to forcing companies into 
 the hands of receivers may be admitted. But the four "most 
 potent" causes of railroad receiverships in the United States 
 have been faulty location, over-construction, over-competition 
 and successive business depressions. 
 
 This is not the assertion of a theory but of conditions sus- 
 ceptible of proof. Where roads have been originally located 
 correctly with good judgment where needed, and where the 
 immediate prospects or far-seeing prescience justified large ex- 
 penditures, receiverships have been the rare exceptions. 
 
 In discussing this phase of the subject one salient fact should 
 never be lost sight of — only the capitalization ' represented by 
 bonds has any bearing on the question of receivership.- It is only 
 when the security of the bondholder is imperilled that the pro- 
 tection of the courts is invoked. 
 
152 
 
 The Halt of 1837. 
 
 The first financial storm the railways had to meet was that 
 of 1837, when the initial cost of construction of the early roads 
 had imposed a heavy burden upon the capital and industry of 
 the country. The result was, as we read in Poor's Manual, 
 that in many of the states, particularly in the Western and 
 Southern, large sums were expended upon lines which were 
 wholly abandoned. Charters granted and work begun in 1834- 
 1836 were held in abeyance, not to be revived or resumed until 
 along in the early forties, after the efifect of the revulsion began 
 to wear ofif. 
 
 The Galena and Chicago Union, the forerunner of the Chi- 
 cago and Northwestern, affords an illustration of what hap- 
 pened to the railways of the United States at that time. On 
 January 10, 1836, it received a special charter from the legis- 
 lature of Illinois to build a railroad out into the prairie country 
 toward the Mississippi. An amended charter was granted in 
 1837, under 'which a short preliminary survey was made and 
 940 acres of wood land nine miles west of Chicago was se- 
 cured as a source of fuel supply. "Then," says the historian, 
 "the financial 'panic' beginning in the summer of 1837 put a 
 stop to this and many other railroad projects, not only in Illi- 
 nois but all over the United States." The actual construction 
 of the Galena and Chicago Union was not resumed until 1847. 
 
 It was the financial upheaval of 1837 that induced the state 
 of Michigan to take over the construction of the Detroit and 
 St. Joseph railroad chartered in 1836 (the original Michigan 
 Central) and the Erie and Kalamazoo Railroad chartered in 1833 
 (now a . part of the Lake Shore and Michigan Southern Rail- 
 way). The former company was capitalized at $2,000,000, but 
 no work had been done upon it when the state of Michigan ap- 
 pointed commissioners to complete the construction. Appro- 
 priations were made for this purpose in 1838, 1839, 1843 ^^^ 
 1844, ^i^d in 1846 the road was completed 144 miles to Kala- 
 mazoo. 
 
 A report to the legislature when work had proceeded no 
 
153 
 
 miles to Marshall gives the following details respecting this 
 piece of forced government ownership : 
 
 Cost of Michigan Central and Michigan Southern 
 TO December 31, 1844. 
 
 Central (110 miles completed) 
 
 Southern (initial point at Monroe) . 
 
 10% added for interest during construction and other incidental expenses . . . . 
 
 Palmyra and Jackson Railroad, cost including interest 
 
 Locomotives and cars on Central Railroad $110,000 
 
 Ditto on Southern Railroad 51,000 
 
 Total. 
 
 »1,842,308 
 936,295 
 
 82,778,603 
 
 277,860 
 
 30,000 
 
 161,000 
 
 $3,257,963 
 
 Governor Barry reported in favor of selling these works, 
 which were subsequently sold to Boston capitalists for $2,- 
 000,000 for the Central and $500,000 for the Southern. They 
 were paid for in state bonds which the shrewd New Englanders 
 had bought at 70 cents on the dollar, thereby ' obtaining for 
 $1,750,000 property which had cost at least $3,500,000. All told, 
 Michigan spent $4,500,000 and 305,000 acres of public land on 
 her railroads, and they were worth the expenditure, although 
 Boston financiers bought them in at what would now be called 
 "bargain counter" prices. The purchasers had to go into the 
 markets to raise additional funds for their rehabilitation, com- 
 pletion, extension and equipment. 
 
 .The Panic of 1857. 
 After the country recovered from the effects of the "financial 
 catastrophe" of 1837, the extension of railways into every quar- 
 ter of the West proceeded with unprecedented rapidity until 
 checked temporarily by another panic; when, again we read 
 in the histories, "A great financial revulsion came in 1857 and 
 at once put a stop to further construction of this and many 
 other lines of railroad and this company became bankrupt." 
 The road here referred to was the Chicago, St. Paul & Fond 
 du Lac Railroad, all of' whose property, franchises and rights 
 were purchased at foreclosure sale by the newly organized Chi- 
 cago and Northwestern Railway for $10,849,938 in stocks and 
 bonds of the purchasing company. 
 
154 
 
 A like process went on all over the country. The financially 
 sound companies — i. e., those which had not been over-built 
 into unproductive territory — buying in the property of the 
 bankrupt companies below cost of construction, but almost 
 never below the face of the funded debt. 
 
 The Receiverships of 1873. 
 
 Scarcely had the railways recovered ' from the business de- 
 pression of 1857, when the civil war brought nearly all indus- 
 trial progress to a standstill and by its legacy of inflated cur- 
 rency prepared the way for the financial convulsion of 1873. 
 Between i860 and 1865 only 3,303 miles of railway were built 
 in the United States, but with the return of peace in the latter 
 year construction was resumed with feverish activity. The 
 mileage jumped from 35,085 juiles in 1865 to 70,651 in 1873 — 
 that is, it more than doubled in eight years. 
 
 In i860 there were 1026 inhabitants to each mile of railway; 
 in 1870 the proportion was only 730, and by 1873 it had fallen 
 to 590 per mile of road. As experience at that stage in the de- 
 velopment of railway economies had demonstrated that "to en- 
 able railroads to be operated at a profit a population of at least 
 850 to a mile of railroad is necessary in this country" (Poor's 
 Manual 1877-1878), the over building of railways had passed 
 below the margin of safety in 1870, and was far below it in 
 1873, when the country entered upon that period of depression 
 from which it did not emerge until specie payment was re- 
 sumed and all business was once more placed on a sound money 
 basis. 
 
 No fine-drawn theory is needed to explain the railway re- 
 ceiverships of 1874 to 1877. It is told in unmistakable language 
 in the following table of earnings — gross and per mile. 
 
 
 Gross Earnings. 
 
 Per Mile. 
 
 1872 
 
 ■ 8465,241,055 
 626,419,935 
 620,466,016 
 503,065,505 
 495,257,959 
 472,909,272 
 
 $8 116 
 
 1873 
 
 7,933 
 7,513 
 7,011 
 6,765 
 
 1874 
 
 1875 . 
 
 1876 
 
 1877 
 
 6,381 
 
 
155 
 
 The startling decrease in gross earnings per mile between 
 1872 and 1877 shows the combined effect of the business de- 
 pression and over-construction. In spite of a slight increase 
 in gross earnings, it will be perceived that there was a decrease 
 of more than 20 per cent, in earnings per mile. , The large re- 
 ceipts per mile previous to 1871 had furnished the stimulus 
 for the over-construction which swept scores of railways into 
 bankruptcy during the business stagnation which waited on the 
 restoration of our currency to a healthy basis. 
 
 In passing, it is worthy of note that twenty years had to 
 elapse before (in 1901) the gross receipts of the railways of the 
 United States reached the level per mile from which they fell 
 as shown in the foregoing table. 
 
 An examination of the reports of the principal systems which 
 went into the hands of receivers in 1874 discloses the fact that 
 their difficulties proceeded from one of two causes — either they 
 were under construction involving the raising of large sums 
 before they had begun to earn sufficient income to pay operat- 
 ing expenses; or their income was so depleted by the reduction 
 of rates below a profitable basis that the cost of operation ab- 
 sorbed too large a proportion of their earnings. 
 
 The Northern Pacific, which was being built toward the sun- 
 set, is an example of the former class. It operated 555 miles 
 to practically nowhere, and had issued $30,780,940 bonds on 
 which it had realized only $22,766,923. It was paying an aver- 
 age of 7-3/10 per cent, on its debt and its earnings from opera- 
 tion in 1874 were only $365,343, or $22,876 more than operat- 
 ing expenses, or about one-tenth as much as the interest on its 
 funded debt. It was only through the process of a receiver- 
 ship and a reorganization, in which the bondholders took pre- 
 ferred stock for their principal and interest, that the work of 
 constructing this great road was continued. 
 
 The Erie, that road prolific in lessons of railroad enterprise 
 and financiering, affords a striking example of the second class. 
 But there is no need to drag in over-capitalization to account 
 for its receivership in 1875, which followed "as the night the 
 day" from the business causes revealed in the following table. 
 
156 
 
 Business of the Erie, 1869 to 1875. 
 
 
 Passenger 
 
 Passenger 
 
 Per 
 
 Freight Ton 
 
 Freight 
 
 •Per 
 
 
 Mileage 
 
 Receipts 
 
 Passenger 
 
 Mileage 
 
 Receipts 
 
 Ton 
 
 Year. 
 
 (thousands). 
 
 (thousands). 
 
 Mile 
 (cents). 
 
 (thousands). 
 
 (thousands). 
 
 Mile 
 
 (cents) . 
 
 1868-69. . . 
 
 128,455 
 
 «4,043 
 
 3.15 
 
 817,829 
 
 $12,583 
 
 1.54 
 
 1869-70. . . 
 
 133,589 
 
 3,968 
 
 2.97 
 
 898,862 
 
 11,983 
 
 1.33 
 
 1870-71. . . 
 
 148,242 
 
 3,972 
 
 2.68 
 
 897,446 
 
 12,861 
 
 1.44 
 
 1871-72. . . 
 
 156,143 
 
 3,329 
 
 2.13 
 
 965,925 
 
 14,509 
 
 1.52 
 
 1872-73. . . 
 
 164,633 
 
 3,651 
 
 2.22 
 
 1,032,986 
 
 15,015 
 
 1.45 
 
 1873-74. . . 
 
 160,204 
 
 3,705 
 
 2,31 
 
 1,047,420 
 
 13,740 
 
 1.31 
 
 1874-75. . . 
 
 155,396 
 
 3,461 
 
 2.23 
 
 1,016,618 
 
 12,287 
 
 1.21 
 
 The reduction in passenger and freight rates between 1871 
 and 1875 tells the tale — and it is an old one — of this Erie re- 
 ceivership. If the railroad had received the same rates in 1875 
 thaL it did in 1870-71, its receipts from passengers would have 
 been $4,164,612 instead of $3,461,304, and from freight $14,639,- 
 299 instead of only $12,287,399. 
 
 The same cause — reduced rates — produced the same results 
 throughout the country. The year 1876 showed an increase of 
 6,092,000 tons of freight moved over the previous year with an 
 absolute decrease of $2,922,858; and Poor's Manual presents the 
 following table showing the conditions prevailing in the three 
 states of Massachusetts, New York and Ohio as illustrative 
 of the effect of reduced rates in New England, the Middle 
 States a.nd the Middle West: 
 
 
 TONS MOVED. 
 
 Rate per Ton Mile 
 in Cents. 
 
 
 1876. 
 
 1871. 
 
 Increase. 
 
 1876. 
 
 1871. 
 
 Massachusetts 
 
 New York ' 
 
 11,327,502 
 22,891,828 
 29,348,788 
 
 8,934,104 
 14,174,544 
 18,554,340 
 
 2,393,398 
 
 8,717,284 
 
 10,794,459 
 
 2.04 
 1.19 
 1.12 
 
 3.11 
 1 77 
 
 Ohio 
 
 1 82 
 
 
 
 Total 
 
 63,568,129 
 
 41,662,988 
 
 21,905,141 
 
 1.23 
 
 
 
 
 This showed a decrease of .71 of a cent per ton mile for these 
 states — a ratio which, if applied to the whole country, meant 
 that in 1876 the railways received $132,000,000 less than they 
 would have received had the rates of 1871 been in efifect. 
 
 Evidently it was the watering of the rates and not of the 
 capital of the railways that was the "most potent" cause of the 
 
157 
 
 receiverships of 1874-1877, involving the following mileage and 
 capital : 
 
 Involved in Receiverships in 1874-187 7. 
 
 
 Mileage. 
 
 Capital Stock: 
 
 Funded Debt. 
 
 1874 
 
 6,825 
 6,280 
 3,692 
 3,917 
 
 5235,179,293 
 
 211,740,414 
 
 87,181,928 
 
 65,454,116 
 
 $236,285,961 
 
 1875 
 
 204,312,038 
 
 1876 
 
 114,783,799 
 
 1877 ^. . 
 
 95,937,385 
 
 
 
 Total 
 
 20,714 
 
 8599,555,751 
 
 $641,319,183 
 
 Total Capitalization 
 
 $1,140,874,934 
 
 
 
 As the total operated mileage of the country in .1874 was 
 only 69,273, capitalized at $4,221,763,594, it is evident that 
 two-sevenths of the mileage and more than one-quarter of the 
 capitalization was involved in the financial tribulations of these 
 four years of business stagnation. 
 
 Incomplete as are the reports of the cost of construction of 
 these 20,714 mile^, they show an aggregate of $1,032,783,972 
 expended, or within $107,090,962 of the capitalization involved, 
 without counting in the discounts paid to obtain funds in many 
 cases, or the appreciation of much of the property and rights 
 which had accrued during the forty years of railway construc- 
 tion. 
 
 Before they were reorganized, the original investment of the 
 stockholders in some of the roads was entirely wiped out, in 
 some it was scaled down and in others, as in the case of the 
 Erie, working capital was obtained by asse^ments on stock- 
 holders. The Northern Pacific emerged from the receivership 
 with its bonded indebtedness and deferred interest converted 
 into preferred stock. 
 
 It was not until 1880 that railway earnings showed that they 
 had partially recovered from the severe drag that followed the 
 depression of 1873-74. But so urgent had been the demand 
 for more railways in the meantime that, while the gross earn- 
 ings increased from $520,466,016 in 1874 to $613,733,610 in 
 1880, the earnings per mile were still below those of 1874. 
 
 A study of the dividends paid during the period of depression 
 
158 
 
 reveals how exhausting was the process through which the 
 railways were pumped dry of any water that had been injected 
 into their stock prior to 1871 — and even their critics admit that 
 it was comparatively little: 
 
 Dividends During Depression of 1873. 
 
 » 
 
 Dividends Paid 
 on Stock. 
 
 Per Cent 
 on Stock. 
 
 1872 
 
 $64,418,418 
 67,120,709 
 67,042,942 
 74,294,208 
 68,039,668 
 58,536,312 
 53,629,368 
 61,681,470 
 77,115,371 
 
 3 91 
 
 1873 
 
 3.45 
 
 1874 
 
 3.37 
 
 1875 
 
 3 38 
 
 1876 
 
 3 03 
 
 1877 
 
 2 53 
 
 1878 
 
 2.34 
 
 1879 
 
 2 57 
 
 1880 
 
 2.84 
 
 
 
 From which it is apparent that the low point in the profits 
 from investments in railway stocks for this period was touched 
 in 1878. There was a further recovery which reached 2.94 per 
 cent, in 1881, but from that year to this dividends on gross cap- 
 ital stock have never risen to the level of 1872, whereas they 
 were destined to go many points lower. 
 
 So large a proportion of capital stock in 1876 was non-paying 
 that the dividend rate on paying issues was 7.26 per cent., which 
 it is interesting to compare with the 5.78 per cent, paid on divi- 
 dend paying stock during the prosperous year 1905. 
 
 The Recession of 1885. 
 
 With the return of good times and a sound currency in 1880, 
 there came a resumption of railway building which proved that 
 the country was anxious for more transportation facilities, al- 
 though in much of the territory into which roads were ex- 
 tended it had not the traffic in sight to support them. In the 
 four years 1880-1883 inclusive, over 31,000 miles were added 
 to the mileage in the United States, being equivalent to an in- 
 crease of nearly 40 per cent, over the mileage of 1879. Nothing 
 like it had been known before, although it has been equalled 
 since. This phenomenal construction was accompanied by an 
 
159 
 
 increase of capitalization amounting to no less than $5,091 
 per mile, so that in 1883 the gross capitalization of American 
 railways was $64,768 per mile. While much of this increase was 
 through duplication, it has been estimated that $550,000,000 was 
 either wholly fictitious or represented the reckless and sometimes 
 unscrupulous financiering of a period of feverish speculation and 
 over-production. The paralleling of the New York Central 
 by the West Shore, which was scarcely, opened for business 
 before it went into a receivership, to be bought for what it was 
 worth under foreclosure by the road it was intended to rival; 
 and the construction of the "Nickel Plate" solely for specu- 
 lative purposes, were two characteristic incidents of the years 
 preceding the "panic of 1884." Only the excellence of the crops 
 and favorable trade balances tided the country over a universal 
 business catastrophe which was predicted by conservative ob- 
 servers. 
 
 Such were the conditions that presaged another period of 
 receiverships for railways in 1884, as shown in the following 
 table : 
 
 Receiverships 1880-1885. 
 
 Year. 
 
 Number 
 of Roads. 
 
 Mileage. 
 
 Capital 
 Involved. 
 
 1880 
 
 13 
 5 
 12 
 11 
 36 
 46 
 12 
 10 
 
 885 
 110 
 912 
 1,990 
 8,846 
 8,567 
 1,770 
 1,204 
 
 8140,265,000 
 
 1881 
 
 3,742,000 
 
 1882 
 
 39,074,000 
 
 1883 
 
 108,470,000 
 
 1884 
 
 669,088,000 
 
 1885 
 
 466,416,000 
 
 1886 
 
 67,584,000 
 
 1887 
 
 92,500,000 
 
 
 
 Total 
 
 145 
 
 24,274 
 
 $1,587,139,000 
 
 
 
 During the year 1884 no less than 48 companies operating 
 15,359 miles of road with an aggregate capitalization of $708,- 
 594,046 (exclusive of nearly $100,000,000 funded debt of the 
 Philadelphia & Reading Railroad involved with the Philadelphia 
 & Reading Iron & Coal Company) were in the hands of re- 
 ceivers, against which the construction account showed a cost 
 of $612,419,335, with many omissions. 
 
160 
 
 While a large number of the roads included in the foregoing 
 table 'Were taken out of the hands of the courts through re- 
 organizations, the following statement of the foreclosure sales 
 during the three years 1885-1887 show how the majority of 
 them fared: 
 
 Railroad Foreclosure Sales 1885-1887. 
 
 Year. 
 
 Roads. 
 
 Mileage. 
 
 Capitalization. 
 
 1885 
 
 26 
 39 
 28 
 
 2,898 
 7,858 
 5,129 
 
 $267,956,000 
 
 1886 
 
 420,367,000 
 
 1887 
 
 311,649,000 
 
 
 
 
 93 
 
 15,885 
 
 $999,972,000 
 
 Through these proceedings and the accompanying reorgani- 
 zations it is estimated that investments in about $500,000,000 
 par value of capital stock were wiped out. By 1887 the so- 
 called water in American railways had been pretty effectually 
 evaporated; and the track was clear for another period of con- 
 struction, expansion and competition. 
 
 Billions Involved in the Panic of 1893. 
 
 Between the years 1877 and 1887, before the Interstate Com- 
 merce Act was passed, there had been a remarkable reduction 
 in rates. In the former year, according to Judge Cooley, 
 chairman of the Commission, "the rates charged on first, sec- 
 ond, third and fourth classes of freight from New York to 
 Chicago were, respectively, 100, 75, 60 and 45 cents a hundred 
 pounds. They are now (1887) 75, 65, 50 and 35 cents, but the 
 classification as to many articles has in the meantime been 
 reduced so that the actual reduction is greater than these fig- 
 ures would indicate. Rates from Chicago to New York are 
 also proportionately less. A similar result has been apparent 
 elsewhere." 
 
 In 1888, at the end of a decade during which freight rates 
 had been reduced fully 25 per cent., the condition of the rail- 
 ways, as summarized from the first reports to the Commission, 
 was as follows: 
 
161 
 
 First Official Railway Statistics, i? 
 
 Mileage (official) (miles) 
 
 Locomotives (number) 
 
 Passenger cars (number) 
 
 Freight cars (niunber) 
 
 Capital stock $3,864,468,055 
 
 Funded debt ' 3,869,216,365 
 
 Total capital 
 
 Cost of road and equipment (1889) 
 
 Passengers carried one mile (number) 
 
 Average number in a train 
 
 Heceipts from passengers 
 
 Revenue per passenger per mile (cents) 
 
 Average cost of carrying one passenger per mile (cents) 
 
 Tons of freight carried one mile (number) 
 
 Average haul per ton (miles) 
 
 Revenue per ton per mile (cents) 
 
 Average cost of carrying one ton per mile (cents) 
 
 Interest on bonds and other debt 
 
 Dividends paid 
 
 Number of employes (1889) 
 
 Compensation 
 
 136,883 
 29,036 
 25,665 
 
 885,668 
 
 87,733,684,420 
 
 7,271,498,570 
 
 10,950,000,000 
 
 42 
 
 8237,266,377 
 
 2.349 
 
 2.042 
 
 61,027,000,000 
 
 127.36 
 
 1.001 
 
 0.630 
 
 $205,288,021 
 
 78,943,041 
 
 704,473 
 
 8400.294.024 
 
 A comprehension of the items in this table is necessary to 
 an understanding of the causes leading up to the crash of 1893. 
 With the recovery from the recession of 1884, railway build- 
 ing was resumed with a rush, so that in the six years 1887 to 
 1892, inclusive, no less than 40,803 miles of line or over 30 
 per cent, was added to the mileage of 1886. Almost as many 
 more miles of subsidiary track was laid during the same period, 
 so that it is not at all surprising to find that by 1892 the gross 
 capitalization had increased to $9,686,146,813, of which, how- 
 ever, $1,391,457,053 was duplicated through intercorporate own- 
 ership. 
 
 That a large expansion of capital was necessary to meet the 
 demands of traffic is proved by the fact that the passengers 
 caried one mile in 1892 numbered 13,362,898,299, an increase 
 of 30 per cent, over 1888, and the tons of freight caried one 
 mile were 88,241,050,225, an increase of over 44 per cent, dur- 
 ing the same period. 
 
 An increase of 30 per cent, in passenger service and of 44 
 per cent, in the freight service performed for the public would 
 appear to justify an addition of 30 per cent, to the mileage con- 
 structed by an addition of only 25 per cent, to the gross cap- 
 
162 
 
 italization, irrespective of how that capitalization was swelled 
 with "water" or intercorporate ownership. 
 
 And so in fact it would, but for the undermining effect of 
 the reduction in rates which attended these efforts to keep 
 abreast of the increasing demands for transportation. The 
 following table shows the actual receipts of 1892 from passen- 
 gers and freight compared with what they would have been 
 had the rates of 1888 been sustained: 
 
 1892. 
 Actual. 
 
 1892. 
 
 On the Hates of 
 
 1888. 
 
 Gross passenger earnings. 
 Gross freight earnings. . . . 
 
 $286,805,708 
 799,316,042 
 
 $313,930,500 
 833,392,400 
 
 Total $1,086,121,750 
 
 $1,197,322,900 
 
 Loss In revenue due to reduction of rates $111,201,150 
 
 It only needed another year's continuation of the suicidal 
 policy of rate reduction, coincident with a recession in busi- 
 ness, to plunge scores of railroad companies into bankruptcy. 
 And despite the phenomenal passenger traffic of the World's 
 Fair year, the coincidence happened in 1893, although only 
 partially reflected in the official statistics for that year. The 
 full effect of the havoc wrought in railway receipts by a con- 
 tinuous reduction in rates was shown in a "deficit from opera- 
 tions" of $45,851,294 in 1894, where there would have been a 
 surplus of $109,253,085 had the rates of 1888 been maintained. 
 
 Commenting on what followed, the Official Statistician said: 
 "Railway construction was arrested, development of railway 
 equipment was nearly stationary, railway employes were re- 
 duced and that after a series of years which showed an aver- 
 age annual increase in the payroll of 42,215 employes. * * * 
 Every item on the income account shows a decrease. * * * 
 To meet the deficit occasioned by the payment of the usual 
 dividends to stockholders and to operate the property, it was 
 found necessary to reduce the corporate investments in stocks 
 and bonds by $7,094,413, to reduce the cash and current as- 
 sets by $44,402,673, and to deplete the fund of materials and 
 
163 
 
 supplies so that the stock on hand was worth $13,988,383 less 
 at the close than at the beginning of the year." 
 
 As a matter of act, the statistician's own figures show that 
 the usual dividends were not paid to stockholders, being only 
 $95,515,226 on $4,834,075,659 outstanding in 1894 against $100,- 
 929,885 on only $4,668,935,418 in 1893. Had the "usual divi- 
 dends" of 1893 been paid in 1894 they would have been $104,- 
 414,000, or nearly $9,000,000 more than they were. 
 
 The real reason why the several funds mentioned by Profes- 
 sor Adams had to be reduced or depleted was not the payment 
 of the "usual dividends" or the operation of the property, but 
 the fact that the average passenger receipts had been reduced 
 from 2.349 cents per mile in 1888 to 1.986 cents in 1894 and 
 the average freight receipts had declined from i.ooi cents to 
 0.860 cents during the same period. The consequent loss in 
 passenger receipts was $51,869,070, and in freight receipts $113,- 
 272,350; making a total loss due to this cause alone of $164,- 
 142,420. 
 
 "This first and most potent cause" resulted in placing 192 
 roads, with a mileage of 40,818 miles and a capitalization of 
 about $2,500,000,000, under the control of receiverships as of 
 June 30, 1894, which led the statistician to exclaim, "This as 
 a record of insolvency is without a parallel in the previous 
 history of American railways, except it be in the period from 
 1838 to* 1842." 
 
 On a preceding page (61) is given a brief table of the re- 
 ceiverships from 1894 to 1899, inclusive, from data supplied by 
 the official reports. Poors' Manual for 1900, in an exhaustive 
 review of the subject, gives a complete list of the roads placed 
 under receiverships and sold under foreclosures during the years 
 1884 to 1899, inclusive, of which the following are summaries : 
 
164 
 
 Summary by Years of Number, Mileage and Capital of 
 Railways Placed in Receivers' Hands 1884- 1899: 
 
 Year. 
 
 No. 
 
 / 
 Mileage. 
 
 Stocks. 
 
 Bonds. 
 
 Total 
 Capitalization. 
 
 1884 
 
 36 
 46 
 12 
 10 
 21 
 21 
 21 
 30 
 40 
 119 
 45 
 - 33 
 35 
 21 
 19 
 12 
 
 8,846 
 8,557 
 1,770 
 1,204 
 3,209 
 3,777 
 2,462 
 1,963 
 4,250 
 27,883 
 4,177 
 3,390 
 2,940 
 1,463 
 2,048 
 1,043 
 
 8270,002,059 
 
 248,071,302 
 
 31,310,375 
 
 48,474,192 
 
 106,389,535 
 
 100,720,288 
 
 44,668,355 
 
 47,952,915 
 
 196,440,572 
 
 835,768,845 
 
 151,036,759 
 
 148,966,639 
 
 95,207,200 
 
 45,891,071 
 
 61,415,800 
 
 29,676,250 
 
 $ 399,086,119 
 
 218,345,400 
 
 36,274,443 
 
 44,026,400 
 
 93,249,357 
 
 94,058,562 
 
 59,628,363 
 
 30,396,552 
 
 143,732,248 
 
 1,160,426,166 
 
 103,779,192 
 
 193,631,529 
 
 147,929,905 
 
 44,624,111 
 
 85,287,590 
 
 37,401,000 
 
 $ 669,088,178 
 
 1885 
 
 466,416,702 
 
 1886 
 
 67,684,818 
 
 1887 
 
 92,500,592 
 
 1888 
 
 199,638,892 
 
 1889 
 
 194,778,850 
 
 1890 
 
 104,296,718 
 
 1891 
 
 78,349,467 
 
 1892 
 
 340,172,820 
 
 1893 
 
 1,996,195,011 
 
 1894 
 
 254,815,951 
 
 1895 
 
 342,598,168 
 
 1896 
 
 243,137,103 
 
 1897 
 
 90,515,182 
 
 1898 
 
 146,703,390 
 
 1899 
 
 67,077,2.50 
 
 
 
 Totals 
 
 521 
 
 78,582 
 
 J2, 461,992,157 
 
 S2,891,876,937 
 
 S5,353,869,094 
 
 Summary by Years of Number, Mileage and Capital of 
 Railways Sold Under Foreclosure 1884-1899: 
 
 Year. 
 
 Num- 
 ber. 
 
 Mileage. 
 
 Stocks. 
 
 Bonds. 
 
 Total 
 Capitalization. 
 
 1884 
 
 16 
 26 
 39 
 28 
 17 
 27 
 26 
 22 
 25 
 21 
 44 
 53 
 66 
 42 
 43 
 28 
 
 694 
 2,898 
 7,858 
 5,129 
 1,486 
 2,802 
 3,.302 
 3,281 
 1,329 
 1,123 
 5,915 
 10,446 
 12,355 
 5,831 
 5,956 
 3,408 
 
 S 12,924,000 
 
 122,280,688 
 
 197,744,517 
 
 158,722,274 
 
 28,793,950 
 
 62,464,713 
 
 75,998,588 
 
 73,483,621 
 
 30,758,770 
 
 30,974,450 
 
 232,272,980 
 
 316,723,841 
 
 430,195,249 
 
 239,351,195 
 
 104,308,123 
 
 117,111,734 
 
 S 13,061,000 
 
 145,676,077 
 
 222,623,094 
 
 152,926,782 
 
 31,568,500 
 
 83,456,187 
 
 77,994,191 
 
 83,190,500 
 
 22,446,480 
 
 17,791,500 
 
 186,332,775 
 
 452,095,991 
 
 670,800,272 
 
 201,173,947 
 
 123,168,151 
 
 147,724,479 
 
 $ 25,985,000 
 
 1885 
 
 267,956,765 
 
 1886 
 
 420,367,611 
 
 1887 
 
 311,649,056 
 
 1888 
 
 60,362,450 
 
 1889 
 
 145 920 900 
 
 1890 
 
 153,992,779 
 156,674,121 
 
 1891 
 
 1892 
 
 53 205 250 
 
 1893 
 
 48,765,950 
 418,605,755 
 
 1894 
 
 1895 
 
 768,819,832 
 1,100,995,521 
 440,525,142 
 227,476,274 
 264,836,213 
 
 1896 
 
 1897 
 
 1898 
 
 1899 
 
 
 
 523 
 
 73,813 
 
 $2,234,108,693 
 
 S2,632,029,926 
 
 84,866,138,619 
 
 It will be perceived in a study of these two summaries to- 
 gether that scarcely were the railways foreclosed out of their 
 trials, following the panic of 1884, than they were overtaken by 
 the political and industrial storm of 1892-1893. 
 
165 
 
 Among the principal roads included in the above summaries 
 which went into receivers' hands and emerged through fore- 
 closures were the following: 
 
 Railroads. 
 
 Year of 
 Receiver- 
 ship. 
 
 Miles 
 Owned. 
 
 Capital 
 Stock. 
 
 Bonds. 
 
 Atch. Top. & Santa Fe 
 
 1893 
 1894 
 1896 
 1898 
 1887 
 1884 
 1885 
 1892 
 1888 
 1884 
 1893 
 1885 
 1893 
 1884 
 1895 
 1895 
 1893 
 1893 
 1893 
 1884 
 1893 
 1893 
 1893 
 1884 
 1893 
 1889 
 1885 
 
 4,438 
 
 691 
 
 532 
 
 921 
 
 511 
 
 1,317 
 
 1,071 
 
 1,265 
 
 1,695 
 
 328 
 
 361 
 
 613 
 
 544 
 
 473 
 
 431 
 
 1,328 
 
 3,429 
 
 643 
 
 1,480 
 
 327 
 
 327 
 
 992 
 
 1,823 
 
 2,483 
 
 668 
 
 1,222 
 
 1,487 
 
 $102,000,000 
 79,760,000 
 30,000,000 
 30,000,000 
 36,098,282 
 38,000,000 
 44,000,000 
 57,000,000 
 46,410.157 
 20,000,000 
 23,632,000 
 50,000,000 
 86,363,600 
 40,000,000 
 44,999,360 
 69,500,000 
 86,140,131 
 24,000,000 
 26,161,720 
 34,668,425 
 40,428,000 
 60,000,000 
 60,868,500 
 52,626,800 
 14,735,475 
 23,083,000 
 32,164,600 
 
 8228,082,000 
 38,913,629 
 81,251,376 
 61,844,690 
 32,881,400 
 28,123,000 
 26,200,000 
 39,000,000 
 46,630,000 
 12,833,000 
 16,500,000 
 20,046,000 
 77,643,885 
 70,000,000 
 96,736,000 
 55,074,200 
 133,026,000 
 22 703 000 
 
 
 Baltimore & Ohio 
 
 
 Chesapeake & Ohio 
 
 Denver & Rio Grande 
 
 East Tenn., Virginia & Ga. R. R 
 
 East Tenn., Virginia & Ga. Ry 
 
 Missouri, Kansas & Texas 
 
 New York & New England 
 
 New York & NewEngland 
 
 N. Y., Chicago & St. Louis 
 
 N. Y., L. Erie & Western 
 
 N, Y., West Shore & Bliffalo 
 
 N. Y., Penn. & Ohio 
 
 Norfolk & Western 
 
 Northern Pacific 
 
 Oregon Ry, & Navigation Co 
 
 
 49,832,000 
 97,782,327 
 152,000,000 
 42,686,300 
 85,492,185 
 76,434,834 
 18,214,122 
 32,808 000 
 
 
 
 
 
 
 Wisconsin Central 
 
 St. Louis, Ark. & Texas 
 
 Texas & Pacific 
 
 43,340,000 
 
 
 
 
 31,198 
 
 $2,131,638,040 
 
 1,676,077,948 
 
 The potent story — if not the whole story — of what caused 
 most of the 1893 receiverships is told in the decrease in their 
 gross receipts per mile between 1893 and 1894, which was in 
 turn caused by the decline in their average receipts per passen- 
 ger and ton mile as exhibited in the following table of those 
 roads whose statistics are available: 
 
166 
 
 Comparative Summary of Earnings Per Mile, and Per Pas- 
 senger AND Ton Mile of 12 Railways Involved in Re- 
 ceiverships 1893-1894. 
 
 
 
 1893. 
 
 * 
 
 1894. 
 
 
 Year Exding June 30. 
 
 YpAK Ending June 30. 
 
 Eoad. 
 
 
 Receipts 
 
 Receipts 
 
 
 Receipts 
 
 Receipts 
 
 
 Gross 
 
 per Pas. 
 
 per Ton 
 
 Gross 
 
 per Pas. 
 
 per Ton 
 
 
 Earnings 
 
 Mile 
 
 Mile 
 
 Earnings 
 
 Mile 
 
 Mile 
 
 
 per Mile. 
 
 (cents). 
 
 (cents). 
 
 per Mile. 
 
 (cents). 
 
 (cents). 
 
 A. T. & S. F 
 
 35,523 
 
 ,2.264 
 
 1.191 
 
 $4,521 
 
 2.096 
 
 1.092 
 
 Bait. & Ohio 
 
 15,230 
 
 1.660 ■ 
 
 .69 
 
 12,996 
 
 1.590 
 
 .670 
 
 E. Tenn., Va. & Ga 
 
 4,560 
 
 2.400 
 
 .85 
 
 3,134 
 
 2.390 
 
 .820 
 
 N.Y.& N.England... 
 
 11,040 
 
 1.990 
 
 1.09 
 
 9,800 
 
 1.970 
 
 1.060 
 
 N.Y., L.Erie & West.. 
 
 17,635 
 
 1.572 
 
 .637 
 
 14,819 
 
 1.514 
 
 .596 
 
 Nor. & Western 
 
 6,447 
 
 2.897 
 
 .514 
 
 6,154 
 
 2.850 
 
 .466 
 
 Northern Pacific 
 
 5,383 
 
 2.630 
 
 1.230 
 
 3,729 
 
 2.460 
 
 1.120 
 
 Ore. Ry. & Nav. Co 
 
 4,660 
 
 3.056 
 
 1.850 
 
 3,650 
 
 2.888 
 
 1.640 
 
 Ore. Short Line 
 
 5.570 
 
 2.603 
 
 1.206 
 
 4,120 
 
 2.481 
 
 1.081 
 
 Phila. & Reading 
 
 19,503 
 
 1.804 
 
 1.036 
 
 17,360 
 
 1.773 
 
 1.011 
 
 St. Louis & S. Fran 
 
 5,052 
 
 2.319 
 
 1.198 
 
 4,184 
 
 2.116 
 
 1.126 
 
 Union Pacific 
 
 11,176 
 
 2.040 
 
 1.060 
 
 9,535 
 
 1.960 
 
 .980 
 
 
 
 Moreover, the rates for both passengers and freight in 1893 
 were already almost at the bottom of the gradual decline that 
 brought them from the level of the 1884 period of receiverships 
 to that of the 1894 period. Between these years the rates of the 
 Atchison, Topeka and Santa Fe fell from 2.648 cents per pas- 
 senger mile and 1.882 cents per ton mile to those given in the 
 above table; of the New York and New England from 2.02 and 
 1.41 cents respectively; of the New York, Lake Erie and West- 
 ern (the Erie) from 2.188 and .685 cents; of the Norfolk and 
 Western from 2.71 and 1.18 cents; of the Northern Pacific from 
 3.44 and 1.96 cents; of the Oregon Railway and Navigation 
 Company from 3.99 and 3.45; of the Philadelphia and Reading 
 from 1.84 and 1.38 cents; of the Union Pacific from 2.903 and 
 1. 910 cents; and of the St. Louis and San Francisco from 2.87 
 and 1.57 cents. 
 
 For the entire country the rates per mile between 1884 and 
 1894 declined from 2.36 to 1.986 cents per passenger and from 
 1. 13 to 0.86 cents per ton. This decrease of 37/iooths of a cent 
 per passenger mile and 27/iooths per ton mile caused a loss of 
 no less than $299,775,826 — on the traffic of 1894 — a sum suffi- 
 
167 
 
 cient to have insured the solvency of every road in the United 
 States during that disastrous year. 
 
 It was the steady drain of declining rates, and not over-cap- 
 italization that was the "potent cause" of the railway receiver- 
 ships of 1893-1897. 
 
 Before the railways recovered from the prostration and ex- 
 haustion of this trying period, millions of fresh capital had to 
 be raised to make good the deterioration inseparable from de- 
 pleted treasuries. This was independent of and in addition to 
 the millions that might have been paid in dividends that were 
 diverted from the pockets of stockholders to maintain the prop- 
 erty and keep it in condition to perform its public service, when 
 politics and financial soundness permitted a resumption of na- 
 tional industry. 
 
 Let me illustrate this process by a few well-known examples: 
 
 Three Examples of Receiverships. 
 The Atchison, Topeka & Santa Fe. 
 
 As shown in the preceding table and paragraphs, the Atchi- 
 son, Topeka and Santa Fe's failure to meet the interest on its 
 bonds was due to the drop in its revenues following the reduc- 
 tion of its passenger and ton mile rates from 2.648 and 1.882 
 cents respectively in 1884 to 2,264 and 1.191 cents in 1893. 
 
 When it went into the hands of the Court its funded debt 
 was $228,082,000 and its capital stock $102,000,000. When it 
 emerged after foreclosure its funded debt had been scaled down 
 to $162,278,050 and its capital SLOck increased to $213,468,000. 
 The increase in stock was accounted for by the issue of $111,- 
 486,000 preferred stock to the holders of old 2d mortgage bonds, 
 amounting to over $90,000,000, on payment of a 4 per cent, as- 
 sessment, and as a bonus to holders of the original stock on 
 whom an assessment of $10 a share was levied. As shares in 
 the old company for which par had been originally paid were 
 worth only $13 at the date of reorganization, it required faith 
 to pay the $10 a share assessment necessary to hold on. It 
 was 1899 before a 2J per cent, dividend was declared on the 
 preferred stock, and 1901 before a ij per cent, dividend was paid 
 on common. 
 
168 
 
 For eleven years from 1888 to 1898 all capital stock in the 
 Atchison, which prior to the former date had been a 6 per cent, 
 stock, lay fallow, paying no dividends whatever. And as about 
 $13,000,000 in cash was paid into the treasury for the privilege 
 of retaining it, it is clear that from $70,000,000 to $80,000,000 
 fairly due the owners of the stock and second mortgage bond 
 holders was either paid in by or retained from them for the 
 benefit of the property. Against this there was an increase in 
 nominal capitalization of less than $46,000,000, the ownership 
 of the property had been consolidated and the road renovated 
 and vastly improved at a cost of over $40,000,000, not repre- 
 sented in capital. It is evident that the water in the Atchison 
 reorganization of 1896 was blood drawn from the body of its 
 stockholders for the benefit of the public. 
 
 The Baltimore & Ohio. 
 The Baltimore and Ohio went into receivers' hands in 1896, 
 owning 532 miles of road with $81,251,000 funded debt, and $30,- 
 000,000 , capital stock. It came out through a reorganization, 
 without a foreclosure, in 1899 owning 1017 miles of road, with 
 $134,233,350 funded debt and $74,227,767 capital stock. It also 
 owned stocks and bonds with a ledger value of over $10,000,000 
 and operated 2047 miles of road, which had been practically re- 
 newed and re-equipped throughout during the three years it 
 was under the receivership. It is not possible to approximate 
 how much cash went into the property during this period, but 
 there was a hiatus in dividends between 1896 and 1900 that 
 represented more than $7,000,000 loss to shareholders, which was 
 used to fertilize the property. Moreover, when dividends were 
 resumed in 1900 the rate was only 4 per cent, where previous 
 to their discontinuance in 1896 it had been 6. Iti was 1907 be- 
 fore the dividend rate on common was restored to 6 per cent., 
 that on preferred remaining fixed at 4. Where previous to 
 1896 the Baltimore and Ohio was paying between 5 and 6 
 per cent, interest, since the reorganization the rate has been 
 between 3^ and 4. Since 1900 over $100,000,000 stock has been 
 sold at par and the proceeds invested in acquiring auxiliary 
 lines, improvements and equipment necessary to meet the de- 
 mands of a traffic that has more than trebled in the meantime. 
 
169 
 
 Manifestly the effect of the receivership of 1896 and the re- 
 organization of 1899 was to place the Baltimore and Ohio on a 
 bedrock financial basis. 
 
 The ^rie. 
 
 As a final illustration of the economic effect of receiverships 
 upon the capitalization of railwfiys, let us consider the Erie, 
 which from its earliest history has been the sport of adverse 
 circumstances. Chartered as the New York and Erie Railroad 
 in 1832, its construction and success were embarrassed by a 
 provision that it was to be built entirely within the State of 
 New York. After many vicissitudes it was finally completed 
 to Buffalo and extended through New Jersey to Jersey City. 
 Its first experience with receiverships was in 1859, from which 
 it emerged as the Erie Railway. We have already reviewed 
 the causes of its insolvency in 1875. It went into that receiver- 
 ship with a total capitalization of $140,808,724 and was reor- 
 ganized in 1878 with a capitalization of $151,564,595 — the in- 
 crease being wholly in funded debt on which the interest charge 
 was reduced from 7-64/100 to less than 6J per cent. The cap- 
 ital stock remained the same, holders being assessed $2 or $3 
 and $4 or $6 per share on preferred and common stock, respec- 
 tively — the higher rate receiving a premium in income bonds. 
 The sum thus raised, together with funds from the sale of 
 bonds, amounting to $6,000,000, were put into much needed im- 
 provements. 
 
 During the fifteen years between the Erie's reorganization 
 in 1878, as the New York, Lake Erie and Western, and the 
 receivership of 1893 no dividends were paid on the $77,837,000 , 
 of its common stock, and only 6 per cent, in 1882, '83 and '84, 
 and 3 per cent, in 1892 on its $8,536,600 preferred. Between 
 the receivership of 1875 and that of 1893 the receipts from pas- 
 sengers per mile had declined from 2.220 to 1.572 cents and 
 from freight from 1.208 to 0.637. I" short, had the rates of 
 1875 been charged in 1893 the company's receipts would have 
 been $52,891,000 instead of $29,993,160 on the same volume of 
 traffic, and there would have been no necessity for a receiver- 
 ship. 
 
170 
 
 Between 1878 and 1893 the funded debt had been increased 
 from $66,818,203 to $77,643,885 with no addition to capital stock. 
 The mileage owned, leased and operated had been extended 
 from 957 to 1701 miles; the number of locomotives had in- 
 creased from 466 to 626, passenger cars from 304 to 590 and 
 fireight cars from 11,298 to 12,830, irrespective of their greater 
 average capacity. 
 
 When the New York, Lake Erie and Western went into the 
 receiver's hands in 1893, its capital obligations were, common 
 stock, $77,827,000; preferred stock, $8,536,600, and funded debt, 
 $77,643,885, upon which last the annual charges were $4,680,781. 
 
 When it emerged as the Erie Railroad in 1895, its capital 
 obligations were: Common stock, $100,000,000; First Preferred, 
 $30,000,000, and funded debt, $102,905,577. Including bonds on 
 properties controlled through ownership of capital stock the 
 funded debt outstanding April i, 1896, was $126,009,100, upon 
 which the annual interest charge was $5,005,899, or only $325,- 
 118 more than on the smaller debt of 1893. An increase of 258 
 miles of line owned, and the acquisition of all the stock and 
 bonds of the New York, Pennsylvania and Ohio (firom Sala- 
 manca, N. Y., to Cleveland and Dayton, Ohio) accounts for 
 the major part of this increase in gross capitalization — the se- 
 curities owned and pledged under its first consolidation deeds 
 aggregating no less than $64,705,000. 
 
 In the process of reorganization the shareholders were called 
 on to pay an assessment amounting to $10,844,370. The hold- 
 ers of common stock had received no dividends between the 
 assessments of 1878 and 1895 and the only payments on pre- 
 ferred were those noted above. 
 
 The following statement shows the mileage of the Erie owned, 
 leased and operated before and after the receivership of 1893 : 
 
171 
 
 
 1893. 
 
 1896. 
 
 Title. 
 
 Length of 
 
 Line 
 
 (Miles). 
 
 Total 
 Track 
 (Miles). 
 
 Length of 
 
 Line 
 
 (Miles). 
 
 Total 
 Track 
 (Miles). . 
 
 Owned...'. 
 
 551 
 539 .... 
 12 .... 
 551 
 598 
 270 
 
 1,228 
 
 1,083 
 977 
 393 
 
 1,608 
 
 792 
 
 816 .... 
 
 277 
 
 80 
 
 200 
 
 2 709 
 
 In fee '. 
 
 
 
 
 Leased 
 
 848 
 
 Operated 
 
 172 
 
 Controlled 
 
 209 
 
 
 
 £iie System 
 
 1,970 
 
 3,681 
 
 2,165 
 
 3 938 
 
 
 
 Between 1873 and 1893 the Erie system had been converted 
 from a 6-foot gauge road laid with 64 to 70 lb. iron rails to a 
 standard 4-ft. 8^ in., gauge road, laid with 56 to 60 lb. steel 
 rails, and before it emerged from the receivership the weight 
 of its steel rails had been increased to 68 to 80 lbs. When the 
 change from iron to steel was begun steel rails cost $120 a ton. 
 The cost of improvements planned in 1873 (most of which were 
 executed out of assessments on stock, sales of bonds and from 
 undivided profits) were estimated at $39,720,000. 
 
 The unenviable notoriety attending the financiering of the 
 Erie has overshadowed the streams of money from various 
 sources that, since the time when its first stockholders sur- 
 rendered half their holdings to induce new subscriptions, down 
 to the present day have been poured into its maintenance and 
 improvement. 
 
 The work of making the Erie an easy grade line from Chi- 
 cago to tidewater has been progressing steadily for years. Dur- 
 ing the past six years the tractive power of its engines has been 
 increased nearly 60% ; and in ten years the capacity of its 
 freight cars has been increased 84%. The combination of these 
 elements has enabled the Erie to increase its average trainload 
 over 80%, but it has yet to pay a dividend on its common stock. 
 
 Common Effect of Receiverships. 
 
 The experiences of the Atchison, Topeka and Santa Fe; the 
 
 Baltimore and Ohio, and the Erie, were common to nearly every 
 
 railway that went to the wall in the panic of 1893. They found 
 
 themselves carrying traffic at such reduced rates that when the 
 
172 
 
 volume of business decreased from 14 to 20 per cent, they were 
 unable to meet their fixed obligations. In the reorganizations 
 of 57 roads between 1884 and 1898, assessments amounting to 
 no less than $87,000,000 on stock and $9,000,000 on bonds were 
 called for from their holders. 
 
 In 189s only 29.94 per cent, of railway stock paid any divi- 
 dends whatever, the total paid in dividends having shrunk from 
 $100,929,885 in 1893 to $85,287,543 in 1895. 
 
 It was 1899 before dividends amounted to over $100,000,000 
 and 1901 before half of the railway stocks paid any dividends. 
 
 The intercorporate ownership of stocks and bonds dropped 
 from $1,563,022,233 in 1893 to $1,447,181,534 in 1895, showing a 
 decrease of over $116,000,000 due to the disposal of such as- 
 sets to the public at panic prices. 
 
 In 1899 when the railways may be said to have emerged from 
 the slough of 1893 their net capitalization was only $51,215 
 per mile against $52,348 in 1892 before the panic. Such in- 
 crease as there has been in capitalization since has been due to 
 their strenuous efforts to provide tracks and equipment to 
 handle traffic which has well nigh overwhelmed them — coming 
 so soon after the period of enforced retrenchment. 
 
 There has been no watering of stock since 1899 — the greater 
 part of the recent issues for improvements, extensions and 
 equipment, being sold at a premium.. 
 
173 
 
 XIII 
 SMALL RETURNS ON RAILWAY INVESTMENTS 
 
 While fortunes have been made in the construction and finan- 
 ciering of American railways, their history proves that the re- 
 turns to investors from their operation have been comparatively 
 less than in any other great industry. In 1840 Mr. T. R. Tan- 
 ner in his "Canals and Railroads of the United States," with 
 admirable prescience, wrote: 
 
 "As facilities of intercourse, the moral effects of the general 
 introduction of railroads and canals can never be duly appre- 
 ciated. Considered as means of revenue, merely, it is doubt- 
 ful whether they can be made to yield an interest equal to that 
 derived from most other investments. * * * The railroads 
 throughout the country will, no doubt, prove hereafter to be 
 ■more productive than the canals; though, according to a state- 
 ment drawn up by Mr. De Geustner, the interest on the capital 
 invested in railroads in the United States in 1839 does not ex- 
 ceed five and a half per cent." 
 
 This was written when the average fare per passenger was 
 five cents per mile and the average freight rate was nine cents 
 per ton per mUe, and money in secure investments commanded 
 from 8 to 10 per cent, interest. 
 
 Now let us see what the return has been from the time since 
 we have had comprehensive statistics. Before the period of 
 official data. Poor's Manual affords the following summary of 
 interest and dividends paid on railway capital: 
 
174 
 
 Summary of Rates of Interest and Dividends Paid on 
 Railway Capital — 1871-1888. 
 
 
 Interest. 
 
 Per Cent on 
 
 Bonds and Debt. 
 
 Dividends. 
 
 Per Cent on 
 
 Stock. 
 
 1871 
 
 No data. 
 
 u 
 u 
 
 4.32 
 4.39 
 4.16 
 4.53 
 4.00 
 4.16 
 4.39 
 4.68 
 4.54 
 4.65 
 4.53 
 4.54 
 4.20 
 
 4.19 
 
 1872 
 
 8.91 
 
 1873 
 
 3.45 
 
 1874 
 
 3 37 
 
 1875 
 
 3 38 
 
 1876 
 
 3.03 
 
 1877 
 
 2.53 
 
 1878 
 
 2 34 
 
 1879 
 
 2.57 
 
 1880 
 
 2.84 
 
 1881 
 
 2 94 
 
 1882 
 
 2 92 
 
 1883 
 
 2.77 
 
 1884 
 
 2 48 
 
 1885 
 
 2 00 
 
 1886 
 
 2.04 
 
 
 2 18 
 
 1888 
 
 1 77 
 
 
 
 These figures include duplications, both in the capitalization 
 and the returns thereon. Since 1888 the official statistician has 
 presented summaries giving the "average rate paid on dividend 
 paying stock," which, however, is valueless as an indication of 
 the return on capital invested. It is included in the following 
 continuation of the preceding statement for purposes of com- 
 parison with the rates based on the official reports and as given 
 in Poor's Manual : 
 
175 
 
 Summary, of Rates of Interest and Dividends Paid on 
 Railway Capital — 1888-1905. 
 
 
 Interest Per Cent 
 on Funded Debt. 
 
 Dividends Per Cent 
 on Stock. 
 
 Average Rate 
 Paid on 
 
 Year. 
 
 Poor's 
 Manual. 
 
 Offi6ial. 
 
 Poor's 
 ■ Manual. 
 
 Official. 
 
 Dividend-Paying 
 Stock. 
 
 X889 
 
 4.40 
 4.27 
 4.25 
 4.25 
 4.31 
 4.19 
 4.24 
 4.45 
 4.24 
 4.21 
 4.26 
 4.27 
 4.24 
 4.10 
 4.17 
 4.01 
 3.79 
 3.99 
 
 4.99 
 4.86 
 4.54 
 4.75 
 4.79 
 4.72 
 4.67 
 4.67 
 4.70 
 4.53 
 4.55 
 4.48 
 4.46 
 4.49 
 4.41 
 4.33 
 4.28 
 
 1.79 
 1.82 
 1.87 
 1.93 
 1.88 
 1.66 
 1.58 
 1.52 
 1.51 
 1.71 
 1.92 
 2.44 
 2.65 
 2.97 
 3.03 
 3.31 
 3,27 
 3.63 
 
 1.93 
 1.99 
 2.05 
 2.15 
 2.16 
 1.97 
 1.72 
 1.67 
 1.62 
 1.78 
 2.01 
 2.38 
 [2.70 
 3.08 
 3.19 
 3.50 
 3.63 
 
 5 04 
 
 1890 
 
 5.45 
 
 1891 
 
 5.07 
 
 1892 
 
 5 35 
 
 1893 
 
 5.58 
 
 1894 
 
 5.40 
 
 1895 
 
 5.74 
 
 1896 
 
 5.62 
 
 1897 
 
 5.43 
 
 1898 
 
 5.29 
 
 1899 
 
 4.96 
 
 1900 
 
 5.23 
 
 1901 
 
 5.26 
 
 1902 
 
 5.55 
 
 1903 
 
 5.70 
 
 1904 
 
 6.09 
 
 1905. 
 
 5.78 
 
 1906 
 
 
 
 
 The discrepancies in the average rates of interest and divi- 
 dends between the official computation and Poor's Manual con- 
 firm rather than lessen the value of these figures as illustrating 
 the fluctuation in the returns on railway capital.. One set is 
 based on incomplete returns for the calendar years and the 
 other on well nigh complete returns for the fiscal years. Both 
 columns emphasize the failure of the official "average rate 
 paid on dividend paying stock" to reflect the actual return on 
 railway capital. This is more nearly approached in the fol- 
 lowing table showing the average rate of net dividends paid 
 on the net capital stock, the data for which has only been avail- 
 able since 1898: 
 
176 
 
 Net Dividends on Net Capital Stock Since- 1898. 
 
 
 Capital Stock 
 
 Outstanding. 
 
 Not Duplicated. 
 
 Net Dividends. 
 
 Average Rate of Net 
 
 Dividends to Net 
 
 Capital Stock. 
 
 1898 
 
 84,236,404,163 
 4,307,513,427 
 4,375,360,621 
 4,069,898,993. 
 4,314,055,951 
 4,357,235,824 
 4,397,040,970 
 4,484,504,943 
 
 S 83,995,384 
 94,273,796 
 118,624,409 
 131,626,672 
 157,215,380 
 166,176,586 
 183,754,236 
 188,175,151 
 
 1.98 
 
 1899 
 
 2.19 
 
 1900 
 
 2.71 
 
 1901 
 
 3.23 
 
 1902 
 
 3.64 
 
 1903 
 
 3.81 
 
 1904 
 
 4.20 
 
 1905 1 . . . . 
 
 4.19 
 
 This table proves that the ratio of dividends to stock as dis- 
 closed by the preceding computations, based on gross capital 
 stock and gross dividends, is very much nearer arriving at the 
 true rate of returns on railway capitalization than the "average 
 rate on dividend paying stock," as annually computed by the 
 Official Statistician. It also reflects the fluctuations in such 
 returns, which the Statistician's formula does not, but some- 
 times actually reverses — vide the returns for 1895 and 1899. 
 
 From the above tables it will be seen that the average re- 
 turn on capital invested in American railways in 1905, the most 
 prosperous year for which we have complete official figures, 
 was 4.28 per cent, on funded debt, and 4.19 on capital stock, or 
 4.25 per cent, on all railway capital. 
 
 In 1905 the average interest or dividend paid on all de- 
 scription of capital of the railways of the United Kingdom 
 was 4.05, and this was on a net capitalization per mile over five 
 times greater than that of American railways. 
 
 If American railways were over-capitalized in proportion as 
 British railways are, it would take a sum equal to their entire 
 gross receipts in 1905 to pay 4.05 per cent, on the colossal ac- 
 cumulation of expenditures on capital account. 
 
 The extreme difference between American and foreign sys- 
 tems of capitalization is summed up in two lines: 
 
177 
 
 
 Capital 
 per Mile. 
 
 Rate on 
 Capital. 
 
 Capital Charge 
 per Mile. 
 
 British railways, 1905 
 
 $273,438 
 63,328 
 
 4.05 
 4.25 
 
 $11,074 
 
 American railways, 1903 
 
 2,266 
 
 The total earnings from operation of American roads in 1906 
 were $10,460 per mile, or less by $614 than the capital charge 
 per mile on British railways. 
 
 No higher tribute could be paid to the economic soundness of 
 the American railway policy of providing for betterments and 
 a large proportion of improvements out of current income. Brit- 
 ish railways are staggering to a bitter reckoning under the re- 
 verse policy of charging all betterments and impi'ovements to 
 capital account. 
 
 A Tail-Piece that Tells its own Tale 
 (On the Great Northern) 
 
 Built 1907 
 Weight, 195,000 lbs. Cost, $15,750. 
 
 Built 1892 
 Weight, 40,000 lbs. Cost, 15,000. 
 
INDEX. 
 
 Page. 
 
 Adams, Henry, on conditions in 1800 30 
 Adams, Henry C, (official statis- 
 
 ticia^, on balance sheet 60 
 
 Adams, Henry C, on possibility of 
 
 valuation 3 
 
 Adams, Henry C, on what consti- 
 tutes capital 47 
 
 Alleghany Portage R. R., cost of 66 
 
 Atchison, Topeka & Santa Fe, re- 
 ceivership 167 
 
 Australian railways, coat of 111 
 
 Baldwin, crippled oy panic of 1837 67 
 
 Baldwin, locomotives, fast passenger 
 
 1848 (Illustration^ 68 
 
 Baldwin, locomotives in 1861 (Illus- 
 tration) 80 
 
 Baldwin, locomotives in 1906 93 
 
 Baldwin, locomotives, output 1856 — 
 
 1860 79 
 
 Balance sheet, cost as shown by 88 
 
 Balance sheet, what it shows 60 
 
 Baltimore & Ohio, breaking ground 
 
 for 35 
 
 Baltimore & Ohio, completed to 
 
 Wheeling, 1850 43 
 
 Baltimore & Ohio, receivership, 1896 168 
 
 Belgian railways, cost of 107 
 
 Betterments out of profits on Penn- 
 
 slyvania 96 
 
 Betterments and improvements out 
 
 of income 24 
 
 Boston and Albany (Western) con- 
 dition of , in 1851 71 
 
 British and American railways com- 
 
 paredin 1844 103 
 
 British railways, characteristics of-_ 102 
 
 British railways, cost of 101 
 
 British railways, cost of labor in 
 
 construction 105 
 
 British railways, cost per mile 1850 — 
 
 1905 102 
 
 British railways, early 1 103 
 
 British railways, land damages for. _ 103 
 Callaway, Samuel R., estimate of 
 value of New York Central ter- 
 minal 115 
 
 Camden and Amboy R.'R., growth 
 
 of traffic on 45 
 
 Camden and Amboy R. R., cost of. _ 62 
 Canals, Cooley on mability to com- 
 pete with railways 33 
 
 Canals, early, in the United States.. 32 
 
 Canals, Erie 32 
 
 Canals, first preferred to railways 19 
 
 Capital, Adams, on what it includes. 4, 8, 47 
 
 Capital, little relation to rates 6 
 
 Capital, account in 1906 52 
 
 Capital, and cost by groups 98 
 
 Capital, comparative, in 1867 48, 100 
 
 Capital, gross, per mile 4, 47, 49 
 
 Capital, gfoss, and per mile 1871 to 
 
 1905 - 49 
 
 Capital, how duplicated 51 
 
 Capital, net 47 
 
 Capital, net per mile of line, 1890 to 
 
 1906 51, 53 
 
 Capital, net per mile of track, 1889 to 
 
 , 1906 54 
 
 Capital, originally included current 
 
 liabilities 47 
 
 Capital, sources of 74, 77 
 
 Carroll of CarroUton at breaking 
 
 ground for B.&O 35 
 
 Cars originally the property of indi- 
 viduals 66 
 
 Census of United States, 1830. 38 
 
 Central Pacific, initial cost of 81 
 
 Charleston and Hamburg R. R., cost 
 
 of 63 
 
 Chicago and Alton, capitalization 
 
 and rates 26 
 
 - . , Page. 
 
 Chicago and Northwestemj original 
 
 project delayed by panic of 1837 1 51 
 Chicago and Northwestern, first loco- 
 motive arrives by boat 43 
 
 Chicago and Rock Island reaches the 
 
 Mississippi 43 
 
 Chicago, Burlin^on & Quiney 
 
 opened to Quiney 43 
 
 Chicago, Milwaukee & St. Paul, 
 
 Wisconsin Commission on cost_ 97 
 
 Chicago, Milwaukee & St. Paulj see 
 Racine, Janesville and Missis- 
 
 sippi 77 
 
 Cheap construction, cost of items in_ 119 
 
 Cincinnati, Union & Ft. Wayne, 
 
 sources of capital for 76 
 
 Cleveland & Pittsburgh, original cost 
 
 of....- 
 
 Cleveland, Columbus & Cincinnati, 
 
 orig;inal cost of 73 
 
 Columbia and Philadelphia, cost of__ 64 
 
 Columbus, Piqua & Indiana, sources 
 
 of capital for 74 
 
 Commercial, valuation 11, 138 
 
 Comparative capitalization 100 
 
 Comparison, value of railways as 
 
 shown by 9 
 
 Conditions in ante-railway times 29 
 
 Construction, progressive steps in 43 
 
 Construction, cost of, first 58 
 
 Construction, cost of and net capita- 
 lization, 1890 — 1906 59 
 
 Construction, early, buried in ar- 
 chives 62 
 
 Construction, early, previous to 1840 6b 
 
 Construction, early, m decade 1840 — 
 
 1850. 67 
 
 Construction, early, in decade 1850 — 
 
 1860 69 
 
 Construction, early, in 1860 79 
 
 Construction, early, in 1870 80 
 
 Construction, early, in 1880 83 
 
 Construction, early, in 1890 85 
 
 Construction and equipment, cost of 
 
 in 1906 92, 116 
 
 Construction, as shown in balance 
 
 sheetj cost of 88 
 
 Construction, composite examples of 
 
 typical cost 117, 118 
 
 Construction, cost, examples of 116, 120 
 
 Cooley, Thomas M., on confusion as 
 
 to sources of fortunes 27 
 
 Cooley, Thomas M., on inability of 
 
 canals to compete with railways 33 
 
 Cooley, Thomas M., on object of 
 
 regulation 5 
 
 Cooper, Peter, designed first Ameri- 
 can locomotive 35 
 
 Cost of transportation in 1800 31 
 
 Current liabilities originally included 
 
 in capital 47 
 
 Dana, Charles A., on Southern rail- 
 
 waysin 1865 .._ 79 
 
 De Tojiueville on America in 1835 31 
 
 De Witt Clinton, locomotive of 183 1 
 
 (Illustration) 39 
 
 Difficulties in valuation, Minnesota 
 
 Commission on 7 
 
 Discount on sale of securities legiti- 
 mate 19 
 
 Dividends, average on net capital 
 
 stock 176 
 
 Duplication of capital 51 
 
 Early construction, economy of 78 
 
 Early construction, not designed for 
 
 heavy traffic 44 
 
 Early New England Railways, cost 
 
 of 20, 63 
 
 Early rates on Pennslyvania 66 
 
 Earnings no test of cost 8 
 
INDEX—CONTINUED. 
 
 . . Page. 
 Elements m railway valuation, 
 
 Supreme Court on 5, 7 
 
 Empjloyes, pay of Japanese railway. Ill 
 Equipment, cost of, as shown in 
 
 balance sheet 91 
 
 Equipment, cost of reproducing 123 
 
 Equipment, British and American 
 
 compared 104 
 
 Erie Canal, cost of construction 33 
 
 ErieCaral, opened 1823 32 
 
 Erie Railroad, opened to Lake Erie. 43 
 
 Erie Railroad, receivership of 1874_ . 165 
 
 Erie Railroad, receivership of 1894.. 169 
 
 Estimates of cost of Western roads. _ 72 
 European and American railways, 
 
 cost compared 100 
 
 European railways, cost of 100 
 
 Expensive construction, example of 
 
 cost of. 119 
 
 Farrtis, increased value of, in fifty 
 
 years 25 
 
 Foreclosures, 1884 to 1899 165 
 
 Foreign railways, cost of 100, 101 
 
 French railways, cost of 106 
 
 Freight cars, cost of modem 126 
 
 Freight, cost of moving by team haul 38 
 Freight, rates allowed by first Penn- 
 sylvania charter 37 
 
 Freight, receipts per ton mile 4 
 
 Freight yard in Chicago, a priceless 
 
 _ (Illustration) _ 128 
 
 Freight allowed in charter of Cleve- 
 land and Pittsburgh 72 
 
 Georgia, history of a state road in.. 124 
 
 German railways, cost of 104 
 
 German railways, cost of labor in 
 
 building 105 
 
 Grade crossings, cost of eliminating 
 
 in Massachusetts. 56 
 
 Grade crossings, cost of eliminating 
 
 in New York _ 67 
 
 Gauge change of 1880-1887 85 
 
 Half the Union without railways in 
 
 1860 _ ___ 80 
 
 Harlem Railroad, cost of 64 
 
 Highways, cost of country 37 
 
 History, value as seen in 9 
 
 History of American railways 29 
 
 Horse path a feature of early rail- 
 ways 65 
 
 Horse power used on early railways. 35 
 Illinois Central, Chicago to Cairo, 
 
 completed in 1856 J 43 
 
 Improvements charged to operating 
 
 expenses 25 
 
 Improvements, cost of, out of income 23, 97 
 Improvements, legitimate basis of 
 
 capitalization 97 
 
 Increment, natural and unearned __ 136 
 Increase of railways in seven West- 
 em states 1870-1890 86 
 
 Indian (East) cost of 111 
 
 Intangible assets in Texas 115 
 
 Intangible value of railways 11 
 
 Intercorporate holdings of capital,. 51 
 Interest, rate of when raiJways first 
 
 built 19 
 
 Investment, irrevocable 10 
 
 Japanese railways, pay of employes 
 
 of -^ _. Ill 
 
 Japanese railways, cost of 107 
 
 Japanese railways, method of ascer- 
 taining value of 110 
 
 Japanese railways, cost of rolling 
 
 stock of. 108 
 
 Japanese railways, price paid by 
 
 government for 110 
 
 Knapp, Chairman M. A., on relation 
 
 between capital and rates 6 
 
 Labor, cost of in construction 105 
 
 Labor, cost of in Germany 105 
 
 Labor, cost of in (ireat Britain 105 
 
 Labor, cost of in Jajjan.i 105 
 
 Labor, cost of in United States 111 
 
 La Follette, Senator, resolution in 
 
 re-valuation 3 
 
 La Follette, Senator, estimate 13 
 
 Page. 
 La Follette, Senator, seven billion 
 
 error 1; 
 
 La Follette, Senator, error exposed. lo 
 
 Land, damages in Great Britain 103 
 
 Land grants 'O 
 
 Land represented in capital 76 
 
 Land values in large citi^ 132 
 
 Land values per capita 132 
 
 Land values per acre by states 130 
 
 Locomotives, Baldwin, output 1853- 
 
 . 1860 --- 79 
 
 Locomotives, Baldwin, weight 1853 79 
 
 Locomotives, Baldwin, in 1861 60 
 
 Locomotives, contrast in 1876-1906. 84 
 Locomotives, cost of first Stephenson 
 
 imported 37 
 
 Locomotives, costof modern 124 
 
 Locomotives, demonstrated to run 
 
 on curves 37 
 
 Locomotives first used in the United 
 
 States - 34 
 
 Locomotives, first arrive in Chicago 
 
 by boat 43 
 
 Locomotives, gold medal winner in 
 
 1867 (Illustration) 82 
 
 Locomotives, freight in 1844 (Illus- 
 tration) 67 
 
 Locomotives.Mallet compound (Illus- 
 tration) . 93 
 
 Locomotives race with a horse.. 35 
 
 Locomotives, weight when first intro- 
 duced 34 
 
 Locomotives, weight now 93 
 
 Locomotives, weight in 1855-60 79 
 
 Mail train, fast, 80 miles an hour 
 
 (Illustration) 95 
 
 Market value of railways 141 
 
 Massachusetts railways, statistics of 
 
 in 1851 70-71 
 
 Mauch Chunk Railroad, cost of 62 
 
 Mileage of railways in the United 
 
 States by states 1841-1906 46 
 
 Michigan Central reaches Chicago 43 
 
 Michigan's experience with state 
 
 - ownership 1 53 
 
 Minnesota Commission on difficulties 
 
 of valuation 7 
 
 Mohawk and Hudson, initial cost of 64 
 Mulhall, estimate of cost of French 
 
 railways z 106 
 
 Natural increment, railways entitled 
 
 to 136 
 
 New England railway, statistics of 
 
 in 1851 71 
 
 New York railway, statistics of in 
 
 • 1851 70 
 
 New York and Albany R. R., original 
 
 estimates for 64 
 
 New York and Hudson River R. R., 
 
 i-* itial cost of 64 
 
 New YorkCentral, terminal rights_. 115 
 
 New Zealand railways, cost of 112 
 
 Northern Pacific begun in 1870 84 
 
 Northern Pacific, cost of construc- 
 tion ' 122 
 
 Northern Pacific, value of right of 
 
 way 136 
 
 Northern Pacific, receivership of 
 
 1874 155 
 
 ' 'Old Ironsides ' ' locomotive (Illus- 
 tration) 40 
 
 Panic of 1837 _._ 152' 
 
 Panic of 1857 . 153 
 
 Panic and receiverships of 1873 '^ 154 
 
 Panic and receiverships of 1885 158 
 
 Panic and receiverships of 1893 160 
 
 Passenger car, first on Pennsylvania 
 
 (Illustration) 41 
 
 Passenger cars, early cost 65,72,73 
 
 Passenger cars, cost of modern 124 
 
 Passenger cars, 1880 and 1905 (Illus- 
 tration) 90 
 
 Passenger cars, steel (Illustration).! 91 
 Passenger locomotive in 1848 (Illus- 
 tration) 68 
 
 Passenger rates allowed by Cleve- 
 land and Pittsburgh charter ._ 72 
 
INDEX-CONTINUED. 
 
 Page. 
 
 Paaaenger receipts per mile 4 
 
 Passenger receipits in 1800 31 
 
 Passenger receipts on Pennsylvania 
 
 in 1834 66 
 
 Passenger receipts in New England 
 
 and New York in 1851 _ 70 
 
 Passenger receipts on the Erie 1868- 
 
 1875 , _ ___ 156 
 
 Passenger receipts 1888 161 
 
 Passenger receipts 1905 98 
 
 Passenger receipts 1893 and 1894,.. 166 
 
 Pennsylvania, early rates on 66 
 
 Pennsylvania (Columbia & Phila- 
 delphia), initial cost of 64 
 
 Pennsylvania (Columbia & Phila- 
 delphia), rates under charter 37 
 
 Pennsylvania, first locomotive used 
 
 on (Illustration) 65 
 
 Pennsylvania, growth of traffic on__ 95 
 Pennsylvania mcome expended on 
 
 improvements 96 
 
 Philadelphia to Columbia, first 
 
 charter 36 
 
 Philadelphia and Columbia, cost of 64 
 
 Philadelphia and Heading, initial 
 
 cost of 66 
 
 Pioneer railways of America 34 
 
 Population of United States in 183() 38 
 Population, density in United States 
 
 1830-1906 129 
 
 Population, density in Belgium 107 
 
 Population, density in France 107 
 
 Population, density in Germany 105 
 
 Population, density in Great Britain 102 
 
 Population, density in Japan __ 107 
 
 Population, increase in seven West- 
 em states, 1870-1890 86 
 
 Postal cars, cost of early and modem 73, 124 
 
 Postal cars, modem (illustration) 124, 125 
 
 Present capitalization 47 
 
 Present cost of road and equipment. 88 
 
 Price paid by Japan for private roads 1 10 
 
 Profits, undivided reinvested 21 
 
 Profits limited to 25 per cent in one 
 
 early charter 69 
 
 Property, value of all in the United 
 
 States 144 
 
 Property, assessed value for taxation 
 
 by states 146 
 
 Racine^ Janesville and Mississippi, 
 
 original cost of 77 
 
 Rails, first laid on wooden stringers. 37 
 
 Rails, early cost of_ 69,71,72,73,82 
 
 Rails, steel first introduced and cost 83 
 
 Rates, charter on Pennsylvania 37 
 
 Rates, charter on Cleveland and 
 
 Pittsburgh 72 
 
 Rates, reasonable, early directors 
 
 judges of._ 74 
 
 ' Rates, valuation does not control 3 
 
 Reasons for valuation 6 
 
 Receiverships, Atchison, Topeka and 
 
 Sante Fe 167 
 
 Receiverships, Baltimore and Ohio _ _ 168 
 
 Receiverships, effect on railways 151, 171 
 
 Receiverships, Erie 155,169 
 
 Receiverships of 1873 _ . 84, 154 
 
 Receiverships of 1884 158 
 
 Receiverships of 1893 61, 160 
 
 Receiverships table 1884-1899 164 
 
 Regulation, Judge Cooley on object 
 
 of „..^ - -- 5 
 
 Relation of capitalization and rates. 
 
 Chairman Knapp on _ 6 
 
 Reproduction, cost of 10,114 
 
 Reproduction of equipment, cost of 123 
 Renewals in Neiy tnglan^, an early 
 
 instance of 71 
 
 Returns, small, on railway invest- 
 ments 173 
 
 Right of way, of early roads, donated 77 
 
 Right of way, examples of cost 133 
 
 Right of way, present value of 127 
 
 Right of way, value of by states 130 
 
 Page. 
 Right of way, not subject to depre- 
 ciation 71 
 
 Sanborn, Prof. J. B., on land grants. 75 
 Service, public, of railways 1890- 
 
 1900 87 
 
 Shareholders entitled to capitalize 
 
 profits 21 
 
 Shareholders, number of 21 
 
 Sources of capital 74, 77 
 
 Southern roads during the war 79 
 
 Southern roads, cost of 1845 68 
 
 Speed of travel in 1800 31 
 
 Statistics of railways 161 
 
 Steel rails, cost of when first intro- 
 duced 83 
 
 Steel rails, miles of, in 1880 85 
 
 Stephenson, George, effect of his 
 
 inventions 33 
 
 Stevens, Colonel John, first advocate 
 
 of steam railroads in U. S _ 36 
 
 Stocks and bonds, difference as in- 
 vestments 12 
 
 Supreme Court, on elements in rail- 
 way valuation 5 
 
 Taxation, value of railways as shown 
 
 in ___ 11 
 
 Taxation, as a test of value 143 
 
 Taxation, assessed value of all prop- 
 erty for purposes of 144 
 
 Taxation, assessed value of railway 
 
 property for 146 
 
 Team haul, cost of per mile 38 
 
 Terminal rights, value of 115' 
 
 Terminal right of way, value of _ 131, 135, 136 
 
 Texas, intangible assets in 115 
 
 Texas railways, value of 8, 147 
 
 Toledo, Norwalk and Cleveland, 
 
 original cost of 73 
 
 '*Tom Thumb", Peter Cooper's 
 
 engine (Illustration) 35 
 
 Track elevation, cost of in Chicago. _ 57 
 Track elevation in Chicago (Illustra- 
 tion) 56, 57 
 
 Traffic as a measure of value 94 
 
 Traffic, growth of, on Pennsylvania 95 
 Traffic, growth of, on Camden and 
 
 Amboy 45 
 
 Tramway, costof first 37 
 
 Transcontinental line, completed 
 
 1869 _ 43 
 
 Transportation, coat of, in 1800 31 
 
 Travel by railway, in 1834 40 
 
 Turnpikes, cost of ' 38 
 
 Typical construction, examples of 
 
 costof.. ___ 117, 118 
 
 Union Pacific, initial cost of 81 
 
 Union Pacific, conditions under 
 
 which it was built 82 
 
 Unearned increment, none in value 
 
 of railways. 137 
 
 Valuation^ of railways, elements 
 
 entering into 5, 8 
 
 Valuation of railways cannot be 
 
 based on earnings 8 
 
 Valuation of railways, commercial.. 11, 138 
 
 Valuation of railways, market 141 
 
 Valuation of railways as shown by 
 
 taxation 143 
 
 Valuation of railways in Texas 8, 146 
 
 Water in railway capital defined 17 
 
 Wealth of the United States in 1800 31 
 
 Wealth, the national, 1906 144 
 
 Webster, Daniel, on journey from 
 Washington to Washington, 
 
 D. C _ 32 
 
 Wellington, A. M., on what stock 
 
 represents 20 
 
 Western atatea, railway increaae in, 
 
 1870-1890 _. 86 
 
 Weatem roada, estimates of cost 72 
 
 Wisconsin Commission on expendi- 
 tures for improvements 97 
 
 Wisconsin, wealth of, 1830-1906 136