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If the company had each year added Commerce Commission fixed the total about 15 per cent to its assets by re- at about $18,000,000,000. The sum of investing part of its earnings, and if capital stock and bonded debt of all the conditions of the market permitted the companies was reported at less than this continued expansion, the value of $20,000,000,000. As the dividend and the property might be supposed to interest are clearly not high percentincrease about fourfold in the decade. ages of debt and share capital, there is As the company did in fact add to no reason to complain of railway earnreserve in this period about twice what ings if we accept the Commission's estiit paid in dividends, this quadrupling mate as valid. This estimate has been in value of the property would imply frequently attacked — especially by earnings of no more than about 15 per Mr. La Follette, who was active in cent plus 7 or 8 per cent — total 22 or bringing about this work of valuation. 23 per cent. If we consider the cir- Dispute may be avoided by acceptcumstances of that time, the con- ing an estimate which he himself has tinued growth in demand for petroleum made. As governor of Wisconsin about products, especially with added im- twenty years ago he published a state petus of the war, one need not be sur- ment on the value of railways in his prised at earnings of such a per cent state, estimating the earnings of the on investment for one of the chief Chicago and North Western, and the beneficiaries of that demand.
Chicago, Milwaukee and St. Paul, on Compare the financial history of their property in Wisconsin, at about this company with that of another nine per cent in each case on the value chief beneficiary of the development in of that property. He asserted that such motor devices — the Ford organiza- a rate of earnings was excessive. It tion (as given in the New York Times, should have been noted, but was not, May 5, 1923, quoting a statement that the year in question, 1903, was a to the Massachusetts Commissioner of year of exceptional prosperity for the Corporations): 1903, assets ‘less than railways of the United States, including $100,000' — 1923, assets $536,851,939. these two companies. There had been Here is an increase in assets by more in fact, since about 1896 or 1897, a than 5368 times in twenty years. If period of increasing prosperity in the the Indiana Standard Company quad. railway business. The nine-per-cent rupled its value in ten years, the same estimate referred to two exceptionally rate of increase would have meant a well-managed and prosperous roads, sixteenfold increase in twenty years to and took no account of less prosperFord's 5368. Mr. Ford, who had in ous years. The North Western, under fact been reported as declaring that a Marvin Hughitt, had extended its fair market value of his business was tracks across prairies where the sura billion dollars, by this estimate ap- veyor and the man with the shovel pears to have surpassed the growth of found no towns and no farms and the tortoise-like Standard, not in the the Company's financial management ratio of 5368 to 16, but about 10,000 found for the time no revenue, trusting to 16, or 625 to 1.
for recompense to industry and agriThe subject of railway earnings — culture of the road's own creation. including the whole matter of valua- The railway business must be regarded tion — is too complicated for consider- as an oppressive monopoly, because, as ation here. The tentative valuation the indictment is concretely stated by under the direction of the Interstate one of the chief complainants, nine per
increa would years, quad
cent was earned by two prosperous 1910–13 their yield in excess of operatroads in an exceptionally prosperous ing revenue over operating expenses year. At that time one could easily ranged from a maximum of 7.20 per lend at six per cent on real-estate mort- cent on the investment to a minimum gages without the railway stockhold- of 6.39 per cent. After deducting from er's risk of a decline in earnings in this miscellaneous railway expendiunprosperous years.
tures and interest on the railway debt, Among all lines of business, railways there remained as a surplus for the have in most countries been selected public treasury 1.9 per cent (taking the as a subject of exceptional control as four years together) on the capital inhaving a singular power to exact from vested. The French lines were well the public excessive payments. An planned to avoid paralleling or wasteexamination of the financial history of ful construction, yet up to the end of railways in all parts of the world seems 1908 the Government had spent in aid rather to indicate that there is in the of private roads $785,000,000. At the railway business a singular inability to end of 1913, the purchase by the state obtain for that service earnings equal of the Western Railway system, which to those frequently realized by other according to the official promise was to investments. This characteristic dis- cost the public nothing, ‘had already ability has been so clearly recognized cost the taxpayers 944,000,000 francs,' that capitalists have, in many coun- while according to the latest official tries, refused to invest in what, by the figures the deficit on the state railways monopoly-and-extortion theory, should amounted to 345,000,000 francs (Lonbe an opportunity to make easy don Economist, January 3, 1914, p. 24). money; so that governments have In the first decade of this century found it necessary to attract capital to the Italian railways showed an annual this line of business by subventions deficit. The Swiss railways from 1903 and guaranties of interest — not only to 1912 showed varying deficits and in new countries as those of Latin small surpluses with an aggregate surAmerica, but in Belgium, Prussia, plus of 13,700,000 francs (1.1 per cent Switzerland, Italy, and France, where of the price for which the state had population is dense and traffic heavy, purchased the roads). But no reserve seemingly fit subjects for the profiteer fund had been accumulated as re
In the South American supplement quired by law, and the railway debt, to the London Times of September 27, instead of diminishing, had increased 1910, it was said that the São Paulo 40 per cent in ten years, amounting Railway in Brazil was the most pros- December 31, 1912, to 1,426,000,000 perous railway in South America ‘if francs, though there had been subnot in the world. This marvel of stantially no extension of the lines, but a railway, carrying about half the only some improvements and double world's coffee, was paying dividends of track. (Revue Economique Interna14 per cent. What other industry is tionale, January 1914.) The railways there in which such a return on invest. of Belgium have been well planned and ment would be regarded as very excep- are well located amid a dense productional or even a maximum?
tive population. In their whole hisThe Prussian state railways have been tory up to 1910 — beginning as far regarded as among the most success- back as 1846 — the government roads ful — perhaps the most successful — have yielded a total profit of 66,600,of European railways. In the four years 000 francs, amounting in the whole VOL. 134 — NO. 5
long series of years to less than three to successful companies. I can recall per cent of the capitalization of the corporations engaged in business, unroads as given at about that time. (Rev. mistakably competitive, yielding 30, Éc. Int., July 1914.) Spanish railway 60, or even 100 per cent. It seems companies have commonly received fairly safe to say that — using indefsubventions from the state. The State inite terms with proper interpretation Railways of Austria have never yielded — wherever a man or a group has enough to pay charges on capital ac- rapidly gained what would be regarded count; the public treasury in 1913 had as 'a fortune' out of scant capital, the to supply a deficit of about $10,000,000 annual profits have been more than 25 and somewhat larger amounts in pre- per cent of assets. Mr. Roberts, of the ceding years. (Rev. Ec. Int. July 1914.) National City Bank, in discussing the From 1908 to 1912 the Norwegian subject, refers to Senator Capper who Railways yielded only about two per began with invested savings and now cent each year in excess of operating owns 'two daily papers, six weeklies, revenue over operating expenses — three semimonthlies, and two monthnot all of which of course is avail lies, several of them of wide circulaable as interest on dividends. By tion and large earnings, with aggregate that test (of net operating revenue) valuation of millions.' Mr. Kresge is Finland, Bulgaria, Algiers, and Tunis, still well under sixty and had engaged were as badly off as Norway; Sweden, in various employments before beginHungary, and Rumania were not much ning with $8000 his business which in better off. (British Statistical Abstract, 1923 yielded profits of $9,493,988. Foreign Countries, 1914.)
The lines of business activity whose As the Lilliputians bound the sleep- earnings the public seeks to limit are ing Gulliver to the earth, with cords not these or the activity of the autofrom ankle to queue, so public author- mobile millionaires, but the beef busiity multiplies statutes and ordinances ness with its humble earnings of 3.10 to restrain the too powerful giant, or 13 per cent offset by some huge while many of the same statesmen, deficits, the oil business with 25 per with a double load of anxiety, imperil cent as an ordinary return, and the their budgets in providing sustenance railway business which is so constito save the same giant from dying of tuted as to be, in most of the world, a malnutrition. If the railway is 'af- starveling. Of 10,000 corporations in fected with a public interest' because the United States, with total earnings of an inherent tendency to monopoly at an average for the three years and too great gains, one is justified 1911-12-13 of more than a halfin looking for more frequent instances billion dollars, there were 2571, each of railways earning at least enough of which averaged for the three years to make them independent of public from 20 per cent to 100 per cent or charity.
more. It would be easy to add much It is ordinarily futile to consider statistical evidence that the Standard whether a certain percentage of in- Oil earnings, if about 25 per cent, were come on investment is normal, as no not very exceptional. one can define a normal rate. In the instances before us profits have in no case been greater than those known to any person at all acquainted with such The popular belief as to monopoly matters as not infrequently accruing is open to objection for other reasons
less obvious but quite as convincing as panies have advanced toward holding any to be found in tables of invest- the human race in their power by ment and earnings; it implies a false threat of starvation. I quote: 'Arconception of economic society, of the mour's drive into the rice market in a economic interdependence of men, and single year is perhaps the most strikeven in some fashion of man's place in ing instance of the potentialities in this the universe.
direction.' The Commission might About eighty years ago there came have added, but did not, that 16,000,to full recognition the idea that as 000 pounds of rice is about į of one per matter has the measurable qualities of cent of the rice crop of the United weight and extension, so the forces of States, about to of the international inorganic nature — as heat, light, and rice trade. But not all the rice was motion — are measurable and inde- held at one time; the effect on prices structible; that when one form of force must have been distributed. Moreover is converted into another, the cause is what was bought was also sold, and equal to the effect. The same principle selling must tend to depress prices as seems applicable (with great caution much as holding raises them. In the and modification) to social forces. estimation of the Commission, however, This at least is intelligible and obvious: this transaction had a prodigious effect. that in the processes of economic life At any rate they solemnly call attenforces may in some instances be meas- tion at this point to a 65 per cent rise ured against each other, and those in the price of rice during the year in clearly small by comparison cannot question (1917). In the seclusion of prevail over those clearly greater. their offices the Commission had not This fact is very commonly disre- heard that tillers of the soil by millions garded. The Elgin Butter Board case over almost half of the earth had been is an example.
forced to abandon their fields and that Here is another: the Federal Trade most of the great nations of Europe and Commission, in its report on the Meat America were competing for the world's Industry, alleges that the Big Packers diminished stores of food with all the are engaged in a conspiracy, not resources of all their treasuries, driven merely to plunder users of meat, but, by the frenzy of hate and terror which since they deal in other foods (dairy is war; that in the merchant fleets of products, poultry and eggs, groceries) all nations, on the railways, the carts and since these operations extend to of Indian highways, the backs of men other countries (I quote the Com- over trails on Chinese mountains, the mission's italics from Pt. I, p. 68), 'to staple foods were being drawn to the monopolize and divide among the several camps with a suction as irresistible as interests the distribution of the food sup- that which draws the waters of the ply not only of the United States but of Great Lakes over the precipice of Niall countries which produce a food sur agara. (There were people in Paris in plus, and as a result of this monopolistic 1793 who did not know that the monposition ... to extort excessive profits archy had been overthrown.) The from the people not only of the United Commission had not even heard that States but of a large part of the world. the prices of most other commodities They ring the changes on this idea had risen. of monopoly and conspiracy. Fortu- The power of competition in the nately they give a definite measure of livestock and meat business is evident the extent to which the five meat com- in any ordinary report of dealings in a livestock market, notwithstanding the chasers for export who are always perpetual assertion that the ‘Big Five' present, comparing the possibilities of fix prices to the destruction of the cat- purchase here with possibilities of sale tle raisers. When receipts of livestock in the countless markets beyond seas. increase, prices go down; when re- In Argentina alone there are half as ceipts decline, prices go up. Prices many cattle as in the United States; have in turn an effect on receipts; high in Australia there are one third as prices increase, low prices decrease many; in Germany before the war two shipments.
thirds as many; and so in France, EngI take one such report at random — land, and other countries of Europe the Weekly Livestock Review of the and Asia. The number of cattle offered, U. S. Department of Agriculture for the prices at which they are offered, the week ending April 7, 1923. ‘Cattle the prices which consumers here or receipts increased during the week as elsewhere will pay — all these factors a result of price advances during the have a fixity which no little group in previous week. On the initial day, Chicago or elsewhere can disregard. however, when over 23,000 cattle were In the days before the Great War, offered, much of the previous week's when the peasants of Russia had a good advance was lost, but during the latter crop they bought Chinese tea, the days of the week receipts were mod- Chinese demand for English cotton erate, demand fairly active, and daily goods increased, and the English facprice gains were made on all fat tory worker bought more beef. Rains steers. . . . With a decrease of ap- on the Argentine pampas would lower proximately 23,000 hogs for the week, the price of beef; a burst of flame on trade was stimulated somewhat and the surface of the sun scorching the all grades advanced 10 cents to 15 pastures of Australia would raise the cents. In the face of liberal receipts, price. The economic interests and coupled with a slackened demand after activities of all peoples, of all individEaster, fat lambs slumped for the week uals in all nations, are so intertwined, with the bulk of offerings declining the production, sale, and consumption 25 cents to 40 cents. This is typical of of all commodities are so interrelated, such reports.
that we may regard the whole process On reflection it must clearly appear of supplying the economic needs of that the forces which centre in any all mankind within the range of the market for cattle or hogs are world- world's trade as one great composite wide. The competing buyers of cattle process, one complex of infinitely manin the United States are numbered, as ifold efforts conditioned in part by the Trade Commission shows, by factors directly human, but also conhundreds and thousands, while be- ditioned by all the biological and physyond our borders is the competition ical factors which determine the ecoof yet more numerous thousands nomic fortunes of men. If the top of purchasers throughout the whole price of steers on a certain day in list of nationalities on all continents. Chicago is $9.45 per hundred that is An attempt at lowering prices by not a phenomenon of Chicago; it is a holding off from the market would cosmic fact. A little fish cannot stop give great joy to the numerous pur- a man-of-war.
ttempt "alities on gut the w