THE INEVITABLE RESULT
As soon as the government changed its policy and denied
exceptional rewards for exceptional risks virile Americans
refused to assume these risks and internal improvements ceased.
A distinction is drawn between pioneer capital and improvement
capital.
The effect of this changed attitude toward internal improvement and
business generally is exactly what every thoughtful person foresaw. No
railroad construction worth mentioning has been begun in the last
decade. A few unimportant extensions have been made. About five years
ago, John D. Spreckels attempted the construction of a road from San
Diego to the Imperial Valley, but a possible six percent return, if it
proved a success, and total loss if it failed, did not prove inviting
to capital. Facing disaster, he turned it over to one of the old
established lines to be builded on the accumulated credit of that
system.
The United States was never in such great need of additional
transportation as during the last ten years and never before was so
little done to supply it. James J. Hill, the great empire builder of
the Northwest, used to furnish figures to prove that we must invest two
billion dollars new capital per annum to keep pace with the development
of the country. It did not require a sage or a seer to discern that if
we multiplied production from farm and factory, mill and mine,
indefinitely, and failed to provide transportation facilities, we would
ultimately reach a time when crops would rot on the ground while those
who had grown them would be freezing and coal miners starving. Truly,
the American people are “kin-folks.”
For more than three years, liberty hung in the balance simply because
the United States, with all her development, had failed to keep her
transportation facilities abreast of her production.
We had no merchant marine and during the entire period of the war were
dependent largely upon the Allies to transport our troops and our
munitions. Adverse marine laws had been passed rendering it impossible
to sail an American ship in deep sea transportation except at great
loss even if the ship had cost nothing whatever. It became necessary
for the government to take possession of the railroads in order to
avoid the effect of statutes filled with restrictive and prohibitive
provisions. If the railroads had been operated under private ownership
as the government is now operating them, every railroad president in
the United States would be in the penitentiary. The roads asked an
increase of fifteen percent in freight rates, which raised a furore of
objection from both shipper and public, and it was denied. Government
control and operation resulted in a loss of seventy million dollars the
first month. Then both freight and passenger rates were increased
twenty-five percent, generally, and in many instances, one hundred
percent, and no one murmured. And still the loss continues. _It was
four hundred million dollars the first year of government operation._
WILL WE EVER BUILD MORE ROADS?
If someone should predict that the last railroad ever to be built in
the United States of America, has been built, are you prepared to
question its correctness? Will it be necessary to change our policy if
more roads are to be builded?
Listen! Will you invest money in railroad construction, knowing that if
it succeeds you will be allowed no more than six or eight percent on
the money wisely spent, and that if, through misfortune or want of
foresight, it fails, you will lose everything? The theory of public
utility commissions generally, is that if money is unwisely invested it
ought to be lost, and when it is wisely invested, it should earn about
six percent.
Suppose you and I install a hydraulic power plant and build our dam
according to plans and specifications prepared by a reputable engineer.
Then a flood destroys it and demonstrates that the money was _unwisely
spent_ and, therefore, according to these commissions, should be lost.
If the dam stands the strain, and if it was wisely placed, and if it be
economically operated, we will be allowed six percent. Are you ready to
join in an enterprise of this character? If you will not, who will?
Suppose a promoter presents to you an engineer’s report made from a
preliminary survey of a railroad extending, let us say, from St. Louis,
around through Arkansas and Texas to Galveston. I am informed that such
a report exists, and that it shows that the road will go through the
largest body of uncut white oak in the world, extensive pine forests,
tap that belt of zinc ore extending south from Joplin, Missouri, make
available large coal measures, iron deposits and agricultural areas now
obtainable at less than twenty dollars per acre, but which with proper
transportation facilities, and a progressive citizenship, would be
worth two hundred dollars per acre. The engineer estimates that
the road when completed will earn twenty percent on the cost of
construction, and you are asked to buy some of the stock at par. The
statutes of most states forbid the sale of even initial stock issues
for less than par. How much of this stock will you take? Will your
neighbors and friends want some? How much stock in an unbuilt railroad
do you think can be sold at any price when good farm lands adjacent can
be bought at twenty-five percent of par?
While the wisdom of the modern law-maker prohibits the sale of stock at
less than par few if any statutes have been enacted, limiting the price
at which bonds may be sold. Suppose you are offered bonds instead of
stock. Possibly you can get the bonds at less than par. What will you
pay, and how large a block do you desire? Remember, the road has not
yet been built. The money must be placed in the bank to be used in
construction and you must wait for your interest until the road has
earned it. If you will not buy, will your neighbors?
It will help to solve these problems if you recognize early in your
calculations that men with much money are not much bigger fools than we
with little. If you and I will not invest in railroad construction
under present conditions, men of means and experience will not, and the
last railroad ever to be built beneath the Stars and Stripes is now in
operation unless—unless!
THE OLD WAY
During the half century and more of the unparalleled growth and
development of the United States, bonds of unbuilt railroads were
offered with fifty percent or more of stock as a bonus. The estimates
indicated that the roads would earn not only interest on the bonds but
dividends on the stock, and a portion of the unearned increment
resulting from development was in this way awarded to those who took
the risks. Investors were thus encouraged to expect reasonable returns,
plus fifty percent or more of water. The promoters who had paid the
expenses of preliminary surveys (often abandoned as worthless) also
labored with hopes of great gain if they should discover a meritorious
proposition. Those who bought and occupied the lands contiguous to new
roads endured some hardships but took no risks and yet expected to add
at least four hundred percent of water to their investments. They
realized in most instances more than one thousand percent profit on the
original cost.
Does anyone doubt that a return to the policy of apportioning unearned
increment equitably among those who shall in any way contribute to the
general result will revive internal improvements? No one asks, and no
one would consent, that all the unearned increment should go to the
stockholders of a railroad. Every one favors governmental supervision
and control of rates. The point where a few diverge from the mass is in
recommending that those whose vision and courage are solely responsible
for development, shall have an equitable share of the unearned
increment.
Lest I be misunderstood, I desire to state parenthetically that I have
never owned a railroad bond or a share of railroad stock; and I have
never promoted a railroad or been employed in any capacity by a
railroad. Most of what little I now possess, I have made by watering
the capitalization of real estate. Occasionally, in times past, when I
have known of a railroad about to be constructed, and have recognized
an opportunity to make a little money through another man’s vision, on
another man’s courage and at the other man’s risk, I have purchased a
little contiguous real estate, watered the capitalization from one
hundred to one thousand percent, and then insisted that the road should
haul me and my produce at cost plus six percent.
PIONEER CAPITAL
Does it occur to you that pioneer capital should be accorded pioneer
rewards? Pioneer people make sacrifices, endure hardships, suffer
privations; but in America they take no risks and their rewards have
been certain and speedy. But their rewards would be neither certain nor
speedy did not pioneer capital precede them, blaze the way and assume
all risks. During the period when pioneer capital was liberally
rewarded, development outstripped the imagination of men. It will do
the same again if given like encouragement.
I assume that a return of six percent would be ample on capital, let us
say, to construct an additional track for the Pennsylvania Railroad
between New York and Philadelphia. That would be improvement capital.
Would the same rate be satisfactory for money invested in an unbuilt
road into an undeveloped country? To state the case is to state the
argument, and yet no railroad commissioner has yet been created with
both the wisdom and the courage to stand openly for a distinction
between development capital and pioneer capital. Unless returns are
permitted large enough to induce a reasonable man to take a risk none
will take it, for the unreasonable man has no money to risk.
In a preceding paragraph I referred to the attempt of Mr. Spreckels to
build a railroad across, or rather through, and much of the way under,
the most barren succession of mountain peaks and defiles I have ever
seen. An automobile road has been built at great expense across the
mountain. Nine-tenths of the way not a green leaf or living thing—not
even a bird or insect—will be seen.
Mr. Spreckels is a very wealthy man. He is supposed to own over
fifty-one percent of the gas, electric light, street railways and
ferries of San Diego. He does not, however, consume fifty-one percent
of the food cooked by the gas he generates; he does not enjoy fifty-one
percent of the light that illuminates that beautiful little city; he
does not take fifty-one percent of the rides on street car or ferry;
and not one percent of the unearned increment, the advance in the value
of property occasioned by his public-spirited enterprises, inures to
him. Having more money than he can use and more than his children can
legitimately spend, why does he risk everything on a railroad involving
an aggregate of more than twenty miles of tunnel through solid granite?
I will tell you why.
For some reason, let us hope a sufficient reason, the All-wise Father
has implanted in certain natures somewhat more than the average vision,
somewhat more than the average courage, somewhat more than the average
desire to achieve, and He seems to have ordained that these men shall
be happy only when achieving. Service expresses the thought admirably
when he put into the mouth of the returning Klondiker:
“Yes, there’s gold and it’s haunting and haunting;
It lures me on as of old.
But it isn’t the gold that I’m wanting,
So much as just finding the gold.”
So it has ever been, and thus it is and ever will be. These daring,
progressive souls risk their past, their present, their future and the
future of their families, upon gigantic propositions, the consummation
of which makes the appellation, “I am an American,” the proudest boast
of man.