of the reference to dividends in 1907 was exposed a year ago, and
$115,550,909 of the 1908 total is proved to be fictitious by the line
in the condensed income statement of the report (page 65) reading:
"Dividends declared from current income, $271,388,453." It takes
dividends from surplus, dividends by leased companies, and dividends
from surplus of leased companies to make up that gross deception as
to the dividends declared in 1908. And all these "several dividends"
are only made statistically possible by including in current income
$274,450,192 "other income" NOT derived from transportation.
It is impossible to overestimate the harmful popular effect of
exaggerating the dividends paid by the railways by $80,693,665 in
1907 and $115,550,909 in 1908. The public mind does not stop to
distinguish between dividends "declared," dividends paid out of
"income" and net dividends actually paid out of net earnings of
railway traffic.
This whole statistical structure of fictitious dividends has been
built up in successive reports upon the false premise of including
intercorporate payments on both sides of the income account. What the
public is entitled to know is the disposition of the gross sum paid
by it for transportation services--those services which the Act to
Regulate Commerce was passed to regulate.
BEWILDERING CHANGES IN NOMENCLATURE.
Scattered through the official reports for 1908 the student is
confronted with numerous changes in terminology, many of which are
for the better, but nearly all impair that continuity of names
and phrases which is so desirable in comparative statistics. For
instance, the public has been taught, by official practice, to speak
of the revenues of the railways derived from the transportation
of passengers, freight, mail and express, as "Gross earnings from
operation." The phrase is descriptive, definite and clear. For this
the Commission has substituted "Rail operations, operating revenues."
Former reports spoke of "Income from operation," which now gives
place to "Net operating revenue." To this is added the "net revenue
from outside operations," making a "Total net revenue," from which
"Taxes accrued" are deducted, the remainder being "Operating income."
It will be perceived that this last phrase, which covers revenues
from which operating expenses and taxes have been deducted and to
which the net revenues from outside operations (sometimes they
involve a deficit) have been added, comes perilously near the "Income
from operation" of preceding reports.
The exclusion of the reports from switching and terminal companies
in some instances, while they are included in others, introduces an
element of perplexing uncertainty at every turn and really vitiates
all comparisons with former reports.
The Commission itself seems to realize the bog into which the
official statistician has plunged its accounts, when it says:
"The changes in the income account submitted in the report under
consideration _are so far reaching in their results_, in a number of
instances, as to impair direct or close comparison with figures for
similar items in previous statistical reports."
And now it is proposed to throw all the accumulated statistics of
twenty-two years out of consecutive gear by substituting the calendar
for the fiscal year.
* * * * *
The writer has deemed the foregoing comments necessary to clear the
atmosphere before proceeding to the introductory summary showing
the salient features of the railway industry in 1909 compared with
similar items in 1899 and 1889. The data for 1909 is compiled from
the annual reports to this Bureau covering 221,132 miles of operated
line, together with the monthly reports to the Commission of earnings
and expenses of all classes of roads for that year, covering an
average operated mileage of 233,002.
SUMMARY OF RAILWAY RESULTS IN 1909, 1899 AND 1889, WITH PERCENTAGES
OF INCREASE FOR EACH ITEM BY DECADES.
(m = 1,000; d = decrease.)
====================================+============+============
| |
Item | 1889 | 1899
| |
| |
------------------------------------+------------+------------
Miles of line | 153,385| 187,534
Miles of all track | 195,958| 250,784
| |
Net capitalization (m) | $7,366,745| $9,432,041
Net capitalization per mile of line | 48,021| 51,764
Net capitalization per mile of track| 37,593| 38,527
| |
Gross earnings from operation (m) | 964,816| 1,313,610
Gross earnings per mile of line | 6,290| 7,005
Expenses of operation (m) | 644,706| 856,968
Expenses of operation per mile of | |
line | 4,204| 4,570
Net earnings from operation (m) | 320,101| 456,642
Net earnings per mile of line (m) | 2,086| 2,435
Ratio of expenses to earnings | 66.81| 65.24
| |
Receipts from freight (m) | $254,041| $291,113
Receipts from passengers (m) | 642,662| 913,737
Receipts from mail (m) | 21,901| 35,999
Receipts from express (m) | 19,778| 26,756
| |
Passengers carried (m) | 472,171| 523,176
Passengers carried one mile (m) | 11,553,820| 14,591,327
Receipts per passenger per mile | |
(cents) | 2.165| 1.978
| |
Freight tons carried (m) | 539,639| 959,763
Freight tons carried one mile (m) | 68,727,223| 123,667,257
Receipts per ton per mile (mills) | 9.22| 7.24
| |
Locomotives, number | 29,036| 36,703
Locomotives, weight (tons) | 1,161,440| 1,945,259
| |
Passenger cars (number) | 24,586| 33,850
| |
Freight cars, number | 829,885| 1,295,510
Freight cars, capacity (tons) | 16,597,700| 34,978,770
| |
Average tons in train | 179| 243
| |
Employes, number | 704,743| 928,924
Employes, compensation |$389,785,664|$522,967,896
Proportion of gross earnings | 40.40| 39.80
Proportion of operating expenses | 60.46| 61.02
| |
Taxes | $27,590,394| $46,337,632
Per mile of line | 180| 247
Proportion of gross earnings | 2.86| 3.53
------------------------------------+------------+------------
{table continued}
====================================+==============+=================
| |Increase|Increase
Item | 1909 | over | over
| | 1889 | 1899
| | % | %
------------------------------------+--------------+--------+--------
Miles of line | 234,182| 52.7 | 24.9
Miles of all track | 340,000| 73.5 | 35.5
| | |
Net capitalization (m) | $13,508,711| 83.3 | 43.2
Net capitalization per mile of line | 57,962| 20.7 | 11.9
Net capitalization per mile of track| 39,730| 5.6 | 3.1
| | |
Gross earnings from operation (m) | 2,443,312| 153.2 | 86.0
Gross earnings per mile of line | 10,486| 66.7 | 49.7
Expenses of operation (m) | 1,615,497| 150.5 | 88.4
Expenses of operation per mile of | | |
line | 6,933| 64.9 | 51.7
Net earnings from operation (m) | 827,814| 157.9 | 81.2
Net earnings per mile of line (m) | 3,552| 70.2 | 45.8
Ratio of expenses to earnings | 66.12| d 2.3 | 1.0
| | |
Receipts from passengers (m) | $564,302| 122.1 | 93.8
Receipts from freight (m) | 1,682,919| 161.8 | 84.1
Receipts from mail (m) | 50,935| 132.6 | 41.5
Receipts from express (m) | 63,669| 221.9 | 137.9
| | |
Passengers carried (m) | 880,764| 86.5 | 68.3
Passengers carried one mile (m) | 29,452,000| 154.8 | 101.8
Receipts per passenger per mile | | |
(cents) | 1.916| d 11.5 | d 3.1
| | |
Freight tons carried (m) | 1,486,000| 175.3 | 54.8
Freight tons carried one mile (m) | 222,900,000| 224.3 | 80.2
Receipts per ton per mile (mills) | 7.55| d 17.0 | 4.2
| | |
Locomotives, number | 57,220| 97.0 | 55.9
Locomotives, weight (tons) | 4,158,000| 258.0 | 113.7
| | |
Passenger cars (number) | 46,026| 87.2 | 35.9
| | |
Freight cars, number | 2,113,450| 154.6 | 63.1
Freight cars, capacity (tons) | 73,126,370| 340.5 | 109.0
| | |
Average tons in train | 388| 116.9 | 59.6
| | |
Employes, number | 1,524,000| 116.2 | 64.0
Employes, compensation |$1,003,270,000| 157.4 | 91.8
Proportion of gross earnings | 41.00| 1.4 | 3.0
Proportion of operating expenses | 62.10| 2.7 | 1.7
| | |
Taxes | $91,280,000| 230.8 | 96.9
Per mile of line | 390| 116.6 | 57.9
Proportion of gross earnings | 3.73| 30.4 | 5.6
------------------------------------+--------------+--------+--------
There is not a line or figure of this table, with its percentages
of increase, that does not testify at once to the amazing growth of
American railways and to the equally amazing economical basis upon
which they render incalculable services to the American people on
terms that challenge the admiration of less favored peoples.
REVIEW OF THE LAST THREE CALENDAR YEARS.
Where the Twenty-second Annual Report of the Interstate Commerce
Commission minimized the loss inflicted on the railways by the
business depression of 1908, the Twenty-third Annual Report
naturally, and by reason of the same cause, minimizes the substantial
recovery of 1909. Where the former showed a loss in gross earnings of
only $164,464,941 below the preceding year, when the actual result
of the depression was nearly $300,000,000 ($298,457,576), the latter
shows a recovery of only $21,770,228, when it was approximately
$282,000,000 ($281,934,932).
The explanation of this discrepancy is, of course, the Commission's
adherence to its own fiscal periods of statistics, which do not
happen, in this instance, to coincide with the ebb and flow of
adversity and prosperity. The true movement of railway traffic
before, during and after the recent business depression is more
nearly reflected in the following figures for the calendar years
1907, 1908 and 1909, compiled from the monthly returns to the
Interstate Commerce Commission, divided into periods of six months:
SUMMARY OF GROSS EARNINGS OF THE RAILWAYS DURING THE CALENDAR YEARS
1907, 1908 AND 1909, BY MONTHS AND HALF-YEARLY DIVISIONS.
======================+================+================+===============
| 1907 | 1908 | 1909
----------------------+----------------+----------------+---------------
January | $199,000,000 | $173,611,809 | $183,139,419
February | 178,300,000 | 161,085,493 | 174,425,832
March | 211,700,000 | 183,509,935 | 205,700,012
April | 214,800,000 | 175,071,604 | 196,993,104
May | 224,800,000 | 174,527,138 | 201,572,072
June | 223,000,000 | 184,047,216 | 210,356,965
+----------------+----------------+---------------
Half year | $1,251,600,000 | $1,051,853,195 | $1,172,185,404
+----------------+----------------+---------------
July | $228,672,250 | $195,245,655 | $219,964,739
August | 241,303,469 | 206,877,014 | 236,559,877
September | 234,386,899 | 219,013,703 | 246,065,955
October | 250,575,757 | 233,105,042 | 260,613,053
November | 220,445,465 | 211,281,504 | 247,370,954
December | 194,304,969 | 205,455,170 | 222,006,183
+----------------+----------------+---------------
Half year | $1,369,688,809 | $1,270,978,038 | $1,432,580,761
Total | 2,621,288,809 | 2,322,831,233 | 2,604,766,165
Average mileage | 227,000 | 231,584 | 234,950
Earnings per mile | $11,548 | $10,030 | $11,086
| | |
----------------------+----------------+----------------+---------------
SUMMARY OF OPERATING EXPENSES OF THE RAILWAYS DURING THE CALENDAR
YEARS 1907, 1908 AND 1909, BY MONTHS AND HALF-YEARLY PERIODS, WITH
RATIOS TO GROSS EARNINGS.
======================+================+================+===============
| 1907 | 1908 | 1909
----------------------+----------------+----------------+---------------
January | $134,225,000 | $132,502,830 | $132,659,037
February | 121,500,000 | 123,773,906 | 125,229,071
March | 142,425,000 | 128,200,065 | 136,086,299
April | 144,990,000 | 124,284,164 | 134,612,576
May | 151,740,000 | 123,932,568 | 135,846,301
June | 150,525,000 | 124,208,561 | 136,160,775
+----------------+----------------+---------------
Half year | $845,405,000 | $756,902,094 | $800,594,059
Ratio | 67.7% | 72% | 68.3%
+----------------+----------------+---------------
July | $152,992,445 | $127,978,304 | $141,613,967
August | 156,837,914 | 131,557,475 | 146,175,338
September | 156,631,780 | 137,155,143 | 150,621,999
October | 166,999,266 | 144,195,330 | 156,628,513
November | 154,150,468 | 136,809,421 | 153,043,599
December | 142,631,008 | 136,867,622 | 153,699,578
+----------------+----------------+---------------
Half year | $930,242,881 | $814,563,295 | $901,782,994
Ratio | 68% | 64.1% | 62.9%
+----------------+----------------+---------------
Total | $1,775,647,881 | $1,571,465,389 | $1,702,377,053
Ratio | 67.8% | 67.7% | 65.4%
+----------------+----------------+---------------
Net operating revenue | $845,640,928 | $751,365,844 | $902,389,113
Taxes | 83,156,188 | 86,872,885 | 92,964,510
+----------------+----------------+---------------
Net operating income | $762,484,740 | $664,492,959 | $809,424,603
----------------------+----------------+----------------+---------------
Through these tables the reader is able to trace the upward course
of railway receipts in 1907 to their culmination in October of that
year; their rapid drop to February, 1908; through the hard summer
following to the gradual recovery of 1909, until in October last they
reached the highest monthly total on record.
Concurrently with this story of the depression of 1908, the tale
of railway distress and of the drastic measures adopted to meet
the emergency can be read in the half-yearly ratios. The ratio for
the fiscal year 1906-'07 was 67.53%, and the shadow of approaching
trouble was shown in an increase of this ratio to 67.7% for the first
six months in the table. By December this ratio had risen to 73.40%.
The enormous receipts of the autumn months held the ratio for the
six months down to 68%. In February, 1908, it marked the high and
ruinous figure of 76.84, and from that point the trend, due to severe
retrenchments, was steadily downward until it touched 60.10% in
October, 1909.
The ratio of 64.1% for the second half of 1908 is the true measure
of the ability of the railways to cut their expenditures to fit the
times. But they were on bed rock, as the succeeding months of small
receipts proved, when the ratio went up to 72.43% in January, and
averaged the high figure of 68.3% for the first six months of 1909.
The heavy receipts of October and November without a corresponding
expansion of expenditures resulted in the phenomenally low ratios
of these months. But the severity and necessities of operating
conditions in December, 1909, ran the ratio of expenses up to 69.23%.
The net earnings for the three years under consideration are apt to
lead to erroneous conclusions as to the effect of the depression.
Neither the loss in 1908 nor the recovery in 1909 reflects the
true swing of the pendulum. The one minimizes the loss, because it
conceals the cessation of all constructive work, the curtailment of
betterments and improvements, and the postponement of all purchases
for replacements except of the most immediate and imperative nature;
the other exaggerates the recovery because of heavy receipts without
the resumption of the concurrent expenditures that should attend
them. The railways in the fall of 1909 were simply doing business
on the margin of facilities provided during the fat months of 1907
in anticipation of a continuation of prosperous times. Some idea of
the extent of this margin may be gained from the parking of 400,000
freight cars in the yards with 200,000 in the shops in April, 1908.
At no time since has this margin been wholly exhausted.
But a continuation of traffic on the scale of the past six months
will necessitate an immediate expenditure of $100,000,000 to
$150,000,000 for the replacement of freight cars alone.
INCOME ACCOUNT FOR THE CALENDAR YEAR 1909.
The monthly summaries issued by the Interstate Commerce Commission
from time to time afford the details for the construction of the
following statement of the transportation revenues and expenses of
the railways for the calendar year 1909, from which the averages per
mile and the ratios have been computed on the basis of 234,950 miles
of operated line.
STATEMENT OF OPERATING RECEIPTS AND EXPENSES OF THE RAILWAYS OF THE
UNITED STATES FOR THE CALENDAR YEAR ENDING DECEMBER 31, 1909, WITH
AMOUNTS PER MILE AND RATIOS.
(Average miles of line operated, 234,950.) (a)
====================================+================+=========+========
| | |Ratio to
| Amount |Per Mile | Gross
| | |Earnings
------------------------------------+----------------+---------+--------
Receipts from: | | |
Freight | $1,796,258,314 | $ 7,645 | 68.96
Passengers | 601,722,959 | 2,561 | 23.10
Other transportation revenues | 182,706,090 | 777 | 7.01
Non-transportation sources | 24,080,802 | 103 | .93
+----------------+---------+--------
Total revenues | $2,604,766,165 | $11,086 | 100.00
| | |
Expenses: | | |
Maintenance of way and structures | $ 339,167,666 | $ 1,448 | 13.06
Maintenance of equipment | 387,155,080 | 1,644 | 14.83
Traffic expenses | 53,257,408 | 223 | 2.01
Transportation | 857,339,037 | 3,650 | 32.92
General expenses | 65,441,053 | 280 | 2.52
Unclassified | 16,809 | -- | --
+----------------+---------+--------
Total expenses | $1,702,377,052 | $ 7,245 | 65.35
Net operating revenues | 902,389,112 | 3,841 | 34.65
Profit from outside operations | 3,367,713 | 14 |
+----------------+---------+--------
Net revenues | $ 905,756,825 | -- | --
Taxes | 92,964,510 | 395 | 3.56
+----------------+ |
Net income | $ 812,792,315 | $ 3,460 |
------------------------------------+----------------+---------+--------
(a) At the close of the year the reports covered 236,166 miles of
operated line.
Unfortunately there are no similar figures for the calendar year
1907 with which comparisons may be made, but the official returns
for the year ending June 30, 1907, when railway earnings reached
their maximum before the panic of that year, afford the following
instructive comparisons:
===============================+=====================+================
| Year to | Year to
| June 30, 1907 | Dec. 31, 1909
-------------------------------+---------------------+----------------
Gross earnings | $2,589,105,578 | $2,604,766,165
Per mile | 11,383 | 11,086
Operating expenses | 1,748,515,814 | 1,702,377,053
Per mile | 7,687 | 7,245
Ratio | 67.53 | 65.35
Net revenues | 840,589,764 | 902,389,112
Per mile | 3,696 | 3,841
Taxes | 80,108,006 | 92,964,510
Per mile | 367 | 395
-------------------------------+---------------------+----------------
It will be perceived that while the earnings in 1909 exceeded those
of 1907 by over 15½ millions they were almost $300 less per mile,
while the operating expenses were actually $442 less per mile. The
decreased operating ratio in 1909 bears unmistakable testimony as to
where the increase in net revenues came from.
With an increase of nearly 9,000 miles of line only $339,167,665
was spent on maintenance of way and structures in 1909 against
$343,544,907 in 1907, and the urgent demands of returning activity
made the expenditures on this account liberal in comparison with
those for the year ending June 30, 1909, i. e. $311,368,083, or
$1,336 per mile. It will be years before the railways recover from
the economies forced on them by the loss of $300,000,000 in revenues
in 1908.
UNREGULATED REGULATION OF AMERICAN RAILWAYS.
Today the railways of the United States are "cribb'd, cabin'd and
confined" in their services to the American people, not so much by
the laws for their regulation as by the spirit in which those laws
are administered. To the general tenor and purposes of statutory
regulation the railways have become largely reconciled; but from the
spirit in which the laws are sought to be enforced, there has to be
continuous appeal to the courts and to the public sense of justice.
Regulation of railways has been persistently interpreted by political
Commissions to spell reduction of rates and exacting conditions
that would drain the purse of Fortunatus. Between 1889, when the
Interstate Commerce Commission's statistics first became a valuable
index of railway operation, and 1909, the average rate per ton mile
has fallen from 9.22 to 7.55 mills. On the freight tonnage of 1909
this meant a reduction of over $372,000,000 in the yearly revenues of
the railways. The railways suffered that loss from their income when
they needed every cent of it to maintain the people's highway in a
condition to transport the people's ever-growing traffic.
The railways lost it, but who got it? The people? Search the market
reports of the land, from Eastport to San Diego, and you will find
incontestable proof that not one cent of these millions reached the
pockets of the people, in whose name all regulation of railways
is demanded and for whose benefit all reductions are claimed. The
average rate on all commodities has gone down, the price of every
commodity transported by the railways has gone up. Who has pocketed
the difference?
There can be only one answer--the producers, the shippers and the
traders. Today nine-tenths of the increased cost of living in the
United States is chargeable to this ever vigilant and aggressive
coalition. For everything the railways must buy--labor, supplies,
money--they have to pay the advanced prices of the day. But the
protests of the shippers and the rulings of the Commission forbid
their raising a rate or adopting a money-saving economy. They
attempted to readjust freight rates in 1900 one-fiftieth of a cent
per ton mile above a ruinously low average and the outraged shippers
secured the passage of the Hepburn Act!
How the federal Commission and shippers work together for the
so-called regulation of the railways is evidenced in the unbroken
tenor of the decisions handed down by the Commission. Out of 357
decisions printed during the year 1908-09, no less than 219, or
61.3%, were orders granting reductions of rates or reparation for
charges found comparatively excessive or unreasonable. In not one
case in a score was the rate found excessive or unreasonable per se.
In only one case out of the 357 was an increased rate ordered, and
this was done reluctantly and as unavoidable.
Although the decisions are for the most part the unanimous finding of
the Commission, the following table distributes the opinions of the
year among its members into dismissals and reductions or reparations
among the Commissioners writing them:
=================================+============+==============
| | Granting
Opinion by | Dismissing | Reductions or
| Complaints | Reparation
---------------------------------+------------+--------------
Chairman Knapp | 21 | 20
Commissioner Clement | 16 | 29
" Prouty | 13 | 40
" Cockerill | 20 | 20
" Lane | 20 | 42
" Clark | 29 | 28
" Harlan | 19 | 40
+------------+--------------
Total | 138 | 219
Per cent | 39.7 | 61.3
---------------------------------+------------+--------------
Some of the cases upon which the Commission is called on to pass are
so trivial as to be beneath the notice of a justice's court, while
others involve issues so momentous as to threaten the whole structure
of railway rates by which the unparalleled prosperity of the country
has been made possible.
But the number of cases reaching the Commission for adjudication is
insignificant compared with the grist of informal reparation orders
that runs an endless stream through its regulating rollers. In the
twelve months from December 1, 1908, to November 30, 1909, these
aggregated no less than 2,223 separate orders involving amounts all
the way from 47 cents to $14,717.64, as seen in the following orders:
7100. _Larabee Flour Mills Company_ v. _Atchison, Topeka &
Santa Fe Railway Company_. September 11, 1909. Refund of
$0.47 on shipment of cotton bags from Kansas City, Mo., to
Hutchinson, Kas., on account of excessive rate.
3629. _Lackawanna Steel Company_ v. _Central Railroad Company
of New Jersey_. June 26, 1909. Refund of $14,717.64 on
shipments of spiegeleisen from Newark, N. J., and Hazard, Pa.,
to Buffalo, N. Y., on account of excessive rates.
Multiplying these awards by the number of orders enables the reader
to imagine the range of their respective pettiness or portentous
possibilities.