class="p1">It is clear that our railroads have been capably managed, and that the resources and powers entrusted to them are being used to the highest business advantage. How the money they spend is being employed is shown by the fact that our railroads move 272 ton miles of freight per dollar of net revenue, where the United Kingdom shows only 58, Germany 172 and France 88. For honest and efficient conduct our railways have no equals in the world. By this supreme test they declare their fitness for the gigantic work that still remains to be undertaken.

Not only, as I have shown, have they not charged to capital the cost of improvements covered by stock and bond issues in other countries, but they have shared their gains liberally with the people through rate reductions. It has become common to think of the progressive lowering of rates, while all other charges are rising, as the work of legislative compulsion. On the contrary, many of the most important reductions made in the past were voluntary. These are the lowering of charges on the great staple products of the soil. This has made settlement possible. It has made it possible for the farmer to realize the benefit of high prices for his crops. It has doubled production again and again. It has made possible the movement of lumber from the Pacific Coast to the Middle West and even the Eastern markets. It has become a definite policy. And it has left in the pockets of the people an enormous amount of money that would have gone to the carriers or at least been shared by them if they had fought against cheap transportation for the farm instead of fostering it. If the freight and passenger rates in force on the Great Northern system in 1881 had remained unchanged until 1910, there would have been collected from the public $1,267,411,954 additional. This amounts to more than eight times the average par value of its outstanding stock and bonds in the hands of the public during the same period. That is to say, if there had been no rate reductions on that system during the past thirty years, it could have paid off its entire capitalization every three and three-quarters years. If railroad rates in the United States had increased as much in proportion as the prices of commodities and the wages of labor between 1894 and 1909, the country’s bill for transportation for those fifteen years would have been over seven billion dollars more than it was.

The railroads, then, have proved themselves competent and trustworthy. But if they are to furnish the necessary additions and provide new terminals, without which the traffic of the country can no more continue to move than a derelict can voyage from port to port, the money will not come, as a magician catches coins, out of the air. It must be either earned or borrowed. It seems clear to any one familiar with the conditions and requirements that both resources must be drawn upon. First capitalization must be materially enlarged. But the railroads must be able to show that they can earn a fair return before they can add to the principal of their debt. The very fact of additional capitalization involves additional fixed charges. The investor must be assured that such earnings will not be prohibited by the law before a loan can be placed at a bearable rate of interest. And the higher the rate, the greater must be the future charge on traffic to meet it. The country comes to a stop before a financial “no thoroughfare”, from which no exit can be found save through a relaxation of the rigid and hostile prohibition of all rate advances that now absolutely negates the proper and necessary expansion of traffic agencies in this country.

The theory of encouraging home industry has prevailed in this country during the greater part of our national existence. Import duties averaging 41.22 per cent were levied in 1911. The advocates of the system claim this is done to protect American Labor. Our manufactures are protected as a matter of national policy. Transportation costs the public from one-third to one-half as much here as in Europe. This cheapness is not purchased at the cost of the workingman. In 1910 the average daily earnings of railway employes in the United States were more than twice as great as in the United Kingdom, and two and three-quarters times as much as on the Prussian-Hesse system in Germany. As employers of labor and also as producers of a commodity that everybody uses directly or indirectly, paying that labor more than it receives anywhere else in the world and supplying that service for less than is charged anywhere else in the world, the railroads deserve a public consideration not extended to them now.

Second, the railroads should be permitted to earn and hold a surplus equal to fifty per cent of the amount they pay out in dividends, to be held for emergencies and applied to improved facilities. There are many expenses, and new ones constantly arising, that must not be added to capital charge unless rates are to be made that the public cannot and ought not to be asked to bear. In addition to the heavy demands of the ordinary growth of traffic, there are many extraordinary expenses. Public authorities do not hesitate to order the railroads to provide additional equipment. This, being only partially under the owner’s control, is soon scattered over the country. The weaker roads prefer paying a per diem charge to buying for themselves. This compels the stronger roads practically to provide new equipment for the whole country and pay the cost of it from their own resources. Grade crossings must be eliminated both in the cities and in the country. The ordering of these is held to be a legitimate part of the police power of the state, whose exercise is unlimited. To raise or lower tracks at a single city may cost millions of dollars. This class of expenses grows very rapidly in the United States as population becomes denser. Shall we capitalize them also, as has been done abroad? Safety appliances must be adopted. Ingenuity is adding yearly to the number of these; and the public demands rightly that they be put into use as soon as their value is demonstrated. But all these things take money—and a lot of it.

Steel cars are a good illustration of this kind of expense. They are coming into general use, and it has been proposed to make their purchase and employment compulsory even before their benefits have been fully proved. To buy them is a big expense, but that is only the beginning. A train made up of them is sixty-five per cent. heavier than one composed of old style cars. More trains must be run to render the same service. Tracks and bridges must be strengthened. So the cost of service is increasing all the time through improvements that the railroads are just as anxious as the public to adopt. Every one of these improvements costs money. Very few of them produce one dollar of additional revenue. Yet the railroads must pay their bills or go into the hands of a receiver. Such an increase of rates as will cover these expenses; the accumulation of at least such a surplus as will furnish funds for these daily demands in the domestic economy of the railroads, must be authorized, unless traffic is to decrease, transportation facilities to grow worse instead of better, or capitalization to be increased until any rates that the people can pay will fail to cover the fixed charges of the common carriers.

An extraordinary doctrine is now being propounded in many quarters. It is held that the accumulation of a surplus is evidence that rates are too high and ought to be lowered; just as if the man who earns, saves and puts a dollar in bank to meet future contingencies thereby admitted himself guilty of either dishonesty or extortion. It is held that a railroad has no right to receive or enjoy income derived from any other