sorts of public purposes formerly met by general taxation have drained the ordinary sources of revenue. The railroad treasury has come to be looked upon as the public milch cow, from which a new supply of nourishment may always be obtained. So railway taxes have risen by leaps and bounds. Each mile of line in the country paid $199 in taxes in 1890, and $431 in 1910. The owner of capital will not be over-anxious to lend it to concerns which, if the present tendency is not checked or reversed, will presently see all receipts beyond a bare living income diverted by taxation to the public treasury. When the state appropriates out of the earnings of the railways, as it did in 1910, more than one-fourth as much as was paid in dividends to all the stockholders, the interest rate naturally rises and the possible supply of new capital for railway investment threatens to vanish altogether.

If you take two dollars out of your purse each time you put a dollar in, bankruptcy will happen in time. The railroads are not yet reduced to the point of collapse, because most of them are still permitted to earn and retain dividends. But their borrowing power has been cut down until it suffices only for hand-to-mouth improvement. Their credit must be so far restored as to make it equal to carrying forward the creative and constructive work which we have seen to be a condition of continued national growth. How does their record for trustworthiness stand? What have they done to show themselves fit for that larger liberty of action which is indispensable if they are to perform all the functions belonging to the proper conduct of their business?

The railroads of the United States are entitled to both confidence and relief because they have not abused their trust in the matter of capitalization. While, to make possible the raising of money, stock-bonuses undoubtedly were given in their earlier history, it is true of them as a whole today that they have by far the smallest capitalization per mile in the world; and that they have kept their capitalization low by using for betterments millions of earnings which anywhere in Europe would have been handed over to stockholders, leaving the cost of improvements to be charged to capital account. This is one of the best-established facts in railroad history, though few people yet realize how great is the difference in our favor.

The statistics of railway capitalization, as given by the Interstate Commerce Commission, are, unfortunately, not always computed according to the same rules. This weakens or destroys their value for comparison. A change of statisticians may involve a change of method. However conscientious the motive, the result alters relations which should be constant. Thus the official railway capitalization in 1909 was $59,259. In 1910 it is returned at $62,657. But the increase is chargeable mostly to changes in the assignment of capital stock to one account instead of another; and one such change alone operates to increase the average capitalization $700 per mile for the entire United States. “Manifestly”, says the Statistician of the Commission in his report, “a figure so constructed should not be subjected to the burden of sustaining any very weighty conclusions”. The Bureau of Railway News and Statistics estimates the capitalization of 1911 at $59,345 per mile; probably $60,000, in round numbers, represents about the average actual capitalization today. This figure is to be compared with the capitalization per mile in other countries, as shown in the following table:

The increase of capitalization per mile of railroad in England and Wales for the nineteen years between 1890 and 1909 was from $255,073 to $328,761, or $73,688; against a total capitalization for all the roads in the United States in 1909 of $59,259. It exceeded our total capitalization by $14,429 per mile. The average annual increase for the nineteen years has been $3,873 per mile, exceeding the entire annual net earnings per mile of railways in this country during the corresponding period. Our capitalization per mile is from one-half to one-fifth that of European countries; partly because the initial cost of construction was greater there, but largely because of a fixed difference in policy. The American railway makes improvements so far as possible out of earnings or surplus, leaving capital account to carry only new construction. The European road distributes earnings among its stockholders, and issues new capital to provide necessary betterments. The difference accounts for the sharp contrasts of the figures presented above.

The American policy is in the public interest, because it tends to keep fixed charges down. A management can take its own time about replacing a surplus used for improvements. When the money has been procured by issuing new bonds, the interest on these is a mandatory charge and must be added to the total to be raised annually from rates. So far as the public is concerned, the American policy is far better. And it should be remembered that it became the American policy by choice, not of legal compulsion, at a time when managements had a liberty of action denied to them now. It would be an ironic turn of affairs if this policy, deliberately followed of their own option by railroad managements through the whole history of American railroading, at the expense of the stockholders and because it favors the rate-paying public, should be reversed, and the burden transferred to the people’s shoulders as a consequence of regulations prescribed by the people themselves. At present it seems not improbable that this will come true to some extent. A capitalization of $60,000 per mile will not transact the business of the country. On all trunk lines and wherever population becomes dense and traffic heavy, capitalization will have to be made larger for new facilities and double tracking. The heavy amounts required to provide terminals must also be charged to capital account. With wages and material as high as they are now, billions will be required. If additional money must be borrowed for the less permanent improvement of which I shall speak presently, the country will eventually have to carry a capitalization more nearly approaching that of Europe; and, as a necessary corollary, rates will rise to a corresponding level.

The railways are entitled to confidence and relief because they have displayed efficiency in the conduct of their business. This is just as marked as their relatively low capitalization. The figures already given show an increase of traffic in a year about five times as great as the increase of equipment and eleven times the increase of mileage. Yet the machine has been hauling its load, because efficiency has been developed. Heavier rails, larger engines, cars of greater capacity, increased train movement and the full utilization of equipment have kept business moving. The density of traffic in England, France and Germany should be as much greater than in the United States as the density in the Middle exceeds that in the far Western states. Yet here are the facts: