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The items which constitute capitalization of railroads, or are sup-

posed to represent the amount of money that has been invested in

the construction and equipment of railroads, are the stock, the

funded debt and current liabilities.

These three items constitute the “Total Railway Capital,” as it

appears in Table B, accompanying this report, and indicate the

amount of money invested in railway construction and equipment,

by all the railroads whose reports of capitalization are made to the

Bureau of Railways.

The sum total of these items of capitalization is nothing less

than prodigious.

Among the railroads whose capitalization is greatest, are the
Baltimore and Ohio, with 474 millions; the Delaware, Lackawanna
and Western, 37 millions; the Erie, 400 millions; the Lake Shore
and Michigan Southern, 180 millions; the Lehigh Valley, 131 mil-
lions; the New York Central and Hudson River, 410 millions; the
Pennsylvania, 664 millions; the Pennsylvania Company, 272 millions;
the Philadelphia and Reading, 100 millions; and the Pittsburg, Cin-
cinnati, Chicago and St. Louis, 130 millions.

Here is inserted a table, showing by comparison, the capitalization
of these ten railroads for the years 1902 to 1906 inclusive.

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Making a total for these ten leading roads of $2,802,446,370. From these figures it will be seen that they constitute in no small degree, the capitalization of railroads whose annual reports are made to the Bureau of Railways

Looking at the total of all railroads, we find that the total amount of capital stock outstanding is $1,789,242,689,funded debt, $2,036,419, 241. Other forms of capitalization indicated as current liabilities $479,218,367, making a total of railway capital of $4,304,880,297

The development of railroads in the United States, and especially in Pennsylvania, has eclipsed every other enterprise, industry or interest in the history of the world. So rapidly have been these advancements that the busy world has no clear realization of the immensity of railway capitalization.

In 1887 the amount of capital stock of railways paid in, was reported to be $749,690,420; the amount of funded indebtedness $765,786,229; current liabilities, or what was then known as floated indebtedness $43,542,872, making a total railway capital in 1887, of $1,559,019,521. Here then is an increase over the amount just given as representing the total capital, to wit, $1,559,019,521 to $4,304,880,297, or an increase amounting to nearly the prodigious sum of three thousand millions of dollars. Certainly these figures present the most conclusive evidence that railroad enterprises offer alluring inducements for capitalists and for investments in general by our American people.

The exercise of supervisory powers on the part of the National government and the several states of the Union, it is claimed has had the effect in the last few years to retard construction of new railroads. In other words, it has made capital timid and staid to some extent the development of transportation facilities. And yet looking at this period of railway development from 1887 down to, and including the year covered by this report, we find that almost limitless amounts of money have been invested in these enterprises, the creation and growth of which are so essential to the prosperity of our commerce.

In considering the capital of railroads and other great corporations, that are so greatly concerned in the industrial affairs of our state, we are only in position to give figures which denote capital as returned under the sworn statement of the officers of these corporations.

If the student of political economy were to look upon these figures denoting capitalization of railroads, as actually representing the amount of money which has been invested in their construction and equipment, he would be greatly mistaken.

It is very easy for the people of the state to look back and discover where errors were made in legislation and administration. The inducement to make fortunes out of over and fictitious capi. talization, may have accentuated the development and growth of our splendid railway facilities, yet at the same time a wrong has been done the State, and our financial affairs. In general our laws have been against fictitious capitalization, but they frequently have been disregarded and violated. The promoter of railways has been largely free to ply his avocation in advancing enterprises either of new railway construction or recapitalization of railroads through the process of consolidation and merger, thus again increasing extravagantly capitalization.

From the present point of view it is the duty of the State to so supervise the financing of railways that the total capitalization shall not exceed the cost of road and equipment.

To exploit the wreckless financing of the past might disturb financial affairs, and probably could not result in the accomplishment of any good.

To what extent steam railroad corporations have been over capitalized in Pennsylvania, is by no means easily ascertained, indeed any percentage representing fictitious capitalization would be mere conjecture.

The situation from a financial standpoint is deplorable, and not complimentary either to the legislative branches of the government or to the administration of such fragmentary laws as are on the statute books with reference to the prohibition of fictitious capitalization.

The incongruities which exists, and that are apparent on every side, ought however, to admonish us that legislative enactments are seriously needed in order that not only railway corporations, but all other corporations shall be held to a strict accountability in the issuance of capital stock and bonds with which to obtain funds for carrying out the enterprises contemplated at the time of their incorporation.

This is an exceedingly important question, now that a general supervision is to be had over the business affairs of transportation companies, and especially true is it, if the State is to exercise the right to adjust rates of transportation for persons and commodities.

One of the most important factors to be considered in determining a reasonable rate of transportation is the cost of construction and equipment.

If a railroad company has $10,000,000 of capital stock and $10,000,000 of bonds oustanding, this represents a combined capital of $20,000,000, and must be taken into consideration, when the State, through its proper officials is attempting to fix a rate for the performance of a service to the public in the matter of transportatiou. If, as a matter of fact then, there has been but $10,000,000 actually invested and the adjustment of rates is predicated in whole or in part, upon the investment of $20,000,000, then indeed the basis is wrong and the conclusions are fallacious.

Our laws usually require a payment of 10 per cent. in cash at the organization of a corporation, or as in the case of railroads, at so much per mile, and a declaration that these amounts have been paid must be verified by affidavit.

It would be better, if the State, through a proper official, were to supervise the payment of this preliminary amount, as well as supervise the payment of all sums in the way of additional assessments upon the capital stock of corporations. For in this way the State would be able to have a record of the actual amount of money that had been paid either for stock or for bonds, and this information would be reliable data upon which to predicate action by and on behalf of the State in its relations with such corporations.

For many years in the report of the Bureau of Railways, the Secretary of Internal Affairs, has made an effort to show plainly the necessity for reform legislation in regard to the issuance of stocks and bonds, particularly of common carrier corporations.

The duty is plain and it is imperative, that the legislature ought not longer to disregard its duty in the line indicated.


Having considered the amount of the capital stock and 'bonded indebtedness and the current liabilities of steam railroads in Pennsylvania, it is important to proceed farther to ascertain how far these liabilities of corporations conform to the investments that have been made in cost of construction, in equipment, in properties owned, and in other items which make up the assets of steam rail. ways in Pennsylvania.

Table C, which is devoted to the assets of these corporations, gives the details with reference to each one of the steam railroads, lying in whole, or in part, in Pennsylvania, whose annual reports are made to this office.

In an examination of this table it is found that the total cost of roads owned is $2,450,910,596; the cost of equipment owned $385,996,354; of stocks and bonds owned, $861,194,524; cash and current assets, $511,197,697; other assets, $288,407,818, or a total of assets amounting to $4,497,706,989.

These figures denote, or are supposed to indicate, what has been done with the thousands of millions of dollars which have been received by steam railway corporations of Pennsylvania, from the is. suance of stocks and bonds.

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