Turn from the operating end of the railroad business to the capital charge imposed upon us through no fault of our

own.

In

In 1899, it was no uncommon thing to see the railroads of this country raising capital in all the markets of the world, for building, for improvement, at 4 per cent. that year the first mortgage bonds of old established systems like the New York Central, the Pennsylvania Railroad, the Lake Shore, sold at prices to yield less than 3 per cent. on the investment. You may find, in the records, that the New York Central 3 per cent. bonds were in strong demand in this country and in Europe at more than $1,100 for every $1,000 bond.

To-day the same old established bonds of the New York Central are worth in the markets about $880 per bond. A few years ago, the Pennsylvania raised several hundred millions of dollars for improvements, additions, and terminals at an average rate little over 3 per cent. This year, the new capital of that system cost more than 4 per cent. Where the railroads of the country ten years ago could obtain all the money they needed for their legitimate requirements, to-day these same railroads are stinted for capital and are compelled to pay larger and larger commission for meagre supplies of money at a rate 1 to 2 per cent. higher than the rate of other years.

The burden of borrowing is one of our heaviest burdens, because it is perpetual. We need in this country at least 500 Million Dollars a year of new railroad capital. To get it, under present conditions, we have to assume a charge of 25 to 30 Million Dollars a year, although we pay that additional interest charge to investors all over the world. It does not enable us to carry a single additional ton of freight, to cut a fraction of a cent from our operating costs, or to add a single additional car to our equipment. It is simply, to the railroads, an additional item in the cost of living, the cost we have to earn and pay out of our revenues year by year.

No one has claimed that when once a railroad bond is sold it becomes anything else but a fixed interest tax that must be collected from the public. So long as

bankers and investors can buy these bonds at a high interest rate, they become collectors of a high tax that the public must pay. were building and equipping 6,000 miles of new railroad a year, it would require 240 Million Dollars. We now need 500 Million Dollars annually for betterments. The difference of 13 per cent. between a 4 per cent. rate and a 5 per cent. rate on this borrowing amounts to more than 11 Million Dollars a year. The average life of a bond is forty years. Therefore, during the next forty years, the railroads will pay 450 Million Dollars more in interest on the money borrowed each year than they would have paid at the 4 per cent. rate.

Under present conditions the only sane argument for favoring government owner

ship lies in the fact that the interest rates would be an average of 2 per cent. less per annum. On the present bonded debt this would amount to saving about 200 Million Dollars a year. The service to the public, the development of the country and the freight rate - would be worse than on the railroad as now managed. While government management of our transportation system would probably be undesirable, the Government should, in the interest of the people, do all that it consistently can to aid the railroads' credit in finding new money to carry on improvements and new railroad building.

It is difficult to lay the blame for this condition upon any one in particular, yet the fact that the greatest instrument in our future development is being crippled, all thoughtful men must see. Perhaps, in

our railroad expansion and railroad enthusiasm, we have done some things that have accelerated the decline of American railroad credit, but the best critics of the world acquit the American railroads of any great inflation in their bonded debt, even though they have at times criticised expansion in the stocks and junior securities.

These matters that I have cited are some of the facts. There are other facts equally important. I am not a pessimist about American railroads. This year we look for apparently abundant crops, and to the high-class railroad freight business that will result throughout the whole year from this abundance. Net earnings will expand and we shall have a new lease of life.

NEW CONSTRUCTION AT A STANDSTILL

I have here set down some causes. Let us look at the railroad question from another viewpoint. For thirty years past, For thirty years past, we have added an average of about six thousand miles of new railroad a year to the American transportation system. To build and equip these lines we have drawn from all the markets of the world about 240 Million Dollars a year in new capital. To-day those who figure on the building of new lines have to face two very serious problems. The first is the question whether or not, with the rising cost of doing railroad business, new railroads can be operated with a profit. The second is whether or not we can get the necessary capital. Under present circumstances, as there is a grave uncertainty about the answer to those two searching questions, the builders of railroads in the United States have slowed down. Most of us do not care to undertake the responsibilities of spending the money that is now necessary to build new lines, and then face the even greater question of operating them at a living profit.

Therefore, under present conditions, the average amount of new railroad in this country in the next few years will fall far short of the average for the last thirty years. No new lines of importance are being projected. The only expansion going on is a very minor matter, a matter of little extensions into rich sections of

important spurs and feeders. The builders of the railroads must wait until the problems of to-day are settled before they can plunge ahead and give their ambitions. and their constructive plans free rein.

What that means may best be illustrated by a few facts. Suppose that the check in railroad building cuts down the average yearly new mileage to 2,000 miles. In steel rails alone, this means a decrease of 500,000 tons a year. To make a ton of steel rails, it takes two tons of iron ore, one ton of coke, and half a ton of limestone. All that means money to the laborer. This item of 500,000 tons of steel rails alone will account for the loss to the railroads of about 100,000 car loads of freight every year-enough to make up a train 757 miles long-and it cuts off many freight crews to man these trains. The production of the material and the movement of the freight employs an army of men, all drawing good wages.

It is not necessary to carry this illustration onward, to trace it through the payrolls of the car and engine building companies, through the lumber camps, the paint factories, and the other industries that live largely upon the railroad industry. Once stated, it is self-evident that, if the economic conditions of the next ten years make it impossible or unprofitable to build this 4,000 miles of new railroads that otherwise would be built, labor, industry, trade, and commerce alike will feel the effects of that curtailment. You cannot wipe out 160 Million Dollars' worth of construction in this or any other country without paying for that curtailment in nearly every branch of industry. in the country.

I write as a railroad builder. The railroad I helped to plan and helped to build is to-day employing more than fifty thousand men. Their families make up an army of a hundred and fifty thousand people who draw the support and education of their children from our pay-rolls. In the part of the country where my work has been done, railroads are still needed. East of the Mississippi River, there are less than five thousand acres of land to every mile of railroad, but in the West there are more than thirteen thou

sand acres. Oklahoma is only half supplied with railroads. Arkansas is barely prospected, Louisiana is short of transportation properly to develop the state. Texas needs very badly at least 10,000 miles of new line. Arizona, New Mexico, and, in fact, almost all the Western states need a large amount of railroad building in the next ten years. I know that these great regions of the Southwest can never come into their own until they get the transportation facilities they need. I should like to see railroad building go forward. It cannot be done in a large way until the future of the railroad business is clearer than it is to-day.

This is the result from the standpoint of new construction - namely, that it has come to a temporary halt and must remain stagnant until a solution is reached.

These things must not happen. It is unthinkable that the mass of the American people desires to destroy the greatest of the constructive industries, the building of new railroads. It cannot be conceived that the interest of the whole nation will be. served by bringing about a condition that tends to injure the world-wide credit of the American railroads to a point of saying that we do not want more railroads to enable us to go on upbuilding.

A political leader strong enough to formulate a combination constructive and regulative policy will eventually take hold

of this most important question and promulgate it. I fully expect to see a resumption of the building of railroads, establishing new cities, the opening up of untilled lands, and patient people waiting for railroads to develop their lands, coaxing thousands of producers every year into the rich, new country in which such work will be carried on. That means that a solution of the present difficulty, which amounts to a deadlock, will be found before it comes to the era of a setback.

Here is need of real constructive statesmanship. This is a problem of pure statesmanship. It is not a matter of political jobbery, of academic theory, of experimental, haphazard procedure. It is not a matter that can be settled and laid aside by political chicanery, by. the expounding of academic ideas, by the piling up of bureau upon bureau at Washington, and commission upon commission throughout the land.

Practically all the legislation, state and Federal, on the matter of railroads in the past decade, has been restrictive, prohibitive, regulative. Some of it has been salutary. Some of it has tended to be destructive. What is needed now and what we must have if we are to go forward is the direction of upbuilding. We have been told in a thousand ways what we must not do and dare not do. The administration of the future must tell us what we can do and show us the way to do it.

T

HAT will be seventy-two cents," said Mr. Danahy, handing my parcel across the counter. "Will that be all to-day?"

"Seventy-two cents!" I gasped. "For goodness' sake, man, how much does that steak weigh?"

"Two pounds and a quarter-thirtytwo cents a pound," smiled Mr. Danahy. I was proceeding to unburden my mind. on the subject of robbers, the beef trust, the high cost of living, and the tariff, when a small girl came into the butcher shop. "Mama wants ten cents' worth of soup

meat," she said. "She said won't you please cut it with the ham knife. It makes it taste better."

Mr. Danahy sharpened his knife, obligingly trimmed a ham with it, and then deftly carved and sawed off a chunk of beef, which he threw on the scales. I glanced at the weight. It was two and a quarter pounds - the same as my porterhouse steak.

"There you are, little girl," he said, as he handed her the package. She gave him ten cents in payment.

"That's the answer," he said as the child disappeared. "She gets two pounds and a quarter for ten cents. I've got to sell those cuts for that price or not sell them at all. I can't get porterhouse steaks enough to supply the demand. I pay twelve cents a pound for an entire carcass of beef. You pay thirty-two cents a pound for about 10 per cent. of it, but there is 40 per cent. that I have to sell for less than it costs me. I am paying more for everything than I did five years ago more rent, more wages to my helpers, two delivery wagons instead of one, and more for the beef that I sell. I don't know who is getting it all. I know I am not making any more above my living than I was then. Maybe it's the beef trust. Maybe it's the farmer. All I know is that my percentage of profit isn't as big as it used to be."

A day or two later I was in Chicago, where the beef comes from such of it as doesn't come from Omaha or Kansas City or East Buffalo or New York, or any other of the dozen big packing house centres and out at the stockyards I met John Clay. They say of John Clay that he knows every steer in the United States by its first name. It is probably true that he knows every cattle shipper in the United States, and that they all know him. What is more, he knows cattle beef cattle from the range to the packing house, as well as anyone in the United States. Being a Scotchman, John Clay is a poet and a canny business man. The son of a tenant farmer on the Scottish border he likes to tell the story of his father's skill in farming, which enabled him to accumulate $300,000 without own

ing a foot of land he graduated from Edinburgh University more than forty years ago, and came to America to seek the fortune which he succeeded in finding. He was a cowboy in Wyoming, a ranch manager in Texas, a ranch owner in California; he saw the life of the West when it was literally the Wild West, lived it, and was a part of it. He saw the shorthorn and the barbed-wire fence displace the Texas longhorn and the free range; and he was one of the first of the cattle men to see and understand that the population of America was beginning, thirty years ago, to press upon the means of subsistence, and that with increased demand and diminishing supply, beef was going to go up and up to limits that nobody has yet been able to set. So, from punching cattle and raising cattle, he turned, a quarter of a century ago, to selling cattle in the stockyards of Chicago and the other great centres.

Last year he sold $125,000,000 worth of live-stock on commission. He owns a dozen banks scattered through the cattlegrowing sections of the West; and he maintains a country seat in England, close to the Scottish border.

"Fifty cents a head commission for bringing the seller and the buyer together

that's what our firm gets out of beef,” he said when I asked him why porterhouse steak was thirty-two cents a pound. "Fifty cents a head - the commission has been increased only once in the twentysix years that I have been in this business. How much a pound does that figure out on a 1,400 pound steer? I know that it gives us a profit of less than 1 per cent. on our year's business."

"The packers, then? The beef trust?" "Ten million head of cattle are converted into beef every year," replied John Clay. "Say that they weigh weigh 1,200 pounds apiece — a low average. A cent a pound profit for the packers would mean $120,000,000 a year. Not even the yellowest of the yellow journals ever accuse the beef trust of making that much. It isn't the packers that are getting it — it's the farmers."

"The farm trust?" I suggested.

"They haven't organized it yet. When

they do, beef will go higher. While the farmer is getting more for his cattle than ever before, it is partly because of the increased demand and shortage of supply, and partly because it costs him more to produce a steer and to get it in condition for market than it used to. That is the real reason why your steak cost you thirty-two cents a pound. There are more people eating steaks every year and fewer people producing them. It will be a long time before the food supply overtakes the demand. In some respects it will never catch up. Not long ago I went to the corner butcher shop near my home in Chicago for a steak. The dealer charged me thirty cents a pound. I protested and asked what we were coming to with prices like that.

"I don't know, Mr. Clay,' replied the butcher. 'All I know is, your coachman's wife was in here an hour ago and bought the same cut and paid the same price.'

THE HIGH COST OF CHOICE CUTS

"That is an illustration of a demand which the supply can never overtake — at least not until cattle breeders learn how to produce an animal composed entirely of choice cuts. At the present prices paid by the packers for beef on the hoof in the Chicago stockyards, from seven to nine cents a pound, the loin steaks would be actually worth at wholesale from thirtyfive to forty-five cents, exclusive of all profit, if every one insisted upon having them, and nobody would buy the rest of the carcass.

"The day of cheap beef has gone, partly because of the increased demand for choice cuts, partly because the actual supply of cattle has fallen off. In 1910 there were 10,545,000 head of cattle received at the ten biggest cattle markets in the United States. In 1911, shipments to these same markets were only 9,848,000 head. In the ten years from 1900 to 1910 the human population of the United States increased 18 per cent. while the number of head of cattle decreased 1.8 per cent. "I spend much of my time on my country place in England and buy beef there from Swift & Company's Liverpool house. Although an American house,

they cannot sell American beef in England in competition with the beef from South America. I bought there last winter, at wholesale, loins of Argentine beef for ten cents a pound; the wholesale rate in Chicago for American beef of the same quality was more than twenty cents."

"Who gets the money?" I ventured.

an

"The farmer gets more than anyone else," said John Clay. "But he has to pay more than ever before for everything. His breeding stock costs more. Pasturage is more expensive as land values rise. He pays more for labor. Grain for fattening cattle for market costs him more increase which enriches the farmer who raises corn. Corn sold recently for eighty cents a bushel nea ly a cent and a half a pound. If it takes four pounds of corn to make one pound of beef, how much profit does the farmer make when he sells his fattened stock for eight cents a pound? The railroad charges him more to take his stock to market, because the railroad has to pay more for its rolling stock, its rails, and its labor. And although I am paying drovers $83 a month who used to work for $50, I don't charge any more for selling the cattle. If the farmer makes only one cent a pound net profit profit-from $10 to $15 a head- he makes more than the packers make on beef.

"The wholesaler and the retailer who handle the beef have heavier expenses than ever before. Rents are higher, they must pay higher wages, their wagons and equipment cost them more. Perhaps the retailer makes too much profit, and perhaps it is the customers themselves who are responsible for the profits the retailer gets. The really serious elements that enter into the high cost of living centre about the retailer.

"First among these I put the telephone. The telephone has replaced the market basket for a considerable percentage of our people.

"Out of all the toll that the consumer pays, the farmer gets the largest single profit. The best proof of this is that the farmers of America are buying automobiles faster than the city people are manufacturing them."

It all sounded reasonable enough. It