Tendencies of American Railroad Development

THE early history of the Baltimore & Ohio and Pennsylvania railroads serves as witness that the economic value of interior communications was early appreciated by the commonwealths; the building, later, of the first western lines testifies that the national government realized the strategic importance of tying the Pacific States to the region of the country already within reach of Washington. Yet, a decade after the government had given the Northern Pacific forty-eight million acres of land as a direct aid and incentive to the builders, and had allowed the Central Pacific and Union Pacific what may be described as a subsidy of some twenty-five thousand dollars a mile, together with a land grant of over thirty million acres, Wisconsin enacted the Potter Law (1874), fixing rates within the state on a basis on which the railroads could not do business and pay their fixed charges. The original Interstate Commerce Act, amended and amplified last year, was passed in 1887, the Sherman Anti-Trust Act in 1890; and now, in 1907, state governments east and west are vying with one another in the enactment of restrictive railroad regulation.

Five critical periods in the history of railroads in the United States are indicated in this brief summary, and may be designated, respectively, as the periods of state aid, of national aid, of Granger hostility, of national restriction, and of general state hostility.

Between the building of the Union Pacific Railroad and the passage of the Anti-Trust Act and the Interstate Commerce Act, it might be said that railroad development passed through four interior phases, as distinct from the relations of railroad and government. First in importance was the tendency to build, north, south, east, and west, wisely and unwisely; then came the wreckers, headed by Jay Gould and Jim Fisk; then the time of reorganizations and consolidations; and finally the growth of commercial giants, knowing no law, or rather knowing far more law than their antagonists, who were one by one demolished. In its bearing on present-day tendencies, the effect of the mileage built was wholly good. Much of this mileage was flagrantly unjustifiable at the time, built for its “nuisance value,” like the West Shore Railroad; but the growth of the country has since amply justified it, and the economic follies of twenty years ago, after being paid for, sometimes by the bondholders, almost always by the stockholders, are become indispensable parts of our transportation system. The reorganization and consolidation were also good; we cannot say wholly good, because they tended to burden the capital accounts with water. In defiance of the articles of faith existing in the Granger states and in many other parts of the country, however, let it be said at once that an inflated capital account does not work evil directly, by raising the rates on wheat so that interest and dividends may be paid, but by handicapping the railroad in securing much needed new capital for improvement work, which would enable wheat to be carried cheaper. A railroad in competitive territory cannot charge more than its neighbors and continue to do business.

The wrecking period of American railroad development has happily passed away. The Cincinnati, Hamilton & Dayton has had bad contracts made for it; the Chicago and Alton has had improvement work, done from earnings for a series of years, suddenly capitalized, a process which benefited current stockholders but placed a heavy capital load on the company. These two instances, however, represent perhaps the most prominent examples of a decade, and neither one of them is comparable, either in damage actually done to minority shareholders, or in criminal intent, with abuses of trusteeship quite common a generation ago. But the old abuses left seeds of distrust behind them, and this distrust has in recent years grown to alarming proportions, owing principally to the feeling, well enough justified, that a great corporation might be predatory and miscellaneously sinful to whatever extent it saw fit, because no man was strong enough or clever enough to call it to account. The distrust of corporations, especially railroad corporations, is, of course, one of the great controlling factors in the tendencies of development to-day, and it has principally centred about a phase in affairs infinitely better than that created by Gould and Fisk, but none the less dangerous and unwholesome, — the tendency to corporate selfishness. American railroads as a whole are strikingly free from two of the besetting evils shown in the insurance investigations,— nepotism and inefficiency in high places, — and can teach their European neighbors much in this respect. But in the misuse of corporate funds, in the “blind pool” school of finance, they have often been culpable, and they never before have had such opportunities as in these days of tremendous earnings and great accumulations of free cash. It has recently been shown how Mr. E. H. Harriman had more than fifty million dollars at his command in the Union Pacific finances, and that he was, to all intent, not answerable for the use he made of that sum between the annual public statements. How the executive committee of the Harriman lines increased dividends in the summer of 1906, without the knowledge of the majority of the directors, giving large profits to the shareholders, but infinitely larger profits to the few privileged persons possessed of advance information, is also a matter of record. If Mr. Harriman had been content merely with the increments due to his remarkable management of his properties, his name would go down to posterity, unchallenged, as the greatest railroad financier, and probably the greatest railroad manager, that the country has ever known. But people cannot help feeling that he is serving his shareholders only incidentally,—himself, first of all; and that he has been a developer instead of a wrecker because, in his day and generation, development paid better than wrecking! This judgment is probably harsh and to a large extent unjust, but the feeling it expresses is widespread, embracing many more men and many more railroads than Mr. Harriman and the group of lines associated with his name.

Having these things in mind, what do we see as the tendencies of railroad development which stand out sharply at the beginning of the year 1907 ? We see traffic so immense and increasing so fast that it is a cause of despair, as well as of rejoicing. We see railroad prosperity widespread and almost universal, handicapped, however, by grave difficulty in securing capital fast enough to meet business requirements, and by increasing cost of all commodities, and of labor. We also see the railroads serving as targets for constant hostile or restrictive legislation, occupying the attention of every state legislature and of the President of the United States. Whither are these things tending ?

Mr. Finley, president of the Southern Railway, recently addressed a circular to the people served by his road, in the same spirit that his predecessor, Mr. Samuel Spencer, was prone to exhibit. In this circular he showed that the number of tons of freight carried one mile in 1895 was 1,098,932,884; in 1906, 4,488,915,839. To provide for such increases, the group of poverty-stricken common carriers welded together some twelve years ago into the present system have had to spend nearly one hundred million dollars. Meantime, during the last nine years, bridge timber has increased in cost from $9.36 to $20.52 per thousand feet, ties from 28 cents to 34.5 cents per tie, rails from $17.75 per ton to $28.00 per ton, and the average cost of labor from $1,621.67 per mile of road to $2,874.71 per mile of road. In addition to this, there are “excessive verdicts of juries in personal injury cases,” and “a marked tendency on the part of many of the states to regard any failure of service as willful, and to impose on the carrier a heavy penalty therefor.” Mr. Finley adds, “Inasmuch as adequate facilities for all are not in existence, the imposition of a penalty for failure to furnish cars under the above-mentioned circumstances, if it has any effect other than merely to deplete the treasury of the carrier and to deprive it to that extent of the power to improve its transportation and service, must result simply in the withdrawal of the carrier’s facilities from the service in respect to which there is a penalty, in order to use them in the service where there is no penalty. The logical result of this would be a race between the states to see which could inflict the highest penalty so as to obtain a preference for its own citizens. The imposition of penalties will not build railroad tracks, supply equipment, or enlarge and simplify terminals.”

It so chances that at the very time one section of the country is saying to the railroads, in no uncertain voice, “You must provide facilities or pay the penalty!” another section is saying, “Your capital account is inflated; you must be restricted in fresh issues!”

There is no part of the country where new railroad building and extension of track facilities are more needed than in the Northwest, but at the time of writing it is not yet a month since the Great Northern was blocked by the Minnesota courts in its effort to issue sixty millions of new stock. Details of the present attempts to restrict new capitalization will be dealt with in a subsequent paragraph; their basic contention, that capital should represent value, is certainly a sound one; but the people of Minnesota have carried their campaign considerably beyond this point, and at a moment when they have imperative need of new facilities, are disposed to hold that all their common carriers are grossly over-capitalized, until the contrary can be proved! It has already been pointed out that, in any case, rates are not based on capitalization; cannot be; yet it was freely alleged that the effect of the new stock issue would be an increase in freight and passenger tariffs within the state.

The arguments of the agitators against capital inflation were quite ludicrous as applied to the Great Northern, which stands as the most prominent example in the country of a great railroad system built with funds raised from the actual sale of stock — not from the sale of bonds with stock thrown in as a bonus for the underwriters. But even if the Great Northern were overcapitalized, the people of Minnesota would have nothing to fear from further capital issues. The difficulties in that case would lie between the railroad and its bankers, not between the railroad and its customers. It is notorious that the reckless cutters of rates, from time immemorial among railroad generations, have been the needy, financially top-heavy companies. On the other hand, the road that can secure abundant capital for its physical needs is the one best able to reduce grades, buy heavy locomotives, and make permanent voluntary reductions of advantage to shipper and carrier alike.

Distrust of corporations, therefore, in its spreading ramifications of attack, has caught the railroads between two lines of fire, the demands for new facilities being heightened and aggravated by the assaults upon earnings and the limitations which it is being sought to place upon capital. As might be expected, when the private citizen, wont to gnash his teeth in useless rage at the doings of the tyrant corporation, finds himself a state legislator, sublimely powerful, with an eager constituency to applaud him, he sometimes fails to distinguish the finer shades of economic thought, and forgets whether he was elected to regulate railroads or to chastise them.

The original Interstate Commerce Act, of 1887, was, in the main, a conservative document, designed to prevent certain things rather than to regulate all things. The Sherman Anti-Trust Law, of 1890, had no especial significance in its bearing upon railroad development for a number of years after its passage; and only since the construction placed upon it by the courts in the Northern Securities case has it threatened consolidations with the peculiar menace that they cannot possibly tell whether certain absorbed lines under common management may or may not be declared to be naturally parallel and competing, and hence to constitute an unlawful combination in restraint of trade. The doctrine of enforced competition is such a vague and impossible one that the government frankly announced after the Northern Securities decision that it did not propose to “run amuck,” leaving much uncertainty as to the results on almost any great American railroad system if it should push the “combination in restraint of trade” principle to the utmost limit.

The Roosevelt legislation has been much more drastic than the legislation of 1887, though less so than the AntiTrust Act in extenso; but the most significant effect it has had, thus far, has been the incentive it has given to the state legislatures. The close surveillance of railroads by state authorities, which is a dominant feature in the situation today, after a lapse of some thirty years, finds its principal expression in three forms: direct legislation, such as that fixing passenger rates at two cents a mile; delegation of considerable powers to commissions, vested not only with police power but also with authority to determine rates and oversee traffic arrangements; and taxation.

Leaving out of consideration a few eastern states, already in enjoyment of exceedingly low passenger rates, and older, both in years and in point of view, than the commonwealths farther west, it may be said that there is scarcely a state in the Union which has not enacted direct railroad legislation this spring. This legislation has been characteristically concerned with reduced passenger rates, and there has been a strong and widespread movement to declare two cents a mile as the legal maximum, whether or not such a reduction would be reasonable, in view of existing circumstances.

Ohio, Indiana, Minnesota, Nebraska, and a large group of central, southern, and western states have, in effect, been asking why their citizens should be obliged to pay three cents per mile or more for transportation, when the citizens of certain New England states can travel on main lines for two cents a mile; and they have not been disposed to give heed to the simple and correct reply of the railroads, that passenger transportation by itself is usually not profitable except in regions of dense population, and that density of population is practically the sole factor which enables low passenger rates to be made by a railroad manager, and certainly should not be disregarded in a schedule of passenger rates made by a legislature. The Wisconsin Commission, which may be characterized as radical but intelligent, listened to the railroad arguments to the extent that it modified its original intention to place a two-cent maximum, and made it two cents and a half; but the latter sum is considerably below existing rates in Wisconsin and other states similarly situated. Without attempting the exceedingly doubtful calculations as to the exact cost of carrying passengers, calculations which must of necessity pro-rate charges for maintenance, signaling, interest on funded debt, etc., on an arbitrary basis between passenger and freight traffic, it may be safely hazarded that it costs a railroad twice as much for every passenger it carries in a thinly populated western state as it does in a densely populated eastern state, and that western rates should logically be fully twice as high as eastern rates, if the passenger department is not to be run at a loss. Therefore western state legislatures that insist on a two-cent maximum are inflicting a direct loss on the railroad companies, which will continue for an indefinite number of years, until the process of natural development shall build up a traffic that will place a larger divisor against the sums that have to be spent for stations, service, and equipment to handle this branch of the traffic. The most disquieting phase of the situation is that they are indifferent to this fact, and are not especially concerned in contemplation of such actual hardships as they are inflicting.

There has been less direct legislation by the states in fixing freight tariffs, for two reasons: first, because the number of schedules involved is so tremendous that no popular slogan, like that of the two-cent passenger fare, can be devised; second, because American freight traffic is characteristically a through business with which local authorities are not directly concerned. Indirect, or commission legislation is the medium through which such states as seek to restrict maximum freight tariffs usually wield their authority, and it may be accepted as an established principle that a commission, even a very bad one, will tend to be less radical than a legislature. But toward the close of the state sessions recently ended, two new objects of attack have come rather prominently into view: the proposal to make demurrage reciprocal by direct legislation, and the proposal to estimate the value of existing railroad properties as a basis by which transportation charges, new capital issues, and taxation may be adjudged. Both these proposals are thoroughly unsound, from an economic standpoint, but both have the unfortunate merit of being brief and of being tangible to the legislative mind; hence there is real danger that they may be experimented with.

The term demurrage, originating in maritime law to describe the delay of a vessel by the shipper beyond the specified time necessary to place the cargo on board, is applied similarly to the detention of freight cars by shippers and consignees, and, specifically, to the charge made by the railroad on account of this detention. A reciprocal demurrage law would penalize the shipper or the consignee for failure to release a car after a specified period; it would also penalize a railroad company for delays in transit, and for failure to supply a shipper promptly with cars upon demand. But the latter proposal rests upon a set of conditions entirely unlike the former. Demurrage as applied to the shipper is a penalty for being slow with borrowed property actually in hand; demurrage as applied to a railroad that does not supply ordered cars is a penalty for failure to lend property which the company owns but cannot lay its hands on, usually because it is held by a connecting line, or because a considerable number of consignees are finding it convenient to use freight cars for warehouses. It is frequently to the interest of the shipper to hold cars instead of unloading them promptly; it is always to the interest of a railroad to supply cars for all the freight that offers; hence a penalty which is proper for one kind of delay is obviously improper for the other. Car supply and the machinery for effecting prompt return of cars which have left their home lines is perhaps the most important subject now under consideration by the American Railway Association, and by most of the railroads in the country acting in their individual capacities as well. The car supply is often inadequate; the machinery often defective, failing in crises when it is needed the most; but the remedy for these things lies in expert study and experiment, and the instigation to apply this remedy comes whenever cars are scarce, because, from the nature of things, the companies cannot make profits without hauling freight, and cannot haul freight without cars. A series of penalties for failure to perform the impossible would have no useful result, and would bring about a chain of abuses and chances for extortion almost comic, as in North Carolina, at present. If Georgia should establish a reciprocal demurrage law, South Carolina, Florida, and Alabama would immediately be drained of equipment, in times of car shortage. Thereupon, South Carolina, Florida, and Alabama might naturally be expected to retaliate with worse laws than their neighbors — and so the process would move, at first slowly, then like a legislative race for the rapidly advancing goal of the highest penalty!

As regards the chances for extortion which reciprocal demurrage presents, it needs only to be kept in mind that this legislation, in its simplest form, enables the shipper to order as many cars from the railroad as he pleases, regardless of his actual requirements, and that the railroad must furnish them or pay penalty. Under existing conditions, with no penalty attaching, the railroad would not give him an unreasonable number; with reciprocal demurrage in force the decision would rest with the shipper, not with the railroad, and if he decided to ask for ten more cars than he needed, at a time when the railroad could not give them to him, he could simply apply the demurrage from these unsupplied cars to a reduction of his average freight bill. Similarly, a wicked railroad manager, desirous of discriminating in favor of a large shipper, could arrange delays in transit and shortages in delivery to suit his customer, keeping all the time on the windy side of the law!

The wrong-headedness of this particular kind of legislation is more apparent from a moment’s study than are the economic fallacies in many of the presentday railroad regulative measures; yet North Carolina has reciprocal demurrage already, and during the state sessions just closing, reciprocal demurrage bills have been given earnest attention in California, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, Oregon, South Dakota, Texas, Washington, and West Virginia! At the time of writing, five of these states, Minnesota, New Jersey, South Dakota, Texas, and Washington, have actually passed their bills, giving opportunity for discrimination perhaps unequaled since those early days when the Standard Oil Company collected rebates from the railroad companies upon its own and its competitors’ shipments as well!

The proposal to obtain a physical valuation of the railroads of the country may be designated as the railroad-regulative topic of the hour. The idea of determining the value of railroad property as a basis for taxation is not new; many states have attempted it, notably Michigan and Wisconsin. But the idea of a physical valuation as a basis for rate regulation and the limitation of new capital, is essentially a new one, given tremendous impetus by the President’s message, and immediately seized upon bv commonwealths east and west. The objections to this plan may be summarized under two heads: first, that the valuations are in themselves meaningless; second, that an attempt is being made to correlate two matters having no connection with each other. It is usually possible, though difficult, to find out what the cuts, fills, trestles, and tunnels of a railroad cost, or what it would cost to replace them; it can also be determined that certain new work resulting in an abandonment of the old has been done, and that both old and new constitute a proper capital charge. Real estate and buildings can be appraised, and we can know, with tolerable accuracy, what it would cost to rebuild the transportation machine that is before us. But that cost bears no special relation to the value of the property. The value of a railroad, viewed as a single asset, is its earning power capitalized, and nothing else whatever. Reduplicate the main lines of the New York, New Haven & Hartford, in the Rocky Mountains, and you will certainly double their so-called physical value if you measure that value by cost of construction. Against the tremendous asset representing the physical cost, place an equal amount of liabilities representing securities sold to pay the bill, and you will have a perfect balance sheet; also a company that cannot possibly remain solvent, for the earnings in the mountain country will be as much smaller than they are in New England as the construction cost will be greater! Yet this reductio ad absurdum is the valuation plan in a nutshell.

Of course the valuers must do more than estimate construction cost plus cost of property once used but now discarded. They must also reckon the intangible assets, that make a cheap railroad in New Jersey worth more than a dear one in Colorado. These intangible assets include the fact of possessing exclusive privileges, franchises, and territorial monopolies. To obtain a New York terminal, the Pennsylvania Railroad is spending, let us say, one hundred times as much as the New York & Harlem Railroad spent for the same purpose, because the New York & Harlem Railroad was first on the ground, and acquired a territorial monopoly. The possession of a favored mountain pass, or the bank of a river, is fought for by rival construction companies as if they were armies of occupation, yet these advantages do not appear in the balance sheet of the completed railroad. How is the valuer to appraise them ? It is clear enough that he cannot do so by any process worthy of a title more dignified than guesswork. And so we are to measure earthwork, weigh rails, appraise real estate, and then add to this list of tolerable exactness a perfectly arbitrary sum, of more consequence than all the rest together, representing the intangible assets; a process which may be likened to a computation of the circumference of a circle by pacing off the radius and carrying out the formula to four places of decimals.

Mr. Henry Fink has well said that the test for over-capitalization lies in the income account; if a road can pay interest on its debt and earn a fair surplus besides, it is not overcapitalized; if it cannot do so, it is overcapitalized. And the more we study this matter of valuation, the more surely does it appear, not only that earnings are the final test, but that they are the only test, both for consideration of capital issues and for purposes of taxation. Yet the national government and the state governments alike are in full cry after this valuation will-o’-the-wisp, comparable in its elusiveness to the “cost of transportation” so earnestly sought a generation ago. The danger lies in the fact that commissions paid to make valuations must report, right or wrong, and that the unscientific nature of the result is in no wise likely to prevent its being used as the basis of statutory rate-making and limitation of capital. Again, let it be emphasized that rates are not made on a basis of capitalization; a railroad, as a matter of fact, scarcely makes freight rates at all, but has to accept, ready made, the rates forced upon it by a set of conditions almost wholly beyond its control, and certainly independent of its fixed charges and desire to pay dividends.

The upshot of the whole matter is that we are passing through a severe fever of legislative vindictiveness and silliness, which must doubtless run its course. Just now, the way to win place in Minnesota or Kansas, or Nebraska, or Texas is to devise new restrictions for the railroads; but the objects of all this popular venom have learned some very important lessons, and it seems wholly likely that the net result of the legislation and the lessons together will be a good result. By the same gradual process of increasing stability which has resulted in money being turned back into the property for permanent betterments, and has developed resources that enable transportation companies to weather hard times without bankruptcy, the moral turpitudes of railroad management are going to die away and be replaced by a better sense of trusteeship. The unparalleled searching of the past year into railroad operation and finance has developed no evils like those of a generation ago, when the Erie management, the New York Legislature, and the New York Judiciary alike revealed scarcely a foot of solid ground for an honest man to stand on. Actual legislation to prevent railroad presidents and directors from grossly manipulating the securities of their companies in Wall Street does not seem a promising method of safe-guarding the public interest; a dishonest railroad president will always be shrewder than a state legislature, and will work considerably faster. But a widespread public sentiment works all the time, whether legislatures are in session or not, and is a far more effective preventive of corporate malpractice than the law is, taken by itself alone. If the American people really want honest corporation management they will get it, just as the English people have got it. And there has never been a time in the history of American railroads when the average of management has been more efficient and more upright than it is to-day.

So much for the relations of the railroads with the people, — an aspect of development just now in a rather muddled condition. It is pleasant to turn from the sociological side to the physical, and glance at the tendencies of railroad development that exhibit themselves on the map.

Our high records for new railroad building were made just prior to the consolidation period. We built 12,876 miles in the year 1887, an amount considerably more than double that of any year since then; and this period of activity was followed by a gradual decline, almost regular, to the low-water mark of 1654 miles in 1896. While the consolidations were being effected, as a characteristic of the time, and for several years after this special epoch ceased, the tendency was to husband resources and to better the existing communications, especially the existing passing-track, terminal, and rolling stock facilities. But meantime the growth of the country passed by the capacity of its transportation machine, and now we are face to face with a new and urgent necessity for more railroads in practically every part of the country hitherto neglected, or partially neglected, and in many parts of the country supposedly well supplied.

Mr, James J. Hill has presented the forceful figure that the trouble with the railroads, especially in the northwest, is that they are trying to force a three-inch stream through a two-inch pipe, and has held forth the requirement that the railroads of the country be reduplicated, mile for mile, within the next few years, adding that there is not money enough or labor enough in the world to do this thing. It has recently been shown how the legitimate requirements of a group of the strongest railroads to provide for systematic extension work served to depress values by millions of dollars, and yet traffic rolls in with ever increasing volume. Indeed, the exceedingly poor market for bonds and stocks alike, in these early months of 1907, has brought about a period of financing with shortterm notes, carrying interest at a rate which, together with discount, costs the strongest companies perhaps seven per cent for their money, and places new capital frankly out of the weak companies’ reach. In issuing these notes the railroads are, in effect, betting that when the time for payment comes around, they will be able to refund their obligations at a cheaper rate; if they are wrong in this position, the effects will be very serious. For the present, therefore, much urgent work, of the highest benefit to those suffering from the prevalent car shortages and traffic delays, must be postponed. But this work has already been outlined, in considerable part, and it is interesting to observe its tendencies.

The Chicago, Milwaukee & St. Paul has for years stood as a type of the great “local” railroad, occupying and reoccupying the territory between Lake Michigan and the Dakotas with a network of main and branch lines, and making a handsome profit from the business thus obtained. But it now finds it desirable to strike out for the northwestern Pacific coast, where the Hill system has for a long time been the American representative, competing with the Canadian Pacific, but with no other formidable rival. The Pacific extension of the Grand Trunk, building under an odd system of mingled governmental and private responsibility, is striking for the same quarter; and the Canadian Northern will doubtless push through to the coast as soon as it finds it possible to do so, with its line of light construction, cheap to build, and consequently easy to support.

These roads have several objects in view. The great staple of the Northwest is grain, and the grain-producing areas of the United States are now so nearly occupied that the constantly increasing demand must be met principally across the border. But the days of one-crop or one-commodity railroads in this country are nearly over. A poor harvest no longer threatens the dividends, and even the bond interest, of the Granger roads, as it did a generation ago. They have such resources of miscellaneous traffic that the fall grain movement often comes almost as an unwelcome demand on facilities already overtaxed, and it is certain that the companies now reaching out for the coast would not have been induced to undertake the task for the sole reward of grain traffic. The Canadian Northern, alone of the group, belongs in the singlecrop classification, and is probing the Hudson Bay territory with grain as its principal object, and building a railroad for a sum the smallness of which, per mile, is almost without parallel, to keep its charges down. But the St. Paul, the Grand Trunk, the Western Pacific, forming a coast connection for the Gould system, and the Denver, North Western & Pacific, building from Denver to Salt Lake City, have a much broader end in view. The growth of the Pacific Coast cities has been so phenomenal, not alone in the last decade or two, but, strikingly, in the last four years, that traffic demands are far ahead of traffic facilities. As a single illustration of this point, without enlargement, we may cite the bank clearings of some of these western points, indicative in a broad fashion of the trend of business.

For the five weeks ended March 30, bank clearings at San Francisco were $141,023,051 in 1904 and $237,276,202 in 1907, an increase of sixty-eight per cent. During the same periods compared, the clearings at Spokane increased over one hundred and fifty per cent, and the total clearings of San Francisco, Los Angeles, Spokane, Seattle, Portland, and Salt Lake City increased ninety-two per cent, while the total clearings of Philadelphia, Pittsburg, Buffalo, and Baltimore increased fifty-two per cent. The actual sums involved in the eastern clearings are naturally much greater than in the western, and New York makes incomparably the highest total of all; so much higher than the others that it could not fairly have been included in the average. But the Seattle clearings are now materially greater than those of Buffalo, Milwaukee, or Omaha, while in 1904 they ranked with Toledo and Hartford, a much lower class; the Tacoma clearings, formerly comparable with New Haven and Grand Rapids, are now about the same as those of Memphis, Atlanta, or Columbus. There are only twenty cities in the country that clear over ten millions a week, and three of these cities are in this newly prominent Pacific Coast group.

We in the east are prone to forget the amount of business, as measured in terms of freight tons, which the railroads derive in certain intermediate states, such as Colorado and Utah. The gross earnings of the Denver & Rio Grande system for its 1906 fiscal year were over nineteen and one half millions, yet the Denver & Rio Grande is wholly contained in these two states, and some eighty per cent of its business originated or terminated on its own lines, — was “local” business, that is to say, in distinction to through traffic. The movement west and northwest is better explained by this reference and by the bank clearings of the coast cities than by any extended inquiry as to grain production or railroad strategy; it is simply a case of an unexpected and overwhelming traffic originating and terminating west of the continental Divide; a traffic insufficiently served by the present through routes, the Southern Pacific and the Atchison, Topeka & Santa Fé in the south, the Central Pacific and Oregon Short Line west from Granger, Wyoming, and the Northern Pacific, Great Northern, and Canadian Pacific, in the north. Every one of these roads has been making a splendid showing, wholly unlooked for by Wall Street five years ago, and in large measure a surprise to the railroads themselves. By the time the new comers have completed their facilities there can be little doubt that there will be traffic enough for all, and traffic to spare.

Next in point of interest, so far as tendencies of physical extension are concerned, come the north-and-south trunk lines in the central part of the country. The American railroad system as it exists to-day was built to haul freight east and west. Properly speaking, there is no transcontinental railroad within the boundaries of the United States, but the movement is concentrated on certain great gathering grounds, such as Chicago and St. Louis, and then re-distributed to a group of eastern roads reaching these points. The rail lines to these terminal cities, and the actual yard and storage facilities, were provided many years ago; they have been subject to constant and rapid increase, but by no means in the same proportion that traffic has increased. An hour-glass furnishes a good analogy; there is plenty of room above and below, but an exceedingly narrow passage in between. Mr. James J. Hill has been one of the first observers to emphasize tills cardinal point of difficulty, and to suggest decentralization as a remedy for congestion. He is also author of the pungent simile that if you kick a barrel of flour at Minneapolis it will roll down hill to the Gulf of Mexico.

It is a rather curious fact that the practical working-out of decentralization through control of a north-and-south trunk line by one of the so-called transcontinental lines should have been deferred until the year 1906. Even now, it cannot be said with certainty, at the time of writing, that the Illinois Central belongs permanently in the Harriman group of roads, although Mr. Harriman claimed it, in his testimony at New York last February. Besides this line, there are two others which would fulfill the function: the Missouri, Kansas & Texas and the Kansas City Southern. Each of these two has gone through the last stages of rags and tatters; each has been kept alive in considerable part by foreign support, mainly in Holland; each has now been resurrected, placed in strong hands, and made to yield excellent operating and financial results. A prophecy may be hazarded that all three of these lines will sooner or later have an important part to play in through freight movement. They have as their inalienable heritage the down grade to the Gulf in the direction of traffic movement, with a back haul of cotton, fruits, and vegetables for the central markets, and of lumber, coal, and miscellaneous freight brought to the Gulf seaports by steamers calling there for grain and cotton. The Goulds already have a north-and-south trunk line in the St. Louis, Iron Mountain & Southern, and Texas Pacific, but they have fared rather ill in the general competitive situation, partly from lack of facilities, partly from lack of management. The Gould and Hock Island lines now dominate this part of the southwest, but must surely look for the entry of new forces into their territory.

East of the Mississippi River, transportation phenomena naturally divide themselves into two important groups,— the trunk lines, and the southern roads. The New England States may be ignored for the purposes of the present paper; there is little room for new mileage there, and the development is merely the perfecting of the physical condition of a system built nearly in its present form a generation ago. It may be said of the trunk lines that they have neither time nor desire to explore new territory; their main traffic routes are established, probably for all time, but they are so overwhelmed with the exigencies of traffic that their development lies in the line of additional main tracks, of grade and curvature reduction, and of the enlargement of terminals. The Pennsylvania has built several whole new railroads between Philadelphia and Pittsburg, within the last decade, and has spent millions upon millions for grade reductions — new low grade lines — more low grade lines — more grade reductions.

South of the Delaware Capes, the Baltimore & Ohio, and what may be called the lesser trunk lines, the Chesapeake & Ohio, and Norfolk & Western, are finding great prosperity from the tremendous increases in bituminous coal traffic. Competitive conditions are such that this can only be handled economically in the largest train loads, and these roads pass through continuous successions of mountainous country, which offer every obstacle to the task they have to perform. In consequence, they are being boldly rebuilt, as witness the new main tracks of the Norfolk & Western that pass by the centres once deemed vital, such as Lynchburg, Va. But their general traffic is not abated thereby; on the contrary, it holds even with, and often exceeds, the relative gains from coal tonnage, year by year.

As soon as the Virginia coal ports are passed, however, railroad development assumes a different phase. The characteristic railroad system of the South is a composite of a most heterogeneous collection of minor lines, twenty, thirty, fifty miles long; sometimes acquired because they lay in the direction of a through route somewhere; sometimes because they were on the remnant counter of railroad bargains, for sale so cheap that little was ventured in the purchase. It does not cost much to build a railroad in Georgia, and there are some fifty-four independent companies operating there to-day, awaiting absorption. The Southern Railway, the Seaboard Air Line, the Atlantic Coast Line, and the Central of Georgia, which is owned primarily by Southern Railway interests, all owe their origin and growth to this process of amalgamation of wretchedly poor lines, and it is much to the credit of the organizers that these systems now stand where they do, physically and financially. Broadly speaking, they have probably passed the worst of their hardships; the prosperity of the South exceeds that of any other part of the country except the far west, in its proportionate increases, and the transformation of the Southern States is going on apace, from a region with a historic past to a region with an economic future. The growth of Birmingham, Alabama, into a little Pittsburg, with iron ore and the materials for smelting it and turning the iron into steel, all gathered close together, if somewhat exaggerated by its admirers, has nevertheless given the South a new industry of the most far-reaching potentialities.

Nothing more can be hoped of this brief summary than that it may have touched the high places in a chronicle of physical development throughout the country. It would be impossible in the limits of a single paper to outline the tendencies in detail, but the facts that only about twenty-two per cent of the mileage of the country is as yet worked by the block system, and that there is practically no double-track mileage west of the Mississippi River, are full of suggestiveness in their bearing upon the tasks before the next generation.

How far the present tendency towards socialistic corporation control will go in this country, no man can tell. I am inclined to believe that the present flurry of legislative regulation and restriction, while a matter of first-class annoyance to the railroads, does not, after all, extend very far beneath the surface. A few years of carefully applied corporate good manners, extending from the president right through to the station agent, will do much to smooth over the sources of popular clamor. Moreover, the most radical-appearing steps are not necessarily permanent; London has just withdrawn sharply from her own municipal socialism after a thorough experiment, and the Chicago voters set themselves against the local municipal street railway ownership before the Mueller purchase certificates were declared unconstitutional. The Granger legislation of the seventies was locally worse than the legislation of 1906 and 1907, but it had a very brief career of harmfulness ; and even when we allow for the worst of all the effects of this indiscriminate state legislation, — the discouragement it offers capital for new development, — we must surely believe that those who see permanent trouble in store for the railroads are looking at the path too close to their feet, forgetful of the immense promise of the future.