tion of some of which would cause one to wonder how the road could be constructed at any cost, as well as the less expensive construction through the open prairies. Certainly the cost of these roads in their present state of development is in excess of $39,000 per mile of main track.

No two miles of railroad cost exactly the same. I have kept the accounts of railroad construction as the work progressed in nine different states and know that the original cost at time such lines were put in operation varied from $18,000 per mile to $70,000 per mile. Some individual miles cost less than $18,000 and some other individual miles cost $500,000, not including equipment. Some miles of yard tracks in large terminals where right of way is expensive cost more than some miles of main track on the level prairie.

An idea as to the average capitalization per mile of track for all kinds of tracks may be obtained by adding together the main tracks, second, third and fourth tracks and siding and spur tracks, making a grand total of 327,511.41 miles of railroad tracks. Then divide that total into the capitalization in the hands of the public, $12,833,591,510, less the estimated cost of rolling stock hereinbefore given, viz., $2,931,766,000, leaving $9,901,825,510, will give an average per mile for all tracks of $30,234. I do not believe any man at all familiar with the construction of railroads will say that the cost per mile for all tracks all over the United States was less than $30,000, including every bridge, building and appurtenance of every kind as they exist today, except rolling stock.

In the foregoing, the basis of capitalization of railroads is their cost. As railroad financing is carried on today, it is entirely proper and regular for a railroad property to be capitalized at the cost of construction plus all of the additions, improvements and betterments to the property after the road is put into operation, and on this theory, which, I understand, is not questioned, a railroad property may be said to be over-capitalized when the total amount of stock and bonds or other liens on the property in the hands of the public exceed the total cost of the property up to the date the stock and bonds are placed in the hands of the public. If the total capitalization in the hands of the public is less than such cost, a railroad is said to be under-capitalized.

From the foregoing, I have tried to make it plain that in order to consider fairly and honestly whether the railroads are overcapitalized or under-capitalized, it is necessary to consider the cost of construction plus expenditures for additions, improvements and betterments. I have shown that the present capitalization of railways in the United States averages $38,953 per mile of single track of all roads. In order to show how this capitalization fluctuates with the character of the company and the standard of excellence of railroad property, I give below a statement of figures taken from the Interstate Commerce report for the year ended June 30, 1909, which shows the capitalization in each of the ten groups into which the United States is divided by the Interstate Commerce Commission.

In this statement it will be noticed that the heaviest capitalization per mile of road is just where we know the cost of construction is greatest, namely, in Groups I, II, III and X. The first three groups comprise the New England and Middle States, while Group X comprises the western and the greater portion of the Rocky Mountain States. The largest capitalization per mile of line is in Group II, comprising part of New York and Pennsylvania; all of New Jersey, Delaware, Maryland, and part of West Virginia. This is in a section of the country where it is rough and mountainous, and also where the heaviest traffic of the United States is located, thus requiring the best facilities and service. It is found that the lowest capitalization per mile of road is in Group IX, comprising Louisiana, west of the Mississippi river; part of Texas and New Mexico, a comparatively level country, where railroad construction is probably cheaper than in any other part of the United States; the traffic is lighter in this group than in any other.

CAPITALIZATION OF RAILWAYS IN THE UNITED STATES
JUNE 30, 1909

NOTE: Interstate Commerce Commission's report does not show capitalization in hands of public in each group, hence in dealing with capitalization by groups it is necessary to use gross figures. As shown on a preceding page, the total net capitalization of the railways of the United States in 1909 was only $13,711,867,703, or 59,259 per mile of line. This would subject the figes in the above table to an average discount of ever 20 per cent. In me groups this percentage runs much higher.

THE MEASURE OF A REASONABLE RATE

BY W. W. FINLEY,

President of the Southern Railway Company.

AN ADDRESS BEFORE THE TRAFFIC CLUB OF PHILADELPHIA AT PHILA

DELPHIA, PA., FEBRUARY 18, 1911.

Mr. Toastmaster and Gentlemen:

This banquet, in which representatives of the shippers and the carriers get together socially, is typical of what we should endeavor to do in a business way. We should seek to get together and avoid controversies by an intelligent understanding of the economic principles which underlie our business relations. That we have not always been able to avoid friction in the past has been due, in large measure, I believe, to a failure on the part of railway men as well as shippers to understand clearly these fundamental principles. I shall, therefore, devote the time allowed to me this evening to a discussion of some of the fundamental matters as to which it is important that shippers and carriers should arrive at a common understanding.

In the early days of transportation by rail it was not recognized that a charge for a transportation service rested on ary different economic basis than a charge for any other service or for any commodity. Charges for individual services were, to a large extent, a matter of bargain. If a shipper could not secure from one carrier a rate which was entirely satisfactory to him he would offer his business to a competing carrier, or a carrier would seek to secure business from a competitor by offering lower rates. As an inevitable result there were wide differences in charges for services rendered under substantially similar circumstances and conditions. In time, it came to be recognized that charges for transportation by rail stand on a different economic basis from other charges, for the reason that the railway company owns a highway over which it must exercise a monopoly of carriage.

As a result of the universal recognition of this peculiarity of railway charges we are now all agreed that undue discrimination between individuals, communities, or commodities, when service is performed under substantially similar circumstances and conditions, are economically wrong and may properly be forbidden by law. We are also in agreement, as a matter of principle, that all charges for transportation services should be just and reasonable. It

is only when we come to the question of what is a just and reasonable charge for a specific service that we are in danger of disagreement.

About a month ago, in an address which I delivered before the Traffic Club of Washington, D. C., I stated, what I had said on previous occasions, that "the only just method of determining the reasonableness of transportation charges is to measure them by the service performed." A newspaper, in commenting editorially on my address, said, in effect: "This is all right as far as it goes, but will not Mr. Finley tell us just how to apply this yardstick?" That is what I shall attempt to do this evening.

In order to lay a broad and firm foundation, I shall first state some underlying facts and principles which I believe to be selfevident.

At the outset, it should be borne in mind that the railways of the United States-although public highways, and, as such, properly subject to such governmental regulation as will insure to all citizens equality of rights on them, under similar circumstances and conditions, and as will prevent unreasonable or extortionate charges—have, nevertheless, been built with private capital and are the private property of their owners.

It is a fundamental economic truth that the investment of funds in any class of property is dependent on the safety of the principal and the rate of profit that may be expected as compared with the rate that can be earned on investments in other kinds of business. In other words, the flow of capital into any particular business will be retarded unless it may be expected to earn a reasonable profit as compared with the earnings of capital in other enterprises. The wise men who framed the Constitution of the United States took cognizance of this principle when they threw the protection of that supreme law of our land about private property in language which the profound lawyers who have composed our Supreme Court have held to cover not only the property itself, but the right to its profitable use. Thus, as the Supreme Court said, in the case of Chicago, Milwaukee & St. Paul R. R. Co. v. Minnesota:

"If the company is deprived of the power of charging reasonable rates for the use of its property, and such deprivation takes place in the absence of investigation by judicial machinery, it is deprived of the lawful use of its property, and thus, in substance