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John F. Wallace.

Abstract of Address before Southern Commercial Congress Washington, D. C., Dec. 7 and 8, 1908.

This question has been extensively treated by leading railroad men, statesmen and Press of the South, and admirably covered by addresses on numerous occasions before various audiences throughout the South.

I therefore feel that the southern railroad situation is gradually becoming better understood, not only by the public at large, but by the railway men of the South, who are jointly appreciative of the fact that the greatest need of southern railroads is the confidence and support of the communities through which they run and serve.

Therefore, my remarks will be few, and are made in order that certain fundamentals may be read into the record of this convention.

For the purposes of this address the South is described as that portion of the United States lying south of the Potomac and Ohio Rivers and east of the Mississippi.

Shortly after the close of the Civil war, the South realizing the changed order of things, accepted the situation in the spirit of American manhood and started on a new era of industrial and commercial development.

One of the first necessities was a comprehensive system of transportation facilities. The railroads, which prior to the Civil war had compared favorably with those in the North, at its close were practically bankrupt financially and physically, and were more the shadow than the substance of what they should have been.

Southerners with brains and energy, starting with 11,587 miles of detached, dilapidated and crippled railways, immediately commenced to lay the foundation of the present industrial and commercial prosperity in the South by constructing its lines of railway.

The efforts of these men and the confidence they were able to inspire in northern and foreign capital are best illustrated by the fact that today the South is served with 46,434 miles of railroad, serving eleven states, twenty million people, and representing a total investment in round numbers of two billion dollars.

Of these 46,434 miles of railroads only 1,134 miles approximately, or 2½ percent, are double track. It is possible that the next ten years will see at least one-fourth, or over ten thousand, additional miles of second track.

It must be borne in mind that while transportation is the burden bearer of both production and commerce, it is only able to perform the full and complete measure of its functions when properly nourished and assisted by finance.

In ancient days the birth of civilization started with the ability to preserve food products. This grew from the temporary necessity of accumulating sufficient food to last from one chase to another, or to enable journeys to be performed or winter climates endured, to the storage of vast quantities of food to enable nations to survive years of famine, as was exemplified by the storage of grain in Egypt in the days of Joseph, which period history shows us was the crowning epoch of Egyptian civilization.

Today the measure of our modern civilization is our transportation facilities. Safe, efficient and rapid communication, and the economy of the world's transportation systems, are binding the nations of the earth closer together day by day, and helping to create the conditions which will ultimately place the crown of accomplishment upon our modern civilization.

Coming back to the South, from which we have been temporarily led astray, it is self-evident to the careful observer that all the diverse interests of this section—agriculture, mining, manufacture, commerce and banking—are unavoidably and irrevocably bound up with the transportation facilities furnished and to be furnished by the railway systems ramifying its territory and performing a service for the South similar to that performed by the arteries and blood-vessels in the body of corporeal man.

It is also apparent to the impartial observer that if the South is to reach its highest state of development its transportation facilities should not lag, but should lead the march of progress, and that this development should be stimulated in every possible way; and men of the South should never forget for a single moment that the needs of the railroads are the needs of the South.

It has been our custom in America to anticipate future needs in transportation, and in a measure attempt to forestall and provide for them.

The policy of foreign countries has been practically the reverse. The railway systems of England have been constructed to take care of and supply a demand for transportation facilities that already existed.

The railroads of the United States in the South and West have been projected and constructed, and to a great extent financed, by men whose inspiration was a firm belief in an unseen future and whose assets were largely composed of hope and an undying faith in the future development of their country.

Now, the future demands for increased transportation facilities in the South are plainly indicated by past records, showing the growth of productive activities and the constant increase of tonnage to be moved.

If these requirements are to be met, demand and supply must move forward hand in hand. Additional tonnage will justify increased facilities and increased facilities will stimulate still greater tonnage.

During the past 25 years the total products of the South, from agriculture, forest, mines and manufactures, have increased in valuation over 225 per cent. During the last five years of this period, ending in 1906, the increase has been 50 per cent.

The common fallacy that a railroad is completed when opened for traffic has long since passed away, at least in the minds of intelligent men.

The railroad of today is no sooner completed as a single track, than it becomes necessary to provide industrial spurs; additional or enlarged terminals; replace its temporary structures by permanent ones; widen its excavations; strengthen its embankments; provide passing tracks, additional shop facilities, enlarged passenger and freight stations, warehouses, elevators, docks and wharves at water terminals, additional tracks, heavier rail, rock ballast, elimination of curves, reduction of grades, block signals, elimination of grade crossings, heavier engines, larger and better cars, to the end that the constantly growing requirements and exactions of modern traffic conditions may be met; all of which requires increased expenditures, which it is easily seen could not in any event be provided for out of earnings.

During the next ten years the railroads of the South will require $1,000,000,000 to enable them to fully provide for the increased demands for transportation facilities, an average of $100,000,000 per annum. Including the estimated increased mileage and the present capital investment, the resulting average capitalization would amount to $53,000 per mile, being $20,000 per mile under the present average capitalization of all the railroads of the United States today, which is $73,000 per mile.[B]

Meeting the requirements of the railroad situation in the South by the expenditure of a round billion dollars during the next ten years, as outlined herein, would make the total investment in southern railways at the end of that period three billions of dollars on an estimated mileage of 56,000.

It would require average earnings of $9,000 gross per mile per annum, with operating expenses at 70 per cent of the gross, to yield sufficient net income to provide a return of 5 per cent on this total investment.

When these figures are compared with the present average gross earnings of the railroads of the United States, $11,400 per mile per annum, with an average cost of operation of $7,757 per annum, resulting in a ratio of operating expenses to gross earnings of 68 per cent, the above estimates appear reasonable and conservative.

Even if this expenditure is made and the results predicted obtained at the end of the ten-year period, southern railroads will still fall approximately 25 per cent short of yielding the present average gross earnings per mile per annum of the railroads of the United States today.

To provide funds to meet these ever-growing and incessant demands for additional facilities, the railroad companies must necessarily be large borrowers.

The prosperity of the South in the next decade, and in those to follow after, depends upon the ability of the owners and managers of southern railways to foresee and provide for future necessities, and upon the promptness with which the work is accomplished.

The ability of railroads to construct these improvements, which are so essential to the future prosperity of the South, depends upon the willingness of capital to furnish the necessary funds for the purpose.

While legislation may control and regulate the returns upon invested capital, there is no process by which it can compel that investment originally. While investment is easily retarded it is difficult to attract.

There is probably no form of capital investment more open to attack or more liable to depreciation through unfair or unwise legislation than the railway investments of today.

While the speaker is a firm believer in the principles of governmental control and supervision over the corporate entities which have been created by the people and for the people, it must not be forgotten that every shield has its reverse, and that the exercise of such control and supervision must necessarily be along the lines of right and justice, which no mere legislative enactment can change. Any variance brings its own reward, which frequently spells disaster.

The power to control, regulate and supervise necessarily carries with it responsibilities from which there can be no escape.

Every tax, every restriction, every requirement which costs money or reduces revenue to our southern railroads is a tax which must ultimately be paid by the communities which they serve.

The prosperity of the southern railroads and the prosperity of the South are irrevocably bound together, and the needs of the South are identical with the needs of the railroads.

The basis of securing capital must necessarily be the ability of the borrower to inspire confidence in the lender that his capital will ultimately be returned to him intact, and that he will receive regularly and promptly adequate hire therefor.

No section of our great country has such reputation for united action as the South. In political matters this unity of action for years has led to the designation "The Solid South."

What the railroads in this section need today is a solid South behind and beneath them; a solid South taking a calm and rational view of the immense factor the railways have been and always will be in the development of its future greatness.

The recent reversion of sentiment in the State of Georgia, brought about by a calm and deliberate analysis of the present situation by the business men of that State, should be the keynote of the future action of the solid South.

The adoption of a policy of fairness and liberality towards the railroad interests on behalf of all the Southern States, and the ability to convince the financial world that this action is sincere and genuine and will be permanent, is the great paramount need of the railroads of the South today.

Prompt action along these lines will enable the railroad companies of this section to successfully compete in the markets of the world for the capital needed to carry out the improvements outlined, and thus provide the facilities which will enable the producers of the South to ride the crest of the wave of coming prosperity.

In its calls for capital the southern railroads must come into competition in the markets of the world, not only with the railroad requirements of the North, of the East and the West, but with all the lines of human industry and endeavor throughout the wide world.

The difference between the five or six per cent paid by southern railroads for the money which goes into their additional facilities or equipment, and the three or four per cent which may be yielded by the high-class world investments, is merely the gauge by which the confidence of the capitalist is measured in the integrity of his investments.

Today it is difficult to secure money for railroad development, either South or North, at any ordinary rate of interest. Why? Is it because money is scarce? No.

I can best answer this by a story of the panic of '93, when a citizen of Chicago dropped into the office of Lyman Gage, of the First National Bank of that city, and inquired of Mr. Gage if money was tight. He replied, "No, the bank had plenty of money." The citizen said, "That's fine; can I secure a loan of $100,000?" Mr. Gage replied, "Yes, you can have it; we will loan it to you. What is your collateral, what security can you give?" It is needless to say that the loan was not made.

The customer afterwards remarked to a friend that he had found that the trouble was not that money was tight, or that money was scarce, but was due to the scarcity of collateral or security, which is only another designation for guaranteed confidence.

This is the situation today. There is not a railroad in the South, North, East or West that could not secure all of the funds necessary for any development it might desire to make provided it could show the capitalists to whom application for the loan was made that it could furnish security which would insure the repayment of the loan and the interest thereon as due.

I doubt if there is a single southern railway system, the officers of which would not gladly today take up, consider and block out a scheme for the improvement and betterment of their property, and commence preparations to enable their system to fully perform the increased functions of a common carrier, which the abundant years of the immediate future promise to require, if they could be sure, and in turn could assure their financial backers, that the earnings of their road would be amply and safely sufficient to provide for, and take care of, the investment necessary.

Therefore, remember that the needs of the railroads are the needs of the South.

I presume there is no planter, miner, manufacturer, producer of any sort, banker, merchant or professional man in the wide South who would not say in a moment that every thousand dollars of capital invested in his vicinity, or in his town, or in his state, would be gladly welcomed and eagerly sought for, by the planter paying eight per cent and the merchant and miscellaneous producer from six to eight per cent, and that approximately one billion of dollars injected into the commercial channels of the southern states during the next ten years would bring a relative measure of prosperity to every man, woman and child within its borders.

When it is considered that this amount of money could be invested in additional railroad improvements and facilities; that under proper conditions it could be secured at a rate not in excess of five per cent; that approximately eighty per cent or more would be spent for southern labor and southern material, and would find its way through every artery and vein of southern trade and commerce, it would seem that the solid South would be thoroughly alive to the burning fact that—The needs of the railroads are the needs of the South.

I might talk to you for hours about the evil and unfairness of legislative enactments to retard and make unproductive railway investments; of the injustice of any body of men attempting by legislation, without giving the railroad corporations proper hearing, to arbitrarily adjust their rates of toll for either passenger or freight simply because politicians consider it a popular thing to do.

I might suggest a multitude of things which could be done to increase the credit of railroads throughout your section.

I might mention a multitude of things which have been done to injure and impair and prevent railroads securing the necessary capital to provide for their needs.

I might also attempt to enumerate the ill-advised actions of railroad managers and employees toward the public.

I might expatiate upon the foolishness and unwisdom of a corporation—the creature of the public—attempting to dictate to its master or declining to obey its commands.

It is doubtful, however, if the enumeration of the errors and shortcomings of the fellow-members of the same family ever tends to a better understanding or more harmonious relationships. The need of the hour is a recognition of the interdependent relations which exist between us all, and to remember—intensely, actively, potently remember—that an "injury to one is an injury to all," and that "united we stand, divided we fall."