CHAPTER XVII.

GEOGRAPHICAL DIRECTION OF RAILROADS.

AMONG other elementary enquiries, our visitor may probably ask whether the geographical direction of railroads has, from the investor's point of view, any bearing on their present and prospective success; and if so to what extent and for what reason. Any attempt to answer such a question exhaustively would of course exceed the scope and limits of the present notes. Nor has our enquirer any intention of burthening his own note-book with cumbrous tables of statistics. To state in detail the figures which indicate the progress of railroad enterprise in America would virtually amount to a record of the progress of her internal trade. Railroad history, in short, affords something like a rough standard of internal business, recording in general outline permanent growth, temporary depressions, and temporary recoveries. any exhaustive discussion of this subject the enquirer will properly refer to recognized text-books. For the present, the practical question is this: Can he derive any useful suggestions from a rapid and superficial survey? Possibly one or two leading conditions connected with the situation may be worth noting.

For

The tonnage which is annually moved from the Western States to the Eastern seaboard is enormous in its dimensions. But the periods during which the movement of this tonnage continues are unequal in duration and some

what uncertain in their incidents. Take, for example, a very favourable stage in the commercial history of the great East-and-West roads. Let us suppose that a plentiful harvest has been gathered in by those American States which produce grain and meat in extraordinary profusion. Let us suppose further that there is an immense demand in Europe for imported food. It follows that the period which covers the moving of the crops from Western farms to the Eastern seaboard will tax to their utmost capacity the resources of railroads running due east and west. To accomplish this service with effect, a vast aggregate of rolling stock is an absolute necessity. No railroad which is not in a position to fill large orders for transportation can reasonably expect to hold its own in a keen (and occasionally unscrupulous) competition.

In order to comply with this condition, it is necessary to maintain an amount of rolling stock roughly adequate to the demands of maximum pressure, and therefore greatly in excess of the demand which will exist during the relatively inactive months of the year. If the transporting company is the absolute owner of its rolling stock, it must take account of interest on capital invested therein; also of the cost of repairs and maintenance which are appreciable items of expenditure. If the company hires its rolling stock, it must reckon with the amount paid for car hire; and this too involves serious outlay. To very long hauls during periods of high pressure delay and detention are inevitably incident; and detention in a state of inactivity means suspension of earning power in respect of the cars so detained. Then again the gradual building up of manufacturing industries in the large cities of the Middle and Western States enables those cities to supply a liberal share of the necessaries of life, which were for

merly transported to the far West from cities in the neighbourhood of the Eastern seaboard. It results that the car which makes a long haul from the far West to the Eastern seaboard is not only liable to considerable delay and detention, but is very apt (if the familiar bull be permitted) to "load back empty."

Under these conditions it is worth while to consider roughly what are the annual net earnings of a vast aggregate of rolling stock. Granting that each car earns a good deal of money during the moving of the harvest, what is its average earning on the work of the whole year? The result is perhaps scarcely as satisfactory as might at first sight be anticipated. So vast is the annual tonnage moved from the West to the East, that-in spite of the immense supply of transportation and extraordinarily low rates-there is amply sufficient to make a fair profit for a certain proportion of competing lines. Those which are intrinsically the strongest and best managed will no doubt continue their career of success. But, to enable them to accomplish this result, the weaker East-and-West lines will probably sooner or later suffer a severe discipline. If there is barely enough to go round and the stronger take the lion's share, the prospect of the weaker must always be a matter for careful consideration,-possibly even of apprehension,—from the investor's point of view. There are indeed optimists who hold that the traffic between the remote East and West will shortly grow up to the existing supply of transportation; and, even at very low rates, make every East-and-West road a paying concern. In this view the writer does not concur. It seems not improbable that, with very modest rates, the business of the East-and-West lines would suffice to pay a fairly liberal rate of interest on all the capital really and economically

invested in them. But, when the amount of water which has been infused into existing capital accounts is taken into consideration, it may be doubted whether in the future very remunerative interest will be permanently paid on anything like the whole of their present capital, real and fictitious. The amount of this water is, in fact, so great that the prudent investor can scarcely fail to regard it with misgiving. Suppose to-morrow a new East-andWest "bee-line" were projected and laid out with genuine insight and superior judgment; that it were built without a dollar of waste; and that all the economical advantages derivable from the maximum purchasing power of ready money were utilized. Suppose further that the aid of all modern appliances conducive to cheap and effective construction were conscientiously and scientifically enlisted in the development of the enterprise. Suppose that townships and hamlets throughout the proposed line subscribed with fair liberality in aid of the undertaking; and lastly that the new railroad when built was operated from the start on a strictly commercial basis; that its administration had from the outset no speculative complications, no expensive emergencies to tide over and no axes to grind, outside of the immediate interest of the road and its stockholders. Such a line, unembarrassed by water and unencumbered by artificial and unnecessary engagements, would break the heart of the weaker Eastand-West lines, who would surely, in any future war of rates, find themselves handicapped out of the race. The lightly weighted road would make the most of its light weight, and decline pooling arrangements. A scale of rates, which would provide a fair living profit for a new road constructed and operated in the manner and under the conditions above indicated, would starve the junior

securities of existing weak and heavily watered concerns. Whatever might be the volume of existing business at any given time, the road which could best afford to undersell would have the best of the struggle and be the most likely to survive.

Possibilities of this kind must properly be recognized as factors in the conclusions of an investor, whenever he contemplates acquiring the securities of the weaker Eastand-West lines. Whether such a view be well founded or not, it must of course be worth while for the investor to consider the relative claims of lines which run north and south-or diagonally, with some approximation to a north and south direction. Many cities of the Middle States have, in the last twenty years, grown with astonishing rapidity into commercial and manufacturing importance. In exchange for raw material shipped to them from the Southern States, they are in a position to send back a large portion of the necessaries of life which the Southern States do not to-day produce for themselves in reasonable proportion to their capacity and general physical advantages. While it may be hoped, in the interest of the latter, that greater attention will hereafter be given to the production of food, live stock, and the manufacture of articles of commerce, it is plain to the observer that to-day the attention of the South is too exclusively concentrated on certain special resources. Some of these such as coal, iron and other minerals-the soil produces in profusion and in singularly convenient juxtaposition; and others such as cotton, fruit, etc.—the climate fosters with something like trustworthy assurance of success. The home of the cotton plant is in many instances liberally supplied with the water power to drive the spindle. Coal, iron, limestone and water are found