424 IOWA DEPARTMENT OF AGRICULTURE 



(And that was one proposition, that they could build these improve- 

 ments out of earnings, and then later they were going to capitalize the 

 improvements so constructed.) 



"Mr. Rea: That seems to he the only means at present, the govern- 

 ment practically and necessarily closing the financial market to all other 

 financing. 



"Mr. Patterson: Have these improvements on the Pennsylvania Sys- 

 tem, or any part of them, got to be made, or do you propose to sit still 

 here for the next year or two years? What will happen if you do? 



"Mr. Rea: We would choke up and have to stop business. You see 

 what is before us. There is $103,000,000, every cent of which ought to be 

 expended gradually and as soon as possible." 



If you are going to have to secure that money and you can't do it by 

 the sale of securities, there are three methods left to you. One is to 

 advance freight rates; another, a government loan; third, government 

 operation. What are the advantages and disadvantages of those three 

 methods? We are now talking about capital charges for the building of 

 betterments and improvements. If you advance freight rates for the 

 purpose of building betterments and improvements, the railroad company 

 owns the improvements, doesn't it? The railroad company will demand 

 a return on what it owns, won't it? 



We are right now in the midst of a valuation of American railroads 

 as a basis for charges for all future time. You will be building railroad 

 property for a private company, and then you will have to pay a return 

 on what you build. It would be just like Mr. Sherman here wanting to 

 build a factory. I furnish him the money, and then I will have to pay him 

 a return on the money that I furnish him. Isn't that sensible? A second 

 method would be a government loan. I furnish Mr. Sherman the money, 

 but he has got to pay back to me annually the cost of that money, and at 

 the end of that period I get the principal back. By the advanced freight 

 rates not only do I fail to get annually the cost of the money, but I have 

 to pay him the cost of the money, and at the end of the period I don't get 

 the principal back. Which is the better economic policy of the two? 

 IWhich is the fairer? In these public matters you must exercise the same 

 horse sense that you do in private affairs. 



There are some difficulties about the government loan that I want to 

 outline briefly. Are you going to lend ftioney to various companies without 

 absolutely controlling how it shall be expended? Are j'ou going to lend 

 to bankrupt roads? Are you going to exercise a control over them to see 

 that they are handled properly? And again, if you can't get cars and loco- 

 motives, wouldn't it be very wise to have a sort of unification of the rail- 

 road systems, so as to cut out competitive service? There are practical 

 difficulties in connection with companies eliminating competitive service. 

 Suppose you and a crowd of men owned one railroad, and I and another 

 group of men owned another, and were running trains in competition with 

 each other. Then it was proposed to eliminate one of our trains, and let 

 the other road handle the traffic. Wouldn't I object very strenuously to 

 the elimination of my train? Why? Because I would not only lose the 

 returns that I was formerly getting, unless there was a pool established. 



