172 IOWA DEPARTMENT OF AGRICULTURE 



One other matter that I have been interested in during the past year 

 relates to the valuation of railroad properties. I was chairman of the 

 committee on valuation of American railroads of the National Association 

 of Railway Commissioners. Now there is a popular belief that the regu- 

 lation of watered stock is the cure-all of many of our questions in regard 

 to public service regulations. Many people think that when a company 

 Issues a hundred thousand dollars' worth of stock that they are entitled to 

 a return on it. As a matter of fact, there is not a court in the land that 

 holds that to be true that I know of. I examined the records of ten dif- 

 ferent states that had valued their railroad properties last year. Not 

 one of those states used capitalization as the basis. In the Knoxville water 

 case, the supreme court of the United States computed and estimated what 

 should be the basis for the return, and they totally disregard all matters 

 of capitalization. In the Consolidated Gas case the same is true. They 

 are not entitled to a return on the capitalization. They are entitled to a 

 return upon the value. 



But the amazing thing is the great diversity in methods of finding 

 value. No two men, I find, could go to work and value the same piece 

 of property and reach conclusion, one fifty per cent greater than the 

 other, though one was just as honest as the other. A few years ago a 

 man up in Michigan valued the property of one railroad. Two years ago 

 he valued the same railroad for precisely the same purposes. Remember, 

 this is the same man. And he got a value of $20,000,000 greater than the 

 other time, when he valued it two years prior, and there had been no 

 substantial addition to the property in the meantime at all. 



I found a fellow in Michigan who said on the little items of con- 

 tingencies a railroad should be allowed ten per cent — an able and compe- 

 tent man. A fellow dov^'n in Oklahoma, at the head of their engineering 

 department, said two per cent is enough. There is a difference of eight 

 per cent. What will that mean if congress during the next few days 

 makes a national valuation required by the Interstate Commerce Commis- 

 sion? It means a variation according to current methods, of more than 

 a billion dollars on that one item of contingencies. 



On interest during construction there is another problem. They agree 

 that five or six per cent is a reasonable rate, but they don't agree over 

 what period the road should be constructed. Over in Kansas it takes 

 about a year to construct a hundred miles. Over in Nebraska, right across 

 the line north of it, they say it takes four years to construct a hundred 

 miles. There is a big variation. Over in Minnesota they say a railroad 

 is entitled to a return on the value of its real estate. In Wisconsin they 

 say it is entitled to three times the value of its real estate. There is an- 

 other variation of several hundred millions. 



You talk about these questions of graft and dishonesty. Those are 

 small and insignificant compared to the determination of some of those 

 technical problems of engineering questions. The great Gould scandal 

 only involved twenty-three million dollars. The great Northwestern Pa- 

 cific steal only involved about seventy million dollars. In the little 

 question of contingencies there is a thousand million dollars involved. All 

 of the £ra.ft in our insurance companies, all of the graft in the history 



