Railroad Valuation—Watered Stock 
No Government "Guaranty” 
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I 
Value of the Roads 
The GREAT QUESTION in the minds of 
many farmers is: “What is the TRUE VALUE 
of the railroads?” 
The idea has been spread far and wide that 
the valuation on which the roads are allowed 
to EARN A RETURN is far TOO HIGH. 
Most people are willing to pay a FAIR 
PRICE for things they buy—transportation 
or anything ELSE. 
The return which railroads are allowed to 
earn is not based upon the STOCK or the 
BONDS but on the value (at pre-war prices) 
of the actual railroad PROPERTY—cars, 
locomotives, stations, etc., used in the service. 
The Interstate Commerce Commission 
studied the problem THOROUGHLY, and 
found that the MINIMUM reasonable valua¬ 
tion of this property was $18,900,000,000. 
II 
About "Watered Stock” 
An act requiring a GOVERNMENT VAL¬ 
UATION had been passed in 1913. That work 
is not yet complete. 
The work so far as finished shows that the 
roads, AS A WHOLE, are worth MORE than 
their capitalization. 
Taking the roads as a whole, the “watered 
stock” argument HAS NO BASIS. 
These valuations are NOT BEING MADE 
ON PRESENT PRICES but on 1914 prices. 
But MORE important to the farmer: Even 
if ALL railroads had “watered stock” it 
WOULD NOT COST THE FARMER A 
CENT; for capitalization has NO EFFECT 
ON RATES. 
Ill 
No Government Guaranty 
The farmer has been TOLD repeatedly that 
the Government guarantees the railroads a 
SIX PER CENT RETURN, and the roads 
have NO INCENTIVE to economize. 
When the roads were taken over by the 
Government in 1917, for WAR purposes 
it agreed to pay the owning companies a 
RENTAL equal to the average which the rail¬ 
roads ACTUALLY EARNED in the three 
years preceding. 
The Government piled up WAGES and 
other railroad EXPENSES but did NOT in¬ 
crease RATES enough to meet these costs. 
When the roads were returned, their owners 
could not make up losses by TAXATION as 
the Government did. 
Under these EMERGENCY CONDITIONS 
the Government continued for 6 months 
(March 1 to September 1, 1920) to make up 
any DEFICIT in income below the war rental. 
But that arrangement CEASED Sep¬ 
tember 1, 1920; now the railroads get only 
WHAT THEY CAN EARN up to 6 per cent. 
If they earn more they divide with the Govern¬ 
ment. If they earn less no one makes up the 
deficiency. 
THE GOVERNMENT 
NOTHING! 
GUARANTEES 
As a matter of FACT the roads have earned 
only about 2Vi per cent since last September. 
The deficit below a 6 per cent return is PER¬ 
MANENT LOSS. 
The roads haven’t earned enough even to 
keep the properties in PROPER REPAIR. 
IV 
Our Interests Mutual 
For at least FIVE years, the development of 
the railways has been at a STANDSTILL. 
No industry can grow and expand its SER¬ 
VICE when it can not pay interest or divi¬ 
dends to those who invest their money in it. 
The EARNING power of the railroads was 
practically DESTROYED during the war. 
Only by RESTORING it can the railroads 
again pr ovide facilities for the business of the 
country. 
A CONSTANT supply of new investment 
is as necessary to the growth of railroads as 
FERTILIZER is on the farm. 
The farmer can not prosper unless railroads 
prosper. Railroads can not prosper unless the 
farmer prospers. 
OUR INTERESTS ARE MUTUAL. 
Association of Railway Executives 
Transportation) Building 
Chicago, 111. 
61 Broadway 
New York 
Munsey Building 
Washington, D. C. 
Those desiring further information on the railroad situation can secure it by addressing the offices of the Association 
