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