THE FUTURE OF AMERICAN RAILWAYS
The condition of our railways, and their financial prospects, should interest all of us. It has become a common remark, that railways have benefited everybody but their projectors. There is a strong doubt in the minds of many intelligent persons, whether any railways have actually paid a return on the capital invested in them. It is believed that one of two results inevitably takes place: in the one case, there is not business enough to earn a dividend; in the other, although the apparent net earnings are large enough to pay from six to eight per cent. on the cost, yet in a few years it is discovered that the machine has been wearing itself out so fast that the cost of renewal has absorbed more than the earnings, and the deficiency has been made up by creating new capital or running in debt, to supply the place of what has been worn out and destroyed. The Illinois Central has been pointed out as an example of the first kind; the New-York Central, of the second; while the New-York and Erie is a melancholy instance of a railway which, never having enough legitimate business of its own, has worn itself out in carrying at unremunerative rates whatever it could steal from its neighbors. The general opinion of the community, after the crash of 1857, was, that all our railways approximated more or less closely to these unhappy conditions, and it was merely a question of time as to their final bankruptcy and ruin. Even now, when they have recovered themselves considerably, and are paying dividends again, capitalists are very shy of them.
It is our belief, contrary to the current opinion, that during the next decade such a change will have taken place in the condition of our railways, that we shall see them averaging eight to ten per cent, dividends on their legitimate cost. We propose in the present article to give the reasons which have led us to this conclusion.
The causes to which may be traced the languishing condition of our railways may be stated as follows:—Financial mismanagement; imperfect construction; and want of individual responsibility in their operation.
The financial mismanagement of our railways has arisen from precisely the opposite cause to that which has made British railways cost from two to three times as much as they should have done. Their excess of cost was owing to their having too much money; ours to our having too little. They were robbed right and left for Parliamentary expenses, land-damages, etc. The Great Northern, from London to York, three hundred and fourteen miles, expended five millions of dollars in getting its charter. Mr. E. Stephenson says that the cost of land and compensation on British railways has averaged forty-three thousand dollars per mile, or as much as the total cost of the railways of Massachusetts.
American railway-companies have never been troubled with too much money. They have usually commenced with a great desire for economy, selecting a "cheap" engineer, and getting a low estimate of the probable cost. A portion of the amount is subscribed for in stock, and the next thing is to run in debt. "First mortgage bonds" are issued and sold. The proceeds are expended, and the road is not half done. Another issue is sold at a great discount, and yet another, if possible. As the road approaches completion, the desperate Directors raise money by the most desperate expedients, such as would bankrupt any merchant in the country in his private business. Sometimes the road has vitality enough to work itself out of its troubles; but in other cases, unfortunately too numerous, it passes into the hands of the bond-holders, and all it can earn goes to remunerate trustees, and pay legal expenses, commissions, etc.
The financial mistakes of our railways have been, endeavoring to do too much with too little money, and crippling themselves with a load of debt that no project could stand under. This has led, as a matter of course, to the second evil,—Imperfect construction. The projectors of a new railway have thus reasoned with themselves:—"The average cost of our railways has been between forty and fifty thousand dollars per mile, and this one, no doubt, will reach those figures before we get through. But it will never do to talk so, or we could not get the money to build it. Mr. Transit, our engineer, says it can be opened for twenty thousand dollars per mile, and we will earn money enough to finish it by-and-by." So they go on, and, to get the road open for the small sum attainable, everything has to be "scrimped" and pared down to the lowest scale. The cuttings are taken out just wide enough for the cars to pass through, and the ends of the ties overhang the edges of the embankments. Temporary trestle-work of wood is substituted for stone bridges and culverts. Some reckless fellow tosses down the iron as fast as a horse can trot, and the road is opened.
Another way in which imperfect construction is inevitable is where companies admit their inability to be their own financiers by giving some influential contractor his price, and allowing him to "do his own engineering," in consideration of his taking such securities as they have to offer, and which he undertakes to float by means of his superior connections. Having the thing his own way, and being naturally anxious to build his road for as little money as possible, he pares down everything even below the standard of embarrassed railway-boards. If the road will only hold together until he has sold his bonds, it is all he asks. If the business is good, the road will perhaps be finished, or what is thought to be finished, some day or other. If business is dull, nothing is done, and the bridges and trestle-works remain such murder-traps as that on the Albany Northern Road which broke down last year.
But it is not with such miserable apologies for railways that we have to deal. It is on our really valuable roads, like the main lines in Massachusetts and New York, that we shall show that the evils of imperfect construction are felt, and will be felt, until a thorough reconstruction has taken place. It was observed some time ago that the returns of the Massachusetts railways for 1856 showed that there were 1,325 miles open, costing on an average $46,480 per mile, or $61,611,721 in all. The receipts per mile of road were $7,217, the expenses $4,260, leaving a net earning of $2,957, or 40 per cent. of the whole. This was equal to 6.42 per cent. on the whole cost of the railways.
For the same year the returns of all the railways in Great Britain showed that there were 8,502 miles open, costing $173,040 per mile, or $1,506,826,363 in all; and that the receipts per mile of road were $13,296, the expenses $6,249, leaving a net earning of $7,047, or 53 per cent of the whole. This was equal to a dividend of 3.97 per cent. on the whole cost. These figures showed, that, however extravagantly the British railways had been built, they certainly were worked more economically than our own.
At first view it might be thought that the economy was due to their greater business; but further inquiry showed, that, from the better shape of American cars, and from the wants of the public requiring fewer trains, the actual receipts per mile run of Massachusetts trains were $1.83 against $1.44 of British trains. The expenses per mile run of Massachusetts trains were $1.08, while those of British trains were only 63 3/8 cents. Could Massachusetts railways be worked as cheaply, the result would be that they could declare nine per cent. dividends on their cost, instead of six.
Here offered a rich reward for investigation. Accordingly two gentlemen well known to the railway world, Messrs. Zerah Colburn and Alexander L. Holley, made a trip to England for the purpose of discovering how it was that John Bull could work his railways so much cheaper than Brother Jonathan. The results of their investigations are embodied in a handsome quarto volume, illustrated with numerous drawings, which has been subscribed for by most of the railways and prominent railway-men throughout the country. It is not too much to say, that the effect of it, in directing the attention of American railway-managers to the weak points of their system, has resulted already in a saving to the stockholders of our railways of millions of dollars.1
More than half the cost of operating a railway consists of the repairs of track and machinery and the cost of fuel and oil. These expenses are exactly proportional to the mileage of trains. It was soon seen that the greater economy of British railways was almost entirely confined to these items.
The cost of "maintenance of way" upon English railways was 10 1/2 cents per mile run, against 25 cents on those of Massachusetts. The cost of repairs of cars and engines was nearly the same on both. The cost of fuel per mile run was 6 1/2 cents, against 15 cents. While English trains are from 20 to 30 per cent. lighter than ours, they average 25 per cent. faster, so that practically these conditions must nearly balance each other. In alignment the English roads are superior to ours, and as to gradients they have some advantage; although grades