ruled for years. In point of fact, in many cases the road-
bed, waggons, and tunnels do not readily permit of any
other methods, although as in the case of the Grand
Trunk Eailway, with which our readers will be familiar
better plans and more skilful management could be made to
bring about enormously favourable results. Much good
may be hoped for when necessity really compels a change ;
but practically all Boards are dependent mainly on their
expert staffs, and the lines are not, as in the past, directed
by men who made this direction their sole or main means
of livelihood. The Boards of our railways are really self-
elected, since existing members fill up the vacancies as
they occur, and the annual or half-yearly meetings are
practically a farce, the ordinary shareholders, or even a
large body of them, having no chance against the mass of
proxies the Board can always command.
377
BRITISH RAILWAY FINANCE
The difficulties and dangers of the situation in the
future are many, and the really serious investor should
carefully weigh them. A few of these difficulties may be
particularized. The advent of new inventions and methods
of locomotion (and improved methods of old systems, to
some of which existing railways may not be adaptable),
such as highway motors, mono-rails, underground systems,
and electric trams, will, in course of time, be formidable
enemies for the companies to combat. Electric tramways
especially will, in my judgment, be a very serious com-
petitor with all our railways with a suburban system, and
will divert much traffic, competing as they will without
the huge outlay on terminals that railways have had to
make in the past. Then the rise in expenditure from
year to year has been steady and persistent. Rates and
taxes have gone up, and also wages. The latter have
advanced even without any general strike of labour, to
which the railways are all subject, and which sooner or
later is bound to occur, as it did in America some years
ago. Expenses must also increase with time, owing to the
insistence of the public for better accommodation and
facilities, whilst charges cannot be increased, as they are
already at the highest possible level.
The most serious and more lasting danger is the steady
and continuous increase of capital that has taken place
year by year, with consequent increase of dividend and
prior charges. This outlay is not really for the purpose
of tapping new sources of revenue, but is generally made
for the purpose of providing facilities which ought to have
been provided in the past, and thus to enable the railways
to cope with the increased traffic, which has grown beyond
their resources. The case of the Brighton Eailway and
the proposed enlargement of Victoria Station is an instance
of this. But this capital expenditure does not imme-
diately, and cannot be expected for some years to come,
provide anything like a fair return. In the United States
a large portion of such expenditure is charged to revenue.
378
APPENDIX I
Indeed, what in America is naturally charged to revenue
is in England entirely charged to capital at all events,
most of it, without doubt. Owing to the intense competi-
tion which exists between the companies, lines are built
which of themselves cannot hope to pay ; they are simply
built for the purpose of preventing other lines from
extending into the territories of the road in possession,
and so of keeping off competition. Speaking of these
capital outlays which are so constantly being made, it is
worth mentioning that, unlike all other trading concerns,
no depreciation is allowed for by a railway company. A
careful business man, before arriving at his available
profits, always puts by a reasonable sum for depreciation,
and is not content, as is the case with railways, with
merely providing for wear and tear and the actual replace-
ments of plant and roadway when worn out. However
much you may keep up a property, a certain depreciation is
always going on, and simple replacement here aud there is
in no way equal to the general depreciation which, is taking
place, and which should be written down from year to year.
There is no hope for the future of railroads by raising
rates. In all other countries rates on goods have been
reduced and better facilities provided, and by economical
methods of transportation larger profits and increased
volume of trade have been ensured. Foreign competition
is already stifling the trade of this country, and the rates
at present charged in many instances for small distances
like, say, that from Liverpool to Eochdale are the same
practically as those for bringing goods in bulk across from
America. If rates were raised, the trade, which is at
present dwindling through the absence of facilities and
reasonable charges, would be still further injured, and the
outlook in railroads is such that, in my opinion, the
Government would be compelled to interfere on behalf of
traders.
MERCATOR.
379
APPENDIX II
HOME EAILWAY PEOBLEMS
AN ARGUMENT ON THE BULL SIDE
To the Editor of the ' Financial Times.'
'SIR,
' " Mercator's " letter in your yesterday's issu<
raises many points deserving of the careful consideratioi
of all interested in the investment value of railway pro-
perty ; but although the railways of this country have,
a whole, shown from this standpoint more stability thai
any other group of investments, yet it is not the fii
occasion within the railway era that they, for a time, hav<
been "under a cloud," eventually to emerge, apparently,
more solidly prosperous than before ; and admitting that
even in a world of change a half-century's record does
not necessarily imply that once more history will repeat
itself, the presumption is in favour of this most recent
spell of adversity again proving temporary.
' As regards the present situation, there are two funda-
mental facts that, however they may at the moment be
obscured, would seem to be of the first importance in any
estimate of the permanent investment value of the rail-
ways, the one being that overhead the steady expansion
in gross earning-power has almost up to the present hour
been maintained, the check with the adverse turn in trade
in the current year being reflected in the railway traffics by
but a fraction of 1 per cent., while the other is that the
380
APPENDIX II
recent conditions of working in respect of the cost of fuel
and material have been abnormal, and are now passing
away. With the records of the past before us, it is, view-
ing the matter broadly, surely not too much to assume
that, with the present check to trade succeeded by a
recovery, the hitherto constant tendency towards expan-
sion in earnings will once again assert itself, arid that so
far as those chief items of the cost of working fuel and
material are concerned, the ratio of expenses will again
become normal. As is usual when things are under a
cloud, there is too general a disposition unduly to magnify
the other contributory adverse factors, such as lack of
enterprise, lavish capital outlays, insufficient provision for
depreciation, labour questions, etc. all which naturally
enough bulk more largely in the eye when costs otherwise
are high and dividends cut down and to make no allow-
ance for what reasonably may be set off in mitigation.
For example, if the railway administration of the country
has failed fully to keep pace with the times, is it right to
assume that nothing in that direction has been done ? A
comparison of the rolling-stock and the facilities for traffic
with any former period will show that improvements
certainly have been steadily in progress in some direc-
tions, perhaps, too much so. Then, as regards capital
expenditure, lavish although that undoubtedly has been,
yet it is just a little too sweeping to denounce this out-and-
out, as so generally is done ; for, apart from the fact that
some such outlays, on the principle that " a railway com-
pany's capital account never can be closed, "are unavoid-
able, capital that is remuneratively invested, so as to con-
tribute its quota of revenue, or, in other words, " to earn its
own living," ought not to come under such condemnation.
Nor can the innovations demanded of the railways be
carried into effect without still further capital expenditure
an expenditure doubtless justified if results can reason-
ably be reckoned on to render it profitable.
' The charge against the railways of insufficient provision
381
BRITISH RAILWAY FINANCE
out of revenue for depreciation seems likewise, surely,
too sweeping. The premier railroad of the country, for
example the London and North- Western would, I
believe, on investigation, be found to have, at cost of
revenue, largely improved its property, and actually added
to its engines and rolling-stock ; and, apart from the prices
originally paid for the land, most of the railways have been
so well maintained that it is doubtful whether they could
to-day be duplicated for what they originally cost. If
thus efficiently maintained out of revenue, what need
would there be for creating a fund for a depreciation that
did not exist ?
' What changes, to be sure, does the whirligig of time
bring about! Here, at this time of day, we actually
have the railroads of America held up as an example
of what British railways should be, whereas but five
short years ago the position was quite the reverse.
Then, although the British railway capital accounts were
growing, wages rising, and rates and taxes, as now, in-
creasing, the prosperity of the railways had as yet been
unclouded by the impending coal famine. Quotations
were high probably too high but British railway stability
was rated highly enough then to " point the moral " to
American railroads, emerging discredited from the throes
of receivership and assessment, under the all but universal
reproach of having paid dividends at cost of deterioration
of their property. Now the boot is on the other leg, and,
with " betterments charged to revenue," all are for holding
up American railroads as a pattern to our own companies,
whereof at present, through certain adventitious conditions,
it is the turn to " get the kicks."
' " Sweet are the uses of adversity," and the tribulations
that home railways have just been passing through may
well prove profitable, if the lessons they convey are taken
to heart, not in disparaging comment or detrimental con-
clusions as to the future of this important section of the
investment market, but in agitating for reforms such as
382
APPENDIX II
not only are practicable, but should bring a future at
least as assured as the past. Above all, as is urged by
" Mercator," let harmonious working be promoted, and
the needless duplication of services put a stop to. Let
capital expenditure likewise be confined to what is either
absolutely necessary, or can be shown to have reasonable
prospect of bringing an adequate return ; arid, as regards
" innovations," such as heavier engines and bigger trucks,
let these be introduced as renewals are, at any rate, being
made. As for the rates and taxes, it is true that these go
on growing apace, and, doubtless, as a tax on locomotion,
are economically unsound as well as an unfair impost ; but
in this there is nothing new, and if the powers that be
continue obdurate, there is nothing for it but to grin and
bear it. It is otherwise with the labour question, and the
assumption that wages must go on proving a yet more
formidable tax on the railways can have no better founda-
tion than if applied to any other department of industry,
the conditions of labour all round being primarily a ques-
tion of demand and supply.
' Minor forms of competition, of which at present a good
deal is being made, in the shape, for example, of further
developments in the suburban districts of the bigger towns
of the street-railway system, are as likely to prove advan-
tageous as detrimental to the railways, for the multiplying
of facilities for residence outside the towns creates not
alone a new passenger traffic, but likewise traffic of all
sorts, whereof the railways will get their share. Year by
year the taste for and habit of travelling give evidence of
developing with the increase of wealth and opportunity,
as well as of the population itself; and, apart from merely
minor fluctuations, the tendency towards an expansion
of the merchandise movement, in the way of supplying
the wants of a growing community, can hardly but be
similarly observable; and that this must find itself reflected
in a corresponding growth in railway revenues can on but
the one assumption be belied, and that is that the nation
383
BRITISH RAILWAY FINANCE
itself has entered upon the sere and yellow leaf of com-
mercial and industrial decay. This, too, we have been
accustomed to hear every time the business sky has been
overclouded, and yet the trade of the country to-day is
greater than ever before in its history.
' I am, etc.,
' JAS. D. WALKER.
' 17, ST. ANDREW SQUARE,
' EDINBURGH.'
384
APPENDIX III
HOME EAILWAY ACCOUNTS
THE RESULTS OF TWELVE LEADING COMPANIES SINCE 1888
(From the ' Financial Times ')
PASSENGER EECEIPTS.
Period.
Total.
Increase or
Decrease on
Half -Year.
Percentage of
Increase
or Decrease.
First half, 1888
8,770,677
Second half, 1888 .
11,082,811
...
. ..
First half, 1889
9,311,554
+ 540,877
+ 6-2
Second half, 1889 .
11,746,784
+ 663,973
+ 5-9
First half, 1890
9,899,980
+ 583,426
+ 6-3
Second half, 1890 .
12,248,593
+ 501,809
+ 4.3
First half, 1891
9,917,894
+ 17,914
+ 0-2
Second half, 1891 .
12,604,220
+ 355,627
+ 2-9
First half, 1892
10,184,649
+ 266,755
+ 2-7
Second half, 1892 .
12,561,755
- 42,465
- 0-3
First half, 1893
10,467,553
+ 282,904
+ 2-7
Second half, 1893 .
12,296,774
- 264,981
- 2-1
First half, 1894
10,463,942
- 3,711
- 0-3
Second half, 1894 .
12,661,889
+ 365,115
+ 2-2
First half, 1895
10,389,616
- 74,326
- 0-7
Second half, 1895 .
13,215,318
+ 553,429
+ 4-4
First half, 1896
11,161,735
+ 772,119
+ 7-4
Second half, 1896 .
13,511,800
+ 296,482
+ 2-2
First half, 1897
11,485,018
+ 323,283
+ 2-9
Second half, 1897 .
14,073,969
+ 562,169
+ 4-1
First half, 1898
11,810,186
+ 325,168
+ 2-8
Second half, 1898 .
14,671,991
+ 598,022
+ 4-2
First half, 1899
12,350,061
+ 538,115
+ 4-5
Second half, 1899 .
15,339,686
+ 665,747
+ 4-5
First half, 1900
12,676,372
+ 326,311
+ 2-6
Second half, 1900 .
15,950,987
+ 611,301
+ 3-9
First half, 1901
13,085,640
+ 409,268
+ 3-2
385
cc
BRITISH RAILWAY FINANCE
GOODS AND MISCELLANEOUS RECEIPTS.
Period.
Total.
Increase or
Decrease on
corresponding
Half-Year.
Percentage of
Increase
or Decrease.
First half, 1888
17,065,066
...
...
Second half, 1888 . . 18,247,004
...
...
First half, 1889
17,956,527
+ 891,461
+ '5-2
Second half, 1889 .
19,583,698
+1,336,694
+ 7-3
First half, 1890
18,646,667 + 690,140
+ 3-8
Second half, 1890 .
20,169,223 + 585,523
+ 3-0
First half, 1891
19,305,111 + 658,444
+ 3-5
Second half, 1891 .
20,424,337 + 255,114
+ 1-2
First half, 1892
18,809,476 - 495,635
- 2-5
Second half, 1892 .
20,633,722 1 -f 209,385
+ 0-9
First half, 1893
18,808,953
523
. ..
Second half, 1893 .
19,037,411
-1,596,311
- 7-7
First half, 1894
19,879,551
+1,070,598
+ 5-7
Second half, 1894 .
20,544,326 +1,506,915
+ 7'9
First half, 1895
19,337,777 - 541,781
- 2-2
Second half, 1895 .
21,285,642 + 741,516
+ 3-6
First half, 1896
20,485,559 +1,147,782 | -f 5-9
Second half, 1896 .
22,232,334 + 946,492 + 4-4
First half, 1897
21,318,551 i + 832,992 i + 4-1
Second half, 1897 .
22,936,804 + 704,470 + 3'1
First half, 1898
21,940,113 + 621,562
+ 2-9
Second half, 1898 .
23,659,183 + 722,379
+ 3-1
First half, 1899
23,515,452 +1,567,825
+ 7-1
Second half, 1899 .
24,632,479 + 964,817
+ 4-0
First half, 1900
24,393,570 + 878,118
+ 3-7
Second half, 1900 .
25,125,578 + 493,099
+ 2-0
First half, 1901
23,878,168 - 515,402
- 2-1
386
APPENDIX III
TOTAL EBVENUE.
Period.
Total.
Increase or
Decrease on
corresponding
Half-Year.
Percentage
of Increase
or Decrease.
&
First half, 1888
26,412,151
...
Second half, 1888 .
29,837,717
.. .
...
First half, 1889
27,889,679
+1,477,528
+ 5-6
Second half, 1889 .
31,899,847
+2,062,130
+ 6-9
First half, 1890
29,320,733
-j-1,431,054
+ 5-1
Second half, 1890 .
33,004,825
+ 1,104,978
+ 3-4
First half, 1891
29,979,833
+ 659,100
-+ 2-2
Second half, 1891 .
33.587,261
+ 582,436
+ 1-8
First half, 1892
29,706,491
- 273,342
- 0-9
Second half, 1892 .
33,714,908
+ 127,647
+ 0-3
First half, 1893
29,943,371
+ 236,880
-j- 0-8
Second half, 1893 .
31,818,895
- 1,896,013
- 5-6
First half, 1894
30,886,041 + 942,670
+ 3-1
Second half, 1894 .
33,698,066
+ 1,879,171
+ 5-9
First half, 1895
30,337,388
- 548,653
- 1-8
Second half, 1895 .
35,003,154
+ 1,305,088
+ 3-9
First half, 1896
32,346 955
+2,009,567
+ 6-6
Second half, 1896 . . 36,365,273
+ 1,362,119
+ 3-9
First half, 1897
33,572,806
+1,225,851
+ 3-8
Second half, 1897 .
37,619,159
+1,253,886
+ 3-5
First half, 1898 . . 34,487,408
+ 914,602
+ 2-7
Second half, 1898 .
39,012,062
+ 1,392,903
+ 3-7
First half, 1899
36,753,399
+2,256,316
-f 6-5
Second half, 1899 .
40,714,342
+ 1,691,853
+ 4-3
First half, 1900
37,955,027
+1,201,628
+ 3-2
Second half, 1900 .
41,773,958
+1,059,616
+ 2-6
First half, 1901
37,902,798
- 52,229
- 0-1
387
CO 2
BRITISH RAILWAY FINANCE
WORKING EXPENSES.
Period.
Total.
Increase or
Decrease on
corresponding
Half-Year.
Percentage
of Total
Revenue.
&
First half, 1888
13,784,182
...
52-2
Second half, 1888 .
14,933,639
...
50-0
First half, 1889
14,416,256
+ 632,074
51-7
Second half, 1889 .
16,100,641
+ 1,167,001
50-5
First half, 1890
15,607,115
+ 1,190,859
53-9
Second half, 1890 .
17,289,874
+ 1,189,234
52-3
First half, 1891
16,543,413
+ 936,298
55*2
Second half, 1891 .
17,880,157
+ 590,283
53-2
First half, 1892
16,736,905
+ 193,492
56-3
Second half, 1892 .
18,073,315
+ 193,158
53-6
First half, 1893
16,780,388
+ 43,483
56-0
Second half, 1893 .
17,970,402
- 102,913
56-5
First half, 1894
17,338,610
+ 558,222
56-0
Second half, 1894 .
18,364,624
+ 394,222
54-4
First half, 1895
17,190,805
- 147,805
56-6
Second half, 1895 .
18,812,911
+ 448,287
53-7
First half, 1896
17,991,078
+ 800,273
55'6
Second half, 1896 .
19,567,603
+ 754,692
53-8
First half, 1897
18,884,011
+ 892,933
56-2
Second half, 1897 .
20,872,184
+ 1,304,581
55-5
First half, 1898
20,082,234
+1,198,223
58'2
Second half, 1898 .
22,139,888
+1,267,704
56-7
First half, 1899
21,581,828
+ 1,489,920
58-7
Second half, 1899 .
23,710,231
+ 1,559,918
58'2
First half, 1900
23,273,316
+ 1,691,488
61-3
Second half, 1900 .
25,600,169
+1,889,938
61-2
First half, 1901
24,502,833
+1,229,517
64-6
388
APPENDIX III
PEBORDINAEY CHARGES.
Period.
Total.
Increase or
Decrease on
corresponding
Half-year.
Percentage
of Increase or
Decrease.
First half, 1888
8,371,455
Second half, 1888
8,393,147
...
First half, 1889
8,431,558
+ 60,103
+ 0-7
Second half, 1889
8,470,060
+ 76,913
+ 0-9
First half, 1890
8,497,880
+ 66,322
+ 0-8
Second half, 1890
8,577,612
+ 107,552
+ 1-2
First half, 1891
8,671,239
-f- 173,359
+ 2-0
Second half, 1891
8,740,884
-f 163,272
+ 1-9
First half, 1892
8,787,857
-f 116,618
+ 1'3
Second half, 1892
8,846,438
+ 105,554
+ 1-2
First half, 1893
8,893,355
-f 105,498
+ 1-2
Second half, 1893
8,780,403
- 66,036
- 0-7
First half, 1894
9,017,053
+ 123,692
+ 1-4
Second half, 1894
9,060,782
+ 280,379
+ 3-2
First half, 1895
9,069,321
+ 52,262
+ 0-5
Second half, 1895
9,144,587
+ 83,805
+ 0-9
First half, 1896
9,107,034
+ 37,713
+ 0-4
Second half, 1896
9,163,235
+ 18,648
+ 0-2
First half, 1897
9,187,118
+ 80,085
+ 0-9
Second half, 1897
9,237,167
+ 73,932
+ 0-8
First half, 1898
9,448,343
+ 261,225
+ 2-8
Second half, 1898
9,374,448 i
-f- 137,281
+ 1-5
First half, 1899
9,690,572
4- 242,228
+ 2-5
Second half, 1899
9,421,117
-f 46,668
4- 0-4
First half, 1900
9,621,896
- 68,676
- 0-7
Second half, 1900
9,571,662
-f- 150,545
+ 1-6
First half, 1901
9,695,089
+ 73,193
+ 0-7
389
APPENDIX IV
PAUPERIZING RAILWAY FINANCE
(From the * Investors' Review ' of August 31, 1901)
CONSIDERING the very wide attention which the railway re-
ports receive at the hands of financial writers every half-year,
it is a curious and suggestive fact that one important section
of the accounts is rarely, if ever, touched upon. We refer
to the ' general balance-sheet ' No. 13 in the form of
accounts prescribed by the Board of Trade containing an
epitome of the company's financial position when the
operations of the six months have been finally adjusted.
The neglect of this most essential statement is probably
due to the fact that it is designed to convey a minimum
of information in as incomprehensible a form as possible,
and it is the only portion of the accounts for which com-
parison with the figures of the corresponding half-year is
not provided. Why this should be so we do not know,
except that it has become a tradition of English railway
management to keep shareholders and the public in the
dark about every point on which disclosure is not com-
pulsory. In this respect all well-managed foreign railways
are far ahead of us, and we have not the least doubt that
if our companies had been in the habit of furnishing
sufficiently exhaustive reports to allow their position and
progress to be accurately gauged, the intelligent criticism
to which they would have been subjected would have kept
them clear of many of the more serious blunders they have
390
APPENDIX IV
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392
APPENDIX IV
stumbled into. But it has never been possible to do more
than generalize on the dangers of excessive capital expen-
diture and similar subjects, for the simple reason that no
one outside the Board-room, and probably very few in it,
has access to the information necessary to formulate more
specific^ charges. Occasionally, it is true, we get a streak of
insight into the methods by which capital expenditure has
been piled up to such an appalling extent in recent years,
and when we find the Midland debiting to capital some
60,000 for stamp fees in connection with the duplicating
of its stocks, we get a pretty shrewd idea of how it has
succeeded in adding seven and a half millions to its capital