It was urged by counsel for protestant state railway commissions that the rapid growth in cost of road and equipment was a reason for giving little weight to the declining net return upon investment, since, in a period of rapid reconstruction the operating expenses are increased, thus reducing the net operating income, and in such a period the investment itself is in large part an anticipation of future needs. It was further asserted that the changes in accounting rules, as previously stated, exaggerated the statement of growth in the investment; in other words, that the reported growth in cost of road and equipment has been partly the result of a mere bookkeeping change and partly an evidence of rapid reconstruction. A study of book values per mile for the roads involved will show that the rapid upward trend in the investment is not coincident with changes in accounting rules. This appears from Table 23 and Chart E following:

TABLE 23.-Cost of road and equipment and number of equated traffic units, 1901–1914.

1 One passenger-mile considered equivalent to 3 ton-miles.

This table and chart shows for the 41 roads the total and per mile cost of road and equipment on a relative basis, the figures for 1901 being taken as 100 per cent. Traffic has increased faster than investment, taking the period as a whole. Relatively the traffic growth was most rapid from 1901 to 1907, but the upward trend in the investment per mile began during the year 1906. The rapid growth in investment appears to be the natural response to a marvelous traffic development, although in individual instances the increase does not represent actual new investment. The sharp increase in 1910 in both the total and per mile figures is in part explained by

the fact that Wettling's tabulation introduces the figures for the Chicago Great Western and the Puget Sound in that year. The reorganized Chicago Great Western Railroad Company's per mile cost of road and equipment for 1910 was $71,654 when the mileage shown by Wettling is used as a divisor, which includes the lines of proprietary companies as well as the mileage "owned" by the parent company. The Chicago, Milwaukee & Puget Sound reported a cost of road and equipment per mile of $116,840 in 1910, although with the mileage used by Wettling this would become $167,102 per mile for that year.

Individual railroads show in their traffic and investment experience considerable deviation from the average. Data for three roads are given for comparison in Table 24 and Chart F.

CHART E.-Equated traffic units and net cost of road and equipment, total and per mile for Wettling's 41 roads, 1901-1914; Relative figures, 1901 being taken as 100 per cent. (A) Equated traffic units, total; (B) Net cost of road and equipment, total; (C) Equated traffic units per mile operated; (D) Net cost of road and equipment per mile of road owned.

TABLE 24.-Cost of road and equipment, equated traffic units, and operating income, Chicago & North Western Railway, Chicago, Burlington & Quincy Railroad, and Missouri, Kansas & Texas lines, 1901-1914, per mile and relative figures, 1901 being taken as 100 per cent.

The marked increase in the investment of the North Western in 1910 is due to an expenditure of $11,232,000 for right of way and station grounds and of $5,951,000 for equipment. In the case of the Burlington the upward trend since 1910 shows the influence of large expenditures for equipment. In the diagram for the Missouri, Kansas & Texas lines the distorting effect of large increases in mileage is seen.

From the financial evidence we find that the credit of these carriers as a whole has not suffered an impairment not common to comparable industrial enterprises; that in common with other borrowers, corporate and governmental, these carriers are required to pay on the average a higher percentage than heretofore for the use of capital; that these carriers in common with comparable industries generally are paying higher prices for many materials and higher wages for most kinds of labor; that these carriers in meeting increased costs with increased prices for service are subject to certain disabilities not similarly encountered by many other industries; that the relatively equal depression of the carriers' credit with credit generally is not evidence of the adequacy or inadequacy of their present net revenues; that their net corporate income can not be accepted as a measure of the adequacy or inadequacy of present rates; and that the increasing percentage of bonds to their total capital obligations indicates a growing disinclination to invest in their stocks and a growing unwillingness to accept the prospect of dividends as a sufficient incentive to assume the risks of railroad proprietorship.

From the preceding study of the trend of the operating ratio of the carriers here before us we have found that the relative profitableness of their business, taking the roads as a whole, has declined since 1901, and that the main cause effecting this result has been an increase in expenditures not offset by an increase in receipts.

The figures given below are compiled from the annual reports rendered to the Interstate Commerce Commission by the carriers named, or their predecessors in cases of reorganizations, for the years ended June 30, 1890 to 1914, inclusive. They show the par values of funded debt and capital stocks reported outstanding at the close of the respective fiscal years and the amounts charged to Income account for interest accrued and dividends declared on such debt and stocks. They also show the amounts of income appropriated for sinking funds, additions to property, and other corporate benefits, and amounts of income transferred to the credit of profit and loss account, after provision for interest, dividends, sinking funds, improvements, etc., as above stated. In those cases where the amount transferred from income account to profit and loss account was a charge instead of a credit, that is, when the income for the year was