the cost of operation is properly characterized as the most profitable business in the United States. Even the United States Steel Corporation, generally recognized as the most profitable of the large industrials, now that the Standard Oil and American Tobacco Companies have been dissolved, in its best year, 1907, on a gross business of $757,014,767.68 showed $177,201,561 of profits.

And this introduces us to the second characteristic of the railway industry which especially recommends railway securities to the investor. Not only is the railway business profitable, but its prosperity is continuous, and its profits are, therefore, subject to smaller fluctuations. In 1908, the year following one of the severest panics in our history, railway profits declined only 6.2 per cent., and in 1909 they more than regained the loss. In good times and in bad, railway profits not only hold their own, but tend strongly to advance.

The reason for this movement of profits it is important to understand. Profits of a business depend primarily upon the demand for its products. If that demand is sporadic and intermittent, the business will be, as Andrew Carnegie said of steel, either "a prince or a pauper." But if the demand is continuous, fluctuating within narrow limits,

always tending upward, and if the business shows a large margin over cost of operation, we have, from the investor's standpoint, an ideal situation. Such a condition prevails in the railway world.

The advantage of the railway industry from the standpoint of stability of profits is well illustrated by a comparison of the gross earnings of the Pennsylvania Railroad with those of the United States Steel Corporation. The one is the largest railroad system of the United States and one of the best managed, and the other is the largest and one of the best managed and best organized industries. The steel corporation, moreover, manufactures a great variety of products, so that its demand would naturally be more stable than those of steel manufacturing companies whose profits are more narrowly specialized. It has also been able to maintain, for long periods, stable prices for most of its products, and its supremacy in the steel trade since its organization has only recently been challenged. Competition, until the winter of 1909, very slightly disturbed it, and yet the fluctuation of its gross earnings, compared with the Pennsylvania Railroad, which appears in the following table, where the figures are stated in millions of dollars, is extreme. The figures for the

Pennsylvania Railroad are as follows, stated in millions of dollars:

The percentages of fluctuations from one year to another in the two companies are as follows:

Broadly speaking, the distinction which has been indicated between railway and manufacturing industries holds good wherever it is applied. The

demand for transportation services offered by some railways, especially those which depend exclusively upon iron and steel or kindred industries, is more irregular than those of some manufacturing companies-for example, gas or electric lighting companies or companies supplying certain food products which are regarded as necessaries of life. But as between the two classes of corporations, railroads and industrials, the railway has a marked advantage in the greater stability of the demand for its service.

The railway industry is also distinguished by its comparative freedom from competition. What manufacturing industry has vainly tried to accomplish by unlawful combination, the railroads have achieved without conscious effort, solely by virtue of their economic position. The cost of duplicating their plant is so great as to protect them in the enjoyment of the traffic of which they have gained control.

From every standpoint, the investor is correct in the marked preference which he has always shown in favor of railway securities. We turn next to consider certain weaknesses in the railroad's position which arise out of its position as a public servant.

X

RAILWAY LABOR AND RAILWAY

INVESTMENT

THE most important problem before the American people is the problem of railway development. America is still an undeveloped country. Threefourths of the United States, industrially considered, lies north of the Ohio and east of the Mississippi River. The West and South are yet in the infancy of their business development.

The realization of the immense possibilities of this country must depend upon the extension and development of our railroad facilities. It has been estimated by men whose opinions carry great weight, that at least one billion dollars each year for many years to come should be spent in railroad building and rebuilding. Some of this new construction will be immediately profitable. On the largest part, the profits will be deferred. That vast expenditure which is demanded by consideration of public safety and convenience may never be profitable.

In recent years, railway construction has lagged