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the total mileage was 222,635, an increase during these nineteen years of only 49 per cent., while in the preceding nineteen years the increase had been 253 per cent.

The explanation of this condition of things is not to be found in the suggestion that the country has been occupied. In the region west of the Mississippi, as suitable for development as any country through which any of the trans-continental lines were built, there were in 1904, outside of Alaska and Texas, no fewer than 473,836,000 acres of unoccupied public lands, while in Texas one-half of the area, or fully 84,000,000 acres, has not yet been penetrated by lines of railway. In the region west of the Mississippi where there is only a little over 100,000 miles of road, there is an area at the present time sufficient to support at least 50 per cent. more railway mileage.

Note now the figures showing the development of businesses which have not been hampered by that sort of government regulation which hinders their management and frightens their investors. National and State bank deposits increased from $1,737,000,000 in 1888 to $6,941,000,000 in 1906, or in the enormous measure of 299 per cent.; bank clearings increased from $49,098,000,000 to $159,808,000,000, or 225 per cent.; and the production of pig iron from 7,000,000 tons to 28,000,000 tons, or 289 per cent. The Lake Superior iron ore shipments increased from 9,000,000 tons in 1890 to 38,000,000 tons in 1906, or 324 per cent. The statistics of manufactures for the period from 1888 to 1906 are not available, but for the ten years from 1890 to 1900 the capital invested in manufactures had increased from $6,525,000,000 to $9,835,000,000, or 50 per cent.; but the capital invested in railways had increased during those ten years from $10,021,000,000 to $11,892,000,000, or only in the measure of 18 per cent., with a mileage in the measure of 16 per cent.

The fact that the causes, whatever they are, which have throttled railway development, are also responsible for holding back the development of agriculture appears clearly enough in the fact that agriculture is the only other large industry which has not developed in proportion with the production of raw material, the growth of manufactures, and the increase of banking resources. Since the time when the Egyptian people began the system of rotating crops, agriculture has been the greatest source of national enrichment, and doubtless the greatest factor in the civilization of the world. With all the lands that are available in this country still to be reached by railway construction, and with unlimited markets abroad for our agricultural products, the production of corn, wheat, and cotton increased not at all in keeping with other developments, but only approximately with the progress of railway development. In the period from 1888 to 1906, the increase in the production of corn was from 1,988,000,000 bushels to 2,927,000,000 bushels, or only 47 per cent.; that of wheat was from 416,000,000 bushels to 735,000,000 bushels, or only 77 per cent. ; while that of cotton was from 6,941,000 bales to 13,290,000 bales, or only 91 per cent.; and the fact that cotton did better than wheat or corn is accounted for by the reinvigoration of the South,

It is interesting also to note that the revenue to the investor from his interests in railways is far less than his revenue from an interest in manufactures. The average rate of net income on railway investments is only about 4 per cent., while the average net income from investments in manufactures is about 15 per cent.

I want to quote, and with earnest approval, the language employed by President Hadley of Yale University, in a lecture on “ Ethics of Corporation Management," delivered in the latter part of 1906:

“ Personally, I am one of those who look with serious distrust on each extension of political activity. I believe that the Interstate Commerce Law did more to prevent wise railroad regulation than any other event in the history of the country. I think that the Courts would have dealt with our industrial problems better than they have done if the Anti-Trust Act had never been passed. I have gravely doubted the wisdom of some of the more recent measures passed by the National Government.”

Christian Socialism, the equal protection of the individual rights of all, the doctrine of the Golden Rule, is the only sort of socialism that should exist in a free country where each man's endowment of industry and ability should be permitted to achieve for him that full measure of success of which it is capable.

The prejudice that has been aroused against the men who have written their names largest upon the geography of their country by railway construction and development, or whose genius has built up such corporate organizations as exist in steel, in oil, in the telegraph, and in other lines of industry; the prejudice that swept over the West in the days of Populism, and that now seems so far to dictate the policies of both the great political parties that their old-time controversies are forgotten and they are merged in attacks upon the business of the country, is a prejudice that is based upon two false assumptions: first, that the men of great affairs are lacking in integrity, and, second, that the men of small affairs are oversupplied with it. I shall not say that the reverse is more nearly true, but I do say that almost every instance of great success in this country is an example of a combination, in the man who has accomplished it, of scrupulous honesty, great frugality of personal expenditure during the years of struggle, and unbounded industry; while as a commentary upon general good conduct of the masses as such, it is a pertinent remark that if during the last few years one of our largest street railway systems could have gathered into its treasury all the fares that were passed up to its conductors, together with all the fares for which it gave rides but for which the passengers had contrived to omit to pay, it would not now be in the hands of receivers.

The loss to traction lines in all principal cities by the evasion and the dodging of passengers, and by the misconduct of conductors, is estimated at from 5 to 10 per cent. of their gross earnings. The aggregate loss to shareholders of traction companies throughout the country must amount to a great many millions of dollars annually.

Now, gentlemen, a few words more about The American Association. That Association voted at its last meeting to accept the invitation of The Pennsylvania Institute of Certified Public Accountants to hold its next annual meeting at Atlantic City, in this State, in October. It is understood that the Certified Public Accountants of the State of New Jersey and The New York State Society of Certified Public Accountants are to join with The Pennsylvania Institute of Certified Public Accountants in making the strongest host The American Association of Public Accountants, or, indeed any other gathering of public accountants in this country, has ever had. The Committee on Annual Meeting 1908 is very much alive to the needs of that occasion, and is already actively engaged in plans that promise much for our enlightenment and entertainment.

I thank you for your attention.

The Journal of Accountancy

Published monthly under the auspices of The
American Association of Public Accountants

EDITOR
JOSEPH FRENCH JOHNSON

ASSOCIATE EDITOR
W. H. LOUGH, JR.

SUBSCRIPTION PRICE_$3.00 a year; single numbers, 25 cents; post paid to any address in the United States. Foreign subscriptions, including those in the Dominion of Canada, $3.50 a year; single copies, 30 cents.

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THE JOURNAL is published by the Accountancy Publishing Company, at Thirty-two Waverly Place, New York City. Secretary and Treasurer,' THOMAS CULLEN ROBERTS.

EDITORIAL. Life Insurance and Valuations. The life insurance companies have during the recent financial disturbances been much exercised in regard to the valuation of their bonds, or fixed-term securities, in which a large part of their funds is invested. They are opening their eyes to the false and unphilosophical system which has been carelessly followed in the past, and it is believed that a scientific and logical method will be introduced. The companies are especially in a hard position from the fact that they are subject to the supervision of as many insurance commissioners as there are States in the Union, to say nothing of their foreign business. These officials must pass upon the solvency of the companies: that is, whether the assets which they hold are sufficient to meet in due time the liabilities for which they have pledged themselves, and which mature as deaths occur. As these officials, guided by their State laws and their own judgment, may greatly differ, it is possible for a company to be pronounced insolvent in some states and entirely solvent in others: a case analogous to that result of our dual system of government whereby a man who is single in Dakota is married in New Jersey, or sane while in Virginia, but insane as soon as he comes into New York. To add to the perplexity of the case, it may be said with

moderation that not every one of the gentlemen in office is a trained insurance expert and accountant.

The trouble arises from setting up an absolutely false and unreliable standard of solvency, one based upon guess rather than upon facts, the so-called market value of securities having a fixed term and a fixed rate of interest.

If you had a contract with an employee to work for you for ten years at $1,000 a year, would you consider the expense as only $800, because you know a man who would work for that? This would be the same kind, of absurdity involved in supposing that a bond which will certainly pay you 4 per cent. for thirty years to come has shrunk in its value to you because, through the result of circumstances, you could now buy it at a price which would pay 6 per cent.

There are two different causes working to shift the values of term securities up and down. The first is the efflux of time, by which the value approaches nearer and nearer to par as the principal comes nearer to maturity. The second cause is fluctuation in the force of interest, whether especially as to the particular form of investment or a general, universal rise or fall. The resultant of the time factor combined with the entering cost is a regular curve, mathematically ascertainable, passing from original cost at the time of making the investment to par at maturity. Those are facts, and from them can be deduced the exact corresponding value at any point. The aberrations caused by the shifting rate of interest transform the curve into an irregular series of sinuosities, now above and now below the line of the curve, but really governed by it. As the point of rest is approached, the oscillation diminishes and the normal line of the curve becomes predominant.

If all the securities of a company were at par and bore 4 per cent. interest, there being no doubt of punctual payment of interest and principal, and the premiums on the policies were adjusted on a 4 per cent. basis—allowing for expenses-can there be any question that this company would at every moment be solvent; that is, in position to pay every claim as it matured? How could the ups and downs of the Stock Exchange dealings in that kind of security (even supposing them always bona fide) possibly affect the fact that the company will have a dollar in hand every time it has to meet a dollar of liability?

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