en on teeta
al agit inti nln set at ate
eae ol GP a”
Saninabninnde-daetete tee’
pore tier
er -O 0 e e
Wists .
we te Perea hee ny ae eng Hee she ar! a ate
ety eer
oo oat aha ine i ei ae
a 3 ss - eae , - ‘ a x 7 Saati - : " aa ——y i. - atte
. eS y - = * x ~ — nyt 5% Bao = ~ * = ‘sulla - 2 Senet alta c Po et
i = 2 -3 = Reeeaitat’ = — Lo ~ - , “ aes * = oe 9 <-> = iM
patie eI - Teme? paeee = ~ : pa? 2 *
ae: eB A A ELIA ALE EAE
anes
a RE Ot ee AO,
- oa are Oe are
Ca acag ag Mae
/ ee es Aint
te ea ee a teal
a
aw
Sue
iad
oO
0
Sa
v. \
Return this book on or before the
Latest Date stamped below.
Theft, mutilation, and underlining of books
are reasons for disciplinary action and may
result in dismissal from the University.
University of Illinois Library
L161— O-1096
hen a }
| Tang
Pas be
1a
Re ee
| waaae Seal si ae
2 ON INTERSTATE AND FOREIGN COMMERCE !
OF THE HOUSE OF REPRESENTATIVES bee
- SIXTY-SIXTH CONGRESS:
FIRST SESSION :
: ae ON ‘ 2 : \
HR 447s oo
IN THREE VOLUMES —
Ns Ce ae ee ee
: sULy © Aueust 19, 1919
Parts 1 to 7, Inclusive |
- Indexin Volume ey
a
twp
3.3
he
WA pager
si!
f
Ly
HEARINGS +
BEFORB THE
COMMITTEE ON INTERSTATE AND FOREIGN COMMELCE
(Ff THE HOUSE OF REPRESENTATIVES
SIXTY-SIXTH CONGRESS
FIRST SESSION
ON
H. R. 4378
IN THREE VOLUMES
WO) ET:
JULY 15—AUGUST 19, 1919
Parts 1 to 7, Inclusive |
Index in Volume 38
WASHINGTON
GOVERNMENT PRINTING OFFICE
1919
J Wl) 3F AY . 1
hr { y 3
] " ,
ra 2
* = *
‘
* 2 b x ’
. ti
’
i
* '
*
4
’
4
i
> h j
;
/
. \ 4
’ 7 t é
* mperigged bbe geay
C n iow \ i - ee fey
‘ iS . } § ;
3 : es ;
+ ’
be < a \ .
: : - s
. a J
‘ : 4
‘ ’ }
4
ane x +
ts j
hy
‘ ‘ j
we
” j ‘ wey
ye ‘ t
\ ‘ 4
i f f % {
= 4 y \ a+
< ‘ Wuyi
- ‘ 4 y
y oe 5
} Wi At ye
. a f
a a j
mers ‘ i ,
i , 7 L x A
“7
i *
re ies >
Wha, J : é
€ ‘
¥ ‘ ' ‘
‘ 4 ae
| ee ’ “ae ip
; A) ait) " ; t
f : AY ii as, Ce 4 ’
: ‘ < sates a
r f rue ® 7 ‘
; a at w a)
i pe '
‘4 ay ‘ ‘ rf '
‘ : ‘ 1
‘
a. RF i whe
{ ' * 3 pat
eae \
i a i P i :
; i a H
j fe | j : 1
4 * fA va y
7 9
y ‘ Woy 4 "
+
f < nre
\ ily
,
ore) i i
af Di De alittle .
4 . \ ¥ . ws
fe ;
~. a ‘ 5 / \ id 7
) : ( Fis tl
;
‘ ‘
‘ , aun . i | \
: w | 1 OL v A AR o be ee Masha eee 4 ste Sy atl
. 4 , \. . ’ . . ii ~ bas wr x i ‘ " a
a r MF be 1» 4 } 5
i AF 4 ' end", oo ht “ hs
: has : ' ' OU 0S ed EOP AG
; m, wih : , y BAY ' vy Salle
t T : ‘ Wie? # re) it
: é F vi ‘
: . 7
j uF ”
. a yp ee
4 “e “ae
rn 7 i t
ny Ap ys : te ee an
' ' ; =
: ‘
+ =
-? al ‘
x bay ey
f hy i 1 Ponte fae hve
4 ‘
eu >
eet . : ne
4 I rd
j Mi j ; ; F
i r ec .
‘ of ne
} i4 . var
‘ -
- ‘ r i? | {
vad 7 rt , Ls Ue
r u * ye
’ ms ‘ i ¢
f ’
Fa\ yy ’
o
a P
Panik Nie des
Ih ,
4 2 ‘
ht! a rae
Lis
ve A Bx i
}
1 ae
‘7 . ¢ <
Hi fait aM
,
i LTh A a
Aa
wey
i rs
ef ‘ Y
aes f ;
ont \
7 ;
PART 1.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
CoMMITTEE ON INTERSTATE AND ForREIGN COMMERCE,
House or REPRESENTATIVES,
Tuesday, July 15, 1919.
The committee met at 10.30 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
The Cuairman. The committee will come to order. The meeting
has been called for the purpose of beginning hearings on railroad
legislation. The only bill thus far introduced and referred to this
committee relating to that subject matter is H. R. 4378, introduced
by myself on the 2d day of June. There will doubtless be other bills
offered for consideration by the committee before these hearings are
concluded. I wish to make some suggestions at this time.
Mr. Sims. Mr. Chairman, in connection with the hearings on that
bill, as a matter of course, that bill can be used as a basis for any
proposition by way of amendment. You spoke of other bills being
introduced; I take it that any subject matter of any other bill might
be considered in connection with this hearing.
The Cuarrman. Yes; that is understood.
I wish to make a few suggestions which I trust will expedite these
hearings, and also elicit the largest degree of information possible.
There are various associations or organizations which have plans
they desire to present to the committee for consideration. In such
cases, 1 would suggest that the proponents of such plans limit the
number of representatives to present such plans to the committee. I
make that suggestion in the interest of expedition, and make the fur-
ther suggestion that wherever representatives appear before us with
a given plan, they try to cover the whole field and not present cumu-
lative testimony, so that every minute of the testimony will be cov-
ering new grounds.
I wish to make this further suggestion with reference to the hear-
ings. Owing to the statement of the President in his message that
he contemplates turning the roads back to private ownership and
control at the end of the year, it would probably be doing a useless
thing to give much consideration to an extension of five years of Fed-
eral control, and in view of the widespread sentiment throughout the
country against the Government ownership, I feel we ought not to
spend very much time on that proposition, although I concede that
may be involved in the course of the cross-examination of the various
witnesses.
There are some salient features which should concern us in the
pending hearings. I think the provisions of the bill, H. R. 4378, so
far as they relate to joint use of terminals, better use of equipment,
5
6 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
economies resulting from various forms of consolidation, the consoli-
dation of lines, the possible amendment of the Clayton Act and the
Sherman Antitrust Act, meet with quite general approval through-
out the country, and therefore this and other hke problems may not
take up very much time of the committee, although we do not wish
to circumscribe witnesses as to the testimony they shall seek to give.
One of the great problems we are to consider is the matter of
credits, and credits involve the matter of rates; the question of the
relationship of capitalization to rates may also be involved. The
question of the regulation of stock and bond issues embraced in the
pending bill will also invite attention on the part of both the com-
mittee and those who appear before it; also the question as to who
should initiate rates—should it be the regulatory body or should it
be the carriers.
If I gather correctly the sentiment of the country as contained in
press notices, there seems to be a general desire to perfect the regula-
tion of railroads before the matter of Government ownership is un-
dertaken, and it is our hope that we may so perfect a regulating
measure that the possibility of Government ownership may at least
be deferred.
There have been presented to the committee requests for hearings
by many associations, among them the following:
The Association of Railway Owners, as represented by Mr. War-
field, of Baltimore.
The Investors’ League of New England, represented by Mr. Am-
ster.
Another similar organization, of which Franklin Escher, of New
York, is secretary.
The New Iingland plan, represented by Mr. Edward J. Rich, of
Boston.
The plan presented by Mr. Plumb, representing the railroad
brotherhoods.
Plans, not yet fully perfected, looking to the creation of regions
and systems of roads under Federal incorporation, and, I under-
stand, a plan represented or to be represented by members of the
Chamber of Commerce of the United States; and there may be still
other plans. '
From all this, it will be observed, there is a very broad field of in-
quiry, and it 1s the hope of the committee that those appearing be-
fore it will concentrate their testimony upon the matter in hand and
not wander into fields, however inviting, that have no relationship
to the subject matter of this inquiry. .
Before the hearing adjourns those present who desire to be heard
can note their appearances with the clerk of the committee.
As to the order of hearing, I thought it advisable that some repre-
sentative of the Government should open these hearings. I invited
Mr. Hines, the Director General, to appear, and he stated that owing
to engagements beginning to-morrow he would not be able to appear
this week, but thought he might be able to come next week, and I ex-
tended an invitation to him to come next week.
After Commissioner Clark, who is here this morning and will open
the hearings has concluded, representatives of the Chamber of Com-
merce of the United States will be heard, to be followed possibly by
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7
tcpresentatives of the so-called Warfield plan, to be followed by rep-
-resentatives of other plans, including the plans of the railway execu-
tives, represented by Mr. Tyler, and Mr. Thom, and possibly others.
We hope we can conclude the hearings in one month, but if further
time is necessary in order to do the matter justice, further time will
be allotted. |
I think we are now ready to begin the hearing.
Mr. Sims. Mr. Chairman, before we proceed further, you made a
statement, if I caught it correctly, that doubtless I am uninformed.
I understood you to say, in effct, that we would not consider seriously
the further extension of Government control, as the President had
determined to return the roads at the end of the-present year. It
was stated publicly in a statement by former Director General Mc-
Adoo, who favored further Government control by an extension for
a period of five years, that the President was in accord with that
view. I have never heard a word from the President, and, in fact,
that is the only information I have. Has the chairman any informa-
tion to the effect that the President is opposed to further extension of
‘Government contro] by action of Congress ?
The Cuarrman. I have no knowledge whatever on the subject. If,
however, the Director General desires to be heard on that subject or
any member of the Interstate Commerce Commission or other parties,
I do not believe the committee would deny them a hearing.
Mr. Wesstrer. Mr. Chairman, the President did state, however, in
his recent message to Congress, that the roads would be returned to
their owners at the end of the present calendar year.
The CuarrmMan. I so stated. |
Mr. Stus. Yes; because we now have the power to do so and they
will go back automatically anyway at the end of 21 months. What
I wanted to know was whether the President had changed his mind,
if he was ever in favor of the five-year period of extension, or whether
the chairman had any information as to that. I have absolutely
none except what I have stated.
The CuarrmaAn. I wish to state further, in view of the fact that
the House is now considering the so-called liquor bill and will prob-
ably continue the consideration of that bill for the balance of this
week, and in view of the fact that this afternoon we may have to
vote on a veto message of the President on the sundry civil bill, it
will not be possible for the committee to hold hearings this after-
noon, and possibly not for the balance of the week in the afternoon.
However, that will be determined later.
Mr. Coavy. Mr. Chairman, to-morrow will be Calendar Wednes-
day, and we ought to be able to go along all day.
The CuatrmMan. We will determine that a lttle later. I do not
think our committee will be interested in anything on Calendar
Wednesday, but we are not sure that Calendar Wednesday will not
be set aside.
Mr. Monracur. We have the minimum wage bill up to-morrow,
Calendar Wednesday.
_ The Cuatrman. Yes; we would have to be present on that.
Mr. Barxiry. Let us go ahead now and get in as much time as we
can to-day.
The Cuarirman. We will be pleased to hear Mr. Clark,
8 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE
COMMERCE COMMISSION.
The Cuarrman. Mr. Clark, do you wish to make a consecutive
statement before you are interrogated by members of the committee?
Mr. Ciarx. No, Mr. Chairman; I do not think it will annoy me
in the least to be interrupted at any time.
Mr. Raysurn. Nevertheless, Mr. Chairman, I think we probably
would get much more information from Mr. Clark if he were allowed
to make his statement without interruption.
The CHairmMan. Without objection that will be the plan pursued.
Mr. Crark. Mr. Chairman, the purpose of the hearing, as just.
stated by you, apparently covers the whole field of consideration of
principles as well as details in connection with railroad legislation.
The bill immediately under consideration is confined to amendments
to the act to regulate commerce, and all bear upon the degree and
manner of regulation of railroads and other carriers under private
ownership and operation.
In our annual report to the Congress of December 1, 1918, we out-
lined certain principles of policy which we thought must be con-
sidered, and in connection with that we repeated a special report
which was made to the Congress by the commission, one member
dissenting, on December 5, 1917. I assume you will not care to have
those restated in the record here, but I refer to them to lay the
foundation for suggestions which may be made later.
The Cuarrman. Mr. Clark, is that the statement which you pre-
sented before the Senate committee last february or last January?
Mr. CriarK. No; I refer only to our annual report and to our
special report to the Congress of December 5, 1917, which was prior
to February control.
Then, on January 7, 1919, I appeared before the Senate committee,
and I there tendered a statement on behalf of all the members of
the commission, except Commissioner Woolley, on whose behalf I
read a separate statement, he being in favor of a continuance of
Federal control. 'Those statements appear in Part II of the printed
hearings before the Committee on Interstate Commerce of the United
States Senate.
We realize that a good many suggestions have been put forward,
advocated with more or less earnestness by some and opposed with
equal earnestness by others, which go to so-called fundamentals. We
have not advoated them and have been hesitant about expressing
positive opposition to them because our information with regard to
them has been contained in printed form or what we learned in
the hearings before the Senate committee. Several of the bills that
have been presented to the Senate outline those different plans and
principles. I hardly think it would be desirable or appropriate for
me to attempt a careful analysis of those measures in advance of an
analysis of them, being presented by the proponents. That for the
reason that it frequently occurs in reading that one fails to catch
exactly the intent of the author and a rereading often throws a
different light upon a sentence. My idea is that perhaps my time
and the time of the committee can best be used this morning by
taking up, as briefly and concisely as possible, the provisions of this
bill, H. R. 4378.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 9
Section 1 of this bill recasts the provisions of the earlier part of
section 1 of the act in form appearing in the printed bill. That 1s
because in some instances matter had been injected in section 1 which
did not properly belong there, and for the purpose of securing a more
orderly and connected sequence of the provisions of the section.
Aside from that, I shall point out the differences between the pres-
ent law and the pending bill. The first is that it is proposed to ex-
tend the provisions of this act to common carriers by water as well
as to railroads and to transportation partly by railroad and partly
by water. That is for the reason that it has developed that under
the present law, and the interpretation which has been placed upon
it, common carriers by water, being free to make their port-to-port
rates as they choose, and to change them at will, even while operated’
in connection with railroads under arrangements for through car-
riage of freight which moves under through bills of lading, have
been able to break down the relative rate adjustments, and by taking
advantage of the opportunity of shipping under those port-to-port
rates and going through the fiction of a reshipment at the further
port, to defeat the through rate to which the same water carrier and
the same rail carrier were parties.
For example, there are coastwise vessels plying between New
York and New Orleans and Galveston. They are owned and con-
trolled and operated in connection with a railroad—a transcontinental
railroad. Being free to make port-to-port rates without regulation
or restriction, and having rates applicable from New Orleans or
from Galveston, they have been able to use those rates in combina-
tion, going through, as I say, the fiction of reshipment at New Or-
leans or Galveston, in such way as to keep the rate adjustment in
some confusion and work what we believe to be an undue discrimi-
nation as between the shipper who can and does so use the port-to-
port rates and the shipper who either can not or does not do so.
In that connection, I want to refer to a suggestion that has been
made that the bill as it now stands, or as it reads, would bring under
the jurisdiction of the act and under the jurisdiction of the commis-
sion the so-called “tramp” cargo-carrying vessels and all other
water craft operating as private carriers if they carried persons or
property for hire.
There is room for argument as to what constitutes a common car-
rier by water. The decisions of the courts are not entirely in har-
mony on that point, although the weight of the decisions is to the
effect that the question is determined by the manner in which the
businéss is done and by the extent to which the water carrier offers
its services to the public. It was not our thought that this act, being
applicable to common carriers by water, would be applicable to ves-
sels and craft of the type I have mentioned. We realize that possibly
the future may develop a necessity for bringing all of them under
regulation, but we do not fell that that time has arrived, and reserv-
mg our judgment on that question, if conditions change, or if ex-
perience develops the necessity for expansion of the regulations, we
suggest that in order to make this point entirely clear there be in-
serted after the word “aforesaid,” in line 5, on page 3 of the bill,
these words:
And provided further, That so-called ‘‘ tramp” cargo carrying vessels and
other water craft operating as private carriers not on regular routes shall not
10 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
be considered common carriers within the terms of this act, unless after inves-
tigation the commission shall find that such vessels or craft are being operated
as common carriers, in which event the provisions of this act shall apply™
thereto.
The second change in section 1 is found at lines 12 and 13 on page
2 of the bill which makes the terms of the act applicable also to
traffic “ from an adjacent foreign country to any place in the United
States.”
For some reason that traffic is omitted from the provisions of the
present act. It is not our thought that that will confer upon the
commission, or carry the terms of the act as applicable to jurisdiction
over rates from specific places in an adjacent foreign country to
places in the United States. It is a general provision that puts that
transportation under the provisions of this act and makes entirely
clear in the statute what we have uniformly held—that we had juris-
diction of that transportation in so far as it was performed within
the confines of the United States, and that if the carriers should per-
sist in maintaining a joint through rate which we found to be unduly
prejudicial or unjustly discriminatory, we had the power to require
the carrier operating within the United States to withdraw its concur-
rence from that joint through rate and establish a reasonable propor-
tional or other rate for the transportation from the boundary to
destination in the United States.
There is, of course, a large amount of traffic moving between
points in the United States and points in Canada, and also points in
Mexico. The Canadian law and the powers and jurisdiction of the
Canadian commission differ from ours. That commission has an-
nounced publicly its policy or its views of what ought to be the estab-
lished policy—that a joint through rate from a point in the United
States to a point in Canada should be under the jurisdiction of the
Interstate Commerce Commission and a joint rate from a point in
Canada to a point in the United States within the jurisdiction of the
Canadian commission. “
We have never had any authority to agree to any jurisdiction other
than that conferred by the act, and, of course, have never committed
ourselves to any such proposal. On the initiative of the Canadian
authorities several years ago, the idea of entering into a convention of
some sort regarding that point was taken up through Judge Knapp,
then chairman of our commission, and a member and representative
of the Canadian commission. The State Department was consulted,
and apparently was of the opinion that it could only be done through
a treaty, and there it disappeared from sight.
We have not suggested incorporating in this bill, or we do not sug-
gest incorporating in this bill, a provision making its terms appli-
cable to transportation within the United States or through traffic
from a point in a foreign country to destination in a foreign country.
That is not provided in the present act, although at one time we
thought it was, but the United States district court, in a decision in
188 Federal, 444, held to the contrary. There is not a large volume
of that traflic, and we have never seen any real necessity for expand-
ing the provisions of the law so as to govern it.
The next change in section 1 is the proviso which begins in line
21, on page 2, with reference to the application of the act to trans-
portation or transmission of intelligence wholly within one State.
RETURN OF THE RAILROADS.TO PRIVATE OWNERSHIP. 11
This proviso reads:
That the provisions of this act, except as expressly provided in section 13
_ thereof, shall not apply to the transportation of passengers or prop-
erty * * * wholly within one State.
The difference between that and the present act is the insertion of
the words “ except as expressly provided in section 18 thereof.” A
further amendment to this proviso is in the first few lines of page 3
of the bill, which make clear the jurisdiction of the act and the com-
mission with regard to the transmission of intelligence wholly within
one State, and not transmitted to or from a foreign country.
Beginning in line 21, on page 3, is a definition of the term “ water,”
as used in this act. If this is adopted as law it will be necessary to
amend the law conferring jurisdiction of charges by water carriers
now conferred upon the United States Shipping Board. It will be
remembered that the Shipping Board was given jurisdiction of rates
of transportation by water, except where it had been conferred upon
the Interstate Commerce Commission, and we question the advis-
ability of continuing any arrangement whereby the jurisdiction over
these rates depends upon the extent to which it had been conferred
upon the commission in the original act to regulate commerce and
that conferred upon the Shipping Board. In other words, we think
that the jurisdiction of those rates ought to rest in one body that
can pursue a consistent policy with regard to them without occasion
for friction with a different view entertained by somebody else or
action by some other body without knowledge of what had been
done by the one body.
Beginning in line 3, on page 4, is a definition of the term “ trans-
portation,” as used in this act. That differs from the present act
mainly in the fact that this includes locomotives, cars, and other
vehicles and vessels, which provisions, as appear later in the bill, are
consonant with the jurisdiction that it proposes to confer over the
operation of certain of these carriers.
Beginning in line 10, on page 4, the term “ transmission,” as used
in this act, is defined.
Beginning in line 18 is a declaration of the duty of every common
carrier subject to this act engaged in the transportation of passen-
gers or property or in the transmission of intelligence to provide and
furnish such transportation or transmission upon reasonable request
therefor. I call attention to that language in connection with what
I have said about the advisability of making the terms of this act
applicable to so-called “tramp” vessels carrying full cargoes and
going on one trip from A to B, and on the next trip from B to C,
and then from Csto D as the traffic offers; the impracticability, at
least under present conditions, of subjecting them to a requirement
that they shall provide and furnish this transportation upon reason-
able request or the requirement that they should establish through
routes with other carriers when their service is necessarily so wholly
indefinite and uncertain. It would also be a very difficult thing to
establish joint rates, fares, or charges between carriers on regular
routes and rail carriers and vessels of the type I have referred to.
Beginning in line 1, on page 6, there is a definition of the teria
“car service.” Retaining the term “car service,” the definition of it
has been expanded so as to include “the use, control, supply, move-
12 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ment, distribution, exchange, interchange, and return of locomotives,
cars, ‘and other vehicles used in the transportation of property, and
the supply, movement, and operation of trains by any carrier subject.
to this act. The use and supply of cars are new terms in the defini-
tion of “ car service,” and they largely expand the jurisdiction of the
act and of the commission thereunder. In a decision commonly
referred to as the Paraffin case (384 I. C. C., 179) the commission,
by a majority, held that it had power to require a railroad to supply
itself with tank cars for the transportation of oil. That order of the
commission was contested in the courts, and in 242 U, S., 208, the
Supreme Court held that the commission had no power to enter ‘that
order. If this language becomes law the commission would have
power to require a carrier to provide itself with locomotives, cars,
and other vehicles used in the transportation of property, but, as will
appear later, that power would be controlled by a rule of law stated
in the statute which would protect the carrier in its constitutional
rights against an order of that kind which would impair its ability
to” pr operly serve the public.
The other new provision in this definition of “car service” is the
extension of the jurisdiction to the supply, movement, and operation
of trains. That, as will appear later, will come into play i in times of
emergency, car shortage, etc., and in connection with the common use
of tracks or terminals, when the public interest demands such use.
Beginning in line 22, on page 6, 1s a provision that the commission
may— ie
establish reasonable rules, regulations, and practices with respect to car service,
including the compensation to be paid for the use of any locomotive, cary or
other vehicle not owned by the carrier using it.
That is new and is necessary apparently in connection with the
provision just previously discussed. It assures the owner of the
locomotive, car, or other vehicle of reasonable compensation for its
use by any other carrier to which it may be assigned for use.
Beginning in line 4, on page 7, is a provision that—
whenever the commission shall be of opinion that shortage of equipment, con-
gestion of traffic, or other emergency requiring immediate action exists in any
section of the country it shall have the power to set aside all existing rules.
with regard to car service and to make just and reasonable directions with
respect to car service and the interchange of equipment without regard to
ownership during such emergency as in its opinion will best promote the service
in the interest of the public and the commerce of the people, and also authority
by order to require such joint or common use of terminals as in its opinion
will best meet the emergency and serve the public interest, and upon such just
and reasonable terms between the carriers as the commission may prescribe.
That, again, protects the carrier owning a terminal in the right to
have just “and reasonable compensation for its use. The provision
in its entirety would confer upon the commission authority to do, in
case of emergency in any part or all of the jurisdiction, some of the
things which have been done by the Railroad Administration and
which are generally conceded to be in the interest of economy in
transportation and efficiency in the use of equipment at a time when
the volume of transportation exceeds the capacity of the roads and
facilities are short and their use in the most economical and efficient
way is demanded. What I have just said goes to the use of termi-
nals as well as to the use of equipment.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 13
The provision I have just referred to is followed in the same
sentence by conferring authority upon the commission to “ give
_ directions for preference or priority in transportation and as to em-
_ bargoes, or movement of traffic under permits, at such time and for
_ such periods as it may determine, and to modify, change, suspend, or
annul them.” The history of the operation of railroads in this
country shows that it has been necessary from time to time in differ-
ent sections, sometimes in a much larger degree than others, to
place embargoes against the taking of more freight until that al-
ready on hand can be disposed of, that being about the only resort
against a complete paralysis of the transportation agency. The
embargo has no defined status in law, and it seems to me to be a
temporary declination on the part of the carrier to perform its full
common law duty as a common carrier because of conditions which
are beyond its control.
Tt has been demonstrated very clearly.during the congested period
which followed the breaking out of the European war that em-
_bargoes can be handled much better and under them much more
efficiency can be secured if they are not in too many hands. Each
railroad issuing embargoes at will and according to the ideas of its
own operating officers does not produce the most harmonious results
or the best efficiency. Of course, under Federal control, the unifica-
tion of the carriers under that control, and with the power to
handle the embargoes all resting in the director general, it was soon
demonstrated that it could be much more efficiently handled through
one head. The necessity for authority in some one to accord pref-
erence or priority in transportation also developed during this
trying period, and we think there, again, that that ought to be vested
in the Federal regulating tribunal so that it may be done in a har-
monious way and be entirely free from undue preference or preju-
dice or any improper discrimination.
The movement of traffic under permits is analogous to the em-
bargo except that it embargoes the traffic before it is loaded. That
has been done very frequently during the period of Federal control
and, 1 think, is still in effect with regard to some traffic, but it pro-
tects against loading a large volume of traffic that can not be
promptly and expeditiously moved. So, we have the three provi-
sions—preference or priority, embargoes, and movement under per-
mits—which are so closely related to each other that they ought to
be handled by the same authority, and they can be more efficiently
and much better handled by a single head than by leaving every
railroad to exercise its own judgment in those matters.
Mr. Dewatr. Mr. Clark, would it be fair to say that what you
have just discussed and read, commencing on line 4, page 7, up to
the conclusion of line 9, on page 8, is a continuance of the power
that is exercised by the director general under Federal control, vest-
Rae powers now in the Interstate Commerce Commission ?
r. CLrarK. Yes; it will vest in the commission some of the powers
that have been and are being exercised by the director general.
Mr. Dewatr. Would it be then fair to say that this would be a con-
tinuance of the exercise of power granted to the director general
under the emergency then existing, to wit, the war power?
14 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cuark. So far as preference or priority, embargoes, or move-
ment of traffic under permits, yes. With regard to the regulation of
the equipment, we now have power under the so-called Esch bill to
control the movement of cars. This expands it some and takes in
locomotives and other vehicles, although the other vehicles are rather
nebulous at the present time. WE
Mr. Dewatr. Mr. Clark, I beg pardon for interrupting you.
Mr. CrarKk. That is all right, sir. :
The provision with regard to preference or priority, embargoes, —
and permits is followed by a provision that—
In time of war or threatened war the President may certify to the commis-
Sion that it is essential to the national defense and security that certain traffic —
shall have preference or priority in transportation, and the commission shall,
under the power herein conferred, direct that such preference or priority be
afforded.
That would leave in the hands of the President the same power
he now has with regard to transportation essential to the national
defense and security in time of war or threatened war, but it would
be exercised through the commission by filing with the commission
the presidential certificate for the necessity, and the commission
would carry it out by orders issued by virtue of the authority con-
ferred upon it by this act, so that there could be no embarrassment.
in carrying out the Commander in Chief’s views, plans, and require-
ments.
The next new provision begins in line 24 on page 8. I should say
the next new provision that I think worth while discussing, the pen-
alty provisions as to the previous section, speaks for itself. This is
a provision that from and after a date to be fixed by the Congress—
no carrier by railroad subject to this act shall undertake the extension of its
line of railroad or the construction of a new line of railroad, or shall acquire
or operate any line of railroad or extension thereof, or shall engage in trans-
portation under this act over or by means of such line of railroad or extension
thereof unless it shall first obtain from the commission a certificate that the
present or future public convenience and necessity require or will require such
construction and, operation.
This is followed by a like provision that no carrier by railroad
subject to this act shall abandon any portion or all of its line of rail-
road, or the operation thereof, unless it shall first obtain from the
commission a similar certificate. This is carrying into this act the
very well-known provision that applies in some other countries and
in some of our States, commonly called the certificate of convenience
and necessity. This probably is not as important as it would have
been a good many years ago, and it probably will not in the future
have as profound effect upon the railroad map as it would have had
if it had been in effect 25 years ago; but the idea is to prevent the
building of duplicate lines of railroad because of keen rivalry of
certain financial interests or when the railroads so built will not
serve the present or future convenience and necessity, and will
simply depend for traffic upon that which they can get away from
railroads already built, adding to the total burden of maintenance,
capital returns, etc., which the public must pay.
Mr. Dewatr. I suppose, Mr. Clark, that the words in line 25, “ sub-
ject to this act,” would exclude from the operations of this provision
any railroad which was clearly intrastate ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 15
Mr. Crarx. Unless it was subject to this act. A railroad may
_ physically be purely intrastate and still be an interstate carrier sub-
ject to this act.
Mr. Dewar. Yes. Pursuing that inquiry further, is it your
thought that this provision would apply to a railroad which was ex-
clusively within the lines of one State, although it engaged in inter-
state commerce ?
Mr. Cuark. Yes; if it engaged in interstate commerce in such a
manner as to make it subject to the provisions of this act. I think it
would apply to a new line or an extension of a line built by any
road or system of roads that is already subject to the act, and I think
it would apply to a new line which is not subject to this act if the
operation of that line brought it within the terms of this act. That
is the idea in providing here not only that they shall not construct
it without a certificate, but that they shall not operate it without a
certificate.
Mr. Parker. Is not this recognition of the fact that if we are
going to regulate the rates on the roads you also must protect the
roads from unnecesasry competition? I know that same thing is in
the New York State law.
Mr. Crark. It is recognized in many of the States where State
regulation has, perhaps, existed longer and has developed in an
effective way.
There follows then a provision beginning in line 19, on page 9,
requiring the commission upon the receipt of such an application to
cause notice thereof to be given to the railroad commission, or public
service or utilities commission, or other appropriate authority, of
each State.in which such line of railroad, or extension thereof, is
proposed to be constructed or operated, or any portion or all of such
line of railroad, or the operation thereof, 1S proposed to be aban-
doned, and gives them the right to be heard as hereinafter provided
with respect to the hearing of complaints or the issuance of securi-
ties. That makes it entirely clear that no such application for a cer-
tificate can be passed upon by the commission until it has afforded the
fullest opportunity to the authorities of the State or States in which
the line may be located or in which it is proposed to be abandoned
to be heard with regard to their views, for or against.
Then follows the provision that the commission may grant such
an application in whole or in part, and may attach to the issuance of
its certificate such terms and conditions as in its judgment the public
convenience and necessity may require.
Then follows a provision, “Any construction, operation, or aban-
donment contrary to the foregoing provisions of this section may be
enjoined by any court of competent jurisdiction at the suit of the
United States, the commission, any commission or regulating body
of the State or States affected, or any party in interest,” and the
penalty provision for violation of the terms of the act.
Beginning at the top of page 11 there is a provision for authority
for the commission after hearing to require by order any carrier
by railroad subject to this act, party to such proceeding, to provide
itself with safe and adequate facilities for performing as a common
earrier its car service as that term is used in this act, and to extend
its line or lines, and a like provision with regard to common. car-
16 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP,
riers subject to this act engaged in the transmission of intelligence,
with the proviso:
That the commission shall find that such provision of facilities or extension
is reasonably necessary in the interest of public convenience and will not
impair the ability of the carrier to perform its duty to the public.
That is the provision to which I referred a few minutes ago as
the rule of law which limits the power of the commission and pro-
vides against arbitrary action which would put a carrier in a posl-
tion impossible of carrying out the order of the commission.
This also has its direct connection with the provision of the sec-
tion defining “car service,” because here 1s a definite conferring of
authority upon the commission to require the carrier to provide itself
with safe and adequate facilities for performing as a common car-
rier its “car service” as that term is used in this act. The com-
mission would, therefore, if it should find on investigation that the
facilities are reasonably necessary in the interest of the public con-
venience and that the carrier can acquire them without impairment
of its ability to perform its duty to the public, require that carrier to
acquire and use facilities which of its own volition it does not or is”
not willing to acquire. ;
Mr. Denison. Mr. Clark, may I ask you to state just what is meant
by “impairment of its ability to perform its duty to the public.”
Mr. Crark. Perhaps that is most concisely and directly answered
by saying that it means whether or not the carrier is in position to
pay for them. |
Mr. Denison. That is what I wanted to know. Then in applying
that provision the commission would take into consideration the con-
dition of the company as well as the needs of the public.
Mr. Crark. Oh, undoubtedly. If the carrier had money which
would be sufficient to pay for the facilities in question, but it had
obligations to which that money should be applied, and if it should
appear that failing to so apply it would impair its ability to serve
the public, the other use would be given precedence and the order
to acquire the’ facilities would undoubtedly be withheld.
There follows an amendment to section 2 of the present act which
is of significance only in that it makes it applicable to common car-
riers engaged in the transmission of intelligence as well as to those
engaged in the transportation of passengers and property. That is
the section of the act which prohibits unjust discrimination—the
charging of one person more than another for a like and cen-
temporaneous service.
The next section of this act, being section 4, amends the second
paragraph of section 3 of the present act. Section 3 of the present
act is the one which prohibits undue preference and undue preju-
dice with regard to any person, firm, corporation, locality or char-
acter of traffic, and this brings within its provisions the carriers en-
gaged in the transmission of intelligence, or the transmission of mes-
sages, which is analogous to the transportation of persons or prop-
erty by the rail carriers; but it contains a very important further
change. It confers upon the commission authority to require the
terminals of any carrier to be opened to the traffic of other carriers
upon such just and reasonable terms and conditions, including just
compensation to the owners thereof, as the commission after full
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 17.
hearing, upon complaint or upon its own initiative, may by order
prescribe.
' The present paragraph of section 3 which this would amend
requires the carriers, as does this, to afford all reasonable, proper,
‘and equal facilities for the interchange of traffic between their re-
| spective lines, and for the receiving, forwarding, and delivering of
‘passengers and property, and prohibits a carrier from discriminating
‘im its rates and charges between such connecting lines, and then it
contains this language:
But this shall not be construed as requiring any such common carrier to
‘give the use of its tracks or terminal facilities to another carrier engaged in
like business.
That has been the subject of a great deal of difference of opinion
and a great deal of controversy as to what constitutes giving the
use of its terminals to another carrier engaged in a like business.
Some say that it means the physical use; that it means they can not
‘enter upon those terminals with their own employees and locomo-
tives; and others say that it means that the traffic of the competing
‘carriers shall not be given access to those terminals against the will
of the owning carrier. |
We have had some cases which involved that provision, but in
each one there has been included as the principal point the question
-of discrimination, and we have ordered that, discrimination removed
jin several instances. In one case our order was contested but was
later sustained by the Supreme Court of the United States.
Quite a few years ago in the Covington Stock Yards case (1389
U. S., 128), the Supreme Court used language which amounted to
about this: That if this carrier owning the stockyards were required
to accept the traffic of its competitor and transport it to its stock-
yards for unloading and for the use of the facilities of the stock-
yards, it would be taking its property in a very effective sense.
This has been relied upon in the main by those who contend that this
provision of the present section 3 of the act means that giving accsss
to the traffic of. the competing line is giving the use of the terminals.
If this becomes law, the commission in regulating the properties
of the carriers that are devoted to the public use would have the
power to require the terminals of any carrier to be opened to the
traffic of other carriers upon just and reasonable terms and condi-
tions, including just compensation to the owner of the terminals.
We have never been able to see that the terminals of a carrier are
any moresacred under regulation than its main lines, and we do not
‘see any reason why the terminals should not be subject to exactly
the same degree of regulation that other portions of the plant are
subject to.
In section 5 of this bill——
Mr. Monracur (interposing). Mr. Clark, you spoke of stock-
yards; do you treat them as terminals?
_ Mr. Crarx. Oh, yes.
Mr. Monracur. Whether they are owned by the railroads or not?
Mr. Crarx. Whether they are owned by the railroads or not.
Mr. Monracur. You speak of them as terminals of the carriers.
_ Mr. Crark. If they are used by the railroads, we treat them as
its terminals. I might suggest here, although I have not the cita-
152894—19—voL 1——-2
18 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
tion, that there has been a good deal of controversy and some rapid
switching of ownership and other arrangements of the Chicago
Union Stock Yards Co. and the Chicago Junction Railway, was it
not? |
Mr. Arrcutison. Yes.
Mr. CuarK. But we held that it was still a common carrier and
subject to our jurisdiction. That was contested, but we were sus-
tained by the Supreme Court of the United States.
Mr. Monracur. Would you so treat warehouses and all places of
storage of produce intended for shipment?
Mr. Cuarx. Yes, sir; if they are used by the carrier for storage of
1e property.
Mr. Monracur. Whether owned by the carriers or not?
Mr. Cuarx. Whether owned by the carriers or not.
Mr. Monracur. And also grain elevators?
Mr. Cuarxk. Yes, sit.
Mr. Monracus. And cold-storage plants?
Mr. CuarK. Yes; every facility used by the carrier. As you
know, of course, the rule of law has been very definitely laid down
that the carrier is not obliged to become a warehouseman, and they
frequently provide in their tariffs and carry it into practice that after
a certain ‘time property left in their custody will be placed in a
public warehouse at the expense of the owner of the property.
When the property has been so placed in the hands of a public
warehouseman, it goes out of the custody of the carrier and goes
out of our jurisdiction, but so long as it is retained in a warehouse
operated and used by the carrier itself, it is within the provisions
of the act and under our jurisdiction.
Mr. Montacur. Suppose it is not operated and used by the car-
rier, but the carrier simply avails himself of what is privately owned
and operated by taking the products therefrom into shipment, would
it be a carrier ?
Mr. Crark. You mean the warehouse?
Mr. Montague. Yes. .
Mr. Crark. No; not if the warehouse is privately owned, and, of
course, there are millions of them where the cars are switched in at
the platform and loaded by the shipper.
Mr. Monractr. Then what is the line of distinction?
Mr. Cuarx. When the carrier accepts the property for transporta-
tion and issues its bill of lading, then it becomes subject to our
jurisdiction. |
Mr. Montacur. The warehouse itself?
Mr. CuarKk. No; the property in the car. The warehouse never
comes under our jurisdiction under those circumstances.
Mr. Montacur. I understood you to say that those terminals were
carriers.
Mr. Cuark. I say if they are used by the carrier in its transpor-
tation or in its custody of the property. At the other end, the car-
rier may dispose of the property by putting the car at the ware-
house of the consignee. The duty is upon the consignee to unload it,
and just as soon as he has unloaded it 3
Mr. Monracur. Would a stockyard then be a common carrier ?
Mr. Crark. I did not say a stockyard would necessarily be a com-
mon carrier, but if the stockyard is used by a common carrier sub-
eed
t
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 19
ject to this act for the purpose of loading or unloading live stock
transported by it, it is a facility of that carrier and subject to our
jurisdiction.
_ The Cuarrman. Gentlemen, we will have to conclude the hearings
for this morning, and without objection we will meet to-morrow
morning at 10 o’clock. Will you be ready to go on, Mr. Commis-
sioner, at that time?
Mr. CriarK. Yes.
(The committee thereupon took a recess until Wednesday, July 16,
1919, at 10 o’clock a. m.)
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Houser or REPRESENTATIVES,
Wednesday, July 16, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE
COMMERCE COMMISSION—Resumed.
The CHarrman. Mr. Clark, will you resume your testimony? I
think we had reached section 5.
_ Mr. Crark. Yes, Mr. Chairman. At the time of adjournment I
was just about to comment on section 5 of this bill, which would
amend the first paragraph of section 5 of the commerce act.
The present act, as is well known, in this paragraph prohibits any
form of pooling of freights or the earnings upon freights. Experi-
ences had during the war have led to the conviction that this provi-
‘sion is not necessarily in the public interest, and this bill, therefore,
proposes that, under regulation and with approval of the commission,
there shall be relaxation of those limitations upon the activities of
the carriers.
The amended section starts out with the rule:
That, except upon specific approval by order of the commission as in this sec-
lion provided, it shall be unlawful for the carriers to enter into any contract,
agreement, or combination with any other common carrier or carriers for the
pooling of freights of different and competing roads or to divide between them
the aggregate or net proceeds of the earnings of such railroads or any portion
thereof.
It then provides that the commission may, if after hearing it is of
the opinion that the unification, consolidation, or merger by purchase,
lease, stock control, or in any other way of two or more carriers sub-
ject to the act, or of the ownership or operation of their properties or
of designated portions thereof, or that the pooling of their traffic,
earnings, or facilities to the extent indicated by the commission, will
be in the interest of better service to the public or economy in opera-
tion, or otherwise of advantage to the convenience and commerce of
the people, the commission shall have authority by order to approve
and authorize such unification, consolidation, merger, or pooling under
such rules and regulations and for such consideration as the commis-
sion may find to be just and reasonable in the premises.
20 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
It then provides that the commission may from time to time, fe
good cause shown, make supplemental orders deemed necessary or
appropriate and thereby modify or set aside provisions of previ
orders as to the extent of pooling or as to the rules, regulations,
terms, conditions. or consideration in respect of any unification or
consolidation of operation, and not of ownership or of pooling, so
previously approved and authorized. sae :
It will be noted that this does not include any provisions for the
commission by supplemental order to modify or set aside the provi-
sions of a previous order which permits the merging or consolidation
of the ownership of two or more properties, the idea being that
the ownership has been merged there has been a change of contro
and ownership of the securities and stocks of the reorganized prea
erty as compared with the previously existing properties, whict
could not by an order of the commission justly or perhaps lawfully
be undone: but, ¢&xcept where there has been a change of ownership.
the commission would be authorized by supplemental order to
modify any previous ‘order.
It then provides that carriers affected by any such order of the
commission shall be, and are hereby, relieved from the operation of
certain laws restricting their activities in that direction in so far
as may be necessary to enable them to carry into effect any unifica-
tion, consolidation, merger, or pooling so approved. - | ;
Incidentally, I call attention to a typographical error in the |
word in line 16 on page 14. It should be * effect.” ;
Mr. Tuom. Mr. Chairman, may I suggest an inquiry at this point
to the committee? ‘4
The CHatrman. Yes, Mr. Thom. ;
Mr. Txuom. I would like for the committee to ask the witness
whether there are not in the constitutions and statutes of many
States prohibitions on such consolidations and whether these provi-
sions here releasing merely against the Federal antitrust acts would
be adequate without negativing those statutes and constitutions.
Mr. CrarK. It is my idea, Mr. Chairman, that the language in
lines 15 and 16, on page 14, fully cover that poimt. Without reading
it in full, but giving the essence of it, it would read that the carriers
affected by any such order shall be, and they are hereby, relieved
from the operation of all other restraints or prohibitions by law
im so far as may be necessary.
Mr. Tom. I had not noted those words.
Mr. Crarx. This provision, Mr. Chairman, involves a substantial
change in the governmental policy and would effect a substantial
change in the policy of some of the States with regard to mainte-
nance of every degree and feature of competition which is fostered
by existing laws. It would make possible under private control
and operation of the roads the utilization of many economies which
would be possible under a unified control or the operation of all the
roads as one system.
Two competing single-track linese between two important com-
mercial centers might, under an arrangement made pursuant to this
authority, be used as a double-track road for the carriage of through
freight and for through-passenger service as well. Two single-track
roads of that nature, or even a double-track road and a single-track
road, one of which had adverse grades against the current of traffic
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 74
and the other had them in the opposite direction, might be utilized
to great economy by obviating the necessity of lifting the tonnage
‘over the adverse grade. That would be especially true, for ex-
‘ample, on roads moving a large tonnage of coal. The loads could
be taken over the easier grade and the empties taken back, with
“neither of them meeting the difficulties of the adverse grades.
{. There are many other considerations which move to the view that
this would be a sound departure from present policy. Consolida-
‘tions for operation and division of the traffic made under careful,
‘yeasonable, and open arrangements, approved by the commission, are
not, as we think, antagonistic to the public interest, while it is to the
public interest that every reasonable economy in operation shall be
effected, because the expenses of operation must all be paid by the
public. 7
Section 6 of this bill proposes an amendment to the fourth para-
graph of section 5 of the present act with regard to the authority
of the commission to permit the continuance of water service when
there is an ownership direct or indirect in the water line by a rail-
road.
This was recommended by the commission in its annual report to
the Congress to meet two or three actual situations which came before
us in investigations under which it could not be held that there was
no competition or possibility of competition between the rail line
and the water line; but it also appeared abundantly that there were
‘no other interests ready to take over the water line, and that the
only effect of divorcement would be an abandonment of the water
service, and a continuance of the water service was urged by a cloud
of witnesses from among the shippers who would be affected in point
of service, and frequently in the matter of rates, by the withdrawal
of the water service.
Jt is therefore suggested here that the commission might also ex-
tend the time during which the service by water may continue to be
operated, even where it finds that competition may be excluded, pre-
vented, or reduced, if it also finds that the service is in the interest of
the public and of advantage to the convenience and commerce of the
people, and that a discontinuance thereof would be substantially
injurious to the commerce of the localities affected.
The CrarrmMan. Does that affect the Panama Canal act?
Mr. Cuark. That is an amendment of a part of section 5 of the
commerce act, which had its origin in the Panama Canal act.
Speaking for myself, parenthetically, on this, Mr. Chairman, I
think it is fair to say that it is my observation that the shipping
public has received no benefit from any divorcement of rail and
water carriers under the provisions of the Panama Canal act. We
were obliged by the terms of that act to require the divorcement of
the Lakes lines from the roads in official classification territory. The
net result of that was a less satisfactory and liberal water service,
an increase in rates, and finally the substantial abandonment of the
service between Lake Erie ports and Lake Michigan ports.
_ The same thing can be said of other instances, one on Chesapeake
Bay. Originally, two railroads were built in the lower peninsula of
Maryland, and in order to extend their lines to Baltimore, and more
fully serve the localities and territory they had entered, they ac-
quired boat lines which operated on the navigable rivers reaching
22 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
numerous competitive points with the railroads, and also operated
to Baltimore. In the course of time, these railroads were acquired
by the Pennsylvania Railroad, and in acquiring them it also ac-
quired their boat lines. When we came to investigate that, under the
Panama Canal act, there was pretty general insistence on the part
of the Baltimore interests that the divorcement should be required,
and under the provisions of the law we entered an order requiring it.
It then developed that their idea that somebody else would take up
that water service was a mistake, and the only thing the railroad
could do under the order would be to discontinue the service. Then
we received most urgent appeals from the Baltimore interests, and
from the people who were served by those boat lines, many of whom
had no other transportation except by driving many miles across the
country to the railroad over very bad roads, to extend the time and
permit a continuance of the operation.
I cite only those two cases as indicative of the facts that have de-
veloped under that law and from which my judgment that the ship-
ping public has never received any benefit from the necessary opera-
tion of that law is formed. .
The CuarrmMan. Mr. Commissioner, I have had’ sent around to
members of the committee and persons in the audience a committee
print of this bill showing the new language inserted, which is printed
in italics, and other shght modfications indicated by various marks
which I think will facilitate our consideration of the amendments to
which you have called attention.
Mr. CrarK. Yes. Section 7 of this bill proposes an amended first
paragraph of section 6 of the commerce act. This is the provision
which requires railroads and water carriers, so far as they are sub-
ject to our jurisdiction, to publish, post, and file with the commission
schedules showing all their rates and fares and charges.
The substance of the amendments carried in section 7 of this bill
is to make the same requirements applicable to common carriers
under the act engaged in the transmission of intelligenee. Under the
present law they are not required to file their tariffs.
Section 8 of this bill proposes an amended paragraph 7 of section 6
of the commerce act. There, again, in line 20, on page 16—the lines I
have referred to do not jibe, I see, with this committee print—the pro-
visions of the section are made applicable to carriers engaged in the
transmission of intelligence. At the end of this section of this bill
there is a proviso which is a repetition of one now jn the act, but in
reading this over, and without having had opportunity to consult
my colleagues on this suggestion, this thought occurs to me, which
seems to me must be taken care of. The present act does not require
the carriers engaged in the transmission of intelligence to file or post
schedules of their charges. This bill would require them to do so,
and without some provision in the act that requirement, as well as
the prohibition against engaging in the business except under tariffs
so filed, would become effective upon approval of the act. It there-
fore seems essential that there should be a provision with regard to
those common carriers which would give them a reasonable time
within which to prepare and file their schedules, and so I suggest
that at the end of this section there be added substantially these
words:
A ne
(
!
.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 28
4 And provided further, That the requirements for filing and posting schedules
of charges for transmission of intelligence, and the prohibition against engaging
or participating in such transmission except under schedules so filed and posted,
shall become effective four months from the date of approval hereof.
Section 9 of this bill proposes to amend two paragraphs under (a)
of the thirteenth paragraph of section 6 of the commerce act, and
deals with the powers of the commission originally conferred in the
Panama Canal act over arrangements for interchange of passengers
and property between rail and water carriers.
It will be noted that, first, there are the inserted words which
authorize the commission to establish physical connection between
these lines and the dock at which the interchange of passengers or
property is to be made, making it entirely clear that the purpose is to
perfect an arrangement for the interchange. Then, it is provided
that the commission may require either or both the rail and water
carrier to construct a suitable dock. That is intended to obviate a
nullification of the intent and purpose of the act to require through
routes and joint rates between rail and water carriers wherever they
are in the public interest, by the absence of a dock and the unwilling-
ness on the part of either or both of the carriers to arrange for the
construction of a suitable dock at which the interchange can be
effected. It is then provided that this dock shall be considered a
terminal within the meaning of that term as used in other sections
of this act, and that the provisions of this paragraph shall extend
to cases where the dock is not owned by any carrier.
There are instances in which the interchange is made over docks
that are not owned by either of the carriers, sometimes under a
lease of the entire dock property, and sometimes under an arrange-
ment for right to dock there and use it to the extent necessary for
the carrier or carriers involved. This amended section would
authorize the commission to determine and prescribe the terms and
conditions upon which these docks and connecting tracks will be
operated, and to determine either in the construction or operation
of the docks and tracks what sums shall be paid to or by either
carrier. Ordinarily, if the carriers could effect a mutually satisfac-
tory arrangement for compensation of each other, or from one to the
other, the commission would not be called upon to exercise this
power, but in the event of an irreconcilable difference between them
there must of necessity be some one who can decide it.
Then, there follows a provision that for the protection of the
carrier’s rights all “construction required by the commission under
the provisions of this paragraph shall be subject to the same restric-
tions as to findings of public convenience and other matters as is
construction required under section 1 of this act.” which would
include the provision referred to yesterday, that the order of the
commission should not be such as would impair the ability of the
carrier to perform its common carrier service.
I have been asked. Mr. Chairman, by a member of the committee,
to elaborate a little more on the question of terminals and their use,
and, perhaps, this is an appropriate place to get it in somewhat con-
nectedly. .
A railroad serving places where large volumes of traffic originate
or terminate, naturally at such points as well as at other points,
has encouraged the location of industries on its line and on its
<< . . ee
: on
® 7 — 6
. ral ll
Md , t}
24 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. —
&
<<
f
terminal tracks. and in the competition with carriers it has ver
often occurred that pains have been taken: to get them so loca
that they would be served exclusively by the carrier on whose track
they are located. Now, if you have two competing railroads betwe
two important centers, originating and receiving large volumes ¢
traffic. if there be on the rails of each at terminal A competin
manufacturers or producers of the same commodity, and on the
terminals of each at point B consumers or receivers of that com
modity, and each read insists upon confining its terminals to the
traffic which it hauls, it necessarily follows that the consumers at
on road No. 1 could not buy im competition on road No. 2 at 2
because there would be either no rate or arrangement for the trans
portation and delivery, or it would be so substantially higher that
it would not be available. We have had cases before us m whieh
the charges in instances of that kind were as high as $40 a car
the delivery from the terminal of one road to the terminal of the
other. and they were admittedly made prohibitive because they lid
lo
not want to interchange the traffic between the termimals. We
not think that is sound policy to be pursued by a common carrié
operating under a public franchise and whose primary and prin-
cipal duty is to serve the public. 7
It is perfectly natural for a railroad to be jealous of its terminz
because if it has advantageously located terminals and can kee .
I:
them closed it can insure itself to the line haul of all traffic and th
retention of all of the earnings. As I said yesterday, we do not
think that the terminals of a railroad are any more sacred from re +
bc
lation than the main line. The law authorizes the commission
require the establishment of through routes and joint rates involvim
the use of the main linés and some of the terminals, necessarily, ane
in the event of the railroads’ inability to agree upon a division @
those rates the commission is authorized to determine it. We do
not see why the same rule of law, the same principle, should no
apply to the terminals as distinguished from the individual join
haul. The idea of requiring the carriers, under proper conditions
to meet and serve the public necessity by making its terminals oper
to the traffic of other roads carries with it the intent and the prov.
sion that the compensation to be received by the owning road shal
be reasonable and adequate for the use of its property. qq
It just occurs to me that there was a very interesting case decide
by the courts involving the jurisdiction within the switching limits
of the city of Detroit, where the court held very clearly that th
terminals were not at all free from regulation and sustained an orde
of the State commission requiring the one road to accept and trans
port the traffic of the other. (Grand Trunk Ry. v. Michigan R,1
Com., 231 U. S., 457.)
Mr. Denison. What terminals does that include? aq
Mr Crarx. There has never been any specific definition of it, bu
it includes their terminal tracks, upon which they receive and delive
freight; it would include their common-carrier used warehouses, elk
vators, and all facilities of that kind that are used by the carrier i
its service to the public in the receipt or delivery of freight. .
Mr. Dentson. Freight?
Mr. CrarK. Yes, sir.
Mr. Denison. And it would include depots?
' Ma 7 BUY i i I i ee =| nena
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. me
Mr. Crark. It would include passenger terminals at which they
receive or discharge passengers, and also, under the provisions of
this act, the commission would have power to require the carriers
with either individually or jointly owned passenger terminals to
afford access thereto to another carrier that desired it and for com-
- petitive reasons was denied it.
Mr. Denison. And under the provisions of this act the commis-
sion could compel the use of joint terminals?
Mr. Crarx. It could under the terms of the bill.
Mr. Dentson. Even where they do not have it now?
Mr. Crark. Yes, sir; and the provisions of the amended first
paragraph of section 5 are calculated and intended to actually
encourage such use. It is our view that with the relaxation of the
restrictions as is proposed in the amendment to section 5 of the act,
in section 5 of this bill, there would be encouragement that would
be responded to by the voluntary establishment of relations of
this sort between the carriers under conditions mutually acceptable
and agreeable to them which, if approved by the commission, would
go into effect, or which might go into effect as modified by the com-
mission if it found objections to certain provisions, but the idea of it
all is to give the public the best service possible from the existing
facilities at reasonable charges, to make those facilities available for
the service of the whole public, and to protect the owning carrier in
- compensation that is fair fer the use of its property.
ee i
Section 10 of this bill amending section 6 of the commerce act
‘would authorize the commission to prescribe the maximum rates or
the minimum rates or the maximum and the minimum rates. Under
the present law we are limited to prescribing the reasonable maxi-
mum rate and it sometimes happens that the competition between
carriers or the insistence of one carrier upon its own way results in
an unnecessary and unwarranted depletion of the revenues of all
the carriers in a given situation, and not infrequently in undue
preference or undue prejudice, by the insurgent or reactionary car-
rier making the rate substantially lower that the maximum pre-
scribed by the commission and substantially lower than would be
earried by the competing roads and lower than any tribunal could
find to be reasonable.
The ready and easy way to get traffic in the good old days was to
cut the rates. Unbridled competition of that sort does not do the
public any good. If they have cheap transportation for a limited
time under rates which have been cut severely, in the long run they
will have to compensate for it, and so we think that a well rounded
out system of regulation would confer upon the regulating body
authority, whenever it was necessary to exercise that authority, to
prevent that ruinous competition and prevent a dissatisfied single
earrier from overturning the judgment of the commission and a
scale of reasonable rates by insisting upon its right to fix anything
it chose to fix lower than the reasonable maximum rate prescribed by
the commission.
This section, it will be noted, relates only to jeint rates, but later
in the bill there is a similar provision which would go to all rates,
fares, and charges.
Section 11 of this bill amending section 7 of the commerce act
effects only the change necessary to make the section applicable to
26 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
——=_
common carriers subject to the act and engaged in the transmission
of intelligence. 4
Section 12 of this bill amending section 10 of the commerce act
proposes changes which in substance effect only the same purpose, to
wit, making the terms of the section applicable to the carriers en-
gaged in the transmission of intelligence as well as those engaged in
the transportation of persons and property. |
Section 13 of this act amending section 13 of the commerce act
relates to the jurisdiction of the commission, general rules of conduct,
and so forth, involving the question of the relationship of States and
interstate rates. It will be noted that the proviso in section 1, to
which I referred yesterday, refers to that which is expressly pro-
vided in section 13. I doubt if it is necessary, Mr. Chairman, for me
to detail much of the history of this situation as it has developed
from the original decision and the supplementay decisions and re-
ports of the commission in the so-called Shreveport case, and the
decision of the Supreme Court sustaining the commission. ‘
The law as it now stands and as it is interpreted by the commis-
sion and by the Supreme Court authorizes the commission to require
the removal of undue preference or undue prejudice and to correct
differences between the levels of State and interstate rates, in doimg
which it must prescribe the reasonable maximum interstate rates, and
thus, by a roundabout process, it results that the commission fixes
the level of the maximum reasonable interstate rates and requires
the removal of the undue preference and undue prejudice found to
exist under the State rates, which gives the carrier authority to in-
crease, if necessary, or if it so elects, the State rates to the level of
the interstate rates as found reasonable.
This amended provision would require the commission when an
investigation of this character was instituted, to cause the State or
States to be notified of the proceedings. It would authorize the com-
mission to confer with the authorities of any State having regulatory
jurisdiction over the class of persons and corporations subject to this
act with'respect to the relationship of the rate structures and prac-
tices, and would authorize and empower the commission, under rules
prescribed by it, to hold joint hearings with any such State regulating
bodies on any matters wherein the commission is empowered to act,
and where the rate-making authority-of a State is or may be affected
by the action taken by the commission. It would authorize our
commission to avail itself of the cooperation, services, records, and
facilities of such State authorities in the enforcement of any pro-
vision of this act. This section confers upon the commission
authority—
after full hearing, to make such findings and orders as may, in its judgment,
tend to remove any undue preference or prejudice as between persons or locali-
ties in State and interstate or foreign commerce, or any undue burden upon
interstate or foreign commerce, which is forbidden and declared to be unlawful,
and provides that such findings or orders shall be observed while in effect by
the carriers parties to such proceedings affected thereby, any act, decision, or
order of any State or State authority to the contrary nothwithsanding.
This situation has been more or less troublesome. We have had a
good many complaints of undue preference of State shippers and
undue prejudice against interstate shippers. The Shreveport case
was originally brought by order of the Legislature of the State of
i eee Ne
RETURN OF ,THE RAILROADS TO PRIVATE OWNERSHIP. 27
Louisiana on account of undue prejudice believed to exist against
the shippers of Louisiana and undue preference of shippers in Texas
‘under rates prescribed by the Texas commission. Singularly enough,
it was not very long until we had a complaint from Natchez, Miss.,
against the Louisiana rates prescribed by the Louisiana commission.
We have had several complaints from parties in Missouri against the
Illinois rates and we have had complaints from parties in Illinois
against the Missouri rates. We have had the same situation pre-
sented in New England and from various parts of the country. I
speak of it simply to show that it is not a narrow situation that ex-
isted only within the scope of the Shreveport case. It comes from all
sections of the country and it results from a difference in point of
view of commissions in different States, although they may be ad-
joining. East St. Louis, Madison, and Granite City. Hl. and St.
Louis and its suburbs in Missouri for a long time have been treated
in general as a common rate district—I should say a common indus-
_ trial district—to and from which the rates from points more than
100 miles distant have been the same.
Of course, there is rivalry between people on the Missouri side and
' those on the Illinois side. There are direct competitors on both sides
of the river and they all insist that it shall be a common-rate district,
with the one exception, that East St. Louis is nearly on the edge of a
substantial deposit of bituminous coal, and, of course, coal is a very
éqmportant item in the manufacturing at any of those places. The city
of St. Louis consumes enormous quantities of Illinois coal and the
rates on coal to St. Louis from these southern Illinois mines are uni-
formly 20 cents per ton higher than they are to East St. Louis.
That is being resisted by St. Louis interests in a proceeding now
pending before our commission, and the present situation is defended
by the East St. Louis interests, but aside from that, as I have said,
they are practically, if not entirely, unanimous in their desire to
have the industrial sections on both sides of the river considered as
one, and they do not want any disruption of that by the action of the
State commission either in Illinois or Missouri. Mr. Ciarxk. Yes, sir.
Mr. Srus. In which case, then, the order never takes effect even
though the order may ultimately be sustained by the courts?
Mr. Cuiarx. We think it is hardly true, Judge Sims, that the order
never becomes effective because out of some experiences in this con-
nection, such as you have referred to, we adopted the policy several
years ago of providing in our orders that the order shall continue in
effect for a period of not less than two years from the date when it
shall take effect, so that we think that if it is enjoined for a substan-
tial part of the first: two years and then becomes effective by decision
or dissolution of the injunction proceeding, it remains in effect two
years from the date when it does go into effect.
I remember in one case involving rates on through traflic between
the Mississippi and Missouri Rivers, the Supreme Court sustained
th order of the commission about 10 days before the two-year limit
on the order expired.
The next provision begins in line 3, page 24, of the committee
print. line 1, page 24 of the bill, and refers to divisions of joint rates,
fares, or charges as between carriers parties thereto.
There has been a good deal of difference of opinion, both inside
and outside of the commission, as to its powers under the present act.
~The act now authorizes the commission to establish joint rates and
says that if the carriers are not able to agree on a division of the
rates so prescribed, the commission may determine those divisions
and its decision relative thereto shall become effective as a part of
the original order and as of the date upon which the rates became
effective. But there have come up questions as to divisions of rates
which had not been prescribed by the commission and which had be-
come unsatisfactory to one or possibly more than one carrier. The
commission originally held that it did not have jurisdiction to pre-
seribe the divisions of a joint rate that had not been prescribed by it.
Thereafter, the dissatisfied carrier could bring that question at issue
by filing a revocation of its concurrence in the rates, or if it hap-
pened to be a carrier that published the rates, by filing a cancel-
lation of them. That was frequently protested, often suspended
by the commission, and upon hearing it developed that the only
difficulty was their differences as to divisions of the rates. Re-
quiring them by order to continue the rates was, in effect, establish-
ing those rates as joint rates, and we thereupon proceeded to prescribe
the divisions, if they could not agree.
. Later, by a majority vote, the commission decided that it had
power to prescribe the divisions, even if it had not prescribed the
rates, but that has not as yet come to rest through any final ad-
judication.
Under this amendment the commission would be authorized to
prescribe the divisions of the joint rates, fares, and charges as be-
tween the carriers, whether it prescribed the rates or not, and it 1s
provided that if it be a rate, fare, or charge that has been pre-
seribed by the commission, it may then, by order, make its division
of that rate retroactive to the date upon which the rate prescribed by
it became effective; but as to rates not prescribed by the commission,
30 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
its order prescribing the divisions of the rate would be effective ouly
from the effective date of the order. |
Then follows a provision authorizing the commission in these
cases to fix the maximum or the minimum, or the maximum and the
minimum rates.
The present act authorizes the commission to establish through
routes, but provides that in doing so it shall not require a carrier
against its will to include in such through route substantially less.
than its entire line of railroad or of its line and that of any carrier
owned or controlled by it which lies between the termini of the route,
unless to do so would make the route unreasonably long.
Here it is provided that that limitation shall be subject to the ex-
ception of the provision in section 3, which, as you will remember,
authorizes the commission to prescribe in times of emergency such
through routes as will serve the public interest during the emer-
gency. Necessarily the terminals are a part of the route, and this
limitation upon the power of the commission would include the ex-
ception in section 3 as to the use of terminals.
Then, there is a provision that in time of shortage of equipment,
congestion of traffic, or other emergency declared by the commission
it may establish temporarily such through routes as in its opinion
are necessary and desirable in the public interest. ‘The idea of that.
is that the exceptional time of stress and emergency ought to be met
with prompt action, and that the commission should have the power
to declare that the emergency exists and proceed promptly to utilize
the available roads, terminals, and other facilities in serving the pub-
lic to the greatest possible extent. Under other provisions of the
act, where the carrier was obliged to permit the use of any of its
facilities by another carrier in a time of this kind, in the event of
their being unable to agree as to reasonable and fair compensation to.
be paid therefor, the commission would have power to determine
that, but it would not be necessary under this provision for the com-
mission to determine it before anything was done. In other words,
it would permit action and settlement afterwards.
The next amendment refers to the powers now conferred upon the
commission to suspend the operation of a proposed rate, fare, or
charge or schedule of rates, fares, or charges.
Under the present law the commission may suspend the operation
for a period not exceeding 120 days, and if it finds it can not decide
the case within that time it has power to issue a supplemental order
for an additional period not exceeding six months.
There has been a good deal of complaint on the part of the car-
riers about the proposed rates being prevented for so long a period
from going into effect. I will not take the time to discuss the dif-
_ ferences of opinion as to where the responsibility for unusual delays
generally les, except to say that I think it will be difficult to find
more than a very exceptional case in which the decision of the
commission has been unreasonably delayed after the case has been
submitted to it. But recognizing the fact that if the carrief pro-
poses increased rates that are finally found to be reasonable, the
suspension of them for 10 months and depriving the carrier of the
revenue thereunder for that period is not exactly fair, accompanied
by the fact that if the rates are permitted to go into effect and are
later found to be unreasonable the shipper may be awarded repara-
: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 31
tion, whereas the carrier can not possibly collect the higher rates
for any traffic that moved prior to the time at which they became
effective upon a finding that they were reasonable, it is here pro-
posed that the right of the commission to suspend the operation of
such rates or schedules shall be limited to a period of 120 days.
If within that 120 days the matter can not be decided, the rates
“will go into effect, but the investigation will proceed and the de-
cision of the commission will be made after the rates have gone into
effect. It is provided here that if the proceeding can not be con-
cluded within the period of 120 days the commission may, in con-
nection with the rates becoming automatically effective, require the
carrier to keep an accounting of the traffic moving under those rates
and the excess charges under the new rates as compared with the old
rates, and that when the commission’s decision is rendered if it is
‘found that the reasonable rates are less than those proposed and
which have become effective, it may order the carriers to refund to
those by whom or on account of whom the additional charges were
paid all of the sums so received in excess of what would have been
‘received under the rates found reasonable by the commission. It is
analogous to the plan frequently adopted by courts in connection
with cases before them involving questions of constitutional rights
under rate scales prescribed by State or Federal authority.
We think this would protect the shippers, and it would protect
the carrier against any unreasonable delay in making effective rates
that may later be found to be reasonable, and would substantially
simplify the question of shippers getting such reparation as they
might be entitled to.
Mr. Sms. Mr. Clark, right in that connection, I once introduced
a bill myself providing that where a rate was enjoined, the courts
should require the carrier to keep an account of the freight paid
to or collected by the railroads, together with the names of the
parties that paid, and have the money paid into court, so that if the
railroads should ultimately lose, the reparation claims could be met
without any further proceedings by the people who actually paid
the excessive rates. Now, in the case you refer to, after the 120 days
have elapsed, if the rate automatically goes into effect, I gather from
the language you use that the reparation will be made to the shipper
or the actual company or shipper who paid the rate; but is it not
also a fact that often those rates have been paid by the shipper, but
collected back from the consumer of the products, and then when
the shipper collects the difference, if he should ever do so, by way
of reparation, he simply makes an additional profit over and above
what he would have received by reason of having obtained the
amount of freight which he paid, if he is a merchant, for instance,
out of the price he obtained for his goods. Now, is there any way
which you can suggest whereby the payer of this excessive rate,
whether he be the nominal or actual shipper, can receive the benefit
from the proceedings which you have just mentioned.
Mr. Crarx: Judge Sims, that is one angle of a very interesting
question that arises under award for reparation. The carriers have
insisted all along that if a man who paid and bore the charges had
correspondingly changed the prices at which he sold, he had not been
damaged, and that he had no right to reparation. We said that
those were commercial considerations with which we had nothing
f
32 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
to do; that we would not look beyond the one who paid and bore
the freight charge, and the Supreme Court of the United States has
somewhat recently handed down a decision in which it takes that
position; that the man who paid his money to the carrier for an un-
reasonable charge is enuiled; to the return of that money; that the
carrier has exacted an unreasonable charge and is in possession of
money which it has no right to retain, and that it can not inquire as
to whether or not in a commercial transaction the man who paid and
bore the charge has been able to pass it along to somebody else.
Mr. Surs. But under existing law, the collection will be made dur-
ing the period of suspension which you might order not exceeding
six months, and would not involve that trouble from the fact that
it never would be collected.
Mr. Crark. That is very true, and the same thing would be true
if you carried the suspension on to eternity.
Mr. Srus. If it ought to be carried, that is just how far it ought
to go.
Mr. Crark. To carry the suspension that far would simply mean
there could be no change in rates; that i is, no upward change in rates
and no downward change if the commission saw fit to suspend it.
Mr. Stus. Of course, I am not assuming the commission would ever
make an order of that sort.
Mr. Crark. It not infrequently occurs that the shipper or con-
signor and the consignee both claim the reparation, and we have to
decide between them. We have always held that if the consignee paid
the freight to the carrier and deducted it from his invoice in settling
with the consignor that he was not damaged and that the consignor
was the one who bore the charges and was entitled to the reparation.
This provision is that the carrier shall keep an accurate account
in detail of all amounts received by reason of such increases, specify-
ing by whom and on whose behalf such amounts are paid, and upon
completion of the hearing and upon decision the commission may
by further order require the interested carrier or carries to refund
with interest to the persons in whose behalf such amounts were paid.
such portion of said increased rates or charges as by its decision shall
be found not jutified. It is not possible to provide that the carrier
shall keep an accounting which will specify in connection with the
commercial relations between the shipper and the receiver which one
bore the freight, but each, I think, may be depended upon to look
after his own interest, and if it should develop that the records show
that the payments were made by A and in connection with their
commercial transactions A and B should stipulate and agree that
the burden was borne by B and not by A the carrier could accept that
stipulation and agreement and make the payment directly to B in-
stead of to A, but it would be required to make the payment to
somebody.
The Cuairman. Mr. Clark, when you revise your remarks will you
include the citation to the decision of the Supreme Court on the mat-
ter of reparation, unless you have it now?
Mr. Crarx. Yes. It is the case that is commonly spoken of as the
Darnell-Tanzer case (Southern Pacific Co. v. Darnell-Tanzer Co.
245 U.S., 531).
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 33
__ Section 15 of this bill proposes to amend section 16 of the commerce
act, but only by carrying into the act appropriate provisions for
penalties for violation of the provisions of sections 3, 18, or 15.
Section 16 of this bill amends the 5th paragraph of section 20 of
the commerce act, and the effect of this amendment can be stated
in a word. It will give the commission the same access to the cor-
respondence files of the carriers subject to its inspection as it now
has with regard to accounts, records, and memoranda.
The Cuatrman. Is that a result of the decision of the Supreme
urt in the Louisville & Nashville case?
Mr. Crarx. Yes. In that case our right of access.to the cor-
respondence was denied by the carrier, and the Supreme Court de-
eided that the act does not give us the right of access to corre-
spondence. Incidentally in that case the Louisville & Nashville Rail-
road offered to give us access to the correspondence if we would
confine our search to the correspondence which had passed since the
Hepburn law was enacted or became effective, to wit, August 28,
1906. We did not think we ought to compromise any right. If we
had the right there was no limit upon it, and if we did not have it
we might as well find it out, and we declined to enter into any such
agreement, and they declined to give us access to the correspondence.
It has developed in many instances that an understanding of
transactions which appear on the books of a carrier, the true facts as
to an expenditure and the justification and warrant for it under the
law, can not be found unless the correspondence which passed in con-
nection with it is reviewed.
In the Louisville & Nashville case, one point raised by the com-
pany was that the files of correspondence passing between the
counsel for the road and other officers of the road ought not to be
subject to inspection because they were protected by rules of evi-
dence, and in order that there may be no conflict on that point, in
this amendment it is provided, in lines 21 and 22 on page 28 of the
committee print, line 20, page 28, of the bill that “* Nothing in this
section shall be construed as affecting any rule of evidence now in
force in courts of the United States.”
The Carman. Does that protect confidential communications
between attorney and client?
Mr. CuarK. That is the idea, Mr. Chairman; that where the rela-
tionship of attorney and client exists their correspondence and com-
munications are privileged; correspondence which passes through
the hands or between officers of the railroad where that relationship
does not exist is not privileged, and none of the carrier’s corre-
spondence ought to be exempt from the right of inspection which
this section gives to the commission over all of the other records and
‘memoranda of the carrier.
This brings us to section 17 of this bill, which proposes a new
section to follow section 20 of the commerce act, to be known as 20a.
The CHairman. I call attention to the fact that all the balance
of the bill is new matter, although not indicated by italics. Of
course the text of the bill shows that it is new matter because it is
in new sections. This is practically incorporating what is known as
the Rayburn bill which was passed by the House in a previous Con-
gress.
—_
152894—19—-voL 1——-3
|
34 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cuark. Yes. I was going to say, Mr. Chairman, that I doubt
if it would be profitable for me to discuss the details of this proposed
section before this committee. It is in subsance, as I undersand it,
the effect and purpose of the so-called Rayburn bill, which was the
subject of exhaustive hearings before this committee and in connec-
tion with which at least three members of the commission testified
before the committee. I think I have a reference to that testimony
if anyone desires to look it up. At the hearings before this com-
mittee on February 9 to March 17, 1914, Commissioners Clements,
Clark, and Meyer appeared before the committee, and their state-
ments are found on pages 57 to 114 of the committee’s printed report
of those hearings, and also the hearings before this committee Febru-
ary 1 to 29, 1916, pages 33 to 57.
Sketching it only in the most general way, it provides that from
and after the effective date of this provision—
it shall be unlawful for any common carrier subject to this act to issue any
share of capital stock or any bond or other evidence of interest in or indebted-
ness of the carrier, hereinafter collectively termed “ securities,’ unless it be
for some lawful purpose within its corporate powers and compatible with the
public interest, necessary or appropriate for or consistent with proper perform-
ance by it of service to the public as a common carrier, and which will not
impair its ability to perform that service, and then only to the extent that,
upon application by the carrier, and after investigation the commission shall
find the same to be reasonably necessary or appropriate for the purposes stated
and authorize the same to be made.
The details of the proceedings are set out and it is provided that
the jurisdiction conferred upon the commission by this section shall
be conclusive and plenary and the carriers subject to this act may
issue securities in accordance with the provision of this section,
without securing approval other than specified herein: There has
been a good deal of complaint of the present necessity for the car-
rier having a large system of road securing the approval of securi-
ties or stock issues from various State commissions which now have
authority to approve the issuance.
It has been, I think, very pertinently stated that it would not be
helpful to add Federal supervision and the necessity of securing
Iederal approval to the numerous approvals now necessary. So.
far as I am advised the provision making this jurisdiction plenary
1s not opposed by the State commissions. It is generally conceded
that it ought to be in one place. That is because of the necessity for
prompt action, in order that the securities may be sold at a time
when the sale is possible and the market will take them, and in
order that the work to be paid for out of the proceeds of such sale
shall not be unreasonably or'unnecessarily delayed. It is also neces-
sary in order to avoid the conflict of opinion or view which might
be entertained by two or more bodies having concurrent jurisdiction.
It will be noted that it is specifically provided that “nothing herein
shall be construed to imply any guaranty or obligation as to such
securities on the part of the United States.”
The Crairman. Is that very persuasive?
Mr. Crarx. Well, I suppose, Mr. Chairman, that depends upon
the point of view.
The Cuatrmay. I notice that it is retained in the bill.
Mr. Raysurn. I want to say for the record that it was put in over
my protest. I never have seen the use of it. It was brought to the
+=
me RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 35
omn 2 from the outside. I have never been able to understand
ie necessity for putting that in the bill. Prd
Mr. Crarx. I am not to be understood as specially advocating its
‘tention, although I understand that it is quite generally incor-
vorated in State statutes. .
rther provision of the bill is one that I think was not in the
or so-called Rayburn bill. That is that— ;
ll issues of securities contrary to the provisions of this section shall be
and the holder or owner of any such security so made void shall have
ecourse against the issuing carrier and all or any of its officers, directors,
ttorneys, or agents, jointly or severally, who participated in any way in
reparing, hypothecating, or selling such voided security for the fulk
Mount of damage sustained by him in respect of such void issue.
There is some difference of opinion as to the soundness and ad-
isability of the provision that a security issued contrary to the pro-
tow of this section shall be declared to be void.
_ In some of the States where regulation may be said to have
ice a more advanced stage there is such a provision. I doubt if
here will be any dissent from the idea that the holder or owner of
such security unlawfully issued and either made void or found
be worthless should have all of the recourse possible against the
arrier and those of its officers who are responsible for the issue.
Ve think it is salutary and wise to make the officers of the carrier.
nsible for their part in any deviation from the pro-
isions of this section, or in uttering any securities in violation
. f its provisions, or in diverting to improper uses the proceeds
of the sale of any such securities, because the purposes to which the
wroceeds are to be put must be stated and are made a part of the
ae paragraph on page 33 is a modification of the Clayton Act.
| Vhat are your views in regard to that?
» Mr. Crarx. Our views are in harmony with the provisions of this
ill as ata They provide that it shall be unlawful for any per-
on to hold the position of officer or director of more than one carrier
pplication and are a condition of the granting of the authority.
ion 18 carries the usual repealing provision.
The Cuatmman. Before you leave that, I think the next to the
3 to this act, unless such holding shall have been authorized
»y the commissioner upon showing that neither public nor private
nterest will be adversely affected thereby. This bill contemplates
te modification of the limits now imposed upon carriers in merg-
‘ag or consolidating or unifying their operations or earnings or their
roperties, and we think that a strict and absolute prohibition against
_ person holding the position of officer or director of more than
ne carrier might be found undesirable where properties were in
vhole or in part merged into an operating system, while their cor-
orate entity and identity would be preserved. It might be found
10st desirable to have a common officer or man who was a director
a common to the properties, but only in instances where the com-
ussion would find that neither the public nor private interest would
e adversely affected thereby.
r. Rarpurn. Where we know that they would take out a sepa-
ate charter and have a separate organization, would not that make
= necessary to have the rigidity of this rule relaxed in some instances?
Mr. Cuarx. I think it would be most desirable.
36 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Chairman, there is one provision in this bill that is new to
which I did not make reference as I passed. It is on page 23 of the
committee printed, beginning in line 14, line 11, page 23, of the
bill, and reads:
The commission in reaching its conclusion as to the justness and reasonable-
ness of any rate, fare, charge, classification, regulation, or practice shall take
into consideration the cost of labor and other operating costs, in so far as
they become material in any case under investigation.
I originally passed this by, but it seems desirable to comment on
it a little. As a part of the statute it declares the rule which the
legislature contemplates shall be followed by the administrative
tribunal. In actual practice it will not change the rule followed by
the commission, because the commission has recognized that the
necessary operating costs inevitably affect the net return and that
the net return under reasonable rates and proper management is
what the carrier should have in proper measure and is the only
thing that the carrier has upon which to live, beyond the mere opera-
tion of the property. :
In the Fifteen Per Cent case the plea of the carriers rested almost
entirely upon the insufficiency of net earnings due to increased labor
costs, increased cost of fuel and other matérials and supplies, and the
decision of the commission in that case hinged and rested entirely
upon that consideration. And so I say this being incorporated in
the law will not change the policy or rule followed by the commis-
sion, but still we think it desirable there, because it removes the pos-
sibility of claiming that either the Congress has overlooked or pur-
posely withheld recognition of the principle or that it failed to lay
upon the commission an obligation to give consideration to it.
Mr. Barxtry. This language seems to make it binding upon the
commission in all cases involving rates to take into consideration
the cost of labor and material. What would you say of the sugges-
tion that the word “shall” be changed to “ may,” so if there should
be a case. where it was not necessary to take into consideration the
cost of labor and material you would not have to do-so?
Mr. Crarx. The provision is that the commission shall take them —
into consideration in so far as they become material in the case.
If they are not materia] in the case, we would not have to take them
into consideration. I think it is preferable as it is.
The Cuatrman. The Traffic Club of Chicago, in recent resolutions,
recommended that there should also be taken into consideration the
cost of capital. What are your views on the advisability or neces-
sity of including that as one of the elements to be taken into con-
sideration by the commission in fixing the rate structure?
Mr. Crark. I think it would be entirely appropriate to include
that, Mr. Chairman, because I can not conceive of the commission
ignoring it if it was pertinent and material to the issue.
The CyarrmMan. In view of the fact that you say the commission
has always heretofore considered the cost of labor and operation—
you have also considered the return on capital ?
Mr. Crarx. Yes; we have considered the return on capital.
The CuarrMan. How about the cost of capital?
Mr. Cuarx. I do not recall any case in which the cost of capital
to the carrier has been material or has been advanced, excevt in a
, “
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 37
‘subsidiary or ancillary way; it has been referred to, but it has not
_been made a special point.
~ The Cuatrrman. You have concluded your explanation of the bill,
have you, Mr. Clark?
» Mr. Crarx. Yes, Mr. Chairman.
~ The Cuarrman. It is about time for the committee to recess. I
-was going to suggest for the consideration of the committee as to the
method of cross-examining the commissioner, that we use the recom-
mendations of the commission in its last annual report wherein it sets
_forth some eight or nine suggestions. Will it be possible for you, Mr.
Commissioner, to allocate this bill to the several parts or recom-
mendations, and we can then take up the seven or eight points and
. determine how far and in what particular the bill carries out the
recommendations ?
Mr. Crarxk. I think I can do that.
The CuAatrman. I think every member of the committee has a copy
_of the last.annual report of the commission; if not, copies will be fur-
nished to them, or it will be found in part two of the Senate hear-
ings, page 235. I think it will expedite the hearings if that plan is
pursued.
Mr. Crarx. At the opening I suggested that I would hardly care
to undertake an analysis of other measures that have been brought
forward in this connection, but I should like before I conclude my
statement to take a few minutes to refer to some general principles
that are outstanding features of some of those proposals, from our
point of view.
The Cuarrman. Very well; that will be entirely satisfactory.
The committee will recess until to-morrow at 10 o’clock. There
will be no afternoon session to-day.
(Thereupon the committee adjourned to meet to-morrow, Thurs-
day, July 17, 1919, at 10 o’clock a. m.)
COMMITTEE ON INTERSTATE AND ForREIGN CoMMERCE,
House or REPRESENTATIVES,
Thursday, July 17, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE
COMMERCE COMMISSION—Resumed.
_ The Cuarrman. Mr. Clark, you will resume your testimony. I
believe you suggested when we adjourned yesterday that it, was your
desire to speak with regard to some general principles which you
thought ought to control the legislation.
_ Mr. Cuark. Yes, Mr. Chairman, and you suggested that I check
‘up this proposed bill with the recommendations in our annual re-
port. I will proceed along either line now, as you suggest.
' There have been a number of suggestions, some of them in the
form of proposed bills introduced in the Senate, for legislation
affecting the railroads and the relationship between the railroads
38 °© RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
and the Federal Government and the several States, which, as I said
a day or two since, I do not care to undertake to analyze in advance
of an analysis by their proponents, but they contain some provisions
which I think are fundamental, and as to which I do desire to make
some observations.
Some of these plans propose that the country shall be divided
into regions, in each of which there shall be a regional commission,
which for the region shall possess and exercise all of the authority
of the commission, subject to appeal to the commission at Wash-
ington.
We have never thought that that plan promised the best results.
We think that the regulation of transportation is essentially one that
requires the application of a uniform policy, and that the determina-
tion of the various questions should be by one body rather than by
several. As was pointed out by the Supreme Court in the Abilene
Cotton Oil-case—I have not the citation to it at the moment—it is
impossible for the reasonableness of rates to be determined by the
various courts, with their differing opinions and necessarily conflict-
ing opinions, and we think that what the Supreme Court there said
in regard to decisions by the courts would apply with equal force
to decisions by numerous commissions. ¢
I have attempted several times to draw in my mind some lines on
the map, forming regions, and I can not conceive of any way in
which regions could be logically established without ignoring or
cutting in two traffic conditions that necessarily continue from one
to the other, or without dividing numerous transportation systems
and putting part in one region and part in another. Illustratively,
the Rock Island system reaches St. Paul, Chicago, Kansas City,
Tucumcari, N. Mex., St. Louis, Omaha, and Denver. It is difficult to
outline a region that would include that system. It is difficult to
outline a region that would have jurisdiction of the transcontinental
rates and the relationship of the transcontinental rates to and from
the terminais with those to the intermountain and intermediate terri-
tories.
One of these plans proposes that all of the administrative work of
the commission, including any powers-that it may have with regard
to consideration of proposed or initiated rates, shall be vested in one
person who shall be a member of the President’s Cabinet in the form
of a secretary of transportation. |
We are not prepared to concede the soundness of that proposal.
We do not see why one mind or one individual should have a better
view or a sounder view of these matters than ‘a tribunal, the mem-
bership of which changes gradually and by degrees. A member of
the President’s Cabinet would be appointed for a term of four years
and he might stay the term out and he might not. We think it most
important that these matters of regulation of our common carriers
shall be kept as completely as possible divorced from any political
considerations or any partisan views.
Another plan in the form of a bill which has not been, so far as I
know, introduced, proposes to establish both the regional commissions
and a bureau of transportation within the commission, which bureau
shall be under the direction of one member of the commission, and
that bureau would take over all of the administrative functions of
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 39
‘the commission; and, incidentally, members of the commission as-
signed to the various regions would be obliged to move approxi-
mately once each year. We do not think those proposals have any
‘more merit there than they have in the other measures.
In some of these measures it is proposed that the commission shall
-be affirmatively charged with the duty of establishing rates which
shall produce a given percentage in each rate district of net earnings
as compared with the book cost or investment cost, as it is called,
of the railroads in that district, in the aggregate.
This would be to put upon the commission the impossible. No
man can figure out a level of rates which for the next year will pro-
duce closely a certain percentage on a given sum of money. It is
a simple matter to say that the revenue of the railroads for the last
year or the average revenue for certain years has been so much,
-and their book cost is so much, and 6 per cent on that would be so
much, and therefore if you increase the rates by such a percentage
you will produce that 6 per cent. Now, so far as the figures on paper
go, that works out all right, but no man can foresee what the move-
ment of traffic is going to be. There is a point in the making of
rates beyond which the traffic will not move at all. There is a point
at which increasing rates begin to reduce the volume of the traffic.
Again, the volume of the traffic from year to year is affected by vari-
ous conditions, over which no one has any control.
The total amount of coal which is transported by a coal-carrying
road. varies from year to year with the demands from manufacturers
and with the severity of the winters. The railroads will consume
as fuel a great deal more coal in a severe winter than in a mild win-
ter. The same is true of all consumers of coal, and therefore you
can not tell just what the tonnage is going to be. No one knows
at what time a crop in a grain-growing section is going to fail, and
it sometimes happens, and has happened within comparatively re-
cent years, that corn or wheat has been transported into sections
that depend mainly upon the production of corn or wheat, because
they had total crop failures. It is a complete change in the current
of that traffic and an entire change in the volume of it. So that when
you undertake to place upon the commission or upon any body of
men the duty of fixing levels of rates that are going to produce
certain percentages on given sums of money, you put them up
against the necessity of making a good deal of a guess.
Again, it is proposed that the commission shall initiate the rates
instead of the rates being initiated by the carriers; in other words, that
the commission shall make all the rates and order the carriers to
establish the rates so prescribed. |
In the first place, I think it is almost a physical impossibility to:
make all the rates for-all the carriers in this country in any one place
or by any one committee or body unless the rate structure is to be
made pretty rigid and inflexible and changes responsive to changes
in traffic and in conditions are going to be infrequent.
It is a regular and almost daily occurrence that new commodities
or new traffic is offered for transportation. A man or a company of
men proposes to establish an industry or a factory somewhere. They
naturally study the questions of the raw material and: its availability,
the availability of fuel, the markets of consumption, and the trans-
“3
40 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. i
portation facilities, and the rates to and from the point of manufa
ture or production. Under present conditions, with the carriers
initiating the rates, they take that matter up with the local repre-
sentatives of the carriers and between them they study these con-
siderations out and propose or establish the rates that will accommo-
date the traffic, and, presumably, that will compensate the carriers
for their services. We think that it is in the interest of both the
railroads and of the shipping public that the initiation of rates shall
remain in the hands of the carriers, and, as proposed in this bill, be
subject to suspension by the commission if they are protested or be- |
lieved to be unreasonable or unduly preferential in their operation. __
In some of these plans it is proposed that the commission shall also |
have responsibility for fixing the wages of the railroad employees. — |
Heretofore the policy of the Government has been expressed in the
arbitration acts under which conciliation, mediation, and arbitration |
are provided for largely, if not entirely, at the Government’s ex-
pense. We have never adopted the national policy of requiring men_
to work against their will. We do not know of any reason why the
commission should be considered better qualified to exercise those
functions of mediation, conciliation, and arbitration than other
officers of the Government to whom those duties may be committed.
But above all that, we think it would be an unsound public policy to
place in one body the duty of regulating the activities of the car-
riers and their rates and charges from which their revenues are de=
rived, and also the fixing of the largest item in the operating ex-
penses of the railroads, to wit, the wages of the employees.
Personally, I believe it would develop in a few years that it would
-be destructive of the influence and standing and opportunity for
good of the entire plan and of the body that administers it.. The ap-
plicants for increased wages would say, “ You can give us these
wages and increase the rates if necessary.”. If that were done, the
tribunal would be accused of playing to popularity among the labor
forces and disregarding the interests of the public. If it were
refused, and a strike occurred, they would say, on the other hand,
that the commission was so niggardly about increasing rates that it
had precipitated all this trouble. I do not mention this because of
any fear on our part of unpopularity. We have enjoyed some of that
as it is; but I speak of it, Mr. Chairman, in all sincerity as my view
of what the future would develop. It would, I think, inevitably re-
sult that the administrative tribunal would be between the differing
opinions of the great mass of the people who would be in one of two
camps, one accusing the commission of playing to favor the pro-
ponents of still higher wages and afraid of the consequence of deny-
ing anything of that kind, and consequently disregarding the inter-
ests of the shippers by increasing rates to make up for increased
wages, and the others taking the opposite view, with the result, as I
have said, that the strength and influence of the tribunal would, in
a few years, be sapped. j
I do not question the advisability or the propriety of the Govern-
ment doing all that it possibly can to adjust disputes affecting or
even regulate, the question of wages of the employees of these car-
riers that are essential to any industrial, commercial, or social life
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4]
i our Nation, within such limits as the Constitution provides and
the Congress may adopt, but I urge that whatever is done in that
ine be placed in the hands of a tribunal that has that question to
eal with and our commission will deal with the questions com-
to it in the light of what is done in a legal way by another
ribunal that considers matters without having always to bear in
ind that if we do this we must do that.
Some of these plans propose that the Government shall guarantee
‘o the carriers certain earnings. These plans are in substance, I
Ppa say, connected with what I have said with regard to charging
he commission with the duty of making rates that will produce
ertain net earnings. Aside from the difficulties that I have sug-
vested, there is this difficulty that, to a certain extent is, I think,
-ared for in some of these plans, and to some extent I have not been
ble to convince myself that it is cared for. The operating income
£ a railroad is what it has left out of its revenues after it has paid
ts operating expenses, its taxes, and some of its debit and credit
tems. The operating income necessarily is affected by the expenses
“hat are incurred. The expenditures incurred by any carrier for
ny of its operating purposes are almost entirely within the control
f that carrier.
Its expenditures for maintenance of its equipment one year vary
reatly from those of the preceding or the succeeding year. The
con is true of maintenance of way and structures, and IT have not
een able to quite see how under a plan of that sort the public
vould be protected against improvident or, perhaps, extravagant ex-
venditures for maintenance, and other expenditures which are legiti-
nate costs, if it should appear that the earnings under the level of
ates of the carrier were going to produce substantially more than
he percentage allotted to it and which it would be permitted to
etain. Of course, it would be to the interest of every carrier to earn
he maximum percentage that it could, and up to that limit there
-vould be protection. But I think that the question is worthy of a
ittle further study as to just how far that protection may be afforded
-n the directions I have indicated.
The fluctuating traffic to which I ane referred would necessarily
ffect the results under which the guaranty would be given. and it
vould, I think, follow that the rates must be sufficiently high to
‘nsure earning ‘the guaranty, or the deficit must, of necessity, be
aade up out of the F “ederal Treasury. I think also that any Govern-
aent guaranty is calculated in some instances to take away the
acentive which ought to exist in the matters of securing traffic and
he handling of it economically and efficiently as well as of operating
conomically the property in general.
In connéction with these statements a great deal has been said,
nd no doubt a great deal will yet be said, as to the reasons for
he necessity asserted for restoring the credit of the carriers. We
.o not with all that is said as to those reasons. In certain
uarters it has been studiously asserted in season and out of season
or a series of years that the credit of the carriers has been destroyed
ry y Megardly regulation and that the commission was responsible
their financial condition. Others, a little more liberal, say that
~
= .
i — [ = u
~ ll : sy “ee
7 . a |
42 | RETURN OF THE RAILROADS TO PRIVATE ow? VERSHIP.
‘ Sor ets a
it is our commission and the State commissions. bined that ar
responsible for it. Those statements are rei by some e
after their attention has been called to the facts which refute th
I do not want to burden this record with any voluminous statist
or figures, but on that subject I have had some figures extract
from the sworn annual reports of the carriers to the commission, a x
I think they ought to be taken as the best evidence. |
The Cuarrman. They may be incorporated in the hearings.
Mr. Cuarx. I will leave this statement with the
(The statement submitted by Commissioner Clark follows, haw i :
been brought down, as far as possible, to include the years 191}
and 1918:)
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
43
(s)
*(queo Jod)
SpuoplArp
SuyAe
SPVOI IOJ
Spuop}Atp
JO oye
OIBIOAV
(s)
aE °SO
G0 29
88°09
CP 09
6E "FO
VI "99
$2 °¥9
G9°L9
TL°99
TO'9
69°99
43°19
F999
PS “39
LP'LS
90°9S
OF SS
LB°19
99 ‘SF
“SpuoprATp
SUTPTOTA
4004S JO
O3BIUIDIET
ome ()
BPO “TES “186
P6P TOS 998
968 ‘GOT ‘GEE
886 SLLb ‘Sze
OPE ‘E99 “Top
OFS ‘210 “698
818 ‘STE {00F
OLE ‘SBT ‘OOF °
OUP TEL ‘SOF
969 ‘TL0 ‘Tee
198 ‘969 ‘068
269 ‘880 ‘808
PL6 °S6L BLE
BSP ‘F96 ‘L8G
GO 'TH6 ‘12e
OLT ‘862 ‘961
OC 'T6E ‘S8T
PSL (CEL ‘OCT
ZL6 ‘269 “6ETS
\ ‘spuopTAIp
jo Junowy
‘OIGRITVAT JON ¢
‘000 ‘OOTS WY) sSsoTJO SonMOAdA SUT e19do Suravy soruvdurod [[eUrs OY} OPNOUT JOU OP 4SO10JUT JOJ SOINZY OYJ PIGL PUP EIB UT z
*SOT}LMOS SUTIPULISINO ATTAN}OV OY} ATWO opNpoUT suvod yUoNbosqus roy osoyy {AUVdUTOD OY} OJ 10 AG POY SOTJTMO0S SUTPULYSINO AT[VUYUIOM OPNOU] 2061 OF YOST SABOA JOJ SOANBT 1
AEA?
OST ‘“FF9 PLP
GZo SEP IkF
PIS “PES “PLP
120 ‘981 ‘FOP
PGB “6L8 ‘GEFs
O9L CSL ‘YEP 4
GGL ‘960 ‘6BF
G98 ‘9GE ‘OTF
990 ‘289 ‘668
TOT ‘S29 "G8
GLE ‘96S ‘898
LLY ‘GPG ‘PPS
P86 ‘O99 "Gok
ZO8 ‘189 ‘OTS
BEL ‘429 ‘L6G
FGI ‘856 “E86
G98 ‘TGP “PLZ
8E8 ‘P60 ‘29%
ITY “616 “BERS
“qQep pepuny
WO 4S0109UT
jo gunoury
cay leari
Og¢ “962 ‘200 ‘6
LIG &0v SSL 8
689 ‘9OT hL ‘8
898 ‘618 ‘G89 ‘8
BPG ‘GTS (E918
FSB °266 “669 ‘8
O13 ‘LVF ‘CSS ‘8
std 0
96G TTP G19 ‘2
£26 (682 {008
169 ‘T98 ‘998 “2
860 ‘092 ‘£08 £9
TSO (296 "Pa 19
6ZE (668 ‘GEE 19
B&O (699 ‘GGT “9
rene
» & ‘ nh
86 “62g ‘Gh8 “GS
1 Surpueysyno
yo0}s JO WuUNOUTY
(p)
PF SGPT “TOL {01
G99 “906 ‘G28 “OT
ECP ‘980 ‘886 ‘OT
O19 PLS “P80 ‘TL
6&9 ‘898 ‘OFL ‘OT
GUL SPS ‘Sab ‘OT
006 ‘868 ‘98h ‘OT
190 'SbS “PL0 ‘OT
198 ‘969 ‘894 °6
PLL S6TT ‘O88 ‘6
912 ‘66 ‘268 °8
G66 V8 \SZL ‘8
G8E ‘199 (992 (2
020 ‘TOL S096 °2
OGE ‘G8 (S18 ‘9
966 ‘18h ‘VbY “9
699 ‘186 ‘GOT (9
L88 ‘O89 ‘188 °¢
LOE ‘GG ‘Gb9 “Gs
14qo9p popuny
jo junoury
098 ‘61
918 ‘LT
vO8 ‘VE
E98 ‘LE
£6 ‘08
809 ‘8T
983 ‘OT
G8L ‘6
£69 'F
196 ‘G
tr
926 ‘8
126 €
962,
868 'T
SST I
GLb iT
LOY‘
SLL “b
*poywr0do
Ae)
166 ‘VI
0ZZ 8%
904 ‘08
PES ‘8%
Opt (gt
GE “ST
198 ''8
¥98 'b
GOL 'Y
ZT ‘6
806 ‘8
OIG ‘f
£hG‘E
CLL
620 ‘T
O28
GOL 'T
620 °%
Ob9 ‘Ss
*poumMO
"spuely ,S1oATOOOI
UT PBOl JO SOTTW
As)
929 ‘E92
LE0 09%
192 ‘p96
68L ‘E92
GOL ‘29%
LLL‘6VG
BLL ‘OVE
62 0FE
HEB ‘9kZ
89F ‘882
196 ‘622
£98 ‘HZ
amis
TOT ‘81@
Bil
ZLP ‘OS
‘
L8G ‘161
OPE ‘S6T
"SoqRIg
poyruy),
UT pouMo
pvod Jo
SOTTAL
—popuo v0 x
nama mai aur or ‘nner
ee ee ee ee ar
["LO6T 10978 popnyoxo soTUBduod [LUTUIIO) PUL FUTYOIIMG © “WOTSSTUIUTOD OOLOMITMOD 0989S104UT OY} 07 OpeUE sy10dor [enUUE WHOI porTdu10))
‘SIGI ‘IS ‘v0q
‘ne ane nanna anak ‘same nanun a ua spp0s UNAS 02 buUnrwIe. DIDD 42110 DUD ‘amoour ‘uouvzvi0ndm ‘abvonu fo TUuAWaIMS
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
44
i *OIQBTEAG JON »
“A[Uo storeiedo [e19peg 0} OYBIoI S9INSy osotpT, ‘OFS ‘BCT ‘6IZg ‘oULOOT SUT e100 ‘g60‘zCg‘gRTS ‘sox ‘792 ‘F68 ‘G00 ‘FF ‘SoSUOdxX9 SuTyLIEdO ‘F09 6IE‘E16 ‘FF ‘SONWOAII.
Bur} e10d¢ :0}0[dUI0d BULOq JOU S9TUBAULOD IOSSY] PUB [TT SSVI PUB TT SSVI IO} BIVp ‘SMOTIOJ SB 01V SOTUVCUIOD [VUTULIO] PUB SUIYOJIMS J SSVI PUL SOTURAMHIOD J SSRI 10} SOINSTY ¢
‘og “d ‘(g16T) Jodoy [enuuy puodes
-AWITL 94} Wow ore samsy yuonbesqng ‘ged ‘(ZT6T) ssomstOD 0} Jaodoy [VNUUY 4SIQ-AJITY, S,WOISSTUIUIOD VdIOUTUIOD 3184SIOJUT UII] WOYe4 O61 0% OONGT SIVA OJ sonst z
“000 OOT$ TBYY
SSO] sO SONMIAII FUT}VIIdO YITM SOTURAULOD [[VUIS OPNJOXO FIGT OF TIGT SIVIA IOJ SAIMSTY “WOTLLOYISSBIO OoYS oULTeq MOU BO} ONP WARd UISTOI6T UL sn[dms UT ssvoIOUT 9S1VI OYLL, 1
(¥) ey ABO op oe cn Cn) AG. - a ay ERE So Se eet ae eee CE
Te "¢ G28 (62 FL9 81 | 26 '8E9‘8Z9'S |: TST ‘618 '986 » OLF ‘£09 "TZ GOtG8G Oem es 1 UNO Eten dy be Mee en) eat eo oe a eee eon
L1°9 899°9LL'CF8°LT | OTL “SOL "6ST'S =| BUH ‘GFS‘OOTT BES ‘OSH “E9T TS “08% “9zF'% | LTB “290 ‘T69'E AI ne sMhuwentee ik ved eae ne ee ene Cree
06 °¢ SEF ‘SEF ‘689'LT | TET “6TO!SE6‘T —| 062 “LTO ‘E40 ‘T TFS ‘66S ‘TST BEC. 200. Ligeti. TPG Rate cel Gh gists te ee aan eee eee oe
LI't Z8E OG THE LT =| OLT 182999 T TOT (969 (202 LOT ‘863 ‘68T 0G ES0 880: Geo |-CO2 BLO Bor io nie ese cae. Seer Rae cae
aL'F 899 SSL EST AT | TIL 969849 T 68¥ E88 “SOL GL ‘TES “OFT O8F SOP 6LC 2.47) PEG Der ORL Bet asta 8 TR Bo ee te a ee
10 °¢ GOT '€09 889 9T | STE OZE LOL °T BBS FE TES 096 ‘TES ‘221 LOG. ELS Obigie yb OLE Bey BOG Coins liy ceo tet c ae a ooo aeee E
69+ 996 ‘FFL FOO 9T | FEO ZEO LESS 'T 908 ‘99% ‘TCL FES “160 “OST O26 100 S80 bots POUR Sie One 6? sie cee ak i eee en cee EDS
26 F CFB BLE Z19 ST | SST 166 TFS 'T CFE ‘ETS ‘89L BIS “608 ‘SOT P98 ‘TES °926 ‘T TOE TRB tae. doom ars. = an cae cps Pern a ee
89°¢ 660'918 £99 FL | 6GL°L01 TLE 'T OGL ‘99F ‘928 TOL £662 ‘€0T STI “68 ‘188 ‘T SIS TEIUS Os lament eae at ty eae oe ee
88 °¢ CTS "E81 609 ET | £26 'ZF9 1008 £80 ‘ZF9 ‘CEL P10 “62S £06 $08 ‘F£0 ‘069 “T TOG FUG Oh AG". low nent oS ee eee e gayest ae
68 'F Org 992 81 El | LES FOS SPL CES ‘089 ‘S49 OFT ‘ocs “78 T6L ‘TOF ‘OTL ‘T CES SEUCOEP O° shee ae ick a a cee) ets 5
19°¢ 8ZE ‘FFE (080 "ST | - THO '9€8 “6FL 688122 O9L GLE ‘ZTE ‘08 P18 (STS ‘SPL ‘T BLSIOOT: 689 Soe oe te ae gic pace a Or aon Tee ae
89"¢ 886182 0ZF ZT | BIE T6E '9E9 18% ‘ZOT FIL G19 "S82 "FL TLG ‘218 (98S 1 LOT GOL GCE & tikes weet iets ee oe eae Oe
Or ’¢ 6F6 ‘SFE TS6'IT | T9O'LTS “F6S | S29 (SOF (829 619 "FLY ‘9 ZST 209 ‘068 “T G07 cer ene C © eae ee eat So ae re eee Qa aE
£3 'F TL ‘Lec ‘TTS “TT | 6&9 '8LF “TSG | PSP ‘189 PLS PLE “969 ‘19 ESS ‘968 (SEE ‘T 160: 7a-Gi8 D. Svar di tegen a pee on nce te ie
61'S £06 'F0S $16 01 | SEF LE8 Zo | 98 ‘SF ‘Cgc 699 “648 °L¢ GSB SES LSS 'T 206" OFS“ 006 (18: Se aba ed ce one ee ee eat ee oo
Z0°¢ OLE TZE 899 OL | £82 S16 'SeF | £80 ‘999 "cas LEP ‘SOP (FS LPL ‘84S “OTT 'T 29% ORE 9ZL°T © 25°75 cers St Sap eee RR ama ers set pen 7
69 'F G80 960 SOF OL | 162 TEL (Zoe | $68 ‘FST °L0¢ BLE ‘FF6 (0S 026 £26 “080 ‘T LEQ OCR BRE 1. ota sg ne Sk er ee 6
oot OOF “SIE "E9S "OTS | ZLE"6ZH‘TLZS —|: O80 “F8Z“LLFS ELS ‘CEE ‘SHS ITS ‘8Gr ‘T96$ PER IPAO LY TS er ee ea ee eee
—0¢E ouns
g'Aq10 |
-doid jo
3809 YOod uiodosd “Teoh : aeaatraie
z A1ltodol avo Jo OULOOUT Sena sesuedxo sonueAdl - ,
ee rdte jo 1Ss00 yoo asojo 4B snjtding surye10d9Q pat NE Ssurye1sedgQ sume10dgQ Reps sue x.
ABMIIVI |
JO JU90 10g |
*ponulju0j—9g76I ‘TS -9aq
papua woah ay} 07 ‘O06T ‘OF aun papua sah ‘saqzDz,) ponuUyQ ay, Ur SpvoL WIAs 07 Huryn)2a1 DIDp 1ayjZ0 pun ‘awoour ‘uoynzynjLd v9 ‘abvajrvum fo 7UaUaqNIY
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 45
Mr. Crarx. Mr. Chairman, I just want to comment on one or two
features of it. This statement shows, by years, from 1900 to and
neluding 1916, the mileage of the roads, the amount of their funded
lebt—I am speaking of the roads in the aggregate—the amount of
their outstanding stock, the amount of the interest on their funded
Jebt, the amount of dividends paid, the percentage of stock that
yielded dividends, if any, and the average rate of dividends paid
zach year for the roads that did pay dividends. It shows the
yperating revenues, the operating expenses, the taxes, the operating
meome, the surplus at the close of the year, the book cost of the
property, which means the figures on the carrier’s books purporting
to represent the cost of the property, and the percentage which the
railway operating income is or was of the book cost of the property.
Prior to August 28. 1906, the Interstate Commerce Commission
had no power to fix any rate. Therefore prior to that time it could
aot be said to be responsible for any rate or any level of rates.
The Cuatrman. Did any of the State commissions at that time
aave that power ?
Mr. Crarxk. They did; yes, sir.
Mr. Barxiry. What is that date?
Mr. Crark. August 28, 1906, when the Hepburn Act became effec-
tive, the commission for the first time had authority to fix a rate.
The year ended June 30, 1907, therefore, was the first fiscal year in
which the commission’s power could possibly have affected the earn-
ings. In that year the carriers paid in dividends—I will read in
round figures—$308,000,000; 67.27 per cent of the stock of the rail-
roads yielded dividends, and the average dividend was 6.23 per cent.
In 1908 they averaged in dividends $390,600,000 on 65.69 per cent
of the outstanding stock, at an average rate of 8.07 per cent. I will
not read all of these figures. In the year 1912 the average rate was
7.17 per cent; the next year, 6.37 per cent; the next year, 7.97 per
cent; the next year, 6.29 per cent; and in 1916, 6.48 per cent. You
will note, if you go over these figures, a marked falling off in the
amount of dividends paid in 1912 as compared with 1911, the sum
being reduced by $60,000,000. That is in part at least accounted for
by the fact that in 1911 the Oregon Short Line Railroad Co. de-
slared a dividend of 68.68 per cent on $100,000,000 of stock and in
1912 the same stock paid 10 per cent; the Houston & Texas Central
Railroad Co. in 1911 declared a 20 per cent dividend on $10,000,000
and in 1912 nothing; the Chicago, Milwaukee & Puget Sound Rail-
way Co. in 1911 declared a dividend of 5 per cent on $100,000,000
and nothing in 1912. A similar decline in 1915 as compared with
‘1914 is explained in part by the fact that during the year 1914 the
Union Pacific Railroad Co. paid extra dividends amounting to some-
shing over $74,000.000, in round figures.
~ Mr. Coapy. All cash dividends?
Mr. Crarx. I understand they were. The dividend of the Union
Pacific Railroad Co. in 1914, which I have just referred to, was, as
‘L understand it, disbursed in part in cash, but it was mainly a distri-
oution of the Baltimore.& Ohio stock which the Union Pacific Rail-
oad Co. had held. |
- During this period from 1900 to 1916 the number of miles of road
‘covered by this statement increased about 61,000 miles. ‘The oper-
ating income, which was $477,000,000 in 1900, was $714,000,000 in
|
:
.
46 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
1906, and it was more than that last figure in every year, exceptin
1908, to and including 1916, in which it was over $1,000,000,000.
The percentage of railway operating income to the book cost of
the property was 4.52 per cent in 1900; it was 5.58 in 1906; it was.
5.68 per cent in 1910; it fluctuated between 4.12 per cent in 1914 and
5.68 per cent in 1910; and reached the highest point in 1916, when
it was 5.90 per cent. It fluctuated between those figures for the sev-
eral years. } |
There has been a great deal said about the number of miles of road
that were in the hands of receivers. A statement of the mileage so
operated by receivers shows that it increased markedly from 1911 to
1916, and that for the year ended June 30, 1916, there were 37,353
miles being operated by receivers, but when we look at the year ended
December 31, 1917—I point out that the fiscal year was changed at
that time from the year ending June 30 to the calendar year, and
that is why the figures for 1917.are for the period ending December
31 instead of June 30—the 37,353 miles that were under receivership
in 1916 had been reduced to 17,376 miles, or more than 50 per cent.
It is not at all fair to say that the progressive increase in the mileage
of railroad in the hands of receivers was in any sense the result of
rate levels or of regulation. It was not rate levels, and it was not
regulation that put the Rock Island into receivers’ hands. The same
is true. of the Frisco and of the Missouri Pacific and of the Rio
Grande and the Western Pacific and of the Wabash-Pittsburgh Ter-
minal and the other properties that went with it in that deal—the
Pere Marquette and the Cincinnati, Hamilton & Dayton, or the Mis-
souril, Kansas & Texas—while I do not put the latter in quite the
same class with the others. The history of the receiverships that I
have named, excepting that of the M., K. & T., has been made public,
and I assert, without any fear of successful contradiction by one who
wants to tell the truth, that rate levels and regulation had nothing
whatever to do with those receiverships.
As a result of the European war and of our participation therein
we had very abnormal conditions. They have had to be met in the
most adequate way that could be devised and upon which hands
could be laid, because during those times the necessity of doing that
which ought to be done was of paramount interest. Among the steps
taken, and, I think, wisely taken, by the Government was the taking
over for Federal control of the transportation systems. One reason
for the necessity of that move was the fact that the laws operated to
prevent the carriers from doing many of the things which could be
done and which were done under Federal control. In doing that
the Government has assumed obligations which aggregate large sums
of money. Conditions-have substantially changed, and the operating
costs have been: greatly increased. Charges for transportation have
largely increased, and yet we see from month to month a deficit from
the operations. I have believed all the time, and still believe, that
necessarily and properly the Government must assume, pay, and
write off as war cost a large sum of money to square this war move.
Tt is obvious, it seems to me, that if the roads are turned back to
private ownership they must be able to increase the operating income
as compared with what it is now either through a largely increased
volume of business or through economies of operation, and by that
I do not mean reduction of wages, because, I think, nobody suggests
~
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7 47
hat as a desirable or even possible move, or they must be faced with
m operating deficit. One reason for taking over the railroads—at
east one consideration moving toward that action—was the question
of finance and a desire to obviate a situation in which the railroads
vould be attempting large financing in competition with the Federal
zovernment, which was borrowing large sums of money on bonds.
Phe railroads necessarily are in the market for borrowing almost all
he time, either for refunding purposes or for new capital. It was
nost desirable when the Government was in the market for all the
noney that could be raised that there should not be the competition
xf borrowing by the railroads at necessarily higher and more at-
ractive rates of interest.
_ Just what is to be done in this transition period of reconstruction
ind reorganization from the war conditions is a serious and difficult
yroblem. I am not a financier, and I do not know, even to my own
satisfaction, just what I think ought to be done. I think that efficient
und sufficient transportation agencies are essential and that our Goy-
rnment must see that they are provided either by private initiative
ind control or by the Government itself, because without transpor-
ation our country could not flourish, it could not prosper, and I
loubt if it could long exist as a free nation.
Therefore, taking all of these matters into consideration, I have 2.
jew, which I do not present in any concrete form, that there is
recessity for the Government lending some aid: if in no other way,
vy loaning necessary amounts properly secured for future payment at
sates of interest which could not be secured by the railroads in the
ypen market.
Mr. Dewatr. It was stated quite lately before the committee that
nost of the roads, if not all of them, were now in debt to the Gov-
rmnment instead of the Government being in debt to the railroad com-
yanies. Have you any knowledge on that subject?
Mr. Cuarx. No; I have no information on that subject, and I
ave seen no figures upon which I could make any statement. I do
inderstand that the administration has advanced large sums of |
noney for expenses and improvements and equipment, etc., to vari-
mus of the roads, ultimately to be at the expense of the carrier,
mit I understand that it is not the plan of the Government and not
he intent under the contracts between the director general, repre-
enting the President, and the carriers, in pursuance of the terms
f the Federal control act, that those sums shall be deducted from
he average annual railway operating-income fixed by the Federal
control act as the maximum return to be paid to the carriers for the
ise of their properties. In other words, I think that those items to
vhich you refer are in the same class with those which might be
ater included along the same-line I have suggested of Government
oans to the railroads, properly secured and payable after the re-
onstruction or reorganization period has passed. The question of
ow this problem shall be met is one of the broadest public policy.
That policy might be to make the transportation systems as a
vhole self-supporting; that is, to make the charges for transporta-
jon support the transportation systems, including a reasonable
‘eturn upon the value of the property devoted to-the public use.
[he public policy might be to operate them on a level of charges
48 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
that did not make them self-supporting and pay the deficit
the United States Treasury.
It seems to me evident that if these carriers are returned to private
ownership and control without some declaration or action by
Congress as to the rate situations, it will inevitably follow that the
intrastate rates which have been increased by the director general
would automatically go back to the State rates wherever they a
prescribed by State statutes, and probably to those formerly pre-
scribed by the State commissions.
The chief counsel of the commission, after looking into this ques-
tion, expressed the opinion that after Federal control over trans-
portation has ended, jurisdiction over intrastate rates will be where
it was before Federal control began, namely, in the State authorities.
It was so held by the circuit court for the county of Baker in the
State of Oregon in a case before that court affecting a railroad which
had been taken under Federal control and subsequently released.
The general and guiding principle which we think should control
jn the consideration of this question by anybody was expressed in
our annual report submitted to the Congress in Decne a
in which we said:
Whatever line of policy is determined upon——
Mr. Dewatr. Mr. Clark, what page are you reading from?
Mr. Crarx. The annual report of the commission submitted to the
Congress in December, 1918. |
Mr. Dewar. What page? |
Mr. Crark. Page 2, the last complete paragraph on that page: |
Whatever line of policy is determined upon, the fundamental aim or purpose
should be to secure transportation systems that will be adequate for the
Nation’s needs even in time of national stress or peril, and that will furnish
to the public safe, adequate, and efficient transportation at the lowest cost
consistent with that service. .
Now, Mr. Chairman, if it is your pleasure, I will undertake to
point out, as you requested yesterday, the connection between the
points referred-to in our annual report and those covered by the
bill H. R. 4378
The CrarrMan. There is one question which has occurred to Col.
Winslow in regard to your financial statement, and he would like to
put the interrogatory before you proceed with your statement.
Mr. Wrinstow.-I would like to ask you, Mr. Commissioner, if you
can make a comparison for any prewar period of the percentage ot
net earnings applicable to dividends as contrasted with the divi
eee paid from such earnings and exclusive of special distributions
ot assets. |
Mr. Crarx. Yes; we can make those figures if the commi
would care to have them.
Mr. Wrystow. Will you be kind enough to put those figures
the record?
Mr. Crarx. I will; yes, sir.
Mr. Wixsiow. And further, will it be easy for you to make a
regation of the earnings of non-dividend-paying roads?
Mr. CrarK. Yes; that can be done.
Mr. Wrnstow. And follow that with the percentage of the ave
age earnings of the dividend-paying roads exclusive of the di
tribution of assets. ; ;
_ Mr. Crarx. Yes, sir.
Rate (per
Name of road. cent).
-labama & Vicksburg Ry. Co.:
PemIeOUIMON =... ..-=------- 50
1903, common........ peso 3
ROMAIN 2... 2 ee 100
Jabama Great Southern R. R.
1 1916, Lo 3
1916, “i a 1
1917, common...............- 2
Belg, premerred................ 1
Tbany "& Susquehanna R. R. 30
Co., 1909 common.
“ tlantic Coast Line R. R. Co., 20
1905, common
elt R. R. & Stock Yards Co.:
Serr COMING toy sha... - ee - 50
1 1916, PORN sh 5
vuffalo ’ & Susquehanna R. R. 2
Corporation, 1917, common.
entral R. R. Co. of New Jersey:
Day COMMON. 2. 2.----+--- 2
1910, CeO oo 5-2 52-2... 4
Rube cormuons...- 2.2 -2...... 4
ple COMMON. 2. 2: -.--<’----- 4
PleRCOIMINDN. -. 52. .-c.5.---- 4
Byte COMMON O22 5-.....-.-.- 4
Peers, Common. 2... 5... 4
eG ycotmmon. s. .2. 2 2...-. 4
hi 1917, sor ee al fe cee 4
cago, Burlington uinc
R.R.Co.: ° 4
UCU erin 6
1917) | a 10
incinnati on Orleans & Texas
Pacific Ry.
1911, foe 2. Gee, eae 2.5
1912) Sith 5
JUV EU) 5
PTA COMMON =... .2.--.-.-- 5
LOC (Ta: 5
JU So 6
1 1917, VN sos ee 7
t delaware, oe & West-
ern R. R. Co.:
1904, a 10
1905, CLS: ae 10
1906. Ci 10
UUW) 10
1908, Se 10
wo i 60
Bee COMMON 2.22... 5.-. 15
B10, Common. .-............. 10
Sort Common... ............. 10
fee Common: ...,.....5.... 35
meee, COMMON. ............... 10
aerepComInon. 2... .22.....-. 10
aeeseomnon.—.............. 10
1915, CO 10
1916, JIC a 10
1917, ememinar ae Se eS. 10
rele Worth & Denver City Ry.
a913, Stamped ..........5-.... 2
1914; ee 2
isburg, Benin. Mount
Joy & Lancaster R. R. Co.:
1906, Common................ 5
i907, Common: ...........-... 5
Bere Common ....../....... 5
Peeeamimmon = ....-....... 5
focking Valley Ry. Co., 1913,
i a rai 4.5
152894—19—vor. 1_—4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Amount.
1, 050, 000
234, 900
33, 804
156, C00
33, 804
1, 050, 000
7,330, 000
500, 000
100, 000
60, 000
6, 650, 346
494, 978
49
(The statement submitted by Mr. Clark is as follows: )
‘tatement showing extra dividends paid by steam roads, 1900 to 1917, inclusive.
[Furnished at request of Mr. Winslow by Edgar E. Clark.]
Total. Remarks,
ot A Gee Ja Stock dividend.
“$1, 431, 500 Do.
eae 459, 108
1, 050, 000
7,330, 000 Do.
Be tary eee Do.
600, 000
60, 000
Re ae et ho bag eM }
"9,328 472
"19,951, 038.
"1,057, 200
He RRR amr
_..2..22......| Stock dividend payable in stock
of the Lackawanna R. R. Co.
of New Jersey.
“" "72° 640, 530°
ear 100,352
$i 3 23, 652
494,978
50
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Statement showing extra dividends paid by steam roads, 1900 to 1917, inclusive—
Continued.
Name of road. beni Amount. Total.
Illinois Central R. R. Co.:
1905;;COMMGileeteree sense oes 1 $950,400 | Sones eorees
1906-comMMON es. oo oe 5 475,200 4 302 eee eee
1917, Conimolse. ee saee eee 1 1,092, 960 $2,518, 560
Kanawha & Michigan Ry. Co.,
1OIS COmMON=5 se. ves ee eee 1 90, 000 99, 000
Lake Shore & Michigan Southern
Ry. Co., 1908, common and
CUarAn eed iat. oe hes ce eee cen 2 999, 922 999, 922
Lehigh & Hudson River Ry. Co., 6 80, 400 80, 400
1916, common.
Lebigh Valley Ry. Co.:
1907 COMMON Se aenie = eee 2 SOGs (05sec oie, oats ee
1G0S;-COMUMION sages. ese ae eee 2 S06;691- At Peewee
LONG COMMON E eres sae 2 S06, OSLat* = soe ee
1912, common and preferred. .; 10 6, 060, 800 8, 480, 975
Louisville & Nashville R. R.Co., 1 600, 000 600, 000
1908, common.
Mahoning Coal R. R. Co.:
1910 “Commoner tc toe 50 750: OO0RT SS Geo
LOPL COMMON Miessee. oat eer. 50 100; 000") = 2 aac eeeeee
19535 COMINON woes oaeeeeeee 50 LOO S000s| sek. eee
19TA COMMON. hist oe oan 40 GOOKO008 | Ss 32 sone sees
195s COM MOM Zea Pees eo oe 30 450,000: |). 2d ee cae
1OR6; COMMONS ese eaeaes cee 30 450; OOOM| Sars ose-aeee
TOI COMMON Rae ees eee 30 450, 000 4, 200, 000
Michigan Central R. R. Co.:
1908, COMMON scenes. 4. 2 SAAS TGOS) 6 <5 ss seeeees
VOLS FCO OU Se one ela eraesc- 1 187, 364 062, 124
Nashua & Lowell R. R. Co.:
TO0G COMINON See joss 25 4 OQON) feast = be trates
1907;-COMMONS So. ete oes .5 4; Q005| Sa sou 8. eee
OOS COMMNION A et eee a ms) NOOO Rats aise eee
TOO MCOMMMOM es eee ease ae .5 4, 000 16,000
New York, Vhiladelphia & Nor-
folk R. R. Co.:
1904 COMIAINON sere a terete ee 2 AQ 0000s -8.roeee ae ee
1905 ;COMIMOL 22 outa see eae 2 40, 000 80, 000
Norfolk Southern R.R.Co., 1901, 1 20, 000 20, 000
common.
Noriolk & Western Ry. Co.:
LOUG COMING IY Season ye ae 1 L170,5804: oa: Some oes
LDLCOIMMOINS ae eee. Siok ae if 1,192, 524 2,362, 828
Northern Ceniral Ry. Co.:
1907;°COmnOn See eee LQ a2 AO Goe| Sas eee ee ae
1914, coma ones. enact eee 40 Tg lod nO) sls Ac cee. eee
1014 .COMMIOH eae eee 2 ee tae oe 10 1, 934, 250 11, 820, 419
Pittsburgh & Lake Erie R.R.Co.:
1910; COMMONesser ees + ees 40 6000; 000"). 2 te 522 eee
TOLL ec OM ONeeeeena eer ee 25 D200, WOO - oe acta erator
LOL2 SCOMIn OM. semen me te 12 3; 024,000 sec. 2 aee eee
LOLS COMMLOM 2 cree cee eee 5 1 ADO. 400 Serna 2 cea ets
1916-cOm mon. eee ee 20 .| 5,997, 600 21, 771, 000
Pittsburgh, Fort Wayne & Chi- 2 394, 286 394, 286
cago Ry. Co., 1902, common.
Richmond, Fredericksburg &
Potomac R. R. Co.:
1907, common, guaranteed, 25 A ZagAZOr| He aa cee teen
dividend obligations.
1916, common, guaranteed, 50 1, 805, 800 2, 528, 125
dividend obligations.
Southern Railway Co., 1914, 2 1, 200, 000 1, 200, 000
common.
Union Pacific R. R. Co.:
LO 14 COMMONS. 3 a. so ceesioae 3 6, CO825024| 3 ae oceans
1914, Commons Pee sae 30.37) 167,30 S00 es aoe e seme
POT COMELOD see cette 2 4,445, 832 78, 466, 204
Grand:total se s3) ee i eee eee eee 250, 717, 673
e
Remarks. .
Stock dividend payable in shares
of Louisville Property Co.
Stock dividend.
Do.
Payable in scrip.
Stock dividend payable in com-
mon and preferred stock of the
Baltimore & Ohio R. R. Co.
In making this compilation a list of extra dividends was first made from the Financial Review published
by the William B. Dana Co. and then each case was checked against the annual reports of the carriers
to the Interstate Commerce Commission. Hence, the list may not be absolutely complete.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 51
* Mr. Dewar. Mr. Commissioner, you have stated, I think, that it
-ould be advisable—if I misquote you, please correct me—for a large
‘art of this expense to be charged off as a war cost and be paid by
xe Government. Am I quoting you correctly?
~ Mr. CuarK. Yes, sir.
Mr. Dewatr. Has your commission ascertained what that charge-
ff would be in round figures? ,
- Mr. Crarx. No; we do not have any complete figures for the ex-
enses of the United States Railroad Administration.
Mr. Dewar. I suppose, Mr. Clark, that could be more easily as-
artained by the Railroad Administration itself.
Mr. Crarx. Yes; the Railroad Administration gives out figures as
.) the results of operation and other statistical statements which are
ery interesting; but the question of how much should be charged
ff by the Government as a war cost would necessarily depend upon
1e period at which the Government lays aside the responsibility for
heir operation, and would depend upon what is done between now
nd the end of Federal control. At the preseut time there is a
aonthly recurring deficit.
_ Mr. Barxuey. Will you permit a question there? Is it possible to
-onsider any part of this deficit as. anything other than a war cost
-f any portion of it is to be charged off as such?
Mr. Crarx. I do not see how it can be.
Mr. Dewatur. Then, practically speaking, the whole deficit will
© a war Cost.
_ Mr. Crarx. I think so. The Government has taken these roads
-ver under the President’s proclamation followed by the enactment
-£ the Federal control act, in which the President was authorized
9 contract with these carriers for the use of their properties at a
‘laximum compensation of the average of their annual railway op-
rating income for the three-year period stated in the act. Con-
-cacts based on that have been made with a good many carriers that
-re under Federal control; negotiations are pending as to others,
nd some have not been made; but the Government has, I think,
ommitted itself to the proposition that it will pay substantially that
-am for the use of these properties. It has taken upon itself the
_peration of the properties. It has taken full responsibility for the
-1come as well as for the expenditure, and the latter has grown more
-apidly than the former with the result that the deficit is one which
rows out of both income and expenditures which the Government
as-fixed and which the Government completely controls.
_ Mr. Monrtacue. Mr. Commissioner, do you think there will be
“tese recurring deficits when the roads come again under private op-
ration upon the existing rates?
- Mr. Crark. I can only give you my best judgment as I have
1ought this matter out. I can not see how there is any hope that
-affic will increase in volume sufficiently to overcome the deficit. I
ssume that there will be no serious attempt to effect it by reducing
ie Wages which have been fixed by the Government.
Mr. Monracur. Are there any other substantial economies that
yuld be effected that would be a factor in the problem ?
Mr. Crarx. I think there are economies that are substantial in
ieir character and good in their nature and effect, but they would
52 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
fall far short of meeting any such deficit as now confronts the opera-
tion of these properties.
Mr. Monracur. Could there be any substantial reduction in the
number of employees?
Mr. Cuarx. I do not know. I do not think there could be a suffi-
cient reduction to effect the large sum materially because the new
terms of employment which have been fixed by the Government
necessarily operate to require more employees for the same quantity
of work.
Mr. Monracur. Therefore, inevitably, a raising of rates is con-
templated ¢ |
Mr. Cuarx. The probability of that, or as some put it, the inevita-
bility of that has been said by many, even of the representatives of
the shippers to confront us. They say it is bound to come. A few
days ago a representative of shippers from the far West, testifying
before the Senate committee, said, “ We are up against another in-
crease of rates and we know it.”
Mr. Montacur. We have already had a very heavy increase of
rates under the railway administration, have we not?
Mr. Crark. Yes.
Mr. Montacur. Much more than the roads asked for some while
back.
Mr. Crark. Yes; more of an increase at one time than the roads
ever asked for.
Mr. Montacur. And yet we have an accumulating deficit all the
time.
Mr. Crark. Yes, sir. |
The CuarrmMan. You may now proceed, Mr. Commissioner.
Mr. Crarx. In comparing this bill, Mr. Chairman, with the com-
mission’s annual report submitted in December, 1918, I wish to refer
to two paragraphs of that report which for ready reference, not being
long, it might be well to read into the record. The first is on page 2
of the report and reads: : |
Whatever line of policy is determined upon the fundamental aim or purpose
should be to secure transportation systems that will be adequate for the Nation’s
needs even in time of national stress or peril and that will furnish to the public
safe, adequate, and efficient transportation at the lowest cost consistent with
that service. To this end there should be provision for (1) the prompt merger
without friction of all the carriers’ lines, facilities, and organizations into a
continental and unified system in time of stress or emergency; (2) merger
within proper limits of the carriers’ lines and facilities in such part and to such
extent as may be necessary in the general public interest to meet the reasonable
demands of our domestic and foreign commerce; (8) limitation of railway con-
struction to the necessities and convenience of the Government and of the public
and assuring construction to the point of these limitations; and (4) develop-
ment and encouragement of inland waterways and coordination of rail and
water transportation systems.
I shall refer to this paragraph as paragraph (a).
The next is the first complete paragraph on page 3 and reads as
follows:
If the policy of private ownership and operation under regulation is con-
tinued, the following subjects will require legislative consideration: (1) Re
vision of limitations upon united or cooperative activities among common car-
riers by rail or by water; (2) emancipation of railway operation from financial
dictation; (8) regulation of issues of securities; (4) establishment of a rela-
tionship between Federal and State authority which will eliminate the twilight
zone of jurisdiction and under which a harmonious rate structure and adequate
oh oni OF THE RAILROADS TO PRIVATE OWNERSHIP. 53
ervice ean be secured, State and interstate; (5) restrictions governing the
reatment of competitive as compared with noncompetitive traffic; (6) the
jost efficient utilization of equipment and provision for distributing the burden
f furnishing equipment on an equitable basis among the respective carriers;
7) a more liberal use of terminal facilities in the interest of free movement of
ommerce; and (8) limitations within which common-carrier facilities and
ervices may be furnished by shippers or receivers of freight.
I shall refer to this paragraph as paragraph (c¢).
The first principle, referred to as 1 in paragraph (a), 1s that
here should be provision for “the prompt merger, without friction,
# all the carriers’ lines, facilities, and organizations into a con-
inental and unified sy stem in time of stress or emergency.”
We think that this is provided for on page 6, beginning with line
using the committee print, that being the expansion of the term
ear service,” and of the powers and duties of the commission
hereunder. We think it is again carried out in principle on page
4, in line 3, which refers to “the powers conferred upon the com-
aission in section 3 to require coordination of facilities when that
3 necessary.
The second proposition in paragraph (a) is, “merger within
moper limits of the carriers’ lines and facilities in such part and
o such extent as may be necessary in the general public interest to
aeet the reasonable demands of our domestic and foreign com-
yerce.’
This is ee oeced to by provisions in this act on page 6, begin-
ing in line 4, with reference to car service; on page 8 beginning i in
ine, referring to authority conferred upon the commission to re-
uire joint or common use ‘of terminals, etc.; and on page 13, begin-
ing in line 3, where the provision relaxing the present provisions
f law against pooling and combinations begins; on page 25, in line
, referring to the commission’s authority under section 3; and the
sTOVision, beginning j in line 11, authorizing the commission in times
f shortage or emergency to establish such through rates as may be
1. the interest of the public.
The third proposition in paragraph (a) is “ limitation of railway
onstruction to the necessities and convenience of the Government
nd of the pubhe, and assuring construction to the point of these
“mitations.”
- Thisis provided for on page 9, beginning in line 4, a new provision,
thich prohibits the constr uction or the abandonment of lines of rail-
oad except upon authority of the regulating tribunal. On page 11,
‘ne 11, there is authority for the commission to require a carrier
€ extend its line or lines, thus insuring construction to the point of
ese limitations.
The fourth principle in paragraph (a) is, “development and
acouragement of inland waterways and coordination of rail and
: ater transportation systems.”
This is covered in various portions of this bill:
| On page 2, line 1, bringing transportation by water under the
‘irisdiction of the act : on page 3, beginning in line 23, a definition
f£ the term “ water,” as used in the act; on page 15, beginning in
ne 1, a proposed extension of the commission’s power under the
mendment to the act originating in the Panama Canal act; on page
T, beginning in line 19, where there 1s provision for the commis-
|
2
54. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
sion’s requiring the interchange of traffic and the construction, if
necessary, of a dock for that purpose; on page 19, beginning in line
5, the prohibition against any combination or device to prevent, by
change of time schedule, carriage in different cars, or by any other
means the carriage of freights from being continuous; and on page
24, beginning in line 8, where the commission is authorized to pre-
scribe the divisions of earnings under joint rates as between all the
carriers parties thereto, which would include the water carriers.
Under paragraph (c) the first principle is stated as “ revision of
limitations upon united or , cooperative activities among common
carriers by rail or by water.”
That is responded to on page 138, beginning in line 3, which is the
reference to authority for pooling, ‘and so forth; on page 14, line 11,
the relaxation of existing laws against such arrangements: and on
page 25, in line 3. ;
The second proposal is stated as “ emancipation of railway opera-
tion from financial dictation.”
I think the only point in which this bill can be said to respond
to or touch that proposition is found on page 29, beginning in line 3,
where the provision for supervision of issuance of capital begins.
The third statement is “ regulation of issues of securities.”
That is provided in section 17 of this act, which creates section
20a of the act to regulate commerce.
Mr. Drewaut. What page is that?
Mr. Cuarxk. Page 29, beginning i in line 8.
The fourth statement is “establishment of a relationship between
Federal and State authority which will eliminate the twilight zone
of jurisdiction and under which a harmonious rate structure and
adequate service can be secured, State and interstate.”
This is first responded to on page 2, in line 23, where an exception
is made in the proviso now contained in section 1 of the act against
its application to transportation wholly within one State; on page 21,
beginning in line 1, where the course of action to be followed i in these
matters is outlined and where the authority of the commission and
the jurisdiction of the act are defined.
The fifth is stated as “ restrictions governing the treatment of com-
petitive as compared with noncompetitive traffic.”
This will be indirectly, if not directly, affected by provisions on
page 18, beginning in line 20, where the commission is authorized to
fix the maximum or the minimum or the maximum and the minimum
rates; on page 23, line 1, where the same provision is again stated;
on page 24, beginning in line 3, where the commission is authorized
to fix divisions of rates; and on page 25, in line 3, where reference
is made to the provision in section 3 conferring power upon the com-
mission to require the use of terminals and facilities.
The sixth is stated as “the most efficient utilization of equipment
and provision for distributing the burden of furnishing equipment on
an equitable basis among the respective carriers.’
This is first responded to on page 4, beginning 1 in line 6, with a
definition of the word “ transportation ” ; on page 6, beginning in
line 4, where there i is stated the definition of the term “car service ” as
used in the act”; on page 7, beginning in line 1, where the commission
is authorized to establish reasonable rules, regulations, and practices
with respect to car service, as that term is "used in the act; on page 8,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 55
deginning in line 1, where the commission is authorized to require
int or common use of terminals; and on page 11, beginning in line 5,
vhere the commission is authorized to require a carrier to provide
tself with facilities.
The seventh is stated as “a more liberal use of terminal facilities
‘n the interest of free movement of commerce.”
This is responded to on page 12, beginning in line 20, where the
sommission is authorized to require the terminals of a carrier to be
ypen for the traffic of other roads; on page 17, beginning in line 19,
where the commission is authorized to require physical connection
yetween the line of the rail carrier and the dock of the water carrier
or if necessary to require the construction of a dock; on page 18,
n line 4, where there is a provision that such a dock shall be con-
sidered a terminal within the meaning of that term as used in the act;
and on page 19, beginning in line 5, the provision against any agree-
nent or device by which the carriage of freights is interrupted or
orevented from being continuous.
The eighth proposition is stated to be “ limitations within which
sommon-carrier facilities and services may be furnished by shippers
wr receivers of freight.”
This eighth principle is not covered by the provisions of this pro-
oosed act.
Tt is a big question, and it extends through all the varying phases
of the performance of transportation, from the furnishing of grain
doors for the shipment of bulk grain to the operation of important
industrial. railroads. There are many so-called tap lines or in-
dustrial railroads that have been built by and that are operated by
shipping interests, and in many, if not most, instances they have
been built because the carrier with which connection was made was
unwilling to construct a branch line to serve the purposes to be
served. They have been constructed and operated by the owners
and frequently by those who furnish most of the traffic transported.
The theory or the principle that they are entitled to compensation
out of the line haul carrier rates has been recognized. In many in-
stances it has been carried to an extreme, and in some instances to
an unlawful extreme. We have had many investigations of those
questions and we have many of them still pending before us. Each
ee has its peculiarities and has to be determined upon its own set
of facts.
- It would be extremely difficult, if not destructive, to at once estab-
lish a principle which, personally, I would advocate if we were
starting out with the construction of railroads, and that principle
would be to require the railroad to confine itself to the transportation
ousiness and require those who patronize the railroads to keep out
of the railroad business. I think that would be a much more satis-
factory condition of affairs, but at the present time that principle
aever having been laid down and never having been followed, there
's an interweaving of those interests which it would take a long time
‘So unravel even if they are ever unraveled. The only thing that
zan be done at the present time is to investigate the conditions and
etermine the reasonable compensation which can be paid under the
facts of the case, it being recognized as a principle, a guiding princi-
ole, that the fact that the owner of a tap line or industrial railroad
ilso furnishes most of the traffic transported must be considered,
56 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
and that the allowance which would be found reasonable if there
were no such joint ownership of interest in the railroad and in the
traffic transported might be unreasonable and unlawful under the
existing circumstances, because it might result, in effect, as a rebate. -
That roblem being so intricate and applying in so many instances, it —
is difficult to see how it can be met by any specific legislation at this |
time. .
2 The Cuamman. Have you concluded your direct statement, Mr.
lark?
Mr. Criark. Yes, Mr. Chairman.
Mr. Sus. Mr. Chairman, in reference to the examination of Mr, -
Clark, this bill having been introduced by yourself naturally you
are more familiar with its provisions than anybody else, and I want
to suggest that you examine Mr. Clark without interruption before —
any of the rest of us undertake it, because that will make the ex-_
amination very much shorter and will prevent the duplication of
questions by members not so well acquainted with the provisions of
the bill as you are. |
The CuarrmMan. I do not like to attempt that because I think that
every member of the committee can elicit information of value from
Mr. Clark. |
Mr. Stus. From your examination you will be able to bring out,
in case he has not made it clear, at least Just what you intended by
the provisions of the bill. I think that would shorten the examina-_
tion and be helpful to all the other members of the committee.
The CuarrMan. We will proceed for the few moments we have re-
maining this morning, not following the consecutive order.
Mr. Monracur. Mr. Chairman, will you continue up to the hour
of 12 o’clock?
The Cuarrman. We hope to utilize that time. Not having after-
noon sessions we are not making the progress that we should. We
want to make all the progress we can.
Mr. Commissioner, I will take up these several points that have
been recommended in your report as the basis of the inquiry, and I
think those points practically cover most, if not all, of the features
relating to the proposed legislation.
The first point is the prompt merger without friction of all the
carriers’ lines, facilities, and organizations into a continental and
unified system in time of stress or emergency. You referred to the
provision of the pending bill which seeks to give that power to the
President in time of emergency. If I remember correctly, England
in 1871 passed an act looking to a war emergency with reference to
its railway systems, did it not?
Mr. Cuark. Yes.
The Cuarrman. When the war broke out in August, 1914, the ie
was available and was immediately put into operation ?
Mr. Criark. It was.
The Cuairman. Was it your idea that we should in this legisla-
tion follow a similar example?
Mr. Crarx. It was our idea that this bill confers upon the com-
mission the authority to meet all emergencies by such necessary
merger of operations as presents itself in “time of peace, but it pro-
vides that in time of war the President may certify to the commis-
sion the necessities of the national defense or of the National Goy-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 57
‘rnment, and that the commission, under the powers conferred upon
4 by the act, shall carry them into effect, so that it would perma-
ently provide that the commission should be the agency through
hich the Commander in Chief would carry out such instructions as
-e might desire to give looking toward the consolidation of the rail-
oads in such manner as would meet the emergency or at least pro-
-uce the maximum of efficiency.
- The Crarrman. So, had the provisions of the law as contemplated
a this bill been in effect when we entered this present war, there
vould never have been any necessity for the Federal control act?
_ Mr. Crarx. None whatever.
_ The Cuatrman. The legislation embraced in this bill would have
-een sufficient to conduct the transportation as a war-emergency
ratter ?
Mr. Crarx. It would have been sufficient to secure the highest pos-
ible efficiency and the largest volume of transportation out of the
vailable or existing facilities, in so far as those in control were able
9 devise the ways.
The Cuarrman. Would there have been any necessity for financial
-gislation such as under the Federal control act, which provided a
evolving fund of $500,000,000?
Mr. Crarx. None at all.
_ The Cuairman. It is your opinion that the provisions of this bill
vould be sufficient hereafter to meet a war emergency without fur-
her legislation ?
Mr. Crarx. I think so; and without some of the embarrassments
fat our experience has brought about—I mean to the country as a
thole when I say “ our.”
The Cuarrman. Take up point 2, merger within proper limits of
he carriers’ lines and facilities in such part and to such extent as
lay be necessary in the general public interest to meet the reason-
ble demands of our domestic and foreign commerce. Under the
-xisting interstate-commerce act, and, in fact, as it was originally
netted in 1887, there was a prohibition against mergers, was there
ot
Mr. Crarx. Against pooling.
_ The Cuarmman. Against pooling. Do you believe in compulsory
-r involuntary merger?
_ Mr. Crarx. While it operates to meet an emergency; yes. I do
ot see how we could compel mergers of ownership.
| The Cuamman. There are such plans pending, are there not?
» Mr, Crark. Some people have that idea.
| The Carman. It is your opinion that the end to be sought, how-
ver, namely, the elimination of many of the weak lines rendering
‘iemselves to more unified control can be obtained through volun-
ary mergers under the direction of the Interstate Commerce Com-
iission rather than by special mergers through process of the courts
nd the exercise of power?
- Mr. Crarx. I have a very confident hope that a great deal would
-¢ voluntarily done under the provisions of this bill. I see no in-
aperable difficulties about the exercise of eminent domain in the
-urchase of a property, but I confess that I do see some difficulties
1 the Government exercising the right of eminent domain to require
omebody to buy. You can not merge the ownership of two prop-
58 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
erties unless you change the ownership and somebody has to take
more than they had before and they have to pay something for it.
The CuartrmMan. In other words, the Government may have the
power to compel sale, but not the power to compel purchase?
Mr. Criarx. That is my idea exactly.
Mr. Barxirey. Unless you could compel purchase there would not
be much of a sale?
Mr. Cuarx. I do not think it would be very effective.
The Cuatrrman. Would that voluntary merger, as you outline it,
tend in a large measure to solve the problem of the so-called weak
systems? 3
Mr. Crark. I thik it would, Mr. Chairman. I think the com-
mission could exercise a very strong moral influence, and having this
authority under the law, it would be its duty in carrying it out to
suggest these things. It might offer a suggestion which at the mo-
ment would be scoffed at, but when thought over and worked out
would, in the course of reasonable time, develop into something. I
think there are numerous instances in which the carriers would be
glad to avail themselves of the opportunity of carrying into effect
some consolidations or mergers of ownership or operation, if they
had the right to do so under the law. ;
The Cuarrman. Federal incorporation is advocated very strongly
as a means of merger. What are your ideas about Federal incorpo-
ration ?
Mr. Crark. Why, Mr. Chairman, I think I ought to say that my
ideas on the proposition are not very valuable because they are those
of a layman, but I have not been able to satisfy myself that there is
necessity for adopting that course in order to reach the end had in
mind, because I have the view that the power of Congress under the
commerce clause of the Constitution has no limit in the regulation
of commerce among the States. I think that the proviso in section
1 of the act to regulate commerce as it was originally enacted and
as it stands to-day is a declaration by the Congress of its refraining
to exercise all of the power which it has. I think that Congress has
plenary power so far as it sees fit to exercise it. I do not see the
necessity for Federal incorporation, because the Congress can regulate
the commerce among the States whether it is conducted by an indi-
vidual, firm, or corporation. The act to regulate commerce in specific
terms applies to persons operating common carriers.
The Crarrman. It is urged in support of Federal incorporation —
that it would increase unity of control and eliminate in a large
measure, if not wholly, State control ? :
Mr. Crarx. Well, my answer would be the same. I think Con-
gress has control under either incorporation or no incorporation. I
think that Congress can enact legislation of such a character as it
chooses to enact. |
The Crarrman. Have you any doubt as to the constitutional -
right of compulsory Federal incorporation ?
Mr. Crarx. I would not care to express an opinion on that, Mr.
Chairman, because I am in no sense a constitutional lawyer. I might |
add to what I just said in reply to your question that the Supreme
Court in a long line of decisions, so far as I know, has never held
that there was any limit upon the power of Congress, but it has held
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 59
hat so long as the Congress fails to exercise the powers vested in it
he States may act, but when the Congress acts and enters the field
hen the State action must give way.
The Cuarrman. Is there a general impression that Congress can
jot act in many instances because of its failure to act?
Mr. Crarx. I think there is some measure of that. The Congress,
s I pointed out, specifically refrained from exercising the powers
vhich it apparently felt it had in the original enactment of section
_of the act to regulate commerce. ;
~ The Cramrman. If Federal incorporation is sought as a remedy to
ecure a more unified control and to eliminate the so-called 48 mas-
ers, it could not be done expeditiously ?
Mr. Crark. I should say that it would take a long time.
The Cuarreman. Recalcitrant stockholders who would not want to
urrender their stock in the original corporation would inevitably
ring the matter into the courts?
~ Mr. Cuarx. That is altogether probable.
- The Cuarrman. And we would not have a determined policy until
yossibly the Supreme Court had passed upon one or more of the
»hases of this problem ?
| Mr. Crarx. I think that is certain.
The Cuairman. If that be true, would it be wise to seek Federal
-ncorporation as one of the remedies to be enacted if we want rea-
sonably prompt action? .
~ Mr. Crark. I do not think that it would do to depend upon that
is contributing to promptness.
~ The Cuatrrman. What would be the situation of the carriers pend-
ng the final determination of the legal propositions involved in the
Federal incorporation ?
Mr. Crarx. If you will pardon a slang expression, I think they
would be “up in the air.”
- The Cuarrman. Might not that complicate instead of tending to
solve the problem ?
Mr. Cuarx. I think it would, because it would bring into play the
conflicting opinion of owners of the several properties, and there
would be those who favored it and those who opposed it, those who
wished to retain certain rights they might have under their present
sharters, and some would resist any surrender of their State char-
ters because they carry with them provisions which probably never
would be incorporated in any Federal statute.
The Cuarrman. You have noted several suggested plans which in-
volve the idea that the railroads should be reduced to a few systems.
Mr. CuarK. Yes.
AN. Could that be done without the use of Federal
oower ?
Mr. Cuarx. Not in a compulsory way. I do not think it could be
done anyway, except’ by laying the foundation for voluntary action
in laws that permitted it to be done.
~The Cuarrman. You intimated in your direct testimony that you
did not believe in regions because it was quite impossible to frame
eee ey cutting up or splitting up the existing railroad
systems?
» Mr. Crarx. Yes.
60 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuarrman. If that be true, would it not create such a difh-
culty as would be really insuperable in securing a proper adjust-
ment or railroad matters ? ‘
Mr. Cuarx. I think so, Mr. Chairman, because I think that in any
regulation, especially of the rates and of alleged prejudicial prefer-
ences or discrimination, we must consider the traffic conditions ex-
isting in various sections of the country rather than the geography of
the State lines or imaginary lines drawn on a map to divide the
country into blocks. I stated the difficulty of outlining a region
which would include the Rock Island system. There is a definite
traffic situation between Chicago and points east of Chicago and St.
Paul and Minneapolis and the head of the Lakes in which the Rock
Island is a factor. There is another rate situation involving not only
the local, but the through traffic between the east and the west as
between the Mississippi and the Missouri Rivers, both of which have
been for years great basing lines. Again, the Rock Island is a factor
there, and especially it is a factor through Kansas City and through
the Missouri River; it is a factor in the transcontinental rates.
The CuatrMAn. There are traffic areas or regions that have north
and south trends and others that have east and west trends, prac-
tically in the same geographical territory ?
Mr. Crark. Yes, sir.
The -CHarmman. How could you harmonize such traffic areas,
whether by region or system, where they cross one another at right
angles as, for instance, lines running east and west and running
south and north to the Great Lakes?
Mr. Crarx. I should imagine that an effort to logically combine
the roads into a small number of systems would not attempt to
include in one system lines which were important factors in the
transportation in an east and west direction and also those that
were included in a north and south direction, with competition for
certain kinds of traffic as between the two.
That reminds me of one more suggestion about the difficulty of
regions geographically fixed so that they would include the same
system. The Illinois Central system reaches the Great Lakes and
the Missouri River. It is an important factor in the Missouri River,
Chicago, and east of Chicago rates. Then it has a line from Chi-
cago to New Orleans, where it is an important, if not a controlling,
factor in the transportation between the Middle West and the Gulf
ports, and it is a competitor with itself in a sense in exporting grain
from the Missouri River as to whether it should go through Chicago.
and on to New York, Baltimore, or Philadelphia or to New Orleans,
Galveston, or Gulfport for export.
The CHarrmMan. The committee will take a recess until 10 o’clock’
to-morrow morning.
(Thereupon the committee took a recess until 10 o’clock, Friday,
July 18, 1919.)
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 61
CoMMITTEE ON INTERSTATE AND ForEIGN CoMMERCE,
‘ Houser oF REPRESENTATIVES,
Friday, July 18, 1919.
i The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE
COMMERCE COMMISSION—Resumed.
The Cuairman. Mr. Commissioner, when we concluded yesterday
morning we had practically finished our interrogatories with refer-
ence to provision No. 2 in the recommendations of the commission
‘in its last annual report relating to mergers. While it may not be
| directly relating to that subject, I wish to ask a question with refer-
‘ence to free routing.
Under the interstate-commerce act the carrier was entitled to
route his freight.
_ Mr. Crarx. No, Mr. Chairman; the act to regulate commerce
| The CuarrMan (interposing). I mean to select his carrier.
_ Mr. Crark. You mean the shipper was entitled to do so?
The CHarrmaAn. Did I say carrier? I should have said shipper.
The shipper had the right to route his freight.
/ Mr. Crarx. Yes.
The CuHarrman. Of course, that was stopped under the Federal-
/control act. Is any change made in that under the pending bill?
Mr. Crark. No. sir.
|
/
|
The Cuarrman. That privilege is retained ?
Mr. Cuark. Yes; except that it might be set aside in case of an
emergency by order of the commission.
| The Cuarrman. As amending the car-service act?
Mr. Crarx. Yes; as amending the car-service act and under em-
bargoes and preferences and priorities.
| The CuHarrman. And under the car-service act as amended by the
_ pending bill you are given wide powers with reference to the preven-
eae of congestion and also with reference to car shortage, are you
not!
Mr. Ciark. Very wide.
|_ The Cuarrman. If those powers had been granted you prior to the
| Federal-control act, would you have been enabled to have met the
| contingencies, even of war?
| Mr. Crarx. Well, Mr. Chairman, I think that in order to fully
, meet them, it would also have been necessary to have had some relaxa-
| tion of the restrictions upon the carriers, because if the statute is
| clear against any combination of any sort between competing carriers
| 1t is doubtful if an order of the commission would override those stat-
| utes; but with the combined powers, we could meet any emergency
| that could arise, in so far as it could possibly be met by the facilities
| available.
The Cuarrman. Taken in connection with the powers given you
, as to priorities, preferences, and permits, you would have been able to
| have taken care of that situation?
| Mr. Cuarx. In so far as would have been possible with the facili-
ties at hand.
62 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuarrman. I now pass on to No. 3: “ Limitation of railway
construction to the necessities and convenience of the Government
and of the public, and assuring construction to the point of these
limitations.” } st ;
Is this introducing a new principle in matters of railroad legisla-
tion ?
Mr. Cuarx. In so far as Federal regulation is concerned, it is.
The Carman. It has, however, been adopted by some of the
States ?
Mr. Crark. It has. ;
The CrairmMan. What do you know as to the success of its opera-
tion in the States that have adopted it?
Mr. Crarx._I understand that it has been generally successful, and
I have never heard of any serious criticism of it or of its operation. —
Mr. Raysurn. Mr. Chairman, may I interrupt there? 1 wonder if
the commissioner knows and can give us the names of the States in
which that has been inaugurated for the record here.
Mr. Crarx. I could prepare and put in the record a complete list,
I think, which could be prepared from an analysis of the State stat-
utes. I know that it is in use and has been actively used in New
York and Wisconsin, which are two of the most progressive of the
States in State regulation.
Mr. Rayzurn. I thought it might be informing if we knew the
names of those States.
The Cuarrman. I think it would be very valuable information to
have, and if it could be prepared we would like to have it introduced
in the record.
Mr. Crark. I think I can get that information.
Mr. Thom tells me that in a hearing before the Senate committee
Mr. Bledsoe introduced a statement which gave the information
which Mr. Rayburn has just asked for.
The CyarrMan. Very well; if you can promptly secure that it
can be inserted.
Mr. Crarx. I will secure that statement and compare it with
others, and put in a statement in response to your request.
The Cuatrman. Would the exercise of this power on the part of
the Federal Government involve any legal difficulties so far as the
States are concerned ?
Mr. Crarx. I do not think so. I think that it is clearly within
the power of the Federal Government in so far as the provisions of
this act go, which are limited to carriers subject to this act. |
The Cuarrman. Would the exercise of this power on the part of
the Federal commission in any way tend to stabilize securities of the
company that had been given a certificate ? |
Mr. Crarx. It seems to me inevitable that it would have that
tendency and that effect. The principle underlying this is that a
carrier, having been given a franchise to enter a field, ought to be
protected against unnecessary and wasteful competition of other and
rival carriers, and it ought to be required to cultivate that field to
the extent that the public necessity requires.
You will remember a few years ago, as an instance of this, there
was the keenest kind of rivalry between the roads that were com-
monly known as the Harriman interests and the Hill interests in the
Northwest. The Hill interests had practically all of the lines in
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 63
he States of Washington and Oregon excepting the north and
outh line of the Southern Pacific, which terminated at Portland.
“he Harriman lines scouted the idea of building a line through the
Jes Chutes Canyon serving a part of the State of Oregon which
‘hey said was not worth building into; but Mr. Hill had a different
lea after a few years, and he started to build in there, and immedi-
‘tely the Harriman lines, with most feverish haste and lavish ex-
enditure, started and constructed a parallel line, so that that ter-
itory which was thought not worth serving with one railroad was
arved with two expensively built railroads under rival conditions
‘hen cost was largely disregarded, and now the territory and the
-ublic have two roads to support.
- The Cuarrman. Would the construction of the Western Pacific be
nother illustration ¢
- Mr, Crark. I think it would be a striking illustration, and added
) that would be the Wabash-Pittsburgh Terminal system.
The CwHatrman. If this power to issue these certificates wer
ranted the commission, would it or not hereafter tend to lessen the
-roblem of the weak sisters ?
Mr. Crarx. I think it would; yes, sir.
The CuairmMaAn. In other words, there might not be the possi-
ility of new weak sisters being added to the present large list ?
Mr, Crark. Yes; there are numerous weak sisters now to be sup-
-orted that never would have been built if this law had been in
ffect, and this would give its measure of protection to the weak
sters against other weak sisters coming in against them.
The Cuarrman. If a section of the country not now supplied by a
oad desires a road, but the trunk line is financially unable to make
1e construction and yet the commission felt it ought to be made,
‘ould you advise Government aid in such construction ?
Mr. Crark. I think, speaking for myself alone, Mr. Chairman,
1at within certain limits I would advise it.
The Cuarrman. Otherwise the convenience
Mr. Cuark (interposing). Otherwise the convenience of the people
1ust go unsatisfied and unserved, unless some independent company
vas willing to build in there while the one that naturally ought to
-uild in there could not.
The Cuatrman. It was contended in the Newlands hearings that
ereaiter practically there would be little or no new construction
‘'y independent lines, and that whatever construction was done would
-ave to come from existing lines; would that be your view?
_ Mr. Crarx. No; I would not be inclined to accept that as con-
-usive. Railroads are sometimes built without regard to what the
»sults of their operation are going to be. It is just a question of
‘oating the securities and building it and getting the speculative
-Ivantages that go with those times.
_ The CHatrman. Of course, the speculative element would be elimi-
‘ated if we give you the control over stock and bond issues.
Mr. Ciarx. That would be true, yes; but you could not very well
mtrol the situation to which we have been referring simply by
-ithority to control stock and bond issues, unless you also had this
-ablic convenience and necessity authority, because if you could not
ontrol the question of whether or not the line was needed and ought
» be built, you could not refuse to approve issues of bonds and
|
ir
64 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
securities that were within reasonable limits if the line was to be
built.
Mr. Monracur. Mr. Chairman, if it does not disarrange your
program at all, will you permit me to suggest or to ask at this point
that Mr. Commissioner Clark put in the record-the construction,
by decades, for the past 50 years, or certainly the past 30 years, of
railroads in America. I suppose those figures are obtainable?
Mr. Crarx. Oh, undoubtedly. You want it simply in miles?
Mr. Montacue. Yes; the mileage of construction in the past 50
years, especially since the Cullom Act, and more especially since the
act of 1906. My reason for asking for that is because I want to
see whether the ratio of construction has been increasing or de-
creasing during that period. |
The Cuarrman. In that connection, the Bureau of Railway Sta-
tistics publishes that information year by year, but it would be well
to segregate those statistics.
Mr. Monracue. I thought, Mr. Chairman, for the benefit of the
Members of the House we should have those facts in the record.
Mr. Crarx. I will supply those figures, but I will make this ex-
planation of them at this time, that it must be expected that they
will show a gradual decrease in new construction, and even though
the hand of the Government is withheld entirely, that must be true
as the years roll by, because the possible field is more completely
occupied year by year as construction goes on. :
Mr. Monracue. I did not mean to intimate that the commission
should not accompany its figures with any explation it might care
to make. I will be very glad to receive such explanation.
The CHarrMan. The record shows
Mr. Monracue (interposing). Mr. Chairman, I want to just ask
one other question in this connection. Has not the construction of
railroad mileage in this country for the past five years been almost
negligible?
Mr. Crarx. I think it has been small.
The CHatrman. I think the average construction is about 1,000
miles per annum.
Mr. Ciarx. I could get those figures.
Mr. Montacus. That includes double trackage and things of that
sort.
Mr. Cxuarx. I have not those figures here. I could show it for the
class 1 roads, but that might not reflect construction.- It might re-
flect changes in ownership of existing roads.
The Cuarrman. But it is a fact that construction has materially
lessened or slackened in the last five years?
Mr. Crarx. I think so.
Mr. Monracue. Mr. Commissioner, what is your opinion as to the
availability of capital in America for any new construction now or im
the past four or five years?
Mr. Cuiarx. Despite the fact that the Government has borrowed
money in unprecedented sums, and without claiming to possess any
technical or absolute knowledge in the premises, it is my judgment
that there is abundant capital seeking investment in attractive fields.
Mr. wend hot How attractive is the field? Is it sufficiently at-
tractive { , .
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 65
Mr. Cuarx. I do not think at this time investments in railroads
2 especially attractive to the investors of this contry; and without
y desire to be hypercritical, I think it only fair to say that I do
t quite see how it could be expected to be when the railroads or the.
ancial interests that represent them or control them have been busy
w since 1910 in asserting, in season and out of season, that they
| not have any credit.
Mr. Sims. Right in that connection, the question referred to the
t four or five years. The European war broke out five years ago,
d war was declared on the 1st of August or the last of J uly, 1914,
d since that time there have been no normal credits in Europe or
_America.
Mr. Crarx. There have been no normal credits and no normal con-
ions of construction of railroads.
The Cuarrman. Recommendation No. 4 relates to the development
d encouragement of inland waterways and coordination of rail and
/ter transportation systems. You went over this quite fully in your
ect testimony, and I will not delay long on that. You believe the
ae has come when there must be a coordination of rail and water
onsportation ?
Mr. Crarx. I think that, in so far as it is possible to economically
d satisfactorily utilize water transportation, it ought to be en-
waged, and that it ought not to be suppressed by unfair competi-
‘n of rail carriers or by unreasonable refusals to join in through
ites and arrangements for through carriage.
The Cuarrman. In brief, what do you do in this bill that encour-
2s inland water transportation ?
Mr. Crarx. We make possible the more liberal treatment of
‘ough routes and joint rates with rail carriers. We bring the
nmon carriers by water within the provisions of this act. It
thorizes the commission to determine the divisions of the rates
ich they shall receive irrespective of whether or not the commis-
n had prescribed the rates, and it confers upon the commission
‘hority to require docks at which interchange of traffic can be
de where the public convenience would be best served thereby.
The Cuarrman. And you modify the Panama Canal act in order
permit water lines although railroad-owned and although the
eration of the water line may, in a way, lessen competition if the
aration of the water line is conducive to the public interest.
Mr. Cuark. Yes, sir.
Che Cuarrman. You made the rather startling statement yester-
y, I think it was, that the operation of the Panama Canal act in
1ying ownership and operation by rail lines of water lines had
ulted in no benefit or‘advantage to the American people.
Mir; Crark. That is my judgment, Mr. Chairman, after participat-
4 on every case that has come up under that act and observing the
ults. :
Che Cuarrman. You suggested in your testimony that the tramp
amer ought not to be included within the operation of the bill for
» present, at least.
Mr. Crarx. Yes, sir.
152894—19—vo1 1——5
66 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The CHarrmMan. Although you thought possibly, based upon the
opinion of your solicitor, that the tramp might be included within
the purview of the bill as written.
Mr. Crarx. I do not think there is any doubt of the right of Con-
gress to include them, but I think under present conditions, and in
the light of all we know on the subject to-day, it would be unwise to
do so. I do not think that the competition of the so-called tramp
boats with the character of water carriers that we generally have in
mind when we speak of common carriers by water, in the hight of this
act, afford a troublesome competition with the common carrier boat
lines. It has abundantly appeared in cases before us that the Lake lines
prior to their divorcement—and the same thing is true since—did not
and do not care to carry bulk grain except in limited quantities and
when that limited quantity is readily available and is desired to fill
out a cargo on an eastbound boat. The great mass of the grain from
the head of the Lakes during the season of navigation moves in
cargo lots. It may move to any of the lower lake ports for domestic
distribution for milling, or it may move for export. It may move
through the American port for export or it may move through Mon-
treal. A tramp boat at Duluth would take a cargo of grain for any
of the Canadian ports just as readily as she would for an American
port if it offered and it was to her advantage to take it.
The CuarrMan. In the proviso which you suggested yesterday as
an amendment to the part of the bill relating to water lines you
used the term “ocean tramp.” There are Lake tramps, are there
not, and would that cover both?
Mr. Crark. I do not think I used that term, Mr. Chairman.
The Cuamman. I thought you did in the amendment which you
suggested, but perhaps not. At any rate I have received some com~
munications from Lake traflic people to the effect that they thought
the Lake tramp should be also excluded from the provisions of the
bill. |
Mr. Ciarx. The proviso I suggested I am very sure did not refer
to ocean tramps. It referred to so-called tramps, cargo-carrying}
vessels and other craft operating as private carriers. I have the
proviso here and it reads: |
And provided further, That so-called “tramp” cargo-carrying vessels anf!
other water craft operating as private carriers, not on regular routes, shal!
not be considered common carriers within the terms of this act, unless afte®
investigation the commission shall find that such vessels or craft are being’
operated as common carriers, in which event the provisions of this act shalt
apply thereto.
Now, ocean tramps would not be under our jurisdiction in any
sense except as they were engaged in coastwise trade, even if the
tramp vessels were included in the provisions of the act, because the
definition of the term “ water,” as used in this act, includes only
the 3-mile limit and vessels permitted to engage in the coastwise
traffic of the United States. |
The Cuarrman. Yes; and from port to port, which would also
cover from coast to coast. |
Mr. Crark. Yes; in coastwise trade.
The Cuatrrman. Would the powers granted in this bill to the com-
mission to fix minimum as well as maximum rates be an aid to inland
water transportation ?
rt
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 67
' Mr. Crark. We think so; yes, sir.
~ The Cuarrman. With reference to the long and short haul clause,
‘would this power of the commission to fix minimum as well as maxi-
mum rates help you in solving many of the questions as to de- |
partures under the long and short haul clause ?
~ Mr. Crarx. I can not see that it would have any substantial effect
‘im that connection, Mr. Chairman.
The Cuatrman. Do you believe that departures under the long
and short haul clause should be confined only to where there is
actual water competition or to where it is even only potential?
_ Mr. Crarn. We originally granted relief on account of potential
water competition, but a gvod while ago we changed that policy and
declined to grant relief on account of water competition unless it
was active and actual. I think that the question of relief under the
fourth section of the act, under the long and short haul rule, is really
of more importance as between competing rail lines than it is as be-
tween the rail lines and the water lines, because an absolute long and
short haul rule as between competing rail lines must result in a de-
pression of the intermediate rates on the circuitous route below
what would be found to be reasonable, or the withdrawal of that
circuitous route from the competitive traflic at the competitive point.
The Cuairman. Do you not know that there is widespread dis-
satisfaction on the part of communities that are inland frora a water
line being charged a higher rate than points on the water line, al-
though there may not be a vessel operating on the water line?
Mr. Crarx. Well, I do not know of any important situations in
which that would be literally true at the present time, Mr. Chair-
man. Of course, the most dissatisfaction with regard to the long-
and-short-haul rule and its administration has been expressed by
the communities in what is called the intermountain country, of
which Spokane, Wash., Reno, Nev., and Phoenix, Ariz., would be
illustrative.
_ Ihe Cuatrman. Mr. Clark.
Mr. Crark (interposing). If you will just permit me.
The Cuarrman. Yes, sir.
Mr. Cuarx. Several years ago we held that westbound trans-
2ontinental traffic moving under the class rates was not controlled
ay water competition and that class rates to the points intermediate
‘0 the Pacific coast might not in any instance exceed the rates to
the Pacific coast terminals. As to the commodity rates, after the
slides in the canal had greatly minimized the water competition
hrough the canal, and after the war broke out, and the boats
wgaged in that service abandoned it for more lucrative service else-
where, the water competition disappeared and we reopened all of
hose proceedings, set the whole hearing de novo, and decided, in the
ight of existing conditions which disclosed no actual or active
ompetition, to deny all relief to the companies, and since that time
here has been in the westbound transcontinental rates no departure
‘rom that rule and there is none to-day.
The Crarrman. Recommendation 1(c) relates to revision of limi-
ations upon united or-cooperative activities among common carriers
oy rail or by water. Of course, that involves the matter of pooling
»f equipment, and so on?
68 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr, Crarx. All the suggested restraints brought about by the
antitrust act and the antipooling provision of the act to regulate
commerce.
The CuarrMan. Recommendation 2(¢), emancipation of railway
operation from financial dictation. How in this bill is that emanci-
pation brought about? }
Mr. Criark. I think only by the supervision of the issuance of
capitalization.
The Cuamman. That is granting power over bond issues. Would
vou consider the last paragraphs of the bill with reference to directors
being interested in more than one carrier as carrying out, in part, thas
recommendation ?
Mr. Crark. Yes, Mr. Chairman. I had reference to all the provi-
sions of that section. I think there have been a good many rather
unfortunate and unsavory transactions in the past which would have
been improbable except through interlocking directorates. 4
The Cnairman. The next recommendation is 3, regulation of
issues of securities, which has already been commented upon. I have
not noticed anywhere any serious objection to this provision of the
bill, and practically in all plans submitted, with possibly one or two
exe eptions, no exception seems to be taken to granting this power to
the commission.
Mr. Cruarx. I have heard no objection to it, Mr. Chairman, on the
part of anybody. The committee representing the carriers in ser
years has advocated it strongly, always coupled with the provis
that it should be made exclusive and complete and that the consent
or approval of the Federal tribunal would be all that would be nee-
essary, and that is so pr ovided i in this bill. {
The Crairman. There is another provision, however, in the oo
tion relating to stock and bond issues, and that is the supervision of
the expenditures resulting from such issues. Do you believe that i
a wise power to delegate to the commission ? |
Mr. Crark. I do; yes, sir. The application for authority to mak
the issue will state the purposes for which the proceeds are to be use
or are intended to be used, and the assent of the tribunal would be
conditioned upon that use of the proceeds. It therefore seems to me
entirely appropriate that the tribunal should be authorized to see
that the proceeds are applied in the manner proposed and in effect
agreed upon or conditions. {
The Cuamman, The next recommendation is 4, establishment of
a relationship between Federal and State authority which will elimi
nate the twilight zone of jurisdiction, and under which a harmonious
rate structure and adequate service can be secured, State and inter
state. This has been a complicated matter for years, has it not?
Mr, CiarK. Yes, sir; it has. 4
phe CHAIRMAN. And. there have been a great many Shreveport
cases ¢
Mr. Crark. Yes; a great many.
The CratrmMan. Are they on the increase?
Mr. Cuarx. Yes, sir.
The Cuarrman, "Would the provision in this bill giving the Stat
commissions the right to sit with the Federal commission and th
holding of joint hearings and making a single record with final an
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 69
ultimate authority in the commission to make findings lessen the
Shreveport cases and possibly bring about an understanding between
State and Federal commissions?
_ Mr. Crarx. I think so, Mr. Chairman; and I think it would con-
tribute largely to a better understanding as between neighboring
State commissions themselves.
The Cuairman. Do you think that under it you would have had
such a controversy as still exists in the State of Illinois on the 2-cent
rate? |
— Mr. Crark. I would not state that it would cure that difficulty,
because the 2-cent fare in Illinois is statutory and not commission
made.
The Cuairman. So the State commission’s hands are bound ?
Mr. CrarK..In that respect; yes, sir.
The Cuarrman. Could any relief be afforded by the provisions of
this bill in a controversy between a statutory rate and the Federal
commission’s findings ?
Mr. Crark. The Federal commission’s findings of undue prefer-
ence or prejudice, accompanied by findings as to the reasonable
interstate rate, would be full authority for the carrier to apply that
rate fixed by the commission, regardless of any act of the State or of
its commission.
The Cuarman. If I remember the terms of the bill correctly, in
case of undue preference or prejudice, or where the State rate casts
an undue burden upon interstate commerce, such State rate is for-
bidden by this bill and is unlawful. That is the intent of the provi- -
sion, is it not ? |
Mr. Crarx. Yes, sir; that is one of its intents.
~The Cuarrmay. I think it is on page 21, at the bottom.
Mr. Cuark. Mr. Chairman, if you will turn to page 22 of the com-
mittee print, at the top, you will find that it is provided that “such
findings or orders shall be observed while in effect by the carriers
parties to such proceedings affected thereby, any act, decision, or
wder of any State or State authority to the contrary notwithstand-
ng.”
The Cuarrman. Supposing Federal control ceases and that imme-
liately thereupon the State rates become effective that were effective
drior to the control, that would result in such a discrepancy between
ntrastate rates and interstate rates on like commodities as would
esult in undue preference or prejudice or cast undue burden upon
nterstate commerce; would not that be the result ?
_ Mr. Crarx. For State use that is true. There are some States in
vhich the State commissions have approved for State use rates
orescribed by order of the director general. I assume there that
lifficulty would not arise.
' The Carman. There is quite a number of States where that has
riot been done?
_ Mr. Cuark. In most of the States it has not been done.
~ The Cuarrman. In many States the 25 per cent increase on freight
‘mounts to much more than that on intrastate rates?
» Mr. Crarx. Yes, sir.
' The Cramman. That would still widen the spread between. the
ntrastate and interstate rates prior to Federal control and the
nterstate rates made under Federal control ?
: .
:
.
70 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cuarx. I think if the State rates as they were prior to Fed-
eral control should become automatically effective upon the release
of the carriers from Federal control that the discrepancies between
a State and interstate rates would be greater than they have ever
een.
The Cuarrman. If that be true, when this bill becomes law, would
not practically most of those intrastate rates which have not been
accepted by the State authorities become unlawful?
Mr. Cuarx. I think they would; yes, sir. |
Mr. Tuom. Mr. Chairman, may I get you to develop the view of
the witness on one aspect of the matter you have now under con-
sideration ?
The CuarrMan. Yes, sir.
Mr. Tuom. The language of the bill as written is, in one of its
features, where rates of the State cast an undue burden upon inter-
state commerce, and I should like to have the witness’s opinion as to
whether that embraces cases where under State rates the State traffic
does not bear its just proportion of sustaining the instrument of in-
terstate commerce ?
The CuarrmMan. We will be glad to have Mr. Clark’s opinion on
that. ,
Mr. CuarK. If it should appear that the conditions of operation
and of transportation within the State were substantially similar to
those surrounding the traffic into and out of the State and the inter-
state rates were reasonable, a substantially lower level of State rates
would be casting an undue burden upon interstate commerce. If it
did appear that for some existing good reasons the cost of the State
service to the carrier was substantially less than that of the inter-
state service and that relatively the net return on the State rates
was as great as on the interstate rates, I do not think it could be said
that there was any undue burden because each would be bearing
relatively its proper share.
The CyatrMan. If this result follows, namely, that the intrastate
rates would be an undue burden on interstate commerce, should we
in this bill legislate against such a contingency ?
Mr. Cuarx. My individual opinion, Mr. Chairman, not being in a
position to speak for others on that point by authority, is that it 1s
most advisable for the Congress to enact some legislation intended to
be temporary in its nature which will stabilize the situation during
a period of months following the return of the carriers to private
control, and that the stabilizing legislation might, with propriety and
advisability, place some restraint upon the action of the carriers
themselves by providing some agency in a particular rate district, if
you choose, through which the questions of the rates for that district
shall pass, instead of throwing each carrier back into private control
on its own responsibility and leaving its traffic officer to follow his
own wishes, his own will, and his own ideas, because I- think there
is grave danger that under that condition some of the traffic officers,
pursuing policies that they have pursued all their lives, will in
effect dissipate revenue instead of conserving it, and not only will
they dissipate revenue for their own road, but they will dissipate
revenue for all of the competing roads, because it is as certain as
anything in human life that the great mass of freight tonnage will
move along the line of least resistance in the way of freight charges.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. rg)
The Cuarrmay. Is it your idea that pmedental upon the end of
7ederal control that the carriers will earnestly seek business?
_ Mr. Crarx. I think that is inevitable.
The Cuarrman. And in Ses eae there might be rate cut-
ing ?
Mr. CrarK. Yes, sir.
The CuairmAn. And a revival of some of the evils that existed
rears past?
Mr. Crark. I think that is possible, and I think it is worth protect-
ng against, having in mind the results that we are seeing from month
o month from the operation of these properties as a whole under
omplete restraint upon the traffic officer of the individual line.
The CuatrmMan. Would it be your idea that this restraint should
ve exercised for a limited period after control ceases?
Mr. Cuark. Yes, sir.
The Cuarrman. What would be your idea as to the length of time?
Mr. Crarx. My offhand idea would be one year, but I have no
pecial argument to advance why it should be exactly that period; it
night be a little less or a little more.
The Cuairman. How should this restraint be exercised; through
he commission ? .
Mr. Cuark. Disclaiming any disposition or desire to grasp any
nore authority or any more work, I have not been able, in my own
aind, to conceive of a better plan ‘than to first lay down the rule of
aw and then authorize the commission thereunder to appoint com-
aittees or a committee for each traffic district of experienced men
elected with a view to their skill and knowledge and, perhaps, what
aight be termed “expert traffic °men” in matters of this sort.
Vhether or not the shipping public should have representation on
hat committee is a matter of judgment. I can not see that it could
lo any harm. It might prove a valuable point of contact with the
Mee It would appear to reduce, in some measure at least, possible
riction.
The CuHairman. The traffic committees to be appointed by the
ommission ?
Mr. Cuark. That would be my idea, and to be actual employees
f the carriers in so far as they were- railroad employees, but to put
hat restraint upon the traffic officer of the individual railroad that
efore a proposal on his part to change rates should be presented
o the commission or be filed in a tariff it must have the indorsement
nd O. K. of this committee to which I have referred.
The CuHarrman. Recommendation 5, restrictions governing the
reatment of competitive as compared with noncompetitive traflic.
| suppose the provision as to maximum and miniumm rates would
arry out that suggestion ?
_ Mr. Crarx. That would have a bearing upon it, Mr. Chairman.
vuthority to prescribe a division of rates would also have a bearing
pon it.
|The Cuarrman. As to the division of rates in connection with
Hepline roads, would it be possible under the provisions of this bill
. give power over the division of rates to adjust such division of
ates as would permit the average short line to live?
Mr. Crarx. I would not be venturesome enough to say that it
7zould be possible to permit them to live. Their conditions are
a
72 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
2 re Teel
varied. It would be possible to require what is not now always fol+
lowed, that the so-called short-line roads shall have a reasonable and
fair division of the rates. You see, Mr. Chairman, where a carrier
has what we call a strategic advantage which controls the situation
it possesses the right to demand such division as it chooses from its
connections and is able frequently to get the lion’s share, entirely re!
gardless of the proportion of the service performed.
In a great many instances a carrier having that strategic ad!
vantage of location and protected by the existing provisions of thé
fifteenth section of the act with regard to the establisHment of
through routes will join in a through route with a connection under
which it surrenders.its long haul, but in consideration of a division
which is exacted by it and which the connection prefers to pay rather
than to be without the connection and the through route. Again)
where a short line has connection with but one railroad and hence but
one outlet, it can not establish a through route and joint rate except
with the consent of the connecting trunk line, and the connecting
trunk line is in a position to practically dictate the division of thé
rate. The short lines often feel that their portion is too small]
Under this act that. question could be adjudicated. That leads me
to another remark with regard to the establishment of througli
routes. J know that some so-called short lines, perhaps longer than
the average of the short lines, are so located that it is impossible for
them to secure through routes and joint rates on what is called over!
head traffic; that is, traffic coming from beyond or going beyond
the terminal, except by the consent of the connection. ‘
I have in mind one particular road that is so located that every
carload of overhead traffic which it can handle could be handled by
one of four or five of its larger trunk-line connections. They could
not be required, under the present act, to establish through routes
with it, because the through route would not include substantially all
of their own line between the termini, so that railroad could not hayé
any through routes and joint rates and division of joint rates on over
head traffic, except in so far as these trunk-line connections are will!
ing to accord them and let it live. It could not live on purely local
traffic or the traffic originating and terminating on its line. :
The Cuarrman. Would it be feasible or wise to give to the short
lines a minimum percentage of the rate? . if
Mr. Crarx. No; I do not think so, Mr. Chairman, because it
would follow that for identically the same service on a shipment
which took a high rate it would get a very much larger division than
it would get on a similar shipment which took a very low rate.
The Cuarrman. You think—I will not say generous treatment, bu
fair treatment should be given to the short line because it originates
the freight ? |
Mr. Crark. I think that fact should be a factor in determinin
how much it is entitled to. : |
The Cuarrman. The bill gives you authority to require the car+
riers to supply themselves with sufficient and safe equipment? |
Mr. CuarxK. Yes, sir. ¢'
The Cuairman. Is it a fact that many short lines are under!
equipped ? at
Mr. Cuarx. I think so; some of them have practically no equip-
ment. .
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. igs:
The Cuarrman. That is, they depend upon the trunk-line con-
nection for their equipment?
- Mr. Crarx. Almost entirely, some of them—many of them.
The CuarrmMan. If it came to fair treatment in the division of
the rates, not having equipment, but depending upon the trunk-line
connection for the ‘equipment, you would hesitate to give them a
gga division of the rate?
CrarK. I should take the fact that they did not bear the
eden of ownership’ in furnishing equipment into consideration in
determining what, under all the circumstances, was a reasonable
division.
The CHarrMAan. Recommendation 7c, a more liberal use of ter-
minal facilities in the interest of free movement of commerce. Do
you think there will be any insuperable difficulty in the joint use
of terminals arising out of a proper apportionment among the users
of the joint terminals and cars?
Mr. CuarxK. I suppose, Mr. Chairman, there will be instances in
which differences of view will be irreconcilable, but in that, as in
all other matters of this kind, the public interest is involved, and the
public interest ought not to be put aside because of disagreement
between the parties which should be serving it; and this will confer,
as the law ought to confer, authority on an established tribunal to
determine that question, if they can not agree on it, and bind them
to that determination.
The Cuarrman. The terminal charge is oftentimes a very large
factor in the rate?
Mr. Cuark. Sometimes; yes, sir.
The CuHarrman. Would the joint use of terminals permit the car-
riers to reduce the rate?
Mr. Crarx. It would operate to reduce the terminal cost on the
whole.
The CHarrman. It would permit a reduction of the rate?
Mr. Crarxk. It would have that tendency, Mr. Chairman; it would
tend in that direction.
The CHatrmMan. That covers the recommendations so far as listed.
I wish to ask just a few general questions and then I will be through.
Under Federal control the Government has encouraged water trans-
portation on the Black Warrior and the lower Mississippi, has it not?
Mr. Crarx. I understand so; yes, sir.
The Cuarrman. And they have already appropriated many mil-
lions of dollars in securing the necessary tugs and barges, and are
constructing tugs and barges for the upper Mississippi. Now, all
that has been done practically under Federal control ?
Mr. Crark. Yes.
The Cuatrman.-When Federal control ceases, what will be the
status of the water transportation developed on those streams?
:
Mr. Cuark. I think that would depend, first, upon how it was
| Beeeated, and, second, upon the ownership of the a Ge a
The Cuarrman. At present it is Government owned ?
Mr. Cuark. At present it is Government owned, but the policy of
the Congress with regard to a Government- owned transportation
agency, I think, is clearly shown in the provision which governs the
_ Government- owned railroad in Alaska. It is subject to our act just
the same as if it were privately owned. ;
74 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuarrman. Your opinion, then, would be that even after Fed-
eral control ceases your power over rates, fares, charges, and so on
would continue as to these water-transportation lines developed by
the Government at Government expense ?
Mr. Cuarx. If operated as common carriers within the provisions
of this act, I do think so.
The CHarrmMan. Even though operated through some eovern-
mental agency ?
Mr. CiarK. Yes, sir.
The Cuarrman. One of the main questions which will be devel-
oped before this committee is the financial side of railroad legisla-
tion—the matter of credits. You developed, in statistics which you
presented yesterday, the financial record up to and including 1916?
Mr. Crarn. Yes, sir.
The Crarrman. Is it possible now to include statistics for 1917?
Mr. Cuark. Yes, sir.
The CHarrman. And 1918?
Mr. Ciark. Yes, sir.
The Crrarrman. Could those be added to the schedules you have
already filed ?
Mr. Crark. I think that statement could be brought down. to
include those years as reflected in the annual reports of the carriers
to the commission. I understand, and, I think, correctly, that the
expense of what is called the overhead administration is not re-
ported to us;.that is, the Director General, his regional directors,
and what might be called his general office force
The CuHarrMan. Federal managers.
Mr. Crark. Federal managers, who are engaged in the general
organization of the director general’s forces are, of course, paid, but
the expenses are not charged to any particular railroad. So that
whatever-sum he expends in that way would be added to that re-
ported by the carriers in the aggregate, but we could not attempt
to allocate it; in fact, we have no figures on that except as he makes
them up. |
The CuarrmMan. Those figures as to the cost of railroad adminis-
tration were included in hearings before the Committee on Ap-
propriations of the House. 7
Mr. Cuark. I understand Director General McAdoo——
The CHatrMan. And they are available.
Mr. Ciark (continuing). Presented them before the Senate com-
mittee and that Director General Hines has presented them to the
Committee on Appropriations of the House.
The Crairman. Is it true that every nation at war has been com-
pelled to vastly increase its wages for employees, and has the cost of
the operation of their railroad. systems been largely increased since
war began?
Mr. Crarx,. I understand that is so, although I have seen no au
thentic figures, except with regard to Great Britain.
The Cuarrman. Since August, 1914?
Mr. Crark. Yes, sir.
The Cuarrman. And brought down to date?
Mr. Criark. I answer your question from a photographic repro:
duction of a statement entitled “ Railway working during the war,
showing the cost of running the railways in Great Britain Fhe
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 75
she period of Government control of the railways for a fraction of
the year 1914 and for the calendar years up to and including 1918,
which was, as stated on its title page, presented to Parliament by
sxommand of His Majesty. :
‘ The CuairmMAn. That is a very recent report ? :
~ Mr. Crarxk. Yes; and undoubtedly authentic, because it comes to
is through our Department of State.
~The Cuairman. I think we ought to include that statement in our
aearings. And will you first give us a summary of it?
Mr. Crark. This is a very concise statement, Mr. Chairman. The
irst figures are an estimate. of the value of the Government traffic
f charged for at authorized prewar rates. That is separated into
lifferent periods, the first being from August 5 to December 31,
1914, and then the calendar years 1915 to and including 1918, and the
iggregate is £112,048,808, and the report says that these figures are
n respect of railway transit only and that the railway companies
qave performed additional services by means of steamboats, docks,
sanals, etc., for which no charges have been set up or, as they put it,
‘for which no charges have been raised.” The value of these have
ot been ascertained but are estimated roughly at from £10,000,000
-0 £15,000,000.
The statement then shows the compensation paid in respect of
sontrolled periods. ‘That is stated for the same periods, and the
‘otal is £95,313,607. These figures include provisional allowances for
leferred maintenance of permanent way, rolling stock, and plant,
out do not include any provision for “ extra wear and tear,” which
tem, it says, can not be ascertained at present, but the auditors advise
it will be considerable.
‘There is then an estimate for the current financial year and the
ost of working the railways during the financial year ending March
31, 1920, as compared with 1913, and these figures are in direct
inswer to your question with regard to wages. The war wages and
other concessions, which I understand to mean concessions to labor,
umount to £57,000,000; the eight-hour day and new concessions re-
cently granted or still under discussion, from twenty to twenty-five
nillion pounds; the extra cost of materials and coal, £27,000,000, the
otal estimate being from £104,000,000 to £109,000,000.
Then there are the details of the receipts and expenditures for
shese several periods, from which it will appear that in each calendar
year, disregarding for the moment the fraction of 1914, the total
revenue earned exceeded the revenue for the year 1913, which was
saken as their standard return period. .
' The Cuatrman. They only used one year.
Mr. Crarx. I understand they took the year 1913 as their standard.
Tt shows also that for each calendar year included in the statement
he total expenditure considerably exceeded that for 1918, and that
vhe balance of revenue earned over expenditure exceeded that for
1913.
The figures showing the receipts and revenues include the esti-
nated amounts which would have been paid for Government traffic
\f it had been charged for at the prewar authorized rates; in other
words, they have estimated the traffic for the Government at the
orewar rates and have applied the war rates to the commercial traflic,
76 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ©
with the result that the Government has operated each year with a
balance to its credit.
The Crairman. In other words, the operation of the British roads
during the war period resulted in a profit?
Mr. Cuark. Yes, sir; when you include the transportation for the
Government at the prewar rates.
The Crrarrman. In the United States we have reduced rates to
the Government for the haulage of war munitions and for the trans:
portation of troops. Do not the troops get a lower rate?
Mr. Crarx. I do not think there have been any special rates or re
duced rates for either, except that officers and enlisted men traveling
on furlough and at their own expense have been accorded especially
low passenger fares, but where they travel at the expense of the
Government, I understand they pay the same-as you and I.
The Cuatrman. Except on land-grant roads.
Mr. CrarK. Yes; except on land-grant roads where land-grant re-
ductions, I assume, are insisted upon by the Government as to all
this transportation.
(The statement referred to above follows:)
RAILWAY WoRKING DURING THE WAR.
[Statement showing the cost of running the railways in Great Britain during the period
of Government control of the railways (1914-1918). Presented to Parliament by com:
mand of His Majesty.] f
The attached statement, prepared by Sir Walter Wyon and Sir William
Plender, is submitted. It shows the value of the work performed on British
railway during the period of Government control, and the provision for expendi-
ture which has had to be made. The balance of railway revenue earned over
expenditure is not the amount which has been credited to the railway com-
panies. The amount to which they are entitled is based on the net receipts of
the companies in the year 1913 with certain additions in respect of capital ex-
penditure brought into use since that time. The following statement sum-
marizes the position so far as the railway companies of Great Britain are
concerned : ;
Estimated value of Government traffic if charged for at author-
ized prewar rates:
CSGMRE MMC LAMAR RSA £3, 500, 000
Aug. 5 to Dee. 81, 1914
Wear TOL se ss ee 10, 279, 104
Year 1016. iw es ek ee 20, 649, 126
Y@aw POUT oe Ue 35, 698, 554
DG: hut ¢2 15. Mee OLE A a MME ETE NEMN be 41, 917, 024
Total fagliS i Ac oe See be a 112, 048, 808 |
N. B.—These figures are in respect of railway transit only. The railway
companies have performed a number of additional services by means of steam-
boats, docks, canals, etc., for which no charges have been raised. The value
of these can not be ascertained, but may be estimated at roughly £10,000,000 to
£15,000,000. i
Compensation paid in respect of control periods:
‘Aug 5, 1914, 0 Dee. $1, 1015 ee £15, 946,839
Méar’ 1O1Giccee yi ots ee Oe ee --. 14, 039, 6%
Year 1947 uc se Oe 24, 075, 768
Veit) 1Ot8 hiss Foe eee Meh ook fe 41, 251, 326
Se a ae
OT eee ea te Sth es oe Rs ed I lc 95, 313, 607
N. B.—The above figures include provisional allowances for deferred mainte
nanee of permanent way, rolling stock, and plant, but do not include any pro-
vision for “extra wear and tear.” This item can not-be-aseertained at pred
ent, but the auditors advise that the cost of making good the “ extra wear ant
tear’ will be considerable. a :
'
2 a Y
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
~}
~]
fates ESTIMATE FOR CURRENT FISCAL YEAR.
y The figures of £90,000,000 to £100,000,000 were quoted by the minister desig-
ate in moving the second reading of the ministry of ways and communications
vill. These figures were the best estimate then available of the increased cost
of working during the two years of extended Government guarantee, as com-
dared with the cost in 1918. The following is the present estimate of. increased
sost in working the railways during the financial year ending March 81, 1920,
us compared with 1913:
Statement ef estimated increased cost in working railways during financial
year ending March 31, 1920, as compared with the year 19193.
; > EES \
(War Wameuend other concessions______. £57, 000, 000
‘$-hour day and new concessions recently granted or
Sulltvmemmer discussion-_____.... bates ah ih 20, 000, 000-25, 000, 000
\xtra cost of materials and coal___________________ 27, 000, 000
; | a ee 104, 000, 000-109, 000, 600
A. C. GEDDES.
1. BoArD OF TRADE,
; April 30, 1919.
I
The Right Hon. Sir Arberr STANrey, P..C.. M.'P.,
° President of the Board of Trade.
Sir: We have, as requested, prepared a statement showing the revenue earned
ind expenditure of British-controlled railways in respect of railway working
“or the year 1913 and for the period of Government control to December 31,
918, which we subjoin:
APRIL, 1919.
SS
Period of Government control.
Aug. 5 to
j Year 1913. | Dec.31,
1914. | Year 1915. | Year 1916. | Year 1917. | Year 1918.
RECEIPTS,
‘assenger-train traffic......... £54, 096,074, £19, 091, 103) £52, 576, 836) £54, 953, 831) £59, 710, 183 £69, 819, 265
toods-train traffic............. 68,551,503) 26,861,560! 71,754,353} 74,809,650) 74,310,568] 72,396, 409
istimated amounts which .
would have heen received
for Government traffic if.
charged for at prewar au-
_ thorized OES ce ae Eat a re 3,509,000; 10,279,104) 20,649,126) 35,698,554] 41,917,024
) 0 122,647,577| 49, 452, 663) 134,610, 293] 150, 412°607| 169, 719, 305| 184, 132, 698
eSS expenses of collection ¢
| Mm cenvery. 8. 5,092,670) 1,950,817) 5,341,872) 5,711,354) 6,571,736) 7,845,927
Total traffic revenue
Oe Oe aie 117,554,907} 47,501,846) 129, 268, 421] 144, 701,253] 163,147,569] 176,286, 771
Fe oh iB) Ge” 150, 679 1,719 9, 844 9,115 7 AGL Sol ae ee ae
iscellaneous._.:............. 995, 349 414,623} 1,079,779; 1,160,717} 1,126,903) 1,297,550
Total revenue earned ...| 118, 700,935) 47,918, 188) 130,368, 044) 145,871,085] 164,279, 430) 177, 584,321
EXPENDITURE. .
laintenance and renewal of
‘Wey @ad WOrks.....-.......2 ) 11,818,310 4,623,713) 11,598,234) 11,924,459) 13,265,610) 16,145,166
Mo ee Da 800, 264) 2,934,757) 5,055,609} 6,282,179] 6,485,228
aintenance and renewal of
ee BLOCK... ............ 13,257,617} 5,193,599] 13,741/171] 15,211,621] 17,620,905] 21,888,238
‘aintenance and renewal of
‘rolling stock, arrears to be
pee 315,446) 2,476,753) 3,202,694 3,667,993] 3,327,049
ocomotive running expenses.| 17,130,661) 6,918,659] 19,195,992] 22,604,085} 24,742,848] 29,973, 666
‘ramic @xXpenses............... 23,260,765, 9,405,579) 24,739,143} 27,397,967] 32,772,823] 41,621,685
‘eneral charges............... 2,598,209, 1,094,918) 2,635,550) 2,692,066] 2,885,972) 3,140,849
‘tary expenses............... 226, 346 89, 039 197, 250 186, 802 176, 517 185, 812
{
, |
!
78 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7
Period of Government control.
Aug. 5 to ah
Year 1913. | *Dec.31, © |————_ —————— —_
sarin Year 1915. | Year 1916. | Year 1917. } Year 1918,
EXPENDITURE—continued.
1"
Compensation (accident and
YOSSES) as), bee oka ae eee £1,158, 451 £293,760) £1,176, 858} £1, 250,914) £1,275,191| £1, 456, 430:
Rates, taxes, te... ..c0 4c secede 4,705,264, 2,077,111 5. 064; 047 4 839, 699 4, 880, 778 5, 273, 155.
Government <9 CDi ra pec cirayhe HeO 284, 351 81,101 255, 34] "293° We ane eee See |
Payments under national in- ,
surance'act; JOM. ate 398, 870) 155, 192 363, 652 354, 126 362, 339 355, 496:
Running powers.............. 108, 699 SIA! fh <3, 234 3, 806 1, 209 1, 665.
Mileage, demurrage, and
marae bere ho etre 239, 916) 28, 126 51, 186 45,961 63,942} 165, 745.
Miscetamomis.. U2 ue oS 157, 139 74, 722 190, 63 207; 596 252,789} § 340,392"
Allowances to dependents of y
men serving with His Maj-
ROUT TOROS! A ha ie ont a te cae 141, 683 333, 225 477, 425 623, 395 711, 009
Watching, partolling, etc......|........---. 190,731 21, 240 8, 702 5, 860 7,127
Payments to staff, armistice :
day 22) LLU LES Te ON ea en ee a 250, 918.
Total expenditures... ... 75,127,210, 31,782,832) 85,028, 262} 95,756, 706| 108, 877, 932} 131,326, 295.
Balance of revenue |
earned over expendi- .
GUTCS Spee RA 43,573,725, 16,135,356) 45,329 782] 50,114,379} 55,101,498] 46, 258, 026.
Note 1.—Compensation payable to railway companies: The sum receivable
per annum by the railway companies as compensation during the period of
Government control is limited to the net receipts of the year 1913, with the
addition of 4 per cent upon capital expenditure brought into use since the
beginning of that year.
Nore 2.—Audit. The accounts from which the figures are taken have been
audited on behalf of the Government up to the close of 1916, and the greater
part of them for 1917. The remainder of the figures are taken either from
accounts in process of audit or from preliminary returns.
Note 3.—Subsidiary undertakings: The value of the services rendered with-|
out charge to His Majesty’s Government by means of steamboats, docks, canals,
etc., is not ascertainable, and the results of these subsidiary undertakings are:
accordingly omitted. It is not likely that, if available, they would materially |
affect the figures.
NorE 4.—Government traffic: This is the value of the traffic carried for the
Government without charge under the compensation arrangements, calculated |
at prewar authorized rates. The figure for 1914 is estimated.
Note 5.—Wages: The wages included in the several heads of expenditure are
taken at the actual_rates paid, rising in 1918 from 21 shillings per week to 33
Shillings above the rates in force in 1918. If the rates paid at the close of
1918 had been in force throughout the year it is estimated that an additional -
cost of about £10,000,000 would have been incurred. i
Nore 6.—Arrears of maintenance: The cost of making good maintenance in
arrear is calculated on the basis of the expenditure in 1913, increased by ioe
per cent, to allow for higher rates of wages and prices of materials.
Nore 7.—Extra wear and tear: The above net receipts are subject to pro-
vision for extra wear and tear arising from additional traffic carried. The’
cost of eventually making good this wear and tear must be considerable, but
can not be estimated at present with any degree of accuracy. A calculation
based on the ratio of maintenance outlay to receipts in 1913, after allowing :
|
for increased wages and cost of materials, results in a figure of about £40,000,
during the period of control. There are factors affecting this estimate which
tend to reduce it, but whatever their effect there is no doubt that a large
allowance for this contingency needs to be provided 10h We are,
Your obedient servants, 8
ALBERT W. WYON.
WILLIAM PLENDER..
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 79
Mr. Sims. Mr. Commissioner, there is one matter whieh you re-
ferred to in the beginning of your statement which seems to me to
‘have somé effect on everything connected with this entire question.
It was touched on somewhat by yourself and the chairman, and that
is what is commonly called the long-and-short-haul clause, the fourth
section. The chief object and purpose of that section, as appears on
‘the face of it, was to prevent any railroad charging more for the
‘short than the long haul over the same road on the same class of
freight or passenger traffic moving in the same direction, but the
first proviso in the fourth section provides:
Provided, however, That upon application to the Interstate Commerce Com-
imission such common carrier may in special cases, after investigation, be
authorized by the commission to charge less for longer than for shorter dis-
_ tances for the transportation of passengers or property; and the commission
may from time to time prescribe the extent to which such designated common
‘carrier may be relieved from the operation of this section.
Now, there seems to be no legislative guide line or limitation upon
the commission in its discretion in determining, first, what are spe-
cial cases, and, second, the amount or the extent of this permission.
‘Now, does the commission act or has it acted, on what seems to be
igre ‘unlimited power, within its own discretion, to determine first
\what is a special case, ‘and second, the amount of the relief, 1f we can
‘call. it relief, or the discrimination in favor of the farther distance
against the shorter distance? Has the commission any established
rules by which it puts in operation this exception whenever they have
‘so acted ?
Mr. Cruark. As you have pointed out, Judge Sims, that section lays
down no rule of law to govern the commission in the exercise of the
|discretion vested in it. As you will remember, the original fourth
section of the act prohibited the charging of less for the longer haul
)than for the shorter haul under similar circumstances and conditions.
J made to give that any vitality was
zontested in the courts and in each case that was taken to the courts
;the commission was reversed on the ground that the circumstances
jand conditions were not similar. In 1910, the Congress took it up
for amendment, and the present law from which you have read is the
fresult. It transfers to the commission the power to determine
whether or not the rule may be transgressed or deviated from, but it
juttaches ho condition and places no limitation upon the discretion of
“he commission as to the conditions which should control, as to the
sonsiderations which might be given weight or as to the extent.
_ The first important case in which we entered an order under this
yimended section was the transcontinental situation, and we there au-
shorized deviation from the rule with regard to westbound com-
nodity traffic; but we*fixed the extent to which the rates to the ter-
/ninals might be lower than to the intermediate points by percentages,
Jetermined by zones of origin. That was contested in the courts;
{he constitutionality of the act Was challenged, and it was contended
hat if the commission found that there was bbinpalling competition
jit the more distant point that was not present at the intermediate
doint the commission was without power to deny relief and without
) ower to prescribe the measure of the relief except as it might de-
vermine the reasonableness per se of the rate to the intermediate
»oint. The Supreme Court sustained the decision of the commission
80 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ;
and the pow er of the commission as it had been asserted. Now, the
only rules that we have had are unwritten rules of guidance of our
action. As I said in answering one.of the chairman’s questions, we
originally granted relief when there was potential water competition
at the more distant point; but after a time we made up our minds
that that was rather too broad a policy and ought to be narrowed,
and since then we have declined to recognize potential water compe-
tition as justification for relief.
We have a general rule, and have generally followed it—an un-
written rule—as between the circuitous and a more direct line of rail-
road‘ competing for the same traffic. The length of the circuitous
route must exceed that of the more direct route by 15 per cent or
more in order to constitute a special case or entitle it to any relief on
the ground of circuity. We have refused in many instances to grant
relief when in our judgment the distance by the circuitous route un-
reasonably exceeded that by the direct route and created a condition
under which it would seem to anyone looking at it that either the
rate by the circuituos route must be unprofitable and unremunerative
or that by the direct route must be too high; but we have had no
guiding rule. We have had to do the best we could, and in doing
the best we could we felt that we must accept the fae that that pro-,
vision was in the statute as evidence of the intent of Congress that
it should be used and recognition of the fact that transportation
conditions throughout the country were or might be such as to war-)
rant relaxation of that rule and relief from it in such circumstances
as the commission felt justified such relief.
Mr. Sirus. Then, so far, the commission has acted upon what ap-
peared to be the controlling circumstances of each application or of
each carrier seeking to be exempted from that general rule of law.
That seems to have been your procedure.
Mr. Crarxk. Except that necessarily, in determining any question |
under the fourth section, the provisions of the first and third sections
must be taken into consideration. We would not approve a departure
which involved a rate which we believed to be unreasonable per se to
either point, nor a rate that in our judgment created undue prefer-
ence or prejudice.
Mr. Sts. Is not one of the effects of allowing the railroad of
longer length of mileage moving freight from one ‘point to the other
that the longer road vets less per ton-mile in the way of profits or
compensation than the shorter road gets, both charging the same
rates ¢
Mr. Crarx. Necessarily so.
Mr. Sims. And to that extent, then, it modifies, or rather impairs,)
the weight that ought to be given to ton-mile charges, taking the
United States as a whole, and all the ton-miles together added.
Mr. Criarx. I do not think that would follow. |
Mr. Sims. In the question of the movement of freight per ton-mile.
Mr. Cruarn. The statistics showing the revenue per ton-mile are
made up from the actual movement of the traffic. The same railroad
earns varying revenues per ton-mile on different kinds of traffic and
different railroads earn different revenues per ton-mile on the same
traflic, depending upon the length of their line.
Mr. Srus. But if all traflic moved on the most direct route, requir-
ing less capital charge in the way of actual mileage of construction
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 81
jand less operating expenses in wear and tear and maintenance, is it
‘not inevitable that if all the traffic moved in that way the cost per
‘ton-mile of the movement of traflic, the capital charge, operation,
maintenance, and everything else, would be less per ton-mile ?
Mr. Crark. That would be true if you threw out of considera-
tion entirely the existence of the circuitous route. If you tear it up
and leave only the direct lines, that would be true, but of the cir-
| cuitous route is to continue in operation and is to live, I do not think
\it would result in any economy or anything except misleading sta-
| tistics.
| Mr. Sms. It might not as the roads that are now built and econ-
|structed, and no one contends that we should adopt the policy of
allowing any of them to be torn up, but our transportation lines, as
we now have them, regardless of why they were built that way, can
aot and do not move freight and passengers under the most eco-
|,xomical conditions that could be conceived, provided the roads had
service between all points.
| Mr. Crarx. That is undoubtedly so.
20st of operation and maintenance, the capital charges, and every-
Va included, being greater under systems built up like ours have
ivble rate prescribed by the commission, the more in that way you
,mpair the credit of all roads thus affected; is not that true?
joy the accommodation to the shipping public of having the benefit
of the competing routes and in times of emergency having two routes
| Mr. Sirus. But we are asked here virtually by some of these bills
o have the commission or some other body say how much the earn-
/n these roads and to have returns sufficient to make the securities of
aid roads competitively attractive; that is, attractive as against
1s not that true?
| Mr. Cuarx. I think so.
ential water competition, I believe the facts are that in the past,
though not in the most recent past, the commission has taken into
vhere such competition might come into existence if the rates were
\ufliciently attractive to bring that about.
ect
| Mr. Srms (interposing). I may not state that correctly or clearly.
ial water competition except under a very definite showing that the
vater competition had been there and might and probably would
) Mr. Sis. Provided this rate was not lower.
- Mr. Crarx. Yes.
|ll been constructed with a view to the shortest lines and least cost of
Mr. Sims. Then the fact that such a thing does exist, and the
|
yeen built, then the more of the traffic which moves below the reason-
Mr. Crarx. I think it would have that tendency, offset, of course,
_vailable instead of one.
; ngs shall be in order to pay a reasonable return upon the investment
ther investments in which private capital could be put with profit;
| Mr. Srus. Now, then, in cases of actual water competition or po-
onsideration potential water competition in making railroad rates
Mr. Crark. If you will pardon me, Judge Sims, in order to cor-
_ Mr. Crarx. We have never, to my recollection, recognized poten-
eturn.
152894—19—vor 1——-6
; ee |
82 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
|
ft
, )
Mr. Sims. One ofthe objects and purposes of the lower rate is to
prevent the return of water competition in such case, is it not? )
Mr. Cuark. Not on our part. , |
Mr. Srus. Then what is the tise of referring to it and treating 1t
as an agreement for a lower rate by saying that water competition
will return unless the lower rate is given.
Mr. Crarx. As I say, those considerations were among the earlier
ones considered. We were dealing with rate adjustments that had
been in effect for many years; that were originally made before the
act to regulate commerce was created, and at a time when the rail
carriers building into the territory found the competition of the
water carriers already there; and when. they were compelled to ae:
cept the same rates that the water carriers would accept, or forego
the traffic.
Mr. Stus. Now, then, in the case of the building of the Panama
Canal, after the Panama Canal was built, and in course of operation}
did not the commission authorize the transcontinental lines to make
a lower rate from water-competing points on the Pacific coast to
like points on the Atlantic coast, below what the railroads had for:
merly been charging or what had been considered as reasonable rates
for the transportation thus performed ?
Mr. Cuarx. There has never been a time since the first transcon;
tinental railroad was constructed—and, incidentally, constructed by
very abundant Government aid, although not quite as a Government
proposition as the canal was built—when the rates to the Pacific
coast terminals in competition with water carriage around Capé
Horn originally, through the Straits of Magellan later, later by
water and transshipment across the Isthmus of Tehuantepec, latet
by water and transshipment across the Isthmus of Panama, and
later by boat all the way through the canal, have not been lower
than to the intermediate points. That was true before the act te
regulate commerce was enacted. It has been true ever since until, as
I have stated, our last decision in the intermountain cases when we
held there was no compelling water competition and the rates must
not be higher to the intermediate points than to the terminals.
We had previously found that there was compelling water com:
petition that was not subject to any regulation and with regard t¢
a specific list of commodities, as to each one of which we had full
hearing, we authorized the rail carriers to establish rates to thé
terminals somewhat lower than they had previously charged becaus¢
piey were being carried at lower rates by the boat lines than eve!
efore.
Mr. Sims. Through the Panama Canal? .
Mr. Cruarx. Through the Panama Canal, but we connected thal
~ with a limitation upon the extent to which the rate to the inter:
mediate road might exceed the rate to the terminal, which gayt
the intermediate points a better relative adjustment of rates that
they had ever had before and which gave them an assurance that 1]
the carrier should further reduce the rate to the terminal point, 1
would, of necessity, at the same time reduce the rate to the inter;
mediate points. |
Mr. Sims. My line of questioning is as to the bearing upon tht
credit of the railroads rather than the discrimination between th¢
points. I had reference to. such a permission being given to tht
:
|
|
al
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. So
“ranscontinental lines on account of the existence of the Panama
|Janal and its operation and enabling those who do not ship by the
ill-water line to get lower rates from San Francisco to New York
‘md Boston than they could before the canal was built and limiting
‘he transcontinental railroads to make a rate that would enable the
‘ranscontinental railroads to get back all the freight which other-
‘vise would go through the Panama Canal. Was not that the object
|) the railroads in seeking such treatment ?
Mr. Crarx. To get a part of the freight.
Mr. Stmus. That they might get all of the freight ?
) Mr. Crarx. Not under the rates which we prescribed.
Mr. Sims. The object of the railroad companies was, as a matter
of peat to keep the freight from going that way or to increase their
‘reight ?
ie Mr. Cxrark. The purpose of the railroads, as pretty clearly appears
i'n the record, was to preserve a part of the traffic which they had
heretofore had.
| Mr. Saws? Freight is increasing at all of these points, is it not, all
| he time; that is, the volume of business done as the country develops ?
Mr. Crars. Naturally, as the country develops in normal times,
he volume of transportation increases.
Mr. Srtus. As a matter of course, then, that is an unprofitable
raflic to that extent ?
' Mr. Cuarx. No; we do not think so.
’ Mr. Sims. The railroads do not propose to carry any freight for
less than what they call out-of-pocket cost, as I recall it?
' Mr. Crark. Yes, sir.
Mr. Sims. Out-of-pocket cost, as I understand, is determined by
1ow much it will cost the railroad to move the freight in competition
vith the canal, and also what it would cost to operate the railroads
vithout carrying it?
) Mr. Crarx. No; only what it costs to move that freight whether
rhere is a canal or not.
Mr. Srus. The cost of moving the freight over the railroads? .
Mr. Cuark. Yes, sir.
) Mr. Sms. But it includes no percentage on the question of a rea-
/onable rate ? |
| Mr. Crarx. No; it includes a certain proportion of profit in so far
‘s that would be included in a safe determination that it was not
ess than cost. It would not contribute anything to the overhead
)Xpense except that narrow margin, but whatever profit there was
rould contribute to the net and be available for payment of over-
; ead expenses.
Mr. Srus. Is not this an inevitable fact, that every ton of freight
farried by a railroad that would otherwise go through the canal by
‘educing their rates, deprive the Government of the tolls it would
‘eceive on that freight if it did go through the canal?
Mr. Crarxk. I suppose that is so; yes.
} Mr. Sms. And therefore the permission given to the railroads to
jarry the freight from ocean to ocean for less than they themselves
ontend is a reasonable rate, just so it covers the out-of-pocket cost,
ermits them to prevent the Government or the taxpayers of this
jounry from being reimbursed to the extent of the tolls which would
e paid if the freight went by the natural waterway ?
54 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Crarx. Judge Sims, if the railroads were not permitted t¢
compete with the water carriers and the water carriers were to re-
sume operations under the same laws that obtained at that time, the
water carriers would charge all they could get for the freight and
get it away from the railroads. .
Mr. Sims. The water carriers would serve those points?
Mr. Ciark. Of course, they would.
Mr. Stus. And they would make their own rates?
Mr. Crark. Yes, sir; they would make all they could and get the
freight away from the railroads. |
Mr. Sims. Naturally; in other words, the most economical servic¢
would do the business?
Mr. Crarx. It depends upon whether it is the most economical
I think it now costs more to transport by water than by railroad.
Mr. Sims. Would private capital go into the water route shipping
business without a prospect of getting a reasonable return upoi
the investment ?
Mr. Cuarx. I do not think it would.
Mr. Sims. If private capital in water routes as compared with:
freight-carrying railways can economically carry the freight fot
less and yet live and be satisfied, why should we artificially destroy
this natural economy and do it at the expense of the public taxpayer:
of the United States, at least to thexextent that the tolls are nol
collected ? |
Mr. Crarx. We do not advocate any attempt or effort to destroy
them. What we undertake to do
Mr. Srms (interposing). I am not talking about the purpose oi
the commission.
Mr. Cuiark. I understand. If you leave the water carriers an¢
the railroads entirely free from restraint they will be like the Kil,
kenny cats—they will destroy each other and destroy themselves bj
carrying the competition to a ruinous extent, and who will benefi
by it? If there is anything certain in human nature it is that if
the railroads are not permitted to compete with the water carrier:
the water carriers are going to charge all they can charge and ge:
the traffic. If the water carriers can not compete with the railroad:
the railroads are going to get all they can get out of the traffic. J:
they are permitted to compete with each other for the traffic of
reasonable terms which do not give either an unfair advantage ove}
the other the public is going to pay less. It is true that the mort
tonnage that moves through the Panama Canal the more tolls thi
Government will collect. It is also true that these economical];
operated and privately owned water carriers through the Panam!
Canal abandoned that service just as soon as more lucrative cargoes
appeared for the use of their boats elsewhere.
Mr. Srms. In other words, there was no law compelling them t
do a less economical business through the canal than they could di
by not going through the canal? |
Mr. Crark. It was not an economical business; it was an oppor'
}
tunity to get more money by going to South America.
Mr. Sims. Profitable business, I mean ? |
Mr. Car. Yes, sir; profitable. |
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 85
| Mr. Sms. You do not believe it is right to provide by law or
egulation so as not to give the more naturally favored places that
‘dvantage which they otherwise would receive ?
Mr. Cuarn. We adhere very strongly to the principle that it is
‘ot our mission or our right to deprive any place of the advantages
.f its natural locality.
Mr. Sims. You have spoken of water-compelled competition ?
Mr. Cruark. Yes.
Mr. Sims. That does not mean, as a matter of course, that it is
bompetition that compels a railroad to carry its freight for any
|3ss, but it means not carrying it for less than it could be carried
y the natural and most economical means?
_ Mr. Criarx. It must carry it for less or not carry it at all.
| Mr. Sims. What do you say of the policy of amending this law so
‘s not to permit water competition to be regarded as constituting in
uch instances any ground for making a lower rate to a water-com-
| eting point by a railroad than the rate to a nearer point on the same
ine; in other words, applying the fourth section, without regarding
5 as an exception ? }
Mr. Crarx. As a special clause or reason for making a lower rate?
. Mr. Sms. Not as applying to the railroads, but just to the water
ines.
Mr. Crarx. J think that is a question of policy. It would operate,
_ think, to revive water competition. It would give boat lines an
dvantage which they do not now have and never have had in their
ompetition with the railroads. Whether or not it would give the
hippers lower rates is a debatable question. As I indicated in one of
ay answers to the chairman, my personal opinion is that the oppor-
unity to grant relief to the circuitous rail line in competition with
he more direct line is really of more importance than the competi-
ion with the water lines.
Mr. Srus. Do you think so as to the particular localities affectéd 2
Mr. Crarx. I think so as to the country as a whole.
Mr. Sts. The railroads have contended frequently that if they
yid carry this freight between competing points and did not get. at
j:ast some profit out of it they might have to charge the intermediate
ints even more than they did by having these resources at their
jommand, however small, but I am looking at this from the stand-
soint of credit, the amount of capitalization, the costs of operation,
lepair, and everything else, and if a railroad is allowed to carry-a
ery substantial portion of its freight from and to a water-compet-
(ag point at a rate that a water carrier can not economically com-
ete with or otherwise the water carrier would get it, will not that
npair the value of the’failroad property to the extent that such com-
etitive lower rates are permitted ?
_ Mr. Crank. I think that depends entirely upon a computation, if
: were possible to make it accurately and strike any balance, between
he returns to the railroads from that competitive traffic under the
ates which they must make to get it and what the railroads would
,se if they had to forego that traffic altogether. The railroad must
|ontinue to run. It is there whether it hauls the traffic or not and its
quipment and tracks will be wearing away just the same as if haul-
ea
ree
86 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ing the traffic. All of these things must be weighed to determine
whether or not the effect to which you refer would result.
Mr. Sims. If the railroad gets less on a part of its business than
on another part it will lose more in the long run than by getting a
reasonable rate on all? In other words, charging too low for some
of its business it must charge too high on its other business? \
Mr. Cuark. As a proposition of law announced by the commission
and, I am sure, announced by the courts, a carrier can not carry any
traflic at a rate that is so low that it necessarily burdens unfairly
other traffic in order to make up. We have undertaken to apply that
in administering the fourth section.
The CuHatrman. The committee will now take a recess as to this
matter until 10 o’clock Monday morning.
(Whereupon, the committee took a recess until 10 o’clock Monday,
July 21, 1919.)
)
CoMMITTEE ON INTERSTATE AND ForErIGN COMMERCE,
House or REPRESENTATIVES,
Monday, July 21, 1919.
The committee this day met, Hon. John J. Esch (chairman) pre-
siding.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE :
COMMERCE COMMISSION—Resumed.
The Cuairman. Mr. Clark, are you ready to continue?
Mr. Cuark. Yes, sir.
The Cuarrman. I think Judge Sims was asking some questions.
Mr. Srus. Mr. Chairman, in continuing the same line of examina~
tion I want to say, so that the commissioner may know, that the
reasons why I am going a little more into detail into the features)
of the long-and-short haul clause or the power of the commission to
act in special cases is because I do not think any member of the Inter-
state Commerce Commission has ever been heard on the question oi
prohibiting the exception in the fourth section, and while it does
not go to the main purpose of this bill, I think it might be well for
Commissioner Clark to be heard on that a little further than )
general provisions of this bill.
That is the reason I was taking so much time on the fourth-sec-
tion matter. Therefore, I want to ask a few additional questions,
It is not in antagonism of the general purpose of the bill, and I do.
not make any criticism whatever of the acts of the commission Mm)
applying this exception to concrete cases. Therefore, I hope that
you will bear with me a little longer. I asked you_a number ot
questions as to the effect it might have upon credit. I want to ask)
you, Mr. Commissioner, if the practical application of the excep~
tion in special cases would not have a tendency to bring about con
gestion at the ports or river points where there is rail and water
competition; that is, if it does not have a tendency to bring about)
congestion at those particular points, both as to river and rail traffie;
“in other words, if industries are not almost compelled to locate where
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. —68BT
|
“hey can use these competitive rail and water rates, if that does not
jave a tendency to cause congestion, and, if so, to what extent?
' Mr. Crarx. As I indicated the other day, Judge Sims, in the sec-
sions where this question is most acute and of most interest, the water
‘yansportation was there before there was any rail competition, and
‘he water lines and the rail lines went to what traffic there was of-
fered. Now, I think there is no doubt but this adjustment having
}yeen followed for many years has tended to increase the location
|>f industries at the points where competitive service was available,
lund competitive rates obtained, but that is the natural result of the
sontinuance of a condition that was there to start with. ‘There is
30 much traffic going to and from a place of that kind, either in nor-’
mal times or at other times, and it must be transported by the avail-
\able transportation lines, and so I can not see that it tends to con-
yestion at one time as compared with another because the con-
| xestion is there created by an increase in traflic. We believe that a
sloser adherence to the long-and-short-haul principle and minimizing
or reducing the extent to which the rates to the shorter distant points
may exceed the rates to the more distant points will gradually effect
1 redistribution of the traffic and encourage direct shipments to and
‘from the intermediate points.
Mr. Sus. I had reference to the congestion of industries located
at those points; in other words, the building up of cities against in-
/ -ermediate points.
i Mr. Cuarx. It has had that effect, undoubtedly; yes, sir.
|| Mr. Sumas. That was one of the reasons I had in asking the question.
/As other members of the committee no doubt will ask a number of
}yuestions on the long-and-short-haul clause and its various phases,
)L will not go further with that. There is one matter that I want to.
| wsk your views on. I was one of the first members of the committee,
jas I recall, who advocated giving the Interstate Commerce Commis-
sion the power to regulate the issuance of stocks and bonds. I felt
shat there was but one side to the proposition at the time. The Had-
\ley commission, as you no doubt recall, advocated in substance, as I
et Ree
\cemember, nothing but publicity. There were some pretty strong
\arguments which were supported by Commissioner Meyer, of your
\o0dy, to the effect that if a Government agency like the Interstate
Commerce Commission passed upon and authorized the issuance of
stocks or bonds of an existing railroad or system that there would be
/ n the nature of a moral obligation incurred on the part of the Inter-
\state Commerce Commission or other rate-making body to afterwards
| oermit rates that would have a tendency to prevent the depreciation
of the market value of those stocks and bonds after they were in the
iands of the public.
| The question that I want to call your attention to specially is this:
| 0f course, a weak railroad company needs new issues of stocks and
}oonds possibly more than a strong railroad, and if it has a large
volume of bonded indebtedness and a certain amount of stock issued
and that stock is selling below par, and under the Rayburn bill and
others which have been introduced these bonds and stocks can be
j,uthorized and, in effect, the commission does not have to regard the
\affect it will have with reference to the market value of the preexist-
,ng outstanding issues. Suppose the commission should find that a
88 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Pa
weak road—I will not pick any particular road, because there might
be some mistake about it—applies for permission to issue $10,000,000
or $50,000,000 or any other amount of stock, and the commission de-
cides that it is needed and it authorizes the issuance of the stock, but
prohibits the sale of it below par, what effect will that have, as to the
outstanding issues then below par; will it not have the effect to fur-
ther reduce the market value of those outstanding issues, or will it
not have the effect that when the new issue is put upon the market
that it will necessarily sell below par—what effect will that have upon
the outstanding issue and the new issue of stock authorized by the
commission under the proposed law ?
Mr. Crarx. In so far as the market value, by which I assume you
mean the selling price?
Mr. Srms. Yes, sir.
Mr. Cuark. I think that I, personally, would not be influenced by
that very much in any connection. The market value of a stock of
a railroad is not always controlled by the solvency or the sound or
unsound financial condition of the road. I have noticed that within
the last couple of years the people of the United States have loaned
the United States Government large sums of money and have paid
in 100 cents on the dollar, and the Government bonds are redeem-
able at 100 cents on the dollar, and still you can buy those bonds
now for 94 or 95.
Mr. Sims. Some issues.
Mr. Cuark. Most of them.
Mr. Sirus. I am directing the inquiry along the line of its effect
on credit. There are published market reports every day as to what
stocks are selling for, especially those having a par value, and the
public is. advised by the quotations given out every day. Now, the
Pennsylvania Railroad Co. has undoubted credit and all that sort
of thing, it never has passed a dividend, as I understand, but the
stock is quoted daily in the papers, and if it is going down there is
an impression created among the people of the country that its
eredit has been affected adversely and its ability to pay what it has
been paying in the way of dividends isin a measure jeopardized. That
is a strong road. If it has that effect on the stock of a strong road,
it has a much greater effect upon the stock of a weak road, and the
stock of a weak road fluctuates much more violently, and the stock
being quoted lower the impression is created that the road is in a
bad condition; it has that effect on the public mind, and, further,
will it not be necessary to bring out the new issue as a preferred
stock in order for it to be maintained at par, unless the prior issue
should advance to par?
Mr. CuarK. Well, I do not know. I do not want to misunderstand
your question or to evade the answer. If the idea is that the com-
mission is going to be charged with any duty or undertake in any
_
way to see that the stock of a given road 1s kept at par on the market,
why, that is a job that I do not want to undertake.
Mr. Sims. That is an element of credit?
Mr. Cuark. It is an element of credit in a way, Judge, but it is so
largely speculative that, as I said, I would not be influenced much
by it. The theory of this provision, as I understand it, is that it will
not and can not correct.any evils that have occurred in the past, but
if a railroad, sound or unsound financially, desires to issue new
-e
(a0
age RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 89
vonds or additional stock it will have to get consent, and that consent
will be given only when the application states the purposes in which
“he proceeds are to be used, and the commission will have the duty of
seeing that the proceeds are used for the purposes so stated. It
will prevent the issuance of stock for nebulous uses or the diversion
»f the proceeds to purposes that might not serve the best interest of
he public.
_ Mr. Sims. A certificate of the commission of convenience and
aecessity would indicate, as a matter of course, that they needed that
noney ¢
; Be as. A certificate of convenience and necessity would only
sbtain in the event of the construction of a new road. As to new
tock and its issue, the commission would simply find that the money
vas needed for the purposes stated and that the purposes stated
vould serve the public interest, and it would give its consent to the
ssuance of the securities or the stock for those purposes and reserve
ecessarily the exercise of the right and the duty of seeing that the
roceeds from that issue were devoted to the purposes stated. To
hat extent, at least, the carrier, however much it might previously
ave been overloaded with capitalization, would have a better prop-
ity, because the proceeds of the issue would have been devoted to
he development or the improvement of the property, but I do not
nderstand that the law or the commission shall undertake to keep
iat stock at par on the market. That is something that no human
ould do.
Mr. Smus. I certainly agree with you; but what I am trying to get
£ is this: When an issue of stock is authorized by the commission
t par and is sold at par, 100 cents on the dollar, and then after-
ards that particular stock falls below par and the prior existing
ocks do not advance, will not the credit of the road be impaired
ther than benefited ? :
ets I can not see how the credit of the railroad will be im-
aired.
Mr. Sims. I mean the stocks.
| Mr. Cuark. I can not see how the credit of the railroad could pos-
bly be impaired as compared with the issuance of the same amount
‘ stock without any supervision and without any public knowledge
|: to the purposes to which the proceeds were to be put and without
1y supervision as to the expenditures of the proceeds. I want to
|'pplement that a little, not with any disposition to be hypercritical
it, In my judgment, there are outstanding to-day issues of stocks
- railroads that are solvent, which stocks have never paid any divi-
jnds, never will pay any dividends, never have sold at par, and never
jit] popes. at par on the open market, because they do not represent
Ly value.
| Mr. Sims. But they do have an impression, at least, on the unedu-
ted public mind as to the market?
Mr. Crark. Unfortunately the public mind is often influenced by
isstatements of fact and misconception of the true situation. For
ample, ne man can come before this committee in an examination
) this kind without the public being given an entirely erroneous
\pression of what he has said. That has occurred within the last.
ree or four days.
f
|
90 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. {
Mr. Sims. That is one of the unfortunate circumstances attending
the publicity given some of the hearings, which I very much regret.
IT am not antagonizing the bill.
Mr. Cuark. I understand.
Mr. Sims. I want to get at the real facts with reference to a new
stock issue by a new road. If the stock of a new road is not made a
preferred stock, so that it will guarantee that that particular stock
will remain at par, what general investor would want to buy a stock
at par that he felt would ultimately go below par the very minute
that it was sold and put on the open market ?
Mr. Crarx. If a railroad company, or any other corporation for
that matter, can not sell its stock when it is issued under authority
of a body to which that power has been delegated by law, and when
the proceeds are to be devoted to improvements or betterments of the’
property, I should say that the institution, whether it is a railroad
or other corporation, was in a condition that called for reorganiza-
tion.
Mr. Sims. By the recalling and canceling of the outstanding
stocks being sold very much below par, if the stock did not sell at the
full market value. there would, perhaps, not be as many weak roads
as now. That was something that I felt very proper to bring out.
That is the way I felt about 1t myself, as one who has always advo-
cated the very législation that the commission has advocated, and
that is provided for in this bill.
Mr. CrarKk. I might suggest that if this had been the law 25 years
ago, and if it had been intelligently enforced and administered for
the last 25 years, a good many of the so-called weak sisters would not
be so weak.
Mr. Sims. There is no doubt of that; the weak sisters would not,
and the new issue of stock might have remained at par. That is
what I had reference to as affecting the credit of a particular road.
One matter that you discussed rather at length—I did not break
in on you at the time, except slightly—was the proposition that the
railroads should be permitted to continue to initiate rates just as
heretofore, and the period in which the commission would have the
right to suspend—was that narrowed or continued! |
Mr. Cuark. That is limited to 120 days.
Mr. Sims. Three months?
Mr. Cuark. Four months.
Mr. Sims. I mean four months. The commission would have the
power within four months to suspend that rate. I understood that
it was 30 days under the law. That is, if a railroad published certain.
rates and no suspension order was issued, that rate would go into
Siu in 80 days, subject to a further suspension—that is, after 30
ays! }
Mr. Crarxk. No, sir; the law requires the carriers to give 30 days’
notice of the effective date of the rate, unless they are permitted to
make it effective on a prior day.
Mr. Sims. The effective date mentioned by the railroads? .
Mr. Cuark. The effective date which has been filed with the com-
mission; and after it has been filed the commission may exercise its
power of suspension and prevent it from going into effect.
Mr. Sims. For instance, if the railroad should say effective 30, 60,
or 90 days, the commission has what period of time in which to sus~
}
i y
4
5
e f
‘
f
'
5
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. OT
‘pend? That law was changed, was it not, by the law of 1916 so that
the commission had to approve of the rates before they were filed ?
Mr. Cuarx. There was a provision put into the fifteenth section of
the act prohibiting until January 1, 1920, the filing of any increased
‘vate until the commission had given its permission.
Se Sims. But this bill does not provide for the continuance of
‘that?
‘ Mr. Crarx. ‘That is omitted in this bill.
__ Mr. Sirus. If this bill should go into effect before January, 1920,
that would be repealed ?
| Mr. Crarx. It would be a repeal of that; yes, sir.
Mr. Sims. During the war period how has the commission found
ithe practice through the application of the fifteenth-section amend-
‘Ment as compared with since it was passed and before we entered the
“war ourselves?
' Mr. Cuarx. My judgment is, speaking for myself only, that if the
‘conditions had been what they have been, entirely aside from Fed-
eral control, and there had been no Federal control, the applications
funder that provision of the act would have been so numerous that it
‘would have been physically impossible for the commission to do any-
‘thing with them except to pass them along in the most stereotyped
iway. 7
| aie Sims. In other words, it is impracticable under present condi-
tions ? |
| Mr. Cuarx. I think it is inadvisable under ordinary conditions,
‘because developments arise that can not be foreseen, and the country
‘Is so large and the number of carriers so many and the conditions
of traffic change so rapidly that it is almost physically impossible to
handle them and do it in the intelligent and careful way in which
‘we desire to do it.
Mr. Srms. But you do advocate, as I understand, reducing the
‘period of the power of the commission so as not to allow the addi-
tional six months?
Mr. Crarxk. That is correct.
Mr. Srus. In other words, if the commission fails to act upon a
rate filed by a carrier within the period mentioned in your testimony
then the rate will go into effect?
Mr. CrarK. Yes, sir.
Mr. Sims. Will the commission have sufficient time during the
period authorized for suspension, as you have indicated—that is, will
the commission have the time required to give proper consideration
to the rates prior to that time?
Mr. Crark. Well, we hope so. We can not predict with certainty,
‘because we can not know what the conditions will be. We have
undertaken to protect the shipper in the event of our inability to
conclude the proceeding within 120 days by conferring upon the
commission authority to require the carriers to keep an accounting
of all of the traffic that moves under those’rates, so that at the end
of the investigation the commission can order the carriers to pay
‘ack to the ones from whom or in whose behalf they received pay-
nent what they have received in excess of what the commission finds
would have been reasonable.
Mr, Smors. Then, Mr. Commissioner, you spoke of one of the alter-
‘aatives to take care of the weak roads by Government loans. You
}
}
ati
’
<
~™
92 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ;
mean by that that the Government should lend money to the - |
roads when they can not get money in the market in competition with |
strong roads or through private investors offered to the general
ublic ? P|
: Mr. CuarKx. What I undertook to say, Judge, was that during this
transition period from the release of the roads from Federal con- |
trol to a settled condition of normal affairs in the country it might
be wise for the Government to loan the railroads its. credit in the
form of loans properly secured and which in time would be returned
and at rates of interest substantially lower than the railroads could |
get in the open market.
Mr. Sms. Mr. Commissioner, would not such an amendment as.
that made in favor of the weak roads prevent them absolutely from.
making any attempt to borrow in the open market? :
Mr. Cxark. It will depend, of course,-upon whether the Govern-
ment is willing to make the loan.
Mr. Sims. If the Government refuses to make a loan to a weak
road under the conditions you have mentioned, will not that furthe
depress the securities of that railroad ?
Mr. CrarK. I think that is quite likely. I think it would be a use-
less task for the Congress to undertake to legislate assurance that
none of the properties subject to the legislation will need to go
_ through reorganization. I think that reorganization of some of these
properties is inevitable under any state of facts. |
Mr. Sms. Is it not absolutely just to the public interest that they |
should be reorganized ? :
Mr. Crarx. I think so. My suggestion with regard to the Gov- |
ernment loans was that the Government might lend its credit to tide
some of these properties over when the Government could be se-
cured and get the return of its money later with interest under which
the Government would lose nothing, but it would lend that credit to
the carrier that might not be able to get it on the same terms in the:
open market, at least would not be able to get it except at a sub=)
stantially higher rate of interest.
Mr. Sms. But if the Government should make such loans at sub-
stantially lower rates of interest than otherwise could be secured it |
would naturally force the Government to make loans to all the weak
roads, as the weak roads would not seek any other method of ac-
quiring money except fromthe Government? :
Mr. Criark. Naturally they will seek their loans where they can |
get them on the best terms. The Government would not be forced to
make any loan except where the terms and conditions were satisfac- |
tory to the officers of the Government who had charge of the trans-
actions. |
Mr. Srmus. Would it not practically lead to results of this kind, |
that those weak roads would apply to the Government for loans,
and the Government would, perhaps, authorize some of those loans |
and might not authorize others? The Governmnt, of course, is to.
some extent a political. organization and exercises political power,
and would it not be charged that the Government was fostering one
railroad and not another? Now, that being true, would it really —
benefit the credit of the weak road, inasmuch as these loans from the-
. Government are to be amply secured, and if the Government loan
can be amply secured, then private loans could be amply and safely
|
|
, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 93
‘secured by such roads? I suppose you assume that the Govern-
“ment ought not to make loans unless the Government can be fully
protected in making them?
; Mr. Cxuarx. I have undertaken to say that I have only suggested
~making such loans as were properly secured.
~ Mr. Stus. What do you mean by “ properly secured ” ?
. Mr. Crarx. I mean where the railroads can furnish security that
is satisfactory to the officials of the Government, and which will, in
: all human probability, secure the repayment of the loans. Now, as
_to the question of criticism, it has been my observation during a short
‘and uneventful life that whatever is done by Congress is criticized
_and that whatever is done by any individual, if it 1s worth doing, is
criticized.
' Mr. Srus. Whatever is done by the Interstate Commerce Commis-
ion is criticized, sometimes favorably and sometimes unfavorably.
) Mr. Crarg. Yes, sir.
_ Mr. Sms. But, as to the proposition of extending credit to weak
‘roads, it does not seem to me that the providing of such loans at
a substantially low rate of interest can have any other effect than
‘to dump all the weak roads on the Government. The Government
officials will have to determine what roads should receive credit and
what roads should not receive credit, and, it seems to me, that after-
wards it will be claimed that all sorts of favoritism has been shown,
leading to investigations by congressional committees, etc. Upon the
whole, the credit of the roads, it seems to me, would not be sustained,
out, perhaps, it would be curtailed. In other words, is a weak road
entitled to consideration over a strong road, per se, either in the
matter of rates or loans, or should it receive favored treatment in
anything else?
Mr. Ciarx. What a weak road is entitled to depends very largely
‘apon circumstances, and the question of whether, or not, a road is
weak depends upon a variety of causes that have brought about the
condition. It may be that the road never ought to have been con-
structed; that its location is ill conceived, and that it never could be
4 prosperous property because of that fact. It may be that it has
een poorly managed and that it is still poorly managed, and that
on equal terms with a competitor it falls behind. due to that fact;
‘t may be that because of the management and policies of the boards
of directors it is outrivaled by its competitors, or it may be the result
: of financial manipulations for which neither you nor I would offer
“uy excuse. I would not and I did not confine my suggestion as to
wee to the weak .roads. It may be necessary to make loans to
strong roads, but I bear in mind all the time that the general dispo-
sition has been to deal with this question in a comprehensive and gen-
»ral way. I do not see how any of us can look upon these so-called
veal roads except as parts of a continental or national transportation
system.
_ Mr. Smrs. That is necessarily so. |
Mr. Cuark. Since Federal control began, out of a fund of half a
million dollars voted by Congress for that and other purposes and
out of the proceeds of the operations of those railroads, the Gov-
‘rnment has been making advances and loans to those properties,
ind, as I understand it, it has been doing it under contracts which
issure the Government repayment in the future. Now, my suggés-
94 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
tion is that that same policy might be continued Adve this transi-
tion period.
Mr. Sims. What do you mean by the transition period, or how
would it be limited ?
Mr. Ciarx. I mean by the transition period a limited period from
the time of the restoration of those properties to their owners until
conditions in the country have become much more normal than they
are to-day.
Mr. Sims. Well, suppose normal conditions simply mean a con-
tinuation of the present. conditions as to labor cost and material
cost. Will they not remain as weak as they are now?
Mr. Criarxk. When normal conditions return, if the costs are the
same as they are to-day, presumably the operations and revenues
must be on the same relative level.
Mr. Sims. Now, under the obligation of the Government to return
the roads in as good condition as it received them, is there any moral
obligation to return them in a stronger condition ?
Mr. Chark. The obligation is to return them to their owners in
substantially as good repair and with substantially as complete
equipment as when they were taken over. ‘Those that make the
standard contract with the Government agree that that obligation
is. fulfilled, or that that covenant of the contract is fulfilled, if dur-
ing the period of Federal control the director general expends upon
the property, properly distributed; amounts equal to those that were
expended by the railroads during the test period, making due allow-
ance for the difference in the cost of material and wages.
Mr. Sims. What I mean by war conditions continuing are not the
war conditions as to control, but the war conditions as to operation
and maintenance—that is, if the cost of labor and material remains
up. If that condition continues, are thosé roads ever to be anythin
but weak roads? They start in weak, with overbond issues and
overstock issues.
Mr. Cuarx. I have tried to suggest that, in my judgment, some of
them will remain weak roads until they go through a thorough
reorganization.
Mr. Sms. Do you think the Government ought to make loans to
any such roads?
Mr. Crark. I have not suggested that the Gov ernment should me |
any loan on any road that makes application to the Government
unless it eets satisfactory security for the loan.
Mr. Srars, Now, then, the strong roads do not need Government
a anyway. ‘
Mr. CuarK. In normal times?
Mr. Stus. Not in normal times. Are there not some strong roads
that have not received any Government loans so far?
Mr. Cruarx. I presume there are.
Mr. Sirus. Could not those roads get along after conditions are
normal without Government aid or assistance?
Mr. Cuark. I presume many of them can.
Mr. Sirus. And get along well?
Mr. Crarx. Yes. |
Mr. Sims. Then, why not make all the roads strong by reorganiz
ing them and squeezing out. the overissues, whether it is water, o
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 95
‘sot? Why could not the roads be made strong by reorganizations
shat would take out all of the water, eliminate the overissues of
sonds and the over-issues of stocks, having out only such bonds and
stocks issued as were justified by the earning power of the roads
‘mn normal times? Ake
Mr. Cruarn. That might be a desirable condition if it were brought
;bout, but I do not understand that that can be done by the legisla-
ive branch of the Government. That is essentially a judicial process.
_ Mr. Srus. But if the Government has to furnish the money nec-
ussary to keep them from going through reorganization, it seems to
ne that subject ought to be considered and studied a good deal before
we authorize loans to railroads that can not operate without them in
sompetition with other railroads.
’ Mr. Crark. I repeat, that I do not suggest that the Government
hitiico loans that are not properly secured to any of them, or that
‘he Government shall lend money to them so as to prevent those that
nust inevitably be reorganized from being reorganized.
Mr. Sims. I believe you are the oldest serving member of the com-
‘mission, and you certainly ought to be one of the best experts in the
ountry on this line of thought and action. When, in your judg-
ment, should the roads be returned to their owners, assuming that
vhey will be returned? —
| Mr. Crarg. My personal judgment is that they should be returned
‘ust as soon as Congress can enact legislation, which I think is most
lesirable, making conditions available to the carriers which were not
‘wailable to them in the past, and which will, in my judgment,
yperate to make the railroads better and will make the position of
‘he carriers easier during the abnormal times that now obtain.
' Mr. Srus. Now, Mr. Commissioner, you have gone over and an-
‘lyzed the bill introduced by the chairman of the committee very
‘ully, and I want to ask you if, in your judgment, the provisions of
hat bill, substantially as they are, with such amendments, if any, as
you have suggested, were enacted into law, should not the railroads
De returned at the end of the month in which that bill is approved,
or why should they not be so returned ?
Mr. Crarx. As IJ have undertaken to suggest, I think that this bill
‘ontains important and desirable amendments to the regulatory act
‘yoverning the operation of carriers under private control, but care-
“ul consideration should be given to the financial situation, which I
lo not undertake to describe in detail, because I am not a financier,
ho that there might not be unnecessary receiverships and unnecessary
vonditions of hardship during the period within which there must be
ome readjustment of affairs, and which, for want of a better word,
}s spoken of quite generally as the reconstruction period. The situa-
tion has been substantially changed by the fact of Federal control,
ind, necessarily, any abrupt transition from Federal control to pri-
“ate control, with the operating and traffic organizations of the car-
‘jers largely disarranged and dissipated, would, I think, be rather
indesirable.
Mr. Stus. How long a time do you think this reorganization and
‘eadjustment that you have referred to in the operation of the rail-
toads by their own agencies should cover, or how long a period do
vou think will be required in order to complete that process?
96 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
' Mr. Crarx. In so far as taking up the actual handling of the
properties and the operation and handling of the traffic is concerned,
I think they could do that easily within 30 days.
Mr. Sims. You have analyzed and studied the bill, and I want to
ask you if there is anything in the bill providing for the operation
of the roads by their owners within a reasonable time after the enact-
ment of the bill, say, within 60 days, 90 days, or 6 months? Is there
anything in the bill applying to the railroads which you have reason
to believe will injure their credit when Government control ceases,
or is there anything in the bill that would bring about receiverships?
Mr. Crarx. No, sir; I do not think there is anything in this bill
that would tend in that direction.
Mr. Sims. In other words, the bill will not intensify the weakness
of those roads that are already weak ?
Mr. Crarx. No, sir; but I think it will substantially alleviate then:
troubles. ,
Mr. Srms. Upon the return of the so-called strong roads within a
reasonable time after the bill is passed, can we assume that they can.
do their business under normal conditions, as they did heretofore,
without having their credit either temporarily or permanently
impaired ?
Mr. Crarx. Judge Sims, that goes directly to a question that is one
of policy. You know and we all know that at the present time each
month’s operations of those railroads by the Federal Government
results in a substantial deficit.
Mr. Sims. That is, a deficit measured by the standard return?
Mr. Crarn. Yes, sir. Now, what the conditions might be after
their return to private ownership, how much of economies they might
be able to work out, or how much they will realize from the increased
business which is constantly hoped for, I do not know. Nobody
knows, and those are the uncertainties of the future to which I
referred the other day when J said that I thought it was under-
taking almost the impossible to place upon the commission the duty of
fixing rates for the future so that they will produce a given per-
centage on a given sum of money.
Mr. Sirus. Do you think that it is in the public interest that the
war guaranty or the war return during the war period should be
continued indefinitely after the Government operation and control
of the railroads is surrendered ?
Mr. Cuark. No, sir; I do not think that should be continued in-
definitely.
Mr. Sims. Why should they continue such returns one hour after
the railroads are returned during this period of readjustment ? :
Mr. Crark. That is a question of policy to be determined by the
legislative branch after it has heard discussed some measures that
I have not undertaken to advocate or even to analyze. |
Mr. Sims. Now, there is one more question I want to ask, and
that will be all so far as I now see: Do you, or do you not, think
that the legitimate powers of State commissions and of the State
legislatures—and when I say “legitimate” I mean the powers that
the States have under the Federal Constitution—should be restricted.
reduced, or eliminated ? }
Mr. CuiarK. Our position with regard to that, I think, is very
definitely shown in the terms of this bill, which we approve, and in
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 97
the explanation that I have made of our understanding of the proper
interpretation and application of it. We have never advocated the
dissolution or deposition of the State commissions from all their
regulatory authority. We do not advocate that, because we do not
believe it would produce the best results. But, in so far as there
ts a conflict between State regulation and Federal regulation which
results in undue prejudice against interstate shippers or communi-
ties or lays an undue burden on interstate commerce, we think that
the Federal tribunal should be charged with the duty and possessed
of the power to require its removal.
‘Mr. Sims. Mr. Chairman, as this field is endless, I feel that T
have used all the time I ought to take.
Mr. Montacur. Mr. Commissioner, has there been any difficulty in
the past, or prior to the outbreak of the war, for railroads to secure
vapital or a requisite amount of capital ?
a aoe I think that depends altogether upon the time you
speak of.
PM. Monracue. Well, within the past five years.
| Mr. Cuarx. I should say that the roads that had security and
sredit had no difficulty in securing capital. Some of the roads that
lid not have satisfactory collateral or credit did have difficulty, and
[ should imagine, if I may go a little further, that when a railroad
aas behind it a history for years of recurring receiverships, and of
emerging from each receivership with a capitalization a great deal
aeavier than that outstanding when it went in, its credit is apt to be-
some impaired, and it’ will reach the time when it can not borrow
nore money.
Mr. Monracur. Has there been any falling off in securing capital
for the construction of new railroads in the past five years prior to
che outbreak of the war?
Mr. Cuarx. Not that I know of. I can not say positively, because
here have probably been many projects that I never heard of.
Mr. Montacur. Has the building of railroads in this country in
she past five years prior to the outbreak of the war been proportion-
itely what it was before that time?
Mr. Crarx. No, sir; I think not. I can get some figures on that
Which I will put in the record.
' Mr. Monvacoue. I suggest that you do that.
_ Mr. Crarx. I will supply them for the record.
Mr. Monracur. I understood from your suggestion the other day
that there was a diminishing demand for the extension of railroads
n America. I imagine that you would agree with me that there are
till fields needing the construction of new railroads?
| Mr. Crarxk. Undoubtedly.
Mr. Monracur. Do you think you could get capital to build new
‘ailroads in America now?
_ Mr. Crarx. I think it would be difficult.
_ Mr. Montacur. What do you attribute that to?
Mr. Cuarx. I attribute it to the fact that due to the conditions that
ave grown up and due to the propaganda that has been sedulously
listributed, investment in railroad securities is not attractive to the
Average investor. | |
] 152894—19—-vot 1
‘<
98 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Monracus. What particular feature of this bill do you think
would improve that situation ?
Mr. Crarx. I think the provision as to capital issues would im-
prove it, and I think that the opportunity for consolidation, mergers,
and unification for operating economies and better service would im-
prove it, as well as the protection against unnecessary competition, o1
the assurance that if a railroad is built it will be protected against
what I might term piratical building by a competitor of a road that
is not needed. Of course, the public mind will be influenced more on
less by the general attitude of Congress, as reflected in the legislation
it may exact prior to the return of the railroads.
Mr. Parker. I want to go more thoroughly into the question of the
issues of bonds and stocks. I want to see, first, what your idea is as
to differentiating between management and control. In answer to
Judge Sims’s questions, you stated that weak roads or systems would
want to borrow money. Now, that application for loans would have
to come from the board of directors?
Mr. Cuark. Yes, sir.
Mr. Parker. And, of course, if the Government loans them money.
as suggested, that would come ahead of the stock that the board of
directors represent ?
Mr. Cuark. Yes, sir.
Mr. Parxer. We have had that same sort of case in New York
State with reference to having two managements in control. For
instance, regarding the question of policy, suppose the Pennsyl.
vania Railroad wanted to double-track a certain piece of road, anc
they came to you for permission to issue bonds with which to raise
the money to double-track the road, would you hold that you had
the right to refuse to grant that request?
Mr. Crark. Undoubtedly.
Mr. Parker. If it were a matter of policy involved ?
Mr. Cuark. Yes, sir. |
Mr. Parker. It seems to me that you have the right to see that
the money shall be honestly expended, but I wanted to know whether
you had the authority or the right to govern the policy of the road.
Mr. Crark. I take it that you mean whether we have the right to
determine whether, or not, that money should be raised from issues
of bonds or stocks? ‘
Mr. Parker. No, sir. The money might be raised either way, but,
it seems to me, the question involved there will be one of policy.
Now, have you the right to determine what the policy of the road
shall be; that is, whether they shall double-track that road or not’
Tt seems to me that, without question, you have the right to say that
the money shall be honestly spent, but have you the right to deter-
mine what their policy shall be or what they shall do? That is an
interesting question to you, it seems to me. |
Mr. Cuarx. Under this bill, the carrier asking for the approval!
of an issue of either bonds or stocks would state the purpose for
which it desired the money, and the commission would have the
power to approve or disapprove the issue. If it approved the issue
it would be specifically for the purpose stated in the approval, and
then it would be the duty of the commission to see that the proceeds
were expended for that purpose. To that extent, and to that extent
ouly, I think, the commission would control the question of policy.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 99
| Mr. Parker. I am entirely in accord with your controlling the
| ssues of stocks and other obligations, but the theory, of course, upon
/which you are granted that power over the issues of stock and other
ybligations is because of the public interest. I think that the prime
|yuestion is whether or not the purpose stated is a legitimate one
}within the powers of the carrier.
Mr. Cxrark. And one which is needed in the proper performance
of its public service, and one that will contribute to the better serv-
)ece and convenience of commerce.
} Mr. Parker. Right there is where I want to direct my question as
'o whether the decision as to the policy of the company is going to
oe left with the Interstate Commerce Commission or with the di-
-ectors of the railroad ?
, Mr. Crarx. Well, the policy of the company would be subject to
(he restraint that before it can be carried out by issues of additional
»onds and stock the consent or approval of the commission to that
iction must be secured.
| Mr. Parker. Perhaps I can better illustrate it by mentioning the
ase of the Delaware & Hudson Railroad Co., in which the Court of
Appeals of New. York State held that the directors of the railroad
ompany represented the owners of the road, and that the question
f whether or not they should go into a new enterprise was a ques-
‘ion for the owners of the road to determine, but that the honesty
vith which the money was spent was a matter for the Public Service
_Sommission of New York State to oversee. I know that we had to
/ather revamp our public-service law to fit that decision.
Mr. Criarx. Still your public-service commission has the authority
,0 say whether or not that new loan is in the public interest.
Mr. Parker. Of course, we have the same provision that you have
n this bill. This was a question of buying coal lands, if I remember
ightly. It was a question of issuing obligations with which to buy
oal lands in Pennsylvania. The public-service commission refused
hem permission, and they carried it to the court of appeals. The
ourt of appeals approved it. I think I am correct in my statement
egarding it. I wanted to get your notion in regard to that very
nteresting question.
Mr. Crark. That would be a very interesting question, because I
)resume the money was wanted for the purchase of coal Iands, for
he purpose of having the coal extracted and transported by the
ailroad, and not a question of additional railroad facilities for
erving the public, and not a question of double-tracking.
The Cuarrman. Were those coal lands required by the carrier for
os own use ?
_ Mr. Parker. No, sir. It is really not the Delaware & Hudson
Xailroad Co., because it was not the railroad, but the Delaware &
Tudson Canal Co. The canal company owns the canal, the railroad,
nd the coal lands.
_ Mr. Crarx. They have some particularly vexing problems up there
1 connection with intercorporate relationships among the anthra-
ite-carrying roads and the coal lands. :
_ My, Parker. The canal company was the original company, and
aey owned the coal Jands. The railroad company does not own
je coal lands.
100 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cuarx. I take it, without attempting to prophesy as to what
the commission would do under this power, it is very doubtful, to
say the least, that the commission would ever approve issues of a
given sum of bonds of A B C railroad, the proceeds to be used
in buying stock of X Y Z railroad, with which it had no physi-
cal connection. °
Mr. Parker. I can see your point perfectly, but, of course, the
action of the board of directors represents the action of the owners
of the road. because, of course, the stockholders do own the road.
Mr. Cruark. Yes, sir.
Mr. Parner. Now, your interest in the matter is to look after thy
interest of the public?
Mr. Cuark. Yes.
Mr. Parxer. In other words, the railroad derives something from
the public in the way of the right of eminent domain. ‘That, of
course, makes it a public service corporation, because it gets some-
thing from the public, and because the public gives that something
vou are there to look after the interest of the public. Now, going
a little further into this argument, the fundamental idea of the
board of directors is to make the property pay. If they represent
‘the owners—and I am presuming that they are not trying to do any
stockjobbing—they will try to run the road in the best way they
can. Their argument would be that if they could buy those lands
they would be able to make more money, and be able to lower the
rates because they would be doing a larger volume of business, which
would naturally benefit the people. I was just wondering what your
notion would be as to how far your power would go to override the
request of the board of directors that wanted to make an improve-
ment that they thought was advantageous.
Mr. CruarKk. I can not state it any better than it is stated in the
words of this bill—first, that issues of the securities or of the stocks
must be for some lawful purpose within the corporate powers of
the carrier; second, that the purposes and uses of the proceeds are
found to be reasonably necessary or proper for the purposes stated.
There will be cases very strongly supported about which there will
be practically no difference of opinion or question—there will be
‘others that will be very doubtful, and there will be others equally
certain in the opposite direction, I think.
Mr. Sweet. Mr. Commissioner, I should like to call your attention
to the language of the committee print of the bill on page 25, com-
mencing in the first line, as follows:
And in establishing such through route the commission shall not, except as
provided in section 3, require any carrier by railroad, without its consent, t0
embrace in such route substantially less than the entire length of its railroad
and of any intermediate railroad operated in conjunction and under a commoa
management or control therewith which lies between the termini of such pro
posed through route, unless such inclusion of lines would make the through
route unreasonably long as compared with another practicable through route
which could otherwise be established.
Should this section not be amended in some way giving the com-
mission wider discretionary power to establish a through route if, m1
the judgment of the commission, conditions and circumstances wal*
rant such a ruling?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 101
Mr. Crark. From our standpoint I can see no objection to giving
she commission a wider latitude in the exercise of administrative
Jiscretion in that matter. The bill as you have read it or that part
which you have read is substantially the present law, except the
oroviso referring to section 3, and a slight change in the language at
che end of the section which corrects a somewhat ambiguous expres-
sion about which there has been controversy. The idea is that the
sarrier shall be protected in retaining to itself the long haul which
t is in a position to perform, and we have, of course, respected that
srovision, although we have found some few instances in which it
would result in an unreasonably long route. A certain route might
ye unreasonably long for the transportation of live stock and yet be
seasonable for the transportation of lumber because as to the one
shere is every reason for expedition and as to the other the demand
for expedition is ordinarily absent.
Mr. Sweer. My thought is that this part of the bill might prohibit
1 short-line railroad from obtaining a through route provided the
unk line or line with which it connects failed or refused to give
sheir consent, and my thought is that the commission possibly should
iave wider discretionary power to pass upon the question in case
she connecting trunk line arbitrarily refused; in other words, not to
eave the question wholly to the trunk line?
Mr. Criarx. That would be simply an extension of the discretion
vested in the commission, and which, of course, it would attempt to
administer, if charged with it, in a judicial frame of mind. There is
10 doubt but that the connecting roads, the originating roads, or the
ntermediate roads would have a broader opportunity under a change
such as you suggest than they have under the restrictions of this
section.
Mr. Swerr. There is a proviso following what I read:
Provided, That in time of shortage of equipment, congestion of traffic, or other
smergency declared by the commission it may establish temporarily such
hrough routes as in its opinion are necessary or desirable in the public interest.
The emergency, as I understand, referred to there is some emer-
rency declared by the commission. It is not the immediate case; it
sa general emergency, is it not?
Mr. Crarsk. That is the understanding I have; it is some general
‘mergency created by conditions which nobody can completely control,
in unusual volume of traffic or the interruption of some road or roads
vy the forces of nature, for example, like the Dayton flood of a few
ears ago. Those conditions will recur, nobody know when. Nobody
‘an define them all, and the idea is that the commission shall have
»ower to declare an emergency has come and to have power to meet
hat emergency without any delay by requiring the carriers to form
hhrough routes out of available lines that are not interrupted or are
i0t obstructed, regardless of whether it includes the entire line of
me railroad or not, the idea being to go on performing the largest
sossible amount of transportation in the most expeditious way with
he available facilities.
_ Mr. Sweer. If the proviso was changed to read. as follows, would
t meet with any objection from the commission ?
Provided, That in time of shortage of equipment, congestion of traffic, or
ther emergency declared by the commission, or in order to prevent any unjust
102 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
discrimination as between carriers, or to so distribute the traffic as may seem
necessary or desirable in the public interest, it may establish such through routes
as in its opinion are necessary and desirable.
Mr. CrarK. No; it would not meet with any objection upon my
part. I think I can so speak for the commission.
Mr. Sweer. That would simply extend the discretionary power ii
such cases to the commission so that it might act upon all the facts
in the case and render such decision as the case might warrant /
Mr. Crarx. I do not think that it would be inconsistent with the
power to require the terminals of a carrier to be open to the traffic
of another carrier.
Mr. Sweet. If I understood the full import of your statement, you
believe that the carriers should be the only parties that should initiate
rates ?
Mr. Cuark. I have never thought of dividing that up as between the
carriers and somebody else. I did express the opinion that it would
be more practicable and more in the public interest and better all
around if the carriers continued to initiate the rates.
Mr. Swerr. Has not the commission in some instances found it
desirable to initiate rates, considered and passed upon them, and put
them in force regardless of whether they were initiated by the rail:
road companies or not?
Mr. Cruark. We have found numerous instances in which we felt
the conditions were such that we should investigate what has been
in effect and have required changes and modifications of what had
been established by the carriers, but I know of no instance in which
the commission has felt called upon to initiate rates de novo.
Mr. Sweer. If I understand the present law, you have the right
to review and pass upon any rates that are now in force; those whieli
appear reasonable or unreasonable, on your own motion {
Mr. Crarx. Yes. The commission has that power to-day upon
complaint or upon its own motion and has done it in both ways.
It has instituted many investigations on its own motion in situations
which seemed to require investigation.
Mr. Sweer. That is all the questions I have at the present time.
qT ney have later on a few more questions which I should like to
ask.
Mr. Coorrer. There is one question that I want to ask you, Mr.
Clark. I was very much interested in your statement regarding the
disputes in wage questions which develop from time to time between
the railway employees and the operators. I think you stated that
you thought it would be very unwise for the commission to attempt
to adjust those disputes and I am inclined to agree with you after
hearing your statement. What I want to ask, Mr. Clark, is this:
Do you think that it would be practicable and wise for some gov:
ernmental authority to try to adjust the disputes that arise froni
time to time between the employees and the operators of our rail:
roads?
Mr. Cuarx. I do think so; yes, sir.
Mr. Cooper. You believe that this present board—I forgot what
you call it, the Wage Adjusting Board, is it?
The Cuatrman. Under Federal control ?
Mr. Coorrr. Under Federal control. Do you believe that they
have rendered good service along that line in adjusting these wage
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 103
‘questions, that is, this board which has been established since the
railroads were put under federal control ?
Mr. Cuark. I have not the slightest doubt but that that board has
‘Jone very helpful and useful work.
~ Mr. Cooprr. I am inclined to believe that that is one of the biggest
‘mestions that the American people are facing to-day, the labor
‘yuestion and the question of settling wage disputes. I for one would
de very much pleased if we could have something in this bill that
‘would tend to remedy that situation as it exists today, especially
30 far as railroad emplovees and employers are concerned. Have
you any suggestions to offer along that line, Mr. Clark? If you
aave, we should be very glad to hear them.
| Mr. Crarx. I have no suggestion to offer as a part of this bill,
yecause, as I tried to say earlier, we do not agree with the principle
inderlying the proposals that have been put forward by others that
he Interstate Commerce Commission shall have jurisdiction of these
jJuestions of wages and be charged with the duty of determining
whether or not an increase in wages shall be granted, and pre-
sumably whether or not a reduction in wages should be enforced,
Decause under the act as it is and as it will be if this bill is adopted
she commission is charged in a large measure with determination
is to the rates which the carriers shall charge. The level of rates
vhich they may charge-affects the revenue which they have available
‘or the payment of wages and for other purposes, and it would seem ~
o us most undesirable that the body possessing and exercising that
power should on the other hand and at the same time be charged
‘vith the duty of determining what shall be the level of the wages,
yecause then the same body would have in its hands the power to
yrant a large increase of wages to these many employees and com-
densate the carriers by increasing the rates, and, as I tried to point
yut, that body in the course of a few years would be in a position
vhere its usefulness would naturally be destroyed.
_ Mr. Cooprr. I did not just intend to put that question that way.
_ will ask you this question, if you care to answer it, Mr. Commis-
oar vik What legislation, if any, would you recommend along that
‘ine?
Mr. Crark. I have not studied the question recently with regard
0 Specific legislation along that line. How far that legislation shall
£0 is, of course, a matter of public policy.
| Mr. Coorrr. But you do believe that some Government authority,
uch as the Wage Adjusting Board, would be a good thing?
_ Mr. Crark. I have always believed firmly in the efficacy of efforts
\t concihation, mediation, and arbitration on the part of those whose
-haracter and actions led to confidence in their fair-mindedness, and
‘illustrative of that I might say that I was one of those who wrote
he original Erdman Arbitration Act, which was on the statute books
‘or many years before it was invoked. After it was invoked it was
ound a very valuable law. It was later revised and the so-called
Newlands arbitration act was brought into existence. We have been
soing through abnormal times, but I have an abiding faith that in
he course of a comparatively short time we will get back to some of
he stable conditions that controlled the great mass of our citizens
‘efore we went into this war, and I still have an abiding faith in
he usefulness of a Government effort along those lines.
104 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cooper. That is all I have to ask, Mr. Chairman.
The Cuairman. Along in that connection might we not add to this
bill a title in which we might consider the matter of wage disputes?
Mr. Cuarx. I assume that there would not be any parliamentary
difficulty about attaching it to this bill, because this bill proposes to
amend the act to regulate commerce as provided in its various sec-
tions. It might carry another section which would amend some other
act. |
The CyairmMAn. This would be a new title, but under the same act.
Mr. Cuark. Yes, sir.
The Cuatrman. A different subject matter and amending other
existing laws? 3
Mr. Cuark. Yes, sir.
Mr. Warson. Mr. Commissioner, may I call your attention to page
12, line 16, which reads:
The commission may require the terminals of any carrier to be open to
the traffic of other carriers .
Do you interpret the meaning of the word “ require” as a demand?
Mr. CrarK. The commission would have the authority to require
this by order.
Mr. Watson. Which would mean demand? Would the commis-
sion have the authority to demand a carrier open its terminal to
another ? 7
Mr. CuarK. Presumably the demand would come from the other
railroad and the commission would have the authority to require it.
Mr. Watson. If two competing lines, paralleling each other, en-
tered the same city, and one of them had a terminal advantage over
the other, and the road with an inferior terminal appealed to
the commission to use the terminal of the one of superior location,
and after hearings the commission decided that it was to the ad-
vantage of the public to grant the request, would you have authority
to force the road with the better entrance to admit the other road ?
Mr. Crarx. Pardon me, but the language here does not, to my
mind, convey the same thought that the expression use of terminal
does. This provides that the commission may require the terminal
to be opened to the traffic, and that would mean that the carrier
might be required to handle such traffic and deliver it on its terminals,
or to permit the trafic to originate on its terminals and move it to
the connection with another line under just compensation to it for
the service which it performed and for the use of its facilities.
Mr. Warson. Just compensation of the stronger road. If the
receipts of the stronger road were less if the commission permitted
the weaker road to enter the terminal, would you consider the public
interest greater than the financial condition of the road ? |
Mr. Cuarx. If it clearly appeared that it was to the public inter-
est; yes, sir. |
Mr. Watson. Then, the commission regards the public interest
before the capital invested, provided it does not impair it ? |
Mr. Crark. Yes, sir. |
Mr. Watson. You spoke regarding the Government loaning
money to the railroads. Ten years ago a farm bank was only a
dream and now it has ‘become a reality. Would you be in favor
of Congress enacting a law creating a commission and that commis-
|
} RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ‘105
sion to have power to loan money to the railroads the same as the
farm loan banks do to-day ?
' Mr. Crarxk. I see no reason why it would not be just as sound as
she other, assuming, as I do, that it would be operated in the interest
5f the government and the protection of the public funds.
» Mr. Warson. You also suggested that it would help you in regu-
‘ating the rates of the railroads if a tribunal was established to fix
sche wages of the employees. I think you said that you would be
in favor of a tribunal having full power to regulate wages of rail-
road employees—a separate tribunal from that of the Interstate
Commerce Commission ? 3
Mr. Cuarx. I would have a separate tribunal charged with the
administration of whatever policy the Congress lays down on that
subject.
_ Mr. Watson. And it would have full power to regulate the wages
of the employees ?
Mr. Cuarx. I think it is within the power of the Congress to
regulate them just as far as it chooses to go.
- Mr. Watson. Do you think that system would avoid strikes?
Mr. Cuark. I think it would have that tendency; yes, sir.
Mr. Warson. If this system of regulating wages would be true
of railroads, why not applicable for’ the Government to regulate
che wages of the employees of the telephone and telegraph com-
panies and all industries?
Mr. Cuark. I think if the Government establishes a tribunal to
administer labor policies laid down by .Congress with regard to
any of the carriers subject to this act, that all of them ought to be
included. .
Mr. Coorrr. May I say, Mr. Watson, that the question I asked Mr.
Clark was in regard to some kind of a tribunal not to fix the standard
of wages, but to try to settle disputes that arise from time to time.
Mr. Watson. You suggested a tribunal to fix the wages, but the
commission desires a tribunal to regulate the rates, and, there-
fore, you differed.
Mr, Cuark. Oh, no. I do not want to fix their wages.
_ Mr. RON. I think the commission advocates the policy of fixing
Wages? |
Mr. Criarx. No; I do not advocate that, because I say that is a
question of legislative policy. JI do advocate the maintenance of a
Federal tribunal, separate from our commission, charged with what-
aver policy the Congress adopts in regard to labor disputes and wages
of employees of carriers subject to this act, and, therefore, subject to
regulation under the mandate of the Congress.
Mr. Watson. If the commission looks after the public interests
rather than the finances of the roads, and if it favors the loan of public
moneys to carriers, and inclined to a tribunal to fix wages, is not the
ee sailing pretty close toward Government control or own-
ership ?
' Mr. Crarx. No. I think it is at least postponing that if it is not
getting away from it. I personally go on the theory that we have
only two things to choose between, the one is Government ownership
and operation and the other is private ownership under regulation.
106 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Warson. You stated that since 1910 the railroads were grow-
ing weaker financially. Was that the reason you thought it wise fo
the Government to lend money to raiilroads in order to uphold th
credit ? ;
Mr. Cuark. In the first place, I do not think I said that since 191
their condition was growing weaker.
Mr. Watson. What was the date?
Mr. Crarx. I put in a table of figures showing the results of their
operations for a series of years, but I did not suggest any opinion
that their financial condition had been growing weaker.
Mr. Warson. I beg your pardon. You did not make that sugges-
tion.
Mr. Crarkx. No. My suggestion in regard to making loans to
them, I want to make clear, is a temporary measure during this tran-
sition period from Federal control to what may be termed some-
what stabilized normal conditions. .
Mr. Watson. I understood you to made that statement. The year
previous to the war, shows that there were about 960 miles of rail
road constructed in the United States. I have inquired several
times of the commission how many miles were constructed by new
money apart from the extension of old lines, but I have not received
an answer to my inquiry. Have you any idea how many miles were:
completed which were not the extension of old lines?
Mr. Crark. Within what period?
Mr. Watson. In the year previous to the war I think 960 miles
were completed, including extensions.
Mr. Crarx. No; I have not looked up the figures on that. I do
not know of any.
Mr. Warson. It seems that it was a very small mileage?
Mr. Cuarx. It was, undoubtedly. ;
Mr. Watson. You alluded to a railroad having control of a boat
line, what authority had you to separate the railroad from the boat
line? I presume you referred to the Patuxent River boat. :
Mr. Cuiarx. That was included in the line that I referred to op
Chesapeake Bay ? ‘
Mr. Watson. The Pennsylvania Railroad and Chesapeake Bay
and the Patuxent River boats? :
Mr. Crarx. Yes, sir.
Mr. Watson. And you said that they should be separated at the
time ¢
Mr. CuarK. Yes, sir. ‘
Mr. Watson. What authority had you to permit the railroad
continue to operate the boat line? ! ,
Mr. Ciark. Section 5 of the act to regulate commerce as amende
in 1912 by the Panama Canal act lays down the rule of law pro:
hibiting such ownership or control by a railroad. It confers u
the commission authority to determine questions of fact as to
competition or the possibility of competition, and provides that
the Interstate Commerce Commission shall be of the opinion t
any such existing specified service by water other than through @
Panama Canal is being operated in the interest of the public, an
is of advantage to the convenience and commerce of the people, at
that such extension will neither exclude, prevent, nor reduce con
\
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 107
Setition on the route by water under consideration the commission
aa by order extend the time it may continue to be operated.
t then provides that if the extension of time is granted, the car-
ier by water shall be subject to all the provisions of the act the same
*s they apply to a railroad.
Mr. Warson. That provision was wise. The people in southern
Aaryland had no outlet except by boats?
- Mr. Cuarx. Yes, sir.
* Mr. Watson. Under the old law a short line connecting with a
aain line was obliged to make rates which were in accordance with
“he whims of the stronger road, but under this act, I understand, the
-ommission can regulate joint rates?
. Mr. Crark. Yes, sir; under this bill the commission would have
ower to determine the divisions of the rates.
_ Mr. Watson. Then a weak road realizing that the rates were not
ufficient can now apply to the commission, who can regulate those
ates
Mr. Crarx. Under the provisions of this bill.
: Watson. Which would be of value, of course, to the short
ines ?
~ Mr. Crark. It would insure their receiving a fair proportion as
-etermined by the commission, whereas now they must accept what
hey can get.
| Mr. Watson. If capital was subscribed for a short-line road,
vould you encourage the building of it?
Mr. Crark. That would depend altogether upon how far it would
-erve a public need.
Mr. Watson. I am alluding to the receipts. If they appeared suf-
cient to meet the operating expenses would the commission favor
he construction of the road?
Mr. Crarx. We would take it into consideration, but it probably
-rould not be controlling.
The Cuarrman. In connection with one question that Mr. Watson
-sked with reference to new construction—I suppose he meant inde-
endent operators ?
, Mr. Crarx. Yes, sir.
The Cuairman. Can you furnish the committee with any informa-
ion as to 1914 and the prior years?
Mr. Cxarx. I will undertake to find all that we can on that. If
_ou will pardon the suggestion, I do not think the records of subse-
uent years tell you anything now, because the conditions have cer-
ainly not been conducive to the construction of railroads, when we
‘id not have enough equipment, men, material, etc., to operate and
epair all that we already had.
The Cuatmrman. Could you furnish the data for, say, 10 years prior
» 1914?
_ Mr. Crarx. I can get all there is on that in our statistical records.
Mr. Sanvers of Indiana. Recurring for just a moment to the ques-
on of labor legislation, there is quite a good deal of difference .
etween creating a body having the power to regulate and fix wages
‘nd creating a body having the power to arbitrate the questions.
't was the creation of a tribunal having the power to arbitrate which
ou suggested ?
108 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Crark. Except as Congress has limited the expenditure of
public funds appropriated by it in the payment of wages or salaries
to Government employees, I am not able to recall any instance in
which the Government legislatively has attempted to fix the compen-
sation of anybody for personal services, and whether or not that
shall ever be done is, of course, a matter of public policy to be deter-
mined by the Congress. I think that, pursuing the policy so far
pursued, we still ought to continue a tribunal, separate from our
commission, to encourage by mediation, conciliation, and arbitration
the settlement of labor disputes, especially those which might result
in interruption to commerce. If the Government should decide to go
further in its policy, I would place the administration of the act, i
so far as it was open to administrative application, in the hands of
the same tribunal.
Mr. Sanpers of Indiana. Taking the resolution as a whole, the
effect of it is the complete Federal control of railroads, is it not?
Mr. Cuarx. It is intended to more nearly perfect the conditions
and terms of Federal regulation of railroads under private owner-
ship. )
Mr. Sanpers of Indiana. At the present time the railroads under
private ownership may determine many of the elements of competi-
tion finally ? |
Mr. Ciark. Yes, sir.
Mr. Sanvers of Indiana. If this legislation is enacted, as proposed
in this bill, the power of the railroads to determine the steps which
they should take as measures of competition would practically be
eliminated, so far as the final determination of this question is con-
cerned, is not that true? |
Mr. Cuark. I do not think that they would be eliminated in any
greater degree than they are now, because the final determination as
to the discriminatory character of the competition rests with the
commission, subject, of course, to review by the courts. That would
be true under this bill, but under this bill also the roadway to the
determination of many of those questions might be said to be more
clear and more direct. Under the plan which we advocate the car-
riers would continue to determine their course in regard to the policy
of competition in their rates.
Mr. Sanvers of Indiana. This bill provides for compulsory inter-|
change and use of equipment and terminals. There is some provision
of that sort in the act at present, but this enlarges that and makes it
complete, does it not?
Mr. Cuark. Yes, sir; we think so.
Mr. Sanpers of Indiana. Of course, the construction of equipment
and the construction of terminals by railroads is frequently done for
the purpose of giving it advantages over its competitor ?
Mr. Cuark. Yes, sir. |
Mr. Sanpers of Indiana. And since this legislation gives the power!
of determination of this question to the commission finally, to that.
- extent it would deprive the carriers of that phase of competition ?
Mr. Crark. It would at least deprive the carrier of carrying into
effect its own views and wishes in that regard without proper regard
for the public interest. The public interest would be paramount in
those instances in the view of the commission.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 109
Mr. Sanpers of Indiana. I am not meaning to say that the effect
of this legislation is unwise.
» Mr. Crark. I understand.
_ Mr. Sanvers of Indiana. I am trying to get at the form of the
legislation. One of the means adopted by a carrier frequently in
order to give it advantages of competition over competitors is to con-
struct a new line under certain circumstances ?
Mr. Cuark. Yes, sit.
Mr. Sanvers of Indiana. Under the provisions of this bill the de-
-ermination of whether that new line shall be constructed is finally
in the commission ?
Mr. Cuark. Yes, sir.
_ Mr. Sanpers of Indiana. To that extent the right of competition
of the railroad is impaired, is it not?
Mr. Criark. It is limited.
Mr. Sanpers of Indiana. It is limited; that is a better term. The
same thing is true with reference to abandoning a certain line of
railroad. A railroad might better compete with one of its competi-
tors by abandoning a certain line, but under the terms of this act the
right to abandon it finally is determined by the commission 4
Mr, Cuiarx, Yes, sir.
Mr. SAnpers of Indiana. A carrier might think it could better
zompete by not building or purchasing certain railroad cars, and yet
under the terms of this proposed act the commission could, on its
9Wn initiative, after hearing, compel the carrier, notwithstanding
its own views about the subject, to construct that equipment, could
it not?
“Mr. Crark. In so far'as it was found that it was necessary in the
public interest and that requiring the carrier to do so would not
impair its ability to perform its duty to the public.
Mr. Sanpers of Indiana. This proposed act proposes to relieve the
sarrier from many of the present restrictions with reference to com-
oinations and mergers? :
Mr. Cuark. Yes. |
Mr. SAnpers of Indiana. The act’‘also will leave for final deter-
mination by the commission the question of whether the railroads
can raise capital or whether or not they may issue stocks and bonds?
Mr. Crark. Yes, sir. That is the asual way the carrier has to
raise capital. It may do so by short-term notes, of course.
Mr. Sanpers of Indiana. Does this propose conirol of short-term
notes ?
Mr. Cruark. They are specifically exempted from control.
The Crarrman. Notes which do not go beyond « certain period ?
Mr. Criark. Short-term notes within the limitation of the act.
The act fixes the maximum period within which they could be called
short term and also fixes the maximum amount of that indebtedness
that may be in existence at one time, measured by its proportion of
‘he entire capital or obligations of the carrier. |
Mr. Sanpvers of Indiana. Under the present law does the commis-
sion have control of minimum rates?
Mr. Crarx. It has not.
Mr. Sanners of Indiana. One of the elements of competition be-
‘ween carriers is the question of one railroad making a lower rate
than its competitor. If this legislation is passed, while the carrier
110 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
may initiate a lower rate or proposed lower rate, after all the ques-
tion of whether it shall compete by lower rates with other railroads
will be for the final determination of the commission ?
Mr. Crark. It would be; yes, sir. I think I ought to state here,
as a practical matter, that there is no competition between railroads
to-day in the whole country under which one railroad carries the
traffic cheaper than the other between the same points, because no
matter how low the one carrier may make the rate all the other roads
that participate in that traffic will meet it Just as hastily as they can
and sometimes go below it.
Mr. Sanvers of Indiana. Mr. Chairman, I want to go now into
the Shreveport case, section 13, unless you want to adjourn.
The Cuamman. I had hoped that we might cotichidle with Mr.
Clark this morning.
Mr. Sims. The House is meeting now.
The Cuatrman. I hope we may continue for a time. I promised
the representatives of the United States Chamber of Commerce that
they might start to-morrow if we could finish with Mr. Clark this
morning.
Mr. Sanpers of Indiana. Mr. Commissioner, I wish you would be
kind enough to state for the record the power that was recognized
in the commission by the Shreveport case.
Mr. Crark. The power to require the removal of undue prejudice
against interstate shippers resulting from the application to intra-
state traffic of a scale of rates prescribed by the State commission
and the maintenance of higher rates on interstate traffic over the
same line for corresponding distances and under substantially :
similar circumstances and conditions.
Mr. Sanvers of Indiana. Section 13 of this act, which proposes to
amend section 13 of the original act, deals with that question of ad
ditional power which section 13 gives the Interstate Commerce Com
mission.
Mr. Crarx. I do not think that it gives us any more power under
the law. I do not think it expands or contracts the application of the :
terms of the law or the commission’s power thereunder, but it does
define a relationship and outline a procedure that we hope will oper _
ate to minimize the number of instances in which undue prejudice
will persist, and to simplify the removal of it where it may be found —
to exist. .
Mr. Sanpers of Indiana. Would it have to be initiated in much
the same way as it is?
* Mr. Crarx. At once under this system we would have cooper ationh
between the Federal and State commissions, and a situation that was
known to be unsatisfactory and which was a subject of informal com-
plaint might be taken up for consideration in advance of a specific
formal complaint. if
Mr. Sanvers of Indiana. This bill, if I recollect the provisions of
section 13, continues the order of the commission in effect beyond the
period of two years.
Mr. Cuark. This bill would take off that limit of two years upon
the continuance of an order of the commission.
Mr. Sanpvers of Indiana. Would we have the power under this bill
to provide that orders already made by the commission similar to the :
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 111
areveport case should also continue in the same way as rates have
en after the bill is passed #
Mr, CiarKx. Subject to such legal objections as might be raised, and
ich do not occur to me, it seems to me that you would have power
authorize the commission by new order to extend the period within
iich the orders already issued by the commission shall continue in
“ect.
Mr. Sanpers of Indiana. And make it subject to the same rate?
Mr. CuarK. Yes, sir.
Mr. Sanpers of Indiana. Do you think that would be a wise thing
do, Mr. Commissioner ?
Mr. Crarx. I think so, because I think it is extremely undesirable
» a case such as you have referred to to have the life of the commis-
m’s order only two years and to then reopen the whole question
- that time whereas if the order could continue longer, as experi-
ce has shown, conditions might adjust themselves to the new order
- things, and after a period nobody wants to go back to the old.
Mr. Sanvers of Indiana. This bill does not provide for the return
the railroads. Do you think a section of that sort could properly
put in the bill?
Mr. Crark. Well, I imagine that could be added as a parliamentary
ve if it was determined upon. As I have said, the bill is con-
ed to amendments to the act to regulate commerce, and deals only
th the question of regulatory and administrative power, and inde-
dent of the fact and the conditions of Federal control.
Mr. Sanvers of Indiana. That is all, Mr. Chairman.
Mr. Denison. Assuming that sooner or later conditions in this
intry will return to normal, what we call peace times, do you think
it the railroads will be self-sustaining ?
Mr. Crarx. I think they ought to be.
Mr. Dentson. Well, that was the next question that I intended to
< you. Do you think it a matter of economic policy that the rail-
ids should be self-sustaining ?
Vr. Crark. My personal judgment is that they ought to be,
ether under private control or under Government ownership.
Mr. Denison. That question was prompted by the statement that I
ird made quite recently to the effect that if 1t became necessary to
ke a general raise in rates that it would be passed on to the con-
ner, and would almost immediately result in a demand for in-
»ased wages. There are a number of people in this country who
ieve that the Government should contribute to the maintenance of
» railroads as a matter of public policy. You do not subscribe to
ything like that?
Mr. Crark. No, I do not.
Vir. Denison. People who believe that try to draw a parallel be-
sen the railroads and the postal mail service. I am asking you
't question to clear up that situation. I have heard the view ex-
ssed that the Government should contribute to the construction of
minals in the large centers, as it does to the deepening and im-
ae of harbors. Do you think that would be a wise policy
ll?
Mr. Crarx. I think it would be simply an entering wedge for Gov-
“ment ownership and operation of railroads. JI think the ideal
112 RETURN OF TH™% RAILROADS TO PRIVATE OWNERSHIP.
terminal situation is one in which all of the terminals of the indus-
trial community are in the hands of either the municipality or of a
separate corporation. For example, in St. Louis and East St. Louis
there is a terminal railroad association and the stock is owned by the
various railroads that reach that district. But the terminal associa-
tion performs all of the terminal services for all of them, and they
contribute to or pay the terminal association, each railroad for the
service which it receives on a per car basis or something of that kind,
I think that that isa very desirable condition for terminal situations,
and if all of the large terminal districts could be organized in some
such way there would be no question of whether this is the terminal
of the A B road or the terminal of the C D road. They would both
be parties to the terminal association; each would pay for the service
which it demanded, and their competition would not in any sense he
affected by the terminal situation. In competing with each other
they would compete just as if each owned the entire terminals.
Mr. Denison. I agree with you on that. Do you not think that
the provisions of this bill, if they were enacted into law, will some-
what tend to encourage that?
Mr. Crarx. I do. I think that is one of the results to be expected
and certainly to be hoped for from a relaxation of the conditions
that have been operating against the railroads doing those things In
the past and because of the power which it confers upon the com-
mission to encourage and approve such things in the future. You
will remember that it has not been long since that terminal situation
in St. Louis was assailed as in violation of the antitrust laws.
Mr. Dentson. There has been some discussion, and I believe somé
proposal, for the Government to guarantee a return on railroad in-
vestments. That does not meet your approval or you do not think
that is a wise proposition ?
Mr. Crark. I do not. I do not see how it can be divorced from
the subsidy idea, and I do not believe that the time is ripe for that
I do not believe in it asa principle. If the railroads can not be self:
supporting without a Government subsidy, I think the Government
should own and operate them and be responsible for all of it. To my
mind it is not a sound policy for the Government to meet deficits out
of the Federal Treasury which may result from errors in judgment
on the part of those over whom the Government exercises no contro!
either as to appointment or continuance in office.
Mr. Dentson. You spoke, I think, in your testimony about the
Government assisting railroads during the period of so-called recon:
struction by loans properly secured. Of course, that would requir
additional legislation ?
Mr. Cuark. Yes, sir; undoubtedly. :
Mr. Denison. Do you think that Congress should at the same timé
it enacts this legislation enact some sort of provision that would
permit that to be done?
Mr. Crarx. I do; yes, sir. I think that Congress ought to stu
very carefully the extent to which it will declare its policy wit
regard to the railroads’ revenues for a reasonable transition period
Mr. Denison. Do you think that could be incorporated in thi
same act?
Mr. CrarK. No, sir; I have not had that in mind.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 113
_ Mr. Dentson. I think you also spoke about the maintenance of
sates that have been established by the Government for at least a
imited period. That would require similar legislation ?
_ Mr. Cuarx. That was what I referred to with regard to stabilizing
“eyenues during a period. If the roads were turned back without
my legislation, without any declaration by the Congress of the con-
rolling policy, there would be innumerable questions as to the status
of the rates that were in effect in the various States on the day the
‘eturn was made. In one State the passenger fares, perhaps,’ would
ye made by statute, and the freight rates by orders of the commis-
jon, and in an adjoining State we would have another condition, and
so there would be a very complicated situation, full of confusion
and controversies, a very difficult one for the carriers to deal with,
and a very difficult one in which to maintain any recognized level of
sates from which any particular revenue could possibly be hoped for.
_ Mr. Dentson. Then, it would be your suggestion, as I understand,
hat concurrently with this legislation or at least some time soon,
Jongress should by separate legislation provide for the control tem-
vorarily at least of the rates and for making temporary loans to the
-ailroads during the period of reconstruction ?
Mr. Cuark. That was my idea; yes, sir.
; (vir. ENISON: Mr. Chairman, shall I continue, notwithstanding the
‘oll call?
- The Cuarrman. I think we will have to recess at this point.
| Mr. Clark, can you attend the hearing to-morrow morning at 10
Yclock?
_ Mr. Cuarx. Yes, sir; I can. ,
The Cuarrman. I do not think it will take long. I hoped that we
vould finish your examination to-day.
The committee will take a recess until 10 o’clock tomorrow morn-
Bet
(Thereupon, the committee took a recess until to-morrow, Tuesday,
July 22, 1919, at 10 o’clock, a. m.)
COMMITTEE ON INTERSTATE AND ForreiGN COMMERCE,
House oF REPRESENTATIVES,
Tuesday, July 22, 1919.
_ The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
nan) presiding.
STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE
COMMERCE COMMISSION—Resumed.
i The Cuarrman. Mr. Clark, I think Mr. Denison had not con-
luded his cross-examination.
. Mr. Dentson. Mr. Chairman, I have just one or two questions
‘hat I would like to ask Mr. Clark while he is on the stand.
_ Mr. Clark, do you think it is in harmony with the best public in-
erest or the best public policy to permit privately owned cars, freight
_ars, to be used by the railroad companies.
152894—19—-vor 1 8
114 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. -
Mr. Cuarx. Within certain limits, I do; at least under existing
conditions. The science of transportation, if I may use that term,
is continually advancing, and certain commodities that are given
very wide distribution and are largely used in the homes, and fur-
nished at least in better condition than they could otherwise be, are
transported in cars especially equipped for that use. Again, a
manufacturer provides himself with tank cars for the transportation,
either of his raw products or of his finished products, and he can
not satisfactorily or even successfully use those cars if they are used
by other shippers and loaded with other commodities, except by going
through a very troublesome and expensive process of cleaning.
For example, a shipper of molasses does not want his tank car
loaded with crude oil. If it is, it must be subjected to the most com-
plete cleansing. Other commodities shipped in tank cars can be
loaded only when they are heated and can be unloaded only by re-
heating, and therefore cars are provided for those commodities
equipped with steam coils within the tank, and the user of the cars
has an equipment through which he connects a steam jet with those
coils and warms the contents of the car so it will run out. Those are
merely illustrative of the many circumstances and conditions under
which it is impracticable to use such cars for general purposes or
send them for the use of each and all who might desire to use them.
In the case of refrigerator cars, those used for the transportation of
fresh beef have to be constructed differently from those that are used
for the transportation of fruits and vegetables, because the beet
must be hung from the roof of the car. Consequently, the super-
structure of the car must be built with the idea of carrying the load
hanging from the roof instead of lying on the floor, and, of course.
if a car is going to be used for the transportation of fresh meats
which are easily tainted, it is desirable that the same car shall not be
used for the transportation of commodities which leave refuse or bat
odors in the car. So, I have not been able to figure out how it would
be practicable for the carriers to furnish all of these varied kinds 01
equipment and meet what seems plainly to be the demands and neces-
sities of commerce. If the privately owned cars are used without
paying undue compensation for their use or resorting to any othe.
device by which the owner of the car gets any undue preference, 1
think they serve a good purpose and conduce to the public interest.
Mr. Dentson. Do you think the very fact that he is permitted t
own these cars gives. him undue preference because all of his com:
petitors are not able to do so?
Mr. Cuark. I do not think that it constitutes an undue preference
in so far as the owner is not permitted to make a profit out of his
ownership of the cars through their use by the carrier. If he own:
the cars and it costs him more to keep them in running repair tha
he gets in rental from the railroads for the use of the cars, I do no’
see where he gets any undue preference. |
Mr. Denison. I have never questioned the wisdom or the necessit)
of having these special lines of cars for particular commodities, but
the question that arose in my mind was whether or not it is the bes
public policy to permit those shippers who are able to furnish tha’
class of car to have the privilege of doing so, possibly to the detriment!
of other shippers of similar commodities who are not able to do s0
and whether or not it would be the best public policy to compel th
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 115
railroads to furnish those cars for all shippers who needed them.
That is the question in my mind, and I wanted to get your view
on that.
_ Mr. Criarx. Well, my view is that the best possible situation, or
what I would term ‘the ideal situation, would be to have all cars of
those types owned by a separate corporation from which the car-
riers would rent them, and that owning corporation to have no in-
terest whatever in any ‘commodity that 1s shipped.
Mr. Denison. Similar to the terminal facilities.
-_ Mr. Crark. Yes; on the same principle I spoke of with regard
to terminal facilities.
Mr. Dentson. Has the commission that power now—to compel
railroads to furnish those particular kinds of cars?
Mr. Crarx. It has not.
Mr. Denison. Is there any provision in this bill which would
enlarge the power of the commission and give them power to compel
that, if the commission should decide it was good policy to do so?
Mr. Crark. That is definitely so provided in this bill.
Mr. Denison. In railroad transportation now, there is really no
real competition of rates any longer, is there?
~ Mr. Crarx. Not in the sense in which that term is generally used,
because it has developed that the freight will move where the
charges are the cheapest, and where the ‘char ges are equal between
two roads, the superior service of one will attract to it certain kinds
of freight, while other freight will move indiscriminately, and is
frequently routed because of “personal considerations as between rep-
resentatives of the railroads and of the shippers.
Mr. Denison. The concensus of opinion at this time is that what-
aver competition there should be among railroads should not ex-
tend to the fixing of rates; is not that about the opinion ?
Mr. Cuark. I think that the concensus of view is that it is dem-
mstrated that railroads can not actively compete by maintaining
lower rates because whatever rates one makes the other will meet,
and that competition of that sort has been ruinous in some instances
to the revenues of the roads and has not been productive in the
long run of any great benefits to the shipping public, and that there
sight to be a recognition in law of the principle that the rates may
de Maintained on an equality, but the competition shall be the com-
setition of service and the competition of considerate treatment of
che public.
_ Mr. Denison. The only real competition that would be left, free
ae would be competition in efficiency of service’ to the
oublic.
_ Mr. Crarx. That would be true.
_ Mr. Dentson. Under the provisions of this bill, the right of free
‘ompetition so far as furnishing facilities is concerned will be really
‘ontrolled or regulated.
- Mr. Crark. It will be subject to control.
_ Mr. Denison. Subject to control; yes. Has the commission any
ower, either under the present law, or under the proposed bill here,
re) regulate the ocean shipping rates?
| Mr. Crarx. Ocean rates?
Mr. Denison. Yes.
(Mir. Ciarx. None whatever.
116 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Denison. Has the commission any power to grant a differ-
ential or a less rate to a seaport in order to enable a shipper to com-
pete with an imported product from a foreign country ?
Mr. Cuark. You mean to the port for transshipment by water?
Mr. Denison. No; to meet competition. Has the Interstate Com-
merce Commission any power to grant a cheaper freight rate from
an interior town to a coast town where that product will have to
meet competition of seagoing transportation ?
Mr. Crark, Yes; we have that power under the fourth section.
The Cuarrman. But not to violate the constitutional inhibition
against giving a preference to one port over another port.
Mr. Crarx. Well, we do not need, I think, to go to the Constitution
for that, Mr. Chairman, because the act to regulate commerce pro-
hibits a carrier from unduly preferring one port over another, which
it would not do if it served only one port.
Mr. Denison. I did not have in mind a difference between ports,
but I had this in mind: A producer of a bulky commodity in the
interior has only a seaport town for a market, and on account of the
excessive freight rate prevailing he can not meet competition with
the importers of a similar product. Would the commission have
power, under the present law, to grant a cheaper rate to that product
to the seaport town in order to meet that competition from foreign
shippers 4
Mr. Crarx. It has that power; yes, sir. It could permit it. Of
course, we could not compel the carrier to establish anything les:
than a reasonable rate for the service performed. We could not re-
quire the carrier to meet that competition.
Mr. Dentson. Oh, no; but you have the power to permit the car.
rier, or to order the carrier, so far as that is concerned, to furnish 4
cheaper rate than would be furnished under other circumstances ?
Mr. CiarK. Yes.
Mr. Denison. Do you think that is a proper policy?
Mr. Crark. We have the power to require the carrier to maintain
a rate that is no more than reasonable. We have no power to re-
quire the carrier to maintain a lower rate to a more distant point thay
to an intermediate point, while we have authority at the present tim¢
to permit it. tee
I have always felt, in ahswer to your last question, that it is goo
policy to encourage and make possible competition of our own prod
ucts with the foreign products. We have always pursued the pole)
in this country of fostering ourexport trade. Rates to our variou
ports for export are less than the domestic rates, and the idea is
find a market abroad for the surplus production of our country. |
think it is a perfectly sound policy, and it has been so recognized by
the Congress. In the Panama Canal Act, we were specifically author
ized to establish or require the establishment of rates to the port!
for transshipment by vessel and for export, lower than the local rate:
to the port. Incidentally, and as throwing some light on the ques
tions regarding the fourth section of the act, asked by Judge Sims
day or two ago, the commercial interests and the men charged witl
the conduct of public affairs in the Southeast are now especiall;
anxious that every encouragement shall be given to importations an‘
exportations of traffic as between foreign countries and what we tern
the Central Freight Association territory, the Middle West lyin:
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 117
yetween the Mississippi River on the west, and the Buffalo-Pitts-
ourgh line on the east through the South Atlantic ports, and they
say that in order to attract that traffic they must have the same rates
from the points of origin to the South Atlantic ports that obtain from
‘+he same points of origin to New York, and the director general is
ibout to provide a line of rates of that sort; but he can not, consist-
stly, from his standpoint, and I think he is correct, provide that
ine of rates without deviating from the long-and-short-haul rule.
Illustratively, Cleveland is nearer to New York than is Cincinnati.
Phe rate from Cleveland to New York is lower than that from Cin-
annati. Now, if you make the same rate to Savannah from Cleve-
and that you have to New York and make the same rate from Cin-
‘mnati to Savannah that obtains from Cincinnati to New York, it
will necessarily often happen that the traffic moving from Cleveland
o Savannah will pass through Cincinnati, and therefore it will pass
hrough a place that takes a higher rate; but how are you going to
nake that relative adjustment of those port rates unless you permit
hat deviation from the long-and-short-haul rule ?
| Mr. Wessrer. Mr. Clark, I have been very greatly interested in
your views relative to the long-and-short-haul clause. If the bill
1ow under consideration should be enacted, substantially in its pres-
mt form, it would confer upon the Interstate Commerce Commission
dower to iX minimum as well as maximum rates both as to carriers
ny rail and such carriers by water as are included within the opera-
ton of this act, would it not?
Mr. Cuarx. It would.
Mr. Weester. Could not the commission, in the exercise of that
sower, prevent ruinous or cut-throat competition between rail and
vater carriers at water-competitive points?
Mr. CuarK. That is one of the principal reasons for favoring it.
Mr. Wesster. Would there be any objection, therefore, to so
umending the proviso contained in the fourth section of the commerce
ict as to withdraw from the commission power to make special orders
is to water-competitive points but leaving the law as it is in its rela-
ion to rail-competitive points?:
Mr. Crarx. I think that if that were done and the commission
vere given the authority here proposed as to maximum and minimum
‘ates and the jurisdiction here proposed over water carriers, that the
‘ompetition between the rail and water carriers could be adjusted on
. relatively fair and proper basis, without regard to the long-and-
hort-haul rule.
Mr. Wesstrr. And would not that tend to stabilize the rates? I
lave in mind this thought: During your statement ‘you said that
here was no inconvenience or burden being suffered by the inter-
aountain country because of any special orders now in existence. So
ar as my information goes, that is entirely accurate; but I gathered
rom your statement that that came about on account of two rea-
ons—first, the disappearance of actual competition by water and
he modern policy of the commission not to take into consideration
votential competition—and it occurred to me that if the passing of
ompetition by water was the cause of relief, that when normal con-
itions are restored and water competition returns that will bring
bout a withdrawal of the relief.
118 RETURN OF THE RAILROADS TO PRIVATE ‘OWNERSHIP.
Mr. Crark. I think that is the point of view that is held now by
the representatives of the intermountain territory. They say that
they anticipate that the commission, following the policy that it has
followed in the past, would grant relief to the railroads under the
long-and-short-haul rule if the competition via water from coast to
coast should again become active. \
Mr. Weester. It is my thought, Mr. Clark—and I do not know how
far out of line I am with the best thought on the question—that it is
infinitely more important, so far as the development of the country
is concerned, that rates be relatively just and equitable than it is that
they be inherently reasonable; that, of course, within limits. .
Mr. Crarx. I agree with you fully on that.
Mr. Wesster. And also bearing upon the development of the
country, that it is indispensable that there be an element of perma-
nency in the rates, to the end that capital may go to that section and
seek investment in permanent enterprises.
Mr. Crarx. I think that is true also.
Mr. Wessrer. Then,.would it not be not only proper but wise legis-
lation, having clothed the commission with power to prevent this
ruinous competition between rail and water carriers at water-com-
petitive points, to withdraw the power to make special orders in cases
relating to points where there is both rail and water competition
Mr. CuarK. Well, of course, there would be wide differences of
opinion on that, depending on the locality and the interests of the
ones expressing themselves. There is an irreconcilable conflict of
view on that subject as between the intermountain cities and the
Pacific coast cities. I indicated the other day my personal convic-
tion that on the whole it is much more important that there should be
opportunity to permit competition of longer rail lines with the more
direct lines under the long-and-short-haul rule than it should apply
to competition between rail and water carriers. I stilh feel that way,
and I feel, under the circumstances suggested by you, and under
the provisions of this bill, that if the amendments you suggest were
made to the fourth section, we could still regulate within proper
limits the competition between the rail and the water carriers. :
Mr. Weszsrer. And still establish relatively equitable rates?
Mr. Crark. Yes; it would undoubtedly be finally done by the
establishment of what are called, in technical terms, differentials,
just as they have well-recognized, long-continued differentials in the
rail rates to and from the north Atlantic ports. :
The rates from the West to Philadelphia are certain cents per
hundred pounds less than to. New York, and to Baltimore: certain |
cents per hundred pounds less than to Philadelphia. These rela-
tionships are maintained whatever fluctuations may occur in the
rates up or down. They have been long established and found to be
the only means of prevention of ruinous rate wars. Just so in the
export business. There are certain established port differentials,
some determined in the light of experience, sometimes determined by
the commission, and sometimes determined by a very comprehensive
proceeding of arbitration. Once established they are recognized;
conditions adapt themselves to them and persons interested in the
rates at each port are interested in the relationship more than they
are in the level. | |
Mr. Wesster. That isall. ~ |
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 119
_ Mr. Sims. I want to state what perhaps I did not in my examina-
jon with reference to section 4 state, that I was not intending to
nelude export rates, only those rates where there was competition
yetween rail and water carriers, continentally speaking, more espe-
ally through the canal. I did not intend to create the impression
hat the fourth section applied as to export or import, though, per-
iaps, I did not so state. I do understand from your statement that
he original fourth section—that is, the part of the section to treat
yater competition as a special reason for making lower rates—would
pply to export unless they were specifically exempted from it. Is
hat your idea?
Mr. Crark. Yes; that would be my-idea of it. The rates to the
port applicable on export traffic would not be the rates as to which
here would be competition between the ocean carrier, if exported
»y ocean, and the rail carrier. There might be instances in which
ompetition of the rail carrier and the water carrier on our inland
vaters to the port would exist, but I do not think they would be
jumerous, and at the moment I do not think of any involving an
mportant volume of trafic. There might be some, for example,
m cotton from some of the imterior points in the Southeast to
Javannah or Mobile. I think there is some now, but it is not very
ctive, and not very controlling.
Mr. Sims. As to a carload rate from Denver to New York for
xport purposes, and a carload rate from Denver to New York for
ocal consumption—domestic consumption—does not the original
‘ourth section compel the commission to require the same rate from
Jenver to New York; that is, it would require the same for domes-
ic as for export use if this provision was repealed ?
Mr. Crark. No; I do not think so.
Mr. Stmus. It would not apply to export?
Mr. Crark. It would prohibit the maintenance of any higher
ate from an intermediate point than from Denver, but it would
iot prohibit the maintenance of a lower rate for export than for
lomestic use.
Mr. Sims. That is the reason I did not bring that out in my ex-
mination before—that the original fourth section would apply to
he export rate as well as the domestic rate over the same line and
n the same direction.
_ Mr. Rayzsurn. Mr. Clark, I understood from some of the members
hat you had expressed some views with reference to future increases
n rates, that is, in the immediate future. I happened not to be
vere. I have a well-settled opinion, and I want to get your views
nd suggestions if you feel like expressing yourself, that instead
f another increase in rates by the Railroad Administration during
Tederal control, before the railroads go back to their owners and
efore the Interstate Commerce Commission has power restored to
5, that there should be no increase of rates by the Railroad Admin-
stration during the remainder of Federal control, but if the rail-
oads run behind in their operation, or behind in paying expenses,
hat that loss should be charged up to war cost, and that there should
@ an appropriation out of the Treasury to cover that, instead -#
uring the remainder of Federal control saddling another increase
f rates on the people which, even under the regulation of the Inter-
tate Commerce Commission, it. would take auite a long time to
120 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
;
throw off, even though it was found to be unjustifiable. I should
like to have your opinion about it, if you care to express it. \
Mr. Crarx. There has been some difference of understanding as to
what I did say on that subject
Mr. Raypurn (interposing). I am asking the question because I
was not here.
Mr. CriarK. I understand. I want to read from the record wha
I did say. After a running discussion, Mr. Montague, of the com.
mittee, asked:
Therefore, inevitably, they contemplate perhaps a raising of rates?
And I replied:
The probability of that, or as some put it the inevitability of that, has been
said by many, even of the representatives of the shippers, to confront us. ‘They |
say it is bound to come. I remember a few days ago a representative of ship-
pers from the far West testifying before the Senate committee said, “ We are-
up against another increase of rates and we know it.”
Now, on that day and again on yesterday I undertook to express
the view that the question of whether or not the railroads should be
self-supporting under Federal control was a question of policy; that
the Government had taken on certain obligations which, of course,
it must meet, and that whatever deficit might occur under these ob-
ligations during Federal control and operation would of necessity
be paid out of the Public Treasury and I thought should be charged
off as one of our war costs.
I also undertook to indicate the view that Congress might with
propriety, and perhaps ought to provide by some additional legisla-
tion, what I might term tiding over the period between the date
when the carriers are returned to private control and operation and
the time when conditions may be said to have assumed a normal and
stable condition. That period would be temporary, and, in response
to a question by the chairman, I said that in my Judgment one yeai’
would be sufficient. I do not expect to ever see what we term nor-
mal conditions as they were before the war. I believe that the en-
tire Nation is on a higher level of prices and costs which will be per+
manent. I do not believe that labor will ever work again for the
wages that it worked for prior to the war or that living costs will
ever go down to where they were. The difficulty is not so much with
the fact that wages are high and other costs are increased, but the
normal conditions, the stable conditions are those under which 7
proper relationship of cost and production and living may be said
to have assumed a somewhat stable position. Once the relations are
established, the level is not of so very much importance. I am re:
minded of a suggestion I heard a man make once at a dinner of
bankers at home. Two or three of the preceding speakers seemed
to view with alarm the fact that interest rates were falling. He an’
swered that by saying that he had not been able to figure out in his
mind what difference it made to the banker whether he borrowecl
the money at 4 per cent and loaned it at 5 per cent or borrowed it at
8 per cent and loaned it at 4 per cent. a
T do not undertake to predict what the financial result of opera?
tion may be under a return to private ownership. We have before
us the fact that under Federal control the Government is failing,
month by month, to earn the obligation which it has assumed for
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 12]
he use of these properties. What I deem of importance during
his period that I have spoken of, a few months, not to exceed one
vear, following the return of the properties is a declaration by the
Jongress of the policy that shall control with regard to the rates
ad _ avoid the turning back of the roads subject to the varying
sonditions as between States, and as between States and interstate
vates, and the precipitation of what seems to me inevitable confusion
und chaos as a result.
Mr. Raysurn. In other words, under present conditions, the pres-
wnt prices of labor and the present prices of material, no one can
lope Meat the railroad rates will go back to what they were before
he war ?
_ Mr. Crark. That is my idea, and that it is impossible to hope
uther through operating economies or through increased volume of
srafiic that the deficit that is now occurring can be overcome.
Mr. Raygsurn. Your opinion is that it can not?
Mr. Crarx. It can not, in my judgment, be overcome through those
neans. Of course, the deficit, as I speak of it, under Federal control
‘Ss a comparison of the net results of operation with the obligation
vhich the Government has assumed to pay for the use of these
yroperties, the average railway operating income for the three-year
reriod taken as the standard or test. It does not necessarily follow
hat the carriers must on the return of their properties earn exactly
hat amount, but it seems to me that an immediate return of them
without any provision for financing and without any provision by
the Congress for the protection of the general rate level, whatever
t may be, when the roads are turned back, is apt to produce a chaotic
ondition. I went a little further then; I think you were absent,
vund I expressed the opinion that Congress might expressly author-
ze the commission during that period to require the carriers in the
several rate districts to provide committees selected by the commis-
aon, 1f you please, through which their own traffic officers must
nake all proposed changes of rates, in order to protect them against
hemselves and against the possibility of resorting to the old method
hat the easy way to get traffic is to cut the rate.
Mr. Raypourn. As a general proposition, you think it is better for
ny country to buy high and sell high than to buy low and to
‘ell low ?
Mr. Cuark. Yes; that is my present view,
_ Mr. Raypurn. My folks would rather pay $1 to ship cotton to
zalveston when they are getting 30 cents than to pay 50 cents when
hey are getting 15 cents a pound. |
| Mr. Crarx. Oh, yes; certainly. Incidental to the subject of the
‘elationship of prices to rates it is interesting to note that at the
resent time 100 pounds or a ton of any commodity that moves in
mportant quantities will purchase more transportation of that same
sommodity than at any time in the history of our railroads.
_ Mr. Raysurn. Mr. Clark, I gather from your statement and from
your answers to inquiries that you believe the transportation ques-
jon in this country can be met and solved by amendments to the
nterstate commerce act as it now stands rather than by uprooting
ul lines along which we have tried to travel for at least since 1887
town to now and the substitution for it of some wholly new scheme
‘or the contro] and reuglation of the railroads.
122 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr, Crarx. I think that so far as we pursue the governmental]
policy of privately owned railroads subject to governmental regu-
lation it is better to round out a system that we have tried and that
has been tested by experience and in the courts rather than to sup-
plant it with some entirely new and untried scheme. I do not want
to be understood as saying that with the amendments to the act to
regulate commerce contained in the pending bill we are going to
solve all the difficulties, because we will not. There must be, in my
judgment, supplementary legislation such as I have indicated or
along the general lines I have indicated.
Mr. Raypurn. There has been advocated in some quarters the
proposition that the railroads of the country shall all be taken over
by a dozen or 20 corporations, to own and hold them exclusively
under what they call a zone system. .I am sure you have seen that,
and I should like to know what you think of it?
Mr. Crarx. My own view of it is that it is rather extreme. I
believe firmly in carrying out the principle of consolidation and
merger of railroads into larger systems, in so far as that can
appropriately be done with proper consideration for the public
interest, and that it ought to be done under governmental super-
vision and control. I do not think that it would be desirable to
zone the country and put into the possession of one corporation or’
one railroad company all of the railroads in that zone, regardless
of the trend of the traffic which they move. As I said in answer to
the chairman the other day, I would not think of consolidating
into one system in a particular zone those lines that handle trafiic
that naturally and must always trend in a north and south diree-
tion with those that handle traffic that moves east and west. It if a
different traffic but it meets with some competition. I think that to
block the country out and to put all the railroad traffic in that block
in the hands of one corporation would lead to stagnation and would
effectually eliminate any semblance of competition.
If I had my way I would begin this idea of merger and cooperation
with the terminals. I would provide, if I had my way, and the direc-
tion of it, in every large commercial center for a terminal association
or corporation which would be a separate entity. I would make it
the terminal agency of all of the roads that reach the place, operatec|
as nearly as could be figured out at cost. Then the railroad serving!
that place would turn over the traffic destined to the place to this
terminal agency, and it would be delivered where the consignee
wanted it delivered on any of the tracks; there would not be any
gqueson about closed or open terminals; there would be one terminal
or all.
Mr. Raysurn. You think that would be an efficient arrangement’
Mr. Crark. I do; yes, sir.
Mr. Raysurn. It would mean in all probability a saving?
Mr. Crark. A great saving in expenditure, a great increase in effi-
ciency, and the elimination of endless friction.
Mr. Raysurn. Do you believe that Federal incorporation woul
tend toward the solution of the railroad situation ?
Mr. Cuarx. I have not been able to see the necessity for it. As I
said the other day, I think, to the Chairman, the power of Congress
is plenary and it does not make any difference who owns the prop-
erty that is regulated, or under what franchise it is operated.
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 123
‘ Mr. Raypurn. The commission has not any authority now with
efrence to the routing of freight over the lines?
' Mr. Cuarx. No, sir; except as the commission may require the
‘stablishment of additional through routes.
“ Mr. Raysurn. What do you think of giving the commission the
‘js0wer to route the freight over the shortest and most direct route /
“Mr. Crarx. Under this bill the commission would have authority
‘nm times of congestion. of traffic or emergency declared by the com-
‘nission to require traflic to be moved under embargoes or preferences
ov priorities or permits. In a normal time I do not see the occasion
‘for the commission to interfere, except as the public interest may
‘require it, and responsive to requests that may be filed with the com-
mission for additional routes, or for the removal of alleged undue
‘prejudice or preference, or for further limiting the right of the
sarriers to establish and operate through routes.
| The provision in the act as it is at present, giving the shipper the
right to direct over which of available routes his shipments shall ,
move and via which of the intermediate lines within those routes it
shall move, is, I think, a protection to the intermediate or what we
might call the weaker lines, because they are able, in so far as they
ean influence, by their soliciting agents, to get the freight routed
over their roads, and the carriers having that route open must under
this law carry the freight as routed by the shipper, whereas the
selfishness of the originating carrier might send it over some other
line if it had full latitude in the premises.
| Mr. Raysurn. You believe, therefore, that there should be as much
freedom as possible to the serving facilities?
Mr> Ciarxk. Yes, sir.
Mr. Raysurn. In section 20a as proposed in this bill you pro-
vide that the commission shall be given power to grant or deny
applications made for extensions of lines and the building of new
lines ? |
Mr. Cuark. Yes, sir.
Mr. Rayeurn. And you also provide, do you not, for causing the
extensions to be made?
Mr. Cuark. Yes, sir.
Mr. Raysurn. Do you not think that is of almost as great im-
portance as the proposition of denying the right for extensions where
they are applied for?
~ Mr. Crarx. Oh, yes. I think it is simply rounding out the enforce-
ment of the principle which underlies this, that a railroad having
entered a given field shall be protected against unreasonable compe-
tition by the construction of another line that is not needed. The
public would be protected against the obligation to maintain two
lines where one was sufficient, and would be further protected in
that the carrier having entered that field would be required to occupy
it further, in so far as the public interest required.
_ Mr. Raysern. I notice in the last paragraph, on page 31, this
language:
_ The jurisdiction conferred upon the commission by this section shall be ex-
elusive and plenary, and carriers subject to this act may issue securities in
‘accordance with the provision of this section without securing approval other
‘than as herein specified.
124 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Just what do you mean by that, Mr. Commissioner? It is pretty
well settled that when the Federal Government has the right to
enter a field, and does enter it, that it enters it to the exclusion of
all other authority. Just what, therefore, is the reason for this
specific language?
Mr. Cxuarx. To make entirely clear the fact that the Congress is
by this statute exercising its full jurisdiction and powers in this
regard and to avoid any possible contention that the proviso of
section 1 has any application whatever to the terms of section 20a.
Mr. Raysurn. You want to make it clear, if this is enacted, that
it is the intention of Congress that this shall be exclusive?
Mr. CuarK. That is the idea; yes, sir. I think that it would prob-
ably avoid litigation that would otherwise occur.
Mr. Raygurn. In the next paragraph I find the language reads as
follows:
Nothing herein shall be construed to imply any guaranty or obligation as to
such securities on the part of the United States.
That was not in the original draft of the bill introduced in 1914,
but was put in in the committee on suggestion from some source.
Do you believe, without that paragraph, there is anything contained
in this proposed section 20a that would imply any guaranty upon the
part of the Government ?
Mr. CruarK. I do not.
Mr. Raypurn. My position is that it seems to me like that is un-
necessary language thrown into the bill.
Mr. Criark. If you will pardon me just a moment; as Chairman
Aitchison suggests, that provision to which you have just referred
is quite commonly found in State statutes, where the State commis-
sioners have that jurisdiction. I suppose it is thrown in as a saving
clause, but my personal thought is that it does not change the
liability or the obligation or the value of the security.
Mr. Raysurn. J note that it says “All issues of securities contrary
to the provisions of this section shall be void,” and I believe you
stated the other day that there has been some objection or contro-
versy about that, as to whether that was the wise way to handle it.
Can you think of any other scheme by which it could be handled with
protection to the public?
Mr. Cuark. No. JI am one of those who favored including that in
the bill, but there was some difference of opinion among the members
of the commission. One member of the commission thought it was
inadvisable, and I think he had some idea that it might not be
sound law. : ik a
Mr. Raysurn. I think that is probable. The last paragraph Jo
the section provides “ from and after two years of the passage hereof
it shall be unlawful for any person to hold the position of officer or
director of more than one carrier subject to this act unless sueh
holding shall have been authorized by order of the commission,” etc.
I remember when we had this bill up last there was some contro-
versy with reference to that provision, some advocating, I think.
that it should be made absolute and that there should be no flexibility
with reference to that rule. I would like to have your opinion as
to why, in some instances, a man might be allowed to become a dt
rector in more than one carrier.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 125
_ Mr. Crark. It seems to me that, taken in connection with the pro-
posed amendments which are calculated to encourage and permit unifi-
cation for operating purposes, consolidation of ownership and other
arrangements of that kind which at the present time are prohibited
py some laws, it is very desirable that there should be some elasticity
to that rule. If two properties are merged for operating purposes,
each retaining its corporate entity, it might and probably would be
desirable that they should be operated under boards of directors
that in part, at least, were common, and that inflexibility would be
undesirable in connection with these other amendments.
_ Mr. Rayzsurn. I quite agree with you, but I wanted your opinion
on the record. That would also be very desirable, would it not, Mr.
Commissioner, with reference to those railroads that run into States
that demand a separate charter of every railroad that enters that
State, it matters not where else it is chartered ?
Mr. Cruark. I think so.
| Mr. Rayzsurn. My State of Texas, for instance, requires that every
railroad that enters the State shall take out a State charter to operate
in that State.
_ Mr. Crark. And maintain a general office in the State.
' Mr. Raysurn. Yes; and maintain a general office in the State.
You would have to have this clause or this exception in order to cover
a case of that sort, would you not?
Mr. CuarKk. I think so; yes. |
Mr. Raypurn. And as you have stated, where lines have been
merged for operating purposes. J think that is all, Mr. Chairman.
| Mr. Mererrr. Mr. Clark, you will remember that after the Civil
‘War—I do not mean personally, necessarily, but as a matter of his-
tory—the prices of all commodities were very high, labor and every-
thing, due at that time largely to the inflation of the paper currency.
Of course, that could be stated either way, that the currency had
fallen in value or that the commodities had risen. I suppose the
accurate thing is to say that the currency had fallen in value. Do you
not think that some such phenomena is happening now?
Mr. Crarx. Yes; I think there is a good deal 2n that thought. In
my younger days I spent a number of years in the western country,
and I observed there and elsewhere that. wherever money is plentiful
prices are high. :
Mr. Mereirr. The law of supply and demand.
Mr. Criark. The law of supply and demand.
| Mr. Merrirr. Now, as these war loans and other demands on the
‘Federal reserve banks are liquidated, and under the present law as
the currency diminishes in volume, will not that tend to bring down
the prices of everything?
~ Mr. Crarx. I think so. I should expect to see in the course of a
few years a reduction,in the general level of cos*s and prices, but I
te not believe that they will ever go back to where they were before
ithe war.
' Mr. Merrirr. Well, perhaps not, but I understood you to say that
your view was that for the general good, it was not very material
‘what the level was so long as it was adjusted so that the general dis-
‘tribution of wealth was equitable.
' Mr. Cuarx. Well, I was perhaps unfortunate in expressing my-
| self. The thought which I had in mind was that during this period
126 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
which we commonly speak of as the reconstruction period the ques
tion of the relationship of these things is of more importance tha
the level
Mr. Merrirr. Yes; I agree with that.
Mr. Cuark (continuing). And if the relationships are proper!
adjusted, the level will adjust itself without artificial assistance.
Mr. Merrirr. Yes; but what I am coming to is this: We all agre
that the great expense of transportation now is wages, and we a)
agree that they were properly raised and should not now be reduce¢
but is it not your view that when things get down to normal or ay
proximatly normal, so that this country can not possibly consun)
its production, it will be an absolute economic necessity that. al
prices including railway rates, railway wages, cost of food for expon'
etc., should get down not only to a United States level but to a worl
level ?
Mr. Crarx. Well, I would not like to predict with regard to thos
matters. I think that the law of supply and demand is inexorable 1.
its effect upon all those things. It always has been and I believ
always will be.
Mr. Merrrrr. It seems to me that the only importance of that }
as to general public sentiment, and when it comes to questions 0
arbitration as to wages and all that sort of thing, eventually, th
relation of wages and cost to the whole business of this country ha
got to be taken into account. |
Mr. Cuark. I spent several years trying to get higher wages ani
shorter hours of labor for certain classes of railroad employees. |
never advanced the theory of the cost of living because both mysel
and those with whom I was associated and those whom I representes
realized that if we argued the high cost of living for an increase 1)
wages we could not find any ready answer to a proposition to reduc
nee on account of the reduced cost of living. We kept away fron
that. :
Mr. Merretrrr. Is it your view that one should have no relation ty
the other ? :
Mr. Ciark. No, sir.
Mr. Merrirr. But merely that that was not the sole ground ?
Mr. Criarxk. It was not a ground I cared to advance, because I coul«
see that some day it would come back and I would have to meet i
on the other side, and I did not care to do so.
Mr. Merrirr. That was a matter of diplomacy rather than one 0
economics ?
Mr. Crarx.: Yes, sir; surely.
Mr. Mrrrirr. Is it not true that in comparatively recent years—lt
or 20 years, I do not know exactly how many—taking the railroads o:
the country as a whole, the ratio of stocks and bonds has been re
versed? There was a time when the stock capitalization was ver?
ines greater than the bond issues, but now is not the reverse of thi
true ¢ :
Mr. Crarx. The proportion of the capitalization represented b*
bonds has increased as compared with that represented by stocks
In other words, the railroads have found it necessary or more atl
vantageous to finance by the sale of bonds than by the sale of stock
Mr. Merrirr. Is it not true that of recent years, perhaps due
special causes, that great systems like the Pennsylvania and the Nev
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 19°7
York Central have not been able to put out stock issues which ordi-
aarily they could do?
_ Mr. Ciarx. They have, as I understand, found it impossible to put
hem out on terms which they felt justified in accepting.
~ Mr. Merrirr. And that would indicate, of course, that the credit
of the roads had, to a certain extent, been diminished @
_ Mr. Crark. I think so. - |
Mr. Merrirr. I do not mean their credit as to solvency, but their
lesirability as an investment. Would you say that was due alto-
yether to the poor mouth that the railroads have made?
Mr. Crarxk. Oh, no; not altogether. I think that has had its
nfluence.
Mr. Megrirr. If the railroads are to be set on their feet inde-
sendently, it is essential, is it not, that legislation by Congress, so
far as that can accomplish it, should be such as to, in a general way,
sheer up the investing public?
Mr. Crark. I think that is a most desirable object to aim at.
Mr. Merrirr. It seems to me that is so.
Mr. Crark. I think that many of our railroads have had their
wedit impaired because of the bad company they were in and not
yecause of anything inherent within that railroad itself. I think
here is necessity for the effort which you suggest, and that it is most
lesirable; but when you speak of setting the railroads on their feet,
[ can not refrain from saying that I think that some of them have
rot to throw away their crutches and go into the hospital. |
Mr. Merrirr. Yes; I am glad you brought that in, because that is
ust the final point I want to ask you about. You spoke in connec-
ion with all the lines of the possible necessity during the period of
eorganization of the Government lending them money, and also
vou said—I think properly—that the Government should not do that
mless fully secured. Now, naturally there has got to be discretion
odged somewhere; but is it not true that in the case of some of the
veaker lines and some of those lines that have been in bad company
hat it would be better at the start to avoid Government loans and
ake a reorganization ?
Mr. Crark. Well, my personal opinion, for what it is worth, ap-
lied to certain individual systems, which, of course, I would prefer
10t to indicate—— i ,
Mr. Merrirr (interposing). Oh, of course.
Mr. Crarx (continuing). Would be that the quicker the reorgani-
ation comes the better; and that the reorganization ought to be
ong sound lines for the future and not like previous reorganiza-
ions of some of the same properties emerging from the receiverships
vith a largely increased volume of capital obligations.
Mr. Merritr. That is a sort of balloon reorganization.
Mr. Cuark. There have been a good many of them, and in some of.
hese properties two or three of.them.
Mr. Merrirr. My thought was in regard to the Government loans,
nd I should like your opinion about that. If the Government lent
ertain lines large sums of money, as they probably would have to
lo if they lent them money at all, and took proper security therefor,
he effect might not be to prevent reorganizations, but rather to put
he underlying security holders to great disadvantage, because the
128 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Government, in a partnership of that sort, usually comes out on to}
Do you not think it might be so?
Mr. Crarx. I should assume that if the Government advance;
money under those circumstances. it would be in the nature of
prior lien.
Mr. Merrirr. Yes.
Mr. Criarxk (continuing). Ora prior obligation. It might somewha
impair the value of the holdings already outstanding. I do not know
It would depend on the term of the transaction.
Mr. Merrirr. The Government is a very dangerous partner. Tha
is all, Mr. Commissioner.
Mr. Winstow. Mr. Commissioner, would you be willing to explay
what you had in mind when you used the term “bad cgmpany ” i
connection with the fortunes of railroad operation.
Mr. Cuarxk. I had in mind more particularly the financial trans
actions and the history of some railroads as it has been disclosed i
public reports after public investigations made by our commissiot1
frequently responsive to a resolution by the Senate or the House, or
joint resolution of the two bodies. . :
Mr. Winstow. I would lke to ask you to what extent you fe¢
the actual operators of railroads have been responsible for thei
financial misfortunes during that time.
Mr. Crark. To a very limited extent; very limited.
Mr. Winstow. Would it.be a fair inference therefrom that in man
instances those who have dominated the financial policy have not bee
experienced operators.
Mr. Crark. I think that is a very conservative statement.
The CHarrmMan. Mr. Clark, there are one or two questions I woul
like to ask you at this point. I have received several letters of prc
test against the provisions of the bill putting traffic wholly wate1
borne under the commission. Is that objection due, perhaps, to th
fact that these water carried would not care to submit their schedule
and tariffs and submit to the other regulations of the act.
Mr. Crark. I think that would be true in so far as the objectic
came from the carrier. I can imagine that objections of the sair
nature might come from some shippers who want to retain the ac
vantages they are able to secure from the present condition. TI
question came up several years ago in the commission as to its juri
diction over the port-to-port rates of carriers which as to their othe
rates and activities were clearly subject to our act. The commissio:
by a majority vote, decided it did not have jurisdiction over the por
to-port rate. Some of us thought that the act provided in its tem
that it applied to the carrier—not to a part of its business, but to tI
carrier in all of its activities. I might take a moment to illustrw
my own thought by a concrete illustration. The boat lines plyir
between the Head of the Lakes, Duluth, and Buffalo, are subject 1
our act, except as to their port-to-port rates. They carry the large
portion of the great product of flour of the Northwest. Now, thei
is an available proportional rail rate from Minneapolis to Dulut
There are proportional and ex-Lake rates applicable from Bufla
to the seaboard and other eastern points. When those two are adde
together and subtracted from the joint through rate, you might $2
you have found the portion that would be allocated te the Lake tran
portation; not actually so, but illustratively speaking.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 129
__ Now, exempting their port-to-port rates from the jurisdiction of
the commission, makes possible this thing: A man may have 100,000
barrels of flour at Minneapolis which he wants to lay down at New
York. The through rate is a given sum. It will cost him so much
to take it by rail to Duluth and it will cost him so much by rail from
Buffalo to New York. He goes to the Lake line and says, “I have
100,000 barrels of flour to send to New York. If I give you 20,000
barrels of it under the joint through rate, what rate will you make
me from Duluth to Buffalo on the other 80,000 barrels?” I do not
think that is a wholesome situation. I do not say it has been done,
but I say it is possible, and that the activities of that carrier, includ-
ing its port-to-port rates, should be subject to the regulating statutes.
The Cuarrman,. Will the effect of this bill, if enacted, largely in-
crease the duties and labors of the commission ?
_ Mr. Crarx. Mainly, I think, Mr. Chairman, with regard to the
superivision of capital issues and the possibilities of the future as to
administration of physical operation conditions if emergencies should
arise. The commission has a somewhat varied line of activities, and
it has a good deal to do and a good many things to supervise. In my
judgment, it can succeed in carrying along those duties and taking on
additional ones only by organizing into subdivisions and bureaus to
take care of those various lines of work. .
The supervision of capitalization is a very important subject, far-
reaching in its effect, and one as to which promptness is most de-
sirable. I think that if that duty is placed upon the commission,
there should be an addition to the membership of the commission, so
that one of our subdivisions might be charged with the duty of ad-
ministering that part of the law, and that the other members of the
commission should be expected to give attention to those matters
only to the extent of participating in laying down a general line of
policy and an understanding as to the interpretation of the law, and,
subsequently, with regard to the policy that is to control on new
questions that arise; that the carrying out of that policy should be
committed to this subdivision which would make that their business
and probably would not have any other line of activity immediately
demanding their attention. |
The Cuarrman. It is your conclusion then that there ought to be
an increase in the number of commissioners ?
Mr. Cuark. If these additional duties are placed upon us; yes, sir.
The Cuatrman. If the commission is increased, and these duties
as to security issues are added to the commission, ought we not to
provide that the parts of the bill relating to stock and bond issues
should not become effective until a certain date in the future in order
that the commission may be enlarged, and in order that you may per-
fect an organization to take care of that work?
_ Mr. Crarx. I think that is very desirable. And if you will pardon
me right on that same subject, I want to refer to another matter
that we find a little bit confusing, or not confusing either, but a lit-
tle bit troublesome in our efforts to subdivide. The act now provides
that not less than five members of the commission shall participate
in the determination of cases under the valuation work, and therefore
We can not commit that subject to a subdivision of the commission in
the manner which good organization would dictate, and it has been
182894—19—voL 1——9
130 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
our thought that having decided some of these principles, which
might be called fundamental principles, and having adopted a gen-_
eral line of policy, that perhaps the Congress would be willing to-
relax that provision and make it possible for the commission to com-
mit that subject of valuation to a subdivision of the commission, con-
sisting of three members, and let them do that job, while some of the
rest of us are doing some of the other jobs.
The Cuamman. That would expedite the business of the com-
mission.
Mr. Cuark. And in that, as in all other questions submitted to a_
subdivision of the commission, the commission would reserve the
right to review any decision, and anybody would have the right to
appeal from the action of the subdivision for a decision by the
commission.
The Cxrarrman. When we adopted the act giving you the right to
do business by subdivisions, that very matter of the size of the sub-
division over valuation was up on the floor of the House, and it was
the opinion of Members of the House that as to such a very important
matter, and one that was important because you were determining
the principles of valuation, a subdivision of more than three Mem-
bers would be advisable. It was on that account that it was made
five, but if the courts determine the principle of valuation, as they
doubtless will in the near future, on pending litigation, it would be
possible to do this work by subdivision of three, would it not?
Mr. CrarK. We think so; yes, sir.
The CHarrman. And the work in connection with the super-
vision of the issuance of securities could be done by a subdivision of
three.
Mr. Cuark. We think so.
The Cuairman. And you think there ought to be a certain period
of time elapse after the enactment of this law, if it is enacted, to
enable you to organize your forces so that you can take care of this
very. important work. |
Mr. Crark. We think so. 7
The CuarrmMan. It would be work which you believe requires
prompt and expeditious action.
Mr. Cuark. Yes, sir. |
The CuatrmMan. Is that one of the complaints made now where
they have to get certificates from various State commissions ?
Mr. Crarx. Yes, sir. The complaint is that unless prompt action
ean be had, the opportunity of floating the issue passes by and the
market will not take it, and therefore the effort has been futile.
The CuarrMan. If there are no other questions ) |
Mr. Sims (interposing). Mr. Chairman, you brought out a matter
which I would like to ask the commissioner one or two questions
about. Mr. Commissioner, you referred to capital issues which this
bill authorizes the commission to regulate, and therefore the defini-
tion of what is meant by capital issues within the terms of this bill is
very important. Now, a bond,.as I understand, is a debt or an obliga:
tion of a corporation, and a share of stock is simply a certificate o
ownership, a certificate of a percentage ownership in the property
of the corporation. Now, which is capital and which is liability? —
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 131
Mr. Crarx. I used the term “capital issues” only in the most.
‘generic sense. The act, or this bill, I should say, specifically provides
‘for stocks and for bonds.
) Mr. Sms. But does not define what is and what is not a capital
issue,
Mr. Cruark. No; we speak of supervision of capitalization only in
1 general way. |
“Mr. Sms. Now, then, if the commission should authorize a certain
jond issue and the public bought those bonds which were a debt of
‘he corporation, I can see very readily how that would carry with
t an implied moral obligation that the commission should never re-
‘luce rates on the traflic of that particular road so that that would
force a repudiation of its bonded indebtedness; but on the other
aand, if it should authorize an issue of stock which is merely the sale
xf an interest in the property, I then can not see any moral obliga-
ion that the rates should be such as to enable that corporation to pay
i certain percentage of divdends any more than I could see why the
‘ommission should prevent the corporation from paying all the
lividends that its earnings justify. Is there any moral obligatiom
»xisting upon the part of the rate-making body, Congress, the com-
nission, or the States to provide rates that will make stock issues,
ither outstanding or to be issued, a desirable investment in competi-
on with all other stocks and bonds which may be offered to the
yublic? =
_ Mr. Crark. No, sir.
| Mr. Srus. Then a moment ago you said something about a period
‘4 one year from the time the railroads were turned over and that
Jongress might provide remedial legislation or supporting legisla-
ion—I do not know exactly the term you used—but you do not mean
/hat the Government should continue to pay the standard return to
he railroads during that period of time regardless of the earnings
if the roads, do you?
Mr. Crarx. No; I had no such thought in mind.
| Mr. Srms. I did not think you did, and I asked the question simply
‘omake it perfectly clear that you did not mean that. The standard
eturn obligation on the part of the Government will cease the mo-
ent the roads are returned to their present owners.
Mr. Crarx. I so understand.
Mr. Sims. But Congress may pass legislation, if I caught your idea
orrectly, that may continue for a certain time the rates authorized
y the Government and established by the Government, and in
_Sistence at the time they are turned over. Was that included in your
uggestion ?
Mr. Crarx. Yes; that would be included in my suggestion. My
‘iggestion was that there ought to be some legislation that would
‘Tevent a sudden throwing of all of the rates and fares and charges of
/jese railroads into doubt and confusion and litigation immediately.
Mr. Sims. Which I most heartily approve. But when we had up
Je same question with reference to turning the wire systems over
ome gentlemen contended that when Government control ceased
“overnment power or Government-made rates would also cease to
ave legal binding effect upon the commissions of the country, and I
‘id not know whether you had given that any study or not.
132 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Crarx. No; I did not follow the intricacies of wire contro!
with very much care.
The Cuairman. I think that is all, Mr. Commissioner.
Mr. Crarx. Mr. Chairman, I filed some figures the other day which
included 1916. Mr. Winslow requested that they be brought down t¢
include 1917 and 1918. I have had that done, showing in additior
to the figures originally in this statement those for the calendar yea
1916 as well as for the fiscal year ending June 30, 1916, and those foi
the fiscal years and calendar years, which are coincident, 1917 an
1918. I have had them added to the statement which I originally in.
troduced, so that they will all appear in the record in the one state:
ment.
I was requested to put in the record some statement as to the State;
in which there is a statute requiring the issuance of a certificate 0!
convenience and necessity prior to the construction of a_railroa¢
line. We have attempted to check that up with care, and believe thai
this list is correct. The States of Illinois, Kansas, Maine, Mas
sachusetts, Maryland, Missouri, New Hampshire, New York, Penn
sylvania, Vermont, and Wisconsin have such statutes. Some othe:
States seem to have a similar statute with regard to public utilities
but not as to steam railroads. |
Mr. Winslow requested some figures showing the percentage of ne
earnings applicable to dividends as contrasted with dividends pait
from such earnings and exclusive of special distribution of assets
I have had those figures collated. The net income of class 1 stean
roads for the year ended December 31, 1917—that is, the incom
remaining after interest and rentals have been deducted from thi
combined operating and nonoperating income—was, using roun(
figures, $593,000,000. Those roads declared in dividends that yea
something over $320,000,000, or 54 per cent of the net income fron
operating and nonoperating properties. ‘The corresponding figure
for the calendar year 1916 are: Net income, $647,000,000; dividends
$306,000,000, or 47.3 per cent of the net income. :
He asked that I make a segregation of the nondividend-payin;
roads. I have made that for the calendar year 1916, showing ther
by districts and also showing the mileage operated and the capita
stock outstanding during that year. There were 28 such roads
what is termed the eastern district. Some of these are listed as ir
dependent roads. They maintain independent corporate existen¢
and report separately to the commission, but they are, in fact, part
of systems operated under a different system name than that ind:
cated here for the individual property.
For example, there is included in this list the Erie Railroad (
Later, there is shown the Chicago & Erie Railroad Co. The Chie
& Erie is the western part of the Erie system. Then, later in the ls
appears the New York, Susquehanna & Western Railroad Co. Thi
again, is a part of the Erie system. A simple comment on this lis
We find the familiar names of the New Haven, the Boston & Main
the Pere Marquette, the Chicago & Eastern Illinois, which went dow
in the Frisco receivership; the Western Maryland, which went dow
in the collapse of the Gould plans for an independent transcontiner
tal line; the Wheeling & Lake Erie, which went down in. the sair
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 133
j
pampany ; the Cincinnati, Hamilton & Dayton, the Wabash-Pitts-
jurgh Terminal, which was another. part of the Gould system.
| There were 14 such roads in the southern district and 49 nondivi-
lend-paying roads in the western district, in which we find the Rock
‘sland, the Frisco—there again you will note the St. Louis & San
francisco Railway Co. Later in the list you will find the St. Louis,
ia Francisco & Texas Railway Co. It is simply an independent cor-
|
oration, responsive to the State statutes to which Mr. Rayburn re-
erred a short time ago. You will find the same thing with regard to
he Missouri, Kansas & Texas and the St. Louis & Southwestern,
ndependent corporations listed here as nondividend-paying carriers,
vhich are simply the Texas parts of the parent system. _
| Then we find the familiar names of the Missouri Pacific, the Rio
yrande, the Missouri, Kansas & Texas, the Chicago & Alton, the Gulf,
Yolorado & Santa Fe Railroad Co. constituting, with approximate
ecuracy, the Santa Fe lines in Texas; the Galveston, Harrisburg &
an Antonio Railway, a part of the Southern Pacific lines in Texas;
he Los Angeles & Salt Lake Railroad, which never would have been
uilt if it had to get a certificate of public convenience; the Inter-
ational & Great Northern would not feel at home out of the hands
‘if receivers; it has been there off and on ever since I can remember;
he Western Pacific, which would not have been built if a certificate
i convenience and public necessity had been required, and the Texas
¢ New Orleans Railroad, another part of the Southern Pacific.
Mr. Denison. Mr. Commissioner, has the commission any control
tall over the purchase of the stock of one road by another ?
Mr. Cuark. None whatever.
’ Mr. Denison. Do you think that they should have?
| Mr. Crarx. I expressed the opinion here the other day that the
“ommission would never approve the issue of bonds or stock of a rail-
oad if the proceeds were to be used for buying the stock of another
ailroad with which it had no affiliation or connection.
| Mr. Denison. Of course, in that case where they would have to
ssue stocks or bonds for the purpose of making the purchase it
yould have to secure a certificate of convenience and public necessity
yo do so and, of course, the commission can control it, but if the rail-
oad should have a surplus then the commission would have no
‘aethod of controlling it ?
| Mr. Crarx. We would have none.
| Mr. Dentson. Do you think, Mr. Clark, that you ought to have
nder those circumstances ?
Mr. Crark. I think it is a question of public policy as to the extent
0 which a railroad may as an investor or speculator invest its funds
a the stocks or bonds of other railroads, unless the investment has
or its purpose the acquirement of the property. Looking at it from
ne point of view the net income of the railroad belongs to the stock-
(Olders and they would assert the right to expend it as they chose.
_ Mr. Denison. But there ought to be some way to prevent, it seems
i me, an exploitation of that matter by buying the stock ?
Mr. Cuarn. I think it is an unwholesome practice, at least.
Mr. Chairman, I will file this statement.
~The Cuarrman. Very well; it. will be incorporated in the record.
|
j
134 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
(The statement referred to by Mr. Clark follows:)
The summary, by districts, of the attached statements which include Class ]
roads which did not pay dividends during the year ended December 31, 1916, is
as follows:
Single-track mileage,
Dec. 31, 1916. Capital stock
Territory. actually out-
standing.
Owned. | Operated. | —
Basten Cistuicts: CM Se ee oe Oh eae eee cere ee eee 12,333.70 | 18,005.11 | $715, 666, 92!
Southern Mistrieieacd Ue ee ee eae ie iS ee 9,471.84 9, 916.49 273, 325, 50(
Wrestermatisinich (oe ON e ee ek le Oe eee 44,164.58 | 52,618.00 1, 059, 212, 92(
TObGI Sa XK ee) RO Soo!) eee RI oer AN es ye ee 65,970.12 | 80, 539. 60 2, 048, 205, 345
List of Class T roads that did not pay dividends during the year ended
Dec. 31, 1916.
EASTERN DISTRICT.
Single-track mileage
Dec. 31, 1916. Capital stock
Name of road. . ae
outstanding.
Owned. | Operated.
New York, New Haven & Hartford R. R. Co...............-.-. 1, 234. 41 1, 988. 04 $157, 117, 90¢
Erie RK, BoCOs eee ee es a ae eee 857.76 | 1, 987. 84 176, 271. 300
Boston 2) Maine RoR Sek. Nl Hee le ee 731. 34 2,305. 50 42, 655, 191
rete Marquette "Ro Ro O62. 2 Soh 0 eee eS ee ce 1,791; 75 2, 248. 75 26, 393, 610
Chidago’é Eastern Hiinois’ RvR. Cons 2g os see ee ee nnee 1, 014. 17 1, 136. 13 18, 288, 200
hong Island Ru ROo. 4 aoeddo iat eee cle eues eee eee pete 326. 91 397. 04 12, 000, 000
Western Maryland, Rye Cols: ce ieee ae ee pe 392. 57 773. 00 59, 428, 098
Cincinnati, Hamilton & Dayton Ry. Co...............--.------ 314. 80 621. 53 8, 248, 175
Wheeling '&' Lake Erie’R. Ru 'Co sect oo) oo, a ae a 451. 01 512. 13 36, 980, 400
Gtahd Trine Western Ry, Co: .i Pk a Me ce ees 330. 91 347. 05 6, 000, 000
Chicazoi& Hriedt. Ks C0c: ws J) |. se Ue Oe oe ok wr cet eae 249. 57 269. 56 100, 000
LakerErie dé WesterniR.! RR.’ Cot) eee ie ee eae 710. 02 900. 01 23, 680, 000
‘Toledo: Obio: CentraliRy., Cos... (Same cae eae eee 394. 97 435. 69 9, 547, 700
Toledo, St. Louis &'Western'R. Rio. teu sk ee 450. 49 455. 04 19, 947, 600
Grand, Rapids’: Indiana (Ry Coa ae Sakon ndsbsavcacedsacn 52. 20 256. 90 1, C20, 600
Texarkana & Fort Smith Poesy eee aes ad GS aN Aen i gael 192.59 87.30 100, 000
spokane International PEaOee tlk ls oSSsSy od ee) ok 142.91 163.51 4, 200, 000
RA CONC GS a rr ar 44,164.58 | 52,618.00 | 1, 059, 212, 920
| Mr. Winstow. Can you add to your statement in reference to the
-bercentage of dividend paid, in relation to the whole net income
applicable to dividends, a statement of the percentage of dividends
aid by each road, covering its various grades and classifications of
stock in relation to the capital stock?
Mr. Crark. I think we could get figures showing the actual divi-
dends paid by each carrier.
_ Mr. Wrnstow. On the average based on the total earnings, as you
lave already indicated ?
Mr. Crarx. I have put in figures which show the average of the
aeons paid by the roads that did pay dividends during a series
of years.
Mr. Winstrow. I do not so understand. I thought you showed the
‘mount of dividends they paid out as contrasted with the total amount
hey might have paid in showing what each one paid on its stock?
136 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Cuark. It did not occur to me that what each one pays would
be included in the term “ average.” We have taken the amounts paid
by the dividend-paying roads and the outstanding stocks of those
same roads and have shown that the amount of money paid in
dividends was, on the average, a percentage of that outstanding stock.
Mr. Wrinstow. You might have 57 per cent paid, and that might
only be 7 per cent of the stock?
Mr. Cuarxk. That is true.
Mr. Winstow. The amount on the stock is what I had in mind.
Mr. Crarxk. Please look at this statement, a copy of which I have
incorporated in the record.
Mr. Stus. Under this bill would the commission have any jurisdic-
tion to approve or disapprove a proposition on the part of one rail-
road corporation to lease for a long period of 99 or 999 years the
property of another railroad company simply by guaranteeing a
certain return upon its then outstanding issue without issuing any
now stock or bonds?
Mr. Cuark. I think we would have.
Mr. Srus. You think that the corporation making such a contract
would have to have the commission’s consent and certificate of
approval ?
Mr. Crarx. I am inclined to think that that would come within
the provision regarding the acquirement of new lines.
Mr. Srmus. Not technically a purchase or legally a purchase; it is
in effect ownership, but it is not legal ownership. It seems to me
that the reason should apply, but I did not know but that the lan-
guage should be amended.
Mr. Cuark. It does not occur to me that there is’ that necessity,
because the act first prohibits the acquirement or the construction,
and second the operetion, but the question of whether or not the
commission’s authority would be necessary under such a lease as
you speak of, I think, would be tested by the same rule under which
it is tested now. A railroad may lease another railroad without
infraction of any of the antitrust laws if the effect is to simply ex-
- tend its line and not to bring under common control, management,
or operation roads that were in any sense competitors to each other,
Mr. Sims. I have reference to stock and bond issues under this law.
Mr. Cuark. I understand. |
Mr. Srmus. Could not a railroad without issuing any stocks or bonds,
by not resorting to that paragraph of this bill?
Mr. Cuark. If a railroad can get along without issuing any more
stocks or bonds, I think they will be happy and all the rest would be.
Mr. Srus. And in acquiring new property all they would have to do
would be to guarantee a certain return on the stocks and bonds issued ?
Mr. Crark. That might be done. There would be no increase m
the amount of outstanding capital.
Mr. Sims. That is the outstanding obligation and if this road
agreed to pay 7 per cent or 10 per cent and if they did not make it
the stockholders of the leasing road would lose? .
Mr. Cuark. It would seem in that form of contract that if they
failed to make payment their contract would be breached.
Mr. Sanvers of Indiana. On page 9 the new language would re-
quire the permission of the Interstate Commerce Commission before
the railroad could operate a newly leased line.
‘G
|
3 ;
‘The Cuarrman. Mr. Clark, you will put all of those statements
as a part of the record?
Mr. Crarx. Yes, sir; I will in just a minute, if I may go on.
|The CHarrMan. Certainly.
Mr. Crarx. Mr. Winslow asked the percentage of the average
irnings of the dividend-paying roads, exclusive of the distribution
‘assets. The net income of class 1 divident- -paying roads’ in 1916
as a little over $590,000,000, and those same roads declared divi-
nds amounting to slightly over $306,000,000 or 51.9 per cent of
1e net corporate income.
‘Mr. Winstow. In looking over this sheet hastily it seems that you
aye grouped together all the railroads of the country, dividend
wing and nondividend paying, and the percentage of eet ands
yer the capital stock of all such roads. What I had in mind wa
4 get the average dividend of the dividend-paying roads.
_Mr. Cuiarx. If you will look in the next to the last column of the
‘st table you will see there stated the percentage of stock-yielding
vidends.
Mr. Winstow. Yes, sir.
Mr. Crarx. And in the last column the aver age rate of dividend
i roads paying dividends. Those per centages - in the last column
se the average dividends of the roads that did pay dividends,
though the earlier part of the statement includes both dividend-
wing and nondividend-paying roads in showi ing the totals of oper-
amg results. —
_I was asked to furnish some figures showing the progress of new
onstruction for recent years. I have had those figures made up
s nearly as possible to make them responsive to the request. We
ave no statistics from which we can determine what part of the:
anual increase each year came from construction by new inde-
andent companies, but there is a quite complete statement showing
ie increase in mileage for a term of years, from 1890 to and in-
‘uding 1917, together with an explanatory statement which I will
ot take the time to read, but will hand to the reporter.
(The statement referred to by Mr. Clark follows :)
Attached is a statement showing the miles of road and miles of all track
‘om 1890 to 1917 and the increase each year.
It is impossible from the statistics as they have been compiled to say what
irt of the annual increase came from construction by new independent com-
inies. It may be of interest to note, however, that the proportion of the total
ileage operated by companies operating over 1,000 miles has greatly increased,
‘though the number of small roads has also increased. This is shown by a
‘mparison of the condition in 1916 and 1890, the latter being the first year
‘Y which comparable figures are available. The increase in the relative im-
irtance of the large roads, however, is due not only to the construction of
ww mileage by them, but also to the constant absorption of smaller roads,
hich may at first have been constructed independently.
- « ; 2
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 137
Over | From600} From 400} From 250} Under
1,000 to 1,000 to 600 to 400 260 Total.
miles. miles. miles. miles. miles.
0:
MEMEEEIDET OP TOAGS..o 0.0.0 e2-- cs cee sles 40 33 30 46 864 1,013
Vumeerepate mileage...........-....----- 77, 873 24, 775 15, 720 14, ga 30, 952 163, 937
an Ma OMB OUI G Me 22 = oie co ied 47.51 15.10 9.59 8.9 18. 88 100. 00
Wetter Of TOads...'...-...-2.-5-...--- 55 22 22 41 1,378 1,518
( Ageregate mileage...................-- 185, 827 17, 138 10,658 12, 735 41, 838 268, 196
7“ cent CU hatte < ai SS ee a 69. 29 6.39 3.97 4.75 15. 60 100. 00
138 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mileage of steam roads in the United States, 1890-1917.
[Mileage of switching and terminal companies excluded after 1907. Mileage of all track operated inelne
second and other main tracks and yard tracks and sidings. The mileage reported as operated incluc
also that operated under trackage rights, which results in some duplication.]
Miles of | Increase .
road over mt of
Year ended— owned in| -preced- Increas
: : tracks
United aed operated
States. | - year. py :
June 30—
TSQQ se eee odes Pa CO. bs eee MRE SM EAC are Ey 163,597). 5 eee +208,613 |... Lm ge
112) Renee eet ae ES MPU Tepe es “MW eh Ss 168, 403 4,806 | 216,149 7,5
1 ft 7pm ae eet am Re Be Nee hte Nel gh oe UR A oy Veith |» 171, 564 3,161 | 222,351 6,2
i eit pee eh oun s Brian 4 SE PROMI YAR NN, al od Sit eit aaa Mee F 176,461 4,897 | 230,137 7,7
LBQd ey Es oe ahle toc beta Zale hs aie nt ul ee Cee ee eee 178, 709 2,248 | 229,796 13
LOO RRs 0. BE By dipscia Rae cia cis che Mel he ee eon 180, 657 1,948 | 233,276 ' 3,4
L896 PASE OS NS BS SOS ee er re Ei oe 182,777 2,120 | 239,140 5,8
TBO Th eels ctee cai Niele ajaty sees GREAT ene ok Bnet a Nee ae ae 184, 428 1,651 | 242,013 2,8
L898 AO ee ey eS On es ere acer ae ee 186, 396 1,968 | 245,334 3,3
LOO See acti tele aie Rte She te ati ee et vn DST a An a 189, 295 2,899 | 250,143 4,8
L900} esos oe Or Nee IOS ho a RE he See eg ne 193,346 4,051 | 258,784 8,6
In srease, 1900 over 1890... -5 2.5 Xi\ncn new oui o ee ob e a cinae eee ae 29 CAD akan ope 50, 1
June 30—
LOOL Ns SOL eee NS ae 2 Regan oe 197, 237 3,891 | 265,352 6,5
MOOD So cis wtaers's aiGce trate a lGe aoe core a gee Ut ire ca 202, 472 5,235 | 274,195 8,8
LOOS 2s%2 SSNs See Bee Ber ean te 207,977 5,505 | 283,822 9,6
O04 Oe: ee way CRU MT SS Se VA eng ee en 213, 904 5,927 | 297,073 13, 2
1905, 52 vk NBT CU re nia LC era rete sO fen le 2 anh ae 218,101 4,197 | 306,797 9,7
TOOG SS ioe ery OC Ge Se SOE et eA 224, 363 6,262 | 217,083 10, 2
DOD PSS Sai Oe es a a IE heh] Det eee 229, 951 5,588 | 327,975 10, 8
LOR use ck ae eka bee cewebray be onthe Anke bait ae aie net aanne ne 233, 468 3,517 | 333,646 5, 6
TODD Fo oe aS ae PE es See eh en 236, 834 3,366 | 342,351 8,7)
LOLQ eae ok oe ies, 2 aie a SE 240, 293 3,459 | 351,767 9,4
Tncrease, 1910 over 19003)... sa aenk aad eee oo, gee 46,947 Haste ey 92, 9
_—_— oe
June 30—
LOUD ase es Jee SUE. ool ote ee nein: elem Te Sek eee 243,979 3,687 | 362, 824 11,0
MON erode oa et etn Leuk ok crag ee Sree aaa Paar anne a nes hee 246,777 2,798 | 371, 238 8,4
LOTS ako OMe Fei es Pe ae ee ee 249, 777 3,000 | 379,508 8,2
Loe Pte Eb ee Cale Dimea meet Gees Ree ee a ea 252, 105 2,328 | 387,208 7,7
NOLS Seng Se er ay ae oe bs hag Se NS do Cea 53,789 |- 1,684. 391,142 3, 9:
OG ae Sue te ee Ses Sar le ee a OVALS rtd We SIU che ae 254, 251 462 | 394,944 3, &
Dec. 31—
1 5 alee Se Cee TL SE MeN ea eer hy PR 254, 037 1214 | 397,014 2,0
|) | Re ee) 9 erm eRe Tos SSSR ME TS en ae 253, 626 | 1411 | 400,359 / 3, 3
Increase, Dec. 31, 1917, over June 30, 1910 (84 years)......|......-.-- 13, 333 | Sse Se ed 48, 5!
1 Decrease. 26 months.
Mr. Crark. I want to mention one other matter which the com
mittee may hear of from other sources before the hearings are con
cluded. .
The commision instituted several years ago a general and search
ing investigation into the subject of the bills of lading of the ear
riers and somewhat recently issued its report and order as to th
contents of the bills of lading. Necessarily the question of the Je
gality of numerous of the provisions in the old bill of lading or tha
now in use hinges around a proper interpretation of what is com
monly termed the Cummins amendment to the act to regulate com
merce. :
Some of the corporations owning properties, respondents in thi
proceeding, now under Federal control, brought a bill for injunctia
before the district court in New York to enjoin the commission fror
enforcing this order, and by a majority opinion that court ver
recently authorized the issuance of a temporary restraining order
We have not seen the terms of the order as yet, but it was apparentl
issued on the strength of the view by the two judges forming th
majority that while Congress has undoubted right to prescribe th:
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 139
xms and conditions of the bill of lading, it has not conferred upon
ie commission the power to prescribe them. }
Of course, that will be appealed directly. I say “of course”; I
ink almost certainly it will be promptly appealed to the Supreme
‘ourt and efforts made to expedite it, but I have seen some corre-
gondence which indicated the probability that the matter would be
rought to the attention of the committee in an effort to have some
ddition made to this bill to clear up that point. I do not suggest
at this time because, as I say, we have not seen the text of the
straining order and it may be decided to try it out in litigation be-
ore we bring it to the committee. I thought I would say this much
) that if the question did come up you-would have an understand-
ae its origin. -
The Cuarrman. Mr. Clark, we thank you for your patience and
‘ae information which you have given to the committee.
~Mr. Crarx. Am I excused, Mr. Chairman?
‘The Cuarrman. Yes, sir.
I wish to offer for. printing in the record a communication re-
ived from Mr. 8. H. Cowan, of Fort Worth, Tex., on behalf of the
Jational Live Stock Shippers’ League and also the American Live
‘tock Association, with reference to their views on the pending bill,
which, if there is no objection, will be inserted in the record.
(The communication from Mr. Cowan, referred to by the chair-
ian, follows:)
ForT WorTH, TEx., July 15, 1919.
fon. JOHN J. ESCH,
Washington, D. C.
| DEAR Sir: I hereby make application on behalf of the National Live Stock
-hippers’ League and on behalf of the American National Live Stock Asso-
ation and on behalf of the constituent organizations which comprise these
rganizations of national character, representing the combined preducing and
lipping interests of the country as to all matters of transportation involved
1 the bills coming before your committee respecting the railroads, to have the
yportunity to fully present our views, arranging, aS we shall, in advance, if
‘ermitted by your committee, to have parties present who are familiar with the
ibjects on which they speak and are from various parts of the United States,
nd whom we think will be able to enlighten the committee respecting the
U-important subject from the viewpoint of the public interest, which is their
iterest.
‘There are certain of us also representing these various organizations whose
ames can be furnished to the committee later who have had some degree of
Xperience both in the matters of legislation and the administration of the law
f railroad regulation, covering a period of several years.
We trust we shall be able to present with the permission of your committee
le matters of fundamental importance as well as details of the enactments
‘ecessary to protect the public interest, in that it protects farmers and stock
uisers whose business is so intimately asociated with railroad tranportation,
nd secure to them the remedies to which they may be entitled.
' We feel that no interest in the country is entitled to any greater considera-
‘on and we should therefore like to have sufficient time, which will cover a
Ariod of several days, to present our views. By the expression of our views
,Mean the views of the organized live-stock shipping and producing interests
< the country, which might likewise be said to comprise all interests related
» farming and stock raising, the marketing and disposition of their crops.
I have’ taken this opportunity to acquaint your committee with our wishes
the premises in order that they may be given due consideration, and as
‘
state commerce into strong competing systems. .
Adjustment of the wages and working conditions of railroad em
plovees by boards consisting of equal numbers of representatives of
railroad employees and railroad officers, with the Federal transpoi-
tation board as referee. }
Adoption by Congress of a plan for the stabilization of railroad
revenues and credit by means of— |
(a2) Enactment of a statutory rule providing that the rate struc
ture established by public authority shall be designed to yield a net
return of 6 per cent per annum upon the aggregate fair value of
the property of the roads in each traffic section of the country, such
fair value to be determined after due consideration of both physical
value and earning power.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 177
_(b) Use of the aggregate property investment accounts of the
ailroads as the fair value of the property for rate-making purposes
ending the completion of the valuation now being made by the
nterstate Commerce Commission. sigh
(¢) Creation of two kinds of contingent funds—an individual
allroad contingent fund established by each road to support its own
redit; and a general railroad contingent fund maintained by con-
ibutions from all prosperous roads, managed by trustees appointed
y the Federal Transportation Board and used to support the credit
f all of the railroads of the country. Any excess in the general
auilroad contingent fund above $750,000,000 is to be used for the
eneral development of the transportation system of the country.
Creation of a railroad reserve fund administered by the Federal
‘ransportation Board to facilitate the prompt stabilization of rail-
vad credit; and loan of $500,000,000 to this fund by Congress as
yon as the railroads are returned to their owners; the loan to be
‘sed, if necessary, in making advances to the general railroad con-
ngent fund, and to be repaid with interest from moneys contri-
uted by the railroads to the general railroad contingent fund.
_ Determination and announcement by the Federal Transportation
‘oard of the grouping or consolidation of railroads deemed to be in
je public interest; and authorization for the board to require such
| ions if they shall not have been effected or well advanced
:
ithin a period of five years after the board has declared them to be
esirable.
Organization of the board of directors of each consolidated rail-
vad system with 12 members of the board—one to be a representa-
ve of the employees of the system nominated for such position by
1e employees, and three to be selected by the Federal Transporta-
‘on Board to represent the principal interests involved in the ter-
tory served.
(The full text of the program of remedial railroad legislation
lopted by the national transportation conference is as follows:)
CORPORATE OWNERSHIP AND OPERATION OF RAILROADS.
| Section 1. The transportation conference favors corporate ownership of the
‘ilroads in the United States; and is therefore opposed to Government owner-
lip of the roads and to their operation either by the Government itself or,
ader lease, from the Government, by corporations whether organized as
| ‘gional monopolies or as large competing systems.
PROMPT ENACTMENT OF REMEDIAL RAILROAD LEGISLATION.
Sec. 2. The conference favors the enactment of remedial railroad legislation
; the earliest possible date. It favors the continuation of the present Govern-
/ ent possession and operation of the railroads only until such legislation can
> enacted and made effective. If possible legislation should be enacted within
}¢ present calendar year.
CONSOLIDATION OF RAILROADS INTO STRONG COMPETING SYSTEMS.
Sec. 3. The conference is in favor of permitting and facilitating the con-
lidation, in a manner to be approved by the Government, of existing rail-
jads into strong competitive systems so located that each of the principal
affic districts of the country shall be served by more than one system.
“RAILROAD CORPORATIONS TO BE BROUGHT UNDER FEDERAL JURISDICTION.
| Suc. 4. The conference favors action by Congress that will bring all interstate
roads as corporations under the jurisdiction of the United States either
152894—19—-vor 1-12 x
178 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
by Federal incorporation or in such other manner as Congress may determine
the matters of local taxation and police regulation to be reserved by the States
FEDERAL REGULATION OF CAPITAL EXPENDITURES AND SECURITY ISSUES.
Src. 5. The conference favors Federal regulation of the issuance of securitie
by all railroads engaged in interstate commerce. This regulation should he
exclusive and should be exercised in the following manner: Such Federa
agency as Congress may designate shall be authorized to pass upon the public
necessity for expenditures of capital (in excess of a stipulated amount) b)
carriers engaged in interstate commerce and to determine the amount-and t
regulate the conditions of the issuance of securities to obtain the funds re
quired to cover authorized capital expenditures; a railroad company applying
to the Federal agency for authority to make capital expenditures, or to issu
securities, shall be required to file with the proper authorities of the States
in which the railroad is located copies of the original petition; and the Federa
agency shall be required to notify said State authorities of the hearings upot!
the petition.
INTERSTATE COMMERCE COMMISSION TO REGULATE RATES THAT AFFECT INTERSTAT}
COMMERCE, ;
Src. 6. The conference favors the sole regulation by the Interstate Commer
Commission of all railroad rates and of all rules and regulations bearin;
thereon affecting interstate commerce. For the performance of its duties thr
commission should be given power to organize in the manner it may deem best
and be given authority to function through such local officials or agencies 2
it may deem necessary to create or designate.
FEDERAL TRANSPORTATION BOARD—ITS DUTIES.
Src. 7. The conference favors the creation of a Federal transportation boar
of five members. It shall be the general duty of the board to promote the deve!
opment of a national system of rail, water, and highway transportation t
inquire into and propose measures for preventing abuses therein, to pass upo!
the public necessity for capital expenditures, and to regulate security issues a
provided by section 5. The Federal transportation board shall act as th
referee in cases of the disagreement (deadlock) of.a board intrusted with th
adjustment of wages, hours of labor, or other conditions of service of railroa
employees. It shall also be the duty of the Federal transportation board t
administer and enforce the means and measures that may be provided fo
strengthening and stabilizing railroad credit; it shall determine the groupin
or consolidation of railroads deemed to be in the public interest, and carry ov
plans authorized by Congress for merging all railroads engaged in interstat
commerce into strong competing systems severally owned and operated by com
panies subject as corporations to the jurisdiction of the United States. .
|
|
BOARDS FOR ADJUSTMENT OF WAGES AND HOURS OF SERVICE OF RAILROAD
EMPLOYEES.
Src. 8. The conference favors the adjustment of wages, hours of labor, ati
other conditions of service of railroad employees by boards consisting of equé
* numbers of representatives of employees and officers of the railroads, with ay
peal, in case of the disagreement (deadlock) of an adjustment board, to th
Federal transportation board as referee.
The conference favors the adoption by Congress of the plan contained in th
following sections, 9 to 19, inclusive, for the purpose of strengthening an
stabilizing railroad credit, of protecting the interest of the investing public, al
of promoting in the highest degree both legal and moral accountability upon th
part of-railroad directorates and of railroad executive officers, and of brin j
about as promptly as practicable the consolidation of existing railroads int
such number of competitive systems, owned and operated by companies subjec
ne corporations to Federal jurisdiction, as shall be found to be in the publi
nterest.
STATUTORY RULE OF RATE MAKING.
_ Sec. 9. The conference recommends that a statutory rule be enacted by Cor
gress requiring that railroad rates and fares, to be established by publi
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 179
authority, shall be designed to yield the railroad companies in each traffic
section of the United States (as shall be designated by Federal authority)
iggregate revenue sufficient to produce, after proper provision has been made
for renewals and depreciation, a net return (which shall be available for in-
Jerest and dividends) of not less than 6 per cent per annum upon the aggre-
sate fair value of the property of the railroads devoted to the public service in
each of the several sections. The items of “ renewal and depreciation” shall
uso include unproductive improvements not properly chargeable to investment
iecount and against which no capital or capital obligations shall be issued.
TEMPORARY AND PERMANENT VALUATION AS A BASIS FOR RATE MAKING.
Sec. 10. The net return to be obtained by the railroads as a result of the
‘mforcement of a statutory rule of rate making shall be based upon a fair value
# the railroad property devoted to the public service, as ascertained by the
nterstate Commerce Commission, such valuation to include a consideration of
‘yhysical property, earning power, and such other elements as may be proper
‘n determining fair value.
- Until such valuation shall have been determined, the valuation to be adopted
or the railroads in the United States as a whole, and by traffic sections, shall,
or the purpose of making the rates that yield the aggregate net return to be
rovided by statute, be their aggregate railway property investment accounts.
For the purpose of ascertaining excess income, the valuation of any indi-
idual railroad system, pending the completion of the said Federal valuation,
{pon which it shall be entitled to retain 6 per cent per annum, shall be that pro-
‘ortion of the aggregate property investment accounts of all the railroads of
he traffic section in which it is located, which its average annual railway
‘perating income (computed for the period and in the manner prescribed by
he Federal control act of Mar. 21, 1918) bears to the aggregate annual railway
perating income of all the railroads of such traffic section, computed in the
| ame manner ; provided, first, that if the use of the above-stated formula shall
roduce a valuation of any particular railroad system, greater than the amount
f its average property investment account for the three-year period ending
‘une 30, 1917, the amount of such property investment account shall be used
astead of the valuation derived by the formula; and provided, second, that
othing herein contained shall operate to reduce the railway operating income
thich any particular railroad system shall be permitted to retain below its an-
ual average railway operating income or compensation as computed or allowed
‘2 it under the Federal control act of March 21, 1918. To such valuation as
| hall be derived for any railroad system in the manner above stated there shall
| ‘ hh all increases of property investment made by such system after June
i 0, 1917.
| The Federal Transportation Board shall be vested with the same power to
| lake such specific adjustments, in particular cases, as it may deem requisite
nd equitable, as is conferred on the Director General of Railroads under the
iilroad control act, March 21, 1918.
CREATION OF INDIVIDUAL RAILROAD CONTINGENT FUND.
) Sec. 11. All railroad companies engaged in interstate commerce shall be re-
‘aired to observe the following regulations under the direction of the Federal
: ransportation Board:
| (@) Whenever the net railway operating income of a railway company avail-
\dle for the payment of interest and dividends (after provision has been made
wr renewals, depreciation, and unproductive improvements as defined in sec. 9)
tall exceed 6 per cent upon the fair value of its property, or upon its tem-
wary valuation as determined by section 10 (the “ fair value of property ”
ing used in this section to include both temporary and permanent valuation)
1e-half of the said excess railway operating income above 6 per cent shall be
aced in a contingent fund of the company until such amount to 6 per cent
’ the fair value of the company’s property. The remaining half shall be
irned over to a general railroad contingent fund as provided by section 12.
MAINTENANCE OF INDIVIDUAL RAILROAD CONTINGENT FUND.
'(b) A railroad company may draw upon its own contingent fund whenever,
id to the extent that, its said annual railway operating income shall fall
180 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
below 6 per cent of the fair value of the property as determined by section 10
but whenever the railroad’s contingent fund is thus drawn upon, the fund's
be replenished from the company’s share in subsequent excess earnings until the
fund is restored to 6 per cent of the fair value of the company’s property.
DISTRIBUTION OF EXCESS OPERATING INCOME,
(c) When any individual railroad company earns an annual railway operat
ing income of 6 per cent upon a fair value of its property and has establishec
and is maintaining a contingent fund of its own amounting to 6 per cent on the
fair value of its property, the company shall turn over to a general railroad con
tingent fund, two-thirds of the company’s railway operating income in excess
of 6 per cent, the remaining one-third of said excess to be retained by the rail
road company for distribution among its stockholders or for such other lawfu
purposes as it may determine. |
CREATION OF GENERAL RAILROAD CONTINGENT FUND.
Src, 12. There shall be established a general railroad contingent fund fo)
the purpose of making good any deficiency in any year below 6 per cent upon the
ageregate fair value of the properties of the railroads of a section. Th
amount of such deficiency shall he drawn from the general railroad contingen
fund for distribution among the railroads in any traffic section, upon the basi)
of the gross earnings from railroad operations of the railroads within sucl
section; and if the result of this distribution causes the railway operating in
come of any individual railroad to exceed 6 per cent this excess shall be applie:
as provided in section 11. :
MAINTENANCE OF GENERAL RATLROAD CONTINGENT FUND.
Src. 18. In any year, following the completion of the mergers hereinafter pre
vided for, when the yield from rates established by Federal authority equal
6 per cent upon the aggregate fair value of the property of the railroads in an
traffic section, and the total contribution made in any such year to the genera
railroad contingent fund amounts to less than 5 per cent of the aggregate ne
earnings from operation in that traffic section, then the railroads in that set
tion shall contribute to the general contingent fund the sum necessary to briny
the contribution for the year up to 5 per cent of the aggregate net earning
from operation—each company being required to contribute for this purpos
pro rata to its net earnings from operation for that year. :
,
MANAGEMENT OF GENERAL RAILROAD CONTINGENT FUND.
Src, 14. The general railroad contingent fund shall be mauaged by trustee
appointed by the Federal Transportation Board from men nominated by th
railroad companies. Moneys turned over to the fund shall be invested by th
trustees in United States Government securities, or shall be deposited in th
Federal reserve banks.
AMOUNT OF GENERAL RAILROAD CONTINGENT FUND.
Sec. 15. The general railroad contingent fund shall be accumulated by it
trustees until it amounts to $750,000,000, and be maintained at that sum f¢
the purpose hereinbefore provided, and any excess thereafter acquired shall b
used when and as directed by the Federal Transportation Board for the devel
ment of the railroad transportation system of the country, or for the increase ¢
transportation equipment and facilities, or for the pro rata reduction of th
eapital or capital obligations and property investment accounts of the rai
roads, or, if so ordered by Congress, the excess shall be turned over to th
Treasury of the United States.
RAILRGAD RESERVE FUND.
Src. 16. To facilitate the-prompt stabilization of railroad credit and suc
consolidation of railroads as the Federal Transportation Board shall decide 1
be in the public interest, it is recommended that Congress create a railroad rT
serve fund and appropriate for this purpose the sum of $500,000,000. ‘This fun
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 181
‘hall be administered by the Federal Transportation Board which shall invest
{in United States bonds or notes, the interest accruing from such bonds or
‘otes, or the earnings upon the proceeds thereof, to be paid annually into the
Inited States Treasury. In ease, at any time during the first 10 years after
‘he enactment of this legislation, the general railroad contingent fund, pro-
ided by section 12, shall not be sufficient to make good deficiencies as described
4 that section, then the Federal Transportation Board shall pay into the gen-
‘yal railroad contingent fund, as far as the board’s available funds permit, the
‘mount necessary to enable the trustees of the general railroad contingent fund
‘9 make over to the railroads the sums due them for that year under the stipu-
‘utions. of said section 12; provided, however, that any sums so paid by the
‘ederal Transportation Board shall be repaid with interest by the trustees of
‘he general railroad contingent fund from contributions received from the
‘ailroads after the general railroad contingent fund shall reach and be main-
ained at the amount of $500,000,000.
GROUPING AND CONSOLIDATION OF EXISTING RAILROADS.
Sec. 17. The consolidation of railroads into a limited number of strong com-
-etitive systems under conditions to be prescribed by Congress is believed to
e in the public interest and should be carried out as promptly as practicable,
1 accordance with plans to be submitted by the carriers and approved and
nnounced by the Federal Transportation Board. In order to bring about this
onsolidation of railroad companies, jurisdiction of which has been perfected
'$ contemplated in section 4, the Federal Transportation Board shall determine
or itself and announce the grouping of railroads in case such railroads have
ot within a reasonable time submitted plans for its approval for consolidation
1 any given section and the board deems such consolidation to be in the public
iterest.
Tf the consolidations thus announced by the transportation board shall not
ave been affected or well advanced within five years after announcements the
‘oard should be given power to carry through such mergers by compulsory
‘rocedings, if in its judgment the public interest would be thereby advanced.
GOVERNMENT DIRECTORS ON RAILROAD BOARDS.
Sec. 18. Any railroad corporation that may be allowed by the Federal
“‘ransportation Board to acquire the securities or properties of other railroad
ompanies and to form a consolidated railroad system under the jurisdiction of
he United States shall be required by the board to organize with a board of 12
irectors, one of whom shall be a representative of the employees of. the system
/nd nominated for that position by such employees, and 3 of whom shall be
elected by the Federal Transportation Board to represent the principal inter-
!sts involved in the territory served by such system. The board of directors
hus selected shall make such regular and special reports to the transportation
oard as that board may require.
TEMPORARY AID TO CERTAIN RAILROADS PENDING CONSOLIDATION,
Src. 19. Should it be found by the transportation board to be in the public
iterest to protect the credit and financial operations of some railroads pending
‘ie completion of the railroad consolidations herein contemplated, it is recom-
‘iended that one or the other of the following plans be adopted:
1. That the transportation board be endowed with power and granted the
‘ecessary funds to extend credits to such railroads during the period of con-
Jlidation; or ,
| 2. That the existing machinery of the War Finance Corporation be employed
ow this purpose.
| If the second recommendation is adopted, appropriate legislation should be
jjacted to enable the War Finance Corporation to Advance funds to railroads
nder terms that may be approved by the Federal Transportation Board.
Mr. Wueeter. Necessarily the first question that came before the
‘onference at the time of its opening in December was the question
\f Government ownership versus private ownership of the railroads
f the country. The question was probably more an open question
182 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
at the time of our first session than it became later when there seemed
to be a general crystalization of opinion in regard to Government
ownership, but it seemed to the transportation conference necessary
that that question should have the right of way, since we knew in the
diverse interests that were represented in the conference there were
certain elements that held tenaciously to the desirability of Govern-
ment ownership of the roads, consequently that question was given
ample discussion through two full conferences and a part of the
third, and in the third conference came the declaration of the trans-
portation conference that the roads should be returned to then:
owners, as soon as adequate remedial legislation could be enacted.
The question was divided in two sections, one having to do with Goy-
ernment ownership and Government operation, the other having to
do with Government ownership and private operation, for there was
a distinct division in those who favored Government ownership with
_respect to the operation of the properties, but the conference, by a
very large majority vote, made the declaration that I read in the
beginning, namely, the return of the railroads to private ownership
and operation as scon as the necessary remedial legislation can be
enacted, but provided that it favors the continuation of the present
governmental possession and operation of the railroads until such
legislation can be enacted and made effective, hoping that the legis-
lation would be enacted, is possible, within the present calendar year.
A description of the program of railroad legislation favored by
the National Transportation Conference may well begin with a
statement of its proposals regarding railroad revenue and credit,
The most fundamental problem to be solved by the legislation that
must precede the return of the railroads to their owners is the
adoption of measures that will give the carriers reasonable assurance
of revenues sufficient to enable them adequately to perform the serv-
ices required by the public. In the interest of the carriers and the
public the authority which determines rates must adopt measures
that will afford the carriers reasonably adequate revenues.
The restoration of railroad credit is believed by the National
Transportation Conference to be of primary importance. Commis:
sioner Clarke spoke on Thursday of last week of this matter, giv-
ing certain figures of earnings of class 1 roads, applicable to divi-
dend distribution, as an answer to the charges that had been made i
certain quarters that because of the action of the Interstate Com-
merce Commission the credit of the railroads was seriously inter-
ae with. The transportation conference has no such criticism to.
offer.
It is contended, however, that the earnings stated by the commis-
sioner were not sufficient to invite the public to purchase railroad
securities for the necessary replacements and extensions demanded
or needed by the public, and that apart from the earning power, s0
stated by the commissioner, there must be something of a positive
character that will give assurance to the investing public of rates
and fares sufficiently liberal to provide stable and adequate earn-
ings applicable to dividends, so that in making investments in rail-
road securities there shall be the ability to put these securities upon
something of a parity with the industrials and other securities that
have come forward as being much more popular in these latter years.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 183
_ Until such assurance has been given and is sufficiently fixed so
hat the public mind will rest in confidence in the fact that its in-
estments will be adequately protected, it seems inevitable that the
unds for the extension of our railroad system to meet the public
mand and the public necessity will not be forthcoming.
- One method discussed by the transportation conference for provid-
ag such assurance would be the Government guaranty of adequate
sturn. This the transportation conference set aside as impractical
od undesirable. It believes that it will be possible for Congress to
dopt a policy of rate-making and control that will give the carriers
sasonable assurance of adequate revenues without involving the
rovernment in the obligation of guaranteeing the net return of pri-
ate corporations and without imposing upon the public the Lurden
f unreasonable transportation rates.
Briefly stated, it is recommended that Congress adopt a statutory
ale of rate- -making requiring the Interstate Commerce Commission
) be responsible for railroad rates and fares designed to yield the
urriers in each designated traffic section not less than 6 per cent net
pon the aggregate fair value of the property of the railroads. The
jatutory rule recommended by the conference provides that it shall
‘2 the duty of the Interstate Commerce Commission to authorize or
stablish rates and fares that will produce, not for each railroad com-
any, but for the railroads in the aggregate in each natural traffic
ction of the country, aggregate revenue sufficient to yield, after
‘rovision has been made for renewals, depreciation, and unproduc-
‘ve improvements not properly chargeable to investment account, a
‘at return (which shall be available for interest and dividends) ‘of
ot less than 6 per cent per annum upon the aggregate fair value of
1e property of the railroads devoted to the public sérvice in each
' the several traflic sections.
\It is admitted that some of the railroads may be overcapitalized
be others may be undercapitalized. It is a fact, however, that for
ie test period, three years ending June 30, 1917, the actual operating
‘venues were $895, 000,000 in round fioures, upon $17,000,000,000 of
coperty investment account, an average of 5.2 per cent, and if you
vide the country into sections, taking the main geographical divi-
ons, eastern, western, and southern, you will find that the per cent
: Operating revenue upon this same property investment account is
21 for the eastern roads, 5.15 for the western, and 5.36 for the
uthern roads.
It is recommended that “ fair value” shall be ascertained by the
iterstate Commerce Commission by giving consideration not only to
lysical property, but also to earning power and such elements as
ay properly receive attention.
I wish to read for the committee the sections 9 and 10 of the actual
/clarations of the conference which bear immediately upon this
/vestion :
STATUTORY RULE OF RATE MAKING,
Sec. 9. The conference recommends that a statutory rule be enacted by
/ngress requiring that railroad rates and fares, to be established by public
jes ae shall be designed to yield the railroad companies in each trafhe
‘tion of the United States (as shall be designated by Federal authority)
| zregate revenue sufficient to produce, after proper provision has been made
‘ renewals and depreciation, a net return (which shall be available for
184 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
interest and dividends) of not less than 6 per cent per annum upon the aggre
gate fair value of the property of the railroads devoted to the public service {
each of the several sections. The items of “ renewal and depreciation” shal
also include unproductive improvements not properly chargeable to investment
account and against which no capital or capital obligation shall be issued.
TEMPORARY AND PERMANENT VALUATION AS A BASIS FOR RATE MAKING.
Src. 10. The net return to be obtained by the railroads as a result of the
enforcement of a statutory rule of rate making shall be based upon a fair valu
of the railroad property devoted to the public service, as ascertained by the
Interstate Commerce Commission, such valuation to include a consideration
of physical property, earning power, and such other elements as may be propei
in determining fair value.
Until such valuation shall have been determined, the valuation to be adopter
for the railroads in the United States as a whole, and by traffic sections, shall
for the purpose of making the rates that yield the aggregate net return to be
provided by statute, be their aggregate railway property investment accounts
For the purpose of ascertaining excess income, the yaluation of any indi
vidual railroad system, pending the completion of the said Federal valuation
upon which it shall be entitled to retain 6 per cent per annum, shall be tha
proportion of the aggregate property investment accounts of all the railroad
of the traffic section in which it is located, which its average annual railway
operating income (computed for the period and in the manner prescribed by thy
Federal control act of March 21, 1918), bears to the aggregate annual railway
operating income of all the railroads of such traffic ;ection, computed in thy
same manner; provided, first, that if the use of the above stated formul
shall produce a valuation of any particular railroad system, greater than th
amount of its average property investment account for the three-year perio(
ending June 30, 1917, the amount of such property investment account shal
be used instead of the valuation derived by the formula; and provided, sec
ond, that nothing herein contained shall operate to reduce the railway operat
ing income which any particular railroad system shall be permitted to retail
below its annual average railway operating income, or compensation as com
puted or allowed to it under the Federal control act of March 21, 1918.
such valuation as shall be derived for any railroad system in the manner aboy
stated, there shall be added all increases of property investment made by sud
system after June 30, 1917.
The Federal Transportation Board shall be vested with the same power ti
make such specific adjustments, in particular cases, as it may deem requisit
and equitable, as is conferred on the Director General of Railroads under thi
railroad control act, March 21, 1918.
The illustration would be that, taking two roads out of the souther1
district, the Seaboard Air Line and the Louisville & Nashville, tly
property investment account of the Seaboard Air Line was givel
as $176,000,000, in round figures. Operating revenues, $6,500,000, 01
3.68 per cent upon the property investment account, while the Louis
ville & Nashville had a property investment account of $278,000,000
with an operating revenue of $17,500,000, or 6.32 per cent, so tha
here you have a road running over and a road running considerably
under the 6 per cent.
In the calculation of the adjustment of property investment ac
count upon which 6 per cent shall be earned, applying the formul:
that I have just read to you, it produces for the Seaboard Air Lin
a property investment account of $121,000,000 instead of $176,000,000
with an earning upon the 6 per cent basis of $7,500,000, or 4.12 pe
cent upon the property investment account as stated for the period
that is, the $176,000,000, but, as you will see, does not provide a '
per cent upon the basis of the property investment account as state
under the test period, but upon $50,000,000 less than that amount
while the Louisville & Nashville, by the application of the same for
mula, would not change its property investment account, it being
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 185
already upon a basis in excess of 6 per cent, and that would remain
at $278,000,000.
The earning power, however, applying the 6 per cent, would be
raised from $17,500,000 to $19,500,000, or from 6.32 per cent to 7.5
per cent, but in the contribution out of those revenues to these con-
tingent funds that. I suggested in the early part of my statement,
each road would make a contribution. The Seaboard Air Line’s con-
tribution being exceedingly small, amounting under this formula to
only $10,900 per annum, while the Louisville & Nashville, whose
revenues would have been increased from $17,500,000 to $19,500,000,
under the application of the same formula, would contribute $2,000,-
000 annually to the contingent fund,
I will turn now to the plan for strengthening and stabilizing rail-
road credit. 3
PLAN FOR STRENGTHENING AND STABILIZING RAILROAD CREDIT.
From the rates made in carrying out the foregoing statutory rule,
the best situated, or most ably managed, railroads will receive more
than 6 per cent net, while the less favorably located or less efficiently
“managed roads will obtain less than 6 per cent net per annum. By
the plan adopted by the conference, each of the railroad companies
that receive a net return of more than 6 per cent per annum upon the
fair value of their property are to be required to put half of the
excess into a company contingent fund until that fund shall amount
to 6 per cent of the fair value of the company’s property, while the
other half of the excess is to be turned over to a general railroad
contingent fund administered by trustees appointed by Government
authority and maintained and used for the benefit of all the railroads
of the country.
When any railroad company has brought its own contingent
fund up to 6 per cent of the fair value of its property the company
shall increase its annual contribution to the general railroad con-
tingent fund to two-thirds of its net income in excess of 6 per cent,
the other third of the excess being retained by the company for dis-
tribution among the stockholders or for other lawful purposes.
This plan would keep the profits of individual railroad companies
within reasonable limits without taking away from the management
of the companies the incentive to effort and efficiency.
The purpose of the general railroad contingent fund is to assure
‘to the railroads in the aggregate, by traffic sections, a return of 6
per cent per annum upon the fair value of their property. The
fund is to be the means of strengthening and stabilizing railroad
| credit, and to do this (a) without making the Government respon-
sible for a fixed return to individual railroad companies, (0) with-
out imposing unreasonable rates upon the public, and (c) without
permitting the railroads that have been unfortunately located or
have been overcapitalized or otherwise mismanaged to shift their
burdens from their own shoulders onto the Government or the pub-
' lic or the other railroads. The general railroad contingent fund,
accumulated in the manner indicated, is to be drawn upon by all
railroads of a designated traffic section when in any year the net
return upon the aggregate fair value of the property of all the rail-
roads in that section falls below 6 per cent, due to the fact that the
186 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
rates authorized or established by the Interstate Commerce Com-
mission, in consequence of fluctuations in volume of business or of
an unexpected increase in expenses, have not yielded the carriers the
minimum net return of 6 per cent provided by the statutory rule
of rate making.
The company contingent fund is of course the property of the
railroad company; provision should be made for its proper invest-
ment, as Mr. Warburg will refer to in his paper, but it is available
for the use of the road in the event its earnings fall below the re-
quired 6 per cent of fair value, and may be used by the company to
stabilize its own credit conditions. And the general contingent
fund, called upon as I have outlined, applicable for division not to
a single railroad but to the railroads of a traffic section, so that a
call upon the general contingent fund would be divisible among all
the railroads of any traffic section that fell under 6 per cent, in pro-
portion to their gross operating revenues for that particular year,
and a weak road would receive its proportion, and a strong road
would receive its proportion, the difference being that if the strong
road had completed its company contingent fund and the general
contingent fund of $750,000,000 was also complete, there would be
returned to the general contingent two-thirds of whatever came out
of such distribution within the traffic section until the general con-
tingent fund was restored with provision that thereafter the two-
thirds would be subject to such uses as Congress may elect.
As has been explained, the proposed general railroad contingent
fund is to be created and maintained by contributions required from
such companies as have net returns (after they have provided for
renewals, depreciation, and unproductive improvements and are
keeping up their several individual contingent funds) in excess of 6
per cent per annum upon the fair value of their property devoted to
the public service—two-thirds of the excess being contributed. The
fund is to be drawn upon only when, and to the extent that, the rates
and fares, which are controlled by the Interstate Commerce Commis-
sion, do not yield the railroads the contemplated annual net return
of 6 per cent upon the aggregate fair value of their property, the car-
riers being grouped into such natural traffic sections as may be desig-
nated by the commission.
Last week Commissioner Clarke asserted that it would be impos-
sible for the Interstate Commerce Commission to make effective a
rule of rate making that would be designed to yield a definite per
cent return, and you will note that the transportation conference has
protected this particular point, not by asking the impossible of the
Interstate Commerce Commission, but by creating these two shock
absorbers which may be called into play when because of a depressed
condition of business or an unusual increase of expense there should
be a failure on the part of the rate schedule to produce the 6 per
cent upon aggregate fair value.
When the railroad contingent fund is drawn upon for the purpose
of bringing the aggregate net revenues of the railroads in any traf-
fic section up to 6 per cent upon the fair value of their property,
all of the railroads in the traffic section shall share in the distribu-
tion pro rata to their gross earnings. By this plan the weak roads
that will presumably have contributed nothing to the general fund
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 187
gill receive their share; but they will not be the sole beneficiaries
\f the distribution. It is not the purpose of the general contingent
‘und to give to the properties of the weak roads values which they
o not possess; its purpose is to assure to the railroads as a whole,
rear by year, a net return of not less than 6 per cent upon a fair
‘alue of their property ; and thus to establish the first condition prec-
‘dent to stabilizing railroad credit as a whole, and to securing for
the public adequate railroad transportation at reasonable capital
‘ost. It is not proposed to provide the weak roads with a net return
(pon an amount in excess of a fair value of their property.
It is proposed that the general railroad contingent fund, by means
of which railroad credit as a whole is to be strengthened and stabi-
ized, shall be built up gradually during a period of years until the
und amounts to $750,000,000, and that it shall be maintained at
hat figure. If the fund should eventually amount to more than
750,000,000, the surplus may be covered into the Treasury of the
Jnited States or be used to provide the public with additional trans-
ortation facilities, or be employed to lessen the cost to the public of
ransportation by reducing the capital and investment accounts of
he railroads.
|The grouping or consolidation of the railroads in the United
‘Mates within a reasonable time into a limited number, possibly
0 to 30, strong competing systems is essential, because railroad
‘ates must be the same for similar services, whether performed by
‘he weak, necessitous railroad or by the strong and prosperous one.
| t is in the interest of the public that railroad charges shall be
\
either so high as to cause the strong roads to profit unduly nor so
yw as to force the weak lines, upon which large sections of the coun-
ry may be vitally dependent, into bankruptcy or into such a per-
aanently enfeebled condition as to prevent them from serving the
ublic adequately and efficiently. All sections of the country ought
a the future to be served by railroad systems managed by com-
anies strong enough to serve the public with progressive efliciency
.nd economy.
| It will be necessary for the Government to return the railroads
|) the companies from which they were taken, but the obstacles to
jhe grouping or consolidation of railroads, under conditions ap-
lroved by the Government, should be removed, and_ provisions
|hould be made for bringing all of the railroads in the country
; = a reasonable time into such a number of strong competing
ystems as it may be found desirable or necessary to perpetuate in
rder to secure for each principal district of the country the service
)£ more than one system. The grouping or consolidation should be
| bout the present strong systems, that is, along commercial lines,
jod not by arbitrary territorial subdivisions of the country.
_ While presumably it will not be practicable for the Government
|) require the immediate grouping or consolidation of the railroads
jito a limited number of strong competing systems, voluntary con-
Dlidations should be permitted and facilitated. The railroad com-
‘anies should be called upon to submit, for approval of the Govern-
ient, plans for the grouping or consolidation of the roads, and if
jae companies do not submit such plans within a reasonable time the
overnment, acting through its appropriate authority, should deter-
188 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
mine and announce what permanent groupings or consolidations are
deemed to be in the public interest. Should the consolidations thus
declared to be in the public interest not have been effected, or should
they not be well advanced, at. the end of a reasonable period, say
five years, power should be given the appropriate public authority
to carry through the desirable mergers by compulsory proceedings,
if in the judgment of Congress such power can be granted, and the
public interests will be thereby advanced.
The transportation conference recognizes certain constitutional
rights and perhaps certain constitutional difficulties, but it is believed
that with the powers exercised as outlined by the general report of the
transportation conference there may be found many ways or means
other than by arbitrary, compulsory action of inducing the companies
to so far merge and combine lines in keeping with the public in-
terest as to make an arbitrary, compulsory condition unnecessary.
I will omit any reference to the federalizing of railroad corpora-
tions, which Mr. Smith addressed himself to this morning, and with
which you are quite familiar. 7
LABOR REPRESENTATIVES AND GOVERNMENT DIRECTORS ON RAILROAD
BOARDS.
It is recognized by everybody that the railroad business is of a
public nature. Railroad corporations differ from those having to
do with the management of private enterprises. ‘The public is
entitled to information regarding the corporate activities of railroad
companies, and provision may properly be made for participation by
representatives of the Government in the deliberations and actions
of the directors of railroad companies. Although it may not have
been necessary in the past that the public, through the Govern-
ment, should be represented upon the directorates of the multitude
of railroad corporations, it seems clearly in the public interest that
the public shall have a voice in the management of the large and
powerful railroad corporations that may be allowed to own and
operate the limited number of consolidated systems which it is
proposed shall be perpetuated. It is recommended that Congress
require these large corporations of the future to organize with a
board of 12 directors, 8 of whom shall be selected by appropriate
Federal authority to represent the principal interests in the several
territories served by the different systems.
The public has an especial interest in the maintenance of har-
monious relations between the railroads and their employees. There
should be mutual understanding and confidence on the part of the
employer and the employed. It is believed that this relationship
will be greatly promoted by requiring each of the railroad corpora:
tions that are to own and operate the large systems contemplated im
this plan to include in its directorate one member who shall be 4
representative of the employees of the system managed by the
board and shall be nominated for that position by the employees.
BOARDS OF ADJUSTMENT OF WAGES AND HOURS OF SERVICE,
nd other conditions of service of railroad employees by boards con-
sisting of equal numbers of representatives of employees and officers
\
\
es
nd ot conference favors the adjustment of wages, hours of labo’,
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 189
of the railroads, with appeal, in case of the disagreement (or dead-
as refereee.
May I state parenthetically here that this is a point at which I)
‘am particularly anxious that the committee should not regard these |
or being authorized by or conceded by the Chamber of Commerce of |
the United States, because this is the conclusion of the transporta- |
opinion of the membership of the chamber of commerce that, in a |
;
}
referendum submitted some time ago, insisted that there should be
a definite recognition of the public interest in any event, where
jock), of an adjustment board, to an appropriate Federal authority
‘recommendations of the transportation conference as coming from |
tion conference after many hours of discussion of the relationship |
between the roads and their employees, and the means of adjusting |
wages and other regulations, and is quite contrary to the expressed |
i
|
|
boards were created or formed for the adjustment or the fixing of /
wages and hours and working conditions.
This recognition, concerning which Mr. Doke, of the Brotherhood
of Railway Trainmen, will speak at a later time, is the conclusion
of the conference made up of its many interests, and is quite con-
trary to the conclusion that was reached solely by the business in-
‘terests of the country when this matter was put up to them some
time ago in referendum.
FEDERAL REGULATION OF CAPITAL EXPENDITURES AND SECURITY ISSUES
OF RAILROAD COMPANTES.
body seems to have reached the conclusion that in the future the
capital expenditures and the security issues of railroad companies
should be regulated by Federal authority. The States should be,
and apparently are, quite willing to retire from this field of regula-
tion, provided the regulating authorities of the States are officially
notified of proposed security issues and afforded an opportunity to be
heard thereon.
It is recommended by the transportation conference that in pro-
jyiding for exclusive regulation by the Federal Government of the
\capital expenditures and the security issues of railroads, Congress
{adopt the following method: Such Federal agency as Congress may
designate, shall be authorized to pass upon the public necessity for
| Pependitures of capital (in excess of a stipulated amount) by car-
(riers engaged in interstate commerce and to determine the amount
‘and to regulate the conditions of the issuance of securities to ob-
\tain the funds required to cover authorized capital expenditures;
}a railroad company applying to the Federal agency for authority
\to make capital expenditures, or to issue securities, shall be re-
quired to file with the proper authorities of the States in which
\the railroad is located copies of the original petition; and the Fed-
j2ral agency shall be required to notify said State authorities of the
hearings upon the petition.
| Upon one subject that must be included in remedial railroad legis-
3 there is apparently little or no difference of opinion. Every-
|
——
REGULATIONS OF RATES BY THE INTERSTATE COMMERCE COMMISSION.
| The Interstate Commerce Commission has performed a task of
(great magnitude. Its work or regulating rates and of developing
|
190 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. —
and supervising the bureaus connected with rate regulations and
railroad valuation has increased steadily until the commission has
come to carry a heavy load. It would be unwise to add unnecessar-
ily to its present duties, especially in view of the fact that its re-
sponsibilities must unavoidably be increased, should Congress by
legislative enactment confer upon the commission such power over
intrastate rates, rules, and regulations affecting interstate com-
merce as may constitutionally be granted. It will doubtless be
possible, and probably in the public interest, for the Interstate Com-
merce Commission to enlist the cooperation of existing State com-
missions in the regulation of intrastate rates affecting interstate
commerce. The conference recommends that the commission be
given power to organize in the manner that it may deem best and
be given authority to function through such local officials or agen-
cies (including State commissions) as it may deem necessary to
create or designate.
A FEDERAL TRANSPORTATION BOARD AND ITS POWERS.
To carry out the plan of legislation recommended by the trans-
portation conference extensive administrative powers must be vested
in some Federal agency. It is believed that the Interstate Commerce
Commission ought not to be burdened by the addition to the tasks it
now performs of a large number of administrative duties. Should
the commission, as is contemplated, become the authority for the
sole regulation of all railroad rates, rules, and regulations affecting
interstate commerce, its duties will necessarily be enlarged. To re-
quire the commission to exercise the administrative functions con-
templated in the proposed plan of remedial railroad legislation
would be to the detriment of the public interest because it would
seriously interfere with the prompt action of the commission as a
body for the regulation of rates, the task for which it was especially
created and for the performance of which it is peculiarly adapted.
It is recommended that a Federal transportation board of five
members be established to exercise the administrative functions re-
quired for the enforcement of the proposed remedial railroad legis-
eee) The following specific duties should be intrusted to the
oard:
(a) To pass upon the public necessity for capital expenditures
and to regulate the security issues of railroads. .
(6) To act as the referee in cases of disagreement (deadlock) of
a board intrusted with the adjustment of wages, hours of employ-
ment and other conditions of the service of railroad employees.
(c) To administer the general railroad contingent fund and to
enforce the means and measures that may be provided for strength-
ening and stabilizing railroad credit. |
(d) To determine and announce the grouping or consolidation of
railroads deemed to be in the public interest, and to carry out plans
authorized by Congress for merging all railroads engaged in inter-
state commerce into strong, competing systems severally owned and
operated by companies subject as corporation to the jurisdiction of
the United States. ‘a
(e) To promote the development of a national system of rail,
water, and highway transportation, by providing for the articula-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 191
tion of the railroads with the waterways in a traffic sense, by bring-
ing about the common use and construction of terminal and transfer
facilities at the larger centers of traffic, and by such other means as
may be found to be practicable and in the public interest.
_ (f) To inquire into the practices of railroad management and
_to propose measures for preventing abuses therein.
. (g) To appoint the directors that shall represent the Government
upon the directorates of the proposed consolidated railroad com-
anies.
: The board which performs the duties enumerated in the foregoing
list will be intrusted with an executive task of the first magnitude.
Tt should be a board composed of men of the highest character and
attainments. It will equal, if not exceed, in importance, the Federal
Reserve Board, whose creation was more fortunate and whose serv-
‘ices have been of great value to the public. The Federal transpor-
tation board should be primarily administrative in purpose and or-
‘ganization. It will have the large and exacting task of guiding and
facilitating the development of an adequate and efficient national
‘system of transportation.
i RAILROAD RESERVE FUND FOR USE DURING THE PERIOD OF TRANSITION
| FROM GOVERNMENT TO CORPORATE MANAGEMENT.
A severe strain will be placed upon railroad credit and upon the
financial stability of the railroads during the period of transition
of the railroads from Government to corporate operation unless
special precautionary measures are adopted. At the present time
‘the railroads are being operated with a large and increasing deficit
| id it is doubtful whether the deficit can be overcome during the
remainder of this calendar year. In all probability many of the
railroads now being operated by the Government will be showing a
|Jeficit at the time they are returned to their owners.
| The several railroad companies will resume the operation of their
properties under abnormal conditions. Most rolling stock is being
sed by the railroads as a whole without much regard to individual
\Ywnership; to some extent terminals are being jointly occupied and
/ised; traffic has been largely rerouted and the traffic organizations
\:f the carriers have been to a considerable extent disintegrated. It
‘will take the corporations some little time to readjust themselves to
he new conditions and it is evident that the Government will need to
\ssist the carriers financially until they can get going.
| It has been suggested by the Hon. Charles A. Prouty, director of
|\ecounting in the United States Railroad Administration, and for-
jnerly for many years a member of the Interstate Commerce Com-
/nission, that “the Government should guarantee for one year (after
‘urning the railroads over to their owners) a return equal to 75 per
{ent of the contract compensation in all cases where contracts have
yeen executed; and the carriers should be required to pay over to
he Government in all such cases 75 per cent of any excess which it
}aay make over and above the contract compensation.” If this sug-
‘ested were adopted, the United States Government would guaran-
8e to pay the railroad companies during the first year of private
‘perations 75 per cent or over $900,000,000, and would have little
192 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
assurance that the sums which might be advanced would ever be re-
turned to the Government.
Recognizing that it will probably be necessary for the Govern-
ment to assist the carriers temporarily during the first few years of
corporate operation while the railroad companies are building up
their individual contingent funds and while a start is being made in
establishing the general railroad contingent fund, the transportation
conference recommends that Congress make an appropriation loan-
ing $500,000,000 for the creation of a railroad reserve fund to be
administered by the Federal Transportation Board. It is recom-
mended that the board be required to invest the sum thus loaned in
United States bonds or notes, the interest on the securities to be paid
annually into the United States Treasury. The fund, which is to
be established for the purpose of bringing about the prompt stabili-
zation of railroad credit and of facilitating such consolidation of
railroads as the board shall decide to be in the public interest, may
be used as follows:
The reserve fund created by congressional loan may at any time
during the first 10 years after the enactment of the proposed legisla-
tion be drawn upon to whatever extent may be necessary to enable
the trustees of the general railroad contingent fund to pay over to the
railroads the sums which they may be entitled to draw in accordance
with the provisions controlling the distribution of money from the
general contingent fund. The plan recommended by the transporta-
tion conference provides, however, that any sum advanced by the
Federal Transportation Board to the trustees of the general railroad
contingent fund shall be repaid to the board with interest as soon as
the general railroad contingent fund shall reach, and be maintained
at, the amount of $500,000,000. In other words, after the general
railroad contingent fund shall, from the contributions received from
the railroads, have reached $500,000,000 the first claim upon the fund
will be repayment to the Government of the amount loaned at the
time of the transition of the roads from Government to corporate
operation.
MAINTENANCE OF GENERAL RAILROAD CONTINGENT FUND.
Section 13: In any year, following the completion of the mergers
hereinafter provided for, when the yield from rates established by
Federal authority equals 6 per cent upon the aggregate fair value of
the property of the railroads in any traffic section, and the total con-
tribution made in any such year to the general railroad contingent
fund amounts to less than 5 per cent of the aggregate net earnings
from operation, in that traffic section, then the railroads in that se¢-
tion shall contribute to the general contingent fund the sum neces:
sary to bring the contribution for the year up to 5 per cent of the
aggregate net earnings from operation, each company being fe:
quired to contribute for this purpose pro rata to its net earnings
from operation for that year.
And the purpose of that section is that after the mergers and
consolidations have been made, and the rate structure is established,
and depreciation and renewals, and these other matters that must
be taken into account may easily fail to cover outside net earnings
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 193
ito a general contingent fund, an amount that will be sufficient to
‘aintain that fund for the purpose for which it was originally
reated, hence this provision as a safeguard for that period, but it
stitutes a safeguard for a period after mer gers and consolida-
‘ons, and not during the supposedly five-year period in which those
ergers would be pr roceeding.
. Finally it is recommended by the transportation conference that
ie Federal Transportation Board or the War Finance Corporation
the act creating that corporation having been. appropriately
nended) be authorized to advance public funds (under terms that
ill insure the Government against loss) to certain individual roads
hose credit and financial operations it may be necessary in the
iblic interest temporarily to protect during the transition to nor-
al stable conditions.
‘That finishes the statement, Mr. Chairman, and if I may repeat
‘ie statement that I made at the opening, inasmuch as Messrs, War-
‘ig, Salmon, Johnson, and Doke are to take up the questions in-
lved in the restoration of railroad credit in the statutory rule for
‘te making, and the statistics and figures upon which it is based
‘the Federal Transportation Board, and its functions, and the
ved for it, and upon the matter of adjustment of wages and work-
g conditions, if the committee sees fit to omit interrogations from
uur present orator upon those matters and will consent to inter-
gate the men who will present specific papers upon those papers,
id elaborate them very much more than I have done, we shall
ve no crossing of the record and no duplication of questions and
nsequent consumption of the time of the committee unnecessarily.
‘The CHatrmMan. As you have given a broad survey of the pro-
ised plan, I wish to ask you some questions as broad as the scope
your own testimony.
On the 9th of June the Chamber of Commerce of the United
‘ates issued referendum No. 28, consisting of 10 questions, that
xe submitted to the organization members of the chamber. I am
ing over each one of these very rapidly.
First. “The committee recommends adherence to the policy of
‘rporate ownership and operation, with comprehensive regula-
m.” Does the bill 4378, which I had the honor to introduce, carry
't that principle?
Mr. Wueeter. I can not answer that question.
The CuarrMan, Is there anything in it adverse to the doctrine of
‘rtporate ownership ? Aa a
(Mr. Wueeter. I do not think so.
)The Cuatrman. Or of operation?
Mr. Wueeter. I think not, sir.
|The CuarrMan. And is it ‘rather comprehensive so far as regula-
/n goes?
Mr, Wuereter. I a think so.
\The Cuarrman. Rather more than the existing legislation?
\Mr. Wuerter. I would think so, sir.
}Phe Cuarrman. In fact, some complaint has been made against
}aecause it is so comprehensive.
(Interrogatory 2: “The committee recommends return of roads
/ corporate operation as soon as remedial legislation can be
icted.”
152894—19—-vor 1——_18
:
194 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Under the Federal-control act we have 21 months after the pro-
mulgation of declaration of peace. Our view in starting these
hearings at this time is with the hope that we may frame a bill for
action by Congress before the expiration of the current year, and
I rather think that same spirit animates the Senate. That being
true, Congress can not perhaps be criticized for not speedily seek-
ing to enact legislation of a remedial character, so interrogatory 2
would really be complied with by the pending bill, would it not?»
Mr. Wueeter. I think so.
The Cuarrman. Interrogatory 3: “The committee recommends
adherence to the period of Federal control as now fixed unless and
until impossibility of remedial legislation in this period clearly
appears.”
We are trying to comply with the spirit of that, are we not?
Mr. Wuee er. I think you are, Mr. Grn |
Mr. Srms. In that connection, does that mean we continue this
control together with the present guarantee? We are losing money
every month.
The Cuairman. No; of course Federal control shall continue
until remedial legislation has been enacted, and of course unless
there is an impossibility of securing such remedial legislation.
Mr. Sts. I do not know whether it is an impossibility or not
until the whole 21 months have passed.
The Cuarrman. I will read it again:
The committee recommends adherence to the period of Federal control as
now fixed, unless and until impossibility of remedial legislation in this period
clearly appears. .
I rather think there will not be that impossibility in view of the
fact that both Houses are seeking to enact legislation at this early
date, and the proclamation of peace has not yet been forthcoming
Mr. Sims. Mr. Chairman, in the meaning of that article, what is
the remedial legislation that is intended to be referred to there?
The Cuarrman. I suppose possibly the recommendations they sug:
gest.
Mr. Sims. This is not their recommendation, as I understand; only
the conference’s recommendation.
The Carman. We are coming to that.
Mr. Wueeter. May I make this observation, Mr. Chairman, that
I think the phrasing of the question that you have just read had more
in mind distinguishing between the 21 months’ period and the sug
gested extension of time. |
The Cuarrman. The five-year extension ? |
Mr. Wueerter. The five-year extension, and inasmuch as the ment
bers of the chamber have become familiar with the period of presen
control and its termination, and the suggestion for the longer
period by extension, I think the question has been framed more &
bring out the answer as to whether they are in favor of adhering t
the present status rather than creating a new one. .
The Cuamman. Fourth. “The committee recommends permissior
for consolidation in the public interest, with prior approval by Gov
ernment authority, in a limited number of strong competing systems.’
The pending bill, 4378, seeks to grant permission for consolidatior
in the public interest, does it not? :
Mr. Wueeter. I think you are quite in line.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 195
|The Cyarrman. However, it does not specifically indorse the
woposition of consolidation of a limited number of strong com-
yeting systems. There is a difference between the two.
| Mr. Wueeter. I think that is the only difference, Mr. Chairman.
The Cuartrman. You are convinced that it would be to the public
nterest to lessen ‘the number of railroads or railroad systems because
if the ease with which the fewer number could be regulated by Goy-
rmment, and because of the less differences between the fewer
tumber ?
Mr. Wuerter. Well, if by the latter part of your statement you
ave reference to the difficulty of leveling rates as between very poor
nd very rich, I should say that would be the answer. That, I think,
3 one of the principal reasons for commending the consolidation
long natural lines.
The Cuarrman. What do you mean by natural lines?
“Mr. Wuerter. I should express it as lines of natural selection,
vain roads, that have always had large feedings from lesser roads,
nd the development of systems by the merger of these roads that
‘ould naturally group as being productive of a higher efficiency in
ransportation and ease of operation and of stabilizing earning power
y having those controls go largely within the lines of natural selec-
on rather than an arbitrary demand that roads A, B, and C shall
e put together.
The Cuarrman. As I understand, your conference is opposed to
ay regional disttibution of roads?
‘Mr. Wureter. The conference has so expressed itself, Mr. Chair-
ian.
‘The Cuarrman. Do you think it would be feasible to establish
ich a system as you contemplate in view of the interlocking and
iterlacing of the systems as they now exist?
Mr. Wueeter. I think it would be quite feasible.
The Cuarrman. And to maintain a proper degree of competition
| Service.
Mr. Wuerter. I think so, sir.
The Cuatrman. There would be no competition within the system ?
Mr. Wueeter. Our provision, you remember, states that in the
erging or grouping of the roads'so far as may be possible all prin-
pal traffic centers of the country shall be served by competing sys-
ms. I would not be competent to lay out the railroad net or to
adjust it or merge it, but it is the belief of our conference, if I
ay speak for them in this hearing, that such a consolidation pro-
b sg for competitive systems at principal traffic points can be
eated.
The Cuarrman. So interrogatory No. 4 differs from the pending
ll in that it does advocate a limited number of strong competing
stems.
TInterrogatory 5: “The committee recommends a requirement that
Uroad companies engaging in interstate commerce become Federal
; aati with rights of taxation and police regulation reserved
v States.”
‘T think it is conceded that that is not embraced within the scope
| the pending bill. You are of the opinion that Federal incorpora-
Mis necessary to carry out your plan and to carry out the highest
196 RETURN OF THE RAILROADS TO F nIVATE OWNERSHIP. ;
efficiency in railroad operation of the United States, is that the
thought ? .
Mr. Wuerter. That was the conclusion of the conference, Mr.
Chairman, after very deliberate consideration of that question.
The CuarrmMan. Did you not consider Federal incorporation nec-
essary in order to control interstate traffic? |
My. Wurerer. Answering for myself alone, I should say that if
Congress saw fit to exercise the fullest powers that are given to it for
the control of the rate, that would be true, but I take it that Congress
has not, up to the present time, ‘seen fit ito exercise the limit of its
power in that direction, and it has resulted, as Mr. Smith indicated
this morning, in interminable lawsuits and in litigation that has been
rather distressing.
The Cramman. You reserve to the States the right of taxation
and police regulation? .
Mr. Srats. Is it limited; as Mr. Smith this morning contended ?
You have a statement before you as to'the right of the States to tax,
The Cuarrman. No; you heard Judge Smith’s testimony this morn-
ing? )
Mr. Sits. Yes; he'limited it, not to exceed the tax on other prop-
erty in the same State.
The CuarMan. Of. course, there is.a contention now that railroad
property in some States is not taxed on the same basis that other
property is taxed. In fact, there is much complaint that it is taxed
excessively. Would your plan, Mr. Wheeler, solve that problem ?
Mr. Wueeter. You are speaking of the conference plan?
The CuarrMan. Yes. |
Mr. Wueerier. Well, I'can only reiterate what Mr. Smith presented
to the committee this morning as the belief that it would be a step m
the direction of the solution of those questions. We do not any of
us know that any provision would be a final controlling factor and
ideal in its operation, but we believe it would tend to lessen. those
difficulties. F
The Crarrman. You know how jealous the States are of their
taxing power. |
Mr. Wuereter. That is a reason we have made the provision that it
should be left with them. | |
The Cuamman. I suppose that in carrying out your plan: you
contemplated that through Federal incorporation you would have
less corporations than we now have companies, that, of course, being
coupled with interrogatory No. 4, which I have just read ? re
Mr. Wueerter. That is so stated in the conference report, Mr:
Chairman. +a
The Carman. Interrogatory 6: “The committee recommends
exclusive Federal regulation of capital expenditures and security
issues of railroads engaged in interstate commerce, with provision
for notice and hearing for State authorities.” “itil
Is there any objection to the provisions in the pending bill giving
the commission power of stock and bond issues?
Mr. Wueeter. I could only recite the objections that Mr. Smith
made this morning, Mr. Chairman, as perhaps representing a reason
why the bill that you are referring to may not quite cover the point
we have in mind, or quite so easily be enforced and carried out as
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 197
-the plan we have in mind. Beyond that, I would not be competent
to offer a criticism of either measure.
_ The Cuarrman. I do not care to ask you a constitutional ques-
‘tion with reference to it; I can only say this, that this committee
‘first in 1914 and again in 1916 passed bills through the House,
giving the commission these powers, and on both of those occasions
‘there was little question, either in committee or on the floor of the
House, of the constitutional right of Congress to grant such powers
to the Interstate Commerce Commission. So that, as far as this
committee is concerned, we were never worried about our constitu-
tional right to legislate these powers to the commission. ‘That being
so, the pending bill pretty well takes care of interrogatory 6.
Wr. Wueeter. Let us draw the line again, Mr. Chairman, if
you please, between the referendum from which you are reading,
which is the document of one body, and the report of the trans-
portation conference, which is the offering of another. In answer-
ing your question, I would say regarding the referendum that you
have in your hand, that I think the principal interest of the Cham-
‘ber of Commerce was that there shall be such a supervision in the
public interest, and whether it is done under the provisions of the
‘bill that you have under hearing, or under some other means, such
as the transportation conference may propose, what the Chamber
‘of Commerce wants is the thing done, and I am satisfied they would
\not be opposed to the provisions of your bill if it could be carried
| out in that way.
| The Cuatrman. I understand that. That is not the reason I am
seeking the information. I may have made the violent assumption
(im believing that this referendum, from which I am reading, met
}with the approval of the conference committee, in view of the fact
‘that the personnel is somewhat identical.
Mr. Wueerrre. The only identical personnel hes with certain
‘members of the railroad committee of the Ghamber of Commerce
who have participated in the conference, but, of course, the confer-
amee is all inclusive of many interests that are entirely outside of
ihe chamber, and not included in its membership. ;
“The CHairmMan. But if these 10 interrogatories are affirmatively
‘mmswered, the conference committee would feel that the member-
ship of the United States Chamber of Commerce backed your plan.
) Mr. Wueeter. I think quite so, Mr. Chairman.
The Cuarrman. That is a safe and correct deduction?
Mr. Wueeter. I think you have a perfect right to that assump-
lon. | |
The CrHarrman. Interrogatory 7: “The committee recommends
| Tederal regulation of intrastate rates affecting interstate com-
merce.
The pending bill makes all rates that are discriminatory or preju-
\lieial, or that impose an undue burden upon interstate traffic un-
}awful, and gives the commission power to adjust these conflicting or
rejudicial intrastate rates, through the Interstate Commerce Com-
|nission, sitting with the State commissions. Do you not think that
»rocedure might carry out in effect, at least, interrogatory No. 7?
_ Mr. Wueeter. I would think if the question, or the statement that
ou have just made, would be presented to the members of the Cham-
ver of Commerce of the United States, as an answer to interrogatory
198 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
No. ‘, that they would say, “that quite satisfies us in its inclusive-
ness,
The Crarrman. Interrogatory 8: “The committee recommends a
statutory rule providing that rates in each traffic section shall yield
an adequate return on a fair value of the property as determined by
public authority.”
That is where the bill and the conference plan are together. Now,
do you believe in a strict guarantee by the Government ? |
Mr. Wueeter. No; I do not.
The Crarrman. A return on capitalization, or a fair value, or any-
thing of that kind?
Mr. Wnerter. I do not believe in Government guarantee at all.
The Cuarrman. The pending bill has nothing in the nature of a
guarantee. It does, however, seek to establish the rule of rate mak-
ing, which may not be as embracing as some people desire. What is
your statutory rule for rate making?
Mr. Wueeer. Will you want me to go over it again?
The CuHarrmMan. Yes.
Mr. Wueeter. It is rather a long rule in its principles.
The CrarrMan. Just repeat the elements of it. |
Mr. Wueerer. The conference recommends that a statutory rule
be enacted by Congress requiring that railroad rates and fares, to be
established by public authority, shall be designed to yield the rail-
road companies in each traffic section of the United States (as shall
be designated by Federal authority) aggregate revenue sufficient to
produce, after proper provision has been made for renewals and de-
preciation, a net return (which shall be available for interest and
dividends) of not less than 6 per cent per annum upon the aggregate
fair value of the property of the railroads devoted to the public sery-
ice in each of the several sections. The items of “renewal and de-
preciation ” shall also include unproductive improvements and prop-
erly chargeable to investment account and against which no capital
or capital obligations shall be issued.
The CuHatrman. Now, if that is the rule of rate making, do you
think that your provision for a division of the excess and the placing”
of it in the company contingent fund and a part in the Federal con-
tingent fund leaves a sufficient incentive for the carriers?
Mr. Wueeter. The conference thinks it does, Mr. Chairman.
The CuairMANn. That is a very moving question. You have no
doubt as to the result of the operation of the proposed rule for rate
making, and the maintaining the initiative and the high incentive
which heretofore has developed American railroads as the most
efficient in the world?
Mr. Wueeter. I, personally, have no doubt that if the plan pro-
posed by the transportation conference could be made effective that
it would give all of that incentive and would produce the result we
seek for, and I think if you pursue that matter, as you will undoubt-
edly do with Mr. Salmon when he lays the tables before you indicat-
ing that, you will get the reason for my belief, which is the belief
only of a layman who has had the opportunity to sit in these con-
ferences and listen to the arguments and also have access to the im
formation that has been presented. It comes as the opinion from
no expert source, of course. 4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 199
|The CuHatrman. With your wide business experience, value is
fiven to whatever you say with reference to this. We are glad to
tet your judgment.
| Mr. Wuerter. It is my best judgment that it would accomplish
he purpose and provide the incentive.
_ The Cuarrman. Interrogatory 11: “The committee recommends
yayment into a fund of a share of the excess earned by any railroad
ystem under application of the above statutory rule, over an equi-
able minimum return upon fair value of property, this fund to be
sed as Congress directs, for strengthening general railroad credit
nd increasing general railroad efficiency.”
There is nothing of that specific character in the pending bill, nor
3 there as to interrogatory 10, where the committee recommends a
ederal transportation board to promote development of a national
E of rail, water, and highway transportation, and articulation
|
f all transportation facilities. ‘This pending bill, as you perhaps
‘otice, seeks to articulate water and rail transportation with exist-
ig lines. Are you in accord with the pending bill in so far as it
3eks to accomplish that?
Mr. Wueeter. In so far as it goes, I think, Mr. Chairman.
' The Cuatrman. I do not wish to monopolize more time on ques-
tons. Does Judge Sims wish to inquire of Mr. Wheeler ?
Mr. Sims. Mr. Wheeler, you are not an expert—at least you
10destly claim not to be one—so I do not think I will harm you by
sking a few straight questions, and I expect straight answers. Is
ot the object and the purpose of requiring Federal incorporation
D escape, as far as possible by such means, the control and the pow-
ts of the States through legislatures or their regulating commis-
ions ?
Mr. Wueeter. That is one of the reasons. |
Mr. Sims. Is not that the real reason—the real object to be at
vined ?
Mr. Wueeter. I think it is a prime reason, Mr. Sims.
Mr. Sirus. “ Prime” means “ first,” does it not?
| Mr. Wueeter. I will not put it in that sense.
| Mr. Stus. Now, as a layman, suppose that Congress will not au-
10rize compulsory Federal incorporation; then has the key of your
rch fallen ? |
Mr. Wueeter. Oh, I think we would worry along, as we always
ave, with some other scheme. ~
) Mr. Sims. No; I mean under this particutar plan. Suppose you
hun not get compulsory Federal incorporation; then what is the rest
|E your proposition worth? Do you insist on it without that?
Mr. Wueeter. I think it would be exceedingly difficult to build a
yutable piece of legislation embracing the other recommendations
/E the conference without Federal incorporation.
} Mr. Stas. And compulsory Federal incorporation ?
) Mr. Wueeter. Well, we approve of compulsory Federal incor-
joration, for the reasons stated by Mr. Smith this morning.
Mr. Sims. Then, I think it is a reasonable assumption that Con-
press will not authorize or will not enact a compulsory Federal in-
j»rporation law, and if I am correct, then the other recommenda-
}ons which follow in your plan need not be further considered.
200 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Wueeter. We are not ready to admit that you are correct i
your assumption. .
Mr. Srms. Maybe not; but I thought, as you are not an expert,
would get an answer to every question. Now, Congress can only d
that which a majority may vote for and the President will agree t
and in the short time that we have between now and the 31st o
December to pass any kind of legislation, do you not think that t
undertake anything as revolutionary as compulsory Federal incor
poration of every railroad in the country would be practically im
possible to accomplish and get it through Congress before the rai
roads are returned to their owners? |
Mr. Wueeter. I have never been a believer in halfway measure:
and I am not in this case, and if we had to delay action beyond th
close of this year in order to get proper legislation, I should take m:
chance on having an improved situation as the result of such a dela)
rather than to take a halfway measure just because it was the onl)
thing that could be obtained at this time. .
Mr. Srmus. But under the law the President has the right to retur
these roads immediately, if he returns them all, regardless of th
consent of the owners; and now we have had fair notice from th
President that he expects to do so at the end of this calendar yea
Now, why not. accept such legislation as will be practical and possibl
to enact before that time, and then consider these other propositions
which you and other gentlemen propose, that can be superimpose:
following that; and if it is necessary, give confidence to the investor
that they might at least have that much anyway to stimulate then
in sustaining their securities rather than throwing them on the mat
ket and having them sacrificed ?
Mr. Wueeter. It is not going to be sufficient to maintain securi
ties. You are going to develop a constantly decreasing efficienc
in railroad operation. It will be bad enough under any conditions
but if all that you gain by legislation is simply to maintain th
status quo or to hold level as nearly as you can, with the danger 0
decreasing efficiency and the withdrawal of public confidence, yo
have accomplished nothing; and I am not at all sure that the Presi
dent has definitely fixed in his mind that he will do that. We wer
told a few months ago that he would put the roads back into thi
hands of their private owners after a certain number of months, i
certain things were not done, and he did not do it. He has the in
terests of this country at heart and is going to do only those thing
that are for the public interest—and to put the roads back withou
satisfactory legislation could not be said to be in the public interest
in my judgement. |
Mr. Stus. Mr. Wheeler, as a member of the committee I did al
I could, in passing the railroad Federal control act, not to put aly
calendar limitation on the period that the Government should oper
ate the roads, but Congress, wisely no doubt, took a different view
and put a maximum limit that should not be exceeded. Now, if.
catch your meaning, it is that the railroads should be continued ii
Government control to the end of the 21 months, as provided for };
Congress, unless the railroads, or those interested in them, get legis
lation in the meantime which is satisfactory to them, although th
taxpayer may, from month to month, continue to pay a deficit grow
:
j
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 201
ng out of the continuance of the railroads in Government control,
‘imply in order to secure the legislation that you advocate. Is not
hat asking a great deal of the public?
Mr. Wueeter. In the first place, we do not advocate the retention
i the roads for 21 months.
Mr. Sims. It is not necessary.
’ Mr. Wueretrr. We advocate their retention for such a period of
ime as may be necessary to provide adequate remedial legislation;
1ot what the railroads want, but what the public demands, in order
hat public service may be kept at the highest basis of efficiency.
Mr. Sims. When I say “what the railroads want” I mean what
hey think is necessary in order to do the tthings you are pointing
ut. I mean the legislation that they propose and which, from their
jewpoint, is considered necessary, just as you think in this case
here is certain legislation necessary and you propose what you think
all supply the need.
Mr. Wurrter. May I finish my answer?
Mr. Stus. I beg your pardon. J thought you had finished.
Mr. Wueeter. No. You also speak of the retention of the roads as
ubjecting the public to a heavy tax because of the deficits that ex-
st. If those deficits continue to exist with the roads back in private
wnership there would be receiverships, would there not?
Mr. Sirus. Probably so.
Mr. Wueerer. If those deficits are made good, what is the differ-
nee between one tax and another?
“Mr. Sms. I can not assume there will be receiverships. We are
laying them $940,000,000 a year for the use of their property, which
xceeds any average they have ever been able to make for any lke
eriod heretofore, including the two years previous to the war, in
thich traffic was exceedingly heavy due to the European war. We
re paying the railroads now more than they ever could or would
‘ave earned if they had not been taken under Federal control. Now,
thy are we under obligation to continue giving them more than
yey could have earned if they had not been taken over?
Mr. Wueetrr. Did that three-year period contemplate the ad-
‘ances that have been encountered in the costs of operation that
je Railroad Administration has been put to?
| Mr. Stms. During which time the Government has paid out and
ill have to pay out many millions of dollars in excess of what was
stimated.
~My. Wueeter. Of course they will. It is not an immoral tax.
- Mr. Srus. Do you claim that the increased cost of supplies and
ibor was due alone to the fact. that the Government had charge
Ethe railroads during that period ?
Mr. Wueertrr. Not in the slightest sense.
Mr. Sims. Then, it is reasonable to suppose that these increased
sts of supplies and labor would have come regardless of Govern-
ent control, and, of course, railroad people would have had to bear
ter losses just as everybody else did, upon the return of peace
iddenly, before new business could adjust itself to existing peace
mditions ?
Mr. Wuereter. The only difference between us is that I am not
ute ready to admit they would have come to the same extent as
ey have,
202 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. That is really a matter of opinion, because we do see
in private employment that wages were increased fully as much
over former wages paid as they were in the railroad service, and
we find public utilities, like street car companies, that were not
taken over, going into the hands of receivers on account of the
increased cost of supplies and increased cost and everything of that
sort—enterprises that the Government never had anything to do
with. What I am trying to get at is this: Are not the railroads
and their owners willing to take some risk in order to get the
advantage of an early return of the roads, so that they may adjust
themselves to permanent conditions? As long as the Government:
is paying the standard return the railroad owners can be just as.
indifferent as they please as to whether they make anything or not,
Now, in order to get the benefit of private initiative and the interest
of the owners of the securities they ought, it seems to me, to be
restored to private operation just as early as possible, and the
referendum seems to foreshadow an early return and to advise it.
They do not, any of them, advocate the five-year proposition that
Mr. McAdoo made, in order that Government control and operation
might have an opportunity to demonstrate what it could do inde-
pendently of existing war conditions.
Now, you say that you do not ask for a guaranty. You mean you
do not ask for a Government guaranty, but you do ask that which
makes it unnecessary to ask a Government guaranty, and that is
that your proposed commission shall make rates and continue theni
that will bring a dividend return—I mean money that may be ap-
plied to dividends—of not less than 6 per cent. Now, is not that
an operating guaranty ?
Mr. Wueeter. We do not so regard it, Mr. Sims.
Mr. Sus. If it does not make 6 per cent it is a failure, is it not!
Mr. Wueerer. As you will find when you come to go into the
figures a little later on, it does not do that thing. There are great
variations in these percentages. It is simply providing an assurance
that this 1,000,000,000 a year, or such amount that may be needed ia
order to develop the transportation system of this country to serve
the public, may be safely contributed by the public—and of course)
the funds can come from no other source—upon a Federal a
that capital invested will be given reasonable consideration. Rail-
road securities must be bought by the public in competition with
all other classes of securities, and they are not being bought to-day,
in spite of the earning power under the three-year test period,
They are not attractive investments by any manner of means, and
it is not because certain roads do not earn enough to pay a reason=
able dividend, but it is because the investing public is very uncertain)
as to the continuance of a policy that will assure a reasonable
return upon investments that the public may make in railroad securi-
ties, and it is for that purpose alone that we have in mind the plan
that has been suggested here. |
Mr. Sts. Is it not in the nature of a guaranty, though?
Mr. Wueeter. I do not think so. |
Mr. Stms. Then, what is the use of making any provision as to
compulsory rates if it is not in the nature of a guaranty? |
Mr. WHEELER. Jf is an assurance. ADD
'
\
-
{
|
/ ;
.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 203
« Mr. Sts. What is an assurance but a guaranty ?
' Mr. Wueeter. That fair treatment will be given to corporations
‘ngaged in the interstate transportation business.
\ Mr. Srus. I understand that your plan does provide, in contin-
‘rencies, that weak roads may receive or have the benefit of partici-
ation in a fund which did not grow out of their contribution ?
» Mr. Wueeter. Mr. Sims, you are wrong in that particular, because
‘he assurance of a 6 per cent return has nothing to do with the indi-
iidual road, but only applies to the system or consolidation that
esults, creating a traffic section, or from the several consolidations
\hat may create a traflic section, and the rate that shall assure 6 per
ent upon the aggregate fair value has nothing whatever to do with
\he aggregate fair value of the individual property of a single cor-
joration, but over the entire aggregate of the traffic section that is
/nder consideration.
| Mr. Stms. All the property, then, in a traffic section—all of it
|\ogether—must bring the 6 per cent; that is, the rates must be such
s will give a 6 per cent return upon the aggregate fair value of all
|he property within the section?
| Mr. Wueeter. Yes. |
| Mr. Sms. That means 6 per cent on the weak as well as the strong
oads, does it not, on an average?
Mr. Wueeter. Oh, no; you can not average it and still have it
gular. You can not say it will average 6 per cent and that it will
|e 6 per cent on the weak and 6 per cent on the strong.
» Mr. Sims. If you say 6 per cent upon the aggregate fair value of
ir property within a section, the public pays 6 per cent on that value,
\thatever it is, does it not?
Mr. Wueeter. They do not pay 6 per cent upon the value of the
idividual weak road; they pay upon the aggregate property value
‘fall the roads, either all the roads in the country or in any traffic
ction of the country.
Mr. Sims. Then, what is it worth to a weak road to have this
ominal guaranty of a return of 6 per cent, and not get it? That is,
ou say it does not mean they would get 6 per cent. I got an idea
lat your strong roads would pay over 6 per cent, and you would
\dd that to the return of the weak roads to help them. That is not
\1e fact, is it?
| Mr. Wureter. They are paying very largely into the contingent
md, remember, Mr. Sims.
: Mr. Stms. What does that contingent fund provide for?
: Mr. Wuzeter. It goes for the period of depression, when, perhaps,
|) rate-making power could anticipate what would happen.
| Mr. Sts. You mean a depression on the particular strong road as
jell as the weak?
Mr. Wuerter. Of cotirse, it would apply to both.
Mr Sims. And none of it would ever go to the weak road ?
| Mr. Wuertrr. Yes; some of it would.
| Mr. Sims. I mean in proportion to its weakness?
| Mr. Wueerer. I am very glad, Mr. Chairman, to answer Mr.
ms’s questions just so far as I can do so; but I do feel that the
mmittee will get much more information if it will take these very
testions that Mr. Sims is now asking and interrogate Mr. Salmon,
\
.
aS
ant oe ag
204 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
who will have before him all of the tables and the data that we will
put into the record, and who can accurately answer what would be
more or less haphazard answers to questions propounded to me at
this point; and, therefore, I hope Mr. Sims may consent to redene
his questions for that time. By that I do not wish to convey the idea
that I am not very glad to go on, but I am sure I am only taking up
time unnecessarily. 1 |
Mr. Snrs. You are a banker, and I am trying to see what credit
is necessary to stabilize the situation. How would your plan enable
a weak road to borrow money at a less rate of interest than 1t doug
now ¢ if
Mr. Wueerer. I do not think I can answer that question for you. ¥
Mr. Sry. You are a banker, and you are looking after those
things, and I supposed that would be a question In which you your
self would be an expert. 7 |
Mr. Wuerrer. There is a stabilization by the plan that will cer
tainly attract the consideration of capital, which is entirely absent
under the existing conditions. | oF
Mr. Sts. Your bill here provides for declaring these railroads tobe
military and post roads. Therefore, they become a United States Gov-
ernment facility or a machine for the purpose of performing a Gov-
ernment service—a national service. Now, that being the case, why
should there be any weak roads? If they are all Government roads.
and are all necessary to perform military and postal service, whi
should not the Government of the United States take such measure
as may be necessary, so far as the Government is concerned and s¢
far as military and postal purposes are concerned, that every road
can perform that service as well as every other railroad, and not
have to depend upon competitive biddings for capital in the markets
of the world against the strong as well as the weak? ) eo
Mr. Wuretrr. You have a condition, not ‘a theory, confronting
you in this transportation problem, that will not fit to your prescrip:
tion. | at
Mr. Surs. Your bill wants to make them military roads? ~ ay
Mr. Wueeter. It says they may be used as such in times of emer
eency, which is perfectly right. , f
Mr. Srats. I know, but they are declared to be military and
roads in the bill as given out by Mr. Smith. Do you believe it
morally or econmically right to take the earnings from one privat
owner and give them to another private owner, because that othe
private owner does not make as much money as the first—that is, a
applied to anything, whether it be a railroad or a farm or anythnig
else? ak
Mr. Wueeter. I think under the provisions of the conference
recommendations it is quite in order that there should be certa.
distribution Ft
Mr. Srms (interposing). Therefore, you reduce private initiative
and the desire to have the strong roads make all they can, .becavs
they can not keep all they make? oh
Mr. Wueeter. Not at all. They are allowed to keep all th
should make, under the conditions that you can not make a level rat
that will apply equitably in the public interest to the rich and 00)
roads alike in the same traffic section; and as Mr. Salmon will sho
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 205
‘ou, as again I suggest that you ask him these questions, he will
oint out to you exactly wherein these differences lie, and that the
gestions that you are asking regarding taking from the rich to
ed the poor does not actually operate as you imagine that. it
‘ould
‘Mr. Srus. Let me ask you another question, and then I will quit.
his is a matter of policy that touches everybody. Whatever the
vockholders have, they have a right to use as they may see fit. They
im take their dividends and invest therm in other railroads, or in
iloons, or pianos, or anything they please. They have a perfect
ght to pay out their own money for anyth ug they want, and to
ay just as large salaries as they see fit to the managing officials of
ie railroads, to lawyers, doctors. preachers, and everybody else;
at for the moral effect that it may have upon the wage earners and
ie employees of the railroads, do you not think that it would be
voper legislation to limit the amount of salaries that could be paid
it and charged up to operating expenses? Let the stockholders
ay just as big salaries as they want to—of course, that can not be
eevented—but if they want to pay a chairman of the board of direc-
rs or « general manager an enormous salary, when it comes to
jarging that up to operating expenses—salaries of $100,000 or
0,000 a year—while the engineer and the trackman and the wage
ceiver feels that he is not getting a square deal, that he is earning
oney as well as they are, but does not get in proportion anything
'ke the amount he earns—for the moral effect upon labor do you
| xt think it would be a good thing to limit the amount that can be
uid to operating officials and charged up to operating expenses?
j/hat is not at all a question for an expert.
Mr. Wuerter. I do not agree with your assumption at all upon
jy limitation. The corporation will pay what the skill and the
lity is worth, and will not long pay more; and to fix the wage or
ie salary of an operating official upon any pro rata, using as a base
le wage of an engineer or conductor, is, to my way of thinking, an
ter impossibility. There is no relation between those two services,
id there can be no relation between the compensation accorded to
ch of those services.
| Mr. Srus. You know Mr. Milton H. Smith, ox the Louisville &
jashville Railroad, do you not?
) Mr. Wueeter. Yes.
L¢ Sims. The president of the Louisville & Nashville Railroad
12.8
| Mr. Wueeter. Yes.
| Mr. Smuts. One of the most distinguished and successful and expert
ilroad men in this country.
Mr. Wuerrrr. Yes. _
Mr. Stus. Well, he never told me this, but gentlemen have told me,
“whom I have absolute confidence, that Mr. Smith himself said
at no living man could render a railroad company service exceed-
|& $25,000 a year in value, and he refused to accept a salary of
0,000 per annum offered him by his directors. Do you think Mr.
jilton H. Smith did not have a good opportunity to know what s
}an is worth to this industry?
| Mr. Wueerer. I disagree with his conclusions.
206 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sus. Are you a railroad man?
Mr. Wueeter. No; I am not.
Mr. Sims. Then, his is an expert conclusion and yours is a, lay
conclusion ? :
Mr. Wueeter. I still hold my lay conclusion on that question,
Mr. Sims.
Mr. Srus. I simply spoke of it with reference to its moral effect.
I know the stockholders have a perfect right to pay all that they]
please, if it comes out of their pockets; but if it comes out of the pub-|
lic by way of increased rates, and if you have continual labor agitation
on the ground that they are not getting what they ought to have,
it would at least be worth something in its moral effect in that way,
would it not? That was my reason for asking you the question,
I did not know what your views were. I did not know whether you
had any views on it or not, but being a banker and business man
generally, I would trust your judgment on a thing of that sort
rather than I would an operating official or an engineer, as to its
psychological effect. I think this country ought to avoid Bol-
shevism by removing the cause, or alleged cause of it as much ag)
possible. Mr. Chairman, that is all. |
The CuarrMan. Mr. Stiness.
Mr. Srrness. I wish to ask just one question. I was not here, Mr.
Wheeler, when you started your testimony. As I understand it!
your plan is to make a road that can earn 10 per cent divide up, se!
that a road that can only earn 2 per cent will get onto the 6 per cent
basis. Is that your plan? |
Mr. Wueeter. No; that is not an accurate statement of the plan}
We are not considering individual roads at all. We are considering
roads massed in traffic sections; and whether that traffic section he
very large or be limited in its number of roads or individual con)
panies it is all by the traffic sections, and not by the individual roads
that the calculation is made; but if you might hold in your miné
the question that you have now, and the reason for your interroga::
tion on this question until Mr. Salmon can give you_those figure:
I know that you will find the answer there. It would probably he
a long story to differentiate between individual roads and trafic
sections, and the earning power of the weak road and the stro
road in putting these figures together; whereas Mr. Salmon wil
have them so that they will be as clear as an open book to you wher)
he is interrogated. Ai
Mr. Srrness. I would much rather have your opinion, as a busi!
ness man, than that of an expert with a lot of figures that I do noi
know anything about. |
Mr. Wuesver. Mr. Salmon is a business man, just as I am, 2
he is only having these figures presented because they have beer
gathered together and put into his hands for this very purpose by)
the conference—not because he has made them as an expert ac!
countant or will present them as such. He will present them as #
business man, and will do it much more intelligently than I could|
Mr. Srrness. Would not the effect of your plan be this: That 7
a man is a stockholder in a road that is capable of earning 12 pél
cent, let us say, and had the shrewdness to invest in that road, un el
your plan he could not get the full benefit of his investment and 0:
his shrewdness in putting his money into it, but he would have t
i|
i
I
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 207
livide up some of those profits with a weaker road; is not that the
jractical effect of your plan?
| Mr. Wueeter. The strong road to which you refer would un-
\loubtedly be in a traffic section in which there were also weak roads,
\Che rate that would provide an average of 6 per cent upon the ag-
sregate property investment account of all the roads of the traffic
ection, would provide an income to your road much larger than
ihe Interstate Commerce Commission would probably give them, if
hey were dealing only with that single unit and its power to carry
\reight at a rate that would be in the public interest. In conse-
{uence, in providing for the traffic section and the 6 per cent upon
he aggregate value of that section, you are providing an increased
arming power for your 12 per cent road, which will be divisible
jn the public interest into its own contingent fund, and the general
ontingent fund, and perhaps the United States Treasury by and
iy; but it will have its earning power quite as much as it ever had,
| nd if it is deprived of any of that earning power, it will be be-
jause the rates which are established in the traffic section in which
jhat road is located are of such a character as to produce a larger
|mnual operating income for the road than they would have had if
‘hey had not had to consider the weaker roads.
| Mr. Sriness. Then, it is your idea that. it would not reduce the
ividends of the stockholders in the strong road ?
Mr. Wueeter. Quite possibly, but certainly not unfairly, and cer-
junly not more than the public interest would demand, over and
|bove a given reasonable maximum. There are many conditions
there Mr. Salmon will show you how, in excess of 6 per cent, there
/aould be certain accretions to those strong roads, who, by virtue
|f{ the density of traffic and their age, and the cost of constructing
jem, and so forth, will have the right to compensation in excess
/£6 per cent.
| The Cuarrman. I wish to express the appreciation of the com-
| eee to the representatives of this conference for the vast amount
‘€ work which they have put upon the plan and for the information~
hich they have already given and will give. The committee is
jeking light, and we feel sure that the information of so responsible
}) body will be valuable in our deliberations.
Mr. Wueeter. Thank you, Mr. Chairman.
The Cuarman. Mr. Warburg, give your name and address.
STATEMENT OF MR. PAUL M. WARBURG, OF NEW YORK.
—
Mr. Warsurc. Mr. Chairman and gentlemen, I used to be a banker
itil I went on the Federal Reserve Board. I was vice governor of
‘© Federal Reserve Board until 1918. I am now a private citizen,
ving at Hartsdale, N. Y. oo .
The conference asked me to address myself primarily to the credit
| financial side of the question, and I have prepared a statement in -
at connection. I apologize for the length of that statement, but
}1s financial question is, to my mind, the crux of the problem; it
volves the rehabilitation of the credit of the railroads. As Mr.
heeler has indicated, the enactment of a law will not do us any
‘od unless that law will bring the investors back into the railroads.
e have, as our conference report points out, the choice between
208 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Government ownership and operation and Government guaranty on.
the one side, and private operation and private ownership on the
other. The conference assumes that it is the wish of the country at
large that we should try to develop a plan which would enable us to
return the railroads to private ownership. If that is the case, we
have got to take into consideration present financial conditions and
world financial conditions, and we have got to provide a basis upon
which the investor will go back into the railroads. If we can not
do that, no matter what law we pass it will be of no avail. If 1 may
read this statement now, I think I can make myself clearer.
The CuarrMan. You may proceed.
Mr. Warsura. The national transportation, conference,, 1n aip-
proaching the subject of remedial railroad legislation, was guided
by the fundamental thought that transportation should pay its own
“board,” i.e. that the yield of transportation. rates, both, freight
and passenger, should be sufficient to pay for the transportation
cost, including a reasonable return on the value of the railroad prop-
erties devoted to the public service. If by paying higher prices for
all necessaries of life the consumer bore the cost of increased wages
involved in the cost of production of these articles, there is no rea-
son why, quite arbitrarily in the case of freight charges, the prin-
ciple of cost should be abandoned. There appeared no reason why
this cost of transportation, forming a fraction only of the total cost
of things, should be furnished at a loss, to be made good by taxation
levied indiscriminately from all instead of having the transporta-
tion paid for by those directly served. There is no reason why the
man paying a high rent for dark and narrow quarters in crowded
city tenements should pay the transportation for the commuter who
lives in healthier and more commodious quarters and pays a lower
rent. There would be no reason why a fairly self-sufficient farmer
should pay taxes in order that the manufacturer may receive coal or
ores at a transportation charge below cost. +}
The problem of raising through taxation the gigantic sums re-
quired by the country for interest charges and other matters affecting,
the national welfare is perplexing enough in itself, and I believe
the transportation conference made no mistake in assuming that the
ublic interest would best be served by not unnecessarily increasing
the burden of taxation by arbitrarily adding to it deficiencies caused
by transportation to be furnished below cost. 7 1
In the opinion of the conference, it 1s the object of remedial legis-
lation to establish conditions under which the carriers as groups are
certain to receive a return sufficient to cover the cost of operation,
including a reasonable adequate return on the fair value of their
properties; while, on the other hand, such legislation must safeguard
the public’s interests in assuring adequate service at charges which
are not excessive. Transportation must be furnished at the lowest
possible price, but under conditions generous enough to preserve &
healthy spirit of competition and enterprise imperative for the fw
ther development of the country. ‘|
The first question to be determined by the conference was, What
shall be considered a fair value of the railroads? It is evident that a
physical valuation—that is, reproduction value of the railroads—i
taken as the sole standard, for many reasons, which it is unnecessary
to elaborate, would produce an entirely misleading and unsatisfac-
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 209
jry result. As one of the experts stated to our conference, “It isn’t
ie cost of some tons of dirt dumped somewhere that constitutes the
\ulue of a railroad investment. It is the question of whether or not
jey were dumped intelligently and what they produced after they
jid been dumped.”
) The conference understands that it is the purpose of the Interstate
jommerce Commission in the near future to define what principles it
\ill apply in establishing the value of a railroad as a whole. It is
sheved that such definition will provide that a consideration of the
erage earning power of a railroad, for a given period of years,
| ould be given at least the same weight as the physical value of a
;ilroad, and that the commission’s definition will take into account
| ch other elements as may be proper in determining fair value, leav-
|g room for adjustments in individual cases. |
|The report of the conference assumes that a definition on these
jiaes will be given in the near future by the Interstate Commerce
/ommission, or that, failing that, a proper direction will be laid
jywn in the law.
; For the purpose of discussing the final stage of the plan the con-
rence assumed that the value of the railroads will be satisfactorily
}}termined under due consideration of these various factors, and that
“final valuation ” will have been established.
|The second question before the conference then was, What shall
nstitute an adequate return on this “ final valuation ”’?
It has been the consensus of opinion of members of the conference
| at if private capital is to enter freely upon the venture of further
\\veloping the railroads, and if railroad credit is to be reestablished
).a solid basis of genuine confidence, that 6 per cent on the final
| uation plus a modest share in earnings in excess of this percentage
puld constitute the minimum required. The chances for profitable
| vestments in other industries are so much more attractive that the
er of a lower return would be certain to defeat the very objects to
| accomplished by remedial legislation.
)May I suggest that the committee kindly bear in mind that we
jeak of a 6 per cent return on the valuation, and this valuation, in
\P opinion, will, of course, be based, to a large extent, on the exist-
)y earning power of the railroad. That will answer the question
st raised by Mr. Stiness of whether or not a railroad will be de-
ved of its present earning power by this 6 per cent, limitation.
e@ are providing here for a 6 per cent minimum on the final
\luation of a property, with provision for sharing or rather dis-
}buting the excess profits into a contingent fund, but this excess
er 6 per cent is based on a valuation bottomed upon existing earn-
3s and a property valuation, so that a railroad earning at present a
)th dividend, such as Mr. Stiness had in mind, would have com-
)nded a valuation when completed, which no doubt would express
» present strong earning power of that railroad. The valuation
uld not ignore existing conditions. The transportation conference
| cussed that at length, and the Interstate Commerce Commission,
my mind, will have to make itself entirely clear as to that point,
/ich, I think, is alarming the railroad investors to-day more than
ything else. They do not know what really is considered the value
arailroad. The Interstate Commerce Commission has been grad-
/ ly finding its mind about that; but I believe that before the rail-
152894—19—-vor 1—_—14
ee
210 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
roads may be returned or before legislation can be passed, the Intei
state Commerce Commission must make itself entirely clear as t
what will be the definition of the valuation of a railroad. If th
valuation includes capitalization of the present earning power to th
same degree as the property value, I do not believe that there need
any fear that the strong roads will be unduly deprived of thei
present worth. If they have earnings in excess of 6 per cent on tha
valuation, which is the minimum that should be their due, then y
might say that the public is entitled to some limit on top, and the
then these various contingent funds, which Mr. Salmon will explan
will go into effect.
The plan, therefore, proposes that a statutory rule be enacted b
Congress requiring that rates and fares be established by public aa
thority shall be designed to yield the railroads of each traffic sectio
of the United States revenue sufficient to produce, after proper prc
vision for renewals and depreciation, a net return available for inter
est and dividends of not less than 6 per cent on the aggregate fin:
valuations of the property of the railroads devoted to the publ
service in each of the several sections.
It is furthermore proposed that each railroad netting earnings 7
excess of 6 per cent on its final valuation shall turn over one-ha
into a general contingent fund until its own contingent fund amouni
to 6 per cent on the fair value of its property, after which (as long:
this company contingent fund is maintained at 6 per cent) two-thirc
of the railroad company’s earnings in excess of 6 per cent would ¢
into the general contingent fund, while one-third would be retaine
by the railroad company for distribution amongst its stockholde
or for such other lawful purposes as it may determine.
The payments into the general contingent fund, it is propose
shall be accumulated until it amounts to $750,000,000 and be man
tained at that sum, and any excess shall be used when and as directe
by the transportation board for the development of the railroa
transportation system of the country, for the increase of transport:
tion equipment and facilities, or for the pro rata reduction of th
capital obligations and property investment accounts of the rai
roads; or if so ordered by Congress, the excess shall be turned over
the Treasury of the United States. |
In formulating this plan the transportation conference Wi
guided by the thought that in order to attract capital for the futw
development of our transportation system it was neither desirab)
nor necessary to erect a structure of speculative investments, bv
rather to lay so strong a foundation for railroad securities that the
would prove attractive to the investor on account of their solidit
rather than on account of their speculative possibilities. |
The plan does not propose to give railroad security holders muc
more than they get to-day; the increase in return necessary to ba
ance the very delicately poised scales, when measured in dollars,
comparatively insignificant. The benefits of the plan would rest
primarily from the better organic structure of the whole system ar
from the greater confidence that it would inspire. j
' Through the contemplated consolidations the inequalities of di
tribution of earnings and profits are removed and the rate-makit
problem is simplified, greater clarity and a definite assurance are pr’
vided as to what once and for all shall be the return to which as a 1
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 21
) er of acknowledged right private capital shall be entitled ; and, finally,
she machinery of the contingent funds is designed to give such solid
stability to railroad credit that private capital may be expected to
e satisfied with the prospect of an assured though not over-generous
veturn—but one that promises to be free from the vicissitudes and
meertainties of the past. That, I bélieve, is the crux of our plan.
__The realization of the power of practically unrestricted regula-
ton vested in the Government naturally engendered the thought
hat private capital could not possibly be expected to venture freely
nto the field of railroading unless it were assured that this power
4 regulation could not be wielded in a manner to reduce the return
veyond a reasonable limit.
_ This consideration led to the demand, by some of the most promi-
1ent students of the question, for a guarantee of a minimum return
o be granted by the very government that exercises the power of
egulation and of determining the return. Serious fears are, how-
ver, entertained by others lest the granting of such a guarantee
‘aight lead to incompetence on the part of the individual railroads,
while on the other hand it is apprehended that the incurring of a
‘lirect liability on the part of the Government ultimately might lead
‘o direct Government operation, a result abhorred by the vast ma-
ority of the people.
Tt appears to be the general desire of the country to see the Gov-
rnment withdraw from active business as fast and as far as possi-
\le, and the transporation conference plan proceeds on this hypothe-
ie It avoids direct guarantees given to any individual railroad.
t recommends a rate-making structure producing no less than 6 per
ent upon the aggregate final valuation of all the railroads of a
raflic section. It assures the railroads against failure on the part of
ie rate-making body to produce the minimum 6 per cent yield to
e prescribed by the statute, but it leaves the railroads free to com-
ete with this assured statutory minimum return for a section.
This feature of our plan is important. While it assures a certain
/efinite return to a section, within that section the railroads have got
) compete with one another. In other words, one might conceivably
et all the business and earn more than 6 per cent, while the others
ould only get 1 or 2 or 3 or 4 per cent. It is a measure against
Zzimess and incompetence.
Tt is left to the energy, ability, and spirit of enterprise of each
julroad to secure its maximum share of the aggregate assured for
| 1. The statute would protect the carriers as a group, not as indi-
|\dual corporations, and this, it is believed, is one of the strongest
‘atures of the plan.
| We must contemplate the project, however, in its completed form,
jid this would show us in each section a small number of competing
jmsolidated railroads, the weak sisters having been merged with
;me of the so-called strong companies. In these circumstances a
per cent rate structure for a traffic section is not likely to leave dis-
epancies between competing companies as marked as in the past.
would seem likely that most of the consolidated railroads would
“me reasonably near earning their full share of the minimum.
It should be borne in mind, however, that such minimum reason-
We return is to be figured on the valuation, as finally to be deter-
‘med by the Interstate Commerce Commission, and not on actually
912 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
outstanding securities. In the case of conservatively managed and
strong railroads the final valuation no doubt will in some cases pro-
duce a value in excess of the present capitalization; in others the
final valuation may prove to be much lower than the capitalization;
indeed, it may wipe out the entire stock and possibly some of the
bonds. The latter companies, it is to be assumed, will be merged
with the stronger companies by an exchange of securities on a basis
to be approved by the proposed Federal T ransportation Board, and
presumably on a basis approximating the relation established by
the valuations, or they might first adjust their capital and obliga-
tions by a process of reorganization. This plan does not _contem-
plate to make good something that is intrinsically weak. It is im-
perative that the mergers result in establishing consolidated com-
panies whose stock will sell substantially above par, because any
future plan of rehabilitating railroad credit under private owner-
ship and private operation will fail unless the plan establishes for
the railroad stocks of the future values well above par and suffi
ciently attractive to enable the railroads to finance themselves
through sales of their stocks on such scale as is necessary to preserve
a proper proportion between their outstanding bonded indebtedness
and capital stock.
We are not speaking about existing stocks but about stocks of the
future consolidated companies, which will be based on valuations.
and those valuations, in at least a number of cases, must produce
stocks which shall sell above par, for if we do not get that we will,
sooner or later, be in the same position which we are to-day; that is
to say, that the railroads have been forced to finance all the time by
selling bonds. Probably only 10 railroads are now able to sell thei
stocks above par, and the consequence is that we are always getting
nearer the edge where either trouble will come |
Mr. Srms (interposing). Only 10 railroads in the United States
whose stock is selling at par?
Mr. Wareurc. Ten or twelve. I have a list here, and I will he
glad to put it in. :
(See list at the end of statement. ) |
Mr. Srrness. What will be the effect on the outstanding bonds )
the railroads, or bonds to be renewed, if the stocks are guarantect
practically 6 per cent? |
Mr. Warsurc. No existing stock is guaranteed 6 per cent?
Mr. Stiness. The new stock issued, then ?
Mr. Wareurc. Not even the new stock as issued. The new stocl
will have to fight, just as it does to-day. All that we assure in tht
future is that the Interstate Commerce Commission, or whoever wil
fix the rate—the Interstate Commerce Commission in this case—wil
fix rates high enougn to produce 6 per cent on valuations that thi
Interstate Commerce Commission itself will have found to be th
true value of the railroads. The question is—and I will come t
that in a moment—is that too much or too little? It is a very gray
question whether or not it is not too little. 7 “ay
Mr. Drntson. Would not that make railroad stocks of a highe
commercial value than the average bonds, under this plan? |
Mr. Warsure. They should be. |
Mr. Dentson. Then, how would you expect to sell bonds?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 213.
_ Mr. Warsoure. The higher the stock the better you can sell the
vonds. It is only when the stock sells below par, and the credit of
the company is impaired, that you can not sell your bonds on a
favorable basis, It is one of the dangerous weaknesses of the pres-
‘nt situation, that stocks are selling so low that they do not show
a sufficient equity to protect the bonds; and that is why the rail-
roads at present have to pay—one of the reasons, at least—why the
vailroads at present have to pay very high rates for interest charges;
ind that, again, makes for high transportation charges.
_ Mr. Dentson. Who would determine the amount of the capital
‘stock of the consolidated railroad—the new issue ?
' Mr: Warzoure. All capital issues, according to this plan, would be
subject to the approval of the transportation board. There is no
dossibility in the future of any watering process, under this plan.
‘But what is hoped is that we will find at least one railroad in each
ection—take a strong railroad like the Atchison—where the valua-
‘ton will prove to be higher than its outstanding capitalization, so
hat 6 per cent on its valuation will be more than 6 per cent on its
tock. That has got to be if railroad credit is to be resurrected.
You buy railroad bonds to-day on a basis of 64 or 7 per cent; and
how can we expect to get the investor into railroad stocks—which
juarantee the bonds—if you give the stockholder less than you give
he bondholder, and if the investor in any other investment gets a
eturn which is so much larger? You may pass a law that he shall
set only 44 per cent, but you can not pass a law that will make that
nvestor invest. I am coming to that a little later in my statement.
_ The strongest railroad would naturally furnish the best backbone
‘or a new consolidated system. |
In hoping that the plan as proposed will furnish a foundation
trong enough to sustain the future credit of the railroads, the trans-
yortation conference places great faith upon the effect to be pro-
luced by the two contingent funds.
The company’s own contingent fund to be maintained by each
ailroad is devised for the purpose of protecting the carriers against
-dverse circumstances unexpectedly affecting an individual com-
any.
I should add here that the company’s own contingent fund, which
1ay amount to 6 per cent of its valuation, should be invested in se-
urities of a very liquid character; probably only Government bonds
r such securities as the transportation board may ‘approve. This
und should not be permitted to be merged with the general fund
f the railroads or to go into the property of the railroads, because
|n¢ idea of the fund is that in a time of adversity, unexpectedly as it
|lay come, the railroad should have these funds to fall back upon, to
ise them quickly, to pay its dividends, and to conserve its credit.
| Mr. Winstow. How would you carry those bonds that might be
met out of the surplus contingent fund?
r. WarBure. You mean how would I write them down?
| Mr. Winstow. How would they be carried from year to year?
,n the basis of the purchase price or the market value?
Mr. Warsure. I think the transportation board would have to reg-
\late that. I should say they should be carried at the market value.
| always believe in that; I do not believe that the purchase price
jeans anything when a thing has gone down in value. I think they
|
914 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
should be carried at the market price. We do not, if I may say, |
presume to present an absolutely perfect plan in all its details. We)
have tried to present certain outlines and certain principles. If we
find that your committee is interested in the plan as we submit it we |
will, of course, be at your disposal to work out the details, some of !
which we have not even considered. We had a conference of over
‘ people, and it was hard work to agree even on these general out- |
ines. )
Mr. Winstow. Would you have the interest on the bonds bought |
out of the contingent fund added to the contingent fund itself and |
not reported as an earning of the railroad ? |
Mr. Warsure. Until the fund reached the 6 per cent. After that |
it might very well be proper that the interest, or any excess of 6]
per cent, might go into the general income of the railroad. |
Mr. Winstow. But you would build up the contingent fund with |
the interest on that fund? |
Mr. Warsure. Oh, yes; until it amounted to 6 per cent of the|
value of the railroad. |
The general contingent fund, on the other hand, which 1s to ac-|
cumulate to an amount of $750,000,000, is designed to make good a|
deficiency arising in any year when the rates fixed by the Interstate |
Commerce Commission do not produce a minimum return of 6 per
cent on the aggregate final valuation of the railroads composing a)
traffic section. |
To illustrate, if the aggregate valuation of railroads of a section}
amounted to $7,000,000,000, and if the earings available for distri-|
bution for interest and dividends during any one year amounted to)
only 5 per cent, or $350,000,000, instead of the statutory minimum of|
6 per cent, or $420,000,000, the deficiency of $70,000,000 would be)
taken out of the general contingent fund and would be distributed |
amongst the railroads of the section on a pro rata basis of their gross,
earnings—the underlying thought being that, if the rates had been
fixed in accordance with the statutory rule, each railroad would)
have earned so much more on its gross business. A company having}
earned, including such contribution received from the general con-|
tingent fund, in excess of 6 per cent on its valuation would be per-|
mitted to retain one-third of the excess, the other two-thirds going)
back into the general contingent fund, just as if the rates had been,
fixed right in the beginning. Or in case it had not yet completed,
its own contingent fund, one-half of the excess over 6 per cent would|
go into its own contingent fund and one-half into the general con-
tingent fund, in the same manner as if these earnings had originally
been made through rates aggregating the statutory minimum of
$420,000,000.
The plan thus provides for two shock absorbers, one against ad:
verse circumstances affecting individual roads and the other against)
miscalculations on the part of the rate-fixing body, or against un
expected emergencies bringing about such reduction in tonnage Or)
such extraordinary conditions of operation as would render impossi-
ble a prompt readjustment through increases in rates. |
It is of the greatest importance, however, that the investing pub-
lic should feel reasonably assured against such eventualities. eg |
The weakness of the situation in the past was due to the fact that
the Interstate Commerce Commission could neither know the true)
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 215
ue of the railroad properties nor what constituted an adequate
| turn, and thus was put in the predicament that if it granted ade-
jiate rates to weak roads it would be overfeeding the strong ones.
/ was not surprising that this lack of clarity with regard to the
)te-making basis had a very unfavorable effect on the public mind.
the shipper was ready to believe at all times that he was the victim
* extortionate rates due to excessive capitalization and overgenerous
)turn to the railroads. The obscurity as to values and reasonable
‘turns thereon stood in the way of the clear recognition of a just
turse, and, in the long run, created a hostile attitude toward the
| Uroads which resulted disastrously to railroad credit. There are
her reasons for that, too, but it is unnecessary for me to go into
em now.
| Under the plan recommended the rate-making body would not need
) fear that adequate rates would place the strong roads in a condi-
|on of excessive or unjustifiable affluence. When once the valuations
je definitely determined there can not be any reasonable objection
industrial enterprises earning a minimum of 6 per cent and a
;ird of moderate earnings in excess of that limit. That is less
jan would be required to satisfy any other industrial venture.
fe rate-making body could thus act with greater independence,
owing that two-thirds of the excess would go into a general con-
jagent Tund, designed to protect the general situation. The Inter-
\we Commerce Commission, moreover, would soon realize that the
/neral contingent fund would prove an invaluable protection for the
‘te-making body itself, and that it would be wisdom on their part
| build it up as promptly as possible. That was borne out by Com-
‘ssioner Clark’s statement, since made.
| When once the contingent fund reaches the amount of $750,000,000
‘which, on the basis of the tabulations made for the transportation
/nference, may be assumed to take place in less than 15 years), it
| proposed that contributions to the fund bringing its total above
jat limit could be used either for providing additional transporta-
‘m facilities for the benefit of the country (be they equipment. or
|
/rmanent improvements) or for amortizine the cost of the rail-
| jw)
;
/ids. The latter process could be carried out by a pro rata purchase
| obligations of the various railroads and by a corresponding reduc-
‘Min their property investment accounts. To the extent that in
|S Manner the property investment accounts would be written
wn, transportation charges would be correspondingly decreased.
beral earnings would thus strengthen railroad credit and at the
ne time redound to the advantage of the whole country.
|While the contingent funds when completed will thus render an in-
jluable service in safeguarding railroad credit, the plan would show
‘atal weakness in that it would not provide against the emergency
the most critical years, being those immediately ahead of us.
ving that period the contingent funds would as yet be practically
jiexistent. For this reason the transportation conference, very re-
‘tantly, has reached the conclusion that it is imperative to rec-
mend to Congress the establishment of a railroad reserve fund of
10,000,000, to be placed in the hands of the transportation board.
om this fund it is contemplated such sums are to be advanced to
|) general contingent fund as may be necessary to make un da-
216 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ficiencies in case rates fixed by the Interstate Commerce Commissior
fail to produce in any one year, during the first 10 years after the
enactment of the proposed legislation, the statutory minimum yiel
of 6 per cent on the aggregate valuations of a traffic section and in cas
the funds in the general contingent fund are insufficient to make ww
the shortage. Such payments from the Federal reserve fund would
however, be treated as advances only; they would be paid back witl
interest from railroad contributions as soon as the general contingent
fund had accumulated and remained at an amount of $500,000,000
It is obvious that without such Federal reserve fund railroad cred
could not be reestablished to a degree sufficient to permit a generow
development of the railroads as required in the best interest of thi
country. |
It is very important to bear in mind that this fund may be draw)
upon only in case rates determined by the Interstate Commerce Com
mission should not yield the statutory minimum of 6 per cent 1e
turn for a traffic section, and that it is, therefore, entirely witht
the power of the commission, unless some unforeseen events occur
to protect the situation and to avoid the necessity of payments fron)
this reserve fund into the general contingent fund. But even i
such payments should be made, they would be certain to be repai¢
because the plan provides that when the railroad. consolidations ar
completed a minimum of 5 per cent of the annual net earnings 0
all the railroads (that is, on the contemplated basis of annual ne
earnings of approximately $1,000,000,000, $50,000,000 per year’
shall be paid into the general contingent fund in any year whe
the carriers receive the statutory minimum of 6 per cent. Ther
can not, therefore, be any doubt as to the advances being repaid i
the end. For the period of transition, however, this Federal re
serve fund would form the keystone, without which the mail)
strength and benefits of the plan would be lost. |
An appropriation of $500,000,000, even in the form of an absc
lutely safe loan to be repaid to the United States with interest, j
not likely, at first blush, to meet with a very cordial reception 0.
the part of Congress. But it would appear an almost paltry com
mitment as against the amounts involved in present guaranties an|
|
Perhaps I should say a further word of explanation concernil:
the stipulation of compulsory contributions pro rata to net earl
ings on the part of all railroads to the general contingent funt
This proviso is contemplated to go into effect only after the mergel|
approved by the transportation board are completed. The unde!
lying thought is that as long as there are weak and strong rou
the contributions into the fund may be expected to be fortlioga a
from the excess earnings of the strong roads. When once ¢
mergers are completed and the weak roads are absorbed by th!
strong roads, there will be a greater equalization of earnings an)
conceivably at least, if all consolidated railroads earn their 6 pe
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. an:
. cent (and the rate-making body fixed rates providing no more than
‘the statutory minimum) there would not be any excess earnings
_from which contributions into the general contingent fund could
. be made.
lt is thought that when that time comes it would not be any hard-
ship for these large consolidated companies to pay into the general
contingent fund their pro rata share (to the extent that excess earn-
_ings have not provided it) so as to make the total contribution into
, the fund 5 per cent of the aggregate net earnings of a section, that
|is, at present approximately $50,000,000 per annum.
| Under the conference plan the total increase which would go to
| the railroads by the adoption of a 6 per cent rate-making basis
is figured to amount to about $137,000,000, and of this it has been
|caleulated that about $51,000,000 would go into the contingent
fund from the excess earnings of the railroads as at present con-
‘stituted, so that the total increase retained by the railroads would
only amount to approximately $86,000,000 per annum, on the basis
of the present standard return. That is, after the company con-
| tingent funds are full. »
_ The transportation conference has not left unconsidered the puz-
zling question of whether or not in the long run a return of 6 per
cent on the final valuation might prove to be too high or too low.
It has been suggested that it would be a mistake for Congress to
determine a fixed basis of return and that it should be left flexible.
Were the question left open, it is to be feared, however, that the un-
certainty of the past might continue to prevail and credit-might not
be reestablished. A definite assurance seems to be necessary so that
the stockholder and the bondholder will know for a certainty what
| their position will be in the future. It has been suggested that the
law might contain a provision whereby within given periods of,
‘let us say, 10 or 15 years, upon the certification of the Federal Re-
\serve Board as to the relative changes of values of securities and
|money, a revision might be made by the transportation board of
{/what should constitute an adequate return, the decisive element
| being that no adjustments should be made which would bring the
javerage of then existing railroad stock so nearly down to par that
\fnancing through further issues of stocks would thereby become
jeopardized.
| While it is possible to insert a clause of this nature, and while
much is to be said in its favor, it was the feeling of the conference at
\the time that a provision of this character would be very difficult
/to formulate and might add to the complexity of the problem; that
\eredit would be more solidly established by providing a definite basis
of rate making, leaving it to the future, in case of need, to take care
of itself. It was thought that any fear that the arrangement might
turn out to be too favorable for the railroads might be disregarded,
imasmuch as, after all, it was within the power of the Interstate Com-
merce Commission ultimately to keep the return pretty close to 6
per cent on the actual value of the properties less the 5 per cent going
into the general contingent fund, that is, a net return of 5.70 per cent.
[f, on the other hand, the return should prove too moderate to at-
\tract new capital, the Interstate Commerce Commission could meet
\the situation by greater liberality in rate making, or Congress might
step in and make the necessary adjustment.
218 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
We have, since then, discussed this matter further, and I would
like to read this amendment of the statement, as I prepared it some
months ago: I may state that: upon further consideration of the
question of the minimum rate of return, those members of the con-
ference with whom I have been able to consult since the adjournment
of the conference have thought that it might be wise to provide for
a readjustment of the minimum return after a definite period of time
has elapsed. The members of the conference with whom I have con-
sulted are agreed that it is necessary to provide liberally for the re-
establishing of railroad credit as a prerequisite to the successful re-
sumption of private operation.
While we believe that railroad credit can not be reestablished and
stabilized without assuring railroad property as a whole a definite
annual return on a fair value of the property devoted to the public
service, we also realize that conditions at the present time are so —
abnormal as to make it impossible to state what rate of return will
be adequate and equitable for all time to come. If the value of
money should again increase, a rate of return that to-day might seem
fair to the investor might appear to the country as exhorbitant 20
years hence; and conversely, if the value of money should further
decline, what may now seem ample to the investor may prove in the
future to be inadequate.
In view of these facts it might be wise to authorize the transpor-
tation board, after consultation with the Federal Reserve Board,
to consider the rate of return, after 10 years shall have elapsed, and —
then to determine what, under the conditions existing at that time, —
constitutes a fair and adequate return upon railroad property as a
whole, the action of the transportation board being, of course, sub- —
ject to review by the courts. It is thought that in the long run
this plan of periodical revision. of the rate of return might afford
greater protection both to railroad owners and to the public, while
also assuring for the ensuing 10 years a definite basis that is not to
be disturbed under the suggested plan. The investor would feel
reassured because of the knowledge that any readjustment that might _
be made in the rate of return would be determined by nonpartisan —
bodies without the disturbance bound to result if the question were
from time to time made the subject of political discussion. |
Mr. Winstow. Do you mind a question at this point? |
Mr. Warsore. If you please. |
Mr. Winstow. Did the board at any time consider a possible slid-
ing scale of return, upward ? |
Mr. Warsura. Upward or downward?
Mr. Winstow. As a minimum?
Mr. Warsure. I do not quite understand the question. Do you
mean sliding up or sliding down? |
Mr. Winstow. Sliding up. Let us say that you made the minimum.
6 per cent, and after three years, under certain conditions, let it be
7 per cent, and at another future period, 8 per cent, and so on.
Mr. Warsurc. We have not discussed it just in that form, but we
have reached the conclusion that it could hardly be less than 6 per
cent at this time, because it would, to our minds, be plainly confisca-
tory, and the whole law could then be attacked as being unconstitu-
tional. If you will consider that our Government bonds, at present,
t
4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 219
ell on approximately a 5 per cent basis—indeed on « higher basis,
f you consider the tax exemption
_ Mr. Wrnstow (interposing). It has been very clear, I think, from
he testimony of three witnesses who represented the same interest,
hat you have had in mind that 6 per cent might be regarded as too
ow a rate; and I was wondering if at any time you have considered
he possibility of meeting that from the beginning by a provision
or a sliding scale upward, over that minimum rate.
_ Mr. Warsure. No; we have not considered that, because we must
ear in mind that, on the other hand money conditions at this mo-
ient are entirely abnormal; and I do not think any one of us could
are to say whether they are too high or whether they are too low,
s compared to 10 years hence. To say that they should go up, in
he law, I think, would be to subject us to the criticism that we
ranted to foist upon the country for all times the consequences of
he present abnormal conditions; and that is one of the reasons why
ve think it shonld possibly be reviewed after 10 years, when prob-
bly we shall have found our new level. It may be a little bit
doner or later, but we need five years, approximately, for the con-
slidations, and in a further five years, we think the railroads, in
jeir new consoliated form—if in five years they can be consoli-
‘ated—should have had an opportunity of showing how they are
‘oing to operate. If after that period it is shown that 6 per cent is
onfiscatory, or is not enough, and money will not go into private
ulroads, then the transportation board will have to revise that and
+) fix it so that it will be fair. If after that time it should be shown
| tat we have entered upon a period of declining rates—a period
\£ general stagnation, possibly—I do not anticipate it, but I just
jeseribe it—in which money rates would decline, then it might be
eld that either 6 per cent would be enough or in case there should
,revail a well-grounded feeling that the railroads were receiving an
chorbitant return, it might be reduced. I do not anticipate that.
\uite generally speaking I believe that we are not going to see again
jie low rates that we have seen in the past; but in spite of that it
| possible that present rates may be somewhat higher than they may
|2 in the future. We can not foretell, and that is really the reason
| hy we think it only fair to provide for some machinery to reopen
jie question at some time in the future. We would feel that without
‘ich a provision Congress might possibly not be willing, even al-
j,ough it were necessary in order to meet present conditions to grant
1 adequate return.
It was also discussed whether any future saving in interest on the
‘ded debt should redound to the advantage of the country at large
+ the owners of the railroads. In other words, if owing to the better
|edit of the railroads they should be able to place their new bonded
| debtedness, or to refinance maturing obligations, on a lower interest
isis than 6 per cent, should the benefit of such saving accrue to the
ockholder ?
| While if such a course were desired the statutory rate could be so
\xed as to yield 6 per cent on the aggregate final valuation of the
ilroad properties less their funded and floating debts, and the net
eld available for the railroads in that case would have to provide
—
220 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
only for the dividends and not for the interest charges, such change
seemed unwise to the conference for the following reasons:
According to the statement of the Interstate Commerce Commis-
sion for the year 1916, the interest paid (leaving aside amortization
or discount written off and charged to profit and loss account), Was
about $474,000,000 on about $11,000,000,000 of outstanding funded
debt, that is at the rate of approximately 4.30 per cent, and on this
present basis the amount available for dividends amounted to only
$349.000,000 on outstanding stock of $8,250,000,000, or less than 4}
per cent on the amount outstanding and approximately 63 per cent
on the dividend-paying stocks, which amount to about 60 per cent
of all the outstanding stock, according to the statement of the Inter-
state Commerce Commission. |
These results were secured in a year when the return on the total
railroad property investment account was 5.90 per cent, the highest
on record, which almost equals the proposed future, statutory rate=
making basis of 6 per cent, and is in excess of this return, if we take
‘nto account the contribution to the general contingent fund, which
would reduce the 6 per cent return to 5.70 per cent net. :
Under present conditions it is doubtful whether a substantial num-
ber of railroads could sell large amounts of bonds on an interest
basis netting less than 6 per cent; many, indeed, have recently financed
on a very much higher basis. It is to be assumed that, if ever, it will
take many years before maturing railroad bonds. could be renewed
on a basis better than the present average charge of 4.30 per cent.
In other words, as bonds mature and as more bonds are issued, the
position of the stockholder is likely to depreciate rather than im-
prove. Inasmuch, however, as the present condition of earnings and
values of stocks and bonds is such as to have brought railroad de
velopment to a standstill, it is clear that it would be fatal to cut
down the very limited opportunities that have been preserved for the
stockholder under the present plan. It is felt that it is the minim
below which no attempt should be made to cut his chances. indeed
the plan may already have gone too far in this respect. As has bee
stated before, if stocks of the consolidated railways do not sell abo
par railroad development will come to a stop. And hope for success
in present circumstances is predicated upon the thought that in eac
section there will be found some companies the final valuations 0
which will exceed their capitalization, so that the percentage returt
on their outstanding stock may be in excess of the percentage return?
on the valuation. Against stocks and bonds of such companies the
securities of the weak sisters would be exchanged on the basis of their
respective valuations, and strength accumulated in the past will thus
be used to benefit and protect the future. ]
May I state here that this statement of 4.3 per cent as indicating
the railroads’ interest charge on funded debt, which is given by the
Interstate Commerce Commission, is not quite correct. The state:
ment of the Interstate Commerce Commission includes all bondec)
indebtedness, also those on which no interest is being paid becaust)
companies are in receivers’ hands; it also includes income bonds
On the other hand, it does not include the discount which is charge)
able every year in cases where 4 per cent bonds have been sold 4
let us say, 80 per cent, or 3 per cent bonds at 70 per cent. I believs,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 221
's would be interesting for your committee to have this figure brought
ip to date and thoroughly analyzed, because I believe it will show
hat the actual interest cost on the bonded debt as being paid to-day
's substantially higher than the figure given; it should also include
he equipment trusts. I do not know whether those are included;
~ do not believe they are. It seems certain, however, that the ad-
‘antage which the railroads had in the past through their ability to
‘ell railroad bonds on a 8 or 34 per cent basis, as they could in 1900,
vill be lost as these bonds mature, and if they have to be renewed at
i per cent, instead of running on a 33 per cent basis, you can readily
ee that that is going to affect very materially the margin which some’
if the railroads at present enjoy. It is very important, therefore, to
tart the railroads, in this period of reestablishment of credit, on not
00 low a basis, because it is the highest basis that they probably ever
‘vill have, because every time that new securities are issued and a
jew dollar is added to investment account it adds money which will
‘arn no more than approximately a 6 per cent return; the old exist-
‘ng advantage will therefore be further decreased. Hence whatever
'dvantage may exist now as an inheritance of the past, under this
‘lan is Hable to be gradually reduced. It is a plan which is in no
vay too favorable to the railroads; it has been reached considering
‘he public interest first, and considering very carefully what would
ie the minimum that could safely be proposed.
| Mr. Wrnstow. In going over the relation between the bonds and
/tocks and their incomes, have you taken into consideration at all
/he possibility or probability of income taxation for a while?
|| Mr. Warsure. That is one of the reasons why it is so necessary at
(his time to be liberal with the railroads, because 6 per cent does not
‘iy in itself what 6 per cent bought four years ago. It buys only
‘bout one-half. In addition to that, taxes take a large amount off
(hat 6 per cent; so that the temptation for the general investor to go
jnto tax-exempt securities is very great. If he buys railroad securi-
‘ies he must insist on buying them on an attractive basis. Of course,
‘he future, we all hope, will bring about a readjustment, but how
oon that may be we can not tell. You can tell that better than I.
| Mr. Winstow. Would you feel that a bond would have to carry a
ec rate than formerly on account of existing taxation laws?
| Mr. Warsurc. No doubt.
Mr. Winstow. And it would be very liable to bring them up to a
tock dividend rate around par? )
| Mr. Warsore. I do not wish to be misunderstood. They may have
jeached their maximum, or, rather, their lowest level. That will
epend upon when we stop inflating.
| Mr. Winstow. I had special reference to this bill.
; er Warsurc. I beg your pardon; I did not catch your question,
en. :
' Mr. Winstow. I do not remember myself just how I put it, but
jhe thought in my mind was that it might be possible that bonds
‘rould have to carry a higher rate of return than they would have in
elation to the stock return, say, 5 or 10 years ago?
| Mr. Warsure. Oh, yes; there is no doubt. Ten years ago a 6 per
mt stock sold at. 140. and some of the 6 per cent bonds to-day sell
| elow par, if that is what you have in mind.
ie
4 1
|
222 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. I was thinking about the return more particularly—
financing the road with the same relation of difference between the
return on the stock and the return on the bonds as you could haye
10 years ago, or whether you will have to make an allowance for some
higher rate of bond interest?
Mr. Warpsure. I think in the past possibly the stockholder was
satisfied with a smaller return, because he thought he had a specula-
tive investment. In the future he will compare the stock to the
bonds, because there will remain very little speculative value in rail-
road stock, and, therefore, the stock will have to offer him a larger
return than the bond, the speculative feature having been eliminated.
If railroad stocks should prove incapable to attract the investor the
alternative would be a direct Government guarantee of railroad secu-
rities, which, if extended over $18,000,000,000 of stocks and bonds,
would tend most dangerously to depreciate our Government credit,
It is doubted whether under present circumstances a 5 per cent Goy-
ernment bond offered on so large a scale would sell at better than
par, particularly if it were subject to full taxation and if every year—
for additions, betterments and improvements—an additional amount
approximating $1,000,000,000 were issued.
The Government could not to-day refund the outstanding obliga-
tions of the railroads without paying a substantially higher interest
charge than the carriers pay to-day on the outstanding debt. ' If the
Government guaranteed a certain minimum return on the stock of the
new Federal corporations of, let us say, 44 per cent, the rate-making
body would have to provide an adequate margin above that in order
to preserve the incentive of competition, and so as to safeguard the
liability incurred by the Government. In other words, if the Gov-
ernment guaranteed 44 per cent the Interstate Commerce Commission
would have to try to establish rates providing 6 per cent in order to
protect the Government against all hazards. The saving to the
country would, therefore, be unimportant, while the loss in the Goy-
ernment’s credit would make itself felt all along the line. |
It is barely possible that if consolidation should not materialize on
the basis of voluntary action on the part of the railroads involved,
it may prove necessary to have the transportation board itself organ-
ize new holding companies, with power to acquire by condemnation
proceedings the railroads to be merged into a consolidated concer,
and that in order to make these mergers possible such new Federal
holding company would have to issue a stock endowed with a Gov-
ernment guaranty. Let us hope, however, that such eventuality may
be avoided. : at
The plan of the transportation conference has the distinct advan-
tage that within a reasonable number of years it will free the
Government from any financial liability and will take it out of actual
business, while, on the other hand, plans contemplating individual
railroad guarantees are considered by many as likely to lead the
Government into direct and permanent railroad operation.
The next short paragraph deals with the interval during which
consolidations are being effected and the Interstate Commerce Com-
mission is completing valuations. f
It is obvious that ample time must be given to devise and perfect
the contemplated consolidations and that a modus vivendi must be
found for the operation of the railroads during the interval. As the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. pis
Federal reserve act provided for an organization committee which
was charged with the duty to divide the country into no less than
$ and no more than 12 districts, so our plan provides for a trans-
portation board that shall approve or determine the number of
consolidated systems and their groupings.
__it shall give the railroads an opportunity, and all possible as-
sistance, to carry them into effect. If the mergers can not be per-
fected by voluntary agreement the board, after five years, shall
have power to complete them by compulsory proceedings. The
board shall also have power to sustain railroad credit pending this
period of consolidation.
But how are rates to be fixed and profits to be divided during the
interval when valuations are not yet completed and not available
to serve as a basis for rate making and division of excess earnings?
It is conceded that any basis during this period will have to be some-
what arbitrary and can not be entirely satisfactory. But the report
appears to have established a method as fair and equitable to all
as possible in the circumstances, As a general basis for rate making
it is proposed to use the aggregate property investment accounts of
the railroad of each traffic section, as at present carried by the Inter-
state Commerce Commission. While it is admitted that these prop-
srty accounts, taken individually, in some cases are too high and in
»thers too low, it is generally assumed that, considered as a unit,
they may be accepted as furnishing a fairly accurate basis to be used
us a temporary yardstick.
| When dealing with individual roads, however, the often highly’
arbitrary investment account can not be safely accepted as a basis
for determining excess profits. The report, therefore, recommends
shat for the purpose of ascertaining excess income the valuation of
wy individual railroad system, pending the completion ot the tinas
valuation, shall be that proportion of the aggregate property invest-
nent accounts of all the railroads of the traffic section in which
t is located which its average annual railway operating income
(computed for the period and in the manner prescribed by the
federal control act of Mar. 21, 1918) bears to the aggregate annual
‘ailway operating income of all the railroads of such traffic section,
omputed in the same manner.
Toe make this clear, taking entirely arbitrary figures for the pur-
ose of an illustration, if the aggregate property investment accounts
nthe plan, its earning valuation would be 10 per cent of $7,000,000,-
md their total net railway operating income during the test period
mounted to $350,000,000, if a railroad company’s net operating
neome (standard return) in that period was $35,000,000, or 10 per
ent of the total income, then, subject to the adjustment provided
n the plan, its earning-valuation would be 10 per cent of $7,000,000,-
00—that is, $700,000,000—and the railroad company would divide
xcess earnings above 6 per cent on that amount—that is, above $42;-
00,000. Discretionary power would be vested in the transportation
joard to make adjustments in particular cases involving undue
-ardships. It is furthermore provided, first, that if the use of the
bove-stated method shall produce a valuation of any particular
ailway system greater than the amount’ of its property investment
/ccount for the three-year period ended June 30, 1917; the amount
"
9294 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
of such property invest
valuation derived by the
shall not operate to reduce the railway op
particular railroad system below
ing income as computed under t
1918. This proviso appeared as
fact that the railroad had demonstrated
ment accounts shall be used instead of the
formula; second, that the use of the formula
erating income of any
its annual average railroad operat-
he Federal control act of March 21,
more than equitable in view of the
its ability to make these
earnings upon a basis of rates which have stood the various tests
and were admittedly not too high, and in some instances have been
decreed to be too low by the Interstate Commerce Commission;
third, that to such valuation as shall b
system in the manner above stated there
of property investment made by such system
ndard return was fixed.
d, if the law as proposed went into effect, that
ird to the railroads and two-thirds to the gen-
that is, after the sta
Tt has been figure
on a basis of one-th
e derived for any railroad
shall be added all increases
after June 30, 1917—
eral fund (after the individual contingent fund had been filled),
the result would be approximately as follows:
|
Increase to
| Present 6 per cent on
Section. standard aggregate
| return. investment
accounts.
astern ous ce sce | $354,000,000 | $408, 000, 000
Southern.......... | 139,000,000 156, 000, 000
Waster. .... 0... 4s 402, 000, 000 468,000, 000
Total........! 895,000,000} 1,032,000, 000
|
|
Retained by
railroads
after turning
Increase. over two-
thirds to
general con-
tingent fund.
bee
Increase to
y general
railroads. | eontingent
fund.
| » S
$54,000,000 | $390, 000, 000
17,000,000 | 149,000, 000
66,000,000 | 442,000,000
40,000, 000
137,000,000 | 981,000,000
$36, 000, 000 | $18,000, 000
10,000,000, 7,000,000
| 267.000, 000
86,000,000 | 51,000, 000
-
So that $86,000,00
Salmon will
rather than by the strong ones.
To these figures there woul
per cent on additional investments
pensated for by the present standar
as the transportation board would make.
In this manner a capitalization of earnings
for the highly arbitrary basis o
accounts. The only use of that accoun
providing that where th
than the existing proper
0 is what the railroads retain, and that, as Mr.
show, is what will be retained by the weak railroads
be used as the basis for determining excess income.
It is believed that the provisions of the plan proposed by the
transportation conference wi
years of the interva
enable most of them
tions until the mergers are completed.
Where immediate financial assistance by t
quired the report recommends that provision
transportation board, directly or indirectly
Finance Corporation, to extend temporary s
systems.
d have to be added the return of 6
(since June, 1917) not com-
d return and such adjustments
has been substituted
f individual property investment
t is made in this plan by
e temporary earning valuation is higher
ty investment account that account is to
ll afford railroads during the ensuing
1 a sufficient strengthening of their credit to
to carry on their financial and physical opera
he Government is Tre
be made to enable the
, through the War
upport to particular
;
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 225
I can not help feeling that in the public mind a mistaken em-
hasis generally is being placed both upon the effect of cost of
ransportation upon the cost of living, and also upon the part played
y the cost of capital as a factor contributing to the cost of trans-
ortation.
If, quite.arbitrarily, we assume that the cost of things produced
er year in the United States amounted to something like $60,-
00,000,000 or $70,000,000,000, the total cost of transportation would
mount to only 5 per cent of the cost of all things produced. An
ierease of 20 per cent in the cost of transportation would therefore
spresent an item of no more than approximately 1 per cent of
ae cost of things in general, even though in the case of certain
rticles transportation constitutes a much larger share of the cost
f production. I can not follow the theory propounded by some
aat the cost of living would be raised to an extent equaling four
mes the amount directly involved in the increased cost of trans-
ortation. If the price of coal rises due to increased wages both
1 mining and transportation, why should one increase in wages
ave a different effect than the other?
It would be well for us, however, to bear in mind that in a period
uring which the index prices for commodities show an increase of
J0 per cent, the rates charged for the transportation of passengers,
scording to recent statements, increased only 40 per cent and of
‘eight only 20 per cent, or, as it has been cogently expressed, “a ton
fany given commodity will at present purchase more transportation
tan it could at any previous time.”
Finally, when we remember that the annual increase in return con-
‘mplated in our plan equals about one-tenth of the increase in
ages authorized by the railroads since the beginning of the war, we
7 not escape the conclusion that the adequate return to be allowed
) the investor plays only a comparatively unimportant part in the
hole situation. ;
May I venture to remind you, moreover, that it would be a mis-
wtune if remedial legislation were passed which did not go to the
ot of the evil—legislation of a palliative character, or that was but
mporary patchwork, and would leave unsolved a question certain
' grow increasingly difficult ?
welve years ago a situation similar to the present railroad prob-
m existed with respect to banking reform. After the panic of 1907
ere were numberless suggestions for monetary reform contemplat-
g nothing but the patching up of the situation by new sorts of note
sues against Government bonds or asset currency or clearing-house
rtificates. Successful financial reform, the blessings of which the
untry has enjoyed during these critical times of war and stress, could
ly be accomplished after it was clearly recognized that the remedy
veded was one that would reach the root of the evil, and not deal
arely with its symptoms. It is sincerely to be hoped that the meas-
es of reform to be applied by Congress in dealing with railroad
form will be as thorough and as courageous as was the legislation
‘th respect to banking. We may then hope for as signal a success
the momentous task before us at this juncture.
That is my statement.
The Crarrman. Are there any question ?
152894—19—vor 115
226 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Dentson. Mr. Warburg, does this plan contemplate taking in
all of the railroads in these systems, or do you know about that?
Mr. Warzsure. Yes; it contemplates dealing with all railroads. I
do not see how you can leave out any. May I amend that? Purely
intrastate railroads would of course be excluded.
Mr. Denison. I was going to ask you about that.
Mr. Warsure. Yes. If there were any local railroad that does not
have any bearing at all on interstate commerce, that would_not be
affected by it.
Mr. Denison. So that railroads that do purely an intrastate busi-
ness would not be affected at all by this proposed plan?
Mr. Warzura. No. Any railroad that could sustain that claini.
that it was doing only an intrastate business, would not be affected
by it.
Y ask permission to put into the record some figures which it might
be advisable to bear in mind in this connection. With particular
reference to the change that has taken place in the security market
due to war loans and war inflation of prices, British consols since
1914 went down from 75 to 58; French 3 per cent rentes from 864 to
524. It is difficult to establish a comparative basis for our own Goy-
ernment bonds on account of the complex question of tax exemption.
but I believe it is a fair statement to say that our own Government
credit for fully taxable bonds has moved from approximately a 3 to
a basis slightly above 5 per cent. English and French loans maybe
bought in our market in dollar obligations on a basis in excess of
6 per cent, while in pound sterling and in frances they may be pw
chased on a basis of 5 per cent and 54 per cent, respectively. . Owing
to the discount of the sterling of approximately 10 per cent and oi
the franc of 40 per cent Gover mninent securities in these countries may
be bought by the American investor at a corresponding discount
which increases the return by_10 and 40 per cent, respectively, the
latter subject to French taxation. Swedish and Swiss Government
bonds are offered in this market in dollars on a 6 per cent basis)
If we turn to American railroad bonds, we find New York Central
convertible 6 per cent bonds selling on a 61 per cent basis; B. & O. 10-
year 6 per cent bonds ona 61 per cent basis, and B. & O. convertible
bonds on a basis netting 74 per cent. Pennsylvania general mortgage
5 per cent, bonds may be had on a 5.27 per. cent basis, and C.,M. & St
P. 44 per cent convertible bonds may be bought on a 7.20 per cent
basis.
In the menthly letter of the Alexander Hamilton Institute we
find these significant figures:
Twenty railroad bonds averaged in August, 1914, 943 per cent; they average
to-day 81.54 per cent. Twenty railroad stocks averaged in 1914, 103 per cent:
they average to-day 86.76 per cent. While, on the other hand, 20 industria
stocks in that same period moved up from 81 per cent to 105.82 per cent.
In other words, railroad stocks lost 17 points and industrial stoel
gained 24 points, a difference of 41 points. In the same period wi
index cost of food increased from 145 to 300. |
It is necessary to fully realize the importance of these conditions
Offhand, the public at large, unacquainted with actual economi
conditions, might be apt to say that 1f a 6 per cent on the valuation
worked out a return in excess of 7 per cent on the stock of some 01
the strong consolidated companies, that this would constitute an ex
ated.
;
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
227
‘sive burden upon the country. I believe a close analysis of our
esent conditions would show that such an impression is unwar-
@ of railroad stocks (common) on New York Stock Exchange year ended
a. Dec. 81, 1918.
Gross earn-
High- | Low- ahaa Operated! ings, vear
est. est. 1919.” mileage. | ended lee.
. : 31, 1917.
ing 20 per cent dividends:
Deleware, Lackawanna & Western!............... 370 320 380 980 $57, 437, 388
ing 12 per cent dividends:
Central of New Jersey (8 per cent registered, 4 per
ce eee al ceek 220 202 207 684 37, 096, 739
ing 10 per cent dividends:
a ES SE ee ee 1374 | 1093 | 133 | 28,002} 2130, 101,8e4
; SSSI ae ener 1303 | 1074] 106 1, 449 53, 358, 446
ing 9 per cent dividends: ;
(OSS Ss a cr 1193 100 114 909 29, 935, 658
ing 8 per cent dividends:
Uhieago, Burlington & Quincy.................... 215 BOO fete oie ae | 9,373 122, 342, 707
4 EREDAR eran 192 | 1404] 180 21,584! 275,411, 518°
nN a ti Co one 108 s93 | 101 787 3,331
MNS PANG eile et 893 4, 44, 063, 33
(Shieago & North Western......................... 107 go; | 101 8,410 | 109/479) 440
po SSE eee ere 1064 86 96 8, - 88, 617, 190
1 Bo y j, 148 5, 296, $
ri | ict] ato | xis | Sbee | 102288 008
Minneapolis, St. Paul & Sault Ste. Marie........-. 973 soz 934 | 24,228 2 34, 540, 491
Nashville, Chattanooga «& St. Louis................ 1193 117 117 1, 236 15, 194, 755
vee ener 2. SOME BS) Sass eae ee ee 1123 102 107 2, 086 65, $10, 242
MMIC... 8... cee ee eee 105 814 97 6, 926 89, 412, 314
Pittsburgh, Fort Wayne & Chicego (Pennsylvania
CE ee ae ee 1303 pee! Ga RN De ore Oe, (3)
|, 0g 6 per cent dividends: aes ob ata”
\Atehison, Topeka & Santa Fe................2...2 993 81 100 11, 354 165, 887, 583
EO, ck cle ee ce wee cence 1004 864 92 211,872 |} 2490, 404,127
I ge ck, 110 804 106 11, 164 193, 498, 458
we acc ee eee Ia sa Spas ael Peale Ae, 104,319 | 1, 984, 896, 542
| ng 5 per cent dividends:
Yhicago, St. Paul, Minneapolis & Omaha.......... 82 69 75 1,749 21,476, 509
fuera eriral Ry R22. ....--2-.+-----c-.----- 848 674 80 212,045 | 2 399,074,477
ithe ar Poa. 62 484 43 059 137, 046, 837
; Amore io kegs 6 a eee D. pH 4 5, 5 31, £0, 37
3uffalo, Rochester & Pittsburgh................... 80 70 60 585 14, 975, 000
MeO...) «8. . -..eeceeeneeee 623 493 64 2,378 54, 643, 794:
PTT oso eee eee eee 95 803 100) Foegeenebe4 (°)
ees nat Chicago & St. Louis....... 58% 46 TSS Se re (3)
| og 3 per cent dividends:
eee ceeee 46 46 CET By Soe ete (5)
} ag 2 = cent dividends:
jee Ontario & Western.................... 243 18} 22 568 9,159,175
| Viseconsin Central7................ pie eer 39% 29% 38... | siecs aber (8),
yaving dividends:
tlanta, Birmingham & Atlantic.................. 103 5 14 640 3, 983, 368
cee 11 7 92 1,052 20, 525, 689
/hi@age é Great Western... ....5......22...-.-.-- 11 6 103 1, 496 16, 368, 323
hicago, Rock Island & Pacific.................... 324 183 30 8, 297 89, 608, 722
) , Milwaukee & St. Paul.................... 54h 374 50 10,561 | 114, 616, 725
le d, Cincinnati, Chicago & St. Louis........ 40 26 SONG real 5
Wr OuhioIm -_........:..........:.. 275 18 24 1,841 18, 685, 810
Mere Gitonde... |... eee cee 7 2t 11 2,790 29, 056, 258
| uluth, South Shore & Atlantic................... i 2 43 746 5, 501, 145
Ui... | Sr Deereee htt 238 14 19 2,878 84, 853,778
ull, Mobile & Northern..........¢2.............. 10 8 10 369 2,322, 650
eae ae ep oe a lpia 4 = 62 838 12, 410, 965.
be T1e oo) adh 2 2 Ree 9 eee ae oe ee li LOB aos Sane, ae 5
| taneapolis & St. Louis (new).................... 154 i 21 1, 647 11, 005, 063
ise mamsas & Texas......................22 4 43 14 3, 868 43,444,150
ES eee eee 318 20 36 7,301 78, 320, 313
ew Orleans, Texas & Mexico..................--- 363 17 37 1, 013 6, 661, 229
| 2mmings and mileage for the system.
|.ennsylvania System.
| 2w York Central System.
| Mnheapolis, St. Paul & Sault Ste. Marie.
) st payment 1 per cent Apr. 1, 1918.
lares $59 par value; quotation doubled to indicate ratio to par.
jaltimore & Ohi Seu 23 per cent in 1918 and will pay 2 per cent Feb.
1, 1919, on common stock.
'
228 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Price of railroad stocks (common) on New York Stock Hachange year ended
Dec. 31, 1918—Continued.
5
i
: Last Gross earn- _
High- | Low- 2 | Operated| ings, year
est. est. 1919. mileage. | ended Dec. —
: 31, 1917.
Not Melee dividends—Continued. :
ew: York, Chicago.& St. Louis... sac.) s+ weaels- sees 34 133 31 523 | $16,901,206
New York, New Haven & Hartford..........---.-- 45% 27 39 1, 997 85, 784, 893
Noriolk cc Southern. ses 02.5 fe evens hems Res ques 214 14 18 908 5, 299, 914
Peotladcstaston a. oe casae fae ae bee oeee 62 4 17 7 eee (8)
Pere Marquette... 2... ------2-+-- Seo eben aaenk 182 3, 23 2, 245 23, 507, 856
Pittsburgh cg: Wiest VAreiwla ce, te eto ete eerie ee 402 228 40 63 1, 289, 883
St. Louis & San Francisco....... Veccs va tueihs sake 174 93 24 5, 165 59, 684, 642°
St. Louis & Southwestern ........---------+<+-+-++- 25 19 20 1,817 17, 448, 824
Sdapoard Ais LANG. Bol, etic. as cube baleen 12 7 11 3, 499 30, 405, 445
Southern R. Rice... see siett eS eee oe ae ceue nese 34% 208 30 6, 983 135, 560, 166
Tetad & Pace. oo. f 5 a. ae ee ee ee cae , 14 60 1,995 |° 22, 889, 306
Toledo, St. Louis & Western certificates..........- 74 4 li 454 7, 041, 663 |
Wabash. ....-2-----2-eeeeeeee ee eee ee eeee seer en cece 12 7 13 2,492 40, 471,999
Western Marylandot a. 2 cncsccett sme wletcle iar Mere 173 10 14 708 13, 638, 450
Western Pacities... oc. Sper n= eae ng ame eee 24% 13 25-1 ‘gua teed 9, 898, 484
VWiieeling a ‘Lake, Erie. 7 ven cut Cre tame nee 122 8 114 545 11, 028, 904
Totaly ie. ociss faces yo oelcae oh Ge Shae. Goapele vs tienen oe tae 98,059 | 1,654, 591, 615
SSS ee
Grand total.cecoi.t pa ee do eae ds Ts fess Ra ee 202,378 | 3, 639, 483, 157
1 New York Central System.
The CuatrMan. The committee will recess now until to-morrow
at 10 o’clock, and Mr. Salmon, will you be ready in the morning?
Mr. Sautmon. Yes. ma |
(Whereupon, at 5.10 o’clock p. m., the committee adjourned until
Thursday, July 24, 1919, at 10 o’clock a. m.) :
CoMMITTER ON INTERSTATE AND ForEIGN COMMERCE,
Hovusre or REPRESENTATIVES, .
Thursday, July 24, 1919. _
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding. 4
The Ciarrman. Mr. Salmon, are you to be heard next?
Mr. Satmon.. Yes, sir.
|
|
STATEMENT OF MR. W. W. SALMON, OF ROCHESTER, N. Y. q
The Cuarrman. Mr. Salmon, the committee will be glad to he
you. Give your name and address.
Mr. Sauaon. W. W. Salmon, engineer and manufacturer, Roches
ter, N. Y. 4
Mr. Sus. Mr. Chairman, the gentleman made a statement of his
name and business, but none of us could hear it. I would like to
know the name and business of the gentleman making the state
ment. : G|
Mr. Satmon. My name is W. W. Salmon, and I am an engineer
and manufacturer, of Rochester, N. Y. \
Mr. Srms. What kind of manufacturer? ee
Mr. Saumon. A manufacturer of railway appliances. 7
Mr. Srmus. Railway supplies, I suppose. . 2%
Mr. Satmon.. Yes, sir. . |
=
other half to the general railroad contingent fund, the sum of
2se two contributions being represented by the shaded portion of
‘s middle symbol.
The charts show that the part of the net railway operating in-
ne retained by each railroad is in no instance less than the average
lount of such income earned in the test period; but it will be noted
vt all of the increased earning of the D., L. & W. growing out of
. Operation of the statutory rule of rate making proposed by the
wlerence is shown by the chart as being turned over to the two
itingent funds, whereas only a small part of such increased earn-
, of the Erie is so shown and this may, upon a casual review, seem
quitable. But it is the opinion of the conference that this is equit-
e and as it should be,’ because it is certain that the people of the
ited States would not consent to the enactment of the rule of rate
kine proposed by the conference if all of the railroads were
mally in the enjoyment of such railway operating income as is
wn for the D., L. & W. The object sought by the conference on
proposed rule of rate making is to aid in the creation of a situa-
1 which will enable the railroads to meet the reasonable trans-
wus wal
—————
\
240 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
portation requirements of the people of the United States—and this
does not call for largely increased net earnings for roads now having
the largest net earnings. The conference believes that any increase
accruing to such a railroad as a result of its proposed rule of rate
making should therefore go wholly into the creation of the two con-
tingent funds until its individual contingent fund is created and
maintained—and that thereafter two-thirds of such increase should
go into the general contingent fund, as indicated by the shaded por-
tion of the lowest symbol, the railroad retaining the remaining one-
third as an incentive to efficient economical operation. |
In looking at the large percentages shown by the middle symbol
as being contributed by the most prosperous railroads to the two
contingent funds it should be remembered that one-half of the
percentages so shown goes into the railroad’s own contingent fund.
and is available for its own individual use at any time when its own
earnings from railway operations fall below 6 per cent upon the
value of its property. Therefore contributions to this fund should
not be regarded as being actually taken away from the railroad
making them. They are, in fact, just as much the property of the
individual railroad as any other part of its earnings, but they are
required to be set aside for a rainy day, and the conference believes
the provision to be a wise and equitable one, which will meet with
general approval when understood.
Having shown how contributions are made to the general rail.
road contingent fund, and the estimated amount of contribution by
each class one railroad in a year when the aggregate net railway
operating income equals 6 per cent upon the aggregate property
investment accounts of all the railroads of each district, t will now
be interesting to illustrate the mode of distribution from such fund
in a year when the aggregate net operating income is less than 6
per cent. For the purpose of illustration the southern district 1s
chosen, and it is assumed that in a certain year the aggregate net
railway operating income of the district falls below the 6 per cent
in an amount equaling $6,508,719 (which is exactly equal to the
estimated excess income of all of the railroads of this district in a
6 per cent year).
That table, Mr. Chairman and gentlemen of the committee, 1s
the last table shown, Table and Chart No. 4.
It is also assumed that in this year, when the lessened earning
is had, the operating revenues of each class 1 railroad of the district
are in exactly the same relation to each other as they were for the
year ending December 31, 1917. |
In the accompanying table No. 4 are shown the amount and per-
centage of such operating revenue for each railroad of the southert
district. The percentage thus shown establishes for each railroad the
percentage to which it is entitled, under the national transportation
conference rule, to receive of the $6,508,719 to be drawn from the
general railroad contingent fund, and the amount so to be received
is shown in the table. It is, however, provided in the conference
rule that “if the result of this distribution causes the railway operat-
ing income of any individual railroad to exceed 6 per cent, this
excess shall be applied as provided in section 11.” In consequence
¥
>
4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 24]
‘of this provision certain of the railroads are obliged to return a
part of the moneys received from the fund—and this is shown in
‘the table (as would occur at a time after each individual contingent
fund is fully created), as is also the net amount remaining in the
(hands of each railroad out of the distribution.
As broadly illustrating the operations of the conference plan of
‘contribution to and distribution of the general railroad contingent
/fund, the following facts are enumerated:
| In a year of 6 per cent average net railway operating earnings,
the first-named 15 of the 32 class 1 railroads of the southern district,
‘each of which 15 earns less than 6 per cent on its property-invested
jaccount, would contribute an aggregate of $166,966 to the general
railroad contingent fund, whereas they would receive from it in the
year of lessened earnings $1,931,271, and of this would retain $1,786,-
| 388, returning the remaining $144,938 to the fund.
| The other 17 class 1 railroads, each of which earns 6 per cent or
}more on its property-investment account in a year of 6 per cent
‘average earnings, would contribute an aggregate of $6,341,753 to the
‘general railroad contingent fund, whereas while in the year of less
| than 6 per cent earnings they would receive from it $4,577,418, they
)
‘would retain of this amount only $1,572,795, returning the other
/ $3,004,653 to the fund from which it was drawn, together with
.$3,037,099 of other excess profits of the year, leaving the fund larger
than at the beginning of such a year of less than 6 per cent average
jnet railway operating income.
| The facts set forth in table 4 are graphically illustrated in the
;accompanying chart, in which the upper symbol shows each rail-
road’s contribution to the general railroad contingent fund in the
/average 6 per cent year, and the lower symbol, as a whole, what is
7
,received by such railroad in the year of less than 6 per cent earnings.
‘The shaded portion of this lower symbol shows the part retained by
‘he railroad and the unshaded part the part returned by it to the
|Zeneral contingent fund.
| Having shown in the tables and charts the results of the con-
‘ference rule of rate making, as applied to the class 1 railroads in a
jfear of 6 per cent yield on the aggregate property-investment ac-
vounts, the amounts retained by the railroads, the amounts con-
| vibuted by them to create needed contingent funds and the mode
f distribution of such funds, it is believed that a way is indicated
|vhereby, with fairness to the people of the United States and with-
ut burdening them, they may have reasonable railroad facilities
vhich they can not have unless this or some equally comprehensive
‘md equitable plan be adopted.
| (The tables and charts to which Mr. Salmon referred are as
/ollows:)
152894—19—vor 1—_—16
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
242
‘
ad
“EZ CN ‘s038aqQooy ‘NonTVE “A ‘AL £q BouareJUOD WoOPRII0dsUBIy, [VaO};UN am) JOJ paredaid a:quy,
“CON—38 ee 208'0S9 tank \s06°0S9 S06 0S9 T2087 © L16'69T' TT “OW —9E La) wy (68S"182 ae
“OR ‘a—vEVoer'ses = v6 T‘T69'6z 926'9Fb'6% 02962862. |6£L78T 8 [0Z6'782064 ‘O 8 ‘a—*E 6IZ'L 19°F 619'S29°G2" *.
“UW "e—BE||P18'2e seg'sez 909'S8z £'L020° LSB SSF “S “dst 290° 69°F SEZ 12S we
ee 1 | hee : SLI'FEI'T czueert = leszeze* — |z18‘zb2'6r ‘a—ws| 00z" 7 os
WA “Wwo—-18 $69'92 SFLTIG Z8CSPS"|OLG'8TS‘FT SA “mea —TE, yz 18
*S‘s Bf "“M—08)|""""* * : ZLe'StO'L 919262" |ee0'NFe'LT ‘SSP L'M—0E]} 298° « GER OLS OLE. Prt STS RT Ta OS ONS. et eae Caen ge oxoqswes 9 Aaszaf S92 | 08
“L°a T°S—ez"" ; 690'8FE LPTOT 259‘F80'9 Lat *‘S—0E) 680° 61° ““ysuesy pidvy puss] was | 6%
“1 B ‘1 O—28)|886'6 8. 6ZOTe'T § |zc29¢8 ~—_ fozz‘gse‘re “7210-88 99% a Masmoy »y syodeauypuy ‘osvorND | 8
“W ‘d—18))L86'221 86°F eze‘ers'e ieeezoz"t |gge‘Ter‘zz ‘Wd—2t)| -190°T OTs. eoe'seZe? «| evek: ere SIS TGS gle OSes “Ete ee ee eee ayanbsepy ed) 15
*2°O B'1L—93)\cst'e¢ £0°¢ oge'tse't _ jeveise” [2 1S‘890'T2, 0°O R122) ole RO Keay free ROOT py [ SH MNEEM) CD ieeelore oe = BGP PERSE eg ah THUD O1FO POPOL) 9%
‘1 PA ‘O—9z)jec8'08 06°F per‘eet't josezoe’ jozs‘let'st TR? U'9—9 193° 60°F Se ne > Cape eae oe FORpLL BP spidvy puwid| 9%
H°S 2 HL ‘9a "°° bo F BFS'FSO'L 676262 —-|62'998"°LT ‘a 'S PH 'L'0O—%% £93" gle wzIISPETINOS B envy sual ‘oss2qD| FZ
T "I—€% . . . 00°F i99¢'912'e cST8s6* logo'FSP'LS = “I-88 ors" SL's eee e eee eee ee eee eee Pt ae wee pussy 2u0'T es
‘T°A PB O—83//666'L1T CRF seL‘azo'e |Sor6c6 €18°929' 2g TTB Oe) 98 PLO BRO SHGS- 1 LE SSTRLS GPO CRE OS of ESE? fe RR ee eS STOUT Wsyseq ~P OSBIGD | BS
“AA PS “*I—Ts)|808'se ¥e'h Tos‘oss‘t orseer’ |zPr‘bs6‘sz “M 9a" T—1E! Ww 1S: OLVOO ee TG BRO). RESORT SR VOOR te ee ee ea ee TU9IS2A\ FONT OFET|) TS
“A—0z|l6c9'08% + OTO'TI<‘6T 'ss6'stE sI'h 699'TrL'6I |1e606e"S |ese‘loz'sze "a—0z|| SS2'¥ j 4 ‘ah SOBG'GLY'SLFS ck GEe'Soce Pers rashes eebee tetas sere enter a eacieeesoyes 1
‘a‘s‘m—eTl res vs 66'S 0z090° _‘|z66'609'e ‘2 °S"M—6T e90° ; Pile Slee nine ee Mit Coane MM [alts ace te tne ng Sncleted Mine daicerig s «SPN ina mi veg apis 89M] GT
“ML ‘\—81 Z1¥'£6 9l'F ogtise’ OFZ'SIF'IZ “ML *‘\—8I Sig" . q COR a PE PGS ey) ee ee a eee) wee rae ee ESE est LINN yUnIy, pues St
“13S BO “A ‘N—LT 012181 80°F 61ZE89° | F69°L96'UF ‘1S BO “A'N—LT £09" s ; : SL ye weet ans ns & SMO "IS Y OBIGD ‘AIOX MON | LT
“Vv ‘V—9T)/So2'Z1 ¢9°e S8ZOLI loge‘ 11z‘O1 "Vv ‘V—OT . . ee Glesetertetag © Made Spier 0 vain savin ative ple Weel ecisamedicn at hs ve suicesanises
"qtM—ot C6L'LEZ ecz‘169'9 ese 8S66S3° T Z1Z'6SS Tit "qesA—ST . . *g £Ipnerfwantnnse 8 8 8 | erecta 3 ferrerrere Peete ee eee eee eee eee es yseqey Qt
“nA *M—5T wea e6o'TFS's 96°% 68286" Zz 107 6S “A “M—FT 13° . . SLES itl! SSEE = Pea ae a ete cee a puypieyq T119}89 A +74
“MB B18 “L—8t|\s82'z9 Fre'za1'T oe uezoze” | T€2'208‘6T “MPT W I-LT £82" : Py clit 100 GGk og Wy S0%, a i ok eno ee aes 09389 SMOT 99 ‘OproL| ST
“2 ‘v—tT 01z'6 OLF'I9z 68°Z SL9ZZ0 Tes'2c¢'F 9 ‘v¥—2T 790° « eA Wwaetiaita ‘OE one “Sh Pewewer ce tticecccc vtec caer divadderwgussevaone 410 erto the aI
“A BO “A *N—T1||1Z8'FI L6L'834'S OL z 169829" | 129°96e'0F “MA B'OCK'N—IT| 69° i k TU. n PUT O07 06." Sot, | SES Retour ene ae TI23S2A4 OBIUO FOX WNT) TT
‘a1 P 'M—OTe1z'Te gos'F¥e'T ws gears’ — |z94'zrs‘0e ‘ATR A—0T!] ah ; ATS WLee'seG CONS etal 219 dae [eat dk weer ec mes ma cam org one] y ZUNP9qA| OT
‘ae ‘o—6 |loor'9 cOn'6FI 9L°2 e0otto’ _geo'ser'z ‘a2 ‘0-6 180° - 4 Be Le eatin ie taal gen Men Esme Sabi schee deine > cathe sn canes oreavped B 371510 | .6
‘d?'H “9-9 | FFO'ORS'T 61'S 199FFe" 906'299'0Z a2‘ 9-9 #08" « Ct: gicNoaota a) oO Cheng Mee Pe hee celal ee we, peeeeee noyieg 9 voO}TUE ‘geuutuID 8
‘NPS “d—L * |Ter'eLe LV% W88IZ* = jose‘ZOT‘ey "NPS “d—L 261° ! ; mos we HES DOO SEU. eal | OSGeo a ae een ee wemsoyy P ynMATTS ‘W3mqeyig| L
‘Kh 2 ‘H 3] “q—9 768 FL 81 ‘eg SZOOFO* '998'668'% 4 3 “A 3) “q-—9 $20" . ) a Settee t ewe wee ooeany 3 ueaty puris Sioned 9
"s cf 2 ‘A—9 l06z'Sz ~ 6° I 8E0200° 90S ZF S "I ) Ww-8 900° of. Viewers *~ | cone lewetenete (5 ak ow os bret ou.eut sae a cctoamdanss sopedng oxey » onbnsrreyy 9
‘VR'O “a> 90°99 18° eeesTO" . |o6z‘216 v2" “a—+ $10" ‘ : : sd here ee ae el PN a ei opuBpy @ oyvedesoyD ‘osounE| »
bas § > oF “q-—¢ SZ8'8he 2 651690" SLO LES bis | 2 ip “q—¢§ 190° . . ce ee © PO Tey Sipe ae Fe asiana ess sacebice one wo wos, E] opejoL Sioned s
"tA" Bd £L0°TFE Cae lezog60" —_joze‘esz‘s "FA‘M Bae ||. S80" “79 Py PBT 202 Bie OO Pgme [oe go" Rene ne ees VTOISIA 380A F YSNQsHIG | F -
“148 2 IV—T 600'% $— OL" ¥89000° —lo6z‘07 $— "139 8 -V—T ¢$000° — . lg : a cbaticna © 1 et ony Bee LebHen ee OP Bt eck ieee cS oousZMBy 3S BInUERY| T
pang : |
Spur.T
Te Feo prone} seston foo peonew] [wy ; grata ate
ae) 4 pe} a Nore idan aaeay ee deena T90L as qunomy Buryeiedy =| quowysaauy onowy Bee qunowy
“nquza0y : fazed puysig -¥ ABATT Aysadoig a eee
| An ocorgy qunouy Spue0eg * JO 83u}Ge0seg
GaNIVLNIVAY . ap imag uo jo 18301, U0 eZezUe0I8g P,
GN a umagaNnog| ong st anng — aguyneoseg P2FIMPO ; Jo o8equeoreg i, avou -[ “ON
INZONILNOD TVOGIAIG | LNEDNILNOD TvOdlAla ae Be | j Ww
-N] UBLEY COM NI | -NJ TUBA GOIUaY NT pA Ngee es
@ROON] ONLLVUGEO LAN 40 NOLLISOASICT DNINIRUSLAC] You
JOMaISI( ABL £0 SAVORTIVY ZBL 40 NOLLVOTVA L4VEOIRTY, MOON] ONLLVUEdO AVA TIVY “LOOY LNERLSZAN] L.Lagaotg
TIV £0 SINNOOOY INTALEZAN] LLYAIOUY ALVOTHOPY ALL Non %G
SIVOdY Gis, LAL NAAM UVAX V NI AROON] CNLLVURAO AVATIVY IGN CLVRILIY H |
NVWId AONTUAANOO NOILVLYOSINVUL TYNOLLVYN L161 ‘Of ANML % ‘FIGI ‘TI ATGf—AOlMad LSAL AO SAOVUAAY
LOWILSIG NYALSVS—I ON ATAVL
‘ONIMVW ALVA JO AINY AONSHHANOOD AHL DNILVULSOTI SLUVHO GNV SHTaVi
2438
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
AN ‘zeyeQdoy ‘noNTVG ‘A ‘Ay fo DUVIWD WoHepodsuezy peuonsN oy) 107 PoredeImpary
a +} ” & a “ a e 8 ‘ e
$ ? « P 4 R<-1evue—— 9 : F € ° ‘ ° ‘ a PY ry “ o « “ a
‘SaSees=s SSSI yrenwe pps
SSeS —= —— 09'S SS
———— =
Avis SS i GNV TLS 2
= gees ya — S44 “LNESD tte
=== == ==)
SS Osha]
Si a ae a ane es en as bd ata
Ss
BeAin Sais Bp
=e
===_-====
: SS INS a
tt ~
————— ‘DOS ethan
i pot —— =====
SS == 13UQ sz
tf
7 = =
ca sSS==Sekans
SS —
Bom Sa Na oe Oe ey
: SS SSS VES" 3 22 Gemma
ies
= ey
—+— —— == z
‘poq0040 #9 puny ee |_| 2a
uaburzu0g ponprarpuy soz{o pong yuesuyzu0g ptospiny SS ej] gua co TTT Pet ra
[BreUaD 0} 1940 pautny 410d ‘noji10d papyys pus proses SS
4q pauteze1 emoour jo — es uoyj10d papuysuy te i138 aan |
“sjoqas 8 pe ydvsy SS a
PIPPI SF eure smaYs ‘soym B ev ‘HAVYD YAMOT ee ee
"9100.10 Seen oe me me oe: ee
5usaq es puny 2usbutyuo Qonprarpuy opyn spung yue3U1 a =
pa 0} 42A0 pouin} zed pies p86 tr ae pwospras Fl aren Pay ee es
SUIT}I1 BSUIOOUL Jo 4ivd sMOys uOIzI0 eprysu th BR : c
“au : he ; aie soe ‘ees ea com recline ce Ppp .= =
oe yuamyseaur fz1ad01d 938821238 SS ————_—_—_— ae, a
472343 U0 "yua0 sed 9 siunba eats See | cy ‘amoouy 8800
JO spvosyres IB 10y pjord way 4uNoD0B a an oe ae io Le ee a “xq Suyurazeyap 107 eysvq Aresoduray wv
queuyseaut Azzedoid 931 wo amoout Bur Ss 8u ‘e[NWIOg BUdIEsTOD BoI}VpOdsuBIy,
-yeiado Lemites jo e3ezuaoiad poywany hoa Ges asi eon ees We Sa yeuoNwN Jo asn Aq poarsep suorqenteA %
“89 B.PVOI[IBI YOve smoys ‘AfoyM v su ‘HAVYD HIGGIN — APOAN: ube ayedaisdy ey} Jo aeFuzuaored smoys HAVUD HAMOT
“ported 489, ———— T1398 | oS “porsag 4saq, Ut eyUNOCOY yuomysaauy 47° |
om, : of aed neal oe teh teas! |S ee es es -tadorg 9703e133y Jo aZuyueo10d smoys HAVUD NAddA
Jo oSezuscued s,puosyes Yows emoys HAVUN Utada Ths ae ate ae rh + | peoxyey yoeg s07 pase, sydeiy omy 24 JO |
5 Peosey yoeg Joy pase, sydesy sa1yy 2m) JO" 1a Se es oe ASN 6 ee NOILVNV1dxXa
——— -
NOILVNV1dX -==== NOSU ¢
==== Sracker hela
IEA se es SISA 3s
aa ins A
= 1SLa ¢
tT AMY
Se : . i 118 ov
u a * e au “ o 6 e ‘ ® $ ° e z ‘ 0-257 LITsIes4—> 0 ‘ 2 e ’ 8 ® . ° 6 o rT) o a o o
LOTALSIG NYALSYa—!I “°N LUVHOD
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
244
“RON ‘s238aq00y ‘NOMTYG “AA “M £q BdUOITHOD GOW WOdeMBIZ [VUOTEN Aq} Joy parsdoud eTqUT,
———
¥26'890'8 “278 10!
eyorsze’'t =| ascet lzopsee" ‘608 J “eA UM —§2')
EFL ELF STIL lescese't ‘ 4 “S18 a9)
O2e‘TS> str |ceerer’ < TS? "o—-¥9) ig | i so Z aUl] 204s Opajoyr P HONIG
'$60°666 680 906s" ; igt° o “MND a SAMOS | aa : : ; MOPION BM BIadjepepyd ‘yIOX oN
S1e'sz9 Too1 |zzvecu" T9801" an ® "110 F oe rarcign ‘ : ctttetesegees oT Ro Het od xoagy wespagy % WIT
scessi't LUVGTS" ; : ‘aM @ “Ite Y ‘ : s [cos‘eza‘et pueysag mont epryzryaT
soe'29s"t C e¢6'St0'9T : i : : stO‘SPe‘961 batty Sepsoyey eqs oped) 09
6ZL‘082'T ; ; 09s" z. ie Ga Coe. | S Ie LPT 'ee0'sIz £3 "DIOIEOM PY PUUEKEAINT“OEAVISC) 69
eor'ThZ us : 62 : ‘? ‘a—29 SIL'% } L6L'SZO'EO1 id “WOSpPHYeperBKcaq) gq
866'Z¢ ‘ ‘ : é > “Nn -9—29! 260° °p. ; ? : eto‘ces'é s WeQuON MeUnTIUID! Lg
‘T'N 30 Wa O99) 80948 ; ; {nN y0-UH caked £79°% ; g99'LL2'ZeT ici Aaszaf mon JoipsorwyyenueD| 99
819" eee‘Oee lh : wxajse yy Qarjof "ar3,q
562" 6£9'910'0% 3 UBLiyor PpUyMeOTY
6Lr's —|z6368F‘9Ez ‘ fuedmog wrreapisuuag
9z¢°eI |eos‘zos‘616
149° S82'FS6'eF
‘ae “a—agllzrz‘sre ; ; : ‘ae f*a—s9|) P08"
‘WP “A—*9||290'96 ; : B esses’ ‘Ke pas 808"
‘09 "wued—vg|Ppr'289'T | lore'eze'e : : “p |tez'gat‘Zt ‘op “wuad—eg|| SLT"
Z8e'iS1'F ele'2zz'9 |tzt! “9 |iett9z"ST |r60‘ssz'z9 ‘D°AN—tsl| — ¥18°ST
ave'60% close . |zt0' : lee : ‘A‘H—tall az"
Seager
eonooce
6e9'OPL'T
pPsopsrey wy ueAPA MONIC MON
vonounf{ HUN pussy wpeaey » yW0oHeq ‘o#sITqD
wonsiods0y “yy vuUEqenbsns =p oyeyn:
E pusysuq seyy!jenue5|
Wamgqsyid F JoseyIoy“opwgng
26S‘9T -
9F0'FS
£2069
20S‘F8T
8388
owwonww
‘09D “TW—97 012%
‘WU dw #0821
"Y 2 ‘d—6r are
19S BOSD “O—BH] «= aEBS
‘A 7h 100°&
——EE—EEE
“2 “IN—0P) ves" : ® SLe‘oTL'2g
Uy‘LIs'siz = |'19S 8° “OD “a—es 681° : : SFE LSF' HES
TI998I°T jese'zor't, “Mh Ba “d—es 150°} , , TIV‘9IT'9Z
* + Igg0's0o'9 ‘WP ‘a—is 830° , ;
ie ° Coe) || ME 9 a
RR5S)8
“178 BO "OD “O—8P
“A “I-Th
RSeas
Condo
1
0 ‘N—-F
‘TIS BD “DO “d—68
“Mh 8a “d—8e
“Hi 2 -a—Ls
“WAP ‘a—oelierr'z88 = |zo0‘ose' IIs |FIs‘OL1s
!
s2283
www wy
wets spony
sway [09 poorrey
nquya0
4p wnog
anv a9 slog 85 anny ONIag gI GNog
LNSDNILNOD TWACIAIG | LNTDKILNOD TvOaTAIa
-N] WaLEy GOTEag NJ | -N] THA aorasg NT
@ROON] ONLLVEEAG LAN 40 NOLLIBOABICE
LOIS BEL 40 SAVOWTIVY TEL 40
TIY 40 ALNQOOOY LNEALOMANT LIeMACET MIVOTADDY MBE NOUN %9 ARON] ONLLVEWAO LVATIVY.
STVAO" ATH} WEL NTA MVEX V NI MOON] ONLIVEREO AVA DVY LEN GRLVALIOG| NOwVOTVA LUvEOIREy,
NVId FONSUGANOO NOLLVIXOdSNVUL 'TYNCLLYN LIST ‘OS ANOL “FIST ‘I AINC—GOMwWAd LS“L 10 SADVAAAY
penunue)—LIINLSIG NUALSVZ—1 ON ATEVL
245
"KM ‘reySeqDO|. “MowIVE “M “AA fq DudIeJECD GoRWpOdsaBLy, [WUOTIBN 9q} FOX Pamtdosd prVGD
-sadoig 07030183 JO eBezus010d smoys HAVUD UAddA
peorEYy GIeq Joy pasp sydvsr) omy 243 50
NOILVNV1dxa
a. s " @. a “ ot 6 8 & ® $ ¢ t 2 ) @ =— 28ULRIMGId—= ® ‘ 2 t ° 6 ® t e € a 4 a « a
ri ;
if (———. a = a ae 4 if
IAS key ow Bas zane
— ss AD “we
3 = Scenes sas ota 8 |
: —— —— a “IBV AO 19
ee ee
SSS
——+ SSS he toe >) ‘autoouy 8300
oe Sas eae Gan Be ae ee ma we ; -xq Surmyursoyap 10 e1svq Liviodua; 8
—— aaa = Se ee 8B ‘B[NULIOT soUsIeJN0D T017B}10dsuBLT,
ee eis = {eaorjey JO an Aq paalsap suorzen[eA
SSS SS = “edd a nee ane os ‘eyedoisdy oy} Jo eBvjzuao1ed saoys HaVHO UAMOT
== —= ‘ADV | ested See Sees Se Pola yay, Ul sjuNOCDY JuamysaAuy 43
==
——p——
Raa is
ve
it
i
ae ee Le '
SS
Eis ie Gs SH is nS
eS SS
: Ela oe ne Sy Se a cn al.
FS me ee a ee a este tt
mewn oe ee it ee i enn
iusbusuop ronpraypuy 493fo pung yueInyQUeD prosiTy et = ——_—— ee ee
[B19UeH 07 19A0 pony yred ‘uorz10d popeys puv prosjres . Ci iss an bea ae i |__|
4q peureyer eurcour yo 418d saors uorjiod papeqsuy a Ashes a '
‘aoya B se qdeigy * Ses = — ee ee ee hy re
PIPPI 8B eUIva smoys Vjoyu @ se ‘HaVUD UTMOT = FR i BWW A Kies pecan a
: ae "patve10 : === == 28'S BU Den}
6uyoq & puny susbusyuon 2onPIowET ayn spam quadc1} sa aes Na ers a a a *
-U0Q 0} 12A0 pominy 4ied ‘uolzi0d papsys pus proses —— ——— pa — SSP =
Aq peursyer emoonr yo 410d smoys uorjsod pépsqsug a Bile Res Soest sa aie ssbaweme bry dah
“syrm00 eS SSS eer,
ow yuemyseauy Ax10do1d = aqude133e NBs i es i as aes Ss as a
4feq} uo “uae red g syunbe 40)1391q at aes + se ore
Jo epeosties [1s 105 pjork woqm Fen 0098 ah A kes ak Se on a a led
en. st Ajsadoid 931 wo amoouy Zur a a es ee es os ws es ee ee et WE Te La) | 2 fy] ee nna
quredo Aearies Jo oBejas0ed poze | es es ee es el ee ES
“82 a,peorI¥1 Yous smoNs ‘joym vse ‘HIVAD TIACIN,, 7 Ae eS ee EE EE es Se
PoLted 4827, == SS eee BIOUY Ott |_| : /
aq} Joy peBvsoav yuMod08 yuomrysoAut A} is 6 ame ON To es Ei a eA el
-sodozd 831 uo eutoout Burjesado Avayies t= === =_ == OLS Sh
yo sSvymvond s.prdnyex yous saoqe HAVYY UlddN o EE Ns es ae en nk eh ee {ee
peospey yorq 30; pasy sydesn roiqgy om JO La | ows nm Gang wes sa
MOLLYNVTEXE SS SSS ome | |
ESS _— SS bot t t b
h BL OE ear am ——— iby ats a —
RETURN OF THE RAILROADS TO’ PRIVATE OWNERSHIP.
LSS SS SE ‘NEO ve
SSS Sy NOG eee ee
a (8 a e e a e a e & @ r) ° 6 a ‘ © © a oi - = ~ * 5 .
WM "TAs? 308 eoo'b1z .|gec'ere'e l6aR'IIb = loze‘ziz'e 796 = |poogze's levt'tzo’e § jezgove't Izoe‘ess"22 “199 BO “N—CS|| Esetes | e'Z12'e Ish — jzg6‘eso'ze 9e2'T hs ake a ee? Ee smoT IS # BICOUBIETD ‘OTATSEN| OF
G ‘MB N—6z||>Iz'6ee'1 [coT‘ggs'tz |1zs‘e00'% |est‘s6s‘0s $9°8 lergeeo FT |61s'206'72 |RveTO9' IT |961'z62't9% ZEtsO' ST 8608680 G@z' Ot 96t'z6z'79s $80'% Stevie ok re te ae “*" "T9352 gh 7 ATOON GZ
io] ‘S*O'V—eE|STe'Ezt = |Ire'FOR'T « jzzt's8t = |cog'na‘T 19'S |Z8PLEST [60L'226'T 266° — |OL8"E¥9'%% 99982 T Z09'SEL‘T yL8" Ste‘era'ce ale koa as “'UeqyNOS wow VUTEQETY) 9%
: Sd M2 “V—21E)/819'18 290012 22'2S 888'6SS 692 loztzst’ |eez'zez .joppgoT’ 6z8'R62'e OfZ8t" SE8‘6SS Lr" 618'862'E £6 teomonoeyroseecnsesocgs ooh aod OM @UOVRY) LS
a i ‘NB "'I—9el\Loz'sre't j6e9'6+7'8t lOTS‘210'% [9e0'zz9°2T SOL |190L29°2T jors‘ves‘6I lesTest “at. zzs‘oz0'e2z 2929921 GEO'LL9'LT REL OT [2zs'0L0's2e OL0gie rg nae Sorat hie seresscees****OITAQSEN'® OTsSMoT) 97
> ‘Aww x—orllobe'ore —igca'eco'e lozs'esy —_jese'uoe'e 86°9 |TZLLT8°S 828 ‘e8e' GIO9SL ZS j9teHOS'Z9 ‘ACW 2 ‘A—@5)| .99608°% ege‘oce's 82'S «(ST e‘¥06'z9 a3e'T i 2 “a a ee Aas, Wdrsstssyyy 9p cozez! 97
© ‘AY ~v—¥e 098" ve etrove 062'2S £860'258 e1'2 |regece’ jeze‘s6e 2e9%pe" | Tzg‘ze9"S “A BV—P5|| OLLFS" £86 ‘SFE FIZ" Tag'289°¢ eet iy ees Se eae A eee Bmqgsqra BY BUTeqUly) FZ
“a ‘NBO ‘N—82/,169'96 ee'990'T = |zeS‘erIT = |S6F'BTO'T 98°9 jorasrs’ jzeo'zor't [ztzeFL’ = [2182691 ‘2 'N PO ‘N—€2!| Lesed” POL‘L10'L 999 L16'F26'9T 506 ee DLT MraysBoTJON BY SAVIO MeN! EF
fea “NOS "YS¥A—BB/996'FT 6320S SPF LS 118'666 229 \oroses’ jesezzo _ |everge” |zst‘ore's “Nog "GS™M—2B)| SESE" 6V2'66P ee 28T‘0ee's 9 wage eS ae WayNog LOMYSEM) 7G
FY "DH ‘A—TzI/¢e2'6s zce'r1s's = leae‘ee P19 698'S 82'9 |SLrLze'T |29'800'S |6FFS60'S. |LO6'SzS'ZF ‘DH ‘d—Te]| 06890°2 BET ‘Rc3'Z 298°1 106'973'LF 692 ee he Ben a age er “*°YSBOD 3SB BPUOLT] TZ
Da abi peak wercyanA! 8
T'V'S—L |/962'2 ore‘6oz‘'z 296" oT £69°S0'L ali lep019' [Sez‘9L%'2 joorcce es |izz'eso'rat “I'V'S—L || 21920°6 go°e — |eee'T6r'9 218°9 = 9 1SEzS‘9ZT . gore ; “'** "eu Ty prwoques) «2b
= 'N'D BO 'N-9 ||" BP OOP ESOE, afte ese g07'et9 ZO'h «|g66elh’ = |909‘SF9 8¥olz> = aso’enz‘or “°D B°O-“N—O || LOSTY 6g'e = |egez29 129° 208'T20'OT SC es WIOGHON] 93H ITVAIIO MEN} 9
< 0 29-4 |/909'S DES LTR 692'3 e3h'bis 98°2 |STeZ0 CPL Ze HZOOTS «| TES‘ E¥2'S ‘oR "o—-9 || Epcos’ gee = |192‘18s Tze" Ze0'11e°8 161 2 iby ia ae ‘fiche oe aden aks eyes d 90D FeO) 2
jaar OF" hs ezo'een'T. |" 220'Se2'T 46'S SeSII't je2o'sec‘t isbieee i [seo‘szr'oe ‘OR'OD—F || LEFAT T 6L°% TLI‘Te9'T 19%°S. = |ete‘zes's¢ 16z ee ed “OMO F PPeFPUND ‘suyoIBD| F
‘N BW “O—8 ||T66's 2019 (98F'ET OZ ‘OED LL% |ISSSIh’ | 989'SF9 eoTOse 66 v‘e0S'OT "NPA “Os || 6990F ba ad BLE'E9S 168° 199022 ‘ez ZOF por "7" TUOTRION 3 GOW] FMD)
[cal ‘V2 a" V—8 jAre'6s 6L¥ Ty 10'6¢ sos" tor OZ'I jeessse’ |9z8'ceF ST 786 132‘969'9 ‘VR-a'V—® || 79892 86° 682698 Sey 100'29'88 ae eer Mee et % pea aca oNMERY P weysuyuNng ‘wTEpY) FZ
tr eon ‘vaL—y lipce'tes = zo"seTs — [Tes‘oet 008e8Ts | SET |2oarer: Teo‘ezzs = foRseel’ Tre 's90'es “Wag waL—y || STsTT” e3" eSL‘eors 192" 269° L1L'618 | 962 doth a SERA ee os ""TURUD eessouueL) T
tye spung
A od Ky a hog promey] yue%#ay | prommy
fey Vee ce re [Aq pouryzay|-MoD 07 paz|4q paurejeyt| ganooy PI
= an a | -nquyu0g yromygoany| TIL . TOL yo em0ouy qunoooy ToL,
“nquiy
——— Ryrodorg | PIA | gunomy | PHIC qunomry Beg | Teeceany qunowy PII qunoury
GENIVINIV I dg wimg io jo jo svar Ayradorg 0 ee} 90703 aaivusag
a GNV €Qpiuog ef aNog ONIug 8 CKOT — |ogeyizooue, a eSequecieg meal g T839L jo ehujueoseg ‘ ar avou “ON
UNUONLINOG TYAGLAId | LNGONILNOD TVAGLAIG : JO oBejus07107 WN
fate -NJ SSLay GOmRg NJ | -N] GUHA GOraug NT
P BROONT ONLLVUIIO IGN £0 NOMISOASIT
HH LOMLsiq THL 40 savOwNVY AZUL £0 TROONY SSAOXT
ical ‘TIV 40 GLNNODOY LNIRIGTAN] LLUTdOET BLVOTDDY TAL Noda %9 ONININURLYGT WOW WROON] ONLEVURdO AVATIVY “LOOY LNUMISEAN] LLegdoug
(a sTvOog G18] X WL KIRA, uvax ViNi MOON] ONLLVAWLO SVAATIVIE GN CRLYAILSY | NOLLVOTVYA 2UVaOdNaY, |
e | NVId GONSAGANOO NOLLVLYOUSN VU. T¥NOILLYN | LT6t ‘08 ANOS % ‘HIST ‘I ATAL—COUad LSAL {0 SEDVAAAV
EAS SET TST ——— ene ae EE RT EL TS,
LOVLSIG NYFHLNOS—é °ON ATVL +
24:7
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
‘EN ‘sqeotIOg ‘MONITTG “AL “AN 44 B9TSI2ZTOD VOYRBOd WEIL [SUCFH OG3 103 Porwdesd yaTyD
"pajDaso 44 puny
mMobwmiu0g ponpaspur sajfo pany sueIuiju09 pBosprsyy
[B41au95) 01 1eA0 patin} y1ed ‘uorzsod papsys pUv pworlBt
4q poujeyas evroour jo zivd smoqe uoyjsod pepeysuy,
"oy @ Be ydvsp
SUPPLY GG ouTes aucye “sjoym 8 se ‘HOVUD HAMOT
*pazDa.4L9
Bursq 81 puny quaburjuog jonprapuy apryn spung yUadu:,
-107) 9} 20a0 pawing yud ‘uolz4od papeys pue pwospres
£q pauiuze4 awoour jo yaud smogs uorsod papeysug
“eyum100
-0e ymourqsaan; s421ado01d = azeSaadde
4y0y2 uo “quea vad g syenba yoryquncqt
JO Sptostes |e toy plat uaym Zunooow
quamyaeam; Aysodosd 93y.u0 oucouy Buy
-yurado Auayius j0 atejuadzod paywary
-88-@,PSOL[Iwi Goud smoys ‘areys a ev ‘GVHD DIGGIN
“‘porsag ysaq,
24} JOj PISssoav yUNOI0B YuomMysea tt 4}
> -sedoad #34 uo amoour Surnsedo dupes
JO e8vzusosed s,puosies yova soya HdVUD WAddn
PeoIey yOeR soy poop sydeiy aer4T, 243 JO
NOILYNV1dxXa
|
’ .7 ® ‘ 6 6 oO a a eo % a a ua
\
a al At | | | |
"NUTT 97 a i ret en : —
3 ‘amlooUT 8290
“ON BON cee?
“xq Buruymtiejap soy srseq Aiviodme, @
Se “uNUIOF souarajuop woryRjodemery,
[@U0T}BNY JO cen Aq poarsap suOrzanTeA
auIs132y oy} Jo eBeyueosed smoqe WaWND UWAMOT
‘ported 38 a, aapae quamyssauy £4
-ladoig ayexeBFy jo eBuzuso1ed smoys PAVUO UIddA
Peosey ye” 10; pasq sydusy omy 24} 50
: NOILWNV1dX2
OBN uy
= “LNSD° anol aE Lt || L took
verona | | feted
c "VU 10 °LNSD v1 eehaeceaome aoe
"128 THe
1S 20 21 become’ =
= 433°s'9 eS
= NUSHLNOS alse = Lienert eintect iat Sa Sean oon eee nee eet
‘S 3'N dete :
mises ae voi fa an cor lAHE
tS] 1N20'NSL aa
0,7 29TLHIDUIE > 9 4 z e ° s 9 ‘ 8 4 o 4 a 1) * * £ u
ioraisia A ELLOS a °ON LUVHO
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
248
“KM “stsoqoo ‘Nomis «mM ‘M fq c00928jd0,) topwzodsaery [iuOHeN 3q) 4a¢ porvdard aq¥a,
‘tg ated co pobajjuos y3pjhiq taj
‘ND 2 I-88 ig6s'o99'T hia ‘NO? +54 ose to = |zoz‘eze'T.
_-°V @ "I—T8)|z09'62 19'°OLP LZ1TT ; VRI-1e|| zr see jetz's0r
a) Resor Ze |6919bb" ‘SB'd“S—Otl| sor" Loe = |c09'218"'t
*S RB O—6E'SFF'9E 19° O9LFED* ‘ ae we e6r'Z0s's
L 2 °X “W—85)|\S6r'662 ss" POLSLL® x 870'T 18°% 1902'219'9
“VB O—LE||869'FS1 aa P5678" 008° ws esr tiz'2
"TPA “PIA—98)|107'F 16° IGLZ00T" oll we 326 '01F
'd MOBIL ST 69° |SOSLL7° tLe 82%
W ‘L—¥2/ #221 9% |22Z610° ST0° o's
“28d “+ “N—ES CS OLLESZ* s0s~ 10%
1°D Bf IS—BEBl|L0Zz'I1Z ISS = |*L9260° 760 00°
“17S Bd “O—T8||916'8F wie = |Tessso° “13S Bd “O—T8 070. $6'T
T'S—0s//922 2 Zz 819050" SoZ ‘ESL T'S-0 840° 63°T
*LJ°"M'S "TI IS—6T//128'92 ‘% SPST” 216'L16‘01 “LPM 'S *19S—8T OF1 L3°T
AD “D—8T “6 j6LLT08" FBS‘ SZS'LS “A “9D ‘O—ST Tek: LL'T
OD ‘N BU “I—2L1||140'97 ‘Z. |898FOr" ZSP'TE0'L “0 "NPA °T—-1T 060° eL't
* "hh Bd “L—9tlizse'LT a4 OSF0" 81 F060‘ “Mh Bd “LOT 0m" 63°L
‘dV BV ‘S—91||168'26 ISE2ZI° 98S ‘92Z'L ‘d V2 VST £60* ¥9°
WPL “O ‘N—#1\\26S'2e 90L90° L¥Z'76S'F “WPL “ON sso° 4
"VRS 'S “G—eT||Fer'9¢ BSL6ST° zss‘Leo' TT: “Vv 9'S‘S “a—tI StI" te"
“1'S B’°a—tI||LS¢'ze ¥7£050" OF ‘SEZ '9 “I'S B °ad—st 680° 61”
‘DB D*V ‘S—TIIIII¢'01 OOELTO™ *) 20 “V'S—It F10° b:)
“MA B'S VA—OT!l€02'E1 SLLEZO" “A FS VA—-0T -0%0°
‘2°20 “0-6 BLESTO™ ‘2 2?‘O"O-6 || 200"
‘VN? A-8 16SS10° VN? ‘N-*@ £00°
“PIM “199-2 ePESZO° ‘PIA PO—L $00°
‘OR? nN“ 3-9 G0E9E0" OR HO 'E-9 700°
‘OU? A W—-9o ZS2800° “OUR 'A W298 100° cat 206'T
- ‘9 ?°'0°H-—+ —}602100° ‘220 “HF. 1z0" — ie — |er‘ss —
“m91s*a—e llrez'zz ss keve'zz — Ince legs’ce — oc “a B°1'S “a8 900° — ez: — lesr‘se —
‘Ad BL—-3 IT —|ZL88£0° “A‘aR@'I-8 }. 30090" — $o°2— ss‘stz —
‘L2 ‘A's °1T3S—1 % —|tessgo" ‘L? ‘a's “1798-1 OR0"° — o1'e— jeso‘6rss—
yuezury |, i Us
OD prowpwy) yua8ury [oD prowy iy
00 Tel? [a poureyayt-wog 0 pal5
BEL ee YWRO @ come py ‘41Oeeesury
+c ew rane Pee Pere epawzy ong siI0 KM HIOg
OSI FOL'LEL‘IL zee Terre er rere ree ee ee ee ees m9 2? BMOVTAO Noss py
790° lgze'6zz'b OBI srrteesaseceecess*** TESA @ OAV] INog/;vouMBeg
6rL" 119‘E99'TT COR [rr rerer secs st cs ceeceeesereces Sore, soresg 9% Grol
wer Ozy‘S1eOIS a ne Saag Strol % osFpuRlg WSs ‘FMOT 3g
avou
*LOOY LAERIGUAN] 11aa40ug
LI6I
‘Of ANOL % ‘IGT ‘I ATN[—COIUad LSAL AO SADVUAAV
g sagan |angas wa |:
=
aAanwe @ereoec
249
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
“KM ‘sesoqoog ‘norivg “a “AA fq eomaUezTOD TOR IIOGsUELy [ewOPMN O43 203 poredard 329ED
(nn
"pa3De40 & puny
quabuszuog tonpraypuy 4ajfo puny yusdayQUOD pvostHy
[82294 03 s0A0 pouiny 4red ‘aorzs0d pepeys puv pBories
4q peurezer outoouy Jo yuvd saoys uotzs0d pepeysu:
‘joy ¥ ev qdeip : ;
SIPPIAL #8 oulve amoys ‘ojoym 8 se ‘HAIVAD UTMOT
“poyoaso
6usog #1 puny iuaburjtop jonpraypuy opty spun yuadury
-W0 0} 4eA0 peuiny zed ‘uorz10d pepsqs pus proper
4q peurezer euoour jo yavd smoys uoriod pepyysupQ
*e30uno0o
-03 «quouysaant Ay10doid =o} aBo1338
a19q} TO “qua0 sad g ac orsyeq
JO SPBOITIEL ][B 1OZ PlaiA doy ZuNOWs
quaurzseaut Ayzredoid 944 u® owtoour Suz
4ziedo Avmrei1 jo eSezueored poyeaty
“#8 8,PeOI]I81 Yove BAOTS ‘Boy vse ‘HAVAD WIGCIA
“poled Lg
84} Joy pesvieas yun0Ie YuaUI}seaut Ay
-sedoad 833 uo ouroour Surywsedo Avamyres
yo e8vzue01ed spore yove smoqs HAVUD UAddN
peosyey yoey 30; psy sydes soy eq 30
NOILVNV1dXxa
Hl
e ad s a
Ld
==
in es oe | lf
SS] 39°92 ak
pp} ft BES
8 = ee ee ees ees eee ae ee ee eee
: nas 189WO8
—_
1 'W 2 2'O'N np
. Cd wer co oo iV BV'S sip
4 ‘Vv 88's'0 «ip
—- +8 o'n'vs u
=a
ian AVS ‘1d 01
e 8 e e td] ‘ +5
LOMILSIG NYALSEIM—E °N LYVHO
| aot i—>® 4 's
® a a
m
“2UTOOUT 8830
“xq Suruyurzejop 10; sieeq L1e10dura3 &
sv ‘u[NULIOT eUesIeJUOD Uo1zezIOdsuEIy~
TeuorjeN Jo eon Aq poatsap suoryente,
aesoissy 04} Jo eSejue0sed sMoys HAVEN YAMOT
“posed 489, Ur syum quauryseauy 44
-sedoig oy8dai83y jo uaoied 84043 HIVUD UAddN
peosrey yoUg 10; pesp, sqderp omy, 243 530
NOILVNV1dX3
—— -— — — = = = ws - _ — —— — — — — _E OE
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
250
. “ t= %
: ‘ —
“KIN “opeaDO" ‘NONTYS “AA “AA Lq GonDIOZUOD TON VIZOdsTELT [VAOT}EN Og? 10Z porvdord aIQvy
T9L‘cIz‘sare!zsc0s6 66 |L8F'e0s's08'9s
"© 2 ‘a —$9)|SE6'SZ 606'8TF'T |ee600T" ‘ mg| ¢9
“M8 “1a—t9||999'698 g06'Rz6'S + |gezzgg° IF "oe" *QUeTVON @ oqussiyg ‘GiNMd} ZO
“A 1B 'A—19/|L65'F9e ezi'Z82'S — |60F TOF “Tg dae) jak Wale ace aint) ke a ad *“2ney vox ge mNMG| To
190'eoL'> SS6SZL" "MS Bd 'A—09) 8Z0'E tereessseeesemsisammnos @ O8¥d [IT 09
zzo'esi's | TO80Ze" ‘Oa RA ‘d—69 Pre ee es ee ea ee Ayo zeaueg @ 0/4 UOT] 69
sceror'eg |LTZOIT'2 0 Ra “O—89 WO! TT st OF See UNH BY woyBuymg ‘o3veyD| eg
oLs'ess‘ee |9e6szh's ‘98d ‘UN—L9 oped tommy! 29
laci‘sre eoT990° WN 9 ‘V—99 Bere oe ee tadenee 2 ‘copay MNT @ suoziry | 99
108z'OZF 825080" "A *M—99 eee Weer eeee Poe ee ee eee eee eee ey Sore, WEAN 99
erz‘zeo'ee lesesog"9 som 19—F9ll zez'z | 2:9 |tes‘eo0'se | oeee ‘toc'ses‘cerp | eut'g yc Py ee MES apres Bs deetem womsoyy ywarQ | 9g |
979°806'S [98TOZT “I ‘OR "Nd 7S ‘0-69]/ seat =f eo jeee’sze’y =| 226° jpeo'zoz‘oh «= | OGLE “eq F syodsenuTpY ‘Meg 9S ‘oFsI1GQ) SQ |
"WP ‘a “1 Is—z9 er°z jzvegez’ frog‘zor‘t §=|ztesez’ |) |tez's4o‘or ‘W 2a “1 IS—z9 5 ; 29
‘98d “ON—T9/|286'8SF'% |€96‘616'TE ZO'L = jz90zre"2 joz6‘szEeFE jO06R8T*2Z |FzZ‘LGF'68F “28d ‘ON—T9 ° 7 ‘ . Sy CSP SP RIg ae Woe se ae Stee eet ee
‘AS BL “V—09||624'788'h |F27'969'Fh IIL |Se609F'O1 |202'826'8F |‘ |9109TI OT |c08'6hz'889 “A'S BL “V—09 f rea Gi
“MN @'O—6PIITES'THS'S |Z8T‘Sz8‘bz GZ'L |8T1606'S |810'z99'Z~ |elogoo's j|oso‘zPs' IRE “MN ® ‘O—6P
“W'S'S?'d3S'A—8F/|06F'988 €L°9 leysot9"s |z98'osz'zr |FEge99°% |e69‘STO‘csT ‘W'S'S?'d3s'N—8P
"DB TA “O—LyESF'29 Z09‘LL0'T *9°9 «= |IBhEFZ «= aGO‘OFI‘T, josi9sz’ | Feo" 6Eh'L1 ‘OP 1 U"O—2L7 Y i i Pe ee ey a es
“9Bq ‘Og—gpl ooo" fssond pe! bs oA ; go'¢|rertcort leoz'zts’s¢ lopztzo’er leeg‘zer'z26 “og “oS—99 : Neciee Lanatetotcat Alt sy canteen Dicken vatuat ahi waleineisamaes acum eae
“A ‘S°TIS—oN"**"* ese'ses’g foe o* ors jozzers’ jzse'ses’e j9TR696" —_jose‘oso'99 “M'S “1 IS—9P) 6L PU CIC ORB OES 1b eves. 9155. Sy cae WaISeaqINOS SOT S| gb
‘SD BD ‘O--PF|62F'S 19g j9zzozt’ = |zoe'6S ZISeht’ = |9T 2026 iSO 2D ‘OW s2undg operzojog @ 49219 a1ddug| 95
"APR “1 IS—spil9z'ee | 9o°¢ jogze6e'€ |PSz'Sie'St lLrPPSBES [FOL'ZLE'FOS oS 2 1a—EP GRE Gia! | ue OL ae - ISZO UIS SE: 101.000 S + NCRSTT ORS 21. UP BLE rns Reese pecs esas oostuBsy UUs B SMO IS
‘ae -a—erl| "°° «|soz'v9'6 fe 8rS 992690 °Z '597'F¥9'6 POLES Z80'E80'Z9T ‘) a? “a—tF 1 - “7 Isastoreferr | @paion = [etterstrtrreesneew sen nenereeeae apueig org P J2AUEg
*d BIA “O—T4|/606'L92 18°S |soztoo'p |F00‘rEz'sT jog6eoe’F j|zg9‘es0‘e6z ‘dB 1S 'O—F : ry yey TST'6te’ th SEO Eee Ie 25S" ears ee WP P PUVisy yoy ‘oFeIGD| Th
"A 9S BW “O—0F||682'86F 29'S = |e6rz96°9 |169'0z9O'ze jss6eos’2 |est‘ess‘Is¢ ‘d9S PN “D—0F] 4698089 = |:S sk} ~—sC6os‘ene’zt =| ehh ~—sfeep‘sve‘osa =| OIZOT ptt eteees “Meg WS P eoymealA ‘osB9qD| OF
“28d ‘OWN—6E002'FLL ZS'g |IFFzzB-E |999°968ZT }161960°F |¢9z'016'8zz ‘tq ‘OW—8S Soe entra dy |S aiea5 Rawat s e.s 3 tana ogg Unossi| 6&
“"1'°S ‘Vv ‘1—88]|""° e eee Ipoetdnata fee ee eee- £0°¢ 860888" 6896062 SIPPLG’ ers'zre's9 “E39 *V "1—eell ogee o> 1 eee _love'sis'S > 14 '966:- % lore'seu'ee Ib maT rt et one erence ececre OT IUWES F sajaduy soy] gg
~'g ‘Oo "H—z8]|F28'6T el°g " |zFeess’ |TFe'F9'd §=9TTZTO'L |[880‘0T6'89 “SUD aS || eS LEP. Ne One's a Tl 00° 2 ee0 ET 'ES > 1? Gee = [eos Bot F erate wns aniaointoainia wt wiomnos Air sescey| 1g
“A W—98||225'sz 80°9 90290" | I9T'FIZ BP61FO" [9629982 “a ‘Ws Sv eigeainiagis Ne miedo nce ogei= ele Rinie| ede oinis eduvy rerur| of
, AP'S “A—96)/675'S OL'% |FRE060" = |6sI'szr 6PSIOL’ |1zP‘P16'9 "8S “A= O4 | ae GEO) yt 1968 PERI Ode 2 EPS gtte. . { L0e ROS ER pe gee eas eine agrug Pwodesesys ‘Sings, | gg
“13S B‘W—Pell6sz‘sIT = jzst‘6er‘e 62> jescteg' |rT#‘rsz'e |oesrez’ geg‘scs‘I¢ T7359" Neil SS, See eres A) oleh). p-isto'ale'ze... f° 4a 298K) ne sis ors Se bsoe san smo IS ¥ sfodvenutyy| ¥¢
“dB “I—28)|822'602$ ‘ee tape LIG‘ETe$ |Sez‘szs'ts 99°F |IO8Z60°I jcso‘6Eet’s$ |ToeIst*t joz6‘szr‘oss “dB 1-88 SGCCAT DIETS. § fe SSPO'T: — ftree ose ree 7-5 an eee ogned F SexaL| €8
' pang ? ;
gueaury spent
-u0g jose [OO PETTY) yueFay joo pLonrey .
a1a5y 04 pay|A4 PeUTeIeY|-4OD 09 parléq PEUTHIPH! yunoooy Vi
-nqu3m09 Te70.L T270L yo gulodUuT
-nquyu0g . }UOUT} SOA GT qouysiq qouysiq Buryesodo, qgunoy [2}0L ,
~aagnivinivyy =| )~O~SOC«Q gS Aysadorg : j jo ‘qunoury : jo. qunonry ke. ATR quaurjs0Auy qunoury onqsice qunoury
aNv dQ) 11INg SI cNOY ONIGG 8! GNOg eee aBe7 18019 jaBe}uI1Ig e101, Aprodorg 0 aBezua0Ieg agLvuddO avo ‘ON
2 ZepUVIIg \ do Bey Ua0L9, sail ra
INZONILNOD Traataid | LNZONILNOD ‘Traazata |” ; jo oBsquao10g d : Ww .
-NJ AGLAy aormag NJ | -NJ AUHAA AOA NT
GNOON] ONLLYUAdO LAN 40 NOLLISOdSIG,
LOMisSig ZHL £0 sqvoulrvy aaL Ao rs GHOONT ssaoxq
i 'TIV 40 SINQOOOY INSWISHAN] LLUadOdg GALVOTAODY ZHL NOAN %Q ONININUGLIG: BOL SROON]T DNILVURIO AVA TIVY “LOOY INGWISHAN]T ALUTdOUg
STVOd”q ATAIX FHL NAHAA UVEX V NI GOON] ONILVURdO AVATIVY LAN GALVALLEGY | NOLLVOIVA ABVHOdAAY,
NVId HONAUAINOOD NOILLVLUGESNVUL TYNOILYN L161 ‘Of ANOS, % ‘FIGT ‘I ATOL—COMMad LELL JO SHOVADAV ;
penuntod— JOR LSId NYaLSAM—E ON ATAVL
251
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
“2ON “JeseqD0g ‘KOK IVS “M “M 4q aduasezUD) DO;BIIOdSCHIT [VUOTEN Aq) 107 porsd.ad yey
oz a Vi ua ss a " ts] a th a 6 s ° ¢ z ‘ 0 <— 39V1HINNI —> 0
j
Oe ee ee ; L
SS SS Se Se SS ee oe Se ee ee ee ee Se Se en es ae ee oe ee co ee ena | FM i)
—— Eee ea fore en ee ee eT 4
as area
“paypaso 8 puny
~ quabuyuog jonpmipuy sajxfo puny yaedunuog peoiey
{@1aae4) 07 19A0 pau} yicd ‘uorio0d paprys puB prol(rer
Aq pautvzas amoour jo yavd smoys uoljsod peprysuy
‘ago, B se YydBaty
PPI SB emus smoys ‘ojoym B 8E “HdVYD YAMOT
*pajpaso
Gurag 81 puny quaburjuog jonpiwtipuy aprym spung jueduLy
uo oF 190 pausny qivd ‘uorjiod papsys puB pwouyies
&q peureyer. amioout yo ysed smoys uorsod pepeysug
: “s3un0o
-oe quemyseautr Azsodoid = aqedersde
i1aq} Wo “que zed 9 syenba gorsye1q-
JO SpBorpres 1B Joy pjord uayA JuNoVIB
quamyseauy Ayszadoid 871 uo auzcour Dut
-yssado Lempies jo atvyuse10d pajzowy
89 §,PBOI]IBi Yous BMOYe ‘BOY B ev ‘HAIVUD DIGG
"Polsed 489,
ay} toy padwsaaws yunooe quamyseaur £4
-sadoud 941 n9 anroour Juryesedo Aealres
JO aduquacied s,pvoijisa: youve smoys HAVYUD UTddNn
Peosjrey WEG 305 pesy sydewy sayy, my JO
NOILVNV1axa
oe or a u, o st " a a 0
‘NBAG coke?
‘e13'a ood
‘A'S 73'S 09 beesoew
Ja 3M om
SBR Sees Ea
en RR a A
eae es Bs
nese Se 16 3°S'O uw
SSS 7 S eee
<= 3Vd "nos 8 ea
— ‘AS'TLS Ss eoveen
==== === pee
0 ge RR SETS RE RE EA ERED MRT SE nt
ies a ea a a
= oS Be
leteed ae,
penunao) —LOTYLSIGd NYALSIM—E “ON LUVHO |
°O 3 °Q'D 0S haecteaeer eee see aonb a ee
[WEE ET 2
"Wed NOUN GD 45 prmertecrreh area aru ore
‘AN BV 95
“AM ssh
ai sme aa ae (a Mee Fa STALE eemeeter
Se etisee
eas ES SS Gibta ROR: MUR EE AT es LAS
ea SoS ae Pee ee ee ee od
7 = — a LF AS LS SS SS
aoe aa Peehe We echt agi at seo ed
he Sy
se saewer il ae al
So 90d CRON |S eres
‘pMONUT BeVOXG Furuyurze,
-ap Joy sisvq.Areioduma; % 8 ‘BynUTIOg
aouaisjuog uoIyezIOdsuvIy, peuolys
i ay io
-218dy 243 Jo aezuaosed sMoys HAVUD UAMOT
Ul ejUMOOOY juaUI}BsAAUy kysadoig ey
2i83y jo eSejueord emoys HdVUD UAddN
peorjrey yoeq 50; pos sydein omy 24150
ue G
t 3 0 t— 2571NT PD r) z
»
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
252
ACN ‘20)83qQ90y ‘NowIvS ‘M -M Aq eonds9JUOy UONeWodsuBsT [YUOTBN 4q2 103 poredasd a1q¥J,
“LISI ‘Te saquisoeq Zurpue svat jo a8043 [enba 0} paumsse ors
senusasy Zayeredg propey (10h %9 B Ul JOLN|STP Jo ouTOOU! sssoxa [ej}0} Burpenba yunowes uv) §1Z‘R09'9$ SI pauINsss AOUaTOyIp oUFeIBy— ALON
.
Szl'6ce'es 169'6F1'ES 61z'80S'eS 0000° 001 FIG‘ZES‘TO9$ |TVIOL,
£2681 9r8'Ze ‘e02'99 82L8" LOP'GRS'S ft oBmOIOg B Bmgsyoepesg ‘puouryprY| BE
Z90'Lb = 80146 SSUT#I L891 °Z P OISTQURT aS Par geg ree oped Sexe] yY SUEIIO MeN ‘HeUUIDUID| TE
LLL'ys 9eo'60T zee'For 829 °Z 992'F6L'ST ee ae oe ea ‘smOT 7S @ BZoouNNEYD ‘eTAqseN | OF
S00 86 : 008 SLY 608 ZL 9196 . or Gve O16 $9 ee ee = *1OPON 6s
6LL‘'SZ see'Tg LEC‘LL 28811 Soo'TSt'L WiawNog wan wursqsry| 9%
18¢'9 4 t9z'2t SPU6I 1862 . 092'OLL'T a a qWIog 79M 2 Biuepy 1t
BFC'LLZ S6r'5s9 epL'1es 68LL°C1 LOR CON Oke aetna tke eee aTAUSEN F ATAsmoT| 9g
Lep‘cg . £28081 Ore‘96r 1910'€ COUCEL BE) ts eee rag o> Koren wdresissryy @ oozwx| 9%
‘ ‘ : lcnnctge set | dasa beeines ainsi tastes na ae tae
od ade ee et ee ae oa ag ap ge
: 29'S 9eL'es 9628 $97'696'F Wia}SVOTHON BP SUBIIO MEN] FB
LIe‘Ft $96'FL 886% 16Sr" LOv‘e9L'% ee teen twraqnos wo ZuTyse AA 2u
£ve'6z L89'8¢ o20‘'ss Szse . I LOL‘OFT 8 ee es 38309 3sBq BpuOLy st 4
GPs'ScL 169°LIe 9e¢'OLF Size - L Tee'e90'te ee ey retteeee Pewee enews ary 3809 onusny ou
2g9'8 e1e‘Lt 026'Sz 0668" PEP LOF'S jap aaes BUTOIUD Wra}SaA\ 7 UO}S2]TBYD | - 6T
686'96T 116'868 996‘06 9620°6 F6L‘EF9'FS OMO B syvedwseyD| ST
CSr0'6P 160'86 OLl' LET a 9092'S 90S‘F09‘EI ee ormo » anqow Lt
OLT‘9SE 182'989 £9¥'C78 008% FI rICPIR A WA. Soe CREE OPC ae a pee ga ager I Tenuag stout} 9
$8P‘9T I81‘Z 299‘8T 8982" 098°SL‘T “ ts" -gurequry Jo “Ay wiaIsaM| QT
¥E9'%ST ¥L9'0Z 808‘E2T 1299°% L8S‘$Z0'91 : wIBI09H Jo [EHUD] FT
829'8I wey's Z80'F% ooze" OS9'NCES. “Sn [EE Sate oes SMO] IS P Uostopuay ‘aylasimoT|) §T
681 tA we eee 681 ‘Sz OL8E . TPL'8ze'% Se pussy drys 2 wmyg tr
ZOF ‘9% 193°¢ £92'78 L964 szr'es6'e Laan as BpPUOLY P WayINog wss0eH| TT
900866 BPS‘Lb 8h2‘S66 0162 ST IGS SUC eR iy ope Se hae Os temuee CAS BBA ‘2U]) Wamnos| OT
SSe'Lg 19 g1e‘z¢ 9088" ° F16'662'S WISIN HOON | 6
$92L‘OIT $9L‘OiT S102 °T RLY CYC OLR ae cee eat Le eT Ee uernanA| §
188'0ze o6z'2 out'sze 1250'S OPFOR [ocrceet et ece ese eeeecese eee eee enee arr my preoqeos| 2
$71 '0Z ¥ZL'0% F8Ie" SIZOTO a en ere re oie ae WeyHON IBID PY SUVs}IO AON | 9
crs 90¢‘¢ 196‘ET OrIz ¢99'062'T eee eee eee eee eee eee eee eee ee 3H09 » Teo9 g
O65 ‘er tee OF6‘er TSL9° 192's90'F ee es omo Plepqoury ‘euyjoreg ,
Zer‘St 1668 ST's: ogge” Ceo Aten, taille CEES eT ISS Hs WOqUON ® MGW IMO}
Soe'FI- OT4'8z ¥L0'Eh 8199" 89e'E86's *UVepy Y weysuruing ‘wuEpy| F
8Lh'9S LE6'218 Ser'GIs QBOGE mer = CSS LOLS a p8 os Seis ae ite ara [TBHueD eassauuey| T
0337U9019,5 qanomy
puny yussunueg | puny inesuynnog | pung jue*au0g 812'909'9$ }
[ereuary [esouay [e1euaxy spenba y91}8Ip Joy au00Ur avou oN
Moly ydtesel ON 0} powm4ay wor ydiaosy qou Jo aBnzz0y8 wey Teoh
Ul sonueAsI Surjyesedo paumnussy
*PPBOSIAY OY2 JO weIA0o Aq puny yUSSuyQUOD jesoueT 03 FOVG pousny
8} MOPIMGIGIp Yoes wT Payee? Skorrows @ryz jo Bead Query Lujaos Of" PUT TIUNGOIN JuoUsIAUY AZsedosd O30%e1Z3B sI2Yy UC 9,9 UBYY SBOT BF
PI] p | 7 epeoayyes 7o BKuvouy Burgeseda you eyeSsadhe wou sv0d By EUNY PUSLULUCD Fesouss jo Zavd Jo uOINqyZWsIp Bulqeayenyyy 21qUZ
LOTULSIC &
we
ib ibe Be
LASS—pb “ON ATAVE
253
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
“EM ‘yo ‘MONT “am “M4 fq eouasezWwD NoMwWodsusIZ, WUDTBN oq}.10J Porwdasd ur
ae Gs &l a & st vi 3) a us ou t 8 a 8 5 % e z t O~<—39VIN3I9N3d
| ss A BM ze
— SS hey 4 g'O'N'D Ie
Po
So SON tz
Pig «ae
A ES SS ST LS See Sect Soe SaaS eens eeeees meee eee ee Sas as — rr ee, iy .
mint Sip Hamsemeccec > bh 3A
oe
c——— = SN SON cz
fac: “NOS ‘HSVWA zz
pt ee aes
Pete fe “
SIE 1e ete] Ae Ss Le ee eo ae
PTET Ee en
ey Dy So ee NOT ot
Bees W1W 0A MA st
EE YO 20°LNFO 9
E: “TLS SHIT
; TSSO tt
= ee YAH LNCS 0
’ mEy e °
9192} BurAuedarocoe 03g aoreuEdxa Jeyyny 104 Pe S.3°N 6
‘puny juasunuoD peosjrey jess SERS
-U94) 0} pausnjas jred ‘uoNsod papeysun = 52'] some wg NVINIOMIA 0
b 7 t rt er ts F + ? eS e ° iL
uonsod pepeyS ~wornqiysiq e307 TY's
Bi 1 MO TON 9
-NQII}UOD [e}0} JO aBezuIDI0d smoys HGVUD UAddA - aA
‘puny jueBuyu0D renee
Peos[rey [Beuy jo sucINqiUjsIq pue oO}
suopogsee doomsen Soneis ein: M5 syde13 Oo OB'2QD +
NOILVNV1dx3 ‘MSO ¢
Ts vee 2
blsl Tle steal dads 4 | = aaowss |
@ a “a % i)
Ld ae wi 3) B oa @ é 9 é % § % ¢ z t 0~<<— 30Vin32NI4
LOVALSIC NYAHLNOS—F °ON LUVHOS
x
954 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuarrman. Have you finished your statement, Mr. Salmon?
Mr. Satmon. Yes, sir.
Mr. Srus. What you call here a statutory rule of rate making you
must mean a law, an absolute unvarying law and this board, what do
you call it, not the Interstate Commerce Commission, but your com-
mission—the transportation board, if the transportation board fixes
the rule as to rates that must be charged in order to make the 6 per
cent on the property investment account, is it not absolute upon the
rate-making body to provide rates that will not fall below that for
the traffic district ?
Mr. Satmon. Answering your question, the conference resolution
asks that the Congress pass a law making it obligatory upon the rate
determining body that it shall establish rates designed to yield aggre-
gate revenue suflicient to produce a net return to the carriers of eac
traffic district amounting to not less than 6 per cent upon the fair
value of the properties of the carriers devoted to the public service.
Mr. Sims. The minimum is not less than 6 per cent?
Mr. Satmon. A minimum of 6 per cent.
Mr. Sims. You call it a rule, let us get away from rule and call it
a statute, which it really is. If that body should not fix a rate equal
to 6 per cent upon the property investment account for that district,
what would be the result
Mr. Saumon. We anticipate that the result might be variable. It
is my own personal opinion that I am giving you now. I should say
if, having fixed the rate designed to yield 6 per cent, it was found at
the end of a given time that it had not yielded 6 per cent, the proper
course of procedure would be to ascertain why it had not; whether
it was due to a crop failure or to a panic, or to manufactures falling
off, resulting in diminished transportation requirements, and if it
was found to be due to some such cause as I have indicated and that
there was reasonable prospect that during the next year the yield
might equal or exceed 6 per cent, I should imagine that the existing
rates would not be disturbed; but, upon the other hand, if it was
found that the rates were entirely too low to produce the 6 per cent
under normal traflic conditions then, I imagine the rate-making body
arpa! this law would feel that it was obliged to make some revision
or rates.
Mr. Srus. And in making a new rate would the rate-making body
feel it necessary to include what they should have earned in the cur-
rent year?
Mr. Saumon. I should say yes. My thought about the 6 pe
cent, and I think it is the conference thought also, is that the rate-
making body not being endowed with omniscience is not going to be
able to prescribe rates that will yield exactly 6 per cent. In some
years they may yield more and in some years less. In my opinion
the intent of the conference was to convey the idea that there should
be an effort to have an average yield of not less than 6 per cent.
Mr. Sus. I want to get at the legal form of this. Is is not the idea
that this Government board will make a rate that will yield not less
than 6 per cent net revenue, subject to depreciation, dividends, and
interest, and that if it does make less than 6 per cent it is violating
the law? 7
Mr. Satmon. No, sir.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 955
Mr. Srus. In other words, the right of the property holders is a,
vested right to the extent of not less than 6 per cent, and they would
have the right to enforce that vested right, as Congress, the repre-
Bezitves of the people, have made such a contract with them by
law ? | |
Mr. Saumon. Mr. Sims, if you will refer to section 9 you will find
that the wording is:
The conference recommends that a statutory rule——
Mr. Sims (interposing). Call it a law
Mr. Saumon (reading) : .
be enacted by Congress requiring that railroad rates and fares, to be estab-
lished by public authority, shall be designed to yield the railroad companies in
each traffic section of the United States (as shall be designed by Federal au-
thority) aggregate revenue sufficient to produce, after proper provision has been
made for renewals and depreciation, a net return (which shall be available for
interest and dividends) of not less than 6 per cent per annum upon the agegre-
gate fair value of the property of the railroads devoted to the public service in
each of the several sections.
All we ask is that the law prescribe that the rate-making body
shall establish rates designed to yield 6 per cent.
Mr, Sims. But you do provide a means by which they may receive
that, whether they have earned it or not, based upon the average of 6
per cent on the property investment account of the traffic section, and
if not earned it will be made up from the contingent fund, but in
order to have any contingent fund there must be an excess of 6 per
cent some time or other?
Mr. Saumon. No; that is not true.
Mr. Sims. How do you get at that?
Mr. Saumon. As a matter of fact, in a year when the yield may
fall considerably below 6 per cent on the aggregate property invest-
ment account of the region there may be a number of the larger
earners of that region that would contribute to the contingent fund.
For example, during the test period the average earning of the roads
in the eastern district was 5.21 per cent. Now, we will all admit that
9 per cent is a good deal more than 5.2 per cent. Under the confer-
‘nee rule, if the average yield in that district should be increased to
).0 per cent, not 6 per cent, there would be contributions made to the
eneral contingent fund and to the individual contingent funds by
“he more prosperous roads which earn more than their average
varnings in the test period. 7
_ Mr. Stms. The 6 per cent, you mean?
| Mr. Satmon. No; the more prosperous roads which earn more
_han their average earnings during the test period.
_ Mr. Sims. Do I understand you to mean more than their average
uring the current year or some previous years?
_ Mr. Satmon. What I mean is precisely this: That if in the test
erlod a certain railroad
Mr, Sims (interposing). Well, call it 6 per cent; that will do.
Mr. Saumon. No. -
_ Mr. Sms. That will illustrate what I have in mind.
, Mr. Satmon. No; let us consider a concrete case. Turn to the
yuthern district and take as an example the Queen & Crescent. The
ueen & Crescent earned in the test period 9.13 per cent on its
|Toperty investment account.
256 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Smuts. What years are you intending to cover by the tes
eriod ¢
? Mr. Satmon. The three years ending June 30, 1917.
Mr. Stus. That is the period on which the Government has basec
its standard return.
Mr. Satmon. Yes.
Mr. Sims. Two of those years were war years.
Mr. Satmon. I am only seeking to illustrate the conference rule
and I am trying to tell you what the result of the conference rule is
Mr. Stms. There has been reference to war years, and I did no
know whether it referred to the period of the war in which the Unite
States was engaged, or whether it referred to the general Europea
War.
Mr Sautmon. It refers to the three-year period ending June 30
1917.
Mr. Srus. I understand it to mean the same years included by th
Government in its standard return.
Mr. Satmon. Yes.
Mr. Stus. That is different.
Mr. Saumon. In that test period the average earning of the Quee!
& Crescent was 9.13 per cent on its property investment account
That was in a period when the average earning on property invest
ment account of the 32 class 1 roads of the southern district was 9.3!
per cent. Now, my point is this, that even though the rule of rat
making should fail of its intended result ima given year, fail, we wil
say, by one-half of 1 per cent, and amount to only 53 per cent instea
of 6 per cent for the southern district, on the assumption that th
Queen & Crescent would come in for its part of the 0.14 per cen
increased yield for the district, the Queen & Crescent would hav
to make contributions to the contingent fund because under ou
conference rule it would have to contribute, initially, one-half of al
of its earnings in excess of the earnings of the test period to th
individual contingent fund, and the other half to the general con
tingent fund. |
Mr. Sims. The general contingent fund for the district or th
whole United States?
Mr. Satmon. It practically amounts to the whole United States
Mr. Sims. That is the way I understood it.
Mr. Saumon. The result would be the same if it were for a distric
but we want it handled by one board, and therefore it would go int
into a general fund. There is only one general contingent fun
provided for. .
Mr. Sims. And that is the $750,000,000 fund.
Mr. Saumon. Yes; that is the $750,000,000 fund. .
Mr. Stu. All right; I have that correctly in my mind. Go ahead
Have you finished ?
Mr. Saumon. I have answered your question, as I understand it
Mr. Sims. But my question was intended to make it clear that 1
the earning of all roads in the district in the aggregate did no
equal 6 per cent upon the value of all the roads within that paz
ticular district, then with a law requiring a rate to be made tha
would equal such amount, and if it does not equal that amount
taken in the aggregate, is the rate-making body then bound to pro
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 257
‘vide a rate which for the future will be sufficient to cover decreases
in the future contingent fund and make up what the district as a
whole failed to get in the way of a 6 per cent return ?
Mr. Saumon. I should think that as a matter of fairness: it would
attempt to do so.
ae. Sms. Then your answer is that it is a matter of discretion
only.
Mr. Satmon. No; my answer is that it would be under obligation
to try to do it. I do not know enough about these legal matters to
say that it would be a legal obligat:on, but it would seem to me, in
ai] fairness, that if the Congress enacts a law which provides that the
rate-making body shall do a certain thing, designed to yield a cer-
tain result year after year, and if that rate-making body finds that
its rate schedules do not work out as intended, it would, in fairness,
try to compensate for that later on.
' Mr. Srms. There is a Government moral obligation, then.
Mr. Satmon. I would say that in effect there would be a moral
Sere on the Government to seek to achieve the result prescribed
the law.
f Tir. Sims. Then there would be a moral right in favor of the se-
‘curity holders, the stockholders, and bondholders, and if they earned
in one year or in any series of years less than this rate which was
authorized by law to be earned, they would have a moral right to
be on the responsible party, which would be the Government of the
United States, to make up what it failed to make, would it not?
| Mr. Saumon. What do you mean by “ make up ”?
' Mr. Sms. I mean in the nature of a moral guaranty that if each and
svery year of the railroad’s life after this law was passed it shall have
sxarnings of not less than 6 per cent upon the property investment
account or the fair valuation when ascertained—I am trying to find
yut whether that deficit can be made up from any source for which
he Government would be responsible.
Mr. Sartmon. If you mean legally responsible and that the road
Mr. Sims (interposing). Governments have no enforceable legal
esponsibilities. A nation’s sovereignty is not bound by enforceable
egal limitations.
Mr. Saumon. Or if you mean a responsibility which would enable
| he stockholders of a railroad to go tothe Court of Claims and make a
\:laim, I would say no.
Mr. Sims. Oh, anybody can go into the Court of Claims based on
rovernment moral responsibility, but they do not often get favorable
| onsideration.
)} The Cuatrman. Judge Sims, would you allow me to ask a question
\ight there? Itisalong the line of your inquiry. Would you believe
hat it would be an obligation of the Government through the Inter-
‘tate Commerce Commission to so readjust rates in any one year as to
ke good a deficit in the rates fer the preceding year, based upon a
| per cent basis, where that deficit was due to flood or drought in a
iven traffic area and make it good because of an act of God?
| My. Sauyon. I would imagine that for such a temporary dis*urb-
ynee as might be brought about by such an occurrence the rate-making
ody weuld very probably feel that no change in rates would be
ecessary, and I doubt whether the public would much challenge that.
152894—19—-vo. 117
258 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
If the cause is of that temporary nature, something that has happened,
and is not likely to happen again for a good many years, and if it
has been found that the rate structure has yielded and would have
yielded except for that special occurrence ample returns, I hardly
imagine there would be any feeling of obligation to change the rate
structure to cure the ills arising from such a temporary condition;
that there would rather be the hope that, maintaining the rate strue-
ture, the road would work out its own salvation.
Mr. Monracur. For the reason that the rate structure was in nowise
responsible for that loss.
Mr. Satmon. The rate structure was in nowise responsible for the
loss, and the contingent fund would assist in taking care of the im-
mediate trouble, and in the course of time it might be expected that
the losses would be further offset through more than a 6 per cent yield
in some years.
Mr. Srms. Now, Mr. Chairman, I would like to proceed, as I had a
connected line of inquiry. wa
Now, this general contingent fund of $750,000,000, I believe it is.
nominated, in case of the returns being less for the entire rate or
traffic district, and not being made up by one road having an excess
to contribute to another road; in other words, not made up within the
operations of the traffic district, then it would have the right, under
your plan, to have it made up from the general contingent fund; is
not that correct, in whole or in part?
Mr. Satmon. If the earnings of the traffic section for any reason
whatever fall below 6 per cent on the value of the property in any
vear, then under the rule suggested by the conference, the general
contingent fund may be drawn upon in an amount equal to that
by which the earnings of that year fall below the 6 per cent, and
that amount be divided amongst the roads pro rata to their gross in-
come from operations during that year.
Mr. Sims. I think I now understand you. I understood you that
way before, but your explanation shows that I do understand you
correctly. Now, this general fund is to be made up by contributions
from all the traffic sections of the United States, is it not?
Mr. Satmon. Yes. |
Mr. Sus. Furthermore, your bill provides that the Government
shall start out by lending to this general fund $500,000,000; is not
that correct ?
Mr. Satmon. Yes, sir.
Mr. Stus. Not waiting for the railroads to make it up by a con-
tribution.
Mr. Satmon. That is right.
Mr. Stus. Now, suppose—and no body of men can possibly forecast
the future absolutely in these matters—you have an arbitrary re-
quirement here of 6 per cent on the property value, and suppose for
a number of years, one or more years, the call upon that contingent
fund should absolutely wipe it out under this statutory and manda-
tory requirement of 6 per cent, what would then be the result as to
the successful operation of your plan?
Mr. Satmon. Well, the result would show that our plan had not
been effectively adovted. . |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 259
Mr. Sims. In other words, that it had failed to produce the results
intended ; is not that true?
Mr. Satmon,. It would not show that to my mind. It would simply
show to my mind that the plan had not been effectively adopted.
Mr. Stus. Had not been adopted ?
Mr. Satmon. No. |
Mr. Sims. I am assuming that it was adopted and that it was in
operation. |
Mr. Saumon. Then not successfully carried out.
Mr. Sims. I am assuming that these contingencies arise, expenses in-
crease, or earnings are reduced, or the traffic is reduced until not only
the local contingent funds are wiped out, but the general contingent:
fund is wiped out, and there is nothing left. Then has not the plan
failed to do, in all respects, what was intended ?
Mr. Satmon. There has been a failure to obtain the desired re-
sults. I do not like the words “plan failed,” because it does not
sound to me as though that describes a failure under the plan. It
sounds to me like a failure of the Government agency to effectively
earry out the plan.
Mr. Sims. In advocating the plan, I suppose it would be a little
embarrassing perhaps to say that it could fail, but all human plans
in the past have failed in many respects, and here is the thing, it
seems to me, it inevitably leads to in case of failure; I mean failure:
in detail, failure in full, failure of your 6 per cent, and the $750,-
900,000 wiped out, and that would also wipe out the debt to the-
Government, morally speaking, then what would be more natural
than to come to Congress and say, just as is being done now, that
conditions over which we had no control and results which no man
sould foresee, without any fault of the railroads, or their managers,
i deficit has been produced, and therefore we call on the United
States Government, out of its Treasury, to replenish this fund; or
f the fund is not large enough to double it. What would be more
latural, and what would be more equitable and just, if by law we pro-
ide a thing and it does not happen by the method we provide to do
rhat we planned, than that we shall supplement the failure by making
Mappropriation out of the Treasury of the United States? Does not
his plan further provide that in some contingencies some of the earn-
ngs pe these railroads shall go into the. Treasury of the United
tates ¢
Mr. Satmon. The plan provides that after this fund equals and is
laintained at $750,000,000, the additional contributions may go into.
1e Treasury of the United States, if the Congress so prescribes.
_ Mr. Sus. Would not that be a sequestration and would it not be
confiscation of this fund for Congress to require such a thing as
jat, not having given any value to the railroad company in the way
f investment or property or incurred any obligation by which the
| Overnment might lose?
| Mr. Satmon. I am not qualified to testify as to any of the legal
spects of the case.
‘Mr. Sims. That is not a legal question, but a moral question, and
le that appeals to the whole people and to the Government of the
hited States. If the Government benefits under a proposed: proposi-
- —
260 RETURN.OF THE RAILROADS TO PRIVATE OWNERSHIP.
tion to which it is a party. which it makes by its own rate-making
body, and gets a Roti, or gets an earning or a tax or an income.
then if a loss should result, the Government would make good that
loss; I mean, in the way of this contingent fund.
Mr. Saumon. I have not thought out what the result would be in
the event of what you call a “failure of the plan,” and of what J
would call a “ failure of the Government.” I feel that if the Govern.
ment fails to do something constructive and helpful we are going to
have a very bad railroad situation.
Mr. Stus. I am assuming that it does what you recommend.
Mr. Satmon. We think that if this is carried out, it will be help-
ful. It would be my opinion, that if the thing you mention came
about, it would be due to Government failure. It is not that which
we have been talking about.
Mr. Sims. But let us talk about everything that might arise. If
it is a Government failure, then the results are Government liabili-
ties. I mean moral liabilities, because ] am not talking now about
rights to enforce such liabilities in the courts. These plans, when
talked over and described by those who favor them, all of them, by
those who do not look to anything beyond what they say, look fine
in theory, but how does anybody know how the theory will work out?
Those who advocated the Government taking over the railroads dur-
ing the war and unifying the operation of them, and reducing the
number of highly paid men, said that that would result in an in-
crease of net earnings. They were honest about it and thought the
net return required would be easy to make, but notwithstanding the
wisdom of all of them there was a failure by reason of conditions
arising over which they had no control. Now, suppose the people
make an outcry in a traffic district that the general rates in the dis-
trict are such as to depress industry and prevent progress, will they
not come to Congress to repeal or to modify or to amend the law so
that this guaranty of 6 per cent shall no longer exist?
_ Mr. Satmon. That is possible.
Mr. Dewatr. Will you let me interrupt you, Judge Sims, for a
moment? Is not your argument just as broad as it is long? You are
proceeding upon the assumption that there is going to be a failure
and he is proceeding upon the assumption there is not going to he
a failure. | |
Mr. Sus. I am saying that a failure is possible.
Mr. Dewatr. If there is failure, then there has got to be legisla-
tion, but if there is not, it will be a success; is not that the length
and breadth of it?
Mr. Satmon. That describes, sir, my view of it.
Mr. Sims. You have had nothing at all to say about equitable
rates. Your whole purpose seems to be to secure rates sufficient 10
bring a certain income. Why should such an arbitrary percentage
income per annum on the property investment be named ?.
Mr. Saraon. My thought about that, sir, is this: The yield of the
test period did not attract investments in the amount required Jn
the public interest. Perhaps one man’s guess is as good as another
but when you have a body made up of various people, representa
tives of varying interests, and with differing views as our conier
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 261
“ence was, and those people, shippers and economists and all the rest
of them, say, “ We believe that no increase less than an increase
represented by a raise from 5.2 per cent to 6 per cent will do the
trick,’ I am very much impressed by it. That is the way it im-
_ pressed me, and the reason for that has been that no one of us holds
_any brief for the railroad investors, but that we are earnestly seek-
ing to benefit the public of the United States who need transporta-
‘tion and are not, in our opinion, going to get the transportation
service that the country’s interests absolutely require unless we can
attract capital, private capital; take it away from municipals, and
take it away. from Government bonds and that sort of thing, or take
it away from some source or other that it is now going to; and we
ean not do that unless we make the thing more attractive than it
|
has been, and it is that which has led these people to state than an
-inereased yield should be had not for the sake of the increased
ji
yield but for the sake of getting money that is needed in the public
interest for the development of the railroad properties.
Mr. Sims. You want to produce a condition whereby those pri-
_yate investors who are now investing their surplus in other forms of
‘i
roads?
securities will cease to invest in those securities and invest in rail-
Mr. Saumon. A condition that will give a share of it to the
railroads.
Mr. Sims. That is ceasing to that extent?
Mr. Satmon. Yes; that 1s right.
Mr. Srms. Whenever you make the earnings of railroad stocks
‘and bonds so secure and so large as to actually prevent money
from going into other industries that are essentially necessary for
‘the country, while developing the railroad industry and improving
that, are you not, to that extent, depressing all other industries from
which you take this money ?
Mr. Saumon. I do not think that would necessarily follow.
Mr. Srtms. How can you get it unless you take it from them by
offering more interest or more dividends?
‘Mr. Saumon. What we are seeking to do is to establish some parity
en the credit of the railways and the credit of other users of
capital. | |
Ir. Stms. In other words, your bill shows—I do not know what
your bill shows, because we have not the bill itself before us—but
your plan proposes that we shall provide interest on bonds and divi-
+ dends on stocks so large and so remunerative as to absorb in exceed-
‘ingly large volume all money offered for investment or so much of
it as is necessary to meet the demands of the railroads, and not only
| the existing demands but demands for future construction and opera-
\tion. Now, is not thatinevitably true?
‘Mr. Saumon. That does not sound to me like anything in our plan.
Mr. Sims. Then, your plan will not attract capital from other in-
| vestments. Is not that true? We have not any money lying around
| not invested in anything.
Mr. Satmon. Yes; a great deal of it.
_Mr. Srus. No idle money not invested in anything or not even get-
ting interest on deposit.
262 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Saumon. There is a good deal of money that is not.
Mr. Sims. Do you not think it is a very stubborn and contrary
nature that will let money le idle and make nothing year after year
because it can not get a Government guaranty of 6 per cent interest?
Mr. Satmon. I did not hear the “ year after year ” in your former
statement.
Mr. Sims. You said there was idle money—in other words, money
that was not earning anything in the way of income, just being de-
posited, and out of which nothing is being drawn by the owner of
that money—and I say are those men so stubborn and contrary that
they will not accept 5 per cent or 4 per cent on their idle money, but
must have 6 per cent before they will invest in anything, and those
men will not invest in railroads unless they are guaranteed by the
Government that rate of interest? Have we got that kind of capi-
talists in this country to any great extent ?
Mr. Saumon. I do not know how to answer your question, Mr.
Sims. |
Mr. Srus. I mean are there many men with capital that have that
view ? |
Mr. Satmon. What I do feel we know is that railway investment
has not been as attractive as it is in the interest of the public that it
should be. That is the one thing I think this conference feels it
knows. Now, about all these other general propositions that you
mention, I do not know. I have no knowledge, and I do not think
the conference claims to have a very great deal of knowledge, about
everything; and it seems to me we would have to have a very great
deal of knowledge to answer your questions.
Mr. Sims. The logic, and, it seems to me, the inevitable conclusion
from the argument in support of this and some of the other plans
is to provide means by which when railroad stocks and bonds are
offered for sale in the open market they will be in a measure more
attractive than other investments offered at the time, to such an extent
as to attract from all other investments the volume of money which is
needed, according to these plans, for the railroads. How are you go-
ing to get it in any other way?
Mr. Saumon. Our project is designed to bring about a situation
where railway investment will be sufficiently attractive to serve the
public interest.
Mr. Sims. I know that; but it must get its money in order to do it.
must it not?
Mr. Satmon. We assume so; ves, sir. .
Mr. Sims. And it gets that money or takes it from some other
source of investment, does it not?
Mr. Satmon. Well, I should suppose it would; yes.
Mr. Sims. Now, you are a manufacturer and an expert, and is i
not a logical conclusion that whenever you make a certain form 0
investment so attractive as to generally cause people to invest in it.
then will not the interest paid on all other investments rise at once
to the 6 per cent level in order for them to get capital and have
chance at future idle money? Will they not have to give as much
and provide earnings equal to the railroads? In my opinion, tha
would apply to every street car company, every gas company, an
everybody else. I do not see why a State bond subject to taxatio
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 263
would sell any higher than your bonds when you have an absolute
‘Government guaranty behind it. Why will it not affect adversely
‘the credit of all others depending upon a supply of idle money by
‘sale of securities and result in bringing all such securities up to or
above 6 per cent?
_ Mr. Saumon. Why, Mr. Sims, I have observed railroads paying 8
per cent for money, and I do not note that these other interests you
‘mention have all had to pay 8 per cent. I do not see that there is
any necessarily controlling argument growing out of your point.
Mr. Srus. Well, was that 8 per cent which they were paying due
to unjust or unreasonable Government regulation of rates as com-
ared
te SALMON (interposing). It was due to lack of credit. It was
‘due to the fact, as I understand it, that railway investment was not
attractive and that there had to be some special attraction created,
‘and this was represented by the demand for and the receipt of an
unusually high rate of interest.
Mr. Sims. Do you mean 8 per cent for a long period of time or
for a short loan? |
_ Mr. Satmon. Oh, two years or three years.
Mr. Sus. To tide over some immediate situation 2
_ Mr. Saumon. Yes, sir; to tide over the situation, because the road’s
eredit was not good enough to enable it to fund its obligations at
a satisfactory rate of interest over a long period.
_ Mr. Sms. In other words, it was to borrow more money?
| Mr. Sauwon. Yes; they are always borrowing more money.
| Mr. Sims. Now, if you go on with this 6 per cent and the cost of
labor and the cost of material continues to advance, will not that
make short shift of your plan; in other words, the plan will not
Work in securing money as against other purchasers of money at
i higher rate, and you will have to come back and have Congress
order this rate-making body to go still higher, will you not?
| Mr. Saumoy, I do not think so, under our rule.
' Mr. Sims. Under private management, without Government con-
rol, the railroads found themselves in the position where they had
0 pay 8 per cent for three years, according to your own statement?
Mr. Sautmon. Yes.
_ Mr. Sims. With all the expert rate-making machinery which they
lad at their disposal, and when they initiated all the rates and
ould collect the money on them unless they were suspended by the
ody having the power to do so. Now, do you believe that it is in
he interest of the public for Congress to step in by law, as to some
Wivate investments, even though used for what we may call serving
he public, and guarantee their success? Why not guarantee the
older of bank stock that he shall have a certain dividend paid on
'Is stock? They are both necessary to the country.
, Mr. Satmon,. I would say, Mr. Sims, that it would be very desir-
| ble, indeed, that the Government should undertake to see to it that
‘lof these public-service corporations that are regulated, as the
fovernment regulates the railways, get a square deal. If the Gov-
}tmment is to determine the kind of service that these public-service
Orporations shall render and in very large measure determine what
Weir expenditures are to be, it should, in determining what the
264 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
income is to be, treat them fairly, and it has not done it. That is my |
opinion, and it is the opinion of a great many men in this country;
and I say that if you are going to fix permanently what the expendi- |
tures of the farmer are to be, and if you are going to regulate him,
regulate him at every turn. It is the business of the Government, |
which does that regulating and determines these expenses, to see to |
it that the men who put their money into farming are fairly treated. |
When you say, “ Why should you not fix this or fix that or fix the |
other thing?” it is well to know whether those other things are |
regulated as the railroads are regulated. If they are, then give them
some kind of an assurance. That is my view of it. |
Mr. Stms. Then, by the operation of the legislation which you pro-
pose an absolute minimum guaranty in the way of rates is made, and |
whenever you do that you make the investment of idle money, money |
not otherwise invested, so attractive to the railroads that you have}
absolutely treated all other forms of investment without any Goverp- |
ment guaranty in the sale of their products in a way that it becomes
unfair to all other investors.
Mr. Sautmon. I do not think so. ,
Mr. Sims (continuing). And thereby create a condition by which |
a single source of investment, which comprises, perhaps, as much as
all other sources of investment in the United States, is so remunera- |
tive that it depresses and destroys the market for all other purposes. |
In other words, many industries could not secure money at all as}
against the railroads, and if the railroad has a guaranty of 6 per!
cent upon property invested, then all other business, private or]
public, seeking money will be treated unfairly by the action of the}
Government. |
Mr. Satmon. May I say, Mr. Sims, with respect to the word “ guar- |
anty ’ which you have used, that I believe that, generally speaking, |
when we talk of a guaranty of a return to the railroads the thought
that is suggested to the mind of the hearer is that it means that rail- |
road A, railroad B, or railroad C is to get a certain guaranteed return |
upon its securities. Now, we do not call this conference plan a guar-|
anty; but even if you call it a guaranty, it should be noted that it is|
not a guaranty of return upon the securities of any individual railroad |
company. The richest road of the whole group, through dishonesty |
or incompetent management, if this rule were in effect, could easily
enough cease to earn anything; it might even have a deficit. There |
is a striking and, to my mind, vital difference between the kind of)
guaranty that people ordinarily think about and the kind of a thing)
that this conference is recommending, where it is still incumbent
upon every road, no matter how prosperous now, to do its best to earn}
its share of the aggregate, and the strongest one of them, badly man-
aged, may run behind the average; it may show nothing, or it may
have a deficit.
Mr. Sims. Of course, I do not mean that your bill provides that
there will be a certain dividend paid on the outstanding stocks andy
bonds of any company, but when you provide that a certain rér|
turn must be made upon the property investment account, then, «s
-a matter of fact, the bill guarantees a dividend to the extent that)
such a return will provide, although bad management and high}
executive salaries or something of that sort might cut down the)
t
f
|
|
5 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 260
dividend, but you are providing the means by which to increase the
dividend paid and therefore increase the market value of at least
‘future stocks and all other stocks, dependent upon the increased
‘net earnings. Why is it that the investor is to take absolutely no
chance whatever ?
| Mr. Saumon. I do not see that the investor is getting rid of taking
a reasonable business chance. There is one thing to which I should
‘like to call your attention. Apparently there might grow out of
this line of questioning the idea that the transportation conference
jis recommending some great added burden:on the public. I want
to call your attention to the fact that the total mcrease in net
revenues that the transportation conference is recommending over
the return of the test period would be entirely taken care of 1f every
citizen of the country should contribute about two and one-half cents
a week.
_ Mr. Stus. That is getting down to the meat-packing proposition.
Mr. Satmon. That is so.
Mr. Srms. That may be your idea.
| Mr. Saumon. That is the magnitude of the increase that we are
‘talking about, a little more than two cents, the value of postage
upon one letter mailed, at the present postage rates, by every citizen
of continental United States once a week.
Mr. Sms. But all citizens do not patronize the railroads?
~ Mr. Satmon. But they all benefit from them or suffer from them.
Mr. Sims. Section 10 of your bill provides:
|
The net return to be obtained by the railroads as a result of the enforce-
‘ment of a statutory rule of rate making shall be based upon a fair value of
the railroad property devoted to the public service, as ascertained by the
Interstate Commerce Commission, such valuation to include a consideration of
physical property, earning power, and such other elements as may be proper
in determining fair value.
What I want to ask you is this, as I understand, the Interstate
‘Commerce Commissicn is to determine the fair value, and is that
‘the basis upon which the Interstate Commerce Commission is now
fixing values ?
Mr. Saumon. I can not answer that question.
Mr. Stus. Have you anybody here who can?
Mr. Satmon. My impression is that the Interstate Commerce Com-
mission under the law is directed to obtain a physical valuation.
Mr. Sims. That is an amendment to the law. Section 10 provides
,that the valuation shall include earning power. Is that a part of the
‘present law in determining the value of the railroads? ~
_Mr. Satmon. I think possibly the Interstate Commerce Commis-
sion under the law may have the power to ascertain values of differ-
‘ent characters. I base that simply upon the requests that I have
had for information which would seem designed to enable the com-
‘mission to determine valuations of more than one kind but I do not
know, however, what the law is as to valuation.
Mr. Sims. This amends the law, as I recall it, and will require the
‘Interstate Commerce Commission to really go over its work again, if
At has not already done it, and to include in its final finding the earn-
ing power as well as valuation of physical properties. Is not that the
plan of this section ? |
~—
266 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Satmon. If it means that they would have to do that, it should
be done if we are to arrive at a true value of the property.
The Cuarrman. The physical valuation act does not include the
element of earning power, but it does include physical valuation and
the cost of production, etc., less depreciation and a complete financial)
history of each road. That is the scope of the Federal valuation act)
which is now enacted. ;
Mr. Stms. This looks like a little joker and I just wanted to see
‘whether this gentleman who was put on as an expert witness on rate
making understood that section 10 was recognized and intended tc
impair |
Mr. Saumon (interposing). Mr. Sims, I should like to correct that
statement. I was not put on here as an expert witness on rate mak
ing. I was put on here to seek to show certain of the effects growing
out of the conference rule of rate making. |
Mr. Srus. Let me ask you what you mean in section 10, the lasi
part of the first paragraph: |
To such valuation as shall be derived for any railroad system in the man}
ner above stated, there shall be udded all increases of property investment madi
by such system after June 30, 1917.
Must there be added all increased property investment at the cost
whatever it was, made after June 30, 1917? !
Mr. Satmon. The formula here provides that a certain valuatioi|
as of June 30, 1917, shall be the starting point. It was the view 0
the conference that it would be only right and proper that ther
should be added any increased property investment charge madi
after June 30, 1917, in accordance with the rules prescribed by th
Interstate Commerce Commission.
Mr. Srus. Although it was made on a war-cost basis?
Mr. Saumon. I do not know how to figure it any other way.
should say, if I were doing it, that it should be made on the basis 0)
whatever the cost was of the thing acquired. |
Mr. Suns. If a farmer built a barn or a fence on his property wit}
the price of labor and material 100 per cent above what it was before
he should be permitted to collect a rental the balance of his life oj
the tenant to include the war cost of this improvement?
Mr. Saumon. I should think he would have to.
Mr. Dewar. Mr. Sims, is that quite a fair statement of this cor
ditions? Under the railroad-control act the betterments and ir
provements made to the various railroads by the Government mut
be repaid -to the Government when private control is resumed }
the railroads, wear and tear excepted. Therefore, is not this a ver
reasonable provision that the betterments and improvements mad
since 1917, possibly by the compulsion of the Government unde
Government railroad administration, shall be taken into this caleulé
tion, because they will have to repay the Government when the tit
comes ? |
Mr. Sims. The reimbursement ought to be made.
Mr. Drewatr. I am simply stating it as a fair practice of businé
methods.
Mr. Sims. The farm matter was not absolutely in point, but illa
trative of the idea. When a man improves his property during ten)
porary or abnormal conditions and has to pay. very high prices !
~
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 267
is not entitled by law or equity to collect a rent or an income or a
return upon that valuation for 40 years following the war. He is
sound to lose part like everybody else. It seems to me that instead
of fixing this as a permanent standard for future rate making for
ul time to come we better rest on the ground we have heretofore
saken that all rates should be reasonable, just, and fair, and not
jiscriminatory as provided in the present law and as provided for in
she bill of our chairman.
_ J made a mistake in assuming that you were an expert on rates,
yecause this refers to the rule of rate making. I suppose that in-
‘sIudes all features‘of rate making. I did want to ask you another
juestion, but I will not do it if you are not prepared to answer along
shat line.
| The fundamental of rate making should not only be a fair return
ym the property investment devoted to the public use but should it
‘0t also be fair to all persons who have to pay the rates, regardless
»f location ?
_ Mr. Satmon. I should say that fairness should be considered with
“espect to every interest involved.
_ Mr. Srus. It may be that it is inherently fair to charge the same
vate for 1,000 miles on the same class of property going in the same
rection and over the same railroad that is charged for 3,000 miles
ft the same kind of a haul and the same kind of property by the
‘ame railroad. It may be that is inherently fair?
_ Mr. Satmon. I think there may be a very good reason, under cer-
‘ain conditions, for charging the same for the longer and for the
shorter haul and that with no injustice to anyone great benefit may
ise to the country at large from making the same rate for the
/onger and for the shorter haul. I not only think that is so but I
| aie very positive it is so.
Mr. Sims. I am not trying to direct your mind to the fourth section,
yecause there are always exceptions, but is it not fair that all rates
hould be based in the main on the dominating reasons of the cost
yf service and the benefits received? For instance, a ton of cotton
hould certainly pay a higher rate than a ton of coal going the same
listance over the same railroad, because it is inherently more valu-
‘ble and there is a greater benefit received by a shipper by moving
, ton of cotton from a given place to another than by moving a ton
4 coal. Therefore, the benefit received by the rate payer should be
onsidered. Why should not the rate structure for freight be based
}omewhat, at least not without exceptions to the rule, on the cost
if the service, and I include the earnings on capital? Why should
ve give one man the benefit of a rate for 3,000 miles and .charge
nother man the same rate for only 1,000 miles?
| Mr. Satmon. I do net think, Mr. Sims, that my opinion on that
ivould really be of any value to the committee.
Mr. Sirus. This bill proposes operating districts. The railroads
j!ave always had districts with flat zone rates charged in such dis-
ricts, regardless of costs. Does your system contemplate a continua-
ton of rates that apply to large areas of the country in the way of
lat or zone rates?
_ Mr. Satmon. We have not taken up the matter in that detail.
_ Mr. Sts. You have not considered it?
268 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sautmon. No, sir.
The CratrMan. The committee will now take a recess until §
o’clock this afternoon.
(Thereupon the committee took a recess until 2 o’clock p. m.)
AFTER RECESS.
The committee reassembled at 2 o’clock p. m., pursuant to recess.
STATEMENT OF W. W. SALMON (Resumed).
The Cuatrman. Mr. Salmon, vou may proceed.
Mr. Watson of Pennsylvania would like to ask you some question:
Mr. Watson. Of course, the object of your testimony was to formy
late a plan upon which railroads could be operated on a credit basi
after their return to private control? :
Mr. Saumon. Yes, sir.
Mr. Watson. I notice, on page 58, you have made a statement the
railroads are to be organized and equipped to adequately serve th
needs of the country. I will not ask you a definition of “ adequate’
probably no two persons would give the same meaning. In yot
opinion, I want to know if the public had been reasonable regardin
the service of railroads, and had not demanded palaces for termina!
and if commuters of suburban districts would have been satisfie
with plain and substantial stations, and if the passengers had m
demanded luxuries on the trains—de luxe diners, barber shops, ete=
would not the credit basis of railroads be higher than it is to-day!
I will ask if you will answer that question. =)
Mr. Saumon. I think, sir, that has had some effect; perhaps a sw
stantial effect.
Mr. Warson. In order that railroads may earn 6 per cent of d
value of their property, and with the public continuing to demar
expensive terminals, etc., would not the rates have to be increast
nearly double in order to obtain the 6 per cent earnings? You spo
of 2 per cent for renewals. That would be something like $10
000,000?
Mr. Saumon. Yes.
Mr. Warson. Or $100,000,000. Do you think that amount wou
be sufficient to put all the railroads upon a credit basis?
Mr. Satmon. I think, sir, that the 6 per cent yield, if reasonab
assured, would very greatly strengthen the credit of the compan)
and with respect to one phase of your question, the conference pl
contemplates the creation of a Federal transportation board; t
functions of that board Dr. Johnson will explain, but I wish to m
tion this phase. That board would be expected, amongst oth
things, to pass upon many matters which would probably result
substantial economies. The Government, working through so
agency, will pass upon the necessity for expenditures, for capr
issues, and this Government agency might, and, I should thi
would properly refuse authorization for the issuance of securiti
the proceeds of which are designed to be invested in things
needed in the public interest. Personally, I believe that in ti
past, and without sufficient régulation of this matter, perhaps tl
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 269
ave been some expenditures made that under the plan which we
ropose would not be made in the future.
‘Mr. Warson. Now, the Interstate Commerce Commission is not in
ivor of one line paralleling another, therefore there could not be
ympeting lines; hence a main line must increase the weight of the
ils, build heavier engines, have cars of larger capacity, enormous
igines in order to meet the growing traffic. At the present time the
\wenues are not sufficient evidently to meet the operating expenses and
1e interest on the bonds and stock, therefore, do you not think it is
tir to increase the rates sufficiently to meet those expenses which the
tilroads had to meet in order to give adequate service to cope with
rowing traffic ?
Mr. Satmon. It would seem to me, sir, not only fair that expenses
‘ieurred to meet the needs of commerce should have an adequate and
‘oper return, but that it will be necessary that they have that return
‘those steps are to be taken which will meet the needs of our con-
antly growing commerce.
‘Mr. Watson. Are you in favor of competing lines?
Mr. Satmon. Decidedly so, sir.
| Mr. Watson. And a system of competing lines would no doubt
ywer the rates?
‘Mr. Satmon. From my observations, especially in certain foreign
yuntries—as, for example, France, where a definite and substantial.
turn is guaranteed to the roads, though privately operated—there
ems to me ample evidence that a guaranty of a return to the in-
‘ividual road, together with the grant of a substantial monopoly of
‘\e traffic of a region, as is true with the French roads, produces stag-
ation, high cost, poor service, and altogether undesirable results ;
‘ad that, on the other hand, competition, such as is contemplated
‘onder our conference plan, would result in improved service at. what
ill tend in the future, as in the past, to be lower cost.
| Is that responsive to your question, sir?
| Mr. Watson. Yes. You think the public is rather unfair in de-
‘anding all these luxuries, roomy stations, and so forth, and not
| illing to pay the higher rates and higher fares?
| Mr. Satmon. I think the public, sir, should be willing to pay for
| hat it practically compels the carriers to furnish.
| Mr. Watson. That is all. .
' The Cuarruan. Mr. Denison, of Illinois.
Mr. Denison. I want to ask you some questions which may appear
ither elementary, but I am interested in your plan and I am asking
wr information.
Will you refer to section 9, page 58?
“Mr. Saumon. Yes, sir.
} Mr. Denison. First. let me ask vou what is understood in railroad
‘counting os the “ property investment account”? What does that
mprehend ? |
‘Mr. Ssrmon. That is question that can bo rather easily answered
‘ith respect to the charges to that account, since the Interstate Com-
ieree Commission in 1907, I think, prescribed uniform rules of a°-
Mintine. What got into that account before that time it would bs
‘ther difficult to say. Personally. I imagire that there may be in
hie account some things entered before 1907 that should not be there,
270 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
but since that time those items are there which are prescribed as being”
properly there under the Interstate Commerce Commission rules
governing such accounting.
Mr. Denison. Will you state briefly for the record what that com-
prehends?
Mr. Saumon. I am afraid that it would be unsafe for me to make
that statement without having the Interstate Commerce Commis-
sion’s requirements or rules before me. I should prefer, sir, not to
attempt it. It is easily procurable. I would be glad to furnish that:
information later, if desired.
Mr. Denison. Can you tell me briefly what is meant by “ operating:
income ” of a railroad ? 7
Mr. Satmon. The operating income, referred to in the statements,
and which were presented in my treatment of this rule of rate mak-
ing, covers item 33, such as appears in the statistics of common car~
riers for the year 1917 issued by the Interstate Commerce Commis-
sion under the, heading “ Income account for the year.”
Mr. Denison. Perhaps you misunderstood what I am trying to
get at. I am asking what the ordinary person may understand to be
included in the term “ operating income” of any railroad.
Mr. Sauaon. It would include the revenues less the operating
expenses derived from freight, from passenger service, excess
baggage service, sleeping cars, parlor and chair car service, freight,
express, and other passenger train service, milk-train service, mail |
service, switching service, and all other rail-line revenue. Those are
the items, 21 to 31, shown on the report: to which I have referred
under the caption “ Railway operating revenue,” and are, strictly
speaking, operating revenues. , |
Mr. Denison. Strictly operating revenues?
Mr. Saumon. Yes, sir.
Mr. Denison. Then, it does not take into consideration any of the}
expenditures? The word “income” |
Mr. Saumon. It is income derived from operating revenues froni |
which, of course, must be deducted the cost of operation. :
Mr. Dentson. That is what I want to know. Then, when you speak |
of operating income of a railroad, do you mean the net income 4
Mr. Saumon. The net income derived from operation, deducting |
from the operating revenues |
Mr. Denison (interposing). The operating expenses ?
Mr. Saumon. The operating expenses.
Mr. Dentson. The purpose, then, of the plan of statutory rate |
making in this proposal of the transportation committee is that the |
rate-making body shall institute fair rates in each traffic section that
will be designed to yield to the railroad companies in that section |
aggregate revenues sufficient to produce, after certain deductions, «1 |
net return of not less than 6 per cent per annum upon the aggregate.
fair value of the property of the railroads devoted to public service
in that section ?
Mr. Satmon. Yes, sir.
Mr. Dentson. I assume, then, that the rate-making body would |
undertake to fix rates for that traffic section such as would, on the}
average, yield 6 per cent? acl
Mr. Saumon. Yes, sir.
\
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. OT
‘Mr. Denison. Is that right?
‘Mr. Saumon. On an average.
“Mx. Denison. Well, that would mean that there would be as many
vads in that section that would return less than 6 per cent as there
ould be that would return more than 6 per cent, and by that I do not
ean less in number, but I mean less in earning power?
Mr. Savon. Yes, if I understand you rightly. There were in the
istern district 50 class 1 roads in the test period whose operating
ome averaged less than 6 per cent on their respective property in-
stinent accounts. Our Table No. 1 shows that should our rule work
it as we estimate there would be 40 roads in that district in a 6 per
mt year whose earnings would be less than 6 per cent.
Mr. Denison. I thought you said 50.
‘Mr. Satmon. There were 50 whose earnnigs were less in the test
riod. There would be 40 whose earnings would be less in an aver-
te 6 per cent year.
Mr. Denison. In a given year, if the aggregate earnings of the
ads in a particular traflic district averaged 6 per cent for that
strict, would the income on the individual roads that yielded less
‘an 6 per cent be made up to 6 per cent ?
Mr. Satmon. Oh, no; not at all. That is not a purpose of the plan.
‘Mr. Denison. Then if, under this plan, the aggregate income or
't income, after making proper deductions, of all the roads in any
affic district should average 6 per cent on the aggregate fair value
_the property in that district, the income of those roads in the
strict that fell down as low as 2 per cent or 3 per cent would not
/made up from any fund?
‘Mr. Satmon. No. Our plan has not contemplated any such treat-
ent of the weaker roads.
Mr. Denison. I see.
“Mr. Saumon. To make this entirely clear it may be well to refer
‘ain to class 1 railroads of the eastern district. I said there were
of them earning less than’6 per cent on their respective property .
vestment accounts in the test period. The average earnings of
ose 90 roads during the test period was 4.42 per cent. In a year
6 per cent average yield for the roads of this district there would
available for interest and dividends an increase of 0.56 per cent
the aggregate property investment accounts of these 50 roads,
uch would bring the earnings available for interest and dividends
r those roads from 4.42 per cent up to 4.98 per cent, really very
eatly aiding them. Taking all of the class 1 roads of the three dis-
ts we find that there were 120 out of a total of 162 whose earn-
gs in the test period were under 6 per cent on their property invest-
ent accounts, and that their average earnings were 4.42 per cent.
We estimate that the-effect of the application of the conference
le in a 6 per cent year would be to raise their average earning
ailable for interest and dividends from 4.42 to 4.85 per cent; this
‘thout giving consideration at all to the individual contingent
nd, to which there would be an average contribution by these roads
0.1 per cent, bringing the average of those roads whose earnings
re only 4.3 in the test period up to 4.95 per cent, a very sub-
intial strengthening of their situation. In such a year these roads
wuld also contribute an average of 0.10 per cent to the general con-
279, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
tingent fund, to which the other 42 class 1 roads would also con-
tribute 0.45 per cent. But there is nothing in our conference plan
-which would contemplate bringing these weaker roads up to (
per cent. .
Mr. Denison. That is what I wanted to ask you.
Mr. Saumon. Yes, sir.
Mr. Denison. It is not contemplated by this plan, then, to bring
the incomes of all the roads up to a 6 per cent level, 1 mean 01
each of the roads?
Mr. Satmon. Not of each. It is to bring the aggregate up to {
per cent in order that there shall be a strengthening of the credit
not only of the weak lines but of the strong ones as well. :
Mr. Denison. If in a given year the aggregate net income of the
roads of a district should yield, or should prove to be, 6 per cent oi
the aggregate fair value of the property in_ that district, and ¢
certain road should earn, say, 12 per cent in that year, what woul
be done with its earnings under the plan proposed ¢
The Carman. In answering that question it should be borne 11
mind that our conference rule has to do with two periods, one being
that period prior to the ascertainment of a fair property value, an¢
the other the period following the ascertainment of such a value
Perhaps it would be well to start with the latter period first, because
after all, that is what would come to be the permanent thing. One
a fair valuation of the properties devoted to the public service shal
have been established by public authority, then, in accordance wit]
the conference plan, all net earnings from railroad operations u
excess of 6 per cent on that valuation would constitute excess income
Of that excess income, one half would go into the road’s individua
contingent fund until such time as that fund should come to amoun
to 6 per cent upon its ascertained fair value, and the other half dur
ing that period would go into the general contingent fund.
Mr. Denison. You mean
Mr. Saumon. The other half of the net earning over 6 per cen
would go into the general contingent fund. In the specific ea
which you mentioned—a 12 per cent earning on fair property value
it would mean that 3 per cent would go into the individual contin
gent fund, and 3 per cent into the general contingent fund, and i
would only take two years on such a basis for the individual contir
gent fund to equal the maximum 6 per cent provided for under ou
plan. When the individual contingent fund shall have amounte
to 6 per cent on the ascertained true value of the property devote.
to public service, thereafter two-thirds of the excess earning, or 1
other words 4 per cent, following your illustration, would go to th
general contingent fund; and contributions to that. fund by tha
road would continue until the fund amounts to $750,000,000. There
after contributions would continue but under our plan could »
longer @o into that fund, which has. reached and 1s maintained @
¢:750,000,000, but would then be used as directed by the Fedeve
{transportation board for the development of the railroad transport
tion system of the country. or for the increase of transportatio
equipment and facilities, or for the pro rata reduction of the capt
cr capital obligations and property investment accounts of the ru.
roads. or it might go if so directed by Congress, dircetly into th
Treasury of the United States.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 273
-Mr. Drentson. Then, in such cases as you have just been speaking
bout, there would not, within the time be available more than 6
er cent to be distributed in the form of dividends?
Mr. Satmon. Not in the first period. In the latter period there
ight be. For that 12 per cent road there might be 8 per cent,
r if it could increase its earnings to 15 per cent 1t would mean still
n additional per cent, because it would retain one-third of the
xeess in the latter period named or described by me.
Mr. Dentson. There could be in no case a distribution of more
aan 6 per cent in the form of dividends until the two reserve funds
re completed, or at least until its own individual reserve fund were
ympleted ? :
r. SALMON. There could be no distribution out of the operating
acome of a given year of more than 6 per cent. Of course, there
ught be surplus, there might be earnings from other than opera-
‘ions—from investments, for example—which might be so distributed,
ut, sticking strictly to the thing that we are speaking of, income from
peration of a given year, there could be no distribution of more than
‘per cent. —
Mr. Denison. Under the proposed plan, would the railroads have
ie right at any time to make extensive improvements or additions
> their properties out of their incomes?
Mr. Satmon. I do not recall at this moment whether our plan would
equire that a carrier procure from some Government body authoriza-
ion to expend moneys out of its own treasury, moneys which it does
ot have to go out into the market and borrow, or whether such au-
aority is not necessary.
Mr. Dentson. The thought occurred to me, from what I have
tudied of the plan, that if this plan were adopted there could be no
xtensions to railroad property from earnings or income, but all such
aos and extensions would have to be made by increases of capital
r by loans.
r. Satmon. I do not think that would follow from our plan, sir.
he only question I had in my mind was whether authorization would
ave to be obtained from some Government agency to make such ex-
‘enditure. There certainly would be nothing to prevent the car-
ter
Mr. Dentson (interposing). I was going to say, in determining the
uestion of operating income, you are not allowed to deduct moneys
‘xpended for additions and extensions?
; Mr. Satmon. Oh, certainly not.
' Mr. Denison. I do not think this plan has any provision, at least
> far as I have seen, whereby under any circumstances you could de-
‘uct from the revenues of a company expenditures for improvements
t additions. ate
| Mr. Satmon. Oh, no.
Mr. Denison. Then that could only be done, so far as I have ob-
orved ‘from the pJan, by loans or by increasing the capital stock?
' Mr. Satmon. But, sir, there is nothing in the plan which would
‘ompel the carrier to pay dividends or which would prevent the
/sé of all or any part of its income from all sources for improve-
lents, extensions, and that sort of thing.
152894—19—-vor 1 18
\
274 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Denison. Then, if a certain carrier should decide to use it
income for improvements and extensions, would that be taken int
consideration in determining the aggregate, etc. ? |
Mr. Satmon. I do not see that that would come into or be affecte
by our rule of rate making at all. A charge for an expenditure ¢
the sort that you name, if I understand you aright, would be a cap)
tal charge for a productive improvement. Any such capital ey
penditure would, in the very nature of things, not be an expend
ture which could be treated as an operating expense,
Mr. Denison. But I have not seen any plan by which that coul|
be deducted; I mean I have not seen any provision here by whie¢|
that could be deducted. Let me state this proposition to you, an
get your opinion on that: | i
Suppose in a certain traffic district the aggregate net incon
amounted to 6 per cent, as designed under the plan, and the roa)
we have been speaking about earned 12 per cent on the fair value ¢
its property, as finally ascertained. Now, that company could nq
spend any of that 12 per cent for extensions or additions withot,
taking it out of its own dividend. Is that not true?
Mr. Satmon. I do not see that that would follow. :
Mr. Dentson. Then explain to the committee, if you please, ho
else it could be done. I understood you to say it could make thes
additions or extensions by taking it out of its dividends. It seeir|
to me that this plan would require a railroad company who desire}
to make extensions or improvements to deprive its stockholders ¢
dividends to that extent.
Mr. Saumon. I do not understand, sir, that under our plan the
situation would differ in any degree from the existing situation, @
cept as to this, that as to certain capital expenditures and as to tf
right to issue securities to cover such expenditures some Feder
body would have to pass upon the matter. That, as I understand i
is the essential, and perhaps the only, difference is respect to th
thing which you are now speaking of. |
Mr. Merritt. Perhaps I might make a suggestion upon the poi
in question. I take it the’ fair value of property—as, for instan¢|
in the case of the Lackawanna road—might be many times 1]
capital stock ?
Mr. Sautmon. Yes. | |
Mr. Merritt. So when they get 6 per cent on the fair value of tl)
property they would be getting 25 or 30 per cent on the capit
stock, which is very small; therefore they could continue payir
dividends on their stock at the same rate they had before and sti
have a surplus out of that fair return, which they could keep {
extending their property. That is what the Lackawanna road li
done in the past and could do under this plan. .
Mr. Denison. I think they could do it in that case, but that is &
exceptional case.
Mr. Merrirr. Yes; it is an exceptional case for any road to mul
improvements out of its earnings ever.
Mr. Denison. I was assuming that sometimes a railroad compar
could or would make additions and extensions out of its earning!
. That may be a violent assumption. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 275
Mr. Saumon. I think, Mr. Denison, if I understand your inquiry
aright, you will get my idea if I state that under our plan it is con-
templated that until a fair property valuation is determined not a
dollar of earnings of any railroad will be regarded as excess income
unless it exceeds its earning in the test period. I think it is also the
spinion of the members of our conference—it certainly is my own
opinion—that if the valuation finally established for the railway
properties gives proper consideration to earning power, the valuation
30 established as a fair valuation will be such that it will show a great
Merease in many instances over the property investment account,
30 that 6 per cent on such fair, ascertained valuations will in some
sases exceed the income of the test period. I certainly hope that this
nay prove true, because if I did not believe it would result that way
f :
n quite a number of cases I should feel much doubt as to our plan
droving as beneficial as we desire to have it. That for this reason:
first of all, I believe that certain consolidations should take place;
hat it is greatly in the public interest that they should take place.
We must have some sort of a nucleus about which to make these
sonsolidations. If there shall have been stored up certain potential
ourchasing power in these very strong companies, that will be
‘ecognized when the valuations for those companies shall be estab-
ished; they would then be in a situation to furnish the credit re-
juired for bringing about these desired consolidations. I think it
vould prove very helpful indeed to the general railroad situation
f such proves to be the case. I believe it will prove to be the case,
ind that instead of these stronger roads, being valued at such a
igure that 6 per cent thereon would be less than their earnings of the
est period. It would be found, in many cases, that their valuation
vould be such that 6 per cent thereon will very considerably
xceed the earnings of the test period,
Have I made that point clear?
_ Mr. Denison. Yes; I think so. The proposition that was both-
ring me, or, rather, that suggested itself to my mind was, assuming
hat this plan is put into operation and that the ageregate net re-
urns in the traffic will average 6 per cent, and here is a road, or
Wo roads, that earn 15 or 16 per cent at that time—now 6 per cent
F would retain for dividends; the surplus or excess would go to the
wo funds, at least until the funds were completed, and if it wanted
9) make any extensions or additions it would either have to take
+ out of the 6 per cent or issue bonds or increase its capital. Is my
eduction correct ?
Mr. Saumon. I think your deduction is correct, but I think your
‘Yemise is very unlikely to be realized. For example, if you are talk-
ig about 15 per cent on present property investment accounts and
Topose to take away from the roads two-thirds of all over 6 per cent
‘A such property investment accounts, I think that would be very
Adindeed. But, as a matter of fact, I do not think any of the roads
‘ve likely on a proper valuation and on a proper carrying out of
‘ur proposed rule of rate making to earn 15 per cent on such proper
aluation. TI think that would be quite unlikely.
Mr. Denison. Suppose, after this plan goes into operation the ag-
tegate earnings of all the roads for a proposed traffic district should
276 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
average 8 per cent on the aggregate fair vailue of the property, what
would be the result ?
Mr. Sautmon. Well, it would mean a very large increase in the con-
tingent fund contributions.
: at Denison. All above 6 per cent would go to the contingent
und ¢
Mr. Saumon. All earned by any individual carrier over 6 per cent
on a fair Federal valuation, until its own individual contingent fund
is created and maintained, would go to these two funds. After
that, two-thirds would go to the general contingent funds.
Mr. Denison. And if the average income in a certain year shoulé
fall below the 6 per cent, then the surplus fund, as I understand it
would be drawn upon to bring the average up to 6 per cent, an
not the individuals up to 6 per cent?
Mr. Satmon. It would bring up the average; yes, sir. Illustrating
concretely—if in a given district, we will say one with a true prop.
erty valuation of $5,000,000,000, the earnings in a certain year wert
$275,000,000, instead of the $300,000,000, which would represent f
per cent on the $5,000,000,000, there would be withdrawn, or coule
be withdrawn, from the general contingent fund, $25,000,000, thi
exact amount of the deficit. That $25,000,000 would then be dis
tributed amongst the several carriers, pro rata to their gross revenu
for operation.
Mr. Denison. Under this plan a railroad will no longer initiat
rates, will it?
Mr. Saumon. The matter is left open, so far as we are concerned
I think that our plan would not prevent, and does not seek to pre
vent, the initiation of rates by the railroads, nor does it prescribe
who shall initiate them. The rates shall be determined finally by
the Interstate Commerce Commission. |
Mr. Denison. But it does not prescribe who shall initiate it. Tha
is all, Mr. Chairman.
The Cuairman. Mr. Sweet of Iowa.
Mr. Sweer. The basis of your whole rate structure is founded, a:
I understand you, upon the aggregate fair value of the property?
Mr. Saumon. Yes, sir. q)
Mr. Swrer. When the plan that you have devised is fully worker
out. un
Now, in section 10, you have in here a proviso which is as follows
Until such valuation shall have been determined, the valuation to be adopte
for the railroads in the United States as a whole, and by traffic sections, shal
for the purpose of making the rates that yield the aggregate net return to b
provided by statute, be their aggregate property inve:tment account. |
What investigations have you made that would indicate that th
aggregate property investment accounts of the railroads in ay
traffic section would approximately be equal to the aggregate fal
value of the property of the railroads in that section ? {
Mr. Satmon. We have not made what would be worthy to b
termed an investigation, for this reason: As a conference, we do no
feel that we are capable of determining, or have the means for de
termining; what would be a fair valuation of these various prope
ties, but what we have done is this: We have taken the mileage ane
the traffic in these various sections, arrived at the amount of th
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 277
jroperty investment accounts, and, comparing the per-mile charge
‘epresented by these property investment accounts in each of these
listricts with the per-mile charge against the railways in other
ountries, where roads have been built with cheaper labor and largely
vith very much cheaper material, which_roads are hauling no more
reight per mile than the roads here, we find that the valuation per
nile is substantially less here than in other countries; and it seemed
o us that for the intended purpose it would fairly serve as a tem-
yorary basis upon which to figure the increase in aggregate yield.
Wy own theught about it was this: That, regardless of whether it
hall be ascertained that the true property value of the roads in a
fiven rate district is that which their property investment accounts
show, or whether it is not, a greater yield is needed by the roads in
hat district to attract investment required in the public interest;
t did not seem to me to be of any very great importance whether
he aggregate property investment account shown, for example, as
35,000,000,000 is correct, or whether it should be shown as $4,000,-
00,000. The outstanding fact is that the roads in that district
vere not in the enjoyment of that credit which has permitted them
0 go out and get the moneys on terms as favorable as industrials
iave been able to get the money required by them, and therefore I
lid not bother a very great deal about trying to determine abso-
ute values. Our conference thought that there needs be an increase
of net earning for the railroads and that we could use the property
nvestment account temporarily as a yardstick just as well as some-
hing else that might be more correct. It was our thought as to all
the roads that the 5.2 per cent average yield of the test period upon
he aggregate property investment accounts did not create the credit
situation which was needed, and that anything less than would be
*epresented by an aggregate yield equaling 6 per cent upon that val-
tation, whether it is right or wrong, would be insufficient.
_ Mr. Sweer. Not for the purpose of criticising the plan, but for the
purpose of ascertaining the method you pursued in taking care of
the property investment account, there was a period when the fair
valuation of the aggregate property was not ascertainable ?
Mr. Saumon. Yes, sir.
Mr. Sweer. In the testimony that was given by Judge Prouty,
who was director of valuations, when the Federal contro] act was
seing considered by this committee, he made the statement that it
vould be about three years from February, 1918, before they would
de in position to have the work completed with regard to physical
xXamination, so then of necessity, there must be about two years
aere in which your rate structure would be based upon aggregate
property investment account ?
, Mr. Saumon. Yes, sir.
_ Mr. Sweer. My thought was this: That unless your basis was about
che same during the period of two years that it would be necessary
for you to have a marked rearrangement of your plan at the end of
‘the two years when the fair property valuation has been ascertained.
Mr. Satmon. Possibly it would create unfortunate disturbances
if it were found, upon ascertainment of the aggregate true property
valuation, that it amounts to much less than the aggregate of the
property investment accounts used temporarily as the basis of rate
278 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
determination for the districts. That would be very unfortunate, it
seems to me.
Mr. Sweer. That was my thought. If it was very much lower, it
would be necessary to have a substantial rearr angement of your
whole plan?
Mr. Saumon. Yes, sir.
Mr. Sanpers of Indiana. This general rate-making plan is divised
for the purpose of giving a standard to the rate- fixing bodies, some
definite standard beforehand as to what would be a reasonable re-
turn for their labor? :
Mr. Satmon. Yes, sir.
Mr. Sanpvers of Indiana. Under the Constitution of the United
States a regulatory body is required to fix such a rate as would yield
a reasonable return on the value of the property. Is not that true?
Mr. Saumon. Yes, sir.
Mr. Sanners of Indiana. This pga proposes to fix a definite mink
mum to guide the regulatory body ?
Mr. Saumon. Yes, sir.
Mr. Sanvers of Indiana. In your opinion what are the elements
that enter into the distrust of railroad securities?
Mr. Satmon. That is a very big question.
Mr. Sanvers of Indiana. Yes: and I do not care to make its scope
that wide. I only want to deal with the rate situation. Is it a fact
that we have 48 States which more or less regulate the rates of rail-
roads ¢
Mr. Saumon. I think that is an element.
Mr. Sanpers of Indiana. And in addition to that we have the In-
terstate Commerce Commission that deals with those rates?
Ra SALMON. Yes, sir.
-, Sanvers of Indiana. You think if a definite standard can be
fixed by statute, below which the Interstate Commerce Commission
shall not go, that that would give confidence in railroad securities?
Mr, Sanmon. I think it would greatly aid, sir.
Mr. Sanpers of Indiana. And that is the real purpose of this plan
a than to undertake to level rates between the weak and strong
roads %
Mr. Sautmon. That is the real purpose.
Mr. Sanpers of Indiana. And your plan involves the idea of put-
tne ihe rate regulation all in the hands of one ee
», SALMON. Yes, sir.
Me. Sanpers of Indiana. Since the railroads are subject to goy-
ernmental regulation, by which the Government can fix the amount
of the profit, the element of speculation in the securities is almost
entirely gone, 1s it not?
Mr. Satmon. It would be greatly reduced, certainly, under the
operation of our proposed plan.
Mr. Sanpers of Indiana. That would be the relative effect, in your
opinion, upon the value of the stock in the weak roads and in the
strong roads, of this plan?
Mr. Satmon. I think that the effect, if the full plan were adopted,
would be first of all to considerably strengthen the securities of some
of the lines and of the weaker lines especially.
Then I think that there would come about a willingness on the.
part of some of the so-called strong lines to take over certain 0
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 279
‘e weaker feeder lines, and that these weaker lines would have a
‘sposition to be taken over because this could then be effected upon
‘uch more favorable auspices under our plan than under existing
nditions. One of the principal objects sought by this plan
to facilitate consolidations deemed by the transportation board
“pe in the public interest. Under our proposed rule a major part
' the excess earnings will be taken away from the larger earners—
‘rmanently taken away from them. If these larger earners merge
‘ith some of the small earners, the average earnings of the combined
‘operties will be lowered. That would mean that there could and
suld be a larger port of the net earnings detained by the combined
‘operties than would be retained by the companies operating sepa-
ay and independently. In fact, it is possible to conceive of the
ouping of the roads of a certain district in such a way that each
ch group would earn almost exactly 6 per cent on their ascertained
ue property value, in which case there would be substantially no
cess income. The roads in that case would be able to retain a
uch larger share of the earning than they would be able to retain
_the case where the earning ranges from a very low to a very high
|
“reentage of the property valuation. It is my idea that the results
_ our proposed rule would thus be favorable to consolidation and
aay be very useful to the people of the country because it would
‘ad to solve the serious problem of the very rich and the very poor
‘ad operating in the same territory and obliged to furnish trans-
ortation at the same rates.
Mr. Sanvers of Indiana. Of course, the plan itself is not intended
/imarily to level the rates. As a matter of fact, the intended effect
the plan, in the absence of consolidation and merger, would be to
|ve relatively greater value to the stock of the weaker roads!
Mr. Saumon. It would.
Mr. Sanvers of Indiana. Is not that true?
!Mr. Satmon. Yes, sir; because they would retain a larger percent-
e of their increased earning, at least temporarily.
‘Mr. Sanpers of Indiana. Yes; and it arises out of the fact that
ur plan takes from the earnings of the stronger company and
weer it to the earning fund of the weaker company ?
Mr. Satmon. I hardly think, sir, that that is an exact statement.
atil there shall have been an ascertainment of true property valua-
jm there will be no earnings going into either of these contingent
(nds until an earning is made by some railroad which exceeds the
erage earning of the test period. That safeguards, as I see it, the
/*ge earner from having taken away from it any value growing out
| its own efficient operation. During the test period the roads had
fairly good opportunity to show what could be done by them, and
'} stronger roads were making a very fair earning.
If only these larger earners had to be considered our conference
yuld not deem it necessary or right to ask Congress to legislate to
> end that the net earnings of the railroads shall be greater than in
test period. If, then, solely as the result of such legislation as we
ommend, the rich roads obtain substantially larger profits and are
/tmitted to retain a part thereof, it is not taking from such road
\ything actually earned by it when it is required to contribute the
\ler part thereof to the general contingent fund. |
280 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Therefore, I do not believe there would be any real taking awa)
of anything earned, actually earned, by the rich to give to the poor
What would happen would be this: That part of the earnings, grow
ing out of a general increased earning level, would go into a genera
contingent fund, and that fund, when distributed, would, I think
more greatly profit, on the average, the smaller earner, but woul
also protect the credit of the larger earner.
Mr. Sanvers of Indiana. I understand that, but under the pro
posed plan the weaker railroad will have given to it, from the genera
contingent fund, a certain amount which it will have the right
retain.
Mr. SAumon. Yes, sir. |
Mr. Sanpers of Indiana. The strong road will be given out of th
contingent fund a certain amount, but it will not have the right
retain it if this contingent fund has reached the point of 6 per cent, be
cause, under section 11, it will have to be redistributed as profit. Th
other words, this weak road does get some additional earnings, doe
it not? Some additional money not earned by it under the rate
xed ?
Mr. Satmon. Will you turn, sir, to the last chart, if you have it?
Mr. Sanvers of Indiana. Yes; I have it; but what about that? I
not that true? te W |
Mr. SAumon. I want to point out this fact: That somé of the weal
roads, as well as all of the strong roads, will be able to retain only ‘
part of the moneys received by them from the general contingen
fund. If you will look at the second symbol you will find that th:
weakest road, the Tennessee Central, only retains a part of the contri
bution received from the general contingent fund, and that the othe
roads retain only a part of it
Mr. Sanpers of Indiana. Why is that, that they do not retain i
all—because of another check on it? a
Mr. Satmon. It is because of the valuation which we give thos
roads. If, in any year in which the aggregate earnings of all thi
railroads of a district fall below 6 per cent on their aggregate tru
property valuations, any road of that district earns more than 6 pe
cent, or if its earnings in such a year plus its receipt from the genera
contingent fund exceeds 6 per cent, it must turn back to such fu
two-thirds of such excess.
Mr. Sanpers of Indiana. Yes; I understand.
Mr. Satmon. It affects the weak road just as it does the strong one
in principle.
Mr. Sanvers of Indiana. Let us get at it in another way. Thes
railroads do not retain all of their earnings, do they? .
Mr. Sautmon. No.
Mr. Sanpers of Indiana. They are redistributed by a system of in
dividual contingent funds and a general contingent fund. Now
under this redistribution there are cases in which the weak road wil
have more than it earned on the rate fixed.
Mr. Satmon. That is true. :
Mr. Sanpers of Indiana. And that amount comes from where?
Mr. Satmon. It comes out of the fund created by the contribution
of all the carriers that had excess income.
Mr. Sanvers of Indiana. Then some other carrier, by the rat
fixed, earned the amount that was thus turned over?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 281
Mr. Sautmon. Yes; that is true.
_ Mr. Sanvers of Indiana. Is it the plan to fix maximum and mini-
aum rates ?
_ Mr. Satawon. The conference has not dealt with that, sir. We have
wrescribed or suggested that a rate designed to yield not less than 6
ser cent be established, but we have not taken up the matter which
‘ou mentioned.
Mr. Merrirr. I see it strongly stated in some of the briefs pre-
ented by your committeé, that you feel sure that your plan does not
ake away from each individual road the incentive to competition and
fliciency ?
Mr. Satmon. We feel that it will not take away incentive.
‘ Mr. Mererrr. It is true, is it not, that the inducement to make
arge net earnings at the beginning, at least, when the roads differ .as
‘) property valuation, is removed, that the reward for efficiency and
ood competition is greater to the weaker road than it is to the
‘ronger road ?
| Mr. Satmon. No; I would not say that that is so.
| Mr. Merrrrr. Well, in one example in which you set forth in your
‘rief it shows that the Lackawanna Road—and I refer to that be-
ause it is a great example of a prosperous road
Mr. Saumon. Yes; it is.
| Mr. Merrirr. The Lackawanna Road has to give up all that it
iakes over the standard return ?
, Mr. Saumon. Well, it puts into the two funds initially all that it
takes over the standard return, but half of that is its property.
/ Mr. Merrrrrr. It is?
Mr. Saumon. Yes; and it is a half which it would not get if this
ale did not go into effect.
» Mr. Merrirr. It would not be allowed, however, to use that half
wr extensions on its own property ?
Mr. Satmon. No. Under our plan it would have to be a reserve
‘id to be used for certain specific purposes, and that would not
2 one of the purposes.
Mr. Merrirr. And then, after its individual reserve fund was
iade up to the limit, it would not be able to retain one-half.
) Mr. Saumon. It would retain only one-third then.
Mr. Merrirr. So that the larger roads, at best or worst, would
| ave to have a certain amount of altruism in their constitutions,
ould they. not?
| Mr. Satmon. I do not know, sir, just how it would affect every
ie of them, but it would seem to me that they would all have a
rge incentive.
Mr. Merrirr. Of course, I can see the better they do and the more
oney they make the more they will keep in the aggregate, but not
scessarily in proportion. Then you gentlemen have shown in your
ble, giving average returns and so on, the large majority of the
‘ads appear to have earned the average return at that time. Of
yurse, under the present situation they are not beginning to do
iat ?
Mr. Satmon. No. The figures in the first half of this table and in
‘ese tables numbered 1, 2, and 8 are for the test period.
Mr. Merrirr. Yes.
:
282 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Satmon. They are not, I take it, earning the net to-day they
were then.
Mr. Merrrrr. No; and that was one reason why this fund of
$500,000,000 was necessary to tide over the test period.
Mr. Saumon. Yes, sir.
Mr. Merrit. In his testimony, Mr. Commissioner Clark stated he
did not think it was possible for some of the roads ever to get on a
self-supporting basis. Those are the roads which are technically
called the “ weak sisters” in railroad parlarfte, are they not?
Mr. Satmon. I believe so.
Mr. Merrirt. It isa part of your plan to have these “ weak sisters”
consolidated with the stronger roads in time?
Mr. Satmon. Yes.
Mr. Merrirr. Mr. Commissioner Clark intimated that in order to
get some of those roads onto any sort of a paying basis many of
them might have to go through receivership. There is nothing in
your plan to enable that to be done or to prevent it, is there?
Mr. Saumon. No; not a thing.
Mr. Mererrr. I had that in mind when you spoke of the consolida-
tion of the strong roads and the weak roads bringing about a lower
average return of any particular railroad? »
Mr. Sautmon. Yes, sir.
Mr. Merritt. Now the query arises under your plan, which sim-
ply means taking out a United States charter for a State charter,
if it would not be still possible for consolidation without actual in-
corporation into the large corporation—that is to say, in the taking
over by a strong road of a weaker road in consolidation—could not
the earning be kept separate while the management would be the
same ¢ |
Mr. Satmon. That is a question with regard to the legal phases of
which I would not feel competent to answer.
Mr. Merrirr. The reason I asked that is I would like to have that
matter cleared up by someone because it is hard for me to under:
stand how a strong, prosperous road could deliberately wish to take
into its system a weaker road that would necessarily cut the returns
to its stockholders. I can not see where the inducement would be
for that?
Aas Satmon. I do not think there would be an inducement to do
that.
Mr. Merrirr. That is a point that I would like to have touched
upon by some gentleman who is familiar with that phase of the
situation. I personally believe that your plan for consolidation 1s a
good one, but in order to make the consolidation good and get the
efficiency to larger communities, which will come therefrom, I think
you have to get the finances onto some basis which will not be too
much of a sacrifice for a large road. Don’t you think that is true? —
Mr. Satmon. I should imagine that if the larger earner took over
the smaller earner it would see to it that that smaller earner was
taken over at a value which could certainly earn its keep.
Mr. Merritt. Yes; that is it.
Mr. Saumon. It would mean a very decided scaling down of prop-
erty valuations as they now stand or of capital issues of some of these
weaker carriers.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 283
‘Mr. Mererrr. That part of your plan has not been produced, but
y understanding was from something said yesterday, that a part of
e@ plan was that after five years,.if voluntary consolidations were
it made, they might be made compulsory consolidations.
Mr. Satmon. Dr. Johnson, a witness who will appear for us, is
ry well posted on that phase of the question.
‘Mr. Merrirr. Very well. That is all, Mr. Chairman.
‘Mr. Winstow. Are there any superflous roads in the country ?
Mr. Saumon. I have been told that there are, but I never saw one
ere the people along the line thought so.
Mr. Winstow. I wasn’t thinking of the question just in that as-
et; but for the purposes of your plan would there appear to be
perfluous roads?
‘Mr. Satmon. I do not know, sir. I do not know of any roads
uch could be turned into junk and abandoned.
Mr. Wrnstow. Does your plan comprehend the inclusion of roads
uch, although publicly owned, are virtually for specific benefit;
¢ instance, roads that run out from the main line 20, 30, or 40 miles
|some industry, which really do not contribute much to the com-
mity, except through that industry ?
Mr. Satmon. Well, sir, we did not get to a point where we con-
lered a detail of that character. We did not have time or oppor-
aity to do so. It was assumed that the Federal transportation
ard, if formed, would go into problems of that nature and settle
2m.
Mr. Sims. In section 9, page 58, what is meant by the following
iguage: “All items of renewal and depreciation shall also include
productive improvements not properly chargeable to investment
‘ounts or against which no capital or capital obligation shall be
aed” @
Mr. Satmon. You do not ask that question with reference to re-
wals or depreciation ?
Mr. Srmus. I just want to know what that language means which
ave read, the practical application of it.
Mr. Satmon. Personally I think the language is unnecessary as to
mewals and depreciation ” since we do not arrive at net earning
al these items have been taken care of. As to “unproductive im-
»vements not properly chargeable to investment accounts,” I think
|vas in the minds of certain members of the conference that there
charges, heretofore made to capital account, for expenditures
/tare absolutely unproductive. Let me illustrate:
| do not know what the Washington Terminal Station cost, but for
sake of the illustration let us assume that the station, under the
joss of public demand,,..cost $10,000,000, in order to get a station
jethy of the city of Washington, whereas had it not been the city
|Washineton a station serving every commercial need of the com-
jnity might have been put up for $5,000,000. - I think the idea of
| conference is that $5,000,000 of this expenditure should be re-
ded and treated as an unproductive improvement not properly
rgeable to investment account, and against which no capital
igations should be issued.
he Cuarrman. How about track elevations in large cities?
284 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Satmon. I think there are track elevations that pay the
board and there are others that do not. Take a very small tow!
which may require a track elevation on the part of some road whic
has comparatively small traffic and would have only a few crossing
to slow up for, and it might prove largely and chiefly unproductive
but, on the other hand, in a city like Chicago, where a great deal «
that has been done, to some extent at least, the expenditure has bee
productive, because it eliminated a great many day and night cros
ing watchmen, it reduced accident costs, it permitted a higher rat
of speed through the town, and altogether has resulted in lessenin
the cost of operation. I am not myself responsible for this pai
ticular phrase, but I interpret it to mean the sort of thing I hay
stated. !
Mr. Sros. Does it mean, then, that in ascertaining the fair valu
of the property devoted to public use that it shall include also th
unproductive improvements not properly chargeable to investmer
accounts, and against which no capital or capital obligations shall }
issued?) Does it mean, in making 6 per cent upon the fair value ¢
this property that this unproductive property shall be a part of th
value upon which the 6 per cent must be earned ? | |
Mr. Satmon. I believe, sir, in a year when a railroad is required t
make an unproductive expenditure not chargeable and not permitte
to be charged to capital account, that the cost should be considered i
determining its net earnings, because if it is not chargeable to capits
account it has got to be charged to some expense account.
Mr. Sims. Unproductive improvements do not necessarily mea
temporary improvements. They may be permanent.
Mr. Satmon. They may be permanent; yes.
Mr. Sirus. Therefore it means that where you have 6 per cent earl
ings per annum on your investment, whether this property product
any revenue to the railroad or not, that in determining the amot
upon which the 6 per cent is made that investment shall be a part t
be included in the investment property account upon which the rat
is based ?
Mr. Saumon. No. If it is charged as operating expense it does 1
go into capital account, and it could not be considered as a part ¢
the true property valuation to be arrived at by public authority ¢
as part of the property investment account temporarily used for d
determination of these matters; it would not enter at all. -
Mr. Srrs. But this language says it shall be included. What do
that mean ?
Mr. Saumon. It means this: If in any year expenditures are mitt
for unproductive improvements which can not properly be charge
to capital account, such expenditures shall be taken into consideratic
in determining what constitutes net operating income.
Mr. Stms. Then, if a railroad had to make quite a lot of such im
provements during a. year they would be charged in effect to cost
operation and not to capital account; in other words, if it made -
per cent, and 6 per cent of it was devoted to this kind of nay
ductive improvements, the income would be figured at 6 per cent
Mr. Saumon. In such a case that would be the result, as I unde
stand it.
I RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 285
_ My. Sts. That is the purpose of it, then? What you have in
und is that the nonproductive investment shall be deducted from
je current operating charges? Is that it?
“Mr. Satmon. I believe that is the effect of this clause; yes, sir.
Mr. Srus. I suppose, Mr. Salmon, using nontechnical and every-
ay language, that one of the objects of the plan is that the strong
dads shall not make as much as they have made or can make under
‘isting law and conditions, and the weak roads shall make more
od can make more than they have been making under existing con-
itions; if we are to take from those who make more and give it to
jose who make less in order that the average shall be large on the
roperty valuation.
Mr. Saumon. I do not believe that is the purpose of the plan.
| Mr. Sims. But that is the effect of it, is it not?
. Mr. Satmon. I do not think so. |
My. Stus. That the weak road would never put anycoing into
ie general fund, part of which goes to the Government, and it would
‘ave to be bought by the strong road, and the strong road would re-
un all the benefits received from investment of capital. and labor,
hanagement, and everything else in connection with service. Is not
iat the fact ?
“Mr. Satmon. I do not so understand it.
Mr. Sms. I understood you to say it would benefit the weak
yads; that one of the inducements to the strong roads to retain all
aat they make would be to buy out the weak roads and then get 6
ler cent on a fair value of all of the property, and that the value
{the weak roads should be ascertained not upon their present in-
estment account but upon their actual property value. In other
-ords, you propose, in effect and in fact, that all the roads within
n operating district shall belong to one owner, one corporation ;
at is, it would result that way, that one owner would own all of the
rier property within a traffic district?
Mr. Satmon. No, sir; I do not think so.
Mr. Sms. Then, what is the use of discussing this question of the
rong road buying out the weak road, which you discussed a few
loments ago ?
- Mr. Saumon. I can not help feeling, sir, that you are finding in
ur plan some thing that I have not discovered. I do not follow you.
Mr. Srus. I understood you to say, in all seriousness, that the
rong roads—that the thought was that the strong roads would buy
ut the weaker roads—a fair valuation placed upon all the property
wned in the traffic district upon which the 6 per cent would be
arned, and there would therefore be less excess earnings, and less
jerefore to be paid into the general fund. I got that impression
rom what you said a moment ago. I thought your thought was that
dey would buy them out. ,
» Mr. Saumon. I think this plan will aid the stronger road, and will
Trove an incentive to the stronger roads to merge.
Mr. Srus. To merge?
- Mr. Satmon. Yes.
_ Mr. Srus. And does not “merge” simply mean buying out the
eaker roads by the stronger ones? I am simply using one language
nd you are using another, but do we not mean just the same thing?
286 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Does it not mean merger of ownership; in other words, a holding
company to hold all the property in a traffic district ?
Mr. Sautmon. No; I do not think there is anything in our plan tha
contemplates that. - In fact, our plan, while in favor of reducing thy
number of railways, is strongly in favor of competitive systems.
Mr. Srus. Does not merger reduce the competition between thi
properties merged ? 3
Mr. Saumon. I think go. |
Mr. Sims. Now, if there is to be a merger of all the railroad com
panies within a traffic district, what is that but single ownership 4
Mr. Satmon. There can be no merger, under our plan, except one
approved by the Federal Transportation Board, and if our idea was
carried out the Federal Transportation Board would not approve
of the merging of all of the roads in any district, or in any community
now served by two or more.roads, into one. Qur plan is very specifi
on that point.
Mr. Sims. If merging is a good thing in traffic districts, and the
etic result would be reduction of expense, what wrong is there
in it? | ) |
Mr. Satmon. I am not prepared to speculate on that point.
Mr. Srms. All such mergers that would take place, as I understan¢
it, under the approval of this operating commission to which yor
have referred would be in the public interests. Do you contemplaté
competition per se between traffic districts with rates in traffic dis)
tricts one, two, three, etc, we will say, being made different, if con’
ditions required or that in each of the traffic districts the roads ir
that district shall charge a rate common to it? Will there be com)
petition as between the different traffic districts?
Mr. Saumon. I should suppose so. |
Mr. Sims. I mean competition only with regard to service, 0)
course ?
Mr. Saumon. Yes, sir.
The CHatrMANn. Mr. Salmon, that concludes your participations
in the hearing. Nil
STATEMENT OF MR. EMORY R. JOHNSON, PROFESSOR OF TRAN S
PORTATION AND COMMERCE, UNIVERSITY OF PENNSYLVANIA, |
Mr. Jounson. Mr. Chairman, do you wish me to qualify in any)
way ? P |
The Cuarrman. No; I think this committee has known you for ¢
great many years, Mr. Johnson. . |
-Mr. Sims. All the members on the committee have not known him
for so long a time, Mr. Chairman, and perhaps, for the benefit 0
those members who have not known him, he might say a few word
as to his qualifications.
Mr. Jounson. I am professor of transportation and commerce a
the University of Pennsylvania; president of the National Institut*
of Social Sciences, and former member of the Publi¢ Service Com)
mission of Pennsylvania. |
Mr. Sims. And were you not also connected with the Panata:
Canal ?
Mr. Jonson. Yes; but that was some time ago, Judge Sims. |
was special commissioner on Panama Canal traffic and tolls.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 287
' The task that has been assigned me, gentlemen of the committee,
is to discuss the administrative agency by which the plan that has
deen submitted to you can be carried out. In discussing the execu-
aye side of the plan I must necessarily, and perhaps it is fortunately
30, sum up the whole plan, and that may prove helpful to the mem-
vers of the committee because it will be my duty, when I come to
mumerating the powers and duties of the proposed transportation
yoard to relate that board to the different parts of the plan as a
whole.
I want to say, before I begin reading the statement which has
deen prepared in advance, that the transportation conference is in
10 sense in a critical attitude toward the Interstate Commerce Com-
nission. We have, on the other hand, speaking now of the confer-
ee as a whole, a very high opinion of the work of the commission,
We do not propose that the function of rate making shall be taken
way from the commission, but rather that its rate-making functions
hall be enlarged. The major part of the Esch-Pomerene bill, which
you have under consideration, deals with the enlargement and spe-
jalization of the powers of the commission as regards rate making,
ind, as I understand the plan of the conference, there is no conflict
detween its plan and that part, and it is a major part, of the bilt
vhich you have specifically under consideration.
| It is not proposed by the National Transportation Conference tc
ake from the Interstate Commerce Commission’ powers which. it
tow has, but rather to give to the commission larger powers.
| The regulation of. railroads by the Federal Government will be
fore comprehensive and detailed in the future than it has been in
he past. Prior to the period of Government operation, the chief
oncern of the Government was to protect the public against unjust
ates and fares and to correct the abuses that had developed during
‘he period of intense railway competition; but when private oper-
tion is resumed the Government’s relation to the railroads will be
auch more than corrective in aim—it will be cooperative. Regula-
ion must become increasingly constructive—positive rather than
egative in purpose and method.
The people of the United States are looking forward to an even
etter railroad service than they have enjoyed in the past. They
elieve it will be possible for all railroads to render a service as ex-
allent as that which has been performed by the strongest and most
ficient systems. To make this possible, however, the number of
ulroad systems must be reduced by the grouping and consolida-
on of existing roads in accordance with plans approved by public
\uthority. Competition is not to be abandoned, but it is no longer
|) be a struggle of weak roads to maintain themselves alongside their
rong and jealous neighbors; it is to become the service rivalry of a
;mited number of vigorous systems of approximately equal strength.
| The strong railroad systems formed by the grouping of existing
julroads ought not to be owned and operated by corporations sub-
ject to the authority of the several States. These powerful cor-
/orations must in the public interest be brought under the jurisdic-
on of the United States. It is believed by the transportation con-
jrence that this seemingly difficult task can readily be accomplished
)y the enactment and enforcement of a Federal railroad incorpora-
288 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
tion act similar in principle to the national bank act, by means of;
which State banks are converted into Federal institutions.
The capital expenditures and the security issues of the consoli-|
dated railroad companies of the future are certain to be regulated by}
the United States Government. The agency that performs this task
will render the country a great service. In passing upon capital ex-
penditures of the railroads, public authority will sit in judgment)
upon the wisdom or unwisdom of proposed railroad improvements
or extensions and will in effect determine the lines of development of
the American railway system as a whole. Through the exercise of)
this authority it will be possible for the Government to bring about;
gradually the unification and the economic development of railroad
terminal facilities and services, to prevent the unnecessary construc:
tion of new lines, to require the physical connection of railroads and}
if Congress so wills, the connection and joint use of railroads and)
waterways. |
Through its regulation of rates and fares the Government has)
already come to determine the revenues of the railroads. In the)
future, in larger measure than in the past, the expenses of the rail-
roads will depend upon the requirements made by the regulatory
authorities of the Government. It is obvious that Congress and the
administrative agencies it creates must assume responsibility for the
adoption and enforcement of measures that will not only assure the
financial stability of the railroads, but will also enable the companies
to acquire and maintain such credit as will enable them to secure from|
the investing public the funds required for the adequate develop-
ment of the country’s railroad transportation system. Unless the
private railroads under Government regulation can thus secure capl-
tal from private investors, Government ownership must necessarily
follow. |
Broadly speaking, ‘there are three tasks of major importance thaw
must be accomplished to bring about, the permanent solution of the
railroad problem and to insure the success of Government regulation)
of railroads. The existing railway systems, many in number, and of
varying degrees of weakness and strength, must be brought togethe
into an appropriate number of vigorous competing systems; the cor
porations which control these large systems must owe their allegiance
to the Federal Government and observe its requirements as to expendi
tures, capitalization, and corporate practices; and laws must be en
acted and enforced that will assure to the railroads adequate revenue)
financial strength, and harmonius relations with their employees anc
with the public.
These tasks can not be accomplished unless Congress provides aj)
propriate and effective machinery for giving effect to legislative
policy. Railroad regulation is an executive problem. Its succesi
depends upon the creation of-an administrative agency with respon
sibilities and powers commensurate with the magnitude of the wor!
to be done and vested with that freedom of initiative and action tha
nee cause it to organize and to function as an effective executly:
ody. |
The plan of railroad legislation, that has been developed by th:
national transportation conference with the hope that tle delibera:
tions and conclusions of the conference may be helpful to Congres’
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 289
im its search for a permanent solution of the railroal question, calls
for the establishment of an administrative agency of large powers
ind heavy responsibilities. The conference does not favor placing
those powers and responsibilities in the hands of a Cabinet officer.
Phe members of the President’s Cabinet hold office for a compara-
ively few years. They are inevitably selected in large part because
yf the prominent place they occupy in the counsels and activities of
he political party in power. They are political appointees, and
heir administration of the railroads would almost certainly be politi-
ial, The adequate development and the technical efficiency of the
‘ailroads and other agencies of transportation are of such vital con-
equence to the people of the United States that it would be a public
aisfortune to allow political methods and party politics to control
ir even largely to influence the regulation of transportation agencies.
The transportation conference has, moreover, after very careful
omsideration of the subject, reached the conclusion that it would be
mwise to require the Interstate Commerce Commission to exercise
he administrative functions that must’ be performed to insure the
uccess of railroad regulations. As Mr. Harry A. Wheeler says in
4s explanatory statement regarding the conference plan of railroad
sgislation :
It is believed that the Interstate Commerce Commission ought not to be
urdened by the addition to the tasks it now performs of a large number of
dministrative duties. Should the commission, as is contemplated become the
uthority for the sole regulation of all railroad rates, rules, and regulations
ffecting interstate commerce, its duties will necessarily be enlarged. To re-
uire the commission to exercise the administrative functions contemplated in
‘1eé proposed plan of remedial railroad legislation would be to the detriment
{ the public interest, because it would seriously interfere with the prompt
ction of the commission as a body for the regulation of rates, the task for
hich it was especially created and for the performance of which it is peculiarly
lapted.
The conference recommends that a Federal transportation board
established. It should be an executive board, of at least five mem-
2s, and should be charged with the responsibility both of admin-
‘tering the act which Congress shall adopt for the regulation of rail-
lads and of bringing about the coordinated development of a national
‘stem of rail, water, and highway transportation. The proposed
ard should not be intrusted with the regulation of rates—that
iould be left with the Interstate Commerce Commission; nor should
(@ proposed board be concerned with the construction of waterways
id highways, which work should be done by appropriate agencies
pecially created by Congress. The following specific duties should
» performed by the Federal transportation board:
1. The board should determine and announce the grouping or consolidation
railroads deemed to be in. the public interest. An opportunity and incentive
Ould be given existing railroad companies to effect the desired consolidations
|, 0n their own initiative; but, if the desired mergers are not thus accomplished
; the railroads within a reasonable time the transportation board should have
|2 power to carry out the plans authorized by Congress for merging all rail-
) ds engaged in interstate commerce into a limited number of strong systems
| located that each important traffic district of the United States shall be
ved by more than one system.
t The board should have the authority to require, if compulsion is found
| ‘be necessary, the railroad companies as a condition precedent to the forma-
of consolidated railroad systems to become Federal corporations, either .
| the organization of new companies under Federal charters, or by changing
152894—19—-vvor, 1——_19
290 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
from State to Federal corporations in the manner suggested by the transporta-
tion conference.
3. The transportation board should be given authority to pass upon the
public necessity for the expenditure of capital (in excess of a minimum amount
stipulated by statute) by all earriers by rail engaged in interstate commerce,
This power should be so exercised as to prevent unnecessary duplication of
line or terminal railroad facilities, and as gradually to bring about the unifica-
tion of railroad terminal facilities and to accomplish that degree of coordina-
tion of rail, highway, and water terminal facilities that may be found to be
in the public interest.
4. The board should administer the general railroad contingent fund or
funds which, as the conference has pointed out, must be built up and main-
tained as a means of strengthening and stabilizing railroad credit. ‘The con-
ference does not favor a Government guaranty of a fixed return upon the
property of individual railroad companies. Instead of the fixed guaranty by
the Government, the conference favors a statutory rule of rate makng that will
yield the railroads as a whole a fair return upon the value of their property
devoted to the public service; and in order that railroad credit may really
be put upon a sound basis without imposing unreasonably high rates upon
the public, the conference recommends that railroads be required to turn over
the larger part of their excess profits into contingent funds which shall act
as financial shock absorbers. These funds should be administered by the
Federal transportation board; and of the many duties to be performed by the
board none will be of greater immediate value both to the carriers and to the
public. :
5. The transportation bourd should act as a referee in cases of disagreement
resulting in a deadlock of any of the boards which it is proposed by the trans-
portation conference shall be intrusted with the adjustment of wages, hours,
of employment, and other conditions of the service of railroad employees. It
is the hope of the transportation conference that the disputes between the rail-
road companies and their employees, which have in the past on more than one
occasion threatened to paralyze the industries of the country, may be avoided
in the future by continuing the method of adjusting wages, hours of labor,
and conditions of service that was adopted in 1917 and has been continued and
developed by the Railroad Administration. These boards which have to do
with the adjustment of wages, hours of labor, and conditions of service are
made up of equal numbers of representatives of the carriers and their em-
ployees. It is proposed that the transportation board act as referee in case of
a disagreement amounting to a deadlock in any of these boards. |
6. The transportation conference recommends that each of the corporations |
owning and operating the proposed consolidated railroad systems shall organize
with directorates of 12 members, “ one of whom shall be a representative of the
employees of the system and nominated for that position by such employees,
and three of whom shall be selected by the Federal transportation board to repr
resent the principal interests involved in the territory served by such system.”
The directors thus selected are to make regular and special reports to the
transportation board in accordance with the rules laid down by that board.
7. The transportation board should be authorized and required to inquire
into the practices of railroad management and to propose measures for pre
venting abuses therein. Because of the incompleteness of past regulation of
railroads, the financial and other practices of those irresponsible and ut
scrupulous men who unfortunately are to be found in limited number iD
practically every line of business have brought ruin upon some American rail-
road systems and have injured the security of all railroad companies in te
mind of the investing public. It should be the aim of the transportation board
to promote the legal and moral responsibility of railroad directorates and
railroad executive officers with a view to protecting the funds that have been:
invested by the public and to make railroad securities safe and attractive in-
vestments for the accumulating wealth of the Nation.
8. The plan adopted by the transportation conference provides that “It shall
be the general duty of the (transportation) board to promote the development
a national system of rail, water, and highway transportation.” The United
States, as a result of the initiative of its business men, has an excellent system
of railroads. Highway development, although long neglected, is now procecd-
ing rapidly, and motor transportation is being organized on a large scale. Ti
country is supplied with numerous waterways capable of large traffic uses whet
aystematically developed and properly coordinated with the railroads. What 18
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 297
‘now needed is a transportation board vested with the power and charged with
the duty of bringing the railroads, the waterways, and the highways together’
into a national transportation system. The railroads and waterwys must be
‘connected at river, lake, and ocean, terminals; through routes must be estab-
lished, through rates provided, and opportunities afforded shippers to dispatch
their goods on through bills of lading by such a combination of rail, water, and
highway carriers as will be most efficient and economical. This integration of
the different parts of the national transportation system can be brought about’
only by creating some single agency with authority over the use of railroads,
waterways, and highways.
In creating the Federal transportation board it will be desirable to
provide against conflict of jurisdiction between that board, the Inter-
‘state Commerce Commission, and the Shipping Board. It would not
‘be desirable to create a board that will encroach upon the work now
performed by the Interstate Commerce Commission or that will in--
terfere with the activites of the United States Shipping Board.
\What is needed is a board that will supplement and coordinate the
activities of the Interstate Commerce Commission, the Shipping
Board, and certain other agencies of the Government. The mind of
the Interstate Commerce Commission is now, and should continue to
jbe, upon the regulation of railroad rates and the determination of
the value of railroad property. The Shipping Board is temporarily
devoting itself mainly to the construction of vessels, but when war
conditions end it will seek to apply to the business of ocean transpor-
tation the general principles of regulation that have been applied to»
railroads with such modifications as are made necessary by the differ
ences between ocean and rail transportation.
_ The necessity for a Federal Transportation Board may be clearly
mdicated by a reference to the present regulation of terminal facili--
des and services. The Interstate Commerce Commission has cer-
ain authority over railroad terminals and the Shipping Board has:
amited powers over persons engaged in the performance of terminal
services at ocean ports; but neither body has adequate power at the
yerminals where water and rail carriers come together. There is no
thority that can unify terminal operations, that cau bring about
ihe physical connection and the traffic articulation of rail and water:
‘arriers.
There is no authority having the responsibility of formulating
dlans for the systematic development of transportation facilities by
‘ail and by water. We shall always have a disconnected and uneco-
1omical system of transportation in the United States until we cre-
ite a board whose mind shall be upon the whole transportation prob-
em. :
, The board intrusted with the duties that have been briefly enu-
‘fterated should be composed of men of the highest character and
ttaimments. Their responsibilities will equal, if not exceed, those:
if the Federal Reserve Board, whose creation at a critical period in.
he history of the United States has proven to have been of incal-
wlable benefit. The proposed transportation board will have an
‘pportunity to perform an even greater service. Its duty will be
0 guide and facilitate the development of a truly national system of
,tansportation.
The Cuarrman. I just wish to ask you a few questions, Mr. John-
om. Before I submitted this pending bill in this Congress, and
| fter I had submitted one in the last Congress, I seriously consid-
292 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ered the matter of including in it motor-truck transportation, giving
the commission the same powers over motor-truck routes that they
now have over rail lines. The proposition met with a good deal of
opposition from motor-truck companfes, motor manufacturers, traffic |
men, and others, on the ground that the state of the art was as yet
so undeveloped that it should not be handicapped by making motor-_
truck routes common carriers; that it doubtless would come that
they would be made common carriers, and placed under the juris-—
diction of some Federal authority, but that that time was not now.
I was somewhat persuaded that that argument was good, and so
there is nothing in the pending bill that covers motor-truck service.
Do you believe that there should be?
Mr. Jonnson. The question when it would be wise to make the
motor truck common carriers subject to regulation by law would
necessarily be a question of judgment. My own conviction is that
those carriers by highways that have organized interstate services
probably ought at the present time to be declared to be such common
carriers. Congress might think it wise to make that feature of the
law effective two years hence, or at a specified later date; but I think
if the time has not now come for the interstate carriers by public
highway to be under Federal jurisdiction, the time will inevitably
come in the not distant future when they should be treated as other
organized carriers—that is, made common carriers under the law.
The Cuatrman. Do you realize that there is a deep-seated prejudice |
against the creation of further boards and commissions? |
Mr. Jounson. Yes; I know there is a very definite prejudice of|
that kind. |
The CuarrMan. Your plan would add another, and divide juris-
diction between it and an existing commission. |
Mr. Jonnson. It would.
The Cuatrman. And you believe that that would be necessary to
the carrying out of your plan. Do you believe that there should be.
a division of the quasi-judicial powers of the Interstate Commerce’
Commission and the powers of an administrative character that it}
now exercises ? 4
Mr. Jonson. The thought of the conference was that the Interstate)
Commerce Commission, in the regulation of rates, the determination|
of value of the railroad property, which, under the law, is a continu-|
ing duty, and the various other obligations it has under the inter-|
state commerce act as it hds developed in the last 32 years, has as
much as it can adequately and promptly perform. There is another
aspect of the situation: The Interstate Commerce Commission is &|
body of nine men. Their main problem is a semijudicial problem ;)
it is that of investigation, hearing, and weighing evidence, and|
determining cases brought before it or cases instituted upon its)
own motion. It is not organized, and can hardly be organized, as
the most efficient executive body, and if you were to make it primarily}
an executive body you would probably interfere with its best func}
tioning as a rate-regulating commission. Let me observe, further,
that it is not so much proposed to divide the functions of the Inter-)
state Commerce Commission as it is proposed that numerous new)
duties shall not be imposed upon the commission, but shall he}
required of a new body organized especially for the performance 01)
these added duties. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 293
The Cuarrman. In any event, would it be wise to take from the
Interstate Commerce Commission its duties with reference to in-
yestigating violations of the various acts, the enforcement of which
has been intrusted to it?
_ Mr. Jounson. The conference gave careful consideration to that
question
The Cuatrman. With what conclusion ?
Mr. Jounson. And it had the benefit of the advice of a member of
the Interstate Commerce Commission, who participated in the discus’
sion, and at the conclusion we decided that we would not advise
disturbing the present duties of the Interstate Commerce Com-
mission. |
The Cuarrman. These boards.of directors that are to be estab-
lished over the various systems are boards for operation and would
nave nothing to do with the labor situation; am I correct ?
Mr. Jounson. They are to be the directorates of the consolidated
railroad companies which we are looking forward to when the per-
nanent solution of the railroad problem shall have been worked out.
[hey would have all the duties which a board of directors of a rail-
oad company would be required to perform. I may not have under-
stood your question, Mr. Chairman. |
The Cuarrman. You talked about wage committees under the ex-
sting Federal control. Is it your idea, under your plan, that those
vage committees or like committees should be continued ?
_ Mr. Jonnson. That is the recommendation of the conference; that
8, that the adjustment boards which originated early in 1917, as you
ire aware—the first one of them originated early in 1917—should be
ontinued and their duties and functions adapted to the changed
ituation that will result from the return of the railroads to their
orporate owners.
The Cuarrman. What change would that involve?
Mr. Jounson. I am willing to testify on that, Mr. Chairman, al-
hough Mr. Doak, who has dived with those boards from the very
lay of their inception, can speak with much more authority and
auch more intimate knowledge than I could.
' The Cuatrman. Will he be here to-morrow ?
| Mr. Jounson. I understand he will be here at your call.
The CuarrMan. Then I will not pursue that line of inquiry fur-
her now. Are there any inquiries by the members of the committee ?
Mr. Sms. I would like to ask a few questions. The Chairman has
suched upon a very interesting subject, which had not been brought
p before, regarding interstate motor carriers. I suppose you are
ware that bills have been introduced in Congress by which the Gov-
tament would be authorized to construct transcontinental highways
t public expense ?
:. JOHNSON. You refer to the Newberry-Townsend bill, I have no
oubt.
| Mr. Srts. I do not know what bill it is. I think Mr. Osborne in-
soduced one. In any event, it is the theory of some people that the
‘nited States should be gridironed from ocean to ocean and from the
Teat Lakes to the Gulf with great public highways, and that that
ould make for the greatest possible development of the whole
yuntry. Now, what is your thought with reference to the proba-
lity of such a proposition being carried out ?
294 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Jounson. As to the probability, did you say ‘
Mr. Stmus. Yes; as to the probability. .
Mr. Jounson. It involves legislation, and you would be a much
‘better prophet on that than I would be, because you are a Member of
‘Congress.
Mr. Stars. Well, the people generally get what they want, if they
want it long enough and try hard enough.
Mr. Jounson. Then I think it will come ultimately.
* Mr. Sts. That is exactly what I think, too—that there will be
hundreds of millions of dollars invested by the United States Gov-
ernment in highways that will be used to a great extent in the trans
porting of persons and property from one State to another. Now,
will not such a system of highway carriers necessarily compete with :
the railroads? :
Mr. Jounson. No; I think not. I think they will primarily serve
as a feeder to or complement of the railroad system. There will be
a certain amount of competition; that is, a man may ship his furnt-
ture or certain other goods from New York to Philadelphia by motor
truck instead of by rail. With the development of hard-surfaced
highways and with the organization and economical operation of
motor transportation, the shipper will probably make his short ship-
ments—up to, say, 25 miles—preferably by motor truck. I refer to
package freight. JI think that is coming. That would be welcomed,
as I understand it, by the railroads themselves, because they would
be able to handle their traftic, as a whole, better if their larger termi-
nals could be relieved of a considerable part of this short-haul busi-
ness, that is adapted to motor transportation. But we are now gét-
ting into the theory of transportation, and I fear we will go too far.
Mr. Sus. But these great transcontinental highways, from ocean
+o ocean and from Lake to Gulf, certainly would not be used entirely
for short hauls?
Mr. Jounson. I do not imagine that you or I would ship our goods
across country by motor. ¢
Mr. Sirus. I do not mean necessarily shipments from coast to coast
or from the Lake to the Gulf, but it would not be confined to ship-
ments of only’20 or even 50 miles in length? t
- Mr. Jonson. I would say they would be used, with decreasmg
frequency, under special conditions, up to several hundred miles.
There might be occasions when you would prefer to send your things
to Tennessee by two or three motor vans instead of getting a rail-
ae car, but I imagine those occasions would be very exceptional,
Judge.
Mr. Situs. When it comes to the Government furnishing all tie
capital for the purpose of building the highway and then maintayl-
ing it at public expense, and the only expense to be incurred by the
carrier being the transportation expenses—that is, the truck and 1s
operation—it seems to me that so far as high-class traffic is con-
cerned it would be a serious source of competition with the railroad.
Mr. Jounson. It is not, fortunately, my responsibility to legislate
on that question, but I suggest the possibility of securing by licenses
and other appropriate taxes upon the vehicles of motor-transporta-
tion companies a revenue that may appropriately be devoted to the
maintenance of these highwaws of which you speak. That is a policy
|
{
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 295
‘which has already been adopted in several States, and, so far as I can
see offhand, the same principle might be applied on interstate high-
ways.
Mr. Sims. Do you regard it as any violation of the basic principles
of government or sound economics that transportation should take
place at the cost of producing it?
Mr. Jounson. I think it is well to get the cast of service back
whenever you can, Judge.
Mr. Sims. Then you would be opposed to the building of high-
ways by the United States or State governments or municipalities?
Mr. Jounson. No; I did not say that.
Mr. Sims: If it is contrary to principle and to sound economics
that transportation should be performed at the cost of performing
it, there can possibly be no profit in these highways that are Gov-
ernment owned and Government built, and maintained by the Gov-
‘ernment; it does not matter whether it be National, State, or munici-
pal Government.
_ Mr. Jonnson. My own State is at the present time collecting, I
think, between $4,000,000 and $5,000,000 from the owners and users
‘of automobiles and auto trucks per annum.
_ Mr. Sis. Is that sufficient to make a profitable return to the State
upon what it cost to build those roads?
Mr. Jonnson. No; the State needs to spend a great deal more than
‘that, and, wisely, is doing it.
Mr. Srus. Now, if a State government or the National Govern-
ment should furnish the capital to construct the transportation fa-
‘cilities for one method of transportation, and that a competing one,
why is it that the State or the Nation should not do something for the
railway companies that have to do the same sort of business in the
same way?
Mr. Jomnson. I personally would let the railroads look out for
themselves as to that. To be serious. I do not think that the Gov-
ernment’s money need be put into the railroads if the Government
will adopt a policy whereby the railroads can secure their capital
from private investors. Capital can be secured from private in-
vestors for railroad development, and it obvionsly can not be secured
for the development of highways. Public funds must be used for
the development of highways. ‘They need not be used for the devel-
opment of railroads.
Mr. Sims. Why does it have to be provided by private investors ?
Mr. Jounson. You can not get it any other way.
Mr. Sims. Why?
Mr. Jounson. It is an ultimate fact.
Mr. Sims. Because the public highways are not profitable, the
money for them has to-be provided by the Government ?
Mr. Jounson. You and I would not put our money into highways.
| Mr. Sms. No; and we would not put it into a railroad if we did
| not expect to get something more than the operating cost out of it.
LI would not.
, Mr. Jounson. That is true, too.
Mr. Srus. When it is recognized as a Government function and
| obligation to provide facilities of transportation that will be best
| calculated to develop the resources of the country and to maintain
>
296 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
them, why should it be dependent upon profits of any kind or any
percentage of return upon the investment—private investment—-to
make it attractive, to make it profitable ?
Mr, Jounson. If the Congress does not adopt a policy that will
enable the private owners of the railroads to secure the funds which
they need to develop the transportation system required by the
country, the Government must put up the money for the railroads.
You raise the fundamental question whether it is wiser to develop
railroads from public funds or_from private funds. I recognize
that is a fundamental question, Mr. Chairman, but it is a question
which, so far as the transportation conference is concerned, was
decided in favor of corporate ownership, and the reasons for it might
be recited, but I think we hardly need to go into that unless you
want me to.
Mr. Sims. Let me ask you this: I do not know that I could ask
anyone better qualified to make fundamental answers to fundamental
questions than yourself. Suppose the Government of the United
States should acquire all the fixed property of the railroads—the
terminals, the roadways, the permanent structures, the real estate,
but not touch the transportation facilities—that is, the equipment or
anything of that sort—and lease the property to the existing corpora-
tions or any other corporations that might be organized for the pur-
pose of operation. The Government could acquire this property
and then pay no taxes on it. That would be the result; and then
provide that the bonds issued for this purpose should not pay any
taxes. Would not the expense of operation of the railroads—that is,
the difference between paying what would be a reasonable interest
and what they now must pay in the way of a 6 per cent return
under your plan—could not the actual operation of the railroads
be much more profitably conducted, so far as that is concerned—the
amount of money invested in the operating property—than they can.
ever be if they have the roadbed and structures and roadways pri-
vately owned, on which they are taxed, maybe by the Nation, the
State, and the municipalities in various ways? :
Mr. Jounson. Probably the most complete and shortest answer J
could make to your question is that it has been tried in several coun—
tries, and those countries have not found that it worked out satis- |
factorily. Italy, for instance, tried that very thing and gave it up.
Mr. Srus. I know all those things. I am talking about the United
States.
_ Mr. Jounson. If the United States were to try it I suppose our
experience would be similar to that of other countries.
Mr. Srus. They are operating as well as owning. |
Mr. Jounson. I beg your pardon. Italy did not operate for 20°
ears.
Y Mr. Sts. She is operating now.
Mr. Jounson. She leased the State railroads to three big compa-
nies, and the service and the system went from bad to worse; and,
at the end of 18 years the Government said, “At the end of the first
20 years, as we may under the contract, we will take back the proper-
ties and operate them as a Gover nment function.” |
Mr. Sus. I want to ask you this, if you know: For instance, say
that the railroads are worth $16,000 ,000 000. I do not ea but
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 297
iy that they are worth $16,000,000,000. About what is the value
f{ the fixed property, not devoted to operation, not including en-
ines, and things of that sort? I do not mean property owned that
‘not used for carrier purposes, but the permanent fixed carrier
roperty. About what per cent of it is fixed as to the value of all
1e property ?
Mr. Jonnson. I have never seen any figures that segregated the
alue of movable property from fixed property of the railroads.
Mr. Sims. Well, I have, but I do not know whether they were
yrrect or not.
Mr. Jounson. I doubt it.
Mr. Sims. I got them from a statement given out by some en-
neers. ,
Mr. Jounson. I am very certain there are no official figures—
gures that one would accept as correct. |
‘Mr. Stus. Their estimate was that it was 75 per cent. I mean,
iat it was $16,000,000,000 altogether, and that the fixed property
ypresented $12,000,000,000, and all the rest of the property repre-
mted $4,000,000,000. The standard return paid all the railroads
wing the war, based upon prewar earnings, including the two
ars in which war existed in Europe, and during which the returns
1 the carriers from operation were very great, amounts to $940,-
10,000. Now, 3 per cent untaxed bonds on untaxed roads, on $12,-
)0,000,000, would only be $360,000,000 a year, and the other $4,000,-
0,000, at 6 per cent—the two together—would be much less than
140,000,000—decidedly less, and that is the total net operating in-
me of the railroads. Now, if the railroads were relieved of State
xation, and if the Government would always own the fixed prop-
ty—the 75 per cent or 80 per cent, or whatever it may be—and
ey would only have to earn a proper return, say 6 per cent, upon
e rest of the investment, and operate just as they do now, under the
iterstate Commerce Commission and under the State commis-
oms—any way you please—the question of railroad credit would
«solved; and let the Government have its return in the way of a
rtain per cent of the gross earnings of each road—a small per cent.
% the bonds be made without a maturity date, and subject to call on
mand at the option of the Government, with no taxes on the rail-
ad property itself and no taxes on the bonds. Then the question
railroad credit would be settled, and you would have all the private
itiative for operation that we now have, and Wall Street would no
ager be burdened with the devising of schemes to increase the
rings of railroads to be divided among the stockholders and the
ndholders.
Mr. Jonnson. I am afraid, Judge, if I should discuss that ques-
on I would violate the rules laid down by the Chairman when he
| ened these hearings.
Mr. Sms. We all do that.
\Mr. Jomnson. You will recall that he said we would not take
_the discussion of Government ownership.
‘Mr. Sims. What I mean is that none of these temporary expe-
}mts will indure. The entire fabric of the railroad system—in-
iding the financial fabric—has been built up as a kind of patch-
prk, and now it has failed of its purpose, and my honest opinion
298 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
is that the day will never come when ¢onditions will not be unsatis!
factory, and that this plan proposed by the executives, by you
committee, and the so-called Warfield plan, all of them are merely
temporary palliatives, and the time will never come, under th
present system, when you will have a permanently settled conditior
that will last with any reasonable assurance for the future.
The Cuairman. Are there any further questions?
Mr. Watson. Mr. Johnson, in considering the grouping of rail
roads, have you taken into consideration the independent shor
lines—lines that probably hardly meet their operating expenses #
Mr. Jounson. That question has not been overlooked, Mr. Watson}
and it is one of the difficult questions which the Interstate Com
merce Commission must deal with. It is primarily the question 0
what is the appropriate distribution of the through rate betwee)
the short line and the trunk line; and I think it is obvious that thy
short line should be protected and its development assured. Iti
hoped that by the grouping of the railroads during the next fiy)
years those lines may become parts of the systems of which the)
are really feeders.
Mr. Watson. There are a great many short lines, between 20 an
100 miles in length, which no doubt would be very glad to get int
this group.
Mr. Jounson. Yes. In regard to that matter of grouping, Mi
Watson—and Mr. Merritt also has asked a question which I ma
answer in this connection, in part at least—the transportation con
ference looks forward to a period a few years hence when the value
of all the railroad properties and of each railroad property sha!
have been officially ascertained, so that the large road and the sma
road will have had its value officially determined. From that tim
on these railroads will stand in -elation to each other as their value
are related financially. The conference looks forward to a minimul
of 6 per cent per annum, from the rates, for the aggregate propert
of the railroads. Now, if road A—a large road—has in its neighbot|
hood road B—a small and perhaps weaker road—road A will be, firs
of all, allowed to take over road B at the valuation fixed by the Gov
ernment, if road B is willing to sell; but road A shall not be allowe
to do that unless road A becomes subject: to Federal jurisdictioy)
Federal incorporation is a prerequisite. Road B, the weaker roa
will probably decide to accept the offer of the stronger road wlie
it is made, because the value of road B has been officially determines
There are no possibilities of speculative increase in the value
that property. It is now upon an established relationship with ¥
neighbor. |
Mr. Merritt. May I interrupt for a moment? |
Mr. Jonnson. Yes; Mr. Merritt. |
Mr. Merrirr. It is conceivable, of course, that road A and road -
would have an identical fair valuation, while perhaps road A he
very few bonds, or no bonds, while road B is loaded up to &
‘muzzle. Now, then, of course, what road A is taking over in &
purchase is the equity of road B, is it not? |
Mr. Jonnson. Yes.
Mr. Merrirr. Now, as a matter of law, can you compel the st
holders or those who own the equity in road B to consolidate if t
do not wish to?
Cond
he
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 299
Mr. Jounson. Very good lawyers have said that the Federal Gov-
‘ment could give road A the right to condemn road B and take
/over. I am not a lawyer, and so I can ask to be excused.
“Mr. Merrirr. I was wondering how you were going to accomplish
iat. That is somewhat technical.
‘Mr. Warson. Suppose the transportation board is established,
ad the groupings are all made, will not the railroads lose their
dividuality? That is, would a strong road be willing to invest its
‘oney in terminals and extensions when it finds it is going to be
the benefit of the other roads in that same group ?
~Mr. Jounson. The conference hopes that the principle of compe-
‘tion can be maintained along with the working out of these con-
lidated systems; that is, it looks forward to the continued com-
tition of the New York Central System, the Pennsylvania Sys-
m, and the Baltimore & Ohio System, for instance. I do not mean
say that those will necessarily be the only ultimate systems in
e territory they serve, but I think it is safe to predict that they
ould be systems that would be perpetuated and would be the
nters of the group of roads in their respective territories. The
‘mference looks forward to future rivalry between those strong
‘stems, in service, under conditions and limitations set forth in
ypropriate legislation.
Mr. Watson. You think there is enough competition to develop
eat railroad men, the same as they have been developed in the
‘ist, under this grouping system ?
| Mr. Jonnson. I think so, if Congress and the regulatory agencies
| not place too serious limitations upon the results of individual
tort. 3
| Mr. Watson. That is the point. Are you in favor of a tribunal
| ith power to regulate the wages for railroad men in order that the
jiterstate Commerce Commission may regulate rates for railroads?
Mr. Jounson. I agree with the testimony of Commissioner Clark
at it would not be well to require of the Interstate Commerce
}ommission the fixing of railroad wages and conditions of service.
| Mr. Warson. You would favor a separate tribunal for that pur-
se then, would you?
‘Mr. Jounson. The plan of the conference, which meets with my
} sonal approvel, is that dual boards of equal representatives of the
/ilroads and their employees should first attempt to reach har-
oOniously an agreement as to wages and conditions of labor. If
ey are unable to agree, then the conference plan provides that
e Federal Transportation Board shall determine the question when
ere is a deadlock.
Mr. Watson. You mentioned that probably the Shipping Board
ight have control of ocean travel in the future. Would you extend
/@ authority to fix rates to the ocean carriers as well as to, the
{ilroads?
Mr. Jounson. If I understand your question, Mr. Watson, I
ould not at present recommend that the Shipping Board’s power
der the act of September 7, 1916, be increased. I would prefer
see the Shipping Board function for a period under the act. It
‘Snot really done so as yet, because the war came on so soon.
Mr. Watson. You intimated that some day it might have control
the ocean carriers?
300 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Jounson. I would prefer to meet that question when it arises,
Mr. Watson. I thought you made the suggestion.
Mr. Jounson. I had in mind a saving clause
Mr. Watson. I thought probably you alluded to the fact that the
Shipping Board in the future may go into the business of ocean
transportation ? 7 :
Mr. Jonnson. With such modifications as are made necessary by
the differences between ocean and rail transportation :
Mr. Warson. You anticipate that ? :
Mr. Jounson. Frankly, I expect. that the rates of carriers by water
will ultimately come under the control of the regulatory power of
the Government.
-The Cuarrman. Even as to tramps?
Mr. Jounson. I do not think that is practicable. For the most
part, as you are aware, Mr. Chairman, the tramp is not a.common
carrier for the larger part of its traffic. It carries by contract’ with
the shipper. |
The CHarrMAn. It has no stated route or schedule, and yet it per-
forms a very valuable function in the commerce of the world.
Mr. Denison. Did the conference consider, Mr. Johnson, that the
Interstate Commerce Commission should initiate all freight rates on
the railroads? .
Mr. Jounson. The transportation conference leaves rate regulation
with the Interstate Commerce Commission, and the plan recommends
that Congress give the commission certain guidance by statute as tc
a minimum amount of revenue to be produced by the rates. The
conference has not expressed itself upon whether rates shall initiate
with the carriers or with the commission. My personal view on that
is very definite. I believe the rates ought to begin with the carriers
and be reviewed and corrected and adapted by public authority.
Mr. Denison. Did the conference have any recommendation as t€
the tenure of office of the members of the transportation board ?
Mr. Jonnson. The conference did not. A tentative draft of a bil!
was prepared by Mr. Smith, who testified here. As I remember, he
had a six-year term, but Iam not certain about that. +]
Mr. Posr. Ten years.
Mr. Jounson. Ten years. |
Mr. Denison. To be appointed by the President and confirmed |y
the Senate, I presume?
Mr. JouHnson. Yes. |
Mr. Dentson. Now, of course, I understand you are committet
to this plan that has been submitted, but I would like to get your 1m)
dividual opinion as to whether or not it would be workable for thé
Interstate Commerce Commission to be increased to, say, 12 members
and the work that is in your plan to be submitted to the transportatior)
board delegated to a sul.division of the Interstate Commerce Cor
mission, composed of 8 members, with the right of appeal to the
whole commission. |
Mr. Jounson. My own personal opinion is very definite that 1)
would be more effective to have a separate body, not three members
added to the Interstate Commerce Commission. I think we musi}
look forward, or ought to look forward, to the most effective execu)
tive body that Congress can create. I would make it an egtirels)
:
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 301
‘ew body, with very definite powers and very large responsibilities,
nd I would give it very large latitude. I believe personally that
he results would be much more satisfactory than would be sectired
rom an enlarged commission, much as I admire the Interstate Com-
aerce Commission, and I have known their membership personally
or many years. I do not think that their methods can become as
ficient administratively as such a body as the transportation con-
arence recommends. 3
Mr. Denison. Is there any particular reason why the board should
e composed of five members instead of three?
‘Mr. Jounson. No; that ought to be determined by the wisdom of
longress. I had. thought personally, first, of three members. Some
thers had thought of seven, and you know how different thoughts
nally express themselves in the medium of extremes. I think,
cowever, five members gives a commission not too large for executive
‘ction and yet large enough to have the combined judgment of
yveral men.
The CuarrMan. That concludes the hearing for this afternoon, and
will recess now until to-morrow morning at 10 o’clock, when
tr. Doak will be ready. |
'Mr. Jounson. Yes.
(Whereupon, at 4.50 o’clock p. m., the committee adjourned until
riday, July 25, 1919, at 10 o’clock a. m.)
CoMMITTEE ON INTERSTATE AND ForEIGN CoMMERCE,
Hovuss oF REPRESENTATIVES,
Friday, July 25, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
an) presiding.
tATEMENT OF MR. W. N. DOAK, VICE PRESIDENT BROTHERHOOD
OF RAILROAD TRAINMEN, WASHINGTON, D. C.
r. Doak, state whom you represent.
Mr. Doax. I am here, Mr. Chairman, this morning in my indi-
dual capacity. I am vice president of the Brotherhood of Rail-:
ad Trainmen. |
Mr. Wrnstow. But you do not appear for the brotherhood?
Mr. Doax. No; not in this instance.
Gentlemen, in appearing before the committee this morning f
1 so at the request of the national transportation conference com-/
ittee to discuss only one subject of this proposed plan, and that
the plan indorsed by the national transportation conference deal-
g with the adjustment of labor disputes.
It is only fair to say to the committee that the railroad brother-}
ods are committed to another plan. All of the organizations have
\dorsed what is known as the Plumb plan which is a form of Gov-
ament ownership. Consequently, the organized labor of the rail-
ads and I myself are committed—tothat—plan, but having spent
\veral months, or having spent some time during several months
|
|
The Cuarrman. Mr. Doak will present his testimony at this time.
302 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
with the gentlemen composing the national transportation conference
und discussing the different phases of this question, the national con-
ference has adopted the same plan of adjusting wages an :
of-service as proposed J Plumb plan, and having had a part in
those conferences, I was requested_by the con ;
the committee and _present.their_views_on_this subject.
T want to make this statement, in fairness and justice to the gen-
tlemen of the conference—that they have made a most exhaustive
tudy, and all of their deliberations have been conducted with the
utmost frankness and freedom. They tried to assemble as many rej-
resentative men as it was possible in this conference from the differ-
ent walks of life, and every one has had an opportunity in their con-
ferences to frankly and freely express his views, and I am quite sure
‘that the committee can well afford to give consideration to their plan,
I am convinced that there are no selfish or ulterior motives that
‘prompted these gentlemen during their deliberations.
We differ on the question of Government and private ownership.
I think there are some most excellent features connected with this
plan, and if we have Government ownership, I think the -Plumb|
plan is the only one’that has been proposed that would cover the
situation fully. If private ownership is to be the policy, I think if}
would be well to give careful consideration to the plan adopted hy
the national conference. a
Mr. Wheeler and other gentlemen have appeared before you and)
have discussed the different features of the plan. I shall only dwell
on this feature:
The conference favors the adjustment of wages, hours of labor, and othei|
conditions of service of railroad employees by boards consisting of equal num
bers of representatives of employees and officers of the railroads, with appeal)
in cases of the disagreement (deadlocks) of an adjustment board, to the Federa’
Transportation Board as referee. |
The Cuarrman. You are reading from page 234
Mr. Doax. I am reading from page 15 of the program. ai
The Carman. It also appears. on page 23 as a part of the drat)
of the bill given in Mr. Wheeler’s pamphlet. ; |
Mr. Jounson. I may say, Mr. Chairman, that we will send to eact)
member of the committee the books containing all the statement)
made by the members of the conference. |
Mr. Doax. For the purpose of identification, I will refer to pag)
23 of Mr. Wheeler’s statement. | |
For a number of years the question of the adjustment of dispute
arising from requests for increases in wages and the adjustment 0
many of the numerous grievances arising on the railroads has been!
subject of general public concern. |
In this country we have always had what might be termed volun
tary systems; and I think that under our old Erdman Act, whic),
was later supplanted by the Newlands Act, we have had more accom
modations than in any other country in the world, with their s0
called compulsory acts or labor courts, and practically all of thes|
matters have been disposed of without any suspension of business.
But in 1916, when the four transportation brotherhoods inaw
rated their 8-hour movement, an accommodation was not had unde
the provisions of this law, with the result that Congress, after
q
:
:
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 303
resident had intervened, passed what was known as the Adamson
IW
There has been a great deal of difference of opinion as to that par-
zular law. Personally, I do not know whether it ever amounted to
tything or not, because, outside of a declaration by the court hold-
g it to be constitutional in practical application, we do not know
hat it means. It temporarily stopped any action on the part of the
aployees in looking to a suspension of business, but it did not
ttle the question. It was a mere declaration, and, as*a result, the
aployees finally had to take steps to see that it became effective or
‘at the 8-hour day became effective. A second serious crisis be-
me almost inevitable, it seemed, and on the morning of the 19th of
arch, 1917, before the court had finally passed on the constitu-
mality of the act, an agreement was reached between the national
nierence committee of railroads and the representatives of the em-
pees providing a method for the application of the 8-hour day.
One plan provided how it would be applied in the event the law
is declared unconstitutional, and another how it would be applied
_the event it was declared constitutional. At noon that day the
jurt, after this agreement had been reached, rendered its decision,
holding the constitutionality of the act.
At this conference certain basic principles for the application of
e basic 8-hour day were outlined; but anticipating that with all
the care that had been exercised there would be many contro-
rsies arising when this law was to be applied to sixteen or seven-
ee ee ecbedales over the country, the parties agreed
at there would be a commission appointed composed of four man-
ers or four representatives of the railways and four representa-
res of the employees, whose duty it would.be to apply this prin-
dle to the different schedules and settle all questions of controversy
ising from the application of the basic 8-hour day.
This commission was in existence about a year, or probably a)
tle over a year, and during that time they had somewhere in the |
ighborhood of between thirty.and_forty thousand disputes arising |
|t of the application of this basic 8-hour day to the individual
jiedules. But the singular feature of it was this, that of these
)/merous cases that were referred to them their decision was unani-
|)us in all the cases with the exception-of one or two. |
js a result, when the contention of different ones followed that
| Was neecessary to have some compulsory form of investigation or
itration in this country, the transportation brotherhoods ap-
ied before your committee and stated that they believed it was
wise to attempt a plan of that kind, and they thought more good
{ud be accomplished if we had voluntary boards, or even a feder-
y created board, evenly balanced, to adjust all wage disputes.
After the declaration of war there was no desire on the part of
y of the employees to interfere with transportation in any way;
1 after the period of governmental control it was decided that
‘re would be created a commission or a board with extended
hhority to take the place of the commission of eight that was cre-
l solely for he purpose of handling questions arising out of the
dlication of the basic 8-hour day, and an agreement was entered
‘0 by the chief executives of the organizations, on the one hand,
|
|
|
. -
304 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. :
and the regional directors on the other, and approved by the directc |
general, and issued in what is known as General Order No. 13
There were eight men selected. The regional directors on the on
hand, selected four operating officers and the chief executives o
the four transportation brotherhoods, on the other hand, selectec
four officers, one from each of the respective organizations. The
eee organized on April 8, 1918, and_up to the recess of the
board last night we had handled about 1,100_ disputes, involving
almost every form of discipline and schedule disagreements imag
nable, and no dissenting opinion has yet been filed by the board, anc
I think it is safe to say that in practically all of these cases ther
as a unanimous decision of the board. ae
( Following the creation of railway board of adjustment No. 1, ¢
‘short time, railway board of adjustment No. 2 was created, whie¢
/handles cases of shop men, and it is created just in the same manne
‘with an equal number on each side. Later, railroad board of ad
justment No. 3 was created, which takes in the other classes of em
ployees on the railroads.
Mr. Srus. All other classes?
Mr. Doax. All of the remaining classes on the railroads.
Mr. Dewar. What does railway board No. 1 handle?
Mr. Doax. Disputes of the four transportation brotherhood em
loyees. |
; With the issuance of General Order No. 27, which is a wage order
which was issued about the 1st of June of last year and made re
troactive to January 1, 1918, the director general provided for th
creation of a wage board whose duty it would be to investigate wag
questions and make recommendations to the director general.
board has been functioning since that time.
The CuarrMAn. That is an additional board to the adjustmen
boards. ; |
Mr. Doax. Yes, Mr. Chairman, it handles only questions pertain
ing to the wages of employees, increases in wages, and it is pure
an advisory board that makes exhaustive studies. They study th as
“mestions éIl the time and make their recommendations to the cliree
or general. Boards of adjustment—have—abselute authority a2
their decision is final, and not subject toreview-b the director get
ral-onty in such cases where- NM terpretation of a wa z
rder, and in s-cases we review them and make the recommen
[dations to the director-general as to how it-would be~apphed 0:
ithat_certain property. mt
When the national transportation conference met, labor repre
sentatives were invited to participate in the conference, and I pre
sented, or tried to present to the gentlemen of the conference, tl
question just as I am presenting it now, in about the same langt
and in about the same way, with the result that they indorsed t»
principle, and they asked me to present it to your committee as
had to them. t
The question may be asked, whether or not this would work 0
under private ownership? I will say to you frankly that a plan ¢
this kind can be worked out under any form, be it Government regt
lation, strictly private ownership, or Government ownership: becaus
it has been tried out under private ownership and it has been trie
TQ as
ad
ie
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 305
J
at under Government control, and so far it has been a decided
‘1ecess. No one ever thought years ago that such a thing was pos-
ble—to take eight partisans, if you please, or so-called partisans,
4d put them on a board, that they would settle such disputes, but
aving served on Board No. 1 since it was created, I am prepared
say that the four gentlemen representing the railroads have met us
‘the broadest, most liberal manner, and you would be surprised to
ow how easy it is for us to arrive at a conclusion after we hear
@ arguments in a case.
:
In eevee deadlock, there is provision made that the direc-
-r_general will act.as the referee, but_in case five of us agree, that
ral
| Knowing that, we have tried to reach an agreement, and }
¢
@ have, in every single case that has been presented to us.
Je
_I have no doubt the question would be raised as to who would act
referee. That is a matter that could be very easily taken care of,
ad: of course, in the plan that the national conference has adopted,
ey provide that the transportation board shall act as referee, and
assume that when you get through with this legislation, whether
is Government ownership or what not, there will be some kind
a board created, and whatever that board is, it can easily referee
j re cases, because from past experience, the referee has nothing
ao.
Té would no doubt be asked, how you could handle it if you had
ictly private ownership, where would you get authority? That
very easily answered. In my opinion, practically all the railroads
| ll come in and the organizations will come in. Those that do not,
+3 two parties will make it very uncomfortable for them before they
¢ through with them and they will be glad enough to come in.
Mr. Denison. Whom do you mean by the two parties?
Mr. Doax. The railroad managers who have come in on the one
‘6 and the employees on the other side. We found in the experi-
*e of the commission of eight that certain railroads did not give
thority to the national conference committee to represent them.
, ter when they were confronted with the question of either settling
4 the employees or having their business seriously interfered with,
4y came to the board and asked them to arbitrate their differences.
» have acted as arbitrators in several cases on Railway Board
justment No. 1 on small lines that were not under Government.
wtrol. After the machinery is once established, gentlemen, I am_
ivinced of its practicability because as hard as we have worked
ce last April, when we adjourned yesterday there were 479 cases,
aiting action before the board. I understand that the other two
rds have been about as successful as our board. Of course, they
ve not had the numerous cases that we have had to adjust.
¥ Sanpers of Indiana. How many are there on the other boards?
‘fr. Doax. Twelve on one and eight I think on the other. I think
_t Board No. 2 has 8 and Board No. 3 that takes in the miscellane-
craft has 12. I want to say also that the board of railroad wages
| working conditions is likewise composed of equal representa-
ps, three from each side, and they have gotten along very nicely‘)
nderstand their recommendations have been practically unani-
as, all of them.
» 152894—19—vor. 1
7
20)
306 RETURN OF THE RAILROADS TU PRIVATE OWNERSHIP.
_ There is one thought which I should like to leave with you. A
I explained to the conference, do not_ attempt ae
thing further than voluntary arrangements in tion with board
of this kind. -I-do not believe that a purely povernmental hoaTdaae
work, and there is a reason for it. While we have approached thes
questions in the broadest and most liberal spirit and the results ar
here to speak for themselves, we have not lost our connection will
our respective sides, and consequently we can go to them and advis
them and they can likewise come to us. In that way we know th
things that we represent and we suggest many things that we couli
not if we were a strictly governmental board. The other feature
it is this. I do not care whether it is a man operating a railroad
a man braking on a train, or a lawyer, or a Member of Congress, w
are all American citizens and you can lead us to do anything withi
reason, but you generally can not drive us to do anything. Th
minute you would give a policy the stamp of compulsory action yo
would to a great extent limit it in its efforts.
I think there should be a plain declaration by Congress in what
ever plan you adopt. Somewhere in your bill you should provid
that boards shall be created to dispose of disputes and then leave th
details, leave all the rest to the employer and employee to work ou
If you do that I think you will get results. The employees and lik
wise the manager have some hesitancy in going to a governments
tribunal that they would not have in going to a board of this kin
In the Dominion of Canada the War Board created a similar boar
It takes in all of the classes and they can handle on request anythin
and act as arbitrators in any case. It is purely a voluntary arrang
ment, each side pays its pro rata part of the expense and they hat
gotten along in a most admirable way, and they have adjusted man;
many complaints. The only difference with our_boards is that eat
side pays their representatives on the board, but the cost of the mai
tenance of the office is borne by the-Railroad Administration. Er
was created by voluntary agreement and it has been maintained thi
way, and that is what I would suggest to you gentlemen as a sol:
tion of the labor question of the American railroads. Our expe
ence has demonstrated the practicability of it and the feasibility 1
the plan.
} I was asked the other day what I would suggest to be done wil
he Newlands Act and the Board of Mediation and Conciliation.
stated at that time that I would not interfere with it at all, that the
‘might be cases, there might be times and certain conditions un¢
‘which the parties would desire to invoke mediation. If such is tl
case, I would let it continue. That law has_adjusted more dispute
entlemen, than any ‘Other-piece® of legislation that was ever pass
n the face of the earth. :
In the Railroad Administration, I understand, they have mediato
that go out in certain cases and use their good offices to bring aho
{ adjustments of schedule revision cases, or to make new schedules wi
some of the railroads where the employees were not organized a
had no agreement prior to the period of Government control, and
think it would be just as well to let the Board of Mediation and Co
ciliation, as provided in the Newlands Act, continue to function”
Vv
|
}
y
_ +» RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 307
‘ases of private ownership of railroads after this period of Govern-
ent control ceases.
| Of course, the transportation brotherhoods feel that Government
-wnership is the proper thing and that possibly labor adjustments
ould be more easily taken care of under that plan, but these gentle-
aen of the national transportation conference feel that the suggested
aethod of labor adjustment ought to be adopted as a part of their
ilan; and, frankly, the method can be carried out about as easily
nder their plan as under Government ownership of the railroads.
I know what is in the mind of each of you gentlemen, that if some-
ody has a solution for the labor question of the American railroads
‘hat you will be most happy to give it careful consideration. I think
re have one; I think it 1s practical, and I think it is worthy of your
onsideration. I will say that the gentlemen representing the national
ransportation conference think so, and they have given careful con-
ideration to it. The gentlemen interested in the Plumb plan think
9. I think if you ask the representatives of the Railroad Adminis-
ration, who have been handling these matters, that they will say
dere is one thing at least in which the Railroad Administration has
een successful, and that is in handling the labor disputes with
ae four transportation organizations since and prior to the beginning
f the war.
Mr. Winstow. My inquiries will be more of a general nature than
verhaps directly applicable to the consideration of this bill. I want
) ask if you recall any instance wherein employers, having agreed
\)) Btrate, have ever jumped the arbitration board or their conclu-
/oné
Mr. Doak. Not directly; no. I would have to speak, of course,
)fr, Winslow, from the viewpoint of the four transportation employ-
s—that group—because I am not so familiar with the other groups.
Ve have had this to occur after arbitration awards: That there were
|umerous misunderstandings growing out of the award which have
}2en as serious almost as the question that was arbitrated originally,
hich was brought about in a large measure by the gentlemen who
ere the neutral arbitrators on the board not being familiar with the
ibject. For instance, I will give you an example; I do not desire
|) quote any names, but in 1913 a special act of Congress was passed,
| think, in a day, known as the Newlands Act, supplanting the
‘iginal act, to take care of a serious situation in the eastern terri-
wy. For an arbitration under that act there were two gentlemen
lected as neutrals whose honesty and integrity could not be ques-
joned by anyone. They rendered a decision that they thought they
jaderstood. On one railroad in particular running out of this city
\te two classes of employees, conductors and trainmen, spent many,
any thousands of dollars trying to get that award properly applied
1 the property. One of these gentlemen, when the matter went
ick to him, said: “ Well, I thought I understood English, but I see
lat I do not understand English when it is being applied to these
ansportation schedules.” That did more to give arbitration a
‘ack eye than anything else.
On these boards all of the men are practical men, and you would
» surprised to know how quickly they can arrive at an understand-
308 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ,
ing that would take, possibly, a long time for other men to reach. _
would not say, so far as the gentlemen that I have been connecte
with or associated with in any way, that they have deliberatel
broken the arbitration agreement or award. :
Mr. Winstow. My question was in respect to the action of th
employers, not employees, you understand. :
Mr. Doax. I understand. I said that I did not know of any. |
Mr. Wrnstow. Taking the reverse of that, have you known of an
cases in the past where employees have repudiated the findings of th
arbitrators to whom they had agreed ?
Mr. Doax. Answering as I did in the instance about the employer
T could only speak for what are known as the transportation er
ployees represented by the four train-service brotherhoods, and_
will say no. :
Mr. Winstow. I will ask if you have made up your mind, in th
light of the existing relation with employers, that both the employer
and employers have had something to learn from each other ? :
Mr. Doak. That is quite correct; they have. :
Mr. Winstow. You spoke of human beings being willing to f
led, but not being willing to be driven, and that leads me to ask yo
this question—I think it is superfluous, but I would like to ask ~
nevertheless: If laws had existed, do you not think that such law
if objected to, would have had to be set aside by legislative actio
rather than by refusal to obey ? {|
Mr. Doax. Our past experience is all that I can answer from. _
will say in every instance in the past, speaking now for the fou
transportation organizations, that we have obeyed the law. :
Mr. Winstow. I did not mean to apply it to anything in partic
lar; I was asking a general question, with a view to getting th
attitude. : )
Mr. Doak. I think I understand you, and I will try to give yo
an answer. The statement was not made in the form a threat at al
Mr. Winstow. I appreciate that. |
Mr. Doax. It was made from the standpoint of the independent
of an American citizen. I will say this, and I think it will answe
you fully. Suppose you were to pass a law making it strictly illeg:
to strike and saying that you would have to submit to certain tribi
nals, and so forth. I do not think there is a man in America wh
would for a minute question the right of anybody to quit any ul
-he wanted to as an individual, and, likewise, I think that a liber
construction of the same principle would accord that right to
number of employees acting in concert. But, regardless of that, 1t_
an unsettled question, and there is difference of opinion on it. J
you were to pass any kind of a compulsory arbitration law, what
to prevent each individual of a railroad, without concerted actic
or conspiracy or prearrangement, to leave his position; and wow
not the object of that law be defeated in the same manner as if tht
had all stopped at the same time? That is practicable. Such thin
have been done. In one instance, where a court in a certain distri
took a very arbitrary position toward negotiation of a settlemel
on a certain little railroad and issued’ an injunction the like of whit
has never been heard of, even restraining the employees from tal
ing to anybody, and within an hour after the temporary restraint
|
|
. + +RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ' 309
‘der issued had been perpetuated—that is, the order after the last
tion by the court—there was not an employee left in the service
ithe property. They did not strike; they stopped work; they quits
‘signed their positions; and for all the good the injunction did the
‘eople on that railroad—that is, the community it served—the in-
inction might just as well never have been issued.
. Then there is this other feature of it: There is a difference be-
‘yeen legitimate organization and a mob. Most all organized labor
is strong discipline; and in speaking for the organization with
hich I have been associated practically all my life, we have very
ringent laws and our discipline is severe, and we enforce it. As
ng as it is legal and in accordance with the law you can enforce
seipline, but the minute you strike down discipline and set aside
‘e operation of the law then you have a mob to deal with, some-
ing that no living being can control.
T am going to cite you another example in another country. You
mtlemen have been told about the Australian act. I heard a gen-
man before the Senate committee a few years ago testify that he
id just come from Australia and how this law was operating there
id how they were getting along under it, and that when he landed
this country, first in British Columbia, he found a strike at Butte
id strikes at other places, and before he got through he was con-
onted with a cablegram that every miner in Australia and Austral-
‘ia was out on a strike at that time, except those mining coal for
eships of the British Government plying in and out of those ports.
) that did not work. A great deal has been said about the so-
Hed Le Mieux Act in Canada. |
That is supposed to be a compulsory investigation act, where you
ve to suspend hostilities for a period of 90 days, until the board
views the controversy. As to its effectiveness as compared to the
|w in the United States, the Newlands Act, we had an example of
jat. A few years ago there was a controversy in this country in-
|lving the eastern Canadian line, the eastern lines of the United
ates—that is, north of the Chesapeake & Ohio lines, everything
rough to the north of Canada and east of Fort William. We
iched a settlement under our law in the United States, and they
d strikes in Canada under this Le Mieux Act. That is the differ-
ee when you talk about compulsory methods as against voluntary
thods. Results are what we want in this country, and results are
Jat we are getting under voluntary methods. Gentlemen, my hon-
Opinion is that you will not get the results under any form of
|mpulsion, because it is impracticable. We all have the greatest
|sire to be law-abading citizens.
Hor instance, I had a case in a certain city, representing the organi-
ion, a while back, in which authority had been vested in 4 commis-
ni; the law had been set aside, and authority over certain men and
ngs had been vested in this public utilities commission. The men
‘re holding out for one thing after another. Finally I said that I
‘uld see the whole matter was settled according to the due process
‘law, and when it next comes up for hearing I will subpoena every
‘0 before the commission, but we will not have a strike; there will
ibe a strike, but it will be scttled strictly in accordance with the
vy. And when that became known that action was to be taken they
310 | RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
did not have any more hearings. So I am trying to approach thi
subject, as I have for a number of years, with the broadest and mos:
liberal viewpoint to see where the best results can be obtained. I wil
say to you, gentlemen, after doing so, that I am convinced the bes
results can be obtained by voluntary methods in this country, and |
speak of the transportation organizations in particular.
Mr. Wrinstow. Do you differentiate in your mind between the na
ture of the responsibility that employees of public service corpora
tions have intrusted upon them with the nature of the responsibilit)
of pnp Oy ors of what we will call private or commercial undertak
ings?
Mr. Doak. Yes, I do, to this extent: I appreciate the fact tha
it is recognized that we owe a duty to the public and that it 1s ;
serious thing to interfere with the orderly process of public servic
corporations or of public utilities in this country. On the othe
hand, it should be borne in mind that the public should be fair witl
the employees engaged in this public service to the extent at leas
that they should have as good conditions of employment and wage
as prevail in outside industry. .
During the war especially, gentlemen—I want to make this state
ment—the men on the freight trains in this great eastern section o
the country here worked from 1918 to June 1, 1918, at $2.67 a day a
compared with a minimum of $4 or $4.50 in any industry aroun
them. If the public recognizes it and meets the situation on the ona
hand, you can be reasonably assured that you will not have any trou
ble from your public service corporation, but the public certainl
has to recognize that they are entitled to fair consideration and tha
they must give them some means to secure reasonable conditions.
Mr. Wixstow. Do you think, Mr. Doak, that in the past th
reasonably few differences between employees and employers hay
been due to a lack of confidence in each other’s good intent?
Mr. Doax. In a great many instances; yes, sir.
Mr. Wrnstow. And has that resulted in each one pulling from th
true objective in order to make their case appear a little stronge
than it really does appear and thereby create a distrust rather tha
to allay it?
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 311
ee how little the other fellow would get of what he wanted in the
ctual operations of the discussion.
Mr. Doax. That could only be applied one way. The employer
vould not be getting anything. He would be doing all the giving.
‘say to you meay that in a great many instances the employer has
iuken the position he would see just how little the employee would
et.
Mr. Winstow. Pardon the interruption, but I want to hurry
long. Would not the employee or his representative, on the other
and, be putting forth his greatest endeavor to see how little the
nployer should retain of what he wanted to retain?
Mr. Doax. Probably that is true. 7
Mr. Winstow. Do you think that you have now set an example
irough the medium of this evenly divided tribunal which can be
yoked to and pointed to throughout the country as giving evidence
f the fact that in the operation of that tribunal, at least, the aim
as been to see how nearly each one can accord to the other what
ich desires?
Mr. Doax. That is correct. I think you will find
Mr. Wrinstow (interposing). I think you will find you have made
ot step forward. :
‘Mr. Doax. Thank you, sir. I think you will find that to be a fact.
‘should be very glad, when we get a little further along and get the
scisions of the adjustment boards printed and filed, if you gentlemen
ould take occasion to investigate them. I think it is worth the
hile of every American citizen to do that. It has given us a demon-
ration, and I want to say further that I understand the typographi-
I people have for some time had a system similar to this, and prob-
‘ly ever since the anthracite coal strike they have had boards of
is kind created, and a gentleman who is on the board with me has
‘en serving for a number of years as the referee in those cases, and
says he very seldom has anything to do. I think it is a real solu-
on of the question viewed from every angle.
The Cuatrman. Mr. Doak, suppose this committee did not adopt
|e plan suggested by the conference for a transportation board, how
ould a deadlock be determined, provided we otherwise accept the
‘ovisions of section 8 of the plan of the national transportation
nference ? }
| Mr. Doax. That is a matter that could be determined, I presume,
‘some other board, if you have a board to supervise the issuance of
/curities or anything of the kind. Really, Mr. Chairman, I do not
\ink it makes so much difference who the tribunal is.
|The Cuarrman. Of course, the pending bill, as you know, contem-
i that the matter of stocks and bonds shall be given into the
nds of the Interstate Commerce Commission.
}Mr. Doax. Yes; I appreciate that.
The Cuarrman. In lieu of a transportation board separate and
)stinct from the Interstate Commerce Commission, would you think
| Jeadlock should be settled by the Interstate Commerce Commis-
ym, or a subdivision thereof, by the Secretary of Labor, or by the
“bitration Board provided by the Newlands Act, or any other exist-
% governmental agency ?
oly RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Doax. I do not know, Mr. Chairman, whether I would wan
this to go under the Labor Department or not, answering that par
of your question, and I think that each of you gentlemen appreciat
the fact that during all of these years the railroad labor, especial]
the transportation men, have not been under the Department o
Labor. For instance, the Interstate Commerce Commission look
after the enforcement of the, safety appliance laws, and things o
that kind, and we have never been under the Department of Labo?
and I would not think, or I do not think, it would probably be th
desitable thing. I am just saying this offhand, however, and —
have never consulted with any of my associates about it. It prob
ably would not be the best thing to put this transportation questior
or any part of it, under the Labor Department. I say that with th
greatest respect for the Labor Department. As to the commissior
the only thing I care about is, and I say this because the commissio;
is going to be, if your plan is carried out, as suggested in your tenta
tive bill, and all this work is put on the commission of handling al
the issuance of securities and all those things—they are going to b
simply swamped with work, and I do not know whether it would b
a desirable thing to let the commission handle it or not. I rathe
think it would not be. i : ae
The CuairmMAn. You understand the commission do not desire t
have it put upon them. |
Mr. Doax. I appreciate that fact, because I have talked to som
of the gentlemen on the commission and they realize they will have
under any of these plans, just about all they can attend to. |
As to the Board of Mediation and Conciliation, personally, I wil
say no. Not that I have anything, gentlemen, against the personne
of the Board of Mediation and Conciliation, but I am afraid it woul
not be acceptable to the employees, generally speaking. — :
The Cuarrman. You have exhausted all my suggestions; now wil
you make one of your own? :
Mr. Doax. Well, the commission of eight, when it was in existen¢
had no referee, but I think you would have to create a referee.
think it is a matter, Mr. Chairman and gentlemen, that can
worked out, if you set aside or do not adopt any of these plans th
have been provided for the creation of an additional board. As
suggested before, in making the declaration on this matter containe!
in the bill, I would simply provide for board and also provide fo
referee or provide they would be agreed upon, or name a referee.
The Cuarrman. Do you mean that the boards themselves ma,
name their referee ? 7 i.
Mr. Doax. No; let the parties organize the board. Our idea is”
voluntary plan, you understand. q
The CHarrmMan. Yes. ' aj
Mr. Doax. What they will do as sure as anything, if ther
is a declaration in the bill, will be to organize these boards, and whe:
they organize them let them suggest their referee at that time.
The Cuairman. In other words, when they get to a deadlock, le
the boards solve the problem ? ce) |
Mr. Doax. No; I think the referee should be designated at th
ltime the board is selected. I am not much in favor each time 0
selecting a referee for an individual case.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP... 313
The Cuarrman. When your board knows there is the possibility
if a referee’s action, that would lessen the efforts of the board to
itself come to a conclusion.
| Mr. Doak. That is what we thought or what we feared, Mr. Chair-
nan, when we first created these boards, but we found that just the
reverse was true, because we have not used him‘and he has been
here all the time. The director general was the referee. PAR ce
|| Lhe Cuarrman.. Do you think it would be advisable for the Presi-
‘lent to name a standing referee, or to name a referee for each par-
|ieular instance where it involved any large territory, or to leave it,
)iS you suggest, to the boards themselves?
| Mr. Doax. I think that a standing referee would be preferable to
| he individual referee.
)
|) The Coairman. Why? |
| Mr. Doax. Simply because you would want an experienced man
)md after a man has served in one case, the further he goes along, the/ |
| Xperience and the knowledge he would gain would better qualify him
md you would get better results, in my opinion, by a permanent
\eferee than you would by having one in each individual case. The
)mthracite question was settled in that way. You know that Dr.
\Jharles P. Neill was the referee, and he has been the referee ever
|mee, and I have talked with him quite a number of times about it,
md he says it took him quite a ‘while to get acquainted with or to
‘mderstand the situation, but now it takes him very little time, when-
_ver he has a case, to settle it, and that is the advantage, it seems to
2, of the standing referee in preference to having one in each indi-
idual case. |
| The Cuairman. The pending bill has no direct provision with
\eference to the adjustment of labor troubles, but the committee
as opened that field for inquiry and is willing to get just as
}auch information as possible, and I think the committee would
|ppreciate it very much if you would draft a provision along the
mes you have suggested, and in consonance with section 8 of the
ational transportation conference plan, and give your best judg-
jtent as to the appointment of such referee. Will you be kind
jnough to add that as a part of your hearing?
) Mr. Doax. I shall be very glad to try to get that up for you, Mr.
| hairman.
| The Cuarrman. I wish to assure you that the committee is very
/esirous of coming to a right conclusion on such a very important
hase of this matter. |
| Now, you stated, I think, that under Federal control the two
des of the table got along with practical unanimity. Do you think
|iat was due, to any degree, to the fact that the representatives of
fie railroads realized that they were under Federal control, and
jiat the railroads were required to secure the standard return;
1 other words, do you think the railroad representatives were
jtoad, as you used the word, because of a knowledge of the fact that
}iey were representing roads under Federal control, the financial
turns of which the Government was interested in, and now, if the
jdads were turned back to private ownership, would those repre-
jntatives of the roads be equally broad under that changed status?
314 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Doax. Mr. Chairman, yes, sir. The gentlemen that I have
been associated with, I am quite sure, would be just as broad one
day as they would the next.
Mr. Dewar. Mr. Chairman, would not the difference be this, in
consonance with your question, that in the one instance the Gov-
ernment is paying the bill and in the other the private owners, I
presume the railroads, would pay the bill?
The CuairmMAn. I submit that to the witness for his reply.
Mr. Doax. I think I can very happily answer that. Probably 65
\
per cent, if not more, of the cases that we have handled _originated
priodr_to Government-controland-we inherited them. We have re-
instated men and paid them money that will have to come out of the
corporations because they originated under private control, and J
have never seen a bit of difference in the managerial end of our
board in paying out corporation money and paying out Government
money. I doubt very seriously whether you could get those gen-
tlemen to accept service under a strictly governmental board. For
that reason, if no others—but I have cited numerous others—I think
the voluntary plan of each side furnishing its representatives, and
the Government not paying, is the preferable one.
Mr. Dewaur. Mr. Chairman, may I be permitted right there to
interrupt a moment?
The Cuarrman. Yes, Mr. Dewalt.
Mr. Dewar. There is something I am not clear about, and I want
to submit an example to you, and your answer to that, I have no doubt,
will clear up what is in my mind. Railroad “A” has a dispute, we
will say, with the conductors on that road with regard to wages or
some other matter, hours of service, for instance. Under your system
of voluntary arbitration your board No. 1 would take charge of that,
if it was in regard to service. That board consists of four represen-
tatives from the railroad management and four from your various
organizations of railroad men. Your board makes a decision, and
what I want to know is this: How do your four organizations of rail-
road conductors, railroad firemen, railroad engineers, and railroad
trainmen enforce that decision ?
Mr. Doax. Under the orders :
Mr. Dewar. Wait a moment before you answer. When that deci
sion is made must it go back to your general meeting of these various
organizations for affirmation?
Mr. Doak. No, sir.
Mr. Dewatr. Now, just tell me how that is worked out, because that
is what is bothering me. :
Mr. Doax. General Order No. 13, as I stated before, was an agree
ment entered into by the regional directors on one side representing
the Railroad Administration and the chief executives of the four or-
ganizations representing the employees’ organizations, in which order
it was provided that the decision of the board shall be final. Conse
quently, whenever disputants submit their case our decision is final.
Therefore it is not subject to review by the director general or by
anybody else.
Mr. Drewatr. Not subject to review by the organization of rail
road men or any part thereof ? |
Mr. Doax. No, sir; it is final; and I will say, furthermore, when we
were put on the board—I know this was true in my case and the other
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 315
gentlemen inform me that the same thing was true in their cases—they \
were told that they were answerable to nobody, only their own con-
sclence and that our decisions were final, and I was told to “go ahead |
ind use your best judgment, and what you think is right will be right; }
we will make it right, and it is not subject at all to review by any- }
»ody.” We have just passed our conventions, three of the organiza-
ions, and there was not a question about the board in my convention
vhile I was there. ;
Mr, Dewatr. Now, just one more question. You stated in your
‘xxamination that there were about 40,000 of these cases which He)
een submitted to the board.
Mr. Doax. That was the commission of eight applying the basic
‘ight-hour day, Mr. Dewalt.
_ Mr. Dewatr. And that in almost all of those instances there had
een a unanimous decision by the board. Subsequent to that de-
sion has there been any resistance by the railroad organizations in
my appreciable number, or any number at all, as against the award
f that board ?
_ Mr. Doak. No; there has not been anything. They have accepted
tand gone on. You understand that was. under private ownership.
Chat. board functioned under private ownerships, and they went
ight ahead and put the decisions in all over the country.
Mr. Drwatr. Subsequent to private ownership and under Goy-
rmment control, what has been the experience?
_Mr. Doax. We have handled everything. The board has handled;
ll kinds of disputes, not only with reference to the application of
he eight-hour law. We inherited the authority of the commission\
if eight, or had it extended, and then our authority was extended to}
ake in all manner of disputes, discipline and all things like that.
__M. Dewatr. Concretely expressed, what I want to know is this:
das there been acquiescence by the four brotherhoods in the dancer
if these boards, or has there been protests against them?
_ Mr. Doax. J have not heard of any protests.
| The Cuarrman. Would that be equally trie of the railroad ais
fanizations that have been organized since Federal control?
Mr. Doax. I have not heard of any protest against it at all, Mr.
Jhairman. Oh, there might be an individual occurrence, where some
ndividual would have something to say, but so far as any official
rotest is concerned, I have not heard ‘of any, and there has not
een any.
The Cuairman. Of course, those organizations are so young, and
he discipline and so on has been so new, I was wondering whether
here was the read acquiescence on their part which characterizes
hat of the four brotherhoods?
Mr. Doak. Yes; there has been, from the best I can learn. Of
‘ourse, some one else, or some other officer, possibly, could answer
‘hat better than I can, being myself a member of the board. I
jaturally would not hear of any criticism as quickly as the fellow
jut in the field, because I have been in Washington now constantly .
|or three years and I get out very seldom, and have not had an
/pportunity to hear, but the officers tell me, that generally speaking
1ere is no complaint.
3816 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuairman. There is no constitutional doubt in your mind as:
to the power of Congress to enact legislation for the creation of
these boards, in view of the decision of the Supreme Court on the
Adamson Act, that Congress has power to fix wages of employees’
engaged in interstate commerce. |
Mr. Doar. No; any doubt I would have had along certain linés
was cleared up by that decision. ee |
The Cruatmman. I assumed that from what you said before. So
that there would be no question as to certain employees of a certain
class, or the employees on a given road, being beyond the pale of
the operation. of this plan if it became a law? .
Mr. Doax. You see, this was my thought, and I thought I made it
plain, Mr. Chairman. I would not provide any details, but would
have in the bill only a declaration in favor of the creation of such
boards.
The Cuarrman. You would have to provide as to when and how
they should be appointed.
Mr. Doax. Yes, sir. You could do that, but never give the Presi-
dent of the United States authority to appoint this board. Remove
it absolutely from the pale of politics. Remove it; and I say this
kindly to you gentlemen, because there is not a living man who has
any higher regard for the Members of Congress and the Congress
of the United States than I have as to your integrity and honesty,
remove, it from the pale of Congress, because each time one of you
gentlemen had a constituent who would get an adverse decision, he
would almost demand of you a congressional investigation, and im
the final analysis that would destroy the real effectiveness of the
board itself; and, inasmuch as you suggested or requested that I
give you something on that, Mr. Chairman, I would be very glad to
set forth my views as to a section of any bill, whatever bill you adopt
covering this, setting forth minutely my views as to how it should
go into the bill, because I will say to you that you will have to be
very careful about how it is worded if you adopt this plan. You
had better not adopt anything at all and let the old Newlands Act
remain in effect than not to properly word this section if you are
going into it. at
The Cuarrman. I invited you to do that very fully. |
Mr. Doax. Yes; and I am quite sure, Mr. Chairman,.that you
and the members of the committee would not put out anything that
was not all right. I did not mean to say that you would go into any-
thing without giving it careful thought.
The Cyairman. I am sure this committee is not acting alon
partisan lines, and we are seeking to frame such a bill as we hope
will be effective and meet a very grave situation; and we invite,
therefore, the widest expression of views. Yo &
SE or-the repeal-of the Newlands Act? a
r. Doax. I do not think I would.
The CuarrmMan. Because of the possibility that-it-might-be used? !
Mr. Doar. Yes; it Might be necessary-to-use it,-because I_am bas-
:
words, appointed-mediators.—.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. B17
“I have not had occasion to meet one of them. I know several of
them, but I have not had occasion in any way to be connected with
their duties, and consequently I do not know just what they do, but
{ know that they have created a board for a certain number of
mediators to go around and-settle certain disputes. For instance, I
will give you an example. The Louisville & Nashville Railroad for
2 number of years has not been organized in certain classes.
| Mr. Srus. In labor unions?
Mr. Doax. The labor organizations have not existed on that road
nm certain classes. After Government control and General Order
No. 8 came out they guaranteed that there should be no discrimina-
On against a man because of his membership or nonmembership in
1 labor organization. Most of the classes were organized on that
‘ine, but having no schedule or agreement with the road it was neces- |
sary for them to negotiate a schedule. I understand in such cases
‘hey have used these mediators. We have not assumed authority
vhich has not been given us for a schedule revision, you understand,
»ecause we were only applying schedule rules and adjusting the dis-
yutes arising under revision. The board of wage and working con-
‘tions have handled wages and conditions, and they have made
“ecommendations to the director general to bring out those facts.
4 would be true, I think, probably that it would be necessary to
lave some form of board of mediation and conciliation. I do not
mow that it is necessary, but then, again, there might be a condi-
ion under voluntarily created boards where certain of the roads
vould not want to come in—just a few, small roads. I think there
‘aay be a very few which would not come in.
| Mr. Dewar. On page 23 Mr. Wheeler’s statement in reference
0 section 8 sets forth this:
| The conference favors the adjustment of wages, hours of labor and other
enditions of service of railroad employees by boards, ete.
| Admitting for the purposes of the case that is the proper thing to
| 0, you have stated that you still believe that the Newlands Act and
he boards of mediation created thereunder should still be vested
|7ith the powers they now have. You spoke of section 8. In my
|adgment, at least, it might be faulty, this section would in a large
jieasure take a portion of the province of these mediation boards
jreated under the Newlands Act. Therefore, if we adopt this plan
Te have two boards with concurrent jurisdiction. Do you not think
vat it would be the part of wisdom, at least, if we adopt this sys-
mm as proposed by the National Transportation Conference to so
{mend and revise the Newlands Act or repeal the same in so far as
} would in any way conflict with this plan or to so revise this plan
§ to conform with the present province of the Newlands Act?
Mr. Doak. I think you would have to have a declaration, quite \
robably; but so far as conflict of jurisdiction is concerned they are \
joth in existence to-day. The Newlands Act is in existence to-day /
jad the boards are in existence to-day. f
Mr. Dewatr. They do not seem to conflict at all ?
Mr. Doax. No; not in the least, because when the Newlands ja
‘finally analyzed, Mr. Dewalt, you find it is purely a voluntary sys-
m after all. Either party can request their good offices.or they \
Soe
318 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
can themselves offer their good offices, which can be accepted or re-
jected. You do not have to accept them. I have worked under
that act.
Mr. Dewar. In other words, briefly stated, you think that they
might both exist without conflict ?
Mr. Doak. Yes, sir; I do.
Mr. Dewa tt. Simply some slight revision of both ?
7Myr. Doak. Yes, sir. They both exist very well.
Mr. Sms. I think in justice to yourself I should say that you haye
made a very luminous statement and it will be helpful to the com:
mittee.
I do not want you to come to the conclusion in advance that while
the questions are critical they are intended to be antagonistic to the
general plan which you have mapped up. Now, the wages of em-
ployees and the salaries of operating officials are all chargeable as
expenses of operation. Is not that true in practice?
Mr. Doak. Yes, sir.
Mr. Stus. Now, what difference does it make to thowe receiving
dividends or interest whether wages double or stay where they are.
provided that the rates must be increased sufficiently to pay those
wages and salaries and still have enough left that can be devoted te
the payment of interest and dividends, which shall not be less than ¢
per cent of the property investment. Does not that necessarily re-
move all conflict between the two beneficiaries when they can both
by operation of law get what they want and have it charged up to the
freight payer and the passenger payer without any effect upon the
compensation which the other is to receive?
Mr. Doak. That same thing can be charged against Governmen
control at this time, but we find it a little different from what you
think. Whenever you go up to get some increase in pay under the
Railroad Administration we find some gentlemen over there wh
have always thought that there was a limit to which you could ge
on the wage question. We have found them there representing thi
Government who are fighting just as hard as they fought before
I hope you do not misunderstand the conference’s s position. They
intend, instead of having some man that they can pass this up to t
finally pass on it, that this wage board, the board of railroad wage
and working conditions, when created will consist of an equal num
ber of men as now, and their decision shall be final except im cast
of a deadlock, when some referee will be provided. That is a littl
different from what it is now. I will say this frankly, if you ean
not take the judgment of. six or eight practical men coming from
| both sides, who know the business, to equitably adjust wages in thik
‘country I fear any appeal to the Interstate Commerce Commissior
iS any other body that does not know anything about it. Now
Judge Sims, I am not committed to the conference plan on thes
other things.
Mr. Sits, I did not indevaticald that you were. You have suid
that you were in favor of the settlenient of disputes?
Mr. Doax. Yes, sir. I do say that these gentlemen have giver
very careful consideration to that feature of it. I am to a certelt
extent in favor of the action of the conference. They asked me &€
come here and to present it to you, which I have. I think some 01
your fears probably are not well founded.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 319
Mr: Sims. I certainly hope so.
_ Mr. Doax. I will say, Judge Sims, that sometimes we may think
as partisans that there is a fellow on the other side of the table
who if he had his hand in Uncle Sam’s Treasury would take all of his
money. I have found some of them as representatives of Uncle
Sam—for instance, the Federal managers—who have been just as
elose on this question of wages, and who have put up as good an
argument as they ever put up for a corporation. I think that will
continue. It is their schooling and their environment. I do not
believe there is any necessity in the world to fear. On the contrary,
[ think you can strike a happy medium here by which all of these
things can be ironed out. You know how hard it has been for cer-
tain railroads to exist—some little fellows who were not so for-
tunately situated as the others. You know the great charge that
has been made against other railroads; how much watered stock
they had, and everything of that kind. We have all heard the story
svery time the employees have asked for an increase of wage, “ There
is nothing here,” and you have heard the employees come back and
say, “ You have watered stock and you are manipulating things
aere and there.” Any of these plans, I am satisfied, when you get
through will iron out a lot of things.
Now, as to the financial end of it, I am not so sure, but I think that’
inally we are going to wind up with Government ownership, and
[think it would be just as well to take that step, gentlemen, while you
we at it. Instead of taking half a step, take the whole step. I un-
lerstand that you have a terrible task in trying to solve these things.
What is the best thing to do in a financial way? You realize and we
ul realize that the American railroads can not go on in the chaotic
condition they were just prior to Government control. There must
ye something done. I have tried to make a study of the labor end of
t, because we have had trouble and trouble and so much publicity
ind notoriety about this thing. There have been charges and counter-
sharges against the employees and vice versa on this labor question,
ind if I could contribute anything at all toward the solution of this
ye phase of it, the labor situation, any effort that I might in the
yast or in the future be able to put forth individually, I would be
unply repaid if we could reach a solution. I have devoted my time
0 that feature of it, and I do think you would probably get good
esults. These men you might think offhand that they would not
lo anything. I think they would conserve the public money and
hat they would conserve the interests of the people as rapidly as
my other business men or labor men in the country if they were put
nm these boards.
Mr. Srus. I think, as I say, that your plan has proved wonderfully
uecessful, but if you follow the conference plan you must have a
ertain sum of money. You have taken away the discretion, so far
S what is a reasonable rate for the man who pays the freight.
_ Mr. Doak. I think it would be worth your while, Judge Sims, to
tudy the provisions very carefully. I think it will have a wonderful
flect in stabilizing rates in this country.
Mr. Sims. I have been talking about the interest of those who
eceive interest and dividends and wages and salaries. Here is the
|uestion: We want to increase wages and increase the compensation
320 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
of those who receive salaries, and the supply men and the materia]
men will have to charge higher, because they have to pay more, and
they will bring in the labor representatives and the representatives
of the bondholders and stockholders and they will say, “ Look here,
the Interstate Commerce Commission will only give us reasonable
rates, and with the rates which they give us it will be impossible for
us to pay the compensation and wages which we have been paying
and to pay the dividends which we have been paying, so We are going
to shade dividends and shade wages in order to not exceed the reve-
nues which arise from the rates that are reasonable as determined by
the Interstate Commerce Commission. That is all we can collect and
all we have with which to pay.” Therefore no rate will be a reason-
able rate that will not provide the results asked for by these different
bodies.
Mr. Doax. If the Interstate Commerce Commission has done any-
thing to stabilize wages since its existence, I do not know it.
Mr. Sirus. I am not talking about stabilizing wages. I am talking
about the conflict of interest of those who share the returns, I want to
see what the effect will be. There used to bea great controversy in
this country about whether the foreigner paid the tariff or the con-
sumer in this country. When it was thought that the foreigner paid
it everybody was in favor of a high tariff, but when the consumer
paid it they did not want the tariff so high.
Mr. Doak. Here is what has happened: I will say this with refer-
ence to the commission; it rarely has had anything to do with it
You have given the Railroad Administration operating the railroads
now a rate that is possibly 25 per cent, it may go higher, it may go to
50 per cent, I do not think it would go over 25 per cent, while every-
thing that the Railroad Administration has had to buy has gone from
100 to 500 per cent.
Mr. Sims. I do not mean to criticize the Railroad Administration
for increasing the rates 25 per cent.
Mr. Doax. I understand. For instance, I heard the other day
about some fellow out in Butte, Mont., who wanted 15 or 20 cents a
package for needles. They could be bought here for 5 or 10 cents,
Somebody said, “I can get them in Chicago for 5 or 10 cents, why lo
you want 15 or 20 cents,” and the reply was, “ We have had an ir
crease in freight rates.” You can imagine what rate they would have
to pay on a package of needles from Chicago to Butte, Mont. |
Mr. Sims. I think personally that the best solution would be for
Government control to continue until conditions become normal, but
that is not the decree of the public, the owners must have the rail
roads as quickly as possible, but the rate-making power must remaim
in the Government, where it is, and there can not only be an increase
of 25 per cent, that is only a shadow of what it will be. | :
Mr. Doax. Those same gentlemen when they go down here to buy
a piece of beefsteak they have no hesitancy in paying 50 or 60 cents
a pound. They lose sight of the fact that they only got 15 or 20 oF
25 cents a pound a few years ago. That is the unfairness. In my
opinion the American people are trying to approach this railroad
situation from the most broad and liberal standpoint, and not froma
selfish individual standpoint. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 821
| Mr. Srus. I do not think it will be possible for the railroads, after
they go into private ownership after the 1st of January, to make the
teturns they now receive. I do not see how they can possibly live
without reducing wages and compensation.
_ Mr. Doax. I fear the result whenever you do that.
_ Mr. Srus. Or cut down the 25 per cent increase and not grant any
further increase.
| Mr. Doax. I fear the result whenever you cut wages.
Mr. Srus. That we may also view with alarm?
Mr. Doax. Yes; if you do not first bring down the cost of living.
Uhe increased freight rates are not responsible for any increase in
he cost of living. |
_ Mr. Sms. Not at all. I think you are exactly right. I do not see
iow they can work for any less.
_ Mr. Doax. I know people. who are just existing even under the
‘igh wages being paid. I frankly say that I do not believe anybody
an live—that is, any man can maintain a family—on less than $150
, month.
_ Mr. Srus. The railroad owners are exceedingly anxious that the
xovernment shall further increase the rates while it is responsible
o that the increased rates will be in force when private control
akes place. If the Government does that and immediately turns the
ailroads over with the increased rates, I should like to see any Mem-
er of Congress get back who votes for such a law.
| Mr. Doax. That is true. I did not think anybody realizes that
aore that the Director General of Railroads.
| Mr. Merrrrr. In the last five years how many general arbitrations
flecting generally the compensation to the four brotherhoods have
aere been 4
Mr. Doax. I do not know that I could give that exactly. The
‘eneral arbitrations were the engineers of the East, the firemen in
ie Hast, the firemen and engineers in the West, and the conductors
jnd trainmen in the East, two cases, I think. No; in five years only
/ae conductors and trainmen case in the East. I think that is all
ie general cases of arbitration there have been.
| Mr. Merrirv. In those cases to what extent have the demands of the
nployees been met ?
Mr. Doax. They have not gotten anything like they asked. It is
tetty hard to say just what they have secured, how it compares,
»eause they have asked for certain rates in certain classes, and the
reentage of increase would vary. In most of those cases they have
)me out on a flat increase under the arbitration award, some of
}em would be much nearer what they asked for and others would be
| rther away, because they asked for different rates not predicated
\1 a flat percentage increase, and they came out of the arbitration
‘ith a flat percentage increase. |
Me Mrrritr. Has the theory been to differentiate between the
: ill required to do certain things?
Mr. Doax. Yes, sir; there has always been certain accepted differen-
us between a trainman and a conductor and between an engineer
id a fireman. There are some differentials that have been recog-
zed as existing. The tendency used to be to say that a certain
152894—19—-vor 1——21
329 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. -
percentage of the firemen’s wage would be a certain percentage of ar
engineer’s wage—say, 50 per cent or 60 per cent—but as wages in;
creased that plan of differential would be widened at the top, anc
consequently they had to even up to the percentage and try to kee;
about the same money difference, and then, whenever you do ti
apply the flat percentage arbitration award to the fellow who i;
etting $2 he would get less than the men above, the fellow gettin:
$4. and we had to get away from it, but in most of these cases wi
have come out with a flat percentage, which did not settle anything
instead of money increases.
Mr. Merritt. They did not settle anything?
Mr. Doak. No; because it only widened the differential between thi
classes and gave to the fellow who: had money the larger increas
and to the fellow who received a smaller wage a small increase, whicl
did not satisfy those people.
Mr. Merrirr. Do you finally come down to the theory, in you
mind, that there is a certain minimum wage that a man must hays
because he needs it, and then take that basis and figure out the wag
for everybody ?
Mr. Doax. I have come to that conclusion, especially since the war
Mr. Mererrr. In the railroad business can’t you make a differen
tiation between manpower in certain classes ? ‘
Mr. Doax. The only way you can differentiate is, to use a cont
mon railroad expression, “Tie a can to the bad one.”
Mr. Merrirr. Let him go?
Mr. Doak. Yes, sir; that is what they do. Bear in mind that th
discipline on a railroad is different from what it is in any other m
dustry. They have discipline that is enforced. First of all, yot
have to be physically perfect to enter the service, and you have «
remain in that condition in many respects to remain in the service
for the least little infraction of the rules they are suspended or dis
missed from the service, and an accumulation of suspensions or dé
merit marks against you means dismissal. :
Mr. Merritt. Various organizations have objected to that system!
Mr. Doax. We believe in reasonable discipline and insist on it be
ing maintained.
Mr. Merrirr. You have used the word “stabilize ” in connectidi
with this board, by which you mean, I suppose, that it takes the dis
putes under consideration, It does not prevent the men from asking
for an advance later? The stabilization of wages that you speak 0
simply means that the disputes have been under consideration ?
Mr. Doak. Yes, sir. |
Mr. Merrirr. It does not prevent the men from perhaps at one
askine for another increase? ae
_ Mr. Doar. No; it does not. In the question of wages we want &
dNferentiate between the adjustment of wage disputes and other dis
putes. Wage-disputes are comparatively few-as.compared with thi
ver classes of disputes. For instance, you might adjust the wae
~
of a certain-class-and that would go on for four or five years befor
ee
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 323
fed out would be a continuation of the present, plan under Gov-
rmment control, and they would have a wage board and the wage
yard would always be studying the question of wages and making
djustments or adjusting any inequalities that might exist from
ime to time, whereas, under the old system you would wait until
‘ou had a real live controversy and go out and make a poll of the
ountry as we did in 1916 over the eight-hour law, and have every-
“ody alarmed that some morning they would wake up and not have
ny milk. The trouble has been that we have had too much pub-
icity. The people have been unduly alarmed over these things.
Jur proposition was not as serious as people thought it was.
Mr. Merrirr. It was true at that time that if the demand of the
rganization had not been met the people would have awakened to
nd that they did not have any milk?
'Mr. Doax. On September 4, 1916, they would, but they would have
‘ad a supply by noon. It would not have lasted more than three or
our hours. It was just a question of who was bluffing. We had a/
ractical demonstration in January, 1917, when the men on the Balti-’
10re & Ohio from New York to St. Louis walked out and where the
oad was tied up. It was a question of who was bluffing. It would
ave been called off inside of four hours. It would not have been so
ious. You might not have had milk for breakfast, but by noon
ou would have been over your suspense.
Mr. Merrrrr. I read a short while ago a circular sent out by the
‘merican Federation of Labor, in which in the opinion of the gen-
eman who signed the circular, there was no law of supply and
‘mand which could not, so far as labor was concerned, be set aside
y legislation. Do you remember a circular like that?
Mr. Doak. No.
‘Mr. Merrrrv. Is that your view of the political economic law on
iat question ?
Mr. Doax. That is very broad and you would not expect me to
iswer that in less than half a day. The country has been in such
‘condition ever since before we entered the war that it is very hard
' determine what was the best thing to do. Naturally, being a
ember of the committee that fixed the price in 1917 of the wheat
‘op, some of the others who are not here said that after the cussing
e got from it we better let the law of supply and demand go ahead.
Mr. Merrirr. That is your view now?
“Mr. Doax. That was their experience.
Mr. Mererrr. I think so, too.
Mr. Doax. However, I have no criticism to make of anybody, be-
use it did really look like it was necessary for something to be done
ong that line. While we reduced the price of wheat and the price
a barrel of flour I never got any of the cheap bread, so I do not
|.0ow just how it worked out finally to the ultimate consumer.
}1at would be a question all the way down the line, whether the
|W of supply and demand would better take care of things in an
yiergency. In ordinary times the law of supply and demand, in
7 Opinion, is the proper method.
}Mr. Merrirr. I appreciate that is true. I only asked the ques-
\m because I wanted to ascertain if you thought, representing the
jZanization you do, or any other, that wages can by mediation
324 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
or arbitration or in any other way be put up indefinitely without
regard to the varying economic situation ?
Mr. Doax. I do not think that I could make a positive statement
- that such is the case, not knowing of experience, because wages have
ten been for our classes anything like as high as they shou!< haye
een.
Mr. Merrirr. Of course you are speaking from a somewhat preju-
dicial viewpoint ?
Mr. Doax. Not at all; from the broadest viewpoint. When you
take into consideration that the industrial life of a man is 11 years
and he has to put away some money if he expects to take care of those
dependent upon him after the expiration of the 11 years, and any man
could figure out how much a man could lay up in 1917 and 1918 work-
ing for $2.67 a day when he only had 11 years to engage in the oceu-
pation.
Mr. Merrirr. How do you figure out the average of $2.67—what
class of men ?
' Mr. Doak. The trainmen for the whole eastern territory; a large
percentage of all the railroad men engaged in the business in the
eastern territory.
Mr. Merritt. Two dollars and sixty-seven cents a day?
Mr. Doak. That was the rate up to June 1, 1918, from 1913.
Mr. Merritt. The arbitration was retroactive, was it not?
Mr. Doak. The order of the Railroad Administration was retroac-
tive to January 1, 1918.
Mr. Mrrairt. To what point does that bring the average now 4
Mr. Doax. As you understand, the Lane commission plan would
give the larger percentage to the men receiving the smaller wages,
and as wages increased, taking 1915 as the basis, the percentage of
increase would drop down for the country as.a whole. The brakemen
drew 89.5 per cent increase. ? :
The CuarrmMan. The base pay, exclusive of overtime? :
Mr. Doak. That was the rate of pay, exclusive of overtime. Sd
many of these runs in the eastern territory are short, they are 10(
miles or less, and censequently that was the basis of pay on these short
runs in this territory. They have not the longer mileage runs as con
pared with the West and South. «|
Mr. Merrrrr. Would that mean that this average of $2.67, so fat
as trainmen are concerned, would be increased 49 per cent ? :
Mr. Doax. Thirty-nine and one-half per cent increase they re
ceived, whereas the engineers in the passenger service, I think, re
ceived 11 per cent increase.
Mr. Swerr. How many unfinished cases have you before the board
at the present time?
—— Mr. Doax. Foxhundred-and-sixty-nine yesterday. {
Mr. Sweet. Are there any cases in which you are in deadlock now!
Mr. Doax. No, sir. They have come in so fast that we could nol
get the work off. We were stopped_in October-on-aceount of the
epidemic;_we had to suspend hearings.
Mr. Sweer. In any of the cases which you have determined in the
past did you call in the referee?
te Doan. No, sir; none.
|
}
| Mr. Sweer. Are there any cases In which you contemplate calling
inthe referee now ? ial
|
f RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3825
/ Mr. Doax. Not so far as I can see. I do not think.that any worse)
ones can come up in the future than in the past.
) Mr. Sweet. The chances are, so far as the board is concerned, and
as it is now constituted, it will not be necessary to call in the referee?
. Mr. Doax. It does not look so. We have not had to do it, and
there is no indication.
Mr. Sweet. The board has been working very harmoniously and
‘has obtained, as you view it, proper results? .
Mr. Doax. Yes, sir. That is, at least we have settled. We have
sertainly a method of adjusting, and I think it has been generally
very satisfactory.
Mr. Sweet. They have been settled satisfactorily to the board and
‘your decisions have been practically unanimous?
| Mr. Doak. Yes, sir; they have. You will find each of the decisions
with our initials on them.
The Cuatrman. And binding?
Mr. Doax. Yes, sir. As a matter of fact, some minor details in }
some of them have not been agreed to, but we have signed the deci-\
slons, and, so far as everything goes, they are unanimous.
H Mr. Denison. The chairman has asked you to submit a draft of a
roposal as to your best judgment as to what the legislation should
ye on this question of settling wage disputes. Speaking for myself,
_am very much in hopes that you can submit something that will
jneet the situation. Upon that question I want to ask if you do not
hink the referee ought to be three persons rather than one? ‘
| Mr. Doax. I do not know.
| Mr. Drentson. I am thinking of that question, because I know the
|lifficulty—that is, the impossibility—of any one person, whoever he
jnay be, to deindividualize himself, and therefore in matters of such
) reat importance the judgment of a majority would be more satisfac-
Ory than the judgment of one. Three can be arranged for just as
asily.
| Mr. Doax. You may be right. I would not go over three. You)
| ppreciate the danger of going over that number.
Mr. Dension. In my opinion I think we ought to avoid having
‘hese things left to the individual judgment of one man.
| Mr. Doar. Yes, sir.
| Mr. Dentso -_ Your idea is that the members of this board should
|e selected by the interests that are concerned ? |
Mr. Doax. Yes, sir.
Mr. Denison. You think,-too, thatthe referees should be selected
y the board ?
| Mr. Doax. No; not by the board. These gentlemen of the national
ramsportation conference provide forthe transportation board in
jieir plan. I presume*you gentlemen are familiar with their plan.
‘hey have the transportation board, and in that case they suggest
iat board. If there were to be created a board along the lines of any
f the boards which have been suggested, you would have a board
| hich could just as well act as referee in these cases, just as the
rector general is doing now.
The Cuatrman,. The transportation board is to have five members.
ou think that is too large?
Mr. Doax. Well, probably in this case you could go ahead; they
yuld have an understanding, or you could take three of the members
326 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
of the board. «I have not given so much thought to the referee im
that case, because, knowing as I do, there will not be much business
for the referee, holding that that is rather of minor importance.
Mr. Denison. That is the reason that I directed the question to you,
I know that you are submitting a plan. I agree with you that this
board should not be appointed by the President and should be inde-
pendent of Congress. I was wondering if it would not be better to
have the referee selected in some other way ?
Mr. Doax. Why not let the parties to the agreement that create
e board also select the referee?
Mr. Denison. That would be all right.
The Crarrman. If the board of referees consists of three, you still
have one who must be selected ?
Mr. Doax. Yes; I appreciate your point of view, and the point is,
who would select that man? ;
The CuHarrMAn. Yes, sir.
Mr. Sanvers of Indiana. Why not have each party select two and
those two select the referee ?
Mr. Doax. That is usually the case, and in arbitration cases they
do that.
Mr. Denison. I further agree that they should be permanent or as
near permanent as you can make them. The board of which you are
a member is considering the settlement of labor disputes, but that did
not include any settlement of schedules in any way?
* Mr. Doax. That is making a new schedule, something we have not
done during the war, for the reason, as you probably know, that we
went to the President early in the game and we asked him not to inter-
fere with any of the schedule ratings, and they have carried that
out since that time, and there have only been a few slight modifications
in the order, something to make the order effective with certain in
creases which would necessarily affect certain ratings which would
be modified. Only to that extent have we had any general restoration
of the ratings. There is a tendency on the part of employees gen-
erally and several craft have already worked out what they call
standard compensation schedules. They have the same rating in
their schedule over the United States. There might be something
of that kind come up. If the present system passes out of existence
it would be just as well to let Board No. 1 be used for the four trans-
portation brotherhoods and Board No. 2 for the shopmen or general
lines. If it is to continue, let them settle those cases and then enlarge
a little bit their jurisdiction, but that can be taken care of in the
agreement.
Mr. Denison. The adjustment board under the changed plan would
have rather enlarged jurisdiction over the present board ?
Mr. Doak. Yes, sir; I presume there would have to be some en-
largement.
Mr. Denison. Do you-think that-it-is-practical-and—wise that the
public should be represented ?
Mr. Doak. No; I do not think they should be.
Mr. Denison. They are interested ?
Mr. Doar. After_all these men are public_representatives. When
they go on the board they are public representatives and they cease
——
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 327
0 be partisans. I mean if they are going to make a success. That!
s one thing that occurs to you when you go on the board. You cease!
Mr. Denison. There is just one more question. You have spoken
very clearly of your idea of attempting to use force in settling differ-
mces between employers and employees. Did not the Adamson law
iolate that rule?
_ Mr. Doak. I think I prefaced my remark with the statement that
‘he Adamson law did not settle anything.
_ Mr. Denison. I know. I am asking you whether that is not your
yreneral impression.
' Mr. Doax. No. Here is what happened. We were in New York.
‘Ve had reached a point where apparently we could not go any fur-
‘her. As anyone who has ever acted as an officer in one of these or-
ranizations or sat on the other side of the manager’s table knows,
rou get to the point where you say that you can not go any further,
ut you do not know where you are. We got to that point. We had
he board of mediation and conciliation, and when we said that we
ould not go any further, that we could not afford to accept arbitra-
jon under those circumstances and we served notice on the board of
nediation and conciliation, as I remember, Judge Knapp pulled a
elegram out of his pocket from the President of the United States
emanding that before we took any steps that we come to see him.
None of us wanted to be discourteous to the President of the United
jtates and none of us particularly wanted to make the trip to Wash-
ington. However, we came down and Mr. Wilson said, “I called
‘ou down here because I am not going to have any trouble here if I
‘an help it.” He said, “In my judgment, the eight-hour law has sufli-
ient sanction for me to act. I think it is right. The reason I say that
3 that nearly every State has by law recognized the principle of the
asic eight-hour day. It has been recognized in various industries.
Jn account of your complicated schedules, and so forth, I suggest
j|hat you drop this time and half-time question and let us investi-
j'ate.” None of us knew what his decision would be. Everybody was
‘alled up. A committee came first. It was put up to the committee
\nd the President’s proposition was accepted by the employees.
Mr. Dentson. That was applying force to the employers?
Mr. Doax. It was to.our employers. I do not know whether they
| eclined or not, but they kept on fooling around until Sunday. The
‘resident extended our time from time to time as to when he was
oing to release us. That kept on, I think, until about Saturday
ight. There are some who might call that force.
Mr. Dentson. What I want to get at clearly—I was one of the men
‘ho voted for that law. I voted for it because it seemed to me it
vas the only thing that could be done at that time.
) Mr. Doax. Yes, sir.
328 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Denison. I am simply following your statement to the effec:
that you thought it was wrong fundamentally to force men to agre¢
upon these questions by law. Do you think that that principle ap.
plies to both sides to disputes, employers as well as employees ?
Mr. Doar. The point that I was trying to make was this: In th,
final analysis under our system of government and under the Consti:
tution we guarantee to every man certain rights. One of those right:
is that a man can work if he wants to; and, if he does not, he does not
have to work for a certain employer. If you pass a law in the form
of compulsory arbitration or investigation, it could very easily be
evaded. You can not inflict any punishment upon the individual
and my own idea is that you could not punish a dozen individuals for
the same thing any more than you could one individual; but in the
final analysis if you had to resort to individual action, then you would
lose control over the class as a whole, and then you would have a
mob against an organized, orderly strike. There is some difference.
We had a practical demonstration in Canada recently of a mob as
against organized labor. I have heard men say, “ The minute Con-
gress passes a compulsory arbitration act I will quit.”
Mr. Dentson. I have applied that alike to employer and employee,
and I wonder if you agree with me?
Mr. Doax. I know you have in mind a lockout.
Mr. Drntson. No; I have not.
Mr. Doax. Lockouts are impossible. There is no use for you gen-
tlemen at the present time putting any language in any law providing
against lockouts. The railroads can not stop operating. They can
not lock their men out, because the charter under which they are exist-
ing compels them to operate. That part of it is nothing.
Mr. Denison. I did not have that in mind.
The Cuairman. I want to state to the gentlemen that the commit-
tee is under great obligations to the members of the conference for
the valuable exposition of their views. They have shown a great deal
o ability and have taken a great deal of trouble in laying before us
their plan.
The committee will now take a recess in regard to this matter until
Tuesday at 10 o’clock a. m. | mh
(Whereupon the committee took a recess until Tuesday, July 29,
1919, at 10 o’clock a. m.)
PART 3.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
COMMITTEE ON INTERSTATE AND ForeIGN CoMMERCE,
House or REpRESENTATIVES,
Tuesday, July 29, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
ian) presiding.
Se ee ae eee ~~ ee ee ee ee
STATEMENT OF MR. NATHAN L. AMSTER, BOSTON, MASS.
The Cuarrman. The committee this morning will be pleased to
ear Mr. Nathan L. Amster, president of the Investors’ Protective
-ssociation, of Boston.
Mr. Amster, give your name and address.
‘Mr. Amster. Nathan L. Amster, 67 Milk Street, Boston, Mass.,
‘presenting the Citizens National Railway League. |
Mr. Chairman, I have had but a very short time within which to
| repare the statement I desire to make before you, but I think I
jaye succeeded in outlining my views on the situation. I would like
) have the first five pages entered in the record without my reading
lem, because I do not wish to burden you with a recitation of
ngs which you have probably heard before but which I feel,
ever are relevant; therefore I will read, commencing with page
| of this statement, which I will leave here for the record.
| When your committee held hearings some 18 months ago in con-
etion with the framing of the Federal control bill practically
ery interest connected with the management and financing of
\r railroads urged upon you that the bill should provide that the
Overnment relinquish the roads immediately upon termination of
jar, while I appeared and urged you to use your efforts to have
e control bill so framed that the Government would retain the
ads for at least two years after the close of the war, so that Con-
‘ess might have ample time to enact necessary railroad legislation
safeguard the public and the security holders.
That Congress acted wisely in providing in that bill that the
ilroads should remain in the control of the Government 21 months
\ter the close of the war is evidenced by the fact that since the
|mistice was signed ceaseless efforts have been made to mold public
imion in favor of having the Government relinquish control of
e railroads at once. This would mean plunging at least half of
\¢ railroads into the bankruptcy courts, yet the people who claim
represent. the interests of the security holders are using every
| ort to force the relinquishment of the railroads by the Govern-
: ae of the known disastrous consequences that are sure
tollow.
/}The interests who want the management of our railroads back in
cir control are,.in my opinion, behind the movement to have the
329
830 - RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Government relinquish the roads and are responsible, in my opinior
for the statements that have been put forth in the press and othei
wise with a view to creating the false impression that the increase
cost of operation and certain necessary discrepancies in servic
during the war period were due entirely to Government control.
Every thoughtful man knows that the increased operating co:
is the increased cost of labor and supplies thé world over, brough
about by war activities, and of currency inflation. |
Anybody who has studied the Wage Commission’s report on rai
road wages should know that an increase in railroad employee
wages was inevitable, and should also know that, even with th
recent increase, railroad labor is not receiving any higher wage
than other labor similarly employed in other industries.
Everyone who knows anything about the situation knows th?
any discrepancy there might have been in railroad service since th
Government took control was due to war conditions and not ¢t
any laxity or lack of skill on the part of the railroad administr:
tion. They know, too, that there has been no real change in th
operating departments of the railroads during Government control
that the same men who were the operating heads of the railroa¢
before Government control have been and are still in charge ¢
operation.
These facts are generally known to the interests that are crit
cising Government operation, but these interests wish to rouse publi
sentiment against any kind of Government control and, in a wa)
to have succeeded in making the unthinking public believe that
would be in its interest to have the management and operation ¢
the railroads in the hands of their owners.
Your committee by this time must have convinced itself that thet
is no such thing as ownership management of the railroads in ti
country. Every investigation of the Interstate Commerce Commi:
sion has demonstrated that fact and, further, that the people wh
were formerly in control of the railroads were mere outsiders an
owned very little, if any, stock in the properties which they cot
trolled and mastered.
These people are now clamoring for the return of the railroat
to private control—meaning their control—and if they succeed beta
Congress has had time to enact laws to define the policy of futw
control, operation, and rates, we will be certain to have a repetitio
of the maladministration, exploitation, and of financial scanda’
which the Interstate Commerce Commission brought to light in 1
investigation of the New Haven, the Boston & Maine, the Per
Marquette, C., H. & D., Rock Island, and other roads.
My own opinion is that the thinking public has come to a realizi
tion that the railroads are too much a part of the Nation and of 1
economic welfare to again be permitted to become the playthin
of a handful of Wall Street financiers as in the past. In fact, t
financiers themselves are now beginning to realize that the publ
will never permit the return of the railroads to their control undé
prewar conditions, and are therefore now advocating certain g0!
ernmental restrictions and supervision, evidently feeling that
would be better for them to regain control of the railroads with som
governmental restriction than not to regain them at all.
\
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Ser
_ Accordingly these interests have presented plans, directly or in-
irectly, which on their face appears to offer cures for all past ail-
aents and to promise safeguards for the future, but on close investi-
ation it becomes quite clear that none of these plans are anything
aore than mere stop-gaps. None go far enough to eliminate the men-
cing evils with which we are so familiar, nor do any of these pro-
‘osed plans point a way to a definite and permanent solution of the
ressing railroad problem for the future.
Some of the plans presented to the United States Senate Commit-
xe on Interstate Commerce propose Government supervision over
ye issuing of securities. Some propose that the railroads of the
puntry be divided into different zones, or consolidated into a limited
umber of competitive companies. Some advocate establishing zone
ates to yield 6 per cent on the aggregate book value of the railroads
i certain given districts, and that the prosperous roads shall divide
ieir earnings in excess of 6 per cent with the poorer roads in their
istricts. Most of these plans tend to confuse and encumber the situ-
non rather than to clarify it. Some of these plans appear to have
2en proposed with the object of so complicating matters as to make
ie owners of securities and the public feel that it would be better to
t the roads go back to former control than it would be to accept
xw, cumbersome and possibly unworkable propositions.
|The railroads are sick and everybody knows it. Doctors from all
ver the country, many of them quacks, have gathered around the
atient. All diagnose the case a little differently. The old financial
detors appear the most grave and the most perplexed over imagin-
‘y complications and have offered as a cure such volumes of figures,
atistics, and charts as to confuse and bewilder the average person.
hese financial doctors talk of the railroad problem in terms beyond
ie understanding of the average intelligent citizen in order to con-
ise him, as did the Olympian oracles. As a matter of fact, the
ilroad problem is quite simple. The railroads are merely suffer-
g from rate starvation and from improper trusteeship. Congress
ts the power and can correct both of those evils.
In approaching the railroad problem from the most. practical
ewpoint, three things must be borne in mind:
(1) That railroads are naturally monopolistic and for that reason
ust be under strict Government supervision.
(2) That the railroads are the most democratically owned indus-
y in America, barring none; that more than a third of our entire
)pulation have more or less of their savings invested in the rail-
ads, either in bonds or stocks, or by reason of owning life insurance
licies and being depositors in savings banks.
(3) That the railroading is the only industry that has every in-
| Stry and every individual in the country for its client, and is the
|mmon bond between every community and every citizen.
| With these points properly understood, the railroad problem be-
|mes simplified and easily solved.
The three questions therefore to be considered are:
|(1) How can this naturally monopolistic industry be so regulated
| to safeguard the public against being tyranized by it, since the
ty life of our commerce, our industry, and our social well-being
pends so much upon it?
532 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
(2) How shall we safeguard, and to what extent protect, the i
vestment of more than 30,000,000 American citizens who have ir
vested their savings in the securities of the railroads outright ¢
through life insurance companies and savings banks?
(3) How can we make this naturally monopolistic transportatio
system—the Nation’s arteries of commerce and society—proper!
perform its function and carry the Nation’s business and commen¢
adequately, efficiently, and economically? :
It is my opinion that if Congress will address itself to these thie
fundamental questions, it will simplify its task and will easily soly
the problem to the entire satisfaction of all concerned.
I have had occasion to study the railroad problem for more tha
five years in the capacity of a shipper, stockholder, and as an exect
tive officer of one of our important Middle West railroads, and fe
that I can speak authoritatively on the questions to be considered i
solving the railroad problem.
I am convinced that if Congress would give the Interstate Co
merce Commission additional power to establish minimum as well?
maximum rates, and the power to regulate service and to ordé
needed extensions and improvements, the public would be amply prt
tected and well served.
If Congress would enact a law requiring that the valuation ¢
the railroads shall be based on: (a) original cost; (0) replacemer
value; and (¢) the average yearly net income covering a period ¢
10 years capitalized at 5 per cent. am
Having regard for this plan the investment of the more than 80
000,000 direct and indirect owners of railroad securities would |
well and honestly established and safeguarded. ‘St
I believe that Congress should enact a law making it possible i
all of the railroads so valued to consolidate into a single compa
under a Federal charter, for corporate purposes, and providing #hit
consolidated national railroad company shall issue its own stock, pia
value $100, for every $100 of actual property value which the Vahi
tion Commission may find the different railroads to represent, th
stock to carry a limited income of 6 per cent. .
- If Congress will decree that in the country this national railroa
company shall be managed by a board of governors composed of &
equal number of representatives of security holders, railroad em
ployees, farmers, commerce, and the Government, the country Wi
have the most honestly managed and most efficient and economiett
transportation system in the world. i
I believe I have covered the vital points at issue, and if the prol
lem is dealt with in the manner above outlined I am convinced
policy could be worked out in the interests of the country, the en
ployees, the shippers, and the security holders which would revivil
the $20,000,000,000 or more of America’s most important investmél
values, which rehabilitation is absolutely necessary in the interest ¢
the country. |
I believe that the time has come for us to consider the fundaments
points and details of any suggested legislation. Everyone sett!
to agree that there must be consolidations, under strict Governmel
supervision, of weak and strong railroads, in order to make a soun
rate policy possible. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. aoe
This committee is so familiar with that phase of the question that
need say nothing further on it.
‘The only question that remains is whether the consolidation should
sult in 18 or 19 roads created under an effort to produce artificial
mmpetition, or in one privately owned and operated unified system,
ader strict control and supervision of the Government. I firmly
sieve in the latter. No one denies the advantages of unified opera-
on, both in times of war and peace. Many, however, are inclined
| fear the overcentralization of one system and the defects of service
ie to lack of competition. I feel that these objections can be readily
|
By having a representative board of governors, as I have sug-
sted, the dangers of overcentralization can be met. I would sug-
ist that the board of governors be 9 or 11 in number and be selected
‘follows: One from the members of the Interstate Commerce Com-
‘ission by the President. Thus you will make possible close contact
id complete harmony between the rate-making body and the rail-
vad management. A second member of the board should be selected
7 the President out of five names proposed to him by the State rail-
lay commissioners, acting through their national association. I
ould suggest that two members be selected by the President out of
ye names proposed to him by the employees of the railroads, acting
‘ough their brotherhoods. There should be one member selected
‘the President from the nominees of the United States Chamber
* Commerce, and one member selected from the nominees of the
ational Board of Farm Organizations. The security owners should
‘opose seven names to the President, out of which he should select
ree.
Thus the controlling board will represent all the interests of the
untry, and yet the National Government will have firm control.
I believe that the time has come to regulate from the beginning and
it after the act is done. In other words, let us have preventive
yislation. Let the Government dictate the original policy.
In addition to this board I would have an advisory rate board
lected in about the same way, by the Interstate Commerce Com-
ssion, which shall act under it, to suggest rates, hear complaints,
d advise as to improvements. I would try to improve service by
efficiency board composed of five of the ablest engineers of the
‘antry who would make a study of necessary improvements in the
\tvice and make recommendations to the Interstate Commerce
mmission.
In forming a Federal corporation, I would avoid the legal difficul-
S of compulsory Federal incorporation by arranging for a method
| acquiring the equities of the roads with the consent of the owners.
ls can be done in fourvor five different ways and I would suggest a
im to the railroads of half a billion dollars as a revolving fund.
\irough my suggestion of a Federal trust corporation, the securities
| the roads could be boiight and sold, this facilitating the acquire-
mt of the equities in the roads.
You will understand I have recommended a trust and finance com-
hy as an adjunct to the United States railroad company, because
know that the major part of the troubles in this country with
‘pect to railroads came from the financial end; that the railroads
‘
334 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
have never attempted to raise money for improvements and exten
sions, which they were constantly in need of, direct from the public
but depended upon their bunker directors, and have thus gotten them
selves into the habit of looking to certain financial interests for th
money they needed, thus becoming, so to speak, the bonded slave of :
small coterie of financiers who did not hesitate to take advantage o
them. Aside from deeming it desirable to change this order of thing
because the railroads were obliged to pay out a great deal of mone}
in underwriting reorganization and selling of commissions, it i
deemed desirable for the railroads to have their own trust and finance
company to handle their securities so as to make them independew
of any financial clique or interest. I am sure that can be achievec
through a railroad trust and financial company and I strongly recom
mend it.
The big question, however, before the country is that of rate mak
ing. I would make it mandatory for the Interstate Commerce Com
mission to establish a scientific rate structure to provide operating
expenses, depreciation, interest on bonds, and dividends of 6 per cen
on the stock, which stock shall represent nothing but real value a
determined by fair valuation. In this way there will be no waterec
railroad stocks upon which to earn or pay dividends. The surphr
earnings, if any, could be divided as follows:
‘Twenty-five per cent of the excess to labor as a profit share anc
as an inducement to efficiency and surrender of the right to strike
A voice in the management and a participating profit in the business
would, I think, be suflicient inducement to employees to maintail
harmony and exert their best effort in the public interest. |
Sixty-five per cent of the excess earnings to be accumulated in ¢
reserve fund until the fund shall have reached the total of half ¢
pulion dollars. It will be understood that this fund would belong t&
the public and would be used for its benefit in improvements anc
extensions.
There can be provision in issuing the corporation’s stock that TF
can always be repurchased by the corporation when it is found de
sirable to do so. Thus surplus earnings may be used to decrease rates
which is the great desire of the country. :
Now, speaking of valuation, I believe that it is the most important
question to be considered. No sound rate base can be fixed and um
consolidations are possible until the value of railroad properties i:
definitely determined. I believe that we should try to arrange ul
agreement between the public and the carriers on the following bases:
The original cost, the reproduction cost, and the net earnings oye
a period of 10 years as shown by Interstate Commerce Commissigt
reports, capitalized at 5 per cent.’ |
I need not remind this committee that if the railroads do not (le
sire to accept the valuation of the Interstate Commerce Commissiol
they can contest the valuation in the courts. This may mean possibly
3, 10-year delay. The present procedure in our courts is highly uD
satisfactory. ‘Arrangements should be made to expedite this pro
cedure and to have the courts determine what the theories of valva
tion are which satisfy the constitution. Thus the uncertainty can be
ended. |
My suggestion of capitalization of the net income of the railroad
at 5 per cent, and of using that as one of the three elements oF
|
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3o0
vhich to determine their value is probably not clear, and I would
ke to explain it. When you havea railroad valued as to its physical
roperty, you are likely to take in a lot of physical property that has -
een unwisely built. To pay or to allow the company to earn 6 per
ent on such a basis alone is not fair to the public, because some of
aese roads might have been projected for promotion purposes and
ith no intention of making them really of service to the commu-
‘ity.
There are other railroads in the country, as we know, that have
een wisely projected, honestly managed, and have been very success-
alenterprises. I do not think it would be the fair thing to take from
1em their business at a mere valuation of their physical property.
therefore invented this third corrective method of valuing these
roperties, and that is, to take the net earning capacity of all these
ulroads for a period of 10 years and capitalize those net earnings
i 9 per cent per annum. That would equalize and would indicate
re road that has really been a wisely projected road, and the road
‘at has been a poorly projected one for promotion purposes. For
jistance, we will take the Alton—and I am going to speak figura-
'vely—sup pose the Alton should be valued by the Interstate Com-
Jerce Commission valuation department at $100,000,000 as its physi-
ul or replacement value, and its net income over an average period
[ 10 years was only $2,000,000 a year. Capitalize the latter at the
wning capacity value of the Alton 5 per cent would be only $40,-
)0,000. Now, if we add to the earning value the $100,000,000 which
the physical value of the property we would have a total of $140,-
= which divided by two places the average value for consoli-
wing and rate-making purpose at $70,000,000. You have thus
wrected any overcapitalization or physical overvaluation, if there
as any, or if there was any unwise projection, the public would not
ive to pay for it, because the physical valuation would b2 brought
ywn to proper standard.
Now, you may take the Delaware, Lackawanna & Western, or
e Union Pacific or some other road which may have been pros-
prous, we will assume that the physical value of Delaware, Lacka-
janna & Western is, say, $200,000,000 as found by the valuation
|mmission. On the other hand the earning capacity during an
erage of 10 years may total $20,000,000 a year. Capitalize that
| © per cent, and the value from the standpoint of earnings is
| 00,000,000. Add that amount. to the $200,000,000 physical value,
vide by two and you have a value of the property for consolidation
irposes of $300,000,000. In other words, the Delaware, Lacka-
una & Western would be compensated for good judgment and
}sdom as the Alton would be penalized for bad judgment. ar
mk that such a policy would be in accordance with the demo-
atic emt of the country, which is to treat everybody fairly and
uarely.
| Now, as to a unified system of railroads, I know that various
}lerests which have appeared before you and before the United
jates Senate Committee on Interstate Commerce differ with me
} the point of having one company own and operate all the rail-
jads of the country, yet all interests admit the advantages to be
jmed from unifying the railroads, from cutting out duplication
ao0 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
of equipment, of terminals, and service, and from the elimination o
competition to a greater or lesser extent.
Practically every interest that has presented a plan before thi
committee or the Senate committee recommends the consolidatior
of the railroads into a greater or lesser number of competitive sys
tems. I contend that if cutting out competition to any extent i
advocated by all interests, the interest of the country, the elimina
tion of competition entirely must certainly be even more desirable
As a matter of fact, railroad competition is nothing but a delusion
for there is no such thing as railroad competition, and there ha:
been none for more than a decade.
One of the greatest achievements of the Interstate Commerce Com
mission has been its success in eliminating underhand rebates an¢
cutthroat competition. The very fact that Congress saw fit to creat
a regulatory body as it has in the Interstate Commerce Commission
is itself evidence that Congress believed the railroads to be a natura
monopoly requiring governmental regulation. That being the case
why attempt to fool ourselves into assuming that there is, or tha
there could be, competition in railroads, or that competition woul
benefit the country ?
It would be of no benefit to the country because when there ji
competition there must be waste, duplication of service, duplicatioi
of offices and all sorts of things. If you want a transportation sys
tem that will serve the country, the farmer, and every industry of tht
country ,cheaply, rail transportation must be conducted as a mo
nopoly under Government supervision.
One of the reasons for advocating the consolidation of all rail
roads into a single corporate body is: That consolidation of the rail
roads into one company on a definite fixed principle of valuatio
would be much simpler and more easily accomplhshed than con
solidation into several groups or systems would be. Just pictur
for a moment the confusion there would have been had Congres
instead of authorizing the President to take over the railroads 0
the country as a unit, ordered them taken over in certain definet
groups of zones. Had latter been the decision of Congress, the ja
of taking over the railroads as a war emergency by the Governmen
would still be unfinished, whereas by ordering the railroads taket
over on a definite basis, as a unit, the work was accomplished in ¢
few days.
I wish to make it perfectly clear that I suggest that you bring
all the railroads into one great national unit for corporate purpose
only, and to facilitate the transition from the old form of corporat
control to the new unified form as demanded by the people and tht
times. My plan provides that after the railroads have been consol
dated into one company, they shall be divided, for operating pur
poses, into as many regional systems as may be found advantageou:
in the interest of the country and economy. |
Another reason for advocating the unification of the railroads int
a single corporation is my conviction that only in that way can Wé
ever have a scientific rate structure which is eminently desirable anc
in the interests of the people. :
It is generally known to those close to the railroads, that there at
many industries that never have paid a proper or just rate for trans
:
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 837
porting their commodities, while many others have paid more than
a just rate. Those that have failed to pay, and are still failing to
pay, a proper rate for transporting their products, have benefited
by hundreds of millions of dollars. Had they been made to pay a
proper rate on their shipments, the rates on commodities and products
of other industries and shippers would have been materially reduced.
We are all familiar with the history of secret rebates and special
eates the railroads made to the Standard Oil and through which the
Standard Oil became dangerously wealthy, while its competitors, be-
ng compelled to pay higher rates, were made poor and driven out
»f business.
While the system of vicious, underhand, secret rebating has been
liminated since Congress delegated additional regulatory powers to
‘he Interstate Commerce Commission, it is, nevertheless, a fact that
wen to-day there are important industries and shippers that are
‘inderpaying the railroads for transportation, and were they made to
»ay proper and just rates the railroads, instead of showing an oper-
‘iting deficit, would be showing operating surpluses.
_ If we had a scientific rate structure, as we would have with all
‘ailroads under one corporate head, freight rates could be so appor-
joned that those industries that can best afford to pay high rates
vould be paying them, while those industries that can least afford it,
yould pay less. A scientific rate structure would enable the railroads
o nurse infant industries and help isolated communities to develop—
or after all that is what the railroads are for—to develop the in-
Idatries and communities of the country and not for any special in-
fividual industry or any special locality.
I mean by this, that if one company had all the equities of the
ailroads in its keeping, it would have earning power in New Eng-
and, it would have earning power in the West, and it would have
arning power, when the cotton crop is good, in the South, and if,
or example, somewhere up north the farmers should have a crop of
iotatoes, or of wheat or corn, in a certain year when the price of
hose commodities was so low as to prohibit marketing them at the
revailing freight rate the National Railroad Co., operating all the
ailroads, could make rates on those commodities which would enable
he northern farmer in that particular year, or the southern farmer
a other years, to market his product at a profit. That is something
hich this country has needed since railroads have come into exist-
nee, but being owned and operated by many individual corporations,
0 one railroad had either the power or the interest to come forward
') help out industries. I want you gentlemen to bear in mind the
xtent to which a scientific rate structure could help and benefit the
}ountry and the people that may need cheap transportation. In
fame my plan is private ownership, but in substance public owner-
up, because the people that own the railroads to-day would be
anding them: over to the American public for 6 per cent on the actual
jalue of the roads, all earnings above 6 per cent to go to the public.
}{ the Government should be willing to guarantee the income on the
\;curities, as Senator Cummins has suggested, the people owning
i¢ railroads might be satisfied with 44 or 5 per cent, because a 44 or
per cent Government guaranty would make the security worth par.
152894—19—-vo1 1——22
)
O38 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
It is argued that combining the railroads under one corporate
company would kill individual initiative. No one that knows any-
thing about railroad history of the past generation can conscien-
tiously claim that there has been any individual initiative at the
operating end of the railroads where it 1s most needed. Whatever
‘ndividual initiative there has been was at the financial end, where
some directors and their lawyers worked overtime concocting schemes
to make money out of their corporation through loading them up
with properties, which they or their friends owned. You can not
get 100,000 stockholders of the Pennsylvania Railroad to exert pro-
prietary or individual initiative in the management of that great
railroad system, but you can have individual initiative if you con-
solidate them under one head and provide a fund, as I provide in my
plan, for the purpose of encouraging the employers to exert their
efforts in improving and economizing operations. Give them a share
in the profits and you will have initiative where needed.
Individual initiative which exists in other industries does not exist
in the railroads because, as I pointed out before, the people who own
the railroads are scattered and the people who administer and master
them own little, if any, of the securities.
It is argued, and with some grain of justice, that if the railroads
were consolidated into one company, competition in service would he
eliminated. That is, in a measure, true, but do you realize what
competition in service really means? It means that certain impor
tant centers, few in number, that have the benefit of several compet
ing lines and certain important and favored industries, have been
receiving a class of freight service—practically express service—
which has been of great benefit to them, but a detriment to 99 pa
cent of the country and to 99 per cent of the public. For instance, 2
railroad in the Middle West desiring additional business would
establish fast freight service, let us say, running from Omaha
Chicago, and would so notify the packers of other industries.
Naturally, they would get the business. When other railroads heal
of this special service, they, too, establish similar service, in conse
quence of which there would be a number of fast freight trai
starting daily from Omaha to reach Chicago at a fixed hour or wick
versa, and as they are obliged to make time, these trains would otter
start out with a few cars and those few cars often only half loaded
resulting in extra wear and tear of equipment and roadbeds, he
cause of fast time. This is not from hearsay. You will find from amy
railroad that this special service has never paid the cost of opera
tion. The yield to the railroads out of this special freight servic:
has often been less than 40 cents per train-mile, while the servit
cost the railroads $1 to $1.50 per train-mile. Thus, you have al
idea as to what the much-talked-of competition in service reall
means and an illustration of its benefit to the public. . ae
It is not, however, my intention to advocate cutting out this ela
of freight or passenger service. These fast services are well esti
lished and well known, and there is no reason why a large consol
dated company can not maintain the same kind of service, designatiny
it as service A or B. But the board of governors would have the ¢
of such service figured out and a proper charge made for it to th
who wish it, whereas in the past important shipping centers and cer
tain private industries received the benefit of that special service bj
;
{
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 339
‘aying freight rates, and hardly that, and the public had to make up
ie deficits.
_To conclude, I wish to impress upon you again that—
(1) The railroads being so widely owned there can never be pro-
rietary or owner management;
_ (2) It is in the best interest of the security holders and the public
iat the railroads be managed by a responsible board of governors
‘nder the supervision of the Government, such board being composed
[ the different interests that I have mentioned;
(3) That the railroads, representing the cream of our investment,
ie cream of our liquid wealth, should be so stabilized as to make
ieir securities the equal of Government bonds. By doing that you
‘; get money cheap, and the public will naturally get the benefit of
“wer rates; and
(4) That the public being so vitally dependent upon the rail-
sads for its industrial and social existence, extreme honesty and
treme efficiency and economy in operation must be the watch-
ord. :
As I have stated, to achieve these ends we must have:
(1) A valuation of the railroads to define their real value, to
‘able the Interstate Commerce Commission to establish a fair and
ientific rate structure;
(2) The elimination of hundreds of high-salaried officials with
elt expensive attachés; and
(8) The elimination of duplication of costly terminals, costly
/uipment, and unnecessary service.
| This is the opportune time to bring about these changes. We are
‘ing in a period of tremendous upheaval and of great reforms, the
rid over. No country and no people have suffered more through
jtocracy and militarism than our own country and people have
fered from the financial maladministration and exploitation of
|r railroads. As pointed out before, the question of the railroads
not one that interests merely investors, but the entire country at
iege, and the correction and reform of the railroad situation is one
| the most crying needs of our country at this time.
|The railroads are being operated at a deficit of about $1,000,000
rday. Why? Not because they can not earn it or should not earn
| but because it is the only industry that is forced to accept a dollar
\its dollar value. In the case of other industries, and other com-
dities, where the dollar of old is but 50 cents, it is different, and
}ese privately owned and favored industries are having their
ight carried much below cost and are practically being subsidized
the public’s expense. The industries for whom the railroads are
king are being subsidized. The railroad, next to the farm, is the
ly producer that sells-something for a price that represents 80
>eent of actual labor. The commodity that the railroads sell the
ple consists of labor and nothing more, except the small income
‘ich a poor widow or a retired old man who have their money in-
ted in railroad securities because they thought it was a safe in-
‘tment. You have labor directly employed, you have fuel, and you
ve supplies; 80 per cent or more of the receipts of the railroads
*s into those items. The reason is the people who own them are.
+ Concentrated and can not defend themselves and because there
340 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
is an illusion on the part of the public that the railroads are own
by the rich people. The Lord knows that there is nobody so bad
situated and so poorly off as the average railroad stockholder wi
has been living largely on expectations while everybody else h
grown prosperous and rolling in wealth, flaunting their jewels ar
their millions.
The American citizens who have innocently and in good fai
invested their savings in the securities of the railroads are beit
deprived of their inherent right to receive at least a legal incon
on their invested funds in public service.
Congress can not perform a greater service to the country than th
of enacting such legislation as will cure and eliminate the evils ar
inadequacies in the railroad situation and once for all stabilize ti
transportation system of this country, honestly capitalized on acti
values, so that the public may have the benefit not only of adequa
but of cheap transportation.
T thank you, gentlemen, for permitting me to make this statemer
Mr. Stms. Mr. Amster, as I understand, your plan contemplat
the acquiring of all railroad property by a single corporation?
Mr. Amster. Yes, sir.
Mr. Sis. Is that corporation to be a Government ket bornti (
a private corporation?
Mr. Amster. As I explained before, it is in name a private corpor
tion, but it is practically a people’s corporation. As I explaine
Congress would authorize the organization of a company to assip
late the equities of these companies. As to the bonded debt, ¢
not touch the bonded debt, as it has been issued at a very low rat
You take the Rock Island with $200,000,000 of bonded indebtednes
Over $150,000,000 carries no more than 4 per cent. Some of the
bonds do not mature until 1988. Do not disturb the bonded deb
of the railroad, but take the actual equity of the stocks over al
above the bonds. The stockholders will take the stock of the co
solidated company in exchange for their equities in the railroa
and the railroads will be owned by the same people that own the
now, but the business of the railroads will be conducted by the publi
as I have explained.
Mr. Srms. Your plan is to acquire the railroad properties sbi
to incumbrances?
Mr. Amster. Yes, sir. , :
Mr. Sims. And the bonded debt? : :
Mr. Amster. Yes, sir. |
Mr. Sts. And all existing lines; everethene of that sort remai
intact ?
Mr. Amster. Until they mature, after acquiring the railroad equ
ties, the company will issue a refunding mortgage on all of
property and refund any of the mortgage bonds that mature an
become payable. |
Mr. Stus. Do you contemplate acquiring the stocks of the existin
railroad companies?
Mr. Amster. Yes, sir.
Mr. Sts. Upon the market value of the stock as deters aby
period of years preceding the organization of the corporation?
Mr. Amster. As I have explained, on the actual value of the pro}
erty in excess of the bonded debt. |
|
i
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 341
Mr. Sims. The physical or economic value of the property less
sms, incumbrances, and the bonded indebtedness ?
Mr. Amster “Yes, sir. According to my plan, Congressman, the
ard of governors will not buy or have anything to do with the
ock of a railroad company that has an excess bonded issue on the -
due of the property. Then they will deal with the bondholders and
_y them out at what the property is worth. In other words, if a
‘operty is valued at $50,000,000 and it has $60,000,000 of bonds—
ere probably are such railroads—the stock in such ease will have
-value. The board of governors in that case would deal with
e bondholders on the basis of the actual value of the property
d pay them in 5 or 6 per cent consolidated stock on a valuation
und by the valuation board. If the terms are rejected the bond-
Iders would be allowed to stay out.
Mr. Sims. Your corporation, in effect, is to acquire the oustanding
‘yeks and bonds of the railroad companies?
Mr. Amster. Only the equity; over the outstanding bonds if the
ick had no equity it would not be acquired.
Mr. Srus. And if you acquired the' outstanding bonds and they
‘re only worth 50 cents you would only pay 50 cents for them?
Mr. Amster. Yes, sir.
Mr. Sims. And hold the bonds and stock by this corporation, and
\ll this corporation operate the corporations issuing the stocks
.d bonds?
Mr. Amster. Yes, sir; the large company will take equity in all of
ase railroads, and will wipe out stock not having any value.
‘len the consolidated company becomes the proprietor and will
,erate the railroads under the board of governors. |
\Mr. Sims. They will buy the property of existing railroads by
|juiring the stocks or bonds?
\Mr, Amster. Either one.
: e Sims. Where does this corporation get the money with whick
\do this ? :
/Mr. Amsrmr. In the first place, it is an authorization by Congress
| the people that own these railroads—undoubtedly that is what
| s—a permission by Congress in some form or other for the people
/continue to own the railroads and to get together and consolidate
}m on a basis of valuation that will be fair, as I have pointed out.
Mr. Sims. You will compel them to go back, but how are you
| ng to bring about that situation ?
ir. Amster. You can do that by treating them fair. Here is a
\n under which every railroad stockholder, except some, will come
| because it is the only fair and just opportunity that has ever
n given them for the last 10 or 15 years where they can get about
at belongs to them.
ifr. Sims. As I understand, your plan includes the right of con-
onation of a railroad. Suppose a railroad has not transferred its
/ck and the bondholders have not transferred the bonds to the new
poration, when it is condemned it will have to pay the money,
l where will the corporation get the money?
Ar. Amsrer. You will not take over the bonds at all, just take
r the stock. This will be a mutual consolidation, and I think
t we can bring it about. That is the reason we have formed this
342 RETURN OFe THE RAILROADS TO PRIVATE OWNERSHIP.
Citizens’ National Railroad League, to give the country cheap ang
eflicient transportation and at the same time give proper recognitioi
to railroads’ actual value. Railroad stockholders car¢not expect t
get more than the value of their property and I am ‘ure they wil
all be happy and willing to take a security that will assure them a
income based on their property value. But if you will permit me
we have Mr. Spring, who has helped to draft our bill, and he ea
probably answer that question better than I can.
Mr. Sts. I want to get the fundamental of your principles
my mind.
Mr. Amster. Yes, sir.
Mr. Sims. You provide for the compulsory acquirement of al
railroad properties through their stocks and bonds, or bonds wher
it is less than the value of the property, or by means of condemnation
and you are required to buy the condemned property. What I wan
to find out is where your corporation gets the money with which t
pur_hace the condemned property where the corporation owning th
property will not voluntarily go into the arrangement?
Mr. Sprinc. May I answer that, or is that against your proce
dure?
Mr. Sims. I do not care who answers it.
Mr. Sprinc. The bill as drafted provides that there shall be ai
appropriation of half a billion dollars authorized by Congress as’
loan to this corporation, to be used as a revolving fund. The bil
also provides that a national railroad trust corporation shall }
created which can use the securities of this corporation and of th
acquired lines. As you are aware, Wall Street operates largely 0
revolving funds. The men who have acquired the railroads did ne
have enough money to buy all of the railroads, but they acquire
certain securities and sold them to the public, and thus, by using ve
volving funds, they were able to finance their purchases. This bil
contemplates the same sort of procedure, it being started, to bee
with, by Congress in the form of a loan. It is not to be a donatior
but a loan for a fixed period of years, under the guidance of the Se
retary of the Treasury, to this corporation for its capital. .
Mr. Stas. The corporation not having any property to begin wit
and not having any money to start with, it seems to me it would b
in a rather poor shape to operate for the Government or anybod
else. What I am trying to find out is where is your operating capita
to begin with? |
Mr. Sprine. Right at that point the bill provides that the corpora
tion shall not become operative until a certain number of lines, it
cluding three of the largest lines in the country, voluntarily aa
the provisions of the bill. According to Mr. Amster’s plan under ti
bill, a certain number of roads would have to come in. Of cow's
this committee has full power to indirectly force the railroads|t
come under the provisions of the bill. They can do that by chant @
the rate policy and giving certain privileges to them so that they wi
come under the provisions of the bill. You are, of course, familia
with the policy adopted in the case of the Federal reserve ban
system by reason of which banks came under the Fever ree
system:because of the privileges and inducements. This bill conte
‘plates that a certain number of railroads will come in. The loan,-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 343
5 provided, shall be under the care and guidance of the Secretary of
he Treasury, so that the Government will be secure. Then, under all
yossible ways of financing, by condemning or by agreement, the rail-
oads of the country will be gradually acquired by this corporation.
_ Mr. Sims. It is all conditioned, according to your statement, upon
hhree of the largest companies in the United States going into this
hing voluntarily to start with?
' Mr. Sprine. Yes, sir.
Mr. Sims. If they did not come into it voluntarily, then your plan
vould not operate?
Mr. Sprinc. This committee could force them to come in volun-
arily by changing the rate policy and giving them certain advan-
ages under this corporation which they have not got under the pres-
‘nt system. As a matter of fact, the mere relieving them of State
egulations in the matter of the issuance of securities would, I am
‘ure, cause large railroad corporations to seriously consider the adop-
ion of a plan of this sort.
Mr. Sms. That plan does embrace the Federal incorporation of
ome railroads with some advantages over other railroads.
| Mr. Sertne. The plan suggested follows the procedure which was
dopted under the Federal reserve banking system by which the
ational banks were brought in. This is strictly following that same
rrocedure.
_ Mr. Sms. Mr. Amster, this gentleman has answered the question I
sked you, as I understand it. Now, as I understand it, you want
© guarantee, through legislation or otherwise, a 5 per cent return
pon the stock issued by this acquiring corporation ?
Mr. Sprinc. A guarantee by the Federal Government.
| Mr. Sims. By the Government or through full returns authorized
/nd made mandatory upon the part of the railroad ?
_ Mr. Sprine. By rates, not taxes.
Mr. Sims. Rates and taxes are the same. In a sense it is money
(hat is not paid voluntarily, because they would have power to col-
,eet it. Now, this plan, so far as I understand it, depends, at least,
| pon the Government for that which the Government only can do,
\nd all of it depends upon what you think will be the earnings, and
|5 assumes that the capital stock of the new corporation will always
\e@ at par, or not less than par.
Mr. Amster. Yes, sir.
Mr. Sprinc. Except this, that the bill provides for a reserve to be
ecumulated out of the surplus earnings which will carry it over the
j3an years, because under the provisions of the bill which say thas
\he surplus earnings go, not to the security owners, but to the pun.
¢, the Interstate Commerce Commission, will be able to fix higher
bi to insure an adequate return without thereby injuring the
} ublic.
Mr. Sims. But it is without the consent of those who have to pay
\oe returns.
| Mr. Sprrnea. I suppose that is always true of regulations under any
orm. .
| a Sims. Your bill does provide something with reference to a
mit.
_Mr. Amsrer (interposing). I pointed out that if we capitalized
aese railroads at their actual value, nobody would object, and that
344 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the actual value in public service should earn 6 per cent. I do not
believe that anybody would object to that. ie
Mr. Sims. They would have to pay a rate that would bring it
about.
Mr. Amsrerr. If you have a scientific rate structure, you can earn
three times 6 per cent and hurt nobody.
Mr. Stms. You could have a very unscientific rate structure, could
you not, and with the power behind it to do the same thing?
Mr. Amster. The rate structure in this country has been wrong,
There are people who pay about one-fourth of 1 per cent in freight
rate of what they receive for this product, while there are other
people who pay 90 per cent of the price they receive for their prod-
ucts, for freight, and it is the purpose of the bill to make it so that
the people can regulate those rates so that they would be paid by the
products, commodities, or industries that can well afford to pay them.
Mr. Srus. If the Government through taxation is to furnish a re-
volving fund, and by legislation is to require all regulating bodies
to do whatever is necessary to make this plan successful, why not be
straight and square about it, and go into Government ownership to
begin with ?
Mr. Amster. The advantage is this, that you will have none of
the complications that Government ownership would entail in the
operation of the great railroad systems of the country.
Mr. Sts. And you would have none of the camouflage that this
plan makes necessary.
Mr. Amster. You give the benefits to the people, and all that the
owners of these properties will get will be the 6 per cent, or 5 per
cent, or 43 per cent on the actual value of the properties, after cut:
ting out all of the water and camouflage. The question is this: Do
we believe that we can have two laws in this country—one law apply-
ing to one set of men that own certain industries and another law
applying to another set of men and women that own the carrying
industries? If you think that we can operate under two laws, then,
the way we have been going is the proper way; but if people are to
be treated exactly alike under the Constitution of the United States,
with no profiteering, and you can not say that 44 per cent is profiteer-
ing .
Mr. Sims (interposing). Three per cent might be profiteering
under some circumstances, while 10 per cent under certain other cl-
cumstances might not be. Now, this is in effect Government owner-.
ship of the carriers. Now, why cover the thing under false names
and titles or by designating it a loan of money? Why not provide
for Government ownership and be done with it? ]
Mr. Amsrer. Our railroads have been operated and conducted in
the past in a way that has been unsatisfactory to the public and to
the security holders, and if asked to decide between operating the
railroads as they were before the Government took control and Goy- |
ernment ownership, I would prefer Government ownership. But I
say that the middle and safe way is to allow the people who own the
carriers to consolidate on a defined valuation and save the country at
cost, and since the consolidated company is to be operated and di-
rected by and in the interest of all the people, I can not see how you |
can Improve upon it, or how either the public or the security holders
can be more fairly treated. |
‘
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 345
‘Mr. Denison. Has this plan been used in actual use or operation
any country that you know of ?
/Mr. Amster. I do not know whether it has or not. As you know,
me other countries own the roads outright, but I do not know
‘hether there is a semigovernment ownership, as this would be, or
ablic ownership, and yet with the securities held by the people who
yn them to-day.
Mr. Denison. Are you familiar with the railroad systems of other
-untries? ;
Mr. Amster. I am somewhat familiar with the system in middle
arope and France.
Mr. Denison. Was their transportation service superior to ours
fore the war ?
‘Mr. Amster. I do not think so. I think we have the greatest and
jest transportation service in the world.
/Mr. Denison. Then, what you are trying to do is to make some
provements in the finest transportation system in the world?
| Mr. Amster. That is to make sure that what we have got will
/ntinue to be what it has been and not deteriorate, and it must de-
‘morate if you are not going to have it operating on a basis on
juch it will earn an income on the investment. As it is operating
| w, the Government is having to pay a deficit. There is no innova-
/m in this plan of mine. There is nothing new about it, because
' deal with tangible property and fix the capitalization at exactly
value. There may be much of the capitalization that represents
\\ter. By my plan you would correct that and find out what the
ery is worth and make it serve the country in a scientific
/Mr. Denison. Do you think that it is wiser to devote our efforts
| trying to put into operation an entirely new plan, such as you
|tore our original plan with such corrections as experience has
‘ywn us should be made?
ns that you would like to bring about. If you allow the properties
the country to be operated by a number of companies and compel
jerests, and if they have to operate with duplications of service,
/l with expensive terminals in order to keep up with their neigh-
ng about. ,
Mr. Denison. It is your theory then that you can not correct any
erse ownership ?
‘ir. Amster. I am afraid not.
troad companies do not have any right to control, do they?
\tr, Amsrer. No, sir.
fr. Amster. No, sir. In name it is, but it is not to a sense
‘vate.
inner.
ive devised, or would it be wiser to devote our efforts to trying to
Mr. Amster. I am afraid that you can not bring about the correc-
:
m to go for their financing, as they have in the past, to certain
's, I do not believe you will bring about the result you want to
these principal evils if the roads continue in operation under
4. Merrirr. Under your plan, the stockholders of these united
\4(r, Mererrr. So that it is not in any sense private ownership ?
| Mr, Merrirr. Not in any sense?
SS
—
346 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Auster. Except that the people who own the securities to-day
will own them, but in a different form and on a fixed valuation ang
fixed income basis.
Mr. Merrirr. But they will have taken away from them one 0
the great accompaniments of ownership, in that they can not mu
their own property.
Mr. Amster. They have never run their own property.
Mr. Merrirr. They have not?
Mr. Amsrer. No, sir. You can look over the Interstate Commere
Commission’s reports of every railroad company it investigated an
you will find that the stockholders have never been able, and tha
they never will be able, to say anything about the operation of th
railroads. That is the entire crux of the situation and the greates
evil of the railroad situation. The owners have not the persona
touch of proprietors.
Mr. Merrirr. I thought that in the Rock Island certain stock
holders had a good deal to say.
Mr. Amster. We had a lot to say when we got on the warpath
but even so, we have but little to say to-day. We have been suc
cessful in electing 4 members of the board out of 18. We have Pro
William Z. Ripley, of Harvard University; Mr. Henry Bruers, M
Peter G. Ten Eyck, a former Congressman, and myself, out of |
board of 13. You can’ imagine how much power we have—4 ov
of 18. We make objections here and there, but it is still in th
control of the same class of management that was in control befor
we fought and won.
Mr. Merrtrr. You have some influence, do you not?
Mr. Amster. We have; only as a minority interest has influenc
Mr. Merrrrr. Under this board plan that you propose for thi
United States railroad company, who will fix the wages of the men
Mr. Amster. There will be a wage commission appointed, am
that is one of the provisions of the bill.
Mr. Merrrrr. Who fixes the rates under this plan?
Mr. Amster. The Interstate Commerce Commission. .
Mr. Merrirr. This board, under your plan, represents all th
interests of the United States, does it not?
Mr. Amster. Yes, sir.
Mr. Merrrrr. What would be the use of having the Interstate Com
merce Commission ?
Mr, Amster. Because the Interstate Commerce Commission ia
got the equipment to put into service or operation the rate syste
that no other body in this country has.
Mr. Merrirr. It would be easy to give this board that power, woul
it not? Would not that make for simplification ? :
Mr. Amster. Tf it should be found so, that could be done. 0
course, I do not mean to dictate to Congress as to how it shall fi
this bill. I have simply thought on this thing for so many years tha
I feel that I have crystallized some sort of plan that would eliminat
the evils and would put the railroad industry on a safe and soun
footing and in a position to serve this country as cheaply as railroa
transportation can be supplied. :
Mr. Merritrr. That may be true, but, naturally, you must take int
account the human element.
i
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 347
. Mr. Amster. Yes, sir.
_ My. Merrirr. The great human element, of course, is a matter
with which we must deal.
_ Mr. Amsrer. Yes, sir.
~ Mr, Merrrrr. I gather from what you say that you propose to pro-
vide in your plan that the railroad employee shall have no right to
strike, and as an inducement you have given him 25 per cent of the
orofits above 6 per cent.
Mr. Amster. Provided the profits do not exceed 2 per cent above
Sper cent. After that the Interstate Commerce Commission will re-
sast the rate structure and reduce the rates. I do not provide in this
ll to take away from the employee the power of striking, but simply
suggested that in giving him a voice in the management of this great
‘ndustry and by giving him participation in the excess earnings, he
night voluntarily be willing to give up the right to strike. There is
‘me thing that we must consider, and that is that this period we are
yong through is a period of the sellers’ market. The man that
yells has a say about it, and the man who has labor to sell
ss probably as well off as the man who has a pair of shoes to sell.
Chen, why not face those conditions as we see them? Why talk
bout railroad employees getting too high wages? I am holding no
wief for them, but it is not true. As to the employees, when the last
‘alse In wages came, 50 per cent of them did not get over $70 per
month, while employees performing similar work got from $100 to
3150 per month.
_ Mr. Mererrr. Other railroad employees?
Mr. Amster. No, sir.
Mr. Mererirr. Do you mean employees in other industries ?
Mr. Amster. Yes, sir; in other industries. JI am on the Rock
Sland Board, and I know that our former President, Mr. Gorman,
ame with tears in his eyes claiming that he was losing his best men
ecause other industries could afford to pay them better wages than
he Rock Island could afford to pay them. The American public
-hould not expect a railroad company to get something more out of
aboring men than do other industries.
Mr. Merritt. I agree to that. In order to judge of your plan, I
vas trying to find out how you had met that question. Now, have
‘ou any figures in your mind that would permit you to say what per
ent this 25 per cent of 2 per cent, which I understand is your
imit
Mr. Amster (interposing). Yes, sir; that is the limit.
Mr. Mererrr. I want to ask you what ratio that would bear to the
otal wages paid?
r. Amster. IT am _ supposing that the railroads are worth
| 20,000,000,000.
Mr. Merrrrr. Not the equity?
Mr. Amster. I am speaking of the equity.
Mr. Merrrrr. $20,000,000,000 equity ?
Mr. Amster. I think so. I mean the equity representing every-
ling, including the bonds and stock.
' Mr. Merrirr. No; this equity is not the bonds and stock, because
ae dividends would only be paid on the stock. ;
| Mr. Amster. Yes, sir; 6 per cent would be paid on the stock, or
| per cent under Government guaranty, but it will be less on the
348 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
bonds outstanding. JI will assume 5 per cent on the whole thing—
that is, 4 per cent on the bonds and 6 per cent on the stock. That
would be 5 per cent on the $20,000,000,000, or $1,000,000,000, and 25
per cent of that would be $50,000,000.
Mr. Merrirr. What are the total wages?
Mr. Amster. I would not be surprised if the total wages amounted
' : |
The CHarrMANn (interposing). $2,900,000,000.
Mr. Amster. About that.
Mr. Merrirr. That would be about one-sixtieth, would it not?
Mr. Amsrrer. It would be a very small amount.
Mr. Merritt. I was trying to figure out whether that percentage
provided would be any inducement at all to the men. It seems to
me that it would be a rather small inducement.
Mr. Amster. But we have other things to consider, and when the
laboring people realize that these industries are being operated for
the interest of the country, and not for profiteering, as they assume
to-day they are being operated for, and when they see that there
is nothing in the capitalization but the actual bone, that the values
of the railroads have been cut down to the bone, and that nobody
is to get more than 4 or 5 per cent on their investment, I believe
that the railroad employees will be more amenable to reason and
more cooperative in helping to bring this service to the country as
cheaply as possible. We must consider all of those elements.
Mr. Merrirr. You have faith in the outlook? _
Mr. Amster. I have some faith in the human race still.
Mr. Merrirr. Going to the other end of the line, or to the stock:
holders, you instanced the case of a successful railroad, and I think
you spoke of the I.ackawanna and gave some figures. I understand
that they were theoretical figures ?
M. Amster. Yes, sir.
Mr. Merrrrr. Assuming that the value was $200,000,000 and that
the earnings on that were 10 per cent, which would give a capitaliza-
tion to the company of $200,000,000 more, and which would make
the stock, we will say, worth $400,000,000, under your plan you
would pay for that stock $300,000,000 ? |
Mr. Amster. Yes, sir. |
Mr. Merrirr. Do you think that would receive the assent of the
stockholders ? | |
Mr. Amster. I think so. During the last 10 years railroad stock*|
holders have been so badly treated and have received so little returm
for the money that they have put in their investments that I think
they would be willing to accept almost any fair deal. Take the |
case of the New Haven, and the St. Paul, for instance: The St. Paul |
was considered one of the best gilt-edged investments in the country.
People thought so well of the safety of that stock that they paid as”
high as $200 per share for it when it was paying 7 per cent divi-
dends. Now it does not pay any dividends, and is selling in the
forties. New Haven stock sold once at over $250 and paid 8 per cent
dividends; now it pays no dividend and is selling in the thirties.
Rock Island stock which formerly sold for $200 and paid dividends,
pays none and is selling in the twenties. The stock of the Pennsyl-
vania, the greatest system in the West, is selling around 45, and the
«
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 349
‘stock of New York Central, than which there is no better system,
has sold up to $170, although intrinsically worth considerably more;
‘it is now selling at par. Now, if we go to the owners of those stocks
‘and say, “Let us get together and settle the railroad question by
‘compromise,’ I am quite certain that they will be ready to deal.
‘If we submit a plan fair to all parties I am sure that we can get
.them to see reason and pool their interests. Then we can have a
transportation system to be justly proud of.
| Mr. Merrirr. Is not what you are saying on this basis, namely,
that “if you do not accept our plan, we will treat you so unjustly
and unfairly that you must come in.”
Mr. Amster. No, sir; that is not the purpose. That is one way
\Mr. Spring theorized it could be done. I would come with this
|honest statement, that the people of the country believe that the
railroads belong to them, because they are highways. I would say
|to them, “ You have money invested on which you have not been
/cecelving what, probably, you were entitled to receive. Here is an
|ypportunity for you to come in and get about what is coming to you,
and at the same time perform a great service to your country.” I
\oelieve it is only mutual justice and I believe that these considera-
ions will impel them to come in. I am sure that we can get most
of them to come in on this basis, because it is an equitable and fair
yasis and because it is better than the railroad stockholder has had
/n the last 20 years.
| Mr. Merrirr. If the stockholders thought they were going to be
‘reated, as you suggest they should be treated, the same as the
)ywners of other properties, do you not think a large percentage of
| he stockholders would prefer to take chances on good business in the
Vuture ?
| Mr. Amster. Yes sir.
| Mr. Mererrr. Rather than take a Government guaranty of 5 or 6
per cent? —
; Mr. Amster. Yes, sir; but I do not believe it is possible, sir, for
rou to treat the railroad stockholders in the same manner as stock-
ilolders in other industries, because you have got 48 States, or 48
lifferent regulatory bodies, and as you saw, in North Dakota, they
have enacted certain laws and in other States they have enacted cer-
jain other laws, and there has been nothing but trouble.
| Mr. Merrrrr. But, as instanced by my colleague, Mr. Denison,
jhat could be cured without ripping the whole system up the back.
| Mr. Amsrer. If you can invent a better way than this, Lord bless
‘ou, let us have it; but I am sure there is no other way of getting
ut of this thing than by valuing the railroads at what they are
jvorth and saying that these people will get 5 or 6 per cent on the
}1oney invested. The Government would not have to issue any
onds and would not have to go into debt or go into the business.
‘he roads can be operated in the interest of the people as though
hey were publicly owned.
Mr. Merrirr. Of course, you are simply arguing as between giving
rivate ownership a fair chance and Government ownership ?
_Mr. Amster. Yes, sir. You can not give private ownership a fair
hance any more. I would like to see it if you could. |
Mr. Merrrrr. You have said that in the old railroad management
tere has been no individual initiative?
350 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Amster. I have said that, sir. |
Mr. Merrirr. And you also said that the American railroad sys-
tem before the war was the best system in the world?
Mr. Amster. Yes, sir.
Mr. Merrrrr. Of course, all the American railroads, before the
war, were privately owned ?
Mr. Amster. Yes, sir. | |
Mr. Mererrr. And you think that that fine system, with American
freight rates, which I understand were the lowest in the world, was
accomplished without individual initiative in the operating end of
the railroads? 3
Mr. Amster. I will explain to you why we have had this system.
Firstly, this country is so geographically located and so large, and its
industries so varied, that you had to have a development of these
great railroad arteries, and the next thing, or rather I should have
put this primarily, the American public’s characteristic of wanting to
gamble or wanting to get into something that will make them rich.
Mr. Merritt. Do you object to that?
Mr. Amster. No; I do not. I am not narrow-minded at all. I am
trying to cure something that has to be cured, or help cure something
that has to be cured, because the disease has gone so far that if we do
not cut it out the whole thing will rot. Because of this speculative
desire or characteristic among us—and I am one of us—we have gone
out West, and we have gone East and South, and have projected rail-
roads and built them. There never was anything said in any of the
charters that I know of or in any of the covenants under which the
railroads operated that they would be subjected to certain regula:
tions that would limit their income but not limit their losses. Any-
body thought in going into a railroad that he might make 100 per
cent on his investment, if he was lucky the same as in other enter-
prises; but conditions have so developed that the entire country
seems to assume that the railroad, having a charter from the State.
is the creature of the State, and everything it earns belongs to thie
State, and everything it loses belongs to the stockholders. I have
heard it argued in these very hearings by Mr. Plumb that because of
the railroad being the creature of the State, all the undivided earn-
ings and all the increase in values of its properties, should go to the
State. In other words, he wanted to penalize a wisely managed
railroad for not distributing its earnings and putting them into the
value of the property so as to properly serve the public. Mr. Plunit
in substance claims that the man who was a good, wise man and @
conservative builder, and put the earnings back into the railroaé
should leave it there, because of not having distributed it in dividends
to the public. This is the theory all over the country, and why nol
recognize it in its fullest meaning? You can not regulate these rail
roads so that the people who have their money in them will be as wel
protected and receive the same benefits or possibilities of earnings as
those in other industries. Now, the reason you have got a great rail
road system is because at the time when we projected them there wat
no such theory in the air, that the fellow who puts his money in the
railroads may be permitted some time to get 4 per cent but may ofte
lose 50 per cent. People have gotten wise to it now and they will no
buy railroad securities, and you can not possibly induce anybody t¢
build a mile of railroad. 7
|
|
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 351
i
Mr. Merrirr. I agree with much that you have said, but I was
mply directing my question to your statement that there had been
o individual initiative. I agree also that this great railroad system
as partly due to the country and partly due to the spirit of enter-
rise.
Mr. Amster. Yes, sir.
| Mr. Merrirr. But when you come down to other matters, such as
‘savier tracks, heavier engines, improved engines, heavy trainloads,
/ seems to me that must have been due at least to a certain extent to
a individual skill and initiative of the operating end of the rail-
pads. |
Mr. Amster. You can well say that.
Mr. Merrrrr. I do not see why that should not exist still.
Mr. Amster. It will.
| Mr. Mererrr. I do not think we have reached the end of invention.
‘Mr. Amster. No, sir; but may I explain to you that the railroads
this country went through three different periods? The first period
tas the building or projecting of railroads when stocks went from a
) w dollars a share to $200 a share and when the whole country went
iuld about investing their money in built railroads. That was the
sxriod when the railroad promoter and builder made his first bow
‘fore the American investors and got rich. Then we had a second
xiod around 1888 and 1889, when most of those railroads went
rough the receiverships and reorganization. You know that period.
“Mr. Mererrr. Yes.
‘Mr. Amster. When Atchison, Reading, Baltimore & Ohio, and
sactically every railroad went into the receivership, and when peo-
e who originally put their money in them lost it and were obliged
put in new money. Then the railroads got on a solid basis and
ey were doing very well when the Congress saw fit to give addi-
jal authority to the Interstate Commerce Commission; and it
jas right that they should have had it. That was 1910. This new
jywer of the Interstate Commerce Commission, which they probably
| ed wisely—I know they have used it in good faith—has driven out
i fellows who had originally projected and owned large interests
riod when the public owned the railroads, 1,000,000 people or more
ming the stocks and 20,000,000 people more who owned, indirectly,
\lroad securities. You have in one single company, the Pennsyl-
|nia, 106,000 men and women owning the stock, and these people
!>re have not been any new railroads built and you will never get
ditional railroads built until you either give a definite guaranty
‘ what the return will be or else say to the speculative public, “ Go
“ead, boys, make as much as you can out of the railroad business
the railroads; for instance, the man who built the Great Northern,
mes J. Hill. The various people who originally were the great
wers behind the railroads and furnished the individual initiative
ve sold their securities to the public and slipped from under be-
ve gotten to the point where they understand that they can expect
) get very little return from their investment and will not put in any
}ore money, and you can not build any more railroads or improve
2m as in the past, on investors’ money, who gradually furnished
use they saw what was coming. Now, you have another and third
}on the assumption that they were to receive good incomes. Lately
852 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
as you could out of any other business.” I do not believe that eith:
of those things is possible and therefore I strike for a middle-of-th
road course and say, “ We have a great railroad system, pretty we
developed, pretty well built up; let us intensely develop what y
have got, and shape it so at to enable it to serve the country ad
quately and cheaply.” You can accomplish that only through
consolidated company with actual valuation and fixed basis of i
come. The consolidated company would have good credit with goc
people at the head of its management, and you can have all the e:
tensions and improvements in railroads under that unified control :
we had when the railroads were prosperous in the past, and whe
their securities were in good demand. Under such consolidatio
railroads will be able to manufacture and sell the commodity <
transportation as cheaply as any country in the world. There wi
be no leakage, no grafting, and no waste of any kind. There will!
no reorganization expense, and no large underwriting commissions 1
burden operating costs with, and the people will get the benefit ¢
it all.
Mr. Mererrr. I do not want to take your time, or the committee
time further, only it seems to me that it has been demonstrated thi
what is’ practically a Government-owned railroad has never pr
duced those good results you talk about. Now, I would like to as
you just one or two other questions, as to the operation of this Unite
States railway. In the first place, you think it will provide what ca
not ne provided in any other way, and that is, a scientific rate str
ture {
Mr. Amster. Yes, sir.
Mr. Merrirr. Under your system of altruism or under some othit
system, you think that all the shippers are going to agree that yor
rate structure is scientific if it puts their rates up?
Mr. Amster. If we are going to ask the fellow who buys the con
modity what he wants to pay. for it, naturally he will tell you thie
he would like to pay as little as possible; but if it is going to be di
vised by a scientific body of men representing all interests; if
rate structure is to be devised by them, it is not a question of i
the shipper will think. The fact of the matter is, gentlemen, th
shippers have had too much to say in the past. Nobody had had am
thing to say about the selling price of the shippers’ product. A pa
of shoes.that I once paid $5 for I now pay $14, and the difference i
cost of transportation of a pair of shoes from here to the coast
only 8 cents, and if you advance freight 100 per cent, it will still onl
be 16 cents on a pair of shoes, the selling price of which had ac
vanced $9. The same thing is true of clothes. Twenty-five cents wi
carry a man’s suit of clothes from here to the coast, yet the pric
advanced from $15 to $40. If the freight rate on clothes were double
it would only mean 20 or 25 cents on a man’s suit. at
Mr. Merrirr. You remember the great’ enthusiasm with whic
the scientific rate structure with reference to telegraph and telephon
charges was received ? :
Mr. Amster. I do. |
Mr. Merrirr. Do you not think that with the same kind of +.
structure on the railroads, there would be a tremendous appeal t
Congress to favor this community or that community ? |
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3538
_ Mr. Amsrer. I think not, if it was handled by a board of governors
"ho are representative of all the people. Do you realize, sir, that
rere has been a great change in public opinion with respect to rail-
jad charges. You realize that there is before you a statement or
solution passed by the United States Chamber of Commerce, the
‘eople who have always been antagonistic to rate raising, because the
/ssociation is mainly composed of shippers and manufacturers, advo-
ating that a statutory rate-making law be enacted which would pay
ie Operating costs, set up a depreciation fund and provide at least 6
er cent for dividend purposes on a fair value of the railroads. That
, what they recommend and they are the shippers of the country.
here was a time when they did not want you to give the railroads
anything, but they are beginning now to realize that the danger point
as been reached and that they will be the sufferers as much as the
allows who have their money invested in railroads if you allow them
) go on and make the railroads nonearning.
r. Mrerrirr. Did I understand from one of your remarks that you
lwor that in times of stress, in one part of the country or another,
wing to drought or other causes, the rates should be changed from
jpar to year?
| Mr. Amster. Yes, sir; I think so. I think the railroads ought to
/; used to develop the United States. They will practically be owned
jy the American public if they are consolidated on the lines I sug-
jast. They can do much to help develop the different industries and
}ymmunities that need it. If a community in one State uanufactures
| us material [indicating| and make 100 per cent profit on it, why
\ould they not pay more than 1 per cent for the freight when the
}30ple who raise potatoes often pay more in freight than the potatoes
hiemselves bring? There had ought to be this adjustment in freight
j/ulues, and it can be done, sir, if we have a single railroad corpora-
jon.
Mr. Merritt. Do you or not think that if that were attempted
ere would be tremendous pressure every year on Congress to have
jecial legislation with reference to this rate or that rate or in favor
| one section or against another territory.
| Mr. Amsrer. I would take it out from the hands of Congress and
it it into the hands of a body, although nominated by the President,
|
|
minees from all the different interests.
| It will be like the Federal Reserve Bank. Then we provide also
r body of 25 representatives of the farmers and all interests to
‘t together and make proper and just rates.
‘Mr. Merrirr. I congratulate you, sir, on still having such altru-
}m. Iam much obliged to you, sir.
Mr, Amster. I feel we can bring this about, sir.
| Mr. Montacuz. How do you arrive at this valuation? What are
e elements that constitute this value upon which the rate of divi-
inds or interest is to be determined ?
‘Mr. Amster. Firstly, I say that we should take the original cost
| the railroads and the book values and then we should take the
placement values.
Mr. Montacur. The physical value?
Mr. Amsrer. Yes, sir; and then as a corrective, to show whether
@ physical valuation really is of productive value, we should take
152894—19—-vor, 1 23
354 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the earning capacity, the annual net earning capacity, for an average
period of 10 years, and that will tell you whether the railroad in
valuation has been a wisely and successfully projected property or
not, so that you would not have to pay for a lot of junk. If it had
not earned anything, you should not pay the full physical value, and
if it earned more than the mere physical value it should receive the
fruits of the wisdom of the investors. |
Mr. Monracue. If it has not earned anything, you would not pay
anything for it? ah
Mr. Amsrer. If it did not earn anything, and had not any physt
cal value—of course, there are three elements in the valuation, the
original cost, the replacement value, and the earning capacity value.
They all represent values. The net earning capacity corrects the
other two values and represents a certain amount of the railroads
intangible value. You know that every plan that has been pré
sented to Congress or to the Senate has had something like.that im it
The Warfield plan provides for income on books’ valuation of raik
roads, divided into zones, and to fix the income on the aggregate book
value of the property in a certain zone and then those that can ear
more than the fixed amount of income are to divide the excess earn
ings with their poor neighbors. Now, you can not bring that about
without cpposition from the profitable railroads. That does not look
nearly as feasible as my plan. All the other plans presented have
practically some sort of suggestion as to consolidation and fixed
income, but I think that my plan really provides an as effective and
honest a measure of valuation, taking the physical and original cost,
the replacement cost, and the earning power, as you can possibly
arrive at.
Mr. Monracue. Those three factors, then, constitute the method
by which you determine the value?
Mr. Amster. Yes, sir.
Mr. Stms. There is one question I. want to ask you. Can not all
the outstanding stocks of all the railroads be brought to par by call
ing it all in and issuing an amount of stock equal to the present mar
ket value of the stock ? .
Mr. Amster. I don’t quite understand you. ‘i
Mr. Sus. If a railroad has $2,000,000 of stock outstanding, and
that stock is selling at 50 cents on the dollar, can it not call it in and
issue $1,000,000 of stock, and will not that be at par, as the market
value of the stock? ;
Mr. Amster. Yes. |
Mr. Srus. Could you not handle all the railroads in that way, anc
therefore bring all the outstanding stock up to par, provided tli
stock is worth anything. It might not be worth anything at all, be
cause the cost of operation might exceed the earnings, and, of comny
the stock would not be worth anything on the market except fo
control. |
Mr. Amster. Yes, sir. If you do that, you step on very dangerous
eround, because the market quotation of anv stock is fictitious and
is seldom at its actual value. We have seen Northern Pacific sell at
$1,000 a share when it was not worth as much as it is worth to-day.
when it is selling at $90. We have seen the Rock Island hoary
company stock selling on the basis of $200,000,000, and then in 4
%
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 355
ouple of years that was wiped out and was not worth 2 cents, and
at it once had a good market at 94 for the preferred, and 80 for
1e common, and 80 and 90 for the bonds, all of which was water.
Mr. Sms. After all, has the stockholder got anything more than
hat he can get for his stock on the open market ?
‘Mr. Amster. It depends. You can not compel a man to selk at
ie open market at any fixed time. He has a right to wait until
(ie open market is in his favor. You may say to me that I can not.
more than 50 for St. Paul stock to-day, but you can not compel
e to sell the St. Paul to-day when it is selling at 50. If I paid
00 for it, I have a right to wait until the price is right before I
‘cide to sell.
Mr. Sims. I have reference, of course, to the average price obtained
the open market for such length of time as would reasonably
tablish the actual commercial value of the stock. If a man dies,
S administrator has got to sell his stock and he has to take what-
er he can get for it. It seems to me that as a rule the stock is
wth no more than what he can realize on it in the open market.
ere is the statement in the old blue-back speller that anything
‘worth what it will bring.
Mr. Amster. At a certain fixed time. It sometimes is not worth
iat it brings. If you are going to do that, sir, why not take the
aul value of these things at the value fixed by people appointed by
iurselves and representing yourselves. Put ‘a value on what it 1s
orth and buy it at that value, not in cash, but give them an in-
me on an,annuity to represent that value, bearing 4 or 5 per cent
year.
Mr. Sims. You provide in your bill for a guaranty of 5 per cent
| the stock of the corporation, which is to provide a proper income
d make that income certain. Would you be willing, also, to pro-
ile that that 5 per cent shall be paid upon conditions that the
sent rate of wages of railroad employees should not be reduced ?
Mr. Amsrer. I do not think that is relevant to this question, at all,.
Mr. Sims. If you are going to guarantee the income on property,.
puld you not also guarantee returns upon labor that operates that
yperty ?
\Mr. Aursrer. I certainly feel you are right, sir. You heard me say
U we are in the period of a seller’s market, and we had better
eit. Labor is worth what it can get.
fr. Stars. And stocks are worth what they will bring, so there
| are.
(Tr, Autsrer. It depends upon when you sell it. All I ask here,
j( I think you are American enough to grant it, is that these peo-
who have got their money in public service be given what their
perty is worth, either in cash or in income; that is, a legitimate
egal income. That is all I recommend, and a people like the peo-
of the United States, who were willing to spend $30,000,000,000
_ spend the best blood of our Nation to correct a wrong abroad.
0 miles away, should not do less for its own people in their own
st. I refer to the people who have invested their money in good
hh. If they made a mistake, value down to the mistake, but when
» get down to bone value, or real value of the public service,
356 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
allow them an income of 5 per cent. If you do not do that, you
must say to them, “Go ahead and make as much as you can, or lose
as much as you can. Make your profits and losses Just as you see
fit.” But that is not what we want to do. We can not do that with
their railroads. We must have the-railroads serve the con iunitics
as cheaply as possible. Then get them down to real value, and say,
“your income will be so much, no more, and no less, and the balance
goes to the people.” I think that is the equitable, fair, and demo-
cratic way of treating these people.
The Cramman. Mr. Amster, just a question or two as to the ma-
chinery you provide under your plan. In the first place, you have
a board of governors composed of nine men, chosen as you have
stated. Then you have a trust and finance corporation which his
disposition over this revolving fund of $500,000,000, as I under-
stand it? ;
Mr. Amster. Yes, sir.
The Crarrman. Then you provide for a valuation adjustment
commission, and then you provide for a labor adjustment commis-
sion. |
Mr. Amster. Yes, sir.
The Crairman. All under the Interstate Commerce Commission.
Mr. Amster. Yes, sir.
The Crarrman. Do you not think you are getting a little top
heavy on administration ?
Mr. Asrster. You have before you, Mr. Chairman, the statement T
made before the Senate committee? Is that what you have in front
of you?
The CrarrMan. Yes; a synopsis of that.
Mr. Amster. The Valuation Commission which I had in mind, sir
was really the Prouty Commission, which is under the Interstate
Commerce Commission to-day. I believe, in addition to that, if we
want to put this thing through rightly and expeditiously, we shoulé
appoint an arbitration commission which will arbitrate between the
Government and the railroads. For instance, if the Valuation Com
mission brings in a valuation of the Rock Island at $200,000,000, 11
we think it is worth $250,000,000, let us leave it to the arbitaas &
commission to arbitrate between the two valuations. The valuatior
of the railroads has already been practically completed by the Unitec
States Valuation Commission, and I referred to that commission, 7
The Cuarman. You would have all labor troubles adjusted by ¢
labor adjustment board composed of six members ? a} |
( Mr. Amster. I thought we would have an equal number of repre
‘ -|
sentatives of labor and the railroad governors. |
The CuarrMAN. Suppose they could not agree? |
Mr. Ausrer. I have sat in a conference with the transportatio
committee of the United States Chamber of Commerce, and we hat
with us several of the labor leaders and one of them was Mr. Doak
and he told us how admirably and how easily they are adjust
all the questions of labor by having an equal number of representa
tives of the railroads and the labor unions. They have had nm
trouble at all. They never even go out of the same office. 1
ave the same office together.
The Cxuarrman. He presented that plan to us last Friday.
‘
by
'
r ‘
1
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 357
_ Mr. Amsrer. Yes. It seems they get along very well when they all
‘yet around the same table on an equal basis. If you will permit me,
{ would like to have Mr. Spring later on explain some of the pro-
‘visions that you speak of, because he has drafted the bill embodying
ny ideas. ;
* The Cuarrman. How do you take care of this complicated ques-
‘aon of State ‘commissions and the matter of intrastate rates ?
Mr. Amster. You will notice that in my plan we have a repre-
sentative on the board of governors, one-from the Interstate Com-
merce Commission and one to represent the national public-service
sommissioners, to represent ‘the different States, and they together
will help formulate the rates. They will have a voice in rate making
4s in everything else in the railroad management; that is, the intra-
state commissioners and the Interstate Commerce Commission will
doth be represented on this consolidated board of governors.
The Crarrman. That would mean they would have a representa-
on of one out of nine?
' Mr. Amster. Yes.
1 The Carman. And you just told us that you and three others
onstituted 4 directors of the 14 directors of the Rock Island
ind had very little power.
_ Mr. Amster. There would not be any power centered in any single
nterest on this board of governors of 9 or 11, because they would
de representative of labor, of the shippers and commerce, of the
States, of the Federal Government, and.of the security holders.
You will notice that I only suggested three out of the governors to
‘epresent the stockholders or the owners of the property ?
The Cuarrman. Yes.
Mr. Amster. So you see there will be no majority in single interest.
[t will be the people’s corporation and managed by them. If there
s any other way of making it better I would like to see it. I merely
[pee nine in this way so they will represent every interest.
| The Cuarrman. Is it your idea that a scientific rate basis neces-
arily implies rates based on value?
| Mr. Amster. I think that a scientific rate basis ought to be based
irst on the actual value of the railroads and then on the value of
| he products that the railroads are carrying and on what the traffic
‘an stand. You realize that there are certain percales and print cloth
vhich every American family uses, the freight rate on which amounts
0 about one-tenth of 1 cent a yard, and yet these ordinary print
tuiis have gone up 10 or 15 cents a yard. This class of freight, and
uch as shoes, clothing, chemicals, and other classified freight is not
aying in freight in comparison to what the service is really worth to
hem, whereas, as I pointed out before, such things as gravel, pota-
| 0es, wheat, vegetables, milk, and other farm stuffs, really sometimes
|jay more than they get for the product in the market. I think it
|an be scientifically arranged so the service of the American people
|S to transportation should be paid by the people who can best
| ford it. I have this in mind which I should like to suggest, that
\here should be no increase in passenger rates. It has often been
tated that the passenger income does not pay operating expenses.
\chat is erroneous. It may look that way on the face of operating
|tatements, but you have no expense incurred in carrying passengers
858 %WETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
that you have in carrying freight. The passenger loads himself and
unloads himself, and naturally he is very little expense to the rail-
roads, but when you take freight you will find sometimes a car will
contain 70 or 80 different consignments, and every one of those con-
signments has to be loaded and unloaded and taken care of. There
is attached an expense to freight that is invisible which you do not
see. That 1s the way it figures out when you see passenger income
as $2 per train mile and freight income as, let us say, $3 per aver-
age train mile. On the face of it, it would seem as though freight
pays better than passenger business, but it does not. You can increase
certain freight rates 100 per cent and you would not touch the fellow
who is interested in those commodities, nor would it be noticeable
to the consuming public, for it would add but a fraction to the cost.
The Cuarrman. Mr. Amster, the committee wishes to express its
thanks to you for the time you have taken in the preparation of your
plan and its presentation.
Mr. Amster. I thank you for the opportunity, Mr. Chairman.
STATEMENT OF SAMUEL SPRING, ASSOCIATE COUNSEL OF CITI
ZENS’ NATIONAL RAILROADS LEAGUE.
Mr. Sprrne. Possibly I might add a word about the general plar
of the bill as drawn by me for the Citizens’ National Railroads
League. I felt that the most successful piece of legislation recently
passed by Congress is the act creating the Federal Reserve system
I determined that the general method therein adopted of inducing—
not coercing—State banks to come into the system should be adopted
in arranging for the voluntary creation of a national railway cor-
poration. :
If I may start at the end of the bill first, I would like to point out
the next to last section—that dealing with valuation. Unquestion-
ably the most unsettled and distressing feature of the railroad situa:
tion to-day is that of valuation. It is vital. It can not be ignoreé
or glossed over. No rate base with any degree of permanency car
be fixed until we know the value of our carriers on which they are
entitled to earn a fair return. Consolidations under Government!
supervision are impossible unless the public can rest assured thai
such consolidations will not represent financial juggling and the
palming off on the public once again of a large mass of watered se
curities. How can that be prevented unless we know the actual value
of our carriers?
The task is a tremendous one, but it must be accomplished. As
this committee well knows, under act approved March 1, 1913, the
Congress instructed the Interstate Commerce. Commission to aseel
tain the factors of value, such as original cost, reproduction cost, de
preciation, value of stocks and bonds when issued and over a peri0e
of years, revenues earned, land values, etc. The commission has
worked diligently, even ardently. Within a year, possibly two, thesé
factors will all be presented to Congress and the country.
Yet, unhappily; the question of physical valuation of our carrier:
is a legal question to be determined by our courts and not by the Im
terstate Commerce Commission. This arises, as the committee wel
knows, from our constitutional provisions, which enable the carrier
rar ins
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 309
‘o attack by injunction as confiscatory any valuation which they
leem too low. The courts have not laid down any legal rules’
vhich are clear enough to enable the commission to fix any final
value. Indeed, the whole legal question is a sad muddle. The
ourts, as any lawyer knows, have a fixed judicial rule of avoiding
he decision of any unnecessary question. Thus many of the most
lifficult questions in utility valuation are unsettled. Who can say
nything definite about intangible values, such as development cost
© going concern value? Even the question of land values is un-
ettled. Indeed, the method of reaching a final fair value still re-
aains undetermined with any degree of certainty. I need not remind
vou of the bitter years of litigation physical valuation has caused
jn this country. The law, with its flaccid procedure, in this in-
‘tance possibly has made for litigation. Our courts have had too
\ig a task. No one to-day desires to have the question of physical
|} aluation decided with meticulous, breath-taking accuracy. that 9 per cent on the capital stock is only a little more than 6
er cent on the property investment.
Now, there is only one qualification I want to make in regard to
us plan. You take the Burlington Railroad, for instance, earning
)) or 30 per cent. That railroad is greatly undercapitalized, I
ave no doubt. It is entitled, we will say, under the law, to 6 per
mt on the value of its property. Now, that 6 per cent on the value
\f its property may be 15 per cent on its capital stock, so that you
lust have a provision that a railroad shall not be obliged to give
,P any part of its earnings until it has set aside for itself an amount
|{ earnings equivalent to 6 per cent on the value of its property,
) that the Burlington road may continue to hold 15 per cent, and .
*%t half of everything above-15 per cent, and keep it itself, so the
le is absolutely fair and liberal to the railroads; extremely so.
{ course, they have absolute constitutional protection anyway, but
rite it in the law. Confidentially, I do not see the railway execu-
ves here. I do not see why the railroad executives do not advocate
is plan. I can not conceive of why it is not extremely favorable
x the railroads. Representing the shippers only, I believe it is the
ost favorable plan for the shippers if we are going to get service—
}id we are bound to have service. Now, look at our situation in New
jogland. We have two great systems, the Boston & Maine, and
-¢ New Haven; neither of them can raise a dollar for the improve-
ents that are necessary, and they will not, under existing conditions,
under any plan you may put into effect, except under some plan
ve this, ever be able to raise money in order to rehabilitate their
jStems and render eflicient service to the public. I have not
ferred to this as a plan especially for the benefit of New England.
1s especially for the benefit of New England that I have discussed
,entirely along broad, national lines.
384 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Wesrster. Mr. Rich, through my own fault, I have no doubt
I failed to catch the full force of your criticism of that feature 01
the Esch bill which seeks to confer upon the Interstate Commerce:
Commission power to fix the rates of carriers by water. I do no
seem to appreciate the reason for such a distinction. Why shoulc
the rates of the carriers by railroad be subject to the regulating
power of the commission while the rates of carriers by water shoul
not be subject to such control when it is known that rail and wate:
carriers must compete for business at water competitive points?
Mr. Ricu. Mr. Webster, there is a great deal to be said in favo}
of the control of these rates by the Interstate Commerce Commis
sion. There are, however, two sides to the proposition. Up to thi
present time it has been the theory of Congress that water carrier:
should be free to construct their own rates. That is the theory upor
which commerce has been developed, and I am inclined to think i
is the right theory, and I do not see any urgency now for changin:
the long-established policy of this country in reference to wate!
transportation. If it were merely to give the control of water rate:
to the United States Shipping Board or to the Interstate Commerc
Commission, under similar circumstances and conditions, I have nt
doubt that the commission is the proper tribunal, but under this bil
you make water rates absolutely rigid. They have to be publishec
and they can not be changed under 30 days. You deprive the ship:
pers of all that inestimable value of competition which we have hac
for generations, which we have had from the beginning of the his
tory of this country, and it seems to me you ought to consider most
carefully and gravely whether you want to reverse the policy long
established in this country. And let me make another sugges
tion there. In reading the report of the discussion before this coni
mittee I noticed a statement was made that the tramp boats shoule
be left out from the regulation of the commission.
Now, gentlemen, that, I think, would be a very serious omission
For instance, at the present time we are trying to establish a line 01
ships between New England and Texas. You see there are a great
many things in common between New England and Texas. Suppose
we would establish that line, we could not maintain it successfully
unless practically all of the water-borne business goes by that line
because the rates of the line are fixed and rigid and can not be
changed, and a tramp comes in, there is a big offering, at Galvestor
or Houston, of cotton, and the tramp takes away every bit of thal
cotton from the steamship line. If you are going to regulate watel
rates you must consider very carefully whether the tramp ought
not to be regulated as well as the line. I believe that the presen!
method of regulation by the Shipping Board is vastly superior to tht
method proposed under this bill.
The Cuairman. There has been no method at all?
Mr. Ricu. I think that is better.
The Cuairman. They have not exercised any power?
Mr. Ricu. I think that is true. I think more or less free competi
tion is exactly what we want.
Mr. Wesstrr. Might there not be found a reason for bringing th’
water carriers under the jurisdiction of the commission in order t
do away with what we call cutthroat competition between rail an
Pod
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 385
‘water carriers at water competing points so that relatively just rates
may be laid throughout the country instead of permitting the rail-
roads to reduce their rates down to out-of-pocket cost and then to
levy the deficit on the people at interior sections where they are not
favored with water competition ?
__ Mr. Ricu. That is a strong reason for a control of water rates by
the Interstate Commerce Commission; I do not minimize the impor-
tance of that.
The Cuatrrman. The committee will now take a recess until 10
o'clock to-morrow morning. |
(Thereupon, the committee took a recess until to-morrow, Thurs-
day, July 31, 1919, at 10 o’clock, a. m.)
Commitree on Interstate AND Foreren CoMMERCE,
House or REPRESENTATIVES,
Thursday, July 31, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
STATEMENT OF MR. EDGAR J. RICH, NO. 6 BEACON STREET,
BOSTON MASS.—Resumed.
The Cuarrman. Mr. Rich, I think Judge Sims would like to ask
you some questions.
| Mr. Ricu. Mr. Chairman, before Judge Sims proceeds with his
*xamination, I would like to introduce into the record a copy of the
resolutions adopted at the New England Transportation Convention,
0 which I referred yesterday.
The Cuarrman, Very well:
(The resolutions referred to follow:)
‘ESOUTIONS ADOPTED AT THE EVENING SESSION OF THE NEW ENGLAND TRANSPOR-
TATION CONVENTION AT THE COPLEY-PLAZA HOTEL, BOSTON, THURSDAY, MAY 8,
1919.
1. We are opposed to Government ownership or Government operation of the
ailroads of the country. We believe that Government operation is destructive
f initiative, enterprise, and economy. But more fundamental than these con-
iderations is the menace to democratic institutions involved in creating such
ast political power.
' 2. We favor the restoration of the railroads to their owners at as early a
ate as possible, but we believe that they should not be so restored until
ongress has passed suitable laws which will avoid any possibility of economic
isturbance, and which will enable the railroads, through the establishment of
oper credit, to render adequate service to the country. To accomplish this
turn to private ownership, we believe it to be fair and proper that the Gov-
mment shall for a limited period continue its agreed compensation to the
lilroads.
3. We favor the exclusive Federal regulation of the issuance of railroad
| curities by all railroads doing an interstate business.
4. We favor relying upon the Interstate Commerce Commission to regulate
I rates and practices which affect interstate commerce, with due regard for
Tvice and for a fair return to the railroads, reserving, however, to the States
le power to regulate commutation passenger rates.
5. We favor the establishment of regional commissions or some form of
ibunal, under the general supervision of the Interstate Commerce Commis-
152894—19 25
VOL L
386 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. -
sion, and to be constituted and appointed in a similar manner, in order thar
matters of regional interest may be handled with dispatch, with minimum
expense to the public, and with a thorough understanding of local conditions, —
6. We favor legislation which shall provide for the settlement by arbitration
of disputes relating to wages and conditions of employment in the railroad”
service and declare our adherence to the principle that the transportation
service of the Nation shall not be interrupted or jeopardized by such disputes. —
7. We favor laws permitting the consolidation of railroads, and permitting
pooling and combination, under express authority of the Interstate Commerce
Commission, and without materially limiting competition.
8. We favor legislation which will make possible the adequate financing of
the railroads without undue increase in rates, and to this end we suggest con-
sideration of the plan known as that of the Associated Industries of Massa-
chusetts and advocated by the directors of the Massachusetts Chamber of
Commerce. =
9. We oppose any plan which takes away from the Interstate Commerce
Commission any of its important powers and transfers them to a member of
the Cabinet.
10. We oppose any plan which gives undue recognition to existing capitaliza-
tion or to the investment accounts of the railroads as bases upon which returns”
to the owners shall be determined.
11. We oppose the postponement of legislation until the valuation of railroads
is completed, although when such valuation is completed a method may be
evolved for determining the returns upon the basis of valuation.
12..That a copy of these resolutions be sent to each Member. of Congress,
together with the names of all the organizations represented at this convention,
CHARLES A. ANDREWS,
Treasurer Gorton-Pew Fisheries Co., Gloucester,
Chairman of the Committee on Resolutions.
; DupDLEY HARMON,
Assistant to the President The Manufacturers’ Association
of Connecticut (Inc.), Hartford, Conn., ;
Secretary of Comnvittee on Resolutions.
Mr. Srus. Dr. Rich, it seems to be a case of the railroads, or rail-
road interests, asking, “ What must we do to be saved?” and we have
a great many proposed plans of salvation. One of them is presented
by the railway executives’ committee, in detail and comprehensively.
Another plan of salvation is proposed by what is called the War
field committee, or the Warfield-Root-Walter plan of salvation.
Another plan of salvation is proposed by the United States Chamber
of Commerce, or the transportation committee of the United States
Chamber of Commerce. Then we have another plan of salvation
presented by Mr. Amster, from Boston, I believe. We have, then;
another plan of salvation proposed by organized labor, known as
the Plumb plan. We then have another plan of salvation proposed
by the representatives for whom you speak. I do not know whether
Mr. Fulbright has a separate, detailed, plan of salvation or not,
but it seems you couple him up somewhat with yourself. a
Now, we have another—I would hardy call it a plan of salvation,
but a proposition, at least, to help along that line, embraced in thie
bill introduced by the chairman of the committee, which I would call
the St. Peter plan. St. Peter attempted to walk on the water and
began to sink and cried out for help and received temporary help
and he did not sink; but I never heard of him making the attempt to
walk on the water any further. Now, with all these plans of salvation,
they certainly indicate the general belief of expert opinion, both as to
financing and operating railroads, and those representing the public
interests, that a plan of salvation must be adopted, and all these
several plans present features that are good, undoubtedly. Now, if
.
i
ul
‘t
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 387
‘we can get all the would-be saviours together on the fundamentals,
‘then we may supplement the St. Peter plan and ultimately arrive at
the best possible solution.
Now, I want to ask you a little about the inevitable tendency of the
‘plan which you present. As I understand it, you propose that the
Government shall guarantee the interest on bonds authorized to be
issued under the plan.
Mr. Ricw. Interest and principal, sir.
Mr. Srus. I misunderstood you and did not catch that. Both
principal and interest ?
Mr. Ricu. Yes, sir. ;
Mr. Sims. My recollection is that the incident that suggested the
matter of the guaranty to me, when I a was a member of the joint
Senate and House committee, was that the Philippine Government,
‘which indirectly is the Government of the United States, had guar-
‘anteed the interest upon certain bond issues for the purpose of con-
“structing railroads in the Philippine Islands. That is my recol-
Tection, but I am not absolutely sure. So in the joint committee
‘hearings I did suggest that as a possibility of furnishing credit to
roads having to have it, at a lower rate of interest than they could
otherwise get it, and the precedent I had in mind was the action in
the Philippine Islands; but I think it was Mr. Thom who made such
objection to it, or gave such reasons for his objection—I do not re-
member just what they were, but they satisfied me that it was not
acceptable and perhaps not practicable, and so I abandoned it and
‘paid no further attention to it. Now, will you actually strengthen
these weak roads in the sense of servants of the public by doing what
‘you propose to do, and if you do it for the weak roads, will you not
have to do it for all roads seeking capital ?
Mr. Ricu. I think not, sir. Any road which has the means of
raising money through its own credit should do so, and if we reach
“a basis of net earnings, substantially the basis prevailing in the three
test years, it is my judgment, under such a plan as we have proposed,
that probably two-thirds of the railroads could do their own financ-
ing. May I interject here an answer perhaps to a statement which
was not a question put by you. In your plan, or in your suggestion
before the joint committee, you proposed that the Government, in
order to protect itself from the losses which would accrue from the
loans to the weak roads, should have a first lien on those roads.
Mr. Srus. And all its assets.
Mr. Ricuw. Yes.
Mr. Sims. That is correct.
Mr. Ricu. And Mr. Thom very cogently pointed out that if you
gave to the Government a first lien on the earnings or property of
that road, you would impair its credit to such an extent that it never
could establish its credit on the basis of its earnings, and that the
Inevitable result would be toward Government ownership. With
that criticism I heartily concur, and it is in order to meet that criti-
cism that we have suggested a means of holding the Government
harmless which does not involve any lien on the property or earn-
‘Ings of the weak road. In other words, our plan proposes the issu-
ance not of mortgage bonds but of debenture bonds. In other words,
“We propose simply a guaranty of the Government on a loan unse-
cured by the property or earnings or other assets of the road.
388 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. Doctor, do you not then in effect ask the Government to
do that which no private company would do or ought to do?
Mr. Ricu. No
Mr. Srus (continuing). And that is, to guarantee the bond issues
of a railroad company without any security whatever, only the pos-
sibilities of that company being able to make return of the loan or
else sustain a loss should there be a loss.
Mr. Ricu. I think, sir, there is a very much greater security than
that which you suggest, and that security is the mandate of the Con-
gress of theUnited States to the Interstate Commerce Commission to
see to it that rates are so adjusted under this plan that no loss can
fall upon the Government. That is the fundamental basis of the
plan, and if the Interstate Commerce Commission fulfills its duty
no loss can fall upon the Government. Right here, Mr. Sims, if 1
may interject something which I intended to refer to yesterday but
did not, I do not believe that there is any legitimate objection to this
very limited form of guaranty that we suggest, but there is a preju-
dice against any form of Government guaranty, a prejudice that is
absolutely sound, so far as the guaranty of existing obligations is
concerned, but if that objection appeals to any as being decisive in
such a plan as this, I have suggested in some addresses which I have
made on this subject, and I have suggested it to Mr. Warfield, that a
corporation such as Mr. Warfield proposes, a National Railway Asso-
ciation, should be the instrumentality through which the excess earn-
ings should pass to the weak roads. I have not followed that out
because I do not believe that there is any legitimate objection to the
guaranty which I have suggested, but if it is constitutional to estab-
lish such a corporation as he proposes, I do not see why that corpora-
tion could not be made the receiving agent of these excess profits, and
then it could guarantee the obligations issued by the weak roads,
and in that way you eliminate all Government participation, except
in So far as it becomes necessary for Congress to incorporate such a
company. and to bestow upon it such powers as I have indicated.
Mr. Srs. Your plan then is not to give the Government any
lien upon the property or make it a preferred creditor in case it
should have to pay anything on the guaranty. 7
Mr. Ricu. That is our plan, sir; ves. |
Mr. Sms. In other words, your plan is that the Government takes
all the risk of this loan, and if there is default, it must be made up
by taxation, and the Government gives the road all the benefit except
the possibility of a division of a return exceeding 9 per cent on
the capital stock of the road.
Mr. Ricu. The Government takes no risk if the governmental
agency, namely, the Interstate Commerce Commission, fulfills its
statutory duty which it has absolute power to fulfill and which it has
the duty to fulfill. So far as the second part of your question 1S
concerned, that all the benefit goes to the weak road, we are not
seeking to benefit the weak roads. We are seeking to benefit the
people who are served by the weak roads. If it was merely a ques:
tion of benefiting the weak road, we would have nothing to say;
but you can not lose sight of the fact that in some way you have got
to'establish the credit of that weak road if the public is to be served.
Wo are not here advocating any protection to the private interest
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 389
of the railroad, except so far as that becomes necessary to serve the
public.
q Mr. Sims. If a weak road receiving this Government guaranty on
‘an issue of bonds could borrow money with that guaranty at 4
per cent, and a strong road could not borrow it for less than 4 or
‘44 per cent upon the competitive investment market of the country,
would not that be showing a clear Government discrimination in
favor of the weak road by way of guaranteeing the solvency of
the loan?
Mr. Rion. It is a discrimination, sir, but a just discrimination, I
believe. There is much to be said, of course, toward guaranteeing
the interest on the obligations of all roads, because there is a saving
of money, but for one I do not want to get any nearer to Govern-
ment control or Government operation than possible. I am Just
‘as much opposed to it, and the interests I represent are Just as much
jopposed to it as anybody, and therefore we believe that a road having
eredit should exercise that credit, even if it costs a little more.
_ Mr. Sims. Now, Mr. Rich, if the Government by guaranteeing
‘bonds enables a railroad company to borrow money at a more favor-
able rate of interest than it could otherwise borrow it, or perhaps
lenable it to borrow money when it could not borrow money at all
‘otherwise, why should not that company, receiving a special favor,
@ive a preferred lien upon its property to guarantee the Govern-
ment against loss?
Mr. Ricw. I think the objections to a preferred lien were abso-
lutely set forth by Mr. Thom in the way I have indicated. I believe,
you should not further hamper the weaker roads. I think you
should do everthing to enable them to get out from under Govern-
ment protection, and therefore we should be opposed to the mort-
gaging of that road in order to secure the Government when the
Government does not need that security. It has security, under our
plan, in the mandate to the Interstate Commerce Commission.
Mr. Srus. Now, then, you get back to the crux of your position, as
I understand it, and that is that there must be an absolute statutory
mandate upon the rate-making body that whenever a road borrows
money, guaranteed by the Government of the United States, the rates
and services for which the road receives pay must be large enough,
in fact, to take care of all former obligations, all existing prior
obligations, together with the Government guaranteed lability, and
if that should be high enough to actually reduce the uses of the road,
to curtail the business it does, you will have an ever-increasing rate
sharge with an ever-decreasing volume of traffic; would not that be
inevitable?
_ Mr. Ricu. I must have been misunderstood, because our plan does
not contemplate increasing the rates on that particular road which
has a Government guaranty to a point sufficient to take care of its
operating expenses and its interest charges. Such a plan would be
fatal, because, as you suggest, sir, the rates would have to be so high
as to curtail traffic, and probably you could not put the rates at such a
point that, in many cases, they would take care of the deficit. The
deficits on that weak road are to be made up out of the earnings of the
strong roads, out of this excess-profit fund, or whatever you may call
it, and that is the vital principle of the vlan. You can not make
390 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
rates for the weak roads sufficiently high to take care of their needs,
even if the traflic would permit, without giving the strong roads an
unnecessarily large amount of revenue. In the illustration I used
before, if your rates were high enough to take care of the expenses of
some of the weaker roads, they would be much higher than necessary
to take care of the needs of the strong roads.
Mr. Sims. Do you think it is good morals, good economy, and good
legislation to require of a strong road, which 1s strong by reason of its
own efforts, its own service, its own investment of capital, that a
part of that earning, which is lawful, which is proper, and which is
moral, and which is made under the same rate structure and rates
permitted by Government authority, should be taken directly, or
indirectly, to aid another road for which it is not responsible in
any way whatever, in order to render a better service than it could
otherwise render, or as good as the strong and the well-managed road
does render? Now, is that something you would want to indorse as
a policy for the Government of the United States, in general ?
Mr. Ricw. In the first place, without directly answering the ques-
tion, I call to the attention of the committee the fact that most of the
carefully considered plans provide for excess profits to be used in
some way, and provide for a portion of those excess profits to be
turned over to the Government to be used in some way. Every plan
except our plan provides that those excess profits shall be used in a
general, vague, and indefinite way to help the railroad situation, and
T ask you to examine the Warfield plan, the most carefully considered
of these plans, to see how vague it is in that respect. It is even
suggested in the Warfield plan that these excess profits that go to
the Government shall be used to buy cars for the railroads. We
have always thought the railroads ought to buy their own cars. But
our plan proposes that these excess profits shall be used directly to
strengthen the credit of the weak roads. There is where it differs
materially from all other excess-profit plans. Now, to come down
to the fundamental question as to the justness of it, yesterday, 1)
think, I showed that such a plan is constitutional. I do not care to
discuss that further. As to the justness of it, a railroad is entitled
to a fair return on its property. That is all it is entitled to under
the Constitution. That is all the owners of the road ought to have.
If you were considering a single road aside from competitive condi-
tions, the rates should be so adjusted that the railroad can issue its
stock or its bonds on favorable terms, and there is no reason why a
railroad should be permitted, aside from competitive conditions, to
earn 15 or 20 per cent, and if you had a noncompetitive system your
rates would be reduced to’such a point that the road would probably
earn, perhaps, 6 per cent on its invested capital and, perhaps, 8 or 9°
per cent on its stock, but because of competition you can not limit:
the earnings of the strong roads to that amount without putting the
weak roads out of business, and therefore the competitive condition
raises a situation whereby the strong roads are enabled on the rates
that are adopted to get a very much larger amount than is necessary,
to meet their financial requirements. So, I say the justification of
this division of excess profits lies in the fact of the competitive situa-
tion which compels equal rates between competitive points. .
Mr. Srus. Would it not be more natural and of greater public
benefit to reduce the rates on the railroad that is getting excessive
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 391
‘rates under regulation than to force the patrons of the road to con-
\tinue paying excessive rates in order that the railroad not so eco-
‘nomically constructed and not so efficiently managed would be able
/to compete with the stronger road? It seems to’me that we are
asking the stronger road to give up part of what they are compelled
|$0 earn, because they can not reduce the traffic. They are compelled
ito earn, they can not reduce expenses by reducing the service they
‘render, and we practically take a part of that and by direction of
\law transfer it to a road that they are not responsible for in any
‘way, did not bring it into existence, do not manage it and do not
operate it, in order that this inefficient road, comparatively speaking,
may have as large an earning on its stock as will make its securities
pequally desirable in the markets of the world with the stronger road
that has made itself all 1t is by its own investment and by eflicient
|management ? ;
Mr. Ricw. Our plan does not contemplate that the stock of the
weak road should at once become so attractive that money can be
|raised in that way.
| Mr. Srms. I know, the Government would put up the money.
' Mr. Ricw. It would take time to do that, as methods of efficiency
‘were effected and they were in a position where they could finance
|their own requirements. I think one of the strong points of this
iplan is that it enables the roads gradually to get out from under
‘the wing of the Government and become self-supporting and self-
/sustaining roads, without putting any unjust burden upon the public
‘and without putting any burden upon the Federal Government.
Mr. Sms. In order to save the Government from possible loss to
be made up out of the Federal Treasury by general taxation, why
should not the strong roads, as a permission to do interstate busi-
ness, guarantee these identical same bonds for the weak roads that
you want the Government to guarantee? Do you think that such a
‘thing would be right or advantageous.
_ Mr. Ricw. I do not suppose it would be possible to do that, Judge
‘Sims. That, of course, leads to your next question, does not a solu-
tion of this problem le along the line of the consolidation of the
strong roads with the weak roads. I believe the ultimate solution
does lie along those lines. I believe that the fundamentals of this
problem have been developed by Director General Hines. In some
statement which he has made he suggests the valuation of the rail-
roads and then the reorganization of the railroads so that the capital
stock may equal the value, and then a consolidation of the weak lines
with the strong lines. His argument in favor of the consolidation
‘of the weak lines with the strong lines is, to my mind, unanswerable,
but Mr. Hines specially reserves for further consideration the ques-
tion of what policy shall be adopted in the meantime. The ques-
‘tion of valuation and the question of consolidation are» questions
which can not be solved for some years, and that leaves open the ad
‘Interim policy, and the ad interim policy is the policy which we have
Suggested, and is the only policy I think which has been suggested
‘by any one, except a continuation of the agreed compensation until
all these applications and consolidations can be effected. Now, even
the railroads themselves would not want the agreed compensation
‘continued for that length of time.
392 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. But you do advocate, as I understand it, that the com-
pensation now paid or, perhaps, to be paid to the railroads under
Federal control shall continue for and during the year 1920?
Mr. Ricu. Yes, sir.
Mr. Sus. Without reduction?
Mr. Ricu. Yes, sir.
Mr. Suas. Would it not follow inevitably and necessarily that if
the expense of operation and the cost of supplies should not be re-
duced, or they might possibly be further advanced, would you not
inevitably have to ask to continue it during the year 1921, would you
not along the same line and for the same reason given for the con-
tinuance during 1920?
Mr. Ricu. I think not, sir. I believe a year is sufficient time in
which to enable the Interstate Commerce Commission to permit or
cause rates to be so adjusted as to establish as great a basis of credit
for the railroads as existed in the three test years. I believe that con-
ditions will become stabilized in that time so we will know about
what increase or decrease in rates may be necessary. :
Mr. Srtus. What evidence have you that indicates that there will be
any reduction in the expense of operation with the constant demand
for increase of wages by the employees of all public utilities, includ-
ing the railroads? |
Mr. Ricu. The problem is a difficult one. The prospect of reduc-
tion in cost of operation is not very great, but I want to call atten-
tion to the very wise attitude of the director general in refusing to
be panic-stricken by these increased expenses and in waiting to see
what effect the increase of traffic will have upon net results. Of
course, you know and every member of the committee knows that
with an increase in traffic the net deficit will be gradually decreased,
even if expenses remain as they are or even go higher, and, secondly,
JI want to call the attention of the committee to the admirable atti-
tude of the railroad brotherhoods. They ask Congress not so much
that their wages shall be increased as that the cost of living shall be
reduced, and the brotherhoods have a very sound appreciation of the
fact that what the workman wants is reduced cost of living rather
than increased wages. That is not the attitude of all workers, but
it is the attitude of the railroad brotherhoods.
Mr. Stms. Your plan does not provide or point out any means by
which we can reduce the cost of living?
Mr. Ricu. I “duck” that. |
Mr. Sirus. It seems to be necessary, though, to make the statement
which you have just made logical. That is what every Member of
the House and every Member of the Senate and everybody else in”
the United States, so far as I know, is agreed on, that the cost of
living should be reduced, and there is a greater number of plans to”
do that, if possible, than how to save the railroads in their present
situation. If Congress has the right to arbitrarily continue the
standard return plan that was adopted as a war measure to assist
this Government in time of war and during the war for one year
simply as a credit measure—the railroads are supposed to be returned
the last of December—the same thing could be done indefinitely
with the increased cost of operation and the increased cost of ma-
terials under present conditions, and Congress having established the
RETURN OF THE KAILROADS TO PRIVATE OWNERSHIP. 393
recedent of continuing a war measure after the war has ceased
‘> meet peace conditions, it does not seem to me that it presents a
ian that we can really have a reasonable guess as to what will be
‘ne final result. That seems to me to be one of the very serious
pjections to your plan, the possibility of having to do this very
hing, without limit, so far as anybody can now foresee, I have a
‘Jan of my own, but I am afraid that my plan would not live 15
“nutes under the gunshot fire from such experts we are con-
ronted with at this time, and I am going to hold it out for a period
¢ least. That is all I wish to ask. You may make any statement
ou desire.
. Mr. Ricu. Of course, this question of the continuance of the agreed
ompensation for the year 1920 is not a fundamental part of our
Jan. We believe that the Congress has got to do something during
his uncertain period to establish the credit of the railroads, and
, would be absolutely unwise to turn the railroads back to private
wnership without some help; if that is not the proper way to do it,
yere may be other ways.
- Sims. You mean private operation; you said private owner-
ap ?
| Mr. Ric. Yes, sir; I should have said private operation.
‘The Cuairman. Mr. Rich, you stated that the shipping interests
f New England and New York were opposed to the provision in the
ending bill with reference to water transportation ?
Mr. Ricu. No, sir. So far as water transportation is concerned
_speak only for myself and for the transportation committee of the
fassachusetts Chamber of Commerce. It has not been brought be-
ore any other organization which I represent, and, in fact, my at-
wntion was not called to it until very recently.
The Cuarrman. What is your opposition to the pending measure
ith reference to water transportation ?
Mr. Ricu. In the first place, our commerce has been built up and
ur country has been developed upon the theory that there should be
lie utmost play of competition in water transportation, and ever
nee the passage of the interstate-commerce act in 1887 it has been
le guiding star of Congress, and the Congress has always, when the
uestion has been brought up, sought to preserve the utmost water
mmpetition. Now, it is worth while to be guided by the old land-
iarks, which is not by any means a conclusive answer to your ques-
on. I want to call the attention of the committee to the fact that
‘the water carrier in its port-to-port business is placed upon the
ame basis as the rail carrier, the rates of the water carrier must be
ublished and filed with the Interstate Commerce Commission and
jey can not be departed from under the severest penalties; they
in not be changed under 30 days’ notice without special dispensation
E the Interstate Commerce Commission. That at once provides a
gidity of rates which destroys competition in water rates. We
now how the enactment of the 80-day provision for the filing of
ites has destroyed competition in railroads and done it wisely. I
-ake no criticism there, but in the case of water competition we have
‘different policy and we should conform our laws to what has been
1 the past a wise disposition of the water question.
; One thing further. It seems agreed that you can not or ought not
lace the tramp steamer under the provisions of the interstate-com-
’
B94 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
merce act. I understand the Interstate Commerce Commission i
agreed to that, and I should assume that it would be extremely diffi
cult to do it and very unwise to do it. The minute you fail to trea
the tramp steamer as you do the line steamer you make it extremel)
difficult for the line steamer to continue in business. Its rates af
. filed; its rates are rigid. We may have a line steamer from Texas t
New England and there may be a very large amount of cotton await
ing shipment from Galveston. The liner has its rates filed and it ear
not vary. A tramp comes in there and takes every bit of that cottor
at a rate something below the filed rate, with the result that th
tramp steamer is going to take it away from the line steamer ang
the lines are going to be put out of operation. The lines are the forn
of water transportation upon which we have to rely in the long run
because the tramps go here, there, and everywhere. I speak of thi
without the fullest study of the question. I present one side. Ther
may be other sides that justify the rigid application of the principle
of the interstate-commerce act to the water carriers, but I think th
committee should consider that there are two sides to the problem
I wish that the committee would take advice of some of those who ar
engaged in the shipping interest. Of course, the railroads would lik
to see this, because it destroys competition which is annoying. Iti
a very excellent thing for the, railroads. :
The Cuamman. Are you concerned about competition in wate
transportation in itself, or are you concerned about the competitio
between water transportation and rail transportation ?
Mr. Ricw. Both.
The Cuarrman. Very well. We have regulated the rates on rl
transportation to prevent cutthroat competition because we foun
that that was not to the interest of the country, have we not?
Mr. Ricu. Yes, sir.
The Cuarrman. Why not apply the doctrine to the water trans
portation to prevent cutthroat competition of which you have jus
spoken ¢
“Mr. Riou. Cutthroat competition between rail carrier results even
tually in the depletion of the revenues of some of those carriers t
the extent that they become insolvent. Those railroads being fixe
on the land must continue fixed on the land. If you apply the sam
principle to water competition and say that water competition sha
not exist, you, to be sure, accomplish the same result which you #4
complish in the case of rail competition, but with this exception, tha
the results ensuing from competition of water carriers are not so dit
astrous as the results ensuing from competition of rail carriers }¢t
cause a water carrier plying between two ports and finding the bus
ness unprofitable can transfer its ships to other ports and to othe
and more profitable business. |
The Cuarrman. And yet you said that the tramp would drive ov
the line? if
Mr. Ricu. T think it would. :
The Cuarrman. And therefore you think there is no regulatio
that we ought to enact that would prevent that result? .e
Mr. Ricu. I am very much inclined to that; yes. :
The Cuarmman. All of the advantages of regulated line servic
with fixed schedules and regularity of sailings would be preventet
|
es
RETURN OF THE RAILRUADS TO PRIVAYE OWNERSHIP. 395
en commerce considers the established regularity of service as one
| the most essential things? .
‘Mr. Ricu. I agree with you, sir, but I am yet unconvinced—I do
‘¢ want to put it stronger than that—I am unconvinced that we
ould depart from the traditional policy of this country in refer-
/ee to water transportation. I wish I could give the committee more
tht, but that is a subject to which I have not given very careful
‘nsideration and study. 3 |
The Cuarrman. You realize the necessity of the coordination of
wer and rail transportation ? 7
Mr. Ricn. Yes, sir.
‘The Cuamman. How can that coordination be made possible un-
ss you regulate the water carriers ?
Mr. Ricu. That is a strong argument in favor of regulation. I
ipreciate that argument. The question is whether the advantage
uch comes from that is counterbalanced by a general reversal of
icy. As I say, I do not want to be dogmatic, because I am not
lly informed about that matter, but I wish the committee very
vefully to recognize the fact that there are two sides to this ques-
on.
The CuairMAn. We do recognize that and that is why I have
ked these questions. You stated that there should be the freest
issible exercise of rate making by the water carriers, that there
ould be no inflexibility, is that the point?
My. Ricu. I do not want to put it quite as strong as that because
3 realize to-day, so far as rail and water rates are concerned, there
‘the same rigidity as in the case of rail rates.
The Cuarrman. The pending bill gives the commission power to
‘maximum and minimum rates? “
Mr. Ricu. Yes, sir.
‘The Cuatrman. That would apply to the port-to-port traffic of the
ter lines, and if that be true, could not the commission fix the max-
ium and minimum with such a spread as to give the flexibility that
mm seek ¢
Be Ricu. I do not know but that is so. That thought had not
curred to me, but there should be a mandate to the commission to
that, because in establishing rail rates now the commission can not
ty well establish one minimum rate and another maximum rate,
cause of the provision of the act that the exact rate shall be filed.
am a little afraid that there is some defect in the operation of the
inimum and maximum provision, because of the provision that the
act rate must be filed. Now, in the case of water rates you can es-
blish a maximum and minimum and really eliminate great deal of
e evil which I have suggested.
The Cuarrman. You ‘suggested two or three amendments to the
nding bill. Will you please incorporate those in your hearing?
Mr. Ricu. Yes; I shall be very glad to do so. I should particu-
oy jike to have the committee direct its attention to them, because
ey are amendments which are favored by shippers and by the In-
state Commerce Commision and by everybody, I think, and I am
Tethat the Interstate Commerce Commission would have included
‘em in their bill if it had occurred to them.
‘The Cuarrman. Under your plan a carrier applies for an advance
for aid from the Government. Who is to determine whether a
t
0% a
a
+ a el
396 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
given road should be the beneficiary of such grant by the Govern
ment ? |
Mr. Ricu. Mr. Chairman, you have struck one point of the plai
which I have not developed. It is difficult to determine what road
can do their own financing and what roads can not, but I am not un
mindful of the fact that some method should be provided. 0:
course, market quotations on the securities of a road will in a genera
way form a guide in the determination of that question, althougl
it is not an inflexible one. I am inclined to think that that questior
should be left for the Interstate Commerce Commission to determine
I am not entirely clear upon that point.
The Cuarrman. Under your bill whatever advances are made bj
the Government to a common carrier would be on a bond basis ane¢
not on stock issues ?
Mr. Ricu. Absolutely.
The Cuairman. There is a growing tendency toward increasi
the bond indebtedness as over against the stock indebtedness, i:
there not?
Mr. Ricu. There is.
The CuatrMan. Have we not passed the danger line there?
Mr. Ricu. In many cases we have, and if it were possible to pro-
vide for the requirements of the weak lines in any other way J
should be heartily in favor of it. I think that one of the great
dangers that the railroad transportation of the country has been
confronted with is the tendency to issue more bonds, and that &
one of the things about this plan which I do not like. Your sug:
gested criticism is absolutely sound, and it is one of the things that
must be considered against it. But I believe, on the other hand
that there is no other way of meeting this situation except by the
adoption of some plan which will require these things to be worked
out from the basis of valuations and consolidations.
The Cuamman. Would your plan lessen initiative on the part of
the roads that got Government aid? 4
Mr. Ricu. I think not in the slightest degree, for this reason:
The roads which would get Government aid would be roads earning
under 9 per cent, most of them earning 2 or 3 per cent. Now, what
is it that inspires the management of a road, the president of a road,
or the directors of a road toward efficiency in operation and econony]
in operation? It is just one thing, or one overwhelming thing, aud
that is the desire to show to their stockholders a balance sheet
which will show something earned on the stock. Speaking with some
intimate knowledge of the mental processes of railroad presidents,
T know that the thing that they direct as much attention to as any-
thing else is “ how much have we earned on our stock during the last
year,” and every financial report, as you gentlemen well know, states
that the company, whether railroad or other corporation, earns 80
much on its capital stock. Every effort on the part of the nae
of a weak road will be directed toward increasing their pronts.
Furthermore, being relieved from the anxiety incident to gettmg
capital, and being relieved from the strangle hold of the banking
interests, their courage would be renewed, and, furthermore, havmg
the means to effect improvements which will effect economies, they
will be able to show better results on their profit and loss account.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 397
“The Cuarrman, Under your plan the carrier that gets a Govern-
ent loan has to have two of its directors appointed by the Govern-
ent? ©
‘Mr. Ricw. I believe that is the best way to work out the problem,
xcause I believe that you should have right on the job men who are
, determine the necessity for improvements. These are the men that
ight to do it. I think it is much better that those directors should
» appointed and should determine the question of the necessity of
aprovements, rather than that the matter should go to Washington
» the Interstate Commerce Commission. However, it is not an
‘sential part of the plan. The interstate Commerce Commission
self through its regional commissions can determine the question
{the necessity for improvements.
The Cuairman. Would the presence of these directors upon the
irectory of the carrier stimulate that road to go into the free class
id thus get rid of the Government directors?
Mr. Ricu. I believe that the presence of Government directors
ould stimulate the other directors to get the road into the free class...
{ there is danger in the appointment of Government directors—if
here is a danger of politics coming into the management of the roads,
id if that is a strong objection, I would suggest, as has been sug-
asted by someone, that they be appointed by the Interstate Com-
erce Commission, rather than by the Executive. I think that your
iestions have developed some of the weak points of this plan, but
do not believe that there are any objections that could not be sub-
antially overcome.
‘Mr. Wrnstow. If I ask you a question which you have already
aswered in the record, will you kindly say so and omit the answer,
ad I will get my information from the record. If a road were to
sue debentures, to whom would those debentures be offered ?
‘Mr. Ricu. My thought is that a railroad issuing debentures with
Government guarantee would dispose of them in the locality where
1e railroad was located and where its financial business was trans-
sted. I am inclined to think that they should be offered to com-
stitive bidding, and that if they yielded more than par, the excess
ight to go to the Government. :
“Mr. Wriystow. Who would determine the rate of interest of the
abentures ?
Mr. Ricu. The Secretary of the Treasury—a fact which I did not
ention in presenting the plan.
Mr. Winstow. Suppose the financial market was in such a condi-
on as to be sluggish; that there was a need for the money or pro-
eds from the sale of the debentures, and that the debentures did
ot find a ready market—what then?
Mr. Ricn. I think that authority should be lodged in the Secretary
‘the Treasury to determine whether the market conditions were
ich as would justify the floating of a loan at that time. It might be
tat they would postpone the improvements. I think that that is
evitable under any plan of operation. There often comes a time
hen it would be unwise to float any kind of securities.
Mr. Winstow. Can you not imagine a condition under which the
sbentures might come on the market as the result of a plan deter-
‘ned upon at a prior time when the conditions were good?
Ne heal
—-
398 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Ricu. Yes, sir. :
Mr. Winstow. In that case, where would the help come from? —
Mr. Ricu. You would simply have to go without your mone
That is something that has happened often. It happened once in
marked degree in a case that came under my observation when #
market changed inside of a week. That was a case where ‘the fai
road had an agreement with the bankers for the purchase of 4}
‘ bonds at a certain price. There was some little defect in the issi
but that was corrected in a week. However, before the end of th
week the market had gone off to such an extent that although
years have passed those bonds have not yet been sold. |
Mr. Wrnstow. Do you conceive that it would be a wise provisit
under some conditions to let the Government take up those debe
tures ?
Mr. Riou. I should think it might be.
Mr. Wrnstow. You think that the stock of any road, good, ba
or indifferent, would be subject to some market fluctuations und
such circumstances as you propose, or such as we have known in ¢]
past ¢ ;
Mr. Ricu. That is one of the great advantages of this plan. 1]
stocks of the roads would not be subject to the same fluctuation
Under this plan, with this mandate to the commission, the railroa
would know that their rates were to be kept up at such a level as’
give them certain net returns, or such net returns as they had r
ceived for the average three test years. Nothing would so much stabi
ize the credit of the strong roads, as well as of the weak roads, as fh
adoption of this plan, and I conceive that to be one of the strongeé
points in the plan.
Mr. Winstow. Would you feel that by virtue of such conditiol
the stocks of the roads would become more desirable collateral f
the owners who might want to realize on them?
Mr. Riou. I think it would add marked strength and stability 1
all railroad issues.
Mr. Winstow. And by virture of that, it would safeguard in
way the interests of the loaning institutions ? , |
Mr. Ricu. Absolutely. There is nothing that would safeguu
the interests of our savings institutions and savings banks so mue
as the adoption of some such plan as this. It would be much ma
effective and helpful in stabilizing the condition, for instance, of tl
insurance companies than even the Warfield plan, although the Wa
field plan imposes a greater burden on the public, but it does m
stabilize the securities of the weak lines to the same extent that th
plan does. P
Mr. Winstow. Would all of that go to make the railroad inves
ment a more desirable line of investment for trustees and other pe
ple who have to look to the stability of their investments?
Mr. Ricw. Absolutely. I have not developed that feature, bt
perhaps my attention has not been properly directed to it. Since yo
speak of it, Col. Winslow, it seems to me that it is one of the strons
est arguments in favor of the adoption of this plan. a
Mr. Wrnstow. Have not the uncertain conditions in connect10
with investments in railroad securities been due to the fact that n
body knew how stable an investment he would have to-morrow, ‘
ty
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 399
ie
j!at he would feel secure in handing it on down to his heirs, for
| stance ?
| Mr. Rion. I think so.
| Mr. Winstow. Do you believe that this general plan would relieve
helpless community like that we have in New England, where the
oeck sales in the New Haven Road have so run down in price as to
| eae the people who inherited them?
d
| Mr. Ricu. I think it would help the New England situation, but
‘do not think it would entirely cure it so far as the investors are
mecerned, because of the unfortunate depth to which those securities,
mmerly gilt-edged, have sunk. But I do not want to say that so far
the public is concerned, I do not know of any other plan that
ill help the New England situation. Let me put it this way:
either of the big systems, the New Haven or the Boston & Maine,
im borrow a single dollar except from the Government, and the
tuation is such to-day that it 1s proposed to lend $22,000,000 to.
Boston & Maine Railroad. It is proposed that the Government
all lend $22,000,000 to the Boston & Maine Railroad, taking alk
anner of security, and taking all manner of pledges in regard to
ie payment of dividends, and so tying up the road that it can not
nance itself in any other way. That is the danger of direct loans
/weak roads. It is the danger that was pointed out so forcibly and
mclusively by Mr. Thom in the course of the hearings before the.
int committee.
Mr. Winstow. Those of us who live in New England, I think, will
rree that throughout the entire New England States, notably in
assachusetts, and more so in Connecticut, persons in providing for.
le distribution of their property at death would give their cash to.
@ boys, and in many cases would leave their New Haven stock to,
i women and girls, because they thought it would be the most secure.
id dependable investment that could be made for them. Now,
ould this plan help that situation ? }
Mr. Ricu. I think it would help, but I do not think it would ac-
mplish as much as we would like to see accomplished. In other.
ords, I do not expect that this plan would be of immediate aid in
creasing the value or stability of the securities of the New Kng-
nd roads. My earlier remarks were directed more toward stabiliz-
g the securities of roads which were already earning a reasonable.
nount, or roads like the Pennsylvania and the New York Central,
id roads, perhaps, like the Maine Central. I wish that I could say
iat it would be preeminently helpful to the security holders of our.
ew England roads, but all that I can say is that it would be some-
hat helpful. Sal
Mr. Winstow. If the purpose of the whole scheme is to stabilize.
ie earnings on railroad stock, why would not that per se make these.
curities more desirable-to hold with a view to handing them down.
_ posterity ?
Mr. Ricn. There can be no question about that. rae
The Cuatrrman. The committee wishes to express its appreciation,
‘your clear explanation of your plan. |
400 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
CoMMITTFE ON INTERSTATE AND ForreicGh COMMERCE,
House or REPRESENTATIVES,
Thursday, July 31, 1919.
STATEMENT OF MR. R. C. FULBRIGHT, OF HOUSTON, TEX., REP.
RESENTING THE SOUTHWESTERN INDUSTRIAL TRAFFIC
LEAGUE, THE TEXAS CHAMBER OF COMMERCE, AND THE
TEXAS INDUSTRIAL TRAFFIC LEAGUE.
Mr. Sims. We will start in by supposing that this is to be a dis
cussion of the Texas plan. ;
Mr. Furericut. No, sir; I will direct my remarks to the matter of
regional commissions, and, also, I want to have something to say
about the absolute fourth-section bill. Then, if you will permit me,
I may make some remarks about the New England plan of salva
tion.
Mr. Sims. Dr. Rich claims that the Texas plan is related to the
New England plan.
Mr. Fuuericut. Yes, sir; they originated at the same time, but we
have really not undertaken to work out any definite constructive plan,
We simply, in a general way, recognize, as has been suggested, that
something constructive should be done to take care of the poor, weak
systems over whom we have shed so many tears.
Mr. Stus. To hold them up while walking through the water.
The Cratmman. Did not your chamber of commerce adopt some
resolutions in January |
Mr. Fursricur (interposing). Yes, sir; they did. 3
The Crairman (continuing). Which, in a general way, gave a
certain plan for constructive legislation ?
Mr. Fuusricut. Those resolutions were presented here before the
Senate committee Jast January. I will give the substance of thie
resolutions that have been adopted by those various organizations:
First, we condemn Government ownership and any permanent ex-
tension, or any extension further than is necessary, of the Govern
ment operation of the railroads. We request the return of the ear
riers to their owners as soon as adequate législation can be enacted,
as a reconstructive measure. We oppose all monopolies, and urge
continuance of competition in service between carriers. We favo
a unified system of control, both intrastate and interstate, under the
supervision of nonpartisan commissions, contemplating the coopera-
tion of commissions very much as has been set forth in the Hseh-
Pomerene bill. We ask for the establishment of regional commis
sions. We disapprove the idea of a director of transportation as ®
Cabinet officer, as was suggested by the railroad executives, believing
that that would put the railroads in politics rather than take ied
out. We indorse the principle of national regulation of issues of
railroad securities. One of our fellow Texans has been behind that
measure for a long time, and he is a member of your committee. We
ask that the Interstate Commerce Commission be given the power
to eliminate circuitous routes, to compel the diversion of traffic, and
to control routing wherever necessary to eliminate congestion, ant
also to control embargoes and such matters as that. Those matters:
are very well covered in the Esch-Pomerene bill, and, if I am pet
‘RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 401
‘mitted, I shall refer to them more in detail when I get through with
the subject of regional commissions.
| We also recommended that the Interstate Commerce Commission, or
‘some regulatory body, should pass upon the propriety and the
necessity of new railroad extensions and improvements, and also
‘ et mergers and consolidations. That matter and like matters
‘have been included in the Esch-Poremene bill. We also indorsed
\ the principle of giving the commission power to make minimum
| ates, and you have included that. We recommended that some
| tribunal or nonpartisan board be created to adjudicate wage dis-
i a and that some legislation be enacted guaranteeing to the pub-
i¢ the uninterrupted functioning of the carriers’ facilities. I think
| the suggestion made by Mr. Rich here yesterday would meet the
) approval of the interests of our section in that respect, and by that
| 1 mean the shipping interests. We also favor the preservation of
(the police powers of the State in so far as is consistent with the
| general program that we outlined. We believe that certain ques-
tions relating to the public health, public morals, and public safety
| could still be left with the State commissions or State bodies, and that
jthe matter of furnishing local facilities, such as industrial tracks,
‘station facilities, and many matters of that character, which are
/really purely local in their nature ought to be handled by a body
located close to the people in the several States. Those matters have
generally been handled with a fair degree of satisfaction ‘to all
parties concerned.
|_ I will not undertake to go into a discussion of these various points,
)1 did so before the Senate committee, and most of them have been
much more thoroughly discussed before you by Mr. Clark. We feel
Somewhat flattered in our section that we framed our resolutions in
convention just about the time or just before Commissioner Clark
appeared before the Senate committee and advocated practically
the same thing. Of course, we had no communication with him, but
the shipping public in the Southwest has given a-great deal of
thought and consideration to matters of transporation.
I have not prepared any formal statement, and I am simply going
to proceed in an informal manner from a few penciled notes, and
if you want to ask any questions at any time I hope you will do so.
Of course, I do not promise to answer all of them, but I want to
orovoke as free discussion as possible.
Before I begin my discussion, at the risk, perhaps, of violating
he proprieties, I want, in behalf of our interests, to express our sin-
sere appreciation of the magnificent manner in which the Senate
committee and the House committee have gone into the considera-
Jon of this mighty and complex question. You have ignored all
‘onsiderations except those which would be for the best interests of
he country at large, and all idea of political party, or of political
raditions of political parties has been largely swept aside in an
fort to get right down and hear what anybody has to Baye eCOU
ave heard many with great patience, and I am sure that you will
lear me with patience. 7
Now, as to regional commissions, we were really disappointed
‘hat the Esch-Pomerene bill did not contain a suggestion or legisla-
ion providing for some regional commissions. The demand for
152894—19-—vox 1 26
402 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP.
them has been very general. In the Senate committee hearings
some of the questions propounded by Chairman Smith, Senator
Poindexter, and Senator Kellogg indicated that they thought some-
thing should be done along that line. The shipping interests from
every section of the country have expressed themselves as favoring
regional commissions: Mr. Elmquist, when he appeared before the
Senate committee in behalf of the National Association of Railway
Utilities Commissioners, urged that regional commissions be adopted
or established under the jurisdiction of the Interstate Commerce
Commission. The railroad executives, in the plan which they sub:
mitted, suggested a very admirable scheme for regional commissions,
The National Association of Owners of Railroad Securities also
suggested that the country be divided into six regions, and that a
commission be appointed for each region. This very general de-
mand, it seems to me, must have its basis in the experience of the
people who have had to do with the adjudication and regulation of
transportation under the jurisdiction of the Interstate Commerce
Commission. ~ It is not born out of any dissatisfaction with the
Interstate Commerce Commission as a regulatory body, but we
simply feel that the subject of regulation has become so very multi-
form and complex and so large that the Interstate Commerce Com-
mission needs the assistance of other bodies and needs to have the
power to delegate a certain part of its authority to those bodies,
The importance of the Interstate Commerce Commission as a tri-
bunal can not be overestimated. Every year the questions that they
pass upon are many times in magnitude or amounts of money in-
volved to the people of the country those questions which are passed
upon by the Supreme Court. I regard it as the most important
tribunal created by our Government, and I say that, of course, with
all due respect to the Supreme Court, which marks the highest point
to which I as a lawyer can look. We have great respect for it
The Interstate Commerce Commission is every month and every
year passing upon questions involving millions and millions of
dollars, and involving taxes upon every man, woman, and child in
any given section or the entire country. Now, I will state our rea-
sons as briefly as I can. {
Our reasons for desiring regional commissions are, first, that ed |
will expedite the handling of cases and matters subject to their
regulations; second, that they will relieve the central body, or the
Interstate Commerce Commission, of a great part of its duties, as It
is already, you might say, overburdened; third, they will bring the)
regulation closer to the people and conserve the convenience of all
parties; fourth, they will secure greater efficiency on the part of the:
interstate and on the part of the regional commissions; and, fifth,
they will secure better undertsanding and cooperation as between
shippers and carriers and also as between State commissions and the
interstate bodies. |
I will refer to the first point a little. To give you some idea of the
volume of the duties of the Interstate Commerce Commission, I wi
say that in the fiscal year ending November 1, 1917, that being the
commission’s reporting year, there were filed before the commission)
651 formal docket cases—that is, cases that require hearings, briefing,
and handling as ordinary lawsuits in the courts require. Last yeal
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 403
je number fell down on account of the fact that the roads were
der the supervision of the Government. Last year they held 590
‘arings, and that runs at about the average. The informal docket
3es last year amounted to 5,458, and that is about the average.
The special application cases, or cases on the special application
eket, which covers the applications that carriers make for au-
ority to make refunds and which have to be investigated, last year
jiounted to nearly 3,000, although ordinarily they run closer to
))00. Now, in addition to those duties, they have a division of in-
(iry which looks to the enforcement of the penal provisions of the
)serstate commerce act. That is big field of work itself. They
ve a statistical division and an accounting division in which they
ve to prescribe, and from time to time revise, the accounting rules
d supervise the reports of the carriers of the country. Then they
ve a tariff filing division, and a division which formulates regula-
ms to which all of those tariffs must conform. Those matters give
eto many questions which must be determined by the commission.
jiey have a fifteenth section board which has to consider the pro-
ilety of permitting the carriers to file or to allow to become effec-
e proposed increases in rates, and the sixth section board which
's the general supervision of the filing of tariffs. Then they have
2 safety appliance statutes to administer, covering automatic cou-
ars, power brakes, etc., and such things as the bureau of explosives.
iey have the physical valuation of the railways under their super-
sion, although there is a special director appointed in charge of
ju work. They have the car service on their hands already, under
2 existing Esch bill, and under ordinary private ownership this
uuld involve an immense amount of work upon the commission.
Now, while that seems great, it is not anything to what that same
rk is going to be when the roads are returned to their owners.
ike the matter of reparation cases. I know of numerous cases in
7 section that are going to be filed with the Interstate Commerce
mmission within the next few months. There will be a tremen-
us deluge of reparation cases—thousands of them.
There will be a larger number of readjustments sought, for the
aple reason that in many of the general orders made under the
‘lroad Administration, the relations of one community to an-
ier, the relative adjustments, have been very much torn asunder,
‘d while some of those things have been ironed out before the Rail-
ad Administration, we have yet but scratched the surface; not so
ich seeking reductions of rates but seeking the reestablishment of
justments and balances between communities and between com-
ting interests.
fo give you an idea as to how great this work is going to be, I
‘ght refer to some of the work of the Railroad Administration
that respect. The Railroad Administration, as you know, has
vated 25 district freight traffic committees, whose duty it is to pass
on proposed changes in the rate adjustments of the country.
‘ey have their respective district jurisdictions. In the south-
‘stern territory, the territory that I represent, we are within
+ districts of the New Orleans Western, the St. Louis, the Kansas
ty, and the Dallas committees. These committees have been in
‘stence for about one year, some of them not that long. I believe
|
404 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the oldest one is about one year old. The St. Louis committee
had on its formal docket over 1,100 subjects. It has docketed ©
3.000 subjects, but there were over 1,100 subjects of sufficient imp
tance to require setting them down for a conference, a special
vestigation and a report on the application to be ade to
general committee at Chicago or to the Railroad Administrat
here at Washington.
The Kansas City committee has had about 1,000; the Dallas ec
mittee has had over 1,100, and the New Orleans committee has |
about 700. So that right 3 in that territory you have had 4,000 s1
jects up, most of them controversies filed by shippers, most of tli
asking for readjustments, and the greater part of them are goi
to go unanswered until. the Railroad Administration closes, not |
cause of any desire on the part of the Railroad Administration
ignore the requests of the shippers to right these conditions, beeai
they want to do it, but because of the system that they have. Ev
one of these applications has to come here to Washington and
passed on by one of a small group of men in the Division of ‘Traf
and one of a small group of men in the Division of Public Servi
Now, what is the result? There are thousands upon thousands
these cases coming in here and with the small body here in Wei
ington to pass on them, although they are working day and nig
they can not possibly keep up with them. We are behind mori
now on matters of readjustment in which the railroad represer i
tives and the shipping representatives are agreed that'we ough
have the relief we seek, and we have not got it yet, and I don
know whether we will get it or not. Why? ~ Because they. are taki
them as they come to them, and doing the best they can here,
when you get down to the tip of the funnel, it can only turn out t
erist just so fast. Now, that is the condition that we labor und
One of the assistants in the administration here who has the dut?
passing on these cases for a certain territory, told me he had i
60 to 90 subjects passed into his desk every day. If he had ana
age of 75, and he gave them 10 minutes’ consideration, every one
them possibly a pretty big subject, he would be working 194 hot
a day.
Mr. Sanpers of Indiana. Can you give us an illustration as
the character of some of those subjects; that is, the most numero
classes. 4
Mr. Foursricut. They may involve the establishment of a 1
modity rate where it has been disturbed, or they may involve &
putting in of a transit privilege, or the taking out of a transit pr
lege. They may involve any one of the numerous things that m
come before the Interstate Commission or before the State comm
sions. All of those adjustments of rates of various character are
volved in it, and many of them have been situations brought abo
through the making of some general orders which affected the rat!
The same thing will be true of the Interstate Commerce Comat
They are, already, you might say, a year behind, practicall,
handling their cases. I should say this, perhaps: You can not 10
to get a decision on a formal docket case before the Interstate ‘01
merce Commission in less than a year’s time at the best. It is my1
formation that some time ago a statement was compiled showing 5
RETUKN OF THE RAILROADS TO PRIVATE OWNERSHIP. 405
es in succession upon the docket of the commission, and it was
ind that at that time the average time was more than a year.
might say here that up until something over a year ago I was
resenting carriers and for several years represented the carriers
‘eases before the Interstate Commerce Commission. I have had
aration cases where there was not any dispute, where we felt that
the man needed to do was to prove he paid the rates. We knew
t he was entitled to get back the excess money he had paid, but
‘could not pay it to him without having it passed upon by the
erstate Commerce Commission, to make sure there was no rebate,
[yet that man who may have been a small shipper and may have —
‘thousands of dollars tied up here would have to wait a year or a
rand a half to get his money. Why? The commission is work-
as hard as it can, but it can turn out that grist only so fast.
in addition to all that, we are now proposing to cast upon the
«mission a tremendous volume of additional duties in which we
‘ect to get the judgment of the nine men who are constituted there
his tribunal. Let us just glance at what those additional duties -
_ Here is the question of jurisdiction over water carriers, a great
ject in itself, and I sincerely hope you will never put that upon
‘Interstate Commerce Commission. The Shipping Board can
» care of that. I will get to that more fully, I hope, before I
‘ude. I want to answer your question.
hen there is the jurisdiction over traffic from adjacent foreign
atries to the United States. There are the additional duties
ed upon them by virtue of the amendments to the car service
| It extends now to the supply and movement of cars. In emer-
ty times the commission will have to step in and act quickly
disregard the ownership and distribution of cars, and distribute
‘aas it may deem best and make its own adjudication of the com-
sation. ‘These are important questions that are going to tax their
time and thought.
aen there is the question of the common use of terminals, unifi-
m of terminals. You have put this great question under the
sdiction of the Interstate Commerce Commission.
sw lines and extensions must have their authority before they are
ected. An old line before it can be abandoned must be investi-
I by them and a certificate of permission obtained. The ques-
‘of compelling carriers to acquire new equipment and to investi-
‘their condition as to whether or not they can afford to provide
iselves with that equipment is also another big question which
have unloaded on their shoulders, or are proposing to unload on
‘Shoulders; and I really am in harmony with these provisions
tally, you understand.
ten there is the consolidation and merger of lines; the pooling
allic and earnings; the question of minimum rates; jurisdiction
| docks; the enlargement of jurisdiction to hold joint hearings
the State commissions; the enlargement of the jurisdiction in
|@ the commission practically complete jurisdiction over divi-
| between carriers (this is a subject in itself sufficient to demand
| me and consideration of this commission) ; the regulation of the
nee of securities.
|
406 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
There are 14 additional subjects that we are heaping upon the con
mission. ‘The commission is competent to handle all that any set ¢
human beings can handle. As I have observed them through the pa
years, I think they are the hardest working group of public officia
T have ever had anything to do with; but it is not humanly possib!
for them to assume all these additional duties and have heaped upe
them this deluge of cases that are coming and give the individu:
consideration to all these cases that they deserve, any more than it)
humanly possible for this little group of six men in the Railroa
Administration to pass upon every: one of these thousands of cas
that are being rained in upon them. In lots of cases they do not gi
mature consideration to them. They make a guess at 1t and go i
The Interstate Commerce Commission is not going to handle ¢l
matter that way, but they are bound to leave that to somebody
judgment in many many cases, because it is not humanly possible fe
them to do it. |
Now, then, the question arises as to how this will expedite tl
services. In the first place, about 60 per cent of the cases filed wit
the Interstate Commerce Commission are reparations docket case
cases where shippers are seeking reparation. Now, a very larg
nuniber of those cases, and I should say practically or nearly @
of them, are very simple matters to be handled because they are go
erned by certain set rules, decisions, and policies of the Intersta
Commerce Commission set forth in its decisions. Of course, océ
sionally you have such cases that are tied up with great readjus
ment questions, and the question of reparations is only an incident
question; but the bulk of the reparation claims, I would say, ari
in cases where, we will say, a new industry is created and they wai
a line of commodity rates to a distributing territory, and they ha
to pay at present, say, combination rates and they desire a throug
rate. The carrier promises to give them this rate. There is del:
in getting the rate in effect, and the shipments start moving. T
carrier puts the rate in, and then the shipper wants. reparatit
down to that point. Usually that is a very simple case and is
matter that the report of the examiner is final on. ‘There is not ai
dispute between the parties, and the only thing is to prevent and
protect the public against that being used as an unjust discrimi
tion or rebate in favor of that shipper. It requires a formal h
ing. In many cases they make errors in the tariffs filed by the ra
roads and reparation cases result for the time before the error
corrected. Sometimes the carriers get in disputes over divisio
and the through rate is discontinued for a short time and then
put back into effect. There are reparation cases arising there, @
there is no question about the justness of those claims, but they
to be passed upon by some tribunal, and frequently, in the case
rate-adjustment cases, the carriers and the shippers will get toe |
at the hearing or before the hearing and will compose their
ences and agree upon a basis which is satisfactory to them. nd
then have to put in the case as a formal matter and if there is
discrimination, no other party at interest to oppose it, the ma
may be quickly and finally disposed of; but, as a matter of pract
under our present system, it can not be promptly disposed of.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 407
| I might give you just one example of that: We may learn some
‘lessons from these district freight traffic committees I spoke of just
‘a while ago. In many cases, new adjustments have been brought up
‘for consideration by the carriers, and the shippers and the carriers
will get together in a conference, and all parties will get together and
‘agree on the new adjustment. I have in mind right now an instance
in Missouri where a proposal was made to revise the lumber rates in
‘that State involving a number of increases and involving some re-
ductions. When it was first heard of the lumber interests raised a
big objection to the increases. They got together in a conference
with the representatives of the carriers and had a committee hearing
on it and went into the whole business, and as a result, they all agreed
they would not oppose that. It was agreeable to all parties. I
do not suppose it will get in before the Railroad Administration
ceases its operations, but it simply illustrates many cases that arise
before the Interstate Commerce Commission. When we get together
and go to airing our differences we find that after all the business
men and the railroads both want to do the fair and square thing by
‘the other, and case after case has arisen where during the course of
a hearing, after coming in and presenting their cases and under-:
‘standing each other’s viewpoint better, we are able to fairly well
‘compose our differences. Now, then, those cases do not need to be
delayed. They can be handled by regional commissions; prompt
decisions can be given upon them, subject, of course, if any one wants
to file exceptions, to the right of review by the interstate body.
|. It will relieve the central body of a great part of these minor cases.
It will enable the central body to better consider the issues in the
larger cases that come before it. It will have the benefit of the con-
ference of the regional commissions on cases that are appealed.
| There is a whole lot of difference between sending out an examiner
‘who hears a case and having the case considered by a group of three
jmen. In rate studies and in rate legislation, as in no other subject,
it may be said that in a multitude of counselors there is strength.
| It has been demonstrated on these district freight traffic commit-
,Cees in instance after instance that by getting together and compar-
\ing their ideas and conferring over the matters brought before them
we are able to get a better understanding of the situation than would
|be had by one man alone.
_ Then it brings the regulation closer to the people. Now this is
important. A great deal of fancied dissatisfaction with the Inter-
|State Commerce Commission is due to the -fact they are so far away
from a great part of the territory, and that is not altogether fancied.
Local conditions must be brought close home in lots of cases in
\order to enable the body to most efficiently determine those cases.
With the State commissions frequently the State commission will go
‘pon the ground where the controversy has arisen. For instance,
take a terminal question: They may go and there examine the con-
ditions and frequently they get the parties together there, and in an
old-fashioned way they settle the questions in dispute.
_ It will eliminate a great deal of lost time and motion in having to
tome to Washington every time you have anything done.
_ (The committee thereupon took a recess until 2 o’clock p. m.)
~
408 RETURN OF THE RAILROADS TO PRIVATE OWNERSH:?P.
| AFTER RECESS.
At the expiration of the recess the committee resumed its cecil
STATEMENT OF MR. R. C. FULBRIGHT—Resumed. |
The CrarrMan. Mr. Fulbright, you may continue your statement.
Mr. Fursrieut. At the time of the recess I was discussing the
fact that regional commissions would, in my opinion, bring regula-
tion closer home to the people. You take, for instance, the matter of
the fifteenth section applications, those are applications where a
carrier desires to increase a rate and under the existing law he has
to file an application with his proposed tariff with the Interstate
Commerce Commission. As to whether the commission will permit
it to go into effect or suspend the operation of the tariff pending
the hearing depends oftentimes on some preliminary or informal
hearing. Unless some shipping interest protests, why, the increases
are usually permitted to go into effect, but if the shipping interest
files a protest the commission then must look into the tariff and see
if there is any reasonable ground for the protest, and if it decides
there is it will suspend the tariff pending the hearing. Those things
may be very vital because the tariff may make a radical change, and
it mav affect one man’s business very greatly, and frequently the
shippers have to come from the Pacific coast, the Southwest. and
Northweg#-here on short notice to support an informal protest. The
time is exceedingly short, and it very greatly inconveniences and
creates a gory great expense to them. The regional commissions can
handle thé-fifteenth section applications in all cases except where
it involves a general readjustment over a large territory outside 0
their territory. In those cases, anyway, it is usually understood
that the matter will be taken up with the body here in Washington,
and the interests over the country given a chance to appear here and
have an informal conference. Frequently it is understood before-
hand that when the tariff is filed it will be suspended. I have known
eases where the carriers have prepared tariffs with the understand-
ing that they would be suspended when filed, pending the determina-
tion of other cases. These matters could be handled by the regional
commissions and certainly that will greatly conserve the interests
of the shippers in the remote sections of the country. | :
Another matter, the commission has had so much business that it|
has had to follow the policy of discouraging oral arguments before
the commission. In fact, a man who has a comparatively small case
is ashamed to ask for an oral argument because he feels that their
time is so occupied that they can not afford to give oral arguments,
in all cases. Not infrequently an oral argument on both sides ofa
case is more illuminating than anything that is contained in a printe¢ .
brief. Regional commissions can hold oral arguments. They have)
a rule now that you can orally argue a proceeding at the close of the!
taking of testimony before the examiner. I have never heard of
anybody availing themselves of it. They do sometimes, I am told,
but that is not the time to argue your case. The time to argue your
case is when you have had a copy of the record and have had @
chance to study it and analyze it and know what the effect of the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 409
se of your opponent is. Then, to get an argument, you have to
ose oral arguments, of course, will be made to the Interstate Com-
Commission wherever there is any appeal, but it will cer-
imly conserve a great deal of time which is taken up that way. |
iy after day the commission has to sit there and hear oral argu-
mts when their time could be devoted to analyzing important mat-
’s, and the regional commissions could take care of most of the
alarguments. It would enable a better presentation of the case in
at way. I believe that the regional commission system will enable
etter presentation of the cases.
416 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Furericut. That is correct. For instance, take the matte
of the investigations and suspension docket: The commission ma
on its own motion, investigate a rate situation without complair
from either shipper or carrier. I am following that principle.
The plan for regional commissions submitted by Mr. Fulbright
as follows:
SUGGESTED DRAFT OF PROVISION FOR REGIONAL COMMISSIONS.
The Interstate Commerce Commission shall divide the United States it
six regional districts, or as many more as that body shall from time to ti
adjudge necessary to most expeditiously handle the cases coming within
jurisdiction, and it shall have power to define and rearrange the limits of sv
districts from time to time; the same body shall appoint three regional ¢0
missioners for each district, whose salary shall be $7,500 a year, and two
whom shall be residents of such district. The Interstate Commerce Connn
sion shall have the right and power to define the term of service for 4
commissioners so appointed and to remove them for cause when it sees
The appointees for each district shall constitute the regional commission ©
such district, and these regional commissions shall have primary jur
diction of all cases arising in their respective districts: Provided, he
ever, That in all cases where the Interstate Commerce Commission sh
consider the questions involved to be of such general interest and imp
tance that they should be considered by more than one regional conmur
sion, or by the Interstate Commerce Commission in the first instance, tl
may so order and proceed: Provided further, That the Interstate Comme
Commission may prescribe rules of procedure and rules to determine which
the regional commissions may be the proper body to consider cases cont
before such commissions. :
The members of the Interstate Commerce Commission may from time
time sit with the regional commissions as and when they shall adjudge proj
and regional commissions may hold joint hearings with State railroad comu
sions or similar regulatory bodies in the States of their respective dist
in such cases and subject to such rights and powers as are provided in this
for the Interstate Commerce Commission to sit with such commissions, subir
however to the right of review by the Interstate Commerce Commission
herein provided.
The regional commissions shall have authority to hear and determine
complaints arising in their respective regions and to make reports thereoi
the Interstate Commerce Commission, such reports during a fixed period to
subject to exceptions by any of the parties, as in the case of reports made
masters in chancery. If no exception is filed within the time limited and if
not otherwise ordered by the Interstate Commerce Commission, the orders
findings of the regional commissions shall automatically go into effect.
there are exceptions or the Interstate Commerce Commission should consi)
the issue involved of sufficient importance to so order, a hearing shall be
before it on such exceptions or on the matters made subject to reconsiderat
by its order, and it may thereafter make such further disposition of the ¢
as it sees fit, and the orders of the commission in such cases shall have
same effect as now provided by law in respect to its orders. ,
Now, as to the fourth section: Gentlemen, you are here endeav
ing to work out constructive legislation which will enable the 1
roads to transport the commerce of the country most efficient
You are striving to frame laws which will insure to those railrot
a healthy existence in order that they may perform this task. Y
are also carefully safeguarding the fundamental American princi)
of free*competition as far as is consistent with efficient operati
At the same time you are interested in the development and in’
building up of our merchant marine. There has been consider)
said about the coordination of rail and water carriers, and the qu
tions from you have indicated your interest in that subject. ¥
have all of those interests that you have to weigh in the delice
|
= oh
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 417
jalance of justice in framing your legislation. I think, then, that
ive might for a few minutes revert to some of the fundamental
»winciples as applied to the long-and-short-haul clause. There is
\ popular fallacy that every higher charge for a shorter haul than
'3made for a longer haul constitutes an unjust discrimination against
-he community at the nearer point. It is difficult for the layman to
\2e, for example, why a charge of 45 cents by a railroad to transport,
_m article from Philadelphia to Petersburg, Va., is not an unjust
Iscrimination against Petersburg if the same railroad charges 40
ents to transport the article through Petersburg to Norfolk, a few
ules farther on.
| Now, if by forcing a railroad to comply with the fourth section
ye could enable the receiver at Petersburg to get his article for 40
_ents instead of 45 cents, or if we could compel the receiver at Nor-
/ollk to pay 45 cents for his article, the same as the Petersburg man
oes, then we would have removed whatever discrimination there
‘tas there, but if that article may still be carried from Philadelphia
.) Norfolk for 40 cents by another rail carrier or by water what have
fe accomplished when we deny to that carrier the right to charge
\0 cents to carry it to Norfolk? You say it may force the carrier to
‘ywer the rates to the intermediate points. The application of that
\rinciple would mean a lower level of rates all along the line and
| general revision downward of the rates, which the carrier in most
ases could not and would not afford, or it has the option, it might
orego the traffic at Norfolk. What effect does it have on Peters-
wurg? If this was a very important element of traffic to the carrier,
'y having to shut out that traffic it will have practically as great
‘Spense as it had before and it will have to make up its expense in
‘2Venues somewhere and it might have to raise the rate above 45
onts to our friend at Petersburg. In other words, the Petersburg
‘lan is simply compelling the carrier to forego some traffic and to
jave some disadvantage without himself gaining an advantage.
“hat is the principle under which the fourth section is to-day ad-
‘umistered by the Interstate Commerce Commission.
| Before going on with that further, I would say this: I do not be-
| eve that I would favor leaving the fourth section as it now stands,
aving the Interstate Commerce Commission free to handle it under
S$ present limited power. I do not believe that I would feel free to
,0 that were it not for the provision in this bill that the commission
as the right to fix minimum rates. It is true, gentlemen, that
jlere are many cases where the carriers have come in and made
wes so low as not merely to compete with the water lines but as
) throttle them and to drive them out. We want to be fair to the
jater lines and at the same time we want to be fair to the carriers.
(; May not be right to deprive the carrier absolutely from trans-
orting freight between two great ports; it may cripple that carrier.
''e want to be fair to the carrier and at the same time we want to
)) fair to the water line, and we should prohibit that carrier putting
| rate so low that the water lines can not compete with it. With the
Wer given to the Interstate Commerce Commission to prescribe
‘Inimum rates and the power to use its judgment and discretion
)\ to how far a carrier may go in departing from the fourth-section
| quirements, I believe that you have there sufficient provision of law
id that it will be properly and efficiently administered.
152894—19—-vor, 127
1
418 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP,
The general policy of the railroads under former conditions has
been to preserve as much as possible free competition to the indus-
tries located on the line of the railroad and in the various consuming
territories. The railroads want to see the industries on their lines
prosper. They want to see them move traffic, and they want to see
them distribute over a wide territory. At the same time the greatest
benefit to the consuming public is for the consuming public to have
a wide range of markets in which they may buy their goods. Wide
distribution is the main advantage in preserving free competition.
in the general lines of commerce. The carriers have pursued that
in many ways, and I mean to give you a few examples. I gave one
example before the Senate committee and I am going, at the risk
of repetition, to mention it here.
The southern part of the United States constitutes what is known
as the yellow-pine belt. A great part of that country was formerly
largely a pine wilderness. The great consuming market for yellow-
pine lumber is north of the Ohio River and east of the Mississippi.
Rates were made, blanketed, from various parts of the territory
‘n the Southeast to that territory. Rates were made by the carriers
‘nthe Southwest which did not quite, but almost met the level of rates
over a wide scope of territory. In cases they violated the fourth
section technically, but what was the result? It enabled a develop:
ment of the timber, the cutting away of the timber not merely in
Mississippi, which stood near to the consuming territory, but in
Texas and in Louisiana and in Florida, a widely distributed terri:
tory. That gave to the northern markets a wider range of terri:
tory and a wider competing market. It enabled the South to be
transformed from a wilderness into a garden spot. If they had a
straight mileage scale there, Texas would still be a wilderness,
Louisiana would have been undeveloped, and the pines would have
been denuded from Mississippi and Alabama. | :
That policy of meeting the competition sometimes by the longer
line, because of the competition of much shorter lines, has bee
necessary in carrying out this policy which has resulted in the devel-
Take sugar. The beet-sugar industry out on the Pacific coast
could never have been developed but for the fact that the railroads
Co,
that were at the Atlantic seaboard and at the Gulf ports.
Not long ago I had the good fortune to attend the National Con:
ference of the State Manufacturers’ Associations. I believe there
were 16 States represented. They represented every manufacturing
State in the Central West as well as New England and the seaboarc¢
terrrtory. The interior manufacturers were Just as much interestec
in preserving the fourth section as it is to-day as were the New Eng
land men. Why? Because it enables them to compete at poin
where otherwise they could not compete. An Ohio manufacture:
may want to distribute goods at Savannah, Ga. He may want t
compete with a manufacturer in Boston, Mass. If the railroad
enable him to do it, is the public hurt? Not unless the railroad
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 419
parry that freight at an unreasonably low rate—at such a low rate
fis not to be compensatory. I will come to that in a minute. These
jnanufacturers were unanimous in their opinion as to the matter.
} ‘The shippers in Oklahoma and some of those in Arkansas have
een rather in favor of an absolute fourth section provision. We had
, meeting of the Southwestern Industrial Traffic League on the 8th
| f this month at Dallas, Tex., at which time there were present repre-
entatives from Oklahoma, Arkansas, Louisiana, and Texas. We
iyent into this and we analyzed the situation. They came to the
\Manimous conclusion that the fourth section should be left as it is.
) Another reason why a great many of the small manufacturers are
/nsistent upon the fourth section being left undisturbed is because it
‘vill put them at relatively small disadvantage as contrasted with a
wig industrial concern that has a number of plants scattered all over
he country. A manufacturer who has a plant at only one place
\yvants to distribute over as wide a territory as he can. He is natu-
jally at a very great disadvantage, any way you figure it, with a
jaanufacturer who has plants in different sections of the country.
| he policy of the railroads—as, for example, in the Beet Sugar case—
jas been, and I think wisely, to protect these small men and give
‘hem wider markets to go to. The public has gotten the benefit from
't, because frequently on a given commodity the freight rate would
e such that they would have a monopoly in some parts of the coun-
|ry, and the consumer would pay the bill. So I believe it is for the
/aterest of commerce, the interest of the manufacturers, the interest
| f£ the producers and of the consumers that this be left to the adminis-
‘ration of the Interstate Commerce Commission, as it is now admin-
jstering it.
| The Crratrman. That is, with the right to fix the minimum?
| Mr. Fursrienr. With the right to fix the minimum; yes, sir. It is
'0 the carrier’s interest, as I suggested before, and I am going to
pive you an illustration. From New Orleans to San Antonio it is
; #1 miles by the Southern Pacific line. That is a direct route over
‘n old, well-established, profitable line of road. Some 10 years ago
‘he Gulf Coast lines were constructed from New Orleans west.
/arough Houston and thence southwest to the Rio Grande border.
| hey were small lines which had been operating independently for
)ae last few years and, of course, they had those difficulties with
hich weak lines are usually confronted. San Antonio was an im-
‘ortant consuming and producing community and so was New Or-
ans. One hundred and thirty-three miles south of San Antonio
/ nother independent line—the San Antonio Uvalde & Gulf—running
jut of San Antonio, crossed the Gulf Coast lines. It was 716 miles
‘tom New Orleans to San Antonio via the Gulf Coast lines, the San
ntonio, Uvalde & Gulf; we call it the “ Sausage ” down there. With
authority to meet that competition the Gulf Coast lines participated
/1 that traffic and put on a service from New Orleans via these other
‘nall lines which gave better service to the public a good part of the
me, on the average, than had been rendered theretofore by the
outhern Pacific line. They went into the competition and they
ot a share of the traffic. It became an important element of traffic.
)2 order to do that they had to charge a less rate at San Antonio than
ney charged at intermediate points on the San Antonio, Uvalde &
42.0 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Gulf or, going in the opposite direction, at intermediate points on
the Gulf Coast lines. It did not hurt those communities. The San
Antonio, Uvalde & Gulf was a small line and it was just barely pay-
ing operating expenses. The bringing of this additional traffic to it
was like a lifesaver to a drowning man. It enabled them to more effi-
ciently serve the communities on their line; it prevented them from
the necessity of demanding from the local communities higher rates
than they were then paying, and it was a benefit to everybody con-
cerned. If you want to help the weak lines, a good way to help the
weak lines is to permit a judicious use of the fourth section, and use
of the fourth section proviso. When it enabled this line to come in
and compete with the other lines and to take part in that traffic the
intermediate communities were better off because they had a line
which could give them better and more regular service when getting
more traffic. :
How could a railroad afford to do that? An increase of a given
percentage of traffic does not mean an increase of the same percent-
age of expenses. In the first place, one of the largest elements of
expense is the expense of maintaining the right of way and strue-
tures of a railroad. That is constant. Of course, an increase of
traffic may increase it, but it will be slight, and. similarly, main-
tenance of equipment does not increase in expense with the increase
of traffic, and the increase of train operatives does not, because you
get a better train efficiency if you haul 100 per cent efficient instead
of 90 per cent efficient. I just at random opened up, day before yes:
terday, a volume of statistics for 1914—the commission’s statis-
tics—and one for 1916, and on the first page I took the Erie Rail
road. I found in 1914 their operating revenues were $52,000,000--
I have the exact figures here but I will only use the round figures—
and in 1916 they were $65,000,000, or 25 per cent more. The increase
in operating expenses was less than 15 per cent greater, and the
maintenance of way expenses were practically the same. In fact.
it was a few dollars less in 1916. The maintenance of equipment
was 16.1 per cent greater, although they handled 25 per cent more
traffic, and I verified that by looking up the tonnage, and saw that
they did handle 25 per cent more traffic. The traffic department
expense was less in 1916 than in 1914, and the general expenses were
2.8 per cent greater in 1916 than in 1914. The general transporte
tion expense, which includes materials, supplies, all of the labor
cost, the wage cost, had increased 22.9 per cent. That element of it.
you see, increased nearly in the same proportion as the increase iP
traffic. :
Mr. Srus. An increase of 22 per cent?
Mr. Foursricutr. That was contrasting 1914 with 1916. The br
crease in traffic had been 25 per cent, but in no element of expensé
had their increased expenses been 25 per cent. .
T took another road, the Chicago & North Western—taking a west
ern road that is not quite so prosperous as the Erie—it does not have
the same density of traffic, and I found 10 per cent increase in thos
two years. I found that the increase in the expense was less than ¢
per cent to take care of the 10 per cent increase in the traffic.
One of the small weak lines in the Southwest a few years ag
made a calculation as to how much it would increase their operatins
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4921
‘expences to have a 20 per cent increase in traffic. I was connected
with that line. We were figuring on the proposition of getting in on
some additional traffic. We had to take a rather small division to get
some of the traffic and we were wondering if we should take that
division. We made an analysis of our conditions. We found that
our freight trains were about 80. per cent efficient, that is, handling
‘bout 80 per cent as much as they should handle, that our mainte-
lance of way expense would not be increased, that a number of ele-
‘ments would be increased slightly, and we came to the conclusion
‘hat with an increase‘of 2 per cent in operating expenses we could
‘ake care of 20 per cent additional traffic. Needless to say, we profited
oy taking on some more traffic. That is exactly the case that you have
detween these ports. You may have a case where the line has to
(forego some traffic. If it can add that traffic and thereby economi-
tally perform the service it can afford to do it at a lower rate. So
far as the Interstate Commerce Commission does not permit that
oad
_Mr. Sims (interposing). The railroad was carrying that freight
it simply out-of-pocket cost?
| Mr. Fursricut. No; we were carrying that freight at a lower
sate than it was being transported generally on our line, but at the
same time it was being carried at more than the out-of-pocket cost.
We simply took a division which would not be attractive to us under
other conditions.
Mr. Srus. Under the law they had a right to make a rate which
vas just equal to the out-of-pocket cost? 7
| Mr. Fuericut. The out-of-pocket cost is an exceedingly elusive
erm.
Mr. Sims. So we understand.
Mr. Futprient. It all depends on what the operating and trans-
ortation conditions are on the line. A great deal depends upon
vhether it is adding some traffic or taking the traffic as a whole.
The Interstate Commerce Commission in adjudicating the fourth
ection in the early days—I do not believe that the policy of the In-
erstate Commerce Commission was at all times the best. I think
hat the commission themselves realized that that was true. That is
nade manifest by the fact that they have changed their policy. In
he first place, the original fourth section, of course, was not worth
mything because it contained the words, “under similar circum-
tances and conditions,” and the commission could not do anything.
n 1910 it was amended and was left to the discretion of the commis-
ion. There were some 5,000 fourth-section applications filed within
he time prescribed in the original order, and of those the commission
tas been working away and has finally disposed and adjudicated
ome 38,000. It is still at work on them. It is a tremendous task.
t will not be performed in a day or in a year or in five years, but,
jentlemen, they are performing it in such a way that they do not by
‘ne fell swoop arbitrarily disturb the conditions of industry. That
8 what an absolute fourth section would do. Originally, they used
‘0 consider potential water competition as. justification for a carrier
0 put down a rate, and if the actual water competition came into
xistence they did not have the authority to say what the minimum
ate should be. They have now come to the policy of not only re-
4922 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
quiring that the possibility of water competition be shown but that
it be shown actually to exist and in sufficient volume and importance
to constitute an element which the railroad must reckon with in the
controlling of traffic. So far as that policy is adopted, I submit that
it should not be disturbed. They have in connection with that at
all times considered the matter of unjust discrimination, as to
whether or not any community is put at such a disadvantage by
reason of this that they are crippled in the performance of their
functions.
_ I think the present policy of the Interstate Commerce Commission
is really gravitating toward an absolute fourth section, but at the
same time there are many cases where the commission can propertly,
and does properly, permit one carrier to compete with another car-
rier by lowering the rate to meet the competition and thereby help
that carrier when otherwise that carrier might be crippled. That
certainly does not hurt the man at the intermediate point, but it
enables him to get better service, and he could not get a lower rate
anyway at that point. That is usually the case.
Now, the commission makes analyses of these cases. It does not
arbitrarily decide them. They go very carefully into them. I spent
nearly two weeks in submitting evidence and taking part in the tak-
ing of testimony in one fourth section proceeding. That gives you
some idea of how thoroughly the commission goes into the individual
cases.
I believe it is proper for you to leave the fourth section as it is. I
trust, gentlemen of the committee, you will endeavor to see to it that
the Interstate Commerce Commission is permitted to go ahead and
administer it just as its judgment shall dictate. 7
That is all on that point. I have a few other remarks I would like
to make. .
The Cuairman. Very well, Mr. Fulbright. How much more time
will you need to finish your statement 4
Mr. Furericut. I do not think I will be more than 20 or 30
minutes, Mr. Chairman. |
The CHairmMan. You may proceed.
Mr. Fursricut. I will try and hurry through, Mr. Chairman.
I dwelt at some length on these two points because I had not had
opportunity to talk to you about the fourth section. I know you have
had a great deal of information on the subject, but I wanted to @x
press the sentiments of our section. |
On the Esch-Pomerene bill I stated I trusted the provision giving
the commission jurisdiction over the rates of water carriers would
be eliminated, that it be left as it was before in that respect.
Mr. Rich stated, in a general way, our feeling on that question.
The sea is a public highway; anybody can run his boat over it any-
where. A large shipper, handling a tremendous volume of a given
traffic, can have his own fleet of boats and operate them as a private
carrier. I have in mind one instance of a company located in my
town, Houston, that is contemplating owning a fleet of boats to make
shipments to Boston and seaboard points—just its own shipments
That, of course, is a natural advantage which they may enjoy. Now
if the Interstate Commerce Commission fixed a rigid scale of rate
they would have to be published rates, they must be published, no
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 493
between certain limits, but you have got to publish exactly what the
‘rate is. If that rigid scale of rates is fixed that scale is going to be
higher than is oftentimes available to the small, independent ship-
“pers; but this concern I speak of will not be hampered by that and
‘they will get a greater advantage over the small concern than they
would get if they were left free to have competition in ocean rates
“and in water rates. |
| The Cuarrman. But the other concern is not a common carrier.
Mr. Fursricut. What is that?
The Cuarrman. The private owner is not a common carrier.
_ Mr. Fursricut. I know it is not a common carrier, but that com-
pany can not put a trainload of goods on a railroad track and trans-
port it from Texas to Boston, or vice versa. It can not have a private
train to transport the stuff at its expense. Therefore they can not
‘get an advantage by rail transportation, but in water transportation
there is always an advantage to the big shipper. This advantage will
be augmented in my opinion if the regulation of water rates is placed
under the jurisdiction of the interstate act. I believe that question
ean be left properly with the Shipping Board, which deals with water
transportation subjects.
' The Cuarrman. Have they dealt with it?
Mr. Fursrient. No; they have not. As you know, the Shipping
Board has not got very much organized. There has been a war on,
‘and so many things, that they are still in the formative stage.
“We speak of coordination of rail and water transportation. Gen-
tlemen, there is a certain kind of coordination that certain of our
‘railroad friends would like to see. They would like to see rates put
‘Upon a straight all-rail basis between all ports, thereby giving them
‘absolute Fourth Section with the rates all at the highest level. Some
‘of our railroad friends would like to see that; but we believe the
shipping public should be considered in that connection and that
‘competition should be left free on the water. Then there is the
tramp-steamer competition that you are not going to be able to con-
trol. Some Swedish steamer will roll into Boston with a schooner
of lumber from the Gulf coast, and it is going back to Florida, or
some other place—any place to which it can get a cargo. It will bid
for that traffic and get a certain amount of that traffic. We are not
able to control and effectively to regulate a set basis of rates in the
case of water carriers as we are in the case of rail carriers. I do not
feel that the jurisdiction should be extended to water carriers under
the interstate commerce act. I believe the Shipping Board, as its
policies are formed, will not endeavor to run the country or destroy
the good work the Interstate Commerce Commission is doing. I see
no reason why these two governmental bodies, both under the juris-
diction of the Federal Government, may not work harmoniously and
May not coordinate the transportation systems. As to coordination
in the-way of providing sufficient terminal and dock facilities, that
ower is conferred upon the commission in the Esch-Pomerene bill.
_ There is one other feature of the bill I want to mention. On page
12 of the bill it is stated:
- The commission may require the terminals of any carrier to be open to traflic
»t other carriers upon such just and reasonable terms and conditions, including
just compensation to the owners thereof, as the commission, after full hearing
pon complaint or upon its own initiative, may by order prescribe.
424 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Gentlemen, that is a very broad power. JI have had great difficulty
in bringing myself to agree with any part of it. That may be because
of my former training. But I would say this, when it comes to
freight depots, team tracks, and facilities of that character, I do
not believe you should endeavor, even with a just compensation clause
hung on it, to force a carrier to give up the use of those kinds of
terminals that it has provided for the public it serves.
What I primarily want to reach there is the difhculty we contra
where an industry is located—it has to be located on some railroad’s
track—we will say, on the Rock Island, where the Rock Island is
serving that point where it is situated, we will say Des Moines, and
also serving Chicago; and the Burlington serves both points. Nov,
the Burlington will not switch that fr eight, on a through rate, to this
industry, and an industr y located on the Burlington tracks would be
similarly dealt with by the Rock Island. I believe in the power to
fix divisions the commission should have authority to give to° m-
dustries which are located on an industry track the right to get ship-
ments from other lines, thereby giving the industry greater “jatitude
in routing shipments.
Now, it is hard to distinguish in principle between that and the
objection I have just made. I should say it is one of degree, but there
is still a difference. The industry on the industry track has its own
track; it can not be crowded out; it is only going to use the shipments
that it receives and sends out anyway. But the team track, over here}
has to give space that that carrier has acquired in a city for the pur;
pose of servin g its patrons and if you are going to turn the other road
in on that too, it may run out the owner of that track and cripple it
in the use of its own facilities; it may be inadequate to serve theni
both. I think they should be compelled to furnish their own freight
facilities for the use of the general public.
There are some other distinctions which I will not go into or dis-
cuss now, but I really feel that should be qualified to some extent so
as not to apply to team tracks and general public unloading tracks,
depots, and facilities of that character in a city; and for private
spurs, sidings, and so forth, I believe it would really be good poliey
to leave the jurisdiction as it now stands in the proposed bill.
I want to say this word further about the weak lines. Under the
provisions for fixing divisions by the Interstate Commerce Commis-
sion you are there enabling the commission to very effectively assist
the weak roads; also under the car service amendments you are assist-
ing the weak lines, and in the provision I have just mentioned, if the
weak line has inadequate facilities and does not serve many industries
im a given NR it may have the right to have its shipment
switched over to industries on these other tracks, you are giving it
very material aid right there, because while it pays due compensation
therefor, you are placing it where it can get more traffic. Those
things are very effective measures to help solve the weak line problem.
Then your provision for consolidation and merger is also a ste
in the right direction and will permit, in many cases, these wea
lines to be tied in with systems to which they will really be of some
benefit, whereas standing alone, without affilations, they can not do
very much.
The Cuarrman. Mr, Fulbright, we can perhaps give you 15 or
20 minutes in the morning.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.’ 425
Mr. Sms. Mr. Chairman, in the morning I would like to ask Mr.
ulbright some questions bearing on the fourth section.
The Cuairman. We will have another witness in the morning,
at we can probably give you half an hour, Mr. Fulbright. The
»mmittee will adjourn until to-morrow morning at 10 o’clock a. m.
‘(Whereupon the committee adjourned until to-morrow, Friday,
‘ugust 1, 1919, at 10 o’clock a. m.)
CoMMITTEE ON INTERSTATE AND Forrr¢N Commence,
Houser or Representatives,
Friday, August 1, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
an) presiding.
STATEMENT OF MR. R. C. FULBRIGHT, OF HOUSTON,
TEX.—Resumed.
The Cu4rrman. Mr. Fulbright, I think there was to be some cross-
amination this morning.
Mr. Fourericur. Mr. Chairman, before that I would like to say a
w words with reference to some suggestions made by Mr. Rich.
The people in our section are decidedly not in favor of the con-
imation of the Government guarantee of compensation after the
ads are returned to their owners. We believe if they are turned
\ck they should be turned back and not put in control and in the
'nds of their owners with the Government, either for a year or a
nth or any period, stating that the compensation agreement will be
tried out and continued while the roads are being operated by their
ners.
|Mr. Rich’s plan has some things that appeal to me. In the first
)4ce it is a plan that looks to the future. My idea is that your
oblem in any reconstruction legislation is a problem to provide
\¢ the future and not to disturb investments or conditions as they
| ve
\U do not believe that his plan, if adopted, would be very generally
jailed of; in fact, the less it is availed of the better 1 would be
jisfied with it, as this would indicate little necessity upon the part
| the lines to avail themselves of it. Of course, we are always going
| have some weak lines. We will always have some lines that do
> have the most efficient management. We have the principle of
)) Survival of the fittest applying to the carriers just as it applies
‘any other business. Some of them have been built in the wrong
ce; some of them have been built for the wrong purpose. Those,
/ Vever, are comparatively a small percentage of the mileage. They
. Sporadic instances.
‘As a matter of fact, as I suggested yesterday, the Esch-Pomerene
_ will, to a large degree, take care of the troubles of the weak
is. In the matter of regulating divisions, in providing for access
‘industries on the terminals of competing lines at their competing
| nts, and in preventing depressed rates being put into effect by the
| te authorities, for as I interpret the bill, an investigation of dis-
496 ° RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
crimination between State and interstate rates can be made by tl
Interstate Commerce Commission upon its own motion. The bi
says that in any proceeding in which the issue is raised that there
a discrimination between interstate and intrastate rates the commi
sion shall follow a certain procedure. To my mind that is importa
now. Some of our adjustments are not what they ought to be. Son
further increases may have to be made before the roads are turng
back, but it would certainly be disastrous, if the roads should |
turned back to their owners, and overnight the State commissions (
the various States of the Union should say that the rates “ that y
prescribed ipso facto go back into effect.” If by putting those rat
back into effect, they create a discrimination against interstate con
merce, the Interstate Commerce Commission can put a check to it,
The Cuarrman. Under this bill it would become unlawful.
Mr. Fursricutr. It would become unlawful, and as I conceive th
bill, the Interstate Commerce Commission can step right in_then.
Now, as to the rates that are in effect upon the termination \
Government control, I do not believe there should be any legislatp
provisions making those rates continue as reasonable rates. ‘Tho
rates, I believe, should be recognized, however, until set aside |
some regulatory body, either upon its own motion and investigati
or upon complaint. In other words, it would be disastrous to the ea
riers to turn them back with the contention open that the old bas
of rates thereby went back into effect.
We all know that the conditions of transportation and the ¢
penses of operation have vastly increased.
The CuarrMan. Would not the intrastate schedule of rates as &
isted prior to Federal control become practically unlawful und
the terms of this bill?
Mr. Fuuerrient. I should think so, on the theory, Mr. Esch, th
to put that old schedule back into effect would create a discriminatio
The Cuarrman. The spread would be so big.
Mr. Futpricut. Yes; it would be a rank discrimination on the sa
of it. Asa matter of fact, I do not believe that is the principle or t
policy that will be followed by the State commissions, for they ¢
tainly have realized that conditions have changed immensely, @
they have, as I see it, come to realize that the day has come for the
to cooperate and work with the interstate regulatory body. q
Now, as to the Rich plan, I am not in favor of a Governme
euaranty whereby there is a possibility of the holder of obligato
putting his hands into the United States Treasury and taking
of there money that has been collected by taxation from the peop
of the United States.
I believe that if a plan of assistance is worked out whereby, und
vise guidance of some body such as the Interstate Commerce Co
mission, perhaps with the advice and consent of the Secretary
the Treasury, they could assist in the financing of new undertakin:
or improvements upon roads along the lines suggested by Mr. Ru
and let the excess payments made out of the excess earnings
other lines be considered as a guaranty fund, and the guaranty
the Government be not a guaranty of the Government but
guaranty confined to that fund. We would then avoid what
conceive to be the most serious objection. I do not think it is nec
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 427
ary to guarantee the principal of the obligation. As a matter of
act, that is the way I originally understood that plan—that it was
‘guaranty of the interest payments upon the bonds that would be
sued under the authority of some regulatory body. :
_ We have some precedent and some reason, I believe, for requiring
f the carrier some division of its earnings above a given return;
iat it be paid into the Government, to be expended by the Govern-
‘ent as the Government sees fit, for while that is the earning of
at carrier, which, say, has earned 15 per cent on its stock during
given year, at the same time that is collected for a public service
nder the order and direction of the Government in approved rates
iat have the effect of law. The money is taken from the public.
ow, the difficulty, of course, comes that in making a distribution
f that and by putting it in this guaranty fund, if it be applied
) pay the interest payments on the bonds of some weak lines, one
mamunity is paying in money to help out another community and
’ ° it a more efficient transportation service.
| Of course, you can reduce that argument to an extreme, and you
ill find that as a matter of fact one community to-day is paying
i vast sums of money to our Treasury to finance and assist the
/overnment in undertakings for the benefit of other communities.
|hat is the effect of the Federal assistance in good roads and in
‘her matters that we might mention.
‘Mr. Denison. The income tax does that, does it not?
| Mr. Fursricur. The income tax does that. So, I do not see that
iat 1s an insuperable objection. My thought is, however, that if
(iat division of earning above a certain return be collected from the
litriers, that that stands solely as a guaranty fund and that the
overnment not be held responsible beyond the fund that is so
} eated.
| There are some difficulties about this plan, however. Some of them
jere suggested yesterday. Suppose a road goes into the hands of a
ceiver and has outstanding certain bonds upon which the interest
turn is guaranteed by the Federal Government; that is, by this
jlaranty fund. What would be the status of the claim on the earn-
\gs of that road? Now, that will have to be given thought in any
|gislation that is provided. Of course, the ordinary bondholder has
\first claim upon the earnings of that road which have accumulated
‘lor to the receivership, subject to the equity rule of priority for
pplies and labor furnished within a reasonable period prior to the
te of the receivership. Then, during the receivership, what is
/ ng to be the status of the claim of the Federal Government on the
|rnings during the receivership ?
‘It seems to me that whatever plan we adopt we have got to pro-
le that the Government has some claim upon the earnings of that
‘ad in order that it may apply them to the payment of the interest
\1on the bonds which stand under this guaranty.
I have not gone into it carefully, but I suggest that those are dif-
ulties that might be worked out upon some basis; at least, the plan
‘Il have this effect: It will free weak lines from what is some-
nes a very undesirable domination, we say, of the bankers, but it is
nerally of some promoters and speculators. But sometimes bank-
)z houses and trust companies provide most unreasonable require-
428 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ments for weak lines. Sometimes it may be to the interest of othe
interests in connection with that house that this weak line be cripple
so that it can be easily taken over bv some other line. There is a pos
sibility of those kinds of manipulations. Now, if it be known that.
road in need of improvements to perform its public service, and wit
a reasonable hope of earning a return upon its investment by thes
improvements being put in, can go to the Government and get t
Government to ouarantee the interest or apply this guaranty fund ¢
the interest on “its bonds, that will have a very salutary effect au
give to the weak road a little bit of independence, which they do n
now have when they go to the financial markets.
The greatest problem of the weak road is in financing; it is In 4
ting money to help it along. Mr. Rich was correct in his analysis 0
that problem. Now, since this looks only to the future, as I conceiy
there could be worked out some plan that would be of material assis
ance to them, and I have decided to ask Mr. Rich to give thought t
some of these points and suggest to the committee a form of bill
that you may have something definite before you to consider in cor
nection with it, because I really believe he is hitting upon a a
important point, with those safeguards.
I believe that is all I care to say.
Mr. Sims. Mr. Fulbright, you have brought in this morning a mat
ter which I wish to ask some questions about that I did not thin
yesterday I would ask you about. You are familiar with what
called the Cummins bill, are you not? ;
Mr. Fuuericut. Yes, sir.
Mr. Sus. That provides that the power of suspension withou
limitation be restored to the Interstate Commerce Commission upo
the approval of that bill. What have you to say as to whether 6
not the roads should continue further under Government control i
the Cummins bill should pass? In other words, why should not th
roads be returned immediately to their owners as soon as we give th
Interstate Commerce Commission the power to suspend rates initiate
by the Government.
Mr. Fursrient. Really, the general shipping public in my ter
tory would feel like the sooner the roads were returned to thei
owners the better they would be satisfied. My personal opinion ©
that, though, Judge, would be that some more general form of legii
lation should be enacted before the roads are turned back into #
hands of their owners.
Mr. Sims. That would not prevent legislation from following. —
Mr. Fursricut. No; it would not prevent this very bill, and eve
the suggestions that have been made here by the various advocates.
Mr. Sus. And there is a demand from all over the country f¢
the immediate return of the railroads just like there was for the |
turn of the telephone and telegraph lines.
Mr. Furpricut. Yes; that is very true.
Mr. Sims. If you take the power away from the Governmaltll
protect the Government from further possible deficit by maki
rates, and put that in the hands of a body that is not responsible f¢ fc
the deficit, and does not in any way have to provide against it, is n
that of itself dangerous and bad legislation.
Mr. Futericut. I think the Interstate Commerce Commis h
come to realize, as never before, the need, however, of protecting t
|
|
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4929
ulroads against what might become disastrous and cripple them in
jeir efforts to perform their public function.
Mz. Sims. Then to put it another way, the failure to pass the Cum-
‘ins bill, although generally desired and generally acceptable to the
yuntry, pending Government control, would possibly be fraught
ith much danger of the continuation of a deficit or with greater
anger of a deficit than would be the case not to pass it during Fed-
al control. In other words, as long as the Government has the rail-
vads and has to operate them and does operate them, and the country
rough the taxing power is responsible for the deficit, if any is
ade, if you take the power away from the Government, through
ie director general or the President, of initiating rates which -are
yt subject to suspension, but subject to existing law, to be finally
issed on by the Interstate Commerce Commission, is not that pref-
able to passing this Cummins bill without also putting the respon-
bility somewhere else than where it is. In other words, the rail-
| ads or the security owners, if they are getting the standard return,
|@ contract return, from the standpoint of income, they would be
)riectly indifferent as to whether the rates were suspended or not.
hey are not responsible, and it is not their fault. I take it the In-
‘tstate Commerce Commission and the State commissions would
+ so flooded with demands and requests to suspend every rate made
‘ the Government hereafter that it would make it practically impos-
dle for them to refuse to do so.
| Mr. Forsricur. I think that is a fancied difficulty rather than a
jal one, for this reason: The Railroad Administration’s policy has
idergone a marked change, and there is not now a desire to make
; Many general readjustments. We may have a further general in-
jease. It may be considered necessary before the year closes, and
| at question is now being studied out, of course, but you are not
|ing to have numerous pet theories and numerous readjustments of
|dividual rates to carry out the desire of some railroad traffic man
were floated in upon us during the first year, because the policy
8 changed in respect to that. I really feel that it would be a salu-
ty thing to go ahead and pass the Cummins bill and let the return
| the railroads be set for December 31 under this bill, or whatever
\ll you desire to have. It should be done under this bill with some
anges in it or amendments.
Mr. Sims. Then the Government would have to be responsible for
: y deficits that occurred during that time?
Mr. Furzricur. That is true.
| Mr. Sims. You would have the railroads and their owners in the
jnds and power of the commission, and they would be getting
}3 fruits or the results of their action. If it was good, it would
| luce the deficit, but if it did not reduce the deficit, then the gen-
ul taxpayers would have to make it up. They would have to
ike up the mistakes made under circumstances wherein there
mld be no possibility of the Government getting any benefit. I
‘not opposed*to the return of the railroads, and I am not opposed
‘the Cummins bill, provided it is coupled with the return of the
slroads, but it seems to me that the power to make rates or suspend
es ought to go with the responsibility for the result of that
“lon, whatever it might be. I feel that there would be pressure—
430 RETUKN OF THE RAILROADS TO PRIVATE OWNERSHIP:
and, in fact, I am getting letters all the time myself in regard to the
Cummins bill, but without discussing anything about the result
that might come to the Government
Mr. Fuxnpricut. The reason they want the Cummins bill passed
quickly is simply, it seems to me, that rate readjustments may vir-
tually destroy some industries. I mean if it is passed overnight
without mature consideration. It is not the fault of the Railroad
Administration officials so much, but it is the fault of the system
under which they run through it without giving it mature consid:
eration.
Mr. Sirus. You think that it is prudent and fair and just the
thing to do for Federal control, or those in charge of the railroads
now, to increase rates, not with reference to protecting the Govern:
ment, but in order to have a system of rates or a scale of rates im
existence when the railroads are taken back that the railroads would
feel would guarantee them against immediate and, possibly, ulti
mate loss?
Mr. Furerieur. You are getting at my real reason for wanting
the Cummins bill. I am afraid that might occur. It may be that
conditions would warrant the Interstate Commerce Commission in
feeling that there should be a further general increase.
Mr. Sims. If they make it, well and good, but my idea is to offer
an amendment to the Cummins bill, and I have so stated to the com
mittee, providing that the railroads now under Government control
shall be returned to their owners, and that when that is done furthe
Government liability shall cease. I say that, because it will create
a storm all over this country if the Federal control officials, hae
the power to increase both intrastate and interstate rates, shoul
put into effect a general increase just a month or two before the rail-
roads went back to their owners, and of which they would have the
benefit. If that were done, we would have a storm of protests.
indignation, and denunciation from all over the country, and Mem
bers of the House would not like to bringsabout that condition 1
they can help themselves. |
Mr. Furpricur. I think if it were presented to the Interstate
Commerce Commission, and the Interstate Commerce Commissior
thought that the conditions warranted some further increase, you
would not have a storm of protest on the part of the shipping publie
The country realizes that there is impending some necessity {01
further increases 3 1
Mr. Sims (interposing). Then we would be placing the respons!
bility of initiating rates or increasing them in the hands of a body
in which all of them have so much confidence that there would be
no complaint. Therefore if the commission made the increase,
country would accept it and put up with it, and would not be ae
cusing a lot of former railroad officials, who are now acting for ths
Government, of having done something primarily for the ultimat
benefit of themselves. So I think that the return of the roads ough’
to go contemporaneously with the return of the power—that 1s t
say, when you return the railroads to their owners, at the sam!
moment return to the commission the power to suspend rates or a¢
upon those initiated by the railroads. Then they will be responsi!)
and we will be doing exactly what those who approve so strongl
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 431
8 passage of the Cummins bill want. That is important, and I
ought you would come to that subject. |
Mr. Forsrienr. You may be correct in that, and I am not going
take any violent issue with you upon that proposition |
Mr. Sims. You realize the importance of that?
Mr. Fursricut. Yes, sir.
Mr. Sims. But that could be done without being inimical to this
posed legislation.
Mr. Fuxsricut. I think so.
Mr. Sims. Now, you discussed the fourth section: I had reached
» conclusion that the Interstate Commerce Commission had been
isidering what should constitute special reasons for suspending
» rigid application of the fourth section, and whether it ought to
‘somewhat limited by amendments. The act does not prescribe
} circumstance authorizing the exception. There is no guide or
ndard as to what the commission might consider as sufficient to
tify the allowance of a lower rate for a longer haul in the same
‘ection on the same class of freight and on the same railroad. I
“y be wrong about it, but I do not think that water competition, .
|l or potential, present or prospective, should constitute an ex-
tion within the meaning of the fourth section. You illustrated
vy taking the haul from New Orleans to a certain point in Texas,
n Antonio. Where there isa route both by rail and water, or even
‘ere a part of it was by rail, or where a part of it was by rail and
yart by water, the water part of it, I think, should be eliminated, .
far as the special case is concerned, because in that way the city
it had water transportation that it might resort to or could resort
should have every opportunity to do so, because that is the nat-
thing todo. The service can be rendered in that way at a much
s cost than it-ought to be rendered by an all-rail route going in
Same direction or to the same destination. Another thing, al-
ang the fourth section to apply to water competitive points like -
; Angeles, San Francisco, Portland, and Seattle on the Pacific,
l, of course, to ports on the Atlantic, and permitting the trans-
tinental railroads to carry the freight at a rate so much below
at they could possibly do if they were required to carry all of
ir traffic at the same rate, thereby preventing traflic from going
ough the Panama Canal or by the all-waterway route by which
freight would otherwise go, is not good financing and is not
d policy. It does not permit these water points to make use of ’
actual water service that is given them. Do you not convert a
er line into a rail line in effect by permitting the railroad to.
ra rate that enables it to get commerce that would otherwise be -
er-borne? For instance, let us take the case of Memphis and_
\v Orleans: Testimony was given before this committee at the
| Congress or the Congress before, when we had a long hearing -
‘the Rayburn bill, and when Mr. Davant, who represented a-
| ght association, appeared before the committee
iy. Fursricur (interposing). He is in charge,of the traffic de- .
‘tment of the Memphis Freight Bureau.
‘ly, Stus. There is a railroad from Memphis all the way to New -
eans on the west side of the Mississippi River and ‘another rail-
1 line on the east side of the Mississippi River-all the way to.
°
432 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
New Orleans, and they were permitted to take cotton and othe
freight at such a rate that there was not even a through boat run
ning between those points. There was a great deal of traffic divertec
from the river in that way that would naturally take the river route
Then, there was in this way a considerable unprofitable burden pu
upon those carriers for from 300 to 400 miles of their lines. Then
on the other hand, as I gather it, because potentially or possibly yor
could ship cotton by way of New Orleans by way of the Gulf anc
Atlantic to Boston, New York, Philadelphia, Baltimore, and Nor
folk, the railroad companies were permitted to carry cotton fron
Memphis by way of Cincinnati and Pittsburgh, and otherwise, t
those ports at a rate substantially the same as the water rate. I
was argued that you should permit those railroads to carry the cot
ton at such a rate as would enable them to take the cotton or a par
of the cotton shipped from Memphis to the eastern seaboard port
where it would otherwise go by water. ey
The railroad companies, on the other hand, made a blanket rate
which, I think, you indorsed, or established blanket zones or blanke
districts. This division runs north and south about on a line witl
Denver. They make a rate from Los Angeles and other Pacific port
to Denver on certain articles. As I remember distinctly, they mak
a rate on lemons and oranges, on which the carload rate was $1.15
Yet, if that same carload of freight is shipped at the same time fron
Los Angeles to Boston, it will go from Los Angeles to Bosto
through Denver for $1.15. It will be carried to New York or Phila
delphia at the same rate, and it will be handled by several railroad
for practically three times the distance. In taking it to these easter
points, it will be carried three times as far practically as it would b
carried in taking it to Denver or to points of similar distance. Now
if that was a reasonable rate, and only a reasonable rate, from th
terminal ports on the Pacific to this Denver line—if, I say, that wa
a reasonable rate, good heavens, what kind of rate is the $1.15 fo
nearly 3,000 miles, and that. rate to be divided up between all th
carriers that participate in the performance of that service? Now
do you think that such a rate as that ought to be permitted unde
any circumstances ?
Mr. Fuusricur. Judge, I dislike very much to disagree with you
but I disagree with every point you have made.
Mr. Stus. That is a fair way to put it. ;
Mr. Fuuericut. In the first place, and beginning with the beg!
ning of your suggestion, if you are to deprive the rail carrier fror
handling any of the traffic where it might be moved by water in orde
that the merchant marine may be built up, you are necessarily goin,
to seriously cripple some rail carriers, because you will take a lot 4
traffic away from them that, added to their present traffic, will enabl
them to handle all of it at lower level of rates. On the other hanc
T do not agree with you in this, that the railroad operating betwee:
Memphis and New Orleans should not have been permitted, an
under this proposed law they would not be permitted, to fix ther
rates at a level that would destroy water transportation. We wall
to preserve both. We want the railroads to be efficient and the wate
lines to be developed efficiently. We want to see traffic go back 0
the Mississippi River like it was in days long ago. The rates shoul
I
* RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP 433
aot be reduced to a point where the lines can not profitably operate.
For example, there was a rate of 12 cents on sugar from New Orleans
to Memphis, and a boat can not handle it for that. You can not have
any water transportation at that rate. You should put up the rate
‘om sugar to whatever the differential should be over what would be
ireasonable water rate, or up to a point where it would enable the
water transportation to be developed. The railroads then ought to
de permitted to go into that traffic and not be shut out of it. Other-
wise you will seriously cripple the railroad by taking away a large
yulk of its traffic, which, spread out over its entire service, helps it to
nove the local traffic at less expense. You can not point out an inter-
nediate community in the country that requires an absolute fourth
ection.
Mr. Srus. What have you to say in regard to the proposition of
lowing them to absolutely prevent the development or building up
f interior markets or industries?) Manufacturers, for instance, must
‘o where they are served to the best advantage. The result of that
yolicy is that you are over-developing certain favored points and
nderdeveloping other points that are in competition with them. That
true, because you would not, I would not, and nobody else would
ovest in a manufacturing enterprise at a point so discriminated
gainst. If you had $1,000,000 to invest in such an enterprise you
rould not go to Reno to make your investment, although the local
onditions might be desirable. You would not do it, because vou
ould get so much better service and so much better rates at San
/rancisco, Seattle, or some other seaport. The result is that you are
reventing the development of interior points. For instance, take
1e case of Jackson, Tenn., where there are two railroads running
rom the Lakes to the Gulf, or from St. Louis to the Gulf, passing
ough there. A Jackson manufacturer can not compete with a
lanutacturer at Memphis, Tenn., which is only 80 miles away, be-
vse they do not get the benefit of this discrimination in favor of
le manufacturer whose factory is situated where there is actual or
ossible competition. Now, why is it that Jackson should not be
armitted to build up according to its natural surroundings and con-
itions? Memphis is by nature, of course, more favored, but why
iould you permit the railroad to take from Memphis that natural
mdition and give them in place of it an artificial one? At the same
me, every town on the Illinois Central Railroad or on the Mobile
Ohio Railroad gets less favorable consideration, because the rail-
ads have got to make revenue or reasonable earnings on their en-
te investment out of all of their operations. How do you justify
thing like that?
Mr. Foutsricur. You do take away traffic that would move on the
ississippi River, but so long as you have real competition on the
ver, or boats going up and down the river, that is proper. Other-
ise you would cut into the amount of traffic that the Illinois Cen-
ul Railroad is handling, and Jackson, Tenn., would have to pay
high a rate, or, maybe, higher rate in order to enable the Illinois
mtral Railroad to pay a fair return on its investment. On the
her hand, Memphis and New Orleans, having boat competition,
ould still get a lower rate. They would still have all the advantage
/ey ever had.
152894—19—vor. 1
(
28
434 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ~
Mr. Stms. But you give Memphis a rate so low that a boat car
not live.
Mr. Fuupsricut. I agree with you there, and if this minimum rat
provision is put in there, that condition will be stopped; but do not
undertake to lay down a hard and fast rule.
Mr. Srus. I do not see any use in taking money from the publi
or the taxpayers’ pockets by the millions of dollars in order to maki
the Mississippi River at least, theoretically, a navigable stream, an¢
then permitting an artificial carrier to render absolutely null an¢
void the appropriations that have been made by Congress to improyé
that river.
Mr. Futsricut. Judge, Jackson gets sugar at a lower rate frou
New Orleans because there is a depressed rate from New Orleans tt
Memphis. :
Mr. Sirus. That policy simply adds to the congestion of point
that are already congested. It adds to the congestion in the enor
mous cities that are already overcrowded. Those centers have thei
housing problems, and there is also the problem of the increases
cost of living. There is the congestion of factory operatives in thost
large cities, while other places with a lower cost of living and bette
health conditions can not survive. In other words, they can not
build up. They are rendered stagnant by reason of the unreason
able and unjust discrimination. practiced in favor of places that ar
already favored by nature. I do not see how you get away fron
the natural effect of it when you allow a railroad to say that it i
reasonable to have a rate of $1.15 from San Francisco to Denvei
and, at the same time, have that same rate of $1.15 for the sami
freight from San Francisco to New York or Boston. If that is no
putting a postage stamp on a carload of freight and sending it #
a uniform rate, I do not know what it is.
Mr. Futsrrenr. You have a cotton mill at Jackson, have you not
Mr. Sims. We have a cotton bag factory there.
Mr. Furzricut. There is also one at Savannah, or I think ther
is one. Now, that cotton bag factory wants to sell bags in Balti
more, or in the markets along the seaboard. That is where the
sell most of their stuff in the East. Now, should not that factor
be permitted to reach that market, and should not the railroad bi
permitted to enable that factory to sell its product at Balimor
by giving them a rate that would be lower than the rate to sou
intermediate point? It seems to me that it would be better for th
man buying the bags and better for the man manufacturing thi
bags, so long as that rate is not so low as to constitute a burden upol
commerce. The manufacturer at Jackson gets a distribution marke
which he would not otherwise get, because he gets two markets f0
his products instead of one. | q
Mr. Srus. The effect of your argument is that because the rail
road is entitled to a return, it should give this low rate in order
compete with the other rate from Savannah. You had just as wel
let these people put that as a part of the charge on the bill 0
lading: i
Mr. Fursricur (interposing). The answer to that argument }
that by giving them a little additional traffic which they would no
otherwise get, you are giving them additional earnings without ma
|
4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 435
mially increasing their expense. If you took that away from the
jad, you might make the shippers pay more for their. service.
“Mr. Sms. We want to develop and we ought to develop all sec-
ons of the country just alike. Artificial conditions should not be
tven to a place that under natural conditions it would not have.
‘Mr. Fotericur. Why do the manufacturers of Tlinois, Ohio, and
Klahoma oppose this absolute fourth section bill? They want 2
ider distribution market. That is the only way this country has
en developed, and it is the only way its development can continue.
therwise, you will have a few concerns that will be forming here
id there into trusts and driving the little manufacturers off the map.
Mr. Sims. As you know, wool can be shipped all the way from
ustralia by water to Boston, and the rate is $18 per ton. Now,
ustralia is a foreign*country, and it is not near the coast of our
muntry at all, but, in order that the transcontinental railroads may
Try some wool from the Pacific seaboard to the eastern markets,
ey allow these railroads to carry that wool at $18 per ton, while
ano and some other interior points have to pay $38 per ton on the
me commodity, and with a shorter haul. If that is not protection,
serimination, and artificial maladjustment, I do not know what
Is.
Mr. Forerient. I do not believe that we can get together, Judge.
Mr. Sanpers of Indiana. Referring to the Cummins bill, what
‘you think of the advisability, in the event that the Cummins bill
sses, of providing that during Federal control the Interstate Com-
sree Commission should have power over all the rates, intrastate
d interstate ?
Mr. Fursrienr. I think that would be all right.
Mr. Sanvers of Indiana. After Federal control is over, and we get
‘0 this legislation, the power given here to fix minimum rates be-
mes a very important and far-reaching power, does it not?
Mr. Fuxsrieut. I so consider it.
Mr. Sanvers of Indiana. Do you not think that that power given
the Interstate Commerce Commission makes it almost absolutely
sessary to give to the Interstate Commerce Commission, and such
ier Federal regulatory bodies as shall be provided for, complete
trol of the transportation rates of the country ?
Mr. Furerieut. I could not say that. Occasionally you will find
ituation that is a purely local one or one involving purely intra-
te commerce; but, generally speaking, that would be true, and
it would be the practical effect of it. For instance, take the State
Texas, nearly every commodity handled in our State moves in
erstate commerce as well as in intrastate commerce. The rates
those commodities are virtually controlled by the decision in
hreveport case, except on such commodities as had already a
el of rates fixed by the State commission as high as or higher
‘n the rates of the Interstate Commerce Commission. As a mat-
of fact, the Texas commission had made some rates that were
her than those of the Interstate Commerce Commission. They
tht to be given credit for that by some people who decry them.
fr. Sanvers of Indiana. My point is this, that there is a different
lation with reference to the necessity of having control of the
°s when you have the power to fix minimum rates, because if you
436 RETURN OF THE RAILROADS TO PRIVATE OWNERS™:P.
fix a minimum rate for interstate commerce, then it is very important
that you also have the right to control the minimum rate for the
intrastate movements which might move freight under very similar
conditions.
Mr. Futericur. You have that if the intrastate rate is such as to
create a discrimination against interstate commerce.
Mr. Sanpers of Indiana. But that is a roundabout method, and
you have to wait until the situation presents itself and then show
those facts. Don’t you think that if the regional commissions were
established so as to relieve the Interstate Commerce Commission of
such a great amount of work, and there were formed a proper tribu-
nal with sufficient personnel to take care of the situation, it would be
better to have unified control of the rates?
Mr. Fursrieut. I think that is where we are going. We are
drifting to that. I believe that the regional commissions constitute
a step in that direction, and that ultimately we shall come to that.
I would regard it as revolutionary to go to it all of a sudden.
Mr. Sanpers of Indiana. What do you think of the constitutional
ower ?
B Mr. Fuusricut. I have very serious doubts of the constitutional
power to take jurisdiction of intrastate rates.
Mr. Sanpers of Indiana. What do you think of the constitutional
power to take jurisdiction of all of the intrastate rates of any of the
carriers that engage in interstate commerce to any extent?
Mr. Furpricut. I am of the same opinion. It is simply attempt-
ing to do by indirection what you can not do directly. If the Fed-
eral Government owned the railroads it could control the rates; un-
der the war power it can operate them and it can do that. I gave
this illustration before the Senate committee. The Federal Govern-
ment owns the post office in my town, and it has jurisdiction over
acts committed on the premises, even though they have nothing to do
with the Federal Government, and a misdemeanor under our State
law would be under the jurisdiction of the Federal Government, be-
cause it owns the property. That is where I make a distinction, I
believe that progress in this country and economic necessities are
driving us irresistibly toward one unified system of control of rate
making, and sooner or later we shall arrive at that point. My own
personal belief is that it will be a good thing when that time comes,
but, as representing the interests in the section where I live, they do
not feel that that time should come yet, and I doubt if it should be
put in by legislation at this juncture. In other words, I think we
should try out the regional commissions. I think you will find that
the regional commissions will cooperate more closely with the State
commissions and achieve unified control better than if you had one
body at Washington having to pass on every question of a local na-
ture that affects interstate commerce.
Mr. Sanpers of Indiana. The question of credit I think you said
was a big question ?
Mr. Fuusricut. Yes, sir.
Mr. Sanpers of Indiana. Do you not think that if we had unified
control in the Federal Government of rates that that would stabilize
credit? .
Mr. Funsricut. I do; yes, sir.
bd
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 437
' Mr. Sanvers of Indiana. Do you not think that the fact that we
jaye so many regulatory bodies would be a great factor in frighten-
‘ng investors / |
Mr. Fuusricut. It would; certainly.
| Mr. Watson. I think you stated that you would divide the United
States into three regional districts ?
| Mr. Fuusrient. Six. |
Mr. Watson. Six, rather. What powers would you extend to the
egional commissions from the Interstate Commerce Commission ;
vould you give them any supreme power ?
Mr. Fuusricur. They would have primary jurisdiction of all com-
ylaints filed except in those complaints where the Interstate Com-
merce Commission considered the subject to be of such importance
hat it would hold the primary hearing instead of the regional com-
mission. Their report would have the effect of a report of a master
nchancery and would become a final order unless excepted to within
1 given time or unless the interstate body should demand that it be
vertified to it for consideration of certain matters in it.
| Mr. Watson. In every case the report of the regional commission
vould be subject to appeal to the Interstate Commerce Commission ?
Mr. Furericut. Yes, sir.
Mr. Watson. Would not the Interstate Commerce Commission
hen be obliged to sit and listen to those hearings ?
Mr. Fuiericut. The situation would not be materially different in
hat respect from the present system. We have an examiner who
foes out and takes the testimony and makes a report on the testi-
nony, a tentative report. The Interstate Commerce Commission
vould have before it the tentative report upon all the questions
rought before it, it would have the record already made, and they
vould review it in the same manner that they review the tentative
‘ports of the examiner under the present system. I think it is a
‘ery good system. —
Mr. Watson. Would not that increase the number of hearings to
|, very great extent and eventually would not there have to be a
pecial court to sit and hear all of these appeals, because in a. few
ears there would be a good many of them?
Mr. Furericutr. No; because the regional commissions would
nally dispose of three-fourths of the cases, in my opinion.
_ Mr. Watson. But a great many cases would be appealed ?
Mr. Furericur. Yes, sir; but they would be cases of a more gen-
ral character. |
Mr. Watson. Would this not take a great deal longer for the
ases to be heard than where they send out an examiner ?
Mr. Fureriaut. No, sir. The regional commission could make its
eport in practically the same time that the examiner makes his
=ntative report. The commission has to review that. We virtually
ave that system right now.
Mr. Watson. I think you stated that you’ were not in favor of
aving the railroads returned to private ownership—-that is, you were
-ot in favor of Dr. Rich’s plan in which the railroads would be
bliged to pay to the Government certain taxes over’a certain per-
entage that they earned ?
Mr. Futsricut. Dr. Rich’s plan?
Be
ft
438 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watson. Yes, sir; I mean that one point, not all of his plan
Do I express myself clearly to you?
Mr. Fursrrent. I do not understand just exactly what you hay
in mind.
Mr. Watson. You believe that the railroads should be returne¢
and be permitted to operate under the law of the survival of the
fittest ?
Mr. Furpricut. Yes, sir.
Mr. Watson. As they exist to-day, not the stronger road to take
care of the weak road?
Mr. Fuusricut. No, sir. I feel that some plan of division 61
earnings should be made and used as a:fund, but probably only 2
percentage of the return above some figure that you fix. That pre-
sents a great deal of difficulty. I said there were some elements it
Mr. Rich’s idea that, appealed to me very much.
Mr. Denison. Do you think it would be possible or workable for
Congress to constitute the State commissions a branch of the Inter
state Commerce Commission for Federa] purposes ?
Mr. Fursricur. No, sir; I do not. There is no unified form oj
policy or unified control of the State commissions. The State com:
missions, as you know, are for the most part elected by popular vote
they are chosen in an entirely different manner. They oftentime
have an entirely different viewpoint. To my mind it would be
illogical for those men, so elected, to be an arm or a part of a sub
ordinate tribunal, even to the Interstate Commerce Commission. ]
believe that would delay matters and that you would have a lot 0!
lost motion there in bringing matters up before the State commis
sions and appealing from them to the interstate body.
Mr. Drentson. You know that the Federal Government uses the
State courts for certain purposes, and I wondered if the other woul¢
be workable?
Mr. Fursricut. But the situation is not analogous.
The Cuatrman. You believe in the coordination of rail and watel
transportation ? th!
Mr. Fuusricut. Yes, sir.
The Cuarrman. You have stated that you did not think that thi
bill should contain the provisions which it contains with reference t)
water transportation ? P
Mr. Furpsricutr. Yes, sir; that is correct.
The Cuatrman. If this eommittes does not have it, it will go to the
Committee on the Merchant Marine and Fisheries, which has juris:
diction of the shipping act. Is that right?
Mr. Fuxsricur. I so understand it.
The CuarrmMan. Some committee has to have jurisdiction if we an
to have coordination, Is that right?
Mr. Fuupricut. Yes, sir.
The Cuatrman. This committee has assumed that jurisdiction ir
the hope that we may reach coordination, but now our jurisdiction it
questioned. ©
Mr. Fursricur. I do not question your jurisdiction. I questior
the policy of obtaining coordination by placing subject to the act
regulate commerce ally water transportation except tramp carriers, }
believe that coordination is going to come by the Shipaaia Boare
7
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 439
looking to the peculiar conditions that surround water transporta-
tion and arriving at some basis for working out a system of rates,
rates that are flexible and not rigid, as under the interstate-commerce
‘act, and when they get at some level you will have something that
will be at least recognized as the best, and then the Interstate Com-
\merce Commission may fix a differential if it wants to permit a rail
‘fine to compete. The important coordination, to my mind, is in the
control of docks and terminal facilities, so that the traffic may be
expeditiously handled.
_ The Cuartrman. As to those, you have no question ?
| Mr. Fouusrient. I rather think that it is better to leave the docks
and terminal facilities under the jurisdiction of the Interstate Com-
merce Commission, because they are used in the loading to and from
ithe rail carriers.
The Cuartrman. As I understand, the Shipping Board act did con-
|template giving control over deep-sea traflic, but not inland water
| transportation ?
Mr. Fuxrsricut. I do not recall that it was specifically stated.
| The Cuarrman. It may be there is some question as to our juris-
\diction of traffic in the coastwise trade, and I admit that original
question, but in order that something may be done looking toward
\coordination we have ventured upon this field. In regard to the
|very illuminating discussion which you have given to us with refer-
ance to regional commissions the act of August 9, 1917, giving the
/commission power to act by subdivisions never really has become
|\operative. Is not that right?
|| Mr. Fursricur. It has become operative to a certain extent.
The CuHarrmMan. The act of August 9, 1917—-war had already
seoun and the Federal-control act followed just immediately after
\that, and, of course, that suspended everything, so that the act of
|August 9, 1917, has not really borne its full fruit?
| Mr. Fouuerient. I think that you will be piling a great deal more
im the commission by this bill than you will save in the handling
‘ad expedition of cases by providing that they may sit in three
‘lifferent bodies.
The CuHatrman. You will admit that that will greatly expedite
the disposition of cases ?
Mr. Fursricut. It was absolutely necessary and they have, in fact,
}deen operating under it to a considerable extent.
' The CuHarrman. The commission has recently begun to operate
| mder it. Do you think that even outside of the creation of the
epional commissions that we should increase the Interstate Com-
/nerce Commission, having in mind the added powers over stocks
ind bonds contemplated in this bill?
Mr. Furerieut. I think it would be desirable.
The Cuarrman. You do not think there would be any general op-
| 0sition to increasing the commission, say, by three?
| Mr. Futericut. I do not think that you should have an even num-
der on the commission; it should be an odd number.
_ The Cuatrman. Then, two or four?
_ Mr. Foutericut. Yes, sir; two or four.
_ The Cuarrman. You think that increasing the number of commis-
jtoners, together with the act of August 9, 1917, would enable the
|
Sn
440 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
et to take care of its business and the duties added by this
oil 2
Mr. Fursrieut. No, sir. I feel that there are a great many
duties in this bill, as I stated before the Senate committee, which
could probably best be handled by a different character of boards.
These are questions that deal purely with operation. A railroad
corporation would not dare to put its operating matters in the hands
of its traffic manager or the rate making in the hands of the general
manager. They get men who are specialists in these branches.
The Cuarrman. Do you concur in the recommendation of the War-
field plan and of the railway executives’ plan, of a board of trans-
portation? ‘They have somewhat abandoned the idea of a substitute
board of transportation. |
Mr. Furprient. Yes, sir.
The Cuairman. Is it your idea that there should be such a board
created, giving it administrative powers? |
Mr. Furprieur. Yes, sir; such matters as the administration of
embargoes, permits, and the pooling and diversion of traffic to pre-
vent congestion and the unification of terminals. Questions of that
character are purely operating questions, and while those things
inay become involved in a question of discrimination, yet primarily
they are operating questions. It seems to me that those matters
might best be administered by obtaining a board made up of men
who have had years of expert experience in the operating depart-
ments of the railroads. Of course, they should be divorced from the
railroads and should be purely Government officials and paid by the
Government, but we would get the benefit of their years of experience
obtained in railroad administration.
The Cuarrman. You believe in a board of transportation and also
the regional commissions ?
Mr. Fuxsricnt. Yes, sir. I think they are separate. I think
there should be an entire separation of matters just as suggested by.
Mr. Thom before the Newlands committee. |
The Cuarrman. He made that suggestion, I think. This bill con-
templates that when a rate is established by the commission it shall :
have indefinite existence, repealing the two-year limitation that ex- |
ists in the act to-day. That would tend to lessen the business that |
would come before the commission ? |
Mr. Fuuericut. No, sir; I do not think so. ae |
The Cuarrman. Why not? |
Mr. Fursricur. Because they can raise the question almost any,
time they want, and in the same manner. As a matter of fact, at the
expiration of the two years you do not have a lot of litigation
started. I think it wise to take out the two-year provision, and to
make it indefinite, but I do not think that that will have a material |
effect on the amount of questions before the commission.
The Cuarrman. If made indefinite, would it have that effect? |
Mr. Furzrieur. It would permit a carrier whenever conditions —
changed to come before the commission and ask that the changed
conditions be considered. I think that a carrier ought to be per-
mitted to that. I do not think that a rate should be fixed for a |
definite period upon a carrier.
The Cuarrman. This bill takes off the limitation ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 44]
Mr. Forsrienr. By taking off the limitation it makes it so the car-
‘ier may, under changed conditions, request a reconsideration of the
point at issue; it does not make it permanent. That is, it is perma-
sent until raised in question.
/ The Cuairman. The committee thanks you for your very illumi-
aating statement, Mr. Fulbright.
. Mr. Forsrienr. I certainly appreciate your patience in listening
ome.
The Cuarrman. We will now hear Mr. Martin.
TATEMENT OF MR. JOHN MARTIN, SPECIAL REPRESENTATIVE
OF THE RAILWAY INVESTORS’ LEAGUE, CARE OF JOHN MUIR
& C0., 61 BROADWAY, NEW YORK, N.Y. ;
~The Cuarrman. Mr. Martin, please give your full name and whom
ou represent.
Mr. Marrin. My full name is John Martin and I am the special
»presentative of the Railway Investors’ League.
| Mr. Sims. You represent those who are interested in railway stocks
ad bonds? |
| Mr. Martin. Yes, sir; the individual investors.
_ Mr, Chairman and gentlemen of the committee, I come before you
t the interest of a unique organization, the Railway Investors’
eague,
‘Tt is composed of the real owners of the railroad properties of this
yuntry. Its membership does not include a single bank, trust com-
amy, or insurance company; we have no proxies.
Its membership is a medley one. It includes a very few bank
licials, but many persons in all walks of business and professional
tivity, and men and women whose vocation we do not know. There
"e Several guardians for widows and orphans and there are several
otblacks and many other small wage earners.
The position of these men, women, and children as railroad own-
S is fundamentally different from that of the banks, trust com-
mies, and insurance companies. Very few, if, indeed, any of our
embers can be classed as “ plutocrats” or “trust owners ”: their
vestments, made in good faith on their part, have been earned by
|@ sweat of their brow. Indeed, there are many of our members
10 have every penny they own invested in railroad securities and
ey possess no other asset. Disaster in their railroad investments is
ferefore a most serious problem to them.
These railroad owners have shuddered at the harrying and hurtful
stics that have been leveled at their properties by the National
wernment and the sundry State and municipal governments. They
ve suffered through the influence that has been brought to bear
on these governmental bodies by the several groups of their or-
nized patrons who have influenced legislation in their own inter-
\» without regard to the interest of the owners of these properties.
jtey have noted the. offer of labor to come in and relieve them of the
}tden of running their properties, and have also learned what bank-
/; and economists without number think about how it should or
‘uld not be done.
J
442 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
These railroad owners, living and breathing men and women and —
children, represented by the Railway Investors’ League, now ask
that they be heard. They, too, require food and raiment. Their’
interest in these properties is more vital than the interest of labor,
ea ineem ae and the economists, and others whose money is not at
stake. :
In the handling of commodities from the door of the producers to
the door of the consumer the handling charge of the railroads is the
only handling charge that is controlled by law, yet their handling
charge represents but 4 to 6 per cent of all of the total intermediate
charges paid by the ultimate consumer.
Mr. Sims. What per cent?
Mr. Martin. Four to six per cent, as ascertained by responsible
bodies, governmental and otherwise.
Furthermore, their handling charge is the only one that bears any
definite relation to the service performed. ,
If it is meet and proper that the handling charges of the other
intermediate handlers, i. e., the several groups of shippers, specu-
lators, brokers, jobbers, wholesalers, and retailers should not be con-
trolled by law, then, we ask, since we are not permitted to control
our handling charges as they are permitted to control theirs, should
not the governmental bodies that thus discriminate against us then
guarantee to us at least a fair return to us on our investment made in
good faith on our part, but in effect confiscated ¢
As servants of the public, in what respect do we differ from the
several groups of handlers?) They are just as truly servants of the
public as we are. After all is said and done the competition between
all of us handlers of commodities of products for consumption is a
competition per se for a demand that already exists. |
We feel that the railroads have been most unjustly discriminated |
against in the interests of the other groups of handlers. They have |
influenced legislation through the organized activities of seemingly
most formidable associations and clever propaganda. The railroads
have been convicted before the jury was impaneled. It seems to be a
case of visiting the sins of the fathers upon their children. Promo-
ters have unquestionably done much mischief, but the present owners
put up their perfectly good cash for these properties and very few
of them can afford to have their properties confiscated or experi: |
mented with. |
Why single out the railroads whose handling charges paid by the |
ultimate consumer are so insignificant compared with the total? Ave
all of these uncontrolled groups of handlers as necessary as are thie
railroads?
a
——
the other very well-organized public servants—the other groups of |
handlers of commodities. | |
I will read to you, not the Railway Investors’ League plan, or pre |
sented as such, but its plea for a square deal—its plea that its single |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 443
/ organization receive at least the same potential consideration as does
_ the combined pleas of labor, of our cohandlers, the economists, and
others whose combined arguments and theories for experimentation
with our properties should not weigh against our cash.
_ It may occur to you that it is strange that a large body of indi-
_ vidual investors scattered all through the country, as are the mem-
bers of the Railway Investors’ League, could have come to an agree-
ment on all the various details of a definite plan. Right here at the
very outset I should like to say that, while the Railway Investors’
League does offer a definite plan for the solution of the question as
to what is to be done with the railroads, it does not offer that plan in
any hard and fast form and with any idea that any such plan,
worked out in every detail, can be presented and accepted. Rather
| do we seek to state the broad principles—worked out, of course, into
a definite plan—on which the great mass of individual holders of
/ railway securities believe that any satisfactory solution of the rail-
| way problem must rest. The statement which I am about to present,
_ in other words, has not been put in the form of a bill offered for
adoption, but is rather a setting down of the principles on which a
ee EE
| great and representative body of individual railway security holders
consider that such legislation ought to be based. The working out
of the details, once we arrive at the basic conclusions, will be easy
enough.
| The following paper is prepared upon the oral and written pre-
'sentments of our members who ask of you that they, whose money is
at stake, be permitted to coordinate and cooperate with your com-
mittee in the formulation of such a course as will constructively
meet the best interest of all concerned:
PLAN OFFERED BY THE RAILWAY INVESTORS’ LEAGUE FOR THE RETURN AND REGU-
LATION OF THE RAILROADS.
[Presented to the House of Representatives Committee on Interstate and Foreign Com-
; merce, August 1, 1919.]
After the various plans for the solution of the railroad problem had been
brought forward last spring the Railway Investors’ League, an organization
composed of many thousands of individual owners of railway securities scat-
tered all over the United States, began circularizing its members and holders
of railway securities in general for the purpose of ascertaining exactly what
were their views on the question. No attempt was made to submit to the
Members of the league or to the many thousands of other investors who were
approached anything in the nature of a definite plan for approval or ratifica-
tion. The entire effort was directed toward finding out just what sentiment
did prevail among the real owners of the railroads—the many individual hold-
ers of railroad stocks and bonds scattered all over the country—as to what
should be done about returning the railroads to private control.
Because the campaign was carried on as above and because while it was
being carried on there were received at the offices of the league a vast number
| of letters stating the views of railroad investors, large and small, the results
of this plebiscite may be regarded as truely indicative of sentiment throughout
the country, and so decidedly worth while. While the Railway Investors’
| League numbers among its membership many large holders of railway securi-
| ties, it is not an organization of banks, life insurance companies, or other
' institutions merely representing the investor. The Railway Investors’ League
does not speak by proxy. Its voice is actually the voice of the individual
' holder of railroad securities—the investor large and small, who has put his
money into railroad stocks and bonds in good faith, who, in a surprisingly
large number of cases, has given careful thought and attention to the subject
| and has perfectly definite ideas as to what ought to be done,
444 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Railway Investors’ League speaks not from ‘the standpoint of labor,.of —
the directors in charge of the railroads, of the shippers of freight, or of the
large banking institutions whose funds have been largely invested in railroad
Securities, but the interests of whose officers are by no means limited to the
railway industry alone. It speaks from the standpoint of the million or more
individual holders of railway stocks and bonds who in good faith have put their
money into these securities, and who, now that the matter is to be settled,
think it ought to be settled once for all, and want it to be settled in a fair and
equitable manner.
At the very start of the process of ascertaining the sentiment prevailing
among railroad investors in general two things at once became apparent: (1)
That the_security-holding public in general was dead set against Government
ownership; (2) that it was everywhere realized that when the railroads were
returned to private ownership it couid not possibly be under the old conditions—
that if anything in the way of real progress was to be accomplished, a totally
different relationship with the Government than that previously prevailing —
would have to be established. Cooperation between the railroads and the Govy-
ernment, it was everywhere realized, would have to take the place of the former
condition of continuous friction. In all quarters of the country, indeed, there
appears to exist a feeling that, in view of the extent to which the railroads ©
have become publie utilities, the relation of the Government to the railroads
must inevitably be that of a partner, and that consequently a much closer
degree of supervision and direction must prevail. ,
No less clearly was the fact brought out that if this new relationship be-
tween the railroads and the Government is to be developed, if there is to be
this closeness of supervision and regulation, if the Government is, so to speak,
to be a partner in the enterprise, then it is only right and proper that the -
Government should guarantee a fair return on the amount of the property in-
vestment. A fair return, it is to be noted, on the amount of the property
investment. Your property, the idea is, is worth so-and-so much. You are
going to be allowed to charge just so-and-so much for the service you render, —
In return, you are to be guaranteed earnings of so-and-so much on the actual
amount of capital represented by the value of the property, What you do with
it, whether you pay it out in the form of bond interest or of dividends on
stocks or for improvements, is no one’s concern but your own.
It is on the two principles stated above that the Railway Investors’ League
asks that legislation be based—close Government supervision and regulation
as described herein, and, as a logical concomitant, the guarantee of earnings
of a minimum amount on the actual value of the properties.
NEW MACHINERY NECESSARY.
It seems hardly necessary, in view of the very full exposition which the case
has had, to take up in this place the deficiencies of the system under which
the railroads were operated prior to the period of Government control, or to
show the necessity for a complete change in the methods of Government super-
vision and regulation. We are not among those who condemn unqualifiedly
the Interstate Commerce Commission and all its works, but it is the unmis-
takable sentiment of security holders throughout the country that the commis-
sion as constituted has entirely outlived its usefulness and must be superseded
by a regulating agency of a radically different nature. Whatever may haye
been the usefulness of the Interstate Commerce Commission in the earlier
days, that usefulness, through complete change in industrial conditions, has
been entirely outgrown. The idea of a body of commissioners on which the)
Owners are not represented sitting in Washington, and, by itself, attempting
to regulate the operation of a quarter of a million miles of railroad seattered
over a territory of 3,000,000 square miles is in itself an anomaly. The railroads
of the country long ago entered a stage of expansion making impossible any-
thing like satisfactory administration through such an agency. As Mr. War-
burg says “Such a‘body can hardly be expected to act promptly and success-
fully in carrying out some of the administrative features involved in any plap
of the future, contemplating greater unification of operation, consolidation,
pooling of contracts, use of joint facilities and direction of distribution of roll-
ing stock amongst the several railroads.”
What, then, are we to have in the place of the Interstate Commerce Commis-
sion? The railway executives have suggested an entirely new Government
-
RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 445
‘department headed by a “secretary of transportation,’ with plenary powers,
‘regulative and administrative. While certain advantages of such unified con-
e are patent, there nevertheless attach to it certain grave dangers from
‘the political side which the country has been quick to recognize, and whieh
‘have resulted in the development of opposition to any such plan. Everywhere
it seems to be recognized that any such proposition would be certain, sooner
or later, to bring the question of politics into the administration of the rail-
‘roads. To be sure, we had a’ wonderful example during the war of the sub-
Inergence of party spirit for the common good, but the war is over, and Cabinet
‘members being human after all, would be likely in the long run to take a
partisan point of view. Would it be possible, for instance, for any such secre-
tary of transportation to free his mind from consideration of the effect upon
the millions of voters involved in any policy which he might adopt?
_A far more reasonable solution of the problem of what is to take tbe place
of the Interstate Commerce Commission would seem to lie in the creation of
what might be called a Federal railroad board, composed, as is the Federal Re-
‘serve Board, of five members dealing with the railroads through regional
‘boards, just as the Federal Reserve Board deals with the banks all over the
country through its various branches. The functions of this Federal railroad
‘board would be part administrative and part judicial. Through the various
regional boards it would be in that intimate daily touch with the pulse of busi-
hess which engenders constructive thought. Not being overloaded, as is the
‘present Interstate Commerce Commission, with a mass of detail, it would be
im a position to handle the question of the railroads in a really big and con-
‘structive way.
The constitution of these regional boards would not be difficult if the vari-
ous territories were made large enough to be inclusive of interests of varied
character, so that there could never be any question as to their becoming sub-
servient to any local or one-sided point of view. The present rate-making dis-
‘tricts would be a logical division. As to the number of members on each re-
‘gional board, that should be kept down to five and made possibly as low as
‘three. If the members of these regional boards were selected half and haif
)from two leading political parties, the last vestige of danger of politics getting
into the matter would be obviated.
What we should have when an organization such as the above was perfected
would be a Federal railroad board sitting at Washington and six regional
boards sitting in some suitably located city in their respective districts, each of
them in the closest touch with every phase of the transportation business in
that particular district, and, so, able with intelligence and dispatch themselves
to dispose of most of the problems which would arise, and to present for speedy
‘Settlement to the Federal railroad board at Washington such problems as they
found themselves unable to handle.
THE QUESTION OF A GUARANTEE,
Up to this point, it will be noted, with the exception of the substitution of a
Federal railroad board for the present Interstate Commerce Commission, the
plan of the Railway Investors’ League is somewhat in accord with the plan
offered by the National Association of Owners of Railway Securities. Pro-
gressing from this point, however, toward the question as to how railroad
investors’ rights are to be safeguarded, the two plans widely diverge. The
Warfield plan provides that the Interstate Commerce Commission shall be
directed to fix such rates in each of the various territories as will allow earn-
ings of 6 per cent on the combined property investment accounts of all the rail-
‘roads operating in that territory. With any such idea, the many security
holders with whom the Railway Investors’ League has been in touch have
‘Shown themselves to be entirely out of sympathy. In the first place, how could
‘it be determined what rates would allow earnings of 6 per cent on the combined
property investment account, the proportion of gross income which any railroad
‘is able to turn into net earnings, depending as it does upon the efficiency of the
yManagement and the physical condition of the property?
) How, we say, could the rates ever be determined in the first place, and, in
the second place, if it were possible to determine them, would not constant
changes be necessary in order to meet shifting conditions? Furthermore,
| would not such a plan be unfair to the weaker roads—those unable to turn
€ross income into net with the same efficiency as those more ably officered and
(possessed of better physical facilities? The idea, it is stated, is to “level”
446 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
rates. Is it not very much of a question whether any such leveling process
could be carried out without working a very great injustice and hardship?
Instead of attempting to guarantee freight rates which will produce a certain
amount of income on the property investment, it would seem much more rea-
sonable at the outset to guarantee that income on the property investment and
then to go ahead and fix rates which would allow earnings equal at least to the
amount of the guaranty. In that way there could be no question of injustice
to any property. The value of each property having been determined, it would
be simply a case of guaranteeing so and so much on that valuation and then
fixing freight and passenger rates which would allow earnings of at least the
amount of the guaranty.
The amount of such a guaranty should be fixed at not less than 43 per cent
on the property investment. Everything that a road was able to earn above
that amount up to 6 per cent it should be allowed to keep. Above 6 per cent
earnings would be divided with the Government.
Such division of earnings above 6 per cent would take care of the question
of what is to be done about those roads, which because of superior physical
condition or more able management would be able to show substantial profits
as a result of freight rates not sufficient to enable the weaker roads to earn
more than the bare amount of their guaranty. Inevitably this principle must
be recognized, that whatever form the regulation of freight rates takes there
are bound to be some roads which can make much greater profits out of what-
ever rates are established than can other roads operating in the same territory.
That is a condition right and as it should be. Do anything to destroy it and
coincidently you destroy all initiative and all incentive toward better and more
economical operation. If rates are to be granted which will allow every road
to make a fair return on its property investment—which is what has got to be
done—it inevitably means that some roads as a result of those rates are going
to earn greater profits than others. The logical thing under the circumstances
and the way to keep up the incentive is to let the roads which are able to show
those greater profits benefit from them at least to some degree. .
CONSOLIDATIONS.
Because of this question of strong and weak roads and of the difference in their
ability to earn profits from identical freight rates, the members of the Railway
Investors’ League are heartily in accord with Mr. Hines’s plan for dividing the
railroads of the country into from 12 to 20 large systems. In this way competi-
tion for business can be retained as it is at present, but the great problem of
the weaker roads continuously struggling for their very existence—and in so
doing constantly menacing the entire rate structure—is done away with. But
it is not to be thought that this combination of the weaker with the stronger
roads can be effected merely through recommendation—it stands to reason, oD
the one hand, that the weaker roads will not be found anxious to be swallowed
up by the stronger ones, while, on the other hand, the stronger roads will not.
as Mr. Hines says, be anxious to dilute their prosperity by taking in the less
successful properties. It will not be a case of merely “ recommending ” that
these mergers take place. It will be a case of scientifically determining what
roads logically should be grouped together into this smaller number of systems.
and then compelling the mergers by due process of law. There will, in the
opinion of the members of the league, be found considerably less opposition to
such a plan on the part of the holders of securities in both the weaker and the
stronger railroads, than might be imagined.
With the present large number of railroads, big and little, thus divided mu)
into a smaller number of big systems and with these big systems guaranteed #
fixed amount of return on their property investment account we shall have all the
advantages of privately conducted enterprise backed up by Government guar-
antee. There will never, in all probability, be any occasion for the Government
to have to make good on its guaranty because the rates that will be fixed under
the supervision of the various regional commissions will be such as to allow
the amount of the guaranty to be fully earned. There will be, on the other
hand, all the efficiency of management and quality of service which comes froni
private operation, because, while a certain minimum on the property investment
account is guaranteed, the earnings of any railroad are limited only by the
efficiency by which it is run. The one-half of all earnings above 6 per cent whie!
the railroad is allowed to retain will be quite enough to draw forth the best
efforts on the part of its management.
3 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 447
'The only provision which the Railway Investors’ League would like to see
nade with regard to the half of the earnings above 6 per cent on property in-
‘restment account earned by the railroads, is that such excess earnings shall not
ye turned back into the properties and capitalized.. Were that to be done we
hould, of course, have a condition of earnings on earnings which, in view of
he Government guaranty, would be highly undesirable.
VALUATION.
It is true, of course, that the whole proposition of a guaranty of earnings om
yroperty investment account presupposes to begin with a valuation of railroad
jroperties, and that such valuation presents very great difficulties. In our opin-
on, however, and in the opinion of the ablest minds which have studied the:
juestion, the difficulties in the way of such valuation are by no means insur-
nountable. On the present basis of valuing the railroads we shall, of course,
ret nowhere, but that is by no means saying that if the determining of the fair
value of the railroads were put into the hands of some expert and impartial
yody, working under a law which laid down for them the broad rules of ap-
woach, the thing could not be done. It would be the duty of such a body, acting
ike a court of justice, to determine the fair value of the properties without the-
ed tape or delays connected with judicial proceedings, and to establish that
value with due regard for all circumstances affecting not only the properties.
hemselves but their prospective earning capacity—for which, by the way, in.
gany cases considerable sacrifices have been made without as yet showing a
fisible return. Thus to value the railroads of the country—not driving the
iardest possible bargain, but getting at the matter in a spirit of fairness and
ooperation—would be a great undertaking and one that would take time and
aoney, but the thing is something which everyone knows must eventually be:
one, and might as well be done now in time to make it the basis of a fair and
‘quitable solution of the railroad question.
f RAILROAD CREDIT.
The supervision and regulation of the railways provided for above, coupled’
rith a guaranty of 44 per cent interest return on the amount of the property
avestment would, in the opinion of the members of the Railway Investors”
eague, go a long way toward effecting that rehabilitation of credit without
‘Thich no further development or progress in the country’s transportation sys-
2m can be made. For practically 10 years now the railroads have found
> impossible to interest the investor as a partner—that is to say, to sell
tock—and have been able only with the greatest difficulty to interest him
S$ a creditor—that is to say, to sell even a part of the bonds that they ought
') have been able to sell. Assured that whatever money he puts in will
arn at least 43 per cent, and that under favorable circumstances it may
arn very considerably more, the investor is bound to take an entirely different
ew of the matter. Freed of the fear which has been hanging over him
9 long that some sort of confiscatory legislation will be passed, he will be
ir more willing to listen to the appeals of the railroads for the capital which
1ey so badly need and to open his purse strings for the sake of purchasing
le new securities they have to offer. Nor will the fact that the Government
‘$s guaranteeing a minimum amount on property investment in any way dilute
‘’ spread thin the Government’s credit in the matter of its own direct
bligations. Through the proper fixing of rates earnings of the railroads can
je kept at such a point as to make it absolutely unnecessary ever to take any-
ling from the National Treasury in order to make good the amount of the
laranty.
‘If it is objected that in this presentation of the views of the members of
1e Railway Investors’ League certain important points have not been touched
‘a—supervision of the issue of new securities, for instance—it may be
“plied that that question and the others are automatically taken care of
rough the creation of a central Federal railroad board and six regional
OMmissions. Supervision of security issues, regulation of intrastate rates—
‘ese and other questions are, of course, important, but with adequate and
omMprehensivé machinery created to take care of them, will be properly taken
wre of. If, indeed, we provide a proper regulatory and supervisory machinery”
e shall find that we have struck effectively at the source of many of our
‘oubles and effectively cleared the way not only for the restoration of railway
448 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
credit but for that expansion in transportation facilities which must inevitabh
accompany any new forward movement in the country’s industry in general.
Mr. Chairman and gentlemen of the committee, I was asked t
represent the Railway Investors’ League only 24 hours before leavin;
for Washington.
It appears that members of the league had seen a recent inter
view with me in the New York Times wherein I pointed out a larg
economic waste in the perplexing terminal situation and offered :
solution which they believed was practical as well as constructive
and this concurrence in some of my premises, together with the fac
that it was not convenient for another representative of the leagu
to appear before you, caused them to ask if I would appear in hi
place.
Their plan just presented to you had already been concurred i
by its advisory committee and printed. I have never met severa
of their committee and have not the slightest idea whether they eve
heard of or would approve or disapprove my viewpoints, but beliey
ing them to be factors that bear a vital relation to the subject yor
have under consideration and in harmony with the understanding 0
those members of the league that asked me to come, I ask you
indulgence for a very few minutes longer for the purpose of pre
senting them to you in the concrete, not in connection with th
presentation just made for the Railway Investors’ League, but o
my own initiative.
In order to illustrate the importance of congressional action tha
includes the country as a whole, I will cite the situation in Ney
York City. |
Increased terminal facilities in New York City are absolutel:
necessary under the present procedure, yet the present facilities wil
handle from 40 to 100 per cent more freight than it can now handl
if the shipper to consignee pick-up and delivery system were orgail
ized upon an efficiency basis.
And this can be accomplished without the slightest element 0
experimentation, but it must be accomplished by Congress. Thi
railroads, however anxious, could not themselves correct the situa
tion, for the reasons I pointed out in my remarks preliminary to ti
presentation of the plan for the Railway Investors’ League, namely
The associations representing the railroads’ cohandlers—but wli
incidentally control routings—would’ bring such pressure to bea
that no road or group of roads could afford to take chances 01
offending them.
The railroads are in no position to finance new terminal facilities
and even if they were, why should they when their present facilitie
are adequate through the adoption of the same elements of efficien¢
and economic operation that their cohandlers employ in the condue
of their own business ? .
Now, aside from making the unnecessary investments and asid
from the waste forced upon the ultimate consumer through the rail
roads as involved in the existing uneconomic procedure, let us tak
a peep at the additional uneconomic waste involved.
The waste in drayage in New York City is $662,760 a day, 0
$205,455,600 per year. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 449
'This estimate is predicated upon the registration in New York
‘ity in 1918 of 31,561 commercial trucks, not including buses and as-
ining that of these trucks only 23,670 of them are employed.
| The average load carried one way only is about 35 per cent of
oe:
The average load carried both ways is about 20 per cent of capacity.
Twenty-eight dollars per day per truck represents an exceedingly
‘odest profit above cost, including depreciation and maintenance.
_Many believe this efliciency could be increased to 80 per cent and
wme even higher than 80 per cent, but the most conservative agree
don 40 per cent efficiency or a saving of $28 per truck per day.
Now the only criticism I have heard against this presentment is
‘at it is too low, but I so planned it not caring to appear in the spot-
‘ght of disputations. Indeed, I did not take into consideration the
1,000 horses that are similarly employed.
/ Well-informed transportation men have asked why I did not base
y estimates upon the full registration of commercial trucks instead
‘only three-fourths.
Others have asked if I thought capital should be raised for such a
‘ayage system on the basis of the truck earning only $28 gross per
uck per day, but I again answered that I wanted to avoid argu-
ents and therefore preferred to be safely conservative.
The plan I propose to meet the situation with is this:
A through fixed handling charge from the door of the shipper to the
or of the consignee, the drayage company to collect the railway
mpany’s charges as well as its own. The drayage charges should ,
assessed according to: zones. Those zones at the point of origin
|e, of course, figurable, while those zones at the point of destination
n be corrected and adjusted just as erroneous billings are now cor-
cted and are adjusted.
‘IT would stabilize these drayage-handling charges with a safe “mar-
| of safety” and issue to each patron a purchase unit (receipt) for
ch drayage charge paid and periodically distribute between the
trons pro rata out of the margin-of-safety fund, based on the ag-
|egate of their purchase units, the differences between the estimated
\3ts as collected and the actual costs as disclosed by the books. The
|sts to include such fair net interest yield to the drayage company
| will attract the necessary ability as well as capital.
|The patron would thus lose interest in the automatic increase or
| crease in the handling charges made to meet the changing condi-
ms and he would furthermore not demand an unreasonable service
»S he now does) for the reason that he would pay for that service
| the identical proportion that he patronized it. In other words,
; would take the drayage company into consideration instead of
\Uxing unreasonable demands as he otherwise would do as long as
|) drayage company pays the bill. .
The advantages of operating these drayage systems on systematized
\iedules of time similar to the railroads and passing the freight
\20ss the platforms both ways without delay are obvious, and when,
| the due course of prudent business procedure, the zones can be
ended to include the residential districts, thereby replacing the
plications by retailers of deliveries made to the homes of the con-
mer, the aggregate saving involved is well worth consideration.
_ 152894—19—vor, 1——29
450 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
I see no reason why the fixed handling charge as stabilized with :
safe margin of safety can not be just as practically extended to the
railroad situation in the collection of its freight and passenge
charges and to other public utilities with perhaps the exception 0:
the street car lines, assuming that an agreement could be reache
upon a net interest yield to them based upon a fixed valuation. Th
natural criticism to this proposal would be that the managemen
would lose interest in initiative and efficiency. While I believe thi
can be assured through efficiency standards, it is possible to work oui
a plan for a division between the patrons and the owners that woulk
insure the incentive for initiative and still maintain the two vitally
important factors with the patrons, namely, (1) the automatic in
crease or decrease of handling charges without friction, and (2)
avoid the demands for an unreasonable service.
But, reverting back to my subject about terminal facilities, let m
point out still other vital factors.
The railroads, already burdened with troubles akin to those oi
Job, are now confronted with competition in intercity haulage bj
motor trucks. A readjustment of the terminal drayage pick-up an¢
delivery system would eliminate this factor almost, if not indeed, t
the vanishing point, as indeed it should, for thus far at least the}
are not, generally speaking, a financial success.
The automatic increase or decrease of rates without friction from
patrons would not involve governmental guarantee, and neithe1
governmental ownership or control could promise more than some
‘such plan would yield.
Why should the railroad patrons along the thickly settled countr}
pay deficits for the railroad patrons along the sparsely settlec
country, for, generally speaking, this factor of population along
this route is, in the main, the primary factor that constitutes the
prosperous railroad, and may at least relatively be referred to as tli
weak roads or the strong roads. A railroad’s greatest asset lies in the
development of the country contiguous to it.
Why should not each road stand on its own foundation, in so fal
as asking aid from the Government or from the stronger roads’
Why should not its rates and its service be adjusted to meet the situa
tion—its own situation—squarely in the face, so to speak; in othe
words, on its own merits or demerits; and would not the patron:
along these weak roads under the plan here suggested coordinatt
and cooperate with their road, meeting the exigencies of the situation
instead of asking help from the Government or persons living 0
another section of the country.
At yesterday’s session I was pleased to hear Judge Sims say tia
every Member of Congress was vitally interested in_reducing th
cost of living expenses, and he asked Dr. Rich, of Boston, if hi
railroad plan included such.
This is a subject that I am deeply interested in. I contemplit
the ultimate promotion of such a plan, but am persuaded that
reorganization by Congress of the terminal drayage pick-up an
delivery system and constructive measures that will save the 40
60 per cent of perishable farm products that now rot in the field
and which measure will at the same time lead to more general plan
ing of garden truck and fruits for the daily market as the first ste
to be taken. J will submit this suggestion after a moment.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 45]
+ 1 will not intrude upon your time by taking up the distribution of
commodities, important as the subject is at this time, since it is not
germane to the subject you have under consideration. I am, however,
willing to go on record by saying that the situation can not be met
by any piecemeal proceedings. There are a number of factors that
constitute the existing waste, and they must be taken up in their
entirety along broad and constructive lines. The terminal waste,
large as it is, is only one of the factors of waste involved, and really
a relatively small factor in its relation to the whole.
_ A deficient rural population has resulted in at least a relatively
amie production in grains, live stock, raw fabrics, woods, and
metals.
Consumption is disproportioned with production because of the
shifting of population from the farms to cities and towns. }| Boston & Maine. 0.0... .2 2... 2, 258 (1)
(elantic Coast Line................ 4,780 16.02 || New York, New Haven & Hart-
youisville & Nashville............. 5, 072 22. 89 PUR coe eRe Ne cons eT. Fay 1, 995 Trea
Jashville, Chattanooga & St. » @
NE 1, 236 17. 74 ANGYapC o.oo. a5 See wel tte wet 715
‘entral of Georgia....... mareecet :‘ 1,918 34. 81
igamoard Air Line:................ 3, 461 (4) WESTERN LINES.
a 19.71 || Chicago & North Western......... 8,108 10, 22
St. Louis & San Francisco......... 5, 207 4,75
INES OPERATING IN BOTH EAST- Missouri, Kansas & Texas......... 3, 866 1. 36
| ERN AND SOUTHERN DISTRICTS Minneapolis, St. Paul & Sault Ste.
. (PRINCIPALLY SOUTHERN). Marie Satya St 6 ese ed ae 3,168 7. 26
is Chicago Great Western...........- 1, 496 3. 06
| SOc 4,766 13. OO GI eMissourinPAaCGliGts cle. le cou.. soe 7, 822 6. 49
thesapeake & Ohio................ 2,412 DI SZOME Oks: eV HelIC Gaia) wees wore ulae 1, 946 7.70
iam ce VWOCStern...........:.--- 2, 085 14,9651) Chicaeo dc. Altomice. 24 22.2. 2-.-- 1,052 (1)
Chicago, Rock Island & Pacific....| 8,218 5. 33
SOS EG o, 13. 29
NMOL OR ee sbi cau acho ait wae cl eaaeaee 5.11
EASTERN LINES. Se
TRANSCONTINENTAL LINES.
Wamesyivania KR. R............-.--. 4,541 T8i
jemex ork Central................. 5, 685 105247) Southerm Paciiic cc gale. een 11,136 18. 01
pete as Ohio. ....-........... 4,723 Bt (Oa! METMOMPACliC la. face odessa sete 7, 986 16. 89
MES nee ee 2, 258 (1) Atchison, Topeka & Santa Fe..... 11, 294 14. 50
0 1,442 FieS) i Grea Northern 6 oe eco Se . 8, 232 9, 23
leveland, Cincinnati, Chicago & INOFLNern PaCinG 125.0. ..0.) ess ot 6, 522 11.91
MMT St to ee wits nace cio ns 2, 386 10.11 || Chicago, Burlington & Quincy..... 9,373 26. 53
A Ee 2,519 (1) Chicago, Milwaukee & St. Paul... ./10, 25 (1)
hicago & Eastern Illinois......... 1,131 12, 29
oe ee 1, 216 6.55 ANOTOEO oot as oP nt. nentat eens 13. 89
1 Nil.
I have attached as an appendix to this paper, which I will leave
vith you, the stock-earning ratio of a number of the lines individ-
tally. I wish only to call your attention to this: That I have taken
ll of the systems operating more than 1,000 miles of road in the
outhern district, the eastern district, and, broadly speaking, in that
dart of the western district that is known as the western trunk line
erritory, which lies partly east of the Mississippi River. I have
aken all of those systems as operating systems, and I have shown
he percentage of earnings upon the common stock for those systems
or the year 1917. I find that the eastern lines earned 7.15 per cent;
hat the western lines, those in the district north of Chicago, a very
ongested district, earned only 5.11 per cent.
. Sms. On what standard ?
Mr, Wiwersn. Based on the stock.
| Mr. Sms. After paying interest ?
_ Mr. Wmpisu. And all charges. Then I took the interterritorial
ines, the Norfolk & Western, the Chesapeake & Ohio, and the Illinois
ventral operating between the eastern and southern districts, and
f find that their earnings were 13.29 per cent. Then I took the trans-
Ontinental lines, and I find that their earnings upon the common
152894—19—vor 1 30
466 RETURN OF THR RAILROADS TO PRIVATE OWNERSHIP.
stock was 13.89 per cent. I took the southern lines, and found that
their earnings were 19.71 per cent. Of all the systems in the southern
district operating more than 1,000 miles, there was only one that was
_not prosperous, and that was the Seaboard Air Line. ‘The Seaboard
Air Line earned nothing upon its common stock during that year.
The return upon the stock of the Southern Railway, as I have said,
was 23.39 per cent, which was about three times that accruing to the
Pennsylvania. That of the Louisville & Nashville was 22.89 per cent,
which is more than double that of the New York Central, 10.24 per
cent, while the ratio of return to the Atlantic Coast Line was 16.02
per cent, or more than four times that of the Baltimore & Ohio,
operating about the same mileage.
The result of operation under Federal control is a matter to which
I have given some thought and in which I have been very much
interested. I have been furnished with the authoritative figures for
they year 1918.’ I find that during that year under Federal control
the railroads of the country as a whole lacked nearly $250,000,000 of
earning the standard guaranteed return which, as you gentlemen
know, represents the average net railway operating revenue for the
three years, 1915, 1916, and 1917. The deficit on its face was nearly
$250,000,000, not an operating loss, but that much less than_the
standard return which represented the average of the three highest
earning years in the history of the railroads.
Mr. Srus. What were the gross returns, comparatively ?
Mr. Wimpisu. They were larger.
Mr. Sims. In 1918?
Mr. Wimsisu. Yes.
Mr. Sims. And they actually did very much more transportation !
Mr. Wimsisn. Very much more; they secured very much larger
gross revenue from transportation.
Mr. Sims. And rendered more service to the country ?
Mr. Wimpisu. Very much greater in volume; but the net return
was very much less.
Mr. Sims. The net return ?
Mr. WimpsisuH. Yes, sir.
I find in the southern region—as you gentlemen know, the country
was divided into regions for operating under Federal control—a
remarkable situation. The roads in that region, taken as a whole,
not only earned the standard return, but more than $12,500,000 in
excesss. In other words, the roads in that region were operated at &
profit in excess of $12,500,000 to the Government, and that much
more than the average of the three best years ever had under private
control. I am calling your attention to that region not for the
purpose of comparing any one region with another, but for illustrative
purposes. |
There are reasons why the southern lines did very much better
under the Federal operation than the lines in other parts of the
country. )
The great trouble lies in the eastern district and in the roads
serving the territory around and in Chicago in the western district,
That was largely due to the congestion that began in the summer of
1917 and became very acute at the time the roads were taken over
under public control. |
The causes of that congestion were, first, the great demand for
export, the great volume of commodities, articles, and munitions that
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 467
fk
'were being rushed to the ports for exportation, and the fact that
‘there were so few ships to receive the goods and unload those cars,
‘resulting in the cars being sidetracked and remaining unloaded, with
‘all of the expense and evil consequences that followed. Another
ontributing cause was that the British Admiralty, when they
‘undertook to relieve the situation here, sent practically all of their
‘vessels to New York, thereby accentuating and exaggerating the
‘congestion along in that district.
_ Another thing appears to be true —I am only speaking from infor-
mation—prior to the assumption of Federal control, along in the
summer of 1917, when this congestion became evident, the Govern-
‘ment demanded priority orders for the movement of a great many
‘articles and commodities for war use. My information is that the
‘American Railway Association, instead of carefully seeing that only
‘those commodities that should have priority orders that were entitled
‘to them, gave orders out in blank by the handful to officers of the
‘Army and the Navy who were equally careless in giving them to
shippers; and that probably of the volume of traffic that moved under
‘these priority orders 80 per cent of it was not entitled to priority at
all. It further happened that most of these sales were either to
factories or munitions plants in the eastern region or for export, and
all of that was rushed into the eastern district. Those, as I under-
stand, were the causes of the congestion. That, of course, very much
affected the earnings under Federal control. It was evident, to some
extent, in the vear 1917. That congestion has been relieved. It
was a transitory matter which, I think, should not occur again and
I do not think that under proper management it will occur again.
I only mention that as one reason why the eastern lines have made,
relatively, such a poor showing.
The railroads, and the owners of their securities, are most con-
cerned in earning revenues adequate to their needs. The public
interest demands that an efficient service be provided under rates
and charges that are just and reasonable, with due regard to the
rights and interests of shippers, carriers, and the public.
The problem is to determine what may properly be done by legis-
lation to safeguard the railroads in the matter of their net revenues,
and otherwise enable them to render the most efficient and economical
public service.
The railroads will be returned to private control subject to much
higher operating expenses than they were prior to that time. On
the other hand, freight rates and passenger fares have been increased
something like 25 or 30 per cent. Now, the extent to which these
Increases in rates and fares may compensate for the increased operat-
‘Ing expenses is one that can be determined only by actual experiment
alter the roads go back, and it would be foolish for me to venture a
prediction as to how the matter will finally be determined.
_ Now, there is a proposition to which I desire to invite your attention
and which I think is one of the most important that will come before
you, and that involves the question of a guaranty of return.
_ It seems to me that a guaranty of return, in any form, or under
any guise, whether by explicit obligation or legislative assurance, is
‘only a step removed from government ownership and will inevitably
lead not only to Government ownership but also to Government
operation.
|
468 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
That, I think, is at least in part recognized by Senator Cummin
who is an advocate of Government ownership under private operatic
and who looks with approval upon some form of guaranty. He say:
I understand perfectly that when the Government undertakes that the return upi
the capital invested shall be certain; that is, guarantees the return, whether by legi
lative assurance or by explicit obligation, it may be well termed the equivalent
Government ownership.
If Government ownership is to be justified upon the theory thi
transportation is a governmental function, this would necessari]
extend to the operation of the railroads by the Government. Goveri
ment ownership with private operation under a guaranty of retur
would impose such obligation upon the Government, and so dull th
incentive of private operators as to leave little doubt in the min
of any thoughtful man concerning the outcome.
Without ownership of the property and with «a return guarantee
to the operating company it must be recognized that small induc
ment would be offered for the display of energy or initiative and the
competition in both service and charges would completely disappex
This would fall into that category of evils characterized by Herbea
Spencer in his Essay on Overlegislation, wherein he says:
Exposed to no such antiseptic as free competition, not dependent for existence, :
private unendowed organizations are, upon the maintenance of a vigorous vital}
all law-made agencies fall into an inert, overfed state, from which to disease is a sho
step.
The objections to a guaranteed return as a practical expedient az
perhaps as great as the objections that rest upon the principle.
I find that Mr. Clark, of the Interstate Commerce Commission, i
his statement has addressed you on this subject, clearly and at som
length. He says that a guaranty by legislative assurance—that ik
through rate adjustments or rate manipulation—is impossible.
says it is impossible and he has, at some length, given his reasons {0
that statement. I had reached the same independent conclusio
because I had not read Mr. Clark’s statement until I came to Wash
ington, and I find I have duplicated a good deal of what he ha
probably better said, and so I am going to eliminate that. |
I am going to postulate the conclusions that itis impossible, thatii
is undesirable, that it is wrong in principle to undertake to arrive a
_and maintain any definite given return upon any valuation, no matte
how arrived at, by rate manipulation.
The bases of the valuation suggested are, first, the stock and bon
capitalization, or the property investment account or the bool
value; or what may be termed the ascertained value, based upon th
cost of reproduction less depreciation. Those are the three sugges
tions as to the basis of valuation that might be used, upon which th:
railroads are to be guaranteed a return.
Whatever basis may be adopted, it is obvious that the values 0
the different railroads would present great variations and dispro
portions. If capitalization be taken as the basis, a premium woul
be paid the overcapitalized roads as a reward for their extraya
gance, while the conservatively capitalized roads would suffer a cor
responding disadvantage because of the:. very prudence and go0¢
management. The same would be true if the book values of the
properties be taken as the basis.
Now, let me give you an illustration, and I give it to you botl
because it is a situation with which I am very familiar and becaus¢
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 469
is perhaps the most apt illustration I could find; and that is, a
»mparison between the Atlantic Coast Line and the Seaboard Air
ime railway systems
‘The Atlantic Coast Line operates 4,780 miles of road, carrying
je value of its road and equipment at $184,890,432. The Seaboard
ir Line, operating 3,461 miles, or 1,329 miles less than the Coast
me, carries the book value of its road and equipment at $193,-
39,994, or $9,095,563 more than the Coast Line.
Mr. Sms. $9,000,000 ?
Mr. Wimsisu. $9,000,000 more than the Coast Line.
‘Mr. Monracue. And 1,300 miles less road.
Mr. Wimpisu. With 1,300 miles less road. it carries its road and
{uipment account at $9,000,000 more than the Atlantic Coast
me. Now, anyone at all familiar with the situation there knows
tat the Atlantic Coast Line as a physical property is not inferior
r mile of road to the Seaboard Air Line, but, on the contrary, is a
rcidedly better constructed and a better maintained property, and
t we find that variation in the book value carried by those roads
‘spectively.
Mr. Monracur. Might not that excess come out of better con-
ruction and better equipment of the Seaboard Air Line road ?
Mr. Wiusisu. I just stated that anyone familiar with the proper- ’
's knows that that is not the fact. The Coast Line is a better con-
eucted property.
| Montacur. The Coast Line? I understood you to say the
‘aboard Air Line; I beg your pardon.
Mr. Wimsisu. No; I said the Coast Line is much the better con-
‘ucted property.
€ nearest approach to equality, if it were feasible, would be to
vertain the physical value of the railroads and their value accord-
; to other elements that might enter into the proposition.
In the first place, that is not practicable. The time and expense
rolved forbids it. We all know that the Interstate Commerce
mmission has for a number of years been engaged in arriving at
» physical valuation of railroad properiies. They have completed
ir Investigation finally only as to a few of the railroads of the
mtry, and as to those the conclusion arrived at is not of any
lue as a basis of rate construction or of value in itself, because the
its of value were taken as they were in the years when the investi-
lon was going on; in other words, in 1914 or 1913, when costs
te very much less than they are now.
50 that the valuation of the roads made according to the formula
the Interstate Commerce Commission might reflect their value as
1914, but would be utterly useless as indicating their value to-day ;
1 the valuation would be such a shifting one. It would vary from
w to year, and in my opinion would be entirely an unsafe and
Jertain standard.
_think these objections have been recognized by those who ask for
uaranty. I think they recognize that they are unanswerable, and
‘they attempt to find an expedient to meet the situation.
‘(he suggestion of some of those who favor a guaranty is that the
‘roads in each region be grouped into a few large systems, either
mitting or compelling the strong roads to take over the weaker
8, thereby ironing out the inequalities on the theory of general
Tage. It is stated that the values could then be arrived at by
470 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
taking the aggregate property investment of the combined roads, so
_ that what the system loses on the one it will gain on the other. Others
maintain that the few new large systems should be continental rather
than rogional, and that the value of the constituent properties might
be arrived at by agreement without employing the long, complicated,
and expensive method necessary for a physical valuation.
The merit in the plan for either compelling or encouraging @ merger
of the weaker into the stronger lines is not readily perceived. All
averages are obtained at the expense of the superior factor. An
infusion of anemic blood into a vigorous body can not improve the
health of the system. ,
Again referring te our illustration, and I am carrying this illustra.
tion of the Coast Line and the Seaboard throughout for the reasons I
have stated———
Mr. Sims (interposing). As being typical of the whole situation.
Mr. Wimsisu. As being typical.
It is pertinent to inquire wherein and to whom any advantage
would accrue by 2 consolidation of the Seaboard Air Line with thi
Atlantic Coast Line, with which it is most closely connected physically
It scems clear that no benefit would flow to the public. No additiona.
transportation facility would be afforded, while competition in service
would be stifled or destroyed within that territory, within which they
are parallel, competing systems, serving the same general territory
Nothing of value to it would be acquired by the Atlantic Coast Line
No new traffic would be created, nor any additional source of earning:
be developed. .
Should the Seaboard be taken over under its present heavy capi
talization and book valuation, this would impose a great burden upoi
the Coast Line without any compensating advantage. The resul
woul be that the Coast Line, out of its earnings, would have to carry
the dead weight of the Seaboard in order that the stock and bonc
owners of the Seaboard should enjoy a return which their property
did not earn.
Nor could the Southern Railway use the Seaboard advantageously
it might divert traffic from the Seaboard to its present lines, but 1
it had to make good the losses to the Seaboard, nothing would b
gained. The Southern might feed the Seaboard by diverting som
of the traffic from its lines to those of the Seaboard which migh
stimulate the property of the Seaboard but it would detract in
equal or greater degree from the earnings of the Southern Railway
and you would have no gain but a loss.
That consolidation is not the cure for the ills of weak lines 1
demonstrated by the experience of the Tennessee Central Railroac
That is a poorly constructed railroad with thin traffic, having line
both east of Nashville, Tenn., to Harriman Junction, and west t
Hopkinsville, Ky. Some years ago the Illmois Central took over 10
operation the line of the Tennessee Central Railroad west of Nashvill
to Hopkinsville, Ky., where it connected with the Ilmois Centra
They sought to gain an entrance into Nashville over that line. 1
Southern Railway took over for operation the Ime east of Nashvill
+o Harriman Junction where it connects with the Cincinnati Souther
a::d the Southern Railway System.
Mr. Sms. You mean that they took over the line west or nortl
west. You used the word east in both cases.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 471
_ Mr. Wiupisu. I should have said the Illinois Central took over the
line west of Nashville, and the Southern took over the line east of
Nashville. Even the aid of these powerful systems could not make
those lines profitable to them, although it gave each of these large
systems—and they are great systems, both of them—an entrance
into the city of Nashville which, as you know, is a great traffic center.
Mr. Sims. And which they did not otherwise have.
Mr. WimsisH. Yes. After a few years of operation that was
abandoned and the lines were returned to their owners, and so I say
that consolidation in itself, the mere taking of a weak line and putting
it into a large system, can ‘have absolutely no advantage and is
attended with a great many evil consequences; so that it is no remedy.
Mr. Sms. It did, of course, add some additional traffic to the
Tennessee Central.
Mr. Wiupisy. Oh, yes; surely.
Mr. Sims. But not enough to change the condition materially.
Mr. Wimsisu. Now, even if a fair valuation can be found, the form
of the guaranty is of the very essence of the matter.
A direct guaranty by the Government of a defined percentage upon
the accepted valuation has at least the merit of being understandable
in its meaning and effect. It would be plain that any railroad failing
‘to earn its guaranty would be paid the deficit out of the Treasury of
the United States. The burden would be distributed among all tax-
“payers throughout tie country. This, of course, would be a subsidy,
and would be fraught with the evils that attend all such public
‘bounties. The payment and acceptance of that which has not been
“earned is ethically wrong and economically unwise. As applied to
the service of transportation, it neutralizes the antiseptic of competi-
tion and paralyzes the initiative and imagination that is indispensable
to progress.
Typical rates in official classification territory.
Classes.
: Buffalo, N. Y., to— Distance. | —@——_—_-__—_____————
1 a 3 4 5 6
Miles, Cents. Cents, Cents. Cents, Cents. Cents.
Montreal, Quebec... .......--.-- 434 74 644 49 35 30 an
AE Re eee 400 663 58 45k 32 274 224
Greenfield, Mass. .........------ 405 6E4 58 453 22 re 223
Memmpenier, Vito. Jos. lee eee ce 425 74 643 49 5 30 25
New York. N. Y............... 442 40 52 493 29 24} 20
@umemuic City, N.J....5.....-.-. 473 60 52 423 } 29 244 20
FS eee 475 60 52 42% | 29 24% | 20
Memeneton. DO... 5... 438 60 52 423 | 29 244 | 20
Heaerisonbure, Va...-......-..-- 47! 85 73 59 40 344 27h
Taneaster, Ohio.......-...----- 350 703 60 473 354 25 20
cMmis, Ohio. .-..........--- 321 5S 403 39 | 293 204 164
ES eee 332 674 574 45. | 34 24 19
Find:ay, a ES 325 f4 543 422 | 33 224 | 18
Marion, Ohi : 4h 491 Bo 224 8
Me | er |. |, g7k|. a | 24 i9
Omewater, Mich................ 385 69 | 59 46}, | 344 244 194
depen Mich /.<......-5..-.-.- 321 69 | 59 46% 344 243 194
MueeiCh.... ...........-..--: 44] 703 60 473 353 2 20
deoeeon, Mich. ................. 327 664 64 453 33 23 19
Gigawin, Mich................- 490 80 68 53 40 28 224
Lewiston 2 ea a 560 824 70% 554 413 295 23
femme MICH... Jo... 2.25. .-2c-e 619 88 15 59s 44% 314 25
Annapolis, Md...............--- 425 60 52 42} 29 | 243 20
New Haven;Conn.............. 445 60 52 42h | 29 244 20
Average...... ye ea ee , 410 683 59 49 | 36 26 21
!
_ Average of the six classes, 43 cents.
472 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Typical rates in southern classification territory.
Classes.
Atlanta, Gu., to— Distance.
1 2 3 4 5 6
oP: ee PSU Bis GS es SS
Miles. Cents. Cents. Cents. Cents. Cents.
Roanoke 3Vias =. eb sath og eae 7 99 80 65 54 50
Danvillay Vaiinite vote atecnceces 99 80 623 54 414
Raleishe NiC LEM Spo Peo ae se 99 80 624 54 414
Hayertevillesin, Cecons 8-8 ono ' 109 95 79 64 50
Myrtle Beach, 8. C......-...-.. 99 80 69 64 524
MaysvallesK 7% se Perens oat 135 119 100 814 664
Promtiort ie yer: tal eacenc eee 110 864 + 80 74 69
Louisvilleaae yoo o0c) aes seers: 115 1014 85 70 574
Winch ster Kyi ce ae 1313 1163 974 80 4
Hvansvilie, ind) .c2 2scee stece ss 115 1014 85 70 57
PRTC AG toes a. pee aire 115 1014 85 70 574
UnroniCityse lenin. ateccmessee 1063 824 764 70 66
Dyersburg; UReni.:akeot xe. ase 149 1174 1074 974 763
IRIGHMIQNG ICY a hee pecan ee 144 1274 104 85 724
Memphis; (Renn: .2. teeter ee 110 964 69 60 474
Clarksdale, Misstict eng: ek. 22 114 100 824 664 59
Gronada.< Missamece asc farm emee 1024 824 7 574 50
Durante Missi. “ence eee ease 99 7 674 564 50
Mendeniiall., Miss: oe Ge). fe. mea ce 145 124 100 814 74
Laurel Migs woe soe ae ne keie ae 1113 94 79 64 54
Hattiesburg, Miss; .....2.2.....- 1114 94 79 64 54
GulfportsiMiss. sees see ee ots 110 964 69 60 474
MowilewAlass set setae se 2 ole 924 724 564 474 40
Pensacola. o.0b 22. coe odes one Te, oy ODE 72% 564 474 40
Cottondale: Algo eee. eae: 119 924 864 8 69
Banama Cityrelawee ets eee oe 154 135 110 94 &C
Tallahassee cPila a... 2 jesse 122% 110 864 74 6C
Corinth: Miss s-.02 Jee. Lee. ! 110 963 69 60 474
Hamptons Sz Oceeac teas cece 1074 924 75 614 56
Cape Fear, N.C..... SB ote st 109 95 77% 64 50
Folkston ,/Ga7. 2c seeks 104 99 89 714 564
JOSUDA Gaee we ey conse’. en taee 973 85 69 54 45
St. Augustine, Platseho. bores 2 1064 1023 914 78 614
Palaska. alls fee. teetaee ke shoe 89 85 763 64 aa.)
Day-Gone. hi las te Se one entae fete ae 1364 125 109 93 75
Ceala cia 20 00G say! Spee pecs oe 1364 125 109 93 75
WeGshure Plagaas.. ces verte tiaee 1414 134 114 963 .
AVOIBRO .) oatub s cpa ees 115 99 824 70 574
Average of the six classes, 93 cents.
Legislative assurance of any given return to be accomplished
through the medium of rate adjustment appears to be even more
mischievous; and here again I refer to the statement which Mr. Clark
has submitted to you on that point.
The proposal is that the rates shall be so adjusted as to yield not
less than 6 per cent on the aggregate property investment account
of all the railroads as now operating in each of the classification
territories.
The property investment account or book value of a railroad rep-
resents neither the actual money investment of the stock and security
holders, nor the present worth of the property employed in the opera-
tion of the railroad. It is the aggregate of many items of accumu-
lated costs throughout a long series of years.
Mr. Robert S. Lovett, president of the Union Pacific System, in
his recent statement says that: ‘‘The book value includes in probably
all cases the par value of the stocks and bonds: kept alive and now
outstanding, regardless of earnings or actual value.’ He refers to
this as ‘‘the fallacy of book value.’’ In other words, the property
investment account takes in all stock outstanding at par, no matter
what was paid for it, and no matter what it is worth. It takes all
of its obligations of every kind at par. It carries in that account,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 473
is I have said, an accumulation of many, many items going back for
i long series of years, the value of which probably has entirely disap-
reared, if they had value at the time they were entered. ‘So that
you would have a most inflated standard upon which to base your
‘eturn. Now, they want 6 per cent upon that for dividends and
yayment of interest. In addition to that, they want a percentage,
‘he amount not named, sufficient to act as an Incentive and induce-
nent to secure at fair money rates the capital necessary to give ade-
juate facilities and service, and “to secure in railroad management the
yest brains obtainable.” In addition to all that they ask that another
und be provided to meet contingencies and indefinite obligations
I think it may be said that this plan calls for a net return of some-
hing like 10 per cent on the entire property investment of all the
ailroads in the country.
_I do not think the property investment account has ever been
ceurately arrived at. The best estimate is that it is something -
ike $19,000,000,000 and exceeds the outstanding capitalization
Tobably by $2,000,000,000. Now, to produce 10 per cent upon that
vould require $1,900,000,000 a year. When you remember that
his must be net, over and above operating expenses and tax accruals,
4 would mean that the railroads would probably have to carry
traffic yielding an additional gross revenue of between four and five
illion dollars, in order that $1,900,000,000 might be realized as a
et return. It imposes, then, that enormous burden upon the vast
mount of commerce moving in interstate channels. To accom-
lish that would require an advance in rates that I think would be
onservatively estimated at 50 per cent. I doubt if 50 per cent on
‘he traffic that moved in any preceding year would yield that much
loney net to the railroads annually. And you must remember
‘fis, that when freight rates exceed a certain point, the movement
T traffic is restricted and limited.
Mr. Sims. And reduced.
“Mr. Wimpisu. Yes; and when it reaches another point, the traffic
easestomove. Thereis aratio which I can not define and perhaps
as never been defined, between advances in freight rates and limi-
vions upon the volume of the traffic. They go together, and if
ou impose anything like 50 per cent in addition to the 25 or 30 per
*nt advances already imposed upon the commerce of the country,
ou have got a structure of freight rates so high, certainly in some
arts of the country, that a large part of the traffic now moving
anid be destroyed, and would not move at all; and so you go.
‘ Mr. Sms. And the indirect effect upon the country of not being
ble to move that traffic is appalling.
Mr. Wimaisu. Surely, sir. The whole proposition comes down to
‘us, that such exorbitant rates ought to be exacted from the public
s would yield admittedly excessive returns to the greater number
“Tailroads in order that the less favorably situated roads, con-
ituting a decided minority of the whole, may enjoy a return beyond
tat which would inure to them under just and reasonable rates
or the services rendered; and the whole public is to be enormously
malized to make up for the shortcomings of those railroads that
ave on unwisely built, improvidently managed, or inefficiently
erated.
474 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
It would seem much more just and economical for the Government
to aid meritorious weak lines by a direct subsidy, or by a loan of its
credit, rather than impose such vast and disproportionate burdens
upon the public as would be involved in the scheme proposed.
Now, I go back again for a consideration of the status of the weak
lines, and my illustration is the southern region. The only system
operating more than 1,000 miles in the southern region that failed to
show profitable returns under private operation was the Seaboard
Air Line. A study of the situation indicates that the fundamental
trouble with the Seaboard was not the lack of traffic or of earnings,
but overcapitalization of the properties upon which it was sought to
earn the return.
Taking the year 1917, the total operating revenue per mile of road
of the Atlantic Coast Line was $9,217 and that of the Seaboard Air
Line was $8,942, or only $274 less than the Atlantic Coast Line.
Mr. Sims. Per mile of line?
Mr. Wimeisu. Per mile of line. The Central of Georgia was $8,351,
which was $592 per mile less than the Seaboard Air Line. The net
revenue from operation to the Atlantic Coast Line was $2,989, to the
Seaboard Air Line $2,542, and to the Central of Georgia $2,594. In
other words, the net to the Seaboard was only $546 per mile less than
to the Atlantic Coast Line and was only $52 per mile less than to the
Central of Georgia. That indicates conclusively that in the volume
of traffic, in the character of traffic, in the length of haul, and rates
applied the Atlantic Coast Line, the Seaboard Air Line and the
Central of Georgia are largely upon a substantial parity. So the
trouble is not the lack of traffic. The net of the Seaboard Air Line
is proportionately less than the others, because its operating ratio is
2 per cent higher than the Central, I believe, and 4 per cent higher
than the Coast Line, making a difference in the net; but even then
the earnings are substantially the same. The difference between the
net earnings per mile of road of the Seaboard and the Central of Geor-
gia was only $52. The Atlantic Coast Line, as a result of its opers-
tions, earned 16 per cent on its common stock, the stock investment,
and the Central of Georgia earned 34 per cent, while the Seaboard Au
Line earned nothing.
Mr. Sims. What about the Seaboard Air Line?
Mr. Wiupisu. Nil; nothing on its capitalization. We then look
to see why and we find that the Seaboard Air Line is capitalized at
more than $56,000 per mile of road and we find that the Atlantic
Coast Line is capitalized at something over $45,000 per mile of road.
Mr. Sims. In stocks and bonds ?
Mr. WimetsH. Stocks and bonds capitalization. In other words,
the Seaboard Air Line is capitalized at more than $11,000 per mile
of road in excess of the capitalization of the Atlantic Coast Line.
If you will bring the capitalization or the basis of value upon which
the return shall be had of the Seaboard Air Line down to that of the
Atlantic Coast Line, the Seaboard Air Line will cease to be a nom
earning line, it will cease to be a weak line, and will at once take it
place among the earning lines of the region im which it is operate
Mr. Denison. Is there anything in the physical properties tha!
aie make that difference in the cost of construction, the rate pei
mile ? :
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 475
Mz. Wimpisu. I think, sir, that anybody, whether expert or casual
‘observer, who will go over the lines of the Atlantic Coast Line and the
‘Seaboard Air Line or gain the information in any other way, will
necessarily come to the conclusion that the Atlantic Coast Line
er mile of road is a much better constructed and maintained road
than the Seaboard Air Line is. In other words, the Seaboard Air
Line is capitalized on a higher basis per mile of road on a property
of lesser value than the Atlantic Coast Line. There is the sore spot.
That is the whole trouble with the Seaboard Air Line. If time and
occasion admitted I could zo on and take uther lines throughout the
country and by analysis I could show you that the trouble is due
to the same thing as that of the Seaboard Air Line, overvaluation or
_ overcapitalization.
Mr. Denison. Is there any legislation necessary more than has
been enacted, in your judgment, to remedy the condition that you
have described with reference to the Seaboadr Air Line?
Mr. Wiusisu. I have only one suggestion to make in that connec-
tion. I think I am fair in my statement that I see very little, indeed
IT see no occasion for any radical legislation by Congress to meet that
situation. I have gone over the measures before Congress and the
lans that have been suggested outside, and my deliberate conclusion
is that the Esch bill comes nearer being what you need and need now
than anything else that has been offered or anything that I could
suggest, and therefore I have arrived at the conclusion that we ought
to submit no plan to you, but say that we approve at this time in
principle the Esch bill.
_ Mr. Sus. I have the same opinion about the Esch bill as you have
and I am not assuming anything, except that the bill is a good bill.
Would it have the effect, upon its enactment, as has been claimed in
a great many quarters, especially financial quarters, of putting all
the railroads into the hands of receivers ?
Mr. Wrpsisu. [ think not.
Mr. Sims. I agree with you.
Mr. Wrapisu. I can say, after study of the situation, that certainly
it would not have the effect of putting the roads in the southern
territory in the hands of receivers. I mean, taking conditions as
they are. I am not discussing it with the idea that you will submit
to this $800,000,000 demand for increases in the wages of labor and
all that sort of thing. If you do, that presents a different proposition.
Tam taking the conditions as they exist to-day.
Mr. Sms. What is now known and not what may become known ?
Mr. Wrupisu. Yes, sir. On that basis I should say that the south-
ern lines in that region as a whole could operate profitably. I know
’
i
the transcontinental lines are in the same situation as the southern
lines. They can operate under private control under existing con-
ditions profitably. I am sure that the interterritorial lines which I
have mentioned could operate successfully, and many of the lines
in the eastern district like the Pittsburgh & Lake Erie, the New York
' Central, and a great many lines of that kind could operate successfully.
Mr. Sras. While I have not read the vrocecdings of every receiver-
' ship, I have never read where the allegations of the proceedings were
_ based primarily upon the charge of governmental or State regulation
nor that Federal nor State legislation was the primary cause of the
demand for the receiver.
476 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Wiupstisu. I do not think it could have been truthfully so stated.
Frankness compels me to say this: I think not only is a railroad
entitled to fair compensation for the transportation service that it—
renders, but I think 1t is imperative that the railroads should receive
such compensation. What is a just and reasonable charge for a
particular service is, of course, a matter always resting upon judgment
in view of the particular facts. You have a tribunal to pass upon
matters of that kind, but when the subject gets larger, when you look
to a region and when you find for a series of years that the average
road in that region has not prospered or is going down in its net
earning capacity, there is a disease there which you must discover in
order to find the remedy. I think that in the eastern district matters
have been very much aggravated by this congestion which I have told
you of and given, in my opinion, the reasons for.. I think that is
transitory and will not occur again. Yet, when I look further it
suggests to my mind that perhaps the rate level is too low in official
classification territory. If the rate is too low it affects the roads on
an average, year in and year out, in their fair compensation for their
services. Then I began to compare those rates with rates in other
regions. I have had drawn a diagram taking Buffalo as the center
and deseribing a circle with a radius of 500 miles and have given
the rates and distances on the first six classes to a number of points
within that described circle. We have drawn a similar diagram with
Atlanta as the center, a 500-mile circle in the southern region operat-
ing under the southern classification ratings. We find that the aver-
age distance to the points in the Buffalo circle is 410 miles and the
average to the points named in the Atlanta circle is 396 miles. We
tried to get the distances as nearly the same as we could. We find
that the average rate on the first six classes in the Buffalo circle is
43 cents a hundred pounds, and we find that the average to the points
within the Atlanta circle is more than double, 93 cents pes hundred
pounds. That is, the average of the first six classes, one under the
official classificaticn ratings and the other under the southern classi-
“cation ratings. It is not fair or accurate to say that that comparison
is exact, because the ratings of the official classification differ from
those in the southern classification, and the character of the commo-
dities moving under the class rates may differ in the two territories.
So, I do not wish to be understood as saying that the rates in the
South are more than double those in the East, but I do say that the
illustration that I gave you is typical of the general situation and
demonstrates this, that the rates in official classification territory are
relatively low, if not abnormally low, and that extends into the
western trunk-line territory, north and west of Chicago. The
remedy may be by an equalization. You may increase the level of
rates in that great territory or you may increase the level in one
region and lower it in another so that you get a general body of rates
that will afford adequate compensation for the transportation service
rendered by the fairly efficient and well-managed railroads within
those regions.
I think that the cure for the weak lines does not consist in over-
feeding the many prosperous lines in order to stimulate the vitality of
these languid members of the family. The administration of opiates
or other palliative treatment would, in the end, aggravate the trouble.
What the case calls for is surgery. In cases like that of the Seaboard
‘
[To accompany pt. 4, Hearings on Return of Railroads to Private Ownership. |
QTOWER MICH,
GLAQYUIM ACH, D LEWISTON, ANC i.
ALMA Mpct ;
MONTPELIER, V7,“
REAAGSING, MICH,
JACKSON, MEAN |
RUTLAND, vi,
COLDWATER, MUCH,
GREENFIELD, Ass.
\CEFIANCE, 0.
BEN OLA a ’ ,
MEW! HAVEN, COM
| 921478, 0.
NEW YORK, ae. j
\MARION, ©.
ATLAPTIC ENY, Hey f
\ COLCA EUS, 0. : pose denf
wwAboLs, mo Bf
SLAN CASTER, O.
WASHING TOY O.6-
HARRISONEYRE, VA.
476
PLOWISVILLE KY
LeeangFoRT,. KY, "UR
4y;
@ EVANSVILLE, INO. :
Are,
Su,
“A,
DANVILLE, VA.
-
PADUCAH KY WINCHESTER, KY.
RICHI GND, KY.
ONIGH CITY, TERN,
ILEIGH, NE.
SSVERSE URC TENA,
f MEMPHIS, TENN.
_ BCORINTH, MISS.
\ | eax SDALE, MISS, CAPE FERRARA,
4
4 BzEeWADA, /41s3,
MIRTLE BEALH,S
J 7 WL ZO, ,
| DURANT, ; UAMPTON, So. #
‘ AUREL Fis i ESUP GA.
Q HATTIESEURG, MSF, CLK STON, GR.
SULEMERT. MIS 8 ,
= CeyTOWwORLe, Fut. AV
TRLLAKASSEEFLR. | PRLATKANZA.
477
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ATT
Aur Line the valuation and capitalization should be cut down to such
reasonable basis as will permit of a fair return under just and reason-
able rates for the service rendered.
| The Cuarrman. How would you accomplish that?
Mr Winpisu. By a reduction of capital. I have shown that the
volume of traffic is sufficient compared with the Atlantic Coast Line.
[he great trouble with the Seaboard Air Line is the overvaluation
wf its properties. If you cut the Seaboard Air Line $11,000 a mile,
he same as the Coast Line, the Seaboard will become an earning
. S.
_Mr Sims. When a corporation goes through voluntary receiv er-
ship, that would not be nearly as costly as court receivership ?
Mr Wrisisu. I know.
_ Mr Sims. Let them do that voluntarily without asking anybody to
ielp them out of the trouble.
_ Mr. Wists. I think some way might be found by the Govern-
nent which would result in the accomplishment. Perhaps a prac-
jical plan might be evolved under which the Government would
‘xtend aid to meritorious lines upon the condition that those which
ire too heavily capitalized to earn a fair return under just and reason-
ible rates should voluntarily reduce their capitalization to such an
umount as would be approved by the Valuation Board of the Inter-
‘tate Commerce Commission, or by the commission itself. This
ud might appropriately take the form of a direct loan at low rates
if interest, with a small annual sinking fund requirement which would
@ sufficient to retire the principal of the loan within from 20 to 30
rears, or such other time as the exigency of the case might require.
yuch a course would find precedent in the State and Hederal aid
ranted to railroads in the earlier days of their development. and
vould avoid the evils that grew out of a loan of the credit of the States
3 railroads which, as we all know, was greatly exploited and
‘bused.
Mr. Sims. I wanted to propose an adequate remedy myself, with
he condition that if the Government guarantee the loan it should
lave the first lien upon all the assets of the railroads, the physical
aberty. etc., but the railroad people suggested that that would
ust ruin everything. :
| Mr. Wimaisu. I have not thought it out in detail, but the sug--
an seems to me well worth consideration as a method of prac-
ical relief.
The Cuarirman. Please put that in concrete form in the way of a
ction or provision of the pending bill and make it a part of your
tatement.
Mr. Wimsisu. I shall take great pleasure in doing so.
The Cuarrman. It will aid the committee in getting concretely
our thought.
Mr. Wrmisn. I shall do so with pleasure.
/ Now I will hasten to a conclusion.
| The Cuarrman. It is about 12 o’clock and we will recess until 2
clock if thet meets your convenience.
Mr. Wiusisu. Certainly.
(Thereupon the committee took a recess until 2 0’clock p. m.)
}
|
|
478 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
AFTER RECESS.
The committee reassembled at the expiration of the recess.
The CHAIRMAN. You may proceed, Mr. Wimbish,
Mr. Wimsisu. In answering a question this morning from Co}
Winslow, to which I had not given a great deal of special thought, .
enumerated some of the railway systems that I thought had bee:
exploited to the great injury of the public and of the stockholder
and the security owners of the railroads. Somehow, the most glarin
illustration of that escaped me for the moment. Doubtless it all o¢
curs to you.
Mr. Wrnstow. Will you pardon an interruption? It was not m)
purpose, particularly, to go into the detail of the roads so much a
the general proposition. You can serve your own pleasure abou
that.
Mr. WimeisH. This is a large proposition and involves a whol
territory which I had overlooked, and I want to get it in this record
Mr. Winstow. You can suit yourself, so far as I am concerned
about giving the roads by name.
Mr. WimsisH. I will just say then in a general way
Mr. Winstow. And in that connection, Mr. Chairman, may wi
have stricken out reference to special roads before the conclusion ©
the statement. It was not my intention to pin you down in apn}
such way as that.
Mr. Wimeisu. I understand. I simply want to elaborate a littl
my answer and say that exploitation has, to a larger extent than !
indicated in my answer, affected the transportation efficiency and the
rights and interests of the public and the stockholders of the con
panies.
I have observed no direct reicrence in any of the plans to what
are known as the short lines, and I should like to submit just a brie’
observation concerning those railroads. —
The short lines, as I understand it, comprise those roads operating
less than 100 miles. It would be a mistake to assume that all shor
lines are weak lines or need help. We find some of them very highly
prosperous. Taking the region with which I am most familiar, te
southern region, and you have the Atlanta & West Point, the
Western Railway of Alabama, the Washington Southern, the Rich:
mond, Fredericksburg & Potomac, each falling into the category ol
short lines but all very prosperous lines. There are a number 0
other short lines which, because of their favorable location and gooc
management, fall into the class of prosperous lines; but there are @
large number of those short lines that were constructed to serve loca
needs that can not live upon the traffic that is local to their lines unde
any reasonable rates upon which the traffic would move. Some 0
those lines with the proper encouragement will develop into pros
perous lines. Others will long continue to be weak lines. I find thai
those who speak for the short lines, through the American Short Lin
Railroad Association, are opposed to any guaranty of return. '
Mr. Bird M. Robinson, who is the president of that association, 1”
a recent address at a convention of the association held in Wash
ington, declared his opposition to a Government guaranty, doubting
the right of the Government to give such a guaranty, and believing
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 479
that it would be unwise to attempt to fix at any time what return
should be given at any future time. He says:
_ It must be recognized that conditions, interest rates, and prices of commodities, as
well as the value ol labor, fluctuate from time to time, and are necessarily different in
different sections of the country. At one period the interest rates and prices may be
low and the just compensation due the railroads for services rendered to the public
should be correspondingly affected. At another period interest rates and prices are
high, as they are now, and during such period the Just compensation due the railroads
for services rendered should be a higher and different rate.
The relief, as I understand it, to which these short lines think they
are entitled is that it should be made the mandatory duty of the
Interstate Commerce Commission to establish through routes and
joint rates upon application therefor, and itself determine the division
a the rates as between the trunk line and the short line.
The commission has long doubted its power to open such through
‘outes or to make such joint rates, or to determine the division of
ihe joint rates, excepting as to those rates prescribed by the com-
mission. By a recent majority decision, the commission now thinks
that it has that power, but it seems that it would be well to confirm
uch power to the commission and let it be not only within the power
yut within the duty of the commission, upon application of the short
ine or the trunk line or any interest, to institute the proper investi-
ration and determine those routes and divisions.
Merely to permit the short lines to charge higher rates than are
ipplicable to trunk lines for similar hauls does not meet the situation.
._ know that has been tried. There are some jurisdictions, some of
he States, in which those classes of roads are permitted to charge
naterially higher rates than the trunk lines for similar lengths of
laul, but it has not operated succesfully.
High rates tend to restrict the traffic, and even if it moved, there
re few of these short lines that need relief that could live under any
ates upon which the traffic would move; and so it would seem that
tis in the public interest to preserve these short lines, which are fre-
(uently valuable feeders to the trunk lines and sometimes serve a
ommunity which is otherwise without transportation service, or
erve local needs that can not otherwise be served. I say if there is
uch a situation as that and the short lines should be encouraged, as
think they should, then the most feasible plan that suggests itself
9 my mind is that which is advocated by the short lines themselves.
Jo not take them and give them a guaranty. Do not undertake to
wn them, either wholly or in part, but give them fair divisions of
drough rates and then let them develop along those lines as they
an, and as they will.
Now, gentlemen, when we face a difficult situation like this, which
‘essentially an economic problem, it is always safe to go back to
rst principles and see what light we can gain from those principles
1at will aid us in the solution of the problem.
There are only a few, a very few, underlying principles that obtain
nd operate in the matter of transportation charges.
vet me say here that all of this talk about a legislative made rule
[ rate making, to my mind, contradicts the very principle, the
sonomic principle, upon which rates not only may and should, but
lust be made, if they are going to continue to serve the interests
oth of the carrier and of the shipper and of the public. )
152894—19—-vor 1——-31
480 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
If experience teaches any lesson, it is that while the current of
economic law, like the flow of water, may be diverted or obstructed,
it can not be subverted and defeated. Such an attempt is not only
impotent but surely invites disaster. We will be wise if we can learn
what those fundamental principles are and then observe them.
The great principle, the great economic principle, to my mind, 1s
that the carrier is entitled to a fair return upon the value of that
which he employs for the public convenience, to the extent that
this can be accomplished under rates that are just and reasonable
to the public, ,
This was the principle declared in the early case on this subject
by the Supreme Court in Smythe v. Ames (169 U. 5., 466), a case
with which we are all familiar, which has been frequently reaffirmed,
and never doubted. I ask the liberty of making a short quotation
from that opinion: |
What the company is entitled to ask is a fair return upon the value of that which it
employs for the public convenience. On the other hand, what the public is entitled
to demand is that no more be exacted from it for the use of a public highway than the
services rendered by it are reasonably worth. If there be any conflict of interest,
the interest of the public is paramount and must prevail.
In any rate structure, the first effort is to determine what the
services to be rendered are reasonably worth and translate such
measure of value into the rates to be charged. That the carrier
should have atair return upon the value of his true investment is
ereatly to be desired; that he shall receive just compensation for the
transportation service rendered is imperative; that no more may be
exacted from the public than the services rendered are reasonably
worth is a limitation that may not be exceeded. As the Supreme
Court declared in Covington v. Sanford (164 U. S., 578) the publi¢
can not properly ve subjected to unreasonable rates in order that
stockholders may earn dividends. If the carrier can not operate
profitably under reasonable rates, it is a misfortune for it and its
stockholders that the law can not remedy by imposing unjust burdens
upon the public. .
In determining what is just and reasonable as between the carrier
and the public, the cost of the service to the carrier as well as the
value of the service to the shipper must be considered. An element
entering into this cost of the service is the value of the property em-
ployed.in performing it. A fair return upon the property investment
is one, and an important, factor to be considered; but it is not the
single or even the dominant factor. If rates are to be fixed solely
upon the basis of a fair return upon the value of the investment, the
paramount right of the public to demand that no more be exacted
from it than the service rendered is reasonably worth, would he
completely subordinated. —— o
Whatever may be the relevancy of the value of the property in a
judicial inquiry concerning confiscation, I assert with confidence
that the ratio of return upon such value is neither proper nor pratt
cable as a rule of rate making. I do not hesitate to affirm that 10
schedule of railroad rates in this country ever has been made upon
such basis, or-even can be, without violent imjustice to the true
interests of all concerned. 7
At the hearing in the circuit court of the case of Union Paeifie
Railway Co. et al. v. Interstate Commerce Commission (222 U. Sy
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 48]
541), Mr. Howard Elliott, then president of the Northern Pacifie
Railway Co., gave it as his opinion that neither the cost nor the
capitalization of a railway has anything to do with rate making.
Mr. Klhott stated that in so far as value was to be considered at all,
the value of the railroad as an operating machine should be taken,
without any direct reference to cost, physical value, or capitalization.
In other words, the earnings of the road would have to be capitalized
in order to arrive at its value as an operating commercial machine:
but the value of a railroad dependent upon its ability to make net
earnings and pay dividends is an uncertain and fluctuating standard
and misses the mark of those who would attribute value to non-
aarning roads.
Our purpose here is to endeavor to sound a note of warning against
the danger of radical departure from economic principles. Should
the railroads of the country be grouped into a few large systems and
m arbitrary rule of rate making designed to guarantee a minimum
‘eturn upon aggregate values be adopted, little vision is required to
lainly discern that every other interest in the country would be
subordinated to that of the railroads.
The most delicate subject presented for your consideration concerns
he functions of State commissions, and to what extent, if at all, they
thould be limited by Federal legislative enactment.
That which in the beginning wes a Federal union of supposedly
Overeign States has evolved into a great Nation which stands in the
irst rank of world powers. As provincialism decayed, nationalism
lourished. Facilities for easy and rapid communication being pro-
rided, business became largely nationalized and commerce between
he States enormceusly expanded, until it is now estimated that about
10 per cent of the traffic of the country moves in interstate commerce.
| en two forces operate upon one subject within the same sphere
f influence it seems inevitable that the greater will eventually destroy
helesser. To the extent then that regulation of domestic traffic may
onflict with the welfare of commerce between the States, the weaker
aust yield to the stronger influence. The relaxation of State regula-
ton has responded to the demands of commerce as a whole; and
here is little reason to doubt that this process will continue, with or
ithout legislation.
In view of this it becomes all the more important to pause and
onsider the legal as well as the economic aspects of the situation.
The exclusive right and power of the State to regulate and control
8 purely domestic commerce will not be controverted. The plenary
ower of Congress over interstate and foreign commerce is equally as
npervious to doubt.
The intent of the Constitution as judicially construed is that com-
lerce between the States shall be untrammeled, subject only to reg-
lation by Congress and its agencies. State action that would impede.
ie flow of this commerce or cast any undue burden upon it is there-
re forbidden.
_ These principles of fundamental law are not subject to change or
iedification at the will of either Congress or the States. Neverthe-
8s,the interpretation of our Constitution is amenable to a crystalized
Ad sustained public sentiment, which has more often influenced
langes in our constitutional law than have ever been effected by
ypress amendment. Should the thinking public become convinced
482 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
that the general welfare demands that the powers of the State over
domestic commerce should be abridged or destroyed, a way may be
found for its accomplishment by a new and enlarged construction 0}
some of the familiar powers that have been expressly conferred upoy,
Congress.
But this exigency has not yet arisen, notwithstanding the diligent
effort that has been made and that is being made to create such ¢
sentiment, mainly through attacks upon the efficiency and integrity
of State railroad commissions. The State commissions, like al
human tribunals, are composed of fallible men who make mistakes
and who sometimes may be influenced by prejudice, but who aré
rarely corrupt. In the vast majority of cases these commissions art
faithful to their duties and fair to the carriers. I can not be silent
under the imputation that these men are so lacking in virtue an¢
intelligence as to warrant a condemnation of the system of State
control on that account. I dare say that Congress is far from ready
to deprive the States of the exercise of their constitutional powe1
over domestic commerce upon the ground that State commissions
are either incompetent or dishonest.
But the real grievance, gentlemen of the committee, of which
complaint is made is that a number of State-made rates are lowel
than the carriers would have them, and, notwithstanding theu
protestations, the carriers, or some of them, have not yet become
fully reconciled to public control in so far as the making of rates i
concerned.
The commissions, both State and Federal, have so won the respect
and confidence of the courts, that their determination of matter:
within their jurisdiction is rarely disturbed. :
Appeal is now made to Congress to so extend Federal authority
over commerce as to deprive the State commission of its real powel
over domestic rates, upon the theory that lower schedules of State
made rates operate as an unjust discrimination against interstate
commerce, and impose an undue burden upon that commerce.
The error of this statement lies in the assumption that all dis
criminations are unjust and therefore should be forbidden.
Whether a disparity in rates operates as an undue preference or al
unjust discrimination is a question of fact to be determined in ead)
case, and not a matter of policy to be dealt with and declared by
Congress. Not all discriminations, but only those that are unjust
are forbidden. The exercise of discrimination is essential in th
successful conduct of affairs. The root meaning and the correc
definition of the word is to distinguish, to discern. The exercise 0
this discriminating judgment consists in distinguishing difference
and observing distinctions. The lack of this discrimination creat
prejudice and is as harmful as its opposite.
Disparities of rates, then, while evidence of discrimination, do no
at all imply that such discrimination is unjust. If the State-mad
rates are themselves reasonable, they are not to be condemned merel,
because similar interstate rates of the carrier are higher. ‘
In the Minnesota rate cases (230 U. S., 352), referring to the mp
doubted power of the State over its domestic commerce, Mr. Justi¢
Hughes says that a requirement that the State rates shall be on &
equal or higher basis than those that are fixed by the carrier 10
nterstate transportation “is to maintain the power in name whil
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 483
denying it in fact’’; and he declared that the idea that the power of
ihe State is to be so limited ‘‘is foreign to our jurisprudence.” To
the same effect, see Chicago, etc., Railway Co. v. Public Utilities
yommission (242 U.S., 333).
_ Now, let me say here that there is no such thing as a schedule of
nterstate rates, upon which interstate commerce moves, that can
ye accepted as the standard by which to measure intrastate rates.
Che interstate rates between important centers are the result of
competitive influences that move a large volume of the traffic, and
ay are frequently lower than the State-made rates for a similar
iaul.
There is another class of interstate rates, known as the local inter-
tate mileage scale, which is gotten out by each company or system
or itself and which is intended to apply between local points in
lifferent States to and from wuich no through rates are published.
n other words, it is intended to apply to such an insignificant amount
if local traffic as to really be no factor in the situation at all.
Those rates have never been reviewed either by the Interstate
yommerce Commission or by any State commission, and are arbitrary,
igh mileage rates. Not only that, they differ. The mileage scale—
ve will take the State of Alabama—the mileage scale of the Louis-
‘alle & Nashville is a different scale from that of the Southern Rail-
vay. The Southern differs from that of the Central of Georgia;
nd so you have no standard by which you can measure these State-
aade rates.
| Our position is that the law as it now exists affords adequate
emedies against unjust discriminations affecting interstate com-
aerce.
In all such cases the prejudiced shipper or community may make
omplaint to the Interstate Commerce Commission which has ample
ower to determine whether the discrimination is unjust, and if so
und to order its removal. The exercise of this power by the com-
lission has been considered and approved by the Supreme Court in
series of cases, beginning with the Shreveport case, 234 U. S., 342.
_ What then may Congress be called upon to do? Shall it forbid all
tate rates that are lower than interstate rates, even though they
ork no injustice? Shall all discrimination in such rates be declared
nlawful, whether just or unjust ?
If such purpose should commend itself to Congress it would be
wsimpler and better to directly declare that the Federal authority
ould extend to the regulation and control of all commerce, both
iterstate ani that internal to the States. The constitutional limi-
ition upon the power of Congress over the subject could then be
sfined by the courts, and the matter set at rest.
Unless the thought is to so attenuate the rate-making power of the
tates as to render it impotent and accomplish its final defeat, no
gislation on this subject is necessary. There is no halfway ground;
less the power of the State over its domestic commerce be pre-
| tved in its integrity, the fabric will be shattered.
| But, say some, these lower schedules of rates cast an unjust burden
}90n interstate commerce, for that it requires interstate rates to be
aintained at a higher level than would otherwise be necessary to
“oduce revenues adequate to the needs of the carrier. Hence they
; gue, the pov er of the States to make such rates should be annulled.
A84 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
This argument defeats itself. If in fact the lower State rates do
cast a burden upon or operate to the prejudice of interstate commerce,
it is now an unlawful thing which the courts will restrain upon proper
application and proof.
Would it be unwarranted or unkind to draw the conclusion that
what the carriers and their security owners really seek is to rid them-
selves of the restraint of State regulation, so that State rates may be
advanced in those cases where they happen to be lower than inter-
state rates? If advances in State rates be permitted will the carriers
make any compensating reductions in mterstate rates so as to relieve
the supposed burden upon that commerce? Can one burden be
relieved by increasing another, in the absence of any injury to the
shipper ?
A little clear thinking makes it plain that lower State rates can not
cast a burden upon interstate commerce or impede its flow unless
such commerce is injuriously affected; and that can be truly predicated
only of such State rates as may constitute an unjust discrimination
against shippers in interstate commerce and the localities in whieh
they do business. | .
How is it possible, may I inquire, that a burden can be cast upon
interstate commerce, dissociated from those who engage in inter-
state commerce? Interstate commerce is not a living thing. It is
not anentity. Itis merely a channel, an avenue, an instrumentality.
Unless some impediment is placed upon the free flow of that com-
merce, which would prejudice the shipper or the community, then to
my mind it is impossible to see that any burden has been cast upon
anybody. Now, if there be such burden, it must arise at last, from
unjust discrimination. If such unjust discrimination exists, the
legal remedy now is adequate, and I hardly see how you can improve
it by legislation. }
Mr. Denison. Your contention is, or your position is, then, that
the injustice will be to the individuals who do the shipping 4
Mr. WimpisH. Necessarily. ) i
Mr. Denison. And only to the shippers ?
Mr. Wimsisu. Yes. é
Mr. Denison. And they have remedies in court; is that the idea?
Mr. Wimpisu. Yes; they have a remedy before the commission oF
the court, as the case may be. There are some unjust burdens that
do not involve rates, as in the McNeil case from North Carolina; the
reciprocal demurrage case; and cases of a character that may involve
legislation that does not directly affect rates. In such cases the
courts have original jurisdiction. In regard to those rates which are
within the jurisdiction of the Interstate Commerce Commission, tie
commission has the power to hear and determine and remove unjust
discrimination; so that one or the other forum is open to every
person who may be injured by any discrimination against interstate
commerce that injuriovsly affects anybody who uses interstate
commerce. That is my idea of it. | oe
Congress may have the power by direct enactment to foreclose
investigations, but certainly it will be sparing in the exercise of such
power. As Sir Izaak Walton said of the strawberry: ‘ Doubtless
God might have made a better berry, but doubtless He never did/
The limitation of this memorandum does not permit discussion of
the instrumentalities and means for the accomplishment of declared
a
7
aa
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 485
purposes. We must therefore forego consideration of the merits of
such proposals as the compulsory Federal incorporation of the rail-
Toads; supervision and control of the issuance of securities; the
estabiishment of regional commerce commissions with some sort of
supervisory power over State rates; the appointment of a secretary
of transportation with executive powers not remote from those
exercised by the Director General of Railroads in matters of policy;
or that last financial notion of the doctrinaire, the creation of a
Federal board of transportation to be vested with enormous and
comprehensive powers such as have never yet been intrusted to any
subordinate agency, even in time of war.
But let me say in passing that we do not advocate the creation of
regional vommissions for the purpose and with the powers that seem
to be contemplated. . Now, to the extent that a regional commission
or any other subordinate agency could assist the Interstate Com-
merce Commission in disposing of its work and thereby expediate it,
it is much to be desired, because we all know, we all realize, whether
from necessity or not, that proceedings before the Interstate Com-
merce Commission in matters concerning rates are very slow. Months
and sometimes years elapse—I am not criticizing the commission or its
members in saying this, but we must recognize that, due to many
duties, or some sufficient cause, that the proceedings are too slow.
We may begin an investigation before the commission, and before
it is completed the conditions have entirely changed. Whatever
can be done to expedite that and to relieve the commission of unnec-
essary duties, I think ought to be done. To the extent that a
regional commission might dispose of administrative matters, or
largely routine matters, or even take testimony and hear cases in the
first instance, we have no objection to it; but we do think it would be
unwise to establish little interstate commerce commissions through-
out the country.
If Federal regulation and control has one preponderant merit,
if it excels in one thing, it is that the jurisdiction of the commission
is countrywide. It coordinates rates, charges, and classifications,
and prevents disparities and uncertainties that would inevitably
arise if you had several tribunals exercising equivalent jurisdic-
tion throughout the country.
To say that an appeal may lie from the regional commission to the
supreme central body, does not meet the situation, because that
doubtless would require more delay and greater time, and involve
more expense than is incurred by a direct appeal to the commission.
ft would not relieve the commission to any great extent of the
volume of its work.
_ Thave thought a great deal as to what might be done in order to
xXxpedite hearings before the Interstate Commerce Commissien, and
{ am expressing now only my own personal view, and not as repre-
senting anybody, when I say that I have thought that probably it
night be best accomplished by dividing the commission, somewhat
as I understand was done in England; have a judicial branch or a
quasi judicial branch; let the commission, we will say as at present
sonstituted in its personnel, have complete jurisdiction over ail mat-
ers affecting rates, charges, classifications, and transportation, in
io far as regulating rates are concerned; relieve the commission of,
many of its perfunctory administrative duties; releive it of looking
:
486 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
after car service and safety appliances and violations of the act,
having their secret agents all out through the country, seeing whether
shippers or whether carriers were obeying or disobeying the law, and
if they find that the law is being disobeyed, report it to the Depart-
ment of Justice, and being, in fact, prosecutors. It seems to me
wise to take all of that away from the judicial branch of the Inter-
state Commerce Commission. If they have to pass upon the rights
of shipper and carrier, they should not have anything that would
tend either to prejudice them or to open them to the accusation or
charge of being prejudiced.
The CHarMan. Where would you lodge those powers that you
take away—in whom ?
Mr. Wimsisu. It might be done by constituting a judicial branch
of the Interstate Commerce Commission. Let them have their own
organization, as they have now, but let the head of each department
or branch be not the commissioner who is going to pass judicially
upon these matters.
The idea of creating a separate tribunal to pass upon matters of
wages and costs, as has been recommended by the President in his
letter, I confess does not appeal to me. On the other hand, I doubt
whether it would be proper for that commission to assume to exercise
that function—I mean the judicial branch ‘of the commission. That
might be placed upon the Interstate Commerce Commission, but re-
moved from the duty and jurisdiction of the judical branch of the
commission.
As Mr. Clark said in his statement, mm so far as operating costs are
concerned, and the amount of the investment, to the extent that they
might be material to the decision of the case, the commission now
takes them into consideration. I should not like to see another
tribunal passing upon these questions and saying to the Interstate
Commerce Commission mandatorily “Advance the rates sufficiently
to take care of these increases which we allow.” .
It seems to me that much of the evil that would attend making
rates with the idea of producing a definite amount to meet a fixed
guaranteed return, would apply to that situation. It would be an
enormous, and an almost impossible, task for the commission. How
frequently would these things come about; how often would the com-
mission have to readjust the rates? We would have no stability m
rates—and we all know that stability in rates is just as much to be
desired as reasonable rates themselyes—because the violent or
frequent fluctuation in the level of rates is destructive of stability.
We must have reasonable rates, and, above all things, we must have
stable rates. |
I have no objection to extending the power of the commission to
such an extent that it may be deemed advisable over water carriers.
“We do not think, however, that it should extend and apply to what
are known as tramp vessels or tramp steamers. I see nothing to be
gained by placing them under the jurisdiction of the commission,
and we think it might operate mjuriously if you did place them under
that jurisdiction. I am not going to elaborate that feature of it, but
merely throw out the idea; but, with that limitation, we would have
no objection to the extension of the power of the commission over
water rates and water carriers and the coordinating of rail and water
rates and carriers to the extent that may be found advisable. .
«
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 487
We have not deemed it appropriate to propose and submit any
lan to be added to the multitude now before you. The situation is
ntirely too serious for suggesting new theories and untried experi-
ents. Let us hold fast to that which is good, without being stam-
eded into the false notion that radical departures are necessary.
Our system of public regulation is far from perfect. Let us observe
nd correct its faults, rather than cast aside the structure that has
sulted from long experience, and under which the railroads as a
thole have been fairly prosperous. Above all things let us avoid
ach governmental undertaking or assurance as will create a strong
twored class with power to subordinate all other interests to its own.
Let the railroads be treated not only fairly but liberally. Let them
ave such rates as will be adequate to their reasonable requirements
i order to serve the public efficiently. But do not venture upon
ay arbitrary rule of rate making that ignores the rights of the public,
ad that will permit the exaction of exorbitant charges out of pro-
ortion to the value of the public service rendered. The power to
vy rates upon the necessities of commerce is closely akin to the
wer of taxation; and the power to tax involves the power to
astroy.
‘Upon the return of normal trade and traffic conditions the con-
rvatively capitalized and economically operated railroads will be
le efficiently to serve the public with profit to themselves without
ty radical changesinratestructures. If it be found that in any region
terauroads can not secure adequate compensation for their services
ider existing rates, such rates should be advanced. In the mean-
me, during this transition period, it would be much wiser to extend
mporary aid by direct loans from the Government rather than to
Ve the railroads a roving commission to replete their treasuries
‘ burdensome levies upon the commerce of the country.
Task permission, Mr. Chairman, to file these appendices as a part
Iny statement.
‘The Cuarrman. Very well, you may do so.
‘Will you also add, as a part of your testimony, a draft of a pro-
sion segregating the purely administrative functions of the com-
ission ? .
Mr. Wimsisu. I will endeavor to do so, Mr. Chairman. It will
° more study than I have given it, but I will endeavor to do so.
‘Mr. Merrirr. My understanding, sir, at the present time is that
any of the railroads, certainly the railroads in the Eastern District,
® not earning their standard returns.
Mr. Wmisx. That is true, sir.
Mr. Merrirr. Now, if those roads, even the great roads, like the
nnsylvania and the New York Central, should be returned under
(3 provisions of the Esch bill only, without any additional legisla-
1, what do you think would be the effect on the business of the
| untry ? 7
Mr. Wimpisu. I have indicated my thought that probably the
iuds in the eastern district are entitled to an advance in the level of
ir rates. Of course that is prospective; I mean that gives them
je revenue for the future. To the extent that they need immedi-
) aid and are meritorious—I mean the road itself is a meritorious
-perty—I think it would be much wiser for the Government to
jeend that aid directly to the railroad and let them proceed under
:
488 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
private operation and control, even if the Government, in som,
cases, would sustain a loss. I think it would be much better tha
trying any radical policy.
Mr. Merrirr. Some suggestion has been made here that it woul:
be well for a year, for instance, pending the settling of the genera
business of the country, that the standard return should be continue:
for one year after the return of the roads. Had you noted tha
suggestion; and, if so, what do you think of 1t?
Mr. WrusisH. I am rather favorably inclined to it, to give them ar
opportunity to readjust; but I would not continue the standar
return without some sort of control.
Mr. Merrirr. Without what?
Mr. Wimsiso. Without some sort of control.
Mr. Merrirr. Would not the enlarged control by the Interstat
Commerce Commission, under the Esch bill, be sufficient for tha
purpose ?
Mr. Wiapisu. Probably so. It is the principle that I uphold
that they should be given protection during a sufficient length o
time to enable them to effect their reorganizations and to adjus
themselves to changed conditions. I think that would be fair.
Mr. Merrirr. Now, with the Interstate Commerce Commissio:
having the enlarged control suggested by the Esch bill, which give
them very great control over railway rates, irrespective of legisla
tion, is it your view that that control gives them any responsibility
as to a rate which shall produce some sort of return on the proper
investment account? Do you think the property investmen
account should be ignored altogether ?
Mr. Wimersu. I think the value of the investment is one of th
factors that should be considered. I do not think it is a single factor
or even the dominant factor, but I think the commission has alway
considered, perhaps not consciously, but it has always had im min
the situation of the property, the operating costs, and the invest
ment, and has, either consciously or unconsciously, considered thos
things in arriving at what are just and reasonable rates. I knoy
in the 15 per cent case, in which I was engaged, the commission gay
a good deal of consideration to those matters. :
Mr. Merritt. In connection with the Seaboard Air Line, I under
stood your view to be that that road was probably overcapitalized
Mr. Wimsisyu. Overvalued, I think, sir.
Mr. Merrrrr. And I think in the suggestion that you made, tl
you were influenced in your view by at least the valuation, if not th
value, of the property. Is not that so?
Mr. Wiis. My view is this: That the Seaboard Air Line, an
all other railroads, should receive a fair return upon the value of the
property, of their investment, employed for the public convenient
to the extent that it can be had under rates that are reasonable #
just to the public. If the Seaboard Air Line is so valued that und
those rates, reasonable and just to the public, and under which oth
lines serving the same territory are prosperous, it has not been ab
to earn any return upon its stock, I think the solution of that is
bringing down of the valuation of the Seaboard to something like
true valuation. JI am only speaking of what I believe to be a tt
valuation.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 489
_ Mr. Merairrr. I understand.
| Mr. Wiveisu. So that the Seaboard Air Line will be enabled to
garn, under rates that are just and reasonable.
_ Mr. Merrirr. Yes. You understand, I simply asked that question
to clarify it in my own mind.
_ Mr. Wruvsisu. Yes; and I am very glad to state that.
Mr. Merrirr. Now, the obvious way to bring down the capitaliza-
jion of any railroad, or to revalue it, is to let the laws of nature take
iheir course, and if a road can not swim, let it sink. Is not that right 2
Mr. Wimetsu. Yes. I think if you can get the conditions right
they should all be given an equal opportunity, and then the battle
should be to the strong, and the race to the swift. I believe in com-
detition myself.
Merritt. Yes. That is true in normal times. The railroads
jave been gomg through abnormal times.
Mr. Wimpisu. Yes.
_ Mr. Merritt. They have been managed under war conditions; all
heir business has been mixed up; their traffic diverted; and all that
fort of thing. I noticed in a table which Mr. Commissioner Clark
jut into his testimony, at the suggestion of Col. Winslow, there are
oads whose capital stock amounts to something over two thousand
tulions, which paid no dividend in 1916.
_Mr. Wiweisn. That was about 36 or 38 per cont of the whole, was
{ not %
| Mr. Morerrr. I think so. I do not know about that.
| Mr. Sims. You mean they earned nothing, or they just did not
may it out, or both?
Mr. Merrirr. Did not pay dividends. The list of roads in class 1,
thich was in the table, the roads that did not pay dividends during
he year ended December 31, 1916.
Mr. Wimpisu. Many of those earned dividends and applied the
Loney to other purposes. I say many of them did; I mean some of
them did. |
Mr. Merrirr. Yes; some of them did. Of course, some did not.
Now, what I am getting at is our responsibility, as legislators, if
ny, to the commercial structure of this country, in treating that vast
lass of securities, which under these existing conditions apparently
\ of little, if any, value; whether we are justified in trying to tem-
orize, in our legislation, and keep these roads alive, or whether we
jad better adopt a general economic principle, which you euunciate
)ere, and if a cataclysm comes, let it come.
| You have evidently given great and intelligent thought to this
|Westion, sir, and that is the reason I am asking you whether, so far
)3 you have thought of that question, the country would be better
)Z, shrinking what it has to shrink at once, or whether it would be
atter to keep up this return for another year, and then let the ques-
jon be an open one as to what has to be done.
Mr. Wiusisx. I think the necessary aid should be extended in
me form and for some time until conditions become more normal,
|’ until it becomes evident that something else may be necessary
}\be done. My preference, after a good deal of thovght of it, is that
ere should be some direct Government aid.
. Merrirr. You think that should be discretionary, or absolute ?
. Wimsisu. Why, I think it should be discretionary. J think
6 aid should only be extended to those roads that deserve the aid.
490 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Merrirr. What would make a road deserving—virtue ?
Mr. Wimpsisu. Yes. Virtue is a large term. What I mean is that
any honestly conducted and fairly reasonably capitalized railroad
should not be criticized too harshly and severely right now, without
giving them a chance.
Mr. Merritt. The testimony shows that the increase of freight
rates has been somewhere about 25 or 30 per cent.
Mr. WimsisuH. Yes.
Mr. Merritt. That, I take it, is about as small an increase as any
great commodity has been subjected to in this great war.
Mr. Wimsisu. Well, there, if you will per.nit me
~ Mr. Merritt. I shall be very glad to hear from you.
Mr. Wipstsu. A railroad rate differs from a commodity. turn
ana million dollars in common stock, so that 2 company which has 50 million dollars
common stock and 50 million dollars in bonds is entitled to a different return +o its
|areholders than a company which has 5 million dollars in stock and 95 million dollars
‘Ponds. Further, a company which has been able to finance its extensions by its
m effort, is again, entitled to a different return than a company which has received
sistance from the State or Federal Government. [ecause ofthis it would be per-
tly feasible to work out a formula for each district which would show the minimum
he which the stocks of the companies operated in each of these districts are
‘Utled. This minimum return should go to the stockholders of the companies in
‘© Same manner as the living wage goes to the Jabor, and the rates in each district
uld be worked out so as to cover liberally the operating expenses without stunting
?Taliroads or reducing them to various uneconomical shifts, and to give an equitable
|
m capital according to the formula above referred to, as well as a living wage
- It will be found that the weakest roads will receive practically only that
i BY
3
a |
Bs,
ag
“d : . ; Pail
522 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
much. The stronger roads will, however, get a good deal more because of their highe
efficiency of operation, or perhaps because of their better location. The extra profit
of these stronger roads should go partly to capital «nd partly to labor, with that dis
tinction, however, that the share which goes to capital would be divided among th
stockholders of that company only, while the share that goes to labor would k 2 divide
not among the employees of the stronger company exclusively, but partly go into :
common district fund and be divided among all employees.
A little example may illustrate how it is proposed to operate such a scheme. Thi
X & Y Company has made an extra profit of say 10 million dollars. Out of this profi
the stockholders received, say, two-thirds, or $6,666,666, while the labor receives one
third, or $3,333,334. Out of this amount the employees of the X & Y Company
recelye one-half, or $1,666,667, while the other half goes into a joint fund for tl
employees of the local district to be divided equally amongall. Hence, the employee
of the X & Y Company will receive a little more than one-sixth of the extra profits o
the company, that is, the one-half of the one-third that comes to them directly, an¢
their share out of the commonfund. They would therefore have a particular incentive
to work well for their railroad.
It might be further advisable to modify this scheme, at least in certain instances
in the following way. The additional money that comes from the district fund shoule
be given out not each month but every three or six months in large lumps to enable
railroaders to meet large expenditures which can not be usually met out of thei
weekly or monthly wages, and thus free them of the curse of usurers and installmen
sharks. On the other hand, the large sums given out directly to labor from thet
own companies (that means, the one-sixth of the extra profits), should be given to then
only partly, say, 50 per cent, while the other part should go into a special fund and ac
as a sort of insurance fund, so that a man after having worked on the railroad for :
certain number of years would have quite a large sum saved for him to take care 0
him in his old age.
There are several similar modifications of this scheme possible and it is believec
that it has the advantage of both equalizing to a certain extent the wages in a certail
district and still providing an incentive for the men to care for the interests of thei
own company, and what is still more important, to stick to their jobs with well
managed and profitable companies. :
The above brief outline of a possible scheme of operation of railroads under privat
ownership but with Government regulation has been offered not so much as a workin
scheme which should be adopted as a whole, but simply as an illustration of the possi
bility of working out a plan under which public utilities could be treated fairly botl
to themselves and to the best interests of the country, and still remain under privat
ownership. .
PLAN PROPOSED BY VICTOR MORAWETZ.
RAILROAD CREDIT MUST BE REESTABLISHED.
To furnish adequate railway service in this rapidly growing country requires a!
expenditure of new capital averaging approximately a thousand million dollars pe
annum for improvements and additions enlarging the capacity of the existing line
and for the construction and- equipment of branches and extensions into territory ne
adequately supplied with transportation facilities. However, for more than 10 yeal’
there has been a gradual deterioration of railway credit, so that even prior to our ent,
into the Great War it became impossible to finance new railroad projects and the existim
railway companies were unable to raise the amounts of capital which they urgenth,
needed. At the present day many of the strongest companies are unable to raise al,
considerable amount of capital by sales of their bonds, except at ruinous prices, ai!
very few o° them are in a position to sell their stocks at any price. If the railway
should ucw be returned by the Government to their owners without far-reachin
remedial legislatici, a large part of the railroad mileage in the United States woul
soon pass into the hands of receivers. a
In my opinion, this deterioration of railway credit, with the consequent inabilit
of the majority of the railway companies to raise necessary capital, was not duet
_ insufficiency of,the incomes of the companies, but it was due to the loss of confidence
of investors in the stability of these incomes. I believe that prior to the war Ut
incomes of most of the important companies would have been sufficient to surt@
their credit if investors had felt confidence that these incomes would conti
Investors lost confidence in the stability of railway incomes and in the safety of railwa
stocks and bonds (except underlying bonds of the safest class), because no defini
and practicable rvle or standard for fixing railway rates was prescribed -by law and the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 593
eared that in the long run the various railway commissions would not allow the
‘ompanies to charge the rates necessary to enable them to continue to pay the interest
im their bonds and the usual dividends on their stocks.
| Merely to raise rates so as to increase the prewar operating incomes of the railwav
‘ompanies without definite assurance as to the future would not be enough to restore
he confidence of investors. Such an increase of rates and of the operating incomes
‘{ the companies might cause a temporary rise of the market values of railway stocks
nd bonds, but it would not in the long run restore confidence and it would not sole
he problem. The railway problem can be solved only by furnishing adequate
‘ssurance to investors that in the future railway rates will be fixed according to some
efinite, practicable and just rule or standard.
NO EXISTING STANDARD FOR FIXING RATES.
‘To provide by law that rates shall be “reasonable” or “fair” or “adequate” would
‘Imish no standard whatever. No one has ever devised any practicable method
f determining the reasonableness or fairuess or adequacy of a particular railway rate.
+ of a complete schedule of railway rates.
“The Constitution provides that no one shall be deprived of his property without
ue process of law and that private property shall not be taken for public use without
ist compensation. The courts have decided that a law or an order of a commission
‘xing the rates of a public service corporation so low as to prevent it from earning a,
ur return on its property would in effect deprive it of its property and therefore
‘ould be unconstitutional. The doctrine has now become generally accepted that
‘ay system of rates yielding more than this so-called fair return is too high and that
ie Government should fix rates at a level that will vield no more than the return
hich the companies have a constitutional right to claim. However, the Constitu-
on furnishes no standard for determining the value of the property upon which
.e railway companies are entitled to earn a fair return and it furnishes no standard
w determining the rate of return upon this property that is to be deemed fair. In
iew of the uncertainty as to the meaning and effect of these constitutional provisions,
ey have failed to give the necessary confidence to investors. The right to maintain
lawsuit against a railway commission to establish that the rates fixed by it are con-
scatory and unconstitutional is not a sufficient assurance to attract capital.
When we speak of the value’ of property we commonly mean its market value,
‘, 1n other words, the price at which it can be sold. But it is obvious that railway
ites can not be based upon the value of the railways, using the word “value”’ in its
‘dinary and proper sense. Railways are not bought and sold in the market and they
|ive no ascertainable market value. Moreover, as railways can be used only for
ilway purposes, their value depends upon the earnings that can be obtained from
1eir operation as railways, and these earnings in turn depend upon the rates which
| le Companies can chaige. An attempt to base the fairness and constitutionality of
| ulway rates upon the market or selling values of the railways would, therefore,
2» an absurdity.
For similar reasons rates can not be based upon the market values of the stocks and
mds which represent the properties of the railway companies. Tesides, the quoted
arket prices of stocks and bonds indicate only the approximate prices at which
mparatively small amounts of the stocks or bonds can be bought or sold for cash.
ORIGINAL COST OR COST OF REPRODUCTION NO BASIS FOR RATE MAKING.
In view of the impracticability of fixing the value of railways for rate-making
| Wposes in the manner in which the value of the property ordinarily is ascertained,
| has been proposed that railway rates shall be fixed so as to yield a fair return either
) on the original cost of the railwavs, that is to say,-the amount of money originally
| ‘pended for the acquisition of land, rights of way, buildings, equipment and other
operty embraced in the raiiways and for the labor employed in their construction,
| 8, however, depreciation, or (2) on the estimated present cost, of reproducing the
ilways as now constituted. less depreciation. There are insuperable difficulties
the way of carrying out either of these proposals. I shall point out briefly some of
se difficulties Lefore undertaking to offer a constructive proposal of my own.
The original cost of the railways is not ascertainable. Some of the lines were Luilt
ore than half a century ago; some were | uilt by construction companies in con-
teration of the issue of blocks of the stocks and bonds of the railway companies
* whom they were built; some of the railway companies have passed through a
‘St One reorganization and probably most of the lines no longer belong to the com-
| Mies which originally built them. In many cases the books and accounts showing
th more or less accuracy the original cost of the lines are no longer in existence and
524 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
no trustworthy evidence of their cost is obtainable. Moreover, until comparativeh
recent years the several companies had adopted no scientifie system or uniforn
practice in allocating expenditures to capita! account or to the cost of operation an¢
maintenance. Any attempt to ascertain the actual cost of the railways prior to th
adoption of the 7 resent scientific system of accounting prescribed by the Interstat
Commerce Commission would certainly fail and, at best, it would invelve ix cerminable
investigations and disputes.
A statutory valuation of the railways based largely on the cost of reproducing then
has been in progress since the year 1914 at enormous cost to the Government and to thi
railway companies, but the valuation of only a few of the smaller lines has been com
pleted. The rules to be applied in making these valuations have not been acceptec
i the railway companies or approved. by the courts and some of the methods 06
valuation adopted by the valuation board seem to be unreasonable and unjust. Tk
complete the valuation of all the lines will require many years, and probably addi
tional years will be consumed in controversies and litigation to correct errors in thi
official valuations. When completed, these valuations will be based on costs of labo
and materials during years long past. It seems obvious, therefore, that the officia
valuation of railway properties will not prove a satisfactory basis for fixing the return:
to which the companies are entitled and will not be available in time for the prepara:
tion of a plan for the solution of the railway problem.
It should be borne in mind, also, that if under the Constitution the cost of reprodue
tion of the railways is the measure of value on which they are entitled to a fair return
this must be the cost of reproduction at the time when the rates are put in force; but
the cost of reproduction of railway property fluctuates from time to time with the cosi
of materials and labor. If cost of reproduction is the proper basis for fixing rates, the
basis wo’ ld change from time to time as prices of materials and labor change, and it
would be necessary to recalculate the cost of reproduction and readjust rates accord.
ingly. Thus, in a suit to restrain the unconstitutionality of rates in 1925 the question
would not b:: wvhether these rates would yield a fair return on the cost of reproduction
in 1914, or in 1919, but the question would be whether they would yield a fair retur
on the cost of reproduction in 1925. | :
Even if the original cost or the cost of reproduction of the railways were ascertainable
and if rates could be adjusted so as to yield a fair return and no more upon the porey
of each railway company, it would not be fair to the public or to the owners oi railway
securities to adjust rates in that manner. The railways were planned and built under
State laws as private enterprises for profit and their location and construction was nol
directed or supervised by the States or by the Federal Government. Some lines were
planned and built wisely, while others were planned and built improvidently and
wastefully. Some were honestly located and built to serve the needs of industry and
commerce or to develop sections of the country in need of transportation facilities
while others were built merely to obtain profits through sales of stock and bonds to the
public or to other railway companies.
Furthermore, the market prices of railway stocks and bonds never have been deter
mined by the original est of the railways or by the cost of reproducing them, ‘They
have been determined principally by the present and prospe.*ive earnings or the
companies. The stocks and bonds of the strong and prosperous companies are widely
distributed -nd most of them are held by bona-fide investors. Many of the bonds 0
such comp: aies are held by insurance companies and savings banks. On the otlel
hand, the stocks and bonds of many of the poorer companies have not been so widely
distributed and they are more commonly held in large blocks for speculative purpores:
It has been proposed that the Interstate Commerce Commission shall make a valué
tion of the railways according to principles and rules to be determined by it, taking
into consideration original cost, cost of reproduction, average earning power for a given
period of years, and such other elements as the commission may deem proper for deter
mining their fair value, with power in the commission to make special adjustment
in individual exceptional cases. This, in substance, amounts to a proposal to vé
in the Interstate Commerce Commission a discretionary power, subject to no goven
ing principle or rule, to value the railways and to make or to unmake the values of
railway stocks and bonds. I submit that Congress should not delegate such a poe!
to any commission or board, even if Congress has constitutional power to doso.
WHAT RATE OF RETURN IS FAIR? ‘7
. 2
Assuming that the value of the railways for the purpose of fixing rates can be deter-
mined, the question would remain as to the rate of return that would be reasone
and fair. The reasonableness or fairness of a return upon property devoted to a publ
service depends partly upon the current rate of interest or dividends that must D
paid for money invested in long-time obligations or in stocks and partly upon the mss
of the investment. However, the current rate of interest on long-time obligations
i
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. O25
fluctuates from time to time and the risk of investments in railway securities depends
largely upon the railway policy adopted by the Government.
a fyven if it were practicable from time to time to determine and fix both the value
‘of railway property for the purpose of fixing rates and the rate of return upon this
‘property that is fair, the problem would not be solved. ‘The railway companies.can
‘not readjust the rates of interest on their bonds and the rates of dividends on their
‘stocks from time to time according to the fluctuations of the rate of return on railway
-property that is deemed fair. To raise capital by selling its bonds a company must
obligate itself to pay interest on the bonds at a fixed rate up to the date of their maturity
and it can not sell its bonds unless purchasers feel assured that the company’s earnings
will continue sufficient to enable it to pay this interest. The power of a company to
‘Taise capital upon reasonable terms by sales of its stock depends upon the confidence
of purchasers in the ability of the company to earn dividends on the stock at some
estimated rate. The adoption of a plan under which the earnings of the railway
companies and their ability to pay interest and dividends would fluctuate from time
to time with the rate of return upon railway property deemed to be fair would not
| ere the confidence required to enable the companies to obtain capital upon favor-
able terms.
RATES ENSURING A FAIR RETURN TO EACH EXISTING COMPANY IMPRACTICABLE.
To adjust rates in such manner as to yield to each separate line of railway a fair return
and no more on its original cost or the cost of reproducing it is absolutely impracticable
whatever basis of fixing rates may be adopted. Of necessity, rates applicable to com-
petitive business, that is to say, business between points that are common to several
'Tines, must be alike for all the coinpeting lines; for otherwise the line charging the
lowest rate would attract all the business. So als. the rate for the transportation of a
commodity upon which the margin of profit is small, as, for example, coal, from differ-
ent sections of the country to a common market, can not vary materially if producers
in these different sections are to be given. an opportunity to compete. Moreover,
‘the power to increase or to reduce rates upon noncompetitive business is subject to
‘practical limitations. “Under a system of rates yielding to the favorable situated
companies no more than a fair return many of the less favorably situated companies
would be bankrupt. Under a system of rates yielding a fair return to the unfavorably
‘situated companies many of the more favorably situated companies would earn much
more than is deemed to be a fair return.
The question whethe: the adoption of a system of rates yielding to the most favor-
ably situated compatues a fair return, but no more, upon their property would be
constitutional as to the less favorably situated companies which under such a system
of rates could not earn a fair return has not been settled by the courts, but in any
event the adoption of such a system of rates would certainly result in the bankruptcy
of many of the companies and would be disastrous to the country. It would destroy
what is left of railway credit and would put an end to any hope of obtaining additional
capital for railway purposes.
RAILWAY BOOK VALUES NO BASIS FOR FIXING RETURNS.
It has been proposed that Congress shall direct the Interstate Commerce Commission
to fix rates in each of the several traffic sections of the country in such manner as to
yield a return of 6 per cent per annum upon the aggregate of the so-called property
accounts or book values of all the railways in that traffic section plus 6 per cent upon
further expenditures of capital, and that each of the several companies in each region
shall be left to compete for its share of the traffic and earnings under the rates thus
fixed. In favor of the adoption of this proposal it has been urged that 6 per cent of the
egate property inves‘ment accounts of the railways in each traffic section would
yield but little mor. thar the aggregate returns now guaranteed b y the Government.
No one familiar with the way in which the stocks and bonds of the railway com-
| ames were issued and the way in which the book values of their properties were
ixed can assert that these book values of themselves furnish any defensible basis for
| fixing railway rates or railway incomes. The truth is that this proposal is only a
| thinly camouflaged plan to fix rates for the present so as to vield a little more than the |
igegregate standard returns under the Federal control act.
4 do not find iault with this proposal on the ground that it would give unduly
Jarge returns to the railway companies; but I respectiully suggest that Congress
should guard against any action that might be construed as an approval of the prin-
*iple or rule upon which the proposal is based. If this principle or rule were applied
n eifecting consolidations of the several companies or in distributing among them
526 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the aggregate returns fixed in accordance with the proposal, gross injustice would be
done to those companies which have been conservative in their financing and in
the issue of their stocks and bonds.
PLAN FOR SOLVING THE PROBLEM.
I shall now sketch briefly the plan which I propose for the solution of the problem «
1. Federal railway board.—A Federal railway board should be created with adequate
power to carry out the plan and to perform the other functions delegated to it under the
plan. This board should be a body of the highest dignity. Its members should be
selected with the greatest care by the President with the advice and approval of the
Senate.
2. Formation of Federal railway companies.—After consultation with representatives
of the several railway companies, the Federal railway board should group the railways
into ‘10 to 15 well-balanced systems and, for the acquisition of each group, it should
cause to be incorporated under the act of Congress a Federal railway company with
power to acgviire all or any of the railways in the group assigned to it.
3. Ascertainment of adjusted operating income during test years.—After giving a hearing
to the several railway companies, the Federal railway board should adjust and fix,
as hereinafter provided, the amount of operating income of each company (which |
shall hereafter call its ‘adjusted operating income’’) to serve as a basis (a) for the
consolidation of the companies by transfer of their properties to the Federal railway
companies, and (0) for fixing the capitalization of the Federal railway companies.
The amount of this adjusted operating income should consist in each case of the
following items:
(a) The average operating income of the company during the three test years under
the Federal control act, subject to adjustments made by the Federal railway board
according to rules or principles to be set forth in the act of Congress, so as to show the
true earning capacity of the company under the then prevailing rate schedules.
These adjustments should include fair allowances or arbitraries to companies operating
short lines which furnish long-haul business to the trunk lines, and it should be pro-
vided, among other things, that if during any part of the test years a company was in
the hands of a receiver and charged extraordinary repairs and renewals to operating
expenses, or if it made inadequate charges for repairs or renewals, or if it made large
capital expenditures of which it did not receive the full benefit during that period,
these facts shall be taken into consideration.
(b) Interest upon moneys expended for additions and improvements from July 1,
1917, up to the date when the company’s properties are vested in a Federal railway
company.
4. Basis of consolidation and capitalization of Federal railway companies.—Whatevet
method of consolidation may be adopted, it will be necessary to fix the amount of
stock, or of stock and bonds of the consolidated company to be received by each of the
constituent companies, the undisturbed bonds of a constituent company being treated
as part of the securities approtioned to that company.
The only fair course is to apportion to each company entering into a consolidation an
amount of stock, or of stock and bonds, proportionate to the estimated operating
income which this company will contribute to the combined company. Itis proposed,
therefore, that each company shall receive an amount of stock and bonds of the Fed-
eral railway company in which its properties are vested proportionate to the adjusted
Spee Ue income of the company fixed as above provided by the Federal railway
board.
It is suggested that the amount of bonds and stock to be issued by a Federal railway
company for each railway vested in it shall be as follows:
(a) An amount of bonds upon which the aggregate annual interest charge shall be
some specified per cent (60 per cent is suggested) of the adjusted operating income
the railway vested in it. Of the bonds thus allotted, the-Federal railway company
would reserve an amount which, if issued, would create an interest charge equal (0
that upon the bonds of the constituent company left outstanding. (Under this pro
vision, all ovtstanding bonds of many of the companies, such as the Pennsylvania
Railroad Cc., the Atchison, Topeka & Santa Fe Railway Co., and the Norfolk &
Western Railway Co could be left undisturbed.)
(b) One share of stock for each $6 of the remaining 40 per cent of such adjusted
operating income.
At the rate of capitalization above suggested there would be issued in respect of each |
$1,000,000 of adjusted operating income $12,333,333 of 44 per cent bonds and $6,666,667 —
of stock, assuming the stock to be divided into shares of a fixed nominal or par value.
In other words, the operating income would be capitalized by the issue of bond and
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 527
‘stock on a basis averaging 5 per cent. This rate of capitalization, however, is not an
essential part of the plan and is suggested only tentatively.
_ It is suggested that the bonds thus issued be payable in 40 years but be made re-
deemable at the option of the Federal railway company after 30 years and that the rate
of interest on the bonds be fixed at 44 per cent perannum, All the bonds thus issued
for properties vested in a Federal railway company, together with all the bonds there-
‘alter issued by it, should be equally secured by a statutory floating lien upon all
‘properties from time to time owned by the company, thus rendering unnecessary the
execution and recording of mortgages.
' Each Federal railway company should have power, when authorized by the Federal
railway board and on terms approved by it, to issue additional stock and bonds matur-
ing at such dates and beariny interest at such rates as from time to time shall be pre-
scribed by the board. ‘ A
__ There is no good reason for requiring the stock of a railway company to. be divided
into shares of some fixed nominal or par amount. Neither the rates chargeable by a
company nor the substantial rights of its stockholders or of the public are affected
_by the nominal or par amount of its stock. It is suggested, therefore, that the shares
of the Federal railway companies be issued without any nominal or par value, as is
now common practice in the organization of industrial corporations under the laws of
New York and certain other States. One of the advantages of this course is that it
would permit of the issue and sale of additional stock when its market value is below
$100 per share, whereas stock purporting to represent a contribution of $100 of new
capital per share could not be sold at all when the market value of the
shares falls below par. However, if Congress should deem it necessary to give to the
shares of the Federal railway companies a declared*nominal or par value and also to
_imit the capitalization of these companies to some physical valuation of the existing
properties vested in them, the shares could be issued subject to a provision that when
in official valuation of the properties vested in a Federal railway company shall have
een completed, each share of its stock shall be deemed to have a nominal or par value
vdjusted in accordance with this official valuation.
5. Standard for fixing railway rates.—The plan which I am about to propose for fixing
‘ate schedules is based upon the following assumptions: It is necessary to prescribe
some definite and practicable rule for determining the amount of operating income or
‘eturn which in the future is to constitute the standard for fixing rate schedules. It
S impossible to base rates upon the value of the railways because their value depends
ipon the rates. For the reasons above pointed out, it is impracticable, and if it were
wacticable, it would be unfair, to fix the return upon the existing railway properties
‘ecording to their original cost or according to the cost of reproducing them. It is
ikewise impracticable to adopt a return varying from time to time according to the
) ate of interest or dividends which from time to time is deemed to be a fair or ade-
{uate rate of return on railway capital. The only practicable course is to fix in a more
r less arbitrary manner the amount of return to be provided in respect of existing
| ailway property and to prescribe some definite standard or rule for determining the
mount of operating income or return to be provided in respect of railway capital
| ereafter furnished.
Inasmich as the several lines are to be consolidated into well-balanced and fairly
apitalized companies and as hereafter all railway construction and improvements
nd all issues and sales of railway stocks and bonds are to be made under governmental
jupervisior, and control, it would be reasonable and fair to provide that the amount
| return in respect of capital hereafter furnished shall be the cost of obtaining this
: pom thai is to say, interest and dividends at the rates necessary to attract the new
) apital,
| The rates in each section or territorial subdivision established for rate-making pur-
loses should be adjusted in such manner as to yield a definitely ascertainable aggre-
ate return upon the railway properties in that section or subdivision, but the several
| OMpanies operating in each section or subdivision should be left to compete for their
‘spective shares of this aggregate return. The incentive necessary to eflicient,
‘Togressive, and economical management will thus be retained. As the proposed
ederal railway companies are to be originally capitalized on the basis of the adjusted
perating income of their properties during the test years, it is probable that each
{ these companies will be able to earn approximately its proportionate share of the
ygregate returns produced by rate schedules fixed in the manner proposed.
_Itis not claimed that this plan for fixing future railway rates will work out the exact
nstitutional rights of the present owners of railway securities, but it is submitted
iat it furnishes an adjustment or compromise fair to the owners of railway securities
-ad to the public.
_As the adjusted operating incomes of the test years under the Federal control act
ere the result of rates fixed by the Federal and State commissions during a period
152894—19—-vor 1 34
598 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
in which the companies did not enjoy more than average prosperity, it may fairly
be assumed that these operating incomes were no more than a fair return on the prop
erties of the companies as of July 1, 1917. No argument is necessary to show the fair-
ness of the provision for interest on the moneys expended upon the railways for addi-
tions and improvements after July 1, 1917.
Each of the Federal railway companies would be required by the act of Congress ns
a condition of its formation to assent to the proposed method of fixing rates. ‘To secure
the assent of the other railway companies a provision would be inserted in the act of
Congress that if any railway company shall fail to give its assent within a prescribed
time its property shall be returned to it by the Federal Railway Administration and
the return guaranteed to it under the Federal control act shall cease.
My proposal is that the act of Congress shall direct the Interstate Commerce Com-
mission from time to timg to fix rates in each traffic section in such manner as to
yield upon the railways in that traffic section an aggregate return equal to at least
the sum of the following amounts:
(2) An amount equal to the aggregate adjusted average operating income of these
railways during the test years under the Federal control act, together with interest
at an average fixed rate upon moneys expended for additions and improvements
after July 1,.1917, up to the date when the provisions of the act of Congress in respect
of future capital issues shall be come operative.
(b) An amount equal to the interest actually payable on bonds thereafter issued
with the approval of the Federal railway board for extensions and improvements di
the railways in that traffic section, or in renewal of maturing indebtedness.
(c) Until the railways in a traffic section shall have been vested in the Federal
railway companies an amount equal to 6 per cent of the capital actually raised by them
through sales of their stock at not less than par and expended for extensions and im-
provements, the stock in every case to be issued and sold only with the approval
of the Federal railwey board and at the best prices obtainable. Aiter the railways
shall have been vested in the Federal railway companies an amount equal to $6 per
share of stock issued and soid by the Federal railway companies with the approval
of the Federal railway board.
While it is impracticable to determine in advance the precise rate of return or
yield to investors necessary to obtain new capital by issuing stock, the proper retum
upon capital raised by the issue of stock of the Federal railway companies would be
adjusted automatically according to the condition of the money market by the prices
at which the stock is sold. Thus, if a company should sell at $100 a share stock upon
which it pays dividends at $6 per share annually, the yield to the purchaser and the
cost to the company of the capital thus obtained would be 6 per cent; but if the stock
were sold at $120 per share, the yield to the purchaser and the cost to the comer i
would be only 5 per cent upon the capital actually obtained. On the other hand, 1
the stock were sold at $90 per share, the yield to the purchaser and the cost to the
company would be 6.67 per cent on the capital actually furnished. |
If in any year the rates fixed by the Interstate Commerce Commission in any traffic
section should fail to produce the aggregate of the foregoing amounts, the Interstate
Yommerce Commission should add the deficiency to the amount of operating Income
or return to be raised by the rates in the following year. Sane at
The foregoing amounts would aggregate only a fair return on the existing property
of the railway companies plus the actual cost of raising additional capital. nas-
much as every railway company from time to time must make expenditures which,
though not productive of additional income, can not under the existing rules ol
accounting be charged to operating expenses, but must be charged to capital account,
the Interstate Commerce Commission should be given authority to revise the Tu
of accounting so as to include as operating or maintenance expenses all expenditures
which in its judgment it is not expedient to capitalize by the issue of bonds or stock.
6. Division of profits of Federal railway companies.—It is proposed that the net profits
of each Federal railway company shall be applied as follows: * €|
(a) First, to the payment of cumulative dividends at the rate of $5 per share pe’
annum, on the company’s stock. ; |
(b) After payment of such cumulative dividends one-half of the remaining ne!
profits of each fiscal year is to be applied to the payment of additional dividends on the
company’s stock and the other half is to be distributed under the direction of the
Federal reilway board pro rata among such of the Federal railway companies as Days
failed to earn the cumulative dividends of $5 per share on their stock until thes
cumulative dividends have been provided for and thereafter any balance is to
paid to the Government. In considering this proposal it should be borne in min
the consvlidation of the several existing railway companies into the Federal ra:
companies is to ve effected on the basis of their operating incomes during the te
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 529
ars and in such manner as to equalize so far as practicable their future earning
pacity under fairly adjusted rate schedules.
Vhile I believe that in many private industries it is desirable to give to employees
contingent interest im the profits of the business, I doubt the advisability of giving
railway employees a share in the profits of the railway business. My reasons for
is view are as follows: ;
‘a) For political reasons it-is undesirable to give participation in profits, in addition
fixed wages, to employees engaged in operating public utilities like railways, the
and eay nings of which are regulated by the Government. In this respect public
Lat ties shc ald be placed upon the same footing as the Post Office Department or any
ther department of the Government. |
(b) It would he difficult to give to the large body of seasonal laborers employed
, pon the railways their share of a contingent interest in the profits of the companies.
Boyer, the volume of labor employed upon the railways is so large in relation to
he divisible income that no substantial addition to the fixed wages of the employees
-tould be practicable.
\ | teal the plan which I am proposing rates would be fixed only high enough to
*rovide a fair return upon the existing properties of the railway companies and. the
etual cost of additional capital obtained and expended by them hereafter under the
.irection and control of the Federal railway board. Therefore, to give participa-
on in profits to railway labor it would be necessary to increase railway rates and
‘icomes sufficiently to produce the aggregate amount of profits which it is desired
) give to the laborers. The aggregate amount of profits, in addition to wages, to be
iven to the laborers in each traffic section would, therefore, have to be definitely
- xed, from time to time, by the Interstate Commerce Commission, but the amounts
“xceived by the laborers of the several companies would vary according to the incomes
_{ the companies.
» 7. Reserve funds.—Proposals have been made for the creaticn of reserve or contingent
»imds out of the earmings. {the companies. Such funds would not serve their purpose
-nless kept in cash which could be drawn out atany time when needed. Probably it
ould prove difficult to withstand the pressure to use or to invest in some manner large
)2eumulations of cash in these funds, especially as the need of such funds is not clear.
_teretofore the railway companies have not found it necessary to carry large reserves
-* contingent funds in cash, but have provided for their temporary needs by borrow-
“1g. ‘The incomes of the Federal railway companies should be more stable than have
~ een the incomes of the existing railway companies, and the Federal railway com-
amies should be in a position to borrow from the banks upon favorable terms in case
» need. It should be borne in mind also that the regular payment of the full dividends
‘1 the stock of the Federal railway companies is not essential, as these dividends are
-) be cumulative at the rate of 5 per cent per annum, and if the rates established by
ie Interstate Commerce Commission should not orove sufficient in any year to pro-
ide the full return on the railways in any traffic section, the deficiency is to be made
od thereafter.
- Reserve or contingent funds can not be created without increasing to a corresponding
-nount the operating incomes of the companies and this increase of operating incomes
_im be obtained only by requiring the public to pay higher rates. It is suggested,
erefore, that it Bail be better for the public and more economical to provide
‘aimst contingencies by authorizing the Secretary of the Treasury, upon call of the
vederal railway board, to make advances to the Federal railway companies up, to a
united amount, in case the rates fixed by the Interstate Commerce Commission should
it prove sufficient to produce the prescribed aggregate amount of operating income,
{such advances to any company to be repayable with interest out of its subsequent
come in excess of the cumulative dividends on its stock.
8. The railway labor problem.—The railway problem can not be solved without
paling with the railway labor problem. It needs no argument to show that an in-
ease of the wages of railway laborers involves a corresponding increase of rates and
a,
rT Ts
pra
conn seamed
timately must be paid by consumers or producers throughout the country. A
‘ meral increase of rates would bear especially on farmers and other producers, who
it only are consumers of commodities the prices of which are affected by the cost of
ortation, but also are producers of commodities the prices of which are fixed
tea by competition in foreign markets or by foreign competition in the United
ates, so that an increase of the cost of transporting these commodities can not be
ed to other consumers in the United States.
_ As railway transportation is an absolute necessity, the well organized unions of
ilway men have the power through concerted strikes to enforce their demands and
‘levy tribute on the rest of the people to the same extent as an invading army. Such
dower should not be vested in any man or ia any body of men. It is no answer to
: |
| ee
530 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
say that the railway unions do not intend to exercise their power unjustly. In a free
country no body of men can be the judge of the justice of their own demands or be
vested with power to hold up the entire country. .
Railway laborers should not be allowed to become virtually the rulers of the country
by forming a combination having power to enforce any demands they may see fit to
make under threat of destroying all industry and of depriving the people cf the neces-
saries of life. While no man can be forced against his will to work upon the railways,
all men choosing to accept employment upon the railways should be required by law
to submit their demands to arbitration or to the decision of some tribunal established
by the Government representing all the people, and they should be prohibited by law
from joining in a strike unless the railway company by which they are employed should
fail to comply with the award or the decision of this tribunal. :
Power to decide the delicate and far-reaching questions involved in labor disputes
should not be vested in any one person. It is proposed, therefore, that the President
be authorized with the advice and consent of the Senate to appoint a permanent board:
consisting of five men of recognized ability and probity and that this board, by a
majority vote, shall act as umpire or as judge in deciding controversies between the
railway companies engaged in interstate commerce and the railway labor unions.
9. Federal regulation must be exclusive-—The multiple and often conflicting regula-
tion of the railway companies and their rates by the commissions established by the
several State governments renders impossible the adoption of any wise or consistent
policy of regulation or of rate fixing and is injurious both to the railway companies
and to the people of all the States. No satisfactory or permanent solution of the
railway problem is practicable without providing for the incorporation of the com-
panies under Federal laws or without centralizing supreme control over the regulation
of all rates in some agency of the Federal Government.
Adequate provision, however, should be made for the protection of local interests.
The power of each State to tax railway properties within the State at the same rate as
other property should be preserved and the police powers of the State should not be
interfered with to a greater extent than is necessary. In that respect the railways
should be placed substantially on the same footing as the national banks. While
supreme control over intrastate rates as well as interstate rates should be vested in
some commission or board established by the Federal Government, provision should
be made for the protection of the several States and localities by the appointment of
regional boards with jurisdiction over matters of local interest. Each State commis
sion should continue to exercise the power to investigate the practices of the railway
companies within the State and it should have the right to represent the interests on
the State in the adjustment of rate schedules and in all other matters before the Federal
commissions or boards.
10. Provisions for adequate Federal regulation.—The duties and functions of the
Interstate Commerce Commission have grown to be so complex and burdensome that
no single commission could possibly perform them in a satisfactory manner. With a
further extension of Federal control over the railways the need of relieving the Inter
state Commerce Commission of some of its duties and functions will become impera-
tive. The Federal railway board should be vested with broad supervisory powe!s
over the Federal railway companies and over the whole system of regulation to be
adopted. It should appoint one-fourth of the board of directors of each Federal
railway company to represent the interests of the general public and an additional
director to represent the special interest of railway labor. ;
No Federal railway company and no other railway company engaged in interstate
commerce hereafter should be authorized to make in.provements, additions, or exten-
sions or to issue stocks or bonds without first obtaining the approval of the Federal
railway board. : a
The Interstate Commerce Commission should continue to regulate the rates and
practices of the companies and to deal with all matters of an administrative character,
but regional boards should be appointed by the Federal railway board to act as
prance) of the Interstate Commerce Comniission and subject to its supervision ané
control.
11. Method of carrying out plan.—The suggestions herein made as to the procedure
to be adopted in carrying out the plan are based on the following assumptions: 4
No effective or permanent solution of the railway problem is possible with con-
solidating the weak lines with the prosperous lines into a relatively small number
companies, each owning and operating a well-balanced railway system. Without
such consolidation it is impossible to give to the weak companies the credit ne topit
:
to enable them to obtain the new capital which they need and it is impossible to p
an end to the vicious cycle of railway failures and costly reorganizations. Withow
such consolidation it is impossible to establish a sound and fair system of rates, of to
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 6531
sotto saga
yrovide for the use of terminals, equipment, and other facilities to the greatest ad van-
age, or to prevent unnecessary duplication of facilities and of service, or to avoid
vasteful competition for traffic, or to secure for the public the best service at the
‘owest practicable cost.
- No plan which fails to prescribe the terms or basis of effecting the necessary con-
olidations, but leaves the consolidation of the companies to be effected by negotiations
nd bargains among their security holders can prove effective. Under such a plan
aany necessary consolidations would be indefinitely postponed, some of the weaker
‘ompanies. would be oppressed while other companies would receive more than is
jue them, and some of the most serious abuses of railway finance in past years may
i revived. Under such a plan-the basis of capitalization of the several consoli-
lated companies would vary widely and in some cases the bond issues of the con-
‘plidated comy:anies would be unduly large. The consummation of such a plan
robably would involve more labor, expense, uncertainty, and disturbance of values
han the consummation of the plan herein proposed. it
The Government can not by law compel the railway companies or their stockholders
‘nd bondholders to assent to the proposed plan, but the consummation of the plan can
practically assured by the following means:
| The Government can terminate the administration under the Federal control act
{ the prcperties of those companies which fail to give their assent and it can leave
‘ese companies to work out their own salvation without extending to them any
enefits under the plan or any Government aid.
' Under the power of eminent domain the Government can condemn or can empower
jae Federal railway companies to condemn any of the railways on the ground that
‘ais is necessary to make them serve adequately as instruments of interstate com-
jerce and as military and-post roads. Under the power of eminent domain the
fovernment can condemn a railroad free and clear of liens and indebtedness, or it
am condemn the property subject to any lien or indebtedness. Upon such con-
emnation the Government would have to pay just compensation for the property
vken and this compensation would have to be paid in cash, unless those entitled to
aceive it should be willing ‘0 accept something else in lieu of cash.
| Upon condemnation of the property of a corporation those lienholders and
editors whose rights are not left undisturbed but are displaced would be entitled
) payment of their claims in full out of the proceeds of the property condemned
efore anything is given to the stockholders. The Government can uot condemn the
onds or indebtedness of a company apart from its property, and upon condemnation
[a railway free from liens and claims of creditors the Government can not arbitrarily
pportion the price payable for the property among stockholders, lienholders, and
editors. For this reason the condemnation of property of a company free of existing
iortgages or claims or creditors, leaving the distribution of the compensation to be
lade according to the legal rights of the parties, may cause hardship to junior security
olders or to stockholders.
The following is an outline of the procedure suggested to carry the plan into effect:
Each railway company shall be allowed a period of four months aiter the passage
ithe act of Congress to determine whether it will assent to the provisions of the act
lating to the future adjustment of rates. If any railway company shall fail within
ich period of four months to execute and file with the designated official an agree-
| ent authorized and executed in a prescribed manner whereby such railway company
srees to the provisions of the act of Congress, the property of such company now in
/1e hands of the Government under the Federal control act shall be returned to it
‘id all obligation of the Government thereafter to pay the standard return on the
| toperty of such campany shall terminate; but the Governmnet shall continue in
| 88ession of the property of each company which gives its assent in the prescribed
| anner and shall continue to pay the standard return for the use of such property
| 1til the expiration of four months after a Federal corporation shall have offered to
} a such property as herein provided.
| After consultation w'th representatives of the several railway companies, the
} 2deral railway board should group the railways into 10 to 15 well-balanced systems
id, for the acquisition of each group, it should cause to be incorporated under the
|*t of Congress a Federal railway company with power to acquire all or any of the
ilways in the group assigned to it.
_ After giving a hearing to the parties in interest, the Federal railway board should,
' hereinbefore provided, determine the adjusted operating income of the several
mpanies in each group and should fix the amounts of bonds and stock of the Federal
ilway company to be issued for the property of each company in the group, if ac-
tired free and clear of all liens and indebtedness.
532 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The board of directors of each company then should submit to the Federal railway
board for its approval a proposed apportionmert of the bonds and stock allotted for
the acquisition of the company’s property among its stockholders. bondholders and
creditors, indicating which classes of bonds are to be left outstanding and which are
to be called in to be exchanged for bonds or bonds and stock of the Federal railwa y
company.
Upon approval ly the Federal railway board of the proposed apportionment, the
Federal railway company should invite the stockholders of each company whose
property is to be acquired, and the holders of such of its bonds as are not to be left
outstanding, to deposit their bonds and the certificates for their stock with a suitable
depositary or trustee, and to agree to the proposed transfer of the property of the com-
pany to the Federal railway company and to the exchange of the deposited bonds on
the terms offered. .
The offer made by a Federal railway company in each case should be subject to
the condition that within a reasonable time to be fixed by the Federal railway board
there shall be deposited on the terms of the offer such amount of stock as shall be
satisfactory to the Federal railway board, and also in those cases in which a reduction
of indebtedness or of fived charges is necessary, the requisite amount of outstandin
bonds or other indebtedness of the company. The offer to the holders of any class
outstanding bonds which need not be exchanged to reduce fixed charges to the pre-
scribed limit could be deferred until a convenient time after completion of the transfer
of the company’s property to the Federal railway company. In many cases all the
bonds of the company could be left undisturbed. In every case the Federal railway
company would reserve unissued out of the bonds allotted for the acquisition of a
railway an amount which, if issued, would impose a fixed charge at least as large as
that resulting from the outstanding unexchanged bonds. :
If, within the time limited, an amount of stock satisfactory to the Federal railwa
board and the requisite amount of bonds shall have been deposited, the Federal rail.
way company, under the power ol eminent domain conferred upon it by the act of
Congress, would take the property subject to existing liens and indebtedness and
subject also to a liability to pay just compensation for the equity in the property thus
taken, as assessed by a designated court, or by a special tribunal established for that
purpose; but the Federal railway company would be credited in respect of the aggre-
gate amount of compensation with the proportionate share thereof to be received by
the holders of the deposited stock upon ratable distribution of the compensation 7
all the stockholders. The deposited bonds would be received by the Federal rail.
way company as purchaser and would be held in its treasury until all bonds of the
same issue and of junior issues shall have been exchanged. To provide for the pay:
ment of any sums which upon such condemnation must be paid in cash, the Federal
railway company would sell its stock, or stock and bonds offered to the nonassenting
stockholders and bondholders whose interests are cut off by the condemnation pro
ceeding. {
On the other hand, if, within the time limited, the required amount of stock anc
bonds of a company should not be deposited, the deposited stock and bonds would be
returned to the depositors and the property of the company would be returned to 1!
by the Federal Railway Administration. The company thereupon would have ne
right to share in the benefits of the plan; and it would be left to work out its owl
salvation without any governmental aid. ft
The property of a railway company to be acquired under the plan would be onl}
the property now in the hands of the Federal Railway Administration. Assets n0
taken over by the Federal Railway Administration and not included in fixing the
standard return under the Federal control act would not be acquired by the Federa
railway companies, but would be retained by the respective companies for the benefi
of the holders of their stock, including the deposited stock represented by trust receipts
Until the final winding up of the affairs of a railway company, the stock deposiiet
under the plan should be retained by the depositary or trustee for the further assurant
of the Federal railway company; but any sums received by the depositary or truste
in respect of the deposited stock out of assets not acquired by the Federal railway
company should be distributed by the uepositary or trustee among the holders 0
the trust receipts for the deposited stock. The distribution of part of the stock, 0
stock and bonds, to be received by depositing stockholders should be withheld un
fnal settlement of accounts with the Federal railway company. . |
it is impossible to place the railway companies upon a sound financial hasis or t
cure the evils of the present situation without considerable trouble and expelise
The amount of labor and expense required to carry out the plan above outlined is 10
excessive and it can not be avoided under any adequate plan.
New York, August 21, 1919.
PART 5.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
HovusE or REPRESENTATIVES,
Wednesday, August 6, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
_ The CuatrmMan. To-day has been assigned for the hearing of those
who are proponents of the so-called Plumb plan. In what order
are the proponents to be heard, Mr. Plumb?
- Mr. Piums. Mr. Stone, the grand chief of the Brotherhood of
Locomotive Engineers will speak first, followed by Mr. Morrison, of
the American Federation of Labor, followed by myself; and we hope
that Mr. Garretson will be here during the day. He has not arrived
or had not arrived at the hotel at the time we left, but we expect
he will be here as soon as the train gets in. We will be heard in
the order of Mr. Stone, Mr. Morrison, myself, and Mr. Garretson.
STATEMENT OF MR. WARREN S. STONE, GRAND CHIEF OF
THE BROTHERHOOD OF LOCOMOTIVE ENGINEERS.
:
The Carrman. Mr. Stone, give your name and address, and
whom you represent.
Mr. Stone. My name is Warren S. Stone, grand chief of the]
Brotherhood of Locomotive Engineers, also president of the Plumb |
Plan League, organized to secure public ownership and democracy |
in the operation of the railways ah the United States. I here rep- |
resent 14 organizations of railroad employees, numbering approxi- |
mately 2,000,000 members. These organizations are: Order of Rail-
way Conductors; Brotherhood of Locomotive Engineers; Brother-
hood of Locomotive Firemen and Enginemen; Brotherhood of Rail-
way Trainmen; International Brotherhood of Blacksmiths and.
Helpers of America; International Association of Machinists; Inter-
national Brotherhood of Boilermakers, Iron Ship Builders, and
Helpers of America; Amalgamated Sheet Metal Workers’ Interna-
tional Alliance; International Brotherhood of Electrical Workers;
Brotherhood of Railway Carmen of America; Switchmen’s Union of
(North America; Brotherhood of Railway and Steamship Clerks,
\freight Handlers, Express and Station Employees; Order Railway
|Telegraphers, and United Brotherhood of Maintenance of Way Km-
| ploy ees and Railway Shop Laborers.
| At the request of these organizations the Sims bill is before you.
[speak to you as the voice of 2,000,000 railway employees, and dele-
gated by them to announce to this committee and to the people of \
\this country that they are supporting this measure with all the
. ee and all the unity of purpose that can move so large a body
Mf citizens,
533
004 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP,
f Joined with me in representing the American Federation of Labor,
the next speaker will be Mr. Morrison, who adds his 2,500,000 of
members to this body of railroad men I am speaking for; or, approxi-
mately, we are speaking for 5,500,000 members.
In order that there may be no doubt as to what I have said, I have
committeed it to paper so there can be no mistake about it.
In the industrial development of this country great organizations of
capital first appeared as employers. Individual workers, following
the example set by capital, organized as employees. Their purpose
was to secure better working conditions and a larger measure of return
for their labors. The full force of capitalistic organizations has been.
set against labor to hold and to keep all the profits of industry. The
strength of the labor unions has been exerted to wrest from capital
some share of the profits for the wage earners.
This has been a perpetual struggle by the workers to maintam a
tolerable standard of existence; on the es: of capital to amass
ereater profits. At times, both sides could ignore the needs of the
ublic. But now the very growth of the labor organizations has
etna into their ranks a great mass of the consumers. The large
number of the wage earners now constitute a large percentage of the
people. The extension of industry has changed the nature of the
previous struggle. |
For whatever the worker receives in wages he must spend for the
necessaries of life. In addition, he is always compelled to pay to the
employer an excessive profit on his own wages. The cost of his living
is determined by the sum he earns, plus the profits he is charged on
his own labor. And as a group, labor is forever prevented from better-
ing its lot because of the profits exacted by the employer. The hope
of a finer life is never realized. So long as consumers are forced to
pay extortionate profits on their own earnings to a third interest there
is no solution ot the industrial problem.
We find that this third interest absolutely controls and dominates
the management of industry. It fixes wages and controls working
conditions. It fixes the prices of commodities without regard to the
needs of society, or the necessities of producers and consumers. We
have a democratic form of government but an autocratic control of
industry.
We exist under government, but by industry we live. Under such
a system the majority of a democracy can, through their government,
enjoy only such rights and privileges as an autocracy in industry
permits them to receive. This country was peopled by a race who
sought within its boundaries religious freedom. It was established
by their descendants through revolution as a land of political free-
som We now demand that it become the home of industrial free-
om. |
This can only be accomplished by extending to dustry the same
right of individual freedom recognized by the founders of our Govern
ment in establishing this democracy. ‘The need of mankind for the
roducts of industry must be accepted as the basic interest in all
industry. The right of the worker who supplies that need demands
like acceptance. ‘This can only be achieved by permitting producers
and consumers to share in the control of the management of theit
means of existence. The machinery for attaining this result we
believe is embodied in the plan outlined in the Sims bill.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 535
_ Our belief in the efficacy of this plan is profound. We embrace
this plan with all the ardor of those who sought political freedom.
In this plan we raise the banner of democracy in control of industry,
we advance to a new crusade with the faith of the Pilgrims, with the
convictions of the framers of the Constitution, and with the hope of
America for economic independence.
| The Cuarrman. Mr. Stone, I noticed in the papers of two days ago
am announcement signed by yourself and by Messrs. Lee, Shea,
Sheppard, and Jewell. In that statement these words were used:
The railroad employees are in no mood to brook ihe return of the lines to their
ormer control, since all the plans suggested for this settlement of the problems leave:
abor essentially where it has stood and where it is determined to stand.
What was the purpose and intent of that declaration 2
_ Mr. Stone. The purpose and intent of that declaration was that
ve were bitterly opposed to the railroads being returned back to the
id plan of private ownership, with the struggle of organized labor
0 Maintain that which it was justly entitled to.
The Cuarrman. This committee is giving full consideration to
»very plan proposed by organizations or even by individuals and are
fiving you the same opportunity. Should the committee not indorse
ihe os Plumb plan, what would be the action of your organi-
‘ations ¢
Mr. Stone. The action of our organizations would be to try to
reate enough public sentiment so that a majority of the membership
xf both the House and the Senate would indorse and pass the plan.
The CuatrMan. How would you create that public sentiment ?
Mr. Stone. Through every means at our command, through the
mublic press, through our organizations, through every channel that
vas open to us. |
The Cuarrman. Would you seck to develop it through a strike?
Mr. Stonz. No, sir. I am speaking now only for the Brotherhood
f Locomotive Engineers, of which I am the executive officer. We
lave made no threat of any strike. We have not even asked for an
nerease in wages. We have said to the President of the United
‘tates that the time had arrived when we could no longer live on our
resent wages, but we preferred a reduction in the high cost of living
0 an increase in wages at this time.
The Cmarrman. [ think in that you have struck a sympathetic
ord. I wish'to state from my knowledge of your organization that
tis one of the conservative organizations of the United States and
as done much to stabilize wage conditions. If the attitude of your
Tganization is not to use the strike power to develop public sentiment
1 favor of the Plumb plan, it would be in accord with your ideas and
our traditions ?
Mr. Sronn. I do not think that any of these organizations are going
o strike simply to enforce the Plumb plan. That is not my under-
tanding. I think that some of the organizations are going to strike
niess there is immediate relief, either in increased wages or in a
aduction of the high cost of living. They did object to the plan
toposed by the Director General of Railways.
| The Cuarrman. You mean his recent plan offered last Friday ?
“Mr. Stone. Yes, sir; because we believe it would take too long, and
‘te temper of the working people at the present time is such that I
536 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
do not believe they will wait that long, because they can not live
during that period.
The CHatRMAN. That is on the assumption that nothing can be
done by the President, the executive departments, or by Congress in
creating some material reduction in the cost of living?
Mr. STonE. Yes, sir. 3
The CuarrMAN. Should that be possible, would these other organi-
zations that you speak about that are now striking or intend to strike
withhold their efforts in that direction ? |
Mr. Sronn. I am not authorized to say as to that, but I am of
the opinion that when you bring about a reduction in the high cost
of living you have solved the entire problem of industrial unrest.
The CHAIRMAN. Have you any concrete suggestion to make to
Congress for a reduction of the high cost of living, outside of the
proposed plan that you sponsor? Congress is eager to get sugges-
tions.
Mr. Stonsr. The problem has not been worked out in any concrete
form. We want to see, first, what the President and the executive
officers of the administration are going to do. After they have
failed to solve it, if they do, which I hope they will not, then a solution
must be found somewhere, and if no one else can solve it—I say this
in no spirit of ego—I am satisfied the labor organizations can solve
it for the American people.
Mr. Sus. You leave out Congress in enumerating those who can
solve the problem.
Mr. Stonr. I did not meati to. I believe Congress could solve the
problem if they would.
Mr. Sms. Following the President, you mentioned the executive
departments, or the executive officers, but the executive officers can
not do anything not authorized by Congress.
Mr. Sronz. I did not mean to slight Congress at all.
Mr. Suus. I know that; but your statement omitted Congress as
though it was not to be considered in solving the problem at all.
Mr. Stone. No; there are many things Congress could do.
The CuarrMan. It was for that reason I asked the question: Haye
you and your organizations any concrete suggestions to make to us
to solve the problem of the high cost of livmg and do it within a
reasonable time ? }
Mr. Sronr. I think we might be able to offer you many suggestions
that would help solve the problem, but we do not have them im &
concrete form at this time. It might be that before we got through
we would advocate a firing squad for certain people.
The CuarrMAN. I saw that suggested in some country of Kurope.
But you say that some of these organizations will not brook delay
the solution of this problem, and yet if your organizations have not
any concrete suggestions to make to Congress, would not that involve
tat one ought to have a little time to try to solve these prob-
ems? :
Mr. Sronr. Mr. Chairman, I have no desire to be sarcastic, but
unfortunately I have a short, sharp way of speaking. I am not the
diplomat of the organizations. JI am simply an executive officer who
takes 84,000 engineers to bed with him every night; but Congress
should have known this was coming. The ordinary working man
knew it was coming months ago, and Congress should have been busy
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 537
all these months trying to find a solution for it. I realize, Mr. Chair-
man, that it is the easiest thing in the world to criticize. The man
-we are all looking for is the one who has something better to offer in
place of it, and yet it impresses me very much that Congress was going
‘to adjourn and go away and was going to take their summer vacation,
reminding me very much of Nero fiddling while Rome was burning.
The CHAIRMAN. So far as this committee is concerned, it did not
intend to take any recess, and there are other committees who were
to sit anyhow, recess or no recess, and we are eager to solve these
problems and we welcome suggestions.
Mr. Stone. And we are eager to help you solve them. We realize,
Mr. Chairman, that an increase in wages is only temporary relief.
Wages are only a relative term. Wages mean what you can buy
with them, and if the time comes in America when it requires a
bushel basket full of dollars for the American working man to live
for eo days, then a bushel basket full of dollars must be his wages for
30 days.
_ The Cuarrman. That goes, of course, to the question of the depre-
ciating dollar.
_ Mr. Sroner. Prior to the war the dollar was worth 100 cents. The
ee power of the dollar to-day is only 48 cents, according to
overnment reports.
The CHarrmMan. Of course, that is due to war conditions and the
results of the war.
Mr. Stone. No.
_ The Cuarrman. And inflation caused by the war.
Mr. Stone. Pardon me, I could not agree with that.
The CuarrmMan. What is your view ?
‘Mr. Stone. It is due to some men who desire to profit and make
the war an excuse for it; that is, the system of profiteering which has
developed since the war. Prices are higher to-day than they were at
any time during the war and there is no excuse for it. We have in
the city of Cleveland, if you will pardon me for a concrete example,
what is called a rot train which is hauled out every day to the Wick-
liffe yards and dumped into the swamps, and they haul out from 18
to 25 cars of fruits and vegetables every morning and dump them
into theswamps. They have not been put on the market for sale and
have been allowed to stand in the cars to spoil. There is no excuse
for that kind of work in order to keep prices up.
The CHarrMAN. That would be a situation subject to the juris-
diction of your municipality or the State of Ohio.
Mr. Stone. It is only one of the concrete cases that are happening
all over this country, Mr. Chairman. |
The CuHarrmMan. That is true; and they are very regrettable cir-
‘cumstances and ought to be remedied. I agree with you about that.
__ Mr. Sronr. We have all been saying for months, Mr. Chairman,
that these things ought to be remedied, but up to date no one has
done anything.
__ The Cuarrman. We are no worse in that respect than other na-
tions, probably.
Mr. Stone. But, Mr. Chairman, if we can not solve these prob-
ae here in America, I despair of their solution anywhere else on
earth,
5388 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The CuarrMan. I think we are capable of solving those problems,
if any nation in the world is capable of solving them. +
Mr. Doremus. Mr. Stone, relative to the vast amount of food
products that you say are thrown on the dump in Cleveland, what
would you suggest that Congress ought to do to relieve that situation ?
Mr. Srone. I want to repeat again, that I have not any desire to
be sarcastic, but unfortunately I am taken that way; but this is true,
Mr. Congressman, if this nation of ours, or if the executive power of
the United States can take my boy and send him abroad, 3,000 miles
away, to fight for democracy, can limit my food supply and say how
much I shall have and how much I can have to live on; and can go
into my private affairs and tax every cent of my property and my
earnings and my salary,'certainly this same power can fix the price
of the commodities on which I live. |
Mr. Doremus. That is hardly an answer to the question, Mr,
Stone.
Mr. Sronr. Our municipality in Cleveland says they have no
authority or power to handle that question.
Mr. Doremus. You know very well where Congress got its power
to conscript the Army to fight in the late war.
Mr. Stone. Yes. :
Mr. Doremus. You know it was the exercise of the war power.
Now I ask you what can Congress do to relieve the particular situa-
tion in Cleveland to which you have just referred.
Mr. Stone. I do not know that Congress can handle that one par-
ticular question, but Congress certainly has the war power. ‘This
is industrial war and it is not anything else. Congress certainly has
the power to fix the prices of the commodities and fix the profits
that men shall make on the commodities of life. |
Mr. Doremus. I think if you can convince this committee that we
have the power to do that, we will be very glad indeed to do it.
That is the way I feel about it.
Mr. Sronsz. I do not know whether I have the power, but I wish I
could convince you to that effect, because I belieye we would have
solved the problem. ;
Mr. Winstow. Mr. Stone, I would like to ask you some questions
for the purpose of clearing up doubts that might exist, whether in my
mind or some other person’s, in order that we can start on right in
the consideration of this bill and the whole subject.
Mr. STONE. Yes, sir. Ye)
Mr. Wrixstow. I agree with you, in the first place, that when it
comes to the question of the cost of living, we are all mterested. ff
there are men who would like to keep up their profits, they are but
few in number, even if they happen to work great disaster. For my
art, [ would be very glad to join you in any purpose to reduce these
bills for the cost of living. i
Will you kindly state what the Plumb League is and why it was
organized. | q
Mr. Sronr. The Plumb League was formed by the railroad organ-
izations to formulate a plan for public ownership and the democracy
of the control of the railroads of the United States. |
Mr. Winstow. By what persons or organizations ?
Mr. Stone. The 14 organizations that I have just read.
Mr. Winstow. They are bound together ? .
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 5389
was indorsed by the American Federation of Labor. I understand
that it has since been approved by a number of farmers’ association
_ Mr. Winstow. Has the plan been indorsed by referendum in any
way or by the officers of the organizations ?
' Mr. Stone. By the officers, with full authority to speak. for the)
organizations. |
r. Winstow. But not through individual referendum ?
Mr. Srone. No; it was not necessary under the executive power[
of these organizations.
Mr. Winstow. Are the men in the brotherhood organizations
ufiliated with the American Federation of Labor?
_Mr. Stone. In the four railroad brotherhoods they are not affili-
ci . yet, but they will be affiliated with the American Federatio
of Labor.
_Mr. Wixstow. What part of the 3,500,000 men represented by Mr.
Morrison, if I am correct in what you said, would be railroad men?
Mr. Srone. I can not answer that question, Mr. Winslow. Mr.
Morrison would probably be able to answer the question. .
_ Mr. Winstow. Let me put it to you in another way. Are any of
ihe 2,000,000 men whom you represent included in the 3,500,000
nen whom Mr. Morrison represents ?
Mr. Srong. Mr. Morrison includes only a part of the railroad men.
Mr. Winstow. Would he indicate at this time to you just about
10W Many ?
_ Mr. Morrison. I can not give you an answer now, but I can get it
or you.
Mr. Winstow. I do not want to bother you with any detail, but I
hould like to know whether or not we have 5,500,000 different indi-
nduals represented here or whether there is a duplication which
night reduce that number considerably below that?
Mr. Stone. There is no desire on the part of either Mr. Morrison or
nyself to pad our record at all. I think our figures are very con-
ervative. Now that the women have the ballot I am sure that it
vould be seven or eight million. ;
_Mr. Winstow. I will take it as you give it without any reservation.
tseenis to me it is pertinent based on this representation to know to
vrhat extent there is duplication in the number, and quite likely you
vill be able to furnish that.
Mr. Sronz. We shall be glad to furnish the details of the entire
\uestion. |
Mr. Winstow. As I remember your statement, you thought that
a the past the purpose of capital has been to keep all of the profits of
adustry themselves ?
Mr. Stone. Yes, sir.
Mr. Wiystow. Was that the intent; that is not exact?
_Mr. Stone. That is practically correct; yes, sir,
Mr. Winstow. Assuming that to be true, for the moment, how
bout the institutions and the stockholders of institutions during
hat period so common in industry when they have made no profits
nd declared no dividends?
Mr..Sronr. That might be due to several things. It might be
ue to mismanagement or overcapitalization, which is the common
vwult with many of these organizations.
- Mr. Sronn. Yes, sir; they have indorsed the plan. Later on :)
540 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | .
Mr. Wrinstow. I did not have that part so much in mind as I had
that part of your statement that in the past capital had taken all
the fruits. Of course, if any industry runs, whether it is profitable
or otherwise, it has to meet its pay roll, we know that, and it seems
to me that the assertion is a little sweeping unless you are willing to
allow for those industries which have not accumulated any capital
and have not paid any dividends.
Mr. Sronr. Before I would concede that I would want to know
something about the particular industry or organization, how it
was capitalized, how it was managed, and whether it paid the stand-
ard going rate of the territory in a competitive district, and many
other things that go with it. Labor always suffers whenever capital
does not get its money. Very few of these organizations are oper-
ated in a spirit of philanthropy; they are out for the profit.
Mr. Winstow. I guess we are all alike.
Mr. Stone. I think we are all human.
Mr. Wrnstow. We can agree on that as common ground, but I
do not like it to go that labor is damaged all the time and capital
is benefited all the time. I do not think that is true. I think that
capital suffers most of the time whether wisely or unwisely managed,
‘Mr. Stone. If you want to go into sociology or political economy,
then it is a question whether capital is entitled to any return. .
.Mr. WinsLow. I do not want to go into that, not for the reason
indicated, but because it would be too long.
You have used the words commonly used, ‘‘demand and insist,”
and I should like to get your interpretation of those words as you
have used them in connection with your advocacy of this bill.
Mr. Srons. That is the common phraseology used, that we de-
mand and insist with all the power at the command of our organiza-
tion. q
Mr. Winstow. You use those words in the ordinary vernacular ?
ae Srone. Yes, sir; there is no spirit of threat or anything like
that. |
Mr. Wrnstow. You also compared the situation of the labor
unions in this particular, as I remember it, with the Pilgrim Fathers?
Mr. STONE. Yes, sir. |
Mr. Winstow. As I remember the situation of the Pilgrim Fathers,
they dug out when they were not satisfied; they did not undertake’
to grab the whole country which they came from ? '
Mr. Srone. That is, perhaps, true. There is not any place for us
to dig out to. We are here and expect to live and have something t0
say about the conditions under which we live. st
Mr. Winstow. I understand that. Will you kindly state what
you think Congress could have done and when it could have done it!
Mr. Stone. | would rather not answer that question. 1 have n¢
desire to criticize Congress. I do not want to antagonize any Member
of Congress at the present time. A
Mr. Wrystow. It will be mighty helpful to us for a person repre;
senting directly and indirectly so many citizens and presumably)
voters to point out to us on the level and in a friendly way what wé
might have done and when we might have done it and when we dit
not do it. You have made the assertion and I think it is up to you
to make good. i
f
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 541
| Mr. Stone. I am generally understood to speak straight from the
shoulder. Congress could have seen this coming months ago.
‘yeryone who read the signs of the time knew it was coming and yet
Jongress has been so busy playing politics for the past few months
shat they have not had time to pay attention to the demands of the
yommon people.
_ Mr. Wrxstow. Is that your answer, really ?
| Mr. Stone. It should have taken some action in regard to the
oo of living, instead of talking about it.
. Winstow. What action?
Mr. Stone. It seems to me that if we have not laws enough on
‘ihe statute books—and I think we have plenty of laws—then it is
1p eC you or to Congress to put some constructive laws on the statute
»ooks.
_ Mr. Wrystow. Assuming that we could have taken action, what
jaye you to suggest that we might have done and how might we
ave done it?
_ Mr. Stone. I can not say. I am not a lawyer. It does seem to
ne that Congress could have done something to stop this profiteering
shat a swept over the country, especially since the armistice was
igned. :
a. Winstow. You have made a pretty direct statement that we
ave played politics and have not done things. I want to ask you
rankly, man to man, person to person, what could we have done
md when could we have done it ?
_ Mr. Stone. You ought to have done it as soon as you got in session,
‘aken some steps to control and stop the profiteering.
Mr. Winstow. What steps could we have taken?
Mr. Srons. I am not a lawyer. I am just an engineer out of the
‘ab of a locomotive.
Mr. Winstow. You are a citizen, and have put forward a very
lecided opinion which would seem to have been based on a knowledge
if the facts. |
Mr. Sronn. After we have waited for a reasonable time to see
vhat Congress does, then, if there is no constructive plan put for-
vard | think we wil! be able to formulate a plan for the railroads.
Mr. Winstow. That is in the future to be hoped for, perhaps, but
0 substantiate your statement that we could have done things—
vhat could we have done?
Mr. Stone. I have no concrete law to propose this morning.
| Mr. Wrxstow. Suppose Congress had been in the same frame of
ze beg making greater investigation than, perhaps, you have
aade ?
Mr. Sronn. I should say that it was the duty of Congress to formu-
ite some constructive plan.
Mr. Winstow. Whether they can construct it or not?
Mr. Stone. If’ they could not form a plan of construction, they
ould, perhaps, offer some suggestion.
Mr. Wixstow. They have not been able to.
Mr. Sronr. You are hearing something about the high cost of
‘ving.
} Me Winstow. We have heard that all along; the remedy is
nother question.
rt. Stone. We take it for granted that you men are going to
ormulate some plan.
542 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. If you want to leave that idea with us——
Mr. Srone (interposing). We are going to help you pass any lay
that you can formulate iz it is a solution of the problem. |
Mr. Winstow. Can you tell us concretely what might be done?
Mr. Srone. I have many very decided ideas which I do not cars
to express at this time.
Mr. Wrnstow. Please do.
Mr. Srons. I do not know that that has anything to do with the
case. Iam talking about Government ownership of the railroads.
Mr. Winstow. I know; but the fact is you do not come here with a
suggestion. ;
Mr. Srone. If there is not sufficient law to regulate the prices ol
commodities of living then you or some other Member of Congress
should formulate a law and we will help you put it through.
Mr. Winstow. We will agree on that. Are you prepared to say
that there are not sufficient laws? |
Mr. Stone. No; I am not prepared to say that there are not sufi
cient laws if they were enforced.
Mr. Winstow. Congress may think that there are sufficient laws
if enforced. :
Mr. Stone. Then the way to do would be to enforce them.
Mr. Winstow. Shall we go into that question ? :
Mr. Stone. Just as you like.
Mr. Winstow. I do not think it is germane, but I am perfectly
willing to go into it.
Mr. Stone. If it is not germane there is no use to discuss it.
4 Mr. Winstow. I do not think it would be a very pleasant thing te
iscuss.
Mr. Sims. I want to examine Mr. Plumb and Mr. Garretson at
some length when they come before the committee about the bill.
Therefore, I will not ask Mr. Stone any questions. J do not want to
ask Mr. Morrison any questions, but it is not through any pre
arrangement. I do not want to question the gentleman who framed
this bill and who appeared before the Senate Committee and appears
for it now, perhaps at more length than, I think, the chairman would
be willing to yield at this time. |
Mr. Coapy. If I understand you correctly, you say that capital is
not entitled to any return ? 7
Mr. Stone. I said that would be a question for discussion.
Mr. Coapy. You said that awhile ago.
Mr. Strong. | think I said something like that; I can not repeat it.
Mr. Wesster. You said, as | remember, that from the sociologica
standpoint it might be a question whether capital was entitled tc
any return.
Mr. Srone. Yes. I think you wiil find it so in the minutes.
Mr. SANDERS of Indiana. What is your opinion with reference tc
the question of the Government ownership of coal mines ? :
Mr. Stone. I am not prepared to answer that question. I realize
that the propaganda is being carefully spread over the country tha
this is only a move to take over everything. I am simply deali
with the question of taking over the railroads, because they areseni:
public institutions. As to the question of the coal mines, the
should be some regulation of the price of coal at least. As to whethe
or not the Government at some future time will take over all thi
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 548
‘aatural resources of the country, that is a question for the future.
[do not think that we should project this several years ahead—I will
not be here—but probably in\the future, 40 or 50 years, we may
‘take over all the natural resources. I do not know what the country
will do. I think the time is coming when they will regulate the
price of coal so that the people do not freeze in winter so that a few
men may get rich.
' Mr. Sanpers of Indiana. Are you in favor now of a bill in reference
io the coal mines similar to the submitted bill with reference to the
‘ailroads ?
_ Mr. Stone. I do not think that I would be prepared to approve
mything of that kind at this time. I would be prepared to approve
1 bill for the Government regulating the price of coal.
| Mr. Sanpers of Indiana. Is there any other industry except the
vailroads to which you think the Plumb plan should be applied ?
' Mr. Stone. Not that we are dealing with at this time ; not that I
im authorized to speak of.
_ Mr. Raysurn. Do you believe in a general price-fixing scheme of
werything by the Government ?
| Mr. Stone. Unless we can find some other solution of the high cost
if living, it will have to come on the commodities of life.
Mr. Raysurn. Do you think that we are going to find that?
Mr. Stoner. I hope so.
Mr. Raysurn. You have no plan?
_Mr. Stone. Not at this time. .
_ Mr. Rayzurn. I notice here in the statement that Mr. Jewell gave
ut, or an interview rather, on some proposals in the Hines letter, I
resume [reading]: |
Jewell made it plain that the railroad workers mean business. He said that the
age board program, proposed in Congress, could not be accepted.
Then, this is quoting Mr. Jewell:
“The railroads will be tied up so tight they will never be run again if that legislation
a he declared after the letter had been presented and the conference had
ided.
Do you know the part of the proposed legislation which he had
sference to ? -
Mr. Stone. No; I do not. While I have no authority to either
yeak for or defend Mr. Jewell, I question very much if he made any
ich statement as that. When a man states that the railroads will
ever run again that is the rankest kind of nonsense, because the
ulroads are going to run under some plan.
Mr. Raysurn: The question was whether he made it or not.
Mr. Sronr. That is the sheerest kind of nonsense, because we
low that the railroads are going to run under some form or other.
hot in any other way, the Government will open up the lines of
mmunication and run them, because the people have to live.
Mr. Raypurn. In answer to Mr. Sanders, you were not quite ready
ay whether or not you believed in the absolute socialization of
‘dustry ?
‘Mr. Brox. I do not think that we have arrived at that time in the
Story of our country.
Mr. Rayspurn. Do you believe in the socialization of railroads ?
. Stone. Because they are semipublic institutions and because
ey are something in which the people are vitally interested.
_ 152894—19—vor 1——-35
544. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Raypurn. You realize that the Plumb plan goes further that
the advocacy of the Government ownership of railroads ?
Mr. Stone. It is Government ownership.
Mr. Raysurn. That is the question. Of course, you realize that i
goes further than the Government ownership of a post office, fo
instance, where the Government retains absolute control ? .
Mr. Sronr. It is the general belief that we have Governmen
operation of railroads at the present time, but that is
Mr. RayBurn (interposing). You believe in the socialization o
the railroads ?
Mr. Sronr. I believe in the Government owning the railroads.
Mr. Raysurn. This Plumb plan goes further than that?
Mr. Srone. It goes to a plan for operating the railroads and ho}
they will be operated, but the Government owns the railroads.
Mr. Raysurn. Yes; the Government buys the railroads and turn
them over to somebody else to operate entirely ?
Mr. Stonr. No. The Government has something to say as to wh
it turns them over to. It provides this board to operate the roads
Mr. RaysBurn. Who constitutes the board ? |
/ Mr. Sronr. The board is made up of five appointed by the Presi
dent, as I recall, five elected from the employees, and five elected by
‘the management of the different railroads. J think that is correct
Mr. Raysurn. The management of the different railroads ?
Mr. Srone. Yes, sir. .
Mr. Raysurn. Who will be the management of the different rai
roads; it certainly would not be a question of ownership after t
Government had taken them over ? |
Mr. Stones. It would be the operating officers.
_ Mr. Raysurn. And they would also be employees ?
| Mr. Sronn. Employees of the Government in one sense, be
\operating them and performing the duties of the railroads with whic
(Ni were concerned.
t
Mr. Raypurn. The employees of the railroads would then operat
em ? ,
Mr. Srone. Yes, sir. 1
Mr. Denison. You said that the Government taking over the 1
mines was a question of the future and that you felt you would me
probably be here, but, of course, what is done in this case now befor
us, the plan you recommend, and which if adopted would have
great deal of influence on what is done in the future and after yo
are gone, would it not? : )
Mr. Sronr. That might be true. Jf we could show that we coul
operate the railroads under this plan better than they were ey
ope ated before and could give the American people better servi
than ever before, it would have a great influence on the other questid
Mr. Denison. I have seen in the papers that the coal miners 1e
that they are entitled to an increase in wages, but that they a
going to defer their request until after peace has been restored &
eclared. Now, if they should for the same reasons as the bro
hoods demand an increase in wages and ask the Government to ti
over the coal mines, what would be your attitude ? Ry
Mr. Sronr. It would depend largely on the plan and whether’?
not the Government could not reach the same result by fixing
| RETURN OF TH RAILROADS TO PRIVATE OWNERSHIP. 545
\
price of coal. You say that the miners feel that they should have an
Increase in wages. There is no reason——
i Mr. Denison (interposing). I am not questioning the right to feel
‘that way.
Mr. eae There is no reason why the railroad companies should
buy their coal for $2, $2.10 to $2.40 a ton while the laboring man has
‘to pay $7 or $8 for the same coal, mine run.
’ Mr. Dentson. I would not think there should be.
_ Mr. Stone. That is actually what is happening to-day.
| Mr. Dentson. What I am trying to get at is this: If the principle
and the policy of this whole legislation is wise, then, for the same
reason, it would be wise in reference to the coal mines.
| Mr. Stone. I would not say that at this time. It would depend
largely on how the plan works out. If it works out as we feel confi-
dent it will [ can realize that it would have a very strong influence on
the question you ask.
_ Mr. Denison. Of course, what would be true of the coal mines
‘would be true of all industries that are necessary for the public, Is
aot that true ?
_ Mr. Stone. It would probably work out that way in future years.
_ Mr. Denison. Do you think it is wise for us now to continue that
»olicy of the Government taking over all industries upon which the
yublic necessarily depends ?
_Mr. Srone. I would not say that. I think the time has arrived
when the Government should take over the railroads, and I think
wy other plan which proposes to turn them back simply means
inancial panic and chaos.
Mr. Denison. What do you mean by that?
__Mr. Sronn. I believe that if the railroads were turned back to
heir private owners to-morrow or next week, a number of the roads
vould be in the hands of receivers inside of 30 days under the present
mancial conditions.
Mr. Denison. Why ? |
Mr. Stone. Because from the way freight has been detoured and
rom the way the railroads have been scrambled up to the present
ime, they could not make their fixed charges as guaranteed at the
resent time by the Government.
_ Mr. Denison. Do you think that there is anything that we can do
d relieve that situation except to adopt the plan that you propose ?
Mr, Sronz. I understand that there have been four plans proposed,
nd, in my opinion, the plan that we propose is the only piece of
ustructive legislation that has been proposed on this important
/uestion yet.
Mr. Denison. In case that Congress should not think it wise to
dopt the plan you propose at this time, could you suggest anything
tat Congress could do that would tend to prevent this panic and
‘ceiverships for railroads that you have just mentioned ?
STONE. Yes, sir; if you adopt the plan proposed. by certain
erests, you would subsidize all the railroads so that that might not
appen.
“te Hee
4 Denison. What interests do you have reference to?
‘Mr. Stone. The capitalists, interests that are represented in the
‘an proposed for the return of the railroads to private ownership
ith a Government subsidy.
546 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Drentson. Do you remember who proposed that plan ?
Mr. Stone. I can not recall offhand.
The Cuarrman. Do you not mean a guaranty instead of a sub-
sidy %
iy Srone. It means the same thing. If you guarantee them, it
is the same thing. It amounts to a subsidy.
The CuarrMANn. There have been several plans before the committee
involving the guaranty plan. |
Mr. Srons. Well, I, perhaps, used the wrong word, but that is
what.it means when you come down to every day language.
Mr. Denison. Do you refer to the plan calling for a guaranteed
return on the capital?
_Mr. Srone. Yes, sir.
Mr. Denison. You do not think that it would be a wise policy for
the Government to adopt any plan that would guarantee any return
on the capital invested, do you ?
Mr. Stone. I would not say that, but I do not see any more reason
why capital should be guaranteed a return than that labor should be
guaranteed its return. For example, the Federal administration
agrees that in order for these men to live and have the same pur-
chasing power for the dollar, they would have to have approsa
a 25 per cent increase in wages; yet, they say that if they were to
make it, it would mean a deficit and that they would have to come
‘to Congress for the passage of a deficit bill. Now, Congress has
already passed a deficit bill to take care of the guarantee to the
ca Pacts who are guaranteed 64 per cent on the cost of operations.
r. Dentson. What would you think of the proposition of guaran-
teeing capital a return of 4 per cent and guaranteeing the laborers
their present wages ?
Mr. Srone. ‘Present wages” is only a comparative term. It
depends upon what you can buy with the present wage as to whether
the present wage is adequate, or not.
r. Denison. That would be true, also, of capital, would it not?
Mr. Stoner. Not necessarily.
Mr. Dentson. The value of capital differs at different times.
Sometimes it may be entitled to a return of 4 per cent, at another
time to a return of 3 per cent, and at another time to a return of 5
per cent.
Mr. Srone. Yes, sir; that, of course, would differ at different
times. It may depend upon how many risks they take, and, also,
upon how much the capitalists have capitalized the clear sky and a
few other things that go with it. |
Mr. Denison. Do you not think that the same principle that is
being urged here should be applied to all of the public utilities ?
Mr. Sronet. I do not at the present time.
Mr. Dentson. Why not?
Mr. Sronz. I do not think we have arrived at that time in the
history of our country.
Mr. Denison. Why do you think we have arrived at that time s0
far as the operation of the railroads is concerned, but not with respect
to any other public utility ?
Mr. Sronr. Because there are more men involved at the present
time in the operation of the railroads, and because the railioads are
semipublic corporations, anyway.
RETURN OF THE RAILROADS TO PRIVATF OWNERSHIP. 547
_ Mr. Denison. But that applies also to electric-light plants, street
Tailways, and to all public utilities. If that is true, then the only
‘difference is that more men are employed in the operation of the
railroads. q
_ Mr. Stone. No, sir; I would not say that.
__ Mr. Denison. Then why do you think that that time has arrived
in the history of the country so far as the railroads are concerned ?
Mr. Srone. Because we realize that under the present conditions
‘the railroads can not continue with this steady spiral climbing in
Ree and other costs. If that continues, then something must be
one.
Mr. Denison. Is not that true of other industries ?
Mr. Stone. | am not as familiar with other industries as I am with
the railroad situation.
_ Mr. Denison. But you are familiar with the industrial conditions
all over the country ?
Mr. Stone. In a general way; yes, sir. The time may come—and
Ido not know what will happen—but the time may come when the
‘Government will control all of the natural resources of the country
and will not allow any man or set of men to control them.
__ Mr. Denison. Of course, as you understand, Congress must act in
this emergency arising out of the high cost of living, and it is one upon
which it must act from the point of view of all laborers and not simply
of the laborers on the railroads of the country.
_ Mr. Stonz. I do not claim for a minute that the solution of the
railroad problem will solve the problem of the high cost. of living
for all of the American people. They are separate and distinct
problems. |
Mr. Denison. That is what we are interested in, and if, in the
interest of the American people, you have any suggestions to offer
ane that line, I am sure they would be welcomed.
‘Mr. Stone. We will be glad to furnish you with some concrete
suggestions later on when they have been worked out by the different
labor organizations, if, in the meantime, you do not furnish a solution
for it yourself, or if the present administration does not find a solution
for it. I am anxious to see what the President’s suggestions will
be Een he appears to-day, as I understand he is coming before you
to-day.
| a Denison. You do not care to offer now what you have in
‘mind ?
Mr. Stone. No, sir; I do not wish to offer any suggestions in regard
to that until it has been taken up with all the other organizations.
I would like to do that before offering any precise plan.
'_ Mr. Coapy. You stated a while ago in answer to a question by Mr.
Denison that the railroads paid far less for coal than domestic con-
sumers. |
Mr. Stone. Yes.
eC Coapy. Is it not true that the railroads buy run of the mine
coal ?
Mr. Stone. That is all anybody else is getting.
| Coapy. Does not the consumer have to pay the freight on the |
coal ? .
_ Mr. Stone. Yes, sir.
548 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Coapy. And the terminal charges and cost of handling to his —
home in the big cities. Does not that account for the difference?
Mr. Srone. No, sir; it is true that he pays all of those charges, but
that does not account for the difference.
Mr; Coapy. Does he not buy lump coal?
Mr. Srons. There is no such thing at the present time. There is
‘no such thing now as lump coal. It is nothing but run of the mine,
and half of it is dirt.
Mr. Denison. Is that true all over the country, that the coal
mines are turning out half dirt and half coal?
Mr. Sronr. That is what we are buying at the present time m
the cities. I do not know where it gets in
Mr. Denison (interposing). Do you want this committee to under-
stand that the coal purchased at the coal yards is half coal and half
dirt ?
Mr. Sronr. Yes; that is what I said.
Mr. Coapy. What is the freight from the mine to the big cities?
Mr. Stonr. Somewhere between 90 cents and $1.10 per ton.
Mr. Coapy. Do you know what the terminal charges are?
Mr. Srone. From about $2 and $2.50 per car up to $3 per car,
carrying 50 or 60 tons. ¢
Mr. Coapy. It costs something to unload it at the yards and deliver
it to the homes of the consumers.
Mr. Stonr. Yes; it costs something to deliver it to the homes of
the consumers, but I do not believe that it costs $5 or $6 per ton.
Prior to the war we bought the same coal for from $3 to $3.25
per ton, and now we have to pay $7.50 and $8 per ton. Now, I do
not believe that the miner gets all of that. I know that the cost of
mine labor has not increased that much.
Mr. Monracur. How much have the wages of mine workers
increased ?
Mr. Stone. They have increased, but I can not tell you exactly
how much. But they have increased.
Mr. Monracur. Do you think that under your plan there would
be anincrease of wages? You desire an increase of wages, do you not?
Mr. Stonr. Under the plan proposed here there can be no increase
in wages except as we show profits on the efficiency of the employees.
Mr. Montacusr. Suppose you do not show any profits? |
Mr. Sronr. But we are going to show profits. There is no argu-
ment about that, because we are going to show them. We know
that we can show profits. From our viewpoint that is not a uestion
for argument at all, because we know that we can show profits.
Mr. Montacur. I think there is a very serious question as to
whether you should not get other people’s ewe on that subject.
Mr. Stone. If they give us a chance to make a practical demon-
stration of it, I know that we will convince them. As you know,
Congress would have the power to revoke the charter at any time
and change the plan again.
rates ? .
Mr. Sronr. Yes, sir. We are basing our whole hope of the future
on being able to do that, at any rate. b
Mr. MontacuE. On all the roads?
Mr. Coapy. Do you think you could show a profit at the prevailing
:
“RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 549
| Mr. Stone. We would make profits on the railroads as a whole,
jut [ am not speaking for any particular road. As to a road built
or strategic purposes, or in order to hold some territory, or a road
eading from nowhere to nowhere, we probably could not show any
ywofits on that particular road, but we are speaking of the Govern-
nent railroads as a whole, and not of some particular line.
Mr. Sims. You mean the railroads operated as a single plant?
Mr. Stone. Yes, sir.
_Mr. Montraaur. To what do you think the present high cost of
iving is chiefly attributable ?
_ Mr. Stone. To the system of profiteering that has grown up during
he war, and to the fact that everybody has ceased to talk about cents
md dollars. We do not talk of anything but millions.
_ Mr. Montacus. Do you know of anybody who is not trying to get
werything that he can out of the war? :
Mr. Stone. No, sir; I know of some people who got more than any
nan’s fair share.
Mr. MonracueE. I was asking as to the fact, and not for any justifi-
ation of the fact. Did you notice what term I used—‘ everybody’’ ?
_ Mr. Stone. No, sir; I do not know of anybody that has not been
retting all that he could get.
Mr. Montague. Except the soldier who fought in Europe. You
lo not think that» he got all that he was entitled to?
Mr. Stonr. They did not get half what they were entitled to,
jut somebody got what they should have had.
: Mr. Monracur. Do you think that, with the process of each man
jetting all that he can that we can ever reduce the cost of living ?
Mr. Sronz. It is a continuous cycle, with the cost of living keeping
bout two jumps ahead of wages and with wages never catching up.
Mr. Montacue. Suppose they should catch up, would it stop then 3
Mr. Stone. No, sir; because if we got an increase of 55 per cent
n wages to-morrow, they would raise the prices that much more.
Mr. Monracur. Suppose you got an increase in wages of 25 per
ent to-morrow, and after two years the cost of living was reduced
0 per cent, would you be willing to reduce wages ?
_ Mr. Stone. If you could show the men that they could stand
hat much
Mr. Monraause (interposing). Do you think that the wages would
ver go back?
Mr. Stonn. Of course, we know that human nature is very much
he same the world over, and everybody wants to keep everything
hat he can. The great trouble when we commence to talk about
he cost of living is that they want to measure the standard of living
osome locality here with the standard of living of some foreigners
‘ho come over here, and there is absolutely no comparison.
Mr. Montague. I agree with you about that.
Mr. Watson. Directly after the Civil War, all of the commodities
‘ere higher in price than they are now. Do you know how they
vere reduced ?
' Mr. Stone. I was only a boy then, but I recall that there was a
‘anic later on. |
Mr. Watson. I do not think it was immediately after the war.
Mr. Stone. No, sir; but it was three or four years after the war.
550 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watson. Will not American history repeat itself? I do not
think that the panic came until 1873, and prices were very much re-
duced in 1873. Tea was 80 cents a quarter of a pound and calico was
60 cents per yard. Do you know how they were reduced ?
Mr. Srons. Probably they did not have profiteering down to as
fine a system as they have now. That is one thing.
Mr. Watson. Do you think that civilization has advanced since
then ?
Mr. Stonkr. In many ways.
Mr. Watson. In profiteering ?
Mr. Stone. Yes, sir; I think so. There is no question about that.
Mr. Watson. Do you think that the philosophy that reduced the
prices of commodities after the Civil War would not be as true in its
application now ?
Mr. Stone. If that were true, I would suggest that Congress put
that same philosophy into effect at once.
Mr Watson. It is in effect now. |
Mr. Srone. Then it has failed to function properly.
Mr. Watson. If that were true, Congress would not be required
to take any action whatever upon the question of the reduction of the
prices of commodities.
Mr. Stone. Gentlemen, I want to say one thing to you
Mr. Watson (interposing). Congress did not take any action then,
as I recall.
Mr. Srong. I want to say this to you, and it is not in a spirit of
threat that I make the statement that unless Congress or someone
finds a solution of this problem within the next few months—and |
do not mean in two or three years, but within the next few months—
you are going to see the worst time that we have ever seen in this
country, because the people are not going to fold their hands and sit
themselves down while starving, but they will die fighting.
Be Watson. Would not the solution of 1864 satisfy the people of
to-day ?
ie Srone. I do not know whether that solution would work or
not. I can remember the Civil War, although I was only a young
boy, but I can not remember it well enough to know what the plan
was,
Mr. Watson. But it is a matter. of history.
Mr. Stone. Yes, sir; and history is largely what those who write it
make it.
Mr. Sweet. How much have the wages of railroad men increased,
taking the prewar period as the basis ?
Mr. Sronr. Approximately about 37 per cent, and the cost of
living has increased about 82 per cent in the same time. iA
Mr. Swreer. And the purchasing power of the dollar has decreased
about 40 per cent.
Mr. Sroner. Forty-two per cent, according to the Government
reports.
Mr. Sims. I would like to ask you one question: Do you know
whether, or not, the owners of the mines have decreased or increase
the royalties that they were receiving before the war, or are they
recelying anything over what they were receiving before? —
Mr. Srong. I do not know, but I can easily get that information.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Bor
) Mr. Merrirr. Of course, I agree with you, Mr. Stone, that the
fundamental question here is the question of the cost of living. Now,
all of us agree that the present condition of the world has never been
jexampled before. The world war has resulted in a tremendous
}merease of consumption and a tremendous decrease of production.
| That is right, is it not?
Mr. STONE. Yes, sir. '
| Mr. Merrirr. Now, is not that the fundamental reason for the
reat increase in the cost of food ?
| Mr. Stone. No, sir; I do not think so.
|. Mr. Merrirr. You do not think that the question of supply and
jlemand has anything to do with it?
). Mr. Stonz. That has something to do with it; but, for example,.
|. saw the proprietor of my hotel buying vegetables this morning.
| de was paying $3.50 for a bushel of tomatoes. All of us know that
) omatoes are plentiful in the month of August, and last year he was:
|yaying 40 cents per bushel for them in August. Now, I know that.
| here is a plenty of tomatoes rotting in the fields for want of a market.
the same thing is true of shoes. It is said that shoes are going to
1:20 per pair. It takes three square feet of leather to make a pair
vf shoes, I am told, and 30 days ago it was worth 50 cents per square
oot, while to-day the price is $1.50 per square foot. Yet I can
how you out in the western territory that there are thousands of
ity hides piled up as high as box cars, all along the way, that they
)an not get a bid for. It is not a question of supply and demand,
jyecause those dry hides are there and are not used.
? as Merritt. There is a tremendous demand now for all food-
| tufis.
Mr. Stone. Yes, sir; that is true.
Mr. Merritt. And the people who own those foodstuffs naturally
et the going price for them.
Mr. Stons. They get all they can for them.
Mr. Merritr. Your remedy for that is a general system of price
xing ?
_ Mr. Stonz. It will have to be. If we could regulate those prices
uring the war, and we are practically under war conditions now,
here is no reason why we could not regulate them now.
| Mr. Merrirr. Do you think that the war regulation of food prices
jas successful ?
Mr. Stons. To a great extent; yes, sir. I think that is the only
fy we could have gone through the war with the supplies that we
jad.
) Mr. Merrirr. That involved, not only the fixing of prices, but the
uaranty of prices to the producer ?
) Mr. Sronz. Yes, sir; and speaking of wheat, if they were to take
ee off of wheat to-day it would go to $3 per bushel.
‘Mr. Merrirr. Would that tend to show that price fixing during
le war was effective ?
Mr. Sronr. Price fixing, so far as flour is concerned, had nothing
) do with it. At the present price of wheat flour should sell at $10
er barrel, but by the time it goes through the retailer and is sold in
nall quantities it is sold at $16.50 per barrel.
: ha Merrirr. Then, is it your view that the real profiteers are the
| tailers ?
5b? RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Srone. No, sir; I would not say that. It is all the way down
the line, and one of the great ptoblems now before us is that of
bringing the producer a the consumer closer together without
having so many middle men.
Mr. Mernuirr. If, in process of time, when we begin to produce
ereater quantities of food and other necessaries, there should get to
bea surplus all around the world, do you not think that that would
have an effect in cutting down prices ?
Mr. Srone. It would, unless some few individuals got a corner on
the commodities, as it appears they have at the present time.
Mr. Merritr. Do you know of any ‘‘corner” which has succeeded
in the end?
Mr. Stone. Well, the ‘‘Big Five’”’ packers seem to have succeeded
fairly well for the last year or two so far as the price of meat is
concerned. |
Mr. Merairr. [ do not think we have
Mr. Srone (interposing). It must be, when beef cattle are sellin
at 124 cents per pound and beefsteak is selling at 40 cents per pound,
The farmers do not get all of it, nor do the stock growers get it.
Mr. Merritt. That, of course, is a complicated question. What I
was going to say was that it seems to me that it is a question that is,
at least, worthy of consideration by you gentlemen and by all citi-
zens, Whether the present condition of prices is not the result of
world conditions which, when natural law, as Mr. Watson suggested,
becomes operative, will be controlled. I am about in your class as to
age, and I can remember when the Civil War was just over. I know
that prices then were higher than they are now, and I know that
through the operation of natural law they came down. Now, of
course, this World War produced world sacrifices, and we are getting
our share of them.
Mr. Stone. We are coming back to the same fundamental prin-
ciple. People have to live. Yesterday’s press reports carried a news
item to the effect that so many million children—I do not remember
the exact number—were going to bed hungry every night.
Mr. Merritt. That is an easy thing to say.
Mr. Srone. It is an easy thing to say, ae perhaps, to prove.
Mr. Montaaus. In America ?
Mr. Srone. Yes, sir. I read an item in a Baltimore panes or
Washington paper yesterday saying that 3,000 school children in
New York City went to school every morning without their breakfast.
Mr. Merrirr. That particular statement was made several years
ago, and it started a movement for providing school lunches, but
investigation showed that the allegation was not true at all.
Mr. aa Is your plan for the permanent solution of the
railroad question based upon the temporary conditions that now
exists with respect to the cost of living, or is it a long-thought-out
plan which has no connection with the present exigency ?
Mr. Sronr. We had been thinking and working on it long before
the railroads were taken over for Government operation and then wé
finally came to the crisis at the present time I think it is the
solution for one phase of the high cost of living. I do not undertake
to maintain for a minute that the adoption of the Plumb plan wut
solve the problem of the high cost of living. That is something that:
affects every man, woman, and child in America to-day. :
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 553
‘Mr. Barxiey. Do you think it would be safe to adopt as a perma-
nent plan for the operation of the railroads a plan based merely upon
he present situation with reference to the cost of living ?
-Mr. Stone. No, sir; not based upon that alone, but it is offered as a
solution of the whole question of Government railroad operation,
‘here are two separate and distinct questions, but one has a bearing
(pon the other. There is a tendency to confuse the two questions
ogether, or to confuse this with the Government control of com-
aodities. ‘The adoption of the Plumb plan will not solve the problem
f the high cost of Heine’ but it will be one of the agencies that will
elp to solve it. wear
_ Mr. Montacue. Will there be any reduction of railroad rates ?
' Mr. Stone. Under our plan?
Mr. Monracur. Under any plan.
_Mr. Stonn. Not at the present time, but I believe that if our
lan was adopted, it would eventually result in a reduction of rates.
| Mr. Montacur. What do you mean by “eventually”?
_Mr. Stone. As soon as we got the plan to working and got some
\xamwork, which is vitally needed at the present time, we would get
etter results.
| Mr. Montacur. How many years, would you say, before there
ould be any reduction of rates?
_Mr. Stone. I would not undertake to say. It would depend largely
pon local conditions. One thing is sure, and that is that there
ould be no increase in rates unless the rate-making body said it
jas necessary, because the Interstate Commerce Commission would
jave the same power under our plan that it has at the present time.
\TATEMENT OF MR. FRANK MORRISON, SECRETARY OF
| THE AMERICAN FEDERATION OF LABOR, A. F. L. BUILD-
| ING, WASHINGTON, D. C.
| Mr. Morrison. Mr. Chairman and gentlemen of the committee,
| am here representing the American Federation of Labor to testify
ee it stands behind labor’s stand for the reorganization of the
ulways.
At the convention of the American Federation of Labor at Atlantic
ity, on Juné 17, 1919, the following resolution, which was intro-
|1ced by representatives of the International Association of Machin-
|ts, the Amalgamated Sheet Metal Workers’ International Alliance, |
je International Blacksmiths and Helpers, the International Broth- |
| hood of Boilermakers, the Switchmen’s Union, the United Brother-_
od of Maintenance of Way and Railroad Shop Laborers, and the
rotherhood of Railway Clerks, was considered:
Congress the political solution of the railway problem; and
Whereas every human and industrial activity, the life of every community, and
|? happiness and prosperity of every citizen are dependent upon the solution of
tears and ;
| VRereas it is demanded by the private owners of these properties as the condition
Which they will resume the control and operation thereof, that the people of
@erica guarantee them privileges which they have not heretofore enjoyed, to wit,
> night to earn a guaranteed return of the property investment account of the rail-
.Y Companies; and
Whereas such a guarantee would make valid as a direct obligation of the people
the United States all fictitious securities, stock dividends, and discounted bonds
Whereas there is now pending before the American people and their representatives |
\
554 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
issued by the railroads without consideration and representing no service to th
American people; and
Whereas in order to make good such guarantee, rates must be raised far in exces
of the level now fixed, or, in default of such increase in rates, wages must be reducet
far below the level now fixed, or both; and
Whereas there has been presented to the Senate Committee on Interstate Commerce
and will shortly be introduced in Congress the plan fora reorganization of this industry
originating with the railway employees; and .
Vhereas labor’s plan so presented provides for immediate public ownership of thes
properties, the production of every honest dollar actually invested, and the assuranc
of an adequate return on such investment without any increase in rates; and
Whereas labor’s plan provides for joint control of the industry through a board 0
directors representing equally the wage.earner, management, and the public; and
Whereas, said plan guarantees to the public the protection of its interests in procurin
ultimately service at cost, and at the same time secure to the wage earner a fair shar
of the prefits produced by his skill, efficiency, and economy; and
Whereas labor’s plan provides for the full protection of all the rights and privilege
of the wage earners as a class without invading the rights of any other classes of societ:
and at the same time throws wide the golden gate of opportunity for the full develor
ment of the powers of initiative, inherent to every individual: Now, therefore, bei
Resolved by this Thirty-ninth Convention of the American Federation of Labor, Tha
we hereby approve, indorse, and adopt the plan for the reorganization of the railwa
industry presented to the Senate Committee on Interstate Commerce on behalf of th
railroad employees represented by the following organizations: International Assoc:
ation of Machinists, Brotherhood of Locomotive Engineers, Brotherhood of Railwa
Carmen of America, International Brotherhood of Blacksmiths and Helpers, Inte
national Brotherhood of Electrical Workers, Brotherhood of Railroad Trainmer
Switchmen’s Union of North America, Brotherhood of Railway Clerks, Brotherhoo
of Locomotive Engineers and Enginemen, Sheet Metal Workers, International Orde
of Railroad Conductors, Order of Railroad Telegraphers, United Brotherhood of Mair
tenance of Way and Railroad Shop Laborers, International Brotherhood of Boile
makers, Iron Shipbuilders and Helpers of America, by shee chic
of the Order of Railroad Conductors, and Glenn E. Plu ir counsel); and, be:
further a
Resolved, That we hereby pledge ourselyes to use every legitimate endeavor to pr
mote the enactment of this plan into law.
The resolution committee submitted the following report on th
above, which was unanimously adopted:
With reference to the subject matter contained in the executive council’s repo
and in the above resolution, your committee, in submitting a declaration in favor
ownership or control of railroads by the United States Government, recommends th
inasmuch as the details connected with the same are at present in a formative stag
the subject matter be referred to the executive council with instructions to coopera.
with the organizations representing the railroad employees. |
President Samuel Gompers, of the American Federation of Labo
cepted the honorary presidency of the Plumb plan league organize
among the rank and file of the 14 railway national and internation
organizations and generally among the organizations affiliated wil
the American Federation of Labor to carry to the public and”
Congress the principles of the plan now embodied in the Sims b
which has been indorsed by the chief executives of the 14 railwé
organizations. |
In all discussions of this question it would be well to bear in mir
that quasi-public corporations are created for service and not I
ee A long line of decisions, from the Supreme Court of the Uni
States down, have invariably held that the fundamental purpose
these corporations is to serve the public and that they are only entitl
to a fair remuneration. ;
Hardly anyone will deny that under private management the r
roads have been financial footballs and that they have been dire¢
by interests whose wreckage of numerous railroad systems is comm1
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 555
‘nowledge. This wreckage has been accompanied by a debauching
f legislature and other political activity that tested democratic
stitutions.
The times call for new arrangements in the management of proper-
‘les that are only made possible by the public’s consent.
The passage of the Sims bill will reestablish the theory that rail-
ads Bionid be operated for public service rather than for private
rofit.
Aside from the application of democracy in these properties, and
aeir handling by practical railroad men, the Sims bill wil squeeze all
ctitious value out of these properties. This will affect living costs
ad reduce charges the cublio must now meet, for then it will no
»mger be necessary to compel the railroads to earn dividends on mil-
ons of dollars of watered stock.
_ Gentlemen, that is the message which I bring to you from the
‘Merican Federation of Labor upon this question.
We represent about 3,700,000 members who have paid, and with the
vembers that have not paid it would take us up over the 4,000,000
ark, and with the brotherhoods added to that, I am safe in saylng
jat that represents fully 4,700,000 organized workers, and the
merican Federation of Labor claims that they also represent the
torganized workers of this country, because there is no other body
iat can speak for them.
So in bringing to your attention the indorsement of this paln we
id that it is the indorsement of the wageworkers of the country.
‘I might add that the convention of the American Federation of
bor declared for Government ownership of railroads; that is, the
ecutive council did, and when it came to the convention this plan
as introduced, and the convention decided that the Federation would
operate with the wishes of the workers that this law would affect.
y understanding is that the question of Government ownership, the
evention of the railroads from going back into private ownership,
is voted upon by the membership of the organizations affiliated with
2 American Federation of Labor.
The Cuarrman. Mr. Morrison, you believe in the socialization of the
Uroad systems of the United States through public opinion as
[pressed through Congress; is that right ?
/Mr. Morrison. Through Congress ?
‘The Cuarrman. Yes. In other words, if you are going to get it,
| mare, it has to be through an enactment of Congress; is that
“ht ?
| Mr. Morrison. Oh, yes.
)The Cuarrman. What method do you think would be proper to
ivelop that public sentiment which would bring about, through
pnogress, the socialization of railroads?
|Mr. Morrison. That was expressed very fully by Mr. Stone—
‘ough any method that can be used to convince the people of this
Antry that this course is necessary to be taken.
@ CuarrMAN. That is to say, it would be an appeal to reason;
shat right ?
Mr. Morrison. Labor organizations never do anything else.
\ The CuarrMan. They would not use duress of any character ?
Mr. Morrison. That is not a part of the plan of the labor organiza-
ns,
T
556 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Cuarrman. The American Federation of Labor has always
insisted, as I understand it, in not organizing a political party te
carry out its plans and purposes; is that right ?
Mr. Morrison. The position that they have taken in the past
has been that they are partisan to a principle but not to a political
party. We have men who are favorable to our legislation in al
arties, and we have supported them. If a man is a Republican and
iad stood for the measures we wanted, he was supported. If he
was a Democrat, the same course was pursued. :
The Cuarrman. And you will doubtless continue in that policy.
Mr. Morrison. That is the policy that has been in operation since
1897, and the action of the last convention indicates that still is the
opinion of a majority of the delegates representing the affiliated
organizations.
The CuarrmaAn. Notwithstanding the fact that there have been
attempts to organize labor parties within recent months. .
Mr. Morrison. Notwithstanding that fact ?
The CHAIRMAN. Yes.
Mr. Morrison. There is the right of a central body or a State body
to nominate an independent to run against. either of the old parties
or even to start a labor party in a city or State. That is within the
province of the States, but the American Federation of Labor takes
the position, or stands on the proposition, that they are a non-
partisan organization. We vote for our friends irrespective of party
affiliations, and we have'been very consistent in that course.
The CuarrmMan. So that in case this Plumb plan is not adopted
by Congress during the current session, or possibly next winter, it
would be the effort of your organization to secure the adoption of
that plan by one or the other or both of the great political parties
next year ?
Mr. Morrison. By both of them.
The CuarrmAn. I said by one or both.
Mr. Morrison. Yes.
The Cuarrman. And in that way submit your proposition to 4
national referendum; is that your thought? |
Mr. Morrison. What do you mean by a national referendum ?
The Cuarrman. If it is put in as a plank of a party platform, tc
that extent it is submitted to a referendum. ;
Mr. Morrison. Yes. You mean we would go before the two great
political parties or three if you happen to have a progressive party
again % |
The CHAIRMAN. Yes.
Mr. Morrison. And get them to endorse it.
The CHarrmMAn. As you have done on other measures. ;
Mr. rig om That would probably be the course that would be
pursued.
The Cuarrman. That would be the peaceful and the American a
the constitutional method of procedure, would it not? 6
Mr. Morrison. That is the procedure that labor organizations
follow as exemplified by the American Federation of Labor. , he
Mr. Barxiry. Suppose both political parties should putea
pee in their platforms, how would you be able to tell, /
eing able to win, which represented the sentiment of the America®
nd)
Be
oth noi
: x |
,
i
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 557
| people; or suppose that neither put it in their platform, how would
boa be able to estimate the opinion of the American people on that
‘subject.
Mr. Morrison. Well, if they both put it in their political platform
‘we would feel that the conventions believed that the people wanted it.
| Mr. Barxury. So that whichever party one you would think it had
, been indorsed by the people of it was in their platform.
Mr. Morrison. Well, political parties do not win on one issue.
Mr. Barker. That is what I was leading up to.
Mr. Morrison. At least I have foimnd that to be true.
_ Mr. Barktry. In other words, what I suppose was in Mr. Esch’s
| mind was what is the best way to get an expression from the American
people upon this very important and unique plan which has been
|proposed by Mr. Plumb and your organization ; and as you state it,
\no one plank in any go Sate ever wins an election or very seldom
: at if you are planning, in the event this pill
should not pass at this session, or in this Congress, to secure a sort
|of referendum from the American people on the subject, how are you
sure that you secure that by appealing to the platforms of political
NTE
;
1
Mr. Morrison. Well, if we secured it, I do not know that we
would bother very much as to just who was responsible for it. You
\anderstand what I mean ?
Mr. Barkrey. Yes.
Mr. Morrison. Both parties would probably claim it, and all
\;hose who voted for it, their votes would show where they stood,
ind those who voted against it, their votes would show their con-
tituents where they stood. The representatives in Congress usually
} there is nothing in this bill to deprive them of the right to
trike ?
Mr. Morrison. No, sir; nothing except the idea of the bill that|
| this is put into operation the feeling is that the conditions of the
mployees will be worked out in a manner that will be satisfactory |
|) them and that there will be no occasion for a strike.
| Mr. Sanpers of Indiana. We have a tribunal now that passes on
ifage questions. They have recently failed to reach an unanimous
|greement and we now have men out on strike ?
| Mr. Morrison. Yes, sir; but they are not out with the sanction —
'{ the officers of the organization.
| Mr. Sanpers of Indiana. I know.
| Mr. Morrison. You find in political parties that a fight may
jevelop along certain lines—it is not satisfactory to the creat num-
\er of Democrats or Republicans and they split off from the Repub-
(can Party. That is a strike of the Republicans against the admin-
jtration. It did not come about because the people at the head
)' the Republican Party wanted it, but in spite of them and becasue
ley would not follow along the lines that they wanted. You can
fot change that. That is the same principle of the individual
|serting his right as a citizen to do what he thinks ought to be done.
Mr. Sanpers of Indiana. The real thing that I have in mind is
jis: I assume if the legislation embraced in the Sims bill substan-
jally as it is should pass through Congress that the millions of
jaployees representing the dozens and more different classes of
jaployees receiving different wages that these employees would
we disputes about whether a particular class was receiving the
jage that it ought to receive in comparison with some other class.
\P instance, the section man might claim that he was not receiving
) much as he ought to receive in comparison with the railroad
mductor. You would still have that situation if this legislation
enacted. What I am driving at is what remedy do you propose
¢ the labor problem ?
Mr. Morrison. This bill is for the purpose of running the railroads
Such a way that they will be run without profit. The wageworkers
d the Bablic are going to get all the advantage there is through the
eration. The public will get a lower rate than they are getting now
d the employees will receive a remuneration that will enable them
live in reasonable comfort. That may change from year to year,
sording to the dollar, until you stabilize the dollar and bring the
llar to the point where it will buy so much food or so many units
food that goes to make up the living of the individual. You can
tsay what the wage should be from year to year. It is according
what the‘dollar will purchase.
564 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sanpers of Indiana. It will never be uniform for all employees?
Mr. Morrison. The trend of organization where the men are
organized has been, that they have received substantial increases in
wages, and if they were all organized there would not be that great
difference between the skilled and unskilled trades in the amount of
the remuneration, for this reason: The unskilled manis married and
has a family to educate just the same as the skilled man. The general
trend of sentiment among all men now is that every citizen should be
enabled to live in reasonable comfort and that all children born should
have equal opportunities as nearly as possible. That is the trend of
legislation. That is what all the Representatives in the House and in
the Senate, I think, would like to see exist. That is what the labor
unions are working toward—that end. That is the end that all the
workers have an opportunity to work, first; and, second, that they
receive remuneration that will enable them to live in reasonable
comfort.
Mr. Sanpers of Indiana._Do you think that the ultimate end of this
lan, looking into the future, would be to level the wages that exist
rade the comparatively low rate paid to the man who is engaged
in unskilled labor and the comparatively high rate of wage paid to the
man who is a skilled workman ?
Mr. Morrison. It would not prevent the skilled man’s wages from
keeping step with progress. ‘a
Mr. Sanvers of Indiana. There will always be a difference between
the skilled and unskilled labor, as far as remuneration is concerned }
Mr. Morrison. It will be a very long time before the unskilled will
receive the same wages as the skilled. The unskilled labor, in my opin-
ion, during the war has received increases greater than the skilled.
Perhaps the unskilled workers are the only ones that in some instances
did receive the 80 per cent, although I question whether very many of
them received the full amount to cover the increased cost of living.
The increase in some trades has been very slight, and it is not to the
credit of the Government that the employees working for the Gov-
ernment here have not received a wage to meet the increased cost 01
living. I just want to call your attention to one class of employees—
the postal employees. They not only have not received an increase
to meet the increased cost of living, but I am informed that the Posta
Service is losing men who are compelled to go out of the service
order to secure wages that will help meet the increased cost of living.
Mr. Sanvers of Indiana. I am inquiring about the solution of thir
labor problem, because it is advocated that there ought to be a tii
-bunal created by Congress having full authority to finally regulati
wages, not only to arbitrate labor difficulties, but to finally settk
them. I was wondering if in your plan you had some way of settlin;
labor problems, because if the plan goes through you would have thi
same problem; you would have to settle the labor problem so that
would stay settled ? ty
Mr. Morrison. The Federation as a body is opposed to what i
termed compulsory arbitration. That has been ne in New Zealand
it has been tried in Australia, and it has not worked out. 14
\ Mr. Sanpers of Indiana. That is what I had understood; but?
seems to me that this Sims bill provides in effect for compulsor
arbitration. }
a
te RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 565
| Mr. Morrison. Well, this is a plan where the employees are repre4
ted, and where the management is represented, and where the\
(resident appoints five, and it is not run for profit, so there is nothing |
“essitig upon the management or the five representing the President
, the United States to refuse to give to the workers a wage that would
: eo ored reasonable and on which they could live in reasonable
‘Infort.
Mr. Sanvers of Indiana. But suppose the demand is such that this
‘tbunal concludes that it is not just?
| Mr. Morrison. That may occur and there will be a compromise,
Oobably, and it will be worked out just the same as all other problems
| this character. As I stated this morning, where the representatives
| the employers and the representatives of the employees sit down
‘tthe purpose of coming to an understanding, there has never been very
jich difficulty in reaching an understanding; but we do not desire
jat, then the employees must have the right to refuse to accept it.
lo not think it is right, but the railroad men—the men who are the
sater advantage than if the railroads went back to their private
ners.
|Mr. Raypurn. Mr. Morrison, how many of these organizations that
|ve been read here this morning that stand for this Plumb plan
+» members of the American Federation of Labor?
(Mr. Morrison. Ten of them, and two of the other four have made \
(plication for affiliation, and another has been authorized to |
/zotiate for affiliation. |
! Vir, RaYBuRN. What are the two?
Mr. Morrison. The conductors and the engineers have their appli-
ionin. The trainmen have been authorized to negotiate with the
cers of the federation for affiliation.
Mr. Raypurn. The board of directors under the Plumb plan consist
|15 men, 5 to be appointed by the President, 5 from the classified
| Ployees of the lines below the grade of appointed officials, and 5 to
elected by the officials of the employees. That gives the employees
he railroads 10 members on this board of 15 and 5 to be appointed
the President, does it not?
|4r. Morrison, I think not. I think that gives them five. I have
er found the officials of the Government, or any Officials of any
| blishment, where they could hold that they thought along the
ite lines as the employees. That has not been our experience.
/{. Raysurn. Do not these gentlemen, Mr. Stone and Mr. Garret-
}, think along the same lines about as the rest of the employees ?
fr, Morrison. They represent the employees, and they are
‘Tucted very often how they should think.
i. Raysurn. But it necessarily follows that these other five men
| employees of the railroads. They are working for them.
itt. Morrison. They are working for them, but their trend of
(d will not be in harmony entirely, so far as the rate of wages is
\cerned, with the employees, in my opinion. We hope it will be,
| the experience or the natural trend will be that every man who is
/Ointed to any position, who is an honest man, and we have got to
ume that, although there may be men who-are not, they are going
ay) /
566 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
to be honest and carry out the work which they are appointed to do
in an honorable way and for the best interests of the public. These
men will be running the railroads. They will be the management,
and they will try to run it in a way that will redound to the benefit of
the citizens, and also they ought to run it with the idea that when it
comes to the question of wages and hours and conditions, they ought
to be fair to the employees and see that they get the conditions they
should have.
Mr. Montacus. Mr. Rayburn, may I ask one question right there
to get something clear in my mind. Who elects these managing
officials of the road under this plan?
Mr. Morrison. They are selected from the managements of all the
roads, five of them.
Mr. Montacusr. Who does the selecting ?
Mr. Morrison. I would take it
The CuarrmMan. The board of directors ?
Mr. Monracusr. No; they constitute the board of directors, I
want to know who elects the board of directors.
Mr. Prums. If you would permit me, I will answer that question
when we come to the bill.
Mr. Coapy. I would like to hear that answered now.
Mr. Piums. I am thoroughly familiar with the provisions of the
bill while Mr. Morrison may not be.
Mr. Monracus. Very well.
Mr. Raypurn. Mr. Morrison, let me ask you this question: Would
you be in favor of the recommendation of Mr. Hines that a board be
appointed to fix the wages of the employees of the railroads, either
by expanding the powers of the Interstate Commerce Commission
or appointing a separate board?
Mr. Morrison. In the first place, speaking as a representative
of the Federation, that is a matter for the employees themselves to
decide; but as a general proposition unless the board consisted of
the same number of employees as it did of the management, it would
not work out satisfactorily. |
Mr. Raypurn. We are not presuming that this board will be
selected from the management of the railroads and the employees.
It will just be a board.
Mr. Morrison. You mean the general public?
Mr. RayBurn. Yes.
Mr. Morrison. Oh, no.
Mr. Raypurn. It is to be presumed, of course, that the President,
if he were given the authority to appoint five, will in all probability
appoint somebody who has worked for a railroad and somebody
probably who had not; but I mean a board as usually constituted as
a governmental agency.
r. Morrison. That would be compulsory arbitration, and we are
opposed to that.
Mr. Raypurn. You are for the wage setting, though, that would
come about under the Plumb plan.
Mr. Morrison. Yes. ‘
Mr. RayBurn. Wherein, under my construction, it would be cer-
tain that you would have at least two to one of them employees.
Mr. Morrison. Of course, that is where you and t differ. I
imagine that it is possible that the five representing the management
i
Bi,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 567
would be considered so by some because they are salaried officers
working for the railroads and that their position with regard to what
‘the employees wanted would be the same, but I do not agree with
that reasoning. I do not believe it will work out that way.
_ Mr. Raysurn. I quite agree with you or with your line of thought
in answer to Mr. Sanders that if the Plumb plan were put into effect,
‘the way I look at it, with 10 representatives of employees and 5
outside representatives that there would be very little reason for
haying a prohibition against strikes on account of wage increases
being denied, and that is one reason why I look with apprehension
‘on this Plumb plan.
Mr. Morrison. Do you come to that reasoning through your
thought that five will take the same view as the five representing the
employees?
_ Mr. Raysurn. I stated that they would all be employees of the
railroads.
_ Mr. Morrison. You reach it from that point of view and I reach
it from another.
_ Mr. Raysurn. I know you do.
Mr. Morrison. That without having any profits and the desire
only to be just to the employees and to the citizens they will be in a
position to get higher wages than they could under private ownership
and give lower rates to the public. In other words, the employees
ae a higher rate and the public would get a lower rate through
this plan.
YH RayBuRN. But you are going in the face of history there, Mr.
Morrison, about Government owned and controlled railroads, are you
not ?
Mr. Morrison. There has never been
Mr. RayBurn (continuing). In the countries that have government
owned and controlled railroads, according to the best statistics I can
get hold of, they have a poorer service and a higher rate.
Mr. Morrison. The government controlled or government owned
railroads in those countries, outside of where their employees are
organized, are run for profit by the government and not with the
idea of giving the employees a wage on which they can live in reason-
able comfort.
Mr. Raysurn. I have never heard of them turning a very great
deal of money into the government in those countries that have
government ownership of railroads.
Mr. Morrison. What they got usually was through their
ston.
_ Mr. Raypurn. Now, Mr. Stone said this morning that the most
acute thing facing us was the high cost of living.
Mr. Morrison. Yes, sir.
_ Mr. Rayzurn. If the committees of Congress were for this plan
proposed in the bill introduced by Judge Sims—and he said also
that that question had to be reached within a very few months—
i they were all favorable to this Plumb plan and wanted it enacted,
it would take some time to do it, would it not? .
__ Mr. Morrison. Yes.
_ Mr. Raysurn. And how do you figure that the enactment of this
legislation would reduce the cost of living ?
568 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Morrison. In my statement I said that my position was this:
That it could be run more economically in this way ae by individual
or private ownership, and that lower rates would grow out of this
plan to those who were using the railroads for transportation, and
when you have lower rates for transportation, food products, and
other things, that would mean, providing you stop profiteering and
stop speculation in food products, a lower price for those products,
and in that way assist in reducing the cost of living.
Mr. Raysurn. Of course, stopping the profiteer 1s a very hard
matter. The middleman says the original producer is the profiteer
and the original producer says that the middleman is the profiteer,
and the consumer says that both are profiteers, and that is hard to
define.
Mr. Morrison. But I think you will find this to be true, that in
nearly all the industries that have been operated during the war
the profits made have been greater than during the prewar years.
Mr. Raysurn. Yes; that is true.
Mr. Morrison. Showing that the fortunes that were amassed by
the individuals or the profiteering was something enormous. Some
people say that a very large per cent of the cost of living is due to
the excess of costs taken by each individual or corporation through
which the product passes, not all by one, but every one taking all
that it will bear.
Mr. Rayspurn. Yes; that is the disposition of most people.
Mr. Morrison. I will change that word “bear” and say ‘‘all they
can get.”
Mr. Raypurn. That is probably better. Now, the employees
pave demanded recently an increase. Do you remember how much
at is?
Mr. Morrison. The last increase that they have asked ?
Mr. Raysurn. Yes.
Mr. Morrison. I do not know that that came before me. What
was the last increase? In his statement this morning, Mr. Stone
says they have received a 37 per cent increase. Now, some of these
employees in the maintenance of way receive wages which are very
low, but he says there had been an increase of 37 per cent in wages.
That was about the increased cost of living from 1914 to 1917,
Since that time these men have been working under the burden of a
still further increase in the cost of living from 1917 to 1918 of about
43 or 45 per cent. The money that they get won’t buy within 43 or
45 per cent of what it ought to, and in all justice to these men they
should have received that increased cost of living as the increase
came about. They should have received it from the railroads and
the employers without asking for it. ;
The Government after war was declared, the Council of National
Defense, issued a declaration that the standards of living should not
be lowered, and practically stated in so many words that the wages
should be increased to meet the increased cost of living. The Goy-
ernment officials have not kept faith with the workers. ire you say
that there is a circle going around all the time, but while this cirele
is going around it is not just to require the workers to bear the burden
of the increased cost of living. The employers are not reducing their
standards of living to meet the increased cost of production. It 18
always the workers. Just bear that in mind. We hold that if this
!
-circle must be continued, then until a remedy has been reached which
will stop the increasing cost of living, the wages of the workers should
.correspond with the increased cost of living, and taking into consid-
eration that they should have an increase every few years to keep
pace with the progress of the Nation. Workers that have been
exploited through being brought into this country and paid less than
a living wage—so declared by investigations made by representatives
of the Government—should be given an increase to meet the increased
(cost of living, and it should be based on what would have been a rea-
sonable wage for them in 1914, and not upon what they received. I
‘mean ‘s be just and to work out a just solution. That is what I have
‘in mind.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 569
\
.s, the men who know. They are not in the room now.
L
jinyway from $800,000,000 to $1,000,000,000.
. Mr. Morrison. I will say this, that taking it for granted that the
‘igures of Mr. Stone are correct, that they have only received 37} per
ent, their demand is not sufficient to cover the increased cost of
\iving if granted.
| Mr. Raysurn. That would mean about $10 for every man, woman,
| ind child in the country, would it not, assuming it is $1,000,000,000 ?
_ Mr. Morrison. I do not know.
| Mr. Raysurn. There are 100,000,000 people in the United States.
| Mr. Morrison. That is in dollars, but a dollar now does not mean
vhat it did in 1914.
) Mr. Raysurn. Well, a $10 bill is $10 now.
| Mr. Morrison. And you must remember you are covering a tre-
| aendous number of employees. The newspaper proprietors of New
(Cork City did me the honor of selecting or agreeing on me as an
\itbitrator affecting about 2,200 printers. I gave the printers what
‘hey asked for, an increase of $9 a week, and told them they were
yntitled to $10 more. That award gave to those 2,200 printers an
/Qerease in wages of about $1,250,000 in a year, but you are speaking
\f about 2,000,000 employees, and of course the amount will be im-
j2ense, but because it is immense is no reason why these men should
ave their wages, conditions, and standards of 1914 lowered.
) Mr, Raysurn. I am just talking about the high cost of living, and
) Say that would be $10 for every man, woman, and child in the
Jnited States 2 :
|, Mr. Morrison. Yes; although I do not know that that is exactly
jrhat it would amount to. —
» Mr. Rayspurn. Some one asked me if anybody had answered this
/ Uestion: Suppose this increase is not granted, what is going to be
)ouradvice to your people, or have you formulated what you intend
‘0 advise them ?
;
:
570 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Morrison, So far as the Federation is concerned, the inter-
national unions have complete autonomy over their hours, wages,
and conditions. We are a federation, but they have what they call
the railway department, and into this department are all the organi-
zations whose members are employed on railroads, and they handle
the agitation, but that is a question that each organization would
decide for itself. .
Mr. Raypurn. Have any of them determined yet that they are
going to strike if they do not get this increase?
Mr. Morrison. The information that I have is that no such action
has been taken, but I understand that they have some proposition
that they are submitting to their membership.
Mr. Raypurn. They are submitting some proposition to their
membership ? “
Mr. Morrison. Yes. There has been no action taken along those
lines. )
Mr. RAYBURN. Well, it seems to be the general consensus of opinion
that their referendum is being taken on whether or not they shall
strike if this increase is not granted.
Mr. Morrison. I have no such information.
Mr. Merritt. Mr. Morrison, I was interested in your reference to
the relative rise of the wages of unskilled labor as compared with
skilled labor. I had noticed that myself. Now I call your attention
in that connection to a bill which I believe is before the Congress
either restricting or prohibiting immigration. I take it that will
prevent any addition, practically, to the ranks of unskilled labor i
this country. Would that be the effect, do you think?
Mr. Morrison. Of course, if there is no immigration that would
prevent any kind of labor coming over. |
Mr. Merritt. Yes; and principally unskilled labor.
‘Mr. Morrison. Of course, that is the propaganda of the people
who want cheap labor; that is, to bring in unskilled labor so as to
keep the wages down; but there is a great deal of unemployment in
this country at the present time and the reason that the unskilled
labor received the increase was not so much on account of the scarcity
of it, but was answered by a representative of the publishers associa-
tion in New York, when the printers were asking for an increase which
was about 30 per cent—they had received 15 per cent prior to that—-
he said, we have given all the way up to 75 per cent, and he said,
‘We had to give it to our lower-paid people because they could not
live if they did not get it.” The wages of the unskilled laborers m1
this country were so low that it was absolutely necessary to double
their wages to enable them to live at all, and it was not because of
the scarcity. It was due to the necessity of giving them enough
money to enable them to live. Do I make clear the thought I have
in mind ?
Mr. Merritt. You make your thought clear; yes. I have heard,
however, that there has been great scarcity of labor for getting in the
crops and I assumed that if immigration should be stopped that
scarcity would increase. n 7
Mr. Morrison. Of course, to me, although it may not be to you,
that is an old, old story. Every time an effort is made to increas
wages the cry is raised about the necessity of having men to hand]
the crops, to put them in and to harvest them. Now, if you will sto
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 571
and think that harvesting is a seasonal trade, and if you take the
‘men out of the cities and put them into Kansas and the different
‘States, after they pay their railroad fare and their board they have
ey little left for their families; in other words, it is a seasonal trade
‘and it not possible to work out a solution whereby they will have
employees, unless they will take the men on the farm and keep them
there all the time and give them a wage that will enable the workers
and their families to live in reasonable comfort.
Mr. Merritt. Do you think it would tend to decrease the cost of
living to keep men employed on the farm all the year round when
there was no work for them.
_ Mr. Morrison. No, sir; I do not; but that is the condition that is
existing, and that is the difficulty about having farm labor to cover
just those periods. But the Department of Labor, through its
‘employment agencies, was quite successful during the war in cover-
ing that, and if Congress would give the United States Employment
Service sufficient money to work out a system whereby the farmer
could secure workers during the periods that they are most needed,
‘Iam sure a plan could be worked out that would be successful.
In addition to that, if the Government would do as Canada and
Australia are doing, and put people back onto the land—that is,
make it possible for the young men to purchase a farm on long pay-
ments. The ‘“‘back to the land” proposition that we have heard of
is working successfully in other countries. I advocated the proposi-
tion as one of the remedies to assist in the demobilization of our
‘troops. Congress has done nothing along those lines. I believe that
public and semipublic utilities should be owned and operated for
the benefit of the public; that the waterways and water-power legis-
lation should be enacted, providing that the governments—Federal
and State—should own, develop, and operate all water power over
Which they have jurisdiction. The power thus generated should be
supplied to all citizens at rates based upon cost. The water power of
the Nation, created by nature, must not be permitted to pass into
private hands for private exploitation.
Mr. Merritt. That same thing would apply to coal mines.
Mr. Morrison. The coal miners have already declared in favor of
sovernment control of the mines or the Government owning them
orovided they are run in a democratic manner, and provided that
ihe miners have something to say in regard to the conditions, hours,
ind wages, and the way in which they are handled.
Mr. Merrirr. Then, your view is that the time has now come for
‘he socialization of all industry. |
Mr. Morrison. Well, what do you mean by socialization ?
. Merritt. I mean substantially what you are proposing with
eference to the railroads—that the Government shall own all means
if eo and turn them over for operation to the workers.
' Mr. Morrison. All quasipublic utilities. The Federation has for
jome time been favorable to their being owned, operated, or con-
tolled by the Government, but we want some safeguards about it so
‘hat the wage workers will be protected. We do not want a condition
‘Xisting similar to the Post Office Department where the representa-
‘ive of the Post Office—Secretary Burleson—decides the wages and
/efuses to hear grievances and acts in an autocratic manner. We do
ot want autocracy by the Government or anybody else.
572 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Merritr. Not even by the workers ?
Mr. Morrison. By the workers ?
Mr. Merritt. Yes.
Mr. Morrison. There is no possibility of anything like that coming
to pass. The workers are submerged but they are coming up;
that is civilization and progress, and the Congressmen here I am sure
will be glad to assist in bringing about this change from undesirable
conditions to better conditions. 1 know the trouble is to devise ¢
way to do it without disturbing too many people and too many
interests.
Mr. Barxiny. Mr. Morrison, this bill contemplates, I believe, the
purchase of the railroads from their present owners by the Govern-
ment?
Mr. Morrison. A certain sum being set aside until they are paid
for; yes.
M ‘i BarxiEy. That would necessitate the issuance of bonds by the
Government to pay the owners cash if they demanded it, would it
not!
Mr. Morrison. In some way to meet it.
Mr. Barxwey. I think it is estimated by the Interstate Commerce
Commission and by general.opinion through public statements that
the value of the railroads of the United States is something like
$20,000,000,000. I do not know how much of that represents water,
but assuming that one-fourth is water and by this Plumb plan the
water is wrung out, so it would be reduced to about $15,000,000,000,
what is your idea as to whether it would be possible, under the pres-
ent state of public opinion, to issue bonds by the Government to be
purchased by citizens of the United States to the extent of fifteen or
twenty billion dollars for the purpose of paying for these roads?
Mr. Morrison. I believe if this action is taken by the Congress,
there would be no difficulty about securing the money.
Mr. BarxiEey. Assuming these bonds would be purchased by the
people, it would be necessary to raise the money by a sinking fund
and so on, in order to retire them within a certain period of time, an
that would have to be done by taxation. Is it your theory that the
profits the Government would obtain by a division of whatever profit
there was between the Government and the railroad men or employees
would be sufficient to take care of this enormous indebtedness without
taxing ine American people in addition, after it became thoroughly
operated ¢
tee Morrison. As I understand, it is believed that the amount set
aside in a certain number of years would take up all the bonds which
would be issued; otherwise, that the Government would own thi
railroads.
Mr. Barxuey. That is, the amount set aside from the operation
of the roads?
Mr. Morrison. That is the proposition. The proposition is to sé
aside a certain amount.
Mr, BarxLtey. How many years, do you recall? Are you suffict
ently familiar with the plan to say how many years it would take?
Mr. Morrison. I did not work it out., I am familiar with the pl
as | have talked with Mr. Plumb several times and heard him ex ae
it, but there are a number of things that he feels—in fact, he don’t
feel, because he makes the statement that in the matter of runni
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 573
expenses the saving would indicate the amount that will be saved
‘within a certain number of years which would be sufficient not only
‘to give to the employees a wage that would enable them to live in
‘Teasonable comfort, but there would be enough set aside so that the
Government would own the roads in a certain number of years, and,
of course, when the Government owns the roads they would be in a
‘Position to reduce the rates. The amount set aside, other than the
amount for upkeep, would be used for the benefit of the public and
the Pao
_ Mr. Barxwey. The reason I asked the question is because it has
been stated it was with difficulty that the Government under the
stress of the great World War was able to sell $20,000,000,000 of bonds
which were purchased by the American people under the impulse of
patriotism, and in that connection it has been suggested that now that
‘the war is over, keeping in mind the difficulty during the war which
May or may not occur, whether the effort would be successful, and
that in view of the fact that the people bought $20,000,000,000 of
bonds during the stress of the war that now they are not prepared to
‘Invest a similar amount in an enterprise of this sort. I want to get
your idea as to whether you think such bonds could be sold if this
plan were adopted ?
_ Mr. Morrison. I do not believe there will be any difficulty in
putting it into effect. I think Mr. Plumb will tell you that no matter
what happens, even going back to private control, that the Govern-
ment would have to take care of a great number of the railroads.
‘That is an intricate proposition, but my opinion is that there will be
no difficulty about putting this plan into operation, so far as the
money is concerned. It will be a great benefit to the public, and it
will certainly be a great benefit for the Government to take action
that will mean so much for a couple of million of their employees,
because those 2,000,000 employees represent very nearly 10,000,000
people, and having them in a contented state of mind means a great
deal. The function of the Government is to do that which will make
their people happy and contented, or a majority of them.
Mr. Barxiey. That is all the questions that I care to ask, Mr.
Chairman.
_ Mr. Wrivstow. I judge from what you have said and from what I
dave read of you and your organization that you are aiming to
2stablish in this country what is regarded as an ideal democracy ?
Mr. Morrison. Yes, sir.
Mr. Wrnstow. Can we agree that an ideal democracy would be a
sovernment under which every person would get fair play ?
Mr. Morrison. Equal opportunity.
Mr. Winstow. You call that fair play ? |
Mr. Morrison. Well, yes; but there is a difference as to fair play.
Mr. Winstow. What ‘do you regard as equal opportunity, as a
‘eneral proposition ?
Tt. Morrison. [ think I will take the time to give you an idea of
vhat I believe is equal opportunity.
_ Mr. WinsLow. Just take all the time that you want, because I
‘ink it will be of interest to the members of this committee.
Mr. Morrison. I think it will answer your question. You know
hat people have different ideas of what democracy is. I was coming
tom Chicago to Washington about 10 years ago and there was a
i
574 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
young man on the train. He was one of the finest looking young
‘Americans I had ever seen, with a clear eye and a face indicating m
dissipation of any character whatever. What you would call ar
ideal young American. I heard him say to a group of men: ‘Any
young man can become rich if he wants to. I was bar in Virginia
L went to the university; I then went to New York in a bank, anc
then to Oklahoma, and I am worth $75,000. Nobody ever gave m
acent. Anyone can become rich if he wants to.” I turned arounc
and said, ‘‘ Well, my friend, I just heard what you said, and I beliey
that you believe you are telling the truth, but I would like to as!
you this question: Did you go to a common school ?” He said, “*.
certainly did.” Then I asked him, ‘‘Did you go to the high school?’
He said, ‘‘Yes.” ‘‘Did you go to the university?” “Yes.” ‘Fou
rears??? ‘‘Yes.” ‘‘What did it cost your father?” He said, ©:
was frugal; I was not a spendthrift, and it cost him about $700 :
year.’ Then I said, ‘‘You went to New York and worked in a ban!
and your father paid most of your expenses?” He said, “' Yes, sir.’
Most any young man would be glad to work in a bank in New Yor!
for three years for the experience. Then I said, ‘‘You went t
Oklahoma and your father was rich, and he said, ‘Treat him right.”’
“Yes.” he said, ‘‘but nobody ever gave me a cent.” Then I said
“T want to ask you this question: Can the little boy that went int
the textile mill in your State when 9 or 10 years of age and who 1
now at your age—29—could he become rich?” He said, ‘‘Of course
I did not mean that.’’ Then I said, ‘‘You meant any young mai
who graduated from common school, high school, and a university
and received a vocational training, and whose tather was wealth;
could become rich? We are not interested in those young men
they represent but 2 per cent of our young men. We are interes tet
in the 98 per cent, and we will never rest satisfied until the 98 pe
cent have had the same opportunity to receive a common-schoo
education, a high-school education, and a university traming as yol
have had.” That is my idea of democracy. That is my idea 0
equal opportunity.
Mr. Coapy. You heard this young man. Perhaps his father ha
been a very poor man, had made his money himsellt ¢
Mr. Morrison. That is true. :
Mr. Coapy. And he could use the money to give his son oppor
tunities and advantages. Would you do that?
Mr. Morrison. That may be true. That young man said, ‘Am
young man could become rich.” Now, when he said, ‘‘Any youn;
man,” he did not consider the boys working in the mines, mills, am
factories. The labor movement is looking after the 98 per cent. “I
tell you the truth, I do not know that there is any special or funda
mental reason why property should pass from father to son. I
might be used to better advantage in building schools, good roads, ani!
better railroads to cheapen transportation for all the people, and Je
these young men start off with the other young men with the sal
advantages to look after their own interests and not be burdened wit
great wealth. :
Mr. Coapy. A large part of it is being used so now; income te.
excess profits, and so forth?
Mr. Morrison. That is true. That is one way of disposing of i
I am very much in favor of taxes of that character.
Do you understand now what I mean by equal opportunity ?
a RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 575
| Mr. Wrnstow. I did not understand that you had arrived at a
onclusion. I thought that you were merely reciting an incident.
| Mr. Morrison. This young man did not take into consideration the
reat mass of the workers when he said that any young man could
jecome rich. My idea is that they should all have an equal oppor-
‘unity.
_ Mr. Winstow. I can see the difficulties ahead.
_ Mr. Morrison. I can, too. That is the goal of the labor move-
lent.
_ Mr. Winstow. I thought if I said ‘‘fair play” perhaps we could
et together on that. Going into the other, I can see that it would be
seless to follow that up. You think that in a democracy there
ould be fair play extended to all the people ?
Mr. Morrison. Democracy means equal opportunity, that each
1an has the same rights as the other.
Mr. Winstow. And to that end you are putting forth your best
adeavors in the world, are you not? |
_Mr. Morrison. As the best of my knowledge will permit me to do.
| Mr. Winstow. And I am acting in the same spirit in asking these
luestions.
Mr. Morrison. I think so. I so understood.
4
Mr. Winstow. I want to suggest that I agree with you that the
ar has brought together the relative interests of the different
asses of people—lI do not use ‘‘class’’ in an offensive sense.
Mr. Morrison. I understand.
Mr. Winstow. And relative conditions have become better known.
think we all agree that we ought to equalize the blessings of this
fe more than they have been Sqialived before and that, I think,
1e Members of Congress are anxious to insure, if they can through
1
slation and that, I assume, is what you have in your mind ?
r. Morrison. Yes, sir.
Mr. Winstow. So we can get together on that. I want to ask
ju this question, can you state any direction in which the operation
_the railroads by the Federal Government has been improved and
come more efficient ?
Mr. Morrison. I will say this, as the railroads were not run by
‘ivate ownership concurrently during the time that the Government
as running them so as to ascertain how they worked under the same
‘mditions, it would be very difficult to make a statement. When
,ar was declared the railroads and the public were not prepared,
td when the railroads were taken over it was not a question of cost
| all in regard to running the railroads. Cost was not considered.
/1e question was how to use the transportation facilities so that we
|uld get coal to the people and products to the people and our
ldiers across to France. There was no thought, in my opinion, of
|onomy.
The dict that the Government took over the railroads and Congress
,reed to it was notice to the public that the private ownership of the
ilroads was such that they would be incapable of doing the work
Yuired of them, and Congress and the Government took them over
der one management so that they could do this work which must
done in a hurry, and so that the Government could have carte
ane to do anything that they wanted to do and to go to any expense
at they desired, which would have been very difficult for the
152894—19—vo1 1——-37
576 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
rivate corporations to do. In my opinion that question should n¢
He raised at this time, because there is nobody who can say the
during the war private ownership could have run the railroac
cheaper than the Government did. That is my viewpoint.
Mr. Winstow. I did not mean to bring up the question of expens:
I referred to efficiency in operation.
Mr. Morrison. Efficiency during the war was weakened in ever
other industry, because we took out 4,000,000 of our ablest and be:
men. Youcan not take 4,000,000 of our men out-of all the industri
without putting in new men, and where you put in new men, even |
bright, or women, it takes them some time to learn the busine:
so that they can be as efficient as those who left.
Mr. Winstow. The reason why Congress passed the legislatic
it did was because the President said it was necessary, in order i
him to run the war.
Mr. Morrison. That may be. I think the President was right.
Mr. Winstow. I think so, too. \
Mr. Morrison. I think that was the proper course to pursue.
Mr. Winstow. Regardless of the conditions, have you seen ai
evidence during the Federal operation of the railroads of a tendene
toward more efficient methods ?
Mr. Morrison. I have not made a study of it. I am not qualifie
to say, yes or no, to that question, because [ have not the knowledg
Mr. Winstow. Mr. Stone said that the wages of the men had bee
increased about 37 per cent, as | remember it ?
Mr. Morrison. Yes, sir.
Mr. Winstow. And that the living cost had increased about 82 pe
cent ? {
Mr. Morrison. Yes, sir. You referred to that. }
Mr. Winstow. Yes. Did you ever stop to think what would hay
pen if wages were lowered horizontally 25 per cent all around, whe
effect it would have on the cost of living?
Mr. Morrison. If wages went down 25 per cent?
Mr. Winstow. Yes; the reverse proposition ?
Mr. Morrison. Let me explain my view of that and it will answe
your question. ' *
Mr. Winstow. Certainly.
Mr. Morrison. In 1918 the cost of living went up about 30 to,
per cent. During that time we had wheatless days, we had meatle
days, we had the Government calling upon everybody to husband 01
resources and our people did not buy clothes and did not refurnk
their houses. They used substitutes for what they had been acca
tomed to. They reduced the standard of living for the purpose”
helping the people across the seas to win the war. Because of tht
those who were receiving a good wage were able to come within #
wage or nearly within the wage with the credit they had. After t
armistice was signed and the men began to buy meat and use fl
things that they had used before the war, dropping the substitute
and purchase clothes for themselves and their families and to fix t
their homes they found they did not have the money to do it. Tat
realized then that the standards they had in 1914 had been destroyé
and they were facing a condition where they must have an increas¢
wages. I feel that such being the case that the Congress should s:
to it that every employee of the railroads receives wages which Ww
?
i i
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ye!
five him the same purchasing power that he had in 1914 and then they
night add a little to that because of the burden they have carried
ince 1914.
_ Mr. Winstow. I think that labor is worthy of its hire all the time,
yut that is not coming to the question that I raised. I do not know
hat you can answer it. I think that it is worth thinking about. If
ve took 25 per cent, or any other per cent, horizontally off of the wages
t might attect the cost of production to an extent which would
ower the price of commodities. We can not tell that exactly until
ve know the amount paid for wages and the cost of material.
Mr. Morrison. There is no question but that you are right about
hat. If you cut the wages down 25 per cent, 1t would mean that
he worker would have to buy just 25 per cent less than before and
hat he would have to use substitutes.
_Mr. Winstow. No; not at all. Take 25 per cent out of every
vay roll in the country.
Mr. Raypurn. You are speaking of all wages?
Mr. Winstow. Yes, sir; not the railroads.
Mr. Raysurn. The wages of all men.
_ Mr. Winstow. Yes; take 25 per cent.
Mr. ee Take the Government employees in this city, as an
xample.
| . Wixstow. I would not want to do that. Take productive
bor.
'Mr. Morrison. Take your own employees which you have?
| Mr. Winstow. I will be glad to do that.
| Mr. Morrison. The Government employees, not your own per-
onal employees. I spoke of you as a Representative in Congress. I
1ean the Federal employees. Take them and take off 25 per cent
7om their wages.
Mr. Winstow. I admit that was not a wise suggestion in the first
stance.
Mr. Morrison. If it is not wise for them, why is it wise for others ?
Mr. Winstow. When you reduce the scale of wages of the people
ho mantfacture the articles—produce the articles—you cut down
me of the cost of bringing those articles before the public. How
uch Ido not know. I simply throw that out as a suggestion as to
hether or not as an economical proposition anything could be worked
ut by reducing the wages as contrasted from increasing the wages.
In spite of what you have said about the purchasing power of the
‘ollar, I want to ask you a question which I have reduced to writing
‘order that I might be accurate about it. I want you to be thought-
il and to bear in mind statistics, as far as you have them at your
mmand, before answering. |
Has labor, including railroad labor, at any time in any country
‘ver been as well fed, as well clothed, as well housed, as well enter-
ined, and as well furnished in their homes as is labor in the United
‘ates to-day ?
/Mr. Morrison. Labor, the great mass——
' Mr. Winstow (interposing). The next question which I will ask
Uso you may consider them together is, has labor ever been so well
Tin respect of bank deposits and other evidences of sayings and
“osperity as now? |
“
578 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Morrison. Those two questions ?
Mr. Winstow. Yes, sir. ,
Mr. Morrison. Let us devote ourselves for the moment to the
Shien of being so well housed as they are at present. In 1914—
think the statistics will bear this out—the great mass of our wage
workers’ wages could purchase more with what they received in 1914,
than they can with what they are receiving now.
Mr. Winstow. They did not have the money in 1914?
Mr. Morrison. Those who were working.
Mr. Winstow. There were not many working.
Mr. Morrison. This is what happened and it is worth considering
in the matter of deposits When 2,000,000 people had been place
in the Army a representative of the press asked me what effect that
would have—a million or two million. I said that it would not have
any effect until after we had over 2,000,000 people in the Army, that
we would not notice any particular effect, efi it would simply take
up the slack of the unemployed in this country. I think that is
true. When we had 4,000,000, or almost 4,000,000, men in the Army
withdrawn from industry, the men, women, and children of this
country were employed more regularly than ever before, although in
some of the industries there was unemployment, but they could get
a ene in others.
Just before the armistice was signed our people were pretty well
employed and in some cases they worked long hours and received
extra compensation. That was given first, because they wanted
the extra hours of work, and, second, the idea of the employer was
that if he gave them overtime a couple of hours and even paid them
the price and half they would not make so strenuous an effort to get
an increase for the regular eight-hour day. In other words, during
that period our people were employed and our boys in the trenches
were taken care of by the Government. I will admit that nearly all
of our people were working, with quite a number of unemployed, as I
said before, but not in proportion to the past years. They received
their wages and worked all the time with overtime at particular
industries, if not their own, some other. That was a war condition.
As soon as the armistice was signed and demobilization started they
were talking about demobilizing the army at the rate of 300,000 a
month, I called-attention to the fact that if they did that we would
have bread lines in this country by May. They did not doit. They
took the course of bringing them in gradually, but we have unen-
ployed in this country now and our people are not all demobilized
yet. For that reason the American Federation of Labor held that
immigration should be stopped for, say, four years, or until such
period as all our soldiers and sailors and war workers had secured
sustaining employment at wages which they could live in reasonable
confort. Restriction to be limited until our own people secure
work, not at long hours, but at eight hours or less. It is not fair
point to the fact that because of the war every one here had work
and did work. That proved conclusively one thing to my mind,
that the statement that ‘‘there are a lot of people who do not want t0
work”? was not true. It was only the opportunity. to work thoy
needed, because hundreds of men, previously unemployed, went t
work and results were good. It made new men of them. They h
an opportunity to work. They did not have that before. So te
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 579
condition that you have in mind is the result of the war and the
tesult of 4,000,000 of our people being in camp or in France and not
because of any special prosperity to our workers.
Mr. Winstow. I expect you will agree that 4,000,000 men who
went into the service in connection with the Army and Navy were
10t breadwinners and nothing was obtained through their efforts
xxcept in a small degree by their allotments?
My. Morrison. Yes, sir.
Mr. Winstow. Four million of the best earners that we had were
maken out of the market They did not earn anything, they did not
vontribute any saving. I would like to ask if you are willing to an-
wer categorically those two questions which I prepared, thinking
hat they could be fairly and willingly answered answered by yes
no, as a matter of fact?
' Mr. Morrison. As a matter of fact, I made the statement that
vhile that condition existed at the time the armistice was signed
here were a greater number of our ptople employed than ever before,
can not say that that is the condition that exists to-day.
Mr. Winstow. I should like to ask you that question as of to-day.
will repeat it, if it will be of any service to you.
Mr. Morrison. We have a great deal of unemployment through-
ut the country at the present time, and a great deal of unrest.
Mr. Winstow. Do you want me to assume, for the purposes of
he record, that you prefer for some reason not to answer that ques-
ion directly 2
_ Mr. Morrison. You know, gentlemen, that a hypothetical ques-
ion ae on a condition that existed in 1918 should not be an-
were
Mr. Winstow (interposing). I did not ask that question.
Mr. Morrison. The first answer that I gave you in regard to
Our question was that at the time the armistice was signed the
forkers of this country were better employed than in any other
eriod for a great number of years. That is true, but it is due to
1e fact that there were 4,000,000 men inthe Army. The demobiliza-
on has caused a disturbing condition in all the industries, and the
Torts of some of the employers to turn back to longer hours and
rewar wage rates, is causing unrest and strikes that could have
een avoided if the employers would simply get the psychology of
1@ time and come forward and assist in running their industries so
iat the wages of the men would meet the increased cost of living.
Mr. Winstow. I agree with that. Once more let me ask you this
lestion:
Has labor, including railroad labor, at any time in any country,
fer been as well fed, as well clothed, as well housed, as well enter-
aned, and as well furnished in their homes as is labor in the United
sates to-day—not in 1918, but now?
Mr. Morrison. Taking the fact that the railroad men have only
Ceived a 37 per cent increase in wages and the cost of living has
3 up 82 per cent since 1914, it is not possible for them to be in as
od condition as they were in 1914.
Mr. Wrystow. Has labor ever been so well off with respect to bank
Osi
ie ts and other evidences of savings and prosperity as now? |
Morrison. Well, I have no information, accurate information,
regard to that, but when we take into consideration the educa-
'
580 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
tional efforts that have been put forth by the Government through
its various agencies in regard to thrift and buying Government
bonds, it is but natural to feel that our men, being loyal, denied them.
selves many things that they would otherwise have purchased for the
purpose of buying the bonds and paying for them, and because ol
that fact there is no question in my mind that labor has saved, in
that way, more than she has before.
Mr. Winstow. Do you have any idea that the public health is not
as good as it has been at any time in the past?
Mr. Morrison. The public health ?
Mr. Winstow. Yes. .
Mr. Morrison. Oh, I think that the propaganda of the representa-
tives of the Government during the past years has been beneficial
in every way.
Mr. Wrystow. You spoke of the financial departments of railroads
as being, as I remember it, a football for manipulation. I believe
you used that expression.
Mr. Morrison. Of course, I had in mind the Hartford Railroad
investigation, and other investigations by the Government in the
way railroads have been manipulated, and money expended and
not for the benefit of the public. |
Mr. Wrnstow. You used the expression, ‘‘ Like drunken sailors.”
Mr. Morrison. Well, that would be a good expression.
Mr. Wrinstow. You spoke of the public service to be rendered under
the proposed arrangement of the Sims bill in such a way as to give a
fair return. Now, what do you mean by a fair return ?
Mr. Morrison. For the capital ?
Mr. Winstow. Yes; or anybody.
Mr. Morrison. Well, I should think that the interest ought not to
be any greater than the Government is willing to give for money that
they borrow.
Mr. Winstow. Would you feel that the Government would be justi-
fied in letting other people run their railroads with their money m
them and for the ounnE to be taxed if they were not making more
than the actual running expenses of the roads ?
Mr. Morrison. After the Government owns the railroads, as |
understand it, they would be run not for profit but run for the benefit
of the public, so that the rates could be reduced and keep reducing
them as long as it would be possible to do so. |
Mr. Winstow. Would you think the Government would have any
right to reimburse itself out of the earnings of the roads in case
could make a little money out of operating them and giving a fall
show to the public?
Mr. Morrison. There is no necessity for the Government to make
a profit. They get their money by taxation to pay their various
expenses, and that industry ahold: be run without profit to the
Government and just for the benefit of the public.
Mr. Winstow. If I buy a ticket for 2 cents a mile on a private roat
that is the end of my troubles. If I buy it for 134 cents on a Govern:
ment-owned road and get taxed, so that my taxes plus my fare ge!
to be 2,4; cents, where have I made anything? +
Mr. Morrison. Well, you see that was a war condition. ¥ Y
Mr. Winstow. I mean as a general practice. They unload the
difference on the Government and it comes out of the taxes of tht
RETURN OF THE RAILROADS TO PRIVATE OWN ERSHIP. 581
eople. ‘That is what the war developed under the head of camou-
age. They do not pay it for the mileage, but they pay it in taxes.
“hr. Morrison. You take the taxes that come from incomes and
he inheritance tax that is levied; that does not hurt the individual.
‘he bigger the tax the better able the man is to pay it.
Mr. Winstow. But you would not contend, would you, that if the
‘tovernment put money into the railroads and then taxed the people
yr the money that the public was getting off with just the price of
1e service ?
Mr. Morrison. Oh, I believe the Government in putting this bill
ito elect, the purpose is to take over the roads and run them without
rofit, and in time the Government would own them and then there
‘ould be no expense other than the upkeep of the roads.
“Mr. Winstow. If they ran behind a few years in dull times, of
purse there would be something to look out for then ?
Mr. Morrison. Well, I believe that along the lines that have been
iggested here, that could be overcome. That is a detail.
Mr. Winstow. You spoke about squeezing the fictitious values
at. Just what did you mean by that.
Mr. Morrison. Well, that is the proposition where a road may have
‘Million or two million dollars in a road and issue stock against
iture profits of probably an equal number of millions, and then you
ave got to pay dividends on watered stock. That is an old term,
ut the investigations show- that manipulation of railroads through
ie issuance of what is called common stock for sometimes more than
ie railroad costs, and then issuing to the men holding the stock,
hen it is worth $800 a share, which does not look good to the public,
ley will issue 8 certificates of $100 value to each holder of shares
orth $800.
Mr. WinsLow. You do not mean with respect to money put into
ie road but with respect to securities issued against good will or
ture earnings without being put into the road.
Mr. Morrison. Yes; I am talking about issuing stock against the
ture profits. :
Mr. Winstow. In the meanwhile, these exploiters, of whom we
ve had a good many, have sold the stock out to the unsuspecting
tb, maybe a woman or a trustee—hardly a trustee—but somebod
other for real money against the earning power of the road. We
ill say it has the earning power but has not the property. Now,
hat consideration would you give to the poor, unfortunate man,
ho, in good faith, bought stock, legally issued under the laws of the
ad, for good money, when you come to turn that over under the
an suggested and provided in this Sims bill. Would not that
fount to freezing them right out ?
Mr. Morrison. Of course, that is not the first time people have been
zen out.
‘Mr. Winstow. But with our ideas of democracy and of fair play,
at is what I want to find out. What are we going to do for the
cat number of people who have unwittingly, but honestly, put real
oney into the purchase of these watered stocks which might pay a
vidend and so keep up the market price, but which have no real
ety behind them.
Mr. Morrison. Well, I do not believe that society should be burd-
ed for all time with paying dividends on stocks issued against future
582 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
profits, and I think if a person buys stock with the idea of getting
future profits, they should take the responsibility of whether or not
they are a good investment.
Mr. Wrnstow. Yes; but that is legalized by the laws of the land
and they buy under the stamp of approval of the State or National
Government. What do you expect the ordinary person who has
nothing to do with the financial affairs to do when théy go to buy
stock which has the stamp of Government approval ?
Mr. Morrison. That should estop the Government from bringing
about a condition which would do away with that situation in the
future. I do not like to see anybody suffer loss, but | want a condi-
tion brought about in this country that will eliminate just that kind
of manipulation.
Mr. Winstow. As to the future?
Mr. Morrison. As to the future. In regard to what the Govern-
ment should do about those people, I would leave that to the Mem-
bers of this Congress to work out.
Mr. Wrstow. Well, that is an easy way, but do you think the
Government would be dealing in good faith with its citizens if it
should take this property on purely physical value and should freeze
out all holders of securities who have put in good money in good
faith ?
Mr. Morrison. I should think they should take it up on physical
valuation and put it into operation. As to how they should work it
out as to the other details, that is immaterial. Let us get started on
the right road and hold to that.
Mr. Wrinstow. But you do not want to cling to that one particular
branch of the tree.
Mr. Morrison. Oh, no. J mean I would leave that to the Repre-
sentatives in Congress to work out. 1
Mr. Wrinstow. Now, if any other plan can be devised which will
safeguard all interests, labor included, of course, would you be just
as well satisfied with that plan if, in the judgment of Congress, ii
was wise to adopt a plan other than this one? | |
Mr. Morrison. Of course, this is the only plan that is in siglil
that we know about, and this is the plan that we have decided shoulc
be put into operation.
Mr. Wrinstow. But that does not meet the requirements. We
have five or six plans, apparently, that are going to be before us, anc
we might work out a conglomerate from those plans which would 1%
better than any one of them, adopting features of this one, that one
and the other one, and if Congress, in its wisdom, can pick out a plat
equally fair to everybody, but not this one, would you welcome +
just the same as you would this one? |
Mr. Morrison. Of course, if it were a plan that we believed woulc
work out as well, that would be a matter to consider. We are nO
wedded to any particular one. We want to get results, and we fe
this plan will bring the results we want. }
Mr. Winstow. : think we are all of the same mind. Now, goiis
back to the high cost of living, I want you to answer this question
if you will. Do you think the executive departments of the Gover
ment have done all they could have done up to this time along the {
of reducing the cost of living under the existing laws ? t
‘“ 4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 583
_ Mr. Morrison. Well, that is a debatable proposition. If the exec-
_utives have the power to stop profiteering, then, they have not done
‘so. We feel that profiteering should be stopped. In my opinion, all
“speculation in food products and hoarding them for higher prices
Brould be stopped, even to the extent of eliminating exchanges in
which this speculation is carried on.
Mr. Winstow. The cost of living has been put up to Congress
through private correspondence, of the President with several Mem-
bers of Congress, as one of the alternatives presented by those who
Teel they ought to have higher wages or its equivalent in lower cost
of living.
Mr. Morrison. Yes.
Mr. Winstow. The executive department has rather indicated we
‘ought to pass laws to meet the conditions, and I wanted to find out if
‘you and your representatives, who have evidently given this ereat
thought, had concluded as to whether or not the executives had done
everything they could within the law as now enacted.
_ Mr. Morrison. I believe that Congress should take action that
‘would stop profiteering and stop speculation in food products and
the hoarding of food for sale under a higher rate at a later date.
Mr. Wrnstow. Well, we are under war conditions now, as you
understand.
Mr. Morrison. Yes.
Mr. Winstow. And you understand we passed the Federal food
‘act and created a department of which Mr. Hoover was the head,
‘and he had power to do all those things. Would it not seem as if that
power ought to be enough, vested by Congress in this board, to clean
up all these matters ?
Mr. Morrison. Well, it does not seem to be functioning just now,
and if it does not, it is up to Congress, as the representatives of the
people, to devise ways and means whereby this profiteering is stopped
and speculation in food products is prohibited. ‘
Mr. Winstow. In the Washington Post this morning there ap-
oeared an editorial note which reads as follows:
Give everybody beer like the good old days and you’d see these strike clouds roll
tway in an hour.
You would not want to indorse that, would you?
‘Mr. Morrison. No, sir; I do not believe there is any particular
roduct that would have any effect on the conditions existing in this
‘ountry at the present time. I have never had occasion to drink any
deer myself, and I have got along very well without it.
Mr. Winstow. Have any accredited labor bodies, so far as you
mow, ever passed resolutions or otherwise indicated their inicention
0 do unhappy and harmful things if beer were taken away ?
- Morrison. Such statements have been made in the press,
vut I do not think there is any organized body that has ever endorsed
r taken such action.
| Mr. Winstow. Well, one more matter and then I will conclude
‘mith you, Mr. Morrison. You spoke of your purpose of going before
he public in political campaigns to educate the public properly and
/nth a view to getting them to vote for such candidates of any party
$8 would be apt to sympathize with you in your desires for certain
gislation. |
- Morrison. Yes, sir.
584 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. I would like to ask you if you have ever seen any
real fruit born of that method of procedure in the past?
Mr. Morrison. Good results ?
Mr. Winstow. Yes.
Mr. Morrison. Oh, yes; the political position of the Federation
is very clearly defined, the political policy, in the reconstruction
program. It might be worth while to read it, because it would
only take four or five minutes and it would give you an idea of just
the position we take politically and the political policy:
In the political efforts, arising from the worker’s necessity to secure legislation
covering those conditions and provisions of life not subject to collective bargainin
with employers, organized labor has followed two methods: One by organizing politica
parties, the other by the determination to place in public office representatives from
their ranks; to elect those who favor and champion the legislation desired and to
defeat those whose policy is opposed to labor’s legislative demands, regardless of
partisan politics.
The disastrous experience of organized labor in America with political parties of its
own, amply justified the American Federation of Labor’s nonpartisan political policy.
The results secured by labor parties in other countries never have been such as to
warrant any deviation from this position. The rules and regulations of trade unionism
should not be extended so that the action of a majority could force a minority to vote
for or give financial support to any political candidate or party to whom they are
opposed. Trade union activities can not receive the undivided attention of members
and officers if the exigencies, burdens, and responsibilities of a political party are
bound up with their economic and industrial organizations.
The experiences and results attained through the nonpartisan political policy of the ~
American Federation of Labor cover a generation. They indicate that through its —
application the workers of America have secured a much larger measure of fundamental
legislation establishing their rights, safeguarding their interests, protecting their
welfare. and opening the doors of opportunity than have been ee by the workers
of any other country. .
The vital legislation now required can be more readily secured through education
of the public mind and the appeal to its conscience, supplemented by ener etic
independent political activity on the part of trade-unionists than by any other method.
This is and will continue to be the political policy of the American Federation of
Labor if the lessons which labor has learned in the bitter but practical school of |
experience are to be respected and applied.
It is therefore most essential that the officers of the American Federation of Labor,
the officers of the affiliated organizations, State federations, and central labor bodies,
and the entire membership of the trade-union movement should give the most vigorous:
application possible to the political party of the American Federation of Labor, 80
that labor’s friends and opponents may be more widely known and the legislation
most required readily secured. This phase of our movement is still in its infancy.
It should be continued and developed to its logical conclusion.
Of course the time may come when the great organized body of
workers may decide on some other policy, but just now our slogan 1s,
“lect our friends and defeat our enemies,” and we go to the political
parties and ask them to incorporate in their platforms the legislation
we want. We go to the Senators—or to the candidates, rather—of
the different parties, and we ask them whether they are in favor of or
against our legislation, and we also intend that an active campaign
be carried on next year to elect more labor men, men holding union
cards, to the House of Representatives and to the Senate, with the
idea, of course, that the man who is a member of a union, who has
worked as a trade-unionist and as a worker understands better the
needs of the worker than does the prosperous merchant or the lawyer
or the doctor or the minister, without any reflection on the good
intentions of any one of those who may be a candidate or may be
elected to office.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 585
_ Mr. Wesster.. Mr. Morrison, I am vastly more interested in the
definite aspects of the crisis with which the Nation is now confronted
and in finding a specific for that condition than I am in any general]
policy which may bear on this problem more or less indirectly or in
any general theory that may seem to afford a solution some time in
the indefinite future, no matter how attractive or engaging the theory
‘may be. Now, I want to get back to a few of the definite things that
‘we are considering. It has been stated both by yourself and by Mr.
tone, who preceded you, that organized labor appreciates that the
yause of its present difficulty is the high cost of living. Is not that so?
‘Mr. Morrison. That is true, sir.
Mr. Wesster. It is also admitted, with commendable frankness,
‘dy both yourself and Mr. Stone, that the solution for that problem is
aot to be found in an increase of wages, but, on the contrary, that
ihat course will have the opposite effect, in that it will start in motion
f new cycle which will find its reflection in an increased cost of living;
s not that a fact?
) Mr. Morrison. Well, that is not just as I understand it. I do not
Agree entirely with the fact that increasing the wages to the workers
‘snot going to be helpful. The cycle will be going on to a certain
xtent, but one of the chief troubles now, in my opinion, is the
rofiteering. If that could be eliminated, and the hoarding of food
or speculative purposes could be stopped, it would stem the tide of
he increasing cost of living, and my position is that as the cost of
(ving goes up, no matter how high, the wages of the worker should
ye increased accordingly, and that he should not bear any part of
his increased cost of living.
Mr. Wesster. You and I are now engaged in the task of finding
ot a palliation of this condition but acure. Now, since it is admitted
hat a cure can not be found by increasing wages, but that an increase
a wages will increase the cost of living, must we not, in our search
or a cure, lay aside the question of an increase of wages and under-
ake to devise some scheme for reducing the cost of living ?
Mr. Morrison. No; my position is that you should first give to the
rage workers the increase to harmonize with the increased cost of
‘Ving and then proceed to secure legislation that will prevent a
irther increase in the cost of living necessitating another increase
1 wages.
Mr. Wesster. In other words, you want us to engage simul-
‘meously in the task of increasing and decreasing the cost of living.
Mr. Morrison. Well, that is predicated upon the position, or
laybe it is your position that the whole cost of living is because of
Je increased cost of wages. I do not agree with that thought.
| Mr. Wesster. Now, we have also been given to understand that
jie cost of living has proceeded to the acute stage, and that labor
)in not longer endure this condition of affairs, and that we must find
immediate solution of that problem. N ow, you realize that how-
ver wise fundamentally the Plumb scheme may be, it will require
long period of time to acquire the railroad properties of this coun-
y, either by voluntary purchase or by condemnation, and a still
| nger time to put this plan into operation after they are so acquired,
') you not? |
‘Mr. Morrison. I do; but my position is that in the meantime the
age workers should be protected and should receive an increase that
586 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
would place them in the same position, at least, that they were in
in 1914; that is, those that were receiving an American standard of
wages.
Mr. WxssterR. Now, it has also been conceded both by yourself
and Mr. Stone that whatever other merits the Plumb plan may pos-
sess, it is not a panacea for the high cost of living, and that while it
may be one factor in solving that problem, it will not solve it in and of
itself. I do not misquote you, do 1? |
Mr. Morrison. The idea is that it will solve it so far as the
employees of the railroads are concerned, because they will get a wage
that will permit them to live in reasonable comfort.
Mr. WessteER. Since it has been admitted that the Plumb plan
can not be put into operation for some considerable time, and since
it is likewise admitted that it will not cure the high cost of living when
it is put in operation, and the high cost of living is now at the emer-
gency point, do you not think it would be the part of good sense for
Congress to lay on the shelf temporarily the Plumb plan and devote
its energies toward the solution of this immediate condition by finding
some immediate remedy, especially in view of the fact that the Plumb
plan is revolutionary and experimental? I do not mean that in any
offensive sense. I mean revolutionary in the sense that it overturns
the settled policy of this nation in relation to transportation; experi-
mental in the sense that it proposes a scheme that has never been.
tried out, in this or m any other country. Do you not think that
inasmuch as it can not be put into immediate operation, and that
if it were in operation it would not afford a cure, before this country
adopts that policy there should be afforded to the masses of the
people of this country, regardless of class, an opportunity to express
themselves upon this question?
Mr. Morrison. Well, that reverts back to the first proposition,
that Congress should devise ways and means so that the men working
for the railroads should receive a wage that would meet the increased
cost of living of 82 per cent since 1914, and we are here advocating
the adoption by Congress of this bill known as the Plumb plan.
Mr. Wesster. Now, Mr. Morrison, in all the suggestions that have
been made, and I have no doubt of their sincerity, we have had pre-
sented to us the humanitarian aspect of this crisis. Surely organized
labor does not want this remedy applied and restricted in its benefit
solely to the members of your organizations, if some remedy can be
found which will redound to the interest of every man, woman, and
child in America, do you ?
Mr. Morrison. The proposition, as I understand it, which is before
your committee is this bill, and the high cost of living affects every-
body, and I take it there will be some legislation and hearings on that.
As | said, there was submitted to every Congressman here, at least
at the last session, the reconstruction plan of the American Federation
of Labor which they had adopted. If it had been followed, it would
have been very helpful. There was no attention especially paid to
it or any plan enacted by Congress to help in the demobilization or
taking care of the unemployed. In fact, it seemed as if they wanted
to find out just what was going to happen before any action was
taken. Congress did not work out a proposition that would 7 |
helpful. In fact, they came pretty near taking away the United
States Employment Service that was.doing good work, the only :
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 587
‘avenue that the Government had for taking care of the returned
‘soldiers and unorganized war workers that had been dropped out of
the various industries. I do not understand it. I have never had
‘it explained why more interest was not taken to safeguard this great
body of 6,000,000 people.
’ Mr. Wepsrer. You will agree with me that this is fair; that if a
plan can be settled upon which will reduce the high cost of living and
the benefit of that plan will be enjoyed by the people of the country |
in common, that that would be uate bis to the plan of increasing
the wages of the railroad employees ?
Mr. Morrison. The railroad employees have stated
Mr. WeBsTER (interposing). I wish you would answer that ques-
tion.
Mr. Morrison. I will answer that question in this way, which I
think will be satisfactory. Sometimes it is very difficult to express
just what you have in your mind.
Mr. Wesster. I know that.
Mr. Morrison. And Congressmen when they make a speech
revise it.
_ Mr. Wepsrer. And sometimes it is difficult to understand it then.
Mr. Morrison. The proposition which I have in mind is this. I
read in the papers that the representatives of the railroads went to the
President and said to him, ‘‘If we can not get the cost of living re-
duced, we will be compelled to ask for an increase in wages.” Of
sourse, My viewpoint is that there are hardly any of the employees
that are not entitled to 30 or 40 per cent increase in wages. If the
tost of living was reduced 30 or 40 per cent, the pressure for an in-
‘rease in wages would be lessened. Men are asking and insisting on
mm increase in wages to-day and strikes are occurring throughout the
sountry because the men have discovered that they can not live as
pag did before on the wages that they are receiving. They are
1
r
itriking for better wages and better conditions.
Mr. Wesster. I still insist, Mr. Morrison, that you have not
mswered my question. My question was, if a plan could be devised
vhich would reduce to the normal the present high cost of living and
vhich would redound to the benefit of the people of the country in
‘ommon, would you not prefer that plan to a plan which affords
‘¢lief only to the members of your organizations through increased
Vages ?
Mr. Morrison. The American Federation of Labor is working for
‘ll the workers. They desire that rofiteering shall cease and also
peculation in food products. Nobody is benefited by that except the
ew profiteers. We realize that if we can get cheaper freight rates,
\tansportation rates
Mr. WessTer (interposing). [hat will be one factor in reducing the
ost of living ? |
Mr. Morrison. Yes, sir; and we are here with a bill that we hold
ill do that very thing.
Mr. WesstER. Would you concede this, because you say that the
boring people of the country can not long endure the present
ondition and it is apparent that this scheme could not be put into
peration for a mentid arable time, that we should meet the task, if we
an, by a more direct route—to draw on your imagination—if there
%uld be devised some plan which would reduce the cost of living and
588 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the benefit of that plan would be enjoyed in common by all the
people and all classes of people, would not that be a preferable plan
to a plan which contemplated only the increase of the wages of the
employees in the organizations for which you speak?
Mr. Morrison. The employees and the workers are interested in
the amount of foodstuffs that their wages will purchase. If the cost
of living is reduced 20 per cent it would be equivalent to an increase
of 20 per cent.
Mr. Wesstrer. Mr. Morrison, are you reluctant in taking a position
on a question of whether you are advocating relief to a class or ad-
vocating relief to the Nation ?
Mr. Morrison. No. I think that our minds do not meet.
Mr. Wesster. That is quite apparent.
Mr. Morrison. I really believe, from my viewpoint, that I have
answered your question, but you have got your mind fastened on
having “yes”’ or “‘no”’ rather than having an answer with an explana-
tion. %
Mr. Wessrer. It seems to me that the question could easily be
answered yes or no.
Mr. Morrison. Let us see. If the cost of living is reduced 20 per
cent, that is equivalent to an increase of 20 per cent, and it makes no
difference to them.
Mr. Wessrer. That is equivalent to an increase of 20 per cent to
your class, but it is also equivalent to affording relief to all of the
people of the country, including your organizations %
Mr. Morrison. They do not believe that will relieve the burden.
The increased cost of living will still continue. We want an increase
in order to meet that. > f
Mr. Wesster. At the same time you are telling us that if we giv
it to you we will increase the cost of living by doing so %
Mr. Morrison. There is a proposition there as to what the in-
creased cost will mean to the public. The plan which we have here
we hold will not increase the cost to the public, but will reduce the
cost to the public; that is, the freight rates.
Mr. Wessrer. For the purposes of the record, let me ask you this
question: Do you, as one of the executive officers of organized labor
in this country, decline to make a categorical answer to this question:
Would you prefer to have the present emergent condition of the
country, due to the high cost of living, met by a plan which will
reduce the cost in a way that will redound to the common people
of the country, including all classes, as against a plan which conten
plates only an increase in salary or wages to the men whom you
represent? Do you decline to answer that question? af
Mr. Morrison. No, sir; because I consider that I have answered
it three or four times in another way. a |
Mr. Wesstrer. Do you decline categorically to answer it—yes
or nor ? ay
Mr. Morrison. No. I will say this; as I said before, we are 2
favor of legislation which will benefit all the people, and that wil
lessen the cost of living to all the people, but during the time that)
this plan is being worked out we have a remedy here that will <<)
e
is
in reducing the cost of living.
Mr. Wxsster. The Plumb plan ? | |
Mr. Morrison. Yes, sir. Lg
a St PRS
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 589
__ Mr. Wessrer. You have just told me that it would require a
long period of time to acquire these properties either voluntarily
or by condemnation and to put in operation your plan, that the
conditions are so acute that labor can not endure them any longer,
‘and that they are now engaged in holding a referendum to determine |
whether to call an immediate strike 2
a Morrison. I did not make the statement as to the immediate
strike.
| Mr. Wesster. Well, a strike some time in the immediate future.
Mr. Morrison. I have not that information. Tho angle is this:
I do not want to get away from the proposition, that no matter what
action you may take for the future, that the wage workers to-day
who are working must be relieved of the increased cost of living that
has been brought upon the people as a result of the war.
| Mr. Wessrer. That is what [ understood you to Say.
_ Mr. Morrrson. That action must be taken so that these men will
‘secure an increase.
Mr. Wesster. All right.
Mr. Morrison. That is the proposition, but I want to say this,
that the American Federation of Labor is ready and we have here our
‘reconstruction plan, we lark it and sent it to every Member of
Congress, that will be helpful in bringing about a decrease in the cost
of living if carried into effect.
| Mr. Wesster. Only a few days ago the President, with a view to
supporting the policy outlined by the Director General of Railroads,
recommended to the Congress that a board be constituted for the
|purpose of making an investigation as to the reasonableness of the
present demand for an increase of wages for those working for the
‘Yailroads, and if an increase is found to be proper that it findings
‘Shall constitute a mandate to the Interstate Commerce Commission
so to increase present rates as to produce an adequate amount of
money to cover the increase of wages. I notice in the press that that
plan is not indorsed by organized labor. What fault do you find with
that, if you are looking for immediate relief 2
: Mr. Morrison. The fault would be the fact it would be a matter
of legislation in the future some time. They want immediate relief.
They have been bearing the burden since 1914.
Mr. Wesster. You do not mean immediate relief without any
investigation of the justness of the demand at all?
| Mr. Morrison. This matter has been discussed for months and
Months with the administration of the railways, with regard to the
sonditions, and the increase in wages.
Mr. Wessrer. But you are engaged now in appealing to the Con-
tress, and asking it to do just what you tell us to do.
Mr. Morrison. Oh, no. You will probably have people come
»efore you that will say that labor has got enough, and does not need
} Mr. Wessrer. I want to ask you this question. If it is assumed
| hat the President and every department of the Executive branch
|} the Government are bending every effort, using every energy, in
/} Sincere, honest effort to reduce the cost of living at the earliest
ossible date, and that both Houses of Congress are engaged in a
imilar task, can you think of any benefit that will come to the
ountry by the railroad brotherhoods calling a nation-wide strike?
|
590 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Morrison. Has anybody said that a nation-wide strike would
be called ?
Mr. Wexster. No. I asked you if you thought any good would
be accomplished by that. It is in the formative period now. I
thought your opinion might be helpful in determining whether they
are to call it or not.
Mr. Morrison. Mr. Stone himself said, in making his statement
here, that that matter had not been considered; that they were here
for the purpose of having this plan adopted which, if adopted, would
prevent almost any possibility of a strike.
Mr. Wessrer. Well, I say now that, assuming that every Govern-
ment official, regardless of the department of governmental activity,
in which he may be employed, is doing everything within his power
honestly and conscientiously to reduce the cost of living at the
earliest possiole date, can you conceive of any assistance that would
be rendered in the performance of the task, or any benefit that
would come, in calling a Nation-wide strike among the railroad em-
ployees of this country? If so, what conditions would you impose if
the men walked out? You have stated that an increase in wages
would not be the cure, and if both of the departments of Government
are doing everything that they can do to relieve the burden of the
high cost of living, what conditions would the men have to gain in
order to induce them to go back to work?
Mr. Morrison. The fact of the matter is, the administration has
not given to the workers the wage that they are entitled to since 1914.
Mr. Barxitey. You mean the Railroad Administration ¢
Mr. Morrison. The Railroad Administration. There has been an
increase in the cost of living of 82 per cent, Mr. Stone stated. I do
not know whether he spcke for all the people or for the engineers,
but they only received 37 per cent. ;
Mr. Wesster. Now, Mr. Morrison, it has been very plainly and
very frankly stated to this committee by Mr. Stone—whose senti-
ments you seem pretty closely to indorse—that the laboring people
are looking to Congress to meet this situation, and that they are not
oing to tolerate these conditions very much longer, and that if this
ongress does not meet its request with respect to the Plumb lan,
that an effort is going to be made to elect a Congress that will indorsé
its views., Now, just as a very humble member of this committee
I want to be equally frank and state my position. 1 am perfectly
willing to sit here and do anything within my power to afford your
organization or any organization a fair and as intelligent consideration
as I am capable of giving you; but I want it distinctly understood
that I, as one member of this committee, will not be dominated or
coerced by any threat, however vaguely conveyed, as to what organ
ized labor is going to do to me as an individual if I do not do what they
tell me to. ;
Mr. Morrison. Let me make an answer to that. We have two
great political parties, and if the Democratic Party does not do what
the Republican Party thinks is right, they go to the people and ty
to convince the people that they should elect Republicans to office,
so that the political program of the Republicans may be carried into
effect. If the Democrats are in power and the Republicans desire
certain things to be enacted, and the Democrats as a party will not
agree to it, they go to the public and set forth their claims of what
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 591
isright and mene. Your position as an individual—you can run as a
Republican or a Democrat; of course it is not considered very good
form to change from one party to the other; they generally try a
secession movement first. As a body, the workers have just “as
much right to elect a man who is favorable to them, a man running
mm the Republican ticket or the Democratic ticket, whichever one is
more iavorable. We will say ‘‘ Who is more favorable to our legisla-
tion? We will vote for him. We will not follow our party affilia-
rons.”
Mr. Wesster. I am not challenging the right of organized labor
30 vote for anybody it pleases, but | am challenging the right of
ganized labor to attempt to control my vote as a Meriian of Con-
ress by threatening me with what they are going to do to me if I
jo not ‘so vote.
_ Mr. Wiixs. Has anybody done that?
Mr. Morrison. That is putting into the mouth of labor something
hat has not been said. If you are a Republican and elected as such,
md you vote for Democratic measures, your party will not reelect
7ou.
Mr. Wesster. Thatis true. Here is my feeling about this matter,
Mr. Morrison.
Mr. Morrison. Now, you are finding fault with labor-———
Mr. Wesster. I am finding fault.
_ Mr. Morrison. For following the practice of the two political
parties.
_ Mr. Wesster. My thought about this matter is this: That if the
‘oldiers in the recent war were willing to put on the uniform of their
‘ountry and go into rat-infested and vermin-infested trenches, fore-
roing all the comforts of life, and offer to sacrifice their health and
heir limbs and their lives on the altar of preserving this Nation, that
-can at least forego my political career in that same cause, and have
ny life and my limbs and my health left. That is just the way I feel
‘bout it.
Mr. Morrison. And organized labor has been advocating that Con-
ress should take measures to protect these soldiers, to see that they
jet employment when they come back here, even to the extent of
yaying them for a year after they are demobilized, or until such time
8 they secure compensation on which they can live with reasonable
comfort.
| Mr. Wesster. That is all.
_ Mr. Morrison. I want to say this—does anybody want to ask a
uestion ?
| The Cuarrman. Mr. Sweet, of Iowa.
| Mr. Sweer. You presented this matter to the Director General of
tailroads in regard to the increase of wages, did you not?
_ Mr. Morrison. No; a committee from the railway department did.
| Mr. Sweer. Yes.
Mr. Morrison. I was not with that committee.
sam Sweet. When did they do that? About what time did they
0 that?
- Mr. Morrison. The exact date I do not know.
Mr. Sweet. Well, about how long ago?
152894—19—vor 1 38
592, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Morrison. Well, I heard one of the members state that month
avo they advised the administration that if there was not an increas
of wages there would be considerable trouble, and urged it. Abou
the first of the year, I am informed—lots of time to have taken action
Mr. Sweet. Was that in the nature of a hearing?
Mr. Morrison. No. I think that the committee was just ap
pointed and called upon them. y
Mr. Swreer. Was there ary evidence taken?
Mr. Morrison. Why, I think not. I think it was just where the
went and appeared before the director general and called his attentio:
to the necessity for an increase in wages. I have never had occasio:
to be before them, but I question whether he went to the trouble o
taking it down as a regular hearing. He may, but I do not know.
Mr. Sweet. Was it presented in writing or simply verbally to th
director general ?
Mr. Morrison. You will get that from the railroad men, but it i
always presented in writing, I am informed.
Mr. Sweet. That record is obtainable, is it?
Mr. Morrison. Yes, sir; you can get it from the railroad mer
There will be some of them here.
Mr. Rayburn. You say, I believe, that the cost of living since 191
has gone up 82 per cent, about?
Mr. Morrison. About that; there are some places where it ha
gone higher than that. For instance, in Baltimore it is 86 or 84 pe
cent.
Mr. Rayspurn. And you want to increase the wages up propo!
tionally to the increased cost of living ?
Mr. Morrison. Yes, sir.
Mr. RayBurN. The question I want to ask you is this: If at, thi
time, when living costs are high, we increase wages, or wages are In
creased up to this full 82 per cent, and the cost of living is subse
quently reduced, say, 20 per cent, would you be willing then
recommend a 20 per cent decrease in wages ?
Mr. Morrison. If the standard of the workers was an America
standard at the time the increase took place, I think it would }
favorably considered by the workers.
The CHarrmMan. This concludes the hearing, Mr. Morrison, and w
will not be able to start with Mr. Plumb this afternoon. :
Mr. Morrison. I would like to say just one word, if you would le
me ?
The CuHarrMANn. Very well. & 3
Mr. Morrison. Representing the American Federation of Labo!
an organization that believes in collective bareeee and the ca:
rying on of the work of the organization in a regular, lawful manne
a peaceable manner, we have come before this committee with
threats. The agitation for the election of such men to office as repr
sent our views must not be taken as a threat by the representative
in Congress, or the representatives on this committee. It is nots
intended. It is simply the lawful, legal manner in which great issu
are fought out, and the fact of the matter is that what we want |
do is to educate the Representatives to our way of thinking, and
am sorry that the idea has been injected in here that there has bee
anybody coming with threats, either of a strike or of decapitation
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 593
aman who is a Congressman. But this fact remains, that there is
unrest; that the men are not receiving the increases that they should
have; and the fact remains that great bodies of men have struck in
this country despite the efforts of the officials, and there comes a
time in the history of the workers, irrespective of their organization,
When the burden is too heavy, and when that time arrives you may
expect revolution, so far as they are concerned, to the extent at least
oo steiking for the conditions that they desire.
Mr. Wesster. How do you reconcile your statement that you are
trying to educate and ‘enlighten the Representatives who are, at least
temporarily, charged with the responsibility of meeting this matter,
when, in answer to one of my questions, you said that you had been
rging upon the Railroad Administration the matter of this increase
{or some time, and urged that as a reason why there should be no
telay. by Congress in providing a congressional plan to investigate
the justice of your claims?
_ Mr. Morrison. In this way. We are here on a specific bill, and I
am speaking to that, but the Federation stands for increase in
wages to meet the increased cost of living for all workers, organized
and unorganized, and we advocate that throughout the breadth of
Our jurisdiction.
| Mr. Wesster. I want to say to you that I am just as ready as
amy Member of this Congress to give organized labor or unorganized
abor anything that they are justly entitled to receive, as much so
is any man in this Congress, but I want to be advised, I want to act
apon the matters presented upon my intellect and upon my con-
jeience, and I want to have time for action, and I do want to have
‘in opportunity to exercise whatever of conscience or intellect I have,
membarrassed by coercion or intimidation, and I propose so to have
t
| Mr. Morrison. And I will say that I will help you do that, because
ve do not want Congressmen that can be coerced to do that which
hey do not believe is right, and we do not want autocratic employers
1 labor in this country coercing our wageworkers and forcing them
0 work long hours and under conditions that they should not work.
That we shall resent. We want free men, men that will be able to
ve voice to their consciences, and I am with you. We will assist
EY cette your conscience, if it is not right with us now, so that it
: 6.
| The Cuarrman. The committee expresses its appreciation to
Messrs. Stone and Morrison for the testimony they have presented.
jtecess until 10 o’clock tomorrow morning.
_ (Whereupon, at 4.50 p. m., the committee adjourned.)
594 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
CoMMITTEE ON INTERSTATE AND FoREIGN COMMERCE,
Hovust oF REPRESENTATIVES,
Thursday, August 7, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair.
man) presiding.
STATEMENT OF MR. GLENN E. PLUMB, GENERAL COUNSEL
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA,
WASHINGTON, D. C.
The CuHarrmMan. The committee will now hear Mr. Plumb. Givys
your name and address and whom you represent.
Mr. Prums. Mr. Chairman and gentlemen of the committee, fo:
the record my name is Glenn E. Plumb, now of Washington, D. C
I appear as general counsel for the organized railway employees of
America, consisting of the organizations named by Mr. Stone yester-
day. I will not repeat the names of the organizations unless the
committee so desires.
In the presentation of my testimony I have divided it into four
parts. First, a presentation of the economic principles upon which
the bill is founded, a discussion of the existingsystem, the evils te
be overcome, and the remedy we suggest. |
That much of my argument I should like to present as a whole and
then be subject to cross-examination thereafter, if the committee se
desires. Then I should like to take up the bill, if the committee so
desires, paragraph by paragraph, and discuss the bill. Of course, in
that matter I assume that cross-examination might occur as we
proceeded on the features of the bill. ,
This will get the bill and my explanation before the committee.
Then I want to take up an analysis of the other plans that have
been presented, and during that analysis I should like to present that
as a whole, subject to cross-examination thereon after the analysis is
concluded.
In addition, as the concluding part of my argument, I want to
make an announcement now that will explain the last portion.
During this week and since your honorable committee requested
me to appear in order to present the case of organized labor with
respect to its bill for public ownership and democracy in controt of the
railroads, there has come into the possession of the railroad brother
hoods and 10 affiliated railway labor organizations of the American
Federation of Labor a state of facts never spread before the American
people or submitted to the jury of public opinion. These facts tend to
show that the wrecking and looting of the New York, New Haven &
Hartford Railroad, the Chicago & Alton, the Rock Island System, and
the Frisco lines are not sporadic examples of the highway robbery te
which the American Nation has been subjected as to its public trans-
portation highways. Leading directly from Wall Street and from
the banking houses controlled directly by the Morgan and Rockefeller
groups, these facts show that there has proceeded a systematizec
plundering of virtually all of the public transportation highways 01
the United States.
We believe that a Congressional investigation will reveal that not
one railroad system dominating any part of the 254,000 miles of rail
yoad in the United States but has suffered and is suffering, in degreé
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 595
f not to the same extent, from carefully deliberated manipulations
of the sort that have wrecked and ruined the railroads I have men-
tioned. It will reveal with emphasis the truth of the words recently
attered before the bankers of Missouri by Elihu Root: ‘Surely some
provision must be made to prevent the continuance of the steady
progress toward bankruptcy of the railroads which characterized the
lecade before the Government took possession in 1917.” It will
veveal that these interests are again gathering their forces of private
imd secret control and seek, after having gained from Congress a
sanction to rehabilitate their railroad properties at public expense, to
yegin again and follow through its corrupt and wicked cycle the sys-
jematized plundering and looting of the public and the public interest
n the Nation’s highways.
_ In view of the gravity of this situation, and in order that we may
iave the benefit of their counsel on behalf of the public in presenting
yur statement to Congress and to the American people, the 14 affil-)
ated railway labor organizations through ex-Congressman Keat-'
ng and myself are summoning to Washington a national conference |
’m railroad control.
| On behalf of the public we are inviting to participate in this con-
‘erence as members of the joint national committee on railroad
ontrol, Frank P. Walsh, formerly joint chairman of the National
Var Labor Board; Joseph W. Folk, of Missouri; Raymond Robbins;
ohn Lind, of Minnesota; Edward F. Dunne, of Chicago; Dr. Edward
V. Bemis; Felix Adler; Gov. Allen, of Kansas; Julia C. Lathrop,
md Judge Walter Clark, of North Carolina. Frank P. Walsh,
judge Walter Clark, Edward F. Dunne, Joseph W. Folk, and Dr.
idward W. Bemis have already accepted, and with others who may
‘et accept, will meet here with the representatives of organized
abor on Saturday of this week. Every response to our invitation
0 participate in this national conference on democracy in railroad
ontrol has been accompanied by a wholehearted acceptance of the
asic principle expressed in President Wilson’s message at the con-
ening of this Congress, wherein he declares for ‘‘the genuine democ-
atization of industry, based upon a full recognition of the right of
10se who work, in whatever rank, to participate in some organic
‘ay in every decision which directly affects their welfare in the part
1ey are to play in industry,” and for a ‘‘genuine cooperation and
artnership based upon real community of interest and participa-
on in control.”
In view of this action by the affiliated labor organizations which I
present, and on behalf of organized labor and the public, I will
ierefore ask to reserve this information which is in our possession
atil it can be properly prepared and submitted to the jury of Con-
fess and of public opinion.
I will say that that is now being prepared and at the close of the
iree formal parts of my presentment, I shall present to this com-
“ittee specific, definite charges, giving names, dates and amounts,
)) that there may be definite information, vouched for by all of the
000,000 of railroad employees, upon which this committee may
4 justified in asking for a full and complete congressional investiga-
on.
Now, if I may, I shall sit during the reading of this argument.
~
|
596 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The discussion yesterday extended very widely over the entire
field of economics. There was also a wide discussion of the extent
of the interests which we represent. I shall state, so that the record
will show, definitely just what interests are here and their extent.
Then I wish to discuss the economic principles which were involved m
yesterday’s examination in the way in which they have been pre-
sented to the labor bodies, so that you may have their point of view,
I do not say it must necessarily be your point of view but so that from
their point of view you may be able to see this bill as it shall be
presented. Without that preliminary discussion a great deal of time
would be wasted, in that you would not know the position from whieh
these men viewed the problem.
These organizations number upward of 2,000,000 men employed
inrailway transportation. They include all of the classified employees
with the exception of, possibly, 10 per cent, or 200,000 employees,
and the 20,000 official employees. Nine-tenths of all of the men
engaged in railway transportation operations are embraced within
these organizations.
In addition to these men so employed upon the’ railways, the
great American Federation of Labor at its national convention at
Atlantic City in June of this year, has indorsed the plans submitted
by the railway operatives for the reorganization of the railway indus-
try, and instructed its executive council to cooperate with the railway
employees by every legitimate means to procure the enactment of this
plan into law.
This vast army of producers is not divided. They present nc
conflicting plans, no diverse theories for the solution of this problem
but appear before you a united force profoundly convinced of the
economic soundness of the principles upon' which their plan is built
imbued with the crusaders’ spirit to support the principles upor
which their faith is founded.
The chairman of this commitive in opening the hearings statec
that the only bill so far introduced was H. R. 4378, the Eseh
Pomerene bill. This bill, as I gather from reading it, does not pur
port to deal with the ultimate solution of the railway problem, anc
does not provide for a return of the railroads to their private owners
and certainly, it was not intended to provide for Government owner
ship and operation or a continuance of the existing governmenta
control. Yet I find that the most prominent headline of the repor
of the hearings appearing on the cover is, ‘Return of the Railroad
to Private Ownership.” The progress of recent events has brough
us face to face with a crisis of tremendous importance. The con
stantly rising cost of commodities to the consumer has far ou
stripped the purchasing power of the consumer's wage. This diff
ence between earning power and spending power of the great
of the workers has compelled a corresponding lowering of the stanc
ard of existence. ‘This is an influence entirely hostile to the interes
of humanity, and to be resisted by all the powers of mankind.
Such resistance is inevitable. Human nature can not do otherw!
than oppose the universal lowering of the standard of living. T
avoid the deprivations which loss of purchasing power necessaril
inflicts, the first natural reaction is the denen for increased p
chasing power through demanded raises in wages, yet this dema
is acknowledged to be futile, because such increase in cost of produc
i
—
ie
P
4
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 597
ion is immediately more than reflected.in the increased cost of com-
‘nodities.
' In answer to this first reaction—demand for increased wages—
ve now find a hundred thousand railway employees refusing longer
'0 render their services for these constantly diminishing returns.
‘(his manifestation of revolt is but symptomatic of the entire industrial
‘ituation. It is not unrest that confronts us, it is revolt because of
ndustrial conditions no longer to be borne.
_ The situation is so serious that although the House of Representa-
‘ives had properly resolved to recess for five weeks’ vacation, in a
‘Ingle day in response to the request of the Chief Executive that
esolution is set aside. The session continues for the sole purpose
if investigating the causes and discovering remedies for this situa-
ion which at any moment may be beyond control.
| The plan which labor presents had been prepared after a most
areful study of the economic situation existing, the causes of the
‘resent evils, and the proper correctives to be applied. The faulty
| ystem may be improved by the regulation, but regulation of a sys-
‘em long unprincipled merely delays its ultimate collapse. It is
ot constructive. It lays no foundation for solid progress. It
‘yalliates but does not cure.
| We already number in the support of labor’s plan approximately
/,000,000 adult producers—about one-sixth of the productive man
ower of the United States, perhaps the same proportion of the politi-
al power of the Nation, and a financial power which few comprehend.
“hose employed on the railways alone represented in this movement
eceive as their annual compensation for the investment of their life
(md labor upward of two and a half billion dollars a year—two and a
ialf times the amount of compensation paid for the use of the money
/ayested in railways. |
| It is claimed by those who represent the financial interests before
jhis committee that they have investments of approximately
| 20,000,000,000 in this industry. On this they receive a return of a
illion dollars a year. How shall this investment of money be com-
jared with that investment of life and labor that receives a return
| £ two and a half billion dollars a year?’ By what standard can they
‘e compared which gives to the investment of life a value less than
hat allotted to the investment of dollars? In the words of Samuel
Yompers, labor is not a commodity; it is human life. By what
/eason can the interest of things exceed in value the interest of
uman beings? He who speaks of the interests of property as con-
isting of rights which the property possesses dissociated from the
‘uman right of ownership reasons falsely. Our Government,
jounded upon our Constitution, deals with individuals, not with
|hings. It is not with the interest of capital with which we have to
0 but with the human interests involved in the ownership of
apital by human beings. The human beings who own the dollars
lavested in railways are comparatively few in number—probably
ot more than one or two hundred thousand different individuals
/Te so directly interested as security holders in our national railways.
| Let me interject there, it has been reported in the hearings before
| oth the House and the Senate committees that there were 640,000
olders of securities. An investigation of that statement made b
he Interstate Commerce Commission reveals that every individual,
598 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
corporation, association, or other holder who may own stock in two
or more companies in that list is set down as two or more holders, so
that the 640,000 holders of railway securities contains an infinite
number of duplications. The Pennsylvania Railway Co., for instance,
has more than 340 different holdings of securities, and in that list of
640,000 the Pennsylvania appears as 340 holders. The same thing
is true of all of the holders in that list. There is furnished by the
Interstate Commerce Commission an analysis of the holdings oi
railway securities so far as disclosed by their records, and in that
analysis it appears that the railroads themselves own more than 46
per cent of the outstanding stocks of all of the railway companies,
and it also appears that the individual holders of securities reported
to the Interstate Commerce Commission, those individuals being
women, children, widows, and orphans, hold only two and a fraction
per cent of the outstanding securities. I would suggest that ar
inspection of that report made by the Interstate Commerce Commis.
sion might be of great value to this committee.
The CHarrmMan. We have all received copies, Mr. Plumb.
Mr. Prums. Indirectly, a great number of human beings are affected
by the value and return allotted to railway securities, but no moré
affected by the value and return of these securities than they are
similarly affected by the value and return of an equally large numbe1
of other securities with an equal number of individual owners. |
According to the information given out by Director General Hines
1,700,000 employees of the railways of the United States in the thre¢
last national loans subscribed and paid for upward of $410,000,00(
worth of bonds. The figures for the first two war loans are not avail
able, but it is reasonable to assume that these same men subscribe¢
at least $200,000,000 for the first two loans. If this assumption bt
true, then they are the holders of upward of $600,000,000 worth oi
Government bonds, bearing interest return of from 3% to 44 per cent
The other labor organizations indorsing this movement, number
an equal number of men, employed in industries paying equally hig
wages, doubtless have subscribed to an equal amount, for I assum
that the railroad employees possess no higher amount of patriotisa
and self-sacrifice than the great body of organized labor associates
with them.
These wage earners, as bondholders, together with the other indi
viduals in the community who have subscribed to the Liberty loans
are closely scrutinizing the course of events in Congress on railroat
matters with an intelligence equal to that of the banking interests
We are deluged with inquiries in regard to this matter.
Put yourself in the place of a man owning $2,000 worth of wa
bonds which he purchased at par. He notes that there are pendin
before Congress many propositions whereby the public is asked t
guarantee either in rates or returns an interest of not less than’!
per cent upon $20,000,000,000 of outstanding railway securities, whic!
now have a market value not exceeding $13,000,000,000. He hear
it claimed by those urging this guaranty that a return of not less tha’
6 per cent will place these securities at par and provide a marke
where many seeking investments can be induced to serve the publi
in return for the further issuance of such securities. Such a guarant
will mean an advance in value of from $13,000,000,000, their prese?
value, to $20,000,000,000, their par value.
CSAs
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 599
_ Would you not ask yourself what effect this would have upon the
bonds which you held, on which the same Government had guaran-
teed only 34 to 44 per cent? Would you not believe that such action
merely transferred from the market value of war bonds to the market
value of railroad securities, six or seven billion dollars? Would you
not believe that your Government bonds, if the desire of the railroads
and the financiers was fulfilled, would be quoted at the average of
present railway securities while the railway securities would be
quoted at the present market value of Government bonds ?
__ This committee may suggest a satisfactory answer to the question
of these Liberty bond holders, but it must be an answer that will be
satisfactory to millions of widows and oprhans, to every life-insurance
company, savings-bank and trust company, and to every holder of
these bonds who has paid for them at par and who will not witness
their fallen values with any sense of satisfaction or with any feeling
that his sacrifice has been entirely justified for the preservation of
she Government that could work such iniquity. His sense of injury
will also be deepened when he realizes that the securities to which his
value has been transferred do not in every case, in fact, admittedly
‘many cases, represent an equivalent sacrifice by the ones to whom
ay were initially issued or by the one in whose hands they are now
etd.
_ The representatives of railway. executives, the railway security
nolders, and the United States Chamber of Commerce appearing
Sefore you have asserted that they speak for half of the citizens of
the United States as being interested in maintaining the value and
‘he credit of railway securities. By what basis they reach this con-
“‘lusion I can not tell; but they assert that savings banks, trust com-
yanies, and life insurance companies have large investments in railway
jecurities; that every depositor in such a bank, every holder of a life
‘msurance policy, and everyone in anyway affected by the net assets
of such institutions are represented by them. If 50,000,000 people
we indirectly affected by the market value of 20 billions of railway
ecurities held by 200,000 individuals, how many people are affected
vy the market value of 20 billions of Government bonds held directly
‘vy 22,000,000 individual subscribers ?
And to what extent are the holders of life insurance policies and
lepositors in savings banks interested in seeing that the assets of
hose institutions are not damaged by shrinkage in the market of
yovernment bonds which they hold? I should blush if I asserted
‘hat only half the citizens of the United States were so interested in
reserving the credit of this vast volume of securities representing our
‘ational debt. However, many of the fifty miliions which Mr.
Varfield says he represents as being directly and indirectly affected
'y the credit of railway securities will not hold him responsible for
(he outcome. Likewise a great percentage of the holders of Govern-
(rent bonds and those indirectly affected by other bonds will not
‘old me responsible for the outcome, but this committee and this
|ongress can not avoid its responsibility to the holders of both
lasses of securities, and in order to face that responsibility must
‘ccurately judge the extent of these conflicting interests and the
/quities of the position which each interest possesses. What I have
fud is merely to impress upon this committee the momentous
/baracter of the interests which I am now representing.
600 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Never before have so many individuals united in a single presenta-
tion, and if the value of a labor investment be calculated by the
return which it receives, in the same manner in which a capital invest-
ment is determined, then that labor investment, measured financially,
approximates a value of $50,000,000,000.
In addition to that, at least 4,500,000 citizens through their labor
representatives appear here as capitalists owning a large proportion
of the national debt and seek to have their interests as such owners
likewise considered and justly protected. Never before have so
many capitalists appeared before Congress to assert their interests in
any capitalistic venture. :
‘The plan for the reorganization of the railroad industry which we
present is intended to protect all interests with absolute justice, with
equality for all and privilege for none. It is based upon the best
study of existing economic conditions which we have been able to
accomplish. An understanding of the plan requires that we should
submit to you that analysis of the economic conditions which we
have made so that you may have before you the basis from which
our couclusions have been drawn. I hope I may therefore be par-
doned for a short presentation of this analysis: First, of the funda-
mental interests in industry; second, the economic conditions which
now exist; third, the evils of the existing system; fourth, a correct
analysis of the property rights which have been granted to the cor-
porations owning these highways; and, fifth, may then present the
plan expressed in the bill which is now pending before you.
1. The fundamental interests involved in industry. Now, I use
some definitions. ‘‘Industry,’”’ as used in this discussion—and that
is the meaning of industry as I use it here—I wish to limit to those
socialized industries which are now based on either a grant from the
Government itself or upon a privilege of monopolistic nature. I do
not include in this statement industries carried on by individuals
under the competitive system without the aid or grant of privilege-—
I use the word only as applied to those fields of production which have
become socialized—and now I want to define the word © socialized”
as L use it. By ‘socialized’? I mean industries which require great
aggregations of workers, each performing a small fraction of the task
of production and where the finished product is the result of combined
cooperative, productive effort. |
The word ‘socialized’? was used here yesterday in a sense whick
we do not attach to that word as meaning the ownership by Gover
ment of an industry and the control of that industry by the Gov-
ernment. I do not use the word “socialized”? with that meaning
at all. I deem that an industry is socialized when it can only }
carried on by a grant of society and by organizations which elin:
inate individual effort or competition. It is a function of societ
when it has reached that development, regardless of its ownershi
or management, and it is in that sense and that sense alone that .
speak of ‘‘socialized’”’ industries.
There are three basic interests in every such industry. ‘The firs
interest is that of the public, which I define as the demand of th
ublic for the products of that industry. It is the need of socie
or those things essential to its existence which are produced alon
by the organized, socialized, productive efforts of those engaged t
meeting this demand. Without the existence of this deman
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 601
society, that industry could not exist; without this demand capital
would have no field for investment, labor would have no opportunity
for employment. With either one of these: three fundamental
interests lacking the other two could not exist within that field of
production.
_ The second interest is the interest of capital. Capital is nothing
but the unexpended surplus of past human effort which is now
available to furnish the tools for present human effort. It is essential
to every organized industry in that it furnishes the tools for produc-
tion without which the demand of society for the products of industry
sould not be satisfied and without which labor or human effort could
aot find employment. The third fundamental interest is that of the
wage earner or producer. It includes all of those employed in pro-
ductive efforts in those industries which have been socialized.
~ That includes not only the man who works with his brawn, but the
nan who works with his brain—all productive effort in that industry.
[his constitutes the third interest which I have termed the interest
wf the wage earner. ;
The wage earner represents the human effort which must be ap-
\dlied to these means for production, without which capital could not
‘ind investment and secure its returns and without which the needs
wf society for the products of industry could not be satisfied.
These are the three fundamental interests in industry, each as
lssential to the existence of industry as the other. Therefore they
ire equal and must have equal opportunity, protection, and authority.
| 2. The economic conditions which now exist. Under the existing
‘ystem the owners of capital have monopolized the control of in-
lustry and in their monopoly they have denied the public—that is,
ociety—any voice in the management of industry.
| They have likewise denied to labor as the producer any voice in
ts management.
: Nevertheless, both the public as the great body of consumers, and
jabor as the producing element in society, have an interest in in-
j\lustry each equal or superior to that of capital. I say superior,
\ecause capital by itself does not mean present human effort. It
jaeans control only of things, tools, materials, and means of pro-
}uction. It does not mean in itself the expenditure of any human
: ualities whatsoever, whereas labor\does mean the present expend-
ture of human effort and the consuming public also represents an
Xisting human demand. Those two elements, therefore, I deem of
uperior primary importance, but that does not mean that the
hird element, capital, does not have just demands. The owners of
|apital for the service which they render are entitled to absolute
rotection of that which they place at the service of society both
s to the integrity of their investment and the return they are to
8cure upon it. Now, as I said, the owners of capital have denied
0 the consuming public and to labor any voice in the control of
he industry in which that capital was employed. Nevertheless the
ublic has sought to protect its interests by legislation imposing
ulations upon the owners of capital. As applied to the railways
ae public through legislation has said to the owners of capital who
‘ere controlling the management of the industry: ‘‘ You may not
cquire your property.except for the purpose of serving the public.
ou may not equip your property as you desire but with due regard
602 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
to the safety of those who use your service and those who furnish
the service. You may not charge for your service whatever you
desire, but only such charges as may be determined to be reasonable
by an impartial judicial tribunal.”” The public has even gone so
far as to say: ‘‘You may not fix the hours or wages of your em-
ployees. You may not compel your employees to work more than
so many hours a day and you may not pay less than so much for
the service rendered.’ All these regulations on the part of the
public are limitations upon the monopolistic control which the
owners of capital previously exercised over that industry and are,
indirectly, a participation of the public in the control of industry,
but it is only a limited and negative participation.
Labor as the producing element in society having also a funda-
mental interest in the conduct of the industry in which it was em-
ployed and being denied any voice in the control of the management
of that industry by the owners of capital employed has sought
means to make its voice effective in the control of management.
The labor employed in the railroad industry may now be said to
be completely organized.
The purpose of this organization is twofold. First, to secure
for its members a greater share in the profits of production by de-
manding increased wages; second, to secure greater safety and free-
dom from accident by demanding safeguards, shortening of hours,
insurance against diseases and accident by the adoption of mechanical
devices and improvements. These demands of labor like the de-
mands of the public have been limitations upon the control of opera-
tion by the owners of capital.
These owners of capital have resisted the enforcement of such
demands even to the extent of denying to the producers the right of
employment and to further share in the industry even by working
for them. That is the lockout—the right to discharge without
cause. This conflict has been marked by decades of strikes, lockouts,
and blacklists. The owners of capital have relied upon the military
arm of government to protect their interests devoted to public service
against the demands of labor. Labor has enforced its demands by
the power of its organization and its ability to inflict losses upon the
owners of capital by its temporary refusal to cooperate with such
owners in further productive efforts. al
The owners of capital have resisted the demands of the public
made through legislation. This resistance has been by refusal to
comply with such regulations in which event the public has resorte
to the police power to enforce its interests and to the courts for the
enforcement of such legislation. This is a condition of industrial
warfare. Under such a system there can be no harmony betweet
the three fundamental interests. Each is on guard to protect its
own without regard to the interests of others, each seeking to obtait
any advantage that circumstances permitted at the expense of the
other interests, but each relying upon the power of might as the
ultimate arbitor in all disputes. bj
The continuance of such a system can be based only upon a gover
ment which can provide the might to enforce the demands of thit
interest which at the time controls the government. A democratit
government instead of controlling such an industrial situation is con
trolled by one or the other of these warring fundamental interests
and so can no longer function as true democracy in government.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 603
__ We exist under governments. We live by industry. To preserve
democratic government we must extend to that by which we live the
same power of democratic control which we exercise in the erection
‘of the government under which we exist. That industry has advanced
ander such conditions where the public, meaning the consumer, labor,
‘meaning the producing element of society, and capital, meaning that
Tuman element controlling the tools of industry, have been in continual
‘warfare, gives fair indication of what our advance might have been
ad these interests worked in harmony with due respect for the rights
of each, with equal authority in the control of management and with
qual responsibility one to the other.
I have above announced the three fundamental interests which
xist in industry. These interests, however, are common to all citi-
yens in the community. [Every individual citizen is affected by at
east two of these interests, and all by one, for all citizens are con-
umers. Most citizens are producers. Those who consume and do
‘ot produce are either beggars or capitalists. Many who produce are
Jso capitalists. I have already shown that 1,700,000 of the wage
arners on the railroads, producers, are capitalists in that they hold
overnment securities. Many of those who hold investments in the
ailroads, also, serve the jndustry in some capacity. It is said that
aany of the organized employees on the Pennsylvania system also
old stock in that system. Many official employees on all railroads
re the owners of railroad securities. So that these three interests
re commingled in the great body of citizens. Likewise all producers
Te consumers; and again all consumers are producers, except those
tho live by charity or those who live on interest alone. All of or-
anized labor are consumers, and it is the failure of producers in in-
ustry to recognize their interest as consumers that has made the
ae of organized labor ineffectual in securing for its membership
greater share of the profits of the industries in which they are
mployed. Let me illustrate:
| Suppose that the shoemakers were the first producers to organize
mally, so that all men who were engaged in the production of
10e€s as wage earners organized and demanded a larger share of the
rofits of that industry by an increase in their wage. Assume that
1e employers for whom they worked granted this increase, and
/amediately added this increased cost of production to the price of
jloes, together with a profit on that increase. The consuming
\ablic, all who bought shoes, would pay this added cost, together
.ith a profit to the manufacturer, and the wage earners would receive
|1 Inereased wage. This would be an excellent thing for the shoe-
|akers. The success of their organization would the next day
duce the garment workers to perfect a like organizaticn, and
crease their wages accordingly, laying a further burden upon the
ablic, im which burden the shoemakers would begin to bear a share.
fe suecess of those employed in these two industries would: im-
jediately induce the packing-house employees to perfect a like
ganization and receive like benefits. The benefits the public
}ould pay—in the paying of which shoemakers and garment workers
ould share. The cycle of all socialized industries being completed,
‘Ose employed in those industries now find that every advantage
ach they have gained as producers they pay for as consumers,
lying not only the advantage which they have received but also a
604 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
profit on that advantage to the owners of the capital employed in
production. This cycle beg completed, the owners of the capital
alone have benefited. Wages have been increased, but all com-
modities which the wage earners must purchase have been more than
correspondingly increased in price by the profit demanded by the
owner of capital upon the increased cost of production. Under such
a system earning power can never overtake buying necessity. But
the necessity of purchase always outstrips the power of buying
exactly by the profit demanded on the increased purchasing power,
and to the extent of the profit compounded by each intermediate
handling and transportation of the commodity.
This constantly growing difference between necessity for buying
and ability to pay must be compensated by a lowering of the leve
of existence. In no other way can the sheet be balanced, and map-
kind not only here but the world over refuses to accept that balances
sheet. Organized labor now realizes that further advances in wages
at the expense of a cost of living exceeding that of the values received
are wholly futile. Equally, organized labor realizes that to corree|
this vicious system the interests of both producers and consumers
must be protected; that the great increase in the productive powel
of human effort should be reflected equally in increased earnins
power of those who produce and the decreased cost of the commodity
so produced.
In order to affect the price of all commodities by advances it
wages to those who produce, then it would be necessary to completé
the entire cycle of industrial production. An advance to the shoe:
makers is reflected only in the advanced price of shoes. It does not
affect any other commodity. But with transportation the situatior
is quite otherwise. The cost in transportation is reflected in the
price of all commodities, whether transported or not. The consume!
pays the freight on everything that he consumes, although it maj
be produced next door, and may never have passed over any line
of transportation. Heretofore railroad rates have not been advancec
universally. A commodity rate is advanced here, a classificatior
rate advanced there, and only those commodities affected by suck
local advances reflect the increased cost in their price. But with thy
coming of the war a 15 per cent advance was allowed by the Inter
state Commerce Commission, covering all rates and all commodities
and reflected the next day in the purchase price of everything by
which we live. Later the director general again advanced thes
rates 25 per cent. This advance was again immediately reflectoc
in the price of commodities, and the cost of living.
The wages earned by those who produce constitutes the grea’
bulk of the purchasing fund of this Nation. When the price of al
commodities is advanced, due to an increased cost of transportation
and the wage fund is not correspondingly increased, the difference i
exactly reflected by a restriction in the amount of commodities con
sumed. This soon reacts on the producing agencies. They provi
a restricted output to correspond with the restricted demand. Thi
again, restricts the wage or purchasing fund, and the cycle of restr
tion endlessly repeats itself, until we find production stifled, industr
in stagnation, unemployment, and ‘inevitable political and socis
revolution. Tt
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 605
| Reverse this vicious system. Reduce rates. The costs of all
commodities are then reduced accordingly. The purchasing power
of the wage fund is then correspondingly expanded. A greater |
volume of commodities is consumed. The demand on industry is
ereased. There follows a wider field of employment, which, in
jurn, increases the wage or purchasing fund of the community.
This must inevitably follow, unless the savings of the cost of trans-
vortation, instead of being reflected in the price of commodities, are
uppropriated to swell the volume of profits of those who control
‘apital. Insure the savings effected by a reduction in rates to the
onsumer, and you will have turned the tide that now threatens to
yverwhelm us. :
Can this be done without depriving the owners of capital of any
if their lawful or vested rights? As applied to railroads, this can
‘asily be done. For the property rights which exist in railroads are
yased entirely on grants which the public made to the holders of such
mivileges. Only that which has been granted becomes a private
nterest; that which was not granted remains a public interest.
To demonstrate this principle requires an analysis of the property
aghts which have been granted to private owners in the railways of
he United States.
The private interests in railroads analyzed: There are certain
rinciples now well recognized and indisputable. These principles,
or clarity, I announce as follows: mie
-(1) Railways are public highways.
_ (2) The construction, maintenance, and operation of public high-
7ays is a function of the Government.
(3) Railroad corporations are merely agencies permitted by the
‘rovernment to exercise this function.
| (4) The State retains full power to regulate the use and operation
‘fits delegated function.
| (5) The corporate agency exercising said delegated governmental
mctions takes all its rights, powers, and privileges subject to the
“Mitations imposed by the laws under which it is created.
_ (6) Such corporate agency can not claim against the public, its
itantor, any rights, properties, grants, or franchises not expressly
| mferred by its charter or the laws under which it operates.
It is upon these recognized established principles that our entire
1eory of valuation rests. This is nothing but the determination of
‘hat rights have been granted, andthe value of those rights.
Railways are public highways. This has been so held from the
eginning of railroad history and now will not be disputed. ‘True, as
ud in the case of Olcott v. Supervisors, 83 U. S., 678, they are to
2 used in a particular manner. It is the manner of their use alone
tat distinguishes them from other public highways. The manner
_ that use is prescribed by law, as stated in the Illinois constitution,
id all citizens utilizing these highways are by law required to use
tem in the particular manner which the law prescribes.
The manner of the use so prescribed has provided that the title
these public highways should remain in the corporation creating
‘em, upon condition that such title shall by the very terms of its
quisition be subject to dedication to the public for highway pur-
ses. All railroad properties acquired under such charter limita-
ms were dedicated to the public for highway purposes by the very
|
606 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP.
fact of acquisition, no matter by what means they were acquired
If acquired by condemnation, the very exercise of the soverel
power of eminent domain devotes the property so acquired to the
public use forever. If acquired by a grant made by any soverel
power, that grant designates the use to which they are to be made
and preserves the public easement over such lands for highway pur
poses. If acquired by deed, purchase, or contract from privat
owners, as between the corporation and the private owners, such tithe
passes as the owner possesses or chooses to grant, but as betwee
the State and the corporation, the lands are dedicated by thei.
acquisition to the public, and all that remains to the corporate owne!
is a fee which gives to it a right of reversion in case the public shoul:
abandon or neglect its easement. f
That reversionary fee in the hands of the corporate owner has n
more value than alike fee remaining in the hands of the private owne
whose lands have been taken by condemnation. The right of thi
public to use these lands obtained by deed from private owners ii
just as complete as it is to those lands obtained through the exercisi
of the power of eminent domain. The public easement over all land:
and properties acquired by such a corporation is complete, perfect
and perpetual. By recognizing that these instruments of transporta
tion are public highways, we immediately recognize that no privat
interests can exist therein except those which have been granted b;
the public. All interests not covered by the grant remain a part 0
the public interest.
In determining the value of private interests in these public high
ways, we are to allot value only to the interests that have bee!
eranted. We may not include in such a valuation any estimate:
values inherent in the property that are not within the terms of th
erant. The total value of the railroad includes not only the valu
of the private interests but the value of the public interests. Privat
value can not be expanded without a corresponding diminution 1
the value of the public interest.
It has been often said that railroads are private properties subjectu
to the public use. A much truer statement 1s this: That railroad
are public properties in which private interests exist.’
I have, theretofore, in the hearings before this committee in Janu
ary, 1918, quite fully discussed this theory of charter and statutor
limitations upon the interests held in railroad companies in the publi
highways which they operate, afd will not repeat that argument her
as [ deem it to be before this committee.
T assume that is so, Mr. Chairman, is it not?
The CrarrmMan. Yes; I think testimony on the subject was give
before the Senate committee in February.
Mr. Piums. This was a year ago last January.
The CuarrmMan. Under the Federal control act
Mr. Puums. Under the Federal control act. I placed a day
testimony before the committee on this question of charter limite
tions, which i have not here repeated.
Without discussing in detail just what rights do constitute privat
interests in rai!ways, | would state that our bill does not attempt t
determine these rights, but requires only that all of the rights whic
have been granted to these corporations by their charters and whic
have accrued to them thereunder shall be ascertained and dete
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 607
‘mined; that this shall be done by an orderly procedure before a body
created for that purpose and subject to judicial review. That, in
the determination of such value, this body shall not take into account
yalues inherent in the properties which were not conveyed by the
grants to the corporations owning and operating such properties.
hat such unconveyed values should be deemed a part of the public
interest in these railways, for which no compensation should be paid.
__ Now, that is the direction to the body which we create, and if that
direction does not accurately state the law, then that direction will
be held to be illegal by the court, because the action of this body is
‘subject to judicial review. We do not for one moment contend that
we can by legislation to-day deprive any co1poration of the value
of any right, privilege, or interest that it has secured under grant
made to it and that has become vested, and our bill does not attempt
to deprive any corporation of the value of anything which it now pos-
Sesses. It simply directs a scrutiny to be made as to what it does
possess, and to reject from the valuation those elements of value in
the propery in which the public has an interest and that inhere, in
the public interest and that were not conveyed by the grants which
the public have made. ;
Again considering these properties as public highways, it has always
been the law that the owner of a public highway could recover from
the public as compensation for its use only its value at the time it was
dedicated to that use.
In condemnation proceedings either payment or provision for pay-
‘ment must be made i
eases. So long as it is needful for the use of society it can not be
told. Of course, that does not mean that you must have a legislative
152894—19—vor 1——-39
608 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
public needed, then does ane doubt that such a disposal of its
property could be immediately stopped by the State or Government ‘
Property held by such a title has no value in exchange. It has
only value in use. Exchange value being eliminated, it is only value
in use that may be determined. To show how effectually exchange
value is eliminated let me illustrate: The possessor of private prop-
erty in which inheres value in exchange can reduce that value to pos:
session only by parting with either the title or possession of his
property. Value in use and value in exchange can not. possibly be
enjoyed by the same person at the same time. The enjoyment 0!
one value precludes the enjoyment of the other. This is in the nature
of things, not by reason of any man-made law. Yet the owners 0!
these railroads claim the right to enjoy as a proprety right value ir
exchange, while retaining both title and possession of their propertie:
and utilizing value in exchange as the basis for determining value
in use. ‘
This is a wholly inconsistent position. It would give to the owner:
of these properties an advantage not possessed by the owners 0
private property, a special privilege for a certain class of owner:
which could not be justified under our Constitution.
There is no way in which the law concerning public highways cai
be made consistent with the law concerning private property
Property can not be both wholly public and at the same time whol)
private. It may be partly private and partly public, in which even
the extent of the private interest can not exceed that which th
public have granted. |
Take now our bill—Mr. Sims’s bill now pending before the com
mittee embodies the legislative method for perfecting the plan whic!
labor suggests. |
Now, if the committee so desires, I can take up the bill paragrap!
by paragraph and go through it with the committee, or I can take uj
the bill and announce the general principles upon which it is con
structed and then reply to questions, whichever method seems bes
in the view of the committee.
The CHarrMAN. I think perhaps that it might expedite the hear
ings if the latter method was pursued.
Mr. Sims. Have you finished your preliminary statement ?
Mr. Ptums. I have finished my economic statement, and if th
committee desires to cross-examine me on that, I would be glad a
this time to answer any: questions.
Mr. Sms. I would like to suggest that the latter part of you
statement may be involved or connected with what you have jus
stated. Therefore, would it not be best to continue with you
statement until you finish it ?
The CuarrMAN. I think you had better finish your statemeri
Mr. Plumb.
* Mr. Monracur. May I be permitted to make an observatiol
Mr. Chairman ?
The CHarrMAN. Certainly.
Mr. Monracusr. The term that is in common use here, “cross
examination,” is, I think, erroneous.
The CuarrMan. If we use the word in a derogatory sense——
Mr. Monracus (interposing). We are not cross-examining wi
nesses. It may be an examination in chief, perhaps, or 1t may be
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 609
direct examination. Sometimes it may be a cross-examination, but
merely asking a gentleman some questions when he is making a
statement is not cross-examination. That term suggests the idea
of hostility toward the witness.
Mr. Sanvers.of Indiana. You would simply be asking for informa-
10n.
’ Mr. Pius. I accept the amendment.
Mr. Montacue. I did not mean to apply that to you, but that
erm has been employed ever since I have been on the committee,
ind it is not the correct use of the term.
Mr. Prums. I have simply followed the language that was used
vhen I came before the committee a year ago.
Mr. Sanpers of Indiana. Cross-examination is a compound word.
_ Mr. Prums. I really think that the term ‘‘examination”’ is
wreferable.
_ Mr. Sanpvers of Indiana. Or interrogation.
Mr. Prums. This bill begins with definitions, and I will read some
if those definitions in article 1, section 1, because they are necessary
0 an understanding of the bill: , :
| Section 1. That for the purposes of this act the term ‘‘transportation properties”
3 defined to include all of the private rights, titles, property interests, powers, and
tivileges existing in any railway, light railway, or less than standard-gauge railway,
anal, waterway, or inland navigation facility, harbor, or dock undertaking in the
Jnited States and its possessions, together with all rolling stock, plant, appliances,
rt equipment, whether fixed or movable, that form any part of such properties.
Then we define “corporation owners”’ as including any corporation
aterest in such transportation properties, individual owners—that is,
My group of individuals, association, or copartnership not incor-
jorated owning an interest in such transportation property. [Read-
ag:]
That the term “compensation” is hereby defined as being the amount of money
»presenting the value of the rights, title, or interest of any corporate owner or individ-
al owner in any transportation property above defined.
In section 2 we provide that on a day to be fixed, it being left
lank [reading]—
There shall be vested in the United States every right, title, interest, and privilege
‘anted by the United States or underthe laws of any State or territory of the United
tates, or its possessions, to any corporate or individual owner of transportation
roperties, the acquisition of which is by the railways board of appraisement and
tension (the establishment of which is hereinafter authorized) deemed necessary
ra unified national system of post and military roads and as a means for the regula-
on of commerce between the States, and for affording facilities for locomotion and
ansport.
|
That provides for the immediate vesting in the United States of
| private interests in these public facilities so selected by this board
s being necessary for a unified system. Now, I know that it is quite
()pularly supposed that the Government has no power under our
ostitution to take such property without first making compensa-
on. I! wish to differ with that view, although I pay due respect to
le eminent counsel who hold the contrary opinion. Private pro-
| ty may not be taken for public uses under our Constitution without
j
;
‘st ascertaining and providing for compensation. ‘The tanguage is
ascertaining and providing,” but there is one great exception to that
ile.
i
|
j
610 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Private property that has been devoted ‘by its owner to a public
use may be taken and the compensation determined thereafter.
These private propertics are held subject to public use. They were
devoted to that use at the time they were acquired, and that is the
consent of the owner to such use of the property. When. 2s to the
property so held, the State or the Government or the sovereign power
in taking the title, provides a forum for the determination of fair
compensation and the means for the payment of that compensation,
the Constitution has been complied with. Otherwise, the sovereign
ower that created those corporations as servants of the public woul
hee created a master of the public with powereven greater than that
of the sovereign that created it. |
Now, we provide for this railways board of appraisement and
extension. After giving the power to the President to issue such
orders as may be necessary to carry the bill into effect, in section 8,
age 4, we create the railways board of appraisement and extension.
his board is to be composed of the members of the Interstate
Commerce Commission, and three added members from the board
of directors of the corporations ‘hat we have created in the bill, one
member to represent the public, one the employees, and one the
managements, to be added to the nine members of the Interstate
Commerce Commission.
Now, on this matter, I want to say that if any better method foi
the determination of compensation or any better body can be devised
we will be only too glad to help in devising it, but we deem that the
Interstate Commerce Commission, having already expended soms
millions of dollars in ascertaining the value of these rights and havin{
accumulated a fund of information which it would take years yet t
accumulate, is possessed of knowledge and information that can no:
be thrown away or disregarded or transferred to some other body
That body is in existence; it has collected this information which noy
is largely classified, and which the chairman stated Minit Mr
Prouty had said might be completed by 1921. So that there is |
tremendous task already accomplished. The addition of the othe
three members to that commission we suggest as being an essentia
addition; so that we would have added to the commission the met
most skilled in the management of railways; the men most skille
in the determination and the adjustment of labor questions, and w
ought to have men from the public most skilled in the need of ti
public for transportation; so that there would be some element adde
to the fund already accumulated that would be of value in th
determination of those questions. Now, we empower this board t
do everything that may be necessary for that determination; t
employ agents and employees to aid it, just as the present Interstet
Commerce Commission is authorized to use its employees for tb
valuations. No doubt the same force of men could be utilized, |
the Interstate Commerce Commission should find it advisable so t
do. The fixing of compensation is left with the chairman and tk
Secretary of the Treasury of the United States.
I now read from section 3 of article 1, page 4, beginning with line 2
That said appraisement board is hereby empowered, authorized, and directed
investigate, ascertain, and determine the amount of compensation to be paid by tl
United States to the corporate and individual owners of the several transportati'
properties title to which is hereby vested in the United States, and also to investigat
ascertain, and determine the compensation to be paid to the owners of said proper!
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 611
‘or auxiliary plants or facilities for manufacturing or repairing, purchase, and dis-
‘tribution of stores and supplies which may hereafter be deemed necessary or expedient
in the operation or extension of transportation properties so acquired by and vested in
‘the United States under the provisions of this act.
_ I think that requires no explanation.
Section 4, article 1, page 5:
_ That in the determination of the amount of compensation to be paid to the corporate
,and individual owners of transportation properties so vested in the United States
the appraisement board shall ascertain the value of all the rights, property interests,
powers, authorities, and privileges granted in and acquired under the charters of the
several corporate owners and the laws under which they operate and the grants made
‘to individual owners owning or operating such properties.
That all values not included in the grants made in the charters of the corporate
owners or the laws under which they operate or in the grants made to individual
‘owners shall be regarded as values retained by the public in the public highways
‘of the United States and not subject to compensation.
Mr. Montacur. May I ask a question, there, Mr. Chairman, if it
‘is agreeable to Mr. Plumb?
Mr. Prums. Certainly.
_ Mr. Montracue. The saving clause or the reserving clause begin-
“ming on line 17, ‘‘all values not included in the grants made,” what
‘values have you in mind as not included in the preceding portion of
that section ?
Mr, Proms. I will answer that question directly in just one sen-
tence. It is claimed by the companies that they have a great many
‘rights. They have not shown any grants on which the right was
based. For instance, they claim that they enjoy as a property right
the value of all lands now held by them for transportation, that value
‘to be determined by the value of adjoining land, multiplied by some
factor which represents the cost of acquisition. That is the value
Which they claim. Now, if that be a value which has been granted
to them, if their charter is broad enough to include that vlaue, it
certainly belongs to them; but if it is not broad enough to include
that value, then it is a value retained by the public; and our purpose
here is to direct that this body shall investigate the grants made and
shall scrutinize each claim of value to determine whether or not it
has passed by the grant before allowing it. Then that raises the
question for judicial review, which may be raised by either side, so
that the court must pass upon that question as to whether or not
that was a property interest or a property value which had been
‘granted or had been retained.
‘Mr. Montacue. I do not know that I clearly understand you.
You mean the increased value or the decreased value of the right of
way should or should not be considered ?
Mr. Prums. I mean exactly that, that the increase in value——
Mr. MontacuE (interposing). Or the decreased value.
' Mr. Prums. Or the decreased value——
_ Mr. Monracuse (continuing). Of the actual land included in its right
of way should not be considered ?
| Mr. Prums. Should not be considered.
__ Mr. Montracur. What about the physical properties placed upon
that right of way?
(| Mr. a That has no increase or decrease either.
_ Mr. Montacur. Suppose there is one single track in the charter,
but they are given the privilege to improve their property, and sub-
612 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
sequent there is a double track or three tracks or four tracks, would
it be of less or more value, or should that be considered? —
Mr. Ptums. The cost of the additional improvements ?
Mr. Monracus. That is what I asked you and you said that should
not be considered. |
Mr. Ptums. No; I did not intend to say that.
Mr. MontacueE. I misunderstood you.
Mr. Piums. I do not intend at any time to question the validity
of a single dollar that has been put into the actual service, but the
rising value of lands adjoming, not subjected to this public use, does
not measure the value of the use in those lands.
Mr. Monracus; Yes, I understand your position on that.
Mr. Prums. And an increase in the price of steel rails made 10
years ago ——
Mr. MontracueE (interposing). That is analagous to what is com-
monly termed the unearned increment.
Mr, Ptums. The unearned increment never was conveyed by those
grants.
Mr. Montague. I just wanted to catch your full viewpoint.
Mr. PiumB. Yes.
Mr. Montaaus. You would not take anything relating to the
development of the physical property and costs incident to that
development ?
Mr. PLumB. Yes; all costs incident to the development is included.
Mr. MonracukE. Is included in the value?
Mr. Piums. Yes; all costs incident to the development.
Mr. Sweet. And the value is to be determined as of the day when
the grant was made?
Mr. Ptums. No, Congressman; the value is to be determined as of
the day the thing was acquired. It is acquired under a grant that
may have been made 50 years ago, but tbe interest did not vest until
the acquisition. If they buy a locomotive to-day under a charter
80 years old, like the B. & O., the public have no interest in that
locomotive until to-day when it is furnished.
Mr. Sweet. Then your answer is, as of the time when it was
acquired?
Mr. Piums. As of the time it was acquired.
Mr. Monracus. Mr. Chairman, if Judge Sweet is through, 1 would
like to ask one other question which I omitted. The language is,
‘Call values,’’ it is in the plural, and you have stated one which we
shall term for brevity, the unearned increment of the values of the
land or the rights of way—have you in mind any other values, Mr.
Plumb ?
Mr. Piums. Yes; I have.
Mr. Montacus. Will you exhaust that. What other value have
you in mind to be included in this reservation which should not
receive compensation ?
Mr. Pius. I will be glad to exhaust all I can think of, but I
might subsequently think of some more. Take, first, the unearned
increment in lands, that we have disposed of. *
Mr. Montacur. Yes; 1 do not want to repeat that.
Mr. Piums. Then the rise in the prices of labor and materials can
not affect the value of labor and materials previously furnished at &
lower cost. Let me illustrate: For many years I was accustomed to
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 613
purchasing rails at $22 a ton, subsequently at $28 a ton, and now I
elieve they are quoted around $41 to $45 a ton. That advance in
the price of rails to-day has not increased the value of the public
use of the rails purchased at $22 a ton, and they ought not to have
any value in the structure on the basis of cost to-day; but if they have
to be replaced on the basis of cost to-day, then an additional invest-
ment has gone into that property measured by the difference between
the original cost of the rails replaced and the cost of those going in
to-day, and that must be treated as increased investment.
Mr. Montacue. Would you or would you not favor the actual cost
of rails, no matter what that cost is?
Mr. Piums. Certainly I would, modified, again, however, by the
slement of depreciation, because there must have been applied
sufficient funds to have maintained the integrity of the investment,
and if there has been a lack in that regard, the Supreme Court has
said it is equivalent to a withdrawal of investment. But, provided
there has been due maintenance, then originally, in every event,
whether it be high or low, that must be scataed in the value allotted.
Mr. Montacur. Then you would not pay for an increase in value
but you would pay for a decrease in value ?
Mr. Pius. Certainly.
Mr. Montacust. Have you any other item in your mind?
Mr. Piums. Broadly speaking, the unearned increment in land,
the increased or decreased unit prices of labor and material, I believe,
cover every element that can be urged; but the application of those
principles would develop a large number of specifications which I
shall not attempt to outline. But if those principles are adopted,
the application in every event can easily be made.
Mr. Montacusr. You think they would cover all the details?
Mr. Puums. I think they would.
Mr. Montaaus. Or subdivisions ?
Mr. Prums. Yes.
Mr. Rayspurn. Mr. Plumb, let me ask you this question: Suppose
railroad either under a grant given to a railroad or otherwise had
bought land at 80 cents an acre to build a railroad upon it, there is
nothing to prevent them boring a well and striking oil. What is
roing to become of that oil well ?
- Mr. Prums. That was decided, Congressman, in the Santa Fe
tight-of-way oil case by the Supreme Court, where they held that
‘under the charter of the Santa Fe Railway Co. it acquired these lands
only for transportation purposes, and it did not acquire the oil under-
‘neath, and the owner of the land from whom the right of way had
‘been acquired recovered from the Santa Fe Right of Way Oil Co. the
value of the oils which it produced, it having obtained the right to
drill for oil from the Santa Fe Railway Co.
Mr. Raysurn. But suppose there was nothing at all in the charter
that might preclude a thing like that?
Mr. Piums. Suppose there was nothing in the charter ?
Mr. Raypurn. Yes. |
Mr. Prump. If the charter is silent, then no grant passes, because
no corporation gets anything by the silence of its grant. It gets only
that which is expressed.
i
~
614 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Biepsor. Mr. Chairman, I would like to suggest that the
gentleman be asked where that case is, which resulted in any such
conclusion of law as that stated.
Mr. Pius. I will be glad to furnish that. |
The CHAIRMAN. Please insert that in your hearings.
Mr. Pitums. Yes. ,
Mr. Raysurn. I had in mind a situation in Texas right now with
reference to school lands, and other grants that had been made by
the State, and I do not think the Supreme Court of Texas has held
that.
Mr. Piums. I do not think the Supreme Court of Texas has either,
but I do not believe the question has been presented to the Supreme
Court of Texas?
Mr. Montague. I did not catch that.
Mr. Piums. I say, I do not think the question has been presented
to the Supreme Court of Texas.
Mr. Raypurn. The question of the school lands has been presented
to the Supreme Court of Texas, and my opinion is that they have held
just exactly the opposite.
Mr. Prums. I should think they would in the question of school
lands, because there /
Mr. RayBurn (interposing). What about this Santa Fe case you
are talking about now.
Mr. Ptums. As I remember that case, the Santa Fe, I think, was
running through Oklahoma, and leased to the Santa Fe Right of Way
Oil Co., or some such name as that, the right to drill for oil within the
right of way of the Santa Fe Railway Co. It proceeded to drill for
oil and found oil, and the owners of the adjoining lands, from whom
the Santa Fe had obtained its right of way, brought suit to recover
the value of the oils so taken from the Santa Fe Right of Way Co., by
its lessee, and recovered on the ground that the title of the Santa Fe
was not broad enough to give it the right to take oil from land which
it had acquired for right-of-way purposes. +,
Mr. Rayspurn. What about the land that they were granted and
that they are not using for right-of-way purposes ?
Mr. Prums. That is a different question entirely.
Mr. Raysurn. Has that question been finally determined ?
Mr. Piums. It has not. Now, Congressmen, I want to make this
suggestion to you, because it is a suggestion that has not yet been
presented to a court, and lam going to take the Southern Pacific Rail-
way Co. as an example. The Southern Pacific Railway Co. is incor
porated under the laws of Kentucky. It owns a few square feet of
property in Kentucky, but no railways there. Under its charter,
and under the constitution of Kentucky, it may not own any land
except for railway purposes, yet it has received grants of vast mil-
lions of acres from the United States. and from States in the south-
western territory, not for railroad purposes, but areas of land to aid
it in the construction of railways, and those lands it holds as a private |
owner would hold them, although by its charter it is specially pro-
hibited from any such holding; but the capacity ofthat railroad com-
any to receive such a grant has never been tested and has never
een urged in any of the fights concerning its title to southwestern
lands, but there is no reason why any State official or any Federal
official, being interested in the subject on behalf of a’State, or the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 615
Jnited States, should not urge that limitation, and there is a question
‘hat has not been passed upon.
_ Mr. Raygurn. Your belief then is that if the grant is silent on this
yomt, or says nothing about it, that when a right of way is estab-
ished the right of the transportation company goes only to its use
or transportation.
"Mr. Prums. I believe so. The Supreme Court said that in Blair v,
The City of Chicago, repeating a dozen former decisions running
ack to the Dartmouth College case.
Mr. Monracor, I imagine you base that upon the general principle
hat when property is acquired by Government authorization, by
‘urchase or condemnation, for a given easement, any use or disposi-
ion of that property other than to perfect or to carry out that ease-
jent is not within the original grant?
_ Mr. Proms. Exactly. Now, in the Blair case, I wish I could quote
ne language of the court, I can come pretty nearly doing it—there is
osuch thing as a silent grant. If a charter be silent about a power,
hat power does not exist.
Mr. Raysurn. I did not say anything about a silent erant; I said,
If it were silent on the point.”
| Mr. Prums. Yes; but that is the very point. If something is
aimed under a grant, and in that grant there is silence as to that
aim, then that claim does not exist.
| Mr. Raysurn. Of course as a general proposition that is true.
The Cuarrman. You may proceed, Mr. Plumb.
‘Mr. Pius. In section 5, article 1, page 5, we authorize the ap:
raisement board to agree as to the amount of compensation to be
aid, “provided, that in such agreed compensation no amount shall
e included as compensation for the values not included in the
‘ants made in the charters of such corporate owners or the erants
“rights and privileges made to such individual owners.”
Then we provided that in the event the appraisement board fails
y a majority to agree—with itself; that is, not with the corporate
Wner—then the chairman shall fix the amount, and such finding by
le majority or its chairman shall be final and conclusive, and
nding, on all parties, subject, however, to the right of judicial review
wreinafter provided for.
Now, of course, in case there should be an agreement between the
praisement board and the corporate or individual owner, there
‘uld be no appeal and no judicial review. So that in the case of
‘ich agreement we direct the board not to include the values of any-
(ing not granted, just as we do in the other, but we have no right
/ review if they make an agreement. We are bound by it subject
that direction. :
| Mr. Monracun. Suppose the amount found under such an agree-
fent is so flagrantly unjust to either party, no matter if one is satis-
jd with it, should not the public have some right or something to say
sout it?
‘Mr. Prums. If it was unjust to the corporate owner and he is
‘usfied with it, the public could not complain. If it was so fla-
‘antly unjust to the public and the owner is satisfied with it, that
‘ttainly involves such a degree of fraud as would vitiate any agree-
yent.
616 RETURN OF THE RAILROADS TO P&LVATE OWNERSHIP.
Mr. Monracur. In other words, the mistake must be so manifestly
gross as to imply fraud ?.
Mr. Ptums. Yes. Of course, any such agreement may be cor.
rected for mistake or for fraud.
Mr. Monracusr. What I had in mind was this, and of course, it is :
very extreme case, that there might be collusion between the parties
Mr. Piums. That certainly would destroy the efficacy of the agree
ment.
Mr. Monracue. If you can establish it ?
Mr. Prums. If you can establish it, and in such matters wher
we have the entire Interstate Commerce Commission and three mer
selected in the method we suggest, I can not imagine how we could bi
better protected against collusion or fraud; and i there were collusior
or fraud with such men, the purchase price of such collusion or frau¢
would be so enormous that we could not fail to establish it.
Mr. Sweer. Going back to the question we had up a moment ago
Mr. Monracur. If you will pardon me, Judge Sweet, and alloy
me to continue a moment. . In the event of the failure of the men t
agree among themselves, the chairman of the board fixes the amount
Mr. PLums. Yes.
Mr. Montracgus. Who would be that chairman ?
Mr. PLums. The board elects its own chairman for such term as 1
may prescribe.
Mr. Monracur. So it might possibly be that this one man woul
determine that ?
Mr. Pump. But then there is a right of appeal if he determines if
Mr. Monracue. I understand that.
Mr. Piums. He can not determine it on agreement.
Mr. Monracur. I am not speaking of the justice or the injustic
of the finding, but it is possible that this one appraiser, together wit!
the corporate owner, could determine the value of the roperty ?
Mr. Prums. Yes; and if he did determine it arigeiable one-half 0
the board has been there to scrutinize his dealings and to disseu
from such determination.
Mr. Montacur. They have no right of review, though, have they
Mr. Piums. Perhaps we ought to give them the right of review.
Mr. Montacur. There is no right of appeal in that case unles
you can come in and show fraud, or something of that sort.
Mr. Pius. If it were deemed advisable, I doynot see why in th
case of a chairman’s decision, there should not be the right of ay ce
on the part of the board. It seems to me that might be justifiable
Mr. Montacur. I beg your pardon, Judge Sweet, I just wanted t
follow that particular line.
Mr. Sweet. In Iowa, in many instances, railroads have acquire
strips of land upon which they operate their roads.
Mr. PLums. Yes.
Mr. Sweet. And they have acquired them by warranty dee
without any restrictions whatever. :
Mr. Puums. As between the owner and the railroad company!
Mr. Swert. Yes; as between the owner and the railroad com
paany. Now, by what method would you determine the value ¢
that property? Would it be the amount that was paid by the rat
way company ? ‘
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 617
- Mr. Prums. The actual amount paid by the railway company
vith its costs of acquisition, for those are. all expenditures—I am
‘ssuming honestly and prudently made, for the purpose of construct-
ag this highway. Now, by such a deed, the owner parts with his
ight of reversion to the corporation and under its charter it has been
uthorized to acquire that right of reversion, but that right of
eversion is of no more value in the hands of the railroad company
han it would be in the hands of the adjoining property owner. It
ras merely to facilitate the acquisition of property for this public
ervice that the corporation was authorized to acquire the entire
itle from the private owner, but when acquired, it became subject
9 the public easement in exactly the same manner as property
Basirod by condemnation.
' (The committee thereupon took a recess until 2 o’clock p. m.)
AFTERNOON SESSION.
, At the expiration of the recess the committee resumed its session
| The CuarrmMan. Mr. Plumb, you may proceed.
TATEMENT OF MR, GLENN E. PLUMB, GENERAL COUNSEL
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA,
WASHINGTON, D. C.—Resumed.
| Mr. Pitums. Mr. Chairman and gentlemen of the committee, sec-
‘on 6, Article I, page 6
' Mr. Rayspurn (interposing). Mr. Chairman, do I understand that
will be the policy to let Mr. Plumb go along through the bill and
en ask questions, or to ask questions with regard to the sections ?
The Cuareoan. I think it would be well to permit Mr. Plumb to
) on and explain the bill and then for the members to call attention
) anything which they consider essential.
Mr. Rayzurn. You mean when he gets through?
_ Mr. Cuarrman. Yes, sir.
Mr. Piums. I might suggest, if it is agreeable to the committee,
iat I believe we would save a lot of time in going back and picking
» points if as we took up each paragraph members who wish to
terrogate as to the paragraph would do so; we would get a more
msecutive thought, perhaps, and a little more rapid action.
Mr. Raysurn. That never saves time.
Mr. Pius. Very well; whatever course the committee prefers.
| Section 6 provides that if the owner, corporate or individual, does
>t accept te decision of the appraisement board, it may within 60
tys appeal from the whole or any part of the decision to the Court
' Appeals of the District of Columbia, and if it appeals from a part
) the decision may file a short record and provides that the appraise-
ent board, if it does not agree as to the short record, may file any
\lditional record it desires, and provides for the expedition of the
peal, that it shall have preference over all other cases pending,
-Cept criminal cases and cases involving personal liberty. There 1s
ike provision for appeal of both parties or either party from the
cision of the Court of Appeals to the Supreme Court of the United
ates, again providing that the appeal may be from the whole or
ly part of the decision.
618 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Following that lines 18 and 19, page 8. provide that it shall be law.
ful for the President of the United States to remove any member of
the appraisement board for cause. Then the appointing of officials,
clerks, messengers, and valuers of the appraisement board with then
compensation to be fixed by the chairman, with the approval of the
Secretary of the Treasury.
Section 7, page 9, provides for the giving of notice of any investiga;
tion to the owner, such notice to provide for the information whieh
the appraisement board desires shall be furnished it, provision foi
the inspection of the property, books, documents, and records. |
Section 8 provides for holding inquiries, summoning witnesses, an¢
punishment of a witness who without reasonable excuse fails 08
refuses to attend or produce the required documents, with a furthei
provision for a subsequent failure without reasonable excuse 01
refusal to comply with the provisions of such order, upon like con:
viction, such person shall be held in contempt and imprisoned unti
he purges himself of the contempt by obeying the order, and tha:
the notices of inquiry may be given and published in accordanet
with such general or special directions as the chairman may give.
Now, beginning at page 10, line 21, the last part of the paragraph
is an important provision which I will read:
That the appraisement board may require a separate assessment of any element u
the determination of the amount of compensation to be paid to the owners wher
there is lack of record evidence as to the actual existing investment. In suc
separate assessment the appraisement board shall cause estimates to be made of th
actual existing investment by comparison of the cost of reproduction new of th
.
properties under investigation with the cost of reproduction less depreciation ani
the estimated original costs thereof to date. This, with the intent to ascertain hot
much the owners have actually contributed in money or its equivalent to the publi
service, subject, however, to the legal limitations imposed by law upon the rights
powers, authorities, interests, and privileges accorded in and acquired under th
charters of the corporation owners and the grants to individual owners.
Section 8 provides for the payment of any capital sum arrived a
either under agreement or by award by the appraisement board or}
final judicial review of such award, or for new extensions and capita
improvements directed to be made by such appraisement board, shal
be discharged in whole or in part by cash payments, or, if the Seere
tary of the Treasury so directs and said owners shall so agree, by th
issuance to such owners of bonds as hereinafter provided of a pa
value not exceeding in amount the total amount of such agreemen
awarded by the appraisement board or by judicial determination.
Section 9 provides for the issuance of bonds in the same languag
as used in the Federal bond issue acts. |
Paragraph 2 of section 9 following line 7 provides for the creati0
in the Treasury of a cumulative sinking fund for the retirement (
all bonds issued and outstanding under this act. Said fund and a
additions thereto are hereby appropriated for the payment of sue
bonds at maturity or for the redemption or purchase thereof befor
maturity by the Secretary of the Treasury at such prices and upe
such terms and conditions as may be prescribed in said bond
Said sinking fund shall exist until all such bonds are retired.
The next paragraph, line 16, provides:
There is hereby appropriated out of the operating revenues of th
National Railways Operation Corporation, to be paid to the Treasur
of the United States, the sums provided for in paragraph (c), sectic
2, Article III of this act, or out of any money in the Treasut
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 619
rot otherwise appropriated, an amount equal to 1 percent per
mnum upon the aggregate amount of bonds outstanding on July 1
ech year: Provided, That the amount of the annual payment into
juch sinking fund shall in no year be diminished because of the retire-
nent of bonds previously outstanding, and then for a report from the
Secretary of the Treasury to Congress at the beginning of each
‘egular session of the action taken by him.
“The CHarrRMAN. Then, 1 per cent will be constant ? .
Mr. Prums. It would be increased if there were issues of new bonds,
yut it would not be diminished by the retirement of outstanding
yonds. When you pass over the peak and begin to decline it would
ihen be a constant.
Section 10 provides that the appraisement board may approve and
ihe Federal Government shall build new extensions and capital
mprovements, including the construction of railroads along such
oute or routes as the National Railways Operating Corporation shall
lesignate and locate, and for the acquisition by contract or con-
lemnation of all real and personal property necessary to carry out
he purposes of this act. Then for the power of condemnation in the
\ppraisement board for the acquisition of properties necessary for
jerminals or for extehsions.
_ On page 14, line 17, are some provisions which we are submitting
or your consideration, not essential to carrying our plan into execu-
ion, but from our experience in the past if it had been done it would
lave been very beneficial to this country, provisions similar to those
mbodied in the Alaskan Railway bill, differing only in language to
juit it to this territory and to the situation, but the provisions are
dentical with those of the Alaskan Railway bill.
That the appraisement board is authorized, with the approval of
ihe President of the United States, to withdraw, locate, and dispose
vf, under such rules and regulations as it may prescribe, such area or
‘wweas of the public domain along the line or lines of proposed new
‘ailroads for town-site purposes as it may from time to time designate.
' Section 10 reserves the granting of terminal and station grounds
ind rights of way for railroads and telegraph and’ telephone lines
hrough the public lands of the United States, and reserves such
ighst of way and all patents for lands thereafter taken up or entered
‘m, located in the lands of the United States and its possessions, and
here shall be expressed that they are reserved to the United States
or the construction of these facilities; also the appraisement board
May, in such manner as it deems advisable, make reservation of such
azids as are or may be useful for furnishing materials for construction
ind for stations, terminals, docks, and for such other purposes in
onnection with the construction and operation of such railroad lines
1S it may deem necessary and desirable.
That provision is similar to the provision found in many railroad
tharters where they are authorized to appropriate timber and
naterials on adjoining lands for their purposes. Of course, this is a
‘eservation out of the public lands.
Now comes a paragraph of very much importance, line 17, page 15,
vhich provides:
‘That it is hereby declared that the extension of railroad lines in new
erritory shall be not only by the expenditure of capital funds by the
JInited States but also by the exercise of the power of taxation
620 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
imposed by local authority upon the territory benefited, whereby
such territory shall contribute its portion of the cost of the extensions
approximately commensurate with the increase in value which the
land within that territory may realize by reason of the building of
such extension.
That if a certain region or locality desires an extension of railway
facilities and organizes under local or regional special assessment
laws, providing by local taxation for the cost of construction of the
lines desired, the obligation on the part of the United States to build
such extension shall be deemed by the appraisement board to be
imperative.
That if a certain region or locality will organize itself under regional
or local special-assessment laws, and, having so organized, will assume
that part of the cost of the construction and equipment of the new
extension which may be apportioned to it by the appraisement board,
and will provide such part of the whole cost as may be allotted to it
by the appraisement board, then the building of such extension by
the United States at the specified sharing of costs shall be deemed by
the appraisement board to be imperative.
That whenever the appraisement board shall deem it requisite to
the public welfare to build an extension through territory which would
receive no benefit therefrom, then, and in that case, the total cost of
construction shall fall upon the public for whose benefit the extension
is made.
That it is declared that any expenditure made for extension out of
funds provided by taxation may not be capitalized, nor shall any pay-
ments for extension or improvements made out of operating revenues
be capitalized.
This series of provisions is intended to provide the means whereby
any territory desiring facilities for transportation may compel the
construction of those facilities by furnishing the cost of construction.
I have had that figured out to see what it means. If you take a strip
of virgin agricultural country 10 miles wide and project a railroad
through the middle of it so that you have 5 miles of country on each
side, and then an assessment of 25 cents per acre per year for 20 years.
making a total assessment of $5 per acre to be spread over 20 years on
that 10-mile strip you will have enough money to build and equip any
line of road that has been constructed through agricultural country
in this country. That will produce $36,000 per mile. There are)
some sections of the country where the cost of construction and equip=:
ment might exceed that, but that would not be agricultural country, |
So the cost of such an improvement levied on the real estate bene=|
fited would be realized by the owners of that railroad doubtless within |
three years of the construction of the railroad and perhaps before that-}
I have had experience with western land in northwestern Iowa and)
have found that the increased valuation always followed the projection
of a new line of railway and that the increase has always exceeded the|
value within 20 years and usually has been realized within one year)
after the construction of a railroad within 5 miles of the territory.}
The benefit of such a construction is so plain and so fully realized by}
the owners of the property that they would anxiously avail them-|
selves of any local laws through which State assessments could he}
levied so that they might command the building of such extensions. |
The right to do that is unquestioned. The power of localities t0|
RETURN UF THE RATLROADS TO PRIVATE OWNERSHIP. 621
'ssess themselves to aid in the construction of railroads under State
tws when constructed by private corporations has been upheld in
very instance where there was no constitutional prohibition, although
‘) was contested in the early cases because it was a grant to a private
orporation, but in the case of Olcott against the Supervisors, which
cited earlier, they said certainly the power of taxation may be exer-
ised by a State to build this road, and although it is built by a
(rivate corporation it is just as much for the public benefit as though
were actually built by the State, and the right to taxation for such
mnstruction was upheld on the ground that this was merely a dele-
‘ated function to a private corporation to do that which really be-
»mged to the State. I doubt if anyone will dispute the right of a local
-writory under State laws to provide taxes for the construction of
jaese highways.
| Mr. Dentson. What right has Congress to do that ?
| Mr. Piums. We do not give the right to Congress to do it; we
terely provide that if this locality acting under local laws does
ssess itself to provide the means for construction, then the United
tates must build the line.
‘Mr. Denison. What right has Congress to put that burden upon
‘ie people of the United States ?
| Mr. Prums. The Congress does not put that burden on the people;
1e people assume it.
Mr. Denison. What people?
| Mr. Prums. The people in the territory that demand that the
,mited States should build this extension.
| Mr. Denison. They cause the expense and do not pay all the
|
|
|
| ae
| . Prums. They may pay all if they demand the road, but if
ey should not pay all they must submit their needs to the board
/’ appraisement to apportion the public and private benefits and
| they then accept the apportionment so made thev can compel the
overnment to build the road on paying the apportionment allotted
) them, but the Government can not compel them to pay the whole
‘any part of such extension.
| Mr. Denison. What right have we to compel the Government to
|) that for local purposes by taxation ?
| Mr, Prums. If they pay it and the Government bears no part of the
jirden there is no reason why there should not be in a locality ——
Mr. Denison (interposing). That is not what I am getting at.
‘appose the Government does pay a portion of it?
| Mr. Piums. Yes, sir.
| - Ba BON. How can the local people compel the Government
) do that?
| Mr. Prums. We provide here that if a locality accepts the allot-
jent assigned to it by the governmental agent, the appraisement
ard, then it shall be imperative on the Government to build that
) nstruction. |
| Mr. Denison. That is just what I want to get at. Where is the
| ustitutional authority for that?
‘Mr. Puums. The Government needs no constitutional authority
build tines wherever it chooses. It merely makes an agreement
| this act with the locality that it will build if they pay their pro-
tion. We can not assume that the Government is going to break
|
Sl
622 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
its promise and that localities will have to compel the Government
to keep its agreement.
Mr. Denison. I only intended to interrupt you temporarily. |]
will observe the rule and come back to that matter.
Mr. Prums. The first paragraph at the top of page 17 provides:
That in acquiring the railway properties of the United States and its possession;
the Federal Government shall acquire complete ownership in these properties ant
shall finance their acquisition, as herein provided, by capital expenditures covering
all construction and equipment, and including in such financing the requisite amoun
of capital required as working capital as the same may from time to time be deter
mined by the appraisement board.
I think that there should be an interlineation as I read it now
something that escaped me in the drawing of the bill. |
The Federal Government shall acquire complete ownership ir
these properties and shall finance their acquisition, except as sucl
financing is provided for by local assessment in the preceding paragraph
That is the idea, it may not be the proper words.
Section 13 provides for reports annually to the President or eithe
House of Congress of all the doings of the appraisement board, am
that the reports to the President shall be transmitted to Congress.
Now comes a provision which will answer in a way the questiot
asked this morning from my left here as to what would occur if th
members of the appraisement board by collusion or fraud or for any
consideration gave too great an award. The next paragraph pro
vides:
That any Government employee or official, any member of the appraisement boar
or employees of such board, any director, official, employee, or classified employe
of the corporation who shall receive any consideration or benefit, either directly ¢
indirectly, in excess of his wages or remuneration authorized by this act out of th
operation of said railways or for any railway undertaking or by any form of inducemen
that could influence official action, shall upon conviction thereof be subject to
penalty of ten times the value of the consideration so received and to imprisonmen
to a term of 1 to 20 years, the extent of the latter penalty to be imposed by the jury
This concludes article 1, which provides for the acquisition of th
property, the issuance of bonds in payment therefor, for the extension
and their payment, and the provision for working capital.
Article 2 provides for the creation of this corporation, defines it
powers and the limitations of its powers and prescribes the orgam
zation. Section 1 is as follows:
"That the National Railways Operating Corporation (referred to herein as the co
poration) is hereby created and constituted as a body corporate and politic in dee
action, and name. The board of directors, official employees, and classified on
ployees, hereinafter described, shall be and constitute said corporation. The purpos
of said corporation shall be for public service and not for private profit, and for leasiny
maintaining, and operating for public use as a single system all of the railway lin
and transportation property of the United States and its possessions. :
That the corporation shall be created for the term of 100 years.
That said corporation may exercise all of the powers hereinafter conferred, ma
own and hold all properties, rights, and privileges permitted by this charter, anc
its name may sue and be sued.
That the affairs of said corporation shall be administered by a board of directors:
15 members, which shall be selected in the following manner: Five of the directo
shall be elected by the classified employees of the railway lines and properties of t
United States and its possessions below the grade of appointed officials; five
directors shall be elected by the official employees of said lines and properties; 2
five, of whom one shall be designated as chairman, shall be appointed by the Pre
dent of the United States, by and with the advice and consent of the Senate; 0
more than three of said appointees shall belong to one political party.
oe
WH 2.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 623
. That the members of each group of five directors shall be elected and appointed ,
spectively, for terms of 2, 4, 6, 8, and 10 years each, their terms thereafter overlapping
fiior 10 yearseach. The elected directors shall be subject to recall by their electors
ad the appointed directors to removal by the President for inability or misconduct.
‘I think that, perhaps, the words “inability or misconduct’”’ should
changed to the words ‘‘for cause,” as provided in the case of the
revious board. BI
_ Section 2 provides:
That the board of directors shall have power to create all of the offices in said cor-
ation by name or classification and to appoint all officials from chief Moai
wn to the point where employment begins by classification or to authorize heads
_ departments created by said board of directors to appoint their subordinates down
the point where employment begins by classification-and to prescribe the condi-
ms of employment and classification of all other employees.
‘That notwithstanding anything in this act, any society of workers, all or som
whose members are wholly or partly employees on the railway lines or properties |
the Federal Government, or in any other manner employed by the corporation, |
otherwise under this act, may be registered or constitute themselves or be a trade |
ion and may do anything individually or in combination which the members of a
ade union may lawfully do: Provided further, That notwithstanding any act, order,
regulation to the contrary, it shall be lawful for any person employed under this
to participate in any civil or political action in like manner as if said person were
it employed by said corporation: Provided further, That no person shall suffer dis-
(ssal or any deprivation of any kind as a consequence of any political or industrial
tion not directly forbidden by the terms of his employment.
Section 3 provides for conferring power upon the board of directors
divide into operating districts the territory of the United States
id its possessions and to constitute in each district a district railway
‘uncil of members to be elected in the following manner, as
‘ovided in the bill:
One-third of the members of the council shall be elected by the classified employees
thin their district below the grade of official employee, one-third of the council shall
elected by the official employees within said district, and one-third, of whom one
ull be designated as chairman, shall be appointed by the board of directors.
That the members of each group of members of district railway councils shall be
ected or appointed, respectively, for terms of one, two, three, four, and five years
| *h, and thereafter for five years each, their terms overlapping. The elected mem-/
|S shall be subject to recall by their electors and the appointed members to removal/
the board of directors for inability or misconduct.
Again, I would suggest the words “for cause” in lieu of the words
|nability or misconduct.”
The section further provides:
| (hat the board of directors may delegate to any district railway council such of
‘ir powers under this act as may conveniently be exercised locally, and the district
way council shall, upon such delegation, have and exercise within its district al
ihe powers and duties of the board of directors as may be delegated to it.
| Then, for compensation there is a blank provision.
|L want to say that we have inserted this provision in this manner
cause we feel that there should be great flexibility in the organiza-
‘nm. It would be infinitely harder to break up 2,000 privately
ned corporations into a very few operating districts than it would
| to break up 20 such corporations; and in the development of this
uation it might be very convenient to have more operating dis-
*ts or district councils at the beginning until the coordination had
*m completed than would be needed in the subsequent develop-
‘nt; so it seemed wiser to us not to provide in the act itself for any
‘nite number of districts or any permanent district organization,
t to leave that to the discretion of this board of directors which
152894—19—yor 1——40
.
(24 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
represents all three interests, so that their system might be flexible
and accommodate itself to the development of the times. |
Section 4 of Article II provides:
That the corporation is hereby empowered, authorized, and directed, for the period
of its existence as herein set forth, to lease, operate, and maintain as a single system
all of the railway lines and transportation properties of the United States and it
possessions, and to do and perform every act, thing, or function which the Govern
ment of the United States could do or perform were it exercising the function 0
operating said railways, subject, however, to the limitations imposed by this act.
That the directors, officers, and employees of the corporation, concerning any under.
taking of which or of the plant whereof possession is retained or taken by the appraise
ment board, shall administer such undertaking—
(1) As to rates, fares, tolls, dues, and charges to be charged under the direction 0
the Interstate Commerce Commission;
(2) As to the salaries, wages, and remuneration and conditions of employment o
persons employed on or in connection with any undertaking of which possession ha
been taken;
(3) As to the working or discontinuance of the working of the undertaking, or an
part thereof, including directions as to the keeping open of any station;
(4) For securing that the permanent rolling stock, plant, appliances, or equipment
whether fixed or moving, are satisfactory in type or design;
(5) As to the carrying out of alterations, improvements, and additions for whicl
the Appraisement Board shall provide as necessary for the public safety, or for th
more efficient and economic working of the undertaking;
(6) For the securing of cooperation between undertakings, and for securing th
common use of all facilities, terminals, rolling stock, and equipment, whether fixe
or movable;
(7) For securing that manufacturing and repairing facilities and auxiliary service
shall be used, and the purpose and distribution of stores shall be conducted in suc
manner as may be most conducive to economy and efficiency;
(8) For working the whole or any part of any railway, light railway, or less tha
standard gauge railway, canal, waterway, or inland navigation, harbor or dock unde
taking, the acquisition of which is, by the board of directors, deemed expedier
for improving facilities for locomotion and transport, and approved and provided {
by the appraisement board.
(9) For establishment, maintenance, and working of transport service by land an
water.
(10) For constructing and erecting buildings, plant, machinery, railways, ligl
railways or less than standard gauge railways, hulks, ships, and other fixed or movab.
appliances or works of any description, deemed necessary by the board of director
and approved or provided for by the appraisement board. :
(11) For employing agents, including local authorities, for any purpose it mé
think necessary to carry out its duties under this act, on such terms as may be mutual
agreed, and with authority to cooperate with and to coordinate the services betwer
popes operated by said corporation and similar properties owned or operated }
tates or subdivision thereof, on such terms as may be mutually agreed.
You will find in many States that cities own the terminal facilitie
docks, etc., and we want authority to cooperate with those loe
authorities in coordinating their services with ours.
This section further provides:
That when the board of directors delegates to any local authority or State or su
division thereof, and within the jurisdiction’ thereof, any of its powers under t]
section, it shall be lawful for such local authority or State or subdivision thereof
exercise any or all of the powers of the board of directors so delegated to it.
Section 5 provides:
That the corporation is hereby empowered and authorized to collect from ¢
signors and deliver to consignees at their business or other addresses within the Unr
States and its possessions all goods carried on the transportation lines of the Fed
Government, and for this purpose it shall be lawful for the board of directors, or
State or subdivision thereof, or local authority acting on its behalf, to establish st¢
and depots and to vameeh vehicles, and to use all other necessary Means for the
lection and delivery of such goods, and for this purpose it shall be the duty of the ¢
RETURN OF THE RAILROADS ‘10 PRIVATE OWNERSHIP. 625
_pration to provide such facilities for the conveyance of goods as the board of directors:
ay determine to be necessary to enable the corporation to execute the authority
| ae on it by this section.
| That the board of directors may, from time to time, make such regulations as it deems:
\2cessary for any of the following purposes:
te the management of railways and railway undertakings under this act;
| (b) The functions, duties, and power of the district railway councils, and other
dies of persons acting in the management and working of railways and undertakings
'ader this act;
| (¢)_The form of accounts to be kept and the balance sheets to be prepared in respect
' railways and undertakings under this act, subject to the regulations of the Inter-
/ ate Commerce Commission, as provided in the act to regulate interstate commerce .
(d) Generally any other purpose for which, in the opinion of the board of directors,
gulations are contemplated or required.
_ Section 6 provides that the corporation shall be subject to the full
gulatory powers of the Federal Government as expressed through
ie Interstate Commerce Act.
| I think, perhaps, that we might also add there, “and future amend-
ents thereof,” to show that we do not intend to limit it to the
/Ywers expressed in the act as it is now written. We want to leave
| @ Government as free in its regulatory powers as it ever has been or
| er can be.
| Section 6 further provides:
| Phat the corporation shall make to the President of the United States annually,
| d at such other periods as may be required by the President or by either House
‘Congress, full and complete reports of all its acts and doings, and of all moneys
|elved and expended in the operation of the railway lines and properties of the
) ated States, and its possessions, including costs upon operation and fixed charges
|on the capital employed, which shall be guaranteed by the Federal Government.
‘it
Article III of the act provides for the execution of a lease between
| e@ United States and the corporation created in Article II. Sec-
)m 1 authorizes the Secretary of the Treasury to execute a lease
| conformity with the terms of this act, and section 2 provides:
| Chat the corporation shall obligate itself in said lease to operate as a single system
|} railway lines and transportation properties of the United States and its posses-
as and to build and operate any extension of such lines or properties as shall be
| vided for by the appraisement board.
| That the corporation shall be required to utilize said railway lines and properties
|1 their equipment and the working capital which shall be put at its command
| such manner as to produce the highest possible efficiency and economy consistent
]
h good service; and that with the working capital and revenues placed in its
} ids the corporation shall be obliged—
a) To pay all expenses for labor and materials incidental to the proper operation
he railway lines and properties of the United States and its possessions, and the
| Iding and operation of extensions thereof into new territory.
>) To provide such funds for maintenance and renewals of said railway lines
\| properties as shall from time to time be directed by the Interstate Commerce
amission.
|2) To pay out of the operating income semiannually to the Treasurer of the United
es the amount found to be due under the provision for sinking fund and the pro-
} Henate amount due on fixed charges upon the capital employed. The fund thus
lin shall be held by the Treasurer of the United States for disbursement of interest
| ges out of the fixed fund as those charges mature, and he shall disburse from the
| dng fund when in his judgment payments for retirement of bonds shall be made.
operating revenues received by the corporation in any fiscal year in excess of the
| unt required to meet the expenditures to be made under paragraph (a) above and
wovide payments with the funds provided in paragraphs (b) and (c) above are
by declared to be “‘net earnings.’’ The corporation shall retain the amounts
|sctibed to be expended for maintenance and renewals and shall at the close of
{1 fiscal year pay into the Treasury of the United States one-half of the net earnings
j‘ued. ‘The remaining one-half of the net earnings shall be retained by the cor-
626 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
poration as its corporate funds. The fund from net earnings so paid into the Treasury
of the United States shall be held by the Treasurer for disbursement only upon orde1
of the appraisement board (1) to pay for extensions and betterments, for which suck
fund shall be used before capital funds shall become available therefor, and (2) accu
mulation thereof in excess of $500,000,000 shall be automatically transferred. to the
sinking fund.
That the net earnings retained by the corporation as its corporate funds are hereby
declared to be a trust fund, to be declared as a dividend upon the amounts paid
the labor employed by the corporation, every classified employee receiving thi
proportion of the dividend accruing to the classified employee which his annual com
pensation bears to the total compensation of all classified employees, and ever}
official employee receiving that proportion of the dividend accruing to official em
ployees which his annual compensation bears to the total compensation of all officia
employees, but every official employee receiving twice the rate of dividend that i
given to the classified employee.
Section 3 provides:
That whenever the total amount of the net earnings paid into the Treasury of th
United States shall exceed 5 per cent of the gross operating revenue, the Inter
state Commerce Commission shall thereupon adjust the scale of rates in such manne
as to absorb the sum_so paid as accruing to the Treasury, thereby producing a reduc
tion in rates equivalent to said sum, these rates to be the minimum rates to be charge
by the corporation until the next succeeding revision thereof.
Section 4 provides:
That the board of directors shall create, by negotiation with the employees throug!
their duly elected and authorized representatives, not less than three boards of adjust
ment, to consist of not less than eight members each, one-half of whom shall be selecte
by and from the classified employees coming within the jurisdiction of the board
severally, and the other half of whom shall be selected by and from the official em
ployees coming within the jurisdiction of such boards severally, that said boards shal
be classified in their jurisdiction over bodies of employees in such manner as th
board of directors, by negotiation with the employees as above provided, may dete
mine; that said boards shall hear and determine all controversies growing out of th
interpretation of established wage rates and wage awards and working rules, disciphn
cases, and all other disputes arising between the official employees and the classifie
employees when properly submitted. The decisions of such board shall be fina!
except that where no majority decision can be obtained an appeal shall lie to th
board of directors.
That the board of directors shall create, by negotiation with the employees throug
their duly elected and authorized representatives, a central board of wages and wor
ing conditions, to be composed of one-half as selected by and from the classified em
ployees and one-half as selected by and from the official employees. It shall be th
duty of said board to hear, investigate, and determine matters presented by officis
and classified employees respecting the broad questions of salaries, wages, hours, ap
other conditions of employment throughout the unified railway system. The decisior
of said board shall be final, except that where no majority decision can be obtaie
an appeal shall lie to the board of directors.
That nothing in this section shall be deemed to interfere with the rght of any perse
employed by the corporation subject to his contractual obligations to dispose of bh
eabor as he wills.
Section 5 provides: |
That the lease to the corporation shall be terminated by act of Congress whenev'
it shall appear upon evidence reviewable in the Federal courts that the for it
provisions to be embodied therein shall not have been well and faithfully carrie
Section 6 provides:
That all acts and parts of acts in conflict with the provisions of this act are herel
repealed.
Section 7 provides that this act shall become effective on and ait
a date to be supplied.
Now, gentlemen, there is the bill embodying our plan. What
have tried to do was to lay before you machinery for carrying t
general principles which we advocate into effect. We know thi
/
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 627
10 one could present a bill that would be perfect either in design,
dhraseology, or plan. If anyone could do that, we could dispense
with Congress. e would not need its aid. We do not for a moment
think that any such intelligence resides in the body of laboring men
jr in their counsel. We have honestly tried to present to you a
niece of machinery that we believe will be effective in putting into
oractice the principles that we advocate. We are not bound to the
‘specific terms of this bill, to its phraseology, or to any of the specific
rovisions, but we are bound to the principles which we advocate—
hat there shall be Government ownership of railroads and democracy
‘n the control of that industry. We will welcome any suggestions
rom any source that will improve the vehicle for carrying those
winciples into effect. We confidently expect that this committee
md Congress are going to study this proposition, not as advocates
© as opponents, but to get to the reason of the thing. If there is
rror in it, point it out, and if it can be made more efficacious show
ishow. {tis in that spirit that this bill is presented.
Now, that ends our explanation of the bill and the contentions
\1pon which it is founded, and if there are to be any interrogations at
/his point on the bill I would welcome them, because the next part
of my argument relates to an analysis of the other plans, and I
elieve that we could analyze this plan, perhaps, more definitely if
rou were to seek such information as you desire at this time—that
3, if that is agreeable to the committee.
| Mr. Sus. Mr. Chairman, I rather think that suggestion is a sood
jme. I think it will be better to propound such interrogatories as
ve have now while we have this matter in our minds.
| The Cuarrman. I think that Judge Sims should be extended the
ourtesy of opening in the interrogatories on the bill that he has
atroduced. i
Mr. Sms. Mr. Chairman, I wish to make a little preliminary state-
dent, as it does not seem that my relation to the bill has been gener-
jlly understood. It was thought last winter, when I had the honor
0 be the chairman of this committee, that this committee would
ake up railroad legislation. The like committee of the Senate did
|0 so, but there were no bills presented during the entire hearings
jefore the Senate committee. Nothing in concrete from was sub-
/aitted, but the discussion was all academic. I stated—not, perhaps,
0 the committee formally, but frequently to gentlemen who were
|epresenting different plans—that I thought bills ought to be intro-
uced so that they could be referred by the Speaker to this com-
jittee. In that way we would have before us in concrete legislative
rm just what those who favored the different plans thought was
‘€cessary in order to carry out their respective plans. I have said
fat to gentlemen who represented the railroad executives. I said
: to gentlemen then, or during the winter, and frequently since that
me, who were representing what is called the Warfield plan. I
judthatin the committee hearings. I said that to Mr. Harry Wheeler,
\7ho represented the plan presented by the Chamber of Commerce
‘f the United States, and also to their attorney, Mr. Smith. I
uid the same thing last winter to Mr. Plumb about the plan which
® presented to the Senate. I have said all the time that I would
‘itroduce at any time, by request, bills that were prepared and
jtven to me for introduction in order that they might be referred
:
|
:
628 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
to the committee, so that the committee would have in concret
form before it the legislative provisions intended to accomplish wha
each plan proposed to accomplish. Mr. Plumb is the only one o
those who accepted my offer, and I introduced the bill in good faitl.
T am not the author of a single line of this bill from beginning t
end. So far as J am concerned, it is my bill in the sense that I intro
uced it and it carries my name, but it is the presentation of the pla,
adopted by what I might call organized labor, and I want to say, can
didly, that I think every plan that has been presented as a plan iii
volves new and revolutionary legislation. The plan of the executive
provides for compulsory Federal incorporation, and nearly all of thex
have provided for compulsory earnings; that is, they provide tha
Congress shall provide by law that the rate-making bodies of th
country shall provide rates that will pay for operating expenses ani
aintenance and for a specified return upon property investment 0
not less than 6 per cent, many of them. This plan is not as manda
tory as to its details of operation, by any means, as some of the othe
plans, taking all of them as new and revolutionary. Certainly Goy
ernment ownership would be revolutionary in the sense it is entirel
different from private ownership, but the arguments pro and con ar
not new. I felt that it was my duty to give as large a number ¢
people in the United States as were embraced in the organized labo
in the country, and especially the railway brotherhoods, who hay
the actual operation of the railroads and always have had, an oppot
tunity to present in legislative form what they thought ought to pb
made law. Now, I have no apologies to make for that, not th
slightest. It may injure the bill by having my name connected wit
it, but so far as I am concerned, as a Member of the House and as
member of this committee, I am absolutely free to reject this pla
entirely or to approve it entirely if I am convinced that it is best fe
the United States, all the people, and not a portion of them, or simpl
the brotherhoods or organized labor; I am just as ready to lay
down and pick up any one of the other plans that have been offere
or any combination of them when it is shown to me that it will b
better for the public interest and for all the people in the United State
taken as a whole.
Now, I wanted to and expected to, as I have in every case, t
critically examine the several plans of ‘‘railway salvation” as the
have heretofore been offered, and therefore I want to ask and wi
ask Mr. Plumb the same questions. I do not mean identical que
tions, but will try to reach the same purpose I have in asking th
questions of everyone else. Mr. Esch’s bill is not revolutionary an
it proceeds along well-known lines, and personally I think it would f
a great benefit were it enacted into law. Now, Mr. Plumb
Mr. Monracur. Mr. Chairman, may I interrupt there. duds
Sims, you made a rather lengthy statement. Are we to understan
by your preliminary statement that you are for or against this bil
Mr. Sms. If after the hearings and after the discussion of all th
bills I think it is better for the public interest, I shall be for it, or
shall be for it with such amendments as may be adopted; but if sm
other plan is offered which I think would be better in the publ
interest, or will serve the public interest better, I would take it up 2
moment.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 629
| Mr. Raypurn. You do not know yet whether you are for this plan
r not.
' Mr. Simms. There is part of this plan I am absolutely for, because
‘art of it I think I understand; and that is just what I have said
‘rivately and publicly, and in public addresses, and that is that I have
‘eached the conclusion where [ think it is absolutely necessary in the
iublic interest for the Government
‘Mr. Monracur. Mr. Chairman
Mr. Sims (interposing). Mr. Rayburn wanted me to state my
osition. That the Government should acquire all fixed property
‘fall the railroads, not movable property or equipment, and pay for
4, and provide such a return to the Government of the United States
s would enable it to float the bonds necessary to acquire it, and put
_ per cent per annum into an amortization sinking fund and con-
inue it until this entire capital charge is absorbed, from and after
thich time there would never be another dollar collected in the
ray of rates to pay returns on the value of the fixed property; but I
ave never gone so far as to take from the present corporations the
peration of the roads or to take and pay for their movable property.
Ve would then have all the benefit of private initiative, competition,
nd private ownership in operation, and there is where the grea
enefit of private ownership, if there is such a benefit, comes from
hat is as far as I have gone, and I am absolutely but not unalterabty
mvinced that that ought to and willcome. I have heard gentlemen
vy that they were unalterably opposed to certain things. I never
iy that, because I want to get all the facts I can before doing so.
| Now that I have finished my statement, I want to ask Mr. Plumb
ls question, because it does not appear in your bill except by im-
lication. Is it the purpose of your plan that when the Government
| Bie the railroad property, your plan applies to both movable
ad immovable property, and that the money paid by the United
tates shall first be applied to discharge all lien incumbrances upon
me opty!
. PLums. No, Mr. Sims; it does not.
| Mr. Sis. Is the Government to take this property over at its value
ss the lien incumbrances on it?
Mr. Prums. No; it is to take the property over at its value. It
ays to the corporation the value so ascertained. Now, the distri-
ition of the assets of the corporation to its various security holders
‘id len holders is purely a matter of contract between the cor-
wration and its creditors, and in the apportionment of the fund
ie Government has nothing to do. It may agree with the corpora-
on, through the board of appraisement, as to what the corporation
tall receive, but it does not participate in the distribution of the
| ‘sets of that corporation.
| Mr. Srus. But the lien exists in favor of the bondholders or the
| borers or whoever else may have a lien, and do you not think your
| ll ought to require or provide that the Government shall have
wer to make application of the purchase money to the extent of
‘moving all liens and incumbrances of every kind, taxes, or other-
se, that may exist as against any particular piece of property
| ken over ?
630 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
‘Mr. Pirums. Those liens are removed by the acquisition of the
property, and instead of them attaching to the property attach tc
the fund which takes the place of the property.
Mr. Siws. But suppose the corporation should not pay—supposs
the officers of the corporation should abscond with the money in thei
pockets and leave these liens outstanding against the property.
Mr. Piums. If the property is acquired es eminent domain, the
moment the fund is created, it takes the place of the property anc
the lien attaches to that fund by action of law.
Mr. Sms. Your proposal, as [ understand it, does not require that
the property shall be taken over exclusively by condemnation, an¢
it may be taken over by agreement or by contract.
Mr. Prums. If it is done by agreement, of course, the lienholder;
then would have to assent to such an agreement because the cor.
poration could not make an agreement that disposed of the lien:
which it had created without the assent of the lienholders.
Mr. Sims. Then in so far as acquiring it by contract or agreement
is concerned, your plan contemplates that encumbrances of all kind;
shall be taken care of.
Mr. PLums. Yes.
Mr. Sms. And the Government protected against the possibility
of having to pay for the property twice or for any portion of it twice
Mr. Piums. Yes.
Mr. Sims. And, of course, taxes are something in which the State:
are very much interested and also the communities Now, Mr.
Plumb, some railroad companies have leased railroads of other con
panies, some of them for 99 years and some of them for 999 years
and have contracted to pay a stipulated return in the way of renta
er annum during the life of this lease Of course, we all know thai
in effect a 999-year lease is a purchase, but it is not legally a purchase
and the purchasing corporation would have to pay ae rental during
that period Now, when the Government acquires the property i
that way, will it in any way be bound to take care of that renta
charge or can it acquire the property and vacate, so far as the Govern
ment is concerned, this contract without incurring hability for com
pensation to the beneficiary of the contract.
Mr. Piums. It can acquire the property without incurring aij
liabilities in excess of those which the owner of the property wa
authorized to make. Now, I think I can illustrate that by om
example very clearly. It has got to be somewhat of a hypothetica
case instead of an actual case, but I will take the Chicago & Alto
in 1898. It had capital liabilities at that time of approximatel
$40,000,000 under the Blackstone régime. The stockholders soli
their stock to a new crowd coming in for a vastly greater sum thal
$40,000,000. Now, they had as against the State of Illinois—th
corporation at that time had the right to exact from the State 0
Illinois in its charges a fair return on $40,000,000, because there wai
$40,000,000 of actual investment. If they sold that right to othen
on the basis of $80,000,000 or $120,000,000, they could not increus
the liability of the State to that corporation. They merely sold thei
private interest at what the buyer thought it was worth, but tha
imposes no liability upon the State. Now, had. they leased thei
corporation to another corporation for a return which would hay
made, we will say, 6 per cent on $120,000,000, they were dealing wit
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 631
a private right which the State had granted to the Chicago & Alton,
‘and by any contracts made between themselves in the transfer of that
private right, they could not extend the right which the State re-
tained in the Chicago & Alton when it created it. Otherwise the
‘purchasing speculator in these privileges could make the public
‘assume as a loss to the public what the seller had retained as a profit
from the purchaser.
Mr. Sims. Let me give you a concrete case now existing. There is
a railroad running from Nashville, Tenn., to Decatur, Ala., called the
Nashville & Decatur Railroad Co. It has been leased by the Louis-
ville & Nashville Railroad Co., as I now recall, for 999 years, or at
least for a long time, and it agreed to pay 6 or 7 per cent, as I under-
stand, on the outstanding stock of that road for all that period of
time. Now, that road may be making more than 7 per cent. Of
course, the Louisville & Nashville Railroad gets more than 7 per cent;
the stockholders of the Nashville & Decatur Railroad get just what-
ever the contract calls for. Now, it may be making less, and if the
Government takes over the Nashville & Decatur Railroad and the
Government pdys for the value of the property under the methods
applied by you to determine that value, the stockholder is getting an
2arning above what the average earning provided under the bill would
oe for the unexpired portion of that lease. Would such a thing as
that lay the Government liable to damages or to pay compensation
by reason of any violation of the contract ?
| . PLums. Let me take that example. Here you have two roads,
/me of which is receiving surplus income at the expense of another
oad which is paying it. If thatis an element of value in the receiving
toad, it is a liability in the value of the paying road. The Govern-
nent takes both roads, because we contemplate taking all of these
voads, and we fix the value of the paying road and the value of the
eceiving road. Now, if the receiving road gets an increment of value
| which it is entitled by reason of its absorption of earnings from the
| aying road then that value is a liability placed upon the paying road
'which depreciates its value, and the balance sheet of the United States
vould be identical. It might shift the amount which the stock-
iolders of the paying road would receive over to the stockholders of
ihe receiving road, because that is a matter of contract between
jmen, but it would in nowise affect the liabilities of the United
States.
_ Mr. Sms. Both of these corporations are solvent, but suppose in the
vinding up of this thing the Louisville & Nashville should prove to
96 insolvent, in whole or in part, then the Nashville & Decatur stook-
jlolders could not recover by reason of their inability to pay, and the
|4ouisville & Nashville has been acquired by the Government, but if
he lease had been allowed to run on they would have received their
/eturns for this period of time?
| Mr. Prump. If the Louisville & Nashville is insolvent, it is unable
| 0 pay, whether the Government takes it or not, and the Government
| aking injects no value into it that the other road could benefit by.
| Mr. Sms. I knew you had studied such things and had worked
‘hem out and I had not, and I wanted to know about that because
lL sorts of questions are involved.
Now, Mr. Plumb, I want to ask you if you know whether or not
tis a fact that as a general rule the capital that has been put into.
632 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
railroads by way of construction or otherwise has, as a rule, never
been amortized in the sense of paying off and relieving the property?
Mr. Piums. I am very glad you ask that question. I know of no
case in history, there may be some, but they have not come to my
attention, where a railroad company has paid off and discharged its
liabilities without the creation of new liabilities as the means of
retiring the old. If I may expand on that just a moment. The only
assets a railroad company has got is its liabilities, because its right
to charge the public is based upon the power to get a fair return on
that which it has put into its property and that is its liabilities to
its stockholders and its bondholders and liabilities for materials pur-
chased. .Now, since its right to charge depends upon its habilities,
then its liabilities equal its assets and are its assets. Consequently,
under the old system there was no inducement for retiring liabilities
but every inducement for preserving liabilities as the basis of making
charges, and with that perpetual inducement, how could you expect
railroads to extinguish liabilities ?
Mr. Srus. In other words, no amortization in fact has ever taken
place. ; ;
Mr. Ptums. No.
Mr. Sims. Is it not also the policy of rate making, you can explain
it, I know, to allow a rate that will not permit of amortization of
capital charges. It will admit, as I understand, of the payment of
accrued interest and accruing interest, but are rates now made upon
the basis of permitting a return from the operation of the railroads
that will enable the railroads to pay off their capital habilities ?
Mr. PLtums. Rates have never been based on that theory. Here-
tofore rates have been based solely on the theory of creating the
ereatest flow of traffic that would pay the highest rate of profit, and
if a rate did produce a profit that would have permitted the amorti-
zation of the indebtedness, that profit went mto the surplus after
paying reasonable returns, if it was not absorbed in returns, which
then was expended on the property and capitalized as the basis for
making more rates. 7
Mr. Sms. Capitalization of the earnings in excess of the require-
ments for returns.
Mr. Piums. Yes.
Mr. Sims. Now, I want to ask you this question: Does your plan
contemplate and provide for the amortization of the bonds for the
cost of the railroads to the Government?
Mr. Pump. Yes; it does. It provides for that amortization by
a sinking fund equaling 1 per cent of the maximum amount of bonds
outstanding. Suppose in the first year we have issued on the 1st of
July five billions of bonds. Then for that year-we must pay in 1| per
cent of five billions in the sinking fund. Suppose the next year we
have issued five billions more, and then we have ten billions of bonds
outstanding, and for that year we must pay 1 per cent of ten billions
dollars in the sinking fund. Then as we begin to retire bonds and
the capital account begins to decrease, we do not decrease the amounts
going into the sinking fund. It remains fixed at 1 per cent of the
maximum amount outstanding, which, of course, hastens the final
retirement.
Mr. Sims. Which means complete amortization of the property
purchased to the extent of the outstanding bonds in favor of the
Government. :
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 633
' Mr. Prums. It means the complete amortization of the capital
and the freeing of transportation from all interest charges.
_ Mr. Sims. That is, all compensation based upon the amortized
property.
Mr. Prums. Yes.
_ Mr. Sims. Then the reasonable rates to be charged thereafter will
only have to provide for the maintenance and upkeep of the road,
‘operating expenses, and this additional fund.
' Mr. Ptums. This additional fund for extensions to be used in
place of capital expenditures made from the sale of securities, if it
were deemed wise to do so.
Mr. Sims. Now, Mr. Plumb, this 1 per cent is in effect an amor-
tization fund.
__ Mr. Piums. Yes, sir.
Mr. Sims. Discharging the Government’s liability or the liability
‘to the Government, and after it is discharged, there will then be no
further payment to the Government on account of that liability.
Mr. Pius. No.
Mr. Sims. And, consequently, unless onerating expenses should
dnerease, we will reach a time, supposedly, when at least all the
fixed prorerty would be comrletely amortized. Now, what about the
capital charge incurred for the continuance and necessary purchases
of repletion of equipment, or movable property?
_ Mr. Prums. The renewal of existing property must be provided
for out of the maintenance and renewal fund which is charged to
operation. For additions to existing property, that necessarily
must be a capital fund which is produced from the sale of securities
‘or provided out of surplus earnings. Now we provide that the
‘surplus earnings accruing to the Government shall be held for that
purpose and used for that rurpose, before capital expenditures may be
made. Now, in connection with the special assessment feature,
which I believe would produce a very marked extension of earning
power with no increase in fixed charges, there would be a constantly
increasing fund available for suc extensions and improvements
‘to take the place of further capital expenditures.
Mr. Sms. !f a railroad was buying, say, a $1,000,000 worth of
engines this year, that would be a capital charge to that extent,
would it not?
Mr. Prums. It would be to the extent that it exceeded the engines
Which it replaced.
Mr. Stus. Yes; what I meant was a net outlay.
Mr. Prums. Yes.
Mr. Sims. Then that is a cavital charge that is to be retired, as I
understand you, through surplus earninmgs—and what was the other
method of discharging that ?
Mr. Prums. It would be retired either through surplus earnings
or the sinking fund.
_ Mr. Sims. Now, what would be the policy, or what do you think
ought to be the policy, when the capital charge is increased for mov-
able equinment or for movable property that necessarily wears out
‘more rapidly in its use than the fixed property—what length of time
would you consider would be the average of the capital charge;
that is, how long a time should be given the operating company to
pay that?
634 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prums. That is very definitely ascertained by engineering |
practice. For instance, they have it figured out very accurately
what the average life of a locomotive should be, and they require to
be paid into the depreciation fund an annual sum equivalent to that
rate of depreciation. Now, with rails they can tell just how long
a rail of a given weight will last with a given amount of traffic over it.
The same way with ties. About the only thing you can not tell to a
onat’s heel, according to the engineer, is the life of ballast and em-
bankment, and that varies quite widely in the nature of the ballast,
and the embankment, and the conditions. |
Mr. Sms. Then, Mr. Plumb, would it not be a wise policy to require
rates that would take care of capital charges incurred for this movable
equipment, and which would relieve the fund within the expiration.
or the life of the movable equipment?
Mr. Piums. That is already done, Congressman.
Mr. Sims. In other portions of the bill?
Mr. PLums. In the maintenance and depreciation accounts it pro-
vides for the renewals of all existing property, but does not provide
for expansions of existing movable eyjuipment. Expansions are
taken care of by expansions of the capital fund. Now, practically,
under our plan, | believe that those expansions for a great many years,
would be more than taken care of out of the surplus earnings receiver
by the Government, for this reason, the unification of the systems
would obviate the necessity for many capital expenditures for im-
ereased equipment which each individual road now feels it to be
necessary it should undertake; and if we pooled equipment and
terminals and switching facilities, the utility of those facilities would
be so vastly increased over their ability under private. and separate
ownership, that ordinary maintenance and renewals for many years
would be all that would be reyuired before the expansion of business
could overtake the actual body of equipment now in existence, and
by that time the surplus fund would have accumulated to such an
extent that I believe we would not have to capitalize or to burdeu
the capital account with expenditures for expansion of existing plant.
Mr. Sims. Then that fund to which you have just referred and which
is used for the purpose of purchasing equipment is not any portion of
the amounts paid in for the discharge of the bonds and the accumu
lating interests ?
Mr. Prums. No; the Interstate Commerce Commission is author-
ized from year to year to determine how much shall be paid into the
maintenance fund, and that is put in as a part of expenses, and they
have power to vary that as the occasion requires. i
Mr. Sims. Now, Mr. Plumb, i would like to ask you this question:
Would it or not be an economy which could be effected by the Gov-
ernment, if it owned the roads, to manufacture its own supplies or the
supplies it now has to purchase from other sources?
Mr. Prums. The war has left the Government in possession of
wonderfully efficient plants, the arsenals and other plants, which
could meet the requirement of supplies, certainly at less cost than they
are met by private enterprise, and at the same time make the Gov-
ernment’s investment in those facilities a productive investment.
Mr. Sims. Does your bill provide for aie a planasthat? I mead,
can that be done under your plan?
Mr. Prumps. It can be done under our plan.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 635
_ Mr. Sms. There is another question I want to ask you along that
same line. The employees, the operating officials, and the employees
of the railroads, of course, one element of their expenses is the pur-
chase of the necessities of life, especially food products, could or
could not the Government of the United States, .if it owned the
tailroads, with great economy, purchase by wholesale in vast quan-
tities, say, food products, and distribute them to its employees at
the cost of the products plus interest and cost of distribution ?
__ Mr. Prums. I see no reason why it might not. It has been doing
that for two years for 4,000,000 Government employees through its
military stores department.
| Mr. Sims. Would or could not that enable the employees to receive .
ailess wage without the Government losing anything in order for
jhem to receive it, by getting their supplies at considerably reduced
‘orices from what they have to pay for them now?
_ Mr. Proms. If the Quartermaster Department service were extended
© the employees of the railways, undoubtedly a large saving in the
Jost of living would be afforded to the Government employees on
che railways.
Mr. Srus. Is the authority or power provided in your bill such as
10 enable the Government, if Congress authorizes it, to do such a
hing as that?
Mr. Prums. The Government could authorize this corporation to
lo anything in connection with the enterprise which the Government
tself might do, unless forbidden by the charter. There is nothing
n the charter forbidding it, and if the Government authorized it to
ye done, it could be done.
| Mr. Sts. Mr. Plumb, it is stated and contended that the railroads
‘ould be operated at cost of service and without profit. Now, in
yaying the operating officials and the employees fair and reasonable
vages for what they do, then they are not receiving any profit, but |
he bill does provide that if the earnings of the road reach a certain
mount they are to be divided with the Government and the officials
nd employees, and the employees receive their salaries and the oper-
ting officials twice as much. To that extent they are working for
|} profit, are they not, whatever it is, more than their wages would be 2
. Piums. They are working to get a benefit in excess of their
yvage, but since the rate is not intended to produce a profit, but is
ixed at such a level as to cover operating expenses, provide the
naintenance, a sinking fund, the fixed charges, and no more, then
ll that is made in excess of those charges under that rate must be
roduced by greater efficiency, and one-half of that saving by effi-
iency we accord to the men who create it and the other half we
\eserve for the benefit of the public. You can not create that effi-
: lency without that reward, because that is the entire motive of the
}Ompetitive system.
Mr. Sims. Mr. Plumb, it is in effect, as I understand, operating all
| long the line of a sliding scale; that is, the owners of the property
aay Eee a larger dividend provided they reduce the rate to a certain
xtent ?
_ Mr. Proms. It is the application of that identical principle to labor
,eturn instead of to capital return.
_Mr. Sims. Capital is permitted to have a return of 6 per cent, but
/hey will be permitted to pay 7 or 8 per cent provided they reduce
636 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the charge on goods per thousand as stated in the law; that is, they
allow a sliding scale which is intended to operate along the same line,
except that the Government may get in the operation of this sliding
scale what the corporate owner of the utility would get under the
other plan ?
Mr. Prump. Except that under this plan the Government gets
one-half of whatever efficiency is produced.
Mr. Sims. It does not get all? |
Mr. Piums. No, sir.
Mr. Sims. That one-half is not to be withdrawn from the industry
or the undeitaking, but is to be used in further taking care of what-
ox might be needed like extensions or the retirement of notes, 1s not
that so?
- Mr. Prums. That half is to be used in the extension of earning
power, without an increase in charge, provided that one-half in any
year does not exceed 5 per cent of the gross operating revenue, then
if it does exceed 5 per cent there shall be a reduction in rates to absorb
that year’s share for the next year. |
Mr. Sims. Then, a reduction in rates may be had without an in-
crease in dividends or income ?
Mr. Prue. Yes, sir.
Mr. Smus. What I want to call your attention to is section 4 of
Article I:
That the corporation is hereby empowered, authorized, and directed, for the period
of its existence as herein set forth, to lease, operate, and maintain asa single system
a!l of the railway lines and transportation properties of the United States and its pos-
gsesslons.
The Government owns the property and the Government, as I
understand, is leasing to this corporation its property for operation.
Is that correct?
Mr. Pius. Yes, sir.
Mr, Sms. Why is it necessary for the Government to lease its
property to its own creation for operation? 1 know you have a
reason for it.
Mr, Prums. Frankly, Congressman, if it can be accomplished
without a lease, good and well, we would be glad to see it done, but in
my mind it can best be accomplished by a lease as the easiest way of
terminating the privilege if it were abused.
Mr. Sms. I supposed, perhaps, that there was another reason.
The reason I asked the question was that it has been claimed, and
with some show of force, that if the Government took over the rail-
roads and operated them that politics would play a destructive part.
Mr. Prums. I see your point.
Mr, Sms. I supposed you were injecting the corporation lease so
that the corporation would be a private corporation and could operate
without any political restraint or constraint; is that it? 4
Mr. Prums. Yes, sir. Your former question as to the lease, I did
not catch. The corporation is devised as the means for procuring
democracy in operation, as the vehicle for perenne the public, the
wage earners and the management to have an equal and equivalent
voice of authority in the control of management. I do not know how
else that could be accomplished. That takes the operation out Ol
the political control of the Government.
RETURN OF THE RAILROADS 0 PRIVATE OWNERSHIP. 637
Mr. Sms. Your plan contemplates Government ownership, but
orivate operation ?
_Mr. Prums. Government ownership, but operation—if we say
yrivate operation, we are not accurate.
Mr. Sms. I mean operation by a private corporation ?
_ Mr. Piums. Operation by a corporation which represents equally
ihe consuming public, the producing public, and the authority of
nanagement.
Mr. Sims. In the operation ?
Mr. Prums. In the operation.
Mr. Sims. Is it your view that this corporation would not be
nfluenced by political pressure ?
Mr. PLums. Yes, it is; because one-third of the directorate ap-
yointed by the President, five members at most, would permit but
iwo members to be appointed during one term. That means that
shree of them could belong to one political party, and with those
estrictions the political effect on the directorate would be quite
imited. Politics could play no part; I mean governmental politics
ould play no part in the selection of representatives elected by the
ilassified employees or in the selection of representatives elected by
he official employees. Their selection would be entirely removed
rom governmental politics. That would mean that two-thirds of
he directorate would be nonpolitical and the other third would not be
nfluenced to any extent by politics.
Mr. Sims. Do you know of any plan which has been proposed, do
‘fou remember any—lI do not regard the Esch bill as a plan—that
jontemplates directly or indirectly the amortization of any of the
roperties ?
Mr. Piums. No other plan that I have studied.
Mr. Sims. I mean on the capital invested ?
Mr. Piums. No; I have not found any.
Mr. Sims. If capital investment is not amortized through the
arnings of the road and capital investment must continue to be met,
vill not the tendency be and will not the almost inevitable result be
0 merease the outstanding capital liabilities indefinitely ?
Mr. PLums. Why, if you adopt a law which requires rates to be
xed at a fair return on the liabilities of the company, you are imme-
lately inviting an increase of those liabilities at every turn of the
‘oad and there can be no elimination of liabilities, for that would be a
‘Istribution of assets.
- Mr. Srus. I am not qualified to form any judgment on the operating
‘art of your plan, and so I have no further questions to ask.
| Mr. Barxiey. Your bill provides, Mr. Plumb, that this appraise-
nent board shall ascertain the value of the thing to be purchased by
he United States Government?
Mr. Pius. Yes, sir.
Mr. Barktey. If I understood you in your statement in chief, you
‘tated that they would not be permitted to take into consideration
ny increase in the intrinsic value of any physical property that had
een placed upon the road but that that would be fixed according to
4e cost of the article when bought, subject to any depreciation in
alue that may have occurred since ?
| Mr, Prums. The bill does not so provide. That is my interpre-
tion of the law.
638 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Barxtey. The bill makes no provision. It leaves it entirely
to the appraisement board, subject to review in certain cases by the
court to determine whether anything else shall go into the valuation
besides the actual cost of the property placed on the railroad ?
Mr. Prums. Yes, sir.
Mr. Barxiry. Notwithstanding your views about it, if the ap-
praisement board should see fit, they might take into consideration
the present value of steel rails in estimating the value of the property?
Mr. Piums. Certainly they might. There is nothing in the bill
that would prevent them from doing that.
Mr. Barxiey. Nothing to prevent their taking that into considera
tion, but that would be subject to review in the courts?
Mr. Piums. That is all we ask for, to have the question passed on
judicially.
Mr. Barxiey. Have you any opinion or any statistics upon which
you would be able to state what, in your opinion, would be the lump
sum required to purchase all the railroads in the United States at
their actual value ?
Mr. Ptums. Using actual value in the way of actual investment?
Mr. Barxiey. Well, you may use it that way for the present.
Mr. Piums. I will have some very definite figures to present on
that in the material that is now being prepared. I can give you a
‘“jump”’ at it now if you desire.
Mr. Barxktiey. If you will.
Mr. Prums. In my estimation of $19,000,000,000 of property
investment account there is not to exceed $12,000,000,000, more
likely not to exceed $10,000,000,000 of actual money contributed by
the corporations to this public service. :
Mr. Barxiey. I believe it has been estimated that there was
somewhere between ten and eleven billion dollars of bonded indebted-
ness outstanding on the railroads of the United States and that in
addition to that there is something like seven or eight billion dollars
of bonds and stocks, making in the neighborhood of $18,000,000,000?
Mr. Piums. Yes, sir.
Mr. Barxiry. Your contention, then, is that practically one-
third of that does not represent value, does not represent money
invested, but represents fictitious value which has been placed upon
it by financial manipulation ?
Mr. PLums. Yes, sir. ,
aa Barktey. Which has been in vogue in the financing of the
roads. ;
Mr. Piums. I want to say this: That practice has been a common
practice outside of the State represented by Mr. Winslow and one 0
two other States for some generations.
Mr. Barxitey. Do you mean that the men who now hold the ten
or eleven billion dollars of bonds did not pay actual cash or the
actual amount of ‘the face value for those bonds?
Mr. Piums. Not at all; I do not mean that.
Mr. Barxiey. Do you mean that they did pay actual value
the bonds, par value, we will say ? '
Mr. Prums. I am not at all interested in what John Smith paic
Tom Jones for a bond or stock which Tom Jones owned in the Santé
Fe Railroad. That was a transaction between private individual
and in which the public were in no wise interested, but I am intensely}
|
b
a RETURN OF TH# RAILRUADS TO PRIVATE OWNERSHIP. 639
|mterested in finding out how much Tom Jones paid the Santa Fe
(oad for a bond which was issued to him or stock which was issued to
jum. ‘The subsequent transaction was purely a private transaction.
| Mr. Barxrey. Taking the bonds and stocks separate, in which
| lass of investment would you say that the greatest amount of
|ictitious value lies?
_ Mr. Piums. Oh, in the stocks.
| Mr. Barxiery. In the stocks?
' Mr. Ptumps. Yes, sir.
| Mr, Barxiry. You think that a larger proportion of people who
;ywn bonds paid actual value for them than among those who own
| he stocks ?
Mr. Prums. Yes, sir. In my experience I seldom gave away
}yonds; I usually sold them.
) Mr. Barxiny. If the Government should adopt this plan of yours
md the Board of Assessment should in fixin the actual value that
‘3 made up on the physical value of the oan which are to be
jaken over—if they should in their decision arrive at an aggregate of
\mly about $12,000,000,000 as the value of the railroads to be paid
or by the Government, what would become of the extra $6,000,-
‘00,000 which is represented now by stocks or bonds?
Mr. Piums. Why, that is not in existence now, so nothing would
/ecome of it.
| Mr. Barxzey. It is in existence on paper.
| Mr. Piums. But it is not in existence on the market.
|. Mr. Barxiey. No; it is not on the market. Your contention is
/a effect that the owners of the stocks and bonds would only be able
}0 recover now, if the railroad properties in the United States were
| eacated, something like 663 per cent of the face value of their
| oldings ?
| Mr. Prums. Yes. That is more than they have ever recovered in
ll the experience of the railroads liquidating them.
| . Barxiey. To the extent of the value of the property upon
thich these bonds and stocks appear as a lien—and they would be
lien on the property—which if bought by the Government, would
‘dd to the valuation which the Government would pay to the owners
|f the stocks or bonds ?
} Mr. Pitums. Yes, sir.
Mr. BarxiEy. You believe that this proces would result in a
| Yueezing out of about $6,000,000,000 of value, of fictitious value,
jased upon the present valuation of something like $18,000,000,000 ?
| Mr. Proms. I think it would eliminate that which has already
janished, and that the present security holders would receive just
) hat they would get if they sold out to-day.
| Mr. Barxury. In other words, this would be a record of elimination
‘hich you think has already taken place?
| Mr. Prums. Yes, sir. ’
Mr. Barxuey. Let me ask you about the form of this board of
irectors. I have failed in the reading of this bill to ascertain where
|} ou lay out a plan for determining the difference between classified
/uployees and official employees.
“Mr. Prums. We do not attempt to lay out that plan, because that
ge is clearly recognized to-day by all men engaged in the railroad
4dsiness. The moment a man receives promotion in the service to
152894—19—-voL 141
—-——__—
7
4
.
‘
f
|
640 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
such a point that he is no longer eligible for membership in any organ-
ization, whether he be a member or not, if he is no longer eligible, he
is in the official classification. |
Mr. BARKLEY. I am not sufficiently familiar with the classification
to know when a man is or is not a member.
Mr. Pius. I can not tell you that, Congressman, but I am assured)
that the line is plainly drawn, so that no man employed in the railroad
- gervice is in doubt as to where he should be placed.
Mr. BarKiey. I wonder, in the absence of some legislation descrip-
tive of those classes, whether any man might be in doubt as to where
his vote might be cast in determining the representatives on this
board of directors of the classified employees and of the official
classification ? |
Mr. Piums. I think there would be no doubt about that for the
first election and certainly none for subsequent elections. This case
will come as the hen and the egg. We have the railroads and we have
the officials.
Mr. Barkiey. I do not know that I am old enough to determine
that from recollection. i
Mr. PLump. We have provided a directorate that I do not think
should be perpetuated. So we take the official employees as they
now exist, and we will say that is the egg, and then create the official
members of this new board of directors, and the classified employees
as they now exist, and create the classified members of the new
directorate and the President appoints his representatives and we
confer full power on the directorate so constituted to create all officers
and all official classifications and to define all of the classified employ-
ments.
Mr. Barxuey. This board of directors could change the present
status of both the classified and official employees so as to include
one and then the other, if they should see fit?
Mr. Puums. If they should see fit; yes, sir.
Mr. Barxiey. Could they do that to the extent of eliminating one
class entirely and making only one class or combining between the
official and classified employees ?
Mr. Piums. Certainly not.
Mr. BarKuey. Could they so increase one class by decreasing the
other, transferring one class of employees over into the other by
merely calling them one so as to practically eliminate one class by
the increase of the other? « |
Mr. PLumsB. We have at the present time 20,000 official employees
and 2,000,000 classified employees. Naturally, the classified em-
ployees would not be pleased at having their proportions swollen fo1
the benefit of the official employees, and the official employees,
because of their double rate of dividend, are not going to desire 1
have put into their classification any large number of the classifiec
employees. They want to keep their line as strictly drawn as possible
Neither one of them can accomplish that result without the consent
of the representatives of the public directorate.
Mr. Barxiry. If the representatives of both the classified anc
official employees, being in the majority by ten to five, wanted to
they could do it over the protest of the other?
Mr. Prums. But at the expense of themselves.
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 641
‘Mr. Barxuey. One group or the other?
Mr. Prums. One group or the other.
Mr. Barxiey. Why give these official employees a double dividend
‘compared with the classified emplovees ?
Mr. Prums. Because this plan is so totally unsocialistic, as I under-
nd the term “socialistic,” that we recognize the right of every man
‘receive compensation according to his deserts, and we believe that
‘ere we place upon any body of men authority and responsibility
‘4y must receive compensation commensurate with that authority
Tresponsibility and through the exercise of that authority and
‘ponsibility they produce beneficial results by having their orders
‘tied out by a vastly larger body of men cooperating with them,
1 they ought to be entitled not only to much higher pay, but to a
her rate of return.
‘Wr. Barxiny. In other words, a train dispatcher who is an official
iployee, we will assume, would be entitled to double dividend as
inst an engineer who takes his orders and runs his train in accord-
‘e with the plan of the train dispatcher ?
7 Proms. I will assume that the dispatcher is an_ official
oloyee.
dr. Barxxey. It is an assumption on my paré—I do not know.
fr. Prums. I do not know either; but if he is, he is at the lover
ige of official employees, as compared with the man receiving
arge a salary as the engineer who is at the upper end of the classi-
_ employees, but if he is exercising power and authority over a
ly of men beneath him he is entitled to some extra compensation
the efficiency which his work produces. This may not give him
nuch compensation as the engineer receives, because you can not
that the lowest grade of official employee must receive higher
pensation than the highest grade of classified employee. I do
think that is true in fact, but still he should have this same
ble incentive.
[r. BARKLEY. You use the words at the end of the first paragraph,
_also at the end of the second paragraph, that if a certain region
ocality desires an extension of railway facilities under regional
9¢al special assessment laws, and, having so organized, will assume
t part of the cost of the construction and equipment of the new
znsion which may be apportioned to it by the appraisement
td, and will provide such part of the whole cost as may be allotted
t by the appraisement board, then the building of such extension
he United States at the specified sharing of costs shall be deemed
the appraisement board to be imperative. You mean by the
d “imperative” shall be deemed compulsory ?
‘ir. Plums. Yes; 1 mean the Government must build a line where
locality pays for it or pays their share of it which the appraise-
‘it board alos should be allotted to it. I want to give to locali-
| the power to compel the construction of improvements which
‘7 need and which they are willing to pay for, which are not built
|e public expense.
tT, Barxiny. You provide also that money expended by the
‘ernment in extending roads in new territory, where the public
fit is of such a nature as to relieve the local community of
mditure, in that connection it shall not be capitalized?
642 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prums. No; shall be capitalized. That is the kind of extensio;
which shall be capitalized. :
Mr. BarxkLey. What is it you provide shall not be capitalized’
Mr. Prums. All expenditures for extensions out of surplus fund
raised by local taxation shall not be capitalized.
Mr. Barxiey. Of necessity, that provision in either case, in Viel
of the fact that the Government is to own the roads and there |
not to be any capitalization as we now understand that term in cor
nection with the corporations—— |
Mr. Prums. Perhaps we might use a better term there, but whi
we mean is the Government shall issue no bonds, because that is
capitalization of this project; that there shall be no increase of th
outstanding bonded indebtedness for extensions which are paid f¢
out of surplus or out of the proceeds of local taxation, and if ot
language is not clear it should be made clear.
Mr. BarKLey. What is the intent of the provision on top of pag
20, the first paragraph, “That notwithstanding anything in this a¢
any society of workers, all or some of whose members are wholly ¢
partly employees on the railway lines or properties of the Feder
Government, or in any other manner employed by the corporatiol
or otherwise under this act, may be registered or constitute then
seltes or be a trade-union, and may do anything individually or!
combination which the members of a trade-union may lawfully do.
What is the object of that language ?
Mr. Prums. To preserve the existence of labor organizations no
in being, and to preclude the prevention of the organization of mutu
labor organizations where there may be a need or demand for the
existence.
Mr. Barxiey. To what extent are there now labor organizatia
only part of whose members work for the railroads or who work f
the railroads only in part ?
Mr. Piums. I’do not know. If you will ask Mr. Garretson th
question when he is on the stand, he can answer you fully.
Mr. Barxiey. In section 5 of the last article, page 30, ‘that a
lease to the corporation shall be terminated by act of Congress whe
ever it shall appear upon evidence reviewable in the Federal cour
that the foregoing provisions to be embodied therein shall not ha
been well and faithfully carried out.” You provide there that ne
withstanding Congress may terminate this lease upon evidence wit
it may deem necessary and sufficient to enable the lease to be tert
nated, yet before Congress can act that evidence must be review!
by the Federal court in some report made back to Congress of }
finding in the matter before Congress can act, or that the act tel
nating the lease can be reviewed by the courts and annulled by]
dicial action.
Mr. Prums. That is my idea, that if Congress declares a forfeit
it shall set out the evidence of that forfeiture as an exercise Of
action, and that there may be a review of that decision in the cour
Now, what I wanted to provide, and I may not have done it efler
ively, I want to provide a perfectly efficient and adequate means
revoking this privilege unless the obligations to the public are f
filled, and if this committee can devise a more efficient means, ©
- not care how drastic it is—what we want to dois to save the publ
pecn ley) remember, we consider ourselves a very large part of t
public. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 643
‘Mr. Barxury. What I had in mind was this: This is a rather novel
‘ovision ?
Mr. Piums. Yes.
Mr. Barxxey. I do not recall it was ever embodied in any other
Il, giving the courts—of course the courts have power to review
‘e acts of Congress on the ground of constitutionality, to declare
em unconstitutional, but I do not think they have gone to the
‘tent of annulling an act of Congress because of its inadvisability,
on any other ground except, broadly speaking, constitutional
‘ounds. I will leave it at that, because questions of personal
yerty and those sort of things are constitutional questions. Now
‘is a little novel to give the court jurisdiction to annul an act of
megress, not upon constitutional grounds, but if the court should
cide that the evidence that Congress had before it was not sufficient,
the court’s opinion, to justify the passage of the act.
‘Mr. Prums. Well, I have found that forfeiture provisions in fran-
Ises were usually ineffective, because in order to secure a forfeiture
‘ere must first be a judicial declaration of a forfeiture. The legis-
‘ture can not decree a forfeiture; it has got to go through the courts,
it by contract, which would be this lease, you can confer the right
the legislative body to decree the forfeiture without first going
‘rough the courts. That is a contract right which we give. But we
serve the right to have that declaration reviewed judicially instead
Making the legislature first go to the courts and procure the for-
ture. ‘That makes it easier to get a forfeiture and puts the burden
| the man whose right is forfeited. That is an unusual provision,
dit is unusual for that very reason. All of the other forfeiture
Ovisions with which I have been acquainted put the burden on the
blic, and the man intrenched in privilege always had the benefit.
»w I am trying to put the benefit on the other foot, and if I have
t phrased it so as to do it I would be glad to have help to phrase
so there can not be any doubt in it. |
Mr. Barxiey. This bill only contemplates the taking over of
ads that are engaged in interstate commerce, is that true ?
Mr. Prums. Wait a minute. If you mean by engaged in inter-
ite commerce
Mr. Barxxey. Or that are subject to regulation by Congress under
3 commission clause of the Constitution.
Mr. Prums. No, I would not say that. It does not contemplate
cng over roads which are not engaged in transportation for the
blic—that is, private carriers.
Mr. Barxiny. Roads that are built wholly within State lines, that
+) not engaged in interstate commerce, that are limited in their
eration to intrastate commerce, and therefore are not embraced in
»act to regulate commerce, is it contemplated
Mr, Prums (interposing). We contemplate taking them over if they
common carriers.
Mr. Barxiey. Under what authority of the Constitution do'you
‘tude them within the power of Congress to take over ?
(Mr. Plums. The power of Congress to establish and maintain post
I military roads.
Mr. Barxiey. And as practically all railroads are post or military
————
644 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prums. They should be so considered. In this country we have
largely overlooked that until the recent experience. In Europe it
was the prime object of the construction of all of their lines of rail-
ways. We have overlooked it, but we realize now that it is an abso-
lute necessity.
Mr. Barxwey. If this bill should become a law, is there any fune-
tion left to the various State railroad commissions and public utility
bodies in the regulation of practices, charges, and things of that sort
now exercised by them ? .
Mr. Piums. Frankly there are none, excepting that we authorize
this board to appoint and delegate to local authorities, or bodies
acting under State control, such of their powers as may be exercised
locally, so that it was in contemplation that we might utilize the
State utilities for some local administration of the affairs.
Mr. Barxiey. That local administration might have application
not only to intrastate findings, but also to commerce that originated
in one State and ended somewhere else ?
‘Mr. Prums. Yes. That would be a part, so far as we utilized local
bodies, it would then be a part of the Federal administration.
Mr. Barkiey. You provide here that the functions of the Inter-
state Commerce Commission shall be continued as they are provided
for in the act to regulate commerce. Now, if the Government
purchases these roads under your bill and this board of directors is
to operate as provided herein, briefly indicate the procedure that
would be possible or necessary to get a rate case or any other practice
or classification before the Interstate Commerce Commission.
Mr. Prums. Exactly as is now done. Of course the corporation,
unlike corporations to-day, could not appear and object to a rate,
but any shipper might appear, just as he does now, and file objections
to any rate that was made, and his fight would be not between the
shipper and the corporation but between the shipper and the Inter
state Commerce Commission.
Mr. Barxtey. In drawing this provision for a reduction in the
rate when the profits have reached more than 5 per cent on the
amount of the bonded indebtedness, which you call the capitalization
under this bill, is that reduction to be effected by this board 4
directors or by the Interstate Commerce Commission ?
Mr. Prums. The Interstate Commerce Commission declares the
rate and the board of directors must put it into effect.
Mr. Barxiey. So that there must be some cooperation between
the board of directors, if you create it, and the Interstate Commerce
Commission in the working out of the rate proposition ?
Mr. Prums. Yes. We would expect that the board of director
would give the Interstate Commerce Commission much greatel
facility in the investigation of affairs than it has ever been able t
get of the corporate affairs of private individuals, and that they
could work out such a 5 per cent adjustment in a fair way all over
the country without disturbing the equalization of rates.
Mr. BarKtey. That is all J care to ask.
The CuatrMan. Mr. Plumb, judging from statements made by
Mr. Morrison yesterday, it is desired by the organization you represent
that we have prompt legislation ot this kind, is that right?
Mr. Piums. As prompt as is consistent with proper study. Nota
forced action of this bill; we have not asked for that; but we are
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 645
asking every influence that we can reach to study the bill, and if it
approves it to get behind it. Now if enough force and approval
gets behind it, then prompt action can be had.. If we can not muster
enough force and approval behind it, why then necessarily the old
system has got to go on with the old hanaicaps, and the old questions
of wages and adjustments. |
The CHarrMan. If a reasonable period of time is necessary in our
opinion to properly consider this or any other measure relating to
railroad legislation, but some of the railroad employees show im-
patience and manifest that impatience by striking, would that be
such a plan as you would advocate in securing prompt action on
this kind of legislation ?
Mr. Piums. Not in securing prompt action on this kind of legis-
jation. These labor disturbances have been brewing for months,
without any connection with the introduction of this bill. The fact
that they broke simultaneously was due entirely to the invitation ©
from yourself, Mr. Chairman, to have this presented this week. If
that invitation had not been extended, the bill probably would not
have been introduced until fall, and this hearing would not have been
held. The two were wholly separate, although in point of time they
occur together.
The Coarrman. Are you still of the same view you were I think
on the 7th of February, when you appeared before the Senate Com-
mittee on interstate Commerce and declared that you would favor
a five-year extension provided Order No. 48 were revoked
Mr. Piume. Prohibiting political activities.
The CHAIRMAN. On the part of employees.
_ Mr. Prums. You are asking my personal opinion now, and of course
that is all I can give you. I do not believe that a five-year extension
would be necessary. I believe there should be an extension, unless
there can be very prompt action, but I do not believe it should be
under the terms of the present control bill. If there is to be an
extension it seems to me that we ought to follow the English preced-
ents and require the owners of the railways to absrob a fair share of
the deficits of operation.
The CHarrMAN. Let me remind you of what you said in that
hearing. ‘‘In my own mind, I do not see how a proper solution of
this question can be reached in one session of Congress. I think it
can be reached within 2, and I do not mean 5 years. We do not
mean that 5 years is necessary, but we think that 21 months is
too short,” referring to a 21-months’ extension beyond the procla-
mation declaration of peace provided in the control act. Are you of
that mind now?
Mr. Puums. Mr. Chairman, the course of events in this country
within the past 2 years have accelerated the making of history so
Much that what would have required a decade 5 years ago may now
be accomplished in months. At that time I did not believe that
public opinion could be brought to the point where it would decide
this question in 2 years. I believe it can be now, within 2 years.
‘It might be done in less. We are bending every effort to acquaint
‘public opinion with this issue as widely as we can and with many
‘More means at our control than I ever dreamed we could exercise.
We may accelerate that day infinitely over what I thought could
have been done when I testified last before the committee. I would
e
646 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
not be surprised at almost any social developments in America at
this time. We may expect things unforseen within 60 or 90 days,
if I am correctly informed as to the temper of the working men
throughout the country.
The CHarrMan. Have you realized the attempt of the House and
the Senate, and the inclination of this committee and its purpose in
starting consideration of legislation to that end ?
Mr. Prums. I do, and I believe that that purpose and inclina-
tion has been greatly enlightened by the events of the last two
weeks. I honestly believe, and I have been conversing with Senators
and Congressmen for the last three months, and I have been amazed
at their seeming, not indifference, but lack of information, as to
what actually is occurring throughout this country. I have been
going back and forth and I have kept in touch with the men, not
the organizations, the men, and I have been astounded at what I
have learned. I felt more as members of Congress felt when I first
came down here in May. I did not expect that this question could
reach its present issue within a year or within two years, but I have
been overwhelmed by the force of events out in the country and
the sentiment of the men that is just simply engulfing us.
The CHarrmMaAn. Then in your opinion should that attitude of the
minds of those that you have come in contact with force Congress
to a speedy adoption of legislation ?
Mr. Piums. I think it should force Congress to a speedy, indeed,
an intense consideration of these questions, perhaps, too, laying aside
all other questions of less moment.
The CuarirmMan. This committee is doing that.
Mr. Prums. This committee is doing that, now.
The CHarrman. And hasbeen for the past four weeks.
Mr. Piums. Yes; but I do not believe that this committee has
been brought in contact with the people before this week. You
have been conferring with interests.
The CHarrMan. Just a moment there. We have heard those who
have filed applications for hearing, irrespective of location or of
interest. We did believe that in a logical evolution of this plan for
legislation we could hear the proponents of plans first, and then
those who desired to give detailed information as to particulars.
We are doing that now. |
Mr. Piums. Yes.
‘ The CHarrmMan., And we are giving you an opportunity to be
eard.
Mr. Piums. And we appreciate it.
The CHarrman. You are entitled to it. Now do you believe,
from the knowledge you have gathered recently, that you ean affirm
that the majority of the people of the United States will stand for
the doctrine of Government ownership of railroads ? 1!
_ Mr. PLums. At this time I would not say so, but I am assured, I
feel absolutely assured, that the great majority of the people of the
United States are so dissatisfied with present conditions and so turned
away from past conditions that they are rapidly coming to the support
of this plan, and I do believe that a majority of the people of the
United States, when given opportunity for education, will demand
this plan, and I would not ask Congress to pass it ahead of that event.
The CuarrMANn. Which would imply that it would have to go to a
national referendum ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 647
Mr. Prums. There are other ways in which the mass of the people
/ean express their desire. Of course that is the best way and the
‘most definite way, but there are other ways.
The CHarrMan. For instance ?
. Mr. Prums. For instance, if you find through the press—and the
_press is in a certain sense responsive to public opinion, just as public
opinion is in a certain sense responsive to the press—if you find from
the volume of communications, which are honestly sent to you, that
the great mass of the people demand this legislation, then I think
ou may accept it as a fact that the majority of the people do require
it, but you need either that popular demand expressed to you, or an
election.
| The CuarrMan. You can not get an expression of support of your
‘proposition without propaganda ?
‘ Mr. Ptums. We can not.
The Cuarrman. Nor can the proponents of any other plan without
| propaganda ?
Mr. Pius. No. |
' The CuarrMan. So that we, as a committee, may anticipate receipt
of communications or petitions that are the result of propaganda?
Mr. Piums. Yes.
The CHarrMan. That propaganda is based on selfish interest, or
upon self-interest, or it would not have been created ?
Mr. Prums. No; I do not agree with you there, Mr. Chairman.
| The CHatrMan. I said “self-interest or selfish interest.”
Mr. Pius. Well, I will follow you a while and see if I want to
correct that. You say, on self-interest or selfish interest. Propa-
ganda in favor of self-interest has to be purchased. Propaganda in
| favor of the public interest is not purchased, and our propaganda,
instead of being purchased, is being offered to us.
The CHAIRMAN. Supposing other propaganda comes to us with a
like high source of origin ?
| Mr. Piums. Call for proof.
The CHarrMAN. Supposing the farmers, for instance, numbering
hundreds of thousands, through their regularly constituted bodies,
say to us, ‘We do not want it’’?
Mr. Piums. Listen to their voice; call them in; measure their
interest. Let us enter into a debate here; both sides can be heard;
and then decide in the interest of the public. If the farmers do not
want it—but I think you will find they do.
The CHarrMan. I think they are divided, but what information we
have thus far received would indicate that the majority was not in
favor of the proposition. Of course that may be developed by later
| propaganda.
Mr. Proms. I think it will. ,
| The CHatrrman. And we do not want to foreclose that situation
‘now. We do not want to consume much time, but in your proposed
, bill you use the agency of the recall in putting an end to the holding
‘of office on the part of the elective members of the directorate and
also the recall in putting an end to the holding of office of the elective
‘Membership of the various district boards. Has the recall, as prac-
)tced in America, either in municipalities or States, proven itself to
'be of such high efficiency and to be productive of such valuable
‘results to the public as would justify you in using that instrumentality
im your bill ?
648 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prumes. Mr. Chairman, I can not answer that, because I do not
know, and if that is not deemed an advisable provision we are willing
to strike it out. We merely wanted to signify our willingness to the
* committee to submit that provision if it was thought desirable, but
we will put that up entirely to the wisdom of the committee.
The CHarrMAN. The fact that you studied it led us to believe you
thought it the best method. :
Mr. Piums. We did, but it is not an essential method. It merely
occurred to us that if by chance we got a man in those positions that
was not fitted we wanted to yank him out.
The CHarrMAn. Suppose the five were so considered, would you
want to pull the five out?
Mr. Puiums. All five of them.
The CuarrMAn. If I remember rightly, in the city of Seattle, Wash.,
they had the recall for municipal officers, and, if I remember correctly,
in one year they recalled two mayors. That practice would beget
such uncertainty in tenure of office as practically to destroy efficiency
or any continuity of policy, would it not?
Mr. Prums. There is very little efficiency in any municipal political
organization. It is not created for that purpose. But when we
create an organization purely for efficiency, removed from politics,
why, then I think that the recall would be a safe proposition to put
in, because it would not be used for political purposes, and there
ought to be ample safeguards against the mistake of the selection of
an inefficient man.
The CHatirRMAN. You do realize, of course, that this corporation
which you create in your bill, should it become a law, would be the
greatest and most powerful directorate in the world ?
Mr. Piums. Yes; I do.
The Cuarrman. And hence, the necessity of wisely selecting the
directors and wisely controlling their tenure of office. In a state-
ment you made, I think in answer to Mr. Barkley, you said the State
commissions would be practically eliminated. I suppose you would
allow them the exercise of the ordinary police powers ?
Mr. Prums. Well, frankly, I think that is a detail that ought to
be worked out. Under existing governmental properties I believe
the States do not have police power over governmental post offices
and Federal property. [ think, perhaps, that is a mistake.
The CuarrMaNn. In the way of sanitation of depots, and things of
that kind, public grade crossings, and possibly the elevation of tracks,
we believe those powers within the jurisdiction of the State com-
mission. |
Mr. Piums. Personally my opinion is that we ought to leave to the
local authority the largest possible measure of authority and r¢
sponsibility, provided it is also efficient. Now, if we are going int
this democracy business we want to keep the Government as clo
at home in details, local affairs, as we possibly can. .
The CoarrMANn. That is why I am asking you whether you @
going to leave anything to the local authorities ?
Mr. Piums. It seems to me that that ought to be done, but 1
must be done under arrangements with the Federal authority an
not separate and distinct from it. !
The CHarRMAN. You Mean cooperation ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 649
Mr. PLums. I mean cooperation. I think there ought to be a
pen of the central powers to these local authorities as to local
affairs.
The Cuarrman. The tax on railroad properties of the United
States, in several States, in 1917, totaled $214,000,000. Under
your plan there shall be no tax on railroad revenues in the States ?
Mr. Prums. That has been called to my attention and I do not
believe that it would be right at once to wipe out these revenues
which the States have been receiving from these agencies, neither
do I think it right that the State revenue should be continued indefi-
nitely, and, as a way of solving that problem, I would suggest that
we permit the States to receive the revenues which they have been
receiving, but decreasing them each year 10 per cent until in 10
years the revenues of the States from this property would have been
eliminated, and by that time they could adjust their revenue system
to the new scheme of things, and the cost of transportation would be
relieved of that burden.
The CuarrmMan. Do you see no legal obstacle to the State en-
forcing the tax laws upon Federal property ?
Mr. Prums. Not by consent of the Federal Government. I do
see a very strong legal obstacle, unless provision be made for it in
the bill, but if provision be made for it in the bill then there would
be no legal obstacle.
The CuarrMan. You realize, do you not, that some States draw
possibly one-half, and perhaps a larger fraction, of their total State
taxes from their common carriers ?
Mr. Prums. I am informed that some of the Western States do
get that percentage of revenue.
The CuarrmMan. Now, then, if through the enactment of this
measure it were suddenly taken away, it would leave some of these
States in a bad plight from a financial standpoint, would it not?
Mr. Piums. That is what I suggest, that we permit them to con-
tinue to tax, but reduce the amount of revenue which they receive
10 per cent per annum, which gives them 10 years in which to adjust
their system before they are deprived of the revenue.
The CuarrmMan. Would that necessitate the consent of the legisla-
tures of the States ?
Mr. Prums. It would not. It is a privilege extended them by the
Federal Government.
The Cuarrman. If you depended on them acting, you might wait.
Mr. Prums. We would not be dependent on them acting. The
Federal Government merely extends them that privilege, and they
certainly will accept it.
The Cuarrman. In this amortization plan suggested in your bill
of 1 per cent per annum, is this amortization fund to be developed
out of the revenues from operation of the carriers ?
Mr. Pius. Yes.
The CHairMAN. The development of amortization funds, or amorti-
‘zation reserves, always implies a higher earned cost ?
- Mr, Prums. Yes; certainly.
The CHaiRMAN. So that you pay for your amortization fund in an
Increased current cost during this development ?
| Mr. Pius. Yes.
The CHarrMan. How do they offset ?
650 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prums. Because eventually you eliminate them, that cost
from transportation, otherwise it is perpetual, and just as I hope to
leave my son in better conditions than I have lived, this entire
generation hopes to leave the succeeding generation in better condi-
tions than it has inherited.
The CHARMAN. Now with reference to the Government owning the
railroads and operating them even through a neutral agency such as
you suggest, in order to avoid, as you state, might there not be a
temptation at a time when Congress was short of funds, when the
debt was high and the interest charges great, to seek to use its
instrumentality, the railroads, in developing a fund to help out the
Treasury ?
Mr. PLums. Doubtless there would be that temptation on Con-
gress, but it would be powerless to do so.
The CuarrMan. Why would it?
Mr. Prums. Because the Interstate Commerce Commission fixes
rates, and it fixes rates on the cost of operation. —
The CuarrMan. Ah, but the Interstate Commerce Commission is
a creature of Congress, and it only exercises its rate-making power
because we, Congress, fixes the standards.
Mr. Piums. I do not believe that Congress could get the consent of
the public to the utilization of the railroad systems as a revenue-
producing agency, because that is a tax on all consumers in propor-
tion as they consume. ‘You will find the pressure exerted on Con-
gress by the public to produce revenue from taxes on property.
The CHAIRMAN. I want to remind you of a historic fact. Germany
owned her railroads before the war and, because of the strain on the
treasury and the need of funds, Germany developed a surplus of
$60,000,000 out of the operation of her roads and took it out of the
consumer. Now, here is Congress owning the roads, with all the
possessory rights which belong to ownership, and here is a dead
Treasury—would there not be a temptation for Congress to utilize |
its property in developing some revenue ?
Mr. Puums. I do not believe there would. Germany could do that,
because Germany had autocratic power over both the lines of trans-
portation and the lives and property of her subjects. Congress has
no such power over.our citizenship, and would have no such power
over these railroads. This is not the property of Congress for any
purpose other than that of being public highways for the transporta-~
tion of people and commodities. |
The CuarrMAn. You make a distinction that possibly Congress”
might not indorse. f
Mr. Piump. Well, if Congress did not and the public consented, why,”
I could have no objection, but we are speculating on what the public
would do, and if Congress does that which the public does not ap-
prove, the next Congress undoes it. %
The CHarrman. Exactly so. And under your plan Congress can”
undo what it does this year ? j
Mr. Prums. Yes, if the public demand it, and we are in no position
to set up any rule which the people can not override at any time, & d
we are not seeking to do so. |
The CuarrmMan. And Congress is responsible to the public will ?
Mr. Piums. Yes.
The CuarrMAN. Are there any other questions ?
q
. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 651
_ Mr. Barxury. Mr. Chairman, may I ask one question I overlooked
a while ago ?
-’ The Cuarrman. Yes.
_ Mr. Barkuey. Mr. Plumb, you made a statement that you did not
think that Congress had been in touch with the people during the last
three months and that you had obtained information recently which
you did not believe existed, or which you did not produce when you
came down here in May ?
Mr. Prius. Yes.
Mr. Barxiey. And that the temper of the people is such that you
would not be surprised at anything that might happen within 60 or
90 days. For my information and for the information of the com-
mittee would you object to revealing what you had in mind in making
that statement ?
Mr. Pirums. Not at all. J have been perhaps more isolated in my
personal experience than Members of Congress. I have been more
engaged in shutting myself up in my study and working as a lawyer
on these problems than I have been in mingling with the public.
I came down here in May expecting to prepare this bill for presenta-
tion, together with an elaborate brief to be submitted with it. I
worked along for two or three weeks. I began to receive calls to
come here and there, Denver, Wisconsin, St. Louis, ‘“‘here is a group
of people who want to hear you talk on this subject.” I began
responding to those calls. The audiences grew from a few hundred
to thousands, and they are promising me an audience at Sedalia, Mo.,
next Tuesday of 100,000 from all over the State, and I doubt if I can
go there because of this hearing.
_ The interest which the people have shown. in this problem has
amazed me. I did not think it would be possible to interest the
public in the way they have responded. I have now calls that I am
unable to fill from all over this country to explain this proposition,
and that is a demand that has come into existence without any
newspaper publicity whatsoever.
I had hoped that in a year I might be able to interest the public
to that extent, and within three months I am overwhelmed with not
only requests, but demands that I come and explain this new doc-
trine. It is spreading like wildfire. Places with which we have
had no correspondence at all are holding mass meetings and sending
in resolutions. They have sent down and gotten our literature,
absolute strangers and unknown to us, and in a little while we get
back word that they have held a mass meeting and adopted these
resolutions. I am beginning to be flooded with letters from farmers,
engineers, officials and employees of railroads, and security holders,
Saying that they believe this plan affords them the only safety that
has been promised at all. |
Now when that starts within three months and with almost no
effort on my part, when any effort that I could make could not keep
- with the demand, then I would not be surprised to see the people,
the majority of the people of the United States, arising and expressing
‘their desire for this plan by any means within their power, mass
Meetings, letters, communications to Members of Congress, or any-
thing else. .
Now you gentlemen can very quickly distinguish between a manu-
factured propaganda and a spontaneous reply. You have had
652 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. si
enough experience to know that if you get 100 letters written in the
same language that there is something behind that which is not real,
it is spurious propaganda. If you get 100 letters that you know
are written by the individuals sending them in, you know that that
Bessie is not manufactured and is not spurious. Now you will
ave plenty of opportunity to judge that within the next three .
weeks, because that has gotten. beyond our control. We are not
asking for those communications; they are being hurled at us. |
Mr. Barkiey. Your remark, then, that you would not be surprised
at anything that might happen within the next 60 or 90 days did not
imply any revolutionary or destructive action on the part of any
great body of men which would stop the wheels of industry or trans-
portation or bring about a cataclysm of any sort? | |
Mr. Prums. I am going to be absolutely frank with you, just as
frank as I would be with my own men. I was in St. Louis two weeks
avo; there was a crowd of three or four thousand there and I spoke.
After I got through speaking crowds of men came up to me and, to
speak accurately, one of them, representing one crowd, said: “By
G——, if we can’t agree on this plan, there is gomg to be a revolution,”
and his sentiment was echoed by all of those there. Now, that is
not organized effort, it is the spontaneous revolt against conditions
that can not be borne. |
Mr. Barxiry. You do not think, do you, that your most excellent
oratorical abilities had anything to do with that sentiment?
Mr. Piums. Not at all) It merely showed them a way out that
they were eager to tuke advantage of.
Mr. Barxiey. What did you understand to be the meaning that
was in his mind when he used the word ‘‘revolution’”’? I am asking
these questions in order that I may get the information which you
say you have, and which you have not.
Mr. Prums. I think that in that man’s mind and in the minds of
millions of others, they feel that they have reached the point of
diminishing level of existence where they can not stand any more,
and rather than continue to serve for a diminishing return nie will
cease to serve. Mi
Now, Congressman, I did not know that that existed_out in the
country until I was called out to meet these people. I felt, as I
think many of you have felt within the last three months, that we
were getting along all right; that we would work it out some way;
that there was certainly some way to work it out. I felt the same
way. I know at this time that if we do not work it out and work
it out quickly we will have no opportunity to work it out.
Mr. Barxiry. Is that feeling brought about by any sudden change
of views as to the abstract prmciples involved in this plan of yours,
or is it accentuated by the constantly mounting of what we call
the cost of living, that every man must confront whether he works
for wages or works for a salary.
Mr. Piume. It is accentuated by that constantly mounting cost
of living and the other necessity of finding some way to meet it. |
Mr. Barxiey. That leads me to ask this question. Do you believe
that the passage of this bill will to any appreciable degree, as affecting
all the people, solve that problem in the immediate future ? eg
Mr. Prums. I believe it will do more to solve that problem than
anything else that can be done. You are confronted right now with.
a request for a further increase of rates to produce an additional
ee le
=
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 653
$700,000,000 of revenue, or in default of that to appropriate
$700,000,000 for carrying on transportation. If you do either one
you increase the burden of living and increase the high cost of living,
eo. if you increase rates, because that increase in rates is
reflected in every commodity, whether it is shipped or not. Now,
if this plan is adopted we can assure the public immediately of no
imcrease in rates, and if we can save the difference between what we
are paying for the railroads and what we ought to pay for them on a
fair calculation we have wiped out the deficit and are operating in a
surplus, right from the start. Then if you will get rid of the unneces-
sary, useless employees in both classes, managing and official, officials
and classified, really unify these properties and introduce into the
body of those who operate these railroads a motive for efficiency, we
ought to be able to save enough money to give a 5 per cent reduction
very shortly. We might even have it figured out by experts so that
we could give a reduction and forego any opportiunity for a dividend,
be satisfied with a reduction, provided you see that reduction is rep-
resented in the price of commodities. : :
Now, the employee of the railroads is just as much affected by
this high cost of living as all the great public, and if he can get a
reduction in rates, reflected in a reduction in the cost of living, on
ul commodities, he gets that benefit, together with all of the public,
id if he gets any savings from efficiency he gives an equal saving to
he public. In that way you have touched the key of all the indus-
ries—transportation. You have removed from the cost of every
‘ommodity a common element of cost and permitted a reduction in
ihe cost of living.
Mr. Barxrry. If the rates now in force should be immediately
educed to the prewar basis, having been incresdsed first by the
nterstate Commerce Commission 15 per cent, then by the Railroad
\dministration 25 per cent, representing a 40 per cent increase, if
hat rate were reduced back to the normal rate that existed before
hese increases, do you believe that that decrease in railroad rates
rould find any appreciable expression in the cost of living now being
aid by the average man ?
Mr. Proms. It ought to be immediately reflected in a tremendous
sduction, but the Government has got to see that the profiteer does
ot appropriate it to himself,
Mr. Barxiry. That is the point, but would it?
Mr. Prump. It can be done.
Mr. Barkiey. Can it be done without legislation from Congress
ithorizing the Government to fix the profits to individuals or cor-
rations upon the necessaries of life ? |
. Prums. In my belief it is within the power of Government to
cree by legislation that the cost of transportation shall not be the
isis of profit on any commodity transported.
. BarxeEy. In interstate commerce?
‘Mr. Prums. No; if the Government owns these roads it makes no
ference whether in interstate commerce or not.
‘Mr. Barxzey. I am speaking independently of your bill, now?
; Mr. Piums. I believe you could provide that no articles shipped
terstate commerce should pay a profit on transportation.
)Mr. Barxiey. Are ‘you able to say at present what profit is now
alized by manufacturers, jobbers, retailers, or others who distrib-
'@ the food products upon the cost of transportation ?
\
654 RETURN OF THE RAILROADS TU PRIVATE OWNERSHIP.
Mr. Prums. I can give you only a hypothetical case. Now the
proportion holds true no matter what the rate may be, no matter
what the rate and profit may be, and if I had the basic rates I could
give you the exact amounts in dollars and cents, but I shall assume
that wheat shipped from Nebraska to Chicago is then shipped from
Chicago to Minneapolis for milling, turned into flour and shipped
from Minneapolis to St. Louis to a wholesaler, shipped from there
to Sedalia to a jobber, and shipped from Sedalia to’ the adjoining
point to a retailer. That makes five shipments. The consumer
who buys from the retailer pays 15 compounded profits on those
costs of transportation. Now, whatever the profit may be, it is
compounded 15 times.
Mr. Barxiey. So that, if a merchant receives a shipment of $100
worth of food products, or anything else, wearing apparel, he has
been accustomed to make a profit of 10 per cent on his outlay, repre-
senting the $100, if he pays $10 additional freight on that $100 worth
of goods he charges 10 per cent upon the extra $10 that he pays in
freight, so that when the consumer buys it he not only pays what
the merchant paid out for freight, but pays him a profit for payimg
freight ?
Mr. Pius. Yes.
Mr. Barxuey. And that process proceeds in arithmetical progres-
sion in proportion to the number of transactions involved ?
Mr. Puums. Yes. Now, if that profit on the shipment of com-
modities in interstate commerce were eliminated, it would be a
tremendous element in the reduction of the high cost of living, and
the whole trouble, Mr. Congressman, is this, our industrial system
has now gotten on a basis where profits are calculated on cost of
production and not on investment.
Mr. Barxuey. Mr. Chairman, I did not intend to take so much
more time, but it is a fruitful field for inquiry.
The CuarrMAN. We shall not have time to proceed further this
evening.
(Whereupon, at 4.50 p. m., the committee adjourned until Friday,
August 8, 1919, at 10.30 a. m.)
CoMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
House or REPRESENTATIVES, |
*
Friday, August 8, 1919. —
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair
man) presiding. 4
The Cuarrman. Mr. Plumb was on the stand yesterday and mem-
bers were interrogating him. Judge Sweet wished to interrogate you
last evening when we adjourned. ~ §
STATEMENT OF GLENN R. PLUMB, GENERAL COUNSEL FOR
THE ORGANIZED RAILWAY EMPLOYEES OF AMEETY
Resumed,
Mr. Sweer. Mr. Plumb, it is contemplated by your bill that the
Government will ultimately own the railways of the country and that
they shall be operated and possessed by the National Railways Oper-
ating Corporation for the purpose of operating them. |
Mr. Pius. It is.
{
Tt
RETURN OF THE RAILROAVS TO PRIVATE OWNERSHIP. 655
Mr. Sweet. The Government will own all the roads and this great
corporation will operate them for 100 years under a lease.
Mr. Piums. Or until such time as the Government might revoke
the lease, unless operations were successful.
Mr. Sweet. I wish you would explain fully to the committee why
you put this provision in the bill. Why not have the Government
own and operate the railroads ?
Mr. Piums. Because we do not believe in operation by any Gov-
ernmental body. We do not believe that this industry can be con-
ducted by any political autocracy. If we were to leave the operation
of the railroads in the hands of political appointees, we would place
this tremendous system utterly in the hands of politicians, and that
we do not believe can safely be done. |
Mr. Sweet. In drawing this provision, did you also take into con-
sideration the personal initiative or assertiveness of those who are
engaged in the actual operation of the railways ?
Mr. Pius. I think that was one of the greatest things taken into
account. The men who operate the railroads make of it a life work
and a life study. They should be so placed that there would be no
limits prescribed for their initiative by any outside forces, excepting
those placed upon that initiative by the great body of men whose
skill represents the efficiency in the organization. Under this plan,
we have provided for an incentive to actuate every employee, both
in the official and in the classified bodies of employees, and we have
removed from their activities the restrictions under which they now
operate, placed upon them by capitalistic control, which frequently
requires them to forego doing things which their judgment tells them
should be done, because it might absorb moneys required for profits.
We believe that we, for the first time in this industry, have freed
human initiative from restrictive bonds placed upon it by those who
desire only profits, and have made it possible for the development of
that initiative to its fullest extent, compatible with efficient service.
At the same time, we have placed restrictions that prevent a wasteful
or extravagant expenditure caused by such initiative, because it is
restricted by the judgment, the common judgment, of all of those
skilled in the industry; but it is not restricted by outside forces desir-
ing profit. And it is also restricted by the judgment of those who
represent the public, because they have a voice in saying whether or
not new activities shall be undertaken, whether new imventions shall
be applied, and yet we get the common judgment of the public, the
operating forces, and of the management freed from the restrictions
OI capitalistic control and the desire for profit.
. Sweet. You believe then that your plan would give a more
nearly equal opportunity to those who engage in the railway business?
Mr. Pius. We believe that it restores to those engaged in this
industry that equal opportunity which is prescribed in the Constitu-
tion and of which they have been deprived under the system we are
seeking to replace. |
Mr. Sweet. In placing this provision in the bill, did you take into
consideratior more efficient operation and management than has
been had in the past in connection with our railroads.
Mr. Prums. We did; and I will say that that provision was the
product of not only my own experience of some 30 years in the
operation of these utilities but the experience of the leaders of these
152894—19—vo1L 1—_—42
656 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
organizations for even a longer period, that this would permit the
consolidation of all of the forces ot the operatives into an effective
machine, imbued with a morale made possible by the harmonizing of —
these interests that never have been seen in this service. We believe
that the sevings of that efficiency would run into high percentages of
existing costs.
Mr. Sweer. In other words, your idea was that a great private
COG tadort like the one provided for in the bill could more effici-
ently operate the railroads of the country than the Government of the
United States. |
Mr. Prums. We believe so.
Mr. Sweet. And that efficiency can best be obtained through
the organization of a corporation of this kind that has for its consid-
eration the operation of the roads.
Mr. PLums. We believe so.
Mr. Sweet. In placing this provision in the bill, did you take
into consideration the experience or experiences that we have had
during the last year or so in connection with the Federal control of
the railways. Did that experience assist you in coming to a conclu-
sion as to what would be proper in placing this provision in the bill?
Mr. Prums. That experience confirmed our judgment in placing
this provision in the bill, though this provision was worked out
before the results of Government operation were available. And I
want to correct that, not Government operation, but governmental
control of operation, for I do not consider that we have had actual
governmental operation.
Mr. Sweet. In putting my question to you, I guarded the state-
ment that I made along that line, making a distinction between
Government control of operation, and Government operation.
Mr. PLums. Yes.
Mr. Sweet. Did you also take into consideration in putting this
provision in the bill that all controversies that would arise between
the Government and the railway employees, or that might arise be-
tween the Government and the railway employees, in case we had
Government control, would be better taken care of in that whatever
controversies might arise would be between the employees and this
corporation which will operate the roads.
Mr. Piums. We believe so, Judge, for this reason: We have re-
moved from this plan the foundation for most controversies, because
most controversies between employees and the existing corporations
arise out of the fact that the existing corporations as employers deny
the claims of the employees on the ground that the allowance of those
claims would deprive the employing corporations of some share of
their profit. That is the basis of most of the disputes. Now that
basis is removed, and any dispute that arises, in the great majority
of cases, would be as to questions of discrimination, as to whether the
employees in this particular craft under the conditions imposed upon
them were receiving a compensation that compared equitably with
the employees of another craft who are receiving a different compen-
sation. Now, those are matters of adjustment to prevent discrimi-
nations, and those can be best worked out between the managin
officials and the employees affected, because then it is being solve
by men who have knowledge of the conditions. That does not
involve a change in the wage level of the mass; it involves adjust-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 657
ments, and that we leave to this board to be selected by the directorate
through negotiations with theemployees. Such boards under the Rail-
road Administration, and even before the Railroad Administration,
were very successfulin thesettlement of suchadjustments. Now, even
in that settlement the public have a voice through their membership
on the directorate, and it permits a harmonizing of these interests
instead of the perpetual conflict that has heretofore existed. Now,
on the question of wage levels, we create another board for that
purpose, dealing with advances or decreases in wage levels; and,
again, we leave that to a board represented equally by employees—
that is, the classified employees and the managing employees—and,
contrary to the representations made, the classified employees in
selecting that method have voluntarily surrendered a very great
advantage. It may be said that the public ought to have repre-
sentatives on such a board. I think the employees would welcome
that, but I believe that as it is drawn the employees have submitted
to a restriction much more severe than could be imposed by public
representatives, for this reason: The managing omployees have twice
the rate of dividend that the classified employees can obtain. Now,
it is manifest that with 20,000 managing employees, or a smaller
number under such a consolidation, and more than 2,000,000 classified
employees, any slight raise in the wage levels of the 2,000,000, or any
great proportion of the 2,000,000, would immediately reduce the
extra dividend allowed to the managing employees; and they will be
very vigilant to protect that advantage. So we provide that in case
there can not be a decision by the board so equally balanced it shall
then go to the public representatives. The self-interest of the man-
aging officials always will impel them to resist an increase in the wage
evels.
It will not impel them to resist adjustments made by the other
boards; but that self-interest will prevent their granting an increase
in the wage level unless they are convinced that it is deserved;
and if granted, will be against their self-interest; and in case there is
no decision it must go to the public representatives to decide that
uestion, and if the public representatives on the directorate believe
that the employees, by reason of increase in the cost of living are
entitled to an adjustment upward, certainly the public are not
going to object, and the managing officials could not resist it. On the
other hand, if the question involved is a decrease of the wage levels
by reason of a greatly lowered cost of living, the employees must
submit to that decision because no body of employees ever strike
unless they can impress on the public the justice of their claims,
and the public will have passed on that question before a revolt
against that decision could have been formulated. We believe that
by eliminating the profits motive and substituting the service motive,
that very service motive allowing to those who operate the trans-
portation their reward for the efficiency which benefits the public,
we have pretty nearly removed allof the causes of industrial friction—
this industrial warfare under which we have been living—and it will
permit a coordination and cooperation of these three interests that
ought to proceed with very little friction between them.
Mr. Sweet. And the controversy, if any, will not be carried on
directly with the Government but with the corporation.
658 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Piums. With the interests within the corporation.
Mr. Sweet. The interests within the corporation ?
Mr. Piums. Yes.
Mr. Sweet. And the railway employees then would not be placed
in-the attitude of feeling disgruntled against their Government.
Mr. Piums. They could only be disgruntled against themselves
because they decided with the public.
Mr. Sweet. In placing this provision in the bill, did you take into
consideration that the United States Government was not organized
in any way to directly operate business; and I use the word ‘‘business”
in the ordinary sense in which we use it to-day ? |
Mr. Piums. It seems to me, Judge, that our Government is a
separate department of our social life from the productive enter-
prises. If we combine the two, we have passed into socialism. If
we can keep them separate, we can still carry on our democratic
form of government and at the same time may democratize our
industry. Now, our Government was not organized for the purpose
of conducting industry. There was no such purpose in the minds of
the framers of our Constitution; but it was organized to protect the
political and civic rights of its citizens. Then the Government
organized or created corporations for the conduct of our industry,
and the conduct of that industry has been almost totally absorbed
by these creatures of government. So that, m fact, to-day, the
Government is conducting our industries not for the benefit of its
citizens, but for the profit of those who finance those industries.
Now, we want to utilize all of the benefits that the corporate organi-
zations have brought to the social order, but we want to turn the
purpose of those organizations from the production of profit for
private individuals to the benefit of the public, because through
these organizations, these corporations, we have effectually socialized
our industries to-day, but they have been socialized for the wrong
purpose. We merely want to divert that purpose and utilize the
strength of that social organization for the direct benefit of those
who make up these organizations and who constitute the public.
Mr. Sweet. Mr. Plumb, your idea, then, is to render unto Govern-
ment the things that pertain to Government and unto business the
things that pertain to business ?
Mr. Pius. Yes, sir; but with this further thought submitted by
Mr. Stone that business now belongs to the owners of capital, whereas
it should belong to the public. We exist under Government, but we
live by industry, and we should have the same freedom in the industry
by which we live that we enjoy in the Government under which we
exist.
Mr. Sweet. Business really stands on three legs, so to speak,
capital, labor, and management, and the greatest of these is manage-
ment, and the Government has not been organized to efficiently
manage business ? 2
Mr. Piums. It was not within the purview of those who organized
the Government that it should ever undertake the management 0
the things by which the citizens live. That was to be left to the
industry of the individuals, and we now restore it to the individuals
by this plan. | |
Mr. Sweet. The directors of this corporation are divided into
three classes. Five of the directors shall be elected by the classified
'
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 659
employees of the railway lines and properties of the United States
and its possessions below the grade of appointed officials. About
how many persons would you say are in that class?
_ Mr. Piums. Approximately 2,200,000.
Mr. Sweet. Five of the directors shall be elected by the official
me ployees of said lines and properties. How many are there in that
class ?
Mr. Piums. According to the classification as announced by the
Interstate Commerce Commission there are about 19,730 such em-
ployees. We call it 20,000 in round numbers. My
Rar Benen: You would have five directors representing 20,000
eople ?
‘ r. Plums. Yes, sir.
Mr. Sweex. And five directors representing 2,200,000 people?
Mr. Pius. Yes, sir.
Mr. Sweet. Five of whom shall be designated or appointed by the
President of the United States, by and with the advice and consent
of the Senate. Who would those five represent ?
_ Mr. Prums. They would represent the 110,000,000 citizens of the
country, the consuming element in industry.
_ Mr. Sweet. And in that class would be the shippers of the country ?
Mr. PLums. Yes, sir.
Mr. Sweer. The passengers upon the trains ?
Mr. Piums. The shippers, the passengers, the farmers, the manu-
facturers, all those who consume transportation.
| Mr. Sweet. Do you believe that the five directors elected by the
official employees would remain in number probably the same as they
are now during the whole life of this corporation ?
Mr. Prums. The five directors representing management ?
Mr. Sweet. Representing the officials.
__ Mr. PLums. It seems to me they should, because that element is
ihe element which is responsible to the two other elements for the
jonduct of this enterprise, and therefore it could not have a lesser
voice of authority.
Mr. Swerr. Considerable has been stated at the hearings here in
‘egard to certain proceedings had before the Board of Railway Wages
md Working Conditions. ‘That board, as I understand it, is operat-
ng under the United States Railroad Administration. J have before
‘ne a copy of those hearings and I shall read briefly from the testimony
riven by Mr. W. G. Lee, the president of the Brotherhood of Railroad
Trainmen. He said:
We reiterate our demand for a recognized principle of payment of time and a half
‘or Sundays and holidays and overtime in road freight, passenger, and yard service,
| nd assert that the Railroad Administration has discriminated against our members
a this service in holding this matter in abeyance, for the reason that the principle
as been recognized in other classes of industry.
y
|
| In view of the foregoing inequalities, both as to rates and conditions set forth in
upplement No. 16, the convention of our organization that recently closed, after
) pending several days very seriously discussing Supplement No. 16, provided, through
|2solution, in substance as follows:
We recommend that the president of the grand lodge be authorized and instructed
2 appoint, convene and meet with five general chairman from the Eastern, five from
Ae Western, and five from the Southern Association, and the chairman of the Chicago
‘sociation, in conjunction with the vice presidents of the brotherhood, at Washington,
)). C., just as soon as the convention has adjourned, for the purpose of determining the
| ates of pay and working conditions to govern employees represented by the brother-
00d, keeping in mind the fundamental principles herein set forth, and that he further
;
'
{
660 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
be instructed to place the matter before the Director General of Railroads by wire
demanding a hearing and insisting on a prompt readjustment of the wage rates anc
rules proposed in Supplement No. 16 for the men employed in the classes of servic
this organization represents.
That portion of the resolution was particularly under discussion, and, as you know
all over this world there is an unrest to-day that we must take into consideration, anc
in order to get away from what appeared to be a bad situation, this resolution wa
adopted with an amendment that may seem to some to be rather out of line with th:
-usual procedure of.our organization. Such amendment reads in the following lan
guage: |
Moved, to amend that in the event we are not given a prompt rehearing and :
prompt and satisfctory adjustment of this question the president of the grand lodge
hereby instructed to use the protective features of the Brotherhood of Railroad Train
men to procure justice for our members.
I wish you would just explain to the committee the latter part o:
this resolution, what it means ?
Mr. Prums. Judge, I have never heard that resolution before
My employment does not cover the field of labor adjustment, and |
am not informed on those matters at all, but I have no doubt thai
if you will address the same question to Mr. Garretson, who ha:
much fuller intormation, that if he can not answer it we will have :
representative of that organization here who can answer it. I cai
not attempt to answer it because that is not in my field of endeavor
and I know nothing about it.
Mr. Sweet. You do know, though, that a demand has been made
for an increase in wages ?
Mr. Prumps. Demands were made, as I understand it, in January
of this year that have been under consideration by these wage board:
and no action has been taken. There has been no decision on tli
adjustments requested, so I am informed, but my knowledge is purelj
by casual information and not from personal knowledge of the matte:
at all.
Mr. Swrerr. Do you know what the demand would amount to?
Mr. Prums. I do not even know what it was.
Mr. Sweer. Would it amount to $800,000,000 per year ?
Mr. Puums. I have not any idea. I am not consulted on thos
matters. I do know this, that the demand made by the trainmel
could not have been $800,000,000 or anything hke $800,000,000.
Mr. Swuet. I refer, of course, in that connection to Mr. Hines’
statement, and I suppose that applied to all the employees. {i
Mr. Puums. As to all of the 2,000,000 men engaged on the ruil
roads, | do not know. I can not give any information on that sub
ject, because I do not know the basis.
~~ The CoarrMan. That was based on an increase of 12 cents an how
-Mr. Piums. Twelve cents an hour. If that is based on 12 cents @
hour and amounts to $800,000,000, then the men are receiving lé€
than 30 cents an hour to-day.
The CuarrMan. Mr. Hines’s statement in the letter addressed t
~ the President is that an increase of 1 cent an hour would involve @
additional expenditure of $50,000,000 a year.
Mr. Prums. If 1 cent an hour involved an expenditure of $50,000
000 a year, then 124 cents an hour would involve an expenditure '
-$625,000,000. |
~The Cuarrman. I am not responsible for the mathematics. —~
Mr. Ptums. I am responsible for the mathematics, but not for M
~ Hines’s statement.
The CaarMan. I am not responsible for Mr. Hines’s statement.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 661
Mr. Sweet. Has what is known as the John D. Rockefeller, jr.,
labor creed ever been brought to your attention ?
Mr. Prums. I have received a good many copies of it, but I have
never read it. I think the copies were filed in the waste basket.
Perhaps I ought not to have done that.
_ Mr. Sweer. In view of that statement, let me call your attention
to these paragraphs in that creed: 7
I believe that the purpose of industry is quite as much to advance social well-being
as material well-being and that in the pursuit of that purpose the interests of the com-
munity should be carefully considered, the well-being of the employees as respects
living and working conditions should be fully guarded, management should be ade-
quately recognized, and capital should be justly compensated, and that failure in
any of these particulars means loss to all four.
1 believe that the most potent measure in bringing about industrial harmony and
prosperity is adequate representation of the parties in interest; that existing forms of
representation should be carefully studied and availed of in so far as they may be
found to have merit and are adaptable to the peculiar conditions in the various indus-
tries.
I believe that the most effective structure of representation is that which is built
from the bottom up, which includes all employees, and starting with the election of
representatives in each industrial plant, the formation of joint works committees, of
joint district councils, and annual joint conferences of all the parties in interest in a
single industrial corporation, can be extended to include all plantsin the same industry
all industries in a community, in a nation, and in the various nations.
Do you indorse that ?
Mr. Pius. That is a very excellent pronouncement which if put
in practice through our railway experience might have resulted differ-
ently from the present, situation, but the error in that is this: It
takes account only of Jabor and capital. It does not seek to safe-
guard the interest of the consumers and when labor and capital join
the public is exploited, becausé the public pays whatever labor and
“capital agree on between themselves, and we have become so large a
part of the public through our organizations now that we are com-
pelled to recognize that our interest as consumers js just as important
as our interest as producers, and the plan we present protects the
interest of the consumers just as completely as it protects the inter-
est of the producers, and it does not permit a consolidation of
Management and capital, if capital is to be joined with management.
It does not permit a consolidation or a combination between manage-
ment and producers to exploit the consumers, nor does it permit a
combination between the consumers and management to exploit the
producers. That tripartite arrangement of ours does protect these
three fundamental interests, and it recognizesas a fundamental inter-
est in industry for the first time, I believe, that industry is based upon
the demand of society for the products of the industry, and therefore
that interest which is fundamental and basic must receive the same
protection and must have the same authority that is accorded to
Management and the producing element. That clement is entirely
lacking from the Rockefeller Foundation or Subbasement, or what-
ever it is called.
Mr. Wesster. Mr. Plumb, I want to say that I regret very much
_ that I was not able to be here yesterday. I was confined to my bed
with a sick headache, and my absence did not imply any discourtesy.
lam very sorry that I could not be here.
_ As general counsel for these various organizations, do you have
anything to do with the preparation or censoring of propaganda
662 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
letters sent to Members of Congress calling their attention to pending
legislation before Congress ?
Mr. Piums. I do not. All letters are sent to Members of Congress
through the spontaneous combustion of thefeelings of the men outside.
Mr. Wesster. Day before yesterday when I stated that I did not
intend to be coerced by threats or intimidations some one in the
room asked the question if I had been subjected to any such threats,
I notice in the list of organizations in whose behalf you appear there
are included the Brotherhood of Railway Carmen and the Brother-
hood of Railway Clerks. I want to submit to you a letter that I have
received from many members of both these organizations:
Faitts Lopes 512—BRoTHERHOOD oF RAILWAY CARMEN OF AMERICA.
To J. STANLEY WEBSTER.
GREETING: In council assembled the Brotherhood of Railway Carmen of America,
Falls Lodge 512, do most emphatically proclaim and assert, that under Government
control of the railroads that wages have been increased, the work day shortened, and
our working conditions improved, that labor and the family have had more of the
necessities of life. ;
Which condition has made it possible for him to become a better citizen, as from his
savings he has become the owner of a home, and the children have the advantage of a
better education. .
Therefore he who obstructs the Government in this policy of control or owner-
ship—— .
Mr. PLums (interposing). Pardon me, but what is that? ‘He
would instruct ?”’
Mr. Wesster. ‘‘Therefore he who obstructs”’
Mr. PLums (interposing). Obstructs.
Mr. WEBSTER (reading):
Therefore he who obstructs the Government in this policy of control or ownership,
becomes our direct enemy and shall be so posted, and a record of his action shall be
kept tor future reference, and it shall be our pledged policy to remove him from what-
ever political line of trust the public has given into his keeping.
We believe it to be our duty to our God, our country, and to man that labor should
have an equality of opportunity.
And he who denies to labor the right of a living wage is as great an enemy as the
alien, the pro-German, and the anarchists.
And we so strongly affirm this position that he who strives to object or demean labor,
or in any political way detract from the quality of labor shall be posted throughout
the length and breadth of our fair land as an undesirable. “He has denied the right
of labor to equality.”’ .
That is in quotation marks—‘‘He has denied the right of labor to
equality.”
Now, from my district, Mr. Plumb, I have gathered up in a short
time since coming to the office building this morning a lot of letters
of that sort that I have received.
Mr. Chairman, I desire to ask leave to make these letters [exhibit-
ing] a part of the hearing, that one of each of them be printed as #
port of the hearing as my answer to the question whether there has
een any effort to coerce Members of Congress by these organizations
who are appearing before us at this time.
_ The Cuarrman. You do not mean to insert all of them?
Mr. Wesster. No; only one and permit the others to be filed,
one from the railway mail clerks and one from the Brotherhood of
Railway Carmen. ‘They are in the same form precisely.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 663
_ Mr. Barxtzy. Not railway mail clerks?
| Mr. Wesster. The Railway Clerks of America.
The CuarrMan. Without objection it is so ordered.
(The letters referred to by Mr. Webster follow:) .
i
: Fautits Longe 512, BrorHERHOOD oF RatLwAy CARMEN OF AMERICA.
“To J. StANLEY WEBSTER.
- GREETING: In council assembled the Brotherhood of Railway Carmen of America,
‘Falls Lodge 512, do most emphatically proclaim and assert, that under Government
control of the railroads that wages have been increased, the work day shortened and
our working conditions improved, that labor and the family have had more of the
necessities of life.
__ Which condition has made it possible for him to become a better citizen, as from
‘his savings he has become the owner of a home, and the children have the advantage
of a better education.
Therefore he who obstructs the Government in this policy of control or ownership,
‘becomes our direct enemy and shall so be posted, and a record of his action shall be
kept for future reference, and it shall be our pledged policy to remove him from what
ever political line of trust the public has given into his keeping.
We believe it to be our duty to our God, our country, and to man that labor should
have an equality of opportunity.
And he who denies to labor the right of a living wage is as great an enemv as the
alien, the pro-German and the anarchist.
And we so strongly affirm this position, that he who strives to object or demean
labor, or in any political way detract from the equality of labor, shall be posted through-
out the length and breadth of our fair land, as an undesirable. ‘‘He has denied the
right of labor to equality.”’
GEO. C. JENSEN,
Route No. 11, Hillyard, Wash.
BROTHERHOOD oF RambwAy CLERKS—SPOKANE LODGE No. 34.
Congressman J. SrANLEY WEBSTER.
GREETING: In council assembled the Brotherhood of Railway Clerks, Spokane Lodge
No. 34, do most emphatically proclaim and assert that under Government control of
the railroads wages have been increased, the work day shortened, and our working
condition improved; that labor and the family have had more of the necessities of life.
| Which condition has made it possible for him to become a better citizen, as from his
Savings he has become the owner of a home, and the children have the advantage of a
better education.
Therefore, he who obstructs the Government in this policy of control or ownership
_becomes our direct enemy and shall so be posted, and a record of his action shall be
kept for future reference and it shall be our pledged policy to remove him from what-
ever political line of trust the public has given into his keeping.
| We believe it to be our duty to our God, our country, and to man, that labor should
have an equality of opportunity.
And he who denies to labor the right of a living wage is as great an enemy as the alien,
the pro-German, and the anarchist.
And we so strongly affirm this position, that he who strives to object or demean labor
or in any political way detract from the quality of labor, shall be posted throughout
thie length and breadth of our fair land as an undesirable. ‘‘He has denied the right
ot labor to equality.”’
Fay CORBETT,
Great Northern Railroad, Spokane, Wash.
Mr. Sweet. Are the letters identical ?
| Mr. Wesster. Yes, sir; precisely. The two letters are exactly
alike; they have simply been sent by different organizations.
_ Mr. Plumb, do you indorse that as a part of your educational cam-
paign to enlighten Members of Congress with respect to your plan?
mi
664 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Piums. I would not say that I indorsed that extreme language
but the very fact that you have received such letters from so large a
number, if those are all letters bearing on this subject
Mr. Wesster (interposing). Very well, I am perfectly willing te
submit them to you for your examination.
Mr. Piums. No;I do not care to see them. I merely want to state
that the fact that you have received such a number of letters gives
point and illustration to what I said yesterday, that the situation is
getting beyond the point of control.
Mr. Winstow. If my memory serves me correctly, you stated
yesterday that when letters were received by Members of Congress
written in different language, showing the individual interest, that
they were letters from the heart, letters of love, and when they came
set up in one form it was propaganda and should be avoided, |
should like to inquire if these letters were written from the heart o1
are propaganda letters ?
Mr. Wexssrer. They are in precisely the same language, all on
what appear to be the letterheads of the organizations, and each
letter of both organizations is in identically the same lanaguage as
the other.
Mr. Winstow. How would you class these letters, as propagande
or letters of love?
Mr. Piums. I should say they were probably not letters of love
but if they originated in the same district I should say that the officers
+ those organizations had united on a single form of letter from that
istrict.
Mr. Wrnstow. And brought forth a propaganda thereby ?
Mr. Prums. Mr. Winslow, there is no such thing as propaganda
except as meaning propaganda of the truth. :
Now, unless conditions existed throughout the country where tii
doctrine is welcomed as a solution of existing evils, no amount 0
social propaganda can possibly increase or retard the movement.
is the conditions existing that make the acceptance of this thing 8:
remarkable, because as soon as it is apprehended by those who ar
striving with discontent, they say, “Here is a solution and w
demand it.”
Mr. Wesster. If you will look over one of the copies which I hay
laid on the desk before you, you will see that it is printed.
Mr. PLums. Yes; I see.
Mr. WessTeR. It is not typewritten.
Mr. Piums. Yes; I see. |
Mr. Wesstrer. And to show that it is printed, if you will notic
right under the words “ Fall Lodge 512, Brotherhood of Railway Cai
men of America,” there is the union label of the concern that printe
the letter.
Mr. PLums. Yes, sir.
Mr. Wezsster. I want to ask you if you indorse that as a meat
" ade te the favorable action of Members of Congress on legi
ation ¢
Mr. Piums. The italicized line in the letter is “that labor show
have an equality of opportunity,’ and “ And he who denies to labor tl
right of a living wage is as great an enemy as the alien, the pr
German, and the anarchist.” |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 665
Mr. WessTER. May I just direct your attention to what precedes
| that italicized statement:
Therefore he who obstructs the Government in this policy of control or ownership,
_ becomes our direct enemy and shall be so posted, and a record of his action shall be
_ kept for future reference, and it shall be our pledged policy to remove him from what-
ever political line of trust the public has given into his keeping.
Mr. Prump. I think that any body of citizens in the United States
has a right to use their franchise and their political privileges to
protect through their ballots any rights which they believe they are
entitled to. Of course, that threat becomes absolutely powerless, if
you call it a threat, unless the public also supports their belief. They
would be powerless to remove any Congressman from his seat unless
the public opinion in his district supported their opinion, and it is
“merely
Mr. WEBSTER (interposing). They do not confine themselves here
to removing a Congressman from his seat; they say that he is to be
~“nosted throughout the length and breadth of our fair land, as an
undesirable.” They can not remove me from my seat in Congress by
posting me outside of my district, because the people outside of my
district have not any voice in that matter. They propose to hold me
up to country-wide ridicule and scorn as their direct enemy,
Mr. Prums. I do not see that. All that I can see is this, ‘‘Itshall
be our pledged policy to remove him from whatever political line of
trust the public has given into his keeping.”
Mr. WesstTer. It says here, ‘And we so strongly affirm this posi-
| tion, that he who strives to object or demean labor or in any political
way detract from the quality of labor, shall be posted throughout the
length and breadth of our fair land as an undesirable.’ Then this
statement is quoted: ‘‘He has denied the right of labor to equality.”’
I have another one here that makes it a little more specific. This
comes from Spokane, my home city, and I read this extract from it:
“Tf you are seeking higher aspirations in political life, you hold your
destiny in your hands. Vote for Government ownership of rail-
roads.”’ Do you indorse that ?
Mr. Prump. Such a letter as that?
Mr. WeEBsTER. Yes.
Mr. Prump. I think there is nothing improper in that letter.
Mr. Wessrer. Do you think there is anything improper in the
letter in your hand to which I have directed your attention ?
Mr. Pius. I think this letter that I hold in my hand is subjec
to exactly the same criticism that we have attached to the policies
of the other side. Colliers sometime ago advocated the public
posting of men in political life who did not subscribe to the beliefs
supported by Colliers.
r. Wessrer. You do not want to subscribe to the idea that it is
all right to do wrong so long as somebody else does wrong?
Mr. Piums. I do not; but you must remember that these men are
, following examples that have been thrust upon them, and there
must be some charity shown to them, because they have had a bitter
Toad to travel. In the main, when they say that the man who does
' Dot accept their demands they will consider as an enemy to labor,
_ they believe that labor should have equality of opportunity, and
that the man who denies that opportunity is an enemy of labor.
- Mr. Wessrer. Then, you indorse the letter ?
666 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Pius. I indorse that statement in the letter.
Mr. Wessrer. What part of the letter do you not indorse?
Mr. Pitums. I do not indorse the posting. I believe that thatTis
just as much to be criticized as like methods pursued by our adver-
saries. I would like to keep our campaign free from such objections,
and would if it were within my power.
Mr. Wesster. Will you agree with me that the letter, taken by
and large, in all of its terms, is a plain threat?
Mr. Prums. I admit that that is a plain threat.
Mr. Wesster. I want to ask you this question: Do you advocate
the use of threats being brought to bear upon Members of Congress
to further the enactment of legislation ?
Mr. Pius. I believe the public have got the right
Mr. WEBSTER (interposing). I wish you would answer my ques-
tion.
Mr. Prums. I am going to answer it.
Mr. WesstTeEr. That is a fair and plain question. Do you indorse
the resort to threats conveyed to Members of Congress for the purpose
of influencing their action officially with reference to pending
legislation?
Mr. PLums. Under certain conditions I do, and now I will say
what those conditions are: When an issue arises in Congress whic
is not submitted to the people at the polls and on which the Congress-
man has not received directions from his constituency, I believe that
his constituency have the right to inform him what their beliefs
may be and what action they desire him to take.
Mr. Wesster. And then to tell him what they will do to him if
he does not do as they desire?
Mr. PLtums. They will inevitably do that, because that is human
nature.
Mr. Wessrer. But do they have the right to do that?
Mr. Prums. Anybody has the right to tell any Member of Congress
whether he will vote for him or not.
Mr. Wezster. And to tell the Congressman what he will do to him
if he does not do as desired 2
Mr. Pius. I believe that he has.
Mr. WepstErR. Then you, as general counsel of the organization,
indorse that as the proper thing to do?
Mr. Piums. No, sir; I do not. Now, I want to say this, that I
believe that every voter has the right to inform his Representative as.
to his views. Now, having that right, the form of the expression of
his views will inevitably be a threat—that is, that he will not vote for
you again, or that he 1s going to defeat you if you do not follow his
views. That is inevitable, and you can not get away from it. But
that threat does not need to worry the Congressman one particle
unless the public supports it. If the public does support it, or if a
majority of his constituents want him to take that action, he is
recreant to his trust if he does not take it. : |
Mr. Wessrer. Do you not think that he is entitled to give a little
consideration to other elements of his constituency not comprising the’
labor organizations ?
Mr. Piums. Certainly he must.
Mr. WesstTerR. And to the Constitution of the United States when
he takes an oath to uphold and support it?
Mr. Piums. Certainly.
RETURN OF THt RAILKOADS TO PRIVATE OWNERSHIP. 667
Mr. Wessrer. As a lawyer of broad experience, and I am sure you
are that sort of a lawyer, do you not know that if this letter should
be written to the judge of a court with reference to a case pending
before him it would subject the writer to imprisonment for contempt ?
Mr. Proms. Certainly; but a Representative in Congress or any
legislative body is there to enact the desires of his constituents, pro-
vided they are constitutional. |
Mr. Wezster. Do you not think that the proper course to pursue
is the one to which you committed yourself yesterday? If I have been
misinformed regarding it, you can correct me, but it is the one to
which I know Mr. Morrison and Mr. Stone committed themselves and
indorsed, because I was here and heard it—that is, that they proposed
to carry on a campaign of education and enlightenment, and that they
propose to appeal to the intellect and conscience of Members of Con-
ress in an effort to win their approval for what they call the Plumb
lan. Now, isit to be understood by us that that friendly campaign of
education and enlightenment is to be carried on in the form of threats,
and by telling individual Members of Congress what punishment will
be inflicted upon him if he fails to give expression to their opinions?
Mr. Prums. That is not our plan, and I am sorry that you were
not here yesterday, because we tried to make an appeal to the intellect
of Congress yesterday. |
Mr. Wesster. I am very sorry that I could not be here on account
of illness. Will you be kind enough, for my benefit, to define your
attitude in regard to that matter now, because of those conditions
which prevented me from being present yesterday ?
Mr. Prump. Certainly. My attitude is this, Mr. Congressman:
We are here presenting to this committee the very best reasons for
the adoption of this plan that we can present. We are presenting
those same reasons throughout the length and breadth of this country
to the public through every means at our command. That is our
purpose and that is our campaign. We are using the press, the labor
es the magazines, our own publications, and the lecture platform
or that purpose, and you will not find in any single matter that we
have sent out anything that could be used as the basis for a threat.
[t is purely an appeal to reason.
Now, one word more: The reactions of this are inevitable in just
uch letters as you have received, because the mind of the working-
nan throughout the country is like a bed-of tinder, and the moment
‘hat he sees anything that promises a ray of hope or a way of escape,
‘he reactions are bound to come to you, and they will come in the
orm of threats, such as this letter that you have received. That we
‘an not control. There is no way of controlling it. It is not the
‘nethod which the leaders desire to have followed, but it is the inev-
table reaction of men who see a ray of hope out of the darkness that
low surrounds them. If you can not see it in that view and make
he allowances which this tremendous unrest throughout the country
pg lead you to make, then you can not judge the temper of the
-eople.
) Mr. Wesster. Now, you have just stated that in none of the meth-
ds to which you have resorted in getting this matter before the
eople have any threats been resorted to, but you have just stated
1a qualified way that you thought this was permissible. Now, why
ave you not done it?
668 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Prums. Because that is not the right way to do it. This is a
matter of statesmanship.
Mr. Wesster. That is what I thought.
Mr. Prums. It is a matter that ought to be approached purely from
the statesmanship viewpoint or idea. It is a case where reason ought
to control, but we are dealing with a situation where men who grasp
a glimpse of reason get beyond control, because they see a ray of hope
and they want to realize 1t immediately.
Mr. Wesster. Had you seen this form of letter before I handed it
to you this morning ?
Mr. Prums. I had never seen it before, and I did not know that
there was such a letter.
Mr. Wesster. You did not know that they were being sent out by
this or any other organization ?
Mr. Piums. No, sir.
Mr. Wesster. Had you been consulted about it, would you have
advised sending them out?
Mr. Pitums. I would have advised sending a letter, but not that
form of letter. |
Mr. Wesster. If you had been consulted. about distributing this
letter to which I have called your attention, would you have advised
it being sent out ?
Mr. Puums. Not that letter; no, sir. I can tell you what kind of
letter I would have advised sending out, but I have not advised as to
any of them.
Mr. Wesster. Now, in order to make it specific, will you please
take the copy handed to you and tell me what portions you would
leave out if you were censoring it ? 7
Mr. Ptums. Suppose I dictate such a letter as I would send out.
Mr. Wesster. No, sir; I want to confine your attention to that
form of communication that you said you would not approve. Will
you indicate what part of it you would disapprove and recommend
being stricken from the letter ? )
Mr. Puums. When I disapproved this form, I do not know that I
would want to then say what parts of it I would strike out. I do
not approve that form at all.
Mr. Wesster. If your clients had come to you as counsel and
said, ‘‘Mr. Plumb, we are contemplating sending to Members of
Congress a letter in this form, and we want the benefit of your train-
ing, experience, and mature judgment on the question of whether
this is the proper letter to send.” You have already told me that
you would have said to them, ‘‘No, gentlemen, I do not think ths
letter should be sent.’ Then, they would want to know why. Please
tell me what reasons you would give them under those conditio
and what parts of the letter you would advise them should be stricke
out ?
Mr. Piums. I would have said, ‘‘Strike out all after
Mr. WessTER (interposing). ‘After the enacting clause ?”’
Mr. Puums. ‘‘After the enacting clause,’ and I would begin with
“My dear sir.” . T
Mr. Wesster. To that extent you indorse this letter, though 1
neither begins with ‘‘Dear sir’ nor closes with anything, and ie
would eliminate the portion of it between what would appear if it hac
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 669
commenced with ‘My dear sir” and had concluded with something
ae, Lours, truly’’—— .
_ Mr. Pius (interposing). I would have eliminated everything
rom “My dear sir” down to the signature.
Mr. Wesster. That is what I thought.
' Mr. Prums. That is what I was trying to convey to you when I
Jaid, “‘Suppose I dictate a letter.” .
Mr. Raysurn. Mr. Plumb, I do not intend to question you in
egard to the bill or as to the phraseology of it, because our minds are
0 far apart on the fundamentals that it would not be important
vhat language you expressed your ideas in. It was stated the other
lay that 2,200,000 employees indorsed this bill.
Mr. Pumps. Yes, sir,
_Mr. Raysurn. That, of course, would indicate an indorsement
{ter an understanding of what was in the bill.
_ Mr. Prump. Yes, sir. )
Mr. Raygurn. Now, can you tell me just how the average railroad
mployee would understand the provisions of this bill
PiumB (interposing). He would not understand the pro-
isions of the bill at all.
Mr. Rayspurn (continuing). Well enough to indorse them ?
Mr. Ptums. He would not.
Mr. Raysurn. When Mr. Morrison, who is the second man in
our organization, and Mr. Stone, who is the head of one of these
Bee atone, admitted that they did not understand the provisions
“the bi
| Mr. PLums (interposing). They would not attempt to. They do
aderstand thoroughly the principles involved, and they trust us to
nbody those principles in proper phraseology and in proper
‘ovisions. |
Mr. Raysurn. Now, you say that you, and speaking for the
ganization that you represent, are against the Government owner-
Ip and operation of railroads.
Piums. Against the Government operation of railroads.
. Raysurn. Are you against Government ownership and opera-
m of railroads, or the two together ?
. Prums. I am against the two together; yes, sir.
. RayBurn. You say that the employees indorse this bill 2
. PLums. Yes, sir.
“Mr. Raysurn. There is a town in my district that is quite a railroad
vn, and not earlier than April I made some remarks here on the
lroad situation. They were made in February, I think, and they
te mailed out to them. I got about 200 letters from this town,
In the same language, starting out with “Sam Rayburn, Esq.,”
(1 winding up with nothing in the way of respect, saying that they
re in favor of the Government ownership and operation of railroads
1 that their organizations stood for that. N ow, if they are against
eanent ownership and operation of railroads, they have changed
pir ideas.
|, Proms. There was one of the major organizations that in-
;Sed Government Ownership and operation before this plan was
ounced. This plan was presented on the 7th of February.
PSequently, the plans were distributed, or the letter was dis-
uted to all of the officials of those organizations. They studied
—————
670 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP.
the statement made before the Senate Committee, and conventions
began to be held in May. They were held on through June and some
of them into July. At those conventions this plan was discussed
by the officials and their representatives in the conventions, and
appropriate action was taken by all of those conventions, and, I
believe, unanimously in every case, indorsing this plan for Govern-
ment ownership of railroads and their operation by this organization
that we propose. I want tosay this: The average, ordinary working-
man may have a clear idea in his own mind of what he wants to
express, but the words in which he expresses it may not clearly
indicate what it is that he wants to say, and, in many instances, the
workingman will speak of this plan as Government ownership and
operation, but he does not mean operation by the Government.
When they say that, they mean operation under this plan as proposed.
Mr. Raypurn. I think this letter I got was drawn by an expert
Mr. Piums. That was in
Mr. Rayspurn (interposing). That was in March.
Mr. Piums. That was before this plan had reached all of the
organizations.
Mr. Rayvsurn. So that, if they were for Government ownership
and operation then, they have indorsed this plan since. There is
one provision of your bill to which I would like to call your attention,
and that is where you form the directors. You stated a moment
ago that five were to be appointed by the President to represent the
110,000,000 people in the United States—including the farmers,
shippers, consumers, and everybody else.
Mr. Pius. Yes, sir.
Mr. Rayspurn. There are something like 2,000,000 railroad em-
ployees.
Mr. Pius. Yes, sir.
Mr. Rayspurn. Don’t you think that is a rather big division to
make, to give them 10, and the other 110,000,000 Sauk 5 members
of this board of directors ?
Mr. Prump. We do not give the employees 10; we give the em-
ployees 5 and we give the public 5.
Hi RayBurn. The five appointed by the President belong to the
public ¢
Mr. Prums. They do belong to the public. I want to answer that
question, and I want to distinguish between the 10 for the employees
and 5 for the public. We do not consider the management a&
belonging with the classified employees. We do not consider that the
ublic and the classified employees—that is, the consuming element
in society and the producing element—are equally balanced. Now
the public is going to hold those employees responsible for carrying
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 671
Mr. Raysurn. Do you assume that the President will appoint any
number of men, even though he had the appointment of all of the
15 directors, who would not be broad enough to comprehend the
ees of laboring men as well as those of the other 110,000,000
eople?
: Mr. Prums. Yes; that is our experience. The post-office appoint-
ments seem to justify our belief. We have not found that at the
head of governmental bureaus they have always succeeded in getting
men of admitted skill and efficiency in the lines of activity which they
were conducting.
Mr. Raysurn. But a man’s fairness must not be measured by
that, or by his readiness in granting everything that a special organiza-
tion may ask.
— Mr. Prums. No; but his skill and efficiency are what we are-holding
him responsible for, and there is no, way to hold a Government
appointee responsible for skill and efficiency. He may be an emi-
nently fair-minded man, but if he is taken from a bank and put in
charge of stockyards or railroads, you are not liable to get efficiency
out of the organization under him; and we want men in charge of this
industry who know it from the ground up.
Mr. Raysurn. The five who are appointed by the officials of the
railroads are railroad employees ?
Mr. Ptums. Yes; they are, but you do not so regard them to-day.
Mr. Rayspurn. They are so regarded now, are they not?
Mr. PLums. No; because the men appointed by the railway officials,
in a great number of cases, are not serving on the railroads to-day.
Mr. Raysurn. That may be so, there may be some, but the men
who are in the official positions—I mean below the eos of president
aod men like that, superintendents and people like that—are the
employees of the railroad. :
Mr. PLums. Oh, yes; they are employees, but we have never con-
sidered managing officials as having the same interests and being
classed with the wage-earning employees. Technically, they are
employees, I admit that, but they are a different class of employees
performing different functions.
Mr. Raysurn. That is true, of course. Now, you made the state-
ment yesterday that one relief that would come from this bill was that
the rates would be immediately reduced.
| Mr. Piums. I do not believe that I made that statement, but I
\think it could be done. Now, if you mean by immediately as soon
/as the organization was formed, I doubt if that could be done, but I
delieve it could be done within a year.
Mr. Rayspurn. I mean as soon as it was physically possible.
Mr. Piums. Oh, yes.
Mr. Raysurn. Why do you say that ?
} Mr. Prums. Well, for this reason: We are now paying for the use
| t these railroads approximately $1,000,000,000 a year to the owners.
Mr. Raypurn. Yes.
Mr. PLums. We anticipate that if these properties are taken over
dy a fair valuation the capital return would not exceed $500,000,000
\ year, just about the amount they are now paying in fixed charges
omtheir bonds. That would have given us $500,000,000 a year which
vould have wiped out our deficits and left us with a surplus, even with
| he increased cost of wages and materials. Now, we believe that
152894—19—vor 1 43
672 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
under this organization we could have effected efficiencies sufficient to
have made a net earning of $500,000,000. That would permit a 5
per cent decrease, more than a 5 per cent decrease, about a 7 per cent
decrease in rates. We also believe, Congressman, that Director
General McAdoo was absolutely right when he increased passenger
rates for the purpose of reducing the amount of transportation. He
did it, and he reduced the income. We believe that if you were to
reduce passenger rates you would increase income right now, and if
you were to reduce freight rates, you would get the same results.
Mr. Rayspurn. But itis entirely a question of opinion as to whether
or not freight rates would be panied:
Mr. Prums. No.
Mr. Rayspurn. You believe that through these efficiencies, if there
were any, the expenses of the railroad operation would be cut down,
and others may believe that.through this system that they would
oO up. |
: Mr. Piums. My belief is founded on knowledge.
Mr. Raysurn. What knowledge? |
Mr. Piums. This, in the 80 years of railroad experience until
within the past 5 or 6 years, we have had a constant reduction in the
cost of transportation with no increases, but constantly reduced by
the railroads themselves, because they knew that such reductions
would produce increased profits through the increased traffic which it
would induce. That has been the experience of the railroads from
the beginning down to five years ago, and they have not been mis-
taken in their judgment, because traffic and profits have increased
with every reduction, and they have supported their entire rate
structure on the theory that they had fixed 1t just low enough to per-
mit that flow of traffic which would give the greatest profits. That
is the testimony in all these rate hearings, and the experience of 80
years has justified it. Now, if that be true—and there is not any
railroad man who will gainsay me in that—if you raise the level of
rates you have got them too high to permit that flow of traffic which
permits the greatest profit, and we have raised our rates 48 per cent.
Mr. Raysurn. They are now under Government control. Sup-
pose they are turned back to private control, and you say this has
been demonstrated by the experience of railroad people
Mr. Prums. Yes. :
Mr. Rayspurn. Can they properly reduce the rates ?
Mr. Piums. Not if they still seek to capitalize the profits they have
made under the old system and exact a return on those capitalized
profits. They can not, in any possible way, increase rates so as to
produce increased revenues. It can not be done.
Mr. Raysurn. I am not talking about that. You said that they
had been reducing rates in order to increase revenue. Now, if they
were turned back would they not do that again ? 4
Mr. Prums. No. They are here with three plans which do not
contemplate any such action, and I admit they can not do it and
carry the burden of their capitalized profits. It can not be done.
Mr. Raysurn. It is not to be presumed, of course, that this col
mittee or that Congress has got to take your plan or the railroads’
plan for legislation looking to the return of their railroads.
Mr. Prums. No; but this Congress ought to inform itself of the
history of railroad construction. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 673
Mr. Raypurn. We are trying now, Mr. Plumb, to get all the infor-
mation we can.
Mr. PLums (continuing). And the burden of overcapitalization, on
definite knowledge, before it accepts any program.
_ Mr. Raysurn. We are trying to do that.
Mr. Pius. Yes.
Mr. Raysurn. You talked about unrest last night and about this
fellow out in St. Louis who came up to you and said there was going
to be a revolution in this country if your plan was not adopted.
Mr. Prums. No; what I said was, if something like this was not
provided.
Mr. Raysurn. I understood you to say your plan, and I saw that
in the papers this morning. J will accept that statement. That is
nothing new, is it, for somebody to say that if something they want
is not put into effect there will be a revolution ?
Mr. Piums. No.
Mr. Raysurn. That has been going on for a long time.
Mr. Prums. Humanity works along the same lines and according
to very general laws.
Mr. kayspurn. And those men—TI do not say that it is true of this
particular man, but as a general rule, those fellows are men who have
been standing around on the corners making speeches and stating that
various things are going to happen and that revolution is coming, and
the Government is going to be overturned if certain things are not
done which go to the fundamentals of government.
Mr. Prums. No one has said, not even this man, or even intimated
that the Government was going to be overturned. I cid not want to
give that impression, but that the industrial system must be over-
turned. There must be some way out by which this Government
without an overturn can make a revolution in industrial conditions.
Mr. Rayspurn. But I do not think there is any reason for undue
ularm just because a few people say that a revolution is going to come
inless some specific thing is done. Now, let me call your attention
© this: You say that people are petitioning you and want to hear
your plan discussed all over the country. ‘That is quite natural. It
8 a new and novel plan, and i must say for you that | do not think
shere is a man in the country who could present it better than you do.
Mr. Prums. Thank ‘you.
Mr. Raysurn. But, on the other hand, yours is a new order of
hings. To-day there is a campaign going on in my State led by aman
vho was once an official in Washington, who is preaching, Get back to
he old order of things, and to our constituted authorities and act
tmder the law and the Constitution, return the railroads to private
wnership, and things like that, and they are flocking to hear him by
he thousands. What do you think that means ? 7
Mr. Proms. If the thousands who hear him support his doctrines ,
_ Should say he was proceeding on pretty safe ground.
_ Mr, Rayzurn. That is just it, and because they want to hear you
‘n this plan or any other man on another plan does not give an indi-
ation that the country at this time is for it.
_ Mr. Piums. I do not believe that I have attempted to intimate
‘hat a majority of the country at this time was for it.
6 74 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Raysurn. No; I do not say that you have, but you were
giving that as an evidence of the interest in this plan, and you were
making an argument for this bill and its provisions at that time.
Mr. Piumps. I think the very fact that thousands of men are hear-
ing this advocate in Texas, that you just spoke of, advocating a
return of the railroads to private ownership, shows a public interest
in the question which did not exist a year ago. That man could not
have gone out a year or two ago and attracted a dozen to such an
address, and probably I could not either. The fact that both of us
can call large audiences to hear us talk on the railroad problem shows
you that the public are awake and they are demanding a solution.
I do not say they are demanding this solution. They are demanding
a solution.
Mr. Rayspurn. They are certainly awake down there since the
Government has been operating the railroads. Mr. Plumb, do you
atlvocate the application of the plan in this bill to other industries
and means of transportation?
Mr. Piums. I am not so advocating at this time, Congressman,
but, frankly, the principle of this bill is applicable to every socialized
industry based on either a grant of privilege from the Government
or an acquired monopoly.
Mr. Raypurn. What about the shoe industry ?
Mr. Prums. If it partakes of the nature of a monopoly, I see no
reason why it should not be made applicable |
Mr. RaysBurn. What about the coal mines and the steel mills ?
Mr. PLumsB (continuing). If the employees of the shoe industry
want it so made.
Mr. Raysurn. Do you think it would be hardly fair to the em-
ployees in other industries to socialize the railroads only and not
them ?
Mr. Prums. It is up to them.
Mr. Raysurn. No; I am not talking about its being up to them.
I am talking about whether it is fair to them or not.
Mr. Piums. Certainly; if they desire it done, no one else is going
to object, and I do not believe it would be wise to take this up and
apply it to all socialized industries. Now, you and I use ‘‘socialized’’
in a different meaning.
Mr. Raypurn. Yes; I remember your explanation of that term
yesterday.
Mr. PLums. Yes. I do not believe it would be well to apply this
to all socialized industries at once and by one act, but I do believe
it would be well to apply it to railroads, which are purely govern-
mental in their functions and which are necessary as a public service,
not in the production of private industry.
Mr. Raysurn. How long do you think it would be, if we were to
socialize all industries, according to what I think about socialization,
and they were turnéd over to the employees, each group jealous of
the profits that the other was making, and the wages that the others
were getting, and the result of that labor that they were having to
buy—how long do you think it would be before they would be eating
each other up ?
Mr. Piums. I think probably they would last a good deal longer
than such groups of capitalists with like jealousies as to each other's
profits and a like desire to eat each other up, and a much better
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 675
training in the eating habit, and much higher skilled in accomplishing
it.
Mr. Raysurn. But in order to get away from one, why should we
embrace the other ?
Mr. Ptums. We are not trying to get away from one. We are
trying to get this one which affects all
Mr. Rayspurn. But I am talking about this eating up which these
capitalists have been doing, and I say it would be well to abandon
that, but why embrace the other.
Mr. Piums. Really, I do not catch the drift of your question.
Mr. Raysurn. You said this eating process has been going on,
and I asked you what would happen if you socialized these industries,
or in other words, espoused the soviet system
Mr. PLums (interposing). I really do not know what the soviet
system is. I am not informed on that. But I do know that with
two thousand and some odd railroad corporations that we started in
this business, they have eaten each other up now, until two groups
control all of them, and it is a question now which one of the two
remaining tigers gets the other.
Mr. Rayspurn. When one of those tigers eats up the other we would
then have this centralized control like we would have under some of
the p.ans that have been indorsed here.
Mr. Pius. Yes.
Mr. Rayspurn. Mr. Plumb, what do you think about the recom-
mendation of Mr. Hines about a board to control wages ?
Mr. Pitums. My opinion will be merely personal on that because,
as I informed the Congressmen, I am not versed on the wage question
and do not represent the unions in any wage controversies.
Mr. Raypurn. But that represents a policy.
Mr. Pius. It is a policy which I am informed is contrary to that
approved by the unions or by the organizations.
Mr. Rayspurn. This question was submitted to me the other day
by a Member, and I asked you the question because it was submitted
tome. You stated that labor in its increases was never able to keep
up with the increases that the employer made or the profits the
employer made. I find that 10 years ago——
Mr. PLums (interposing). Wait a minute, Congressman, that was
not what I said. I said that labor in its increases never could ‘over-
come the increased cost of living by the amount of increased profit
which went to the employer. Now, there is a big distinction there
Mr. Raypurn. What did you say ?
Mr. Piums. That the wages allotted to labor, the increase in the
pay of labor, never could overtake the increase in the cost of living,
and its failure to overtake the increase in the cost of living was
Measured exactly by the increased profit which the employer made
on the increase which he allowed to labor.
Mr. Raysurn. I find that the statistics go to show that 10 years
ago labor received about $1,000,000,000 on the railroads.
' Mr. Prums. Yes.
. Mr. Rayspurn. And last year, $2,500,000,000 I believe you stated
the other day.
. Mr. Prums. No; I think labor altogether received something over
‘three billion or very close to three billion last year. I was estimatin
the amount that went to the members of the organizations that
represent.
: {
676 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Raypurn. And ‘the return on capital 10 years ago was $760,
000,000 and last year about $900,000,000 ?
Mr. Piums. Yes.
Mr. Raypurn. With an estimated value of eighteen billion and 10
years ago thirteen billion six hundred million.
Mr. Prums. Now, you have taken into that equation the increase
in wages allowed by the Government under governmental control and
not the increase allowed in industries not so controlled. Of course,
in this instance there has been no increased profit to the employer,
the railroads, and none to the Government, but the cost of living has
stretched out in advance of the wage allowed by the amount of profit
which the manufacturers of commodities have received and the
profits which intermediate dealers have charged to consumers on the
increased transportation which they have paid.
Mr. Raysurn. That is all, Mr. Chairman.
(The committee thereupon took a recess until 2 o’clock p. m.)
AFTERNOON SESSION.
At the expiration of the recess the committee resumed its session.
STATEMENT OF MR. GLENN E. PLUMB, GENERAL COUNSEL
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA,
WASHINGTON, D. C.—Resumed.
The CuarrMan. Col. Winslow, of Massachusetts, will interrogate
the witness.
Mr. Wrinstow. Mr. Plumb, in addition to your profession as a
lawyer I understood you to say that you had been somewhat actively
engaged in railroad management. Can you tell us what that was?
Mr. Prums. Do you want my entire railroad history ?
Mr. Wrnstow. No; just a general statement as to how you have
been connected with railroads.
Mr. Pirums. When I graduated from law school in 1893 I went
into the office of Peck, Miller & Starr, in Chicago. George R. Peck
was then the chief counsel for the Santa Fe and afterwards for the
Milwaukee & St. Paul, and we had other railroad clients in the office.
I was with them for five years, during which time I spent a large part
of my time on railroad matters. In 1900 I was appointed attorney
for the Chicago General Railways Co., a street railway company ip.
Chicago, and in the ensuing years I had very interesting legal expe-
rience with Mr. Charles T. Yerkes, who owned other street nek |
systems in Chicago, where I nad about three years; the railroad
was with was in the hands of the receiver, during which time I repre-
sented the receiver, and then was manager of the road and eventually
receiver and then in charge of the reorganization of the properties.
That would be from about 1900 to 1905. In 1905 Edward F. Dunne
was elected mayor of the city of Chicago and he attempted to
straighten out the traction tangle. I was about the only street rail
way lawyer there that had.not been engaged by the big interests
succeeding Yerkes and the Southside Co., and I was retained by
Mayor Dunne as special attorney and counsel for the city of Chicago,
during which time I prepared, together with Clarence Darrow an
Maj. Tolman, the corporation counsel, and presented to the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 677
supreme court what is known as the 99-year case, or Blair et al. v.
The City of Chicago, in which proceeding most of the principles that
Lam here contending for were upheld by the supreme court. Then
I went back to the little road that I had formerly been connected
with, which was soon absorbed by the big systems and taken over
‘temporarily by them. I was president of the Calumet & South
Chicago Railroad, a street. railroad with a line of about 200 miles
in the southern part of the city, and on the absorption of that system
by the Chicago City Railroad Co. I was retired to private practice.
I then represented the State’s attorney of Cook County and the
corporation counsel of the city of Chicago in various negotiations
between the elevated railways and the surface lines, during which
period I also represented with others the street railway employees
of, Chicago in the settlement of their strike of 1916, and in the Iliti-
gation involving the elevated railways I established in the supreme
court of Illinois the interpretation of that provision of the Illinois
constitution forbidding the issuance of stocks or bonds by railroad
companies in excess of the amount paid for them.
Then in 1916, I believe it was, it might have been 1915, but I
think it was 1916, I was chosen special counsel for the city of Chicago
in the gas-litigation proceedings which are still pending.
In 1917 I was retained by the four big railway brotherhoods; I
mean the four not affiliated with the American Federation of La-
‘bor—I use the word ‘‘big”’ because that has been used—they are
‘not really bigger than some of the other organizations—to represent
‘them in the valuation proceedings before the Interstate Commerce
‘Commission under the railroad-valuation act.
In my experience with the street railways in Chicago I have
represented every interest that exists in such corporation from being
president of the corporation to being counsel for a committee of
the bondholders and security holders, managing the property, acting
as receiver for the property, for reorganization committees, and then
in subsequent years representing the corporation as well as repre-
senting the public interests when I was retained by the city of
Chicago. So, as the mariner would say, I have boxed the compass
of corporation interests in my experience. It is out of that expe-
rience that many of the provisions of this plan have been drawn.
_ Mr. Wrystow. Kindly state the scope of the Plumb Plan League
in much the same way.
Mr. Prums. The Plumb Plan League was a very sudden out-
‘growth of the plans back of this presentation. I came here t
Washington about the Ist of May—I think I arrived on the 2d of
May—of this year to represent the brotherhoods. I found that in
order to get this question before the public outside of organized
labor that there must be means of publicity, and for that purpose
the Plumb Plan League was organized about July 1 by the 14 rail-
‘Way organizations. It was launched at that time and is now
spreading so rapidly that really I do not know where it is, because
I have not paid any attention to it in the last week.
_ Mr. Wrystow. Well, suppose you go back a week and tell us
where it was then ?
_ Mr. Prums. Well, we will go back to a week before that. We had
‘received telegraphic requests of upwards a million and a half copies
of our announcement and the application blanks, which announce-
ment and application blanks are even now being delivered.
678 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. Will you kindly tell us of the financial structure
of that league, as to its initiation fees, dues, and arrangements for
other funds as needed, and so on?
Mr. Ptums. The league provides for two classes of membership.
One class consisting of local lodges and organizations who pay $10
a year for their membership and who in return receive 10 complete
sets of all of the literature which we put out. The individual mem-
berships are for individuals. That is open to any citizen who be-
lieves in democracy in industry. Each citizen pays $1 for his annual
- dues and receives one set of all documents published, including sta-
tistics and ‘‘ Railroad Democracy,’ a little magazine published by
the league.
Mr. Winstow. What do you estimate the income to be about this
time or a week ago, at the rate per annum ?
Mr. Prums. I could tell you approximately what it was a week
ago, but that would be no estimate of what it would be, because a
week ago was the first week that returns had begun to come in.
Mr. Winstow. If at that rate, what would it amount to per annum ?
Mr. Piumps. If at that rate?
Mr. Winstow. Yes, sir.
Mr. PLums. It would be an income of between $125,000 and
$150,000 per annum.
Mr. Winstow. Merely a fly speck on what you expect to have
ultimately ?
Mr. PLums. That was the first week that the returns began to come
in. There is no reason why this league should not embrace at a
minimum 500,000 men, and at a maximum three or four or five or six
million men.
Mr. WinsLow. You are pretty good at estimating things that are
going to happen, we have discovered. What do you think will be
the annual income 12 months from now ?
Mr. Piumps. I really could not say, Mr. Winslow. We ought to
have at least $500,000 a year. —
Mr. Winstow. At least ?
Mr. Ptums. Yes, sir; at least. I think that is a conservative
estimate.
Mr. Winstow. What use will that be put to?
Mr. Piums. It will be put to the purposes of paying for our publi-
cations, for the printing of literature for distribution, of which we
have a very considerable amount now prepared, for providing in part
for lectures, and the expenses of traveling lecturers.
Mr. Winstow. Publicity, in other words. ?
Mr. Piums. Publicity, pure and simple.
Mr. Winstow. Pitiless publicity ?
Mr. Ptums. No more pitiless than my examination before this
committee.
Mr. Winstow. In the same line ?
Mr. Piums. In the same line.
Mr. Winstow. In good nature, I hope.
Mr. Pius. I hope so.
Mr. Winstow. Will you kindly define the term “labor” as you
use it in connection with the description of this bill?
Mr. Ptums. The term “labor.”’ I doubt if the term ‘labor”
occurs in the bill. )
Mr. Winstow. No; -in your description of the bill.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 679
Mr, Pirums. [ include—I want to be sure that I get what you mean.
Mr. Winstow. I may be wrong about it, but you referred to the
interest of labor in an abstract way.
Mr. Priums. In an abstract way, the interest of labor is the interest
of those who produce by the application of human effort to the
problems of production as distinguished from mere investment of .
money. Now, under that I would include the president of a railroad
company who serves. If he were the holder of securities, his return
on the securities should not be a part of his return for his labor, so
he might be in both classes. A boy who carries water on the dump
also serves and would be included in my definition of “labor.” It
means human effort.
Mr. Winstow. In the consideration of this bill, as you are arguing
it, you work to the interest of all of those people ?
Mr. Piump. I believe I have; we believe so.
Mr, Winstow. That is the hope ?
Mr. Prums. That is our hope; yes, sir.
Mr. Winstow. With whom or with what organizations—I do not
care particularly as to individuals; it may not be a fair question—
what organizations directly or through representatives have you
been in consultation with in consideration of this bill?
-Mr, Piums. The 14 organizations named by Mr. Stone. I have
received advice and help from other organizations outside which are
not members of this organization—I mean the Plumb Plan League.
Mr. Winstow. Such as which ?
_ Mr. Ptums. The National Public Ownership League of pation)
ot to give them due recognition for the assistance they have
offered.
Mr. Winstow. Do you agree with Mr. Morrison in his statement,
f I quote him correctly—I mean to—that he thinks democracy is
what you might call a government in which equal opportunity is
forded to every man or every citizen ?
Mr. Prums. I agree with Mr. Morrison’s understanding of the term.
Mr. Winstow. Perhaps I am incorrect—I want to be correct.
Mr. Morrison. I agree with him, but equal opportunity nee s
‘ome definition, just as the word ‘‘value”’ requires different definitio ¢s
or the uses to which it is put. ‘
_ If I am born into life with but one talent and the next child to me
‘8 born with five natural talents, his opportunities are greater than
ine because he has been more richly endowed by nature, but I
iught to have the same opportunity for the development of my one
alent that he has for the development of his five. : That I believe
0 be democracy, but to say that the man with the endowment of
ve talents by nature can do no more under the social structure than
‘he man endowed with one talent is not democracy. That.is equal
‘portunity in which I do not believe and in which Mr. Morrison
oes not believe.
Mr. Winstow. Assuming that to be quite correct, would you say
equal opportunity were given to every man of equal capacity,
aly and otherwise, that that would represent democracy ?
- PLums. Yes; equal opportunity according to their capacity.
_ Mr. Winstow. What would be the attitude of yourself and your
/sociates toward following the principle of employment on the
pen-shop plan if the Government aheld take this step ?
|
680 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Piums. If there was an open shop from above, I see no reason
why there should not be from below, and I think that if this lan
were organized and put into effect, labor oe would have
their entire functions changed. A man would join a labor organi-
zation, not to get more nront from his employer, but as a part of the
machinery for conducting the industrial democracy. \
Mr. Winstow. Just for elaboration and information, what would
be the need for unions under the conditions you have described?
Mr. Prums. The same need that now exists for parties in Govern-
mental politics, or in the political democracy. If you are going to
have an industrial democracy, there must be machinery for the
conduct of that democracy.
Mr. Winstow. You mean a clearing house for the expression of
their views and to see. that they are fairly presented wherever they
may need to present them?
Mr. Piums. Yes, sir.
Mr. Winstow. Would you say that if this bill were to become a
law, the railroads would be virtually a department of the Government?
Mr. Prums. No more so than they were before the Government
assumed control of them.
Mr. Winstow. Do you feel that the Government would have no
right to claim them as adopted children even if it furnished the money
to operate them?
Mr. Piums. Yes, sir; they would still be public highways, and them
pperaton would still be a function of the Government. The carrying
of that function into execution would then be effected by an agency
created by the Government, just as at present, but the purpose of
that agency would be service and not profit.
Mr. Wrnstow. In what respect would it differ from the service
rendered by the Post Office Department, which is rendered through
a Government agency, namely, a Cabinet Member?
Mr. Ptums. That is not an agency, but it is a department of the
Government.
Mr. Wrnstow. In what respect do you say it would differ, so far
as the people and the country are concerned ?
Mr. Pump. It would differ so widely that there is no comparison
between the two. The Post Office employees have absolutely no
voice in determining the policies of the department, and they aré
not even permitted to voice their own desires as to their own working
conditions and conditions of employment.
Mr. Winstow. Do you favor putting them under this same plan!
Mr. Prums. It would be a wonderful improvement.
Mr. Winstow: What would be your attitude toward having
railroad employees under the Government subjected to civil-service
regulations ?
Mr. Puums. There would be no necessity for that when the ent
ployment was removed from politics. Civil service enters int¢
employment only when the employment agency is a political agency
Mr. Winstow. Have railroad employees been in politics?
Mr. Prums. But not employed politically, and such politica
employees as have been placed in the service have been to the det
ment of the service.
Mr. Wrnstow. I do not understand you. Do you mean to sa
that railroad employees have been driven into political activities ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 681
Mr. Proms. The only way that railroad employees can procure
Tegislation is through political activity; but I want to answer the
‘previous question, if I may, showing how political employees are a
Witiment to service, and I assume that the same conditions are found
im the railroad service. I know that they are found in the street
aulroad service. When I was managing a street railway, I was fre-
‘quently importuned by aldermen in the city of Chicago to give
certain men jobs, and it was frequently desirable that I find employ-
ment for those men, but I never got value received in service for
what I paid such men. I think that you will probably find the
same kind of political employment in the railroads. 7
a Winstow. How would you employ men under this scheme
or plan ?
| ae. Proms. Under my plan ?
Mr. Winstow. Yes.
Mr. Prums. We leave it entirely to the judgment of the board of
directors to decide how they shall be employed, but, from my experl-
ence in employing men in the railroad service, the men at the head of
departments would undoubtedly be authorized to employ men under
them in their departments. The men when so employed could not
be discharged without cause, because of this wage adjustment and
grievance board which we provide.
Mr. Winstow. Do you not think that there would be some chance
for favoritism being shown on the part of the board of directors,
however it might be made up?
| Mr. Prums. Not where that favoritism operated against the inter-
st of the employees below, because they would have the right and
withority to question such conduct.
Mr. Winstow. In the preparation of this bill, have you been sought
oy ee tens of shippers or business organizations to push it for-
vard ? ;
Mr. Piums. On, no, sir; no shippers organizations have joined
with us.
| Mr. Winstow. Are you interested in the welfare of shippers and
usiness men ?
Mr. Prue. Decidedly, to the extent that they serve the public.
Mr. Winstow. What’is the limit of their service to the public?
Mr. Prums. I do not know what the limit is. It seems to be the
mit to get all that can be gotten out of the public. The inter-
\aediate shipper is not affected and is not interested in the costs of
Tansportation so long as they are not discriminatory and so long as
hey are not so high as to preclude the transaction of business, because
‘e does not pay that cost.
| Mr. Winstow. Does not your last proviso automatically create an
| terest in the intermediate shipper ? |
) Mr. Prums. He has the same interest in my plan, or the same legiti-
/iate interest, that he has under the existing situation. I do not
jisturb that at all. .
| Mr. Winstow. Quite so; but the point is that he does not appear
) have become sufficiently interested in your plan to come forward
‘nd urge it as an improvement on the old plan?
| Piums. No, sir; he has not, because under the old plan he
/9ts certain advantages which he might not have under this plan.
682 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. WIinstow. Such as
Mr. Piums. Such as this, for instance: There is a large organiza-
tion of fruit shippers in southern California, who, by an arrangment
with the owners of the refrigerator cars, were supplied with refrigerator
cars to bring their fruit to the eastern markets. An individual own-
ing a ranch 20 miles from Salt Lake City, Utah, on which was a fine
plantation of fruit trees, and through whose plantation ran those cars
every day in several trains, was compelled to see the cars pass through
his farm year after year, and he could not get a car out of those trains
put on his sidetrack so that he could’ship his fruit to market 20 miles
away. Under Government control that thing ceased, and last year,
for the first time in his experience, he marketed his crop of fruit.
Now, there was an advantage which the shippers’ association pos-
sessed that the individual could not enjoy.
Mr. Wrinstow. Is there not any remedy for that condition under
any system of ownership ?
Mr. Piums. There may be remedies, but so far they have proven
to be totally ineffectual.
Mr. Winstow. I think we all agree on that.
Mr. Prums. But there was an instant remedy when the Govern-
ment took control.
Mr. Wrnstow. That might be remedied through legislation.
Mr. Piums. But the railroads, you will remember, have told you
on this committee and on other committees that the reason they
failed was because there was too much regulation, and that the Goy-
ernment regulation of their privileges was what destroyed their credit.
Now, if we can only build up their credit by granting them more
privileges and piling on more regulations, it seems to me that that is
an illogical conclusion.
Mr. Winstow. It would not be an any more radical departure
from the past than your plan would involve.
Mr. Pius. It is not radical at all to add more regulations, but it
would be doing the whole thing over again. Now, if we know from
experience that that inevitably brings disaster, it is not radical to
Hy on repeating. It may be radical to change the system.
r. Wrnstow. Under any plan proposed to Congress, 1s it not quite
as easy to handle the matter with respect to the change of the regula-
tion of railroads.under one form of ownership as it would be under
another ? :
Mr. Prums. The experience of the past 20 years when Congress
has been regulating has shown that no regulation that Congress has
been able to devise had resulted in solving this problem. In faét,
the railroads say that that has been the cause of their disaster.
Mr. Winstow. Well, we do not need to worry about that; but is
there not as much hope that Congress may see the right remedy and
apply it under one form of ownership, as there is that Congress may
see the right remedy after changing the form of ownership ?
Mr. Prums. Not under the old ownership, because the old owner-
ship, seeking profit for its motive, constantly requires more regula-
tion. You have not been moving in harmony, and you would still
continue the old industrial conflict. In my opinion, there is not
enough wisdom in Congress or in the world to patch up that old
broken-down system.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 683
_ Mr. Wrnstow. Do you think that if wages had been in the recent
‘past and were now satisfactory to the employees, if such a thing were
possible, you would be here with this bill ?
__ Mr. Prums. Probably not, because it needed the awakening of
the wage earner to this situation and of the public to bring in this
plan. But this plan is not new to me. I have been working on it
15 years, and awaiting the day when it was appropriate to present it,
and that day seems to have arrived.
Mr. Winstow. You feel that the indorsement of it by the em-
ployees is the reason , |
Mr. Pius (interposing). The plan was not designed to protect
wage earners alone, but to protect the wage earner according to his
deserts, to protect the public according to their needs, and the owner
-of capital according to his just reward.
_Mr. Winstow. From the viewpoint of those who are the proponents
of the bill?
Mr. Pius. Yes, sir; and you will find that the proponents of the
bill are worried to death at this industrial conflict, and that they are
‘seeking a way that will end it and bring peace. They have adopted
it because they believe it will bring peace and not because it will
bring to them special advantages.
Mr. Winstow. Do you believe that the proponents of a measure
like this have the right to arrogate to themselves the control and
regulation of transportation, without regard to the views and inte-
rests of the misguided shippers and the public who thus far do not
agree with them?
Mr. Prums. I have never heard of a misguided shipper ever
appearing in any proceeding on behalf of the wage earner. I have
heard shippers allege that they appeared on behalf of the public, but
they have never been appointed by the public to do that service.
Now, it is no more an arrogating of privilege on the part of labor to
appear on behalf of all interests than it is for the shipper to appear
on behalf of the public. Now, we are presenting it, as is our privilege,
to the American people in the hope that they also may see what we
see in it.
| Mr. Winstow. You do it in collective form ¢
Mr, Pius. In collective form.
| Mr. Winstow. Then you will have no objection if those who do not
‘agree with you appear likewise in collective form.
Mr. Piums. Col. Winslow, if we can induce you and those who
represent other views to join us on the platform in debate in 100
cities of the United States we will welcome it and we will afford them
‘every advantage and pay the expense of such a campaign.
Mr. Winstow. I will not answer that, because I do not want to
zet into a debate for one thing. It might be good propaganda.
Mr. Stone said that he knew—I do not mean to exaggerate —that
ae knew if this plan went through rates would be lower and every-
ody in the country would benefit. I understood Mr. Morrison to
xpress himself likewise. Are you in accord with that opinion ?
. Prums. I am so far in accord with it that I could give you
ersonal experiences in reducing rates.
om Winsrow. It follows, you too indorse what these gentlemen
sald ¢
Mr. Prums. I do.
684 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. Now, Mr. Plumb, let us assume for the purpose of
illustration that a dollar represents the receipts of the railroads,
Will you kindly distribute the integral parts of that dollar and assign
them where you think they would go under such a management as
you propose ?
Mr. Pius. I would assign, at the beginning, 70 per cent to opera-
tion and maintenance and sinking fund, 20 per cent to fixed
charges——
Mr. WINSLOW (interposing). Such as what?
Mr. Prums. The balance, I should say, should be represented in
funds to be divided between employees and the Government, and if
it was that much there would be a d per cent reduction in rates.
Mr. Winstow. Will you specify what you take in under the fixed
charges, please?
Mr. Piums. Interest on outstanding bonds. By the way, I remem-
ber now—I have not my memorandum before me—the sinking fund
goes in that also instead of in the operating expenses.
Mr. Winstow. What is the average operating expense as is shown
on the records of the Interstate Commerce Commission to roads of any
period you want to name ?
Mr. PLums. Why, the average operating expenses for the 10 years
before the war, I think, ran close to 65 to 67 per cent.
Mr. Winstow. Just before the war ?
Mr. Piumps. Yes.
Mr. Winstow. That was at the period when it was described that
the upkeep was not very good? .
Mr. Piums. During the normal.
Mr. Winstow. You say with the normal upkeep that would run
about 67 per cent ?
Mr. Puums.:I think they would show a little better figures than
that. I think 65 or 67 per cent, for some years they even got down
as low as 61 or 62 per cent.
Mr. Winstow. So in the operating you show about 3 per cent more
than the roads do ?
Mr. Ptums. I do, because I provide there for the proper mainte-
nance of the properties so as to preserve the integrity of the property,
something which has never been done heretofore.
Mr. Winstow.: What do you allow for depreciation of the property ?
Mr. Prums. Well, that is an ‘engineering problem. I have ha
some experience in that. It seems to me there ought to be allowed a
sum equivalent to nearly 3 per cent, around 3 per cent of the outstand-
ing capital issues, investment for depreciation.
Mr. Winstow. If you had 10 per cent after these two items of 70)
and 20 cent you would suggest that 5 per cent of it should go in the
way of reduction of charges, freights and passengers ?
Mr. PLump. Yes. J
Mr. Winstow. And 5 per cent to the employees. What percent-
ages do you set aside for sinking fund ?
Mr. PLums. One per cent of the outstanding capitalization, which
would be somewhere between $100,000,000 and $125,000,000 a year.
Mr. Winstow. What percentage would beset aside for contingent
expenses in the event of lean years and lean periods ?
Mr. PLtums. I would not set aside any. |
Mr. Winstow. How would you overcome any deficit that might
arise ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 685
Mr. Pius. If there were deficits arising they should be provided
for by increased rates—that is, deficits due, now, to the thing you
spoke of —lean years.
Mr. WINsLow. Of course you would not know what they would be
until you met them, would you?
_ Mr. Prums. No; but if you have the power to meet them there is
no trouble in meeting them on the credit of the railroad, because they
would not have to be carried a year. We would not have the out-
standing short-term notes that the present companies have got.
Mr. Winstow. You have in mind the Government would sell the
necessary number of billions of bonds at 4 per cent ?
Mr. PLums. Undoubtedly.
Mr. Winstow. On what do you base that opinion ?
_ Mr. Prums. On this: The investment fund is practically a fixed
amount in this country. There is now invested in the outstandin
securities perhaps an actual fund of, I will say, $12,000,000,000, to be
generous. If that fund were placed in the hands of the investors it
would have no place to go, ch it would have to go back into a corre-
sponding field of investment, which the Government would create
at the same time that it placed the money in the hands of the in-
vestors. You could not find a field for the investment of $3,000,000,000
in this country in new industries, and three-fourths of that money
would inevitably go back into the securities which the Government
issued, because there is no other place for it to go, and it is nonpro-
ductive if it has not gone. Now, the investment of the employees
themselves in Liberty bonds—that is, the labor movement that I
speak of, was a billion and a quarter of bonds, and there is a very
large element of the investment public who desire security for their
investment who would welcome such an investment. I think there -
would be no trouble in providing the necessary $12,000,000,000.
Mr. Winstow. You probably will admit it is more or less specu-
lative as a banking proposition, will you not?
Mr. Prums. Oh, no, no; I know something of banks. I have had
some dealings with them, and they are very anxious not to have
large accumulations of capital lying idle. They like to have it safely
placed where it is bringing in a return, and there is no speculation
about that. .
Mr. Winstow. Do you think you could get anybody to under-
write your confidence in the idea that the Government could sell
those billions ?
_ Mr. Pius. Oh, it could be underwritten to a very large extent,
and it would not require underwriting, that is, anything like the
‘mderwriting of the Liberty loan bonds, because we shal! have got
a better security than the Liberty loan. The Liberty loan is a lien
‘m the taxing power of the Government; this is a lien on the same
taxing power, but secured by a gevenue pyacuoMe industry which
will obviate the necessity of resorting to the taxing power, and that
s a better security. .
| Mr. Winstow. What value has that investment if it does not
2arn its way ?
Mr. Piums. It is secured by the taxing power.
Mr. Winstow. So it gets right back to the same power that is
dehind these issues of Liberty bonds ?
686 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Piums. Exactly the same power, but with an added security
which the Liberty bonds do not possess.
Mr. Winstow. Will you please state that again?
Mr. Piums. With an added security which the Liberty bonds do
not possess.
Mr. W:nstow. Concretely, what is that?
Mr. Prums. A first lien on a revenue-producing industry which
ordinarily should provide the interest without resort to the taxing
ower.
‘ Mr. Winstow. That is an elastic proposition. It seems to mgé
that by the time your bonds would go by default on earnings that the
earning organization you speak of is not of much value.
Mr. PLums. Oh, if it went by default entirely. Suppose the
fixed charges were $500,000,000 a year and the industry did not
earn any of that, then they would be on a par with the Liberty bonds!
Mr. Winstow. Yes.
Mr. Piums. But if it earned a hundred million a year it wouid be
20 per cent better than a Liberty bond, and I do not believe that
anybody comtemplates that we would not at least earn a portion ol
the fixed charges.
Mr. Winstow. Of course that, too, is a matter of speculation
People might differ on that proposition ?
Mr. Prums. Oh, yes. |
Mr. Winstow. With the number of billions of outstanding bonds
with the obligation on the Government to redeem, where do you
think they are going to get these 12, 15, or 18 billion?
Mr. Piums. From the people who will prefer to pay 4 per cent on
an equivalent amount of obligations directly to the country than pay
6 or 8 per cent on corporate obligations charged against them in the
same service.
Mr. Winstow. Suppose that your roads did not earn as well as
you think they will, what then ?
Mr. Prums. Then the Government would be taxed to preserve low
rates of transportation instead of being taxed to meet a deficit
caused by high rates.
Mr. Wrinstow. Who would pay the low rates ?
Mr. Piums. The people would pay them in either event.
Mr. Winstow. Under one system or the other?
Mr. PLums. Yes.
Mr. Winstow. There is not much headway made on that so fal
as the people are concerned ?
Mr. PLums. Oh my, yes; because if they have to pay a deficit
created by high rates, they would rather pay that deficit caused by
low rates and pay it only once.
Mr. Winstow. There is no limit to their taxation, though, as they
go along ?
Mr. Prums. But the limit is always higher if they pay a defiet
created by high rates.
Mr. Winstow. Your plan contemplates cutting out the capitali-
zation on earning power altogether ? |
Mr. Prums. Absolutely. ~ |
Mr. Winstow. Do you take into account in railroading what
taken into account in ordinary commercial enterprises; that 1s,
good will?
Mr. Piums. Not at all.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 687
Mr. Winstow. Why not?
Mr. Ptums. Because there is no such thing as good will in a
monopoly.
Mr. Winstow. Do you say that railroading is a monopoly ?
Mr. Piums. Absolutely.
*Mr. Wrnstow. Where is the competition ?
Mr. Pius. There is not any.
Mr. Winstow. I wish you would demonstrate that to me?
Mr. Piums. In the first place, you take a railroad between two
points, in order to be even nominal competition there must be
another railroad between the same two points, the one acting inde-
pendently of the other. If they do not pass jointly between the
same two points, then there is no competition and there can not be.
If they do pass jointly between the same two points and have got
nominal competition, there will not be any competition if there is
enough business for both lines. If there is only enough business
for one line, you have got twice the investment with the same amount
of business to be competed for at figures which produce a loss in both
of the investments. The result is those two lines combined to get
rid of that cost forced on them, and competition ceases. We have
already combined our railroads in this country to the point where
there is not even that nominal competition, and we have forbidden
them to compete in rates. They can not compete in rates by law,
because they have to charge the rates prescribed.
Mr. Winstow. Do you want to leave that universal statement ?
Mr. PLums. Well, they can not charge more than the rates pre- |
scribed, and if they charge less thay have to do it by filing a schedule
and giving notice, and being controlled by central authority. I have
in many years failed to find any competition in rates. Practically
s0mpetition in rates has ceased.
. WINSLOW. Give two hat stores in a town, one advertises and
qas accommodating clerks and the other does not advertise and
loes not have accommodating clerks, each with the same capital,
xach with the same line of goods, or virtually so, which one is more
ikely to succeed ?
Mr. Prums. The one with the accommodating clerks.
am Winstow. And do you think his good will is not worth any-
hing
_ Mr. Pius. It ought to be worth something to the accommodating
‘lerk, but not particularly to the owner of the store.
Mr. Winstow. Then why does he try to be accommodating ?
Mr. Prums. Because if he does not he will lose his job.
Mr. Wrnstow. I do not mean tho clerk, I mean the one who
‘wns the store.
_ Mr. Piums. Oh, the man who owns the store selects the accommo-
lating clerks, because they are more valuable help. He can reap
‘nore benefit from their services.
_ Mr. Wrxstow. But you assume that he did not pay any more than
0 the other fellow ?
Mr. Prums. I would assume so. However, in that case I am not
ompelled to buy my hat at either store; they do not enjoy any
onopoly; that is an individualistic concern, so the laws of com-
etition ought to prevail, but that is not true of a public service
arried on under a grant.
152894—19—vor 1-44
688 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Wrnstow. Suppose we take two lines of railways, running fron
New York to Florida; one advertises its business in good shape, witl
attractions at the other end of the line, and so on, and sinks a goo
deal of money there with a view to building up a good will which wi
yield something; what then would you say on competition and goo
will ? “a
Mr. Prums. I would say that any moneys which he expended ou
of what the people paid him for service and did not take out of hi
profits, the people were entitled to receive the benefit of, and if tha
created a value that you could call good will, it was a value they hat
paid for and belonged to them.
Mr. Wrnstow. The people have paid for it?
Mr. Pius. Yes.
Mr. Winstow. If they have paid for it and the line that gives then
these services pleases them more, they keep on paying and do not us
the other line, would you say there was any good will connected wit!
the more prosperous line?
Mr. Piums. It was the good will of the public.
Mr. Wrinstow. Yes; all good will is the good will of the public.
Mr. Prums. Built up out of the money which they have paid fo
that service.
Mr. WINsLOow. Oh, yes.
Mr. Prums. Then they are entitled to the benefit of it. There 1
not any law under which that can be capitalized by the railroad com
pany. You can not do it in Massachusetts, and you can not do it
any other State.
Mr. WinsLow. We will grant that, but even so
Mr. PLums (interposing). If there is not a law authorizing it, the:
how can it be claimed as a private interest ?
Mr. Winstow. Do you mean to suggest that there have been issue
of stock in this country which have been clearly illegal?
Mr. PLums. A great many.
Mr. Winstow. Will you cite some?
Mr. Pius. I will. TheChicago & Alton. The issues of the stoc.
of the Southern Pacific, of the Kansas City Southern, of every rail
road company organized under the laws of Illinois, Missouri, Ken
tucky, Pennsylvania, Louisiana, Mississippi, Alabama, Texa:
Colorado, North and South Dakota, California, Washington, an
Oregon, and some other States that I can not mention now, tha
have issued securities in excess of the value of the consideratio
actually received for them, have violated the law, and have no basi
for such securities. .
Mr. Winstow. Have there been any actions brought against them
Mr. Piums. No actions have ever been brought against any 0
ee aan except one I brought against the elevated railways 1
inois.
Mr. Winstow. The people have allowed those issues to continu
without questioning the legality ?
Mr. Pirums. They have.
Mr. Winstow. In all these States ?
Mr. Prums. Yes. It looks as though the men selected who ca
act only on behalf of the State were not as much interested in th
State’s welfare as they were in other interests. ‘
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 689
_ Mr. Winstow. Assuming that is true, that proposition is beyond
me, but if that is true, what have you to say of the protection of
an who, in good faith, have bought those securities, not from the
anker, but in the market.
Mr. Prums. They were purchasing a private interest between
private individuals, of which the State had no knowledge, and which
the State did not sanction, and for which the State assumes no
resnonsibility.
Mr. Winstow. You believe that many such cases have arisen ?
Mr. Piums. Oh, a great many.
Mr. Winstow. And you would cut them right out and let them
fall on their backs ?
Mr. Piums. Yes; the Supreme Court did exactly the same thing
in the case that came up from the Fox River Railway Co., La Salle
County, Ill., where an issue of bonds-had been authorized under an
act of the legislature, or supposed act, voted by the township, issued,
delivered to the contractor of the railway by his hands, through his
hands, passed into the hands of bankers, and thence sold to investors.
It was found afterwards, when the bonds matured and the tax was
levied to pay them, that the act under which they were supposed to
have been issued had not been read three times in the Illinois Legis-
lature, and therefore no such law existed and no authority for their
issuance, and the holders of the bonds, by the Supreme Court of the
United States, were denied any relief because those bonds were
forbidden by law, as not having been authorized by law. Now, in
the case of these other securities you have got a constitutional pro-
vision in these words:
No railroad corporation shall issue its stock or bonds except or money, labor, or
property actually received and applied to the purposes for which the corporation was
created; any stock dividend or other fictitious increase of capital stock or indebted-
ness shall be void.
Therefore they never existed, being void as an issue ab ini ti
Mr. Winstow. You probably will agree that there are some roads
where stock of that kind has been issued which are paying dividends
mm stock ?
Mr. Piums. Oh, yes; a great many.
Mr. Winstow. And people own those stocks ¢
Mr. PLums. Yes. !
_ Mr. Wrvstow. Now, regardless of the moral consideration, for
whatever it is worth, would you have me believe, or the committee
delieve, that the proponents of this bill would have the Govern-
nent step in and take the roads at their bare physical value and let
ul these owners of such stock scuffle for themselves ?
_ Mr. Piums. Those owners have already suffered about all the
Osses they could suffer under such an arrangement. We are taking
tothing from them.
. Winstow. Even if it is so, that would be your attitude toward
hat property ?
_ Mr. PLums. My attitude toward that proporty, taking a hypothe-
ical case now, is this: The owner of those securities was bound to
‘now the authority under which they had been issued, and if they
Jere not lawfully issued, 1,000,000 transfers of those securities
vetween individual owners could give them no validity. There
690 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
was a moral obligation on the people who issued them, but that
can not be transferred to the public to the detriment of the public.
Mr. Winstow. Very good. Under your plan you would take
those securities away from people with no reimbursement ?
Mr. Prums. No reimbursement beyond that which a court might
ascribe to them. I would leave it to the court.
Mr. Wrinstow. On a physical valuation ?
Mr. Prums. You use the term “physical valuation.” That is not
what we propose. In your State alone, almost of all of the States,
before these constitutional provisions were adopted, there was super-
vision of the issuance of securities by railroad companies, and your
State has pretty well protected the interests of investors, and wher-
ever the State has sanctioned an issue of course it is binding on the
ublic. Now, in Minnesota, for instance, or Wisconsin, I believe it
is, there the law permits the issuance of securities for a certain per-
centage below par, and if that law has not been violated I believe the
obligation of thoes securities is valid, just as in Illinois prior to the
adoption of the constitution they authorized some of these railroads
to issue securities at any figure the directors saw fit to accept, and
when so issued they should be as valid as those issued at par. Those
securities have a lawful aspect and would be binding, but wherever
the laws have foridden the issuance of such securities, no possible
equity or value or moral obligation can attach to the State or to the
public because of the wrongdoing of the officials of such an organiza-
tion. Now, here in New York, in the big gas case, United States ».
Wilcox, there was $7,000,000 of securities that had been issued on a
valuation approved by the legislature, although that did not mean an
investment. There the court recognized the validity of those
securities because there was legislative sanction, and if you gentlemen
legislate so as to recognize the validity of the property investment
account of these railroads, you have sanctioned all of those fictitious
securities, but it is going to take a legislative sanction to inject life
into them.
Mr. Winstow. Suppose the people of my State own a lot of
securities issued in some of these other States you have mentioned
illegally, and are receiving dividends on them right along on the
earning powers of those railroads, would you cut their holdings right
off because they do not come within the description of your valuation
in your bill ?
Mr. Prums. That would be a hardship, but I would do it, because
the benefit which you are now receiving is exactly counterbalancec
by the hardship which the public are paying.
Mr. Wrnstow. I just wanted to get that pomt. How do yor
describe a public-service corporation ? .
Mr. Piums. Well, I should say a public-service corporation Wat
any corporation rendering services to the public which requires &
ey from the public in order to render that service, a grant of privi
ege or franchise.
r. WinsLtow. What is a semi public-service corporation 4
Mr. Piums. I do not make that distinction.
Mr. Winstow. You do not make any?
Mr. Piums. No.
Mr. Winstow. How far down the line in commercial undertaking
do you think the participation of employee management should }
carried out 2
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 691
_ Mr. Prums. Well, my opinion on that is not of much value, be-
jause it is purely theoretical and I have not attempted to apply this
principle to any other industry, but theoretically I should say that
my industry that was based on a grant made by the people through
egislative action, or that was based on a monopoly, either granted
wr acquired, came within the purview of these principles.
Mr. Winstow. Yesterday you suggested that perhaps to offset the
oss of tax money received from taxation in various States you might
lave a sliding scale of reduction of return by allowance through earn-
ngs of the railroads ?
. PLumB. Yes.
_ Mr. Winstow. How would you get at that matter? How would
7ou get the money to pay those taxes ?
_ Mr. Proms. Just where we get it now. It is charged in operating
‘Xpenses now.
Mr. Be tLow: And you would keep on charging it in operating
Xpenses ¢
. Prums. I would keep on charging it in operating expenses, 10
er cent less each year, until we had eliminated it from that expense
iccount.
Mr. Winstow. In other words, you would have to keep your rates
ip pretty well for a few years to cover that?
_Mr. Piums. The rates are up there now; they would begin to come
lown by that percentage every year as we progressed.
_ Mr. Wrinstow. However the rates were affected, we would have
o pay that bonus to those States ?
Mr. Prums. We have been permitting the corporations to pay it
or so long that to discontinue the payment might bring about a
erlous readjustment of the taxing scheme in many sovereignties.
low, I would give them 10 years to readjust, and readjust slowly, dur-
ag which time that aid would be withdrawn from these sovereign-
i and our operating expenses would be decreased by that amount
ach year.
Be Wixarow. That would be something in the way of a profit,
fould it not, for the railroads over the bare cost of transportation ?
_ Mr. Prums. No, because that is included in the cost of transporta-
on to-day, that is charged in the cost.
Mr. Winstow. You include that in your 70 per cent ?
Mr. Prums. I include that in my 70 per cent; it is included in the
0 per cent of the railways, as they have previously reported it.
Mr. Wrinstow. Will you kindly state again on what basis you
stablish 10 or 12 billions as the valuation of these properties under
our plan?
Mr. Prums. Yes; we have some known examples of railway finan-
ering that have been considered and admitted to be scandalous, and
will name the Alton as the shining example. The Alton was over-
‘pitalized, admittedly, 100 per cent or more. The investigation so
rmade by the Interstate Commerce Commission indicates that that
not only a shining example, but it is the current example. The
ve companies on which final reports have been made and approved
ow an actual cost of reconstruction new of a little less than 50 per
ont of the total property investment account of those five roads,
id the actual cost of reconstruction new does nor purport to show the
tal investment, because they have not found the actual investment
692 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
in these five roads. Now, these five roads have been considered as
being honestly conducted and capitalized, and yet the cost of repro-
duction new includes the increment in lands, in labor, and materials
over the original cost, and it is less than one-half of the property
investment account or the capitalization
Mr. Wrinstow. Is that a matter of record available ?
Mr. Prums. That is a matter of record available.
Mr. Brepsor. Will you not ask Mr. Plum} to state what those
roads are and what the amounts are ?
The CHatrMAN. The Interstate Commerce Commission has filed
its investigations on the Pere Marquette, the Wabash Terminal, the
Frisco Line, the Rock Island, and I think, the M., K. & T., and also
the Cincinnati, Hamilton & Dayton. They have made special reports
on all of those five systems, and they are available to the committee
in reports of the commission, and there is also an investigation made
with regard to the New Haven. I have no objection to your asking
the question.
Mr, Biepsor. The only object was to get the names of record
so as to know what Mr. Plumb referred to and see if it is in fact
correct.
Mr. Piums. I have a tabulation of that which I intend to present
in my criticism of the chamber of commerce plan, giving the names
of the roads, the amounts of the property investment account, and
the cost of reproduction.
Mr. Wrystow. Do you know of any management under which it
has been tried out on the lines you have suggested ?
Mr. Prump. I have tried it out on a way on a little street railroad
I was running, where I had absolute control myself, and out of that
experience I largely gained the ideas that have gone into this plan.
Mr. Wrnstow. Will you give that for the record ?
Mr. Prums. I think perhaps it might pe—a street railroad.
Mr. Winstow. That is not exactly parallel.
Mr. Prums. No; but the labor conditions and the managerial con-
ditions would be the same.
Mr. Monracur. May I interrupt to ask in that connection, you
say you had absolute control of that road yourself?
Mr. Piums. I did.
Mr. Monracuer. How could you democratize it then ?
Mr. Pitums. By taking into my counsel the men employed under
me and letting them guide me in the operation of the road.
Mr. Monracus. They would run it then, not you?
Mr. Prums. I was the management and they were labor. I did
not have the public in. ) |
i Winstow. Did they share the responsibility and obligations
with you? :
Macon They shared with me, but I did not report it to the
py was receiver and was left in full charge to handle it as |
eased.
Mr. Winstow. Equal authority with you?
M. Piums. Oh, no; I was the autocrat.
Mr. Montacur. My questign was based on the fact that you had
absolute control of that railroad. I want to know how you get
democracy with any person who has absolute control?
Mr. Pirums. It can not be done. I said I tried an experiment.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 693
Mr. Wixstow. Did you divide up the profits, too ?
Mr. Prump. I did.
Mr. Winstow. As receiver ?
Mr. Piums. By an increase in wages, which was authorized.
Mr. Winstow. That is hardly the same thing.
Mr. Prums. But I made them earn their increase in wages by
showing efficiency first.
Mr. Wrnstow. That is interesting, but I do not think it is com-
parable. I might ask you just one more question. I should like to
ask you if, after all, the claim you make and the claim of your friends,
of the proponents, is not really more a conjecture than a conclusive
judgment as to the surety with which this plan will work out finan-
cially and otherwise?
Mr. Piums. It is our best judgment, if you can distinguish between
conjecture and judgment, if there is a distinction. It is not con-
jecture, it is queginent, and it is judgment based on my experience,
and my conclusions are approved by the great body of the railway
employees who have had experience in operation, and they know
more about the business than any other body of men in Ameriéa.
Mr. Winstow. Would you have the committee understand that
that great body of railroad men, 2,000,000 of them, can know any-
thing about this bill in respect of its details that have been set up ?
Mr. Prums. No; not as to its details, but as to the principles, and
I think this committee will confess that the details of the bill fairly
carry out the principles announced, and the body of our supporters
do not ask to know about the details, so long as the heads of the
organization are advised of the details and insist that those details
do thoroughly carry out the principles, which the great body of the
organization do comprehend and know about. :
r. SANDERS of Indiana. When was the Plumb plan first sub-
mitted to the various organizations ?
Mr. Puums. In January of this year.
Mr. Sanpers of Indiana. In how much detail at that time?
Mr. Piums. In all of the detail in which it was presented to the
Senate committee on the 8th day of February, and that was all
the detail that had been evolved until this bill was presented here.
Mr. Sanpers of Indiana. I have had several communications from
railroad employees of the fifth district of Indiana, which I represent,
wsking me to favor Government ownership of railroads. You would
— that this plan was a plan of Government ownership of rail-
coads ?
Mr. PLums. Yes; I should say it was a plan of Government owner-
ship, and our followers so understand it; but not a plan of Govern-
nent operation.
' Mr. Sanpers of Indiana. So far as the employees of the present
teneration are concerned, the Goverriment will practically have no
sontrol of these properties, under the proposed plan. Is that not
rue ?
Mr. Pirums. Control over the operation of the properties? Not
iless the operation under this plan proves unsatisfactory and the
jublic desires to cancel it.
Mr. Sanpers of Indiana. Do you consider that this Plumb + lan
3a concrete expression of the thought expressed in the message of the
resident of the United States, last delivered to Congress ?
694 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Piums. Well, that message was delivered after this plan had
been prepared. We were delighted to find what we thought was an
expression of the same idea in the President’s message.
Mr. Sanpers of Indiana. Had the bill, in substance, been furnished
to the President prior to the delivery of his message ?
Mr. Prums. I do not believe the bill has been furnished to the
President yet. .
Mr. Sanpers of Indiana. You do not know whether in that message
he meant to express approval of the Plumb plan or not?
Mr. Prums. I do not.
I wish to say that I have had no conference with the President
since—oh, I think it must be nearly two years. I have had no
expression from him in regard to this, and I have received a con-
veyance of no expressions from him in regard to this. 1 know abso-
lutely nothing about what his attitude of mind is toward it.
Mr. Sanpers of Indiana. How do you interpret the part of the
President’s language dealing with the labor situation in connection
with this proposed legislation ?
Mr. Prums. I have not interpreted it in connection with this
proposed legislation at all. I do not know that the President had
this legislation in mind. I think that he was announcing a principle,
as applied to the new era in industry, which was in harmony with the
principle embodied in our plan.
Mr. Sanpers of Indiana. You think, then, that the Plumb plan
expresses the principle announced by the President in his message {
Mr. Prums. Just turn it the other way. I think the President
announced the principle that is embraced m the Plumb plan.
Mr. Sanprers of Indiana. In other words, you had prepared the
Plumb plan before the President returned to America?
Mr. Piums. Oh, yes. |
Mr. Sanpers of Indiana. And, in fact, before he went to France?
Mr. Prue. I think he left for France in November or December,
and this was reduced to writing in the fore part of January.
Mr. Sanpers of Indiana. You think that the Plumb plan is de-
sirable for the railroad industry, and that the time is now opportune
for the adoption of that plan with reference to the railroad mdustry !
Mr. Piums. I do. It is desirable, and I believe the time has come
when it should be presented to the public for their consideration,
because I believe it meets the demands of this occasion.
Mr. Sanvers of Indiana. And then, in your personal opinion, that
same plan is desirable for the coal mdustry ? |
Mr. Piums. There are many difficulties in the coal industry that
distinguish that industry from this, that would make it much more
difficult of application. I have not submitted and worked out a
way in which it can be worked gut and applied. All I can say is that
I believe the principles of democracy in industry, and perhaps Goy-
ernment ownership should be applied to the mining industry, if those
employed in the industry and the public want it so applied; but the
machinery for working if out I can not possibly suggest how it should
be done, because the nature of private rights in mimes are so vastly
different from the rights which have been granted to corporations
owning the public highways. .
Mr. Sanprrs of Indiana. Would you subscribe to this doctrine,
that all forests, mines, and waterways having national importance,
should be declared national properties?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 695
Mr. Pius. I subscribe to that doctrine personally, and I should
like to see it subscribed to by.
*
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 758
of railways” they are almost used synonomously, possibly with some
different shade of meaning, but with the general intent possibly of
all three terms the same, and they are often used interchangeably
with such reservation as the personal opinion of the person using them
‘may attach thereto.
_ But I would have said that the nationalization of railways was a
basic and primal question, but with the march of events referred to,
it has only become one of many factors which enter into a still
reater question—to use a much abused phrase ‘‘the high cost of
ving”—because transportation is only one of the great factors
entering into the whole problem of distribution, and cost of living is
largely dependent upon the cost of distribution. Therefore, to me,
the question of correcting the higher cost of those things which all
men must purchase—and you will bear in mind there is no man in
the Republic who is free from this burden of high cost of living in
greater or lesser degree—the element of our population which pro-
duces breadstuffs does not suffer for its breadstufts in the same degree
that those who have to purchase it do. But for all’ of the other
products which enter into daily life, the producer of breadstuffs is
just as much subject to the inexorable law of high cost—inexorable as
& now exists—as is any other citizen. The man who betters. his
wage and who probably thereby adds a certain amount to this high
Yost of living, presumably, has the reaction upon himself of suffering
Tom the very betterment which he was able to secure for himself,
onsequently there is no man who escapes the hardships that come
Tom what most men believe is an unreasonable price for the com-
nodities which families must have. |
Tt has been held as the function of a government that it shall
onserve and further the interests of those governed to the greatest
xtent, and it is only in the carrying out of the idea of the protection
f the rights of the individual that government exists. Primarily
overnment exists only for the benefit of the governed and not for
he benefit of the governing. The governing are only an incident
0 the object to be attained. The mechanics necessary to secure the
esired result.
Then arises the question, what are the proper functions of that
overnment? Is it to conserve and further the interests of every
‘Qe of the citizens, or is it to allow a large portion of that citizenship
» be exploited by another group? If the proper function of govern-
jtent is to protect each and every one of those interests which are
(8, to further the happiness and’ the prosperity of each and every
an, then it becomes a legitimate function of government to see
jlat every man secures that which he requires at a price that is
}ithin his means to procure, and that no portion of the community
jall be allowed to exploit and get undue profit at the expense of
| her members thereof.
;
454 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
by philosophic reasoning, it has been done by the exercise of force,
but within the history of mankind force has seldom been resorted
to until allreasonable means have been exhausted for attaining the
object desired.
- Congress exists in its capacity of mouthpiece or the channel of
expression of the great body of the people. It is the machine neces-
sary to transmute into law that which is propeftly desired by the body
of the citizenship. If Congress acts in accord with the will of that
population, or that portion of it which they represent, in accord with
the constitution of the country, then it becomes a fair conclusion
that the Government is functioning properly.
But as long as men labor under the charges with which they are
now burdened for the necessaries of life, it will be indeed difficult
to convince the men so laboring that all means have been exhausted
until measures have been at least tried for the reduction of those
burdens under which men do so labor.
And I am one of those who believes that the public has the right,
or any individual member of it has the right, to insist and demand
intelligent, earnest, and fairly immediate action looking to the allevia-
tion of those things.
The whole thing that is involved in the question of the high cost of
living is this, that every man has a right to expect that those things
which he of necessity must have should come to him at a reasonable
price for the cost of production, plus the actual cost of transportation
to where the consumer is located. From my standpoint, there is
neither logic nor right in a profit on transportation. Transportation
is literally and rightfully a function of government, and it can only
be carried forward by the nationalization of the means of transporta-
tion, and the placing of that transportation at the service of the
people at actual cost. |
The CuarrMan. You did not believe that prior to 1912?
Mr. Garretson. Mr. Chairman, a wise man changes his opinion, a
fool never. |
The CuarrMAN. I do not blame you for doing that, but as I recol-
lect your testimony before the Senate committee, you said that you
advocated private ownership up to 1912.
Mr. GARRETSON. Up to 1910, Mr. Chairman. I cited a date when
I stated a certain thing.
The CHarrMANn. Well, in 1912 you made an address in New Yor
City before the American Economic Association.
Mr. Garretson. That was it.
The CuarrMan. And then stated you changed your view.
Mr. Garretson. Yes. Up to that time—this is in the explanatory
sense—up to 1910 I was an absolute believer in private ownership of
all property, and it is worthy of insertion here, possibly, what produced
the change in opinion, because it is a change which must come to
most thinking men if they follow the same line of investigation whieh
I have followed. Of necessity my position has brought me into
very close contact with the Interstate Commerce Commission on
very many occasions, and consecutively for a long number of years,
being an ardent believer in regulation, when I traced regulation to
the state where, under existing conditions, it wrote a deficit into a
railway account by that regulation, then I was confronted with this
problem: Who should assume responsibility for the deficit? Jf
Government regulation of rates caused the deficit, was not the
”
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 755
Government responsible for the deficit? And if Government rate
regulation resulted in a deficit on one line and they accepted
responsibility therefor, if that rate regulation produced a surplus
on another line, by the same line of reasoning was the Government.
not entitled to the excess profits under that rate which they had
. anit for the purpose of reimbursing them for the deficit else-
where ?
A difficult problem was presented to me, as to what was the lesser
of two evils—not the greatest good, but merely which is the lesser
of two evils while you are in a transitory stage. Then I accepted
Government ownership as the least evil by which that state of affairs
ean be corrected, because any man with practical knowledge of the
operation of railways in this country, and with a knowledge of the
system of rate basing, knows that a regulated rate applied on any
two railways on this continent can never produce the same results.
_ To a man that lacks practical knowledge the mere citation of two
lines of railway between two given points—for common points is
the very essence of rate making; all rates are based between common
oints. For instance, from New York to Chicago, the Pennsylvania.
lveay, with its 800 miles between New York and Chicago, is
allowed to charge a certain rate per 100 pounds, Between New
York and Chicago what can the Erie Railway, with nearly 200 miles
‘More mileage do on the same rate? It has to transport the freight
the same distance and provide 200 miles more trackage, with its
consequent fixed charge and maintenance and operation charge,
including the mileage rate paid to all trainmen, the added number
of station agents, section men, of all characters, and it must reim-
_burse itself from the same amount of service revenue. There can
be no equality between two lines under the same rate under those
conditions, and those are the conditions which exist between every
so-called competitive line on the continent.
When confronted with those difficulties, the practical man, with
knowledge thereof, must look further afield for a solution than
Government regulation. It is an utter impossibility for the Gov-
ernment to go into the question of the adjustment of rates, as between
these various properties, when you take into consideration there are
nearly 3,000 railway corporations on the continent. Gabriel would
make the last entry, after he laid down his horn, in the effort to
readjust these rates as between so many properties. It would be a
business impossibility to do it. , Therefore there only comes one
solution, and that is whereby the Government, taking over all
properties, falls heir to all the weaknesses and all the strengths that
exist in a situation of this character. To use a phrase that a certain
class of society indulges in: Throw it all into a jackpot and then
it adjusts itself, because while the doctrine of common points remains
the profits and losses adjust themselves to each other, no matter
how wide the ramifications of the systems affected, and no matter
‘what the mileage or topographical conditions may be.
__ I have heard of another solution—I have dealt with this problem
"30 years—but I have always been against it in the wage fixing on
that road, because all train and engine service and wage at the
‘Present time is founded on the mileage basis, precisely as tickets
are sold on that basis and as freight is moved on the same basis for
{ Short distances, not between common points.
; oo
,
AY.
756 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
_ The-very foundation of the whole railway structure is the mile,
and in an effort to evade the difficulties with which they were con-
fronted in the early days of transformation from the monthly system
to the mileage system, the longer lines of railway always introduced
this question of making rates as between common points, regardless
of distance. It furnishes the only practical plan by which a solution
of that question may be had, and it is one of the many factors which
_ justify the nationalization of the lines; it inures to the benefit, not
only of the great public, but it inures to the benefit of the men who
serve and the men who are served.
Mr. Denison. Is not your theory based upon the premise that the
earnings on the capital invested in one road should be the same as
the earnings on the capital invested in another? | )
Mr. GARRETSON. Let me draw your attention to another condi-
tion, and I will state it from the two railways I just illustrated, with
respect to distances. The Erie Railroad, with a capitalization one-
third greater than the Pennsylvania—in fact, it is a little more than
that—how can that road earn on its capitalization, handicapped by
the other peculiarities—but if they were even as to mileage, how
could it earn as much return on its capitalization, except by the
movement of a greater volume of traffic ite the other road enjoyed?
In fact, the conditions are just reversed, and the Pennsylvania hauls
a far greater volume of traffic than the Erie Railroad. The Erie Rail-
road is an excellent earning property, but it is a beggar’s proposition
as a dividend-paying property. ‘There is the problem of unequal
capitalization. ;
Mr. Denison. But, assuming that the capitalization of the rail-
roads should be properly adjusted, according to valuations, could not
there be a rate structure so fixed, as you indicate in this bill, allowing
one road to earn more than the other :
Mr. Garretson. There you go right back to the question of the
3,000 corporations. There is something less than 3,000 and largely im
excess of 2,000. It would take the relation of each one of these to all
the others to determine what would be an equitable rate for that road,
a multiplicity of rates in which the shipper would go to the road
having the lowest rate, and the one that you intended to serve would
absolutely injured thereby. There is where the difficulty lis.
You must bear in mind that I am not presenting a theory, Mr.
Congressman, but I am presenting facts; and there is no interest
which will attempt to deny that statement of facts. It is an existing
condition that everybody knows of. He who runs may read that.
Mr. Mernrirr. I understood you to say, Mr. Garretson, that your
view was that transportation should be furnished at cost?
Mr. Garretson. Absolutely so. |
Mr. Merritt. That, I take it, must be advantageous to the public,
and, of course, under the arrangement that you suggest you think
the cost would be lower than under any other arrangement?
Mr. Garretson. I am absolutely of that opinion that it would, be-
cause the element of profit is eliminated. :
Mr. Merrirr. What the public is interested in is getting the lowest
price for its transportation. Is not that right? :
Mr. Garretson. The public is interested in getting its transporta-
tion at the lowest possible price ; .
Mr. Merritt. That is it.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 757
Mr. GaRRETSON (continuing). Consistent with reasonable service.
Mr. Merrirr.’I agree. We are as one on that.
Mr. Garretson. Yes.
Mr. Merritt. Now, in substituting one system for the other, you
san demonstrate, of course, that your system will produce transpor-
bation at the lowest cost consistent with reasonable service.
Mr. Garretson. As to demonstration, Mr. Congressman, this is
rue: Demonstration can only be made from a series of facts which
nave been developed. No conjectural plan can be absolutely dem-
strated, except by evidence which tends to show that it would
work out the result that is claimed for it. The difference between
mowledge and belief is that if you have knowledge you are able to
lemonstrate that fact; if you have belief, you are not able to furnish
sonclusive proof thereof; and no new thing can be absolutely proven
»y rule and line.
Mr. Merrirrv. If it should appear that Government ownership, so
ar as it had been tried in other parts of the world, has not produced
is low rates of freight and as satisfactory service as has been produced
n this country under private ownership, do you not think that would
e an important factor ?
Mr. Garretson. That would be one factor; yes; but you would
lave to take into consideration the conditions under which that
ugher rate had been obtained. For instance, if you will take the
Jontinental system, that has been operated for profit to the Govern-
tent; and if you will take the Australasian system, that has not been
perated for profit to the Government. ‘There is a difference between
wo systems of governmental operation. }
The Cuairman. How about the Intercolonial of Canada?
Mr. Garretson. The Intercolonial of Canada has been run for a
reat Many years as an undesirable political asset.
The CuarrMaNn. With a deficit ?
Mr. Garretson. But, notwithstanding that, within the past
ear the Canadian Government has taken over and has in its posses-
on a large majority of Canadian mileage to-day.
The CuarrMan. That is due to the work of a commission, of which
rt. Aeworth, of England, was the head , and Mr, Smith, president of the
ew York Central, was a member.
_Mr. Garretson. Yes; he was.
The Cuarrman. They recommended to the Canadian Parliament
‘iat they take over all of these Canadian lines because of the tre-
,endous amount that the Canadian Government had invested in
‘em and the fact that they were not paying.
. GarRETSON. There you have exactly the point—they were not
tying in the sense of a private investment, but a large portion of the .
\curities of some of them were guaranteed by the Canadian Govern-
ent. Regardless of what the impelling purpose might have been,
-@ fact remained that the Intercolonial for years——
‘The Cuarrman. Fifty years.
Mr, Garretson. Bear in mind that for 25 of those years I have
)€n reasonably familiar with the methods of its operation, which
2re purely political—with a minister of railways; and I have also
| @m reasonably familiar with the operation of the other properties,
d the result that was obtained therefrom, when you go down and
‘
|nsider the majority of the lines taken over, there was no more
,
a
758 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
chance for those roads to be successful and dividend payers than
there was for our western extension roads to be for the first 10 years
of their existence, because they penetrated a country very sparsely
settled and so limited in its products that it was necessary to settle
the country and secure a certain density of population before a
volume of business could be produced there that would yield a
revenue that left any appreciable margin beyond operating expenses.
And under the Government system of operation, if it is adminis-
tered exactly on a par, we will say, with their postal system, or with
ours, then under the direct Government administration, if it yields
its operating expense and a reasonable margin beyond that, it will
be in far better position than if, in addition to that, it had to make
an effort to pay dividends upon the capital said to be invested therein.
The CHarrMAN. I beg your pardon, Mr. Merritt.
Mr: Merritt. I had concluded, Mr. Chairman.
Mr. Denison. Now, Mr. Garretson, we start out with a proposition
that the Government has no capital. It takes capital to own a
railroad. Now, the only way the Government can get the capital
to own a railroad is by borrowing it or taking it from the people,
without borrowing it, through taxation. Is that true?
Mr. GARRETSON. Yes, sir.
Mr. Dentson. Which way do you think the Government ought
to get it?
Mr. Garretson. Take the premise that you laid down, Mr. Denison,
and if the Government has not the capital for these things, the
Government is in exactly the position where the original railway
promoters were. Bear in mind that I lived in and grew up in the
railway promotion country, and the average man who promoted what
are known to-day as our feansoontinen tal HE did not have a dollar,
and never did put a dollar in them. Those men did just what we
say the Government should do. They should issue bonds and sell
them to others. Ordinarily, they traded them to the contractor
for building a certain amount of road.
Mr. Denison. Of course I do not know anything about those oe
of speculation. Iam speaking of an abstract principle now, and the
Government has no capital.
Mr. GARRETSON. The Government has got what many other finan-
cial institutions possess in large degree; that is some capital, and the
Government, unlimited credit.
: nee Denison. Your theory is that the Government should issue
onds ?
Mr. Garretson. It should.
Mr. Denison. In other words, the Government should borrow the
money to own the roads?
Mr. GARRETSON. Yes; and give its promissory notes therefor. _
Mr. Denison. The Government should pay something for that
money, should it not?
Mr. Garretson. I beg your pardon.
Mr. Denison. Should not the Government pay something for that
money ? |
Mr. Garretson. It should pay for that money precisely what 1!
pays for other money that it needs. :
Mr. Denison. And would you call that interest, that the Govern
ment has to pay on the investment profits ?
7
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 759
’ Mr. Garretson. I would call that a fixed charge.
Mr. Drentson. Would it be profit?
Mr. Garretson. It would not.
Mr. Denison. You distinguish between an interest charge and a
profit charge ?
Mr. Garretson. I would.
_ Mr. Denison. There can be no profit on the bonds, then?
Mr. Garretson. The profit on the bonds is a fixed rate, the return
of the money loaned. Now, I might be at variance with this system
of interest, but that does not change the fact that that is the usage of
the present day that if you borrow funds you pay interest for the
use of the funds. There are only two forms of security which the
world has largely followed, the old syncretic mortgage form, which is
as old as the institutions of man, whereby a ‘‘use”’ was at once delivered
of the thing mortgaged in heu of interest. That was before interest
was established. In the later days, a man borrowing gave a mortgage
‘and retained possession and use of the thing mortgaged, and he
pays interest for the use of the money for which the property, which
e keeps and uses, stands as security. That being the case, the
Government does exactly what the individuals do between each other ;
it gives its obligation for the amount borrowed and agrees to pay a
certain amount of interest for the use thereof. There 1 would simply
follow ordinary usage.
Mr. Denison. If individuals could furnish capital to run_ the
railroads for the same rate of interest that the Government could, do
you think that would be satisfactory? .
Mr. GarRetson. It would not.
Mr. Dentson. Why ?
Mr. Garretson. Because that leaves the control where it is, and
we want the control to go with ownership and possession.
=, ——
Mr. Denison. Now, do you?
Mr. GarreTson. I do.
Mr. Denison. This bill does not provide for Government control,
does it?
Mr. Garretson. It requires that the Government have supreme
‘control of it, own it, and then it exercises that control by delegating
the operation thereof to another corporation, but not for profit.
Mr. Dentson. Now, don’t you think, if the Government is going to
own the roads and furnish all the capital, the Government ought to
run them ?
Mr. Garretson. I do not.
Mr. Dentson. Why ?
Mr. Garretson. For the very simple reason that I believe it can
be more efficiently done under the method presented in the Plumb
bill, You must bear in mind that some men have sympathy with
the attainment of these things, and some men have not. I have
spent a business lifetime contending for the right of every man to
have a voice in the conditions under which he should serve and the
! wage which he will receive.
Mr. Denison. I agree with that.
| Mr. Garretson. And I hold a second belief—but I will not ask
you whether you agree with this or not—that he not only has the
' tight to a voice in the two things that I have named, but he has a
‘Tight to a voice in the disposition of the profits from the enterprise
x
LA |
eas |
Rad
i
760 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
commensurate in degree to the amount of energy, time, and effort
that he puts into the accumulation of that result.
Mr. Denison. And the ability?
Mr. Garretson. And ability. Let me call your attention to this
fact: The organization that I represent has contracts with nearly 300
railways covering wages and service of conductors. Hach and every
one of those contracts recites the word that you have named as one
of the conditions of promotion. That is how thoroughly we recognize
that.
Mr. Denison. I was wondering if all the bank clerks, for instance,
in the country wanted the same plan applied to the banks, what you
would think about that? .
Mr. Garretson. Now, do not mistake my answer in this, Congress-
man.
Mr. Denison. I will try not to.
Mr. Garrerson. The Plumb bill, in its entirety, provides only for
one industry. You have heard Mr. Plumb describe the limitations
where that bill would properly apply in his concept of it.
Mr. Denison. Yes.
Mr. Garretson. I will give this as my own personal opinion,
and I bind no other living human to it, and, because of the different
railroad interests that I represent here, I desire to commit no man to a
thing to which he has not authorized me to commit him; but per-
sonally I believe this: That there is not an industry on the face of the
earth in which the men who serve it are not entitled to be heard in
regard to its conduct, and if the principle were more widely followed,
further and greater benefits in all directions would accrue. Isay that
too, as a banker. :
Mr. Montracue. Would you say that also in respect of ownership ?
Mr. Garretson. I beg your pardon.
Mr. Monraaue. You say they are entitled to be heard with regard
to the conduct of the industry. Would you say that in respect of
ownership as well? |
Mr. GAarreETSON. I had not carried my beliefs in regard to owner-
ship in any degree into the financial realm. I am only dealing with
the problem of the man who works with his hands directly, and the
things that I stated in regard to it are usually limited to that class of
man. If there is a class of men on the face of the earth that are
entitled to more consideration than they receive, it is the bank clerks
of the country.
f eh MontaGuE. They do not receive as much as the railroad men,
o they ?
Mr. Garretson. They do not receive as much as anybody. There
is no irony in that. I say it from the standpoint of a man who sits
on a bank directory, and I raised so much trouble on that directory
over the question of wages for the bank clerks that there are days
when they want to throw me out. |
Mr. Cooprrr. May I ask a question, Mr. Chairman ?
The CHarrman. Yes; Mr. Cooper.
Mr. Coorer. A few moments ago you said that the Canadian
railways had been controlled by politics to some extent.
Mr. GARRETSON Yes, sir.
Mr. Coorrr. I want to ask you this question, because I believe in
your intelligence on this great question: Do you believe it is possible
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 761
for the Government to operate the railroads without politics entering
into it?
_ Mr. Garretson. Not directly, but only through such a corporation,
or something similar to that, as we propose.
Mr. Coopgr. Do you know of any Government institution that we
have to-day under our form of government that operates without
politics entering into it?
Mr. Garretson. The only one I know of is the Interstate Com-
merce Commission. I believe it is as near being absolutely free from
politics as a human institution can be.
Mr. Dentson. Do you think it would be better for the Government
to organize a large corporation and let that corporation run the Post
Office Department ?
Mr. Garrerson. I will say this to you: That a corporation formed
along the lines embodied in the Plumb plan, in my opinion, would
udd largely to both the economy and efficiency. Isay this in no sense
7 a criticism of the Post Office Department, as it has existed for 50
years, because I am not taking one period or another ; what I mean
ay that is that concealed behind that is no criticism of the present
nanagement of the Post Office Department. I may have some, but
am not voicing it in that opinion.
Mr. Sims. Before you get away from the question of capitalization
id the borrowing of money I want to call your attention to these
wo points: That the stocks of corporations are subject to taxation,
is is also the property mortgaged for securing bonds, both ad valorem
md income, direct and indirect. Is not that true?
Mr. Garretson. That is true in regard, I think, to Federal taxa-
jon largely, but in some States I think there is an exemption with
‘espect to stocks. 3
_Mr. Sims. That is by State legislation 2
Mr. Garrerson. Yes, sir. Your statement is correct with regard
0 Federal taxation.
Mr. Sims. But the State has power to tax, if it so elects?
Mr. Garretson. Undoubtedly.
Mr. Sims. I gathered this as being a question in Mr. Denison’s mind,
nd that is why I call your attention to it. Now, the Government
an exempt the bonds it sells for railroad purposes from all taxation
y any taxing power on earth?
Mr. Garrerson. It can.
Mr. Sims. It can refrain from taxing itself and prevent anybody
lse from doing so?
Mr. Garretson. Yes.
Mr. Sivs. Can it not also prevent any taxation, by any taxing
Ower on earth, on the property after it is acquired ?
Mr. Garretson. Now, you will bear in mind that I hire a lawyer
Yanswer that kind of a question, as a rule, but I have had a certain
mount of law injected hypodermically in me by the courts. That
when I would not swallow it, they gave it to me in that way. Iam
nder the impression that Government property, in its present
iatus, is absolutely nontaxable in any way.
Mr. Sis. The Federal Government being a supreme sovereignty
an only be taxed by its own consent ?
‘Mr. Garrerson. It is the fountain of power.
he
f
}
i
&
762 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Surs. Yes. Therefore, the Government can, to that extent
give an advantage to these bonds—I mean a market advantage—that
no other power could give, except a State, which would give it in s¢
far as municipalities and State made corporations go.
Mr. Garrerson. I would accept that with just this amendment
“Market or investment value.” mt
Mr. Sms. Market or investment value; that is what I had referenee
to. If the bonds are put on the market, when you come to market
the bonds the Government sells them for what it can get, the State:
sell their bonds for what they can get, and the railroads sell them for
what they can get.
Mr. Garretson. The investment value of Government bonds rests
very largely in their freedom from taxation.
Mr. Sus. To-day we see the first issue of Liberty bonds, whicl
bore a rate of interest of only 34 per cent, nontaxable :
Mr. Garretson. Exempt from all taxation.
Mr. Sms. Yes. They are bringing in the market par or prac
tically par, while bonds of less limit, in time, but with less tas
exemption, bearing a rate of 4} per cent interest, are abt a discount
bonds of the same Government, showing that the exemption from
taxation, so far as investment securities are concerned, is so highly
desirable that the full amount of what the bonds will amount t
during their life, including interest, 1s less desirable than a bonc
exempted from taxation. Taxation may be at any time increased bj
the taxing power. Is not that so?
Mr. GarRETson. It is; subject to such limitation as State consti
tutions may impose.
Mr. Sms. But, with regard to the Federal power
Mr. Garretson. Oh, you are talking about the Federal power?
Mr. Sms. Yes.
Mr. Garrerson. I am of the opinion it can be increased at an)
time where there is no constitutional limit thereto.
Mr. Sms. Take a 6 per cent bond, if there should be such a thing
of a railroad company placed upon the market. It is subject t
State taxation, Federal taxation, municipal taxation, and taxatior
along the line of surtaxation, income taxation, increasing with thi
volume of income, and a railroad bond of the most solvent company
being liable to all this form of taxation, both as to principal and in
come, a graded income tax, an excess rofits tax, and a surtax, ii
placed in such position that no man will give as much for it as bh
will for a low interest-bearing bond that can not be reached in thi
way.
Mr. GARRETSON. It will always be at a full disadvatnage whereve'
held in amounts that produce income, under the provisions of th
income tax. It will not operate against it in the same degree wher
held in very small amounts. f
Mr. Sms. Then it would be a great economical advantage to al
investor in railroad property to have the ability to buy bonds an¢
give them in exchange to the owner of stocks, subject to such taxa
tion, those bonds being absolutely free from such liability to taxatio
and therefore result in great economical saving to the United Stat
or to the users of the railroads, by having both the property, th:
would otherwise be mortgaged, and the tax or security of debt issue
for it, free from taxation. Is not that true ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1768
_ Mr. Garretson. There is no doubt but what a large number of
security holders, who are in no sense interested in the control of the
property through the holding of any form of securities, either
stocks or bonds, will welcome a lower rate of interest which the
‘Government bond would pay, with its additional stability and its
freedom from taxation. )
Mr. Smus. Yes; its freedom from taxation.
Mr. Garretson. I say that from the standpoint of a man who,
in the past 10 years, has bought more than $5,000,000 worth of bonds
in the open market, as investments for the organization of which
he was the head. |
_Mr. Sims. Now, isn’t that the very thing that confronts us at this
time—or at least, I want to hear your view on whether or not it
does confront us.
Mr. Montacugr. Are you leaving the question of bonds now ?
Mr. Sims. No; but bearing on that. In the last month for which
we have official reports our exports were about $900,000,000 and our
imports a little less than $300,000,000—a clear balance of trade in
favor of the United States in one month of $600,000,000. One of
the highest banking authorities in this country states that no such
condition can continue and be paid for by the transfer of gold; that
our products must either cease to go to foreign countries or we have
got to buy their products or securities in those foreign countries or,
im other words, sell on a credit, and the difference in exchange between
the United States and foreign countries is so great that a good security
‘at the same rate of interest and for the same length of time would
ofier a very large bonus to the American investor in favor of buying
foreign securities over domestic securities. Is that true?
Mr. Garretson. I have seen such representations made.
Here is what is true in regard to a world economic condition: If
the balance of trade remained in favor of this country to the extent,
or approximately to the extent, shown in the figures for that month,
it would only be an arithmetic proposition to figure how long it would
be until we had accumulated the wealth of the world. That is all
there is to that. |
‘Mr. Sivs. Bankrupt the world and, in turn, bankrupt ourselves ?
Mr. Garretson. That simply grows out of this condition, that
with all of our war activities, our producing machinery was never
clogged, and the consequences were that on the cessation of hostilities
We were ready to resume the character of world trader that we had
before. I am using that expression in the sense of a new world.
Por raw products south of the Isthmus is afactor. For manufactured
Fpancts it is not in any great degree. But we are a warehouse of
both raw material and manufactured products, and we were almost
the only people in the world who were ready, on short notice, to
fesume commercial relations everywhere, everywhere that it was
Possible to do so.
_ England is not a producer of raw materials, except through her
Yolonies, and consequently there must be a transfer of raw material
before she can take up the turning of the raw material mto the
hed product for the markets. Whenever that time elapses, then
le becomes our competitor, and she largely reduces that balance of
sade.
*
764 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Now, I do not pose as a financial or economical expert, and, con-
sequently, whether or not the statement that the only way that that
balance can be maintained as between other countries and our own
is by an acceptance of their securities, is sound economics, I would not
be able to say; but in any event it will depend largely on the value
of the securities whether it is sound economics or not.
Mr. Sms. At this time, as given by the highest source of informa-
tion, the exchange rate between the United States and Germany is
at a discount of 74 per cent on the German, unit of value——
Mr. GARRETSON. The mark ? 7
Mr. Sims. Yes; the mark. It is 39 per cent in Italy, 30 per cent
in France—this is all in favor of the United States—10 per cent in
England, par in Spain, and Japan is the only nation on earth to whom
we have to pay a premium on exchange in order to transfer our credit
to that country.
Mr. GARRETSON. You need not go so far across the water, Judge.
I drew one check in payment for a bunch of Victory bonds, which is
the title given the Canadian bond issues, on which the exchange in
ray favor amounted to some $250, just between Toronto and Cedar
apids.
Mr. Sims. It seems to me inevitable that for a period of years—
nobody can tell how long—that any kind of taxable security in this
country, without much reference to how much interest it bears, is
going to be a a disadvantage in the public market as against non-
taxable securities, and as against any just as good securities offered in
any foreign countries like England and France ?
Mr. GARRETSON. Yes, sir.
Mr. Sms. As a rate of interest in excess of that we pay, and at an
exchange discount that will make much profit for many years, and
therefore I do not see how it is even possible for the railroads to
finance themselves with private capital in the competitive market
of the world.
Mr. Garretson. There is no doubt that in a market of that charac~
ter, the Government security or Government loan will take precedence
of all others, and at a far more economical rate for the purchaser.
That is foregone.
Mr. Sims. Now, with respect to politics. Can anything on earth
be kept out of politics that can be taxed or be regulated by law ?
. GARRETSON. There is a question there, but there is a distine-
tion between
Mr. Monracus (interposing). What do you mean by politics ?
Mr. Garretson. By my use of the word ‘‘politics” in that con-
nection I mean the securing of positions, the administering or non-
administering of discipline, the retention in service of provenly
inefficient men because of political influences
Mr. Montacur. You mean other influences than merit ?
Mr. GARRETSON. I mean other influences that should obtain i
retaining in the service men of proven merit and ability.
Mr. Montacur. But suppose they are not in the service and they
want to be put in the service ?
Mr. GARRETSON. There you come against a factor that is diffieul
to explain. What is known as seniority in the railroad. service—an
this applies more especially to trainmen and engine service—is fa
more existent on the railways than civil service, which is another
form of it, isunder governmental application.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 765
_— Mr. Montacur. Is that a good system or not?
_ Mr. Garrerson. It is a good system in this: It prévides that
| every man stands in the line of promotion according to age In service
and ability to assume increased responsibility. ia am quoting the
: language of the contracts that the organizations have with the railway
“company. The railway company can not hire a man for an advanced
position as long as they have competent men that they can promote
. to those positions.
.” Mr. Stus. I used the word “politics” in the sense of trying to
prevent or bring about legislation, State, municipal, or National. I
Teferred to that more than I did to the question of patronage.
» Mr. Garretson. The thing I have in mind is what you have
described as patronage, but the form of it that you describe is just as
‘pernicious, although it is always in larger phases. The phase of it
that I refer to is essentially petty in its nature.
Mr. Montacur. If the Government owns property, then there is
nobody lobbying to increase the earnings of that property, lobbying
about taxation or anything of that kind, and if the Government pays
the employees there will be nobody around lobbying to have wages
increased
Mr. GARRETSON. That is it exactly.
Mr. Monracue. You think, then, that nobody ever comes to
‘Washington to have their salary or wages increased ?
| - GARRETSON. With a corporation that stands between, I figure
that that makes all these things impossible, because it has absolute
\2ontrol of those conditions.
| Mr. Monracur. But isn’t it a trait of human nature, and isn’t it
3vident, in your organizations and other organizations, with respect
(50 political office? It is an infirmity of human nature that men
vlesire to increase their advantages and secure higher places in the
world, and they employ influence to elevate themselves ?
|| Mr. Garretson. As: the spokesman for my own organization, I
Want to prevent the members of it that can exercise political pull from
)’Xercising it.
| Mr. Monracun. But can you do it in any other way except by
emoving the cause and temptation ?
| Mr. Garretson. I do not know whether you can remove the temp-
suman nature. The devil bequeathed most humans certain tempta-
ions. They say God create humans, but I would say the devil
Mr. Monracur. As I gave the quotation from Edmund Burke
yhe other day, he said a great many of our distempers were not due
yo much to imperfections of government as to infirmities of human
\ ature.
| Mr. Garrerson. Surely; and Bacon himself was as fine an illus-
|fation of the truth of his statement as the world has produced
| Mr. Montacur. Burke, not Bacon. I was quoting from Burke.
) Mr. Garretson. But Burke was not beyond reproach.
: Mr. Monracur. Oh, no; none of us is.
| Mr. Cooper. You said just a moment ago that you wanted to
pfevent any member of your organization from using his political
pdluence. That has not been the attitude of yourself and the rest
» your organization for the past two or three years back, has it?
t
Vi
766 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
Mr. Garretson. Absolutely it has.
Mr. Cooper. How about the campaign of 1916?
Mr. Garretson. The campaign of 1916? .
Mr. Coorer. Yes; when the railroad people, almost in general, all
over the country, went out against Mr. Hughes and came out for
Mr. Wilson. |
Mr. Garretson. Certainly they did.
Mr. Cooper. That was on account of the Adamson eight-houg
law, and I am with you on that. ,
Mr. Garretson. I am essentially guilty in that myself, with all of
. my Republican affiliations. But I want to draw your attention to
this fact: That was purely a citizenship act, and not an employee
act, and there is nothing that we abhor more than any curtailing of
the political rights of the citizens.
Mr. Cooper. I was with you on the Adamson bill.
Mr. Garretson. Mr. Chairman, may I use a minute for what you
might consider a question of personal privilege ?
The CrarrMan. Certainly, Mr. Garretson.
Mr. Garretson. Representative Cooper has referred to the passage
of the Adamson Act. I can say something here to-day that I could
not say during all the days when I held office in the labor union, as
the head of one of the big brotherhoods. The brotherhoods and my-
self by name were pilloried from the Atlantic to the Pacific by in-
nuendo, aspersion, cartoon, and editorial, as compelling the President
and Congress to do certain things. I want to answer one statement
in this record, because this is very possibly the last time that I will
appear in the capacity in which I now appear, for I am just a private
citizen now, and I am not an authority at any rate, but merely a
willing one
The CuarrmMan. I understood that you were a professor emeritus.
Mr. Garretson. I am professor emeritus, but with none of the
rights, powers, nor advantages—— .
The CHarrMANn. Only the honors ?
Mr. Garretson. Only such as I possess as a citizen.
But the point I want to make is that the four brotherhoods, in
being forced into Congress regarding the passage of the eight-hour
act, were unwilling participants. Only the influence, the power,
and the personal prestige of the President of the United States ever
got us there. We came there on his demand that we should come
there for adjudication of the question that we desired to settle by
our own methods. But, out of regard for the interest that the
President had shown, and respect for the position which he held,
and our respect for the office of Chief Magistrate, we accepted his
request to transfer the matter in controversy to the Halls of Congress.
No living Senator or Representative ever heard a demand from one
putea tt of the four brotherhoods as to what they should do.
ow, before the Interstate Commerce Committee of the Senate, the
day before the Adamson bill was passed, a request was made on the
four, to know whether or not they would defer the hour of the strike.
That request had been made by the President of the United States
two days prior to that time.
The three associates of mine stated to the committee in open
hearing that they did not possess power to do the thing requested,
but that I would answer for the four. I answered that I had the power, -
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 767
but that I refused to defer. I told them why, and after I told them
no further request was made for deferring nor were there any methods
of coercion used on any Member, and there is no Member of the
present Congress who was a Member of that Congress who will
challenge that statement. There are men here who were Members
of that Congress and present at that time. I challenge any one of
them to question the correctness of the statement I have made,
I wanted just this chance, Mr. Chairman, to make that a matter of
record with regard to the talk about holding a stop-watch on Congress.
The Cuarrman. I was not present in Washington when that was
Bees My recollection is that there were no hearings before the
ouse Committee on Interstate and Foreign Commerce on the
Adamson bill.
__ Mr. Garretson. There were no formal hearings. My communica-
tions with that committee were all through the floor leader. Mr. Wills
makes the point that there was a joint hearing, but, if so, I am not
aware of the fact.
Mr. Monracur. Mr. Wills is mistaken about that. I was on the
committee at the time. Perhaps Mr. Wills came to that conclusion
because a good many members of the committee went over there,
but I did not sit with the Senate committee.
Mr. Garretson. There were a number of Members of the House
present during the entire hearing, but if there was a member of this
committee that sat with the Senate committee I was not aware of that
fact. I never appeared directly before the House committee. I did
meet the chairman once or twice, and I conferred a half dozen times ;
possibly with Mr. Kitchin, who was the floor leader at that time,
was he not, Mr. Chairman ?
The Cuarrman. Yes.
Mr. Cooprr. May I say that during the debate on the Adamson
bill on the floor of the House I made almost the same identical state-
ment that you made her a minute ago, and I have resented at all
times the saying that the railroad en thers had come to Congress with
a gun in one hand and a stop-watch in the other.
Mr. Sims. I was a member of the committee at that time, and the
ranking member, next to Mr. Adamson, and no labor man ever asked
me a question, or anybody else, but I considered the measure on its
own value, strike or no strike, and I have no apologies to make, as a
member of the committee, for having exercised my right of voting
without fear or favor. My information and knowledge led me to
believe it was right, and my conscience told me to do right if the
heavens fell, and I went ahead and did it.
__ Mr. Garretson. You can readily understand, Mr. Chairman, that
_the man who has been pilloried in the newspapers controlled by the
financial interests of this country for 30 years is not sensitive person-
y. He becomes a pachyderm naturally; his skin thickens as he
‘goes on, :
_ Mr. Sms. Six weeks before the passage of the Adamson bill in
eo I advocated it.
__ Mr, Garretson. Consequently, I have no personal end to serve in
‘this, but I do want to preserve a record in some direction that this
ttatement was made; that there never was an effort to coerce any
™man; that I met no Congressman or Senator, except in instances
where I was sent for by that Senator or Congressman, and those
instances were many,
152894—19—vo1 1——49
768 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sms. When I said I advocated this six weeks before, I meant
the establishment of an eight-hour day, because the bill then had
not been formed.
Mr, GarreTtson. The bill had not had birth.
Mr. Sanvers of Indiana. I want to revert to the question of
whether the Plumb plan would take the railroads out of politics.
Now, five of these directors are appointed by the President of the
United States ? |
Mr, GARRETSON. Yes, sir. |
Mr. Sanpers of Indiana. And of course they will have a voice in
matters in which the employees will have vital interest. Three of
them will be of one political party and two of another, and the
President has the right to remove any of the five for inability.
Mr. Garretson. Well, for cause. We will use the ordinary phrase.
Mr. Sanvers of Indiana. I think that Mr. Plumb suggested that
the words ‘‘for cause’? would be better inserted here.
Mr. GARRETSON. That is the accepted term; yes.
Mr. Sanvers of Indiana. Suppose there should be an organized
effort to have the President remove some of those five directors?
Would you call that politics ?
Mr. GarreTson. I should say no; not in the ordinary sense. Will
you let me illustrate that, so that you may get my idea?
Mr. Sanpers of Indiana. Yes.
Mr. GarRetson. An organized movement may readily take place
in favor of or against any individual, without having any political
character whatever. For instance, I am going to Be, just such a
movement, in one sense, as you refer to. When the former Director
General of Railroads announced his intention to retire from that posi-
tion, you will readily understand that, as organizations vitally mter-
ested, the four brotherhoods had a decided preference as to who
should be his successor. We made certain representations to the
President in regard to our desires in the matter. I will say to you
that we did not choose Mr. Hines. That does not carry with it
that we would oppose any other definitely. We simply championed
the cause of a man that we believed, from his record in connection
with railroad service, was most desirable. He was not appointed.
Bear in mind that the four brotherhoods were committed to that
absolutely. We were authorized to speak for our entire member-
ship of all shades of political opinion. It was nothing political
whatever, because, regardless of political affiliation, our desire was
to have a tertain individual appointed.
Now, as I have had to say that much, Mr. Chairman, I want to
say this much more: That had we received or secured the appoint
ment of the individual whom we desired to fill the position, 1 doubt
strongly if we would have secured a man who would have gone 8s
far in his efforts to successfully operate these railways as has Mr
Hines. I have nothing but the kindliest sentiments for Mr. Hines
and a very high regard for his ability; and I count myself a fair judge
of ability—I mean in others.
Mr. SANvERs of Indiana. I noticed at the last meeting of the
Federation of Labor that they demanded of the President the remoy
of Mr. Burleson ? |
Mr. GARRETSON. Yes.
Mr. SAnvERs of Indiana. Do you call that political action ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 769
__ Mr. Garrerson. I do not. That, from my standpoint. is the
demand of a body of citizens regardless of their political faith. If
that body had been composed of ‘Republicans, that would have been
apolitical action. I mean if it was gathered under the auspices of
-some Republican purpose. Bear in mind there is nothing concealed
behind that. It would have been exactly as true if the bunch had
been all Democrats and had demanded the removal of a public
officer wholesale, but in this case it partakes of all the character of
the old town meeting.
_Mr. Sanvers of Indiana. You do not think, then, of some plan to
do away with that sort of appeal ?
Mr. Garretson. [ do not think anything on earth would, Mr.
Congressman.
, Mr. Sanpers of Indiana. I do not either. I wanted to get your
idea.
Mr. Garretson. Now, do not get the impression from me that the
passage of the Plumb bill, or the nationalization of the railways, or
any other agency is going to be more than one factor in stilling
unrest, nor will it change human nature nor furnish any solution
of a store of other things that can never be eliminated but can only
be minimized. I am not a dreamer of dreams. It may be that
under the verse that the ‘‘old men shall see visions” I may be a vision
seer, but I am not dreaming any dreams; I am not young enough. .
Mr. Sanpers of Indiana. Of course that is all very remote in
point of time.
The CyarrMan. You may proceed, Mr. Garretson.
Mr. Garretson. There was a significant expression made by a
member of the committee the other day in question to Mr. Plumb,
and if he had written a chapter he could not more correctly describe
My own dealings in regard to a Government functioning properly.
In the question he stated, ‘Then your conclusion is that the Govern-
ment must either do business or quit business.’’ That is exactly
my own conclusion in regard to Government functions. A govern-
ment should either perform the duties that devolve upon it, recog-
nizing what its obligations are and whether or not those obligations
are in accord with the purpose of the founders of the Government,
that every individual should be protected in his rights, whatever
‘they may be, and if the Government fails to measure up to that
standard, then that has failed in functioning and should quit business
In the sense that it should be superseded by mechanical agencies
that will carry out the will of the people in accord with the Consti-
tution as it is framed.
No man can afford to overlook the present world tendencies.
48 a favorite preachment, you know, of some of our prominent men,
that now that the World War is over that we are withdrawing within |
our own borders, that our interest in world problems should be sev-
‘ered, and that we should again become, in world affairs, a second
example of the hermit kingdom; that world concerns are not our
Concerns; that we are a people apart—about the old Mosaic law, if
neg will, that we are the chosen people. But that does not banish the
tact that we are the conglomerate residue of all peoples. Among us
are the tendencies that have animated all other races in the period
before, during, and following this deadly conflict and if any man
770 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
nourishes the belief that the American will never rise in protest
against the injustice that he believes is being done to him, he had
better hire sombody to wake him up. All the elements that have
caused the conditions that exist in Russia; that have dismembered
German society; broken apart Austrian Provinces; reduced England
a long ways toward industrial chaos, and demonstrated the ability
of the labor movement of England to largely dictate its own terms,
are here in the type of the insistence for better conditions for which
they hope. If he believes that those elements are not existing on
this side of the water, if his inaction just contmues long enough the
error will be realized. JI am not a university graduate. The educa-
tion that I have received has been by application to books and men,
and for every minute that I have devoted to books I have devoted
hours to men, and I know them fairly well. I have been in touch
with the substratum of American life for a business lifetime, and if
a man thinks for a moment that the social unrest that underlies a
seemingly smooth surface can not easily disrupt that surface, if the
condition once grows upon the American people, that there is no
effort being made to deliver them from the things of which they com-
plain, inaction is the sure thing that will bring that element to the
surface.
The intervention of a body of water between us and the Old World
does not mean the severance of the bond that unites millions of our
citizens to a country where our families had origin. They are m
close touch, they of the later arrivals, with incidents as they take
place in those regions, and the older element, the true American
element that is fully assimilated is a partner in that discontent, and
unless that discontent is alleviated, largely by the limiting of what
men believe is an unreasonable profit on the necessaries of life, it is
bound to find its channel of expression, and that channel of expres-
sion, the opening of it, is the last thing that any good citizen desires
to see.
The sporadic occurrences over the country in the way of illegal
strikes—those are the straws that show how the wind blows. That
is all they are. They are nothing but the rumblings, but I say to
you that out of the union-labor movement of this country nine-
tenths of the energy of their leaders is now given to sitting on the lid.
Those men do not want to overturn government, but they do demand
that government shall function in accordance with what they
believe are not only its powers and its rights, but the duties and its
obligations.
It is within the power of Congress to largely allay this, but it can
not be done by inaction. The curse of our national temperament is,
we are the most energetic people on earth and the most indolent.
“We never do to-day what we can put off until to-morrow, unless
emergency forces us, and then we break all the world’s records.
Reverting to the passage of the Adamson law—the Adamson Act—-
you heard a score or a hundred of the Members of the two Houses
demanding time to view it in an orderly way, and there is no finer
example of the indolence of the national temperament than the
legislative record in regard to industrial trouble as it exists. The
first great railway strike was in 1877, and I think the State of Penn-
sylvania paid something like fifteen or twenty million dollars damages
for property destroyed during that strike; other States greater or
-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. TUL
lesser amounts. Did Congress raise a finger to perfect legislation to
meet such conditions? Not on your life.
The Cuairman. Was any legislation presented immediately after
that strike ?
_ Mr. Garretson,. Legislation by the people has always~- been
presented by labor unions, Mr. Chairman. Labor unions were a
negligible quantity then. That strike was not by labor unions; it
was sporadic and individual.
The Cuarrman. That might account for the’ lack of action of
Congress. There was no organization to give expression to the new
idea or to the new thought ?
Mr. Garretson, There was no organization strong enough to
exercise any influence. You have been in Congress long enough to
remember, Mr, Chairman, that when these brotherhoods first came
into Congress with the germs of the safety-appliance act:
The CuarrMANn. Yes; I have had some experience; I know the
opposition to them.
Mr. Garretson. You know we were ridiculed; no attention was
paid; we were virtually ostracized for a number of years. We fought
to recognition, legislatively as well as industrially; consequently
prior to that period the organizations had never turned to the legisla-
tive remedy. Before they had always appealed to brute force, like
8 dog that appeals to his teeth. Then is when we accepted another
avenue of approach to many questions and started on a scheme of
legislative activity that, from that day to this, has been continued,
_ In 1893 came the great Debs strike. Following that no legislation
took place, because at that time, as far as the four brotherhoods were
concerned, they had not acquired sufficient legislative influence to be
able to impress anything upon Congress. Congress is like any other
duly elected body; it listens to that which it believes can exert
certain influences, and that is not: said in any sense of criticism, Mr.
Chairman, it is said as a statement of fact.
Right there, on that statement of fact, I want the attention of
some gentlemen of this committee to one phase concerning statement _
of facts. For 31 years I have dealt across the table with the highest
operating officers of the railway companies. What I am trying to
draw here is the line of demarcation, if such thing exists, between a
‘statement of position or fact and a threat. The manager across the
table would say to me, “I won’t do it.” That was a statement of -
his position. When he made a proposition to me, if I said to him,
“J will not accept it,’ that was a threat. The difference between a
threat and a statement of position is altogether as to who makes it.
_T fought through it, and I know it. I have lived it, and I have not
-heardit. Ihave been charged with making a threat about a thousand
times when I did nothing but make my position clear. If I said to
the manager of a railway company or its president, ‘Unless you
accede to the demands which we have presented by 10 o’clock
to-morrow morning I will be compelled to withdraw every man from
/your service,’ that was vicious threatening coercion, and yet, if I
had let it go until 10 o’clock the next night, and called the men out
of the service without giving the notice, that would have been a
Vicious betrayal of orderly business procedure. In other words, the
‘Inan who stands as the representative of the labor organization is
damned if he does and damned if he doesn’t. I learned that rather
Fad gor RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
early, and that is why I have called attention to this, when I attempt
to state a position by a statement of fact there is no threat veiled
behind it, because my way of making a threat is straight out: “Do
it or take the consequences.’’ I may differentiate just that much
on the language that was used. It has been asserted that this plan
is conjectural. That is true. But if the position is taken that
everything that is conjectural must be rejected because its solution
can not be geometrically demonstrated, all progress in the world
would stop.
recite the greatest conjecture which the political world ever
was confronted with was the conjecture as to whether a Govern-
ment, by, of, and for the people, as founded in 1776, could exist.
Old World prophecies said that it was an impossibility. Why?
Because it was conjectural. It had had no forerunner, no evangelist
preceded it. Christ had John the Baptist, but the American Re-
public had no forerunner. If it had been rejected because it was
conjectural the Union Jack would still have floated from every
pinnacle in this country. What is true in regard to that condition
has been true in regard to every step that has ever been taken forward
in human progress. I am old enough to remember the predictions
that cotton could never be raised in the South without slave labor,
and the man does not live to-day that would advocate from his
economic sense that it could be done under as favorable conditions
with slaves as with free labor. That was conjectural, because they
had never tried to raise cotton in the South without slave labor.
But would any man go back to that condition? Not one. But if,
because of its conjectural nature, the old condition had been con-
tinued, we would still to-day be continuing in that former pathway.
The Cuarrman. Of course, that would also apply to the other half
dozen plans that have been presented; they are conjectural, too?
Mr. Garretson. Every one, and when you go further, one step
further, and characterize it as revolutionary, the Plumb plan does
not possess half the revolutionary element that the other plans all
do. Now, Mr. Chairman, when I say “all the other plans,’ I am
not including what I heard read from here as the Esch Bull, because
I know nothing of it. I have not read it, but I am referring to the
Warfield plan, the railway executives’ plan, and to the Chamber of
Commerce plan. They contain elements that are an _ absolute
reversal of the entire policy of this country in dealing with its rail-
ways. This plan does not present a reversal of the policy of the
Government, but it does present an untried plan, which we believe
contains all the elements that go to make railway operations more
economic, more efficient, and of greater benefit to the people at large
in every direction, while every other one of the plans is founde
upon the vulture principle of tearing the vitals of the people finan-
cially. The whole question underlying the supervision of railways
was originally founded on the principle of protecting the public from
rapacity and extortion. You know that as well as I. That was
the basic principle underlying them, and the idea of protecting amy
element that entered into the ownership, or investment in the owner-
ship of those properties, was the thing most remote from the minds
of the people who drew, presented, advocated, and procured the
passage of the original enactments.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1773
Bear in mind I have been rather intimately connected with the
“history of all that legislation, growing out of the fact that from prac-
tically the time of its inception I have had a personal representative
here in Washington in touch with all enactments of that or like
' character ete railways, so I am reasonably conversant with
the old impulses that underlie those things.
The first enactments, of course, were the original Granger laws, as
they were termed, in the States of Iowa, Michigan, and Wisconsin.
Those were the first principles in the way of railway legislation.
Every foot of the distance from then till now for the better protection
of the people, for the curbing of that sentiment that is best described
in an utterance of a former very prominent railway capitalist, ‘‘the
ublic be damned’’ attitude, has characterized every interest that
ominated American railways until they found that the attitude was
supercostly, then, and then only, they assumed the attitude of defer-
ence, and to-day it is impossible to find one of the groups dominating
the railways or his paid spokesman, who will not say, ‘‘ We believe in
regulation—we do, because we know we have to have it.” It is like
the church doctrine of free moral agency. The church holds that
every man is a free moral agent to accept salvation or to reject it.
It is very true if he does not accept it he will be damned. That is
how free the moral agency is. That is exactly the attitude of the
_ railways toward regulation by the Government. They know that if
they do not accept it they will be overwhelmed by public sentiment
_ and therefore they accept it; and you have got to give them the credit
for one thing: There is a large number of the men engaged in the
business that when they say it will look as if they like it.
Mr. Weszster. Before we get too far away from the distinction
_ between the statement of a fact and the making of a threat—I think
you made that distinction—-and you said that a threat implied, using
your own language,‘‘Do it or take the consequences.” Now, defini-
_ tions and distinctions are always made plain by application to con-
crete cases. Will you classify this language for me as to whether this
is the statement of a fact or a threat—thatis,a ‘‘Do it or take the
consequences’’ ?
Mr. GarretTson. Let me just draw your attention to one thing,
Congressman—that is, the coupling of fact and position.
Mr. WEBSTER (reading):
Therefore, he who obstructs the Government in this policy of control of ownership
becomes our direct enemy and shall so be posted, and a record of his action shall be
_ kept for future reference, and it shall be our pledged policy to remove him from
whatever political line of trust the public has given into his keeping.
We believe it to be our duty to our God, our country, and to man ‘‘that labor should
’ have an equality of opportunity.”’
And he who denies to labor the right of a living wage is as great an enemy as the
_ alien, the pro-German, and the anarchist.
And we so strongly affirm this position that he who strives to object or demean labor
' or in any political way detract from the quality of labor, shall be posted throughout
' the length and breadth of our fair land as an undesirable. ‘‘He has denied the nght
of labor to equality.’’
Is that a statement of fact or is that a ‘‘Do it or take the conse-
~ quences” ?
Mr. Garretson. I should say it was a combination of statement of
' Position and to take the consequences.
174 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. WesstTeEr. In other words, to be plain—and I hope we will not
have to remake the dictionary in order to make the Plumb plan
work—is that a statement of fact or a threat, according to your
description and definition ?
Mr. Garretson. According to my definition, it is a statement of.
osition. I am using the word ‘‘position” instead of fact, because’
in my explanation to Mr. Cooper it was a statement of position, in my
opinion, and a threat. First there is a statement of their beliefs in
regard to this——
Mr. WerssTER. Just let me interrupt you. You said a moment
ago tha . threat involved ‘‘Do it or take the consequences.” Now,
are not tiiose your exact words ?
Mr. GarreTson. Yes; I said my way was to do that. |
Mr. WesstrrR. Now, then, in order to do it, you have to tell them
what you want them to do?
Mr. GARRETSON. Surely.
Mr. WesstTER. Then, after that has been told, when it is coupled
with this language, what character does it take on?
Mr. Garretson. Both.
Mr. Wesster. No, this language: ‘‘Therefore he who obstructs
the Government in this policy of control or ownership ’”’?——
Mr. Garretson. That is a statement of fact.
Mr. WessTER. ‘‘Becomes our direct enemy and shall be so posted,
and a record of his acton shall be kept for future reference, and it shall
be our pledged policy to remove him from whatever political line of
trust the public has given into his keeping.”
Is that a statement of position or a threat, according to your
understanding ?
Mr. Garrertson. It is both.
Mr. WessteR. Define what part of it states a position and what
part of it makes a threat.
Mr. GAaRRETSON. First, it is a statement to you of their desire, as
your constituents, that you should do certain things. Second, it is a
statement of their belief that a man who does certain things is equal
to a German, and so forth; I can not quote the entire statement;
the third is a recital of a fact, that if the course of obstructions is
followed, that they will attempt to defeat any man who does it for
office, and there is no question but what in one sense constitutes a
threat as to their future action.
Mr. Wesster. Do you construe as constituting a threat merely to
remove one from one’s office, this language: ‘‘He shall be posted
throughout the length and breadth of our fair land as an unde-
sirable,’ bearing in mind that this letter was addressed to me as a
Member of Congress from a district where the Representative of that
district is elected by the qualified voters of that district? Why is it
necessary to post me as an undesirable throughout the length and
breadth of the land for political purposes ?
Mr. Garretson. Well, I will tell you very frankly, Mr. Webster, I
judge that some fellow that is quite handy with a pen fell in love with
that phrase and wrote it in there.
Mr. Wesster. But does that coincide with the fact that this is a
printed propaganda letter, of which I have received perhaps 300
copies, in the identical words of this one, and that the stationery
bearing the words ‘‘ Brotherhood of Railway Clerks, Spokane Lodge,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 175
No. 34,” was used bearing the union label of the printer who put the
letter in form?
_ Mr. Garretson. Why, such things are done. I have, I think
aol in the last 30 years, at one time or another, probably
received 10,000 communications of very similar character, only the
‘a that came to me were very probably much more vitriolic than
at.
Mr. Wesster. Yes; this is very mild.
Mr. Garretson. Sure, that is what you might call “in broken
doses.” I will not claim it is what Mr. Winslow would call a love
letter, but then you will bear in mind, in the correspondence addressed
‘to me, they would be much less careful of their phraseology than
‘they would to you, where it would reach a public tribunal, in telling
‘me, in cases where I have not measured up to their desire in some
Tadical direction, what they were going to do to me at the next election.
‘There was one time in my career when I did not digest my meals
well unless I got a certain number of them every new moon. That,
‘IT think, is in greater or less degree, Mr. Congressman, the experience
‘of every man who performs dsleeated duties.
_ Frankly let me tell you my position in regard to it, and I believe
Tcan tell it in language that you can understand.
_ Mr. Wessrer. All right, we would like to get at it.
| Mr. Garrerson. I will say to you that the clause in regard to
isting him is, in my opinion, foolish. I just relegate it to that.
‘that 1s absurd, because that could have no political slenificance
‘anless you were running for an office where the electors covered
‘this whole fair land, but as Congressman that would have no weight
beyond the district in which you were elected.
| Mr. Wersrer. You know that Congressmen happen to be human
eings who have some regard for the esteem in which they are held
oy their fellows ?
| Mr. Garretson. Oh, you get used to even that. I have been
‘s0sted by the newspapers of this country from one end to the other
4s anything from an anarchist to the most corrupt creature that
over bartered away human rights.
* Mr. Wezster. Did you indorse that sort of thing when it was done?
Mr. Garretson. No; I did not indorse it; I did not issue any
,
|
‘ndorsement.
Mr. Wesster. Do you indorse this letter that I just read to you?
Mr. Garrerson. I would not indorse it with that language or
‘vith that one proviso.
Mr. Wesster. It is that language which I am speaking about,
nd that language only.
Mr. Garrerson. What I would have said to you would have
een something like this, and I would have considered myself within
ay rights, ‘‘My dear Congressman”’
Mr. Wesster (interposing). No; I do not want you to tell me
that you would write.
Mr. Garretson. I will tell you then what I would have said
/0 you.
| Mr. Wezster. I want you to tell me what your conception of
‘tis document is and how we are to classify it under your distinction
etween a statement of a fact or a position upon the one hand, and
€ making of a threat on the other, when you said » threat, accord-
776 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ing to your notion, was ‘‘Do it or take the consequences.” Please
classify it—which is it? 7
Mr. Garretson. That letter distinctly says to you ‘‘Do what we
ask or take the consequences,” and in that it is a threat.
Mr. Wesster. Then, according to your own definition, it is a
threat ?
Mr. Garretson. I am perfectly willingeto admit it. Now, I am
oing further, and in my opinion, barring the one objectionable
phrase that I have said that I would relegate to the junk heap
Mr. Wesster. What was that one you would relegate ?
Mr. Garretson. In regard to posting you across this fair land.
Mr. WessterR. Yes; all right.
Mr. Garretson. And from that I would consider, if I were one
of your consituents, that I was clearly within my rights if I addressec
to you a communication embodying the sense of all that 1s said
there, except that one phrase, but saying it in the language that 1:
accepted in business or parliamentary circles.
Mr. Werster. All right, let us read this and leave out the portior
that you have censored:
Therefore he who obstructs the Government in this policy of control or ownership
becomes our direct enemy, and a record of his action shall be kept for future referenc:
and it shall be our pledged policy to remove him from whatever political line of trus
the public has given into his keeping.
We believe it to be our duty to our God, our country and to man, ‘‘That labo
should have an equality of opportunity.”
And we so strongly affirm this position that he who strives to object or demean labo
or in a ea way detract from the quality of labor, has denied the right of labo
to equality.
except the posting.
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 777
» Mr. Wesster. Let us see whether it would or not. It is easy to
make statements. Let us see. Does that letter imply the idea that
because I have gone counter, and am going counter, to the policy
of the chamber of commerce that I am to be declared their direct
-enemy, that I shall be posted ?
\ Mr. Garrertson. Oh, no; I eliminate that.
Mr. Wessrer. But your last statement was that your letter
. Bpied everything that this one did ?
) r. GARRETSON. No; except the posting; I made that exception;
I excepted that far. |
Mr, Wesster. All right. Let us now so confine it. Does that
letter imply that a man who takes that position is worse than an
alien, a pro-German, or an anarchist? Does it imply that he shall
‘be denominated an undesirable and branded as one who has denied
some interest the right of equality ?
. GARRETSON. Everyone of those things is implied in the phrase
“un-American”’ to a man in your position.
| Mr. Wessrer. Do you think that?
_ Mr. Garretson. I know, and I will submit what I have dictated
to the scrutiny of any member of your committee and stand by the
wording of it.
'. Mr. Wessrer. Now, some question was suggested here this morn-
‘ing as to whether these letters have any relation to the Plumb plan,
and it was denied that they had any such relation. This letter that
L have before me is addressed to me as “Congressman J. Stanley
Webster.”
~Mr. Garretson. Yes.
Mr. Wersrer. And I became a Congressman the 4th of March this
year. ‘The Plumb plan had been laid before the country in concrete
form prior to that time, had it not ?
Mr. Garretson. It had.
|. Mr. Wesrsrer. It had been sponsored by the Brotherhood of
‘Railway Carmen and the Brotherhood of Railway Clerks prior
to that, had it not?
Mr. Garretson. It had:
Mr. Wrzster. And every one of these letters which I have made a
dart of the record have been written by men who purport to be
‘nembers of those two organizations ?
Mr. Garretson. And they probably are.
Mr. Wessrer. And they expressly refer to Government ownership
of railroads 2
_ Mr. Garrerson. Ownership and control.
_ Mr. Wepsrer. If these letters do not refer to the Plumb plan,
/ell me what other plan they might have had reference to?
| Mr. Garretson. The question is superfluous when you take into
Honsideration the fact that the principal railways of this countr
jiave been under Government control and operation since the 28t
faye! December, 1917.
' Mr. Wesster. Js that the kind of operation and control that they
‘ndorse and want me to support?
| . Garretson. They want you to support Government control
;md operation, without naming how they want it done. It probably
jad some connection with their knowledge of the Plumb plan, but it
|vas bred by the former Government control and operation and the
| sults that came therefrom.
.
7178 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr.” Wesster. Mr. Garretson, is it not fair to assume that if the
members of these two brotherhoods sponsored and indorsed the
Plumb plan that they knew what it contained?
Mr. Garretson. I will say this to you, from personal knowledge:
At the time that the plan was presented here there was not a copy
of it outside of the city of Washington. That was February 7 to 11.
I have forgotten the entire period, but | think a period from February
7 to 11.
Mr. Sanpers of Indiana. The 7th to the 12th?
Mr. Garrerson. Yes. Bearing in mind I only appeared a part of
a day that confused me as to what those dates were. I want to
call your attention to this, Mr. Congressman. The copies were not
printed for distribution to the membership of the organizations for 2
period of at least—until at least the first week of July. Bear in mind
this detail, 1 have had to consult others, because while I gave the
approval for the printing on behalf of my own organization, | was
uncertain as to the date of distribution, because that was clerical
work that was performed on my account.
Mr. Wepster. Mr. Garreston, if the men of these organizations
had not been advised of the provisions of the Plumb plan until July
of this year, what weight is to be given to their approval of that plan
given in February ? |
Mr. Garretson. Because they had got excerpts from it, in sofaras
it was published in the daily press—they undoubtedly had circulars
from their own executive offices advising them that he had appeared
through attorney in advocation of the plan, they had preconceived
desire to see the railways continue under Government control unde!
some form, but it is more than likely that at the time the form lette1
was prepared they knew little of the details of the Plumb plan, and
what they were conveying was more largely the expression of theit
desire for Government continuance of control in some form than fot
any specific remedy. That is my own belief.
Mr. Wepstrer. T want to ask you this question, Mr. Garretson
Assuming that we have an elective judiciary so that every qualified
voter has a right to express a voice as to who shall be the judge of 8
given court——
-Mr. Garrerson (interposing). You have such in most of the States
that is, for the State judiciary.
Mr. Wersrer. It is within the right of anybody; any labor orgaDi
zation, to endeavor to remove a judge from office if he does not con
duct himself in such a way as to meet with their approval, is it not
Mr. Garrerson. If they can get the necessary amount of support
Mr. Wrpster. I say it is within their privilege to do 1t?
Z| Mr. Garrerson. It is within their privilege to do it or attempt «
O it.
: Mr. Wessrer. Then, taking this letter which you seem to 10
orse
Mr. Garrerson. The principle of it, yes; with the exception named
Mr. Wxrster. Do you think that it would be permissible for you
even as a member of the bar, to present that to a judge with referene
to a case then pending before him? |
Mr. Garrerson. If I was acquainted with the statutes made ant
provided in most of the States I would not present it in that case.
Mr. WeBsTER. Why ? 3
Mr. GARRETSON. I have no desire to be a martyr.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 77 9
_ Mr. Wesster. You have no desire to subject yourself
_ Mr. Garrerson (interposing). To indictment or fine.
' Mr. Wesster. Incident to violation of law ?
Mr. GarRETSON. It is.
_ Mr. Wesster. So that it would be a fear of physical punishment
‘that would deter you from making the threat and not because it
‘was iniquitous and reprehensible to do so ?
__ Mr. Garrertson. It would be because a statute had limited my
feet to do so, and as I am a law-abiding citizen I try to abide by the
law.
| Mr. Wexster. One of the rights of a man is to violate the law and
go to jail, is it not?
| Mr. Garretson. It is one of his rights to do that. T have exercised
that right myself.
' Mr. Wesster. Of going to jail ?
Mr. Garretson. Going to jail.
Mr. Wezsrer. I am beginning now to understand your point of
view.
| Mr. Garrerson. I do not blame you. Lots of people, Mr. Con-
3ressman, have had to pay immense sums of money to get an under-
standing of my point of view.
| Mr. Wessrer. I still want to get from you the reason that you
would indorse or condone the sending of a letter of this sort to a mem-
yer of a law-making body but would not yourself incur the hazard of
sending it to an elective judicial officer. Is it because that in the one
vase you can do it with impunity and in the other you do it under a
venalty ?
_Mr. Garretson. It is deeper than that, sir: the cause is deeper
vhy I would do one and not do the other.
Mr. Wesster. Is that one of the reasons? :
Mr. Garretson. That reason could not exist at all as far as the
ongressman is concerned, to a member of a law-making body, to use
he term you did.
. WeBster. Mr. Garretson, do you not know that the reason it
s unlawful and subjects one to punishment for contempt to under-
ake by threats to coerce the judicial action of a judicial tribunal, is
ecause that sort of thing has been found by experience to be detri-
aental to the fair and decent administration of justice? Is not that
he fundamental reason for the law?
Mr. Garretson. The fundamental reason was to prevent tamper-
ag with the judge precisely as the law prevents tampering with a
ary.
Mr. Wessrerr. Then assuming that I, as a Member of Congress, am
ngaged in the task of making a law for that judge to construe and
pply, is it not equally as un-American, equally iniquitous, equally
onducive to corruption in my instance as it is in the case of a court ?
Mr. Garrerson. It is not.
| Mr. Wesster. Why not? In other words, please tell me the dis-
/Retion you make between the right to threaten a court and the right
> threaten a Member of Congress.
Mr. Garretson. I want you to make this allowance ahead of time.
' Lhave got to discuss a question with you I have got to discuss it
‘Amy own way, you know, and I do not want you to think there is an
‘Tensive desire or intent. But your logic is utterly faulty in arriving
\t that conclusion from my standpoint.
XN
7
780 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
When the law’is passed, good, bad, or indifferent, it is the duty of
every citizen to observe it. Before the law is passed, you, as a Con-
gressman, are the delegated agent of that man, and he has the right,
and more, it is his duty to say to you that if you give your support
to the enactment of the law that he believes is pernicious, that he
must of necessity withdraw from you the support that he has hitherto
given, and if he even goes so far as to say that by such a course in
his opinion you will demonstrate your unfitness to be again intrusted
with delegated power from the constituency, he would couple it up,
possibly, with the statement that if you were an aspirant for office
in the future he would likewise consider it his duty to oppose you
therefor, and I believe that he would be absolutely right, and the
“Sovereignty that doth hedge about a judge”’ lacks a whole lot of
hedging a Congressman.
Mr. Wesster. Because the sovereignty in the one case carries the
force of the State back of it and in the other case it does not?
Mr. Garretson. That is all. You are the spokesman of the men
and the judge is the spokesman of the law.
Mr. Wester. Let us carry your application, now, to its logical
conclusion. ~
Mr. GarretTson. That is it.
Mr. Wrpster. You say that a law, when once made, good, bad,
or indifferent, is binding upon every citizen.
Mr. Garretson. It is.
Mr. Wesster. And it is his duty to obey it.
Mr. Garrerson. It is. :
Mr. Wesster. Is it not then highly important that the action of
those who are to make laws should not be influenced by coercive
threats ?
_ Mr. Garretson. It does not matter what the form of expression
may be, that can not affect the man’s rights who you are representing
to communicate to you not only his desire, but his purpose, if his
desire is either not complied with or complied with. You would
recognize his right to say to you, “If you will support this you will
for the future have my enthusiastic support,” and then you would say,
‘There is a mighty discerning citizen.’’ |
Mr. Wesster. Following your policy, now, that this was a proper
procedure, that this is the proper kind of thing to be done when it
relates to the making of laws, and that a man who sends out such @
letter as this is within his rights, suppose another organization would
write me a letter and tell me that the railroad brotherhoods are sayin
that, ‘If you do not indorse the Plumb plan they are going to bran
you in a Class with the pro-Germans, the aliens, and the anarchists,
and they are going to post you throaghout the length and breadth of
the land as an undesirable, and they are going to label you as one who
denied the right of labor to equality. We have an organization bac
here that is interested in that measure, and if you do give away 10
the demand of the brotherhoods we will kill you.”
Mr. GARRETSON. Yes?
Mr. WessterR. Would you indorse that? |
Mr. GARRETSON. I would not indorse that for the reason that that
is the assertion of a purpose to commit an illegal act, a crime. |
Mr. Wxsster. Is it not an illegal act to post a man throughout the
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 781
ength and breadth of the land as no better than an alien, a pro-
german, or an anarchist? Is not an honorable man’s reputation
vorth more to him than his life ?
. Mr. Garretson. I would hope that it was.
. Mr. Wesster. Will you answer me that, is not an honorable man’s
eputation worth more to him than his life?
Mtr. GarReETsON. If it is not, it is an infernally poor reputation.
, Mr. Wesster. That is what I say, Then, if you indorse blasting
us reputation, do you indorse taking his life ?
Mr. Garretson. Why, now, if you will just remember the one——
Mr. WessTer (interposing). No; answer me the question. Never
nind what Iremember. Do you indorse that kind of a threat?
| Mr. Garrerson. I do not indorse that phase in the letter, and I
iave told you so 30 times.
_ Mr. Wezster. Do you indorse that kind of a threat?
Mr. Garretson. I do not indorse the posting.
Mr. Wesster. But do you indorse branding me and classing me as
m alien, an undesirable, an anarchist, and a pro-German ?
| Mr. Garretson. If I said you were un-American, I would say all
hose things.
. WessTER. Then you do say now, assuming that a man’s
eputation has as much value as, or more value than, life, that you
aed indorse the sending of a letter telling me that if I-did not do a
We repute thing as a Member of this Congress that they would blast
|
ay reputation ?
| . GarrETSON. No; I distinctly disavowed it, because the killing
sacrime. Itis a crime to kill anybody, and it is just as much crime
o kill a Congressman as it is to kill anybody else. I absolutely
ielieve that, too.
| Mr. Wesster. Now, Mr. Garretson, crime is what the State
ecognizes and defines and to which it attaches a penalty ?
Mr. GarRETSoN. That is it.
om Wesster. All things immoral and wrong are not crimes, are
ey ?
Mr. Garrerson, They are not legal crimes; they are merely moral
rimes.
Mr. Wessrer. There are not any crimes except legal crimes, are
ere?
| Mr. Garretson. That depends on which interpretation is made by
4e dictionary you accept for the word “crime.”
Mr. Wessrer. Crime is an act that is defined by the law and the
,oing of which carries with it a punishment.
| Mr. Garretson. Sure.
| Mr. Wester. [hen it must be legal ?
| Mr. Garretson. Well, there is a spiritual state, though, as well as
jogal,
ar. WessterR. We do not speak of spiritual crimes 2
| Mr. Garrerson.~The church describes a number.
| Mr. Wessrer. We are talking about it then in the legal aspect.
‘Mr. Garrerson. The legal aspect only.
_Mr. Wesster. Do you indorse, whether it is according to your
Idgment criminal or not criminal in the technical sense
| Mr. Garretson. Do I indorse what? :
Mr. Wessrer. I am just going to state to you. Take an organ-
iation, such as I have supposed, writing to a Member of Congress
782 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
a letter telling him if he does not pursue a particular course of
action or official conduct they pauld take his life—leave out the
criminal aspect of it now entirely.
Mr. Garretson. I have never—well, in a personal sense I am by
birth a Quaker and I do not believe in killing.
Mr. Wessrer. I do not know of anybody that particularly
enjoys it. |
My. Garretson. I have seen men that did. I lived on the frontier
15 years. I saw men that enjoyed it if they could do it safely.
Mr. Wessrer. Has that anything to do with your present view ?
Mr. Garretson. I do not know whether it has or not. I think [
had the view before I knew the men, but here to talk about indorsing
any body of men sending word to another that they will kill him
seems to me far fetched. I have never been able to establish for
myself such a reputation for personal courage such as would class me
among the killers.
Mr. Wesster. You said just a moment ago that you thought a
man, an honorable man, valued his good name more highly than he
did his life?
Mr. GARRETSON. Yes.
Mr. Wessrer. And you approve a plan which seeks to deprive a
man of his good name, yet you say you will not indorse a plan that
would deprive him of the less valuable thing, his life ?
Mr. Garrerson. I do not recognize the right of any human t¢
deprive me of my good name. I care more for the respect of Garret-
son than I do for hell assembled. I am the arbiter of when my good
name is gone. As long as my conscience is clear and my respect for
myself unimpaired my reputation is good.
Mr. Wensrer. The distinction that I have always borne in min¢
between character and reputation is this: That a man’s character is
what he actually is. :
Mr. GARRETSON. Yes.
Mr. Wesster. And a man’s reputation is what the people think
he is. A man may be a very good man and have a very bad repu-
tation % 7
Mr. GARRETSON. Yes.
Mr. Wesster. He may be a very bad man and have a very goot
reputation. Now, the esteem in which Mr. Garretson holds Mr
Garretson, because of his peculiar knowledge of the workings of Mr
Garretson’s heart, is his character, but the esteem in which the peopl
who have not that inner knowledge is your reputation. No man ol
earth can take your character away from you, but it is an easy matte:
to take a man’s reputation away from him.
Mr. GARRETSON. The united press of this country, Mr. Congress
man, has attempted for 30 years to make me Just the things you wer
called there and I have got a pretty fair reputation yet and I hay
got an infernally good character.
Mr. Barkiey. You do not mean you have» an infernal goot
character ? .
Mr. Garrerson. That is merely a matter of emphasis, 1 had t
say to the President of the United States once that when I got reall
interested I would swear, and had to apologize to him beforehaa
for doing so.
(Whereupon, at 5 o’clock p. m., the committee adjourned unt
Tuesday, August 12, 1919, at 10 o’clock a. m.)
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 783
CoMMITTEE ON INTERSTATE AND ForEIGN COMMERCE,
: Hovust or REPRESENTATIVES,
| Tuesday, August 12, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
Man) presiding.
STATEMENT OF MR. A. B. GARRETSON—Resumed.
The CuarRMAN. You may proceed, Mr. Garretson.
Mr. Garrertson. Mr. Chairman, in following up the idea as to the
‘revolutionary character of the various plans that have been proposed,
. yesterday I touched upon the revolutionary character of the Plumb
plan. The fact is the revolutionary feature in all the other plans lies
im the reversal of the policy of the Government from the protection
of the public from the rapacity and extortion which had existed to the
protection of the investor, and nothing could be more revolutionary
than that.
_ Here you have an interest advocating its rights not only to have a
‘Juaranty upon that which it has invested but upon that which has
een given to it or which it has acquired, either legally or illegally,
and saddling upon not only the present generation but upon posterity
1 return which will become a vested right if legislative action con-
irms that request.
It is true in regard to the investment in railways that if the Gov-
‘omnment has an obligation to guarantee returns to the investor of any
haracter, at the same time, followed to its extreme limit, every farmer
las a right to come in and demand that the Government shall fix
mices for his entire output; a thing that has never been done except
n regard to one commodity, and that under a war emergency; and
juarantees indefinitely that that shall be the price if it will yield a
rofit, and if it will not yield a profit on the investment that the price
aust be increased until it will yield a profit; and everything interven-
og between this, probably the greatest investment field in the world,
‘he American railways, and the outlying farmer on arid soil is entitled
| 0 exactly the same thing.
Talk about revolutionary features, there is nothing in the history
f governmental policy that would equal the obligation that the
rovernment pal assume if it gave its approval to any feature of
he character named.
| One of the features that would be advantageous to all concerned
,1 the adoption of a plan like that which we have proposed lies in the
ict that in the regulation of the railways and in the matter of the
xing of rates it would eliminate entirely the strife that has always
;Xisted as between the regulating power and those regulated.
_ It would bring the control of the railways and the controlling body
| presenting the public into absolute accord, in a friendly endeavor,
jth a common purpose, to bring conditions about where they will
perate only for that which they ought to operate—the public good.
Now, there is no interest here represented or that will be repre-
*nted, whether in front or behind the bar, that should not have just
ae object in view, and that is the greatest good to the public. In
‘hatever capacity we appear, we are members of that public; all
- US, in One sense, in a dual character. I am here in one capacity,
‘at at the same time I can not free myself from the condition of
152894—19—vot 1 50
784 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
being a member of the public. You, as legislators, are in exactly
the same position, and the proponents of other plans are just as
much members of the public as we are.
_ No plan drawn by any one interest can, in its entirety as to detail,
meet that interest without being tempered to a certain degree, and
modified in accordance with the honest views of those who represen
other interests, because I do not believe it is within the power of
any man to free himself in a sufficient degree from the trammels of
reconceived opinion or of self-interest, to cover the whole field,
fade that field is wide.
Consequently, any method which will maintain the principle
that is involved, that will nationalize the industry, is, from my own
personal standpoint, subject to any reasonable modifications that
will minimize the evil features from any man’s standpoint that are|
therein, because I have never yet seen a perfect man, and if the
combined effort of all interests could at least minimize those evils, I
should be glad to see it accomplished.
The difficulty in operation under the present system has been
that there was no certainty. Government control of railroads had
never had in this country anything approaching a trial as to either
its economy or its efficiency. Inaugurated under conditions where
the private system had utterly and absolutely broken down—no:
practical man can deny it—it was taken up hy the Government
under conditions that were bound to demonstrate failure in both of
those factors to a very large degree. Efficiency could only be
obtained in any degree by enormous expenditures. That is one of
the factors which explains the present deficit that confronts us.
Moreover, the public would do well to remember this: Exactly
the same operating force created the deficit that prior to the taking
over by the Government had created a surplus.
There could be no working out of either efficiency or economy
until certainty that the roads would not be returned or certainty
that they would be returned had been established.
When a Mohammedan prays he turns his face toward Mecca,
When a railroad official prays he turns his face toward Wall Street,
and until a condition was established that would have turned theit
faces toward Washington when they prayed, there would be no
efficiency.
Every element of passive resistance was enlisted to demonstrate t0
the country that Government control would not be an economical 01
an efficient success.
Those officials are human just like the men who work under then
They were created out of exactly the same clay, and the best of them
started in the ranks of the men. They are impelled by exactl}
similar motives. As long as they believe that their future lay wit
the financial interests where they had formerly lain, just so long they
would serve faithfully those interests, but if it were once demorr
strated that their future lay here, they would servé the Government
just as faithfully as they have served their present masters.
Some significance might attach to this fact: The members of the
director general’s staff were supposed to totally sever all relations with
the corporations which they faa formerly served as presidents anc
vice presidents. Have you stopped to think that every man who has
gone out of the staff of the director general has immediately returnec
to the former position which he held with that corporation. Tha’
en | e.
fb:
é
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 785
i a good, fair illustration of divided allegiance, and to the man who
oinks, the creation of the present deficit is nothing in God’s world
ut a fine demonstration, costly though it be, of the fact that Govern-
ent operation can not and must not succeed.
“In an economic sense, nothing confronts this country of more
‘mportance than the growing capital account of the railways. Con-
‘ast capitalization per mile of these railways 40 years ago with their
wpitalization to-day. Then contrast the capitalization here with
‘mtinental or English capitalization, and you will find that there is
constantly growing capital account which must be ‘met by a con-
antly increasing freight rate or passenger rate, and what is going to
|@ the condition three generations ahead 2
The Plumb plan utterly abolishes the capital account, if it works
ith any reasonable degree of success. The others add to it indof,-
itely until the grandchildren of the present generation will stagger
-ader the load. 7
‘As I stated earlier to the man who approaches this question from
ie angle only of the public interest, and he has no right to approach
from any other broad standpoint, which is for the public interest,
eliminate that burden and free men and economic processes from
7 or to let it constantly mount until it shackles the effort of every
tizen of the Republic.
‘No industry touches every human in the same degree that trans- —
drtation does. Every household in the land is a party to it and pays
ibute to it, and the question involved is, Shall that tribute be
‘ereased or shall it be decreased? The public pays in a variety of
ays for the same thing. If rates are increased it pays the rate
‘cause it is passed on down always to the final consumer. The cost
transportation is just what Asquith said in reference to the Eng-
h industrial act, in debating it. He said that “the blood of the
wrkmen is a part of the price of the finished product.”
The cost of transportation, the cost of labor, and the cost of mate-
us, is a part of the price of the finished product to the consumer.
verybody else passes it on, but the man who finally consumes it
ys the total cost. He pays the cost of the article that he con-
‘Mes, he pays the added wage, and he pays the added transporta-
m, in the cost of his article, and he pays it also, as an individual, if
| transports either person or goods.
/ At one time here, there was evidently confusion between both the
)tmess making the statement and the member of the committee
/10 was asking the questions, in regard to the Plumb plan being in
/y Sense a wage measure. It stands in that relation exactly as any
rher bill does. It deals not with wages at all. It is only a question
fOwnership. But it does what no other measure does, and that is,
‘thnes a plan whereby if such questions arise, they will be dealt
‘th. It furnishes the machinery in a way that of necessity the
‘Jers pay no attention to.
Wage demand will come under any of these plans just as long as
ge has not mounted in proportion as the cost of living or the price
commodities has cya Much has been said in the papers
dis being said in regard to the excessive wages that are paid to the
Troad men. I am going to put in concrete figures just what one
‘ss of railroad men have gotten and you can verify the percentages,
ae
{23
|
|
786 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
just to determine relatively how the cost of living has mounted when
wages have not even remotely kept pace therewith.
In 1913 the freight conductors of this continent were paid—you
will bear in mind that these figures can all be verified by just asking
the question, and the other side of this controversy would not question
the correctness of one of these figures—the freight conductors in the
eastern territory were paid $4 a day for 100 miles, the two terms
_ being interchangeable, in the western territory $4.18, andin the south-
ern territory $4.10, an average of $4.10, to be exact, $4.09. That
is not leading the average. To-day those men are universally paid
$5.40, an increase of $1.30, 32 per cent increase on the $4.10, and
every commodity that those men buy has increased at least 82 per
cent. Tf we were to return to the wages of 1913, with the purchasing
value added to the wage that it then bought, these men would receive
an increase of 30 per cent thereby in actual value. That is the way
wages have mounted, and every one of these figures is a matter of
record on the books of the railroads of this country.
The CHarrMan. That is the basic pay ?
Mr. Garrerson. Those are the sums then paid and thesums to-day
paid. The other classes of railway service, that is, train and
engine men; the engineer has received just about the same increase.
Youcan not demonstrate it as exactly on account of the wages not
being so nearly standardized as those of the conductors. The brake-
men, switchmen, and firemen have received a little greater percentage,
but no approximation of 82 per cent. Therefore, you can see why
the wage demand still comes in. I am not citing the other classes,
because I can not give those rates from memory as I can the other:
that I have dealt with all my life.
Whenever action is taken that will bring wage and that which i1
will purchase within the reasonable old relation, then unrest in regard
to the wage will cease; but it will never cease until then.
Here is a peculiar fact. The wage system itself is absolutel)
Da to cure this question, because it is only one step in what 11
as become popular to call “the vicious circle.” If the wage of ever)
human that works was increased to-morrow to $100 per day he woulc
lose money by that, because the $100 would not purchase what his
present wage will, because that profit would be levied upon the addec
cost of the commodities purchased, and as a result he would be th
loser thereby. When that is once attempted it brings to the atten
tion of Congress the fact that this condition can never be remedicc
until private interests are put on the same basis and the same treat
ment is given to profits that is given now to usury. If a man loan
you money, he must do it at the current rate or at the statutory rate
and if he exceeds that he is liable to punishment; but he will tun
around to an enterprise, and if you are the purchaser of the outpu
of that enterprise he may charge you 1,000 per cent and be morall:
_ and legally free. Limitation of profit 1s the only solution of th
high cost of products.
‘At various times there have been ardent advocates of wage fixin;
by Government tribunal. I just want to call your attention to on
feature of that. The fixing of wages by a Gaveriintal tribuna
unless the price of every commodity that that wage will purchase 1
also fixed by a like tribunal, simply constitutes serfdom for the me
who come under that wage, just as if the prices of commodities wel
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 787
fixed without fixing the price of the wage. The commercial and
fmancial burden would be bestowed upon the producers of those
commodities, because then it would leave the wage man free, if he
‘had the power thus placed to get the price that he desired for his
‘abor without in any way affecting the price of the things he had to
ourchase. One is a natural concomitant of the other, and one can
aot consistently be done unless the other is done. Please do not
zather from this that I am a believer in fixing the wage by a Govern-
nent tribunal, because I am not, but if that is done it can only be
sonsistently done both ways. The result would be the fixing of the
ourchasing value of the dollar arbitrarily and regardless of the
fuctuations. The special effort about money in all the ages has
een to get stability therein. The fact is it is no more stable than
twas. It is the price of money that really fluctuates instead of the
orice of the things it buys; they remain fixed and the money goes
ip and down. 7
Many objections have been urged against the details of the Plumb
plan in regard to the make-up of its controlling body. Any make-up
wf the controlling body which will make every employee a full partner
‘n the sense of responsibility, in the sense of efficiency, and in the
ense of economy will bring a result that has never yet been attained.
‘he greater responsibility that is placed upon a man the greater return
‘ou get for it in the way of development of the man. The trouble
eee democratic institutions is to inject the interest of the man in
yerforming his full share of the duty that properly devolves upon
um. If you want to awaken the interest of the man so that he will
ssert and exercise the rights of citizenship, make him a partner in
he enterprise, give him voice, and you develop his self-respect, you
levelop his sense of personal dignity, and you add to his powers,
nd thereby to his efficiency. What the public desires is economical
fliciency, and that is what the public is entitled to. I believe that
© plan has so far been devised that will even approach this plan in
_eveloping that instinct in man to the degree that the public may
vail itself of the service.
When the industrial commission was in session, among other
hings, the investigation developed the existence of the evil of seasonal
Yr casual employment. Millions of men in this country follow
ursuits that they can only follow for a limited portion of the year,
0-called seasonal pursuits. The difficulty with the problem of un-
eecpent is to connect the man with the job. If there are a thous-
[nd men a thousand miles from where there is a dearth of men, it is
{he impossibility of economically getting the men to where the work
|} that confronts any agency that attempts to deal with the problem,
nd yet that problem must be dealt with. There are places on the
|ontinent where employers testified that they arrange to have three
ten for every job, one man coming, one going, and one at work.
ou are somewhat familiar with that condition, Congressmen. Think
‘fit, the entire labor turnover every week. That was the testimony
{the employers themselves. A surplus of labor had been accumu-
ited there for the purpose of dominating the wage situation. A
1ousand miles from there there was work for those men. That is
aly one instance. There are thousands of precisely similar instances.
nder the present system of railway ownership it is impossible to
/ansport those men from one place to another under conditions that
788 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
furnish the solution of the difficulty; under Government ownership
it may be done, because, unless that question of unemployment 1s
overcome, thousands of those men and their families become subjects,
for a portion of the year at least, of public support. The public
owning the railroads could transport those men to where employ-
ment could be found at a rate that would go far toward solving the
question of casual or seasonal employment. It can not be done under
private ownership.
The commission appointed a subcommittee consisting of the only
two railroad men on the commission, Mr. F, A. Delano, who was
formerly the president of the Wabash, and myself. Mr. Delano was
intensely interested in a personal sense in the solution of the problem,
but we ran against the provisions of the Hepburn Act and the condi-
tions upon which it was founded and were compelled to throw up oul
hands and admit that under the present railroad conditions it was
impossible to solve that one phase of the question. 7
There is one point that I desire to impress upon the committee.
The importance—and the importance of it is equal regardless of what
plan may be adopted or whether the roads are simply turned back,
without any plan—the importance of valuation. It does nol
matter whether the Plumb plan is adopted, the Executive's plan, the
chamber of commerce plan, the Warfield plan, or simply a surrendet
of the roads, the problem of valuation stands out with equal promin.
ence under any one of those courses. No determination that 1s ar
intelligent determination of rates can be made until valuation i
established, because until value is ascertained, honestly and properly
it can not be determined what amount of retura is needed. If th
roads are to be taken over by the Government, the amount that is t¢
be paid can not be determined until value has been ascertained,
even the pernicious system of guaranteeing was to be established ant
adopted, any such guaranty could not take place until the valuatiot
was first established upon what amount guaranty should be given
In all the plans that are under consideration, in any solution of the
problem that may arise, the prominence of valuation stands out
equal relief under any one of them. The statement made here by Mr
Plumb in regard to the conditions that exist in railroad organization
cited from Government authorities, altogether demonstrates tht
absolute necessity of valuation before any definite conclusion can hé
reached either in regard to payment or rates.
Since the representative of the wholesale grocers was on the sta
and left it, I have wondered if he realized how fully and completely i:
own line of argument demonstrated the desirability of the plan tha
we are presenting. Here, you find two parasitic interests—I am no
using that word in its offensive sense—only that they are not, eithe
of them, producers and they are engrafted on prices between thi
producer and the consumer, their profits are. Here are two parasitl
interests quarreling over spoils and a division of profits. That is al
there is in that claim. The wholesale grocers’ interest suffers becaus
the packers are invading their field with certain advantages tha
the grocers do not possess; in other words, special privilege, but th
remedy advocated is that there must not be private ownership of th
spectal forms of transportation. Every argument that is put U
against the ownership of those private facilities by private interest
applies equally in regard to the ownership of the roads by priva
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 789
_imterests and the acquiring and operation by the Government itself
through any agency which may be devised for the purpose. The
_ cases are parallel as to the principles involved as between pure private
“ownership and pure Government ownership.
Mr. Cuarrman. I will now yield to questions.
Mr. Sims. Mr. Chairman, I want to ask Mr. Garretson a few ques-
_ tions along the line of amortization.
Mr. Garretson, is it not substantially true in every detail that all
_ the capitalization that has ever been issued, bonds and stocks, with
the exception of refunding issues, stands still as a charge upon the
railroads of the country?
| _ Mr. Garretson. I think there is no question of it. If there has
been any retirement, except, as you say, by refunding, I am not
, aware of it..
Mr. Sims. That has been the policy adopted voluntarily and not
the result of public regulation of privately owned corporations 2
Mr. Garretson. I think it has.
_ Mr. Sms. Therefore capitalization has necessarily been pyramided
and increased always from the beginning to the present ?
Mr. Garretson. It has.
Mr. Sims. With no amortization 2
Mr. Garretson. If there has ever been any amortization plan
put into effect by any railway it has escaped my notice.
| Mr. Sims. You have studied the other plans that have been
presented, and in speaking of plans I in no instance have reference
to the bill introduced by the chairman of the committee
Se ten a
a.
Mr. Garretson (interposing). I have not myself. I have excluded
it; I did in the record yesterday.
Mr. Sims. It would be unjust to refer to it as a plan in comparison
| with the other propositions which they do call plans. Does any of
the plans that have been presented to this committee provide for
either current or future compulsory amortization of capital charges ?
_ Mr. Garrertson. So far as I know, they do not. 1 want to say
this in explanation. I have only had them read to me. That is
“on account of eye trouble, and have made no personal scan of them.
T have heard them discussed, and if there is such a feature in them
it has escaped my notice.
Mr. Sms. If*there should never be any compulsory amortization,
the capital obligations must be increased ?
Mr. Garretson. It would be absolutely necessary under any one
of the plans, in my opinion, that have been proposed, with the sole
exception of ours. |
| Mr. Sims. Personally, I have been studying for years about how
} to bring about compulsory amortization, either through the private
companies or through Government aid and assistance, and in my
own study, with almost no help from those capable of rendering help,
I reached the conclusion, before the Plumb plan was presented—
| Several years before—that it was going to be absolutely necessary to
‘amortize through the life of the issue of capital in the future so as
to prevent the further increase of capitalization dependent upon rates
| for a fair return. I had reached that stage where I was individually
of the opinion that we had reached the point where it was not only
‘desirable but absolutely necessary that the Government of the United
States should absorb the outstanding capitalization or the burden of
‘it to the extent of the fixed property of the railroads.
790 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. GarRETSON. Judge Sims, it is only necessary to draw attention
to this fact. Take the guaranteeing feature. You constitute thereby
a new ‘‘vicious circle,’’ to use the phrase going the rounds now, and
every time that capitalization is increased it brings a new need for
rate increase to meet that charge. |
If the economic theory advanced yesterday is correct, that if rates
go beyond a certain point they create a deficit by the fact that they
stop the flow of commerce—im other words, become prohibitive in
certain lines—then the ‘‘vicious circle’? must suddenly take the place
of that, and as the deficit grows rates must be increased and the rate
increase must come from two causes or the Government has to resort
to direct taxation to secure the money to meet the deficit.
Mr. Sims. I had reached the point where I believed it was abso-
lutely necessary in the public interest, as well as for the credit of the
railroad companies, that the capitalization should be amortized to the
extent that it was represented in the real estate or any other fixed
property interests of the railroad companies, either by forcing the
railroad companies to do so or by the Government stepping in and
doing so. Which is best for the public? I have already reached the
conclusion that the Government can do it economically so much better
than the railroad companies could possibly do it, so as to make it m
the interest of the public that the Government should amortize this
character of property of the railroads. My theory was this, that no
tax should ever be collected upon a purely public utility to provide
this guaranty by law. Now, I can see no possibility whereby the
railroads can amortize this property by reissuing securities containing
a sinking-fund provision without substantially increasing their rates,
because of the fact that the railroads themselves, even when com-
bined, have no power on earth to exempt their issues from taxation
or their properties from taxation. Therefore they could not do that
if cheaply and as economically as the Government could do it for
them. .
My theory, without going into detail, was to acquire the fixed
property of the railroads and issue 4 per cent nanbeeeets bonds, and
invite them to give in exchange their property, or to exchange the
bonds for money, the money to be given in exchange for the property.
Three per cent of that would go to the Government for the payment
of interest upon the obligations assumed, and 1 perscent would con-
stitute the amortization sinking fund. That would represent the
4 per cent. Then 75 per cent of the burden of the railroads would
be taken off of the railroad service earnings. That is about the extent
of the difference between what it would cost the railroads to secure
capital and what it would cost the Government to secure it. Then,
just as soon as any portion of that capital represented by the bonds
of the Government was paid off from the amortization fund, the
piapariy to that extent would be amortized. In a reasonable time,
y amortization, the fixed property would absolutely belong to the
Government, and then the Government would not have to pay any-
thing, not even maintenance charges upon that property. Now, |
never did reach the conclusion, to begin with, that it was necessary
that the Government in owning this fixed property should provide
for a single operating company, because, st the Government
might make a lease to the present corporations in charge of the opera-
tions of these properties, and by a contract, at least, it. could provide
for basic fundamental regulations; but the railroads, as a matter of
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 791
course, would have to charge a rate that would enable them to
amortize the equipment, which should take place during the reason-
able lifetime of the equipment, and which would not be a very great
._ charge upon the traffic. Now, if in the past, from the beginning, an
-amortization charge had been compulsorily laid upon the railroads,
_this pyramid of capital, beginning with $100,000, perhaps at the
-bottom, and now having a top represented by $20,000,000,000,
_ would not exist. How long will it be able to stand without toppling
_over from its own weight? How long can it stand unless some com-
_pulsory requirement is made compelling such amortization? That
is the Sims plan in a nutshell, without going into the details of its
operation. That was the plan that I arrived at so far as I have gone
‘im my investigations. Now, as a citizen of the United States and
_a Representative of one district, I will say that if the Plumb plan,
‘in all of its purposes and details, is better for the whole public than
-my plan, then my plan should be discarded. If the Plumb plan is
better than any plan offered by these other gentlemen, and offered
honestly and sincerely, then their plans should go the same way;
‘but if any of the other plans in the interest of the whole public are
better than the Plumb ive then the Plumb plan should go into the
yok heap. That is absolutely my position, and I have no other.
Now, if you are willing to do so, and do not consider it as antagonistic
to the Plumb plan, I want you to state to the committee what you
think is the basic and essential difference in the public interest in the
operation of the Plumb plan and the operation of the plan for leasing
| the railroads to the existing corporations, with lease regulations that
are compulsory in their general requirements.
' Mr. GarreTson. So far as your plan, as you outlined it there and
| as I caught it, is concerned, as far as you go you are in absolute accord
. with the terms of the Plumb plan, but it adds certain details for appli-
cation that you have not added. It goes further than you do in pro-
viding for one operating corporation, while your plan, if I understand
it correctly, provides for a system of divided operation by the corpore-
tions now in control. Now, has this occurred to you? When the
| amortization under your plan is complete, then the debt has been paid
off, and where does the title lie?
Mr. Sims. In the the Government, to the property amortized.
Mr. Garretson. I do not know whether it has occurred to you or
ynot, but what would be the result, in a practical sense, of taking the
| Federal Postal System and breaking it up into 2,000 (I will take a low
}number) operating districts, not coordinated under a single control?
Mr. Sims. I do not think it would be a single control, so far as the
‘system as a whole is concerned, but in its local application I think it
/have an advantage.
_ Mr. Garretson. Locally there might be some benefit, but trans-
| portation is not a local problem. It isa world problem. Every rail-
\Way, every mile, and every branch, bears a distinct relation to every
,other part of the railroad system of the United States, just as every
Mail route is a part of a systematic and efficient whole. The railroads
should be operated with a central direction, with a view, not only to
meet the local needs, but the wide transportation needs of the
‘country. The fact is that you are going to have to guard yourself
‘pretty close, Judge, because when you have swallowed the hide you
will come to the tail. You are getting so far along as to come
‘adngerously near Government ownership.
:
2
eect egnter os
—ooOOOoOoorr sr eee
792 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Srus.%The man who swallows the hide must necessarily take
care of the tail, but would the tail govern ? |
Mr. GarreTsoN. It does often wag the dog, It really appears to
me that the answer lies in that postal illustration, because postal
efficiency depends on the fact that it is handled as a complete unit
from the remotest mail route in Alaska to the extreme South, and its
ramifications go even farther than that, into foreign countries, In the
railroad transportation problem—and I say to you that a wider
term should be used than railroad transportation—the conditions are
the same, and in the plan that we propose every element of transpor-
tation that is economical and efficient should be welded in with it.
Water transportation and all other means must of necessity become a
part of such a whole, if the service that the public is entitled to is to be
rendered both efficiently and economically.
Mr. Sims. Could not the Government, as the proprietor of three-
fourths of the fixed property, and having the basic property upon
which the equipment would rest, and having that unity of owner-
ship, by a leasing contract to several opeating companies, carry out
a general system of regulating transportation, both in the manner
and quality of the transportation service rendered and in the rates
charged, in cooperation with its other investments in the harbors
and rivers of the country, which it provides for by public taxation
absolutely with no return to anybody—could it under those condi-
tions meet the situation? I want. to ask your view upon that.
Mr. GarREeTSON. Have you forgotten this? It has not yet been
touched upon. Have you forgotten that in leasing to these various
private corporations their desire for a lease is founded upon the
desire to make a profit? That profit is levied upon the public.
Under the Plumb plan the profit, if you describe the bonus as a
profit, or the bonus that is provided in the accumulation every
year, that profit comes under the rate adjustments that may absorb
it. In fact, it will even probably absorb the prospect, and if
that prospect did not materialize, it might thereby create a slight
deficit. But our plan eliminates profit upon transportation, and it
gives the resident of the South his foodstuffs grown in the North at
a reasonable cost of production plus the actual cost of trans ortation
to the point of consumption; and it gives the farmer of the North
the citrus fruits of the South and other products that he requires at a
reasonable cost of production at the point where produced plus the
actual cost of transportation to the point where it is desired to be
consumed or utilized. That is the difference between your plan
and the Plumb plan, if I understand your idea, because-I think you
must certainly assume, as I do, that these private corporations
pet be actuated by a desire for profits, or they would not take a
ease. |
Mr. Sims. And no other.
Mr. Garretson. And no other. Further, when the Government
wants to lease to these corporations, the leasing relation between the
Government and the corporations is exactly the same as that be
tween one corporation and another corporation. In other words,
the Government relinquishes the right to dominate the operation a
the property. Your plan would furnish no means whereby a ¢ar
shortage could be met by a pooling of the entire equipment of the
country. You will find it just where it has been, where self-interest
‘RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 793
and the desire to be in a position to meet their future competitive
needs would not make possible the utilization of the entire wheelago
of the country to meet the necessity in any one part of the country.
. The same amount of equipment under Government operation at the
“present time has been able to meet that need to a degree that it
never was met by private management. All of those factors neces-
| sarily must enter into it, because the whole problem of duplication
he NE eee ee EE lee ee
9 ee, es oe orcaecao
exists, with its consequent wastefulness in expenditures. Now, I am
denominating as wasteful that which is not needed. I do not mean
it in the sense of extravagance, but if two cars are bought for service
_ where only one may be profitably utilized, that purchase is wasteful.
Mr. Stms. You think.that in the interest of economy it is just as
necessary to have unification in the ownership of equipment as of
_ the other property ?
Mr. Garretson. Absolutely; and you can not get full value out
of it in use unless it can be controlled as one interest.
Mr. Sims. Of course you have practical knowledge of the use of
equipment that I do not have.
Mr. Garretson. You could readily understand, even without prac-
tical knowledge of operation, that if you simply set up a central
bureau that can find out every empty car in New York State and send
it to California without consulting anybody, it would be a better
condition than if a local person in California, without authority in
New York, should make the appeal for it. He might get it, or he
might not. That is all there is to it.
Mr. Sims. Of course, you have expert knowledge of the operation
of the equipment, and certainly ought to be a better adviser on that
than I am, because I have not that practical knowledge.
_ Mr. Garretson. That certainly would be my judgment on that
point.
Mr. Sims. Legislation, as you know, runs. along the line of com-
promise.
Mr. GARRETSON. Yes, sir.
Mr. Sims. There are some people-in this country who are fanati-
cally in favor of Government ownership, while there are others whom
I regard as fanatically opposed to it. Between those two contend-
ing elements I think that in these days of stress, when the railroads
are crying out to know what they can do to be saved, a plan that
} would take three-fourths of the burden off of them would be a good
| Suggestion. Under that plan they might be able by charging rates
Ee
not exceeding what they have been charging, or perhaps, diminished
rates, to acquire equipment and amortize it during the life of the
equipment. ‘Then, there are a great many people who believe that
' there will be some political benefit or party benefit or party advan-
tage in having so many thousands of employees of the railroads
directly under Government control, as they call it, who would vote
for one party or another just as that party or another might seem to
} be bidding for their votes. In order to remove that and give the
greatest play to competition possible, and they can certainly better
compete where the service has a less burden to bear, I suggested
) this plan, and I think there is nothing in it that is hurtful from the
railroad operations standpoint if somebody should relieve them from
some of their burden. I do not think it would be hurtful if it does
not interfere with their efficiency and individual initiative. There-
794 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
fore, I took what you might call one step at a time. Then, after
taking that step, it might appear unwise to go any further.
Mr. GARRETSON. Come in; the water is fine.
Mr. Sms. It might appear after actual experience—that is the only
true guide on the subject—that we should go no further. If that
should be a success, if the rates were reduced, and competitive
service was increased, or if all of the good and glory that should
come from private ownership should remain, with all the substantial
good of Government ownership combined with it, I believe, regard-
less of the fanatics, that something might be done along that line.
But, whenever I think about absolutely owning the railroads and
giving them to the corporations as we do in the matter of Govern-
ment aid to the ordinary highways, $200,000,000, for which has just
been appropriated—that is, to be absolutely given away, with no
return whatever corresponding to the Government benefits, then I
want to ask why should any man balk at Government amortization,
or the carrying of three-fourths of the capital burden of the railroads
free from taxes, and at the lowest possible rate of interest? That
might not strike the economic conception of some college-bred man,
but I am unable to act upon their theories, because I have not their
viewpoint, just as I have not your practical knowledge, but I know
that I have one purpose, and that is to do what is best for the whole
country, whether anybody makes money out of it, or not. I would
like to see if it can be done—that is, transportation performed at the
actual cost of performing it. Of course, the interests a fixed charge,
and will be until such time as there is no interest to pay on the Gov-
ernment’s obligations.
Mr. Garretson. Until amortization has become effectual.
Mr. Sms. Yes. Now, there is another thing. My own view is
that it is absolutely impossible for normal conditions to be resumed
so long as abnormal burdens are to be borne and paid for out of
taxation. If private values should suddenly drop to the prewar
level, then every bond that has been issued by the Government and
every other Government would become a double burden upon the
future production of the country, and as long as we have got to pay
$4,000,000,000 a year out of taxes, somebody has got to be per-
mitted to sell his products somewhat in proportion to the amount
that has got to be raised by taxation. I do not look for any lower
wages, and I do not see how it is possible for the railroads to finance
themselves. Mr. Hill once said, and I heard him say it before the
committee 10 or 12 years ago, that the railroads in the next 10 years
needed to spend $1,000,000,000 a year. Now, comparing the cost
of labor and material at the present time with their cost at that time,
and the cost of capital then with its cost to-day, the same amount
of actual physical improvement of the railroads would cost two and
a half billion dollars of new capital or new money every year. How
will we ever get it in private competition with all of the other interests
seeking capital on the basis of war condition opportunities for return?
Mr. GarreTson. Judge, I am much obliged to you for appearing
on our behalf. |
Mr. Sms. I am not appearing on ‘our behalf,” unless by “our”
you mean the people of the whole United States.
Mr. Sanpers of Indiana. Mr. Garretson, the real big question i
the railroad problem is the fact that we have what is commonly
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 795
_known as strong roads and weak roads, accompanied by another eco
nomic fact that we have to have uniform rates. If the Government
simply owned the real estate, tracks, and fixed property, and ‘we had
private ownership of all the other assets of the Hive corporations,
that problem would still be with us, would it not?
Mr. Garretson. Absolutely; destination and topography would
still exist with common points as bases for rates.
_ Mr. Sanpers of Indiana. The operating expenses of some roads
would be greater for the performance of the same amount of service?
Mr. Garretson. Eternally.
Mr. Sanpers of Indiana. We would have that eternal problem
under the plan suggested by Mr. Sims, unless he went ahead, accord-
es fo your opinion, and swallowed the tail.
. Mr. Garretson. And swallowed the tail—that is true.
| Mr. Sanpers of Indiana. In your opinion, would you say that the
‘rates fixed should be fixed by one body, or by one body as to a part
of the rates and by 48 other regulatory bodies, under any plan ?
_ Mr. Garretson. Now, let me see if I understand you. By that
/question you mean, do I believe really in the elimination of State
control ?
_ Mr. Sanpers of Indiana. Yes.
Mr. Garrerson. Absolutely, yes.
Mr. Sanvers of Indiana. Under any plan?
. Mr. Garrerson. Under any plan I am absolutely opposed to dual
control of railroads by the States and by the Federal Government.
This condition arises, and I am going to cite actual facts with which,
epebiy: some members of the committee are conversant: I know
that the manager of a line of railroad under the statute made and pro-
: vided in the State of Arkansas must do a certain thing or subject him-
self to fine and imprisonment, while in the State of Oklahoma if he
does that thing he subjects himself to fine and imprisonment; and
yet on one division of that road he crosses the border 11 times, I
think, in 100 miles. Now, there is a condition and not a theory.
There you have got from a wrong standard a requirement that creates
an impasse. Illustrations are usually made from extremes, and that
is why I cite that as what can come under dual control as between
two States. Consequently my experience has led me to believe this,
that the State should not be permitted to exercise any other control
than a recommendatory power by its commission to the central con-
trolling body in regard to local matters, because there the State
3hould have a voice. That voice, however, should not be mandatory
but recommendatory, and the power to make it effective should be
lodged in the central control. You will notice that I am not a strong
State rights man.
_ Mr. Sanpers of Indiana. Of course, if these additional duties
,Were placed upon the Interstate Commerce Commission, it might be
found that that commission as now composed would find it impossible
‘or lack of time to consider all of the cases. What would you think,
‘trespective of what plan is adopted, of something in the nature of
‘tegional commissions to which a certain jurisdiction should be given,
}with, perhaps, a provision for a review of certain of their findings ?
Mr. Garretson. With the functions now exercised by the Inter-
3tate Commerce Commission, it not only utilizes its individual mem-
bers to go out and hold hearings, but it utilizes inspectors for that
|
—
796 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
purpose, the inspector, I believe, reporting to the member of the
commission having jurisdiction over the subject on which the hear-
ings are held. As you know, they divide, and each commissioner has’
charge of a separate department. Then the commissioner brings the
report of the inspector, with his approval or disapproval, to the atten-
tion of the entire body when the body acts. a
It might be necessary to add to the number of the commission,
so that they, as individuals, would under certain conditions be able
to create regional bodies, precisely as we provide in this bill for
district operating boards under the board of directors, and the same
idea which you have described as regional could be applied to the
Interstate Commerce Commission in giving them the power to create
those auxiliary bodies, or the law itself could create them, if nec-
essary, thus meeting the added work that would accrue to the com-
mission. But you must bear in mind, Congressman, that with the
transportation under Government control and operated by a cor-
poration of the kind that we provide for, the business coming to
the Commission in many respects would be largely minimized from
that which now exists. | *
Mr. Sanpers of Indiana. But, of course
Mr. GARRETSON (interposing). It would still remain immense in
volume. I do not want to give the idea that its activities would
cease, because they will not.
Mr. Sanvers of Indiana. You would still have the long and short
haul problem ?
Mr. GARRETSON. Yes, sir; and the inter-mountain rates.
Mr. Sms. You would not have the long and short haul unless you
made differentials.
Mr. Garretson. There would be enough left to furnish them with
plenty of amusement, if not business.
Mr. Sanpers of Indiana. I want to get your construction of this
proposed bill: You referred to labor disputes, and, in order to get
a clear illustration, let us consider a labor dispute involving an
increase in wages: Is it your construction of this bill that there is
provided a tribunal which will finally determine the amount of
wages that will be paid ? :
Mr. Garrerson. It creates a tribunal that determines that
amount. .
Mr. SanpeErs. of Indiana. With the right of appeal?
Mr. Garretson. I will have to ask Mr. Plumb a question. I
think it provides for an appeal to the board of directors, does it not!
Mr. Prums. An appeal to the directors in case no decision is
rendered by the wage board.
Mr. GarretTson. Bear in mind, Congressman, I am compelled to
ask that question because I do not see readily.
Mr. SanpeErs of Indiana. That is all right. I want you to know
fully what the bill provides because what I am aiming at is to get
your understanding of the bill. , |
i Mr. Garretson. Let me go to the heart of what you want to
now. | |
Mr. SanpeErs of Indiana. Yes. y
Mr. GarRetTson. You will bear in mind, I am not given to sub-
terfuge. What you want to know is whether under any conditions
a strike might take place if the employees refused to accept the rate
of wage granted ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 797
_ Mr. Sanvers of Indiana. That is what I am ultimately coming to.
| Mr. Garretson. Yes.
‘Mr. Sanvers of Indiana. Now, there is the right of appeal in the
vent of dissatisfaction.
Mr. Garretson. Yes. It goes to the board of directors.
Mr. Sanpvers of Indiana. Is it your understanding of this plan
‘bat when that controversy goes to the board of directors and is
here adjudicated, it is final, from which no appeal lies.
(Mr. Garretson. The board of directors. That is the court of las?)
sort.
Mr. Sanpers of Indiana. Following that further, is it your under-
tanding then that it is binding on these employees who are interested
‘1 this corporation ?
_ Mr. Garretson. It is if they remain in the service.]|
| Mr. Sanvers of Indiana. Now, there will be organizations of these
mployees just as at present?
| Mr. Garretson. Just as at present, undoubtedly.
Mr. Sanpers of Indiana. Suppose that organization is presenting a
‘age controversy in the same manner as it is now being presented.
uppose they are asking for a 20 per cent increase in their wages and |
ae board of directors, after examining and hearing all sides of the
ontroversy, decide in the negative and refuses to give the advance
1 wages- -Would that organization have the right under this law,
ot as individuals, because of course there is no question about their
ght as individuals to cease work, but would they have the right
nder this law to issue an order from their offices saying that, ‘‘Not-
ithstanding the final decision of the board of directors against us,
@ will refuse to work for the wage and refuse to continue our work |
nless we have the 20 per cent increase’’ ?
| Mr. Garretson. I will answer that categorically, Congressman, “|
‘aen I want to explain what, in my opinion, the effect of the act will
@. Under the act they have that absolute right. Their rights in
at Sirspien-nre in nowise impaired by the act; but I want to bring |
‘us to your attention, and you can draw on your own experience and |
our knowledge of men to know whether or not there is any force in |
1e reasoning. Under this act every employee becomes a partner |
the enterprise. Yave you ever stopped to think that overy man |
ho is serving this company is going to carefully study how his own |
terest is affected by the action of any of his associates; that each |
pons to be a spur on the efficiency of the other, because the man
yhis elbow is working for him? Each takes up the employer relation,
a degree, and you will bear in mind that that is always so in a
eater or lesser degree toward every other employee. Men pass and
ley are merciless judges of each other, either in the group or as indi-
| duals. Any wage demand by any part of that body is going to be
anned closely by their associates as to whether or not it is meritorious
jhat wage board will be made up of equal representation from the
| assified employees and the nonclassified employees. If a majority
that board refuses any part of the increase, or all of it,
large body of the employees themselves to that refusal—you realize
| lat bocsise-those mon on the wage board come right out of the
jnks and are associated-with-those men, and are probably denomi-
‘uted by the organizations of which they are a part. ——
‘Mr. Sanpers of Indiana. And they are subject to recall? )
798 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Garretson. Sure. They are creatures of the men below ther
to that extent.
Mr. Sanpers of Indiana. I want to be fair to the plan submittec
by Mr. Plumb. He said he was not bound by that if a better play
could be devised.
Mr. Garretson. Yes; but you are analyzing it as presented here
Mr. SanpveErs of Indiana. Yes.
Mr. Garrerson. Consequently you will see that if that body ot
pmployees went on strike, in accordance with the provisions of the
aw governing them in an organization sense, they would find a larg:
employee element who considered that their rights were being
invaded, their interests injured by that action, and they would
remain in the service and carry it on uninterruptedly. There is ar
‘element of ownership introduced into the sndiva lin here which is
‘going to minimize the probability of those occurrences taking place.
‘In your lifetime, or mine, or in the lifetime of our children, we wil!
never see strife eliminated althogether from industry because the
human is going to be born who loves strife and will always start it.
\I do not expect for at least a year to see common assault altogether
done away with in the country.
r. Sanpenrs of Indiana. But under your construction of the bil
they would have the right to strike of they wanted to do it.
Mr. Garretson. Let me draw your attention to this: The limi-
tation on that right would come through the organization law. Beat
in mind that the organization does not hesitate to curb the men.
Mr. Sanvers of Indiana. I am talking about the entire organiza-
tion.
Mr. GarretTson. Yes; and I am drawing your attention to the
safeguard that lies in the organization to which these men belong,
which does not recognize the right to strike in the name of the
organization until they do certain things.
Mr. Sanvers of Indiana. I am not referring to the whole organize-
tion.
Mr. Garretson. So far as the individual right is concerned, it is
in no sense limited by this bill, and it guarantees him the right to do
collectively whatever he may do individually.
Mr. Sanpers of Indiana. You suggested that the corporation was
not organized for profit. Is it your opinion that in the first year it
would earn a profit
Mr. GARRETSON (interposing). Frankly
Mr. Sanpers of Indiana (interposing). Let me finish my question.
Speaking of profit as being the part that is to be divided between the
employees and the Government.
Mr. Garretson. You will bear in mind that the reason I do not
describe that as profit is that it is an exact synonym for what is
known as the bonus system used by efficiency experts. Some of
those systems are founded upon the agreements, the old agreements,
that have been in effect for 30 years in the four transportation brother
hoods. They use a time bonus system. A man is paid at the rate
I mentioned a while ago. I will illustrate from a freight conductor.
He is paid $4.18 when he has given the company either 100 miles or
eight hours of service. In other words, if he runs 100 miles in four
hours, he receives a four-hour time bonus. That is based on the idea
of efficiency. He did a day’s work in four hours and therefore he
has got it. The bonus here is founded on exactly the same idea.
| 4 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 799
_ If by efficient service at the rates lawfully established for trans-
portation.and at the wage rates Pe ae he is able to create
surplus, he is entitled to one-half thereof as a reward for that
efiiciency, and then immediately a rate, adjustment takes place
which will absorb it.
_ Mr. Sanpzrs of Indiana. I understand your definition of profit and
you understand what I mean by profit ?
. Mr. Garretson. Yes.
|. Mr. Sanpers of Indiana. Do you think during the first year of
this Plumb plan there would be a profit as thus defined ?
| Mr. Garretson. Frankly, Congressman, I doubt if there would
be in the first year. Now you will bear in mind my concept is founded
altogether on practical knwledge. I am abolishing theories entirely
from it. J am not pointing to the result that should be attained
decause I know how long it takes a large body of men to fall into the
groove; I mean, to get their new machine oiled and working; the
period of adjustment.
_ Mr. Sanpers of Indiana. If there was a deficit, that would-not
jorove the plan did not work.
Mr. Garretson. It would not.
Mr. Sanpers of Indiana. In fact, we have had some deficits under
zovernmental control, and if this plan went through and at the end
of the first year there was a deficit of $100,000,000 that would not
aecessarily prove the plan was——
f GARRETSON (interposing). It would not be proof that it was
‘foing to be a success if a surplus was created, because with the
imount of money that is involved, a very little thing, in itself, could
weate either a surplus or a deficit; I mean, an unforeseen thing.
| Mr. Sanpers of Indiana. And that period might extend over two
or three years.
| . GARRETSON. It might, possibly, although I am of the opinion
,hat in the second year you would begin to find what the result was
if the practical working out of the plan. :
| Mr. See of Indiana. Ultimately, when the plan got to work-
8 well, about what profit would you expect to have at the end of
he year?
Mr. GaARRETSON. Congressman, frankly
. Mr. Sanpers of Indiana (interposing). In a general way.
Mr. Garretson. I would not care to hazard a guess. I am per-
ectly willing to accept Mr. Plumb’s estimate along those lines as
rery likely to take place. My connection with railroad operation
jas not led me into any line of investigation as to the future. I only
leal with general averages of years and take the accomplished results
stead of problematical occurrences.
Mr. Sanpers of Indiana. Of course, if there was a deficit in view,
jmd any controversy with reference to an increase of wages was
\efore the board, if that controversy involved an increase or if they
iad two controversies, one involving an increase for one set of
mployees, and another involving an increase for the other, if there
tas to be a deficit, it would be to the personal advantage of the
Mmployees to have an increase in wages rather than not to have it;
3 not that true?
152894—19—vort 1——51
—
: 5% a *
800 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Garretson. That would be absolutely true of a series of
deficits. It would not come into the same prominence with only
one deficit.
Mr. Sanpers of Indiana. The employees are only to get half of
these profits. |
Mr. Garretson. That is all. ; |
Mr. Sanpers of Indiana. And any increase in wages, they get all
of it.
Mr. Garretson. They get all of it.
Mr. Sanvers of Indiana. As much as it is.
Mr. GARRETSON. Yes.
Mr. Sanpers of Indiana. Therefore it would be to their personal
interest, if there was to be a deficit in any year, to advance their
wages because that would merely increase the deficit a little, and it
would be more to their advantage than it would be not to advance
them.
Mr. Garretson. It would. There is no question of that fact. 1
mean, the fact can not be questioned. Has this occurred to you,
though, Congressman: Bear in mind that a question often brings a
hase of the question to mind that will explain the inquiry, It has
haan what has been regarded as an inexorable economic law that
wages have always led prices downward and have always followed
prices upward. ‘That is an economic law that never, as far as out
crafts are concerned, was violated until 1907. It was attempted
then, Iam auras of the panic of 1907. But if you have been in
any way a student of the industrial situation, you will find that there
has never been what might be described as universal agitation for an
increase in wages except when prices of commodities were fluctuating;
I mean, largely and markedly fluctuating. When prices are stable,
wages generally are stable. Men as a class do not fight for higher
wages unless increased burdens are placed upon them,
Mr. Sanpers of Indiana. I am assuming the situation was such as
to arouse a desire for an increase.
Mr. Garretson. If prices increase, I mean, further, that condition
would continue, or it will continue until commodity prices have
reached a similar proportion to wage in its purchasing power that
they maintained in the prewar period. That is a foregone conclusion.
You will bear in mind I am not attempting to camouflage any con-
ditions that may arise or to assert that this law will act as a cure ol
things that it will not cure.
Mr. Sanpers of Indiana. I do not think you are.
Mr. Garretson. I am not. If I can not deal with this openly
and honestly, I won’t deal with it. |
Mr, SanveErs of Indiana. I am trying to get it clarified and I think
ou statement helps to clarify it. You know the greatest criticism
think, of this proposed plan is this: There is provision for a boar
on which 10 of the 15 representatives are selected by the class ol
people whose wage questions will be tried before ‘ert and_ the
question in my mind was whether the checks and balances wert
sufficient to get a just adjudication. Now, it was suggested by Mr.
Plumb when I was interrogating him with reference to this propos
tion, that if they created a deficit, that that would cause a forfeituxt
of the rights under the lease given to the corporation.
Mr. GARRETSON. Yes.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. S01
_ Mr. Sanvers of Indiana. And so far as I have noticed, the only
provision for a termination of it
_ Mr. Garretson (interposing). I think it is on the last page.
_ Mr. Sanvers of Indiana (continuing). Is in section 5 which pro-
vides as follows:
_ That the lease to the corporation shall be terminated by act of Congress whenever
it shall appear upon evidence reviewable in the Federal courts that the foregoing
provisions to be embodied therein shall not have been well and faithfully carried out.
Now, it occurred to me that there might be a deficit the first year,
there might be a deficit the second year, and even the third year and
the fourth year, or in any year, for that matter, and still the pro-
visions of the act might not have been both well and faithfully
carried out, and therefore it occurred to me that whenever there
was likely to be a deficit, that the interests of the employees would
always be to increase their wages, so far as pecuniary interest was
soncerned. Of course they might, on account of their broadminded-
ness, refuse to do that, but I was dealing alone with the question of
pecuniary interest of the different classes of employees.
Garretson. I suppose, Congressman, that I approach the
question with impressions or beliefs that a man who had not been in
this or similar service would not have acquired. The reason that I
‘ear no collusion—I am not using that in an offensive sense—between
the five men chosen by the official class and the five men chosen by
she classified service lies in knowledge, not belief, but knowledge of
the channels of thought as between the official mind and the employee
mind. You take a man who is advanced from the classified ranks
jo an official position—and naturally I have personal knowledge of
jhousands of men who went that road—the man who has been an
iggressive committeeman, and a mighty lot of them go to official
dositions, immediately becomes an aggressive official. He is just
1s intensive against the man as he was against the official; in other
words, he thinks in official terms. That is even perfectly apparent—
can say this now that I am out of the harness as a labor official—
vhen a man goes to the official stand in a labor union, he thinks in
‘ficial terms, and I know, for I have been in the rank and file and I
lave been an official and am now again of the rank and file. The
sonsequence is he approaches every question from a different angle
‘o what the employee does, and that very chasm will remain under
his system, and furnishes the safeguard against collusive action,
ither in wages or in Other things; and you will bear in mind that the
/verage person, perhaps, would not have analyzed it as I have
‘malyzed it, but he recognizes its existence, subconsciously, and he
aakes allowances for it. The average railway employee despises the
fficial who is incapable of maintaining discipline. He may love
im but he has no respect for him and he won’t put him in control
Tan enterprise in which he, the employee, has a personal interest.
“here is the element of safety in this matter.
Mr. Sanpers of Indiana. Now, passing from a discussion of the
“lumb bill, we are all interested, of *course, in determining the
Toper plan to solve what we call the railroad problem. It will be
_veral weeks before we get into that, but in the event the Plumb
lan is not adopted, I am sure the committee would like to have any
uggestions you have with reference to legislation in the interest of
802 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
the men whom you represent. Is there any other legislation that
occurs to you would be helpful ?
Mr..Garretson. Mr. Congressman, you will bear in mind this: ]
want to answer your question frankly and in no sense mislead you
but having retired from the control of an organization, I am not
cognizant of any definite legislation that railway employees might
be considering, but I do not think that they have any definite pro
gram at the present time to present in any other direction. Lik
every other citizen of this Republic, you will bear in mind that the
are most intensely interested in what constitutes the heart of thi
whole problem, the cost of living. They are not interested in that n
the character of railway employees but in their character as citizens
Anything that settles that problem inures to their benefit exacth
as 1t does to any other citizen. This is only one of the factors nh
that, and I am only authorized to speak for the brotherhoods that.
represent in this instance, on this one problem, but I am saying t
you frankly and honestly that I have no knowledge of any definit
program in any other direction that they have. Circumstance
might lead them, if a certain conjunction of proposed legislation
justified it, to introduce some specific measure to which they wer
peace In a general sense, they are interested in many things
or instance, immigration, just like all working men are intereste
in it, but that can not be classed ;
Mr. Sanpers of Indiana (interposing). I had reference to railroa
legislation.
Mr. Garretson. I do not think there are any specific measure
under consideration of any particular nature.
Mr. Coorrer. I would like to ask Mr. Garretson a few questions
Mr. Garretson, you mentioned a few moments ago the wage adjust
ment board which is contemplated under the Plumb plan. In cas
some other bill was adopted by Congress, say, for instance, the Ese
bill, do you think it would be advisable to have a wage adjustmen
board appointed consisting of five members of the classified em
pe five from the official employees, and five appointed by th
resident. |
Mr. Garretson. In answer to that, Mr. Cooper, I can only sa
this: This is a continuation of the present means that have bee
adopted while the railways were under Government control, for th
adjustment of wage disputes, and was devised by the Railross
rehome aie and the brotherhoods, and it was adopted from th
old plan that was in effect between the four railroad transportatio!
brotherhoods and the railway companies by agreement prior to tha
time: We had, prior to the taking over of the roads by the Govern
ment, what was known as the Commission of Hight. That did no
determine wage questions but did determine certain other disputes
That Board had been created by agreement between what is know!
as the conference committee of managers for the entire country ai
the four transportation brotherhoods, and to them was referré
interpretation of certain agreements which had been entered int
between the four brotherhoods and the conference committee repre
senting all the railways of the country; that is, all the larger prop
erties. When the Government took control of the railways, we wet
summoned to Washington three or four days afterwards, and W
made the proposition—that is, just the four transportation broth
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 803.
whoods—to the director general himself that two boards should be
weated, one the wage board having jurisdiction of those questions,
ind the second a board of adjustment for settling all disputes that
night arise upon any railroad. Those boards were created, and later
ym three of those boards of adjustment were created, and each deals
mith certain classes of service. No. 1 deals with the four railway
wrotherhoods, No. 2 deals with, I think, the shop employees and
ertain other organizations, and No. 3 deals with various other serv-
ces. ‘This continues and perpetuates those boards. Those boards
ire the result of the combined, best judgment of the employees and
he managements, and they have very largely minimized trouble
m the lines. ‘They have not been perfect. They have not abolished
rouble but they have reduced it to a very considerable extent when
rou take into consideration the period of unrest through which they
tave existed. I doubt the advisability of instituting by law a com-
mittee of that kind, if the properties are to remain in private man-
gement, because the best results, in my opinion, can be obtained by
‘oluntary arrangement between the private employer and employees
etter than can be obtained by Government interference, unless the
yovernment is prepared to take it over and assume responsibility.
_Mr. Cooper. We have had private management, have we not,
fr Garretson, under Government control ?
Mr. Garretson. In one sense, yes; absolutely so.
Mr. Cooper. And you think that these boards have rendered
‘aluable service ?
' Mr. Garretson. I do.
Mr. Coorer. The point I am trying to make is, in case the Plumb
lan is not adopted by Congress, why would it not be a good thing
0 maintain these boards?
Mr. Garretson. I am of the opinion—you evidently do not get
ay whole viewpoint—I am of the opinion that the board of wages and
vorking conditions may not be continued, but the board of adjust-
1ent, in my opinion, would be continued; but it will be continued,
nd of necessity, in my opinion, should be voluntarily continued.
gar in mind I approach it from exactly the same angle that I ap-
‘Toach arbitration. I will never give my support and adhesion to
ompulsory arbitration.
‘Mr. Coorrer. You do not believe that any such board ought to
-@ created by law?
. GARRETSON. I do not.
Mr. Cooper. That is what I wanted to get your opinion on.
Mr. Garretson. It is voluntary action that is binding upon the
omscience of men and not compelled action.
Mr. Warson. Mr. Garrison, your statement indicates you are
‘niliar with the railroad systems of this country as well as those of
pas Will you acknowledge that our system is greater than any
‘ther ?
Mr. Garrertson. I think that the greatest financial interest and the
Teatest industrial property in the world is the American railroads.
’ Mr. Watson. The American railroads then have done much to aid
1 the development of our country ?
Mr. Garrerson. That is a truism; yes, sir. ae
Mr. Watson. And they have been developed under the past policies
{the railroads. Why not continue those policies if we have the
teatest railroad system in the world ?
804 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Garretson. I was using “greatest” in the sense of extent and
capitalization.
Mr. Watson. I was speaking of the service to the public.
Mr. Garretson. As to the service to the public, I think it is as
good as is given anywhere in the world. |
Mr. Watson. Why not continue the same policies ?
Mr. Garretson. Because it is becoming to costly to the public
and because, I believe, that the public is entitled to what it has never
had, cheaper service and still better service.
Mr. Warson. Have not the railroads been developed under indi-
vidualism in this country ?
Mr. Garrerson. They have been developed by individualism and
Government grants or State grants, largely.
Mr. Watson. They have not been developed under public control?
Mr. Garretson. They have not until that form of government con-
trol which gave protection to the public became necessary. ‘Then
governmental regulation stepped in and limited the type of individ-
ualism that was then existent in the management.
Mr. Watson. Government regulation and Government ownership
are two propositions. , The railroads have been under Government
regulation more or less ? |
Mr. Garretosn. They have been of late years; they were not in
their inception.
Mr. Watson. You do not believe that the railroads could be
developed in the future under individualism ?
Mr. Garretson. I do not. 7
Mr. Watson. You are in favor of a revolutionary system, bringing
everything under nationalism ? 3
Mr. Garretson. I am in favor of a plan that is the least revolu-
tionary of the four presented. |
Mr. Watson. I think you stated that it was necessary to awaken
the interest of man that he may develop and be of benefit to civiliza-
tion. Is not this a case that is entirely contrary ?
Mr. Garretson. The best type of nationalism is that in which
every individual takes an active working interest in all the affairs
of the Government, and I think you will find this, Congressman,
that where there is the liveliest and most intense individualism on
the part of the individuals there is where you find the most active
participation in Government affairs and the greatest amount of
democratism in it.. The most passive citizenry the greater autocracy
of the ruler.
Mr. Warson. I am not convinced that we have arrived at a stage
in our country’s history when we must give up individualism 10
favor of nationalism ? |
Mr. Garretrson. There are many men in this country who are
not convinced, also.
Mr. Warson. I recognize that there are a great many people in
favor of your plan and some of them may favor it seriously. I do
not know. When we surrender individualism in a new country like
ours, and adopt nationalism, it indicates a weakness in her people.
There is no country that I know of that has developed under national
ism like we have under individualism. 7
Mr. Garretson. There is nothing that has ever been presented
to the legislative body of this country that will accentuate indl-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 805
_yidualism to the extent that the bili will. That offers every induce-
‘ment to intense individual effort to make it a success, and it holds
out a hope to every individual in the country that he will be able
‘to secure that which he is rightfully entitled to, transportation
‘without cost and without tribute levied therefor for the benefit of
.a group at the expense of the many. Railway financing as it has
‘been carried on in the last 50 years would loot a world, and now it
wants its right thereto confirmed and made vested by legislative
action. The man who took my watch from me last night ought to
‘come to me, on the same basis, and demand a bill of sale for it the
next morning and ask to be paid for taking it away from me.
, Mr. Warson. Do you not think that under individualism the
workmen of this country have risen to a higher state of efficiency
than any other workmen in the world ?
Mr. Garretson. They have gone far beyond any other workmen
in the world.
| Mr. Watson. They have supplied over $1,000,000,000 and they
are now capitalists. Have not the railroad men subscribed to more
'Liberty and Victory bonds, according to their number, than any
other class of workmen ?
Mr. Garretson. They have.
Mr. Watson. Therefore, they are capitalists ?
Mr. Garretson. They are capitalists and they want to be more
capitalists. They want a chance to buy bonds that will pay for the
railroads, and they will buy vast amounts of those bonds. There
was a statement made the other day about the railroad employees——
Mr. Watson (interposing). Did they not acquire the position
they hold under a system of individualism ?
Mr. Garretson. I beg pardon. Every dollar which paid for
Government bonds they got through the increases given under
Government control. It is claimed that that was one of the factors
for which the Government is responsible. That is where the money
to buy bonds came from.
Mr. WesstErR. A few moments ago when dealing with the question
of the average pay of the conductors and firemen in 1913 as against
their average pay in 1919, in answer to the Chairman’s question you
stated that your figures were based on basic pay. Is that right?
_ Mr. Garrerson. I so described it.
Mr. Wesster. That is an elusive term to me. Will you tell me
how much the average railroad conductor and fireman received in
his monthly pay check in 1913 and the amount he receives in 1919 ?
. GARRETSON. The elusive term, you will bear in mind, does not
go to the fireman, just for the conductor because I can quote the
conductor’s rate right off the tip of my tongue... I can not quote the
fireman’s pay. |
Mr. Wesster. I thought you added the fireman?
Mr. Garretson. No.
_ Mr. Wesster. Then, confine it to that class.
| Mr. Garretson. The conductor is a piece worker. If he runs 100
‘miles in a month his month’s work is $4.18 or was in 1913. Every
treight conductor employed on a trunk line west of Chicago and New |
Orleans and Port Arthur and Canada received $4.18 for every 100
milesofrun. There is no monthly guarantee to freight men, with the
exception of possibly five roads, where there is a local arrangement
806 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
to the effect that he gets so many miles per month, but he is a piece
worker and he takes 1t as it comes. In other words, he may only run
100 miles. In 1913 the freight conductors probably averaged, day
per day, that is, 100 miles per day in the month, and in that event his
monthly pay was 30 multiplied by $4.18 and that was his pay check,
assuming that he earned no extra, and that is all problematical be-
cause neither the railway company nor the man himself can tell any-
thing about when he will make overtime or whether he will earn it.
If he is on one class of train, in the vernacular, on a ‘‘red ball” or
‘“‘oreen ball,” he will not earn any overtime, and if he is on a “‘drag”’
he will earn it every trip.
Mr. Wesster. | can get at what I want if you will give me the
- average monthly pay check. | |
Mr. GarRetson. I will give it in 1913 as 30 days per month, which
would be $125.40.
Mr. WessTeER. It is your idea that the average conductor in this
country received in 1913 that amount of money ?
Mr. GARRETSON. The average freight conductor probably received
between $100 and $140.
Mr. WessterR. What is the average freight conductor of the same
class receiving now ?
Mr. GARRETSON. He is receiving at the average of $5.40 in place of
the average of $4.18 and if he runs the same amount he will get 30
times that.
Mr. Wesster. That goes back to-the idea of the basic pay?
Mr. Garretson. I use the basic pay because in our service, and
this applies to all four of the brotherhoods, the basic element is the
day’s pay, because that is a minimum day, 100 miles or less. There
is provision in all of them, ‘‘100 miles or less, eight hours or less shall
constitute a day.’ That is basic. Everything in the contract is
based upon the daily rate of pay or 100 miles rate of pay, which it
really is. Therefore, to us, that is basic, because by being that it
can be broken by demand for special service and is founded on that
and is paid a pro rata, one-eighth of that per hour. That one class
of service that does not receive what is known as punitive overtime—
time and a half.
Mr. Wesster. We have scientific figures giving the relative pur-
chasing power of a dollar between 1913 and 1919. I want to know
how many dollars they had in 1913 and how many they have in 1919?
Mr. Garretson. For exactly the same amount of work, which is
the only way it can be properly approached, he received $125.40 for
3,000 miles in 1913. That is a month’s work. At the present time
the amount that he would get is $162. If he had an increase in rate
commensurate with the admitted advance in the cost of living—82
per cent as the minimum—he would have been entitled to an advance,
if he got the 82 per cent increase in pay, which would equalize the
purchasing power, I think you will admit. |
Mr. Wesster. That depends on the facts. What I am asking you
is, is it your statement that the average freight conductor operating
trains in this country is now receiving $160 ?
Mr. GARRETSON. Yes, sir.
Mr. WezsterR. That is his average monthly pay check?
ee GARRETSON. If he does a month’s work, 30 days, and 3,000
miles. :
_ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 807
_ Mr. Wesster. Regardless of what he does, what is the average
aonthly pay check? ~
_ Mr. Garretson. Take this factor into consideration. If he runs
wmly 1,000 miles during the month, then he only gets 10 times $5.40,
64, that is his monthly pay.
' Mr. Wesster. That is theoretically ?
_ Mr. Garrerson. That is not theoretically, but is actual.
Mr. Wesster. Do you know in fact how much the average freight
-onductor received in 1913 in money and how much the average
‘reight conductor is receiving in money in 1919?
Mr. Garretson. If you will just take this into consideration: All
{the agreements on every line almost contain a proviso that if crews
te making less than 3,000 miles per month crews will be dropped off
‘ntil they can make approximately 3,000 miles, because that is recog-
ized as an average month’s work. I think that 3,600 is about the
xtreme top and probably 2,600 the bottom limit. If his wage, in
$ purchasing power, was keeping pace with the increase of com-
iodities, he ought to have had about $7.64, whereas he only receives
5.40. Therefore he has advanced 32 per cent since 1913 in the
mount of wages he receives, but he has to pay an 82 per cent increase
1 the price of the commodities which that wage purchases.
Mr. eserien: I think, in the colloquy between Judge Sims and
ourself, you made the statement that there was absolutely no limit
pon the Federal Government’s power of taxation, did you not?
Mr. Garretson. J said that I so understood.
Mr. Wexsrer. As a lawyer, it is my understanding that there is a
ery specific limitation upon the Federal Government’s power of
ixation; that it is limited to the requirements of the Government
ad that there is no power in the Federal Government to levy taxes
ierely for the sake of levying them.
Mr. Garretson. That is one legal opinion which I have got without
aying for it. ,
| Mr. Wexsster. Do you disagree with that ?
| Mr. Garretson. No, sir; I do not. When I am buying legal
sinions I take them at the price set. I want to say this: That is a
aestion that the lawyer [ hire will have to deal with.
Mr. Wesster. It was stated by Judge Sims, and you acquiesced,
lat if the railroad property of the country was taken over by the
| Overnment and was removed as a subject of taxation, that the bonds
®aring a very low return would be attractive, because they would be
jlieved from taxation, Federal, State, and municipal. Assuming
lat the power of taxation is limited to the requirements of the
)Overnment, would not a similar amount of money that would have
pen received upon the railroad property if it had been subject to
}.Xation, have to be levied and spread over the reamining taxable
;operty of the country ?
| Mr. Garretson. There is no doubt of that.
} Mr. Wezsrer. Then it is simply taking off at one place and putting
}Lat another ?
} Mr. Garrerson. It is better to take it off and put it on at another
| ace than to put it on two or three places.
| Mr. Wessrer. But we must not understand that that relicves the
ablic of any burden ?
wae ;
808 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Garretrson. It will certainly relieve the public of a burden,
if it will not relieve them wholly free from a certain amount of the
burden.
Mr. Wepster. You say that transportation enters vitally into
everything that the average American consumes and uses ?
Mr. Garretson. It does.
Mr. Wesster. And the power of rate making has been stated by
Mr. Plumb to be very similar to the power of taxation ?
Mr. Garretson. It is.
Mr. Wesster. If you levy this increased taxation upon the public
and that identical public is the public that is getting the benefit of
the reduction in rates, they are simply coming out the same place
they went in, taking off at one place and levying it at another ac-
complishes nothing.
Mr. Garretson. Have you figured any public burdens on the
-amount involved in other plans, in the guaranteeing ?
Mr. WeBsTER. I am not advocating any guaranty.
Mr. Garretrson. I would not make so heinous a charge against you.
Mr. Weszsrer. I hope you will not.
Mr. Garretson. I would not, but I want to draw your attention
to the relative burdens which these plans propose. I say to you that
the saving to the public in the matter of freight rates is greater and
far more important than the difference in the taxes levied. A tax
levy only falls upon those who have propeity. It utterly frees a man
who has not property, because the tax is upon property. We have
only one tax which is a universal levy.
Mr. Wezster. Just one more matter, and I am through.
It has been asserted here, Mr. Garretson, that the Plumb plan
rests upon the fundamental principle of democracy, justice, and
equity to all, special privileges for none. You indorse that?
Mr. Garretson. Absolutely.
Mr. Wesster. One of the prominent features of the Plumb plan
is the constitution of a corporation whose board of directors shall
consist of fifteen members; five shall be chosen by the President to act
primarily, I assume, in the public interest; five to be chosen by the
classified employees, to act, pas primarily, in their interest, and
in the intermediate five are to be chosen from the managerial or offici
employees of the roads. Let us assume that the five appointed by the
President are 100 per cent loyal to the public, that the five appointed
by the classified employees are 100 per cent loyal to those classes, and
the intermediate five we will mat a fifty-fifty class, and they are
equally loyal to the public upon the one hand and to the employees, of
which they constitute a part, upon the other. That would mean
seven and one-half votes on one side and seven and one-half votes on
the other. We have in this country about one hundred and ten mil
lion people. I understand it to be fairly accurate to say that for
every five there is an adult or head of a family. So we would have
22,000,000 male adults in the country. That, of course, would
include railway employees. So, we will deduct them. That will
leave 20,000,000 male adults in America not interested primarily i
the operation of the railroads, and we will have in round numbers
2,000,000 railroad employees remaining. Is it your idea of democ
racy and equality that 2,000,000 men shall have the same representa-
tion and the same voice as 20,000,000 ?
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 809
__Mr. Garretson. It is as near democracy as we have ever been
able to get in the matter of representation in the legislative houses
of Congress.
| Mr. Wesster. This bill is proposed as an improvement, is it not?
Mr. Garretson. This bill is proposed as a step toward it, and if
you can bring the whole 20,000,000 of the outsiders in and form a
true democracy as the the Greeks, who originated the term, under-
stood, why, I think we would accept it.
Mr. Wesster. Do you not think that when the representation
on this board stands as eleven to one or ten to one, approximately,
that your board is a little one-sided ?
__Mr. Garrerson. I think it is an immense betterment over this.
How much representation have these 22,000,000 men on the board
of directors of. any corporation on this continent?. How much rep-
resentation has any interest but the most selfish interest that the
devil ever devised ?
_ Mr. Wesster. We will not cure a system of selfishness by sub-
stituting another system of selfishness in its stead.
| Mr. Garretson. Every one of the 15 are members of this public.
_ Mr. Wesster. This plan, it seems to me, just gives the balance in
favor of the other side of selfishness.
Mr. Garretson. Let them have their day in court; it has been a
tong time since they had it.
| Mr. Wesster. I do not gather what you mean by that.
| Mr. Garretson. I mean that the master interest has ruled all of
these things for 50, 100, or 1,000 centuries. You might let the other
interest try it for awhile, to see if you get better railways.
Mr. Wesster. Is that the ultimate idea of this bill, in so far as the
oersonnel of this board of directors is concerned ?
_ Mr. Garretson. The ultimate theory is to democratize it in as
reat a degree as we may, and this seems to us as near a method as
v0ssible, and if those employees who form this corporation, of the
iwo Classes, are to be made responsible for the successful conduct of
ihe enterprise in the public interest, they are of necessity compelled
i0 have the dominating voice therein. That is all.
Mr. Wezster. Mr. Garretson, what proportion of the loss from
‘ailroad operation under the Plumb plan would fall on the men
mgaged in operating the railroads ?
. GARRETSON. Collectively it falls on the men. With every
‘alling off of business, whenever the volume of business in this country
leclines, there is no class that has been heavier hurt collectively than
he railroad employees, because thousands of them are thrown out
‘if employment utterly and the loss of their earnings collectively;
hat is, to the class, is greater than the loss of the employer in the
lecline of his revenue.
Mr. Wezsrer. Let us follow that idea just a little further. If
‘ou are willing, under the Plumb plan, to rest the rights of the railroad
Mmployees in this directorate of 15 members, and that board has the
sower to fix and determine wages—the reasonableness of wages
nd the justness of the relationship of wages—ought not your bill,
1 order to be consistent, to provide that the men should not strike ?
- Mr. Garrertson. Is that the question ?
' Mr. Wesrsrer. That is it.
| .
810 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Garretson. There is no element of consistency that would
justify a man in bartering a constitutional right for a money privilege.
e are not selling our birthright. |
Mr. Wesster. I think if you were willing to put so vital an interest
of your employees in the hands of this board that you would be will-
ing, not to sell your right, but willing to have it passed upon by people
of your own selection and of your class, bound to.you by the same ties.
Mr. Garretson. We have not as implicit faith as you seem to have
in the ability of the employee to get what he believes is a just wage
from that board and we have not any intention in submitting this
bill or any other to abandon the one weapon that labor has used im
years gone by to get what it has.
Mr. Wesster. Frankly, how can you ask Congress to put the vital
interests of the public in the hands of this committee when you are
unwilling to put your vital interests in the same hands? |
Mr. GarreTson. We have no hesitancy in saying that if the publie
places their vital interests in our hands for operation and handling,
that there is going to be a big improvement in the matter of the clean-
liness of the hands that they are placed in.
Mr. Wesster. We would have more faith perhaps if you had more.
We are asked to place the vital rights of the American public—every
man, woman, and child having a part in the struggle for existence—
in the hands of this board, for the transportation element, enters
vitally into everything they consume and everything they use.
We are sitting here in Congress now dealing with those important
problems. You ask us to take the millions of this country, each and
every one of whom is interested in this matter vitally, and to say to
them that their interests in this matter are safe in the hands of this
board; yet those who sponsor this plan, those who devised it, are not
themselves willing to trust their important rights to the men that
we are told we must trust?
Mr. Garretrson. You are in error in one case. These men did not
devise the plan. They adopted it and in a degree modified it after
it was devised. They believe that they see within it the very essence
of betterment of conditions of which they complain, that it is one of
the big elements which enter into the settlement of that question
which has absolutely taken society by the throat, the high cost of
living, and they have adopted this as one of the means toward the
rectifications of those conditions, and furthermore, because they
believe that no steps can be taken in the interest of the American
public greater than that outlined here. I am perfectly aware that
it strikes at the very heart of the interests, and I realize, possibly
more than a great many of the people I represent do, that it is for the
betterment of mankind, and that is why I advocate it. I think Iam
beyond the stage where the petty interest of the men I might repre-
sent appeals to me in the same degree that the interest of the nation
does. I may be a self-constituted representative of the public, bub
I at least try to be a decent and honest one, and I probably have as
good credentials to represent that public as any other man can assert
an his own behalf who has not been chosen by the public to speak for
them.
Mr. WesstTeErR. I am not challenging that.
Mr. Garretson. That is why I adopted for myself and for my
organization this plan when in its original form it was presented. _
___ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 811
/
i
was probably one of the earliest ones that saw within the germ of
that for which I strove, and I believe that it is the most practical
‘means that has been presented for the final attainment of that for
which millions yearn.
» Mr. Wesster. Will you go with me this far, that no policy of
government reflected in legislation which is injurious to the people
of the country, considered as a whole, can permanently be of any
benefit or advantage to any class?
_ Mr. Garretson. I do not quite understand that question.
| Mr. Wessrer. Will you indorse this proposition, that no policy
of governmental legislation which is injurious or hurtful to the people
of the country as a whole can permanently redound to the benefit
‘or advantage of any class ?
._ Mr. Garretson. I absolutely go with that literally as stated.
‘T only want to add one qualification. If it injures the proper and
true interest
| Mr. WexssTEr (interposing). That is what I mean.
Mr. Garrerson. I go with every word of it. The evil acts even-
‘tually must fall, evil acts and practices. I will say this for myself.
Now, bear in mind, Mr. Chairman, that I am speaking for no interest
but the one man, a personal opinion.
I am radical enough, anarchist enough, bolshevist enough, no
matter what name you call it, to believe that because a thing, evil
‘practice, has flourished for 50 centuries is no reason that it should
‘not be corrected.
Mr. Wersster. I heartily agree with you.
Mr. Garretson. I am at utter variance, I do not regard as honest
an interest in the economic system which enables one man to appro-
priate the result of the life effort of a million. The whole financial,
social and industrial system of the world to-day is indicated by just
one fact. In the richest city in the world, every twelfth funeral
goes to the potter’s field. In New York every twelfth funeral goes
to the potter’s field. That is an indictment of the economic and
social system.
Mr. Wezster. This one question and I am through. Throughout
your statement before this committee I have assumed and granted
to you that you are aboslutely sincere and absolutely honest in
your expression of views. If I should take the view that the Plumb
plan is unwise and hurtful and should not be adpoted in the interest
of the people of this country as a whole, will you do me the compli-
ment to think that I may be honest too ?
‘Mr. Garretson. Mr. Webster, allow me to draw your attention——
Mr. Wezsrer. Please answer my question. .
Mr. Garrerson. I will answer your question. I have the fault
of answering questions. I want to tell you this. If my view of
|men was founded on whether or not they agreed with me, if I ques-
tioned the honesty of purpose of every man who has disagreed with
,me, there is not a man, woman or child with whom I have ever come
‘mto contact that I could say, ‘‘Good morning”’ to, for I have dis-
|agreed with everybody I ever knew. My estimate of a man is not
based on whether he holds the opinion I do, it is on my judgment
him as a man, and if you, in making up your judgment, decide hat
you are not in sympathy with that plan and if you differ in opinion
|rom me, that might have no effect whatever in my estimate of
,
812 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
your honesty or righteousness of purpose, but I might love you as
a citizen, give you the full meed of it, and then refuse to vote for you
because you did not agree.
Mr. Wesster. Certainly, that would be all right. I recognize
your full right and privilege to do that. I have not any right to
complain against your doing it, but you would not have any respect
for me if I thought the Plumb plan was unsound, and yet voted for
it 2
Mr. Garretson. No, sir; I would not.
Mr. Wesster. Do you believe that it is just, if that is my honest
view, that I should be ‘‘posted throughout the length and breadth
of our fair land” for giving expression to it?
Mr. Garretson. So far as posting is concerned throughout this
fair land, if I were discussing this bill in a public assemblage I would
do my part—I say discussing it after it had failed to carry—I would
do my part in the posting of somebody who vitriolically opposed it.
That is all the posting amounts to. That is the position that a man
gets into whenever he enters either public or quasipublic service.
I will tell you, Congressman, that I love a certain amount of it which
has been directed against myself and I love myself for some of the
enemies I have made. It has always been a debatable question to
my mind which is most desirable, the respect and confidence of good
men
Mr. WEBSTER (interposing). Or the condemnation of bad ones.
Mr. Garretson. I think if some men had given me commendation
[ would distrust the honesty of my own motives.
Mr. Wessrer. I think that the commendation of good men and
the condemnation of bad men :
Mr. GarReTson (interposing). Are of equal value. If I were to
make a differentiation between the two I should say that condemna-
tion was the more valuable of the two.
Mr. Merritt. Mr. Garretson, I was interested, during your colloquy
with Judge Sims, in your agreement with his statement that the
Plumb plan abolishes the capital account; is that correct ?
Mr. GARRETSON. It is. }
Mr. Merrirr. But the Plumb plan does not abolish the capital of
the railroads. ;
Mr. Garretson. It does not abolish the capital of the railroads,
because it purchases the capital of the railroads and pays for it, the
actual capital.
Mr. Merritt. Then where does the capital exist ?
Mr. Garrerson. The fact is that after it has been wiped out by
amortization, the Government then owns the railway system with
out having paid a dollar therefor. It has acquired it and wiped out
the capital debt.
Mr. Merrirr. You distinguish then between the Government and
the people who pay the taxes. ‘
Mr. Garretson. The people themselves have those railroads and
they have paid no taxes. The Government borrowed the money 02
the credit of those people and then repaid itself.
Mr. Merarirt. Repaid itself from whom ?
Mr. Garrerson. It paid itself just as it is now paying freight
rates, although it will pay them in less amount; and it would, under
any other plan that has been presented, or under the present plan,
pay the same or more and have no property at the end of 100 years.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 813.
;
Mr. Merrirr. Of course, all of your argument is based on the
ibsolute assumption that under the Plumb plan the freight rates are
soing to be less?
_ Mr. Garrertson. If they remained the same, the same thing would
de true, Congressman. If that assumption was incorrect, and rates
vemained as they are to-day, the same result would come, while
inder any of the other plans, those freight rates must, of necessity,
‘1Se.
Mr. Merrirr. Not if the private owners can produce the same
‘fficiency that the proposed plan
ar. Beticrivcon (interposing). No; because they have eternally
o meet the capital charge.
| Merrirvt. Is it your assumption that the railways of this
sountry will never be increased ? :
' Mr. Garretson. The size of the railway system bears no relation:
‘0 the rates for passengers or freight.
| Mr. Merrrrr. But your extensions will call for new capital invest-
oent.
| Mr. Garretson. It depends on whether one plan or the other is in
fect. Under private capitalization or under private ownership all
‘xtensions would require new capitalization, yes, if built with funds
/utside of revenue from operation. Under the Government plan,
vyhere the community stood preeminent, and they were willing to
vear the cost, it would not add to capital. Where the responsibility
or extension was divided between the corporation operating and the
ommunity needs, the portion that the community contributed would
ot be capitalized; but where the extension was for operating needs,
hen the capital would be. ‘
Mr. Mrerritr. Pardon me, you are mixing up two things if I have
nderstood you.
Mr. Garretson. No; I do not think so.
Mr. Mrrrirr. You are mixing up capital and capitalization.
Mr. Garrerson. Capital and capital additions, as long as the
dditions are made, the distinction ceases.
Mr. Merritt. You are keeping your eye on the capital account
nd I am keeping my eye on capital.
_ Mr. Garretson. There is a distinction in phrases without a marked.
ifference in the thing described.
| Mr. Merarrv. I think not.
Mr. Garretson. The capital account of a railroad company means.
ne thing, I will admit, different from the capital of that railway.
Mr. Merrirr. It may or it may not.
Mr. Garretson. The capital is actually what is put in and the
apital account.is but the issuance of securities and other obligations.
r. Merritt. I understand, but I am talking about the future
‘hen none of these evil practices are going to continue, and what I
vy is that this new capital is not going to fall like the dew from
leaven, falling on the just and the unjust, but is coming out of some
mmmunity and some people.
‘Mr. Garrerson. It is coming out of them with an immediate
turn to them in marketable values in things along the railways.
hat is what that idea is founded on.
Mr. Merrrrr. Now, then, you made another statement which your
‘St remark leads up to, that all new capital under private contro!
‘eant an increase in rates.
814 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. :
Mr. Garrerson. Capitalization of existing properties, that is true;
yes, sir.
Mr. Merairt. Is that true ? .
Mr. Garretson. It has been written that the only way you can
judge the future is by the past. Apply that rule and my statements
correct. ; a |
Mr. Merrirr. Since the Civil War the capitalization and the capital
both, of the railroads of this country, have increased very many times;
is not that true ¢ |
Mr. Garretson. If they increased with mileage that would be
legitimate increase, If they increased without mileage then the ques-
tion would be: Was it legitimate or illegitimate ?
Mr. Merritt. Is it not true, however, that certainly up to the time
of the war, and-I believe now, the rate per mile of freight in this
country is very much less than it was after the Civil War?
Mr, Garretson. For a very considerable period, from the time ol
the enactment of what was known as the Granger legislation, rates in
both freight and passenger service steadily decreased for a very con:
siderable number of years. The reverse has been true in the imme-
diate past. :
Mr. Merritt. As to even now, the rates have not got up to what
they were at the time the capitalization of these roads was only a
fraction of what it is now. ;
Mr. Garretrson. That is very possibly true, and if you will take
into consideration the fact that there was no regulation at that time,
you have the answer as to why.
_ Mr. Merrirr. I do not think I have.
Mr, Garretson. It was putting on all the traffic would bear.
Mr. Merritt. One other matter and I am through, because I think
it is very important, if we can, to clear up our notions of capital and
capitalization. One other point, with regard to the point you made
that increased capitalization means necessarily increased rates. Take
a single-track road, for example, and there comes a time when the
traffic is too great to be handled by a single line of rail. Now, I am
talking about honest issues and I am not talking about any sins
the past.
Me Garretson. Assume for the moment that a railroad would he
honestly administered; yes, go ahead.
Mr. Merritt. Yes, assume that for a moment. Now, it is neces
sary to add a second line of rail and make it a double track and that
is done by an issue of stock or bonds as the case may be.
Mr. GarRetTson. Both.
Mr, Merritt. Or both, but not exceeding the cost of the rails and
all the other expenses. Now, then, the result of that is that the rail-
road can carry much greater traffic and the increased traflic from the
new track more than pays at the old rate the charges on the track,
In such case that new capital would not add to the rates, would it!
Mr. Garretson. It would not. . .
Mr. Mernritr. So I think that is a thing to bear in mind, that the
mere fact that capital has increased is no sign that the rates are
oppressive in themselves. fe
Mr. GarrETSoN. Congressman, let me call your attention to one
condition there. If the volume of traffic increased in a degree that
the rates then in force and effect would yield the same return on thé
augmented capital per mile—you will bear in mind we have not
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 815
used that phrase before, but there is the true basis in contrasting
earnings, and that is, capitalization per mile.
| Mr. Merairr. I understand that.
_ Mr. Garrerson. Because there capitalization per mile would have,
assuming that the first track was honestly provided, virtually doubled,
-with such variations as would grow out of differing costs of labor’
‘and material as between the time when the other track was con-
_ structed; but the volume of traffic would have to be great enough to
take care of the added charge if an increase in freight rates or in all
“Yates was not necessary to meet the added charge, unless prior
- earnings of that company had created a surplus that would meet it
or had been so great that they would bear the added charges.
__ Mr. Merrirv. The point I was trying to get into the record, and I
do not think you will dispute it, is that in itself the mere fact that
extra capital is required is not an evil. Every enterprise of any
sort, mercantile, manufacturing or transportation that requires new
pppital is only showing signs of life and not a sign of depression or
death. |
Mr. GarretTson. Legitimate additions of capital may be legiti-
| mately met, and still, even assuming for the moment that they are
legitimate and that the expenditures are legitimate, if a means can
be devised whereby fixed charges may be abolished and the public
| at large receives the benefit accruing from such abolition, any man,
once convinced that it can be done, fails in his duty unless he em-
| braces the means for so doing. Now you will note the point I make
‘there before the statement of failure of duty, if he is once convinced
that such is the case.
Mr. Merrirv. I understand.
Mr. Garretson. Then he would fail in his duty. Until he is
‘convinced he could as honestly oppose it as J can advocate it.
Mr. Barxtury. Mr. Garretson, in order for this plan to be a success
) the return in freight rates to the roads or to this corporation created
by your bill would have to be sufficient to pay the railroad men a
wage that is satisfactory to them and at the same time create this
sinking fund out of which the roads would be ultimately paid for by
| the Government.
| Mr. Garretson. It would; in other words, here is the amount:
The fixed charge at first would be the interest on the bonds and
the amount of the sinking fund. That is all the fixed charge would
| consist of, and in addition to that, operating expense until such
| time as this 1 per cent, which constitutes the sinking fund, should
| have reduced the fixed charge by the retirement of bonds. After
‘Tetirement had once been effected, then only operating costs would
have to be met.
Mr. Barxiey. But that retirement would not take place until
100 years had elapsed.
Mr. Garretson. The statement was made here that figuring it
out, it amounted to, I think, 34 years.
a Barxxey. Is that so? I was assuming that the value of the
Toads
Mr. Garretson. I think that statement is correct, Mr. Chairman.
The Cuarrman. IJ think it was on the basis of 1 per cent.
Mr. Garretson. Maybe I misunderstood the answer. I think it
‘was true that it was on the basis of 1 per cent.
(‘We 152894—19—vor 152
816 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Barxuey. If the value of the roads should be found to be what
Mr. Plumb estimated that to -be—something like $12,000,000,000—
then, the amount set aside as a sinking fund would be 1 per cent of
that $12,000,000,000.
Mr. GARRETSON. Yes.
Mr. Barxiey. I have not figured it out, but I do not just see how
In 34 years
Mr. Garreston. I think it was by the utilization of the half of the
surplus that was to be paid to the Government.
Mr. Barxiry. Yes; but eliminating the surplus.
Mr. Garretson. Bear in mind that is purely an estimate.
Mr. Barxiey. Eliminating any surplus that might arise, it would
take practically a century. 7
Mr. GARRETSON. It would take 100 years if sums were not drawn
from operating surplus or some other source.
Mr. Barxtey. If there should ever arise a controversy in the board
of directors as between the railroad men and the public as to whether
their wages should be increased or held to a certain figure where they
existed, or if this smking fund should be depleted or alowed to lapse,
what is your view as to the position the men themselves would take
if that sort of an emergency should arise ?
Mr. Garretson. It is an impossible thing in my opinion for the
sinking fund—bear in mind that the bill makes it imperative that that
amount shall be set aside. Now, while there is no mandate in regard
to an increase in rates, the order only being mandatory as to a de-
crease in rates to the Interstate Commerce Commission, it is un-
thinkable that if a deficit should occur that would interfere with the
operation of the road that the Interstate Commerce Commission
would not, of its own initiative, or on 1equest, increase those rates.
Here is what is true: That condition could not occur in any norma!
year, because the volume of business, the tide of commerce, can not
fall below the necessities of the people.
Mr. Barxtiey. Is it your view that this 1-per-cent provision for @
sinking fund has priority over the wages of the men ?
Mr. GARRETSON. The fact is that the interest on the bonds and the
sinking fund appropriations take precedence over everything in the
bill, as I understand it.
Mr. Barxiey. So that if it should come to a point where the 10
directors, five representing the classified employees and five repre-
senting the official employees, admitting that they have a community
of interest which would cause them to combine as against the other
five, your view is that this sinking fund to provide for the amortiza-
tion of the bonded indebtedness required to purchase the roads and
to pay the interest on the bonds as they fall due, having priority over
the wages, that those 10 directors would provide for the taking care
of that sinking fund even if that required a reduction in wages m
order to do it?
Mr. Garrerson. There I get an angle on your question I did not
get at first, Mr. Barkley. Wages are paid at certain intervals.
These other appropriations only take place at the end of the fiscal
year, whatever itmay be. The question as to priority, it does not
seem to me, can arise, in a general sense, except as it arises on a rail-
road that is unable to run its pay car.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 817
_ Mr. Barxzey. It might arise in this way.
. Mr. Garretson. You get my point.
» Mr. Barxey. Yes.
_ Mr. Garrerson. What I mean is this: Wages are agreed on and
are paid out atintervals, while the sums for the payment of interest
and for the sinking fund are accumulating in the hands of the Treas-
urer of the United States or of the Secretary of the Treasury. Con-
sequently, that question of priority can not arise until the time
comes for the paying of the sinking fund, and I am perfectly free to
admit that the law regarding the payment of wages might have a
bearing on that. I have not taken that into consideration. I want
to ask this question, and I am going to ask it, under the average law
docs not the payment of wages constitute a first lien on any industry ?
_ Mr. Barxiey. Yes; I would say as a general rule the payment of
wages constitutes a lien
Mr. GaRReETSON (interposing). That might be the situation if they
‘could not pay the wages on the day they were due.
Mr. Barxiey. But I was looking forward to a possible situation
‘where the men themselves might not be satisfied with the wage they
were obtaining. They could not secure an additional wage without
infringing on this sinking fund, if that were possible, or compelling
the Interstate Commerce Commission to raise rates that would bring
a return sufficient to set aside 1 per cent for the sinking fund an
also pay the men the wages they were asking.
| Mr. Garretson. I am of the opinion——
Mr. Barxiey (continuing). Now, in the event the Interstate Com-
merce Commission should decide not to increase rates or to permit
an increase in rates, so that the rates remained stationary, and that
tate admittedly was not sufficient to provide for this sinking fund
and give the men the wages they were asking, what then would
happen ?
. Garretson. No man can do more than express an opinion.
My own would be that a large majority of that board, pontrarted
with the legal requirements of the act, would refuse to increase wages
when confronted with that certainty.
' Mr. Barxkiey. Your view, then, is that the board of directors
vould assume, or would have the right to assume, that if they should
ubitrarily act in favor of the employees in the matter of an increase
‘if wages, where there was no provision to take care of the increase
y an increase of rates so as to pay the men the wages they were
isking and take care of the fixed obligations provided in the bill—
is I-say, they would assume that if they acted arbitrarily in the
jnatter, it would perhaps result in a forfeiture of the lease, and that,
‘n the long run, it would be worse for the men than to refuse the
/nerease ?
| Mr. Garrerson. There is a clear legal obligation imposed on the
\»oard as the head of this corporation, and I do not hesitate to say
jhat under those conditions they would of necessity be guided by
}ommon business sense as well as regard for what might justly be
jPaarded as dangerously close to a betrayal of trust.
' Mr. Barxuey. The question of taxation has been raised. I am
eeking to get your viewpoint on these questions I am asking so
|hat we may by a system of transmigration of living spirits, we
“
818 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
might say, put ourselves in your attitude in order to find out what
you think. Is it your view that under this bill the Government
or Congress would ever have to levy a direct or indirect tax, to be
collected through the Treasury, to be appropriated to meet the obli-
gations of this service 4 ,
Mr. GarreETson. It is not. y
Mr. BarkuEy. Your view is that it would be self-sustaining, and
that the question of taxation, as we understand it, would not enter
into it at all?
Mr. Garretson. Absolutely, from my standpoint, the question
of taxation never can confront the country nor Congress. -
Mr. Barxiey. These labor organizations, of one of which you
have been the head, have grown up through a sort of necessity in
the past in order to enable the men to deal collectively ?
Mr. Garretson. To get away from the ‘‘Iron Law of Wages.”
Mr. Barxtey. To deal collectively with the railroads or employers
If this plan should be adopted, and the railroad men_ themselves
should become participants in the management and in the profits—
1 will eliminate the word ‘‘profits’? and say in the emoluments 0:
the service —what effect would that have upon the necessity for thé
continuance of these various organizations ?
Mr. Garretson. My opinion is that that condition would remait
unchanged. You will bear in mind—and, of course, I recogniz
the fact that from necessity I am a partisan—but if you take the ol
conditions that existed, and which are best described in what wai
outlined by Ricardo and formulated LaSalle as the iron law of wages
the old economist dealt with it on the basis that the laborer wai
entitled to just enough to enable him to exist and propagate—tha:
is, to exist for the benefit of the present generation of masters ant
propagate for the benefit of future generations of masters. The labo:
unions grew into existence in the fight against that view, and they
are going to stay until the laboring man has got such a proportior
of the product of his labor as will enable him to do a little mom
than those two things. Therefore, in this system, they are goms
to take Patrick Henry’s advice and do the eternal vigilance act.
Mr. Barxiey. So that, notwithstanding the fact that these met
are participants in the management and control and in the emolu
ments, and, therefore, are dealing practically with themselves im |
way, you think that the necessity for their continuance and for ti
same vigilance would be as apparent as ever?
Mr. Garrerson. The individual in this day and age of the work
has no channel of expression. Organizations furnish him that chan
nel. The clements of fear and resistance enter into the exist
ence of those organizations. They are listened to because it ma
be cheaper to listen to them and conform in some degree to tha
which they demand than to try to stamp them out. That is al
there is to it.
Mr. Barkiey. Now, as to the representation on this board, ther
is on the face of it an apparent inequality in the representatia
given 110,000,000 people of five members, 20,000 people five member
and 2,000,000 people five members. Do you believe that, if such
plan should be adopted this is as fair, proper, and just division ¢
the representation as could be devised ? :
\
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 819
_ Mr. Garrertson. I am in sympathy with it as it stands for this
reason: If, as I said in answer to a question a moment ago, the
‘tesponsibility for the execution of the enterprise is to rest upon the
labor which conducts it, it must have a dominant voice. It is a
foregone conclusion that responsibility and obligation go with powers
and duties. No man can wield power without assuming obligations.
‘He can not assume rights without associating duties therewith.
‘Power is conferred and rights are granted, and therefore duties are
gg and obligations assumed that must be met, and they can
mly be properly met with authority to act where the power and
‘esponsibility lies. You have forgotten one thing, and I have no-
ticed that unfailingly, and that is that while it is true that the
oublic has 5 direct representatives, and while it is true that the
orimary allegiance of the 5 classified service men is to the service
hat they represent, and that the primary allegiance of the 5
‘ficial representatives is also to- their class, still those 10 men are
4s responsible at the bar of public opinion and the bar of public
ulegiance, as the others, and public allegiance rests as heavily upon
whose 10 as upon the other 5.
Mr. Barxiey. It might be imagined that a situation would arise
|luring the continuance of this plan wherein one group at any given
ame in any given controversy might become an umpire between the
other two.
Mr. Garretson. That is exactly it.
| Mr. Barxiny. If that situation should arise, there would be
bree classes involved, the public, the managers, and the employees.
|f a controversy should arise where the employees’ interests were
jet over against the interests of the public, and the managers’ inter-
)sts should not be directly involved, would the five representatives
f the managers be likely to fall on the side of the public or the
)mployees, or would they probably take middle ground and become
)/m a real sense umpires between the contending forces ?
| Mr. Garretson. | will give you my opinion, and it is only an
) pinion, but it is founded on my knowledge of men: In most of the
iontroversies that would arise, that board would act individually
fnstead of collectively. You will find that the line of cleavage is not
ja the majority of cases along the line of the origin of the people or
ilong the line of the classes from which they are chosen. Individual
‘pinion will decide most questions where class cleavage arises, and
rou would find in one controversy the employees’ representatives
md the public service contending with each other, with the official
ive representatives acting as the umpire. In the next points of
jlifference, you will probably find the official class and the public
Jlass at variance with each other and the employees’ representatives
cting as the umpire. Under the third condition you would find the
|Wo employees’ classes, or the official class and the nonofficial class,
|pposed to each other, with the public’s representatives refereeing
| he matter.
| Mr. Barxtiey. If you take any legislative body, or, for instance, if
‘ou take Congress, you will find this situation: [ am elected from a
ertain district, and nobody else in the United States has any voice
a my election except the people of my district; but when I get up
ere and become a member of this body of 435 Representatives, while
still represent that one district in Kentucky, as a matter of fact I
820 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
become a national legislator, and in many respects I am supposed to
look beyond the boundaries of my district and to take into considera-
tion the view of the whole country.
Mr. Garretson. Except for post offices.
Mr. Barxiey. Except for post offices, but they have taken all of
them away from us now. [sit your view that this board of directors
would assume a position somewhat similar to that?
Mr. Garretson. I firmly believe that they would.
Mr. Barxtey. Now, as to the representation, I confess that it is
impossible for any government or any other institution to provide
the exact or precise number of members to give equal representation.
For instance, New York has two United States Senators to repre-
sent 10,000,000 people, while Nevada, with about 100,000 people,
has two Senators with the same power; so that, in any form of
government, it is impossible to give the same representation to an
equal number of people as long as. you have artificial districts and
boundary lines. What I am seeking to ascertain from you is, whether
or not you have finally reached the conclusion in your advocacy of
this bill that this provision affords as nearly a fair and just represen-
tation as any that can be devised under a plan similar to this ?
Mr. Garretson. Now, I do not want my reply there to be mis-
understood, or as indicating that I am wedded ‘to any particular
provision. If improvement could be devised that would adequately
meet that situation, leaving, as I have stated, dominance with the
responsibility, I would have no criticism to offer thereof. So far as
we have been able to study this out, this is the best plan that we
were able to furnish. In that, or in any other particular detail, if
a plan that meets the approval of the committee or of Congress can
be devised, safeguarding the things that I have mentioned, I would
welcome it.
Mr. Barxvey. If you were to admit for the sake of the argument
that your bill is abstractly and socialogically just and fair as between
the owners, the public, and the railroad employees, what is youl
opinion as to whether public opinion now has reached a stage where it
would approve the enactment of this bill at present?
Mr. Garretson. Mr. Barkley, I would not willingly give you a
false view on this subject. I have an idea that if it were put to a
referendum vote to-day, simply from a spirit of conservatism and
suspecting evil in a change, the majority of the men in this country
to-day would probably vote against it, but I say to you that in the
immediate future I believe that the opposite result is going to he
true. It isa thing that will cause millions of men to investigate and
later embrace this plan; that is going to be the case when they ar
once convinced that it contains within it one of the elements that wil
correct the things that they complain of. |
The CHAIRMAN. We will meet again at 2.30 o’clock p. m., and heal
Mr. Decker, of the Public Service Commission of New York, who i
present. Mr. Plumb is to submit a statement in regard to financia.
conditions.
Mr. Pius. I will not take more than 15 minutes.
The CHarrMAN. Then, you can precede Judge Decker.
(Thereupon, the committee took a recess until 2.30 o’clock p. m1.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 821
\ AFTER RECESS.
_ The committee met at the expiration of the recess at 2.30 o’clock
p.m.
ADDITIONAL STATEMENT OF MR. GLENN E. PLUMB, GENERAL
- COUNSEL FOR THE ORGANIZED RAILWAY EMPLOYEES OF
AMERICA, WASHINGTON, D. C.
, Mr. Pius. Mr. Chairman and gentlemen of the committee, in
opening my statement on Thursday morning, last, I said:
During this week and since your honorable committee requested me to appear in
order to present the case of organized labor with respect to its bill for public owner-
ship in control of the railroads, there has come into the possession of the railroad
brotherhoods and 10 affiliated railway labor organizations of the American Federation
of Labor a state of facts never spread before the American people or submitted to the
jury of public opinion. These facts tend to show that the wrecking and looting of the
Hew York, New Haven & Hartford Railroad, the Chicago & Alton, the Rock Island
System, and the Frisco lines are not sporadic examples of the highway robbery to
which the American Nation has been subjected as toits public transportation high-
ways. Leading directly from Wall Street and from the banking houses controlled
directly by the Morgan and Rockefeller groups, these facts show that there has pro-
‘ceeded a systematized plundering of virtually all of the transportation highways of
the United States.
_ We believe that a congressional investigation will reveal that not one railroad
system dominating any part of the 254,000 miles of railroad in the United States but
has suffered and is suffering, in degree if not to the same extent, from carefully deliber-
ted manipulations of the sort that have wrecked and ruined the railroads I have
‘mentioned. It will reveal with emphasis the truth of the words recently uttered
before the bankers of Missouri by Elihu Root: ‘‘Surely some provision must be made
to prevent the continuance of the steady progress toward bankruptcy of the railroads
which characterized the decade before the Government took possession in 1917.”
It will reveal that these interests are again gathering their forces of private and secret
control and seek, after having gained from Congress a sanction to rehabilitate their
tailroad properties at public expense, to begin again and follow through its corrupt
and Picked cycle the systematized plundering and looting of the public and the
public interest in the nation’s highways.
In response to that promise I now continue.
I have shown by excerpts from reports by the Interstate Commerce
Commission that the property investment account of the railway
lines in all of the transportation districts of the United States are
wholly unreliable, and can not be used as the basis for determining
\what the public shall.pay for the service.
, I have shown that in the five railway valuations first completed
and published by the Interstate Commerce Commission the actual
|20st of reconstruction new, including the increased value of lands and
teal estate, is but 50 per cent of the aggregate property investment
jaccounts of the five railways so valued.
I charge that the nearly completed survey of the entire transpor-
jtation area of the United States contained in the reports of the
Valuation Division of the Interstate Commerce Commission, so far
jas that work has now progressed, confirms the results disclosed by
(the valuation of these five roads. I charge that the aggregate
mMyvestment account, as stated by the carriers so examined, exceeds
the estimated cost of reproduction new by the same or approxi-
Mately the same percentages shown in the valuation of the five
railroads as shown in my testimony.
822 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
I charge that in such investigations so made by the Valuation
Division of the Interstate Commerce Commission, where the cost of
reproduction new approximates in amount the investment account
as stated by the carrier, it will be found in most instances that this
approximation is due to the fact that vast expenditures have been
made out of surplus and excessive earnings, after the payment of
ample dividends on the actual investment; that these surplus
earnings have been expended on or ploughed into the property im
such a way that the actial cash investment, including these surplus
earnings, had brought the level of cost of reproduction new up to
the property investment aceount. 3
I charge that President Underwood, of the Erie Railroad, in an
interview recently given to the New York World, stated that the
expense of operation under Government control had been greatly
increased by the employment for political purposes of unnecessary
eniployees, and that this increase in pay-roll expense had been made
for the purpose of building a political machine. I charge that
investigation of President Underwood’s indictment will disclose that
if there has been wastefulness of noney in swelling the pay rolls, it
has been at the instance of railway managements to make the expense
account under Government control appear extravagant and wasteful.
I charge that the time the Government took control of the opera-
tion of the railroads they were in such depleted condition as to main-
tenance and repairs of both roadbed and rolling stock that it has
required hundreds of millions of dollars advanced by the Government
to place them in eflective operating condition. I charge that in the
making of such expenditures the railroads operated and controlled
by men under the influence of Wall Street directorates have spent
vast sums in unusual expenditures for maintanance and supplies,
anticipating the return of the railroads to the private owners; that
such unusual expenditures have been made for the purpose of plac-
ing these properties in perfect operating condition and furnishing
them with supplies for a long period of operation ahead, such sup-
plies having been paid for out of Government money at exorbitant
prices.
I charge that the Interstate Commerce Commission was six years
ago directed by Congress in the provisions of the valuation act to
ascertain and report the value of all aids, gifts, and grants made to
railway corporations, the value of those grants at the time made, and ©
the value of the portions of the grants still*in the possession of the
carriers at the time of valuation. This work has not been done. _
I charge that the records disclose that an area of land exceeding
190,000,000 acres, or 296,875 square miles, has been given by the
United States Government and by the various State governments to
our railroads to aid in the construction of our national highways;
that this area exceeds in extent the areas of all of the New Bn land
States, New York, Delaware, New Jersey, Pennsylvania, Maryland,
Ohio, Indiana, and Illinois, and exceeds the area of either England,
France, Germany, or Austria Hungary before the war; that of the
grants made 113,000,000 acres had been patented and 35,000,000
acres had been forfeited prior to June 30, 1910; and that of the re-
mainder the greater part is still available. I charge that the values”
of the grants so made have either been appropriated to the private
property of the railway promoters or they have been capitalized as
Areas within ‘peers?
limits of unforfa
for railroads ands
imuta émount
one-half that w
the lands grant
survey sectionges
often not obtains!
Areas within “pit
limits of forfeited
railroads.— The
conditionally g
forfeited was o
mary limits.
waite Grant limits.
NY y Y,
FEDERAL STE == ;
| ,
Estimated wes toticd. . HE UNITED STATES sHowine
Estimated area of unforfeited gra
Area patented to June 4 1910 |
Reminder pending odiueinenr¢ WETHIN WHICH LAND GRANTS
reort | BY THE FEDERAL GOVERNMENT
Estimated totai area granted
Aree patented to June 0, 1910
)
Resnmiedes pending adjvsim oq! (| AID IN THE CONSTRUCTION OF
OADS AND WAGON ROADS
152894—19. (Fa
[To accompany Pt. 5, Hearings on Return of Railroads to Private Ownership. |
LEGEND
Areas within “primary” and “indernnity”
limits of unforfeited Pasersl land grants
for railroads and wagon roads.— The max-
imum émount of land obtainable was
one-half that within the primary limits,
the lands granted being in the alternate
survey sections. The maximum was 3
often not obtained.
Areas within “pritnary” and “indemnity”
limits of forfeited. Federal land grants for
railroads. —The maximum amaunt of land
conditionally granted and subsequently
Texas was an independant sovereignty bef i
United States, and the treaty of rah provided thet ete nals te
retain the ownership of all public lands within its boundaris rh
has given to railroads land grants amounting to Aecestia: ly
32,400,000 acres, over one-sixth of the area of the State. men feu
forfeited was one-half that within the pri-
mary limits
wwiexmene Grant limits
FEDERAL RAILROAD GRANTS
| Acres . =
Eats é y ; Cag - 190,000,000 no
j= Hemant ties = FS #500009 MAP or THE UNITED STATES snowine
| Estimated area of unforfeited grants 2 - - 155,000,000
Area patented to Juns 1, 1918 : - . - 133,660,000 _
THE LIMITS WITHIN WHICH LAND GRANTS
WERE MADE BY THE FEDERAL GOVERNMENT
Remainder pending adjustment (probably greater part available) 41,340,000
FEDERAL WAGQW ROAD GRANTS
Estimated total area granted - yd
dene 1910 4 .
patented to June WO. 1910 lel 7 000 ; Be
Remember pending adjusim on! (praccrnenttyl aif Arsiable) - 242.000 ar TO AID IN THE CONSTRUCTION OF
RAILROADS AND WAGON ROADS
(Face p. 822.) -
152894—19.
oe
thy <>
°¢
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 823
art of the value of these properties upon which the grantees now
jand of this Congress the right to exact returns from the public.
ind, by the way, | wish to submit two exhibits in support of my
mge as to land grants, Exhibit 1 showing the areas within which
d grants have been made to the western railroads and Exhibit 2
pwing the application of that area to this vast territory I have
scribed as extending from New England to Llinois.
charge that during the period from 1900 to 1910, the Chicago,
lington & Quincy, the Chicago, Milwaukee & St. Paul, the Chicago
North Western, the Great Northern, the Illinois Central, and the
uthern Pacific Railroads gave away in bonuses to their stock-
ders more than $250,000,000; that the actual dividend disburse-
mts on this excess capital for the year 1913 alone, amounted to
re than $11,000,000.
[ charge that during the limited period from 1900 to 1910, eight
stern railroads alone issued new stock for $101,000,000 less than
‘market value, or gave away this enormous amount in bonuses
stockholders; that the dividends paid on these fictitious stock
ues in 1913 alone amounted to over $4,317,000; and I name as the
jroads involved in this inflation the Baltimore & Ohio, the Boston &
ine, the Delaware & Hudson Co., the New York Central & Hudson
ver Railroad, the New York, New Haven & Hartford, and the
ansylvania Railroad.
[charge that during the same period 18 representative railroads
erating in all parts of the United States as a whole, gave away
ck bonuses aggregating $450,414,000.
charge that the control of these railroads, which have so increased
ir property investment account at the expense of the public and
ve so profited by land grants, the value of which is to a large extent
lected in their property investment accounts, are now controlled
whole or in part by the Morgan interests, the Rockefeller interests,
1 the Gould interests; that this control is made manifest by the
erlocking directorates of the financial institutions directed by these
terests, who through their directorates control the operations of
se railways; and I will say that we have available complete charts
wing the interlocking directorates and financial interests so
Be ted, which we shall be glad to present to a proper investigat-
body.
(charge that these three interests, situated in New York and
rating through Wall Street, are necessarily aware of this enormous
lation of the property investment accounts of the railways which
y control and are seeking now to have returned to their possession;
at the attempt of these interests to secure the adoption of any plan
ereby the property investment accounts of these railways shall
*ecognized by law as the basis for ratemaking they are conducting
litical conspiracy to procure from this Government a validation
ull of the illegal acts heretofore consummated by these railroad
Porations, and to make into a binding obligation upon the public
‘exploitation through which these public highways have passed
their direction and control.
n behalf of all of the employees these systems of transportation
‘the public we demand that Congress shall make a due and
rough investigation of the charges herein set forth, so that the
erican people may know to what extent it is sought to subject
Ww
a
824 RETURN OF THE RAILROADS JO PRIVATE OWNERSHIP,
them to exploitation under the plans proposed to this committer
of Congress, plans which would make lawful the fixing of rates based
on the now unlawful aggregate property investment accounts of these
systems.
I make these charges and this demand with a full sense of the re-
sponsibility which they impose upon me as representative of this great
body of the Organized Railway Employees of America, and I am
prepared during the investigation which we invoke to substantiate
each and every one of these charges.
Gentlemen of the committee, the sole end and aim of organized and
ublicly commissioned business is to furnish the community with
its products at constantly reduced relative cost. The vast privi-
leges granted to railroads by the public were accorded to them solely
for the purpose of aiding the public in securing transportation at a cost
less than could have been obtained had such grants not been made.
These grants were made for the benefit of the public. They have
been perverted to the profit of private owners. The values of these
grants so made have been capitalized against the public. They are
now urged upon Congress as the basis for determining what the
public must pay for the service it sought to secure through the
granting of these privileges.
This demand made upon Congress is the last desperate and suicidal
act of a feudalism based on privilege. It is the perversion of these
privileges that has created the machinery for piling up the ever-
increasing costs of public service. For this perversion the private con-
trol of the transportation business exists. The sole purpose of con-
tinuing the present system is to assist it in constantly increasing the
cost of living. ‘This demand alone confesses the failure of the system
to meet the end for which it was created—the service of the public.
To this system of public plunder we utter the word Jerico. It
must fall. Against it we raise the voice of our implacable defiance.
Under its domination no public servant should ask us to return. We
ask instead, as American freemen exercising our constitutional rights
and privileges, a democratic share in the control of the business of
transportation to be so conducted as to fulfill its purpose under a con-
trol to be wielded by the public and by all of the skill and ability at
the command not only of the day worker but of the great body of
officials of the railways—the same skill and ability upon which
America has always relied, but skill and ability directed solely to
public service and not to the exploitation of privilege for profit. So
directed, the railway industry will achieve its primal purpose; that
is, to reduce the cost of living, to make life easier, and to secure t0
every citizen his full enjoyment of the right to live and to possess that
which he creates.
The CuarrMan. Mr. Plumb, you have made many specific charges
without specifications. Is it your idea that should an investigation
be granted you would supply such specifications ?
Mr. Pius. If the investigation is granted, we either have the evi-
dence in our possession or we know where it can be obtained, so that
the committee or the investigating body can call for that evidence.
The CuarrmMan. You stated in one of your charges that the roads
were seeking to get rates based upon a valuation far in excess of the
valuation based upon cost of reproduction ?
Mr. Pius. Yes.
-
[To accompany Pt. 5, Hearings on Return of Railroads to Private Ownership.]
SHADED PORTION REPRESENTS
EQUIVALENT OF FEDERAL
aAND TEXAS LAND GRANTS TO.
SA WESTERN RAILROADS. Jae
urssouRt ;
fl. CAROLIBA
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 825
_ The Caarrman. Did not the Supreme Court, in its decision in
‘Smythe against Ames, hold that that was only one of the elements
that had to be considered in determining the rates ? |
| Mr. Prunes. It did.
The Cuairman. Did it not specify eight or nine separate elements
that entered into rate making?
Mr. Prums. It did.
The CuarrMaNn. So that those other factors would have to be taken
into consideration ?
Mr.-Piums. Certainly.
_ The Cuarrman. In connection with that specific charge you also
charge that the Interstate Commerce Commission, pursuant to the
physical-valuation act, had not made any investigation, or at least
no report on grants, gifts, and aids to the various carriers ?
Mr. Piums. I do not intend to be understood as saying they have
made no report. They were required to find all of the aids, gifts, and
grants, and in so far as they have investigated they have found the
aids, gifts, and grants which the present owning corporation has
received, but have not gone back to the aids, gifts, and grants received
by its predecessor corporations.
The Coarrman. Under the physical-valuation act, as I recall it, the
seunission is required to present a complete financial history of the
roads ? |
Mr. Pius. Yes.
The Cuatrman, I think they use the word “history.”
Mr. Pirums. Of the road and its predecessor corporations.
The Cuarrman. Of course, you do not conclude from that that the
commission may not go back to the predecessor ?
Mr. Prums. But they have not done so, and say that where the
records of the predecessor corporations are not available they have aot
sought to do so. But these matters of grants are all of record.
The CuarrmMan. Yes; that is all a matter of record.
Mr. PLums. But they have not gone to the records to find out what
the grants were if they could find it in the records of the corporations.
~The CuHarrman. I suppose, of course, the Land Office would have
a record of the land grants.
Mr. Piums. Yes.
- The CuarrMan. So that has been available for a great many years ?
Mr. Pitumps. Yes. |
~The Cuarrman. Congress has not issued a land grant to a railroad
for how many years?
Mr. Piums. Oh, a great many years, but it has been issuing pat-
ents under those grants even up to the present time.
The Cuairman. Yes; that is where they have a checkerboard grant.
Mr. Prums. Yes.
The CHarrMAN. Do you know how many acres of these land
grants are still in the ownership of the grantees ?
' Mr. PLums. Well, 110,000,000 acres have been patented, 35,000,000
have been surrendered, and that makes 145,000,000, which means
45,000,000 more which are yet subject to claim under the grants.
‘However, in the meantime, there have been acts passed which
permitted a railroad company to exchange its right under some of
826 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
these grants where that right covered arid lands or mountain tops, for
other valuable lands not included within the original grant.
The CuarrMAN. Those were the school land grants.
Mr. Piums. Yes.
The CuarrmMan. Do you believe that the investigations made
by the Interstate Commerce Commission of the Rock Island, the
Frisco, the Pere Marquette, the C. H. & D., the New Haven & Hart-
ford, and the Pittsburgh Terminal were thorough and fair ?
Mr. Prums. You mean under the valuation act or in the preceding
rate cases %
The CuHarrmMan. No; the investigations that were prompted by
Congress. You remember those investigations had been made by the
fe Commerce Commission and voluminous reports have been
ed.
Mr. Piums. They were not as complete as the investigations made
by the commission under the valuation act because no such funds
were furnished them for carrying on the work or no such forces were
at their command. They were doubtless as complete as the means
at hand permitted them to make at that time.
The CuarrmMan. I do not know whether you are aware of the fact
or not that the investigation by the commission of the Pere Marquette
and the Pittsburgh Terminal was made by a resolution adopted by
this committee and was not the result of a resolution adopted by the
House or by Congress. Would it be your opinion that if an investiga-
tion is deemed necessary, it could be done by the commission ?
Mr. Piums. In my opinion it could be. 1 think that with the com-
mission furnished the means, much more complete information
could be obtained because of the records which it now possesses than
could be obtained through any other source, and it would be fairly
and impartially obtained. There is not a word of criticism of the
manner in which the Interstate Commerce Commission has performed
what it has done. It merely has not done enough.
The CuarrMAN. You realize the limitations under which it has
labored. |
Mr. Prums. And in the valuation act there is not any direction
that would necessarily have been complied with at this time by the
commission. It may be that when the commission has completed
its work, there would be no necessity for such an investigation but
the time of the completion of that work lies a long way ahead, and i
this committee could be furnished with the results of an investigation
of these points, so far as they have been conducted by the Interstate
Commerce Commission and the valuation division, it would give
Pea information to the committee and to the American
eople.
E The CHAIRMAN. The committee wishes to thank you and the other
proponents of your plan for the ability which you have shown in its
presentation. :
Mr. Piums. Thank you.
2
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 827
COMMITTEE ON INTERSTATE AND FoREIGN COMMERCE,
House OF REPRESENTATIVES,
Monday, August 11, 1919.
)STATEMENT OF MR. LEWIS H. HANEY, JACKSONVILLE, FLA.
, The Cuairman. Mr. Haney, please give your name, address, and
'yhom you represent.
| Mr. Haney. I am connected with the Southern Grocers’ Wholesale
tssociation as director and chief economist of their bureau of research
,nd publicity. Shall I proceed ?
, The CHarrMAN. Yes.
| Mr. Haney. I want, however, to make it clear, Mr. Chairman and
yentlemen of the committee, that I appear before you in a double
japacity, first, as intimated, as chief economist of the bureau of
esearch and publicity of this association, and, second, as a student
\E railway economics. I have been, through my career since I left
|e university, a professor of economics, connected with the Federal
rade Commission, and professor in various universities in the coun-
ty, and it is in that capacity, after all, that I want chiefly to address
/ou.
IT have no general plan to offer. I do not believe in reforming this
|(tuation or any similar situation by revolutionary methods. I am
) formed that the Esch bill is prominently before this body. and I
ddress my attention to certain definite evils, proposing certain
/efinite amendments to the Esch bill, which are, In my judgement,
) signed to remove and adequate to remove those evils.
, Im the first place, please note that the wholesale erocer of the
ountry has been the first to feel the growth of the great Food Trust
| hich has become more and more in evidence during the war period.
{
|
he great meat packers of the country have, during the war, come to
ominate the cheese business, have gained much control over the
\uef items of canned foods, notably, canned salmon, and are to-day
. olding themselves out as distributors of full lines of food products
jich as are ordinarily handled by the wholesale and retail grocers
: the country. I do not care to enlarge on the facts of that unless
le committee should desire it. My point is that they have been
abled to make these inroads upon the food distribution chiefly
| irough special privileges which they have in transportation. The
mamittee being a body which has before it the duty and power to
iggest remedies for such a situation is my reason for presenting the
| atter before you.
} In the first place, there are discriminations in railway service which
| @ responsible for this situation. The meat packers’ refrigerator
‘WS were originally designed for the transportation of fresh meat,
| hich is a highly perishable product requiring “‘heavy”’ refrigeration.
t order to insure the satisfactory condition of the meat on delivery,
+ was also necessary that the movement of such meat cars be ex-
sdited, and they have always been given special service. Evi-
mtly, therefore, the movement of fresh meats by refrigerator cars
a special and preferred movement justified on the ground of the
wishable and*important character of the contents. As time went
, the meat packers came to market with many products other than
| eats, all produced at first in more or less close connection with their
=~ t change the balance sheet, would it ?
‘Mr. Decker. Pardon me. Bond discounts are piled on to the
icks of those carriers. They must be amortized under the account-
grules, and they thereby charge the income. The bonds must get,
ider the accounting rule, to a par basis by amortization of the
scounts.
'
930 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watson. How are you going to better the balance sheet unlegs
you have the receipts to do so?
Mr. Decker. They do it out of income.
Mr. Watson. If the Government sells bonds, it does not change the
balance sheets ? :
Mr. Decker. There will not be discount to amortize if we bring in
some basis on which these bonds can be sold under Government
egis at par.
Mr. Watson. I understand that: you are going to put a suggestion
in the record ?
Mr. Decker. Yes, sir; that is all it is. It is a suggestion for the
record.
Mr. Dentson. Have you read or familiarized yourself with the
Sims bill ? |
Mr. Decker. I just skimmed through it, but I can not say that I
am familiar with it.
_Mr. Denison. You do not care to express any view on that?
Mr. Decker. No; I donot. Ihad rather write you about it, after
I have studied it.
Mr. Denison. Do you think there ought to be an amortization of
railroad indebtedness in any way ?
Mr. Decker. Ideally speaking, there ought to be, and there is
to-day a good deal.of amortization of railroad indebtedness. There
are sinking fund provisions in many railroad mortgages.
Mr. Denison. Are they carried out ?
Mr. Decker. Oh, yes; surely they are. |
Mr. Denison. Is there any railroad now that owes less than it has
heretofore ?
Mr. Decxer. What is that? |
Mr. Denison. Are there any of the railroads that are reducing their
indebtedness to any material extent ?
Mr. Decxrr. They are doing it, in so far as the mortgages go.
They are doing it by investing surplus in property without capitaliza-
tion, because that increases the security. It means, therefore, that,
relatively speaking, the debt is thereby amortized to some extent--
to a considerable extent.
Mr. Denison. It may be amortized in value, but it is not amortized
in amount. 3
Mr. Decker. No; but if there is a million dollar mortgage upon 8
million dollars worth of property, that is one thing; and if, later on,
that million dollar mortgage is applied, by its after-acquired property
clause, to two million dollars worth of property, relatively there is an
amortization.
Mr. Dentson. I know, but that is not ordinarily understood as
amortization, is it in financial circles ?
Mr. Decker. Oh, no. That is not direct amortization; but it has
the same effect upon the whole property.
Mr. Dentson. What I wanted to get your opinion on is whether o1
not you thought it was the proper general policy to amortize the rail-
road indebtedness out of the profits.
Mr. Decker. I am going to be right frank with you.
Mr. Denison. That is what I want you to be.
Mr. Decker. I think, ideally speaking, there ought to be a syster
of nO ae the debt of every railroad in the country, but you car
not do it. :
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 931
| Mr. Denison. Well, that is what I wanted to get at.
‘Mr. Decker. And bring it about in that same way that you would
‘nortize the mortgage on your houss, if you had one, and which it
ould be prudent for you to do. They just can not do it.
’ Mr. Denison. Let me ask you this question, if you please. Do you
unk that railroads ought to be permitted to invest income in
‘ctensions ?
| Mr. Decker. Why not?
Mr. Dentson. Well, I am asking you.
| Mr. Decker. I mean yes; therefore I say ‘‘why not?’? Why
jould not they invest them in extensions—improvements, you mean ?
think that is the highest service they can render. They might better
‘spend it in improvements and betterments than to pay it out in
itvidends, unless they ought to pay it out in dividends.
. Mr. Denison. But there is still another alternative and that is to
jjust rates so that there would not be a sufficient income to have a
ind for that purpose.
Mr. Decker. Let me say that the public-service commissions law
ft New York specifically provides that there shall be a fair return upon
ne value of the property devoted to public use, and, in addition
jereto, a suitable allowance for surplus and contingencies.
Mr. Dentson. Do you call extensions contingencies, Mr. Decker
ithin the meaning of that law?
Mr. Decker. Surplus is usable for extensions until the proper time
omes in the necessities of the corporation to capitalize the expend-
mre for those extensions. No railroad, no public utility, and no
rivate company can get along without taking a portion of each pros-
erous year’s business into surplus and not spending it for dividends.
‘hey would be on the rocks. |
Mr. Srms. Let me ask one question in that connection: What is
he reason it is not moral, just, right, and economical to require the
tockholder, instead of drawing out a dividend, to apply it to the
vayment of the encumbrance on his property, just ike you would
‘equire a farmer or anybody else to do? Why should you not
mortize the bonds out of dividends, or what otherwise would be
ividends, as long as you mortgage the property ?
_ Mr. Decker. Well, the idea is that the property should pay a
air return upon the investment.
Mr. Smrs. You still have the net investment, with the mortgage
yaid off. You would still have a right to have a fair return upon it,
wut why not pay what you owe before going out and spending what
‘ou make ?-
Mr. Decker. Now, Judge Sims, nobody would invest in a stock
ssue if he had to confront that situation.
Mr. Stus. He would invest in the bonds, if you have the property
‘0 secure it with earnings.
Mr. Decker. But nobody would invest in the stock.
- Mr. Stms. As nobody has ever tried that, how do you know they
‘vould not?
Mr. Decker. It is perfectly apparent on its face. I am not
roing out and invest a hundred dollars in a share of stock that is
jot going to pay me anything for a while, when I can invest 10 in
jomething that will pay me a return right along.
Mr. Srus. You invested in the beginning under the idea that it
vas going to pay; but suppose, as it is in the present case, or suppose
932 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — .
that it represents a lot of stock issued years and years ago u {
railroads that are going concerns, not new developments, but they
are below par and are paying some dividends. y should they
receive any dividend until they are entitled to it over and above
these other charges ?
Mr. Decker. I really do not know what the rights of the stock-
holders may be |
Mr. Sus. I do not know either, but I say why should they receive
a dividend
Mr. Decker. I say, theoretically, if that stock is fairly issued or
represents the equity fairly in the property which should earn a
return, that they ought to have their return; provided the company
has enough revenue in a given year, after making contributions to
surplus and for contingencies, to pay a dividend, they ought to have
it.
Mr. Sims. Of course they ought to have what they are entitled to.
They ought to have a fair earning upon the value of the property
devoted to public use; but if they get that fair earning, and they owe
money, why don’t they apply it on what they owe before they apply
it to luxurious expenditures, or even to necessities ?
Mr. Decker. In the first place the stockholder does not owe the
debt of the company at all.
Mr. Stms. He does not owe it?
Mr. Decker. No; the company owes it.. The stockholder does
not owe it.
Mr. Sms. The stock isn’t a debt at all, but the bonds
Mr. Decker. I say the stockholder don’t owe the bonds.
Mr. Sims. But doesn’t the stockholder authorize the issuance of
the bonds ?
Mr. Decker. Yes; he may. ,
Mr. Sms. It is a debt which he authorizes, but he demands his
annual dividend regardless of the payment of the debt, which was |
made for his benefit. What would you think of a farmer who would
never pay off his mortgage, but would continue to demand the
increased earnings out of his land; would only pay the interest on
what he owes and keep the balance instead of applying it on the
mortgage debt ?
Mr. Decker. The eastern farmer is never in such a position.
Mr. Sims. I know; but I say, what would you think of a farmer
that would pursue such a policy as that, hoping some day or other
that the enhanced value of the farm would enable him to pay off
his mortgage by making another one ? ;
Mr. Decker. The man who owns property tries to get all the rent
he can for it.
Mr. Sms. Of course; that would apply to anything. I am speak-
ing of the doctrine of not paying debts before spending for other
purposes.
Mr. Decxer. It is impossible to pass an opinion upon an individual
case.
Mr. Sims. I know. I am speaking of a farmer who followed such
a policy. He would always be in debt and never be regarded as
prosperous.
Now, the New York Central ought to pay its debts—pay its bonds—-
instead of paying dividends on stock until it has reduced its indebted-
ness and wiped it out. Your idea is that it is only worth the equity
+
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 933
| bo the stockholders; that is, the difference between the bonded
‘indebtedness and the fair value of the property that they are entitled
5
‘to make earnings on. Why don’t they wipe off their mortgage by
‘foregoing dividends ?
Mr. Decxer. I am strongly of the opinion, without knowing any-
thing about it, of course, that the New York Central would be very
glad indeed to reduce its bonded indebtedness if it had enough
surplus money.
“Mr. Sms. Is it paying dividends ?
Mr. Decker. It pays a dividend of about 5 per cent now.
es Simms. Has it not issued a large volume of debentures at 6 per
cent ¢
_ Mr. Decker. Debentures are not dividends.
Mr. Stms. What are they ?
Mr. Decker. Why, they are simply promises to pay.
_ Mr. Sms. They are nothing but notes, not secured by a mortgage.
Isay, why not pay these debentures and have that much interest or
that much accumulation to pay on the stock?
| Mr. Decker. If they had the money they ought to have
' Mr. Sms. In other words, the New York Central, according to
your standard, is not a successful road and it has no right to ask
the Union Pacific to carry any of its burdens because the Union
Pacific is a successful road.
Mr. Decker. I am not saying that at all. I say just the opposite.
Mr. Sms. I mean in effect. _
Mr. Decker. No, sir. The New York Central is a very successful
road.
Mr. Sims. Then it ought not to have stock that is not worth par
in the market in its own city and State, where it operates and where
everybody knows what it is.
_ Mr. Decker. It got par for its stock. There has not been a dollar
of New York Central stock issued in the last 10 or 12 years, to my
knowledge, that was not issued at par.
Mr. Sms. Issued at par on the market?
Mr. Decker. Sold for par.
Mr. Stus. Did the company receive 100 cents on the dollar—l
mean in money ?
Mr. Decker. Yes, in money.
Mr. Sims. Then, what is it borrowing money at 6 per cent for?
What is it issuing debentures at 6 per cent for nothing more than par,
if it could get par for its stock on the open market ?
Mr. Decker. There is a certain amount of stock which can be
‘issued from time to time which will be taken at par. If you go over
that you have difficulty in disposing of it. Debentures are term obli-
‘gations that are issued to cover an exigency. There was a financial
exigency in 1914, and it was getting pretty serious. The New York
Central came to us and got authority to issue those debentures.
Mr. Sims. And they run for how long?
Mr. Decker. I have forgotten now.
_ Mr. Sims. For 100 years, was it not?
Mr. Decker. No.
Mr. Sms. With the privilege of converting them into common
“stock at any time the holders thought proper ?
Mr. Decker. Yes, sir.
h
——
934 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. If the stock was worth par, why didn’t they issue it
instead of debentures and then provide that the debentures might
be redeemed in stock at any time the holders of the debentures pre-
ferred stock to their debentures ?
Mr. Decker. So many things come up in the life of a very great
railroad that can not even be recalled now, which govern the policies
of directors. This is the biggest business on earth. Something must
be allowed for the wisdom, and, I think, for the honest action of the
men who are running this great business and who run it so well. As
between a stock which is paying 5 or 6 per cent and the issuance of a
6 per cent debenture it would be a pretty serious thing if the public-
service commission, or the Interstate Commerce Commission, when
it gets the authority, to say no, you shall not issue debentures, but
you can issue stock. I doubt very much whether Congress could give
the Interstate Commerce Commission power, constitutionally, to sa
that a proper corporate purpose, containing no element of fraud,
should not be carried out without the approval of the commission.
Mr. Smus. How much above par did the New York Central give
for the last installment of Lake Shore stock that it bought?
Mr. Decker. I can not remember.
Mr. Stws. You were commissioner in New York at that time, were
you not?
Mr. Decker. Yes; and passed on it.
Mr. Sms. You do not tell me that you do not know how much
above par the New York Central paid for the last Lake Shore stock —
it purchased ?
Mr. Decker. I can not remember well enough to say.
Mr. Smus. Well, give it to me approximately.
Mr. Decker. I would say 200.
Mr. Sms. Don’t you know it was more than that?
Mr. Decker. I am not sure, but I would say 200 because you are
making me guess.
Mr. Stmus. You ought to be able to guess with a good deal of cer-
tainty. ‘
Mr. Decker. No; I can not.
Mr. Sms. Why on earth did they issue their debentures on a sol-_
vent concern bearing 6 per cent in order to buy stock, which was
nothing but stock, at 200 in another company ? |
Mr. Decker. It was a mighty good purchase.
Mr. Situs. The stock was worth it, was it not?
Mr. Decker. The stock was worth it.
Mr. Sims. If the Lake Shore had mortgaged itself like the New York
Central, would it have been worth that amount?
Mr. Decker. I do not know.
Mr. Sms. That is it. :
Mr. Decxer. I think I have heard an Interstate Commerce Com-
missioner say that the Lake Shore used to earn enough to buy a
respectable railroad every year.
Mr. Sims. They did not cut down the rates so as to keep them from
making earnings upon a fair value of the property, did shoes
Mr. Decker. No; but there was no complaint about the general
reasonableness of those rates, either.
Mr. Sims. Not at all, and that road did fine; but other roads at
reasonable rates are coming here and begging Congress to make the
strong roads take care of them.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 935
_ Mr. Decker. I agree with you
Mr. Sms. And indirectly they want the United States Government
‘to put its credit and solvency behind the weak roads. The idea of
a policy of that kind ever being approved by anybody or anything
‘is what I am trying to get at. |
. Mr. Decxer. I have given the reasons for my advocacy of trying
‘to prevent these large discounts of railroad bonds. I am not wedded
to the idea, but I just throw it in as an idea.
Mr. Stiness. Judge Sims, Mr. Denison had not finished.
Mr. Sms. Oh, I beg your pardon, I thought he had concluded.
Mr. Denison. I have just one further question, I think. I do
‘not think the chairman asked you to embody your idea of regional
ie Dac into the form of an amendment.
Mr. Decker. Yes; he did.
Mr. Denison. Do you think we should have regional commis-
sioners instead of regional commissions ?
Mr. Decker. Yes; regional commissioners.
Mr. Denison. Six in number?
Mr. Decker. I think six corresponds to the traffic territories, that
is all.
_ Mr. Denison. Appointed just the same as the present commission ?
Mr. Decker. Yes; and give them authority to go right somewhere
‘near the location of the complainant, and hear his case, and hear it
eermally too, if they can.
|
|
Mr. Denison. And decide it?
Mr. Decxer. Decide it and settle it. I, and other commissioners
of New York, have had great success in settling these cases around
the table, without spending a long time and a lot of ink in the process.
Mr. Sanpers of indiana. This Esch bill provides for the fixing of
minimum rates ?
Mr. Decker. Yes.
Mr. Sanpers of Indiana. Does that meet with your approval? _
| Mr. Decker. As long ago as the sixth annual report—lI think It 1s
the sixth—of the Interstate Commerce Commission it advocated that
: power be given the commission to fix minimum rates; that is, with
reference to the levelling of discriminations. I favored it then, and
‘do so now. |
Mr. Sanvers of Indiana. You have suggested certain amendments,
which may or may not be adopted. Assuming that the Esch bill
should pass with its principal provisions, which give the Interstate
Commerce Commission jurisdiction with reference to the issuance of
securities, which give that commission jurisdiction with reference to
‘minimum rates, which give that commission the power to determine
whether or not an improvement shall be made, which give to that
commission the power to require the transfer of equipment from one
carrier to another, and compel, with proper compensation, one carrier,
‘under certain conditions, to furnish its equipment to another, and in
other respects practically gives that commission complete regulation
! of railroads. Don’t you think if that were the situation, we really
‘are confronted with the necessity of unifying the control of the rates
of all of these carriers, irrespective of whether they are interstate or
_ Intrastate ?
Mr. Decker. I do not think so; no. fe
/ Mr. Sanpers of Indiana. Do you not think it presents quite a
different question than is presented under present law ?
936 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Dreoxer. I beg your pardon.
Mr. SanpErRs of Indiana. Do you not think it presents quite a
different question from the question presented by the present law?
Mr. Decker. No; I do not think so, substantially.
Mr. Sanpers of Indiana. I mean by that, if the Interstate Com-
merce Commission has the power to*fix a minimum rate with respect
to interstate movements, doesn’t that necessarily make it more
important to have the same sort of rate for a State movement ?
Mr. Decker. No; I do not think so, because in these progressive
days that sort of thing will be worked out with a few compromises,
Take the State of New York. The only road from Buffalo to New
York that is wholly within the State is the New York Central main
line. it has another line, the West Shore, which runs through New
Jersey to get to New York. The Lackawanna, the Erie, the Lehigh
Valley, and the Pennsylvania all run through different’ States to get
to New York. Of necessity, any minimum rate application which
may be applied by the Interstate Commerce Commission there will
have to be applied or worked out on a basis for the New York Central
You can not get away from it.
Mr. Sanpers of Indiana. Well, if a governmental tribunal is going
to determine whether a certain railroad is going to issue certain
securities, and determine whether or not they shall expend them for
certain purposes, in order to determine that question, would it not
logically follow that they would have to know what the returns were
going to be to that railroad ?
ary Decker. Why, they do know. They are all in published
tariffs.
Mr. Sanpers of Indiana. Yes; but a State commission may fix a
passenger rate or a freight rate for an intrastate shipment that
would entirely upset it, might it not?
Mr. Decker. That used to be so, but that is no longer so.
Mr. Sanprers of Indiana. Don’t you think, with the power to
establish minimum rates, if unified control is not given to the Inter-
state Commerce Commission that we will have numerous cases like
the Shreveport case ?
Mr. Decker. No; because if you do, you have the authority
now——
Mr. Sanpers of Indiana. Yes; we have the authority, but it is a
roundabout method of getting to it.
Mr. Ducxsr. It seems to be pretty effective so far. They have
cleaned up every case that has been tried.
Mr. Sanpers of Indiana. Yes; but that is quite a different pro-
cedure than if the Interstate Commerce Commission had original
jurisdiction.
Mr. Decker. Do you think, if I may ask one question, that the
Interstate Commerce Commission could constitutionally be given
absolute jurisdiction of the State rates, of a State rate that does not
interfere with the interstate rate ?
Mr. Sanvers of Indiana. Yes.
Mr. Decker. You think they could be given that?
Mr. Sanpers of Indiana. Yes.
Mr. Decker. I do not think so.
Mr. Sanpers of Indiana. Answering that question, I think the
power of Congress to regulate commerce is absolute and that it can
use any means which is proper and necessary in carrying out that
f
}
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 937
ower, just the same as if the State lines did not exist or the same as
aif any State tribunal or State legislature had not acted and then that
when it comes in conflict with any act of the State legislature or any
act of any body created by the State legislature, the State legislature
act must fall. I think, therefore, Congress has complete power, if
it is necessary and proper and appropriate, to legislate with reference
to rates, and to legislate with reference to capital issues and equip-
ment, if necessary, in carrying out that power; that Congress has
complete jurisdiction and complete constitutional power to pass
such necessary legislation.
Mr. Decker. I do not read any of the court’s decisions that way.
IT read the Supreme Court decisions as going so far as interference—
and that means direct interference with the interstate rate or inter-
state commerce—but otherwise I think there is a distinct affirma-
tion of the separate power of the State over rates within the State.
Mr. Sanvers of Indiana. There certainly is, so long as the powers
of Congress lie dormant. Of course, I recognize that is not a univer-
sally recognized construction of our constitutional power. |
Mr. Decker. Yes. 7
Mr. Sanvers of Indiana. But you asked me for my opinion and I
gave it to you.
Mr. THom. Mr. Chairman, may I ask Mr. Decker a question ?
The CHatrMan. Yes, Mr. Thom.
Mr. THom. Suppose, Mr. Decker, that the State rates in Indiana
were 25 per cent higher than the State rates in Illinois; suppose a
railroad ran across the State of Indiana and the State of Illinois;
that the national standard of what the facilities of transportation
ought to be was at a certain height to which the State rates of Indiana
contributed their just proportion but to which the State rates of
Ilinois failed to contribute their proportion by this 25. per cent.
Now if Congress could not regulate the rates in both of those States,
would not this result follow? Either that Congress must surrender
its standard of interstate facility in favor of what Illinois required,
or put that burden on interstate commerce to sustain it at that
height, and would not the people of Indiana, who want the national
standard, be prejudiced by the Illinois standard ?
Mr. Decker. I suppose I can answer that question without its
being reput. The amount which the Indiana and Illinois rates pro-
duced would first have to come into that problem because it is not
the paper rates showing higher or lower percentages, but it is the
result of application of those rates to the traffic operations which
must be considered. That is one thing. The next thing is, while
there may be some relation between the State rates as directly
affecting interstate commerce, that would first have to be applied
to Illinois, without taking into consideration the results from the
Indiana schedule, which is a State schedule. Now, there is so much
to be determined, that I can not answer that question directly.
The Cuarrman. There do not appear to be any further questions.
I think the committee is under obligations to Judge Decker for the
information he has given us, and if he will be kind enough to incor-
porate in his part of the hearing the amendments he has suggested,
the committee will be gratified. At this pot the committee will
recess until 10 o’clock to-morrow morning.
938 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
AMENDMENTS TO H. R. 4378 SUGGESTED BY MARTIN S. DECKER,
ALBANY, N. Y., September 4, 1919.
My Dear Mr. Escu: Conforming to the request which you made
at the hearing, I am inclosing my suggested amendments to H. R.
4378. Ishall have to take a little more time to work out the details
of my idea as to secured Government loans to railway companies.
Very truly, yours,
M.S. DEcKER.
Hon. Joun J. Escou,
Chairman Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D. C.
Strike out from page 2, lines 24 and 25, committee print, the following: “‘except as
expressly provided in section 13 thereof.”
On page 7 after line 7 insert as a new paragraph the following:
“The commission shall have, and it is hereby given, authority after hearing, either
upon complaint, or upon its own motion, to determine whether safe or adequate
service has been denied in the receiving, forwarding and delivery of passengers or
property because of unreasonable delay of transportation by any common carrier or
carriers subject to the provisions of this act as to specified passengers or specified ship-
ments of property, as the result of practices by such carrier or carriers or otherwise,
and to issue order to such carrier or carriers directing it or them to correct its service
in accordance with such determination. In such order or a separate order the com-
mission may also direct reparation to be made by such carrier or carriers to complain-
ing parties upon proof of loss or special damage from any such unreasonable delay in
transportation, and such reparation order shall issue in accordance with the provisions
of section 16 of this act.’’
_ On page 8, line 8, after the word ‘‘them” strike out the period and insert a semi-
colon, and add the following: ‘‘but no embargo, preference, or priority of shipment
shall be made effective except that it shall affirmatively appear to the commission
on showing submitted by the carrier, that unusual and abnormal congested conditions
of transportation exist without possibility of immediate remedy by the affected carrier
or carriers, and that immediate steps will be taken by such carrier or carriers to pro-
vide additional facilities or improvement of lines or terminals to the end that such
existing unusual and abnormal congested conditions shall not occur under like pres-
sure of traffic in the future.”’
Page 9, line 19, add the following: ‘‘ Provided that this requirement shall not be
construed to supersede any similar requirements in the laws of any State.”’
Page 20, strike out lines 22, 23, 24.
Strike out all of page 21.
Strike out first five lines of page 22. fe
Page 29, line 5, after the word ‘‘act”” insert the following: ‘‘which owns or operates
a line or lines not wholly located within one State of the United States.”’
Page 29, strike out lines 13 to 18, inclusive, and insert in lieu thereof the following:
‘‘Unless such issue be within its corporate powers and for one or more of the following
purposes:
“The acquisition of property, the construction, completion, extension or improve-
ment of its facilities, or for the improvement or maintenance of its service or for the
discharge or lawful refunding of its obligations or for the reimbursement of moneys
actually expended from income or from any other moneys in the treasury of the cor-
poration not secured by or obtained from the issue of stocks, bonds, notes or other
evidence of indebtedness of such corporation, within five years next prior to the
filing of an application with the commission for the required authorization, for any
of the aforesaid purposes except maintenance of service and except replacements
cases where the applicant shall have kept its accounts and vouchers of such expend!
ture in such manner as to enable the commission to ascertain the amount of moneys
so expended and the purposes for which such expenditure was made; provided and
not otherwise that there shall have been secured from the commission an order author-
izing such issue, and the amount thereof and stating the purposes to which the issue
or proceeds thereof are to be applied, and that, in the opinion of the commission, the
money, property or labor to be procured or paid for by the issue of such stock, bonds,
notes or other evidence of indebtedness, is or has been reasonably required for th
purposes specified in the order, and that except as otherwise permitted in the order
In the case of bonds, notes, and other evidence of indebtedness, such purposes are not,
‘fT
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 939
. in whole or in part, reasonably chargeable to operating expenses ortoincome. Nothing
herein contained shall prohibit the commission from giving its consent to the issue
_ of bonds, notes or other evidence of indebtedness for the reimbursement of moneys
heretofore actually expended from income for any of the aforesaid purposes, except
" maintenance of service and replacements, prior to five years next preceding the filing
of an application therefor, if in the judgment of the commission such consent should
be granted; provided application for such consent shall be made prior to January 1,
1922. For the purpose of enabling it to determine whether it should issue such an
order, the commission shall make such inquiry or investigation, hold such hearings
and examine such witnesses, books, papers, documents or contracts as it may deem
of importance in enabling it to reach a determination. Such corporation shall not
without the consent of the commission apply said issue or any proceeds thereof to
any purpose not specified in such order: Provided, however, That the commission
shall have no power to authorize the capitalization of any franchise to be a corporation
_ or to authorize the capitalization of any franchise or the right to own, operate or enjoy
any franchise whatsoever in excess of the amount (exclusive of any tax or annual
charge) actually paid to the State or to a political subdivision thereof as the considera-
tion for the grant of such franchise or right; nor shall the capital stock of a corporation
formed by the merger or consolidation of two or more other corporations, exceed the
sum of the capital stock of the corporations so consolidated, at the par value thereof,
or such sum and any additional sum actually paid in cash; nor shall any contract for
' consolidation or lease be capitalized in the stock of any corporation whatever; nor
shall any corporation hereafter issue any bonds against or as a lien upon any contract
for consolidation or merger.”’
Page 29, strike out lines 19 to 24, inclusive.
Page 30, strike out lines 1 and 2.
Add to section 20a (sec. 17 of this bill), the following:
___ “The Interstate Commerce Commission is hereby further enlarged by the addition
of three commissioners with terms of seven years each, except that the terms of those
first appointed shall expire on January 1, 1924, 1925, and 1926, respectively. The
_ appointment, qualifications, and compensation of such additional commissioners shall
be the same as those now prescribed by law for the other members of the Interstate
Commerce Commission. The three additional commissioners hereby designated shall
have exclusive jurisdiction of all matters arising under section 20a of this act, and they
shall have no other powers or duties under this act: Provided, That, upon the duly
recorded majority vote of the 10 members of the commission, other matters within the
jurisdiction of the commission having general relation to the securities of common
carriers or their accounts and records, may be transferred to the exclusive jurisdiction
of said three additional commissioners. The other members of the commission,
seven in number, shall have and retain exclusive jurisdiction of all other matters
coming within the operation of this act: Provided, further, That said three additional
commissioners shall have all powers now possessed by the commission to designate,
employ, and fix the compensation of such officers and other employees a& they may
deem necessary to the proper performance of their duties.”’
(The foregoing could be added to section 24 of the present act, instead of 20a).
Add to section 24 of the act.
“The Interstate Commerce Commission is hereby further enlarged by the addition
of six regional commissioners, to be appointed by the President by and with the
advice and consent of the Senate, with terms and compensation the same as now
provided by law for Interstate Commerce Commissioners. Within 30 days after
approval of this act the Interstate Commerce Commission shall certify to the President
a defined division of the United States (lying between the Atlantic and Pacific Oceans)
into six transportation regions, and thereupon a regional Interstate Commerce Com-
Missioner shall be appointed for each of such regions. Each regional commissioner
shall be a resident of the region to which he shall be appointed. The Interstate
Commerce Commission shall prescribe rules of practice and procedure in cases and
proceedings before the regional commissioners. The regional commissioners shall
within their respective territories have and exercise the powers conferred by law upon
the Interstate Commerce Commission, including the decision of cases and issuance of
orders. Any party to a case or proceeding before a regional commissioner may appeal
from any decision or order of a regional commissioner to the Interstate Commerce
Commission, by filing notice of such appeal with the commission and with the regional
commissioner within 20 days after service of the decision or order of the regional com-
Missioner, and by service of such notice of appeal upon any adverse party to the case
or proceeding. Upon such appeal the record of the case or proceeding shall be forth-
with transmitted to the Interstate Commerce Commission, and thereupon the com-
Mission shall review the matter both as to the findings of fact and conclusions of law
940 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
and render its decision within 90 days after submission of the matter on appeal.
Nothing in this section shall be deemed to prohibit the hearing of cases or investiga-
tions in any region directly by one or more members of the Interstate Commerce
Commission sitting alone or with the regional commissioner, but all such cases shall be
decided by the commissioners hearing them, as if they were heard by a regional
commissioner, and be subject to appeal in the same manner. A regional commissioner
may also, if so directed, hold hearings in cases involving the issuance of securities,
but in such cases the regional commissioner shall merely make report to the Interstate
Commerce Commission, securities division, in the manner and form required by such
division. Complaints arising in any region shall be filed with the regional commis-
sioner who shall direct the manner of service and time for filing answer, if any be
required, and such regional commissioner shall notify the Interstate Commerce Com-
mission of the pendency of the proceeding. It shall be the duty of a regional com-
missioner to act promptly upon all informal complaints and endeavor to secure prompt
settlement of all meritorious cases, and likewise in formal cases the regional commis-
sioner shall proceed with a main view to the direct and early disposition of the matters
involved without unnecessary expense to the parties involved. Whenever the
commission shall direct, a case or proceeding may be heard by two or more regional
commissioners. When necessary to the proper dispatch of pending proceedings, the
commission shall have authority to assign cases arising in one region to the regional
commissioner of another region, or to require a regional commissioner temporarily to
sit or otherwise act in any designated region. All investigations shall be conducted,
all cases shall be heard, and all testimony in such cases or investigations shall be
taken, by the regional commissioners or by members of the Interstate Commerce
Commission. Cases or proceedings may be heard in the first instance by five or more
members of the Interstate Commerce Commission at Washington or elsewhere and in
such cases no appeal may be taken to the Interstate Commerce Commission.’
(Whereupon at 5 o’clock p. m. an adjournment was taken until
to-morrow, Wednesday, August 13, 1919, at 10 o’clock a. m.)
CoMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
HovssE oF REPRESENTATIVES,
Wednesday, August 13, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man), presiding.
The CHarrman. We have present this morning Mr. Gilham,
traffic manager, of Macon, Ga., who will present his testimony.
STATEMENT OF MR. BENJAMIN GILHAM, TRAFFIC MANAGER,
MACON CHAMBER OF COMMERCE, MACON, GA.
The Cuarrman. Mr. Gilham, give your name, address, and whom
you represent.
Mr. Grruam. My name is Benjamin Gilham; represent the Macon
Chamber of Commerce, Macon, Ga.
Mr. Chairman and gentlemen, judging from the press dispatches
in these late days the conservative position that we are taking on
behalf of the shippers whom we répresent may appear as some
diversion at least. :
I will first give you an account of my humbleness. I began life
by practicing law, afterwards going with the railroads and going
through all of the various departments of the railway service; going
through the hard mill and through the executive offices and all those
things, and finally coming out and devoting myself to commercial
service, going into the employ of the Macon Chamber of Commerce
some 10 years ago. Iam still with the Macon Chamber of Commerce.
We think that Congress should separate itself from the so-called
plans, except so far as they seem logically to fit the urgent needs 0
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 941
‘our transportation lines as we know them to stand. The public
‘mind has been greatly upset, and all due to the results of being at
war, and quite naturally the public mind sees things with a diseased
vision. The ways and structures of carriers have not materially
changed, the equipment and facilities are intact and in fair shape, and
the real owners of these railroads seem ready and anxious to have
them returned, and when we sober our thoughts to the real situation
it 1s not so serious as some seem to regard it. From the beginning
of these propositions, as to how railroads should be returned, it was
our view that we should keep away from legislation in the process
of returning them and save the agonies we have recently observed,
to exercise under mature care and when the situation assumes a
calmness. Those interested in possessing, those interested in operat-
‘ing, and those interested in laboring for these great properties have
come ay here in fervor and earnestness and presented plans, each
featured by some scheme to derive a greater wealth, more freedom
‘in directing them, and more money for services.
_ There is nothing wrong in showing to you these reminders of selfish-
ness and these conflicting plans, but I suspect that it is your wish
to straighten out present difficulties, and nearly as you can by
legislation get back to something like prewar conditions, and then
‘commence to weigh these plans and cure all the evils that have
‘been mentioned, if they should be found real and creating injustices
to any or all of the forces involved in the several plans. I do not
wish to ridicule any plan submitted to you. The people I represent
are business people and they are opposed to Government ownership
and operation of railroads, believing that enterprise must keep fully
humanized to do its best: for the public. Our railroads were not
taken over to convince the people that Government ownership was
the way to get the best result of them, but to effect.a riddance of
contrary methods of meeting an emergency, and assure the boys in
Khaki that their needs would have the first attention as long as it
was necessary. All this is past, and the hour is drawing near when
by the limitations of law the railroads must be returned to their
owners. In this bill, as proposed, everything that seems necessary
is proposed. I have never imagined that Congressmen could be
stampeded or influenced to separate by parties on a purely business
matter. ‘Ihe people have a right to expect something better.
One of the salient points in connection with the return of the rail-
roads, to our mind, and one of the most important features is the
Matter of credits. In appearing before the Interstate Commerce
Commission and several State commissions prior to the war, we could
not help but hear occasionally, in considering matters connected
with the question as to whether higher rates should be given or not,
that those commissions had made the conclusion for themselves that
higher rates were necessary in order to save the railroad properties.
This would have been done, I think, in the course of a short time, had
there been no war. I believe that there would have been some
readjustments by which the carriers would have been given a sub-
Stantial increase, although at the time these things were occurring
the 15 per cent advance had been denied the railroads. But it was
perfectly apparent to all the tribunals having jurisdiction over the
Matter of rates that there should be some slight increase to meet
152894—19—voL 1—_—_60
the new conditions coming about, seeing as they did that the maj
tenance of ways and structures were not being kept up to the stan
ard, that the facilities, generally, were becoming impaired frot
neglect or other causes, and that the car supply was diminishing al
the while; if not diminishing, failing to meet the requirements
commerce.
The matter of credits, which I should say comprehends al
thing connected with the financial situation of the railroads, as I say
was under the eye of the various tribunals and doubtless Congress, too
We think that the Esch-Pomerene bill carries with it a promis
to do exactly what the railroads need to have done for.them—to hay
the responsibility of knowing about and authorizing bond issues
capitalization for extensions, betterments, and additions, all place
under the supervision of the Interstate Commerce Commission.
The Interstate Commerce Commission can not help but see tha
the matter of capitalization and the funded debt, the necessary
capital for expenditures for various reasons, involving all that wouk
make the railroads meet the growing commerce of the country, is
factor in making rates. There is not any doubt in my mind but wha
the Interstate Commerce Commission could, with the authority thu
given them, go on and make rates which would take care of the prop
erties, pay the employees of the roads, maintain the properties in:
proper way, increase facilities and equipment, and leave a fair incom
to the owners of the railroads. I know that all railroads are no
capitalized alike. I realize that there is a wide range as to the cos
per mile, and many other things that will become troublesome i
arriving at just exactly what rates will make a proper income; but t
my mind that can be arranged, and the Interstate Commerce Com
mission, with the power and authority. vested in it, under the pro
posed amendment of the present bill would be able to go into al
those matters by separate departments and obtain the truth abou
the matters, and make it a factor in developing rates which woul
take care of the railroads.
Some experience on a district freight traffic committee, and work
ing at present, as I am, under the United States Railroad Adminis
tration as a representative of the shippers
The CHAIRMAN (interposing). Are you a member of your distrié
freight traffic committee ?
Mr. Gitman. Yes; | am a member of the Atlanta district freigh
committee. I accepted that position with a good deal of doubt as t
whether or not it would be practicable to do any public service sucl
as was held out to be possible, but since then I have come to thi
conclusion that these district committees, when properly functioning
would be the very best medium which could be devised for initiatin;
rates. Asa matter of course, these district committees, I am inferring
would be under the Interstate Commerce Commission. I would sug
gest this plan as doubtless one of the most economical and one 0
the most practicable plans for initiating rates in a satisfactory form—
and I mean by that, satisfactory to all parties concerned—would bi
for the railroads to be represented, the shippers to be represented, ant
the Interstate Commerce Commission to be represented by al
attorney examiner; and I would suggest the attorney examiner &
chairman, so that in these districts, which usually are composed of on
or more States, or parts of two States, or something of that kind, the;
9492 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
A
\
>
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 943
would have the power and authority to summon witnesses and compel
their attendance, so that whenever a rate was adjusted as proper
under either a new, or some increase in rates, or any adjustment
whatever, these committees could better get at the truth and the
necessity surrounding each one of these cases than any other plan I
_ can think of. They would be in session all the while. They would
issue their docket notices in the form they are now issued by the
several freight traffic committees, and the shippers would have
notice, and the railroads, as a matter of course, would have notice,
and these parties could come up and let them know their views, and
upon this the committee could make its recommendations to the
Interstate Commerce Commission for its approval or disapproval,
according to the necessities involved.
I believe that this would prove the most satisfactory method for
initiating rates that could be devised. It seems to be working
admirably already with the United States Railroad Administration.
It is one of the things developed by the United States Railroad
Administration in its machinery that is popular, and getting to be
more so as these committees are better organized and better function-
ing in carrying on this service.
here can be no objection—at least the people in Macon find no
objection—to extending the power and authority of the Interstate
Commerce Commission in the matter of supervision over water rates.
We believe that it is necessary for the welfare of water carriers them-
selves that they should have the protection, and not only the protec-
tion, but the help and the assistance which would be given them by
the Interstate Commerce Commission in making successful the opera-
tions of these river navigation companies.
Many of them have gone to failure simply because they ran away
with themselves. Usually, not being directly responsible to anyone
as to the matter of rates, they have been in the hands of people who
knew nothing about them, on a good many occasions. JI happen to
_be personally acquainted with some of those occasions myself, and
they have gone to ruin for that reason, either making their rates so
_ridicuously low in order to get some traffic that they could not make
a living on, and thereby swamping their companies, or they would
make their rates unreasonable in some other form and make them so
fluctuating as to keep the public guessing about what their rules and
regulations were.
I think there should be some standard rule and some rate regulation
applied to navigation companies, whether coastwise, inland river, or
otherwise—at least, all that could properly come under the jurisdic-
tion of a national tribunal, such as the Interstate Commerce Com-
mission, and that should be immediately put into the transportation
law. ,
They have jurisdiction now, as we all know, when they are doing a
joint business with railroads, and I think the joint business would
undergo improvement if they had the same protection and were re-
uired to do the same things that the railroads who work jointly with
_ them are required to do in the matter of accounting, rates, and so
'
forth. Of course, the joint rates have to be published and have to
be approved by the commission, but then the commission, I am sure,
have never been so careful about the water end of the rates as they
have been about the rail part of it, because the rail rates are better
established.
944 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The Macon Chamber of Commerce has given consideration to this
very question. Macon itself is located on a navigable river. There
is navigation going on there in some form all the while. It was
formerly their opinion that the Interstate Commerce Commission
should have nothing to do with water rates, but since a few failures,
such as we could inform ourselves about, have occurred there, they
see the need of some regulatory tribunal having charge of that in the
same manner and to the same extent as the railroads.
I am not clear as to whether the amendment proposed, particularly
as to the first section, involves motor-truck service or, not.
The CuarrMAN. It was not intended to cover that service.
Mr. Grtuam. I might suggest to the committee, however, that there
are a number of companies doing both an interstate and an intrastate
business, and as the Government has made an appropriation and the
hard surface highway work is being carried on already for paving
many miles of highway, these motor companies are taking up the
service, and you would be surprised to know just exactly the volume
of freight they carry and the speed with which they do it, and the
safety connected with that whole service.
IT-am sure you are familiar with the fact that 10 or 12 lines are
operating, or will operate, out of the city of Indianapolis in all
directions for distances ranging from 50 to 200 miles.
As a matter of course, I have always thought about the motor
truck service as being a farm-to-the-market service. I am sure that
the gentlemen of the committee have looked at it in just that form.
I have never felt it could have a very great influence as an interstate
carrier or as an intrastate carrier, but the time is about on us when
it is going to grow into an immense business, and not only an immense
business but a very profitable business.
I think some regulation is going to be necessary. It may not be
necessary at this time, but I would not be surprised if Congress did
not have occasion to look into that before a very great time, because
this is going to be a tremendous public service.
We have demonstrated by a motor truck demonstration running
three trains in three directions at Macon, over dirt roads, that they
could carry 300 tons a distance of 40 miles and come back before
sundown on the same day.
The CaatrMANn. Will you speak a little louder, Mr. Gilham.
Mr. Grruam. I say we demonstrated at Macon that motor trucks
could even use ordinary dirt roads to very great advantage. We had
trucks running out of Macon in three different directions, the roads
being of different character and about the same distance, 40 miles,
leaving Macon at 10 o’clock and coming back at 6 o’clock, and by
that time everything had reported in and cleared its traffic, which
shows that it can be done very easily.
Mr. Sanpers of Indiana. What did it show in reference to the cost
of such transportation ?
Mr. Giruam. So far as the cost is concerned it showed on this
occasion, which was really done with a view, at the time, of showing
just exactly how cheap it could be done, that for the distance of 40
miles the service was done at a cost of 5 cents per ton per mile. [
had charge of this proposition myself and worked it out.
Mr. Sanvers of Indiana. How does that compare with the railroad
rate there ?
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 945
Mr. Giruam. Well, the railroad rate to these points on like traffic
would have been on a number of classes of freight a little higher and
on some a little bit lower; there was not very much difference. The
thing that is going to make the service attractive is this: The grocer
delivers his goods 40 miles distant about 24 hours ahead of the rail-
road, because instead of taking them to the depot and billing them
out this afternoon or to-night to be delivered at these points to-mor-
row, he delivers them there at 10 o’clock in the morning.
Mr. Sanpers of Indiana. And it is a little easier to get to the
different industries ?
_ Mr. Girmam. Sure. As I said, the Government has made appro-
priations for the upkeep of the rivers and they are now extending
that service to the highways. Unquestionably there is going to be
necessity for some supervision.
_ The fourth section of the law is not involved in the Esch-Pomerene
bill. I think, perhaps, that is being carried on under what is known
as the Poindexter amendment, and we had the honor of saying some-
thing before that committee some time recently. I took the position
then, and I repeat it now, that I think that substantially the last
word has been said so far as the fourth section of the act to regulate
commerce is concerned. If people could get this idea into their minds
as firmly as I think they should, that the water transportation busi-
hess was going on a long while before there were any rail lines and
that these commercial points that amounted to anything at all up
to about 1835 and from then on to 1850 were all points on rivers and
were going from one water-served point to another. In other words,
one continuous water line between the larger markets, and that the
rail lines all through the Southeast were built to compete with those
propositions, there is not any way in the world that I can see to get
away from that situation to-day unless we tear up the railroads and
rebuild them, which would really amount to tearing up some com-
munities, we might say, who have made investment based on the
advantage of location.
I have believed all the time that the intermountain country which
‘undoubtedly must eventually secure special relief in order to obtain
the equal transportation service that is given in other sections where
it has been forced, will demand some special legislation and I
believe that that territory could, when the Interstate Commerce
‘Commission has been given all the authority which the Esch-Pomerene
‘bill proposed to give it, so far as capitalization, car service, and the
other features carried with it are concerned, I believe that the situa-_
‘tion can be controlled and the people in the intermountain territory
be served as economically and on as fair a basis as has been given in
any other territory in the country due to natural causes. Asamatter
of course, we can not expect nature to be as bountiful in one place as
it is in another. I have always felt that it evens up some way or
another and that where we have an advantage we also have a disad-
vantage—that it is the same with them and that our opportunities
»when we figure them down to the last analysis are really about the
same, but this probably would not be true in connection with trans-
portation advantages.
Mr. Sims. You stated whom you represented and the position you
occupy, but I did not catch it.
| . GirHAM. I am speaking here as traffic manager for the Macon
Chamber of Commerce.
946 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. The St. Louis Traffic Club on July 26 issued a statement
which, among other things, deals with the rigid fourth section, and
it being a traffic club, but not in the intermountain territory, but on
one of the largest rivers in the United States, I thought, if you did
not object, that it might go in and be printed in connection with
your statement on the subject. I do not know whether you have
seen it or not, and, of course, I would not ask you to so do unless it
was agreeable.
Mr. Gituam. The fourth-section matter
Mr. Sims (interposing). It deals with other matters, but I have
reference only to the fourth section. I would not ask you to do so
until you have seen it.
The CHarrman. We have all received copies of that, and my idea
was that we would have one whole installment of the hearings de-
voted to those matters.
Mr. Sims. Inasmuch as he was dealing with the matter as a traffic
manager and this comes from a traffic club
The CuarrMan (interposing). It might not meet with his approval.
Mr. Sms. I said that I would not ask it until he had seen it.
Mr. Giruam. If the chairman will permit, I would not like to go |
into the fourth section unless it was specially desired. That is a
very technical and very complex proposition.
Mr. Sims. At the suggestion of the chairman I withdraw the
request.
Mr. Gituam. Now, as to lines transmitting intelligence. I have
about made up my mind that that is not a proper thing to bring up —
here. I do believe that some legislation more than that which now
exists should be had with respect to lines transmitting intelligence,
more particularly the telegraph lines. I am sure that each of you
are familiar with the finely printed contract on the reverse side of
the telegraph blanks that you use, and which limits the liability of
the telegraph company to the price of the message, it matters not
how much damage is done by nondelivery or error or anything else
that they may do, if the message is not repeated. As a matter of
course, | am ready to admit that the Interstate Commerce Commis-
sion has decided that different scales of rates can be charged for
different lines of service, but I myself regard the telegraph lines
something like the telephone lines. You desire a message sent in a
certain standard way, and the sender of a message, when he writes a
telegram, which is nearly always done hurriedly and without con-
sidering what is on the back of the telegraph blank, he expects the
service to go in proper form. So far as the people of Macon are con-
cerned if it requires more to perform a certain standard service—l
mean a higher rate—we are ready to pay it, but we believe that the —
public is considerably injured by this very slight liability for error,
undelivery, ete.
Mr. Dentson. Do the courts hold those contracts as binding ?
Mr. Grruam. I do not think the courts have really passed on that.
I think that we would have some common-law rights, regardless of the
language of these contracts, but under the present act to regulate
commerce they can charge different prices and say, ‘‘This is an un-
repeated message.’’ I know of cases myself where it has cost the
shippers, for instance, a considerable sum of money because they
transmitted the wrong word and the shippers had no claim, so far as
|
t Fa
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 947
ey could see, for this, after going into the matter; in fact; they sub-
itted it to the Interstate Commerce Commission—because they had
e right to have the message repeated and they did not know at that
ne that it was even necessary to repeat a message in order to get
through in proper form.
Mr. Sanpers of Indiana. Do the courts hold that you can make an
yeement beforehand to release any corporation on account of
mages if there is real negligence on the part of the company ?
Mr. Grrwam. If there is real negligence it can be done. It is
ually always at the other end of the line, in California or somewhere
ie by the sender, and he probably might get some redress for dam-
es. I think he would under the common law.
‘Mr. Sanvers of Indiana. If there is no negligence and it rests
arely on the matter of the contract, I suppose you could not pre-
‘nt them from contracting to release them from liability ?
Mr. Grruam. The sender of the message, as the Interstate Com-
‘'arce Commission expressed it in 44 I. C. C.—I do not now remember
e page—he signs a contract that when he sends a message out on
'e unrepeated scale he will not hold the company liable for any-
ing at all.
‘Mr. SANDERS of Indiana. You do not recollect what the details
sre, whether it was to the effect that such a contract was binding
whether it was against public policy ?
‘Mr. Giruam. They did not pass on the damage part of it, as a
itter of course, but they said they had the right to charge a different
ule for different grades of service. I do not think there should be
t one grade of service over telegraph‘lines any more than there is
er the telephone. I think it should be perfect.
‘Mr. Sanpers of Indiana. You think all the messages should be
| seated back ?
‘Mr. Giruam. I mean that the telegraph companies should take
jatever precaution is necessary for sending a message in a certain
ndard and safe way so that the sender will not have any damage
quarrel about or any trouble. Of course, there would be errors,
t the telegraph company should be responsible for them where they
sate damage. I think something should be inserted in the act
ally which will bring all kinds of service just exactly in that form,
different grades of service. I have always been opposed to all
‘ease rights of railroads, because I have never seen a shipper—I
‘ve more shippers come to me who have been damaged under release
es than any other class of people. They do not understand it.
‘ey did not intend to pay a part of the rate themselves and there-
e have a less right to collect damages out of the railroad. They
(Soxe}) IBM SUIPNIOXd) sjeniooe xe} ABVMTTCY"
t,t. os Ga Tei ee G A Miner fT BeUOLT EIOO ABVAIIVA WIOLJ ONUBADI ION
*sosuadxo trae ACAMIICVIY
Pe ee ee
2 aiterie* eels aimee [eleus+) *
a ck aoe mea fe ian Phsosin 0 pense pee desdoceed Ramadan SNOsUBI[OOST *
Be Sie ARE eee gm epee co Sista mace rs OS Stan nn neal eae aa uo01yey10dsuel], “FT
ghee we Sitch ghee Git tak ere ae se ey PE ee BIO IT GTA AT py
ema picks «2a. (8 pioisie ma voreecerses-s-ee-*s-arotTdimbs Jo sUuBneIulIEey,
meat sicie ts c-ecitis ° viet ae, aycie aie e's tte Sc soimjonijs pus ABA Jo 9DUBUOIUTIRY
[SUSNTdAXa
Bier ete nh enim wi ede ys mays rae cok (elie Sakis Rheytygile =e eee ase ““sonusAal 3ulye10dO
oeeecee pic i yrinieth* visibevoiew iv nee Ree Peirsol rere aed ell) Doin
etree so cheb The tn sinit aes pe seh E640 ane +» ae VAR Sg re Teer SO
we eee eee eee eee ee ee eee eee ee eee eee [eyueplouy
Pskea ewes tanec eeee nig © slew Foci smwicnenie cmos s m01ye1.10dsue1} 19440 ITV
bie = nie) ece tiq'ip mei gam a aw a on eS Ue eae Not aia aay po yeiedo Sela jo Joqmmnu OsBIOAW “T
“Ule}T :
‘ponuljuopO—HNO JO HLNOW FHL YOd
‘penuryao9j—spno. abun) fo sjsodas hyyyuou fo aun sof hipumuns your ‘uorssvmmog asa) ajojssayuy ‘sorgsejn) gy fo noaing
963
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
“UL9}T PIPL) ¢ “110d ¢ ‘soseolouy eSB JO UNDO ‘gTET ‘ABW 0} ArenueL 10; Aed youd opnypour ‘SITET ‘eung 1oj somm3ty 1
i i
ee oi =. ; Spee Sieh | J¥°S6 OL ‘Teena, os eae. pee ES INO E TS IL ‘88 -------*-qu90 god ‘sonueAds Sutje19d0 03 sesuedxe SutzBi9do Jo OT}BY “GE
CE z 899 BEL OFT Gz 989 ‘OLT ‘OF egg $19 $06 ‘LOP ‘EST 699 ‘SFP ‘LCT Sasa ae AO ee a CE RS “7-77 7""""Q¢ pus “6p ‘gh SUIAITJO JON “TE
6S z9 00S ‘EL¢ °€ 060 ‘OTL '€ 8% 08 886 ‘86S °9 66P LET L peat eee AO Hee aes a hie "ort 7" eq “Ap—syuor APIOV] JUTOL “Og
098 SIT LOG ‘OF9 ‘TZ €20 ‘860 “2 6¢ If 1¥8 ‘FSL ‘ET ece “00e “6 eh tees Ra ASS de a 2S rot rssss*1eq ‘Ip—sjues Jue Y *6F
F8E 8F8 698 ‘ZL0 ‘EZ 662 ‘626 ‘OS CPL Chl £82 ‘TZ8 “ELT 12g ‘90 ‘FLT Fons oak ie pt etin Pe mak Tio m= a a eUICOUT SUT}VIOdO ABATIVY “SF
I if 269 ‘68 S13 “16 I 3 COE ‘ZTE 1Z0 ‘698 ah or ie Seger" WE aa te x “7+ +>" sonMeAed ABMTICI 9[QIOO[[COU) “LF
829 Z09 690 ‘L6L ‘LE IGF ‘90z ‘9E C6E 268 GLE ‘6EF ‘26 FS ‘E99 16 ema PSES aaipeoe pan§ (SOx¥} IBM BUIPN|OXG) S[BNA0V XB AVMITVY “OF
10 ‘T SF ‘T 0&9 ‘696 ‘09 28 “8 ‘L8 Sg ‘T 6eI‘t | TIF ‘E2g“99z 960 “6ET ‘99% fiiabaeeng ee ge meee “> suoTye1edo ABMITCI WLOL] ONUIAII ON “Ch
os‘#t | 92091 | ces ‘FES ‘728 =| Le ‘THT'V96 | BLL'L 196‘8 | ogg ‘T69‘Tzs‘T | P22 ‘9FS060'S | pipe ene ne ees Ve eae ergs sasuodxe Suyjeredo ABATIVY “FF
9 L OF ‘988 P&Z P8E , ZI €1 698 ‘SPS ‘Z 062 ‘920 °€ re Cae user oat ee Pathe ee IO—JUOUT}SOAUT 10} WOTIVPOdsURIY, “EF
PIF 09F GEE ‘206 ‘¥G S6L ‘8h9 LG 8k £9 6L8 ‘GFR “CS P68 ‘Lor ‘19 pivicarolan race greeter plapde caveat oe ier ese SO A en ane CER OP
GFT. LoLy COP (186 (8 160 {SFO (TL 08 86 OPT (CEL (SI een CT Ret er eT el Boa ope nee
968 ‘2 OST‘ GG ‘881 ‘GLP 86F OIL a cyl ‘Pb L9F ‘F O8F “£08 ‘016 069 ‘O1Z ‘€F0 ‘I uoryeycdsuvly, “OF
161 191 G61 ‘06¥ ‘IT 186° LL9 6IT 96 LLP ‘88L ‘LZ 066 ‘LFF °2G SR COONS vie, om Shee Soe ae ahi AEE Wiss RE Mie de “OWRLL “6S
F6L‘€ coo‘ | Lox‘ooz‘see | eu9 ‘Zor 'FLZ — | 9261 Ech ‘Z F28‘698 ‘29F = | OLETSG'ZLE fy ved th wee ees gene "*-*jueurdmbe jo eouvusjuleM “Se
$90 ‘Z Q8F ‘Z EZL OST PZT LOF ‘SPS “GFT 28s ‘T 18g ‘T £89 ‘00S ‘88z GZE ‘E28 ‘OLE PRA ARLE Rk Seer ope Pee eae sernjonijs pue ABM JO COUBUOJUIVAL “LE
= a Se pees ee ey. -_ ages “SASNGdXa
FIG ‘GT LLY ‘LI ZOS “FEF “E86 OOF ‘EzF ‘TSO‘T | 916‘8 060 ‘OT Wa she 890 °Z.. | O8S S89 OSE ‘ZS ee trorerereres esses = s9nudAad SUTZVIOdO ABMIIEY “OE
L 6 PSE ‘THF FCP ‘STS t P F636 '8E8 O10 ‘£66 hata pier nee Se tes ake es ah hae sls: sso seo" p-—AqT OB] JUTOL “Cg
¥G 8% TOT ‘OFF 'T Z8F ‘099 ‘ft PAS FI TPO ‘282 ‘% L9E ‘L9G ‘8 FR Sale ahr ieirieln ipl tt TAs te gp a eee a 77> 19—A4T|10B] JUIOL “FE
reg ‘| $9¢ PLB ‘ZEST ‘ZE 9L¥ ‘006 ‘ge OFZ $9Z 061 ‘r09 Ng GSP ‘TE9 ‘TO oy Caine neal Oe ier ore 5° 827 RP TPS IEE tr SAS SR PIL EE
ree O8¢ 800 ‘TAT ‘SE ZEE 618 ‘ve FFG 8h G68 “F60 ‘26 ZOS ‘866 ‘26 Se fe a gr EN at "77777" + TO1ZB]IOdSUBI} 19Y}0 [LV “SE
Ich PEF 862 ‘POT °2Z 068 ‘008 “GS EFz 9G IFT ‘828 ‘9g Q8T ‘STS (24 Sekar te vil gas se GA pa “rp ene 1S mets s eerage ICES ‘Te
PLT LOT. OZF ‘9SF ‘OT G8¢ “E90 ‘O1 911. OIL, QOS “2ST 'LZ GFF ‘06L (9G ake bin Sigh aa apn Di steghy ah erat Ara Catia fee as Acs eo: OF
FIL‘ 926 '€ FOT ‘ecg “Z8T QOL ‘SF ‘982 C16 ‘T FEE '% 6L¥P ‘19 ‘SPY 928 ‘608 ree. faqs: tag tha R never seeker S SOP RADA L OT” SORTS 47 ORO OG "6
069 ‘OT$ L6L‘T1$ | 166 ‘L61 ‘Sh9$ 668 “£69 ‘602% PFT ‘9S 806 ‘9$ £80 ‘ShO ‘6kF ‘TS | GOP ‘e9e ‘SIO ‘TS | BR ea aero ook pene ot a Re
Ys “BA Bed trot se ee ee ee ieee gst LE “STONTAUY
wecseeeces[ecesesse221 porggr “gg LL “6ST ‘09 = oust e e 2m sserescees| Of Tz p07 GO “S&S ‘E&z steescescsecerecscersrecsecosccsss-ngIeiadO SO[IUL JOQUINU BBBIOAV *12Z
SI61 6161 SI6T 6161 SI6I 6161 SI61 6161
ey raed O° | ia ee os
~pa}viedo : x *poye1edo ’ ?
pvor Jo ofTU 19g cgay das a? pRod JO op 19g nae eee aneat
‘JOLLYSTP W.L10}SVAL *$07B1g peru) ss
‘aANOf HLIM GH0Nd SHLNOW XIS GHL YOu
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
964
"WO4T JIPEIO 1
ee te ee 8 Oe gg "eg eer ee eS 18 ‘08 OI 88 ““7"""""-qu90 Jed ‘senueAoel 3uT}e1edo 0} sesuedxe 3ut}e10do jo oneyY “Zg
682 €19 920 ‘6IT “E0T e9¢ “ges “28 O1Z ‘T 189 996 “6g ‘ZS OCF ‘TFL ‘6% ae eee 5 ee eee arene eran as “-Q¢ pus ‘EF ‘gp SUIAIT JO JON “TE
ST ST 10S ‘£26 ‘T L8b ‘Leb c% & 198 ‘Zor ‘1 226 ‘E10 ‘T Pratl Sol Botan Ligh gh Sah aes she hihde *"" [eq "Ip—syuer AyIoey YUIO LF “Oe”
LVI ia! 899 FIT 91 006 262 T Thi ial 86L°0LL Tt O&? ‘FTO ed eR re oe Cn ee “7727 7-""""7Bq “Ip—syuel JuUeuUIdINd | “EF
12 COL G82 ‘226 ‘86 096 ‘9Sz ‘16 POL ‘T POL 621 ‘128 ‘TS ZLL “698 ‘TE Pek Sac BN held Ope RS Ons £47 EES an 25 i mera es emo0oUT Sut} e10do ABATE “SF
I z OTS TLFT | G09f9LT | g z G60‘oL £8 56 eke Stats ae Saag: gr tshyt ay sonueAel ABMITBI O[QTIOET[OOU “LF
STE 61g GLL PGI IF LST 68S IP org GCE TE¢ “LTS 1 ODB Lipa c Le ak ih dee one Pian aya Ne (Sox®} IBA SUIPNIOxXe) S[@N1908 XB} AVMIIVY “OF
10 ‘T 920 ‘T 920 ‘002 ‘OFT 212 ‘CLP ‘SET 80s ‘T 8F0‘T egy ‘ETP ‘eg 17oWee Gee [Frese setre PERCE uae s heer eee su01}e10do ABATIVI WO] ONUAGI JON “GF
Lei ‘¢ 920‘9 208 “892 ‘829 ZEL ‘80S “06L 9r8 ‘9 992 ‘2 196 ‘ZF ‘G2z SORT eee “cing tp seh rare pere wes tense eter pears **sesuodxe Suryesiedo AeMIeYy “FF
oT ST 888 £980 £% 688 FL8 iT 6 st CIS ‘ELE | LOTSLOL ‘ lelahde’ ee ost SERS SR RS eS ESE SS JO—JUSUI}SEATT Joy UOT}BIOdsuBIL, “EF
LT 181 818 ‘ISb ‘2e TGT £908 ‘¥% c6r 61 699 ‘Ech ‘8 06 ‘ZL¥ ‘6 PepaarTorass eter eget ee erasers meet astee fresticcpeee “""[BIOUON) ‘ZF
19. oe 7£0°L00‘8 ETé ‘Z8T “6 an 1g 099 ‘862 ‘T | 1h: NORIINN eben te Diseaa eee tas eee sUOT}eIedo snosUBITEOST, “TF
869% 126 ‘Z STE ‘ZIP ‘Zoe PSP ‘ees “ose 008 ‘e 008 “8 196 0G ‘EFT Bes ODE POT AP eee pet Seen? soln SP hye eee Saree ee ENS "=" "TOTe1IOdsueLy, “OF
cg £9 T¥6 ‘160 ‘TT 10S ‘FFE ‘8 0ZT Z0T | IPL ‘S00 ‘¢ ade 6 i pl al ta EES SC Ra hoe EE est, sr Reyeeageae vt ER Pt “"OWBlL, “6k
18% ‘T GLgiT | Sco‘PPs‘o9T | sco%esstroe §=— «| OOLT =| TOT’S ~— | GaSgeL ‘EL oro%e0g'e6 = * [7-77 SEEN To 7 SCRE ES FE oe ea. yuetdimbe Jo souvualuyeW “ge
926 $02 ‘T 69% ‘Z00 ‘TZT TLS ‘Z2T “6ST 666 cer ‘T T6r ‘198 ‘EF ae ORD talk de lad os A eee eae Pi dade he semjoni}s pue ABM JO Ranh OS Reh hae, ee ee iia Sp “--"TeyUeplouy “Eee
9ST GI. | 460698 ‘0% TI8 ‘119 ‘ST SOL LOT £61 °FS9 °F GIF (209 'F Bikagitin Sha thks aie pOPRA TER Freeads § “7 Wor}ej10dsues} 18440 [TV “Ze
691 IST 6LE ‘TFT ‘2% 086 ‘689 ‘61 ELT LL POP ‘LIS ‘2 ne prot Pipes athe ee ens ee SOE elena cn Mia Oey ae ee ee sooo Ta ne ssoldx'y ‘Te
¢ é ¢ é ¢ é ‘ é
$6 68. | FOO! TOP ‘ZI 96S *6GS "IT 66. 96. Z80 ‘008 “> 15 1 Oh ghia Meee ee PSR REL EO aie, Hor stage Smee Vara ats 38 Ura TY GG
8LE°T ZE9'T 66T £890 £08T GET ‘696 ‘ZIG 18 ‘1 LLL QLT ‘206 “18 186 ‘F636 ‘46 ih tae oa esis ay ibaa Ae pea are ot? gael “IOSUOSSET *6Z
162 “$$ 186 ‘S$ | Zep ‘Pee ‘O9S$ | E1Z‘22z‘cHOs | OcH‘S$ | 2e0‘9$ | OTO‘OTZ‘SEzs | SEE‘HPR‘TIOTS [TTT Pte es SS a ES Fe "QU ZIOIA *9Z
“Sa GA
2 a Sea ahead ""| ST °29 ‘OST 60 260 ‘OST PERE LA SNM RP at Sp SP 'F6E ‘eP SOUR Ey 5 Sas ee PISO BRIO ae eres -**"**pepesedo sett Joquinu e8BleAy */Z
SI6I 6161 ST6I 6161 SI6I 6I6T SI6T 6161
*pe}e10d0 -yunoury *peye10do -qanoury “W19T
peo jo o[rur 19g Pvol Jo o[TMI 19g
“ZOLISTP 1.104894 “JaIISTP W1EyINg
*‘ponutjmopO—-ANNf HLIM GHANA SHLNOW XIS AHL UO
‘ponuryu0j—spno. abun) fo sqsodas fgyjyuow fo sung sof hunumuns pour ‘uorssrmmoy sosauwoy apojsuaquy ‘saysyniy fo nooung
965
py
bad
se
yp
(S
a
A
S
©
S
H
=
>
_
ry
~
ie)
H
o2
a
<
io)
fG
—
Lo
<
a
a
fr
H
i
oO
q
fc
FA
|
a
A
PSE (6ZL 'ZZ1 O19 (EIS ‘TFL | 860 ‘F86 ‘22 69 (086 ‘SE ZF ‘9€0 ‘82 TAA I Ia Apa Bel REY Sete dh gece es fee ee ae ee SyyUOUT 9
669 “PLS “EZ LGB OFE 9G 86F G61 9 62S €90 8 CTE 6ES FI LUO NSCB RVI Si ter ei 95 iene i Lig cos eh ae aac ie pn eye sae es oune
‘ ‘ ‘ ‘get ‘ ‘ ‘ ¢ ¢ ‘ ¢ Dean y Mes Gc orchard ic Sree Se Re ne igs ee SE a OE ne ES ORY -[T81} U9) YIOX MON
OLS 9GE 66 LOG E80 SE 88S 69 9 TST £96 8 FL9 O8F 61 POL S81 Sy}UOTH 9
682 8EE ¢ €18 S6E 9 POE TLh 1 68h 128 T 980 FIE € GG e COO SP ine Va garetts Co Sige Sak” Pa a ecg aay ke nae eS a i peel Oe vise Be
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ hg ae | | ee Sah Pe, cer en Mine Ee Pee ae Se ae ce MRM uae ds ee ho -[81} 09) ues Gorn
IGS S61 16 E86 SE (66 OSL CSF Z OGL LOT 606 66h 028 6G &% SY}UOU 9
G09 198 ¢ 606 FSP 9€6 68° GPE #99 PFO IZ8 F Se 3 Sak) 7 nnn | lkeleun soo deo ee cine tin Sewer inamcaery to") aden nimi on ge a Oe 2S mie Ce Be
‘ ‘ ‘ ‘ ‘ ‘ ¢ ‘ ‘ ¢ ‘ bene ey Wes Be eee led ee ee ee ws ns ee ee Se ee ASTICA YeTqe'T
80 880 9¢ P69 18 IF GCE S86 F {ST L669 CGS (066 (26 See Th9 TE SUJUOUL 9
616 €66 L 00@ Tego 2 L19°190T T1O 861 Tf TE&8 09S ¢ CROMPTO RON Tt Ms aioe pega Gwe oy pss om ORE 4. OR ecugih bog w-mtinal aie aoa er waa aaron Se aaa oune
| (oll
LEb (SPS (62 GSE COT ‘FE ZF ‘OSG “F OSE ‘OT9 ‘¢ 196 ‘080 ‘2% AE? Sea, Wale Saereuaaiemieeamy eepmemmt riers ca Cag ki SY}TOUI g
og¢ 989 ¢ E8E O&Z% 9 690 696 8ST 66 oS E&I F QO SCP a tite Sad ev thre ae ve heb imp ger ste al penne ane eee oka Bek ahem aap inated eune
ee eae ee, es hehets ‘caiegh [UI9ISOM PY VUUBMBYIVT “BIVMVOCT
T16 €ST ST 986 8&6 ST EPE GES T GPP See T CLE Or el Biehe SEEDY GEMMA ME Ty cay OU a wycrce gee’ ne a2 ae,8 ip Carats PY See cenie eo la a er ie ee syjuoU 9
658 6F6 Z 6£0 $18 7% 6F8 6 029 6F% 209 €69 @ L61 SOF RG. kc Me neyo k dg aie ric ais wig ke peg sing = dep oe magne oa eo BANE dee La aie eee “oune
¢ c ‘ ‘ by é ‘ ‘ ‘ ‘ ‘ ‘ sHOSRD TE 7p GIVE
89¢ 10€ (06 000 SOE of 99€ PIE 9 6SP FIL L L10 _1e0 06 Se6 AOR a MLD” USES See Sowden eh ilints pelt CM ghia oot RN tea ag ee “*"Sy}uoul 9
260 SF8 ¢ 0&2 OF0 9 L8T SI¢ T 028 ‘ZE¢ ‘T 106 8E8 € OTB COME 3 too Gt aan parencze we ay elas te ee hele a cn ls SNS ee ea Eee eeenperet Sani ; -oune
eee ee ens eb met :SIO'T “19 2 O8BdTYO ‘TYVUUPUTIO ‘purlaAdg[O
LEZ £093 ‘TT Ses ‘OTS “IT ZE0 ‘999 ‘T TOL ‘62 ‘Z 616 ‘169 '8 016 GLE 8 Deeiehoae Feo ches aioe Sane epee Oke Op ys ee "7"Sq}UOUT g
066 202 Z G2S £00 Z 0SZ T9E 608 OOF PrL FE9 T 90€ ESF T * Gre ate sy ee gt EEN ake mC, sie aloe Wersarn es sn ak eae are Jape
¢ ‘ ¢ é ‘ ‘ ‘ ‘ ‘ ‘ ¢ ¢ Pree Bee (ey Seer ee aaa eee cee eee Me a ee Oe eee 90
pLT ‘980 ‘61 LOF ‘LOT £06 969 ‘062 ‘E 9¢9 ‘OIL ‘E 69T ‘£00 ‘FT ZZ ‘968 ‘FT Sy}UOUL 9
0824 9FL € c6g sc¢c € 298 089 TOS 622 896 $l Z 910 S693 ign Se ee ge) ee Seng ae oak + es agement mary eevarterc! Re
‘ ¢ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ¢ ‘ WeSE scion s eoeas give leis a Bas aspire aim ale a eis e BR ee aiaiae apie iL EABIPE Me DEC eee u [eryUe)
9ST ‘OFT ‘08 08L ‘CF ‘ze 882 ‘611 ‘8 5£9 ‘026 ‘6 £26 ‘289 ‘ST 6bP (S19 ‘ST sq 9
60L SEL ¢ 808 0ZT 9 Z0G 629 T ELT &28 T 62h 69h € €ST 889 € rsa ee BOC tars et aee Sy nC ie eee or eal Tah OR ee car pansaas
/ ‘OUI’ 7p a
919 ‘166 ‘89 198 "6SL°6L OSP ‘199 BT POE 188 'ST P86 08h ‘0S 82S (BEL ‘1G em dee St Cre pe Re bongs tin, cern cnn aii ocak ae ee ae oe sy}UOU 9
GS8 298 PIS LIZ €8% ST$ TPP Z18 ct €86 980 €$ 8248 098 OT$ FPS 8L0 ITS RS Rs a A eee Se oe ae tae tmp tanytae eam mam ne tae emg OULLEL
-O1UO % O1OUIT}[ BY
8T6T 6161 ST6T 6161 SI6r 6161
“SonUeAGI SUT}VIEdO [80,1 *IOSUOSSe J aah a Bs} Co ay | ‘peor jo ouleN
“SonUeAGI SUT}BIEdO
[1098] ponsst oq [[14 AreuUINs [eUY et} YOIYA OJ 000‘000'T$ CAOGG onuOeAI ZUT}eI0do [enUUL ZUTALY SpvOI [Ie JO sonuoAeI ZuT}eI10d0 1240} OY} JO 4Ued Jed Og ynoge 410der spwoI OSeyL 4
*sTér sof
000°000' 8% aa0qn sanuaaas Burnsado burany spoo.s Lo sosuadxa Dun son
J ee oe
Uuaaak Lo 9140094 finniw0i. “aTrer
‘guimne 9919 WAL naaddanAn a199n2INI CY
a
i ooo
ainda
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
966
“TRL ‘189 ‘LF
808 “829 “8
$16 ‘OF0 ‘oe
O16 ‘266 “¢
GES £966 ‘9%
ELL ‘298 “F
6SF ‘ (306 ‘BLL
FOL “6Eh ‘FST
0€0 ‘098 § (I
9€9 ‘616 ‘E
896 ‘ost ‘18
92S ‘228 “L
T10 ‘086 ‘el
688 ‘619 ‘Z
FG ‘@L¢ ‘ce
929 ‘390 ‘2
¥F9 ‘E61 ‘al
TI ‘zee %
ore ‘sel ‘eat
#63 ‘29 “OE
808 ‘ehh ‘LE
828 ‘880 ‘8
1N0 ‘ee ‘PF
EIS “FST 6S
ST6I
266 oot e
TOT “62°
€e1 BLL ve
CT6 ‘TIL ‘9
606 ‘88 ‘28
L6S ‘806 ‘F
828 ‘G26 ‘GL8
616 ‘STS ‘O9T
TS8 ‘084 ‘2
€82 ‘600 ‘F
vy 79 ‘er
896 “ESL ‘2
aut ‘sac ‘el
668 ‘L210 ‘%
+09 ‘6¥9 ‘ge
298 ‘686 ‘9
920 ‘869 ‘gt
Z8E ‘EF8 ‘Z
GlZ ‘929 ‘PLL
LIT ‘62 “TE
gce ‘029 ay
TTS ‘C82 “6
GLI ‘Seo ULF
106 ‘496 ‘8$
6161
“sone Aol SUT}R10d00 [840.1
eT
188 ‘196 ‘8 O10 ‘e9F ‘IT
609 FS8 “T 826 ‘120 %
Oh ‘6FI (S 190 (9Gh °L
168 ‘LEG ‘T T¢9 “6¢¢ ‘T
290 ‘999 °2 63 ‘166 ‘6
£29 ‘SOF ‘T 126 ‘LOF ‘T
ZIZ‘SeE ‘GOI | 9LE ‘ZTE ‘902
Z16 ‘GFE ‘SE PLT “982 ‘Ob
SPF FIZ F ZL8 ‘969 ‘4
TSF ‘196 89 ‘O10 ‘T
108 ‘268 ‘L 998 ‘TTS ‘OT
808 “618 ‘T SF ‘SEI Z
1&8 ‘820 ‘T P19 ‘106 “T
60S “EST LIL ‘80
G96 ‘0F8 “ F86 ‘BFS ‘C
QTL “6SL 660 “668
196 ‘879 ‘T 899 ‘26r S
916 ‘898 GOT ‘O8F
199 £686 ‘Ob 912 ‘90F ‘BF
FEE “OSL ‘8 TOT “SPL'6
GG8 ‘6SL 19 ZOS ‘CFB ‘6
8ez “0S¢ “T 0€2 $98 “T
8F9 “S80 (AT OTT ‘169 ‘0z
268 ‘66E €$ £29 “CES "ES
ST6T 6161
*I93UOSSC J
PSL ‘GST (ok ZF ‘ESE ‘SE
QLT ‘SIZ “9 608 ‘O16 “¢
ZIG (BES CS 296 ‘9GE ‘GS
6cF “298 090 “FIL ‘F
OF8 ‘689 ‘OT 6F9 ‘898 ‘06
129 ‘St9 180 ‘OFT *€
828 ‘TLE ‘8zG —|-909 (822 (988
668 ‘SLT ‘FOL | 926 ‘288 “SOT
889 ‘£€0 (FT Z6P SLE OT
910 ‘199% COT ‘LFL‘S
Lav ‘690 ‘SG £C8 ‘o88 183
926 ‘L99."F £90 “6L6 ‘F
89T (G96 (TT 69 ‘906 {IT
G18 ‘ZOE % 000 ‘802 “T
LOL ‘ZTE (66 029 ‘488 ‘92
£€8 ‘F08 “ GCP “E28 “S
ZG ‘SIF 16 OLT £696 (TT
009 “SLL ‘T SFT ‘821%
910 ‘49 (96 OSF FO ‘IIT
G29 ‘990 “61 262 “686 ‘81
OFL ‘80T ‘22 POE ‘O9L ‘ee
Tat “299 ‘¢ £29 ‘OIL “9
980 ‘688 (12 990 ‘116 “IZ
062 ‘SOL ‘FS OLL “0S0 ‘FS
SI6T 6161
“SOI
“Sone Ae 3U1}R.10d 0
REPEL AET BAT BEELER lec sisi tase ete anced ipapeametiieamiete aaa eaaaain SUUOTL G.
aoe e ewe ree sas come Te SR ets BA mt S Shree mene tre See ee eee 2 ee ees
*[81}09,) STOUT
eletag see! Sas ono = ae ONT Soa Bi aan SP a lake eat es os sb ts --""SyyuoUl g
Sane ome E oe ge ae aT a ae oy et daa ke POree eat e gr oe OUT
~ ‘o1go 2 exvedesoyD
Pia iake =t Pehla iar Carag hha cite eet isis gg iat aac i aga feng oh a -“sqyuoul 9
HS ese Ohne abale peje hentlh whbwentnimaptnssekeamangasinchsbersstaere>tes*=- Gigs
:0UVT YSBOD IIVULILV
pk STs ge ee ne oe ee tae PRS Sa al wires et SERV GS” ““syUuOoUl 9
See ee Se ere Sale? See erica GOR CER ra ee, eer Sec, poeta Bsc Se *-gune
: 249114STIp W194SB0 ‘[VJOT,
prove Oe Bas ee oid tebe ait Sa eee Sie Lee Sneek oe a gy “*"""SqJUOUL 9
eSereresesae eel e REET CFS PES Seas sea ek Seo ree eRS Eyer BP PSE ee Se
sot he iad gained 2 ay 4h oe aales sTSBqe M
piccbeetr geen. =F 5 pa 22 ck ers SO OURS
pero cpr TPL SF Scens FE 2 ORS ALS SE TS PR SLSS SESS SESE PRE ken wees "77" oune
:smory 49 Y osvoryO ‘yeuUTOUIO “YsIngs}id
ae A pcan oat ee eRe pete vee wee Ope were "ree" 5""""STqUOUL 9
OSES Soe SSE T Seer E aire te a ea aa a Se gt ie TWAS AE BE Seer en ULL
20 OXV'T 7 YSNqs}id
ae aie Ay tole ind etek aa Bree Se ASA e ea ean TASES ---Sq}UOUL 9
Mee ras pence acces NS EEE SE eee Se Ga ne SRE Oe sooee9"*- ump
she ae ay ermdepeyd
eT ag ig AS Se BO ee OE OEE SATS? 83 7 SAT SESE A Dee “*"Syqyuoul 9
SAS Slane AAS SF SATS ae Ce er ee age b Some oe Ty a a a SOULE
revjonbivyy 910g
Saree tea ena tan ar So ea SMO eS 7 hee oe "77" ">"sqqmOU 9
Sa he IN bal EA ae eee S325 UNS ten te Se ees Paki hee
47 ‘YW «BIueAlAsuueg
a ee AEE petearss Seeman se see wen cris.qe <0 - se eSn et a see etry renee
MPU Ur SHPeA SALTS ph st edits SES SR ATS Se MSGS As S35 eRe THOGT ARS aoe COREE
:SOUT] WIo}soM “37 “yy BIUBATASUTOT
Siate. oye tad veteiarel aie Sig ian he veie eI S Te A ope ales OLS ee aaa a ree a eA Sqy}UOUL 9
mene D aq ena osama are cicisn cia Ss ass ole Seta ames 5 Sea aise hdd lee Re a oune
:plOJJIVH 3 WaARH{ MON “YIOX MON
*pBOl JO OUIVN
a aE Pe a a ene en ae ER
*pyu0g—871 61 Lof 000000 ‘Se$ a20QD saniuanas burynsado buravy spoo. fo sasuadxa pun sanuaras fo sjLodas hyyjuow *6T6T oun ay) ULoLf paprdwod syuawaqnis
967
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
PSS “620 (OF
88L ‘CFS ‘L
£56 ‘860 ‘OF
GLI ‘918 ‘9
OZE ‘Z6I “FT
SPF ‘BSG °%
889 ‘19 ‘ST
€LZ ‘69F ‘%
LaF “L180 “6E
868 “LEL*L
oF ‘619 ‘EI
LB ‘29% %
£86 ‘0€8 ‘EF
THO “163 ‘L
LL ‘916 ‘cc
60¢ ‘922 ‘OT
965 £160 °29
ZLE ‘808 “OT
02S ‘6¢8 ‘TS
608 ‘86T ‘OT
198 ‘GOP (ZL
08 ‘926 ‘ZI
9cT ‘Ge ‘Ez
166 ‘090 “9F
119 ‘FEI “9
£68 ‘819 “6
£96 ‘LEP ‘LT
£40 ‘990 ‘E
SGP (696 ‘FE
188 “922 ‘9
FOL ‘$66 ‘ZF
280'0T9 2
G2G ‘OLS ‘SF
882 ‘Sr0 ‘8
002 ‘680 ‘Zr
T1Z “ee “2
¥26 ‘609 ‘ST
826 ‘808 %
FS ‘616 ‘ST
PLE ‘Ges ‘E
Aho Rg
PLZ ‘T86 ‘8
889 ‘860 ‘FT
ZEF ‘699 °%
898 ‘280 ‘64
9TE “182 ‘8
ESF *860 (69
T1g ‘e88 “ZI
£80 ‘ost ‘89
Ges 61Z CI
PZE ‘OSG 129
LLE “OS ‘ZI
98 ‘OIF 82
188 ‘69 ‘ET
ETE ‘OTE ‘E8z
8 ‘8ZE ‘LF
EIT ‘250 “6S
892 ‘698 “6
ve ‘evr ‘0Z
060 ‘9¢e ‘€
962 89 ge
TOF ‘29% ‘G
TLT ‘ech ‘os
ait ‘Th ‘8
OLF °829 °2
199 “eg¢ ‘T’
828 “206 ‘S
209 “6EL “T
888 ‘eL8 ‘E
196 ‘T19
628 ‘OFS j
282 ‘66S
628 ‘680 ‘2
OF6 “619 “I
ZOE ‘E61 ‘%
S19 ‘9EF
Gog “TET ‘OT
ToL “cog ‘%
126 ‘0F0 ‘OT
889 ‘LLT‘Z
PLL ‘083 ZI
769 “css “%
IGh ‘9LT ZI
628 “E19 %
6LT ‘OTS ‘21
£19 ‘6L¥ “E
12S ‘616 ‘6S
28 “686 ‘ZI
069 ‘£20 ‘ST
820 ‘696 “€
96L ‘LEP ‘S
PHT “E98 “T
908 ‘228 ‘F
990 “00 ‘I
269 ‘18 ‘ol
S2T ‘LL %
=
968 ‘FL8 ‘8
SIE FL ‘T
696 ‘6FS ‘6
686 ‘ZEL ‘T
T9S ‘L208 ‘€
826 ‘SEL
PLS ‘I8¢ <3
FES ‘TPL
990 ‘ZFS ‘8
bes F8L ‘T
OST £989 ‘Z
80S ‘246
£90 (890 (FT
900 ‘ce6 °
LTE ‘610 ‘FT
296 ‘T9L ‘%
120 119 ‘gt
881 ‘OFT ‘E
8F6 (696 ‘ST
SIE “662 “€
969 ‘616 “02
802 ‘FF6 “€
826 °690 ‘02
ZIE ‘G8o “BI
GLE “669 “LT
G06 “G6 “€
80L ‘OT ‘9
229 ‘G02 “T
8EF ‘Z9T °¢
TOE “600 “T
9SZ ‘390 ‘21
¥86 ‘¥e0°%
806 °€26 ‘08
ses “$9¢ ‘S
8F0 ‘$26 ‘22
SLi ‘190 F
IZI ‘816 “6
068 ‘ZFS ‘T
9F0 ‘89F °6
T6S “689 “T
cal ‘70 (8%
T2L “96F ‘¢
02S ‘0ge ‘OT
F28 ‘989 ‘T
668 ‘229 ‘82
OSL ‘8ab ‘F
SFE ‘400 ‘OF
OST “68P “2
968 ‘966 ‘EF
920 “602 ‘L
PRP (968 ‘FE
188 ‘S8F ‘9
brs ‘99% ‘6F
1¥2 ‘LLP ‘8
Ech ‘ZF9 ‘GLT
186 ‘TOT ‘OE
T16 ‘P60 ‘TE
SFI ‘298 ‘F
GPE ‘6EE ‘OL
L18 “219 ‘T
682 ‘FIZ 62
186 ‘E8¥ ‘S
ces ‘eel ‘og
0€s ‘TIO ‘g
| 9F6 ‘8z¢ ‘Eee
780 ‘TZL ‘S
| goz ‘669 “6%
189 ‘ZEl ‘S
810 ‘86 ‘OT
188 ‘16 ‘T
880 ‘81 ha
Tg0 “eee
[6% ioeh ‘ve
688 ‘C62 ‘9
S18 *88¢ ‘OT
188 ‘E¥8 ‘T
022 ‘eco ‘ze
168 ‘808 “¢
60P 296 ‘8h
849 ‘298 ‘8
180 ‘L19 ‘LF
000 ‘80 ‘8
9&% ‘68% ‘lt
990 ‘0g ‘8
FET ‘GTS “ee
982 ‘068 ‘8
Ze8 ‘009 ‘TE
10¢ ‘189 “98
692 ‘G82 ‘¢
GOS ‘TSF ‘ZI
028 “988 ‘T
POT ‘GFF ‘8%
496 ‘S6I ‘F
Glo ‘sIZ ‘ge
bo “996 ‘¢
g99 ‘618 ‘P61
hte nd ie i Se ge PE oy) ane ee eS amie SOULE Ee
:oYlo’g LNosstpy
BS ee eal ae ee eae ie eae One Pe ee nee Me eh tas ote ee TUL ELEN.
ate, en ayer ae es eerie ht Bee Gh a eal oe Meee ii accor Beene eatin Ce
oP ae eee oe
O1IV "049 yNeY =? [Neg “49 ‘sIjodveuuT;
prorieine cieisi- cis > caval Cie Seah 2S Se oS ke Ao Sere ae TS So = SIUOULG
Bekele == == One
SWHIOYWION 7B01D
aig dele Gace -""sy]UOUL 9
a okt ay et ek pee emma ES ae Bie Sai aa ae tae rly eT eet Epes SEA SY
:OpuUvIH O1Y = JEAUECT
<3 RARE OGG AS Bee, ecatt rp eee eigen ae knpits ROME CUE Cf pe OL te “ses """"sqqyuom 9
a anaes Ags epee
JSogtoeg 2 puUeys] Yor ‘osvoryo
pate ees ""-"""SyqUOUL 9
cree cece ee eeeee “-eune
TNE “49 7 OOMNVATTN ‘osvoryO
once ea ““sqqyuom 9
Bea shanys wet e eee eee tect eee e eset ects eee reeeeeeeeeeeeesseset gum ep
:AOUMe 2? Uo\suyyMg ‘o2seoryO
0
de Mest 3 “syyuOU 9
PPS ee mehr Fees By
res * Spa tak eaaes syzuour 9
“oun
eqyueg =» eyodoy, ‘uostyo}y
Re RAS er PACA SISO DOR Pence risa ere Rien ea: tite ie) Sees acy oun
MOTE APE EO AES Pie ig tated. GP 7 ee Aw nS eh Aaa OLLELE
suIeqyNeg
Toad a CAME ple ea COPE Sag Nk cue aa Ve ie Rit line ade ales “**"sqyuou 9
Pn SU Ss bee sia ee tate a oP MS! lah tae? ae aan Cr Pe aah a a ea 28 TY
0110}S9\\ 3 HIOJION
s.5in 9919 8-00 eb 2 arora
sis 9 Sif 9.0 rae Si S.9 5 08.9 2 ERS SS mein 8 Rimes cle Sle nee Ne SSR meer eee LATE
,
fTATTTATTOM AT © OnTTACTNArr
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
968
"6161 ‘T LsnDAy
ker ss nla SN
608 ‘202 ‘6r9 T
66S ‘688 ‘ETE
LKaG ‘610 ‘¥e9
PLL 8F8 ZIT
009 ‘820 ‘OF
6IL ‘8192
O26 ‘69 (IT
096 ‘£96 ‘T
LFT ‘006 '99
£00 “£90 ‘aT
89T “TOT “08
LOT ‘eT¢ “¢
SPL ‘829 | a!
9€L ‘BEEZ
L08 ‘SST ST
GTS ‘ZBL ‘ZS
ST6T
*sonuUeAGI 8UT{V10d0 [B40,,
TL0 ‘986 ‘£28 ‘T
TOT ‘O9T ‘88
0€6 £662 ‘STZ
868 “CTO ‘O€T
962 ‘Zot ‘6F
66 ‘9FZ ‘8
626 FFE ‘OT
889 “206 ‘Z
826 ‘100 (92
STI “S96 ‘ET
899 ‘O8F ‘ce
O6T “092 “9
ZT “COL (ZT
80T “G8 ‘Z
$6 ‘S90 ‘LT
99T ‘ZG0 “es
6161
L99%ezo'roe — | - FOB “SLL “bbF
eo9 "SST “LL F60 ‘£69 “98
816 ‘STL‘OFT |: OFS “EOF ‘89T
616 “G18 °8z BES “106 “ES
68E ‘8T6 ‘2 1&9 ‘L9G ‘OT
T@8 ‘882 ‘T 6IL ‘860 ‘Z
GFE ‘LOE 'E FIG ‘228 F
O8L “€L GOT ‘9¢8
89F ‘28S ‘ST 068 ‘OFL ‘6I
GOS “LeP “€ 9F0 “269 “€
909 ‘C92 ‘6 RET £270 (OT
08% “TLL “T 926 ‘LL6 ‘I
CI ‘F90 ‘€ 61Z ‘OTT “€
F19 “669 68% “L09
8£0 ‘896 ‘% L6G “FIZ ‘8
£02 ‘T29$ 919 ‘Zoos
ST61 6161
*1osuesseg
96F ‘ET ‘cel‘T | OST ’LE0 ‘08s ‘T
ESF ‘82S ‘80G |: SFB “SEP “FEZ
Beet Oct pe
£29 “0S “FL 0“SF6 ‘98
LEL ‘188 ‘86 £26 (886 ‘cg
ST9 “286 ‘F 690 ‘L6P ‘¢
PLO ‘CPE L 269 ‘606 ‘IT
683 “€0T “T 6% “268 “T
86 £699 ‘CF 9¢z ‘16S ‘0c
SOF “CFS ‘L 16S “F8T “6
LOL ‘246 ‘8T OS “FOS “ez
128 “O&F “€ F6S “FS6 ‘€
LE0‘€0F “2 08 ‘ZL '8
810 ‘998 ‘T G0 “60S “T
G10 ‘S20 SIT SLL ‘869 (ZT
GE “S26 ‘TS 060 ‘002 ‘2s
sI6I 6161
“VYSIOIT
“SONUOAGI 3UTIVINAO
Sk as eae EE See ee er bees Le oa eee
Oe Se ee eae hoe aC ae en ee eunye
ANS Sk cae coo han ee ea ple oe eee eune
eaurr WOH}VSTACN 2 “Y “Y_ WOIUTYs®M-WOso1G
Re ee *--"syyuour 9
OS Sere DOES cn Se be ees een --93une
:0ul'T 404g MOFIIO
‘pol JO OUIRN
Pe ee a a a eS
pu09j—8sr6r “of 000‘000 ‘Ee 220gD sanuanas buynsado burany spvo. fo sasuadxa pun sanuanas fo sjsodas hgyquout ‘6161 ‘aung ay) ULOLf PILE UWLOD 2UIWIID] YY
969
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
{ODEO z "SOSBaIOUL O3BM JO UNODOG ‘TET ‘Avy 07 Arenuer 10y Avd Yowq epnyour ‘g TET ‘euNsL 10j SoS 1
She ‘829 ‘Fb GSP F8S ‘ST CSP TSE O1T SPF (898 ‘0ZT IZI ‘OTS 18% TEL‘ Lh ‘TE 089 ‘CTS ‘ST TPS ‘ELT “61 SEM MaRS ers 1 nity """ 77" ="sqQUOUL g
CLZ‘ESL‘S c ZF ‘S16 ‘9 990 ‘FL9 ‘Lz £66 ‘0SZ ‘0 6 ‘86 ‘9 9FL ‘202 ‘S STE ‘FS6 ‘E esr ‘PIE ‘e it ee pea ie pathic S¥ rte Rian FS eune
¢ ¢ é ‘ ‘ ‘ ¢ ‘ é ¢ ‘ ; c é 6 « ‘ ey ee wearer wees yee) AIO Xx AON
£18 ‘Got ‘g 61 'SF6'S EST “G78 “Ez B16 FSS" LZ TL8 ‘£96 ‘¢ 020 £226" 980 ‘L9¢ ‘E 129 '686 ‘F a2 ts “*"sqjuOUl 9
£61 ‘E8S z 9oy ‘LEE ‘T BF ‘808 “S C86 ‘SFL F 06 ‘F9T ‘T 689 ‘Ear ‘T TS9 ‘O18 02 ‘TZ8 easy oe eas ties mye hae ae saga ane, SUE
[B1JUSO UBSITOI
006 (Sz F¥8'0L¢ ETS (O8T ‘97 TES “9CL ‘LE OFS “00 (2 CLF FIZ 'S 88h £090°E 96F (886 ‘F Ln hid MES a "77 "sqyuOUr g
L6L‘8%6 z TZL ‘008 002‘TL9‘9 192 ‘£66 ‘F 189 ‘066 ‘T ZFT ‘008 ‘T L09‘L9L ESF ‘866 Ft) easel es he DS Pe ace eune
‘ ‘ é ig ‘ : ¢ ¢ ‘ ‘ ‘ ‘ i? é i? ‘ ee ee ee ee eter ete AOTSA ystye'T
£0 ‘886 ‘F< £00 ‘OFF S « 9L0°F81 ‘OF Teo ‘899 'aF LOL E89 “OT 909298 ‘FT Z98 ‘6F0 ‘S FI8 ‘FZ0 ‘¢ : “-“SYJUOUL g
egg ‘0e0 ‘8 z 120 “612 ces ‘TOT “OT $82 ‘096 ‘9 SE ‘LEP ‘E 698 ‘226% 818 ‘FS ‘T 0g ‘ZOT ‘T mer des ae Shei det amit ae SerG.n Ss Wap aitsr
6L9‘TL¢ “G 89T “OLE °¢ 69F ‘000 ‘£z 98Z ‘899 ‘9% 0¢8 ‘Z09‘¢ 866 (EF ‘2 G6S ‘FEI “Z TIS STIE SG o AENy Se ene ee Sy}UOUI g
619 ‘SCT TPL ‘ZOT‘T 90S ‘61S ‘¢ 906 ‘ZOL “F 16S ‘102 ‘T COL ‘EE ‘T BPO ‘LTS LOL‘ LIL SBpeic cen g cette ee ee ae ee “*reune
71.104S9 AN Y VUUBMBYICT ‘OIBMBIOT
FLY ‘096 « 696 ‘SCF 996 ‘12S ‘ A ee ea Rote edna amas
:3UIp tydjoperll
862 ‘CTL ‘ZI ‘cor ‘Z 622 pate ‘g et oe 3 0s 80 | AMR whnlerd best gar oe eer oan, ag asi
Z98 ‘Z80 “% VES ‘TES 02g “Eee 80 LEO QO ge RR ee te eae
, rovyonbiey, 210g
186 ‘918 “E9T E9F ‘6S6 ‘Th 028 ‘829 ‘65 gee ‘499 ‘Tz 7a Aa Nenana ae eee aatonaen ga -**St{JUOUL 9
£66 ‘FEF ‘62 ges “0g “6 IST ‘880 ‘6 GET “808 ‘F BOY $re 5g «8 ht ER TAI SS ee ewes ii it) g
é é ¢ ¢ é é ¢ ‘ ¢ ¢ x “ae “a eruva[AsuUo J
618 POF Eh ST0 916 6 699 LE ET 6LL SSP 9 Oke! Eas (miami Teh re e E “*Sq}WOUr 9
S6P SEF L 8L0 FEF Z PLS “LEE 069 “L0€ ‘T LOL “OFT ‘T tos Sa RGANe* BaP eter cany me iain 13 a2 euns
:SoUT] UI9}SOM “YA eres [ASU J
TOL ‘086 ‘Fh QLT 281 "6 682 ‘122 ‘OT Tee ‘29'S 10¢‘¢89'9 A cake oe oe Sener prec -anitig pre egies SU}UCUI 9
068 “962 ‘L$ oss ‘TOT ‘es 61 ‘FL9 ‘i$ 9F0 ‘TH ‘TS coe ‘gar Ie fp sise perce tarsh srry a Be BR 7) oune
:ployyIeH WZ WOAVH MON “YIOX MON
6161 ST6T 6161 ST6I 6161
*So1njon1s
“peol JO oUIGN
se a a nT a
“py09j—sr6r 4of 000'000‘ES¢ aacogn sanuaaas Hurjnsado bursany sppos fo sasuadma pun sanuanas fo sjtodas hpyquou ‘6761 ‘aunt uULolf payrd UuLod 7Uaulajn) y
971
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
HOE ‘106 ‘€
192 “G86 ‘T
OL fo88 ‘T
QTL £9 z
L16 ‘L9¥ «
LLT ‘E08
ZE6 ‘TSE g
189 ‘18 ‘T «
029 ‘T6P ‘Z
O19 ‘O6T z
TIS ‘ger ‘2
086 “6S8 ‘T <
£80 ‘296 ‘T «
TS¢ “S61 € «
96 “CZs “2
€86 “628 ‘Tz
OL ‘888 ‘T
6eF “00L ‘Tz
299 ‘OPP ‘SI
OZF ‘SF ‘T
£10 “961 ‘88
Z1Z ‘889‘L<
1g¢*g00 ‘TI
808 “E89 z
$18 £089 ‘T
OSF “66F <
OLL‘ (LS¥ ‘g
SPE ‘S18 z
CFS ‘619 “L
PST BLL ¢
oey ‘gt p
9E8 “$69 ‘Be
‘MOYO «
1Z0 ‘eI1 ‘T SF9 ‘L1G (8S
GLI “STS 08S “TZ8 “2
LLL, ‘666 ‘T ecT £o82 ‘21
O16 “99% F6L ‘E96 %
108 ‘OTT ‘T £29 £992 ‘eT
£20 “6SF FE6 ‘TET €
L68 ‘E49 °% 199 ‘ZL ‘LE
9¢€ “00 “I LPL “08S ‘8
996 ‘829 “T 98h ‘782 ‘OT
SPL ‘OSE 968 ‘EOF ‘Z
696 ‘S98 “T £96 ‘60¢ ‘8
CLI “E96 ‘T 6LL ‘889 ‘8
98S ‘FIT z OF6 ‘84S “FS
| S2g “626 GOP “OPE “ET
| Tes ‘ose &8 000 ‘219 ‘Ie
$20 220 ‘T 180 ‘8¥6 ‘TI
| 20B ‘S28 *¢ GPL ‘669 ‘Sh
| LE8 ‘861% 808 “ees “TT
PPL OTF ST 826 ‘800 ‘TS
BCE “69S 99% “880 “TT
ZGE ‘616 Zo 983 °209 'S0Z
O98 “891 ‘E 980 “ZO ‘2s
CLL “610% E16 ‘COTS
; ‘g9T ‘0b
6g8 ‘ST 60F “E81 °6
OPE ‘SFG ‘T 108 ‘909 ‘FI
192 ‘68h 9&2 “L68 ‘E
906 ‘8&2 “F Z06 ‘TEL ‘Sz
816 “EBL 828 “088 ‘2
FOL ‘S6S ‘E LE ‘896 ‘FE
680 8E ¢ STE “E83 *8
989 ‘876 ‘T £99 ‘S16 ‘TP
$69 “LS 88 ‘820° iat
‘sosvo1oUy o8VM JO yuNODIe ‘gTET ‘ABI 04 AIenuer Joy Aed Youq epnypout *gT6t ‘ouns 10J SoIMSy 1
769 (076 (SE
918 Ges ‘9
GZS ‘620 ‘FT
G09 “096 “&
TT8 ‘062 ‘ol
760 ‘8e8 ‘Z
Té8 ‘989 lt
209 ‘028 ‘2
420 ‘S56 TF
668 ‘TZT %
00G ‘ea iP
coe ‘998 ‘9
16 ‘TES °S9
G¥6 ‘LT “TI
0r9 ‘068 ‘gg
266 ‘L08 ‘OT
GOS ‘EGP ‘eg
190 ‘892 “6
OST £928 *Z9
68 ‘282 ‘OT
990 ‘026 ‘84%
L9b ‘G90 ‘Gr
OLT ‘862 F¢
| OCI ‘F186
198 ‘80S ‘81
866 ‘9FL‘S
208‘ ‘VEG (06
168 ‘86h ‘b
OSF ‘F06 ‘oF
$91 ‘BES “S
$0S ‘F26 (Sh
STP ‘OPE ‘2
$80 ‘200 ‘8
CSI FE6 T
Te9 ‘Tel “F
OOT ‘Z#8
TLV ‘106 44
920 ‘9F9
SEL “468 °L
Zehr “S69 ‘T
616 ‘6¥3 ‘¢
668 ‘919
FIL ‘Se6 ‘6
ZI8 ‘8¥6 ‘T
199 £82 ‘ST
026 “LOF “€
090 ‘e8z ‘21
92S ‘618 °%
80T ‘+06 ‘OT
ZIT ‘9IT
19S ‘820 ‘ET
SIL ‘TIF ‘S
ose ‘ (C&P ‘98
26 ‘PEL ‘FT
109 ‘19S ‘6
818 ‘168 ‘T
F632 ‘E99 ‘€
822 ‘O18
089 ‘819 °6
586 ‘129 ‘Z
598 ‘89F 6
G26 “600 %
190 ‘STs ¢ ans
SGT “OST “€
£49 £020 (OT
96d “E79 ‘T
Go6 ‘889 “F
ZS “E69
616 ‘99% ‘>
SIL ‘FE9
9&3 ‘Zc “6
PEL ‘IS9 “T
890 °298 “€
P8Z ‘826
P16 ‘$96 ‘TT
SST ‘906 ‘T
02 °€26 “61
696 “0% “€
098 £220 ‘FI
69 ‘808 “Z
029 ‘GLS ‘el
EIT ‘282 ‘2
ZEL ‘690 61
988 “STS ‘8
GST ‘OTT SOL
GOS “TSE “TT
gcT ‘200 ‘v1
999 ‘068 ‘T
096 ‘625 “F
69T “OF9
€89 ‘6ST ‘OT
O82 "SZ ‘T
G8L ‘ors ‘sl
0€9 “68L %
6FS ‘e9e ‘el
166 “LIE A
egg “ces ‘9
G68 “S29 “T
‘ ‘
SEL Shr %
190 CLL
069 ‘825 %
Zehr ‘F69
829 ‘6LT (8
$26 ‘ZE8 ‘T
CEL (9€9 “T
ehe ‘Zehr
cso‘ Al ‘9
409 ‘9TS ‘T
08 £296 ©
COP “6F6 ‘T
S10 ‘2g 6
G16 ‘2z8
£93 ‘OFS 8
£89 “F00 ‘%
120 {109 6
069 “G03
/
QTL ‘LTS ‘Ze
8FZ ‘Z80 ‘8
SZP ‘SET “9
STF “209 ‘T
POE ‘$56 ‘T
O6T ‘S6F
9b ‘SOP ‘v
TPL ‘2ST T
Lyt ‘888 g
896 ‘822 ‘T
8&Z ‘802 Ls
90 “062 ‘T
i a ee Nea esa ae cies AE a:
TL0 ‘ET8 ‘T (aie REISS He oun
royOVg LINOSsty{
S28 (0608 MPR RP py 2 ee OG TY a set
ZO ‘G6F Pre ok eran? end eta) Bulle
ISBXO, Pp sesUBy ‘TIMOSsSTHY
ie (188 % Jase ac 1. tens Bo Greet Saab Meee eat
ee | OTIVIV'9}9 NBG 7 INV 4S ‘stTTodveuuryy
06E 6E9 6 ier ia has Se i hie ray - she dees
L8¥ 109 T fetatintcRah dese ds * PALA EA ciete Saliht as BR SB a
SHIOTLION 98014)
eer le © EON SERENE OR Toc rtp
680 ‘96F Ne ote cit ls oop Be ae ods ee OE
:epuvIy OLY 2 JeAUEC
oe ee oa reggie be cee een
| Oyo’ = puUvysT yooy ‘osvoryo
98 ‘606 ‘6 peer iia vba el etry Severe ee
926 ‘98¢ ‘Z HE 9 .'cctecntan syid-aimck cenit dtitigiane ta memati d wel gig? aa
NV “IG = soyNVATIW ‘osvgryH
892 ‘SSL ‘OT eee ite ele ee ee
FUG ‘8E0 °% os pmait tac se cacae cgmieong ae aces boa EE
:AouMy 2» WoOysuTpLANg ‘osvoryD
LS ‘269 ‘6 jae pat ths! ost eee ee
18¢ ZE0 Z FRr) ccna bs gay ang de aes oases aie
21110489 M UIION 2p OSBaTYO
20h ¥09 IT Be ie cee i ames Lah? gee
£00 ‘b28 ‘T E55 yng coches spibraene A Resa ane peek oe ne
10,7 BURG =» ByodOL, ‘UosTyDIV
Set ot ae PURE Meer eds el ee. pee
2YOLI}SIp W10q INOS ‘Te,
8ZE ‘269 ‘OT WSEAS S LSet ps fete mec es See age «np SUSE
162 ‘P18 ‘T Pee ane eae ee oe Oke esjeain eae eas eee Oe
smIeq NO,
£08 “996 ‘Z Se ee ta. nce. oe eae ct SER
$86 ‘088 So SR TRS Ee tT SORE Rea ee nar <= sess gO
oury ITY prvoqees
60 ‘408 ‘F veccdibdaweny cba exe bred be ded egoee
+T1194S0M 2 ATOJION
Ct8 ‘810 ‘8 wretaeeenactecerersescronsenscs® “SUIMOULD
GPS ‘8ST “T sgn nat yas Sis as ey eae
O[[FAYSBN 2p O[[TASINO’T
on sihew es Se wae 055s sn 6550.6 5)- cine cea OSes el
ee ATO N OTOTITE
re
Quy "109s
fd 7
% SIT ‘96g {TIT G08 ‘OCR ‘TET — | HCO‘TEP “LFF ‘T | £08 fex9 ‘ESOT
re] CGI 889 S 969 FST CF geo ‘GTS ‘She | _ #89 ‘SEO ‘TSZ
A —-
062 ‘291 ‘FL TL8 “€F9 ‘8h usc ‘s00‘0zs —|_L28 “6E8 ‘909
O 290‘Ze9 “CT 9LT ‘G10 “6 696 6F6 OZT =| F9L “OBE “FOT
=
é c ¢ ¢ c ¢ é ¢
a BL Ore (TT LET ‘198 ‘ET 893 ‘881, '9% 928 ‘OBT ‘FE
S 2 “e8p ‘T 88¢ ‘STFS 02d ‘906 “¢ | 892 ‘08s ‘¢
—_ ,
RS = 188 (OFT ZST (908 926 ‘39% °6 SOF SITS (PT
A, 980 phe 622 ‘T6F 8F6 ‘9C8 % LLL ‘9@8 %
is 66L ‘Z0Z ‘OT 892 ‘O12 6 C16 ‘SF ‘FS SLE ‘L8 °Z9
SPE 660 ‘Ts gue ‘SaT “€ Z8E ‘GOT ‘ET 922 “€80 “OT
WN
A 229 ‘GOL % STS ‘42 1S 108 ‘eT¢ ‘cz 829 ‘FOL ‘8%
S016 19s « 106 ‘9@8 ‘T SET ‘98 “g 896 ‘THO ‘F
f — ¢10‘099T 190 ‘818 169 ‘600 6 TIO ‘898 ‘OT
LLL ‘90T 006 ‘29% FOF ‘010 ‘2 62 ‘488 ‘T
a FOI ‘get ‘F 89T (6208 089 ‘£96 °6 ZEE ‘G66 (ZT
TS 218 “CLP ZL0 ‘OLE G £19 “009%
tee‘980‘8 ~ | 2eo‘6LT ‘9 GGy, ‘086 ‘28 G88 ‘90L ‘98
‘ ‘ ‘ ‘ 6 ‘
Hi 099 “LEF8< FFG “6FLS 109 ‘LT8 “L$ QF ‘208 “9S
6
tS
3
y ST6I GI6I SI6T 6I6T
a
Dp
Hy ‘sosuedxe 3ut}e10d0 [210],
Mr. Montacus. In other words, you think if such liberty had been
given the railroads they would have been more successfully managed
for the war purposes than by the Government taking them over and
operating them? |
Mr. Water. I think they would.
Mr. MontacuE. I have felt that way myself. |
Mr. Water. My opinion may not be worth very much, but that
is my judgment. When you got west of Chicago and south of the
Potomac there was little congestion, it all lay in getting to the north
Atlantic ports, and when you got——
Mr. Cooper (interposing). According to the figures given there
were more tons moved before Government control than there were
in the years 1918 and 1919?
Mr. WatTER. Yes, sir.
Mr. Coorrer. Then, as Mr. Merritt said, the roads had not ceased
to function under private control ?
Mr. Watter. They had not. There were, of course, very graye
weather conditions immediately before and immediately after the
transition from private to Federal control. |
Mr. Sims. If I catch the force of your remarks about private col-
trol with a single director, as compared with Federal administration
they would have been operated better and have secured bette!
results than they did ?
Mr. Watrer. More economical.
Mr. Sms. That is what I understood.
Mr. Watter. I think that is right. St
Mr. Sms. Would not that argument apply right now to the rail
roads if they were in the hands of their owners and being operated
would not that same result follow?
°
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 977
| Mr. Water. I think it would follow, but you must bear in mind,
ludge Sims, that the Railroad Administration has piled upon these
arriers costs of operation which they could not to-day handle
yithout disaster to them. ‘
Mr. Sims. You mean that they could not operate the railways
‘iow as economically as they are being operated or that they could
ye operated more economically, according to your judgment, than
he Railroad Administration is doing it?
Mr. Water. I think so; I believe always that private initiative
ind private control can do that.
Mr. Srus. Then, why should not the operation of the railroads be
‘eturned to them if they would not make a deficit? They might
duce it, and it would be in the public interest if the deficit could
ye reduced.
Mr. Water. -Then, the public would be shifting from the
-houlders of all of the people to the owners of these properties losses
vhich the Government itself has placed upon those properties.
| Mr. Srms. You do not comprehend my question. I méan why
hould not that be done without withdrawing the guaranty or doing
mnything about it? Would it not be economical and beneficial for
‘he railroads to be now operated by their owners instead of having
he Government to operate them through its present facilities ?
_ Mr. Watter. I think that is true. :
_ Mr. Sims. Then, would it not be in the public interest to prevent
in increase of the deficit, or to reduce it so far as it can be reduced ?
Mr. Watrer. I think that is true; but the injustice of that would
e that unless the Government continued to be responsible for those
esults it has created it would be placing upon those properties a
‘nancial burden that is not fair, just, or equitable. You can not,
is I said before, turn these properties back to their owners unless
rou make provision coincident.with their return for their being
perated in the interest of the public, and with a fair return upon the
apital invested, and a fair wage to labor. When you do that, the
(uicker you return them the better.
Mr. Sims. What I am trying to convey to your mind is that it
vould be better to return them with a less deficit, and I am not
roposing as a condition that the guaranty should cease. That was
ny question.
| Mr. Watrer. That can not be done without legislation.
» Mr. Sms. Would it not be in the POU interest, according to
‘our judgment, to return them even if they were not able to over-
‘ome the deficit, supposing that the Government continued liable
or the standard return ?
| Mr. Water. Yes, sir.
_ Mr. Coapy. Was not the cold weather of the winter of 1917 and
he great congestion responsible for the loss?
. Watrter. It was the congestion or weather congestion of
Jecember of 1917. .
| Mr. Montacur. Do you give anywhere in your figures the amount
‘if labor cost ?
__ Mr. Watrer. The items of that are shown, as far as I could show
‘hem, in item 43 and the other divisions. —
- Mr. Montracur. I understood you to say that it is included in
he cost of transportation, but is there a separate item here for that?
~
978 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watrter. No, sir; but my understanding is that the increase
in wages alone by the Railroad Administration exceeds $1,000,000,00(
annually.
Mr. Monracur. What is the greatest cost connected with thi
operation of railraods? Is it the labor cost? Is that the greates
or the least cost ?
Mr. Water. The labor costs are the greatest costs.
Mr. Montacur. Don’t you think your figures ought to show tha
labor cost ?
Mr. Waurrr. I have not those figures separately, but I will en
deavor to have them here. I would make the observation tha:
these items covering maintenance of way, structures, and equipmen
include the labor cost of the men engaged in doing that work, an¢
their increase in wages would also be shown in this item.
Mr. Montracur. What I am eager to see is what part of the cost i
represented by labor. Do you include in that all salaries ?
Mr. Water. Yes, sir; but I think there is a separate item in th
classified accounts for that. I will undertake to secure from th
commission a comparison of those various items segregated for si
months in 1918.
Mr. Coapy. Are the labor costs included in all these items from 3}
to 43%
Mr. Water. Yes, sir; I think there is an item of labor in ever,
one of them. Now, let us go for a moment to the condensed incom
account as prepared by the Railroad Administration, and that give
you the percentage
Mr. Montaaue (interposing). What number is that ?
Mr. Watrer. That is the small print in the four-sheet exhibit
Take the first two sheets giving results of June, 1919, as compare
with June, 1918, and you will see that the Railroad Administratio
has divided the information as to districts and regions. Over in th
right-hand column, which is a very important one, you will find th
per cent that the net Federal income bears to the rental which th
Railroad Administration must pay for those properties. You wi
observe that for the month of June, in the New England district, i
the next to the last column——
Mr..Sms (interposing). What does that “‘B” mean?
Mr. Waurer. ‘‘B” means that they earned net in June less tha
the amount of rental which they had to pay.
Mr. Sms. The figures mean what they did earn
Mr. Water (interposing). They earned 42 per cent of what the
had to pay in the New England district this year.
Mr. Barxiey. This last column means that they did not ear
anything ? |
Mr. Watrer. That they did not earn as much as they had to pay
and that there was a deficit.
Mr. Barxiey. There seems to be a deficit in all of them.
Mr. Watter. That is for June of this last year.
Mr. Barxiey. Then, there should be a ‘‘B”’ in the second colum
too.
Mr. Watrer. ‘‘B” represents the actual deficit, where they «i
not earn the operating expenses. You must bear in mind the feu
that in that month last year retroactive wages were largely pai
and that helped to make the June deficit.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 979
Mr. Sms. Then, in the other column, for this, year, there are shown
earnings in excess.
‘Mr. Watter. No, sir; it is only in excess of the rental where it
exceeds 100 per cent. The New England roads earned only 42 per
-eent of what the Railroad Administration must pay for the proper-
ties.
Mr. Sms. What about last year?
Mr. Coapy. Take this 42 per cent
Mr. Water (interposing). That shows it earned minus per cent.
Mr. Sims. And this is plus——
Mr. Watrter. Yes; plus, or over the actual operating expenses.
For purposes of illustration, they paid for the rental of roads in the
‘New England district $3,542,552, and in June of this year they
earned $1,491,158 over the cost of operation, or 58 per cent less than
the rentals they had to pay.
Mr. Sms. Last year it was all below the cost of operation ?
Mr. Water. In June.
__ Mr. Montague. Do you mean to say that operating cost exceeded
operating income ?
Mr. Water. Yes, sir; they excceded the revenue account. They
charged into June of last year what they had to make up in back
wages.
: ‘2 Wesster. In the last column where ‘‘B’’ appears, 1t means
“that the roads earned less than the cost of operation, and, conse-
quently, no per cent of the return ?
'- Mr. WatrTeER. Yes, sir.
Mr. Wesster. And the other column shows the percentage of
return that they did earn ? ‘
| Mr. WALTER. Yes, sir.
Mr. Sims. Over and above the cost of operation ?
: Mr. Watrer. Yes, sir; the percentage of the rental.
Mr. Sims. It is more than last year ?
| Mr. Watrer. Yes, sir. I have, as you will see, appended a state-
|
1
| ment taking the grand total of all the regions for June, and you will
observe that all roads under Federal control earned 64 per cent of
the rental which has to be paid.
Mr. Coorrer. Do I understand that the Government will have
make up that deficit, or will have to make up that 36 per cent ?
Mr. Watter. That is the grand total. It means that for June 36
per cent would have to be paid out of the taxpayers’ money. You
- will observe that some of the railroads earned more. For instance,
dropping down to the Detroit & Toledo Shore Line, there is shown
an earning of 212 per cent on the standard return, and the Grand
| Trunk Western shows 429 per cent. Then there are some roads that
had actual deficits, as you will notice opposite the letter ‘‘B” in the
left-hand column; but taking the six months’ period, which appears
on the last two sheets, that statement shows that in the first Six
months of 1918 the grand total for all the regions, or the grand toal
_ earned by all of the roads under Federal control was 38.4 per cent of
their rental, while for the same period this year the earnings were
| 39.8 per cent. There is a difference of 1.4 per cent.
) Mr. Stiness. What sheet is that ?
_ Mr. Warrer. That is the third sheet. You will notice the number
of ‘‘B’s” even in this year, after the war is over. That is shown on
third sheet of the exhibit.
980 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sweet. Is not-that the fourth sheet ? |
Mr. Watrter. It is the third sheet that I am commenting on now,
That shows that 39.8 per cent of the rental due for the first half of
the year was earned during that six months; tliey are behind 60.2 pe
cent of the accrued rental. The first two sheets deal with June only,
while the next two sheets deal with the six months’ period.
Mr. Merritt. The first and second sheets deal with June ?
Mr. Water. Yes, sir. If you will note the results for those re-
gions, you will find that in the New England district there is an actual
deficit this year as well as for last year. You will note that in the
Allegheny region there was only 9.4 per cent earned of what they
actually promised to pay those carriers. Now, let me call your atten-
tion to this fact, that in July and during the last days of June, 1918,
the Railroad Administration relinquished over 2,100 corporations or
railroad lines of transportation. They issued that many notices of
relinquishment, and there are to-day under Federal control something
less than 500 lines.
Mr. Sims. The greater part of those lines that were relinquished
were plant facility lines, were they not? |
Mr. WALTER. Judge, you and I have some disagreement as to what
is a plant facility.
Mr. Srus. They were what the Railroad Administration regarded
as plant facilities, were they not?
Mr. Water. They have discharged lines that they said were
plant facilities that I do not think were plant facilities.
Mr. Sims. Well, let us take what they say they were.
Mr. Water. They discharged some of the same kind that they
kept, and they kept some of the same kind that they discharged.
r. Sms. But a number of them, even you admit, were plant
facilities ?
Mr. Watrter. I do not know. I would not admit that, because
I do not know what they were. I asked the division of law to tell me
how many orders of relinquishment had been issued, and they told
me that the number was something over 2,100.
Mr. Sims. What was the mileage ?
Mr. Water. I do not know. J want to make it plain to you that
if you continue the standard rate of return there are a lot of lines
that are now not under Federal control and have been out right along;
you must deal with the railroads of the country as a whole if you are
going to do exact justice.
Mr. Coapy. You referred to the Allegheny region. That is a
region of coal-carrying roads, is it not?
Mr. WALTER. Yes, sir.
Mr. Coavy. And the freight is heavy ?
Mr. Water. It was heavy and is heavy. The best results in an
one of these regions is shown in the central western region, whic
shows for this year 63.1 per cent and for last year 76.9 per cent,
while the southwestern region showed for six months last year 74.7
per cent, while for six months in 1919 it shows only 34.2 per cent.
Mr. Ses. Is that due to inefficiency of operation ?
Mr. Watrer. I can not say whether it was due to that or some
thing else.
Mr. Stms. Was it due in any degree to that ?
Mr. Warrer. I would not say that it is due to inefficiency in
operation, because I do not know.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 981
_ Mr. Sims. Do you know that it does in part account for that great
difference ?
_ Mr. Water. I know that is the ultimate fact, and I believe that
private management can do better than Government management.
- Mr. Winstow. In some cases was not freight diverted from one
ine to another line, which might possibly account for those losses ?
Mr. Water. Yes; that is true. J would not say it is a fact, but
if 1 were a regional director operating a property with which I had
been connected in the past, and expected to be connected with after
Government control was over, I might, unintentionally and purely
as instinct, as a honeybee makes its cell, get as much traffic as I
could on to the line I knew about, because | would know I could
handle it. Now that result might happen. There has been com-
plaints by owners of the property, to the Railroad Administration,
that the men who were in charge had diverted freight and passengers
and had operated the properties to the benefit of some and the det-
riment of others. I am not saying that is well founded, but it is just
one of the things that did happen. Now, go down that list——
Mr. Stas (interposing). Right in that connection, in order for that
to be a true statement, they would have to have diverted from the
whole southeastern region the difference between the average 74.7
and 34.2. 3
Mr. Watrer. Not at all.
' Mr. Sms. Why not?
Mr. Watrer. Unless it was wholly due to a diversion of freight
and nobody has made that statement.
Mr. Sims. You said a diversion of traffic.
_Mr. Warrer. But I didnct say where. Iam speaiing of individual
ines.
g Sims. But the lines within the same region compare with each
ther.
Mr. Warrrr. They may compare, but what is the result of the
‘tomparison. You can compare any two objects, but the result is
ihe comparison.
Mr. Stms. What I mean is a diversion from one local line to another
ocal line in the same region.
Mr. Water. Yes; but let us assume that the Santa Fe operating
‘rom California to Chicage runs through one region and that there
ire other roads connected with gateways to California. For example,
ihe Burlington, which connects at some junction point between
Jalifornia and Chicago, and that freight is diverted onto the Bur-
ington. It would come out of that Southwestern region and would
10t appear in the figures this year. And take another illustration
learer home
. Mr. Sims (interposing). This is 40 per cent less and I can not see
ow you can reasonably insist that that is due to any kind of diver-
lon. ;
Mr. Watter. I did not, Judge Sims. Please understand that I
lid not say that was entirely due to that, or that any part of it was,
ut I said it was possible. Now, let me give an illustration that is
,t little bit closer. I heard of some figures in October of last year
‘vhere the Pennsylvania and the Baltimore & Ohio showed sub-
| tantial decreases for that month and the New York Central showed
|. Substantial increase. New, it is barely possible that part of that
982 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
difference might be due to the more profitable freight going over the
New York Central for purposes of successful o eration. The Rail-
road Administration might want to send train loads of empties west
over one of those lines and move the loads east over another. The
revenue of that loaded movement would in nowise appear in the
results of operations on the Pennsylvania or the Baltimore & Ohio,
but would appear in the New York Central. J am not saying that
these figures are due to that at all, but I am trying to make the point,
before | come to the remedy, that these roads can not now, on the
revenues and expenses they have, take up the burden of giving the
people of this country fair transportation service and give any return
on the investment.
Now, let your eye run down to the next to the last column and note
that some of those carriers earned 200 per cent of the rental due for
the six months, and to the like effect on the last page. But you will
find a lot of ‘‘Bs” in that same column for the six months of 1919.
Now, a great deal of very valuable information is contained in
those five sheets, one from the Interstate Commerce Commission
and four from the Railroad Administration. The tendency is the
thing to observe.
The Railroad Administration is continuing to operate these prop-
erties. They have wage advances, as I believe the Director General
has said, pending before him running up to the hundreds of millions,
perhaps $800,000,000. The members of our association, gentlemen
of the committee, believe that labor is entitled to a fair wage fol
what it does, and that capital is entitled to a fair return. Labor and
capital, jointly, give the puolic the service for which the public pays
If, after labor has been fairly paid, there is more than a fair returr
on capital, capital and labor ought to share that excess earning
The public is vitally interested, and we believe that the public shoulc
likewise have some of the excess which it has paid over and above the
labor and operating cost and the capital cost. ;
The National Association of Owners of Railway Securities, whet
it took up this problem of trying to work out a solution which woul
be fair to all of the three interests, capital, labor, and the public
consulted with the shippers. For the first time, almost, in my pro
fessional career have I appeared where there was an interest, pri
marily, for which I was paid, other than the shipping interest, and.
assume that one reason why I am one of the general counsel for thi
association is because of my contact with the shippers, my under
standing of their problems and their position, I believe the associa
tion has worked out what is fair to all these interests. We consulte
with the State commissions, with their representatives; we con
sulted with public interests; so that this plan brings to you th
Sedan I think, fairly combined, of the views of all these differen
eople.
Z Noe what is the plan? The first problem is to get a proper rit
level. . If you go out and buy an engine or an automobile, you wl
find on every engine a gauge, an oil level. If you do not keep itu
to that level you are liable to burn it out and ruin your power. ]
you keep it way above it, you lose power, because you soot up an
your ignition is faulty. :
So first let us find a proper level and keep the oil up to the mark 0
the gauge, and therefore we suggest first that this Congress say |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 983
_ the commission—and we think the commission is the only body that
| ought to have anything to do with the regulation of these railroads—
- “You make the rates and make them to produce on the aggregate
_ -yalue of these properties, devoted to the public service 6 per cent”’;
. we say to each individual carrier, ‘‘Go out and get all of that you can,
and make your service attractive to the shipper.” We do not take
any of the money that any one carrier earns and give it to another cavrier.
Now, that is our rule for rate making. It is the rule that was
submitted here by the transportation conference of the Chamber of
Commerce of the United States, held under the auspices of the Cham-
ber of Commerce of the United States.
Mr. Denison. Does that mean 6 per cent on the entire valuation ?
Mr. Wattrer. On the combined valuation, treating them as one
‘railroad.
' Mr. Denison. Including the stocks and bonds ?
Mr. Water. No, sir; you pay no attention to their stocks or
- bonds. It is the value of the property devoted to the public service.
Mr. Denison. How is that ascertained ?
' Mr. Wartrer. Until the commission has found the value of these
properties we take the only available standard or base, the property
imvestment accounts, and [J am now coming to what I regard as the
crucial point that must meet your approval.
Mr. Plumb, who is perhaps as learned and informed on these things
-as any man connected with the valuation of the railroads, made this
statement to you—and I want you to understand that as a lawyer I
_ have the greatest respect for Mr. Plumb and his familiarity with these
subjects; I do not by any means agree to his results, but as a lawyer
and as a student he is familiar with these things, and JI want to call
your attention to the statement that he has made.
Mr. MontaGus. When and where ?
Mr. Water. Before you.
_ Ihave shown by some excerpts from reports by the Interstate Commerce Commission
that the property investment account of the railway lines in all of the transportation
districts of the United States are wholly unreliable, and can not be used as the basis
, for determining what the public shall pay for service.
Now, there he made a succinct statement in that quotation; you
gentlemen as lawyers, a good many of you, know that you can take
a particular opinion and draw out a sentence somewhere and assert
| that as an authority, but when you take the whole case it is different.
Now, I propose to show to you that when the same sort of a ques-
tion that we are here propounding to you was presented to the Inter-
| State Commerce Commission it took the property investment account
| as the only available base by which to determine whether the revenues
of the carriers were adequate.
| Now, let-us take the 5 per cent case. That case was decided by
| the Interstate Commerce Commission on July 29, 1914.
| Mr. Wrinstow. Will you permit an interruption there ?
Mr. WALTER. Yes, sir.
/ Mr. Wiystow. When you speak of property investment, do you
‘mean such property as has actually been paid for in cash?
_ Mr. Warter. No; I am taking the property investment account.
- But I am willing to go further; if there is a fraud in that account, it
' can be corrected; but when we take the combined property invest-
‘ Ment accounts of all the roads in the United States, it is quite different
a
984 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
from taking the property investment account of any one particular
road which may be excessive in and of itself.
Mr. Winstow. You take the property investment accounts as
carried by the books of the companies ? )
Mr. Watrer. Yes; for the 2,500 corporations in the United States,
and consolidate them and treat them as one railroad.
Now, in the Five Per Cent case, the commission’s decision was an-
nounced on July 29, 1914. In that case the increases requested were
5 per cent in official classification territory. There were 35 railway
systems which, in presenting their case, acted as one, treating those
35 svstems as one railroad, and the commission took them in the
same way. The decision is reported in 31 I. C. C., 351, et seq.
On page 355 the commission states what was involved in the pro-
ceeding of inquiry which it initiated on its own motion:
1. Do the present rates of transportation yield to common carriers by railroad oper-
ating in official classification territory adequate revenues?
2. If not, what general course may carriers pursve to meet the situation?
On page 360, under the heading ‘‘Do the railroads need increased
revenues /”’ the commission states:
Briefly summarized, the specific contentions of the carriers are as follows: ,
(a) That the rate of return in net operating income upon the property investment is
declining.
And (6), (ec), and (d) follow.
Now, on the first proposition and under the heading “The test of
the sufficiency of revenues,’ the commission states:
In the 1910 case (20 I. O. C., 243, 275) we said that the question then to be deter-
mined was whether the net return of the carriers upon the value of their property
devoted to the public service was sufficient without an advance in their rates. In
this case the carriers, following that suggestion, have sought to show an inadequacy
in their revenues under the present rates by comparing their return with their prop-
erty investment. They have introduced no evidence to establish either the cost of
their properties or their present value, but have adopted the book value as the ‘‘near-
est and most accurate reflection of the value of railroad properties devoted to public
service obtainable at the present time.” >
That quotation, I may interject, I think is from the brief of the
carriers. The commission proceeds:
The nature and unreliability of the property investment accounts of carriers have
frequently been commented upon by the commission; and it must not be understood
from what was said in the 1910 case, or from what is here said, that the commission
regards it possible to scure from the carriers’ books and records complete information,
either as to the cost or the present value of the properties devoted by them to the
public use. Because of the unreliability of those accounts, some of the protestants
have vigorously challenged the right to use the property investment accounts of the
carriers as a basis for determining the adequacy of their net revenues. They contend
that, in the absence of more definite proof showing the cost or present value of the
property, there is no sufficient basis for any conclusions on that question. Is the
position of the protestants well taken?
Under recent legislation by Congress the commission is now engaged in ascertaining
the original cost, so far as possible, and the reproduction cost of all the railroads in the
country. The work is but just commenced and no general results can be made avail-
able for several years. Ifthe information were at hand at this time it would doubtless
clear away many points of obscurity in the case; for the reasonableness of the return
enjoyed by these carriers can not be measured accurately without a more exact
knowledge of their property investments. In our judgment, however —
Mark these words:
In our judgment, however, the practical necessities of the situation will not permit
us to defer action, as suggested by some of the protestants, until our valuation of rail-
way properties shall have been completed. All things considered, it 1s clearly our
a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 985
duty to investigate and determine the important questions now before us in the light
of the best evidence now available. The criticism made by the protestants of the
property investment accounts of these carriers is well founded; but notwithstanding
their imperfections these accounts afford a usable pasis for a fairly satisfactory study
of the course and tendency of the returns. The accounting rules made effective by the
commission on July 1, 1907, require all entries in the property accounts of railways to
be stated in terms of cash. The observance of these rules as time goes on will result in
_ showing in those accounts a constantly increasing proportion of cash investment and a
constantly decreasing proportion of mere book statement under the loose practices of
carriers prevailing prior to that date. For this reason somewhat greater dependence
may be placed upon the ratio of return shown for recent years than upon those shown
for earlier years. While the property investment accounts are used herein for the
purposes of comparison it must be understood that they are not accepted by the com-
Mission as evidence either of the actual cost or the present value of these properties.
__ Then the commission takes up the facts presented, and I am reading
this to you with two purposes: One to demonstrated beyond any
‘question that the commission took the investment accounts as a basis
to measire the returns; second, to show that the result, the ration of
net operating income to property investment account being too. low,
‘and that the rates must be increased or the net operating income must
be greater. On page 365 the commission states:
The property investment of the 35 railway systems in official classification territory,
as shown by their exhibits, ageregated about $3,787,000,000 on June 30, 1898. The
return upon this amount in net operating income for that year is stated at 4.39 per cent.
During the next few years conditions in the transportation world improved rapidly.
In 1900 the property investment as reported stood at about $3,952,000,000. The net
‘operating income for that year is stated at 5.28 per cent. In 1903 their propertv invest-
‘ment was reported at about $4,300,000,090. The net operating income for that year
‘reached 5.85 per cent. It is obvious that if we select either the low ratio of the net
operating income for 1898 or the high ratio of 1903, as a basis for comparison, some
very unsound inferences may result. All things considered, it is clear that in place
of a comparison of one particular year or period with another, we must take a inore
‘comprehensive view of the trend of railway earnings. We shall. therefore, begin our
examination with the year 1900, omitting the years 1898 and 1899, which show rela-
tively low-earnings and appear not to be fairly representative of railroad conditions.
This is the majority report of the commission:
The record does not disclose the actual investment in the property of those railways
in 1900, and we have already explained why their property investment accounts, par-
ticularly prior to 1907, are fnreliable. With this factor in doubt, it follows that we
have no conclusive means of determining whether the net operating return of 5.28
per cent upon the book value for that year was or was not a reasona})le return upon the
‘Teal investment. The same infirmity affects the statements coveting each year of the
/entire period from 1900 down t» the present time—
_ That is, five years ago.
» But, as we have pointed out, the degree of inaccuracy in the property-investment
“account of these carriers has been constantly diminishing since 1907, when our account-
‘Ing rules were revised and became really effective. Using the figures appearing upon
‘the exhibits offered of record by the carriers, we have prepared a table showing the
‘property investment of 35 systems operating in official classification territory, together
‘with the return on the investment in gross and net operating revenue, and in net
operating income for the years 1900 to 1913, inclusive.
_ Now, the figures appear in that decision on page 367. The average
for the entire period from 1900 to 1913 was 5.64 per cent upon the
ey investment account. ; 4 i)
_ The commission stated on page 384, under the heading ‘‘Findings
‘as to the adequacy of present revenues’’:
In view of a tendency toward a diminishing net operating income as shown by the
facts described we are af opinion that the net operating income of the railroads in official
classification territory, taken as a whole, is smaller than is demanded in the interest of
986 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
both the general public and the railroads; and it is our duty and our purpose to aid, so
far as we legally may, in the solution of the problem as to the course that the carriers
may pursue to meet the situation.
The financial condition of the various railroads composing the 35 systems varies
greatly, as disclosed by their net corporate income as well as by their net operating
income. The condition of some of them is so prosperous that they clearly do not need
a higher net income; the condition of others is such as to preclude the expectation of a
return upon outstanding capital stock or the possibility of raising much additional
capital without a thorough reorganization. .
Again on page 386 the commission says:
Treating as one road the 35 railway systems that have joined in this application for
our approval of a so-called 5 per cent advance 1n their freight charges, we have reached
the conclusion that their net operating income is insufficient and should be increased.
Commissioner McChord dissented from the conclusion that the
advance ought to be allowed in central freight association territory
only. Thatis, Ohio, Indiana, Illinois, and parts of Michigan, because,
he said, the carriers ought to have more money in trunk line territory
as well.
Commissioner Daniels dissented because the commission did not
include the entire territory in the advance.
On page 438 Commissioner Daniels has this to say, under the head-
ing ‘‘The test of sufficiency of revenue’’:
In the absence of a valuation of railroad property by this Commission, we were
confronted in the instant case with the necessity of finding a reasonable base upon
which to compute the carriers’ net returns. In the majority report, after a considera-
tion of various bases, the following conclusion as to the property investment accounts
is reached:
“But notwithstanding their imperfections, these accounts afford a usable basis for
a fairly satisfactory study of the course and tendency of the returns.” j
The property investment account was originally taken at the figures standing on the
carriers’ books prior to July 1, 1907. Since that time, in accordance with the account-
ing rules of the commission, only cash actually expended for property has been added
to the original book value. It is conceded that the original figure is one not verified;
but it is equally true that since 1907 the additions thereto have been made under the
commission’s accounting rules allowing only actual cash outlay to be added to the
preexisting figures. As the additions increase absolutely and relatively to the
original figure, the total figure progressively approaches accuracy. When it is con-
sidered that since 1907 these additions amount to over $1,200,000,000—
I want to add there that in 1907 the total property investment
account of all the railraods in the United States was $13,030,000,000.
Mr. Coapy. What does the property investment account include,
the capitalization issue, certificates of indebtedness, etc. ?
Mr. Water. That is all on the other side of the ledger. In 1917,
on December 31, including terminal companies, that investment
account had increased to over $19,000,000,000. :
Mr. Smus. Between 1913 and 1917?
Mr. Watrer. Between 1907 and 1917.
Mr. Srus. $13,000,000,000 ?
Mr. Water. $19,000,000,000. In other words, you had nearly
half what was in effect in 1907 added in actual cash to these properties
under the accounting rules of the commission.
Mr. Sims. Real cash investment ?
Mr. WALTER. Yes, sir. .
And when it is further considered that the property investment account since 1907
has in no case which has been brought to our attention been augmented by reason ot
the appreciation in the value of property over its original cost, but has been decreased.
by depreciation of various items, such as equipment, there seems some reason to
assume that the base selected is as fair as can be obtained for the purposes of this
inquiry.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 987
_The acceptance by the majority in their report of property investment as a base
nd its explicit employment in connection with operating income to ascertain the
ate of return obtained by the carriers under existing rates must be insisted upon.
n this connection it is also of especial significance to note that this ratio of net operat-
ag income to property investment is expressly accepted by the commission as its
est of the rate of return, not only in preference to, but to the logical exclusion of, net
‘orporate income (the percentage available for dividends on stock alone, apart from
-eturns on bonds and notes).
Commissioner Daniels then makes an estimate—this was in 1914,
tthe end of July, as to what the result would bein 1914. He thought
t would be about 4.22 per cent upon the property investment ac-
ount, but, as a matter of fact, it was only 4.12. Now, here was the
ommission disposing of this great question upon the basis of property
‘nvestment account, and it found that 5.64 per cent as the average for
he period was not enough. Let us see what happened after that
‘lecision. For 1914 it’ was only 4.12 per cent; 1915, 4.17 per cent;
916, for the year ending June 30, 5.90 per cent; and if you take the
-alendar year 1916, 6.17 per cent, and for the calendar year 1917,
‘481 per cent.
| Mr. Coapy. That property investment account includes stations,
varehouses, and office buildings ?
Mr. Water. Yes; all that is included. There is, of course, an
‘mprofitable investment included in the accounts. In other words,
‘ou take the great station of the Pennsylvania Railroad in New York
jity; that perhaps will not earn a net return on the investment that
‘mounts to very much, but it is a part of the great property of the
ailroads of the United States, devoted to the service of the public,
nd the public ought to pay what is reasonable and only what is
easonable.
Mr. Coapy. I agree with you.
- The CuarrMaAn. Was Commissioner Daniels’s prophecy confined to
portion of the country or to the whole country ?
Mr. Water. He only dealt with official classification territory. 1
rill argue to you later that what is required by 35 systems in the
fficial classification territory is required for the Nation as a whole.
: Mr. Winstow. Will you permit a slight interruption there ’
| Mr. Water. Yes, sir; certainly.
Mr. Winstow. To what extent have the railroads come under the
ommission’s plan of a uniform accounting ?
- Mr. Warrter. All railroads engaged in interstate commerce must
omply with those rules.
' Mr. Wrnstow. Have they already come in?
Mr. Waxter. Yes; long before 1917, buv the commission has pro-
Tessively insisted upon uniformity; and has become stricter in its
equirements, to avoid a recurrence of the evils that it found to exist
rom time to time. ,
_ Mr. Winstow. What system is now in force in regard to the
lepreciation of property under the accounting system set up by the
mmission ?
' Mr. Watrer. [ can nct give you a definite answer to that. I
‘hink some of the carriers have one rule and some have another.
ommissioner Clark made some answers in regard to that, but I am
ot able to give you a correct answer.
_ Mr. Wrystow. Do you think that in the book accounts of the prop-
tties that the railroads have been sufficiently liberal in making their
easonable depreciation ?
988 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Waurer. I can not answer that; I do not know, Mr. Winslow,
Mr. Winstow. Have they found any shortcomings in respect te
that matter in the physical valuation which is now going on?
Mr. Watrer. It might be developed through the course of the
inquiry, but the net results that may be found by the commission
might or might not reflect that. I do not know, but my understand.
ing is that the commission is to report on the question of depreciation
that is, property less depreciation.
Mr. Wrxstow. In making the physical valuation examinations is
it not a fact that they make them as of one time for the railroads |
Mr. Water. I think there is a fixed date, 1914, but they wil
bring that on up as the property is added to.
Mr. Wrystow. They must start on one basis?
Mr. Water. I think that basis is June 30, 1914; I am not certain
Mr. Winstow. And they must appreciate on one basis?
Mr. Water. I think that is true, but I am not an authority o1
accounting and I am not going to guess at things if I can avoid it.
Mr. Wrnstow. I should like to ascertain whether we are treating
the book values as including the depreciation or whether having i
mind the book values of the properties subject to full depreciation
Mr. Watter. They say:
In no case which has been brought to our attention has the property investmen
account been augmented by reason of the appreciation of value over its original cost
but it has been decreased by the depreciation of various items.
Mr. Winstow. Have the railroads had a uniform method of ac
counting for depreciation ?
Mr. Waurer. No, sir; they have not been uniform in that. Som
have had 2 per cent and some have 3 per cent on their equipment
but all of them have some equipment or other depraciéteds so tha
the property investment account is less than it would have been 1
it had not been depreciated.
Mr. Wrnstow. Do you think that you and I agree that the per
centage of standard returns based on book values would be ver;
much affected in accordance with the practice of the railroads i
depreciating or not depreciating ?
Mr. Water. Yes, sir; if they did not depreciate, it would resul
in a lower percentage of return, and if they did depreciate, it woul
result in a slightly higher percentage of return. As you increase th
base, you will necessarily decrease the rate of return.
Mr. Winstow. Is there any way to define in a broad way a uml
form standard with respect to the depreciation of railroad property
Mr. Water. I am not able to say. If anybody knows, th
Interstate Commerce Commission does, and I will undertake to ge
an answer for you from them.
After the hearing before your committee, Dr, Lorenz, statistici
for the Interstate Commerce Commission, states in accordance wil
my request for the information referred to:
The rules of the Interstate Commerce Commission provide that carriers charge ”
operating expenses monthly a percentage on the original cost of equipment to repr
sent the carrier’s estimate of the accrued depreciation on equipment, and if des
such charges may be made on fixed improvements also. No specific rates are pr
scribed, and consequently no uniformity has existed in this matter, although th
annual reports to carriers state explicitly what has been done.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 989
| _ Very few carriers have exercised the privilege to charge any depre-
(sation on fixed improvements.
The CHarrman. I wish to state that in presenting this bill I con-
‘sidered the matter of giving specific authority to the commission
jover matters of depreciation, and as to whether, or not, there should
'9e prescribed a rule for depreciation which could be applied gen-
‘wally. ‘There is no lack of power in ‘he commission now over the
|uatter of depreciation. If the commission wished to fix a standard
4 depreciation for the carriezs of the country the existing act would
‘five the power, but I think they have always hesitated about making
i rigid rule, because of the varying conditions under which the various
| oads operate, due to location, climate, and other factors. However,
hey are now studying that problem with a view of establishing some
ules with reference to its determination. That is the present status
‘fit, and that is why this bill contains no powers with reference to
/epreciation.
Mr. Coapy. Do they allow for the appreciation of real estate values
/.t terminals ?
| Mr. Watrer. No, sir. Now, bear this in mind, that the property
‘avestment accounts have not been increased by reason of or do not
|epresent, in any way, the greater cost of ties, engines, rails, etc.
issume, for the purpose of argument, that the property investment
ecount was excessive, if you measure the cost of the ties, equip-
jaent, and rails, and the cost of the labor performed on the proper-
‘ies of the carriers in building them, by the present cost, the total
|rould be far greater than the aggregate property investment account.
\’an there be any doubt of that in view of the rising cost of everything
‘uring the last few years? In other words, any inaccuracy in the
jidividual investment account would be equalized by reason of the
‘vet that there are roads whose value exceeds their property invest-
}ient account; and that would be further absorbed by their present
/alue due to the increase in the cost of labor and material,
| Mr. Denison. Does not the finding in the case of the five completed
/aluations contradict that statement ?
| Mr. Waxter. I do not think so at all, because, in the first place,
/10se values were of 1914, and they represent only 1,800 miles out of
159,000 miles.
| The CuarrmMan. And, another thing, they only took in the one
ement of the cost of reproduction of the thing. |
} Mr. Warter. Yes, sir; only one of a multitude of things that must
/@ considered in determining the basis on which the return must be
(gured. You may criticize the fact that here and there some bonus
| ock was issued by individual roads; you can find exceptions to any
ile that controls anywhere. It is by and large that you must answer
jiat question.
| Mr. Sims. I do not understand that the plan advocated by the
julway executives ‘will require anything based upon the property
,vestment account. Is that correct ? ;
“Mr. Warrer. I do not know. They will explain that to you. I
ant to make clear that cardinal difference, in my mind. I know the
lamber of commerce plan, and that is practically what they are
mtending for.
. Sims. So far as the fixing of rates is concerned.
152894—19—yor 1—— 63
990 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. :
Mr. Denison. Is it your understanding from Mr. Plumb’s state-
ment that he selected two or three roads and called attention to the
inaccuracy .of their property investment accounts, and then drew his
conclusion as to all of them from those instances ? :
Mr. Waurer. Yes, sir. For instance, if you will take the invest-
ment accounts of the M., K.& T., the New Haven, the Pere Marquette,
the St. Louis & San Francisco, and the Rock Island, and add all of
them together, and you will find that their total property investment
account is from about one and a quarter billion dollars to one and a
half billion dollars. Assume now the entire amount is false. Under
our plan we take from the excess earnings of carrier some $83,000,000
a year, which, capitalized at 6 per cent, would amount to more than
such combined investment account of those five carriers. :
Mr. Coapy. Does that proprety investment account include any
intangible rights ?
Mr. Watter. I can not tell you. Ido not know. |
Mr. Cooper. Did I understand you to say that since 1907 there has
been $6,000,000,000 of actual cash invested in railroads ? |
Mr. Water. I say that since 1907 the property investment
accounts, under the rules of the commission, which require cash,
increased from $13,000,000,000 to over $19,000,000,000.
Mr. Coorgr. Do the proponents of the Plumb plan question the
investment of that $6,000,000,000 ? |
Mr. Water. As I understand it, they would cut down the invest:
ment in railroad property to-day to ten or twelve billion dollars. Ide
not think Mr. Plumb undertakes to say where, how, or in what manne!
this has been brought about, but he says that the properties to-day are
not worth it. .
Mr. Coorrr. If you have $6,000,000,000 that has been invested
since 1907 in actual cash, and which no one can question, then,
according to the proponents of the Plumb plan you would not hayé
much left in the way of actual investment in the railroads of oui
country. ‘There would not be much left according to their way ol
figuring ?
Mr. Water. That is true, and I think it is quite futile to accept
any such contention as is made. Now, Mr. Plumb has for severa
years represented the brotherhoods before the commission on thi
plan of valuation, and he has argued there well and ably in behalf oi
his clients for just as low a valuation as he can. It may not be inap.
propriate to say that his purposeis this. That the lower hecan make th
capital the less will be the capital returns out of a given amount 0)
money paid by the shippers for service, and, therefore, there will be
greater amount left to pay wages, That is a perfectly fair and fran}
statement, and Mr. Plumb can not and will not avoid that as a corre¢
statement of his view. . |
Mr. Sims. You say that Mr. Plumb selected those instances 4
propery investment accounts and drew his conclusions from then
s it not true that they were the ones that had been completed by the
commission ¢ |
Mr. Watter. Yes, sir; the five roads. ;
Mr. Sms. I thought you used the word ‘‘selected,’’ or it may bt
that the gentleman asking the question used the work ‘“‘selected.” —
Mr. Montaaue. I understood Mr. Plumb to say that the property}
investment account ran somewhere between nineteen et twenti)
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 991
Dillion dollars, but that the real value of the railroads was really ten
‘or twelve billion dollars.
' Mr. Watrer. That is correct, and Mr. Plumb believes that.
2 oe Montacue. Yes; I am not questioning the honesty of. his
“pellet.
| The Crarrman. Under the Plumb plan, the courts have the judicial
‘determination of valuation, or that is a judicial question?
Mr. Watter. Yes, sir.
The CuatrMan. There is an appeal from the adjustment board by
the corporation provided for in this bill direct to the courts on such
“valuations ?
| Mr. Water. Yes, sir.
_ The CHairman. Then, even Mr. Plumb, in determining values,
would have to take the valuations provided by the courts of the land ?
Mr. Watter. Yes, sir.
The Cuamman. Have any courts of the United States ignored the
‘matter of the property investment account in determining either the
‘question of valuation or of rates ?
| Mr. Water. It can not.
The Cuairman. If that be true, what right of hope have the Plumb
plan advocates that they can have the Government to purchase the
railroads for ten or twelve billion dollars ?
_ Mr. Watter. [ can not see the slightest foundation for that hope.
It sometimes happens that a man looking to the ultimate result that
he desires, undertakes to formulate a basis for his argument, even
deluding himself. I have not any doubt that the railroads are worth
‘$19,000,000,000, and that the courts, unless they completely reverse
all the principles found in their decisions, will sustain that value.
_ Mr. Coapy. So that the success of the Plumb plan is dependent
upon the hope and expectation of cutting the capitalization in two?
Mr. Wacrer. Yes, sir; that must be. Now, let me call your
‘attention to this fact, that every plan that you have had submitted
here that deals with financial conditions will bring about a period of
litigation, or a period during which you will have valuations going
through the courts with all of the uncertainties that destroy the hope
of return upon any investments: You can not expect that exten-
sions, improvements, and betterments will be made upon the rail-
Toad property if you have uncertainty. It is the certainty of things
‘that contribute to increase in investments. Now, our plan does not
‘all for delay of any kind; the commission would go to work just as
in this case, from which I am reading, and find the amount of operat-
‘Ing income required.
~_ Now, Commissioner Daniels said on page 443, after referring to the
‘disclosures during 1914, and the return during the test period which
averaged 5.64 per cent: |
__ The disclosure is convincing that the return received, not on security issues, but on
‘the book valuation of the property actualiy used in the service of the public, is wholly
‘inadequate, when gauged from the standpoint of justice to the carriers and on the wider
Score of a continuance of adequate service to the public. :
_ Then, on page 453, he says:
_ Expected earnings constitute in the last analysis the bid which the carriers must
Make for new capital for needed improvements, extensions, new rolling stock, and
‘similar purposes. It is not necessary to say that on such a showing the investing
(public will hardly be eager to intrust its funds to transportation enterprises. Where
4
992 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
well-secured, long-time bonds bearing 43 per cent interest command little over par,
and where stock can be sold at par only on the prospect of a’‘much higher rate of return,
it is clear that the carriers must make a better showing of net revenue before they can
as a whole enlist large additional supplies of capital. .
Then, in the concluding paragraph, he says:
A living wage is as necessary for a railroad as for an individual. A carrier without.
a sufficient return to cover costs and obtain in addition a margin of profit large enough
to attract new capital for extensions and improvements can not permanently render
service commensurate with the needs of the public. Eventually it may come about
that railroads will be owned and operated by the Government. That is a matter of
public policy which it is not the province of this commission to consider. But that
such a departure from the present policy of private ownership and corporate operation
should be materially hastened by the reluctance of new capital to invest in these
properties would seem to be a grave indictment of our present system of regulation
and control.
Now, in the Fifteen Per Cent Case, the Interstate Commerce Com-
mission again took the property investment account as the yardstick
to measure the rate of return and to determine whether there ought
to be an increase in the revenues of the carriers.
The CHAIRMAN. 1917 ?
Mr. Watrer. 1917. The first decision in that case was June 27,
1917, and on page 313, treating then the country as a whole the com-
mission states:
It is not practicable to determine from figures now compiled the book values of
investment in road and equipment per mile of road prior to June 30, 1915, for roads in
the several districts, but those for the United States cover a longer period. While
these figures can not be accepted as reflecting accurately the actual cash investment
they may be taken as significant for purposes of comparison. The figures for operating
income per mile of road for calendar years when compared with those for book value
of investment in road and equipment per mile of road at June 30, give for class I car-
riers for the United States as a whole the following ratios, v sing the estimated. figures
for 1917:
Ratio of operating income to investment.
Per cent. Per cent.
PO TT ae es oak cee ee ca 16, SL7 i 1912. 2.2 ae eo ee ee 5. 300
VOT Gis ac eee ces oa DA ae eee 6.400 || 191)... cc os ae oe 5. 070
TOs Oo eee ee ee eoen 5: 240'}| 1910.22. 2.4.7 2 ee 5. 519
LOUes ss Sea ha ts Po hide to seb 4.091"|| 1909. 27. G20 S5 LL 5. 866
AOA Se eS oS See ot ale oy ces 4, 683 Hh 1908 s+. i:.t.ce ee See ee 4.941
_ 1 Based on an estimate of $4,334 operating income per mile of road and book investment of $74,500 per mile
of at en ae costs subsequent to Apr. 30, 1917, will probably operate to diminish this figure
somewhat.
Now, there is a constant level between 5 and 6 per cent. Is it
not possible that the Interstate Commerce Commission, treating
these roads as a whole, could say how much revenue ought to be
added each year. They may make mistakes in one year but they
can very well determine that there ought to be so much money,
having a budget system in effect so the carriers could say, “This
next year we expect so much expenses,” and it can, Just as a man
operates his busiess, in a general average way determime the reve-
nues required, and as each year goes by it can arrive in its own mind
at what it ought to do for the next year based upon the experience
of the past year.
Now, here was the average of these years, in the 1910 case, of
5.64 per cent. We ask 6 per cent, and when we come to apply our
second fundamental by taking away excess from certain carriers, we
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 993
bring the average to 5.52, which is less than the average of those
_ years from 1900 down to 1914. '
Mr. Sms. May I ask a question right there, because it is pertinent
to the matter you are discussing. Mr. Walter, have you made any
investigation as to what the values of the roads would be during the
years 1912, 1913, and 1914; I mean, before the European war broke
out, as to the values of the properties determined by the market
value of their outstanding a and bonds during that period ?
Mr. Water. No; I have not.
Mr. Sms. Does not such value, as represented in the market
value of the bonds and stocks, fairly represent what is assumed to be
the actual value of the property? That is, in normal times and for
_a long enough period of time so that a particularly depressing year
or a boom year would not affect it ?
Mr. Watter. No; it does not.
Mr. Sims. I have heard gentlemen who I thought were qualified
to say that that test of value and the book value would be practically
the same.
Mr. Water. I do not know. They may be much better informed
than I am, but I would hate to take the market reports as to value
of stocks, day by day, on the stock exchanges and accept that as the
value of the property over a period of years.
Mr. Simms. I mean their actual value from business transactions in
the purchase and sale and transfer of the stock and not simply the
_ quotations.
Mr. Watter. I think that what I have read from the Interstate
Commerce Commission’s decisions demonstrates that it accepted the
property investment account of the carriers as a whole to test the
adequacy of their return, their net operating income. We ask you,
as a temporary yardstick and until we know the value of these prop-
erties for rate-making purposes, to accept the property imvestment
account; bear in mind that you can not take from these carriers their
constitutional protection and if any one of them js notoriously or
manifestly excessive—or rather, to put it the other way, if the
property investment account does not reflect the value of the propery)
the courts will protect them on that value. If there is fraud any-
where in these investment accounts, one way or the other, the
commission can find it and take care of it; but you would not be
interested as to the individual carrier until you commenced to deter-
mine whether it earned, under our second fundamental, more than
6 per cent. /
Now, what is our second fundamental? It undertakes to solve in
a@ measure the trouble that the commission has found in every case—
that here is a rich road paralelled by a weak road. Shippers send
their freight largely as a matter of habit. No railroad has a property
right to have any particular shipper’s freight moved over it although
it had moved over it for 20 years. J can ship over any route I see
fit and the movement of the freight is what determines the earning
power of the carrier.
_ Now, with one road earning 20 per cent upon its property fairly
devoted to the public use and another 3 per cent, as the comuuission
has frequently pointed out, to give the road with 3 per cent enough
to make it self-sustaining and a fair return on its property will give
an unconscionable return to the richer road. ‘The money we repre-
994 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4
sent in this association has been devoted to a public use, invested in
these properties, and it is entitled only to a fai return, that is all;
that is all we ask; but under the system of rate making we must
reckon with the fact that the rate that applies between Chicago and
New York must apply over every route that operates between those
two points. If you increased the rate to the weak road so it could
earn such a return, the tonnage would leave it and it would have
nothing. If you reduced the rate on the rich road the tonnage would
all flock to it, so you must adopt a system which will treat the trans-
portation systems of the country, or at least in regions, as a single
system for the purposes of revenue.
We say that after you have put the oil up to the prescribed level
in the entire engine of transportation power, that you must have
some way to see to it that the earnings of the richer roads are kept
within bounds. We are going to lessen the earnings of the richer roads
under our plan by providing that after they have gotten up to that
fixed per-cent level on their own property we will divide the excess
above it in three parts. We believe first, that you must give some
incentive to the corporation to give efficient service and to be econom-
ical, and it ought to have enough of that dollar above six per cent
to cause it to be pulling on the traces all the time. We believe one-
third of that is ample for that purpose. Now, that leaves two-thirds.
Having given the corporation its share of the excess, we believe labor
is entitled to just as much and so we give labor one-third.
Mr. Dentson. What labor?
Mr. Warrer. The labor that is employed on all these railroads in
the region. Take the official classification territory, the commission
has divided the country for many years into three grand divisions,
roughly speaking, north of the Ohio and Potomac and east of the
Iilinois-Indiana line.
.Mr. Barxury. Did you say east of the UJinois-Indiana line?
Mr. WALTER. Well, it takes in a part of Ulinois, nut generally
speaking, that is the line.
The CrarrMan. It runs down from Chicago.
Mr. Watrer. The line is not clearly demarked, but speaking gen-
erally, that is the territory.
Now, whenever we take the excess earniugs of one road——-
Mr. Sms (interposing). What becomes of the third part of that
fund ?
Mr. Watrer. The last third goes into a fund to be administered
by the Interstate Commerce Commission. |
(The committee thereupon took a recess until 2 o’clock p. m.)
AFTER RECESS.
The committee resumed its hearing at 2 o’clock p. m.
The Coarrman. The committee will please come to order. You
may proceed, Mr. Walter. ; :
Mr. Watter. At adjournment, Mr. Chairman, I was discussing the
manner in which we divide the excess in equal parts to the corpora-
tion, to labor, and to the public. Later on I shall explain how each
of these funds is to be used, but before I do that I think I should
demonstrate to you the justness of 6 per cent as the fixed rate of
return. I think I have clearly shown that if the Interstate Commerce
bi RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 995
ib .
‘Commission, fully cognizant of all of the facts in connection with
‘railroad ownership and operation, accepts the property investment
account as the base upon which to test the sufficiency of net earn-
‘mgs, that this committee can well do the same until a valuation has
‘been arrived at. |
_ But I should have said something before I left that as to the use
of une 6 per cent. If you search the decisicns of the courts of the
‘United States you will not find complete unanimity as to what is
‘the proper measure of return upon investment. It depends upon
various circumstances. Gas companies have the right to a certain
‘return; water companies have the right to a different rate of return;
‘in other words, the risk of the investment has something to do with it.
‘ I want to call your attention to just one decision of the Supreme
‘Court; there are two points in it; in the case of the City and County
‘of Denver v. The Denver Union Water Co. et al. (246 U.S., p. 178):
_ The net return, therefore, is found to be only 4.2812 per cent of the value of the
‘plant, excluding the disputed water rights; while there is no controversy over the
‘master’s finding that the prevailing rate of interest for secured loans on business
jand residence properties in Denver 1s about 6 per cent, with higher rates for loans
‘less adequately secured.
' “As was declared in Wilcox v. Consolidated Gas Co. (212 U. 8., 19, 48) the question
of the rate of compensation that may be regarded as sufficient depends greatly upon
‘circumstances and localities. In that case we held (p. 50) that complainant was
‘entitled to 6 per cent on the fair value of its property devoted to the public use. We
‘have no hesitation in holding that the return yielded by the ordinance now before
us is clearly inadequate, and amounts to a taking of complainant’s property without
due process of law, contrary to the provision of the fourteenth amendment in that:
regard, even excluding from consideration the disputed water rights.
I think that is sufficient.
Mr. Merritt. What is the date of the decision ?
Mr. Water. It is in 246 U. S., which would be the last term of
court.
In The Lincoln Gas case, last June, 6 per cent was there fixed as
the rate of return.
Mr. Simms. They held that less than 6 per cent was unconstitutional.
Mr. Watter. They held it was unconstitutional in that it pro-
‘duced only 4.28 that it was confiscation. In reference to the Wilcox
ease, they held that the Consolidated Gas Co. was entitled to earn
6 per cent.
| Mr. Sims. Was that a legislative-made rate ?
Mr. Warrter. It was an ordinance; it »/as made by city ordinance
‘as I understand it. :
Mr. Sims. Hasn’t it been held that where the legislative-made rate
does give any profit at all that it is not unconstitutional on the
ground of confiscation ?
. Mr. Watter. In the Munn case they held that if the rate produced
any profit, it was not unconstitutional. But just as we have
progressed in’ everything else, Judge Sims, we have come to the point
‘Where we have reached, as I have shown in this case, a 6 per cent
basis. The court held in the Denver case that the ordinance violated
‘the fourteenth amendment in that it returnea only 4.28 per cent.
Mr. Sims. That is, the Supreme Court of the United States so held?
Mr. Waurer. Yes; the Supreme Court of the United States.
‘Mr. Sms. Do I understand you that now the Supreme Court of
‘the United States has determined that not less than 6 per cent on the
‘Imvestment account referred to is in and of itself confiscation ?
hey ah Pea
996 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watter. In the particular cases; and we are arguing since, in
-the case of the gas and water companies, they say 6 per cent 1s proper;
that the railroads of the United States are entitled to the same
return.
I come now to some of your own legislation on this point: Legisla-
tively you have passed upon 6 per cent as a fair return.
Mr. Sims. I did not mean it is not fair return. J am talking about
its not being constitutional by reason of ccnfiscati on.
Mr. Water. Yes, sir.
Mr. Sims. If Congress should pass a law by which a rate is restricted
below 6 per cent—I mean it has that effect, then that law is void?
Mr. Wattrer. I do not say it is void. I say, under the decisions of
the courts, there is ample basis for argument that if it produces less
than 6 per cent it would be subject to that objection.
I want now to call your attention to the Federal reserve act as
amended by the act approved March 3, 1919, on two points, one as
to the 6 per cent and the other as to the division of earnings.
Section 7 of that act provides:
Src. 7. After all necessary exvenses of a Federal reserve bank have been paid or
provided for, the stockholders shall be entitled to receive an annual dividend of 6 per
cent on the paid-in capital stock, which dividend shall be cumulative. After the
aforesaid dividend claims have been fully met, the net. earnings shall be paid to the
United States as a franchise tax except that the whole of such net earnings, including
those for the year ending December 31, 1918, shall be paid into a surplus fund until it
shall amount to 100 per cent of the subscribed capital stock of such bank, and that
thereafter 10 per cent of such net earnings shall be paid into the surplus.
The net earnings derived by the United States from Federal reserve banks shall,
in the discretion of the Secretary, be used to supplement the gold reserve held against
outstanding United States notes or shall be applied to the reduction of the outstand-
ing bonded indebtedness of the United States, under regulations to be prescribed by
the Secretary of the Treasury. Should a Federal reserve bank be dissolved or go
into liquidation, any surplus remaining after the payment of all debts, dividend
requirements, as hereinbefore provided, and the par value of the stock shall be paid
to and become the property of the United States and shall be similarly applied.
There was a basis of 6 per cent upon bank capital, and after a
certain reserve fund was accumulated, equal to 100 per cent of the
capital stock, the entire profits except 10 per cent went to the United
States, and you only gave the bank 10 per cent to go into its surplus.
Mr. Sts. Would you consider a Federal reserve bank as a private
corporation in the same sense that you do a railroad ?
Mr. Water. No; I think there 1s a difference, but I can not see
why Congress would be willing to prescribe 6 per cent as proper for
the banks and not be willing to fix 6 per cent as a fair return on the
ageregate property of the railroads devoted to transportation pur-
oses.
? Mr. Sts. I am not talking about its willingness. I am talking
about the constitutionality of the question as constituting confisca-
tion unless it pays 6 per cent. ;
Mr. Water. Our plan provides for 6 per cent as a minimum leyel;
that is, the level below which the commission would not allow the
rate to go. There is another reason why the commission ought to
make these rates. There are all sorts and kinds of inconsistencies
and contradictory adjustments in rates in the United States. I
should like to see the Interstate Commerce Commission, at the same
time it is fixing this level of revenue, straighten out these kinks and
make a proper relation of rates, one territory with the other, and a
proper relation of rates upon one commodity with another.
4%
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 997
They have to raise $50,000,000, we will assume, in official classi-
fication territory. The first thing the commission would do would
be to find the low spots, the roads that are not earning a sufficient
return, and they would ascertain the traffic which each road hauled.
‘They would determine what higher rate they could put on without
interfering with the movement of traffic. After they had done all
‘they could to fill the low spots on each road, then if more revenue
is required the commission would act on the through rate on
traffic moving over several carriers. The commission can so adjust
the divisions, as your bill provides and as our plan outlines, between
the weak line and the strong line as to equalize the situation, giving
added earning power to the weak line without at the same time
unduly depressing the earnings of the strong roads.
_ I think that expression in the Federal reserve act goes a long way
toward giving legislative precedent, and with the decision of the
courts establishes the minimum fair return upon railway property at-
not less than 6 per cent. I have no apprehension that if you made a.
report to the Congress of a provision, as contained in our suggestion,.
‘to the commission, allowing 6 per cent, that you would have very
little objection on the floor. Of course some one might say it ought:
to be 3 per cent or 4 per cent, but I think to-day people recognize
that 6 per cent is fair. The shipping interests of the country are
willing to pay that return upon the facilities that are serving them.
eer. uae Why is it necessary to state any arbitrary percentage of
return ¢
_ Mr. Watrer. Because the commission is made up of a multitude
of men. You should charge them with making the rates in order
to meet requirements. It has been an anomalous condition for a
long time that the carriers, who make the rates, try to hold the com-
mission responsible for the general level of return. I think it is a
question of legislative policy. The expression ‘‘just and reasonable”’
is a most elastic one. ‘‘Just and reasonable’’—if it is a particular
rate we are dealing with, there are many things to be considered.
at we are talking about here is not a rate on iron ore, sand, or
something of that kind, but we are talking of the rate of return,
something made up from all the individual rates that the carrier gets,
the combined rate of return. If 1 were on that commission and you
had furnished a legislative declaration as to what the revenue ought
to be in the aggregate, it would give me a complete basis upon which
to rest my findings and something from which I could work in decid-
ing those cases. So I would take the question of rates away from the
esarriers and put the carriers on the same basis as the shippers. If
the carrier wanted to change a rate it could go to the commission
and get permission to change it, as does the shipper. The shipper
oes to the commission. So if you charge the commission with the
axing of net operating income up to a standard or level to which
they shall go, it has something to work to instead of the elastic and
liscretionary term of ‘‘just and reasonable.”
_ With the commission fixing the base rate, I should go further than
your bill. I would allow the commission to divert tonnage, provided
she service of the shipper and the rate and the terminal delivery is
ust as good over the one road as over the other. Nowit has happened
1 Many cases that strong roads force unjust divisions of the through
‘ate on weaker lines—I will give you just an illustration: A number of
998 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
roads that handle the transcontinental business reach Kansas City,
Some of them from Kansas City operate through to Chicago; but the
Great Western, the Burlington, and the Milwaukee do not come im
from the West to Kansas City. So a road that comes into Kansas
City and terminates there, like the Union Pacific, has a great deal
of tonnage which it turns over to carriers which come from the Hast
into Kansas City and there terminate.
The result of this exchange has been that the division of the trans-
continental freight rate on citrus fruit, accruing to the carriers be-
tween Kansas City and Chicago out of that through rate, has been so
small as to scarcely pay the out-of-pocket expense. There ought to be
and must be given to the commission the power to fix that division,
whether the carriers agree or not. Heretofore it has been only when
the commission fixed a through rate that it could change divisions.
when the carriers have disagreed about them. Igo further. I say
that if the carrier that operates from Kansas City to Chicago can
handle the traffic and can give delivery at Chicago, and it is to the
public interest—leaving it to the commission to say whether it was in
the public interest—the commission can divert some of that traffic to
the road that needs the tonnage, because there is. no vested interest
in that tonnage in any one of these carriers. The commission, in the
exercise of wise discretion, would not take tonnage away from the
road that needed it in order to be a successful property; it would
only take it away from the road that could comfortably give it up
to the road that did need it. i
Mr. Winstow. As between two roads that were paying, would
you give them the power to divert tonnage from one to the other im,
order to facilitate rapid shipments ?
Mr. Water. Yes; I certainly would. This association is in favor
of trusting all of these things to the Interstate Commerce Commis~
sion, and they do not want any superior body over that commission.
They have the utmost confidence in the commission doing the right
thing. All Congress needs to do is to put a yardstick in the law
and you can trust the commission to apply it with rates, revenue,
operations, etc. . .
Mr. Monracue. If it is mandatory upon the commission to fix #
rate to give earnings of not less than 6 per cent, what would be the
moral incentive for economies and efficiency in the operation of the
systems ?
Mr. Watrer. The commission does not fix the rate of return for
any individual carrier. It makes the level of rates which are par-
ticipated in by all the carriers in that territory.
Mr. Monraacur. And some of them would receive less than 6 per
cent ?
Mr. Watter. Yes. We do not apply the 6 per cent minimum to
the individual carrier at all. We say that the total operating rail-
way income in southern territory, and separately in official classifi-
cation territory and separately in western territory, shall be not
less than 6 per cent. Every one of those hundreds of roads in there
gets-all it can. ;
Mr. Montraaur. Can they make more than 6 per cent?
z Mr. Water. Yes; they may earn 10 per cent, and some actually
0.
Mr. Monracur. And you then distribute the excess ?
= RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 959 _
Mr. Water. We take two-thirds of the excess of the individual
varrier, the two-thirds of the excess over 6 per cent, but if a road
yarns only 2 per cent we do not give it anything, except as the com-
(mission may increase rates upon a particular line in reaching an
igeregate of 6 per cent and except as the division of the through
hate to the weaker line may be increased by the commission.
\ Mr. Montacue. Take the converse of that situation, take a road
vyhich earns much more than the 6 per cent.
| Mr. Watrer. We let them keep one-third of the excess over 6 per
“ent as an incentive to be constantly economical.
} Mr. Montacur. Do you think that is sifficient incentive ?
Mr. Watrer. Yes; we do.
} Mr. Coapy. Sa one road makes over 6 pe cent one year and
he next year makes only 2 per cent or 1 per cent. How would you
idjust that ?
. WALTER. We do not adjust it except over a period of years.
\ carrier that does not earn 6 per cent this year is not, under our
olan, entitled to take anything out of earnings of a richer year to
jake up for the poorer year. We undertake to have the commission
‘x a revenue level which will take account of the changing con-
litions and of the kind of tonnage that moves. There may be a
irop failure somewhere, and all those things have got to be taken
nto consideration. We do not take from one to make up for the
oss of another, except as we do this. We provide for reserve funds,
inder the supervision of the commission, to protect against acts of
yxod or what you might call a lean year. The commission shall set
iside a certain reserve to take care of that sort of situation, running
er a period of years. We do not allow an individual carrier to
vay, “Well, last year we earned only 4 per cent and this year have
arned 8 per cent, we are entitled to that 2 per cent, before we make
| division to the Government and to labor.’’ The commission is
xpected to take care of that in its reserves, which are provided for.
‘fr. Johnston will explain to you how that is done, but aside from
hat we make no provision.
‘The Cuarrman. What do you think of the constitutional argu-
nent, presented by Judge Lovett in a recent pamphlet, to the effect
hat Congress, by its enactment, can not divert surplus earnings of
“my given carrier over a 6 per cent minimum, or any other minimum,
0 other lines ?
Mr. Watrer. We do not do that. We do not take excess earnings
ty road to pay to another. But the answer to that is, if we
id do it
The CuarrMan. But there are some plans that seek to do that?
Mr. Water. Yes. The answer to that is this. The carrier
arns what Congress says it may earn. After this constitutional
equirement has been made, assuming it to be 6 per cent, the require-
fent in the bill as to a fair return, we provide by statute that the
| arrier that collects 6 per cent does not receive the additional two-
hirds over 6 per cent, but, in other words, holds it in trust. It
lisposes of it under our plan, by giving one-third to labor and one-
hird to be used by the corporation, which is controlled by the
nterstate Commerce Commission. In other words, the two-thirds
vhich is taken away has never gone into its treasury, to the extent
if vesting complete ownership in the corporation,
+t
1000 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Montacur. You do not take it out of its treasury, but yow
prevent its going into the treasury ? +t
Mr. Watrer. That is it. We prevent it going into the treasury,
It holds it in trust. Even now we have this sort of a case; the com-
mission held that the rate on apples of $1.25 was unjust and un-
reasonable. That money has gone into the treasury of the carrier,
and yet the carrier may have only earned 3 or 4 per cent; still the
commission says for that particular service you have charged an
unlawful rate, it is unjust and unreasonable, and the commission
awards reparation. The carrier has to pay that money, although
it has gone into its treasury. If the commission can take that action
with regard to that one rate, when the money has gone into the
treasury and is mingled with all of the cash and assets of the company,
certainly you can, when they have made 6 per cent and one-thir
excess over, forbid the two-thirds of the excess to become its
property.
Mr. Smms. Yes; and one-third of that surplus would go to labor.
Mr. WALTER. Yes.
Mr. Sims. It would go to the labor of the region ?
Mr. WALTER. Yes.
Mr. Sims. Therefore it would go to the labor of that portion of the
carriers that did not earn 6 per cent?
Mr. WatTER. Yes.
Mr. Sims. Do you think we have a constitutional warrant to so
dispose of surplus earnings of a road beyond 6 per cent ?
Mr. Water. Yes.
Mr. Sms. That is within a region ?
Mr. Watrer. Yes; for this reason: A satisfied laboring force upon
the railways of the country is a national asset. Unsatisfied labor
and unrest is a positive menace. Congress has the right, when the
constitutional requirement as to return upon investment has been
made, to take that fund and under the administration of a national
agency distribute it among all the labor in a particular territory
working on the-railway. 3 ,
The shippers of the entire country pay the returns to the New York
Central, because traffic moving from and to every State goes over
that line; it is really a contribution by the shippers through the par
ticular vehicle or corporation which collects it. I have no doubt ot
the constitutionality of that manner of distribution. |
Mr. Dentson. What do you think of this theory, that when 4
particular road earns considerably over 6 per cent, by reason of @
rate which the Government has given it, or allowed it to charge, that
therefore the Government has the right of control over such part 0
it as it desires to control ? .
Mr. Watrer. I think that is quite true. The Oklahoma case, the
Noble State Bank case, I think, is complete authority for that sort
of distribution. |
The CuarrMaAn. Will you just cite that case in the record at this
point? ,
Mr. Water. I can give it to you.
The CHairRMAN. You need not do it now.
Mr. Sims. It was the Noble Bank case. ‘
Mr. Water. Yes; the Noble State Bank case (219 U.S.).
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1001
Mr. Sms. With respect to this question of region, included in a
articular region are roads that do not make 6 per cent and others that
jake over 6 per cent ?
Mr. Watrter. Yes.
Mr. Sims. Then you take away from the roads that make over 6
er cent all that they make except one-third of the amount over 6
er cent ?
Mr. Water. Yes.
Mr. Sims. And you contribute one-third of that amount over 6
er cent to the laborers on the road who did not make 6 per cent?
Mr. Watrer. That is true; as well as to the labor on other roads.
_Mr. Sims. Therefore, enabling that road to secure labor at a lower
age than it would otherwise have secured it ?
_ Mr. Water. No, sir. .
Mr. Sims. Suppose the labor says that it will not work on that road,
ad then they say to them, Well, these good roads in this section are
ding to give us one-third of all they make over 6 per cent, which is
» go to the employees, so you might as well work for us. Is not that
sally indirectly paying a part of the necessary expenses of the opera-
on of the weak road ?
Mr. Watter. No; because the wages paid are uniform throughout
1e territory and the employee on the rich road gets just the same as
1e one on the weak road; they get just the same share of the excess
arnings in all the region. If we did not do that, if we limited it to
ie labor on a particular road, you would find that the most competent
id capable employees would flock to the rich roads, and therefore
su have to distribute it all over the region. _, ,
Mr. Sus. I can not get away from the idea that you in an indirect
ay take away from those who have to give to those who have not.
Mr. Watters. No.
Mr. Sims. You take away from those*who have earned it, who
ader the law have performed all the services required to be performed
id give it to a road that can not make 6 per cent under the same
eatment, under the same law, rates, rules, and regulations.
Mr. Water. Take this case for illustration. We will assume now
lat we have a very large movement of coal to go over five railroads
ider a joint through rate. Now, the laborer on one road will con-
ibute just as much, so far as he is concerned, to the movement of
tat coal as any laborer on any of the other roads. It is the total
mpensation which the shipper has paid, the combined investment
property, and the combined labor of transporting it which has made
‘possible to reach destination. You have separate corporate organi-
itions, but you have every employee in that territory and every
dilar of investment doing all that it can to produce a net of 6 per
mt for the whole territory, and when you divide the excess over
per cent, in order to meet the constitutional requirement, I think
yu have fully protected yourself. You have not lessened the amount
tat a weak road has to pay an engineer for eight hours, because he
‘ts a standard wage, and he gets his share of the excess that every
eo in that entire territory gets.
r. Sims. The stock of the weak road will advance by reason ot
yur diverting this much of the just earnings of the strong road, and
e€ stock of the strong road will decline, or fail to go as high as it
ould go if that was not done. » | )
x
&
1002 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. A
Mr. Watter. Not at all. They will all appreciate to the extent
that earnings have increased, that instability as to investment has
disappeared, and that the certainty of contmued earnings and un-
interrupted service will appreciate all other investments. .
Mr. Suss. What about the other one-third of which you spoke?
Mr. WALTER. We create a corporation known as the National Rail-
way Association, with the nine members of the Interstate Commerce
Commission as a majority of the board of trustees. Hight men se-
lected by the railways of the country constitute a minority. The
corporation is not operating for profit at all, it is not the property of
any railroad company, but it is an agency of the United States just
as is the Emergency Fleet Corporation. If that excess goes to that
corporation it is to be used as those 17 men may see fit.
Mr. Srus. Used for what purpose ? |
Mr. Water. Take the equipment that the Railroad Administra-
tion has bought. The carriers donot wantit. They take that equip-
ment at a fair price, by agreement with the director general, and they
pay for it. They operate it, and the road that uses the equipment
pays for it.
I heard something said the other day about the ownership of cars
by the packers. Why could not this corporation take all the out-
standing beef cars, including the seasonal cars, special cars, and use
them where they are necessary, thereby having in its possession
ample special cars to take care of the needs of the shipners of the
country. . f
I have been counsel for one of the packers for a good many years 1h
these rate matters, and I know they would be glad to get rid of that
car investment if they could be sure of a car supply. Let this corpo-
ration that we are talking about take all of these cars; let them take
the fruit and vegetable cars, which in the early sprmg are moving
fruit from Florida aud in the late fall are moving apples from New
York. In other words, they are moving all over the country. No
individual carrier can be expected to have enough refrigerator cars to
take care of the apple crop in New York, when they are only going te
move it for a month in the year. The roads operating to California
are not going to have enough cars to move the citrus fruit, because
they do not need them all the year round. Let this corporation own
enough of this seasonal and special equipment und furnish it to the
railroads and require the railroads to pay for it a sufficient amount
to produce a fair return upon the investment in that equipment and
the service the corporation performs. |
Mr. Sims. The strong road, with plenty of working capital and
investment capital, will have to pay that corporation for the equi)
ment it has purchased just as much as a roa] that has not cor
tributed a cent of capital; is that your idea? )
Mr. Wattrr. Surely; because where do they get the money thal
went into the corporation? You and I and shippers of freight have
paid that money into the corporation. We give it 6 per cent, al
that it is entitled to under the law, and one-third more as a rewal'¢
for efficient service. We have taken nothing from it to which it I
entitled; we have given it one-third of the excess to which it was n0
entitled under the constitutional provisions, because the mone}
invested is dedicated to a public use and a fair return only is all tha
it is entit!ed to have.
i
Le a
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1003
_ Mr. Sus. I can not conceive why a road which makes more money
put of the same operation, the same investment, and at the same
tate than some other road, is not entitled justly and morally to that
‘earning.
' Mr. Warrer. Of course, Judge, I can not account for your failure
0 conceive that from your viewpoint, but I have tried to explain
it as fully as I can. ‘The Constitution guarantees a public-utility
corporation only a fair return upon its investment, and if a man who
‘mvests in one, and who knows that, under the law, gets that fair
teturn and more, how can he complain? The Interstate Commerce
‘Cotamission always gives a little higher level of rates where they have
jarich and a poor road in order that the poor road may get something
togoupon. It has been compelled to deny advances in rates because
75 per cent of the advance would have gone to roads that did not need
it. Now, when you take away two-thirds of the excess of this 75
‘ver cent there is an incentive for the commission to be more liberal
with the weaker roads.
Mr. Sims. But if the man who has invested the money takes all
the risk and chance of winning or losing, why should the man who
‘fas lost profit by that because his risk does not turn out as he hoped 4
Why should the man who benefits be penalized? Is not that bor-
dering on socialism ?
Mr. Water. Not at all. Let us assume that we have a road
operating hetween St. Paul and Chicago, that there is only one road,
and it is making munificent earnings. The people who are along
the. other side of the Mississippi River need railway service, local
railway service; the farmer has got to have some way to get his wheat
out, his corn and his cattle; another company goes to work and
ouilds a road between St. Paul and Chicago on the other side of that
aver, through another territory, and divides the tonnage between
5t. Paul and Chicago. Tet us suppose you bought stock in the first
tailroad hefore the second was built, and it was worth 200 cents on
ihe dollar, which you paid for it. The same tonnage moves over two
roads now and you have lost half your earnings. Have you any
vested right to have rates made over those two roads, so that you can
lave the same earnings that you had in the beginning? Not at all;
1ot at all. Or, if there is only one road there, should the freight that
moves over it have to pay a rate which produces 25 per cent upon the
Mvestment? Not at all. You are not entitled to it.
Mr. Simms. But the people on the second road will get one-third in-
lirectly of what the good road makes——
| Mr. Watrer (interposing). They do not get it directly or indi-
“ectly; no.
' Mr. Srus. The road gets its labor paid.
Mr. Watrrr. No; it pays the same wages as the rich road pays.
Mr. Sims. I know; but the labor gets something, which the weak
“oad does not have to pay, which you say is satisfactory.
_ Mr. Watrer. The labor on the rich road gets just the same thing;
4 dividend paid by the rich road—it is money of the public which this
Jongress, under our plan, would prohibit the rich road from ever
yetting.
Mr. Sous. Your idea is the road should not be permitted and has
aot the right to earn anything more than a certain amount on its
as capital, regardless of the amount of service that it may
tender ¢
F
res
1004 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watrer. It is entitled only to a fair return upon the property
devoted to a public use and service.
Mr. Winstow. That would not preclude it from earning all it could?
Mr. Watter. Not at all. It can earn all that 6 per cent, as a gen-
eral level, can produce on all of the railroad property of the United
States. That is all.
Mr. Dentson. In that connection, I would like to state that Com- -
missioner Clark, in testifying here, in response to a question I put to
him, said that the most desirable solution of the special-car service,
such as refrigerator cars, etc., was that they should be owned by a
separate corporation and furnished to the d:fferent roads as required.
Mr. Watter. Yes. sir. Now, this corporation, I think, would also
be able to accomplish a great many other things. We have set forth
some of those things in the bill, but let us take the unification of
terminals. Here is an operating force hand in hand with the com-
mission as an administrating force, with the commission in the
majority—the public interest supreme. There may be times when
improvements are necessary which no carrier itself would make;
perhaps a link should be built which would save a vast expense in
coming down and around, we will say. This corporation, out of these
public funds, could make, that link, if it was in the public interest. If
it was clearly in the public interest that the commission should have
a larger fund, that should be done. I will show you later, from fig-
ures, what this fund would have been if this plan had been in effect
during the three-year test period. It would have had $83,000,000 to
be divided between labor and the Government. Now, it may be there
ought to be a larger amount in the fund. The commission can make
rates higher than 6 per cent to raise that fund, if in the public interest.
I am sure that the people in this country who pay freight charges
and passenger rates are perfectly willing to pay whatever is necessary
to keep our transportation service at the highest efficiency, provided
it does not result in extortionate earnings upon investments of the
richer roads. It is that objection which shippers have made in these
rate advance cases, that the roads that did not need an increase in
revenue got it and the public did not get the benefit. I can not see
why any member of the committee, or any man anywhere should be
opposed when, under this plan the carriers are not prevented from
paying any customary dividend or fixed charge. _ Under our plan the
carriers all over the country can pay the dividends that they did pay
during the three-year period. It does not cut any of that off. It
does affect their surplus, but it is for the public good.
Mr. Montacue. Have you formulated a bill?
Mr. Watter. The bill will be presented by Mr. Johnston at the
conclusion of my examination. He will explain it in detail.
Mr. Monracue. The bill is arranged in legislative form and em
bodies your views ?
Mr. WatTER. Yes, completely.
Mr. Denison. Mr. Walter, I want to ask one question for informa-
tion which I think will interest the committee. Are there any figures
available which you can give, or any one else, showing a comparison
between the property investment account of all the railroads, whieh
you have said is something over nineteen billions, and the total
outstanding stocks and securities of all the railroads ?
3
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1005
_ Mr. Watrer. Yes. That is already in the record. Commissioner
Clark put that in.
\ Mr. Denison. For my own information, can you give an idea of
how they compare ?
* Mr. Watrer. Yes. There are about $8,000,000,000 of stock and
$11,000,000,000 in bonds. There is a lot of duplication of securities.
Por example, one road owns the stock of another, but I will under-
‘take to prepare a short exhibit, which I will insert in the record at
this point, giving the stock and bonds duplicated and not duplicated.
Denison. I would like to have that, because I would like to
know what income the 6 per cent on the aggregate property invest-
‘ment account would yield in comparison to the aggregate of stocks
and bonds.
\ Mr. Wa ter. I will also work that out.
Zomparison of property investment accounts, capital stock, and funded debt and per cent
. of return on capital stock, classes 1, 2, 3, and nonoperating subsidiaries, Dec. 31, 1917.
MII eIIU OHO i ec. fae. os ob See se lace tebe cecabens $18, 423, 235, 159
Capital, unduplicated:
| a es cn en cee sew e ede cpa $6, 582, 809, 245
FEE IS 9, 818, 976, 772
: bast 1G, 401,786, OLY
Net railway operating income (5.52 per cent of property investment). —_1, 016, 962, 580
Wemmmatt OP IKEG CHATPOS. 5 no ec ce cence aewecs 500, 018, 448
Preis available for dividends $1.2. 255 2... ck cee et 516, 944, 132
Per cent on capital stock, 7.85 per cent.
There has been some objection to this plan because the percentage
of return will run as high as 25 per cent upon the capital stock after
ixed charges are paid. The objection is made that that is too much,
Dut it is less than they would get if you did not have the restriction
inder our plan.
Now, I am going to show you how it works out. We have taken
ul the class 1 roads in the three territories and we have applied this
lan to them during the three-year test period.
There were 162 systems. Each one may have three or four cor-
orations, but these are systems with 231,321 miles of road on June
30, 1917. |
These 162 carriers represent 97 per cent of the gross revenue of
he United States, 98 per cent of the amount of revenue, and 89
yer cent of the mileage of all the lines. We have applied it to that
‘roup.
By order to bring about the 6 per cent in each of these three terri-
ories we would have to increase the rates, in official classification
erritory, in that period, 5.07 per cent; in southern territory, 4.67
er cent; and in western, 6.96 per cent of the revenues in effect.
hat makes throughout the United States an increase in the gross
evenues of the carriers of 5.78 per cent.
The total property investment in these 162 systems in the United
states would be $17,192,000,000. The freight revenues would have
Neen $2,368,000,000, and the net railway operating income would
lave been $894,000,000, with 5.2 per cent as the rate of return on the
oroperty investment.
_ Now, applying that plan, there are36 roads in eastern territory
rhich would have earned more than 6 per cent, and they would have
152894—19—vo1L 1——64
> . a -
el te
1006 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
contributed two-thirds of the excess over 6 per cent to the fund for
public use, or $31,863,000. They would have been $9,741,000 better
off, after paying into the fund that $31,863,000. That is, treating
them in the aggregate, because some of them were below 6 per cent
before we applied this increase and would only get a part of it. In
other words, they would not get all the increase, but may be a half.
Mr. Winstow. What years are covered in that period ?
Mr. Warrer. The average of this period of three years ending
June 30, 1917, treating the average of those three years as one year.
Mr. Winstow. You probably have not figured out the percentage
of increased cost in the last two years ?
Mr. Watrer. Oh, no. I am just assuming that the plan had been
in effect and the commission had made rates which produced 6 per
cent as a minimum and that every road in the territory would have
participated in its share in the increased rates in the proportion as its
gross revenue was to the aggregate gross revenue.
Mr. Winstow. Did you disturb any of the guaranties made by one
road to another ? )
Mr. Wattrer. Not at all. We do not interfere with corporate
organization or anything of the sort, and we have paid no attention to
stocks and bonds except that one of the fundamentals of our plan is
that the commission should exclusively regulate the issue: of these
securities.
Mr. Winstow. In other words, you too, the present roads with all
their present obligations ? / |
Mr. WALTER. Yes. }
Mr. Coapy. Mr. Plumb said the other day there had never been any
retirement of railroad obligations, except by refunding. Do you
know anything about that ?
Mr. Water. No; I do not. I am not going to base my case on
guesses. There has been enough of that done. : |
Now, in the southern territory 19 roads would have contributed to
this fund—these 19 roads, in the aggregate, if they had had an increase
in rates, would have been $121,233 worse off, because they came nearer
to 6 per cent than the roads in official classification territory. In the
western territory 24 roads would have contributed $37,885,000, and
they would have been $15,768,000 better off. In the United States
as a whole 79 railroads would have contributed $83,000,000, and they
would have been better off as a whole by $24,443,000.
Thirty-one roads in the eastern territory would have been $12;
000,000 better off, but they would not have contributed anything t¢
the fund; in southern territory 13 roads would have been $4,295,00€
better off and would not have contributed; in the western territory
39 roads would have been $12,994,000 better off and would not have
contributed. :
In the United States as a whole the roads not contributing, 83 @
number, would have been $29,256,000 better off. Combining tit
162 roads and treating them as one property they would have coa:
tributed to the fund $83,494,000. They would have kept $53,699,00
that $83,000,000 would have been divided between labor and tli
Government. Now, some people will say that half of $83,000,000 ©
a small amount to be divided among labor, but if you apply that b
a system of benefits and insurance, etc., it means a great deal in th
results it will bring about. More than that, it puts the employee ii
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1007
|a position where he feels he has an interest in the property on which
(he is laboring. You will not find three men working where two men
‘an do the work. TI think it will have that effect, too. Now, as to
‘the rate of return.
|. Mr. Sims. Right there, Mr. Walter. A road has contributed
‘$83,000,000? .
Mr. Watrter. Yes; all roads, collectively.
Mr. Sims. But you are distributing all of that $83,000,000 among
‘all of the roads within the territory referred to ?
| Mr. Warter. Not at all. They do not any of them get any of it.
| Mr. Sms. Who gets it ?
Mr. Warrer. Labor gets half of it.
| Mr. Sims. You said that certain railroads would be so many
|million dollars benefited, which roads had not contributed ?
Mr. Water. Yes.
Mr. Sims. Now, they had to get that from somewhere.
' Mr. Watrer. They get it out of the rates they collect.
| Mr. Sms. Certainly; but they can not pay it out of the rates
‘unless they get
| Mr. Watrer. The roads don’t pay it; the shippers pay it.
| Mr. Sims. I know; but it takes from the corporation or system
\which earned it under lawful authority and turns around and gives
to a corporation that did not invest a dollar in it and did not earn
1 dollar of it by any service it rendered to anybody. Is that a fact?
| Mr. Wattrrer. No. In the first place, under our plan, two-thirds
of the excess over 6 per cent never becomes the property of or goes
|mto the treasury of the rich road. The rich road has had its fair
return of 6 per cent and one-third of this excess. It can not com-
|olain, because it has had its constitutional return and more. That
583,000,000 never was the property of any corporation. The ship-
ers contributed to it, the road to hold it as trustee, to finally turn
t over to this corporation. :
| Mr. Sms. Then you are taking it from the shippers unjustly ?
| Mr. Watter. No; not unjustly.
Mr. Sims. For the benefit of those who have never given anything
/n return for it.
| Mr. Water. Not at all. The shippers of this country are more
ritally interested than the capitalists in having labor continue in
minterrupted service. They must move their products from and to
narket. They must buy their materials and supplies and they are
villing to do almost anything to have a settlement of this unrest and
hese threats of strike and ruin. They are the people who are more
soncerned even than capital.
| Mr. Sms. Well, but you are taking from the shipper more money
\jhan he ought to pay.
| Mr. Waurrer. More money than he ought to pay, if you have in
nind only the rich road. |
| Mr. Sims. But the poor road is not entitled to it and never earned
,t—this shipper’s money that you are taking away, and therefore
you are taking more money from the shipper than ought to be taken,
‘or the service which the shipper receives.
Mr. Watrer. No, sir. The shippers are not going to complain
they just know that the rich road does not get any richer ‘They
are willing to pay a fair return upon the property devoted to public
Ih
1008 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
service, but they insist that the system of regulation that you do
adopt shall take care of those that need it most.
Mr. Sms. Well, if one corporation owns and operates them all,
why wouldn’t they all be benefited by having more economical sery-
ice rendered, without this extra pay by the shipper '
Mr. Water. All the shippers of the country pay it to these rail-
roads as one system, 6 per cent and no more; treating them as one
road, under our plan, 6 per cent is all they get. We do not undertake
to apportion it between the weak and the strong, but to allow each
id get all that it can. If we find some getting more and some getting
ess—— |
Mr. Sims. You let them get all they can, but you don’t let them
keep all they get. That is the way I see it.
Mr. Water. I can not help that, Judge. I have tried to make
the plan plain. |
Mr. Sims. I know you have made a noble effort, and I must charge
it to my own obtuseness. .
Mr. Water. I think if you can just get your mind in such a mood
that you are willing to consider it open and take away from these
rich roads money they have not earned, you will have no .concern
about anything else. It is a new proposition, but I have just shown
you how it worked in the case of the Federal Reserve Banks. After
they have acquired a certain reserve fund they get 10 per cent and
the Government gets 90 per cent. .
Mr. Smus. Yes, but they did not get something they were not en-
titled to or keep something to which they are not entitled |
Mr. Watrer. I say if an individual road earns more than 6 per
cent, after it takes care of the proper reserve funds, it has got more
than, under the Constitution it could compel or is entitled to get out
of the public. The people we represent are the ones you are going
to look to for future investments and they are willing to have these
limitations upon excess earnings if they can get stability and know
that this trouble, that is constantly recurring, can be avoided.
Mr. MontaauE. Is it somewhat analagous to usurious interest; all
over a certain per cent is usurious and goes to the public or other
erson.
‘ Mr. Watter. I think the time is coming when excess earnings have
got to go. You are doing it in your taxing.
Mr. Wesster. Does your plan in its operation involve any differ-
ent principle than the principle involved in income taxation ?
Mr. Watrer. No. It is very much like unto it.
Mr. Wessrer. Is not the error in Judge Sims’s position this:
That he assumes that the railroad earns the sum total of the revenue
it receives under this rate when, as a matter of fact, it does not earn
it at all; it simply keeps it temporarily and is required to devote it
to a specific purpose ?
Mr. Water. That is right; it is a trustee, that is all, and the
people are getting the benefit of that trust.
Now, in the eastern territory the actual rate of return, compared
with the new rate of return that the roads would receive—taking
the roads that would have contributed the property investment
account was $4,826,000,000, net railway operating income
$289,142,000, or a return of 5.99 per cent on property investment.
Now, under our plan, with one-third over 6 per cent, the earning 00
\
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1009
|the investment would have been $298,883,000, or nine million dollars
odd more, which increases it from 5.99 to 6.19 per cent upon the in-
vestment. ‘The roads that would not have contributed, the weak
¢roads, had a property investment account of $1,971,991,000, net oper-
ating income $65,145,000 or a return of 3.3 per cent.
| Now under our plan those roads would have earned $77,162,000,
‘and so be $12,000,000 better off, and their rate of return rose from
}3.8 to 3.91 per cent. Then with the commission in control of divi-
/sions and with the movement of tonnage it can still further increase
‘the earnings of these weaker roads.
What we are looking to is an ideal situation, where the sufficiency
jof transportation service, the ability to serve the public and the
return to capital will be the same on all of these properties, but that
\isfarin the future. We are trying to build up to what is fair as well
}as permanent.
| Commissioner Clark’s testimony showed you 80,000 miles of rail-
froad that did not pay a cent of dividend. Now those investments
jare held widely and everywhere; we do not know where, but it is in
‘the interest of the public to have that property put in better shape:
‘it is a national asset. We show you similar figures for all of the
\territories. It might be well to call your attention to the United
States as a whole.
Mr. Sims. Is there an inherent right in the stockholder to some-
| thing in property which he owns—does not earn ?
| Mr. Watrrer. Why does it not earn it?
| Mr. Sms. If it has stock in aroad that does not make earnings in
jexcess of fixed charges and costs of operation, how has he any right
to something he did not get, that the property could not make and
‘did not make under the law ?
; Mr. Watrer. In the first place we have no concern with the stock
‘and bonds; we are dealing with investments.
/ Mr. Sms. You are talking about dividends; that all goes to stock.
| Mr. Watrer. We are talking about earnings, and I said there were
no dividends on the 80,000 miles of railway. There may be some
‘good reason, but I call that an evidence of weakness in the American
| transportation system.
Mr. Smus. That stock is widely distributed then ?
Mr. WatrTeEr. It is 80,000. miles; it may be distributed throughout
‘the United States.
Mr. Srms. The inference is the people were suffering for what they
jought to have. In other words, it is an inherent right to dividends,
\whether the company earns it or not.
)} Mr. Watrer. The stocks and bonds outstanding on that 80,000
miles of railroad represents some money that somebody is devoting
jto the public use.
| Mr. Stus. The bonds, of course.
Mr. Water. And the stock, to the extent that money is paid for it.
Mr. Stus. That does not always follow.
_ Mr. Wattrrer. Anyway, whatever the form the investment may
be held in, whether stocks or bonds, the investment is devoted to the
public use, and there is a public interest. ‘The man who has one car
of live stock to ship on a little branch line of railroad is just as much
‘mtitled to have this Government look after the status of transporta-
‘tion on that line of railroad as if he shipped 10,000 cars. |
—=_
1010 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — |
, ¥
Now, in the United States as a whole, the roads that would have
contributed, earned $733,000,000 on the $12,000,000,000 investment,
and that was 6 per cent. Under our plan they would have earned
$757,000,000, 6.2 per cent. The roads that would not have con-
tributed earned 3.25 per cent, being $161,000,000 on an investment,
of $4,969,000,000, and under our plan they would have earned
$190,000 ,000, or 3.84 per cent. The total amount of all roads,
those that would and would not contribute, would have resulted in’
5.52 per cent, instead of 5.2 per cent. actually earned. aat
The next page gives you graphically the showing as to individual
lines, and you will notice from the black line, which represents what
they did get, that the great bulk of them lie the left of the 6 per cent
line, and those roads that reached beyond the black line, earning
more than 6, is shortened by two-thirds of that excess; the white ling
becomes—the weaker roads represented by the black line on the left
approach under the new status of things under the graphic chart the
white line—both of them approach nearer to a common minimum of
6 per cent. Or, as showed on the right, take the Ann Arbor road,
it earned $531,583, or about 3 per cent. Under our plan it becomes
$631,813, about 3.5 per cent; it would not contribute anything to
the excess fund. Going down to the next road which does con-
tribute is the Baltimore & Ohio. It earned $25,575,000. It would
earn under our plan $29,635,000, including what it keeps, but would
pay $243,000 to the fund. It is $4,000,000 better off under the plan,
So we take each individual road for that eastern or official classifi-
cation district. We next go to the Southern District, and we give
you the same figures there. There is the Alabama & Vicksburg, the
first one shown; it earned a little more than 6 per cent, $342,083.
Its new earnings will be $353,000, but it would contribute to the
excess earnings fund $42,000. |
The Cincinnati, New Orleans & Texas Pacific earned $3,596,308,
or 9.13 per cent on its property investment. Under our plan it
would be $2,906,983, but it would have contributed to the excess
earnings fund $1,089,690.
We have then the western district, which follows. I shall not take
time to give you those figures, but they are all there.
On the following page we have practically a repetition of the formula
which we gave you on the first page. I sbaen repeat that, but
the followmg summary is interesting:
In the United States as a whole $733,115,140 went to these 162
roads, and the new net income would be $841,051,984; the earnings
over 6 per cent amount to $125,000,000; the carrier getting one-third
of that keeps it, and then the $83,000,000 goes into the fund.
Then we follow up with roads which would have contributed to
the fund, each one shown separately, with the net change under the
plan, and so follow it up with the others in excess. qj
On the third page from the last, or about the third page from the
last, we give you the fixed charges and dividend appropriations to
show that, without. exception under our plan, these fixed charges
and dividend appropriations could have been made; they would haye
had ample funds to do it.
Here, then, is the net result of our plan: Roads whose net railway
operating income would be decreased by the plan; that is, the final
result of our plan applied to them would not leave them less net rail
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1011
way operating income than they had without the plan; there would
‘be 16 roads that would be decreascd $200,000 or less; three roads
‘between $200,000 and $500,000; seven between $500,000 and
$1,000,000; and five between $1,000,000 and $2,000,000, and we name
| those roads, the Bessemer & Lake Erie, C., B. & Q.; Delaware, Lack-
awanna & Western; Duluth, Missabe & Northern; and the Union
Pacific. The decrease of $2,000,000 or more comprises three roads,
| the Norfolk & Western, Philadelphia & Reading, and the Pittsburgh
|& Lake Erie. The roads that would have been increased under the
\plan; 19 roadsshowing an increase of $200,000 or less;. eight an increase
| between $200,000 and $500,000; fivebetween $500,000 and $1,000,000,
‘and eight between $1,000,000 and $2,000,000. We show the roads
| with the amount that they would have had.
| Now, that is the result as applied. We believe that it 1s feasible
and practicable to apply this plan. I think that explains the plan.
| Mr. Johnston will show you the statute that would accomplish it.
/ Mr. Denison. Have you ever discussed this with the railway
| brotherhoods to determine whether or not it would meet the approval
of the organizations or men in one district that might be higher or
‘lower than another ?
| Mr. Watrer. No; I have not. There were in the Transportation
! Conference, to which Mr. Wheeler referred, representatives of some of
the organizations. I presented this plan, argued it, but I was told by
the representatives of the American Federation of Labor that they
did not want profit sharing in this form. Of course they want the
“Plumb Plan”’ if they can get it, and they do not want to agree to
| anything short of that, although you will recall when Judge Dewalt
/ asked Mr. Plumb whether a participation in profits after capital had
| had its fair reward and labor had had its fair wage with participation
in management would be satisfactory, “Well,” he said, ‘‘it would be
/a large improvement over present conditions.’ That is about the
| best way I can answer your question.
I have no doubt that the rank and file of this country would be
satisfied and pleased with this plan, and if they could understand the
| difference between the benefits our plan gives to labor and the
chimerical plan that has been outlined here, I have no doubt that
this would be satisfactory.
Mr. Denison. There is very little diffesence in the schedule of rail-
| way men’s wages all over the country ?
| Mr. Waurer. That is right; there was very little, and the admin-
/ istration has made them practically uniform.
Mr. Denison. And before Government control the schedule of
| wages has been practically the same?
/ Mr. Water. Very little difference.
/ The Cuarrman. There is always this difficulty where Congress fixed
a certain figure or standard. Your plan fixes a standard for the
return at 6 per cent upon the property investment. Now, I can
conceive that 54 per cent m some year might be quite as liberal a
‘return as 6 per cent in others. You can see that there 1s that pos-
‘sibility of change?
| Mr. Water. That is true, but it is no more inelastic then just
“and reasonable, if the commission failed to get 6 per cent in any
One year, there is no penalty upon anybody; the Government does
not guarantee to doit; the commission does the best it can to approxl-
|
1012 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
;
mate that and to not fall below 6 per cent; we think that without
that legislative decree you can not secure capital for future improve-
ments; to get such capital you must have a substantial revenue of
not less than 6 per cent through a period of years.
The CHarrmMan. Have you considered this aspect of the case? Our
action, if we adopt your bill and fix 6 per cent, would not bind the
next Congress ?
Mr. Water. Not at all..
The CHarrMan. It is possible to conceive that labor organizations
and the farmers combined would think that 6 per cent was too high
a wage; their combined action, manifested at the polls, might make
a Congress that would reduce that to 5 per cent, or even less.
Mr. Water. That is possible.
The CoarrmMan. Might not the combined public make it more than
possible ? , |
Mr. Water. I do not think so at all. I think that the publie
will be perfectly content to pay 6 per cent, but what the public will
not be contented with is to have earnings far in excess of 6 per cent.
Now, you can not take away that excess unless you have first
provided a legislative yardstick to do it with. These two go hand in ©
hand. The transportation conference has adopted a different method
of handling the excess. It arrives at the level of earnings by using
the temporary yardstick that we here suggest of the property invest-
ment account, but when it comes to take away the excess it adopts
another method, which has the result of making the poor roads poorer.
and leaving the rich where they are, because it fixes the standard
rate of return as the limit, and that brings me to the point where I
ought to call your attention to that fact.
Mr. Montacur. Before you leave that division, and in continua-
tion of the suggestion made by the chairman, this plan of yours of
getting capital for the railroads would not work out very well unless
we understand that the net of 6 per cent in a governmental assur-
ance, would it ?
Mr. Watter. It is a legislative direction that this is what we want
the body that acts for us to do.
Mr. Montacur. And it will not be successful unless it assumes
somewhat the form of a governmental guarantee in the public mind?
Mr. Watrer. Well, the public minds, many of them, have ap-
praised it as a guarantee.
Mr. Monracur. It will be generally construed as almost a Govern-
ment bond, willit not? |
Mr. Water. Not at all; no.
Mr. Montaeur. You do not think the popular mind would so take
them ?
Mr. Watrter. Not at all; no.
Mr. Monracur. They will take it as a good investment because
the Government is back of it, will they not ?
Mr. Watrer. They will take it as a good investment because the
act to regulate commerce requires the Interstate Commerce Commis-
sion to adjust rates so that the total investment will produce 6 per
cent. JI have no apprehension that you would find a Congress suc-
ceeding you interfermg with your act. I believe it will settle the
troubles that the carriers have as to credit; that it will satisfy labor,
he
i) RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1013
|
|
(IT am going to outline in a minute
| and with some provisions as to the adjustment of labor disputes that
Mr. Monracuz (interposing). What I had in mind was. this:
, Assuming, for the sake of argument, that the attractiveness of these
| securities for new capital will largely depend upon the faith that the
Government will so regulate these roads as to be a substantial guar-
| antee of such a return, is that not true?
Mr. Water. No; I think not.
Mr. Montacur. How will your plan work out if that is not the result
‘of it in the popular mind ?
Mr. Watrer. It will have this effect: That you have fixed the
yard stick by which rates are to be measured.
_ Mr. Monrtacusr. And that yardstick is 6 per cent?
_ Mr. Wa rer. Yes.
_ Mr. Montacur. And the Government fixes it?
Mr. Water. Yes.
Mr. Montacus. And it is upon the faith of that yardstick that the
| public will purchase it?
| Mr. Watter. Yes.
. Mr. Montracusr. That is a Government action ?
Mr. Watrer. Yes; and the faith that the Interstate Commerce
Commission, faithful to the oath of its office, as it has been in the past,
will be in the future, and will carry it out.
_ Mr. Montague. This is the thought which I wish to direct your
attention to. Ifitis that faith which makes these securities available,
‘substantially it will be in the popular mind a Government security;
do you not think the public will think that any Governemnt security
at 6 per cent would be a pretty high rate of interest ?
_ Mr. Watrer. No; there is an entire difference. In the first place
you paid 43 per cent.
. Monraeue. Four and three-fourths and six per cent is quite
different.
Mr. Water. Yes; there is a good deal of difference; but you must
bear in mind the hazards, one of them only has the railway property
| behind it; the other has the United States’ assets of every kind and
description back of it.
Mr. Montacur. You see the labor contention here is to put the
: Government back of it and also to put the Government back of the ~
| direction; then you have double assurance ?
Mr. Water. I think there is not
Mr. MontacvE (interposing). Do you not rather approximate that
‘statement or contention to some extent ?
- Mr. Watrer. Hardly. But we do think that 6 per cent will be
accepted by the public as fair. Now, the public patronizes the
Federal Reserve Bank in the borrowing of money to finance business,
)to carry on every kind of trade, and you say that the bank shall have
|6 "a cent and may retain part of the earnings in excess thereof.
Johnston calls my attention to this fact, that under the appli-
ycation of the excess earnings fund the net result is 5.52 per cent.
That is on class 1 roads.
I have no apprehension of that. Of course it would be a short-
: eal policy for the security holders to ask this Congress, or any
‘ot
er Congress, to adopt a policy which could be but fieeting in its
|effects and which would bring down upon their heads ruin in later
years. But we have no fear of the future in that regard.
1014 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Winstow. Will you or somebody else explain the financial
structure ¢
Mr. WattEer. What do you mean by that? Iam no financial man ©
at all. I have a hard time to make both ends meet as it is. }
Mr. Wrnstow. According to recent precedent then you should
make a better advocate. Somebody, I suppose, will explain how
these securities are going to be transferred and handled %
Mr. Water. There will be no change at all, Mr. Winslow, in the
way in which securities have been handled, except as you may
change the law as to the issue of securities. It is nothing more than
an increase in the revenue of the carriers, with a decrease in the excess
earnings.
Mr. Winstow. Say a man had a share of stock in the Pennsylvania ~
road, what happens to that share? :
Mr. Water. It is not changed in the least, except you have got a
little better assurance that you are going to have enough earnings to
derive something upon that investment. That is all. We do not
change any corporate existence; no change of any sort, except a
higher level of net corporate income to the roads that earn less than
6 per cent, and to some of them that earn more than that amount,
Mr. Wrinstow. You do not form any one corporation, a single
corporation ? |
Mr. Water. No, sir; we are opposed to regional corporations; we
are opposed to compulsory Federal corporation, and I will tell you why
in a minute. Perhaps I might just as well do that now.
Compulsory Federal corporation has been advocated by many
people; the great and the only purpose, perhaps, is to avoid State
regulation. The Supreme Court, in the Shreveport case, shows how
the Federal power can control a burden cast upon interstate com-
merce. It was my good fortune to be counsel for the State of Louisi-
ana in bringing that case and to take it through the commission and
to the Supreme Court and to have that principle established. Now
your bill and our plan proposes to effectuate the Shreveport principle,
and that will give everything that the advocates of compulsor
Federal incorporation want. It gives it without the delay that wi
follow and the litigation that will ensue if you try to compel a man
that has stock in the Baltimore & Ohio, of Maryland, to sell that to
somebody when he does not want to sell it, and compel somebody to
buy it that did not want to buy it. Nothing but litigation will ensue
if you adopt compulsory Federal incorporation.
The decision of the Supreme Court in Hay versus Hemphill (vol.
201, U.S. Reports, at page 75, et seq.) said:
It is true that the corporation in this case was chartered under the laws of New
Jersey, and that it receives its franchise from the legislature of that State: but such
franchises, so far as they involve questions of interstate commerce, must also be
exercised in subordination to the power of Congress to regulate such corporation, anc
in respect to this the General Government may also assert a sovereign authority to
ascertain whether such franchises have been exercised in a lawful manner, with a due
regard to its own laws. Being subject to this dual sovereignty, the General Govern-
ment possesses the same right to see that its own laws are respected as the State would
have with respect to the special franchises vested in it by the laws of the State. The
powers of the General Government 1n this particular in the vindication of its own laws
are the same as if the corporation had been created by an act of Congress.
If the carrier says, ‘‘We have been unjustly subjected to the lo
level of State rates,’’ I would cite them to what the Interstate Com-
merce Commission did in Texas. It found what was a just and
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1015
reasonable rate between Shreveport and Texas. Before that decision
‘the rate on buggies from Shreveport out to Marshall, Tex., had been
| $1.50 per hundred for 50 miles. From Dallas to the same destina-
) cents for 150 miles, three times the distance and one-third the rate.
| tion, wholly within the State of Texas, the rate on buggies was 50
\
|
—
Now, then upon the complaint of the State of Louisiana the Interstate
Commerce Commission fixed the reasonable rate on buggies and
everything else that moves in all of that territory, in both directions,
) from Shreveport to Texas and from Texas to Shreveport, and then
said that the carriers in the State of Texas shall not charge for the
} same distance a lower rate on any commodity than they apply for
like distance between Shreveport and Texas.
_ The result was an increase in the rates in Texas. It is just the
same as though the level of these tables was brought up to the level
of your platform. That was accomplished under existing law, but
| it is a long and laborious process and the law ought to be changed,
| so that the State commission can sit down with the Interstate Com-
merce Commission and after hearing the carrier and shipper, to
agree if they can, but if they can not agree, the Interstate Commerce
} Commission will say what the rate level will be. That is a plan
‘which /I believe to be feasible and practical. You do not need
compulsory Federal incorporation, with the unsettling of values and
with the delays incident to the litigation that will follow.
Mr. Winstow. Let me submit a hypothetical case. As I under-
‘stand it—I may be a little dense—the 6 per cent is allowed on the
ot a ye
book value of the property. Is that right?
Mr. WaLTER. Yes, sir.
Mr. Winstow. Then suppose the book value were below $1,000,000,
to get down to the little fellows, you know, and yet the road had
$1,300,000 of stock outstanding on which it had been paying divi-
dends, which dividends we will say amount to more than 6 per
cent on the book value. What happens to the dividends out of the
$1,300,000 if they are only allowed the income of 6 per cent on
$1,000,000 2
Mr. Water. Of course if the book value is less than the value of
‘the property, and we say the Interstate Commerce Commission
should determine that question, then it is 6 per cent upon the value
| which the commission finds.
Mr. Winstow. But book value does not determine earning power }
Mr. Wa ter. No, sir.
Mr. Winstow. Then you get to the same point we have been
wrestling with before. What is going to happen to the fellow that
+ has a lot of common stock, $300,000 of it, on which he has been get-
) ting dividends in the past, when under your system stock will receive
| no dividends save up to the amount of $1,000,000 ?
Mr. Watter. No, that is not the fact, Mr. Winslow.
Mr. Winstow. How does that work out?
_ Mr. Watrer. We have applied the 6 per cent upon the book value
and during the three years, ending June 30, 1917, the resulting
| revenue pays every customary and usual dividend that has been
aid in that time, and the fixed charges. It will not cut dividends;
it will not make it impossible for any carrier subject to it to be as
_ well or better off than it was before the plan was applied.
ay
1016 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. —
Mr. Winstow. I am afraid I do not make myself clear. If the
book value is $1,000,000 you will allow 6 per cent on that million
and that is all, is that not right?
Mr. Waurer. And one-third over.
Mr. Winstow. Well, one-third over. I will make it $1,700,000 of
common stock on which it has been paying a dividend in the past,
Under your plan you would figure 6 per cent; under your plan you
would cut off the dividend when you reached one million ?
Mr. WattER. No, sir.
Mr. Winstow. I do not see why not. |
Mr. Water. In the first place we make the rate not on the indi-
vidual carrier, Mr. Winslow. We make it upon the combined
property investment of all the carriers and let each one earn all that
it can, and it keeps one-third of all it gets over that. Now to haye
paid the dividends you are talking about, it had to earn a lot more
than 6 per cent. |
Mr. Winstow. On the book value ?
Mr. Watrer. Yes. Its property that it uses for the public is not
changed at all. v
Mr. Winstow. Not at all? |
Mr. WatrTerR. It is the same property; it has got more money t
work for than it had before, because there is a 5 per cent increase in
the freight rates during that period.
Mr. Winstow. Let me put it another way. How do you handle
watered stock in cases where the watered stock has been receiving
dividends ?
Mr. Water. We do not pay any attention to that under our plan
at all. If the amount of revenue that results from our plan is not
sufficient to pay the earnings, then it is up to the carrier to do one of
two things: It can either show that it has a greater amount of property
devoted to the public use than its investment account shows, or it
can shrink its outstanding securities, or it may pay a lower rate of
dividend, but that is_all conjectural, because under our plan there is
not a single dividend that would need be cut, because the revenues
would be ample to pay dividends and fixed charges in every case.
Mr. Winstow. I am sorry I can not see that, but I do not yet
quite see what happens to the so-called watered stock if it had been
a dividend paying stock, not represented by book investment.
Mr. Watrer. We have not in our plan paid any attention to the
securities that are outstanding, except to see that not a single divi-
dend and interest charge that was paid would be rendered incapable
of payment by the application of the plan. if
If you will give me an individual instance of any road, I will show
you exactly what it has done to fixed charges, dividends, and earnings.
Mr. Wiystow. I will try to do that later on, but at the moment I
can not do it.
Mr. Water. I shall be very glad to come to your office at any
time and undertake it.
Mr. Winstow. I can not conceive that a road which had been
conservative and has kept its book accounts of property down, and.
has issued no more stock than is represented by book values, would
not be in somewhat of a pickle if now they had to make allowances
for the fellow who had been more careless and had issued stock in
excess of his book values and paid dividends upon it.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1017
)
I
} Mr. Watter. But there is no such case, Mr. Winslow.
, Mr. Winstow. Do you concede there is any watered stock in this
Naseer try ?
_ Mr. Watrer. Yes; there may be watered stock in this country,
| but it is watered stock because there are outstanding shares of stock
| in excess of the money in the property. ;
’ Mr. Winstow. Yes; but you said a few minutes ago somebody
| would have to put in some good money to buy those stocks.
_ Mr. Wacrer. But if they put money in there in stocks that repre-
sents nothing else; in other words, to take securities at far in excess
of the value of the property, they can not expect the stock to pay a
| Sefarn: upon the investment. It is the value of the property that
must be the supreme measure.
Mr. Winstow. So if there were earning power there, not represent-
ing any assets in the form of book values, you would regard that
| earning power, so far as paying dividends on stock, you would take
it out on the basis of earning power ?
Mr. Water. No; I would not. The earning power is one of the
‘things to be considered.
| Mr. Winstow. If not in book value, is it ?
| Mr. Watrer. No; if not in book value.
| Mr. Winstow. Then you are going to add that to book value in
consideration
Mr. WALTER (interposing). No; you are talking about a perma-
nent valuation and a permanent disposition of this matter. ‘We are
| dealing here with the situation which must give us a basis to operate
| under until we know what these properties are worth. Now when
the valuation body fixes a value for these properties, it will consider
/ Many things besides book value.
| Mr. Winstow. Then your plan would be sufficiently elastic to
| allow the consideration of and to act affimatively on earning power
| as an asset ?
Mr. WA.tER. Yes; there is nothing in this plan at all which pre-
vents anybody, either the Interstate Commerce Commission under
| your direction or anybody else, from fixing a value on these proper-
| ties far different, above or below the property investment account.
This is only a temporary arrangement until you provide something
| different or better; just as the commission in the 5 per cent case said,
“We have got an emergency; we have go to meet it. What is the
| best thing we have at hand to determine what the earnings are?”’
) They took the property investment account and pointed to the fact
that their valuation had not gone far. Since that time they have
)gone five years further toward getting the values of these properties.
} Mr. Winstow. Can we agree that in the case of a road which has
issued stock on earning power without a book value behind it, the
jchances are that in starting in under your proposition that those
\shares, issued on earning power only, would be in the discard for the
| time being.
_ Mr. Watrsr. No, sir; for every one of the stocks that have been
earning dividends, receiving them, will receive them under our plan,
because the level of rates is sufficient under this plan to do it.
I think perhaps J have now gone far enough on the compulsory
Federal incorporation.
Mr. Sanpers of Indiana. May I ask just one question ?
|
The CHAIRMAN. Yes.
Mr. Sanpers of Indiana. You were discussing the question in
regard to jurisdiction over rates. I should like to have your opinion
as to whether or not the Congress of the United States has the power
to give the Interstate Commerce Commission complete jurisdiction —
of all transportation rates ? |
Mr. Water. Of common carriers that are at all engaged in inter
state commerce.
Mr. Sanpers of Jndiana. If they engage in interstate commerce
at all? )
Mr. WauTer. Yes, sir; I think that is the law.
Mr. Sanpers of Indiana. Would you think the commission could
not be given jurisdiction over rates of a carrier whose property lay”
wholly within one State ? :
Mr. Watrer. It may lie wholly within one State, but it is engaged”
in interstate commerce. ,
Mr. Sanpers of Indiana. And not connected——
Mr. Watrer (interposing). If it handles no traffic coming from
or going to a point outside the State, the Interstate Commerce Com-~
mission can not be given jurisdiction.
Mr. Sanpers of Indiana. As I understood you, you thought the
provisions of the Esch bill, with reference to the interstate and mtra-
state rates, was in accordance with your views ? ; )
Mr. Waurer. Yes; as I understand it. If there is any undue
burden upon interstate commerce by reason of a State rate, the
interstate and the State commissions sit down and thrash that out.
If they can not agree, then the Interstate Commerce Commission
says the last word. |
Mr. Sanpers of Indiana. I have thought that the provisions of the
Esch bill were merely to clarify the Shreveport case, with the addi-
tional right to State commissions to sit jomtly with the Interstate
Commerce Commission and perhaps with the additional feature that
when it was fixed it would not last more than two years. I thought
that was the provision of the Esch bill.
Mr. Water. You are right about that, but providing a quicker,
more expeditious method than results now under section 3 of the
act to regulate commerce. |
Mr. Sanpers of Indiana. Does it make that provision ?
Mr. Watter. Yes; I think it does, when you call the State com-
mission in to sit with the Interstate Commerce Commission; what has
been needed in the past was closer cooperation between the State
and the interstate Commerce Commissions. [ dare say there is no$
another State in the Union where you could have found that dis-
parity between the State and interstate rates that existed in Texas:
There was a policy stated in the reports of the State commission Mm
that State ‘We will keep our trade for our own people,” and they
erected a barrier around their State. They now see it was a mistake,
The shippers who fought us were represented here by Mr. Fulbright,
and he told you that the Shreveport decision was a blessing, im
hearing before this committee.
Mr. Sanpers of Indiana. I am at a loss to see how the Warfiell
plan would work out unless you had a unified control of the rates;
that is, in working out the plan so that when the commission undet>
took to fix the rate to yield a certain revenue, they would know
1018 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. |
t
4
‘RETURN OF THE RATLROADS TO PRIVATE OWNERSHIP. 1019
their field and they would, by definite mathematical calculation,
ih course using the factors that they had as a guide, the factors of
the past
_ Mr. Watrer (interposing). You are right about that and we do
)provide, and we think under our plan the Interstate Commerce
Commission can fix every rate of a carrier that engages in interstate
‘commerce.
| Mr. Sanvers of Indiana. If it is interstate commerce they file a
schedule with the Interstate Commerce Commission 2
| Mr. Water. Yes, sir.
Mr. Sanpers of Indiana. And then the commission can determine
whether that would yield, in accordance with their judgment, 6 per
cent. If then a large part of that field is to be covered by actions of
carriers filing their schedules with State commissions, with no knowl-
edge on the part of the Interstate Commerce Commission as to what
that action would be, and only the right to supervise it upon com-
plait, I do not see how——
| Mr. Watrer (interposing). No; that is not our plan. So far as the
control over the rates is concerned, that is the Esch plan and it is our
plan, but in making the rate the carrier has no part under the War-
jfield plan. The commission makes the rate and we provide for it
c cooperate with State commissions and with regional commissions,
| the three of them to work out what this level of rates will be, which
/m the aggregate will produce 6 per cent, State and interstate complete.
| And I think that is proper and fair.
| Now these regional commissions, just one moment on that. We
| would provide for six such commissions, and you will find a colored
map in the rear of that volume outlining where those commissions
; would be—New England and Trunk Line, Central Freight, Southern,
‘Southwestern, Western Trunk Line, and Intermountain and Pacific.
| There would be six commissions, composed of three men in each
|
-_——
territory. Those three men would have the same powers in its ter-
ritory that the Interstate Commerce Commission has over the whole;
they would have jurisdiction over all the rates that were wholly
within that territory. The Interstate Commerce Commission, sitting
as a supreme leveling body, would prescribe rules and regulations for
the handling of all matters wherein uniformity might be violated,
just as the Supreme Court in patent cases undertakes to see to it
that patents are recognized uniformly throughout the United States.
, When rates affect more than one region the Interstate Commerce
‘Commission would say what body, what regional commission, or
)perhaps what representatives from two or more original commissions
}would dispose of it; to my mind the great value which would result
from regional commissions is the ability to sit down with the carrier
}and shipper at home and settle these things. As it is now, the Inter-
'state Commerce Commission has many duties to perform; they will
be vastly increased under the Esch bill, and more so under our bill.
| Hearings by the regulating body should be near to the locality
mvolved. As it is now, the public comes to Washington. It seems
to me that the main office of the commission ought to be in Chicago,
}or some place more centrally located, instead of having everybody
come here. Twenty-four hours would be all that is required to
permit practically everybody to reach the office of the commission
from every section of the country this side of the mountains.
1020 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The CuarrMan. You provide in your bill that the regional com-
missions shall have authority over stock and bond issues, and that
there may be appeal from the regional commission to the Interstate
Commerce Commission here. That interjects one set that ma
cause delay. Is it not true that sometimes the issuance of sue
securities is a matter of considerable emergency in order that the
railroad carrier may avail itself of the then price of money ?
Mr. Watrer. You are quite right, and we provide for a con-
current jurisdiction, and the Interstate Commerce Commission, with
rules which it would prescribe, would always be open in any emergency
of any sort affecting the jurisdiction of any regional commission
anywhere. It is simply a subordinate part.
It is true that the commission is approaching more and more to
placing responsibility upon employees, and the examiner, after the
ist of September, will make a tentative report himself without
consultation with the commission, which will be served on the
parties, but he is still a long way from the local situation, the local
color; we think that with these regional commissions acting under rules
prescribed by the Interstate Commerce Commission and with the
State commissions cooperating with the regional commissions, the
Interstate Commerce Commission will have more time for the bigger
things, for the emergencies such as you refer to. This will not
halt or stay anything that ought to be expedited. It will prevent
many things going to the commission that, unless you do so, iney-
itably must go there.
The CHarRMAN. Would you give the regional commission final
authority in certain matters so there would be no appeal?
Mr. Watrer. No; I would not, because I think there is very little
reason for it with the Interstate Commerce Commission at head-
quarters providing rules and regulations which will insure uniformity.
But there are many, many things of local effect. The shipper does
not like the kind of car service he is getting, or he can not do business
on a particular rate. He goes to this regional commission, sitting
at Atlanta, and the regional commission calls in a representative
of the carrier and asks ‘‘What is the fact about this?’ There is a
meeting of minds before they leave the room, and it is disposed of
quickly. That is one of the advantages of these rate committees
and we want to continue some organization of that sort. The rate
committees are equally divided to-day between shipper and carrier,
and many of these things are thrashed out and agreed to then and
there, and it is simply a matter of form to have a freight rate authority
issued from here and freight rates put into effect.
The CHAIRMAN. You will have six regional commissions corre-
sponding to the various traffic areas ?
Mr. Warrer. Yes; the commission would fix the boundary. We
only suggest these.
The CuarrMAN. And how many commissioners ?
Mr. Water. Three each. .
The CHarrMaNn. I notice in your analysis you say the regional
commission shall be selected equally from the two political bodies?
Mr. Water. Yes; there are 18 in the United States.
The CuarrMan. I was trying to reconcile that statement with each
regional commission. .
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 102]
_ Mr. Watrer. One of the fundamentals of this plan is to get just
| as far from political organization and_ political influence as it is
_ humanly possible to get. I believe in political institutions, and am
| gometines a little partisan, but the transportation business of this
) country certainly ought to be free from it. It is paralyzing where-
| ever it touches.
| The CuarrMan. I suppose we had better take up these details with
, Mr. Johnston when he comes to explain the bill 2
Mr. Water. Yes; he will explain it.
_Mr. Denison. Will the commissioners be assigned to any par-
dicular district ?
Mr. Watrer. No; I think they ought to remain in that district.
It may be there ought to be some interchange or infusion of new
| blood, but it is hardly possible to have a commission know all of the
‘local situations. You go to a commissioner who has been on the
) public service commission of a State with some matter of adjustment
that affects his State, and he does not need much testimony and can
|quickly get to the heart of things. The more a man knows about
his locality the better and quicker relief he can give.
|. We would have these regional commissioners do more. If there
is any labor dispute that carriers and Sey oses can not settle, that
commission should act as a board of conciliation and try to get them
together. If it can not do so, it should appoint an arbiter, if they
can get them to agree to arbitration, but we want something in the
law which will make it possible not to have a strike or lockout until
there has been arbitration and publication to the world of what the
facts are. There may be opposition to it, but I think in the long
run it would be the best thing for everybody. Capital for a long
time resisted regulation, but it has been regulated and knows it is
better that it is regulated, and when labor knows that it also will
submit to regulation.
) Mr. Denison. You follow the labor arbitration act in that par-
i ticular, do you not ?
| Mr. Watrer. Yes, sir. oi 95 ;
»_ The Cuarrman. Let me raise this question in your mind. Under
the existing law and under the powers we hope to grant it, the Inter-
state Commerce Commission is a quasi judicial body, while under
152894—19—vor 1—65 |
1022 . RETURN OF THE RAILROADS TO. PRIVATE OWNERSHIP. |
your plan you would make it almost wholly judicial, taking away its
administrative functions. 3
Mr. Watrer. We would make it almost entirely administrative.
You fix the standard, they but enforce and administer the law.
The CHarrman. Yes, they administer the law, but we understand
what we mean by a quasi judicial body. Here is the point. If you
require the Interstate Commerce Commission to have the regional
commissioners to determine these labor disputes, do you not involve
these bodies, the regional commission and the Interstate Commerce
Commission, in a maelstorm of labor excitement, so that amongst
the public there may be a loss of confidence in the judgment of that
commission on things purely within its jurisdiction ? ,
Mr. Warrer. Not at all. Our principle is this: The body that
controls the revenues should have control of the expense. Divided
authority and divided responsibility beget chaos. Look at the War
Labor Board: It goes ahead and grants increases in wages, regard.
less of whether there are funds to pay them. © It says, “That 1s no
concern of ours; get the money.”
We have to have a responsible body which says a man is entitled
to more wages, but it should take into consideration the right of
those who must pay. | £
The CuarrmMan. ‘There was a time when I agreed with that.
Mr. Water. I am sorry you have passed it. |
The Carman. I have been somewhat shaken in my confidence
in that proposition. My thought is that we should not impose any
powers upon the Interstate Commerce Commission in the exercise
of which the confidence of the people may be shaken in it, in the
performance of the functions for which it was originally created.
Mr. Watrer. I agree with you on that; but let me ask you, suppost
that you have a transportation board or somebody that does fix the
wage, and the Interstate Commerce Commission is made a mer
automaton. It has got to accept the award, although it may haw
better information, and be above the political influences that conto
the other body, and yet it has to sit supine and accept the mandat
of somebody that it knows is wrong. I would put the commissio
where, with all the facts before it, it weighs all the facts and fixe
what is fair. I do not agree at all to a division of responsibility. W
are opposed ‘to that transportation board or any other board that 1
superior to the commission who can tell it what shall be done iD
particular case; Congress, whose creature the commission. is, alon
should have authority over the commission; because we believe tha
the purpose of it is to try to break down the spirit of independence
and judgment of the Interstate Commerce Commission. We i
confident to rest all in the Interstate Commerce Commission, with th
direction of Congress to it, as to what it shall do.
The CHAIRMAN. We have an arbitration board created under th
Newlands Act, just as we had a board under the old Erdmann A¢
Has labor availed itself of the Newlands Act in the last three yea
Mr. Water. As a matter of fact I do not know; but, whether
has or not, I think that the law ought to require that there be.a swt
mission to orderly authority upon facts. The principle of the Ame
can people has always been that you submit your life to the trial of
judge and jury, and you submit your property rights to trial by.
judge and jury, all you have. There is no reason why the wage la
going to get for the next 10 years can not be submitted to an imparti
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1023
ibunal, and if I do not like what they give me, I can go ahead and
do something else.
| The Cuarrman. That is true in principle. Australia and New
| Zealand sought to administer a like law, but it was a failure.
/ Ifiltustrations and examples and the experience of other nations is
‘to apply, Australia and New Zealand may have some influence with
‘us. It does seem that we ought to devise a method whereby trans-
‘portation, upon which the life of the nation depends, shali not be
‘interrupted for a single hour.
(| Mr. Watter. If you do not do it you have failed to do the prime
‘thing that the American public needs.
_ The Cuarirman. Any further questions?
_ Mr. Sims. I wanted to ask this, if Mr. Walter finished his general
statement? If he has.not, I would prefer that he get through before
Task my questions.
Mr. Watter. There are just a few other things.
Mr. Sims. I did not know whether he was through or not.
Mr. Cooper. Mr. Walter, I put the question to Commissioner Clark
‘afew days ago relative to the Interstate Commerce Commission trying
to adjust wage rates, and he objected very strongly to the commission
being placed in that capacity, on the very same ground that the chair-
man just explained, that it would destroy their service as the Inter-
state Commerce Commission.
_ Mr. Watrer. I heard Commissioner Clark give the answer. It
would be a tremendous responsibility that is placed on the commis-
sion. It would add greatly to the work that they must do, physically
and mentally. I would, in some way, under the commission, let the
bureau that does it, the board that does it, be under the direction of
the commission; let it be under its control and report to the commis-
sion, and let the commission act. I would not ask Commissioner Clark
personally to do all of those things. Itisa great burden, but I do not
want anybody else doing that work who is wholly free from the juris-
liction of the Interstate Commerce Commission. In other words, I
want a consolidated authority over expenditures and revenues.
Now, as to consolidation of companies, we are opposed to compul-
sory consolidation. If there is any one thing that the American people
vant to-day, it is competition in service, and we want that competition
service affected as little as possible; but we are willing to leave with
ihe commission the right to say what consolidation, and under what
ierms it shall be done; leave it to the natural evolution of thin gs,
Bear in mind that one of the features of the excess earnings reduc-
‘ion is to work toward consolidation; here are two roads that can
de put together, with an investment back of one of ten millions, and
in investment back of the other of ten millions; they have each the
ame investment. One road earns 8 per cent on its investment, and
he other road earns 4 per cent. The one that earns 8 can keep 6,
md one-third of the excess, the remainder goes to the fund. In-
‘tead of doing that, it would say “‘ Why should not I buy this connect-
ng carrier that is only earning 4 per cent? On the combined twenty
‘millions we will just earn 6 per cent, and there will be nothing to go
‘0 the fund.”” And the road that only earns 4 per cent, instead of
’eing, as it has been in the past, at the mercy of the richer road, and
‘ompelled to sell at the terms of the richer road, is in position to have
‘ir terms of sale. But all of that should be under the control of the
(terstate Commerce Commission.
i}
q
iE
|
|
1024 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Now, the regulation of securities, likewise, we believe, should be
under Federal authority; we understand that State authorities are
perfectly willing to have complete control over that vested in the
National Government. |
I have already told you that we are opposed to compulsory Federal
incorporation. “el
Mr, Sanpers of Indiana. IT would like to ask, with reference to
compulsory consolidation, if you think we could do that?
Mr. WALTER. You could not, in my mind, compel the existing
corporations to surrender their property and turn it over to a cor-
poration created by Congress. The theory upon which the pro-
ponents of compulsory incorporation go is “ We will deny the right of
the State corporation to engage in interstate commerce.” They
might just as well say that a citizen of Ilimois can not engage im
interstate business in Ohio.
Mr. Sanpers of Indiana. I was not asking about compulsory
Federal incorporation, but the thing I was asking about was com-
pulsory consolidation.
Mr. Waxter. I doubt that. I think you can so frame the law
that it will be a persuading force.
Mr. Sanpers of Indiana. You can not make one carrier purchase
the property of another carrier ? |
Mr. Water. No, you can not; but you can so frame the law that
in its beneficial features it is to the interest of both, and the publi¢
interest will be protected.
I have already told you why we are opposed to the department of
transportation, or cabinet officers. We believe our corporation that
we have talked to you about can do all of the things which the
department of transportation or the board of transportation, what-
ever you call it, could do; and the Interstate Commerce Commission
would at all times be a majority. It would have all of the informa-
tion and experience of these railroad men.
Now, the guaranty. We are opposed to a guaranty. It is
simply the outer portal of Government ownership. You can not
have it without making up losses, and if you make up losses you are
eoing to have the profits of those that do make a profit, and there can
be no escape from it. A guaranty does that, and I want, just as
strongly as I can, to impress upon you the difference between that
and providing that the commission shall make rates which all roads
can strive for, which, in the aggregate will produce 6 per cent on
aggregate investment—that is, nothing but just » legislative level
the commission has. Go into any lumber yard, and you will find
barrels filled with water, and there is a notice that employees must
keep water to a given level, and that is all our plan is. It is not &
cusranty, end the public ought to understand that it is Just an
interpretation as to what just and reasonable ought to mean. .
As to the Plumb plan; with a great deal of skill and ingenuity Mr.
Plumb has outlined his plan end presented it to you. All that I
care to say sbout it is that we do not favor it. It is impossible.
It is not in line with our institutions, and could not in the end profit
anybody. As a shibboleth, perhaps, it appeals to some, but when
they begin to understand it we believe it will not have supporters,
and you need heve no fear on that score.
There are a good many things that I ought to have said to you 0D
direct, but I think what I have said will outline the plan, and Mr
i) RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1025
Johnston, who has drawn the bill, will be able to explain to you in
tetail just how we bring this about; but we do believe, that with the
}x0vernment being responsible for the present plight of the trans-
ortation systems of the country, it is up to the Government to act
jromptly, until some permanent solution of the question can be
Jrought about. Our plan can be quickly put in operation; no
lelays; and we think it is just to all parties concerned.
Mr. Sims. I know, Mr. Walter, that you are a man who has had oreat
pportunity to understand the transportation problems from every
qewpoint and from every interest point; but I understand that you
ire appearing here for the plan presented by investors ?
_ Mr. WattTer. Yes, sir.
| Mr. Sims. Bondholders and stockholders 2
Mr. Watrer. Yes, sir. I am their counsel for that purpose.
_ Mr. Sus. Then, so far as you appear here, it is in the interest of
‘nvestors ?
| Mr. Warrer. Yes, sir; and those who hope to invest.
Mr. Sms. If it is good for existing investors, it is naturally to be
meposed that it would be for those intending to invest.
| . Water. I think so.
Mr. Sims. Of those whom you represent, about what is their hold-
ng in stocks and bonds?
r. WatTER. Of the railroad companies?
| Mr. Sms. I mean value, now, not the face.
_ Mr. Watrter. I do not know what the value is. All I can say is
ee. my information is that the par value approximates nine billion
‘tollars.
Mr. Stms. The face of the certificates of stock and, of course, the
yonds, together amount to about nine billion dollars ?
Mr. Watter. Yes; but it is largely bonds.
Mr. Sims. Now, about what per cent of the nine billion that your
lients are is bonds?
_ Mr. Watter. I do not know.
Mr. Sms. You said it was ‘‘largely ?”’
r. Water. I said so, because you take the life insurance com-
anies, the savings banks, the colleges, and universities of the country,
nd their investments are nearly all in bonds.
Mr. Sms. Would you be willing to risk a guess or approximation ?
"Mr. Water. No.
_ Mr. Sms. Is it 75 per cent?
Mr. Watrer. I have not the remotest idea.
Mr. Stms. You said it was “‘largely.”
Mr. Water. I could not say 75. If I said 75, it might be 70.
Mr. Sius. Would you say as much as 75?
Mr. Watter. I would not say it.
. Mr. Sus. It preponderates, however ?
_ Mr. Watrer. Yes, largely bonds.
, Mr. Sms. Now, these institutions have bought those bonds with
2asonable business care, have they not?
_ Mr. Watrer. I assume that they have, but I do not know.
Mr. Sis. Are these bonds, any of them, in default of payment of
iterest ?
Mr. Watrer. I do not know.
, Mr. Sts. Do you know whether they need any help or not?
Mr. Warren. I tried to give you the facts here, to show that they do.
a
- s ?.
|
{
Mr. Srus. If a bond is not in default in interest, and it is amply
secured by the property behind it, is it in need of anybody’s help?
Mr. Watrer. If the owner gets the principal and the interest, of
course it is all right. 5 |
Mr. Sms. If it is secured by a mortgage on the property, that
guarantees the interest? |
Mr. Waxrer. Yes, but if that property can not earn it, and take
care of it when maturity comes, and there is not credit enough to
cet capital to refund that obligation, the man’s principal is in a little
bit of danger.
Mr. Smus. If the mortgage on the property has got a sufficient
margin in value, over and above the bonds, the bondholders save
themselves, regardless of whether it is refunded or not. The bond-
holder can still have the property and get his money; I mean the
principal. |
Mr. Wauter. Yes; but if that property is such that you can not
operate it and earn money, you have got to sell it as junk; roads have
been junked in the last few years and sold as junk. ;
Mr. Sims. In other words, you have got a lot of bonds on property,
and your clients, who are no more nor less than the trustees, are
holding bonds without sufficient security behind them ?
Mr. Water. Nobody said anything like that. |
Mr. Sims. That results, of the property is going to be sold as junk,
as you say, does it not?
Mr. Water. I said ‘‘if,” and there is much virtue m an “‘if.”
Mr. Sims. Is there any reasonable probability that your clients,
who are holding these bonds, if they can hold them to maturity, that
the properties on which they are mortgaged will not pay the principal
of the debt?
Mr. Watrer. I could not say.
Mr. Stms. Without refunding ?
Mr. Watrer. I do not know.
Mr. Sms. I mean without voluntarily refunding? |
Mr. Watrer. I'do not know, but I am always willing to assume
that those who made the investments were fairly good business men,
and that they protected themselves as well as they could. But I do
not know.
Mr, Sums. That is natural, I think. These bonds, so far as we can
now see, are a perfectly safe investment and are paying interest
Mr. Watrter. I can not see that far, Judge. .
Mr. Sts. It seems to me, Mr. Walter, that these gentlemen
coming here representing these institutions ought to know the condi-
tions under which the investments are made, practical as well as
theoretical.
Mr, Watrer. Yes. Well, I will admit that I may be subject to a
great deal of criticism, because I do not know; but I do not know.
Mr. Srms. Oh, no; you are the attorney. ey |!
Mr. Water. They are only speaking through me.
Mr. Srus. You only have the information which they have given you!
Mr. Watrer. That is all, and I have not got all of that. f
Mr. Sms. I want to find out the extent of the interest of present
security holders, if they have any kind of a railroad solution, provided
they are well secured under present conditions, both by a sufficient
margin of property and by a current earning sufficient to pay the
interest. Tt
1026. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1027
_ Mr. Watter. I have read to you the decisions of the Interstate
Jommerce Commission, that the level of returns upon the investment
‘vas not sufficient.
| Mr. Sours. That was property investment.
i ‘Mr. Water. Yes; the earnings and the increased rates at a time
vhen the net operating revenues of the carriers were far in excess of
‘vhat they are to-day.
Mr. Sims. But that is on the property investment.
Mr. Watrer. Yes; by any test, they said the net earnings ere not
ufficient.
| Mr. Sms. Has the Interstate Commerce Commission ever said
| hat the bonds that your people hold are insufficiently secured ?
| Mr. Watrer. No; but they said this, that the net operating income
| vas e sufficient to meet the needs of the public and to attract new
apital.
| Mr. Sus. I readily agree with that, but I am talking about the
value of your bonds. Your folks do not operate the railroads. They
wre not paying wages; they are not doing anything except clipping
\;oupons, provided there are any funds to pay them with. Now,
ivhat interest has investment, bond holders’ investment—and I take
/t that is all life insurance companies and savings banks have got—
\what interest have they as to whether the railroads are owned in
jyne way or operated in one way or another, as long as the investment
|s unimpaired ?
| Mr. Waxrer. They are interested directly, of course, in the
|orincipal and in the return upon the principal. They are interested
lseyond that. If the railroads prosper, other industries will not be
oY affected; you will have an improved condition in the body
dolitic.
‘Mr. Raysurn. They are interested in the future successful opera-
|jion of the roads ?
| Mr. Warter. All the roads of the country.
Mr. Sras. I am trying to discuss their interest as the holders of
nyestments secured by a mortgage on railroad property.
| Mr, Water. Yes.
| Mr. Sms. Have they any financial interest beyond the security
if that particular bond?
' Mr. Watter. Why, of course they have.
Mr. Sims. In the bond itself? They can not have any more
interest. They can not pay income of the life insurance policies
put of it. Lf the railroads should pay 12 per cent on the investment
xecount, the bond would not draw any more interest? _
‘Mr. Water. No; it might draw less, because they might be able
(0 secure capital at a less rate, because the risk is less.
| Mr. Sms. The bond would not draw any less. Itis a fixed contract.
| Mr. Watrer. I know, but other and new bonds. |
| Mr. Sms. I am talking about the bonds now in existence. _
| Mr. Watrer. If you want to limit your question to the particular
bonds on a particular road, of a particular series, of course the man
who owns those bonds, if he is going to get his principal back at the
maturity of the bonds, and his share of the returns, he is pretty well
satisfied with that investment.
| Mr. Sms. He will not sell it?
| Mr. Warrer. Certainly he will sell it; you will sell nearly any-
thing you have if you can get the correct price for It.
—
1028 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Smuts. I mean he won’t sell it %
Mr. Watrer. Unless he thought he could invest it in something
else with less risk.
Mr. Srms. The reason why he would not do that would be for
another or a different investment, but a life insurance company or a
savings bank would not have such a view as that. Now, I am trying’
to find out whether your interest is altruistic and patriotic in a large
per cent, or are you simply trying to secure or prevent the impairment
of the existing investments that your clients at this time own and
control ?
Mr. Water. We are trying to preserve, protect, and defend those
investments. But, at the same time, I have explained to you that
the Security Holders’ Association consulted the shipper, wao must
pay the freight, consulted regulating authorities or representatives
as to what was best in the present emergency, but it is far from the
minds of the members of this association or its officers to appear here
solely and alone for the money that is involved; but that is the prime
reason for their being here, and I think the condition warrants their
being here.
Mr. Sims. Are they taking the interest that is collected on bonds
held by a life insurance company or others and spending it for the
purpose of promoting legislation in which they directly have no
interest whatever in the particular security ?
Mr. Water. [ have expressed to you their direct interest in the
integrity of these investments, and I regard it as a part of their duty
to defend it, although they have not spent perhaps as much as I would
like them to spend to defend it.
Mr. Srus. I am speaking of bondholders.
Mr. Watter. Let me ask you, Judge, if your railroad is built out
of the issue of stock alone, is there any difference? Is there any
more sacredness about a bond than there is about a share of stock?
It is the money that is used for the service. What difference does it
make whether you call it a bond or a share of stock?
Mr. Sims. All the difference in the world to the man who owns the
interest init. The one has to depend on what he can make out of it,
and the other does not have to depend upon the earnings, because
he has the property behind it, that he can sell in a court to pay his debt.
Mr. Watter. If it is a substantial property; and I say that these
railways ought to make their properties substantial, because they —
are going concerns.
Mr. Stms. And then I ask you if your investments are at this time
in bonds, they have all been impaired, or are they receiving the
interest that is due them ?
Mr. Watrer. I think that their future
Mr. Srus. I am talking about right now. :
Mr. Watrer. Go into the market to-day and see whether they are
impaired or not.
Mr. Stms. Bonds?
Mr. Watrer. Yes, bonds.
Mr. Stus. What has impaired them ?
Mr. Water. They are selling for less than they were sold for.
Mr. Sims. They might not have been sold for anything. |
Mr. Watter. Less than the money that was putin. Take a $100
bond, selling to-day for less than $100. |
. Sims. Yes; and stock the same way.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1029!
_ Mr. Watrer. Well, less or more.
| Mr. Sims. Yes; either one. A bond would bring a premium if the
jeurrent earnings were above the average for a like investment. It
|would sell for more than the face of it calls for; but if the current
jsarnings do not make it desirable in competition with other similar’
| kinds of investment, of course it goes below par. But I want to find
out, if I can—but I suppose you do not know—whether or not the.
\mtegrity of the bonds of your clients is threatened without an increase:
rates, so that they may add to the property a value that it does not’
now have.
Mr. Watrer. I am not able to say now about that except to point
out this fact to you, that if when refunding time comes these prop--
jrties are not in condition to get capital or money to pay for these
Sam certainly the value of the investment in the bonds is threat-
ned.
Mr. Sims. Your plan, then, does not provide for current contem-
poraneous redemption of capitalization or bonded liabilities 2
| Mr. Watrer. Well, there is nothing in our plan that prevents any
vailroad that is able to do it from amortizing any securities it wants..
Ae Is there anything in your plan to compel any railroad.
0 do 1t?
Mr. Water. I do not think there is.
Mr. Srmus. I should say not.
Mr. Watrer. But there is nothing to interfere with the exercise:
of judgment of those who are operating the properties?
Mr. Sims. If the railroads on which your bonds are issued are:
|oroviding, as they should do, a sinking fund with a view of paying’
those bonds instead of simply renewing the bonds, then there would
ye no trouble about the depreciation of the investment—I mean of
the ability of the company to pay the debt when it matures—but.
10ne of your plans that I have seen or heard anything about requires:
juny current amortization or sinking fund, and, the result is now that
ge have got here twenty billions of dollars, it is claimed, of capital-
zation, of value of the property that the capital goes into, which is.
wractically all the capital that ever went into the railroads, together
i the unearned increment that has grown out of community
|values, and it stands like the pyramids of Egypt, with the hittle end
lown, which is getting all the time larger at the top. How is your
lan, that does not require amortization our of current earnings—
10w do you expect to be successful ultimately without an ever
nereasing rate scale ?
Mr. Watter. Judge, I can not go into a debate with you on any
‘ort of question of that sort. I do not understand what you are
lriving at. We have got nothing to do with it in the plan here, as
}0 any amortized Government railroads, or anything of that sort.
Ne are insisting that here is an investment in the property. Under
he present system of Jaw and fact there is not a return upon that
uvestment which is consistent either with the safety of the invest-
nent, speaking in the aggregate, or whichis attractive to future capital.
Now, we are asking you to do those two things. If you are to
\:dopt a system whereby you remove capital from these roads, suggest
h» . I have nothing of that sort to suggest.
| . Sms. But the stockholder in your roads or the mortgage
|tolder has, it-seems to me, no right at all in the dividends, uniess in
he paying of those dividends it impairs the property.
}
}
/
1030 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Watrer. The only answer I need to make to that is that the
capital in the road came from two sources. One is from the share-—
holder of the stock and the other is from the bondholder. Both of
those contribute the money, the capital invested in the property, |
Now, each is entitled to his return upon his money. You should pro- |
vide a level of rates, which, in the aggregate, because it absorbs the |
inequalities, puts a general mean in the transportation, a result which ©
almost wholly absorbs these inequalities. |
Mr. Sms. Well, Mr. Walter, this is not alone my view, as I under- |
stand it; but how do you or anybody else know whether 6 per cent |
upon the property in a region will in the future make good under out- —
standing contingencies—make good or keep at par outstanding bonds ©
and stock ?
Mr. Watrer. It is the best judgment that we are able to give to |
it. Tt is more than what the commission said was not enough and ©
but little more. Now, it may be not enough. It is certainly the
minimum that will accomplish the result of taking care of the present |
transportation systems, making them adequate to the public needs ©
and attracting capital necessary to make the extensions.
Mr. Sms. You mean, as I understand, of course, under present
conditions and in the future. ay
Mr. Water. Under conditions as they exist and as we foresee
them, as far as we can.
Mr. Sims. Here is something that I have thought of and which
has been suggested to me by a great many others, and while it ma)
not be pertinent to this bill I want to ask you aboutit. Here are a
the governments of Europe, that have mortgaged their properties,
their resources, present property and future earnings, to an extent,
the governments never before did anything of the sort. Our own
Government is in debt for the war over 20 billions, as I understand.
Mr. Waurer. And perhaps 30. i
Mr. Sims. I mean over and above bonds that other countries owe
us. Now, with the rates of interest not excessive, as I understand, —
but the vast volume makes a tremendous burden upon the people -
every year and will on all of the people. Now, if roduced by labor
and all the people—not railway employees, but all of them and all.
alike—if they come down to prewar levels, how are all these coun-~
tries, unless it is the United States, to escape repudiation of these
debts? How are é -
Mr. Wesster. Let him answer that question, Judge. - 1
Mr. Watrer. I was just going to make this observation. The
United States does owe something between 20 and 30 billions of
dollars. if the people of the United States are to pay off to them:
selves that debt, industry must go on without interruption. No m
dustry of this country can be successful that does not have transpor f
tation adequate, full, and complete. You can not have that trans-
portation if the present level of revenues and income continues. Now,
you must have some relief to enable these carriers to go ahead and
attract the capital to pay off their obligations; and, in other words,
to meet the demands. ‘ aH
Mr. Srus. Now I will finish what I started to say. I thought some—
thing occurred to you. ay
Mr. Watrer. J thought you had finished your question.
Mr. Sims. No, I had not; I was only premising. an
I say, how is it going to prevent absolute repudiation by the
governments of Europe, at least? 1
» Sf
2
|
|
‘
i
RETURN OF THE RAILROADS.TO PRIVATE OWNERSHIP. 1031
| Mr. Watrer. How is what going to prevent ?
\' Mr. Sims. I mean if products and the value of labor go to the pre-
| war level—I mean the pre-European war level—how is it possible for
tthe Governments of Europe, mortgaged as they are—I do not mean
each and every one of them, but I mean the average—to escape re-
pudiation of their debts, unless the present high values and high
| prices of current earnings and of the value of the products sold upon
which these debts were incurred, unless they continue for such a
| period of time that the taxation of the different countries may be
large enough to enable them to pay off and reduce this debt?
| Now, J think that is going to be the case. No civilized country
| wants to have repudiation if it can avoid it. Therefore, I insist, and
| I do not see how we can escape continuous high prices of material for
|railroad construction, for labor, and for everything that goes to main-
| tain that industry, and I can see that your 6 per cent may become 3
per cent in the purchasing value of its return to the owner of the
| bonds or the owner of the stock, because industries that are not regu-
\lated by law can get all the earnings that they make. No price fixing
‘upon them.
| Noa, land to-day is selling in Jowa at $425 an acre; IT mean farm
‘land. If the products of that farm or those farms do not continue
|substantially as high as they are now, if that man bought it on credit,
/or a part of it, he will go bankrupt, and if he paid cash, the value of his
farm will be cut in two. Now, the natural tendency of things will be
to prevent anything of that sort, and I believe prices are going to re-
(main high, and how do you or I or anybody else know that a railroad
\is going to make anything beyond operating expenses ?
| Mr. Watrer. You do not know that it can do that.
_ Mr. Sims. I mean that the shipper can bear.
Now, under your plan and all the rest of them, it is provided that,
as a matter of course, before you have any dividends paid, operation
‘and maintenance and depreciation must take priority over the pay-
ment of interest or dividends.. Therefore, why do you want to have
'an absolute 6 per cent mandatory provision in the law?
Mr. Watrter. I said not less than 6.
‘Mr. Sims. Yes; not less than six.
Mr. Watrter. It is the minimum return.
' Mr. Sims. That is the minimum ?
Mr. Watrer. Yes; but if the time comes——
Mr. Sims. That is the point. A few minutes ago, you stated, if
T understood you correctly, that rich railroads had been collecting
out of the shipper what they had no constitutional warrant to collect
and no right to collect. Now, if you are going to fix this, and if it
‘does not keep your bonds and stocks at par, are you going to come in
and ask for a further mandatory increase in rates ?
_ Mr. Watrer. This much is undeniably true, and it is all I need
to say or care to say in answer to your question. Unless the capital
that is invested in these railroads and the labor that is invested in
these railroads or which works on these railroads receives enough
from the shipper to make that payment, you are not going to con-
tinue to have labor or to continue to get more capital. The people
‘of the country, in my judgment, are willing to pay all that is needed
to secure the capital at reasonable rates, to pay labor reasonable
Wages, and secure the service that they ought to have. Now, it
Makes no difference to the man who receives his wage whether he
q ;
3 > Hi
1032 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
gets $95 a day and has to spend $94 to live, or gets $5 a day and had
to pay only $4. He has the same net in the end. What we are
interested in is the difference between the outgo and the income.
Mr. Sms. Well, would a positive mandate on the rate-making body
that they must not make a rate that will yield less than your specified
6 per cent upon the property investment within that region, in order
to do what you say it will do, and if it is made 6 per cent and it does.
not pay the operation costs of the railroad, then where are your bonds
and stocks ?
Mr. Watrer. They will be perhaps in as bad condition as you
picture them, but that-is all wholly aside from the mark, Judge, if you
will allow me to say so. |
Mr. Sims. Well, Mr. Walter, it seems to me that the best legislation —
we can pass with reference to rate making is to provide just as we do
now, that rates shall be reasonable and nondiscriminatory, and so
forth and so on, and leave your commission to determine what are
reasonable rates under conditions at the time the rates are made,
without any iron-clad provision of their going up or going down.
Mr. Watter. If you think that 6 per cent is too much, then go
ahead and act in accordance with your judgment. ¥
Mr. Sms. Oh, go lower. |
Mr. Water. No. Six per cent, in our judgment, is the least that
ought to be written in the statutes. If you do not agree with us,
we are sorry, that is all.
Mr. Sms. You make it
Mr. Water. Not less than 6 per cent. Do you think if it was
one railroad that we dealt with, that 1t ought to be compelled to
take less than 6 per cent? If we had only one railroad ?
Mr. Sms. It depends upon the conditions on that railroad.
Mr. Watrrr. Assume that we had only one railroad, and it is
serving the public. Do you think it ought to be compelled to make
less than 6 per cent?
Mr. Srus. If it does not earn it, it ought not to have 1 per cent.
Mr. Water. How can it earn it, except by the rates fixed by legis-
lative authority? Then, under your reasoning, you would allow the
commission to fix rates that won’t produce 1 per cent, and then say,
“That is all you are entitled to, because that is all you can earn.”
Mr. Sims. It is within the range of rates that are reasonable for
the shipper to pay or the community or industry to bear.
Mr. Watrter. There is nothing in our plan that prohibits the com-
mission from making any rate it thinks reasonable between any two:
oints. We only say that on the aggregate of 10,000 articles, moving
etween a million points, that the total revenue shall not be less than
6 per cent upon the property investment account.
Mr. Sims. Is this a correct statement as to the actual demands,
the fundamental demands, of your plan, that Congress shall deliver
a peremptory mandate to the commission requiring it to consider the
results of rates in the aggregate, and never permit the rate structure
to reach a level where the rate would produce a net return of less than
6 per cent on the combined railway investment ?
Mr. Water. No; that is not the way to put it.
Mr. Sms. Is not that an accurate statement ? '
Mr. Watter. No. ‘i
Mr. Sims. It has just been sent out by authority of your people.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1033
_ Mr. Watrer. You put it this way
| Mr. Sms. I am reading.
) Mr. Watrser. That Congress shall provide the level.
| Mr. Smus. No, it says make the mandate. I call that a command.
There is no discretion about it.
| Mr. Watrer. You may call it whatever you like. I am using my
- own language here.
/ Mr. Sims. It leaves no discretion.
Mr. Watrer. It leaves discretion to the commission as to what
_ the rate on any commodity shall be between any points. It is only
the aggregate net revenue that I am talking about.
Mr. Sims. And if all the aggregate was such that the industries of
that section, or a substantial portion of them, would suffer if you
made the rate as high as your mandate of minimum calls for, then
the community is injured, though the stockholder or bondholder may
be benefited.
Mr. Water. But the stockholders and bondholders of a railroad
are not asking anything which will injure the industries of the
‘country. You assume what is not and will not be the effect of it.
The industries are willing to pay this return in the aggregate; we
would be shortsighted if we undertook or could get for a year or two
years what would dwarf the transportation of next year, because
this investment is made for all time.
_ Mr. Sms. Now, take the Tennessee Central—that is a concrete ex-
ample—take the investment in that road. Do you think the indus-
‘tries are going to exist if they had to pay 6 per cent on it?
Mr. Water. Nobody has asked that any such legislation as that
be passed, as to the Tennessee Central or as to any one railroad. It
is the 259,000 miles of railroads, the two and a half million of freight
cars, all the roads, the terminals, the rights of way and tunnels,
railway property of every description, that we are talking about—
all collectively—to get 6 per cent; no individual road.
| The Cuarrman. Judge, will you excuse me for a moment? I
want to make an announcement, because I have an appointment.
To-morrow, at 10 o’clock, we will hear Mr. Johnston, and after he is
|
through we will hear Mr. Beach, and we hope that we can finish both
to-morrow.
Mr. Johnston, you have copies of your bill. It might be well if
you would distribute them to-night among the membership of the
committee, so that they could have the benefit of a little study before -
you go on the stand.
Mr. Sims. Mr. Chairman, I have known Mr. Walter for a long time,
and it was the temptation to get from him the information that I did
not have, so as to te able to reach the conclusion he has reached by
having him to give me his views, that has caused me perhaps to ask
More qtiestions on a matter which might not be regarded as import-
ant, has caused me to question him as far as I have. As I say, it
was a great temptation, more a temptation than anything else, but
I will refrain from asking any further questions.
_ Mr. Winstow. Are there any further questions to be asked? If
“not, we will consider the committee adjourned.
__ (Whereupon, at 4.45 o’clock p..m., the committee adjourned until
to-morrow, Friday, August 15, 1919, at 10 o’clock a. m.)
i
1034 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Commirrer on INTERSTATE AND ForEIGN COMMEROE,
House OF REPRESENTATIVES, t
Friday, August 15, 1919. —
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-~
man) presiding.
STATEMENT OF MR. FORNEY JOHNSTON, ADVISORY COUNSEL
FOR THE NATIONAL ASSOCIATION OF OWNERS OF RAIL-
ROAD SECURITIES, BIRMINGHAM, ALA.
The CuarrmMan. The committee is ready to hear Mr. Johnston this”
morning. Mr. Johnston, give your name and address and whom)
you represent.
Mr. Jounston. Mr. Chairman, for the record, my name is Forney
Johnston, residence, Birmingham, Ala., and I appear here as one of
the advisory counsel for the National Association of Owners of Rail-
road Securities.
In presenting this bill, Mr. Chairman, [ think it proper to state
to the committee the general attitude and the necessity under which
this association has been impelled to formulate and present its views
to the committee. It is in no sense a volunteer in this matter. It
feels that it is acting in response to an unavoidable public duty, not
merely as citizens interested in the welfare of the United States and
in the solution of this grave problem, but in the discharge of a more
immediate duty to its fiduciaries. f
Mr. Walter has stated to you that the membership of the associa-
tion included the owners or the representatives of the owners of a very
large part of the outstanding railroad securities. A large part of
that representation is by mutual savings banks, insurance companies,
and other fiduciaries who owe a definite obligation to their fiduciaries -
One of the members of the committee asked Mr. Walter if the
association had any interest other than that of seeing that the returns
on the securities held by its members were paid, thus enabling them
to receive either the bond interest or a reasonable return upon then
stock. It has a very much greater and graver interest in this situa~_
tion. It is common knowledge that under the laws of a great many
States there are restrictions against the retention by trustees and
savings banks of securities which have not a certain established value |
rating of credit, worked out through the past performance of the
issuing company in the payment of dividends. It is obvious that if
that limit is transgressed, if those regulations are not complied with
by the company from any cause whatsoever, those companies holding
those investments in a fiduciary and strictly limited capacity under
the laws of their States, must dispose of them or withdraw from
further purchases.
If this situation, as it now promises, proceeds to the inevitable
result, in the event that Congress should not sustain these carriers, —
and, incidentally, their securities, this would mean the dumping upoti
the market of incalculable amounts of existing railroads securities.
This would result, of course, not only in a collapse of the credit of
those roads and in the values of their securities, but a crash into all
other values of other securities which are outstanding, and therefore
the membership of this association has an immediate and profound
|
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1035
) concern, over and above the mere selfish return on existing securities,
‘in seeing this situation sustained and in urging upon Congress in every
“way in which it can constructive legislation which will avoid the nec-
| essary consequences sure to follow present conditions, if present con-
‘ditions are permitted to continue to their inevitable end through
congressional inaction. :
_ There is another and quite as important a duty to which this asso-
ciation and the investors in railroad securities must respond, and that
| Is to submit to this committee their views as investors as to what is
| mecessary to keep them in the market as investors. They do not
| appear here in the attitude of asserting that if Congress will not adopt
| legislation which they consider, m their view of the matter, necessary,
they will withhold investing any further in the securities of the rail-
| roads of the United States, but they do say that acting largely in a
/ fiduciary capacity and not being permitted that discretion under
} which an individual owner would be authorized, under the law, to
| take his chances of profit or of loss, they are limited by the fiduciary
| capacity in which they act and which these vast investments have been
| made in railway securities; and they must express to Congress their
- utmost concern, if these securities are not to be stabilized by the ex-
| ercise by Congress of its power and its duty and responsibility under
the Constitution to regulate and sustain interstate commerce, lest
| they be no longer permitted, m the preformance of their trusts, to
‘invest further in these securities. And it is from this standpoint,
| and not from a standpoint of mere self-interest, that they appear
| and earnestly present their recommendations for the constructive
| exertion by Congress of its great power and responsibility.
When they accompany that appeal, as they do, with the conclusion
| arrived at by the association that the situation can not be worked
; out except ieaaati a regulation of earnings, through a restriction
to a fair basis of the returns on railway investments, they do believe
} that they should not be subjected to the erroneous criticism which
| asserts that they appear here for the purpose of pereetna ee an
/ unsound railway fabric or on a mere sordid basis of trying to exact
out of the shipper the maximum amount which can be taken; and
we do not think, Mr, Chairman, that any such suggestions, coming
| here as the association does with a free expression of its convictions
| that this can be, worked out only by a limitation of its own earnings,
| if treated as a mere security holder, or that any such criticism should
| proceed from, for instance, our friend, Mr. Plumb, who comes before
ongress not with an offer on the part of those he represents to sur-
| render any past constitutional right or inviting any limitation or
| regulation upon their rights, but, on the other hand, with the defiant
{| insistence that the whole railway fabric should be turned over to
_ those whom he assumes to represent, and without any corresponding
| offer of concessions or restrictions upon their ultimate, personal,
| selfish interests. iS A
| For those reasons we believe that the association, In presenting
| its plan or its proposals, is not properly subject to the criticism of
acting from self-interest. It is, just as this committee 1s, responsive
to a paramount public duty. 1 beg to assure the committee that
‘it is upon that theory that we have proceeded throughout in this
| Matter, and if its efforts in setting up a general conviction among
| the investing public, a widespread opinion, that the time has come
1036 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
when it is proper to consent to a reasonable regulation of earnings,
if it has been able to contribute in that way or otherwise in its efforts
to assist in working out this problem, we believe the association will
have responded to a duty which is encumbent upon all citizens of
this republic.
We think it proper to state to the committee the general theory
on which we have proceeded in formulating these suggestions, not
in order to admonish the committee of our views as to the law, but
that they may know the theory on which we have approached the
matter, in order to determine whether or not it is sound.
We have assumed at the outset that it is the purpose of Congress
to proceed to extend and perfect the system of regulation begun in
1887 rather than at this time to experiment with drastic, economic
revolutions. Upon that theory, I think it is proper for us to say at
the outset, so that nothing which may be suggested here can be
interpreted as any criticism of the Interstate Commerce Commission,
that we have as a primary conclusion believed that the powers of the
Interstate Commerce Commission should be radically extended.
We recognize that there has not been, since the establishment of
the commission in 1887, any breath of scandal or any reflection upon
the official integrity of a:single member of the Interstate Commerce
Commission. We propose extensions of its power that go beyond
the suggestions of the Esch Bill, so when we refer to unsatisfactory
practice which has accompanied railway rate regulation in the past,
it is in no sense intended as a hostile criticism of the commission or
of its personnel. As a lawyer, I can not fail to recollect that the
first chairman of the Interstate Commerce Commission was Cooley,
the great jurist of the West, who brought the mantle of John
Marshall to the Interstate Commerce Commission at its very mncep-
tion, and we believe that its earnest efforts to proceed within the
express limits of the policy laid down by Congress has justified the
unbroken confidence of Congress in the commission.
Our chief suggestion is based upon the certainty that now is the
time for Congress to define its policy toward the railroads on some
more constructive theory than that of rate depression stopping only
at the dead line of the fifth amendment.
The primary responsibility of course is upon Congress under the
commerce clause. The power, which carries with it the duty, to)
regulate commerce is not conferred upon the commission but upon
Congress. The very term implies that in ‘‘regulating’’ Congress
must promote, preserve, and protect, and that implies the obligation, |
we think, in delegating vast powers, to the commission, including
almost the power, I may say, indeed, the power of life and death over
these transportation systems, for Congress to lay down restrictions
upon its agency that will require the latter in exercising those powers
to stop short of destruction.
The constitutional guarantee against the taking of property which
is set up in the fifth amendment is not the only limitation upon the
power of Congress and upon the power of its agencies in the matter
of regulation. The power to regulate implies within itself, and before
you reach the question of confiscation under the fifth amendment,
conservation and protection, and it is not appropriate in handing
over this great power of regulation to the Interstate Commerce Com-
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1037
| mission, to permit it to proceed to the point of destruction and stop
_ there merely to avoid the fifth amendment.
~ We think, Mr. Chairman, that it is reasonable to ask, when you are
| proposing now, as you do, and as we do, vast extension of the powers
of the Interstate Commerce Commission, that there should be a
_counter-balance through the congressional declaration of 2 definite
' policy which in times past the Interstate Commerce Commission has
not felt it was in its power to recognize. You now propose that the
Commission shall have much wider power than the power to regulate
| Tates or rather to suspend rates, because they have no power under the
, fifteenth section of the act, either as it now stands or as proposed by
the Esch bill, to do anything other than suspend or reduce rates
) which have been actually filed—their action is brought into motion
) only when an unjust and an unreasonable rate in violation of the
commerce act is filed by the carriers, and then their power is restric-
tion or suspension. It is not an affirmative or constructive power
they are given, however desperate the situation of the carriers, and
| 16 is not proposed by the Esch bill, as I understand it, that the com-
| Mission be given any power whatsoever of initiation or advancing
| Tates—except, perhaps, in isolated cases of discrimination. The
commission has only negative and restrictive power, and we think
that when these vast extensions of administrative power are conferred
‘upon any tribunal, it is only just to the subject of that regulation
that some limit upon the exercise of that power should be laid down
| by Congress in addition to the fifth amendment which permits regu-
‘lation to the point of confiscation and destruction.
You propose not only to regulate the issue of railroad securities
| but how every dollar realized by their sale may be expended. You
) go vastly further than that. You suggest that the commission shall,
t the future, not only have the power of regulation with reference to
| the basis for interchange of equipment between carriers and the rates
| or charges for the use of those facilities which in their corporate
| discretion the carriers may provide, but you now propose to give the
commission the power to control their discretion as to the supply of
cars and equipment, and the number and movement of trains, and
that means power over the service of transportation, and further than
| that sweeping and absolute power over the conduct of these carriers
| you propose to give the commission the power to control. and require
extensions of their trunk line railway systems. Meee
I may say a word as to that power without in any sense criticising
| any of the terms of the Esch bill, for I think the committee is entitled
to the extent to which we have been able to analyze its provisions to
have the benefit, at least, of our own views as to the constitutional
theories or the propriety of the various clauses presented by the
Esch bill. This power of forcing the extension railway systems,
| we think, without being here to oppose it if coupled with mandatory
corresponding obligations on part of the commission, reaches the
imit of constitutional authority. .
| There is no doubt of the power of a State, before Congress has
‘taken control of the subject, to require carriers to perform the rail-
} Way duties which they have clearly assumed. That embraces ser-
| vice along the line and within what you might call the curtilage of
the several railroads. They can be required, where the extensions
| are public in their nature, to construct sidings, even if the construc-
152894—19—vor 1——66
1038 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. {
tion may be mainly for the benefit of a single industry. They can
also be required to make connections at their own expense, but you
vo further than that. You go further than what Justice Hughes
called in the North Dakota Case (236 U.S. 595) the performance by
the carrier of the duty assumed by its original undertakings, and
propose to authorize the commission to require the carrier to make
extensions of its system, obviously for the purpose of avoiding the
construction of competitive lines upon a wasteful basis, and pro-
tecting interstate commerce from unnecessary duplication; but this
might impose upon the carrier an obligation which it has never
expressly or implicitly assumed.
The CHarrMAN. You have a doubt as to the constitutionality of
that provision in the bill requiring a carrier to make extensions if,
for instance, such extension was beyond the grant contained in the
company’s charter. I suppose most charters contain limitations or
fix the termini of extensions 4 ’
Mr. JoHNSTON. Yes, sir.
The CHarMan. It is your thought that if the commission required
an extension beyond the extension of the termini fixed in the charter
we would be going beyond the Constitution ?
Mr. Jounston. That is the thought, Mr. Chairman, not that we
are in any sense opposing the results, but we are merely suggesting
to the committee the desirability of considering further whether that
would not extend the duty originally assumed by the Carrier, 2g
Justice Hughes said, its oricinal undertaking; the engagement which
it assumed when it undertook to perform a public service. He
pointed out in that case, as I recall, and I have no doubt you gentle-
men are familiar with it, that if the carrier assumed to render only
passenger service the State could not require it to transport freight.
The CHAIRMAN. Would this authority on-the part of the commis
sion to require extensions beyond the termini fixed in the company’s
charter have any effect upon the sale of securities which would he
required in making such extensions ? .
Mr. Jounston. Obviously, Mr. Chairman, if the Interstate Com-
merce Commission is given the power in its discretion to require a
railroad to make a major trunk line extension—because there is nc
limit to this power as the proposed act stands, unless it shall he
shown to interfere, as I recall the expression, with the ability of that
carrier to discharge its public obligations—now, if the commissior
can show that the carrier ordered to extend its system could dispose
of securities to make that extension, I should not say that its
order requiring the extension would be restricted in any sense by
that qualifying clause, and we would be confronted with the situation
of a carrier having undertaken to perform the business of a publi
service company between, for illustration, Washington and Balti
more, required to extend its line to Philadelphia or to Annapolis 0.
to Harrisburg, or in any direction that the commission might re
quire, and that is imposing a duty which the carrier did not assum
expressly or impliedly, in undertaking the service of transporatio
and that.is the reason why we think it might be desirable for the co
mittee to consider that question, and if it is thought necessary ti
preserve that clause to restrict it within plainly constitutional limi
But the point I make immediately is not a criticism of your purpos
or of the idea or of the power, but to call to the attention of the co
___RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1059
Mi
\aittee that when you are giving to the commission not only the
‘ower of life and death through the stoppage of rates and the control
frates, but propose to sta the corporate management in broad
telds within which it has formerly exercised its discretion, and will
/aus change the original undertaking assumed by the stockholders in
atering into that enterprise, you are giving such sweeping, drastic,
nd unlimited powers to the Interstate Commerce Commission as to
/vake it necessary for you in some way to provide by a definition of
\ohiey which wil retain that such wide power shall be exercised only
|nder conditions that will result in a reasonaple return, and not in a
|} iwsuit for a return one point more than confiscation.
| To say that a carrier shall be required to expend $50,000,000 or
/100,000,000, and then remain in the bread line before the Interstate
\ommerce Commission in order to receive a reasonable return upon
|he investment it has made, Mr. Chairman, is going too far in the
rocess of regulation.
We have not the slightest objection to any regulation which may
je considered as desirable by the committee, provided you will lay
/own a policy which will not reproduce the situation of the past.
}Vhen you recall, as was directed to your attention by Mr. Walter
}esterday, that the additional investment in railroad properties since
|907, when the commission was given jurisdiction over the accounting
|ystem of the carriers, has increased by $6.000,000,000, you may dis-
jer what the condition would be. Now, let us see if any commensu-
(ate return has been realized on that $6,000,000,090 invested since
}907, as shown by the exhibits introduced into the record by Com-
jlissioner Clark. He showed that the return in 1907 was 5.68 per
}ant, or that the ratio of the net operating income to the proverty
jiwestment account was 5.68 per cent. The commission, I might
\ty in passing, has referred to that with satisfaction as not being
| byious y an unreasonable return, because, if it was, it was at all
‘mes charged with the duty, by acts of Congress, to reduce uareason-
tle returns. But taking 5.68 per cent as the return in 1907, what
/as been the result of the plowing in of $6,000,000,000 addition al ?
One would expect from the situation of utter immorality which
Tr. Phimb says existed in the property accounts at that time that
16 railroads could not earn relatively as much money on moonshine
ad water as they could by plowing in $6,000,000,000 additional.
ne would expect that every dollar of real cash that has been intruded
| t0 the investments since 1907 would result in larger relative earnings
jit the result has been the contrary, and instead of maintaining the
tio of 5.68 per cent, or increasing that ratio, if we subtract the
venue in 1907 from the net income in 1917, we will find that the
‘idition of $6,000,000,000 of new money has resulted in a revenue of
})out 4 per cent upon that additional $6,000,000,000. That of itself
| Sufficient to demonstrate that the situation which Mr. Plumb
jiggests as existing in 1907 does not exist. So when you are con-
onting the American railway systems with power on the part of the
)MMission to require and force capital additions to property accounts,
tending even beyond the curtilage of their limes, and beyond the
JWritory necessarily incidental to and obviously dependent upon the
‘aim line as constructed by the carrier, then, I think that obviously
tere should be a permanent declaration of policy by Congress con-
sying a reasonable assurance to the investing public that the addi-
as
“@
——
1040 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
tional investment should have an adequate return without a lawsui
and generally an unsuccessful one to secure it.
Mr. Merrirr. I would like to ask you how you get that figure ¢
4 per cent on the additional $9,000,000,000% Where does that 4 pe
cent come from ?
Mr. Jounston. If you take the net operating income in 190'
as shown on page 44 of volume No. 1 of these hearings, you will fin,
that the operating income was $760,000,000, in round number;
while in 1917 it was $986,000,000. Now, subtracting the operatin
income in 1907 from that in 1917 gives you the added net operatin
income achieved between those periods and as a result of the plow
in of $9,000,000,000. Of course, it is all merged in one investment}
and it can not be said that $1 invested before 1907 is separate from
dollar invested after that date, but it is persuasive as showing tha
by reason of responding to their public duties and plowing 7
$9,000,000,000——
The CHAIRMAN (interposing). Are you not mistaken in that figur
of $9,000,000,000? Was it not $6,000,000,000 ? |
Mr. Jounstron. I beg your pardon. I will correct that. It ij
$6,000,000,000, but I have worked it out on the basis of the correc
figures, which are less than $6,000,000,000. for 1917. Nine billio:
is a mistake.
pene CHAIRMAN. The Interstate Commerce Commission has show
that.
Mr. Jounston. And I think Mr. Walter stated that it wa
$6,000,000,000 yesterday.
The CuarrMan. I think he did.
Mr. JoHnsTon. So that, basing it on less than $6,000,000,000, 0
$5,543,953,545, that bemg the figure I employed as the difference
between 1907 and 1917, you will find that the ratio of additions
net operating income to that of added investment is a fraction ove
4 percent. As I recall it, it was 4.12 per cent, or something of tha
sort. Now, the investments made prior to that date are certainl
comparable, in a broad sense, to the investments made after that time
Bear in mind that the added investment of over $6,000,000,00
represents only 23,075 miles of new railway, of course it also include
added equipment. The ratio of new capital, therefore, has been a
the rate of over $200,000 per mile, whereas the ratio of mileage con
struction to the property investment account in 1907 was onl
$55,000 or $60,000 per mile. I do not stop to work it out exactly
Of course that means that there is an increased and continwn
necessity for unproductive improvements, such as grade separatio
and great terminals expenses, and if it were ever necessary that. th
new investment or new money which is to be required by the
carriers, if they are to perform their public functions, should b
protected, it is necessary now. ‘There was never a time when it we
more essential that they should be protected in some measurab.
certainty that when required to put in a dollar that dollar will hay
a fair chance in the struggle for existence. :
It is upon that theory, with this tremendous extension of th
power of the Interstate Commerce Commission imminent, that
think it is imperative that Congress should lay down some measure ¢
restriction upon the action of its administrative and essentiall
ministerial agency other than this bare prohibition against the tak
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1041
|f life and destruction of property which is reflected ih the fifth
|mendment, because under the fifth amendment there is no other
striction laid down and there is no other margin of safety provided
xcept that your agents shall stay the knife of regulation short of
/estruction, and in-order to find relief under the amendment, you
, ust prove to the courts that the regulatory action is utterly destruc-
‘ve and will take the heart out of the transportation system of the
\Inited States. There is no other restriction which you have laid
own to limit this agency to which you are proposing to extend
silarged life and death powers over the great systems of trans-
ortation.
, Mr. Sus. In that connection, Mr. Johnston, I may have misunder-
jood Mr. Walter, but I understood him to take the position that if
jae rate does not give a fair return upon the investment of the railroad
(is unconstitutional, and therefore void. That being true, how can
|ay regulating body require a rate, or how can Congress itself require
rate that produces less than a fair return upon the property devoted
|) public use ?
| Mr. Jonnston. The best way I can answer. that is to say that the
juestion of a fair return and the question of confiscation have been
iustrued as synonymous, so far as the lower extent of the power is
meerned. When the suggestion is made in rate hearings that the
mmission has crystallized a level of rates which will give less than
fair return, as it has been interpreted by the courts, and when the
ulroads have entered upon their struggle for fair rates, they are
ynironted with the assertion that they have not conclusively met
1e burden which is put upon them of proving that their property is
mfiscated. In short, fair return and confiscation have come under
le present law to be interchangeable terms.
We say that Congress in making these enormous extensions of the
wer of the commission, and in view of the great burden to be im-
sed upon the investing public in extending the railway systems,
ould provide for the investors a wider margin of safety ‘than is
forded by this issue of life or death. It is as though the fifth
nendment stood over a patient who has been anesthetized as an
ligation upon the surgeon merely to keep him from expiring. I
unk that the time has now come for Congress to say that this
tient should not be reduced to suffer in extremis before becoming
ttitled to protection. We believe that the duty and responsibility
imarily resting upon Congress are to conserve, to promote, to pro-
ct, and to preserve, rather than simply to prevent death or save
om destruction. The difference in this situation is very clearly
ustrated by the opinion of the commission itself in the Western
vance Case, which was reported in the Twentieth I. C. C., page 307,
@ quotation being from page 317, where the commission stated:
We must not regard too seriously, however, the effort of railroad counsel to establish
‘S Commission in loco parentis toward the railroads. We must be conscious in our
| asideration of these rate questions of their effect upon the policy of the railroads,
d, ultimately, upon the welfare of the State. This country can not afford to have
or railroads, insufficiently equipped, unsubstantially built, carelessly operated.
» need the best of service. Our railroad management should be the most pro-
‘sive. It should have wide latitude for experiments. It should have such encour-
ment as would attract the imagination of both the engineer and the investor.
I might interject there, Mr. Chairman, that, with the existing rail-
ad situation and confronted with the bare possibility of inaction by
ie
1042 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Congress, there would have to be a tremendous amount of imagina
tion in order to interest anybody in the railroad situation.
Mr. Sms. My question was this: If the rate does prevent a fai
return upon the investment, is that, in and of itself, unconstitutional
Mr. Jonnsron. Subject to certain qualifications, such as were pre
sented in the case of the Tennessee Central, I believe, to which yot
referred, that is correct. But we do not think that the Constitutio.
cuarantees a fair return. It guarantees that the agencies set up b
Congress may not, by reason of their regulations, prevent a fai
return. It does not guarantee them against the results of competi
tion, but your congressional statutes require competition and super
sede any efforts among the carriers as between themselves to ovet
come destructive competition, and that, coupled with the presen
situation, practically does work out dangerously near to the resul
of death on the part of a substantial number of carriers in the Unite
States under the present system. |
Mr. Sims. Broadly, my question was whether or not a law o
rate that provides nothing over and above the cost, plus mainte
nance and depreciation charges, is confiscatory within the meanin
of the law? )
Mr. Jounston. Obviously, if the rate does deprive the carrier of
fair return, rather than the general conditions or competitive cond
tions which might result in the depressed condition. The point mad
by the commission in the opinion in the Western Advance Case, ¢
which I am complaining as applied to the future, is to be found i
the concluding sentence: |
We are not the managers of the railroads. And no matter what the revenue the
may receive there can be no control placed by us upon its expenditures, no improv
ments directed, no economies enforced.
Now, this policy is proposed to be abandoned in the adoption ¢
the complete system of regulation, which it is undoubtedly withi
the purpose of this committee, and in which we heartily concur |
adequately safeguarded; but in the extension of this wise permanetr
policy of regulation begun in 1887, you are now pee the commis
sion in a substantial sense in loco parentis. The Roman father coul
extend the process of regulation to the pomt of death itself. Th
commerce clause contemplates no such savage result. We ask yo
to say to this commission that in regulating these carriers “you mu
allow a margin of safety between the point of destruction conte
plated by the fifth amendment and that condition of healthy growt
which would still leave a reasonable rate fabric from the standpoi
of the general public and transportation as a whole.” ‘
That is the reason why we ask for a definition of policy which Wi
not confront the carriers with this indefinite and impossible burde
of proof of showing confiscation with which the commission has ¢d
fronted them. You will recall the expressions used in the varit
opinions of the members of the commission, they say that it has 16
been “‘conclusively”’ shown that the carriers need this higher revenw
(Commissioner Meyer, Fifteen Per Cent Case, p. 331.) tn effect the
say, ‘higher costs have been shown, but we are not conclusive
shown that they will have the unfortunate results that the carrlé
suggest that they will have.” Again, it was said that it does n
necessarily follow that the depressed tendency exhibited by a prove
declining ratio would have the adverse results that the carriers (
|
br
y
ee
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1043
gested that it would have. Denying relief on so grudging and re-
‘Tuctant an hypothesis they said, in effect, in the Fifteen Per Cent
‘Case, ‘we will watch this month by month and see if it has that
“yesult.”’ When conditions followed all of these great rate cases to
‘the point where it was obvious that the rate fabric had to be lifted
-and should have been lifted at the outset, the commission granted
| aed us part, or else tardily extended the limited relief originally
anted.
That is the general history of all of these great rate hearings if I
haye interpreted them correctly. I do not speak in any sense as a
rate specialist, and my comment upon the commission, I can not
repeat too definitely, is made with the utmost deference for their
obyious effort to respond to their public duties, and still keep within
the law by avoiding the determination of question of public policy,
which they have repeatedly said is an authority for the Congress
and not for the commission to exercise. Bringing that thought right
down to date, Commissioner Clark has said to this committee that
now is the time for Congress to lay down the policy and say whether
‘or not these properties should be restored to their owners on a com-
‘pensatory basis which would make them as a whole self-supporting,
‘and enable them to pay the reasonable cost of transportation and a
reasonable return upon their investments, or, whether they should
‘be operated on a level of changes inadequate to make them self-
‘supporting, the deficit to be paid out of the United States Treasury.
‘It is obvious that the time has come for Congress to set up a policy
‘other than that involved in the final limit of destruction, which has
‘Deen the only policy heretofore existing and which has been due to
the fifth amendment to the Constitution.
Mr. Denison. Your theory is that Congress should now adopt a
‘policy under which the Interstate Commerce Commission would be
‘charged with the duty not simply of preventing destruction but of
promoting prosperity ?
Mr. Jounston. That is a fair statement of the suggestion.
Mr. Dentson. Now, with the chairman’s permission, I want to
‘ask you a question of law which I think has some bearing upon the
provisions of the Esch bill. The Esch bill authorizes the Interstate
Commerce Commission to require carriers to make extensions, to
‘build switches to private industries, etc. Now, in the State of
‘Illinois it has been uniformly held that no carrier or no railroad
‘company can condemn land to make connection with any private
industry. If the Interstate Commerce Commission should order
a railroad to make a connection of that kind, and if, under the laws
of Illinois, there is not the power of condemnation, what would be
the result ?
Mr. Jonnston. Well, I think if it is a public service, or if it is
‘essentially a public use for which the power of condemnation is
‘proposed to be exercised—that is to say, Ui it is In any sense to
‘used as a siding for the storage of cars for the service of the public
generally, it would be a public use, and, undoubtedly, Congress can
‘authorize the carriers engaged in interstate commerce, by authority
“of an act of Congress, to proceed with condemnation for such public
“use. But in the Danville Case, I think it was, they held that where
‘the siding is essentially for a private industry or invloves merely a
“private service, and is not a part of the general public utility of the
1044 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
railroad company, that would be forcing the condemnation of private
property for private use, and, therefore, unconstitutional. I see no
reason why that rule should not obtain. a
Mr. Denison. Attempts have been made to get switches con-
structed by railroads to coal mines, for instance, and other kinds of
industries, but: the constitution of the State of Illinois does not
permit the condemnation of rights of way for connections of that
kind, and I was wondering what would be the result if the Inter-
state Commerce Commission ordered a railroad to make such a
connection in the State of Illinois.
Mr. Jonnston. Undoubtedly, if the commission in its order re-
quired such siding as an extension of existing public railroad service,
and made that extension responsive to general public use, the Con-
gress could in proper cases authorize that to be done, notwithstanding
restrictive or inadeqaute legislation within the several States; but it
would have to be for public service, and it would have to be a part
of the public railroad system, and not essentially or exclusively for
the service of an individual, or for private use, because, of course,
neither under the constitutions of the States nor under the Constitu-
tion of the United States can power be given to a railroad to take
private property for a private use.
Mr. Sims. Mr. Johnston, believing, as I do, that you are a competent
authority, I want to ask you whether or not in your opinion that
limitation in the Constitution against the confiscation of private
property applies to property owned by the Government of the
United States itself?
Mr. Jounsron. To prevent its taking the property for a different
public use ?
Mr. Sims. No. You have referred to the property of a railroad
company as being confiscated if you do not allow a rate that will
enable it to make its operating expenses and pay depreciation, fixed
charges, etc., plus a reasonable profit on the investment. Now, in
your opinion, does this Constitutional limitation against the appro-
priation of private property apply to property owned by the Goy-
ernment of the United States and used for such purposes ? |
Mr. Jounston. I presume you have reference to a Government-
owned transportation system, and you have asked whether
Mr. Sims (interposing). Suppose the Government owned all of the
railroads of the United States, and the Government fixed a rate that
would result in a loss upon the investment: Would that be within
the constitutional limitation ?
Mr. Jounston. Undoubtedly the Government would be the sole
dispenser of its own bounty, and could make rates that would be
destructive of the success of the system, and absorb the loss by
taxation.
Mr. Sims. If it should result in loss, the Governnient would have
to collect the loss from the taxpayers ?
Mr. JoHNsTON. Obviously.
Mr. Sus. But there is no rigid limitation. _
Mr, JoHNsTon. Obviously; there is no limitation upon the power
of the Government to use its own property as it sees fit. I might
say that it is an unsound constitutional theory to suggest to Congress
the purchase and operation of these railroads under the commerce
clause. I give full recognition to the fact that under a combination
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1045
xf the postal, military, and commerce clauses there is the power,
put it 1s an unsound extension of the commerce clause, which confers
apon Congress the duty and responsibility of regulating commerce,
so say that Congress can absorb, monopolize, and conduct commerce.
[t is not a sound constitutional theory to proceed upon. Now, if
you proceed upon the military theory and base the right of Congress
upon that, it would be done merely because that was a technical
yxcuse for it, and it would not be within the spirit of the Constitu-
ion. |
Mr. Sims. We have invested hundreds of millions of dollars of
Federal collected tax money in order to help localities in the con-
struction of ordinary highways that would otherwise be a burden
pon them.
_ Mr. Jounston. That is a very wholesome encouragement of local
leyelopment in response to the necessity for highway transporation,
vhich I do not criticize.
_ Mr: Sms. As a matter of fact, in making that contribution to the
yulding of highways, the Government does not anticipate any
veturns or compensation of any kind for the amount so expended.
Mr. Montacus. Do you wish to leave without qualification your
statement made in response to Judge Sims’s inquiry that the Gov-
wnment can do anything it desires with its own property, or would
you say that it can do anything it desires within its legislative power ?
Mr. Jounston. Of course, that is a very necessary limitation. It
nust be within constitutional limitations.
_ Mr. Montague. For instance, it can not take the property of this
vapitol, or it can not take any of these buildings and give them to
you or to me.
Mr. Jounston. I do not think it could, unless it were in discharge
4 Some express or implied obligation to us. My recollection of the
Sugar-Bounty case is that the court held that where the sugar
rowers had complied with the invitation of an invalid act of Con-
sress, Congress could make good its obligation under that invalid
wet. In short, the United States may constitutionally discharge a
noral obligation. ,
Mr. Montacue. The Supreme Court of the United States held that
ihe legislature of the State of Illinois could not authorize the munici-
ality of Chicago to give away the beds of the lake to certain railroads.
Che State holds this property in trust for the people, but it could not
rive it away, the court roldins that such legislation was ultra vires.
Mr. Jounston. Now, since you make that suggestion, that is the
heory on which we have proceeded in saying that anything that
ooks like a direct distribution of excess earnings recaptured from
‘arriers who are fortunate enough to earn them to less favorably
ircumstanced railroads
Mr. Monracuz (interposing). I am suggesting that at this time
imply that you might have in mind that distinction if there should
ve any analogy between the two things—that is, whether if the rail-
oad property was owned by the Government it was competent
-or the Government to give it away without any return or considera-
lon. |
_ Mr. Jounston. I should say that unless the property was self-
Upporting it would be subject to the gravest doubt whether or not
Jongress could tax or exert the power of taxation and give the results
b /
1046 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
: 2
of that taxation to anybody else in cases where it is not pursuant to
some well-recognized Federal governmental necessity or obligation.
I donot see on what theory you could tax any man to give me free
transportation from here to Baltimore. If that is not taxation, or
the exercise of the power of taxation, for private use, individual
use, or un-American use, then I do not know what it would be.
Mr. Sms. Suppose Congress should make an appropriation of
$200,000,000 to be used by the respective railroads in the respective
States in order to enable the railroads to render a better service than
they otherwise would—— .
Mr. Jounston (interposing). Undoubtedly the military and post
roads clause would justify assistance to those instrumentalities, and
anything that the United States can do through its own direct action
it can do, was held in the case of McCullough v. Maryland, through
subordinate agencies. It can adopt existing agencies for the purpose,
and assist them, but whether it can do that by specific imdividual
appropriations which would ignore the principle of classification
and would not observe a uniform principle to be laid down in the act,
would be an entirely different question which I would hesitate to
give a definitive opinion upon without having investigated it.
But, Mr. Chairman, another reason why we think it obligatory
that there should be some protective policy laid down arises out of
the existing situation. We find that the annual maturities of funded
debts and obligations running for more than one year of the railroads
are about $250,000,000. I think, to be accurate, it is $228,000,000.
That is according to the estimate of Poore’s Manual for the year 1919.
The one-year notes, or less than one-year notes, are normally about
$250,000,000. They are estimated now for the year 1919 at about
$427 000,000, due, of course, to obligations to the United States for
loans in anticipation of the payment of the Government rental, and
which will be, of course, diminished when the rental is paid. The
normal amount is about $250,000,000, and that will be increased
above the normal this year. Additions and betterments amount, as
I am informed, to about $573,000,000. The railroads will continue
to have enormous new capital requirement recurring each year,
without providing at all for the program of extensions which were
referred to in one of the opinions in the 15 per cent case in 1917, in
which it was estimated that’$1,000,000,000 a year would be needed
by the transportation systems in order to equalize the needs for
internal transportation facilities, to meet the necessities of our foreign
trade, and to balance the wide extension of our merchant fleet
equipment. Yet we confront that tremendous annual capital
requirement with a depressing, rationing basis of dealing out suste-
nance to these carriers. That point was made by the hs par
members of the Commission in 1907, in protesting against this purel
statistical and month-to-month process of dealing with the railroad
systems.
You can not build railroad systems on the sole protection afforded
by the fifth amendment. You have got to set up some margin 0
protection which will be based on the results of regulated operation
rather than upon law suits. |
It was asserted by several of the members of the commission in th
1917 Rate Increase case and has been made evident in other case
that the time has arrived for the definition of a policy of Congres
oe Ae
iP ~-
~ §
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1047
_ toward these carriers that would more suitably meet the necessities
of transportation. My recollection is that they denied in one of the
eat rate advance cases that the impairment of credit and probable
umping of American railroad securities was sufficient to induce the
- Interstate Commerce Commission to assume powers not responsive
to the mere rate by rate analysis compelled under the 15th section of
the act and suggested that any change in policy must proceed from
_ Congress.
With these overwhelming financial requirements approaching it is
_ obligatory that there should be some constructive definition of policy.
What should that be and what rate of return? Mr. Chairman, you
asked Mr. Walter an intensely pertinent question, with reference to
the policy of defining the 6 per cent level. You asked, if the 6 per
cent level were put into force by this Congress, would succeeding
Congresses not be elected on the basis of a lower level? We say that
it is impossible for Congress to enact a lower base level that would
sustain transportation or stand an attack in the courts. We have
suggested what we believe is the irreducible minimum that is neces-
sary either to sustain American transportation or pass fire before the
_ Supreme Court of the United States were these carriers combined in
one ownership. Under our plan the 6 per cent level would produce
only 54 per cent to be retained by the carriers, according to the test
_ applied to the class 1 carriers representing an overwhelming portion
of mileage and investment and service. It would produce, to be
retained by them, 5.52 per cent upon their property account, the
balance of the 6 per cent level being recaptutured from carriers with
excess earnings for expenditure in the public interest by way of
insurance against death or sickness of employees or by investment in
cars to be owned by the public and to be operated in their sole interest.
The amount remaining in the treasury of the carriers is only 5.52
per cent.
It is unthinkable that any Congress or that people anywhere would
insist Hive Congress setting up a level that would produce a return
on the
asic American industry of less than 5.52 per cent upon the
fair value of the property operating for the public use. It is unthink-
‘able that the people would require any such thing, and it is impos-
sible that the Supreme Court would sustain any level more destructive
than that; and so in representing our request for relief against certain
disaster we have adopted not what we should like to see the railway
investment rewarded by, but what we believe is the irreducible
minimum necessary to prevent the destruction of property, and that
is the minimum below which no court would ever sustain a level as
~ being compensatory or as constituting fair return, if the roads of the
rh
United States were consolidated and could test the question.
We all realize very vividly the suggestion which has been made that
6 per cent in some years might be the equivalent of 54 per cent in
_ other years, but it is 54 per cent now that we propose to retain and
not 6 per cent—after allowing for excess earnings reduction. We
propose under this plan, as you will see when we reach that particular
"section of the bill, that new money would go into the property account
at cost. Ifa 5 per cent security could be sold at par we would not
put that on the books of the carrier earning more than 6 per cent
on a 6 per cent basis, although the carrier would be entitled to some
reward for producing that additional investment and administering
1048 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
it. Wedo not ask that though, but we would reduce that new money ~
to the 6 per cent basis and write it in the corporate account of that
railroad on a 6 per cent basis. I trust the committee will be certain
that an adjustment to that end is one of obvious ease.
Auditors and accountants connected with these railroads say to ©
me that it could be written on the accounts at 95 or 96 or 97 or what- —
ever it is that a 5 per cent par security would amount to when trans-
posed to a 6 per cent basis. So the question as to the cost of capital
would accommodate itself to the actual result and there would be
no secret or hidden profit to the railroad system in permitting a
constant 6 per cent level. Of course, it is obvious that you should
not change the rate of return on a 50-year bond that is sold on a
6 per cent basis, because at some idyllic time in the future new capi-
tal may be obtainable at 44 or at 43 per cent. If the carriers sold
it on a 6 per cent basis they have to pay interest on that basis
and it can not be changed according to the state of the weather or
the money market. For that reason we think the sound program is
to accommodate the cost of money to the actual situation as it
develops.
Why is the level of 6 per cent also obligatory from another stand-
oint? There has been a great deal said about the weak: lines.
hat is the situation now? We find there are 56 carriers now under
Federal control, as will appear from these reports of the Railroad
Administration introduced by Mr. Walter, which are not earning
their operating expenses. Those 56 earriers operate a mileage of
over 46,000 miles. They serve a great population; a very large
percentage of the population of the United States is served by them.
There are only 20 of the 150 reported carriers which are earning
their standard return. The deficit for the current year responsive
to those 150 carriers and not taking into consideration the large
number which I am advised are not covered by that exhibit will, if
it proceeds on the same ratio to 1918 as shown by the first six months
of 1919, amount to more than $530,000,000.
It is obvious that something has to be done to take care of the
carriers not earning anything like the 6 per cent level. There were,
as I recall, 120 carriers in the prewar three-year period, referred to by
the shippers before this committee as the peak earning period of the
American railroads, there were over 120 carriers, with a mileage of
over 170,000 miles, serving a large majority of the pean of the
t
United States, that earned less than 6 per cent on their property
accounts. Consideration has to be given to these carriers in working
out any rate-level and if the American people ask Congress to estab-
lish a primary rate level of less than 6 per cent, which works out
only 5.52 per cent retained in the treasurers of the carriers, if you
put that primary level down to any less than 6 per cent you might ds
well force what has been very definitely stated before this committee
should be the policy of Congress and that is the reorganization of
the carriers earning less than 6 per cent on their property accounts,
because applying these figures to the class one railroads we find that
a total of 83 carriers, applying the 6 per cent level to the prewar
period would have earned 3.84 per cent; that all of those not pushed
-
i
over or pushed upon the 6 per cent level, less the recaptured portion, —
would have earned an average of 3.84 per cent upon their property
investments. They operate a mileage of 64,000 miles or 25 per cent
~~
7
F -_ ~~
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1049
of the mileage of the United States. It is unthinkable that our
_ people would ever ask the American Congress to set up a rate level,
_ accompanied as we propose by rigid limitations prohibiting excessive
_ and unnecessary earnings, that would force 64,000 miles under the
conditions of 1917 or even the 46,000, as shown not to be earning
their operating expenses to-day, into a status of immediate reorgani-
zation and chaos, which would certainly result from any lower level.
I do not think that it would be of particular interest to the com-
mittee to go into the cases of specific railroads, but my recollection
is that the only one which was mentioned by your members was the
Tennessee Central, was it not? Judge Sims asked if Mr. Walter
thought the public would ever stand for a rate level or a rate of
| return that would enable the Tennessee Central to earn 6 per cent
lant
_ upon the property investment.
Mr. Sims. I had primarily in mind the service. |
Mr. Jonnston..I understand. Let us take that as an illustration
and see what the application of the association’s plan would produce
on the Tennessee Central and see whether or not it is an extraor-
|
dinary benefit to that carrier.
We find that the property account of the Tennessee Central for
the average of three years was $19,717,592. Its actual ratio of in-
come to property account for the average of those three years, the
_peak of American railroad prosperity, was eighty-three one hundredths
of 1 per cent. This 6 per cent level which the association proposes
| would lift that to the staggering total of 1.12 per cent on the invest-
| ment of that road resulting from a 6 per cent level of rates in its
!
region. Is it possible that anyone could ask a level of rates that
would produce less than 1.12 per cent on that railroad or less than
the average of 3.84 per cent upon 83,000 miles of railroad above
Mentioned? And so, we say, Mr. Chairman and gentlemen of the
committee, that when the suggestion is made that we are trying to
guarantee 6 per cent upon the railway investment or the railway
property, that assertion is based upon a fundamental misstatement
of what we propose. If any less is suggested than we propose, it
would merely invite Congress to assume the indefensible attitude of
writing a rate into the act which would never be sustained by the
courts as being constitutional and which I do not believe would ever ,
be sustained by any substantial portion of our people as a question
ol public policy or as a square deal.
If this is not done, if this level is not set up, what is the alterna-
tive? The alternative is to force reorganization. The suggestion
has been made to the committee here that the situation can be
worked out much more easily if the nonprofitable carriers are elimi-
nated from these rate hearings. In every single one of them the
statement is made—
If you appeared here only on your merits, the case would be very different, but you
come along with an affluent carrier, and of course, we can not give you relief.
Perhaps the exact language of the opinions would be illuminating.
In the 1915 Western Advance Case (35 I. C. C. 561):
* * * if only the more necessitous of the carriers in this proceeding were pro-
‘posing these increases their plea would come with greater force than it does when
- coupled with their more fortunate rivals. =
b
1050 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. J
So, in the 1917 Fifteen Per Cent Case, at page 315:
The needs of certain weak lines, however, cin not justify a course of action that
is unwarranted by the condition of the large number of strong and successful lines,
This record shows that many of the carriers are in a most prosperous condition.
How illusory that conclusion proved is shown by the fact that
instead of an income ratio of 5.81, as estimated by the commission,
the class 1 roads earned 5.22 and at the conclusion of the year the
commission found it obligatory under conditions well within the
recollection of this Congress to grant advances denied in June, 1917,
The point here is that the commission has uniformly denied adequate
relief because of the coupling of ‘‘affluent”’ carriers in the general
equation. What of the 120 railroads earning less than 6 per cent on
their 170,000 miles; of those which averaged only 3.84 on their
83,000 miles, of the 56 not earning operating expenses on their
46,000 miles to-day ?
We think it is absolutely essential to sustain American transporta-
tion that some process be worked out which will take into considera-
tion the earnings and necessities of these carriers and not force them
into a process or reorganization immediately after the return of the
railroads to private ownership, which would unsettle and destroy
American financial stability.
A great deal has been said about a half dozen carriers; as to what
rate of return would be produced on their investment by the operation
of the Warfield Plan—roads like the Alton. ‘You will find that all
those would earn less than 6 per cent, from the average of 3.84 all the
way down, like the Tennessee Central at 1.12, and so on.
The question arises not whether you would be doing too much for
the railway systems, but whether or not you would be doing enough.
I say there has been quite as much criticism as to whether or not you
would do enough for those roads as there has been that this plan
would produce too great a return; and we say as to those roads with
low earning power, that if you are going to force reorganization, if
you are going to encourage consolidation of railroad properties, that
you do it on a basis of some fair assurance that they will be relieved
of this continual warfare in the struggle for rates, this continual
controversy with shippers, this continual suspicion on the part of the
Interstate Commerce Commission that they are getting too much;
and then you will encourage an orderly process of reorganization so
that these railroads will be able to adjust their budgets to a wholesome
future and to work out their destiny in the service of the public on
some basis of security rather than that of utter chaos and distress
which has existed among them in the past few years.
Mr. Sims. Do you think that any new, capital will go into the
Tennessee Central, if your plan is adopted, with a view to any return?
Mr. Jonnsron. I certainly do not think it would be possible.
Mr. Sims. Then, your plan would not be salvation for the Tennes-
see Central ? .
Mr. Jounston. We do not think that new capital will go into it on
any such basis. We think that the only method that would invite
new money would be the adoption of a policy which would produce
an assured return for the present capital and permit the existing
investment to absorb the losses on its existing securities by inviting
new capital on a funded basis or something of that sort.
- RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1051
_ Mr. Chairman, with $13,000,000,000 of railway investment in
1907, is it possible that that investment, which produced the Ameri-
can railway system and brought the United States out of the wilder-
ness and which was encouraged by Congress on a basis of the pioneer
and produced such wonderful results, is that investment now asked
to surrender its own right to a fair return on its investment from
this time on in favor of the new capital which must be ploughed into
these properties in the future?
It is upon all of these considerations that we say we believe that
the time has come for Congress to lay down a different formula and
to say what the policy shall be. We believe it to be obvious that the
rate level which will leave in the treasuries only 5.52 per cent has
been so repeatedly approved by the commission itself as to be no
longer subject to criticism. As I stated a few moments ago the
stommission referred to the earning of 5.68 per cent on the property
account in 1910 with approval. It thought that the ratio of 5.86
‘per cent which was estimated as the prospective net income in 1917
was an assurance of desirable railway prosperity, and they pointed
‘out in that case that they supposed that the ratio of return on the
Southern roads and on the Western roads would be over 6 per cent,
and obviously they approved those levels, otherwise it would have
been the imperative duty of the Interstate Commerce Commission to
reduce the rates producing those levels if they had not thought those
rates were fair and reasonable under the circumstances.
| So we find in these great rate cases the commission approving and
referring with satisfaction, as showing desirable railway conditions,
‘to practically a ratio of over 6 per cent and we ask for a net of 5.52
per cent; so that.we come before the committee backed by repeated
findings of the Interstate Commerce Commission approving 5.68, 6.12,
‘and even the rate of return in 1916 of 6.17 per cent, which they pointed
out as sound.
Just one point before entering upon the discussion of this bill.
| With reference to the existing process of rate readjustments, you
will recall that in the 1914 case, as a result of the denial of general
telief in 1910, but with a reservation on the part of the commission
that the carriers might be entitled to reopen the matter or to file rates
suggesting advances in the event that the optimism of the commission
proved erroneous, the ratio dropped from 5.68 per cent, like a plummet
‘to 4.12 per cent in 1914, with a slight relief in the year 1913, and when
‘the carriers, in order to prevent that situation, revised their tariffs
for increased rates in October, 1913, the commission then thought it
‘best to inaugurate an inquiry on its own responsibility, rather than
‘as responsive merely to this suggestion for a rate increase as shown
‘by the filed schedules. There was dissent, very strong dissent, within
the commission itself as to the right or authority of the Interstate
Commerce Commission to inaugurate any such general inquiry. The
mnly power under the present act or under the bill introduced by the
‘chairman or the committee print is the power to suspend or reduce
‘rates where the rates proposed are in violation of the act as being
‘axcessive, unreasonable, or discriminatory.
How can a general rate increase be set up under the existing law!
‘Obviously, one railroad can not file a new schedule of competitive
rates without reference to the other competing carriers. You now
force them to do that. You now force them to a violation of the
1052 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Sherman Act, to a conspiracy to increase rates and to file those in-
creases before you set the machinery of the Interstate Commerce Com-
mission in motion to determine whether they must have additional
revenue.
Mr. Montaaun. You then think the Interstate Commerce Com-+
mission has discretion to exercise that mandatory command ? |
Mr. Jonnsron. It is not so much a discretion as that they are
instructed to use their best judgment in producing a given result;
and where they are given a definite objective we have the greatest
eonfidence in the ability of the commission to reach that objective,
ind in their endeavor to carry out any instruction from Congress. _
Mr. Montacun. You think you could mandamus them to comply
“with the mandate ? |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1069
_ Mr. Jonnstron. Well, I think that would come within the ordinary
orocesses of appeal, just as you can go into court now, if they destroy
you with a rate that they set up, as being confiscatory under the
ifth amendment. I think there would be an appeal from the com-
nission if they plainly set up a rate level which was in violation of
their instructions from Congress, to whom they are responsible.
{t would be simply an administrative question, and we have not the
slightest doubt of the Commission’s carrying out the admonitions of
Jongress in that particular.
_ The fourteenth paragraph provides that the commission shall pre-
scribe reasonable rules and regulations for the determination, recap-
jure and application in the public interest of the earnings of the
‘espective carriers subject to this act in excess of the allowances to
se permitted under the conditions provided herein. That is, in
iddition to the standard return of 6 per cent.
Now, I think that answers completely Commissioner Clark’s
hhoughtful inquiry and suggestion to the committee that there exists
i certain discretion in management as to what operating expenses
are, and he doubted, to some extent, I believe, whether that would
10t work out a diversity in results with different carriers.
Now, certainly the commission, if it saw fit to lay down and pre-
scribe the ratio of depreciation, of maintenance, or to enter into the
nore intimate control of the accounts of the carriers in establishing
ihis policy, could require uniformity or prescribe regulations, and if
any railroad exceeded the ratio for maintenance and depreciation,
yr other expense permitted by the commission, of course it could
ise its own surplus to do anything that it wants to that is proper,
yut it would be in the same situation as a taxpayer now is under the
ncome-tax laws when he gives a bonus, or as a corporation when it
tives a, bonus to its executive officers or other employees. Congress
loes not say that it shall not give that bonus, but it says that it shall
lot treat that bonus as an expense of doing business and that it can
10t pay bonus out of the money due the United States. It can pay
t out of its own part that it is entitled to retain, and, in the same
vay, if the carriers should exceed the rules and regulations that the
sommission may prescribe, they might do it out of their own portion
# the fund that they are entitled to receive.
Paragraph 15 prescribes that whenever two or more carriers are
mited or owned in one interest through the ownership by one of 90
der cent or more of the stock of the other or others, or are combined
ir consolidated as authorized by this act or otherwise, they shall be
onsidered and treated as one carrier in applying the provision of
his section as to excess earnings and their accounts combined if
hey report separately to the commission. —
Under the sixteenth paragraph if is provided:
The process of recapture is hereinafter referred to as excess-earnings reduction. The
und so produced is referred to as the excess-earnings fund. The rate of reasonable
turn upon property investment account, whether 6 per cent per annum, as
‘xed generally by this act, or whether established at a greater rate aiter hearing at
‘he instance of any particular carrier or carriers, will be referred to in this act as the
‘tandard return.
’ Then we provide that the carrier shall retain one-third of the
‘xcess. We have been very severely criticized for a savage reduc-
ion of the affluent carriers’ earnings for not making provision for
152894—19—vot 1 68
~~
1070 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
unexpected contingencies. We think that contingency is fully taken
care of by the eighteenth paragraph, which is at the bottom of page
5. Wesay:
In addition to such one-third carriers receiving excess earnings may be permitted,
under the direction of and in accordance with regulations to be prescribed by the
commission and when and to the extent found desirable in the public interest, to
set up and maintain on their books, before the excess-earnings reduction shall apply,
such corporate reserves as a margin of safety for the protection of their credit and against
years of subnormal volume of traffic, or for working capital, or for unproductive im-
provements, or otherwise in the public interest, in assisting in the sound financing
or efficiency of such carrier as may be found desirable by the commission, but not to
be capitalized for determining rate levels or standard return.
That, of course, would be subject in all respects to the regulation of
the commission, and we think fully meets the question of stabilizing
their returns in years of Sabaseinlceite and that the proposals are
not subject to the criticisms mentioned. |
The succeeding clause, which is paragraph 19, page 6, of section 1,
applies the same principle to carrier losses due to acts of God. You
will all recall, for instance, the disaster in the Ohio Valley, that
required an expenditure by the B. & O. of some four million dollars,
was it not? We think that is an extraordinary casualty, in the same
class as an earthquake or other disaster likely to affect transportation
at any point in the United States, and it would be very well to let the
commission set up a part of the excess-earnings fund to the extent
that it may have made allowance for such item in setting up the rate
level necessary to produce the minimum return on the property
investment of carriers in the several regions as a contingent fund for
carrier losses due to the act of God. But it is necessary for us to
show the radical distinction between this proposition which we
advance of setting up corporate reserves on the books of the carriers
earning an excess revenue over a reasonable return, and the process
by which the transportation conference of the chamber of commerce
has applied our process of excess-earnings regulation.
The latter proposes to set up contingent funds, if I understand it
correctly, and the carriers, in reaching toward the 6 per cent level of
earnings, draw upon those contingent funds. To that extent it is a
direct distribution of those funds to those carriers, and to ascertain &
carrier’s condition it is necessary to refer to two sets of books and to
two organizations. It is extremely complicated. We believe that
every carrier ought to stand on its own bottom, after you have estab-
lished a general rate level, and under the proposition that we make
there would be set up on the books of the carrier its own reserves
which belong to it, but which are not capitalized for the purpose of
rate making; and it would not be necessary to go anywhere else t0
determine that carrier’s financial situation or to speculate as to what
the status of this contingent fund.is. We think that is a distinction
which is along intensely practical lines and is in the direction of sim-
plicity, and that it is in line with the effort which we have made
throughout to avoid complexities of any kind. |
The excess-earnings fund, paragraph 20, on page 6, we provide for
its distribution:
The excess earnings over the standard return and such allowances in addition thereto
as may be authorized pursuant to this act shall be paid over by each carrier earning the
same into the excess-earnings fund, under regulations to be prescribed by the conr
mission, to be employed or expended under its direction in the public interest 12
railroad transportation as herein authorized.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1071
And in paragraph 21 we suggest the division of one-half of the
ccess to labor, one-half to to constitute a revolving fund, which
ould be the special property of the United States to be adminis-
wed, as Mr. Walter explained to you, in the purchase of what are
dw private cars, or any other facilities of transportation, and oper-
sed at cost, thus reducing operating expenses and providing equip-
ent for the weak lines, for the short lines, which now have great
ficulty in times of congestion, and which we think would constitute
publicly owned pool of equipment on which all of the carriers could
raw, under the administration of the Interstate Commerce Com-
ission.
One word with reference to this proposal as to labor. I believe,
rough, that Mr. Walter made that perfectly clear, that this distri-
ition should go, according to our theory, to the labor in each rate-
aking region earning the excess. We believe that the question of
ages should be decentralized. We can not too earnestly recom-
end and suggest that the principle of setting up a horizontal wage
tale all over the United States as a result of treaties arrived at in
ie city of Washington is destructive of industrial conditions in the
fferent sections of the country. To require the same wage scale
_the southern territory, with its mild winters, with its lower cost
‘living, that is set up in congested centers where conditions are
ically different, immediately sets up a corresponding wage return
' employees in other industries, and constitute a tax on industry in
lose sections remote from the consuming markets, which is equiv-
ent to an embargo upon them.
There was a time when the Birmingham district made iron—and it
as in 1914 and 1915—the Woodward Iron Co. made iron there for less
ian $6 a ton, because the cost of labor was cheap. It is far removed
om the great iron market, and needed the differential; but now the ©
ittsburgh district is able to make iron cheaper than the Birmingham
strict, for the simple reason that the cost of materials has not
lvanced relatively so much as the cost of labor, which has ad-
unced with leaps and bounds, and has absorbed the differential
hich previously existed in favor of that territory.
That is a condition which will exist until the labor question is de-
mtralized, as we propose it shall be, by requiring employer and em-
Oyees to make application through the regional commissions for
meiliation on these questions of controversy. The tendency would
: to decentralize these disturbing issues rather than to concentrate
here in Washington. With all of the details of that suggestion, of
urse, you are familiar.
There is no complication as to this revolving fund to be expended
the public interest under the jurisdiction of the commission. We
ggest, if it meets the approval of Congress, that this association,
e trustees of the National Railways Association, shall have charge
the administration of that fund as provided for generally in para-
aph 23 on page 7, as follows:
In the administration of such fund the commission may make use of such agencies
itmay deem proper and may delegate so much of its ministerial functions relating
areto as it may find expedient, subject to the supervision and direction of the com-
ssion and to such regulations as it may prescribe in the premises; unless or until
ne other specific body is designated by Congress for the purpose. Any misappro-
iation of said fund or any part thereof or of any property into which the same oa
‘converted, and any wrong, destruction, or hindrance done to any property in which
‘
1072 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
it may be invested or the use thereof shall constitute an offense of the same characte
and be punishable under the same circumstances and to the same extent as in th
case of other moneys or properties constituting general property of the United State:
And the succeeding paragraph confers upon the Interstate Com
merce Commission plenary authority and power—
to make and enforce all necessary rules and orders to carry out the purposes of thi
act, also to make such extraordinary or horizontal rate adjustments of general applica
tion or such adjustment applicable to any class or commodity within any State, area
or otherwise, as it may find necessary, reasonable, and proper to sustain without inte:
ruption or disorganization the railway commerce of the United States during the perio
of transition following the relinquishment of Federal control or to meet any emergence)
which may thereafter arise, or in any emergency endangering the public interest 0
convenience or any national emergency found by it to exist, maintaining as far a
found compatible with the public interest the general relations of rates contemplate:
by this act; and, for the purposes stated, it may, with the consent of any carrier in
volved, assist, direct, or conduct its operations and properties in whole or in part
but without any liability, responsibility, or obligation upon the commission or th
United States, other than as a charge against the operation, and may exercise suc!
powers either directly or through any proper agency, under the direction of the com
mission, as it may determine or as may otherwise be provided by law.
We suggest that the commission shall, as promptly after th
passage of the act as practicable, and in anticipation of the relin
quishment of Federal control, prepare for the adjustment of rate
on the general basis directed by this act, and shall inaugurate thi
same as promptly after Federal control as the conditions warrant
The commission is affirmatively charged with responsibility to see ti
it that the carriers subject to this act shall be accorded rates or genera
levels of rates in the different rate-making districts sufficient t
enable them as a whole to earn a rate of return not less in any ever!
in the aggregate than the standard rate of return as defined in thi
act.
_ Now, on page 8, paragraph 27, we suggest as an indispensabl
necessity that the standard rental shall continue until these rat
levels become effective. |
I think that Commissioner Clark stated to this committee tha
transitional remedial legislation is imperative. As I recall hi
testimony, he said at one point that it is necessary for Congress ti
determine the policy, whether the roads should be made self-sup
porting or whether they should operate, and any deficit resulting |)
paid out of the United States Treasury. He said it was impossit
to believe that they would be self-supporting, if returned withow
remedial legislation, if | understood him correctly.
IT have read you the different opinion of one of the other cont
missioners, but it is just as reasonable to expect that the dead wil
spring to their guns on the battlefields of France as to expect thes
railroads to be self-supporting when they are returned to their owner
under present conditions. We believe that it is a situation whic
will result in unparalleled disaster, unless the standard rental i
continued until such time as the commission shall certify and fk
with some proper authority that the rate adjustments contemplatet
by this act have been put into effect. Of course, during that interim
when any railroad is receiving the standard rental, we think that i
it earns any excess over the standard rental, it should be covered imc
the treasury, and that by applying for the continuation of the stand
ard rental, it should agree that anything above that return shoul
be covered into the treasury. — | |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1073
| Mr. Sms. You are of the opinion then that the standard return »
it the standard rental that the Government is paying out of the
/reasury, regardless of whether it is earned or not, shall continue
ter the roads are returned until the railroads are able to make
et a sum equal to that. Is that your idea?
| Mr. Jonnston. Until the proposed remedial legislation is put
‘ito effect. ;
+ Mr. Sus. It would not be remedial unless it furnished a return
‘yaal to that which the Government is now paying?
| Mr. Jounston. Yes; that is very true.
| Mr. Sims. How long a time do you think the railroads under pres-
/1t conditions—could it reasonably be expected that they will pro-
\ace an earning equivalent to the present standard return after they
|re taken over ¢.
| Mr. Jounston. Just as soon as the Interstate Commerce Commis-
}on sets up a level of rates that will sustain transportation in America.
| Mr. Sims. In other words, if the Interstate Commerce Commission
jill mcrease rates immediately so that the earnings will equal the
‘mount paid by the Government at the present time, that then the
‘aranty would stop ?
| Mr. Jounstron. Certainly.
| Mr. Srrs. Then what pressure is there going to be upon the Inter-
/ate Commerce Commission to tell it to do it, when if it will not do
capital gets its earnings and the people who pay the freight and
jassenger fares get a lower rate, then there would be a great amount
|| pressure by those who have to pay the increased rates on the
hiterstate Commerce Commission not to give those rates, because
ley are not needed to capital and would be a charge upon the rate
jzyer ?
Mr. JOHNSTON. There may be some such short-sighted policy on
jie part of the shippers, but now the burden of that policy is on the
jilroads and it will destroy them, and somebody is going to stand
|, and if the commission will not carry out the mandate of Congress
‘iat they shall put a proper rate level into effect as rapidly as con-
| tions will permit, for Congress can not say what day it shall go into
\fect, the railroads should not suffer. The sole question is whether
ju will permit the commission to exercise its discretion from the
/andpoint of the general public interest in accurately adjusting this
(tuation, or whether you shall dump these deficits indefinitely on the
lilroads and destroy them, either by letting these deficits be ab-
}rbed by the railroads which would be required to sustain all of the
ificit, and thus force their immediate bankruptcy, or whether you
ice the same result through the other process, suggested by Com-
jissioner Clark as possible, by loans out of the Treasury upon gilt-
ee security.
Now, it is unthinkable that secured loans to the railroads to meet
erating deficits would help the situation permanently. I do not
ink there is any proposal on the part of the employees that their
‘eessary additional expense of living, which they say makes wage
fereases obligatory by loans from the Government on gilt-edged
‘curity, and | do not think transportation should be asked to meet
ese deficits by loans from the United States Treasury on gilt-
‘ged security. That is merely postponing the day of reckoning and
%~ meeting the situation.
'
—- CO
1074 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Sims. What is the reason it would not be a good thing for the
country and for the owners of the railroads themselves, and for the
public in every way, for the Government to continue to operate the
railroads, getting all the Government makes out of them, if it makes
anything, as long as it has got to carry the load that the railroads
do not make under private control? Why not accept Mr. McAdoo’s
—I believe it was approved by Mr. Hines—recommendation, for
which | introduced a bill, that the railroads remain in the possession
of the Government for 3 years or 5 years or some period, until the
Government reimburses itself and the railroads get a fair return—
then you have the condition adjusted, and it gives the public an
opportunity to make back something already lost, as long as the
overnment is forced to guarantee a return that you anticipate the
railroads can not make out of the rates which you are liable to get
out of the Interstate Commerce Commission ?
Mr. Jounston. The only answer to that is that the American
people are not in favor of a continuation of Government operation.
t is conceded by all parties to be enormously expensive. To follow
out the suggestion. that I believe you made very pertinently to Mr,
Walter yesterday, the sooner you can get these railway companies
restored to an efficient basis of operation, the less damage to trans-
portation the Government or whoever has to sustain it will have to
sustain because of the existing state of facts.
Mr. Sms. That is on the theory that the private companies will
operate more efficiently and more economically than they do now?
Mr. JoHNnsTon. Certainly. Does not that answer the question?
Mr. Sims. But Mr. Walter stated very distinctly that operating
railroads during peace conditions is a different thing from operating
them during war conditions. Is it not a fact that it is being shown
that this deficit is decreasing from month to month, without increas-
ing rates? Now, it seems to me it is the part of wisdom to let these
practical railroad men who are in charge of the railroads, men taken
from the railroads, and who are now reducing the deficit, to continue
in operation of them as long as a guarantee is necessary to the holdeis
of the securities. You represent the security holders, and the
security holders are absolutely protected by a continuatoin of Gov-
ernment operation, and why, from the standpoint of the security
holders, you should want to direct every method of procedure neces-
sary in transportation operation I can not understand.
Mr. Jounston. Of course, the security holders think the property
should be returned just as promptly as remedial legislation can be
enacted, and that this anomalous situation should not be continued
indefinitely; and because they think that the properties can be re
established very much earlier under private operation, with adequate
remedial legislation, than under a continuance of this situation. _
Mr. Smus. Is not the paying of a guarantee out of the Government
treasury, by the taxing power, an anomalous situation ?
Mr. JouHNsTON. Yes.
Mr. Sims. Why do you want to continue one anomalous situation,
when you are not willing to take the risk of another such situation—=—
Mr. JoHnsTon. For the simple reason that the railroads are not
responsible for the rates that are not adequate to sustain transporta-
tion. ‘Transportation is the cheapest commodity on the market.
As Mr. Clark said, a ton of any given commodity now buys more
i RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1075
transportation than at any other time or in any other country in the
‘history of the world. That is a condition for which the railroads are
not responsible; they are not responsible for the inadequate rate
fabric. They are satisfied to have an adequate return, but Congress
‘Is more concerned with excessive returns to the other pivotal indus-
tries, and if the railroads had an adequate return they would not ask
for guarantees or anything else. If the Interstate Commerce Com-
mission had said, ‘‘We will produce rates that will give an adequate
return,” it would be unnecessary to have guarantees. It is simply a
question of policy for Congress to determine.
Mr. Sms. I understand, as a matter of course, that the Govern-
‘ment would have the right to increase the rates, just as the Interstate
Commerce Commission has and the railroads themselves have; but,
‘being operated as a unified, coordinated system now, they will be
dissolved immediately, as soon as they go back, and the Government
will lose several hundred million dollars if you turn them back under
‘the plan which you yourself devised. In other words, you are not
willing to risk private ownership at its own risk, to restore normal
conditions, but you must have a guarantee of the return upon the
‘property investment account. Yet, you are representing the holders
of the securities. I can understand the executives, who are operating
the railroads and have to produce transportation and have to take
care of the SA le but the argument from the security holders
does not appeal to me, to have any moral force behind it. The
‘rights of the security holders are already secured by the property
‘itself, and I can not see what interest they have in the policies of the
owners of the railroads, or in the question of how the former makes
his money to pay the debt which is a lien upon the property which he
operates. ‘The insurance companies and savings banks have bought
these securities and hold them; they do not sell them, and that is the
‘Dest evidence on earth that they think they are good.
Mr. Merritt. They can not sell them now.
Mr. Srus. Why didn’t they sell them? They could have sold them
if they had been careful about their busmess
Mr. Jounston. I do not think, Mr. Sims, it would do any good for
‘me to repeat here that the association feels a very grave public
esponsibility to try to sustain transportation and to work out a
‘situation that will enable them both to retain the securities and to
‘invest enormous additional sums for capital in the future.
Mr. Sms. To the extent that they are owners of stock, my observa-
‘tions do not apply, but inasmuch as their holdings are nearly alto-
‘gether secured, they are mortgage securities, so to speak, I can not
see why they should be interested in every little operating detail, in
‘the divisions of return, and in the amount that those who actually
operate the property shall receive in earnings.
Mr. Jonnsron. There is just one answer to that, and we think it
! is reasonable. If these roads are pushed into private ownership
‘without remedial legislation, as Mr. Commissioner Clark has definitely
suggested here, you bring about a crash in the railroad world, and
‘neither bonds nor stock are worth anything while they are in the
process of the bankruptcy which would result.
Mr. Sms. But if the Government holds the railroads, I do not see
‘any bankruptcy for the security holders.
~~
1076 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Jounston. I understood you to be arguing against a Govern-—
ment guarantee. |
Mr. Sms. I am, unless you carry Government facility, resource,
and power with it. |
Mr. Jounston. It is simply a question of policy for the committees
of Congress to determine. | ‘
Mr. Sims. For instance, here is this so-called Cummins bill, which -
is supposed now to restore the power of suspension on Government
initiated rates in their very inception, and yet holds the Government
responsible for not initiating, and subject to suspension if it does
initiate them, and that looks to me like it is certainly a very hard -
condition.
Mr. Jonnston. That is a question with which we have not at-—
tempted to deal, of course. :
Shall I proceed now, Mr, Chairman ? |
The CHarrMAN. Yes, Mr. Johnston. You have an hour and a half. |
Mr. Jounston. I think I can conclude in that time, Mr. Chairman. ©
Mr. Wessrer. Mr. Johnston, Judge Sims propounded a question to _
you: Why should not the Government be permitted to continue the
control of the railroads and earn back a portion of the money that
has been lost in the operation of the railroads under Government
control. Does not this fact stand out, that the Government, took the
railroads over of its own initiative, as a war-time necessity, the
Government entered into contracts with the railroad companies, ©
fixing the basis of compensation, the Government has control of the
railroads, and if there is any deficit it is not the fault of the railroads; —
and if the Government pays the railroads what it agreed, under a”
valid contract to pay, do you known of any rule of law or of morals
that would justify the Government in keeping those roads until they”
made up the losses resulting from their own contract and from their ”
own operation ?
Mr. Jounson. That is not contested. I think it would shock the
conscience of the civilized world if the United States turned these
railroads back in any such condition as they now exist, without
stabilizing that situation which they have deliberately brought about,
as a matter of policy, that of paying deficits by taxation rather than
by rates; that it would be inexcusable punishment to the railroads
to be confronted with the results of the exercise of that policy. ,
Mr. Wesster. It must be borne in mind that the railroads under
Government operation and control have failed to sustain themselves. ©
To permit them to make up that loss by continuing the control would —
be rather like the experience of a Washington farmer who sent a
carload of cattle to the Chicago market. The cattle got there at a_
time when the market was glutted, and when the cattle were sold they —
failed to bring the charges. The commission brokers sent the owner
a statement for the deficit and asked him to please send a check.”
The cattle raiser wrote back that he did not have any money, but that _
he would be glad to send them another carload of cattle. .
Mr. Jonnson. ¥ think that is exactly it. Section 2, page 9, the’
suggestion is that the Federal controlled rates shall remain effective
as the minimum rates, subject to the action of the Interstate Com-—
merce Commission, until the commission shall find and declare that”
it is compatible with the successful and orderly operation of the car-_
riers in interstate commerce for normal processes in the making and |
|
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1077
taking effect of rates to be resumed, either in specified rate making
‘districts or as a whole. In other words, we are absolutely certain
that on the relinquishment of Federal control, state rates will im-
‘mediately become operative; that it 1s necessary to suspend that
result, certainly during the time of any adjustment of the rate situa-
tion by the Interstate Commerce Commission and until the latter, as
amatter of fact, shall ascertain that normal conditions are sufficiently
restored to say that the ordinary processes of rate adjustment within
the State shall proceed.
In the meanwhile, we do not say that State commissions or States
shall not proceed to initiate changes in the rates, but merely that, in
the event of appeal, the taking effect of those rates shall be suspended
until the Interstate Commerce Commission shall say whether that
change shall be put into effect.
We think that that is a very necessary transitional remedy against
‘the resurrection of statutory rate fabrics that are entirely out of
line with the interstate rates in effect, and would enormously burden
Interstate commerce. I think there is a North Dakota statute which
‘is said to be only a fraction of the general level of rates prevailing in
interstate commerce, and if that statute came into effect immediately
on the return of the railroads to private ownership, it would be a
great burden and would interfere with the rate adjustment which
‘any program of legislation is necessary to put into effect.
We lay down the general principle, in paragraph 3, section 3, on
‘page 10, and the succeeding paragraph of that section, that the Inter-
‘state Commerce Commission shall, as promptly as possible, put into
effect adjustments of relation between interstate and intrastate rates,
and that they shall have the right ‘to promulgate orders and regula-
tions which will maintain a fair relation between interstate rates and
intrastate rates.
A more concise statement of the situation is section 3, on page 10,
to the effect that intrastate rates observed by carriers for like and
contemporaneous and comparable service in transportation in inter-
state commerce, or for a like kind of traffic under substantially
‘similar circumstances and conditions, must correspond with the level
of interstate rates. ‘‘All such lower intrastate rates or bases of rates,
with the exceptions hereinafter authorized, are hereby declared to
discriminate against and unlawfully burden mterstate commerce,
by reason of such relation, without reference to the reasonableness
‘per se of the respective rates or level of rates, or any question of
specific discrimination as against interstate points, localities or
individuals.” That proviso is suggested as a result of the Shreveport
decision, and, followmg that, the Illinois case, which seem clearly to
‘point out the necessity, before there can be any action upon intra-
‘state rates by the Interstate Commerce Commission, for showing
‘that there is discrimination between localities, or particular classes,
or commodities, or shippers; the Interstate Commerce Commission
‘must be able to point out a specific discrimination as against an
‘interstate locality, individual or commodity. Unless they are able
. to show that in sufficient detail to make a definitive order as to those
-eertain, particular rates, it is doubtful if they have the power to
bring about general adjustments. We think the Esch bill contem-
‘plates general burdens and extends that doctrine.
1078 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
It is also our recommendation that the mere difference in relation
between comparable rate levels within a State to the interstate rate
jJevel most nearly corresponding is sufficient to show a burden upon
interstate commerce. Of course, there are bound to be exceptions
to that. There must be exceptions made in the case of special rates,
where ‘they are not unreasonable and where the ironing out of those.
special rates would work hardships, such, for instance, as com-
muters’ rates and similar tariffs approaching any of the great ter-|
minals. It would be unreasonable, perhaps, to force a general level
of rates of that character; or rates, for public road materials, or
special rates in which the public is interested in their maintenance,
It would be unreasonable to have an ironclad regulation that would |
prevent those equalities from existing subject to approval by the :
‘Commission.
‘So we say that those special rates might be permitted where the
general level of rates within that State is found by the Commission |
‘to be fairly equivalent to the interstate rates which are most nearly
comparable.
‘We do not propose to interfere with the exertion by the States of ©
‘their power to readjust rates within their borders as best suited to
their local conditions, provided that the Commission finds that the
general level of rates maintained within the State is compensatory
-and on a basis equivalent to that of the interstate traffic.
Mr. Sanpers of Indiana. This question of rates and jurisdiction
‘of the several commissions is important, no matter what plan you
are considering, and I want to ask a few questions about this proposal.
As I understand the act, the first rate structure that would be put_
into effect would be put in by the Interstate Commerce Commission,
limited by the mandatory provisions of this act, with reference to.
‘what it must yield. Now, as a matter of practice, does the Interstate
Commerce Commission make out this schedule? Suppose you have
the Pennsylvania. The Pennsylvania Line has many intrastate
transportation acts. In making out that schedule, would this
commission include the rates and charges for those intrastate transpor-
tation transactions ?
Mr. Jonnston. It would be obvious they would have to take that
anto consideration.
Mr. Sanpers of Indiana. I am not figuring on what the would)
‘have to take into consideration. In making out this schedule, when .
it promulgated this schedule, that is to yield in the aggregate 6 per
cent for all the carriers, when they get to a specific territory, will the
Interstate Commerce Commission, in making out this schedule,”
include intrastate rates ?
Mr. Jounston. I should imagine that they would. That, of
course, would be a question of readjustment of rates, a technical
question for the commission, and I would hesitate a great deal in
expressing my opinion as to how those highly competent gentlemen
would proceed to work out that result. But 1t presents no difficulty.
‘They undoubtedly have the power under this act to define, down to
the last requirement, the situation of intrastate rates necessary to
produce this general level, assuming that they would occupy a proper
relation to the interstate rates, but they might prefer to work it out
through instructions to the commissions of those States, and say
““You must produce such and such a rate level,” or they might la
fH} RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1079
| down a certain basis and work out their details within the States, as
\ we contemplate here, through coordinating the work and the juris-
) diction of the two commissions, State and Federal. We suggest that
» the Interstate Commerce Commission shall have the power, by rules
-and regulations, to coordinate their respective jurisdictions, and
_ certainly they can make rules obligatory upon the States or they can
» assert the direct authority conferred by this act to work the proper
» result. We think it would be difficult and impracticable to limit
the commission as to the means they must follow in discharging
making the levels correspond.
vi functions: It is nothing but a question of equalization and
_ Mr. Sanvers of Indiana. You would have a definite function here,
upon the Interstate Commerce Commission, to obtain a minimum
_ revenue ?
Mr. JoHNSTON. Yes.
|
|
|
Mr. Sanpers of Indiana. It seems to me there is a good deal of
confusion about where you are locating jurisdiction to fix these
rates. I can understand, by reading the provisions of the bill, how
the Interstate Commerce Commission could ultimately have the
determining of whether the State commissions have dovetailed
their rate structure properly imto the rate structure of the Inter-
' state Commerce Commission, but it does not seem to me that the
statement of the bill clearly and concisely gives the Interstate Com-
-merce Commission power, by a unified plan, to carry out these
rather general provisions that they must obtain a definite revenue
minimum,
Mr. Jounsron. I will be glad to call your attention to pargaraph 3
of section 2 on page 10, which reads as follows:
The Interstate Commerce Commission shall, as promptly as possible, and not later
than one year after relinquishment of Federal control, put into effect the general
adjustment of the relations between interstate and intrastate rates contemplated by
this act, and by order declare when the national emergency and when the welfare
of the interstate commerce of the United States justifies the remission to the several
States of their normal jurisdiction, initiative and effect, in the matter of intrastate
tates, of carriers, subject to the provisions of this act, and may accompany or supple-
‘ment such declaration with, and must from time to time thereafter promulgate,
such specific findings, orders, rulings, or regulations as it may, on investigation or
hearing, find necessary to preserve a just relation between the level of interstate and
intrastate fares, rates, and charges, applicable under substantially similar or compar-
able conditions, or necessary to protect interstate commerce from general burdens,
or to protect localities, individuals, and particular classes of traffic from specific
unjust discriminations or burdens with respect to interstate commerce.
Mr. Sanvers of Indiana. That is a provision by which they get to
at finally, but you have State commissions and interstate carriers
engaged in intrastate commerce with the right, im the first place, to
determine these rates, and then you have upon complaint or some
sort of proceeding to find out whether they did a good job of it.
What is the use of taking two bites at the cherry? Why don’t you
provide, since this Interstate Commerce Commission must take over
this vast amount of work and this great responsibility, why don’t
_ you provide that they shall draw up a schedule covering every rate
of these carriers, whether interstate or intrastate ?
Mr. Jounston. If there is any possible doubt, Mr. Sanders, about
that, we will be very glad to have it ironed out by specific statement
in the bill,
1080 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
In the third paragraph of the first section is the provision that the
commission shall, as nearly as may be, establish and maintain
freight and passenger rates, or levels of rates, or charges, in each
rate-making district that will enable the carriers as a whole, allocated
to each district and subject to this act, to earn, after proper allow-
ance has been made for renewals and depreciation, an aggregate
annual net railway operating income equal to not less than 6 per
cent*-and so forth. +
We recognize that it is absolutely essential that in working out
these adjustments and in working out this situation, that the Inter-
state Commerce Commission shall have plenary authority at any
and all times to accomplish the objective.
Mr. Sanvers of Indiana. I have my doubts, on reading the bill,
whether you have done much more than draw a declaratory statute
of the Shreveport case. I think that is what the Esch bill does. _
Mr. Jounston. If you will pardon me, I think it goes a little
further in expressly giving the commission authority in case of a
general burden, in addition to the necessity of showing some specific
discrimination against a specific locality or class or commodity, and
it very generally meets the criticism of the Supreme Court of the
order in the Illinois case, which required the commission to specify
the items to be changed and to RS the discrimination.
Mr. Sanpers of Indiana. It occurs to me it ought not to be a
question of either burden or discrimination. It is a question of the
necessary limits that you have got to have and the necessary leeway
you have got to have to effect a unified plan.
Mr. Jounston. That is true, sir. Relationship
Mr. SANDERS of Indiana. It just strikes me that it is very con-
fusing on that point, and if you had hit straight out from the shoulder
and given them power over all these rates, so far as interstate carriers
are concerned, you would have had a working plan.
Mr. Jounston. We would be very glad to analyze it a little further
with reference to that suggestion.
Hurrying on, Mr. Chairman, section 4, on page 12, deals with the
question of consolidations, which we make sweeping, subject to the
jurisdiction of the commission, when in the public interest and con-
venience, and we repeal to the extent necessary the Sherman Act,
the Clayton Act, and other antitrust acts. It gives both parties to
the transaction corporate authority to enter into any such consoli-
dation and provides for immunity from prosecution under that act, |
or any of these acts, and applies that immunity not only to the
parties to the transaction, but we extend it to their successors and |
assigns, and so forth, so as to make it complete.
I do not think there are any particular features of that section that
I desire to call to your attention or that need any particular explana-
tion. I
Section 5 of the act at the bottom of page 13, suggests that the _
commission have jurisdiction over embargoes, permits, and over
rerouting and diversion. It is our view that the Esch bill restricts
the jurisdiction of the commission to emergencies and times of con-
gestion of traffic, while under the proposed remedies which we
suggest, we think that is a power that must be given to the commis-
sion under ordinary circumstances; that is, power over the questions —
of divisions, rerouting and diversions, in order to work out the general
purposes which we are proposing.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1081
_ Further on, in the third paragraph, on page 11, which is the third
paragraph in section 5, we concur in the suggestion that the Com-
‘mission be given power over minimum tates, and we again refer to
_ the question of rerouting and diversions, extending the emergency
power which is conferred by the Esch bill, by this paragraph:
__ The commission shall have the power to fix maximum or minimum or fixed or pro-
| portionate rates or charges, and may prescribe the just and reasonable divisions of
oint or through rates whenever it shall find that such action is fair or in the public
interest; and shall have power to control routing as well as divisions, where found
desirable in the public interest and consistent with the lawful rights of carriers, as
_ where a choice of routes is available and revenue or full divisions from the haul is
not required by one carrier involved to enable it to earn a fair and reasonable return
upon its property investment as defined in this act, but additional revenue is desir-
able for another railroad involved and to assist it in giving service or in earning a fair
_and reasonable return, or is otherwise in the public interest.
We see no reason why the commission should not be given juris-
| diction to determine the routes where there is an alternative possi-
bility of routing, extending the discretion that is now left with the
shipper, or why we should not confer upon the commission that
power, where it would give a carrier which needs it additional reve-
nue and additional tonnage—there is no reason why, in the general
public interest, the commission should not be given that power,
rather than the power limited, as in the Esch bill, to times of definite
emergency.
Of course we propose that the existing rates in force at the time any
_ shipment is started out must be protected to the shipper, if there is
any diversion or rerouting as the result of an order of the commission.
Section 6 of the bill is the security provision. On page 14 we pro-
pose that the commission shall have full jurisdiction over the ques-
tion of securities to the extent of the power of Congress over that
subject, instead of suggesting a strict definition as to the particular
ways in which securities may be issued or their proceeds invested.
We propose in this section 6—not in the first clause, however—that
_ the commission shall have the right to define; that it shall have the
authority to prescribe, promulgate, and enforce plans and reason-
able rules and regulations to prevent the issue by carriers subject to
' the act to regulate commerce of securities or obligations, secured or
unsecured, on terms that are unreasonably wasteful or improvident,
, or for purposes incompatible with the public interests, as defined in
the section; that is, where the issue or expenditure would impose
_ undue burdens, duplication, or wasteful competition from being im-
posed upon interstate operations.
The only doubt that we have with reference to the provision of the
Esch bill is that there is an undetermined question, so far as the
Supreme Court is concerned, of the power of Congress in all par-
| ticulars to regulate the issue of securities of intrastate corporations.
We agree that the securities,have such a reasonable relation to the
‘status of the interstate carriers as to make it subject to little doubt,
but that Congress has power to take hold of the subject: but, there is
@ question of doubt as to the extent to which that power may go.
Cases could arise, which are so obviously internal in effect, where
there would be no question of burden on interstate operation, which
‘Inight upset the plan, if it purported to extend to all securities, and it
‘is for that reason that we confine the power of regulation to the abso-
lutely safe constitutional ground above stated, giving the commission
1082 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
power to control this subject and to prescribe these rules and regula-
tions wherever it is necessary in order to prevent undue burdens, dupli-
cation, or wasteful competition from being imposed upon interstate
commerce. It is obvious that this covers the wholefield. The statute
ae stand, even if a regulation of the commission were held in-
vali \
Mr. Sanpers of Indiana. Is it your understanding that the con-
stitutional limitation that is put on Congress is that 1t can only deal
with these matters when they become a burden or may become a
burden on interstate commerce ?
Mr. Jonnston. I think that is an accurate general statement of it,
yes; if it is supplemented by the other expression, which is so fre-
quently used by the court, that the regulation is proper if it has some
direct relation to interstate commerce, and that relation is generally
in preventing a burden or a potential burden. It states your position
in a little different way.
Mr. SanveErs of Indiana. I think that is too narrow a construction.
Is not the rule this: that Congress has the power to regulate com-
merce between the States, which is its plenary power, ‘and that it has
the right to carry out different plans for regulation of commerce, and,
under those plans, whenever there is anything in the way of State
legislation that conflicts with those plans, the State legislation and
State regulation must give way ?
Mr. Jounston. That is obviously true, sir.
But let us take this situation: The Supreme Court held, in the
First Employers’ Liability Case, that the relationship between a
strictly intrastate carrier, performing an intrastate service, and not
with relation to the roadway of any other interstate agency, bore no
such direct relation to interstate commerce as to bring it within the
power of Congress. They held that membership in a labor union,
made the basis for an act of Congress preventing the discharge by an
interstate carrier of an employee because of his belonging to a labor
union, had no such direct relation to interstate commerce as to give
Congr ess jurisdiction over the subject matter.
I can imagine cases where a carrier would issue a security which
could have no possible relation to interstate commerce. For instance,
suppose it bought an internal piece of property, used in nothing but
local commerce, and it wanted to issue an obligation which did not
constitute a ceneral corporation obligation of the railroad, but was
merely an obligation to the extent of its equity in that property. I
can not see how the purchase of that property or the issuance of a
security, limited in that way, could either become a charge against
the carrier, or set up a liability against the carrier of any kind.
am not prepared to say that there are not sufficient instances of that
kind possible to make it a question of some doubt in my mind whether
you must not establish some relationship between the securities and
interstate commerce before Congress can assume jurisdiction over it
under the commerce clause. The Supreme Court has repeatedly
stated that interstate carriers have not subjected themselves in all
of their internal policies to the control of Congress merely by engaging”
in interstate commerce.
It is merely with an extreme desire to avoid suggesting anything
that will run counter to any adverse construction that we have been
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 108%
|more conservative in a statement of this regulatory authority than
}has the Esch bill.
| Mr, Sanpers of Indiana. Do you undertake to control any other’
| 3ecurities except stocks and bonds?
) Mr. Jonnston. Oh, anything. We put the whole matter, without:
|mitation, before the Interstate Commerce Commission, to prescribe
‘rules and regulations and to enforce them. ,
| Mr. Sanpers of Indiana. As to stocks and bonds, any issue of
stocks and bonds would have such relation’to the general subject as:
to make them subject to the powers of the Interstate Commerce
| Commission.
| Mr. Jonunston. I should certainly think so.
We think that the Esch bill is inadequate, in that it does not ex-~
| pressly authorize the Interstate Commerce Commission to permit sales:
of stock at a discount.
| Now, while Commissioner Clark said that any corporation that
could not issue its stock at par should be reorganized, we know that:
|i8 too Sweeping a suggestion, and that perfectly sound railway enter-
|prises have not been and are not able to sell their stock at par. We
‘think it is necessary, in providing an-interstate agency, for Congress’
| to say that the commission shall, in its discretion, permit the carriers:
to sell their stocks at discount, of course making a proper set-up,
either on their property investment account or as a special item upon
the account so as not to prejudice that factor employed in determin-
| ing the rate level.
| Right there is a most important suggestion, which answers so many
of the criticisms of our plan.
I think it has been suggested that if we set up a 6 per cent level,
and if it shall appear at some iridescent date in the future, that the
railroads can get money for less than 6 per cent, that it would not:
do at all to make a level which would produce for the carriers more
than they have paid for the money; so we provide, in the cases of
‘Carriers earning the standard return, that the commission may, “in
like manner, require a corresponding adjustment for determining
'the rate level or standard return, where new money is procured on a
basis of less than 6 per cent.”’
In other words, as I think I stated this morning, if they can get
money at 5 per cent or 4 per cent, it should not go into their property
‘account to earn 6 per cent. Our provision is automatic, and we
‘think it affords a complete answer to any suggestion that at any time
‘in the future this money will earn more than it cost the carrier. We
make no allowances for the energy and initiative and the cost of
administering and acquiring and spending that new money which is
to be introduced into the railway enterprise.
Section 7 provides for the coordination of the work of State and
‘Federal commissions and provides for review by the Interstate Com-
merce Commission.
» I desire to call your attention to section 8, Mr. Chairman, for
‘several reasons. ‘The first is because of the importance in any system
-of the joint use of terminals and facilities, and the second is an entirely
one one, which I feel justified in mentioning to this committee.
Im stating the proposals of the association to the Senate committee,
‘and in all the expressions of the association and its representatives
upon the subject, the association and its representatives have at all
1084 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. }
: .
times advocated the joint use of terminals and facilities where found
to be in the public interest. We desire to make good that suggestion,
In formulating this bill and in presenting the tentative draft at the
last session of Congress, in order that all these provisions might be
understood and discussed, we embodied two sections in the bill,
section 21 and section 22 of Senate bill 5679, Sixty-fifth Congress,
Section 21 had reference to the continuation of an established service;
it provided—I am quoting without: any effort on my part to quote:
the exact phrdseology—that where, under any circumstances, car-
riers had joined in an established public use, in the continuity of
which the public had a substantial interest, and where that use was
about to be terminated or withdrawn, or proposed to be withdrawn,
the commission, in its discretion, could require its continuation or
authorize its continuation on the application of any party, on terms)
to be defined by the commission
Now, there is a very wide field of application for that provision,
and the most familiar one is the joint use of a terminal station by
carriers. A new line has been constructed, and it has established its
service as a Junior tenant of a terminal or station owned by a senior
line. It has no terminals in that town; at the termination of the
contract, either by its own volition or by expiration of the time of
the contract, the question is whether it shall be required to continue
to use that terminal or be required to construct another one. I
recall a number of instances where there are trackage rights into a
terminal over a senior road. Instances of trackage rights of that’
character are innumerable. I dare say there is not a community’
of any size in the United States in which junior carriers do not enter
the community through terminals owned by other railroads.
Now, if for any reason these intercorporate rights are terminated,
it would throw an enormous burden upon commerce and require
duplication of terminals and facilities. There is no doubt of the
power of the commission, when two companies have joined together’
in dedicating their properties to a joint service, to require the con-
tinuation of that service. There is doubt, where one carrier is nea]
forming its services, of the right of public authority to require it to
acquire new and additional facilities. |
Other legal distinctions between the two cases are obvious, and we
met those legal questions by two sections in the bill. The first one)
was substantially as it is now, in section 8, the importance of which’
will be obvious from the first few lines:
That when, under license or revocable or other temporary or terminable right or
agreement or otherwise, any railway carrier subject to the provisions of this act shall
have constructed, established, or maintained a facility or a service in interstate com-
merce essentially permanent in its nature, or of such character as to give rise to a reas d
able public necessity for the continuation thereof, such railway carrier, or any State
or person interested in such service may, before or after the termination of the tem~
porary right or easement or before or after the termination or threatened termination
of the service or proposed or threatened withdrawal from its public uses of the propa
or facilities involved, apply to the commission for an order, and the commission shall
have authority tomake an order requiring or authorizing the railway carrier whose
service has been or is to be discontinued, to continue the same upon such terms and
conditions and for such compensation, payable or secured, as the commission after -
notice and hearing to such railway carrier and to the owner or proprietor of the property
or easement to be subjected to the continuation of such use or service, if any, may
determine. :
iI RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1085
_ It then goes on and authorizes the junior carrier to proceed, if
\lecessary or required by the commission, by condemnation proceed-
‘ngs under the order of the commission.
__ The second paragraph of that section has reference to the iaugura-
jon-of joint use, and is in part:
__That whenever the commission, upon investigation on its own motion or upon com-
aint or application, shall find that the joint use by any railways of any facilities of
ransperattion is necessary or desirable in the public interest to facilitate commerce,
nd will more adequately enable them or either of them to discharge their public
‘uty, the commission shall be, and is hereby, authorized, and empowered by order to
equire such carriers to enter into such joint use upon such terms as may be agreed
‘etween them, and upon failure of such railway carriers so to agree within the time
pecified in such order, the commission may enter an order fixing the measure of
ervice or use to be granted by the owner of the facilities and the just compensation to
’@ paid for such service or use, or defining the tacilities to be occupied and the terms
or their joint usé.
It goes further and suggests that they might be required to acquire
‘Ven new property, where it is necessary, to enable them to perform
heir public duty.
_ When those sections were formulated Mr. Milton H. Smith, the
resident of the Louisville & Nashville Railroad, conceived, for what
‘eason I do not know, that section 21 of the tentative bill (S. 5679)
vhich provides against the destruction of an established joint use, as
tow embodied in section 8 of this bill, was intended to give the West-
rm Union the right of condemnation over the lines of the Louisville
¢ Nashville Railroad. He conferred with exectuive officers of the
National Association of Owners of Railroad Securities, for which I
ppear, and for which I was interested in formulating this bill, with
ther counsel, and made some outrageous representations, to the
flect that as a result of my interest as a local counsel of the Western
Jnion in a controversy existing between the Louisville & Nashville
nd the Western Union in the State of Alabama, section 21 had been
urreptitiously included in the tentative bill and had escaped the
ttention of other advisory counsel of the association, and he de-
aanded its elimination. He was assured by the executive officers of
he association, whom he approached in the matter, that the matter
vas of no concern to the association, any controversy between the
Vestern Union and the Louisville & Nashville, and that no such
atention was intended by the bill; that the next time I came North
ty attention would be called to the matter, and if there was any
mbiguity in the section that it would be ironed out.
I was communicated with in due course of time and came on, and
1ade the section so that it could not be subjected to any such possible
aerpretation. Although we have referred throughout this bill to
earriers subject to the act to regulate commerce,” throughout, obvi-
usly the whole title and purport of the measure has reference to rail-
‘ad carriers; yet there is no reason why its application should not be
‘bsolutely comprehensive if it is in the public interest, and if the interest
{ the public is protected, and if the interest of all carriers are pro-
acted; but Mr. Milton H. Smith was definitely admonished that
aere was no intention of settling that controversy in this process
‘hich we are now going forward with. The suggestion was made
at if he desired his counsel to scrutinize that provision before it was
introduced, in the revised and more carefully considered bill, that
would be glad to confer with them.
152894—_19—-voL 169
ad
1086 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
As a result of that suggestion as as soon as the bill was revised by
us for your consideration, an interview was arranged, through the
chairman of the board of the Louisville & Nashville Railroad, with
the two general counsel of the Louisville & Nashville. I do not care
to mention their names or to bring them into this controversy. After
they had gone over this section and approved the idea of adding the
word ‘‘railway carrier,’ which I had inserted in the revised draft, and
made some immaterial extensions of that idea, inserting the words”
‘railway’? at sundry points in the section out of excess of emphasis,
they approved section-8 in toto, and I have their letter stating that
the section was entirely satisfactory. It is before you in the exact
form approved by those gentlemen. | .
Notwithstanding that situation and of the assurances of the execu-
tives and counsel of this association Mr. Milton H. Smith has printed
a circular letter to Judge Stites, of the Louisville Trust Co., from whom
he had secured a copy of the memorial being circulated by the
National Association to be presented to Congress with reference to
the affirmation of the principles advocated by the association, which
he wrote Judge Stites, making these outrageous charges, to which I
have referred, and he gave circulation to that letter, and I am advised
he sent it to Members of Congress.
That fact entitles me, Mr. Chairman, in explaining the provisions
of this bill, to the privitege of denouncing his suggestions, not indeed
that I was retained by the Western Union Telegraph Co. to work
any such result for he insinuated rather than asserted that falsehood,
but the idea that the provision was to be put in the bul with the hope
of receiving, after it was put in, a fee from the Western Union Tele-
graph Co. That statement or insinuation is so contemptibly false
that [ hesitate to characterize it in its proper terms before this com-
mittee. But I do wish to say this is an inherited controversy I have
with Mr. Milton H. Smith, and if the process now proposed by this
committee in the Esch bill, opening up the correspondence of the
Louisville & Nashville Railroad under his direction had been im
effect, or if the political accounts of that road prior to 1907 had been
open to scrutiny wnen the Interstate Commerce Commission were
trying to secure information as to its political activities, I feel confi-
dent that then there would be grounds for difference between Milton
H. Smith and myself on an inherited vasis without reference to this
controversy with the Western Union Telegraph Co.; but I am per-
fectly willing to acknowledge a controversy with that gentleman on
my own account, and to say that of all the executives of all the rail-
roads in the entire history of the American railroad system, there has)
been no one who has been so persistent in his effort to debase legis-
latures by the use of free transportation, and there has been no one
so implacable in his enmity to any person who might oppose him in
any particwar as Milton H. Smith of the Louisville & Nashville
Railroad. a
The whole development of the process of regulation, so carefully
worked out by Congress and this committee from 1887 to the present
day, is strewn with the results of the conflict between the commission
and the insolent bourbonism of the Louisville & Nashville Railroad
under his dominion; and even at this late day it is necessary for this
Congress to take up its time and to burden itself with the enactment
of clauses made necessary by the recalcitrant attitude of Mr. Milton
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1087
“Hi. Smith of the Louisville & Nashvilte Rauroad, such as the pro-
‘visions of the Esch bill made necessary by his refusa! to. produce
‘correspondence evidencing his practices. 3
. I desire to say that, knowing that I have his opposition in any-
thing that I have been instrumental in or have assisted in formulating
tn connection with the railroad situation makes me know that we are
‘right. It is characteristic of Mr. Milton H. Smith that even since
_ the approval of his general counsel of section 8, he has sent telegrams
to the executive of this association demanding that section 8 be
‘eliminated entirely from the bill, and threatening that if not elimi-
-nated from the bill he proposes to oppose it before Congress, and L
presume that he proposes to oppose it by the same process of defama-
, tion that he has already circulated before the committees of Congress.
I, however, stand upon their sufficiency, their propriety, and their
‘high public benefit. They are approved by his own counsel as being
provident, and that is all that I care to say about that subject.
trust that if he inaugurates any such effort as he threatens, that this
“committee will be good enough to advise me of any further communi- »
cation from him. I may be compelled to characterize him in plainer
terms. |
I make this statement with the utmost regret as to its necessity,
‘and with the knowledge that it will be suggested that Mr. Smith is a
very old man, and that I have not shown proper deference for his
‘venerable years, but age is entitled to demand respect when it
abandons the venom of defamation and at least assume a benignity
‘which its implacable malignity in the past may belie.
Mr. Sms. Do you mean there is nothing in the Esch bill, or the
other bill, which permits any telegraph company to use the right of
-way of the railroad company when it does not interfere In any way
‘with the common carriers’ use of that right of way?
Mr. Jounston. That subject is not dealt with, Judge Sims.
Mr. Sms. I do hope it may be dealt with, with regard to the
Western Union, or any other company, on such conditions as may be
provided in the law. I live where the service has been taken away
and is not functioning, and we have to telephone first to some point
where there is a Western Union office or a Postal Telegraph office,
and pay a telephone charge and then pay the telegraph charges from
there on. If there is any way possible, I hope that any bull that
“passes will contain something of that sort. |
Mr. Jounston. Judge Sims, I hope you will permit the Western
-Union and the Louisville & Nashville Railroad to fight out that
question in some other forum. : :
Mr. Sims. My constituents have been deprived of a service which
they have had for many, many years. The rate has been doubled,
and we have to pay both telegraph and telephone charge, so It Is not
‘anything that concerns Mr. Smith. I do not care anything about the
Western Union Telegraph Co., but I think certainly every railroad
-company’s right of way in this country should be ud ect to such a
utility as a telegraph line, unless it would seriously interfere with their
‘road. If any compensation is due them, they should be paid a
rental. I have lived several years under this condition of private
operation of public utilities that are in conflict with each other.
“Mr. Jounston. Mr. Chairman, we think that the Esch bull 1s
probably too restrictive as to the joint use of facilities, in that 1t
opel
1088 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
seems to contemplate merely joint use of existing facilities. It does
not, even if it is necessary in the joint service of the public by two or
more carriers entering the same terminal, seem to contemplate
requiring them to acquire, if I recall correctly, a different site or to
join in the construction of a.new terminal.
My information from technical railroad men is that the difficulty
in the past as to providing joint terminals of enlarged capacity is not
on account of expressed disinclination on the part of any of the
necessary participants to the main idea, but arises out of their disa-
greement as to the property and as to the conditions on which they
shall acquire a new terminal and proceed with its use; and for that
reason we submit that wherever it is necessary the commission might
well be given authority to require the acquisition of terminal proper-
ties, directly or through an independent corporation, participated in
to such an extent as the commission may direct, both as to the
original capital which may be required and as to the terms and
conditions of their joint use. We think that result requires some
extension of the provisions of the Esch bill, with which we are in
thorough accord, subject of course, to the indispensable condition
of a definitive rule of rate making which will protect the carriers and
those whom you invite to invest in their securities against the fatal
process of the present system of rate making.
I think I can now dispose very briefly of the main suggestions of the
other two features of the bill, regional commerce commissions and the
National Railway Association.
We think it is perfectly obvious that under the widely extended
powers given to the commission by the Esch bill, which we heartily
indorse, and the even wider extension of power, if the program of the
association should be adopted, that the commission must be relieved
of a great part of the routine and of the detail which would rest upon
it. If they are to determine all questions as to securities, if they
are to determine these vast questions of extensions, and control the
expenditure of new capital, if they are to conduct these innumerable
hearings, if their jurisdiction is to be enlarged to the point suggested
by either of these bills, the members of the commission must be
reheved from the routine adjustment of rates, and for that reason
we have carefully worked out these provisions for relief. If the
idea of regional commerce commissions should recommend itself as
being sound to the committee, I trust that those provisions will be of
some assistance. ;
With reference to these regional commissions, we provide for
their location, for their expenses, their administrative provisions, the
question of the initiation of rates, and the coordination of the State
and regional commissions, and in section 18 we require that wherever
there is any controversy involving a certain number of employees,
not less than 50 workmen, that the controversy shall be submitted
for investigation and finding by the regional commission, before final
action, whether affecting wages, terms, or conditions of payment or
employment, wage or occupational differences of any kind, grievances,
whether of the employees in question or of any other employees of the
same or different employers, when any such difference tends to or is
likely to interfere with, hinder, obstruct, interrupt, or burden inter-
state commerce or any agencies thereof, temporarily or permanently,
or interrupt the transit of the mails or property or communications
of the United States. =
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1089
__ In all of those cases we provide that the matter must be presented
for conciliation by the regional commerce commission before there is
‘any lockout or strike or walkout, and make it punishable for any
‘such final action to be taken, either by a carrier or by the employees,
‘or any controverted wage adjustment or change in conditions to be
inaugurated pending the finding of the regional commission, acting
as a board of conciliation. That is not compulsory, the finding is not
compulsory; it works out only through cooling time and the power
of public opinion. It decentralizes, as I formerly suggested, all this
question of labor controversies, and removes these tremendous dis-
turbances which result from an effort to settle all these differences
in Washington horizontally for the entire country. It would tend to
reestablish wages and conditions responsive to the local requirements
in the respective regions, and we think it will have a most helpful
effect on the situation in every particular. The finding is not com-
-pulsory, except where both parties agree before any hearing that it is
_to be compulsory then they must abide by the result. Both parties
are given the right of appeal to the Interstate Commerce Commission.
_ We can not see that the suggestion will subject the commission
to any further responsibility than should necessarily rest upon it,
conferring upon the rate-making power the final expression in the
rocess of conciliation. By having the primary hearing and finding
efore a regional commission we remove the immediate impact
‘of these difficulties from the Interstate Commerce Commission,
they reviewing it merely as an appellate body, although we provide
‘that they may go into these questions either on the record presented
to them, or de novo, on motion or on application of any party, if
the commission thinks it desirable to hear 1t de novo.
Those provisions, we think, constitute a most coastructive agency
to lighten the enormous burden of executive responsibility that is
now to be placed upon the Interstate Commerce Commission in
determining these vast questions, the proper solution of which, in
addition to their present work, would be overwhelmed if they are not
relieved.
We do not think that the commission, as soon as it understands the
reatly added burdeas which would be cast upon it, either by the
Rech bill or by the provisions which we suggest, can object to being
relieved of the enormous routine to which they are now subject in
the mere matter of rate readjustments.
Mr. Sims. You say upon agreement to submit any wage contro-
_yersy or any labor controversy, that if those are affected agree to go
into this—I do not know just what you call that in the bill?
. Mr. Jonnston. Arbitration. That is optional. It is this obliga-
tion to submit to conciliation that is compulsory.
, Mr. Sus. If they do not agree to go into it then it does not apply
at all?
| Mr. Jonnston. Oh, yes; they must submit it for its fiadings, and
we call that ‘‘conciliation.”” Those findings are published, but they
-are not binding: Either party can appeal, and when approved or
modified by the Interstate Commerce Commission on appeal, it is stit
conciliation, and public opinion is its only constraining factor.
Mr. Srvs. But they must be submitted ? .
Mr. Jonnsron. They must be submitted aud they must not stride,
| and there must be no lockout or no reduction in wages by the rail-
imal
1090 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ;
road, or whatever the controversy is, until the announcement of the
fin dings of the regional commission or the Interstate Commerce Com=
mission, Mm ne event of appeal, which must be arrived at in 90 days
and 150 days, respectively.
Mr. Sane y Thy use the word ‘‘lockout?’’ I never heard of a
railroad lockout, at least for many, many years; I do not know
that I ever did hear of a railroad locking out the engmemen and
conductors and employees of that sort.
Now, I understand it is compulsory for employees to first submit
it to this conciliation board, or commission, and then it is compulsory
to continue service during how many days?
Mr. Jounston. We provide that the regional commission shall
reach its conclusions in 90 days.
Mr. Srus. Ninety days, which is three months.
Mr. JOHNSTON, Or 150 days if reviewed by the Interstate Com-
merce Commission.
Mr. Sms. That is as to the appeal ?
Mr. Jounsron. I think that means 60 days in addition to the 90
days.
Mr. Smis. One hundred and fifty days after appeal ?
Mr. Jonnston. No; I think it should be construed 60 days after
ovens
Mr. Simms. Then that would be five oninee Y
Mr. Jounstron. That is correct.
Mr. Sims. During which time——
Mr. JOHNSTON (interposing). If the respective commissions, took
that long.
Mr. Sms. In other words, it is compulsory to go into the arbi-
tration ?
Mr. Jounston. Yes; into conciliation.
Mr. Sms. It is compulsory to remain in it until it is through, and
if there should be a strike between these times that it would be a penal
offense and subject to a fine of $1,000?
Mr. Jonnston. Yes; that is correct.
Mr. Srms. How far does that miss being involuntary servitude
during that time?
Mr. Jounston. I do not think the necessity of submitting the pro-
priety of joint action to conciliation before the parties enter into any
such joint action is any restraint of—any unconstitutional restraint
of liberty. It involves a social right the regulation of which is within
the police power of the State or the commerce clause where applicable.
Mr. Srms. But before they strike it would be unlawful for them to
strike without submitting it?
Mr. Jonnsron. That is correct.
Mr. Sims. Then it would be unlawful to strike during ine nace it
may be under consideration by the primary board, and the one to
which appeal is taken ?
Mr. Jounston. That is the purpose.
Mr. Sms. Then they must serve during that time, and they must
serve for the wages they are then receiving ?
Mr. Jounston. If you put it that way, yes; but they must not
strike.
Mr. Sims. They must serve. I do not mean one could not quit,
could not get sick or something, but they can not as a body quit?
~~
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1091
| Mr. Jonnston. That is it.
| Mr. Sms. By concerted action, and it is made a criminal offense
‘if they do?
_ Mr. Jonnston. Precisely.
| -Mr. Sims. Therefore.they must either never have the controversy,
never ask for wage increases, or if they do they will be compelled to
serve for five months at the wages then prevailing.
_ Mr. Jonnston. Rather than strike. |
_.Mr. Sis. Well, to strike just means quitting work, does it not, by
- concerted action ? ae ’
Mr. Jounstron. No; it means, I think, something very different.
me Mr. uae I do not understand that to strike means anything except
to quit?
| Mr. Jonnsron. No; it means to quit in concert with others with
' the intention of returning when you have achieved your objective.
| If you want to quit and go and get another job, this is a free country,
| and I do not think any law could stop you from doing it.
__ Mr. Sms. You can as an individual employee ? |
/ Mr. Jounston. Yes.
| Mr. Sons. But you do that by a concerted action 4
Mr. Jounsron. I do not think it would be called a strike if they
decided they did not like that railroad and did not want to work
for it any more and pulled out for another employer.
Mr. Sms. Suppose those representing that organization—con-
ductors; engineers, firemen, or whatever they were—stated to the
proper railroad officials, ‘‘We must have an increase of so much, and
if not we are going to quit,” and set the limit of time withm a certain
time, and said, ‘‘Now if you do not do it we will all quit work,”
without saying anything at all about coming back and working or
going to work for somebody else. Would that subject them to the
penalty of this law, a fine of $1,000 and imprisonment ?
Mr. Jounson. We do not think it is material. Suppose it did not.
They would be in the attitude of having violated the statute calling
for conciliation, and, according to my conception the public disap-
_ proval of that violation, of the violation of the spirit of that statute,
would be just as firm as if there had been conciliation and they had
violated its terms. It would have the same effect so far as public
opinion can be effective in that contingency.
_ Mr. Sms. Do any of the other plans that have been presented have
a provision substantially the same as this one, seekmg the same
_ object ?
Mr. Jounston. I am unable to suggest.
Mr. Sms. You would not say they do not or do?
Mr. Jonnstron. I do not know.
- Mr. Wesster. Is it your idea, in leaving that feature of the plan
to be enforced by public opinion, is it your idea of the best policy to
be pursued, or is it based upon some doubt as to your constitutional
‘powers to go further? RS ty
-— Mr. Jounston. I do not see why, if you can compel conciliation,
that you could not prevent any form of combination of action which
might. be termed in the vernacular as “strike.” I do not see why
prevention of that could not be made compulsory on the same basis
as prevention pending conciliation. We realize, Judge Webster,
1092 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. (
that that is a question of high public policy and we have felt that
we should not anticipate the decision of Congress upon a question of
that kind. We do not know what the attitude of the laboring men
is as to compulsory arbitration. We think they should be consulted,
of course, not finally, but it is.a matter in which we are entirely
open-minded. We see the absolute folly of permitting these differ-
ences to go headlong to strikes and irreconcilable difference without
any intervening factor between them, and we have tried to formulate
a provision accomplishing that objective, just as every other provi-
sion in this bill, on the safest and most incontestable constitutional
ground possible. .
The final provision, or suggestion of the association, is in a great
many ways, we think, of the utmost importance, and that is this
proposal for a National Railways Association. Tt is called a cor-
poration, but we trust there will be no public revulsion from the idea
on account of the necessity for corporate organization. It is per-
fectly obvious that the Interstate Commerce Commission is not only
to have high judicial and executive functions, but there are a great
many processes in the performance of its duties which are essen-
tially administrative and where it would be most helpful to its mem-
bers to have a trained and highly competent organization at their
elbows which they could consult, or which could make recommenda-
tions to them in regard to these intricate and technical railway
problems.
We think that if railway directorates are permitted to nominate
within the respective regions their nominees to sit at that table, as
trustees, with the Interstate Commerce Commission and talk over
these things and give the Interstate Commerce Commission the
benefit of their training and experience, the result would be tre
mendously beneficial. While we do not in our recommendations
hesitate to cut down executive prerogative wherever it seems to run
counter to what we think is the advanced public interest in this situa-
tion, we do believe, Mr. Chairman, that the private mies of owner-
ship that has been in vogue in America, has developed operating
talent and ability which is most commendable to the system and to
the processes that the Congress has permitted to continue in the
past. It would be of infinite advantage to transportation as a whole
for those men, not paid by the United States, but representing active
railway management and delegated by plurality selection from the
carriers in these different regions, to sit on this public body to de-
termine and recommend broad policies to the commission, or to per-
form absolutely such duties as might be delegated to them.
We propose that the National Railways Association should ad-
minister this excess earnings fund in the purchase of equipment;
we propose that the association should be permitted, if necessary,
where there is a weak carrier, actually to guarantee its car equip-
ment obligations and then enable it to purchase equipment, not on
6, 7, or 8 per cent basis, but by reason of this undoubted credit of
the National Railways Association, to buy it on a 4 or 5, or even a
less percentage basis. Inter-carrier losses have been nega in
He past and the association could abundantly secure itself against
Oss. |
You are confronted right now with the organization of a great
corporation with a great caritalization to take over the Federal
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1093
\
equipment which has not been allocated to or accepted by the rail-
‘roads. There is an infinite number of ways in which the National
Railways Association could function subordinate to the Interstate
Commerce Commission. [t is to be noted that in this we propose to
Set up an active agency, not on the different theory of the suggestions
_as to a department or board of transportation or any organization
‘of that kind, which stands more or less at arms length from the
Interstate Commerce Commission, but one that will lock step with
it in the effort to attain a joint objective, and that is general railway
efficiency and service in the United States.
We believe it would be most helpful, and we have been amazed
in working out the corporate functions which would have to be given
‘it at the number of directions in which you have got to give it cor-
porate powers in order to enable it to function in ways that would
‘be most helpful. An examination of the provisions of section 20,
and the following sections, will show that the infinite variety of its
auxiliary services in coordination with the Interstate Commerce
‘Commission. |
| We think that it would be indeed most helpful. I believe that
‘Commissioner Clark stated that he thought the permanent solution
of the terminal question was for a local company to acquire the ter-
‘minals, and for the trunk-line carriers to participate in their use on
some fair and agreed basis. This association could function there.
‘We know there are insuperable difficulties in acquiring terminals,
jcorporate or statutory, or other limitations on individual carriers; it
‘may be that it is highly desiraole in a great number of instances for
this public corporation, functioning just as the Federal reserve bank
or the Emergency Fleet Corporation, operated without profit and
existing solely in the interest of transportation, to acquire by process
of condemnation, such as we propose in this bill, the necessary ter-
minals, docks, or other facilities and then draw the carriers into their
joint use.
The more the idea is dwelt-upon the more we think it will be seen
that it has a wonderful auxiliary power to assist the Interstate Com-
merce Commission, at all times functioning under its supervision and
in accordance with its restrictions and limitations. I think of it as a
clearing house for complaints between the public and the railroads.
Instead of having to meet the interested or antagonistic action of a
‘single executive mind the public would go before that association,
comprised of the commission or its representatives and of these other
‘men whose fitness for public service would be assured by their election
by a plurality of railway directorates, and their representatives could
‘say, “Here is a bad practice; one perhaps not within the regulatory
power of the commission.”’ + Think of the tremendous assistance that
could be in ironing out the differences that have arisen between the
‘public and the railway systems of the United States.
We advocate it on all of those grounds, not merely because it
articulates with our suggestion for the administration of this excess-
earning fund, but because it articulates with every desirable function
Which has been suggested as the result of this wide discussion as to
the few advantages of Government ownership and the generally
admitted necessity for certain unified operations. It meets that
situation; and while we have not suggested it here, becanse T think
‘that at the time we formulated the proposal it probably did not occur
to us, vet if it is desired to have labor represented among the trustees
|
-
‘
1094 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
¢
of that association, there is not the slightest reason why they should
not be, or the shippers, who certainly have as mice interest in the
railway situation. :
We think it would be a valuable experience in.cooperation to draw,
together the conflicting interests, particularly if this casus belli j Is.
removed from between the railroads and the shippers which now:
exists in all of these rate struggles, and which would be removed by
the adoption of our proposed limitation on earnings and a definite
rule for minimum rate levels which would provide some assurance to
the carriers that they would be protected from adverse and destruc~
tive system which now exists. |
I believe that I have presented a brief general summary of sections
of the bill having reference to these high points. We have worked
the whole out with sufficient detail to avoid any possible misunder-
standing as to its terms. |
This, Mr. Chairman, is a general discussion of tne bill, and [ desire
to express my very great appreciation of your considerate attention
throughout. |
The Cratrman. I want to express the appreciation of the com-
mittee to you and Mr. Walter for the very great paing and care you
have taken in presenting this plan. ai
Is it desired that Mr. Warfield appear later ? |
Mr. Jounston. Later, if you please, Mr. Chairman; at your con-
venience.
The Cuarrman. 1 understood you, or someone, to have stated
‘that he was engaged in the preparation of a memorial to presen to
the committee ?
Mr. JonHnston. Yes, sir; that is correct. |
The Cuarrman. Have you any idea about when he will havell it
prepared ?
Mr. Jounstron. I should say within a week; it might be 10 days,
but I should say at the expiration of a week, if it 1s acceptable to
the committee.
The Cuarrman. It is agreeable at any time.
Mr. Jounston. We shall be glad to keep in touch with you and
meet your convenience on that.
The CHarrman. We will now recess until Monday morning at
10 o’clock. |
(Whereupon, at 4.50 p. m., the committee adjourned until Monday,
‘August 18, 1919, at 10 o’clock a. m.)
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
House or REPRESENTATIVES,
Friday, August 15, 1919.
STATEMENT OF MR. SAMUEL H. BEACH, PRESIDENT ROMY
SAVINGS BANK, ROME, N. Y., AND PRESIDENT OF THE
SAVINGS BANKS ASSOCIATION OF THE STATE OF se
YORK.
The CuarrmaAn. Mr. Beach, please give us your name and address.
Mr. Bracu. Samuel H. Beach, president of the Rome Savings
Bank, of Rome, N. Y., and appearing here for the Savings Banks
Association of the State of New York, of which I am president.
“4
_™» RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1095
__ Mr. Chairman and gentlemen of the committee, the only idea in
(the minds of a great many people is, in regard to railroad securities,
‘that they are owned and held largely by the very wealthy. They
‘fail to take into consideration the fact that the major portion of the
‘liquid wealth of this Nation consists of the small accumulations of
‘the many rather than of the larger holdings of the few.
| The Savings Banks Association of the State of New York, of which
‘Lam to-day the spokesman, comprises in membership 139 of the 141
'savings banks in the State. These are mutual savings banks. They
‘have no stock and therefore no stockholders. The trustees serve
entirely without compensation, and every dollar that a savings
bank earns beyond the actual cost of doing business belongs to the
depositors. It is natural that these institutions would meet with
the favor of the people. In the State of New York one-third of the
entire population of the State, including every man, woman, and
‘child, are devositors in the savings banks. To be more exact, there
‘are over 3,500,000 depositors and they have to their aggregate credit
the enormous sum of over $2,000,000,000. There are similar mutual
‘savings banks in 14 other States, 615 in all, which have 9,000,000
‘depositors.
_ The law requires that a savings bank shall invest the money
deposited with it as speedily as possible in certain specified high-
ol securities, and railroad securities are among those so specified.
Now, how deeply are the savings banks interested in railroad securi-
ties? Since the war we have talked so much in millions and billions
that the mere statement of figures means little. So for the purposes
of comparison I would call your attention to the fact that last Mon-
day morning the newspapers carried great headlines announcing the
death of Andrew Carnegie and in the subheadlines they carried the
announcement that during his lifetime he had given away
$300,000,000, and the size of the type indicated that $300,000,000
was a large sum of money. Next day the newspapers carried a head-
line that the aggregate cost of the foodstuffs which Canada and
the United States had sent over to the war-devastated countries of
Europe amounted to $700,000,000. The size of the type indicated
that they considered that a large sum, but the amount which the
Savings banks own of railroad securities is not $300,000,000, not
$700,000,000, but it is $850,000,000. The resources of the 615
‘mutual savings banks, and that means potential buying power, are
$5,000,000,000 equal to one-half of the combined time and demand
deposits of the 7,833 national banks in the country. Besides the
savings banks depositors, there are 33,000,000 holders of life insur-
ance policies, and railroad securities form a large block in the holdings
of the companies which issue those policies.
Then, we have the vast number, hundreds, say, of universities,
who invest a portion of their holdings in railroad securities. Then,
‘come the millions of depositors in stock savings banks, State banks,
‘and national banks, each of which institutions holds a proportion
of railroad securities. Then, there are the thousands of trust estates
and millions of individual investors, so that 50,000,000 people, at
least one-half of all the population of these United States, are deeply
‘and vitally interested in having the railroads returned to their owners
‘under such terms and conditions as will render the present outstand-
ing bonds desirable to retain and future issues attractive as an invest-
Ment.
~
1096 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
I am here to-day to speak in favor of the plan which has been
discussed here for the past two days, a plan which was formulated
after months of study and deliberation and discussion by the National
Association of Owners of Railroad Securities.
The essential features of that plan, so far as we are concerned, to
describe it very briefly, because you have already listened to eminent
counsel on this subject, provides that Congress shall by specific act
provide such rates for freight and passengers as will produce a return
of not less than 6 per cent upon the combined property investment
accounts of the roads in each of the three classification territories,
While this average return of 6 per cent would not enable a road
operating in a sparsely settled district to earn possibly the average,
it would permit a railroad operating through a thickly populated, rich
region to earn much more than 6 per cent and at first thought this
seems inequitable, but to cover this point the plan contains the
entirely original and easily workable suggestion that all the money
which a railroad earns in excess of 6 per cent shall be divided into
three equal portions.
One of those portions shall be retained by the road that earns it.
That makes an incentive for the executives of that road to do every-
thing in their power to bring all the freight that their road can pos-
sibly carry to its line. It forms an incentive for them to make their
transportation service of the public so comfortable and so desirable
in every way that passenger traffic will be attracted. In other
words, 1t creates competition, and competition we must have if our
railroads are to reach their highest efficiency.
Another third goes to labor. That makes labor interested in
handling all the freight possible and in having its road earn all the
money it can, because labor profits directly in the excess earnings.
Labor is entitled to its share of the excess earnings, and this plan
provides for such participation.
The third portion is to be diverted to such use as will be of benefit
to the traveling public and the shippers.
Ex-Senator Elihu Root, whose keen, analytical mind clarifies and
illuminates every subject to the study of which it is turned, said in
a letter to Mr. Warfield touching this plan, ‘‘I think you have put
your hook into the key log of the jam.’’ No more terse or effective
description of the conditions which obtain could be made than is
expressed by those words of Mr. Root. We all know there is a jam.
Every business man knows down in his heart that the Government
operation or Government ownership of railroads never can be eithe!
efficient or economical, and in a republic to the continued existence
of which political parties are necessary, the making of a political
asset of the vast number of railroad employees which our great
transportation system has to have, would be a constant and grave
menace to good government.
It is our firm conviction that unless the railroads can be given
reasonable return that it means their destruction and eventual
Government ownership, unless, as Mr. Johnston so forcibly stated
this morning, Congress shall exercise its duty to stop by act the knife
of regulation short-of the heart of the transportation system of these
United States. 1
The question might properly be asked, not being a practical rail-
road man, why am I here? That question is easily answered. I am
here because I directly represent trust funds to the amount ol
RETURN OF THE RAILROADS. TO PRIVATE OWNERSHIP. 1097
$2,000,000,000, and when I say ‘‘trust funds’ I mean just exactly
shat in every sense of the word. |
| So ecarefuily has the Legislature of the State of New York safe-
muarded and hedged about the deposits in the savings banks by
sarefully drawn restrictive laws that those laws have become the
nark and model which other States are fast adopting as their own.
Under these laws a savings bank can not buy a railroad bond, and
ight here I want to say that not only can not a savings bank buy a
railroad bond, but no trust estate can buy a railroad bond, nobody
qaving trust funds can buy a railroad bond, because they are al
imder the same law as the savings banks, unless that bond is issued
xy a railroad which has an efficient operating and working force,
svidenced by its having paid a fixed return to its stockholders over a
‘xed period of years.
In other words, a savings bank can not buy a railroad bond unless
it is as safe and secure and as certain of being paid in full at maturity
as human experience can determine, but human experience affords no
precedent either in this or any other country for such operations of
railroads as the past two years have witnessed. Operating costs have
mounted so far out of proportion to the receipts that the bonds of at
least eight or nine railroads which were eligible for savings banks to
buy before the war started are in a fair way to become illegal. It is
aasy to ask why can not these laws be changed so as to conform to
existing conditions, but the fact is we do not want the laws changed.
We have no reason to attempt to camouflage our position. What we
do want is to have such legislation enacted as will bring these securi-
ties up to the requirements of the law so that instead of being forced
to sell the securities we already hold and thereby seriously deflect an
already depressed market, we may not only be warranted but feel
justified in investing every dollar of the $2,000,000,000 which are
intrusted to our care in railroad securities which the laws governing
our investments will permit us to-do.
I thank you, gentlemen, for your attention.
~The CuarrMan. The committee appreciates your presentation of
the case, Mr. Beach.
House or REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Monday, August 18, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
\ The Crarrman. The committee will come to order.
Mr. Post desires to present this morning a résumé of the referendum
tecently held by the United States Chamber of Commerce on certain
phases of the railroad legislation, and the committee will be glad to
hear Mr. Post now.
STATEMENT OF MR. GEORGE A. POST, CHAIRMAN OF THE
RAILROAD COMMITTEE, CHAMBER OF COMMERCE OF THE
UNITED STATES.
Mr. Post. Mr. Chairman and gentlemen of the committee, I have
the honor to be the instrument whereby the Chamber of Commerce
of the United States seeks to bring to the attention of your honorable
’
a
4.
#
1098 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. -
a
body the results obtained by the votes of its organization members
upon the several recommendations contained in its referendum No,
28. .
The plan which I shall present to you to-day has received the
approval of the members of the Chamber of Commerce of the United
States and is, up to a certain point, identical with the program of
railroad legislation presented to this committee two weeks ago by
representatives of the national transportation conference recently
held under the auspices of the chamber. The conference program
goes further, however, and includes certain recommendations which,
although entirely in harmony with the principles embodied in the
chamber plan, have not yet been submitted to the members of the
chamber for approval by referendum vote. :
It was impossible to place before the members of the Chamber of
Commerce of the United States any detailed plan, couched, section
by section, in statutory phrasing, because in our referenda it is neces-
sary so the frame the questions submitted that they shall be sus-
ceptible of an answer ‘‘yes” or ‘“‘no’’ to each interrogatory. The
chamber is made up mostly of business men who can and do grasp
a business principle, consider it and give adhesion thereto or oppose
it. You have their judgment on several major points of the railroad
problem. They have contented themselves with giving expression
t) their sentiments on a few of the many matters that must engage
your attention. The chamber has full appreciation of the per
plexities that confront you in framing the legislation which must
recede the return of the railroads to their owners. It has aimed to
be helpful to you in showing the trend of thought of American bust
ness upon some of the outstanding issues involved m your delibera-
tions. It feels that was its duty to you as our Representatives i
the Congress. It knows that deep study is needed of the complex-
ities inherent in the very existence of a transportation system which
serves those who needs service which they desire to obtain at the
lowest possible rates, a service which is rendered possible through
the labors of those who are entitled to liberal wages for dangerous
and exacting toil, and requires investment of billions of dollars from
the savings of thrifty folks, who will invest only if the return is at-
tractive to them. In such circumstances, no one of the elements
may reasonably hope to exact the fullest measure of its desires either
as to lowness of rates, height of wages, or abundance of investment
return.
American business is deeply concerned respecting the future of. ow?
railroads. It has high hopes of a wise outcome of your deliberations:
It has noted with gratification the earnestness, patience, and fairness
with which the congressional committees are seeking to secure all
possible information. Groups of business men differ in the details
of financial plans, all of which must undergo your careful scrutiny,
but in one thing they will be found in firm agreement: Government
ownership must not prevail.
To you, gentlemen, is confided a great responsibility. As you
proceed in your work of bringing order out of chaos in the realm o!
transportation, you are entitle to the friendliest, most zealous coop:
eration of all. “The Chamber of Commerce of the United State:
indulges the confident hope that under your guidance the day is neat
when our railroads shall emerge from the slough of despond m whic’
:s
|
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1099
on
whey are now submerged, and, returned to their owners for operation
amder a comprehensive and beneficent system of governmental su-
yervision, with assurance of adequate revenue, shall give such eco-
jomical and satisfactory service as only courageous individual enter-
yrise, with ample freedom of operation, can vouchsafe.
Method of taking vote: For your information as to the method of
‘yrocedure of the chamber in submitting its referenda, I beg to state
shat when any of its standmg committees, or a special committee
wreated for the study of any particular subject of national scope,
jas, after mature deliberation, arrived at certain conclusions with
‘eference thereto, the committee forthwith renders a report to the
yoard of directors, making its recommendations, accompanied by
‘ts reasons for such conclusions, and for the action that it recom-
mends. If the board of directors considers the findings of the com-
mittee of such a nature as to warrant the ascertainment of the
ypinion of the members throughout the country, a referendum is
ordered, and in due form the machinery of the chamber is set in
motion, and each and every member organization is called upon to
hxpress its opmion by a yea or nay vote upon the proposals made.
- The directors do not record an expression of their opinion. Forty-
ive days are allowed for the consideration of the proposals by the
member organizations, all votes to be filed on or before a certain
jixed date. As the member organizations vary in size of enrolled
nemberships and income derived therefrom, which is the basis for
jhe number of votes which each member organization is entitled to
vast upon all referenda of the chamber, the voting strength varies,
put each organization, no matter how small, is entitled to one vote,
and no organization, no matter how affluent in income or strong in
snrolled memberships, is entitled to more than 10 votes.
In accordance with the law of the chamber, the railroad question,
n its various phases, was referred to the railroad committee. Many
‘neetings of the committee were held, free discussion was had, and a
‘eport was made to the board of directors at a meeting held in St.
‘Uouis on April 30, 1919. On June 9, 1919, referendum No. 28 was
‘ssued calling for judgment upon the several recommendations made
‘oy the railroad committee. On July 24 the polls closed, and an
ficial announcement was made of the results of the voting.
| Under its rules a two-thirds affirmative vote of those voting must
°e cast upon any proposal submitted to make it effective as a declara-
ion of the sense of the Chamber of Commerce of the United States.
- Ten recommendations made: The railroad committee had made
10 recommendations, and in their numerical order they were as
‘ollows: .
- The committee recommends adherence to the policy of corporate
‘ywnership and operation of the railroads under a comprehensive
system of Government regulation.
_ The-vote upon this recommendation was: Yes, 1,458; no, 11.
‘At the time that this recommendation was madeé there was no
loubt in the minds of the committee that Government ownership
‘nd operation was not an issue pressing for attention upon the present
Jongress. Due to the unfavorable impression made upon the public
nind by the operation of the railroads under Federal control, for a
Yeriod of 16 months, there was manifest throughout the country a
‘strong, even overwhelming, sentiment against a continuance of
’ .
1100 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Federal control and operation. Prior to the adventure into the field
of Federal control (undertaken as a war measure) many men in
public office and multitudes or private citizens had been harshly
critical of railroad management and had zealously advocated and
brought about legislation severely restrictive and punitive respecting
railroad operations. In their bitterness, engendered by what they
considered unfair and aggravating practices of the railroads, they
had declared that Government ownership and operation was the
only remedy for railroad evils. Later they were so aroused by what
they deemed the baleful effects of Government operation upon their
personal convenience and upon the conduct of their business, con-
sequent upon the indifference of governmental agencies to their
transportation needs, the elimination of comforts, cooperation,
facilities, and courtesies to which they had been accustomed, that
they renounced their previous advocacy of Government ownership
and became vigorous opponents thereof. So recently as July 15 last
at the opening of these hearings before this committee, Chairman
Kisch said: “In view of the widespread sentiment throughout the
country against Government ownership, I feel we ought not to spend
very much time on that proposition.”
The railroad committee of the chamber was of the opinion, however,
that a declaration should be made by the chamber upon the subject
at this time so that, as a matter of record, the position of its members
might be made clear and emphatic thereon. In its statement ac-
companying its recommendation, the committe presented some of its
controlling reasons for the consideration of members, and the prac-
tically unanimous approval accorded the same in the votes recorded,
shows, unmistakably, that the commercial and industrial interests
of the country are a unit against Government ownership and opera-
tion, and against Government ownership with operation by private
corporations as lessees of the Government. Among the reasons
urged agains Government ownership and operation are:
Argument against Government ownership: First, under Govern-
ment ownership the development of railroad facilities would depend
upon congressional appropriations which would prevent the anticipa-
tion of the transportation needs of the country. Appropriations
would not be made in the amount and at the time needed to insure
adequate development of the railroads. Political considerations
might also control the amount of appropriations and the objects for
which they were made.
Second, the interest rate which the Government would have to pay
to secure railroad capital would not be lower than the rate paid by
corporations. ‘To acquire the railroads the Government would have
to pledge its credit for eighteen to twenty billions of dollars, at a
time when other large financiering must be done. It would be
difficult for the Government to dispose of the securities required to
purchase the railroads, and it would be necessary for the Government
to secure from $500,000,000 to $1,000,000,000 of new capital each
year. If the Government were to assume the burden of financing
the railroads at the present time when the war debt is so large, its
interest rate would necessarily be as high as, if not higher than, the
rate at which corporations could secure capital. r
Third, Government operation is seldom, if ever, as efficient as cor-
porate management. Competition, the incentive to efficiency and
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1101
progress in private enterprises, is absent from the Government ad-
ministration of affairs. Individual initiative is less, bureaucratic
methods are more characteristic, and the services rendered are less
progressively efficient.
_ Fourth, while the Government would presumably select officers
and employees by means of efficiency tests, political includes would
almost certainly be given weight in selecting men for official positions.
Fifth, unless the Government adopted the policy of fixing low rates
and fares with the intention that any resulting deficit from operations
should be placed as an increased burden of taxes upon the general
ublic, rates and-fares would be higher under Government than un-
er private operation. Under Government operation expenses rise
in relation to income and the charges imposed by the Government,
if a deficit is to be avoided, must be higher than those which it would
be necessary to permit railroad corporations to make.
Sixth, the political effect of Government ownership and operation
of railroads in the United States might be serious. There are now
about 500,000 civil employees of the Government. The addition to
the public services of 2,000,000 railroad employees, the majority of
whom are voters, would constitute a force of about 2,500,000 Govern-
ment employees interested in controlling the policy of the Govern-
ment as regards wages, hours, and conditions of service. Such a body
of employees might easily exercise a controlling influence upon State
and National politics.
Speedy return of roads: Being convinced that the public was now
thoroughly and strenuously opposed to Government ownership and
operation of the railroads, the natural sequence of thought was that
Federal control should come to an end as speedily as possible. The
second recommendation was, therefore, as follows:
The committee recommends the return of the railroads to their
owners as soon as remedial legislation can be enacted.
The affirmative vote upon this recommendation was almost identi-
cal with that in favor of corporate ownership and operation: Yes,
1,458; no, 18.
- Thus, it is conclusively shown that the voice of business is in con-
sonance with the view of the railroad committee which argued that:
It would be unwise for the Government to retain the railroads
longer than is necessary to enact the legislation required for the return
of the properties under conditions that will be just to the owners and
will insure to the public adequate transportation facilities by properly
financed railroads. This legislation should be enacted as soon as
possible and before the Government retires from railroad operation.
It would be a hardship to the public and unjust to the owners of the
roads were the Government to return the properties without first
removing the obstacles to efficient and economical operation of the rail-
roads by their owners, without revising past methods and agencies of
Government regulation, or without adopting measures that will
enable the carriers to obtain revenues sufficient to provide the public
with adequate facilities and efficient service. As soon as this legis-
lation has been enacted, Government operation of railroads should
end. |
_ Argument against extension of time: The third recommendation
Was: :
152894—19—vo1 1 70
1102 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
The committee recommends that no extension of the period of
Government operation should be made until Congress shall have
found it impossible to enact the required legislation within the period
possible under the railroad control act.
The vote cast was: Yes, 1,3394; no, 1143.
This recommendation was responsive to a recommendation made
by Director General McAdoo, just prior to his retirement from office
that the period of possible Government operation of railroads be
extended until January 1, 1924, in order that a test may be made of
the possibilities of Government operation of railroads in peace time
and that the Government may carry on the work it has begun of
developing the use of waterways, of connecting them with the rail-
roads and of articulating rail and water traffic. It was also urged
by the director general that Congress could not frame and pass the
“necessary legislation to return the railroads to their owners with such
celerity as to avoid projecting the whole railroad question into the
presidential campaign of 1920, which he said, would be a calamity
to be avoided, and which could be avoided by the adoption of the
plan of a five-year extension of Federal control.
This proposal by the director general fell upon deaf ears, with the
exception of those of the railroad brotherhoods, which, having fared
so generously under Federal control, seemed willing to have 1t con-
tinued for any length of time. The public at large, however, showed
no favor toward the appeal made, repelling it vigorously, and the
project ‘‘died a bornin’,” so to speak. [t was finally nailed in its
coffin when the President gave notice to Congress that he would
release the railroads from Federal control at the end of this calendar
year—the question of an extension of Federal control beyond the
time of the act of March 21, 1918, is not, therefore, a live one before
Congress. The vote.of the chamber was overwhelming against the
extension. | ,
Consolidation on strong competing systems: Fourth in order.
The committee recommends that, while adhering to the principle of
railroad competition in service, the railroads be allowed, in the
public interest, when so declared and as approved by public authority,
to consolidate to such extent and in such manner as may be necessary
to enable the existing railroads to unite in a limited number of strong
competing systems, so located that each of the principal traffic
centers of the country shall, if possible, be served by more than
one system. ‘
The vote upon this recommendation was: Yes, 1,3095; no, 1253.
The argument of the committee which proved persuasive to the
chamber members in support of this recommendation was:
It is the opinion of the committee that legislation should be enacted
that will facilitate the early grouping and the ultimate consolidation
of the railroads in the United States into a limited number of strong.
competitive systems, the grouping should be about the present large
systems and not by territorial subdivisions of the country.
The existence of so many railroad systems as there now are increases
the difficulty of coordinating their facilities and services to the
extent necessary to secure.the most economical operation. Moreover,
some of the present roads are financially weak and their continuance
as separate systems complicates the Government’s problems of
rate-making, of the common or joint use of equipment and facilities,
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 110%
of the regulation of security issues and of reestablishing the financial
wredit of the railroads as a whole. If the railroad systems that are
Mmancially unstable.and the many systems of minor importance
tan (subject to the approval of the Government, and under con-
litions which it may prescribe) be grouped, or consolidated, with a
‘imited number of strong systems, a better service can be rendered
and a ree development of lines, terminals, and other facilities will
.9e possible.
_ Without sacrificnmg the benefits of competition in service, the
zovernment should facilitate the coordination of. railroad facilities
and services, the common use of equipment, and the joint use and
levelopment of terminal facilities, when in the public interest.
_ With Government approval: The consolidation of railroads, as:
well as the coordination of their facilities, should be subject to the
ppproval of the Government, and, with such authorization required,
she railroads should be encouraged to work out the natural grouping
wf systems and to combine their facilities in the interest of traffic
3conomy and of financial stability.
_ Many States have laws against the combination of railroads, and
n the constitutions of several States there are provisions prohibiting
she acquisition by a railroad of another competing line. ‘The obsta-
sles which these State laws and constitutional provisions place in the
way of the associated activities and the LN Ra of railroads may
oe removed by changing the status of railroad companies from State
to Federal corporations, as recommended in this report.
| While favoring the early grouping, and ultimate consolidation of
the railroads.in the United States into a limited number of strong
systems, which shall be built upon the large systems which have
leveloped in response to commercial needs, the committee feels that
sompetition among these systems, in service (not in rates), is desirable
tom the standpoint of the public and will lead to greater efficiency
wf operation on the part of the railroads. In all kinds of business the
most effective incentive to improvement and to economy of operation
s competition. In the case of the railroads the same charges must
9e made for similar services. The rates and, to a large extent, the
wractices of carriers must be regulated by the Government, but
“egulation does not preclude the possibility of active competition in
service. In facilitating railroad consolidation, the Government need
10t, and in the interest of the public should not, eliminate railroad
sompetition.
_ Corporations subject to United States: The committee recommends
shat railroad companies engaging in interstate commerce shall be
equired to change from State to Federal corporations, with suitable
drovisions in the act of Congress providing therefor that the several
States shall retain the power of taxation and police regulation of the
oroperties of said railroads.
' The vote upon this recommendation was: Yes, 1,224; no, 193.
By referendum 21, which was submitted by the chamber of com-
nerce in September, 1917, the commercial organizations of the coun—
ury, with a comparatively few dissenting votes, declared themselves
n favor of the enactment of a Federal incorporation law and also of
‘Jaw requiring all carriers now subject to the Radiol of the Inter-
state Commerce Commission, or which may hereafter be created, to
organize under a Federal incorporation act.
;
4
"
1104 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. j
It has been represented to the committee by jurists who have give
the matter careful consideration that Congress can enact a statute
that will provide a simple process of converting State railroad com-
panies engaged in interstate commerce into Federal corporations
by methods similar to hose followed in changing State banks into
national banks. -
If such a plan shall be found by Congress to be constitutional and’
feasible, the committee recommends the Federalizing of railroad
corporations engaging in interstate commerce, by the enactment of
a statute similar in principle to that of the national. bank act, which
provides a direct method of converting States banks into Federal
institutions. .
In requiring railroad companies to change from State to Federal
corporations, Congress should provide that the States shall retain
the power of taxation and police regulation of the property of the
Federal railroad corporations.
Regulation of capital expenditures and security issues: The com-
mittee recommends that the Interstate Commerce Commission, or
such Federal agency as may be designated by Congress, be authorized
to pass upon the public necessity for expenditures of capital in excess
of a stipulated amount) bycarriers engaged in interstate commerce,
and to determine the amount and to regulate the other conditions of
the issuance of securities to obtain the funds required to cover
authorized capital expenditures; and that a railroad applying to
the Federal agency for authority to make capital expenditures, or
to issue securities, shall be required to file with the proper authorities
of the States in which the railroad is located, copies of the original
petition; and that the Federal agency be required to notify the said
State authorities of the hearings upon the petition, in order that they
may advise the Federal agency as to actions they favor.
The vote upon this recommendation was: Yes, 1,3344; no, 903.
The organization members ‘of the Chambers of Commerce of the
United States, is acting upon referendum 21, voted almost unanti-
nously in favor of Federal regulation of the issuance of the securities
of railroad companies engaged in interstate commerce. It is the
opinion of your committee that Federal authority should also regu-
late large capital expenditures.
In acting upon applications of the railroads for the approval of
security issues, or large capital expenditures, the Federal agency will
need to inquire as to the public necessity for the work proposed to
be done, the amount of capital that will need to be expended, and,
if securities are to be issued, what amount thereof will need to be
authorized to enable the carriers to obtain the funds required for the
execution of the work which the Government may find to be of publie
necessity. ;
Assistance from State authorities: In order that the State authori-
ties may assist the Federal agency to obtain as complete knowledge
as possible of the local needs for additional railroad facilities and of
the expenditures required to meet those needs, the Federal agency
should require a railroad company, applying for permission to issue
securities or to make a large expenditure of capital, to file with the
authorities of the States in which the railroad in question is located
copies of the original petition to the Federal agency, which should
1 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1105
|
(notify the interested State authorities of the hearings upon applica-
‘tion for approval of security issues and capital expenditures in order
pet they may have full opportunity to advise as to the actions they
‘favor. !
! Seventh in order: The committee renews its previous recommenda-
tion that the Interstate Commerce Commission be given authority by
3tatute to regulate intrastate rates, when those rates affect interstate
/ commerce.
' The vote upon this recommendation was: Yes, 1,329}; no, 1164.
» This recommendation was approved by the organization members
‘of the Chamber of Commerce of the United States in November, 1917,
\with comparatively few dissenting votes. This action having been
‘taken shortly before the United States took over the operation of the
railroads, Congress has had no opportunity to act upon the question.
‘It is therefore deemed necessary and important by the committee
|that this recommendation shall be included in its present report as a
‘part of the plan for remedial railroad legislation.
| The experience of the past two years has confirmed the committee
‘in its conviction that regulation by the several States of such intra-
‘state rates as affect interstate commerce interferes with the effective
and uniform regulation of interstate rates by the United States.
Government. Indeed, conflict detrimental to the public interest has
‘arisen with respect to the jurisdiction of the state commissions and
‘the Interstate BE acces Commission over intrastate rates even when
‘it was clear that such rates affected the interstate rates subject to
‘the regulatory power of the Federal Government.
Eighth in order: Rule of rate making.
The committee recommends the enactment of a statutory rule
providing that railroad rates and fares authorized by the Interstate
Commerce Commission shall be designed to yield the railroad com-
panies, in each of the traffic sections that shall be designated by the
commission, aggregate revenues which will provide (after allotment
has been made for renewals and depreciation) such net return upon
a fair value (determined by public authority) of the property devoted
to the public use as will be sufficient in amount to enable the carriers
to obtain at reasonable cost the capital required to furnish the
public with adequate facilities and efficient and economical service.
The vote upon this recommendation was: Yes, 1,2234; no, 2093.
If the railroads are to be returned to their owners at the end of this
calendar year, as the President has signified it to be his purpose, then
‘the function of Congress is to provide the means whereby they shall
‘be so returned, with financial safety to the owners and with an
assurance that they shall be so equipped as to meet adequately the
traffic demands of our Nation. In the enactment of the necessary
legislation by Congress the railroads must be provided with eee
‘revenue wherewith they may perform properly the public service for
‘which they are intended, and without which performance our coun-
‘try’s commerce and industry must languish, The welfare of our
Nation is so closely bound up with its transportation facilities that
‘any trouble or weakness with which the railroads are afflicted mm-
“mediately affects injuriously every citizen,
Regulation in the past: It is urged upon Congress that the time has.
‘arrived when a revision or augmentation of instructions should issue
from the law-making body to its regulatory agency, that it may be
1106 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
apprised that those who are expected to make effective by statute
the desires of the public, now feel that cognizance must now be taken
of the physical and fiscal welfare of the railroads. Stern discipline,
punishment for past sins, stringent rules of conduct, prescriptions for:
accounting, laws for application of safety appliances, commands fix-
ing wages, hours and conditions of labor for employees, and all sorts.
of ‘‘shalts” and ‘‘shalt nots’ have poured forth in steady streams.
from legislative and regulatory sources for many years.
A warm tribute of appreciation is due to the vigor manifested, the
vigilance exercised, and the comprehensiveness of scope of the legis-
lative activities of those statesmen who, covering a long period of.
years before the war, dealt heroically and drastically with the pesti-
lential aspects of railroad deviltry practiced in years long gone by,
They diagnosed many of the railroad conditions to be diseased and
dangerous to the public, and then by statutory purgatives and emetics
they proceeded to purify their mteriors, and by violent and long-
continued flagellation they thoroughly subdued them. Does anyone
now doubt the omnipotent power of the people to compel obedience
to their will by the railroads ? | :
To-day the owners of the railroads are absolutely powerless as a
political factor. They have been shorn of the possession of their
property; it is in the possession of the Government. A vast majority.
of the people believe that their owners know how to run the railroads
better than the Government. There should not be the slightest
change in any regulation that is protective of the public interest,
But, after all possible safeguards have been erected, there is an mterest
of the public that is of transcendent importance, viz, that the income
of the railroads shall be sufficient to enable them to secure readily
and economically the capital necessary to provide adequate facilities.
The railroad committee of the chamber frankly said to the members:
In carrying out this principle special difficulty results from the
fact that the same rates will yield the more prosperous companies
greater revenue than they need, while the less prosperous companies,
due to their unfortunate situation or to their past history, are unable
to secure income sufficient to enable them either to develop their
facilities in proportion to the needs of the public, or to perform the
services required by the section of the country in which the roads are
located.
It is believed that the most practicable way to provide the rail-
roads of the United States, as a whole, with adequate revenue, and
thus to reestablish railroad credit, is to authorize the Interstate
Jommerce Commission to divide the country into such traffic sections
as May seem to the commission wise, and to direct the commission
by astatutory rule to fix such rates and fares as will yield the railroad
companies, in each of such traffic sections as shall be designated by
the commission, aggregate revenues which will provide—after allot-
ment has been made for renewals and depreciation—a net return
that will enable the carriers to furnish the public with adequate facil-
ities and efficient and economical service. | .
The committee is not in favor of a Government guaranty of 2
minimum return to each railroad company, either upon its capitali-
zation or upon the property which it devotes to the public service.
A Government guaranty would tend to lessen initiative and to cause
both the prosperous and the unprosperous roads to feel less respon-
sibility for efficient management.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1107
| While not favoring a Government guaranty of a minimum return,
| the committee believes that Congress ought to adopt a statutory rule
|providing that the public authority which fixes the railroad rates
assure reasonable revenues to the railroads as a whole and in each of
| the natural traffic sections of the country. The committee is of the
opinion that such a statutory rule can be enforced without placing
an unjust burden upon the public and without causing individual
_ailroad companies to obtain excessive profits.
In connection with the foregoing suggestion must be taken the
proposition embodied in item 4 of referendum 28 heretofore recited
providing for railroad consolidations when found and adjudged by
governmental authority to be in the public interest.
Item 9 of the referendum did not receive the requisite two-thirds
‘affirmative vote, and is not therefore pressed upon your attention.
Federal transportation board, the tenth in order: The committee
'recommends that a Federal transportation board be created whose
general duty it shall be to promote the development of a national
_system of rail, water, and highway transportation, and thus to make
| possible the articulation and economical use of all the facilites, includ-
ing tracks, terminals and transfer facilities, of steam and electric
| roads, waterways, and hard-surface highways.
| The vote upon this recommendation was: Yes, 1,197; no, 244.
| Tean not do better than to quote the language of the committee
‘sustaining this recommendation:
|| The development of a national system of transportation is a public necessity. Up
| to the present time the steam and electric railways, the waterways and highways
| have been developed separately without reference to a common plan and without
thought of creating, from the various agencies of transportation, a unified system.
| ‘The time has come when the waterways of the country as a whole should be system-
| atically developed according to a definite plan. Their larger use should be made
possible by connecting them with the railroads at river, lake, and ocean ports, and by
enabling shippers to send their traffic by the most economical combination of rail and
water routes.
The work which the Railroad Administration has so happily begun of providing
for the traffic use of important rivers and canals, and of articulating the railroads with
| the waterways in a traffic sense, should be continued after the railroads have been
returned to their owners.
The development of highways transport should be facilitated with a view to the
coordinated use of all transportation agencies. While the people of the United States
have been creating an exceptionally economical system of transportation by rail,
highways have been pelattvely neglected, and the expenses of carrying freight to and
from the railroads are, in most instances, greater than the cost of the railroad haul.
The systematic development and the organized use of hard-suriace highways greatly
“reduce the transportation burdens borne by the people of the United States.
| Tt is especially important that provision should be made for the common use. and
) construction of terminal and transfer facilities at all the larger traffic centers of the
country; but, unless some Federal authority is vested with power to bring aout the
| common use of terminal and transfer facilities, and their joint construction by the
"carriers (in so far as they may be in the public interest). it is practically certain that
' the present expensive methods of terminal operation will be indefinitely continued.
_ The development of a unified national system of transportation 1s an executive
_ task that can be performed only by creating a board primarily administrative 1n pur-
| pose and organization. The Interstate Commerce Commission, ‘In the regulation of
rates and in the preformance of the other duties with which it is charged, will have
as much work as it can successfully perform. It has not been suggested to take from
- the Interstate Commerce Commission any of the functions it has thus far exercised,
| but a large addition to the duties of the Commission has been recommended. It
- would be unwise to impose upon that body the large and exacting task of guiding and
facilitating. the development of a national system oi rail, water, and highway trans-
portation... That work should be undertaken by an especially created Federal trans-
| portation board.
—_ *
1108 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
All of which is respectfully presented for your consideration.
The Cuarpman. Mr. Post, in the referendum you did not cover
some of the specific features recommended by the transportation
conference. ,
Mr. Post. I did not.
The CHarrMan. Especially those with reference t> the various
funds. Is it the intention of the chamber of commerce to have
another referendum ?
Mr. Posr. I do net think so. The reason for that, Mr. Chairman,
was this: The annual meeting of the chamber of commerce was to
be held at St. Louis on April 30, and it was necessary that the rail-
road committee should report its recommendations to the main pody
at that time. Simultaneously with the meetings of the Railroad
committee in making its studies, there had been meetings of the
National Transportation Conference, its first meeting being on De-
cember 12 and 13. The railroad committee in framing its recom-
mendations to the chamber, upon which should be based the refer-
endum, if thought desirable by the board of directors, could not go
so far in the matter of details as the conference decided to go. As I
have said in the main paper [ presented, the answei to a referen-
dum question must be yes or no. The railroad committee partici-
pated in the proceedings of the conference even after the committee
had made its report to the main body. The transportation conter-
ence was an entirely independent hody; it had no. reason to report
to the chamber of commerce, and it could go along its way and go
into detail and formulate a system of contingent funds, which it
did, but, which, as you can readily see, was not susceptible of a yes
or no answer for referendum. It could be brought to the attention
of congressional committees, however, to indicate the conference's
best judgment as to how a statutory rule might be framed.
The CHarrnMAN. Is it fair to assume that the chamber of commerce
is in accord with the plan suggested by the transportation confer-
ence as to those feautres that were not submitted to referendum ?
Mr. Posr. I do not think that I would have the right to say that
the chamber would or would not be in accord, because it has not been
presented to it for consideration. My province, of course, as chair-
man of the railroad committee, would be to bring to your attention
that which the chamber has passed upon and not that which has not.
been brought to its attention.
The CuarrMan. I understand that. The referendum had no refer-
ence to matters of wage disputes, but the transportation conference’s
plan suggested that ?
Mr. Post. Yes, sir.
The CuarmMan. The committee wishes to thank you for your ex-
planation of the referendum.
Mr. Srus. Mr. Post, I have an indefinite recollection, and, perhaps, —
it is Inaccurate, that the chamoer of commerce, in some way or other,
a few years ago, had hefore it the question of a ship subsidy, and my
recollection is that it indorsed that plan of building up the merchant
marine. Is that true, or not? |
Mr. Posr. I can not answer that question offhand. Whatever
referendum was shaped up was by another committee entirely, and
I do not just at the moment recall that particular referendum:
Mr. Srus. I may be incorrect, and I may be under an erroneous
impression, but my recollection is that the chamber of commerce
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1109
tn some way took action on this question of ship subsidy and came
yout strongly in favor of a Government subsidy to assist in the build-.
ling up of a merchant marine. That was before the European War.
_ Mr. Posr. I will be very glad to refresh my memory in regard to.
|\that, and will amplify my answer in the record.
| Mr. Sims. I do not know that that is necessary in connection with
your presentation.. That was on the question of transportation and
with reference to trying to ouild up our water-borne commerce. Now,
did, or did not, the chamber of commerce in any way whatever
)tecently take some action with reference to the controversy involving
the great packing industry of the United States, in which it expressed
a favorable opinion as to the methods adopted by the great packers
of the country? I am not saying whether it was right or wrong, but
did they not take some action on that subject at a comparatively
‘recent date, or within the last year or two?
Mr. Post. Not in the nature of a referendum, | think. I think
‘there was some action taken by the chamber of commerce with
reference to the Federal Trade Commission, in which some conten-
‘tion arose as between the Federal Trade Commission and the cham-
ber of commerce. :
Mr. Sims. As to facts or as to any recommendation that was made?
Mr. Post. Not as to any recommendation, out as to the facts
existing with regard to the controversy.
Mr. Sims. Of course, transportation is indirectly mvolved in all of
that matter, and I am not trying to bring in something that is not
related to the subject before the committee. I did not know but
that you had studied that end of it with reference to the special
facilities furnished by carriers, that being a question which also
arises in part under the Esch bill. If I understand correctly, what
you have just read, the most fundamental and basic contention
presented by your body is that Government ownership must not
prevail.
Mr. Post. That is our feeling.
Mr. Sims. That is your position ?
Mr. Post. Exactly.
Mr. Sims. That it must not prevail, which means, as a matter of
course, inversely stated, that private ownership must prevail.
Mr. Posr. That is the feeling of the chamber and of the members.
Mr. Sims. And that Congress must do whatever is necessary to.
enable it to prevail ?
Mr. Posr. That is the hope.
_ Mr. Sms. I understand further, that the chamber of commerce is
opposed to Government ownership and operation and to Government
ownership and operation by corporations, or otherwise. You seem
to be as much opposed to one as to the other ?
Mr. Post. Yes, sir.
Mr. Sims. Therefore, your chamber is opposed strenuously and
basically to the Government taking over and owning the fixed
‘property—not the movable property, but the fixed property of the
railroads—and permitting the present corporations to continue
Operation of the properties under State and Federal law, such as
‘We now have rani may hereafter have. In other words, it would
oppose Government ownership of the fixed property or the railroad
structures even though it were operated by private capital or private
‘corporations ?
1110 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Mr. Posr. I should say from the chamber’s record that it would
oppose making two bites of the cherry, and that if it would oppose
one of them, it would oppose the other. Of course, the question
you propound has never of itself been submitted for inquiry or.
submitted to referendum ? :
Mr. Sms. But that is supposed to be the opinion of the chamber?
Mr. Post. Yes, sir.
Mr. Sms. Therefore, logically, it would be against the public
interest for a station or railroad track to be built on Government- |
owned land, where the Government had anything whatever to do_
with operating the terminal or track, in whatever way it might be
used for railroad purposes ?
Mr. Post. I should say that the chamber of commerce views un:
favorably Government ownership in whole or in part of the railroad
system.
Me Sms. In other words, that the Government should not own
anything in connection with the railroads. a |
Mr. Post. Yes, sir.
Mr. Sims. Therefore, they favor private ownership and operation
of all of the elements of railroad property, including the property
rights and improvements basically and inherently pertaining to the
railroads, and they favor that regardless of what effect it may have
upon the country and its transportation, that being so basic a view
that it is useless, from the viewpoint of the chamber of commerce,
to consider anything like a cooperation or partnership in the owner-
ship and operation of these public utilities ? .
Mr. Post. Your theory, Judge, is one that you possibly have given
a great deal of thought to, and it doubtless appeals to you favorably.
My only reply is that the chamber of commerce apparently does not
agree with that viewpoint. It might be possible that the question
of the Government owning the fixed property and of operation by
private corporations might be properly laid before that body at some
future time when it was germane to the issue at stake, but up to the
present time, in dealing with the idea of Government ownership, the
public mind, or the mind of the chamber of commerce members, has
been with that general idea of the Government buying the railroads
and running them, and not turning them over to a private corpora-
tion to run. Of course they have not divided the question, and they
have given no expression upon a division of the question. Therefore,
I should say that the judgment of the chamber of commerce would
stand as opposed to Government ownership in part or in whole,
and to private operation under such Government ownership.
Mr. Sims. In other words, the theory of the chamber of commerce,
so far as its views have been expressed, is that you must not have any
Government aid at all for transportation in the way of Government
ownership of transportation facilities, but, on the other hand, that 16
is appropriate for the Government to provide through legislation
regulatory bodies to do such things as are necessary to make private
ownership a success, although up to the present time it has not been
a complete success in all respects. As I understand it, that is the
theory regarding the Government’s liability—that is, that the Govern-
ment should provide by taxation or by the fixing of rates for successful
private ownership and operation. ff
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. I111
_ Mr. Post. I do not understand that that is a question for me to
‘answer. That is a statement of your own.
Mr. Sms. That is the idea in every one of the plans that has been
~submitted—that is, that there must be legislation which shall be in
‘the nature of a mandate to the rate-making body to do such things
‘as the Chanber of Commerce believes is necessary to be done in order
to make’private ownership and operation a success so as to meet the
resent and future demands of the country for transportation.
| Therefore, I draw the conclusion that basically and fundamentally
_ you are opposed to any assistance by way of Government ownership
or operation of transportation facilities, but are not in favor of ac-
_ cepting any adverse result that might follow because of its not being
profitable or sufficiently attractive to bring in private capital in com-
petition with other investments seeking private capital. Therefore,
you want a rate structure that will yield not less than 5 per cent on
/ the value of the railroad property. You are willing to accept Gov-
ernment aid to the extent of helping you to help yourself, but you do
I Zt want Government aid through Government ownership of any-
thing. .
'- Mr. Post. Judge Sims, our minds may not run along the same
channels when you use the expression ‘‘Government aid”’ by rates,
‘because we would not consider that Government aid. That is a
‘recognition by the Congress of the necessity that the transportation
‘system should be self sustaining, and that those regulatory agencies
“which fix the rates should fix such rates as will allow the railroads to
furnish the necessary transportation to the country, to pay their
running expenses, and pay 2 reasonable return upon the investment,
and, also, to be sure that a reasonable wage and & generous wage 1s
paid to the workmen.
Mr. Sims. This statement refers to the fact that there was great
expense in operating the railroads under Federal control on account
of the generous treatment that the wage earners and employees had
received at the hands of the Government. Did you mean to imply
by that it was an unjust and discriminating generosity extended to
the wage earners ?
Mr. Post. I do not think that by any means could you infer from
the statement any implication that the generosity wes unjust or
unfair.
_ Mr. Sms. You callea it ‘‘generosity.”
_ Mr. Post. Yes, sir.
Mr. Sirus. You mede that as a charge against Government opera-
tion.
- Mr. Post. There was no charge at all. .
Mr. Sims. Or that was one of the reasons why Government operation
‘ should not continue ?
Mr. Pos. It was just a statement of fact.
Mr. Sris. Now, suppose the railroads had not been taken over and
operated by Government, would the owners have been any less
generous with the laborers than the Government had been ? :
~ Mr. Post. Not being in charge of the railroads and not responsible
for the circumstances arising from the war, it would be very difficult
for a private citizen to answer that question.
Mr. Sims. It was not difficult to so characterise 1t--—
__ Mr. Post (interposing). I want to say this in that connection, that
when the proposition to extend Federal control for a period of five
1lllzy RETURN OF THE RAILROADS TO’ PRIVATE OWNERSHIP.
years from the 1st of January last was made, that proposition fell
upon deaf ears so far as the public was concerned, but the railroad”
brotherhoods seemed to be willing that it should continue, and from —
what we have read, observed, and heard we thought that the wage -
increases that they had received had been so much greater than they _
had received before that they were rather content with any situation
which had brought that about.
Mr. Sus. And hope it might continue ?
Mr. Post. Caitainty: |
Mr. Sms. And the hope of the organization which you represent is |
that this generosity or whatever it is, I call it generosity, will not
continue under private ownership ¢ |
Mr. Post. I beg your pardon. We have made no such declaration.
Mr. Sms. Why should labor be induced to go in for private owner= |
ship if the same generosity which the Government has extended will —
not continue. <
Mr. Post. Does not a great deal of the generosity result from the
necessities that arise by the pressure of demands for increases ? et
Mr. Sms. In your argument you said that during the war conditions
it was necessary to pay a higher rate of wages but you putit inlanguage
characterizing it as generosity which I have always thought was not
a considerate and economic measure of wages, and that that was the
reason why labor wanted to continue Government ownership in order
that the generosity might continue, and if such is the implication—to
some extent at least—some excuse for it in time of war which there
would not be in time of peace. : .
Mr. Posr. This statement is intended to be recitative of an existent
fact as it appeared to the committee. The word ‘‘generosity”’ as
nsed there seemed to express the committee’s picture and, perhaps,
it is a word that does not strike you as proper to be used there or
elsewhere. 7 .
Mr. Sims. You used it as a fact.
CoMMITTEE ON INTERSTATE AND ForREIGN COMMERCE,
Houser oF REPRESENTATIVES,
Thursday, August 14, 1919.
The CuarrMan. I ask to have printed in the hearings at this point
a letter from the managing secretary of the Tyrone Chamber of
Commerce, Tyrone, Pa., expressing the views of that chamber with
reference to railroad legislation, and with particular reference to the
so-called Plumb plan; also a letter from the chairman of the Cheraw
Board of Trade, Cheraw, S. C., to the same effect; also a letter from
Hon. E. W. Gray, former member of the House from the State of
New Jersey, with a pamphlet giving the Gray-Winship solution of
the railroad problem and containing the bill which Mr. Gray intro-
duced in the last Congress. As we are giving hearings on all plans,
and as no hearing has been requested with reference to the Gray-Win-
ship plan, we will print their plan and bill as a part of the hearing,
so that all the plans will be presented. If there is no objection,
these papers will be put in the record at this point. |
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1113
__ (The papers referred to follow:)
LETTER FROM THE TYRONE CHAMBER OF COMMERCE,
TYPONE CHAMBER OF COMMERCE, _
Is Tyrone, Pa., August 9, 1919.
Hon. Joun J. Escu,
‘Committee on Interstate and Foreig:: Commerce,
* House of Representatives, Washington, D. C.
Dear Srr: Inclosed is a copy of a statement of the attitude of the Tyrone Chamber
of Commerce in connection with any form of Government ownership of railroads or any.
legislation which will stultify the promise of the Government to return the railroads
to those who owned them prior to the war.
- This was authorized by a special meeting of the board of directors held on August
8, 1919, and you are requested to consider it in connection with any railroad legisla-
tion by law-making bodies or suggestions from interested parties which may be made
‘to Congress.
) Very truly, yours,
B. C. Everineum,
Managing Secretary.
TYRONE CHAMBER OF COMMERCE, TYRONE, PA,
| The Tyrone Chamber of Commerce, by authority of its board of directors, wishes
to be recorded as being definitely opposed to Government ownership of transportation
lines. It is felt that experiments along that line have been and will continue to be
‘contrary to the best interests of the public and stifling to the spirit of accomplishment
which is so distinctive of Americanism.
- It is the firm conviction of this body that the employees of railroad companies
should be given voice in regard to matters which concern their welfare, and it would
seem to be in line with modern thought that means be found through which they could
' share in the excess profits of the organizations which they serve.
The Tyrone Chamber of Commerce is opposed to special privileges or class legisla-
tion of any sort, and, while it believes that a thorough hearing should be given all
proposals for benefiting the public in connection with the operation of railroads, it
esa against any attempt by any person or organization to force Congress or any
ember of it to enact or support legislation under threats, either actual or implied.
If the majority of the people of the United States decide at any time that they desire
to have the railroads operated by the Government, this body will cheerfully abide -
by that decision; but it is felt that the Government has no right to repudiate its given
: promise to return, in as good condition as when taken, the property of the railroads
which was confiscated in time and stress of war.
PRESIDENT.
RESOLUTIONS OF THE CHERAW BOARD OF TRADE.
THE CHERAW BOARD oF TRADE,
. Cheraw, S. C., August 12, 1919.
CHAIRMAN INTERSTATE COMMERCE COMMITTEE,
House of Representatives, Washington, D. C.
_ Dear Sir: We beg to inclose copy of resolutions passed by the Board of Trade of
| Cheraw, S. C., on the 11th instant, relative to the railroad situation and “Plumb
plan” and principles as set forth by the railway brotherhoods.
Respectfully, .
Rospert CHAPMAN, Chairman.
THe CHERAW Boarp OF TRADE, CHERAW, S. C.,
August 11, 1919.
Whereas the Board of Trade of Cheraw, representing 90 per cent of the business
“interest of the community, regard with great dissatisfaction the railroad service, both
freight and passenger, they are now receiving under National Administration, 1n
spite of unprecedented advances in wages to employees; and, whereas, said railroad
employees are unreasonably demanding advances of similar proportion, and
Whereas we view with alarm and apprehension the sentiments and policies set
forth by the representatives of the Railway Brotherhoods in Washington as the policies
of said brotherhoods, to wit, ““We demand that the owners of capital who represent
Y
1114 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
only financial interest as distinguished from operating brains and energy be retired
from management.’’ And that if their demands are not granted, “We will tie up the
railroads so tight that they will never run again.”’
And, whereas these leaders of the railway unions instead of going before the Congress.
and the President in a spirit of petitioners have done so in a spirit of dictation in dis:
regard of the interest of the balance of the American public, therefore, be it 4
Resolved, That we are opposed to their present demands being granted and are
se ene opposed to the so-called Plumb plan or any other Government form of
ownership. |
We wivaeate that the National Government adhere strictly to the functions of
Government for which it was formed.
That the Congress and President be influenced by the sober and calm opinion of
the vast majority of the Nation and not that of the selfish leaders of this minority,
ready to abuse their positions as the operating force of the transportation system or
the Nation, which works to the harm of the public; already general freights are under
embargo, furthermore, be it ;
Resolved, That we assure members of Congress and the President of our support,
and if these Railway Brotherhoods desire to strike the interest of the public can not
be conserved better than to have the issued determined now.
That the railroad brotherhoods are not affected more by the high cc t of living than
others of the American public and the granting of these demands will aggravate
rather than alleviate the situation; be it
Resolved, That the railway systems of the country be returned to their owners at
their earliest date possible.
THE GRAY-WINSHIP RAILWAY PLAN. 3
NEWARK ATHLETIC CLUB,
Newark, N. J., August 12, 1919.
My Dear CONGRESSMAN: I can not too earnestly ask you to study carefully the
proposed Gray-Winship solution of the railroad problem, which is set forth in the
inclosed booktet. (2
No thoughtful American observant of political and economic conditions can mimi-
mize the gravity of the crisis now confronting our country. The adoption of Gov-
ernment ownership of railroads would be a radical step towards socialism, an admission
that the American system of Government is a failure and must be supplemented by
a system which would result in destruction of the rights of private property.
The only way to meet the present crisis, taking all conditions into consideration,
is by effecting a compromise. The Gray-Winship plan points the way in which this
can be done. It is naturally susceptible of improvements in detail, but, funda-
mentally, it presents the only safe course if the object sought is to be accomplished.
I shall be very glad to hear from you, should you care to discuss the subject with me.
Very truly, yours, '
KE. W. Gray.
GRAY-WINSHIP Rattway PLAN (H. R. 13298).
CHIEF PROVISIONS.
New corporation to effect under congressional authority voluntary consolidation —
of railways, a prerequisite being combination of sufficient number of roads to constitute
transcontinental system front east to west and from north to south.
-Labor requirements met without resort to socialism.
Strikes unlawful; individual penalties.
Unification without compulsion. d
No arbitrary fixing of return on capital.
No Federal taxation.
Interest ahead of State and municipal taxes.
Cumulative dividends on sliding scale. a
Surplus profits divided: Thirty per cent to Government (out of which comes
State and municipal taxes); 20 per cent to employees (5 per cent cash, 10 stock, 5—
per cent insurance fund); 20 per cent to steckholders.
Representation on board of directors: Stockholders, 8; bondholders, 2; em ployees, —
2; Government, 7.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1115
Vote of 15 directors required for acquisitions and issuance of securities.
| The people of the United States, by reason of the formal demand of organized labor
for the nationalization of the railroads, are now brought face to face with the proposi-
tion of abandoning the principles of Government upon which their Nation has at-
-tained its unparalleled success and greatness and substituting therefor the principles
‘of Socialism. ‘
Even though the so-called Plumb plan be rejected, Government ownership in
different guise will be pressed with even greater insistence upon the country. Dodg-
ing the issue now will be merely feeding the flames of disaster.
_ Jt goes without saying that if the railroads be placed under Government ownership,
the nationalization of the coal, iron, oil, and other industries will rapidly follow and
‘the way be cleared for the complete taking over by the Government of all the means
of production and distribution. Then—chaos!
If this threatened destruction of America is to be averted, or at least delayed, the
vitally important thing to do and do now is to prevent the nationalization of the
railroads.
But it is a condition and not a theory that conironts us. Any attempt to return to
the old plan of private ownership would be merely a resort’ to the ostrich delusion of
Berne one’sheadinthesand. Labor must be met half way, but met on an American
basis.
| This-can be done. Every right and demand of the self-respecting and ambitious
railroad employee can be fully met and private ownership of the properties retained
by the adoption of the Gray-Winship plan of Federal incorporation and regulation.
_ This plan was worked out by former Congressman Edward W. Gray, of the eighth
New Jersey district, and Mr. Glen B. Winship, of New York, after years of careful
study of the railroad problem. [t was embodied in a bill introduced in the House
of Representatives by Congressman Gray on December 9, 1918, which was designated
H. R. 13298 of the Sixty-fifth Congress, third session.
Besides avoiding the evils of Government ownership the Gray-Winship plan meets
fairly and justly the requirements of labor, of capital, and of the public without a
‘surrender of right by anyone, without throwing the railroads into politics and without
involving the Government in a guarantee of interest or dividends or in an assumption
of trernendous debt.
GENERAL SUMMARY.
Labor obtains an actual voice in management and_ participation in surplus profits,
but under conditions which place a positive premium upon individual efficiency
and loyalty, and a positive penalty upon any individual who resorts to coercive or
violent measures to force concessions of the rights of others.
- The agitator is placed upon the same plane as the profiteer, and legal means are
provided for bringing each before the bar of justice, whether he acts alone or In con-
cert with others.
Voice in management—Article I, section 8.
‘Share of surplus earnings—Article V, section 1, paragraph B.
~ Premium on loyalty—(“ Units of interest” plan), Article V, section 1, paragraph B,
clause d, and Article I, section 5.
Wages and working conditions—Article IJ, section 1, paragraph5. =
- Strikes and lockouts—Unlawful until final determination of question in dispute
(either side, directors or employees, may refer question to Interstate Commerce Com-
mission, and an appeal from there may be had to the courts), Article II, section 1,
paragraph 5.
Penalties—Article VI, section 2. ,
Capital retains its rights, and obtains assurance that these rights will not be attacked.
There is no element of compulsion, of condemnation, or arbitrary appraisals.
Consequently, the disturbing and long-drawn legal battles which these things
would involve are avoided. : ;
+ Instead of fixing an arbitrary rate of return on capital, there is a simple, elastic,
and scientific provision whereby this rate of return will move in response to the
normal workings of natural economic laws. Becks
Instead of being restricted to a maximum rate of return, capital will share also in
‘surplus earnings, and its share can not be subordinated. i
Capital in general would benefit also through the removal of some of the most serious
factors now disturbing the business and financial world.
_ Accumulative dividends—Article V, section 1, paragraph 4.
. Share in surplus—Article V, section 1, paragraph D.
, Sinking fund—Article V, section 1, paragraph 3.
1116 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
Capitalization—Article IV, section 1.
Acquisitions—Article II, section 1, paragraph 8. ~
Taxes—Article V, section 1, paragraphs 2, 5, and A. |
It should be noted that by these provisions there is only one way for the Govern-
ment to obtain revenue from the railroads—and that way is to make it possible for
the railroads to be actually successful. See also ‘‘Organization” below.
The public is definitely protected from profiteering and from excessive exactions
of labor, and is assured of maximum service at fair rates, because of the economies
of unification, the centralization of responsibility, and positive means of preventing
or at least of correcting all forms of abuse whether attempted by employees, mana-
gers, Government officials, or political manipulators.
Freight and passenger rates: Fixed by board of directors—Article II, section 1,
paragraph 8. .
Appeal to Interstate Commerce Commission and to the courts—The provision for
fixing rates is positive, and the intention was to authorize the board to place these
rates in actual effect pending the final determination of any appeal. Before enact-
ment of the measure, additional legal opinion should be obtained as to whether this
point is adequately covered.
Interstate Commerce Commission—See also Freight and passenger rates above.
Most of the questions which have arisen as to the future life and powers of this com-
mission can be determined without involving the success or failure of the Gray- Winship
plan. It can be made a success whether these questions are determined or not; it can
be a greater success if the commission is abolished, and if the commission eventually
is abolished, no amendment of the bill as now drawn will be required. ‘There is,
however, some justification for retaining the commission until such time as the pro-
posed consolidation of railways embraces virtually all roads in the United States, and
an attempt to complicate the Gray-Winship plan by including with it a determination
of the questions regarding the Interstate Commerce Commission would be in effect an
attempt to defeat both.
Organization (see Article I): Consolidation of existing companies is permitted under
specific provisions and the machinery of organization is set up.
No road is forced to join the national system, but in order to make the plan effective
there must be consolidated a sufficient number of roads to constitute a transcontinental
(North to South, East to West) system.
Consolidation may be effected through exchange of securities or cash or both.
In effecting the consolidation, all parties of interest are represented, but no one ele-
ment can block the negotiations.
The powers to be enjoyed by the national system, and the resultant benefits to
stockholders, bondholders, employees, and the public, assure eventual absorption on
fair terms of atl railways even though some may refuse to join at the start.
The bugaboo of ‘‘dilution” and the fear of excessive valuations will both be defi-
nitely dispelled by a careful study of the bill’s provisions.
[H. R. 13298, Sixty-fifth Congress, second session.]
A BILL Providing for the establishment of a national railway system to coordinate and protect the respec-
tive interests therein of the Government, the public, the investor, and the employee, and for other pur-
poses.
Beit enacted by the Senate and House of Representatives of the United States of America
in Congress assembled,
ARTICLE I.
ORGANIZATION.
SecrIoN 1. That for the purpose of organizing the National Railway Corporation, as
hereinafter provided, the President, immediately after this measure becomes a law,
shall appoint, by and with the adyice and consent of the Senate, three persons who
shall serve as an organization committee, hereinafter to be known as the committee,
and shall make public announcement that stockholders or owners ot railways may file
with this committee written proposals tor the sale of stock or bonds or other evidences
of indebtedness, or for the sale or lease of the properties of existing railroads, or notices
that they are willing to negotiate for such sale or lease.
Sec. 2. That upon receipt of such proposals or notices of willingness to negotiate
from a sufficient number of stockholders or owners to represent control of properties,
which together would form a transportation system connecting ports of the northern
and southern and the eastern and western boundaries of the United States, they shall
so advise the President and make public announcement thereof.:
|
. ,
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1117
|
_ Sec. 3. That thereupon, the President, by and with the advice and consent of the
Senate, shall appoint four additional members of the committee, and the committee
‘so enlarged shall prepare a tentative financial plan for the acquisition of control of the
said properties by the exchange ot bonds or stock or by the payment of money or by
|any combination of these or other means; and the committee shall at the same time
| invite the stockholders or owners of all properties who have made proposals as provided!
| in section 2, to submit to the committee tentative financial plans of like purpose, and
.to elect delegates as provided in section 6. Copies of all such plans shall be made
immediately available to all proposing stockholders or owners of the said properties
_referred to in section 2.
Sec. 4. That the committee shall at the same time announce a methed by which
| bondholders of the said properties may elect two persons who shall become addi-
| tional members of the committee, which election shall be within one month after said
,announcement. Said method of election shall not deny to any holders of either
| coupon or registered bond the right to participate in said election.
_ Sec. 5. That the committee shall at the same time announce a method whereby
all employees of the said properties may elect two persons who shall become additional
,members of the committee, such election also to be within one month after said
}announcement. The number of votes which each of the said employees shall be
entitled to cast in the said election shall be determined on a units of interest basis,
by multiplying the number of dollars received in salary or wages during the pre-
ceding fiscal year by the number of years of continuous service.
_ Sec. 6. The committee shall at the same time invite all stockholders or owners:
of the properties referred to in sections 2 and 3 to elect three delegates representing
each oi the said properties, the stockholders of each property voting separately,
each share being entitled to one vote. The three receiving the highest number of
votes shall be elected.
Sec. 7. That all the elections provided for in sections 3, 4, 5, and 6 shall be held
on the same day. Two weeks after the date of the said elections the members of the
committee and the said delegates shall meet in joint conference. Said conference
shall hold its sessions daily, and may appoint committees to facilitate negotiations.
It shall also be open to the public, and stenographic reports thereof shall be made a
public record.
Src. 8. That when a plan for the acquisition of a control of a sufficient number of
properties to constitute a transportation system as provided for in section 2 is agreed
upon by at least seven members of the committee and by a majority of the delegates
representing each property included in the agreement.the seven members of the
committee appointed by the President shall become a body corporate to be known as
the National Railways Corporation, and the President shall announce the term for
which each of the said seven members shall serve as a director of the said corporation.
Within one month thereafter, the bondholders and the employees of the properties
included in the agreement shall each elect two directors of the said corporation in
accordance with the provisions of sections 4 and 5 for the election of members of the
committee. |
Src. 9. That within three months from the date of said agreement, all stockholders
and bondholders of the properties included in said agreement shall have the right to sell
their holdings to the corporation on the same terms as other stockholders or bond-
holder of the same properties. Upon the expiration of the said three months the
-the stockholders of the said corporation shall elect eight directors, who, with the
eleven directors already elected, shall constitute the complete board of directors.
- Src. 10. That if any time more than a sufficient number of properties are repre-
sented in the conference to conform to the minimum requirements provided for in
section 2, failure to draft a plan agreeable to all the properties represented shall not
defeat the purpose of the conference. In the event of such failure, any plan agreed
upon by the seven members of the committee appointed by the President and by a
‘Majority of the delegates representing each of such properties as together would meet
the minimum requirements provided for in section 2 shall be accepted as conforming
-to the requirements for an agreement as provided for in section 8; but if such plan
shall be agreed upon by seven members of the committee but all of the seven members
of the committee, but not by all of the seven members of the committee appointed
‘by the President, then, before such agreement can be ratified, new elections shall be
held in accordance with the provisions of sections 4 and 5 by the bondholders and the
employees of the properties included in the agreement. :
« Sec. 11. That if at the expiration of two months from the date of the convening of
‘the said conference, no plan for the acquisition of control as set forth in section 3 has
‘een agreed upon by at least seven of the members of the committee and by a majority
of the delegates representing the stockholders or owners, of each of the properties
152894—19—vot 1 tL
1118 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
mentioned in sections 2 and 3, the President may, with the advice and consent of the |
Senate, appoint other persons to serve for a term of two months as members of the com- —
mittee to take the place of the members previously appointed by him, and new pro-
posals shall be invited. Ifso many delegates withdraw from the conference to make
it apparent that the members of the committee who were previously elected by bond- |
holders and employees do not substantially represent the majority of the bondholders —
and employees of the properties represented in the conference, new elections shall |
be held in accordance with the provisions of sections 4and 5. If. no plan shall have -
been agreed upon within three years from the date of the approval of this act, the pro-
visions of this act shall be no longer operative.
Src. 12. That the delegates herein provided for shallserve without compensation,
The members of the committee shall receive as such compensation as shall
hereinafter be provided for as compensation for directors, for which purpose and
for other purposes necessary for carrying out the provisions of this act the sum of
is hereby appropriated: Provided, however, That if the corporation
shall be organized it shall reimburse the Government for any expenditure so made.
ArticLe II.
POWERS. 4
Srcrion 1. That the board of directors of the National Railways Corporation, in
addition to any other powers conferred by this Act, shall have the power—
First. To adopt and use a corporate seal.
Second. To have perpetual succession.
Third. To make contracts.
Fourth. To sue and be sued, complain, and defend in any court of law or equity.
Fifth. To appoint such officers and employees as are not otherwise provided for in |
this Act, to fix their compensation, to define their duties, to require bonds of them,
and to fix the penalty thereof, and to dismiss at pleasure such officers or employees:
Provided, That all questions relating to wages and working conditions of employees
may be referred to the Interstate Commerce Commission by either the employees |
affected or by the directors, and any question so referred shall be subject to the same
methods of procedure and appeal that govern other questions presented to that board;
and it shall be unlawful for the directors to permit a lockout or for any employee to
participate in any strike until the question in dispute has been finally determined
as herein provided.
Sixth. To prescribe by-laws regulating the manner in which its general business |
may be conducted and the privileges granted to it by law may be exercised and
enjoyed.
Seventh. To exercise such incidental powers as shall be needed to facilitate the
business of transporting passengers and goods.
Eighth. Particularly, it shall have power to acquire by purchase, lease, or otherwise
the physical property, franchises, rights, and other assets of any and all railroad cor-
porations now or hereafter existing under the laws of any State or Territory, to consoli-
date, equip, and operate such properties, to fix rates subject to the provisions of section
1, Article VI, to establish operating rules, to borrow money, to acquire rights of way,
to own, construct, equip, and operate new lines of railroad: Provided, That for the acqui-
sition by purchase, lease, or otherwise of the physical property, franchises, rights, and
other assets of any railroad corporation, or for the issuance of stocks or bonds, the
amount and terms of payment shall be agreed upon by at least fifteen members of the
board of directors.
Ninth. To wind up its affairs and dissolve itself.
ArticLeE III.
DIRECTORS.
Secrion 1. That the directors shall have entire management of the affairs of the said
corporation. The term of office of all directors, except those appointed by the Presi-
dent, shall be for one year. The said directors appointed by the President each shall
be appointed for a term of seven years: Provided, That in the first instance one person
shall be appointed for one year, one for two years, one for three years, one for four
years, one for five years, one for six years, and one for seven years: And provided further,
That vacancies occurring shall be filled for the unexpired term only. The salary of
every director shall be $ per annum, or such other sum as from time to time ma
be fixed by the stockholders, to be paid by the corporation. They may estab
executive officers or boards of managers or both with such regional or departmental
duties and powers within the scope of this act as they may deem wise.
“RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1119
ARTICLE IV.
CAPITALIZATION.
Section 1. That the directors by a three-quarters vote, and with the approval of:
‘the Interstate Commerce Commission, may cause to be issued new capital stock,
bonds, or other evidences of indebtedness in such amounts and on such terms as they
may deem necessary, but all stock shall be of one kind with equal rights and privi-
ee, and each share of stock shall have a face value of $100.
ARTICLE V.
DISTRIBUTION OF EARNINGS.
: Section 1. That operating expenses, including maintenance of property at a
standard of efficiency approved by the Interstate Commerce Commission, shall be
paid from gross earnings. The balance oi gross earnings shall be known as net earn-
ings, and annually shall be apportioned in the following manner:
(1) Interest and other fixed charges shall be paid;
(2) An amount sufficient to pay all accrued municipal and State taxes shall be
advanced to a tax fund provided for in subdivision (a) of paragraph 5 of this article;
' (8) An accumulative sinking fund, amounting annually to 1 per cent of the largest
‘amount of bonds and notes at any one time issued or assumed by and outstanding
‘against the corporation, shall be created. This fund shall be used for the purchase,
redemption, and retirement of outstanding bonds, notes, or other evidences of indebt-
edness which may have been issued to run for a longer period than one year: Provided,
That none of these evidences of indebtedness may be purchased for more than the face
‘amount thereof and that, unless such purchases are made in the open market, they
‘shall be made only after due advertisement and at the lowest price at which such
‘securities are offered for sale in pursuance therewith: Provided further, That if part
‘and not all of any issue of bonds, notes, or other evidences of indebtedness are to be
‘redeemed at prices fixed at the time of issuance of such securities and set forth on the
face thereof, the bonds so redeemed shall be selected by lot;
(4) Accumulative dividends at a rate exceeding by | per cent the average interest
rate paid by the corporation in the preceding fiscal year, that is to say, if the average
‘interest rate is 4 per cent the accumulative dividend rate shall be 5 per cent;
| (5) The balance of the net earnings plus the amount advanced for that fiscal year
to the tax fund, as provided in paragraph 2 in this section, shall constitute surplus
earnings for that fiscal year, to be distributed as follows:
(A) Thirty per cent of said surplus earnings shall be credited to a tax fund nereny
ereated. The balance remaining in the said tax fund after the payment of all
accrued State and municipal taxes, and after the return to the corporation of all
amounts advanced by it to the said fund, as provided in paragraph 2 of this section,
shall be paid to the Government in lieu of all Federal taxes or licenses of any kind and
all kinds whatsoever, except impost duties; ;
(B) Twenty per cent of said surplus earnings shall be distributed as follows: (a) One-
‘quarter of said 20 per cent of said surplus earnings shall be paid in cash to the em-
_ployees of the corporation; (b) one-half of said 20 per cent shall be paid in capital
stock of the corporation to the employees thereof, said stock to be issued at the market
price prevailing at the time of payment of said stock; (c) one-quarter of the said 20
“per cent shall be paid into a permanent insurance fund, hereby created, for the ex-
clusive benefit of the employees, said fund to be administered by an insurance com-
‘mittee to be created by and operated under the supervision of the board of directors
in accordance with accepted insurance and trust fund principles; (d) the individual
interest of employees in the distribution of said 20 per cent of the surplus earnings shall
be determined at the end of each fiscal year by ascertaining the respective units of
interest of said employees in the manner set forth in section 5 of Article I. All per-
‘sons in the employ of the corporation, including the directors thereof, shall be con-
‘sidered as employees and shall participate in the said distribution; |
(C) Twenty per cent of surplus earnings shall be expended in payment for addi-
' tions and betterments of the corporation’s properties; aa =
* (D). Twenty per cent of surplus earnings shall be declared as an additional dividend
to stockholders, payments of such additional dividend to be made in equal quarterly
y amounts during the ensuing fiscal year;
(E) Ten per cent of surplus earnings shall be set aside as an emergency reserve fund;
(F) Provided, however, That if at the end of any fiscal year the amount due to the
‘corporation from the tax fund, as provided in subdivision (a) of paragraph 5 of this
article, exceeds 40 per cent of the surplus earnings in that fiscal year, no distribution
of surplus earnings shall be made until the end of the ensuing fiscal year.
,
1120 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
ArtTIcLE VI.
GENERAL PROVISIONS.
Section 1. That the acts of Congress and the rules of the Interstate Commerce Com-
mission regarding the regulations of interstate commerce not inconsistent with this act
shall be applicable to this corporation.
Src. 2. That whosoever willfully violates any of the provisions of this act shall,
upon conviction in any court of the United States of competent jurisdiction, be fined
not more than $10,000 or imprisoned for not more than one year, or both; and whoever
knowingly participates in any such violation shall be punished by a like fine or im-
prisonment, or both.
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Houskr or REPRESENTATIVES,
Monday, August 18, 1919.
The CHarrMAN. I wish to offer for printing in the hearings a
communication received by me from Congressman Wocdyant of
West Virginia, inclosing a letter addressed to him by Mr. W. R&.
Thurmond, chairman of the legislative committee, Logan Coal
Operators’ Association, Logan, W. Va., accompanying resolutions
adopted by that association with reference to the Sims bill, incor-
pal yee the Plumb plan, and also a letter received by me from
resident Loree, of the Delaware and Hudson Co., accompanied b
a statement in which he answers the charge made by ae Plum
regarding stock issues with reference to this company.
If there is no objection, these documents will be made a part ol
the record. |
(The documents submitted by the chairman follow:)
RESOLUTION OF THE LOGAN COAL OPERATORS’ ASSOCIATION.
House or REPRESENTATIVES,
Washington, D. C., August 14, 1919.
Respectfully referred to Committee on Interstate and Foreign Commerce, House
of Representatives. .
Very respectfully,
Harry ©. Woopyarp,
Member of Congress, Fourth District, West Virginia.
Logan Coat OpEeRATORS’ ASSOCIATION,
LEGISLATIVE COMMITTEE, ~
Logan, W. Va., August 11, 1919.
Hon. Harry Woopyarp,
House of Representatives, Washington, D. C.
Dear Sir: Inclosed herewith find copy of resolution adopted by the Logan Coa.
Operators’ Association, Saturday, August 9, 1919.
We hope that it will be your pleasure to present this to the proper committee and
give it such other attention as you can consistently do.
Yours, very truly,
Logan CoAL OPERATORS’ ASSOCIATION,
W. R. THuRMOND,
Chairman Legislative Committee.
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1121
“RESOLUTIONS ADOPTED BY LOGAN COAL OPERATORS’ ASSOCIATION, SATURDAY, AUGUST
9, 1919.
Whereas there has been presented to the Congress of the United States a plan known
‘as the Plumb plan for the nationalization of railroads and,
» Whereas it is believed that any legislation looking toward Government ownership
of railroads or of any other industry is not in keeping with the true American ideas of
‘free government or personal enterprise, and that the same would be dangerous and
_deterimental to the progress of American ideas and institutions; therefore be it:
Resolved, That the Logan Coal Operators Association desires to go on record in oppo-
‘sition to any and all legislation tending to Government ownership; be it further
' Resolved, That copies of this resolution be forwarded to the Senators and Repre-
he from West Virginia, with a request that they oppose such legislation; be it
urther
Resolved, That the Logan Coal Operators Association approve, commend, and indorse
‘the letter of the Hon. John J. Cornwell, governor of West Virginia, addressed to the
‘governors of the several States, relative to Government ownership of railroads, and
‘that he be informed of our position relative to the matter.
LoGaN CoAL OPERATORS ASSOCIATION.
)
COMMUNICATION FROM MR. L. F. LOREE,
THE DeLAwARE & Hupson Co.,
OFFICE OF THE PRESIDENT,
) August 15, 1919.
‘Hon. Joun J. Escu,
Chairman Committee on Interstate and Foreign Commerce,
: House of Representatives, Washington, D. C.
| Dear Sir: Referring to the testimony of Mr. G. E. Plumb before the House Inter-
state Commerce Committee on August 12, 1919, as published in the daily papers, I
beg to inclose herewith, for the information of your committee, a statement of the stock
issues of the Delaware & Hudson Co. for the period from 1900 to 1910.
If consistent with your practice, I would be very glad to have this statement incor-
porated in the minutes of your meeting.
Yours, truly,
L. F. Loresr, President.
Dictated but not read by Mr. Loree.
| [New York Sun, Aug. 14, 1919—L. F. Loree’s figures answer G. E, Plumb—New stock issues retired
bonds, says Delaware and Hudson president.]
L. F. Loree, president of the Delaware & Hudson Co., issued a statement yesterday
outlining the financial transactions and the financing of his road since 1900, in answer
to the charge made by Glenn E. Plumb before the House Interstate Commerce Com-
mittee on Tuesday that the Delaware & Hudson, among other roads, had issued much
new stock between 1900 and 1910 at less than its market value, or had given it away
as bonuses to its stockholders.
_ At the beginning of 1900, says the statement, the authorized and outstanding capital
stock was $35,000,000. In 1904 the company authorized an increase in this capita[
| stock of $10,000,000, of which $7,000,000 was offered to stockholders of record March
19, 1904, at $135 a share, each stockholder having the right to subscribe for one share
of new stock for every five shares owned. The balance of $3,000,000 of authorized
‘ stock is still unissued.
This $7,000,000 of capital stock was issued to retire $5,000,000 of New York and
Canada Railroad Co. bonds maturing May 1, 1904, to defray the cost of standard gaug-
ing the Chateaugay and Lake Placid Railway and to reimburse the treasury for ad-
vances for construction work. At the subscription price $9,450,000 was realized on
its sale.
_ The average market price of the Delaware & Hudson Co.’s stock in March, 1904, was
$152.45. The lowest price in that month was $149, on March 12.
In May, 1905, the company authorized an increase in its capital stock of $5,000,000
for the purpose of exchanging same prior to April 1, 1916, for Albany & Susquehanna
Railroad 34 per cent bonds, due in 1946, at the rate of five shares for each $1,000 bond.
There has been exchanged thereunder $1,778,000 of this issue for $3,556,000 of Albany
| & Susquehanna bonds, the balance, $3,222,000, remaining unissued.
1122 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.
In January, 1906, the company authorized an increase of $7,000,000 in its capital :
stock for the purpose of exchanging same for its issue of $14,000, 000 of 4 per cent con-
vertible debentures, due June 15, 1916, at the rate of five shares for each $1,000 de-
benture; $13,500 of capital stock was issued under this authority in exchange for
$27,000 of these bonds, the balance of the authorized increase, $6,986,500 still remain-
ing ‘unissued.
Capital stock of the company was retired and canceled between the years 1900 and
1910 by the operation of sinking fund, as follows:
Par Par
Year. Shares. aati Year. Shares, value.
TQ00.. een cece tee ee ccman ens 2,000 |:$200, 000 1]-1905. ..... 2.505 alae steamer 500 | $50,000
ROO ee Set SoSte Ss Pa ees ee 1, 543 154, 300)|| 1906522425 5. .e ceca eens 2, 285 228) 500
1902. 2 siclccees teen. stew eecn ce 1,386 138, 600 |
1905 So eee ants a eae oe Dea oats 1,000 | 100,000 12,885 |1, 288, 500
1004. ee en ee Oe 4,171 | 417,100 4
To those who can intelligibly interpret financial transactions the financing of the
Delaware & Hudson Co. through capital stock during the 11 years from 1900-1910 must
appear most fortunate.
O
] i
aS! a.
GR a do mu ee
f nt x LT re
TE SM i ele ay
¥
. Cie
re
¥ ] *
y vs HEN vp
4 a ae x
er
A yh we
J gy