SS3. 3 ^ ouam^- ; v ILLINOIS GEOLGGiCAts SURVEY UDR^RY MAR 184976 A STATEMENT of FACTS CONCERNING CONDITIONS in the BITUMINOUS COAL INDUSTRY ■r . ' ' r* • - \ " . V . • ./ ' > • •=• - V. — •" , . IN THE STATES OF ILLINOIS AND INDIANA 4 . I ISSUED DECEMBER 1, 1914 PREFACE. This statement was prepared by a committee of operators from Illinois and Indiana and authorized by the Illinois Coal Operators Association and the Indiana Bituminous Coal Operators Association for the purpose of presentation to the President of the United States for his consideration in connection with the appointment of the Federal Trades Commission. Requests for copies of this pamphlet will be welcome from all those desiring to place it in the hands of their representatives or friends. Copies furnished or sent direct to lists upon applica- tion to either the Indiana Association, Terre Haute, Indiana, or the Illinois Association, Springfield, Illinois. (Second Edition.) January 7, 1915. Digitized by the Internet Archive in 2017 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/details/statementoffactsOOilli Introductory. The coal operators of the States of Indiana and Illi- nois present to the American nation some facts about the condition of their business. The normal state of this industry for some years has been such as to endan- ger the lives of the miners, waste the coal reserve which now insures the safety of the eastern part of the country and deprive these operators of any hope of profit. The recent general business depression has caused an in- tense exaggeration of this dangerous condition. The near future contains nothing but disaster unless some re- lief is extended. What follows summarizes the facts. This coal sells in a market embracing eighteen states. The business is therefore interstate. For that reason, these operators are amenable to the anti-trust, laws which, they believe, forbid any cooperation among them. Because they cannot cooperate, they cannot simplify their selling methods or reduce their selling and oper- ating costs. Their mines are within these two states and cannot be removed therefrom. The states, therefore, regulate their operating methods. The effect of the nation’s anti-trust laws is to cause them to compete without restraint. This unrestrained competition has yielded a decreasing selling price. The states’ laws, which were enacted to assure the safety and the social welfare of the miners, have resulted in a ris- ing production cost. The effects of these two sets of laws have moved in opposite directions. The rising cost of production and the falling selling price have long 2 since made profit impossible and now threaten the safety of the whole business structure as well as of the miners and the public. One of the refinements of competition in which these operators have indulged, has been the erection of elabo- rate plants with which to prepare and clean carefully nine standard sizes of coal. In obedience to the states’ laws, they have fireproofed their mines and have added expensive safety appliances. These things have en- larged the requisite investment in plant and equipment by 1,000 per cent, in the last twenty years. Another effect of enforced competition has been in- tense individualism. In consequence, they have opened three mines where only two were needed ; they have em- ployed three men where only two were necessary. These mines and men can find productive work only during 175 instead of a possible 300 days in a year. Because they can give to their miners work but part of the time, these operators must pay higher daily wages than are warranted by the current selling prices. Their labor cost is 92.44 cents per ton whereas the selling price is but $1.14 and $1.11 respectively for Illinois and Indiana. From the resulting narrow margin, these operators must pay : Administrative salaries and expenses ; selling cost; royalty or land depletion charge; depreciation on plant and equipment; the cost of all materials used in the mines and some eight or ten other major items of expense. The margin is, clearly, wiped out by these items of expense leaving the business with no possible net revenue. Still, these operators are morally or legally obligated to pay the cost of any great or dire emergen- cies ; to educate their miners in ways of assuring greater safety; to educate the users in methods by which coal can be burned with greater efficiency; to expand their 3 sales into the foreign markets; to experiment with and undertake the manufacture of by-products and to do those hundreds of little things which make for greater safety and for true conservation. One obligation resting upon these operators is to re- cover the pillar and top coal that the country’s loss may be lessened. Because this involves an additional ex- pense, it cannot be undertaken. Still, for every two acres of coal land which they exhaust, they leave one acre of coal unrecovered and unrecoverable in the ground. This means that in Illinois, each year, there is exhausted 12,- 000 acres of coal land whereas the exhaustion should be but 8,000 acres. In Indiana, there is exhausted each year, 3,000 acres whereas there should be exhausted but 2,000 acres. In the nation there is exhausted each year 100,- 000 acres whereas the exhaustion should be but 65,000 or 70,000 acres. It is significant, here, that these are two of the five states which produce more than 80 per cent, of the coal consumed in America. This means to say that this alarming waste is taking place next door to the centers of greatest density of population. It is endangering the near future of the very heart of this nation. These operators, caught between the conflicting regu- lations of the states and the nation, yet under compul- sion to obey both, are powerless to prevent this waste. Only the nation can reverse this tendency and provide against it. This statement is made in the hope that some suggestion will be made which will bring the relief needed. 4 A Statement of Fact. It has been said that the normal condition of the coal mining industry is one of dangerous financial exhaustion. Since the end of the depression in 1897, the farms and factories have enjoyed increasing prosperity. This has not been shared, at any time or in any degree, by the coal industry. Regardless of the regular and substan- tial annual increase in tonnage produced, the returns from investments in the coal trade have been steadily diminishing. Coal has supplied the power which made every business rich, yet the author of all this wealth re- mains poor. In the last dozen years, in fact, there have been but a few brief periods in which the coal trade has enjoyed any prosperity. These prevailed in each instance for not to exceed two or three months. They were due to wholly un- natural causes, and in no manner indicated that the busi- ness had, at last, become master in its own house. For example, these operators got remunerative prices dur- ing the anthracite strike of 1902 when they profited by the misfortunes of others. For very short periods of car shortage in the winters of 1903 and 1904, this experi- ence was duplicated. Once or twice since that time, strikes or other temporary labor difficulties in one state gave the other states business, to which they had no natural right. Except in such times, the trade has been unprofitable or actually showed a loss. Meanwhile there has been a steady increase in oper- ating and administrative expense due: 1. To repeated advances in labor cost. 2. To the increased cost of material, such as rails, timber and cement, and machinery. 3. To the passage of laws in behalf of the workers 5 such as the safety measures and the Workmen’s Com- pensation Act in Illinois. 4. To the increased cost of making sales, arising from unrestricted competition. The Cost of Production. According to the figures compiled by the Bureau of the Census, the amount paid in wages was, in 1909, above 80 per cent, of the total selling value of coal at the mine mouth. Since 1909 there have been granted two wage in- creases — one in 1910 (5.55 per cent.) and another in 1912 (5.26 per cent.). These increases have brought the wage cost per ton of coal produced to 92.44 cents in 1913. In 1913, the average selling price of coal at the mines in Illinois, was $1.14 and in Indiana $1.11 per ton. This leaves only 21.6 cents in Illinois and 18.6 cents in Indi- ana available, out of which must be paid: The cost of material used at the mines; The cost of making sales; All officers’ salaries; General expenses; Insurance (liability, fire, storm, etc.) ; Taxes (including tax on plant and mineral rights) ; Interest on the investment; Depreciation of plant; Royalties or charges for the exhaustion of coal. The last report of the Bureau of the Census (1909) showed that without allowing for any interest charge on the investment or for amortization of property, the so- called net returns in Illinois and Indiana were only 3 cents per ton in Illinois and less than 1 cent per ton in Indiana. The average royalty paid however in these two states 6 on coal recovered under lease is 5 cents per ton and the average present valuation of coal land is such as to re- quire a very minimum amortization charge of 3 cents per ton to recover such land value within the period of the mine’s life. It will therefore be seen that in even so good a year as 1913 an actual profit return was impossible but to the contrary and as existing facts show developed a sub- stantial deficit for the industry in these two states. A considerable addition to the cost of production is made by the idle time of the mines, during which all overhead and some labor costs must be paid. The aver- age number of productive days w T orked per annum in these two states is only about 175 out of a possible 300 or more. This idle time of the miners is not confined to one season or period during which they can find em- ployment elsewhere. To the contrary, the men are al- ways subject to call, for which reason they urge a greater daily wage that their annual income may be sufficient for their needs. This causes these operators to grant abnor- mal wage advances, which are directly reflected in coal cost. Many industrial plants which produce standard or basic commodities find it possible to operate 24 hours per day by using different shifts of men. They work thus for 310 or more days a year or a total of 7,440 hours per year. Still other industries, on two 8 or 10 hour shifts, per 24 hours — 300 to 310 days per year — operate 5,000 to 6,000 hours per annum. Even one 8 hour shift in each 24 hour period — 310 days per year — gives 2,480 working hours per annum. These mine operators, because under unrestricted com- petition they built more plants than are needed, can only operate for 8 hours out of every 24, and for 175 days per year, or 1,400 hours. 7 It will be seen, therefore, that as against 100 per cent, plant utilization (24 hours, 310 days — 7,440 hours per annum) possible to some industries and as against an average by all industries of 33 per cent, to 45 per cent, (one 8 or 10 shift per 24 hour period — 310 days), a coal plant is in actual productive use only about 18 per cent, of the time. This makes plant, interest and depreci- ation charges six times heavier than for other indus- tries. In addition to ruining the operators, this distresses the miners. For example, the 97,000 miners of Illinois and Indiana who are prevented from working 125 days per year, might at the present wage, have earned an ad- ditional $36,400,000 or $371 per man per year, had their employers been able to give them work or had their ef- forts been expended in other directions. The present markets for Illinois and Indiana coal can be supplied by 60 per cent, of the mines now being oper- ated. The interest on the surplus capital invested in these unnecessary mines adds to the cost of production in each. (For concurring opinion of labor on these points these operators refer to the appendix which contains certain testimony given at a hearing in Chicago the latter part of July, 1914, before the United States Commission on Industrial Relations, by Duncan McDonald, Secretary- Treasurer of the United Mine Workers in Illinois.) The Consequences of This Waste. Having shown the cost of mining coal and having measured it alongside the revenue from the sale, it re- mains to measure the consequences. In Bulletin 47 of the United States Bureau of Mines, Dr. J. A. Holmes, Director of the Bureau states: “ During the past year (1911) in producing 500,- 000,000 tons of coal we wasted or left underground 8 in such a condition that it will probably not be re- covered in the future, 250,000,000 tons of coal. In a higher way, our mineral resources should be re- garded as property to be held in trust with regard to both the present and future needs of the country. Neither human labor nor human agency has con- tributed to their intrinsic value and whatever rights the individual may possess have been derived from the general government. The government does not surrender its right, and should not neglect its duty to safeguard the welfare of its future citizens by preventing the waste of these resources.’ ’ It is customary to say that the mining of coal is an extractive industry. The phraseology is too weak; it must be considered as a destructive industry. That is to say, each ton of coal removed destroys by just that much the value of the plant engaged in producing it. Also, it destroys by that much the country’s coal re- serve. Coal once mined or lost can never be replaced. With the life cycle of several large coal deposits well de- fined and with the end not extremely remote, the deliber- ate waste of coal by mining methods now in use consti- tutes an immediate menace. However when these oper- ators have no margin above cost under the best market conditions and when working only the choicest areas, the removal of thinner or inferior parts at a much higher cost per ton is out of question. This will be explained briefly. The major portion of the thick-seam coal in Illinois and Indiana is recovered by the so-called room and pillar plan, the work advancing toward the boundaries of the controlled area from the shaft -bottom. By such method pillars of coal, of sufficient size to sustain the overlying weight, are left standing 25 to 40 feet apart.’ Also all coal above certain well defined lines of parting in the seam are left up to protect a roof until the boundaries of the acreage have been reached. 9 These pillars and the so-called top coal are supposed to be recovered as the work is carried hack to the bot- tom of the shaft. In actual practice, however, this is seldom or never done. Thus the actual coal recovery from any given acreage seldom exceeds 50 per cent, of the total amount in the seam out of a possible 90-95 per cent, available by proper mining practice. This is true for this reason. As the distance from the shaft increases, the expense of haulage and road maintenance increases. Also the hazard from gas and loss from mine falls in- crease. Likewise, in working backward to the shaft the quality of the coal secured is impaired by reason of contamination with accumulated refuse of earlier work. Therefore, all these valuable areas are simply abandoned, because the operator cannot afford to pay the extra cost of reclaiming this coal. It also occurs at various places that substantial bodies of coal lie between the boundary lines of two approxi- mately adjoining mines. The extra haulage cost to either shaft, for the removal of this intermediate coal (although only a few cents), cannot be borne without operating loss. Such areas are therefore entirely neg- lected and cannot later be recovered because the amount of coal available would not justify the development of a new mine to reach them. Although not strictly germane to the subject in hand, mineral land taxation arises as an indirect causative factor of waste. Many operating companies hesitate to secure as large areas as might be economically available to their shafts because they wish to avoid tax payment through a long period of years on a valuation of coal rights which is unwarranted. They prefer to let title to such additional acreage rest with the farmer or other owner who uses only the surface and who, while so using it, does not pay any tax on the underlying coal. Later, 10 it frequently occurs tliat such original owner, with an unreasonable notion of the value of his coal rights, makes purchase impossible through demand for exces- sive price. This coal also is abandoned along with the adjoining worked-out area. This waste of coal should concern the Eastern and Central states sufficiently to cause some relief to be ex- tended to these operators. It is to the country’s interest to see that these operators get enough money to make this recovery reasonably complete. Social Consequences of Loss. Aside from the economic waste mentioned herein, the loss of revenue has serious social consequences. The continuous and prolonged lack of any profit in the coal industry, makes it impossible for these operators to furnish, in all instances, the necessary safeguards to make mining even a relatively safe occupation. It has also occasioned the rejection by many of the provisions of the Illinois Workmen’s Compensation Act. That is to say, coal companies without current net earn- ings or any sort of reserve resources are not willing to as- sume such additional definite obligations as the law pro- poses ; to make provision for the injured workman and his family or even to obligate themselves to make incidental payments of any kind. Necessity compels them to rest their hope on the throw of chance in a judicial hearing. They rely on a court’s decree to leave them something of their capital, whereas if they worked under this law they might as well have no capital for all the return they can hope to get upon it. For this reason, the anticipated value and beneficent purpose of such legislation is clearly nullified. And until, by common consent, the conditions detailed in this state- ment of fact have been ameliorated, further effort taking the form of additional legislation, however worthy, ra- tional or desirable will prove similarly abortive and fu- tile. Coal and Regulation of Business. For a part of the present disastrous condition of their industry the coal operators are, perhaps, themselves responsible. They have not organized their business as many other industries have done. However, with the very stringent anti-trust laws of the states and the Sher- man Act confronting them, much uncertainty has ex- isted and still exists as to what the various laws permit. Because of this uncertainty no concerted action has been taken. During the period of waiting for some new light on the laws, many operators have hoped that some solution would come and that they might survive until the dawn while competitors would fail. They have been discouraged by the severity of judicial rebuke which has, throughout the last several years, fol- lowed many community efforts in other industries. These operators have, therefore, done nothing, but are now prepared to defend their claim to just considera- tion and a fair return. They do this not alone for selfish reasons but because they want to make appropriate pro- visions for conserving natural resources, and to grant their workers physical and social comforts beyond those now possible. The recent passage of certain acts, which may with propriety be called enabling laws, encourages these oper- ators to believe that public sentiment has so changed that a possible opportunity to secure relief presents itself. They, therefore, submit this statement. Their hope is that the Trades Commission may be the governmental means through which the nation will ulti- mately be thoroughly enlightened regarding the abso* 12 lute equities of their industry. They further believe that, on account of its extent and importance, they are warranted in urging as a first consideration that one of the members of this Trades Commission shall be a capa- ble, experienced man, who is familiar with mining condi- tions and requirements, is acceptable to the coal industry and who can bring to the Commission sound judgment on all matters affecting these interests. They also hope that through the agency of this Com- mission, or upon the sanctioned initiative of the operators themselves, the apparently necessary remedy for pres- ent conditions may be immediately applied, such remedial plan to be subject to a later determination by the Federal Government, working through an appropriate agency, as to its propriety. There is no desire now or hereafter to establish a coal monopoly. Much less is there a desire among these operators to extort unreasonable profits. But they con- sider it vitally essential to stapelize the industry for the benefit alike of the workmen, the consumers and invest- ors. It is, they believe, reasonable to assume that as long as the Government sustains and encourages the principle of collective action — as evidenced by the ex- emption of labor unions from anti-trust measures — it would also sanction a plan enabling coal operators to cooperate in a similarly legitimate way, particularly if appropriate and definite governmental control were in- cluded to the extent, at least, of permitting all of such activities to be known to the public and provided that sufficient and ample penalties be provided and im- posed for the violation of all such rules, agreements or laws as may be devised to regulate such collective ac- tions. Coal operators would not object to, but, on the con- trary, would invite such publicity and supervision. 13 This suggestion is particularly pertinent for this rea- son. On every hand these coal operators are confronted by combined purchasing agencies to which they sell their coal and by combined workmen from whom they buy their labor. Thus situated, these operators are obviously at a disadvantage when, disorganized as herein stated, both their buying and their selling are done with col- lective or cooperating units. Other industries enjoy a degree of encouragement and protection by the Government which is denied the coal mining industry. In volume of business, mining is ap- proximately one-half that of agriculture; these major in- dustries are alike in that both work the land in recover- ing vital necessities for the public use, yet, regardless of the fact that the exhaustion of the mineral deposits is irremediable, while the loss of soil fertility and produc- tiveness can be overcome, the United States spends only one-twenty-fourth as much to promote the mining indus- try as to help agriculture. Intimately affecting, as it does, the lives and welfare of all our citizens, the coal industry deserves and should receive at the hands of our law makers, attention proportionate to its import- ance. The publications of the United States Geological Sur- vey and the Bureau of Mines, while helpful in the physi- cal operation of properties, do not contain statistics such as are furnished by the Agricultural Department dealing with costs, values and distribution. The appro- priations are entirely too small. When the Southern cotton growers suddenly found their market demoralized by the European war, prompt investigations were made and assistance rendered. Whatever the major sentiment or opinion may be with reference to the propriety and warrant of such help so extended, the fact remains that however bad and un- 14 fortunate this situation may be, it is still not so serious (except perhaps as to the number of persons immediately involved) as the present coal producing situation. Nor is it as threatening to . the general welfare. For, even though all the present cotton crop be lost and return no value whatever, the land remains and later crops are possible. With coal removal or waste, the land is ex- hausted of such value permanently, and the serviceabil- ity and use of a coal mining plant is not, as with the land, perennial. Co-operation would not only greatly benefit the work- men and investors in the coal business, but would en- courage the establishment of other industries now sorely needed in this country. For example, the necessity for the establishment of by-products and coking plants is very evident. The utili- zation of sulphate of ammonia for fertilizer, creosote oil for timber treatment, the products of coal tar for in- dustrial and pharmaceutical purposes is too well known to require further reference. Over $12,000,000 w T ere paid last year for coal tar products imported from abroad. Of the 95,000,000 gallons of creosote oil consumed in the treatment of ties and timber, 60,000,000 gallons were im- ported. Of the 44,000,000 tons of coke manufactured in the United States in 1912, 33,000,000 tons were made in bee-hive ovens and the waste in smoke was over $50,- 000,000. It is only through co-operation that the coal operators can get together the money needed to establish the coking and by-product industry on a proper basis in this coun- try. That is to say, the coal man is the proper producer of these by-products but he cannot do so because he has not the capital and cannot get it because his business is so disorganized he has no longer any credit. 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