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 WHAT WILL EFFECTIVELY 
 RESTORE BUSINESS? 
 
 By 
 
 ^ / 
 
 E B. LEIGH 
 
 “What will effectively restore business ?” is the most urgent of 
 pending questions. The answer given by Mr. Leigh in this address 
 s is condensed in a letter to Secretary Hoover which in delivery was read 
 at the end, but which is here brought forward. Mr. Leigh declares 
 j‘ that now as always large railway purchases are essential to business 
 
 • recovery and that railway buying depends upon gross railway earnings 
 
 • from larger traffic moving under lower rates and upon net railway 
 \ income preserved through lower labor cost. His proposals are in 
 | harmony with those of the National Industrial Traffic League and 
 i: should summon business men everywhere to active work for the result 
 j which we all desire. 
 
 Ai,ba B. Johnson, President 
 
 {' Frank W. Noxon, Secretary 
 
 ; Railway Business Association 
 ' Liberty Building, Philadelphia 
 I Sept. 29, 1921 
 
 f 45990 
 
s. 
 
 VALUE. OF RAILWAY PLANT COMPARED WITH THAT OF 
 AGRICULTURE! manufacturing industry. 
 
 Mr. Leigh’s Letter to Mr. Hoover 
 
 Chicago, Sept. 27, 1921. 
 
 Hon. Herbert Hoover, Secretary of Commerce, 
 
 Chairman Unemployment Conference, 
 
 Commerce Building, 
 
 Washington, D. C. 
 
 My dear Mr. Secretary: 
 
 R ESTORATION of national prosperity can be started on its way by 
 just one factor—purchasing power. All substitutes are bootstraps or 
 phantoms. 
 
 Among the sources of purchasing power the largest and most definitely 
 available is the power of the railroads to buy material and labor for main- 
 
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tenance, additions and betterments. In normal years the railways directly 
 and indirectly have consumed from 40 to 50% of the iron and steel production, 
 admittedly the “barometer of business.” 
 
 It is the history of depressions that recovery is always accompanied by 
 resumption of large railroad buying, and never comes without it, the only 
 exception being the war period. The business so initiated flushes the channels 
 of all industry and trade, including agriculture, and favorably affects every 
 inhabitant of every community. 
 
 Net Income Insufficient and Uncertain 
 
 AT PRESENT the railroads lack the money and the credit to finance proper 
 maintenance, not to say additions and improvements. Their net income is 
 neither sufficient nor certain. It is insufficient because railway labor cost is 
 too high. It will be insufficient until labor cost comes down through wage cuts 
 and through modifications of working conditions. It is uncertain because 
 special groups of shippers are exerting pressure upon the roads and upon the 
 Interstate Commerce Commission for privileged concessions, most of which 
 where granted have resulted in little or no freight movement, which are unfair 
 to other shippers who adhere to prewar procedure in the discussion of rate 
 revision and which, if made general without wage reduction, would dissipate 
 all hope of net income either adequate or stable, and postpone indefinitely that 
 entrance into the market by the railroads without which no business recovery 
 can be genuine or permanent. 
 
 In my judgment the Unemployment Conference could devise no remedy for 
 current depression more effective than this: 
 
 What Shippers Can Do 
 
 PERSUADE every shipper who favors lower freight rates— 
 
 1. To participate in an organized effort to convince the Federal 
 Railroad Labor Board that railway labor cost must be immediately 
 and substantially reduced. 
 
 2. To refrain from enlistment of executive and legislative officers 
 of the government for exertion of pressure upon the railroads or upon 
 the Commission in connection with rates; and to employ exclusively 
 in the discussion of proposed rate revisions negotiation with the 
 carriers or, failing agreement with them, orderly procedure by testi¬ 
 mony and argument before the Interstate Commerce Commission. 
 
 Rates and Wages Most Important 
 
 PURPOSELY the so-called railroad refunding bill is not bracketed with the 
 factors next above specified. The reason for so treating it is that its great 
 importance would be in direct relief to the railway supply industry, and in 
 what I shall say I am discussing not the special needs of that industry but the 
 needs of the whole nation. Somewhere near $500,000,000 may be made avail- 
 
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able for settlement of balances due the railroads by the government on current 
 account if the sums due the government by the railroads on capital account can 
 be funded. Somewhere between $200,000,000 and $300,000,000 may be due 
 supply concerns from the railroads—remittances awaiting settlement of govern¬ 
 ment balances. Therefore probably not much in excess of $300,000,000 
 would remain for new orders which at best would be temporary and not large 
 compared with amounts permanently involved in the rate and wage problem. 
 Not even the whole of this sum will be paid over immediately. Settlements 
 are the result of negotiation, and take time. The Director General has pre¬ 
 dicted that the last will be completed by the end of 1922. 
 
 Speaking for the railway supply industry, in which my company does a part 
 of its business, I desire to thank business men generally for the zeal and energy 
 with which they have aided us in promoting passage of the refunding bill. 
 Enactment will help us very much and the relief will be reflected beyond our 
 craft. But this is a transitory phase and its importance, both immediate and 
 in the long run, is greatly exceeded by that of the rate and wage questions. 
 
 Recovery Awaits Railroad Buying 
 
 ALTHOUGH the company with which I am connected has had for some 
 years not to exceed 30% to 40% of its business with the railways, I have made 
 for many years systematic observation of the relation between railway buying 
 and general business prosperity. I have attached as an appendix to this letter 
 the prolongation of a chart which shows that currently, as heretofore, general 
 business resumption waits upon railroad purchases. 
 
 In discussing that topic I have exchanged ideas with many persons. Among 
 those who have given it sustained thought there seem to be two classes. The 
 first class are persuaded that in the upward climb from a depression the first 
 stage is resumption of merchandise movement in such commodities as textiles, 
 boots and shoes and other necessaries of the individual consumer, and that the 
 consequent improvement in railroad earnings is reflected in railroad purchases 
 which broaden and accelerate commercial and industrial resurrection. The 
 other class, to which I belong, hold that as a matter of history it is railroad 
 buying which itself initiates the whole movement, and that any recovery in 
 general business before the roads come into the market is negligible. There is 
 no present occasion for arguing which of the two classes is correct on the 
 point where they differ, because the important point is that on which they agree; 
 namely, that however it starts, a resumption of general business is strengthened 
 and hastened by railroad buying and cannot be permanent without it. 
 
 Why Risk Protracted Doldrums? 
 
 APPLYING this doctrine to the present juncture, it is unnecessary for all 
 concerned to harmonize exactly their views as to the stage of recovery, if any, 
 which business has reached. The conclusion arrived at by each individual 
 would depend upon the value assigned by him to various conflicting factors. We 
 ought to be unanimous in this—that if merchandise buying is now on the 
 upward trend large railroad buying will help mightily to give it permanence, 
 
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where otherwise it might fluctuate fitfully for many months; and that if those 
 who think the tide has turned are unduly optimistic, large railroad buying will 
 confirm their hope. Why run the risk of protracted doldrums and probably 
 serious set-backs by neglecting so obvious an expedient? 
 
 Practical Measure for the Conference 
 
 THE NOVEL ASPECT in the present situation is this—that whereas during 
 about 20 years past recoveries have found the railways able to come into the 
 market with some vigor, though steadily less in each recurring instance, the 
 f present occasion finds them almost utterly without the means to resume pur¬ 
 chasing. Never in the history of our railways has their physical condition been 
 at a lower ebb, or their need of rehabilitation greater. 
 
 It is respectfully suggested that the Unemployment Conference picture 
 1 railroad buying and the requisites for its resumption to the public in such colors 
 as will evoke an irresistible movement for railroad wage reductions and, that 
 accomplished, and railway operating cost brought down, for reconsideration 
 of railway rates by the Interstate Commerce Commission in orderly procedure 
 as befits a quasi-judicial arm of the government charged by Congress with the 
 responsibility of sanctioning tariffs under which the traffic can move and the 
 railroads can grow. 
 
 With high respect, 
 
 Very truly yours, 
 
 E. B. Leigh. 
 
 i 
 
 
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value: of railway ROAD **o e q u i p m ent(allroads) 
 COMPARED WITH THE CAPITAL OF ALL MANUFACTURING INDUSTRIES 
 
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WHAT WILL EFFECTIVELY 
 RESTORE BUSINESS? 
 
 By E. B. LEIGH 
 
 President Chicago Railway Equipment Co., before the National Conference 
 of State Manufacturers Associations, Chicago, Sept. 29, 1921 
 
 W HAT will effectively restore 
 business ? 
 
 There are conclusive grounds for 
 believing that the largest single factor 
 in the present business depression is 
 the enforced and continued curtail¬ 
 ment of railway purchases. No factor 
 which could $ow be introduced into 
 the situation would do more to stimu¬ 
 late general business out of this de¬ 
 pression than a vigorous resumption 
 of railway buying. This conclusion, 
 while applying with peculiar force to 
 the state of affairs at this moment, is 
 l based upon a careful study and com¬ 
 parison covering a period of many 
 years, showing the intimate relation 
 between railway purchases and gen- 
 ' eral business. 
 
 Comparatively few realize what a 
 great factor the railways are in the 
 buying field. Having this in mind, 
 sometime ago it occurred to me to 
 try to present this in some graphic 
 form which would more quickly por¬ 
 tray this fact, to give a sort of “back¬ 
 ground,” as it were, for the more 
 ready appreciation of this situation. 
 
 I have gathered some statistics, 
 
 which will serve to more fully illus¬ 
 trate what I wish to bring to your 
 attention. 
 
 SOME STATISTICS 
 
 FROM FIGURES taken from the 
 United States Bureau of Census re¬ 
 port for 1914 (the latest available) 
 comparisons have been laid out on 
 Charts numbered 1 to 5. It is to be 
 regretted that the Census figures for 
 1920 are not yet obtainable. These 
 illustrations while not given as being 
 entirely proof against critical analysis 
 will serve to show “relation” in at 
 least a general way. 
 
 Chart No. 1 shows shaded the 
 then value of the Railways of the 
 United States Road and Equipment: 
 
 $16,148,532,502 and 
 
 In white the capital of all Manu¬ 
 facturing Industries of the United 
 States, $22,790,890,000. 
 
 The relation of railway property, 
 and that of capital invested in manu¬ 
 facture is thus clearly reflected. 
 
 Chart No. 2 is an enlargement of 
 Chart No. 1, showing in detail the 
 
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relation and extent of the 13 leading 
 manufacturing industries; all the other 
 manufacturing industries (embracing 
 over 75 distinct groups) are shown in 
 one section. 
 
 Chart No. 3 shows (1) shaded, the 
 then value of railway cars and loco¬ 
 motives only, at $4,137,318,000 
 and 
 
 (2) In white, the value of manu¬ 
 facturing machinery implements and 
 tools (all manufacturing industries) 
 at $6,091,451,274 
 
 SIZE OF THE RAILWAY INDUSTRY 
 
 THUS YOU WILL SEE that the 
 then value of railways* road and 
 equipment was about 70% as great as 
 that of the capital of all manufactur¬ 
 ing industries, or, a ratio of about 
 41% for railways and 59% for capital 
 of manufacturing industries taken to¬ 
 gether. 
 
 The value of railway cars and loco¬ 
 motives alone represented an amount 
 about 70% as great as that of the 
 value of machinery, implements and 
 tools in all manufacturing industries, 
 or, again taken together, a ratio of 
 about 40% for the railways and 60% 
 for manufacturing machinery, etc. 
 
 Chart No. 4 is a comparison of the 
 then value of railway cars and loco- ’ v 
 motives with that of farm machinery, 
 implements and tools: 
 
 (1) Shaded, cars and locomotives at 
 
 $4,137,318,000; 
 
 and 
 
 (2) In white, farm machinery, 
 tools and implements at 
 
 $1,368,224,548; 
 or a value of cars and locomotives 
 three times as great as that of all the 
 farm machinery, tools and imple¬ 
 ments at that time. 
 
 Chart No. 5 is a combination of 
 
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Charts 3 and 4 showing for compari¬ 
 son: 
 
 (1) Shaded, cars and locomotives, 
 
 $4,137,318,000; 
 
 (2) In white, larger segment, man¬ 
 
 ufacturing equipment, machinery and 
 tools, $6,091,451,274, and 
 
 (3) In white, smaller segment, 
 farm machinery, implements and tools, 
 
 $1,368,224,548. 
 
 With these facts before you, to¬ 
 gether with the large chart headed 
 * “Railway Purchases,” I shall endeavor 
 to make clear the doctrine to be pre¬ 
 sented. 
 
 OBSERVATIONS OF A QUARTER 
 CENTURY 
 
 FOR MORE than 25 years past I 
 have observed the effect of railway 
 purchases upon general business pros¬ 
 perity—induced by the fact that in my 
 business ( a portion of which is that 
 
 of railway supplies) I had noted that 
 when the railways of the country 
 entered the field of substantial capital 
 purchases, there invariably followed a 
 period of general business prosperity; 
 and, likewise, the cessation of such 
 purchases was invariably followed by 
 a decline in general business. 
 
 More and more impressed with this, 
 in the year 1913, and with data then 
 carefully collected from the year 1904 
 to that time, I set to work to test out 
 this principle. 
 
 RAMIFICATIONS 
 
 INASMUCH as the railways of this 
 country constitute its greatest in¬ 
 dustry next to that of agriculture; 
 with but one thing to sell—transpor¬ 
 tation ; the ultimate consumers of 
 everything they buy; their purchases 
 extending substantially throughout 
 almost every department of business; 
 many of them on a tremendous scale; 
 it must be obvious how potent a factor 
 they are in general business condi¬ 
 tions. 
 
 As the iron and steel industry has 
 long been recognized as being the 
 truest index of general business con¬ 
 ditions, and as prior to 1914 it was 
 reliably estimated that the railways 
 consumed, directly and indirectly, be¬ 
 tween 40% and 50% of the iron and 
 steel production of the country, it is 
 manifest that the expansion or re¬ 
 striction of railway consumption must 
 vitally affect this barometer. 
 
 FREIGHT CARS ORDERED THE INDEX 
 
 THE RAMIFICATIONS of railway 
 purchases make it impossible to clas¬ 
 sify them in the aggregate. But many 
 years of observation led to the belief 
 that no item so clearly and typically 
 reflected the railways’ general purchas¬ 
 ing ability as that of new equipment, 
 and no other tabulation has been as 
 
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regularly and accurately kept, hence 
 adopted as being the truest index of 
 general railway buying; for when the 
 roads are buying freely of new equip¬ 
 ment, they are likewise buying freely 
 of all other articles essential to main¬ 
 tenance, operation and betterment. 
 
 Accordingly, the number of freight 
 cars ordered each year taken as a unit 
 and termed “railway purchases,” has 
 been projected on the well known 
 chart of the Brookmire Economic 
 Service for the period of 1901 to date, 
 as shown on the chart now offered. 
 This could be carried back to many 
 years earlier had we the business 
 index for those years. 
 
 SIGNIFICANT PARALLEL 
 
 WHILE the “general business” line 
 is, of necessity, a deduction from the 
 elements used, nevertheless these de¬ 
 ductions have been made on the same 
 mathematical basis, hence for pur¬ 
 pose of affording a comparison this 
 line is mathematically correct. 
 
 The “railway purchases” line repre¬ 
 sents the actual number of cars 
 ordered during the periods noted and 
 officially confirmed. 
 
 The general business line is shown 
 in monthly periods, while the railway 
 purchases line is given in six-month 
 periods. 
 
 Thus, on this chart “railway pur¬ 
 chases” and “general business” are 
 shown: their relation traced over a 
 period of twenty successive years. 
 This chart, based upon indisputable 
 facts, clearly demonstrates a proposi¬ 
 tion which the speaker has taken occa¬ 
 sion to set forth in the following 
 phrase: 
 
 “ RAILWAY PURCHASES 
 MEASURE GENERAL BUSINESS 
 PROSPERITY.” 
 
 HISTORY REPEATS 
 
 THE PERIOD preceding 1907 was 
 one of increasing net income for the 
 railways. Their revenue keeping 
 pace with expenses, it was the custom 
 of railway managers generally to dis¬ 
 count future requirements in order¬ 
 ing equipment, and they felt they 
 could with prudence count upon re¬ 
 sources warranting these large opera¬ 
 tions. The chart shows that car 
 orders reached a maximum in 1905 
 and 1906. 
 
 But in 1908 a new condition or 
 factor appeared, due to the invest¬ 
 ment of the rate-making power in the 
 hands of the Interstate Commerce 
 Commission—the beginning of a regu¬ 
 lation which had in it no element of 
 responsibility for transportation de¬ 
 velopment. The act of 1920 has 
 greatly bettered this condition. 
 
 Thus, for the first time were “rail¬ 
 way purchases” controlled by abnor¬ 
 mal rather than normal conditions; 
 and have so continued, more or less, 
 from 1908 to the present time. I shall 
 not take the time to trace each year, 
 only referring to some years which 
 indicate exceptional conditions. 
 
 WAR BUYING 
 
 IT WAS STATED in 1913 that it 
 was believed railway purchases were 
 and would continue to be the controll¬ 
 ing factor in general business until 
 or unless some other great purchasing 
 power developed or came to take their 
 place. 
 
 Then the unexpected happened; the 
 great European war broke out, result¬ 
 ing in war buying supplanting railway 
 buying. It was not until well within 
 1915 that the effect of foreign, muni¬ 
 tion and war work orders was sub¬ 
 stantially felt by us; but the chart 
 shows a gradual yet steady climb of 
 the business line during the first 
 
 10 
 
six months, somewhat accelerated 
 throughout the last half of the year, 
 and not measurably accounted for by 
 railway purchases. 
 
 EXCEPTIONAL PERIOD 
 
 IN 1916 we find the phenomenon of 
 steadily advancing general business 
 with declining railway purchases dur¬ 
 ing the first six months, although rail¬ 
 way purchases were greatly augmented 
 ~ during the last half of that year, 
 aided by the foreign cars bought in 
 this country. 
 
 « In August, 1918, Brookmire read¬ 
 justed his barometer index owing to 
 the government control of prices of a 
 number of basic or fundamental com¬ 
 modities, and carried this readjust¬ 
 ment back "to the year 1914. This I 
 have shown in the open spaced lines. 
 
 During the period of active war 
 operations many industries classified 
 as non-essential, and certain products 
 of others were greatly restricted; so 
 that we entered the year 1919 with 
 a great shortage of many classes of 
 goods. 
 
 With the removal of the war restric¬ 
 tions coupled with the high wages 
 earned, and augmented by the pre¬ 
 ceding period of unexampled pros¬ 
 perity, many industries sprang into 
 great activity—among them were 
 J jewelry and silverware, musical in¬ 
 struments, rubber, tobacco and especi¬ 
 ally automobiles; and last but not 
 j least, our enormous exports. 
 
 All these conditions combined to 
 maintain a level of general business 
 which ordinarily would not have ob¬ 
 tained. Beginning in the latter part of 
 1920 the tide turned, and since then 
 we have been headed toward normal 
 conditions. 
 
 NORMALCY EXPECTED BACK 
 
 IT IS CONFIDENTLY believed 
 that railway buying will again resume 
 
 its normal relation to general business. 
 Even the upheaval of the world war 
 failed to obscure the principle of the 
 doctrine; while on the other hand its 
 manifest presence in that situation 
 seems only to emphasize further its 
 soundness. 
 
 Had I the time I might trace for 
 you, in graphic form, the flow of this 
 controlling current. Issuing forth from 
 the railways, it proceeds first to the 
 great car-building plants; thence on 
 to the iron and steel plants and to the 
 very large number of railway supply 
 industries. By the latter it is again 
 directed toward the iron and steel and 
 other industries—thence in turn influ¬ 
 encing a highly increased number of 
 other and contributory industries, 
 until this influence has reached or 
 set in motion the entire industrial 
 machinery—while at every turn and 
 in every direction it has furnished 
 employment to labor. Prosperity and 
 employment are synonymous terms, 
 as, conversely, are stagnation and 
 unemployment. 
 
 Thus, labor as a matter of fact is 
 more directly and vitally concerned in 
 this great problem than any other 
 single element. 
 
 There is one industry which has 
 made such gigantic strides and 
 assumed such vast proportions, par¬ 
 ticularly in the past four or five years, 
 that I will briefly refer to it. The 
 automobile industry and its relation to 
 the Iron and Steel Industry may be 
 interesting: 
 
 RAILROAD AND AUTOMOBILE 
 BUYING 
 
 A BUSINESS writer of country¬ 
 wide reputation recently quoted a pig 
 iron manufacturer as having said: 
 
 “There is a false notion that the 
 
 railroads are our biggest customers. 
 
 In the greatest year of railroad pur- 
 
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chasing the total was 3,000,000 tons 
 out of a total of 36,000,000 tons. 
 The automobile business plays a 
 larger part in our industry than 
 does the railroad.” 
 
 Let us examine the record. 
 
 The greatest year of automobile 
 production, not sales, was 1920, when 
 there were produced 1,883,158 pas¬ 
 senger auto cars and 332,039 auto 
 trucks, or a total of 2,205,197. 
 
 The amount of iron used in the 
 average passenger automobile, accord¬ 
 ing to Government survey during the 
 war, is 630 lbs. 
 
 A single railroad car wheel (8 to a 
 car) weighs 700 lbs. The average 
 production is 3,000,000 wheels per 
 year; with a maximum production of 
 approximately 6,000,000 wheels. 
 
 The amount of steel exclusive of 
 springs and alloy steel weighs 750 lbs. 
 
 A single car axle (5x9 smallest 
 size), smooth forged, weighs 750 lbs. 
 The average production of steel 
 
 rails is 2,500,000 tons per year; the 
 maximum 3,636,031 tons. 
 
 Without attempting to mention the 
 “thousand and one” other articles 
 going into railroad construction and 
 use, the facts just cited will suffice to 
 at least challenge this pig iron manu¬ 
 facturer’s statement, as quoted. 
 
 The 1919 figures show 1,657,652 
 passenger automobile cars and 316,364 
 auto trucks produced. These con¬ 
 sumed 4% of the total iron and steel 
 production of that year. 
 
 IT IS OBVIOUS that adequate rail¬ 
 way revenues are essential to adequate 
 railway purchases; that adequate rail¬ 
 way purchases are fundamentally 
 essential to general business pros¬ 
 perity ; that general business pros¬ 
 perity means the prosperity and well¬ 
 being of the entire nation. 
 
 [In conclusion, Mr. Leigh read his 
 letter to Secretary Hoover, which 
 forms the introduction to this pamph¬ 
 let] 
 
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 REQUESTS FOR COPIES of this 
 leaflet 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 
 application to Frank W. Noxon, 
 Secretary Railway Business Associa¬ 
 tion, 600 Liberty Building, Philadel¬ 
 phia. 
 
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