NATIONAL ASSOCIATION OF CREDIT MEN 
 
 Twenty-sixth Annual Convention 
 At San Francisco, June 17, 1921 
 
 Address by 
 
 Wm. Sproule, President, Southern Pacific Company 
 
 “Transportation as a Factor in Business” is the subject you 
 have been good enough to suggest as the topic of this address. I 
 prefer to say that transportation is the foundation of business, for 
 without it there could be only local barter. 
 
 No business can be conducted without reference to transpor- 
 tation. Even the home industry, using home-made machinery and 
 working up home products, must figure against the same manu- 
 factured product or one competing with it entering that same home 
 market by means of transportation from other and perhaps very 
 distant and diverse points of manufacture. 
 
 So everyone in business has before him in some way the 
 transportation question and is to some extent a critic of the 
 agencies of transportation. Hence, the mind of the Nation has 
 for some time been directed to the importance of the business of 
 transportation as a factor in every man’s business, until now there 
 stand in the public spotlight the Railroads of the United States on 
 the one hand, and the United States Shipping Board on the other 
 hand, as the great public agencies for transportation that affect 
 the welfare of the public to the greatest extent. 
 
 In so far as I may use figures in discussing the subject, will 
 state them in round numbers for your convenience. 
 
 In these times the transportation agencies may be said to 
 be on the way toward convalescing after a burning and exhausting 
 war fever, when the calm deliberation that belongs to time of 
 peace had to give way overnight to the emergencies of a war for 
 which we had made no preparations, and into which the railroads 
 were flung to win the war. 
 
 These transportation agencies now find themselves very much 
 in the same position as the birds and beasts which, in a state 
 
 ^ 50086 
 
of nature, oftentimes attack the individual among them who is 
 sick, not as a means of curing the sick one, but of killing it. Thus 
 the railroads are passing through a period of attack with little 
 power of resistance, and these attacks are because of an ailment 
 which those very agencies of transportation did not bring upon 
 themselves, and could in nowise avoid. They are the victims of a 
 condition they did not create. 
 
 While the United States Shipping Board has been losing a 
 million dollars a day (according to a late statement by Admiral 
 Benson) because it has a large fleet of vessels built by the Govern- 
 ment at very high prices, while ocean rates are drifting low and 
 the cost of operating the ships is at or near the highest cost on 
 record, the railroads are unable to maintain their earning power be- 
 cause of their operating costs having been set up as a war measure 
 to extremes previously unheard of and from which there is as yet 
 prospect of but slight reduction. 
 
 The United States Shipping Board can sell the ships and so 
 get rid of their future losses. The railroads cannot get out, and 
 the Government itself could not get rid of the losses even if it 
 owned the railroads ; which brings us to the point that it is in- 
 evitable that the railroad situation must be cared for in order that 
 the railroads may pass from their period of sickness into whole- 
 some health and strength. 
 
 Transportation, and particularly railroad transportation, is 
 such a large factor in business that it is important to everyone 
 that the railroads should be on a sound and healthy working basis 
 in order that business may have the benefit of prompt carriage, 
 with despatch and safety. 
 
 What is the malady and its progress and what remains to be 
 done to restore those transportation agencies to satisfactory vigor ? 
 
 The malady began on January 1, 1917, when the Adamson 
 Law took effect on American railroads, placing their costs for 
 wages on an arbitrary and artificial basis of eight hours a day 
 for calculating the pay of enginemen and trainmen. By this one 
 step the labor costs for operation of the railroads were increased 
 in 1917 by $271,000,000, and this includes only those railroads 
 that had a gross earning of a million dollars or more in the 
 year, usually known as Class 1 roads. 
 
 The next step was a year later when on January 1, 1918, the 
 Government took over the railroads as a war measure, and in 
 
 2 
 
that year 1918, the labor costs for railroad operations were 
 increased by $874,000,000. 
 
 The next step was in 1919 when increased wages again 
 increased the labor costs by $229,000,000 for that year. 
 
 The next step was in 1920, a short time before the rail- 
 roads were turned back to their owners, when the wages were 
 again increased, and this time by the sum of $855,000,000. 
 
 Thus the increases alone in labor costs within the four 
 years ended January 31st, 1920, reach the prodigious sum of 
 $2,230,000,000 above 1916. This increase is almost the same 
 amount the railroads paid for all of their operating expenses in 
 1916. 
 
 Comparing again 1916 with 1920, the cost of wages, fuel and 
 other expenses rose so that in 1920 the total increase in operating 
 expenses was $3,411,000,000, while the revenues taken into the 
 box office in 1920 increased but $2,574,000,000, leaving the rail- 
 roads for the year nearly $837,000,000 to the bad. To state it 
 again, the total sales of transportation in 1920 increased over 
 1916 but $2,574,000,000 to pay an increased bill for the year of 
 $3,411,000,000. So the railroads were $837,000,000 worse off 
 in operating expenses alone at the end than in the beginning. 
 
 But their taxes ran on, and in taxes they had to pay 
 $141,000,000 in 1920 in excess of 1916. So the roads were in 
 fact $978,000,000 worse off at the end than in the beginning, and 
 $978,000,000 is not very far from one billion dollars. 
 
 What was the result of all this? The railroads earned in 
 1920 not quite 72 per cent more than in 1916, but their operating 
 expenses were nearly 142 per cent more, with the result that the 
 net operating income in 1920 which could be applied to interest 
 or any other corporate purposes of the railroads, was only 
 $62,000,000, a decline of 94 per cent. 
 
 The pitiful feature of this period is that these railroads re- 
 ceived in labor less than 8 per cent more hours of service in 1920 
 than in 1916, although they paid for the service in wages 152 per 
 cent more in 1920, and the total expense of rendering the service 
 was 142 per cent more. 
 
 At the same time, the total transportation service, as 
 expressed in train miles (that is, trains moved one mile), was 
 actually less at the end of the period than before it, namely, was 
 eighteen and one-half million train miles less, or expressed in per- 
 centages, one and one-half per cent less train miles were run in 
 
 3 
 
1920 than in 1916, and train miles express in a general way for this 
 purpose the service rendered to the public. 
 
 With this reduced train service, however, the railroads car- 
 ried a greater tonnage of freight and a greater number of passen- 
 gers in 1920 than in any previous year, and chiefly because the 
 actual operation of the roads was turned back to the railroad 
 companies on March 1, 1920, although the wage costs were and 
 are withheld from the control of the companies, being vested in 
 the United States Railroad Labor Board by the Transportation 
 Act of 1920. And so the wage costs remained up because the 
 wage scales were beyond the control of management, but operating 
 efficiency, which was within the control of the management, im- 
 proved. 
 
 I have said that in 1920 the railroads carried more freight 
 and more passengers than in 1916 or in any other year in the 
 history of our country. This is a fact not to be forgotten — and 
 why ? 
 
 You will remember that in 1917 when we went into the 
 war the railroads in the Eastern states gradually got into a con- 
 dition of blockade. The blockade gradually backed up to include 
 considerable territory west of Chicago and the Mississippi River. 
 From this it was argued that the railroads had broken down. This 
 was not true. The break-down was not upon the part of the rail- 
 roads. What occurred was that the warehouses, factories, docks 
 and ships in Eastern states were unable to care for the business 
 consigned to them. When the sidings of the factories and ware- 
 houses, and when the shipping docks became filled with freight, 
 and ships could not take it fast enough they found themselves un- 
 able to handle any more freight, and so cars by the thousand — and 
 soon by the tens of thousands — could not be unloaded because 
 the consignees could not take the goods and there was no place 
 to unload the cars. 
 
 This was in 1917. That blockade had its origin in a system 
 of priorities by which department heads in charge of Government 
 work gave orders that their particular business was to be given 
 preference in transportation upon the basis of priority orders. 
 These orders could have only one practical effect, which was to 
 block the channels of transportation until the whole business got 
 into a tangle of confusion and congestion. Hence, the blockade, 
 which was not by any act of the railroads. Now comes the point, 
 namely : 
 
 4 
 
Nobody has heard of any blockade in 1920, and yet in all 
 traffic essentials the same and with the same railroad mileage, the 
 business carried by the railroads in 1920, figured in tons carried 
 one mile, was 449 billions as against 430 billions in 1917, or 19 
 billion tons more in 1920 than in 1917. 
 
 By similar measurement, passengers carried one mile, were 
 46 billions in 1920 as compared with 39 billions in 1917. 
 
 The railroads could have carried the 1917 tonnage in an 
 orderly manner, if they had been permitted to do so, as they have 
 in fact carried it in 1920. It was not a break-down of the roads. 
 It was a congestion in commercial facilities and a natural break- 
 down of an ill-advised scheme of priorities. 
 
 The result was the Government deemed it well to take the 
 roads over and operate them commencing January 1, 1918, as a 
 war measure, and as a war measure gave all these increases in 
 rates of pay and changes in working conditions which have 
 brought the railroads to their present plight. 
 
 All this was done without taking steps to increase the rail- 
 road rates to meet the increased costs of operation, because the 
 Government was standing the difference, until finally the drain 
 upon Government itself became so great that the rates had to be 
 raised. Unfortunately, the only increases which gave any promise 
 of adequacy have been baffled by the fact that the business of the 
 country was rapidly on the decline about the same time the in- 
 creased rates took effect. 
 
 Just as in 1917 it was lightly alleged that the railroads had 
 broken down, so now it is readily alleged that the increase in 
 railroad rates is responsible for the stagnation of business. Be- 
 cause transportation is so important a factor in business it would 
 be a serious charge, if it were true, that the railroad rates had 
 produced the present stagnation in business. But it is not true. 
 
 On the contrary, the railroad rates were not raised in time 
 to enable the railroads to move the commerce of the country in 
 its active period when the business of the country at large could 
 easily absorb the increase. The fact is that the rates were raised 
 and business declined at about the same time, but one had nothing 
 to do with the other as a related matter. 
 
 In proof of the suggestion, let me call your attention to the 
 water rates. The rates by water have been on the decline. Yet 
 private owners are laying up their ships. The United States 
 
 5 
 
Shipping Board ships are laid up by the score because business 
 is stagnant. The cause is found in the sheer inability of business 
 men to continue their business on a war basis or to resume busi- 
 ness as yet on a peace basis. That is the reason business has 
 halted. 
 
 Yet the call of the day is that railroads reduce their rates 
 because business is bad. This call for reduction comes from all 
 sources and on all important commodities and from all sections 
 of the country. I venture the opinion that if all the railroads of 
 this country were, by some edict, to reduce their rates one-half 
 on every kind of traffic everywhere, there would be no appreciable 
 increase in the volume of business moved, but the railroads would 
 be prostrate in one common disaster that would shake the Nation 
 and call all credits into question. 
 
 I have said that the railroads of today are the victims of a 
 condition they did not create. The ailment from which the rail- 
 roads are suffering is not of their own making, but out of the 
 situation in which they find themselves the railroads can find the 
 way, if only they have the support of the public, and that support 
 needs to be constructive and co-operative. 
 
 One trouble in this country is that we never co-ordinate our 
 efforts. This is true in every field of our activities as a nation. 
 This is particularly true of the transportation business, and from 
 this the railroads are now suffering. 
 
 With respect to the railroads then, the Transportation Act 
 of 1920 now in effect is the first serious effort of the Federal 
 Government to co-ordinate its activities in a constructive way with 
 reference to the railroads. It provides co-ordination between the 
 Interstate Commerce Commission and the United States Labor 
 Board; provides means for co-ordination as to the activities of 
 the Parcels Post and of the Express Traffic, to the end that the 
 public may be well served by each; it endeavors to co-ordinate 
 the revenues of the carriers between the so-called weak roads and 
 the so-called strong roads upon a basis which remains academic 
 because instead of earning 5^ per cent the roads are earning less 
 than half. 
 
 Yet there is no co-ordination as between the railroads whose 
 rates are controlled by the Government, and the United States 
 Shipping Board, whose rates are also within control through an- 
 other, but unrelated, agency of the Government. 
 
 6 
 
Within the States rates are controlled by each of those states 
 and, of course, so are the taxes the railroads have to pay, but 
 the State Highways built by the state, and largely out of the taxes 
 paid by the railroads, remain for the most part unregulated as to 
 the users of those state highways. 
 
 Thus, the railroad, dedicated to public use, is regulated and 
 taxed while the state highway, also dedicated to public use by the 
 state itself, is used free or for a nominal fee by carriers of freight 
 and passenger and express traffic competing with the railroads 
 who have themselves been taxed to build those very highways. 
 
 The railroads do not complain of the competition over these 
 highways, but they have a right to complain of the unequal and 
 unfair competition from users of these highways who contribute 
 largely to their depreciation and to increased cost of maintenance 
 of the highways competing with the railroads without paying 
 anything but a nominal fee for that use. We can all take for 
 granted the use of these highways under proper regulation. There 
 can be no complaint as to that. The complaint runs against unfair 
 competition, in that the rail carriers who contribute so much out of 
 their revenues to pay for these highways should not be required 
 to face a competition which as to rates and taxes remains un- 
 regulated, with the further prospect that the rail carriers must 
 again be taxed for the reconstruction and greater upkeep of these 
 same highways because of this greater use. 
 
 When the railroads ask for rates out of which to pay these 
 increased expenses they are assailed as trying something that is 
 against the public interest. For that reason alone it is to the public 
 interest that the unfairness of this competition should be recog- 
 nized and be given the same general supervision and regulation 
 of charges as the railroads. There can be no unfairness in that. 
 
 In like manner as to the Panama Canal. Recently Mr. 
 Kruttschnitt, Chairman of the Executive Committee and Board of 
 Directors of the Southern Pacific Company, gave testimony before 
 a Senate Committee in Washington,* which, if it were possible, 
 should be read by every business man in this country, because it 
 is filled with facts, is comprehensive in statement and is a masterly 
 review of the present railroad situation. In it he urged, for ex- 
 ample, that waterways and highways built and maintained at 
 public expense be made to carry themselves by imposing a fair 
 charge on those who use them for hire so that this charge, when 
 
 •Committee on Interstate Commerce, U. S. Senate. May 11 to 16, 1921. 
 
 7 
 
added to the license fees collected from those who use the high- 
 ways merely for pleasure purposes, will furnish in a reasonable 
 way a sum which will pay interest on the investment and pay the 
 cost of upkeep. His point was that the traffic over the highway 
 created and maintained by the public, when carried for profit 
 should pay its fair share of the interest on cost and of the upkeep 
 of the highway facility used, whether that highway be land or 
 water. 
 
 This simple and clear suggestion has been perverted into 
 a proposal that speaking for the railroads, as in that session he 
 was, the railroads would have these means of transportation stifled, 
 so that competition might be killed off and the railroads increase 
 their charges and their traffic at the expense of the other agencies 
 of transportation. 
 
 But Mr. Kruttschnitt said nothing of the sort and the rail- 
 roads propose nothing of that kind. What we have a right to 
 complain about is the lack of co-ordination, as between these 
 various transportation agencies, in the regulation of them by the 
 State and Federal Governments. We do not urge against compe- 
 tition. We urge in favor of fair competition by which the public 
 interest shall be recognized as not confined to regulation of 
 the railroads, but shall include equally sane and impartial regu- 
 lation of the other agencies of transportation with which the 
 railroads have to compete. 
 
 The railroads must run until exhaustion. If they run with 
 vigor and in a wholesome way the public is well served; as they 
 run feebly or toward starvation the public is badly served. It is 
 conceded to be to the public interest to see to it that if possible 
 the railroads function effectively. 
 
 Ships, however, can tie up in any port at any time, as may 
 suit them best, if it prove undesirable to continue in the traffic. 
 Motor buses and motor trucks can lay up if the weather or the 
 business does not suit them. But the railroads must run. Hence 
 the greater unfairness of keeping the railroads under strict regu- 
 lation, while their competitors are left free from such regulation. 
 
 Even now there is a strong movement on foot for free tolls 
 through the Panama Canal. This means again that by taxation 
 of the railroads and of the general public those who use the 
 Canal are to be relieved of a charge, which no one holds to be 
 unreasonable in itself. Is it any wonder that the Middle West 
 States ask why they should pay taxes in order that the users of 
 
 8 
 
the Panama Canai may not have to pay for that use, or in order 
 that the Canal users may compete more effectively with the users 
 of the railroads. They see that railroad rates will have to be 
 raised on the tonnage they ship by rail, if enough of the rest of 
 the tonnage is diverted to the Canal. 
 
 With railroads compelled to operate on a high basis of cost, 
 does it appear unseemly that those same railroads should ask 
 for some correlation of governmental policies as between the rail- 
 roads and the waterways which will remove injustice and make 
 for better service at moderate rates by all the transportation 
 agencies, whether rail or water? 
 
 Further, I believe you will concede it proper that the rail- 
 roads should urge that as in the nature of things transportation by 
 water is cheaper than rail, because open waterways cost nothing 
 to maintain, the railroads should be permitted to meet that compe- 
 tition free from rigid interpretation, provided they do carry the 
 competitive business at rates not below the reasonable cost of 
 transporting it, and on a basis that does not discriminate unfairly 
 or unreasonably against other traffic, but which does recognize 
 the controlling force of the water competition on the rates ob- 
 tainable. 
 
 This will cost the Interior States nothing but it will yield 
 some sustenance to the carriers and gives vitality to competition. 
 Such competition is bound to be active under any reasonable and 
 supervisory jurisdiction by Government over all the rates, whether 
 by rail or by water, or by routes that combine rail and water. 
 In this way the business natural to each route will find its channel, 
 while at the same time Government regulation, equally admin- 
 istered, with due relation to the differences in the modes of car- 
 riage, should prevent abuses and promote business. 
 
 Transportation is so large a factor in your business that it 
 really becomes a factor in your activities, and so with your co- 
 operation and the support of the men of business generally, the 
 constructive policies of Government will be continued and extend- 
 ed so as to give us fair opportunity in meeting the conditions 
 necessary to the successful conduct of the transportation business. 
 Holding down the arms of one agency while leaving other and 
 competitive agencies free, or yielding to some of these agencies 
 considerate treatment and indulgent policies, while other agencies 
 are held under restrictive regulation combined with artificial 
 restraint upon proper economy in their expenditures is hardly fair 
 
 9 
 
in any sense. The inequality tends to be disheartening. It makes 
 more difficult a situation which might be relieved by granting to 
 the regulated carrier a wider field for initiative in the improve- 
 ment of its revenues through making its rates more flexible, and 
 by reducing its expenses, seeing that the law of supply and de- 
 mand applies to human relationship in commercial affairs as 
 well as to articles of commerce. 
 
 Finally, I have heard murmurs of one question in your mind, 
 namely, will railroad rates be reduced? 
 
 The answer is, they cannot be reduced materially until the 
 railroads have the revenue necessary to sustain them by increased 
 earnings from the transportation of freight and passengers and 
 mail and express, on the one hand, and by reduced costs of 
 operation on the other hand. 
 
 The reductions recently promised in our labor costs by the 
 United States Railroad Labor Board amount to less than half of 
 the very last advance in wages given in 1920 before the railroads 
 were turned back to the corporations, as already referred to, and 
 are but 18 per cent of the total advances in wages through- 
 out the war period. 
 
 So far, the railroads have not been able to arrange by nego- 
 tiation with their men for any reduction in wages. Yet the rail- 
 roads have reduced many freight rates. The unfortunate feature 
 of it is that every reduction in freight rates is attacked from the 
 viewpoint that reduction has not been made on other commodities 
 in which other interests are concerned, each reduction serving 
 only to whet the public appetite for further reductions, and so 
 engender more criticism. 
 
 Until there is a realignment of costs so that the railroad 
 income will be sufficient to maintain its operations and to provide 
 for the demands of the public, little reduction in rates is likely, 
 and Government itself could not give such reductions under exist- 
 ing conditions if it owned the railroads, unless by taxing the people 
 for the deficits. 
 
 It follows that we hear now and then the insinuating call for 
 Government ownership as the solvent of the present troubles of 
 the railroads, but let me tell you that under equal conditions of 
 responsibility, under equal conditions of accounting, under equal 
 regulation equally administered, private operation has nothing to 
 fear from any experiment in Government operation. The experi- 
 
 10 
 
ment has been tried. Should it be tried again, it will meet the 
 same fate at the hands of the public. 
 
 All this means that railroad men are alive to their responsi- 
 bilities, from the Directors down to the youngest member of the 
 official staff of each railroad, and with your constructive help 
 the present situation will be righted and prosperity for all will 
 ensue. 
 
 The Transportation Act of 1920 was the first constructive 
 piece of legislation enacted by Congress to give a helping 
 hand to the railroads in the public interest. It guarantees 
 the railroads nothing; it is in essence a mere expression of gov- 
 ernmental good-will ; but it is a fair and conscientious start. 
 
 The work has not stopped. Senator Cummins and the Com- 
 mittees, the Interstate Commerce Commission, the Railroad Labor 
 Board, the President and his Cabinet, are all concerned in the 
 subject, and I believe the business men of the Nation, including 
 the transportation men as an important part of that business, all 
 have steadfast faith that out of the counsels in Washington will 
 come further constructive and helpful results. 
 
 I take the liberty of suggesting that though Congress be 
 deliberate, it is better even for the railroads that the deliberations 
 be broad and painstaking rather than that we should have hasty 
 and ill-considered action. Deliberation is the path of safety, if 
 only we endure through the necessary interval. Let us all hope 
 that the interval will not be prolonged. That the case is universally 
 known to be both weighty and urgent is fair reason for believing 
 that it will be dealt with in the common interest as quickly as 
 wise counsels warrant. 
 
 In the meantime let me ask for your positive and constructive 
 support, for as men of business you know that if this Nation is to 
 go forward the railroads cannot go backward, but must make 
 progress. As credit men accustomed to measure earnings, assets 
 and solvency you know that they can make progress only on a 
 paying basis. 
 
 •11