RECENT PROPOSALS FOR RAILROAD LEGISLATION 
 
 BY 
 
 CLARENCE CHARLES HERRMANN 
 B. S. University of Illinois, 1920. 
 
 THESIS 
 
 Submitted in Partial Fulfillment of the Requirements for the 
 
 Degree of 
 
 MASTER OF SCIENCE 
 IN ECONOMICS 
 
 IN 
 
 THE GRADUATE SCHOOL 
 
 OF THE 
 
 UNIVERSITY OF ILLINOIS 
 1922 
 

 
 
 
 
 
 
 
 
 
 
 
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\ ^ UL- L*— 
 
 VVdTS 
 
 UNIVERSITY OF ILLINOIS 
 
 THE GRADUATE SCHOOL 
 
 I HEREBY RECOMMEND THAT THE THESIS PREPARED UNDER MY 
 
 BE ACCEPTED AS FULFILLING THIS PART OF THE REQUIREMENTS FOR 
 
 Head of Department 
 
 Recommendation concurred in* 
 
 Committee 
 
 on 
 
 Final Examination* 
 
 *Required for doctor’s degree but not for master’s 
 

 
 
 
 
 
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CONTENTS. 
 
 CHAPTER I 
 
 1. 
 
 2 . 
 
 CHAPTER II 
 
 1 . 
 
 2 . 
 
 3 . 
 
 CHAPTER III 
 
 1 . 
 
 2 . 
 
 3. 
 
 4. 
 
 t; 
 
 iy • 
 
 b. 
 
 7. 
 
 INTRODUCTION. 
 
 A very "brief smart) ary of the war period and federal control. 
 
 The Proposals submitted to the Senate Committee on Interstate 
 Commerce from January to October, 1919. 
 
 HISTORICAL DEVELOPMENT OF THE RAILROADS OF THE UNITED STATES. 
 
 The early railroad period in the United States - a period of very 
 rapid development. 
 
 State and Federal legislation previous to 1887. 
 
 The two types of state commissions. 
 
 Federal legislation previous to the Act to Regelate Commerce. 
 Federal legislation after 1887. 
 
 The provisions of the Interstate Commerce Act. 
 
 The amendments of 1303, 1906 and 1910. 
 
 A few of the more outstanding defects of restrictive legislation 
 up to 1914. 
 
 THE PECULIARITIES OF THE RAILROAD CORPORATION. 
 
 Horizontal development of the railroad company. 
 
 The railroad company not of the pliant type. 
 
 The railroad company must be treated as a natural monopoly. 
 
 Price for railroad service is dependent on law of increasing re- 
 turns; the lav; of joint costs. 
 
 Co-operation necessary and essential. 
 
 Effects of periods of depression and prosperity. 
 
 It is impossible to compare European governmental methods of 
 regulation with the methods to be employed in the regulation of 
 our transportation system. 
 
 8 . Distinctive characteristics of the American railroad r-r,,-r:any. 
 
Digitized by the Internet Archive 
 in 2015 
 
 https://archive.org/details/recentproposalsfOOherr 
 
CHAPTER IV THE PROPOSAL OF THE ASSOCIATION OF RAILVIAY EXECUTIVES. 
 
 1. General Statement. 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 8. Labor Conditions. 
 
 CHAPTER V THE PROPOSAL OF THE INTERSTATE COMMERCE COMMISSION. 
 
 1 . General Statement . 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 8. Labor Conditions. 
 
 CHAPTER VI THE PLAN OF THE NATIONAL ASSOCIATION OF OWNERS OF RAILROAD 
 SECURITIES. 
 
 1. General Statement. 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 8. Labor Conditions. 
 

 
 
 
 
 
 
 
 
CHAPTER VII THE PLAN OF THE SENATE COMMITTEE ON INTERSTATE COMMERCE. 
 
 1. General Statement. 
 
 2 . Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 ,8. Labor Conditions. 
 
 CHAPTER VIII THE PLAN OF THE CITIZENS NATIONAL RAILROAD LEAGUE. 
 
 1. General Statement. 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 8. Labor Conditions. 
 
 CHAPTER IX THE PLAN OF THE NATIONAL TRANSPORTATION CONFERENCE. 
 
 1. General Statement. 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 8. Labor Conditions. 
 

 
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CHAPTER X THE PLUMB PLAIT. 
 
 1. General Statement. 
 
 2. Method of federal control. 
 
 3. Rate making policy. 
 
 4. Financial Regulation. 
 
 5. Type of Ownership. 
 
 6. Provisions for consolidation and competition. 
 
 7. Federal Incorporation. 
 
 • 8. Labor Conditions. 
 
 CHAPTER XI CONCLUSIONS. 
 
 1. Other proposals not given complete consideration. 
 
 2. A general summarization. 
 
I 
 
 INTRODUCTION 
 
 Beginning with 1914 the effects of the great world conflict began to be 
 felt in the United States and became continuously more noticeable in 1915-16. 
 There was an actual decline in traffic in these latter two years due to the fact 
 that the European countries were not making purchases from our manufacturers 
 because .of the utilization of the surplus commodities which they held in their 
 respective countries — furthermore Asiatic and South American countries were un- 
 able to buy from us because it was difficult to secure the services of water 
 transportation companies and because credit relationships were difficult to 
 establish. During the early months of 191? heavy purchases began to pour in 
 from Eurojje for materials which were needed for the promotion of the war. 
 
 The United States declared war on Germany April 6, 1917, and from that 
 time on it was necessary to take care of our own needs, not only for the 
 supplying of the materials of war but providing as well for the mobilization 
 of troops. The declaration providing for Federal Transportation Control was 
 issued by President Woodrow Wilson December 26, 1917; the actual operation 
 became effective January 1, 1918, and continued until March 1, 1920. It is 
 interesting to note that the United States was the only important nation to 
 take part in the world conflict that did not immediately assume federal con- 
 trol of the transportation systems. V/e can account for the delay in a number 
 of different manners; the feeling that the private operators could successfully 
 handle the problem; the spirit of individualism of the general public; the 
 feeling among many people, including legislators, that the participation of 
 the United States in the war would be only contributary and amount only to 
 complementary aid such as the furnishing of food supplies and equipment. 
 

 
 
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 Th« period of government control shall not "be taken up as to management or 
 procedure — rather attention shall he concentrated on the period of transition 
 from federal control hack to private management. 
 
 Luring the period of the world conflict the war experiences instituted 
 the necessity for the passage of immediate legislation of a particular type to 
 take care of the war needs. There was, however, a broader and as pressing a 
 problem to settle to provide for permanent legislation for the American rail- 
 road system — President Wilson realized this necessity in his message to Congress 
 made December 7 when he recommended that "a commission of inquiry to ascertain 
 by a thorough canvass of the whole system whether our laws as at present framed 
 l and administered are as serviceable in the solution of the problem 11 be estab- 
 lished. The recommendation was followed out in the formation of the ITewlands 
 Committee formed July 20, 1916, A few hearings were heard by this committee 
 but the wartime problems prevented a thorough consideration of the conditions 
 or a complete determination of a permanent policy. Peace had not been long 
 signed, when it became necessary to decide upon a definite program to be 
 followed out subsequent to Federal control. On December 11, 1918, Director- 
 General McAdoo made his proposal for a continuation of Federal control for a 
 period of five years} A. flood of objections were set up to his proposal, 
 taking form in counter plans devised for the solution of the railroad problem. 
 
 The present discussion is concerned with an analysis of seven typical 
 plans that were presented to the Senate Committee on Interstate Commerce in 
 this period. The hearings were begun January 3, 1919, and concluded October 
 23rd of the same year. Some features of the plans are represented in the 
 Transportation Act of 1920 but a large number represent proposals that shall 
 be made a part of future legislation. 
 
 1 I. L. Sharfrnan, The American Railroad Problem, p. 358. 
 
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II 
 
 HISTORICAL DEVELOPMENT OF THE RAILROADS OF THE UNITED STATES. 
 
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 The progression of railroad development in the United States has proceeded 
 along lines without parallel nor is comparison permitted with the ascendancy 
 of any other industrial program, or with the railroad program as it has evolved 
 in Great Britain, Germany or any other important nation of the world which has 
 Been subjected to the trials brought about by the complexities of an indus- 
 trial era dating from the industrial revolution in England and followed by 
 similar periods in other commercial countries. Our procedure in the building 
 of railroads had not been at all controlled by economic needs or credit 
 propriety until an approximate date which we might set in the year 1900. Up 
 to that time we witnessed a period of unrivalled railroad construction un- 
 retarded by industrial or social needs. 
 
 Except for a very brief period from 182? to 1835, our railroad charters 
 had been free from confining or restricting clauses becau.se our political 
 unities wanted railroad building to continue without retardation by state 
 regulation. The early charters were somewhat restrictive in type because they 
 represented a substitution for the charters of the turnpike and canal companies. 
 It did not require a long time to determine that the new program was more than 
 a mere betterment of state traffic; rather that it provided a means for the 
 economic development of the middle west and thereafter the political unifica- 
 tion of the area beyond the Mississippi River. Hot only were railroads given 
 free reign to build up systems, but they were directly aided by the United 
 States government, and the various states as well, in the form of enormous land 
 grants, security guarantees, money subsidies and bond gifts. The localities 
 in the immediate proximity of the roads bought the speculative security 
 

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 offerings of the companies without consideration of earning capacity or 
 potential possibilities, so anxious were they to be served by the carriers. 
 Competition between localities resulted in terminal site donations to the new 
 companies also. Compare this progression in the United States with the care- 
 fully devised French program in which the entire country, even to the least 
 important political department, had its railroad procedure determined in ad- 
 vance by a capable group of French engineers who had been carefully trained at 
 the icole des Ponts et Chausees in Paris! 
 
 A railroad system so rapidly developed could not escape the many dis- 
 crepancies occasioned by so hasty a procedure. Lines were built through 
 localities offering the largest land grants; the promoters were often 
 financiers (not skilled railroad: men) who carried on their promotions for a 
 personal remuneration without regard for the public which they were obligated 
 to serve; no regard was given to economic needs or to the potential possi- 
 bilities of industrial or extractive occupational development. Even the 
 states, especially in the Middle West, could not keep out of the rush for the 
 building of railroads. Upon finding that their roads would not pay well or 
 that their funds were insufficient to complete the roadway to a contemplated 
 terminal, the states were forced to dispose of their holdings at a figure 
 often far below cost to please their disgruntled constituency. 
 
 We note, then, an unrestrained period up until about 1870 in which no 
 state regulation was placed on the development of the railroad carriers. 
 Provisions were not made even for the repayment of loans made by the United 
 States government and only considerable consternation from conservative legis- 
 lators brought about the passage of the Thurman Act in 1878 providing for the 
 
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 establishment of sinking funds to meet obligations due the governments 
 
 1 Hadley, Railroad Transportation , p. 189. 
 
 2 Johnson and Van Metre, Principles of Hailroad Transportation , p. 461. 
 

 
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 Finally in 1895 the railroads were required to make a settlement; the more 
 successful roads were able to make payment in full but in a great number of 
 cases the government suffered large losses. States likewise made their loans 
 with no strings attached only to find collection almost impossible in a later 
 period. The large land grants were made too freely — we cannot but admit that 
 some land gifts were necessary to encourage the more hazardous undertakings 
 but the prolific offerings of some of the western states cannot be justified. 
 The squandered usuage of an often unappreciated assistance would have provided 
 many a desirous home seeker with a fertile field for an essential economic pro- 
 duction. Instead, we have many a wonderful example (especially in the South- 
 west) of a monument of over-expansion in industrial unwarranted progress. 
 
 In England railroads were merely substituted for waterways and canals 
 for the sake cf expediency — because they made possible a greater efficiency 
 and a speedier distribution, or because they completed a transportation system 
 in its entirety. The channels of trade had already been established, the 
 important commercial cities were already flourishing; accordingly, no element 
 cf speculation existed, security was pronounced and there was no need for a 
 state stimulant. On the contrary, regulation was required. The French 
 early development has been briefly mentioned in a previous paragraph. Germany 
 and Italy have experienced some difficulty because their lines were first 
 developed to meet the needs of the small independent states, but even there we 
 do not find an undue e:<pansion. 
 
 Contrast then our own progression — railroads developed not concurrently 
 with economic needs but far in advance of industrial development. Railroad 
 development at that time was very desirable and economically necessary yet it 
 should have been carried on in accordance with a natural response. It is 
 true that there existed a paucity of capital and the problem of attracting 
 

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 funds might have been difficult but the willingness of our governmental forces 
 to give aid was entirely unwarranted. 
 
 To be sure, the New England states and the East generally was not subject 
 to the excresent features of the western development. There the construction 
 ha;d gone on more as in England — the courses of traffic were already located 
 and important cities were already established. Furthermore, eastern super- 
 visory commissions were formed as early as 1839 in Pdiode Island and soon there- 
 after in other eastern states so that regulation went on concomitantly with 
 railroad building and there was no opportunity for the disagreeable features 
 to creep into the eastern program of transportation development. However, 
 even there financial mismanagement was rife as we note even recently in the 
 case of the New York, New fjaven and Hartford Railroad Company. Also, the 
 number of reals and the total mileage in that eastern area is very small in 
 the aggregate comparison with the total railroad mileage of the United States. 
 
 The defects resulting from this rapid expansion in railroad advancement 
 brought on a number of problems and grievances which might briefly and broadly 
 be enumerated as follows: 
 
 (l) An unnecessary duplication of lines in many territories and the 
 provision of facilities far beyond the needs in certain communities. 
 
 (d) A development accorded to the shippers offering the greatest 
 attractions rather than along proper trade channels. 
 
 (3) An undue discrimination at non-competitive points. 
 
 (4) Insufficient services to shippers least able to pay rates because 
 of the nature of their commodities-. 
 
 (5) Discrimination likewise against localities and other carriers. 
 
 (6) Outstanding cases of "stock watering”, often with seemingly sufficient 
 
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 justification. Many operators issued stock in amounts beyond the needs of 
 their investment because they felt that potential earnings would justify their 
 methods, only to find that their anticipations had been erroneous and that 
 stock was outstanding far beyond the amount of their investments. In the 
 majority of cases, however, the financial disorders were duly contemplated and 
 proposed to lower stock values so as to make possible purchases by a few 
 speculators at a low figure. 
 
 (7) A group of managers who were more familiar with financial affairs 
 than with the problems and peculiarities of railroad management. 
 
 (8) An entire lack of state or national regulation over railroad develop- 
 ment . 
 
 The extension of these discrepancies with increasing regularity aroused 
 the ire of a displeased public until eventually we find an organization of the 
 groups which had been most extensively discriminated against. The Grange was 
 foremost among the early movements to institute in formal action the complaints 
 of their greivances. It is evident that the opposition should have started 
 from the agricultural interests because it was in the non-competing farming 
 communities that the outstanding discriminations had been carried on. The 
 Grange movement had been started in the late sixties for another purpose 
 entirely, namely, to provide for farm improvement, to establish a more desirable 
 social community and to promoto farm activities especially production. It 
 did not require a long time, however, to so arrange the functioning of the 
 Grange to provide for political agitation against the unjustifiable discrimina- 
 tions. As early as 1868 and 18S9 we have "grange ” legislation which provided 
 for a restrictive and severe railroad control through the establishment of 
 very powerful mandatory railroad commissions. The first Illinois Commission 
 

 
 
 
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was organized in 1871, Minnesota 1873, Wisconsin 1874 and Iowa 1877, and other 
 middle western states followed in regular order. A large number of the 
 regulations had to be retracted because of their severity which in some cases 
 
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 made railroad operation impossible. The crisis of 1873 was far-reaching and 
 affected the carriers as much as it did other industrial and manuf' acturing con- 
 cerns. The western commissions would have been more successful had they 
 gone through a period of evolution with chronological adoption of regulation 
 with needs as indicated by the ensuance of time rather than by the immediate 
 adoption of exceptionally strict and confining authority. By 1913 all of the 
 state commissions had become mandatory in type. It is interesting to note 
 that the Massachusetts commission remained of the advisory type up to this 
 time. The change was not brought about earlier because this particular body 
 had. been very successful in securing the aid of public opinion in the enforce- 
 ment of its decisions, thereby making unnecessary mandatory regulation. 
 
 It might be well to note a brief consideration of national legislation. 
 
 As early as 1870 there was an insistent demand for national regulation for 
 very much the same reason that state regulation had been demanded. The 
 agitation became more defined and noticeable and regular as conflicts became 
 apparent as to the respective authorities of the various state commissions. 
 
 Not only did differences exist because the various states enforced their 
 regulations with varying degrees of leniency or severity, but they failed to 
 settle in a common manner the outstanding difficulties — the powers of 3ome of 
 the state commissions were much more inclusive than those of the other states, 
 often in the same immediate territory. Although there had been previous 
 attempts at legislation and a number of Congressional commissions had made 
 conclusive reports on the railroad problem, the first formal railroad bill 
 
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 occurs in the Act to Regulate Commerce passed in 1337. It provided for an 
 advisory commission of five members and was empowered to enforce a number of 
 regulations the majority of which had to do with the alleviation of rate dis- 
 criminations. The Act was not all constructive as to the nature of its 
 clauses; as a matter of fact, none of our national legislation can be con- 
 sidered other than regulatory until the Transportation Act of 1S20. The 
 Interstate Commerce Act tended merely to cut down discriminations — the powers 
 of the Commission were not made toe comprehensive because it was a new ad- 
 venture and measures that might have been too confining were not considered. 
 There were a large number of the members of Congress who otoposed the Act en- 
 tirely and the first legislation accordingly was not especially extraordinary. 
 There seemed still to be some fear in the minds of the legislators that they 
 might set up a control that would retard the progress of railroad development. 
 
 The Commission was successful through the first few years of its existence 
 primarily because it did not attempt the more serious problems first, nor 
 eliminate discriminations the settlement of which would have been most irritable 
 to the carriers. Likewise, the carriers were not unwilling to abide by the 
 rulings of the Commission on the minor decisions. Furthermore, it is usually 
 true that the general public is satisfied with any new legislation because it 
 is usually assured that an entire problem has been cared for in any legislative 
 act, irregardless of its importance or the extent of its provisions. 
 
 A period of years elapse before the discriminations again become apparent. 
 As early as 1892 or 93 there were more demands for more legislation but 
 Congress was engaged in other fields and in the settlement of other problems. 
 
 Trie construction of the Panama Canal was in progress and treaties had to be 
 made with Great Britain (Hayes-Pauncefote treaty) and other nations. The 
 

 
 
 
 
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 Span! sh-Amer lean War occurred in this same period; the panic of 1893 affected 
 the railroads to some extent arid drew forth a flood of sympathy which held 
 back Congressional legislation for a time. Furthermore, the railroads had 
 developed a powerful lobby which was effective in preventing governmental 
 action. 
 
 The demands became urgent after 1900 with a period of rising prices, the 
 development of monopolies, and the reappearance of personal discriminations, 
 as well as locality and interline carrier discriminations. The Elkins Act 
 of 1S03 took care of the latter conditions but still left glaring defects, 
 very few of which had been cared for in the original act. A continuation of 
 
 demands led to a second and more important amendment in the Hepburn Act of 
 1906 which widened the scope of the Commission' s authority and gave them 
 broader powers. It is noticeable that after 1906 the courts attitude toward 
 the decisions of the Commission is decidedly changed, in that they confine 
 themselves to legal rather than economic considerations as far as an equity 
 division can reasonably be established. Previous to the passage of the 
 Hepburn Act, the courts not only reviewed the legality of the decisions as 
 determined by the Interstate Commerce Commission but often went further and 
 admitted new evidence or reconsidered the economic facts that had been in- 
 terpreted originally by the Commission. 1908 marked the beginning of a 
 political campaign in which both the Republican and Democratic parties had 
 
 important railroad planks. Ex-President Taft, the republican candidate at 
 
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 that time made his outstanding proposal a Commerce Court — a type of tribunal 
 absolutely foreign to our court procedure. The Mann-Elkins Act of 1910 
 represents the next legislation. It practically provided for an unimportant 
 political act and the fulfillment of an election promise, yet new economic 
 

 
 
 
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 circumstances had brought about a demand for new legislation. The problem of 
 rate increases now agitated the shipping jjublic rather than discriminations and 
 provided the outstanding item in need of correction; laborers were demanding 
 an increased wage in the first labor controversy 3ince the Pullman strike of 
 1894 which had been led by Eugene V. Debs. Debates were being made secretly 
 and the railroads wanted to be relieved of this seemingly necessary yet un- 
 desirable and unavoidable evil. The Commerce Court was established by the 
 Hepburn Act only to be abolished in 1913 because of the very same demand that 
 had brought about its establishment — in that the greater number of its cases 
 were decided in favor of the carriers. Moreover, the Commerce Court did not 
 conceive of its true function; namely, that it was to aid the Interstate 
 Commerce Commission rather than check its action. The Interstate Commerce 
 Commission demanded that the Commerce Court be discontinued. The Hadley 
 Commission^ was also established in this Act and made the first report of con- 
 trol of railway finance. It was very conservative in its recommendations, 
 indicating that a well-informed public would wield a sufficient influence and 
 control over railway security issues, financial operations and capital ex- 
 penditures. 
 
 After 1910 a number of minor amendments were passed, the most important 
 of which were the Panama Canal Act passed in 1912 to give the Commission con- 
 trol over the combination of railroads and waterways, and the 1913 amendment 
 which compelled the Commission to build up a complete financial record of all 
 of the railroads inclusive of all changes as might occur from time to time. 
 
 It amounted, then, to a thorough preparation for the Commission so that it 
 could regulate financial control which is eventually brought about in the 
 Transportation Act of 1920. 
 
 1 So called because of its chairman, President Hadley of Yale University, a 
 leading transportation authority. 
 

 
 
 
 
 
 
 
 
 
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 So far there has been discussed the progression and development of rail- 
 road legislation up to 1914, with the emphasis predominately on the nature and 
 extent of government regulation. The regulation has been restrictive rather 
 than constructive; problems have been settled often by repressive acts with- 
 out the further institution of remedial measures to eliminate reoccurrences. 
 
 The attention of the Interstate Commerce Commission has been so far concentrated 
 on rates and regulations with a tendency toward a preparation for an eventual 
 complete financial control. In some instances the regulations have been too 
 
 restrictive, in other cases there has been a noticeable neglect. Conflicts 
 between the state commissions and the Interstate Commerce Commission and be- 
 tween the judiciary and both commission powers still remain to be settled. 
 
 The conflicts in the former instance have made for difficulty in operation and 
 undue expenditures on the part of the railroad companies. The difficulty be- 
 tween the Interstate Commerce Commission and the various state commissions and 
 the judiciary has resulted in outright diverse decisions as far as the settle- 
 ment of railroad cases have been concerned. On one hand the railroads have 
 had their rate charges controlled by the commissions, have had discriminations 
 declared illegal; yet, on the other hand, carriers are not permitted to co- 
 operate because rate agreements and traffic associations have been subjected 
 to anti-trust legislation according to the Supreme Court interpretation of 
 the Sherman and Clayton Acts. Likewise, rates have been unduly kept down be- 
 cause the state and national courts has often felt that their function have 
 been to act as a check rather than as an aid to the Interstate Commerce 
 Commission. There has been, furthermore, a tendency for both the courts and 
 the commissions not to observe that the railroad corporation is of a peculiar 
 type and should be compared with other corporate types in the devisiation of 
 legislation. These differences shall be taken up in some detail in the 
 ch a ■ - 1 e r wh i cli foil o w s . 
 

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 III 
 
 THE PECULIARITIES OF THE RAILROAD CORPORATION. 
 
 A great number of transportation authorities and writers on public policy 
 of railroads have emphasized the fact that the railroad ^corporation, as com- 
 pared with the regular industrial corporation, is not nearly as efficiently 
 managed in operation or in finance. These discussions concede that the two 
 types possess similarities. However, there are some remarkable differences, 
 and without any desire to justify a lower standard of railroad efficiency, the 
 purpose of this chapter shall be to indicate some of the more outstanding 
 differences between the two types. It is decidedly unjust to criticize a 
 railroad corporation if it has problems to meet that are so different and con- 
 ditions of operation so extraordinary as to merit a more lenient or varying 
 consideration upon which to base our criticism. 
 
 In the first instance, the railroad company is built up horizontally. 
 
 An enlargement or a new addition of roadway usually results in a large increase 
 in the area controlled and management accordingly becomes more complex because 
 of a necessary increase in the managerial force. Manufacturing industries 
 (in the greater number of cases) are built up vertically, and an enlarged 
 production, up to a certain maximum, can usually be carried on without in- 
 creasing the number or the function of the executives. Indeed, the criticism 
 might well be supported that our present agitation to throw systems together 
 to make possible a greater efficiency and a more substantial credit basis is 
 not well founded. It is possible that our systems have become so large that 
 the point of grestest efficiency has been exceeded and that a more desirable 
 and efficient service could be secured by segregation rather than by combination. 
 

 
 
 
 
 
 
 
 
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 A managerial force over a smaller unit would no doubt be mere efficient. 
 
 Whether or not credit would be substantiated or impaired presents another 
 problem. It might be that a more efficient operation would increase the re- 
 turns and so ameliorate credit conditions. A new chain of circumstances must 
 still be settled, however. Railroads do not operate in individual units, but 
 must work together for the more important shipments and the majority of ship- 
 ments must go over more than one line in reaching a destination. Settlements 
 would be more cumbrous and more detailed with a greater number of participating 
 carriers. A settlement might be effected by the institution of one or more 
 railway clearing houses. The English Clearing House established in 1846 has 
 ever since been a very economical adjunct to the settlement of proportional 
 charges and has eliminated a large number of difficulties which our carriers 
 experience. Possibly our carriers have not been willing to signify the 
 adoption of such a common means of settlement because of their individuality 
 and because so far in our railroad history the severity of competition and the 
 secluded methods of account keeping have not made such a procedure permissible. 
 The elimination of these difficulties by legislation in recent years should 
 make such a program possible. There is also a likelihood that clearing houses, 
 unless their functions were very limited, would be illegal according to court 
 interpretations. However, if their operations were clearly defined as having 
 to do only with accounting and settlement functions there should be no object- 
 ions, for the introduction of the clearing house as an economy would have no 
 monopolistic aspects if properly controlled. Some of our larger systems 
 operate clearing house organizations within their own systems at the present 
 time with a considerable degree of success. The Transportation Act of 1S20 
 contains a clause providing for a volitional program whereby the railroads may 
 carry on an even more elaborate combination providing the feature of com- 
 

 
 
 
 
 
 
 
 
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 I petition is not interfered with. But is this clause applicable to the en- 
 tangled problem presented by the present conditions of our railroad.3? Will 
 greater combinations further increase the complexity of the efficiency and 
 credit problem? Will it afford possibly only a temporary relief and shortly 
 place our carriers in a position where they will be subjected to a greater in- 
 efficiency hazard and a more pronounced credit pitfall? The question is merely 
 asked, but it is hard to believe that we can evade the probability suggested 
 in the latter part of the question. 
 
 In the second place, a railroad is not a pliant institution — a railroad 
 once constructed cannot very well be changed except for minor alterations. 
 Contrast this circumstance with our regular industrial unit. A manufacturing 
 firm failing in an original productive pursuit can utilize its plant and the 
 greater part of its equipment in a seemingly more remunerative field, or at 
 least find a fairly ready market. Not so of a railroad — it must be con- 
 structed along a course which will provide a return or stand as a pillar of 
 ill-advised promotion or inefficient management, financial or otherwise. 
 
 The third difference has some features in common with that just presented, 
 yet has enough differences to merit a separate consideration. It is often 
 remarked that a railroad is a monopoly. Trie observation must be carried on 
 further, however, since the railroad corporation is a peculiar type of 
 monopoly; it is more nearly an absolute monopoly in that it makes necessary a 
 greater outlay of capital to provide competition. It might be well to remark 
 here that in industry there is no true and lasting monopoly except of an 
 artificial type — that which is aided by the artificial means of government 
 protection; in any other instance there is always an opportune point where 
 competition can enter in when the price has been set at a high point or sub- 
 stitution can be resorted to in an effort to overcome the more outstanding 
 

 
 
 
 
 
 
 
 
 
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 monopoly evils and vices. To be sur-j, the complexities of our -resent means 
 of production with the many incongruities which it engenders makes competition 
 less effective. A commodity may start from the producing point under a price 
 regulated "by the marginal producer’s competitive measure yet "before it has 
 completed the final round of the various middlemen with their peculiar , and 
 often unnecessary functions to perform, there are many opportunities for 
 monopolies to enter in. Our so-called ’’corners” present a very good example 
 of the type of complexity mentioned. A far more important feature occurs 
 in the consideration of the manner in which competition may be set up to meet 
 a partial monopoly. For purposes of obtaining an example, we may propose 
 that a monopoly has grown up in the packing industry. It does not require 
 a great outlay of capital for a small packing firm to be established which 
 can compete at individual points with the larger firm, although the operating 
 costs of the newer firm may be somewhat higher, there would still come about 
 the restriction of the established packing monopoly to some extent. The case 
 
 of the railroad is entirely different. If a railroad has a monopoly between 
 two termini some one hundred miles apart, it requires the development of a 
 new system of corresponding length and with similar facilities and a capital 
 outlay as large to set up a competing factor. Moreover, the very magnitude 
 of the new proposal makes capital security issues a matter of some difficulty, 
 especially when it is realized that the undertaking is replete with hazards 
 and rernunerative success is not assured. Results are more problematical 
 when we observe the type of railroad competition, since the capital outlay 
 cannot be transferred to another type of industrial development. It is 
 essential to notice also that it would be impossible to set up a competing 
 unit at every small station; in those smaller centers it is possible for 
 

 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17 
 
 the monopoly to -utilize all of its peculiar advantages without retardation 
 unless by governmental restriction. 
 
 In the fourth place, it is to be noted that the return for the production 
 of the service is not determined by the same factors that determine the price 
 of goods. Commodity price is determined by two broad theories; either, by 
 the cost of production or the marginal utility theory, or both. The charge 
 made by the carrier cannot be determined in the majority of cases by either 
 method — to be sure, there are some commodities in which a freight rate 
 determined by the cost of providing the service might correspond to the amount 
 which the shipper is willing, able and justifiably should pay; yet the ins- 
 tance is rare in which the cost of service, which is the most desirable 
 method for the railroad company, can be the sole determinant. The supply 
 and demand theory (marginal utility theory) might apply to a degree were it 
 not for the governmental restriction which controls the rate charge. Were 
 this latter theory to apply, then the absolute monopoly advantage theory of 
 the carrier would be permitted to play its part in full. A great demand for 
 facilities would cause the carriers to charge high rates but they are, and 
 properly so, prohibited from making such a charge by statutory regulation-- 
 likewise a great supply might cause a low price to be arrived at but 
 statutory regulation again interferes, in this instance, for the benefit of 
 the carrier; and rightly so, because of the plasticity of the railroad 
 corporation which makes it necessary that it receive a rate which will be 
 sufficient for sustenance, for the public must be served and railroad capital 
 expenditure can not be diverted to a new field. Furthermore , an over-supply 
 of railroad facility is hardly possible .because of the great capital outlay 
 which is required and the undesirability of railroad securities by the 
 

 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
18 
 
 general public. This same condition may apply to some of' the smaller manu- 
 facturing industries but it is not true of the more important industrial 
 institutions. 
 
 Another important difference is that railroads are absolutely inter- 
 dependent and must co-operate. It is true of other industries, that they mast 
 work together as a group; the makers of finished steel products are dependent 
 on the producers of pig iron for instance but it is not necessary for any 
 particular manufacturer to secure pig iron from any particular producer. Re- 
 ferring to railroad companies, certain carriers are compelled by physical 
 necessity to work together in carrying shipments to destination, and it is 
 often not a matter of choice as to what lines shall act together in the per- 
 formance of the function. 
 
 Another difference, not absolutely distinctive in the railroad field, yet 
 predominating there, has to do with the theory of increasing returns and fixed 
 costs. Every industry has a varying amount of fixed costs which exist re- 
 gardless of the amount of service produced but they usually are capital fixed 
 expenditures such as interest, rent, maintenance, etc. In railroading, cer- 
 tain operating costs are fixed as well; it costs nearly as much to operate a 
 "pull” of empty cars as a loaded train; up to carrying capacity of any in- 
 crement of equipment there is no great difference in operation costs. Accord- 
 ingly there is a tendency for every railroad company to compete for traffic 
 up to the maximum capacity of their equipment, until eventually the corniest it ion 
 causes the railroad to be operating at a loss or to co-operate with other 
 carriers serving in the same community. We may also notice that railroads 
 are subject to the law of joint costs; i.e. it is not possible for the 
 railroad to determine the exact charges applicable to any particular shipment. 
 
The cost 3 apply jointly to all goods carried and cannot "be allocated to a 
 particular commodity; accordingly when carriers begin to cut rates, there is 
 no method of determining for any particular rate deduction whether or not the 
 actual cost for carrying any one commodity has been taken care of by the new 
 rate established. Eventually the railroad company finds that its income is 
 not sufficient to care for operating and fixed costs. In manufacturing in- 
 dustries it is not nearly 30 difficult to ascertain costs for any particular 
 unit production and accordingly there is not that tendency to make price 
 quotations which are not sufficient to cover production costs. 
 
 Possibly it is not necessary to carry the discussion into the considera- 
 tion of the miner differences, yet there is at least one other feature which 
 merits consideration, that which has to do with the effect of periods of de- 
 pression and prosperity upon the railroad company. Not all critical periods 
 affect industries in general yet every such period is effective in the case 
 of the carrier because it decreases the amount of goods that is presented to 
 the railroad company, and the effect is doubly noticeable when we reconsider 
 that carriers are subject to the law of decreasing costs. An industrial 
 concern could lower its operating costs during the period of depression and 
 not be required to accept such large losses. 
 
 Though not quite consistent with the subject matter of this chapter, yet 
 possibly not important enough to bear discussion in a separate division, is 
 the method employed by some writers in comparing so extensively the European 
 railroad problem and means of settlement with those employed in our own 
 country. To be sure, we are able to derive some conclusions from the 
 European method of handling the problem, yet we cannot evade the point that 
 there are so many more differences than similarities that any important con- 
 

 
 
 ■ 
 
 . 
 
 . 
 
 . 
 
20 
 
 elusions that we might draw might not possibly he helpful in our case. 
 
 To note a few of the distinctive differences, it might first be mentioned 
 that the economic conditions in the smaller European countries are not nearly 
 as varied as are the conditions in the broad and unevenly but rapidly progress- 
 ing divisions of the United States. Our east, and to some extent, our middle 
 west are important in the manufacturing industries and accordingly there is a 
 uniform demand for railroad equipment, a series of short hauls, many important 
 cities and many complex terminal problems. The south is agricultural; the 
 railroads must meet a seasonal demand for equipment, settle the problem of one- 
 way traffic and set up a competition to meet the waterways. A somewhat 
 similar condition prevails in the west. Southern traffic is predominately in 
 one direction; the predominance being from the south to northeast during the 
 cotton season, and from the north to the south for the carrying of food pro- 
 ducts from the middle west. 
 
 Any laxity in European railroad progression is overcome by the possibility 
 of utilization of waterway facilities. Germany and the Lowland countries have 
 extensive waterways which relieve the railroads of the carrying of the bulkier 
 commodities and the less valuable articles where cost of transportation is a 
 more important consideration than rapid delivery. The lack of waterway 
 development in the United States has shifted to the railroads the responsibility 
 of carrying all commodities presented in accordance with economic or industrial 
 progression. There is ample opportunity in the United States to develop 
 waterways if a proper program is devised; in recent years agitation for 
 Mississippi River and Great Lakes traffic has become urgent. The improvement 
 of water channels would relieve the railroads of the heavy hauling and accord- 
 ingly have the good effect of relieving the periodically recurring congestion 
 in terminals. 
 

 • < 
 
 
 
 
 
 
 
 
 
 
21 
 
 The spirit of the .American railroad entrepreneur has not yet indicated 
 that service to the public is the principal guiding determinant in railroad 
 operation. There is still the tendency to operate the roads for the benefit 
 of personal interest instead, a peculiar tendency of Aimer lean industry 
 generally which has caused it to be rather inefficient and not as progressive 
 as it might have been if personal remuneration were a less dominant character- 
 istic. Subsequent years, with a reasonable amount of government regulation 
 and a decreasing possibility of appropriation of the national wealth, will no 
 doubt make it necessary for the successful manager of industry to apply him- 
 self to the provision of an efficient public service rather than to the ex- 
 ploitation of industry for personal advantage and satisfaction. 
 
 Likewise, American government attempts at industrial enterprise have not 
 been most efficient although they have not had the opportunity to try a con- 
 tinuous operation during a period of normality. Our governmental attempts 
 have been at temporary opportunities where unity has been the outstanding re- 
 quirement (we have a good example presented in the Federal control of carriers 
 during the period of the World War) or in special developments which have been 
 so predominately for the public good and so laden with international responsi- 
 bility that private enterprise would have succeeded only with great difficulty 
 and with only moderate assurance of a reasonable return. A good example of 
 the latter condition is afforded in the construction of the Panama Canal which 
 required international treaties which the government alone could negotiate and 
 hazardous construction which only government could justifiably undertake. 
 
 The spirit of individualism has been most pronounced in the United States— 
 it has been the underlying foundation of our industrial system, and, while 
 there is at the present time a tendency toward collectivism, it is still an 
 

 
 
 
 
 
 
 
 
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 . 
 
 
 
 . 
 
 
 
 
 
22 
 
 infantile institution. Until it has progressed further, it is not likely 
 that we can expect our railroad policy to he any other than a continuation 
 of regulation. However, it will no doubt be a changed type of regulation 
 in that it will be constructive rather than restrictive with an attempt made 
 to eliminate the conflicts between the judiciary and the Interstate Commerce 
 Commission, and 'the various state commissions as well. It must present a 
 broad general railroad policy which will provide for agreeable consideration 
 of the general public in the charges that are made for transportation, of the 
 operators and security holders so that a. reasonable return will accrue to them 
 j for their application of effort and investment risks, and to the railroad 
 workers so that they may labor under desirable working conditions and receive 
 a remuneration which will make it possible for them to maintain an acceptable 
 standard of living. Our restrictive regulation has cared for an immediate 
 problem but in that settlement has not considered the relation or effects of 
 the regulations as they are effective on other concomitant relationships. 
 
 Other rather important differences might be added to the citation; 
 especial mention should come to the magnitude of complexities which exists in 
 our transportation system presented in numerous terminal, operation, and 
 train service problems which do not exist in Europe because of the small 
 number of systems that enter any particular terminal and the relatively smaller 
 total mileage of any particular nation. 
 
 It has been the purpose of this chapter to establish two important sets 
 of conclusions: (l) that the railroad industry represents more nearly an 
 
 absolute and natural monopoly than any other large industry and accordingly 
 cannot be subjected to the laws of competition without meeting with destruction; 
 (2) that the European railroad problem is so entirely different from ours that 
 

 
 
 
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 * 
 
 
 
 
 
 
 
 
 
 
 . 
 
 . 
 
 
 
 
 
 
 
 
23 
 
 any extensive attempt to make an application of common means of settlement 
 would not be beneficial or fruitful. 
 
 The seven subsequent chapters take up in detail seven proposed plans 
 which have been set forth for railroad legislation. 
 

 
 
 
 
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 ' 
 
 
 
 
 
 
 
 
 
24 
 
 IY 
 
 THE PROPOSAL OF THE ASSOCIATION OF RAILWAY EXECUTIVES. 
 
 When the demand for the return of the railroad companies to the private 
 owners became imminent, we find the railway executives supporting most 
 actively a plan which should represent the principles providing for government 
 regulation of carriers with only moderate deviations from the policies which 
 had been pursued previously. It was known as the proposal of the Association 
 of Railway executives and was presented by Mr. Thomas DeWitt Cuvier, president 
 of the Association, to the Senate Committee on Interstate Commerce. It was 
 vigorously supported, as might be expected, since its originators represented 
 over ninety per cent of the total railroad mileage of the United Statesi 
 To speak broadly, it might be called a very conservative program based on the 
 continuation of the ’’principle of private operation, ownership and management.” 
 It was constructive, however, in its proposals, a rather definite departure 
 from programs previously presented, which have usually been of a restrictive 
 type. An enumeration of the separate clauses of the plan follows. 
 
 METHOD OF FEDERAL CONTROL. 
 
 It was recommended that the Interstate Commerce Commission be maintained 
 with its authority to pass on rates, regulate the accounting systems of the 
 carriers and to proceed with its present plan for railroad valuation which had 
 been started in 1913; an amendment to the Act to Regulate Commerce having 
 been passed on March 1st of that year. The ability of the Interstate Commerce 
 Commission in carrying out of the powers and duties given it by Congress has 
 
 never been doubted — the complexities of the problems it has encountered in our 
 individualistic United States necessitate a slow settlement with complete 
 
 1 Sharfman, American Railroad Problem , p. 367. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ‘ 
 
 
 
 
 
25 
 
 assurance that any activity or policy will not cause new difficulties. How- 
 ever, it has* often been felt that the great burdens of detail have made it im- 
 possible for the Interstate Commerce Commission to be a great force for con- 
 structive progression — it remedies faults and corrects outstanding wants but 
 has not the time or the power to build up a broad remedial program— it has not 
 been the erroneous action of the commission but rather of the government body 
 which empowers the commission; nor again is it the present or immediately pre- 
 ceding Congresses that have been to blamed Y, r e cannot evade having in our rail- 
 road system at the present some outstanding discreijancies or outstanding dis- 
 criminations in an aftermath of so brief a period of governmental regulation 
 following that unprecedented development of railroads up to 1900 with any 
 financial, economic or revenue re-gulation. A continuous, far-sighted, lenient 
 supervision by governments from 1830 on would, no doubt, have found the United 
 States with a railroad, system, possibly not quite as great as the present one, 
 but without all of the undesirable features. 
 
 In order to make provision for the need of a Federal group to care for 
 
 the broader transportation problems, the plan of the Association of Railway 
 
 2 
 
 Executives recommended the establishment of a Federal Transportation Board to 
 have three commissioners to be appointed by the President to have general super- 
 visory power ever the public interest and to lay the foundation for the con- 
 structive legislation for which there seemed to be a very definite need. This 
 group would work in conjunction with the Interstate Commerce Commission, 
 determining to some extent its proposals and recommendations by the results 
 achieved by the previous experience of the Commission as arrived at by the 
 compilations of their records, but to go further and make independent re comma n- 
 
 1 Lovett, Comments on the Railroad Problem , p. 34. 
 
 2 Annals of the American Academy of Politi cal and Social Science. Nov. 1^19 
 
 p. 98. ’ " ’ 
 
. 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 . 
 
 
 
 
 
 
 
26 
 
 dations where there had been no correlated experience which could he employed 
 f'or a productive purpose. 
 
 It is interesting to note that other groups presented proposals with a 
 demand for a similar new body, indicating that our railroad regulation policy 
 has not met with the approval of those interested in a successful railroad 
 operation and that a new angle of approach must be instituted. The Interstate 
 Commerce Commission opposed this new recommendation, for although there was 
 no removal of its present powers, it made impossible the addition of any new 
 powers accordingly causing the Commission to function as a statistical and 
 rate approving groaip. It is only natural, also, that the Commission should 
 want these new responsibilities incorporated within its own powers, and, as 
 shall be noted later, it did make such demands. It is advantageous to have 
 all of the regulatory power in one group provided that the enormosity of duties 
 does not make impossible the fulfillment of any single duty or group of duties 
 efficiently and well. Two commissions having different functions is desirable 
 enough if there is a sufficient amount of co-operation; if not, there is the 
 danger of a conflicting and unsympathetic relation which may be detrimental to 
 carriers, the general public, and to all groups concerned in railroad operation. 
 Such is our own present problem with the Interstate Commerce Commission 
 determining the amount of railroad income because of its power to approve rates, 
 and the Railway Labor Board passing on or approving the most important item of 
 expenditures, the -wages payable to railway employees. 
 
 There can be no doubt that our future government policy must change; 
 the regulations which are set up must be coordinated with a bread general 
 policy. In the past our legislation has been arranged to meet an immedia/ta 
 current discrepancy without regard to an underlying cause. Accordingly, in 
 

 
 
 
 
 
 
 
 
 
 
 
 . 
 
 . 
 
 
 
 
 . 
 
 
 
 
 . 
 
 
 . 
 
 
27 
 
 some directions, regulations have been too severe; in other of the problems 
 there has been an absence of regulation. Furthermore, our bicameral govern- 
 mental legislation causes many compromise acts to be passed which, although 
 desirable in many cases to limit undue severity, more often leave problems un- 
 settled; regulative enough to hinder private managerial progress, yet with not 
 sufficient statutory provision to permit the governmental commissions to de- 
 termine what procedure shall be established. We leave this particular pro- 
 posal to come back to it again in other group recommendations. 
 
 RATE MAKING POLICY. 
 
 The railway executives recommended that rate changes should be instituted 
 and initiated by the carriers as they had been in the past, and that the Inter- 
 state Commerce Commission should be given exclusive power to provide rate 
 regulation, which procedure is not at all different from the method which has 
 been employed in the past. Hates were to become effective in thirty (30) days 
 unless suspended by the Commission — the suspension period was to be cut to 
 sixty days (60). There can be no doubt of the desirability of cutting down 
 the period of suspension. The period of 120 days with six months additional 
 as allowed in the amendment of 1910 was entirely too long; the causes for de- 
 manding a rate change might have passed before a ten month period has elapsed. 
 The Commission was also to be given the authority to set a minimum as well as 
 a maximum rate, a very excellent recommendation in that it enlarged greatly 
 the power of the Commission over rate making; under the old law the Commission 
 was only empowered to set a maximum rate. This plan also provides for another 
 desirable constructive change; a provision for the establishment of sub- 
 committees in different regions to aid the commission in deciding upon the 
 
 Justification of any new rates or rate changes in their respective territory. 
 
 1 Kearings-Senate Committee on Interstate Commerce- 65th Congress ,Vol . I , p.311. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 • 
 
 
 • 
 
 
 
 
 
 
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 ■ . ■ * 1 u \ $ 
 
 
 
 
 
 
 
 
 
 ■ 
 
 
 
 
 
 ■ 
 
 
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28 
 
 This policy would have "relieved the Interstate Commerce Commission of some of 
 its administrative and executive functions and made of it mere nearly a quasi- 
 judiciary for the adjudication of controversies regarding the reasonableness of 
 rates and for the prevention of discriminations."' 1 2 3 ' The sub -commissions would 
 then have the original power of passing on rate changes. That this plan for 
 sub-commissions is desirable, there is no doubt. In the United States there 
 are very distinct differences in various parts of the country. The seasonal 
 demands of the south and west for equipment and railroad facilities present a 
 different problem from the demands of the manufacturing east; the predominance 
 of traffic in one direction in the south presents another difference, etc. 
 
 -All of these circumstances emphasize the problem which must be met by a central 
 commission. Regional groups could aid materially in determining whether or 
 not rate changes should be made because they would be more directly in contact 
 with the problems existant in their respective communities. The Interstate 
 Commerce Commission is no doubt as fair and thorough as is possible in its 
 
 every decision but the very moment and volume of the many cases it has to decide 
 
 2 
 
 make impossible a thorough study of every case presented. 
 
 The proposal of the executives further recommended that a fair rate should 
 make possible a revenue sufficient to pay all expenses of operation, a fair 
 return on the value of the property so as to establish a credit sufficient to 
 attract capital for the needs of maintenance and replacement as are required 
 in our advancing industrialism and our economic progression? There was a 
 further recommendation in that the newly provised Federal Transportation Board 
 should certify as to what should constitute a revenue sufficient to provide 
 
 1 Sharfman, The American Railroad Problem , p. 368. 
 
 2 Senate Hearings, p. 312. 
 
 3 Annal s of the American Academy of Political and Social Science . Nov. , 1919, 
 p. 95. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
29 
 
 funds for the operating needs of the railroads so that they might provide the 
 most efficient public service. The two bodies working together would probably 
 make for greater efficiency if co-operation were to be the keynote of their 
 efforts, rather than the so often noted operation of two governmental bodies 
 in the same field in which one group feels that it3 duty is to check the other 
 rather than give assistance. His Commerce Court was discontinued in 1913 
 after a three year exi stance because it did not realize its proper function. 
 
 FINANCIAL REGULATION. 
 
 For some years there had existed a demand for some type of legislation to 
 give the Interstate Commerce Commission power to control railway security 
 issues and railway capital expenditures. At this time, even the railway ex- 
 ecutives were beginning tc realize that this demand should be met in the 
 establishment of legislation. It was apparent tc the managers for possibly 
 three reasons. (l) Because state legislation had already been enacted and 
 
 there were so many differences in the nature of state commission regulations 
 and so many degrees of enforcement that any reasonable status of uniformity 
 under the national government would be much more acceptable". (2) It 7/ as 
 necessary tc meet the demands of an insistent public which wanted no reoccuifBnce 
 of financial manipulations such as had occurred even in recent years in the in- 
 stances of the New York, New Haven and Hartford and the St. Louis and San 
 Francisco Railroads. (3) Because the railroad executives themselves were con- 
 vinced that assistance was necessary to establish railroad credit. 
 
 Accordingly we find the plan calling for an exclusive national control of 
 
 security issues and a control of the expenditure of funds secured from bond 
 2 
 
 and stock issues.' The control was to be in the hands of the Federal Trans- 
 
 1 Lovett, Comment s on the Railroad Problem , p. 43. 
 
 2 Annals ' of the American Academy of Political and Social Science . Nov. , 1919, 
 p. 93. 
 

 
 . 
 
 
 
 
 
 
 
 
 . 
 
 . 
 
 
 
 
 
 
 . 
 
 . 
 
 
30 
 
 Board 
 
 port at ion which was to bs organized as previously discussed. Ho mention was 
 made as to how extensive a control was to be exercised; it is quite likely 
 that the executives did not wish for or contemplate a very confining or re- 
 strictive control at first. If this was their impression and desire they 
 have plenty of justification for it. The government must pursue carefully 
 its control over a new phase of regulation or it may err in passing acts that 
 will retard railroad construction which must be consistent with industrial 
 development generally. The government regulation in controlling rates was 
 slow and evolutionary, and, although the financial problem may not bear as 
 many complexes, it must nevertheless bring about a gradual settlement of the 
 difficulties. 
 
 TYPE OF OWNERSHIP . 
 
 This plan recommends a continuation of private ownership and operation as 
 
 had existed previous to the world war with the policy of a control under 
 
 broad general national authority with a unified system of governmental regula- 
 1 
 
 tion. Despite the fact that this terminology is broad and general it is not 
 ambigious. It indicates that the executives wish to have regulation sufficient 
 to care for the public policies, yet broad enough so as not to retard the pro- 
 gress of their private operations. Their policy is fair enough if the 
 operators are faithful in the fulfillment of their obligations and functions 
 as are required to meet the demands of the general public. 
 
 PROVISIONS FOR COMPETITION AND CONSOLIDATION. 
 
 In other plans which are to be analyzed, we shall note recommendations 
 
 for a combination of roads into large units or companies, provided competition 
 
 1 Annal s of the American Academy of Political and Social Science , Nov. 1919, 
 p. 52. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 . 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 - 
 
 . 
 
 
 
 
 
 
31 
 
 is not interfered with, for the purpose of increasing efficiency and providing 
 the carriers with a greater credit stability. We find the executives plan 
 as well apparently favorable to a policy which should make possible the con- 
 solidation of lines into competing units where such a method would be bene- 
 ficial and helpful for the provision of a better public serviced There can 
 be no doubt that the executives wished to have such a plan put into operation — 
 if the roads could not enter into rate associations or traffic agreements 
 directly because such procedure would be contrary to anti-trust legislation; 
 then a consolidation plan would permit them to take advantage of some of the 
 benefits which could have been acquired or derived from freedom of entering 
 into direct combination. 
 
 The plan further recommended the using of terminal facilities and rolling 
 
 stock jointly if such arrangement would help to alleviate the railroad Preb- 
 
 le 
 
 lem. The enactment into law of this last suggestion would be very desirable 
 legislation of a constructive type. It had been previously suggested but 
 never carried into operation except as required during the world war when be- 
 cause of necessity it ameliorated greatly the problem of car shortage and 
 proper equipment allocation. Often the so-called car shortage problem is a 
 misnomer, the real difficulty is improper distribution of car equipment. It 
 is very doubtful if a consolidation of lines is desirable if means of joint 
 equipment use can be affected in some other manner. The increased size of 
 our systems must at some time reach a point where the law of decreasing re- 
 turns roust operate because of managerial inability under a single unit of 
 responsible authority. The fact that railroads are subject to the law of in- 
 creasing returns doe3 not conclusively prove that they may not also be subject 
 
 1 Senate Hearings, p. 312. 
 
 2 Senate Hearings, p. 313. 
 

 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 'f 1 I ’.'i' II 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 . 
 
32 
 
 to the law of decreasing returns when a certain size has been reached or when 
 the problem of managerial force has become to a certain degree complex. 
 
 Plans such as those suggested for the joint use of facilities will help 
 to correct the more outstanding causes for demanding the increased combination 
 of railroads. Furthermore, it is a hazardous procedure and recommendation 
 which proposes combination to stabilize credit stability. The combining of 
 a strong road with a weak road for the purpose of adding financial strength 
 to the latter by the bleeding of the former can, in most cases, be successful 
 only for a short time. If the weaker line is inefficient because of poor 
 management then an injection of an efficient managerial method will be helpful 
 to be sure axil is to be recommended. If, however, the weaker road has been 
 unsuccessful because of its poor location, then no assistance from a stronger 
 can be helpful to the weaker road without being to some extent detrimental to 
 the progress of the stronger road. 
 
 FEDERAL INCORPORATION. 
 
 The next feature of the plan to be discussed has to do with Federal in- 
 corporation. From time to time there has been an increasing demand for some 
 type of Federal control and there has also been an increasing demand for 
 national ownership of the railroad companies} The arguments pro and con a 3 
 they are generally stated are familiar to the majority of readers. However, 
 the ordinary arguments for government ownership and operation have not been 
 noted as the principal causes for such a demand in the United States. The 
 proponents of government control have not used so much the positive arguments, 
 indicating that since private operation is each year becoming less desirable 
 
 1 Annal s of the American Academy of Political and Social Science . Nov. 1919, 
 p. 92. 
 

 
 
 
 
 
 
 
 
 
 . 
 
 ii t^iv 
 
 
 
 
 
 
 
 
 
 
33 
 
 and less responsible because of general inefficiency and financial conditions 
 which have been difficult for the private operators to settle, make necessary 
 the governmental attempt* Government ownership may not come about then as 
 a desirable expedient but rather as a necessity. 
 
 The experience of the Government luring the war, a successful experience 
 for the purpose for which that control was instituted, cannot be enlisted as 
 an indication in either direction. The mean of expediency caused government 
 operation at a time when a national mobilization of economic forces was as 
 necessary as the mobilization of man power. When Jevons remarked that an 
 industry can be managed by government after it has gone through the promotional 
 stage and its functions are of the routine type, he set up a type of argument 
 which can not yet be used by the proponents of government ownership for the 
 institution of that type of operation in the United States, for our railroads 
 are net yet in their final stage of development where routine operation shall 
 continuously proceed. Our industrial progression has only begun and our 
 railroad system must be built up concomitantly with our industrial system. 
 
 On the other hand, the depleted credit condition that we have under cur present 
 private system of operation cannot build up a group of transportation carriers 
 that will keep pace with the growing industrial needs. The problem is an 
 immediate one and must be solved within a short time or our economic system 
 must bear the consequences. There are many groups who recommend government 
 ownership to stabilize railroad credit by the substitution of government 
 securities which bear a regular return in the form of interest, who are not 
 favorably inclined toward government operation. Even the advocates of the 
 Plumb plan, the proposal of the railroad workers, as shall be noted later, 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
34 
 
 v/i ah government ownership but recommend a type of operation which is distinctly 
 of the private type. The executives recommended a clause providing for per- 
 missive federal incorporation of railroads if reasonable justification could 
 be established because of the continued inefficiency under private operation. 
 
 LABOR CONDITIONS. 
 
 Hie labor problem at this time was important and received thorough con- 
 sideration from the railroad executives. They felt that "questions of wages 
 and working conditions should be settled if possible, by officers of the 
 railroad companies and representatives of the employees." They furthermore 
 recommended that a "board should be constituted on which the employees, the 
 employers and the general public should have equal representation" to settle 
 problems in regard to "wages or in regard to the conditions of the service." 
 This conciliatory board was to review every case according to its merits and 
 report its findings to the Transportation board in case a settlement could not 
 otherwise be reached. Pending their report on settlement and for a reasonable 
 time thereafter there was to be no lockout by the carriers or strike by the 
 railroad employees’!' This method of conciliation is similar to those usually 
 advocated to provide settlement by carriers and employees. It seems to have 
 met with varying degrees of success in different cases. 
 
 The railwa y executives also recommended that there be appointed a 
 
 secretary of Transportation to have equal rank in the President's cabinet with 
 
 other similar appointees. The duties of the office were not definitely stated; 
 
 except that his activities were tc be similar to these exercised by other cabi- 
 
 o 
 
 net officers in their respective fields of activity 1 2 ! 
 
 1 Senate Hearings, p. 311. 
 
 2 Senate Hearings, p. 312. 
 

 
 
 
 
 
 
 
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 *y*i 
 
 
 
 
 
 
 
 
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 ■ 
 
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35 
 
 This concludes the discussion of the plan presented by the Association of 
 Railroad Executives. It doe3 not present any extremely new ideas yet con- 
 tains some constructive clauses which might be helpful especially in regard to 
 the establishment of a Federal Transportation Board, and relative to cutting 
 down the period for which the Interstate Commerce Commission may suspend rates. 
 On the whole it indicates a desire for constructive legislation, in that 
 respect being similar to other proposals which shall be studied in the follow- 
 ing chapters. 
 
 I 
 
36 
 
 V 
 
 THE PROPOSAL OF THE INTERSTATE COMMERCE COMMISSION. 
 
 The plan presented to the Senate Committee by the Interstate Commerce 
 Commission should receive thorough attention because there is possibly no 
 group who are more familiar with the railroad problem than this government 
 body. Even the railroad operators are familiar only with the peculiarities 
 of their own system, but the Interstate Commerce Commission has seen the 
 operation of all of the railroads in a very broad and extensive way. The 
 proposals presented by the commission are very moderate; not nearly as con- 
 structive or as reactionary a3 the plans presented by some of the other groups 
 that appeared before the committee. The changes they recommend are mere 
 nearly amendatory to the old legislation than formative of a new program. 
 
 In many instances, a3 shall be noted, the recommended changes are rather brief 
 and general and a surmization can give only a broad opinion of the results 
 that might evolve from their plans. 
 
 Nevertheless, we must give thorough consideration to the ideas which are 
 presented by this group. The thirty-four years that the Interstate Commerce 
 Commission has been established have given that body the benefit of an in- 
 valuable experience that should recommend their proposals as a guide for any 
 future regulative policy or governmental policy that the United States may 
 establish. Their plan was presented by Mr. Edgar Clark, who has been a mem- 
 ber of the Commission for some fourteen years and has shown a remarkable 
 aptitude for the development of railroad problem settlement during his term of 
 office. 
 
 There have been many who have been wont to criticize the Interstate 
 

 
 
 
 
 
 
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 . 
 
 . 
 
 
 a 
 
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37 
 
 Commerce Commission for not having set up a more general policy, yet we are 
 informed by Mr. Robert Lovett, who was Director of Priorities during the 
 Federal Control and president of the Union Pacific, ’’that the time had arrived 
 for Congress to declare by law a national railroad policy, and not leave it to 
 the Interstate Commerce Commissioners or other subordinate officers or agencies 
 to 3ay whether the policies of the national Government are to impoverish the 
 railroads to please certain shippers, or to improve and extend railroad 
 facilities for the country by making compensatory rates, or to pursue one 
 policy at one season and the other policy at another. 
 
 "It is not enough to create them (national railroad agencies) with 
 authority to act, but they must be sufficient in number and character to act, 
 for it is worse than idle to confer jurisdiction and authority, as upon the 
 Interstate Commerce Commission, to perform a task which in magnitude is utterly 
 beyoxid its power to perform."^ - 
 
 METHOD OF. FEDERAL CONTROL 
 
 The Interstate Commerce Commission wanted, of course, the maintenance of 
 the commission with all of its present powers intact but with a desired 
 additional authority in several instances. Commissioner Clark recommended 
 the establishment of a larger body; the need for a larger commission being 
 best described in his own words: "The passage of a new law increasing the 
 
 powers and functions of the Interstate Commerce Commission will necessarily 
 increase its work and make imperative the enlargement of its machinery. 
 
 Under the law as it is today, the commission consists of nine members and is 
 permitted to divide itself into subdivisions of not less than three members 
 
 1 Edgar E. Clark, Clark on Inters t ate Commerce , p. lxxi. 
 

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38 
 
 each. The new law ought to provide for increasing its membership from nine to 
 twelve, so as to enable it to work in four subdivisions. One great fault in 
 the present law is the absence of a permanent head of the commission ” 1 
 
 "In view of the great activities of the commission it is now impossible, 
 except in rare cases for a commissioner or commissioners to hear testimony in 
 person. Every shipper and carrier would prefer that a member of the commissior 
 should sit in a case This system is not calculated to bring the best re- 
 
 sults. " 
 
 Commissioner Clark recommended that there be appointed a Chief commissioner 
 to be paid $13,500 per year, eleven associate commissioners to be paid 312,000 
 per year and twenty-four deputy commissioners to be paid $10,000 per year. 
 
 (a) The commission asked for control of consolidations and pooling arrange- 
 ments. It is interesting to note that the commission realized the need of 
 equipment pooling. The success of pooling arrangements during the war made it 
 apparent to all of the groups presenting plans that such an arrangement was 
 possible and workable. But the point still remains to determine whether or 
 not the success of a program brought about by a war necessity during a period 
 when national unity was not only expedient but essential would be as successful 
 during a period of normality. There are some complexities to be sure which, 
 during a period in which patriotic fervor predominates cannot so easily be set 
 aside during a period of peace. It is worth a trial nevertheless. All 
 methods for settlement of these very retarding features of our present dis- 
 crepancy in railroad operation present difficulties, and if, by overcoming 
 these difficulties, we can eventually effect a precise path, not so replete 
 with problems, we had best go ahead with it. 
 
 1 Lovett, Comment s on the Rail road Problem , pp. 31-32. 
 
3S 
 
 (b) The commission wanted power over the construction of branch lines, ex- 
 tensions, and new lines. Whether or not a government body is more wise in 
 determining the need for new constructions is a problem. An efficient manager- 
 ial force in charge of railroads, immediately in touch with tlie operation prob- 
 lems of any particular road and providing facility in a given tei’ritorji should 
 be more able to observe the need for railroad betterments and additions. 
 
 Whether or not we have such a capable group of managers in charge of our systems 
 is a contentious question; it would seem that we should have, and, in the great- 
 er number of cases, I am sure that we would find their judgment secure enough. 
 
 In that event, any control by government should be granted with extreme care 
 lest necessary construction be retarded rather than unnecessary construction 
 promoted. 
 
 (c) "Establishment of a relationship between Federal and state authorities 
 which will eliminate the twilight zone of jurisdiction and under which a har- 
 monious rate structure and an adequate service can be secured, state and inter- 
 state." x Although there has been a general tendency by Supreme Court decision 
 to extend the powers of the Interstate Commerce Commission in such cases as 
 Peik vs. northwestern and the Wabash Case, there still exists many conflicts 
 which require elimination. Although the great difficulties of the rate problem 
 have been settled, there will reoccur again a new set of difficulties in the 
 form of conflicting authority as the Interstate Commerce Commission extends its 
 authority in the fields of railroad finance, service and operation. Especially 
 if a number of consolidations are effected in subsequent years, the number and 
 nature of financial conflicts will be very apparent. In past consolidations, 
 railroads have selected those states having the most lenient finance laws to 
 carry on their reorganization. 
 
 1 Senate Hearings . p. 244. 
 
40 
 
 (d) The Interstate Commerce Commission wanted a more complete regulatory 
 power over waterways. The Panama Canal Act of 1912 gave the commission power 
 to regulate competition hut the control over rates and regulations had not been 
 considered. It is well to note, furthermore, that waterways have not been 
 subjected to such close supervision by the state authorities as have the rail- 
 road companies — there is a need for a reasonable amount of government regula- 
 
 t ion. 
 
 (e) The Interstate Commerce Commission asked for control over security 
 issues and the purposes for which the expenditures were to be made. The de- 
 sirability of such a proposal was discussed previously in the discussion of the 
 Senate Committee plan. 
 
 RATE MAKING POLICY. 
 
 The commission proposal recommended a continuation of the rate making 
 policy mentioning, as did other of the proposals, that the suspension period 
 was too long and that it should be cut down to a period reasonably necessary 
 to establish a justification of proposed changes. Commissioner Clark recommen- 
 ded that the Interstate Commerce Commission be given power to initiate rates; 
 also that the commission be granted the privilege to set a minimum as well as 
 a maximum rate. "This power would restrain an individual carrier from further- 
 ing its own ends at the expense of others by unwise and unwarranted upsetting 
 of reasonable rate adjustments. If the rates and charges are by regulation 
 confined within the reasonably narrow- limits between the maximum and minimum 
 reasonable charges, no public interest can be injured by the carriers all 
 maintaining charges within those limits. If without undxily lowering or re- 
 
 stricting the standard of service economy in maintenance and operation can be 
 secured by cooperative agreement or consolidation, under governmental super- 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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41 
 
 vision or approval, of two or more lines, the public is not injured, while the 
 sum available for improvements and betterments of the carrier properties is 
 augmented.” Strong emphasis was put on the cost of service principle of 
 
 rate making. The Interstate Commerce Commission has been from time to time, 
 
 recommending changes which would cause the cost of service theory to stand out 
 as the most important basi3. , In Trunk Line territory there is a noticeably 
 close adherence to this principle; but we must note that it is in this terri- 
 tory that the circumstances are most befitting for it to apply. The problems 
 such as must be met in the South are lacking there; such as the severity of 
 water competition, the predominance of traffic in one direction, the seasonal 
 demand for equipment and the predominance of a number of small cities which 
 have a very erratic and inconsistent demand for railroad facilities and service. 
 It will accordingly, take a reasonable amount of time before there can be a 
 substitution of the cost of service principle for the value of the service 
 principle as the proper method of rate making in southern territory, and even 
 then, other factors must receive a considerable amount of attention because of 
 the extreme and vital type of competition that must be met from the waterway 
 companies. 
 
 FINANCIAL REGULATION. 
 
 In 1913 the Interstate Commerce Commission had been given the power to 
 tabulate a complete record of the financial statements of each of the carriers 
 in interline traffic and were authorized to keep them up to date by recording 
 all changes that were made and betterments which increased the capitalization of 
 the railroad companies. This procedure indicated that it was eventually con- 
 
 1 Clark on Interstate Commerce t p. 12. 
 
. 
 
 
 
 
 
 
 
 
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 ■ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42 
 
 template! that the commission would take over the complete control of the prob- 
 lem of security issues and the purposes for which the expenditures were made. 
 Commissioner Clark very definitely made these recommendations as we note from 
 his own rejjort to the Senate Commission. ’’The advisability, desirability, and 
 propriety of public or governmental regulation of the issuance of securities by 
 public service corporations is conceded generally by thinking and fair-minded 
 men. A proper Federal regulation of the issuance of securities by the 
 corporations engaged in interstate transportation and the supervision of the 
 application of the proceeds therefrom would go far toward preventing the abuses 
 referred to in the preceding paragraph. The commission is on record for several 
 years past as favoring such supervision and regulation of the issuance of 
 securities. ” 
 
 TYPE OF OWNERSHIP. 
 
 Hie recommendations of the Commission were not very extensive in regard to 
 that of ownership, although from the nature of the proposals they presented it 
 is apparent that a continuation of private ownership was contemplated and de- 
 sired. This view becomes more apparent when the commission declared that it 
 was absolutely opposed to federal incorporation because it presented ''&j com- 
 plicated, protracted and probably unconstitutional method of operation. 
 Commissioner Robert W. Wooley was the only member to oppose immediate reversion 
 to private operation, he being favorable to the five-year extension of govern- 
 ment operation a3 proposed by Directors-general Hines and McAdoo in order to 
 give the method a chance to function during a period of normality to note whether 
 or not the operation might be more successful. 
 
 1 Waterman, Rations Business . ITov. , 1919. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43 
 
 PROVISIONS FOR CONSOLIDATION AND COMPETITION. 
 
 Hie commission was somewhat in favor of consolidation providing that the 
 contemplated consolidations were to he approved by the Interstate Commerce 
 Commission; it is quite likely that they had in mind the addition of small 
 lines rather than the consolidation of a number of larger systems. Senator 
 Gore, of the Senate Committee on Interstate Commerce, supported by Commissioner 
 Clark presents a strong disapproval of any regional subdivision or regional 
 merger, for such a plan "would be artificial, reverse the lav/ of progress and 
 tend toward disintegration rather than integration.”^ Commissioner Clark 
 strongly recommends the pooling of box car equipment and that power be given 
 the Interstate Commerce Commission to force carriers to provide sufficient 
 equipment and motive powers at all times'^ 
 
 LABOR CONDITIONS. 
 
 The recommendations of the commission contained no provisions for the 
 settlement of labor difficulties because that body felt that it had become 
 the established policy of Congress to entrust these responsibilities to other 
 agencies, as is noticeable under the Erdman A.ct of 18S8 and the Newlands Act. 
 
 As has been previously noted, the Interstate Commerce Commission has to do 
 not sc much with the broader social or economic problems as with the rate, 
 financial and operation problems. 
 
 1 Clark on Interstate Commerce . pp 5?-8. 
 
 2 Clark on Interstate Commerce . p. 15. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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44 
 
 VI 
 
 THE PLAN OF THE NATIONAL ASSOCIATION OF OWNERS OF RAILROAD SECURITIES. 
 
 Tlie National Association of Owners of Railroad Securities has in recent 
 years been a vital force in the field because it has been one of the groups 
 that is most vitally concerned in the success of the railroad companies; 
 t&e failure of the roads to operate successfully amounts to a loss resulting 
 in lower dividends coming to the security holders. Their proposals are some- 
 what similar to those presented by the railroad executives yet there are 
 enough differences to merit attention being given to their plan. Many of 
 their ideas are presented in a very general way because their program represent 
 such a strict departure from the present development, that any definite state- 
 ment of the exact form which they should take would be rather difficult. 
 
 Their spokesman before the Senate Committee on Interstate Commerce was Mr. S. 
 Davies Warfield, the President of the Association. The most important con- 
 structive change proposed has to do with the method of federal control. 
 
 METHOD OF FEDERAL CONTROL. 
 
 "Federal regulation extended through the Interstate Commerce Commission 
 as at present established, coordinating therewith subsidiary commissions, as 
 regional commissions, the members thereof selected equally from the two lead- 
 ing political parties appointed from and sitting in the six traffic terri- 
 tories as at present defined, giving such bodies the determination of rates 
 and regulations essential to the operation of the plan. The right of appeal 
 i3 given to the Interstate Commerce Commission, which may be designated a 
 commission of appeal. Their plan in regard to the institution of sub- 
 
 1 Senate Hearings, p. 794. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45 
 
 sidiary commissions is very similar to that suggested by the railway execu- 
 tives and needs no further comment. It was their proposal to have the Inter- 
 state Commerce Commission control and regulate rates, and also to settle wage 
 questions and take up such other regulatory functions as might he necessary 
 from time to time. 
 
 Thera is also a recommendation for a second group, the duties and com- 
 position of which can hast he observed in the terms of the proposal: — 
 
 "A corporation, created by act of Congress, operated without profit to the 
 railroads, and under Federal control, directed by trustees composed of the nine 
 Interstate Commerce Commissioners and eight railroad men, to finance in the 
 present emergency such equipment as may be purchased by it from the Railroad 
 administration and allocated to the railroads, and to furnish an immediate 
 means for assisting in financing the return of the roads; to provide a manage- 
 ment or agency to continue or put into effect the joint use of terminals, 
 unification of facilities, rerouting of freight by pooling or otherwise, and 
 to continue or adopt such methods of operation as may have been found to be 
 successful and expedient during Federal control; to furnish a standing, 
 trained, and efficient means for immediate mobilization of the railroads for 
 war purposes without additional legislation. 1,1 
 
 This proposal is at first seemingly radical and very different from any 
 other suggested, yet in its final analysis it is not so different from the 
 idea presented by the railway executives for a Federal Transportation board 
 to take charge of the broad, general problems that are presented in railway 
 transportation. It differs in that it is composed of a much larger group of 
 men which might make its regulations of the compromise type, yet it is quite 
 
 1 Senate Hearings, p. 794. 
 

 
 
 
 
 
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 S' 
 
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 '^Ki 
 
 
46 
 
 likely that the suggestions made by the Interstate Commerce Commission would 
 he only of the advisory type, and that the duties of the new group would 
 have been "borne in the major part "by the other members. The desirability of 
 such a program is essential if we can determine definitely that the present 
 problem is due to the inefficiencies of private management and that a 
 government program of the type mentioned will be at all helpful. If govern- 
 ment ownership and operation is to be our eventual program, then the forma- 
 tion of a National Railway Association, to have the duties above quoted, 
 
 Vould lay a very essential groundwork for government unification, despite the 
 fact that the National Association of Owners of Railroad Securities has ex- 
 pressed itself as being very definitely opposed to any scheme for federal in- 
 corporation. 
 
 Two objections or difficulties may also be set up:-- (1) The duties of 
 the members of the Interstate Commerce Commission are already so numerous 
 and exacting that it would be impossible for them to participate in this 
 w ider program without having an additional membership. On the other hand, 
 it is desirable to have the federal regulation of roads contained within a 
 single group, for previous experience has indicated that cooperation is not 
 readily forthcoming when the control is divided among a number of governmental 
 bodies. (3) It is doubtful whether the methods of overcoming and facilitating 
 operating difficulties during the period of the war would be successful during 
 a period of normality. The proponents of this plan, however, realized that 
 there were a number of advantages derived from the war experience that 
 should help to ameliorate the problem during a period of normality as well. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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4? 
 
 HATE MAKING POLICY. 
 
 Under this plan, rates are to "be initiated by the carriers and the pro- 
 posed rate changes are to be submitted to a committee composed of railroad men 
 and shippers appointed by the Interstate Commerce Commission before they are 
 submitted to the regional commissions for final action. 
 
 It was further recommended that there be established "a minimum rate of 
 return on the property investment in the railroads, fixed by act of Congress, 
 through rates adjusted as occasion may demand, in order that the securities of 
 the railroads may be stabilized and their credit established on a basis 
 necessary to secure the money to provide to the shippers and traveling adequate 
 facilities and service.”^ It was further provided that any excess above a 
 reasonable rate of return should be distributed ’hinder the control and juris- 
 diction of the Interstate Commerce Commission of a percentage of the fund above 
 provided, that railroad employees shall receive the benefit of profit sharing, 
 by insurance or by such legal methods as may be determined upon; likewise a 
 distribution of a percentage thereof among the railroads earning it, and under 
 the plan, and in furtherance of incentive and initiative by establishing 
 operating efficiency standards; for certain improvements to railroad property, 
 
 under restrictions, not to be capitalized in rate-making; and for other pur- 
 
 2 
 
 poses defined in the plan.” 
 
 That the proposal mentioned takes care of the labor interests especially - 
 there can be no doubt, but whether or not labor will be satisfied with such a 
 settlement is purely a matter of conjecture. Profit-sharing plans in the past 
 have not been successful in satisfying the demands of employees and it is very 
 
 1 Senate Hearings, p. 793. 
 
 2 Senate Hearings, p. 723. 
 

 
 
 
 
 
 
 
 
 
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43 
 
 ' doubtful if this program will be more helpful than the many carefully proposed 
 ideas that have been advocated in the past. The present labor problem is not 
 so much a desire for an increased wage as it is one for economic security and 
 for reasonable working conditions. The employees of the railroad companies 
 are well organized into unions, and it has been the policy of unions in past 
 history to oppose the majority of schemes that have been presented, because 
 they contend that they cause the employees to enter into sympathy with the em- 
 ployers. Furthermore, any method of distribution of earnings that sets a 
 limit on the earnings of a corporation has a tendency to cut down the degree 
 1 of initiative displayed in management which is so essential to progressive in- 
 dustry, On the other hand an income much above a reasonable return is not to 
 be desired. 
 
 Mr. Eea, President of the Pennsylvania Railroad informs us that "a govern- 
 I ment guarantee would plunge the country into a wholesale financial reorganiza- 
 tion of the railroads extending over a period of years, and would ultimately 
 mean Government ownership, " for government would not be willing to guarantee a 
 return without having complete financial control and there would be the 
 possibility of capital improvements being determined, not by economic necessity 
 but rather by the political judgment of each administration^ 
 
 In the Railway Age of May 9, 191S, we find Mr. Samuel Dunn editorially in- 
 forming U3 that the principal objection to assurance to income is that it has 
 the tendency to cut down initiative. This is the old argument against govern- 
 ment interference; perhaps it is justifiable enough but there is no doubt but 
 that it can be overestimated; at least we would not want to use it as a 
 justification for the excess return which accrues to those carriers which have 
 an advantageous location. 
 
 1 Address, Chamber of Commerce, St. Louis, May, 1919. 
 
49 
 
 Mr. Daniel Willard, president of the Baltimore and Ohio, is opposed to a 
 
 division of excess profits with labor "because such a plan would be extremely 
 
 difficult of fair application, and does not rest upon the right principle. I 
 
 believe thoroughly in good wages and if a man does work of unusual value he 
 
 should receive unusual reward, but the two should go together; and that would 
 
 1 
 
 not necessarily follow under Mr. Warfield's plan." 
 
 FliTANC IAL REGULATIONS . 
 
 The recommendations contained in the plan provided that future issues of 
 railroad securities were to be subject to the approval of the regional com- 
 missions and the Interstate Commerce commission. This plan is individualistic 
 in that it indicates that the regional commissions are not only to have to do 
 with rate making operations but with financial problems as well. All other 
 plans presented provided that the major part of the work of the sub-commissions 
 was to have to do only with rate problems and to some extent the supervision of 
 the uniformity of accounting systems . It would be well not to burden too much 
 the work of the regional commissions or the objections could well be set that 
 are used against the Interstate Commerce Commission, in that their duties are so 
 numerous that the best and most complete results cannot be secured. 
 
 TYPES OE OWNERSHIP. 
 
 The railroads were to be immediately returned to the private owners. 
 Consolidation was to be permitted in those cases in which it was decided that it 
 would be most befitting for the benefit of the interest of the general public. 
 The proposal v/as entirely in accord with that presented by the interstate 
 Commerce Commission in regard to federal incorporation; that it was absolutely 
 unnecessary and undesirable. 
 
 1 W, Cook, A S olution of the Railroad Problem in Sight . pp. 25-7. 
 

 
 
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50 
 
 LABOR CONDITIONS. 
 
 A Brief clause in the plan was presented to care for the labor problem, 
 other than that previously mentioned in regard to the division of excess profits 
 Hie regional commissions were to act as boards of conciliation for the settle- 
 ment of wage differences between the carriers and the laborers. If the 
 commissions could not settle the differences, they were to appoint two arbitra- 
 tors, the employees were to name two, and the four were to select a fifth, if 
 required. There was the possibility of an appeal to the Interstate Commerce 
 Commission, but the findings of that group were not to be compulsory unless 
 mutually agreed beforehand. Since a fixed return had been provided for as 
 previously mentioned in the plan, wage expenditures were to be supervised by 
 the commissions^ 
 
 There are some possibly and seemingly apparent objections to this plan. 
 Although not the most important, nevertheless, one of the outstanding reasons 
 for the establishment of regional commissions is to relieve the Interstate 
 Commerce Commissions of its many duties, yet by adding the problem of settle- 
 ment of labor difficulties to the duties of the newly formed groups, they in 
 turn will be over-burdened. On the other hand, it is desirable to have the 
 control of rate settlement and of labor problems within the authority of the 
 same government group because a separation of these functions may lead to in- 
 coherent conclusions in the relation of income to operating expenditures. 
 
 There is also always the outstanding objection of having two sets of 
 commissions or complimentary commissions in that if there is the possibility of 
 an appeal, there is usually one made by the party that feels that it wa3 not 
 fairly treated in the decision; hence, it is likely that a larg9 number of 
 
 1 Senate Hearings, p. 794. 
 

 
 
 
 
 
 
 
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51 
 
 cas33 which the regional commissions attempted to settle would eventually he 
 appealed to the Interstate Commission for final determination. There are ad- 
 vantages as well in permitting an appeal, in that the original tribunal will 
 attempt to he more careful in its decision if it realizes that its findings 
 will he subjected to further review if they are not acceptable. 
 

 
 
 
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 52 
 
 VII ’ 
 
 THE PLAN OF THE SENATE COMMITTEE ON INTERSTATE COMMERCE. 
 
 Amid tlis large group of plans that were presented providing for future 
 railroad legislation, it is interesting and valuable to note the rjroposals that 
 were presented by the Senate Committee on Interstate Commerce. A large number 
 of the ideas were formulated by United States Senator Albert Cummins of Iowa, 
 chairman of the committee; they are constructive in type and indicative of the 
 majority of methods of settlement of the various problems as they were presented 
 by the other parties who were heard by the committee. 
 
 METHOD OE FEDERAL CONTROL. 
 
 It was recommended that the Interstate Commerce Commission be continued 
 with enlarged power in regard to rate making and additional power over financial 
 affairs, especially the establishment of a control over the issuance of rail- 
 road securities. 
 
 There was also a second demand; that providing for the formation of a 
 Federal Transportation Board to have a membership of five members to be appoint- 
 ed by the President. They were to have control of the broader and underlying 
 fundamentals of the problem, including some of the powers presently held by the 
 Interstate Commerce Commission. This proposal does not forward a new idea to 
 the discussion, rather it is a repetition of the plan presented by the railway 
 executives and the security holders! It indicates that more than one group re- 
 alized that it was necessary to have one body with sufficient numbers and of the 
 
 proper type, clothed with the reasonable degree of authority to determine the 
 
 broader 
 
 
 1 
 
 Annal s of the American Aeademy of Political 
 p. 97. 
 
 and Social 
 
 Scienc e . 
 
 . 
 
 Nov . 
 
 1919 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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53 
 
 policies, since the Interstate Commerce Commission was so heavily burdened, with 
 the functions that it was already caring for. 
 
 Ue should not be too ready to criticize the method of regulation as it has 
 gone on in the past, however. Hr. Samuel 0. Dunn of the Railway Age would 
 
 have us remember that "the fact that the old system of regulation has had some 
 
 bad as well as seme good effects by no means proves that regulation of railroads 
 cannot be made a success. Effective regulation, and especially effective 
 regulation by commissions, is a comparitively new policy, and has been hardly 
 tried at all in the United States and Canada. It was not reasonably to be ex- 
 pected that a complete success of it would be made from the start. If Congress 
 will correctly appraise both the past failures and past successes of regulation 
 and the reasons for them, and change the old system as experience suggests it 
 
 should, the new system of regulation may well prove a greater success than any 
 
 other policy which the government could adopt in dealing with the railroads." 
 
 It is quite apparent that the idea was conceived of in light of the success 
 of such a body. If such be the case, the point cannot be over -emphasized that 
 the efficiency of the war period was carried for the sake of expediency and at 
 the expense of economy, and may possibly account to some extent for the present 
 deficient financial condition of the carriers. Nevertheless, the essence of 
 the plan is good. There should, be a determination of the general principles 
 to be taken up in the details of legislation. So far our railroad legislation 
 has been restrictive, not constructive. The leaks have been plugged up, by 
 slip-shod legislation, only to the subsequent necessity of having in a few years, 
 to close up another leal: in the immediate proximity of the original flaw. The 
 determination of a broad railroad policy would require the repair of the entire 
 
 1 Annals of the American Academy of Political and Social Science . Nov. 1919, 
 pp. 15-15. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54 
 
 pot at one sitting, or make necessary the purchase of a new container. 
 
 HATS MAKING- POLICY. 
 
 The plan provided for the regular method of rate initiation hy the carriers 
 and approval by the Interstate Commerce Commission, with an additional feature 
 which provided that the entire country he divided up into rate districts and 
 the railroads into rate groups for rate making purposes. This feature, es- 
 pecially in the latter part, is very desirable. It is an indirect method of 
 legalizing rate associations. One of the disagreeable features and conflicts 
 in past legislation has been that the railroads have been held liable for dis- 
 criminations, and, on the other hand, have not been permitted to form rate 
 agreements or traffic associations. To be sure, the existence of unrestricted 
 cooperation of railroad companies may become vicious but without cooperation it 
 is absolutely impossible to eliminate all discriminations between persons and 
 localities. We have had informal traffic associations, which have been 
 virtually sanctioned by the Interstate Commerce Commissions but they have not 
 been effective or strong in their activities because of the continual feat of 
 being put under the ban of anti-trust legislation. We do not, of course, in 
 the United States want to be subject to the unscrupulous possibilities of un- 
 restricted monopoly, but we should not attempt to control or regulate monopolies 
 by forcing the laws of competition. We are beginning to learn that the rail- 
 road must be operated as a monopoly because of its peculiar type, and we must 
 treat it as such by proper monopoly regulation rather than by competition 
 regulation. 
 
 Tlie plan further proposed that rates should be remunerative enough to pro- 
 vide carriers with a revenue sufficient to pay for the wages of labor and the 
 
 1 Annal s of t he American Academy of Political and .Social Science . Hov. , 1C-19, 
 
 P- 23. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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55 
 
 costs of operation, with a reasonable amount for maintenance, including also 
 taxes and a fair return on the value of the corporate property. At the same 
 time due consideration must be given to the shippers and the employees, as well 
 as the general public which is indirectly affected by the price which it must 
 pay for commodities'!’ Transportation costs or charges become eventually part of 
 commodity price in the sale of the majority of commodities. The Interstate 
 
 Commerce Commission has often been criticized for not having given sufficient 
 consideration to all railroad costs and possibly it has been guilty of this 
 offence. It is very difficult to please all of the parties concerned. The 
 establishment of a rate high enough to take care of the necessary railroad ex- 
 penditures will often be more than the shippers are willing to pay. Further- 
 more, there are those in the group, known as the general public, who are favor- 
 able to rate socialization, a procedure which is impossible under private owner- 
 ship unless the roads are recipients of aid under a program of government sub- 
 sidization, which again can be subjected to much due criticism. 
 
 FINANCIAL REGULATION. 
 
 The Senate Committee proposal, along with others that we have noted so far, 
 was inclined to favor an exclusive regulation and control by the Interstate 
 Commerce Commission over issues of securities and the purposes for which funds 
 so secured were to be employed. Mr. Robert Lovett, who has previously been 
 quoted, realizes that federal government control of securities is necessary, not 
 so much because of the present poor cre.iit ability of the carriers, but rather 
 because so many states have established control that any one large system is 
 subject to a number of financial masters; in order to secure uniformity then 
 a national regulation is desired. Not only do the various states have laws of 
 
 1 Annal s of the American Academy of Political and Soci al Science . Nov. , 1919, 
 p. 93. 
 
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56 
 
 varying savor ity "but tlie time required to secure approval from all of the state 
 authorities is too long. ’’Time is a vital factor in transactions involving the 
 
 sale of corporate securities When bankers make an offer for an issue of 
 
 bonds or stock they base their price upon current financial conditions and 
 quotations, expecting to make a quick turnover. If they are required to wait 
 for the delivery of the securities they reduce the price to cover the risks of 
 financial changes in the meantime, and the seller gets less for his securities. 
 ....bankers sometimes will not buy at all — particularly if the financial world 
 
 has any menacing features If a railroad company is compelled to gc to half 
 
 a dozen state railroad commissions for permission to make an issue of stock or 
 bonds, and to encounter delays running from weeks to months on account of 
 numerous bearings before different commissions, and in meeting their conflicting 
 policies and views, before it can deliver the securities, it will be impossible 
 to have the issue underwritten, or if underwritten at all the cost will be ex- 
 cessive. 
 
 Also the many financial manipulations which still recur from time to time, 
 make some governmental regulation necessary; on the other hand, it is very 
 essential that the Interstate Commerce Commission be not too exacting in the 
 restrictions which they may place on the expenditure of funds secured in any 
 bond or stock issue, for railroad officials must be given some opportunity to 
 permit their managerial ability to play its part in other ways than in proving 
 to the commission that there is a necessity for a certain amount of funds for 
 a certain purpose. If the managers are not that efficient, then our jjrivate 
 operation method must be discarded. 
 
 1 R. S. Lovett, Comments on the Railroad Problem , pp. 51-2. 
 
' 
 
 . 
 
 
 
 H^| I l. l J.* 
 
 
 
 
 
 
 1 
 
 . 
 
 ' . 
 
 ' 
 
 ■ 
 
 
57 
 
 TYPE OF OWNERSHIP. 
 
 In regard to ownership and operation, the Senate Committee recommended that 
 the roads be returned to their respective owners but that a plan be invoked 
 which would make possible the organization of the railroads into 20 to 35 com- 
 peting companies — the element of competition is still emphasized with the en- 
 largement of the operating unit. That competition with a reasonable amount of 
 cooperation is desirable, there is very little doubt. The increase in the size 
 of the individual line and the decrease in the number of lines is recommended to 
 provide for a greater operating efficiency and to stabilize credit. 'Pill a 
 larger system provide for a greater operating efficiency? Professor E. R. 
 Dewsnup of the University of Liverpool is of the opinion that a system having 
 ten thousand miles of track has reached the point where an increased mileage 
 would interfere with operating efficiency. Hie question has been asked previous 
 ly but it can bear emphasis; is it not possibly true that the already large 
 operating unit accounts to some extent for the inefficiency of our present sys- 
 tem? Mr. Joseph 3. Eastman, a member of the Interstate Commerce Commission 
 has this point in mind when he writes^" that "there has been an over-centraliza- 
 tion. ... there should be a large measure of 'home rule 1 , so that all minor 
 policies and some of greater moment can be determined on the spot." Com- 
 missioner Clark sets up this argument against regional combination or roads 
 and against nationalization or a unified consolidation. 
 
 These statements, of course, do not set up an opposition to a program 
 which would make possible the addition of small lines to large systems when 
 they furnish good feeding lines or good lateral connections, for in those in- 
 stances an industrial justification can be established. To secure a more 
 
 1 Annals of the Amor lean Academy of Political and Social Science. ITov. . 1919 
 p. 89. 
 

 „ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ 
 
 .... 
 
 
 
 
 
 
 
 
 
 
 
58 
 
 stable railroad credit is desirable and necessary but our railroads are already 
 in so hazardous a position as far as credit is concerned that we must take on 
 no new burdens. The possible greater efficiency can be brought about by pooling 
 of equipment and terminal facilities without the necessity of increasing the size 
 of the operating unit. 
 
 PROVISIONS FOR COMPETITION AND CONSOLIDATION. 
 
 There was mentioned in the previous division, the proposed scheme for con- 
 solidation. There are one or two considerations in addition that might be 
 mentioned in addition that were provided for in the proposal. (a) Any con- 
 solidations contemplated were to be subject to the sanction of the Interstate 
 Commerce Commission. (b) Consolidations could be voluntary for a period of 
 seven years; after that a compulsory consolidation was to be arranged^ Mr. 
 Walker D. Nines, former director-general indicates the desirability of con- 
 solidation in the following words: — ”1 do not believe these fundamental changes 
 can be successfully carried through except by the construction of a comparative- 
 ly few great systems, each of which will so combine the prosperous and un- 
 pro sperous roads so as to present a fair average result and get away from the 
 
 hopeless diversity in earnings which has existed in the past; and upon which it 
 
 2 
 
 will be practicable to have ample Governmental representations." 
 
 Mr. Thomas Sisson of the Guaranty Trust Company favors a somewhat similar 
 policy when he remarks that "a regional railroad system based on natural traffic 
 conditions would meet the testa of economic operation and of economic utiliza- 
 tion of railway capital. In the development of such a system we should be able 
 to retain all of the advantages that come from individual ownership and opera- 
 
 1 Annal s of the American Aicademy of Politica l and Social Science , Nov. , 1919, 
 p. 92. 
 
 2 A Solution of the Railroad Problem in Sight . p. 14. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 . 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 ' • 
 
 ' ■ 
 
59 
 
 tion. ..at the same time avoid the evils that would come from either Government 
 
 1 
 
 ownership or from a continuation of the old competitive system..." 
 
 It cannot "be expected that voluntary consolidation will come about success- 
 fully for the successful carriers will not be inclined to combine with a weaker 
 road unless some corporate advantage will accrue to the stronger system. In 
 the instance, then, that a strong road feels that the weak line will act as a 
 good feeder or that a capable management will turn inefficiency into success 
 then we can contemplate voluntary consolidations; but in those instances, and 
 they represent the majority, in which a weak road is unproductive because of an 
 incorrectable difficulty such as a circuitous route, then voluntary consolidation 
 will not be made. 
 
 FEDERAL INCORPORATION. 
 
 The plan mentions Federal incorporation with a requirement that each 
 corporation shall include in its Board of Directors two labor members and two 
 government members. This indicates, then, that though such a plan would pro- 
 vide for government ownership, there would still be private operation — to that 
 extent being somewhat similar to the Plumb Plan which shall receive considera- 
 tion latex’. There is an excerption, however, in that the Plumb Plan proposes 
 that the participation of labor representatives shall predominate. It may be 
 
 concluded from this proposal that government ownership is being forced because 
 of the poor financial condition of the carriers, but that government operation 
 is not to be desired. 
 
 LABOR CONDITIONS. 
 
 The proposal recommended that there should be formed a committee of eight 
 members, four representing the employees and four representing the carriers, 
 
 1 Address, American Bankers Association, Chicago, 9-24-18. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60 
 
 with permission to appeal to the proposed Federal Transportation Board in the 
 instance of a deadlock. It would he much better if labor problems and dif- 
 ferences could be conciliated without the intervention of a third party; some 
 conciliatory bodies in the past have been successful enough but the results of 
 their efforts are usually temporary! 
 
 The second part of the proposal provided that the decisions of the Board 
 were to be final with the further provisions that strikes and lockouts were to 
 be forbidden. It is reasonable to forbid strikes only when we can be assured 
 that the decisions of labor boards are to be reasonable and just to all parties 
 ■concerned; a regulation making strikes illegal would be almost too reactionary 
 in our present economic society. 
 
 t 
 
 ♦ 
 
 1 Mnals of the American Academy of Political and Social Science. Hov. . 1919 
 p. So. 
 

 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ' 
 
 
 
61 
 
 VIII 
 
 THE PLAIT OF THE CITIZENS NATIONAL RAILROAD LEAGUE . 
 
 3Ir. Nathan L. Arnater, president of the Citizens National Railroad League 
 presented their proposal to the Senate Committee on Interstate Commerce. Al- 
 though the plan is not as important as some and did not receive as much atten- 
 tion, it is worthy of some consideration in that it presents some new proposals 
 not mentioned in other plans and some entirely new methods for the settlement 
 of some of the problems of our transportation system. It emphasizes more 
 clearly the universal relation between the railroads and the people as we may 
 observe from the following remark made by Mr. Arnster:- ’’The people, who, in the 
 main, were responsible for both the policy and the form of railroad control of 
 the past in their shortsightedness overlooked the fundamental fact that the 
 railroad industry, intrisically touches the very heart of, and indeed is, 
 democracy. Its services come nearer to being a part of the every day life of 
 the people, individually and collectively, than any other industry or institu- 
 tion in the country. Just how intimate is the relation between the railroads 
 and the people is well illustrated by the fact that one-fifth of the popula- 
 tion of the country have a direct or indirect proprietary interest in the rail- 
 roads, either through ownership of stocks or bonds. . .Then, when one considers 
 the millions of railroad employees, the millions engaged in the manufacture 
 and production of the fuel and supplies used by the railroads, it can be es- 
 timated that no less than one-third of our entire population is most vitally 
 interested in the railroads, either as owners or by dependence . 
 
 1 Annal s of the American Academy of Politica l and Social Science , Nov. , 1919, 
 p. 127. 
 

 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 » 
 
 
 
 
 
 
62 
 
 METHOD OF FEDERAL COIITROL. 
 
 Hie plan provided for the continuance of the Interstate Commerce Com- 
 mission with its present powers and the added authority to control security 
 
 # 
 
 issues. 
 
 It also provided for the establishment of an Efficiency and Economy Board 
 of five members to be appointed by the President of which four were to be 
 selected from a list presented by the national engineering societies, the other 
 to be selected by the employees. This board was to examine the physical con- 
 dition of the railroad facilities, study operations and recommend improvement 
 in physical equipment and in operating methods! This suggestion indicates 
 that the originators of the plan recognized the existance of a physical problem 
 brought about by the failure of the carriers to keep their equipment up to par 
 or their terminal facilities in proper working order. 
 
 The advisability of adopting their procedure for settlement is more dif- 
 ficult to ascertain. Although the problem mentioned is immediately a problem 
 of engineering and the physical necessity of keeping facilities in working 
 order is recognized, it is indirectly a financial problem, and with that 
 thought in mind it would seem that a good financial system would relieve the 
 probability of insufficient physical improvements. I do not think that the 
 engineering capacity of the railroad operation executives is so deficient but 
 that if they were provided with ample funds with which to carry on the necessary 
 replacement and construction programs, that they would have any difficulty in so 
 doing. Accordingly, financial adjustment mast be resorted to to solve the 
 difficulty rather than the establishment of a government engineering body to 
 determine what betterments and constructions shall be contemplated and carried 
 
 1 Senate Hearings, p. 1171. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 • - 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ 
 
 
S3 
 
 out. To be sura some railroads have made useless expenditures for construction 
 and equipment purposes, but it is to be doubted that this incongruity is one of 
 the more outstanding inconsistencies in the majority of cases or for the greater 
 number of the carriers. 
 
 RATE MAKING POLICY. 
 
 All rates were to be initiated by a single privately owned corporation, 
 with a regulation by the Interstate Commerce Commission similar to that existing 
 at present! There was to be legislation passed providing that rates should be 
 adequate to produce income great enough to cover all of the operating expenses 
 and the fixed charges, and maximum dividends not to exceed 6 per cent, with a 
 surplus not to exceed two per cent of all 3tock outstanding. That rates 
 sufficient to cover all of the items mentioned is the desirable circumstance 
 cannot be disputed, but rates, to be so fixed as to meet these exacting require- 
 ments, would have to be initiated and constructed in a manner much different 
 and much more complicated from that employed at present? In the first place, 
 if the rates are to be uniform for all lines in a competing territory under this 
 proposal, then the method presupposes that all railroads have the same cost of 
 operation. Since the costs of operation even in the same territory for com- 
 peting lines vary greatly, then to secure the uniformity of return for each road 
 as indicated in this proposal would require rates to differ for different roads. 
 
 A variance of rates in the same territory would be undesirable in that it would 
 cause personal and locality discriminations; the shippers on the more successful 
 line would get the advantage of a cheaper rate in the marketing of their 
 commodities. Though income uniformity for all roads is desirable to some extent 
 
 1 Senate Hearings, p. 1174. 
 
 2 Annal s of the American Academy of Politica l and Social Science . ITov. , 1919, 
 p. 1174. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 • * 
 
 
 
 
 
64 
 
 it is impossible; rates within the same territory must be the same and the more 
 
 efficient carrier must be permitted to receive a larger net return, 
 
 We find a further recommendation in the plan for a government guarantee of 
 
 a 4 /j dividend on all stock issued by the corporation with the provision that a 
 
 maximum dividend of 6}o shall be paid when earned, with the additional provision 
 
 that all in excess of 6 per cent, shall be distributed 40 per cent, to labor, 
 
 30 per cent, to the public for improvements and the retirement of outstanding 
 
 1 
 
 stock and 30 per cent to the stock holders. A provision guaranteeing a stock 
 dividend would have the good effect of attracting capital to the railroad 
 field, but might have the detrimental effect of cutting down private initiative, 
 Mr. Hines is of the opinion that "whenever you get to the point of prescribing 
 a standard of return which must be realized you have created a sort of a Govern- 
 ment guaranty. To my mind, the great problem is whether to have this guaranty 
 certain or uncertain. Cf course, the mors certain the guarantee, the less 
 initiative on the part of the management. Or. the other hand, while a less cer- 
 tain guarantee stimulates initiative, it also is less promising to capital and 
 tends to defeat the ultimate objective, which is the attraction of adequate 
 capital into the business. " 
 
 FINANCIAL REGULATION. 
 
 Tlie Amster Plan provides for the organization of one privately owned and 
 operated railroad company with full public control. The valuation at 'which 
 each railroad shall enter the consolidation shall be determined by a three-fold 
 method; averaging original cost less depreciation, replacement costless de- 
 preciation and net earnings over the last ten years capitalized at 5 per cent. 
 
 1 Waterman, Nation . Nov., 1919. 
 
 2 1". W. Cook, A Solution of the Railroad Problem in Sight . p. 14. 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 . . . 
 
 
65 
 
 The desirability of including the item of original cost is open to criticism; 
 if a railroad has hesn progressive and had advanced the value of the corporation 
 far beyond the original capital outlay the original cost should no longer be con- 
 sidered. On the other hand, if a promotion has not succeded it would, no doubt, 
 be fair enough to consider to a reasonable extent the original cost for the bene- 
 fit of the victimized investors. 
 
 FEDERAL INC0RP0RATI01T. 
 
 The proposed single corporation shall be formed by exchanging stock in the 
 new corporation for stock in the existing corporation on a basis as above de- 
 termined or by the valuation of the Interstate Commerce Commission. The National 
 Corporation should have a working capital of $500,000,000 and the power to buy 
 and sell directly railroad securities of all kinds, and also the right to con- 
 demn^ It is very doubtful, whether or not a capitalization so small would be 
 sufficient for an institution whose physical outlay is estimated to be -worth at 
 least $20,000,000,000. There was a provision for a board of directors to have 
 eleven members, including one director representing the Interstate Commerce 
 Commission, two commerce and industry, two the agricultural interests, three 
 the stockholders, and two representing labor. This plan represents the last 
 step before Government ownership. Mr. Minster felt that ’’the provision for com- 
 plete unification and for a managing and controlling board composed of representa- 
 tives democratically selected. . . .would protect the country against graft and 
 
 profiteering, manipulation and financial exploitation, in the conduct of the 
 2 
 
 transportation. ” 
 
 These harmonious features are very desirous but they have been well pro- 
 vided for in the government regulation of the last forty years; the more out- 
 
 1 Annal a of the American Ac ademv of Polit i cal and Social Scie nce . ITov. , ISIS, 
 pp. 130-131. 
 
 2 Ibid., p. 131. 
 

 
 
 
 
 
 
 ■ 
 
 
 
 
 
 
 
 
 
 
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 ■ 
 
 
 
 
 
 
 
 
 
 
 
 I 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 ' 
 
 
 
 
 
 
 
 
 
 
 
 ■ 
 
 
 
 
65 
 
 standing problem at the present time is the provision of an adequate service 
 rather than the elimination of discriminations. It is also to be feared that 
 a single operating company would be unv.ieldly and cumbrous; we should be able 
 to acquire all of the benefits and none of the detrimental features of such a 
 plan by a more constructive program of government regulation. 
 
 LABOR CONDITIONS. 
 
 The plan provides for voluntary committees of laborers and the coloration 
 to determine wage differences and working conditions, the decisions to be bind- 
 ing on neither party. In the event of a deadlock, differences were to be 
 settled by the Interstate Commerce Commission. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37 
 
 IX 
 
 THE PLAIT OF THE NATIONAL TRANSPORTATION CONFERENCE. 
 
 Ho discussion of plans presented to the Senate Committee would be complete 
 without the consideration of the proposals submitted by the National Transporta- 
 tion Conference held under the auspices of the United States Chamber of Commerce. 
 The Conference gave careful attention to all of the other plans that had been 
 presented with the thought in mind of including in its plan a summarization of 
 all desirable proposals. All of the groups interested in transportation prob- 
 lems were present at the meetings of the conference including employees, farmers, 
 economists, railway executives, bankers, security holders, and the directors- 
 general of the railroads during the period of the World War. After having 
 heard the ideas suggested by each of the groups mentioned, the Railway Committee 
 of the United States Chamber of Commerce presented its program for changes and 
 improvements in railroad legislation, the more important features of which are 
 enumerated and analyzed in the following paragraphs. 
 
 METHOD OF FEDERAL CONTROL. 
 
 The members of the Transportation Conference recognized that the Interstate 
 Commerce Commission had performed a task of great magnitude during the period of 
 their establishment. It accordingly recommended that the body be continued 
 with its present authority over rates and regulations, with the provision that 
 legislative enactment provide for a greater power of the Interstate Commerce 
 Commission over interstate traffic in the event that greater cooperation could 
 not be secured between the Interstate Commerce Commission and the variou.3 state 
 commissions. It was further recognized that the Commission needed the assistance 
 

 . 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68 
 
 of some local bodies in the immediate territory in which the changes were being 
 
 made, and accordingly recommended that some type of local agency be established, 
 
 1 
 
 indicating that possibly the aid of state commissions could be solicited. Of 
 more prominence in the hearings, was the recommendation for the establishment of 
 a Federal Transportation Board; it was believed that the Interstate Commerce 
 Commission ought not to be burdened with the addition of new tasks. Further- 
 more, the Federal Transportation Board was to be given a number of broad ad- 
 ministrative functions contemplated in the proposed plan for remedial legisla- 
 tion, which, if added to the present functions of the Commission, would serious- 
 ly interfere with the prompt action of that body. The Conference further held 
 that the Commission was originally organized for the purpose of regulating rates. 
 The Federal Transportation Board was to have five members appointed by the 
 President for the enforcement of the following specific duties: — 
 
 (a) To regulate security issues and capital expenditures. 
 
 (b) To settle wage controversies after deadlocks when conciliation boards were 
 unsuccessful . 
 
 (c) To supervise and determine the consolidation of roads. 
 
 (d) To promote problems having to do with a national system of railways, high- 
 ways and waterways. 
 
 (e) To inquire into the practices of railroad management and to propose measures 
 for preventing abuses therein. 
 
 (f) To appoint the directors that shall represent the government upon the 
 
 2 
 
 directorates of the proposed consolidated railroad companies. 
 
 A board of this type would concentrate an executive task of first magnitude 
 in the hands of the government, to be sure. Hie duties mentioned would give 
 
 1 Fat ional Tr an spor t at i on Conference . pp. 14-15. 
 
 2 national Transportat ion Conference f p. 16. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69 
 
 it the responsibility of developing an adequate and efficient national system of 
 transportation. 
 
 RATE MAKING POLICY. 
 
 The proposal provided for the initiation of rates by the carriers as had 
 been the program in the past, with the institution of a statutory rule which pro- 
 vided that those roads receiving an income of more than six per cent, per annum 
 upon a fair value of their property were to be required to put half of the ex- 
 cess into a company contingent fund until that fund should amount to six per 
 cent of the fair value of the company's property, while the other half of the 
 excess was to be turned over to a general railroad contingent fund to be ad- 
 ministered by trustees appointed by government authority, and to be used for the 
 benefit of all of the railroads of the country. VJhen any particular road had 
 brought it 3 contingent fund up to six per cent, of the fair value of its 
 property, the company was to increase its annual contribution to the general 
 contingent fund to two-thirds of its net income, the other one-third of the ex- 
 cess being retained by the company for distribution among the stockholders or 
 for ether lawful purposes. This additional feature was added in order to pro- 
 vide for keeping the income of any particular road within limits and at the 
 
 same time to provide incentive and interest to the managers of the prosperous 
 
 1 
 
 roads. 
 
 It must be further considered, however, whether there is sufficient pro- 
 vision for incentive. Hie purpose of the fund is to stabilize railroad credit 
 without making the government responsible for a fixed return to the individual 
 roads. Hie outstanding advantage of this method is that it protects the public 
 
 1 Nat i onal Tr an sro r t at i on C onference , p. 17. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 , 
 
 
 
 
 
 . 
 
 
 
 
70 
 
 from unreasonable rates. The regular method, of rate making makes it necessary 
 to maintain a rate high enough to permit the poorest road to meet its obligations 
 It is further proposed, also, that if the total general contingent fund eventually 
 amounts to more than $750,000,000 that the surplus shall go to the United States 
 Treasury or to be used for the construction of new facilities. It is very 
 apparent that the systemsof controlling income that are prominent in Europe are 
 prominent in this plan, especially the German method. 
 
 FINANCIAL REGULATION. 
 
 The plan in regard to the regulation of finance provides that there shall 
 be complete regulation of capital expenditures and security issues by the 
 Federal Transportation Foard. We can observe the words of the plan as ex- 
 pressed when presented to the Senate Committee : — 
 
 11 (a) It is necessary first tc determine the public necessity for the pro- 
 posed expenditure of capital. The Federal Board making this determination must 
 pass upon the wisdom or unwisdom of proposed construction of new lines or term- 
 inals or other facilities. The authority which exercises this power will in 
 reality determine the direction and scope of the future development of the 
 American railway Transportation system. 
 
 "(b) When capital expenditures have been authorized and a certain public 
 convenience has been issued authorizing the construction of a proposed line or 
 terminal, the Federal Board must decide what kinds and what .amounts of securities 
 may be issued and must fix the minimum prices at which the authorized securities 
 may be offered for sale. 
 
 "(c) As tile authorized expenditures are spent in construction work, 
 periodic reports from the railroad companies should be required by the Federal 
 Board showing what uses arc being made of the funds obtained from the sale of 
 

 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71 
 
 authorized, issues of securities. ’’ 
 
 A great benefit can be derived by an effective Government regulation of 
 security issues and expenditures. The public will be protected from the re- 
 occurrence of railroads ruined by in-proper financial manipulation, and shippers ' 
 and the general public will be aided by the elimination of the evils of ir- 
 responsible financing. 
 
 TYPE OF OWNERSHIP. 
 
 It was provided that there should be a grouping or consolidation of the 
 railroads of the United States within a reasonable time into twenty or thirty 
 systems in order that railroad rates might be the same for all roads, weak or 
 strong, without impairing their income. To be sure, it is to the interest of 
 the general public not to have railroad, rates sc high that the strong roads shall 
 reap a large profit, or 30 law as to make the weak roads absolutely dependent 
 and subject to bankruptcy. It was felt by the Conference that such consolida- 
 tion would make roads in all sections of the country of more nearly equal 
 strength. 
 
 FEDERAL IIJCORPORATIOH. 
 
 There was a strong feeling that there should be a change of allegiance of 
 the railroad corporations from, the states to the Federal government. Accord- 
 ingly) it was provided that as railroads consolidated, the sanction for such 
 consolidation was to be secured from the Federal government and from that time 
 on the Federal authorities were to have complete control over the systems. It 
 is a contentious point as to whether or not a railroad can be compelled to give 
 up a state charter, but the enactment of such legislation could provide for 
 
 1 national Transportation Conference , p . 53 . 
 

 
 
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 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 - 
 
 
 
 
 
72 
 
 voluntary consolidation such as is provided for in national Bank Act. However, 
 
 it was provided that states should retain the power of local taxation and police 
 
 1 
 
 regulation. 
 
 LABOB CONDITIONS. 
 
 Labor problems were taken care of by a provision in which adjustment of 
 
 wages, and ether conditions of the service were to be taken care of by boards 
 
 consisting of equal numbers of representatives of employees and officers of the 
 
 railroads with appeal in case of deadlock to the Federal Transportation Board. 
 
 It was further recommended that each large railroad be required to have within 
 
 its directorate at least one representative of labor to be nominated for that 
 
 position by the employees. This recommendation at first hand seems fair enough; 
 
 however, there is the tendency for a laborer out of his environment to forget the 
 
 group that he represents and take on a sympathetic attitude with those with whom 
 
 he is directly thrown in contact. Furthermore, it is very doubtful whether one 
 
 labor member in a large directorate would have any great opportunity to voice 
 
 2 
 
 his expression or to receive any sanction and support of his opinions." 
 
 1 National Tr ansn or t at ion Conf erence . pp. 12-1.3. 
 
 2 National Transuortatioh Conference . p. 13. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 * 
 
 * ‘ 
 
 
73 
 
 X 
 
 THE PLUMB PLAIT. 
 
 We now come to observe the last of the seven selected plans proposed for 
 railroad legislation, that suggested by hr. Glenn E. Plumb, general counsel for 
 the Railway Brotherhoods. It perhaps has received more attention and has been 
 subjected to more criticism than any of the plans that we have observed; possibly 
 more than all of the ether plans combined. Why has it received so much atten- 
 tion? Because it was presented by the labor forces whose every proposition is 
 closely watched, and because its recommendations were more than merely transitory. 
 The plan of the railroad, brotherhoods contemplated a permanent solution of the 
 railroad problem; stressed broad principles rather than ordinary details. 
 Furthermore , it was outstanding because it was the only important plan presented 
 that provided for the substitution of government ownership for private ownership. 
 The very conservative press would terra the plan as follows:— "For sheer dis- 
 regard of all interests save only one, the interest of the employees as the 
 employees conceive their interest, the plan of railroad operation now indorsed 
 by the four railway brotherhoods goes the full limit... As an economic conception 
 the Plumb plan is unsound and fraudulent ... In fact it is so little the right 
 kind of thing and so much. Bolshevistic that its promulgation i3 a positive blow 
 to the vast campaign toward real cooperation in management.."^ Mr. Joseph 
 Eastman, a member of the Interstate Commerce Commission shows much more 
 logically why labor makes the demands that it does when he reports: — "The 
 laborer has too often been regarded as a mere tool of production rather than as 
 
 1 Boston Transcript . February 7, 1S19. 
 
74 
 
 a human partner in the enterprise, and has lacked human interest in his work. 
 
 No douht, this situation, so far as it exists upon the railroads, may he im- 
 proved h y changes in methods, under private ownership; but it may more readily 
 he remedied under national operation. 
 
 " Moreover, with all of the railroads under a single governmental con- 
 
 trol, the policy of giving labor a voice and public interest in the conduct of 
 the business can more easily be adopted and carried into uniform and successful 
 practice. 
 
 "The very fact that the railroad employees themselves favor the nationaliza- 
 
 1 
 
 tion of the roads would simplify the task....' 1 2 
 
 •The plan, when it is reviewed closely as to its details, has only one re- 
 actionary feature in that it recommends government ownership. We cannot ex- 
 pect that the proposal would be other than favorable to labor, and it can further 
 be remarked that railroad labor is to some extent justified in demanding a 
 greater recognition than it has been accorded in the past. As we delve into 
 the proposals of the plan it shall be noted that government operation was 
 apparently not demanded or desired? 
 
 METHOD OF FEDERAL CONTROL. 
 
 The Plumb Plan recommended that the Interstate Commerce Commission be re- 
 tained with its present rate making powers. It was further provided that there 
 be established a Railway Board of Appraisement and Extension to be composed of 
 the nine members of the Interstate Commerce Commission and three members 
 selected by the lirectors of the Corporation. Their duty is to determine the 
 amount of compensation to be paid to the present owners of the roads and the 
 
 1 Anna! s of the American Ac ademy of Political and Social Science . p. 87. 
 
 2 Senate Hearings, p. 994. 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75 
 
 amount to be spent for new extensions and improvement. It would, of course, 
 be necessary to have such a board, or a similar one, to provide for the trans- 
 ition from private ownership to government ownership. 
 
 HATE MAKING POLICY. 
 
 Hie proposal provided that all rates were to be initiated by the national 
 Railway Operating Company, the plans for which shall be discussed hereafter. 
 
 All rates were to be regulated and approved by the Interstate Commerce Commiss- 
 ion and any deficit was to be paid by the United States government in case the 
 rates did not provide a sufficient income for any fiscal period. Any surplus 
 earnings existing after operating expenses and fixed charges were paid were to 
 be distributed one-half to the government and one-half to the employees. A 
 provision was made for what may be termed a socialization of rates by a process 
 of automatic rate reduction. Uhen the government’s share of earnings in a 
 given year exceeded five per cent, of the gross operating revenue, rates were to 
 be reduced by the Interstate Commerce Commission to absorb this excess resulting 
 in a five per cent, reduction in the general rate level. "This would act as 
 an automatic check on operating income in excess of the requirements of opera- 
 tion, and would develop a constant tendency to a reduction in the cost of 
 operation. 
 
 FINANCIAL REGULATION. 
 
 All railroad securities were to be issued by the United States government — ■ 
 it was contended that the government issues of securities would attract capital 
 to the railroad field because of the element of security; the speculative 
 feature would be eliminated because a return in the form of interest is guaran- 
 teed. 
 
 1 Senate Hearings, pp. 1001-1002. 
 

 
 
 
 
 
 
 
 
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 - 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75 
 
 Likewise all capital fund expenditures were to be made by the United States 
 government, as far as possible out of excess earnings; beyond that by a taxa- 
 tion of the community that benefited by the extension. It would be a process of 
 some difficulty to determine what individuals benefited directly or indirectly 
 from the construction of any particular new addition. If any particular local- 
 ity did not benefit from any new construction, then the entire amount was to be 
 provided for by the United States government, if the Interstate Commerce Com- 
 mission deemed that the proposed program was to the public interest. 
 
 We have the reoccurrence of an old objection in that too many duties would 
 be given to a single commission of the size of the present Interstate Commerce 
 Commission. 
 
 TYPE OF OWNERSHIP. 
 
 All roads were to be 6wnod by the United States government. The company 
 was to be operated by a corporation composed of the railroad employees, thus 
 providing for government ownership but private operation. In order to provide 
 more efficiency and "to prevent carelessness in regard to expenditures, which 
 frequently, almost habitually accompany government operation," a national Hail- 
 ways Operating Company was to be created to operate under a lease agreement the 
 roads which had been taken over by the government. It is apparent that private 
 operation was to accompany government operation from the content of this remark. 
 The capital stock of this corporation was to be held in trust for the benefit of 
 the employees; there was to be no paid-in capital. There was to be "an 
 operating corporation where operating ability would constitute its sole capital’.’^ 
 
 As a rental, the corporation was to pay the government any balance existing 
 after operation costs and maintenance funds had been provided for and an amount 
 
 1 Senate Hearings, p. 996. 
 

 
 
 
 
 
 
 
 
 9 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77 
 
 large enough set up to pay the fixed charges on bonded indebtedness and suffic- 
 ient to set up a sinking fund to retire obligations. Of the earnings, the 
 government 1 2 3 s share was to be used for the purpose of malting additions and better- 
 ments and for the accumulation of a sinking fund; the corporation’s share "con- 
 stituted a sinking fund to be declared as a dividend upon the amounts paid to 
 the labor which it employs, every employee from president to office boy, that 
 proportion of the trust fund which his annual wage bore to the total annual com- 
 pensation of all employees."^ 
 
 FEDERAL INCORPORATION. 
 
 Hie period of federal incorporation under the National Railways Operating 
 
 Company was to be for one hundred years. There was to be a Board of Directors 
 
 of fifteen members, five elected by the classified railroad employees, five 
 
 elected by the operating officials, and five by the President of the United 
 
 States. The duties and powers of this board were to be similar to those of 
 
 2 
 
 directorates under our system of private ownership. 
 
 LAiBOR CONDITIONS. / 
 
 Employee classification, conditions of employment, working rules, and wages 
 were to be determined by the Board of Directors. Disputes were to be settled by 
 a central board and a number of subsidiary boards consisting of five representa- 
 tives of the classified employees and five representatives of the operating 
 
 3 
 
 officials. Deadlocks were to be referred to the Board of Directors" 
 
 As was mentioned oarly in the chapter, the Plumb Plan has been subjected to 
 a large amount of criticism because it is so contrary to our present program. 
 
 1 Senate Hearings, p. 998. 
 
 2 Waterman, Nation . Nov., 1919. 
 
 3 Annal s of the American Academy of Political and Soc ia l Science . Nov. , 1919, 
 p. 96. 
 

 
 
 
 
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 '■ 1 1 
 
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73 
 
 Only a few of the opinions pro or con have been presented in this paper because 
 they are all more or less biased in their expression. We are all .more or less 
 familiar with the arguments for and against government ownership; whether or net 
 they are applicable to this particular plan is a matter of conjecture. Whether 
 we be for or against, it may be said for the Plumb Plan that it represents the 
 true philosophy of labor as it is presented, not alone in the United States, but 
 throughout the world, and every indication would lead us to believe that we are 
 nearing government ownership in every generation. To notice the words of the 
 originator of the plan: — 
 
 11 The coming order will treat capital, producers, and consumers alike. The 
 need of society when expressed in a franchise is just as essentially an invest- 
 ment in industry as is the investment made by the capital or the investment made 
 by labor. This is vital, living, human interest These who made this in- 
 
 vestment are entitled to a voice in the control of the industry to see that their 
 investment is properly protected and that no deceit shall be practised upon 
 these investors in any matter affecting their interest in the conduct of industry. 
 They invest the other vital element in industry, the power that creates. If 
 their position as an investor is recognized, then they, too, become imbued with 
 the motive which actuates all investors — to increase quantity and improve 
 quality, thereby reducing cost.” 1 
 
 Possibly the United States is still too individualistic to assume any plan 
 for government ownership; the trend of opinion and proposals which we have ob- 
 served indicates that, but the statement can be made with assurance that we 
 are tending toward that type of industrial advancement which accords to the 
 laborer a greater consideration for his interest and his investment. 
 
 1 ^lals of the African Academy of Politica l and Social Science Uov l^c 
 PP. 225-3. ' ’ “ 
 

 
 
 
 
 
 
 
 
 
 
 
 
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79 
 
 XI 
 
 CONCLUSION. 
 
 Tliere are a number of other proposals and plans for new legislation that 
 might have been presented, many of which had, no doubt, meritorious presenta- 
 tions, that would have been helpful to the solving of this far-reaching and 
 difficult railroad problem. From the great number presented, 3even have been 
 chosen because they wer e representative, from the most conservative to the most 
 reactionary; from the merely transitory to those that presented means of per- 
 manent solution; representing all groups who were directly interested in the 
 settlement of the railroad problem and the general public as well; from those 
 governmental bodies that have been experienced through long periods of trial in 
 railroad regulation, especially the Interstate Commerce Commission. 
 
 Among the important plans omitted it might be well to mention the sugges- 
 tions for transitory regulation laid down by Director s-General IIcAdoo and Hines, 
 both of whom favored a five-year period of trial of government operation during 
 a period of peace and normality. Bankers, among them Otto Kahn and Paul War- 
 burg, made recommendations especially emphasizing the needs for giving aid to 
 provide capital stability and rate increases sufficient to give the roads a work- 
 ing reserve. Farmers were interested to see that their problems were cared for. 
 Of these latter suggestions, none were taken u_ in complete programs usually; 
 rather only a partial statement of a few of the defects and general recommenda- 
 tions for settlement. Furthermore, nearly all of the ommitted proposals, ex- 
 cept possibly for their minor features, were taken care of or substantially 
 taken account of in acme one of the seven plans analyzed. 
 
 In conclusion, it will be seen that there is considerable unanimity of 
 

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30 
 
 opinion as to the most outstanding defects and the general methods of settle- 
 ment. All plans seem to indicate a favorable attitude toward federal incorpora- 
 tion except the Interstate Commerce Commission’s proposal. Consolidations seem 
 to be favored, many of the plans, however, emphasizing a continuation of com- 
 petition as a feature of our railroad system. It seems to be the concensus of 
 opinion that rates must be so made as to provide sufficiently for all the ex- 
 penses of operation and for the payment of fixed charges. A common means of 
 settlement is usually proposed for labor difficulties; the creation of voluntary 
 boards, with equal representations to settle controversies. It is urged also 
 that either the Interstate Commerce Commission shall have broader powers or that 
 a special transportation board shall be created to function over the broad 
 problems, indicating that our program in the past has been too much in favor of 
 the settlement of the immediate problem with too little care being given to the 
 broader relationship between economic progress in general and the railroad prob- 
 lem, between the operators and labor, and between the operators and the general 
 public. In other words, there is a demand for constructive legislation, rather 
 than an application of care to restrictive legislation along. 
 
 Hie Transportation Act of 1820 contains many of the provisions in total or 
 in part of the proposals presented, yet the passage of 1220 legislation is not 
 the concluding record of the plans presented. Hie ideas advocated have not yet 
 become a matter of history. The 1920 act is merely a step in the progress of 
 legislation, succeeding measures of which shall appropriate more of the logical 
 and approved features of the proposals which have been the subject of this thesis. 
 
 Hie promulgation of railroad regulation presents momentous problems and 
 difficulties which must be subjected to sincere thought and careful action. 
 
 Above all, it must be recognized that it is a great problem, the settlement of 
 
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21 
 
 which will have an immediate and an ultimate effect upon our whole national life. 
 Accordingly our progress must be definite and constructive, not too compromising, 
 yet not too severe; a program which will give a due and just consideration to 
 all parties concerned. 
 
BIBLIOGRAPHY 
 
 Books 
 
 Clark, E. E. Clark on Interstate Commerce . (1219) . 
 
 Hadley, A. T. Railroad Transpo rtat ion . (1885). 
 
 Johnson, E. W. and Van Metre, T. W. Principles of Railroad Tr ansr or t at i on . 
 
 (1921) . 
 
 National Tran sporta tion Conference . (1912). 
 
 Sharfman, I. L. The American Railr oad Problem . (1921). 
 
 Peri odicals 
 
 American Econom ic Review , v 9:392-8. v 10: Sup. 3-20, 185-212. 
 
 Ann al s of the American Academy of Political and Social Science . November, 1919. 
 
 v 85: 1-248. 
 
 Commercial and Financial Chronicle , v 107: 2210, 2243-9, 2250-51, 2312, 2337-8, 
 
 v 108: 1030-31, 733-4, 438. 
 
 Forbes Magazine , v 3: 525. 
 
 Independent . v 99: 343-4, v 100: 229-30. 
 
 Literary Digest . v 62: 9-11. 
 
 Nation , v 109: 351, 2145. 
 
 New R epublic , v 20: 220-1, 332-40, 228-9. 
 
 Outlook , v 124: 363-4, v 121: 52-3. 
 
 Railway Age, v 56: 235-5, 483-6, 479-80, 578, 465-5. 
 
 Railway Carmen’ s Journal . v 24: 941-962. 
 
 Railway Review , v 58: 532, 500. 
 
 Review of Reviews r v 60: 595-6. 
 
 Traffic Yorld . v 22: 1237, v 23: 482-3, 404, 501-4, 482-3. 
 
 Unpopular Review , v 9: 49-57. 
 

 
Pamphlets . 
 
 Cook, W. V, r . A Solut ion of 
 
 1919. 
 
 Lovett, R. S. Comments on 
 
 the R ailroad Pi* oh lor, in Sight , pp. 1-30. 
 the Railroa d Problem , pp. 3-76. Hew York, 
 
 How York, 
 July , 1919. 
 
 Documents . 
 
 Hines, 1 V . D. Extens ion of Tenur e of Governme nt .-an -l Contro l of Railroads . pp. 
 
 3-134, Interstate Commerce Committee of the United States 
 Senate. Government Printing Office, 1919. 
 
 Senate Hearings . 65th Congress, v 1: 231-1174. (Before the Committee on Inter- 
 state Commerce). 
 
 Todd, A. II. , Statement of. Public Ownership of Roads , pp. 3-44. Government 
 
 Printing Office, 1919.