ARE OUR RAILROADS 
 
 TREATED FAIRLY? 
 
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 An Address by 
 
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 FREDERIC A. DELANO 
 
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 Before 
 
 THE ECONOMIC CLUB OF NEW YORK 
 
 April 29, 1913 
 
“ARE OUR RAILROADS TREATED FAIRLY?” 
 
 By Frederic A. Delano. 
 
 “Are Our Railroads Treated Fairly?” Although that question 
 is the subject of our debate, it is not my intention to attempt to an¬ 
 swer it. I shall make an effort to tell briefly the history of the situa¬ 
 tion and describe the present conditions, and let you decide for your¬ 
 selves, from the facts. 
 
 The first steam railroads were built scarcely more than 80 years 
 ago. As you all know, in no country of the world has their growth 
 been so rapid as here, and nowhere else has so much been accom¬ 
 plished by private enterprise. During the first 60 of these 80 years 
 every possible encouragement was given to the promoter and investor 
 to build into new territory or to duplicate existing lines. The evils 
 which flowed from excessive railroad building and over-speculation in 
 railroad construction cannot be laid wholly at the door of the railroad 
 men of the time, but must be shared equally by the general public, 
 for everything was done to encourage the lust of conquest. Full and 
 complete dependence was placed upon the competitive theory. And 
 yet, through all this period, in spite of all the glowing prospectuses 
 of the promoters of the day, it was recognized that investments in 
 Railway securities were hazardous.* Forty and fifty years ago the in¬ 
 terest rates on railway bonds were 7 to 10 per cent, and this, with 
 ^discounts and stock bonuses given, brought the net interest burden 
 Q upon the railroads to fully 10 per cent. Usually neither the states 
 nor the communities gave any guarantees whatever. On the other 
 Tiand, there was no intimation that profits would be limited to what 
 the courts now call “a fair rate of interest on the investment.” The 
 
 *An important consideration is that investment in a railway is different 
 ^Ifrom investment in any other enterprise in that it can never be abandoned, 
 however unprofitable it may turn out to be. Thus, a new line or an extension 
 of an existing line may prove to have been unwisely conceived, and unneces¬ 
 sary; it may be excessively costly to operate; but, notwithstanding this, 
 federal and State authorities declare that it cannot be abandoned. 
 
 — The railway I am connected with has a short branch to a town on the 
 main line of two railways and served by four in all, yet the authorities forbade 
 our abandoning this unprofitable branch and compelled us to rebuild a bridge 
 on this line, the cost of which will not be repaid in several years of operation. 
 
4 
 
 reasonable expectation of the investor was that, while some of these 
 investments might prove disastrous, they might prove very profitable. 
 
 Towards the end of this first 60-year period, the evils of the 
 competitive system began to make themselves felt, and public opin¬ 
 ion demanded remedial legislation. Briefly stated, those evils were 
 excessive discrimination between communities and even between indi¬ 
 viduals. The first important legislative effort at a remedy was the 
 passage of the Interstate Commerce law, 25 years ago. Since that 
 time, especially within the last 20-year period, there has been a con¬ 
 stantly growing public sentiment of hostility towards the railways. 
 I shall make no attempt to justify the acts of the railways during 
 these first decades of development, although I think much might be 
 said on that score. Any student of the question can readily see that 
 the conditions were the natural result of the method. Communities 
 everywhere did all they could to make the railroads compete with 
 each other, in order to secure by this very competition dis¬ 
 crimination in their own favor; large industries in their own sphere 
 did the same thing, and the reaction finally came when there were not 
 enough favors left to go around. Communities and individuals who 
 received less than they thought they ought to, began to raise objec¬ 
 tions to the system which they had themselves helped to create. 
 
 Briefly, then, the history of the railroads has been: 
 
 First. Sixty years of rapid extension and competitive building, 
 leading to intense strife for traffic, encouraged in every possible way 
 by the communities. 
 
 Second. Growing dissatisfaction with the railroads during the 
 latter part of this period. 
 
 Third. An entire change of policy in the last 20-year period, 
 compelling a readjustment by the railways. 
 
 This latter phase is the one in which we are particularly inter¬ 
 ested to-day. It is not necessary to tell a body of business men or 
 economists that readjustment is the most difficult problem which 
 business has to encounter. We have a good example of that in the 
 tariff question. Many of us favor a decided reduction of the tariff, 
 but even the most ardent believer in a tariff for revenue rather than 
 a tariff for protection can see the immense difficulties of readjustment 
 when it is remembered that wages and all the methods of manufacture 
 have been predicated on one set of conditions and must be rudely or 
 quickly readjusted to another. In this period of readjustment the 
 railroads have also been confronted by the swelling tide of dissatis¬ 
 faction which has shown itself chiefly in an unfriendly, if not hostile, 
 public opinion. It may be said that in the 60 years of our growth 
 we “sowed the wind” and are now “reaping the whirlwind,” but in 
 

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 any fair review of the facts I think it will have to be acknowledged 
 that the whole community shared in bringing about this result. 
 
 I do not wish to appear before you as a special pleader. Railroad 
 men do not claim, and I do not claim, that we are better than other 
 men—that we are more free from blame or responsibility. But, con¬ 
 sidering the problem broadly and fairly, it has always seemed to me 
 that railroad men would average up with any equal number of bank¬ 
 ers, manufacturers or merchants. Any other conclusion must be 
 based on the theory that the vocation does not attract the best type 
 of our civilization, or that there is something in the calling which 
 tends to a faulty development, neither of which conclusions seems to 
 me to be well founded. On the contrary, it seems to me that the great 
 variety in a railroad man’s work makes a distinct appeal to men, and 
 by the same to.ken the work should broaden character rather than 
 narrow it. And this is true, even though we see a tendency in rail¬ 
 way organization, as in all other pursuits, towards the development of 
 specialists rather than “all-around” men. 
 
 The greatest difficulty the railways have to-day arises from the 
 fact that the policy of the country as a whole is inconsistent and un¬ 
 settled, for, while the federal and state governments have emphat¬ 
 ically adopted the theory of the regulation of rates, public opinion 
 and the law still retain the theory of the competitive system. In other 
 words, the community as a whole seems unwilling to trust the regu¬ 
 lation theory or else wants to get all the advantage of both theories. 
 When the railroads, some three or four years ago, appealed to the In¬ 
 terstate Commerce Commission for an advance in rates, they were 
 attacked by commercial organizations in most of the large cities, on 
 the ground that they were conspiring together to advance rates in 
 violation of the Sherman Anti-Trust Law. The Commission denied 
 the advance in toto on the ground that some of the more prosperous 
 railroads were already making a good return on their investments. A 
 feature of the argument during the hearing was that of the counsel 
 for one of the protesting communities, maintaining that an advance 
 in rates was unnecessary because enormous economies were possible 
 by the adoption of efficiency methods; and while railroad men of the 
 country were fully aware that there was much truth in this sugges¬ 
 tion, they were powerless to effect many of the most obvious econom¬ 
 ies because they could only be brought about by co-operation between 
 the railroads, and effective agreements in respect to time schedules, 
 methods of operation, and the like, for such co-operation and agree¬ 
 ments, although reasonable, probably would be held by the courts to 
 be contrary to the Sherman anti-trust law. Railway men were aware 
 also that they could make additional economies by the more general 
 
6 
 
 introduction of piece work, bonus or other methods to increase the 
 efficiency of labor, but they were more keenly aware than the general 
 public that such changes would be met with opposition and probably 
 strikes by organized labor; and, as has been frequently pointed out by 
 others, while the law imposes on railway managements the duty of 
 maintaining continuous transportation service, it does not afford to 
 the railways adequate protection against unreasonable strikes which 
 would interrupt the service. 
 
 The plea of the railroad man to-day is that either he be let alone 
 to work out his own salvation under the competitive system, or that 
 the country shall acknowledge that the competitive system is so ob¬ 
 jectionable in some of its results that we must rely solely on federal 
 and state authorities to pass upon or fix rates. Someone will say 
 this is a plea for “pooling,” and the evils of the old “pool” days will be 
 recalled; but that is not the contention. The claim is that if we must 
 submit to the regulation of rates, then we should be free to make bind¬ 
 ing agreements between ourselves in respect to rates, time schedules, 
 terminal allowances and multitudinous matters in connection with 
 our public duties, subject always to full and complete publicity and 
 the approval of the state and national authorities.* 
 
 The hostile public opinion to which I have already referred has 
 borne down upon the railroads in numerous exactions of law, some¬ 
 times veiled under the guise of the necessities of public safety, but 
 more often nothing more nor less than in the spirit of retaliation 
 against the railroads. Unfortunately, too, during the latter portion 
 of the period of which I am speaking, much of this legislation has been 
 fathered by labor organizations among our own employes who, in¬ 
 stead of being loyal to their employers, are actually “lobbying” against 
 us. I am not saying this in unfriendliness to labor men, but be¬ 
 cause I feel that I must in this discussion talk plainly and not mince 
 matters. 
 
 I shall attempt a brief review of some of this legislation that you 
 may have the matter clearly before you: 
 
 1. Legislation for the Two-Cent Fare Law. This swept over 
 the country, especially in the middle West, some six or eight years 
 ago. The theory of the legislation was that the giving of free trans¬ 
 portation by railroads had been altogether too general, and that the 
 
 *When railway men complain of rates, it is commonly said that it is 
 folly of them to complain, because they established the very basis of rates 
 complained of. That is true. The competitive system which brought many 
 railway corporations to bankruptcy and created many unjust discriminations 
 did slaughter rates to a minimum. Now, by the operation of law, these rates 
 have been made unadjustable, except downwards. They have been frozen. 
 
7 
 
 granting of a two-cent fare on mileage books helped the traveling 
 man who was paid by wealthy corporations, whereas the poor' man 
 and the farmer had to pay full local rates. The net effect of this legis¬ 
 lation has been a severe impairment of railway passenger earnings, 
 and yet communities cannot see that with two cents as a maximum 
 the railroads are not as free as formerly to give reductions in rates for 
 special occasions, such as county fairs, excursions to cities, etc. 
 
 2. Postal Legislation. Great reductions in the compensation by 
 the government to the railroads for carrying the mails have been 
 made, until this service on many railways is done at an actual loss and 
 at the expense of other business. One of the most glaring injustices 
 under the postal law and the executive orders of the Postmaster- 
 General and his assistants arises from the fact that the railroads carry 
 the mails for four years on the basis of weight at the beginning of this 
 four-year period, and as an example of what injustice can be done 
 under the guise of governmental regulation, I might refer to what 
 actually happened in the central West last summer. About three 
 months prior to the quadrennial mail-weighing, the Postmaster-Gen¬ 
 eral diverted a large part of the magazine mail to be carried by freight, 
 so that when the weighing was accomplished the railroads received no 
 increment on account of the weight of magazines, although the busi¬ 
 ness had been built up largely in the preceding three and one-half 
 years. Three months later the government parcels post made a large 
 addition to the weight of mails carried, but still no allowance has been 
 given to the railroads for this. Thus, at the present moment, while 
 the government is gaining favor in the public eye by the carriage of 
 parcels post matter, the chief work in connection with that carriage—• 
 the work of transportation—is being done free of any expense to the 
 government; that is, it is being done on the basis of weights taken be¬ 
 fore the parcels post was inaugurated. 
 
 3. The Hours of Service and Safety Appliance Laws, although 
 adding to the burdens borne by the railways, were so obviously regu¬ 
 lations intended to promote safety and better working conditions that 
 1 mention them not in complaint, but only as a matter of record. 
 
 4. The Boiler-Inspection Law. The ostensible object of this law 
 was to promote the safety of engineers and firemen, but its effect has 
 been very much more far-reaching. It is so drastic that to comply 
 with its provisions is practically impossible. It would require every 
 locomotive in the country to be in practically perfect condition, and 
 in practice is operative solely at the discretion of a large number of 
 minor government officials. During the winter of 1912 an important 
 trunk line in this country was almost put out of business by reason 
 of an inspector coming down upon it and condemning every locomo- 
 
8 
 
 tive in the round house. The fact that the inspectors ordinarily use 
 discretion and common sense in administering the law, that they do 
 not always enforce its provisions to the letter, is the only reason that 
 it is operative at all; but that is poor satisfaction to the railroad 
 official. 
 
 5. Electric Headlight Laws. In a number of states electric head¬ 
 light laws have been enacted, ostensibly for the protection of the 
 locomotive engineer and the traveling public, but there is reason to 
 believe that it is really for the promotion and benefit of an electric 
 headlight corporation, in the official ranks of which members of the 
 Brotherhood of Locomotive Engineers are prominent. A responsible 
 organization and one justly proud of its long reputation for honorable 
 dealing and conservatism cannot safely lend itself to this sort of 
 chicanery. These state laws in many cases do not simply require a 
 headlight of adequate candle power, but by specifying an electric 
 light or one of very high candle power, they exclude equally 
 effective acetylene headlights, although it is a notorious fact that 
 these have proved simple and satisfactory in service on automobiles 
 all over the country. 
 
 6. The So-Called “Full-Crew” Laws. I need hardly tell a New 
 York audience about these laws. They are among the most unjust 
 exactions which railroads have ever had to face. Several years ago the 
 federal government required the railroads to equip all their freight 
 cars, as well as passenger cars and locomotives, with air brakes, and 
 stipulated that the speed of trains should be entirely controlled by the 
 locomotive engineer. Now comes an organization of trainmen, 
 boasting a membership of two hundred thousand, and by reason 
 of an offensive and defensive alliance with the other railroad organiza¬ 
 tions, having the tacit support of all, and by means of its lobbies and 
 pre-election pledges, is trying to compel the railways to employ un¬ 
 necessary men. So far from being in the interest of public safety such 
 legislation is the reverse, for the reason that traveling on a freight 
 train is obviously hazardous, and placing an additional man 
 where he can do no good and is only risking his own neck, 
 puts an additional risk and burden upon the railroad, over and above 
 the wages paid. Besides, by increasing operating expenses, it tends to 
 reduce net earnings, and whatever reduces net earnings impairs the 
 power of the railways to raise capital that should be invested in addi¬ 
 tional tracks, block signals and other improvements that do tend to 
 increase safety. The object of this trainmen’s organization in this in¬ 
 stance is purely selfish. Its members realize as well as every em¬ 
 ployer or economist that wages are controlled in the long run by de¬ 
 mand and supply; that by compelling the railroads to employ this ad- 
 
9 
 
 ditional brakeman on every train, they will increase the demand and 
 help to exhaust the supply; thus influence wages. 
 
 After such an array of remedial (sic) legislation, and this is only 
 a partial list, no wonder that President Hadley of Yale, one of the 
 wisest contributors to the sum of human knowledge upon this sub¬ 
 ject, was moved to exclaim in an address at New Haven last January: 
 
 “I am afraid that neither the public nor the government is awake 
 to the real state of things. In our endeavors to control corporations, 
 we too often try to lessen their efficiency instead of increasing it.” 
 
 The results of these changes in policy and the enforced readjust¬ 
 ments are beginning to be apparent. They should have your consider¬ 
 ation, for they are of immense importance. 
 
 First of all, it is very clear that the period of railroad building and 
 extensions is over. A great deal of capital is needed and will be used 
 in completing and improving existing railroads and in adding to their 
 equipment and facilities; but the period of building extensions into new 
 territory is over, because there is no encouragement to the investor. 
 There is a vast territory west of the Mississippi and Missouri rivers 
 which needs development, but however this may be, it can be put 
 down as a safe prognostication that if the present policy of regula¬ 
 tion continues, this territory must rely for development solely on 
 the extension of branches and feeders from existing railways, and 
 they will make additions to their mileage only in proportion to the 
 encouragement afforded by the earnings of existing lines. 
 
 Second, the railroads’ cost of living has gone up enormously in 
 the last twenty years. Staple necessities, such as fuel and ties, have 
 increased very largely in cost, and at the same time the standards of 
 service which the public demands have greatly risen. In order to 
 increase their efficiency, railroads have been compelled to use larger 
 locomotives, increase their tons per train; this in turn has created a 
 demand for larger and stronger cars, heavier rail, better roadbed, and 
 so on. 
 
 Another important point is that in recent years the general rate 
 of interest has risen. It has risen against the railways as well as 
 against other borrowers, and, therefore, to raise adequate capital the 
 railways must pay, and must, therefore, earn, a larger return on capi¬ 
 tal than formerly was necessary. Railways which a few years ago 
 could sell 3 y 2 per cent bonds at par cannot now sell A]/ 2 per cent bonds 
 at par. The net earnings of the railways have not increased in pro¬ 
 portion to the increase in the amount that they must pay to get new 
 capital or to refund old securities. 
 
 Third. Every new public demand of the federal or state gov¬ 
 ernment or the municipality puts a burden which is especially heavy 
 
10 
 
 to bear on the railway company with small resources. It is perfectly 
 clear to railroad men that the day of the small railroad has absolutely 
 gone. A railroad of less than 500 miles which is not an adjunct to an 
 important mining or manufacturing concern has little show for ex¬ 
 istence. Although public opinion more or less resents the great rail¬ 
 road corporation and the excessive centralization of authority incident 
 to these large corporations, yet it is perfectly clear that the many ex¬ 
 actions of law to which I have briefly referred have had much to do 
 with bringing them into being. In the battle for existence only the 
 strongest have been able to survive. 
 
 Fourth. It has been sometimes pointed out that poverty and 
 wealth are largely comparative terms; and certainly this applies to 
 railway corporations just as much as to individuals. The plea of the 
 relatively poor corporation for an advance in rates is unheeded. Our 
 Commissions think only of the profits which our richest corpora¬ 
 tions will make by reason of a possible advance. The fact that the 
 richest corporations represent relatively small proportion of the total 
 mileage; that they are rich by reason of fortunate chance or extra¬ 
 ordinary foresight; that many of them are corporations which went 
 through a long struggle in their early history and only after bank¬ 
 ruptcy were put upon a paying basis, is forgotten. The very com¬ 
 plexity of all these questions points clearly to the principle that the 
 public should more and more depend on expert knowledge in the regu¬ 
 lation of the railways, and not attempt this regulation by annual 
 legislative enactments. 
 
 Fifth. The greatest hope of the railways and the public in the 
 future lies in intelligent regulation. Railway officers whom I meet 
 and talk with do not in the least fear the results of regulation by 
 Commissions free from political pressure, with a fair knowledge of the 
 facts. Our experience is that these Commissions, as they come to 
 know the problem better, are more and more willing to understand 
 the railroad man’s point of view, and, as we think, deal fairly with us. 
 One of the great troubles is that while the public and the legislatures 
 have created these commissions on the theory that they will be most 
 competent to solve the problems of public regulation, the public and 
 legislatures will not refrain from interfering with the work of the 
 commissions. In many states the legislatures or the people by refer- 
 endums have adopted laws to reduce rates or impose unreasonable re¬ 
 strictions or burdens on the railways when the legislation was openly 
 opposed as unreasonable, unjust and harmful by the commissions. 
 The public shows too much of a disposition to disregard injunctions 
 of experts to be fair and moderate, even when they proceed from its 
 own experts, and to trust and follow only those public men who advo- 
 
11 
 
 cate radical and even violent measures. We are not blind to the dan¬ 
 ger which lies in the public clamor for better service and more exact¬ 
 ing requirements. It sometimes seems as if every man’s hand were 
 against us, and as if few men in public life could be found to posesss 
 the requisite courage to withstand the pressure; but my opinion is 
 that while the public is slow in making up its mind, it finally comes to 
 a right conclusion and the reaction is all the more effective when it 
 does come. The time is sure to arrive when the public will see that 
 if there isn’t a fair profit in railway operation the development is 
 bound to cease, because capital will seek other and more gainful 
 % occupations. 
 
 In Conclusion. 
 
 Some wag has said that an optimist is a man who will take the 
 V lemons that are handed to him and make lemonade of them; and cer¬ 
 tainly every railroad man is an optimist. He cannot afford to be any¬ 
 thing else. He could not survive if he were anything else. I should, 
 therefore, admit that I was not true to the type if I did not sincerely 
 believe that these problems would all be worked out satisfactorily as 
 time goes on. It is for the railroad man to state his case frankly 
 and squarely, and it is for you gentlemen and for the community at 
 large to decide whether the railways have been fairly dealt with or 
 not. Just as medical science has discovered that it is the tendency for 
 every malady to create its own destructive agent, so it appears to me 
 the history of the world shows that the same is true of every eco¬ 
 nomic disease. We have gone far from the doctrine of laissez faire, 
 but it is clear to every thinking man that there was a fundamental 
 truth in that philosophy. We live in an impatient era; every evil is 
 described in exaggerated terms, and while part of the community be¬ 
 come, through this very exaggeration, callous to real troubles, the 
 better and more sensitive portion is impatient that the progress is not 
 more rapid. 
 
 Just so soon as the public become convinced that the railways are 
 not fairly treated, that their treatment is reacting upon them in the 
 shape of diminished ability to furnish adequate facilities, safety ap¬ 
 pliances, and the like, just so soon there will be a check on unreason¬ 
 able exactions and unfair restrictions. Government ownership of raib 
 roads is a bugaboo which, though often referred to, the public does 
 not demand. If government ownership of railways comes, it will come 
 because the owners of railways prefer it to government regulation, 
 and it will be a sorry day for the republic when regulation is car¬ 
 ried to such an extreme that the owners of the railways are unwilling 
 to accept any longer the responsibilities of management.